The opinion of the court was delivered by: FAHY
This suit arose on complaint of the United States, acting through the Department of Justice, to enjoin and set aside orders of the Interstate Commerce Commission of November 30, 1967, April 11, 1968, and June 17, 1968.
The first of these orders approved, with conditions, applications of the railroad companies hereinafter named to merge and to complete related transactions. The approval followed reconsideration of the "Report of the Commission" (First Report) of March 31, 1966, which had denied the merger applications as not consistent with the public interest.
The April 11, 1968 order denied petitions for reconsideration of the order of November 30, 1967, except in relatively minor respects which modified the Commission's retention of jurisdiction and certain of the Commission's protective conditions. The order of April 11, 1968 is not now independently contested.
The Interstate Commerce Commission answered the complaint, opposing the relief sought by the Department of Justice. Other parties, as set forth in the margin,
have intervened, some as plaintiffs, some as defendants, the latter including the applicant railroad companies.
After preliminary proceedings resulting in a stay of the orders pending either decision on the merits or further order of the court the case was submitted to this three-judge District Court designated in accordance with 28 U.S.C. §§ 2325, 2284 for decision on the record before the Commission, the pleadings, briefs, memoranda and oral arguments.
We sustain the Commission's approval of the merger and related transactions. The history and nature of the case lead to an opinion which explains our reasons at some length. We review the elaborate decision of the Commission. We conclude that in giving its approval the Commission was guided by the applicable legal principles and made findings, supported by substantial evidence, requisite to the validity of its action. We recognize that some of those findings are necessarily conclusional. These we hold to be reasonable. A number of conditions are attached by the Commission to its approval. These in our view are just and reasonable, as well as reassuring.
Our opinion also considers the objections raised by the Department of Justice, the State of Washington, the City of Auburn, the Board of Railroad Commissioners of the State of Montana, and the Livingston Anti-merger Committee.
We devote special attention to whether the competitive situation to result from the unification, conditioned as it will be, is inconsistent with the public interest, or, as we believe, is consistent therewith in light of the national transportation policy formulated by Congress. We conclude, also, that the ratio of stock exchange approved by the Commission is just and reasonable, that the employee problem is satisfactorily solved and, as will appear, that other contentions against the merger do not override the benefits, including savings and better service, which are projected in the reasoned judgment of the agency charged with primary governmental responsibility. We note with approval the retention by the Commission of jurisdiction to enable it to make such readjustments as may appear to be desirable, including those which may arise from pending proceedings affecting other railroads in the vast territory involved.
The orders in question
eventuated from applications filed February 17, 1961,
under 49 U.S.C. § 5
by Great Northern Railway Company (Great Northern), Northern Pacific Railway Company (Northern Pacific), these companies being sometimes referred to as Northern Lines, the Pacific Coast R.R. Co. (Pacific Coast or PC), the Chicago, Burlington & Quincy Railroad Company (Burlington), and the Spokane, Portland and Seattle Railway Company (SP&S), these latter two companies being subsidiaries of the Northern Lines, all common carriers by railroad subject to Part 1 of the Interstate Commerce Act, and Great Northern Pacific & Burlington Lines, Inc., (New Company or NuCo), which is not a carrier. The carriers applied to merge into New Company, and for lease by the latter of SP&S, with control of subsidiaries and the completion of other transactions better to effectuate the merger and lease.
Extensive proceedings ensued before the Commission, including public hearings and an examiner's report served August, 1964, which recommended approval of the applications, but with which the Commission did not agree. On applicants' petition of July 27, 1966,
the Commission reopened the proceedings on January 4, 1967, for reconsideration and oral argument on all issues and for limited further hearing to determine, on the basis of current information readily available, the amount of estimated savings resulting from the proposed merger in light of (1) agreements entered into between the applicants, on the one hand, and, on the other, the Milwaukee and North Western and (2) the effect of relevant financial, operational and other changes related to savings, which had occurred subsequent to close of the hearings. Those matters were referred to an examiner for hearing.
