Denver & Rio Grande Western Railroad Company v. United States

PETITIONER:Denver & Rio Grande Western Railroad Company
RESPONDENT:United States
LOCATION:Times Square

DOCKET NO.: 305
DECIDED BY: Warren Court (1965-1967)
LOWER COURT:

CITATION: 387 US 485 (1967)
ARGUED: Mar 16, 1967
DECIDED: Jun 05, 1967

Facts of the case

Question

Audio Transcription for Oral Argument – March 16, 1967 in Denver & Rio Grande Western Railroad Company v. United States

Earl Warren:

Number 305 Denver and Rio Grande Western Railroad Company et al., Appellants versus United States et al.

Mr. Dempsey.

William H. Dempsey, Jr.:

Mr. Chief Justice, may it please the Court.

This case comes here on direct appeal from a judgment of a three-judge Federal Court in the District of Colorado.

At root what is involved is the validity of an order of the Interstate Commerce Commission pursuant to which the issuance of certain securities by REA, Railway Express Agency was authorized, those securities were to be sold to the Greyhound Corporation another of the appellees.

The appellants here are five railroads who are stockholders of REA, a number of individual motorbus carriers who are competitors of Greyhound, the Freight Forwarders Institute, the American Trucking Association Incorporated and a number of individual motor carriers.

At the outset I would like to take just a few moments to sketch the case in sort of an outline fashion.

The basic facts are quite simple.

Railway Express is the number one ranking carrier of express freight in the United States and Greyhound is the number two ranking carrier.

Pursuant to the order of the Commission that’s here in question Greyhound will acquire a 20% stock interest in REA and that will be accompanied by a 20% representation on REA’s Board of Directors.

There is no question from the record that the intent of the parties here fundamentally is to coordinate and consolidate their express trade activities.

Now in these circumstances we suggest and the government agrees I think that the record raised a very serious question under Section 7 of the Clayton Act and under Section 5 of the Interstate Commerce Act, which as this Court of course knows prohibits the acquisition of control by one carrier of another without Commission approval pursuant to the Section 5 proceeding.

So that the basic question here is what should the Commission have done in a proceeding that it was engaged in when these were questions raised on the record.

And the proceeding that it was engaged in was not a proceeding under Section 7 of the Clayton Act nor under Section 5 of the Interstate Commerce Act.

It was a proceeding under Section 28 (2) of the Interstate Commerce Act, the security —

Abe Fortas:

I beg your pardon, did the Commission make any findings as to competitive affect regardless of the statutory parameters?

William H. Dempsey, Jr.:

I think the Commission made no findings with respect to competitive effect although I do think that the Commission made some findings with respect to acquisition of control.

There is a difference of view among the parties on that Mr. Justice Fortas.

Abe Fortas:

I’ve had some difficulty reading these papers with respect to clarifying now and understanding on that point, but you do think that the Commission did not make any findings as to competitive effect which would —

William H. Dempsey, Jr.:

I think it may —

Abe Fortas:

-– mean that I suppose that the Commission thought that the public interest standard in Section 20 does not require a finding as to competitive effect.

William H. Dempsey, Jr.:

Well, Mr. Justice Fortas I am sure you know that one of our issues here is a Chenery issue, a question of the ambiguity of the Commission’s order and I must say that I am really quite at a loss in answering the question as to what the Commission felt here because I just can’t tell.

I think that with respect to Section 7, one doesn’t know whether the Commission believed that they didn’t have to consider Section 7 questions or any question with respect to anticompetitive impact under 28 (2) that was argued to them.

Whether they thought that there was no Section 7 question raised on the record that was argued to them, whether they thought that this was really a justice department responsibility or whether they thought that they could do it later, I just — really at a loss.

The only place at which they mention Section 7 is in a sentence of the very opening of the order where – in which they say, I think I quote literally that it is not appropriate at this time to consider the Section 7 question.

Abe Fortas:

Do you understand I am making, in this question I am making a distinction between Section 7 Section 5 on the one hand and the factor of competitive effect on the other hand as arguably part of the public interest standard.

William H. Dempsey, Jr.:

Yes I do Mr. Justice Fortas now with respect to the question of the competitive impact the Commission does say on page 200 of the record, it further appearing that intervener’s opposition is directed to the possibility of control of applicant by Greyhound and to the anticipated combination and correlation of certain of their facilities and services.

Now there it seemed to me, when I read the order at the first time that they were raising the question of, the broad question that you raise, of anticompetitive impact apart from a section putting it Section 7 terms.

And then in the next paragraph they go into the question of the position that Greyhound will have on the Board of Directors and they indicate their belief that these five Greyhound directors couldn’t influence the strong railroad directors and they conclude with what I take to be a finding that there is no control and maybe a finding that there would be no anticompetitive impact or they certainly don’t say that.

Potter Stewart:

Where do you take to be in such a finding?

William H. Dempsey, Jr.:

I just can’t say Mr. Justice Stewart.

All that I can say is that they conclude that paragraph by saying and that control or power to control must be real and not based on conjuncture or remote possibilities.

Potter Stewart:

I see page 201.

William H. Dempsey, Jr.:

Page 201 right on top and that concludes I think the thought that they introduced in the preceding paragraph.

Now I don’t — it does certainly doesn’t constitute a finding that they would be no anticompetitive impact.

I read that to say that they believe that this 20% transaction alone would not constitute an acquisition of control and therefore they need not pursue the Section 5 now.

I cannot find in that sentence or in any other sentence in the order a determination of the question that they seem to be raising of anticompetitive impact.

So that — I do think there is a very serious Chenery point here.

We’ve been plagued by that point from the very time this litigation was instituted because at every point the issue seem to shift and at one time we are arguing the scope of 28 (2) at another time we are arguing the question whether there is control or not control, whether there is a Section 7 violation or not, whether Seaboard standard should apply and I — this case it seems to me is an excellent illustration of the awkwardness of judicial review in the face of a hopelessly ambiguous order.

Now so far as the – as the facts are concerned I don’t know that I need to go into them in great detail because the government does concede that this record does establish a very serious problem with respect to the anticompetitive impact of this transaction, but at sometime or another it will have to be resolved.

And REA concedes that of course only arguendo because they will naturally dispute that in any further proceeding that’s been held, but I’d like to touch briefly upon the salient facts.

The Greyhound Corporation approached and I might say that these facts are taken almost exclusively from the papers that Greyhound filed.

There was no hearing, no witnesses, no cross examination, no Sixth Amendment problem here. [Attempt to Laughter]

The Greyhound Corporation approached REA in January of 1965 with an offer to buy a controlling stock interest.

That offer foundered, evidently because of the opposition of some of the REA stockholders who were opposed to this program and they have the ability to block it because all existing REA stockholders have the right of first purchase on REA stock sales so that if one REA stockholder wants to sell to a third party another REA stockholder can come in and exercise his right of first purchase.

The REA management and board then struck upon the notion that in order to get Greyhound into the company the thing to do is to have Greyhound buy 500,000 shares of authorized, but unissued stock as to which the right of first purchase does not apply and there were negotiations and in July of 1964, Greyhound made such an offering a letter.

In the letter, Greyhound said that from the start their interest in REA had been to get a position in a company so that the express trade activities of the two concerns could be coordinated.

They referred to certain studies that had been made by the company in this regard.

They said they didn’t’ they didn’t want to as they put buy into a controversy with the dissident REA stockholders so that they were willing to take this 20% position and leave to the future question as to their ultimate position of the company.

There were further negotiations and then the matter was put to the REA Board which approved 14 to 3 I believe the vote was with one abstention and then to REA stockholders the proxy statement indicated that the benefits of the transaction would be to secure coordination and consolidation to express activities.

A heavy vote was urged because Greyhound had indicated that it wanted to be sure that it would have the cooperation of REA management.

The heavy vote was obtained, over an 80% vote of REA stockholders.

Now there is no — there is nothing in the record with respect to these studies that were referred to by Greyhound, with one exception and that’s reasonably significant I think, I might mention it.

There was a two and a half day conference between two vice presidents of these companies about three weeks before Greyhound made its 20% offer and that conference is memorialized in a memorandum.

In the brief it’s quite long.

It’s summarized in some detail in our briefs and what it amounted to basically was that the two vice presidents thought that the thing to do here possible was really to have a, an almost total union between two.

They would use the same terminals, they would use the same service forces, the same maintenance forces, the same supervisor, the same advertising program.

REA would perform pickup and delivery service for Greyhound.

They’d have — entered into through route and joint rate arrangements.

In short an almost complete amalgamation.

William H. Dempsey, Jr.:

Now we don’t say that this memorandum is a binding contract, of course, we never had said that.

All that we say is that it shows with some specificity the kind of program that may very well emerge from this transaction.

