# Appendix — Baltimore & Ohio R. Co. v. United States > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386412_0011%3A21 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1967 - **Citation:** 386 U.S. 372 ## 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 p ~ On Appeal from the United States District Court For the Southern District of New York - : a a ——— —— | Cone P. isis: “@- Y, Sara aS, ‘705 Ring Building, Bae re ENE a ‘Washington, D. C. 20036, a 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, ’ . . se e (n Appl fom he Una Sate Dir Cot For the ee ee York: x X > oa ae oes MT eB Mn RAIN Loi alae EHR Made Neh 0 & z 3 baie Ks i ieee a . % Sealy ee AAG ne Deen Soren) 4 5 we a "TABLE OF CONTENTS mf et Belek of FenneyivandsConsaiantton aia of Interlocutory Injunction befpte the Dis © Atl CORE innypcininopriilianin enero Section‘A. .. 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 ’ 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 8 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 | et ~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 ad RB illic ha ie ane scien d . *. @ oe -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 = ws 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):" ‘. a 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) ss 6 / 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 ae BE 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 . ~ Ae ‘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 . 4 _ 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 . 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- 6 ‘ 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 ‘ = . . P a coer ae -: 0 ee | - -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 ad __ 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 ‘ . 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 . * T ome e : sot e.3 . e a . PRR-WYC.: Merger Exhibiee (omen) 0% aes ¢° *9 ° ¥ . — rf . : : e . nd . . s f _ . . i = *2° © . * ° 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 8 £ f ¥ f ri ri g a P| ¥ ¥ F é g & ° . ‘ ° : 90 60. ‘ : a. a . —] e . . 700 6 . 7S 4 sO 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 © PENNSTUAMA AND NX CENTRAL Pl i) Hees Gates: Ae et mg Raat Norse ee cetyl va, SecsoneM a edjewa | Nee ex € operating ‘ntome 48 : . 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.) Se 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 ° , y wotbeins eatio mts Cor we . . . od “» ‘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 > 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. a As 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 . % a % 1959 MI Pen YC openers 20 oF iT (8 12 - tof as * 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 i 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 5: : a ; z : g : $ — a ea dead ” Vegans AT : © 10 @) is \.' 08 % of Totol Assete(i964,804%) = — L 2 phen | | oO qmees enpiat sap te Pane RR ; Bente tote PRR Merger Exhibins (Word) eras icles BiG, 5 : ’ SLY Conirves - herpes Esxhdision (Greed) oo 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 a ‘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 — 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 : me é i io a 4 ae Fl . . -* A tee 7 : » = | 1 pe at . 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 u. AVERAGE TRACTIVE POWER ‘ . eee ee ee Vcaee | nitooge © achating ematt manber of other types (mesimam of 56 in 196i) LIMO) Te OP GIR TN Mi : g CHART 25° TTL Le 50 ‘51 ‘Se 53 54,55 me TY ERSSEEECELE -—i4 sO 6) 6 4445 46 47 40 49 50 St SE 3 54 BS 6 OT Be BO i l i l 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 a 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. S 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 ° ’ t 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, oa 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 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, s , 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, i] 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 . / , - ¢ ‘ D3 __ 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.° * a 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. ay .&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 ee | 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 a Se oa fonts yt meee Interstate merce, Commission approving mae merger - must be set a: ay _ 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: | of “transportation standards.” (827 I.C.C. 475,°509) © . 