# Amicus Curiae Brief — Bangor Punta Operations, Inc. v. Bangor & Aroostook R. Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1974
- **Citation:** 417 U.S. 703

## Text

rthe Supreme Court of the United States
OcroserR TERM, 1973
No. 73-718

<coR PuNTA OPERATIONS, INC. AND BaNGoR PUNTA
CoRPORATION, PETITIONERS

q v.
BaxgoR & AROOSTOOK RAILROAD COMPANY AND BANGOR
INVESTMENT COMPANY, RESPONDENTS

ON WRIT OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE FIRST CIRCUIT

BRIEF OF THE INTERSTATE COMMERCE COMMISSION
; AS AMICUS CURIAE

OPINIONS BELOW

The opinion of the District Court is reported at
°%3 F. Supp. 724 (D. Me. 1972) (App. 30-41). The
an of the Court of Appeals for the First Circuit
pareperted at 482 F. 2d 865 (App. 54-67).

4 JURISDICTION

ag The petition for a writ of certiorari was granted
© on January 7, 1974. The judgment of the Court of
oi was entered on August 3, 1973. The jurisdic-
~ tion of this Court is invoked pursuant to 28 U.S.C.
§1254(1).

536-104—74—__1

(1)

2
STATUTES INVOLVED

The applicable sections of the Clayton Act, Securi-
ties Exchange Act of 1934, and the Interstate Com-
merce Act are set forth in Petitioner’s Appendix
(App. A-1-A-9).

QUESTION PRESENTED

Whether a railroad has standing to bring an action
in its own name against a former holding company
which has the effect of vindicating the public interest,

STATEMENT

‘The Bangor and Aroostook Railroad Company
(BAR) and its wholly owned subsidiary, Bangor In-
vestment Company (BIC), brought suit against the
Bangor Punta Corporation (Bangor Punta) and its
wholly owned subsidiary, Bangor Punta Operations
(BPO) in the District Court for the District of
Maine. Bangor Punta, a diversified holding company,
through its subsidiary BPO, formerly held a majority
interest in, and controlled BAR. At the time BAR
brought the action against its former holding com-
pany, Bangor Punta, BAR was substantially owned
and controlled by Amoskeag Company, another in-
vestment company.

In 1971, the Bureau of Accounts of the Interstate
Commerce Commission, after a study of the inter-
corporate financial transactions between the BAR and
its former holding company, forwarded a report to the
Commission, Report of Diversified Holding Company
Relationships And Transactions of Bangor Punta
Corporation. After analyzing certain intercorporate

3

transactions, the Bureau recommended that steps be
taken to have the former holding company make
restitution to the railroad for misappropriation of the
earrier’s assets.

In June of 1971, the Chairman of the Surface
Transportation Subcommittee, Senate Committee on
Commerce, requested that the Commission furnish the
Committee with all the information gathered by the
Commission on conglomerate mergers in the rail in-
dustry. The Bangor Punta study, along with other
information and studies, was forwarded to the
Committee.

Sometime thereafter the Board of Directors of
BAR obtained the study, and after deliberation, au-
thorized the chief executive officer of BAR to insti-
tute action against Bangor Punta and BPO in the
name of BAR. The complaint sought damages for
misappropriation and waste of corporate assets, and
was brought both under the common law of Maine,
and under various Federal statutes (see App. 2a).

The district court granted defendant Bangor Punta’s
motion far summary judgment dismissing the com-
plaint (App. la-12a). The district court held that the
present owner of the railroad, the Amoskeag Com-
pany, is the real party in interest and would be the
real beneficiary of the proceeds of the suit. The court
concluded that since Amoskeag was a subsequent pur-
chaser, it was “barred from maintaining a derivative
suit on behalf of BAR for the wrongs alleged to have
occurred before Amoskeag purchased its BAR shares”
(App. 4a).

