FMC v. SEATRAIN LINES, INC.
Legal provision: 46 U.S.C. 814
Argument of Edward G. Gruis
Chief Justice Warren E. Burger: Mr. Gruis, you may proceed whenever you’re ready.
Mr. Edward G. Gruis: Mr. Chief Justice, and may it please the Court.
The practical question here before this Court is whether or not that the Federal Maritime Commission is going to be able to continue under its present statutory authority to effectively regulate and supervise America’s Maritime industry.
The matter here this morning comes by way of a writ of certiorari to the D.C. Court of Appeals which vacated the Federal Maritime Commission order approving the merger of assets of one shipping company to that of another shipping company.
In overruling the Commission's order, the D.C. Court of Appeals found that the Commission had no authority under Section 15 of the Shipping Act, authorizing it to approve such sales thereby giving such transactions' immunity under the antitrust laws.
So that we’re real certain as to what the facts of the situation is.
In this particular case along about 1970 Pacific Far East lines entered into in a contract with one of Matson's subsidiaries, Oceanic Steamship Company, to sale of four ships then in operation, two ships that were under construction and associated facilities like personnel and so on that along with those ships.
There was a protest on this matter at Commission level.
The Commission finding this protest without substance and upon the briefs submitted by the parties, approved the transaction, it was immediately appealed by the protestants to the D.C. Court of Appeals.
In the D.C. Court of Appeals, the question was raised for the first time as to the Commission's Section 15 jurisdiction over this type of transaction.
Since the language of Section 15 is so critical to our understanding this morning, I would like to direct your attention to page two of our brief or to the language of Section 15 itself, in the first or second paragraph I believe, wherein, the third clause or category says “that agreements between carriers shall be committed to Commission which are controlling, regulating, preventing, or destroying competition.”
Now, in addition to that this paragraph goes on to indicate that agreements also include understandings, conferences and other arrangements.
Section 15 also makes specific provision for an antitrust exemption, for agreements that have come before the Commission and are lawfully approved.
Now, the Commission has operated with this law for over two decades approving some transactions formally, others informally, and even rejecting some transactions that had been presented to it.
The question presented here today was really not raised in the judicial setting until 1968, some time after the Commission had been operating with this law and approving merger and acquisition, consolidation transactions when before the Commission and subsequently in the Ninth Circuit Court of Appeals, the question was raised as to whether or not the last clause of the first paragraph in Section 15 which is a sort of a catch-all clause at the end of that paragraph and reads “or in any manner providing for an exclusive preferential or cooperative working arrangement whether or not that clause limits the foregoing six categories under the Shipping Act, they are to be presented to the Commission.”
Now, this clause was originally rejected in the Ninth Circuit Court, and met by Matson in the Ninth Circuit Court case, on the basis of Justice Stewart’s decision in Volkswagen wherein, he indicted that Section 15 and the language used in that part of the statute is very broad and is very expansive and probably would not be circumscribed by these other – this one category at the end of Section 15.
Now, I think it's important here for us to understand the type of industry that we’re operating in and I think it should be immediately apparent that we’re really having problems reconciling two conflicting statutes or perhaps three conflicting statutes, namely the Shipping Act, the Sherman Act and the Clayton Act.
But we submit first of all that the initial purpose and concept behind enactment of the Shipping Act back in 1916 was to create a specialized and expert agency to regulate Maritime affairs.
Now, if this was the goal or the objective behind the original Shipping Act then Maritime Commission would not be able to accomplish this if it has one arm tied behind its back so to speak, being unable to act or to oversee transactions that may involve mergers or consolidations or acquisitions between shipping companies.
Justice Harry A. Blackmun: Mr. Guris, in this connection, perhaps you can explain, did the Maritime Commission exercised jurisdiction over any merger prior to 1940?
Mr. Edward G. Gruis: Not that I know off, no sir.
There is no recorded, what I mean by that is that it well might have been that the papers had been submitted to it, but we have no reference of any recorded transaction, that it had acted unofficially, no sir.
Justice Harry A. Blackmun: Is what you just said or was what you have just said equally applicable to those earlier years as to the later ones?
Mr. Edward G. Gruis: Yes sir, yes sir.
In this connection if may Mr. Justice Blackmun, suggest that there was a change in the structure of the Maritime agency back in 1960 when the regulatory arm was split off from the promotion arm of the Maritime industry insofar as government regulation was concerned.
It was when this regulatory arm, namely the Federal Maritime Commission was setup for the purpose of effectively regulating the Shipping Act statutes it became much more concerned and interested in the various transactions that were going on in the Maritime industry insofar as acquisitions and mergers were concerned.
I suggest gentlemen that with these two conflicting statutory goals, namely the goal of the antitrust law to preserve a competitive environment and the goal of the Shipping Act which uses antitrust standards as only one of the criterion.
The Commission has looked upon these transactions in the past, endeavored to balance both of these conflicting public policy aims.
I suggest that in treating this question for example if Justice for example were to prevail, the Department of Justice on this, we would have two different types of transactions very closely related, but entirely judged by different standards.
