Appendix — Interstate Investors, Inc. v. United States

a ; ,

: fa | er 8. se 2 A-1

ma (374) | | =,

. “. APPENDIX A ‘

‘4 | “Iw TersTate Investors, INc.,

. 3 | - ° Plaintiff,

a . Unirep States or America and .

zl Interstate Commerce Commission,

Defendants,

; . and

; Transcontinental Bus System, Iné.,

4 Intervenor-Defendant. 4

No. 66 Civ. 3004.

= ’ :

United States District Court j

S. D. New York. ‘

‘July 22, 1968. 3

: (376) ° ~~ . OPINION oe ie fee

4 Before Ferrnserc, Circuit Judge, and Murry and

; 4 Bryan, District Judges. is |

‘e i (377) Frepertck van-Peur Bryan, District Judge:

er 2 ’

o/ 2 This is an action under 28 U.S.C. §§ 2321-25 to set aside :

and enjoin the enforcement of an order of the Interstate . q

Commerce Commission. ak |

The order dated August 10, 1966, approved the acquisi- )

tion by the intervenor defendant Transcontinental Bus F

Lines, Inc. (Transcon), a major intercity bus carrier, of

_ three other bus carriers in the southeastern United States, — ;

. ; . i

ONAL 0 ite PLEO thee a Dee

.

+ a heats A ade

ABM ae 8

A-2

Appendix A

Virginia Stage Lines, Inc. (Virginia), Safeway Trails,

Inc. (Safeway) and Queen City Bus. Lines, Ine. (Queen).

The acquisition was to be effected through an exchange

of stock between Transcon and the three acquired carriers.

Each of the acquired carriers in turn eontrolled several

subsidiary bus carriers. ;

The intercity nationwide bus industry is dominated by

the Greyhound System. Transcon, though only one-fifth the

size of Greyhound prior to the acquisitions under review,

is its major competitor. Transcon also is a member of

National Trailways Bus, System (N-LS.), a non-profit

association whose membership consists of a large number

of intercity bus carriers, including the three acquired com-

panies. ’ To foster competition with Greyhound’s nationwide

operations, the N .T.S. members have adopted Trailways as

a common trade name, use uniform paint schemes and mark-

ings on their busses, have joint terminals, some through

bus. arrangements and coordinate advertising, parchasing

and other essential functions. )

_ The applications of Transcon to the I. C. C. for. ap-

| proval of the-acquisition of Virginia, Safeway and Queen,

pursuant to Section: 5 of the Interstate Commerce Act, 49

_ USC. §5, were made to improve its competitive position .

_in the southeastern United States where it had almost no

operations. All three applications were opposed by Grey-

hound which did not join in this action, and as to the

Queen acquisition by Interstate Investors, Inc. (Inter-

state), the plaintiff here.

Interstate is a Delaware corporation with its principal

office in New York. - The nature of its business i is not clear

but it is not a bus operator.. Immediately prior to the time ~

A-3

Appendix A

when Transcon reached agreement with Queen, Interstate

claims to have made an oral agreement to purchase

Queen as a’ first step toward-the formation of a so-called

third force of bus carriers in the southeast to compete with

Transcon and Greyhound. Interstate further claims that

Transcon caused Queen stockholders. to breach their oral

understanding with Interstate-and enter into the exchange |

of stock acquisition agreement with Transcon instead.

' During the pendency of the acquisition proceedings Inter-

state also filed a-complaint with the I. C. C. pursuant to

$11 of the Clayton Act, 15 U.S.C. § 21, alleging that —

Transcon’s conduct prior to the I. C. C.’s approval of the

acquisition amounted to an unlawful acquisition of control

of Queen and constituted consummated anti-trust. viola-

tions contrary to 47 of the Clayton Act.". The I. C. C..

' dismissed this proceeding on the ground that it pertained

to issues of fact and record in the acquisition proceedings,’

After extensive hearings‘on the acquisition applications

the I. C. C. approved. acquisition of Virginia, Safeway and

Queen by Transcon and issued the order to that effect here

under review. See Transcontinental Bus System, Ine.—

Control—Virginia Stage Lines, 101 M.C.C. 529 (1966). In.

MC-F-8744, embraced in the order under review, Transcon .

acquired control of Virginia and Safeway, Inc.’ In MC-F-

*MC-C-4969. The petition was filed December 10, 1965. A.

supplemental complaint was filed February 11, 1966.

* Division 3 of the I.C.C. dismissed the proceeding May 27, 1966

‘and denied plaintiff's petition for reconsideration on August 8, 1966.

* Through the acquisition of Virginia, and Safeway, Transcon

also acquired control of Trailways of New England (TNE); Ten-

nessee Trailways (Tenn.T) ; Service Coach Lines; Carolina Scenic

_ Stages; Coastal Stages Corporation ; and The Gray Liné of Charles-

. ton.

errr

‘a

.

A-4

Appendia A

8774 the I. (378) c. C. approved Transcon’s acquisition of

control of Queen.‘ Authority was granted to Transcon to

issue additional shares of its common stock to exchange for

the stock of the acquired companies.’ The order also dis-

missed Interstate’s petition for reconsideration of its com-

plaint filed pursuant to § 11 of the Clayton Act which had

been previously dismissed.° | |

Interstate then commenced this action to annul and set

aside the order. The ‘prolix and confused amended com-

plaint alleges in substance that the order of the I. C. C.

was contrary to law, was unsupported by substantial evi-

dence and was procured by fraud upon the Commission

upon the part’ of Transcor. In addition, it contains a

private anti-trust claim for relief against Transcon under

the Sherman and Clayton Acts and a private claim for

deceit. — 7 : |

The present posture of the action is complex. Interstate

brought on its application for the appointment of a three-

judge court under 28 U.S.C. §§ 2321-25, 2284, by an order

to show cause Which contained .an ex parte’ temporary

restraining order against the enforcement of the I. C. C:

order under attack. At the initial hearing before ‘the dis-

trict judge sitting in motion part the application for the

appointment of this thrée-judge court was granted and

Transcon was given leave to intervene as a defendant.

‘Through the Queen transaction, Transcon also acquired con-

trol of Smokey Mountain Stages ; Georgia-Florida Coaches and Fort

Bragg Coach Company. Additionally, Transcon acquired Queen’s

interest in’Tenn:T, Scenic, Coastal and Gray.

._ *® Finance Docket 23159 (Queen Purchase) and Finance Docket

23123 (Safeway and Virginia purchases).

*See note 2, supra. - .

*

A-5

Appendix A

“However, the ternporary restraining order was vacated.

Interstate’s motion for preliminary injunctive relief was

reserved for ‘the three-judge court. Both the I. C. C. and »

Transcon have answered the amended complaint.

During the course of the proceedings a number of mo-

tions have been made by the parties which include the’

following:

1. A motion by Interstate for preliminary injunctive

relief which was reserved to the three-judge court at the

initial hearing. | |

2. Motions by the I. C. C. and Transcon to dismiss the

action on the ground that Interstate lacks standing to

attack the order of the I. C. C. under review.

_3. A motion.by Interstate to set aside the vacation of

the initial temporary restraining order and for other equi-

table relief on the ground that the decision was brought

about by fraud upon the court on the part of Transcon.

4. Several motions by Interstate for discovery against —

both Transcon and the I. C. C. on a wide variety of sub-

jects.

5. A motion by Transcon to dismiss the private anti-

trust and deceit claims alleged by Interstate,

The merits of the action and all pending motions were

argued before this three-judge court at the same time and

will be considered and decided together. .

4

\

‘

.

Leta ee ete eS we

A-6

= | Appendix A

| 1.

We will deal first with Incerstate’s claim that the ‘order

of the I. C. C. under attack here was obtained by fraud |

upon the I. C. C. on the part of Transcon and that Trans-

con has continued such fraudulent conduct in this. court.

Compare Hazel-Atlas Glass Co. v. Hartford-Empire Co.,

322 U.S. 238, 64 S.Ct. 997, 88 L.Ed. 1250 (1944) ; Chas.

Pfizer & Co. v. Davis-Edwards Pharmacal Corp., 385 F.2d

933 (2d Cir. 1967); Root Refining Co. v. Universal (il

Products, Co., 169 F.2d 514 (3d Cir. 1948), cert. denied,

_ Universal Oil Products Co. v. William Whitman Co., Ine.,

335 U.S. (379) 912, 69 S.Ct. 481, 93 L.Ed. 444 (1949);

Chicago Title & Trust Co. v. Fox Theatres Corp., 182

F.Supp. 18: (S.D.N.Y, 1960). In order to understand In-

terstate’s claim of fraud, a brief review of the background

of this case is necessary.. |

For several years Transcon, the largest member of

N. T. S., has been seeking control of other N. T. S: members,

At the time of the events in suit Transcon’s routes were

nationwide with the exception of through-routes running

north and south along the Atlantic Coast. Several other

N. T. S. members, including Virginia, Safeway and Queen,

operated routes in this area. - By agreements among these

and other companies, N. T. S. was able to offer through

service along the Atlantic Seaboard.

In the 1960’s, Interstate and its President, Burt, became

interested in welding the Trailways carriers running along

the Atlantic Seaboard into a single unit. Having acquired |

financial backing, Burt on behalf of Interstate sought to

purchase control of some of these companies. He directed

AT

A pendix A

his attention primarily to two, Queen and Tamiami.” By

early 1964 talks between Interstate and the controlling

stockholders of Queen had progressed toward agreement.

By March 28, 1964, Burt and Interstate claim they had a

deal to purchase all of Queen’s stock for approximately

$8,000,000. |

Transcon had long been interested in acquiring Queen

and had conducted negotiations on and off with several

major Queen stockhelders for some years. When it learned

of the possible Queen-Interstate deal, either from Queen

or by letter from Interstate, Transcon immediately started

negotiating in earnest.

By letter dated April 28, 1964, the President.of Queen

proposed an arrangement to Transcon. The suggested pur-

chase price was about $8,000,000, approximately the same

as offered by Interstate, but involved an exchange of stock. °

The letter also stated four conditions, the last of which

was a guarantee by Transcon to buy back from some of

the Queen’s stockholders who wanted to cash the Transcon

stock at a fixed price of $31.50 per share. Interstate

focuses on this fourth proposed condition of guaranteed

repurchase. oak

On May 21, 1964, the Queen board approved a counter-

offer by Transcon which did not mention any conditions |

of the April 28 letter. Prior to such approval, the Queen

’ directors implemented all of the other conditions of the

letter, but no mention was made of any arrangement to

* Tamiami Trail Tours, Inc. is a member of N.T.S. principally

operating in Georgia and Florida, It is not involved in the acquisi-

tions under review.

ok hh itd a |

A-8

Appendix A

provide Queen’s stockholders with cash for their Transcon

stock.

The purchase agreement provided for the exchange of

7.25 shares of Transcon common stock for each. Share of

Queen stock.®

_ Queen stockholders were to assent to the transaction

by delivering their Queen shares to a named bank as de-

pository. The depository bank would then issue a receipt

corresponding to the number of shares delivered. The

stock deposited would be held by the bank pending de-

termination of Transcon’s application to the I. C. ©. for

approval of control. If approval were granted, the de-

positéd stock would be transferred to Transcon and Trans-

con would issue shares of its common stock in return for

the deposit receipts. During the period of deposit,. the

holders of the receipts had the voting and dividend rights

to the Queen stock. Prior to consummation, Queen was

not to perform any act or enter into. any transactions

outside its ordinary course of business and Transcon (380)

was to take no action which would dilute the value of

its common stock. The entire agreement, as well as Trans-

con’s application to, the I. C. ¢. for approval of control,®

was conditioned on a favorable Tuling from the Internal

' Revenue Service that the exchange of stock was tax-free.

* The agreement also involved the exchange of 7.25 shares of

Transcon for each share of General Realty and Insurance Corp.

(GRIC) a non-carrier owned by some of Queen’s stockholders and

in turn owning stock -in Queen.

. ° Transcon’s application for control of Virginia and Safeway was

filed with the I.C.C. May 2, 1964; its application for control of

Queen was filed June 5, 1964. The proceedings were consolidated

by the Commission. ;

A-9

Appendix A

Before the I. C. C. examiner opened hearings in the

fall of 1964, two significant events occurred. Interstate -

filed suit against Queen and the Queen stockholders in

the United States District Court for the Western District

of North Carolina for breach of contract, seeking money

damages and not specific performance. Transcon was not’

a party to the action. During the same period, several

Queen shareholders sold their deposit receipts for cash.”*

It is not presently disputed that the receipts ultimately

came into the hands of a Transcon subsidiary." Interstate

alleges that these purchases were made pursuant to a

secret agreement by Transcon to purchase the receipts

of these Queen’s stockholders who wanted cash.

_ When the hearings opened in Washington on September

9, 1964, Interstate questioned the Transcon wifnesses in

an effort to establish that such a secret agreement existed.

Moore, the President of Transcon, testified in response

”

*° The record. shows that 10 Queen stockholders sold deposit re-

ceipts for 1387 shares of Queen stock prior to the opening of hear-

ings. The sales occurred on six different dates. The sums paid

ranged from $250 per share to $290 per share. After the hearings

closed 617 additional shares were sold at prices ranging from $241.25

per share to $260 per share. The total of 2,004 shares represents

less than 10% of the 22,264 shares of Queen-outstanding. As will’

appear later, all of these shares were purchased by Highway Insur-

ance of Switzerland, a corporation the I.C.C. found was - pre-

sumptively controlled by Transcon. See 101 M.C.C. at 540 n. 7.

11 According to Footnote 16 of the I.C.C. brief the purchases

were all made by Messrs.- Goff, General Counsel of Transcon,

Scheitel, Chief Financial Officer of Transcon, Hamilton and Rob- ~

inson, two other employees of Transcon..

A-10

Appendix A

to questions fron) Greyhound’s counsel that Transcon did

not make a market for the deposit -receipts.”

‘Similar questions were asked by Interstate of Scheitel,

the Vice-President of Transcon, who negotiated the con- —

tracts with Queen, Virginia and Safeway. He testified that

while he had learned some of the deposit receipts had been

sold, he did not know who had bought them.** He empha-

2

*? The pertinent questions and answers are as follows 4

“Question: Have you, or any officer, to your knowledge,

of Transcontinental, Continental or its subsidiaries, agreed, by

contract or.by oral agreement, to supply the funds necessary

to purchase the depository receipts or to make a market in

these depository receipts.” ,

“Answer: They have not.” [Hearings p. 971].

“Question: And a final question: What you are saying’

here in this hearing is that you know. nothing about the market

that was made in these depository receipts?”

“Answer: I don’t know that there is a market as such.”

“Question: But you did seek * * *

.“Answer: I understood from the testimony yesterday that

there had been some trading. I mean, is this one, or is this

ten trades, or one trade, or a hundred trades? How many, I

have no knowledge of.”. :

“Question: And are you also saying whether there was one

or ten, you knew not how the trade or how the market was

set up?” : .

“Answer: No, Transcontinental has no commitments. I _

mean, we have no part of it.” [Hearings p. 973]

*8 In view of the disclosure in the I.C.C. brief, see note 11 supra, -

that Scheitel was one of the four Transcon officials who purchased

the deposit receipts, this testimony is plainly incredible if it referred

to the deposit receipts.

A-t1

Appendix A

sized that Transcon (381) had made no commitment to

provide a market for the deposit receipts.”

** The relevant part of Scheitel’s testimony is as follows:

“Question: Has Transcontinental at any time advised peo-

ple where, the shareholders where they would find a market

for the depository receipts ? '

“Answer: Yes, sir. The depository receipts were issued on

the basis that they were marketable, and if they could find’a

market fine.

“Question: Did Transcontinental advise them where they

could find such a market?

“Answer: We told them they should go to their brokers.

“Question: Did you suggest the name of a broker?

“Answer: We suggested thé possibility of Goodbody and

Company that made a market in Transcontinental stock, might

be interested, yes, sir. ; .

“Question: Have you made any backup arrangement with

Goodbody and Company? ar"

“Answer: No, sir, . Se

“Question: Is there privity between Goodbody and Com-

pany and stockholders or directors of Transcontinental ?

“Answer: No, sir. -

“Question : And, to your knowledge, have the trust receipts

been marketed? ~

“Answer: I understand, I think somebody sold, yes.

“Question: Was it a part of your prior negotiations on the

consideration that there would be such a market?

“Answer: No, sir. [Hearings pp. 200-01].

“Question: Well, if * * * you will concede that if. this

transaction is not approved by the Commission, what Goodbody

and Company is making a market in is not Transcontinental

stock, but in Queen City stock, for which there is no market ?

“Answer: I don’t know that they are making a market in

Queen City stock.

“Question: But you know that some has been sold?

“Answer: I don’t know who bought it.

“Question: Pardon me?

“Answer: Queen City—repeat your question, please.

“Question: You know that some has been sold?

“Answer: I was told some was sold. :

“Question: You say there was no part of your prior’ dis-

cussions with the selling—holding shareholders that there would

be a market for their trust receipts provided by Goodbody and

Company ? | ; ,

- “Answer: No, sir.” [Hearings pp. 202-03].

OSE AIMEE een tite Whee ony ae

*

ante ih tae alee aia det |

A-12

Appendia A

Plaintiff argues that this chain of testimony establishes

that Transcon ‘had a sidé agreement to purchase deposit

- receipts from those Queen shareholders who wanted @ash.

Interstate points out that prior to Commission approval

deposit receipts representing 2004 Queen shares, or ap-

proximately 10% of Queen stock outstanding, were sold

through various brokers.** It now appears that these re-

ceipts were purchased in the first instance by four Trans-

con officers, including Scheitel,’® evidently for the account

of Highway Insurance Company of Zurich, Switzerland, a

company controlled by Transcon.”” From this, plaintiff

. concludes that Moore and Scheitel testified falsely con-

cerning their knowledge as to the identity of the pur-

chaser of the deposit receipts. | at :

Interstate would also carry the chain of inference one

- step further. The letter of April 28, 1964, from Queen to

Transcon offering to sell at $8 per share contained a con-

dition guaranteeing the repurchase of Transcon shares at

an agreed: price. The testimony is clear th@t the April 28

offer was rejected by Transcon, and that th@final purchase

. agreement did not include such a condition.

Interstate argues, however, that the evidence shows that

Transcon did agree informally to make a market for. the

receipts and that its officers deliberately falsified their

testimony to conceal the (382) existence of such an agree-

. 7 See note 10 supra. *

76 See note 11 supra. oy

*' Highway Insurance is a Swiss corporation authorized to write

all types of insurance outside of Switzerland. Highway is evidently “

a wholly-owned subsidiary of Western Sales, Inc. Transcon owns

49% of Western’s stock, having distributed the remaining 51% to

its shareholders in September 1964. The IXC.C. found that Trans-

con controlled both Western and Highway. 101 M.C.C. at 540 n. 7.

