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These changes in the relationship between SCL and L&N led to the filing of the complaints in 1977.

ISSUES AND FINDINGS IN THE INITIAL DECISION

(1) Thousands of pages in the record concern whether SCL's purchase of the 67 percent of L&N stock and the consolidation of operations lessened competition and thus violated section 7 of the Clayton Act. Relying upon certain Clayton Act exemptions and section 5(12) immunity," the Administrative Law Judge concluded that defendants had not violated the Clayton Act. (Initial decision, pp. 42-43.) She found that even if the exemptions are not applicable, the evidence of record is not persuasive that the traffic changes are anticompetitive or that they were caused solely by the exercise of control by SCL over L&N. (Initial decision, p. 44.)

(2) Another closely related issue is whether the stock purchases and consolidations violate section 5(5)12 because the Commission never authorized SCL to control more than 33 percent of L&N's stock, and because the Commission's approval of the SAL/ACL merger and the L&N/Monon merger was based upon representations that the L&N would continue to be operated independently.

The Administrative Law Judge found no violation of section 5(5). She reasoned that in 1963, SCL obtained control of the L&N when it acquired ACL's interest in that railroad, and in approving the SAL/ACL merger, the Commission did not restrict SCL in its exercise of control over the L&N. She concluded that there was no reason for SCL to file a control application when it purchased more shares of L&N or when it began consolidating the system.

(3) The routing and traffic conditions imposed in the SAL/ACL report and the L&N/Monon report are also at issue." Questions raised are (a) applicability to all members of the Family Lines; (b) whether certain of these conditions have been violated; and (c) whether the conditions should be amended."

"Now 49 U.S.C. 11341 confers antitrust immunity on a transaction which is necessary to effect the transaction approved under section 5(2). If the Commission had approved SCL's control of L&N then any lessening of competition resulting from that control would not violate the antitrust laws.

"Now 49 U.S.C. 11343, requires Commission approval of the acquisitions of control of one carrier by another carrier.

The standard conditions which have been routinely imposed in merger cases have come to be known as the "DT&I conditions." These conditions were imposed as conditions 1-6 in the SAL/ACL report and conditions 1(a)-1(e) of the L&N/Monon report. Other, more specific conditions were also imposed. These conditions require SCL to keep open all routes and to maintain traffic, operating and interchange relationships as they existed at the time of the merger. "In the years since the merger proceedings, Southern and SCL have engaged in hundreds of disputes on these issues.

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The Administrative Law Judge found that SCL had violated conditions 1, 2, and 3 of the SAL/ACL report, by allowing the Moncrief Yard at Jacksonville to deteriorate so badly that it had effectively closed that gateway. She ruled that SCL had also violated condition 5 of the SAL/ACL report and 1(e) of the L&N/Monon report by refusing to allow shippers to route CAMUS trailers' offline. She also found that traffic patterns have changed significantly since the time of the mergers and that competing carriers have had sufficient time to adjust to the impact of the mergers. Therefore, she ordered SCL and Southern to negotiate the continuation of the traffic and routing conditions on a reciprocal basis. If the parties do not reach an agreement within 120 days, the Commission would then settle the issue by arbitration. (Initial decision, pp. 50-53.) (4) Another issue is whether SCL's preference for its subsidiaries and affiliates in routing was a violation of section 3(4)" which provides that a carrier shall not discriminate in rates, fares, and charges between connecting lines. Specifically, it is argued that the GRIP sales solicitation program discriminates against competitors. The Administrative Law Judge found no violation of section 3(4). She reasoned that controlled carriers may be treated differently from competing lines and that the Commission allows a railroad to prefer affiliates. (Initial decision, p. 48.)

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(5) Other questions raised are whether defendants violated section 1(4), requiring common carriers to provide adequate transportation, and section 1(11), requiring that safe and adequate car service be furnished. The Administrative Law Judge did not consider the evidence on these questions because she found these charges to be "beyond the issues in these proceedings." (Initial decision, p. 5.)

(6) The extent to which the Commission should exert jurisdiction. over the holding company SCLI is another issue.2" To protect the assets of the carriers from improvident actions by the holding company, the Administrative Law Judge recommended conditions that would subject certain intercorporate transactions to Commission jurisdiction. (Initial decision, p. 55.)

These conditions provide that SCL and L&N shall not do anything to curtail the right of shippers to route traffic over any or all existing routes and gateways.

"A specialized trailer used for shipments of glass.

Now 49 U.S.C. 10701 and 10742.

*Now 49 U.S.C TITOL

"Now 49 U.S.C. 11121.

"Under section 5(4) of the act, now 49 U.S.C. 11348, the Commission has the discretion to subject a noncarrier holding company to section 20. now 49 U.S.C. 11144 and 11145, and can require an application under section 20a, now 49 U.S.C. 11301, for the issuance of securities by the holding company.

Appeals to the initial decision and replies have been filed.

PROCEDURAL ISSUES ON APPEAL

The Bureau and Southern have filed petitions for appellate oral arguments. The petitions are denied. These proceedings involve complex legal and factual questions which are best handled in appellate briefs, and oral arguments would not add to an understanding of this record.

Defendants' petition strike portions of Southern's reply and the Bureau is denied. The replies are essentially responsive to issues in defendants' appeal and are proper under rule 21 of the General Rules of Practice.

