Appendix — United States v. Interstate Commerce Commission
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IN THE
Supreme Comt of the United States
OCTOBER TERM, 1969
ay Re ee EN GS MENS aD
NORTHERN LINES MERGER CASE
No. 28
3 UNITED STATES OF AMERICA, APPELLANT
k Vv.
INTERSTATE COMMERCE COMMISSION, ET AL.
No. 38
CHARLES E. BRUNDAGE, ET AL., APPELLANTS
v.
INTERSTATE COMMERCE COMMISSION, ET AL.
No. 43
CiTy OF AUBURN, APPELLANT
.
INTERSTATE COMMERCE COMMISSION, ET AL.
No. 44
LIVINGSTON ANTI-MERGER COMMITTEE, APPELLANT
Vv.
INTERSTATE COMMERCE COMMISSION, ET AL.
ON APPEALS FROM THE UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF COLUMBIA
ii INDEX
VOLUME I
Page
Relevant Docket Entries —.....__»__ ef SR ee OE aS Soe Oe iv
Goan of Disietst Court * 1
Judgment of District Court sebetnciencs 59
1966 Report of ee euisland authorization for
merger Sub sioiddaieaenaaigia aieaiocnis 61
1967 Report of Commission on vsecnnaaiaaraitie ne
DUNNE» hachsitedeeptanXan stesso: ane ciaoesasaaasnc cect aia apical 245
Second Report of Commission on Reconsideration, denying
petitions for reconsideration and deviant certain con-
I inccratercenie 463
Third Report of Commission on eeeonnaseaatines asain
certain conditions _. SEEN 498
VOLUME II
Order of Commission extending period for exercise of merger
authorizations previously granted, April 23, 1969... 505
Report of the Hearing Examiner, served August 24, 1964 __. 507
VOLUME III
Report of the Hearing Examiner (continued) - Sa ecias kee. ae
Report of the Commission on Petitions for cmon
March 31, 1966 _ Mas 1258
Complaint by the United States, filed May 9, 1968 _
Answer of Intervening Defendants, filed May 10, 1968
Answer of Interstate Commerce sbencanusicilia filed — * 14,
1968 . Secs 1284
*Includes minor corrections noted in sua sponte orders dated
December 11, 1968 and April 16, 1969.
ae
INDEX (Continued) iii
, Page
Motion of Charles E. Brundage, et al., to Intervene as Plain-
tiffs, together with complaint, filed May 15, 1968 _. _.. 1286
Order of District Court granting Motions to er filed
May 16, 1968 1294
Motion of Livingston Anti-merger Committee to Intervene
as Plaintiff, together with complaint, filed May 23, 1968 .. 1295
Court order granting aforesaid motion, filed June 3, 1968 1302
Answer of Intervening Defendants Great Northern Railway
Company, et al. to ge en of en
Anti-merger Committee... = 1303
Answer of Intervening Defendants Great Northern Railway
Company, et al., to Intervening Complaint of Charles E.
Brundage, et al., filed June 5, 1968... 1306
Answer of Intervening Defendants 230 Pacific Northwest
Shippers to Complaint of Plaintiff United States of Amer-
mR eR a ee ee ee 1309
Answer of Intervening Defendant Public a. Commis-
sioner of Oregon, filed June 17, 1968 _. ae 1325
Answer of Chicago, og a St. Paul and Pacific Railroad
Company, filed June 24, 1968 _. wees 1327
Notice of Appeal of Livingston Anti-Merger Committee __ 1336
Supreme Court’s Order of weenensil 24, 1969 noting —
SNOT si iaesincecesinbcmecneahasesisesnagiteicetadireachihabaiasiatiahintntiaitdti tants 1337
May 14
RELEVANT DOCKET ENTRIES
Complaint, appearance filed.
Application for Temporary Restraining Order filed. .
Motion for a Preliminary Injunction; Memoran-
dum; MC. filed.
Motion of Great Northern Railway Company,
Northern Pacific Railway Company, Chicago, Bur-
lington & Quincy Railroad Company, Spokane,
Portland and Seattle Railway Company, Pacific
Coast R.R. Co. and Great Northern Pacific & Bur-
lington Lines, Inc., for leave to intervene as de-
fendants filed.
Claims of intervening defendants filed.
Opposition of intervening defendants to Motion for
temporary restraining order filed.
Memorandum on behalf of the Interstate Commerce
Commission in opposition to application for a
temporary restraining order filed.
Order denying plaintiffs application for a tempor-
ary restraining order (n) Curran, C.J.
Answer of intervening defts. to complaint filed.
Designation of the Honorable David L. Bazelon,
Chief Judge of the United States Court of Appeals,
and the Honorable Charles Fahy, United States
Senior Circuit Judge to serve with the Honorable
Edward M. Curran, Chief Judge of the United
States District Court for the District of Columbia,
as members of a three/judge court, in above en-
titled cause. Bazelon, C.J.
Order granting motion of Great Northern Railway
Company, Northern Pacific Railway Company,
Chicago, Burlington & Quincy Railroad Company,
Spokane, Portland and Seattle Railway Company,
Pacific Coast R. R. Co. and Great Northern Pacific
& Burlington Lines, Inc. for leave to intervene as
parties defendant; directing intervening defendants
answer complaint promptly. (N) Curran, C.J.
15
15
15
16
Memorandum of intervening defts. in opposition to
motion for temporary restraining order directed to
the Three Judge Court filed.
Renewed application of plaintiff for temporary re-
straining order served.
Motion of the City of Auburn to intervene as plain-
tiff filed.
Answer of deft. Interstate Commerce Comm. to
complaint filed.
Motion of Charles E. Brundage, Bradford F. Story,
Samuel C. Williams, Jr. and Warren Clark, consti-
tuting the Northern Pacific Stockholders’ Protective
Committee for leave to intervene as plaintiffs filed.
Motion of the Board of Railroad Commissioners of
the State of Montana for leave to intervene as plain-
tiffs filed.
Motion of State of Washington for leave to inter-
vene as plaintiff filed.
Hearing begun on renewed Motion for Temporary
Restraining Order and for Preliminary Injunction
and concluded; taken under advisement. (Reporter
Jack Maher) Bazelon, C.J.; Fahy, J. and Curran,
C.J.
Order staying pending decision on the merits of
this case or further order of the Court; and the
case being ready for submission to the Court on the
merits on the record before the Commission, and
it is further order plaintiff’s brief on the merits
shall be filed on or before June 3, 1968, defend-
ants’ brief shall be filed on or before June 24, 1968;
and plaintiff’s reply brief, if any shall be filed on or
before July 1, 1968. The record shall be filed after
the filing of the plantiff’s reply brief, or the time
for doing so has expired, in order to permit the
Assignment Commissioner to promptly schedule
argument on the merits herein. Bazelon, C.J., Fahy,
J., Dissents from order Curran, C.J.
June
June
June
16
16
Order granting motions to intervene. Bazelon, C.J.,
Fahy, J. and Curran, C.J.
Memorandum of plaintiff in support of application
for interlocutory injunction; affidavit 1; exhibit A
filed.
Complaint of Intervenors, City of Auburn filed.
Complaint of Intervenors, Charles E. Brundage,
Bradford F. Story, Samuel C. Williams, Jr. and
Warren Clark constituting The Northern Pacific
Stockholders’ Protective Committee filed.
Complaint of Intervenors, Board of Railroad Com-
missioners of the State of Montana filed.
Complaint of Intervenor, State of Washington
filed.
Motion of Livingston Anti-Merger Committee to
intervene as plaintiff filed.
Order granting motion of Livingston Anti-Merger
Committee to intervene as plaintiff. (N) Bazelon,
C.J., Fahy, J., and Curran, C.J.
Brief of Intervenor State of Washington, c/m
5/31/68. fiied.
Brief of Board of Railroad Commissioners of the
State of Montana, Intervenor. c/m 5/31/68. Ex-
hibit A. filed.
Brief of intervenor City of Auburn. c/m 6/3/68.
filed.
Brief of plaintiff; c/s 6/3/68. filed.
Memorandum of Northern Pacific Stockholders
Protective Committee intervening plaintiffs and
appendix A, B, C & D. c/m 6/3/68. filed.
Brief of Livingston Anti-Merger Committee, plain-
tiff intervenor; appendix A, B; c/m 6/3/68. filed.
June 5
June 5
June 5
June 5
June 5
June 6
June 11
June 14
June 18
June 20
June 24
June 24
June 24
June 24
vil
Answer of intervening defts. to intervening com-
plaint of City of Auburn c/m 6/5/68. filed.
Answer of intervening defts. to intervening com-
plaint of Board of Railroad Commissioners of the
State of Montana; c/m 6/5/68. filed.
Answer of intervening defts. to intervening com-
plaint of the State of Washington, c/m 6/5/68. filed.
Answer of intervening defts. to intervening com-
plaint of Livingston Anti-Merger Committee. c/m
6/5/68. filed.
Answer of intervening defts. to intervening com-
plaint of Charles E. Brundage, et al. c/m 6/5/68.
filed.
Motion of Public Service Commission of the State
of Minnesota for leave to intervene as plaintiff filed.
Motion of 230 Pacific Northwest Shippers to inter-
vene as defendants filed.
Order granting Motion of the Public Service
Commission of the State of Minnesota to intervene
as party plaintiff. (N) Bazelon, C.J., Fahy, J. and
Curran, C.J.
Motion of Chicago, Milwaukee, St. Paul & Pacific
Railroad Co. for leave to intervene filed.
Motion of Public Utility Commissioner of Oregon
for leave to intervene as a defendant filed.
Brief of Intervening deft. Public Utility Commis-
sioner of Oregon filed.
Brief of 230 Pacific Northwest Shippers. c/m
6/24/68. filed.
Brief of Chicago, Milwaukee, St. Paul and Pacific
Railroad Co., c/m 6/24/68. filed.
Brief of Great Northern Railway Company, et al.
Intervening defts. c/m 6/24/68. filed.
BS
a
s
4
3
viii
Date
1968
June 24
June 24
June 24
June 24
June 24
June 27
June 27
June 27
July 1
July 1
July 1
July 1
PAREN SESS
Brief of the Interstate Commerce Commission; c/m
6/24/68. fied.
Order granting Motion of Chicago, Milwaukee, St.
Paul and Pacific Railroad Co. leave to intervene as a
defendant. (N) Bazelon, C.J., Fahy, J.. & Curran,
C.J.
Order granting motion of 230 Pacific Northwest
Shippers leave to intervene as defts. (N) Bazelon,
C.J., Fahy, J. and Curran, C.J.
Order granting motion of Public Utility Commis-
sioner of Oregon for leave to intervene as a de-
fendant. (N) Bazelon, C.J., Fahy, J., and Curran
C.J.
Answer of Chicago, Milwaukee, St. Paul and Pa-
cific Railroad Co., intervening deft. to complaints of
pltff. and intervening pltffs; ¢/m 6/24/68 appear-
ance of Patrick H. Corcoran. filed.
Complaint of intervenor, Livingston Anti-Merger
committee; c/m 5/23/68. filed.
Complaint of Public Service Commission of State of
Minnesota. filed.
Answer of 230 Pacific Northwest Shippers to com-
plaint. filed.
Letter dated 7/1/68 to Clerk of Court from Asst.
Atty. General, Anti-Trust Division of filing Certi-
fied copy of entire transcripts and all exhibits,
pleadings and correspondence except for certain
documents to be filed later. filed.
Reply brief of Northern Pacific Stockholders Pro-
tective Committee, intervenor pltf; c/m 7/1/68.
filed.
Reply brief of Livingston Anti-Merger Commit-
tee, intervenor Pitf; c/m 7/1/68. filed.
Reply brief of U.S.A.; p/s 7/1/68. Filed
Qin
Se in SY
_ —— we pe A ee
ee Me ee
Date
1968
July 2
July 2
July 3
July 3
July 5
July 5
July 9
July 12
Nov. 20
Nov. 20
SOT SET ee ee, Oars wees
Reply brief of Board of Railroad Commissioners of
the State of Montana, pltfs. in Intervention, oppos-
ing merger order of Interstate Commerce Commis-
sion; c/m 6/28/68. filed.
Reply brief of Intervenor State of Washington;
c/m 6/28/68. filed.
Letter to Clerk; U.S. District Court, dated July 3,
1968, of transmittal of certain petitions before
1.C.C. filed.
Reply brief of U.S.A.; p/s 7/1/68. filed.
Answer of intervening defts. Great Northern Rail-
way Co., et al. to intervening complaint of Public
Service commission of the State of Minnesota; affi-
davit; c/m 7/5/68.
Certification of pleadings and correspondence of
record (5 volumes) of I.C.C. filed.
Hearing begun, concluded and case taken under
advisement. (Rep. D. Spencer) Bazelon, C.J.; Fahy,
J., and Curran, C.J.
Certified copy of 3rd report of commission on re-
consideration. filed.
Opinion re finding for defendants (n) Bazelon,
Chief Judge, USCA, Fahy, Senior Circuit Judge
Curran, Chief Judge, U.S.D.A. filed.
Order dismissing complaints and denying prayers
that orders of Commission be annulled, suspended,
enjoined and set aside; affieming orders of the Com-
mission and vacating stay order of May 16, 1968
entered by United States District Court staying
this order for fifteen days from the date hereof,
and if within that period notice of appeal to the
Supreme Court is filed, accompanied by an applica-
tion to that Court for further stay, the fifteen day
period of this court’s stay will stand enlarged until
determination of such application or other order of
the Supreme Court. Per Curiam Fahy, Senior Cir-
cuit Judge.
PP PhS aces SEIS a eS Se et eee
eee
Dec.
Apr.
26
16
Notice of appeals by pltffs. to Supreme Court from
order of Nov. 20, 1968; c/m 12/5/68 filed.
Notice of appeal by Intervenor-Plaintiff City of
Auburn to Supreme Court from order of 11/20/68;
c/m 12/5/68. Deposit $5.00 by Hoffman. filed.
Order sua sponte amending opinion filed Nov. 20,
1968 (N) Fahy, U.S. Circuit Judge
Notice of appeal by Intervenor-pltffs. to the
Supreme Court, from order of 11/20/68. Deposit
$5.00 by Deale; c/m 12/12/68. filed.
Order directing Clerk to certify and transmit to
Clerk of Supreme Court of the United States the
original papers in this case, said papers, together
with the Court’s opinion, judgment and notices of
appeal, to constitute the record on appeal. (N)
N/371. McGuire, J.
Nofice of appeal by Charles E. Brundage, et al in-
tervenor-pltff., to the Supreme Court, from order
of 11/20/68. Deposit $5.00 by Carter; c/n.
11/20/68. filed.
Notice of appeal by The Board of Railroad Cor-
missioners of the State of Montana to Supreme
Court from order of 11/20/68; c/m 12/17/68. De-
posit $5.00 by Sheehy. filed.
Order, sua sponte, amending order of November 20,
1968 by interline action. (N) Fahy, Senior Circuit
Judge
~—
APPENDEC AO _
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
Civil Action No. 1132-68
UNITED STATES OF AMERICA, PLAINTIFF,
CHARLES E. BRUNDAGE, BRADFORD F. STORY, SAMUEL
C. WILLIAMS, JR., WARREN CLARK, constituting
THE NORTHERN PACIFIC STOCKHOLDERS’ PROTEC-
TIVE COMMITTEE, BOARD OF RAILROAD COMMIS-
SIONERS OF THE STATE OF MONTANA, STATE OF
WASHINGTON, CITY OF AUBURN, PUBLIC SERVICE
COMMISSION OF THE STATE OF MINNESOTA, LIV-
INGSTON ANTI-MERGER COMMITTEE, INTERVENOR-
PLAINTIFFS
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, DEFENDANTS,
GREAT NORTHERN RAILWAY COMPANY, NORTHERN
PACIFIC RAILWAY COMPANY, CHICAGO, BURLING-
TON & QUINCY RAILROAD COMPANY, SPOKANE,
PORTLAND AND SEATTLE RAILWAY COMPANY, Pa-
CIFIC COAST RAILROAD COMPANY, GREAT NORTH-
ERN PACIFIC & BURLINGTON LINES, INC., CHICAGO,
MILWAUKEE, ST. PAUL & PACIFIC RAILROAD Com-
PANY, 230 PACIFIC NORTHWEST SHIPPERS, PUBLIC
UTILITY COMMISSIONERS OF OREGON, INTERVENOR-
DEFENDANTS
(1)
alin ok nein.
apie Be eae 27h
2
Donald F. Turner, Special Assistant to the Attor-
ney General, argued the cause for plaintiffs. With
Mr. Turner on the briefs were Assistant Attorney
General Edwin M. Zimmerman, David G. Bress,
United States Attorney, Robert A. Hammond, III,
Howard E. Shapiro, Arthur I. Cantor and B. Barry
Grossman.
Robert W. Ginnane, General Counsel, Interstate
Commerce Commission, argued the cause for defend-
ants. With Mr. Ginnane on the briefs were Fritz R.
Kahn, Jerome Nelson, Betty Jo Christian, Nahum
Litt, and Raymond M. Zimmet.
Louis B. DaifY argued the cause for Charles E.
Brundage, Bradford F. Story, Samuel C. Williams,
Jr., Warren Clark, constituting The Northern Pacific
Stockholders’ Protective Committee, intervenor-plain-
tiff. With Mr. Daily on the briefs was Harry Tyson
Carter.
John C. Sheehy argued the cause for Board of
Railroad Commissioners of the State of Montana, in-
tervenor-plaintiff, with Mr. Sheehy on the briefs were
William T. O’Leary and Marvin J. Sonosky.
Patrick McEligot, Assistant Attorney General for
State of Washington, argued the cause for State of
Washington, intervenor-plaintiff. With Mr. McEligot
on the briefs were John J. O’Connell, Attorney Gen-
eral, and Frank P. Hayes, Assistant Attorney Gen-
eral, for State of Washington.