It's been suggested in the brief for example that a single ship sale to an area where service may be needed could by Justice Department's move or the Federal Trade Commission for that matter of fact enjoin that if it had the -- if it met the tests of Section 7 of the Clayton Act and the transaction was viewed only as limiting competition or tending towards monopoly.
Now, the Maritime Commission I believe has a bigger goal or a bigger objective than this under the Shipping Act.
The standards given to that were several sets of standards aside from purely competitor standards.
And those included -- and I think they are also listed in Section 15 of the Shipping Act to make a determination as to whether or not this transaction would be unjustly discriminatory or unfair between carriers and suppliers whether or not it would operate to the determent of the Commerce of United States, whether it would be in violation of any other Shipping Act provision, or whether it would be contrary to public interest.
Now, whether or not it would be contrary to public interest has been read by this Court as including antitrust standards.
That appeared I believe in the decision of Svenska where the Court read right into it, that the Commission could not ignore antitrust considerations in passing or making rulings on any of the transactions coming in before it for approval under Section 15 or upon which the Commission may act on its own motion with respect to some transactions.
Now, there has been a question here presented as to whether or not since the transaction is discrete, consummated, completed so to speak, it is not stayed according to lower court perhaps by having a conditional covenant or some type of replicable or reversionary interest of follow the sail of the ship or the closing of an acquisition transaction.
The Commission has great doubts as to whether or not this is a very practical approach because it soon becomes a technique in the way you would draft acquisition agreements.
The court below has listed a series of cases, all of which it points to is containing some sort of covenant not to compete.
But those are not unusual in merger acquisition transactions if you’re buying somebody out and still we don't feel that’s crucial or critical enough to stay this type of transaction from going under antitrust judgment.
In other words, we believe it has stayed fully under the Shipping Act in all respects.
Now, I believe one of the problems here that is posed most importantly with respect to policy consideration is basically this.
That when a transaction comes before the Commission whether it's in the form of an acquisition and merger, the question always is raised is, is this going to be tested strictly by competitive standards or is it going to be tested by that criteria that I have explained to you under the Shipping Act, Section 15.
Now, if the transaction is to be tested either by the Federal Trade Commission or by the Department of Justice in the court some place strictly on competitive standards, frequently the transactions will fall, even though it may well satisfy all the other standards of the Shipping Act and even though it may in the overall view be in the best public interest.
But, neither the Federal Trade Commission operating under the authority of Clayton Act Section 7 nor the Department of Justice either under the Sherman Act or the Clayton Act could stray too far from that set competitive criteria in order to demonstrate that this merger should or should not be effectual with it because of the public interest.
I suggest what's embraced in those two antitrust laws, hit it solely on competitive situations.
Whereas, in the Shipping Act we have other considerations because there are instances where a segment of the shipping may well be competitively restrained.
It well may be that there is an absolute monopoly, this is true perhaps in many instances with port areas where there is a transaction between a port or a carrier or a port in various servicing functions in that port which would fully qualify under Section 15.
They would fully also qualify as an asset under Section 7 standards.
But, that court, that area, that circle it is, in many instances is a monopoly in and of itself, nobody else can operate this because it's truly done by some public type authority.
Now, if these transactions are thrusting to District Court I believe Judge Merrell in the Matson case points this out.
You would have this paradox where for under one set of standards the transaction should be carried out, but on another set of standards the transaction should fail because of the competitive overtones to it that would substantially restrain trade.
Judge Merrell in Matson felt that this is just an impossible situation and such a test should not be cast to Federal Trade Commission for example who jointly with Department of Justice entertains the jurisdiction to enforce Section 7 standards.
Now, with due deference to our sister agency they may be very specialized in competitive relationships, but we feel Maritime Commission is best equipped to consider what’s necessary for our commerce in terms of Maritime and shipping interests.
Those shipping interests when we speak in those terms also extend to the shipper and ultimately to the consumer in the final analysis.
We think for this reason that based on these two considerations that the Commission is in the best position under the present statutory scheme to weigh and evaluate the policy considerations of these two laws.
As I have indicated the Court has already told the Commission that it has to take in consideration antitrust standards when it makes the evaluations under Section 15. So in effect what you’re doing is amoleriating the relationship between the interest under the Clayton Act for example together with the interest under the Shipping Act before a judgment is made and that judgment is subsequently reviewed by a court under both of those standards.
I suggest this difference in policy has also been done with respect to other statutes, and perhaps the one most significant at this time is the labor statute wherein again the Commission was sitting in a position or a had a role wherein it had to look both two, in some respects labor interest as well as the shipping interest in order to look at this particular transaction and pass on that.
I would suggest that my agency with its expertise, with its flexibility which was one of designs of an administrative agency can best balance both of those considerations.
I also submit that if this is thrown into the court on the antitrust laws too frequently those other considerations of other statutes including the Shipping Act statutes will fail if it’s measured solely on hard, cold Sherman Act, the Clayton Act standards.
Now, an argument has been raised and it was also suggested in the court below's opinion that because of the nature of the language and the way it’s used in Section 15 and much of this case turns on how that Section 15 language is going to be read is it that there was an implied repeal of the antitrust laws in the Commission, the first concede that the document of antitrust laws not repealed by implication or exemption unless fully spelt out.
