The opinion of the court was delivered by: FRIENDLY
HENRY J. FRIENDLY, Circuit Judge:
REA Express, Inc. (REA) here is both suing its former railroad owners and other holders of REA notes issued in 1959 and seeking the invalidation of Interstate Commerce Commission action taken in connection with those REA obligations. The complaint and the petition for review center upon the issuance of the 1959 notes and the creation of their antecedent, the so-called "non-negotiable debt," raising claims under section 10 of the Clayton Act, 15 U.S.C. § 20, section 1 of the Sherman Act, 15 U.S.C. § 1, sections 5(1) and 20a of the Interstate Commerce Act, 49 U.S.C. §§ 5(1) & 20a, and state fiduciary duty and contract law.
I. The Facts and the Proceedings
Since the facts of REA's corporate life are set out at length in several of the sources cited below, our exposition can be confined to outlining the background of the present controversy over the 1959 notes and the non-negotiable debt.
REA was formed in late 1928 and early 1929 as a railroad non-profit joint venture to engage in the railway express business. The new corporation's initial 1,000 shares of common stock were to be sold to certain "participating" railroads in proportion to their 1923-26 express business. "Standard Express Operating Agreements" (SEOA's) which were executed by REA and all the railroads, including the "short line" non-shareholder roads, governed the REA -- railroad relationship. These agreements provided that REA would be the exclusive express agency of the railroads and that REA's revenues, after the deduction of various operating expenses, would be distributed as "Rail Transportation Revenue" to the railroad signatories in proportion to their provision of services to the express company.
To finance its acquisition of the assets of the existing express company and to obtain working capital, REA was to sell $ 32 million of 5% bonds. The indenture called for semi-annual sinking fund payments of $ 800,000 over the 20-year term of the bonds. The original 1929 SEOA provided in Article V(4)(j) for an account # 409, "Surplus Applied to Sinking and other Reserve Funds;" moneys deposited in that account as sinking fund payments would be treated as REA expenses and therefore deducted from REA revenues prior to the computation of "rail transportation revenue" and distribution of this to the railroads.
In December 1928, application was made to the Interstate Commerce Commission for approval of these railroad plans for an express company. Approval of the "pooling" provisions of the SEOA was sought under § 5(1); of the railroad's control of REA under § 5(2); and of REA's issuance of the common stock and the bonds under § 20a. On February 11, 1929, ICC approval was granted. Securities and Acquisition of Control of Railway Express Agency, Inc., 150 I.C.C. 423 (1929).
By resolution of April 11, 1929, the REA board of directors adopted a different arrangement for funding the sinking fund. That resolution provided for semi-annual deductions of $ 800 per share of REA stock from the rail transportation revenues owed the shareholding railroads and a corresponding credit to those roads in an REA account entitled "non-negotiable debt to affiliated companies -- advances." The reason for the change, as explained in the recent report of the Commission, Railway Express Agency, Inc., Notes, 348 I.C.C. 157, 170-73, 178-79 (1975), was that the original method would have resulted in railroads whose services were disproportionately higher than their stock-holdings (including all the short lines) building up the equity of the stockholders through sinking fund payments. The resolution provided for annual interest of 5-1/2 % on the debt.
In 1939, the outstanding 1929 bonds were refinanced at lower interest with notes also requiring semi-annual $ 800,000 installments to be paid again through shareholder railroad advances treated as further non-negotiable debt with an interest rate of up to 5% as set by the REA board. The note issue was approved by the Commission under § 20a in F.D. No. 12242, Railway Express Agency, Inc., Notes, 230 I.C.C. 478 (1938). The Commission's Director of Finance advised that there was no need to obtain § 20a approval of the non-negotiable debt.
In 1959, dissatisfaction with the profitability of the express business led to the substitution of a new agreement for the 1954 SEOA, which had replaced the original 1929 SEOA. The new agreement sought to improve REA's efficiency through the gradual ending of its nonprofit status. As part of this rethinking of the REA -- railroad relationship, it was deemed desirable for REA to issue notes to the railroad shareholders in replacement of the non-negotiable debt. Unlike the non-negotiable debt, which was wholly subordinated to other creditors, the notes were subordinated only to certain existing REA fixed debt.
ICC approval of the 1959 SEOA's "pooling" provision was sought and an application for § 20a approval of the note issue was filed. The Commission approved the "pooling" provision on September 21, 1959. Express Contract, 1959, 308 I.C.C. 545 (1959). The issuance by REA of 5% notes to its shareholders was approved under § 20a by order of September 25, 1959 in Finance Docket No. 20812.
