United States v. Navajo Freight Lines, Inc., Civ. A. No. C-2468.

• Decision Date: 03 April 1972
• Docket Number: Civ. A. No. C-2468.
• Parties: UNITED STATES of America, Plaintiff, v. NAVAJO FREIGHT LINES, INC., et al., Defendants.
• Court: U.S. District Court — District of Colorado

339 F. Supp. 554

UNITED STATES of America, Plaintiff, v. NAVAJO FREIGHT LINES, INC., et al., Defendants.

Civ. A. No. C-2468.

United States District Court, D. Colorado.

October 26, 1971.

Appeal Dismissed April 3, 1972.

Steven M. Charno, Leonard L. Coburn, James H Phillips, Antitrust Div., Dept. of Justice, Washington, D. C., James L. Treece, U. S. Atty., Carolyn J. McNeill, Asst. U. S. Atty., Denver, Colo., for plaintiff.

George Miron, Wyman, Bautzer, Finell, Rothman & Kuchel, Washington, D. C., E. Houston Harsha, Richard B. Rogers, Kirkland, Ellis, Hodson, Chaffetz & Masters, Chicago, Ill., James J. Morrato, Morrato, Gueck & Colantuno, Denver, Colo., for defendants, Navajo Freight Lines, Inc., United Transportation Investment Co., Navajo Terminals, Inc., F. J. Arsenault, and L. F. Mattingly.

Raymond J. Turner, James E. Hautzinger, Dawson, Nagel, Sherman & Howard, Denver, Colo., L. Charles Johnson, Johnson & Olson, Pocatello, Idaho, for defendant, Garrett Freightlines, Inc.

Appeal Dismissed April 3, 1972. See 92 S.Ct. 1311.

MEMORANDUM OPINION

WINNER, Judge.

This is a civil suit brought by the United States charging Navajo Freight Lines, Inc., a motor vehicle common carrier, with violations of §§ 7 and 8 of the Clayton Act (15 U.S.C. §§ 18, 19), because of its interest in and relation to Garrett Freightlines, Inc., another motor carrier. Ninety per cent of Navajo's stock is owned by the United Transportation Co., and Navajo in turn owns all the stock of its subsidiary, Navajo Terminals, Inc., and in this opinion the three companies will be collectively referred to as "Navajo." The individual defendants, Mattingly and Arsenault, were at the time of the filing of the complaint officers and directors of Navajo and directors of Garrett Freightlines. Garrett is named as a defendant, but is allied with the government here as an alleged unwilling victim of the claimed takeover by Navajo.

The Navajo group presently owns at least 26% of the common voting stock of Garrett, and although the Attorney General's theory of the case under the Clayton Act does not depend on a showing that Navajo intends to or is about to take over Garrett, it is alleged that Navajo has indicated an intent to acquire additional shares of Garrett's stock. Further acquisitions were prevented, and the status quo preserved, by order of this Court early in the case.

The complaint alleges that Navajo and Garrett are in direct competition in two respects. They compete for freight shipped between various points in the Western part of the country which both serve directly. They also compete importantly in the market for freight shipped coast to coast because of the nature of their operations and the characteristics of that market. Navajo is presently authorized by ICC certificate to carry freight all the way across the country — from the Northeast and Middle Atlantic states, through the Midwest and Southwest, and on to the Pacific Coast roughly as far north as San Francisco. Garrett serves a much more limited area; it transports freight from the West Coast, including the Pacific Northwest, to eastern terminals at Denver and St. Paul, Minnesota. This allegedly makes Garrett a preferred interchange carrier for eastern carriers with goods moving west whose routes do not extend all the way to the West Coast. Garrett is the only single line carrier whose lines run from Denver and St. Paul to the West Coast, particularly the Pacific Northwest, and eastern carriers would naturally seek to interchange with such a carrier for the reason that with others, there would have to be additional interchanges enroute. Garrett also is in an advantageous position because eastern carriers can interchange with it without fear of "back solicitation," the practice of directly soliciting the shipper whose goods have been interchanged by another carrier. An eastern carrier would avoid interchanging with Navajo, for example, since Navajo could directly solicit any shipper in the eastern part of the country served by its own routes. Garrett could not "back solicit" such shippers since its routes do not extend to the Eastern states. Additionally, eastern shippers prefer to do business with Garrett since they can receive eastbound freight for destinations beyond Denver and St. Paul after delivering westbound freight to Garrett at those points, thus avoiding an empty backhaul. Thus, Garrett is an important link in a network of regional carriers who compete with larger transnational carriers like Navajo.