Joel E. Hoffman argued the cause for City of Au-
burn, intervenor-plaintiff. With Mr. Hoffman on the
briefs were Robert L. Wald and Alva C. Long.
weg I pate
EES TE Py LO NIL A HE FTES
3
Valentine B. Deale argued the cause for Livingston
Anti-Merger Committee, intervenor-plaintiff.
Robert E. Sher filed a complaint of intervention for
Public Service Commission of the State of Minnesota,
intervenor-plaintiff. With Mr. Sher on complaint was
Richard Musenbrock, Special Counsel to the Public
Service Commission of State of Minnesota.
D. Robert Thomas argued the cause for Great
Northern Railway Company, Northern Pacific Rail-
way Company, Chicago, Burlington & Quincy Rail-
road Company, Spokane, Portland & Seattle Railway
Company, Pacific Coast Railroad Company, and Great
Northern Pacific & Burlington Lines, Inc., intervenor-
defendants. With Mr. Thomas on the briefs were Ray
Garrett, Lee B. McTurnan, Anthony Kane, Louis E.
Torinus, Earl F. Requa, Frank S. Farrell, Eldon
Martin, R. T. Cubbage and Richard J. Flynn.
Raymond K. Merrill argued the cause for Chicago,
Milwaukee, St. Paul & Pacific Railroad Company, in-
tervenor-defendant. With Mr. Merrill on the briefs
were Edwin O. Schiewe, Thomas H. Ploss and Patrick
H. Corcoran.
Fred H. Tolan argued the cause for 230 Pacific
Northwest Shippers, intervenor-defendant. With Mr.
Tolan on the briefs was Alan F. Wohlstetter.
Henri F. Rush, Jr., Special Assistant to the Attor-
ney General for State of Oregon, argued the cause
for Public Utility Commissioner of Oregon, inter-
venor-defendant. On the briefs were Robert Y.
Thornton, Attorney General of Oregon, Richard W.
Sabin, Dale T. Crabtree and William I. Harkaway.
4
Before: BAZELON,* Chief Circuit Judge, FAHY,*
Senior Circuit Judge, and CURRAN, Chief District
Judge.
OPINION
FAHY, Senior Circuit Judge: This suit arose on
complaint of the United States, acting through the
Department of Justice, to enjoin and set aside orders
of the Interstate Commerce Commission of November
30, 1967, April 11, 1968, and June 17, 1968.’ The
first of these orders approved, with conditions, appli-
cations of the railroad companies hereinafter named
to merge and to complete related transactions. The
approval followed reconsideration of the “Report of
the Commission” (First Report) of March 31, 1966,
which had denied the merger applications as not con-
sistent with the public interest.* The April 11, 1968
order denied petitions for reconsideration of the order
of November 30, 1967, except in relatively minor re-
spects which modified the Commission’s retention of
jurisdiction and certain of the Commission’s protec-
tive conditions. The order of April 11, 1968 is not
now independently contested.
The Interstate Commerce Commission answered
the complaint, opposing the relief sought by the De-
Se a ae ei ne eee I eee
*Serving with Chief Judge Curran as members of the
District Court of three judges designated by the Chief Cir-
cuit Judge by order herein of May 10, 1968.
1 See note 4, infra.
2? The First Report was concurred in by a majority of six
members of the Commission with five members dissenting.
The orders now in suit represent the views of eight mem-
bers, with two dissenting and one not participating.
|
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5
LLL LEE OO IEL LEE ERODE AEA ELLIE EI ERG HD Sg
5
partment of Justice. Other parties, as set forth in
the margin,* have intervened, some as plaintiffs, some
as defendants, the latter including the applicant rail-
road companies.
After preliminary proceedings resulting in a stay
of the orders pending either decision on the merits
or further order of the court the case was submitted
to this three-judge District Court ‘2s'cvated in ac-
cordance with 28 U.S.C. §§ 2325, 228. © decision on
the record before the Commission, sie pleadings,
briefs, memoranda and oral arguments.
We sustain the Commission’s approval of the merg-
er and related transactions. The history and nature
of the case lead to an opinion which explains our
reasons at some length. We review the elaborate de-
cision of the Commission. We conclude that in giving
its approval the Commission was guided by the ap-
plicable legal principles and made findings, supported
by substantial evidence, requisite to the validity of its
action. We recognize that some of those findings are
necessarily conclusional. These we hold to be reason-
able. A number of conditions are attached by the
*Intervening plaintiffs: Northern Pacific Stockholders’
Protective Committee; City of Auburn, Washington; State of
Washington; Board of Railroad Commissioners of Montana;
Livingston Anti-merger Committee. Intervening defendants:
Great Northern Railway Company; Northern Pacific Rail-
way Company; and their affiliates Chicago, Burlington &
Quincy Railroad Company; Pacific Coast R.R. Co.; Spokane,
Portland and Seattle Railroad Company; and Great Northern
Pacific & Burlington Lines, Inc.; other intervening defend-
ants: Chicago, Milwaukee, St. Paul & Pacific Railroad Com-
pany; 230 Pacific Northwest Shippers.
PIO ALTHETICS LES OA, BEL! BAAD ED LICL NIE: Pp OGLE RL EEE BATE NLL AL ALD
6
Commission to its approval. These in our view are
just and reasonable, as well as reassuring.
Our opinion also considers the objections raised by
the Department of Justice, the State of Washington,
the City of Auburn, the Board of Railroad Commis-
sioners of the State of Montana, and the Livingston
Anti-merger Committee. We devote special attention
to whether the competitive situation to result from
the unification, conditioned as it will be, is inconsist-
ent with the public interest, or, as we believe, is con-
sistent therewith in light of the national transporta-
tion policy formulated by Congress. We conclude,
also, that the ratio of stock exchange approved by the
Commission is just and reasonable, that the employee
problem is satisfactorily solved and, as will appear,
that other contentions against the merger do not over-
ride the benefits, including savings and better service,
which are projected in the reasoned judgment of the
agency charged with primary governmental responsi-
bility. We note with approval the retention by the
Commission of jurisdiction to enable it to make such
readjustments as may appear to be desirable, includ-
ing those which may arise from pending proceedings
affecting other railroads in the vast territory involved.
The orders in question * eventuated from applica-
* After this case was filed but before submission of the
case for decision by this court the Commission under date
of June 17, 1968, on resconsideration of its report and order
of April 11, 1968 made what is designated as a “Third Re-
port of The Commission on Reconsideration” embodying the
Commission’s construction of certain conditions contained in
Appendix L of the report and order of November 30, 1967,
as modified, particularly with respect to Condition 23. None
aa
7
tions filed February 17, 1961,° under 49 U.S.C. § 5°
of the parties has raised any question about this Third Re-
port and we assume it is not independently contested.
5“Finance Docket No. 21478, Great Northern Pacific &
Burlington Lines, Inc.—Merger, etc.—Great Northern Rail-
way Company, et al.”
This report also embraces Finance Docket No. 21479,
Chicago, Burlington & Quincy Railroad Company, et al.
—Stock Issuance, et cetera, and Finance Docket No.
21480, Great Northern Pacific & Burlington Lines, Inc.,
et al.—Construction and Abandonment.
328 I1.C.C. 460; 331 I.C.C. 228; 331 LC.C. 869; 333 I.C.C.
391.
* This Section sets forth in its subdivision 2(a) the law-
fulness of mergers approved in subdivision (b). The latter
among other things sets forth the standards to be followed
by the Commission in determining whether to approve:
. .. If the Commission finds that, subject to such terms
and conditions and such modifications as it shall find to
be just and reasonable, the proposed transaction is with-
in the scope of subdivision (a) of this paragraph and
will be consistent with the public interest, it shall enter
an order approving and authorizing such transaction,
upon the terms and conditions, and with the modifica-
tions, so found to be just and reasonable;
Subdivision 2(c) provides:
(c) In passing upon any proposed transaction under the
provisions of this paragraph, the Commission shall give
weight to the following considerations, among others:
(1) The effect of the proposed transaction upon ade-
quate transportation service to the public; (2) the ef-
fect upon the public interest of the inclusion, or failure
to include, other railroads in the territory involved in
the proposed transaction; (3) the total fixed charges
resulting from the proposed transaction; and (4) the
interest of the carrier employees affected.
Section 5 further provides in subdivision 11:
The authority conferred by this section shall be exclu-
sive and plenary, and any carrier or corporation par-
CIES LOT ag Oe:
8
by Great Northern Railway Company (Great North-
ern), Northern Pacific Railway Company (Northern
Pacific), these companies being sometimes referred to
as Northern Lines, the Pacific Coast R.R. Co. (Pa-
cific Coast or PC), the Chicago, Burlington & Quincy
Railroad Company (Burlington), and the Spokane,
Portland and Seattle Railway Company (SP&S),
these latter two companies being subsidiaries of the
Northern Lines, all common carriers by railroad sub-
ject to Part 1 of the Interstate Commerce Act, and
Great Northern Pacific & Burlington Lines, Inc.,
(New Company or NuCo), which is not a carrier.
The carriers applied to merge into New Company,
ticipating in or resulting from any transaction approved
by the Commission thereunder shall have full power
... to carry such transaction into effect and to own and
operate any properties and exercise any control or fran-
chises acquired through said transaction without invok-
ing any approval under State authority; and any car-
riers or other corporations, and their officers and em-
ployees and any other persons, participating in a trans-
action approved or authorized under the provisions of
this section shall be and they are relieved from the op-
eration of the antitrust laws and of all other restraints,
limitations, and prohibitions of law, Federal, State, or
municipal, insofar as may be necessary to enable them
to carry into effect the transaction so approved or pro-
vided for in accordance with the terms and conditions,
if any, imposed by the Commission, and to hold, main-
tain, and operate any properties and exercise any con-
trol or franchises acquired through such transaction.
Nothing in this section shall be construed to create or
provide for the creation, directly or indirectly, of a Fed-
eral corporation, but any power granted by this section
to any carrier or other corporation shall be deemed to
be in addition to and in modification of its powers un-
der its corporate charter or under the laws of any State.
-. = * ae Fr
P)
and for lease by the latter of SP&S, with control of
subsidiaries and the completion of other transactions
better to effectuate the merger and lease.’
Extensive proceedings ensued before the Commis-
sion, including public hearings and an examiner’s re-
port served August, 1964, which recommended ap-
proval of the applications, but with which the Com-
mission did not agree. On applicants’ petition of July
27, 1966,° the Commission reopened the proceedings
on January 4, 1967, for reconsideration and oral ar-
gument on all issues and for limited further hearing
to determine, on the basis of current information
readily available, the amount of estimated savings re-
sulting from the proposed merger in light of (1)
agreements entered into between the applicants, on
the one hand, and, on the other, the Milwaukee and
* Among those transactions were the issuance of certain
securities and the assumption of obligation and liability in
respect of securities under Section 20a of the Act and the
obtaining of certain extensions and abandonments of rail-
road lines under Sections 1(18) to 1(20), inclusive, of the
Act.
5A petition was simultaneously filed by Northern Pacific
Stockholders’ Protective Committee (NPSC), intervener be-
fore the Commission, seeking further hearings with respect
to the justice and reasonableness of terms and conditions of
applicants’ merger agreements. A petition was also filed by
The Denver and Rio Grande Western Railroad Company
(Rio Grande or DR&W), one of the railroads receiving pro-
tective conditions, seeking an investigation into the agree-
ments entered into by applicants with Milwaukee and the
Chicago and North Western Railway Company (North West-
ern or NW). Applicants replied to these petitions, and
the Commission received from numerous parties replies to
applicants’ petitions.
10
North Western and (2) the effect of relevant financial,
operational and other changes related to savings,
which had occurred subsequent to close of the hear-
ings. Those matters were referred to an examiner
for hearing.
The reconsideration resulted in the decision of No-
vember 30, 1967, accompanied by the exhaustive “Re-
port of the Commission on Reconsideration and Fur-
ther Hearing” (Second Report), with appropriate
order approving the applications and related trans-
actions.
New Company in consequence would achieve unified
control and operation of a network of railroads of
almost 27,000 miles of tracks extending from the
Great Lakes and Mississippi River through the North-
ern Tier States to the Pacific Northwest and Cali-
fornia, and reaching through affiliates*® to the Gulf
of Mexico. Great Northern operates some 8200 miles
of road located in ten states and two Canadian prov-
inces. Northern Pacific operates some 6800 miles of
road with lines in seven states and one Canadian
province. These roads extend from the Twin Cities
across the Northern Tier States to Spokane, Tacoma
and Portland, with branch lines serving the lumber
and agricultural producing territories along the route.
Burlington’s 8648 miles of road are located in eleven
states extending from Chicago northwesterly to the
Twin Cities, and @#Sterly and southwesterly to Mis-
souri, Kansas, Colorado and Montana, with subsidi-
*The Colorado and Southern Railway Company (C&S)
and Fort Worth and Denver Railway Company (FW&D),
both controlled by Burlington.
11
aries reaching the Gulf of Mexico at Houston and
Galveston.” Since the Burlington routes are largely
complementary to those of Northern Lines there is no
substantial competition between Burlington and its
parents. The SP&§ in Washington and Oregon has
the most direct route from Spokane- to Portland and
is of strategic importance to Northern Lines since
Spokane is on the main transcontinental routes and
Portland is an important terminal for both. Northern
Pacific has extensive land holdings, from which it de-
rives important income; and New Company would
obtain title in fee to more than two million acres and
to mineral rights in an additional six million acres.
The main lines of Great Northern and Northern
Pacific are both parallel and complementary. The
greater part of the latter’s mileage is in the western
part of the system while the greater part of the form-
er’s is in its eastern portion. West of Minnesota,
Great Northern serves primarily those communities
lying to the north while Northern Pacific serves the
southern parts of these states. Only Great Northern
reaches California. The area transversed by North-
ern Lines is lightly populated except at its eastern
and western extremities. But the area is extensive,
some 1700 miles in length and 900 miles in breadth.
It is rich in animal, mineral and forest resources,
with, however, a limited market for its products. For
this reason producers are heavily dependent upon
transportation. Rail transportation to populous cen-
ters at cost low enough to permit participation in
those markets is important.
” See note 9, supra.
‘a ? POON RENEE TO LIEB MELE OR TI ~
7% ory
BP Pa RET ee ee RIE
i. &
As the Commission also points out there is an im-
balance of traffic. Historically the West has been a
market for the finished products of the Midwest and
the East and a supplier to those areas of basic raw
materials. Its lower-rated traffic in its long haul east
is not as vulnerable to incursions by intermodal com-
petitors of Northern Lines as is the higher-rated
manufactured traffic moving into the area served by
Northern Lines. The latter, both from the east and
from the West Coast is vulnerable to motor carrier
competitors and others. It is this traffic which the
rail carriers must retain to balance their operations.
A combination of factors, the Commission narrates,
had long convinced the management of Northern
Lines that, together with Burlington, SP&S and Pa-
cific Coast, they should be unified under New Com-
pany’s control. They serve the same eastern terminals
and western ports as competitors and the traffic they
carry is similar. It is different only in areas where
their lines are widely separated, with no substantial
competition, however, between either of the Northern
Lines and Burlington, whose traffic differs and whose
service area is not only more heavily populated than
that of Northern Lines but also furnishes an impor-
tant market for producers in the area served by
Northern Lines.
Management of Northern Lines considered that
these railroads, with Burlington, SP&S and Pacific
Coast, which they control, if unified under New Com-
pany with an enlarged and more efficiently coordi-
nated pool of rolling equipment, elimination of dupli-
cative functions, facilities and personnel through at-
=
tr
ayperng5otwopeaedrnaeed 8
ee ae eS eS ll
13
trition, and with routing, transit and other services
more finely tuned to the needs of the shipping public,
would be a more proficient railroad than the appli-
cants separately. Greater ability to adjust to sea-
sonal and economic fluctuations in traffic, thus main-
taining a better overall balance, would result. The
whole would be better than the sum of its component
parts and better able to cope with the increased inter-
modal competition of motor and water carriers which
has intensified with improved highways and water-
ways.
In early 1956 Northern Lines through a joint man-
agement committee began preparations for merger
proceedings. The independent transportation engi-
neering firm of Wyer, Dick & Company, referred to
as Wyer, was employed to analyze and report on the
operating advantages and financial savings which
could be realized. This was followed by agreements
under which New Company was formed and the terms
and conditions of the proposed unification were for-
malized.
The Second Report of the Commission embodying
the basic decision of November 30, 1967, now chal-
lenged, in addition to the above background material,
includes a reexamination of the First Report, out-
lines the hearing on reconsideration, explains the po-
sitions of various parties, and devotes special atten-
tion to the objections of the Department of Justice.
The agreements executed by applicants with the Mil-
waukee and the North Western railroads are ex-
plained. These evidence applicants’ acceptance of con-
ditions favorable to Milwaukee and North Western,
h
a “ = Pte: b+ eee, eee Kalas aie
- Kae eaegs SA acs gg RS a ts RP hie a eS SEC a a ih ag i aria be hac ae ams ae a
Pe Gai ei NORE aaa : acaianaia ,
k:
p
14
deemed essential to the public interest finding of the
Commission accompanying its approval of the appli-
cations. As a consequence of these conditions those
roads withdrew opposition to the merger. Agreements
of applicants with representatives of the employees
are considered. While the Commission notes the op-
position of the ailway Labor Executive Association
(RLEA), we point out that subsequent agreements
affecting employees have led to withdrawal of em-
ployee opposition to the merger. The Commission re-
quired, as a condition to approval, that attrition con-
ditions such as were contained in agreements which
had been reached would be applied to all affected ”
employees, thus eliminating one of the reasons for the
First Report’s denial of the applications. The Second
Report states:
[A]s this report will show, we are convinced on
deliberate and searching reconsideration that the
proposed unvfication, fsie}subject to appropriate
conditions which we shall specify to protect com-
peting railroads, employees and the general pub-
“ RLEA sought protective conditions to cover all employ-
ees, of all carriers, adversely affected by the merger. The
Commission responded:
As found in the Seaboard-Coast Line case, employees
affected are those of the carriers involved in the merger
and most immediately affected thereby. Our discussion
and conclusions herein should be viewed in that context.