The contract itself has several relevant provisions that I might mention that appears on page 15 of the record, it’s a letter contract.

There is the 20% representation on the Board of Directors clause, sub-paragraph A.

Sub-paragraph C commits the REA board to consider seriously and work toward a long-term agreement between REA and the Greyhound Corporation to consolidate operating functions and facilities and to cooperate in all lawful, feasible and jointly advantageous ways to effect economy, improve service and increase public receptivity and patronage.

And then sub paragraph E is the 60-day offer clause and I’ll refer to it as the 60-day offer clause by which Greyhound offered to purchase up to an additional million shares of REA stock for a period of 60 days after the closing of the basic 20% transaction.

Abe Fortas:

Is there any explanation why they did that rather than settling it at the same time?

William H. Dempsey, Jr.:

Mr. Justice Fortas this is a point that we have raised from the time the litigation commenced in the district Court.

Abe Fortas:

It sounds, it sounds rather peculiar.

William H. Dempsey, Jr.:

Well, I am willing to adopt that characterization of it.

This comes — this goes of course to the point and I might as well deal with it right now that, that was made in the lower court that’s pressed here and really the point I think that the lower court went off on.

The notion here seems to be that because of this 60-day offer, because no one can be certain now and the Commission could not be certain when it read this contract and when it was called upon to act, what the ultimate position of Greyhound and the company would be, it was appropriate for the Commission simply to bypass the Section 7 problem or the anticompetitive impact problem.

The government says this is sensible.

Why should the Commission conduct an extensive hearing when at the end they may have to do it all over again, if Greyhound picks up an additional substantial block of stocks.

Abe Fortas:

I suppose your point is that one cannot help taking back that it cannot loan?

William H. Dempsey, Jr.:

[Attempt to Laughter] Yes, that’s right Mr. Justice Fortas.

That certainly what has been part of our argument from the start.

We say more though than that.

I don’t — from the Commission’s point of view I am not going to urge that it isn’t a reasonable position for a Commission to say, well now we don’t have all the facts that we’d like to have before us.

We do deal with this problem and in our brief.

We don’t think that double hearing problem is a genuine problem in this case, but I put that aside for the moment and I make one single point here, which I think is dispositive.

As I say if the Commission wants to take that kind of an approach, I don’t say that’s unreasonable but what I say is that if we are right in our construction of the statute with respect to the obligation of the Commission to deal with Section 7 problems impacts on competition problems at the least and Section 5 problems, then that kind of a position by the Commission is a reason for denying the application, not a reason for granting it and letting this go to the future.

What the Commission should have said, if that’s the way it felt, to REA we suggest, is now you haven’t met your burden of proof here and you have the burden of proof, you haven’t met it, you haven’t demonstrated that this transaction is compatible with the public interest under Section 20, but it’s for a lawful object because this record raises a very serious question under Section 7 of the Clayton Act, a very serious question under Section 5 of the Interstate Commerce Act and you haven’t even put us in a position to deal with this problem adequately.

Abe Fortas:

Do you or do you not take the position that the public interest standard in Section 20 includes competitive effect?

William H. Dempsey, Jr.:

Oh!

Yes, yes we do Mr. Justice Fortas.

That is central to our main argument I would say.

Now we make an argument in the alternative, we say that even if we are wrong with respect to our view as to the scope of Section 20 that nonetheless it was an abuse of the Commission’s discretion to go ahead with the Section 20 proceeding, authorize a transaction that might very well violate Section 7 and Section 5 when the Commission has the obligation under Section 11 of the Clayton Act to enforce Section 7 and under Section 5 of course to enforce that Section or under Section 12, I believe it is.

So that — that’s a secondary argument but our main argument does hinge on the meaning of Section 20a (2) it seems to me.

Now with — I would like to go back for the 60-day article Mr. Justice.

Byron R. White:

Mr. Dempsey does the — let’s assume for the moment that none of the – that no control problems ever developed here.

That the Greyhound doesn’t acquire any more stock and no one suggests that there is any control problem within Section 5.

I didn’t understand the government at this point to say that, that if that were true there would be no Section 7 problem at all.

William H. Dempsey, Jr.:

No if I understand your question correctly —

Byron R. White:

I mean let’s just assume there’s only a 20% acquisition under 20a do you understand the government to say that there never is a Section 7 problem here?

William H. Dempsey, Jr.:

I do not understand them to say that anymore in their motion to affirm.

I understood them to say that, that would be the result.

Byron R. White:

So the government says including now, and I’m talking about the about the Commission —

William H. Dempsey, Jr.:

Yes.

Byron R. White:

The government says now that at some point Section 7 issues – that the Section 7 issue, anticompetitive issue does have to be faced up too even though it is only a 20% acquisition which doesn’t represent a control problem under 5?

William H. Dempsey, Jr.:

Yes.

I must say I think the government of course knows much better than I.

I have some difficulty in reading their brief in this connection because there is what’s struck me as a rather peculiar paragraph, which said that the United States believes, continues to believe that there is a serious problem with respect to impact on competition, but acquiesces in the Commission’s view that that problem can be diverted later.

Byron R. White:

Can be put off?

William H. Dempsey, Jr.:

Can be put off, right.

So that I can’t represent really I think on the basis of the briefs what but —

Byron R. White:

So you think you and the government are now together in terms of the Section 7 or on anticompetitive impact is an issue under 20a?

William H. Dempsey, Jr.:

Mr. Justice White I — is an issue under 20a?

Well, I think we are clearly not together on that.

Byron R. White:

Well, I know.

There is only a 20% acquisition in your control.

William H. Dempsey, Jr.:

Yes.

Byron R. White:

I thought you just agreed with that the government now — now agree that Section 7 was an issue —

William H. Dempsey, Jr.:

It is an issue under Section 11 of the Clayton Act, not under Section 20, as I understand their position.

Byron R. White:

Well it does right, but it does have to taken into consideration —

William H. Dempsey, Jr.:

Well, if I could put it.

Byron R. White:

-– to prove the acquisition to court at some point in connection with the acquisition.

William H. Dempsey, Jr.:

I think that the United States and I are in accord on that.

I am not entirely sure that —

Justice Bernnan:

By the United States –-

William H. Dempsey, Jr.:

Excuse me Mr. Justice —

Justice Bernnan:

Who are the United States?

William H. Dempsey, Jr.:

Who are?

Justice Bernnan:

I mean anti-trust —

William H. Dempsey, Jr.:

That would be my judgment on it.

I am not entirely sure that Commission counsel and I are in accord.

I certainly I am not sure that the Commission is accord.

I think one here has to judge not on the basis of the excellent brief that that Solicitor General has written.

He certainly has put up as he always does a stronger defense with this agency action as anyone could do, but so far as predicting what the Commission will do Mr. Justice White I would refer to the order of the Commission and if one has to make an educated guess on the basis of that order —

Byron R. White:

Well, the counsel for the Commission is on this brief that you simply accept this brief, the Commission brief or the —

William H. Dempsey, Jr.:

Oh!

Yes certainly Mr. Justice White but I don’t — all that I am saying is that under Chenery the agency order has to be tested on the basis of the order and not on what said by Commission counsel.

Abe Fortas:

The Department of Justice, including the antitrust division, and the Interstate Commerce Commission are walking, marching arm-in-arm, hand-in-hand at this stage of this case, isn’t that right?

William H. Dempsey, Jr.:

I think so.

Abe Fortas:

At least they have filed a brief here stating the position of both?

William H. Dempsey, Jr.:

Right, yes I didn’t want to suggest —

Abe Fortas:

And the — at the beginning of the case, the antitrust division of the Department of Justice opposed this acquisition, is that correct?

William H. Dempsey, Jr.:

That is correct.

Abe Fortas:

And somewhere along the line the Department had a second thought and changed its position?

William H. Dempsey, Jr.:

That’s correct.

Abe Fortas:

So they now both take the position they either I am not sure, see to — which one it is I am not sure whether they take position, that Section 20 does not include a public interest standard or that in that alternative addressing, serves your alternative theory that the Commission is justified in close calling consideration of Section 7 and Section 5?

William H. Dempsey, Jr.:

Well, I think they are certainly — I didn’t’ mean to suggest that they were apart in this case.

The Government of United States opposed it as you say before the Commission.

They remained neutral in the lower court and they are now together with the Commission.

Potter Stewart:

There is some indication of at least prospective diversions of views between the United Sates and the Commission on the bottom of page 19 the joint brief filed —

William H. Dempsey, Jr.:

Well, that’s the paragraph that I have reference to Mr. Justice Stewart.

Potter Stewart:

Yes yeah.

William H. Dempsey, Jr.:

So I —

Potter Stewart:

I guess that’s the only indication.

William H. Dempsey, Jr.:

That’s the only indication that’s right.