The reconsideration resulted in the decision of November 30, 1967, accompanied by the exhaustive "Report of the Commission on Reconsideration and Further Hearing" (Second Report), with appropriate order approving the applications and related transactions.
New Company in consequence would achieve unified control and operation of a network of railroads of almost 27,000 miles of tracks extending from the Great Lakes and Mississippi River through the Northern Tier States to the Pacific Northwest and California, and reaching through affiliates
to the Gulf of Mexico. Great Northern operates some 8200 miles of road located in ten states and two Canadian provinces. Northern Pacific operates some 6800 miles of road with lines in seven states and one Canadian province. These roads extend from the Twin Cities across the Northern Tier States to Spokane, Tacoma and Portland, with branch lines serving the lumber and agricultural producing territories along the route. Burlington's 8648 miles of road are located in eleven states extending from Chicago northwesterly to the Twin Cities, and westerly and south-westerly to Missouri, Kansas, Colorado and Montana, with subsidiaries reaching the Gulf of Mexico at Houston and Galveston.
Since the Burlington routes are largely complementary to those of Northern Lines there is no substantial competition between Burlington and its parents. The SP&S in Washington and Oregon has the most direct route from Spokane to Portland and is of strategic importance to Northern Lines since Spokane is on the main transcontinental routes and Portland is an important terminal for both. Northern Pacific has extensive land holdings, from which it derives important income; and New Company would obtain title in fee to more than two million acres and to mineral rights in an additional six million acres.
As the Commission also points out there is an imbalance of traffic. Historically the West has been a market for the finished products of the Midwest and the East and a supplier to those areas of basic raw materials. Its lower-rated traffic in its long haul east is not as vulnerable to incursions by intermodal competitors of Northern Lines as is the higher-rated manufactured traffic moving into the area served by Northern Lines. The latter, both from the East and from the West Coast is vulnerable to motor carrier competitors and others. It is this traffic which the rail carriers must retain to balance their operations.
A combination of factors, the Commission narrates, had long convinced the management of Northern Lines that, together with Burlington, SP&S and Pacific Coast, they should be unified under New Company's control. They serve the same eastern terminals and western ports as competitors and the traffic they carry is similar. It is different only in areas where their lines are widely separated, with no substantial competition, however, between either of the Northern Lines and Burlington, whose traffic differs and whose service area is not only more heavily populated than that of Northern Lines but also furnishes an important market for producers in the area served by Northern Lines.
Management of Northern Lines considered that these railroads, with Burlington, SP&S and Pacific Coast, which they control, if unified under New Company with an enlarged and more efficiently coordinated pool of rolling equipment, elimination of duplicative functions, facilities and personnel through attrition, and with routing, transit and other services more finely tuned to the needs of the shipping public, would be a more proficient railroad than the applicants separately. Greater ability to adjust to seasonal and economic fluctuations in traffic, thus maintaining a better over-all balance, would result. The whole would be better than the sum of its component parts and better able to cope with the increased intermodal competition of motor and water carriers which has intensified with improved highways and waterways.
In early 1956 Northern Lines through a joint management committee began preparations for merger proceedings. The independent transportation engineering firm of Wyer, Dick & Company, referred to as Wyer, was employed to analyze and report on the operating advantages and financial savings which could be realized. This was followed by agreements under which New Company was formed and the terms and conditions of the proposed unification were formalized.
