Alleghany Corporation v. Breswick & Company – Oral Argument – January 24, 1957 (Part 1)

Media for Alleghany Corporation v. Breswick & Company

Audio Transcription for Oral Argument – January 23, 1957 in Alleghany Corporation v. Breswick & Company
Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Earl Warren:

Number 36, Allegheny Corporation, et al versus Breswick & Company, et al.

Mr. Seymour

Whitney North Seymour:

May it please the Court.

I shall now try in the 26 minutes remaining to cover the facts and the principal points that we want to have the Court hear us on.

Obviously, some of them will have to rest in the briefs.

First, the chronology in 1940, after passage of the Investment Company Act, the appellant Allegheny became a registered investment company.

As Your Honors know, that Act does not cover all investment companies, but only a limited number of them.

There are many exceptions and exemptions.

It would be quite wrong to suppose that the limitations which the court below has put on Interstate Commerce Commission jurisdiction resulted in transferring all those potential carrier holding companies to the jurisdiction of the SEC.

because it wouldn’t have an effect.

The particular exception which we are concerned with here and which we think the court below has inadequately given weight to, is that any company subject to regulation to the Interstate Commerce Commission Act is not within the Investment Company Act.

Under the Interstate Commerce Commission Act, sections 5 (2) and 5 (3), a company which was a non-carrier could be brought under Interstate Commerce Commission jurisdiction if it sought to acquire in any manner another carrier so that if a company controlled two carriers in any fashion that was subject to I.C.C. jurisdiction and control in the Interstate Commerce Act was defined in section 1 subdivision 3 (b) in the very broadest terms.

In 1944, Allegheny controlled the C & O.And in that year, it applied to the Interstate Commerce Commission for an order approving a change in the status of the Norfolk Terminal Company applied with the C & O for approval of a change in the status and to have Allegheny thus brought within the jurisdiction of the Interstate Commerce Commission as a non-carrier holding an interest or controlling two carriers.

Felix Frankfurter:

You say thus brought in.

I –I assume you will tell us what it said and in what way Allegheny to relation to those two to be combined entities was effected.

Whitney North Seymour:

Well, those — those entities were — Allegheny controlled the C & O.

The C & O had an interest in the Terminal Company.

The proposal was for a change in that relationship and thus, there was a change in the relationship with Allegheny and the C & O.

Felix Frankfurter:

Do you mean automatically that would change the relationship?

Whitney North Seymour:

I think so, as a result of a change in the nature of that relationship.

This was a change in the —

Felix Frankfurter:

Did affect — did it affect the interest of Allegheny?

Did it affect the interest of its stockholdings?

Whitney North Seymour:

Well, it affected —

Felix Frankfurter:

(Inaudible)

Whitney North Seymour:

It affected the nature of its control that’s cited as I —

Felix Frankfurter:

In controlling different opinions of this thereafter.

Whitney North Seymour:

Yes.

If in — different in the nature of the property or in the nature of the interest.

Now, I’ll come to that more specifically in connection with the later proceeding.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Whitney North Seymour:

The Interstate Commerce Commission granted that application, conceding that it was following the then very recent decision of this Court in United States against Marshall in the 322.

And ever since that time, the Commission has I think without — certainly, without any substantial exception, always taken the view that a company which was in the position of Allegheny and which proposed a change in the relationship to any of the carriers involved was subject to the jurisdiction of the Commission.

And indeed, in the court below, the Government and the Commission both agree that under the Marshall case and under the New York Central Securities case, the construction of the Commission has always put on the statute was the correct one.

So, the Commission in 1945 brought Allegheny as a non-carrier under its regulation.

That order explicitly provided that it should be considered a carrier unless and until otherwise ordered by the Commission.

That order appearing at the record page 183.

And ever since that time, Allegheny has continued to be a non-carrier subject to the regulation of the Interstate Commerce Commission.

In 1945, when the SEC discovered the action of the Interstate Commerce Commission or it was brought to its attention, the SEC held a hearing and entered an order concluding that Allegheny was no longer an investment company, but was subject to regulation under the Interstate Commerce Act and was accepted from the Investment Company Act.

And that order also provided that if in the future, Allegheny ceases to be subject to regulation under the Interstate Commerce Act, the SEC order might be revoked, suspended at or suspended after notice and hearing.

That order is still outstanding and has never been revoked.

Thus, both Commissions in 1945 explicitly held that Allegheny was subject the regulation of the Interstate Commerce Commission.

Both Commissions ordered that their order should be continue until revoked and indeed the statute’s applicable to both Commissions, made that provision a necessary, consequence of any order, anyhow.

So, we have a situation.

We start with the situation that the Interstate Commerce Commission asserted and never relinquished jurisdiction over Allegheny and the SEC conceded and never canceled its order recognizing that jurisdiction.

William J. Brennan, Jr.:

I — I understand that Allegheny has not divested itself of holdings in C & O?

Whitney North Seymour:

Yes, I’m coming that right now.

In 1954, Allegheny completed its disposition of its C & O holdings.

It notified the Interstate Commerce Commission that having divested itself, it considered itself free to acquire an interest in New York Central and thereupon, proceeded in a — what was a notable proxy battle to gain control of New York Central.

Now, there’s no real question here I think about that operation although, I’ll come to two matters connection — connected with it.

The court below thought, and I think the appellees contend, that it was necessary to obtain Interstate Commerce Commission approval for that acquisition, but it seems quite clear from the Commission’s interpretation of its statute that it has never taken the view that acquiring one carrier required its approval even though a very important carrier was involved.

And so, there was no failure I think to comply with the statute in not applying for approval of the acquisition in New York Central.

Your Honors will see at once that applying to get leave to win a proxy contest or approve the winning of a proxy contest would make such contest virtually impossible.

But, however that may be, immediately after that, Allegheny again made application to the Commission and the Commission reasserted and continued its jurisdiction.

So, even if there was any need to get approved of the New York Central acquisition which we think that clearly was not, the Commission continued its jurisdiction.

Now, appellees raised some question about whether in fact Allegheny controlled New York Central.

I don’t propose to spend much time on that because I think it’s probably plain on this record that there is no such question that Your Honors need to be concerned with.

The Commission made very full and adequate findings on that subject.

And under the broad control which they were entitled to determine, I think there can be no doubt about it.

I mean the appellee, Breswick at page 322 of the record in one of the many papers that were filed by Brewick with the Commission conceded the control.

In the court below, the Government agreed that there was control.Here, the Government doesn’t discuss the matter but assumes it arguendo.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Whitney North Seymour:

And I don’t think Your Honors will have any doubt about it and I don’t spend — propose to spend any time on it.

After Allegheny acquired control of Central —

Hugo L. Black:

Didn’t the (Inaudible) mean that the case should go back for a finding by the Commissions on the question of control?

Whitney North Seymour:

Well, that wasn’t the final disposition of the case.

That the final — there was some suggestion in the earlier opinion that some further finding might be appropriate.

But in the end, the injunction was simply a flat injunction, without any direction for recommitting it to the Commission and I take it that that was their ultimate disposition.

As Your Honor will see, examining the opinion on the temporary injunction and the opinion on the final injunction, the Court shifted its position a little bit between those two things.

Certainly, it did not remand it to the Commission for a finding.

After Allegheny got the control of — of Central, the Commission raised some question about whether ought to terminate its 1945 order which was based upon the application in the C & O case.

And at Allegheny’s request, it postponed action on that suggestion because Allegheny said that it was about to apply for a further order from the Commission.

SEC also inquired about the possibility of terminating its order, but postponed any consideration of that matter.

And thereupon, shortly after that question was raised, Allegheny joined with Central in one of the two critical matters which I think are raised by this record, in applying to the Interstate Commerce Commission for approval of a change in the control of the Louisville Bridge Company.

And that was a situation which contemplated a merger of the Bridge Company into the Big Four and a change in the lease between Big Four and Central.

Now, I submit that those were significant changes in the relationship of the general order of the changes which Your Honors held in the New York Central Security’s case required participation and the matter was fully considered by the Commission.

The Commission granted that application after full consideration and issued an order continuing the jurisdiction over Allegheny as a company, as a non-carrier which should be treated as a carrier.

Felix Frankfurter:

That — that implied what we what would Allegheny could before the I.C.C.uphold this merging.

Is that it?

Am I right about that?

Whitney North Seymour:

Well, I —

Felix Frankfurter:

It could.

Whitney North Seymour:

— I — I suppose it could have.

It was — it was before anybody could oppose the merger, any interested person.

Felix Frankfurter:

I mean this — if they have an interest in — I can understand the argument that it was involved in the merger if it could adversely be affected by — or if for any reason but (Inaudible) it would mean such a merger undesirable of.

Whitney North Seymour:

Well, the theory I think of the New York Central Security’s case is that if there’s any tightening or strengthening of control, at least that and the Marshall case have so been interpreted for years by the Commission.

The Commission could take jurisdiction and regulate the non-carrier applicant.

I would suppose that it would affect — it’s bound to affect the ultimate interest of Allegheny in some way when the corporate life of one of the parties theretofore, an independent company was ended by the merger.

Felix Frankfurter:

Well, am I right and in the assumption of my question that Allegheny must have some interest in that for which consent by the Commission was asked and in order to make it — in order to bring it within.

Whitney North Seymour:

Well, I should — yes.

Obviously, it would have to have something in the nature of control of an — of two carriers in order to be —

Felix Frankfurter:

Yes.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Whitney North Seymour:

— to be there.

Now, you can express it in terms of interest or in terms of control.

Felix Frankfurter:

But if it’s controlled, if — if that which the proceeding before the Commission on the merger leave Allegheny a wholly uninterested party and I would have some difficulty to saying that —

Whitney North Seymour:

Well, the Commission, of course, has a very considerable interest under its statute in controlling and regulating the activities of such companies.

And if there is control to bring it within the statute, I should think the Commission was in a position where it could exert regulation over.

Now, the order in this — in this Bridge Company proceeding which appears at the record at page 446 did several things.

First, it directed that Allegheny as a non-carrier should be subject to the regulation of the Interstate Commerce Commission.

Second, having just asserted its — its regulation by that paragraph, it vacated its earlier order which was related to the C & O.And the proper interpretation and the proper way to begin with that order is one of the questions in the case.

Prior to the time that order was entered, the SEC intervened and without raising any question about the — the jurisdiction of the I.C.C. indicated that it would be a nice thing if the I.C.C. would turn the jurisdiction over to the SEC, but the I.C.C. declined to do it.