Abe Fortas:

This possible disagreement as to what happens hereafter?

William H. Dempsey, Jr.:

Yes.

Oh yes they are together in their doctrinal argument here as to the grounds for affirming the decision, but Mr. Justice White raised the question as to what might happen in the future and that’s, – it was that paragraph in the brief that I have referenced to.

I might, now as to 60-day offer matter I just like to return that for a moment.

Mr. Justice Fortas you asked what the reason would be for that provision and that I just don’t know because we have put that question before.

In order to revise it, that is to say if the Commission would have done what I suggest and that is to say you haven’t met your burden of proof, we don’t want to be faced even with the possibility of two hearings here, go back and rewrite your contract, all it would have been involved here would have been to make that 60-day offer expire before the case went to the Commission and that would have meant simply that the REA stockholders who might want to sell would have to so indicate earlier and those who might want to exercise their right of first purchase would have to indicate further, earlier, all of course subject to commissioned approval as it would inevitably be in any event.

Now why that couldn’t be done, why it was done this way, we suggest that it could have been done and the Commission should have required that it be done if the Commission was troubled by this problem of a possible double hearing of case.

Earl Warren:

Does the government concede that a matter would be ripe for a discussion of Section 7 and Section 5, when this Section 8 provision is finally completed?

William H. Dempsey, Jr.:

I think so Mr. Chief Justice.

I take it that that’s their position, at least their ripe for consideration whether it would ripe for resolution I am not sure but —

Byron R. White:

Well, Mr. Dempsey let’s assume that the, let’s assume that a company acquires 20% of the competitor and the antitrust division immediately files a suit for an injunction.

Well, they announced their plans to acquire and they acquire — file a suit to – for injunction against the acquisition and move for a temporary restraining order and the court turns it down.

Does — I don’t think the chances of violation — is enough to warrant holding this up or await new trial on the merits.

Now that’s done all the time I suppose and since that, why is this just like the Commission denying a temporary restraining order and saying, we are going to wait a week, we get all the evidence in and then we’ll decide the case, maybe we’ll have to take it part again but or maybe we’ll have to freeze the holding in — so that they don’t have voting power or something that like.

William H. Dempsey, Jr.:

Yes, well I think that I’d like to make my response in several parts to that Mr. Justice White.

Byron R. White:

I don’t want to interrupt you.

William H. Dempsey, Jr.:

No that’s not — no those are points I would have made in any event.

In the first place if the Commission had done that in this case we would be confronted with the different problem here, the Commission did not.

If the Commission had said in this case it doesn’t look like there is any chance that there is going to be a Section 7 finding here ultimately, we would be urging that was plainly wrong and the government I take it so far as one can tell, would be agreeing with this.

So that distinguishes it.

Now in addition —

Abe Fortas:

As a matter of fact, I beg your pardon but in that little part, the United States [Inaudible] all United States says here that they, that it ought to be investigated, they don’t say that [Inaudible] to say that this would be a violation of Section 7.

William H. Dempsey, Jr.:

They continue to believe that serious question on this score that is score of competitive consequences remain to be investigated I —

Abe Fortas:

I don’t feel quite as so far they said there would be —

William H. Dempsey, Jr.:

Well Mr. Justice Fortas I think maybe I should read from their, from their initial submission in this connection because I read what they said there to mean that they continue to have that view although its somewhat more ambiguously stated.

What they say in their initial submission to the Commission states our position succinctly.

There the government said that petitioner, that is the government, asserts that the application places before the Commission serious questions under Section 7 of the Clayton Act, which by virtue of Section 11 thereof the Commission has a duty to enforce.

Greyhound will if the Commission approves this application to acquire a substantial stock interest etc, and they go ahead, and then they conclude therefore the Commission in accordance with its responsibilities under Section 11 cannot avoid determining to what extent, depending the proposed transactional result and effects of Section 7 is intended to prevent.

I think that’s a somewhat clear statement than what they have in their brief now.

Maybe they intend to repeat from it.

William H. Dempsey, Jr.:

If they don’t in any event if they adhere to that then they would be on our side in opposing a postponement on the ground if there was no prospect of ultimate success in the litigation.

In addition I would think that on the Section 5 issue, certainly there is a substantial question.

Now with respect to the temporary restraining order problem Mr. Justice White there is another difference I think and that is that the Commission does operate here within a statutory framework.

Section 20a (2) requires that if determined that the transaction is compatible with the public interest and for a lawful object.

Now in the Penn Central case, the Solicitor General was here arguing that the Commission couldn’t truncate its procedures the way it did.

Byron R. White:

[Inaudible]

William H. Dempsey, Jr.:

No, no [Attempt to Laughter] I don’t.

I am just saying that in a certain sense they involve the same kind of procedural problems.

I might suggest that I think one of the — one of the problems that the government avoids here by virtue of the doctrinal argument that they are making is that it is not relevant.

Penn Central is not relevant at all if public interest doesn’t include any question other than fiscal soundness of the proposed transaction.

Abe Fortas:

But if public interest does include competitive question then you are saying it is highly arguable that taking a position here which is opposite to the position what they took in Penn Central?

William H. Dempsey, Jr.:

Yes I do Mr. Justice Fortas I don’t mean to say that they are estopped or [Attempt to Laughter] that sort, but that the problem of the statutory framework is one that does exists.

If they must make a determination with respect to the public interest and if that does include as we say as an ingredient the anticompetitive impact of the transaction then we suggest that it is different than an regular restraining order case.

Byron R. White:

Where do the anticompetitive consideration come in under Section 5, if it was a Section 5 proceeding?

William H. Dempsey, Jr.:

If there was a Section 5 proceeding?

Byron R. White:

Yeah, and they must consider the anticompetitive impact, is that within the, is that in connection with determining the public interest?

William H. Dempsey, Jr.:

Well, if it’s a railroad motor carrier case of course it comes in specifically Section 5.

If it’s not a railroad motor case then I take it, it comes in either under — I take it comes in under the public interest standard of Section 5, yes Mr. Justice White.

Byron R. White:

That’s why you contend that it must come in under 210a?

William H. Dempsey, Jr.:

That’s right, that’s right, but it isn’t the only reason though.

It isn’t only the McLean line of decisions that’s relevant here, it seems to me.

It’s also California versus Federal Power Commission, the RCA case, every case that this Court has decided that we’ve been able to find involving the question whether a term like public interest includes reference to anticompetitive factors, has gone the same way.

The Court has always said that it does.

Every lower court decision that we found goes the same way.

We don’t say they are controlling authority, but certainly it seems to us that they’re instructed.

Byron R. White:

I don’t see, I really don’t understand why you think you have the better case, you say that the public interest includes anticompetitive consideration, or whether you say that it does [Inaudible] Section 11 now, it says [Inaudible] –-

William H. Dempsey, Jr.:

Well, Mr. Justice White, I don’t know that we do have a better case, it seems it’s a little easier to argue but as — in point of fact I don’t suggest that the case should come out any differently.

I think that if the government is right in suggesting that the — if the Commission had acted the way that we say it should have acted, to have produced absurd results that that’s a very good ground for thinking that our doctrinal analysis is wrong one way or another.

On the other hand, if we’re right in suggesting that there were no difficult practical problems involved here, that there may very well be damaged, we maybe injured, the public interest maybe injured then I would think that whether you put it under 20a (2) or whether you put it under 5, under 11 and coordinated enforcement of this network of statutes, you really ought to come out the same way.

But — well let me say one more thing though in that connection.

William H. Dempsey, Jr.:

I think from the point of view of administrative procedure that we would urge that it’s more desirable to read the statute so as to include these factors so that one doesn’t get into this problem continuously about whether the Commission abused it’s discretion in not bringing a Section 7 proceeding immediately or waiting 50 days or waiting an year or whatever it might be, similarly with the Section 5 proceeding.

I think when the Congress says that the Commission must determine that a transaction is in the public interest before it authorizes it, that then the Commission is on notice that it’s got to be on some fashion at least with every ingredient of the public interest, everything that touches the public interest in a decently immediate way.

So that I think there is some purpose in reading the statute that way in terms of the operation of the agency.

The question of impact on the appellants I think is important here, it’s one of the practical considerations that the government advances.

And as to that, I think one can’t say, and this would be relevant to the temporary restraining order situation also, I think one cannot say with any reasonable degree of certitude precisely what the risks are going to be here.

There are too many contingency.

The 60-day offer might come out in a variety of different ways, but what one can say it seems to me fairly is that there is a substantial risk of some kind and that root, it arises from the fact that the Commission has approved this basic 20% transaction and that transaction is going to be in effect whatever is done with respect to instituting a Section 5 proceeding or a Section 11 proceeding in the future.

Now, we have motorbus carriers who alleged before the Commission that their degree of profitability, their measure of profitability basically turned upon express carriage.