In the following years, several unsuccessful attempts were made to sell the railroads' REA stock. To facilitate such a sale, the majority of the stock was deposited in a voting trust in 1968 and it was agreed that the 1959 SEOA would be terminated at the end of the year; "Carrier's Agreements" terminating the SEOA provided for the post-1968 REA-railroad relationship. In June 1969, five REA executive officers who were part of a new management team assembled by February 1969 offered to purchase the REA stock through their REA Holding Corporation for over $ 2 million and warrants in the holding company. The deal was consummated in August 1969.
On September 30, 1971, REA filed a five-count complaint in this court attacking the notes and the non-negotiable debt. Count I alleged that the railroads violated § 10 of the Clayton Act in causing REA to create the non-negotiable debt in 1929 and again in 1938, to repay part of that debt prior to 1938 and to replace the debt with the notes in 1959. The second count charged that both the non-negotiable debt and the notes were void under § 20a(11) of the Interstate Commerce Act: the debt because it was "securities" within § 20a(2) of the Act but never approved under that section by the Commission, and the notes because the Commission's 1959 § 20a approval was conditioned on the continued operation of the 1959 SEOA which had been terminated in 1968. The absence of ICC approval of the debt also formed the basis of a third count contending that the notes were void despite their § 20a approval because the invalidity of the debt meant that the notes had been issued without consideration. The 1968 termination of the 1959 SEOA also served to support the claim in Count IV that the termination destroyed a condition of the notes. A fifth count charged that the conduct alleged in the prior counts constituted a breach of fiduciary duty by the REA board caused by the railroad defendants. The complaint sought damages under several of the counts as well as a declaration that the debt and the notes were void.
Three of the railroad defendants moved on February 18, 1972 to dismiss the complaint for lack of jurisdiction on the ground that it amounted to an attack upon the validity of ICC orders so as to require a three-judge court under the Urgent Deficiencies Act, 28 U.S.C. §§ 2321-25. Judge Metzner granted the motion in part in a decision of June 5, 1972, holding that two of REA's claims -- that the issuance of the notes violated § 10 of the Clayton Act and that the notes were unenforceable because the debt had never been approved by the ICC under § 20a -- "directly attack a valid and subsisting ICC order -- the order of September 25, 1959, approving the notes." REA Express, Inc. v. Alabama Great Southern Railroad, 343 F. Supp. 851, 859 (S.D.N.Y. 1972).
In an order of December 5, 1972, Judge Knapp, to whom the case had been assigned, granted REA leave to serve a second complaint. That complaint alleged jurisdiction under the Urgent Deficiencies Act, added the United States as a defendant, and included a new count alleging that the April 11, 1929 resolution of the REA board constituted price-fixing in violation of § 1 of the Sherman Act. On a motion by the defendants who had not joined in the original motion decided by Judge Metzner, Judge Knapp also dismissed for lack of single-judge court jurisdiction the same portions of the complaint dismissed by Judge Metzner, stating that the new motion "seeks to place the bulk of the defendants in the same position as the three prior movants so far as the allocation of jurisdiction between a one-judge and a three-judge court is concerned." Judge Knapp then requested the convocation of a three-judge court. Such a court was designated on December 6, 1972, to consist of the writer, District Judge Knapp and District Judge Griesa.
On December 20, 1972, the three-judge court granted motions by the ICC to intervene in REA's suit and to stay further judicial proceedings pending the Commission's reopening of its F.D. No. 20812 for reconsideration of the 1959 § 20a approval of the notes. The Commission had voted to reopen the docket on August 10, 1972. On January 9, 1973, the Commission ordered the reopening. A motion by REA to vacate the stay and to enjoin the ICC order of reopening was denied on January 23, 1973. An appeal to the Supreme Court was unsuccessful. REA Express, Inc. v. Alabama Great Southern Railroad, 412 U.S. 934, 37 L. Ed. 2d 393, 93 S. Ct. 2774 (1973).
