# Appendix — Interstate Investors, Inc. v. United States > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385001_1232%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1969 - **Citation:** 393 U.S. 479 ## Text 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 . ” 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 ‘ 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 ? -. % cated with $366,987, $373,717 and $415,134, total $1,155,838. (17) Theexcess of the amount it received from, to that.it | gave them, was, in its favor, 49.5 percent in 1961, 35.8 per- cent in 1962, and 45.9 percent in 1963, total 43.8 percent. In contrast, (Greyhound received from Transcon companies ~ $1,105,188, $1,296,138, and $1,333,061, total $3,734,387, and transmitted to them $1,450,534, $1,623,431, and $1,545,889 total $4,619,850. The corresponding margins were 76.2 per- cent, 79.8 percent, 86.2 percent, total 80.8 percent to its disadvantage. If Transcon, its subsidiaries, and the sub- ject carriers had been part of one system during the first 6 months of 1964, their intercity scheduled vehicle miles would have mounted from 53,947 093 to’ 77,461,919, an in-. erease of 23,514, 826 or 43.6 percent ; the corresponding - figures for scheduled intercity passenger revenue would - have been $20,806,751, $32,860,953, $12,054,202 or 57.9 per- cent; operating revenues $28,885,365, $44,061,803, $15,- 176,438 or 52.5 percent; net income. before income taxes $751,372, $1,903,706, $1,152,334 or 153.4 percent; and net income after such taxes $20, 379, $899,589, $596,210 or 196.5. | Greyhound feels that, if the applications should be ap- proved, ‘‘there is a very good possibility * * * that at least the large portion of that traffic (from subject carriers) will be diverted from’’ it. Compounding this fear is the . terminal situation in North Carolina. When any city there. is served by two or more passenger carriers, -all of them are required by statute to operate out of a joint ‘bus ter- minal manned by its own personnel. Every terminal is controlled by a board of directors on which each carrier is “represented by a member with one vote. . The law pro- A-105 A ppendia C vides for fair ond tapeatin! operation, and any carrier dissatisfied therewith may file a complaint with the North Carolina Public Utilities Commission, which Greyhound . has done as to terminals in Charlotte, Asheville, Raleigh, Fayetteville, and Gastonia. There are eight major termi- | nals in North Carolina, of which Greyhound operates one and the others are controlled, by TBS carriers, so that the former does not ‘‘have much chance.’’ * Conditions are ‘“‘bad enough today’? with ‘relatively short-haul carriers ‘‘interested primarily in grabbing * * * whatever traffic they can’’ for their lines and not quite ‘‘as vigorous in taking the traffic that might go beyond their lines * *.* but we think it would be a lot worse if Continental (Transedn) were the carrier controlling the stations.’? Greyhound’s revenue per passenger mile averages 214 cents and the op- erating cost per mile averages 55 cents. Henée, it must have 22 passengers on a bus to cover the operating cost. When the disparity between cost and revenue ‘‘gets close, of course, the loss of one or two passengers can mean the difference hetween operating in the red or operating in the black.’’ INVESTORS Investors is a promoter of business enterprises. It has _been trying. to penetrate the intercity bus industry since 1963, when it offered to purchase from their stockholders first Queen’s shares and later those of Tamiami. By May 4, 1964, Investors (18) concluded that its plans in this respect had advanced to ‘‘satisfactory stages of agreement,’”’ and - as!) informed Transcon. The latter, however, since 1949, ~ had been discussing with Queen, Virginia Stage, and Safe- . » . PNLE IR YL YOU OIE LOOP OLE TOE: LALO NE IT OER FILM PLEO RESET OREO, Se aeyere7 oe A-106 me 3: Appendic C way the desirability of consolidating their operations and those of other carriers so that they ‘‘could effect a more competitive situation * * *.and render at the same time a more coordinated service to the public.’’ Investor’s letter of May 4 was postmarked May 16, New York City, and . received by Transcon on May 18. The latter, unaware of the former’s existence, much less that it was negotiating for Queen’s capital stock, transmitted the last of a series of proposed contracts to five of that carrier’s principal shareholders. This instrument, exeeuted May 16, 1964, cul- minated in the filing of the application in No. MC-F-8774. Before Investors wrote this letter, Transcon issued news © releases announcing the agreements involving Virginia Stage ‘and Safeway: That respecting Queen was contained in the release of June 8, 1964. The letter, referring to the ~ Virginia Stage and Safeway acquisitions, states: ‘‘On the other hand, it would-seem that the antitrust laws most probably will inhibit further acquisitions by your com- pany * * * than those already announced, even though such a further program might be susceptible of ICC approval. Hence we do not believe that the acquisitions we. have underway (Queen and Tamiami) should be considered as properly competitive with your own acquisition plans.’’ When Investors learned of Transcon’s agreement with Queen and its stockholders, it instituted lawsuits against — ‘them in the District Court of the United States for the Western District of North Carolina.* The litigants even- tually settled the dispute, or so it seemed, and Investors * Civil Action No. 1914, Interstate iia. —_ v. L. A. Love, et al., and Civil Action No. 1935, Interstate Investors, Inc. v. Queen City Coach Company and General Realty and Insurance Corporation. ° ae Be Appendic C . filed a petition to withdraw as protestant in the Commis- sion proceedings.* However, shortly thereafter, Investors — notified the Commission that plaintiff and: defendants had not exchanged ‘‘satisfactory releases’? and requested, ‘that .such petition ‘‘be held in abeyance until authorization”? for processing ‘‘is authorized by. subsequent, letter. - - such a letter, by way of clarification, Investors notes that an order of voluntary nonsuit Was entered in the above Court. ‘‘The collateral matters of releases * * * and docu- ments relating to requiring our withdrawal from subject ICC proceedings were never presented to ‘the District Court in Charlotte. We, of course, shall present them to the District Court in the Southern District of New York in connection with our antitrust complaint against Trans- continental to be filed in the latter court.’’ (19) ‘. . Cowen Trons -Transcon and the principal subject carriers contend that the transactions are‘consistent with the public interest, and-. should therefore be approved, on the following grounds: (1) The consideration for the sellers’ capital stock is rea- sonable; (2) the operations of\{ranscgn and. the subject carriers are complementary; (3) numerous’ savings would . be effectuated following consummationy (4) improved through service would’ benefit the public and strengthen Transcon’s position as’ Greyhound’s competitor; (5) the latter’s claim that the centralized operations would divert | much traffic from itis completely unfounded, since it is by 5 Received February 23, 1965, LTE at PF IOI ON Wy RS WIE YEE Da te Pe tt nn - - . A-108 Appendiz C ' far the dominant carrier in the industry; (6) the terminal situation in North Carolina has a statutory basis and that State’s Public Utilities Commission can be depended on to enforce the law and protect any aggrieved party; (7) In- vestors, a non-carrier, is a frustrated bidder for Queen’s eanital stock whose ease is hased on accusations and in- nuendo; (8) the depositary receipts are not securities un- lawfully sold to the public; and (9) approval herein would create a duopoly, thereby increasing competition. The prin- cipal cases cited in support of the foregoing contentions are Transamerican Freight Lines, Inc.—Purchase—Gor- man,:5 M.C.C. 712, Greyhound Corp.—Control—Florida Motor Lines Corp., 45 M.C.C. 83, Trailways of New Eng-. land, Inc.—-Purchase—Interstate, 93 M.C.C. 217, McLean Trucking Co. v. United States, 321 U. S. 67, West Coast Bus Lines Common. Carrier Application, 41 M.C.C. 269, Grey- hound Corp.—Control—Southeastern Greyhound Lines, 57 M%.C. 123, Transcontinental Bus System, Inc.—Control— Continental; 50 M.C.C. 193, and Pacific Greyhound Iines— Purchase—Oregon Motor, 59 M.C.C. 657. Greyhound argues that the transactions are contrary to the national transportation policy because (1) the volume ‘of available traffic does not warrant the establishment of another single-line operation between Maine and Florida; (2) such’ service would enable Transcon to divert long-haul traffic, in view of the North Carolina Terminal problem; (3) there is no need for that service; and (4) the facts of record justify a finding that change in control of the sub- - ject carriers has already been accomplished without the Commission’s approval. To support its position, Grey- hound cites Associated Transport, Inc.