So that we have people who are in a peculiarly vulnerable position.

The proceeding, if there’s one, may last for two or three years.

Everyone agrees it would be protracted.

So the government suggests though that, well, perhaps the Commission could do something such as Mr. Justice White suggested might be done in a temporary restraining order case in order to protect the parties.

Perhaps they could impose an interim condition on, if they began a Section 5 proceeding, perhaps they can put the stock in a boarding trust or direct the Greyhound Directors not sit on the REA Board.

Well, perhaps they could, but no one knows whether they will and if one must measure the probabilities, one I think must consider that they did not do that in this proceeding where they could.

Abe Fortas:

Does the threshold legal position here mean that they — antitrust division of the Department of Justice of the United States and the ICC take the position under Section 20, for example, that the New York Central could sell X percent of it’s stock to the Pennsylvania railroad, that the Commission would pass upon that without regard to competitive effect?

William H. Dempsey, Jr.:

Under Section 20, I think indisputably true that’s their position under Section 20.

Abe Fortas:

If that is their position and the Commission’s position is they could defer it indefinitely or defer to a later date the consideration of the anticompetitive effect?

William H. Dempsey, Jr.:

As I understand it that is their position.

Abe Fortas:

Now, actually there would be a different [Inaudible] truth would there not, if public interest under Section 20 repeals anticompetitive effect, would the burden of proof be one the applicant?

William H. Dempsey, Jr.:

Burden of truth is on the applicant under Section 20.

Abe Fortas:

And how about — and the same thing would be true under Section 11, Section 7, that the burden of — I mean say the opposite would be true, the burden —

William H. Dempsey, Jr.:

No, I wouldn’t say the opposite would be true under Section 11, now under —

Abe Fortas:

How about Section 5?

William H. Dempsey, Jr.:

Under Section 5 I would say that there too the — well, if it’s an application for approval and of course the applicant has the burden of approval.

If the Commission is investigating frankly Mr. Justice Fortas, I’m just not sure, I don’t know the answer to that question.

Certainly however under Section 11 case the burden would be different.

I might say that with respect to the Penn Central case, I’m not an expert in that litigation, it’s terribly complex, but I might say this about it, that in that proceeding at least the Commission tried.

Now this Court may hold that they didn’t succeed, but at least they tried to deal with all factors that were relevant to the public interest.

In this case, they didn’t even try we say what we think we have here is the kind — if I recall Judge Friendly’s opinion there, he referred to a case that one does not meet in real life, where the Commission approves the transaction while deferring all the consideration of factors to the future and I say that what we have here is that kind of case in real life.

They have simply put the matter on to the trial.

William H. Dempsey, Jr.:

The — as to the threshold doctoral question of the scope of 20a (2), the appellees suggest that the legislative history is controlling.

What that legislative history shows is that when the Congress passed the securities provision the problem that bothered them was certainly the problem of fiscal manipulation.

But there is not a single item of legislative history that establishes that when the Congress employed the term public interest and lawful object, that they intended that the Commission restrict it’s consideration to problems of the fiscal soundness of the issue.

There’s not a shred of evidence to that effect and we suggest that when one is confronted with terms in their natural scope would include anticompetitive factors, that one has to have a — has to measure up to a very strong and a very heavy burden of proof in terms of legislative history to this conflict.

They also suggest that the — this Court’s decision in the Alleghany case is controlling here.

The Alleghany case of course as the Court knows that is a very complex body of litigation.

We’ve gone through it in rather laborious detail in our brief I’m afraid.

I would make just one point about it here.

We don’t think that the appellees read the case correctly, neither did the lower court.

The lower court thought that Alleghany was not controlling.

What the appellees says that in Alleghany, Alleghany II, the second per curiam decision, this Court held that Section 5 questions were not relevant in the Section 20a (2) proceedings.

As I say, we don’t, for reason set forth in our brief, we don’t read it in that way, but even if that’s right, even if that’s what the Court meant in that case, it has very little to do with this case because of the character of the Section 5 issue in that case.

There the Section 5 question was the allegedly illegal acquisition of the New York Central by Alleghany at some time prior to the Section 20a (2) proceeding and the securities that were in question there had nothing to do with that prior acquisition of control.

It was just an exchange of one kind of preferred stock for another.

Now we don’t say that in a Section 20a (2) proceeding the Commission must consider every past misdeed of an applicant.

What we do say is that the Commission, where the securities issues is to be used as a vehicle for acquiring control illegally or may be, and where it is to be used as an instrument for the violation of Section 7 at least perhaps that the Commission must resolve that kind of Section 5 problem and that kind of Section 7 problem in the Section 20a (2) proceeding and we suggest that Alleghany however it may be read doesn’t bear on that problem at all.

I think I’ll reserve my remaining —

Justice Bernnan:

May I just ask Mr. Dempsey?

I know this, you ask alternatively a remand to conduct a hearing under Section 5 on anticompetitive impact or allowing the application without qualification but the record doesn’t deal will all of that or finally deny the application will lead to clause, have you any further –?

William H. Dempsey, Jr.:

No, I think with all of those results would be well within the discretion of the Commission Mr. Justice Brennan.

Justice Bernnan:

And you got them too?

William H. Dempsey, Jr.:

Yes.

Justice Bernnan:

You ratify two cues, one of —

William H. Dempsey, Jr.:

Yes, yes.

Earl Warren:

Mr. Barr.

Thomas D. Barr:

Mr. Chief Justice may it please the Court.

I represent REA, Railway Express Agency.

There are two transactions involved here.

First one is the sale by REA to Greyhound of 500,000 shares of stock, which represents 20% of REA stock, and the Commission has authorized REA under Section 20a to issue that stock, it being presently unissued and to sell it to Greyhound, and the Commission has found that REA urgently needs the $10 million that it will receive from Greyhound.

The second transaction which is also involved here is between Greyhound and REA stockholders and I include the appellant Railroads as among those stockholders most importantly.

Thomas D. Barr:

Immediately after the sale by REA to Greyhound, Greyhound must make a tender offer to REA’s shareholders to buy up to an additional 40% of REA’s presently outstanding stock and that offer must be completed within 60 days after the offer.

One possible result of those two transactions is that Greyhound will ultimately own 60% of REA stock.

The more likely result is that the appellant railroads will and they have said very clearly several times that they will, exercise their right of first refusal with respect to the 40% of stock that Greyhound will seek on the tender offer and that they because they already own 10% will then own approximately 50% of REA stock.

Abe Fortas:

How does that work Mr. Barr?

Do the railroads have right of first refusal if Greyhound calls for tender?

Thomas D. Barr:

Yes Your Honor it does, they do.

Abe Fortas:

And that’s in the agreement, is it?

Thomas D. Barr:

Yes sir, it is, it’s in the standard operating agreement.

It’s not in the agreement between REA and Greyhound.

The unissued stock, 500,000 shares of stock, that are not issued that we have to get permission from the Commission to issue are not subject to the right of first refusal that’s why they can go through.

Abe Fortas:

How can the railroad stop Greyhound or anybody else from calling for tenders –?

Thomas D. Barr:

Well they can’t do that Your Honor, but they can prevent the stock that is tendered from going through to Greyhound by exercising the right of first refusal after it has been tendered, Greyhound —

Abe Fortas:

Then the tender will be made by the individual stockholder, will it not or do I misunderstand this?

Thomas D. Barr:

No you don’t sir, Greyhound will offer to accept tenders up to 40% of the stock.

The stockholders will then make the tender —

Abe Fortas:

To Greyhound.

Thomas D. Barr:

To Greyhound, once that is made, all of REA’s other stockholders have the right to take in and say I’ll take it at the same price.

Abe Fortas:

From, they have that right from Greyhound?

Thomas D. Barr:

From, no Your Honor.

They have that right as among themselves.

The stock may not be sold to Greyhound without being in effect offered to all the other stockholders at the same price and the tender offer doesn’t cut across that.

Abe Fortas:

Well I haven’t read the document and I would —

Thomas D. Barr:

All right sir.

I don’t think there is any dispute about that in the record as among any other party Your Honor.

There is of course a third possibility —

Potter Stewart:

All the stockholders are Railroads, aren’t they, except for this new stockholder Greyhound?

Thomas D. Barr:

Yes sir and as I will explain to you in just a moment REA is rather peculiar kind of animal in that respect and I think that’s very important now.

But I want to make clear that there is a third possibility, a very small possibility and that is that no stockholder will tender any stock to Greyhound.

This I say is very unlikely because the record shows that the holders of 900,000 shares of REA stock have already indicated that they will tender, that they will either sell to Greyhound or to the Southern Pacific or Santa Fe, the appellants.