A-13

Appendix A

ment. It points to a letter from “Moore to Hardison, a

major Queen stockholder, accompaning the final agreement

to the effect that the deposit receipts could be issued to Tep-

resent any number of Queen shares, and that they were as- -

signable and prime loan collateral. Additionally, Transcon,

through Scheitel, suggested that Goodbody and Company

might be able to make a market for the receipts, despite

the poor market potential for Queens shares.** Finally,

Transcon did in fact purchase some deposit receipts, albeit

indirectly. :

[1] Plainly the fact that false or misleadirg testimony

was given during the course of a judicial proceeding does

not constitute a fraud upon the court unless it appears

that the court was so misled by such testimony as to render

a decision based on a mistaken‘ view of the material facts. |

See Hazel-Atlas Gass Co. v. Hartford-Empire Co., 322

U.S. 238, 246-247, 250, 64 S.Ct. 997, 88 L.Ed. 1250 (1944) ;

- American Cyanamid Co. v. F. T. C., 363 F.2d 757, 772-779

(6th Cir. 1966), on remand, 3 CCH Trade Reg. Rep. {| 18,077

(Sept. 29, 1967). This is of course equally true in an ad-

ministrative praceeding. | |

_[2].There has been no showing here that the I.C.C.

was in any material way mislead. by the testimony relied

upon by Interstate or that if based any part of its decision

on a mistaken view of the facts. |

Let it be assumed for purpose of argument.that Transcon

- concealed the fact-that it purchased deposit receipts for ©

18 Queen’s shares were closely held by a few families. No shares

had been sold outside of the family groups prior to the issuance of

the deposit receipts.

?

Neel a BR ie iS FS DB eens SOR

A-l4

Appendix A’ y

A

~

-

.

Queen stock prior to Commission approval. “Interstate

urges that if this be so disclosure of the facts would have

led the Commission to a different conclusion because then

it would have found unlawful acquisition of control or con- ~

“summation of the transaction prior to Commission ap-

proval in violation of §5(4) of the Interstate Commerce

Act, 49 U.S.C. § 5(4).

[3]. Plaintiff’s reliance upon §5(4) is misplaced. The

record shows that Transcon acquired deposit receipts rep-

resenting approxixmately 10% of the stock of Queen and

2% of the stock of Virginia. 101 M.C.C. at 539-40. In

addition, Transeon had purchased 21%. of the stock of -

Safeway: in October 1963. 101 M.C.C. at 540. Having

found these facts, * the Commission concluded that Trans-

con had riot acquired unlawful control of Virginia, Safe-

way or Queén within the meaning of §5(4). 101 °M.C.C.

543. In reaching .its conclusion the Commission applied

the proper test that under §5(4) control means the power

to exercise control or management of the controlled com-

_ pany’s operations. See e.g., Gilbertville Trucking Co. v.

-United States, 371 U. S. 115, 83 S.Ct. 217, 9 L.Ed.2d 177

(1962); Missouri-Pacifie R. Co.—Control—Chicago * &

E.LR. Co., 327 I.C.C. 279 (1965), aff’d sub nom. Illinois

Central R. Co. v. United States, 263 F.Supp. 421 (N.D.

. 11.1966), aff’d per- curiam, 885 U.S. 457, 87 S.Ct. 612, 17

—_ P : o

Qe

-)

** Interstate also argues that Trangcon’s concealinent of’ these

facts misled the plaintiff into settling its suit against Queen and the .

_ Queen stockholders. If this be so plaintiff’s remedy lies in the Dis-

trict Court for the Western District of North Carolina which ap-

proved the settlement and dismissed the action,-and not here.

Appendia A

LL.Ed.2d 509 (1967).?° There was no such control here and |

the Commission’s conclusion is —r wapported by the

record.

Interstate complains that the Commission made no find-

‘ing with respect to plaintiff’s. theory that Transcon had

(383) agreed to. make a market for the deposit receipts.

This is not surprising, however, in view of its ruling, which

we have. affirmed, that, on all the facts presented Trans-

con’s actual. ownership ‘of some deposit receipts did not:

amount to an unlawful eoquiattion of control in violation

of §$5(4). |

In reaching its conclusion, the ‘Commission correctly

imputed to Transcon control of Western and Highway

and ownership of the deposit receipts which had been sold.

101 M.C.C. at 540 n. 7. While the I. C..C. report does not

contain an explicit finding that there was no secret agree-

ment on the part.of Transcon' to purchase or make a mar-

ket. for the deposit receipts, the evidence in the record

“was quite sufficient to support such a finding. Transcon

and Queen officials strenuously denied that there was ‘any:

such commitment, and the Commission was entitled to.

credit their testimony. Of course, Transcon’s purchase

of some deposit receipts does not, by itself, establish the

existence of such an agreement.

Moreover, it is significant to note that the I.C. C., upon -

whom plaintiff alleges fraud in this respect. was com-

*° Plaintiff argues that Transcon’s pre-approval purchases of

deposit receipts constitute an anti-trust violation within the meaning

of Carnation Co. v. Pacific Westbound Conference, 383 U. S. 213,

932, 86 S.Ct. 781, 15 L.E.2d 709, 851 (1966). We need not de-

cide this question in view of our disposition of eee private

anti-trust claim. See Section IT, infra.

oS ea .-

sh lat ti

F ’

SES Lic Sad Ve Riis OR ait Nici aE G2 oa aN. Deine Debi Ee LL Nis Pe

3

-

A-16

‘Appendiz. ” 28a .

mitted, makes no such claim to us. Instead, it points out

to us in its brief thatthe Commission found that the

““purchase of the depository receipts [was not] a partial

consummation of the transactions,’ 101 M.C.C. at 543, and . —

“urges that this necessarily included a finding that there

was no agreement, formal or informal, .to purchase the

receipts.

In view of these findings and conclusions ia is no

merit to Interstates contention that the testimoriy com-

plained of resulted. in an order tainted with fraud. There

-is no showing of reliance by the Comraission upon false

‘or misleading testimony, or any indication that the Com-

‘mission was misled. Equitable intervention by this ‘conrt

is plainly not warranted. Cf. Chas Pfizer & Co. v. Davis-

Edwards Pharmacal Corp., 385 F. 2d 533, 587 (2d. Cir.

. + 1967); Root Refining Co. v. Universal Oil Products Co., 169

F.2d 514 (3d Cir. 1948).

_ Finally, Interstate charges that feet was committed

on the Commission in that Transcon and ° Queen obtained

a favorable tax ruling from the Internal Revenue Service

- under § 368(b) of the internal Revenue Code on the ex-’

change of stock’ by concealing or falsifying the facts with ©

respect to the alleged agreement to purchase and the pur-

_ chase of Queen’s stock: by Transcon for cash. Interstate

argues that since the approval of the acquisition was con-

ditioned upon such a favorable tax ruling its concealment

was in effect a fraud upon the Commission.

Whether in fact such an alleged agreement and purchase

would have barred the transaction from qualifying under

§ 368(b) is in dispute and it is unnecessary to pass upon

that question here. The only connection between the tax

ae,

A-17

Appendix A yp

consequences of the excahnge- of stock transaction and

the petition to review is that Transcon’s application to the

Commission and its contract of purchase were conditioned

upon a favorable, ruling. The letter ruling was obtained

by Queens and Transcon on the basis of facts stated by

them to the Revenue Service. Based-upon these facts, the

Revenue |Service determined ‘the tax consequences of the

transaction. -A favorable letter ruling was issued with re-

spect to|Queen on June 15, 1965, and made part of the

I.C.C. record as a late-filed exhibit: The letter ruling states

that ‘‘thére is.no commitment, formal or informal, by

Transcontinental * * * to purchase stock from.any of the _ os

.. shareholders of Queen or Realty after consummation of the

proposed exchange, or to purchase depository réceipts

before that time.’’

~ [4] The Commission knew plaintiff had made its claims

to the Revenue Service, including assertion of the secret |

agreement theory; it is also a matter of record that its own

_ Bureau ‘of Enforcement had conducted an investigation.”

Moreover, whatever might be the interest of the Revenue

Service, which plaintiff (384) has kept advised,” in the tax

consequences of the acquisition and the factual justifica-

tion therefor, it does not lead to nonenforcement of the

Commission order. The conditioning of Transcon’s applica-

tion for control upon a favorable letter ruling does not af-

21 See Brief. for the I.C.C. at p. 50 and n. 22.

22 See letter of William R. Burt to Reorganizatien Branch, In-

ternal Revenue Service, dated October 30, 1964, included as Exhibit ~

E to Complaint Exhibit F ; Letter from William R. Burt to Sheldon.

S. Cohen, Commissioner of Internal Revenue, dated December is.

1966, included as Exhibit 84 to plaintiff's supplemental appendix.

2 oe

, Appendix ee :

fect our conclusion. If the ruling is withdrawn, then _

Transcon or Queen must apply to the LC.C. for appro- |

priate relief, if they so desire. It:should be noted -that the —

L.C.C. order under review is not conditioned upon the con-

tinued validity of the letter ruling.

Nor does Interstate’s claim that Transeon concealed its

- 100% ownership of Western Sales during part of August

and September, 1964, provide any basis for relief in this

proceeding. The letter ruling states that Western was only

a 49% subsidiary of.Transcon in June, 1965, a statement

apparently accurate at that time. Plaintiff argues, how-

- ever, that Transcon’s 100% ownership of Western during

a period in 1964 when Highway, a wholly owned subsidiary

- of Western, purchased some of the Queen deposit receipts

would, if disclosed to the Revenue Service, defeat the letter

-ruling. Regardless of the tax consequences which might - .

flow from Transcon’s 100% ownership of Western fora

short period, no attempt was made to conceal that fact

from the LC. C. Both the examiner and the Commission .

found as a fact that Transcon held 100% of Western’s

stock during part of 1964, until it distributed 51% of West-

ern to its own,shareholders. See Examiner’s Report p.

29 n. 15; 101 M.C.C. at 540 n. 7. These findings are amply

supported by the record.”

Upon this record it is plain that plaintiff has not estab-

lished that the order under review was obtained by fraud.

Plaintiff’s motion for equitable relief based on fraud is

denied.

= Both Mbore, see Hearings pp. 69-70, 898, and Scheitel, see

Hearings pp. 167, 231-32, testified as to ‘Transcon’s 100% owner-

ship -_ the subsequent dividend. ,

_ Ag

A Appendia A =

.

.

\.. Plaintiff has also requested that this court conduct a

plenary investigation of the facts, and that it be allowed

discovery with respect to the fraud allegations. Since we ;%

agree with the Commission and the United States that the ...?~

Commission was not materially misled; — motions are

also denied. -

-

Plaintiff has joined in its action for review of the-1.C.C.

order approving Transcon’ s control application, a civil -. *

suit against Transcon. The amended complaint alleges

claims for relief based on deceit and the anti-trust laws,

Sherman Act §§1, 2, 15 U.S.C. $$1, 2; Clayton Act §7,

15 U.S.C. § 18, nal seeks divestiture, treble- -damages, and j

'an accounting. Both Transcon and the I.C.C. urge that e

______this private action is_not ichabiel before the_statutery —-—- >

three-judge court.

[5-7] We are mindful that the three-judge procedure

should be used sparingly: in view of the heavy demands it

makes upon judicial manpower, and the burden that direct |

appeal imposes on the Supreme Court. See United States

v. Interstate Commerce: Commission, 337 U. S. 426, 69 S.Ct.

.1410,.93 L.Ed. 1451 (1949); Utiea Mutual’ Ins. Co. v. Vin=— NS

cent, 375 F.2d 129, 130-131 (24 Cir. 1967). Consequently 7

the rule has evolved that private claims -should not be

joined with a petition to review an I.C.C. order unless |

they are ancillary to or dependent upon the judgment of | ji q

the court as to the Commission’s order. Pittsburgh & W..

Va. Ry. Co. v. United States, 281 U.S. 479, 50 S.Ct. 378,

74 L.Ed. 980 (1930); compare Luckenbach ‘8S. S. Co. v.

NSD

A-20 -

cae | Appendix A

United States, 179° F.Supp. 605, 614 (DDel. 1959), modi-

fied on other grounds, 364 U.S. 280, 80 S.Ct. 1611, 4 L.Ed.2d

1719 (1960). Where the factual basis of the (385) private

claims are related to the petition ‘to review, the decision .

whether to permit joinder before the three-judge court is

largely discretionary. See Atlantic Lumber Corp. v. South-

ern Pac. Co., 47 F.Supp. 511 (D.Ore.1942) (3 judges); id,

47 F.Supp. 514 (D.Ore.1942) (1 judge). : ;

Plaintiff’s argument that joinder should be permitted in

this case is based largely upon Luckenbach 8: S. Co. v. ae

-» United States, supra, which held that the anti-trust issues

and the petition to review were ‘‘so inextricably enmeshed

that it would be unwarranted to truncate the litigation at

this juncture.’’ 179 F.Supp. at 614. There, both claims in-

volved the effect upon the petitioning coastal shipowners

_ of a railroad joint rate which the Commission had refused

* Plaintiff argues that once our jurisdiction is properly invoked

by the petition to review, we have the power to decide, and must

decide, all questions of law and fact presented, citing Railroad Com-

mission of California v. Pacific Gas & Electric Co., 302 U.S. 388,

391, 58 S.Ct. 334, 82 L.Ed. 319 ( 1938), and Sterling v. Constan-

tin, 287 U.S. 378, 393-394, 53 S.Ct. 190, 77 L#Ed. 375 (1932).

These cases hold only that_a Statutory three-judge court may decide

_any-‘question of state or federal law necessary to decision, and are

simply “ corollary to the rule that once our jurisdiction is properly .

invoked, we may decide the case on any ground, including grounds

that would not justify our convocation. See United States v. Geor- -

gia Public Service Commission, 371 U.S. 285, 83 S.Cts 397, 9

L.Ed.2d 317 (1963). When the issue presented is collateral to

the petition for review, as where a merger approved by the I.C.C.

is alleged to be violative of the corporate charter of one of the

carriers, the collateral issue is not within the jurisdiction of a three-

judge court. See Pittsburgh & W. Va. Ry. Co. v. United States,

281 U.S. 479, 50 S.Ct, 378, 74 L.Ed. 980 (1930); Cleveland,

Cincinnati, Chicago & St. Louis Ry. Co. v. United States, 275 U.S.

- 404, 48 S.Ct. 189, 72 L.Ed. 338 (1928). .

ae

x i

“Appendia A

_ to suspend. There is no such close connection between the

two branches of Interstate’s complaint. The primary issue

presented by the petition to review is whether the Commis-

sion’s ‘finding that the. acquisitions of control are in the -

public interest is supported by substantial evidence. Plain-

tiff’s- private action against Transcon centers about its

alleged contract to purchase Queen, and the consequences

flowing from TranScon’s conduct prior to.Commission ap-

proval of these acquistions.”® ah,

[8] In our view, the issues presented by the petition to

- review are so different from those raised by plaintiff’s

. private action that. joinder is unnecessary to an effective

review of the I.C.C. order. See Pittsburgh & W. Va. Ry.

-Co., supra. . Consequently, we dismiss those portions of

plaintiff’s complaint seeking private relief from Transcon

without prejudice to the filing within sixty days of an

amended complaint stating the | private claims for relief .

_ only to be heard before a single district judge. |

Til.

Plaintiff has moved for pre-trial discovery-on the merits _

against both defendants. Its motions seek depositions oe

and the production of documents by Transcon, and access

to internal staff memoranda and opinions from the I.C.C.

Both defendants oppose these motions on the ground that

_ 28Tn view of our holding that the Commission’s order is sup-

ported by substantial evidence, see Section IV infra, the acquisitions

themselves are exempted from the anti-trust law, 49 U.S.C. §5

- (11). Thus plaintiff's anti-trust remedies, if any, are limited to the

period prior to Commission approval, Carnation Co. v. Pacific

Westbound Conference, 383 U.S. 213, 932, 86 S. Ct. 781, 15 L. Ed.

2d 709, 851 (1966). :

A-22 | -

Appendia A

pre-trial discovery is not permitted in-an ‘action to ‘review. -

an I.0.C. order; in addition, the I.C:C. _asserts a claim of

_ privilege with respect to .its internal memoranda ‘and

opinions. See T.S.C. Motor Freight Lines, Inc. v. United

States, 186 F.Supp. 777 (S.D.Tex. 1960), aff’d sub nom.

Herrin Transp. Co. v. United States, 366 US. 419, 81 S.Ct.

1356, 6 L.Ed.2d 387 (1960).°

[9, 10] On review of an LC.C. order, this court’s task is

limited to determining whether the Commission’s conclu-_

sions are adequately supported by its (386) findings of fact,

and whether the findings are supported by substantial evi-

‘dence on the record as a whole. E. g., United States v.

Carolina Freight Carriers Corp., 315 U.S. 475, 62 S.Ct. 722,

“86 L.Ed, 971 (1942); Eastern Central Motor Carriers -

Ass’n v. United States, 239 F.Supp. 591 (D.D.C.1965).- In

making this determination, the court considers only the

_ evidence contained in the record made before the Commis-

sion, and cannot accept eviderice de novo. See Tagg Bros.

. . & Moorhead v. United States, 280 U.S. 420, 50 S.Ct. 220, 74.

_ L.Ed. 524 (1930) ; Frozen Food Express v. United States,

219 F. Supp. 131 (ND. Texas 1963) ; cf. Mississippi Valley

_ Barge Line Co. v. United States, 292 U.S. 282, 54 S.Ct. 692,

78 L.Ed. 1260.(1934). The only exceptions are cases falling

within the jurisdictional facts doctrine, see Crowell v.

Benson, 285 U.S. 22, 52 S.Ct. 285, 76 L.Ed. 598 (1932), or

challenging a rate order as confiscatory, see American

Trucking Ass’ns y. United States, 344 U.S. 298, 73 S.Ct.

307, 97 L.Ed. 337 (1953); St. Joseph Stock Yards Co. v.

United States, 298 U.S.. 38, 56 S.Ct: 720, 80 L.Ed. 1033

(1936). Thig case falls within neither of these exceptions

:.

4

.A-23

Appendix. A

and we are limited to consideration of evidence contained 3 in

‘the record made before the L.C.C.

f11, 12] Rule 26 entitles a party to examine his opponent

as to any matter not privileged which is Teasonably cal-

culated to lead to the discovery -of admissible evidence.

