The opinion of the court was delivered by: LASKER
The defendants move to dismiss the complaint or, in the alternative, for summary judgment in this antitrust action which constitutes the latest assault on the validity of an interstate bus merger which occurred in 1964. In that year Transcontinental Bus System, Inc. ("Transcon") acquired control of Queen City Coach Company ("Queen") and certain of its subsidiaries. The plaintiff, Interstate Investors, Inc. ("Investors"), whose efforts to acquire Queen had been rejected, sued Queen in the United States District Court for the Western District of North Carolina. That suit was settled and releases were given by Investors not only to Queen and others, but to Transcon. During the course of the North Carolina action, Investors intervened in proceedings before the Interstate Commerce Commission ("I.C.C." or "the Commission") which had been brought by Transcon to secure approval of the Queen acquisition. The hearing examiner rejected Investors' attack on the Transcon-Queen marriage; the I.C.C. affirmed the examiner. Investors then sued before a three-judge court in this District to enjoin or set aside the Commission's orders, filing a complaint which contained as item VI a section entitled "Antitrust Aspects of the Complaint." The three-judge court affirmed the Commission's orders and dismissed the antitrust aspect of the complaint "without prejudice to the filing within sixty days of an amended complaint stating the private claims for relief only to be heard before a single district judge." Interstate Investors, Inc. v. United States of America, Interstate Commerce Commission and Transcontinental Bus System, Inc., 287 F. Supp. 374, 385 (S.D.N.Y. 1968). The Supreme Court affirmed without opinion. Interstate Investors, Inc. v. United States, et al., 393 U.S. 479, 89 S. Ct. 707, 21 L. Ed. 2d 687 (1969).
The present motion is addressed to the amended complaint authorized in the opinion of the three-judge court. It alleges violations of the antitrust laws founded on overt acts, including the making of a written contract by Transcon and defendant Queen by which the former would acquire the latter; the formation of an unwritten, secret agreement between Transcon and certain shareholders of Queen by which Transcon would purchase for cash from the shareholders certain deposit receipts evidencing stock interest in Queen; the submission of false and misleading misrepresentations to the Internal Revenue Service; the giving of false testimony before the Interstate Commerce Commission by defendants Moore and Scheitel, who are officers of Transcon, and by defendant Love, who was an officer of Queen; and the unlawful acquisition of control by Transcon over Queen prior to I.C.C. approval of the proposed agreement between the two.
Defendants Transcon, Queen, Moore, and General Realty and Insurance Company have moved to dismiss the complaint or, in the alternative, for summary judgment, on the grounds of general release; lack of jurisdiction; improper venue; failure to bring this action within the time prescribed by the three-judge court which previously heard this case; res judicata; and immunity from liability, conferred by Section 5(11) of the Interstate Commerce Act ("the Act"), 49 U.S.C. § 5. I hold that the latter provision, which is set forth infra, entitles defendants to summary judgment. This holding is premised upon the fact that the I.C.C., which approved the acquisition of Queen, properly took into account the precise ingredients of this action - i. e., the above mentioned overt acts - and thus its approval bars recovery here.
In order to understand the "precise ingredients" of the case it becomes essential to review in detail the factual background and history of the litigation. The picture that emerges is that of an aggrieved suitor whose rejected advances have become an obsession. Investors and Transcon both wooed Queen. Transcon won. Investors lost. Stung by its rejection, Investors has engaged in a continuous campaign to undo the Transcon-Queen marriage. However, Transcon and Queen and the remaining defendants are entitled under Section 5(11) of the Act to protection from further attack. The motion for summary judgment is granted.
I. Factual Background and History of the Litigation
In 1964, the Greyhound System dominated the nationwide, intercity bus industry.
