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

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 1) in Alleghany Corporation v. Breswick & Company

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Earl Warren:

You may proceed, Mr. Brussel.

George Brussel, Jr.:

May it please the Court.

We were discussing the effect of the election of directors of the New York Central Railroad on May 26, 1955 or rather May 26, 1954 which was the control date found by the ICC.

And I pointed out that of the 15 directors who were elected on that day, only three of them were officers or directors of Alleghany.

And the other 12 were — as the proxy statement which is in the record clearly indicates were independent businessman, each having their own business or profession, separate and distinct from that of Alleghany.

The 12 men included collectively these 12 individuals who had no connection with Alleghany, collectively held 80% of the board’s voting power of New York Central.

And there is no claim in this case, none in this record, that a single one of these 12 were agents of Alleghany under it’s domination of control or behold into it in any way.

Although, we say that in effect on May 26, 1954, which was the date as of which the ICC findings spoke.

The stock control of Central was vested in Young, Kirby, Murchison and Richardson individually, they had a million shares on that day and Alleghany had 11,400 shares.

And 80% of the directors who controlled 15% of the New York Central stock, having no relation to Alleghany, the ICC control findings on the record was without support.

Felix Frankfurter:

Does it follow because they were not officers of Alleghany that they had no connection with that?

George Brussel, Jr.:

No, no.

That’s merely a —

Felix Frankfurter:

Is the gentleman named Mr. Young is the (Inaudible) of the two?

George Brussel, Jr.:

I have no doubts, sir.

Felix Frankfurter:

You have no doubt?

George Brussel, Jr.:

I have no doubt.

He —

Felix Frankfurter:

Does it make any difference if Young controlled Alleghany and thereby controlled Central?

George Brussel, Jr.:

Oh, yes, it does because —

Felix Frankfurter:

Yes.

George Brussel, Jr.:

— because if Young controlled Alleghany, he had the power to exercise control and that’s one of the standards under the Act by which the question of control must be determined.

This Act —

Felix Frankfurter:

Is that any different here as a corporate entity?

George Brussel, Jr.:

Not necessarily, but the realities of the situation must determine the realities of the corporate situation.

Felix Frankfurter:

But in every — every company which is owned by an individual drops out of a picture of corporate relationships?

George Brussel, Jr.:

Not necessarily, but the least that must be said through our position is that Young and Kirby were parties, necessary parties to the control —

Felix Frankfurter:

Control of the partner that that could possibly begin suppose he was a dominant partner and Alleghany was a junior partner, does that make any — make it any the less of — a non-carrier corporation having control?

George Brussel, Jr.:

Well, it was —

Felix Frankfurter:

In 100% or 50%?

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

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Felix Frankfurter:

This Court asserted from any — very little and he may have been operated to Alleghany as one might suspect he did?

George Brussel, Jr.:

Well, we say that if — if the realities are measured, it was Young and Kirby in their own right, associated with their Texas associates, Murchison and Richardson, who had the power to control and we say —

Felix Frankfurter:

Not always true of a dominant stockholder in a corporation, isn’t it?

George Brussel, Jr.:

Yes, sir.

It — that is always true —

Felix Frankfurter:

But that doesn’t drop the corporation out of the legal situation?

George Brussel, Jr.:

No, but as I understand that the — the attorney for the Interstate Commerce Commission has admitted that under the holding of one case, if the individuals were controlling parties, they were necessary parties.

They weren’t made parties here, they didn’t join them.

Felix Frankfurter:

So that’s a different party?

George Brussel, Jr.:

Yes, that is.

William J. Brennan, Jr.:

Does — does the record show any right between Alleghany and these individual holders of stock for the consolidation of the holding deal to Alleghany?

George Brussel, Jr.:

No, sir, it does not.

The only record — the only thing that it does show is the corporate document that I referred to, which shows that Alleghany didn’t intend to take control in its — in corporate wise and ask the individuals to take control personally, and that maybe another answer to Mr. Justice Frankfurter’s question.

Here, the realities were that the corporation said, “We don’t want to take control, you individuals take it, it best suits that the purposes of all concerned of the individuals there.”

Felix Frankfurter:

You don’t think that that’s a proxy — proxy by the appellants’ for?

George Brussel, Jr.:

Oh, this was — this was the private corporate records of Alleghany, not communicated to anyone until after the ICC proceedings had been — had been concluded, that fact wasn’t made public until the day of final hearing in this case.

Felix Frankfurter:

Evident sometimes — imagine that we may put on record?

George Brussel, Jr.:

Yes, sir.

Felix Frankfurter:

So, you’re not unfamiliar with that?

George Brussel, Jr.:

Yes, sir.

William J. Brennan, Jr.:

What — what — speaking of that resolution, what’s the significance of the paragraph from following the one that you directed our attention to, resolve that as this board is sub to the opinion that it is in the best interest of this corporation at this time for Mr. Young and Kirby to seek representation.

George Brussel, Jr.:

Well, I think it speaks for itself.

I think it says in so many words we’re not seeking control now.

And may I say, Mr. Justice Brennan, that at no time between the date of that resolution in May 26, 1954, which is the control date on which the ICC findings predicated, did the factual or statistical situation change.

The same stockholdings existed, only — only became to a greater extent vested in the individuals during the intervening period.

So if at this time has any significance, it has no significance for the purposes of this case.