The Second Report of the Commission embodying the basic decision of November 30, 1967, now challenged, in addition to the above background material, includes a reexamination of the First Report, outlines the hearing on reconsideration, explains the positions of various parties, and devotes special attention to the objections of the Department of Justice. The agreements executed by applicants with the Milwaukee and the North Western railroads are explained. These evidence applicants' acceptance of conditions favorable to Milwaukee and North Western, deemed essential to the public interest finding of the Commission accompanying its approval of the applications. As a consequence of these conditions those roads withdrew opposition to the merger. Agreements of applicants with representatives of the employees are considered. While the Commission notes the opposition of the Railway Labor Executive Association (RLEA), we point out that subsequent agreements affecting employees have led to withdrawal of employee opposition to the merger. The Commission required, as a condition to approval, that attrition conditions such as were contained in agreements which had been reached would be applied to all affected
employees, thus eliminating one of the reasons for the First Report's denial of the applications. The Second Report states:
[As] this report will show, we are convinced on deliberate and searching reconsideration that the proposed unification, subject to appropriate conditions which we shall specify to protect competing railroads, employees and the general public, will be consistent with the public interest and should be approved. 331 I.C.C. 244-245.
The Commission followed with a discussion of the relevant statutory criteria, analyzed the relevant financial data, included a finding that merger would entail no increase in the aggregate fixed charges, set forth the major proposals for unification of operations and of properties, and explained the stock exchange ratio between the holders of Northern Pacific and Great Northern stock. The benefits of merger to applicants, to shippers and to the general public, were enumerated.
The Commission analyzed at length the competitive situation, which we shall consider more fully, and discussed and made findings with respect to the protection of other railroads. It emphasized the change in the situation since the prior report, reaffirmed its finding that the survival of no railroad operating in the territory was imperiled, and further found,
As modified by the conditions which we impose hereinafter, most of which were the subject of agreements between applicants and the railroad interveners, the proposed unification presents an entirely new perspective for intramodal competition in the efficient and economical movement of transcontinental, western and Pacific Coast traffic. That perspective portends for a stronger capability in those railroads individually and collectively to prosper and to effect numerous economies and efficiencies from which the public will benefit. 331 I.C.C. 281.
The situation with respect to Western Pacific and the objections of Union Pacific, not here pursued, to Milwaukee's entry to Portland, were discussed. Reference was also made to applicants' stipulations with the Milwaukee, the North Western and other roads. The Commission concluded this branch of its Report by stating that the over-all effect of the conditions imposed, which it found to be just and reasonable, would make for a stronger degree of intramodal rail competition in the affected territory, promote the effective development of improved transportation services to the shipping and receiving public, and comport generally with the purposes and objectives of the national transportation policy as declared in the Act, and "are within the scope of section 5(2)(a) and will be consistent with the public interest." The conditions are set forth in Appendix L to the Second Report, as modified by the reports of April 11, 1968, and June 17, 1968.
The stress placed in the earlier stages of the proceedings on the potential effect of merger on motor carrier rights and operations was considered. The objection raised by Rio Grande to the inclusion of Burlington in the proposed merger was also considered. The Commission concluded that the inclusion of Burlington was necessary not only if the merger is to achieve the results desired but also in order that the many shippers and receivers served by Burlington would participate in the public benefits flowing from the merger. As to the further point raised by Rio Grande concerning the over-all effects and cross-effects of the merger and of the proposals pending in Finance Docket No. 22688, et al.,
involving North Western and other roads, and the proposals in Finance Docket No. 24182, et al.,
involving the Milwaukee and the North Western and other roads, the Commission points out that it is faced with various procedural alternatives. In view of the over-all situation the Commission decided to reserve jurisdiction for a period of five years following consummation of the transactions authorized so as to be able to impose such just and reasonable conditions upon petition of any party in interest or upon its own motion, after hearing, that may be necessitated by any cumulative or cross-over problems stemming from approval of this merger and any other transaction authorized under Section 5 with respect to the territory involved, citing B. & O.R. Co. v. United States, 386 U.S. 372, 387, 87 S. Ct. 1100, 18 L. Ed. 2d 159. See Condition 33, Appendix L, as modified by the subsequent report of April 11, 1968.
The Commission also retained jurisdiction for a like period for the purpose among others of considering petitions under Section 5(2)(d) of the Act by any railroad in the territory involved requesting inclusion in the merger. The Commission held that consummation of the transactions authorized would constitute irrevocable assent by applicants to the Commission's reservation of power to impose, after hearing, such just and reasonable conditions as may be necessary and appropriate.
