ALLEGHANY CORPORATION ET al. v. NO. 36. APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK.* Argued January 23-24, 1957.-Decided April 22, 1957. In a suit by appellees, who are minority common stockholders of Alleghany Corporation (an investment company), a three-judge District Court set aside orders of the Interstate Commerce Commission granting Alleghany the status of a non-carrier to be "considered as a carrier" under §§ 5 (2) and 5 (3) of the Interstate Commerce Act and approving Alleghany's issuance of new preferred stock convertible into common stock. It also enjoined Alleghany from issuing the new preferred stock. The Commission's orders were based on its holding that Alleghany, being in control of the New York Central Railroad, needed Commission approval under §5 (2) to merge one subsidiary of the New York Central into another. Held: 1. As common stockholders whose equity might be "diluted" by the issuance of the new preferred stock, appellees had sufficient financial interest to give them standing to sue to set aside the Commission's orders. Pp. 159-160. 2. Since the Commission's order conferring on Alleghany the status of non-carrier to be "considered as a carrier" gave the Commission jurisdiction to approve the preferred stock issue, appellees could attack that order. P. 160. 3. The Commission had jurisdiction over Alleghany under §§ 5 (2) and 5 (3). Pp. 160-172. (a) It is unnecessary to decide whether Commission approval of acquisition of control of a single integrated railroad system is required; if Alleghany in fact controlled Central, that was sufficient to meet the statutory requirement of "a person which is not a carrier and which has control of one or more carriers." Pp. 161-162. *Together with No. 82, Baker, Weeks & Co. et al. v. Breswick & Co. et al., and No. 114, Interstate Commerce Commission v. Breswick & Co. et al., also on appeals from the same court. (b) The Commission's findings amply support its conclusion that "control" of Central was in Alleghany. Pp. 162-165. (c) The Commission was justified in finding that the merger of one of Central's subsidiaries into another involved an “acquisition of control" of a "carrier" by Central and Alleghany within the meaning of § 5 (2). Pp. 165–171. (d) The failure to join two stockholders alleged to control Alleghany did not oust the Commission of jurisdiction. Pp. 171– 172. 4. Appellees were not entitled to a hearing in the proceedings in which the Commission approved the merger of two of Central's subsidiaries and granted Alleghany the status of a non-carrier to be "considered as a carrier" under § 5 (2), since they were not "interested parties" within the meaning of §5 (2) (b). Pp. 172-175. (a) The fact that appellees were common stockholders of Alleghany is insufficient "interest," since that proceeding had no special effect on appellees and did not pose any individualized threat to their welfare. P. 174. (b) That assertion of jurisdiction by the Commission would deprive appellees of the benefits of the Investment Company Act of 1940 did not give them sufficient "interest" in that proceeding. Pp. 174-175. 5. Appellees' claim that they were entitled to a hearing in the preferred stock proceeding is governed by § 20a (6), which provides that "The Commission may hold hearings, if it sees fit, to enable it to determine its decision on application for authority." P. 175. 6. The judgment of the District Court is reversed and the case is remanded for consideration by the District Court of appellees' claim that the preferred stock issue, as approved by the Commission, was in violation of the Interstate Commerce Act. P. 175. 138 F. Supp. 123, reversed and remanded. Whitney North Seymour argued the cause for the Alleghany Corporation, appellant in No. 36. With him on the brief were David Hartfield, Jr., Edward K. Wheeler, Robert G. Seaks and Morton Moskin. Harold H. Levin argued the cause for Gruss et al., appellants in No. 36. With him on the brief were Joseph M. Proskauer and Allen L. Feinstein. Alexander Kahan argued the cause for Neuwirth, appellant in No. 36. With him on the brief was Arthur W. Lichtenstein. Robert W. Ginnane argued the cause for the Interstate Commerce Commission, appellant in No. 114. With him on the brief was B. Franklin Taylor, Jr. George Brussel, Jr. argued the cause for Breswick & Co. et al., appellees. Randolph Phillips, appellee, argued the cause pro se. They filed a brief in Nos. 36 and 114. Edward M. Garlock filed a Statement in Opposition to Appellees' Motion to Dismiss for Baker, Weeks & Co. et al., appellants in No. 82. Solicitor General Rankin, Assistant Attorney General Hansen and Daniel M. Friedman filed a brief for the United States. Thomas G. Meeker, Joseph B. Levin and Aaron Levy filed a brief for the Securities and Exchange Commission, as