331 I.C.C. 276. The Commission’s position in Seaboard Air
Line R. Co.—Merger—Atlantic Coast Line, 320 I.C.C. 122,
was affirmed. Florida East Coast Ry. Co. v. United States,
259 F. Supp. 993, 1019 (M.D. Fla.), aff’d per curiam, 386
U.S. 544.
15
lic, will be consistent with the public interest and
should be approved. 331 I.C.C. 244-45.
Tlie Commission followed with a discussion of the
relevant statutory criteria, analyzed the relevant fi-
nancial data, included a finding that merger would
entail no increase in the aggregate fixed charges, set
forth the major proposals for unification of opera-
tions and of properties, and explained the stock ex-
change ratio between the holders of Northern Pacific
and Great Northern stock. The benefits of merger to
applicants, to shippers and to the general public, were
enumerated.
The Commission analyzed at length the competitive
situation, which we shall consider more fully, and
discussed and made findings with respect to the pro-
tection of other railroads. It emphasized the change
in the situation since the prior report, reaffirmed its
finding that the survival of no railroad operating in
the territory was imperiled, and further found,
As modified by the conditions which we impose
hereinafter, most of which were the subject of
agreements between applicants and the railroad
interveners, the proposed unification presents an
entirely new perspective for intramodal competi-
tion in the efficient and economical movement of
transcontinental, western and Pacific Coast traf-
fic. That perspective portends for a stronger
capability in those railroads individually and col-
lectiveiy to prosper and to effect numerous econo-
mies and efficiencies from which the public will
benefit. 331 I.C.C. 281.
The situation with respect to Western Pacific and
the objections of Union Pacific, not here pursued, to
16
Milwaukee’s entry to Portland, were discussed. Ref-
erence was also made to applicants’ stipulations with
the Milwaukee, the North Western and other roads.
The Commission concluded this branch of its Report
by stating that the over-all effect of the conditions
imposed, which it found to be just and reasonable,
would make for a stronger degree of intramodal rail
competition in the affected territory, promote the ef-
fective development of improved transportation serv-
ices to the shipping and receiving public, and comport
generally with the purposes and objectives of the na-
tional transportation policy as declared in the Act,
and “are within the scope of section 5(2)(a) and
will be consistent with the public interest.” The con-
ditions are set forth in Appendix L to the Second
Report, as modified by the reports of April 11, 1968,
and June 17, 1968.
Under the heading “Other Issues” the economic ef-
fect of the unification on various communities, in-
cluding the loss of job opportunities or tax revenues
due to elimination or rerouting of traffic, is consid-
ered. The Second Report concludes that the record
does not show that the transportation requirements
or well-being of the areas or communities would best
be served by denial of the applications, but, to the
contrary, that the mergers suitably conditioned augur
an era of increased railroad strength, in both intra-
modal and intermodal competitive aspects in the long
run.
The stress placed in the earlier. stages of the pro-
ceedings on the potential effect of merger on motor
carrier rights and operations was considered. The
17
objection raised by Rio Grande to the inclusion of
Burlington in the proposed merger was also consid-
ered. The Commission concluded that the inclusion of
Burlington was necessary not only if the merger is
to achieve the results desired but also in order that
the many shippers and receivers served by Burling-
ton would participate in the public benefits flowing
from the merger. As to the further point raised by
Rio Grande concerning the over-all effects and cross-
effects of the merger and of the proposals pending
in Finance Docket No. 22688, et al., involving North
Western and other roads, and the proposals in Fi-
nance Docket No. 24182, et al.,” involving the Mil-
waukee and the North Western and other roads, the
Commission points out that it is faced with various
procedural alternatives. In view of the over-all situ-
ation the Commission decided to reserve jurisdiction
for a period of five years following consummation of
the transactions authorized so as to be able to impose
such just and reasonable conditions upon petition of
any party in interest or upon its own motion, after
hearing, that may be necessitated by any cumulative
or cross-over problems stemming from approval of
this merger and any other transaction authorized un-
der Section 5 with respect to the territory involved,
citing B. & O. R. Co. v. United States, 386 U.S. 372,
387. See Condition 33, Appendix L, as modified by
the subsequent report of April 11, 1968.
12 Called the Rock Island case.
18 Called the Milwaukee case.
18
The Commission also retained jurisdiction for a
like period for the purpose among others of consider-
ing petitions under Section 5(2)(d) of the Act by
any railroad in the territory involved requesting in-
clusion in the merger. The Commission held that con-
summation of the transactions authorized would con-
stitute irrevocable assent by applicants to the Com-
mission’s reservation of power to impose, after hear-
ing, such just and reasonable conditions as may be
necessary and appropriate.
In its “Summary” the Commission pointed out that
the result of the prior First Report was a product
of a weighing of three factors: a lessening of compe-
tition as between Great Northern and Northern Pa-
cific; an adverse effect upon employees; and the bene-
fits to be derived by applicants and the shipping pub-
lic; but that on reconsideration of these factors based
upon the entire augmented record:
[W]e now reach a different conclusion. The con-
cern expressed in the prior report as to employee
hardship has been relieved by the attrition con-
ditions imposed and agreed to. The speculation
that imposition of conditions for the benefit of
Milwaukee and NW might actually preclude con-
summation has been set to rest by the agreements
accepting those conditions. The preservation of
competition between the Northern Lines in the
four northern tier States, which was a dominant
factor in the prior decision, we now view in a
different perspective and do not see it as an in-
vincible impediment to this merger. Like the
many shippers who support the applicants and
—y
|
19
who do business in the said States, and like the
numerous States, State and Federal agencies,
communities and shipper groups which have
dropped their opposition and now favor the
merger, we see this transaction as a means for
achieving, through appropriate conditions, over-
riding benefits to the public through improved
transportation. Broadening the focus of our ap-
praisal to the area relevant to transcontinental
traffic and other interterritory considerations,
and reweighing the facts pertaining to the ever-
increasing intermodal competition, have made it
apparent that this merger can lead to the crea-
tion of meaningful rail competition through
strengthening the Milwaukee and the NW, as
well as making the combined applicants a more
proficient transport agency. Viewing the consid-
erations anew, we conclude that the proposals,
with requisite conditions, are entirely consistent
with the public interest. 331 I.C.C. 289.
The Commission thereupon added its ultimate find-
ings that, if approved with the conditions it requires,
the transactions meet the requirements of Sections
5(2) and 20a and b of the Act, conform generally
with the purposes and objectives of the national trans-
portation policy, are consistent with the public inter-
est, will enable New Company to use service by motor
carrier to public advantage in its rail operations, and
will not unduly restrain competition. Moreover, the
Commission found that the financial arrangements it
outlined are compatible with the public interest, are
necessary, appropriate and consistent with perform-
ance of service to the public as common carriers, will
=
—
not impair the ability to perform that service, and
should be authorized.
Finally, the Commission found that the present and
future public convenience and necessity require con-
struction and operation by New Company of the con-
necting lines enumerated in the Second Report, (Ap-
pendix J), and permit abandonment by applicants of
designated railroad lines, (Appendix K).
It is seen from the foregoing that the findings es-
sential to approval of the applications were made.
Some of these are not ordinary factual findings. They
are conclusions drawn from the relevant factual situ-
ations disclosed by the evidence.
We now test further the action of the Commission
‘by considering it more fully in light of the objections
to approval. We bear in mind that, as the reviewing
court, “We do not inquire whether the merger satis-
fies our own conception of the public interest... .
The judicial task is to determine whether the Com-
mission has proceeded in accordance with law and
whether its findings and conclusions accord with the
statutory standards and are supported by substantial
evidence.” Penn-Central Merger & N. W. Inclusion
Cases, 389 U.S. 486, 498-99.
20
The Problem of Competition—In General.
The United States, through the Department of Jus-
tice, centers its opposition upon the Commission’s ap-
praisal of the resulting competitive situation. The
Department sees an invasion of the public policy rep-
resented by the antitrust laws, not countered by bene-
fits which justify the merger in the public interest.
—
Since the transactions came within Section 5(a), the
over-all guide is the national transportation policy to
further the public interest in efficient transportation.
49 U.S.C. § 5(2) (b), note 6, supra.
The Department contends that the Commission
erred in construing the national policy as one to fur-
ther consolidation of railroads into a limited number
of systems with a presumption in favor of mergers.
While the Commission interpreted the national policy
as encouraging mergers, we do not think it was
guided by a presumption. It concluded that “the pol-
icy of the [Transportation Act of 1940] is clearly to
facilitate and thereby foster and encourage consolida-
tions which can be shown to be consistent with the
public interest.” 331 I.C.C. 269. Thus, consolidation
must be shown and not presumed to be consistent
with the public interest.
The importance of competition as an indispensable
factor in the public interest equation is recognized in
the Second Report; but it is not the only factor to be
weighed under the policy of Congress. Penn-Central
Merger Cases, supra at 500; Seaboard Air Line R.
Co. v. United States, 382 U.S. 154.
Competition is merely one consideration here.
See Seaboard Air Line R. Co. v. United States,
382 U.S. 154 (1965). This departure from the
general and familiar standard of industrial reg-
ulation emphasizes the need for insistence that,
before a rail merger is approved, there must be
convincing evidence that it will serve the national
interest and that terms are prescribed so that
the congressional objective of a rail system serv-
21
—"
ing the public more effectively and efficiently
will be carried out. Obviously, not every merger
or consolidation that may be agreed upon by pri-
vate interests can pass the statutory tests.
Penn-Central Merger and N & W Inclusion Cases,
389 U.S. at 500. The Commission in its Second Re-
port evidenced an understanding of the governing
guidelines.
The tremendous area involved, with its numerous
centers of population and diversified sources of traf-
fic, leads to equally tremendous detail related to the
effect of the merger on competition. In its First Re-
port of March 31, 1966, disapproving the merger,
see, €.g., 328 L.C.C. 511, et seg., and in its Second
Report of November 30, 1967, approving the merger,
see, ¢.g., 331 I.C.C. 269, et seqg., the Commission ana-
lyzed the competitive problem in detail. In the First
Report it concluded that after merger the applicants
would overshadow their rail competitors and that
they had failed to show that merger would result in
transportation service to the public superior to that
which could be provided without merger, “or that the
benefits reasonably attributable to the proposed merg-
er outweigh the adverse effects of the merger on car-
rier employees and the benefits that shippers derive
from the competition to be eliminated.” 328 I.C.C.
528.
Following this Report the employee problem disap-
peared, and, moreover, a different conclusion was
reached as to the benefits to shippers. But at this
point we are concerned with competition. The Com-
mission classified stations into four classes: I. Sta-
22
SOLO POLE 0 OLLIE SD Dil SAGES ALE BRIG LRN SN IR LPG EDIE LIOR EET, SED Gp TOMEI GS VE She
—
23
tions commonly served by two of the applicant car-
riers and no other rail carrier; II. Stations commonly
served by two of the applicant carriers and at least
one nonapplicant carrier; III. Stations served by one
applicant only; IV. Stations served by one applicant
and one or more other rail lines. The Commission
noted that some of the Class II points, though served
by one or more of the applicants, did not have actual
competition between any of the applicants because the
applicant lines were end-to-end or complementary at
these points. As to the principal Class II points in the
Northern Tier, Head-of-Lakes, Portland, Seattle, Spo-
kane, and the Twin Cities, the Commission observed
that each of these points would be served after the
merger by at least three railroads (in the case of the
Twin Cities, by nine) and by numerous truck lines,
bus lines, and airlines. The Commission concluded:
In our view the competitive impact upon the
Class II stations is not so significant as to war-
rant denial of the applications. First, apportion-
ment of traffic between (Great Northern),
(Northern Pacific) and other roads serving these
points is not wholly the result of interplay of
competitive forces, but often results from other
factors entirely. Second, shippers at these Class
II locations, in addition to the Northern Lines
and one other rail carrier, are generally served
by other modes of transportation vigorously com-
peting for traffic. Third, by virtue of the condi-
tions imposed in this case, the Milwaukee—which
is the other railroad serving many of the Class
II points—will be substantially strengthened as
a meaningful transcontinental competitor. 331
LC.C. 273.
OF A pelt AE PMS tt ar
—
Accordingly, without reassessing the market shares of
the merging lines in the relevant Northern Tier, the
Commission concluded that the locations at which
competition would be most significantly reduced would
still have available substantial rail and nonrail car-
riers so as to preserve sufficient competition to war-
rant approval of the merger.
Moreover, in its Second Report the Commission
concluded that the number of stations at which com-
petition would be entirely eliminated was small, “and
these stations do not produce any great volume of
applicants’ business.” 331 I.C.C. 272. Some of these
stations are located on the main line of one applicant
_and on a branch line of another, “with the result that
loss of competition is more theoretical than real.” 331
I1.C.C, at 272. Concern was evidenced as to Class II
stations. However, the finding that the allocation of
traffic is not wholly the result of competitive forces is
another way of saying that the percentage figures per-
tinent to Class II stations tend to over-emphasize the
importance of intramodal competition at these points.
This conclusion finds ample support in the record.
The factcrs considered by the Commission are broadly
indicative of the weakness of the Department of Jus-
tice’s emphasis on raw statistics. For example, be-
tween the Twin Cities and points served by only one
of the applicants shipments are on the one line that
serves the noncompetitive point although nine rail-
roads serve the Twin Cities. Noncompetitive Class
III stations account for 37 percent of applicants’ reve-
nues, Ex. 16, p. 3. Since the elimination of competi-
tion between the applicants is now the issue, it should
24
» <a -
25
be noted that over 90 percent of applicants’ stations |
are Class III or IV. Accordingly, much of the reve-
nue attributed to Class II stations is not subject to
competition between the applicants. Percentage fig-
ures are misleading in another way. The car and ton-
nage figures, but not the revenue figures, are duplica-
tive as to shipments originating and terminating on
applicants’ lines. Tr. 3197-98, Further, where Class
II stations are located on the branch line of one appli-
cant and on the main line of another, the time factor
may eliminate the branch line as a realistic competi-
tor. Thus, the branch line of one railroad is more
complementary than competitive with the main line
of the other. Tr. 3187-88. Similarly, in many in-
stances, the physical location of the shipper’s facility
gives one rai'road a decided advantage although the
other railroad is only a short distance away. Tr.
3127-28, 3190, 6033, 7390-91, 14685. The practice of
some large shippers of distributing their business
among the various railroads may well result in the
reduction of the merged lines’ total share of these
shippers’ patronage. Ex. 228, p. 16; Ex. 230; Tr.
5751, 5757, 9804.
The Commission did not deem it was required to
determine the areas of effective competition through
an analysis of the relevant geographic and product
markets, as those terms are used in antitrust cases, cf.
Brown Shoe Co. v. United States, 370 U.S. 20% We
agree. See Seaboard Air Line R. Co. v. United
States, 382 U.S. 154. The Interstate Commerce Act
and other legislation dealing specifically with trans-
portation was the frame of reference within which
i «
j the Commission operated, with accommodation, how-
A
4
5
26
ever, to the antitrust policies without being bound to
j the relevant-market standards of the antitrust laws.
‘ See McLean Trucking Co. v. United States, 321 U.S.
67, 79-80.
Competition—The Milwaukee.
A telling objection to approval of the merger at
the time of the First Report was made by Milwaukee,
which insisted that unless approval were conditioned
in such a manner as to strengthen its competitive posi-
tion with Northern Lines the merger was not in the
public interest. In the interim between the First Re-
port and reconsideration of the applications Northern
Lines entered into an agreement with Milwaukee ac-
cepting the conditions Milwaukee sought. The Com-
mission’s approval is conditioned upon the carrying
out of these conditions. Milwaukee accordingly no
longer objects to approval; indeed, it now urges it.
The conditions referred to are important to the ulti-
mate issue of public interest."
14 North Western also was a vigorous objector to the mer-
ger at the time of the First Report. However, Northern
Lines agreed to certain conditions deemed necessary by the
Commission with respect to North Western. Summarized,
they are, 331 I.C.C. 280:
1. Establishment of through routes and joint rates via
< the new gateway of Crawford, Nebr., on all traffic inter-
: changed at such junction between NuCo and North
Western.
2. Establishment of through routes and joint rates via
the new gateway of Oakes. N. Dak., on all traffic inter-
changed at such junctior between NuCo and North
Western.
;
ba
z
ry
2
2
‘»
ie
|
&%
be
i
[Footnote continued on page 27]
al
One of the main lines of Milwaukee runs from Chi-
0 cago through the Twin Cities and across the Northern
Tier States to the Pacific Coast. Milwaukee’s original
expectations for greater competition with applicants,
as matters developed, did not materialize, A substan-
tial reason was that its lines were blunted by not
reaching Portland, Oregon, or Bieber, California.
t Neither Great Northern nor Northern Pacific would
, interchange traffic with Milwaukee except in circum-
stances which gave Northern Lines the longest pos-
‘ sible haul over their own roads. This privilege of
Northern Lines not to “shorthaul” themselves means
that traffic originating on the Milwaukee east of the
| Twin Cities and destined for Portland or California
was required to be turned over to one of the merging
lines at the Twin Cities. As a consequence, Milwau-
kee was precluded from being a true transcontinental
competitor and was unable to make full use of its ex-
tensive trackage ending only a few miles short of
27
1 [Continued]
8. Improved interchange at Minneapolis, Minn., through
operational conditions.
4. Cancellation of North Western rental obligations for
tracks and facilities not used after unification and sale
or lease of Union Yard trackage to North Western.
5. Improvement in North Western interchange at Head-
of-the-Lakes, with Duluth, Winnipeg and Pacific Ry. Co.
(DW&P).
We note that North Western is not in present or potential
competition with applicants, individually or merged, in the
Northern Tier States but that protective conditions benefit-
ing North Western are also important to the ultimate issue
of public ‘nterest.
ets a
Bars. sees.
