FINANCE DOCKET No. 214441 IOWA TERMINAL RAILROAD COMPANY ACQUISITION AND OPERATION, BETWEEN MASON CITY AND CLEAR LAKE, IOWA Decided May 9, 1961 1. Requisite statutory findings made in relation to acquisition and operation by the Iowa Terminal Railroad Company of a line of railroad between Mason City and Clear Lake, Iowa. Conditions prescribed. 2. Requisite statutory findings made in relation to the issue by the Iowa Terminal Railroad Company of not exceeding 6,500 shares of common stock of the par value of $10 each, and not exceeding $100,000, principal amount, of first-mortgage bonds. Morris E. Laird for applicant. Eaton Adams and Martin L. Cassell for interveners. REPORT OF THE COMMISSION DIVISION 3, COMMISSIONERS TUGGLE, MCPHERSON, AND BUSH BY DIVISION 3: The Iowa Terminal Railroad Company, a corporation organized for the purpose of acquiring and operating lines of railroad in interstate or foreign commerce, on January 23, 1961, applied under section 5(2) of the Interstate Commerce Act in Finance Docket No. 21444 for authority to purchase a line of railroad presently operated by the Mason City and Clear Lake Railroad Company (Mason City) extending from Mason City to Clear Lake, Iowa, approximately 10.36 miles, together with approximately 9.30 miles of sidings, turnouts, and yard track, and to acquire all other properties and franchises of the Mason City, except corporate franchises, cash, bank accounts, corporate stocks, bonds, notes, and other credits receivable of every kind. By separate application filed January 25, 1961, in Finance Docket No. 21448, applicant applied for authority under section 20a of the act to issue (1) not exceeding 6,500 shares of common stock of the par value of $10 each, and (2) not exceeding $100,000, principal amount, of first-mortgage 5-percent bonds dated February 28, 1961, due March 1, 1971. 1 This report also embraces Finance Docket No. 21448, Iowa Terminal Railroad Company Securities. No representations have been made by any State authority. The Chicago, Rock Island and Pacific Railroad Company, which now interchanges traffic with the Mason City, was permitted to intervene for the purpose of proposing conditions under which future operations of the line by applicant should be conducted. Applicant has agreed to the conditions hereinafter detailed: (a) All routes and channels of trade via existing junctions and gateways will be kept open, unless otherwise authorized by this Commission. (b) The present neutrality of handling traffic inbound and outbound and in overhead service shall be continued so as to permit equal opportunity for service to and from all lines reaching the rails of this carrier without discriminating as to routing or movement of traffic, and without discrimination in the arrangement of schedules or otherwise. (c) The present traffic and operating relations existing between the carrier to be acquired, on the one hand, and all lines connecting with its tracks, on the other, shall be continued insofar as such matters are within the control of the Iowa Terminal Railroad Company. (d) All cars inbound and outbound and in overhead service, loaded and empty, shall be accepted, handled, and delivered without discrimination in promptness or frequency of service as between cars destined to or received from competing carriers, and irrespective of destination or route of movement. (e) Iowa Terminal Railroad Company shall not do anything to restrain or curtail the right of industries, located on the property in question, to route traffic over any or all existing routes and gateways. (f) Iowa Terminal Railroad Company shall refrain from closing any existing route or channel of trade with any carrier party to this proceeding or account of their control of the Mason City and Clear Lake Railroad Company, unless and until otherwise authorized by this Commission. (g) It should be understood that any party or any person having an interest in the subject matter may at any future time make application for such modification of the foregoing conditions, or any of them, as may be required in the public interest, and jurisdiction will be retained to reopen the proceeding on the Commission's own motion for the same purpose. The imposition of such conditions is for the purpose of protecting shippers and receivers of freight relying on the transportation services now available, and, since they are similar to conditions imposed in other proceedings for like protection, they will be incorporated into our findings and order by reference. A hearing is not necessary in the public interest. The proceeding has been certified to us by Finance Board No. 3 for decision. Applicant was incorporated in Iowa on December 19, 1960, for the purpose of acquiring the aforementioned assets of the Mason City. Its charter authorizes 25,000 shares of common stock of the par value of $10 each. The Mason City was incorporated on November 16, 1950, and was authorized to acquire and operate the line of railroad in question in Finance Docket No. 17143,2 Mason City & Clear Lake Railroad Company Purchase, 275 I.C.C. 816 (not printed in full), decided December 15, 1950. Its predecessors' operations are described in that proceeding. For the past several years the Mason City has not engaged in the transportation of passengers, but it has carried freight in both intrastate and interstate commerce. The line connects with the Chicago Great Western Railway Company; the Chicago, Rock Island and Pacific Railroad Company; the Chicago and North Western Railway Company; the Chicago, Milwaukee, St. Paul and Pacific Railroad Company; and The Minneapolis and St. Louis Railway Company at Mason City, at which point it interchanges standard freight cars. Section 5(2) of the act vests jurisdiction in this Commission to authorize : any carrier, or two or more carriers jointly, to purchase, * * the properties, or any part thereof, of another [carrier] ***. [Emphasis supplied.] The applicant in this proceeding, although organized to acquire a line of railroad, has never engaged in any transportation. Neither it nor the persons who control it are affiliated with any carrier subject to the act. Clearly the transaction will not result in the unification of the operations or property of two carriers, or in the control or management of two carriers in a common interest within the meaning of section 5. It is true that in Fox Purchase, 261 I.C.C. 95, on facts not distinguishable from those here, a contention that the transaction was not subject to section 5 was rejected and jurisdiction was assumed, citing Associated Rys. Co. Acquisition and Securities, 228 I.C.C. 277, and Minneapolis & St. L.R. Co. Reorganization, 244 I.C.C. 357. However, this view is contrary to the great weight of precedent in motor-carrier cases decided since the Transportation Act of 1940, and cannot be supported by the language of section 5. Compare Knaus-Lease-Knaus Truck Lines, Inc., 39 M.C.C. 267, and H & W Transp. Co.