B. & O. RAILROAD CO. v. UNITED STATES

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Argument of Robert W. Ginnane

Chief Justice Earl Warren: Number 642, 680, 691, 813, 814 and 815.

Mr. Ginnane, you may continue with your argument.

Mr. Robert W. Ginnane: Mr. Chief Justice and may it please the Court.

Resuming, I would like to turn to the contention of some of the appellant railroads and the Department of Justice that consummation of a Penn-Central merger cannot as a matter of law be permitted until every small line, the orphans as the Solicitor General has referred to them are fitted into a larger rail system.

The court below held and we submit correctly that this is not required.

Of course it would be the ideal decisional situation, but it just doesn't happen.

From 1920 until 1940, Congress had a state of -- stated objective, the consolidation of the nation's railroads and to what it characterized as a limited number of rail systems, and it authorized the Commission to approve carrier initiated proposals for unification which were consonant with this pre-determined plan which the Commission was to draw up.

This Court recognized in its decisions in Schwabacher and in St. Joe Paper Company that the planned approach failed, and the principal reason it failed was that the Commission lacked power to initiate or to compel mergers.

Section 5 was complete -- completely rewritten in 1940.

This Court has noted in the County of Marin case that the end of Congress, its objective remained the same, the only thing that changed was the means.

Under the present Section 5, the only planning or coercive power which the Commission has is the power to condition its approval of a carrier initiated merger by requiring the inclusion of other railroads in the territory if they petition for inclusion.

In this case for example, the Commission had no control over the timing of C&O-B&O, Norfolk and Western-Nickel Plate, Penn-Central merger applications.

It had no control over Erie-Lackawanna's withdrawal of its original petition for inclusion in Norfolk and Western, a withdrawal to improve its bargaining position.

And again on this case, the Court had -- the Commission has no control over the non-participation in its hearing of the railroad appellants in 642.

Since 1940, the Commissioners authorized to approve carrier mergers or unifications which it finds to be consistent with the public interest and upon just and reasonable terms.

Here, the Commission approved a Penn-Central merger and authorized its consummation, while reserving jurisdiction to provide opportunities for the inclusion of Erie-Lackawanna, Delaware and Hudson, and Boston and Maine and Norfolk and Western are in a Penn-Central system.

It's clear from the briefs of the department and the railroad appellants in 642 that they are asking that consummation of Penn-Central which they, along with the northeastern states and the executive -- and the executive branch of the federal government, generally favor as being in the public interest.

They ask that as consummation be deferred indefinitely until there has been a final determination by the Commission and inevitably they mean by the courts of the faith of a smaller railroads in the northeast.

Justice Byron R. White: What if I for example thinking about this case decided, well, I was interested in postponing indefinitely but included in this attitude of railroads is that it would be postponed at least until the Commission concludes the protective proceedings and settles its mind on what the condition should be.

Mr. Robert W. Ginnane: Well, I think that question is in the case before Your Honors but I think that's a separate question.

Justice Byron R. White: Well, it is if you -- is that all you're going to say about that?

Mr. Robert W. Ginnane: I guess pretty yes.

I'm addressing myself now to broader confession which is involved in the case and which was ruled on by the court below.

As a practical matter, this means under their contention, deferment of consummation until determination of the newly proposed N&W-C&O Dereco plan and look what's involved there.

After hearing that might be that the Commission can fix terms for the inclusion in that system if it approves it, of Norfolk and Western of Central of New Jersey and Reading, Erie-Lackawanna, Delaware and Hudson, Boston and Maine.

But it cannot compel anyone of those small lines to accept those terms.

And indeed if Norfolk and Western C&O don't like the terms, they can decline to go ahead with their merger or they may litigate the terms.

In effect it forced the Commission into the discarded planning approach of 1920 and still without the powers of coercion which underlying to the failure of the 1920 planning approach.

The practical point is that if -- that proceedings either to determine the inclusion of Erie-Lackawanna, Delaware and Hudson and Boston and Maine into the present Norfolk and Western system or under their -- and to their broader proposed system with the Dereco plan, with court proceedings, the administrative and judicial proceedings were talking about delay, not measured in months, but in terms of years, three, four or five years.

And we submit that the Commission in its report on reconsideration was wholly realistic in concluding that if the Penn-Central merger with a substantially unchallenged major public benefits is not -- is differed for that longer period, there can be no assurance that it will ever take place.

We point out --

Justice John M. Harlan: Do you have a sketch [Inaudible] under the question that the district court asked?

Mr. Robert W. Ginnane: The determination of the interim protective conditions?

Yes, as I stated yesterday, I am fairly confident that the Commission's report determining those after the hearing those interim protective conditions will be out by June 1.

Justice John M. Harlan: [Inaudible]

Mr. Robert W. Ginnane: I cannot predict what would happen in the courts after that.

There is every reason to believe from the present posture of this -- the carriers.

Justice John M. Harlan: This issue reveal of interim protective conditions respectively [Inaudible]

Mr. Robert W. Ginnane: That is correct.

The applicants Penn-Central have down themselves to accept without judicial review the traffic and temporary indemnity provisions.

Justice Tom C. Clark: But the other side can certainly --

Mr. Robert W. Ginnane: The other side is free to seek judicial review but stays pending appeal -- all of the other time possibilities that are available.

Justice William J. Brennan: Can you give any suggestion on how long it might take to get the bankruptcy aspects of the New Haven problem there?

Mr. Robert W. Ginnane: No I didn't but I may say that the lowest estimate that I have heard of the time involved to bring about actual inclusion of New Haven is two years.

Justice William J. Brennan: That is getting overall the bankruptcy hurdles and everything else?

Mr. Robert W. Ginnane: That is correct and I don't like to candid.

That might be a conservative estimate.

It would certainly be a record performance under Section 77 of the Bankruptcy Act.

Justice Byron R. White: What's the approach in that case?

Is it the sale of the New Haven just by an order of the Court or is it a plan of reorganization?

Mr. Robert W. Ginnane: Essentially, it consists of a sale of assets.

All assets are --

Justice Byron R. White: The plan applied to the proceeds?

Mr. Robert W. Ginnane: The plan applied to the proceeds.

Justice Byron R. White: So the time that's really in judicial review of that order if it were approved?

Mr. Robert W. Ginnane: Determining the price -- what is a fair and adequate price.

Chief Justice Earl Warren: On the question of judicial review how long has it taken to get to the point that we are now in reviewing the orders that we are dealing with here?

Mr. Robert W. Ginnane: Well, this has been a marvelously expedited procedure which --

Chief Justice Earl Warren: Like the next will do the same.

It is broadly said is it?

Its implications aren't as many issues -- wouldn't be as many issues involved with this and --

Mr. Robert W. Ginnane: This case comes up in a remarkable posture Your Honor.

We submit that there is no serious attack on the merits of the merger and that's why the huge record in this proceeding, the huge evidentiary record in this proceeding has not been filed with the courts by any party.

Now when we get into New Haven, valuation proceeding essentially, I should be very much surprised if the creditor hoops, “Let us get by that lightly.”

Chief Justice Earl Warren: I'm not talking about the bankruptcy review.

I'm talking about the review in event that followed the government's suggestion, upholding this case or sending it back to the lower court for disposition of -- how long did you estimated to take to have judicial review there?

Mr. Robert W. Ginnane: I think I can give you a more authoritative estimate on my own. Judge Friendly in his opinion estimated that it would be to the end of 1967 at the best.

Chief Justice Earl Warren: Well, that would be about six months then your estimate of when the Commission could report.

Mr. Robert W. Ginnane: Six months from then and a year from now.

Chief Justice Earl Warren: Year from now, yes, I see.

Mr. Robert W. Ginnane: The Commission was unwilling to exceed the request for consummation for merger for two reasons.

The merits of the merger almost uniquely were not being challenged.

There was no challenge, essentially no challenge to each findings as to the substantial service improvements which would result for large segments of the shipping public and to the almost incredible annual savings of $80 million a year which the carriers can achieve.