At that time, and now, Transcon was Greyhound's major competitor, although it was only one-fifth the size of Greyhound. Transcon was the largest member of the National Trailways Bus System ("N.T.S."), a non-profit association of separate and independent bus carriers which have adopted Trailways as a common name, use uniform symbols for identification, share joint terminals, and coordinate many essential business functions, including advertising and purchasing. For several years prior to 1964, Transcon had sought control of other N.T.S. members, and had conducted negotiations with the major stockholders of defendant Queen City Coach Company, which itself controlled subsidiary bus carriers. Queen had routes in the southeastern United States, the only region where Transcon lacked through north-south connections.
Investors and its president, William Burt, also engaged in negotiations with Queen stockholders, beginning in August 1963. Investors was not then a bus operator, but it hoped to acquire existing carriers running along the Eastern seaboard and weld them into the foundation for what Burt described as a "third force" to compete with Greyhound and Trailways. Investors maintains that the Burt - Queen negotiations culminated in late March, 1964, in an oral agreement for Investors to purchase all of the stock of Queen and defendant General Realty and Insurance Corporation ("GRIC")
for approximately $8,000,000, in cash.
When Transcon learned of the possible Queen-Investors deal, it "immediately started negotiating in earnest" with Queen.
The president of Queen, Mr. L.A. Love (whose estate is a defendant here) by a letter to Transcon dated April 28, 1964, proposed an arrangement by which Transcon would purchase Queen for approximately the same price which Interstate had offered - $8,000,000. But whereas Investors had offered cash, the Queen-Transcon transaction would be effectuated by an exchange of stock and would be contingent upon four conditions, one of which was a commitment by Transcon to buy back its stock from those Queen stockholders who wanted cash.
On May 21, 1964, the Queen board accepted a counter offer by Transcon, dated May 16, 1964, which did not mention any of the conditions specified in Queen's April 28 letter. The May 21 purchase agreement provided for a depositary receipts arrangement by which Queen's stockholders were to deliver their Queen shares to a named bank which would then issue a receipt reflecting the number of shares owned by that stockholder. The bank would hold the stock pending determination of Transcon's application to the Interstate Commerce Commission for approval of control over the Queen group. If the I.C.C. approved the acquisition, the deposited stock would be transferred to Transcon, which in turn would issue to the Queen shareholders 7.25 shares of its common stock for each share of Queen stock. During the period of the deposit, the voting and dividend rights to the Queen stock remained in the holders of the receipts. Pending approval, Queen could only engage in transactions within its ordinary course of business, while Transcon was barred from taking any action which would dilute the value of its common stock. It is this deposit receipts arrangement which forms the core of Investors' suit here. Investors claims that it enabled Transcon illegally to control Queen even before the Commission approved the formal acquisition, that it prevented others, including Investors, from entering the industry, and that it led to false misrepresentations before the Commission and the Internal Revenue Service.
Both the deposit receipts arrangement and Transcon's application to the I.C.C. for approval of control, under Section 5 of the Act, were conditioned upon a ruling from the Internal Revenue Service that the exchange of stock was tax-free. Transcon applied to the I.C.C. for control of Queen on June 5, 1964. The application was consolidated with another Transcon request for authorization to acquire control of certain other bus companies. The I.C.C. examiner began hearings on Transcon's control application on September 9, 1964.
In August 1964, Investors had already filed two actions against Queen and several major Queen stockholders, including L.A. Love, in the United States District Court for the Western District of North Carolina. Investors charged breach of its alleged contract with Queen and tortious interference with that contract. It did not allege any antitrust violations, and did not name Transcon as a defendant.
In an affidavit submitted on the instant motion, Investors' president, William Burt, asserts that "at the time plaintiff commenced these actions i.e., the August 1964 breach of contract actions, neither plaintiff nor its President had any knowledge that Transcon had acted in contravention of the plaintiff's rights." (Burt Aff., Par. 34.) However, in the same affidavit Burt also avers that "plaintiff received a report as early as June 10, 1964 that . . . there was a secret agreement between Transcon and . . . certain shareholders of Queen and GRIC, whereby Transcon had agreed to secretly repurchase the stock for cash." (Burt Aff., Par. 36.) Burt further states that, because he believed there was such a secret agreement, when the Commission hearings opened he "cross-examined the witnesses . . . to discover whether the defendant Transcon was in fact purchasing for cash the depositary receipts issued to the participating stockholders of Queen and GRIC." (Burt Aff., Par. 37.)
