Appendix — Baltimore & Ohio R. Co. v. United States

Supreme Court brief1967

Ask Donna

What actually matters in this document.

Text

Rae

os ey RY 3 | jie | FI LE De

‘d ms

| “Supreme Court a the United States 3

Pee : Octosen Ten, 1966. meas ae see,

CITY OF SCRANTON, ie

‘© . UNITED STATES OF AMERICA, et al, = ae ee

Appellees.

; Shae. : : . Waa Wie er 8c

MILTON J. SHAPP,, on Fe ee are

AM eee te. | Appellant, ©. -

. UNITED STATES OF AMERICA, et al, Bese pet eee

~ On Appeal from the United States District Court

For the Southern District of New York - :

a ——— ——

| Cone P. isis: “@-

Y, Sara aS, ‘705 Ring Building,

Bae re ENE a ‘Washington, D. C. 20036,

JOINT APPENDIX TO BRIEFS FOR APPELLANTS ~

November 30, 1966

‘Supreme Cont. of ths United d States

%°

er —— 1966

CITY OF SCRANTON, et al,

_ UNITED STATES OF AMERICA, et ‘al,

MILTON J. SHAPP, —

UNITED STATES OF AMERICA, et al,

’

(n Appl fom he Una Sate Dir Cot

For the ee ee York:

> oa ae

oes MT

eB Mn RAIN Loi alae EHR Made Neh 0

baie Ks i ieee a

. %

Sealy ee AAG ne

Deen Soren)

a "TABLE OF CONTENTS mf

et Belek of FenneyivandsConsaiantton aia

of Interlocutory Injunction befpte the Dis

iy heat 2 to Brief of, Pennsylvania Commu-

tities in Support of Interlocutory Injunction

Before the District Court, consisting of Oral

* Argument of. wes H. Ras inane vto eae:

a1, 1965 oe rerrrnpniniennniinnennenmnnsinn Section B

Support of reas a Injunction before —

hes on ‘behalf of Milton J. Shapp in Support of

* Motions for Issuance - of an ‘Interlocutory

_Injunetion before the. District, Court EES “Section D |

"Exhibit ay to beeline Complaint of -

Milton J. Shapp before the District Court, ,

- Consisting Gf portio of petition for reconsid-

~ . eration ramus c II, 1968 <

with the serene aanperee Commission. Section E oak

om Mee ee oe % tes

— v7

: ; ; yo at . é : ie

ys 2

- Uated States District: Chan. Mee

por _ Soursean District or New Youx EES

TERIE-LACKAWANNA RAILROAD COMPANY,

7 Poe ie

‘UNITED STATES OF AMERICA and - |

INTERSTATE COMMERCE COMMISSION,

£ .

° .

id ‘

: é .

4 g

66 Civ. No. 2860 -

Brief of Pennsylvania ‘Communities : Ae

in Suppor of InterleunyInunton erie Bas

ae This brief is filed on behalf of certain corimmunities~

located. in the‘ Commonwealth of Pennsylvania, some of are

‘which were termed “jointly depresented’ in the April 6, | 4

1966 report of- the Interstate Commerce Commission in = == |

--»» Pennsyloania R: Co.-Merger-New York Central R. Co., 827 i.

LC.C. at p. 483, 486, 495. ? i

; These communities ask that the court issue an inter Np ae Shon

' locutory injunction pending decision on the merits of their rears 2

eae Plaintiffs gerires seek an n order gd nema 3 @

“spin emta qalcentas caiomeneer aioe tenon. ae

The. testimony and argument is largely dismissed as a eae

shacter of law! ie iamalieits ‘iebykig god thie’ doin Cue ee

of the U.S. Supreme Court in interpreting*thé Transporta- 9°

tion Act of 1920, BD, ia sipylkitlated Wy Whe Eanerpaniy Ralf ena |

-rofd Transportation Act’ of 1938. N.Y. Central Securities . -* 4

Co. v. United States, 287 U.S. 12, 25 (1982); Texas v. eee

United States, 292 U.S. 522; 581 (1938); United States v. ie

peg eerste hernias Breed Argeronee ered meee) by

re) sa ix Pg 7

. ok

; 7 . ies ye ene eee

Pen wr Ne eae. ae IN Ora et oe i

Md ‘

aR Bey n

* 5° A2

ase a a ey oe ap

_ apparently adopted by theCommission’s April 6, 1966 re-

as those conclusions of the examiners which were ‘not

: sapdllgd epaiiaited (827-LC.C. at pp. 481-2) ‘The peti- :

tions for reconsideration filed by various - Pennsylvania:

communities are specifically and individually mentioned at

_ sheets 2, 6 and.27 ‘of the report on reconsideration dated |

. September 16, 1966.

The Takecetake Ocupanboce Coenapiedliin cits aa‘ thatjer

| of law in considering the evidence of varieus Pennsylvania

, communities irrelevant... Section 5(2)(c) sets forth four.

-.. factors, among others, which must be evaluated by: the

- <- “ Commission, and the decision of the Supreme Court in ‘

“McLean Trucking Co. v. United States, 321 U.S. 67 (1944)

shows that the “public interest” is an evolving concept

the consideration of the Transportation Act of.

requiring

1940: and subsequent legislation.. Such legislation,. for

example, Pogyye.rere Regional Development Act of

1965, is an important enactment ‘affecting transportation

which requires the Commission to consider the effect of the

; —e upon plaintiff communities.

| _, PLAINTIFFS ARE LIKELY TO PREVAIL ON THE

“The proposed merger of the Pennsylvania Railroad

Company and New York Central Railroad Company is

predicated upon adverse U.S. economic developments

Which, if they did not approximate calamity, would at least

-violate the forecasts of most accredited economists, mark |

- the failure of all relevant national economic policies, and

i __be highly injurious to our domestic and international needs. 7

The Commission states that it must be aware of the

of econdinic imbalance and recession, and that

its decision approving the merger, affecting a very sub-

stantial part of the Nation’s future transportation, cannot. -

be made with eyes closed to the very real danger that the -

. US. See ene :

‘es

ieee

_ _stleconomic history in view of the current optim. (827 °

_ LCC. at pp. 497-8)

! The report on reconsideration, dated September 16,

1966, continues the doom and gloom philosophy 1

__» ing the contraction of railroad facilities via merger.

Commission states that PRR and NYC ate not assured of

Contrary to the Commission, the real gamble, indeed

+ tho ‘actual Gceaaaby is that approval of the metget

uriland' the faturb of the Reka: Dieriehcithe’ (ices)

S ar erate The Commission continues to bud-

_ get transportation requitements downwa:d. Indeed; the

_ April’ 6, 1966 report. projects that the combined traffic of

’’ -PRR.and NYC will drop from 89.2 billion ton-miles in 1965

to 71 billion ton-miles in 1970 based upon’1947-1965 trends,

and to an even lower figure of 64 billion ton-miles based

upon 1947-1963 datd. .(827 LC.C. at p. 550) © ,

. ‘These forecasts indeed would be consistent only with

economic catastrophe; they would not be consistent even -

with some slackening of the rate of economic growth, nor

even with sote moderate ‘teorssions of the type experi

enced three times during 1958-1961. -

: Plaintiffs suggest that such dire projections are com-

pletely unsupported by substantial evidence and that, after —

trial on the merits, the decision approving the merger will

- be set aside pursuant to. the requirements’ of the Admin.

>’ istrative Procedure Act.’ The ertoneous economics of the

oe Commission ate atbitrary, capricious, an abuse of discre- yaa

Eg TT eee

By,

Se ne Te a eee ee ee ee ee ee

x: wee aa Ad

The budgeting downward ot staid lial par. ”

Solacty.arlog on. bibie don dhintaggs oidibin-sinw ttt, nome

will create the very disaster that the Commissioh purports -

--° to guard against. t" Approval of the PRR-NYC merger, which

wl be the argo merger in US, corporate history, com-

bining $6 billion in assets, gambles with future.of ~

3. America, and with the maintenance of the: United States as’

a grvat power. As counsel Keyserling stated doring oral |

brag ewe before the Commission:

..“We would have-to have a great economic ciulamnity 7

during the next five years to realistic these pro-

a jedtions on which the merger i founded, and such a.

¢ ‘would run so counter to all of our national

urposes and objectives that it would mean the ending _

- of the United States:as a great power and a great

"power in world affairs.” (Tr. 20,007-20,008 ) ;

The Interstate Commietion: bee started

the scrapping of railroad facilities based upon

Socal tecteta gulcosenad'd a whee dang tos

years 1953-61, nod de emtenslad -epch pyojections: tothe,

year 1970.

Attached. hefeto as ai ppéndicies 1 and 2 ere materials

a ated othe cal peqenendt bahonp thn Tahicstata, Coim-

, ‘merce Commission on October 21, 1965 by counsel Leon °

H, Ke on behalf of the Tis Eee fr Penn- °°

| ii communities. , a cerpts from, Leon

“Gam Dias rc dee cacieeecd baste Soman

only-‘assigned ‘12 minutes to.counsel Keyserling: The full _

text of the argurnent was, accordingly, distributed to the

+ Porhmissioners for their further. study, but is not par§ of the

official. transcript of the oral argument. :

I PLAINTIFFS, WILL SUFRER IRREPARABLE IN-

ee ala AOE TRE IERALOCT EONS FONCTION ed

wes NOT ISSUED. ~ige

C2305 eo

_ of |

~The short interval between issuance’ of ‘the Cominis-

. sion’s further report and order on September 19; 1966, and.

the hearing held ‘before this court on September 21, 1966,

- did not permit plaintiffs the necessary time within which

to consider the filing of affidavits demonstrating irreparable

"_. injury.if the merger is allowed to become effective pending

__ full hearing on the merits. Be 3

Injury, however, is implicit from the oral erall opera-

tional plan of the merger, which is to reduce railroad

capacity throughout the Eastern District. ‘As confmunities ~

located in the Eastern District, plaintiffs will he adversely

jury alse derives from inadequate protection af-

oe In

- forded by thé-Commission*for the’ plaintiff railroads serv-

~ + ing Pennsylvania communities, ‘such. as E-L, D&H, and

- (CNJ; which serve one or more of the plaintiffs herein.. The

protection.” (sheet 87) ‘The indemnity provisions and

of the September 16, 1966 order to any damages suffered

, gs. | at

and CNJ will result in smaller railroad. payrolls with the

prosperity. of the railroads serving a community is one of 3 2

illic ha ie ane scien d

. *. @

-AB-

, _ plant sites or in the decision to expand.or to close down

_ holding further hearings, should be considered by this

court .as an acknowledgment by the Commission that the

Same gered bey: Gate selleoicle: hive mo ecleguate

‘ remedy at law. :

Any deficiencies in the showing tajety to 6 og

- within the meanin nebrhesencen.caimaye Abel

Federal: Power Commission, 250 F. 2d- 921, nadie dean

The satngaiion ob leonnges Sor; cortate sacs, by as

offset by. the ‘high probability of success on the merits. -

The citeg decision holds that a higher peobsbility of suc

' . ‘cess on the merits will reduce the amount of injury neces-

"sary to support an, interlocutory injunction. ot

II. THERE IS-NO SUBSTANTIAL HARM TO PRR -

_ AND NYC: -

The argument of counsel Leon H. eyeing: bekore

“the Commission attached hereto as an appendix demon-

‘strates that denial of the merger would actually benefit the

' two railroads: (Appendix 2, pp. 29,88) . 7

IV. THE PUBLIC INTEREST WILL NOT BE

_ HARMED, BUT: WILL BE BENEFITED BY IS-

_ SUANCE . OF AN INTERLOCUTORY INJUNC- .

TION :

Soon di. Koveeding leek spsietk ih the-Cosemiaton:

proceedings as an economic witness tendered by the Rail-

_ way Labor Executives Association in early 1968. Hehad - ;

_ agreed to undertake this assignment only afterindependent

compatible with legislative ational public —

policy affecting transportation enacted subsequent to 1940.

McLean Trucking Co. v. United States, $21 U.S. 67, 70-80.

- At the oral argument held October 21, 1965, counsel

/» Keyserling sppeared.on, bebelf of the jointly represented =

appear to have ‘in vital respects an outlook

as presented by two railroads which has-already

turned out to be gross erroneous, even while -

“More important still, I submit that the findings and

order. of the examiners, issued in March 1965, relied |

too heavify? upon developments prior to the conclu-

sions of my testimony in 1968, and did not take. suffi-

cient account of factual developments thereafter”

And , (ApE 2, p.7):"

‘.

oe, fe

- information available on October 21, 1965, th

. jected. by Dr. Williams (the essential economic case upon

which the railroads seeking merger relied, and upon which_

the examiners and Commission also-relied) with the pro- —

jections’ of witness Keyserling offered at the time of his

original testimony in early 1968, andl with actual develop-

| | ments as of October 21, 1965, which in the main validated

_ the earlier projections of witness Keyserling. * 7

"Of equal significance in this connection are Charts 11-

19, supporting the argument at pages B18-B28 of Appen-

' dix 9, indicating the meretricious nature of the financial

. | _ ‘assumptions underlying the proposed merger.

ae Plaintiffs call attention. also to Charts 20-28, reinforc-

- . ing pages B28-B33 of the argument in Appendix 2, which

~ show that-the merger represents an indefensible concen-

tration of economic power. —- ye

The position of counsel Keyserling, as developed

: . throughout, is that such a concentration of economic power

might be justified if its real purpose were to enable the two

the public and the nation and to put'into effect lower per-

"unit charges: Se

> -®

he trends pro- tne

ape . ss)

/ to speak of its real purposes, is to cut back on facilities

services, and employment, based upon forecasts as to the

needs of an ding economy, which forecasts have

, tumed out to be abysma y wrong in all important .

_ Further, the presumptions underlying the merger haye

| ) monopolistic power along lines

which have given rise to our manifold efforts to curb mo-

nopolistic power since the otiginal inception of antitrust

nopolist

legislation.

“Developments during’ the’ almost a. year which has.

_ elapsed :since oral argument on October 21, 1965 have ~

further corroborated and demonstrated the entirely: erro-

neous nature ofthe factual assumptions upon which the

merger was proposed and approved. The following de-

velopments are ‘most pertinent: = —.

"1 The final data on the vatious types of income for 1965, as set forth herein,

are considerably higher than those shqwn in Appendix 2. This is because, _

as of October 21, 1965, ye 1965 estimates were made on the basis -of

unadjusted annual rates du first half of the year. The fact

estimates for 1965 proved to be lower than final data for 1

the

fections, an ao show thet tg Sera 2 and coal Keynesting’

eats

UNL iui ieceilt ie 8d eure ae

“7

vay:

combined in 1965 wes $75.4 1 on.” Tt mn- |

adjusted data for the first hdlf-of 1966 indicate that net

income after taxes for the two railroads com will be .

in the neighborhood of $86 million, or better, in in 1966.

(8) The cash flow of the two railroads combined was —

$167.5 million in 1965. The seasonally unadjusted data |

for the first half of 1966 indicate that the cash flow of the .

two railrpads combined for 1966 will be in the neighbor-

hood of $180 million; or better.

: (4) ‘The total railroad operating revenue, of the two

railroads combined in 1955 was $1,554.1 million. The -

seasonally unadjusted data for the first half of 1966.indi-. -

cate that the total railroad operating revenue of the two —

- railroads for 1966 will be in the: neighborhood of $1,560

’ million, or bette The very slight increase in total railroad ane

' _ operating reventie, combined with the very large increase --

in net railway operating ‘income, net income. after taxes,

and cash flow, indicates that the two raikoads have-very

y bettered their ultimate income position without —

| Sracahin tntwines to. volecke of buslosts These disparate -

_. trends further confirm the contention that the two railroads ;

are following a policy designed to increase their ultimate

income, not by the needed expansion of services, but rather

_ by higher per-unit revenues. The disparate trends may

also indicate gains in efficiency without benefit of merger,

tins Gemmouitreaing, the wesalaens of Sip cine Rt only

merger can produce significant efficiency: gains

Z WS) Avetkble det do not permit peeciee dep siction of

the trends in the facilities of the two railroads between’

- 1965 and 1966. However, the indications are that PRR»

and NYC are continuing to budget downward their road

| ‘mileage,and also their cars in service, thus running cosnter :

2 This is @ very conservative figure in‘that it treats PRR and NYC on a an

company besis rather than on a consolidated basis with their subsidiaries.

Net income of PRR and NYC on a consolidated besis rose from $4-7 million

in 1961 to $122.5 million in 1965. :

“above conclusion is further’ re-

_ inforced by employment trends for PRR dnd NYC. . Using

_ 1989 as an ‘index representing 100, the index of ‘employ- —

ment on PRR dropped from 62.3 in’ August, 1965 to 59.5

in July, 1966." The itidex of employment on NYC dropped

”. have been serious, and have become acute in the face of

Pressures exerted: when the U.S. needed to. move more

wheat because of accelerated exports to. India and else-

defense ‘commitments and our international engagements .

_ 816. now more extensive and intense thin in 1968 or 1965,

and there is some prospect that.this trend will continue in

1966 and 1967. WAS? MERE i :

21, 1965, the merger was proposed and originally approved

by, the examiners on the basis of the assumption that our

average annual economic growth rate through 1970: and

‘terms ning 1960-1965 v was 4.5 percent; during 1962-1965,

4.7 pér cent; and is now estimated to be in excess of 5 per-

” cent during 1964-1966. Only 2 major economic calamity,..

which the United States is straining every national policy

- to avoid, would drive the U.S. average annual growth rate.

so far downward ws Ghaaclmaragpiatr i which the merger

was advanced, and approved, d be translated into

| anything approximating reality. —

The p merger is based upon | the assumption ’

iv eaoend eis elite © Lance

The pte int dae i the ran

saseitenreey injunction to prevent — ene to.

the: national: economy. i : |

ae CONCLUSION

, Cie shell loves

= menlennny Mean Enews een Se

merits. -

Tiel ‘Respectfully submitted,

Lzon H. KEYSERLING .