In addition, the Commission sought consummation of a Penn-Central merger as the only solution for the continuance of New Haven's transportation services.

No one has proposed a New Haven solution other than inclusion in this merger.

Under the statute, the Commission cannot, it has no power to require Penn or Central or any other carrier separately to take on any of New Haven's operations.

Its only power is under 5(2)(d) to require inclusion of New Haven as a condition to approval of this merger.

This is the only solution for New Haven.

In contrast, Erie-Lackawanna, Delaware and Hudson, and Boston and Maine, they have in sight several possibilities.

Inclusion in Penn-Central is the only possibility for New Haven.

Chief Justice Earl Warren: Very well Mr. Ginnane.

Mr. Cox?

Argument of Hugh B. Cox

Mr. Hugh B. Cox: May it please the Court.

I appear for the Pennsylvania Railroad and New York Central in this case.

There are two problems here.

One is the problem whether the Commission's finding that this merger is in the public interest is valid and should be sustained.

That is the point to which the arguments in the City of Scranton, and Mr. Shapp directed yesterday.

The other question is whether assuming that the finding of the mergers in public interest is valid, the merger should be consummated now or at some differed time, It was at that point the arguments of the carrier appellants were directed yesterday.

I should like to begin by saying a little about the arguments that were made against the merits of the Commissions' decision as to the public interest element of this merger.

In our brief, we have questioned the standing of Mr. Shapp and the City of Scranton to raise these points.

I should like to rely upon that discussion in the brief and to leave that point in that posture.

In our brief, we have also discussed the merits of those attacks upon the findings of the Commission.

And again in large part, I should prefer to rely upon that discussion in the brief as to the merits of the attack.

But there are one or two comments that I should like to make about the arguments that were made yesterday about the Commission's findings.

And I shall begin by commenting on Mr. Keyserling's arguments or at least the main branch of his argument which involved it seem to me two related ideas, closely related.

One was that the Commission had not given proper consideration or attached enough weight to the improved financial position of these two carriers in 1964 and 1965 and that the other was that the Commissions' order was invalid because in the event, it turned out that projections that Mr. Keyserling made about traffic volumes in 1964 and 1965 were a great deal better as indeed they were than in traffic projections that were offered in the evidence by the two railroads.

Now, these arguments are related because I understand Mr. Keyserling's position on economics it is the 1964 and 1965 refers on a chart that should gone up and Mr. Keyserling believes, of course he is an eminent columnist.

He is good -- entitled consideration.

These curves are going to keep on going up and up and the railroads here involved are going to enjoy prosperity that will follow from the rise of these curves.

Now the fact is that the Commission considered that arguments so that it can't be said that the Commission ignored it.

It had before it the figures as to 1964 and 1965.

It made two points about this argument.

In the first place it said that looking at the historical record, it was not prepared to accept the idea that the curves were going -- to keep going up and up and up without any deviation.

But it said apart from that that even if it accepted, even if it accept the projections that Mr. Keyserling had made, that did not change its views about it's basic findings because on the record that the satisfied -- that the historical record again that the railroads was not necessarily, at least two railroads particularly share proportionately and even in a great degree these increases in a national prosperity.

Now, this is all in the finding and the Commission supported that -- these detailed findings pointing out even in these two years which were years of unprecedented at least in recent years of income for these two railroads their rates of return.

In the case of Pennsylvania were slightly less or not more than 2% or too low by any -- even by conservative standards and indeed were lower than the return you could get on government bonds.

It reviewed and made findings about others financial facts relating to the conditions of these railroads in the pre-historical period of time covered by the findings, pointing out for over a period of time their rates of return, this is a finding made by the examiners, confirmed by the Commission, their rates of return were less than 2%, about 1.77% over a period of 12 years.

There was a period of five years immediately preceding the decision when these two railroads did not have enough net income, net income from their own railway operations to pay their fix charges.

In those years, they have not had income from activities that were not related to their own railroad operations, they would not have been able to pay those fix charges.

Now, I submit on that basis that it cannot be said that the Commission ignored Mr. Keyserling's arguments and that they ignored the facts on which he bases those arguments.

He is entitled to be verified by his success of profit on the traffic volume but I submit that under the normal standards of traffic -- of judicial review the question here is not whether Mr. Keyserling is wiser than the Interstate Commerce Commissioners in terms of economic theory but whether the Commission made adequate finding based on substantial evidence which it did in this case.

Now, I only want to try and comment briefly on one other point that was made in this connection which has to do with the argument made by Mr. MacDougall for Mr. Shapp and again, I'm going to rely largely on what was said in the brief.

That argument suggests that the Commission and the examiners made an error of law because they didn't understand the public interest standard laid down in Section 5(2) of the Interstate Commerce Act.

Now, I respectfully suggest that if the members of the court will look at the examiners' report and the Commission's report, it will appear that what the examiners and the Commission did was to comply strictly with the definitions that this Court laid down in the Louden case and in the New York Securities Company case and in cases which have been decided since the Transportation Act of 1940 was decided.

The other statutes such as the Appalachian Region Relief Act (ph) that Mr. MacDougall talked about simply has nothing to do with Section 5(2) of the Interstate Commerce Act.

What Mr. MacDougall's complaint really is, I think that he again believes that the Commission didn't give proper attention to the effects of this merger on the certain communities in Pennsylvania.

I respectfully invite the Court again to look what the examiners did, what the Commission did in terms of findings about Pennsylvania.

Commonwealth of Pennsylvania is not here.

It's now supporting the merger in that sense.

Those findings are detailed and they show that Commission the most cheerful consideration on the facts to what the merger effect would have on the transportation services and facilities available to the state of Pennsylvania and found on the basis of those detailed findings with evidence to support them that would benefit Pennsylvania and not -- now with that, I should like to leave the questions of merits and move to the matter that was chiefly subject to discussion yesterday which is when should this merger be consummated.

The Commission has twice found that it would be in the public interest for the merger to be consummated halfway.

It made that finding first in its initial report in connection with its discussion of the protective conditions that it was prescribing for the Erie-Lackawanna, Delaware and Boston and Maine.

It made it again more detailed in its report on reconsiderations.

Mr. Ginnane and --

Justice Potter Stewart: It's true, isn't it that -- however that in its first report, it was equally clear in saying that the merger should not be consummated until these protective conditions were fully effectuated and clear?

Mr. Hugh B. Cox: Mr. Justice Stewart, I bet that I could not accept that characterization of what it found.

I read its report and I'm referring now to the pages I think there in 327 I.C.C. 531 and 532.

I read those pages containing findings of this kind.

The Commission said, it will not be in the public interest to consummate this merger unless there are protective conditions that will preserve the status quo and prevent these three railroads from having their service impaired by the diversion of traffic to diverge 10% that is basic finding.

Justice Potter Stewart: It was a clear finding that without such conditions—

Mr. Hugh B. Cox: That's right.--

Justice Potter Stewart: there would be an impairment of this --

Mr. Hugh B. Cox: There's no dispute about that and the Commission has never withdrawn from or modified or retracted in anyway that finding.

And the Commission went ahead and said to this end as I construe their opinion, to this end, we say that it may be consummated now subject to the conditions that we specifically set out in Appendix G.

Now, the only thing that's been reopened in this proceeding is a question of what, if anything should be done with respect to the specific conditions that the Commission prescribed.

The Commission did not tamper with its basic finding and I want to point out to reopen the proceeding largely because the protected lines came in and said we want more, we want better protection and the Commission said, alright, we'll have a look at that.

But that's -- that is my instruction to that -- of what the Commission did.

Justice Potter Stewart: That one -- the B&O-C&O said --

Mr. Hugh B. Cox: They said also yes that --

Justice Potter Stewart: What's he doing is going to hurt us?

Mr. Hugh B. Cox: Going to hurt us.

I'm not sure what the Commission would have done with that in the absence of the other but that was in the picture and the hearings that cover that point too as well as some other lines.

CNNJ is in that position.

