Service Date: May 7, 1969. ORDER INTERSTATE COMMERCE COMMISSION FINANCE DOCKET No. 25647 APPLICATION OF ABRAHAM M. BUCHMAN, UNDER SECTION 20A (12) OF THE INTERSTATE COMMERCE ACT Present: Kenneth H. Tuggle, Commissioner, to whom the above-entitled matter has been assigned for action. It appearing, That by application filed April 23, 1969, Abraham M. Buchman seeks under section 20a (12) of the Interstate Commerce Act authority to hold the position of Director with the Monon Railroad, while holding the position of Director of Missouri-Kansas-Texas Railroad Company; It further appearing, That the Monon Railroad and Missouri-Kansas-TexasRailroad Company are not affiliated by stock holdings in one another or in any other manner; It further appearing, That under the provisions of the act, applicant herein has the burden of making an affirmative showing, sufficient to convince the Commission beyond doubt, that neither public nor private interests will suffer by his assuming the position for which he herein seeks authority; In re Astor, 193 I.C.C. 528; In re Boatner, 257 I.C.C. 369; and It further appearing, That no showing has been made sufficient to convince the Commission that neither public nor private interest will be adversely affected by the proposed assumption by applicant of the position of Director with the Monon Railroad: It is ordered, That the application of Abraham M. Buchman for authority to hold the position of Director with the Monon Railroad be, and it is hereby, denied. Dated at Washington, D.C., this 30th day of April, 1969. Service Date: May 5, 1969. ORDER INTERSTATE COMMERCE COMMISSION FINANCE DOCKET No. 25628 H. NEIL GARSON, Secretary. IN THE MATTER OF THE APPLICATION OF THOMAS MELLON EVANS UNDER SECTION 20A (12) OT THE INTERSTATE COMMERCE ACT Present: Kenneth H. Tuggle, Commissioner, to whom the above-entitled matter has been assigned for action. It appearing, That by application filed April 14, 1969, Thomas Mellon Evans seeks under section 20a (12) of the Interstate Commerce Act authority to hold the position of Director with the Southern Pacific Company, a railroad, while holding the position of Director of Pittsburgh & Lake Erie Railroad Company; It further appearing, That the Southern Pacific Company and Pittsburgh & Lake Erie Railroad Company are not affiliated by stock holdings in one another or in any other manner; It further appearing, That under the provisions of the act, applicant herein has the burden of making an affirmative showing, sufficient to convince the Commission beyond doubt, that neither public nor private interests will suffer by his assuming the position for which he herein seeks authority; In re Astor, 193 I.C.C. 528; In re Boatner, 257 I.C.C. 369; and It further appearing, That no showing has been made sufficient to convince the Commission that neither public nor private interests will be adversely affected by the proposed assumption by applicant of the position of Director with the Southern Pacific Company: It is ordered, That the application of Thomas Mellon Evans for authority to hold the position of Director with the Southern Pacific Company be, and it is hereby, denied. Dated at Washington, D.C., this 25th day of April, 1969. H. NEIL GARSON, Secretary. Service Date: October 3, 1969 ORDER INTERSTATE COMMERCE COMMISSION FINANCE DOCKET NO. 25689 APPLICATION OF JOHN N. KIEFER, JR., UNDER SECTION 20A (12) OF THE INTERSTATE COMMERCE ACT Present: Kenneth H. Tuggle, Commissioner, to whom the above-entitled matter has been assigned for action. It appearing, That by application filed May 19, 1969, John N. Kiefer, Jr., seeks authority under section 20a (12) of the Interstate Commerce Act to hold the position of Director with the Livonia, Avon & Lakeville Railroad Corporation, while holding the position of Vice President, General Manager of the Genesee and Wyoming Railroad Company; It further appearing, That the Livonia, Avon & Lakevile Railroad Corporation and the Genesee and Wyoming Railroad are not affiliated by stock holdings in one another or in any other manner; It further appearing, That under the provisions of the act, applicant herein has the burden of making an affirmative showing, sufficient to convince the Commission beyond doubt, that neither public nor private interests will suffer by his assuming the position for which he herein seeks authority; In re Astor, 193 I.C.C. 528; In re Boatner, 257 I.C.C. 369; and It further appearing, That no showing has been made sufficient to convince the Commission that neither public nor private interests will be adversely affected by the proposed assumption by applicant of the position of Director with the Livonia, Avon & Lakeville Railroad Corporation: It is ordered, That the application of John N. Kiefer, Jr., for authority to in one another or in any other manner; hold the position of Director with the Livonia, Avon & Lakeville Railroad Corporation be, and it is hereby, denied. Dated at Washington, D.C., this 24th day of September, 1969. H. NEIL GARSON, Secretary. Question 11. Do you think that interlocking directorates with banks, along with the banks' substantial holdings of Penn Central stock in their trust departments and loans to the Penn Central, might give them practical control over the railroad? Answer. It is conceivable that control of a railroad might be achieved by a bank or group of banks where sufficient representation is acquired on the railroad's board of directors. Even if voting control is not achieved, a bank or banks could acquire a voice in the railroad's management in order to protect the funds which it has advanced to the railroad. As of this time, we have no knowledge that such was the situation in the case of the Penn Central Transportation Company. Question 12. Would banks tend to operate the railroad for the public's interest or the banks? Answer. In any corporation, the group acquiring control will tend to operate the corporation in a manner to protect its own interest. Otherwise there would be no point in acquiring control. The Commission believes railroad management should be retained firmly in the hands of