Pittsburgh and Lake Erie Railroad Co. v. United States

• Court: U.S. District Court — Eastern District of Pennsylvania
• Writing for the Court: STALEY, Circuit , and WILLSON and DUMBAULD
• Citation: Pittsburgh and Lake Erie Railroad Co. v. United States, 294 F.Supp. 86 (E.D. Pa. 1968)
• Decision Date: 25 November 1968
• Docket Number: Civ. A. No. 68-361.
• Parties: The PITTSBURGH AND LAKE ERIE RAILROAD COMPANY and Pennsylvania New York Central Transportation Company, Plaintiffs, v. UNITED STATES of America and Interstate Commerce Commission, Defendants.

294 F. Supp. 86

The PITTSBURGH AND LAKE ERIE RAILROAD COMPANY and Pennsylvania New York Central Transportation Company, Plaintiffs, v. UNITED STATES of America and Interstate Commerce Commission, Defendants.

Civ. A. No. 68-361.

United States District Court W. D. Pennsylvania.

November 25, 1968.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Robert W. Ginnane, Gen. Counsel, Fritz R. Kahn, Deputy Gen. Counsel, Interstate Commerce Commission Washington, D.C., for Interstate Commerce Comm.

Gustave Diamond, U. S. Atty., Pittsburgh, Pa., for the United States.

Gordon E. Neuenschwander, Pittsburgh, Pa., for Pittsburgh & Lake Erie R. Co.

Robert D. Brooks, Thompson W. Ryan, New York City, for Penn Central.

E. V. Buckley, Pittsburgh, Pa., for Western Maryland, C. & O., B. & O. and Maryland Port Authority.

Norman C. Melvin, Gen. Counsel, Western Maryland Railway Co., Baltimore, Md., for Western Maryland.

William L. Marbury, Baltimore, Md., for Maryland Port Authority.

Edward K. Wheeler, Washington, D. C., for C. & O. and B. & O.

John Guandolo, MacDonald & McInerney, Washington, D.C., for City of Hagerstown.

Harry Lentchner, Pittsburgh, Pa., for Minority Directors of Reading Co.

Before STALEY, Circuit Judge, and WILLSON and DUMBAULD, District Judges.

OPINION

DUMBAULD, District Judge.

This action was instituted by the Pittsburgh and Lake Erie Railroad Company ("P. & L. E.") and Pennsylvania New York Central ("Penn Central") to set aside a report dated February 21, 1967, and an order issued pursuant thereto dated February 23, 1968, by the Interstate Commerce Commission authorizing the Chesapeake & Ohio Railway Company ("C. & O.") and the Baltimore & Ohio Railroad Company ("B. & O.") to acquire control of Western Maryland Railroad Company ("W. M.") through ownership of capital stock. The City of Hagerstown intervened as a party-plaintiff, and C. & O., B. & O., W. M., and the Maryland Port Authority have intervened as parties-defendant. A motion for issuance of a temporary restraining order pending final hearing and determination of the action was denied by order of Judge Willson on March 26, 1968, and on March 29, 1968, C. & O.-B. & O. acquired control of Western Maryland.

Proceedings before the Commission

C. & O.-B. & O. gained control of Western Maryland in the following manner. In 1927, B. & O. acquired about 43.9% of W. M.'s stock. Soon thereafter, the Commission brought a Clayton Act proceeding against B. & O., and ordered divestiture because it found that the effect of acquisition might be to substantially lessen competition. Interstate Commerce Commission v. Baltimore & O. R. Co., 160 I.C.C. 785 (1930). B. & O. forestalled divestiture by obtaining the Commission's acceptance of a proposal that the stock be trusteed with The Chase National Bank of the City of New York, now The Chase Manhattan Bank. Under the trust agreement, the trustee was required to exercise his best judgment in selecting suitable directors and in voting and acting upon other matters. The Commission also required that during the continuance of the agreement the stock should be voted so as to preserve the entire independence of directors and management between the B. & O. and Western Maryland, and to prevent the election of common officers or directors by the companies without the Commission's consent. The Commission also specified that the trust could not be dissolved except by its order or that of a court of competent jurisdiction.

Following the establishment of the trust, C. & O. (which now controls B. & O.) acquired some 20.83% of Western Maryland stock. On June 24, 1964, C. & O. and B. & O. filed a joint application with the Commission seeking authority under Section 5(2) of the Interstate Commerce Act 49 U.S.C. § 5 (2) to acquire control of Western Maryland through dissolution of the stock voting trust. (Such dissolution would effectively give C. & O.-B. & O. joint voting control of 64.73% of Western Maryland's outstanding stock.) Permission to dissolve the trust was given by the Commission, and this action followed.

