Opposition Brief — Deutsch v. Flannery

Lo Supreme Court, U.S,

No. 89-1906 FILED

yu. 9 we

IN THE JOSEPH F. SPANIOL, JR.

m CLERK

Supreme Court of the United States—

OCTOBER TERM, 1989

a

SAMUEL DEUTSCH, i

Petitioner,

—vs.—

ROBERT G. FLANNERY, ef a/.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE NINTH CIRCUIT

BRIEF FOR RESPONDENTS IN OPPOSITION

KURT W. MELCHIOR

JOHN F. COLLINS

NOSSAMAN, GUTHNER, KNOX (Counsel of Record)

& ELLIOTT

LEONARD JOSEPH

50 California Street STEVEN J. MILLER

34th Floor DEWEY, BALLANTINE, BUSHBY,

San Francisco, California 94111 PALMER & WOOD

(415) 398-3600

Attorneys for Respondents

July 9, 1990

140 Broadway

New York, New York 10005

(212) 820-1100

Attorneys for Respondents

Union Pacific Corporation

and The Western Pacific

Railroad Company

T. BARRY KINGHAM

CURTIS, MALLET-PREVOST,

COLT & MOSLE

101 Park Avenue

New York, New York 10178

(212) 696-6000

Attorneys for Director Respondents

QUESTION PRESENTED

Where the Interstate Commerce Commission acting pursu-

ant to its exclusive jurisdiction, as set forth in the Interstate

Commerce Act, 49 U.S.C. §§ 11341-51, authorizes the acqui-

sition of one railroad by another at $20 per share, is a subse-

; quent challenge to that purchase price in federal district court

4 under the Securities Exchange Act of 1934, 15 U.S.C.

§§ 78j(b), 78n(e), properly dismissed (a) for lack of jurisdic-

Be tion, and (b) as an impermissible collateral attack on an

Interstate Commerce Commission order?

|

:

i

LIST OF PARTIES AND RULE 29.1 LIST

The names of the parties to the proceeding are contained in

the caption to the petition.

Set forth below, pursuant to Rule 29.1, is a list of all par-

ent companies and subsidiaries (except wholly-owned subsidi-

aries) of respondents The Western Pacific Railroad Company

and Union Pacific Corporation:

The Alton & Southern Railway Company

Arkansas & Memphis Railway Bridge &

Terminal Company

The Belt Railway Company of Chicago

Brownsville & Matamoros Bridge Company

Chicago and Western Indiana Railroad Company

Houston Belt & Terminal Railway Company

Southern Illinois and Missouri Bridge Company

Terminal Railroad Association of St. Louis

Texas City Terminal Railway Company

Terminal] Industrial Land Company

Alameda Belt Line

Camas Prairie Railroad Company

Central California Traction Company

The Denver Union Terminal Railway Company

Kansas City Terminal Railway Company

Longview Switching Company

Oakland Terminal Railway

The Ogden Union Railway and Depot Company

Portland Terminal Railroad Company

Portland Traction Company

ili

St. Joseph Terminal Railroad Company

Trailer Train Company

Rhone-Poulenc of Wyoming Company

Uinta Development Company

iv

TABLE OF CONTENTS

PAGE

Suse SNORTED Ae 6 hon dd ean es an es escees i

LIST OF PARTIES AND RULE 29.1 LIST......... ii

SPR Me GORE ooo 6 ac tac cccden es daceunes iv

py oi Be Bos) 8 5g. Snr nn nner Vv

STATEMENT OF THE CASE .................00::

A. The 1980 Agreement Of Merger............. 2

B. ICC Approval Of The Acquisition .......... 3

C. Petition To Reopen The ICC Proceeding..... 4

D. The Appeal Of The ICC Order ........ reer 4

A ee 5

F. Petitioner’s Action............ ee es Sed 5

REASONS FOR DENYING THE WRIT............ 6

SUMMARY OF ARGUMENT ................. 6

I. THE NINTH CIRCUIT CORRECTLY

APPLIED THE REGULATORY STRUC-

TURE CONGRESS SET FORTH IN 49

SPs EE BAUER KU beds napuadncneenahngs 7

II. PETITIONER HAS IDENTIFIED NO

VALID REASON WHY A WRIT OF CER-

TRORARIL SEEOULD ISSUE 20. cccccscccces 12

PUNT ohn na Uae N awe eeeevivnanenanwaeeeaues 17

TABLE OF AUTHORITIES

Cases: PAGE

Brotherhood of Locomotive Eng’rs v. Boston & Maine

Corp., 788 F.2d 794 (lst Cir.), cert. denied, 479 U.S.

er ROPES 66h secu weeovdeenceeekuseeeeenaeenenen 11, 12

Bruno v. Cook, 660 F. Supp. 306 (S.D.N.Y. 1987)... 13

Bruno v. Western Pac. R.R., 498 A.2d 171 (Del. Ch.

1985), aff’d, 508 A.2d 72 (Del. 1986), cert. denied,

ee Seis. TE TD 600 6.466 ce os neue bccdGueeenes 11

Chicago & N.W. Transp. Co. v. Kalo Brick & Tile

aig Se Wee ee NE hen boned ceseeueenpavasns va. on

Deutsch v. Flannery, 597 F. Supp. 917 (S.D.N.Y.

ee ee eR OE rr ees” 4,5

Dorfman vy. First Boston Corp., 336 F. Supp. 1089

as Wak WEEE s kg nd ks ek aoeseess cheheekaeeenenes 15

ICC v. Brotherhood of Locomotive Eng’rs, 482 U.S.

