County of Marin v. United States , 150 F. Supp. 619 ( 1957 )

OLIVER J. CARTER, District Judge.

This action has been brought to restrain the enforcement of, and to set aside an order of the Interstate Commerce Commission which approved and authorized a plan of the Pacific Greyhound Lines to transfer its San Francisco commuter operation to its new subsidiary, the Golden Gate Transit Lines, hereinafter referred to as “Pacific” and “Golden Gate”, respectively. Jurisdiction of this Court is sought under 28 U.S.C. § 2325 and 28 U.S.C. § 2284. The complaint attacks the authority of the Commission to make the order of approval, and has been brought by the counties of Marin, Contra Costa, each of which lies across the bay from San Francisco, and two commuter associations. Named as defendants are the United States and the Interstate Commerce Commission, and these parties, after answering, moved for a judgment on the pleadings. Golden Gate, Pacific, and the parent of Pacific, the Greyhound Corporation, all joining as defendants in intervention, have moved to dismiss the complaint for failure to state a claim.

Each of these motions raise the same question, whether the Commission was correct in ruling that section 5(2) (a) of the Interstate Commerce Act, 49 U.S. C.A. § 5(2)(a), gave jurisdiction to approve the proposed transaction. That section requires approval of the Commission,

“* * * for two or more carriers to consolidate or merge their properties or franchises, or any part thereof, into one corporation for the ownership, management, and operation of the properties theretofore in separate ownership; or for any carrier, or two or more carriers jointly, to purchase, lease, or contract to operate the properties, or any part thereof, of another; or for any carrier, or two or more carriers jointly, to acquire control of another through ownership of its stock or otherwise; or for a person which is not a carrier to acquire control of two or more carriers through ownership of their stock or otherwise; or for a person which is not a carrier and which has control of one or more carriers to acquire control of another carrier through ownership of its stock or otherwise;”. (Emphasis added.)

It is the meaning of the italicized portion of the section which is in dispute here. The proposal is to transfer the properties and operating rights used to serve the San Francisco Bay Area commuter service, to Golden Gate, and Pacific would concurrently acquire control of Golden Gate by taking back all of its capital stock. By the same transaction, Greyhound Corporation, through its ownership of Pacific, would also acquire control of Golden Gate. The plaintiffs claim that this does not come within the italicized portion of Section 5(2) (a) because the section was only intended to cover cases where a carrier or carriers seek to acquire control of another existing carrier, and that Golden Gate will not acquire a carrier status until the operating rights of Pacific have actually been transferred to it.

We have no difficulty in finding that the proposed transaction is covered by the language of the section; it merely says that approval of the Commission is required when one carrier acquires control of another. That is precisely what the Greyhound Corporation and Pacific are seeking to do here; although Golden Gate will not attain the status of a carrier until the operating rights of Pacific are transferred to it, neither will the parent corporations acquire control until then, for the properties and operating rights are to be simultaneously exchanged for the stock.

The real thrust in the plaintiffs’ argument that the section does not cover the proposed transaction lies in their contention of legislative purpose in enacting this legislation. It is argued that in enacting Section 5 Congress only intended to cover consolidations, unifications, and mergers of carrier control; that there was no intention to cover the case of an existing carrier splitting up its operations, which Pacific seeks to do here. This version of the Congressional intention is buttressed by excerpts showing that Congress, in enacting Section 5, as part of the Transportation Act of 1940, 54 Stat. 905, was endeavoring to inject economic strength into failing carriers, by permitting them to combine and consolidate, providing their plans met with certain other tests.

We assume that the dominant purpose of Section 5(2) was to reach cases in which carriers sought to unite their control. But we think the plaintiffs’ version of Congressional purpose underlying Section 5 is too narrow, and that it ignores the whole regulatory scheme of the Interstate Commerce Act. Section 5(2) (a) was not newly conceived in the Transportation Act of 1940. We find that Section 5 of the Transportation Act of 1920, 41 Stat. 456, contained provisions substantially like those found in the present statute. While the 1920 Act applied only to railroad carriers, Congress had already determined the necessity of subjecting transactions affecting carrier control to the scrutiny of the Interstate Commerce Commission. In 1948, the Supreme Court reiterated the purpose of the 1920 Act in Schwa-bacher v. United States, 334 U.S. 182, 68 S.Ct. 958, 963, 92 L.Ed. 1305, where it said:

“In a series of decisions on particular problems, this Court defined the general purposes of that Act to be the establishment of a new federal railway policy to insure adequate transportation service by means of securing a fair return on capital devoted to the service, restoration of impaired railroad credit, and regulation of rates, security issues, consolidations and mergers in the interest of the public. The tenor of all of these was to confirm the power and duty of the Interstate Commerce Commission, regardless of state law, to control rate and capital structures, physical make-up and relations between carriers, in the light of the public interest in an efficient national transportation system. [Citing cases].” (Emphasis added).

So far as it was the purpose of Congress to have the Interstate Commerce Commission control the capital structure, physical make-up and relations between carriers under the power conferred by Section 5, we are unable to read out of the statute the transaction at hand.

We also find support for upholding the jurisdiction of the Commission here in New York Central Securities Corp. v. U. S., 1932, 287 U.S. 12, 53 S.Ct. 45, 46, 77 L.Ed. 138. The question was whether Section 5(2) then applying only to railroad carriers, 41 Stat. 456, and requiring Commission approval when one carrier acquired control of another “either under a lease or by the purchase of stock” reached a transaction where a parent corporation leased the properties of its subsidiary. The Supreme Court held that the leasing constituted an acquisition of control within the language of the Act, over the argument that the parent already controlled the carrier properties through its ownership of the stock of the subsidiary. There was no new control acquired that did not exist before in a different degree, but merely a change in the form of the control. The proposal in the instant case is to change the degree or form of control over the properties of the carrier, by transferring them to the subsidiary Golden Gate, and we think that the above holding requires that it be approved by the Commission under the present Section 5(2).