4

On appeal, the First Circuit sent the matter back
to the district court to be determined on its merits, In
sending the matter back, the court held that the
public’s interest inherent in viable railroads is suff.
cient to provide standing for the Bangor & Aroos-
took—apart from Amoskeag’s interest—to maintain
the action. As the First Circuit stated (App. 19a-
20a) :

The public’s interest, unlike the private in-
terest of stockholder or creditor, is not easily
defined or quantified, yet it is real and cannot,
we think, be overlooked in determining whether
the corporation, suing in its own right, should
be estopped by equitable defenses pertaining
only to its controlling stockholder. Here we
think the public’s interest in the financial health
of BAR provides a separate interest, quite
apart from Amoskeag’s, which is served by the
corporate cause of action. Thus, regardless of
the latter’s motivations or potential receipt
of undeserved benefits, BAR should be per-
mitted, and indeed has a duty, to recover for
itself any assets which were divested from it in
violation of state or federal law. (Footnote
omitted.)

Thus, in finding the public’s ‘‘real, if inchoate inter-
est” (App. 24a) sufficient to provide BAR standing to
maintain the suit in its own name, the circuit court
remanded the matter to be determined on its merits.

In their Brief to this Court, the petitioners argue
inter alia that the circuit court erred in recognizing
the railroad’s standing to maintain an action which
would redound to the public interest because of some

5

alleged ability of the Interstate Commerce Commis-
sion to protect the public interest in this type of a
situation (Br. p. 15).

ARGUMENT

I

THE INTERSTATE COMMERCE COMMISSION HAS NO JURIS-
DICTION OVER ONE-RAILROAD HOLDING COMPANIES

Section 5(2) of the Interstate Commerce Act, 49
U.S.C. §5(2) (a eopy of which is attached) is the
section which vests the Commission with authority to
approve mergers or acquisitions of rail carriers. Sec-
tio 5(2)(a)(i) makes Commission authorization
necessary for “a person which is not a carrier to ac-
quire control of two or more carriers though owner-
ship of their stock or otherwise.’’ Commission author-
ity is also necessary when a single-railroad holding
company attempts to acquire control of a second rail-
road.

Section 5(3) of the Act, 49 U.S.C. §5(3) (also
attached as an appendix hereto) authorizes the Com-
mission to designate a non-carrier as a carrier and
subject it to certain requirements. Section 5(3) pro-
vides in part that “[w]henever a person which is
not a carrier is authorized, by an order entered under
paragraph (2), to acquire control of any carrier or of
two or more carriers, such person thereafter shall, to
the extent provided by the Commission in such order,
be considered as a carrier * * *”

Thus, in cases such as one here where a railroad
generates its own holding company, that holding com-

6

pany escapes the Commission’s regulation.’ Further.
more, even assuming the Commission had jurisdiction
over Bangor Punta as a designated carrier, it is stil]
questionable whether. the Commission could have reg.
ulated the intercorporate transfer of assets com.
plained of by BAR. Under section 5(3), when
person is designated a carrier it is subjected to see-
tions 20(1)-(10) and 20a of the Act, 49 U.S
§§ 20(1)-(10), 20a. Section 20 deals with the records,
reports, and accounts to be kept by carriers. See-
tion 20a subjects to the Commission’s jurisdiction the
carriers’ issuance of securities. But “securities,” as
defined by section 20a(2), does not embrace intercor-
porate asset transfers or advances to or from
affiliates.

That question aside, however, both the Commission
and its two overseeing committees of Congress recog-
nize the present gap in the Commission’s regulatory
authority. See hearings on Failing Railroads, before
the Senate Commerce Committee, Serial No. 91-90,
p. 166 et seq. (1970), and hearings on Emergency Rail
Services Legislation before the Subcommittee on
Transportation and Aeronautics, House Committee on
Interstate and Foreign Commerce, Serial No. 91-86,
pp. 199 et seq. (1970). Presently pending before

‘In addition to the clear case, as here, of the lack of juris-
diction over a a single-railroad holding company. the Commis-
sion has consistently held that, under the statute. it lacks
jurisdiction over holding companies which control a single
integrated railroad system, or “single established carrier system.”
See e.g. Louisville & J.B. & R. Co. Merger, 295 LCL.
(1955); Kansas City Southern Industries, Inc.—Control—Kan-
sas City Southern Ry. Co., 317 1.C.C. 1 (1962).

7

poth Houses are Bills to extend the Commission’s reg-
ulation to conglomerate holding companies, S. 2460,
jntroduced on September 20, 1973; H.R. 11092, intro-
duced October 24, 1973.

