APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA.
Burger, Black, Harlan, Brennan, Stewart, White, Marshall; Douglas took no part in the decision of these cases.
MR. CHIEF JUSTICE BURGER delivered the opinion of the Court.
The Interstate Commerce Commission orders that give rise to these appeals grow out of applications seeking approval of a merger plan filed by the Great Northern Railway Company and the Northern Pacific Railway Company (collectively the Northern Lines), and three of their subsidiaries -- the Pacific Coast Railroad Company, the Chicago, Burlington & Quincy Railroad Company (Burlington), and the Spokane, Portland & Seattle Railway Company (SP&S). The Commission approved the merger and a three-judge Federal District Court for the District of Columbia affirmed the orders of the Commission.*fn1 We affirm the judgment of the District Court.
The factual and historical setting of the merger is important to an understanding of our disposition of these appeals. Great Northern operates some 8,200 miles of road located in 10 States and two Canadian provinces. Northern Pacific has approximately 6,200 miles of track in seven States and one Canadian province. The Northern Lines operate largely in the area west of St. Paul, Minneapolis, and Duluth, running from these points
across the Northern Tier of States (Minnesota, North Dakota, Montana, Idaho, and Washington) to Spokane, Tacoma, and Portland. The Northern Pacific's tracks run generally somewhat to the south of the Great Northern's. The Northern Lines jointly own and control the Burlington and the SP&S, while the Great Northern owns and controls the Pacific Coast Railroad Company. The Burlington's 8,648 miles of track extend from Chicago to the Twin Cities and generally southwesterly to Missouri, Kansas, Colorado, and Montana. By its subsidiaries*fn2 the Burlington reaches the Gulf of Mexico at Houston and Galveston. The SP&S has 599 miles of road in Oregon and Washington, of which 515 are mainline. This mainline provides the most direct route from Spokane to Portland and is of strategic importance to the Northern Lines because Spokane lies on their main transcontinental routes and Portland is an important West Coast terminal for both roads. The Pacific Coast has 32 miles of track, all in King County, Washington; its rolling stock and motive power are leased from the Great Northern.
Rail competition in the areas served by the Northern Lines is principally between three carriers: the Great Northern, the Northern Pacific, and the Chicago, Milwaukee, St. Paul & Pacific Railroad Company (Milwaukee). Because the Burlington's routes largely complement those of the Northern Lines, there is no substantial competition between the Burlington and its corporate parents. The Great Northern and the Northern Pacific overshadow the Milwaukee and are each the principal competitor of the other. The Northern Lines carry the lion's share of traffic between the Twin Cities
and Duluth and the Pacific Northwest, both roads having good access to the Pacific Northwest through control of certain vital gateways in the area. Although the Milwaukee was designed and constructed to be a competitor of the Northern Lines, it has never accounted for a large percentage of the carriage across the Northern Tier States to the Pacific Northwest; it has never become a rate-making railroad. The explanation for this is that although possessing superior grades and a shorter route west of the Twin Cities, it has never had adequate access to the gateways of the Pacific Northwest, largely because of the Northern Lines' control of the SP&S. As a result, its role has been that of a short-haul carrier feeding much profitable long-haul traffic to the Northern Lines at St. Paul and Minneapolis.
The population of the Northern Tier region traversed by the Northern Lines and the Milwaukee is concentrated largely in its easterly and westerly extremities. The Northern Tier is rich in agricultural and mineral resources, and embraces the country's richest timber reserves. However, the markets for the products of the Northern Tier are limited in number and distant from the region; the major shipments must move east. Thus, transportation capable of carrying its bulk products at a rate low enough to permit participation in those markets is of extreme importance to the region. Rail transportation well serves this need. There has been historically, however, an imbalance between the low-rated agricultural, mineral, and forest produce traffic flowing out of the region, and high-rated manufactured goods flowing into the region. The former is traffic inherently suited to rail transport, but the latter is subject to incursions from other modes of carriage. Although water traffic in the Northern Tier is virtually nonexistent, truck competition has been present for some time and is growing.
