United States v. Interstate Commerce Commission Brundage v. United States City of Auburn v. United States Livingstoncommittee v. Interstate Commerce Commission

• Decision Date: 02 February 1970
• Docket Number: ANTI-MERGER,38,44,43,Nos. 28,s. 28
• Parties: UNITED STATES, Appellant, v. INTERSTATE COMMERCE COMMISSION et al. Charles E. BRUNDAGE et al., Appellants, v. UNITED STATES et al. CITY OF AUBURN, Appellant, v. UNITED STATES et al. LIVINGSTONCOMMITTEE, Appellant, v. INTERSTATE COMMERCE COMMISSION et al
• Court: U.S. Supreme Court

396 U.S. 491

90 S.Ct. 708

24 L.Ed.2d 700

UNITED STATES, Appellant,

v INTERSTATE COMMERCE COMMISSION et al.

Charles E. BRUNDAGE et al., Appellants,

v. UNITED STATES et al.

CITY OF AUBURN, Appellant,

v. UNITED STATES et al.

LIVINGSTON ANTI-MERGER COMMITTEE, Appellant,

v. INTERSTATE COMMERCE COMMISSION et al.

Nos. 28, 38, 43, 44.

Argued Oct. 21 and 22, 1969.

Decided Feb. 2, 1970.

[Syllabus from pages 491-494 intentionally omitted]

Richard W. McLaren, Chicago, Ill., Louis B. Dailey, New York City, and Valentine B. Deale, Washington, D.C., for appellants.

Fritz R. Kahn, Hugh B. Cox, Washington, D.C., Fred H. Tolan, Seattle, Wash., and

R. K. Merrill, Chicago, Ill., for appellees.

Mr. Chief Justice BURGER delivered the opinion of the Court.

The Interstate Commerce Commission orders that give rise to these appeals grow out of applications seeking approval of a merger plan filed by the Great Northern Railway Company and the Northern Pacific Railway Company (collectively the Northern Lines), and three of their subsidiaries—the Pacific Coast Railroad Company, the Chicago, Burlington & Quincy Railroad Company (Burlington), and the Spokane, Portland & Seattle Railway Company (SP&S). The Commission approved the merger and a three-judge Federal District Court for the District of Columbia affirmed the orders of the Commission.¹ We affirm the judgment of the District Court.

The factual and historical setting of the merger is important to an understanding of our disposition of these appeals. Great Northern operates some 8,200 miles of road located in 10 States and two Canadian provinces. Northern Pacific has approximately 6,200 miles of track in seven States and one Canadian province. The Northern Lines operate largely in the area west of St. Paul, Minneapolis, and Duluth, running from these points across the Northern Tier of States (Minnesota, North Dakota, Montana, Idaho, and Washington) to Spokane, Tacoma, and Portland. The Northern Pacific's tracks run generally somewhat to the south of the Great Northern's. The Northern Lines jointly own and control the Burlington and the SP&S, while the Great Northern owns and controls the Pacific Coast Railroad Company. The Burlington's 8,648 miles of track extend from Chicago to the Twin Cities and generally southwesterly to Missouri, Kansas, Colorado, and Montana. By its subsidiaries² the Burlington reaches the Gulf of Mexico at Houston and Galveston. The SP&S has 599 miles of road in Oregon and Washington, of which 515 are mainline. This mainline provides the most direct route from Spokane to Portland and is of strategic importance to the Northern Lines because Spokane lies on their main transcontinental routes and Portland is an important West Coast terminal for both roads. The Pacific Coast has 32 miles of track, all in King County, Washington; its rolling stock and motive power are leased from the Great Northern.

Rail competition in the areas served by the Northern Lines is principally between three carriers: the Great Northern, the Northern Pacific, and the Chicago, Milwaukee, St. Paul & Pacific Railroad Company (Milwaukee). Because the Burlington's routes largely complement those of the Northern Lines, there is no substantial competition between the Burlington and its corporate parents. The Great Northern and the Northern Pacific overshadow the Milwaukee and are each the principal competitor of the other. The Northern Lines carry the lion's share of traffic between the Twin Cities and Duluth and the Pacific Northwest, both roads having good access to the Pacific Northwest through control of certain vital gateways in the area. Although the Milwaukee was designed and constructed to be a competitor of the Northern Lines, it has never accounted for a large percentage of the carriage across the Northern Tier States to the Pacific Northwest; it has never become a ratemaking railroad. The explanation for this is that although possessing superior grades and a shorter route west of the Twin Cities, it has never had adequate access to the gateways of the Pacific Northwest, largely because of the Northern Lines' control of the SP&S. As a result, its role has been that of a shorthaul carrier feeding much profitable long-haul traffic to the Northern Lines at St. Paul and Minneapolis.