—Purchase—Russelt, A-109 Appendix C 55 M.C.C. 177, Pacific Intermountain Exp. Co.—Control and - Purchase, 57 M.C.C. 341, Denver-Chicago Trucking Co., Inc. —Pur.—Boulder Truck, 70 M.C.C. 309, Super Service Motor Freight Co., Inc—Pur—Hayes Frt., 60 M.C.C. 389, and _ Greyhound Corp.—Control—North Coast Transp. Co., 55 M.CS&, BOL (not printed in full). Greyhound requests the following findings : .(1) A consolidation of rights which would result in a single-line service from Maine to Florida is. unquestionably anew service. (20) (2) The fact that applicants have failed to intro- ‘duce any traffic figures reflecting interchange amongst them raises the presumption that the proposed consolidations would result 1 in a new and different service. (3) Applicants failed to introduce any evidence which would establish that a need exists for the tremendous new single-line operations here proposed. (4) The proposed transactions threaten extensive pas- _ senger traffic losses to Greyhound. (5) The national transportation policy requires preser- | vation of a sound passenger system by bus. (6) The facts of record in these transactions warrant a finding that control of vendors may already have passed to Continental without approval of the Commission. Investors maintains that the applications should be denied as not in the public interest for the reasons that: (1) The interstate scheduled bus industry’ ‘‘has . great need of the development of at least a third major, national competitor,’? and the Commission ‘‘has the obligation to , PIT A-110 Appendix C nurture competition” therein; (2) ‘‘it would appear to be the grossest breach of public trust for the Commission to take action * * * that would reduce competition and re- sultant adequacy of service to the public;’’ (3) authority to grant immunity from the antitrust law ‘‘is not the equivalent of release from the need to consider the eco- nomics of monopoly and duopoly;’’- (4) there is not ‘a ‘‘zingle bit of evidence from independent or public interest sources or economists skilled in transportation matters introduced at the hearings by the applicants,’’ and the Commission ‘‘has been derelict in its obligation to protect the public interest by failing to have economic material as to the competitive structure in the industry inserted into the record;’’-(5) the sale of depositary receipts for the stock of Queen and GRIC by several holders was made in a suddenly contrived market without filing a registration statement with the Securities and Exchange Commission; and (6) the Examiner’s ‘“‘rulings Jimiting and excluding evidence relating to the economics of monopoly and duopoly and economic alternatives” are ‘‘clearly erroneous.’’ In- vestors relies on McLean Trucking Co. v. United States, 321 U. S. 67, Kobe v. Dempsey Pump, 97 F. Supp. 342, and U. S. v. General Electric Co., 82 F. cial 753, to sustain its postulates. ; | : DIscussION AND CONCLUSIONS Before delving into the merits of the issues, it is advis- able to dispose of some preliminary matters. On Septem- ber 1, 1964 in No. MC-F-8648, Eastern Trailways, Inc.— ¢ Control—Carolina Scenic Stages, —— MCC. ——, Queen A-111 nti _Appendiz C and Virginia Stage were authorized to acquire joint con- trol of Scenic, and, in turn, of Coastal and Gray, through ' purchase of (21) its capital stock. - At the opening of the initial hearing, Transcon moved that the last three car- riers be added to others herein of which it would acquire indirect control. The Examiner granted the motion, sub- ject to publication of notice in the Federal] Register. There is no protest’ to the amendment. Since Transcon filed identical amendments in both section-5 proceedings, the titled application, to the extent of the amendment, will be dismissed. Tenn T having been included as a subject car- rier in both proceedings, the application in No. MC-F-8774 will be dismissed as to it. Virginia Stage, Tamiami, and ccc jointly control (14 each) SCL. Should [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385001_1232%3A2. Public record. Not legal advice.