We fully agree with that, but we do not think that’s the particular case in this instance.
We think Section 15’s language is hard, cold and clear, but that exemption is given wherever the Commission properly approves the transaction in the Section 15 standards.
But as been cited, contrary to our position have been other types of cases namely the North Producers Association case, the Federal Power Commission case, California versus Federal Power Commission and the US versus the Philadelphia National Bank case which in each instance was an extension by those other agencies or departments of antitrust laws to associate it with the transaction before it or just usurp an authority that was really not there on the first place and they went off on an implication that such authority must have been meant if they were to consider these antitrust considerations.
I also submit to you gentlemen that in your decision the United States versus Philadelphia National Bank you will look to the Federal Maritime Commission’s law to explain to the control of the currency that here is an instance where specific statutory authority is given to the Maritime Commission to exempt such transactions.
You don't have this strictly by implication.
Another argument has been raised and in an effort to erode what the Commission purports to have as its jurisdiction, is the specific authority that has been given two other sister agencies, namely the ICC and CAB.
Those agencies are looked at because in fact it is true that there is specific language written into their statutes enabling them to expressly treat questions of pooling, questions of merger, question of acquisitions, etcetera.
But I would like briefly to go back a little bit to explain how that statutory language and those other statutes came into existence as compared with the Federal Maritime commissions.
And when the Federal Maritime Commission Act was passed in 1916 that antitrust exemption language was already there.
The drafters of legislative history, the people who were the moving forces behind the Shipping Act recognized the antitrust overtones involved with shipping both domestic and in the international boarders, and was real certain that this type of exemption is going to be squarely put into the Federal Maritime Commission Act, I am sorry, the Shipping Act of 1916.
Now, this wasn’t true with the ICC Act that was originally passed, the organic statute in 1887.
They did not have any such antitrust exemption.
In fact, that act, what has come to be known today may express prohibition against pooling in the ICC, was to declare those illegal under any circumstances and it wasn’t until 1912 that some further consideration was given under the Panama Canal Act as to acquisitions and mergers and relationships concerning railroads and shipping interest in the United States.
That the ICC Act was amended so as to enjoin railroads primarily from acquiring shipping interest that would be competitive or if they acquired this interest to enjoying them from using the Panama Canal.
But, we still don't feel at 1912 is that any history has bearing upon the Maritime Commission's authority that was given to it some four years later with all of this background in mind.
By 1920 the ICC Act was again amended.
This time to approve pooling and to permit certain types of consolidations, and in 1920 I think the thinking behind that law was to allow some of our railroads to consolidate, merge and therefore the ICC was supposed to undertake a study or come up with the plan for extending its railroad systems in the United States.
And this more or less was really not accomplished.
They played with it for a while and was not to efficacious insofar as later legislation was drafted.
So by 1933 the authority had been given, the ICC devised these plans have been taken back and ICC was just given broad authority to improve various types of acquisitions and mergers in railroad industry and to give antitrust exemptions with such acquisitions and mergers.
Now, again I say this is 1933, meanwhile the Federal Maritime Commission throughout has had this antitrust authority, it was written in broad language.
In fact, the language is sometimes been characterized to that the Sherman Act where it is very simple, it just says an agreement that restrains or prevents or stops competition is covered by the Section 15.
By 1940, there was another amendment to the ICC Act.
In this there were certain grandfather rights given and a codification, but it had no immediate bearing on ICC’s authority or power that was specifically developed over a period of some 40 years to give this express antitrust authority to certain types of transactions that really grew up as a result of the industry structure of the railroads and overland transportation in the United States.
I would submit that with respect to this ICC Act the present bearing of that express language in ICC, I don’t think can be used to say that with ICC being given this as new situations cropped up and presented themselves in the railroad and Overland trucking industry and so on and that’s a denial that the Federal Maritime Commission had such general authority way back in 1916 when the law was enacted.
So too with CAB when that act was originally passed in 1938 and they looked to that -- to various statutes and CAB was given specific authority both in Section 402 in general authority in Section 412, but again, the language of both of those sections of the CAB statute is expressly tailored again to aviation or to airlines or to airplane industry and because by certain qualifiers it has, it just doesn’t necessarily apply to the type of problems that the maritime commission runs into.
I submit to this Court that neither Section 408 or Section 412, even though it gives express grants to CAB in any way derives or undermines the general authority given to Federal Maritime Commission back in 1916.
With respect to how the commission and the courts and for that matter of fact, Congress has looked at this authority given to the commission in 1916, I would like to call the court’s attention to the 1915 amendments that were made to Section 7 of the Clayton Act.
Now, there is some argument here whether or not we’re looking to post enactment legislative history so to speak for coming up with what the Congress thinks some 30 or so years after the shipping act was amended, but nonetheless, it certainly shows that the Congress at that time was fully aware.
It shows that the commission at that time had the intent to have its jurisdiction applied to acquisitions and mergers.
Section 7, as you recall, was amended to include that asset, as well as, stock acquisitions under its coverage.
In addition to that, there was a specific exception Section written into Section 7 at that time.
