Stott v. United States

• Decision Date: 08 October 1958
• Parties: Gordon D. STOTT and Paul W. Zeckhausen, a Protective Committee for Minority Stockholders of The Nashville, Chattanooga and St. Louis Railway, Plaintiffs, v. UNITED STATES of America and Interstate Commerce Commission, Defendants, and Louisville and Nashville Railroad Company and The Nashville, Chattanooga and St. Louis Railway, Intervening Defendants.
• Court: U.S. District Court — Southern District of New York

166 F. Supp. 851

Gordon D. STOTT and Paul W. Zeckhausen, a Protective Committee for Minority Stockholders of The Nashville, Chattanooga and St. Louis Railway, Plaintiffs, v. UNITED STATES of America and Interstate Commerce Commission, Defendants, and Louisville and Nashville Railroad Company and The Nashville, Chattanooga and St. Louis Railway, Intervening Defendants.

United States District Court S. D. New York.

October 8, 1958.

Charles J. Nager, New York City, Charles E. Boles, Newell Blair, Washington, D. C., for plaintiffs. Fennelly, Eagan, Nager & Lage, New York City, J. W. McWilliams, Claude B. Wagoner, Philadelphia, Pa., of counsel.

Victor R. Hansen, Asst. Atty. Gen., Paul W. Williams, U. S. Atty., New York City, James E. Kilday, E. Riggs McConnell, Attys., Dept. of Justice, Washington, D. C., for the United States.

Robert W. Ginnane, Gen. Counsel, I. C.C., Washington, D. C., for Interstate Commerce Commission.

Cravath, Swaine & Moore, New York City, W. L. Grubbs, Louisville, Ky., for intervening defendants. Bruce Bromley, New York City, R. W. Henriott, Louisville, Ky., John F. Hunt, Jr., New York City, J. L. Lenihan, Louisville, Ky., William H. Swiggart, Nashville, Tenn., of counsel.

Before MEDINA, Circuit Judge, and HERLANDS and BRYAN, District Judges.

FREDERICK van PELT BRYAN, District Judge.

This is an action pursuant to 28 U.S.C. §§ 1336, 1398, 2284 and 2321-2325, and under 5 U.S.C.A. § 1009, to annul and set aside, in part, an order of the Interstate Commerce Commission and for an injunction against its enforcement.

The order approved the merger of the Nashville, Chattanooga and St. Louis Railway, a Tennessee corporation, hereafter referred to as the Tennessee company, into the Louisville and Nashville Railroad Company, a Kentucky corporation, hereafter referred to as the Kentucky company. Plaintiffs are a committee for certain minority shareholders of the Tennessee company. They do not seek to set aside the merger, but attack only that portion of the Commission's order approving the proposed exchange ratio of one and one-half shares of new common stock of the Kentucky company for each share of common of the Tennessee company which the Commission found to be just and reasonable.

Plaintiffs contend that the order, in so far as it approved the proposed exchange ratio, should be set aside because of various errors of law and procedure claimed to have been committed by the Commission, and because its conclusion that the ratio was just and reasonable was not adequately supported "by subsidiary findings of fact supported in turn by substantial evidence on the record as a whole".

The merging railroads have intervened as parties defendant pursuant to leave granted by this court. The defendants United States and Interstate Commerce Commission and the intervening defendants have filed answers which in substance deny that plaintiffs have any ground for complaint concerning the findings, conclusions or order of the Commission.

After denial of an application by the plaintiffs for a temporary restraining order by the district judge who originally heard the application (154 F.Supp. 389) the case was heard before a three-judge district court designated pursuant to 28 U.S.C. §§ 2325 and 2284, and is now before that court for determination.

The Kentucky company, chartered as a railroad corporation in 1850, owns or leases and operates some 4,700 miles of railway in Alabama, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, Ohio, South Carolina, Tennessee and Virginia. The Tennessee company, chartered as a railroad corporation in 1845, owns or leases and operates some 1,000 miles of railroad in Alabama, Georgia, Kentucky and Tennessee.

In 1880 the Kentucky company acquired control of the Tennessee company through stock ownership. At the time of the application before the Interstate Commerce Commission the Kentucky company, with 2,337,280 shares of common stock outstanding, owned 191,740 shares out of 255,983 shares of the Tennessee company common outstanding, or approximately 74.9%.