Now, I submit that it’s perfectly apparent from this course of events with the I.C.C. regulating and — and having Allegheny under its regulation from 1945 until its order in 1955, that it was not intending to terminate its control over Allegheny unless it’s reassertion of regulation in that order.

Its continuation of jurisdiction in that order was affected.

And yet, the court below — I’ll have — I’ll come back to this at this time and that the other side and the — the Department of Justice suggests in this Court although the Department of Justice I think took the other view below that determination of that 19 — that the termination provision of that 1945 order terminated the Interstate Commerce Commission’s jurisdiction.

Now, it’s perfectly apparent that that was a sort of a conditional determination conditioned upon its continue — continued jurisdiction under the earlier order.

Now, while the application in the Bridge Company matter was pending, Allegheny joined with Central in another application, seeking the same sort of approval and the same sort of an order in connection with the change in the relationship to the Boston & Albany and two other carriers.

And those carriers had formerly been under lease to the Central and this was a — a request for approval of the acquisition of their stock.

And the Commission granted that application, but it granted it 20 days after the Bridge Company application.

It made it clear that it was doing so consistently with its disposition to the Bridge Company application.

But having only 20 days before entered an order expressly asserting that Allegheny was a non-carrier subject to its regulation.

It did not repeat that formula in that order and the court below and the other side take the view that the absence of a reference to that same continued regulation somehow makes that order ineffective as regulation.

Now, I submit that you have to take those orders together.

They all represent an assertion of control over Allegheny under circumstances which gave the Commission control and that to give the weight in these circumstances to the absence of that particular phrase or clause in that order, disregard substance in favor or form.

Felix Frankfurter:

Was there any reference that Allegheny entered the Bridge order by the Commission?

Whitney North Seymour:

Yes.

Felix Frankfurter:

Well, I don’t find it.

Whitney North Seymour:

Well, the Bridge — well —

Felix Frankfurter:

What was the difficulty here?

Whitney North Seymour:

The Bridge order —

Felix Frankfurter:

Because he did it in the argument that he took it through there in explicit formula, having control over the allegation (Inaudible)

Whitney North Seymour:

No, no, the argument is that the Commission had no jurisdiction —

Felix Frankfurter:

I understand that.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Whitney North Seymour:

— to enter the order where there was a mere tightening or change of control.

Thus, that the jurisdiction assuming order is invalid whereas the termination part of the order is valid.

Felix Frankfurter:

But I gathered from — it’s because they left out of the second order of what they explicitly have said in the Boston & Albany.

Whitney North Seymour:

That’s the reason that —

But that’s a formula of objection, isn’t it?

Yes, —

Felix Frankfurter:

All right.

Whitney North Seymour:

— I think so.

The court below having had that order cited to them gave it no weight and I submit that the two orders together are established, continued regulation by the Interstate Commerce Commission.

Yes, Mr. Justice?

Did the Court order the provision for the Commission rather than the full commission?

Whitney North Seymour:

And ultimately approved by the full commission.

full commission.

Whitney North Seymour:

Now, so, we have to two orders by the Commission.

We have one order in the Bridge Company case, one order in the Boston & Albany case, and then, we have the problem of the stock order.

My warning signal is gone.

I’ve got five minutes and I’m going to hurry if I may over the balance of this matter because I want to be sure to — to pose the major problems to Your Honors.

The — the directors of Allegheny decided in December 1954 that a — an exchange of preferred stock ought to be worked out which would dispose of $18 million of accumulated back dividends on preferred which hold over any dividend granting on the common.

That proposal was submitted to stockholders in the early part of 1955.

Before it was submitted to stockholders, a proxy embodying a very full statement of the — all considerations affecting the stock.

It proposed the exchange offer was put through the SEC in the regular way and all changes suggested by the SEC were adopted.

The proposal was put to the stockholders, 97.5% of the common stock represented at the meeting or 70% of all the common voted for it and a very substantial majority of the others.

The matter was fully presented to the Commission for approval.

The Commission approved it and issued an order of approval at the end of March and — or at the end of May, and the — under the terms of the offer.

The offer became effective and closed on June 6 and everybody who had submitted their stock for exchange prior to June 6 was entitled to get their stock after June 6, the new stock after June 6.

And then, the appellees who had intervened before the Commission filed a motion for reargument and filed this suit.

Now, I want to just make — make a reference to the circumstances under which the temporary injunction was issued.

By filing their application for reargument before the Commission, they tied up the proceedings in the Commission.

June 6 was the last day when anybody could withdraw stocks submitted for exchange so that everybody was frozen in on June 6.

Then, they filed this suit in the court below and this suit in its original form was a suit to enjoin the Bridge Company order, nothing about any stock order, nothing about the stock issue.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Whitney North Seymour:

The only parties in the original action were the Commission and the United States.On June 16th, the plaintiffs made a motion for a temporary injunction.

It was returnable on June 23rd.

At their request, as I understand it, the — the matter was adjourned to June 30th, but at least it wasn’t at Allegheny’s request.

Allegheny wasn’t a party and when Allegheny sought on June 21st to intervene, its proposed intervention was rejected by the other side.

On June 22nd, the Commission order approving the stock issue came down, came to Allegheny’s attention on June 23rd.

They were obligated by their agreement with their stockholders to start exchanging stock immediately, and they did so.And the afternoon of that day, the temporary restraining order was issued.

Now, here was a situation in which plaintiffs who’d been fully heard in the Commission who brought a suit not naming Allegheny, who did not in the suit has filled, ask any relief against the stockholder, whose temporary — whose temporary injunction application didn’t involve the stock.

And directors and officers faced with a potential, very heavy liability to stockholders because if the market had gone down and they failed to make good on the exchange, they would have been liable.

And so, they proceeded to start to make the exchange and the temporary injunction issued and ultimately a preliminary injunction issued.

As Your Honors will see, Judge Hincks dissented.

His view was that this was not a proper suit under the Urgent Deficiencies Act that the plaintiffs were trying to enforce the Investment Company Act which was not a proper purpose.

His opinion is cast in terms of absence of — of irreparable damage, but that’s obviously what he’s talking about.

I’m very sorry, but my — I must keep my obligation about time.

May I say just one word more and then I’ll sit down.

We submit that these orders of the Commission were valid and effective and that Allegheny has been subject to Commission jurisdiction and subject to the Commission’s approval of this preferred stock and that the injunction should be reversed not on the — the rather informal grounds suggested by the Solicitor General, but because it is — it was a — an injunction which the court below had no right to issue that it has ousted the Interstate Commence Commission of jurisdiction long enjoyed and — and which Congress has imposed upon it and that this injunction has had the most disastrous effect upon the company and upon its stockholders.

Now, every other question I must leave on the briefs is a grave question about the standing of these plaintiffs to maintain this action, a very grave question about the — I think there’s no real question about the jurisdiction of the I.C.C.

They raised some procedural questions.

I think we’ve got them fully dealt on the briefs and I won’t take anymore of your time.

Earl Warren:

Mr. Ginnane.

Robert W. Ginnane:

May it please the Court.

I should like to devote myself initially and primarily to two questions of jurisdiction of the Commission in this case, which have an importance to the Commission and we think to the public interest going way beyond the facts of this immediate case.

First, we contend that the Commission had jurisdiction under Section 5 of the Interstate Commerce Act, to determine that Allegheny Corporation should be considered as a carrier for the purpose of regulation of security issues and for the other specified regulatory purposes specified in section 5, paragraph (3) of the Act.

Now, to go back a little bit into the structure of section 5.

Section 5 (2) (a) provides that it shall be lawful with the approval of the Commission for a person which is not a carrier and which already controls one carrier, to — to acquire control of another carrier or carriers.

And paragraph (3) provides that where such a non-carrier is thus authorized by the Commission to acquire control of a total of two or more carriers that such non-carrier person shall thereafter to the extent specified by the Commission be considered as a carrier subject to the probations of section 20 in the Interstate Commence Act.

Section 20 contains the — the Commission’s broad powers as to reports, the form of which accounts are kept and as general — shall I say visitorial powers and for the provisions of section 20a, which briefly stated, “Requires the Commission’s approval for the issuance of securities or assumption of carrier liabilities.”

In this case, the Commission asserted jurisdiction over Allegheny upon the basis of two factors.

First, it found that Allegheny already controlled one carrier, New York Central.

And secondly, it found that Allegheny through its control of Central was seeking to acquire a modified control over the Louisville & Jeffersonville Bridge Company.

A modify — a modification of control arising out of the simultaneous proposal to merge the Bridge Company into the Big Four, a subsidiary of New York Central.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Robert W. Ginnane:

And simultaneously, for Big Four to lease the Bridge Company properties to New York Central which as I say was under the direct control of Allegheny.

William J. Brennan, Jr.:

When — when Allegheny acquired control of New York Central, it didn’t have to get provision from the — or at least it did not get permission?

Robert W. Ginnane:

It did not get the Commission’s authority and we contend and I would like to discuss it in some detail that it was not required to.

William J. Brennan, Jr.:

Because it’s a single carrier or what?

Robert W. Ginnane:

Because the Commission regarded the Integrated New York Central System as a single carrier.

Felix Frankfurter:

Why — why is that problem relevant to a property here?

Robert W. Ginnane:

It may not be, depending upon the Commission and to this Court’s resolution of various other issues.

I may say that that problem that counsel contended in the District Court that that problem was not relevant to the case.

The District Court found that the Commission could not assert jurisdiction of Alleghany as a pseudo carrier under section 5 (3), without first to finding that Alleghany’s acquisition of control of New York Central was in the public interest.

So, the — in effect, the issue was forced upon us.

Now, the court below held that since both before and after this merger and lease transactions, Alleghany had one form of control or another an indirect control over the Bridge Company properties that there was not involved any acquisition of control over the Bridge Company by Alleghany.

In other words, the court below held that this non-carrier provisions of section — of paragraphs 2 and 3 of section 5 apply only to non-carriers acquiring control over previously — previously uncontrolled carriers and do not apply to modifications of existing control of carriers.

Now, we think that that’s too literal, a reading of section 5 in view of the sweeping purposes of the statute.

Now, to go back a bit, it’s undisputed that the merger of the Bridge Company into Big Four and the simultaneous lease of the Bridge Company properties by Big Four to New York Central were transactions which require the Commission’s approval, the District Court so found and sustained those — that portion of the Commission’s order.

And through the years, the Commission has held repeatedly that where one carrier controls another carrier, increases in or modifications of carrier A’s control of carrier B, require the Commission’s approval, because those aren’t just bookkeeping transactions.

A carrier may have bare stock control of another carrier.

It can do certain things under the applicable corporation law.