28 ie a
Portland. Moreover, Milwaukee was completely pre-
cluded from the extensive North-South traffic on the
West Coast. Similarly, traffic destined for intermedi-
ate points on one of the Northern Lines had to be
transferred to that line at the Twin Cities even
though there were several junctions among Milwaukee
and Northern Lines farther west. After discussing
these limitations, the Commission concluded in its
First Report:
The limitations on Milwaukee’s routes west of
Twin Cities and Sioux City, together with the
fact that Milwaukee is short hauled at the Twin
Cities gateway on a large volume of traffic, has
severely limited Milwaukee’s traffic potential, and
has impaired its competitive position in relation
to applicant railroads. Consequently, Milwav-
kee’s participation in substantial movements of
transcontinental traffic over its lines west of
Twin Cities is limited to that which moves to or
from a point served directly by the lines of Mil-
waukee and to those movements within Moun-
tain-Pacifie territory to points beyond its lines,
which originate or terminate at local points on its
lines not served by applicant railroads. On the
other hand, the ability to participate in traffic to
and from Oregon and California has been an im-
portant factor in the ability of the Northern
Lines to improve their relative participation in
traffic over their lines west of the Twin Cities.
Numerous shippers have indicated that the rate
and service limitations on Milwaukee routes have
prevented them from making full use of the lat-
ter’s service potential, to their detriment as well
as the Milwaukee’s. 328 I.C.C. 493.
cola
a
29
In order to alleviate Milwaukee’s disabilities and
to make it a stronger competitor, the Commission in
its Second Report attached conditions designed to rem-
edy its handicaps. Condition 23 now made a part of
approval will open to Milwaukee gateways at eleven
points in the Northern Tier, thus allowing it to utilize
more of its trackage west of the Twin Cities. This
condition, again referring to the language of the Com-
mission in its First Report.
[ W jould permit Milwaukee to solicit for its long-
est practical hau! over its lines west of Twin
Cities or Sioux City traffic which must now be
surrendered or received at those points. Corre-
spondingly, New Company would have the same
opportunity. The condition would also permit
shippers to select alternate routes, according to
their needs, over the lines of the Milwaukee and
the New Company. In addition, shippers and re-
ceivers using Milwaukee would gain the advan-
tage of diversion and reconsignment, stop-off and
transit privileges available to shippers and re-
ceivers using the New Company. 328 I.C.C. 499.
Condition 24(a) will allow the Milwaukee to extend
its present termination point from Longview Junction
another 47 miles into Portland and there to connect
with the Union Pacific so as. for the first time, to be
able to compete with Northern Lines transcontinental
routes as well as to provide competing North-South
service on the West Coast. Exam. Rep. 276-84; 328
I.C.C. 494; 331 I.C.C. 280-83, 357, 872-73. Condition
24(b) will allow Milwaukee to connect directly with
Canadian roads north of Portland. Exam. Rep. 284-
87; 328 I.C.C. 494; 331 I.C.C. 280-81, 357. Condition
URC ENN a
ey aA er ya vt =
>
;
30
24(c) will allow Milwaukee to serve Billings, one of
the two largest cities in Montana, which is presently
served only by the Northern Lines. Milwaukee al-
ready serves the other major Montana city. Exam.
Rep. 287; 331 L.C.C. 281, 357. Condition 25(a) will
eliminate the dual basis of switching charges that dis-
courages the movement of traffic over the Milwaukee
and the location of industry along its lines. Exam.
Rep. 289-91; 328 I.C.C. 493; 331 I.C.C. 280, 357.
Condition 25(b) will require reestablishment of rate
relationships disturbed by the merger, 331 I.C.C. 280,
358.
The Commission concluded that “a properly condi-
tioned merger, with NuCo competing against a
- strengthened Milwaukee, will serve to enhance rail
competition,” achieve a more desirable competitive
pattern, while at the same time conferring substan-
tial benefits upon the shipping public throughout the
15 We note the Commission’s statement that “a properly
conditioned merger, with NuCo competing against a strength-
ened Milwaukee, will serve to enhance competition. .. .”
331 I.C.C. 275. This is to be read in context, with the full
discussion of the effect of the merger on competition. It is
not properly to be interpreted as a finding of an over-all en-
hancement of competition but rather as an enhancement of
the competitive situation of Milwaukee in relation to Nor-
thern Lines. It was, of course, recognized that competition
between the latter would be eliminated. In its “Summary,”
331 I.C.C. 289, the Commission set forth reasons why “this
merger can lead to the creation of meaningful rail competi-
tion, through strengthening the Milwaukee and the NW, as
weil as making the combined applicants a more proficient
transport agency.” Nv final conclusion of the Commission
rests upon a finding by it that competition after would nec-
essarily be greater than before the merger.
——
ae
territory involved in this case.” 331 1.C.C. 275. And
see 331 I.C.C. 289.
It was not necessary, as the Department of Justice
suggests, that the Commission analyze in more detail
the relative competitive strengths of the Milwaukee
and the applicants after the merger. The evidence
gives substantial support to the conclusion of en-
hanced competition by Milwaukee, with traffic diver-
sions to it from the merged lines. The Commission’s
reliance upon this factor in reaching its conclusion
that the merger was in the public interest must be
accepted as valid, even though the merged lines will
have a larger market share than Milwaukee. Mil-
waukee, by no means a negligible competitor previ-
ously, will become for the first time a much strength-
ened competitor, realistically vying for long haul traf-
fic at every major point served by Northern Lines.
The Commission was not required in all the circum-
stances upon which it did rely to go further by seeking
unattainable precision as to the amount of traffic di-
version.
One further word on this subject: The Commission
was not unmindful of the pending proceeding involv-
ing the merger of the Milwaukee with the North
Western. Although this merger was not discussed in
connection with the strengthening of the Milwaukee
by conditions accompanying approval of the Northern
Lines merger, the Commission prefaced its “Sum-
mary” om reconsideration:
21
We cannot isolate our actions herein from [the
larger context of the western rail merger pic-
ture], but intend this decision to be a beginning
.
_— -
LOL LE: Se ERE ERE EA LS ENA RUM VION.
a
step in the orderly resolution of what has become
a highly involuted situation affecting many rail-
roads throughout the territory. 331 I.C.C. 289.
32
Competition—The Question of Strengthening the
Milwaukee Independently of the Merger.
The Department contends that Milwaukee could
have been strengthened without the merger and,
therefore, the Commission was not entitled to at-
aise the merger any benefits due to those condi-
tions # approval which aid the Milwaukee. It is the
position to the Depariment that under Section 1(4),
49 U.S.C. § 1(4), of the Act the Commission could re-
quire the railroads to “establish reasonable through
routes” with other carriers. It is said that this, with
the duty of the railroads under Section 3(4), 49
U.S.C. § 3(4), to “afford all reasonable, proper, and
equal facilities for the interchange of traffic between
their .. . lines and connecting lines,” and not to “dis-
criminate in their rates, fares, and charges between
connecting lines, or unduly prejudice any connecting
line in the distribution of traffic that is not specifically
routed by the shipper,” empowers the Commission to
require the opening of gateways, end discrimination
in interchanges, and otherwise remedy the practices of
the Northern Lines which the Commission found have
severely limited Milwaukee’s competitive potential in
the past. The Depar‘ment also refers to Section 15
(3), 49 U.S.C. § 15(3), which provides:
The Commission may, and it shall whenever
deemed by it to be necessary or desirable in the
public interest, after full hearing upon complaint
or upon its own initiative without complaint,
wail
an
33
establish through routes, joint classifications, the
joint rates, fares, or charges, applicable to the
transportation of passengers or property by car-
riers subject to this chapter, ...
It is not disputed, however, that these provisions do
not enable the Commission to require Northern Lines
to grant trackage rights into Portland and Billings as
required in the conditions attached to approval of the
merger; so, it seems clear, the full benefits of the mer-
ger in strengthening Milwaukee could not be obtained
as suggested by the Department. As to the other
arrangements which the Department says the Com-
mission could require without merger, the Commission
itself disclaims such authority, relying upon its own
construction of its powers. For this position it enlists
some support from Chicago, M., St. P. & P. R. Co.
(Milwaukee) v. United States, 366 U.S. 745; Thomp-
son v. United States, 343 U.S. 549; and United States
v. Great Northern R. Co., 343 U.S. 562. The Depart-
ment thus rests its position upon a construction of the
statute which the Commission considers erroneous and
opposes.
Were the Commission to overcome its opposition and
seek to require Northern Lines to make the arrange-
ments under statutory authority independently of that
used in approving the merger it is probable the matter
would become involved in protracted proceedings, in-
cluding litigation, with the outcome quite uncertain.
In this situation we do not deem it essential for the
court to make a definitive decision as to the correct-
ness of the Department’s position; for it is clear the
conditions for improvement of Milwaukee in its com-
petitive position with Northern Lines can be accom-
: a
plished now as the Commission requires. This seems
the most certain and expeditious manner of doing so,
if not the only manner. Moreover, the question in the
end is whether the merger is in the public interest.
The strengthening of Milwaukee is quite relevant to
that question. In its strengthened position, Milwau-
kee on its part would assure greater intramodal com-
petition. If it were strengthened independently of the
merger, as the Department suggests should have been
done, the issue of the public interest, though made
simpler, would still exist in the merger proceedings.
Assuming that the Commission attributes to the con-
ditions strengthening Milwaukee benefits which arise
from approval of the merger, the fact that some of
those benefits might possibly otherwise have been ob-
tained hardly detracts from the actual advantage of
the present conditions, if, as we believe, they give sup-
port to the Commission’s finding that the merger is
consistent with the public interest.
SR EE RRR, aA
mh
ont aac
Competition—Intermodal.
This brings us to a fuller consideration of inter-
modal competition. As we have seen, the Commission
referred to the construction of new superhighwayand
pipelines and to improvements in waterways. These
developments, in view of the Commission, presage a
competitive future even more intense than the present.
The Commission concluded that applicants are faced
not only with growing intermodal competition but are
losing to competitors a steadily increasing share of the
transportation market. While it states that appli-
cants have enjoyed a moderate success, “increasing
BUA
Rar rete ee AF gr yn ie: CL Af OLE LOVEL ELEM V GLEN DOV ON NG AIGE OL BLN Rd DOYLE BRINE PRIA 044 ne 4 h
a wD = =~ sd ao ifcice ¥
=
competition and an inability to prevent traffic erosion
make it necessary that applicants take measures now
to assure continued success in the future.” They seek
this through the merger, leading to a “more efficient
transportation plant capable of meeting competition
as well as providing equal and in many respects, im-
proved service to the public.” 331 LC.C. 260.
This is a different conclusion from that reached in
the First Report. We bear in mind, however, that the
Second Report is now the critical one. In it inter-
modal competition assumes a dual significance. First,
it was found that the savings and increased physical
resources of the merged lines would enable New Com-
pany to run a more efficient transportation system so
as to compete better with other modes. It is not con-
tended that New Company, given its estimated sav-
ings, will not be able to offer improved service. Sec-
ondly, it was concluded that the elimination of compe-
tition between Northern Lines in the Northern Tier
was not of overriding importance due to the presence
of vigorous intermodal competition. The First Re-
port’s finding does not invalidate the conclusion in the
Second Report. There is ample evidence in the record
that motor carriers are reasonable substitutes for rail-
roads in many instances. Numerous witnesses, prin-
cipally shippers, described substantial incursions by
motor carriers into railroad traffic in paper products,
steel, cement, fruit, grain, et cetera. See, e.g., Tr.
5754, 11836, 9527, 7224, 8023, respectively. Nor is
the long haul the sanctuary of the railroad. The aver-
age length of haul of Class I motor carriers operating
in the merger territory in 1959 was 402 miles, as com-
35
PLLC OL ALG L LONE LEELA LALLA CNL A PIAL AID
—7
pared with 381 miles for Great Northern and 462
miles for Northern Pacific. Tr. 523; Transport Sta-
tistics in the United States, 1959, Section A-1, Statis-
tics of Rail-Line Operations, (Bureau of Accounts,
I.C.C.). Among the 248 Class I motor carriers serv-
ing the merger territory, there are two major coast-
to-coast trucking concerns operating at virtually every
major terminal served by applicants. Ex. 17. New
interstate highways between Chicago, Twin Cities,
and Seattle will make the Twin Cities-Seattle truck
route 241 miles shorter than the Northern Pacific
track. The same highway will reduce truck travel
time to 36 hours as compared with 431% hours, the
fastest rail freight time. Tr. 516, 1474. Applicants
proffered substantial evidence as to the rapid growth
of motor carriers in the merger territory in terms of
revenue, tonnage, and truck registrations. See Ex.
17, Tr. 521-525.
Shipper testimony revealed a wide range of reasons
for the switch to motor carriers—lower costs, better
service, more flexible routing, faster delivery. The
} manner in which trucks have managed to undercut the
| railroads in one or another facet of almost every sub-
market illustrates the fungibility of rail and motor
§
4 transport. The rapid growth of the trucking industry
and incursion of motor transportation into railroad
traffic of all types provide a substantial basis for the
Commission’s conclusion that motor carriers are
ready substitutes for, and vigorous competitors with,
rail transport in the Northern Tier.
The Commission’s reliance on intermodal competi-
tion to justify the reduction or elimination of inter-
36
oa kt.
te
bh Beka ot
Pree ren
Se SRE OLAL SA LOUTH PIPE LIL EI Le AE A MPLA SEINE EON LOO AX LE
~——
railroad competition has been judicially approved in
comparable situations, see, e.g., Penn-Central Merger
Cases, 389 U.S. at 501; Florida Coast Railway Co. v.
United States, 259 F. Supp. at 1010, 1015-16, and has
been supported by most commentators.”* Recent Com-
mission merger cases have stressed “the intensive
competition the railroads face today and in the future
from other modes of transportation.” Louisville &
Nashville R. Co. Merger, 295 1.C.C. 457, 475, aff'd sub
nom., City of Nashville v. United States, 155 F. Supp.
98 (M.D. Tenn.), aff'd per curiam, 355 U.S. 63."
We conclude the above consideration of the bearing
of the problem of competition on the public interest
equation of the merger by stating that the significant
findings and conclusion of the Commission in this mat-
ter, to the effect that the competitive situation which
37
#* Phillips, Railroad Mergers: Competition, Monopoly and
Antitrust, 19 Wash. & Lee L. Rev. 1, 17 (“so long as the
public has a choice of transportation, the elimination of in-
terrailroad rivalry cannot be equated with the elimination
of competition”), Fulda, Competition in the Regulated Indus-
tries: Transportation 52 (“the relevant market is now pre-
dominantly the market for transportation services rather
than railroad services’).
17 See also Virginian R. Co. Merger, 307 I.C.C. 401, 416;
Erie R. Co.—Merger—Delaware, Lackawanna & Western
Railroad Co., 312 LC.C. 185, 246-47, complaint dismissed,
Brotherhood of Maint. of Way Employees v. United States,
189 F. Supp. 942 (E.D. Mich.), aff'd per curiam, 366 U.S.
169; Chicago & N. W. R. Co.— Purchase—Minneapolis
& St. L. R. Co., 312 LC.C. 285 296-97; Seaboard Air Line R.
Co.—Merger—Atlantic Coast R. Co., 320 1.C.C. 122, 149-53;
aff'd sub nom., Florida East Coast Railway Co. v. United
States, 259 F. Supp. 993 (M.D. Fla.), aff'd per curiam, 386
U.S. 544.
BMAP TOIE ) eR Thr
pon Mad Wiel
38
will result from the merger is consistent with the pub-
lic interest, are supported by substantial evidence con-
sidering the record as a whole, are reasonable and are
sustained,
Benefits in Savings.
The Commission in its Second Report states: “Sub-
stantial dollar savings plus an improved earning po-
tential constitute tangible benefits which will accrue
to applicants by merger.” 331 I.C.C. 260. The Com-
mission estimated the savings at about $40,000,000
annually, due principally to labor savings through re-
duction of the number of jobs, including the effect of
consolidation of operations at various common points.
A major part of the savings was to be attributed to
unification of applicants’ separate organizations at
the levels of administration, operation, maintenance,
traffic, and others. The Commission relied primarily
upon a study and report by Wyer, completed in 1957,
revised in 1960, updated in 1965, and supplemented
by Wyer’s testimony at the rehearing in 1967.
The Commission related the savings to the resulting
improved financial posture of applicants and the ulti-
mate issue of the public interest. This improved fi-
nancial posture, the Commission found,
[Will enable applicants to become stronger and
more stable, and thus be better equipped to meet
the growing competition now being felt. More-
over, consolidation of facilities, elimination of
wasteful duplication, improved routing, better
car fleet utilization, and avoidance of time-con-
suming interchanges among applicants will re-
sult in a more efficient railroad. Such achieve-
a
—
ments clearly are consistent with the public inter-
est. 331 1.C.C. 263.
The First Report discounted by one-third savings
estimated at approximately $15,000,000 attributable
to “common points” because they “could be realized
without merger.” 328 I.C.C. at 503. In the Second
Report these savings were estimated at about $18,-
000,000, and the Commission concluded that such sav-
ings (including the discounted percentage) could not
be realized without merger because of the unequal
benefits accruing to the respective applicants as a re-
sult of consolidations at common points. The findings
in the First Report are not binding. The relevant test
is substantial evidence to support the present findings.
The situations cited in the First Report as instances
of successful joint operations without merger were
more or less unique. We cannot overrule the Commis-
sion’s final conclusion that coordination on the con-
templated scale is physically impossible absent merger.
The Department of Justice urges that the savings
projected by the Commission are excessive because of
alleged errors in the Wyer method of updating the
savings due to job eliminations. In giving his figures
at the 1967 hearing, Mr. Wyer was subjected to exten-
sive cross-examination. His testimony and accom-
panying tabulations and analyses, while we cannot
say they lead to a precise amount to be accepted as
correct, on the whole furnish substantial evidence to
support the savings as found by the Commission. The
findings are not tied to a precise amount:
39
As is implied above the exact amount of merger
savings cannot be precisely determined under any
—
circumstances. Here, we are convinced that they
would be substantial and of sufficient amount to
justify the merger, both in terms of enabling the
merged company to improve its service to the
public and of providing a return on investment
more nearly commensurate with the investment
requirements of a viable and progressive trans-
portation system. 331 I.C.C. 264.