During the summer of 1964, and prior to the commencement of the I.C.C. hearings, some of the Queen shareholders did, in fact, sell their deposit receipts for cash. Coupled with sales made after the hearings closed, a total of less than 10% of the Queen shares were involved. The purchaser of these shares was Highway Insurance of Switzerland ("Highway"), a corporation found by the I.C.C. to be presumptively controlled by Transcon.
Investors claims here that these purchases were secret, prearranged, and part of a conspiracy to prevent it from acquiring Queen. Investors argues that the purchases enabled Transcon to satisfy the condition specified by Queen in its April 28, 1964 letter to Transcon but omitted in the May 21, 1964 contract, viz., that Transcon commit itself to buying back its stock from those Queen stockholders who wanted cash. At the same time, Investors argues, it enabled defendants to consummate the acquisition without incurring tax liability.
As Burt's affidavit indicated, supra, at the I.C.C. hearings Investors questioned Transcon's witnesses in an effort to establish the existence of a secret agreement between Transcon and the Queen stockholders. Transcon's president, M. E. Moore, and its vice-president, N. W. Scheitel, both testified, in substance, that Transcon had not agreed to make a market for the deposit receipts. Scheitel also answered "I don't know who bought it" to a question which remains ambiguous - plaintiff claiming the question referred to the deposit receipts, and defendants claiming it referred to Queen stock.
Plaintiff claims that the testimony of Moore and Scheitel was false in that they not only committed themselves to making a market for the receipts, but personally arranged for their purchase.
The I.C.C. hearings were concluded on October 29, 1964. In January 1965, the defendants in the North Carolina actions moved for summary judgment. However, on February 18, 1965, before Chief Judge Craven, who was presiding over the matter, rendered a decision, a settlement was reached. In exchange for $24,425 in cash, Mr. Burt discharged Queen and its shareholders from all liability and executed eight general releases, including one to Transcon. The release discharged Transcon from all claims of Investors
"growing out of negotiations and efforts by Transcontinental Bus System, Inc., to acquire stock in Queen City Coach Company and General Realty and Insurance Corporation; or out of its acquisition of said stock." (Defendants' Ex. K.)
In addition, pursuant to the settlement, Investors petitioned the I.C.C. for leave to withdraw from the "control proceedings" on Transcon's application. Shortly thereafter Investors requested that its petition be held in abeyance pending further authorization; no such authorization was given.
It was not until June 15, 1965 that the next episode in the saga occurred. On that date Transcon filed as an exhibit with the I.C.C. a ruling letter from the Internal Revenue Service to Queen. Transcon sent a copy of the letter to Burt. The letter contained the following statement (indicated as emanating from Transcon):
"Transcontinental does not own stock (or depositary receipts representing stock) of Queen or Realty. However, Highway Insurance Company, of Zurich, Switzerland, a wholly-owned subsidiary of Western Sales, Limited . . . 49 percent of the stock of which is owned by Transcontinental, has purchased depositary receipts . . . of Queen and . . . Realty . . .
"It is stated that there is no commitment, formal or informal, by Transcontinental or any one acting in its behalf to purchase Transcontinental stock from any of the shareholders of Queen or Realty after consummation of the proposed exchange, or to purchase depositary receipts before that time."
The letter then ruled that the transaction qualified as a Section 368(b) tax-free reorganization. (Plaintiff's Ex. 11.)
Although Burt had received a report more than one year earlier that Transcon had secretly agreed to repurchase the stock for cash, supra, Investors (by Burt) maintains that this letter from the Internal Revenue Service "for the first time disclosed some connection between the defendant Transcon and the cash purchase of the depositary receipts." As a result, Investors "made repeated attempts to have the I.C.C. Hearing Examiner reopen the hearings" and requested by letter dated December 8, 1965, that the Commission issue a complaint pursuant to Section 11 of the Clayton Act, 15 U.S.C. § 21.