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 t 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. f& : 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 a) 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- ee é : « & Lt | . '° . . ¢ Jengthy controversy. conceming én. ‘Reed-Bulwinkle | _ amendmen -D10°- t. 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. © ‘The injury which will be suffered by: Milton J. Shapp 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 po . 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 : 3 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 a 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 7. ~ 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 } - | . . a . 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 ad ; ty ? o a a Pra 4 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 © * Shéppard V, Maxwell, 34 Law Week 4451 41966) ean hacia ae ‘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 ° a gt, pr A wi sf + F a . ‘o A o 5 a > o ph ~~. . s 2 ~. +. fe ; - ° a a pe pn . ag ; ~*~ Soe & —_— “ * aa " . 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 a ‘- 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] . oi _ 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: 0 The New Ha 7 ‘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 ee southern New England is the PRE-NYC merger with © de: _ struction of both railroad capacity.and railroad competition in the Commonwealth of Pennsylvania. The southern New © "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- roads serving Pennsylvania, other than the PRR and NYC, _. have voiced their dissatisfaction with the Comimiasion’s fepoft. uy ’ These railroads include the Baltimore & Ohio, Norfolk & Western, Re , Erie-Lackawanna and Delawate & Hudson. *. FORM OF THIS PETITION e 3 This petition is divided into two parts. The first is a request that the Commission reconsider its. denial of the peti- tion filed by protestant on January 8, 1966 which seeks to reopen the record for the purpose of receiving newly.discov- . “ered evidence and for rehearing; further hearing and rehear- ing are also requested on’ additional new’grounds.-- _ . : The second portion of the petition seeks to have’ the . ) Commission reconsider its action approving the merger, and © upon reconsideration find that the merger will not: be con- | sistent » diem tes interest. This portion of the combined pleading sets fo ‘numerous errors of law and fact in the o@ - | Tehearing. (827 E.C.C. 475, 484-6) __.. The evidence is an address given by Mr. Stuart T. Saun- ders, Chairman of the Pennsylvania Railroad Company and "traffic and operating conditions for the month of October, 1961, | 2 The recommended report of the hearing examiners _ “The construction of a yard at Selkirk is in the exam. iners’ opinion the single most significant change in ter- minal operations and, in essence, is. key to the merger program. (emphasis supplied) (Rev. Rep., p. 122) York; would be moved over to the so-called water-level - wean eae 2 that traffic moving east-west between western points and those south of Linden would be rerouted over the PR. ". Toutes via Pittsburgh and Harrisburg.” : There has been_a tremendous growth of business‘ on the . PRR and NYC since termination of the 1960-61 economic recession. Witness Saunders stated in New Castle: ze “Now, this talk, he says we are going to take all the -business west of Columbus and ‘send it all. up to Buffalo and then down to Selkirk, into New England and New York. That’s not true either.” (emphasis supplied) ¢Shapp Pet. App. A, pp. 15-16) _ --° free . Chairman Saunders in his New Castle speech gave a number of reasons for the assefted change in traffic and operating pattern for the mergéd system which will now re- tain business for. the PRR route across Pennsylvania rather than diversion to the water-level NYC route across New York State: | | 3 ; 1. The shippers control the routing of freight, so that the merged system could not route the traffic over the | water-level route.* fata 2. The NYC does not have the capacity io haridle the traffic and the NYC has reduced the number of its tracks. 