If it requires a two-thirds stock control, it can do more drastic things.

In United States v. Marshall Transport, decided by this Court in 1944, a non-carrier already controlled a carrier and that carrier then acquired the properties of another carrier.

This Court held that that transaction simultaneously involved an acquisition of control by the non-carrier parent of the latter carrier of the acquired carrier and that the non-carrier parent must seek and obtain the Commission’s approval of such an indirect acquisition of control.

Since the Marshall Transport case in 1944, the Commission has held in several cases that a non-carrier parent must obtain approval under Section 5 (2) for the modification of its existing control of subsidiaries.

And I’d like to get two examples of it.

One, a small case involving motor carriers, the Commission held that upon a merger of two carriers controlled by an individual, that that individual must join in the application and seek and obtain the Commission’s approval for his modification — for the — the modification of his control over the two carriers.

Then, in a larger case, in 1947, the Pere Marquette merger, the Commission authorized under section 5 (2) the merger of the properties of the Pere Marquette Railroad into Chesapeake in Ohio.

Now, Chesapeake in Ohio already had stock control of Pere Marquette.

And at the same time, the Commission found that Alleghany’s acquisition of control through its existing control at Chesapeake in Ohio of the properties of Pere Marquette through that merger of Pere Marquette into Chesapeake in Ohio was a transaction which came within the scope of section 5 (2).

Now, we submit then in — in this case the Commission did substantially the same thing.

It held that section 5 (2) required its approval of the change or modification of Alleghany’s control of the Bridge Company properties which resulted from the double transaction of the merger of the Bridge Company properties and the Big Four, and the simultaneous lease of the — of the Bridge Company properties by Big Four to New York Central which was directly controlled by — by Alleghany.

And we think that that construction of section 5 is necessary to carry out the purposes of the Act.

That purpose shows not only in the broad sweep of section 5, but in a legislative history equally sweeping in purpose, a purpose to place the entire process of carrier consolidation and unification under public regulation.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Robert W. Ginnane:

And as a practical matter, contrary to the view to the court below, this increases or modifications of control can involve a good deal more than intra-system bookkeeping and the Pere — Pere Marquette merger is an example of that.

An increase in the stock control of a carrier may enable its direct or indirect non-carrier parents to bring about corporate actions which a lesser form of control would not permit.

The merger of a carrier previously controlled by a stock ownership signals the end of the possibility of independent operation of that carrier.

And in the history of Alleghany, this is rather a dramatic illustration of that.

Some years ago, Alleghany controlled C & O, Pere Marquette, and Nickel Plate.

Through the years, different factors, economic factors, Pere Marquette was merged in the C & O.

Nickel Plate on the other hand has become a completely independent carrier competing vigorously with C & O.

At the same time, such mergers, such — such rearrangements of a system will often signal a change in — in the management or in the policies of a holding company.

Such a change as would warrant the Commission for the first time in subjecting such a non-carrier parent to partial regulation as a carrier under section 5 (3), particularly with respect to security issues.

Do you go to the extent of saying that any rearrangement of the corporate relationship suffices?

Robert W. Ginnane:

Minor stock acquisitions, say, an increase in stock control from 55% to 57%, the Commission has paid no attention to, but the — the more formal, definite rearrangement such as mergers in particular.

Now, the Commission has always held, require its approval.

The difference in situation here as I understand it was that before the Bridge Company transaction, the Big Four owned all of the stock of Bridge customers.

Robert W. Ginnane:

That’s right, sir.

And the Big Four was owned by the New York Central?

Robert W. Ginnane:

Yes, stock control, but not — but not complete —

So the effect —

Robert W. Ginnane:

But not complete stock controls.

Yes.

So, the effect of this merger was simply to bring in the Bridge Company into the Big Four?

Robert W. Ginnane:

And at the same time, the lease of the Bridge Company properties —

Yes.

Robert W. Ginnane:

— by Big Four to New York Central, a combination merger and lease upstream of the properties.

Right.

Robert W. Ginnane:

Now, the Commission —

What about the —

Robert W. Ginnane:

Pardon?

(Inaudible) acquire control of any carrier?

Robert W. Ginnane:

That’s where the court below found it, sir.

Is that (Inaudible)

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Robert W. Ginnane:

Yes, sir.

Well —

But how did they —

Robert W. Ginnane:

You — you have the same keywords, both in at the last clause of 5 (2) and in 5 (3).

Are you talking about 5 (3) (Inaudible)

Robert W. Ginnane:

Well, it’s 5 (2) and (3), and — but the keywords are the same, acquire control or acquisition of control.

William J. Brennan, Jr.:

Now, how did the — how did the merger satisfy that, those words in control of any carrier?How did the merger can you explain that that — It’s not clear in my mind.

Robert W. Ginnane:

Because the Commission held as it — as it is held in some other cases that — that the phrase, the keywords as you call them, acquire control, acquisition of control and through the acquisition of a changed or modified form of control.

The court below held to the contrary that the words embrace only acquisition of control over a previously uncontrolled carrier.

That is a new acquisition of control altogether.

William J. Brennan, Jr.:

But a rearrangement of succeeding areas and affiliate within the — a system would be sufficient then to satisfy (Inaudible)

Robert W. Ginnane:

That is the Commission’s position, sir.

Felix Frankfurter:

And is that based on the — is that a latitude in area that is not a broad meaning attributed to control?

Robert W. Ginnane:

No, it’s based upon what —

Felix Frankfurter:

I’m not saying that and it’s properly broad.

What I mean is, does the Commission rest on what was partly involved in the Marshall case namely, the breadth given to the concept (Inaudible) as the legislative history shows that this Court held any difference (Inaudible)

Robert W. Ginnane:

Well, indeed, the present definition of control in — in the Commerce Act was deliberately based drawn from this Court’s decision on the Rochester Telephone case.

William J. Brennan, Jr.:

But I would think that the difficulty in making (Inaudible)

Robert W. Ginnane:

I think that’s right, sir.

Well, does your —

Robert W. Ginnane:

Does that — the key question — the key question in this aspect of the case is whether those — those words require control or acquisition of control, whether they cover as a matter of agency jurisdiction the acquisition of a modified (Inaudible) control —

Felix Frankfurter:

(Voice Overlap) — control —

Robert W. Ginnane:

— a new (Voice Overlap) control.

Felix Frankfurter:

— then you don’t acquire it, and if there is control then you do acquire it.

But this control, you already had it.

Robert W. Ginnane:

That — that was the view of the court below.

That it — that it applied only to new acquisitions of control.

Felix Frankfurter:

The question —

Robert W. Ginnane:

— over — over carriers previously uncontrolled in any way.

Pardon me, sir.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Felix Frankfurter:

But the question of — of — what if there is a change that amounts to that which it, maybe attributed to the concept, control and it set it in this statute.

Robert W. Ginnane:

And —

Felix Frankfurter:

What —

Robert W. Ginnane:

— and I think I was going a bit broader than that —

William J. Brennan, Jr.:

What —

Robert W. Ginnane:

— that — that the purpose of what — what Congress intended by the — by this broad section 5.

Now, the Commission believes that — that if the — the — what Congress intended above all which is subject to regulation of the whole process of carrier consolidation and integration.

Felix Frankfurter:

What you’re saying is that because you have control and power, subsidiaries one, two, three isn’t the same controls as a matter of actuality that you may have is there — you have to control one arriving out of the absorption of two and three.

Robert W. Ginnane:

That’s correct.

Yes, sir.

And the Commission cannot exercise such control under section 5 (3) over a non-carrier.

Unless, the non-carrier is required under section 5 (2) were the same words “acquire control or acquisition of control there”, unless the non-carrier is required under section 5 (2) to seek and obtain the Commission’s approval for such a modification of control.

William J. Brennan, Jr.:

And because of the — and for that reason, Alleghany did not have to seek authority to acquire the New York Central Control?

Robert W. Ginnane:

It was acquiring an existing carrier structure.

It was proposing no changes.

William J. Brennan, Jr.:

No, but in — in itself was coming by that, a non-carrier controller of a carrier?

Robert W. Ginnane:

Of a carrier.

William J. Brennan, Jr.:

But it didn’t have to get permission for that in the I.C.C.?

Robert W. Ginnane:

That is the Commission’s position —

Yes.

Robert W. Ginnane:

— and I would like —

It’s not whether (Inaudible) was not one or more.

Robert W. Ginnane:

That’s right.

It — it —

But having one —

Robert W. Ginnane:

— it filled the central system under — under unified operating control as a single carrier.

Having once — having once acquired that and under 5 (2) (Voice Overlap) —

Robert W. Ginnane:

It couldn’t make changes without approval.

Hugo L. Black:

It couldn’t make a change under — because of 5 (2) without getting the — the permission.

It couldn’t operate under 5 (3) to acquire another under 5 (2) without getting the Commission’s approval?

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Robert W. Ginnane:

That’s right, sir.

It couldn’t add to the system or change it without Commission approval.

Hugo L. Black:

And there it went — so it went — so it went down when it (Inaudible) to the Bridge Company.

It went — it went for a Commission approval?

Robert W. Ginnane:

Yes sir.

Hugo L. Black:

It asked the approval of (Inaudible)

Robert W. Ginnane:

And for Bridge Company it had been completely independent if the system had reached up for that.

Hugo L. Black:

Not — not a part of that form.

Robert W. Ginnane:

That — that would — that would require Commission approval, too.

Hugo L. Black:

Well, was it a part of Big Four?

Robert W. Ginnane:

Yes.

And the whole — a wholly or Big Four owned all of the stock of the Bridge Company.

Hugo L. Black:

And — and there is no relation between Big Four and New York Central?

Robert W. Ginnane:

Yes.

The Big Four has — had stock control of New York Central, not complete stock control.

And then New York Central had complete stock control of Big Four.

Felix Frankfurter:

(Inaudible)

So far as Alleghany’s relationship to the Bridge Company is concerned, what actual difference was there before and after the merger —

Felix Frankfurter:

To use —

— as regards to its degree or of — of control?

Felix Frankfurter:

The more direct control.

I would say the — the interest of Alleghany —

One step up the ladder?

Felix Frankfurter:

That’s right.

And to use the words of Mr. Justice Frankfurter early in the argument, the proprietary interest of Alleghany were not affected by that.

What — what is affected then, what is brought into play, we think, is the public interest, the regulatory interest in — in keeping control of — of this whole process of carrier unification consolidation.

Now, the District Court also held, although we agree unnecessarily.

Are you — are you implying that it’s for the Commission to determine whether such a — such a practical change in control is affected and that the Commission has so determined?