1001. Connecticut Ave., Nw.

Washington, ‘D.C. 20086

Harvey R. RoBInson |

Luce’& Robinson

Freedom, Pa. 15042 ~

Of Counsel. | ': ~ City Hall

Anraur A. ARSHAM Scranton, Pa. 18508

4g) ‘Broadway. . Counsel for Borough of Freedom,

York, N.Y. 10006 et al. ‘

Gonpon P. MacDovcatn ;

-» 705 Ring

Washington, D.C. 20086

Dated: September 27,1968

_ United States District Court

ERIE-LACKAWANNA RAILROAD COMPANY,

, SPY eran) rape Lae _ Plaintiff,

UNITED STATES OF AMERICA and> _

“INTERSTATE, COMMERCE: COMMISSION,

| 68 Civ. No. 2860 ©

Appendix 2"to Brief of _

Pennsylvania Communities

Oral Argument of Leon H. Keyserling before Interstate

Commerce Commission in Opposition to Penn-Central

_ Merger Thursday, October 21, 1965

May it please the Commission: | ; ragga

INTRODUCTION AND SUMMARY OF

_*. ANALYSIS AND CONCLUSIONS

_ I am Leon H. Keyserling, a consulting economist and

attorney with offices at 1001 Connecticut Avenue, Washing-.-

ton, D.C. fg Fag 3:

I appear today at the request of certain communities

-opposing the Penn-Central merger, but I am convinced that

what I shall say is also in the national public interest. In-

deed, I submit that the central reason why this proposed

merger would be acutely damaging to the legitimate inter- -

- ests of many specific communities is that the proposal ‘is

founded upon an a roach to the railway transportation

problem which woul make consummation of the merger

being my view, I feel that I can be most serviceable here

today to those who have asked me to represent them, and

> also most helpful to this Commission, by examining the pro-

posed merger in terms of the national public interest. What |

Defendants.

generally damaging to the national public interest. This |

inaarenedvanteinnte die ssicits eS oak .¢ aA RE: OH

| Bo ee

is bad for the Ustisd’ States can hardly be good for many .*

communities in the long run: on

' Another reason ‘why: I believe that I can be most = :

ful to this-Commission by viewing the proposed merger in

- terms of the national public interest is that it was in these

terms, after more than a year of intensive study on nity part,

with very able staff assistance, that I testified for several

days before the examiners in this case in early 1968. This: ©

_ was the whole-nature of my testimony, even though in early

1963 I appeared on behalf of various railway organizations. |

a _ _In the shart time allotted to me here today, I cannot |

cover in full the ground which I covered in°my samereg

' -before the examiners ig early 1963, and consequently I

cannot today detail all of my reasons for disagreeing with

the March 1965 findings and order of the-examineis in ap-

_ proval of this proposed merger. Briefly, I respectfully sub- |

mit that the examin did not allocate appropriate weight: -

_ ings to the various established national polices bearing upon

_mergers'of this type and thus committed"what I would re-

gard as errors of law; that, even allowing for reasonable

differences in judgment, the examiners did not correctly

| evalnate some of*the important data, including especially

the financial data, contained in the transcript of testimony

<sin this case; that the‘examiners, in their proper desire todeal

. with facts rather than speculation, failed to recognize ‘fully

_ » that in any-case of this kind-we must not only examine thé =

'“* - past but also look into the future, and that, to the degree -—

they looked into the future, the examiners appear tp have *

—

‘accepted in vital respects an outlook as presented by the .

. two railroads which has already tured out to be grossly -

- erroneous, even while néglecting to attach much or any

: weight to projectioris made by some opponents of the mer-

- gér, including myself, which have thus far turned out to be ~

’remarkably accurate. - a.

Sie aeashten il 2 coke thet hs Riles on

: aint Eee somata, taken te Mee 2 relied too

‘ ‘a

ser wad ss

Lashyily upon developments prior to the conchisions of the

‘testimony in 1968, and did: not take: sufficient account of

factual deyelopments thereafter. I respectfully submit that

this Conimission, in the nationafinterest;should take proper

_ notice of all of the truly important facts bearing upon this

case to this véry date. Whatever the legal or administrative

technicalities may be, we are here engaged in the resolution

of a matter of tremens nationwide importance, and not

re, merely playing a game of-rules.. For example, if we now

found ourselves in an interna ional crisis which would call

imperatively for a new look at our entire national transpor-

tation system, it could hardly be argued that this should not

enter into current consideration of the Penn-Central merger -

proposal because the testimony: thereon was completed

_ Some time back. And I submit. that there have been |

es sirice 1968 in our national economic environment

and outlook and in national economic policies, as well as in

the transportation system in general and the conditions of

these two railroads in particular, which have introduced

what I believe to be controlling new ‘factors bearing upon

the appropriate disposition of this merger proposal.”

_In these connections, I feel it appropriate to state here

ee today before this Commission that; in my view after study-

' + ing carefully their entire analysis, findings, and order, the -

examiners took no meaningful account -of the materials

which I presented to them in 1968, and that these materials

were entitled to far more consideration than they received

beeause they (more than other materials available to the.

~\eaaininers) set the Penn-Central merger proposal in the, -

perspéctive of the whole transportation problem in thie

United States,’ and in turn set that problem in the perspec-

omy, In my testimony beforé

: tive of the performance and iniecain whole U. S. écon-

examiners I had ample

' time to deal with many technieal problems which I-cannot

treat of today: for example, the whole problem of trends in,

"the allocation of carriage among different types of carriers,

2 eee

-~-

ec ES Ue ee

ee: | ee . BA , oo: °

SESE EE a a a ee a

transportation problems in the Eastern District and in the |

U, S..at large. This Commission has available to it the’

record including this earlier testimony on my part. Ali that »

I can attempt here today is to highlight the main eléments

in my éarlier.analysis and conclusions, to bring these up to.

date in the light of subsequent developments, and to urge

“upon this Commission that what I said in 1968, based for _

the most part.on data extending only‘through 1962, has

; been vindicated beyond my most sanguine expectations |

' between now and then: :

“¢

_ I should now, make one point ‘emphatically clear.

Neither my testimony in early 1963 before the examiners in

this case nor my. current appearance is based on arty general ©

opposition on my part to industrial combinations or mergers.

During my 83° years of activity in the field of nftional eco-

ore nomic policies, I have always spoken out in favor of “big-

ness. when conducive td technological innovation, effi-

ciency, and improved capabilities to serve the public inter-

est. Nor have I ever failed.to recognize that the appli-

cation of the anti-trust and anti-monopoly -policy | to the.

railroads ‘involves.’ considerations different in ‘some re-

spects from those applicable to other industrial enterprises.

- Throughgut ‘my involvement in the Penn-Central matter,

I have sought tlways to. apply the criteria spelled out in

relevant‘transportation legislation, as well as in Executive

_._ Orders; Messages, and other pronouncements of the Presi-

| dent of the United

States and Rene opting: enol ee nema: 4

mag’: fe

Coming now to my anelysis and guile. they con-

Pepe hy Fatercing pts points, interrelated in their

' ‘mature:

: (1) Paty i comméqunce of « U3. emote per

formance during 1958-1961, or even 1953-1968, which was

sorely below our national potentials and needs, ‘and partly < .

oes anes arn ahah cermratiage

3 service requirements far too low even in relationship to this

‘sorely deficient U. S. economic performance, both Penn and

~ Central (and other roads also) for many years budgeted

their facilities, employment, and services far too low to

* eomport with their-own obligatory share of an adequate.

| nationwide railroad service. And by an obvious interacting

oe Process, just as what was happening in the economy was in-.

~_ jutious to the rails, what the rails did was injurious to the

) whole national economy; vas ; icy rere

, admitted by the two roads, and in any event runs through-

_ sonable expectations that chronic economic stagnation or 7

frequently reoccurring recessions even of a mild nature will |

i oi - escent tn Rl EMT ISS

(8) For the foregoing reasons, ihe so-called “savings”

or reductions in costs, claimed by the two roads in support

of the proposed merger, should be viewed in 2 perspective

' entirely different from that made manifest by the examiners

in this case. Even in my earlier 1968 testimony, I did not _

. . Challenge the estimates as to the magnitudes of these so-_ .

called “savings” or cost reductions. Instead, I made two

points. First, as I shall develop more fully subsequently,

the achievement of these types of cost reductions does not _

get to the heart of the financial problems of these two roads,

and their achievement through the particular means pro-

posed would worsen rather than improve their financial

returns in the long run. - Second, “savings” or reductions in

_cost accruing to’ particular railroads offer no appropriate .

support to a merger proposal, if these “savings” or cost

reductions are achieved through actions injurious to the

national interest in adequate and expanding transportation -

- facilities, employment, andiservices essential to meet the

needs of an expanding economy and-a growing population .

operating under conditions of maximum resource use. If it

were otherwise, we might condone:the entire liquidation of

amy particular complex of railroad facilities and services,

solely or mainly on the ground that this would be the best. -

~ out for their stockholders, : I shall develop this point further

in the course of my testimony; Ye

“7s (4) The merger proposal, and the 1965 order of the |

examiners, was founded excessively upon findings as to the ~

. financial conditions of the two railroads, with insufficient

_ attention to the towering i issue.of adequate railroad facilities -

and services; a merger founded upon this approach would

_ be hurtful rather than beneficial to the financial situation of

= these railroads; and this pessimistic financial finding on the

"part of the examiners was neither justified by the facts as of

_ 1962-1963 nor supportable ¢ at ar in terms - subsequent . -

_* developments; - -

BT : +9 ; etree coe “sy ee

e ‘_ (5) The dominant economic and financial ‘power

' which the proposed merger would accord to the two roads,

excessive concentration of such power and in favor of the

promotion of free competitive enterprise, especially in view

of the absence of justifiable support for the proposed merger

on other grounds; id: | |

( 6) The current international outlook, and the respon-

"sibilities which this imposes upon us as a nation and a@ peo-

ple, render even more dangerous the contractionist policies

©, - Cmbedded in the proposed merger;

(7) Insofar as the two roads need and deserve help

_ toward further improvement in their financial position, such

help has already been forthcoming in abundance, and will

continue to be forthcoming along lines consistent with,

rather than inimical to, the national public interest:

(8) The proposed merger is therefore in conflict with

the national policy of maximum employment, production,

+ and purchasing power under the Employment Act of 1946,

| For purposes of further simplification, my analysis and

conclusions will be developed under these four main sec-

_ -\+* and that the proposed merger. violates every criterion of

, ‘established national transportation policy. #2 2 .

I, THE MERGER PROPOSAL REPRESENTS PLAN-

_NING FOR STAGNATION RATHER THAN

GROWTH. - :

_ My Chart 1 points wi that, during the period 1958-

1960, the average annual growth rate of the:U. S. economy

in real terms was only 2.4 percent, which was little better

than half of the average registered during relevant periods

of reasonably full resource use after World War I. It-was

upon this abysmally low economic growth rate during this _

period that the downward budgeting of railway facilities

and services on these two roads—as well as elsewhere—

was fundamentally predicted, plus the assumption based

upon erroneous forecasts (to. which I will subsequently

refer) that this abysmally low economic growth rate would

continue indefinitely or even become worse. But the whole

_ body of our nationwide economic efforts has been dedicated

to the purpose of reversing this trend, so damaging at home

and so perilous in view of the worldwide situation. Already,

during the years 1960-1964, our average annual economic

to.about 5 percent during the past year. And what we have

_ growth rate in real terms has been lifted to 4.3 percent, and.

_Tearned about economic policies geared to stability and.

growth offers much promise that our economic growth rate -

- + will average even higher in the decade ahead. ‘Manifestly,

to predicate any sector of our national economic policy

upon a contrary assumption would not only be wrong in

the very contingency which we must at all costs avoid,

__-My. Chart 2 depicts the: now inapplicable trans-

portation data’ which led to the conception of this proposed

merger, and clearly influenced its approval by the exam-

-inets. This Chart shows how, from the end of World

War II through 1961, both Penn and Central suffered seri-

ous declines in their carriage of ‘interstate-railway freight

- °. “traffic, as did other U. S. lines. But this was. partly in con-

_ Sequence of reconversion from World War- II, partly in,gon-

oy 33

. principle, but would also contribute toward bringing about :

ach

e's

sequence of redistribution of business among various: types

__of carriers, which I submit does not représent permanent

: demonstrates how correct my forecasts were, and to this |

shall refer again later on. ee Age .

‘ My Chart 3 shows. how tastically both Penn and

in employment by the two roads from 1947 forward, gain-

: F ‘ ; pie 3%

i te ee ° “oo é B10 eee

Ls we

ins ii ake a a a -

i Been ee - roads—and the railroads in general—need-more rather than . *_

hoes "less technological progress and manpower, if they are to

. meet the requirements of a sufficiently expanding economy

- and furnish a safe reserve capacity in view of the inter-_

national situation. Moreover, we should learn to ask not P

: only. whether the railroads need a given level of man- .

ae emer aleerenens tee mpegs: i Bed Ete wt .

Se Charts 6 and 7, presented when I testified-before the - Loe.

pees rater deren aremmscarT rrbeenr ie

; _éncés between the actual traffic, income, freight cars, loco-

‘motives, and employment on the two- roads during the. . .

period 1953-1961 and what these levels. would have been _

_under conditions of reasonably full resource usé in the‘U.'S.

economy. Thus, these differences arezin fact estimates of

how far short the two roads fell th their facilities, employ-

ment levels, and income rewards below what these levels

Spee now ene Je 2 eemvealiiy spre ‘Uz. S. economy.

The validity of this exereise is illustrated ; the estimates :

of “gaps” in our total national production by the Council of _—

-* Economic Advisers. And this exercise has 4 direct and

vital bearing upon how far short the two roads will fall of

' our true national requirements in future, if the policies em-

- bedded in the proposed merger prevail. ye

4 now come’ to perhaps the most crucial part of what I sie

>. have to say here today. When I testified in 1963, I pree

sented my own projected estimates as to the tniffic and

income of Penn.and Central in 1965 and 1970, under alter-

native assumptions of high-and low overall -U. S, economic:

_ growth. My purpose in so doing was to contrast these esti-

_- . mates with the vastly different and defeatist projections put

. forward and relied upon by the two roads. My Chart 8

shows not only my projections for’1965 and: 1970 as of the

. time of-my testimony in 1963, but also actual developments

~~ in 1964 and 1065. Taking into account that the progress of.

actuality: W;

| { forecast of 75.5 billion, the two roads actually carried 83.6

a | my high forecast) during ‘the first. half of 1965.

Revenue passenger-miles carried have ‘continued: to de-

carriage by the two roads. ‘(I should point out also, in this

_ connection, that my projections were not mere “forecasts”

in the conventional sense, but rather goals to be equated

with national needs: The samé Chart shows think ele nk: By.”

spect to net railway operating income after taxes, compared ~

with my high forecast of 115 million and. my low forecast .

of 44 million for 1965, the actual for the two roads was 73.4

million in 1964; and at kn annual rate of about 98 million

. seasonally adjusted during the first half of 1965. ‘This con.

trasts dramatically with 17.8 million in 1961, and with the

_ forecasts-of the main proponents. of the merger that the

deteriorating income situation’

; absence of the merger. Further, allowing for the fact that

even now we are not nearly back to full resource use, and

: that the two roads have not yet feaped the full benefits of

many-medsures to improve their incomes, the actual income -

figures for 1964 and:.the first half of 1965 are quite con-

sistent with my forecast ‘based upon that goal of full éco-

_ nomic restoration which is our confirmed and dominant

_ Plicable to the trends in net income after taxes for the two.

Toads, which rose from a deficit of 9 million dollars in 1961 i

to @ positive-annual rate of about 66 million dollars season-

‘ wally adjusted in the first half of 1965, contrasted with my- :

; with my high forecast ‘of 89 billion for 1965 and my low’

lion 1964, and ot an ansual of 88.8 billion (virtu-

: cline rather than to rise in accord with my forecast, but this’

represents a serious and continuing neglect of passenger -

¢ ° s . .

- . e

ad . “4

eee ee «ame BI MB aati

nameataand

Bie

low projection of 16 million and my high projection of 80 ss

' My Chart 9 contains my projections, as of 1963, with

_ respect to needed equipment and employment on the two

_ roads by 1965 and 1970, predicated upon optimum eco-

- nomic developments, and allowing for optimum techno- __

logical trends and for desirable and attainable trends in the"

| allocation of traffic among various types of carriers. The

Chart shows that, as of 1964, despite the tremendous im-

provements in their business and incomes, the two roads

have continued persistently to budget downward their

facilities and employment. To any question as to how the

two roads have been,able to do this, and still carry the

business which they have actually carried, the answer ‘is

plain: The business they have actually been carrying has

been lamentably short of what they should be carrying.

Communities have been neglected, services have been in-

adequate, shortages in some significant instances’ have. be-

"come acute. These neglects and shortages are even more

_ serious, when we consider the needs of the future on the

necessary assumption of adequate economic growth and

sustained restoration of optimum resource use.

And none of the foregoing takes fair account of the

_ international situation today and its uncertainties in future.

In my 1968 testimony, I pointed out that in the peak World

War II year locomotive tractive power on Class.1 U. S. rail-

roads was more than 29 percent above the 1961 level; and_

passenger-train cars in service about 75 percent above the.

1961 level. It is a very conservative assumption that, ii the .

event of a new major cénflict involving us, our railroad

transportation needs would be as great or greater’ than in

: 1944, and in all probability we would suffer a of

2 ana =

B13

ante event of major conflict. “But it does mean, when we are pat

_ now spending about 50 billion dollars a year for national

defense and are soon to spend even more, that we should

not view with equanimity the current railroad deficiencies

_ Ror encourage even larger deficiencies in line with the ex- —

_, Press purposes of the proposed merger. In the Eastern .

ee: trict, which would obviously be of vital importance in

PO ‘<a of major conflict, Penn and Central viewed to-

| gether were in 1961 below their 1944 levels by 28 percent

with respect to freight-car carrying capacity and 35 percent

with respect to locomotive tractive power. ‘The transcript

of my 1963 testimony indicates that the Presidents of these

two roads. admitted (either before the examiners ‘or. in

testimony before the Congress) that the then-current facil-

ities of the two roads would fall short of the required

traffic volume by some 200 billion ton-miles in the third

year of a full mobilization. Even putting aside these terrible

thoughts of a full-scale conflict, we know from recent ex-

» perience how serious and sudden acute railroad shortages

have occurred in the face of unexpected crises which were

relatively limited in terms of the demands they imposed,

. for example the Cuban situation. PAPI

My Chart 10 is perhaps the most telling of all. The.

two roads based their early 1963 advocacy of the proposed

merger very substantially upon the trend projections of Dr.

Williams, indicating for the future through 1970'a con-

tinuing deterioration in the position of the two roads by

all recognized tests. When ! testified in early 1968, I chal-

“lenged vigorously the whole range of Dr. Williams’

tions,’ relied upon so_ heavily by the two roads and

_ apparently entering substantially into the thinking under- .

lying the examiners’ decision. My Chart indicates the huge

magnitude of error-in Dr. Williams’ projections. He not ©

only missed the mark, but moved in the wrong direction.

Using 1961 as a base year, Dr. Williams projected that.

freight. traffic measured in revenue ton-miles on the two

ee ’

\ 7 ‘

duet PME PR POY SO LOMB Oy A OO BE) WA ripe ty hE OO . - ws. okt

, vj .

Bcc ae

. /- -F

Bl4

ae a hs alk iced Sm In fact, this 7

traffic was up 15 percent by 1964, and up 22.1 percent .

(annual. rate)during the first half of. 1965.. This gain is.

exactly in line'with my own high projection of 22.4 percent. -.

‘for 1965. It should be noted also'that Dr. Williams’ pro- ae

_ - jected a:decline ‘in freight traffic of-8.2 percent, comparing

_ 1970 with 1961. «My projection for 1970 involves. an.

. “ optimuin inerease of 44.4 percent, and this now seems a |

““yeasonable expéctancy in view of developments to date.

“the same Chart 10 also indicates that, although the two.

roads have continued to budget their facilities and employ-

ment downward in a most.undesirable fashion, for reasons

'* already’ stated, the actual developments to date have come

- nowhere néar. approximating the defeatist. projections of

Dr. Williams, “From the ‘base year 1961, locomotives in

‘service were down 6.2 percent by 1964, contrasted with

_ trends consistent with Dr. Williams’ projections. that they

- would be down 10.5 percent by_1965, and 16.8 percent by "4

Total: employment by 1964-was

gantrasted with trends consistent with Dr. Williams’ pro-

that it would be down 16.1 percent by 1965. and ©

: 578 percent by 1970. Some of the, other’ downward trends

_ haye exceeded Dr. Williams’ projection, but this has re-

sulted from inadequate services ‘and inadequate prepara-

down 9.5 percent,

tion for’ the future, rather than from appropriate —_

ments to our true railroad requirements. : re

Hh In summary of this crucial phase of my analysis, I”

respectfully submit that careful examination of my exhibits _

today, my testimony.in 1968, the projections made by Dr

. Williams plus the evidence in the record that the two roads |

were.in accord with Dr. Williams’ projectioris and intending ©

~ to act accordingly, and the- and ‘findings of the

examiners, will lead inescapably isda doe teeth

| . approval thus far of this proposed merger has been based

upon ignoring the main thrust of the facts to date, accom-

_ Seen aeeet oe th soaliies ‘ehtch, shold ape our

) 2%

ig cee ea

" Yailroad policies in future.