Now the Commission has properly we believe postponed consideration of the problems raised by the appellants under Section 5 of the Interstate Commerce Act and Section 7 of the Clayton Act, until the results of this tender offer known 60 days after the first sale takes place.

Abe Fortas:

Greyhound — I guess we have to assume that Greyhound intends to go through with the terms —

Thomas D. Barr:

No doubt about that, there is no doubt whatsoever Mr. Justice Fortas that Greyhound wants to buy control of REA and wants to exercise that control I don’t contend otherwise.

Abe Fortas:

Alright.

Now how is control applied in Section 20 or perhaps is it section 20?

Thomas D. Barr:

It is not defined under Section 20 at all Your Honor.

Abe Fortas:

Isn’t there a phrase control or power to control —

Thomas D. Barr:

That’s under Section 5 and it’s only under Section 5 that the control problems can be raised. Section 20a doesn’t have anything to do with control.

All Section 20a says that when any Railroad wants to issue any security it must go to the Commission and obtain permission.

Abe Fortas:

Then my question should have been asked with respect to Section 5 and Section 5 does say –?

Thomas D. Barr:

It is a very broad definition, control or power to control and the cases make perfectly clear that the definition is a very broad one and it comes down to something like the power to influence.

Abe Fortas:

It’s like the definition in some of SEC Act?

Thomas D. Barr:

Yes sir.

Earl Warren:

Is there anything in the record to indicate why this 60-day provision couldn’t have been fulfilled before the Commission acted —

Thomas D. Barr:

Yes sir there is.

Earl Warren:

— in which event perhaps a question of whether Section 7 or 5 applies, would be right?

Thomas D. Barr:

Yes sir, there is and I plan to describe that at some length and let me answer your question.

This agreement was negotiated not just between REA and Greyhound.

It was negotiated by REA with its 58 Railroad stockholders including the appellant Railroads, who are part of the negotiating committee.

The deal went through several offers and several different combinations which I’ll describe.

I don’t think anyone gave any consideration until the agreement was reached as to what the appropriate way was to structure the agreement in order to put it to the Commission for approval.

This two-step procedure was just the result the way that it was negotiated.

Once the agreement was made and then the lawyers focused more closely on what was the appropriate way to put it to the Commission, we were frankly afraid and I think the facts that I’ll recite to you in a moment will show you why, to try to re-negotiate the deal because the appellant Railroads had blocked the deal twice successfully, we were afraid to give them another opportunity to do it.

It seems to me somehow unfit to say that the Commission should send it back to REA and say reform the deal and give the appellants another chance to block the deal as they did twice, and as I’ll show you in a moment, it took REA ten months to put this thing together but it just didn’t seem likely to us that we could reform it in a successful way without perhaps depriving ourselves with the money.

But in any —

Abe Fortas:

I beg your pardon–

Earl Warren:

Where do I find in the record, the stated reason of the Commission as to why this was not required –?

Thomas D. Barr:

Excuse me, Mr. Chief Justice Warren —

Earl Warren:

Why they didn’t wait until 60-day provision was exercised?

Thomas D. Barr:

You won’t find any statement by the Commission to that effect in the record sir.

Earl Warren:

Well, that was my question.

Earl Warren:

Was there anything in the records stating the reason by the Commission for not waiting until that 60-day provision had been exercised?

Thomas D. Barr:

No sir you won’t find them stating expressly that.

You will find the Commission there is something I think in the record and I misunderstood.

Earl Warren:

So you are giving me your, your reasons why but not the Commission’s reasons.

Thomas D. Barr:

Commission’s reason was You Honor that it said it would not be appropriate to consider the Section 5 or Section 7 issues at this time and that appears in the order, which —

Earl Warren:

Yes I understood that but is that supported by any finding or any reason?

Thomas D. Barr:

Well it goes on —

Earl Warren:

— if anything that it, that it put him a record —

Thomas D. Barr:

The Commission goes on that, Your Honor please after it makes that finding.

That finding appears on, on page 198 of the record.

It devotes in my judgment the next four paragraphs of the order to explaining and setting forth the reasons why it would not be appropriate to consider the Section 5 problems and the Section 7 problem at that time.

The paragraph that includes a statement is the paragraph, the last full paragraphs on 198, the next paragraph deals with this right of first refusal that I’ve just described to you.

The paragraph after that describes the tender offer.

The paragraph after that describes the way that REA is setup and so on, but the Commission doesn’t, if Your Honor question is focused directly upon should we have this thing reformed, the Commission doesn’t focus on that.

One of the reasons it doesn’t is because that was never suggested to it by any party below.

The suggestion that Mr. Dempsey makes now that the contract could have been reformed is a suggestion that I believe is made for the first time in this Court, it was certainly not made to the Commission.

Abe Fortas:

I want to ask sir the appellants here have characterized themselves as minority stockholders of REA.

Do you know what percentage of stock they represent?

Thomas D. Barr:

Together the five appellants have 245,000 shares of stock out of presently outstanding 2 million, so they have a little more than 10% with the additional 500,000 that would be issued to Greyhound, they have slightly less than 10% —

Abe Fortas:

So that there are some stockholders who presumably are in favor of this?

Thomas D. Barr:

There is certainly oh!

Yes there is no doubt about that.

Mr. Justice Fortas at page 40 and 41 of the record, all of the stock holdings of all the stockholders are set up by.

Abe Fortas:

I see, I asked that question and you mentioned your pessimistic forecast as to the results of the call for tenders —

Thomas D. Barr:

I wanted to make it clear that 900 — the holders of 900,000 shares have said they will sell their stock and they don’t care who they sell it to.

They will sell it to the Southern Pacific in the Sante Fe if they exercise their right of first refusal; if it goes through that, they will sell it to Greyhound.

Earl Warren:

What percentage, the line of commerce these two companies have?

Thomas D. Barr:

Your Honor this is not in the record.

Mr. Dempsey has said that these two — that the proper line of commerce here is express service and that REA and Greyhound together have about 95%.

We say and we said only tangentially before the Commission that the proper line of commerce was the market were small packages, were transportation of small packages and that we had about 2% of that market and that Greyhound had 1%.

Thomas D. Barr:

There has been no attempt whatsoever Your Honor to resolve this rather large difference at the moment between Mr. Dempsey and myself and that will have to be resolved and I want to make it clear that I’m not saying that the Commission should not resolve it.

All I’m saying is that the Commission properly postpone consideration up, that’s the only thrust of my argument.

I couldn’t–

Byron R. White:

You agree — you agree that — do you agree then that even if there is no Section 5 problem in the sense of a control problem that if REA never or if the Greyhound never acquires any more stock and no one suggest there is a control problem, you would agree that there is still a–

Thomas D. Barr:

There is still something that has to be resolved.

Byron R. White:

Under the purposes of Section 7 or Section 20a, one of the other or both?

Thomas D. Barr:

Well, I don’t think it comes under Section 20a at all I agree.

Byron R. White:

I know but you would agree that when anyone — if anyone acquires 20% of the competitor that there is a — that there is some order of the Section 7 problem?

Thomas D. Barr:

I certainly do sir.

Byron R. White:

you call it 20a or not but in connection with the 20a acquisition, there can arrive a Section 7 problem?

Thomas D. Barr:

Absolutely.

Byron R. White:

And that must be resolved?

Thomas D. Barr:

And indeed and in many cases Your Honor the only proper to way to do it is to do it all at once and I’m not saying otherwise.

The only issue here between us is really a pretty simple one.

The appellants say that the Commission does not have the power to approve the 20a application, the issuance of securities and to postpone consideration of the Section 5 problems and I’ll call them that so that it’s clear at least in my mind what I’m talking about or the Section 7 problems to postpone consideration of those, as the Commission said this is not the appropriate time, this order is only under 20a it’s not to be taken as raising any presumption.

Byron R. White:

Fundamental of that proposition though, I take it is that the public interest as used in Section 20a or Section 20 does not include, does not have to include any anticompetitive impact?

Thomas D. Barr:

I quite agree, it is fundamental and I take that position.

Byron R. White:

Although the public interest under Section 5 the same words, those same words do include anticompetitive consideration?

Thomas D. Barr:

They are not exactly the same words, but for all intents and purposes there —

Byron R. White:

— those words are there.

Thomas D. Barr:

The public interest is but I —

Byron R. White:

But under Section 5 that does include and anticompetitive —

Thomas D. Barr:

No doubt about it.

Byron R. White:

Even though they are not mentioned.

Even though, anticompetitive factors are not expressly mentioned?

Thomas D. Barr:

Well, I think they are Mr. Justice White because it requires the Commission under Section 5, Commission is required to take into consideration the impact upon other carriers in making its determination under Section 5.

Byron R. White:

But it doesn’t talk about competition?