On April 28, 1975, prior to the completion of the ICC proceeding, the defendant railroads moved for summary judgment dismissing the amended complaint. That motion relied on the Supreme Court's decision in Bangor Punta Operations, Inc. v. Bangor & Aroostock Railroad, 417 U.S. 703, 41 L. Ed. 2d 418, 94 S. Ct. 2578 (1974), on the theory that all the conduct challenged in the complaint occurred before the transfer of ownership from the defendants to REA's new owners. On the same date, REA requested an order requiring the ICC to issue a final determination or, alternatively, to treat the 1973 report of an ICC administrative law judge as the Commission's final decision. At the argument on these motions before this three-judge court on June 18, 1975, representations were made that a decision by the ICC would follow shortly; in consequence no decision on REA's motions was made. We likewise deferred ruling on the railroads' Bangor Punta motion, primarily because we believed that REA's insolvency
raised questions under footnote 15 to Mr. Justice Powell's opinion, 417 U.S. at 718 n.15, which might be more debatable than a decision on the merits would be, at least if the Commission were to revalidate its 1959 order.
On August 29, 1975, the Commission served a "Report of the Commission on Further Consideration" in Railway Express Agency, Inc., Notes, F.D. No. 20812, 348 I.C.C. 157, and ordered that its 1973 order of reopening be vacated and the proceedings discontinued. The report concluded that its September 25, 1959 order approving the 1959 notes had been correctly issued. The Commission found that the nonnegotiable debt was in fact "debt" and not equity as its General Counsel's office apparently had thought at one point. In addition, the ICC rejected REA's claim that its 1959 § 20a order was erroneous because the notes lacked consideration, the nonnegotiable debt allegedly being void for lack of approval under § 20a; the Commission held that the debt was not within § 20a. As to REA's claim of a violation of § 10 of the Clayton Act in the issuance of the 1959 notes, the ICC held that its § 5(1) order of September 21, 1959 exempted the notes from the anti-trust laws pursuant to the express immunity provision of the Interstate Commerce Act, § 5(11). The Commission refrained from stating a conclusion on the status of the nonnegotiable debt under § 5(11) and on several other railroad positions.
On February 11, 1976, the ICC denied REA's petition for reconsideration of its report. REA filed petitions for review of "Orders of the Interstate Commerce Commission in Finance Docket No. 20812" in the District Court for the Southern District of New York and the Court of Appeals for the Second Circuit on April 8, 1976. The railroads were granted leave to intervene in the Court of Appeals on May 10, 1976. The petitions for review contain two claims of ICC error. First, REA claims that the notes were issued without consideration because the nonnegotiable debt was created in violation of § 10 of the Clayton Act. Second, REA asserts that the Commission erred in approving the notes under the standards of § 20a and in its recent conclusion that the original approval, as proper, emphasizing the alleged causal relation between the note issue and REA's subsequent bankruptcy. The petitions ask that the 1959 § 20a order be set aside, that the notes be declared void and that the noteholders be ordered to deliver into the bankruptcy court all payments collected on the notes.
Since it was debatable whether the Commission's recent action was reviewable in the Court of Appeals for the Second Circuit under P. L. 93-584, 88 Stat. 1917, amending 28 U.S.C. §§ 2321-25, or in the three-judge district court as part of its review of the 1959 order, the Chief Judge of the Second Circuit, on May 7, 1976, designated the writer, Judge Knapp and Judge Griesa as a panel of the Court of Appeals to hear REA's petition for review in that court. Accordingly we need not determine which court had jurisdiction although we incline to the view that jurisdiction remained in the three-judge district court
both because we doubt that the August 29, 1975, report was an order and because of the provision of § 10 of P. 93-584 that pending three-judge court actions "shall not be affected . . . but shall proceed to final disposition under the law existing on the date they were commenced." On June 1, 1976, the railroads filed supplemental motions for summary judgment relying on several non- Bangor Punta grounds for the dismissal of REA's complaint. We heard argument on September 24, 1976. The briefs and argument have made it apparent that the claims with respect to the various ICC orders, reviewable only by a statutory three-judge court (or perhaps in the case of the 1975 report by us as a panel of the Court of Appeals) are inextricably intertwined with issues determinable by the single district judge to whom the action was referred. Since we are of one mind as to the proper decision, we shall follow the example of Swift & Co. v. Wickham, 230 F. Supp. 398, 410 (S.D.N.Y. 1964), appeal dismissed for want of jurisdiction, 382 U.S. 111, 86 S. Ct. 258, 15 L. Ed. 2d 194 (1965), aff'd, 364 F.2d 241 (2 Cir. 1966), cert. denied, 385 U.S. 1036, 87 S. Ct. 776, 17 L. Ed. 2d 683 (1967), and dispose of the issues not requiring the presence of three judges as a non-statutory three judge district court. Here, as there, if the REA trustee desires to appeal and is authorized to do so by the bankruptcy court, he can protect himself by appealing both to the Supreme Court and to the Court of Appeals.