William J. Brennan, Jr.:

Well, I — you don’t suppose it has any — was that permissible entrance from this that what Young and Kirby were doing was in the thinking of the board, being done in the interest of the corporation or rather than in the first interest?

George Brussel, Jr.:

Now, the best answer I can make to that question is that in the derivative action, they took the position with the profits on their own million shares belonged to them.

William J. Brennan, Jr.:

No, I’m addressing myself to what apparently is in the minds of the board when this resolution was adopted.

I’m just suggesting that doesn’t mean what I’ve read you indicate that at least the board thought, rightly or wrongly, what Mrs. oung and Kirby were doing was being done in the best interest of the corporation?

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

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George Brussel, Jr.:

I think not, sir, because Young and Kirby have been — Young and Kirby have been found by ICC decision in 1948 to be in control of Alleghany.

When the board spoke, it spoke for Young and Kirby, they were — they were Mr. — Mr. ‘s Alleghany, and it was their thinking that produced these men.

And we think that the finding of the Commission in 1948 on control of — by the individuals of Alleghany is controlling here because no one has disputed the fact.

It remains uncontroverted for all purposes in this case.

Now, Your Honors —

William O. Douglas:

What — what process did the ICC go through to find whether Alleghany controlled?

George Brussel, Jr.:

As far as I know, when I had forth the representation made in the ICC brief, the only process it went through was to read the pleadings of Alleghany and to adopt its findings.

And that was made, as I said, by the public — that pleading was verified by the public relations officer of Alleghany.

It wasn’t verified by Young or Kirby.

And although, we requested hearings on all these crucial questions, we never got them.

They made no investigation based either, as far as we can determine, either an ex parte investigation.

So far as this record shows, there is no such indication, and as far as the hearing question is concerned, its — it shows very clearly that we were not free and that the issues were not inquired into in an evidentiary sense.

William O. Douglas:

Do you have into your finger tip where that is in the record?

George Brussel, Jr.:

What particularly?

William O. Douglas:

The — the application for recognition of Alleghany?

George Brussel, Jr.:

You mean the recognition by the Commission?

William O. Douglas:

By the Commission.

George Brussel, Jr.:

In the SCC — that’s in the SCC brief — or the ICC brief rather, and I’ll have that footnote for you in just a moment.

There is a reference to it.

I’ll give that to you in just a moment, Mr. Justice Reed.

It’s at page 64 of the ICC brief, Footnote 12 — page 64, Footnote 12.

Now, Your Honors, during the period that followed, May 26, 1954, the date on which the annual meeting of New York Central Railroad was held, Alleghany made no application to clarify its status.

It is complained here of confusion and chaos resulting from what’s happened in this case, but the fact to the matter is it had for nine months an opportunity to clarify its own status and didn’t seek to take advantage of it.

It wasn’t until the ICC and the SCC both moved in June, July of 1954 to terminate the 1945 orders.

We say that the Alleghany principals, Young and Kirby, were apprehensive or became apprehensive that there might then be a full disclosure of the situation with — regarding to the New York Central, the circumstances of the proxy fight and they then tried to buttress their position by acquiring 300,000 shares of stock and the voting rights to an additional 300,000 shares.

Felix Frankfurter:

I told you — you indicate that most would disagree with the statements which might caught my eyes, was it not, with the ICC brief that Alleghany’s allegations have not control of New York Central or not where there’s a challenge and that’s your position that’s in the — the brief calls each of the shifting an uncertain nature.

George Brussel, Jr.:

Yes, Your Honor, I would —

Felix Frankfurter:

I would think that’s not unfair characterization?

George Brussel, Jr.:

And the District Court so found.

It is — it is true that —

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

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Felix Frankfurter:

That’s where he say, we deny?

George Brussel, Jr.:

Oh, yes, sir.

We did so and the District Court found on that very point that we had said so and pointed out to the pleading.

The particular pleading was the pleading of February 18 at record 394, we denied control in so many words and the District Court found that we had denied control in so many words.

Felix Frankfurter:

394?

George Brussel, Jr.:

And we — 394 and we consistently denied control for four months thereafter in every pleading that we tendered to the Commission.

It — they rely on the first pleading that we made in this case and we amended our pleadings and made our position crystal clear for — for three or four months.

Now, Your Honors, finally —

Felix Frankfurter:

I suppose that’s why they turned to shifting, it was meant to change it.

George Brussel, Jr.:

Changing in one — from the first pleading and all — all of these six subsequent pleadings raised the issues squarely.

We surely had a right to amend our pleadings and we did so.

And we confounded — we confound our pleadings to documentary evidence which came to us, and which justified us in making that statement, and which was not available to us on the — on the occasion of the original pleading.

Felix Frankfurter:

Your argument on this point, assuming a control point is relevant, your argument is that we can go behind the termination of the ICC.

The Alleghany did control the New York Central and say it’s without acquiring any evidence?

George Brussel, Jr.:

We say that there’s no — there’s no substantial evidence to support it.

We say that if that be so, Your Honors, may do that as a matter of law.

Your Honors, after waiting nine months to clarify their status doing that volitionally and without making any — and knowing that the — they had divested themselves of control of CNO on January 19, 1954, and that they were in the Netherlands, so to speak, an unregistered investment company.

They waited for nine months to make their application and they finally filed it on September 20, 1954.

Now, in that application, curiously enough, they’d invest for Interstate Commerce Commission approval of the control of the New York Central system.

In fact, they quite candidly say in their briefs and here, and said it then, that they don’t have to make such an application.