There is some reference in one of the committee reports that this exemption language was not intended to give any further rights than a particular agency already had.
Certainly the argument is there that if the agency had no rights they wouldn't have put this exception in, in the first place.
The commission made itself very plain, while it appeared and testified in connection with this amendment in 1950, that it had this authority, it had this power and was exercising it and there was no challenge by either the Congress or its members or for that matter of fact the Department of Justice at that time as to whether or not this was authority properly being exercised by the Federal Maritime Commission.
Justice William H. Rehnquist: You don’t claim that those 50 amendments were an affirmative grant of authority to the commission.
You just say it was recognition of the existence?
Mr. Edward G. Gruis: It’s a recognition of the existence of that, but I will come to that point in a second.
This type of thinking Mr. Justice also prevailed throughout the senate hearings in the senate reports when the commission was again put under the congressional microscope as to how it was operating under its new structure, and namely it was reconstituted, I guess it’s under the executive order 7 of 1960 and you now had a new type of regulatory agency that they were looking at, rather closely as to see how they were carrying it out.
Their functions, particularly with respect to mergers and acquisitions and concentrations on the shipping industry.
And throughout those senate hearings and senate reports there is constant reference of the commission having this authority and exercising this authority and we have searched and I have not met with any authority to the contrary, in any part of those hearing is that the commission was ever denied having this.
Along this line in 1958 there was a major decision by this Court in [Inaudible] Line wherein the question of dual rates under Shipping Act came into play and this Court found that the statute as it was then constituted did not cover these types of transactions and they would be subjugating Trust Laws and I believe there is immediate congressional action to extend the period of time before these became unlawful so that they could look to Shipping Act and perhaps include some amendments which they subsequently did.
And I would like to talk about this for just briefly because those amendments, those 1961 amendments, the Shipping Act and particularly Section 15 did make substantial revision under the law that we are currently talking about here.
There were additions, there were new procedures, there was a new public interest test, that was introduced into that Section 15 amendment in 1961.
And some of these of course flowed as the result of these plans and decisions, some two years or three years earlier also to include the coverage under the new Section 14B relating to dual rates.
Now, arguably this amendment to Section 15 in 1961 allowed Congress to re-look at what it did.
It had at that time all the language of Section 15 and it reviewed that language and that reviewed Section 15 provisions deleting some and including new ones.
So that there was almost a complete overhaul or as some referred to it, a reenactment of Section 15 with that congressional intent real clear.
Now there is no doubt about that from our reading, or from what has been reported on that and that’s the language that we’re essentially faced with today.
Throughout those hearings and the amendments leading to it, the Justice Department had appeared and was given opportunity to speak on this issue but did not address itself to it, did not object.
I will reserve the rest of my time for rebuttal.
Chief Justice Warren E. Burger: Mr. Seibel?
Argument of Irwin A. Seibel
Mr. Irwin A. Seibel: Mr. Chief Justice, may it please the Court.
I would like first to address myself to a couple of points that my brother Gruis raised during the course of his argument and one was that the question as to the commission's jurisdiction was first raised in the Court of Appeals.
I don't think it’s relevant, but lest it may seem relevant to Your Honors, I would like to point out, that it was raised -- I could find at least two places in the record where it as raised before the commission.
One in the appendix at page 33 in the letter from the applicant to the commission, the applicant for approval of the transaction.
In the second paragraph of page 33, the applicant says that they have been advised by their council, I’m skipping, that their transaction does not require approval by the commission.
Nevertheless, they are submitting their papers for approval in the event the commission should differ with them.
So that I think it was there clearly raised by the applicants, the question, the commission's jurisdiction to pass on their transaction.
Again Your Honor, I find that on page 52 of the appendix in footnote one where the applicants again say we preserve our position that the PFEL Oceanic agreement is not subject to Section 15 of the Shipping Act.
I don’t think it makes any difference, but maybe to Your Honors.
The other point to which I would like to address myself immediately is they rather lengthy policy argument that my brother Gruis made.
He says that it is desirable as a matter of policy that the commission be given the jurisdiction over acquisitions and merger agreements because he says that the commission is more flexible and it does take into account antitrust considerations in its decisions.
That is certainly an arguable question of policy.
Two Courts differed as to whether or not it would be desirable.
Judge Meryl in the Ninth Circuit speaking for the majority of his panel, thought it would be desirable, on the other hand Judge Wilkie speaking for the court below in this case raised question as to whether or not be it would desirable, but that Your Honor is a question for Congress.
The question before this Court is, whether Section 15 was intended to grant the Federal Maritime Commission jurisdiction over mergers and acquisitions and that is the question Your Honors have to decide.
I think that my brother Gruis was assuming that the commission had jurisdiction and was pointing out how good it is and how desirable it is that they should have it.
Now, the Shipping Act does not provide a pervasive regulatory scheme for the shipping industry.
It was never intended to do that and it doesn’t do it today, it doesn’t regulate entry, it doesn’t have the general power to set rates, maximum-minimum rates.
What the Shipping Act was intended to do was to place under government supervision the practices of shipping lines which banded together in setting up trade restraining agreements through the instrumentality of conferences.