transportation interests rather than being subject to the influence of outside interests, but the law as presently framed does not empower the Commission to control this. Question 13. Does the ICC have a new rule on interlocking directorates! What is it? What is its justification? Answer. Briefly, the revised regulations eliminate the necessity for an application under section 20a (12) when the interlocking positions would be part of a system operated under common control or management pursued under authority previously granted by the Commission under section 5 of the Interstate Commerce Act. The primary justification for the revision is to reduce the "expensive paperwork burden on the carriers involved and our staffs," which in this case serves "no current regulatory purpose" due to the prerequisite of section 5 authority and other reports and records available. Attached is a copy of this report, Revised Regulations Governing Officers, 336 I.C.C. 679, decided May 1, 1970, for your information and further details. F-9584 Served May 13, 1970 INTERSTATE COMMERCE COMMISSION EX PARTE No. 260 REVISED REGULATIONS GOVERNING INTERLOCKING OFFICERS Decided May 1, 1970 Regulations relating to interlocking officers and directors of carriers by railroad revised with respect to positions with railroads lawfully operated under common control and jointly used terminal properties. Appropriate order entered. William M. Moloney, C. C. Kimball, Hollis G. Duensing, W. J. McDonald, Jr., and F. L. Sigloh for proponents. BY THE COMMISSION: REPORT OF THE COMMISSION The existing regulations relating to authorizations of interlocking officers and directors of two or more carriers,' 49 CFR § 1112 (reproduced as appendix A to this report), date largely from 1921 and were last amended by an order dated December 1, 1931. By petition filed July 22, 1969, the Association of American Railroads (Association) proposes an amendment (see appendix B) which would make the regulations inapplicable to persons holding or proposing to hold the position of officer or director of more than one carrier when such carriers are lawfully operated under common control or management pursuant to approval and authorization granted by the Commission under section 5 of the Interstate Commerce Act. In a notice of proposed rulemaking and order served December 5, 1969, pursuant to the Administrative Procedure Act (5 U.S.C. § 553 and § 559), and sections 12, 17, and 20a (12) of the Interstate Commerce Act, the Commission stated that it had under consideration the amendment proposed by the Association, and that in lieu of applications presently required and individual orders of authorization for the holding of such positions, the Commission proposed to issue a blanket authorization upon a finding of general applicability, pursuant to section 20a (12), that neither public nor private interests will be adversely affected thereby. The notice, published in the Federal Register on December 9, 1969 (34 F.R. 19471-19472), described the bases for the proposal, set forth the proposed rule 1 Common carriers by railroad. Excluded are street. suburban, or interurban electric railways which are not operated as a part of a general steam railroad system of transportation. Sleeping car companies are included, but such companies are of no moment, since the last, The Pullman Company, canceled its tariffs effective December 31, 1968. (reproduced as appendix C), and named common carriers by railroad as respondents. Persons desiring to participate in the proceeding were invited to submit statements, including proposals for broadening or limiting the proposed rule. Responses to the notice were received from the Association, the Union Pacific Railroad Company, and Boise Cascade Corporation, all in favor of eliminating applications in the particular circumstances under consideration. The responses are summarized in appendix D to this report. In general, the Association questions the need for a blanket authorization insofar as the "supremacy" clause of section 5(11) of the act operates to eliminate the requirements of section 20a (12). Union Pacific asks that the proposed rule be broadened to exempt positions with older affiliates of longestabilshed systems acquired before authorizations under section 5 were required. Listed in appendix D are five terminal railroads in which Union Pacific or a subsidiary lawfully holds shares, acquired between 1882 and 1912, the properties of which are operated or used jointly with other railroad owners. REASONS FOR THE PROPOSED RULE As here pertinent, section 20a (12), the first sentence, reads: "After December 31, 1921, it shall be unlawful for any person to hold the position of officer or director of more than one carrier, unless such holding shall have been authorized by order of the Commisison, upon due showing, in form and manner prescribed by the Commission, that neither public nor private interests will be adversely affected thereby." a The regulations implementing this section require a voluminous and detailed application by each affected person desiring to hold a position as officer or director with more than one rail carrier. Approval is granted as a matter of course for service as officer or director of two or more carriers within an established system, it being considered that the finding contemplated by the statute properly may be made under such circumstances. During the years 1966 through 1969, inclusive, 796 interlocking applications were filed, about 99 percent of which involved positions within established systems. One railroad alone filed applications on behalf of 111 persons in 1968 following completion of a merger authorized under section 5. A typical application seeks authority for an individual to hold specified positions with named carriers in a single system, and general authority to hold a directorship and other positions with the named carriers, subsidiaries, and affiliates, including terminal companies the properties of which are operated or used by the specified carriers, either separately or jointly with other carriers. A typical order of authorization