Alleghany Corporation v. Breswick & Company/Dissent Douglas

Mr. Justice DOUGLAS, with whom The CHIEF JUSTICE and Mr. Justice BLACK concur, dissenting.

Alleghany Corporation, though not a carrier as that term is used in the Interstate Commerce Act, is subject to supervision by the Interstate Commerce Commission, 49 U.S.C. § 5(3), 49 U.S.C.A. § 5(3), and exempt from the control of the Securities and Exchange Commission under the Investment Company Act of 1940, 15 U.S.C. § 80a-3(c)(9), 15 U.S.C.A. § 80a-3(c)(9), if it has the approval of the Interstate Commerce Commission to 'acquire control of two or more carriers through ownership of their stock or otherwise.' 49 U.S.C. § 5(2) (a)(i), 49 U.S.C.A. § 5(2)(a)(i).

'Control' as used in § 5 is defined in § 1(3)(b):

' * *  * to include actual as well as legal control, whether      maintained or exercised through or by reason of the method of      or circumstances surrounding organization or operation,      through or by common directors, officers, or stockholders, a      voting trust or trusts, a holding or investment company or      companies, or through or by any other direct or indirect      means; and to include the power to exercise control.'

'Control' thus means 'actual' as well as 'legal' control and includes the exercise of 'indirect' as well as 'direct' means. It seems obvious, thereofre-so obvious as to be beyond the realm of dispute or argument-that if one has 'actual' control through 'indirect' means and changes the means whereby he commands that power, he has only retained 'control,' not acquired it within the meaning of § 5(3). For one wno has 'control,' as defined, does not acquire it when he merely changes the method or means of its exercise. Yet it is clear that Alleghany did no more than that.

Alleghany has control of the New York Central.

Most of the stock of the Big Four (Cleveland, Cincinnati, Chicago & St. Louis R. Co.) is owned by Central. The lines of the Big Four are operated by Central as lessee.

There is a Bridge Company (the Louisville & Jeffersonville Bridge & R. Co.) whose stock, prior to the transaction about to be discussed, was owned by the Big Four and held by Central under the lease.

Alleghany, Central, the Big Four, and the Bridge Company applied to the Interstate Commerce Commission for permission to merge the Bridge Company into the Big Four and for Central thereafter to operate the properties of the Bridge Company under the Big Four lease. The merger was an intra-system rearrangement of properties that did not affect one whit Alleghany's 'control' in the statutory sense of the Bridge Company. Before the merger Alleghany had 'control' of the Bridge Company. It therefore did not 'acquire control' but only retained it as a result of the merger.

There was another transaction which Alleghany says caused it to 'acquire control' of a carrier within the meaning of § 5(3) and therefore to have a carrier status under the Interstate Commerce Act. Alleghany and Central applied to the Commission for permission to acquire the stock of Boston & Albany R. Co., Pittsfield & North Adams R. Corp., and Ware River R. Co. Central was operating the properties of those three roads under leases-two of the leases being for 99 years each and one for 999 years. The Commission approved this stock acquisition by Central.

There are two reasons why this transaction did not give Alleghany a carrier status. In the first place, § 5(3) gives a noncarrier the status of a carrier only 'to the extent provided by the Commission in such order.' The Commission made no such order in connection with the acquisition of the stock of the three New England carriers.

In the second place Alleghany, through Central, had 'actual control' of those three carriers prior to the acquisition of their stock. That 'control' was evident by the long-term leases over the properties of those carriers. Alleghany, therefore, did not 'acquire control' when Central acquired the stock of the three companies. The form of Alleghany's control changed by the stock acquisition. But the financial master of the three New England carriers was the same before Central acquired their stock, as it was afterwards. As stated by the District Court where a noncarrier is 'already in indirect control of a carrier' and the transaction relied upon 'still leaves the non-carrier in indirect control of such property, no acquisition by the non-carrier results from the merger.' 138 F.Supp. 123, 127-128.

The court that made that ruling had as one of its members the late Judge Frank, who had no superior when it came to an understanding of the ways of high finance and to an analysis of regulatory measures dealing with it. I see no answer to what Judge Frank and his colleagues concluded on this phase of the case.

That view of § 5(2) is plainly reflected in the legislative history. This control over noncarriers who acquired control of carriers was introduced in 1933. Commissioner Eastman pointed out to Congress the evil which was to be remedied-'holding companies have been bringing carriers under common control and hence combining them without any supervision or approval by the commission.' The Senate Report stated that the amendment gave the Commission control over holding companies that 'effect consolidations without approval of the commission.' To acquire control' within the meaning of § 5(2) means then to put under common control carriers that previously were separate. We would strain to find a construction which would enable holding companies to run for shelter under the Act merely because, within the system they control, there have been corporate rearrangements or readjustments that change the internal structure of the system.

Alleghany points with alarm to the loopholes in the law that will be created if it is held that Alleghany did not 'acquire' control in connection with the Bridge Company merger and the acquisition of the stock of the New England carriers. No loopholes will be created. Central could do neither of those two things without the approval of the Commission, since § 5(2)(a) requires Commission approval of many intra-system transactions by carriers. That is the force of the holding in New York Central Securities Corp. v. United States, 287 U.S. 12, 53 S.Ct. 45, 77 L.Ed. 138. The loophole that is created comes from granting Alleghany a carrier status. Then Alleghany escapes the far more rigorous supervision which is imposed on it by the Investment Company Act.

The only other means by which Alleghany could have acquired a carrier status was in connection with financial transactions long since liquidated. Alleghany had a carrier status, granted it by the Interstate Commerce Commission, when it acquired the stock of the Chesapeake & Ohio R. Co. and two other carriers. That order, issued in 1945, gave it a carrier status 'unless and until otherwise ordered' by the Commission. That order was terminated by the Commission on May 24, 1955.

The approval of the preferred stock issue that is involved in this litigation did not come until later, viz. June 22, 1955. At that time it seems plain that Alleghany had no carrier status and could not obtain one on the basis of the intercorporate transactions on which it relies.

I would affirm the judgment below.