BANGOR PUNTA OPERATIONS v. BANGOR & A. R. CO.

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Argument of James V. Ryan

Chief Justice Warren E. Burger: We'll hear arguments first this morning in number 73-718, Bangor Punta Operations against Bangor & Aroostook Railroad.

Mr. James V. Ryan: Mr. Chief Justice and may it please the Court.

This case is before the court on a writ of certiorari to the Court of Appeals to the First Circuit.

I represent the petitioner defendants Bangor Putna Corporation and its wholly owned subsidiary.

Bangor Putna is a publicly owned, manufacturing concern.

The respondent plaintiffs are the Bangor & Aroostook Railroad and its wholly on subsidiary.

The Bangor & Aroostook Railroad operates the railroad.

It's trackage is exclusively within the state of Maine.

The issue before this Court to day is may uninjured party, by using the device of the cooperate form while claiming to vindicate an inchoate public interest maintain an action in the Federal court.

Now this action was commence by the filing of a complaint in the district court in Maine in December of 1971.

Although, the complaint contains 13 causes of action, allegedly based on violations of the securities laws, the antitrust laws, Maine Statutes and the Common law, essentially its based upon four inter company transactions which occurred between Bangor Punta the petitioner here and the Bangor & Aroostook Railroad, the nominal plaintiff here while Bangor Punta -- while the Bangor & Aroostook Railroad was a 98% owned subsidiary of Bangor Punta.

Although, the claims as I say allege various violation of Federal statutes, as Judge Gnew (ph) and the District Court has stated or properly characterized them, they are claims which are typical stockholders claims, seeking and accounting for alleged misappropriation and waste of cooperate assets by controlling shareholders.

Now after the filing of the complaint and the filing of the answer, the petitioner Bangor Punta moved for summary judgment, based upon the admissions in the complaint.

The District court on settled principles of law granted the motion and held that the nominal plaintiff here, the Bangor & Aroostook Railroad Company and the real party in interest here Amoskeag Corporation which purchase the 99% owned interest of Bangor Punta and the Bangor & Aroostook Railroad are barred from maintaining this action.

On appeal to the First Circuit, this decision was unanimously reversed.

Although the First Circuit agreed with the District Court and said that these are essentially stockholders' claims and in a normal corporate situation, a dismissal would have been proper in this case because a Railroad was involved which the Court of Appeals characterized as being a public corporation, a separate inchoate undefined interest of the public was involved.

This interest of the public which was held and stated to be an interest in the financial health of the BAR provided a legally recognizable and separate interest which was served by this action.

Justice William J. Brennan: Mr. Ryan do you meet the Court of Appeals holding as applicable to the State Law accounts as well as the Federal question?

Mr. James V. Ryan: Yes sir.

Justice William J. Brennan: Both.

Mr. James V. Ryan: Yes sir.

Justice William J. Brennan: Is there any Maine law that supports that?

Mr. James V. Ryan: Yes sir and the --

Justice William J. Brennan: That supports the holding of the Court of Appeal?

Mr. James V. Ryan: No not at holding the Court of Appeals do not know sir, no excuse me I misunderstood your complaint, your question.

No the Maine court said that this action could be maintained even the State Court, actually a State Court claims because of this separable interest and there is no Maine law which supports that proposition.

As Judge of Gnew noted his opinion BAR did not claim in its complaint that there was any public interest or any rights of any creditor is involved in this action.

Nor did the BAR before the Court of Appeals had indicated that they were suing vindicate any specific public interest.

Even before to this Court, they do not allege or state that they are vindicating any specific public interest.

What they say is, is that a railroad is a public asset and because a railroad is a public asset the normal rules of law do not apply to this situation in this case.

Now the facts are simple.

In 1960 the Bangor & Aroostook Railroad Corporation caused the predecessor and interest of Bangor Punta to be formed and then by a registered exchange offer the shareholders of the railroad became the shareholders of the parent company.

This was the holding company trend which was the vogue in Railroads during the late 50s and early 60s.

So that at the end of the transaction, the railroad became a 99% subsidiary of the parent holding company.

The actions on which the complaint are based and which complaint claims are unlawful, all occurred between 1960 and 1967 and as judge of Gnew stated they are essentially claims of corporate place, that a controlling shareholder mismanaged the assets of a wholly owned subsidiary.