Northern Pacific and Great Northern have long sought to merge into a single unified transportation system. In Pearsall v. Great Northern R. Co., 161 U.S. 646 (1896), this Court ruled that an attempt to consolidate the operation of the two roads was contrary to a Minnesota statute prohibiting the consolidation of parallel and competing railroads. The next merger attempt was struck down in Northern Securities Co. v. United States, 193 U.S. 197 (1904), as contrary to the Sherman Act, 26 Stat. 209, 15 U. S. C. § 1 et seq.*fn3 Then the declining fortunes of rail carriers led Congress to enact the Transportation Act of 1920, 41 Stat. 456, which charged the Interstate Commerce Commission with the affirmative responsibility to formulate plans for simplifying the Nation's rail transport "into a limited number of systems." 41 Stat. 481. This engendered a third effort, under the Commission's auspices, to merge the Northern Lines.*fn4 However, this effort foundered on the Commission's requirement that the Burlington be excluded from the Northern Lines system, and the Northern Lines were unwilling to consolidate without the Burlington.
In 1955 the Northern Lines began investigating anew the possibility of a merger that would combine five roads -- the Burlington, the SP&S, the Pacific Coast, and the Northern Lines -- to form a New Company. Extensive negotiations dealing with all phases of the proposed merger were commenced. Five years later, in 1960, an agreement was finally reached. It provided that the Northern Lines, the Burlington, and the Pacific Coast
be merged into New Company, which was to acquire the subsidiaries of the merged companies as well as all their leasehold, trackage, and joint-use rights in other carriers and the terminals incident thereto. New Company would lease the SP&S, thereby acquiring that road's subsidiaries and trackage rights.
The merger agreement further provided that Northern Pacific shareholders would receive common stock of New Company on a share-for-share basis. Great Northern stockholders would receive one share of New Company common for each share of Great Northern and, in addition, one-half share of New Company $10 par 5 1/2% preferred for each share of Great Northern held at the date of the merger, this preferred stock to be retired over a 25-year period, beginning at the fifth anniversary of the merger, and to be redeemable at the option of New Company any time after the fifth anniversary of the merger. The Burlington stock held by the Northern Lines, amounting to 97.18% of the total shares outstanding, would be canceled and the remaining shareholders given 3.25 shares of New Company common for each share of Burlington.
First Report. -- As a result of these renewed merger negotiations between 1955 and 1960, applications were filed in 1961 under § 5 of the Interstate Commerce Act, 24 Stat. 380, as amended, 49 U. S. C. § 5, seeking approval of the merger and authorization for the issuance of stock and securities, the assumption of obligations and other authority necessary to effectuate the merger.*fn5 Extensive public hearings were held in 1961 and 1962 at
which the Department of Justice, the Department of Agriculture, various railway employee groups, nine States or state regulatory agencies, and the Milwaukee and the Chicago & North Western Railway Company (North Western), inter alia, actively opposed the merger as proposed. Shippers and related interest groups appeared in support of the proposal. The Hearing Examiner submitted a report in 1964 recommending approval of the merger and the related transactions, subject to certain protective conditions. The Commission heard oral argument and in a report dated March 31, 1966 (First Report), rejected the Examiner's recommendation and disapproved the merger by a vote of 6 to 5.*fn6
The applicants petitioned for a reconsideration, asserting that they were willing to accept all protective conditions sought by the Milwaukee and another affected road, the North Western, that they had entered into attrition agreements with the objecting unions for the protection of the employees, and that the merger would yield dollar savings greater than those estimated in the First Report. While this petition was pending before the Commission, the applicants entered into agreements with the North Western and the Milwaukee which provided that the merger applicants would agree to all the conditions sought by those roads; the Milwaukee and the North Western then agreed to support the merger.*fn7 Thereafter, these roads withdrew their opposition to the merger and urged the Commission to approve it. Approval was advocated or objections withdrawn by a number of parties who had previously either completely opposed the merger or opposed it absent imposition of
adequate protective conditions. These included the Department of Agriculture, the Public Utility Commissioner of Oregon, and the States of North Dakota, South Dakota, Iowa, Wisconsin, and Michigan.*fn8
Second Report. -- On January 4, 1967, the Commission granted the application and reopened the proceedings for reconsideration and further hearings. Although the order by its terms reopened the proceedings on all issues, the hearing was limited to taking evidence on the question of the amount of savings the merger would produce in light of the agreement between the applicants and the Milwaukee and the North Western, and the other changes relevant to savings which had occurred after the close of the first hearing. Oral arguments followed. On November 30, 1967, the Commission handed down a report and order (Second Report) approving the proposed merger by a vote of 8 to 2 as consistent with the public interest and imposing certain conditions to protect other carriers.*fn9 On April 11, 1968, the Commission denied an application for reconsideration.*fn10
District Court Proceedings
The United States, acting through the Department of Justice, filed a complaint on May 9, 1968, in the United States District Court for the District of Columbia challenging the Commission order approving the merger. Other parties intervened, some as plaintiffs*fn11 and some as defendants.*fn12 After preliminary proceedings had resulted in a stay of the Commission's order pendente lite, the case was submitted on the merits to the three-judge court designated in accordance with 28 U. S. C. §§ 2325 and 2284. The court, in an opinion by Senior Circuit Judge Charles Fahy, unanimously sustained the Commission, holding that in approving the merger and the related transactions the Commission was guided by the applicable legal principles and that its findings were supported by substantial evidence. The court dismissed the complaints, vacated the stay pendente lite, and then stayed its order pending appeal to this Court. Upon the filing of appeals with this Court, we ordered a further stay pending final disposition.