Pe ee rr rrr re Cees ee re yee 7

Interstate Investors, Inc. v. Transcontinental Bus Sys.,

Inc., 310 F. Supp. 1053 (S.D.N.Y. 1970) ......... passim

Papell Ce... F506 E.G. GS Cee ci ko ca kdcnsiauns 3

Pittsburgh & L.E. R.R. v. Railway Labor Executives’

Py ee ee RE Pee ree 13, 14

Plaine v. McCabe, 797 F.2d 713 (9th Cir. 1986) ..... 15

Radzanower v. Touche Ross & Co., 426 U.S. 148

CPRPE bcd dgadkcukawis conedes wees seueseneeeeees 13

Railway Labor Executives’ Ass’n v. Staten Island R.R.,

792 F.2d 7 (2d Cir. 1986), cert. denied, 479 U.S.

Pee GHOED oikcw GaSxdadevencddesensenvaneeetee 12

vi

PAGE

Rembold v. Pacific First Fed. Sav. Bank, 798 F.2d

1307 (9th Cir. 1986), cert. denied, 482 U.S. 905

5A err Te Terns ere re ee ree 15

Schwabacher v. United States, 334 U.S. 182 (1948) ..passim

Schwartz v. Bowman, 244 F. Supp. 51 (S.D.N.Y.

1965), aff’d, 360 F.2d 211 (2d Cir.), cert. denied,

er EN COUN 5 i: 6.06 4646450640605 00060606405 11

SEC v. National Securities, Inc., 393 U.S. 453

Pee rr rrr eee ee ey re” 15, 16

Shofstall v. Allied Van Lines, Inc., 455 F. Supp. 351

i i, ns a4 64 e Oe wah Cake a ee eae ae RW ate ees 15

Southern Pac. Transp. Co. v. ICC, 736 F.2d 708 (D.C.

Cir. 1984), cert. denied, 469 U.S. 1208 (1985)....2, 5, 12

Suffin v. Pennsylvania R.R., 276 F. Supp. 549 (D. Del.

1967), aff’d, 396 F.2d 75 (3d Cir. 1968), cert.

I, DOS Wm. BGS CLUE isda catacenscceancs 15

Union Pacific Corp., 366 1.C.C. 459 (1982), aff’d sub

nom. Southern Pac. Transp. Co. v. ICC, 736 F.2d

708 (D.C. Cir. 1984), cert. denied, 469 U.S. 1208

ere errr rer yer erry ee 2, 3, 12

Union Pacific Corp., Finance Docket No. 30,000 (Sub-

Dee 0b Gare SU OD, FOR oa x aisnnecccusnceceuses 2,4

Union Pacific Corp., Finance Docket No. 30,000 (Sub-

No. 1) (ICC Jan. 28, 1987) (LEXIS, Trans. library,

ICC file), aff'd sub nom. Western Pac. Stockhold-

ers’ Protective Comm. v. ICC, 848 F.2d 1301 (D.C.

2 er rrr re ere 2 3 12

Western Pac. Stockholders’ Protective Comm. v. ICC,

mee ©.00 LS0l CHK... Cor. TORR) cis cee cccccceeass 2, 5, 12

Vii

PAGE

Statutes and Regulations:

Emergency Railroad Transportation Act of 1933, ch.

we SS fF ee. | | Peery eereTT Tee 9

Interstate Commerce Act, 49 U.S.C. § 20a (1976) ....14, 15

Interstate Commerce Act, 49 U.S.C. § 10901 (1982) .. 14

Interstate Commerce Act, 49 U.S.C. §§ 11301(b)(1)

Re eee ae et roe irene rh me ae, ets 14, 15

Interstate Commerce Act, 49 U.S.C. § 10327(g)(1)

SOU k 4-464 GANA oR UR OAS NOS 8 490550448 12

Interstate Commerce Act, 49 U.S.C. §§ 11341-51 (1982

Ne aeeeanccadiedeeeniiicreee passim

Interstate Commerce Act, 49 U.S.C. § 11367(a) (1982

eS RB PTET eee ee ere 14, 15

Interstate Commerce Act, 49 U.S.C. § 11701(a) (1982

Te I: OS Eh a ho a abc dn eka ccd nens4inneeenes 12

Interstate Commerce Act, 49 U.S.C.A. § 5(2)(b) (West

Interstate Commerce Act, 49 U.S.C.A. § 11341, His-

torica) and Statutory Notes at 635 (West Partial

I BEI a < 04 0644606 be xsnnseh iene %@

National Housing Act, 12 U.S.C. § 1725G)(2) (1988) . 15

National Housing Act, 12 U.S.C. § 1730a(k) (1988) .. 15

Railroad Revitalization and Regulatory Reform Act of

1976, Pub. L. No. 94-210, 90 Stat. 31 (1976)...... 14

Revised Interstate Commerce Act, Pub. L. No. 95-473,

ee es Se Cs occ bienncaciwdensiee ener )

Securities and Exchange Act § 10(b), 15 U.S.C.

D Pee GEE 9 0.00 60 sna teiek cevisereceteencte ee

Vili

PAGE

Securities and Exchange Act § 14(e), 15 U.S.C.

ST CE Saas andenns ck bn ancenenndsceceeSes 1, 12

Transportation Act of 1920, ch. 91, § 407, 41 Stat.

SN, ME EE 6.0.68 0046405 066 046.6404000606000.06: 9

, gid ¢ i 2 - f: Speers re 6, 11, 14

Be es Oe I I os cn cents cscncectusveseesd 6, 11, 14

ee i ae ee Cc x 0 oan cecnccnaweanvegeniss 3

Other Authorities:

H.R. Rep. No. 1395, 95th Cong., 2d Sess. 4, reprinted

in 1978 U.S. Code Cong. & Admin. News 3009.... 9

S. Conf. Rep. No. 595, 94th Cong., 2d Sess. 133,

reprinted in 1976 U.S. Code Cong. & Admir. News

PEEP TOLLE TPT ECT CTT TT TT CTT TCT PETTITT OTE 14

IN THE

Supreme Court of the United States

OCTOBER TERM, 1989

No. 89-1906

>

SAMUEL DEUTSCH,

Petitioner,

—vs.—

ROBERT G. FLANNERY, ef ai.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE NINTH CIRCUIT

>

BRIEF FOR RESPONDENTS IN OPPOSITION

Respondents Union Pacific Corporation (‘‘Union

Pacific’’), The Western Pacific Railroad Company (‘‘Wes-

Pac’’) and the former directors of WesPac respectfully

request that this Court deny the petition for a writ of certio-

rari seeking review of the Ninth Circuit Court of Appeals’

judgment unanimously affirming the dismissal of this action

by the United States District Court for the Northern District

of California.