Now on October 2, 1969 the Bangor Punta sold its 99% interest in the BAR to Amoskeag which is again a public corporation with public stockholders the interest in the railroad for five million dollars in cash and December of 1971 this law suite was started.

Now as the District Court pointed out there are three flaws really controlling facts which are dispositive of this case.

First of all the real party here, the real party in interest is Amoskeag.

Amoskeag owns 99% of this railroad and they are not claiming to be suing to vindicate the seven-tenths of 1% of private shareholders, number one.

Number two, Amoskeag does not claim that it was defrauded or it was misled by anything that Bangor Punta stated, or that is got less than it paid.

Amoskeag purchased the stock from the wrong doer, alleged wrong doer after the acts occurred and does not state that it suffered any specific injury.

What it is attempting to do by this action is obtain a windfall.

It is up to -- it is suing to recover its purchase price of five million dollars plus an additional two million dollars windfall and still keep the railroad and yet it doesn't state that it was injured.

Now --

Justice William H. Rehnquist: If the action is border in the name of the corporation not in the name of Amoskeag you say that Amoskeag gets the real party in interest but originally you do not look behind a corporate plaintiffs to see who the stockholders are in order to determine who are the real party in interest is, do you?

Mr. James V. Ryan: I think the answer to that is yes, generally that is so.

A corporation is a legal person for purposes of maintaining suits owning property and we are doing various acts, however, in this case here the claims are essentially stockholder claims, essentially equitable claims and If you do not --

Justice William H. Rehnquist: Why do you say that?

Mr. James V. Ryan: Well, it's difficult for me to understand how one can say that a 99% shareholder or affect you can violate rules of law regarding a subsidiary person strictly injured.

In another words if they were a creditor to here or if there was some other person who claims injury then I would say that you can't look behind the corporate wall, but that is not this case.

Justice William H. Rehnquist: Then what you really saying is that whatever Bangor Punta did to the railroad at the time they owned 99% of stock really wasn't actionable on the part of railroad even then?

Mr. James V. Ryan: Correct exactly because so --

Justice Harry A. Blackmun: Mr. Ryan who were the parties that were really wronged here, the former shareholders?

Mr. James V. Ryan: The seven-tenths of 1%, you see Bangor Punta owned in affect 99%.

Justice Harry A. Blackmun: Have they ever instituted any kind of action at all?

Mr. James V. Ryan: No sir.

Justice Harry A. Blackmun: Would the situation be different in your view if Amoskeag owned only 75% of the stock?

Mr. James V. Ryan: It could be the same, it could be different depending upon the facts.

I do not think you can make a categorical statement that the result would be the same.

I may want to think in this specific case, Your Honor, it would be the same.

It would be like Matthews versus Headley case which I have cited in my brief where you can by -- there is no question here that if there is a recovery here of the seven million dollars that Amoskeag has received a windfall.

There is no doubt about that.

Justice William H. Rehnquist: Something would depend on when the other 25% had acquired their stock, wouldn't it in answer of Mr. Justice Blackmun's question?

Mr. James V. Ryan: It could, if they acquired their stock after the events, they would have the same disability that Amoskeag would have, but I assumed --

Justice Harry A. Blackmun: In contrary?

Mr. James V. Ryan: That is right.

Justice William H. Rehnquist: But if a Bangor Punta had been be only a 75% owner rather than a 99% owner at the time this thing was going on then conceivably the other 25% might have a very legitimate point?

Mr. James V. Ryan: Oh!

Absolutely.

Certainly.

certainly right.

Chief Justice Warren E. Burger: And that would be a typical minority stockholder suit?

Mr. James V. Ryan: That's correct.

Your Honor, that's correct.

Justice Harry A. Blackmun: And it would not accrue to the benefit of the railroad or would it?

Mr. James V. Ryan: It could.

It would depend upon what the result would be when they are framing the relief.

If the relief would result in what is characterized in the the case as an unjustified windfall well then a court of equity in derivative action would be able to be frame decree accordingly.

It will depend upon the facts of this specific case.

I don't think you can make a blanket rule, but certainly in this case where you have 99% there is no question that there is a windfall here and there is a no question that a court a frame a decree in this case.