8. The distance over the PRR routes is shorter than | over NYC routes, and this shorter distance more compensates for.the heavier grades on the PRR. ° 4. The motive power of locomotives is much greater to- -- day than when the 1961 studies were made. That which - Wwe were considering in 1961 is largely changed by virtue of technological developments in motive power since that time, so that the railroad grades in the State of Penn- sylvania are not as severe today. .. Ofna 5 *This is wholly erroneous. The does not have the right to — srt mec ga Application 1948), pp. 48-49; Gas & Oil Co. v. Northern Pac. Ry. Co., 185 LC. "308, 898; Co. Vv. Chicago, M. St. P. & PR. Co., 195 LC.C. 568, 565-6. 16. ae : Sk a _ 5. The business interchanged with the New Haven Rail- . Pennsylvania. ~ - 6. A million tons of ore, chrome and manganese moves | today through the Port of, Baltimore via WM-P&LE or .. WM-P&W. Va. to points seryed by the NYC, which gives the NYC its long haul. Upon merger, this traffic will move _ through the Port of Philadelphia via PRR-NYC to points, road at New York is not of any great consequence so that ‘loss of this traffic would not affect New Castle or western The petition of Milton J. Shapp for further hearing must _ thus be taken as if all.of the statements of witness Saunders are true.and correct. Apart from ‘the techriical rules of plead- ings, however, other sources ‘corroborate the existence of new ‘plans for. the opération of the merged company. The Wall 2 Street Journal carried :a frontpage féature article relating - to the changed plans on April 28, 1966; the article was pub- lished. the day after the release of the report of the Commis- - sion in this proceeding on: April 27, 1966. Written by. reporter - John D. Williams, a rgilroad specialist with the Wail Street ‘Journal, the article states that new studies comménced in January, 1968, at a two ‘day session in the Hilton Inn at ~ Tarrytown, N. Y. attended by 80 top officers and key. per- - ‘sonnel. In special office across the street from New York’s - Penn Station, 56 staffers have worked daily since last summer amid piles of maps and timetables to lay out an “operating -plan.” Tkey are trying to decide which routes should be used and how traffic schedules should be altered, among other — ‘Another source tending to corroborate the existence of at least the “two full books,” referred to by witness Sautiders — at New Castle (Shapp pet., App. A, p. 14), is an article in the ‘May 16, 1966 issue of Railway Age, 11, in which Mr. A. - _ J. Greenough, President of the PRR, that 76 officers -* of PRR and NYC have been working full time on the merger — _ -planhing.* = =~ : eee The'Commission recites, at length, for two pages, potions . of the New Castle speech which are consistent with previous PRR testimony (327 I.C.C. 475, 484-5). Completely omitted ee are the'crucial remarks of witness Saunders bearing upon the - “changed plan of opération whereby traffic moving to and from peints west of’ Columbus, Ohio and the New England and Ae York areas will now not be routed over the water-level C route via Selkirk yard at Albany, N. Y. (Shapp pet., a” *See article to same-effect in New York. alinat 10 1966, z “70 Ewecutives Work on Pennsy M. iv; by Robert E. Batiedota. > 5 ‘ : = - . s Se - . e 4 ° Py ° : ‘ : . ’ a ae re i. . bd . 4 3 eo - @ . ‘ _ App. A, pp. 15-16). This changed plan is fundamental to the _ * entire justification for the merger. Indeed, without it,"the - a ee See eee, me : 3 entire ogtimated improvement in freight schedules by the / on and the estimated operating cost savings of the yhearing examiners wirtually ish into thin air. : : . The Commission does not mention the fundamental revi- _ Sion in operating procedure raised by. witness. Saunders at _New'Castle. The report’ of the Commission evades the real . . impact of this newly discovered evidence by stating that such evidence would counter Shapp’s arguments that the merger would be disastrous to Pennsylvania. Thus, at 827 I.C.C. 475, 485:. - - ‘, “To the extent it tends to counter ‘Shapp’s arguments ? that the merger would be disastrous to Pennsylvania, its . a admission in evidence would be to his disadvantage.” ae The Commission has completely missed the point. It is of no consequence which party raises an embarrassing issue to the applicants. hard fact is that the Chairman of the Pennsylvania Railroad Compariy announced a major revision - in