STATEMENT OF THE CASE

Petitioner’s complaint in this action sought to challenge,

under §§ 10(b) and 14(e) of the Securities Exchange Act of

1934, 15 U.S.C. §§ 78j(b), 78n(e) (1988), the $20 per share

2

purchase price paid by Union Pacific to WesPac shareholders

in connection with its acquisition of control of WesPac. Peti-

tioner’s complaint principally alleged that the $20 per share

price did not reflect the true market value of certain WesPac

real estate holdings acquired in the transaction.

Union Pacific’s acquisition of control of WesPac, pursuant

to-a 1980 Agreement of Merger, was fully reviewed and

approved by the Interstate Commerce Commission (‘‘ICC’’)

pursuant to its exclusive jurisdiction and authority under sub-

chapter III of Chapter 113 of the Interstate Commerce Act,

49 U.S.C. §§ 11341-51 (1982 & Supp. V 1987). As part of

that process, the ICC reviewed claims such as petitioner’s

regarding the value of WesPac real estate holdings, found

them to be without merit and authorized and approved the

$20 per share purchase price.’ The Ninth Circuit properly

determined that petitioner’s challenge to this aspect of the

ICC-approved transaction was within the exclusive jurisdic-

tion of the ICC and that the district court’s dismissal of the

complaint was correct.

A. The 1980 Agreement Of Merger

Union Pacific and WesPac operate interstate railroads sub-

ject to the jurisdiction of the ICC. More than a decade ago,

in January 1980, they entered into an Agreement of Merger

whereby Union Pacific would acquire WesPac, subject to the

required approval of the ICC. The Agreement of Merger pro-

vided for a unitary transaction in which Union Pacific would

make a tender offer of $20 per share for WesPac shares fol-

lowed by a back-end cash-out merger of any non-tendering

shareholders, also at $20 per share.

| Three decisions of the Interstate Commerce Commission addressed

these issues: Union Pacific Corp., 366 1.C.C. 459 (1982), aff'd sub nom.

Southern Pac. Transp. Co. v. ICC, 736 F.2d 708 (D.C. Cir. 1984), cert.

denied, 469 U.S. 1208 (1985); Union Pacific Corp., Finance Docket No.

30,000 (Sub-No. 1) (ICC June 10, 1983); Union Pacific Corp., Finance

Docket No. 30,000 (Sub-No. 1) (ICC Jan. 28, 1987) (LEXIS, Trans. library,

ICC file), aff'd sub nom. Western Pac. Stockholders’ Protective Comm. v.

ICC, 848 F.2d 1301 (D.C. Cir. 1988).

’

3

B. ICC Approval Of The Acquisition

Pursuant to the terms of the Agreement of Merger, Union

Pacific commenced a tender offer on January 23, 1980 for

the Class A common stock of WesPac at $20 per share in

cash. At the time of the tender offer the shares were publicly

trading at about $14.50, although they had been traded at

prices as low as $10.25 earlier that month. Union Pacific

Corp., 366 1.C.C. 459, 637 (1982). WesPac had become a

publicly owned corporation less than one year earlier upon

issuing and offering 1,400,000 shares of Class A common

stock to members of the public at $10 per share. Newrail

Co., 354 1.C.C. 885, 886, 893 (1979). Upon completion of

the tender offer, Union Pacific (which already held 10% of

WesPac’s shares) had been tendered an additional 77% of the

outstanding shares of WesPac Class A common stock. 366

I.C.C. at 633.

Pursuant to the terms of the Agreement of Merger, Union

Pacific and WesPac applied to the ICC for approval of

Union Pacific’s acquisition and exercise of control over

WesPac as required by 49 U.S.C. §§ 11341-51. 366 I.C.C. at

471. In accordance with ICC regulations, see 49 C.F.R.

§ 1013.2 (1989), the shares that had been tendered were trans-

ferred to an independent voting trust pending the decision of

the ICC. 366 I1.C.C. at 472, 633. Certain shareholders of

WesPac, who had not tendered their shares, intervened in the

ICC proceeding and participated in it as active litigants. They

argued there, as petitioner does here, that the $20 per share

price for the WesPac stock was inadequate, among other rea-

sons, because WesPac’s real estate holdings were underval-

ued. Jd. at 634. They also argued, as petitioner does here,

that the Offer to Purchase was ‘‘misleading and coercive,

[and] misrepresented the facts.’’ Jd.

On September 24, 1982, the ICC approved the Union

Pacific-WesPac consolidation, finding that it would benefit

the public through ‘‘service improvements, cost reductions

resulting from operating efficiencies, enhanced competition,

and a stronger financial position for the consolidated sys-

4

tem.’’ Jd. at 489. Under the heading ‘‘The Purchase Price’’,

the ICC expressly considered whether the entire transaction

price was fair, including the $20 per share paid for the

1,081,647 WesPac shares tendered in response to the Offer to

Purchase and the $20 to be paid pursuant to the terms of the

Agreement of Merger for the 178,553 shares that were

retained by shareholders who opposed the merger. Jd. at 633-

38; see also Appendix to Petition (‘‘A’’) at A-14.