On the other hand, what they did do is they claimed that they already had control of the New York Central system with its 73 companies, most of which are carriers.

And they merely asked for the approval of the merger, of let us say the 73rd company with the 72nd, claiming that that excused the necessity for applying for approval of all 73.

And we say that — that our proposition is illogical and fallacious upon its phase and we say it was a wholly and consistent position for them to take and that is precisely what Division 4 for so held at record 426.

So strange was this merger application, so curiously worded was it that it evoked from Judge Dimock this observation, “The prayer for the approval of the merger is treated as if it were an effective but meaningless incantation to propitiate a medicine man.”

Now, Alleghany argues that it’s subsequent if it didn’t have control on May 26, 1954, its subsequent purchases of New York Central stock and it’s acquisition of voting rights gave it a control which it did not previously had.

The first answer to the question is that the ICC findings weren’t predicated on subsequent control — subsequent acquisitions.

It — they did mention 600,000 shares but they found that the control existed as of May 26, 1954 by virtue of a proxy contest, a concept which is statically impossible in the light of the stockholdings of the parties as I have given them to you.

It was Young and Kirby control of Alleghany, we say, that was crucial because the issue here is not how many shares of stock New York Central that Alleghany owned, the issue is who controls Alleghany’s right to vote the shares which Alleghany owned or to exercise the voting rights which Alleghany acquired.

And whether Young and Kirby control of these rights, plus their own Central holdings, gave them, as distinguished from Alleghany, control of New York Central, gave them in the language of the statute the power to exercise control.

Interstate Commerce Commission dealt, not at all, with this aspect of the case.

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

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George Brussel, Jr.:

Alleghany has argued that under Section 15 (2) of the Act, the ICC orders must be continued and being continued in effect until they are terminated by a subsequent order and that the 1945 orders vesting control of the Chesapeake and Ohio Railroad in Alleghany perpetuated Alleghany’s control, and it’s — perpetuated its carrier’s status through these entire proceedings.

Well, we say that it was not possible, legally possible for this to happen.

The full Commission found that Alleghany was in fact a prison, not a carrier after January 19th, 1954.

We say that on that day, as a result of that finding, Alleghany became an — an unregistered investment company.

As such, it could not acquire control of the New York Central system validly without violating Section 7 of the Investment Company Act, which prohibits an unregistered company from acquiring control of any company engaged in Interstate Commerce.

And furthermore, we say that if the 1940 SCC registration was automatically revived by virtue of the loss of the Chesapeake and Ohio on January 19, 1954.

Then in terms of the Investment Company Act, Alleghany violated Section 18 (d) of that statute by issuing a security which did not meet standards of that Section as found by the SCC a few months ago.

Now, we say, if the District Court and the United States, and appellees are all wrong about this proposition, about the continuation of the orders and if, as Alleghany claims, that the 1945 order continued and effect throughout 1955 or is still in effect then we say that Alleghany violated the Interstate Commerce Act.

Because under the CNO order of 1945, they were granted control of the CNO and given carrier status under Section 5 (3), only under the stipulation which they voluntarily made and which is incorporated in the Commissions order that if they acquired any — of the stock of any carriers, subsequently any carriers other than the CNO, they would have to put them in a voting trust so as to insulate them against Alleghany voting control.

And we — and we say also, it violated that provision of the — of the 1945 order which debarred Alleghany from having an interlocking — locking directorate with any railroad other than the Chesapeake and Ohio.

And yet, the first thing that Young and Kirby did when they took control of the — of Central in May 26, 1954, was to elect Young, the chairman of the board.

Now, we say therefore, that this argument of continuation and control is sterile one.

It has no impact on this case because no matter how you view it, it’s merely an attempt to create a defense to another case in another court and it has no bearing on the issues of this case.

Now, Alleghany argues that it was never necessary for it to make any control application because when it controlled the 73 companies, it was only controlling one, 73 equals one is the demonstration that they make an effect.

The legislative history, which I won’t have the time to go into here is set forth from pages 68 to 70 of — of our brief, and at page 70 we show that as a result of the senate investigation of — of Alleghany and other investment companies who are holding securities and carriers, the Congress determined to dispel any ambiguity and to close any loophole that might have existed with respect to this very question and by the enactment of the Transportation Act of 1940 and the text language which the Congress enacted at that time, if there wasn’t an ambiguity, there wasn’t a loophole, it was closed.

The text matter that set forth in our brief below, the quotation of the statute at page 70 illustrates our point in this regard.

But Division 4 had no doubt about this, Division 4 had no illusions on the subject of what control of 73 carriers means in terms of ICC standards.

But this is what it said in this case, “We have long recognized under Section 5 that railroad systems are comprised of two or more carriers and that control of a single system may not lawfully be effectuated without our approval and authorization.”

Because that principle is considered basic, almost as a definition, so much so that the question of acquisition of a carrier system has never been contested before the Commission.

And as far as we know, there have been no Court decisions touching on that issue.

I know the full Commission repudiated that the finding of the Division 4, but we think the full Commission was wrong and Division 4 was right, and the District Court agreed with the construction that we placed upon it and that Division 4 placed upon at this aspect of the case.

We say that Alleghany itself acquiesced in this interpretation in 1945 when a proceeding to administer certain sanctions to Alleghany for a failure to have made a — application for control of CNO reached the stage of a proposed examiner’s report and — in which examined the both that time upheld this very same construction of the statute that we’re now claiming for and insisted that an application would have to be made.