Four appeals were taken from the District Court's judgment; the Department of Justice (No. 28), the Northern Pacific Stockholders' Protective Committee
(No. 38), the City of Auburn, Washington (No. 43), and the Livingston Anti-Merger Committee (No. 44).
Each of the four appellants attacks the approval of the merger on different grounds. Because these challenges cover every aspect of the merger, and because of the rather complex expositions of fact necessary to the disposition of each objection, these appeals will be dealt with seriatim. With the cases in this posture the Court must review the proceedings before the Commission to "determine whether the Commission 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 and N&W Inclusion Cases, 389 U.S. 486, 499 (1968). It should be emphasized, however, as Mr. Justice Fortas noted, speaking for the Court in a similar context, "with respect to the merits of the merger . . . our task is limited. We do not inquire whether the merger satisfies our own conception of the public interest. Determination of the factors relevant to the public interest is entrusted by the law primarily to the Commission, subject to the standards of the governing statute." Id., at 498-499.
The governing statute here is § 5 of the Interstate Commerce Act, as amended by the Transportation Act of 1940, 54 Stat. 905, 49 U. S. C. § 5. The Act provides that the Commission is to approve a proposed merger when it is "consistent with the public interest" and the terms of the proposal are "just and reasonable." In determining whether this standard is met, the Commission is to
"give weight to the following considerations, among others: (1) The effect of the proposed transaction upon adequate transportation service to the public; (2) the effect 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." 49 U. S. C. § 5 (2)(c).
In addition to the four factors listed above, the Commission must also consider the anticompetitive effects of any merger or consolidation, because under § 5 (11) of the Interstate Commerce Act any transaction approved by the Commission is relieved of the operation of the antitrust laws. McLean Trucking Co. v. United States, 321 U.S. 67, 83-87 (1944).
In its First Report the Commission found that the merger would result in improved service to shippers in areas served by the Northern Lines because it would enable the roads to make more efficient use of their facilities and would permit the use of the shortest and swiftest internal routes available. In addition, the merger was found to afford estimated savings of approximately $25 million per year by the tenth year after merger. However, the Commission also found that as a consequence of the merger more than 5,200 jobs would be eliminated, this being a significant source of the reduced operating costs. The Commission then analyzed the anticompetitive impact of the proposal and found it would eliminate substantial competition between the Northern Lines in the Northern Tier. The Commission reasoned that even with protective conditions attached to the merger for the benefit of the Milwaukee, it would remain a weak carrier in the Northern Tier when compared with New Company. The Commission, by a vote of 6 to 5, as noted earlier, concluded that the proposed merger plan did not afford benefits of such scope and importance as to outweigh the lessening of rail competition in the Northern Tier; the merger was disapproved.
When the Commission reopened the proceedings in
, it considered additional evidence including the changed positions of some of the major objectors, and new evidence on the savings to be realized from the merger; the Second Report was then issued. The Commission found that rather than the $25 million previously estimated, in fact more than $40 million per year in savings would be realized by the tenth year after merger. It also noted that agreements entered into by the applicants and their employees had removed objections of various unions to the merger and that no jobs would be eliminated except in the normal course of attrition. Aside from these changes, and the acceptance by the merger applicants of protective conditions sought by the Milwaukee, the record before the Commission was the same as that on which the First Report was based. The Second Report acknowledged that the First Report had failed to give appropriate weight to one of the aims of the national transportation policy and § 5 of the Interstate Commerce Act, to facilitate rail mergers "consistent with the public interest" in the development of a comprehensive national transport system, and that this had led the Commission to view the merger proposal too stringently. It then went on to re-examine the anti-competitive effects of ...