_ 4gThe March 1965 analysis, findings, and order of the

. .examiners, in those portions which are relevant to the fore- +

" going discussions, reads like a fairy tale in view of-what we :

_ now kjow. On pages 195-211 of their work,under the -

M ~heading “External Economics Affecting Applicants hacey

the examiners for all practical purposes embrace the notion - :

that no substantial improvement in freight traffic carried

by the two lines in. prospect for the period through

; 1970 as a whole. On page 202, they cite-without challenge —

_ | the views of-the applicants that an_estimate of the number

of ton-miles they might be expected to handle by 1970

_Should properly be derivéd from. trend. projections based.

on: data-for the. years 1950 and 1960, ignoring the

abysmally low economic growth rate’ dyring most of 1953-

1960. and the general economic recession commencing in _

1960: On page 208, the examiners say that they are puzzled’

by: certain aspects of my projections offered’on behalf of

R.L.E.A.—projections which thus far have turned out to be -

essentially correct with respect to ton-miles of traffic. On

; page 206, the examiners base their own conclusions on the

assumption that:trend lines during the period 1947-1963 - 3

_ will continue, and thus reach what we now know to be these

‘ _. . “Rail output will continue to fluctuate around.the 600

__» billion ton-miles mark with approximately upper and.

"lower limits of 650-660 and:550-560.

* . “Eastern District roads and the N.Y.C.-P.R.R. specifi- nae

_ ally will-face a continued decline in output (italics

oa page 207, the examiners state: -

“Tt is not prudent, in our opinion to predict either «

sharply increased long-term’ rates of growth for the

-€cononiy or for rail output. The best that can be said

is that higher-rates of growth will occur, as in the past,

| during the expansion phase of the business cycle;:that is

ws eS

=e ___ Eee eS |

such rates will-be counter-balanced’ by very low- or

_ negative growth rates in the contraction phase. of the

-cycle; and that.rail output will follow the cyclical pat-'

tern established in the past:. . ..We can see in the

record no reason for eptimism on applicants traffic

level. =

On page 211, the examiners state:

“t+ must be concluded that to 1970, itis highly prob-

able that rail carriers in: the East, and particularly

applicants, at best will maintain their present volumes

' of ton-miles (trend’ projection based’on 1958-1963

ig experience). and more than likely will continue to ex- -

perience a general decline of freight traffic haridled:at .

least in terms. of ton-miles' (trend projection — on

1947-1963 data).” °

The table on the ii of page 205. ‘of the | examiners

Po findings, and order brings into high relief the

__ extraogdinary ¢ extent of the‘error upon which their entire

position pivots. This Table shows that the examiners pro-

. jected 600 billion ton-miles for U. S. railroads as of 1970;

actually the figure ‘was 659.3 ton-miles in 1964, with con-

siderably higher prospects for 1965. My high projection -

_ was 690 billion ton-miles for1965, which would gppear as

of now to be very close to the mark. .The examiners pro-

ed 64 billion ton-miles to be carried by Penn-Central

in 1970; the actual carried by these two roads, as I have

already stated, was 83.6 billion in 1964 and an annual rate

‘of 88.8 billion (practically the same as my 89 billion pro--

jection) during the first half of.1965. My- high projection *

for,1970 for U. S. railroads was 810 billion ton-miles, and

’ for the two roads 105 billion, both of which seem conserva- -

tive viewing developments thus far, and my low projections’

were 585 billion and 77 billion, respectively. It is also of

‘significance to note that this table on the,top of page 205

of the examiners’ work completely misinterprets and there-

_ fore inadvertently misrepresents the studies which I placed _

BIT.

before rgee which gubsequent developments show §___-

-- they would have benefited y using more carefully. In this cae,

Table, the examiners designate as “realistic” the lower of -

o “my-two projections for 1970 with respect both to U.S.

railroads and Penn-Central. Far from designating ‘these __

| ‘projections as “realistic,” I designated them throughout as

“low,” stated that they were based upon continuation to

.1970 of the abysmally low economic growth rate 1953-

_ . 1960 (or 1958-1962), and insisted most vigorously that it

_ would be absolutely unrealistic and wrong to base the .

outlook for the two roads upon any assumption that this |

_ abysmally low economic performance would continue. In

fact, this adverse trend has been profoundly reversed from

1961-forward to date, and the outlook now, by general con- .

_ sensus among the informed, is even brighter than it wasin

early 1963 when I testified before the examiners. |

' What more need be said to prove how utterly wrong

. the examiners’ assumptions have turned out to be through °

- 1965? Taking into account what has happeried from 1961

, or 1968 through 1965, the economy in general and the rail-

roads in particular would need in future to be hit by a

veritable catastrophe of substantial duration in order to

make the record .4965-1970 sufficiently bad to ‘give any

semblance of reality to the inérs’ projections from 1961

or 1963 through 1970: And what would happen to us all; if.

_’ our national economic policies or the policies of our great

., Private businesses wére predicated upon planping for the

_ «| advent of such disastét, instead of planning for their con-

. tributory participatiop in. growth and progress?” ae

On pages 229-286, the examiners attempt to dispose

"+ ‘of the claims that the propased merger would impact with _

excessive -Severity upon. specific areas, States, and com-

munities. But in order to‘analyze this problem effectively,

*. ‘One must first make some assumption as to how much traffic -

the two rails will be called upon to carry before appraising ° -

' whether the. facilities and services contemplated by the -

+ BIB

proposed mengix will be's0 thenllicient- as to ftuptoe great

_ hurt anywhere. And when the examiners have gone so’

wrong in their estimates’ of the traffic outloo they leave

themselves in no position to make the second appraisal. If °

one misjudges the overall situation enormously, one cannot

hope to be correct with respect to the subdivisions or de- .

tails. In short, the examiners were not worried about the

rail needs of these areas because they expected them - to

run down hifi.

Il. THE FINANCIAL ASSUMPTIONS ‘UNDERLYING

THE MERGER PROPOSAL HAVE ALREADY ..

BEEN PROVED. EGREGIOUSLY WRONG. -

We come next to the issue of the financial condition

of the two roads, ‘past, current, and prospective. It is a

inatter of common knowledge that the rapid: movement

toward the initiation and approval of railroad mergers in

recent years, and notably so in this instance, have been

| based' upon the view that the rails were in serious or des- sa

perate financial difficulties, and that merger was the one -

way, or the best way, to overcome these difficulties. A

- fair reading of the examiners’ product in this case supports

the conclusion that this was regarded by the examiners as

the compelling factor in, their approval of the ‘proposed

merger. But two essential considerations have been

‘omitted -from. this ‘prevalent approach. First, there is

nothing to justify the-proposition that the financial. condi-

_ tion of any roads seeking merger should be elevated above

‘other considerations. - The foremost question to be con-

sidered in connection with any proposed rail merger is

whether the national. interest will be served in terms of

adéquate facilities and services. This much our economy,

our nation, and our people. require, regardless. of ‘the

_ financial condition of the applicant railroads. If in fact it

were to be demonstrated that the financial situation of any

_/maafor talieeae wes sotlons an they snight: clita, —.,

)

~ - B19

.. ways must be found to relieve and improve their financial

condition along lines which do, not sacrifice adequate facil-

: . iities and services as the supreme criterion of the national.

' interest. This is the very meaning of.the public interest or

public utilities concept; it is the very reason for the .

existence of this Commission. Open subsidization of our

railroads by our Government is not desirable, other things

being equal; and public operation or management of the

_ railroads ts not a consummation devoutly to be wished. But

__ if these were the only alternatives to a gravely deficient rail-

road service, necessity would have-to take precedence over

our wishes or our ideologies. Second, the examiners failed

" to consider at all the alternative available ‘methods by -

which the financial condition of these two roads might be‘

__ improved, even if this condition were as grave as alleged. ©

ae Q But this proposed merger has not in reality confronted

us, and does not now ‘confront us, with the foregoing

choices as the major elements in the problem. My testi-.

mony in 1963 before the examiner offered abundant evi-.

dence, substantiated from many. other reliable quarters,

_ that’ the two roads under. consideration were not distin.

_ Suishing between financial difficulties and financial disaster.

_ They'were not taking into account the impact upon their

finances of economic conditions which were neither usual ~

‘ _ nor tolerable, and which in fact have not’endured. Sub-

_¢Sidiary to this but important nonetheless, my 1968 testi-

"mony indicated that the analysis of their financial condition

; _ presented by the two roads ignored such important factors

~. as their cash flow—a factor weighed heavily by objective

‘economists and financial people. I also pointed out in’

“4963, not only that the economic outlook called for far less

pessimistic evaluation of the financial outlook for these two -

« Yoads, but also that the Government was even then taking

many steps to help them—vast tax reductions, amortization

allowances, and a number of other measures. I pointed out ae

that these two roads in particular.were not exploring their

ee, , |

own capabilities for self-help, through changes ini their .

rate-making policies, more vigorous competition based

upon improved facilities, etc. And I pointed out that the

course of future actions upon which the merger proposal

was founded, restrictiye and noncompetitive in nature,

would multiply and intensify rather than reduce or alleviate

the financial difficulties in which the two railroads found

thiemselves: ws panies ee:

___ Some of this testimony of mine in 1963 may then have _

- been regarded by some as highly speculative, hypothetical,

_ _6r unduly optimistic. But we are now in 1965, and the |

record in support.of my analysis and forecasts is clear and

compelling: The primary aspects of this record are set

forth on my Charts 11, 12, and 18. Without going into the

details of these three Charts, in view of the shortage of

time; but submitting them for examination by this Com-

mission, I would here-call attention only to the main: facts

set forth on Chart 13: Comparing annual rates during the .

first half of 1965 with, 1961, the following results appear:

For Penn and Central combined, total railway operating

revenues have risen from 1,482 million dollars to 1,545

‘ million or almost 8 percent; net railway operating income

- has risen from 17.8 million to about 98 million seasonally -

adjusted, or more than 5% times; net income has risen from

_ a deficit of 9 million to a seasonally adjusted annual rate of |

. 66 million; and cash flow has risen from 85.9 million to

148.0 imillion, or more than 72 ‘percent. The. Chart also

indicates thé changes from 1968 to first-half 1965 annual

_ rate; for example, net income has risen from 16.2 million

dollars to about 66 million seasonally adjusted, or. multi-

on plied more than 4 times; cash flow has risen from 107.1 °

million to 148.0 million, or more than 38 percent. To argue .

_» that this -is a temporary or cyclical trend, which, will be

reversed if the economy should move into another long

period of stagnation and recession, would be tantamount’ .

a arguing that our national transportation policies should

: &

| - B21 :

be g to what should be avoided rather than to what -

' should be achieved. avd ;

‘My Chart 14 affords another example of why the earlier

em upon the financial plight of the two roads was

Wes grossly exaggerated, and also indicates large improvement

in the most recent years. In my 1968 testimony, I pointed

out that, comparing 1961 with 1952, the long-term debt of

the two roads in ratio to stockholders’ equity was reduced —

_ from 78.4 percent to 57.8 percent; long-term debt in ratio -

to total assets was reduced from 37 percent to 31.9 percent; —

-_and shareholders’ equity in ratio to total assets was in-

creased from 50.4 percent to 55.7 percent. By 1964, re-.

flecting real’ improvement, the first ratio: was reduced

"further to 50.0% percent, the ‘asonad ratio was reduced

| ___ further to 29.1 percent; and the third ratio was increased - ”

nominal downward trend in the total assets of the two.

roads as. conventionally measured, especially when con-

sideration is given to the large reductions in their long-

term debts. | ky eshte

Another accepted test of financial condition on the’

_ ating ratio which had declined. from 84.17 percent in 1952

_ to 82.81 percent in 1960 declined further to 79.89 percent‘

~ in 1964. In me Psa of Central, the decline was from 84.51

percent to 84.]

Se Lr AE SE aie nw Bees:

B22

investments. And carrying forward to 1964, the two roads

_ Showed total retained income of 1098.6 million dollars, un-

“appropriated retained income of 1066.1 million, and appro-—

priated retained income of only 27.5 million.’ «

re One of the most important arguments which I ad-

vanced. for consideration in 1968 was this: although the

two roads were claiming that their income difficulties-in the

preceding years were attributable De eaTy £9 rising costs

and that a solution depended upon thé elimination of facili-

* ae

/ 4 | oa

» were in consequence of the inadequate level of revenue

_ their unwillingness to improve their facilities and services,

and their consequent failure to attract their potential share

of total traffic. ‘In support of this thesis, as shown on my

. Chart 17; 1 pointed out that the average traflic-unit revenue =”

of the two roads rose from 0.94 cents during the period. -

cent. ‘But with revenue traffic-units declining 45,8 percent, ~~

net income for the two ‘roads dropped from an average of:

“112.7 million dollars during 1941-1945 to a deficit of 9 mil-

" growth during these most recent years, and with some sub- oes

stantial awakening on the part of the two roads themselves

"—without benefit of merger—to the need for a more active Ltt tg

policy of investments and improvements geared to making |

them more competitiv » the revenue traffic-units carried by

the two roads rose (as shown on the Chart) from an index

_ Of 115 in 1961 (1989 equals 100) to.180 during the first.

half of 1965, and the net income position of the two roads-

improved from a deficit of 9 million dollars in 1961 to an

Annual positive rate of 55.2 million in the first half of 1965,

even though? average traffic-unit revenues declined sub.

stantially from 1.54 cents in 1961 to 1.48’ cents in 1965. ©

. > = . . P

a coer ae -: 0

| - -BA

Seasonal adjustment of the 1965. date. aed ce

strengthen my case. Further income improvements for

these two roads depends not upon attempting to reduce

any - their per-unit costs through abnegation of their service re-

sponsibilities, but rather along lines of the expansionary

"policy which the avowed is ree of the proposed merger

reject. \"

‘Pritoning ‘further the same line ‘of analysis, my 1968

testimony urged that the examiners take into account the _

following factors which would and should conspire to im-

prove immensely the financial condition of the two roads:

the prospect of a higher and more sustained rate of U. S.

economic growth; .the potentials available to the two roads _

to efilarge their share of traffic through an activist improve-_

ment policy; the financial benefits which would flow to the

two roads from the announcement on March 28, 1963, of

\ ‘the Interstate Commerce Commission’s decision redistrib-

» uting freight revenues among various railroads; the finan-

cial benefits which would flow to the two roads from the -

_ tax proposals before the Congress, which resulted in large

corporate and personal income tax reductions in 1964—

and we should also take account now of about 2 billion |

. dollars worth of tax concessions granted-by the Treasury -

in 1965 through revisions in amortization and depreciation

schedules; the financial advantages which would flow to —

_ the two roads from the depreciation guidelines promulgated _

‘by the Internal Revenue Service in 1962 and the so-called .

_ 7 percent investment credit enacted by the Congress in

1962, the favorable impact of which was Fly beginning to

be felt as to the railroads in early 1968; anit’ the Sinancicl

benefits which would flow to the two roads from the new

“Work Rules” promulgations -whiGh were shortly to be

issued. It would appear that the findings and order of the

in March 1965 took scant account if any of these

various factors. Indeed, the examiners’ Sieclaiiel ck te

financial aspects-of the case take practically no account of

;al

EOLA: GW AND ELI Sie wimg NN ROM

B25

' °. financial developments subsequent to 1963; and interpret ~

the developments to 1963:in a pessimistic manner not borne .

out by subsequent developments. 3 ran

_ * On my Charts 18 and 19, as presented in early 1968, ©

_ I compared the actual net operating railway income after _

taxes and the actual net income after taxes of the two roads °

during the period 1958-1961 with my own estimates of what

these levels of income ‘would have been under conditions

' of-adequate economic growth, plus activist efforts on the

part of the ‘two roads to achieve their potential share of

available traffic. To those who would say that my exercise

was highly “speculative,” I would answer that all such esti-

mates as guides to policy have elements of speculation, and

that my so-called “speculation” on this score stands all

empirical tests very much better than the speculative

projections relied upon so heavily by the two roads in sup-

port of the contractionist policies embedded in the proposed

__ merger. To illustrate, my Chart 18, as presented in early

— 1968, contains my estimate that the single factor of an ade-

quate rate of economic growth during the period 1953-

1961 would have lifted the net operating income of the

two roads to somewhere in the neighborhood of 85 billion

dollars by 1961. The improved but not adequate rate of eco-

' nomic growth from 1961 forward has brought us not very °-

' far above where we would have been in 1961 if an ade-

quate rate of growth had been maintained from 1958 for-

ward, and during the first half of 1965 the net railway oper-

ating income af the two roads was running at an annual’

"Fate about 98 million dollars seasonally adjusted, or far

above my estimate of about 85 million dollars for 1961.

_ Looking now at my Chart 19, during the first half of 1965

the net income after taxes of the two roads was running at

an annual rate of about 66 million dollars seasonally ad-

justed, or above my estimate of about 62 million dollars for

1961 if an adequate rate of economic growth had been

maintained from 1958 forward. To be sure, the roads are |

al agg ia oie as high as my earlier —

~.testimony/projected for 1965, top ody Arcee

: Aten! mg tinat met pole aime in

ably full resource use by, 1965, which in fact we' have not

) yet come near achieving, and in part because the two roads

‘themselves have fallen far shorpf bringing tp bear in thel

favor. many of the factors which ‘have been and still are

available to thom. Also, and not “speculatively” at all, the

ss tremendous improvement in the incomes of the twa. roads

Since 1961 or 1963 stands in vivid contrast. to the view

. firmly expréssed by Dr. Williams on behalf of the applicants

that in'the absence of merger the incomes of the two roads

-_. would. continue to move downward through ‘1970.

"In supportrof imy’ assertions that the two roads them-.

~ selves accepted ‘the projections made by Dr. Williams-as -

fundamental support for the merger proposal, I called at-

_» fention in miy early 1968 t ony to, the fact that Mr.

Pearlman. (then President of Central) on pages 1804-06 of

the transcript virtually admitted that, even with the merger, -_ -

| “the financial coiidition of the two roads would continus ta %

get worse if President Kennedy's transportation program

|... were ‘not catried. out, and that the merger would merely

.., provide “breathing time.” in reeponse 0 this assertion: by

Mr. Pearlman, I stated in my 1968 testimony: :

“If the proposed merger, even in the judgment of its

' proponents, will merely provide ‘breathing time,’ a step

ees oe so: potentially injurious to the public interest on so |

.--. 12: i should not:be taken, until the remedies

i i d by the President and other remedies are first _

x applied, and given time to make themselves felt. Somie

“. | policies can be altered if they are: ineffectual, but-a

_ great corporate merger of the kind here proposed.”

- would be an irreversible step.” .