the operating plan for the merged system; ‘and that this ‘plan undercuts and destroys the primary undeypinning for any operational efficiencies; and that applicants have not _Fepudiated witness Saunders. ea ae : 7 - It follows that the merger is nothing other than a sheer ‘ ‘Monopolization device by the revocation of the 1961 opera- tional plan previously presented by witness Patchell. Accord- ingly, it is grossly erroneous and misleading to say that the admission of the newly discovered evidence would-be counter to Shapp’s position, for the merger must necessarily be denied . if it is only a monopolization scheme. There is inherent com- petition ‘between the Ports of New York and Philadelphia for export, import and coastwise cargo. There is inherent . competition between businesses located in both states for markets throughout the United States. A-merger ‘of the prin- ‘cipal railroads sérving each state, the NYC for New York. State and the PRR for the State of Pennsylvania, would place . thimerged system in a gigantic conflict-of-interest situation. The fact that the PRR may no longer desire to divert traffic _ to the water-level route makes the merger proposal completely unjustified and wholly contrary-to the public interest. — Aah 4 \ af ee ‘The change: in the economy since 1961 and the dramatic * tnaieanas in business for the PRR and NYC, when coupled with the complete alteration of operating plans described at . New Castle and the admitted availability. of detailed new — studies, renders any denial of a further hearing an abuse of discretion by the Interstate. Commerce Commission within. the meaning of Aitchison, f. & S. R. Co. v. United States, ~ $284 U. S. 248 (1932); © Compsilivs Rapes ob Mie tackeomnsn Debseus & Hck 7 son, Boston & Maine litlusion in N&W Systeni} and the Pro- posed Merger of the C&O and N&W Systems, Requires That the: Official Notice Be Amended cand a Further Hearing Granted. The report of the Eommission lib a seit entitled “Recent Events Affecting Transactions.” (827 I:C.C. 475, 487- 489) The Commission takes official notice @f the pending peti- "tions of E-L, D&H, and B&M for inclusion in'the N&W pur- suant to Appendix O of Norfolk & W. Ry. Co. and New York, C. & St. L. Ry. Co. Merger, 824 1.C.C. 1, 188. The Commission ‘ also takes official notice of the application of the N&W and. C&O for authority to merge in F.D. Nos. 23832 and 23883. The Commission invites any party challenging the facts set. | forth therewith -to proceed pursuant to Section 7(d) of the . Administrative Procedure Act. (327 1.C.C. 475, 487) — . Milton J. Shapp hereby requests a further hearing in ac- - cordance with Section 7(d) of the APA and reopening of the ~ record to demonstrate that-the official notice given the N&W - inclusion proceeding and the N&W-C&0 application case does not give a correct appraisal, standing alone, 7 the true factual situation. ts _ The official notice should ‘i. pa to show that the petitions for inclusion in N&W; and the testimony thus far _ presented in the reopened proceeding, show conclusively ‘that the reason for the requested. inclusion is the competitive threat of the proposed PRR-NYC m ; the official notice of the N&W-C&O application should sho ; that the reason“for that proposed merger is also the ——— _— of ‘the same proposed PRR-NY C —— ; possibility is also a direct creature of the proposed PRR-NYC State that both cases are a direct result of this proceeding. The Commission should officially notice the primary instiga- tion for both cases and reopen this proceeding for further evidence on the anti-conipetitive effects which these two pro- Proposed consolidation and consider it along with other ele- ments to determine whether the consolidation will assist in . _ . effectuating the overall t tion policy. McLean Truck-. ing Co. v. United States, 821'U. S. 67, 87 (1944). . There is a further reason for amending the official notice 80 as to present the motivating factors behind both cases. ; that approval of one merger often leads to approval of an- other, on a case by case basis, without the Commission having Saree ~ & picture of the entire structure. (827 I.C.C. 475, a ‘ fore, the Commission should officially notice.the motiva for the petitions for inclusion in N&W and the basis for the ; " N&W-C&O merger application, and consider these factors in __ Pe the deterniination of the PRR-NYC merger proceeding, .as - required by the Supreme Court in McLean, supra. .