As a matter of fact, it was in settlement of the — of the potential sanctions that Alleghany was faced with in the 1945 proceeding that the CN order — CNO order of 1945 finally emerged and the CNO order contains a direct finding that Alleghany had acquired control of the CNO.

At that time it had control of no other carrier and yet the Commission found it necessary to incorporate it in its order — in its report in this finding.

We further find that acquisition by Alleghany Corporation of control through ownership of stock as above described of the Chesapeake and Ohio, Nickel Plate, Pere Marquette and their subsidiaries and affiliates is a transaction within the scope of Section 5 (2) of the Interstate Commerce Act.

Felix Frankfurter:

I don’t find in your — what — if I follow your argument that (Inaudible) and that inquiring that your (Inaudible) for which they should have proceeded or acted thereto and assuming that the Commission would have found what it did find here that they had control, as I understand it.

Then all it leads is that they would now use the effect it’s brought under ICC control and in any event the exigency is valid.

George Brussel, Jr.:

That would depend upon, firstly, whether there was control in fact.

Felix Frankfurter:

(Inaudible) I put them in —

George Brussel, Jr.:

Yes.

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

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Felix Frankfurter:

I’m assuming that they would’ve found it then if they found it now, that’s (Inaudible)

George Brussel, Jr.:

No, I think — I think the answer to your question is in the negative, Mr. Justice Frankfurter, because that isn’t the only necessary assumption you must make.

In order to produce an affirmative answer to your question, you must assume that there’s nothing to any of the other five — of the other four questions in this case any —

Felix Frankfurter:

But I’m not talking about the other four.

George Brussel, Jr.:

I see.

Well, if we take that in vacuo and compartmentalize it, I think perhaps Your Honor is right.

In any case Your Honor, I may point out that Section 5 (3) status does not follow under the statute, unless there is 5 (2) approval and there was no 5 (2) approval here and none was asked.

And an invitation by the Commission and Commission made an invitation to Alleghany, invited them to ask for approval of control and they rejected it, and declined to do so after the Commission, who its director of finance, Mr. Boyden, had made that very suggestion.

William J. Brennan, Jr.:

Assuming that the acquisition of New York Central was a single transaction, a single operation, then what was it that required, or brought about, or why did Alleghany asked for approval of the acquisition of the Bridge, was that dependent — the Bridge, as I understand it, was a part of the Big Four.

It is a subsidiary?

George Brussel, Jr.:

I’m — I’m coming to that very question right now and I’ll develop that answer to Your Honor’s question at this very moment.

William J. Brennan, Jr.:

All right then.

George Brussel, Jr.:

I go now to the merger question, which is the basis of Your Honor’s question to me.

Alleghany argues that the Interstate Commerce Commission orders approving the merger constituted an acquisition of control.

They must prevail on this argument because on this argument alone, if there — if there is no 5 (2) transaction, as I’ve just pointed out to Mr. Justice Frankfurter, then 5 (3) status may not be invested in Alleghany.

We say and the United States agrees with us that the merger was not an acquisition of control, it — this is one of the — as Mr. Justice Douglas said, the key questions in the case, the merger was not an acquisition of control because there was no change in the control before or after the merger.

Alleghany had the same degree of control over the Bridge Company after the merger as it did prior to the merger.

What happened was this, the Big Four owned all of the stock of the Bridge Company and had the Big Four being controlled or substantially controlled by the New York Central entered into a lease with the New York Central.

And instead of putting the Bridge Company’s properties in making that physically subject to the lease or part of the (Inaudible) of the lease.

What they did was to lease the stock of — a 100% of the stock of the Bridge Company, so that in effect, before this merger was conceived or even made the subject of this application, New York Central had the same degree, quantum of control over the Bridge Company as it had after the merger was made the subject to the application and consummate it.

The properties were substituted for the stock, and in effect, the same degree of control reposed in the parties before and after.

Felix Frankfurter:

Mr. Brussel, if you say New York Central being composed of or having control of the 73, that 73 for 73 are not one, then I should think — if I would say that in all department merging two into a new corporation of one if something else should ultimately can’t say two equals two and two equals one now?

George Brussel, Jr.:

That’s right.

Felix Frankfurter:

Well then there is a change?

George Brussel, Jr.:

I — I can’t see any change in the quantum of control, Your Honor.

Felix Frankfurter:

(Voice Overlap) in your argument and you asked me one — in one phase of your argument, you can see (Inaudible) 73 and they had to be covered by one because one invoked this form up.

George Brussel, Jr.:

Yes, but this — this was —

Felix Frankfurter:

And so for my — my mode of reasoning, it seems that there were two corporations but whatever business reasons, two become one, we’ve got a new thing.

George Brussel, Jr.:

Well, what they dealt with was not the control of the corporations but the control of the properties that were involved, and those — and those properties in the — in the posture in which it comes here, those — that the transfer of those properties into the lease between Big Four and Central was not an acquisition of control within the meaning on Section 5 (2).

Felix Frankfurter:

Well, therefore, is it the — the control by the New York Central of the 73 constituents, anything but the control of one thing.Never mind, there’s nothing in this.

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

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Felix Frankfurter:

There’s nothing in it.

William J. Brennan, Jr.:

Well, as I understand it then before — before this approval of transaction of the Bridge, already the New York Central had all the stock in the Bridge Company?