In its "Summary" the Commission pointed out that the result of the prior First Report was a product of a weighing of three factors: a lessening of competition as between Great Northern and Northern Pacific; an adverse effect upon employees; and the benefits to be derived by applicants and the shipping public; but that on reconsideration of these factors based upon the entire augmented record:
[We] now reach a different conclusion. The concern expressed in the prior report as to employee hardship has been relieved by the attrition conditions imposed and agreed to. The speculation that imposition of conditions for the benefit of Milwaukee and NW might actually preclude consummation has been set to rest by the agreements accepting those conditions. The preservation of competition between the Northern Lines in the four northern tier States, which was a dominant factor in the prior decision, we now view in a different perspective and do not see it as an invincible impediment to this merger. Like the many shippers who support the applicants and who do business in the said States, and like the numerous States, State and Federal agencies, communities and shipper groups which have dropped their opposition and now favor the merger, we see this transaction as a means for achieving, through appropriate conditions, overriding benefits to the public through improved transportation. Broadening the focus of our appraisal to the area relevant to transcontinental traffic and other interterritory considerations, and reweighing the facts pertaining to the ever-increasing intermodal competition, have made it apparent that this merger can lead to the creation of meaningful rail competition through strengthening the Milwaukee and the NW, as well as making the combined applicants a more proficient transport agency. Viewing the considerations anew, we conclude that the proposals, with requisite conditions, are entirely consistent with the public interest. 331 I.C.C. 289.
The Commission thereupon added its ultimate findings that, if approved with the conditions it requires, the transactions meet the requirements of Sections 5(2) and 20a and b of the Act, conform generally with the purposes and objectives of the national transportation policy, are consistent with the public interest, will enable New Company to use service by motor carrier to public advantage in its rail operations, and will not unduly restrain competition. Moreover, the Commission found that the financial arrangements it outlined are compatible with the public interest, are necessary, appropriate and consistent with performance of service to the public as common carriers, will not impair the ability to perform that service, and should be authorized.
Finally, the Commission found that the present and future public convenience and necessity require construction and operation by New Company of the connecting lines enumerated in the Second Report, (Appendix J), and permit abandonment by applicants of designated railroad lines, (Appendix K).
It is seen from the foregoing that the findings essential to approval of the applications were made. Some of these are not ordinary factual findings. They are conclusions drawn from the relevant factual situations disclosed by the evidence.
We now test further the action of the Commission by considering it more fully in light of the objections to approval. We bear in mind that, as the reviewing court, "We do not inquire whether the merger satisfies our own conception of the public interest. * * * The judicial task is to determine whether the Commission has proceeded in accordance with law and whether its findings and conclusions accord with the statutory standards and are supported by substantial evidence." Penn-Central Merger & N.W. Inclusion Cases, 389 U.S. 486, 498-499, 88 S. Ct. 602, 608, 19 L. Ed. 2d 723.
The Problem of Competition -- In General.
The United States, through the Department of Justice, centers its opposition upon the Commission's appraisal of the resulting competitive situation. The Department sees an invasion of the public policy represented by the antitrust laws, not countered by benefits which justify the merger in the public interest. Since the transactions came within Section 5(a), the over-all guide is the national transportation policy to further the public interest in efficient transportation. 49 U.S.C. § 5(2)(b), note 6, supra.
The Department contends that the Commission erred in construing the national policy as one to further consolidation of railroads into a limited number of systems with a presumption in favor of mergers. While the Commission interpreted the national policy as encouraging mergers, we do not think it was guided by a presumption. It concluded that "the policy of the [Transportation Act of 1940] is clearly to facilitate and thereby foster and encourage consolidations which can be shown to be consistent with the public interest." 331 I.C.C. 269. Thus, consolidation must be shown and not presumed to be consistent with the public interest.