amicus curiae. MR. JUSTICE FRANKFURTER delivered the opinion of the Court. These are direct appeals under 28 U. S. C. § 1253 from a final judgment of a three-judge District Court for the Southern District of New York setting aside orders of the Interstate Commerce Commission and restraining appellant Alleghany Corporation from issuing a new class of preferred stock that had been approved by the Commission. The case raises numerous questions regarding the jurisdiction and powers of the Commission, especially under § 5 of the Interstate Commerce Act, for the understanding of which a rather detailed statement of the facts is necessary. Section 5 (2)(a), in its pertinent portions, provides: "It shall be lawful, with the approval and authorization of the Commission . . . (i) . . . 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. . . ." 54 Stat. 899, 905, 49 U. S. C. § 5 (2) (a).' Appellant Alleghany Corporation is a Maryland corporation whose charter provides for extensive powers of investment under no express limitation. After the passage of the Investment Company Act of 1940, 54 Stat. 789. 15 U. S. C. § 80a-1 et seq., Alleghany registered as an investment company with the Securities and Exchange Commission. In 1944, in connection with an application by the Chesapeake & Ohio Railroad for approval by the Interstate Commerce Commission of acquisition of the property of the Norfolk Terminal & Transportation Com 1 Section 5 (3) provides: "Whenever a person which is not a carrier is authorized, by an order entered under paragraph (2), to acquire control of any carrier or of two or more carriers, such person thereafter shall, to the extent provided by the Commission in such order, be considered as a carrier subject to such of the following provisions as are applicable to any carrier involved in such acquisition of control: Section 20 (1) to (10), inclusive, of this part, sections 204 (a) (1) and (2) and 220 of part II, and section 313 of part III, (which relate to reports, accounts, and so forth, of carriers), and section 20a (2) to (11), inclusive, of this part, and section 214 of part II, (which relate to issues of securities and assumptions of liability of carriers), including in each case the penalties applicable in the case of violations of such provisions. In the application of such provisions of section 20a of this part and of section 214 of part II, in the case of any such person, the Commission shall authorize the issue or assumption applied for only if it finds that such issue or assumption is consistent with the proper performance of its service to the public by each carrier which is under the control of such person, that it will not impair the ability of any such carrier to perform such service, and that it is otherwise consistent with the public interest." 54 Stat. 907, 49 U. S. C. § 5 (3). pany, Alleghany, alleging that it controlled the Chesapeake & Ohio, filed a supplementary application with the Commission joining the Chesapeake & Ohio's application and seeking approval of its own acquisition of control of the Terminal Company through the action of the Chesapeake & Ohio. In 1945, the Commission approved "acquisition of control" of the Terminal Company by the Chesapeake & Ohio and Alleghany as a transaction within § 5 (2) and further found that Alleghany "shall be considered as a carrier subject to the [reporting and securities] provisions of section 20 (1) to (10) and section 20a (2) to (11) of the act." 261 I. C. C. 239, 262. Shortly thereafter, under the provisions of § 3 (c) (9) of the Investment Company Act, the Securities and Exchange Commission held that Alleghany was no longer an investment company within the meaning of the Investment Company Act. 20 S. E. C. 731. In March, April, and May 1954, several petitions and complaints were filed with the Interstate Commerce Commission by the New York Central Railroad, a stockholder, a protective committee, and bondholder creditors of the Central, asserting violations of the law in Alleghany's purchases of New York Central stock. In view of statements by Alleghany and Chesapeake & Ohio officials that Alleghany had disposed of its holdings of Chesapeake stock, that Commission, in June, ordered Alleghany to show cause why the 1945 order providing that Alleghany 2 "Notwithstanding subsections (a) and (b), none of the following persons is an investment company within the meaning of this title: .. Any company subject to regulation under the Interstate Commerce Act, or any company whose entire outstanding capital stock is owned or controlled by such a company: Provided, That the assets of the controlled company consist substantially of securities issued by companies which are subject to regulation under the Interstate Commerce Act." 54 Stat. 789, 799, 15 U. S. C. § 80a-3 (c) (9). |