Now as I say that if you eliminate the public interest or claimed public interest which I'll deal with next then it seems that the reasoning of Judge Gnew which was really agreed to by the First Circuit that in the ordinary corporate case the dismissal of Judge Gnew would have been sustained.

Rule 23.1 would have been prevented Amoskeag from suing itself and that the general equitable principles prevent Amoskeag through the guise of the corporate form to maintain this action on behalf of itself.

Justice William H. Rehnquist: Certainly Rule 23 by its turn as no bearing on this action, does it?

Mr. James V. Ryan: Only if Amoskeag sued.

Justice William H. Rehnquist: Yeah, but Amoskeag didn't sue.

Mr. James V. Ryan: That is correct.

Now I am not -- I don't have to address myself to that point.

I would have to say I do think it would, but I don't -- you don't have to reach that point in this case because in this case you have Amoskeag standing here who is the real party of interest, alleging essentially equitable claims and just a court should not permit Amoskeag to be unjustly enriched by using the device of the corporate form unless there is a some other public interest involved.

Now what is this public interest which is where the First Circuit departed from judge Gnew.

The First Circuit says that there is not easily defined a point applies inchoate interest in the public, in the financial health of Railroads and that this interest is the basis for maintaining this action.

The respondents go even further and they say that a Railroad is a public asset.

Well Your Honor, we submit that a Railroad is a private business corporation with certain clearly defined public duties and obligations.

The Interstate Commerce -- Congress through the Interstate Commerce Act in various legislations over the last 50 or 60 years has clearly defined those areas in which there are the interest of the public are covered and there is also some residual minor common law responsibilities of Railroads.

There is no claim in this complaint or anywhere they raise that Bangor Punta violated any of these Statuary rules or regulations regarding Railroads.

On the contrary, the Interstate Commerce Commission acknowledges that there is apparently a gap in this regulation and this gap is what they are asking this Court to really rectify the cure.

Now this gap, what I this gap?

This gap is that is that a holding company in the late 50's and early 60's holding companies were formed and operated subsidiary Railroads as wholly owned subsidiaries and this of course everybody is familiar with Penn Central that was not a very successful, but we had other successful one Union Specific, just as there are number of network out.

Now first of all in this case there is no allegation in this complaint that the Bangor & Aroostook can barely survive.

On the contrary the Bangor & Aroostook is a viable Railroad.

It is earning money, it is paying dividends, it is paying off its debts.

It is one of the only Railroads in the North-East that really, probably East of the Mississippi other than the Chesapeake (ph) that is still paying dividends.

So it's hardly a Railroad which has suffered the deprivations of a pirate who has looted it.

Secondly, over the last 60 years, Congress has repeatedly addressed to itself to railroads' operation, public interest in railroad.

It has provided a numerous remedies not only by administrative but also by private actions.

The legislators of course do not indemnify somebody who can he has been injured under one of the statuary requirements and this is not covered as it's conceded by the ICC and by the respondents.

Now is it for this Court to create this remedy?

We say no.

This -- the railroad is a regulated industry, highly regulated industry and it should not be for a court to provide new remedies beyond what Congress says are really in the public interest.

But thirdly, and more importantly this very and I will call it a problem of parents, parent companies, holding companies with subsidiary railroads has been the subject of congressional hearings and there are presently pending legislation in Congress which addresses itself to this problem.

Now should this Court step forward and go ahead of Congress? Congress has this very problem before it.

Now it's interesting to note that even with the legislation in front of congress which has been there for four years and has not been enacted, so perhaps this problem of holding companies is not quite as severe or as evil as some people would like to pretend, they have enacted.

This specific legislation doesn't even cover our situation here because the legislation provides that the before the ICC can intervene the service to the public in Maine from the BAR has to be tracking and there is no allegation here and there can be no allegation here that anything that my client did threatened the public service.

So that when you come all away back down to what really on the bottom line is that there really isn't an identifiable public interest which can be injured, which can give rise to jurisdiction or standing in a Federal court.

Now, when you get past that point you come to the really -- the really bottom line is that Amoskeag here has not been injured.

It has not suffered any injury.

If this general public somewhere that may have suffered an injury, but it has not suffered an injury.

It is not a proper party, plaintiff.

Someone out there may be able to maintain an action, but it is not the Amoskeag through the device of the Corporate form.