They're having a hearing on that point.

Justice Potter Stewart: Now where is the CNNJ at this point?

Mr. Hugh B. Cox: Well, perhaps I should say a word if I may about the CNNJ.

Justice Potter Stewart: I guess it's the CRONJ.

Mr. Hugh B. Cox: Yes, Central of New Jersey. [Laughter]

As it is been said here, the -- that railroad, the Central of New Jersey, did not try to intervene in this proceeding and it did not present any evidence to the examiners during the original hearing, just stayed out.

There was however, and what I'm saying now is all in this brief to look in the appendix, there was some evidence however before the examiners about the attitude of the Central of New Jersey towards the merger because the State of Pennsylvania which was collecting evidence at that point to oppose the merger wrote to the Central of New Jersey a letter and said, “What about it?

Is this going to hurt you?”

And Mr. Shoemaker who was then is now the president of Central of New Jersey wrote a letter back and said, “No.

We have no grounds for opposing this merger.

As a matter of fact, it is going to improve our interchange position because it strengthens the position of the merged carrier.”

Now that's what the Commission had before it as far as the Central of New Jersey was concerned at that point.

Now, after the --

Justice Potter Stewart: Now, what's the status of New Haven at that point?

Mr. Hugh B. Cox: At that point, the New Haven was a subject of argument in the hearings.

After it became and seemed to be likely that's a New Haven and this was really after the hearings had been closed except on the matter of labor conditions, after the hearing had been closed to that extent with the labor condition still open, one of the periods of New Haven might be included.

The Central of New Jersey came along and said we would like to intervene and said we'd like to intervene solely for the purpose of showing that the inclusion of the New Haven in this merger will injure us, that's the only point.

They didn't talk about the things that Mr. Cutler has been talking about today.

And the examiners or the Commission said, “Alright, you can intervene but we don't -- we're not going to reopen this proceeding at this point to take evidence about what New Haven will do to you because that whole matter is going to be handled in a hearing about the inclusion of the New Haven.”

Now their hearing about the inclusion of the New Haven starts next Monday and that Central of New Jersey as prior to that hearing and one of the issues is what kind of protection shall be given to the Central of New Jersey, prevent traffic diversion as a result of the inclusion of the New Haven.

Now the Central of New Jersey after that did nothing until the examiners had made -- they're prepared with proposed report and then it came along and filed exceptions.

Now, I must say that in those exceptions, it indicated that it was rather unhappy about the merger, but it was rather vague about it -- not anyone is interested.

I would like the Court to look at this document because it made some complaints about it but it didn't propose any specific conditions for its protection.

It didn't ask to be included in anything.

It complains -- so far as it complains only about two specific things.

One was the New Haven inclusion and the other was a proposal that the examiners had made that the Pennsylvania should be required to give the D&H some traffic rights in connection with this merger.

And the Commission dealt with those things in its initial report and said, “Alright, you get a hearing on whether there is going to be any diversion of traffic from -- by the New Haven in the New Haven proceeding and that this trackage right thing has to be done by a contract which we have to approve and you will get a hearing and the hearing on that contract on what should be done in connection with the trackage rights to prevent diversion of your traffic.

So I submit that up to last July-August when the Central of New Jersey filed its petition for reconsideration here, the Commission has afforded the hearing on the only complaint of this railroad that was specifically made.

Now, this thing that I devoted too much time to but I want to say one thing more because -- and then I should finish.

Mr. Cutler's portrait of the Central of New Jersey is wasted to his wondering on administrative wasteland where no man comes is a little less heartrending I think to read his brief carefully because it's apparent that what the Central of New Jersey is really saying is that the only thing that can be done will solve our problem, is to approve the B&O and N&W and the C&O merger.

It's true we have these prosperous relatives, the B&O and C&O and the -- but do they not -- going to give us any money unless the Commission approves this larger plan.

So this argument, I think it's apparent in what the nature and purpose of the argument is.

Now, I should like to move on to the question which I think is the important question here and it affects the railroads to the protected railroads who really may have a legitimate interest in this and I think the arguments entitled serious consideration and that is the question whether this merger should be differed until there has been a final determination on the protective condition.

Because I think if that is essentially the position of the Erie and the D&H, and in view of the Commission's finding about what will be done to them by the merger and the importance of their service is, their arguments are entitled to serious consideration and this is a serious problem.

Now, it is our position that the merger should not be differed pending that determination.

I think that there seems to me to underline the arguments of the D&H and Erie in assumption that if it is not deferred, they are not going to get this full protection from the Commission in form of these conditions as they would if the merger is deferred.

That is more of an implicit and an explicit assumption but it really seems to me to color their arguments.

There is another assumption that seems to me that color their arguments and that is that the question of the validity of the conditions turns not on what the law or the statute requires that they'd be given but what they would like to have and I'm going to sum it again on that.

What I suggest is there's nothing in this -- in either of these assumptions.

The Commission has found that they are entitled to this protection and the Commission has said it's going to give it to them and it's not retracted in anyway from that -- at least drawn from that position.

Now, if in this hearing on the protective conditions, assuming the merger is consummated, conditions are prescribed which these protected lines don't like.

They unlike the Pennsylvania and New York Central have the right of judicial review.

I suggest if the reviewing court finds that the conditions that the Commission has prescribed do not satisfy the Commission's own findings as to what is required and remands the court -- the case to the Commission to do a better job that the Commission will do it.

Justice Byron R. White: And that could go on for quite a while?

Mr. Hugh B. Cox: Mr. Justice White, what I really suggest --

Justice Byron R. White: Well, let's just assume that no court ever agreed with the commission?

Mr. Hugh B. Cox: Well, isn't it more -- I suppose the question is more likely whether the Commission would agree with the Court.

Justice Byron R. White: Well, that's happened here --

Mr. Hugh B. Cox: I know it's happened [Laughter] but it has been my observation that the agencies as a whole are likely to take the admonitions that they derive perhaps by inference from the reviewing opinions with a fair degree gravity and by now.

In theory, I think this could happen but as Judge Friendly said in the court below, this notion of an infinite regression of endless passage of the case back and forth from between court and agencies, I think that rather improbable hypothesis.

Justice Byron R. White: It applied to every case would mean that the Commission could never conclude a approved -- approve a merger until it decide that that will --

Mr. Hugh B. Cox: That's right, that's right.

Chief Justice Earl Warren: But in talking of time tables, what was your time table being Mr. Clark says to the time necessary to guarantee these protected right to these people we're talking about?

Mr. Hugh B. Cox: Are you asking Mr. Chief Justice for an estimate as to the time to take the matter through the Commission and ends through a judicial review?

Chief Justice Earl Warren: Yes, until -- yes, until their rights are finally perfected.

Mr. Hugh B. Cox: Well, you had an estimate from Mr. Ginnane about the time that would take in the Commission.

I think he said the first June or something of that kind.

That's my recollection.

Now, what time would be consumed after that in judicial review is difficult to say.

I will -- I point out as you've observed sir that this case has been handled very expeditiously.

Judge Friendly in that court below handled it expeditiously and goes back to the same course, I assume it would be.

I would expect that it would handle it expeditiously again but I would assume in June that the best we could hope for would be perhaps another decision by this Court sometime next term, but that's a very rough guess.

I might better of course -- you must remember that the way this argument is shaping up, it seems likely that there maybe not one set of plaintiffs in that review proceeding but two, the Erie-Lackawanna and the D&H will say the conditions don't do enough.

The Norfolk and Western and the C&O will probably be there saying they do too much.

So it will be another case where there will be these conflicting problems and that they're complicate it but that's the best I can do Mr. Chief Justice.

Now, the other arguments that the Erie and the D&H made about the necessity for postponing this merger while the protective conditions are being finally determined.

It seem to me they take two lines.

In the first place, they suggest that in the interim period, while the Commission and the courts are considering these conditions, they won't really get effective protections.

They say that the traffic conditions which will be in effect once the merger is consummated, they're not really effective, but no one knows what they mean.