These are associations of shipping lines and essentially that was what was intended where the shipping lines worked out agreements whereby they regulated rates among themselves.
They regulated sailings, they allotted ports, and it was that type of trade restraining agreement that Section 15 was designed to cover.
I would like to turn to the language of Section 15 very briefly.
While I think it’s inconclusive, I think our reading of Section 15 is more reasonable than the one that the commission suggests.
Your Honors, I think you’ll find the pertinent parts of that set forth in the appendix to the cert petition.
It reproduces -- it’s a gray covered document and on page 19, it reproduces Judge Wilkie’s opinion on this case where he sets forth the shipping act or portions of it as it was originally enacted.
I don’t think any pertinent changes were made in 1961 for our purposes.
One page 19, Judge Wilkie sets forth in a series the seven categories of agreements which Section 15 covers.
Your Honors, if we remove the middle category that was clause; which the opinion labels clause 3, and on which my brother Gruis relies principally, that is the category of agreements controlling preventing and so forth competition.
If we remove that for a moment and examine all the other categories, the first is an agreement fixing rates, (Inaudible) an ongoing type of agreement.
The second is agreements giving special rates and accommodations, another of the same type.
Now, I will skip the third, which is the one my brother Gruis relies on.
The fourth are agreements pooling or apportioning earnings, again an agreement of an ongoing type that’s susceptible to continuing supervision by the agency.
The fifth are agreements allotting ports and regulating sailings, again, an agreement of the same type.
The sixth are agreements regulating the volume of traffic, again these are ongoing, agreements of an ongoing nature and then finally, the last is a catch all provision, agreements in any manner providing for an exclusive preferential or cooperative working agreement.
Now, clearly, those five agreements are all of the same type as the one in the final clause.
They are all the -- they are specific and unambiguous agreements of an ongoing nature and the last is obviously a generalized type describing the same type of agreements that were previously described.
It seems to be quite reasonable to me.
Justice William H. Rehnquist: Why do you say that Mr. Seibel if the last is obviously a generalized?
I can see how you can argue it, but it isn’t to me crystal clear that that --
Mr. Irwin A. Seibel: I mean, obviously in sense of generalized rather than specific Your Honor.
That’s what I meant rather than -- what I’m suggesting Your Honor is not that the language is conclusive.
I am suggesting that it's fair to read the language as we urge rather than the commission urges and given the fact that the language on which it relies is in the middle of the specific and unambiguous clauses that was intended to be of the same type as the other clauses immediately preceding it and following it and that the last clause, the generalized clause was summarizing the kinds of agreements that preceded it.
That is agreements, trade restraining agreements, agreements of an ongoing nature which are susceptible of continuing supervision by the agency.
The support for this construction is provided in the paragraphs immediately following.
I will take one.
I think perhaps we can’t dwell on this too long, because I think the conclusive answers are in the legislative history and in contemporaneous and subsequent legislation where the Congress was very explicit when it wanted to give an agency authority over acquisitions and mergers.
Where in the same statute the Congress gave the agency jurisdiction over agreements in one clause and in a separate clause, specifically addressed itself to acquisitions and consolidation.
Conceptually Congress thought of them as being of a different breed and I think this was true in the case of the Shipping Act.
In the paragraph immediately following the clauses, I just quoted, this appears on page 20 of the appendix, I’ll take one.
There at three such paragraphs I think, one would be sufficient illustrate the point I’m trying to make.
It provides that the commission may disapprove an agreement, I’m skipping, whether or not previously approved by it.
Now, I think that an acquisition agreement is not readily susceptible of that type of treatment, that is once it’s consummated, while it’s gone and has disappeared generally.
Whereas an agreement of a continuing nature, that is, the conference agreements which regulate rates involve the participation of the parties over a period of time and therefore when the commission may originally approve it, it may later disapprove it.
It’s that type of distinction which I am urging on the Court and I think the legislative history bears this out.
I think it’s quite clear.
It’s not that the legislative history doesn’t reflect a concern by the committee, the Alexander committee, which is as Your Honor know the committee that investigated the shipping industry.
It isn't that that committee was unaware or it was unconcerning with the problems of the acquisitions, indeed they were.
In the domestic trade they discussed them at length and they were quite concerned about the railroads gobbling up the waterlines in the inter-coastal trade and on the great lakes.
They pointed out that 50% of all the tonnage in the country was moving through water carriers that were owned or controlled by the railroads.
Justice Potter Stewart: This was back in 19 --?
Mr. Irwin A. Seibel: 1910, 1911, 1912, yes Your Honor.
Now, the point is, not that they were -- merely that they were concerned, but they simply did not recommend any legislation because the Panama Canal Act to which they explicitly refer in the Alexander report because that act which was passed in 1912 they said, went very far towards eliminating the evils that were presented by railroad domination of the water carriers in the domestic trade.
In contrast Your Honors, the language in the Panama Canal Act with a language with which we are concerned here remembering that the Panama Canal Act is specifically referred to in the report, containing the recommendations which Congress adopted in the Shipping Act.