. ‘The time which has elapsed since I made this state-

* ment in early 1968 has already brought to light how errone-

‘ous and irreversible» step, would have béen taken. if the

__ basis of the financial data then available and some of the

financial projections then made which have already turned

_ out to be so grossly wrong. ay Tale

/ The most important part of the analysis by the exam-

iners is their “financial analysis” running from page 57 to

page 88. This is made clear throughout, and especially by

__ their statement on page 57, to which I earlier referred, that

‘

< 9

, Our primary concern is the financial condition of the car- -

_ Tiers.” I respectfully submit that actual developments to

oe date have completely torpedoed the whole financial analysis

| made by the examiners as related to their conclusions and

case in support of the merger: 2

On page 211, after repeating their grievously errone-

ous conclusions that the rail carriage of the two roads in -

_ terms of ton-miles would most likely continue to decline

through 1970, the examiners state this: |

- “From this it may be inferred that their financial con-

dition, barring substantial reductions in cost, will.de-

# ‘teriorate further . . . past and present general economic

data available do not support the view that applicants

or other eastern railroads are in the process of rejuvena- .

tion, and that their output ‘should increase significantly

os within the forseeable future.”

‘The really bizarre nature of these conclusions by the

___ examiners, in view of the trends through mid-1965 which

ee I have already cited, speaks for itself.

_ For this reason, I do not need to go into detail with re-

-Spect to some of the aberrations in logic running through

the financial analysis by the examiners, their unwillingness

which have turned out:to be correct, and their bearish in-

‘sistence. (at all stages of their analysis) upon proving to

their own satisfaction that the two roads were moving to-

_, to open their minds to points which I and others have made

_ ‘Bes

"ward financial ister 1 not relieve oy permision to

ary. |

_cuss in détail the treatment by the examiners on pages.131-

155 ofthe estimated savings which the merger would bring

to the two roads. I have at no times contested the validity

of these estirnates, although others have. Instead, have .

urged this: The examiners, due to their erroneous appraisal

of the traffic.and income outlook, reach the conclusion that

-- these savings would be a needed avenue to salvation. My

‘conclusion in 1968, based upon my traffic_and income

projections which have turned out to be essentially correct,

_ was that these savings were not essential to salvation, -and.

beyond this that these savings would result from a future

, downward budgeting of facilities and services which would

be highly injurious to the national interest and e even to the

two roads. a

Ill. THE PROPOSED. MERCER, REPRESENTS. AN

ind this belng the cap, there is no need for me to dis- Me

INDEFENSIBLE CONCENTRATION OF ECO- .

NOMIC POWER

I Bave said at the. outset here today that I am not op-

posed: to mergers or. “biggnéss” per se. But there is no

presumption in. their favor, even in the case of railroads; --

and all authoritative statements of national policy to date

_ point in the opposite direction. - To take just ‘one example,

when the White House released on March 6, 1963, : the

report of the Interagency Committee on Transport Mergers,

the very first criterion set forth in this Réport read as fol-

-. . lows: wil the proposed merger restrict’ effective compe-

_ tition in the ase of transportation, services in the areds

. affected?”

“There ‘c can ' hardly be doubt that the wnigaant merger

would destroy very important intra-modal competition

within the railroad industry. For in Tesponse to the ques-

E ae i "B29

tion of whether Penn and Central were competing in 1968,

| ‘Mr. Symes (then President: of Penn) replied on Page 427°.

of the transcript: “Oh, yes, very much so.” Assuredly, °

: these two roads would not continue to if they were

merged.. .However, the merger has been supported on the

. grounds that ‘it would enable the two combined roads _

better to engage in inter-modal competition. But it is es-

sential to recognize that the best way for the railroads to |

improve their inter-modal competition is by. engaging in .

_ Vigorous competition among themselves, including rate

' competition. And the just-mentioned comment by Mr, .. *.

Symes appears tobe in conflict with th testimony of Mr..

Lecht to this effect: “Equally essential, the proposal to

establish the Penn-New York Central Transportation Com-

pany js a step in the direction of attenuating inter-modal -

_. competition and not of increasing it.” =. 7s

Bearing upon the virtually unparalleled concentration »

of economic power which would be involved in. the pro- .

posed merger, I would call attention first to my:Chart 20. -

It indicates that, in 1961, Penn'and Central viewed to-

. gether accounted for in the neighborhood of one-third of

. ‘ all Easterh District road operated, freight traffic, freight-

_ train cars operated, and current assets; in the neighbor-

- hood of,40 percent of all locomotives in service, total em- .

ployment, and total railway operating revenues; more than

48 percent of all passeriger traffie; and more than 58 per-"

cent of all passenger-train- cars in service. And looking at

the situation community by comniunity, an article in The

Wall Street Journal on July 18, 1962, pointed out that, in -

* consequence of the proposed merger, there would be less-

ened or nd competition in the 150 common points now

served by both railroads. On pages 1409 and 429 of the |

transcript, Mr. Pearlman and Mr. Symes, respectively,

'_ testified to the effect that no serious study:had been made -

of the effects of the proposed combine upon competition.

. Or, upon the share of the two roads in total traffic in terms ©

iain The failure b ysis eben

iasoe in sullicient depth have not had the reeotirees to do

pa so—is one of the‘yawning gaps in the analysis brought forth

pees 3 29p aer ss. ped ran see

“My Charts 21 and 22 shed much further light upoh

. ‘& anpiralleled” economic. dominance which this merger.

_ would entail: These Charts reveal, as of 1961, the sales,

and assets of leading companies (gross.operating revenues

take the place of- sales in the case of railroads) measured

as a pereentage of the industry total: Since Penn and

Central are concentrated in.the Eastern District, even ©

though their activities‘have nationwide ramifications, the

most relevant comparisons are those between the shares

of these two, roads in the Eastern District totals- with the

shares of, truly nationwide companies in the nationwide

industry totals for their lines of activity. Compared with

dis SL, eee tin 46 Siok ines 90d hn Ak eves see

ratio to total assets represented by‘Penn and Central com-

bined, the ratios of other leaders in their respective fields

in 1961 ‘were'as follows: Standard Oil of New: Jersey, 28.7

percent and 25.7 percent; General Electric, 15.0. percent

and 14.4 percent; DuPont, 8 percent and 18.1 percent;

International Harvester, 6.3 peroent and 7.0 percent;

_ Uhited States Steel, 18:8. percent aiid 26:6 percent; Alu- ° |

SSI ce ee ;

Goodyear Tire and Rubber, 17.3 percent and 19.9

Metropolitan Life Insurance Company, 18.8 percent ind

rt ee ee

percent. A. T. and T, showed 39.6 percent and 85.5 pe

cent. General Motors showed 42.2 percent and 48.3 per-

cent, which many regard as too high, even though G.M..in

no sense dominates the motor indystry in the manner that | |

a on combine would dominate the Eastern -

oS ON iy Chart 28 portrays the § gathering of power already

= achieved over the yeas by Penn and Central trough the

raises this pertinent question: If these two roads operating.

Separately, through these mergers ind acquisitions already

according to their own allegations

been able to silve even tolerably their financial and man-

agerial problems, how in all commoti sense will doing more

of the same thing enable them to do better? If getting big

._ for so long has not helped Penn and Central, how will get-

’ ting still bigger help? : . Sta

(I have. not been allotted the time here to indicate the :

‘ degree to which my studies of the Penn-Central: problem —

have been fortified by my examination of the nationwide

railroad and overall transportation situation, which rein-

forces mightily all of the conclusions which I have reached.

| Merely to indicate to the Commission the scope of this.

charts was developed fully during the course of my testi-

tween Railroads” on pages 160-179 need‘ not be discussed

here in detail, because it can really be set aside on grounds

" which I shall subsequently state. But it should be noted ™

that on pages 178 and 179 the examiners conclude that the

possibility of total effective competition between the two

roads exists at approximately 100 points’or roughly 10 per-

cent of the total number of points served by both; that

mit, could be modified so as to inerease the effective'com-

petition between.the two roads). These admissions by the

examiners certainly make it clear that there has been and

“is now a large amount of: competition between the two

} petition” on pages 179-195 may also-be set aside on grounds

_which_I shall.subsequently state. But it should be pointed

. analysis of intermodal competition and its effects as specifi- |

cally related to ‘applicants is not attainable.” This state-

__- ment would not seem to square fully with thetendency of

the examiners to insist that an important ‘point in favor

of the merger is that it would enlarge the capabilities of

‘the, two roads to engage in intermodal competition. On

page 191, the examiners appear to admit that equalization

of Government aid to railroads with aid to other cargiers

would do more than all else to enlarge the capabilities of

. the railroads to engage fn intermodal competition. With

_ this I agree fully. But the’ whole effort of the examiners

fails seriously to appraise the significance of these types of

Government aid to the railroads as a preferable alternative

to the proposed merger. ay ob é

. The reasons why I have made the comnient that the

foregoing aspects of the examiners’ treatment of the com-

petition problem should be set aside is:to be found in a

. careful reading of the examiners’ treatment of “The Cost

to Competition” on pages 419-439. On these pages, the

_, examiners ‘virtually admit that the merger would lessen

—_-

Be out that the examiners on page 181 stated that “a precise - -

_. competition; that such lessening would be in conflict with .

national policy and undesirable if considered alone, but ,

"that this negative factor bearing upon the merger must be

__ balanced against the positive factors. No one can quarrel

‘ with this general. proposition. But what are the positive

_ factors upon which the. examiners rely for the purpose of |

" ‘

RR ee nn er, Nh ee eee ae

B33 :

. cline in. their (1) traffic and (2) revenues. But since

the examiners were in error on these two points to the.

‘,. extreme extent indicated above, the whole basis on which

"they: waive ‘aside the itnportant value of maintaining and

_. Promoting competition (a value still manifest in our na- |

tional vy legislation, our antitrust and anti-

monopoly legislation, arid other relevant declarations of —

national policy) vanishes into thin air, - a

- IV. THE PROPOSED. MERGER VIOLATES EVERY

_ CRITERION OF ESTABLISHED NATIONAL

Without attempting a thorough review of the legis-

lation and Presidential documents which embody our na-

tional transportation policies to.date, I call the attention of

this. Commission again to the- Report of the Interagency

text of our transportation resources as a whole.. Also, par-

COR

. ticularly in that the Anti-Trust Division of the Department

” below, for it may serve as a general summation of what I

‘have said, some of the merger criteria set forth by the Inter-.

- "agency Committee, followed by my. own brief comments.

- as

or proving. or advocating the merger, pe that the so-called

| economy in terms of our transportation requirements and

. Tier, ses MMe AAR tales captecitienn on ,

- other carriers in the industry?” W532 4259 |

On the basis of the whole record to date, the answer

to question (1) is a resounding “ yes,” and the answer to -

question (5) is also a resounding * yes.” - This scores against

appfoyal of the merger:

— “¢(4) Will the cost and quality benefits resulting from

~ the merger be reflected in benefits to.the public? . .

- (6) Will the proposed merger. serve the long-run in-

terests of both the public and the carriers concerned, —

or is it merely an attempt to meet a short-tun crisis

arising either because of unfavorable economic con- |

ditions in general or a particular transitory problem?”~ ——

| I submit the answer to question (4) and the first part @

of question (6) viewed together as they must be is a re-

sounding “no,” Se re peat of ..

this question (6) is obviously “yes.” : |

(8) Can the economies sought by the proposed |

be achieved by alternatives more easily revok-

able which promise to be of comprable effect in

accomplishing the improyement in over-all éfficiency?”

I submit that the answer to this question (8) is that |

these alternatives have hardly been explored by those ap- :

“economics” claimed for the merger would really be false

the national interest. a 2D.

“(T) Ie the merger proposed, in part, bocause of the

‘ imminent failure of one or more of the merging car-

ae Segre nee spppepsiate saiotion, jp this

- difficulty?”

-. The mer ge was proposod and supported onthe basi |

i atone: bankruptcy just around the corner, but

_ these allegations find no support in developments to date.

’ And I submit, for reasons already stated, that the merger

B35

os .

which will reduce costs while ma itaining or improv.

and the philosophy which it represents would injuré rather

ing the general quality of servide offered to users?”

, "My answer is that the reduction in direct costs per unit

services and facilities, is not the road to economy or -

progress for these two railroads; and that the criterion of

maintaining or improving the quality ef service offered to

users—which in, this instance, must necessarily include

- quantity of service—would be violated by the proposed

_ Merger.

_- Relyctantly, I must point out also what must already

be known to this Commission—that the analysis ‘and con-

clusions of the examiners did not view this great national —

. Problem of the proposed merger in terms. of these broad

and essential criteria to anything coming within hailing :

them—studies based upon a meticulous éxamination of

fast-growing economy moving in response to the deniarids

_ imposed upon it’by the aspirations ofa Great Society, the

¢xaminers estimated our railroad requirements on the basis

| t the examiners re- _

jected virtually in toto the studies which I brought before -

_. pointed in directions diametrically opposite.to what has _

: = am

of the years representing the most stagnant economic per-

- _ formance. during-this century, save only the years of the

Great The examiners treated in a cavalier

manner my projections of economic developments in gen-

eral and on these two roads—projections which have turned

out to be remarkably accurate—and the examiners might +

have been warmed against this cavalier treatment by the

. common knowledge of my previqus work in this field, and

the general acknowledgmient of its technical competence

and usual accuracy. Instead, the examiners appear to have

~ accepted almost lock, stock, and barrel the analysis and.

projections of the applicant roads themselves, all of, which.

. occurred since 1961 “and especially since 1963.

Regretfully, I must add that the work of the examiners, —

viewed as a whole, is a long and technical restatement of

the position taken by the applicant carriers, capped with

an unwarranted approval of their mérger request. Some- ° -

of this may be understandable, in view of the nationwide

propaganda which has surrounded this whole vital issue

' for so many years—propaganda to the effect that these two

_. railroads, and the railroads in general, were on the brink

of a precipice, and that-only the granting to them of a -

_» degree of concentrated economic _power inconsistent with

our cherished traditions and a could save them. _

But the time has come, at long last, for fact to prevail over

_ Tam confident that this Commission will take the op- -

posite course, and that in ‘doing so thé Commission will =

move to the conclusion that the merger of the Pennsy!- i

vania and New York Central Railroads should be disap- °

_ provéd in the national interest, and with benefit to these

_ two roads themselves. _ , : .

ge ore , : ; ee:

: ‘ : _ e XX

. . . 6

+ . . &

* .

’ .

. . . , e a

e .

, . ’ 7h ‘ . ’ F

2 5 ' f Q

. . .

. ° . .

) & 2 é 8 e . FS

‘ 2 P : °

hes o* _*¢ . .

. + 4 >.

. ; .

‘ . . e .

. @

. e >. .

ie . a ; ?

ivy . e ° .

>. ak

e . P - es e . by .

. . . . : . ye

’ ’ : ’ ; e

° ‘ ° ” . . . ©

. . . . ‘ a

. ‘ _ e ¥

. 4 “ ° . . ye

. . . e ‘ .

. ‘

- * . “a ’ ty Z . ra

é by ng » e . ® *,

; . » . e

e . » e @

. ba : . . ° .

7 - s ; cos as

. . . ™ .

> . s oa

. * <a 3 . 7 ° ..

ef e e .

5 4 on al :

P . . 32 -s 4 . . e

‘ Sd . ®

, es a ‘i ,

’ 1 eons

. » es os ’ .

. x

n - eo. e - » ‘

‘ "7 Q eae 8

_ P 5 .

. t : ® . .

4 4 ; . .

us . . ° @.

+ Ad 7 Q ae “Le” . é

. ie bd o . <

. ® ’ . . * ‘

a e . _ P . .

° . é . a e

¢ a pee . e - - .

. ® b ® - , .

» e ; 4

. " Pa ‘ ® *.

¢ ‘ i ,

. bd . “ oe . ” * .. ‘ e

e . 4 a . ° % 7m ‘

. . ; oe a ‘ . ,

. rs

. . . al . . . ; P . . .

e* - e - e . .

. 5 ° .

: PRR SDN : septate

4 . ONO ee Sl bi BA i Col ger ap, aa ore oa eee ee ,

Ds J : mane , PER EN t, MBO H Pets aod Sih arereey: ¢ SNe rihs: eatonnnsonnin nen . ete

wm o . ‘ S: eh ER eit NCO eE cain ngeue Btenp tari

pens ; ‘ ROMER HRS CREWE NN apni Ct te

fh. - « - Bn : : Pee ee

me) 4a ¢

4 &

‘ «

tae ¢f

‘s ‘e . .

ye ' . g ”

a 4

1, x =

mie?

2 e

: =

: ‘ :

Wz -

‘ | .

2 ; : .

‘

’

a i ) eee

eee st 1 |

eit er H , | : $.

. g

_ i °

. t bd

- °

. A

. : ;

. > T

ome

e :

sot e.3

os .

—

de ES eS cr pa

Mgene ee CHART .2 : .

/ MY CENTRAL, EASTERN DISTRI =

| — AWD TURAL US, 989-1965 |

ace | , *(Bilios o Reve Toes)

ee a at at ;

Focusing, Seemann ue . earlier

Yam weatnatite Soe

‘cuted vt qvrter date ot on ermal ee. tee compares sie

2 Mk neonate

n ee ee a nee Fe

, : 2 .

we : : : : | os

Ee ee eek: pe

Sg ROWE, LOCOMOTYES AND. CRS:

USBI TOL 8 ERY CY

« «

ea .

‘

. . Is

e %

- s

é ‘ E

o Beste deme iCC, AAR, - , 4

Vitenteai to version ot ond ot jose. Sa :

X . ° > PRR-WYC.: Merger Exhibiee (omen)

0% aes ¢° *9

¥ .

— rf . : :

. nd .

. s f _ . . i =

*2°

< °

. .

« -@ 2 .

; a R 4

* - « ‘

e ad e ee

> ° rl

° K: e ~

CHART 4 ' :

. . > - )

~ ; ° Sg ac ° «*

= 4. e

¢ 6 :

~ , >

UTE: PREKGHT-CAR CHRRING CHOC

WSUANA, MA GEMTML EASTERN OSTOCT”

’

. 4 . i J : > 0 fide

ow eeu w Me ws eS we eee Oe

é Meidssajeibthaaitagss at i : Gis : * Gosie dete: ICC; Mecdy’s Trenept Manvel _

“, «© 1a 00 nt 1040 pertty cxtimetes. Z ; _g PRR NIC: Merger Exniite (Symes)

ae e ; ® ‘ y ; . : * 7

a ; ;

° » Le 3 4 *

. se 6

‘9 Pat a " ® ‘ 4 |

» eae ; ° ‘ é

8 2.8

. ‘

: 90

60.

‘

: a.

. —]

e .

. 700

6 . 7S

ne .

P . a) eres ;

of A 25 _ 4 n 4. EES 1 ae rT

4 Foss a 38 se 87 S88 80

fs : 5 eats Gate: Retest, ICC end theedy's Trenaht. itenwet

ye y ° ‘° tn ae ee ee Te wy

see ee ; quate growth rate

2 ‘ ee ge .. = I . : : aye

--O ‘6 ated .

e , .

° id °

° 7

; : ;

‘ .

22.3 8 8 8

e.¢e

2 £ pet: . ak is re HX et Meet 5 ems eames

Pe)

iB cfc wet rn tn

Nahe

Og Wo abady

MENGES, dies LW

z ae ew bes ae.