— _ There can be no dispute as to the relevancy of the re- _ opened. N&W proceeding and the N&@W-C&O merger case to the disposition of the PRR-NYC merger: proceeding, because i | sin ‘aise aii ime stdin ni tint : hanes bearing: epee Hs seein. fn Sye-cone. et LOS, 475, , 18. The Kapesitioa of the Appeslie “@-"Condiions Beigeines” a Further Hearing to Avoid an ‘Illegal Rate-Fixing Scheme That Violates Section 5a Procedures. Appendix “G” to the Cichnbhatoika Stopes ieteeribes cer- tain novel conditions for the protection of the Erie-Lacka- wanna, Delaware & Hudson, and Boston & Maine railroads. The petition of Norfolk & Western Railway. ‘Company, filed June 18, 1966, correctly points out that the indemnifica- tion provisions of Appendix G (paragraph No. 3) constitutes an illegal pooling device prohibited by Section 5(1) .of the "Interstate Commerce Act, and that the Commission is wholly. lacking in authority to ignore the express requirements of Sec- . tion 5(1) under the guise of imposing conditions in a Section . 5(2) merger proceeding. (N&W petition, pp. 22-24) The remaining implementing paragraphs of Appendix G (Nos. 1, 4, 5, 6 and.8) also violate the Interstate Commerce - . Act and the antitrust laws, and are an attempt to cartelize rate-making throughout Official territory without following the procedures and safeguards of Section 5a of the Interstate Commerce Act. The rate fixing scheme of, Appendix G is dia- metrically contrary to the public interest. Appendix G provides that the iomeedl PRR-NYC shall . . not publish or provide for any new or changed routing prac- tice and/or freight rates, either locally or jointly with other . carriers, which would divert or tend to divert traffic from _. \routes in which E-L, D&H or B&M participate as “competi- factors.” (App. G. 1) The term “competitive factors” is ed to mean actual traffic participated in by E-L, D&H ‘B&M. (App. G. 2). As thus defined, E-L, D&H and B&M are protected from both carrier competition and market, com- petition resulting from new or changed PRR-NYC taviffs. The procedure set forth in Appendix G allows E-L, D&H’ and B&M to petition the Board of Suspension. If the Board determines that E-L, D&H or Sant: are saosin — 7 tp en - suspension of the PRR-NYC traffic is mandatory. The suspen- sion period is not the seven-month period provided in Section 15(7). Rather, the tariffs are to be suspended until such-time - as it is finally. determined whether E-L, D&H or B&M are to ~ be included in the N&W system, which may be many years in l _ The Board is thence to investigate whether there is a- violation of the traffic protective conditions, and if the pro- tective conditions are found to be violated, cancellation of the tariffs is to be ordered. Similar powers are given the Board in complaints by E-L, D&H, or B&M where the investigation is instituted after the schedules have become effective. A from the Board’s action shall lie with Division 2. . Stet “The above provisions may not lawfully be prescribed in‘a Section 5(2) proceeding. __ The right of independent action is a firm Congressional policy. It is expressed in Section 5a, which was enacted as part of the 1948 Reed-Bulwinkle Amendment to the Interstate There is a zone of reasonableness in rate-making. United States V. Chicago, M. St. P. & P. R. Co., 294 U. 8. 499, 506 (1935) ; Georgia v. Pennsylvania R. Co., 324 U. S. 489, 460-1 (1945). The shipping public has the right to competitive rates _ within the zone of reasonableness. This right will be taken from the public.if Appendix G is permitted to become opera- tive. Rates which are otherwise just and reasonable within - the meaning of Section 1(5) and 15(7) will be condemned on — the sole ground of tending to divert traffic from the lines of “ELL, D&H and B&M. . There has been no notice of these conditions given to the public. Yet Section 5a(8) contemplates that interested parties ‘ will be afforded reasonable opportunity for hearing. Section ’ 5a applications are published in the Federal Register so that. the public has notice of anti-competttive rate-making pro- _posals and an opportunity for protest. The National Industrial Traffic League, and other shipper organizations, regularly 3 _ appear at Section 5a hearings. 