The Panama Canal Act excerpts which I have set forth in the Justice’s brief on page 24, in the Panama Canal Act Congress made it unlawful for any railroad and I quote, “To own,” it didn't use the word agreements, “To own or control or have any interest whatsoever by stock ownership or otherwise either directly or indirectly etcetera, etcetera, of any common carrier by water,” it didn’t use the word agreements.
Also contrast to the later amendment, this was on the amendment to Section 5 of the Interstate Commerce Act, contrast to the language Congress used in the 1920 amendment which occurs very shortly after the Shipping Act.
That amendment dealt both with agreements, both with pooling agreements and agreements of continuing character and with acquisitions and mergers.
The pertinent language of that statute Your Honor is set forth on page -- the top of page 26 and in footnote.
The amendment to the Interstate Commerce Act at that time which was Section 51 dealt with agreements and it made them unlawful unless approved by the commission, Interstate Commerce Commission, “for any common carrier to enter into any contract, agreement, or combination with any other common carrier for the pooling of freights or to divide between them the aggregate or net proceeds of the earnings.”
Now there we are talking about agreements which is what we have here and in the immediately following paragraph of that statute in 1920, which we have quoted in the text on page 26 the same page, Congress banned interlocking ownership.
We’re talking about acquisitions there, “the acquisition by one carrier (of the control of another) under a lease or by the purchase of stock in any other manner not involving the consolidation of such carriers into a single system.”
The point of this contrasting language is to show that Congress knew how to make -- knew how to use the difference -- the different jargon to describe the difference between an agreement which is involved in Section 15 and in acquisition or merger of consolidation which is a very different breed of animal, at least conceptualistically in the minds of the Congress.
And as a matter of fact, if Your Honors go through the very lengthy Alexander report because I am sure Mr. Justice Stewart probably had to for the Volkswagen opinion, Your Honors will find that the word agreement is used from beginning to end to refer only to cooperative working agreements, agreements of a continuing kind, rate making agreements, pooling agreements.
Never, never to acquisitions or mergers, and the committee, the Alexander committee did use the word acquisitions, consolidations and or mergers.
But it used them to refer precisely to that and I would like to read one paragraph which shows the contrasting use in the same sentence by that committee of an agreement and an acquisition.
I’m reading from the -- I have xerox copies from the Alexander report and I’m reading from page -- I thought I was -- 409 of that report, this is rather a brief.
The committee is talking about the domestic trade and it writes -- describes the numerous methods of controlling competition between carriers.
The first method is control through the acquisition of waterlines or the ownership of accessories to the lines.
No worry about agreements in that. Control through the acquisition of waterlines or the ownership of accessories to the lines.
Two, control through agreements or understandings.
Now the committee knew how to use the, -- and understood very well the difference agreements that it meant in acquisitions and the fact that it used it in the very same sentence, it seems to me as a rather eloquent indication of the difference, it was drawing in its mind and this is not really accidental.
If Your Honors will review the focus of the committee on the problem that was bothering it, the problem of conference of uses at the time, which led the committee to recommend the enactment of particularly Section 15 with which we are here concerned.
During the last half of the 19 century, there were some great many vessels that were built which produced a surplus capacity.
The surplus capacity led the rate wars.
This was undesirable from a standpoint of shippers because of the instability it created.
They never can tell when they were going to have a vessel available, importers and exporters.
It was undesirable from the standpoint of the carriers because of the potential for destruction, these destructive rate wars.
To avoid costly struggles, most of the lines banded together to regulate the terms on which they competed.
Most of the lines belonged to cartels, this is all reflected in the Celar report which is cited in both briefs, most belonged to cartels known to us as conferences, associations of shipping lines.
Through these conferences the lines were able to agree in ways to moderate the rigors of competition, how to punish the disloyal shipper who shipped on a non conference vessel, how regulate the rates between them.
Now, while this brought about some stability it led, understandably led to abuses.
And so Congress in 1912 authorized a committee to investigate these practices.
The committee wrote a detailed report to which we refer to many times, my brother Gruis did, now I have.
It’s the Alexander report.
The report was based in large part, so far as the foreign trade was concerned on an examination of eighty agreements that were then, eighty written agreements, there were many secret agreements, a practice which the Shipping Act was designed to correct, to bring them out in the open and put them under government supervision.
What is striking about these eighty agreements is that every single one of the eighty agreements is a cooperative working agreement, the kind -- the pooling type regulating rates.
Not a single one of the eighty agreements examined by the committee in the foreign trade was a merger agreement or an acquisition agreement or were of an on-going nature.
Now, the committee recognized that these agreements had many advantages.
The problem was how to preserve the advantages while minimizing their potential for abuse.
The advantages were clear, the regularity of sailings if they were assured of particular rates, the vessels would sail regularly, the importers and exporters were fairly certain about the rates that were going to be charged so they knew what to charge themselves.
Now, if unrestricted competition, if the committee were to recommend the outlawing these agreements, and unrestricted competition were the mode of life in shipping industry, the inevitable result would be, and this as the committee describes, rather picturesquely, and at great length, the inevitable result would rate wars, resulting in uncertainty in rates and schedules, the destruction of weaker lines and protective mergers and consolidations with monopoly as the consequence, that was the analysis made by the committee.