While Rule 26 should not be read narrowly, it plainly pre-

cludes depositions in those situations where no evidence

\eut be admitted in any event. See Walled Lake Door Co.

nited States, 31 F. R.D. 258 (E. D.Mich.1962). Nor has.

plaintiff shown the requisite good cause to entitle it to dis-

covery and inspection pursuant to Rule 34.° Plaintiff’s

motions for discovery are denied. —

. hs ae

With these matters disposed of we turn to the merits.

Interstate claims that the order of the I.C.C. eee be

wet aside because :

+a) The issuance of deposit receipts by Transcon with-

out prior Commission approval violated { 20a(2) of the

sabaayate Commerce Act, 49 U.S.C. § 20a(2).

- (b) The issuance of these receipts and’ Transcon’ S pur-

chase of some of them gave Transcon prior.control of -

Queen in violation of §5(4) of the interstate Commerce

Act, 49 U.S.C. §5(4). ao

(c) Transcon’s conduct with respect to the issuance and

purchase of deposit receipts violated § 7. of tt the Clayton Act,

15 U.S.C. $18.

(d). The Commission ignored the anti-competitive effects

of saci! a duopoly in the — bus cone d

_ 6.

at set ee ian a rel a ee ee Oe ee Te Ce ya Sa R moony ane SR

AD

| Appendia A

A. .The Section 20a dein! ;

Section 20a(2), made applicable’ to motor carriers by 49 -

US.C. § 314, makes it unlawful for any carrier ‘‘to issue

any share of capital stock or any bond or other evidence —

of interest in or indebtedness of the carrier * * * or to

‘assume any: obligation or liability * * * in respect of the

securities of any other person’”’ without obtaining prior

approval from the I.C.C. Approval may be granted only

if the Commission finds that the issue ‘‘(a) is for some

lawful object within its corporate purposes, and compatible

with the public interest,-which is necessary or appropriate’ ’ ©

for or consistent with the proper performance by the car-

Tier of service to the public as a common carrier, and which

will not impair its ability to perform that service, and (b) _

‘ _ is reasonably necessary and appropriate for such purpose.”’

Interstate argues that the deposit receipts issued by the .

respective depository banks to assenting stockholders of

Queen and other acquired companies in return for their

stock constitutes securities within the meaning of § 20a, and .

their issuance without prior commission approval — the

acquisition transactions.

. This argument was not raised before ‘the Oceamineledl

until August 24, 1966, two years after the receipts had been

issued, and after the I.C.C. had.rendered its decision. Prior

‘to August 1966, Interstate had insisted that the deposit

receipts were subject to. the registration (387) requirements

of the Securities Act of 1933. To maintain this position,

plaintiff was forced to assert that the deposit receipts were

not within the purview of Section 20a, in order to avoid the

exemption of regulated carriers’ securities from S. E.C.

jurisdiction ae in 15 U.S. C. § 77c(6).

Appendix A

(13, 14] It is well settled that the refusal of the Com-

mission toyeopen a’case to consider an argument presented

for the first time after decision was rendered will not be

overturned tnless its action was a cledér,abuse of discre-

tion: United States v. Pierce Auto Freight Lines, 327

US. 515, 535, 66 S.Ct. 687, 90 L.Ed. 821 (1946) ; United

States v. Northern Pac. Ry. Co., 288 U.S. 490, 53 S.Ct. 406, |

77 L.Ed. 914 (1933). Here, the Commission’s refusal was

clearly justified by the failure of Interstate timely to raise *

the issue, the dubious merit’ of its claim and the complete

absence of any prejudice to Interstate. Nor ‘is it surpris-

ing, considering the late date of Interstate’s petition for

| reconsideration, that the Commission set forth no. reasons

- for denying it.. Compare Yourga. v. United States, 191

F.Supp. 373, 377 (W.D.Pa.1961) ; Carolina Seenic Coach

Lines v. United States, 59 F.Supp. 336 (W.D.N.C.), aff’d

per curiam, 326 U.S. 680, 66 S. Ct. 37, 90 L.Ed. 398 (1945).

[15] The key issue is whether the deposit receipts, used

as a mechanism for maintaining the status quo pending

' application to the .C.C. for approval, are to be treated —

_ as. securities within the meaning of §20a. The dominant

Congressional purpose in enacting that section was to pro-

tect investors in the securities of railroads and other car-

riers from the all too frequent abuses of financial manipu-

lation, watered stock, and over-extended capital structures...

See Chicago S. Shore & S. Bend R. R. v. United States,

221 F.Supp. 106 (N.D.Ind.1963) ; Sharfman, The intaretahe

‘Commerce Commission 190 (1931). © - .

Thus it was provided that before a carrier could issue

" any capital stock, bonds, or long term notes, assume lia-

* A-26

Appendia A

bilities or other obligations, it must anply to the Commis-

sion for authority to do so, upon a showing of the cor-:

porate purpose underlying the transaction and. compati-—

bility with the public interest. The requirement of prior

Commission approval has also been held to apply to any

transaction by which a carrier changes or affects the terms

of some or all of its securities. See United States v. New

York, New Haven & Hartford R. R. Co., 276 F.2d 525

(2d Cir. 1960).

[16] In our view this-established body of law does not

compel the conclusion that the deposit receipts used here

~ are securities as that term is used in § 20a. First, it should

be noted that the deposit receipts were not issued by

Transcon with respect to its stock, but by the depository

bank as a receipt for shares of Queen deposited with it

by Queen shareholders. Thus the ‘deposit receipts could

scarcely be.viewed as securities of Transcon, as Interstate

seems to claim, but only as securities of Queen. :

The deposit receipts did not affect the capital structure

of Queen, or alter the terms of Queen stock to the dis-

advantage of its shareholders or in violation of its corpo-

rate purpose. Nor did they entitle Transcon to any con-

trol of Queen prior to Commission action or affect its

financial condition. Only when the. I.C.C. acted upon

Transcon’s application for control, an application which

also requested authority to issue the Transcon. shares

necessary to perform the exchange agreement, did Trans-

con issue any securities. Tlus it seems plain that the

deposit receipts are not securities requiring §20a ap-

proval prior to issuance, though the Commission has, upon

application, accepted jurisdiction over similar receipts and

A-27

A ppendia A

given such approval. See Delaware, L. & W. R. RB, Co.,

“Merger, 257 1.C.C. 91 (1944). Moreover, the Commission’s _

action in approving Transcon’s issuance of stock neces-

sarily included consideration of the propriety of the de-

posit receipts and recognized their validity. Compare New,

York, Chicago & St: Louis R. R. v. Frank, 314 U.S. 360,

62 S.Ct. 258, 86 L.Ed. 277 (1941); (388) Breeding Motor

Freight Lines v. Reconstruction Finance Corp., 172 F.2d

416 (10th Cir. 1949). :

[17 l Finally, it should be noted that the remedy pro-

vided for violation of § 20a is that the security shall be

‘void. 49 U.S.C. §20a(11). Subsection 11 also provides

that any holder of a void security who acquired it in due

course from any person may sue for damages, and that

one who bought directly from the issuing carrier may at

his option sue for damages or rescind. Plaintiff does not

fit within Subsection 11, and could not take advantage of

its provisions were the deposit receipts void. or voidable.

It certainly has no such remedy in thi®proceeding.””

26 We do not understand the decision of the Supreme Court last

term in Denver & Rio Grande Western R. R. Co. v. United States,

387 U.S. 485, 87 S. Ct. 1754, 18 L.Ed. 2d 905 (1967) to affect

our conclusions. There the court held that when a corporation sub-

ject to I.C.C. jurisdiction sought approval under §.20a to issue

stock, amounting to 20% of its outstanding’ stock, to another car-

rier, as part of a program leading to control by the other carrier,

the Commission is obligated to consider at that stage in the proceed-

ings whether issuance of the stock to the other carrier would pass

control or violate the Clayton Act. We read the case to mean that

where an acquisition by one carrier of stock in another carrier comes ,

to the attention of the Commission, it must determine, at the earliest

practicable stage, whether the transaction will-pass control and

- whether it is in the public-interest. Here we feel that criterion was

met by the I.C.C. determining that the entire transaction was con-

sonant with the National Transportation Policy upon an application

seeking authority under both § 20a and § 5(2).

gh

seine |

A-28

Appendix A

- B. Claimed violation of Section 5(4). .

Section 5(4) of the Interstate Commerce Act, 49 U.S.C. |

§ 5(4},, makes it unlawful for any person to control, or

exercise the power of control over, thé management of

any carrier without obtaining prior approval from the

Commission. Interstate asserts that Transcon committed

two violations of §5(4) by first, its purchases of a small

number of Queen deposit receipts, and second, through

-. power given Transcon over Queen by the terms of the.

deposit receipts themselves. We have already affirmed the

Commission’s finding that Transcon did not acquire con-

trol of Queen through purchases of deposit receipts. (supra,

p. 382). Plaintiff’s second contention. need detain us little

longer. ae

[18] Interstate points to the language of. the deposit

receipts which made the deposit irrevocable except upon

the joint corsent of Transcon and Queen, and which pro-

hibited either Transcon or Queen from taking any action

outside the ordinary course of business without the con-

sent of the other party. These provisions are said to have °

given Transcon an effective veto power over Queen’s

operations by preventing Queen’s management from.mak- ~

ing major policy decisions on its own, and by keeping the

Queen stockholders locked into the deal with Transcon.”’

27'While the deposit receipts entitled the holder to réceive the

dividends from and to vote the underlying Queen shares, his free-

dom of choice was circumscribed. Queen could not withdraw from’

the exchange agreement without breaking its contract with Trans-

con. Nor could it have changed the course of its business without

running the risk of violating the deposit agreement. If a holder of

Queen deposit receipts became dissatisfied he was free to transfer

the receipts to another, but the transferee would remain bound by

the terms of the deposit agreement.

-

A-29

Appendix 4.

In our view, however, these factors would not have war- -

ranted a finding by the Commission that Transcon had

Nas aD

acquired in fact the power to control the regular opera-

‘tions of Queen. Compsre Gilbertville Trucking Co. v.

United States, 371 U.S. 115, 83 S.Ct. 217, 9 O.Ed.2d 177

- (1962). While the I.C.C. made a general finding that

Transcon did not have control of Queen prior to Com-

mission approval, see 101 M.C.C. at 543, there is no specific

finding that the terms of the.deposit receipts did not serve

to pass that power to Transcon. -This is not surprising in

view of Interstate’s (389) failure to present the argument

it now makes to the Commission. Even in the doubtful

event. that a technical violation of §5(4) could be found

to have occurred, the Commission would have been justi- |

fied; in finding, particularly in light of its conclusion that

the transaction was in the public interest, that the trans-

gression did not warrant denying the public of the benefits

of the acquisition. See Illinois Central R. Co. v. United

States, 263 F.Supp. 421 (N.D.II.1966), aff’d 385 U.S.

_ 457, 87 S.Ct. 612, 17 L.Ed. 2d 509 (1967).

C. Refusal to proceed wnder § 11 of the Clayton Act.

During the summer of 1965, several months after the -

hearings before the trial examiner were closed,. Interstate

- wrote to the Commission claiming that Transcon’s pur-

chases of deposit receipts violated §7 of the Clayton Act,

15 U.S.C. $18, and requesting the Commission to issue a

complaint pursuant to §11 of that Act, 15 U.S.C. $21. In

November 1965, the Commission replied refusing to take

action on its own motion and suggesting that Interstate

file a formal complaint. On December 10, 1965, after the

FOE GSES

.

* sam Soest Meme rwetene wey i daa td itn ad

ie i sie F

| nad

A-30

Appendix A°

examiner’s recommended decision had been filed, inter-

state filed a complaint alleging that Tf¥anscon’s purchases

of deposit receipts violated the Clayton Act. The Com:

mission dismissed the complaint on the ground that it per-

tained to facts of record and matters Piccn in the con-

trol proceedings, which had already gone beyond the hear-

ing stage. |

Interstate attacks this- action of the Commission as an

abdication of its responsibilities under 411. The core of

plaintiff’s position is the assertion that Transcon’s con-

duct prior to Commission approval, though after it had

applied therefor, should be measured under the standards

of the Clayton Act, and not of the Interstate Commerce

Act. Applying Clayton Act standards, Interstate asserts

that stock purchases by competitors, are anti-competitive

under $7, and that Transcon’s purchases of deposit re-—

eeipts fall within the proscription of that section. In this

court, plaintiff has added the further claim that the deposit

receipts froze-out. other prospective purchasers of Queen

and thus erected a significant barrier to the entry of new |

competition into the intercity bus industry. .

[19] The duties of the I.C.C. under the Clayton Act

cannot be viewed apart from the prowisions- of .§5 of the —

Interstate Commerce Act. Whatever merit there might

be to plaintiff’s theory if a regulated carrier purchased

stock in.a competitor and took no further action, that is

28 The complaint was given docket number M(-C 4969 and was

served by the Commission on Transcon, Queen, and the other par-

ties to the acquisition proceedings. The complaint was dismissed by

Division 3, and reconsideration was denied by the Commission. See

notes 1, 2, supra.

A-31

Appendia A

not: what happened here. Transcon negotiated for the

stock of the three carriers with a view toward obtaining

control only if the Commission approved. Transcon did

‘not simply purchase Queen stock for cash, but in ex-

-change for stock to be issued’ with Commission approval.

Thus, it is apparent. that the Commission had the oppor-

tunity to examine the transaction on the application under

§ 20a, and at that time to discharge any duties imposed

on it by the Clayton Act. Compare Denver & Rio Grande

-Western R. R. Co. v. United States, 387 U.S. 485, 87

S.Ct. 1754, 18 L.Ed.2d 905 (1967). To hold in these cir-

cumstances that the Commission was obligated to con-_

sider separately Interstate’s petition under §11 of the

Clayton Act, when the. same issues were being fully ven-

tilated in other Commission proceedings involving the same

subject matter, would. place an unwarranted burden on an

already overloaded agency.

[20] Moreover, we cannot accept Interstate g argument

that the Commission must measure Transcon’s pre-ap-

proval conduct under the terms of the Clayton Act and

not the Interstate Commerce Act. As has been made

abundantly clear by the Supreme Court, see, e.g., Penn-

Central Merger and N & W. Inclusion (390) Cases, 389

U.S. 486, 498-501, 88 S.Ct. 602, 19 L.Ed.2d 723 (1968); .

Seaboard Air Line R. R. Co. v. United States, 382 U.S.

154, 86 S.Ct. 277, 15.L.Ed.2d 223 (1965), the principles of

the National Transportation Policy, 49 U:S.C. preceding

§1, are the dominant yardstick by which consolidations

in the transportation industry. are to be measured. Under

§ 5 of the Interstate Commerce Act, the I.C.C. is given’ the

power to approve a transaction which furthers the National

Jp eres RRNA LIE NIT RL SRPRE IOS appear rtorn WIC eN IIS Oe eN rate Ht

eo . ey 5 —_ "4 ao

A-32

iii A “¢

Transportation Policy even though it miight otherwise be

contrary to the goals of the Clayton Act. °

The. sometimes contradictory goals of the aatidrunt

laws and the Interstate Commerce Act require that each —

transaction be judged on its own facts. Here-Interstate

makes two specific claims, First, it argues that Transcon

acquired \ control of the assets of Queen in violation of

Clayton Act §7 when the Queen shareholders assented

- to the exchange agreement. Even assuming this doubtful

proposition, in our view the proper test of control’ is not

the incipiency formula of the Clayton Act, but the standards

of §§5(4), 5(5) of the Interstate Commerce Act. Under

those standards the I.C:C. properly found that control had

not passed prior to its approval.

[21] Interstate’s second claim is that the terms of the

deposit agreement froze-out potential competitors such as

Interstate who wanted to buy Queen. The flaw in this

argument is the failure to recognize the key premise under-

lying the regulated «transportation industry that entry

must be restricted in order to protect the public interest.

To enter the bus industry, a potential competitor would

either have to apply for certificates: of convenience and

necessity authorizing the new service, or purchase an ¢x-

_ tant carrier and obtain approval of the transaction from

the Commission. In light of this statutory structure, the _

deposit i°ceipt mechanism used here can hardly be said

to have erected any additional barriers to the entry of ney

competition. : |

Giving proper effect to the necessary interaction be-

tween the Clayton and Interstate Commerce Acts, we

find that the Commission acted well within its discretion

in dismissing Interstate’s complaint under the Clayton

?

A-33

| Appendi« A

Act since the matters raised there were fully considered

under correct legal standards in the control , proceedings.

There is no requirement that an agency ‘cover the same

ground twice.”

‘D. The “«duopoly”” theory

_ Interstate’ s overriding argument is that by approving

these acquisitions the I.C.C. has frozen the intercity bus

~ indust try for all time into a @duopoly”’ dominated by ;

Greyhound and Transcon. ‘According to plaintiff, with .

the ‘inclusion of the southeastern Trailways carriers into

Transcon, there are no longer enough independent com-

panies left to-form a third nationwide bus company. This

result is said to violate the anti-trust laws and require re-

_ versal of the Commission’s order.

[22] Much of plaintiff’s argument is based on the :

erroneous legal premise that the Commission must give :

controlling weight to anti-trust considerations. AS the

Supreme Court has repeatedly held, while the Commission

cannot ignore the policies of the anti-trust laws, the pri- ~~ a

mary considerations are the standards set forth in §5(2)

(c) of the Interstate Commerce Act. See Penn-Central

Merger and N. & W. Inclusion Cases, 389 U.S. 486, 498-

501, 88 S.Ct. 602, 19. L.Ed. 2d 723 (1968); Seaboard Air

Line R. R. Co. v. United States, 382 U.S. 154, 86 S.Ct. 277, —

15 L.Ed.2d 223 (1965); Minneapolis & St. Louis Ry. Co. |

v. United States, 361 U.S. 173, 80 S.Ct. 229, 4 L.Ed.2d 223

(1959); McLean Trucking Co. v. United States, 321 U.S.

67, 64 S.Ct. 370, 88 L.Ed. 544 (1944). In its report ap-

proving Transcon’s application the Commission carefully

explored the effect of the consolidations on the public in-

terest and gave due weight. to anti-trust considerations.

A-34

Appendiz A

[23] First, the Commission noted that the routes of

Transcon and the three acquired companies overlapped

only slightly, so there was almost no duplication in the

service they provided. Ht was ‘shown that substantial sav-

_ ings (391) could be achieved by joint operation of the

‘companies through centralizing their bookkeeping, volume

- purchasing, -inventory reduction, and more efficient equip-

- ment utilization. Transcon’s control would also result in

better service to the public by the establishment of more

through-service schedules replacing present ‘cumbersome

and inadequate pooling arrangements. Finally, better ter-

minal facilities, could be expected from ‘centralization of

policy -control of joint terminals in Transcon, ‘and from

new terminals which Transcon could build with its superior

financial resources. These and the other findings relied

on by -the Commission amply support its conclusion that

the acquisitions are in the public interest. .

