# Opposition Brief — Deutsch v. Flannery

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1990
- **Citation:** 498 U.S. 818

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_1639%3A2. Public record. Not legal advice.