On the other hand, if they allowed these trade restraining agreements of fixing of rates, the pooling and it were placed under government supervision, the advantages would be preserved, the committee pointed out and also, this would avoid the harm to structural concentration in the industry.
You wouldn’t have as a result of destructive rate wars the lines either going out of business or getting together and consolidating.
So one reason for recommending that these agreements of an ongoing nature, be authorized under government supervision was to avoid forcing these irretrievable and permanent consolidations among the shipping lines.
Agreements to merge were simply not the kind of agreement that the committee deemed necessary to immunize from attack under the antitrust laws.
I have already mentioned that the committee was aware of acquisition, the problem of acquisitions and mergers in the domestic trade and made a recommendation as to those.
I have mentioned that the committee used the word agreements in a very distinctive sense certainly not to include mergers and consolidations.
I think the question before, Your Honor, whether or not it would be desirable as my brother Gruis suggests as a matter of policy, I think is debatable.
The question before Your Honor is whether the Congress intended in Section 15 to give the agency the authority to pass on mergers and acquisitions and that is the only question before Your Honors and I submit that the evidence is overwhelmingly against that grant of authority.
Justice Potter Stewart: Would you suppose that if you’re correct on this issue, which is the only issue before us whether or not Section 15 is (Inaudible) whether -- this is something that is filable under 15 and if the committee -- if the commission approves is immune from the Antitrust Act, that’s the question?
Mr. Irwin A. Seibel: Yes, Your Honor.
Justice Potter Stewart: Would you suppose that if you’re right there that the full force of the antitrust funds would -- it would follow, they would apply to this acquisition?
Mr. Irwin A. Seibel: I am not suggesting the particular transaction involved in this case is a violation (Voice Overlap)
Justice Potter Stewart: It can't be violation.
Mr. Irwin A. Seibel: No, no.
Justice Potter Stewart: And that of course is not before us?
Mr. Irwin A. Seibel: No, Judge Wilkie expressed no opinion.
We express no opinion as to that.
Justice Potter Stewart: Because it's certainly -- the legislative history does show the realization by Congress of the fact that this industry is sui generis, if you will --
Mr. Irwin A. Seibel: Yes sir.
Justice Potter Stewart: -- and therefore is, I believe, not to be the target of the full force of the antitrust laws as such.
You agree with that, wouldn't you?
Mr. Irwin A. Seibel: Oh!
yes, Your Honor.
It does recognize that the only -- with the problem it had before it was what to do about the conferences and the kind of agreements that it had before them.
And I think it's quite clear, I think it's quite clear from an examination of the history that even though they were aware of acquisitions they didn’t mean to include them in Section 15.
They did point out in their report, they did refer to the Panama Canal Act which deals specifically with that problem.
Justice Potter Stewart: At that time the sale of assets was not covered by the anti trust law?
Mr. Irwin A. Seibel: It was, well, I think it was [Attempt to Laughter] later found out in this Court.
Justice Potter Stewart: That it was.
Mr. Irwin A. Seibel: It probably was --
Justice Potter Stewart: But nobody knew it was at that time?
Mr. Irwin A. Seibel: Now, stock acquisitions I think were the predominant mode of mergers and acquisitions, but that's right Your Honor.
I would like to point out though my brother Gruis, if may have one further word, has indicated that it probably wouldn’t make much sense to say that an acquisition if it is covered -- he referred to a transaction where an acquisition was accompanied by an ancillary ongoing covenant not to compete.
The latter by itself would be the kind of agreement we would concede that is within Section 15.
He suggests that it wouldn’t make sense to make the distinction to say it is and therefore the commission can pass on the whole -- In fact, I agree with him that it wouldn’t make sense to say if the acquisition is not subject to the commission jurisdiction, I don’t think that the Court should say that the acquisition, we deal with at the end of our brief, that the acquisition accompanied by the ancillary covenant not to compete or some ancillary restrain would, just because the parties cast their agreement in a particular form should bring the transaction within the commission's jurisdiction for that reason.
Justice Byron R. White: Why -- now can you tell me why the act – why is the United States Department of Justice --
Mr. Irwin A. Seibel: Where a statutory --
Justice Byron R. White: What, what --
Mr. Irwin A. Seibel: The statute on partitions for review of the agency’s decision requires that the United States be a party.
Justice William J. Brennan: Is that true of other agencies too?
Mr. Irwin A. Seibel: Some other agencies.
Interstate Commerce Commission.
Justice William J. Brennan: The Comptroller of the Currency was -- at the ?
Mr. Irwin A. Seibel: I don’t think so in other cases.
Justice William J. Brennan: The Department is natural party?
Mr. Irwin A. Seibel: Yes sir.
We were served with the petition for review and the statute which is Title 28, U.S.C. 2342, I believe.
Justice Byron R. White: Didn't command you to (Inaudible)
Mr. Irwin A. Seibel: No, no.
Justice William J. Brennan: I’m just curious, are there other instances where -- ?