Again, I invite the Court to read Appendix G.

That appendix starts out with a direction that says, that Penn-Central shall not change or establish any rate or practice or service or engage in any other practice that changes the status quo where the effect would likely to divert traffic from these two protected railroads.

Now that categorical in that first paragraph is followed by five sub-paragraphs in which the Commission says, by way of illustration and not of limitation this is what you must do and this is what you must not do.

Now, I suggest by any standards of particularity and precision and clarity that are reasonable that appendix will effective certainly if it -- where it contains as it might well be by so far as this content is concerned and the decree of a court of equity, I cannot believe anyone would say that the decree was so vague as to be in effect.

There are just two other observations I will make about this argument about the traffic conditions being in effect.

The D&H I think their counsel have said Representatives of Pennsylvania have made conflicting statements of different times about what the traffic conditions mean.

I think that those statements have read in context that they appear as they are not really basically inconsistent, but I think that that's irrelevant.

Pennsylvania isn't going to construe these conditions.

The Commission has said to these carriers, you must comply with these conditions and you must comply with spirit of not only the letter and it provided a summary -- I'm sorry --

Justice Abe Fortas: I beg your pardon Mr. Cox.

What are the conditions that are now approved by the I.C.C.?

Isn't the I.C.C. reconsidering those conditions?

Mr. Hugh B. Cox: The I.C.C. may make -- yes, it's reconsidering in the sense that it may make changes in them but in the meantime, these traffic conditions are in effect.

These are the mergers --

Justice Abe Fortas: We have no indication that the I.C.C. considered the traffic conditions standing alone as adequate to meet the requirements in the case.

Mr. Hugh B. Cox: Well, I'm prepared to conceive if they had been completely satisfied with the traffic conditions.

They wouldn't have added the indemnity provisions --

Justice Abe Fortas: That's another way of saying.

Mr. Hugh B. Cox: Yes, that's right.

Justice Abe Fortas: Yes.

And I will ask you this Mr. Cox.

I think what bothers me about this is that the Commission found -- the Commission in its findings says that unless these roads are protected during the period necessary to determine their future, we would not authorize consummation at this time and now that's what you have been addressing.

Your remarks --

Mr. Hugh B. Cox: Yes.

Justice Abe Fortas: -- then discussed by my brother Stewart here in his questions.

Is there anyway in which -- any condition that could effect for any -- anything that could be done to shore up the interim for -- protection that would be in effect now as distinguished from what -- it may be an effect later as a result of the Commission and court action?

Mr. Hugh B. Cox: Are you asking me sir whether there's anything the Commission could do that would -- well --

Justice Abe Fortas: Or anything that the court could do or both.

The problem is -- the problem that's bothering -- necessarily bothersome in this case is how do you cope with this finding of the Commission?

Mr. Hugh B. Cox: Well --

Justice Abe Fortas: Now, I know you say that the Commission has in effect the traffic condition and you say that you can rely upon the Commission and the court hereafter to supplement that with some other kind of condition that's now in the process of hearing.

Mr. Hugh B. Cox: You must -- may I --

Justice Abe Fortas: And -- well I have taken hope and confident to myself in the future whatever it may be that its still be enlist in there if there were some present effectuation in that condition, wouldn't it?

Mr. Hugh B. Cox: Well, let me make this point which may or may not allay some of your doubts.

I assume you realize that the Commission has said that the indemnity provision which is a provision for financial payments will be retroactive to the date of the consummation of the merger.

Justice Abe Fortas: I understand that, yes sir.

Mr. Hugh B. Cox: Now, the other point that I should like --

Justice Abe Fortas: But we don't know what that indemnity provision will be --

Mr. Hugh B. Cox: Well, we know that indemnity provision will compensate the roads on some basis for any diversion of traffic if it occurs despite the traffic condition.

Now, there is another point that I think it's important to bear in mind here which was made yesterday and that is that the record before the Commission demonstrated that the effects on these unprotected lines of the merger would not occur immediately.

Mr. White, the Chief Executive of the Delaware and Hudson testified before the Commission that it would be a year before the effects of the merger would probably begin to be felt by the D&H.

Justice Abe Fortas: I don't know where they send this but they -- with these words that quote on -- they said the words that I quote in.

Mr. Hugh B. Cox: I understand that.

Justice Abe Fortas: Necessary not ineluctable, unavoidable, and inescapable I don't know but it may be consequential.

Mr. Hugh B. Cox: I understand and my -- our position is of having said that and having considered the problem on petitions for reconsideration of the Commission, again determined that it could and would protect these lines as its basic finding required it to do even though it involves some change in these conditions.

And mind you, as far as the protected liens were concerned what they were asking for were improvements and the Commission's report on reconsideration says that the Penn-Pennsylvania and New York Central said that they would have no objection to improvements that were designed to strengthen the protection to these lines and they waive the right to judicial review as opposed to traffic conditions in the indemnity pleading.

I submit that in those circumstances where the Commission feeling if there were valid reasons for public interest for going ahead with this merger that the measures it took to comply with its basic finding and to provide relief for these carriers were added.

Another argument that has been made by the protected carriers which is, I think a branch of their argument that these traffic conditions will not be effective is an argument that is directed perhaps to the -- one of the Commission's reasons for saying that the merger should be consummated promptly and that is that if the traffic conditions are effective then the savings contemplated by the merger cannot be affected while the traffic conditions are in effect and therefore, there's no reason to prompt the compensation.

Now, this is related to a matter that I mentioned a moment ago in response to the question from Mr. Justice Fortas because that argument rests on two misconceptions.

One is that these savings are going to start accruing immediately in substantial amounts and that the service will be improve as a result immediately to mergers made -- that Commission did not make findings that kind of view the matter that way.

It takes time to these things.

The problem here on consummation is when are these railroads to be allowed to start because before you can do any of these things that get into a point where they are producing the results that are in the public interest, it takes a great deal of time.

Now therefore, the suggestion that because the Penn-Central suggested from or prevented from diverting traffic from the two lines, they will not be able to make any of the start of these improvements that will ultimately savings is simply not supported by the record.

About half of these savings, ultimately will be accomplished by consolidations or reconstructions or expansions or contractions of terminal facility and that can be done without diverting -- you can start on that work without diverting any traffic from these protected lines or without in any way violating Appendix G.

The Selkirk yard which was mentioned yesterday is a good example.

That's going to take months at least and perhaps years to really get started on that job.

That's a big job, and if roads are allowed to consummate this merger, they can start on that work without diverting any traffic at all.

There a suggestion is also been made that it is not possible to really prescribe any conditions that will effectively protect these roads in the interim period.

Now, the interesting difference in view among the road -- the appellants about that, I don't understand, at least the Erie and the D&H seem to me approach that argument somewhat gingerly, they indicated points if they have some doubts but they don't embrace it whole heatedly.

The Solicitor General in his brief seem to think that the Commission could lawfully devise effective conditions in this reopened hearing.

At least he said that the Commission has the obligation and the authority to hammer out a solution.

It is the Norfolk and Western and the B&O who say that the Commission cannot lawfully devise any conditions that will really protect these three railroads.

Of course, it's difficult for me to avoid the impressions with that and I suppose this is patent in their argument that this is not a contention that's prompted solely by the Solicitor with the interest of those rail roads.

The argument is that these protective conditions with the indemnity provisions specifically are an unlawful pooling arrangement.

The E&H and the -- the Erie and the Delaware and Hudson specifically have rejected that notion in their brief taken before the Commission, and we think the right for four reasons which we set out in our brief and I'd rather not go into detail here but we think that it is clear from those reasons that the indemnity provisions prescribed by the Commission in the first place and any indemnity provision that maybe prescribed in the future will not be unlawful as unauthorized pulling arrangement.

Justice Abe Fortas: The problem is how can we be sure that isn't --

Mr. Hugh B. Cox: Well, it's a question --

Justice Abe Fortas: Because we don't have it before us?