And see, Frie-Lackawanna R. Co. v. United States,
279 F. Supp. 316, 343 (S.D.N.Y.), aff'd sub nom.
Penn Central Merger Cases, 389 U.S. 486.
With this basic conclusion of the Commission, and
with very substantial savings not left in doubt, at-
tacks upon the Wyer updating methodology, not ig-
nored by the Commission, by no means persuade us
that we should either remand for further hearings on
this subject, or disapprove the merger.” The Com-
40
i
;
:
18 Before the Commission and in court the Department
pressed its requests for discovery and/or a broader hearing
involving intervening changes bearing upon labor savings.
The Commission, in adhering to its limited further hearing,
stated :
We are well aware that the technological and opera-
tional improvements on the Nation’s railroads have
brought about a reduction in the number of railroad
employees and a redistribution in the consist of the rail
labor force. This has been true in varying degrees
throughout the railroad industry. We realize these proc-
esses do not stop simply because a transaction has been
proposed under section 5 (2) (d) or mark time while we
and the courts take evidence and consider the views of
all of those who are concerned with the structuring of
the Nation’s railroad system. Because of the complexi-
ties of rail mergers and the demands of due process, ad-
ministrative consideration of these cases consumes sub-
stantial periods of time. But there comes a point at
altar ha Sie Tacs SE Raa
ot Ee STD ee gee ee in te
be TRA LT POE OP A Sd PARES
os pat
BEELER COGS ANDI LLY ORS BIEN IS # SRE TIES BS
DE: ONTO I eee
41
mission explicitly recognized that the level and con-
sist of employment on the railroads are changing con-
stantly and took this into consideration in reaching its
final judgment about labor cost savings, a judgment
which we must honor our concomitant obligations to
complete our proceedings upon a rail merger applica-
tion within a reasonable time. Most crucial, as the
courts have recognized repeatedly, is the point at which
we are confronted with petitions for reopening and re-
hearing in proceedings which already have been pend-
ing, sometimes for years—with potential judicial review
waiting beyond. See Interstate Commerce Commission
v. Jersey City, 322 U.S. 503, 514 (1944); and cf. Flori-
da East Coast R. Co. v. United States, 242 F. Supp. 14,
reversed per curiam subnom. Seaboard Air Line Co. v.
United States, 382 U.S. 154 (1965); Florida East Coast
R. Co. v. United States, 259 F. Supp. 993 (1966), af-
firmed per curiam, 386 U.S. 544; the Seaboard-Atlantic
Coast Line merger application was filed with the Com-
mission on July 22, 1960, and the administrative and
judicial review proceedings were completed on April 19,
1967.
It is in this context that we have considered the De-
partment’s contentions. As we have recognized above,
the level and consist of employment on the Nation’s rail-
roads are changing constantly. We assume that the
length of the proceedings on any significant rail merger
application means that by their completion it can be
shown that the estimated savings at some points or in
some operations have been overtaken or outdated by
technological change. Similarly, we recognize that our
permissive order approving a merger does not require
that it be effectuated in terms of every savings-produc-
ing change visualized by a management consultant.
Rather, we recognize that with the passage of time,
when an approved merger finally is consummated, it will
realize savings which were not anticipated, while other
anticipated savings are not achieved... .
331 1.C.C. 263-64.
iieeenen PESO LAIN ah Ge ADSENSE ODM ET, Te TOES LOOMIS TIN A YRS
Spek. See
—
supported by substantial evidence to which the Com-
mission’s reasoning was applied.
Thus, in the present proceeding, we are convinced
that labor cost savings, in the approximate mag-
nitude discussed elsewhere in the report, will oc-
cur. Moreover, in our judgment the likelihood
that the Department would have been able to
show otherwise through the discovery or further
hearing procedures which it sought, was not suf-
ficiently. great to justify any additional time and
expense in this already prolonged proceeding.
331 1.C.C. 264.
The Stock Exchange Ratio.
By Section 5(2)(b) of the Act the Commission in
' authorizing a merger may provide such terms and con-
ditions as it finds to be “just and reasonable.” One of
} the present terms and conditions makes provision for
3 the ratic of stock exchange. See Schwabacher v.
é United States, 334 U.S. 182; Friedman v. United
; States, 168 F. Supp. 815, 818 (S.D. N.Y.), aff'd per
curiam, 359 U.S. 205; Stott v. United States, 166 F.
Supp. 851 (S.D. N.Y.). The Commission decided that
the stock of New Company would be exchanged with
the stockholders of the respective Northern Lines as
follows:
Northern Pacific stockholders would receive common
stock on a share for share basis. Great Northern
stockholders would receive stock on a share for share
basis plus one-half share of New Company’s $10.00
par value 514 percent preferred stock for each share
of Great Northern stock held at the date of the merg-
42
WILLS REEDS IEEE ONS IY IEE MARLINS LIES GLONG BIE LNT TEIN RIOT JORIS ICE thon SUP EE
43
er.” The preferred stock is to be retired, through the
operation of a mandatory sinking fund, over a 25 year
period beginning at the fifth anniversary of the
merger. Also, the preferred stock would be redeem-
able at the option of New Company after the fifth an-
niversary in a manner not separately opposed.
The present opposition to the exchange ratiop is
advanced by The Northern Pacific se aesibis Fo
tective Committee, to be referred to as the Committee.
It appears to represent some 3 percent of Northern
Pacific stockholders holding about 5 percent of the
stock of that company, We review first the manner in
which the Commission arrived at the exchange ratio.
We then consider the Committee’s objections.
The officials of the companies, advised by experts,
began discussions as early as 1955, and thenceforth
engaged in extensive negotiations seeking agreement
in this matter. A very important problem in deter-
mining the ratio resides in the extensive land holdings
of Northern Pacific, with their values in timber, oil,
gas and other minerals. This company’s over-all fi- __
nancial advisor was Morgan-Stanley & Company,
which probed various aspects of the nroblem deemed
by these experts to be relevant. The i:iancial adviser
to Great Northern was the First Boston Company. An
expert jointly available was Wyer. Ata certain point
in the negotiations agreement between the officers of
The Burlington stock owned by Great Northern and
Northern Pacific, totalling 97.18 percent of the total out-
standing Burlington stock, will be canceled but the minority
stockholders of Burlington will receive 3.25 shareg of com-
mon stock in New Company in exchange for each share of
their Burlington stock.
Ce areca crn ec crac ce ae
ae EE ED OSL OC LESLIE ADAGE LEY VE ERNE SA em ye
. » ~ site tt eo ’ 7 ~~ son — a i . pa xt ee ee
wemuiahaanncb scales shines. RL AIMS DL REE. HRT LS OE ERT WARS DAI eR ,
etc ee
eae
44
the two companies was reached to the effect that on
the basis of railroad earnings, Great Northern would
contribute 60 percent of the value of New Company to
40 percent contributed by Northern Pacific. The Com-
mittee does not question these figures. The negotia-
tions then were devoted to seeking agreement as to
treatment of the natural resources.
There was exploration of an approach by which
two classes of stock would be issued by New Company,
one to Northern Pacific stockholders alone from which
they would derive income only from Northern Pa-
cific’s natural resources, The difficulty New Com-
pany would encounter in administering the two
classes of property, with stockholders having diver-
. gent interests, opposed this possible solution. An-
other possibility was to spin off from its other proper-
ties the natural resource properties of Northern Pa-
cific. This was rejected because a spin-off free of en-
cumbrances would create problems with mortgage
trustees and bond holders, with the prospect of ex-
tended litigation and the probability that it could never
be consummated successfully; and if a spin-off were
subject to the mortgages there would be prohibitive
tax consequences. Northern Pacific concluded that
the natural resource properties would have to be in-
cluded in the merger.
Great Northern’s proposals rested in good part
upon its greater earning power to be contributed to
New Company. Northern Pacific finally acceeded to
the need to abandon its claim of full equality and to
give Great Northern stockholders full recognition for
a time at least of that company’s greater earning
—_—_
. — " - Bee ES EELS LOREM ISR EIS EET as
EILEEN ee I é
Poke
Cer se ee
—
45
power. After prolonged discussions the companies
agreed to the terms of the stock exchange ultimately
approved by the Commission. It had been approved
by the consultants of both companies, Morgan-Stanley
for Northern Pacific and First Boston Corporation for
Great Northern. It was also approved by applicants’
respective Boards of Directors and stockholders.
The Commission, however, based its approval upon
an independent determination, considering the pro-
longed negotiations involving arms length bargaining
as evidence of fairness in the exchange ratio and con-
cluding that the ratio reflected fairly the contributions
of each group of stockholders to the combined system.
The Committee conceded that a definitive valuation
would be difficult if not impossible. The Commission
pointed to the fact that the Committee’s real objection
was to the inclusion of the natural resources and not
to undervaluation of them. The Commission con-
cluded the Committee’s position was “contrary to the
record, which shows that the full potential value of the
natural resources properties was fully reflected in the
shares allotted to the Northern Pacific stockholders.”
331 I.C.C. 259.
This whole matter, including the views advanced
by the Committee, was explored in great detail by the
Commission. On the basis of the record upon which
the Commission relied, we have no reason to rule other
than that the ratio which was established, with ap-
proval of the companies and of a large majority of
their stockholders, is just and reasonable. Moreover,
we do not agree that the Commission should be re-
quired to reopen the record to update it. We think
that such fluctuations as the Committee refers to as
a EO ae eT yea Fa EE LEA GTE ALE BAT LGR ELEN Te BAT A BFS tise: .
Fo hers nb lia go SEs
5 y
possibly relevant are, as the Commission now urges,
those normal fluctuations which can _— to
occur during the course of any protracted administra-
tive proceedirg and which have no effect upon the
ultimate fairness of the Commission’s finding. The
arguments pro and con reopening cancel out each
other sufficiently to leave the discretion exercised by
the Commissicn free of abuse. United States v. Pierce
Auto Lines, 327 U.S. 515, 534-35.
In conclusion on this branch of the case, although
we have not specifically discussed each of the argu-
ments advane:d by the Committee, we think all sig-
nificant issues regarding the ratio were fully consid-
ered and decided in a manner which requires the
court to withhold any direction of its own that the
ratio should be different.”
The Alleged Agreement of Burlington Not to
Seek Entrance to the City of Milwaukee.
As has been said the applicants, after the First
Report’s disapproval of the merger, entered into sepa-
rate agreements with Milwaukee and North Western
to meet conditions the absence of which had led Mil-
waukee and North Western originally to oppose the
merger and in part had led the Commission to dis-
approve it. The substance of these agreements is now
required by the Commission to be met as conditions
accompanying its approval. North Western withdrew
its opposition and urged approval, and Milwaukee now
2 The Commission advised that as of March 14, 1968,
73.20% of Northern Pacific’s stockholders voted in favor of
the merger, 2.57% against.
a :
actively supports approval of the merger. In connec-
tion with all this, applicants have undertaken not to
contest the pending merger of Milwaukee and North
Western. The Department of Justice considers that
these arrangements have been made to further the
private interest of the railroads, to the detriment of
the public interest. Moreover, the Department refers
to a serious possibility, which it unsuccessfully sought
to have the Commission explore, that the Milwaukee
(and the North Western as well) withdrew its opposi-
tion to this merger in return for the Burlington’s
promise not to seek a condition in the North Western-
Milwaukee proceeding giving Burlington entry into
the City of Milwaukee. We accept the Commission’s
treatment of the matter, as follows:
Justice views such an arrangement as an objec-
tionable attempt by these carriers to compromise
their differences at the expense of the general
public, and to effect a restructuring of railroad
alignments in the West with no regard for the
public interest and in derogation of our statu-
tory authority. Our duty under. section 5 is to
examine the proposal to determine whether it is
consistent with tle public interest. The fact that
C&NW and the Milwaukee withdrew their oppo-
sition following the agreement does not delete
from the record nor detract from the significance
of the evidence they presented in opposition to the
Northern Lines proposal. It is that record, as
amplified on limited further hearing, and not the
agreement, which justifies the result reached
after reevaluation. We have the power to re-
quire protective conditions, whether agreed to or
not, when the public interest demands. Accord-
ingly, the fact that the parties may have reached
PIM a
“—"
an agreement in no way relieves us of our statu-
tory duty. We approach the case in that light
without regard to alleged motivation of the par-
ties. 331 LC.C. 243.
As to the alleged undertaking of Burlington not to
seek entrance into the City of Milwaukee we think the
Commission was not required because of this to en-
large the scope of the limited further hearing. The
question whether the present merger is consistent
with the public interest must be determined independ-
ently of any such undertaking. Burlington, in the
Milwaukee-North Western proceeding, has denied any
such agreement; but if it were made it does not affect
the power of the Commission to require Burlington to
- disregard such an undertaking should the Commis-
sion deem it in the public interest in either the Mil-
waukee-North Western proceedings or in these North-
ern Lines proceedings. See Condition 33 of the Com-
; mission’s Order. 331 I.C.C. 359, as modified, 331
: I.C.C. 879. In determining whether to require such
action by Burlington, the Commission must act
j strictly in the public interest uninfluenced by any such
| undertaking, if such there be. See B. & O. R. Co. v.
United States, 386 U.S. 372, 436-37, concurring opin-
; ion of Mr. Justice Brennan; Interstate Commerce
Commission v. Chicago, Rock Island & Pacific Ry. Co.,
i 218 U.S. 88, 103. The Department does not allege
that the suspected undertaking is in violation of law.
The Question of Consolidation of Western Railroad
Mergers with the Northern Lines Proceeding.
The Denver & Rio Grande Western Railroad Com-
pany, after the Commission’s limited further hearing
48
aa ;
on reconsideration of the applications, petitioned the
Commission to be allowed to present evidence on the
over-all effects and cross effects of this and two other
pending mergers.” Rio Grande also sought a with-
holding of decisions in this proceeding, as well as in
the others, pending determination of the effects of the
proposals. In denying a further hearing the Commis-
sion nevertheless recognized the importance of the
effect of its decision upon the general railroad struc-
ture in the west.”
In the event the Commission should find other pend-
ing unifications to warrant approval, it decided to
meet the problem by the exercise of its broad power to
relate the pending applications to other proposals,
while at the same time moving this proceeding for-
ward in a manner deemed best to protect the public
and competing rail carriers. It was decided that con-
solidation of the cases was unworkable and that final
** These were proposals involving the Chicago and North
Western Railway Company—Control—Chicago, Rock Island
& Pacific Railroad Co., the Rock Island case, the Chicago,
Milwaukee & North Western Transportation Company—Con-
solidation—Chicago & North Western Railway Co., and Chi-
cago, Milwaukee, St. Paul & Pacific Railroad Company, the
Milwaukee case. Finance Docket Nos. 22688 and 24182.
*2 The Commission stated: “The Rio Grande request places
in sharp perspective the important question of what will be
the effect of our decision here upon the general railroad
structure in the West generally in the event other pending
western rail unifications should later also warrant our ap-
proval. While we will not follow the course of action pro-
posed by Rio Grande, we will herein provide an effective
procedure by which that impact can later be measured and
appropriately dealt with.” 331 I.C.C. 286.
p
ne
—"
decision in each case should not be withheld until all
were ready for decision.
We have pointed out that the Commission reserved
jurisdiction for a period of five years in order to im-
pose such just and reasonable conditions as may be
necessitated by any cumulative or cross-over problems
stemming from approval of this merger and any other
transaction authorized under Section 5 with respect
to the territory involved, citing B. & O. R. Co. v. Unit-
ed States, 386 U.S. 372, 387. Jurisdiction was re-
tained for a like period of five years in order to en-
able the Commission to consider among other things
petitions under Section 5(2)(d) of the Act by any
railroad in the territory involved requesting inclusion
' in the merger authorized. Moreover, the Commission
decided that consummation of the merger would con-
stitute irrefutable assent by applicants to the reserva-
tion of power by the Commission to impose, after
hearing, such just and reasonable conditions as may
be necessary and appropriate.
In its April 11, 1968, Second Report on Reconsid-
eration, the Commission went further. Referring to
the delays incident to court litigation and other fac-
tors in connection with merger proceedings but at the
same time not overlooking the fact that cross-over ef-
fects, if any, would not come into being until after
consummation of one or more of the proposed merg-
ers, the Commission modified the provision for five-
year retention of jurisdiction by reserving jurisdic-
tion to alter that period if and when it is shown to be
necessary or appropriate so that the period would be
“5 years or such other period as the Commission may,
50
—
for good cause shown, hereafter prescribe.” 331
I.C.C. 879. The Commission stated that this would
not impose an undue burden on applicants or render
the merger in any way inconsistent with the public
interest and that at the same time it would further
the congressional policy toward consolidation of the
Nation’s railroads. See Brotherhood of Railroad
Maintenance Employees v. United States, 221. F
Supp. 19, 30 (E.D. Mich.), aff'd per curiam, 325 U.S.
216. Apparently satisfied with the situation as it
thus developed Rio Grande does not press in court any
objection to the merger of the Northern Lines,
Our position is that we find no solid basis for con-
cluding that the discretion exercised by the Commis-
sion is unreasonable. There are such cases, as illus-
trated by the Supreme Court’s remand in B. & O. R.
Co. v. United States, supra, where failure to afford
protection for other railroads would be fatal to final
approval of the merger. No showing is made in the
present case of a comparable situation.” The manner
in which the Commission moved forward while at the
same time providing for readjustments in the light ot
the over-all situation in the territory affected as it
might develop seems to the court to be reasonable in
51
28 With respect to a like contention urged by Soo in op-
position to the merger of the North Western and the Chi-
cago & Great Western Railway Company, Commission treat-
ment, similar to that involved herein, was upheld: “Concern-
ing these facts and that the Supreme Court has not held
that the Commission must consolidate all current and re-
lated merger proceedings, we hold that it was not an abuse
of discretion to refuse to do so here.” Soo Line R. Co., v.
United States, 280 F. Supp. 907, 913.
; Ty
pursuit of the public interest as represented by the
national transportation policy.