Is that implicit in your argument?

The question of control is not a legal, inherent, illegal practice by the — the — of the transportation problem and a judgment on the effect on the public of — of the rearrangement, is that (Inaudible) to your argument?

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Felix Frankfurter:

That such mergers must have the — the approval of the Commission.

Not that they must, but in this case they do as that involved.

In other words, maybe Commission said, have said in this case, “We don’t think this is a slight — affects the control that Alleghany had over these constituent units” And therefore, we dismissed Alleghany for this proceeding.

Could the Commission have done that?

Robert W. Ginnane:

Not consistent with their decisions since the Marshall Transport case.

Felix Frankfurter:

That is a —

Robert W. Ginnane:

As original matter, I suppose they could have.

Felix Frankfurter:

That is, it doesn’t make a particular determination in each case, but it may have said in generality that a holding company of two or more that that the — the rearrangement, in general the arrangement of constituent company so normally affects the relationship with the parent company that — in — in jurisdiction.

Robert W. Ginnane:

It assessed —

Felix Frankfurter:

(Inaudible)

Robert W. Ginnane:

— it — it has said so in several cases.

Felix Frankfurter:

All right.

The key is his acquisition that has brought effects.

Robert W. Ginnane:

The — that those — those are the keywords in the statute.

Now, the District Court also held that the Commission’s status order, so-called in the Bridge Case was invalid because the Commission had not authorized Alleghany’s acquisition of control of New York Central as consistent with the public interest.

I will state that Alleghany did seek or obtain the Commission’s approval of its acquisition of control of New York Central.

The Commission found and this is at page 511 of the record that the New York Central Railroad Company is the parent company of the New York Central Railroad System, comprised of numerous carriers including several railroad systems and the railroads and properties controlled and operated by those companies under lease or otherwise.

When Allegany by stock ownership and by the favorable action of the stock holders obtained control of Central, all the properties within the carriers of it, rather long established single operating control and the Commission concluded that since Alleghany was recognized as a single established system, that since Central was recognized as a single established system, Alleghany’s acquisition of control of Central did not constitute an acquisition of control of two or more carriers.

Now, the District Court held squarely to the contrary.

It held that where a non-carrier acquires control of the parent corporation of a railroad system, it acquires control of the subsidiaries and consequently of two or more carriers.

Now, this — this presents we think a very important jurisdictional question under the Act, because section 5 (2) expressly permits a non-carrier, holding company or otherwise to acquire control of a single carrier.

It’s only the acquisition of control of two or more carriers by a non-carrier which requires the Commission’s approval.

Now, as practical matter, many railroads and I would not know how many motor carriers consist of a parent and subsidiary corporations whose properties are integrated for operating purposes through leases and similar arrangements.

On the other hand, some carriers for tax purposes or as the result of recent reorganization proceedings have eliminated such — such subsidiaries and hold all their properties in the ownership of a single corporate entity.

But either way, it seems to us that Congress and everybody else regard New Haven, for example or Delaware &Hudson as a single carrier.

But under the decision below, every acquisition of control of a single integrated carrier enterprise consisting of two or more corporations would require approval under section 5 (2) and that jurisdiction would vary depending upon the internal organization arrangements of a particular carrier enterprise whether it operated through operating subsidiaries or whether its operations were organized in terms of unincorporated operating divisions.

And in its report, the Commission also pointed out the practical problems that would arise if the Commission’s approval was required for every acquisition of control of a carrier consisting of a parent company and one or more subsidiaries.

For example, in recent years, there have been successful practicing struggles for the acquisition of control over such carriers as Minneapolis & St. Louis and the New Haven.

The Commission does not believe that Congress intended it to determine either before or after such proxy contest whether a particular person or identified group of persons should be allowed to control and operate a carrier.

With it, Congress made it very clear that it intended the Commission to determine who could or could not control a carrier, only where there was involved the acquisition of control of two or more carriers.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Robert W. Ginnane:

I’d like to mention only one more point, quite unrelated to what I’ve just been discussing.

The court below found —

William J. Brennan, Jr.:

As a policy matter of — what’s in the mind of the Commission?

Why do they think that they should have been be pertinent with that (Inaudible)

Robert W. Ginnane:

It — it would place it in the — in the position as a matter of —

William J. Brennan, Jr.:

Even involves — each involves a judgment on the quality of (Inaudible) to some extent.

Robert W. Ginnane:

That’s right, but — but we think Congress has laid down the policy that we shall pass that judgment only where there is definitely involved control of two or more carriers by a non-carrier.

Earl Warren:

Mr. Gruss.

Harold H. Levin:

Mr. Levin.

Earl Warren:

Oh, Mr. Levin.

Yes, excuse me.

Harold H. Levin:

Yes.

I represent —

Earl Warren:

Mr, Levin.

Harold H. Levin:

— the — the appellants Gruss, et al., who on behalf of preferred stockholder similarly situated, intervened in the proceeding below.

And I should like to move forward from the technical question of control and — and jurisdiction of the I.C.C. to the issuance of the injunction which had a very disastrous effect on the holders of $40 million of security.

In saying that, I don’t want to minimize for a moment the problem that is before this Court respecting the kind of jurisdiction, the public interest that is involved in the — in the question of jurisdiction of the I.C.C.

I think it’s very important and undoubtedly will receive great — a great deal of consideration.

Nonetheless, part from that, there is the problem as to whether the court below having reached the conclusion that the I.C.C. should not have continued its jurisdiction, whether it should have acted in such a fashion as retroactively, to take away that jurisdiction and cancel out every administrative order that was issued by the Commission in the interval.

And there, it seems to me, is where the great damage that was done in this case lie.

Felix Frankfurter:

Does this — is your argument directed to what you deemed the inequities of the particular decree?

Harold H. Levin:

I — the — the power of the Court to enter the injunction that was issued below, not as an exercise of discretion but as a power and the manner in which it should exercise that power.

It seems to me that when Congress enacted this various agency statutes and placed corporations and entities under an administrative agency, it told the public that they have a right to rely upon those agencies when they act.

And that nobody is going to come along to stockholders who owned $7000 worth of stock, a week later or a year later or 10 years later and say that the I.C.C. would have entered this order of approval didn’t have jurisdiction and therefore, the issue is void.

Therefore, the stocks have to be returned., there must be a recission and the whole marketplace must be turned upside down and that’s what happened to this case, because within the short period between the approval of the exchange offer and the issuance of a — the restraining order, a great many shares changed hands.

900,000 shares of the total of about 140,000 or 130,000 something had been actually distributed, all of them issued.

No stockholder, no preferred stockholder had any longer in his possession a certificate of stock.

Felix Frankfurter:

I don’t want to take you time, but I just want to clear what your point is.

Suppose that so-called the non-stock holder intervenes before the I.C.C. in this case and since you have no jurisdiction over this stock issue that belongs to the SEC and the I.C.C. overrules it and does what it did here.

Is there no more than reviewing that claim of none jurisdiction by the I.C.C?

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Harold H. Levin:

Well, that brings us to a question of whether or not the review of status under an agency lies within the power of — of a stockholder.

It seems to me that as — that where — whether or not —

Felix Frankfurter:

That is, you have to face that.

Harold H. Levin:

I am.

I’m — I’m willing to face that.

Felix Frankfurter:

That doesn’t mean to say you’re not.

Harold H. Levin:

Yes, sir.

It seems to me that a stockholder does not have the right under the cases that this Court has decided some over the years to come into court and say, “I don’t think that we should be under the I.C.C. jurisdiction.”

I don’t —

Felix Frankfurter:

He will always protest in making inference.

He’s protested it to the allegations said, “I want to get such safe cars, presumably, preferably safe cars under the investment statute.”

Such as leads to the (Inaudible)

Harold H. Levin:

In spite of that because he’s still talking about status and status alone and I don’t think that that he can be heard to say that there is something preferable as the court below seemed to think in the SEC as against the I.C.C.

And I can back that up by the enactment by Congress of section 3 (c) (9) of the — of the Investment Company Act which in effect said in our estimate, “Jurisdiction of the I.C.C. is at least as good as the SEC and if you’re under the I.C.C., you don’t have to come under the SEC.

Now, the Congress —

Felix Frankfurter:

He couldn’t give up, but isn’t it?

Harold H. Levin:

I beg your pardon?

Felix Frankfurter:

It is the whole point, Mr. Levin, that these protesting stockholders say that you’re not under the I.C.C.

Harold H. Levin:

That they may protest, but the fact is that they are showing, as Judge Hincks stated, “No legal injury, no irreparable damage to justify the — a court of equity to grant the kind of injunction it had here where their only objection is that they are going to be better treated under the SEC than under the I.C.C.”, which I say falls when you consider that Congress had given the senior agency the standing to substitute for the S.C.C. in regard to the safeguard of the rights of security holdings.

And that Congress made this — show the same respect for the I.C.C., when it enacted the Fair Labor Standards Act and where employees come under the jurisdiction of the I.C.C. they don’t — they are not afforded the protection of the Fair Labor Standards Act and I don’t think that any employee of company could come in and say, “I object to this trucking company, my employer being under the I.C.C.

I want to get out from under and I want the protection of Fair Labor Standards Act.”

I think the administration of these agency acts would — would — will get us into the difficulty that we got into in this very case.

Felix Frankfurter:

Do — do you say that not only would be constitutionally Congress say, “There shall be no reviewing power in two agencies have more or less having some — in some ways seeming, overlapping jurisdiction.”

Not only that Congress couldn’t withdraw a judicial review, as I for one should think it could but in fact it did say that (Voice Overlap) —

Harold H. Levin:

I don’t say that — that Congress couldn’t constitutionally —

Felix Frankfurter:

Now, I would but you say —

Harold H. Levin:

I certainly would not.

I say, it did not do so.

I say that Congress said insofar as agency regulation is concerned, if you come under the I.C.C., if a corporation comes under the I.C.C., that satisfy the Investment Company Act and you don’t have to pay any attention to it.

I say further that this Court has held that where you’re arguing status, a common stockholder, a minority stockholder cannot be heard to question status.And if – if he could and just imagine that if this were done 10 years from now, the — the problem that would confront Alleghany and the – and the – the community.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Felix Frankfurter:

Well, I can understand.

I see addition, and to my mind there’s a difference.

It didn’t say where they do it 10 years from now.

I could — I can understand objections on the ground would execute the technical sense of the equity of a chance it but doing things or not doing things.

But the question of power is a different one.

So (Voice Overlap) —

Harold H. Levin:

Well, I think — I think of — I’ll now turn to the point that you just mentioned, because that’s my next point.