WesPac and Union Pacific proceeded with the merger,

which was approved at a special meeting of WesPac share-

holders on May 24, 1983. In connection with this special

meeting, WesPac circulated a Proxy Statement to the share-

holders that included information as to the value of

WesPac’s non-operating real estate hoidings, much of which

had previously been reported. See Deutsch v. Flannery, 597

F. Supp. 917, 919 (S.D.N.Y. 1984).?

C. Petition To Reopen The ICC Proceeding

On May 9, 1983, shortly after dissemination of the Proxy

Statement, a WesPac shareholder petitioned the ICC to re-

open its proceeding and reconsider the fairness of the merger

price, in light of the information as to land values included in

the Proxy Statement, which he claimed had been withheld

from the ICC. The ICC considered and denied the request,

ruling that the new land value allegations were not materially

different from the allegations made prior to the ICC’s origi-

nal decision. Union Pacific Corp., Finance Docket No.

30,000 (Sub-No. 1) (ICC June 10, 1983).

D. The Appeal Of The ICC Order

The ICC’s approval of the $20 per share purchase price for

WesPac shares was appealed to the Court of Appeals for the

District of Columbia Circuit by another WesPac shareholder

who argued that the ICC had failed to give adequate weight

to the value of WesPac’s land holdings and had erred in find-

2 ~=As discussed below, Deutsch v. Flannery was a predecessor action

filed by petitioner.

ee

5

ing that the $20 per share offer was the result of arm’s-length

negotiations. The District of Columbia Circuit rejected these

arguments. Southern Pac. Transp. Co. v. ICC, 736 F.2d 708,

726 (D.C. Cir. 1984), cert. denied, 469 U.S. 1208 (1985).

E. Further ICC Proceedings

That shareholder then returned to the ICC and, under the

auspices of the Western Pacific Stockholders’ Protective

Committee, sought to reopen the Union Pacific-Control-

Western Pacific proceedings, in part, to consider ‘‘new evi-

dence’’ regarding the value of WesPac land. The Protective

Committee further alleged that ‘‘UPC withheld evidence as to

the value of WP’s land holdings during the merger proceed-

ing.’’ Union Pacific Corp., Finance Docket No. 30,000 (Sub-

No. 1), slip op. at 5 (ICC Jan. 28, 1987) (LEXIS, Trans.

library, ICC file), aff’d sub nom. Western Pac. Stockholders’

Protective Comm. v. ICC, 848 F.2d 1301 (D.C. Cir. 1988).

In denying the petition, the ICC declared, once again, that

‘the land value allegations were similar’’ to those made and

considered previously. Jd. at 6. The decision also confirmed

that the ICC had considered the entire purchase price (the

$20 tender offer and the $20 back-end cash-out) in approving

the merger. Jd.

F. Petitioner’s Action

Petitioner originally filed a complaint against respondents

in the United States District Court for the Southern District

of New York, where the complaint was dismissed because the

allegations did not support an inference of fraud. Deutsch v.

Flannery, 597 F. Supp. 917 (S.D.N.Y. 1984). For example,

with respect to petitioner’s land valuation claim, the court

pointed out that WesPac had made substantial disclosures

regarding the market value of its holdings and found that

‘‘fa] claim of fraud . . . cannot be based on failure to dis-

close the existence of the land and its value because that

information had already been disclosed.’’ Jd. at 922 (citations

omitted).

6

After voluntarily dismissing an appeal to the Second Cir-

cuit Court of Appeals, petitioner crossed the country and

filed a virtually identical complaint in the Northern District

of California. This complaint was initially dismissed on the

ground of issue preclusion in light of the decision of the

Southern District of New York. The Ninth Circuit affirmed

in part, reversed in part, and remanded.’

Upon respondents’ renewed motion, the district court dis-

missed petitioner’s claims on the grounds that they were a

collateral attack on an ICC order and were jurisdictionally

barred by 49 U.S.C. § 11341 and by 28 U.S.C. §§ 2321 and

2342 (1988). A-13, A-14. In light of these rulings, the district

court declined to address respondents’ remaining ground for

dismissal: petitioner’s failure to satisfy the applicable statute

of limitations. A-15. The Ninth Circuit unanimously

affirmed.* A-1 to A-8. By order filed March 9, 1990, peti-

tioner’s request to the Ninth Circuit for rehearing was denied

and petitioner’s suggestion for rehearing en banc was

rejected, no judge of that court having requested a vote on

the suggestion for rehearing en banc. A-37. Petitioner now

seeks a writ of certiorari.

REASONS FOR DENYING THE WRIT

SUMMARY OF ARGUMENT

Both the Ninth Circuit and the district court correctly

applied the relevant provisions of the Interstate Commerce

Act relating to railroad mergers, 49 U.S.C. §§ 11341-51, in

dismissing petitioner’s misplaced challenge to an aspect of the

ICC-approved acquisition of WesPac by Union Pacific. Sec-

tion 11341 of the Interstate Commerce Act grants the ICC

exclusive jurisdiction over one railroad’s acquisition of con-

3 These decisions are reproduced in the Appendix to the Petition at

A-29 to A-36 and A-16 to A-28.

4 The Ninth Circuit did not address the statute of limitations issue left

outstanding by the district court.

—————

5

Bie

trol over another and exempts ‘‘a carrier, corporation, or

person participating’’ in such an ICC-approved transaction

‘*from all other law . . . as necessary to let that person carry

out the transaction, hold, maintain, and operate property,

and exercise control or franchises acquired through the trans-

action.’’ If petitioner disagrees with an aspect of the ICC

approval of the Union Pacific-WesPac transaction, the

proper remedy is to go back to the ICC, not to seek to evade

the ICC’s exclusive jurisdiction or to collaterally attack its

approval by filing an action in federal district court.