Turning to Interstate’s -‘‘third force’? argument, the

Commission first noted that it was speculative at best? .

2° Interstate has never made it clear whether its “third-force” of

‘intercity bus carriers was to be built by separating the southeastern

carriers from N.T.S.’or from within N.T.S, If they were separated

from N.T.S. this would leave Greyhound as the only carrier group

offering: nationwide service. If they were to remain in N.T.S. then

the question is not one of duopoly, since that condition would still

be present, but whether Transcon or Interstate. was better.fit to .

contrpl a strengthened N.T.S. There is no persuasive evidence that

the stockholders of Queen or the other companies would be willing

to deal with Interstate if Transcon’s application were rejected. Nor

is there any evidence as to Interstate’s ability to operate a bus sys- |

tem. Finally, it should be noted that even if a duopoly is assumed .

to exist, there is no certainty that the industry will retain that

structure for all time. It is certainly possible that if increases in

intercity bus, traffic warrant, the I.C.C. would, upon proper study, °

create a “third force” by certificating new or additional routes for

new carriers., .

A-35.

Appendix A

Evidence at .the hearings had. shown that many previous

_ attemp® to consolidate the southeastern Trailways carriers

had failed, and there was no indication that Interstate’s

efforts wow succeed. More importantly, Interstate had

not filed any application to purchase or contyol these car-—

riers, or offered ‘to do so on terms equivalent to Trans-

con’s. Compare Minneapolis & St. Louis Ry. Co. v. United:

States, 361 U.S. 173, 80 S.Ct. 229, 4 L.Ed.2d 223 (1959).

Indeed, it settled and released any rights it might have _

had to purchase Queen. Le uen ve hie . <7

'. Finally, the Commission rejected Interstaté’s ‘*duopoly’’

claim, noting that the intercity bus industry had long been

dominated by Greyhound with Trailways a poor second.”

Nor was there any real doubt that Transcon was the most

powerful member of the N.T.S. Group. The Commission

~ eoncluded.that the public interest would be best served by

strengthening Transcon’s hand in N.T\S. in order ‘to make

that system a more effective competitor of Greyhound. :

This was in accord with the similar long-standing I.C.C. ~

policy of encouraging ‘‘the unification of the properties

- of carriers under common control in order to foster effi-

ciency and to lessen wasteful transportation in further- ,

ance of the national transportation policy.’’ 101 M.C.C.-

“at 549. We have carefully reviewed the record and have

concluded that the Commission’s findings are based on |

substantial evidence and fully support its conclusion that

the acquisitions are in thé public interest.

°° The record showed that in 1963° Greyhound earned 61% of

the operating revenue of Class 1 Intercity Bus Carriers. Trailways

earned 23%, which included the 11.27% earned by Transcon: In-

- cluding the acquired companies would make -Transcort’s share 18%.

A-36 |

Appendix A .

Ve

We have considered and determined the merits of the

various contentions made by Interstate for the reason that

the propriety of the Commission’s judgment ought not to

be left to speculation in face of the numerous charges of

fraud. In doing so, however, we wish it understood that —

we. entertain serious doubts that Interstate has standing

to raise its claims in this action in any event® —

(392): [24-26] The touchstone for standing to sue under

the Interstate Commerce Act is whether the Commission

action threatens or produces legal injury. Pittsburgh &

W. Va. Ry. Co. v. United States, 281 U.S. 479, 50 S.Ct.

378, 74 L.Ed. 980 (1930) ; Moffat Tunnel League v. United

States, 289 U.S, 113, 53 S.Ct. 543, 77 L.Ed. 1069° (1933) ; ”

. Edward Hines Yellow Pine Trustee v. United States, 263

U.S. 148, 44 S.Ct. 72, 68 L.Ed. 216 (1923). The fact of

intervention before the Commission is not enough by itself .

to establish standing. See Seatrain Lines, Inc. v. United

States, 152 F.Supp. 619 (D.Del.), aff’d “per curiam, 355

U.S. 181,78 S.Ct. 265, 2 L.Ed.2d 186 (1957). Standing is

accorded to. competitors whose businesses are affected by

Commission action as, for example, when new operating

rights are granted or new services authorized. See Amer-

ican Trucking Ass’ns. v. United States, 364 U.S. 1, 80 S.Ct.

"81 This is not to say that plaintiff lacks standing to assert such

private remedies, if any; as it may have under the anti-trust laws.

_see Carnation Co. v. Pacific Westbound Conference, 383 U. S. 213,

932, 86 S. Ct. 781, 15 L. Ed. 2d 709, 851 (1966) ; Utah Gas Pipe-

line Corp. v. El Paso ) ae Gas Co., 233 F. Supp. 955 (D. Utah

1964). ;

“A.37

. Appendix ry

1570, 4 L.Ed.2d 1527 (1960); Alton R. R. Co. v. United

States, 313 U.S. 15, 62 8.Ct. 432, 86 L.Ed. 586 (1942). Ship- |

pers, states, counties or groups, and others, whose inter-

ests are affected may also be. given standing. See 28

U.S.C. § 2323.

[27] Under these standards it seems inate to us that

plaintiff has no interest at all in the acquisition of Virgina

and Safeway. Interstate is not a competitor, a shipper, or

even a resident of the areas served by these companies. Its

sole connection with the bus industry—that it once claimed

to have a contract to purchase Queen—is not enough to

entitle it to challenge the acquisitions of Virginia and Safe-. .

way.

Interstate’s position. vis-4-vis the Queen transaction is

somewhat less remote. It claims to have had a contract to

purchase Queen which was allegedly breached at the in-

stance of Transcon. Had it gone before the Commission

in that posture and filed a rival application to purchase

Queen upon equitable terms satisfacory to the Commis-

‘sion, there is little doubt that it would have had stand-

ing to attack the resulting order. But instead of proceed-

ing in this manner, Interstate chose to sue Queen and the

Queen shareholders for breach of contract in the federal

court for the Western District of North Carolina. It is

significant that:that suit did not ask for specific perform-

ance but sought damages: only. After the hearings on

-Transcon’s application were completed and before the ex-

aminer’s report was filed, Interstate settled its suit with

Queen for $25,000. The terms of settlement required In-

terstate to give releases to Queen, the Queen shareholders

‘and Transcon, and to agree to withdraw. its opposition to

s

eae ee ee

" ARIE DIOP ELA LT

— A-38

Appendia A

the acquisition. Pursuant to this agreement Interstate

wrote the I.C.C. and asked to withdraw as a party to this

case. Ro ae ay

Shortly thereafter, claiming that the settlement had been

procured by fraud, and that Burt, its president who con- -

. trolled it, was not authorized to release Transcon, Inter- —

state cancelled its withdrawal from these prgceedings. and -

has been vigorously pursuing the ease ever since.” At no

time has Interstate ever moved to set aside-the settle-.

ments in the federal court in North Carolina where they

were approved and entered, or for that matter offered to |

return the consideration it received for these agreements.

[28] Thus, while Interstate might have had standing

under its contract to purchase Queen, it now appears that —

it contracted that right away. The releases required by

the settlement, if valid, completely discharge any liability

the Queen shareholders might have had to sell their stock

to Interstate. While we do not pass (393) upon the ques-

tion of the validity of the releases, we think that the proper

way to raise that question is by proceedings to set aside

the settlement and order of dismissal in Interstate’s ac-

tion against Queen in the Western District of North Caro-’

lina where the settlement was approved and the order

entered. ;

32 The Commission steadfastly refused to consider the validity

of. Interstate’s alleged. contract to purchase Queen, or whether : the

settlement and releases were obtained by fraud. The I.C.C. felt that

these were private matters to be resolved in court between the par-

ties. These rulings of the Commission were correct.

A-39

Appendix A

ae

In addition to the issues we have discussed, Interstate .

raises a number of other questions. We have considered

ali of these in our review of the record and find none of

them to have merit or warrant discussion.

We hold that the Commission committed no errors of law

requiring reversal and that its findings and conclusions and

the order under review are fully supported by substantial

evidence in the record as‘a whole. The order of the I.C.C.

under review is in all respects affirmed. .

It is so ordered.

:

al 8

a .

.

rete — ee eee Se

TTY MER AMEN EE ae CE NTI wre wan e

A-40—

APPENDIX B

INTERSTATE COMMERCE COMMISSION

- - No. MC-F-8744"

TRANSCONTINENTAL BUS SYSTEM, INC.—

CONTROL—VIRGINIA STAGE LINES, INC.

Decided August 10, 1966

REPORT OF THE COMMISSION

TuccLe, Comissioner:

Exceptions, including a motion to consolidate the instant

proceedings with the proceedings in Nos. MC-F-8343? and

MC-F-8348, and exceptions, including requests (1) for oral

argument and (2) that the Commission, on its own motion,

designate Nos. MC-F- 8744 and MC-F-8774 as transactions

involving issues of general transportation importance, were

filed by Greyhound Lines, Inc. (Greyhound), and Inter-

state Investors, Inc. (Investors), respectively, protestants.

1This report embraces No. MC-F-8774, Transcontinental Bus

System, Inc.—Control—Queen City Coach Co., Finance Docket No.

23123, Transcontinental Bus System, Inc., Stock, and Finance

Docket No. 23159, Transcontinental Bus System, Inc.—Stock.

2 Greyhound Corp.—Control—Tex., N. Mex. & Okla. Coaches,

97 M.C-C. 733, hereinafter referred to as the Greyhound case.

A-41

Appendix B

Transcontinental Bus System, Ine. (Transcon), National

Trailways Bus System (NTB), Safeway Trials, Ine. (Safe-

way), and Queen City Coach Company (Queen), replied. -

Limited exceptions were filed by applicant (Transcon) in

Finance Docket Nos. 23123 and 23159. A petition for leave

to intervene in opposition to the proceedings in Nos. MC-F-

8744 and MC-F- 8774 was filed by Hamish Turner (Turner),

and Transcon and Queen replied. Investors also filed a |

petition requesting that certain late-filed exhibits be ac-

cepted, that applicant be required to file certain late-filed

exhibits, and that the applications be dismissed with

prejudice, and a motion that certain additional data be con-

sidered in conjunction with such petition. Our conclusions

differ slightly from those of the examiner in Finance

Docket Nos. 23123 and 23159. /

NATURE OF THE PROCEEDINGS |

In No. MC-F-8744, by application filed May 7, 1964, as

amended and supplemented, Transcon, of Dallas, Tax., seeks

authority under section 5 of the Interstate Commerce Act

to. acquire control of Virginia Stage Lines, Incorporated

(Virginia Stage), of Charlottesville, Va., and Safeway, of

Washington, D. C., through purchase of their outstanding

capital stock, and, in turn, of Trailways of New England,

Ine. (TNE), of Washington, Tennessee Trailways, Ine.

(Tenn. T), of Knoxville, Tenn., Service Coach Line, Inc.

(SCL), of Tampa, Fla., Carolina Scenic Stages (Scenic),

of Spartanburg, S. C., Water Street Equity Corporation

(WEC), of Charlottesville, Coastal Stages Corporation

“A-42

Appendix B

(Coastal), of Spartanburg, and The Gray Line of Charles-

ton (Gray), of Charleston, S. C. :

By separate application filed May 13, 1964, in Finance

Docket No. 23123, Transcon seeks authority under section

214, and in connection with the above-described control

transaction, to issue 824,158 shares of its common capital

. stock, par value $1 per share, together with such additional |

shares as may be required to cover any fractional shares

to which the participating stockholders esd be entitled

because of the trade ratios.

In No. MC-F-8774, by application filed iii 5, 1964, as

amended and supplemented, Transcon seeks similar au-

thority to aequire eontrol.of Queen, of Charlotte, N. C.,

through purchase of its outstanding capital stock, and, in

turn, of Smoky Mountain Stages, Inc. (Smoky), Georgia-

Florida Coaches, Inc. (Ga-Fla.), Fort Bragg Coach Com-

pany, Inc. (Bragg), and General Realty and Insurance

Corporation (GRIC), all of Charlotte, and.of Tenn T,

Scenic, Coastal, and Gray.

_ By another application also filed June 5, 1964, in Finance

Docket No. 23159, Transcon seeks authority under section

214, and in connection with the transaction in No. MC-F-

8774, to issue 219,356 shares of its common capital stock,

par value $1 per share, together with such additional shares

as may be required to cover any fractional shares to which

the participating stockholders might be entitled because of

the trade ratios. ,

A hearing. was held on a consolidated record, at which

Greyhound and Investors opposed the applications, cross-

A43

Appendix B

examined witnesses, and introduced evidence. Initially,

The Amalgamated (532) Transit Union filed a formal pro-

test, but-stipulated of re¢ord with Transcon that the em-

‘ployees involved would not be adversely affected by ap-

proval of the transactions, and simultaneously requested the

Commission to reserve jurisdiction for a period of 3 years

_ from the date of consummation for the purpose of protect-

ing the interest of such employees. Our findings will be

appropriately conditioned. See Transcontinental Bus Sys- .

tem, Inc.-Control, 85 M.C.C. 383. Briefs were filed by -|

Transcon; Virginia Stage and WEC,: Safeway and TNE,

Queen and: GRIC, Greyhound, and Investors. Transéon

operates substantially more than.20 vehicles in transporta-

tion in interstate or foreign commerce subject to part II

of the act. The factual findings set forth in the examiner’ S, Bai

report are substantially accurate and are adopted by us.

Only those. facts necessary 7 our discussion have been |

repeated here.

THE PaRTIEs TO THE APPLICATIONS

Transcon’s corporate history, organization, affiliation,

and operations are described in Continental Tenn. Lines,

Inc.-Control-Tennessee Coach; 87 M.C.C. 775 (the Tenn-

essee case), and the case cited therein. Transcon has

numerous stockholders, the 10 largest ‘holding approxi-

mately 42 percent, and none more than 8 percent. In

3 Petition of Investors for reopening of proceedings for further

hearing was denied by order of division 3, dated November 24, 1965.

Petition for reconsideration of said order is being denied concur-

rently herewith.

a

Ped AR RS Sc 2 +e

A-44 | |

Mia aaace | Appendia B

Transcontinental Bus System, Inc.-Control, supra, it was

found that no single stockholder or group of affiliated stock-

holders controlled or had the power to control Transcon

within:the purview of the principle enunciated in Refiners

Transport dé Term. Corp.-Purchase-Marshall, 39 M.C.C.

271, and the same conclusion i is warranted here. Transcon

, and the other carriers involved in these transactions are

members of NTB, a voluntary, nonprofit association com-

posed of some 44 motor common carriers of passengers,

which offers its members advantages of a trade name,

standardized bus colors, and joint advertising.

Transcon’s operations are divided-into three divisions, -

Continental Central Lines, Continental Dixie Lines, and

Continental Western Lines. With its 16 subsidiaries,

Trascon operates over routes in 36 States, extending gen-

erally to New York, N. Y., Philadelphia, Pa., and Washing- |

ton, D. C., on the east, Atlanta, Ga., New Orleans, La.,

Brownsville and El Paso, Tex., Tucson, Ariz., ard San

Diego, Calif., on the south, Los Angeles and San Francisco,

Calif., Portland, Oreg., and Seattle, Wash., ‘on-the (533)

west, and Salt Lake City, Utah, Billings, Mont., Omaha, |

Nebr., Chicago, Ill., and Cleveland, Ohio, on the north.

Virginia Stage’s corporate history, organization, affilia-

tion, and operations are set forth in Natienal Trailways

Bus System-Control-Trailways, 75 M.C. C. 179, and the

. Tennessee case, supra. It operates between Washington,

Richmond, Charlottesville, Lynchburg, and Roanoke, Va.,

Durham, N. C., Huntington, W. Va., and Cincinnati, Ohio.

‘Safeway’s corporate history, organization, affiliation,

“and operations are described in National Trailways Bus

‘

y A-45

A ppendix B

System-Control-Trailways, supra ; Trailways of New Eng-

land, Inc.-Purchase-Interstate, 93 M.C.C. 217 (the TNE-

Interstate case), and N 0. MC-F-8745 Safeway Trails, Inc.-

Purchase-Reading Transp. Co., decided December 11, 1964

(not printed). It operates between New York City and

Washington, via Philadelphia and Baltimore, Md., and be-

tween Atlantic City, N. J., and Reading and Lancaster, Pa.,

via Philadelphia and Wilmington, Del.

Queen ’s corporate history, organization, affiliation, and

operations are described in Queen City Coach. Co. and ~

Smoky Mountain Stages-Control, 50 M.C.C. 325, and Queen .

City Coach Co.-Control-Smoky Mountain Stages, 70 M.C.C.

77. It operates over routes radiating clockwise from Char-

lotte to Kingsport and Bristol, Tenn., Hickory, Winston-

Salem, Greensboro, Durham, Goldsboro, and Wilmington,

N. C., Myrtle Beach, and Charleston, S. C., Sylvania and

Augusta, Ga., Greenwood and Anderson, 8. C., and Ashe-

ville,-N. C.

TNE, owned jointly by Virginia Stage and Safeway, .

operates between Portland, Maine, and Berlin and Little-

‘ton, N. H., on the north, and New York City, on the south,

via Boston and Springfield, Mass., and New Haven, Conn.

Tenn T, owned one-third each by Virginia Stage, Smoky,

“and Continental Tennessee Lines, Inc., (CT) (a subsidiary

of Transcon), operates in an area extending from Roanoke

and Bluefield, W. Va., to Knoxville, Nashville, and Chat- .

tanooga, Tenn., and Atlanta. SCL, jointly controlled by

Virginia Stage, Tamiami Trail Tours, Inc., of Tampa

(Tamiami), and Carolina Coach Company (CCC), operates

primarily in Georgia, serving Gainesville and Albany, on

the west, and Augusta, Savannah, and Jacksonville, Fla.,

—— a ee ee ee ee eed ord were .4

A-46

Appendix B .

on the east. Scenic, jojntly controlled by Queen and

Virginia Stage, operates in an area ‘extending from Ashe-

ville, Marion, and Charlotte, N. C., to Orangeburg and

Anderson, S. C., and Augusta. Sednic controls Coastal,

which operates mainly between Charleston, on the one (534)

hand, and, on the other, Myrtle Beach,.Camden, and

“Orangeburg, S.°C., and Gray, which provides a ven

ing service in the Charleston area.

WEC, controlled by Claude A. Jessup and other mem-

bers of the Jessup family, is a noncarrier owning certain

real property which it leases to Virginia Stage. Smoky,

controlled jointly by Transcon and Queen, serves an area

_ bounded generally by Asheville and Greenville, S. C., Au-

gusta, Athens, and Atlanta, Ga., and Chattanooga, Sweet-

water, Knoxville, and Newport, Tenn. Bragg, controlled

by ;Queen, operates between Fayetteville and Fort Bragg,.