My next point is this.

That when — when one applies to a court of equity, contrary to what was held below, he must show irreparable damage.

And I say again that a stockholder who merely says, “I think I’ll fare better under one governmental agency according to jurisdiction than another does not show irreparable damage, (a).

(b), I go further.

I say no court of equity issues an injunction of a kind branded here, knowing full well the hardship that it was going to engender, without weighing that hardship against the relative, lack of hardship or lack of harm, lack of damage that would go to the owners of $7000 worth of stock.

Particularly, as Judge, — as Mr. Justice Harlan pointed out in his granting of a stay, where 97.5% of the voting, stockholder of that same class approved the issue.

And that it seems to me that on that basis alone, this failure to consider hardship except to admit it, because they all did, I –I can read to Your Honor, briefly from the opinions of — of several of the judges, Mr Judge Dimock of the District Court when he considered this problem and considered the stay, used this language.

“What makes the question perplexing is the plight of innocent stockholders.”

And he was referring to the preferred stockholders who have given up there old preferred stock and had got a frozen asset in return.

And Mr. Justice Harlan said, “I am not unmindful of the plaintiff’s contention that Alleghany proceeded with the preferred stock (Inaudible) upon notice,” but he says, “That cannot be laid at the door of the preferred stockholders generally.”

Judge Hincks said, “This feature of the injunction has its chief impact on innocent stockholders.”

And he found the injunction to be unnecessary to protect plaintiff’s pecuniary interest.

On that score, I would call, Your Honor’s attention to the fact that my adversary, Mr. Brussel, stated at — at page 59 of the record that the issuance of this injunction, would hurt the common stockholders.

And anybody who read the stockmarket sheets since the injunction was issued would soon know, that the stock which reached the high of 10 of the common stock, which reached the high of ten and three-quarters is now showing at around six and three-eighths, because this very fine plan, which was fairly and just to both the preferred and the common was done away with because of this issue, over acquisition of control, over status which is I say, I do not think the common stockholders, the minority common stockholders should be hurt.

Felix Frankfurter:

Mr. Levin, if you’re dealing with the decree, would you mind — that this an unfair question to ask you, but the Government didn’t represent it here.

Would you mind stating what you believe to be the practical result of the suggestions of the Solicitor General that the injunction be lifted?

Harold H. Levin:

Well, I think it’s —

Felix Frankfurter:

(Inaudible)

Harold H. Levin:

I think it’s — it’s done with tongue and cheek.

Felix Frankfurter:

I know, because he said you might go to jail if you do.

Harold H. Levin:

That’s right.

No.

We won’t go to jail.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Felix Frankfurter:

(Inaudible)

Harold H. Levin:

But we won’t get the stock because those who would have to distribute it to us would — would go to jail and I think —

Felix Frankfurter:

(Inaudible)

Harold H. Levin:

— I think that’s just a silly suggestion as — as long as Your Honor asked it of me.

It would — would do deference to the Solicitor General.

It doesn’t help us one bit.

The fact is that below, the Solicitor General thought we were right.

He’s changed his mind, because of the determination of the SCC on an application and I want to take the — the next few moments to deal with that if I may.

An application was made by some preferred stockholder, not the clients I represent directly, but — and by Alleghany who seeing this terrible hardship that was being visited on so many people, went before the SEC in the hope that they could get some kind of an exemption to make the stock issue proper even in light of the decision below.

And the first thing I want to call Your Honor’s attention to is this, that our adversaries in their brief no less than 10 times state that the SEC found this plan grossly unfair.

It found no such thing in dealing with a single, the testimony of a single witness who stated that the stock might reach curtains heights.

They said, “If that were the case, it would be grossly unfair.”

That’s a far cry from saying that they found the plan grossly unfair to common stockholders.

On the contrary, they found that in view of the — of the potential difficulty in determining the value of the stock, in view of the conflicting testimony, they didn’t feel that they could grant the exception.

But what I want to call Your Honor’s attention more particularly to is to the fact that the decision of the SEC and I don’t think it’s any secret that there’s a certain amount of rivalry between the SEC and the I.C.C. in this situation and we’re caught squarely in the middle.

They made the most unprecedented, interpretation of section 18 of the Act.

Now, if Your Honors will look at page 7 of my reply brief, you will find set forth there, section 18 (b), paraphrase of it, 18 (b) forbids any warrant or right to subscribe to — or purchase a security.

Felix Frankfurter:

What page is it?

Harold H. Levin:

Page 7 of my reply brief and then don’t look at the appendix of the reply brief.

No, it’s — it’s mine or the blue and it’s the thinnest of the blue.

Felix Frankfurter:

All right.

(Inaudible)

Harold H. Levin:

And Section 18 (d) provides that you may not issue a warrant that would last more than 120 days.

Section 18 (e) and this, I call Your Honor’s special attention to, provides that the provisions of this section shall not apply to any senior security issued or sold, by any registered closed-end company, for the purpose, and I skip, of retirement or exchange any security of such registered investment company.

And so, the question arises to whether this is — is my time up?

May I take one more moment?

The question is whether this is a senior security.

Now, a senior security is defined just below that 19 (g), which says, “Senior security means any bond, debenture, note, et cetera, and any — and evidencing indebtedness, and any stock of a class having priority over any other class as to distribution of assets or payment of dividends.”

There isn’t any dispute about the fact that this issue had priority, both as to dividends and as to assets.

Therefore, on the face of the statute, it’s clear that this issue was examined.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Harold H. Levin:

Now, how do they get around it?

The SEC says that if a senior — senior security seizes to be one if it has a long-term convertibility.

In other words, the exception says, “It is — it doesn’t apply — it doesn’t apply to a senior security.

This limitation as to convertibility doesn’t apply to a senior security.

But if a senior security says the SEC has long-term convertibility, then it’s no longer a senior security.

And on that basis, the SEC deny clearance on this issue.

We say however, of course, that this is quite irrelevant to the issues presented in this case.

It’s something that happened later, but I think it’s worth considering in determining the equities of the situation.

Thank you, sir.

Earl Warren:

Mr. Kahan.

Alexander Kahan:

Mr. Chief Justice and justices.

I’m going to take just a few moments because my Brother at the bar, Mr. Levin has covered pretty much what I wanted to say regarding the sacrifice that has been brought to the common stockholders he has illustrated with respect to his group the preferred stockholders.

There are 4,600,000 shares of common stock.

700 of those shares are the plaintiffs, appellees here.

92% plus voted for the exchange plan.

72% of the total issue voted for it.

In 30 years, there’s been no dividend declared on the common stock.

The opportunity which this exchange afford for that possibility in the foreseeable future has now been hamstrung by an inequitable procedure, endorsed by the statutory court.

So that — because of the havoc brought by this injunction for severity with which the injunction has borne down upon the Alleghany affairs almost at crippling (Inaudible), no director’s meetings possible, no stockholders’ meeting possible and all the other functions of the organization, the magnitude of Alleghany.

I ask this Court in an exercise of an informed and sound discretion vacate the injunction.

Thank you.

Earl Warren:

Mr. Brussel.

George Brussel, Jr.:

Mr. Chief Justice, may it please this Court.

There are seven parties before the Court on these appeals.

Alleghany Corporation controlled by Mr. Young and his Chairman and Mr. Kirby, its president.

Adelaide Neuwirth, represented by Mr. Kahan who just spoke, who was a common stockholder but who does not appeal from the jurisdictional questions involved in the judgement below, who merely appeals from the injunctive provisions of the judgement and who took no active part in the proceedings below.

And there is the one preferred stockholder represented by Mr. Levin, Gruss &Company, a New York Stock exchange firm.

We have the Interstate Commerce Commission who identifies with Alleghany in this case, except on the question of standing to sue and except as to the laws of Alleghany’s carrier status on January 19, 1954, in which respects, it identifies with our position.

We have the Securities and Exchange Commission which has supported the appellees in this case on all investment company aspects of the case, as set forth in its brief amicus.

And the United States who did not appeal from the judgement below, who instead has filed a brief here in which it has confessed error.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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George Brussel, Jr.:

May I read briefly from the Government brief at page 18 in which it sets its position for?

In the District Court, the United States supported the I.C.C. in defending its orders.

However, upon for the study of the issues and upon consideration of the Court’s opinions, the United States has concluded that the District Court correctly held (1) That Alleghany did not acquire control under section 5 (2) of the Interstate Commerce Act of the Bridge Company through the merger of the latter with the Big Four.

And that the I.C.C. therefore had urged in subjecting Alleghany to carrier status.

And (2), that 1945 status order was terminated by this order in the merger proceedings.

Under this view, the I.C.C. orders authorizing the preferred stock issue were invalid for lack of jurisdiction.

And then finally, we have the three common stockholders whom I represent and who for two long years and if I may be permitted to say so, quite along have raised the question of the nullity of the Interstate Commerce Commission’s orders and the importance in the public interest of Alleghany registration and its subjection to the jurisdiction of the Securities and Exchange Commission, propositions now supported both by the United States and by the SEC.

They sue not only in their own right as stockholders, but in the right of the entire class.

Now, this appeal is from a unanimous judgement of the three-judge Court, including the late Judge Frank, Judge Dimock and Judge Walsh.

The court below decided five substantive questions and every one of them was resolved in favor of the appellees.

But actually, a finding on anyone of them will dispose of this appeal and require affirmance of the judgement below.

The decision of the court below was synthesized in two or three sentences which I take the liberty of reading.

Quoting, “We believe that the I.C.C. had no appropriate application before it for a determination of the question of the control.

The case cannot therefore be remanded for such a determination.

The I.C.C.’s orders purported to determine the question of control of Central, but that determination cannot stand, (A) because the findings as to Alleghany’s control of Central are insufficient.

(b) Because the evidence does not support this findings and (C) because plaintiffs were deprived of an evidentiary hearing on that issue of control.

There was one other substantive issue in the case, which has been the subject of colloquy between Court and counsel in the argument that proceeded.

And that was whether the merger was authorized, of whether — whether the merger authorized I.C.C.jurisdiction or provided the basis for it.

And concerning that question, the Court said this.

Quote, “But where as the instant case the non-carrier Alleghany is according to our assumption arguendo already in indirect control of such property.

No acquisition by the non-carrier results from the merger.”

This seems to us the plain, clear and obvious interpretation of the statute.

Now, at the threshold we’re presented with the reviewability and standing to sue questions.

All the I.C.C.o rders reviewable.

Do we have standing to sue?

The I.C.C. doesn’t challenge our standing to sue and the United State agrees that we have standing to sue.