George Brussel, Jr.:

Under the lease.

Under the lease where the Big Four which owned all the stock of the Bridge —

William J. Brennan, Jr.:

What — what lease?

George Brussel, Jr.:

It was a lease between the Big Four which converted the Big Four from an operating carrier into a lessor and the New York Central operated the properties under that lease.

And included in the (Inaudible) of the lease was the stock, 100% of the stock of the Bridge Company.

William J. Brennan, Jr.:

Then when this transaction came up, there was a transfer or a lease of the Bridge property itself —

George Brussel, Jr.:

The properties were substituted for the stock, the merger was consummated and the stock was cancelled out, that’s precisely what happened.

Now —

William J. Brennan, Jr.:

Was that what they asked for when they asked for the approval of it?

George Brussel, Jr.:

Yes, that’s what they ask for, that’s — that was the burden of their application.

Section 5 (3) by its terms applies only two and I quote from the statute, “Whenever a non-carrier person is authorized, by an order entered in paragraph (2), to acquire control of any carrier or two or more carriers.”

It is that language which makes it necessary to find before carrier status can be invested if there has been a non-carrier person actually acquiring control of a carrier.

Harold Burton:

Are you going to comment on the — what was all of these —

George Brussel, Jr.:

Right now, sir.

Right now.

The Boston and Albany proceedings did not involve carriers.

That’s the threshold observation that I declare to make.

It was an acquisition of lessors and not carriers, and there’s a fundamental distinction between lessors and carriers, and it’s a distinction recognized both in the statute and by the judicial cases.

The term carrier is defined by statute, Section 5 (13) of the Interstate Commerce Act, there’s no reference to this in — in the opposing briefs, “As used in paragraph (2) to (12), and that includes the Section (5) that we’re talking about here inclusive, the term carrier means a carrier by railroad and an expressed company subject to this part, namely part I of the Interstate Commerce Act”.

The second sentence of Section 1 (3) (a) of the Act says that, “Whenever the word “carrier” is used in this part, it should be held to mean a common carrier.”

And Section 1 (4) says, “A common carrier has the duty to provide and furnish transportation to establish reasonable through routes with such other carriers in just and reasonable rates.”

Now, we say the necessary effect of that distinction is current upon the phase of the statute, but it’s been recognized by at least one — at least one case that went to the Court of Appeals nor it was the statutory court decision in the group of Boston and Providence Railroad Corporation Stockholders against Interstate Commerce Commission, decided 1955 and affirmed by this Court at 350 U.S. 926.

The statutory court there held that the Boston and Providence Railroad was not a — was a lessor and that were not a carrier within the meaning of part I of the Interstate Commerce Act.

Do you mean that they don’t have time to prove those at all?

George Brussel, Jr.:

Well, that was the effect of the decision.

What they sought in that case was not an acquisition — to approve an acquisition of control that had to do with rate matters.

And so the precise question that Your Honor puts to me was not in formulated form before the Court is prepared, it wasn’t presented by that case.

But — but if the lessor actually makes an application for control, presumably the — if the application is granted, it would convert it into a carrier by virtue of the fact to be taken control.

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

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George Brussel, Jr.:

In any rate the question is not here and it wasn’t in that case.

Now, Your Honors, even if we are wrong on every other question in this case, and I put my arguments too as I go along within this complex because I think as I’ve tried to say earlier in the case, there are four or five substantive questions here, any one of which can resolve a question in — with finality.

Even if we’re wrong on the rest of the arguments that we’ve made, the failure to join Young and Kirby as controlling persons were required Alleghany’s application to be dismissed.

There is no discussion about this in the ICC brief and we find no reference to it in the Alleghany reply brief.

I believe Mr. Ginnane conceded here there’s at least one case that the ICC decided, in which it held that individuals may be necessary and controlling parties.

But the findings in this case make it clear that the controlling parties were the individuals, and therefore, when necessary the parties to the application.

Division 4, for example, found as a consequence a holding company and those in control thereof admittedly acquired control of a carrier which controls subsidiary carriers, the references to Alleghany and to Young and Kirby.

The full Commission found that Alleghany and its allied interests have succeeded in electing sufficient members of the board to permit them to organize and elect their own officers.

And the finally, the District Court held, “The position taken by the plaintiffs throughout has been that Alleghany was but an instrument employed by the Young, Kirby, Murchison group in the control of the New York Central and was in no sense in control.

It is to be observed that the findings of neither Division 4 nor the ICC met these issues squarely.”

And then the court goes on to say, “We are forced therefore to the conclusion that the findings do no more than say that Alleghany, with someone else, controls New York Central, they do not even say whether did someone else alone has control, does that satisfy the statute?”

That was the question that the District Court opposed.

Now, everyone in this case agrees that the Marshall Transport case requires the joinder of controlling parties.

That was what it held.

We say that control of New York Central being invested in the individuals, namely, to prior acquittal to use the language in the — of Division 4 which was adopted by the full Commission and by the Court vested in “those in control.”

And that by reason of the fact, those in control were necessary parties and the application had to be dismissed for failure to join them.

Now, Your Honors, I come to the hearing question which is not a necessarily determined question in this case, unless we our wrong on every other point.

We needed — we say we didn’t need a hearing in order to establish the nullity of these ICC orders, we sell — we say that they fell by their own weight and by the jurisdictional infirmities which I pointed out.

But we say if we’re wrong on every such question, the failure to grant us a hearing renders the orders null.