RMAC. & INCOME, 961 d PRUUECTED, 1965 & 70

RB hagaf osie ECONGC' GROWTH! KATES

i) Hees Gates: Ae et

mg Raat Norse

ee cetyl va, SecsoneM a edjewa | Nee ex € operating ‘ntome 48 <beup

IF m: Wes, ACt income abeox 766 ai ison

set

)

ee ee ae ey

ee | Pe ae

- e

2 - 5 y t e

‘LOCOMOTE:, FREGHT MND PASSENGER: CARS,

AND. EMPLOMENT - PENNSYLVAMA of A CONIRAL

_ ACTUAL 1961, AND PROJECTED 1965 AND: 970 AT

Ot CO RE GORE VORINAES

_, (Wale Dithoret Sates)

V imamiver in waren ot end ot your. ie. Use | e

Antone meet icatiywemenecatinwntvee. TZ RPA __ Seats Ste oUt, tec,

cocina = ten wart weet of Shout | percent e yer : So ey RC hemes Eka Eymea

> : . ad

.% :

z: > - rf

SAS LAA. GRR wrt

wo Rigi OP Anas aS

%\,

“CHART 0 Ae tee eek

ay mains 5 0D

‘ See + [eee

—e trond wil cantinne te fine withthe 1980-1960 pettern. (Bes pp. 78-7Oe! Witioma’ testimony.)

marpenfieell © W.8% ceguetie freight Wein eles. — :

Dinssinstiiniebaidalitpementuetinntagiautinnst iene wie ie oa net «ty 2

: derapeengie ein aier> Cbelmaaanbeetramaenp esx cunatine ealyunen ee Bs

Minenter twearias es endl year. * Stet Cee

‘Ng, wentame ashen uo projected enatn of ented esi, ato Tish — ww a chert cervetate wh his woe enctpui. C1, PetuhaB MEXME, 9.38), whe exsimatee

J, wanes mahanen prejestes extimatee.ct ergioyment, but the wonda projected tee ah ro ae eM nest (he chart. te a

——

acta rear ers. etter MFCR me

e :

o . -

. -

“Tae ° ,

wotbeins eatio mts Cor we .

< thine keener emerge gate eer eae

5 (a a Inamemen chest ene percent par year Gustine a ewes se compe ; eee

‘

; wissen Me

PST: kk: - NANA

Milions of Dsllors)

*, *, 6, “a

*e, “e. %s,

f -

[

c us : at eee ee ee aw

ta AL CRM - - FNANCAL TRENDS 1947-1965

, - {iitions of Dotiars)

;

e bd .

~ x

‘

y ‘

“»

‘CHART’ 13 Ce

” PEANSILIMMIA AND NEW YORK CENTRAL COMBINED

*) PUANCUL TREADS, 1967-1805

j 1957 1960.” 1961

be~ st ¥e oe: x. ean

{neseeenty ete er te 0 amt So ity = guatea yee <i opt e: tay Vetta &

‘.

—

POO ARE RIA WD. LIONS

"AND LONG TERM DES ;

PENNSYLVANIA AND NY. CEWTRAL, 852-864

ewe __ gegen ——

| . a oe ie aye ets ]

. . . —s

3h y —_——- = 4

| a Sabon =

ont

fT os ae. Pe Nis ie eal eee

; a a ri Pv rl t iis ake

953s «1954. 1955 9561957 1958 = 1989 960 = 1961

Bekatien | ie ssa) 2

Cio.

é i

: - ja - FeRa 7 |

—

Ae :

> >

0 2 ee : é

1952 1953 . (954 3 1956 7 1988 359 1960 6

’ ; : Besie date: P:A.R:-terger Exhibine (Ward): :

Vpensinpuasia 9.2. iactetes teased ines. i964 dots trom ; men NY Contret-tterger Cxhibite (Great)

Lec.

CHART 1S ‘ae heae

RAILWAY OPERATING EVPENSES REVUES

AWD OPERATING RATIOS; (952-1964 -

_ PENKSTUAHIA, AX CETL BACTINIE & OHO

Cd Pemnsytvanaa BSS WY. Control

* * e

ea? e

3 gue TRC! - O25 SS S272 a23 .

1959

MI Pen YC

openers

- tof

* a6 Qs] .

. a4 «4

a2 is 00 2 aan | _o2 1964 RR Oper Exp.90.806

ee ae he ee we

Sooners . “i.

' 24: 24, -

22 22

tol to) gee

eee | ig eee

ia ‘ ; 4 Pgs

2 R. Operating ee ae

10 Expenses / Dies . to} .

eo! Somsticns Si: tn mt

a4 6 04) ot

a2 ae R Operating Expenses /

‘ese SMS eT ww ww pe

a ;

mae sions ih i heen tin iii ; ;

Aany eperating expences on © porqgat of raliway apereting revenues.

Par

MEAP CU TL AE AIA AS a BGA Th a oa!

“CHART - 6

ee 7 OUT AND hi RETAINED. wom 4

_FENSHUMA AND KY CET, 52-864

ry e

‘ re’

Ss MD

1 i

;

— a ea dead ” Vegans AT :

L 2 phen | |

qmees enpiat sap te Pane RR ; Bente tote PRR Merger Exhibins (Word)

eras icles BiG, 5 : ’ SLY Conirves - herpes Esxhdision (Greed)

aa ea “CHART. 17 2

- RMLROAD TAFT, PERT REN 4 Wee “f

_PENUSHYANIA AND NY, CENTRAL, BOB |

ee {QnneM saunas)

[

’

a of ten-miles end tise pensenger-milee

2 iit Tanne everating revenues, lous total epereting expenses ond tangs end rentee

oe cc ce, eee tn Ma een

a . PRR WUC Merger Extiaite (Symes) :

| Men-conesnatly edjusted liatl-year Gate ot on enauet ret. Cons; tae eee hig bee on Svegaetly adjusted as:s &

al f :

: y .

- ;

He ee Aprons

a tcf \

as CHART 18°

AND POTENTIAL TRAC DERIK, T8061

Milioks of Dollers

- 175 — ; — = 175

¢ €) Se cote mC ee TE

> 41125

° . N

WOT 100

75 — (2) Estimated of actual rate ig «1780

of overall economic growth, , ’

adjusted for potential a.

“a ‘wattle diversion /

s :

' $0F (1) Actuat | 0.

. Agoregrate ditferences, 1953-196: S ees

(1) comperes with (2): $115 milion ing ©

25 | 1) compared with (3): $341 mitten 7%.

(1) compared with (4): $495 milion ; \

§ ° é 7 ee

| s ‘ “g * é ’ e : e .

0. RS od 1 ij J SION 40 ~

1953 1954 = “1955 1956 ST +1988 1959 1960 «96

2 V qxmmese of potantich ebtanat wottia which cowtt cosres to the retreats

A natty gee Fie ate net Ee Soca .

ene te eae ane om Of Aree eI (Bem arse Aeted, Bamay's Tommopt Bape

ee Seetonasly edtjvsrea 9G milion S

: ; \: s

ee a ee aed

cia coenes

| EMUTE OAL

a ee

TMD LARS Ar

RATES!

Mitions of Delors

ae z Bore yee oper ae?) 12S

1965, octwel Met income efter tanse, 55.2 2/

(3) Catimeted ot edequate rate of ( i in : “

oxsrell economic growth 3 |

PS 100.+- | ;

; (Ena teeta tao

@ | Shatdtpo

75. \ . oo —% 4 75 m

f | =

50 Fr » (2) euinaies co rate of : oH s

diversion /

(1)

{ 7 25

OF | :

1953-196): )

(1) compored with (2): $16 mma

(1) compered with (3): $34¢-mition

(1) compered wah (4): $436 mition

- L 1 # Ld 1 i s a #2 4 oad :

1983 1954 J ADS . - |

Veensie 6 potent stan athe stan a 1958 1959 4 1960 |

Suid eeeren to She veltreeds with Stasthty tower |

‘Sri vaten to improve the rettvents! competion, _ 2 7

aan ete eter mano

“"

criti sealteadialite ann

3 CHART 20 .

PNASILUANA AND NEW YORK CENTRAL. COMBINED -

SIZE COMPARED WITH EASTERN STENT “AMUROWCS

» AND ITH ALL QS TRALEE (961.

"FREIGHT TRAFFIC

. (Reverse Tee-eiee)

OSTRICT . CLASS I

PASSENGER-TRAIN CARS“

> TOTAL RAILWAY

OPERATING REVENUES

_ CHART. 2|

SALES AND ASSETS OF LEAOING compe?

ORO TT

a Percent of total sales”

RAILROADS

As % of. Class I'RR's | As % of Eastern District

aeeereemenerne

sees

‘9 | ” AND EQUIPMENT

‘ %

, 422% -_

Yn to sae frre, 700 parting Semmens ee sn ated Wt ttt san - Beste Gate ICC, FTC-8EC, Pertane Magazine.

. ie ge ;

. , °

SCAR TROT ER UST ated J

‘

ae ORM ee

_ SMES AND ASSETS OF LEADING COMPANIES.

MSU 18 PRET OF MOIST i

_ MES Percent of foto soles” IN Percent of fotal assets

RAILROADS” pegs STONE, CLAY & GLASS | PRIMARY

As Sot US cla RR “As % of Eastern District 0 * | Aluminum Ca, of America

> (50 lergest compenies) =| ' (50 lengest compen yee

. Americen Tel & Tel2

tae came at ret eetn. yrnen seeeering eons ore theme comer ~ ome nates .

i » L Caetasing memeber ing subecttorten f aa . °

2 , © percent of tte insurance in teres. “ 2

° Smee oe mer Sem ee ; " Besle dete: ICC; FTC-SEC; Fortene Megurine

ay . ss uate “e

ty °

bh 4 <a -

ee asenin | : mn ts acs > — aac saan nl aan rare ~ a rah ~

— ee - ectemenneenetit

me Ay .. prea wee npn “

seatiiitat REIS aE iaalaaiae a

‘ ».

’

fear] GH

*. ge EH |

s eS ret Pe :

io a 4 ae

Fl . . -*

tee

7 : » =

. 4 5 -

0 ii

(2onap in enang sayy bopneg sour ' : Se

oo eee ” ssumiua saan Bin Boveri :

oe | sonar 7WLNED UK MIU I say |

nea y Vie, TL ee

' CHART 24

AVERAGE TRACTIVE POWER

‘ .

eee ee ee

Vcaee | nitooge

LIMO) Te OP GIR TN

Mi :

CHART 25°

TTL Le

50 ‘51 ‘Se 53 54,55

TY ERSSEEECELE

-—i4

sO 6) 6

4445 46 47 40 49 50 St SE 3 54 BS 6 OT Be BO

4% ‘a

49 2 :

4% - 2

4¢ # 7

4$ 2 d

4 4s 7

43 | 4 +3

4% 42 | 42

4 |" 43 dz.

4 4s 12

ge =f of

“remangn cars echo ders, mal, Soggoge end cer ponenger tren cars

Note: Freight cars ond RR ouned passenger cars ere Clone | éniy. '

| CHART 26

" UROD EMROIMENT TRENLS COMPARED

MT OTHER EMPLOUMENT TRENDS, 1989-1865!

CLASS I RALROADS

_ CHART. 27 ne

“ML AND RAILROAD TRAFIC 1953- 6

COMPRED WITH ESTUMATED VOLUME AT NEEDED

WATIOWAL GEN ont TRS.

al | ree

i eee ee en A,

“Wess S36 57 50 00

; Sea gia ;

a ae a a ee ;

AL treffic ahowe ie intercity. | o oo. : ; emnc Gate HC amet Aa

.-&

CHART 28.

‘locomome MD Hw CAPACITIES 196) af

PROSECTED NEEDS: 1965 ond 1970 AT HIGH and!

LOW WATIONAL ECONOMIC GROWTH KATES

LOCOMOTIVES IN SERVICEY |

- 7 cad

778

FREIGHT CARS IN ‘SERVICE” :

(\éittien Tons)

895

196-108 70. |i 165 970 -

PASSENGER TRAIN CARS IN SERVICE _

ce Low. cal » Low

1961. 1968 1970 |: ay : ;

, ——{y 2 4

pape ies ae ;

& wenates mall, baggage, express ord afi other oosemngH fren Core ae

‘ OY Eatemate tamed on rated possenge: carrying capacity of poeanger cerrriag cert ‘es ;

Res euned or lensed by Clase Line-Hewt Reliroade, - e% Z ‘ Bosic Dota: 196/- AAR

Sirs CHART 29

TOIAL INTERCITY AEOUT TRAFIC 196), ond

PROJECTED NEEDS 1965 and 1970 AT MM ond

LOW NATIONAL ECONOMIC GROWTH MATES

(Excluding Coastwise and Intercoastal Traffic):

_I961- 1965 ~———s«1970

. (eta press een ences bonne

2 nctuting Great Lohes.

Ben at Cee Senne

Prem ten tgs eax nd ma oS ae Omicde:egi-aan

CHART 30

- TOTAL INTERCITY PASSEWGER TRAFFIC L964, ond

Pear WEEDS. /965 ond 1970 AT MEH ond

LOM sab ECONOMIC GROWTH MES

¢ :

Deets dere BE! - AAR

United States District Court

_ Sourgean Distzcr or New Yor

_ERIE-LACKAWANNA RAILROAD COMPANY,

eee ere

UNITED STATES OF AMERICA and

INTERSTATE COMMERCE COMMISSION,

66 Civil No. 2860

MEMORANDUM IN SUPPORT OF INTERLOCUTORY

INJUNCTION ON BEHALF OF CITY OF HOBOKEN,

CITY OF UNION CITY, TOWNSHIP OF NORTH

'-BERGEN, TOWN OF WEST NEW YORK, TOWNSHIP

OF WEEHAWKEN AND CITY OF JERSEY CITY

jg Preliminary Statement !

Plaintiffs, City of Hoboken, City of Union City, Town-

ship of North Bergen, Town of West New York, Township

of Weehawken and City of Jerséy City, request this Court

to issue an interlocutory injunction so as to prevent the

consummation of this proposed merger pending review of -

the Interstate Commerce Commission Reports and Orders

on the merits. © 3 :

- The injury facing plaintiffs is irreparable. It is even

found in the Recommended Report of the Hearing Ex-

aminer in their section dealing with the State of New

- Jersey, and such iriWyry is patent on its face. (Rec. Rep.,

___‘ The conclusions of the Examiners with respect to cities

in New Jersey may be found at pages 280-286 of their

Report. These conclusions were adopted by the Commis-

sion in its Report dated April 6, 1966, and upheld. upon

Plaintiff, ©

Defendants.

eS NR RS ATCT AR NR RAEN Nii saan

te ¢ the above population represents a significant segment of ©

i — which canndt-factually or lawfully be —

a °

’

3 THESE NEW JERSEY CITIES ARE IMPORTANT. ©

_. .+*) ‘The 1960 cénsus data shows the following population

»” _ figures for plaintiffs, and these published figures are under- .

. stated because of normal rice ats in van inter-

__ vening 6 years... : vo

"ly of Hoboken is id assia gee ddan “47,000 se

a 0 ne Sglgiaiabe aaa 52,000 yx.

Town of Weehawken ere baaied aks tes) nec:

_.City-of North Bergen ..... . igs = nih 5

” City of West New York ...:......2... 86,000

Nay af Jersey City ...... et ale .¢; 270,000 ~~

Total, Represented ee sci +++» 461,000 '

Given Ses plaintiffs herein respectfully submit chat

: a Il. THE PROTECTIVE CONDITIONS TOTALLY DIs- =

- REGARD THESE CITIES. .

Although the traffic conditions in sia Gt to the

-. April 6, 1966, Report of the Interstate Commerce Com-,

- mission, as amended September 16, 1966, upon reconsidera- -

| tion, may redace the injury to certain: railroads. serving

._ New Jersey in that they may be able to recover damages,

there is absolutely no indemnification for the cities repre-

- sented herein which will suffer grevious injury by reduced

* ‘service, traffic.diversion from their railroads, re-routing of . ...

~ traffic away from their cities even though perhaps still -

, ‘by the same railroad, and dollars earned by

railroad employees who will lose their jobs or be trans-

a) ferred to other positions away from their present tax paying |

-. ° pesidences. And not the least of troublesome problems .

and consequent injury, is the impact of more automobiles,

Sleuths die eicae-of ake cine aba sock ta

erate ia and curteliment of rédiroed traffic.

as *

; ES i Pee 2 ats . £38 .

oy ‘The Interstate Commerce Commission ‘has dealt with

' this merger as if it were a battle between railroads, rathtr

than as a grave problem facing'the public: -- pare

Il. THE INJURY FACING THESE PLAINTIFF-COM-.

_ MUNITIES IS IRREPARABLE. ee

A crying example of irreparable injury to plaintiffs |

herein, which demands ari interlocutory injunction, is de-

scribed by the Examiners. (Rec. Rep.-p. 241): - :

. “Intervenots Weehawken and West New York oppdse

» the merger on the grounds that elimination or curtail-

ment of New York Central's railroad properties as pro-

posed would constitute an elimination of substantial

“” tax ratables and receipts. ‘In Weehawken alone, New .

York Cgntral facilities constitute 30 per, cent of all

assessable properties.” «=

This Court is urged not to allow the utter destruction .

and ruin of the financial basé for the government of Wee-. -

-hawken without even‘a hearing-on the merits. . ==

. What is. to happen to ‘the cities of Jersey City and -

‘Hoboken? “Although the Erie-Lackawanna’ may be com-

pensated by elimination or destruction of its large freight —

and passenger: terminals located thereat, who is going to’ ._

" “. compensate these cities for its loss in employment, tax base

3 : .” reduction, loss of retail sales, loss of interests and fc

_ commerce delivered to their:marine facilities, overall de-

preciation and deterioration of properties, etc.,etc.P =

- .IV..THE PUBLIC INTEREST DEMANDS AN INTER-

_ _LOCUTORY INJUNCTION.. _ eee

‘The Examiners hold that plaintiffs herein are without

a remedy under the Interstate Commerce Act, and further, —

=e that their claims of adverse impact from the proposed —

2% merger cannot even be considered as part of the public in~

terest in evaluating the merger. (See particularly footnote *

154, Rec. Report.,p.892) BS et

; é “ e Py ye

C4 op *

fins The devisions relied by he Examine td hs

the Commission, ed py this aspect of the

Hniiacen Pach ferscn hs tease tect toreiovond to the is

Interstate Commerce Act known as _the -National Trans- |

' portation Policy, enacted in 1940, The-Examiners also do_

not come to grips with subsequent legislation affecting

* transportation. In particular, there has been enacted re-

‘~ *. gent Jegislation (Mass Transportation Act 6f 1966, signed ~

| _ into law by President Johnson on or ‘about September 15;

. 1966) affecting urban, transportation which the Commis-—

sion must consider as part of the “public interest.” The

above legislation was sponsored by Harrison J. Williams,

Jr, U.S. Senator, State of New. Jersey.

ce ae The. Report of the Commission, upon : soeienataaitienn,

a ‘ees Eee tek a be a has een ln

legislation relating to rail transport,” but, we respectfully —

. submit, it erroneously fails to rule as a.matter of law, con-

sistent with the decision of the Supreme Court that other

legislation refers to. the policies of such legislation dealing

’ with transportation, not merely new legislation by which —

athe Commission is given increased. regulatory power.