The Navajo defendants have moved to dismiss for lack of jurisdiction on the ground that primary jurisdiction of all questions with respect to Navajo's influence over Garrett resides with the Interstate Commerce Commission. That point has been ably and extensively briefed by all parties and the case will be resolved on that basis. A hearing previously set in the case was vacated when it appeared that Navajo was engaged in negotiations which might lead to the sale of its interest in Garrett, but we are now informed that no sale is being contemplated, and that the parties wish no oral argument of the motion.

We are of the opinion that the question of primary jurisdiction should be determined as of the time of the filing of the suit in August, 1970. However, the following events have taken place since that time. On February 18, 1971, after the parties had been engaged in settlement negotiations for some time, the ICC initiated its own investigation of whether Navajo was violating either § 5(4) of the Interstate Commerce Act or § 7 of the Clayton Act. On June 4, 1971, (after this case was filed) Navajo made application to the ICC under § 5(2) of that Act for permission to acquire a controlling interest in Garrett. The two proceedings before the Commission presumably will be consolidated for consideration.

Section 7 of the Clayton Act prohibits any direct or indirect corporate acquisition of the stock or share capital of another corporation, the effect of which is to lessen the competition between the two. 15 U.S.C. § 18. Section 8 prohibits one person from serving as a director of two or more companies which are in competition with each other. 15 U.S. C. § 19.

It is clear that the Congress has created a dual statutory responsibility for the enforcement of at least § 7 in both the agency and the Attorney General. The parties here are in disagreement over whether § 8 applies to motor carriers at all. Section 15 of the Clayton Act of 1914 specifically granted jurisdiction over violations of the Act to the district courts and authorized the Attorney General to enforce the Act. 15 U.S. C. § 24. Section 11 of that Act additionally vested the ICC with authority to enforce Sections 7 and 8 as against common carriers subject to its regulation. 15 U.S.C. § 21.

That grant of authority has been construed to impose upon the Commission an affirmative obligation to enforce and consider the Clayton Act prohibitions in its proceedings. Denver & Rio Grande Western Railroad Co. v. United States, 387 U.S. 485, 87 S.Ct. 1754, 18 L.Ed.2d 905 (1967). However, the courts have consistently rejected the arguments that the dual grant of authority alone should be construed to give the agency exclusive jurisdiction to enforce the provisions, or that it works an implied repeal of the Department of Justice's authority. United States v. W. T. Grant Co., 345 U.S. 629, 73 S.Ct. 894, 97 L.Ed. 1303 (1953).

Section 5(11) of the Interstate Commerce Act gives the ICC power to grant antitrust immunity to certain mergers, consolidations, and acquisitions of control by one carrier over another:

"... any carriers or other corporations, and their officers and employees ... participating in a transaction approved or authorized under the provisions of this section shall be and they are relieved from the operation of the antitrust laws .." 49 U.S.C. § 5(11).

The precursor of Section 5(11) was added to the Interstate Commerce Act by the Transportation Act of 1920 which sought to strengthen the national railroad system as it was returned to private ownership following World War I. That Act substituted a policy of regulated monopoly for the previous emphasis on free competition between common carriers. Compulsory consolidation was proposed and rejected, but voluntary mergers or consolidations with Commission approval were permitted and such approval was to include antitrust immunity. Act of February 28, 1920, ch. 91, § 407; 41 Stat. 480; St. Joe Paper Co. v. Atlantic Coast Line Railroad Co., 347 U.S. 298, 74 S.Ct. 574, 98 L.Ed. 710 (1954) Appendix.

Motor carriers were first subjected to a comprehensive scheme of regulation by the Motor Carrier Act of 1935, and it included a provision authorizing the ICC to immunize acquisitions of control which were "consistent with the public interest." Act of August 9, 1935, ch. 498, § 213; 49 Stat. 543, 555-57. The Transportation Act of 1940 integrated the separate merger and consolidation provisions for all carriers into the present § 5(2) of the Interstate Commerce Act. Act of September 18, 1940, ch. 722, § 7; 54 Stat. 905-10. See, also, McLean Trucking Co. v. United States, 321 U.S. 67, 64 S.Ct. 370, 88 L.Ed. 544 (1943).

Section 5(2) of the Act authorizes the Commission's approval of the exercise of control by one carrier over another, whether by merger, consolidation, lease, or any other means. The criteria is whether the acquisition of control would be "consistent with the public interest," 49 U.S.C. § 5(2) (b). Section 5(4) makes it unlawful to accomplish or effectuate common control or management of two or more carriers except by application under § 5(2). Control is defined to mean the "power to exercise control or management." 49 U.S.C. § 5(4). Section 5(7) empowers the ICC to investigate and remedy possible violations of § 5(4) upon complaint or upon its own initiative. 49 U.S.C. § 5(7).

A § 5(2) application is the usual and exclusive way of obtaining approval which...