Mr. Hugh B. Cox: In part Mr. Justice Fortas is simply a question of law.

We think you can look at the indemnity provision that was prescribed and see on its faces not --

Justice Abe Fortas: We can't look into them --

Mr. Hugh B. Cox: We don't know what --

Justice Abe Fortas: To see what the indemnity provision will be?

Mr. Hugh B. Cox: But presumably and I use that word recognizing the weakness in it, the indemnity provision will have the same -- some of the same characteristics as the one that exists.

If there is any change, the change is more likely to be a change that would remove even the basis for the argument of illegality.

In the inclusion proceedings, there was some suggestion that the way to provide indemnity was not on this formula basis which is now done, but by on time of day basis.

Now, if you do that, the whole pooling argument obviously collapses.

So my response is that if there's a change as far as illegality is concerned, I think it would almost certainly be regarded the change for the better.

Justice Potter Stewart: As a final argument or preliminary argument, ultimate argument that I -- unless I'm mistaken, you haven't got yourself to how do the Commissions without power to order the consummation of a merger with leaving conditions of this importance unresolved?

Mr. Hugh B. Cox: Yes, there is such an argument, again which we have dealt with again in our brief and I will say this about it.

I think our answer hinges in large part on the responses I made your question about our reading of the findings made by the Commission.

Now in addition, we have pointed out you know in our brief that the Commission as a matter of administrative practice many times has found that a transaction of this kind will have or may have adverse effects on employees and has approved the transaction nonetheless reserving for later decision, the exact character and content of the conditions that should be attached to take care of those adverse effects.

We have cited other cases in the brief including Rock Island Truck case where this Court has held that the Commission can issue a motor carriage certificate to a railroad and validly reserve the right later to attach conditions to that certificate to make sure that it complies with the statutory standard.

This -- the -- we submit that if you look at Section 5(2) and the words of Section 5(2) that the section does not impose any absolute and categorical limitation upon the power of the Commission to approve a transaction on condition which it specified in the terms it has here and at the same time reserving the right to give content or to change, revise the conditions in -- subsequently in ways that are consistent with its original basic finding.

That is the only legal argument that I'm aware of that has been made in this case about the Commissions' lack of authority.

In the remaining time, though I think it's – the matter has been perhaps adequately covered, at least some aspects of it by Mr. Ginnane, I want now to speak briefly to the other problem and it is whether this transaction should be -- consummations should be delayed until there has been a final determination on the question of the inclusion of the three smaller railroads in some larger system.

The -- Erie doesn't make this argument at all.

The D&H made it in its brief but I understood that yesterday its counsel to modify that stand to say somewhat, and to say that possibly once the protective conditions were determined, they might be satisfied.

This is an argument that is really pressed and pressed vigorously by the Norfolk and Western.

And I think it's important and Mr. Ginnane's touch on this to understand just what that position is and what it means.

This is the position of Norfolk and Western and the C&O.

The position is that these three roads should not and cannot be taken in to the independent N&W system.

They have resisted that in the proceeding before Mr. Commissioner Webb.

They have indicated that they're going to file exceptions to his report and I assume if the Commission firms that report, they will seek judicial review.

That's the first step.

The next step is that they say these three railroads cannot be included in the Penn-Central merger because that would create a rail monopoly in doing it.

So they say, the inevitable consequence is that these three railroads can only be taken care of if the Commission will approve that both N&W and C&O merger, and as a necessary corollary of that conclusion they say that if the Commission cannot approve the N&W and C&O merger and thereby provide a home for these small lines then Penn-Central merger should never be consummated.

And they have taken that position frankly as I understand it in the conclusions or in the reopened petition hearing on the conditions.

So that this is an argument and approach which not only involves protracted delay as Mr. Ginnane has pointed out, but it's a delay which is entertained or indulged in with a specific possibility in the mind that at the end of the period of delay, there will be no Penn-Central merger at all.

Justice Abe Fortas: Mr. Cox, on the basis of your knowledge of the mechanics of this merger, assuming that it is -- how long will it be before the egg can be unscrambled --

Mr. Hugh B. Cox: Will the egg be unscrambled?

Justice Abe Fortas: Cannot be unscrambled -- within two years, three years?

Mr. Hugh B. Cox: Well, I think it would be -- yes.

I think it would be that there would be a period of time which I find it difficult to estimate but I would suppose that certainly within two years, the unscrambling would not be too difficult and my clients have told me that it can be unscrambled and they realize that if this merger is consummated they may have to unscramble it.

Justice Abe Fortas: When would this exchange of securities take place?

How long would have been before --

Mr. Hugh B. Cox: I can't give you a date specific with that.

I'm sorry Mr. Justice Fortas.

Justice Abe Fortas: It would be six months or year --

Mr. Hugh B. Cox: --probably something.

Justice Abe Fortas: I beg your pardon.

Mr. Hugh B. Cox: I think it might well be something in that area, but I must -- I'm obliged to say that I have not obtained information with that specific about the -- but the -- as far as the physical facilities and that kind of thing are concerned, there will be a considerable period of time as I indicated previously when this thing could be unscrambled and they realize that and of course unscrambling -- the only people who will be hurt by unscrambling are my clients.

Nobody else would be hurt, it has to be done, not a prospect to --

Justice Potter Stewart: Now the public presumably if you are right about the merger?

Mr. Hugh B. Cox: Well, the public would be yes [Laughter] but I'm assuming that some responsible tribunal has decided that the public would be better off without the merger and in that event, if that decision has been made definitively then the only people who are hurt are my clients.

Justice Byron R. White: The approval of the merger by the court inevitably and finally and if it's consummated, the long run means that the court is approving the disappearance of the three railroad as independent railroad, that much is quite clear?

Mr. Hugh B. Cox: As independent railroad, yes, because the report --

Justice Byron R. White: If they insist on staying out of any system, they're going to -- if the ICC is right, they're going to die?

Mr. Hugh B. Cox: That's right.

That is their choice of course.

They can do it if they like.

Justice Byron R. White: Well, they can't, can they?

Mr. Hugh B. Cox: Well not unless they wish to liquidate, which of some railroads in New England have done entirely voluntarily, but they have done but you're quite right.

The Commission faced the fact that these three railroads would have to be absorbed in a larger system and found nevertheless that this merger would be in the public interest.

Justice Byron R. White: That issue is certainly here, isn't it?

Mr. Hugh B. Cox: Well, I'm not -- I think in the sense that issue is here, yes.

I think what the Commission has -- the complaint in the Commission is based on the assumption that these railroads must be absorbed in a larger system and of course the Commission has at the present time at least two options in that respect.

One being independent N&W and one being the Penn-Central.

Justice Byron R. White: Well, would you say the same argument which would counsel for delay until the protective provisions are settled -- would've counsel for the longer delay until in the inclusion proceeding is settled and if you do one, you would have to do the other?

Mr. Hugh B. Cox: No, certainly not.

It seems to me that the arguments would be -- the arguments delay until termination of the condition is much more powerful and persuasive argument than the argument for this other delay. This other delay if you have taken to the point which is taken in the N&W --

Justice Byron R. White: But if the likelihood is slight as you put it that these carriers are going to be injured by consummation now and getting their final word on conditions later.

That might be so slight if you put it, I would think the likely -- that there have far greater hazard on -- at the inclusion proceeding of getting really hurt badly?

Mr. Hugh B. Cox: I think that the problem -- we must remember this about the inclusion proceeding, it raises essentially considerations of private as opposed to public interest.

What I mean by that -- the Commission is found that the continuance of the transportation services of these three railroads is in the public interest and they should be preserved.

Now, in the inclusion proceeding, the question really is what terms and conditions refer so far as the stockholders and the competitors perhaps of this company.

Sir, now as to that I suggest that the risks are not great since the Commission from those instances has complete authority both to Norfolk and Western and the Penn-Central if the merger is consummated have agreed that they're bound to take these roads if the Commission finds that it is in the public interest that either one should and fix this terms that are fair in equity so that they have no choice on that.