“McLean Trucking v. United States, 321 U.S. 67.(1944).

bah: Apart from the evolving concept of the “public -fn-

ere terest,” Section 5(2) (c) of the Interstate Commerce Act

: specifically requires” the Commission to consider other

factors than the four enumerated therein since the language 4

< _ employed is ‘ “among others.” Accordingly, under either

the “public interest”, or Séction’ 5(2) (c) ‘itself, the Com-

be mission has committed a serious error of law which will

irreparably injure. plaintiff communities and eet the °

seni fiat, eleremed ,

pltiny Base sini ‘cde *inactte This

strong case should not be rendered meaningless by con- .

summation of the merger through refusal of an interlocutory

°)

t $

Vv. ‘THE “SITUATION HEREIN DIFFERS FROM :

__. | THAT IN VIRGINIA PETROLEUM JOBBERS vs. . -

FEDERAL POWER COMMISSION. 259 Fed. 2nd-

tee

921. |

This Court lias jurisdiction by Statute to stay the

merger pendente'lite. _. pes

_ As the Supreme Court has pointed out:

“. « « Congress would not, without clearly expressing

z such a purpose, deprive tle Court of Appéals of its cus-

__ tomary power to stay orders vinder review.” Scripps-

Howard ‘os. Federal Communications Gommission. °°

1949, 816U.S.4,11.

Parties aggrieved by administrative agency orders act as

representatives of the public interest in seeking ‘judicial

review. In litigation involving the administration of regu-

latory statutes designed to promote the public interest, this

factor necessarily becomes crucial. The interest of private

. litigants must give way to the realization, of public pur- .

. - poses. As: it is principally the protection of the public.

_ interest with which we are concemed, no artificial restric-

' tions of the Court’s power to grant equitable relief in the

. furtherance of that interest can: be acknowledged, Scripps-

_ Howard vs.-Commission, supra cf. Yakas os. United States,

1944, 821 U.S. 414; | ¢ aaceta hege

_ In the Jobbers case, hearings liad been concluded and

“ « fadlclel review a the District Court level chtniend She.

U. S. District Court for the District of Columbia denied a

temporary restfaining otder pending appeal. ‘ In .Penn- —

a Central, the hearings have not been concluded nor has there

- “been. any judicialrevidw. 20 |’ a8

- “ “In Jobbers, ina per curiam opinion, the Circuit Court

, .: . pointed out, Jobbers had an adequate remedy within the

*_. four comers of the Act, so that its petition for.an extraor- -

_. ' dinary writ of injunction was properly dismissed. Under

the present. posture of Penn-Central, plaintiff communities

have no such remedy, and further, as ‘was heretofore stated, -

. oO

plaintiffs stand well to prevail on the merits oftheir com- ea

plaint, so that, it is respectfully ne See.

relief aac be > erated in the instant case:

Conclusion _ ?

: The rapid developaients i in this Court- ee did

- not permit plaintiff communities the necessary time within *

which tdifile affidavits or other supporting data to’ further

demonstrate irreparable injury to these municipalities if the -

merger is allowed to become effective pending full hearing |

on the merits. Moreover, irreparable injury embtaced in

. the traffic forecasts is also clear from the merger proposal.

Too, industry looks to the availability and adequacy of -

railroad service prior to making a decision with respect td

industrial locations or in the decision to reduce or Saamy

existing facilities.

_ Contrary to the Commintanton’ s findings, rm actual cer-

tainty is that approval of the merger endangers the eco-

._ nomic welfare of the State of New Jersey, a highly indus-

_ trialized state,.as well as the plaintiff -commiunities wherein

so many of the railroads converge and have their yards and :

terminals.

_ For the above wiited reasons, this Court audi issue

an interlocutory ‘injunétion re ee of this

action kup the merits. ,

Mir ee Respectfull paekiadaed

3 aes Howarp LioNex Torr

Attorney for Intervening

; Se id :

-" Of Coaaelt®

_ Juxrus S. CHRISTENSEN ©

.. 150 Broadway‘ —

New York, New York ©

” Dated: September 27, 1 1966 -

2 is a ; ;

. 7 e *

aint at ” » — - ~ U e

PE Ee eS ee EE CN Ns ee ee es I ee EN OR SP ee ee ee ee ee eT NY

a :

- United States District Court

‘+ Sourmern District or New Yor«

_ ERIE-LACKAWANNA RAILROAD COMPANY,

, TREES 5 |

___ UNITED STATES OF AMERICA and

INTERSTATE COMMERCE. COMMISSION,

66 Civ. 2860

BRIEF ON BEHALF OF MILTON J. SHAPP IN

_ SUPPORT OF MOTIONS FOR ISSUANCE OF. AN

: INTERLOCUTORY INJUNCTION.

_ By complaint dated: September 12, 1966, as supple- ..

mented September 22, 1966, Milton J. Shapp seeks to .

permanently enjoin and‘set aside orders of the Interstate

Commerce Commission entered April 6, 1966 and Septem- -

ber 16, 1966 in its Finance Docket Nos. 21989 and 21990,

Pp lvania R. Co.-Merger-New York. Central R. Co.

This brief is submitted in.support of the issuance of an .

interlqcutory injunction staying the operation of said orders

_ Of the Interstate Commerce Commission pending final

hearing and determination of this action on the merits,

. The railroad network in the Eastern District presently

consists of four fairly balanced systems, i.e., N&W, NYC,

C&O-B&O and PRR, plus a number of important “ inde-

penderit lines such as E-L,:D&H, B&M, RDG, CNJ and -

_ 1 N&W (Norfolk and Western. Railwa ); NYC (New York Cen-

Plaintiff, —

_ Defendants. —

ee te ns 6 tee ti noe

D2 —

- Margie of PRR and NYC would ive that oli system

; approximately 50 percent of the revenues, and relegate the

other two, N&W and C&O-B&O, to approximately 25 per-

‘vent each of the combined revenues among the four sys-

.tems: The prospect of a PRR-NYC merger has already set

in motion two other major railroad unification proceedings

at the Interstate Commerce Commission. These are: (1)

“Finance Docket No. 21540, Norfolk & W. Ry. Co. and New.

. York, C. & St. L. Ry. Co. Merger, where E-L, .D&H and

B&M seék to be included in the N&W system as part of a

proposed 3-system plan for the East which would be com-

posed of NkW, PRB-NYC and C&O-B&O, and (2) Finance

- . Docket No. 28832, Norfolk d> Western: Railway Company-

. Merger—Chesapeake ¢& Ohio Railway Company, where

N&W and C&O-B&O seek to merge into a single system.

_ to compete against PRR-NYC as part of a proposed 2-

system plan for the Eastern District. -

There is substantial opposition to both the S-systorn

plan and the 2-system plan, and there is absolutely no

assurance that the major independent lines, such as E-L,

B&H, B&M, RDG, CNJ or WM, will be included in any |

"merger. The court is urged to kegp in mind that the evi-

dence submitted in F.D. 21510, and the application on file.

in F.D. 28882, show conclusively that those proceedings

arise solely because of the proposed PRR-NYC merger.

It is the position of Milton J, Shapp that consummation.

_ of the PRR-NYC merger will seriously harm the future in- _.

dustrial ‘development of most areas of Pennsylvania, and

will greatly diminish any possibility of industrial redevelop-

_. ment and increased employment in almost all areas of

' Pennsylvania. This is because the merger is based upon a

reduction in capacity ‘by filling. out lightly loaded trains

‘ with the combined traffic of the two railroads, concen-

trating trains over certain tracks, and permitting steps to

achieve a better utilization of capacity in a declining market

for. railroad ecu’ The re of the Commission

vA .

be .

/ , -

¢ ‘

__ states its purpose in approving the merger is to trim the

__ unnecessary plant, and equates its action in approving the —

" ‘merger with the runing of a fruit tree. (827 1.C.C. 475, -:

496)

.and of its hearing examiners more, rather than less, rail-

ited be

organized along the lines of Virginia Petroleum Jobbers

Assn. v. Federal Power Commission, 259 F. 2d 921 (D.C. _

' Cir., 1958) followed in Eastern .Air Lines, Inc. v. Civil .

Aeronautics Board, 261 F. 2d 880 (2d Cir., 1958), as sug-.

gested by this court. — :

I. PLAINTIFFS ARE LIKELY TO PREVAIL ON THE

MERITS. | | *

The relevant portions of the petition of Milton J . Shapp |

for reconsideration of the April 6, 1966 report of the Com-

mission and for other relief, dated July 11, 1966, is attached

to his supplemental complaint in this court, dated Septem-

’ ber 22, 1966, as-Exhibit “A.”

-___ Exhibit “A” shows that it is highly likely that plaintiff

will prevail on the merits in this action, and that the Com. °’

mission's orders approving the merger. will be permanently

enjoined. The April 6, 1966 report is permeated with major

errors of law, the most noteworthy of which are: 3

_ A. Public Interest. -The report of the Commission is

predicated upon the definition of “public interest” taken

from the Transportation Act of 1920 as construed in New

~ York Ceptral. Securities Corp. v. United States, 287 U.S.° *

pacity is needed if the State of Pennsylvania, and.

the national economy, are to have the railroad capacity 4

‘which is essential to future economic growth. The railroad

_ industry is crucial because transportation capacity must

precede economic: development’ and absent necessary |

capacity, there can“be no economic growth to meet our’ -

national economic goals and foreign policy commitments.

: This brief in support of an interlocutory, injunction is.

.&L

. D4

| - se'(00nay 6 followed in United States v. Lowden, 308 US.

* 995, 930 (1989); ome in

Of Justice Brandeis in New England Divistons Case, 261

decisions deriving from the opinion -

U.S. 184 (1928), which found that Congress in 1920

: enacted a transportation policy. (827 I.C.C. 478, 494, 505)

. seeadan diet ces Gel UN Cs ce 1966 report on .

reconsideration does not with the position advanced

- by Milton J. Shapp that Transportation Act of 1940

brought about a new and more comprehensive transporta-

tion policy, known as the National Transportation Policy,

__ which should be the guide to the construction of the “public

interest” contained in section, { 5(2)(b) of the Interstate

Commerce Act, in addition to post-1940, legislation affect-

ing transportation. McLean Trucking Co: v. United States,

821 U.S. 67,-80-87. Important legislation enacted subse-

quent to 1940 includes the Employment Act of 1946, Area

Redevelopment Act of 1961, Manpower Development and

"Training Act of 1962, Economic Opportunity Act of: 1964

. and the Appalachian Regional Development Act of 1965.

‘This subsequent legislation affecting transportation is im-

portant and decisive in this proceeding, because the hear-

ing examiners have a lengthy section in their.report entitled,

“Effect on Specific Areas, States and Communities” where

numerous and serious adverse consequences of the pro- -

posed merger are recited. However, based upon the law,

this testimony is completely discounted. Thus, at sheet

281:

“es etilees thint-enishereoe alnield Ue dialed on theee

« bases and requesting the specified condition be im-

posed on such grounds, we believe*that these parties

have failed to recognize the nature of the statutory

RRA a

— a f

~ ide i ¥en deaiciil and viewed in

Wight of our busle euthotty as clroumsertbed by law,. oe

o> tne

| we find no foundation to consider such arguments and

proposals in determining whether the merger is or is

not in the public interest.

- And again, at sheet 282:

_ “The Interstate Commerce Commission, while having

broad jurisdiction in the regulation of railroads gen-

erally, is confined by its statutory ‘authority in con- —

— “Tt-is eminently clear that neither the taxing structure, a

_~ the level of employment in a given. area, nor other

sidering ‘the public interest’ as it applies to the

‘adequacy of a, transportation service,’ and it has no

authority to guarantee a certain level of employment

at a particular location not to gauge or consider the

effect which disinvestment by railroads at a given

point would have upon the taxing ‘structure of par-

ticular states, counties, communities, or other political

subdivisions.” | ;

arguments running to these essential questions bear

‘any relationship to transportation, nor can we find any

provision of the act or in its legislative history that

permits us-to measure the impact of the proposed

merger in relationship to such effects upon economic,

" political or geographic ‘areas or individual businesses

. though nonetheless real, have no jurisdictional signifi:

cance and, in our opinion, any condition whose pur-

to be totally ignored as a matter of law? If they are not -

to be ignored as a matter of law, then the decision of the

located therein.”

And finally, at sheet 283: * 3

“Insofar as this Commission is concerned, such effects,

pose is to protect such intérests cannot be imposed.

On this basis, therefore, these arguments need not be

considered further, and we so find. a

The court is thus faced with a clear-cut legal issue.

the hundreds of towns and cities opposing this merger

ea nee, seat ta ame

fonts yt meee

Interstate merce, Commission approving mae merger

- must be set a:

_ a

> ss

“Plaintiff Milton Jj. Shipp suggests that the “public in-

. terest” proviso of séction.5(2)(b) as guided by the

National Transportation Policy arid subsequent legislation

_ affecting transportation,. dictates reversal of the Commis-

. Sion on ‘this decisive issue. Moreover, section 5(2) (b)

does not limit the Commission to the four specilied criteria |

named therein.

- B. Analysis of Competition. Although the Commission :

‘in.its April 6, 1966 report states that’an appraisal of the

..competitive. aspects of the merger must’ be made (327

~ LC.C. at p. 508), it rejects the Brown Shoe* alysis in favor: |

. Milton J.: Shapp, in his petition for reconsideration dated

_, July 11, 1966, pointed out that if the relevant product and

geographical. market concept of Brown Shoe is rejected,

‘then the report is defective in that it fails"to we: the

“transportation standards” traditionally used over the years. °

to evaluate railroad competition by the Commission itself.

“In its report on reconsideration of September 16, 1966,

the Commission holds that its power to grant antitrust im-

munity relieves it of the obligation to measure competition

by the traditional tests. _ (Report, 9/16/66, sheets 7-9)

This attempt ‘to’ avoid any standards, “transportation” or

otherwise, Sas afoul the teachings of the Supreme Court

in McEean and Minneapolis? ‘The further answer of: the

- Commission, that its regulatory. power affords a continuous

bar to any perversion of economic power gained by ap-

~proval of the merger (Report, 9/16/66; sheets 9-10),

ignores the wide zone of reasonableness in railroad rate-

making within which the Commission is powerless. United

States v. Chicago, M. St. P. & P.R. Co., 294 U.S. 499, 506

‘* (1985); Georgia v. Pennsylvania R. Co., 824 USS. "439, ee

460-61 (1945). The Reed-Bulwinkle amendment, known.

2 Brown Shoe Co. v. United States, 370 U.S. 294 (1962)

Rec hica atial Louis R. Co. v. United States, 361 U.S. 173 (1959)

., 1948.

‘as section 5a of the-Interstate Commerce Act, does not bar

independent rate action by competing ‘railroads vs will |

merger of PRR and NYC. ‘Indeed, it was the preservation

of independent action within the zone of reasonableness

_ that played:a great part in the enactment of section 5a in

The statement of the Commission that the public has

“+ recourse to the law against undue preference or discrimi-

nation or unreasonable treatment by carriers is a self- >

serving. statement which ignores the judicial construction —

. .Of sections 1(4), 1(5) and 8(1) of the Interstate Com-

merce Act. The reality of the situation is that the Com- |

mission has been granted limited powers by the Congress

and, as could. be confirmed by most industrial traffic man-

agers who actually negotiate freight’ rates with their car

riers, it is competition which brings results.* es

‘The answer of the Commission to its failure to consider_.

‘interlocking directorates and reciprocity is equally errone-

ous as a matter of law... (Report, 9/16/66, sheet 10) The

_ ‘issue is not whether the Commission must find a violation of

the Clayton Act. Seaboard Air Line R. Co. v. United States,

382 U.S. 154 (1965) Rather, it is the adequacy of a_re-

- “ port which ‘declines: to consider these anti-competitive

_’ matters in weighing the pros. and cons of the merger, par-

“ticularly when raised at every stage of the proceeding.

’ The reports and orders assailed herein are fatally de.

‘fective as a matter of law in their failure to estimate the

scope and appraise the extent by which competition would

_ C. Traffic Prospects, The gloomy financial prospects

' for PRR and NYC permeate the entire April 6, 1966 report -

of the Commission, the. prior recommended report of the

examiners, and are repeated in the subsequent September -

16, 1966 report. (Report 9/16/66, sheets 7-8, 11)

made by a practitioner of lon en oe . Wiprud,

Ame C., Justice in Transportation (Ziff-Davis, 1945) sent ee

‘A good analysis of the gctual limitations of 1.C.C. regulation has been.

aa a a,

. important issue. The Commission, in essence, adopted the

: projections ‘of witness Emest. W. Williams, Professor of

‘Transportation at Columbia University, ‘and rejected those.

of Leon-H. Kryaceling, foemer chatrnien of. the Council of

Econemic Advisors.

) The September 16, ios senats Of the Conketeiion cn

reconsideration expresses the continued concem for the . -

future as does the éarlier report. The prospects for the —

future are given important consideration as to.the time

of. consummation. (Report, 9/16/66; sheets 11-18)

‘ The future’ according to witness Williams calls for a

- decline in PRR and NYC freight traffic from 75.1 and 72.6

billion ton-miles in 1960 and 1961, respectively, to 69 billion

‘ in 1965 and a.further

- 1970. On'the hand, witness Keyserling projected that ~

to 66 billion, in the year

the 75.1 and.72%.6 billion ton-miles..of traffic: in 1960 and

1961, , would rise to 89 billion in .1965' and ‘to

a higher 105 in 1970. The studies of both econo-

ee eee ante caleian arene

ee The actual occurrence: was that witness Keyserling’s

“projection ‘for 1965: was on target. Combined PRR-NYC |

. traffic was 89.2° billion ton-miles, and not the 69 billion .

. projected by witness Williams on behalf of applicants. The _

- - hearing examiners projected a ‘drop to 64 billion four years ~

mievatinrirpite and the report of the Commission

both 64 billion 'and 71 billion in. its April 6, 1966

_ (827 LC.C. 475, 559)

eae Commission’s prediction of economic Sine: of

such niagnitude Within the. next four years is nothing short

of disaster, and its findings will almost certainly be found.

on unsupported, by substantial evidence and without arational .—~

basis by this court.

7 'D: Trafle Conditions of Appondte.G. ‘The April 6, z

ee |

a a .

; y

. e g « ¥ 2

ks? © °

: saa : Pe 8

wr e ~

: -

- D9

protection for E-L, D&H and B&M. until such time as their 3

petitions for inclusion in F.D. 21510 are determined: . (827 °-

- LC.C. 475, 561-3) These conditions, known as the traffic.

conditions of Appendix G, aré also supplemented by con-

' dition 9 of Appendix A, which permits the filing Of peti-

tions for inclusion in the instant merger if inclusion in F.D.

21510 is denied. (See: Report, 9/16/66, sheets 25-28, for

modification of Appendix A.9) Man so ee

~ ‘The Commission in its report on: reconsideration re-

cites the contention of Milton J. Shapp that the traffic pro- .

_ tective conditions constitute a rate-making cartel.. The. -

Commission answers that absent a contract or agreement

' among the carriers, it may impose any condition.so long as’.

" jt is just and reasonable under-séction 5(2)(b), and viola-

ings. . However, the public! will be denied the benefit of . .