Thomas D. Barr:

No sir but I always thought that the principal impact upon other carriers would be the competitive impact, but in any case this Court has made clear in McLean and lately in the Seaboard case that the Commission must take the — within the policy to the antitrust law -–

Byron R. White:

Within the concept of public interest?

Thomas D. Barr:

Yes sir under Section 5.

Byron R. White:

Let’s assume that public interests were construed to mean under Section 20, that the public interest meant the same in both sections, then where are you?

Thomas D. Barr:

Then you reverse.

Byron R. White:

Oh!

You do.

You say you can — you can’t split up that public interest matter in a sense that —

Thomas D. Barr:

If no – excuses me – if what you say —

Byron R. White:

The Commission will certainly approve it now, will approve it now because it’s consistent, but they did say it’s consistent with the public interest, isn’t it?

Thomas D. Barr:

If you say that the Commission may not authorize a 20a approval without considering the anticompetitive effects and if this Court holds that, that the public interests includes that, that the public interest in 20a the language of 20a includes that and the Commission has not done that.

Earl Warren:

You say it includes only what?

Thomas D. Barr:

I say that section 20a Your Honor in this I think Mr. Rifkind is going to deal with this more fully, but I say the 20a is a statute that is designed to deal only with the physical questions.

20a was passed by the Congress in 1920 with Section 5.

Section 5 is setup to deal with the control questions which include the competition question.

There is no conceivable reason in my mind why you should say that if the Congress has the duty under Section 5 to do all of these things, Mr. Dempsey, the appellants concede that the principal purpose of Section A is to focus on these problems of whether there is stock watering, whether there is the value behind the securities, that’s what Section 20a was setup to deal with.

The appellants concede that’s the principal purpose, but they say that a subsidiary purpose is to reach over and deal with all the problems that the Commission is required to deal with under Section 5.

Now I say you can’t construe the statute that way that doesn’t get rid of the problems in any way.

Earl Warren:

But is there anything in the legislative history that actually limits this to fiscal matters?

Thomas D. Barr:

No, Your Honor there isn’t anything that actually limits it.

Earl Warren:

But why, what do we rely on then?

Thomas D. Barr:

There isn’t anything in the legislative history that in anyway suggests to me that it is supposed to consider any thing other than what I’ll call the stock watering problem.

You’ll recall that during the early part of this century, the railroads were notorious, for issuing great quantities of securities behind which there was no value and depriving the public of their money in a variety of ways.

Now in 1920, we didn’t have a Securities Act and the Congress after the Commission was created by President Taft and this Commission set out to investigate the problem of stock watering and the problem of value and they passed Section 20a which was designed to make the carrier come to the Commission and say this is what we want to issue, this is the value behind it, this is the purpose that we’re going to use the securities — proceeds of the securities board and the Commission then said you may sell these securities or you may not.

I don’t see why you have to take all this to control and competition problem.

Earl Warren:

Are there any, any cases in this area which holds that the public convenience or necessity incorporates only fiscal matters?

Thomas D. Barr:

Virtually no cases at all under Section 20 and there are no cases that can be — the two or three cases that have been decided under Section 20, all suggest to me and we cite them in our brief that the only thing that Section 20a is designed to do is to deal with these physical matters.

It was setup to run on a track of its own.

If let me say this, if there was not in the Interstate Commerce Act a Section 5, if the only way that the Commission could be require to consider the anticompetitive problems and the control problems was to read it in the Section 20a and I’d say there was a strong reason for doing it.

But Section 5 is the there, there’s — I don’t argue the Commission doesn’t have a responsibility under Section 5.

I say it does, I say it should discharge it.

The only question that is involved here is whether the Commission has the power to defer it until it knows what the results of this tender are.

Byron R. White:

But you say — you’ve said under the — you’ve said that public interest remains the same thing under 20 as it does under 5 but we have to reverse.

Byron R. White:

So that seems to me, to me to say that the Commission could not, I’m not saying it did in this case, the Commission could not say well we must consider a competitive impact but we’re, and we will consider it, and we set a hearing two months from now meanwhile all the acquisition may go forward.

Thomas D. Barr:

I think they could do that and I misunderstood your question Mr. Justice White.

I thought you were asking me whether the Commission could — if the Court held that the Commission could not authorize the 20a issue without first considering the public interest and if that public interest met the same day, they can, they can —

Byron R. White:

This is what the Commission did in this case, in this case it said it’s consistent with the public interest which if it includes in there a competitive impact they haven’t considered that and they’re wrong.

Thomas D. Barr:

But I think the analogy you drew between the denial of the preliminary injunction in this situation is an apt one in terms of what happened.

The Commission happens to be operating under two different, three different parts of the same statute.

I don’t see any reason to say why that they have to do all of their job under one.

All the Commission has done and said let’s differ consideration of these until we know the outcome of the tender offer, and all we say is that the Commission had the power to do that.

Byron R. White:

Let’s do it another way, let the acquisitions go forward and then we’ll consider the —

Thomas D. Barr:

Let’s no – let’s — let the first part of it go through.

Let’s let Greyhound buy 20% then we’ll see whether Greyhound ends up with 60 or whether the Southern Pacific will end up, and the Santa Fe will end up in 50%.

Abe Fortas:

Perhaps difficulty is implicit in that is that if Greyhound stocks had 20% and the Commission seems to imply that they will have to look into anticompetitive aspects.

First Greyhound changed its mind, does not exercise its option and then they —

Thomas D. Barr:

We it doesn’t have any alternative in that respect sir.

Abe Fortas:

I am sorry.

Thomas D. Barr:

It does not have any alternative in that respect.

Abe Fortas:

Alright, let’s suppose it exercised its option and then they get any of the stock and it seems to me —

Thomas D. Barr:

No, stock changes hand —

Abe Fortas:

It seems to be implicit here that the Commission knew that they will vary from dynamic competitive —

Thomas D. Barr:

I don’t think that’s so Your Honor.

I think that when you were discussing the Chenery doctrine with Mr. Dempsey, you should have — we should have gone to the next paragraph in the Commission’s order where the Commission says that it is nothing is determined under any Section expect 20 and 5 as for the future that’s where the anticompetitive —

[Luncheon Recess]

Robert S. Rifkind:

— that they are as that as a result of the history of expansion of the term control and if they are coextensive by reason of the rational necessity of construing this regulatory scheme.

Byron R. White:

But let’s assume that there is an acquisition under Section 20, which no one even suggests raises any control problems within the Section 5.

At some point in every such acquisition must anticompetitive consequences being considered.

Robert S. Rifkind:

But all I’m suggesting Mr. Justice White, is that we can’t conceive of a influence of one corporation on another that would tend substantially to lessen competition that would not also involve an element of control such as to invoke the Commission’s’ jurisdiction under Section 5.

Control has become after all a term of art.

It does not mean majority control.

Only two months ago the Court dealt with the case of Chicago and Eastern where the Commission had found control a violation of Section 5 through the acquisition of 30% of the stock of a railroad.

It seems to me that and I’ll get back to this that’s the two sections have to be read as of equal reach especially when you take into account the investment exception to Section 7.

Hugo L. Black:

You mean that they mean substantially the same thing too —

Robert S. Rifkind:

They certainly don’t mean the same thing and that they have the same —

Hugo L. Black:

Cover the same thing?

Robert S. Rifkind:

They cover the same ground.

Hugo L. Black:

What if they cover the same thing and [Inaudible]

Robert S. Rifkind:

Well, but they deal with the problems in somewhat different ways.

Section 7 is an absolute —

Hugo L. Black:

Each one of them deal with all the phases that the other one deals with?

Robert S. Rifkind:

Well with the exception of the fact that under Section 7, no one is authorized to consider whether the lessening of competition may not be over balanced by some advantage to public interest.

Hugo L. Black:

Added to it or the same thing?

Robert S. Rifkind:

Balanced, bias whereas that’s just what the Commission is required to do under Section 5.

Hugo L. Black:

Could you tell me in one or two sentences, what would be the difference in the consequences of your position and of your adversary?

Robert S. Rifkind:

The only — the only — well the consequence of my adversary’s position is that the Commission cannot under any circumstances approve a stock issuance, an issuance of securities without considering in advance any competitive anticompetitive effects that might flow form there.

The ultimate consequence of our position is that there maybe some cases and we submit that this is one where it’s appropriate to deal with those issues in sequence.

Hugo L. Black:

Each one or other said that?

Robert S. Rifkind:

We want the decision below affirmed.

Hugo L. Black:

You want it affirmed?

Robert S. Rifkind:

The decision of the District Court.

Hugo L. Black:

Which it does postpone.

Robert S. Rifkind:

Which authorizes the Commission to postpone the Section 5?

Hugo L. Black:

But that’s the only difference between —

Robert S. Rifkind:

That’s right.

It’s a question of timing in fact.

Justice Bernnan:

Well let’s see it, what is that?