Now they argue, Your Honor, that well they can frame a decree and that there is a recovery here that is going to be some public benefit because some of the money might stick in the Bangor & Aroostook railroad.

Well of course that is really as Court of Appeals recognized is really can be done.

It's absurd, cash is fungible.

You put cash into a corporation, it can come out at the other end in all kinds of ways as long as it's solvent.

If it is solvent it can legally as any business corporation pay dividends and until somebody says a solvent corporation can't pay dividends then how are you going stop the money from coming out.

True you could probably put a District Judge in there to run this railroad for 20 years and somehow put all the stops in, but that's certainly not something that a court should do, particularly when the railroad is solvent.

For that reason, Your Honor, we feel this case should be (Inaudible).

Chief Justice Warren E. Burger: Well Mr. Ryan.

Mr. Lefkowitz?

Argument of Alan L. Lefkowitz

Mr. Mr. Alan L. Lefkowitz: Mr Chief Justice and may it please the Court.

As we view the case, there are two questions involved in this litigation.

The first is whose lawsuit is this in the first place?

Is it the railroad's lawsuit or is it Amoskeag's lawsuit, the present controlling stockholder.

I think the record is clear and I will highlight it in just a moment that it is indeed the railroad's lawsuit.

The second question is assuming that it is the Railroad's lawsuit, if the railroad makes a substantial recovery in the lawsuit, will this inure to the benefit of its present controlling stockholder Amoskeag in such a way that the windfall “that Amoskeag  may enjoy outweigh the benefits of permitting the railroad to right the wrongs which have been done.”

Chief Justice Warren E. Burger: Who else would get the benefit of this windfall?

Mr. Mr. Alan L. Lefkowitz: Probably I believe is the interest which the First Circuit found would benefit from this.

Chief Justice Warren E. Burger: Just how would you analyze -- (Voice Overlap)

Mr. Mr. Alan L. Lefkowitz: Yes sir, I think the record well illustrates the fact that the present owners of the Railroad Amoskeag are engaged in the process of developing a Northern New England Rail system.

Amoskeag presently owns 35% of Maine Central Railroad stock which is held in voting trust.

It owns 99% of the Bangor & Aroostook stock.

It is the largest single holder of the first mortgage bonds of the Boston & Maine Railroad presently in re-organization.

What Amoskeag is trying to do, subject to the supervision of the commission, is to put together a Northern New England System which I suggest at least on the face of it solves some of the problems of the Railroads by unifying a number of short carriers to build into the larger system which maybe in fact coming out of Conrail.

Chief Justice Warren E. Burger: Would they have any legal obligation to dedicate this windfall to that --?

Mr. Mr. Alan L. Lefkowitz: They don't have any legal obligation.

I can say this to this Court, I know that they have a moral obligation and I believe that properly supervised by the District Court within midge (ph) of the decree that those funds could be available.

Indeed as we suggest in our brief, Amoskeag and the Railroad are both prepared to enter into some kind of meaningful order by a District Court should there be a recovery in this case.

So that those funds could be used, let's say, for the system or if not for the system, to be put into maintenance of way and maintenance of equipment to build a stronger railroad which can better serve the public.

True, as my brother states, it doesn't look as though the Bangor & Aroostook is in problems.

That maybe because good management took care of this after the Railroad was sold and I think if you look in the Appendix to our Brief on the report of the bureau of accounts, you will see some indication of the beneficial management of this Railroad.

Justice Harry A. Blackmun: Am I am correct Mr. Lefkowitz the First Circuit, however, imposed no such condition as to the use of funds?

Mr. Mr. Alan L. Lefkowitz: They strongly suggested that it could be they didn't because I think they were leaving that Mr. Justice Blackmun to the District Court if there should be a recovery.

Our brief itself as I said, indicates that the Railroad and Amoskeag would be amenable to such a decree because the main family is interested in railroads.

Justice William J. Brennan: Mr. Lefkowitz, how much of the holding of the Court of Appeals, does it disagree with Judge Gnew on Maine law?

Mr. Mr. Alan L. Lefkowitz: As I understand, it really very little -- i think the main part of the Court of Appeals' holding goes to the heart of the separate identifiable interest of the public in the railroad as contrasted with the interest of only it's controlling stockholder.