Now, with great deference to other side, who suggested here that there was a hearing, I must say that there was no hearing in fact.

I think they — what they meant is that we got a hearing when the ICC glanced at our pleadings and in camera so to speak made its decision.

Felix Frankfurter:

What you were saying the statute may — allows the Commission to decide whether they have held the so-called public hearing which is in effect —

George Brussel, Jr.:

Well, we say that if — if the statute is to be construed —

Felix Frankfurter:

Well, it says so.

George Brussel, Jr.:

It said — it says that — yes, but we submit that we’re entitled to at least some kind of a hearing even if it not be a public hearing, there are procedural — there are procedural —

Felix Frankfurter:

By the complaint to define something with affidavit wasn’t the conviction to commit to a crime.

George Brussel, Jr.:

But the issues were controverted and they couldn’t be resolved on the pleadings and the ICC owns rule — own rules of practice state that where there is a kind — for where there is a denial of a ultimate issue of fact that that is not deemed admitted.

So therefore, if we have Alleghany on the one side saying we control Central and we have — we have the appellees on the other side saying you don’t control the Central, unless you are to say that our denials of the control were not made in good faith and were not supported by demonstrable facts which —

Felix Frankfurter:

We’re merely suggesting that the statute allow and I’m considerably to discretion to the Commission to determine whether they should have a public hearing in which in all the rest, oral hearing and when you decided — when you — when you give a tribunal that kind of discretion one would have to — and so the long way to say it, they can’t (Inaudible)

George Brussel, Jr.:

Yes.

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

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George Brussel, Jr.:

Well, the court below found that even if the Commission had discretion as to a public hearing that it was obliged to give us some kind of a hearing.

The court below pointed out that in the Commission’s rules, there are various procedures for modified hearings or short — shortened hearings which are different in character from a public hearing, but at least that much of a hearing was required.

We got none and we had tended issues that bore directly on the public interest.

We had pointed out our own station that in the ICC proceedings, we pointed out the possible dilution of our stockholdings that we were facing the loss of the benefits and protection of the Act.

We specifically tended the unfairness of the stock plan and yet we got no hearing of any kind, public or — or modified, or shortened hearing.

We were left with our pleadings and no opportunity to examine or cross-examine Alleghany’s witnesses.

We had no opportunity, in other words, of adducing before the ICC the things that were adduced before the SCC.

And while I’ll admit the distinction in the statute, we think in terms of the due process requirement and — and a fair hearing to us, some kind of hearing whether it was public or non-public was to us.

We had made specific offers of proof and allegations in our pleading of these crucial issues of fact.

We tended the proof.

We said what we would prove if we were permitted to — to give testimony and to cross-examine and we got no recognition of that position at any time.

All that we — all that we got was a denial of our request for a hearing on the day that the cases were disposed of on the merits.

Felix Frankfurter:

I don’t have to prove what they did in order to decide who may have had the power to them.

George Brussel, Jr.:

Your Honors, it’s argued finally that we were not required — we were not required to have — we did not have to have a hearing because our interest in this proceeding is too small.

And I assume that the reference is to the fact that we represent but 1700 shares of Alleghany’s common stock in comparison to the enormity of the interest who oppose us and who are arguing in our position.

I don’t have to argue here that whatever due process if infirmity existed in this administration — administrative agency’s action and then its failure to give us a hearing applies equally to the smallest as well as to the greatest in the land.

Earl Warren:

Mr. Seymour.

Whitney North Seymour:

May it please the Court.

I think have a problem.

Mr. Attorney General:

May I have — I think I have about six minutes, if I may.

Earl Warren:

Yes.

Yes, you may.

You had some more time.

Mr. Attorney General:

Your Honors, I’d like to argue this point very briefly on the assumption that Alleghany did, in fact, acquire control of New York Central.

And therefore, it will have the standing to make the merger application.

The fact is that in the report of the ICC, there is no finding of an acquisition of control by virtue of the merger.

The finding merely is an approval of “continuation of control”.

There is no finding in the order or no recital in the order that control was acquired.

The order merely says,”continuation of control” by Alleghany is approved.

Mr. Justice Burton turning to the Boston and Albany proceeding, that proceeding, we were given no notice of whatsoever.No opportunity to be heard, no opportunity to file a proceeding.

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

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Mr. Attorney General:

The Commission did not find on the basis of that proceeding that Alleghany should be given carrier status.

It did say that because it already given that status in the Bridge Company order is as somewhat unnecessary to do so, but had we been heard and had the issue come up in the District Court on time and not after on a motion for reargue, we could have pointed out as Mr. Brussel did here, that these were not carriers, they were lessors.

And again, the report of the Commission in that case described all three of the Boston and Albany Companies as lessors.

They did it through an order and did it through approval?

Mr. Attorney General:

Yes, sir.

But they didn’t find any acquisition of control of carriers which was the sole basis under which you get on — into 5 (3) or into 5 (2) by a non-carrier.

(Inaudible)

Mr. Attorney General:

Pardon sir?

(Inaudible)

Mr. Attorney General:

Well, you read the application of Alleghany Corporation, you will see that Alleghany says that they are lessors.

Alleghany was not standing on that application to get status as a carrier.

It was standing on a Bridge Company application.

You’re going to (Inaudible) of a carrier instrumentality.

Mr. Attorney General:

Yes, sir.

The statute does, the statute does at Section 5 (13).