The crux of P. & L. E.'s complaint is that although it requested specific traffic conditions to be imposed in the event that the Commission granted the C. & O.-B. & O. application to assume direct control of Western Maryland, the traffic conditions which were actually imposed were not protective enough to prevent diversion of traffic from the Pittsburgh Dispatch Route to the B. & O. Route. These two routes largely parallel each other between Baltimore, Maryland, and Youngstown, Ohio. The difference between them is that the B. & O. route (known as Central States Dispatch Route) is a direct single-line service which can carry traffic the entire distance without turning it over to any other road; whereas, the Pittsburgh Dispatch Route is a joint route over P. & L. E. and Western Maryland, extending between Youngstown and Baltimore, with interchange at Connellsville, Pennsylvania. Traffic moving on Pittsburgh Dispatch Route is turned over by one road to the other at Connellsville, Pennsylvania.

P. & L. E. professes to fear that since C. & O.-B. & O. now controls Western Maryland, C. & O.-B. & O. will divert traffic from the Pittsburgh Dispatch Route to its single line B. & O. route, and thereby severely diminish the amount of traffic that will be interchanged at Connellsville with the P. & L. E. This contention flies in the face of several provisions laid down by the Commission to prevent just such a practice. The Commission obligated the acquiring companies and Western Maryland to maintain and keep open all existing routes and channels of trade, to observe complete neutrality in handling traffic, and to continue present traffic and operating relationships with all connecting rail lines. By order of the Commission, C. & O., B. & O., and Western Maryland are further obligated to maintain schedules and rates as favorable as those over competitive routes in which they are presently participating. 328 I. C.C. at 706, 760.

The Commission required of C. & O., B. & O., and W. M., as a condition to the acquisition of control, that they continue the Pittsburgh Dispatch as a fast, competitive route, to maintain "at least the same standards of service as prevail" presently, and to continue to publish or participate in rates over the Pittsburgh Dispatch Route competitive with those applicable via other routes. The roads were also forbidden, without Commission approval, to slow down transit time over the route or to impede the route in any manner. 328 I.C.C. at 757, 759.¹

Western Maryland was required by the Commission "to keep in existence a separate and independent solicitation force which shall be obliged actively to solicit traffic over all routes and channels of trade." And to see that its strictures were obeyed, the Commission retained jurisdiction over the parties and the transaction and gave all persons having interest in the subject matter the right to make application for such modifications of the order as the public interest may require. 328 I.C.C. at 706, 761.

The City of Hagerstown opposed the acquisition, but the Maryland Port Authority, designated by Governor J. Millard Tawes to represent the general interests of the State of Maryland (Tr. 165, 177) in pursuance of the provisions of 49 U.S.C. § 5(2) (b), supports the Commission's order.

Contentions of the Parties

Having in mind the classical criteria limiting the scope of judicial review of Commission orders I. C. C. v. U. P. R. R. Co., 222 U.S. 541, 547, 32 S.Ct. 108, 56 L.Ed. 308 (1912); Rochester Tel. Corp. v. United States, 307 U.S. 125, 138-140, 59 S.Ct. 754, 83 L.Ed. 1147 (1939); Penn-Central Merger, 389 U.S. 486, 499, 88 S.Ct. 602, 19 L.Ed.2d 723 (1968) in substance to determination whether there is error of law or lack of substantial evidence, the most superficially plausible contention here advanced against the Commission's order (by the City of Hagerstown) is the argument that the Appalachian Act (40 U.S.C. App. A § 2 et seq.) and other legislation for the benefit of distressed areas, being later in date than the pertinent parts of the Interstate Commerce Act, have amended the criteria of public interest contained in Section 5(2) (b) of that Act.

However, the attractiveness of this argument is dispelled by examination of the actual text of the subsequent legislation relied on. It becomes clear that such legislation gives effect to the policies it proclaims by means of the specific programs therein established, and not otherwise. The criteria for carrier mergers under Section 5(2) (b) remain unchanged. The most that can be said is that the economic welfare of distressed areas, like the antitrust laws, is merely one aspect or facet of the considerations to be taken into account by the Commission in evaluating the public interest.

Moreover, this argument was even more vigorously urged by the City of Scranton in the Penn-Central merger than by Hagerstown in the case at bar, but neither the opinion of Mr. Justice Clark for the Court nor the concurring opinions of Brennan and Douglas, JJ., nor the dissenting opinion of Fortas, J., considered the point as being worthy of comment. B. & O. R.R. Co. v. United States, 386 U.S. 372, 87 S.Ct. 1100, 18 L.Ed.2d 159 (1967).

The Commission properly concluded (328 I.C.C. at 709-10) that no new statutory criteria have replaced the familiar provisions of Section 5.

The applicable standards governing mergers are aptly summarized in the Commission's report (328 I.C.C. at 686-88). Besides the formula of "public interest" embodied in Section 5(2) (b), which includes the Congressionally-declared "national transportation policy" and the antitrust laws, the Commission must consider also certain specific considerations set forth in Sections 5(2) (c) and 5(2) (e).² No contention has been made in the case at bar that these last-mentioned provisions of Section 5 have been contravened by the Commission in its...