The population of the Northern Tier region traversed by the Northern Lines and the Milwaukee is concentrated largely in its easterly and westerly extremities. The Northern Tier is rich in agricultural and mineral resources, and embraces the country's richest timber reserves. However, the markets for the products of the Northern Tier are limited in number and distant from the region; the major shipments must move east. Thus, transportation capable of carrying its bulk products at a rate low enough to permit participation in those markets is of extreme importance to the region. Rail transportation well serves this need. There has been historically, however, an imbalance between the low-rated agricultural, mineral, and forest produce traffic flowing out of the region, and high-rated manufactured goods flowing into the region. The former is traffic inherently suited to rail transport, but the latter is subject to incursions from other modes of carriage. Although water traffic in the Northern Tier is virtually nonexistent, truck competition has been present for some time and is growing.

Northern Pacific and Great Northern have long sought to merge into a single unified transportation system. In Pearsall v. Great Northern R. Co., 161 U.S. 646, 16 S.Ct. 705, 40 L.Ed. 838 (1896), this Court ruled that an attempt to consolidate the operation of the two roads was contrary to a Minnesota statute prohibiting the consolidation of parallel and competing railroads. The next merger attempt was struck down in Northern Securities Co. v. United States, 193 U.S. 197, 24 S.Ct. 436, 48 L.Ed. 679 (1904), as contrary to the Sherman Act, 26 Stat. 209, 15 U.S.C. § 1 et seq.³ Then the declining fortunes of rail carriers led Congress to enact the Transportation Act of 1920, 41 Stat. 456, which charged the Interstate Commerce Commission with the affirmative responsibility to formulate plans for simplifying the Nation's rail transport 'into a limited number of systems.' 41 Stat. 481. This engendered a third effort, under the Commission's auspices, to merge the Northern Lines.⁴ However, this effort foundered on the Commission's requirement that the Burlington be excluded from the Northern Lines system, and the Northern Lines were unwilling to consolidate without the Burlington.

I The Present Merger

In 1955 the Northern Lines began investigating anew the possibility of a merger that would combine five roads—the Burlington, the SP&S, the Pacific Coast, and the Northern Lines—to form a New Company. Extensive negotiations dealing with all phases of the proposed merger were commenced. Five years later, in 1960, an agreement was finally reached. It provided that the Northern Lines, the Burlington, and the Pacific Coast be merged into New Company, which was to acquire the subsidiaries of the merged companies as well as all their leasehold, trackage, and joint-use rights in other carriers and the terminals incident thereto. New Company would lease the SP&S, thereby acquiring that road's subsidiaries and trackage rights.

The merger agreement further provided that Northern Pacific shareholders would receive common stock of New Company on a share-for-share basis. Great Northern stockholders would receive one share of New Company common for each share of Great Northern and, in addition, one-half share of New Company $10 par 5 1/2% preferred for each share of Great Northern held at the date of the merger, this preferred stock to be retired over a 25-year period, beginning at the fifth anniversary of the merger, and to be redeemable at the option of New Company any time after the fifth anniversary of the merger. The Burlington stock held by the Northern Lines, amounting to 97.18% of the total shares outstanding, would be canceled and the remaining shareholders given 3.25 shares of New Company common for each share of Burlington.

Commission Proceedings

First Report.—As a result of these renewed merger negotiations between 1955 and 1960, applications were filed in 1961 under § 5 of the Interstate Commerce Act, 24 Stat. 380, as amended, 49 U.S.C. § 5, seeking approval of the merger and authorization for the issuance of stock and securities, the assumption of obligations and other authority necessary to effectuate the merger.⁵ Extensive public hearings were held in 1961 and 1962 at which the Department of Justice, the Department of Agriculture, various railway employee groups, nine States or state regulatory agencies, and the Milwaukee and the Chicago & North Western Railway Company (North Western), inter alia, actively opposed the merger as proposed. Shippers and related interest groups appeared in support of the proposal. The Hearing Examiner submitted a report in 1964 recommending approval of the merger and the related transactions, subject to certain protective conditions. The Commission heard oral argument and in a report dated March 31, 1966 (First Report), rejected the Examiner's recommendation and disapproved the merger by a vote of 6 to 5.⁶

The applicants petitioned for a reconsideration, asserting that they were willing to accept all protective conditions sought by the Milwaukee and another affected road, the North Western, that they had entered into attrition agreements with the objecting unions for the protection of the employees, and that the merger would yield dollar savings greater than those estimated in the First Report. While this petition was pending before the Commission, the applicants entered into agreements with the North Western and the Milwaukee which provided that the merger applicants would agree to all the conditions sought by those roads; the Milwaukee and the North Western then agreed to support the merger.⁷...