We find no cases construing the pertinent language of Section 5(2) (a) since it was expanded to include motor carriers, but there are judicial decisions construing comparable provisions in the Civil Aeronautics Act. Section 408 of that Act, 49 U.S.C.A. § 488, provides that:

“(a) It shall be unlawful, unless approved by order of the Board as provided in this section * * *

(5) for any air carrier or person controlling an air carrier, any other common carrier, or any person engaged in any other phase of aeronautics, to acquire control of any air carrier in any manner whatsoever

In Pan American Airways Co. v. Civil Aeronautics Board, 2 Cir., 1941, 121 F.2d 810, 815, American Export Airlines Inc., organized as a subsidiary to American Export Lines, Inc., a common carrier by water, applied to the Civil Aeronautics Board for a certificate permitting it to do business as an air carrier, and in addition, approval of control of it by its parent American Export Lines, under the above section. The Board dismissed the application for approval of control, on the same theory which plaintiffs invoke here, viz., the control provision did not reach a transaction unless the air carrier sought to be controlled was already an air carrier. Judge Hand rejected this interpretation, reversed the dismissal, and remanded the case to the Board, stating:

“This seems to us an unduly literal interpretation of subdivision (5). In our opinion ‘to acquire control of any air carrier in any manner whatsoever’ is to take all steps involved in obtaining control, which in this case would consist in supplying a subsidiary corporation, organized for air carriage and possessing adequate financial resources, with a certificate authorizing operation. Any other interpretation would enable a steamship company, by organizing a subsidiary for air carriage, to escape the requirement of Section 408(b) that the ‘Authority shall not enter * * * an order of approval unless it finds that the transaction proposed will promote the public interest by enabling such carrier other than an air carrier to use aircraft to public advantage in its operation and will not restrain competition’ ”.

The reasoning of Judge Hand is equally applicable here. Section 5(2), subdivision (c) of the Interstate Commerce Act supplements Section 5(2) (a) in stating:

“In passing upon any proposed transaction under the provisions of this paragraph (2), the Commission shall give weight to the following considerations, among others: (1) the effect of the proposed transaction upon adequate transportation service to the public; * * * (3) the total fixed charges resulting from the proposed transaction; and (4) the interest of the carrier employees affected.”

If Greyhound is free to make substantial alterations in its corporate structure, to create subsidiaries to take over part of its existing operation, or perhaps to venture into new areas, without the necessity of seeking Commission approval, the function of that body to assure adequate transportation service to the public is unduly restricted.

Finally we note that the Interstate Commerce Commission itself has, on other occasions, ruled that the type of transaction which Pacific Greyhound proposes is a Section 5 transaction. See: Columbia Motor Service Co. — Purchase —Columbia Terminals Co., 35 M.C.C. 531, and Consolidated Freightways, Inc., ■ — Control—Consolidated Convoy Co., 36 M.C.C. 351, which were decided shortly after Section 5(2) was enacted into its present form. In each of these cases motor carriers sought and obtained Commission approval to transfer a part of their operation to a newly created corporation, whose carrier status had to await the completion of the transaction. See also: Takin — Purchase—Takin Bros. Freight Line, Inc., 37 M.C.C. 626, and Gelhous & Holobinko — Control, 60 M.C.C. 167. The Supreme Court has made itself clear regarding the weight to be given to Commission interpretations of the Interstate Commerce Act. In United States v. American Trucking Associations, 1940, 310 U.S. 534 at page 549, 60 S.Ct. 1059, at page 1067, 84 L.Ed. 1345, it said:

“In any case such interpretations are entitled to great weight. This is peculiarly true where the interpretations involve ‘contemporaneous construction of a statute by the men charged with the responsibility of setting its machinery in motion; of making the parts work efficiently and smoothly while they are yet untried and new.’ ”

We therefore hold that the Commission was correct in holding that it had jurisdiction to approve the transaction in question, and both motions should be granted.

There remains one further issue to be decided. During the final arguments on the motions to dismiss and for judgment on the pleadings plaintiffs, County of Marin, County of Contra Costa, Marin County Federation of Commuters Clubs, and Contra Costa Commuters Association, asked for permission to amend the complaint. After the motions had been submitted these plaintiffs formally moved the Court for permission to amend the complaint by adding allegations challenging the findings of the Commission that the transaction between Pacific and Golden Gate was consistent with the public interest, and that the Commission abused its discretion in denying plaintiff’s petition for rehearing and reconsideration. The effect of the motion to amend is to inject into the case the completely new issue of the sufficiency of the evidence to support the findings of the Commission. The complaint, as originally framed, raised only the issue of jurisdiction, and the motions to dismiss and for judgment on the pleadings were argued and submitted only on that issue. Plaintiffs concede that the proposed amendment attempts to raise issues known to them at the time of the filing of the complaint and at the time of the hearings on the motions. They argue, however, that under the liberal provisions of Rule 15(a) of the Federal Rules of Civil Procedure, 28 U.S.C. the amendments should be permitted.

The motion for leave to amend is addressed to the sound discretion of the Court, and must be decided upon the facts and circumstances of each particular case. It would serve no useful purpose to review the many cases dealing with Rule 15. It is sufficient to say that the power of the Court to permit amendment should not be used to completely change the theory of the case after the case has been submitted to the Court on another theory without some showing of lack of knowledge, mistake or inadvertence on the part of the party seeking amendment, or some change of conditions of which that party had no knowledge or control. Plaintiffs have made no such showing here. The motion to amend is denied.

Counsel for defendants and defendants in intervention are directed to prepare and present orders in conformity herewith.