N. C. GRIC, a noncarrier, having: some stockholdlers in

common with Queen, is an insurance company and owner —

of real property used by Queen and its subsidiaries. Ga-

Fla, owned two-thirds by Bragg and one-third by GRIC,

operates between Augusta and Lake City, Fla., via Waynes-

‘ boro, Midville, Dublin, ‘and Douglas, Ga., and between

Waynesboro and Wadley, Ga.

Virginia Stage is the sole stockholder of Aiinatoen and

Reading Transit Co. (ART), Safeway Transit Co. (ST),

Safety Motor Transit. Co. (SM), and Lynchburg Transit ,

- . Co. (LT), which provide local transit service in Allentown,

Pa., Wilmington, N. C., and Roanoke and. Lynchburg, Va.,

respectively. Trailways Service, Inc. (TS), and Trailways

‘Terminal of Washington (TT), are garage and terminal -

A-47

A — B

facilities located in. Weshingten, whose stock is jointly

owned by Virginia Stage and Safeway. The former and

CCC jointly. own Trailways Bus Terminal, Inc. (TB), a

Richmond, Va., passenger terminal. Trailways Garage of

Philadelphia (TG) is a garage facility in that city owned

by Safeway.

Dee Rate ee aR

Queen, CCC, and GRIC, iodine. own 50, (25, and °

25 percent of the capital stock of Charlotte Union Bus

Station, Inc. (CU), a joint passenger station in Charlotte.

Asheville Union’ Bus Station, Inc. (AU), is a joint pas-

senger terminal in Asheville, whose capital stock is held

45, 45, and 10 percent by Queen,.Smoky, and Scenic, re-

spectively. Trailways Bus Depot of Atlanta, Inc. (TA),

a joint passenger facility in Atlanta, is owned one-third

each by Smoky, ‘Tamiami, and Continental Crescent Lines,

Inc., the last being ‘wholly owned by Transcon. Queen

and Tenn T each own 50 percent of Bristol Trailways

Bus Station, Inc. (BT), a joint passenger facility in Bristol. -

THe AGREEMENTS

Under a tripartite agreement dated March 26, 1964,

Transcon would exchange .85 of a share of its stock for each

share-of (535) Virginia Stage’s stock and 273.85 shares and

2.5 shares, respectively, of its stock for each share of

WEC’s common and preferred stock. Stockholders of Vir- .

ginia Stagé and WEC fhay become a party to the agree-

ment. by delivering within a stated period an appropriate

letter to a named bank which is serving as a depositary

and their shares in proper form for transfer. The de-

cd

A-48

Appendix B-

positary would issue a receipt corresponding to the.num-

_ ber of shares delivered: The underlying shares may not

be withdrawn except upon the termination of the agree-

ment or entry of final orders by appropriate regulatory

bodies either approving or denying the applications. Until

transfer of the stock to Transcon, the holders of the re-.,

ceipts would have all voting and dividend rights. Gen-

erally, Virginia Stage: and WEC, or their ‘subsidiaries,

’ are not to perform any act or enter into any transaction

outside the ordinary course of business, and Transcon is

not to declare or pay any dividend on its common stock,

-perform any act, or enter into any agreement which will

substantially dilute the value of such stock.

Under another agreement, dated April-22, 1964, Transcon

would exchange .36 of a share of its stock for each share

“of Safeway’s classes A and B capital stock. In most other

respects, the two excliange agreements are basically the

game. Nearly all of the involved stock has been deposited

in escrow. ers. enn ean

Under separate agreements dated May 16, 1964, there

would be an exchange of 7.25 shares of Transcon’s stock

for each share of the stock of-Queen and GRIC.. The re-

maining terms are essentially the same as those in the

Transcon-Virginia Stage agreement. All of the involved

_ stock has been placed in. escrow. Internal Revenue Service

~has ruled that no gain.or loss for tax .purposes will be

recognized as a result of the exchange of the stock of

Virginia Stage, WEC, Safeway, Queen, and GRIC for that

of Transcon. aa

Queen’s board of directors also has approved employ-

ment contracts with L. A. Love, president, and W. E.

"a

A-49

- Appendia B

Smith, chairman. of the board, as noted in the — of

the examiner. We agree with the examiner that there is

no basis for a conclusion that these contracts are intended

as indirect devices for increasing the consideration of-,

fered for the sellers’ capital stock. Compare Dealers Tram-.

sit, Inc—Control and Merger. 87 M.C.C. 571. ©

: IssUES ON EXcEPTions

(536) The examiner recommended that the/Section 5 af.

plications be. granted, with the condition that jurisdiction

Shall be reserved for a period of 3 years for the protection -

of employees of applicant and its affiliated companies. He

found, among other things, that Investors’ alleged pur:

* chase of Queen’s capital stock and the claimed advantages

to itself and the public may not properly be considered in.

the absence of an appropriate application; that there is

no law requiring the Commission to develop for the record

economic material as to the competitive structure in the-

industry; that the Commission need accord weight to anti-

trust policy in a section 5(2) proceeding only if the pro-

posed merger may substantially lessen competition or tend

to create a monopoly; that no monopoly would emerge -

~ tion for motor carrier. for-hire operatiots, Greyhound is,

and will remain, after approval of the trapsactions, the

giant of intercity bus transportation; that the mattar of

Investors’ attempt to purchase Queen’s capital stock is a

dispute between such parties for settlement between them-

selves or in the court; that the Commission is required to

determine the instant applications on their merits; that

from approval of the instant = pry Gn in compe-

* eo ss —S

Cee

sect

A-00

A en B

the siete receipts are subject to the terms of the re-

lated agreements and the number thereof sold does not

affect the control of Queen and GRIC; and that although

in October 1963, Transcon purchased 21 percent of Safe-

way’s stock, the facts of record do not warrant a finding

that Transcon thereby acquired the power to exercise

control or management of Safeway’s operations.

He further recommended, in Finance Docket Nos. 23123

and 23159, that Transcon be authorized to issue not exceed-

‘ing 590,347 shares and 217,296 shares of common capital

stock, respectively, having found that since certain of the

shares of stock sought to be issued by Transcon would

be immediately thereafter surrendered for cancellation,

there was no need for the issuance of such stock. —

4 -Transcon contends that the number of shares of stock it

should be authorized to issue should be modified. In Fi-

nance Docket No, 23123, it alleges that, contrary to the

examiner’s conclusions, issuance to WEC and Virginia

Stage of 144,347 and 89,964 shares, respectively, although

ultimately to be returned to Transcon for cancellation, has

a definite and integral place in the transaction, It states

that each of the stock ‘trades, by contract, contemplates

(537) a tax-free trade; that at least 80 percent of the stock-

holders of each class of stock must participate; that it is

impossible to obtain such percentage of participation, inso-

far as Virginia Stage and/or Safeway is concerned, without

actually.issuing and trading the said 234,311 shares; and

that the tax rulings require that these shares be issued and

traded in order for the tax advantage to exist. In Finance —

Docket No. 23159, Transcon admits that although the tax

ruling will not be defeated in the event it is not authorized

A-51

Appendix B

to issue the 1,160 shares of stock to Queen in return for

stock in GRIC, sineé 80 percent of each class of stock is

obtainable, it has been represented to the Internal Revenue

Service that the transaction will be handled in that manner.

Transcon therefore renews its request for such authority

in full.

In its exceptions and motion, Greyhound contends ‘that °

the recommended decision of the examiner in the instant

. proceedings is so diametrically opposed to the decision of

division 3 in the Greyhound case as to demand that the

proceedings be consolidated for determination by the entire °

Commission; that the Commission cannot apply different °

standards of proof for different applicants; and that tlie

examiner erred in his evaluation of the evidence herein and —

in failing to make a determination respecting the unlawful

' control aspects of these proceedings. Greyhound fears that

approval will mean that Transcon will control most North

Carolina bus terminals under the terms of a State law

relating to joint terminals at all points of joint service,

thus diverting traffic from Greyhound to Trailways more

than at present because Transcon offers almost, nation-

wide service.

Investors contends that the examiner has made findings

which are not based upon reliable, probative and substantial

evidence; that Transcon~has consummated purchases of

stock without authorization from the Commission. and in .

violation of the Clayton Act; that the examiner failed

to pass on the legality of the sale of the depositary re-

‘eeipts issued for Queen and GRIC stock to affiliates of

Transcon, or to list Transcon as a principal stockholder

"thereof; that the examiner failed to find that Transcon

Te ee

ee ee %

_ A-52

Appendix B-

_had concealed an important fact from the Commission in

not. disclosing that it had purchased Eastern Carolina

Corporation; that the Commission has concealed from the

examiner information developed in an investigation of

Transcon; that purchases of depositary receipts for stock

were unlawful; that the examiner erred in not requiring

audited income statements from GRIC; that the examiner .

failed to recognize that the instant trans- (538) actions are

within the scope of a transaction posed by Investors which

the Commission’s Bureau of Finance ruled would not be

permitted; that the Commission would abuse discretion

granted by the Congress if, without a compelling trans-

portation requirement, it created a duopoly on a national

scale in the bus industry; that the Commission must dis- *

‘pose of issues relating to perjury by Transcon’s witnesses

and conspiracy to conceal violations of the Clayton Act

prior to passing on the merits of the instant transactions;

that the findings of the examiner are fatally defective and

must be set aside in the absence of a decision concerning’

violations of the Clayton Act; and that reliability and

adequacy of the information on which-Commission deci-

sions are to be based requires extraordinary care to pro-

tect the public interest. Investors requests oral-argument

and that the Commission, on its own motion, designate

these proceedings as involving issues of general transpor-

tation importance. -

In his petition, Hamish Turner, the former controlling

stockholder of Scenic, alleges that the latter withdrew

its protest in these proceedings after certain representa-

tions by Queen and Virginia Stage; that attached to the

contract for the sale of stock to Queen and Virginia Stage,

A-53

Appendix B

was a promissory note for most of the purchase price;

that petitioner consummated the sale of his stock* with

the understanding that Queen and Virginia Stage would

give him a negotiable promissory note for most of the pur-

_ chase price, . with the balance to be paid in cash and a

second promissory note, which was to be non-negotiable;

that Queen -and Virginia Stage have refused to issue him

the negotiable promissory note, and to release to him the

stock of Carolina Insurance and Investment Company

owned by Scenic and not included in the sale to Queen

‘and Virginia Stage; that petitioner intends to file a pe-

‘tition to reopen the proceeding in No. MC-F-8648;° and

that because such petition might result in denying Queen

and Virginia Stage authority to control Scenic and its

subsidiaries, he files exceptions to that part of the ex-

aminer’s- report herein authorizing Transcon to acquire

control of Scenic from Queen and Virginia Stage.

In reply, applicants contend that Investors’ exceptions

are not in conformity with rule 1.15 of the General Rules

of Practice ;* (539) that‘the facts in the instant transactions

and the Greyhound case are dissimilar, and the Commis-

sion is capable of separately weighing the evidence in

each case, determining the applicable Jaw and rendering

just decisions; and that the different result in the two cases

stems not from the application of conflicting criteria, but

‘ ee * to No. MC-F-8648, Eastern Trailway, Inc.—Control

—Carolina Scenic Stages, 97 M.C.C. 469, Queen and. Virginia Stage

were authorized to acquire joint control of Scenic. The transaction

was consummated October 23, 1964.

5 No such petition had been filed as of July 8, 1966.

° The exceptions substantially conform to the requirements of

the rule.

A-54

Appendix B

- rather from the application of the samé criteria to. con-

flicting factual situations. | .

3 Applicants further contend that there is no evidence of

_- record that Transcon and: its related companies have ac-

quired sufficient stock of Queen, Virginia Stage, and. Safe-

way to control those carriers; that the statements con-

cerning the percentages of stock involved has been con-

sidered by the Commission; and that there is no merit

to protestants’ contention of unlawful control. They argue |

that the Commission is not the proper forum to determine

the bus terminal situation in North Carolina; but assuming

it is, Greyhound has failed to point to any probative evi-

dence of record supporting the effect on it as relates to.

operations out of those terminals. On the larger com-

petitive issues, applicants state that the examiner has

properly concluded that Greyhound constitutes a virtual

monopoly in the bus industry; that Transcon and its sub-

sidiaries will be substantially strengthened by virtue of

these transactions so that new and additional competition

will be created; that approval of these transactions would

tend to result in the creation of a duopoly; that the pro-

‘posed combination of the carriers herein would be suf-

ficiently strong to withstand the predatory competitive

practices of Greyhound, albeit that after consummation,

one member. of the so-called duopoly would be less ‘than

one-third the size of the other; that it is more realistic

to create a duopoly in an effort to get some semblance of

nationwide competition with Greyhound than to disrupt

the present transactions in favor of would-be entrants into

the bus industry and the creation of a ‘‘third force;’’ that

Investors’ arguments against a duopoly are based on

Brat

A-55

Appendix B

ee

cases which have been decided solely under the antitrust —

- laws and have no applicability to mergers and acquisitions

under the jurisdiction of the Commission; and that In-

vestors was present at the hearing and was at liberty to:

produce any evidence it considered to be more informative

than that which was provided by Transcon.

Applicants further state that the percentage of deposi-

tary receipts sold to Highway Insurance Company of Zug,

Switzerland (Highway), represents slightly less than 10

percent of the stock of Queen, slightly less than 15 ‘per-

cent of the stock of GRIC, and (540) slightly less than 2 per-

cent of the stock of Virginia Stage; that Highway is a

wholly owned subsidiary of Western Sales, Ltd. (Western),

_ or which Transcon owns 49 percent; that neither Western

nor Highway is controlled by Transcon;’ that the latter

and M. K. Moore are not privy to‘the sale of the depos-

itary receipts to Highway; that based upon the purchase

by Highway of the depositary receipts, Investors has raised ~

the question of violation of section 7 of the Clayton Act

in three different fornis, whereas as a matter of law there

has been no violation of the Clayton Act; that the Com-

‘mission is the only body with jurisdiction to decide what

effect, if any, the proposed transactions will have upon

competition; that there can be no violation of section 7

of the Clayton Act unless and until the Commission finds

that the transactions will reduce or eliminate competition ;

"In 1964 the remaining 51 percent of the capital stock of West-

ern was distriubted to some 2,800 stockholders of Transcon. High-

way is a wholly owned subsidiary of Western, In our opinion, a

presumption is warranted that Transcon controls Western and High-

way. See Lease Plan International Corp.—Control—National, 93

M.C.C. 173; 180 ff:

_ A096

Appendia B

that the examiner has found that the proposed transac-

tions will create new competition rather than reduce com-

petition; and that Investors’ allegation that the transac-

tions ‘will reduce competition is based “pee matters out-

_ side the record. |

Applicants contend that since the stock for which the

depositary receipts stand is exempt from the jurisdiction of

the Securities and Exchange Commission (SEC), insofar

as issuance is concerned, the depositary receipts are like- |

wise exempt; that since the SEC declined to intervene

herein, it is proper to conclude that it does not consider

the depositary -receipts to have been illegally sold; that

there is no evidence of record that Transcon made any ar-

rangement or agreement with any stockholder of Queen,

GRIC, Virginia Stage, or any of the other carriers to ‘be

- acquired, to supply cash for the purchase of the depositary

receipts, or to agree that said depositary receipts would

be purchased, or to set a price to be paid for them; that,

because the Commission’s Bureau of Enforcement:has not

sought to intervene in these proceedings, its investigation.

.of Transcon in connection with the sale of the depositary

receipts evidently revealed no improper act; that the exam-

iner is fully aware of the investigation and, presumably

its results; that in October 1963, Transcon purchased 21

percent of the outstanding stock of Safeway; and that no -

depositary receipts issued for the remaining 79 percent of

the stock have-since been purchased by Transcon, High-

way or any other entity or person to ee aeaial s knowl-

edge.

(541) Applicants aver that the testimony of 11 bus execu-

tives who possess.a combined experience of 356 years in op-

--A-57

Appendia B-

erating intercity bus companies, of 168 exhibits and 1,285

pages of transcript constitutes the only reliable, probative

and substantive evidence upon which the examiner has

based his findings; that Queen contracted to purchase East-

ern Carolina Corporation, a noncarrier, prior to the

Transcon stock trade contract; that Transcon will shoulder

the liability, through Queen, in the event these transac-

tions are approved; that the purchase by Queen of East-

ern Carolina is not a transaction subject to the jurisdic-

tion of the Commission and there was no ‘thought of

concealing information when nothing was said on the record

_in connection with the purchase; that the earnings figures

used to compute the trade ratios for all of the companies

involved in these transactions were based upon figures ae-

quired from audited reports; that the fact that some of the

profits of GRIC for the year 1963 were.tealized from sale

of real estate is not material, its effect on the trade ratios

being de minimis; that these proceedings and the transac.

tion posed by Investors for. an opinion by the Commis-

sion’s Bureau of Finance® have nothing in common, with

the exception of the fact that the stock of Queen and

GRIC would be deposited with a bank in either case; that

the circumstances under which it would be deposited, how-

ever, are entirely different; that the fact certain things -

have happened in other industries creates no inference |

that the same thing should occur in the bus industry; that '

what happens to the competitive situation ‘in the bus in-

dustry must be decided: by the Commission based upon

facts and ‘practical reality that exists in the industry;

‘

8 Such opinion would not be binding on the Commission anyhow.

tthe Fee ne POU Riecteinin Cth!

.

A-58

Appendix B

and that there is nothing in the record to show that the

competitive situation in the broadcast industry or the air-

line industry or any other industry is in any way com-

parable to the competitive situation in the bus industry.

They also contend that Turner’s petition to intervene

is untimely filed and states no compelling reason why he

should be made a party. intervener in these proceedings;

and that the proceeding in No. MC-F-8648 is the proper

forum in which Turner should resolve his dispute with

—— and Virginia Stage.

Discussion AND ConcLusIONS °

At the hearing herein, the examiner granted Transcon’s

motion to add Seenic, “Coastal and Gray as carriers of

which Transcon (542) would acquire indirect control.

Identical amendments, however, were filed in both section-5

proceedings. Accordingly, the titled application, to the

extent of the amendment, will be dismissed. Tenn T, hav- |

ing been included as a subject carrier in both proceedings,

the application in No. MC-F-8774 will be dismissed as

_to it. The motion of Transcon to dismiss the application

in No. MC-F-8744, insofar as authority is sought therein

‘to acquire control of SCL and WEC also. will be granted |

as only a third interest in the stock of the former would |

be acquired and the latter is not a carrier. The applica-

®°In Eastern Trailways, Inc. ~CaanneCinltiin Scenic Stages,

supra, Queen and Virginia Stage were authorized to acquire joint

control of Scenic, and, in turn, of Coastal and Gray, through pur-

chase of capital stock.