The District Court held that the orders were reviewable.

It confirmed all right to challenge them.

It pointed out that the orders had caused us direct and substantial injury, that our stock was threatened with dilution and if anything more were needed to point up the adversity of our position from that of Alleghany’s, we have it in the Securities and Exchange Commission, decision of November 30, 1956, when by virtue of its findings of unfairness to the common stockholders and I shall demonstrate that that is in the record and that my statement is correct.

Our position was both adverse to Alleghany and adverse to the preferred stockholders specifically, on that very question.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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George Brussel, Jr.:

The result of the I.C.C. order approving the preferred stock plan was to increase the dividend on the new — new preferred stock from 5.5% to 6%.

That directly hurt the common stock.

In addition, the I.C.C. orders — ordered the conversation ratio.

That is the number of shares which the — which the new stock would command.

The number of common stock shares which the new stock would command if the conversation rights were exercised and increase them from 34 to 47.

And then, of course, in addition to section 18 (d) as the SEC found, bars the use of this call on the common stock by the preferred stockholders as a matter of law.

Although as we say it confirmed our right to sue, they were specific findings by the SEC.

They are implicit in the judgement of the court below.

According to Alleghany’s view we have no remedy in any court.

They say that they argued in opposition to a motion that we made before Judge Walsh sitting as a single judge in a derivative action which our clients had started against Alleghany, that we were not entitled to a temporary injunction in that one-judge court.

And they succeeded in persuading Judge Walsh to deny the motion and Judge Walsh did so remitting us to our administrative remedies before the I.C.C.

The nub of this decision was that we haven’t exhausted our remedies there.

Pursuant to the direction in his judgment we did go before the I.C.C.

And these — this judgment raises the orders of the Interstate Commerce Commission.

Now, Your Honors, if we’re wrong on every phase of this question of standing to sue we say that the judgment below stands as a judgment of a one-judge District Court.

That is, the three-judge District Court may be — the judgment may be considered as a one-judge court and that the — contrary to what Alleghany argues in its brief, it was not necessary for us to join the directors in this case in order to have a sufficient complaint in law before the three-judge court, because that question is not reviewable here.

And secondly, its — is — the fact is that we sued individually and representatively and in neither situation were we required to join directors.

In other words, we had a right to seek an injunction against what we considered to be a — a preferred stock plan that was inequitable and unfair to us and that was being promulgated pursuant to avoid I.C.C. order.

Felix Frankfurter:

What — what would be the jurisdiction of the one-judge court?

George Brussel, Jr.:

To grant, find a relief to us as —

Felix Frankfurter:

As to the (Inaudible) of the jurisdiction, what’s the federal jurisdiction of the one-judge court?

George Brussel, Jr.:

To enjoin — to enjoin Alleghany.

Do you mean what are the grounds of —

Felix Frankfurter:

Yes, what — what basis of jurisdiction, what further ground?

George Brussel, Jr.:

Well, we’re — we’re dealing here with federal statutes, with the Investment Company Act and the Interstate Commerce Act.

Felix Frankfurter:

And I take it that the — your answer in it would be you didn’t have to stand to enjoin an illegal order of the I.C.C.

You would have to stand because of your corporate rights.

These are the incorporation if you had it?

George Brussel, Jr.:

No, our rights as against the corporation as a whole, not the right —

Felix Frankfurter:

Yes —

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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George Brussel, Jr.:

— not in the — in the right of the corporation.

Felix Frankfurter:

No, no, no, your right in relation to the Court.

George Brussel, Jr.:

Yes, sir.

Felix Frankfurter:

But I don’t see what the federal basis in a one-judge court proceeding, is the fact that some or another federal statute will be implicated by the federal jurisdiction.

George Brussel, Jr.:

Well, we have diversity of citizenship in addition, Your Honor, that —

Felix Frankfurter:

Oh, that’s — that’s a perfect answer.

George Brussel, Jr.:

Now —

Hugo L. Black:

So, when this plan for the exchange of stock, that — that came up before the I.C.C. under their claim of jurisdiction.

Your — your class didn’t appear there at all.

George Brussel, Jr.:

With the I.C.C.?

Oh, yes we did.

Hugo L. Black:

Yes.

George Brussel, Jr.:

And we asked to be heard and we never were.

Hugo L. Black:

Well — well, you — you were there — the holders of preferred stock?

George Brussel, Jr.:

No, sir.

We were holders of common stock —

Hugo L. Black:

Of common stock.

George Brussel, Jr.:

— contesting the right of the Commission —

Hugo L. Black:

Contesting the right of the Commission to transfer preferred into common.

George Brussel, Jr.:

No, to reprove the preferred stock plan, which would give the holders of the preferred an option —

Hugo L. Black:

(Inaudible)

George Brussel, Jr.:

— to call on and convert some of their shares into common stock.

We were contesting that.

Hugo L. Black:

And — and you — you contested there on the jurisdiction?

George Brussel, Jr.:

I beg pardon, sir?

Hugo L. Black:

You contested it on jurisdiction?

George Brussel, Jr.:

Yes sir, we did.

Hugo L. Black:

But they had no jurisdiction.

George Brussel, Jr.:

When I — when — when — my answer to your question is that we pleaded, but we were not heard.

And in our pleadings, we raised the question which, Your Honor, suggests.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Hugo L. Black:

But then, you took no appeal for that.

George Brussel, Jr.:

Oh, yes.

We reviewed that order and that’s one of the two orders that are — that are under review and presented for determination —

Hugo L. Black:

Yes, there are two orders (Inaudible)

George Brussel, Jr.:

Yes, that’s right.

Two orders, one — one by which the securities — by which the I.C.C. assumed jurisdiction over Alleghany, which has been referred to here as the status order or the jurisdiction assuming order.

And the other, the order by which it approved the preferred stock plan.

The second followed the first.

Now, as we see the issues here in this case with respect to injunction to which I’m going to address myself first because of Mr. Levin’s approach to this question.

Was the District Court powerless merely because it was an Urgent Deficiencies Act Court, to maintain the status quo — quo by an appropriate injunction?

Wasn’t obliged to stand by powerless while a — a defiant party, disregarding the pending proceedings which could have been determined within a few days deliberately and I should try to demonstrate this deliberately disrupted the status quo in order to present the District Court with (Inaudible) common plea, which it considered would be beyond the power of the District Court to recall.

Now, was the District Court — was the District Court bound to consider equities inuring to the appellate, solely by virtue of the disruption of the status quo?

That question is also presented in its proper focus.

Now, Your Honor, this is the chronology of events which preceded the disruption of the status quo.

This is what happened.

On June 2nd, 1955, the appellees filed a petition for reconsideration of Division 4’s order approving the preferred stock plan.

It requested the full commission to stay in adverse order if it made one for a reasonable time so that we could go to the District Court and get an injunction.

On June 6th, 1955, we commenced this action.

And a few days later, on June 15th, 1955, we moved for a preliminary injunction, returned it on June 23rd.

We didn’t ask for any temporary restraining order, because we considered it inconceivable that Alleghany would be advised to issue its stock, while our motion for a preliminary injunction was sub iudice.

On June 21st, Alleghany’s counsel moved for leave to intervene.

And in their papers, they admit notice of our application for a temporary injunction, although the papers had not been served upon because they were not then in the case, the defendants being merely the United States and the Interstate Commerce Commission (Inaudible).

On this — on the same day, contrary to what has been suggested here, the Government and the I.C.C. joined in an application to the District Court to adjoin the motion for a temporary injunctions until June 30th, but no one told the District Court that on the following day an order would come down from the Interstate Commerce Commission which would permit Alleghany, if it so desire, to issue the stock, because there was then no temporary restraining order.

And on the following day within less than 20 hours after the application for the adjournment was made to the District Court, the order did come down.

And that order reached the possession of the Alleghany’s counsel on — at — in Washington on noon of June 23rd.

At 4:30 that afternoon, I was telephoned by Alleghany’s counsel and told that the full commission had approved this preferred stock plan and that the issuance and distribution of the stock was actually under way.

In less than an hour, I prepared an application for a temporary restraining order.

I submitted it to Judge Dimock and at 5:55 that evening, he signed it and it brought to a halt the further issuance and distribution of these securities, leaving 876,000 shares, distributed to the extent that they were in the hands of the original, old preferred stockholders and that is a crucially important distinction.

468,000 were left undistributed and the persons entitled to those merely held receipts for their old securities, which — but for the temporary restraining order, they could have presented and claimed their new securities.

So that the result of the temporary restraining order was to leave these securities frozen through, but frozen in the hands of the original holdings.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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George Brussel, Jr.:

And they never reached the stream of commerce and they never went to a single person who could truthfully say that he was without notice of the infirmities in the Commission’s jurisdiction and I shall develop that point in just a moment.

Now, in this manner, Your Honors, Alleghany deliberately disrupted the status quo.

It could have waited for six or seven days, until there was an argument on this motion for a temporary injunction on the merits.

It could have urged all its grounds for opposition at that time, but not — notwithstanding, it elected despite the pendency of the motion to go forward and to create this (Inaudible) common plea from which we have these anguished cries of innocence made here in the argument.

Now, when questioned by the District Court on the following day when a motion to vacate the temporary restraining order was made as to why the order couldn’t be relaxed in such a way so as to give those new preferred stockholders an opportunity to exchange their securities and get back the ones that they had given up, which were valid securities and were being traded on the market and which they could turn into cash if they wanted to sell them, Alleghany counsel said, I quote him.

“But the thing having gone forward, we cannot unscramble it.”

And counsel for Gruss & Company then later took a similar position.

There never was — there never was a disassociation by the preferred stockholders from that position.

Now, getting to the question of the innocence of these preferred stockholders, because that nub of the question insofar as the equities are concerned assuming that they are entitled to raise any questions of equity.

The preferred stockholders say they’re innocent and Alleghany as Judge Dimock found attempts to hide behind them, because if the preferred stockholders present — prevail the Alleghany position is rectified and they can get the benefit of any relief that is given to the preferred stockholders.

These preferred stockholders are not naïve, are not innocent in the sense of — we use that word as far as naïve or ordinary civilian traders in the stock market.

They are hardcore.

They are referred to as hardcore, recalcitrant preferred stockholders who have resisted in the past every (Inaudible) to persuade them to exchange their securities when prior conversion plans were made.

This is found by the SEC in the hearings before it.

And the ones, the preferred stockholders before the Court are the professionals.

I don’t mean that in an invidious sense.

I merely say that they are sophisticated persons who had full knowledge of the situation.

They are stock exchange brokers, and traders.