In the light of our conclusions on the merits we find it unnecessary to consider the question, not raised in any pleading or briefed or argued by the parties, how far, if at all, the decisions of Chief Judge Jones of the District Court for the District of Columbia in REA Express, Inc. v. Travelers Ins. Co., 406 F. Supp. 1389 (D.D.C. 1976), and of Judge Becker of the District Court for the Eastern District of Pennsylvania in In re REA Express, Inc., Private Treble Damage Antitrust Litigation, 412 F. Supp. 1239 (E.D. Pa. 1976), constitute a collateral estoppel against REA. We likewise find it unnecessary to rule on the railroads' Bangor Punta motion or to consider many serious arguments of the railroads, particularly those based upon the statute of limitations and the antitrust immunity provision of § 5(11) of the Interstate Commerce Act, when read in the light of Hughes Tool Co. v. Trans World Airlines, Inc, 409 U.S. 363, 34 L. Ed. 2d 577, 93 S. Ct. 647 (1973). In the interest of avoiding undue length this opinion also does not refer to still other arguments of the United States, the Interstate Commerce Commission, and the railroads that would require consideration if we had not found sufficient reason to reject REA's contentions on the grounds herein stated. Our failure to discuss these arguments in no way indicates disagreement with them.
II. The Non-Negotiable Debt
We find it convenient to break our discussion of REA's complaints into three major headings. We shall deal in this section with attacks relating solely to the non-negotiable debt, in section III with attacks relating solely to the 1959 notes, and in section IV with the claim of breach of fiduciary obligation which relates to both. We do not mean, however, to imply that success in the attacks on the non-negotiable debt, which was retired in 1959, would inevitably produce any ultimate result favorable to REA; we simply find it unnecessary to address that question. As noted above, our discussion will encompass both REA's attacks on the ICC's order and its claims for damages and other relief against the railroads.
A. Section 20a of the Interstate Commerce Act
The attack on the non-negotiable debt most speedily answered is that it was void for lack of approval under § 20a of the Interstate Commerce Act, which was enacted as part of the Transportation Act, 1920. Section 20a(2) provides in pertinent part:
It shall be unlawful for any carrier to issue any share of capital stock or any bond or other evidence of interest in or indebtedness of the carrier (hereinafter in this section collectively termed "securities") or to assume any obligation or liability as lessor, lessee, guarantor, indorser, surety, or otherwise, in respect of the securities of any other person, natural or artificial, even though permitted by the authority creating the carrier corporation, unless and until, and then only to the extent that, upon application by the carrier, and after investigation by the commission of the purposes and uses of the proposed issue and the proceeds thereof, or of the proposed assumption of obligation or liability in respect of the securities of any other person, natural or artificial, the commission by order authorizes such issue or assumption. The commission shall make such order only if it finds that such issue or assumption: (a) is for some lawful object within its corporate purposes, and compatible with the public interest, which is necessary or appropriate for or consistent with the proper performance by the carrier of service to the public as a common carrier, and which will not impair its ability to perform that service, and (b) is reasonably necessary and appropriate for such purpose. . . .
Section 20a(11) provides in relevant part:
Any security issued or any obligation or liability assumed by a carrier, for which under the provisions of this section the authorization of the commission is required, shall be void, if issued or assumed without such authorization therefor having first been obtained, or if issued or assumed contrary to any term or condition of such order of authorization as modified by any order supplemental thereto entered prior to such issuance or assumption; but no security issued or obligation or liability assumed in accordance with all the terms and conditions of such an order of authorization therefor as modified by any order supplemental thereto entered prior to such issuance or assumption, shall be rendered void because of failure to comply with any provision of this section relating to procedure and other matters preceding the entry of such order of authorization. If any security so made void or any security in respect to which the assumption of obligation or liability is so made void, is acquired by any person for value and in good faith and without notice that the issue or assumption is void, such person may in a suit or action in any court of competent jurisdiction hold jointly and severally liable for the full amount of the damage sustained by him in respect thereof, the carrier which issued the security so made void, or assumed the obligation or liability so made void, and its directors, officers, attorneys, and other agents, who participated in any way in the ...