'» independent action during this period’ since any freight

tion of any other section of the: Commerce Act ~~.

in the process, or any other ‘legislation, would appear

irrelevant. (Report, 9/16/66, sheets.88, $3) > *. 5 ee

_ The traffic conditions are the subject of further hear-

rates, even though within the zone of reasonableness, will -

be suspended and ordered cancelled if the Commission

- ment isa fairly recent expression of Congress as to the right

of independent action. It is the contention of plaintiff in.

its petifion for reconsideration that this right cannot be

taken away froin the public without a hearing and without

notice to interested parties. ( Sennioaatal

hibit “A,” pp. 21-24) ~ - a

.. The Commission cannot waive the policies of the anti-.

soitiaee and other sections of the Act merely to protect”

. carriers without first’ affording the public. an opportunity |

_ to.be heard. «Imposition of, the traffic cattel conditions of

Appendix G must not be operative for a single moment.

To do so is to breach the faith given Congress during the

complaint, Ex- -

+ determines that they will divert or-tend to divert traffic .

' . {rom E-L, D&H and D&M, The Reed-Bulwirkle Amend-

é :

| .

'° .

. ¢

Jengthy controversy. conceming én. ‘Reed-Bulwinkle |

_ amendmen

-D10°-

Underlying ie protective conditions for ‘E-L, D&H.

| and B&M is the implicit assumption that, upon a proper

record, these carriers will be included in the N&W system;

or failing that, in a merged PRR-NYC system. There is,

| however, substantial opposition to inclusion in N&W. At-

- tached hereto as‘Appendix A is the pleading filed on behalf .

of Milton J. Shapp on September 19, 1966, which indicates .

° that inclusion of E-L and-D&H would have a substantial

_ adverse impact upon the-public interest, particularly in the

-Commonwealth of Pennsylvania. .With respect to inclu-

sion in a merged PRR-NYC, the monopoly situation that

would be created in Trunk Line territory raises very serious

problems. . In short, there is no guaranty that, E-L, D&H,

and B&M will be included’ in either system. If the pro- -

tected carriers do not find a home in either system, Ap-

‘pendix G and Appendix A.9 are obviously inadequate to

cope with the problem which would then be faced.

E: Other Errors of Substance. The attention of the ‘

' ‘ourt is directed to the petition of Milton J. Shapp for re-

consideration, dated July 11, 1966, the relevant portions of _.

which are attached as Exhibit “A,” to his supplemental com-

- plaint dated September 22, 1966, for a more complete. .

statement ef the serious errors of fact and. law which ‘are

"likely tp result in his prevailing on the merits in this action. |

IL. INJURY TO PLAINTIFF.

upon consummation of. the merger is that of a member of Rs

. the public. who will be generally injured by the merger. -

Residents in the Commonwealth of Pennsylvania: will be |

particularly injured for the reasons set forth in the petition —

for reconsideration, dated July 11, 1966, the relevant por-

a tions of which’ are attached as Exhibit “A” to his supple-

mental: complaint dated September 22, 1966. In_ his

‘capacity of’ a stockholder of the PAR, plaintiff is of the

- foreclosed. - | |

IIl.. LACK OF HARM TO OTHER PARTIES.

opinion that his interest will be better protected: if PRR

does not merge with NYC. Such was the testimony of

economist Leon H. Keyserling, and plaintiff is in accord

_The strong showing that plaintiff will ultimately pre-

_ vail in this action on the. merits, of course, reduces the

quantum of injury which need be shown. Virginia

Petroleum Jobbers Assn. v. Federal Power Commission, _

259 F. 2d 921 (D.C. Cir., 1958)

. The injury which would be sustained upon. confum- :

mation of the merger would be irreparable in that once -

- merged,the act is irrevocable, particularly in the case of

railroads where ‘track and rolling stock are involved, and

once adjustments in plant are made, there is no adequate

remedy at law and effective judicial’ review would ‘be

. "There will be little-or no harm to other parties by the

| issuance of an interlocutory injunction: Any conceivable -

- injury would be far outweighed by substantial damage the

various plaintiffs and to-the unrepresented public. _

~ A. Loss of Savings to PRR and NYC. The complaint .

"of Milton J. Shapp, dated September 12, 1966, specifically

alleges that the Commission (p. 5): : y

“() erroneously and unsupported by substantial evi-

' . dence, found that the Pennsylvania Railroad Company

and New York Central Railroad Company have shown

that their annual savings from the merger will exceed |

speech of witness Stuart T. Saunders, Chairman of the

7 Pennsylvania Railroad Company, and. for rehearing, -

J: » D12 ‘ (

~ based upon radically pevtenil methods for operating

. .the proposed merged company, and the availability _

ee ee ee x

-Milton J. Shapp.

“The attack of plaintiff against the alleg ed $80 million

~ in operating savings is well-founded. The basis for the

. > Claimed savings upon merger are detailed in the recom-

_. mended report of the hearing examiners. _ Rep:,

p- 129-181; 181-148).

~The fundamental theory of the savings is for a scale

down of railroad capacity to conform with an expected

lower level of traffic, thus achieving a higher rate of. ca-

atity . utilization. There would be a net reduction of ‘*

_ 6,154,948 freight train miles (p. 182); retirement and modi-

"fication of freight yards through more efficient utilization

“(p. 184-5); reduction in the locomotive fleet by the elimina-

_ tion of 806 units and reduction in the expense of operating

marine equipment at New York Harbor (p. 187); and con-

solidation of general and traffic expenses (p. 187-8). The :

'- examiners conclude (p. 140): |

' “Continuously ischaing traffic levels over the past

wosie: toe‘ anielienl th a: dallbetitia th slant Soe both

. applicants. Their application to merge is another step

in that direction and one-which applicants have shown

x ning be fruitful of operating economies in the long

7 ade The 92 percént increase in freight traffic for PRR and

-NY€ between 1961 and 1965 makes necessary a re-evalua-

tion of the plan upon which savings were estimated in the —.

record before the Commission. Instead of. declining from.

. 72.6 billion ton-miles in 1961 to 69 billion ton-miles in 1965,

. ‘as’estimated by applicants before the Commission; freight

* raffic rose from 72.6 billion ton-miles in 1961 to 89.2 billion _

ton-miles-in 1965, ‘as witness Keyserling bad projected. — + -

. The fallacy of the estimated savings of record can be

mie "Y. reference to ‘the . pape between

D13

freight train miles and traffic’ PRR ton-miles carried rose

19 percent from 42 billion in 1961 to 50 billion in 1964, yet

_. freight train miles increased only 6.5 percent from 27.8

million in 1961 to 29.6 million in 1964. The slack in lightly-

loaded trains was taken up by traffic growth, so that PRR ~

was forced to run additional trains to handle the burgeon-

ing | diness. ioe ‘ ie Fi ;

~ The reliability of the operating study with respect to

savings was seriously challenged by witness J. J. Kilgallon =

of the Commission’s own staff because-the month selected’

for the study, October, 1961, was not deemed representa- ° .

tive. The Commission, itself, rejected the month of Octo- —

ber as representative for Eastern railroads in its decisionin. _.

Akron, C. & Y.R. Co. v. Atchison, T. & S.F. Ry. Co., 821

_ LGC. 17, 81 (1968) | ws

_-__ Most'important, Mr. Stuart T. Saunders, Chairman of

__. PRR, announced major operational changes.in the p i

merger at New Castle, Pa. on December 15, 1965, the text —

of which Milton J. Shapp sought to introduce as an exhibit

and as grounds for rehearing. The essential features of this

address may: be found at pages 14-19 of Exhibit “A” to

‘plaintiff's supplemental complaint . dated September 29,

1966. It is submitted that this speech recognizes that

traffic growth requires a revised operating plan.

Mr. Saunders now states in his ‘affidavit before this . -

, court, dated September 7, 1966, at page 2: ae

“Since the foregoing. findings were made, detaile

+ plans for consolidation of the two properties have been

progressed, and it is my considered opinion that the _—=—i-

ultimate savings will exceed $81 million per annum.”

Plaintiff Milton J. Shapp suggests that the above state-

ment does not obviate what otherwise appears to be a stale

record before the Commission with respect to operating

_ savings. The new studies should be brought ut into the

open. Plaintiff is without the information necessary to con-

test the affidavit of Mr. Saunders and cannot, therefore, say :

Di4

__ that the new detailed ‘plans referred to by the affiant wil] —

" not exceed $81 million per annum jn the absence of further

: ketelani tbitiae ths Canwaieeice. :

| Revi ances ta giants ont that tht Comaiosion

itself recognizes that conditions for the protection of E-L, —

~D&H and B&M would deny PRR and NYC of some of the

. merger benefits. (827 I-C.C. 475, 582) | :

B. New Haven Railroad. Plaintiff is unable to discern

_ ” how an interlocutory injunction would .harm the New

Haven or the states served by that carrier. Financial as- .

sistance to protect passenger service appears to be a matter

for private negotiation in which the states ‘are obviously

receiving value. The 1958 amendment to Section 18 a of

the Interstate Commerce Act establishes a Congressional

policy with respect to passenger service. Southern R. Co. -

v. North Carolina, 876 U.S. 98 (1964). The New Haven

handled 8 billion ton-miles in 1964 in contrast to 84 billion

for PRR and NYC combined. The court is respectfully

‘urged not to let the tail wag the dog.. 4

IV. THE PURLIC INTEREST. 4 a,

sate eat eet at ba boreal fy Sovnnes

Pp selene On the contrary, it would

be promoted. ee catence

to the Nation. The present stature of the U.S. economy and

our foreign commitments do not warrant a contraction of

- railroad facilities. The prospects of a PRR-NYC merger

have already caused the institution of new unifi n pro-

and the U.S. Supreme Court has not yet ruled on: -

' .key aspects of the railroad merger movement. (See: .

Shapiro, Martin: The Warren Court and the Interstate

_ Commerce Commission, 18 Stanford L. Rev. 110, 111- 12, ee

' 149-150 Nov. 1965).

Proper evahiation of this proposed: great amalgama- :

tion of assets, railroad and otherwise, aggregating $6 bil-—

lion, with severe repercussions to many interests, both

| , Db aide |

before the court and the unrepresented public, require that

- there be a searching judicial inquiry of this merger prior to

undertaking the momentousstep of consummation. . .

-. CONCLUSION:

-For the foregoing reasons, the motions for an inter- .

locutory injunction should be granted.

| } vy submitted, a : fies

Gorpvon P. MacDovcatt.

705 Ring Building

Washington, D.C: 20036

Rae ore. Counsel for Milton J: Shapp

Of Counsel 5 ee | : M

AnTuur A. ARSH/

149 Broadway | |

. New York, N. Y. 10006 if ek by

Isnge PACKEL = Sie

1401 Walnut Street ss § . 6

Philadelphia, Pa. 19102

Dated: September 27, 1966

2 o ?

‘ =. BEFORE THE

Interstate Commerce Commission -

Finance Docket No. 21989 :

"PENNSYLVANIA RAILROAD CoMPANY—MERGER— - i

ay NEW>YoRK CENTRAL RAILROAD COMPANY

, Finance Docket No.21990

PENNSYLVANIA RAILROAD COMPANY STOCK: IssuAN

fas

MILTON J. SHAPP

1424 Walnut Street —

a \ Philadelphia, Pa. 19102

tek Se

| pe ' “ISRAEL PACKEL, ESQUIRE

ed ae Reed 1401 Walnut Street

ye. ate ' ' Philadelphia, Pa. 19102

ean ear ‘GoRDON P. MacDouca.t, ESQUIRE

ae : . 705 Ring Building a.

ae ag Fae - Washington, D. C. 200386

. Attorneys for Protestant

Milton J. Shapp =.

‘Due ‘Date: July 11, 1966 | ; | -

s °

P . Ww

- PETITION FOR RECONSERATION oF REPORT AND. thine

e ;

: “TABLE OF CONTENTS Pie:

! o ‘s ° * % Rd

ee & ~ Page .

PRELIMINARY Seager : 4.

_ The Background for Disaster .. Hdiiysns s

The Reality of Impending Diaster siretlesindtitinnpnee

‘The Justification for Disaster meno gr 8

| Southern New Risiend | 3: 11

I %

: Protestant Milton J. Shapp r . f2 2

Form of this Petition ..e.cccescsse woeee . 18

Purriow: FOR Reconamiearson ¢ OF DENIAL OF Parrot ‘

| 70 REOPEN THE RECORD FOR THE PURPOSE OF RECEIVING \y

of _ NEWLY DISCOVERED EVIDENCE AND FOR REHEARING, AND ‘+s

FOR FURTHER SRARNG 4090 EESRARING . 14

- The New Castle Speech Requires the Record be ;

: Reopened and a Rehearing Granted ae. a

', 2 Competitive Aspects of. Brie-Lackawanna, Del- - x

+. @ware & Hudson, Boston & Main Inclusion in -

, N&W. System, and the Proposed Merger of the

* C&O and N&W Systems, Requires -That the

_ Official Notice Be Amended and A Further Hear- :

ing Granted seveeeeececseee 19

.. .8. ‘The Imposition of the Appendix “G” Conditions

; Requires A Further: Hearing to Avoid An Illegal *

Rate-Fixing Scheme That Vielates Section 5a

Procedures. 21. —

i 4 “The Public Sibitlonis Rellithtin wb ites Cniniasas

. ie ee

.* Granted . $ 24

686

Table of Contents Continued

ev te

aan ee Leh ade

os thie Copeentanln She Shevenaniahy nik tussoalels .

‘ently Construed the Governing Statutory Stand- ee

and fgg. the “Public Interest” sceseseccnees we 86

‘The “Tugile” Standards roentctanrmaeniccniaicien ST

__ The “Webb” Standards ........ . 40°

‘The Correct Statutory Standards .. Al

Anslysis of Competition 60

Other Antitrust Standards

Summary of Statutory Standards

se ‘The Report Fails to Make the Necessary Find--

ings ‘Required by Section 5(2) (c) (4) of the

Interstate Commerce Act

8. Ti Report een Not Imping Protection for

ne pinbiecose ‘

2° ge ii ince nce :

‘ments of the Administrative Procedure Act ...... :

6. ‘The Report Errs in Its Findamental Proposi-

tion That tlhe PRR and NYC, Independently,

Cannot. Survive the Competition of the C&0-

—B&0O and N&W-NEP Systems

% The Report rvs in Tia Financial Analysis of

E. . Rate of Return . . sees

F.. “The Financial Community” . “

The Report Hrs in Inferring Any Savings in

Operating Expenses From the Merger ........ in

The Report Fails to Impose the Protection Neces-

? sary for the City of Erie, Pennsylvania .. seins

| _to the Position of Various Parties sed

: 10.

Impact of the Merger Upon the Commonwealth

The Regort Errs in Its Misleading Statements as

A. Pennsylvania Communities ..... “a ;

Be Commonwealth of Pennsylvania . saetitieninneen

0 U. 8. Department of Justice me

The Report. Errs in Evaluating the Adverse

aw Fiat 3

11.

*s Rivals in Southern New England

CONCLUSION

(Cuerancars oF SesvicE

of Fepmaytvenis

“The Report Errs in Requiring ‘the Citizens and .

Businessmen of Pennsylvania to Subsidize Tae

The Report Errs in Conciuding the Merger Will

Result In A:Substantial Improvement In and A

un en ee

for Shippers

The Report Exrs in the Condition That Erie

Lackawanna and Delaware & Hudson May Peti-

ee ee

}

- | .

ESE Bee

iv "Table of Contents‘Continued

+ MABE OF Gas:

6 & YR Co. v. Atchison T & 8 E Ry: Co, 881 1.6.0. 19,(1988) % ae

Transp. Co..v. Southern R. Co., 872 U. 8. 658 (1968) « bs Si tees 23

- Atchison, T. & 8. F. R. Gp. v. United States, 284 U. 8. 248-(1982) ... ‘19

Brown Shoe Co. v. United States, 370 U. 8. 294... pert OA

"CANW Ry. and CGW Ry-Merger (FD. 28888) near .

Chesapeaké & 0. Ry. Co-Control—Baltimore & 0. Ry. Co, 817

LC.C, 261 s soon By 40,

| Control of Central Pacifie by Southern Paci6é, 76 1.C.C. 508 (1982) «38 -

County of Marin v. United States, 356 U. 8. 412 (1947) oaceponinied oes 88, 89

Directora of Wheeling & Lake Erie, 188 LC.C. 648 aocneeicogs 52

Federal Trade Commission v. Cement Institute, 838 U. S. 688 (1948) 6. oo

‘Florida v. United States, 28-U. S. 194 (1981) es 60

Georgia v. Pennsylvania R. Co., $24.1 U. 8. 489. (1945) wcScccl.. 22

- Gilbertville Tracking Co: v. United States, 871 U. S. 115 (1942) «...... 24.

Giligan, Will & Co. v. Securities and Exchange Commission, 267 F aX,

gg OS, OOO. OE NY 29

‘Great Northern Pacific & Burlington Lines, tie-<itecien, Bte—

Great Northern Railway Company, Et al, F.D, 21478 .................. aes

86, 87, 88, 40, 48, 44, 45,60; 74,89

~ Increased Freight Rates, agp’ 281 Lc.. 557; 284 1.C.C. 689 were _ ee

sere eerereeeeseeedseseee

Re ERR a a 695 ..

Intestinal Shoe Co. . Paderal Trede Commi, 280 U. 8.291.

ne fe 5 COS A RAE

Interstate Commerce Coimlaio ¥.Baltine & 0, R,Coy 15 10.0

. 721

Interstate Commerce Commision ¥. Baltimore & 0. Oo, 100.0

22 908. .2 | sites 52.

Pas >

; ty ?

a a

Pra

rae

> °

Table of Contents‘ Continued

20, 24; 87, 88, 39, 40, ‘Ap 4, 4, 40, 50, 52, 58, 64, 86

Minneapolis & St. Louis R. Co. v. United States, 361 U. 8. 178... 50, 52, BB

New England Divisions Case, 261 U. S. 184, (1928) us iat 41, 48, 44

_ New York Central R. Co. v. United States, 207 F. Supp. 488 ..... slaps a

"New York Central Securities Cotp. v. United States, 287 U. S. 12

P pag sisetageenageenecssnscssnessnsessneetssssssetosneessseesseess BOp My 42, 43, 44, 50, 54, 82

’

‘Norfolk & W. Ry. eee ‘& St. L. Ry. Co. Merger, 824

Railway Labor Executives’ Assn. v. United States, 216 F. Supp. 101.

SP Ig Se cannes TCAD ne

: Reciprocity in Pon and | Ronting, 188 LCC. 417 Sipe ce 58

ere ‘Pahincgery.0 United States, 884 U. S. 182 (1947), eccsescssnstet 88, 89

Nee cs Souard Ale Line RCo v. Una Stata, 982 U.S, 154 (1965) .88; 40, 60

‘Texaco, Inc. v. F.T.C. 886 F. 2 764, 881 U. 8. 739 (1968) “eedtenecies 9B

Texas‘v. United States, 202 U. 8.622 2c ccccecneseZesucmeieneteene Ay MA

ei United States v. Chieagy, MSt. P. & F. RCo, 294 U. 8, 400 2

. (1988) | ees een 22, 59

: United States v. [firden, 308 U. ai 87, 40,42, 8,64, 80,88 :

Wong ~_— Sung v.. 339 U. 8. 38 (2980) 2p evnrren 5 aia * 29

. «| : x ay

te | : i)

‘ ee Cy fe: a * +4 *. aN

ae . a

Cr, a

5 . ee > . ; . Page }

| LG.C. v. New York, N.H. & H.R. Coy 872.U. 8. 744 . “Alten AB

ore Maintenance Employees v. U. S., 866 U. 8. 169 ....4...... esi ilies 89

| MeLesi Trucking Co. v. United States, 821 U. 8.47 (1944) ~.0....