Justice Byron R. White: Well, one of the Commissioners has already found that it shouldn't -- that they -- N&W should not take them?

Mr. Hugh B. Cox: He shouldn't have to take them but he has indicated that the Penn-Central might well have to take them and the Commission has provided that in case that time that B&M can now apply for inclusion in the Penn-Central.

Justice Byron R. White: It seems to me that the hazard in Boston and Maine is at least far greater in terms of -- ultimately in the inclusion proceeding?

Mr. Hugh B. Cox: Well, they apparently don't think so because they haven't appealed.

Justice Byron R. White: They haven't done very much of anything on this case, I gather?

Mr. Hugh B. Cox: They have announced that they are satisfied that one way or another the Commission will take care of it.

Justice William O. Douglas: Is that – what effect that they may have on [Inaudible]

Mr. Hugh B. Cox: Well, that raises the question of what extent delay would imperil this merger.

Justice William O. Douglas: I would say -- you said [Inaudible]

Mr. Hugh B. Cox: Well, I can't be dogmatic about that.

I can't be nearly as confident and dogmatic on my side of the argument as my opponents are on theirs.

They say this merger I gather will hold together for anything with time.

It doesn't make any difference how long it is.

Now, I can't be that confident on my side.

I can say there's a risk.

My clients would want to go through with this merger.

They spent a lot of time and money trying to do it and they're going to try to preserve it.

But the longer the delay and particularly if the delay is accompanied by uncertainty as to whether the merger will ever take place, the longer that goes on, the greater the risk because they can't continue living in limbo, they have for four years and this thing is done on a stock ratio for change and it is very difficult, as circumstances change and they have been changing to preserve those stock ratios indefinitely and that's not entirely within the management's control.

And if they change that ratio by agreement then they have to go back to the Commission and get approval and there'll be more hearings.

How long they will last and what issues will be raised -- will depend upon who intervenes and what issues they try to --

Justice Abe Fortas: Mr. Cox.

Mr. Cox, there has not been a plenary hearing before any court on the premise of this merger?

Mr. Hugh B. Cox: What?

I'm not sure --

Justice Abe Fortas: There has not been a hearing on the merits of this merger as judge fairness, has there, except for purposes of an injunction?

Mr. Hugh B. Cox: Fearless in what sanction Mr. Justice --

Justice Abe Fortas: Of course in terms of statutory merger public interest standings of the Act.

What we have before us is a proceeding for a temporary injunction --

Mr. Hugh B. Cox: Are you speaking now of the arguments advanced by Mr. Keyserling and the --

Justice Abe Fortas: No I'm talking now is about the posture of this case before us. Suppose if we affirm the Court of Appeals, what happens next?

Mr. Hugh B. Cox: Well, the merger --

Justice Abe Fortas: I'm talking about the court proceedings, what happens next?

Is -- suppose a merger or the mergers then consummated let's suppose, are the court proceedings concluded forever?

Mr. Hugh B. Cox: Well, I think that the -- technically that there would still be an opportunity to argue perhaps everything and certainly, there would be the -- there wold be an opportunity for the argument to be made with the Commissions' basic findings who did not satisfy the statute to find --

Justice Abe Fortas: Well, that's my point.

My point is that --

Mr. Hugh B. Cox: Well, of course we know -- I think I can say it with some confidence how that would come out in the court below.

That was briefed, Mr. Keyserling and Mr. MacDougall briefed this to Judge Friendly.

Justice Abe Fortas: I know but technically speaking, what we have before is a temporary injunction proceeding, isn't that right?

Mr. Hugh B. Cox: Right.

But one of the questions on that --

Justice Abe Fortas: And technically speaking, the court below has not passed in review the Commissions findings and conclusions with respect to this merger except for purposes of the temporary injunction?

Mr. Hugh B. Cox: It held that looking at those findings, the plaintiffs who are attacking them have no reasonable prospect of success on the merits.

Justice Abe Fortas: I understand that it, may the usual --

Mr. Hugh B. Cox: Well, it did little more than that if you read Judge Friendly's opinion.

I think it's pretty clear that he regarded those arguments so -- and substantially didn't want to spend any time on that.

Justice Byron R. White: But the record wasn't even there, was it?

Mr. Hugh B. Cox: No, it is -- that was a responsibility of the plaintiffs who are attacking the findings.

Justice Byron R. White: Yeah, but with that responsibility was -- it wasn't before the court will review?

Mr. Hugh B. Cox: The court -- under the decisions of this Court in that kind of a situation, the court is entitled to take the facts to step forth and reports to the Commission and then reports -- and then report the examiner's work.

That's the old Mississippi value --

Justice Byron R. White: Yes, I understand, I understand.

The only trouble is that sometimes it doesn't work that way?

Mr. Hugh B. Cox: I'm sorry.

Justice Byron R. White: Sometimes it doesn't work that way.

Mr. Hugh B. Cox: Well, the -- I think really -- I'm making one other comment then I'm over with my time.

I think when you examine the arguments made by Mr. Keyserling and Mr. MacDougall there are arguments that are not addressed so much to the bottom of the evidence as they are to the nature of the findings to exercise the judgment that the Commissioners demonstrated in the findings.

Their arguments can be measured on the face of the Commission --

Justice Byron R. White: So far.

Mr. Hugh B. Cox: So far.

Justice Byron R. White: So far.

Mr. Hugh B. Cox: And those were the -- they had full opportunity to make arguments.

Justice Byron R. White: Yes, but as Mr. Justice Fortas said that the -- when the issues there on the merits of the merger, there may be other arguments made.

Mr. Hugh B. Cox: Well --

Justice Byron R. White: And that is -- there's the merger and not --

Mr. Hugh B. Cox: The parties who are attacking here made all of the arguments below that they made here.

Now, I understood Mr. Keyserling in one point which I agree with him to say that he would like to have this Court decide finally and I think the question is right for decision where those findings were good and I agree with him.

I checked -- and since I like to have the question decided.

He is not going to do -- it's an exercise in futility and I say this with to the conviction to send that question back to the Three-Judge Court.

Even Judge Winfield didn't dissent on that ground.

My time is done.

Chief Justice Earl Warren: Mr. Auerbach.

Argument of Joseph Auerbach

Mr. Joseph Auerbach: Mr. Chief Justice and members of the Court.

May I say on this last point that every plaintiff below treated the case below as being a trial on the merits for purposes of coming to this Court.

One need only to look at their briefs to see that there is nothing more that they intend to offer if this case went down on this issue.

I would like to address myself in my argument to three points.

I must say at the outset I'm afraid I'm not going to reach them all.

The first is what is the effect on the New Haven if this merger is delayed?

The second is to add a few comments on the historical perspective of this case, and finally, if time permits, I want to address myself to the private interest question versus the public interest findings by the Commission.

Before I get in to the substance of my argument, however, I would request of the Court, on behalf of the trustees, a special procedure in this case.

We are asking the Court to issue its order herein, prior to entry of its opinion, no matter what your decision may be.

I refer in this connection to Aaron versus Cooper in 358 U.S., Mesarosh versus U.S. in 352 and Collins versus Loisel in 262 and the reason is, whichever way you decide this case, we go to trial next Monday in New York on a plan of reorganization that is premised on this merger going through.

If this merger isn't going through, we're going to waste additional assets of this estate upwards of $1 million.

We've already been authorized sums of that kind to prosecute the case.

If you decide therefore that this case cannot be decided in our favor which is to say, to quash this stay and let the merger go forward, we've got to consider as fiduciaries whether we go back to Judge Anderson and find out whether any money should be spent until one knows whether or not there's going to be reorganization.

Conversely, if you enter an order which permits this to go forward, we can go forward with the assurance that one day and I'm going to come back with the time in question, but one day, the New Haven will enter in its home and that isn't the issue, is there a home for the New Haven.

Going to the substantive volumes now --

Justice Potter Stewart: The advantage to -- the continuance of this proceeding is going to start next Monday?

Mr. Joseph Auerbach: No sir.