ARGUMENT

I. THE NINTH CIRCUIT CORRECTLY APPLIED THE

REGULATORY STRUCTURE CONGRESS SET FORTH

IN 49 U.S.C. §§ 11341-51

Because the ‘‘maintenance and development of an econom-

ical and efficient railroad system [is] a matter of primary

national concern,’’ Congress has determined that issues per-

taining to the consolidation, merger, and acquisition of con-

trol of one railroad by another, such as Union Pacific’s

acquisition of control over WesPac, should be placed within

the exclusive regulatory jurisdiction of the ICC. Schwabacher

v. United States, 334 U.S. 182, 194 (1948) (citation omitted).

Congress intended this ICC jurisdiction to be ‘‘plenary and

exclusive and independent of all other state or federal author-

ity.”’ Id. at 197 (emphasis added).° See also Chicago & N.W.

Transp. Co. v. Kalo Brick & Tile Co., 450 U.S. 311, 318

(1981) (the ‘‘Interstate Commerce Act is among the most per-

vasive and comprehensive of federal regulatory schemes.

Bas

5 In Schwabacher, the Court construed the predecessor sections to 49

U.S.C. §§ 11341-51, the statutory provisions pursuant to which the ICC

approved the Union Pacific-WesPac merger. In recodifying the provisions of

the Interstate Commerce Act construed in Schwabacher, Congress did not

intend to make any substantive changes in the provisions of the Act. JCC v.

Brotherhood of Locomotive Eng’rs, 482 U.S. 270, 299 n.12 (1987) (Stevens,

J., concurring); and see 49 U.S.C.A. § 11341, Historical and Statutory Notes

at 635 (West Partial Revision 1990).

8

The statutory scheme for regulating the acquisition of con-

trol of one railroad by another is currently found in subchap-

ter II] of Chapter 113 of the Interstate Commerce Act, 49

U.S.C. § 11341 et seq. Section 11341 provides that ‘‘[t]he

authority of the Interstate Commerce Commission under this

subchapter is exclusive,’’ and that a participant in an ICC-

approved transaction

is exempt from the antitrust laws and from all

other law, including State and municipal law, ‘as

necessary to let that person carry out the transac-

tion, hold, maintain, and operate property, and

exercise control or franchises acquired through the

transaction.

49 U.S.C. § 11341(a) (emphasis added).° Section 11343 identi-

fies the types of transactions that are subject to the ICC’s

plenary and exclusive jurisdiction and includes transactions

such as Union Pacific’s acquisition of WesPac. 49 U.S.C.

§ 11343(a)(3), (5). Section 11343(a) also makes clear that such

transactions ‘‘may be carried out only with the approval and

authorization of the Commission... .”’

As mandated by 49 U.S.C. § 11343(a)(3), Union Pacific

applied for and received ICC approval to acquire WesPac

stock at $20 per share and thus control WesPac. As part of

this approval process, the ICC was required to and did

approve the $20 per share consideration paid by Union

Pacific. This statutory duty was firmly established by the

Original version of 49 U.S.C. § 5(2), the predecessor to

§ 11343, which expressly directed the ICC to authorize and

approve acquisitions ‘‘for such consideration . . . as shall be

found by the Commission to be just and reasonable. .. .”’

Transportation Act of 1920, ch. 91, § 407, 41 Stat. 456, 481

(1920) (emphasis added). Although the statutory language has

changed over the past 70 years, Congress did not intend to

6 The words ‘‘from all other law, including State and municipal law’’

were substituted for ‘‘of all other restraints, limitations, and prohibitions of

law, Federal, State or municipal’’ to eliminate redundancy, not to effect any

substantive change. Historical and Statutory Notes, supra note 5, at 635.

9

modify the nature of the ICC review in any way and the ICC

must still review and approve the consideration paid for the

acquisition of control.’

This Court’s decision in Schwabacher, 334 U.S. at 182,

confirms that statutory obligation on the part of the ICC and

the preemptive effect resulting from congressional placement

of that obligation ou the ICC. The plaintiffs in Schwabacher,

shareholders of one participant in a proposed railroad mer-

ger, were dissatisfied with an ICC-approved merger plan and

claimed they were entitled to more per share than the amount

the ICC had determined to be just and reasonable. This

Court held that such a claim could not be maintained outside

the ICC:

It appears to us inconsistent with the Interstate

Commerce Act for the Commission to leave claims

growing out of the capital structure of one of the

constituent companies to be added to the obliga-

tions of the surviving carrier, contingent upon the

decision of some other tribunal or agreement of the

parties themselves. We think that the Commission

must pass upon and approve all capital liabilities

which the merged company will assume or dis-

charge as a result of merger. If some greater

7 While § 5(2), as amended by the Emergency Railroad Transporta-

tion Act of 1933, ch. 91, § 202, 48 Stat. 217, 217 (1933), no longer explicitly

referred to approval of consideration, the express language requiring that the

transaction be just and reasonable was maintained. 49 U.S.C.A. § 5(2)(b)

(West 1959). Moreover, the accompanying Senate Report states, ‘‘[t]his para-

graph, while it includes substantially the provisions of [§ 5(2) of the Trans-

portation Act of 1920]. . . , is more comprehensive in its scope. . . .’’ S.

Rep. No. 87, 73rd Cong., Ist Sess. 8-9 (1933) (emphasis added).

Similarly, the House Report accompanying the Revised Interstate Com-

merce Act, Pub. L. No. 95-473, 92 Stat. 1337 (1978), the legislation which

enacted § 11343, is replete with statements that the legislation was enacted

without making any substantive change in preexisting law (49 U.S.C. § 5(2)).