Justice Harry A. Blackmun: And that's in no respect to Maine law?

Mr. Mr. Alan L. Lefkowitz: That is supported by Maine law.

There is also a case which we cite in our brief, Wells Beach Casino which states in affect that Rule 23, the equivalent of Rule 23 can be suspended and it will be suspended in Maine in order to allow suits where they are equitable considerations involved such as here.

So I believe that Maine Law is as strong if not stronger than Federal Law in allowing this case based on the Wells Beach Casino case.

Justice William H. Rehnquist: Well do you concede that the propriety of Judge Gnew's ruling if this were the Alpha, Delta, Widget Company rather than a Railroad?

Mr. Mr. Alan L. Lefkowitz: I think that and I thought a lot about this.

I think that I would have to say to you that if it were Mom and Pop Corporation or a Widget Company such as you are suggesting Mr. Justice Rehnquist, I think that in no circumstances I would have to say we are not -- this case will not support that because of the strong public interest that is involved with the railroad and probably not a strong public interest involved with a Widget Company.

Bangor & Aroostook Railroad is a public utility under the law of the State of Maine.

It's completely regulated as a utility.

It is completely regulated by the inter state commerce commission.

We are dealing with a -- it seems to me we are dealing with the easiest case under these circumstances.

This the so called private corporation which it is, but this is the private corporation which is probably more regulated than any other private corporation, why, because of the public interest in this corporation and it's that separate identifiable public interest which the First Circuit found gave this case a different treatment.

Chief Justice Warren E. Burger: Under Maine Law are there dividends regulated in any way?

Mr. Mr. Alan L. Lefkowitz: As far as I know not except in the usual course which is that they can in para capitals.

Chief Justice Warren E. Burger: No, other -- no other --

Mr. Mr. Alan L. Lefkowitz: There is no other regulation--

Chief Justice Warren E. Burger: Not the kind of regulation you tab over an electric utility for example on requirement to put their earnings back into reduced rates?

Mr. Mr. Alan L. Lefkowitz: Not that I know off sir under Maine Law.

On the other hand, I think Maine Law and Federal Law both suggest that the amount that can be earned by a regulated company such as this is limited by the amount of rates that they can charge and if there is an underlying public policy that you ought not to be able to take those regulated earnings and stick them up stairs and have them produce unregulated earnings for you.

Justice William J. Brennan: Mr. Lefkowitz even as to the Federal counts, the Securities and Exchange Act -- now is it your view that independently of Maine Law there is a Federal --?

Mr. Mr. Alan L. Lefkowitz: Yes sir.

Justice William J. Brennan: (Voice Overlap) is applicable?

Mr. Mr. Alan L. Lefkowitz: Yes sir very much so and we tried to point that out in our brief.

First of all, I say that the Federal counts we are talking about under Section 10 (b) of the 1934 Act and under the Antitrust Act, Clayton Act, Section 10 are strong indications of public policies which should be vindicated --

Justice William J. Brennan: So that even if Maine Law would disagree with the Court of Appeals, you still say that the Court of Appeals would be right as to the counts with threshold of Federal Law.

Mr. Mr. Alan L. Lefkowitz: Yes sir and I think that the use of Rule 23 --

Justice William J. Brennan: One other thing Mr. Lefkowitz?

Maine I see is one of the states that has adopted a certification statue, doesn't it?

Mr. Mr. Alan L. Lefkowitz: Yes sir.

Justice William J. Brennan: It permits the Federal courts to ask the Maine Supreme Court that what is Maine Law?

Mr. Mr. Alan L. Lefkowitz: Yes sir.

Justice William J. Brennan: Did -- was it ever suggested to the First Circuit that perhaps as to the Maine Law accounts at least that there ought to be that certification here?

Mr. Mr. Alan L. Lefkowitz: No sir it was not suggested as to those.

Although, I believe this First Circuit decision rested mainly on Federal counts.

Justice William J. Brennan: Well, that's my difficulty, but you have got 13 counts here which I think five at least are state law counts, on the worst condition --

Mr. Mr. Alan L. Lefkowitz: Those are the basically counts that are --

Justice William J. Brennan: You have the Maine Public Utilities Law, you have two or three common law counts which I gather must mean that Maine Common Law?