No sir.

We're out of time schedule now.

Well, let me go back a bit to explain why I say that.

The New Haven is the most incredible reorganization that any railroad or reorganization law has ever run into and the reasons are quite simple.

It's in a section of the Bankruptcy Act because it has to be under that section, there's no alternative, but this is a section that never contemplated a railroad without income available to pay fixed charges.

It's been nine years that the New Haven has not had income available for fixed charges.

That means just by definition, you can never have a capital structure for the New Haven.

Now what do you do?

You do what the trustees have done for five years which is through a combination of capitalization of the property, subsidy from the states, deferral of priority claims, I'm speaking now of real estate taxes and tort claims, deferral of all these things meets your payroll.

They have done it for five years.

You can't go on doing this.

Now this Court may decide just to draw a complete conclusion to your question Mr. Justice Stewart, may decided that in the overall public interest, the interest of the Erie-Lackawanna and the Delaware and Hudson, outweigh the benefits to the public from preserving the New Haven.

I don't say you can't decide that.

The Commission of course didn't decide that.

They decided the New Haven was paramount, decide if you will the opposite but if you decided, as I said earlier, please enter your order now because if there's another meeting that can be saved here, the trustees ought to save it.

The New Haven's concern with the delay in consummation is two-fold.

Until the merger is consummated, the merger is exposed to the risk that will never be a merger.

And if it never will be a merger, we don't have a home and I'm going to come back to this and show the findings that have been made in that respect.

The second point is, until it is consummated, the New Haven's ability to continue to finance this, if you will, ridiculous financial situation is completely nullified but once the merger is consummated, we know there is a place where the New Haven can go.

We know that because the Commission has absolutely provided as a condition that they must take the New Haven.

Now, I'm not concerned whether the terms which the trustees have negotiated and I may say this is in a complete contract of whether those terms of the final terms and not just in irrelevancy because once the merger is consummated, the New Haven one day will be taken and whatever terms those terms may be, the New Haven will be taken.

That means that during the interim period whether these trustees or some other trustees run this estate, they can go to banks, they can go to the states, they can say, here is what it's going to cost, here is the reasonable period of time required, but if you don't know whether there's going to be a merger, if this Court merely sense this back for further proceedings, if we're faced with a two to five years that Mr. Ginnane predicted and I may say, I thought he was perhaps modest in his predictions.

If we're faced with that, we don't even know where to get the next dollar.

Now, I'd given you the two reasons why a merger must go forward so far as the New Haven is concerned.

Now, let me explain to the Court if I may why those two concerns have a bearing on this case.

First, are the New Haven's operations essential in the public interest?

Well, the Commission specifically found that and in the court below, Judge Winfield did not disagree with that.

And in fact, in the Erie-Lackawanna reply brief in this case, the following statement is made at page 21.

The importance of preserving the New Haven is not disputed.

None of them disputes that.

The Erie-Lackawanna brief goes on, the question is, is it necessary because of the New Haven to put Erie-Lackawanna, D&H and B&M in the most serious jeopardy in order to have a consummation.

I think that is not a correct statement of the question.

I'm prepared to show the Court today that they are not put in jeopardy because the protective conditions are adequate and proper, but even if I accept the question as put by the Erie-Lackawanna, I would say to the Court, yes it is necessary.

It is necessary because the New Haven is essential and there is no other way to save it.

That brings me to my second point.

Does inclusion in Pennsylvania and New York Central save the New Haven?

Answer?

Yes.

The Commission found specifically that and nobody disagrees with that.

Third, is there any other possibility of saving the New Haven?

Answer?

No.

The Commission specifically found that and nobody disagrees with that.

The Commission said and this is at 328 I.C.C. at 312. Absent the applicants' merger, we see no solution to the New Haven problem. Certainly, neither of the applicant separately can be required to take over New Haven's deficit written operations.

Nobody disagrees with that finding.

In fact, no one really quarrels with this syllogism I have just been through.

The quarrel comes on whether a delay really exposes the New Haven to a risk that the merger will abort.

Thus, if it aborts, it frustrates completely the preservation of the New Haven and the public interest in having that railroad preserved.

So let's look at the question, am I over stating this question?

Well, the risk that the merger will abort was found specifically by the Commission, they addressed themselves right to this.

They said, if consummation of the applicants' merger delayed several years or indefinitely, we can have no assurance that it will ever occur.

The factors that enter to an agreement to merge sooner or later can be affected by changing conditions.

And then they went on to say, “We are not prepared to take this risk involved in a substantial postponement of consummation of the merger.

Moreover and this is the language that I would bring specifically to the Court's attention, moreover, we are not prepared to take the risks which delay of consummation of even 6 or 12 months might entail.”

Now, the 6 or 12 months was picked up out of these petitions for rehearing file by various of these appellants.

And the court was saying, “Not even six months.”

We -- the Commission, I beg your pardon, the Commission will say, “Not even six months will we take this risk.”

And as a matter of fact, if the court will look at the calendar, four months have already elapsed since September in this -- that I've just read to you was written.

But N&W and C&O and B&O whose interest in this case is demonstrated by their briefs and argument are certainly rather remote, but they on one hand, in Erie-Lackawanna which has a real interest on the other hand, assure the Court that there is no such risk of an abortion here.

Mr. Trienens said to the Court yesterday, there is $81 million of glue.

Mr. Bourne in his brief on behalf of Erie-Lackawanna says, the risk that this would be aborted in the near future is and I quote “miniscule”.

Now each in its own way either begs or distorts the question that the Court must decide.

The risk is not that Penn or Central voluntarily with that way as Mr. Cox just told the Court, of course they won't.

Apart from that I would agreed that $81 million of glue is a lot of glue, but it's not the glue that's the important thing.

It's, will this merger abort in spite of their desire to get that $81 million.

That's the risk which the New Haven is subjected and apart from the questions that Mr. Cox addressed himself to of how do you manage, continue to manage and a price of this size vested with the public interest without knowing whether tomorrow you're going to be a combined company or separate company without knowing what you do about employees or construction programs or orders for new freight cars or building of yards.

You can't manage indefinitely under those circumstances.

But apart from that --

Chief Justice Earl Warren: Did I understand from I think it was Mr. Ginnane, that the effect of this merger depends upon the willingness of the states to subsidize the traffic -- the passenger traffic on New Haven?

Mr. Joseph Auerbach: No sir.

If he did, I don't believe that's correct because the Penn-Central has accepted the Commission's order flatly.

The Commission's order gives the Penn-Central the same rights that the New Haven has today to move for changes in its passenger service under the Transportation Act of 1958.

It gives them no special rights nor the states demand special rights.

Chief Justice Earl Warren: In those sense, thus the merger depend upon that?

Mr. Joseph Auerbach: Not to my knowledge sir.

As I started to say, more important than the problem of corporate management, living without knowing what's going to happen, is that no matter how much they want this merger to stick any plan, a plan of reorganization or a merger plan which is based upon a stock exchange ratio as Mr. Cox pointed out is particularly vulnerable.

In fact, it is almost too numerous to less.

The members of this Court know that whenever you have a merger plan or reorganization plan based upon an exchange ratio, it's subject to vagaries of changes and circumstances.

What Erie-Lackawanna makes the prediction that the likelihood of a change in the near future that is a change in circumstances is minuscule.

It is foolhardy or naive in making such a prediction.

One thing is certain even if it is minuscule and let's assume for that purpose that it is, this was a risk which the Commission refused to take.

Now, it had to make findings on both sides and it did and it refused to take the risk.

The appellants ask the Court now to take this risk.

Now because you're being asked to take the risk, I think it is fair to consider what the consequences of the risk are.

If this merger aborts as demonstrated by the syllogism I went through earlier the New Haven will be forced to liquidate.

Now, what does this mean?

It must first be realized that if the New Haven liquidates, service to 17 million persons, that being the population of the service area of the New Haven is adversely affected.