4 ¢ = ee abet thin Sabie a iia a fo suspend proposed rates for a period greater than seven : months. Arrow Transp. Co. ¥. Southern R: Co., 372 U- 8. 658. (1963). . Imposition of the Appinitte “ rate-making conditions — requires a separate hearing after advance. publication in the Federal Register. The Commission, when asked to prescribe .. tate-making conditions in the C&O-B&O control case, stated _ that: it was not a matter which should be considered in ‘the proceeding, Chesapeake & O. Ry. Co.—Control—Baitimore & O. Ry. Co., 317 1.C.C. 261, 289-290. : The evils inherent in Appendix “G” are readily apparent. The E-L, D&H and B&M will have a virtual veto power over most raté adjustments within official territory, and between — official territory and other rate territories. Cis sansa Gite sadi'4g eteindiachb cliche gleaned from the New Castle speech of witness Saunders, where a prospective movement of from 5 to 10 million tons | of coal from central and western Pennsylvania mines to Euro- pean markets is anticipa coal would move over the PRR for export. Witness Say#flers stated that 30. million tons - of coal move into Europe y off the Norfolk & Western and off the C&O. (Shapp. pet., App. A, pp. 19-20) The E-L and D&H, however, have the power to block reduced rates made to move Pennsylvania coal overseas if they presently partici- pate in any export coal traffic with the N&W or C&O which might be lost by virtue of PRR Promotion of mines located: . on its own system. © ” The potential commerce which. may be stifled by Appen- dix “G" ko stanmatin. Competing steel mills are located on . the E-L and on the PRR-NYC. Inbound iron ore, coal, manga- “nese, etc. will be affected as well as outbound steel products. Paper mills, fertilizer plants, chemical factories will all come under the rate fixing provisions of Appendix “G’”. . Appendix “G” permits an agreement by the parties to be _ substituted for the prescribed conditions in favor of E-L,D&H and — Such an 1 agreement is specifically authorized in paragraph 6 of Appendix “G”, “to the extent’ the agreement doés not ‘violate the ‘provisions of the Interstate: Act or thé Commission’s rules and regulations thereunder.” by the. National Transportation Policy. McLean Trucking Co. : 21 U. S. 67. The Commission has not per- ' formed this essential task because it has merely considered . «8.115 (1942) and other cases cited in the- peti. D { } , &O (6/16/66). In addi- tion to the further bearing od by the N&W, C&O and B&O, the Reading Company recently announced that it will be hurt by Appendix “G” (N. ¥. Times, July 5, 1966). é o ‘ The report of the Commission in this proceeding contains — numerous and serious errors which the Commission should: - . Carefully reconsider before finally ruling upon the transaction. Proper consideration of these errors requires that the Com- mission henceforth disapprove the merger. Such a disapproval will leave the Eastern District with four balanced major sys- ) tems ‘and viable independent railroads. The major errors of the Commission, demanding recon- ¥ _ sideration, are as follows: | Sel | 1. The Commission Has Erroneously and Inconsistently Con- strued the Governing Statutory Standard for the “Public | Interest.” a The applicable law governing the Commiasion’s action is crucial in this mammoth merger proceeding, for the entire decision must be set aside ifthe Commission has used im- proper standards in testing the lawfulness of the merger application. It is the position of Milton J. Shapp that the report of April 6, 1966 in this proceeding is erroneous as a matter of law in that the fundamental and basic premise © stated therein as to the Commission’s duty under the Inter- state Commerce Act and relevant related statutes is contrary to law. wave i4 : i ‘ . The confusion is most apparent by comparing the statu- tory. standards set’ forth in this proceeding with those pro- pounded in F.D. 21478, Great Northern Pacific & Burlington. Lines, Inc.—Merger, Etc-—Great Northern Railway Com- pany, Et al (hereinafter Northern Lines case). The PRR-NYC and Northern Lines cases were released simultaneously by the Commission and were coyered by the same press releases; *the PRR-NYC decision refers to the Northern Lines decision (327 - LC.C..475, 505, 511) and the dissent of Commissioner Walrath _ in Northern Lines in turn refers to the PRR-NYC decision (sheets 121, 180, 182). The author of the majority opinion in - *Nos. 61-66 and 56-66. . 