Mr. Mr. Alan L. Lefkowitz: Yes sir.

Now those were not passed upon, but I believe the Wells --

Justice William J. Brennan: Don't you think this is the sort of thing that extended -- turns on Maine law that we ought to ask that Court of Appeals might have asked --

Mr. Mr. Alan L. Lefkowitz: As to those --

Justice William J. Brennan: -- the Supreme Court what the Maine law is?

Mr. Mr. Alan L. Lefkowitz: As to those counts under Maine Law for convergence and violation of the statue under Maine Law, by possibly the Court of Appeals could have asked that, but I think again we are getting away from the main aspect of this case which is that this is the railroad suing to right the wrongs that was done to it.

When we start talking as Mr. Ryan does about Rule 23.1 and about standing to sue before this Court, we are really talking about second question that I said I would address myself to and that is what are you supposed to do if in fact a windfall inures to the benefits of Amoskeag in this case and I think there you have the question and the First Circuit dealt with it by saying that there was a public interest involved.

The question of do you punish the wrong doer for statutory violations of Federal Law and of State Law or do you let the wrong doer go scat free as it were because of the fact that there maybe a windfall to the present controlling stockholder.

Justice Byron R. White: As interest?

Mr. Mr. Alan L. Lefkowitz: Yes sir the present innocent controlling stockholder Justice White.

There is no question about that this present stockholder didn't participate at all in what was done prior to the time Amoskeag acquired its stock.

The Home Fire Insurance case which everybody relies upon and my brother relies upon in opposition to this, show that a new controlling stockholder who had received the benefit of his stock by reason the wrong doing of the buyer stockholder couldn't being to suit, but the corporation could bring this to suit when moneys was taken illegally from it, $3000 by an officer and the court, Dean Pound in that case wasn't worried about the $3000 inuring to the benefit of the present controlling stockholder.

That's why we think Home fire Insurance supports us.

What I would like to point out is the directors of this corporation had before them in the July of 1971, a report from the Bureau of Accounts, Interstate Commerce Commission, which had been made public.

And that had said, “We recommend that all legal remedies be explored to require the holding company which sold the carrier to pay back to the carrier for assets taken, with no compensation, and charges made where no services were performed” and the Interstate Commerce Commission as they point out in their brief simply couldn't do anything of about this, they had no jurisdiction over one Railroad holding companies.

They had no jurisdiction over the transfer of assets, from one corporate affiliate to another.

So if a director of the Bangor & Aroostook Railroad at that time saw that statement in the Bureau of Accounts report as they did, in July of 1971, what were they supposed to do to discharge their fiduciary duty.

As a matter of fact, as the record points out a majority of the board, of the Bangor & Aroostook Railroad in July of 1971 were members of the prior board, the board which had sat, while these assets where being taken away unbeknownst to them, presumably and a majority of that number actually voted to bring this lawsuit.

So it was not a case where Amoskeag walked in, changed the entire Board of Directors and said now, let see what we can do, to get back what was taken out of this corporation.

It was the old board majority that authorized the bringing of this suit.

Justice William H. Rehnquist: What was the one percent it wasn't control by Bangor Punta had brought a minority stockholders action while Bangor Punta owned 99% and forced in effect the corporation to sue on the same count your suing on now.

Suppose there had been a recovery, that recovery would have operated to enhance the value of BAR stock, wouldn't it?

Mr. Mr. Alan L. Lefkowitz: It would have inured to the benefit of the corporation.

The question is really I think, would it have been enhanced the value of the stock.

I think that in these situations where you are making sales, as we tried to point out in our brief, the usual question is, what are these properties worth and what would be savings that will be accomplished if you are putting railroads together or flatten out the earnings projection so that you get not a one time profit, but a realization of what the railroad on a day-to-day base is worth.

So yes, possibly it might have enhanced the price of the stock, but I don't think really as much as it does in normal corporate kind of arrangement, I think the Railroad situation is something different along those lines.

Justice William H. Rehnquist: Well to the extent that it would have enhanced the value of the stock, Amoskeag would have to pay more for it than when it bought it?

Mr. Mr. Alan L. Lefkowitz: Yeah, that's what I am saying, I really don't know.

I am not convinced that they would have because it might have been a one time increase in earnings which would be so called leveled out.