-Purchase-Burch, 45 M.C.C. 182. Although we are without jurisdiction over the purchase under section 5, where a noncarrier desires to acquire and operate a railroad, the provisions of section 1 (18) of the act requiring any person or corporation to obtain a certificate thereunder before engaging in railroad operations is applicable. Compare Texas & N.O.R. Co. v. Northside Belt Ry. Co., 276 U.S. 475, 479-480, and the Commission cases cited with approval therein. The provisions of section 1(18) of the act read as follows: 2 In Finance Docket No. 17144, Mason City & Clear Lake R. Co. Securities, 275 I.C.C. 816, the Mason City was authorized to issue $12,500 of common stock and $37,500 of income debenture bonds, the proceeds to be used for the acquisition authorized in Finance Docket No. 17143. no carrier by railroad subject to this part * * * shall acquire or operate any line of railroad, or extension thereof, or shall engage in transportation under this part over or by means of such additional or extended line of railroad, unless and until there shall first have been obtained from the Commission a certificate that the present or future public convenience and necessity require or will require * * * operation * ** of such additional or extended line * [Emphasis supplied.] We have consistently entertained applications by noncarrier corporations, under section 1 (18), proposing to engage in railroad operations. For example, in Finance Docket No. 21163, Belton R. Co. Acquisition and Operation (not printed), decided February 1, 1961, a corporation organized to acquire and operate a railroad, but which otherwise was not a carrier, was authorized to acquire and operate a line of railroad which had been abandoned. Furthermore, the Supreme Court in Texas & N.O.R. Co. v. Northside Belt Ry. Co., supra, stated: The mere fact that a railroad lies wholly within one State and is to be built by an independent corporation does not, of course, prevent the application of paragraphs 18 to 22. If it undertakes to engage in interstate commerce, its operation becomes immediately a matter of national concern and it comes within the purview of those paragraphs. Although the application was filed under section 5(2) of the act, we are not restricted to deciding the matter under that section. We are of the opinion that it may be considered as requesting necessary authority under section 1(18) if the procedural requirements of that section are met. With the exception of the requirements of posting and publication, as prescribed in the Commission's order of February 7, 1941, governing procedure under section 1(18), all requirements have been met and necessary information submitted. Our findings will be conditioned upon the compliance with such posting and publication requirements of the order of February 7, 1941. The line in question is an electrically operated railroad located entirely in one State. As previously described, however, it connects for the interchange of traffic with several railroads operating beyond the State, is a part of the general railroad system of transportation, and is not an electric interurban within the exception in section 1(22). See Piedmont & N. Ry. Co. v. Interstate Commerce Commission, 286 U.S. 299. Applicant and the Mason City have officers in common. The president of applicant, Charles E. Strickland, who will have no financial interest in such corporation, is also president of the Mason City and, together with his wife, the Stricklands own all the stock of the Mason City. The purchase is to be consummated according to the terms of an agreement dated December 16, 1960, subject to our approval, for a consideration of $125,000, consisting of $50,000 in cash and $75,000 in bonds. The Mason City has agreed to cause all claims and obligations of every kind, on the property, to be discharged prior to its transfer, except that real estate taxes will be prorated between the parties upon a proportionate basis computed as of the date of transfer. The $75,000 of bonds to be issued by applicant to finance the purchase, in part, will be delivered to the Mason City for subsequent distribution to the Stricklands. The $50,000 will be obtained by the applicant through the issuance of 6,500 shares of its common stock, all of which will be sold to Harold C. Boyer at its par value of $10 a share. Boyer is not a director, officer, or an employee of any other railroad and is not affiliated with any carrier. The balance of cash to be received from the sale of stock ($15,000) will be used by applicant for working capital purposes. The remaining $25,000 of bonds to be issued by applicant would be sold to Boyer for cash, and the proceeds will be used to make certain capital improvements to the properties as provided in the mortgage indenture, hereinafter referred to. The bonds will be issued under and secured by a first-mortgage deed of trust made with The First National Bank of Mason City, as trustee, encumbering all fixed assets and other tangible property of applicant. The bonds will be registered, both as to principal and interest, will bear interest at the rate of 5 percent per annum, payable semiannually, and will mature March 1, 1971. They will be callable on any interest payment date at par value plus accrued interest. The amount of bonds issuable under the indenture will be limited to $100,000. In consideration of the agreement of the Mason City to receive a part of the purchase price by acceptance of $75,000 of bonds of applicant, Boyer has entered into an agreement with the Stricklands under which, unless sooner redeemed by applicant, he would personally purchase from them $25,000 of such bonds at par, plus accrued interest, on or prior to February 28, 1962, an additional $25,000 of bonds at par, plus accrued interest on or before February 28, 1963, and all additional bonds then held by the Stricklands at par plus accrued interest on or before February 28, 1964. The 6,500 shares of stock to be sold to Boyer would be pledged by him as security for the performance of the aforesaid agreement. The property to be transferred includes all operating equipment, railway tracks, electric overhead trolley distribution system, real estate, and miscellaneous supplies and equipment as detailed in the application. The property has not been valued by the Commission nor has it been appraised by an outside appraiser for the purpose of the sale. Since the filing of the application, the date of transfer of |