They knew on February 10th, when this preferred stock plan was published that they had in their pockets, those of them who bought their securities, just before the plan was approved by the Alleghany directors, a profit of $170.000 a share at a — at a maximum cost to them of $178 a share.

In other words, it was then $170 profit developed in the six months period that transpired between the Alleghany approval of the preferred stock plan and the day that the I.C.C. finally approved it.

Hugo L. Black:

From what rights to was that?

George Brussel, Jr.:

From $170 per share to $348 per share.

The maximum legal claim on the preferred stock was $237 per share, even if, you’ll ignore the fact that the preferred stock was selling marketwise at a discounted price.

But if you gave it every dollar that it could legally command on — on — it was entitled to no more than $237.00.

That is the stated value, the stated par value plus accumulated array — arrears.

Now, the Alleghany — the preferred stockholders knew that there was as a — a precondition to the effectiveness of the I.C.C.approved preferred stock plan.

They had notice of attacks on the I.C.C. jurisdiction and they had it in this way.

When they became parties, contractual parties to the preferred stock plan, they signed a letter of transmittal in which it affirmatively appeared on the face of the letter that they were assuming all of the obligations and conditions of the — of the exchange offer and from which, it appeared that they were bound by the terms and provision of that offer.

They were less contractually integrated into the plan and they thus had notice of whatever infirmities existed in the plan.

It matters not whether they made their investigation, having noticed — having noticed, coupled with an interest.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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George Brussel, Jr.:

They had a duty as prudent men to inquire and if they failed to make the inquiry, they were charged with whatever they might have learned, had they made it.

And had they made the inquiry, they would have discovered two things.

The jurisdiction of the Interstate Commerce Commission was being attacked by the appellees and by the Securities and Exchange Commission.

Now, they say the — we never got a valid order from the I.C.C.

We didn’t make the investigation, so we preferred to call ourselves innocent.”

Felix Frankfurter:

What did the SEC assert it, too?

George Brussel, Jr.:

The SEC filed a memorandum on September 14th, 1954, long, long before and in connection with that —

Felix Frankfurter:

(Inaudible)

George Brussel, Jr.:

I beg your pardon?

A memorandum in the I.C.C. jurisdiction proceeding and — and in addition to that fact of which the newspapers took public notice and we’ve indicated in our brief where that notice could have been found —

Felix Frankfurter:

Is that memorandum in the record?

George Brussel, Jr.:

Yes, sir.

Felix Frankfurter:

Could you quickly (Inaudible)

Don’t let me interrupt your argument.

George Brussel, Jr.:

All right, I’ll have it for you in a moment.

(Inaudible)

George Brussel, Jr.:

Page — record 190.

Now, this is the singular fact about what the preferred stockholders didn’t do.

For four months after the preferred stock plan was published, they could have withdrawn their securities and gotten there money back in effect or gotten their securities back, because it was not until June 6th, 1955 that the preferred stock offer became irrevocable.

It was not until then that they lost their chance to exchange their securities.

And now, they say having waged in on the result, having lost the wager, we come here pretending our innocence.

Felix Frankfurter:

Well, in that memorandum, they merely asked the Commission to invoke its order of subjecting it to jurisdiction.

George Brussel, Jr.:

Yes, but there was possibility of success.

Felix Frankfurter:

I understand that (Voice Overlap) —

George Brussel, Jr.:

Yes, that’s all they asked, Your Honor.

That’s quite correct.

Felix Frankfurter:

They asked the Commission, the I.C.C. to revoke the order, which presumably, still recognized that the Alleghany was subject to I.C.C.’s jurisdiction, is that correct?

George Brussel, Jr.:

No, I — I think not, sir.

What they actually did was to make an —

Felix Frankfurter:

But note that’s what the memorandum says.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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George Brussel, Jr.:

As I read it, sir.

They asked has the I.C.C.to decline jurisdiction as a matter of discretion and to surrender to it them.

They said that the — that nothing in the preexisting history of the I.C.C. regulation of Alleghany including the 1945 orders required the I.C.C. to continue its regulation of Alleghany.

Felix Frankfurter:

Now, I get in touch is a body that exercises discretion.

So, in this jurisdiction, it’s implied is to retain jurisdiction by exercising discretion the other way.

If there’s discretion then it can work both either in opposite.

George Brussel, Jr.:

Oh, yes and that was the — the very place where we diverged from the position of the SEC.

Felix Frankfurter:

All right.

George Brussel, Jr.:

We said that the I.C.C. had no power as a matter of law.

Felix Frankfurter:

I’m not asking.

I just (Inaudible)

George Brussel, Jr.:

Right.

Thank you, sir.

Now, the preferred stockholders in addition say that this hardship falls on them, as I pointed out.

They had an opportunity to acquiesce any suggestions made by District Court that the injunction should — could be relaxed.

And I myself offered to put myself at the disposal of counsel to try to workout such a relaxation.

We were only interested in attacking the jurisdiction of the I.C.C.

We sought to impose no hardship on any security holdings.

We wanted to protect the integrity of the common stock, that’s true.

But we were perfectly willing to acquiesce in relaxation of the judgment, which might have permitted them to get their securities back.

They said, nothing doing.

It’s all or nothing.

And that’s where they stand to this very moment.

Excuse me.

Now, Your Honors, they — the Government has said that injunction should not be vacated.

Or I’m sorry.

The injunction should be vacated because they say it’s no longer necessary.

They say, the SEC having made its pronouncement upon this stock plan the criminal sanctions are sufficient to act to as a deterrent and no one needs the injunction anymore.

My best answer to that observation is to quote from what Alleghany’s counsel said on the final hearing before the District Court.

I quote him.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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George Brussel, Jr.:

“Accordingly, in the interest of complete candor, we wish to advice the Court that the exchange agent would probably deliver the remaining 400,000 shares to its principals, unless this Court were specifically to enjoin further deliverance of the securities.”

That was quite an extraordinary and candid statement.

May I ask this court, what else could the District Court have done faced with a threat from Alleghany’s counsel, that unless it acted, Alleghany would move forward and put the securities out, even though there had been a temporary restraining order, a preliminary injunction and the District Court was about to hand down its judgment affirming the views of the court — of the District Court thus far.

We say that the injunction is needed to preserve the status quo and we urge to this Court to protect the common stockholders and indeed Alleghany Corporation itself from the consequences of lifting the injunction, because the chaos involving the multiplicity of suits which would result, if this — these securities should go forward into the stream of commerce would hurt everyone.

We say to Your Honors that affirmance of the judgment below will expedite relief for the preferred stockholders.

The District Court in its judgment reserved to us the right to apply — reserved to us, not to the appellants the right to apply to the District Court for an adjustment of the equities.

And under the — under the — the holdings that began with Porter against Warner in other cases, the District Court has jurisdiction to restore the status quo ante even it means bringing in before the Court persons who were not originally parties to it, such as non-intervening preferred stockholders, who might want to be heard when it came time to adjust the equities.

We — we say that if this Court affirms the judgment and retains the injunction, we will make this application to the District Court promptly.

Now, Your Honors, if — if we’re right on the proposition turning now to the substantive question of control by Alleghany of the New York Central Railroad System of 73 companies, if we’re right on the proposition that Alleghany does not control Central, this Court need not reach any other issue in the case, for everyone agrees that if Alleghany did control Central, the Interstate Commerce Commission had no jurisdiction.

And the orders must fall and the judgment must be affirmed.

Felix Frankfurter:

Does the order of the I.C.C. presuppose the did control?

George Brussel, Jr.:

It found control to have existed as a matter of fact on May 26th, 1954 by virtue of the proxy contest.

Felix Frankfurter:

I don’t care what reason was.

George Brussel, Jr.:

Yes, sir, it does.

Felix Frankfurter:

Is it to be assumed that a necessary ingredient for the I.C.C. order is a finding whether by assumption or by investigation or a knowledge of its records that Alleghany did control New York Central?

George Brussel, Jr.:

The I.C.C. so held.

Now —

Hugo L. Black:

When you say all parties agree that that’s crucial (Voice Overlap) —

George Brussel, Jr.:

I say Alleghany —

Hugo L. Black:

(Inaudible)

George Brussel, Jr.:

— I say that Alleghany admits it in its brief and says that it would not require to make a control application if it had control of Central and that is the basis on which the I.C.C. states its position.

I believe that’s a fair statement.

Now, one other aspect before discussing the substantive question in contrast to the Securities and Exchange Commission, or rather in contrast to the Interstate Commerce Commission, the Securities and Exchange Commission held full and fair hearings on the preferred stock plan.

And after a full and fair hearing in which it examined all of the tendered witnesses, including Robert R. Young, it found the plan potentially deceptive.

Those were its words, grossly unfair, we say to the common stock and not consistent with the protection of investors and not necessary or appropriate in the public interest.

The — it was the SEC who disclosed that Alleghany had the intention of paying this very substantial premium to its preferred stockholders by giving them the right to exercise an option to convert their holdings into common stock, a premium which we calculate on the basis of the SEC findings to have amount to fifteen millions of dollars.

Felix Frankfurter:

May I covet you to state what you deem the relevant or whatever the finding may have been of the SEC on the plan?

George Brussel, Jr.:

Yes, Your Honor.

There were two —

Felix Frankfurter:

Even it’s before this Court.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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George Brussel, Jr.:

Yes, there were two actions of — two aspects of it.

The SEC findings were relevant because it indicated the extent of adversity of our position with Alleghany and demonstrated our standing to sue.

It also indicated what the I.C.C. might have found, had it made a proper investigation, had it granted us a — a hearing and had it — it examined the Alleghany records which I’m going to refer to in just a moment and lay the demonstration that the — that the plan was unfair as a matter of fact.

So, in those two respects that SEC decision are directly relevant.

Now, we had called these facts, namely the arithmetical basis of the unfairness of the plan to the attention of the — of the I.C.C., but the I.C.C. ignored those facts.

And it ignored us and gave no hearing and I’m — I’m merely demonstrating that what the SEC did in the exercise of its informed judgment and its expertise was to make the kind of inquiry that the I.C.C. could have made and should have made and which would have produced the same findings, I submit, had it been made.

Felix Frankfurter:

As to the point you’ve just made that it would be relevant if you can see that there the jurisdiction of the I.C.C.

George Brussel, Jr.:

That may be so, Your Honor.

We never reached that question as far as the present posture of the litigation is concerned because the District Court didn’t pass on the fairness of the plan.

Felix Frankfurter:

I don’t suppose you have such right now.

George Brussel, Jr.:

No, sir.

Felix Frankfurter:

I don’t suppose you’d have such right now.