The Commission refused to take action on its own motion, and suggested instead that Investors file a formal complaint. Before Investors did so, however, the hearing examiner issued his report, on November 1, 1965.
A summary of the report is provided below, but its conclusion may be stated simply: the examiner found that Transcon's acquisition of Queen would be in the public interest, under Section 5(2) of the Interstate Commerce Act, and he recommended that it be approved.
Subsequent to the release of the hearing examiner's report, Investors on December 10, 1965 filed with the I.C.C. a complaint charging that Transcon's purchases of the depositary receipts violated Section 7 of the Clayton Act. Investors requested the I.C.C. to issue a complaint, pursuant to its authority under Section 11 of that Act. In this petition Investors claimed the following: that by its purchases of the depositary receipts through Highway, Transcon had already acquired control of Queen as part of a conspiracy to create an illegal duopoly and to violate Section 7 of the Clayton Act; that overt acts in violation of the Clayton Act, such as the purchase of the depositary receipts, also constituted violations of the Sherman Act; that Transcon, Queen, and GRIC had made misrepresentations to the I.C.C. and the Government; and that the releases executed in February 1965 were void because obtained fraudulently. Investors asked the Commission to order a divestiture of shares and depositary receipts and to request the Attorney General to investigate violations of the Sherman Act.
On January 24, 1966 Investors wrote to the Commission supplementing its December 1965 petition, and urging the Commission to test the legality of Transcon's acquisition of GRIC under the Clayton Act.
On May 18, 1966, Division 3 of the I.C.C. dismissed Investors' petition because a proceeding under Section 11 of the Clayton Act would "refer to facts of record and matters at issue" in the acquisition or "control proceedings" then under review by the Commission.
On May 26, 1966, Investors again wrote to the Commission urging it to reconsider its dismissal of the Clayton Act petition. This letter is replete with the same allegations of false representations that Investors makes now.
On June 2, 1966, Investors wrote once again to the Commission, purporting to offer further proof of Clayton Act violations. In substance, it argued that the deposit receipts arrangement enabled Transcon to acquire control of Queen prior to Commission approval of the acquisition - a claim it had already submitted. This time, however, it added the contention that such consummated violations of the Clayton Act could not be legalized retroactively nor be given immunity from the antitrust laws by the I.C.C.
On August 10, 1966, the Commission issued its order in the control proceeding upholding the examiner's finding that the acquisition was in the public interest and approving the transaction.
A synopsis of the order is set forth in this opinion below.
Rebuffed by the Commission, Investors turned to the courts for relief, commencing action under 28 U.S.C. §§ 2321-2325 against the Commission and Transcon to enjoin or set aside the I.C.C.'s orders, including its refusal to file a complaint against Transcon for alleged Clayton Act violations. In addition, Investors alleged violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. In a unanimous decision the three-judge court approved the I.C.C. decision and upheld the acquisition, but dismissed those portions of the complaint which sought private relief for antitrust violations, with leave to file within sixty days an amended complaint stating those claims.
A summary of the court's observations and conclusions appears infra.
As stated above, Investors appealed the decision of the statutory three-judge court. In a one-sentence, per curiam opinion, the United States Supreme Court affirmed the judgment. Interstate Investors, Inc. v. United States, et al., 393 U.S. 479, 89 S. Ct. 707, 21 L. Ed. 2d 687 (1969).
Investors thereafter continued its determined effort to overturn the approved acquisition by filing with the Commission a petition to reopen the proceedings. This petition was filed on March 10, 1969, a few weeks before the present suit was commenced. While the instant motion was sub judice, the Commission on September 15, 1969, rejected Investors' petition, noting
" . . . the petition . . . should not be entertained in that the issues presented in the subject petition were previously raised by . . . Investors before the Commission and the courts sustaining the Commission's decision herein; . . . moreover, such evidence sought to be introduced would be cumulative, and would not affect the ...