finds that neither public nor private interests will be adversely affected thereby, authorizes the individual to hold the specified positions, and grants the general authority sought, requiring a written notice before the applicant may accept or enter upon the performance of duties in any position covered by the general authority. BASES OF THE PROPOSED RULE Authority to adopt the rule proposed by the Association is to be found in paragraph (11) of section 5 of the act, as it has read since 1940: "The authority conferred by this section shall be exclusive and plenary and any carriers or other corporations, and their officers and employees and any other persons, participating in a transaction approved or authorized under the provisions of this section shall be and they are hereby relieved from the operation of the antitrust laws and of all other restraints, limitations, and prohibitions of law, Federal, State, or municipal, insofar as may be necessary to enable them to carry into effect the transaction so approved or provided for in accordance with the terms and conditions, if any, imposed by the Commission, and to hold, maintain, and operate any properties and exercise any control or franchises acquired through such transaction." 2 The statutory history of section 20a (12) and some early experience under it are set forth in Sharfman, The Interstate Commerce Commission, part I, pages 116-117. 193-195: part II. page 359; part III-A, pages 25-27, 388-404; and part IV, pages 286-287; see also Chesapeake & O. Ry. Co. Purchase, 271 I.C.C. 5. 17-21. 3 The provision relieving carriers from operation of the antitrust laws and other restraints or prohibitions, State or Federal, to enable them to do anything authorized or required by an order under section 5 first appeared in the Transportation Act of 1920. The provisions of section 5(11) are self-executing, and there is no need for the Commission expressly to declare what relief from other restrictions an authorization under section 5 carries with it. Chicago, St. P., M. & O. Ry. Co. Lease, 295 I.C.C. 696. The Interstate Commerce Act, as amended June 16, 1933 (48 Stat. 218), neither prohibits nor makes unlawful acquisitions effected before that date otherwise than pursuant to authority granted under section 5. Consequently, if the rule were limited as proposed by the Association to authorizations previously granted under section 5, a considerable administrative burden would remain with respect to the older established systems and affiliated terminal railroads, as exemplified by the Union Pacific system, subsidiary, lessor, and affiliated lines. A precedent for the broader rule sought by the Union Pacific covering relationships lawful but unrelated to authorizations under section 5 is to be found in three of our recent decisions: Removal of Truckload Lot Restrictions, 106 M.C.C. 455 (1968); Motor Service on Interstate Highways—Passengers, 110 M.C.C. 514 (1969); and Restrictions on Service by Motor Common Carriers, 111 M.C.C. 151 (1970). Common to each of these decisions is the determination that resolution of the respective problems posed necessarily should be accomplished by means of a general rule rather than by individual treatment on a case-by-case basis. Courts are increasingly recognizing the validity and necessity of administrative agencies replacing individual, repetitive, adjudicatory proceedings with substantive, general rule-making. In Regular Common Carrier Conference v. United States, 307 F. Supp.941 (D.C., 1969), which affirmed Removal of Truckload Lot Restrictions, supra, the court said: "Flexibility in agency proceedings is imperative so that an agency may carry out its policies in the most intelligent, expeditious and efficient manner possible, consistent with the requirements of due process." [Footnote omitted.] PURPOSE In considering the various responses to the notice of proposed rulemaking, comments and suggestions were requested from interested parties by letter dated March 10, 1970, on proposals "to eliminate all but not more than the presently routine-type applications and orders of authorization under section 20a (12)." The responses were favorable to the objectives, and the rule set forth in our findings evolved from such proposals. So stated, it is agreed that the rule shall not be interpreted to cover anything more than the routine-type situations. DISCUSSION AND CONCLUSIONS We are of the opinion that the existing regulations should be modified to the extent set forth in our findings. When carriers are lawfully operated under common control or management pursuant to approval and authority of the Commission previously granted under section 5 of the act, the "supremacy" clause of paragraph (11) of that section makes any authorization to their officers or directors-individually or generally-to exercise such control unnecessary. Applications and individual orders of authorization to hold interlocking positions with carriers in a lawfully established system cast an unnecessary and expensive paperwork burden on the carriers involved and our staff. We know of no current regulatory purpose served thereby. We have ample records of the intercorporate relationships between railroads, their lessors, proprietary companies, and switching and terminal companies. Our Bureau of Accounts compiles and publishes tables showing such relationships at the end of each year, and changes during the year.' The paperwork burden will be substantially lightened by the rule here adopted, and a blanket authorization will be granted to the extent that lawful control of the carriers involved is unrelated to an authorization under section 5. Transport Statistics in the United States, part I, sections C and D. For the year ended December 31, 1968, the tables were compiled from reports filed by 362 line-haul railroads (75 of which were class I and 287 were class II), 129 lessors to such railroads, 50 proprietary and other companies and 197 switching and terminal railroads. A high percentage of the companies listed in the tables were system, subsidiary, and affiliated lines. 50-934-71-pt. 1-14 |