Contentions of the State of Washington. |
The State of Washington contends against the
merger on the basis of a provision of her constitution,
article XII, section 16, prohibiting consolidation of the
stock, property, or franchises of competing railroads
within the State. All else aside this provision must
give way to the federal power to regulate commerce
among the States, which is the basis for the Act the
Commission has administered in this case. That Act
provides inter alia that carriers which merge with
Commission’s approval are relieved from the opera-
tion not only of federal antitrust laws but of all pro-
hibitions of State law. 49 U.S.C. §5(11), note 6,
supra. Schwabacher v. United States, 334 U.S. 182,
193-197; Seaboard Air Line R. Co. v. Daniel, 333
U.S. 118, 126.
In other significant respects contentions of the
State of Washington overlap those considered in por-
tions of this opinion which concern the strengthening
of the Milwaukee, the savings attributable to the
merger, and the over-all competitive situation, both
intramodal and intermodal.
Contentions of the City of Auburn,
in Western Washington.
Auburn fears that it would be eliminated as a
transcontinental freight origination and termination
point with the result that the Northern Pacific yard
there would be closed. Though it is not certain this
53
would in fact occur,” it is said that about half of the
500 Auburn residents employed at the yards would
lose their employment and the balance would be
obliged to move elsewhere if they wished to retain a
job, with substantial economic loss to Auburn. None
of the employees of the Northern Lines join Auburn
in urging disapproval of the merger. Satisfactory ar-
rangements have led to withdrawal of employee oppo-
sition. The Commission considered Auburn’s position
in the context of the whole problem. The possible ad-
verse economic effect upon the city was thought not
to justify withholding the benefits of approval. On
the whole case this is a reasonable judgment of the
Commission which we accept.
Contentions of the Board of Railroad Commissioners
of the State of Montana, Referred to as Montana.
Montana pursues contentions, sponsored also by the
Department of Justice, regarding the effect of the
merger on competition, which we need not discuss
anew, believing that we have already sufficiently en-
larged upon our views. Montana also warns against
attaching weight to approval of the merger by vari-
ous elements within the State; but its principal con-
tentions, other than with respect to the competitive
situation, are against the Commission’s approval of
certain inter-railroad stipulations between New Com-
pany and Western Pacific, Southern Pacific and the
Santa Fe, and acquisition by New Company of the
The President of Northern Pacific filed an affidavit in
Auburn’s suit against the United States [(W. D. Washing-
ton) Civil No. 7706, filed May 3, 1968] to the effect that the
Auburn yard would be maintained.
: 7
properties of motor carriers owned by Burlington,
Northern Pacific and Great Northern.
On a record in which they are incorporated the
Commission described the stipulations as
[B]asically the standard routing conditions
tailored to the specific situations involved, [rep-
resenting] the voluntary action of free parties,
each looking to its reasonable interests and those
of its patrons and markets.
In our opinion, these stipulations are indeed in
the public interest and should be approved.
331 I.C.C. 282.
We defer to the judgment of the Commission after
its full consideration of the stipulations in its Second
- Report, preceded by the Examiner’s approval and the
Commission’s in its First Report. See 328 I.C.C. 480.
The record, aided by the expertise involved, precludes
a ruling by the court now that approval of the stipula-
tions is unsupported by the requisite evidence or is
otherwise invalid.
As to the problem of motor carriers Montana states
that the Act, 49 U.S.C. § 5(2) (b), provides that if a
carrier by railroad is an applicant in a case which in-
volves a motor carrier, “the Commission shall not en-
ter such an order unless it finds that the transaction
proposed will be consistent with the public interest
and will enable such carrier to use service by motor
vehicle tc public advantage in its operations and will
not unduly restrain competition.” Montana contends
that the findings thereby required were not made and
that those made are not supported by requisite evi-
dence.
a
55
Montana seems to overlook the findings of the Sec-
ond Report, 331 I.C.C. 29C, not only as to the public
interest but also that the proposed transaction “will
enable the Great Northern Pacific and Burlington
Lines, Inc., as in the case of its predecessors in inter-
est, to use service by motor vehicle to public advan-
tage in its rail operations, and will not unduly re-
strain competition.”
The details of the motor carrier operations are
disclosed in the record. The Commission made find-
ings that each subsidiary motor carrier would con-
tinue to operate its own equipment under its own au-
thority and over its own routes, no new motor currier
network would be created, and the only change would
be in ownership, that is, New Company in lieu of the
individual applicants, with no adverse effect on com-
peting motor carriers. The evidence in the record
with respect to the details of these matters support
the conclusionaly factual findings of the Commission.
Contentions of Livingston Anti-Merger Committee.
: The principal contention of the Committee seeks to
raise for decision within the merger case a title case
of great magnitude. The Committee contends that the
history of the title to the properties now in Northern
Pacific Railway Company, beginning with the Act of
Congress of July 2, 1864 (13 Stat. 365) incorporating
the “Northern Pacific Railroad Company,” shows that
the acquisition in 1896 of the properties by Northern
Pacific Railway Company by foreclosure proceedings
was invalid. This history is long in time and com-
plicated in nature. After reviewing it with aid of the
56
briefs we conclude the Commission did not err in re-
fusing to disapprove the merger because of the Com-
mittee’s challenge. In United States v. Northern Pa-
cific Ry. Co., 311 U.S. 317, 328, though the litigation
involved other issues, the Supreme Court in 1940, in
tracing the title of Northern Pacific, said:
The corporation chartered by Congress [the Rail-
road Company] operated the road until receivers
were appointed in 1893. Pursuant to foreclosure
proceedings the Northern Pacific Railway Com-
pany [the applicant] acquired title to the rail-
road, the land grant, and all other property of the
original corporation and has since operated the
road and obtained patents for millions of acres
under the land grants.
And see Northern Pacific Ry. Co. v. Boyd, 228 U.S.
482, 502, holding the foreclosure sale binding between
the parties though not against the creditor Boyd;
Landell vy. Northern Pacific Ry. Co., 122 F. Supp. 253
(D.D.C.), where it is held that laches barred the effort
there to upset Northern Pacific’s title, aff'd, 96 U.S.
App. D.C. 24, 223 F.2d 316, cert. denied, 350 U.S.
844. And see the opinion of Attorney General Judson
Harmon, 21 Op. Atty. Gen. 486 (1897), and that of
Attorney General W. H. Moody, 25 Op. Atty. Gen.
401 (1905). Mr. Moody became an Associate Justice
of the Supreme Court. The Commission was not re-
quired to re-litigate the issue or to withhold approval
of the merger pending possible new litigation over
Northern Pacific’s title. For purposes of merger pro-
ceedings it could rely on the existing judicial records
in that regard, supplemented by the opinions of two
57
Attorneys General. Should these old problems engage
the judiciary again in separate litigation placing
Northern Pacific’s title in issue, and any different re-
sult eventually be reached from that heretofore re-
corded, the effect on the merger in its then status
would be for the judiciary to resolve in its decree in
that litigation. '
Conclusion.
To explain in a manner to carry conviction to all
concerned the decision of so intricate a case is per-
haps impossible. The merger, its accompanying con-
ditions and its related transactions will bring about_
changes in vast enterprises which took over from the
pony express, the stagecoach and the covered wagon.”
The romance of railroad building is all but lost in the
welter of data in the record before us, which has been
sculptured into positions which are not adhered to
with unanimity by all affected. Great expectations of
an earlier era became modified by the impact of
events. More rails were laid than need required as
matters developed, or so it is claimed.’ Only time and
experience can tell with greater certainty whether this
is so. The Commission’s present judgment, however,
is not for that reason to be voided.
We think the orders in suit, considered under the
criteria respectively applicable to the Commission and
to this court, see Penn-Central Merger and N & W.
Inclusion Cases, supra at 498-99, withstand the chal-
lenges of the litigation.
2sThe pony express carried the mail from St. Joseph to
Sacramento.
. .
58 ;
The complaints accordingly will be dismissed and
the orders of the Commission will be affirmed. Our
order will be stayed for fifteen (15) days from its
date. If within that period notice of appeal to the
Supreme Court is filed and an application for further
stay is made to that Court our stay will stand en-
larged until determination of such application or other
order of the Chief Justice of the United States, or of
an Associate Justice of the Court, or of the Court it-
self.”
/s/ David L. Bazelon
Chief Judge, United States
Court of Appeals for the
District of Columbia Circuit
/s/ Charles Fahy
Senior Circuit Judge, United
States Court of Appeals for the
District of Columbia Circuit
/s/ Edward M. Curran
Chief Judge, United States
District Court for the
District of Columbia
Date of Issuance: November 20, 1968.
26 See Erie-Lackawanna R.R. Co. v. United States, 279 F.
Supp. 316, 356.
|
59
APPENDIX BS _
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
Civil Action No. 1132-68
UNITED STATES OF AMERICA, PLAINTIFF,
CHARLES E. BRUNDAGE, BRADFORD F. STORY, SAMUEL
C. WILLIAMS, JR., WARREN CLARK, constituting
THE NORTHERN PACIFIC STOCKHOLDERS’ PROTEC-
TIVE COMMITTEE, BOARD OF RAILROAD COMMIS-
SIONERS OF THE STATE OF MONTANA, STATE OF
WASHINGTON, CITY OF AUBURN, PUBLIC SERVICE
COMMISSION OF THE STATE OF MINNESOTA, LIV-
INGSTON ANTI-MERGER COMMITTEE, INTERVENOR-
PLAINTIFFS
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, DEFENDANTS,
GREAT NORTHERN RAILWAY COMPANY, NORTHERN
PACIFIC RAILWAY COMPANY, CHICAGO, BURLING-
TON & QUINCY RAILROAD COMPANY, SPOKANE,
PORTLAND AND SEATTLE RAILWAY COMPANY, Pa-
CIFIC COAST RAILROAD COMPANY, GREAT NORTH-
ERN PACIFIC & BURLINGTON LINES, INC., CHICAGO,
MILWAUKEE, ST. RAUL & PACIFIC RAILROAD CoM-
PANY, 230 PACIFIC NORTHWEST SHIPPERS, PUBLIC
UTILITY COMMISSIONER OF OREGON, INTERVENOR-
DEFENDANTS
ie.
60 P|
Before: Bazelon,* Chief Circuit Judge, Fahy,*
Senior Circuit Judge, and Curran, Chief District
Judge.
ORDER
Upon consideration of the whole case as submitted,
and in accord with the opinion of the court issued this
date, it is
ORDERED AND ADJUDGED that the complaints are
dismissed and the prayers that the orders of the Com-
mission in suit be annulled, suspended, enjoined and
set aside are denied, and it is
FURTHER ORDERED AND ADJUDGED that the orders
of the Commission in suit are affirmed; and it is
FURTHER ORDERED AND ADJUDGED that the stay or-
der of May 16, 1968, entered herein by this court, is
vacated; and it is
FURTHER ORDERED AND ADJUDGED that this order is
stayed for fifteen (15) days from the date hereof, and
if within that period notice of appeal to the Supreme
Court is filed, accompanied by an application to that
Court for further stay, the fifteen day period of this
court’s stay will stand enlarged until determination of
such application or other order of the Supreme Court
or of the Chief Justice of the United States or of an
Associate Justice of the Court.
Per Curiam.
Dated: November 20, 1968.
* Serving with Chief Judge Curran as members of the Dis-
trict Court of three judges designated by the Chief Circuit
Judge by order herein of May 10, 1968.
nN
vv .
—
¢
61
APPENDIX-C OH
INTERSTATE COMMERCE COMMISSION
Finance Docket No. 21478 *
GREAT NORTHERN PACIFIC & BURLINGTON LINES, INC.
—MERGER, ETC.—GREAT NORTHERN RAILWAY
COMPANY ET AL.
Decided March 31, 1966
1. Merger of the properties and franchises of Great
Northern Railway Company, Northern Pacific
Railway Company and Chicago, Burlington &
Quincy Railroad Company, into Great Northern
Pacific and Burlington Lines, Inc., for ownership,
management and operation, found not to be con-
sistent with the public interest.
2. Applications in the major and related transactions
denied.
Kenneth F. Burgess, Ray Garrett, John B. Schwemm,
D. Robert Thomas, Harold K. Bradford, Jr., Roger
T. Crosby, E. T. Conmy, Jr., R. T. Cubbage, M. L.
Countryman, Jr., Frank S. Farrell, James A. Gillen,
Anthony F. Kane, Martin Lucente, Frank J. Magill,
Eldon Martin, Earl F. Requa, Woodrow L. Taylor,
R. Paul Tjossem, L. E. Torinus, and James R. Walker
for applicants.
2 This report also embraces Finance Docket Nos. 21479, Chi-
cago, Burlington & Quincy Railroad Company, et al.—Stock
Issuance, et cetera, and 21480, Great Northern Pacific & Bur-
lington Lines, Inc., et al—Construction and Abandonment.
62
Homer G. Hamilton for the State of Nebraska, El-
don Martin for the State of Missouri, The Missouri
Farmers Association, The Nebraska Lumber Mer-
chants Association, the North Idaho Economic De-
velopment Association, Inc., The Quincy (Ill.) Cham-
ber of Commerce, The Alliance (Nebr.) Chamber of
Commerce, and six shippers, Henry A. Archambo for
the Minneapolis (Minn.) Traffic Association, I. N.
Early for the Billings (Mont.) Traffic Bureau, H. E.
Franklin, Jr., for the port of Tacoma, Wash., and the
Tacoma (Wash.) Chamber of Commerce, Gerald E.
Franzen for the Chicago Association of Commerce
and Industry, EZ. J. Hansen for the Grand Forks (N.
Dak.) Chamber of Commerce and Red River Valley |
Potato Growers, Association, J. D. Paul for the Seat-
tle (Wash.) Chamber of Commerce and the Seattle
Traffic Association, E. C. Pewters for the Everett
(Wash.) Chamber of Commerce, Robert B. Post for
Cargill, Incorporated, Harry C. Sundblad for the
Omaha (Nebr.) Chamber of Commerce and the Oma-
ha Grain Exchange, Erv. A. Timm for the St. Paul
(Minn.) Area Chamber of Commerce, and Lillian
Widmyer for herself, interveners in support.
John M. Agrey, John C. Stewart, and Martin Va-
aler for the Public Service Commission of State of
North Dakota, John G. Alley for the Province of
British Columbia (Canada), J. E. Finsness for the
Fargo (N. Dak.) Chamber of Commerce, and Fred
H. Tolan for Whatcom County (Wash.) Traffic and
Rates Bureau, Alaska Copper Companies, Inc., Wash-
ington-Oregon Shippers Cooperative Association, and
Van Waters & Rogers, Incorporated, and 227 ship-
.
63
pers and shipper associations, interveners in condi-
tional support.
Osborne Becklund, Charles H. Clay, F. W. Crouch
and C. Harold Peterson for Soo Line Railroad Com-
pany, Gene F. Bennett, Edwin R. Eckersall, J. C.
Garlington, Raymond K. Merrill, Robert F. Munsell,
Warren H. Ploeger, Stuart W. Rider, Jr. and Edwin
O. Schiewe for the Chicago, Milwaukee, St. Paul &
Pacific Railroad Company, George L. Buland, Charles
W. Burkett, Jr., Kenneth M. Judd, Thormand A.
Miller, and Oglesby H. Young for the Southern Pa-
cific Company, Martin Cassell and Thomas I. Megan
for the Chicago, Rock Island & Pacific Railroad Com-
pany, Frank W. Davis, Jordan J. Hillman, John C.
Danielson, Carl McGowan, Charles H. Dickman, Rich-
ard M. Freeman, Harry B. Otis, and Edgar Vanne-
man, Jr., for the Chicago and North Western Rail-
way, Leighton Hatch, Walter G. Treanor, and E. L.
Van Dellen for the Western Pacific Railroad Com-
pany, L. W. Hobbs, Randall B. Kester, Francis J.
Melia, and Howard E. Roos for the Union Pacific
Railroad, and Starr Thomas for the Atchison, Topeka
and Santa Fe Railway Company, intervening rail
carriers.
Elmo F. Clark, Edward F. Heitz, Charles W. Bucy,
and Joseph E. Quin for Orville F. Freeman, Secre-
tary of Agriculture of the United States, and William
H. Orrick, Jr., Joseph J. Saunders, Thomas S. How-
ard, Earl A. Jinkinson, and James R. Mitchell for the
United States Department of Justice, interveners in
opposition.
64 Be
Robert W. Mattson, Richard Musenbrock and Wal-
ter F. Mondale for the State of Minnesota and the
Minnesota Railroad and Warehouse Commission,
C. A. Carr, Herman L. Bode and C. A. Merkle for
the State of South Dakota and the Public Utilities
Commission for the State of South Dakota; John J.
O’Connell and Fran.: B. Hayes for the State of Wash-
ington, Waldo F. Wheeler, John J. Goen, and Leo J.
Steffen for the Iowa State Commerce Commission,
and Ronald L. Anderson, Jack L. Chestnut, Walter
F. Mondale, Oliver A. Ossanna, Elmer Petersen, Paul
Rasmussen, and Otto A. Ratke for the Minnesota
Railroad and Warehouse Commission, John L. Mc-
Keon, John C. Sheehy, William P. Myfich and Paul |
T. Smith for the Board of Railroad Commissioners
of the State of Montana, and Robert Y. Thornton,
Lloyd G. Hammel and John F. Weisser for the Public
Utility Commissioner of Oregon, interveners in op-
position.
Arvid M. Falk and Keith M. Stidd for the city of
Minneapolis (Minn.), Richard P. Gallagher for the
city of Mandan (N. Dak.), Anthony C. Gospodar for
the city of Breckenridge (Minn.), Daniel A. Klas for
the city of St. Paul (Minn.), Alva C. Long for the
cities of Auburn and Sumner (Wash.) and the Au-
burn (Wash.) Chamber of Commerce, Toby FE. Marke-
wicz for the city of Superior (Wis.), R. G. Nerison
for the city of Jamestown (N. Dak.), Thomas E.
Plante for the city of Duluth (Minn.), Bernard J.