>” BD. ' ar

Appendia Bo.

tion in No. MC- F- 8774 also will be dismissed as to GBIC,

_ as it is a noncarrier. ; ;

These prqceedings could be siinenitbiiadah with the Grey-

‘hound case if we could find that such action would best

eonduce to the proper dispatch of business and to the ends

of justice. (Interstate Commerce Act, section 17.) In

our opinion, there is no similarity or relationship between

the instant proceedings and the Greyhound case. The

former involves principally the acquisition by Transcon

of control of three carriers and their affiliates operating

along the eastern Seaboard, and: the latter involvés ac-

quisitions by Grayhound and affiliates in-the West. The

proceedings involve different applicants, separate records

have been established in each case, and each must be con-

sidered on its merits. In doing so separately, no. difficulty -

‘should be experienced in evaluating the evidence, deter-

mining the applicable law and reaching proper decisions.

Too, the proceedings are in different stages. We conclude

that to disturb the procedural process by consolidating

them at this time would not conduce to. the proper dispatch ...

of business and to the ends of justice. Accordingly, Grey-

hound’s motion will be denied. |

Investors’ request for oral argument also will be denied.

The facts relating to these transactions are of record

herein, have been thoroughly argued by applicants and

protestants in briefs, exceptions and various other plead-

ings, and we conclude that oral argument is unnecessary

to a proper determination of the issues.’

_ The outstanding common capital stock of the several -

carriers sought to be acquired herein has been deposited

with certain banks, for which depositary receipts were

| y A-60

- Appendia B

issued to the stockholders. Certain of the depositary re-

ceipts have been purchased (543) by Highway, which is

authorized to write all types of insurance outside of Switz-

erland. Highway owns slightly less than 10 percent of’

the outstanding stock of Queen, slightly less than 15

percent of the outstanding stock of GRIC, and some what

less than 2 percent of the outstanding stock of Virginia

Stage. The stock of Highway is owned by Western, a

designer and seller of-busses, with 49 percent of the stock

of Western owned by Transcon. In October 1963 Transcon

purchased 21 peréent of Safewagy’s stock. ‘However, in

our opinion, the facts of record do not warrant a finding

’ that Transcon has acquired control of Virginia Stage, Safe-

way, Queen and GRIC, or the power to exercise control

or management of their operations.” Nor is the purchase

of the depositary receipts a partial consummation of the

transactions, which are based on an exchange of shares

of Transcon’s stock for shares of stock of: the carriers

to be acquired. | | .

Tha-contention of Greyhound that different criteria have

- been applied in the Greyhound case and the instant cases

has been rendered moot by our subsequent action reopen- —

ing Greyhound for reconsideration on the present record.

_ No final decision has yet, been reached in that matter.

_ Sel

10 On November 23, 1965, in No. MC-F-9165, a compiaint and

request for investigation filed by Greyhound, alleging premature

conirc: by Transcon of Queen, Virginia Stage, and Safeway with-

’ out prior approval under section 5(2) of the act, was dismissed as

to the complaint and denied as tq the request for investigation.

Investors’ petition for reconsideration is being denied concurrently

herewith. :

A-61 -

Appendix B

Greyhound’s contention that the establishment of an-

other single-line operation between Main and Florida

would, because of the North Carolina terminal problem, °

enable Transcon to divert from Greyhound long-haul

traffic, in our opinion, is without merit. We agree with the’

* examiner that Greyhound has not adduced any ‘evidence

by which to measure the actual or potential loss of rev- -

enue, even assuming it were operating at a disadvantage

because of the terminal problem. ‘We doubt that the -ac-

quired carriers will divert any more interline traffic to -

Transcon upon it becoming their corporate parent than

they formerly did when Transcon was only a fellow mem-

ber of NTB.

Investors takes the position that the examiner erred in

failing to apply the criteria set forth in the Clayton Act

to determine the effect the instant transactions ‘will have

on competition in the bus industry. Investors apparently

relies upon the decision of a three-judge court in Florida

East Coast Railway, 242 Fed. Supp. 14, 22 (544). (1965),

which has-been vacated and remanded to that court” by the

Supreme Court of the United States (Seaboard Air Line

- R. Co. v. United States, 382 U.S. 154, 86 S. Ct. 277, 278). In

its per curiam decision, the Supreme Aart stated (toot

note omitted) : :

_*e *By thus disposing of the case, the District Court

- did not reach the ultimate question whether the mer-

11 By a decision of June 8, 1966, after the remand, the said court

sustained the decision of ‘the Commission in Seaboard Air Line R.

Co.—Merger—Atlantic Coast Line, 320 I.C.C. 122° (1963), the

Seaboard case. An appeal has om taken on grounds not ponent

herein. © —

il il a

_ LS LOOTED TOE LE LEN AIA! PIONERO DE:

a sie ates)

eee

. A-62

Appendia B

ger would be consistent’ with the public interest despite

the foreseeable injury to competition.

We believe that the District Court erred in its inter-

pretation of the directions this Court’ set forth in

McLean Trucking Co. v. United States, 32 U.S. 67

(1944), and Minneapolis € St. Lowis R. Co. v. United

States, 361 U.S., 173 (1959). As we said in Minne-

apolis, at 186: ‘ ;

‘Although section 5(11) does oa authorize the —

mission to ‘tignore’’ the antitrust laws, McLean

Trucking Co. v. United States, 321 US. 67, 80,

there can be ‘‘little doubt that the Commission is not

to measure proposals for [acquisitions]: by the

standard of the antitrust laws.’’ 321 U.S., at 85-86.

The problem is one of accommodation of section 5(2)

and the antitrust legislation. The Commission re-

mains obligated to ‘‘estimate the scope and appraise

the effects of the curtailment of competition which

will result from the proposal [acquisition] and con-

sider them along with the advantages of improved

service [and other matters in the public‘interest] to

determine whether the [acquisition] will assist in

ree pry the overall transportation. policy.’’ 321

U.S., at 87.’ ;

The same criteria should ne applied here to the pro-

posed merger. It matters not that the merger might

otherwise violate the antitrust laws; the Commission .

has been authorized by the Congress to approve the

merger of railroads if it makes adequate findings in

A-63

“A ppendia B

accordance with the criteria quoted above that such a

merger would be consistent with the public interest.’

54 Stat: 908, 49 U.S:C, section 5(2)(b) (1964 ed.).

Based upon the foregoing, it is clear that while the policy

underlying the antitrust laws cannot be disregarded,” the

Congress generally has immunized carrier acquisitions and

mergers (545) from the purview of the. Clayton Act and .

intended. that the Commission exercise its expertise in

determining the competitive effect of any carrier merger

or acquisition and whethér the proposal would be con-

sistent with the public interest. The Commission is not

bound by any criteria laid down under the Clayton Act,

even where it may find that a certain merger or acquisi-

tion actually will result in reduction of competition. We

12 In the Seaboard case, on pages 128 and 129, the Commission

stated :

The congressional purpose in enacting section 5(2) was to facili-

tate mergers and consolidations in the national transportation ‘sys-

tem. Maintenance Employees v. United States, 366 U.S. 169, 172,

173 (1961). In administering section 5(2), we are not to “measure

proposals for all-rail or all-motor consolidations by the standards

of the anti-trust laws.” McLean Trucking Co. v. United States,

supra, at 84-85. However, we may not disregard the policy under-

lying the antitrust laws even though carriers participating in a

merger are relieved by section 5(11) from the operation of such -

-llaws. Minneapolis & St. L. R. Co. v. United States, supra. Our

primary task is to reconcile the objective of “preventing injurious

waste and in securing more efficient transportation service,” New

York Central Securities Corp. v. United States, supra, at 26, with

the general concern of Congress “that tendencies toward concentra-

tion in industry are to be curbed in their incipiency, particularly

when those tendencies are being accelerated through giant steps

strung across a hundred cities at a time.” Brown Shoe Co. v.

United States, 370 U.S. 294, 346 (1962). In short, oyr “problem

is one of accommodation of section 5(2) and the antitrust legisla- .

tion.” Minneapolis & St. L. R. Co. v. United States, supra, at 186.

stints hiiive Sethebih Di at Bea

ee ee rd

A-64

Appendix B

_may still find that other factors in the public interest out-

weigh and override the reduction of competition in a given

instance. The examiner, in our opinion, did not err in

failing to apply in these proceedings those criteria set

forth under the Clayton Act.

(Mergers, acquisitions, or consolidations are not unlawful

improper per se, and conflict with the antitrust laws’

| only where they might result in a substantial lessening of

compefition or tend toward the creation of a monopoly. In

passing on a voluntary consolidation or merger of motor

carriers we are only required to look for standards pre-

scribed by section 5(2)(c) of the Interstate Commerce Act.

The primary test to be met here is whether the merger or.

consolidation will be compatible with the public interest.

Although we are required-to make-a determination with

respect to the competitive effect of such transactions in

considering the question of public interest, the size or

strength of the carriers involved or whether they are com-

petitive or noncompetitive is not determinative. The

term ‘‘public interest,’ as stated in New York Central

Securities Co. v. United States, 287 U.S. 12, 25 (1932), has

a direct relation to the adequacy of transportation service,

to its essential conditions of economy and efficiency, and to

appropriate provision and best use of a facili-

- ties. These are the criteria.

‘ Here, the proposed transactions will not result in a re- ©

duction of competition, but will substantially increase com: "

petition, which factor is pointed out, in the report of the

examiner. While there (546) is some duplication in

operations of Transcon and the carriers involved in the pro-

ceedings herein, essentially between Washington, D. C., and

A-65

Appendix B

Baltimore, Md., Philadelphia, Pa., and New York, N. Y., and

to some extent between Tenn T and CT in Tennessee com-

prising, at most, some 350 miles of a total of 10,860 miles

operated by the carriers to be controlled, or about 3.5 per-

cent, there is virtually no duplication in service provided.

_ The carriers to be controlled now provide through service

between points in their respective areas under interline

arrangements and Transcon and the subject carriers have

cooperated closely for many years as NTB members.

Centralized control of the various operations in Transcor

would permit the establishment of more through services

‘and improved service all to the benefit of the public. . As-

suming arguendo, as does the examiner, that even though

some reduction in competition might result, the record is

clear that the other benefits which would flow from ap-

proval herein would be in the public interest and override

any effect from such decrease in competition.

-. Investors argues that it would create a ‘‘third ficin?™ to

compete with Greyhound and Transcon. Its ability to do

this is doubtful at best. However, no application has been

filed for the consolidation of any of the several carriers

herein involved under the ownership of Investors for the

creation of such ‘‘third force.’’ Investors, by comparing. —

the situation in the bus industry to that existing in other

industries, fails to realize: the peculiarities of the com-

petitive problem resulting from the fact that bus companies

must operate over specific authorized routes and between

specified points. Regardless of whether a pattern may

have been established in other industries that there shall

be not less than three major competitors, and where the

area served may depend upon depth of the sales staff, no

A-66

Appendix B

such pattern has been established for the bus industry.

In administering: the act, the question is consistency with

the public interest, and whethér the public convenience

would be served. Will the transaction enable the involved

applicant to provide an improved service by motor vehicle

to the advantage of the riding public and not thereby un-

duly restrain competition? The ‘public desires bus service

from a single terminal to almost any destination and car-

riers which can be relied upon for reasonable reliability,

_ cleanliness, safety, frequency of schedules, and (547)

adequate terminal facilities. Greyhound and Trailways

(NTB) have satisfied this demand. Many iets een bus

companies have not.

Assuming arguendo that eae and Trailways _

(NTB), constitute a duopoly already, these applications

portend nothing new for they involve primarily a

strengthening of the Trailways system. While the Trail-

ways system today is neither a single company nor a single

group of related companies, it is already dominated by

Transcon and ‘its affiliates.

To finance the transactions in oi: MO-F-8744, Transcon

seeks to issue 824,158 shares of its authorized common stock

for the participating stockholders’ shares, apportioned as

follows: . .

Outstanding Transcon

Company shares shares

Virginia: Stage ./......:..... ~ 393,650 . 334,603

- WEC (preferred) ........... 1,219 3,048

Wes COOMION 20 onc cece ees 791 188,139

Safeway (class A and B)...... 1,050,000* ~~. 298,368

1 Includes a total of 221,200 shares of class A and B stock owned

by Transcon.

A-67

Appendix B

WEC owns 169,820 shares of Virginia Stage’s stock for

which it would receive 144,347 shares of Transcon stock. —

Virginia Stage owns 249,900 shares of Safeway’s stock for

which it would receive 89,964 Transcon shares. The ex-

aminer was of the opinion that since the 234,311. shares

which WEC and Virginia Stage would acquire would be

returned to Transcon’s treasury for cancellation, there was

no need to issue more than 590,347 shares, including 500

shares to cover any fractional shares that might be re- —

quired to be issued to the participating stockholders. As |

above indicated, applicant contends that each of the stock

trades contemplates a tax free trade; that in order to

have such a trade under the rules of the Internal Revenue

Service, at least 80 percent of the stockholders of each

class of stock must participate; that it is impossible to

obtain such participation without actually issuing and

trading the 234,311 shares; and that the tax rulings re-

quire that these shares ‘be issued and traded in order for .

them to be operative. .

To finance the transactions in No. MC-F-8774, Transcon

would issue 161,414 shares of its stock for the 22,264 shares

of Queen’s (548) stock and 57,942 shares. for the 7,992

shares of GRIC’s stock, or a total of 219,356 new shares.

' The ‘examiner was of the opinion that since the 1,160

Transcon shares’ Queen would receive for its 160 shares,

of GRIC stock, together with 1,000 shares of Transcon

stock owned by Queen would be returned to Transcon’s

treasury for cancellation, there was no need to issue more

than 217,296 shares including 100 shares to cover any frac--

tional shares that might be required to be issued to’ the

A-68 |

-Appendiz B

*

participating stockholders. As above indicated, applicant

contends that although the tax ruling will not be defeated .

in the event Transcon is not authorized to issue the 1,160

shares of stock to Queen, since 80 percent of each class

of stock may be obtained, representation has been made

to the Internal Revenue Service that the transaction will

be handled in that manner. While we deem the representa-

tion inmaterial considering’ the limited number of shares

involved, we will authorize issuance of the-number of

shares sought.

_ Accordingly, authority will be granted in Finance Dockets

Nos. 23123 and 23159 for Transcon to issue not exceeding

' 924,658 shares and 219,456 shares of its common stock,

respectively, the former including 900 shares and the lat-

ter 100 shares to cover any fractional shares to which the

participating stockholders might be entitled because of the

trade ratios. Such is on the condition, however, that the -

_ 236,411 shares to be issued to WEC, Virginia Stage, and

Queen will, as iileiaeti be returned to Transcon’s treas-

ury. .

Investors’ petition requesting ‘that it be permitted to file

certain late-filed exhibits and other relief and its motion

‘that.certain additional data be considered in conjunction

with said’ petition, will be denied under rule 86 of the Gen-

eral Rules of Practice.* To accept and consider such late-

filed exhibits and additional data, in the absence of a stipu-

lation that same might be filed, would be deprivation of the

Rows Rule 86 reads, in part, as follows: “* * * the Commission will

not receive in evidence or consider as part of the record any docu-

ments, letters, or other writings submitted for consideration in

connection with any proceeding: after close of the hearing, * * *.”

A-69,

Appendix B

right of applicants to cross examination thereon. Stand-

ard Motor Freight, Inc.—Purchase—Madison Transp., 65

M.C.C. 249. - Furthermore, it does not appear that such -

additional evidence would affect our conclusions herein.

The avernients in the petition of Turner are not rea-

sonably pertinent to the issues presented herein and the

petition will be denied. The dispute between Turner and

Queen and Virginia Stage is a matter which properly -

‘should be resolved in the courts.

_ (549) No fixed charges would be incurred in these trans-

actions since only an exchange of stock is involved. Our

’ findings contemplate that the reservation of jurisdiction

for carrier-employee protection satisfies the requirements

of. section 5(2)(c) (4).

It has been a consistent policy in section-5 proceedings .

to encourage the unification of the properties of carriers

under common control in order to foster efficiency and to

lessen wasteful transportation in furtherance of) the na-

tiona] transportation policy. While it is Transcon’s pres-

ent intention to maintain the subject carriers as separate

corporate entities with the same management, Transcon

is admonished to’ give consideration to a plan for cor-

porate simplification of the multiple common carriers which

will be controlled by it, with a view toward seeking au-

thority for unification of the operations into a lesser num-

ber of carriers. See the Tennessee case at page 780. Ab-

_ Sent such a plan, future control applications: -by Transcon

may be disapproved.

In No. MC-F-8744, we find that acquisition by Transcon-

tinental Bus System, Ine., of control of ——— Stage

OO Or PT

~ i Bt ae

EY.

A-70

Appendix B

Lines, Incorporated, and Safeway Trails, Inc.,; through

purchase of their outstanding capital stock, and, im-turn,

of Trailways of New England, 'Inc., and Tennessee Trail-

ways, Inc., through such acquisition of control, upon the

terms and conditions previously set forth, which terms

and conditions are found to be just and reasonable, con- -

stitute transactions within the scope of section 5(2)(a),

and will be consistent with the public interest; provided,

however, that if the authority herein granted is exercised,

jurisdiction shall be reserved for a period of 3 years from

the date of final consummation herein to make such addi- .

tional findings and to impose such terms and conditions with

respect to the employees of applicant and its affiliated com-

panies as may be necessary and lawful, if, upon petition by

them, or their representatives, within that period, it is

shown that the condition of their employment or interests

incident thereto have been or will be adversely affected by

anything done or proposed to be done pursuant to, or as

a direct result of, consummation of the transactions under

the authority herein granted. |

In No. MC-F-8744, we further find that to the extent

Service Coach Line, Inc., Cardlina Scenic Stages, Coastal

Stages Corporation, The Gray Line of Charleston, .and

Water Street Equity Corporation are joint parties appli-

cant, the application should be dismissed.