Alleghany’s brief, reply brief here says that Section 5 applies the carriers and lessors but it doesn’t call this Court’s attention, section 5 (13), which says that it applies to railroads as defined in part I.

I will give you the exact language if you want it, I don’t have it — I didn’t give it to you exactly just then.

But the language is Section 5 (13), “As used in paragraphs (2) to (12) inclusive, the term carrier means a carrier by railroad and an express company subject to this part.”

You turn to Section 1 (3) (a), the defining section of the statute, “Whenever the word “carrier” is used in this part, it shall be held to mean common carrier and the common carrier has the duty under Section 1 (4) to provide and furnish transportation and to establish reasonable through routes with other such carriers in just and reasonable rates.”

Now, all these companies, what the Boston and Albany Companies do are to receive rentals and to pay them out to their stockholders, they performed none of these functions which the statute says a carrier must perform.

The acquisition of those (Inaudible) would not be an action he couldn’t control.

Mr. Attorney General:

Of a carrier, no, sir.

The — the control was already achieved by Central under 99 year leases and 999 year leases.

Central has complete control both before and after this transaction.

For tax reasons, the statute — the Internal Revenue Act was — was changed so as direct corporations in this — in this situation to make a consolidated return if they owned 85% of the stock of the affiliated company.

That was the whole basis of the transaction, and this is an issue as Mr. Brussel pointed out was not litigated in the District Court.

The judicial decision which we found out came down after the final hearing, and we, of course, do not know if at that time this Court would affirm it as it did in 1956, but that distinction of lessor and carrier has been affirmed based on ICC precedence which are referred to —

Well, you say there is no need, whatever, on the Boston and Albany transaction before the Interstate Commerce Commission at all?

Mr. Attorney General:

I don’t say that sir, because maybe under other sections of the statute, not Section 5, under Section 20 where lessors are regulated have certain accounting and other regulatory problems that may well be.

I haven’t examined it in that light, but I do say this to you sir, that the ICC’s jurisdiction is not diminished in one wit because if these lessors did anything at change, they control the railroad, then they would be caught or the Central, the parent company would be caught by the carrier provisions for the first three clauses of Section 5 (2), not the non-carrier provisions of the fourth and fifth clauses.

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

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Mr. Attorney General:

So this is not diminishing in one wit the ICC’s regulatory powers over these kind of companies.

All we’re saying here is there was no basis in ICC — in the ICC statute to find that was an acquisition of control of a carrier by any of these transactions.

And in the Bridge Company, of course, Big Four is a lessor.

And the only carrier who’s control is legibly is acquired is this two and a half mile company called the Bridge Company out of some thousand miles of New York Central System.

And that brings — it gets one other point, Alleghany claims that it didn’t have to make a control application for control of the 73 carriers.

Although, the statute says in Clause 4 of Section 5 (2), that two or more carriers, whenever their control is acquired, must be authorized and must be approved.

And it was Alleghany itself which — whose activities in 1937 lead to the Senate Interstate Commerce Commission’s investigation, which lasted from 1937 to 1940, 27 reports were issued by that committee of which half of them dealt with Alleghany and it was to close the very loophole in the statute which they alleged existed.

Then Alleghany alleged — Mr. Young and Mr. Kirby alleged existed so they — didn’t have to bring a scrutiny of Chesapeake and Ohio control to Alleghany to the Commission.

It was that very loophole which was singled out in Senate Report Number 180, mentioned in our brief and which it should be closed if it exists.

We don’t think it exists under one interpretation, the courts may find it doesn’t exist under a null kind of interpretation of the 1933 statute.

But if it does exist, it should be closed and we don’t think that any fine spent arguments now when it’s right, this should await further action by the Congress.

In 1940, Congress amended the statute and made, in its own words, clarifying changes, that’s in the conference report.

I don’t want to detail the statutory changes that are on page 70 of our brief but they do say in effect, if you acquire control of two or more carriers through ownership of their stock then you have to come to — to the Commission, that was the 1933 statute, through ownership of their stock, mind you, from — in — in that posture of the statute, New York Central was the only stock whose — whose acquisition is of course being acquired by Alleghany.

It didn’t go to the 72 other carriers because no ownership of the 72 carriers stock was being acquired.

Therefore, the statute was amended to say, if you acquire control of two or more carriers through ownership of their stock, or otherwise, those two words we put in, or otherwise, therefore, when you acquire the control of New York Central Company, just one stock transaction, it didn’t acquire control of the 72 through ownership of their stock, you acquire control of them or through the otherwise clause because Central had that stock.

And the Senate Report said, this is an — an ambiguity in the statute, they used that very word, there’s an ambiguity here and the proof is ambiguity, Mr. ‘s Young and Kirby and the people before them were crossing around the control of a great railroad system as if it were a tie balloon, that’s the words of the chairman.

It was chairman of the committee in 1937 and chairman in 1940 and that’s why this — this statute should be amended to prevent this kind of — of transfer of control.

I want to make one more reference to this point.

Mr. Ginnane refers to the difficulty of proxy contestants if this interpretation of the statute which we think is the law is adopted.

He says that everybody who acquires control in the proxy contest would have to come to — to the Commission, that isn’t so sir.

Because if nobody has acquired controlling blocks of stock as Young and Kirby did with their associates, their million shares, then of course, without any controlling blocks of stock for 10,000 stockholders have control, but they don’t exercise it until that one day they come together for the meeting and they voted.

