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October 20, 1975

UNITED STATES of America and Interstate Commerce Commission, Defendants, Smith Transport Company Limited et al., Intervening Defendants

The opinion of the court was delivered by: GREEN

This action, one of the last to be heard by a three-judge court required by 28 U.S.C. § 2325, *fn1" seeks to permanently suspend, enjoin, annul and set aside a decision and order of Division 3 of the Interstate Commerce Commission which granted authority to Smithsons Holdings Limited (Smithsons), a subsidiary of Canadian Pacific Limited (Canadian Pacific), for acquisition of Smith Transport (U.S.) Limited. Plaintiff specifically alleges that such decision and order, served October 15, 1974, fails to conform to the Congressional policy set forth in the provisions of Section 5 of the Interstate Commerce Act, 49 U.S.C. § 5, and is contrary to the pronouncements of the Supreme Court applying and interpreting that policy. It further alleges that the decision and order is arbitrary and capricious, not in accordance with the law and the evidence, is unreasonable, and constitutes an abuse of discretion.

Plaintiff, American Trucking Associations, Inc. (ATA) is the national trade organization of the independent motor carrier industry, representing all types of motor carriers of property. Canadian Pacific is a carrier by rail subject to regulation by the ICC by virtue of its operation of a small amount of trackage in New England and by its ownership of the controlling interest in the Soo Line Railroad Company. It is required to maintain "less than carload" shipment service (LCL) in Canada. *fn2" Smithsons is a wholly-owned subsidiary of Canadian Pacific. Smith is a motor common carrier generally restricted to international traffic moving between points in the United States and on the international border between the United States and Canada.

 In 1958, Canadian Pacific acquired Smithsons. Smithsons, at that time, owned Smith Transport Limited which had small shipment service to and from interior points in both the United States and Canada restricted by ICC certificate to international shipments. Prior to the purchase of Smithsons' stock by Canadian Pacific, Smith Transport was bifurcated. The operating rights in the new company, Smith Transport (U.S.), were purchased by Mr. Phillip Smith. Smith Transport (Canada), owned by Canadian Pacific through Smithsons, was created. The area of operations of each company was restricted to the interior of each country and interchanges occurred at several points on the international boundary. The two companies have maintained a close commercial affiliation since the division in 1958.

 Smithsons purchased the stock of Smith (U.S.) on October 25, 1968, after Mr. Smith indicated his desire to leave the trucking business. By trust agreement, legal title was delivered to the Houston National Bank as trustee for the benefit of Smithsons. On November 25, 1968, Smithsons filed its initial petition with the ICC seeking approval of the acquisition under Section 5 and dismissal for lack of jurisdiction because legal ownership, control and actual management of Smith Transport (U.S.) was vested in an unaffiliated non-carrier pursuant to a trust agreement. This argument was rejected by the Hearing Examiner by decision dated March 13, 1970, in which he found that Canadian Pacific exercised control or management within the meaning of 49 U.S.C. § 5(4) and was thus required to obtain prior approval of the acquisition by the ICC under 49 U.S.C. § 5(2)(b). *fn3" On June 18, 1971, Division 3 affirmed and adopted the Hearing Examiner's decision, an investigation proceeding under Section 5(7) of the Act was instituted, and applicant's petition to supplement its Section 5 application was granted.

 A joint hearing was then held on both the Section 5 application and the investigation proceeding which resulted in an Initial Decision dated September 17, 1973, by the Administrative Law Judge (ALJ). In his decision, the ALJ discontinued the investigation in light of the action taken in the Section 5 application. The ALJ granted the Section 5 application after finding that the transaction satisfied the three-prong test of the proviso to Section 5(2)(b) which prohibits Commission approval of an acquisition of a motor carrier by a railroad unless it finds:

(1) that the transaction proposed is consistent with the public interest, and
(2) will enable such carrier to use service by motor vehicle to public advantage in its operation, and
(3) will not unduly restrain competition.

 By a decision and order served October 15, 1974, Division 3 of the Commission adopted the ALJ's recommendation with one minor exception not pertinent to this case. *fn4"

 A petition filed by plaintiff seeking a finding that the proceeding involved an issue of general transportation importance was denied by the Commission by an order served November 21, 1974. On December 13, 1974, the transaction authorized by the ICC was consummated, the trust was dissolved and the stock of Smith Transport (U.S.) was transferred to Smithsons. On February 25, 1975, plaintiff commenced the instant suit seeking permanently to enjoin and set aside the Commission report and order approving the transaction.

 While differing in language used, the parties essentially agree in the statement of the central issues before the Court. These issues are:

(1) Whether the ICC may approve an acquisition and control of a motor carrier by a railroad pursuant to 49 U.S.C. § 5(2)(b) without imposing "auxiliary to and supplemental of" restrictions on the operations of the motor carrier to be acquired?
(2) If such approval may lawfully be given, was the Commission's grant of Canadian Pacific's application based on proper findings supported by substantial evidence of record?

 All parties recognize the legislative policy underlying the proviso of Section 5(2)(b) to be the promotion and preservation of the motor carrier mode of transportation and the prevention of destructive competitive practices among motor carriers and with railroads. However, it is the Commission's changing implementation of this proviso that presents the crux of the controversy in this case. Plaintiff ATA contends that while unrestricted operating authority may be granted in a Section 207 application *fn5" to a motor carrier affiliate of a railroad upon a showing of "special circumstances", a corresponding ...

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