Justice William H. Rehnquist: Well because that wouldn't be treated on the books as increase in earnings, where they would have been --

Mr. Mr. Alan L. Lefkowitz: I think ICC accounting, it may have to be treated that way, but as you are speaking, so I think that it will enhance perhaps the value of the assets.

Justice William H. Rehnquist: It would certainly increase -- it was 15 million dollars more in the corporation, it would be certainly increase the net worth?

Mr. Mr. Alan L. Lefkowitz: Yes sir it would.

Justice William H. Rehnquist: And that's would have some effect --

Mr. Mr. Alan L. Lefkowitz: That would have some effect upon what they -- I wish to emphasize incidentally that although there is -- Amoskeag paid five million for the stock and there is a recovery you cited, it's not seven million dollars, that's when you add up all the various kinds together.

It's more like two or three million dollars so it is not an access really of the purchase price.

Chief Justice Warren E. Burger: If there is one percent minority stockholders had brought a derivative suit and recovered substantially long before this new transaction, a new purchaser would have to pay quite a bit higher price for the Railroad, wouldn't they?

Mr. Mr. Alan L. Lefkowitz: That's what I am not clear about Mr. Justice Burger.

Perhaps --

Chief Justice Warren E. Burger: I suppose hypothetically there was a -- in the derivative of stockholders suit there was a five million dollar recovery?

Mr. Mr. Alan L. Lefkowitz: Yes, sir.

Chief Justice Warren E. Burger: You suggest there is any doubt, but that would increase the value and therefore the probable asking purchase price?

Mr. Mr. Alan L. Lefkowitz: Would be higher, indeed might be, and probably would.

So that the question now is, are we going to let that be controlling consideration for this Court or are we going to allow the corporation itself now to try and recover for the wrongs, which were done upon it when it was controlled by Bangor Punta.

And again I would like to stress, I think it's the public interest aspect of this the fact that this Railroad is a highly regulated company, which gives special meaning, in this circumstance to bringing this lawsuit.

Now, let's assume for example, that the one percent stockholders now ask the corporation to bring a derivative action, we would be met by the same argument, if we were before this Court that where presently met with.

That is the real party in interest, even though shareholder here has asked that a derivative suit be brought, the real party in interest is Amoskeag and therefore there can't be any recovery beyond the one percent, based on the Headley case.

We suggest to this Court that Headley case really isn't controlling under such circumstances.

That if a derivative action were to commence now, the better rule would be to allow the corporation to recover fully, for what have been done against it.

The affective going with judge Gnew who dismissed the entire action, is that nobody will ever be able to right the wrongs here.

Each time we'll be faced with the Rule 223.1 argument, because the court will say, pardon me Mr. Ryan in effect will say sorry this is a windfall to Amoskeag.

The Headley case controls.

In fact it seems to us that this being the kind of corporation that it is, a Railroad with the strong public interest, that shouldn't be the case.

Somebody ought to be able to recover for this.

I think basically those are the -- that is the essence of the case.

First, that this is unquestionably the Railroad suit.

It was brought by the Railroad's directors in response to the Bureau of Accounts.

The ICC could do nothing about it.

Bureau of Accounts report said that the directors of the corporation to do something and in discharging their fiduciary duties a lawsuit was commenced.

The real question then, I don't think there is any question about who is bringing the suit, the real question then is, is the windfall argument going to out pace the argument which says that this Railroad ought to be able to right the wrongs that it was done to it.

We earnestly submit to this Court that the answer ought to be allow this Railroad because it is a Railroad to bring this lawsuit.

Things can be done if there is a recovery to ensure to a great degree that any recovery will be used for the benefit of the public, by strengthening the Railroad, by allowing it to give better service to those who it does serve.

Thank you very much.

Chief Justice Warren E. Burger: Mr. Ryan.

Rebuttal of James V. Ryan

Mr. James V. Ryan: Just two points; Mr. Justice Brennan on the question as to whether a certification would have been required here.

In point four of our reply brief, we point out that under the law of Maine, there is no substantive right here.

That it's been abridged, that under the law, that if the this was the suit in Maine the Hyams case would have controlled the results.

So there is no need to have a certification as you suggest the law on that aspect that Maine state law --

Justice William J. Brennan: Well, I gather each of you insist that the Maine law is federal in your favor?(Voice Overlap)

Mr. James V. Ryan: I address your attention to the point four, Your Honor.