87 Pp NYC, Ccenitsibionee: Tugite; whe ‘eer'ies' en Ghali the ce Division, has a separate dissent in Northern Lines (sheets 101-112). : The statutory standards given in the PRR-NYC case : differ from those announced in Northern Lines. Indeed, the dissent of Commissioner Tuggle in Northern Lines should be read in conjunction with his majority opinion in PRR-NYC. The dissent is largely predicated upon alleged erroneous stat- utory standards. The inconsistencies between PRR-NYC and __ Northern Lines on such a fundamental principle as the appli- ' | cable statutory standards would require, if both decisions were reviewed by the same U. S. District Court, that both cases be remanded to the Commission for a resolution of the conflict in the first instance by the regulatory agency. Protestant Milton J. Shapp believes neither decision ade- quately describes the statutory standards which the Commis- sion must follow in approving railroad mergers, although the law set forth by Commissioner Webb, writing for the majority . in Northern Lines,. more adequately construes the applicable _ law than does the majority opinion of Commissioner Tuggle in PRR-NYC and his dissent in Northern. Lines. , The “Tuggle” Standards’ ' The statutory standards in the PRR-NYC report are found ~ on pages 494, 503 through 510, and 520. The term “public interest” is defined on page 494 as relating to the public interest in the maintenance of an adequate transportation system, defined by reference to the purposes of transportation legislation, citing the decision of the U. S. Supreme Court in United States v. Lowden, 308 U. S. 225, 280, decided in 1989 - prior to the 1940 enactment of the National Transportation Policy and also prior to the 1940 amendments to the railroad consolidation sections of the Interstate Commerce ‘Act. The second portion of the decision relating to the law of the case is on pages 508-510. A merger is said to be lawful under’ Section 5(2) if it can be found consistent with the public interest. Reference is made to McLean Trucking Co. Vv. United States, 821 U. 8. 67, 79-80, decided in 1944, for the Fa. Proposition that the task of the Commission is to-enforce the ears _ ~. Ainterstate Commerce Act and other legislation which deals . ‘With transportation facilities. and problems: (emphasis sup- ~ plied). ‘The report then recites the poliey of Congress toward | ; railroad consolidation prior to‘enactment of the 1920 legisla- *- . opinion of - Tuggie then sets forth the four tests governing railroad consolidations laid down ‘by the U. S ° Supreme Court in Néw York Central Securities Corp. V. - 3 _ United States, 287 U.S. 12, 25, decided in'1982. © . *. Furthermore, the test of public ifiterest for.transporta- - | tion is again stated to be the four criteria mentioned in New - '” York: Central Securities Corp. as cited in United ‘States v. Lowden, 308 U. 8. 225, 280 (1989). : E -. ‘The “Webb” Standards = : ' ‘The statutory standards in ‘the Northern Lines report are — found on sheets 65-7 and 8%-92, The first portion of the stat- : utory standards is entitled “Applicable: Standards.” At the outset, Commissioner Webb notes that McLean Trucking Co. _ V. United States, 321-U. S. 67, 85 directs that the Commission : must estimate the scope and appraise the effecta,of the curtail- ~ —*. " ment gf competition which -will result from: the proposed _ -Inerger and.consider them along with various advantages to determine whether the preposal will assist in effectuating the - ‘overall transportation policy. But the appraisal of the adverse ' competitive effects need not be made by.the usual antitrust geographical and product markets; citing Seaboard Air Line - R. Co. Vv. United States, 382 U.S. 154 (1965). The Commission _ is not precluded from ‘measuring the competitive consequences “... by. transportation standards. Commissioner Webb concludes Sti that the’ Commission must accommodate the. antitrust laws with the Transportation Act, but that the antitrust standards. are not to be used as a meagure. Pies ame Sethe The second discussion of statutory standards in Nort ‘- Lines is on sheets 87-92. Commissioner Webb. recites the four », Specific provisions of Section 5(2) (c) of the Act that’ the on is required to consider. These four. factors plus the substantial lessening of competition are to be weighed , °° against an¥ advantages to be derived by applicants and the, ~ aie shipping public. In undertaking this balancing process, the - : Pee Commission is to approach every transaction under Section . 