In fact, in the very statement of the legislation’s purpose, the Report states,

‘*{t}he purpose of the bill is to restate in comprehensive form, without sub-

stantive change, the Interstate Commerce Act. . . .’? H.R. Rep. No. 1395,

95th Cong., 2d Sess. 4, reprinted in 1978 U.S. Code Cong. & Admin. News

3009, 3013 (emphasis added).

10

amount than that specified in the agreement is to

be allowed to any class of stockholders, it must

either deplete the cash or inflate the liabilities or

capital issues of the new company.

334 U.S. at 197-98 (footnote omitted). Indeed, the Court

determined that such claims were within the jurisdiction of

the ICC even if the potential liability did not threaten the

financial stability of the merged railroads.

It may be that in this case the merged company will

be strong enough to carry this burden and still per-

form its public service. But that is not the sole

purpose of the supervision provided by statute. It is

also in the public interest that no capitalization or

indebtedness be carried over except that which

meets the test of the Act in all other respects.

Id. at 198.

As the Ninth Circuit unanimously determined, there is ‘‘no

principled basis for distinguishing Schwabacher from this

case.’’ A-5 to A-6 (footnote omitted). Indeed, the rule that

ICC approval preempts subsequent shareholder claims out-

side the ICC for compensation beyond that which the ICC

found just and reasonable applies with even more force here.

In Schwabacher, the ICC had determined that the liabilities

asserted by plaintiffs would not impair the surviving carrier

through ‘‘a burden of excessive expenditure.’’ 334 U.S. at

189, 197. Here, however, petitioner is seeking more than five

times the amount per share approved by the ICC (see Peti-

tion (‘‘Pet.’’) at 4). To permit such a claim to go forward in

a non-ICC forum would undercut the regulatory structure

Congress set forth in the Interstate Commerce Act. This is

especially so in light of the fact that petitioner’s claim relies

on alleged land valuation claims of the sort that have been

considered and rejected by the ICC several times. See supra

at 4-5.

The Ninth Circuit’s disposition of this action is entirely .

consistent with a long line of judicial decisions (in addition to

11

Schwabacher) recognizing the ICC’s exclusive jurisdiction in

limited instances such as this and the preemptive effect of the

congressional grant of that exclusive jurisdiction to the ICC.

See, e.g., Chicago & N.W. Transp. Co., 450 U.S. at 327 (no

common law claim for damages where adverse findings on

issues essential to claim had previously been made by the

ICC); Brotherhood of Locomotive Eng’rs v. Boston & Maine

Corp., 788 F.2d 794, 799-802 (lst Cir.), cert. denied, 479

U.S. 829 (1986) (federal Railway Labor Act must yield where

it conflicts with ICC’s exclusive jurisdiction). See also Jnter-

state Investors, Inc. v. Transcontinental Bus Sys., Inc., 310

F. Supp. 1053, 1060 (S.D.N.Y. 1970) (ICC approval bars

recovery On antitrust claims); Schwartz v. Bowman, 244 F.

Supp. 51, 67-69 (S.D.N.Y. 1965) (federal action under invest-

ment Company Act dismissed where practical effect of suc-

cess On merits would be to ‘‘invalidate ‘in whole or in part’

orders of the Commission’’), aff’d sub nom. Annenberg v.

Alleghany Corp., 360 F.2d 211 (2d Cir.), cert. denied, 385

U.S. 921 (1966); Bruno v. Western Pac. R.R., 498 A.2d 171,

174 (Del. Ch. 1985) (ICC approval bars Delaware stock

appraisal action), aff'd, 508 A.2d 72 (Dei. 1986), cert.

denied, 482 U.S. 927 (1987). The decisions of the Ninth Cir-

cuit and the district court in this action are in full accord

with these decisions, with the regulatory structure found in 49

U.S.C. §§ 11341-51, and with the express statutory language

set forth in 49 U.S.C. § 11341.

Petitioner attempts to create the erroneous impression that

the Ninth Circuit’s judgment in this action has left WesPac

shareholders without a forum to challenge the $20 per share

paid to them. As discussed above, however, WesPac share-

holders have had ample opportunity to challenge that price

before the ICC and petitioner is simply unhappy with the

ICC’s determinations on that issue. Exclusive jurisdiction to

review such ICC determinations is vested in the Courts of

Appeals, 28 U.S.C. §§ 2321(a), 2342(5), and in this transac-

tion the District of Columbia Circuit Court has exercised that

jurisdiction and reviewed the pertinent ICC decisions twice.

Southern Pac. Transp. Co. v. ICC, 736 F.2d 708 (D.C. Cir.

12

1984), cert. denied, 469 U.S. 1208 (1985); Western Pac.

Stockholders’ Protective Comm. v. ICC, 848 F.2d 1301

(D.C. Cir. 1988). Petitioner may not bring a collateral attack

on such ICC determinations in a district court. Brotherhood

of Locomotive Eng’rs v. Boston & Maine Corp., 788 F.2d

794, 799 (lst Cir.), cert. denied, 479 U.S. 829 (1986); Railway

Labor Executives’ Ass’n v. Staten Island R.R., 792 F.2d 7,

11-12 (2d Cir. 1986), cert. denied, 479 U.S. 1054 (1987). Peti-

tioner’s action under §§ 10(b) and 14(e) of the Securities

Exchange Act of 1934 is just such an improper collateral

attack.

Moreover, under the regulatory structure established by

Congress, 49 U.S.C. § 11351, coupled with 49 U.S.C.

§ 10327(g)(1) (1982), provides for the ICC to exercise con-

tinuing jurisdiction over approved railroad consolidations and

to make appropriate supplemental orders ‘‘[w]hen cause

exists. . . .’” See also 49 U.S.C. § 11701(a) (1982 & Supp. V

1987). If petitioner believes the ICC’s determination approv-

ing the $20 per share purchase price was wrong, petitioner’s

proper remedy is to seek such a supplemental order.