Justice William J. Brennan: Well I know, but so you say and Mr. Lefkowitz cite to something else what he says is settles the law on his side of it.

I would suppose that would be a good situation, let the Maine Supreme Court follow with the lawyers.

Justice Byron R. White: Mr. Ryan, let's assume for the moment that someone has removed assets from the corporation illegally, and has assets to the corporation that he has converted to his own use.

What real reason is there to prefer him do the corporation and his new owner when a suit is brought to recover those illegally converted assets?

Mr. James V. Ryan: Well, I think you use any windfall --

Justice Byron R. White: You said as windfall, but so that may be, but if the assets are not recovered it's a windfall to a wrong doer?

Mr. James V. Ryan: Well, I know why are the -- the person who practice the corporation, purchases the balance sheet, and a balance sheet --

Justice Byron R. White: Conceding the windfall, Mr. Ryan?

Mr. James V. Ryan: The party is an uninjured party and if you are going to permit uninjured parties to maintain action to recover alleged deprivations of assets, well then --

Justice Byron R. White: Well what could you do with all the assets that have been illegally converted, leave them with them the wrong doer?

Mr. James V. Ryan: I don't -- I think it's you can't say they have been illegally converted.

Justice Byron R. White: Let's assume --

Mr. James V. Ryan: Well, assume that they are illegally converted --

Justice Byron R. White: Well that's what the lawsuit is all about?

Mr. James V. Ryan: I say that, there maybe people who could maintain the action.

In this case the one percent, assuming there was some real property subject to one percent could maintain the action --

Justice Byron R. White: The Corporation -- the corporation normally represents all the people who are interested as a corporation, and that one percent would certainly benefit if the corporation recovered these illegally converted assets if they have been illegally converted, but that is what the lawsuit is all about?

Mr. James V. Ryan: That is quite true, but I think when you look at this corporation, you look at what?

You look at really Amoskeag?

That is what's standing there, not the corporate --

Justice Byron R. White: But you are just arguing again that it is a windfall, and I am asking why?

Mr. James V. Ryan: Essentially yes, Your Honor.

Justice Byron R. White: I am asking why prefer the wrong doer to someone who might receive windfall -- an innocent party might receive a windfall?

Mr. James V. Ryan: Well, the only way I guess, I could answer that if you are going to permit that type of a situation, then you are going to have a lot of people going around bringing lawsuits, who haven't been injured, but are going to re-rectifying wrongs and you know, if you are going to find a lot people who are going to be able -- who are going to want to go around and sue for $5,000,000 and they haven't been injured.

Now they claim, they buy a corporate share and they do a lot of things.

What you are in effect saying is Your Honor is that we should permit bounty hunters.

Justice Byron R. White: Well I take it you would have the same -- you would have the same -- take the same position if there have been a 100 stockholders of the old corporation and then there had been mismanagement and alleged conversion of assets and then a 100 all sold-out to Amoskeag?

Mr. James V. Ryan: Then, you are changing it.

Here you have Bangor Punta is the one who has supposedly have stolen all the assets.

Justice Byron R. White: How about my question now?

Let us assume a 100 stockholders but now there is only one, and he is suing for a wrong that was done when he was not a stockholder, but there used to be a 100 when the wrong was done, now what about that?

Mr. James V. Ryan: I think you would have to evaluate each transaction.

I mean, if the party was defrauded, he would have certain remedies, if he were injured, he would have certain remedies.

This one of the 100 who could maintain action, actions under the securities law, actions under the common law, but that is not this situation because the person who was injured, Mr Justice White, was Bangor Punta, it took its own assets and if you left the assets then, as Mr Chief Justice said --

Justice Byron R. White: That's a critical part of your position I take it that not only is their sole stockholder now, who did not own a stock when the wrong was done, but there was a sole, in effect a sole stockholder when the wrong was done?

Mr. James V. Ryan: I think that there is no injured party before the Court.

Now whether you have one or whether you have a hundred, I think the basic proposition is that Amoskeag was not injured and if there was anybody who was injured it was Bangor Punta.

I keep coming back, Your Honor.

Chief Justice Warren E. Burger: Thank you, gentlemen.

The case is submitted.