FOO nen ete ee eee en 19,30.

Pacifie Powér & Light Gb. v. Federal Power Commissién, 111 F.(2d)

Sec ee er cere aa

Panama Refining Co. v. Ryan, 298 U. 8. 888 (1985) aS scot *

Plastics from Texas to the Bast (LAS. Docket No. 7844) “cach Pa as °

gt, pr A

wi sf +

F a . ‘o A

o 5 a > o

ph ~~. . s

2 ~. +. fe

; - ° a a

pe pn

. ag

; ~*~

Soe &

—_— “

* aa " .

<a qs

3 a Fe _-—~ BEFORE THE g:

aerate issn Docket No. 21989 ,

; ibppaaltenieas RAILROAD CoMPANY—MERGER— |

NEw YORK nrg ays RAILROAD Senpane

. &

° Finance Docket No. 21990

Dinsiiatiieaiinn RAILROAD COMPANY Stock ISSUANCE

ad)

PETITION ON BEHALF OF MILTON f. SHAPP, A PHILADELPHIA é

AND A CITIZEN OF THE COMMONWEALTH OF

LVANIA, FOR (1) RECONSIDERATION OF DENIAL OF

“PETITION TO REOPEN THE RECORD FOR THE PURPOSE OF —

RECEIVING NEWLY DISCOVERED EVIDENCE AND FOR RE-

HEARING, (2) REHEARING, .(3). FURTHER HEARING AND

En aR

Bon itt

PRELIMINARY STP TEMENT

<4... ‘This petition is filed to save the third largest state from

economic ruin. The proposed’ merger of the Pennsylvania

Railroad Company with the New York Central-Railroad Com-

‘ pany is the single most serious threat to the economy of Penn-

-. sylvania today.

For reasons which cantot’ be supported in fact ot in law,

the Interstate Commerce Commission has placed its stamp of

mashed enlace vps mty A shad .

country—railroad or otherwise. This gargantuan merger

posal has already started a chain reaction among other tal

roads serving Pqnnsylvania to, likewise merge and reduce.

their facilities and services. The Commission in this proceed-

; Braga ar gers, —_ caterer oer

B- Mee sted ees

cannot survive a PRA-NYC merger, so these two independent

railroads now seek to be included in the Norfolk & Western

Railway System. But the Norfolk & Western Railway along

with the Chesapeake & Ohfo and Baltimore & Ohio railroads

also fear the impact of the PRR-NYC merger, so they too ;

ae Norfolk. The proposed merger would disrupt this pattern by :

_ placing the welfare of New York and Philadelphia in the

are people and jobs. A reduction in movement means economic

stagnation, unemployment and decay.” es

: _ The NYC is the arch-competitor of the PRR and of the’

',. from New York City along the banks of the Hudson River to

Albany, thence west through thé’Mohawk Valley parallel

; 7 ¥ es a

. to the Erje Canal, serving the New York: State industrial -

complex of Schenectady, Utica, Syracuse, Rochester, Buffalo,

thence onward west to the gateway cities of Cincinnati, St.

Louis, Peoria, Chicago, and the Straits of Mackinac.

: aes The water-level route of the NYC, coupled with the Erie.

Philadelphia and the State of Pennsylvania. On the other

hand, prior to 1826,-and the opening of the Erie Canal, -Phila- ,

delphia was the leading metropolis of this Nation and, indeed, . i

Philadelphia was the leading city of the United Sta :

in those days New York City was relegated to second place [ .

- ,with respect to commerce and population. -

* The PRR was organized in 1846 to meet the competitive .

. Challenge for the commerce of the west. Of the $12,000,000 .

The problem facing the PRR and Pennsylvania, then as

now, was the more severe gradients and curves necessary to ~

cross Pennsylvania in-comparison with the ‘water-level route _

of the NYC across New York State. But with greater mineral

resources and the development of the Ohio Valley. river sys-

_ tem up to Pittsburgh tying in with the PRR, Pennsylvania

has been able to compete successfully with New York State

and its chief railroad, the NYC...

The Reality of Impending Disaster

# on nee d combine $6.2 billion

_ in railroad, real estate and in

New York State preeminent over

Se ae ne eT

and east of Linden,'N. J. will be taken away from Pennsyl.

- vania and routed over the NYC tracks via Buffalo and Albany,

report. Theze is nothing listed for Pennsylvania. (827 I.C.C.

476, 490). A huge new yard is'to be constructed on the NYC

at Selkirk, N. Y., near AJbany, ‘to handle 5,000 freight cars

per day, for’ on of added traffic over NYC rotites to. - -

oe .New iigiodA end to the New York-New: Jersey metropolitan .

. «st

as : *.

‘ . . 4

* : 46

percent of daly through freight ervce“as now provid

by PRR. «

7 Milton J. Shapp caldalated fron data submitted by PRR

NYC witnesses that the merger will cauge Pennsylvania to :

suffer an initial-loss of approximately 85% of ita daily freight

service. The, ICC. examiners calculate Pennsylvania’s . initial

- loss to be only 9%. (Rec. Rep., p: 259) But be it 9% or 85%, ..

‘Pennsylvania today is suffering from a cy of modern —

transportation facilities and cannot afford any: loss of service

it it is to compete successfully in efforts to’ attract new in-

dustry.

é The Port “ Erie, the Ginasionsestedit of te

only outlet on the Great Lakes will suffer irreparable injury,

as will the intermediate towns on the PRR’s two. routes from

ee. Eris to. Pitjeburgh--cne vis Opery, and thy ether via. Gtraré, |

. Sharon New Castle.*The merged PRE-NYC will use the _ .

| NYC's lake port of Ashtabula, Ohio as the ‘main lake port for

_ the commerce of the Pittsburgh’ region.

The Port of Philadelphia will ‘siiffer irreparable injury. :

| bus, on the one hand, and, on the other, points north of teeden,

N. J. would be rerouted over the NYC’s lines through New

York State. The PRR-NYC ‘has. revealed they would. concen-

trate traffic over the improved high speed water-level route

of the NYC and thus prefer the Port of New York. With the

expanded N&W system able to supply speedy service to: the

_ Port of Norfolk, the C&0-B&0O to Baltimore, and the PRR-

S ** Wb anedh teed Seb aod Sia sahedbets ia is Pittsburgh

ribemegriecsanyeomig ig Roiegters candi oencginm

eos

e :

ES ERE CS LA OTM. -

controlling 70% of the freight originated and terminated at

Pittsburgh. The remgining 80% is shared by the B&O, N&W

and B & LE, the latter carrier being controlled by the. U. S.

Steel ‘Corporation. The report of the Commission provides no.

_ substantial safeguard against this monopoly, other than to

permit the B&O and N&W reciprocal switching rights if they,

__ in turn, permit PRR-NYC .to invade industries exclusively

served by either B&O or N&W. The latter two carriers, how- |

‘ever, ha¥e given no indi¢ation in their petitions for reconsid- _

eration-or rehearing that the reciprocal switching arrange-

' “ment is satisfactory. Even so; this would be an inwdequate

substitute for the present competition between PRR and

NYC (P&LE) in-the. Pittsburgh Switching District. A bal-- .

ancing of carrier competition between railroads does not meet

the reduction in market competition between carriers, since

. .: different steel mills:are located on different railroads.

. The collapse of the PRR’ facilities in Pennsylvania, to-'

gether with new capital expenditures in adjacent states, will.

be a tremendous handicap for the State in its competition for

’ new industry. The development of transportation: must always

. precede economic growth, The report of the’ Commission

_ states, “He (Shapp) theorizes transportation. must. precede

‘economic growth .. .” (827. 1.C.C. 475, 488) But this is not

. mere theory. Throughout all recorded history this has been

‘axiomatic. Prebiblical villages along camel trails thrived to a

_~ -greater-degree than isolated villages. The Phoenicians built a

viable economy, as, did the Spanish and British later, by

developing merchant shipping. The Union “of South Africa

enjoys a per capita income of atvleast ten times that of any

_ other West Coast African nation because of the chance dis-

covery of gold and diamonds 1,000 miles in its-interior; and’

the construction then of a railroad across the nation te haul —

out these precious commodities. The railroad led to the devel-

. - opment of the interior of South Africa. __ | :

There was no economic development of the Scranton-

Wilkes-Barre area until first canals and then railroads enabled

the fiery energy of anthracite coal to be made available to

, World markets. It is one of the indisputable facts of economics :

that until adeqiate transportation facilities. are developed .

7 “

-* fice com bi tits, ¥f any, sllbouihe’ achilapialad eb SUK

nation or region. It is also axiomatic that uriless a state, nation

or region of the world maintains an adequate transportation _

system to haul its products and transport its people essa a de

rae its economy stagnates, then declines.

ithag lag in abiastnal gtcsethe toc Pebiapteands duitlate tha

. 20th céntury is directly attributable in large measure to lack

’ jof adequate transportation facilities. Pennsylvania must have -

more rather. than less transportation. Yet the PRR-NYC

“merger would divert at least 2.5 million freight train miles

from the Commonwealth. .

> iadided. to the.reduction tn ratleced service; is thi haeth:

- ° fact that there are today only two commercial airports in the

_ third largest state, Pennsylvania, which are equipped ‘to

handle large jet planes. Only two major river improvement

programs -bhve been undertaken this century in a state of

. great rivers. .

The report of the Interstate Commerce Commission

writes off the evidence and | arguments of protestant Milton J.

Shapp, and. Writes off the future pea aes of the —_-

monwealth: “ieee

“Furthermore, the proliferation. of ‘cimealintaiied facili-

ties is conceived, in today’s regulatory plan, as the result _

of present or foreseeable future requirements of the |

‘public convenience and necessity.’ While’ carriers do

promote the development of industry along their routes —

' and in their service areas, it is not intended that private

‘ @nterprise be required to establish transportation means .

or maintain service where.a need does not exist, merely

in the hope-that, at some (indefinite) future time, -busi- .

ness and in will locate and grow along those estab-

lished routes.” (827 I.C.C. 475, 498) rae

The Commission has confused its standards under Sec-

‘tions 1(18)-€22) governing the “public convenience and neces-

sity” requirements for the construction of new. track or. the

abandonment of unneeded facilities ‘with the ‘standards

under Section 5(2) governing railroad mergers. More impor- .

os. and most pe a view that

‘er

«J

e¢

"system in-most other countries. are

The proposed PRR-NYC is conceded by appli- .

railroads do riot have a public duty to assist.industry in their

service areas. If this view is correct, then nationalization or

‘State ownership of the PRR would appear the only remedy.

For once the railroad facilities are torn up, and the land de-

voted to other uses, the process is practically. irreversible.

Deprived of low cost rail service, an area degenerates into

chronic economic stagnation, its municipalities become ghost

towns, hope is abandoned, and destruction becomes as com-

plete as that visited upon ‘ancient Carthage. Pastis -

The PRR as a utility has a franchise. The railroad must

either promote the public interest or lose that franchise. The

negative attitude of the Intérstate Commerce Commission—if

followed upon reconsideration or if ado by federal courts

—caii\gerhaps result in natiotialization. = der Milton J.

Shapp believes strongly ‘that there is a glowing future for

imaginative private enterprise and ownership of the rail-

roads. It is in the self-interest of the business community that

private enterprise, rather than government, bear the responsi- :

bility for “the public interest.” For otherwise the public, will

turn upon private enterprise—as has happened to the railroad

cants to violate the antitrust la e basic charter. of eco-

nomic liberty in our society—but applicants nevertheless ask

the Commission to grant them immunity from the laws.

The reason given by the Commission in approving the

“merger is:

“... to open the way for the development of a modern-

° ized railroad system trimmed of unnecessary plant, un-

to the public needs...”

“Mergers are not for shrinkage any more than the prun- .

ing 6f a fruit tree is for reducing the yield of fruit.”

_, (827 LC.C. 475,496) = * |

But the Commission does not wish to prune the fruit

‘- ie”

“. .. we find that this merger, without complete inclusion

of NH, would not be congistent with the public interest,

and accordingly, we will require all the New Haven rail-

rodd to be included in the applicants’ transaction.” (827:

L.C.C. 4765, 524y AAS Sa et

“. «. and our approval of the merger is conditioned upon

_ Such inclusion.” (827 LC.C. 475,527) :

- Counsel for PRR-NYC put his case more defiantly for

_ @ reduction in railroad competition during oral argument:

, > “The excessive and debilitating competition that exists

| fe in the east has got to be corrected and it will be corrected.

proposing in this merger, or it is going to be done by the

' no holds. barred laws of economics, but corrected it will,

it will be corrected.” (Tr. 19, 794) AoE:

road facilities and service by the merger of the PRR and

NYC, two parallel lines, will create the very disaster’ that the

Commission anticipates. - ~. . —. ae

a Sy ae " The merger application was filed in early March, 1962: .

.The plan for operating the merged system was based upon -

October, 1961. The’last complete year for statistics was the

year 1961. The basic case for the applicants in justification

for their merger, with the attendant crippling of Pennsyl-

vania’s future economic growth, was based upon studies pur-

porting to show an economic collapse for the PRR and for

the NYC. Lightly loaded trains would be filled out by combin-

ing the traffic of the two railroads, trains concentrated over.

_:. The hearing examiners thought even this drop to be a

It will either be done orderly through the methods we are

_ thin air. Instead of collapsing

Se ee

- Oud *

| ‘The entire case urged for :

the Commission in approving merger, has vanished into

_ 72.6 billion ton-miles in

1961 to 68 billion ton-miles in 1965, the combined traffic of the

merger, and the purpése of

: Me bit optimistic; they projected the 66 billion in 1970 down to a.

lower 64 billion ton-miles in 1979. pal :

PRR-NYC rose 22% in the four-year period to ez billion.

ton-miles in 1965.

_ The PRR enjoyed another increase in traffic during the’

first quarter of 1966. The Wall Street’ Journal reported:in its _.

‘issue of April 25, 1966, quoting Chairman Saunders from.

Philadelphia, that freight revenues climbed 3.9% in the first.

quarter over the previous year and that net ton miles in-

Rather than pruning the fruit tree of railroad facilities,

_ there is presently a tremendous shortage of ‘railroad equip-

ment for moving freight. Milton J. Shapp maintains that the

merger must-be disapproved as the entire justificatiott for the

_° merger has vanished. The problem today is not one of reducing _

- capacity ‘to contogm with fewer carloadings, but to increase

. ‘capacity to cope

Witness Leon “J. Keyserling, former’ Chairman of the

Council of Economic Advisors, testified in this case that appli-

‘cants’ traffic would rise to 89 billion ton-miles in 1965. He has :

been proven right and the Commission has been proven wrong. .. °

Witness Keyserling has testified in this case that the traffic

‘ will continue to rise to 106 billion ton-miles in 1970, whereas

the Commission continues to project an. economic disaster

with a now-revised figure of 71 billion ton-miles for 1970.

Itis essential for the economy of Pennsylvania that this

i vania will be locked into a downward spiral—patterned upon ‘

the profit motivation of the PRR rather than the needs of

bi] .

_ no rational explanation. _

11:.

a? * Re ps tig

e torn up. The New Haven is to be saved.-But why must

ennsylvania suffer for New England? The.Commission gives

en Railroad and the Boston & Maine Rail:

The New Ha

‘Toad occupy @ position comparable to southern New Engjand.

The*‘main

» as the PRR and NYC do for Trunk Line territory.

line of the NH runs from Boston along ‘southerly route to

the Hudson River crossings at New York City and Maybrook, -

N. J., whereas thé main line of the B&M runs north and west-

erly. from Boston across Massachusetts to gateways at Me-

chanicville and Rotterdam Junction, N. Y.:As a railroad map

of southern New England indicates; both railroads have a °

multitude of secondary: and branch lines criss-crossing this

very small area of the country:’*~- Ad oth ees

The PRR and NYC, as previously indicated, operate in.a

similar manner inArunk line territory. Both serve New York,

N. Y. on the east, the PRR running southerly througir Phila-

_ delphia to Pittsburgh, while the NYC operates over a north-

erly route to Buffalo.

The solution for the New England railroads recommended —

dver the years by such. transportation scholars as William Z.

Ripley. has been for a merger of the short New England rail-

roads into a single system. In this manner the opportunity for

' the elimination of any excess capacity could be realized while,

‘at the game time, the New England shipper could retain the

benefit of railroad competition at the gateways because the

New England carriers would not be merged with: any trunk

line railroad. On a New London, Conn. shipment to Chicago,

‘IIL, the alternatives west of New York or Maybrook could be

either NYC, PRR or E-L direct, or various multiple line routes

With other carriers over Pittsburgh or Buffalo such as LV-

N&W or CNJ-RDG-WM-N&W. In addition, the ‘westbound

Canadian differential routes with the CV, Grand Trunk, or

CPR would be preserved. .. .

‘But inclusion of the NH in the PRR-NYC merger, indeed

the NH inclusion being a major justification for the merger,

, ©

“a

_ struction of both railroad capacity.and railroad competition

"railroad capacity ‘intact. The notion, that there:should be one

‘major carrier in trunk line territory. (PRR-NYC) so that

New England can have two, is contrary to the economic. facts

of life. -

Pennsylvania is in no position to subsidize New England. -

The. Commission, in approving the PRR-NYC mergef, is going

directly against. the Appalachian: Regional Development Act ;

of 1965. The PRR-NYC moved: 84 billion ton-miles in 1964,

" whereas the‘NH only handled 8 billion ton-miles. Pennsylvania’

supplies its railroads with heavy tonnage freight, such as ‘coal,

steel, and iron‘ore, whereas New England rail traffic is pre-

dominately inbound -foodstuffs. . +

The proposed merger of the PRR-NYC is the greatest

. ' disaster facing the Commonwealth of Pennayivania since the

opening of,the Erie Canal in-1825. ses "

Milton J. Sclgd w d Puteindbtiee ticesics’ ite Yue

gg ito su «Pha tne,

_ , advertisements against the merger 4n September, 1962, and

he testified'at the: Philadelphia hearing on January 16; 19638.

_ He‘ submitted an extensive prepared statement ‘and detailed

exhibit and was cross-examined by opposing counsel. (S-96;

H-104; Tr: 8162-8217) He was recalled for further cross-

Bor agen nah eee aliuaeme cm C. at

ee sin:

, : 18. eA vole 7

Pn : - - s 4 ; . wet oe °

"Milton J. Shapp filed.exceptions and,r€ply to exceptions e:

ist the examiners report in July and/August, 1965. :

. . s, Protestant has for many years been. a student of trans-’.

“I feel quite convinced that if this merger goes through

as presently proposed, you can write off the future in-_

dustrial development of most areas of. Pennsylvania.”

(Ty. 8167): a is Dee hia,

“This proposed merger will destroy any possibility of .

industrial redevelopment and-increased employment in.

almost all areas of our hard-hit state. I can see no advan-

"tage to any community or industry in the State resulting

- from this merger, including the railroad industry itsélf.”

B06, RS) Og 8 es |

: Milton J. Shapp is not alone in his opposition to the

merger as proposed. Many Pennsylvania communities have

intervened to oppose this merger. The Commonwealth of,

Pennsylvania objects to the merger ‘unless certain saféguards

‘are imposed—and the Commission thus far has granted none

. of the requested conditions. The U: S. Department of Justice

has stated its opposition: to the merffer. The important rail

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.