II. PETITIONER HAS IDENTIFIED NO VALID REASON

WHY A WRIT OF CERTIORARI SHOULD ISSUE

The petition sets forth a lengthy list of questions purport-

edly presented by this action and contains a lengthy discus-

sion of reasons purportedly supporting the issuance of a writ

of certiorari. Much of what is contained in the petition is

simply irrelevant to this action. Moreover, the central issues

raised and discussed in the petition have been previously

raised and fully considered and answered by the courts below

and the ICC. For example, contrary to petitioner’s claim, the

ICC did review and approve the $20 price paid pursuant to

the tender offer, as both the district court and Ninth Circuit

found. Union Pacific Corp., 366 1.C.C. at 633-638; Union

Pacific Corp., Finance Dockei No. 30,000 (Sub-No. 1) (ICC

Jan. 28, 1987) (LEXIS, Trans. library, ICC file); A-14; A-8.

Petitioner has identified no errors in those decisions, much

less any that would justify the issuance of a writ of certiorari.

13

Nor has petitioner identified any conflict among the circuit

8

courts.

Petitioner misconstrues what has occurred in this action by

suggesting that the Ninth Circuit has ignored the Securities

Exchange Act of 1934, or found that act repealed by implica-

tion, or sO misinterpreted the preemptive effect of the rele-

vant portions of the Interstate Commerce Act as to deprive

shareholders of significant rights. The Ninth Circuit did none

of these things. The Ninth Circuit (as well as the district

court) simply recognized and applied the limited preemptive

effect of the ICC’s exercise of its exclusive jurisdiction to

review and authorize the consideration paid to shareholders

in a railroad merger.

Petitioner’s entire argument is marked by a complete fail-

ure to recognize and apply the explicit language of 49 U.S.C.

§§ 11341-51 and the necessary preemptive effect of the ICC’s

limited exclusive jurisdiction thereunder. Thus, for example,

when petitioner argues that the Ninth Circuit’s decision does

not comport with the requirements of the ‘‘repeal by implica-

tion’’ doctrine (see, e.g., Radzanower v. Touche Ross & Co.,

426 U.S. 148, 154 (1976)), petitioner ignores the fact that the

repeal by unplication analysis only applies ‘‘absent a clearly

expressed congressional intention’’ that one federal statute

should take precedence over another. Pittsburgh & L.E. R.R.

v. Railway Labor Executives’ Ass’n, 109 S. Ct. 2584 (1989).

Here, just such an intention is found in the express exemp-

tion set forth in § 11341. Interstate Investors, Inc., 310 F.

Supp. at 1064 (repeal by implication analysis not applicable

8 Petitioner seeks to create the appearance of a conflict with a district

court by relying on dicta in Bruno v. Cook, 660 F. Supp. 306, 309 (S.D.N.Y.

1987). Moreover, contrary to petitioner’s suggestion, nothing in the setile-

ment in that action, which provides for the return to certain non-tendering

shareholders of a portion of the interest earned on their $20 per share pur-

chase price while it remained unclaimed during litigation, is inconsistent with

the preemption of petitioner’s claims which directly challenge that $20 per

share price.

14

given the express exemption found in the predecessor to

§ 11341).°

Petitioner’s reliance on Pittsburgh & L.E. reveals a funda-

mental misconception of the pertinent provisions of the Inter-

state Commerce Act. Pittsburgh & L.E. involved an acquisi-

tion of a carrier by a noncarrier approved by the ICC under

49 U.S.C. § 10901 (1982), found in Chapter 109 of the Inter-

state Commerce Act. That portion of the Interstate Com-

merce Act, unlike subchapter III of Chapter 113, where

§ 11341 is found, does not grant the ICC exclusive jurisdic-

tion and does not contain an exemption for participants in an

ICC-approved transaction. In light of these material differ-

ences in statutory language, the principles that should govern

transactions subject to § 10901—such as found in Pittsburgh

& L.E.—are not applicable to transactions subject to

§ 11341.

Petitioner makes a similar error in citing and relying on 49

U.S.C. §§ 11301(b)(1) and 11367 (1982 & Supp. V 1987). The

language of § 11301, which governs the issuance of carrier

securities, expressly makes it subject to the federal securities

laws [Chapter 2B of Title 15 which includes § 10(b) (15

U.S.C. § 78j(b)) and § 14(e) (15 U.S.C. § 78n(e))].'° In adai-

tion, neither § 11301 nor its predecessor, 49 U.S.C. § 20a

9 If anything, it is petitioner who is relying on a repeal by implication

argument since petitioner’s claim rests on an argument that Congress has

impliedly repealed the express grant of exclusive jurisdiction to the ICC set

forth in 49 U.S.C. § 11341 and predecessor versions of that statute and the

express grant of exclusive jurisdiction to the Courts of Appeals, set forth in

28 U.S.C. §§ 2321(a), 2342(5). Nothing cited in the petition supports such a

claim.

10 ~=This language resulted from the Railroad Revitalization and Regula-

tory Reform Act of 1976, Pub. L. No. 94-210, 90 Stat. 31 (1976), which, in

pertinent part, established concurrent jurisdiction between the ICC and the

Securities and Exchange Commission over the issuance of securities by rail-

roads. S. Conf. Rep. No. 595, 94th Cong., 2d Sess. 133, reprinted in 1976

U.S. Code Cong. & Admin. News 148. Nothing in those amendments sought

to alter the ICC’s exclusive and preemptive jurisdiction to approve railroad

consolidations and mergers found in 49 U.S.C. §§ 11341-51.

15

(1976), contains the relevant provision granting express

exemption from all other law upon ICC approval. In con-

trast, § 11341, which is applicable here, expressly exempts

transactions affecting control that are approved by the ICC

from all other law. See Suffin v. Pennsylvania R.R., 276 F.