5(2) with an attitude of strict neutrality, there being no pre- sumption in favor of approval, since the 1940 Act significan . altered the pro-merger policy’of the 1920 Act. | -. The standard for “public interest” is said to be a show. ing of compatibility with’ the public interest, and not a show- - ing that the unification would promote or advance the public interest, citing C£O-B&0O, 817 I.C.C. 261, 285 which in turn ° *. ae « - 41 r) , is predicated upon Pacific Power & Light Co. Vv. Federal Power Commission, 1¥1 F. (2d) 1014, 1016). Th financial cmatong th maj applicants iat soar rf Red inacnnary iy _ Commissioner Webb conclades that the dit of the Com- e miasion is to accommodate the antitrust laws with other legis- lation dealing with transportation, citing McLean. The extent - to which a proposed merger may lessen. competition, if sub- stantial, must be.weighed along with all wor indicia of the : —_ interest, pro as well as eon. The Correct Statutory Standards The “Tuggle” and “Webb” theories have been described - at length to illustrate different approaches BS to the applicable. - law. The theory’ of. each Commissioner could be = by further clarification. “he basic starting point for a'legal: analysis of the Com- . : mission’s power. and responsibility over railroad consolida- tions is the Transportation Act of 1920. That Act introduced a new railroad policy. Weak railroads were to be assisted by _ earnings recaptured from stronger lines; a'master plan for _ railroad consolidation was authorized; the power of the Com- mission to readjust divisions of joint rates was broadened ; a fair return on capital devoted.to traneportation service was a legislative goal. ‘The opinion ‘ef. J ustice” Brandeis in New England Divi- . sions Case, 261 USS. 184 (1928) spelled out that new trans- — ' portation policy. The decision reviewed the legislative history of the 1920 Act to:conclude that there was a national trans- : portation policy created by Congress. . The New Englar Divisions Case became heck bitin fof the opinion of ef Justice Hughes'in construing the “public interest” criteria governing railroad consolidations in New York Central Séourities Corp. v. United States, 287 U.S. _ . ‘12 (1982). Based‘upon the policy of the 1920 Act, the four factors comprising the “public interest” were (1) adequacy of’. eas — — economy of service, (3) effi- = F =—_ he 42 : ciency of service, and (4) appropriate provision and best use of transport facilities. .. : ore # The New York Central Securities Corp. test of the public *The “not or hostile” definition of the in stems from Pacific Power & Light Co. ¥, Poteet ac Cone sniarent stems 1014 (1940), but the Ninth Circuit distinguished the Federal from the have the NTP declaration which is into: 2) o : ’ . ° Iatersata Commerce Act an 6f cour, the former toe not -45 . 4 Yd immediate frame of reference within which the Commission operates, and the policies expressed therein will be the basic determinants of ‘its action. McLean Trucking Co. v. United States, 821 U.S. 67, 79-80. There has beén important trans- . ‘ portation legislation enacted subsequent to McLean, which the - Commission must consider. As protestant Milton J. Shapp stressed in his Exceptions to the recommended report, the Commission must also consider 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.* \The fact that the Commission “may be faced with over- . lapping and at times inconsistent policies embodied in other. legislation enacted at different times and with different prob- ‘lems in view” is noted in the majority opinion in Northern | Lines (Sheet 67). However, the majority opinion in PRR-NYC - completely ignores this new legislation affecting transporta- _ tion which is later in time than the enactment of the National _ Transportation Policy. It-is error for the Commission not to - consider this subsequent transportation legislation. Indeed, - ' the decision in PRR-NYC stops with the outdated. transporta- tion policy of the 1920 Act and there is even no mention of the specific criteria set fo [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386412_0011%3A21. Public record. Not legal advice.