Gallagher for the Spokane (Wash.), Anti-Merger
Association, George Kargianis for the Seattle ( Wash.)
Improvement Council, Thomas Kennedy for the Mis-
65
soula (Mont.) Civie Group, C. W. Leaphart, Jr.,
W. R. McGee, and Webb Sullivan for the Livingston
(Mont.) Anti-Merger Committee, Harry C. Munger
for the Duluth (Minn.) Volunteer Committee Oppos-
ing Merger, and Robert D. McMullan for the Clark
County (Wash.) Anti-Merger Association, interven-
ers in opposition.
Edward J. Hickey, Jr., James L. Highsaw, and
William G. Mahoney for Railway Labor Executives
Association, and FE. L. Dirks, Charles B. Falconer,
Robert Lee Kelleher, Ernest Monroe, J. H. McLaugh-
lin, Paul EF. Peterson, and C. W. Wellnitz, for various
other organizations of railway employees, interveners
| in opposition.
Joseph R. Dudley for the Minnesota Motor Trans-
port Association, Clifford Ferguson for Ed Benedict,
and Samuel R. Freeman for Wheat Producers Trans-
portation Committee, interveners in opposition.
A. Wilford Larson and Richard V. Maves for the
Public Service Commission of Wisconsin, A. C. Stod-
dard and John E. Tormey for the Michigan Public
Service Commission, Louis B. Dailey for Northern
Pacific Stockholders’ Protective Committee, Philip H.
Porter for the Wisconsin Manufacturers Association,
and Oliver Lee Siewart for Southwest Oregon Ship-
pers Traffic Association, interveners seeking imposi-
tion of specified conditions.
REPORT OF THE COMMISSION
WEBB, Commissioner:
By joint application filed February 17, 1961, au-
thority is sought by Great Northern Railway Com-
7.
, .
pany (Great Northern),? of St. Paul, Minn., Northern
Pacific Railway Company (Northern Pacific), also of
St. Paul, Pacific Coast R. Co. (Pacific Coast), of Seat-
tle, Wash., Chicago, Burlington & Quincy Railroad
Company (Burlington), of Chicago, Ill., and Spokane,
Portland and Seattle Railway Company (SP&S), of |
Portland, Oreg., common carriers by railroad subject
to part I of the Interstate Commerce Act, and Great
Northern Pacific & Burlington Lines, Inc. (New Com- |
pany), not a carrier, of Wilmington, Del., to consum- |
mate certain transactions under section 5(2) of the
act, to issue certain securities and assume obligation
and liability in respect of securities under section 20a
of the act, and to effect certain extensions and aban-
donments of lines of railroad under sections 1(18) to
1(20), inclusive, of the act.
The several docketed applications are described
fully and correctly at pages 7-10, inclusive, of the
recommended report. These applications are interde-
pendent parts of a proposal for the unified operation,
control and management of the Northern lines (Great
Northern and Northern Pacific), Burlington, and
SP&S.
Extensive public hearings were held beginning Oc-
tober 10, 1961, and ending July 10, 1962. The exam-
iner’s report recommended approval of the merger
and related transactions, subject to various conditions,
and was served August 24, 1964. Exceptions to the
66
2In this report reference to applicants and interveners and
others mentioned will be by the distinctive names in their
respective corporate titles or by the designation shown in
parentheses.
paabiennapeianntian
—
67
recommended report and replies thereto were filed by
numerous parties. Oral argument before the Com-
mission was held on June 16, 1965.
CHARGES OF LACK OF A FAIR HEARING
Before considering this proceeding on the merits,
we made an exhaustive examination of the record to
determine whether there was any substance to the
charges concerning lack of a fair hearing. We are
convinced that such charges are totally lacking in
merit. Our reasons for reaching this conclusion are
explained fully in the Report of the Commission on
Petitions for Rehearing served concurrently with this
report.
OPERATIONS AND PROPERTIES OF THE APPLICANTS
The corporate status of the applicants, together
with the financial transactions involved in consum-
mating the proposed merger, are set forth correctly
and in detail at pages 21-22, 27, 33, 38-39, and 57-88
of the recommended report. In view of our reasons
for finding that approval of the proposed merger
would not be consistent with the public interest, it is
unnecessary to discuss the financial implementation
of the proposal.
Great Northern’s railroad operations are conducted
over 8,277 miles of road, of which 4,355 are main
lines and 3,613 are branch lines.’ Its principal main
lines of railroad are located in 10 States‘ and 2 Cana-
* The figures cited reflect operations as of December 31,
1960.
* Wisconsin, Minnesota, North Dakota, South Dakota, Iowa,
Montana, Idaho, Washington, Oregon, and California.
me.
dian provinces,* extending from Duluth, Minneapolis,
and St. Paul, Minn., ‘superior, Wis., and Sioux City,
Iowa, westerly to Seattle, Wash., and other western
cities, including Vancouver, B. C., and Portland,
Oreg. Great Northern's principal branch line mileage
is in Minnesota and North Dakota. A line also ex-
tends southerly through central Oregon to Bieber,
Calif., over a portion of which between Chemult and
Klamath Falls, Oreg., it operates over the tracks of
Southern Pacific. Its principal points of interchange
with other railroads, in addition to the terminal
points mentioned above, are Laurel, Billings, Butte,
and Sweetgrass, Mont., Spokane, Chemult, and Noyes,
_Minn., Northgate, N. Dak., New Westminster, B. C.,
and Winnipeg.®
Northern Pacific conducted operations as of De-
cember 31, 1960, over 6,800 miles of road, of which
2,784 were main line and 4.016 miles were branch
line. Its principal main lines of railroad are located
in seven States’ and the Canadian Province of Mani-
toba, and extend from St. Paul and Minneapolis, and
from Superior and Ashland, Wis., and Duluth, west-
erly via Fargo and Bismarck, N. Dak., Billings, Butte
and Helena, Mont., Spokane, Seattle and Tacoma,
Wash., and Portland. Branch lines connecting with
EE
5 Manitoba and British Columbia.
* A more detailed description of Great Northern’s property
and equipment and that of its subsidiaries and affiliates may
be found at pages 23-27 and in appendix E of the recom-
mended report.
? Wisconsin, Minnesota, North Dakota, Montana, Idaho,
Washington, and Oregon.
_7_—"
69
the principal main lines serve the agricultural and
lumber producing territories which are intermediate,
and a line extending to a connection with its affiliate,
Midland, at Pembina, N. Dak., and International
Falls, Minn., enables it to serve Winnipeg. Its prin-
cipal points of interchange are at St. Paul, Duluth,
Ashland, Superior, Laurel, Billings, Butte, Spokane,
Seattle, Pasco and Portland. Internationally, the
principal peints of interchange with other carriers by
railroad are at Sumas, Wash., Pembina, and Winni-
peg."
In addition to its transportation properties and
other investments, Northern Pacific has large land
holdings which are important sources of income. Most
of the lands were part of the land grant made by
the Act of Congress of July 2, 1864, incorporating
the Northern Pacific Railroad Company and granting
lands to encourage construction of the railroad from
Lake Superior to Puget Sound by the northern route,
so as to bring about settlement and development of
that region, add value to the government lands there-
in, and establish facilities for the transportation of
mail, troops, munitions and public stores to and from
the west coast. To aid in the construction, 39,473,369
acres of alternate, odd-numbered sections of non-
mineral public lands were granted originally, together
with a right of way of 200 feet on either side of the
railroad where it passed through the public domain
*A more detailed description of Northern Pacific’s prop-
erty and equipment and that of its subsidiaries and affiliates
may be found at pages 27-33 and in appendix E of the
recommended report.
-
and necessary lands for station buildings, shops and
other appurtenances. The rights to them were ac-
quired by Northern Pacific at foreclosure and seques-
tration sales following foreclosure in 1896 of mort-
gages placed on the railroad and land grant by the
federal corporation.
As of December 31, 1960, Northern Pacific and its
subsidiaries owned in fee, 2,236,992 acres of land
(with the exception of certain minerals in 23,177
acres) in Wisconsin, Minnesota, North Dakota, Mon- _
tana, Wyoming, Idaho, Washington, and Oregon; and
certain mineral rights in an additional 6,075,659
acres of land in those eight States. In 1961, Northern
_ Pacifie’s net income of $5,913,216 from the natural
resources properties, without certain deductions, was
more than one-third of the total ret income of $16,-
313,322.
Northern Pacific’s gross revenues from timber, oil
and gas and other minerals for the 10-year period
1951-60, were as follows:
70
Year Timber Oil and gas Other minerals Total
1951------- $677,224 $695,520 $551,890 $1,924,634
1952------- 651,253 851,253) 511,449 2,144,076
1953------- 615,771 987,017 599,160 2,201,948
1954------- 1,023,063 1,327,019 1,023,711 3,373,793
1955------- 1,400,000 1,656,153 1,001,885 4,088,038
1956------- 1,914,538 3,209,362 1,224,277 6,348,177
1957------- 1,343,951 6,004,294 1,326,927 8,675,172
1958------- 2,036,313 7,074,449 752,639 9,863,391
1959------- 3,950,927 7.615,894 519,881 12,089,702
1960------- 3,584,685 7.387, 1&3 517,457 11,489,325
Burlignton’s railroad operations are conducted on
8,648 miles of road, of which 5,111 are main lines
and 3,536 are branch lines. Its principal main lines
of railroad are located in 11 States * and extend from
® Illinois, lowa, Kansas, Colorado, Minnesota, Missouri, Mon-
tana, Nebraska, South Dakota, Wisconsin, and Wyoming.
>a
Chicago, Ill., northwesterly to St. Paul and Minne-
apolis, and from Chicago westerly and southwesterly
to St. Louis and Kansas City, Mo., Omaha and Lin-
coln, Nebr., Denver, Colo., and Billings and Huntley,
Mont. Comnecting main lines extend to Peoria and
Rockford, Ill., Des Moines and Sioux City, Iowa, Dead-
wood, S. Dak., and via the line of a subsidiary (Padu-
cah & Illinois Railroad Company) to Paducah, Ky. It
maintains an extensive branch line system, principally
for grain in Nebraska and Kansas. Its principal
points of interchange are at Chicago, Peoria, and
East St. Louis, IIl., St. Joseph, Kansas City and St.
Louis, Mo., Omaha and Grand Island, Nebr., Council
Bluffs and Sioux City, Iowa, St. Paul, Minneapolis,
Denver, Billings, Laurel and Paducah.”
Pacific Coast’s railroad operations are all located
within King County, Wash., and comprise 32 miles of
road, all of which it owns. Pacific Coast provides
freight service only. It does not own any motive
power, rolling stock, or major maintenance equipment.
Such items of equipment as it requires are leased
from Great Northern.
SP&S road operations are conducted in Washing-
ton and Oregon on 599 miles of road, of which 515
are main line. The main lines of SP&S extend from
Spokane westerly along the Snake and Columbia
Rivers to Portland, and from Willbridge, Oreg., to
71
10 A more detailed description of Burlington’s property and
equipment and that of its subsidiaries and affiliates may be
found at pages 34-38 and in appendix E of the recommended
report.
72
Seaside, Oreg. The principal points of interchange
are at Spokane, Pasco, Vancouver, and Wishram,
Wash., and Portland, East Portland, North Portland,
Willbridge, Bowers Junction, and Linnton, Oreg."
The SP&S is owned jointly by the Great Northern
and Northern Pacific. Its main line provides the most
direct route from Spokane to Portland. Since Spo-
kane lies on the main transcontinental routes of the
Northern Lines and Portland is an important termi-
nal for both, the strategic importance of the SP&S is
obvious. Through ownership of the SP&S the North-
ern Lines have been able to deny to their chief com-
petitor, the Milwaukee Railroad, access to Portland.
If the line of the SP&S did not exist, Great Northern
would be required to reach Portland from Spokane via
Everett, Wash., and the Northern Pacific via Auburn,
Wash.
To summarize, applicants’ operations are conducted
primarily in the Midwest and South Central Plains,
the northern portions of the Central Plains, the Great
Plains, Mountain and Pacific Territory. The major
transcontinental routes of Great Northern and North-
ern Pacific operate generally through the same north-
ern States between the Twin Cities (St. Paul and
Minneapolis, Minn.) and Puget Sound, and the Pa-
cific Northwest. The major transcon‘inental routes of
Burlington are between Chicago and the Twin Cities,
4“ A more detailed description of the property and equip-
ment of SP&S and that of its subsidiaries and affiliates may
be found at pages 39-40 and in appendix E of the recom-
mended report.
7
~ SO PEEERT Ee
_—<
and between Chicago and Kansas City, Omaha and
Denver. The lines of SP&S form part of the through
routes to Great Northern and Northern Pacific on
traffic to and from northwest coast terminals.
The main lines of the twe Northern Lines are geo-
graphically parallel but the greater part of the mile-
age of the Northern Pacific is on the western part of
its system, while most of the mileage of the Great
Northern is on the eastern part of its system. Since
the Northern Lines serves the same Pacific ports, the
same lake ports, the same large eastern terminals,
and the same tier of States over paralleling lines, each
line is the most agressive and important competitor
of the other. The Northern Lines have controlled the
Burlington for more than 60 years through the own-
ership in equal amounts of approximately 97 percent
of the Burlington’s total capital stock. There is no
substantial competition, however, between the Bur-
lington and either of the Northern Lines. Their oper-
ations are essentially complementary rather than
competitive.
73
APPLICANTS’ TRAFFIC
The States served by the Northern Lines produce a
vast quantity of forest, agricultural, and mineral
products. The consist and volume of traffic of the
Great Northern and Northern Pacific are similar.
Their traffic differs to some extent, however, because
the lines of the Great Northern and Northern Pacific
are widely separated at some points. The traffic con-
sist of the Burlington differs from that of its parents
in that forest products comprise a much smaller pro-
i
portion of the total while manufacturers and miscel-
laneous traffic is larger than that of either of the two
Northern Lines.
The area served by the Burlington is more heavily
populated than the territory served by the Northern
Lines. The Burlington’s service area is complemen-
tary to that of the Northern Lines and provides an
important market for the raw and semi-finished prod-
ucts of the fields, forest and mines served by the two
Northern Lines. Burlington has connections at Chi- |
cago and Peoria, IIl., and St. Louis with other trunk ©
and terminal lines serving large steel, machinery, and
manufacturing plants that find a market in the Pa-
cific Northwest. In addition, Burlington serves many
packinghouse centers of the midwest, including Oma-
ha, Denver, Chicago, Kansas City, St. Louis, and St.
Joseph. Burlington serves the common terminals of
Twin Cities, Sioux City, and Laurel, at which com-
mon points a large volume of freight is interchanged
with the Northern Lines.
The tables below indicate for the three major ap-
plicants, total carloadings, gross freight revenues and
the percentage of system revenue derived from each
of the pirncipal commodity groupings for 1960 and
for 1963, the latest year for which comparable data
is available.” In this report, we have taken official
74
12 Commodity data for 1964-65 is reported pursuant to the
new commodity classification prescribed by the Commission’s
order in Commodity Classification for Reporting Purposes,
$23 I.C.C. 185, which is not comparable with that of earlier
years.
-—
notice of certain data contained in or based on car-
riers’ reports to the Commission for years subsequent
to 1960 or 1961. Pursuant to the provisions of sec-
tion 7(d) of the Administrative Procedure Act, any
party challenging such officially noticed facts will be
afforded an opportunity to set forth its objections.
GREAT NORTHERN
75
a eo ne
Group Carioeée Gross freight |Percent of systems
) revenue carload revenue
Products of agriculture
1960 ---------- eee ee ene e en nne 216,313 $70,219,799 31.68
: 1963° --------------0-------- 216,574 67,844,302 30.86
Animals and products
1960 ----------- +e ee nen enn ee 21,447 3,896,599 1.76
1963°% ----------2 005 --------- 17,529 3,340,237 1.52
Products of mines
1960 - - -- - ee ew www ew wwe nn nn ne 418,697 40,250,458 18.16
19639 --ccccee foo ccrcccoccee 338,993 35,160,811 15.99
Products of forests
1960 --------- ee ne ween nnn nn- 119,037 37,900,327 17.10
1963°% ------------ ee ne ne nen ne 121,934 39,975,008 18.18
Manufactures and miscellaneous
1960 ----- 2-0 en nee ewe n enn ne 251,799 63,83: 964 28.80
1963% -------- 002-2 n-ne nee 252,414 68,528,765 81.17
Forwarder traffic
1960 --------- nner e new nn nnn n= 15,976 5,572,127 2.50
1963°% ---------- 0c ern w wn nnn ne 15,063 5,013,140 2.28
Total carload traffic
1960 ------ +--+ 200 eee ewww ene’ 1,043,269 221,671,274 100.00
1963°% -------- 0-02 e ee ene newer 962,507 219,862,263 100.00
#1963 data obtained from carriers’ annual reports.
NORTHERN PACIFIC
— Carloads | 2°°** freight |Percent of systems
revenue carload revenue
Products of agriculture
1960 - oc ccc cccccccccccecccces 134,272 $32,022,139 20.58
196B°® -cccccccccccccnencncnes 144,677 35,326,711 21.59
Animals and products
1960 ------------------------ 20,136 4,090,623 2.63
1963? -- nee nee c nnn nenceeee-- 4 15,020 2,974,145 1.82
100,780 12,707,165 8.17
95,494 12,683,343 7.75
167,330 46,301,843 29.76
168,543 47,349,016 28.94
221,780 58,013,482 87.29
226,246 63,301,323 38.69
7,131 2,435,382 1.57
5,558 1,987,082 1.21
651,429 155,570,634 100.00
655,538 163,621,620 100.00
#1963 data obtained from carriers’ annual reports.