(550) In No. MC-F-8774, we find that acquisition by ©

Transcontinental Bus System, Inrc., of control of Queen

City Coach Company through purchase of its outstanding

‘capital stock, and, in turn, of Smoky Mountain Stages,

Inc., Georgia-Florida Coaches, Inc, Fort Bragg Coach

Company, Inc., and Carolina Scenic Stages, and, in turn,

oS ate oie

A-71

Appendix B |

of Coastal Stages Gorporation and The Gray Line of

Charleston through such acquisition of control, upon the

terms and conditions previously set forth, which terms

and conditions are found to be just and reasonable, con-

' stitutes a transaction within the scope of section 5(2) (a), —

and will be consistent with the public interest; provided,

however, that, if the anthority herein granted is exercised,

jurisdiction shall be reserved for a period: of 3 years from

the date of final consummation herein to make such addi-

tional findings and to impose such terms and conditions

with respect to the employees of. applicant and its af-

fiiated companies as may be necessary and lawful, if,

upon petition by them, or their representative, within that

_period, it is shown that the condition of their employment—~

-or interests incident thereto have beew or will be ad-

_ versely affected by anything done or proposed to be done *

pursuant to, or as a direct result of, consummation of the

transaction under the authority herein granted.

In No. MC-F-8774, we further find that to the extent

Tennessee Trailways, Inc., and General Realty and. In-

surance Corporation are joint parties applicant, the ap-

plication should be dismissed.

_ In Finance Dockets Nos. 23423 and 23159, we ‘find that

issuance by Transcontinental Bus System, Inc., in connec-

tion with the transactions authorized in Nos. MC-F-8744

and MC-F-8774, of not exceeding 824,658 shares and 219,-

-456 shares of its common capital stock, $1 par value each,

seisastanes upon the terms and conditions and for the

-purposes previously set forth, (a) is for a lawful object

within its corporate purposes and compatible with the pub-

lic interest, which is necessary and appropriate for and

A-72

- Appendia B

consistent with the proper performance by Transcontinén-

tal Bus System, Inc., of service to the public. as a common

carrier, and which will not impair its ability to perform

that service and (b) is reasonably necessary and appro-

‘priate for such purposes. .

An appropriate order will be entered.

ORDER

At a Session of the INTERSTATE CoMMERCE Commission, held

at its office in Washington, D.C., on the 10th day of

August 1966. .

No. MC-F-8744

TRANSCONTINENTAL Bus System, Inc.—ConTRoL—

‘Vircinia Stace Lives, Inc.

No. MC-F-8774

TRANSCONTINENTAL Bus System, Inc —Controt—

Queen City Coacn Co. —

Finance Docket No. 23123

TRANSCONTINENTAL Bus SysTEM, Inc.—SrTock

‘Finance- Docket No. 23159. ’

TRaNScONTINENTAL Bus System, Inc.—Srock

Investigation of the matters and things involved in these

proceedings having. been made, and the Commission, on

the date hereof, having made and filed a report containing

Vs

A-73

A ppendia B

“~vits findings of fact and conclusions thereon, which report

and the report of the examiner are hereby made a part

hereof:

It és ordered, That, in No. MC-F-8744, the acquisition by. —

Transcontinental Bus System, Inc., of Dollars, Tex., of con-.

trol of Virginia Stage Lines, Incorporated, of Charlottes-

ville, Va., and Safeway Trails, Inc., of Washington, D. C.,

through wanaliiin of their outstanding capital stock, and, in

turn, of Trailways of New England, Inc., of Washington,

and Tennessee Trailways, Inc., of Knoxville, Tenn.,

through such acquisjtion of control be, and it. is hereby,

approved ‘and authorized, subject to the terms and con-

ditions set forth i in the report.

It is oer Re ordered, That the application in No.

MC-F-8744, to the extent Service Coach Line, Inc., of

-Tampa, Fla., Carolina Scenic Stages and Coastal Stages

Corpuniien, both of Spartanburg, S. C., The Gray Line

of Charleston, of ‘Charleston, S. C., and Water Street

Equity Corporation, of Charléttesville, are joint parties ap-

plicant be, and it is hereby, dismissed.

It is further order, That, in No. MC-F-8774, the ac-

quisition by Transcontinental Bus System, Inc., of Con- .

trol of Queen City Coach Company, of Charlotte, N. C.,

_ through purchase of its outstanding capital stock, and, in

‘turn, of Smoky Mountain Stages, Inc., Georgia-Florida

Coaches, Inc., and Fort-Bragg Coach Company, Inc., all of

_ Charlotte, and Carolina Scenic Stages, and, in turn, of .

Coastal Stages Corporation and The Gray Line of Charles-

ton, through such acquisition of control be, and it is hereby,

ee

*

PRIA A ROT RR PO IR

i‘)

.

PLLC MPF LIE

ne

- a -

a see : Appendia B

approved and saloon’: subject to the terms and condi-

tions set forth i in the report.

_ It ts further ordered, That the appitention in No.

MC- F-8774, to the extent Tennessee Trailways, Ine., and.

General Realty and Insurance Corporation, of Charlotte,

are joint parties applicant be, — it is hereby, dismissed. _

It is further ordered, That, in Finance Dockets Nos.

23123 and 23159, in connection with the transactions au- .. . |

thorized: in No, MC-F-8744 and MC- F-8774, Transconti-

~ nental Bus System, Inc., be, and it is hereby, authorized

to issue not exceeding 824,658 and 219,456 shares, respec-

tively, of common capital stock, par value of $1 per share,

for the purposes and upon the terms and conditions set

forth in said report. |

It is further ordered, That if the parties to the trans-

- actions authorized in Nos. MC-F-8744 and: MC-F-8774 de- .

sire to consummate same, they shall confirm in writing to

the Commission, immediately after. consummation, the ‘dates

on which consummation has actually taken place. »

It is further ordered, That if the authority herein

granted is exercised, Transcontinental Bus System, Inc.,

shall ‘submit for consideration, in each proceeding, a sworn

statemeut, and one copy thereof, showing all expenditures

‘made, by dates, or to-be made, in connection with the

transaction authorized, _including the consideration, legal

and other fees, commissions;—witness fees, and any other

costs incidental to the transaction, the assets acquired and

the liabilities ‘assumed, indicating the account number and

A-75

Appendia B

title to which each item has been, or is to be, debited or

credited.

It ts ithe iiiloroil That the authority. herein wenieba

shall be effective 35 —_ from the date of service of this

order.

‘:

granted is exercised within 180 days ftom the effective date

hereof, this order shall be of no further force and effect.

r

It is facies ordered, That except as herein authorized,

the capital stock authorized to be issued in Finance

Dockets Nos. 23123 and 23159, shall not be sold, pledged,

repledged, or otherwise disposed of by Transcontinental

. Bus System, Int., unless and until so ——- or approved

by this Coemndauton. .

| It as further ‘ordered, That Transcontinental Bus Sys-

tem, Inc., shall report concerning the matters involved in

Finance Dockets Nos. 23123 and 23159 in conformity with .—

the order of the Commission, Division 3, dated May 20,

1964, as amended, respecting applications filed under sec-

tion 214 of the Interstate ee Act (49 CFR 56.6).

It is further Per] That nothing herein shall be con-

strued to imply any guarantee or obligation as to said

stock, or dividend thereon, on the part of the United

States.

It is deitiile ordered, That recital in said reports of

balance sheet and other financial data shall not be con-

It is further ordered, That: unless the cnlinanee: iain

oat

eee ENTE Le ION LOL

‘

os i

eos

3 A-76

Appendia B

e

' strued_as approving accounting methods which have been

followed or —— represented thereby.

_ It-ts further ordered, That. the motion of Greyhound

Lines, Inc., that the proceedings herein be consolidated

with proceedings in Nos. MC- F-8343 and MC-F-8438 be,

and is hereby, denied.

_ Itis further ordered, ‘That the requat of Interstate In-

vestors, Inc., for oral argument, sl and it is hereby,

denied; and,

It is-further wry That the petition of Nalsintade “In-

vestors, Inc., requesting that it be permitted to file certain ~

Jater-filed exhibits and for other relief, and its ‘motion

that certain additional data be considered in. conjunction

with said petition be, and they are a denied.

By the Commission..

> | | . H. Nem.-Gansox,

Secretary.

(Seal)

A-T7

APPENDIX C | dy

InTERsTATE COMMERCE ComMISSION |

Served November 1, 1965

(0. No. MC-F-874# :

TRANSCONTINENTAL Bus System, Inc.—Contror—

Viretnia Stace Lives, Ine.

(2) Report anp OrpER

RECOMMENDED BY M. L. Winson, Hearing ExaMIner

| ‘4

INTRODUCTION

Transcontinental Bus System, Ine., of Dallas, Tex., by

an application filed on May 7, 1964, in No. MC-F-8744, as

amended and supplemented, seeks authority under section |

5 of the Interstate Commerce Act to acquire control of

Virginia Stage Lines; Incorporated, of Charlottesville, Va.,

- and Safeway Trails, Inc., of Washington, D. C., through

purchase of their outstanding capital stock, for considera-

tion later deseribed and, in turn, of Trailways of N ew Eng-

land, Inc., of Washington, Tennessee Trailways, Ine., of

~ Knoxville, Tenn., Service Coach Line, Ine. of Tampa, Fla.,.

Carolina Scenic Stages, of Spartanburg, S. C., and Water

* This report embraces No. MC-F-8774, Transcontinental Bus

System, Inc:—Control—Queen City Coach Co., Finance Docket No.

23123, Transcontinental Bus System, ‘Inc.—Stock, and. Finance

Docket’ No. 23159, Transcontinental Bus System, Inc.—Stock.

ENS be he,

A-78_

Appendiz C

Street Equity Corporation, of Charlottesville, and, in turn,

of Coastal Stages Corporation, of Spartanburg, and The

Gray Line of Charleston, of Charleston, S.C. By another

application filed on June: 5, 1964, in No. MC-F-8774, as

amended and supplemented, Transcontinental Bus System,

Inc., seeks similar authority to acquire control of Queen:

City Coach Company, of Charlotte, N. C., through pur-

chase of its outstanding capital stock, for consideration.

discussed below, and, in turn, of Smoky Mountain Stages,

Inc., Georgia-Florida Coaches, Ine., and Fort Bragg Coach

Company, Inc., also of Charlotte, Tennessee Trailways,

Ine., Carolina Scenic Stages, and General Realty and In-

surance Corporation, of Charlotte, and, in turn, of: ‘Coastal

Stages Corporation and The Gray Line of Charleston? In .

applications filed on May 13, and June 5, 1964, in Finance

Dockets (3) Nos. 23123 and 23159, Transcon eeks author-

ity under section 214 of the Act to issue 807,043 shares. of

its” common “capital. stock, $1 par value each, of which

589,847 shares. would finance the transactions in No. MC-F-

8744 and 217,196 shares those in No. MC-F-8774. No rep-

resentation has been made by any State authority pempest.

_ ing the section-214 applications.

The four applications were referred to the xaminer for

hearing and recommendation of appropriate ‘orders. Such

hearing was held on a consolidated record on September

9-15 and October 26-9, 1964, in Washington, at which Grey-

hound Lines, Inc., and Interstate Investors, Inc., herein

ealled Greyhound and Investors, opposed the applications,

. “

~

*'rhe above parties, in the sequence named, will be identified as

Transcon, Virginia Stage, Safeway, TNE; Tenn T., SCL, Scenic,

WEC, Coastal, Gray, Queen, Smoky, Ga-Fla, Bragg, ‘and GRIC.

- A-79,

Appendix C

cross- examined witnesses, and introduced evidence. The

Amalgamated Transit Union filed a formal protest thereto,

but stipulated of record with Transcon that the employees

involved- in the transactions would not be adversely af-

fected by their approval, and simultaneously requested the

Commission to reserve jurisdiction for a period of three __-.

years from the date of consummation for the purpose of

protecting the interest of such eniployees. The findings.

herein will be appropriately conditioned. See Transcon-

tinental Bus System, Inc—Control, 85 M.C.C. 383. Briefs:

were filed by Transcon,. Virginia Stage and WEC, Safeway

and TNE, Queen and GRIC, Greyhound; and Investors.

‘Transcon utilizes considerably more than 20 motor busses

in performing transportation under Part II of the Act.

Its operating revenues in 1962, 1963; and the: first half of *.

1964 aggregated $13,967,314, $14,452,879, and $6,661,569,

respectively. Unless otherwise stated, the parties herein

engaged in transportation operate in ipterstate or. foreign

commerce as motor common carriers of passengers over

regular routes. Certaim motions of several parties will be

considered at an appropriate place in this report.

TRANSCONTINENTAL’s Corporate History, AFFILIATION,

Opekations, AND Financia Data . ;

Transcon’ S corporate history, organization, affiliation, .

and operations are described in Continental Tenn. Innes,

Inc.—Control—Tennessee Coach, 87 M.C.C. 775, and the

ease cited therein. It is authorized to issue 4,000,000 shares

of common capital stock, -par value $1 each, of which |

1,981,172 shares are outstanding. There are numerous

“er

~

Appendia C

- stockholders, with the 10 largest holding approximately 42

percent, and none more than 8 percent. In Transcontinental

~ Bus ‘System, Inc—Control, supra, it was found that no

single stockholder or group of affiliated stockholders con-

trolled or had the power to control Transcon within the

purview of the principle enunciated in Refiners Transport

& Term. Corp.—Purchase—Marshall, 39 M.C.C. 271, and

the same conclusion is warranted here. Approval herein

would not materially change this situation. Transcon

holds varying proportions of the capital stock of many _

carriers and non-carries, the latter owning mostly bus ter-

minals and restaurants. It, as well as the subject carriers,

is a member of National Trailways Bus System, herein

called TBS, which is a voluntary, non-profit membership »

association of motor common carriers of ‘passengers, (4)

formed in 1936 for the purpose of promoting travel over —~

- their lines, improving their service, effecting economies in

operation, and fostering safety programs: and practices,

_through the establishment of joint terminals, coordination |

of schedules, transportation of passengers with minimum .

interchange of busses, joint advertising of services, joint

“purchase of supplies, and use of common color schemes and

trade-marks. National.Trailways Bus System—Control—

Trailways, 75 M.C.C. 179, and Trailways of New England,

Inc-—Pur—Boston & M. Transp., 80 M.C.C. 697. By ad-

vertising the name of ‘<Trailways’’, the members are iden-

tified by the public as a group of earriers-rendering through

gervice ‘nationally, and thus are better able to compete

with Greyhound’s nation-wide motorbus operations. Thid. :

TBS is currently composed of some 44 carriers, with con-

‘trol and management of its affairs. vested in a 14-member

—

ae = ABIL

Appendic C

board of directors, 6 representing Transcon and its sub-

' sid?aries. Dues and other charges are assessed in propor-

tion to’ each .member’s passenger revenue of the last -

calendar yéar before election of the board, the portion of

- _ the. Transcon companies amounting to 46.38 percent. The

number of votes depends on such revenue, subject to a-

maximum limit. ° .

Transcon’s operations: are divided eto three divisions,

Continental Central Lines, Continental Dixie Lines, and

Continental Western Lines. - With’: 16 subsidiaries (15

wholly controlled and one 50 percent), it operates over

45,575 miles of routes in 36 states, bounded generally by

New York, N. Y., ‘Philadelphia, Pa., and Washington, on

_ ° the east, Aint. Ga., New Orleans,.La., Brownsville and

* El Paso, Tex., ‘Tucson, Ariz., and San. Diego, Calif., on the

south, Los Angeles and San Francisco, Calif., Portland,

Ore., and Seattle, Wash., on the west, and Salt tale City,

: Utah, Billings, Mont., Omaha Ne ebr., Chicago, IIl.,: and

Cleveland, Ohio, on the north. Some of the principal points

served, aside from those just named, are. Harrisburg and.

- Pittsburgh, Pa., Detroit, Mich., Toledo and Columbus, Ohio,

Indianapolis, re Birmingham and Mobile, Ala., Chatta-

nooga, N ashville, and Memplis, Tenn., ‘Shreveport, La.,

Houston, Dallas, and Fort Worth, Tex., Denver, Colo.,

Albuquerque, N..M., Little Rock, Ark., ‘Oklahoma City,

Okla.; St. Louis and ‘Kansas City, Mo., and Des Moines,

Iowa. Transcon and its affiliates operate 1,283 busses. It

has approximately 4,000 employees.

Transcon’s balance sheet as of June 30, 1964, aim as-

sets aggregating $26,275,063, consisting of: Current assets

$7,859,273, principally cash $860,717, receivables from asso-

-

2 eT pe RaR an,

Z ,

A-82

e*

- Appendia C |

ciated companies $5,788,414, accounts receivable $648,333,

’ and material and supplies $430,073; carrier-operating pyop-

erty, less depreciation, $4,942,649; non-carrier operating

property, less depreciation, $155,772;. intangible property

$106,511; investment securities and’ advances—associated _

companies $12,373,171: and other $423,960; special funds |

$240,000; and deferred debits $173,727. Its liabilities were:

Current. liabilities $5,993, 091, chiefly payables to. associated

.. companies $3,480, 803, accdunts payable $1,083, $34, Wages *

payable $260,372, and unredeemed tickets: $942, 767 ; long-.

‘term debt. due within one year $885,519; advances pay-

able $10,580; equipment and other long-term obligations -

$1, 865, 972; deferred credits $87,827 ; (5) reserves $365,178 ;

common capital stock $1,974, 072 and premiums thereon

$366,670; and surplus—unearned $2,970,214 and earned

$11,755,940. Transcon’s income statements for 1962, 1963,

and the first 6 months of 1964 show net income of $1,082,460

and $4,825,765 and a deficit of $332,704, before and net in- -

come of $845,117 and $4,452,034 and a deficit of $272,451

(deduction of investment credit of $60 252) after, proviston

for income taxes, respectively. |

No. ineanades anp France Docker No. 23123 -

VirGcinia STAGE’s AND SaFEWAY’s’CorPoRATE History, |

_ AFFILIATION, OPERATIONS, AND FINANCIAL Data

Virginia Stage’s corporate history, organisation, affilia-

tion, and operations are set forth in National Trailways ~

Bus System—Control—Trailways, supra, and No. MC-F-

8648, Eastern Trailways, Inc—Control—Carolina Scenic

. A883 -

i ers Appendia C

Stages, -— M.C.C. —,, decided J uly 17, 1964, and, on re-

consideration, September 1, 1964. It has outstanding

393,650 shares of common capital stock, par value $1 each,

of which’ WEC (name changed from The Virginia Pepsi-

~ Cola Bottling Company, Incorporated) owns 169 820 shares |

(43%), Claude A. Jessup 26,970 shares, James L. J essup

19,500 shares, and other members of the Jessup family own

a large part of the balance. WEC i is anon earrier,-but has: _

real property which is. being used by Virginia Stage. The.

.former’s capitalization consists of 1 219 shares of 4 per-

' _ eent cumulative preferred stock, $100 par value each, and

791 shares of common capital stock with a par value of $100

each, a majority of meres is owned by. mecabers of that

_ family. ’

Safeway’s corporate history, organization, affiliation, and 3

operations are described in National Trailways Bus System

—Control—T railways, supra, Trailways of New England,

Inc.—Purchase—Interstate, 93 M. C.C. 217, and No. MC-F-

8745, Safeway ‘Trails, Inc.—Purchase—Reading Transp.