As of December 16, 1954, the two corporations entered into an agreement under which there was to be a complete merger of the two with the Kentucky company to be the surviving corporation. The liabilities of the Tennessee company were to be assumed by the Kentucky company and one and one-half new shares of common stock of the Kentucky company were to be issued to the shareholders of the Tennessee company for each share of Tennessee common stock held.

The merger agreement was approved at the annual meetings of the shareholders of each company held in April 1955. The vote of the shareholders of the Kentucky company was overwhelmingly in favor of the merger and its terms. At the meeting of the Tennessee company 211,000 out of a total of 238,628 votes cast were voted in favor of the merger and 18,641 shares were opposed. A separate ballot was taken on the proposed one and one-half to one exchange ratio. 208,559 out of 230,228 votes cast were in favor and 21,669 were opposed. Of the minority of the Tennessee shares which were not held by the controlling Kentucky company or its affiliates, 44% voted to accept the terms of the merger and 56% voted to reject them.

In January 1955 both companies jointly applied to the Interstate Commerce Commission under Section 5 of the Interstate Commerce Act (49 U.S.C.A. § 5) for approval of the merger agreement and authority to consummate the merger upon the terms proposed. At the same time the Kentucky company applied to the Commission under Section 20a of the Act, 49 U.S.C.A. § 20a for authority to issue additional shares of common stock necessary to carry out the merger agreement and to assume the obligations of the Tennessee company.

The present plaintiffs were permitted to intervene in the proceeding as a protective committee for minority stockholders of the Tennessee company in opposition to the proposed exchange ratio. The City of Nashville and other local interests also intervened in opposition to the merger itself, as did various organizations representing employees who claimed they would be adversely affected by the proposed merger.

Hearings on the application were conducted before an examiner in Washington and Nashville on eight separate days in August and September 1955. The record before the hearing examiner, totalling 1733 pages, includes the testimony of 65 witnesses and some 82 exhibits. In June 1956, after extensive briefs had been filed by the various parties, the hearing examiner reported to the Commission recommending the approval of the merger as consistent with the public interest and of the proposed one and one-half to one stock exchange ratio as just and reasonable.

A number of exceptions to the recommendations of the hearing examiner were filed with the Commission by the various intervenors, including the present plaintiffs. After the submission of briefs in support of and in opposition to these exceptions, the case was submitted to the entire Commission (except for one Commissioner who did not participate) and the Commission heard extensive oral argument. On March 1, 1957 the Commission filed its unanimous decision and issued the order here under attack.

In the main, the decision adopted the recommendations of the hearing examiner and authorized the consummation of the merger on the terms proposed, including the proposed stock exchange ratio of one and one-half to one, subject to certain conditions not pertinent here. 295 I.C.C. 457. Thereafter the present plaintiffs petitioned the Commission for reconsideration and modification of its decision and order, for reopening of the proceedings and for further hearing and argument. The Commission denied that petition on July 10, 1957.

In the meantime the City of Nashville, which had opposed the merger, commenced proceedings in the United States District Court for the Middle District of Tennessee, Nashville Division, seeking to set aside the Commission's order approving the merger. The State of Tennessee, the Tennessee Public Service Commission, a local county claiming to be affected, and representatives of employees of the merging railroads intervened as plaintiffs, and the merging railroads intervened as defendants. The matter was heard before a statutory court, which on May 27, 1957, unanimously affirmed the order of the Commission and dismissed the complaint. The court found that the findings of the Commission were full and complete and were supported by the evidence; that they formed sufficient basis for the order of merger and that no grounds had been shown which would justify setting the order aside. City of Nashville v. United States, D.C., 155 F.Supp. 98. The Supreme Court affirmed the judgment entered by the statutory court without opinion. 355 U.S. 63, 78 S.Ct. 139, 2 L.Ed. 2d 106.

It has been suggested by the defendants that the decision of the statutory court in Tennessee, affirmed by the Supreme Court, is, in effect, a prior determination of a number of the issues presented here. We do not accept that view. The issue there was whether the findings of the Commission that the merger was consistent with the public interest and its order, in so far as it approved the merger, should be sustained. Plaintiffs here were not parties to that action and the issues as to the fairness and reasonableness of the proposed stock exchange ratio were neither presented nor passed on.

While plaintiffs could have intervened in that litigation and raised there the issues which they now present, they did not do so and were under no compulsion so to do. Instead they chose to petition the Commission for reconsideration of its decision on the issues affecting them and then brought this action directed solely to such issues.

Thus, we do not regard the prior decision as controlling though its disposition of certain subsidiary questions common to both litigations is persuasive.

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