I gather what you now have is the authorization to go through the purchase of the 500,000 shares?

Robert S. Rifkind:

That’s right.

Justice Bernnan:

Now, under Mr. Dempsey’s position it would not that be set aside pending further proceeding?

Robert S. Rifkind:

Well that’s right they will —

Justice Bernnan:

Well, that’s pretty big difference, isn’t it?

Robert S. Rifkind:

It would be set aside until the Commission had considered the Section 5.

Justice Bernnan:

That’s what I say whereas if you prevail, this purchase to the 500,000 goes through?

Robert S. Rifkind:

That’s right.

Justice Bernnan:

And then pending the outcome of experience with the tender would be an ultimate determination on the anticompetitive aspect?

Robert S. Rifkind:

That’s right.

Justice Bernnan:

Is that it?

Robert S. Rifkind:

I do stress though that there is every — there is no reason to believe as appellants have worried about that they are likely to be so seriously injured during the period after the tender offer is concluded before the Section 5 hearing to be completed.

Abe Fortas:

Does the government take the position that it will be not be possible by reasonably 20% stock interest or operating consolidations and changes to be effective that is to say consolidation of facilities and services between Greyhound and Railway Express Agency.

Robert S. Rifkind:

Well first of all any of the —

Abe Fortas:

Do you regard that as immaterial?

Robert S. Rifkind:

No at least I don’t think I do.

Many of the proposed changes that are sketched out in the memorandum of understanding that has been referred to between the two companies, many of those, which as I said, are still very tentative would themselves require Commission approval.

It would also require Commission approval for officers of Greyhound to place themselves on the board of REA.

Abe Fortas:

Well, I understand that but changes could be made, there could be a consolidation of operating stations, places where freight is received, facilities for the handling of freight and so on, immediately after the 20% acquisition is effective, isn’t that right?

Robert S. Rifkind:

They could do that I suppose, but they would run the very grave risk that the Commission would find that they had — the Greyhound had achieved control.

Abe Fortas:

Well — but in some other cases I’ve heard so many of your colleagues up here arguing about the impossibility of something called unscrambling and you’re satisfied that there would be no problem about unscrambling here?

Robert S. Rifkind:

This is imminently unscramble [Inaudible] to me.

Abe Fortas:

This is an unscramble of proforma so that if the 20% acquisition is approved and the separate eggs are scrambled and an omelet emerges, it’s unscrambled.

Robert S. Rifkind:

I think there is no question that Greyhound can be called upon to divest itself of its stock and —

Abe Fortas:

But the real question is not the divestiture of the stock if I understand accurately I heard you fellows in other cases but it’s a question of what happens to the operating facilitates and whether the words would be changed but the malady would linger on by means of the consolidation etc of the operating facilities.

Robert S. Rifkind:

Well, I still stress that many of the thoughts of consolidation were independently required Commission approval in many of other forms and it doesn’t seem to me that this is something that’s going to happen imminently and suddenly within those 60 days before the Commission can begin to act under Section 5.

Justice Bernnan:

Well, Mr. Rifkind can there be any scrambling with this really — ultimately the transaction is disapproved results only in the stock going back to REA and the money going back to Greyhound or is there any other unscrambling involved?

Robert S. Rifkind:

That, as a matter of fact it isn’t even so clear that the money need to go back to Greyhound.

The Commission can find that Greyhound must divest itself of its stock and can call it a day.

Justice Bernnan:

Well I am what I am getting at is all that’s involved then is the divestiture of the stock?

Robert S. Rifkind:

That’s right.

Justice Bernnan:

There would be no combination as in Penn Central in a lot of facilities.

Robert S. Rifkind:

I think those are still prospective no one has actually began to —

Justice Bernnan:

There is plenty of material in this record that indicates that once 20% acquisition takes effect, these people propose to go right ahead and to consolidate operations just as they made in Penn Central.

Robert S. Rifkind:

Well, again it seem to me this is likely to depend very heavily on what happens during those 60 days whether Greyhound will plan to tie itself up intimately with a company, where a majority of the stock is owned by railroads, who are literally possible to it, if Southern Pacific let’s say exercised its right of first refusal, is a dubious question.

Abe Fortas:

Mr. Rifkind, we are not talking about a delay of just 60 days, are we and let’s say they possibly the effectuation of a tender offer, we’re talking about a delay which will probably extend into many, many months, isn’t that right?

Robert S. Rifkind:

The tender offer has to be concluded.

Abe Fortas:

And they have to get approval of the ICC then?

Robert S. Rifkind:

For what?

Abe Fortas:

For the acquisition of the stock under the tender offer.

Robert S. Rifkind:

If they should —

Abe Fortas:

It’s not has been approved here.

Robert S. Rifkind:

If they should — well this is already outstanding stock so that the stock that’s to be acquired under the tender offer doesn’t have anything to do with Section 20a in any event.

Abe Fortas:

But does it —

Robert S. Rifkind:

But it raises questions under 5.

Abe Fortas:

It raises questions under 5.

Robert S. Rifkind:

That’s right.

Abe Fortas:

The approval would be necessary, wouldn’t it or have they conceded that too?

Robert S. Rifkind:

Oh!

No, all I can say is that if Greyhound walks away with a million shares of REA stock and happened either sterilize itself by putting that stock in a voting trust or come to the Commission for approval and put in a voting trust pending approval it is in very grave difficulty under the Act as the Gilbertville case, Central of Georgia all indicate because violating Section 5 is grounds for disapproving the acquisition of control.

Earl Warren:

Isn’t the posture of this case quite similar to that of Penn Central so far as truncating the actions of the Commission are concerned?

Robert S. Rifkind:

Well, I mean that’s somewhat awkward decision in that respect because the government then — the ICC would not, in harmony the government and the ICC were not in harmony.

Earl Warren:

Well, let’s take the position of the government.

Robert S. Rifkind:

I think that there is a very marked difference here.

It seems to me that the Commission’s action here serves the purpose of enlightened and informed decision making.

It knew that it maybe required to proceed under Section 5 and it knows that it doesn’t have the information necessary to do the balancing either from the advantageous point of view or the anticompetitive effect point of view, doesn’t have the information to do that.

Now it can’t do its job as I see it effectively under Section 5 at this point, but it refrains from boxing itself in.

It didn’t prejudge the situation.

It didn’t commit itself.

It let itself free to terminate this whole thing as required.

Earl Warren:

I don’t want to have Penn Central to be reargued I thought that the both sides agree that Penn Central that it was the obligation of the Commission to determine certain things and the only question was whether it had the right to delay those things until a time when it felt that those matters were ripe for decision and as I understood it, the government [Inaudible] as this can’t be the time because if we do a couple of unscrambling, they will probably set forth in many ways and the government argued very earnestly in that case that that wasn’t proper time.

It’s very difficult for me to see just what the difference is here?

Robert S. Rifkind:

Well I can suggest maybe two or three points.

Here we don’t see any difficult in unscrambling.

Here we don’t see that the Commission has put itself in a position which automatically forces its hand at a later date.

We think the Commission has preserved its freedom to act at a later date.

Robert S. Rifkind:

I think there is indeed this is — it’s almost, our position here is similar in the sense that under Mr. Dempsey’s view the Commission was required to proceed in a sort of piecemeal way.

It was supposed to analyze an acquisition of 20% under Section 5 perhaps or Section 7 and then two months later sit down again and say well what about 60% or what about 50% or 40% and it’s that sort of piecemeal inefficiency that it seems to me the Commission quite properly avoided here.

Earl Warren:

Well I thought here the valid purpose of this transaction was to consolidate the terminals and to consolidate runs and all of those things, which under this agreement can be commenced at any time and if they wait until those things are done and terminals are closed and so forth how can it — how can we unscramble it?

Robert S. Rifkind:

If Greyhound finds itself after 60 days in a position to effectuate the program of consolidation that it so earnestly desires then it seems to me quite clear that it must insulate REA from its control until the Commission has come to a conclusion —

Abe Fortas:

What make you say, what’s the basis for that statement?

Earl Warren:

Yes.

Robert S. Rifkind:

Because if they should proceed to exercise control —

Abe Fortas:

Is there anything in the Commission order to that effect?

Robert S. Rifkind:

No, but there are great many cases that say that to – as this Court has said that the Commission is free to require divestiture because control has been acquired without authorization that what was said in Gilbertville and the Commission has done that in another cases.

So it would be foolhardy at least for Greyhound to proceed that way and the Commission has power to prevent it from proceeding that way.

It can go into court if need be to enjoin it from proceeding that way.

It can give all sorts of provisional relief, which we’ve outlined in our brief to preserve the status quo pending its ultimate decision.