It is clear that, contrary to petitioners’ arguments,
the Commission was not empowered to protect the
public interest in the intereorporate dealings which
are the subject of thé instant controversy. This lack
of regulatory authority, in part, necessitates the posi-
tion taken by the First Circuit.

Il

THE COURT ACTED PROPERLY IN HOLDING THAT THE
RAILROAD HAD STANDING TO BRING THIS ACTION

The petitioners argue that the First Circuit disre-
garded Sierra Club v. Morton, 405 U.S. 727 (1972).
This is not an action brought by a party claiming
representative status to vindicate a public interest.
Nor is it a derivative suit brought by Amoskeag.
Rather, the suit was commenced by the Bangor &
Aroostook Railroad in its own name.’

The continued financial health of railroads, as
necessary public utilities, is undeniably a matter of
major public concern. Here, the interests of the public

*The doctrine of contemporaneous ownership under Rule 23.1
of the Federal Rules of Civil Procedure does not apply to
a snit brought by a corporation itself to enforce its own rights.
Central Ry. Signal Co. v. Longden, 194 F. 2d 310 (7th Cir.
1952); Mauck vy. Mading-Dugan Drug Company, 361 F. Supp.
1314 (N.D. Hl. 1973). Here, after studying the Bureau of Ac-
counts’ report, the new directors of the Bangor & Aroostook
authorized the chief executive officer of the railroad to institute
suit in the carrier’s own name.

LONE gS

8

and the railroad plaintiff largely overlap—and the
“inchoate but real” public interest in viable railroads
brings the facts of the present case well beyond the
usual limits of the contemporary ownership rule.
The railroad brought the action in its own name,
and if successful the proceeds will redound to the
public interest.* Given these facts, it is respectfully
submitted that the First Circuit acted properly in
remanding the cause to the district court for a deter-
mination on its merits.
Respectfully submitted.
Fritz R. Kann,
General Counsel,
Betty Jo CuRIsTIAN,
Associate General Counsel,
CuarLes H. Wuitt, Jr.,

Attorney,
Interstate Commerce Commission.

* As the First Circuit pointed out (App. 25a), if the railroad
prevails on the merits, the district court can call on the aid
of state and federal agencies in insuring that the proceeds will
not be unreasonably diverted to the private enrichment of the
stockholders.

a RPE

APPENDIX

Section 5(2) of the Interstate Commerce Act, 49
U.S.C. §5(2) provides in pertinent part:

(2)(a) It shall be lawful, with the approval
and authorization of the Commission, as pro-
vided in subdivision (b)—

(i) for two or more carriers to consolidate or
merge their properties or franchises, or any
part thereof, into one corporation for the own-
ership, management, and operation of the prop-
erties theretofore in separate ownership; or for
any carrier, or two or more carriers jointly, to
purchase, lease or contract to operate the prop-
erties, or any part thereof, of another; or for
any carrier, or two or more carriers jointly, to
acquire control of another through ownership
of its stock or otherwise; or for a person which
is not a carrier to acquire control of two or
more carriers through ownership of their stock
or otherwise; or for a person which is not a
carrier and which has control of one or more
carriers to acquire control of another carrier
though ownership of its stock or otherwise; or

Section 5(3) of the Act, 49 U.S.C. §5(3), pro-
vides in pertinent part:

(3) Whenever a person which is not a carrier
is authorized, by an order entered under para-
graph (2), to acquire control of any carrier or
of two or more carriers, such person thereafter
shall, to the extent provided by the Commission
in such order, be considered as a carrier subject
to such of the following provisions as are ap-
plicable to any carrier involved in such aequisi-
tion of control: Section 20 (1) to (10), inclu-

536-104—74_2 (9)

10

sive, of this part, sections 204(a) (1) and ( 2)
and 220 of Part II, and section 313 of part If]
(which relate to reports, accounts, and so forth,
of carriers), and section 20a (2) to (11), in.
clusive, of this part, and section 214 of part II,
(which relate to issues of securities and assump-
tions of liability of carriers), including in each
case the penalties applicable in the case of yig-
lations of such provisions.

U.S. GOVERNMENT PRINTING OFFICE. 1974

Ee

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0318%3A06. Public record. Not legal advice.