DISCUSSION AND CONCLUSIONS

The Clayton Act violation

Relying upon a "grandfather" exemption," the Administrative Law Judge concluded that SCL's purchase of L&N's stock in 197172 and its exercise of control over L&N's management and operations did not violate section 7 of the Clayton Act. She ruled that the 1902 acquisition by ACL of 51 percent of the L&N stock was the only transaction which arguably could have substantially lessened competition or tended to create a monopoly within the meaning of the Clayton Act. The Administrative Law Judge found that by this transaction ACL obtained legal control of L&N, that this control was within the grandfather exemption of the Clayton Act, and that this control passed to SCL in 1967 (when the SAL/ACL merger was consummated).

On appeal, the Bureau and Southern argue that this exemption is not applicable, because SCL acquired additional L&N stock long after enactment of the Clayton Act. Allegedly, it was this subsequent acquisition which resulted in a substantial lessening of competition. They argue that the 1971-72 stock acquisition resulted in significant changes in both the degress of control and its method of exercise; SCL did much more than simply increase its stock ownership-it radically altered the type of control it exercised over L&N.

"Paragraph 5 of section 7 of the Clayton Act exempts transactions legally consummated prior to the passage of section 7 (1914).

We find that SCL had control over L&N prior to the 1971-72 stock purchases and, therefore, no lessening of competition within the meaning of section 7 resulted from these purchases. Accordingly, there could be no violation of the Clayton Act.

The purpose of the Clayton Act is to promote actual, not apparent competition. Once a carrier acquires control of another, there is no longer an opportunity for actual competition. In United States v. Citizens & Southern National Bank, 422 U.S. 86 (1975), the Supreme Court ruled that there was no section 7 violation where one corporation already lawfully controlling another acquires 100 percent stock ownership in another corporation which it already lawfully controlled. The Court looked to the level of stock ownership (5 percent), coupled with the fact that much of the remaining stock was held by parties friendly to the controlling corporation. There was also oversight over the controlled company's operations. The Court ruled that the proposed acquisitions would extinguish no "present competitive conduct" and therefore would not violate section 7 (422 U.S. 86 at 121).

In the Citizens & Southern case the Supreme Court relied upon United States v. Trans Texas Bancorporation, 412 U.S. 946 (1973), affirmed per curiam [1972] Trade Cas. (CCH) No. 74, 257 (W.D. Tex. 1972). There, the district court concluded that control negates true competitive ability and that there could be no actual competition between the commonly controlled banks.

The Commission too has recognized that stock control precludes any meaningful competition within the purview of section 7, in Interstate Commerce Commission v. Baltimore & O. R. Co., 152 I.C.C. 721 (1930). Similarly, in another context, the Commission has rejected the argument that a rail carrier may realistically be competitive with its corporate rail parent. Pennsylvania R. Co.-Merger-New York Central R. Co., 327 I.C.C. 475 (1966), approved sub nom. Erie-Lackawanna R.R. v. United States, 259 F. Supp. 964 (S.D.N.Y. 1966) (three-judge court), affirmed sub nom., Penn Central Merger Cases, 389 U.S. 486 (1968).

The Bureau and Southern contend that SCL's stock ownership was merely for an investment and that prior to 1973 there was no real control within the meaning of the Clayton Act. Southern argues that even if the acquisition of 51 percent of L&N stock in 1902 gave ACL "control," ACL relinquished that "control" in 1945 when it reduced its stock holding to 33 percent.

We do not agree. The control ACL acquired in 1902 continued unbroken until the time of the 1963 SCL/ACL merger. Even though

the percentage of stock ownership was subsequently reduced to 33 percent, ACL and SCL still have owned the largest block of L&N stock and influenced L&N management through election of directors, interlocking boards and executive committees, and selection of the slate of officers."

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The Administrative Law Judge summarized the indexes of control:

(1) from 1903 through 1961, ACL and L&N had the same person as Chairman of both Boards of Directors; (2) ACL had the right to nominate persons to the L&N Board of Directors since 1939 to the present; (3) each year between 1945 and 1967, with the exception of 1963, the interlocking directorates consisted of from six to nine persons on the 15 member L&N Board who were also ACL directors and/or officers; (4) between 1954 and 1972 the Chairman of L&N's Executive Committee was a director or officer of ACL and later SCL, and in all but four of those years at least half or a majority of the people on L&N's Executive Committee were ACL or SCL officers or directors; (5) management on occasion shifted people to positions on the various Family Line railroads and some people worked for ACL or SCL and L&N simultaneously; (6) the financial departments of ACL and later SCL and L&N were headed by a common Vice-President Finance from 1961 to the present and at least since 1945 the L&N's Annual Report to the Commission has answered the question of whether it was controlled in the affirmative and listed the ACL and later the SCL as the controlling entity. [Initial decision, pp. 42-43.]

Although L&N may have managed its day-to-day affairs, the nature of the control by ACL and SCL precluded meaningful competition. From the time of the merger, when SCL assumed ACL's interest in L&N,23 there was no actual competition. Accordingly, the 1971-72 purchases of L&N stock could not have resulted in a lessening of competition and a violation of section 7 of the Clayton Act.

We should clarify that this conclusion is based upon a factual finding of control. As to the legality of that control, the "grandfather" exemption applies to the 1902 acquisition of L&N stock by ACL, and section 5 immunity attaches to the transfer of that control to SCL in 1963.24

The Administrative Law Judge found that even if the exemptions are not applicable, the Bureau and Southern have not successfully met their burden of proof in showing Clayton Act violations,

"For a detailed discussion on this point, see exhibit SCL-501, Osborn pp. 3-15. 23The fact that SCL acquired ACL's interest in L&N has not been an issue in this proceeding. The issue has been the nature of that interest.

"We need not determine the applicability of the exemption contained in paragraph 4 OF section 7, which exempts stock acquisitions resulting in an extension of line by a common carrier where there is no substantial competition between the acquiring and acquired carrier.

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