But in the normal course when a company — when one railroad picks up the stock of another it does take steps to immunize the controlled relationship until the Commission has the opportunity to exercise its expert judgment on whether to authorize it or not.

Earl Warren:

Was that in Penn State or Penn Central?

Robert S. Rifkind:

My impression is things had gone rather beyond that there but I’m really not an expert on the Penn Central situation and I’d be reluctant to give you a off the hand opinion on it.

There is one other critical difference here.

No one has contested the fact and the Commission found that it was in the public interest that REA get this money rapidly.

The Commission has been concerned about the well being of REA which is a unique sort of an entity for a great many years and they’ve been proceeding after proceeding trying to keep this thing — this organization functioning in different course.

They came to the Commission and persuaded the Commission that they desperately needed the money.

Finding that no one would be injured by deferring the very protracted several year type proceedings that are involved in Section 5, it seems to me that the Commission could reasonably find in its expert judgment that they could let the money pass through, the initial $10 million pass through, permit REA to proceed with its program of acquiring the facilities which it used to lease from railroads and so on and not make REA bear the risk, the hazards of delay of these very protracted proceedings and God knows they are very protracted.

Earl Warren:

Do you, do you use the same standard for determining public interest as railroads as REA does in this case?

Robert S. Rifkind:

I don’t know that we’re in any disagreement.

Earl Warren:

But you don’t think, you don’t think that anticompetitive factors are involved in it?

Robert S. Rifkind:

Oh very definite.

Earl Warren:

Under 20a?

Robert S. Rifkind:

I do — it is our position that the — it is our position that the public interest standard in 20a cannot mean the same thing as the public interest standard in Section 5 because of the very different nature and function of those two sections.

Under Section 5, the Commission is authorized to immunize, of the antitrust laws transactions it finds to be in the public interest under the transportation policy.

It has no such authority under 20a.

Abe Fortas:

No, Mr. Rifkind I don’t think that’s quite the issue. Question is whether under 20a the public interest standard when in view of the Department of Justice does or does not mean that the Commission has to make findings with respect to the competitive or anticompetitive effect of a stock acquisition.

Now, what is your position on that question?

Robert S. Rifkind:

Our position is that it need not inevitably do so.

Abe Fortas:

What you mean it says — I don’t understand that.

What is the law, what’s you construction on the law?

Does the law or does the law not require you that they require the Commission to make such findings.

Now, this is not — this is not a place for ambiguity.

Robert S. Rifkind:

I agree, there may be situations, I can think of situations in which as a practical matter, it would make no sense.

Abe Fortas:

Well, then you got to say that the statute does not require that the Commission make findings with respect to competitive effect?

Robert S. Rifkind:

That’s right, that is right.

Well, public –-

Abe Fortas:

If the New York Central let’s say had acquired x percent, a substantial block of the stock of the Pennsylvania Railroad, then it’s your position that the Commission would not have been required by Section 20a to make findings with respect to the anticompetitive effect.

Robert S. Rifkind:

I think that is right.

I think that nonetheless it might be required to differ Section 20a resolution until it has satisfied itself under Section 5, but that isn’t the case here.

Byron R. White:

So public interest under 20a as far as you’re concerned doesn’t reach any of the competitive effect?

Robert S. Rifkind:

That’s right, that’s correct and —

Earl Warren:

I thought you said in some circumstances, it would?

Robert S. Rifkind:

Well, the example that occurs to me is a very clear case.

If railroad A applies for permission to all issue stock for the purpose of exchanging that stock with the stock of railroad B, there’s nothing there for Section 20a to do in terms of if the railroad getting value for money, the only question there, the only economic reality there is a transfer of control.

Byron R. White:

So there aren’t any competitive consideration in that finding —

Robert S. Rifkind:

There may be very serious competitive considerations and I should think the Commission couldn’t proceed under 20a until it had satisfied itself under Section 5 in that situation.

Byron R. White:

Why?

Because of the public interest?

Robert S. Rifkind:

Because there is, because there is nothing to the — there is no reality to the stock aspect of it, all there is, is a transfer of control but here there’s $10 million.

Abe Fortas:

You mean there’s no reality to it as turning in one batch of stock for, stock in one company for by the different kind of an ownership instrument.

Robert S. Rifkind:

Well that’s true and I don’t say that are no questions under 20a there but I’m saying the principal significance of the transactions from the Commission’s point of view, it would have to be.

You couldn’t ignore, you couldn’t differ reasonably I should think the problem of control, but I don’t see why you can’t defer that question here without prejudicing any interest public or private.

Byron R. White:

I suppose you mean as it appears that there’s some serious threat or some likelihood or probability of a control for that antitrust problem or competitive problems.

If that appears to be present then you must, you think you must differ under Section 20 and Section 5?

Robert S. Rifkind:

Well, no because there are serious competitive questions here.

It seems to me it really depends on the facts of each case.

I — but I think our answer is this if I can be as simple as possible which I haven’t been here.

Robert S. Rifkind:

Section 20 deals only with the issuance of stock.

Section 5 deals with all these of there problems and all of these problems should be dealt with under 5 and we shouldn’t attempt to the deal with them under 20, but there is a matter of judgment as to which you should start first.

Byron R. White:

Well, this stock issue, that the Commission’s’ order hasn’t been challenged at all and the acquisition has approved, the stock was issued right there, when would the REA numbers or Greyhound numbers go on the board?

Robert S. Rifkind:

As far as I –-

Byron R. White:

Immediately?

Robert S. Rifkind:

-– understand – no, as far as I understand in the record there has been no application under 20a well for Commission to place Greyhound officers on the board of REA.

Now I suppose 20a 12 is not a very —

Byron R. White:

I mean the contract is divested, if Greyhound goes there and agreed to buy the stock without knowing that they are going to be on the board?

Robert S. Rifkind:

Well the by-laws of REA provide for them now and I think as a practical matter 20a (12) is not much of an obstacle because you can always find nominees who are not Greyhound officers, but who observe the purpose —

Byron R. White:

I’m really talking about immediately issuing the stock and having Greyhound representative —

Robert S. Rifkind:

That’s true.

Thank you.

Earl Warren:

Mr. Dempsey.

William H. Dempsey, Jr.:

Mr. Chief Justice may it please the Court.

I have a few brief remarks that I like to make.

So far as the practical problem that the Commission speaks about here, it seems to me that’s the major justification they present for going ahead with this acquisition transaction before, result with these problems, that I say, they say that the Commission under my view would have to deal with this peacefully.

Now, that isn’t so.

I spent sometime in my opening argument dealing with the possibility if the Commission wish to do it by simply having this contract reformed and all it would be involved, would be move the 60-day period back.

Now the only response that has been made to that is one that the — this would give the appellant railroads another chance to block the transactions which it is said they did twice.

Well, the difficulty with that argument is that the twice involve situations where the right of first purchase was in question, that is to say outstanding stock, 50% acquisition.

It has nothing to do with the acquisition of the 500,000 shares, which we cannot block because over 80% of the REA stockholders voted for this transaction.

So that it seems to me that is a — rather been raised.

Now —

Abe Fortas:

It seems to me that I have heard of instances where the antitrust division and those other agencies and government have concerned themselves quite competent to appraise competitive or anticompetitive effects of maintenance of a – of a, the acquisition of a substantial block of stock at the threshold you even saw in preliminary injunction.

William H. Dempsey, Jr.:

Well I would certainly agree with that Mr. Justice Fortas and we don’t really see that a double proceeding would be necessary here.

It seems to me that the anticompetitive problems involved could be dealt with at the outset even without this kind of information.

Byron R. White:

Well, if you’re right, in your brief of course — it would ultimately need to be one because, because you would sign to have the violation.

William H. Dempsey, Jr.:

That’s correct Mr. Justice White that’s right.

In addition it said that we didn’t suggest this until this Court, is not precisely correct.

We did suggested in the lower court but in any events as far as the Commission is concerned this is not a private party litigation.

William H. Dempsey, Jr.:

This is a Section 20a(2) proceeding in which it’s the Commission’s responsibility to protect the public interest.

So that whether or not a private party makes a point.

We didn’t have much of a chance because they weren’t any briefs, there were no arguments just petitions to intervene, which were denied or which were granted and request for hearing which were denied and the petitions for rehearing.

But in any event, it’s the Commission’s responsibility do bear a statutory burden you’re not the private parties.

Now, so far as what may happen, it seems to me there is a real difference here.

There will be, everyone agrees if there is a proceeding two or three year proceeding damage maybe done in the interim and we are not comforted by the fact that the Commission may or may not try to insulate this transaction in the interim period.

We don’t see any judicial review that we’d have available if they chose not to do.

And so far as the prospects of a proceeding has been brought or concerned, we are not very comforted there either by the fact in this Court it appears that there seems to be agreement as to what has gone because after all it is up to the Commission.

Thank you.