Supp. 549 (D. Del. 1967), aff'd, 396 F.2d 75 (3d Cir. 1968),

cert. denied, 393 U.S. 1062 (1969) (recognizing distinction

between § 20a and § 5). Thus, cases such as Shofstall v.

Allied Van Lines, Inc., 455 F. Supp. 351 (N.D. Ill. 1978),

and Dorfman y. First Boston Corp., 336 F. Supp. 1089 (E.D.

Pa. 1972) (Pet. at 13-14), involving the predecessor to

§ 11301 (§ 20a) are simp!y irrelevant. Similarly irrelevant is

49 U.S.C. § 11367(a) (1982 & Supp. V 1987), found in yet a

different subchapter, which simply makes clear that ‘‘Section

14(a) of the Securities Exchange Act of 1934 . . . does not

apply to a solicitation related to a proposed change under

[that] subchapter.”’

Rembold v. Pacific First Fed. Sav. Bank, 798 F.2d 1307

(9th Cir. 1986), cert. denied, 482 U.S. 905 (1987), also cited

by petitioner (Pet. at 15-16), involved the relationship

between the National Housing Act, 12 U.S.C. §§ 1725(j)(2)

and 1730 a(k) (1988), on the one hand, and common law and

federal and state securities laws, on the other. As the decision

makes clear, in enacting the National Housing Act Congress

expressed a clear intention not to preclude any existing cause

of action under the antifraud sections of the securities acts or

any other law. 798 F.2d at 1310. Moreover, the stock price at

issue in that action was expressly not subject to approval by

the Federal Home Loan Bank Board, the relevant regulatory

agency. See id. at 1308, 1311. Exactly the opposite congres-

sional intent and regulatory approval scheme exist under sub-

chapter II] of Chapter 113 of the Interstate Commerce Act.

SEC v. National Securities, Inc., 393 U.S. 453 (1969) and

Plaine v. McCabe, 797 F.2d 713 (9th Cir. 1986) (Pet. at 20,

21-22), are inapposite for similar reasons. In those actions,

the approval of mergers by state regulatory agencies did not

preclude subsequent actions under the securities laws. Neither

decision involved a federal statutory scheme such as is found

16

in 49 U.S.C. §§ 11341-51 that grants a federal agency plenary

and exclusive jurisdiction over issues pertaining to an acquisi-

tion and specifically exempts participants in an agency-

approved transaction from all other law.”

Petitioner is also wrong in asserting that the statutory

exemption from claims for more per share than the amount

approved by the ICC is not ‘‘necessary.’’ As explained

above, Congress has vested exclusive jurisdiction in the ICC

to approve the consideration that may be paid to share-

holders in a railroad acquisition. An exemption from claims

for more than the ICC-approved amount is necessary to pro-

tect that exclusive jurisdiction. In the absence of an exemp-

tion, a participant in such a transaction might find_ itself

compelled in some other forum to pay a price other than that

approved by the ICC. The purpose of the exemption is to

prevent just such an interference with the ICC’s regulatory

authority. Indeed, as Schwabacher points out, such claims

are preempted even if they do not present a threat to the

financial success of the transaction.

Finally, contrary to petitioner’s assertion, the statutory

exemption does and should apply ‘‘retroactively’’ as well as

prospectively. As the court in Jnterstate Investors succinctly

put it in rejecting the same argument in connection with an

antitrust claim:

[1] find that Section 5(11) may be applied retroac-

tively to immunize aspects of a transaction thereaf-

ter approved by the ICC. This conclusion is

fortified, I believe, by the parallel conclusion, to

which | turn next, that it would be incongruous to

allow recovery under this complaint when the con-

spiracy, if any, which is alleged to have been

formed prior to ICC authorization, was at the heart

of the very transaction which was approved.

11 Indeed, in National Securities the Court permitted the SEC to pur-

sue ‘‘unwinding the merger and returning the situation to the sfafus quo

ante... .’’ 393 U.S. at 456, 463-64. There is no question that Congress

intended, as demonstrated by 49 U.S.C. §§ 11341-51, that any decision

regarding such relief in a railroad merger be vested exclusively in the ICC.

|

17

310 F. Supp. at 1063. Just as in Jnterstate Investors, the issue

that petitioner seeks to litigate here—whether WesPac share-

holdezs should be paid more than $20 per share—goes to the

heart of the transaction approved by the ICC.

In sum, contrary to petitioner’s assertion, the Ninth Circuit

did not pick and choose between statutes; rather, it applied

the express, limited exemption ‘‘from all other law’’ found in

the pertinent subchapter of the Interstate Commerce Act. 49

U.S.C. §§ 11341-51. This subchapter grants the ICC plenary

and exclusive jurisdiction to examine transactions whereby

one carrier acquires control of another, and the exemption

only applies in the limited circumstances where the ICC has

reviewed and approved the transaction at issue pursuant to its

statutory authority. Petitioner has not identified any valid

reason why a writ of certiorari should issue to review that

decision.

CONCLUSION

The petition for a writ of certiorari should be denied.

Dated: July 9, 1990

Respectfully submitted,

JOHN F. COLLINS

(Counsel of Record)

LEONARD JOSEPH

STEVEN J. MILLER

DEWEY, BALLANTINE, BUSHBY,

PALMER & WOOD

140 Broadway

New York, New York 10005

(212) 820-1100

Attorneys for Respondents

Union Pacific Corporation

and The Western Pacific

Railroad Company

18

KURT W. MELCHIOR

NOSSAMAN, GUTHNER, KNOX

& ELLIOTT

50 California Street

34th Floor

San Francisco, California 94111

(415) 398-3600

Attorneys for Respondents

T. BARRY KINGHAM

CURTIS, MALLET-PREVOST,

COLT & MOSLE

101 Park Avenue

New York, New York 10178

(212) 696-6000

Attorneys for Director Respondents