76
BURLINGTON
Gross freight {Percent of systems
Group Casloads revenue carload revenue
Products of agriculture
19ODcccccccccscesecescencee | 281,331) $47,989,589 22.69
1963° ---------------+-------- 313,843 51,670,128 23.03
Animals and products
1960 ------------------------ 101,884 17,149,764 8.11
1963° -----------------------| 81,876 14,466,268 6.45
Products of mines
1960-----------------------4 299,909 32,668,625 15.45
1963° ----------------------4 322,485 34,264,927 15.27
Products of forests
1960------------------------ 83,690 14,409,752 6.81
1963° ----------------------- 82,078 16,020,189 7.14
Manufactures and miscellaneous
1960 -------+-<----+---------- 474,116 89,448,715 42.29
1963° ------------+-----+-----4 498,810 98,314,159 43.81
Forwarder traffic
1960 ------------------------ 72,453 9,838,153 4.65
1963° ---------------------- 4 70,497 9,661,446 4.31
Total carload traffic
1960 ------------------------ 1,313,383 211,504,603 100.00
1963°¢ ----------~---~--~-.---~-.-- 1,369,589) 224,397,117 .
©1963 data obtained from carriers’ annual reports.
The table below shows on a consolidated basis for
the years 1960 and 1963 the freight revenues and
distribution of carload revenue for the three major
applicants and the SP&S.
CONSOLIDATED FREIGHT REVENUES AND DISTRIBUTION OF
CARLOAD REVENUE
Geen Gross freight Percent of total
revenue carload revenue
Products of agriculture
1) $157,312,691 25.41
1963° o- cece cre crac ene cceceene 159,916,398 25.02
25,388,232 4.10
20,967,280 3.28
86,741,606 14.01
83,281,707 13.03
110,253,715 17.81
116,459,836 18.22
220,880,712) 35.68
241,099,49 37.72
18,533,96 2.99
17,412,65 2.72
619,110,92 100.00
639,137,37 100.00
©1963 data from carriers’ annual reports.
<a Se
—
o —_ = = a a= nu - e ©
ee ee
pede ee RN RL
77
The flow of traffic between the Pacific Northwest
and Midwest and Eastern territory is unbalanced.
The larger volume is from west to east and consists
mainly of raw materials and semi-finished products
of agriculture, mines and forests. The territory
served by the Northern Lines is an important market
for finished products of the East and Midwest. As a
result of industrial decentralization, however, a larger
volume of manufactured commodities is now being
produced in California and shipped to the territory
served by the Northern Lines.
The rail hauls of the Northern Lines are among
the longest in the world. As noted by the examiner,
the inherent advantages of rail transportation tend
to increase with distance, while its inherent disadvan-
tages tend to decrease with distance. Furthermore,
the agricultural, forest, and mineral products handled
in large quantities by the applicants over extremely
long distances are not highly susceptible to diversion
by motor carriers. In the area in which the Northern
Lines operate, water transportation provides less com-
petition thar in any other region of the United States.
Although commodities in the manufactured and mis-
cellaneous groups are more vulnerable to diversion, a
comparison of carloadings for 1960 and 1963 indi-
cates moderate increases in carloadings for both the
Great Northern and the Northern Pacific and more
substantial increases for the Burlington. Gross
freight revenues also show increases of near‘y $10
million in 1963 over 1960 for the Burlington while
increases of over $5 million and $4,600,000 were re-
"i
corded for the Northern Pacific and the Great North-
ern, respectively.
ae
FINANCIAL CONDITIONS OF THE MAJOR APPLICANTS
Great Northern, Northern Pacific, and Burlington
are large, strong, and prosperous railroads. And,
they are growing stronger. Their financial health is
not merely the result of a booming national economy.
Even during the Great Depression, each of the major
applicants showed substantial earnings. During each
of the years 1930-1939, inclusive, each of the major
applicants earned a net railway operating income.”
If there is any significant threat to the financial well-
being of the major applicant railroads, the plight of
most of the Nation’s railroads must be regarded as
hopeless.
The general balance sheets giving effect to the pro-
posed mergers of August 1961 and income statements
comparing the years 1958-60 with 1964 for the three
major applicants are attached hereto as appendix A.
As noted in the recommended report at page 50, the
excess of current assets over current liabilities as of
August 31, 1961, produced a net working capital posi-
tion for Great Northern, Northern Pacific and Bur-
lington of $32.6 million, $73.4 million, and $28.9 mil-
lion, respectively, or a combined total of $134.9 mil-
lion before adjustments and elimination of intercom-
pany balances. The net working capital position for
}
18 In appendix I-10 of the recommended report, net railway
operating income of the major applicants is set forth for the
years 1926-1961, inclusive.
.
RE Tee
Great Northern, Northern Pacific and Burlington
which exceeds by $18.2, $62.6 and $13.9 million, re-
spectively, the mean monthly average of their respec-
tive operating expenses, less depreciation, for the first
was found by the examiner to be “more than adequate
to meet normal requirements.” We agree with that
conclusion.
Income statements for the Great Northern, North-
ern Pacific, and Burlington for the years 1958-1965,
inclusive,* show the following:
Great Northern
—_-e_—_—_— .
Year Railway operating revenue | Net income |Operating ratios | Earnings per share
1958--- $251,671,504 [$07,577,798 75.04 4.52
1959--- 254,559,530 | 26.55%.973 77.43 4.35
1960- -- 246,024,650 | 20,723,214 78.87 3.41
1961--- 232,951,918 | 18,632,429 79.44 3.07
1962--- 238.940 423 | 25,018,986 78.60 4.12
1963--- 242,510,448 | 29,273,659 76.75 4.80
1964--- 250,387,871 | 24,866,329 77.86 4.71
ooo 265 629.604 | 26,.409.825 75.70} ---------------- -
Northern Pacific
Year | Railway operating revenue | Net income | Operating ratios | Earnings per share
1958- -- $179,107,731 [$22,011,976 79.877 3.68
1959--- 183,608,782 | 23,781,165 79.74 3.9
1960--- 174,915,492 | 18,547,194 84.54 3.10
1961--- 165,412,453 | 16,213,322 86.60 2.72
1962--- 174,262,934 | 20,300,535 86.02 3.32
1963--- 179,604,511 | 24,592,470 84.98 4.09
1964--- 184,300,791 | 23,500,657 85.32 3.90
1965--- 197,913,432 | 28,032,787 82.70 fe ween we eww ww ewwwnne
* Figures for the years 1961-1964, inclusive, were taken
from the carriers’ annual reports filed with the Commission,
except for 1965 data which is taken from the carriers’ quart-
erly reports of revenues expenses and selected income items
(Forms R & E, 1BS) for the fourth quarter of 1965, show-
ing cumulative figures for the year.
° b
Burlington
Year Railway operating revenue | Net income | Operating ratios | Earnings per share
1958--- $258 027,700 |$19,491,732 77.61 11.41
1959--- 263 072,883 | 17,696,143 79.78 10.36
1960- - - 251,135,890 | 12,493,138 61.21 7.31
1961--- 254,160,812 | 14,408,666 79.44 8.43
1962--- 263 434,538 | 20,412,904 78.92 11.95
1963--- 261,713,684 | 21,367,648 79.69 12.51
196 4--- 267,379,529 | 20,355,342 $1.25 11.91
1965--- 270 453,376 | 16,693,090 82.00 F --------++0-+-00
Comparisons between railroad earnings in recent
years and those of 3 or 4 decades ago must be drawn
with care. For example, the examiner noted that the
combined net railway operating income of the three
major applicants in 1960 was only about half of what
it was in 1926. On the basis of such a comparison,
the examiner concluded that the financial ¢ondition of
the applicants has steadily deteriorated and that.their
economic future, in the absence of merger, is bleak.
A comparison of applicants’ earnings in one of the |
worst railroad transportation years in recent history
with their earnings 35 years before, when rail car-
riers held a virtual monopoly in surface transporta-
tion, may be statistically correct but it does not sup-
port the examiner’s pessimistic conclusion.
ALLEGED BENEFITS OF THE PROPOSED UNIFICATION
The prospective benefits of the proposed unification
as viewed by the applicants, supporting shipper wit-
nesses, and supporting interveners are reviewed in
considerable detail at pages 146-169, 171-189, and
323-340, respectively, of the recommended report.
Accordingly, we will merely summarize the examin-
er’s findings on this aspect of the case.
:
SRST
81
In general, applicants contend that the consolida-
tion of their properties under single ownership and
management would result in better utilization of
equipment, elimination of duplicate facilities at com-
mon points, and more expeditious transportation serv-
ice. As a result of savings expected to be derived
from the proposed unification,” applicants hope to
meet more effectively the competition of other modes
of transportation.
Anticipated improvements in freight schedules are
based mainly on the consolidation of terminal facili-
ties at common points and the use of the shortest of
most efficient internal routes available to the unified
company. Applicants indicate that the New Company
would establish through transcontinental freight
routes over the shortest available lines and the most
favorable grades. Applicants gave numerous exam-
ples of improved freight schedules that could be es-
tablished following consummation of the mergers.
For example, applicants indicated that the fastest
schedule of the Great Northern from Seattle to Chi-
cago would be reduced by the New Company from 94
hours and 15 minutes to 82 hours and 30 minutes or
11 hours and 45 minutes faster than che present
schedule. The fastest transcontinental eastbound train
of the Northern Pacific leaves Seattle at 9:00 p.m.
and arrives Chicago 12:15 p.m. on the 5th day, a total
elapsed time of 97 hours and 15 minutes. After unifi-
cation, the departure time would be 8:30 p.m. and
arrival time at Chicago would be 10:30 a.m. on the
** See pages 58-63, infra.
82
morning of the 8th day, a total elapsed time of 84
hours, or 13 hours less than present schedule.
After the hearings, however, applicants announced
faster transcontinental freight schedules in response
to faster schedules established by the Milwaukee. In
their rerly to exceptions, applicants note that the
eastbound schedule time for the Great Northern from
Seattle to Chicago has been reduced to 67 hours and
35 minutes, and that the time for Northern Pacific
has been reduced to 69 hours and 35 minutes. It
would appear, therefore, that competition between
the Northern Lines and the Milwaukee has resulted
in a considerably faster service than that claimed as
one of the advantages of unification. In fairness to
the applicants, however, it should be pointed out that
the expedited schedules require the use of shorter and
lighter trains than those contemplated in their direct
evidence. We recognize that the proposed unification
could result in generally faster freight service but, as
the post-hearing freight schedules indicate, the extent
of such improvement is speculative and competition is
a more important factor than consolidation.
Applicants also contend that following unification,
shippers would have not only the routes presently
available under published tariffs, but additional
routes involving the lines of the component railroads
in any combination except where undue circuity
would result. Such benefits would be derived by open-
ing up the intermediate junctions to form cross-over
routes between Northern Pacific and Great Northern
west of Twin Cities and new routes between them and
Burlington at Billings and Sioux City. As pointed out
tee
83
by the examiner, those routes have been historically
closed in order to preserve to the two Northern Lines
their respective maximum hauls. The economic ad-
vantages envisioned by applicants from a wider choice
of routing include the extension of transit and stop-
off privileges at numerous additional points, and in-
creased opportunities for diversion of shipments to
meet shippers’ requirements.
Ordinarily, traffic on one of the component railroads
today can be given transit privileges only at points
on the same railroad en route to primary markets.
The basic reason for such a restriction is that the
railroad which provides service to the primary area
thereby protects its long haul and the revenues there-
from. The propriety of a railroad protecting its long
haul is specifically recognized in section 15(4) of the
Interstate Commerce Act.
The expansion of transit privileges would benefit
the producers and processors of numerous commodi-
ties, as would the expansion of tariff provisions en-
abling shippers to stop through shipments for addi-
tional loading or for partial unloading at an inter-
mediate point between origin and destination, at the
through carload rate plus a charge for the service of
stopping the car.
In the general area served by applicants, shortages
of freight cars, especially general purpose boxcars,
have been chronic and severe in recent years. Appli-
cants claim that substantial savings will result from
more efficient utilization of freight cars by the merged
company and from unifying the car fleets of the com-
et
eR:
84
ponent lines.** Today, when 2 or more of applicants
serve the same point and obtain traffic from the same
shipper, each tries to hold sufficient cars to protect
the loading requirements. New Company would do
the same thing, but the total number of cars held
would be reduced in proportion to the number of com-
ponent companies serving the common point. These
Savings cannot be reliably estimated but they would
be derived solely from the elimination of competition.
As pointed out by the examiner, applicants have
given no assurances that freight rates would be re-
duced following unification. However, applicants an-
ticipate that the economies from unification will tend
to hold down the amount of rate increases in future
years.
The tracing and location of shipments and the or-
dering of empty cars would be facilitated under unifi-
cation, since the records would be maintained and be
readily available under centralized control and re-
sponsibility. Similarly, the processing of claims by
shippers for loss and damage would be simplified. Be-
cause of the reduction in the number of switch move-
ments through elimination of interchange among the
applicants and through improved yard facilities, some
reduction in damage to cargo from switching should
result.
Prior to the filing of the applications, extensive
public relations efforts were instituted by applicants
** As indicated at page 93 of this report, infra, benefits
flowing from improved freight car utilization would be off-
set by the loss of competition which now encourages appli-
cants to satisfy the demands of shippers at common points.
" ERIE SADR AP OIL FLIED EAN ELIAS et Pe
85
to publicize the advantages of the proposed unifica-
tion. Officials, counsel and other representatives of
applicants participated in meetings of trade associa-
tions, industry promotior. groups, chambers of com-
merce, and other persons in the territory involved.
Interested persons were asked to support the applica-
tions by offering testimony at the hearings, and to
forward letters and resolutions endorsing applicants’
objectives.
Partially as a result of this public relations cam-
paign, 307 witnesses (237 shippers and receivers of
freight, 39 representatives of shipper associations, and
representatives of various business and civic organi-
zations) testified in support of the proposed unifica-
tion. Of the total number of shipper and other public
witnesses, the great majority supported the proposal.
Their testimony reiterates the prospective public bene-
fits asserted by applicants, is fairly summarized in
the recommended report, and need not be further dis-
cussed in this report.
Almost 400 individuals, firms, associations, civic
groups, and municipalities intervened in support of
the proposed merger, although some urged that par-
ticular conditions be imposed. A total of 292 of these
intervening parties were shippers or receivers of
freight, or others directly interested in transportation
services. Their position, as well as that of intervening
shipper associations and ciambers of commerce, is
generally the same as that of the applicants.
F 86
POSITION OF GOVERNMENTAL AND
RAILWAY LABOR INTERVENERS
A total of 11 States or State regulatory commis-
sions intervened. Only the States of Nebraska and
Missouri supported the merger substantially as pro-
posed by applicants. The other States or their regu-
latory commissions either opposed the merger with
little or no regard to conditions that might be im-
posed * or urged the imposition of conditions that are
strongly opposed by applicants. Thus, most shipper
and related transportation interests in the territory
involved support the applicants’ case, while most of
the affected States, as well as some of the major ter-
minal-cities affected by the Northern Lines merger,”
express varying degrees of opposition. This conflict
makes it difficult, of course, to appraise the impact
of the proposed merger on the general public.
If the weight of the testimony were determined on
the basis of numbers of witnesses, we would have no
difficult in finding, as did the examiner, that the gen-
17 Oregon, Minnesota, Montana and Washington. The Gov-
ernor of Washington, then newly-elected, advised the Com-
mission on the eve of oral argument that he does not oppose
the merger.
18 North Dakota, Michigan, Iowa, and South Dakota. Wis-
consin neither supported nor opposed the merger and recom-
mended no specific conditions. Although the Governor of
the State of Iowa testified generally in support of the merg-
er, the Iowa Commerce Commission strongly opposed the
merger except with conditions vigorously opposed by appli-
cants.
1° E.g., Superior and Milwaukee, Wis., Duluth, Minneapolis
and St. Paul, Minn., and Auburn, Wash.
es a
87
eral public overwhelmingly supports the proposed
merger. Shippers, of course, are a part of the general
public and their testimony is entitled to great weight.
However, we believe that this public support is coun-
ter-balanced by the opposing testimony and argu-
ments of vitally affected agencies of government—
Federal, State, and local.
The Department of Agriculture intervened because
of its dual interest as a representative of the Nation’s
farmers and as the largest single shipper or [sic] agri-
cultural commodities. Agriculture contends that if the
Commission should determine that the unification be
approved, the following conditions should be imposed:
(1) that all existing gateways among the railroads
seeking merger and competing railroads be main-
tained under through routes and joint rates; (2) that
additional gateways, through routes and joint rates be
established between the New Company and competing
railroads so as to accord producers, shippers, and re-
ceivers adequate access to all markets and to all
sources of supplies; and (3) that no lesser quality of
service than at present be furnished over any of the
existing main or branch lines of the railroads includ-
ed in the merger without approval of the Commis-
sion. Conditions (2) and (3) were opposed by appli-
cants and not recommended by the examiner.
The Department of Justice contends that the only
benefits from the proposed unification and the elimi-
nation of competition as between the two Northern
Lines would be increased revenues to applicants at
the expense of competing and connecting railroads;
that applicant lines are in a sound, healthy financial
ee... -
aed Pe 8 Cah SOARED OO nt, epee 7
condition; that the Northern Lines compete vigorously
with each other; that important advantages of rail
competition would be lost if the merger is approved;
and that such approval would contravene the policy
of the anti-trust laws and cannot be found to be con-
sistent with the public interest within the meaning of
section 5(2) of the act.
More specifically, Justice contends that the pro-
posed merger, if approved, would (1) destroy the com-
petition which now exists among and between Great
Northern and Northern Pacific; (2) seriously dam-
age and eventually jeopardize the existence of inter-
vener Milwaukee; (3) result in a rail monopoly in a
geographical market area extending from Twin Cities
to the northwest Pacific coast along the northern tier
of States; (4) seriously injure other competing rail-
roads and other competing carriers by diverting |
freight revenues from them; (5) deprive many com-
munities and shippers of the advantages and benefits
of competitive rail service; (6) impair adequate trans-
portation in a growing region of the country; (7) ,
impose an unnecessary hardship on many communi-
ties and shippers; (8) have an adverse effect upon
Federal establishments and would not benefit national
defense; and (9) would stimulate new merger appli-
cations by and among railroads competing with ap-
plicant lines and each other in order to attempt to
offset the power of the New Company.
The Railway Labor Executives Ass
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