Co., decided December 11, 1964 (not printed in full). It has

. outstanding 525,000 shares each of Class A non-voting and

Class B voting common eapital stock, par value $1 each.

Ownership of a large majority ‘thereof is divided as fol-

> Jows: Virginia Stage, 124,950 shares cf each class, total -

23.7 percent, Claude Jessup, 122,500 shares, same, 23.3 per-

cent, Transcon 110,600: shares, same, 21.1 percent, Charles

B. McInnis 104,600 and 110,600 shares, 20.5 percent, and

_ Marvin E. Walsh 44,450 and 44,450 shares, 8.5 percent.

: Virginia Stage and Safeway jointly own all of TNE’s

capital ‘stock. Virginia Stage, Continental ‘Tennessee Lines,

Inc.; of ‘Nashville, a subsidiary of Transcon, and Smoky

Lae ee Te Pe ap ee ED

°

rege

-

. P » 7

ee NTO LITER IER TEE TILE IED Pong fernapmyye MEP OLNEY LOLOL LT I NIE

S| lic | d

PPL, OF) Cee

A-84

ie Appendia. Cc

each owns 33¥4 percent of Tenn ™ s stock. Virginia ices,

Tamiami Trail Tours, Inc., of Tampa, and Carolina Coach

Company, of Raleigh, N. C., jointly control (% each) SCL.

Virginia Stage is the sole stockholder of Allentown ‘and -

Reading Transit Co., Safeway Transit Co., Safety Motor

Transit Co., and Lynchburg Transit Co., which provide

transit service ‘in Allentown, Pa., Wilmington, N. C., and

Roanoke and Lynchburg, Va., respectively.. Trailways

Service, Inc., and Trailways Terminal‘of Washington are

garage and terminal facilities located in Washington, whose

stock is jointly owned by Virginia Stage and. Safeway.

The former and CCC jointly own Trailways (6) Bus Ter-

minal; Inc., a Richmond, Va., passenger terminal. Trail-

ways Garage of Philadelphia is a garage facility in that city

“owned by Safeway. The companies named in this para-

graph, and not previously identified, will be called in the

order mentioned, CT, Tamiami, CCC, ART, ST, SM, LT,

TS, TT, TB, and TG.

Virginia Stage operates between. Washington, Richmond,

Charlottesville, Lynchburg, and Roanoke, Durham, N. C.,

Huntington, W. Va., and Cincinnati, Ohio. It has. 127

buses and 443 employees. Safeway’s operations are be-

tween New York City and Washington, via Philadelphia

and Baltimore, Md., and between Atlantic City, N. J., ard

Reading’ and Lancaster, Pa., via Philadelphia and Wil-

mington, Del. There are 175 busses and 712 employees

in its service.. TNE operates between Portland, Me:, and

Berlin and Littleton, N. H., on the north, and New Voik’

City, on. the south, via Boston and Springfield, Mass.,

and New Haven, Conn., with 50 busses and 186 employees.

Tenn T’s operations extend from Roanoke and Bluefield,

A-85

_Aheenilia C

W. Va., sonthwestward to Knoxville, Nashvilley and Chat-

tanooga, Tenn., and Atlanta. It has 56 busses. SCL Op-

Pa erates 13 siinue primarily in Georgia, serving Gaines-

ville and Albany, on the west, and Augusta, Savannah, ae eee

and J acksonville, Fla.,-on the east. | St

Virginia Stage’s Saino. sheet as of June 30, 1964,

shows assets aggregating $8,014,806, consisting of: Cur-

‘rent assets $1,358,566, principally cash $177,798, receiv-

ables from associated companies $532,868, and accounts.

_receivable, less reserve for uncollectible accounts, $559,194;

carrier-operating property, less depreciation, $4,568,313 ;

non-operating property, less depreciation, $221 ,026 ; in-

tangible property, less amortization $60,471; investment

securities and advances $1,575,687 ; prepayments. $210,358 ;

and deferred debits $20,385. Its liabilities were: Qurrent . ,

‘liabilities .$1,156,163, chiegy accounts payable $451,217, ..

taxes accrued $286, 869, and other current liabilities $219,-

429; long-term debt due. within one year $741,471; equip-

ment and other long-term obligations $1,750,942; reserves

$38,271; common. capital stock $393,650 and premiums

thereon $586,887; and earned surplus $3,347,422. Its in-

come statements for 1962, 1963, and the first 6 months of |

1964 show net income of $1,013,198, $1,000,293, and $383,528

before, and $563,301, $545,891, and $213,801 after, pro-

vision for income taxes, respectively.

Safeway’s balance sheet as of June 30, 1964, shows

assets aggregating $10,246,493, consisting of: Current

assets © $1,637,304, principally cash $882,209, receivables -

from associated companies $225,454, and accounts receiv-

able $454,959; carrier-operating property, less deprecia- |

tion, $7,902,818; intangible property, less amortization, |

PSO RTT A NR ROR RTGS TINE RN

Bt OPT TEIE RII Ap Th NOE RMT Be

YEE AEP LVM QTE

.

oo

{

A-86

_ Appendia C

$6,090; investment securities and advances $355,427; and

deferred debits $344,854. Its liabilities were: Current

liabilities $1,520,778, mainly accounts payable $411,183,

wages payable $252,665, unredeemed tickets $198,029, taxes

_ accrued $341,728, and other current liabilities $235,430;

long-term debt due within one year $870,474; equipment

and other long-term obligations $2,089,264; deferred

-eredits $7,174; reserves $52,096; common capital stock—

Class -A $525,000 and Class B $525,000; and earned sur- »

plus $4,656,707. Safeway’s income statements for 1962,

(7) 1963, and the first 6 months of 1964 show net income of

$1,572,688; $1,020,768, and $556,163 before, and $892,930,

$682,276, and $314,808 after, provision for income taxes,

respectively, | |

The balance sheet of TNE as of June 30, 1964, shows ©

assets aggregating $2,350,311, including current assets

$241,397. Its current liabilities were $457,791 and earned

surplus $62,222. Its income statements for 1962,. 1963, and —

the first 6 months of 1964 show a net income of $201,013 and

$36,069 and a deficit of $114,728 before, and net income of

$189,213 and $33,016 and a deficit of $120,339 after, provi-

sion for income taxes, respectively. Tenn T’s bal-

ance sheet as of June 30, 1964, shows total assets of

$1,932,750, including current assets $463,184, and current

liabilities of $198,213, with earned surplus of $355,120. Its

income statements for 1962 (from January 16), 1963, and

the first 6 months of 1964 show net income of $185,694,

$226,069, and $128,612 before, and $124,262, $150,363, and

$83,995 after, provision for income taxes, respectively.

SCL’s balance sheet as of December 31, 1963, shows assets

aggregating $214,555 and surplus—unearned $46,900 and

-_

i}

. RY,

A-87 J

Appendix C

earned (debit balance) $33,873. Its income statements for

1962, 1963, and the first 6 months of 1964 show net income

of $141,082, $172,147, and $56,171 before, and $124,345,

$78,740, and’ $30,656 after, provision for income taxes, re-

spectively.

WEC’s balance sheet as of June 30, 1964, shows assets_

aggregating $2,759,154, including current assets $34,964.

Its current liabilities were $253,405; capital stock—pre-

ferred $248,000 and common $79,100; .and .surplus—un-

earned $537; 467 and earned $1,611,753. WEC’s income

statements for 1962, 1963, and the first 6 months of. 1964

show net income of $305,431, $202,530, and $30,518, re-

spectively, before ‘provision for income taxes. For 1962

and 1963, net income after such provision was $188, 984

and $149,131.

_ART’s balance sheet as of June 30, 1964, shows total as-

sets of $16,109 and earned surplus (debit balance) $70,872.

Its income statements for 1962, 1963, and the first 6 months

of 1964 show net income of $4,042, a deficit of $2,700, and

net income of $337, respectively, before provision for in-

come taxes. ST’s balance sheet as of the above date shows

assets aggregating $104,761 and earned surplus $22,458.

Its income statements for the same periods show deficits

. of $4,977, $15,142, and $11,876. SM’s balance sheet as of |

that date shows total assets of $596,062 and earned surplus ~

of $283,582. Its income statements for these periods show

net income, before provision for income taxes, of $20,396,

a deficit of $14,047, and net income of $29,217. LT’s bal-

ance sheet as of the same date shows assets aggregating

$1,122,807 and earned surplus $453,226. Its income state-

ments for the. same periods show net income of $48,334,

aN PAA NNT PCN IIE POTEET HITCH Men RPT STOEL es

| A-88

Appendia C | \

$47,702, and $36,648 before, and $26,800, $27,252, and

$22,212 after, provision for income taxes.

(8) TS’s balance sheét as of June 30, 1964, shows assets

aggregating $883,948 and earned surplus $354,040. Its in-

come statements for 1962, 1963, and the first 6 months of

1964 show net income of $93,355, $49,825, and $58,079 be-

fore, and $49,963, $29;313, and $30,877 after, provision for.

income taxes,.respectively. TT’s balance sheet as of the

same date shows total assets of $99,499 and capital stock .

(no surplus) $15,000. Its income statements forthe pre- ~~

ceding periods show no income or deficits. TB’s balance

sheet as of that date shows assets aggregating $75,317 and

capital stock (no surplus) $40,000. Its income statements

for these periods show no income or deficits. TG@’s bal-

ance sheet as of June 30, 1964, shows assets aggregating

$267,708 and earned surplus $146,736. Its income state-

ments for 1962, 1963, and the first 6 months of 1964 show

net income of $53,356, $17,830, and $25,645 before, and

$29,228, $11,905, and. $18,582 —, provision for income

taxes, respectively. ’

AGREEMENTS

Under a tripartite agreement executed on March 26,

1964, by Transcon, Virginia Stage, and WEC, providing

for the stockholders of the latter two companies to ‘‘become

parties hereto and become bound,’’ there would be an ex-

change of .85 of a share of Transcon’s eapital stock for

each share of Virginia Stage sto¢k; 237.85 shares of its

stock for one share of WEC’s common stock;-and 2.5 shares

of its stock for each share of WEC’s preferred stock.

A-89

Appendia C

Transcon warrants that, when the transactions are con-

summated, its assets will include all wholly and partially

owned subsidiaries appearing on its balance sheet em-

braced in the 1962 annual report to its stockholders. Each

Virginia Stage and WEC stockholder may signify his in-

tention of becoming a party to the agreement by delivering |

within a stated period (1) an appropriate letter to a named

-bank which is serving as a depositary and (2) his-shares

in proper form for transfer. The depositary would issue

to him a receipt corresponding to the number of shares

delivered to it. The underlying shares may not be with-

drawn unless (1) the agreement is terminated at the end

of the exchange period because of the failure of -the hold-.

ers of at least 80 percent of each class of stock to partic-

ipate, or (2) entry of orders by appropriate regulatory

bodies approving in substance the considered transactions,

or (3) entry of such orders finally denying the applica-

tions. Until transfer of the stock to Transcon, the holders

of the receipts would have all voting and dividend rights.

Within 10 days after the-last contemplated order of ap-

proval has been entered, Transcon would, by notice to the

‘depositary, designate a day not more than 20 days after

such entry as the consummation date. The latter would

give notice thereof to each holder of a depositary receipt.

Transcon, on or before such date, would deliver to it the

spécified number of shares for the participating stock-

holders. — :

Virginia Stage and WEC agree that they and their |

wholly-owned subsidiaries will not, without the written

consent of (9) Transcon, effect any change in their capital-

ization; pay any dividends except as specifically noted; dis-

ail | .

ee

PISS ?

-<¢

A-90

Appendia C .

tribute their assets to any stockholder; dispose of or

acquire substantial 1 assets, except in the ordinary course

of business; sell’ or lease any of their operating authority,

or make expenditures therefor for which they are not com-

mitted on the date of the agreement; fail to maintain their.

property in good order, allowing for reasonable wear and

‘ear resuiting trom normal operations and losses from

fire, theft, collision, or other casualty; fail to maintain

_ their present or comparable insurance coverage; incur any

indebtedness other than equipment obligations and current

- indebtedness in the ordinary course of business; permit

encumbrances on operating property except equipment ob-

ligations; enter into. any contract or lease for a period ex-

ceeding six months, except for the delivery of equipment;

permit any employment contracts or substantial changes in

the compensation of executives or key personnel or pay-—

ment of bonuses to anyone; permit defaults on any mort-

gage or other evidence of indebtedness; permit expendi-_

tures exceeding $5,000 for capital improvements; ‘fail- to

operate their property in substantially the same manner as

now; and enter into any transaction out of the ordinary .

course .of business. In the event of substantial violation

of any of the foregoing covenants, or the institution of a

suit in bankruptcy or receivership against Virginia Stage

or WEC, or an assignment for the benefit of their creditors,

Transcon may terminate this agreement. .

‘Transcon has received a certified balance sheet of

Virginia Stage and subsidiaries as of December 31, 1962;

and an income statement for 1962 and the same data for

WEC. They warrant that there have been no substantially

adverse changes since then. Participating stockholders:

A-91

Appendi« C

will effect’ the resignations of their companies’ elected

- officers and directors as of the consummation date. Before

then, they are to receive from the Internal Revenue Service

a ruling to the effect that the prgposed exchange of stock

shall not give rise ® recognition of any gain or loss for

Federal income-tax purposes. Transcon, before consum-

mation, is not to declare or pay any dividend in the form:

of its common stock, perform any act, or enter into any |

arrangement which will substantially dilute ‘the. value of

such stock. ae:

Under an agreement of April 22, 1964, executed by

Transcon, Safeway, and the latter’s controlling stock-

holders, there would be an exchange of .36 of a share of

Transcon’s capital stoék for each share of Safeway’s Class

A and B capital stock. In most ‘other respects, this agree-_

~-ment.and the previous one are basically ‘the same. Nearly

all of the involved Stock has béen deposited in escrow.

To finance the above transactions, Transcon would

issue 824,158 shares of its authorized common stock for

the ne stockholders’ shares apportioned as _

follows: ;

(10) ° |

. Outstanding = Transcon

Company ' Shares Shares

Virginia Stage ......... 393,650 334,603

WEC (preferred) ..:.:: i. aa 3,048

-_ WEC (common) ........ 791 188,139

Safeway (Class A and B) 1,050,000 298,368

ern i seaken wes 824,158

As seen, WEC owns 169,820 shares of Virginia Stage’s

stock, for which if would receive 144,347 shares of Transcon

fa,

noe, werav-y

A-92

’ Appendix C

stock. Virginia Stage owns .249,900 shares of Safeway’s

stock, for which it would receive 89,964 ‘Transcon shares.

These new 234,311 shares which they would acquire would

‘be returned to Transcon’s treasury for cancellation. ‘Thus

_ the latter would need to issue only 589,847 shares. Be-

cause of the trade ratios, many of the participating stock-

holders would be entitled to fractional shares of Transcon’s

stock. It is anticipated that not more than 500 shares

will suffice for this purpose. Authority will be granted to

‘issue not exceeding 590,347 shares.

No. MC-F-8774 ann Frvance Docker No. 23159

QuEEN’s Corporate History, AFFILIATION,

OPERATIONS, AND Financia Data

GRIC ais eae

Queen’s corporate history, organization, affiliation, and -

operations are described in Queen City Coach Co. and

_ Smoky Mountain Stages—Control, 50 M:C.C. 325, Queen

City Coach Co.—Control—Smoky Mountain’ Stages, 70

M.C.C. 77, and Eastern Trailways, Inc. —Control—Carolina

Scenic Stages, supra. It has outstanding 22,264 shares’

of common.capital stock without par value... The principal .

stockholders are Joel W. Wright, Sr., 2,200 shares, James °

F. Martin 1,364 shares, Guy D: Carpenter 1,350 shares,

Elsie E. Love 1,260 shares, Lillian H. Bradley 1,192 shares,

°C. H. Bost 1,119 shares, E. E. Bost 1,040 shares, and

L. A. Love, 1,004 shares. GRIC has some shareholders in

common with Queen. A majority of its 7,992 shares of

- outstanding common capital stock is owned as follows:

” A-93

| Appendix C.

Soe W. Wright, Sr., 1,042 shares, James F. Martin 602

shares, Guy D. Carpenter 494 shares, Elsie E.. Love 475 |

shares, L. A. Liove 406 shares, C. H. Bost 374 shares, E. E.

| Bost, 372 shares, W. E. Smith 274 shares, James’ A. Hardi-

son Estate 259 shares, and H. H. Hardison Estate 243

shares. _GRIC, a non-carrier, is an. insurance company

and owner of real estate used by Queen and its sub-

sidiaries..

- Queen is' the sole stockholder of Bragg. It owns .%4 and

GRIC -%4 of the Ga-Fla capital stock. Queen and Trans-

con jointly control Smoky. Queen and Virginia Stage

jointly control Scenic and it, in turn, controls Coastal and

' Gray. Queen, CCC, and GRIC own, respectively, 50, 25,

and 25 percent of the capital stock of Charlotte Union

Bus Station, Inc. (CU), (11) a joint passenger station ‘in

Charlotte. Asheville Union Bus Station, Inc.’ (AU), is

a joint passenger terminal in Asheville, 45, 45, and 10

percent of whose capital stock is held by Queen, Smoky,

and Scenic, respectively. Trailways Bus Depot of Atlanta,

Inc. (TA), a joint passenger facility in Atlanta, is owned .

Y each by Smoky, Tamiami, and Continental Crescent

Lines, Inc., the last wholly owned by Transcon. _ Queen

and Tenn T each owns 50 percent of Bristol Trailways Bus

Station, Ine. (BT), a joint passenger facility in Bristol.

‘ Queen operates over routes radiating clockwise from

Charlotte to Kingsport .and Bristol, Tenn., Hickory,

Winston-Salem, Greensboro, Durham, Goldsboro, and Wil-

mingtor, N. C., Myrtle Beach and Charleston, S. C.,

Sylvania and Augusta, Ga., Greenwood | and Anderson,

S. C., and Asheville. .It uses 196 busses and has 541 em-

ployees. Smoky serves ‘an area bounded generally by

A-94

Appendix C

Asheville, Greenville, S. C., Augusta, Athens, and Atlanta, .

Ga., and Chattanooga, Sweetwater, Knoxville, and New-

port, Tenn., with 41 busses and 85 employees.’ Ga-Fla

operates alienate Augusta and Lake City. Fla., via Waynes-

. boro,. Midville, Dublin, and Douglas, . Ga., and between

This text is long and has been trimmed here. Open the source document for the complete record.