Mr. Irwin A. Seibel: The Interstate Commerce Act -- the United States wasa statutory defendant and we normally do not join together like with sisters --
Justice William J. Brennan: If Justice Frankfurter were here, he'd be going through the roof? [Laughter]
Justice Byron R. White: And is it necessary for the department to consent under the statute also for the maritime commission to file at least (Inaudible)?
Mr. Irwin A. Seibel: Oh no, under the statute of the maritime --
Justice Byron R. White: I know but (Voice Overlap) some other statute?
Mr. Irwin A. Seibel: Yes, there maybe, that’s right I think perhaps under the Federal Aeronautics Act, that’s true.
Justice Byron R. White: Actually both of you --
Mr. Irwin A. Seibel: I’m sorry, I didn’t hear you Your Honor.
Justice Byron R. White: Both of you be here?
Mr. Irwin A. Seibel: We are, yes.
Justice Thurgood Marshall: Who speaks for United States?
Mr. Irwin A. Seibel: I do Your Honor.
[Attempt to Laughter] Nominally at least (Voice Overlap) I am not sure I know how to --
Justice Thurgood Marshall: Is it still true that you have to pay for their brief?
Mr. Irwin A. Seibel: For this?
Justice Thurgood Marshall: The briefs, is still true?
Mr. Irwin A. Seibel: We did.
[Laughter] We did pay for both.
The printing cost Your Honor, yes.
Justice William O. Douglas: Well, this is suit United States versus United States.
Mr. Irwin A. Seibel: No sir, Federal Maritime Commission.
There are other parties Mr. Justice [Voice Overlap]
Justice Byron R. White: The only two --
Mr. Irwin A. Seibel: They have ceded their time, they have ceded their time.
Chief Justice Warren E. Burger: They could have argued, could they not?
Mr. Irwin A. Seibel: Yes sir.
Justice William J. Brennan: Well, as a matter of fact the maritime couldn’t be here without the consent of Solicitor General?
Mr. Irwin A. Seibel: I think he could.
Solicitor General --
Justice William J. Brennan: Well, I notice that Solicitor General consented to it at the filing.
Mr. Irwin A. Seibel: As a matter of form in this case I think under the statute they -- perhaps I am misspeaking but I do think under the statute they have the right.
Justice William J. Brennan: They may be --
Justice Potter Stewart: You may well (Inaudible) exactly what the statue contemplates.
Justice William J. Brennan: That they will have the right.
Justice Potter Stewart: That's right.
Chief Justice Warren E. Burger: The only uniqueness is that Seatrain has yielded all its time to you, if there is any uniqueness, is that it?
Justice Potter Stewart: I don't -- Well.
Chief Justice Warren E. Burger: They could have been here --
Mr. Irwin A. Seibel: They could have been here and they are here through --
Chief Justice Warren E. Burger: I mean physically.
Mr. Irwin A. Seibel: Yes, they could have been here.
I think the Seatrain didn't happen to take position on the jurisdiction in the court below.
Justice Potter Stewart: Because that's what we are hearing?
Mr. Irwin A. Seibel: Yes, Your Honor.
I am sorry, but Mr. Justice Powell, were you saying --
Justice Lewis F. Powell: I will ask this question. You are here as I understand it, asking this court to have affirmed the judgment below?
Mr. Irwin A. Seibel: Yes, Your Honor.
Justice Lewis F. Powell: But in addition, you say at the end of your brief that you think the opinion of the court below erred in the distinction it may between what was called the simple merger or sale of assets and one that had some ongoing characteristic such as a covenant not to compete.
So is it your position that if we should have affirm, that you think we should address that issue also?
Mr. Irwin A. Seibel: Yes, Your Honor, because the great uncertainty, I think, that would result as to the scope of the commission's jurisdiction.
I think what you would have the lawyers simply restructuring an acquisition with an agreement not to compete and I am not quite sure that Judge Wilkie meant to do that or perhaps he was -- I think it would be desirable, Your Honors don't often do that.
It seems to me it would be appropriate in this case so that we don’t --
Chief Justice Warren E. Burger: Do you have anything further?
Rebuttal of Edward G. Gruis
Mr. Edward G. Gruis: I would like to add only one point Mr. Chief Justice.
With respect to the legislative history I did not address myself to that, because there is really nothing definitive in the legislative history one way or another.
Mr. Seibel has addressed himself in his brief very appropriately as to what it says.
One, we think we have equally covered the ground [Attempt to Laughter] and other side of the brief is to what it says on the other side.
We believe Justice Stewart in Volkswagen points out one particular Section of the committee's recommendation wherein he especially covers agreements by vessels engaged in the falling commerce to United States.
Secondly, I would like to raise one further question as with the schematics of putting Section 15 together about Clause 3 as standing out or being the single exception to all the other ongoing type of clauses.
I submit Your Honor if this is what the committee had in the back of their mind we could have eliminated Clause 3 completely, because it wouldn't have been covered by Clause 7 according to Mr. Seibel, my brother Seibel's discussion.
We think this court should reverse the court below and finds that the commission does have authority through the Section 15 of the Shipping Act as with mergers and acquisitions.
Thank you, Your Honor.
Chief Justice Warren E. Burger: Thank you Mr. Gruis, thank you Mr. Seibel.
The case is submitted.