George Brussel, Jr.:

No, sir.

I — I accept to consider it in the – in the light of the aspects of the case which I’ve indicated to, Your Honor.

Now, in the reply briefs of the appellants, they claim that the SEC didn’t find that this preferred stock plan was grossly unfair to the common stock.

They say in effect we took it from — we took that statement from a record not in — not before the Court.

May I, in view of the statement, may I briefly read from the SEC brief at pages 52 and 57, very short excerpts of the — of the SEC holding.

(Inaudible)

George Brussel, Jr.:

I mean — yes, the SEC brief.

Well (Voice Overlap) —

(Voice Overlap) —

George Brussel, Jr.:

— is that portion of the SEC brief, Page 52, that portion of the brief which contains the opinion of the full commission.

I read it at the top of the page.

“On the basis of the various conversion hypothesis, set forth above, but excluding any assumed exercise of the perpetual warrants, the 47 shares of common stock obtainable on conversion of the new preferred stock received under the exchange offer would have a net asset value ranging from approximately $217 to $413, depending upon the extent of the conversions assumed.”

The next appropriate reference is at page 57 where the Commission is discussing the testimony of Mr. Lance who was tended by Alleghany as an expert.

Lance expressed the view that Alleghany’s common stock would continue to sell at a premium over its asset value, as it had at times in the past so long as that asset value was increasing, and that Alleghany’s common stock might be expected to increase to approximately to $12.55 figure after final consummation.

Felix Frankfurter:

All this is 10 months past as to the record of the case before it’s closure, is that right?

George Brussel, Jr.:

Well, this is on the same record.

In fact, that is true, Your Honor.

It is —

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Felix Frankfurter:

Well, that’s —

George Brussel, Jr.:

— on the same —

Felix Frankfurter:

But that — but that finding as to that report — the finding of the SEC is 10 months after what’s contained in the record.

George Brussel, Jr.:

Yes, sir.

Felix Frankfurter:

Is that right?

George Brussel, Jr.:

Yes sir.

Just — may I finish the sentence?

On — on that basis, the common stock into which each share of old preferred stock would be ultimately convertible would be in excess of $400, an amount which is considerably above the $270 figure that Lance recognized as being high in terms of fairness to the existing common stockholders.

In our opinion, this would appear to produce a grossly unfair result.

And all of these facts, Your Honor, were in the record before the I.C.C.

The point of the matter is that every one of the facts upon which the SEC acted were called in as ultimate facts, as allegations in our pleadings to the attention of the I.C.C., evoked no comment and produced no hearing.

Now —

Felix Frankfurter:

Were you before the I.C.C. on the plan that the I.C.C. passed on?

George Brussel, Jr.:

Which we — we got intervention on the day that they decided the case against us and — and denied us a hearing.

If that mean — if that means we were before it to the extent, we were.

Felix Frankfurter:

When did you try to get before them?

George Brussel, Jr.:

Long before that.

We — we came in four months before with this sixth (Inaudible) — a number of pleadings, a number of applications for leave to intervene.

Felix Frankfurter:

And they — they took no action on your motion for intervention?

George Brussel, Jr.:

They granted it on the day they decided the case against us and — and we got notice on the following day.

We actually found out that we’ve been allowed intervention after the preferred — after the — after the order was signed and made.

They had made a determination I may say a month before that were to be entitled to intervention, but the order never went to us until the day after they made a decision, a month later, finding against us on the merits.

Felix Frankfurter:

Do you mean they said they would let you intervene with no formal order behind it?

George Brussel, Jr.:

They made an order granting intervention and denying our request for a hearing and in the same breath, disposing of the proceeding on the merits.

Felix Frankfurter:

No, no.

That’s before.

You said you were — you — I thought I I heard you say that a month before they’ve indicated —

George Brussel, Jr.:

They made a formal order.

Felix Frankfurter:

A month before?

George Brussel, Jr.:

Yes, sir.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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Felix Frankfurter:

Why didn’t you appear the next day?

George Brussel, Jr.:

We didn’t get the order until after they — a month later until they decided the case.

Felix Frankfurter:

I knew that they (Inaudible)

[Laughs]

George Brussel, Jr.:

Well, they never — they never sent the order in the mail.

As far as I know, we — we got it only after inquiring about it.

We never got personal notice of that order except in a decision which finally a month later said that there had been such an order.

Felix Frankfurter:

Well, if that is your point.

Hugo L. Black:

What is the relevance of that in your argument?

George Brussel, Jr.:

Well, it bears on the question whether we got a fair hearing and I haven’t yet reached that question.

Now, it’s been said that — that when we said that Mr. Young and Mr. Kirby made a profit of a $4,800,000 as a result of this preferred stock issued and that profit personal that those facts are not in the record.

May I make a very brief demonstration that they offer?

Alleghany supplied these facts and the I.C.C. elucidated them to some extent in its report.

And from those reports, record 306, record 309, record 522, it appears that the range of this preferred stock was two and three-eights to $170 over a period 20 years and the $170 price was reached on — on the eve of approval by the Alleghany directors of the preferred stock plan.

Now, during this — during the period that immediately preceded the Alleghany Director’s approval of the plan, Young and Kirby accumulated 20% of these securities for themselves.

That’s at record 309, and 522.

That amounted to $27,784 shares.

We’re doing the same period that Mr. Young doubled his personal holdings and that was a finding in — in Breswick against Bridge.

Now, all of this accumulation occurred during the period leading up to corporate action taken by Alleghany to put out the exchange offered.

On June 15th, 1955, seven days before the I.C.C. approved the plan, the market had risen on a when-issued basis, the market on the old securities had — had had risen on a — from $170 of share to $348.75 a share.

That appears in the SEC brief of Page 55.

Hugo L. Black:

Why, was that in preferred stock?

George Brussel, Jr.:

Yes, sir.

That’s the preferred stock.

So that the minimum profit, assuming that Young and Kirby bought their stock at $170 a share, the highest prize we actually — they must have bought it at a lower price, but giving them the benefit of a doubt in saying that they bought it $170 a share, the minimum profit was $178 a share and a $178 times 27,784 is $4,943,000.

So that actually, we understated the profit by $143,000.

Now, I turn to the subsequent question of whether Alleghany does in fact control Central.

The Interstate Commerce Commission, by its findings and they’re the only findings of control in this case, found that Alleghany acquired control of Central on May 26th, 1954 as a result of a proxy contest in connection with the New York Central proxy campaign of 1955 or 1954, I beg pardon.

The same findings do not disclose that on that very same control date, May 26, 1954, there was 6,000,446,000 shares of New York Central Stock outstanding that Young, Kirby and Richardson, their associates, personally owned a million shares of New York Central Stock at that time.

And that the total value of Alleghany’s holdings which were limited to 11,400 shares was only $270,000 whereas the total value of the four individual holdings in Central was $23,000,000.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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George Brussel, Jr.:

We say that the I.C.C. control findings were insufficient, that they were unsupported.

Division 4 held to that effect and the District Court so found.

But, Your Honors, if there be any question about whether there — or not, there was control by Alleghany of New York Central on May 26, 1954, this crucial event which preceded it will dispel that doubt.

On January 19th, 1954, the day that Alleghany divested itself of control of the Chesapeake and Ohio Railroad System, in order to prepare the way for its — for Young and Kirby’s attempt to take control of New York Central the minutes of the board meeting held that day contained the following statement.

This was an — a statement made after a recommendation that Alleghany divest itself of control of the C & O.

I quote “The Chairman, Mr. Young, stated his personal opinion that substantial investment by this Corporation, Alleghany in Central at this time was not wise, because it was not clear whether control could be obtained and because control could perhaps be more easily secured by individuals than by a corporation.”

Now, I must admit that 169 — once — that that’s found at record 179, I must admit that that record of fact was not before the Interstate Commerce Commission during the pendency of the administrative proceedings.

It was brought out at the final hearing before the District Court in opposition to a motion by Alleghany for a new trial, but it does pose this question and that is, what kind of investigation did the I.C.C. make?

It had Alleghany’s records at its disposal and it is unthinkable that having made any kind of investigation, if it did, that it would have stopped short of taking a look at the minutes of the meeting of the — of directors that which Alleghany divested itself of control of the Chesapeake & Ohio Railroad System.

And it would have observed, had it made that inquiry that the Directors themselves were saying to Mr. Young and Mr. Kirby, “Go your own way.

Take control in your own names, but it is not propitious for us to do so.”

There is no corporate minute or corporate record of any kind in this record, showing that the Directors contemplated that Alleghany would attempt to take control of New York Central.

And there is no authority that we know of, corporate-wise for any such attempt.

Now, instead of — it’s resting on record facts the I.C.C. rested its findings on Alleghany’s application, solely on Alleghany’s application and the I.C.C. brief so discloses.

And the Alleghany’s application was signed by its Public Relations Officer, Mr. (Inaudible).

Mr. Kirby and Mr. Young would not lend their names to that application.

Now, the fact is that New York Central Directors were not chosen by Alleghany.

The I.C.C. found that they were.

Reading from the New York Central proxy statement signed by Mr. Young on half of quote, “Alleghany, Young, Kirby Ownership Board,” a — a device to make it appear that Alleghany was actually seeking control when its corporate record indicated to the contrary.

This is what the proxy statement said, “If Alleghany will furnish a clearing house and clerical headquarters and advance the interim costs of our solicitation for which it will be proportionately reimbursed by our nominees.”

That was to give coloration for the application which Alleghany intended to make on September 20, 1954 and which is to provide the basis if any exists, for I.C.C.’s jurisdiction.

Hugo L. Black:

What were you reading from?

George Brussel, Jr.:

Pardon?

Hugo L. Black:

What were you reading from?

George Brussel, Jr.:

I was reading from the proxy statement which was put — signed by Mr. Young which was put out at the time the — the New York Central proxy campaign was under way.

Hugo L. Black:

Before the I.C.C.?

George Brussel, Jr.:

Well, that statement was called to the I.C.C.’s attention.

We called it to their attention.

We — we gave the entire proxy statement and many other relevant facts among — included among those which I’ve called to the attention of the Court.

There is no reference in the report to that proxy statement or to that fact, although it was there in — in text for the I.C.C. to observe.

Audio Transcription for Oral Argument – January 24, 1957 (Part 2) in Alleghany Corporation v. Breswick & Company

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George Brussel, Jr.:

Now, of the 15 directors who were elected on May 26, 1955, that is the 15 directors of New York Central Railroad, three of them, only three of them were officers or directors of Alleghany.

The other 12 had no connection with Alleghany.