On a daily basis, the New Haven carries 65,000 of those persons on its passenger trains.On

a daily basis, the New Haven now, brings in and out of New England 60,000 tons of freight and the livelihood as well as the food of persons depends -- the cost of food depends on this kind of service.

If it were not so, this would be moving by some of them right now.

These are the direct consequences of a social and public nature.

The Court may recall questions asked by Mr. Justice White yesterday of Mr. Trienens with respect to a gross revenues test in determining importance of railroads, a table which appears in his brief.

Let's just look at that gross revenue test.

In the point of view of comparing the New Haven with some of the other parties here.

Even as hopeless a bankrupt as the New Haven, has revenues that are twice as large as the Boston and Maine.

They're nearly two and a half times as large as the Central of New Jersey and they're nearly three times as large as the Delaware and Hudson, you'll find this right in the front of the B&O brief.

Now, even as to the Erie-Lackawanna, it must be realized that its merger was made effective only in 1960 as recent as that and it was a combination of the Erie Railroad and the Delaware-Lackawanna and Hudson Railroad.

Today, the New Haven's gross revenues are more than half of the Erie-Lackawanna and if you will look at the two components that just came into the system six years ago, the New Haven was as important as either one of them.

So if you're talking importance on the test used by Mr. Trienens, this is a terribly important railroad.

If you look at net income as Mr. Justice White did yesterday, this is a very sick railroad when one recognizes the size of its revenues.

Now, do I overstate the likelihood of liquidation as the alternative solution?

I think in this respect, the best I can do is refer the Court to Judge Anderson.

Judge Anderson as the Court knows was the District Judge when this railroad filed reorganization.

When he was elevated to the Court of Appeals, he continued to sit by designation as the District Judge on this case.

He has complete continuity.

Quite recently, we had occasion to ask permission to file a reorganization plan based upon our contract with Penn-Central in order to carry out that very inclusion.

Now, this was opposed by some of our bond holders on the ground that what we have was not a plan.

This is part of the question that Mr. Justice White earlier referred to today.

But this is what Judge Anderson said in directing the trustees to proceed with the plan which is now to be heard next Monday in New York.

I'm reading from B (9) of the Appendix to our brief which is Judge Anderson's opinion, “Were there no alternatives available on proceedings initiated by the creditors, liquidation would be called for.

Nevertheless at the present moment, liquidation, close as it may be cannot presently be entertained as a reasonable alternative.

No such proceeding has been commenced and from the record of this case and the recognized cost in both time and money of liquidating a railroad such as the New Haven, which for many years has been a deficit operation, the Court concludes that so long as there is a reasonable possibility that the New Haven can be sold and then operated as part of a trunk line system like the Penn-Central, a plan of reorganization designed to that end is in the best interest of all concerned including the bond holders.”

Now, we had occasion in an earlier opinion to refer to this question of rather than New Haven would have to be liquidated.

At that time and this was about two years ago, he referred to Mr, Justice Holmes opinion in Bullock versus State of Florida and he quoted this language, “apart from statute or express contract, people who have put their money into a railroad are not bound to go on with that at a loss if there is no reasonable prospect of profitable operation in the future.

No implied contract that they will do so can be elicited from the mere fact that they've accepted a charter from the state and have been allowed to exercise the power of imminent domain.”

And in the same opinion he quoted from Judge Frank in Third Avenue Transit where Judge Frank says, “As the debtor is a public utility, the judge properly took into account the factor of the public interest and the debtor's continued operation.

That, however, is but one factor.

It must not be allowed to outweigh all others.

There are strict limits to the extent to which in reorganization proceedings, the interests of creditors or of a particular class of creditors may be sacrificed to the public interest.

To exceed those limits is to save the least from dangerously close to the edge of unconstitutional taking of the property, a line from which courts should keep away if possible.”

Justice Abe Fortas: Mr. Auerbach, if you forgive me from going beyond your special representation here.

I was trying to pursue this a little bit with Mr. Cox but I was not successful because the way I -- quote -- the way I phrased my questions.

Is it possible for this Court in your judgment to affirm the decision of the court below, and at the same time to leave open the possibility and after the Commission enters its order with respect to protective conditions for the three roads that the motion for temporary injunction, if anybody wants to make it, could be renewed and reconsidered in the Three-Judge District Court.

This is what I was trying to get at before.

Have I made my question clear?

Mr. Joseph Auerbach: Yes you have Mr. Justice Fortas.

The question is, can this merger proceed to consummation and at the same time, can this Court effectively review whether the Commission has carried out in the public interest protective conditions which would satisfy this Court.

And --

Justice Abe Fortas: Well, that's -- that's the way to state it broadly.

What I'm asking is a very specific question.

What we have before us now is a denial of a temporary or interlocutory injunction.

Now, that denial was entered in the absence of a final order of the Commission on a private proceeding.

The Commission, I'm troubled because the Commission in its findings said that that -- in this inadequate protective order we're in it -- the Commission would not approve consummation of the merger.

Now, what I'm asking you is whether it would be possible as a matter of law number one, number two as a matter of practicalities of the merger, one of the following would be possible that this Court approve -- affirm the decision of the District Court and leave open the possibility that in June or July or whatever it is that the Commission enters its order with respect to the protective conditions.

The motion for temporary injunction can be renewed in the Three-Judge District Court at that time and whether it would still be confronted with a -- an acute form of unscrambling the omelet and whether in those -- in those circumstance, such a procedure would be compatible with legal and orderly process.

Mr. Joseph Auerbach: I think I understand your question fully Mr. Justice Fortas.

My answer would be no to both forms of that question, the legal question and the practical question but I would say to you in this respect --

Justice Abe Fortas: But is it -- it would be neither legal nor practical.

Mr. Joseph Auerbach: Neither legal nor practical, but let me say to the Court in this respect, I think you're concerning yourself about something about which you each have no concern and the reasons are these.

First, the Commission never contemplated that the protective traffic conditions were fixed and immutable.

As Mr. Cox touched on today and I would read the language that he touched on, in fixing the conditions and this is part of their order here, they said this, “for the purpose of illustrating,” I'm reading from Appendix G as page 561 of their opinion, “for the purpose of illustrating but in no way limiting the application of this condition, the following specific conditions are prescribed, and then to complete the pattern, they go over to paragraph C on page 562 and they say -- paragraph D “all determinations as to whether the Erie-Lackawanna, Delaware and Hudson or B&M is a competitive factor and they digressed for a moment, these are all key to a definition of competitive factor, is a competitive factor shall be made within 10 days after a complaint is filed.

Justice Abe Fortas: You know that's just great but on page 532 as I read to Mr. Clarks with its findings the Commission said unless they -- these three carriers I quote now, “are protected during the period necessary to determine their future.

We would not authorize consummation at this time even though approving the merger".

Mr. Joseph Auerbach: I have the answer for that too sir I think.

If you will look at page 5 -- 312 or 328, which is the supplemental report, which is after they've raised their petition for rehearing, after they had the advantage of that finding, the Commission said this, “We recognize that we cannot at this time guarantee absolutely that Erie-Lackawanna, Delaware and Hudson and B&M will be included in a major rail system on terms which they find satisfactory.

However, we do not believe that this uncertainty is one which justifies postponement perhaps for several years of large public benefits which will flow from applicants' merger, and what I say to you Your Honor is this, the larger --

Justice Abe Fortas: The question is -- the question is the interim protection.

Mr. Joseph Auerbach: Well, I must say to you Your Honor that I think when you read Appendix G and find out a scheme which gives them 10-day determination absolute protection because Penn-Central has agreed not to appeal from these determinations that you could not have more adequate protection.

But what I just read to you Your Honor goes, isn't a fortiori case.

If the Commission is willing to let Erie-Lackawanna, Delaware and Hudson and B&M go down the drain because this language I just read to you says that, the interim protection rather academic.

Justice Abe Fortas: What is one man's a fortiori is very unpersuasive than other man?

Mr. Joseph Auerbach: I'm afraid Your Honor --

Chief Justice Earl Warren: We will recess.