And they merely had voted, the directors take office and the stock control is dissipated again among the 10,000 units or whatever the number of stockholders maybe.

If the only coalesces of each election, there is no acquisition of control within the statutory language.

And it’s only because of this that the — this argument that Alleghany seeks to avoid scrutiny of the public interest finding that it has acquired control.

Thank you, Your Honor.

Earl Warren:

Mr. Seymour.

Whitney North Seymour:

May it please the Court, I realized that I only have a few minutes and I’ll push right along.

First —

William O. Douglas:

You’ll touch on the Boston and Albany are you?

Whitney North Seymour:

Yes, I will, Your Honor.

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

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Whitney North Seymour:

First, the requirement that there should be an application to the ICC for approval of the Bridge Company merger and lease and of the Boston and Albany transaction is squarely required by your decision in the New York Central Securities case, which has been followed for more than 20 years and which lays it down that any change in form of control as an acquisition of control under the statute, there’s nothing new or novel about the doctrine, it’s been followed by the Commission in hundreds of cases.

The Government seeks to distinguish it in this case because it says that that case involved a lease transaction but so does the Bridge Company proceeding here and my very friend, the Solicitor General, simply overlooked that in making that distinction.

Now, counsel on the other side persuaded the court below that a special urgent deficiencies court should enforce other statutes and not merely review the ICC orders, and apparently he seeks here to try his minority stockholder suit which is pending in a one-judge court below because his argument has been full of references outside the record, many of them, in exact, and I shall try to medium on those.

Your Honors will have notice that, again and again, he referred to things which are not in this record at all, which transpired after this docket has closed.

And on the question that control of New York Central, I submit that the findings of the Commission clearly determine that New York Central was controlled by Alleghany, certainly it — it was controlled by Alleghany along with Alleghany’s nominees and this is taken directly from a statement made by the plaintiff or appellee, Breswick, at page 322, in which he said by a reason of said prohibited and unlawful acts, Alleghany Corporation and it’s nominees were successful in acquiring on June 14, 1954 the control of the New York Central Railroad Company and its system companies and that it’s continued since.

Now, I don’t think it’s an inadequate answer to that kind of a deliberate statement to the Commission that that’s only the first, out of seven or eight pleadings which varied all over the line, I think the Commission was entitled to take into account that it is not dealing here with amateurs but with professionals who make these statements and that when a statement like that is made, the fact that later for other reasons, some other statement may be made is no reason to disregard this statement.

There was adequate evidence to sustain the Commission’s findings and under the decision in the Rochester case, which is referred to this morning, the Court shouldn’t consider disturbing those findings.

Mr. Seymour —

Whitney North Seymour:

Yes, sir.

— on the basis of the Commission’s findings, what have you got to say to the point that Young and Kirby were necessary parties for the proceeding?

Whitney North Seymour:

I think plainly they were not necessary parties.

The Commission has not followed the practice of adding individuals to touch a control to such a proceeding and as regarded, as I understand it, the control over the holding company as the supervision that it need, but even assuming that it went to that point, I don’t see what standing the plaintiffs have to make an objection to that — to — to that result.

Now —

William O. Douglas:

Mr. Seymour, what — was the Securities case answer to the argument that the Boston and Albany is a lessor, was not a carrier under the —

Whitney North Seymour:

And I’ll come — I’ll answer that right now.

The point is made — was made for the first time in appellee’s brief that there’s some distinction between a lessor and a carrier as to the requirement of getting approval under Section 5 (2).

We’ve analyzed that argument in our reply brief.

It’s perfectly clear that even though for some purposes a company may be a lessor.

If it is a railroad company and a carrier, it must get approval under 5 (2).

The case cited by counsel is a decision dealing with the question of whether a particular company was entitled to a separate rate and hasn’t anything to do with the question here.

And Mr. Ginnane tells me that there are two decisions in the Commission holding that a — because the company may be a lessor, it’s nevertheless a carrier in 261 I.C.C. 623 and in 257 I.C.C.796.

And I think — submit there’s nothing in the point that Boston and Albany case, standing alone without anything more, is enough to establish continued regulation by the Commission.

And it’s perfectly plain that if any defects existed in any earlier orders, the Commission would have asserted jurisdiction again over Alleghany in connection with that proceeding.

And except for the point about the lessor, which is absolutely without merit, no one challenges the validity of the exercise of jurisdiction by the Commission in that case.

Now, may I —

Earl Warren:

The last point.

Whitney North Seymour:

All right.

I just want to add one —

Earl Warren:

Yes.

Whitney North Seymour:

— one point if I may.

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

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Whitney North Seymour:

Counsel has referred to alleged over reaching by Mrs. Young and Kirby to allege profits by Mr. ‘s Young and Kirby.

And to things of that kind, I submit that if there were time, we could litigate those questions here but this isn’t the place for it.

Those are matters which have been repeatedly denied and have no proper place in — in the — the disposition of this matter.

The SCC made no such findings, the staff finding is to the contrary and that finding was not disturbed by the Commission.

Finally, on this point, counsel rather suggested that the SCC always challenged the jurisdiction of the ICC and I submit that while the SCC showed a preference for having the jurisdiction transferred to it, a preference which Congress had pretty well taken care off by the terms of the Investment Company Act, it always recognized the jurisdiction of the ICC and there is still an outstanding order of the SCC continuing that jurisdiction.

And therefore, I submit that the judgment should be reversed in its entirety.