On Petition for Review of an Order of the Interstate Commerce Commission.
Before Pell and Wood, Circuit Judges, and Flaum, District Judge.*fn*
The Chicago, Milwaukee, St. Paul and Pacific Railroad Company (Milwaukee) petitions for review of an order of the Interstate Commerce Commission (ICC) which dismissed the Milwaukee's application for inclusion in the Burlington Northern, Inc. (BN) and its alternative petition for additional traffic protective conditions from the BN. The primary contentions of the Milwaukee in this case are that the ICC, in denying the application, failed to give the Milwaukee adequate notice that it was considering the merits, and failed to make findings required by the Interstate Commerce Act, 49 U.S.C. § 1 Et seq. (Act). Whether such findings were required turns on the proper construction of 49 U.S.C. § 5(2) and more importantly on the correct interpretation of Condition 33 which the ICC imposed on the BN merger.
An understanding of these issues requires some background regarding the BN merger. In 1967 the ICC approved a merger plan filed by the Northern Pacific Railway Company and the Great Northern Railway Company and three of their subsidiaries.*fn1 The merger was affirmed by the district court*fn2 and by the Supreme Court.*fn3 The ICC had rejected several previous merger attempts primarily because of concern that the merger would significantly diminish competition. It finally approved the merger after becoming satisfied that the benefits of the merger outweighed the anti-competitive aspects and that the imposition of protective conditions on behalf of competing lines*fn4 would foster competition. 331 I.C.C. at 281. In addition to imposing protective conditions, the ICC Sua sponte imposed Condition 33 which states:
The Commission shall retain jurisdiction over these proceedings for a period of 5 years following consummation of the transactions herein authorized, or such other period as the Commission, for good cause shown, may hereafter prescribe, for the purpose, among others, of considering petitions, under section 5(2)(d) of the act, by any railroad in the territory involved requesting inclusion in the merger so authorized. The Commission shall also retain jurisdiction over these proceedings for a period of 5 years following consummation of the transaction herein authorized, or such other period as the Commission, for good cause shown, may hereafter prescribe, to impose such just and reasonable conditions upon petition by any party in interest, or on its own motion, after hearing, as may be necessitated by any cumulative or crossover problems stemming from approval of this merger and any other transaction authorized under section 5 with respect to the territory involved. Consummation of the transactions herein authorized shall constitute irrevocable assent by applicants to the power of this Commission to impose, after hearing, such just and reasonable conditions as may be necessary or appropriate.
331 I.C.C. at 359 and 879.
Although the Milwaukee attempted to take advantage of the protective conditions authorized by the BN merger, its competitive position Vis-a-vis the BN apparently did not improve. As a result, on March 9, 1973, the Milwaukee filed for inclusion in the BN pursuant to Condition 33. The Milwaukee and the BN then engaged in joint study to analyze the possibility of an agreement to consolidate. This effort continued into 1976 without success. In March 1975, however, the Milwaukee renewed its request for inclusion because the five-year period in Condition 33 was expiring. The ICC held that the Milwaukee's 1973 petition was timely filed under Condition 33 and ordered the issues to be set for a hearing. A prehearing conference was held on March 23, 1976, before an administrative law judge (ALJ). He concluded that the Milwaukee had effectively engaged the ICC's jurisdiction under Condition proposals.*fn5 He also ordered that the Milwaukee file a separate formal application for inclusion pursuant to the new amendment to § 5(2) of the Act and pertinent regulations "as may hereafter be amended in accordance with" the new amendment.*fn6 The ICC affirmed this order.
The Milwaukee filed a new application for inclusion on July 1, 1976, which the ICC rejected without prejudice as incomplete. The ICC delineated the information the renewed application should contain and ordered the Milwaukee to commence discovery, if necessary, to obtain the information required. The BN, however, refused to respond to the Milwaukee's discovery requests on the ground that the ICC lacked jurisdiction under Condition 33 to require inclusion of the Milwaukee. The Milwaukee moved to compel discovery. The ALJ denied the discovery motion on November 11, 1976, essentially on the ground that a massive legislative investigation was needed to shape railroad merger policy and thus that an adjudicatory decision to allow this inclusion would be improper.
Notwithstanding the denial of discovery, the Milwaukee filed a revised application on November 30, 1976. The ICC tentatively rejected the application on December 30, 1976, pending a decision on the discovery motions. Significantly, the ICC stated that the deficiencies in the application related to information which was requested in the Milwaukee's abortive discovery attempts. It set oral argument to consider "discovery questions, the jurisdictional issues relative to Condition 33, and other legal issues which may be preliminarily disposed of . . . ." These issues were addressed during oral argument on January 26, 1977, and on February 16, 1977, the ICC issued an order denying on the merits the Milwaukee's petition for inclusion. 348 I.C.C. 821 (hereinafter February 16, 1977, Order). The Milwaukee filed a petition for reconsideration and/or clarification which the ICC denied. Fin. Doc. No. 21478 (hereinafter September 16, 1977, Order).*fn7
Before addressing the major arguments raised by the Milwaukee, we must resolve a jurisdictional issue raised by the intervenors, the BN and the Soo Line Railroad Company. These intervenors argue that the ICC lacked jurisdiction to impose Condition 33 and thus that it lacked jurisdiction to take any actions pursuant to that condition.*fn8
The premise of their argument is that the ICC's authority is limited by statute and that the relevant statute, 49 U.S.C. § 5(2)(d), does not authorize it to consider inclusion petitions filed after the merger. That statute provides:
The Commission shall have authority in the case of a proposed transaction under this paragraph (2) involving a railroad or railroads, As a prerequisite to its approval of the proposed transaction, to require, upon equitable terms, the inclusion of another railroad or other railroads in the territory involved, upon petition by such railroad or railroads requesting such inclusion, and upon a finding that such inclusion is consistent with the public interest.
49 U.S.C. § 5(2)(d) (emphasis added). As the intervenors construe this statute, the ICC had authority to require inclusion of the Milwaukee in the BN merger prior to approval of the merger; it had no authority, however, to require inclusion after it approved the merger, and therefore lacked jurisdiction to impose a condition giving it such authority.
The Milwaukee's initial response to this collateral attack on the ICC's subject matter jurisdiction to impose Condition 33 is that the issue is res judicata. Condition 33 was an important aspect of the ICC's authorization of the BN merger in 1967 and that authorization was affirmed by the district court and the Supreme Court.*fn9 Although the ICC's jurisdiction to impose Condition 33 was not raised or litigated in these prior proceedings, the BN's corporate predecessors certainly had an opportunity to litigate it. Generally, a party who has an opportunity to contest subject matter jurisdiction but fails to do so either in the initial proceeding or on direct appeal cannot collaterally attack the judgment. See Jackson v. Irving Trust Co., 311 U.S. 494, 503, 61 S. Ct. 326, 85 L. Ed. 297 (1941); Chicot County Drainage District v. Baxter State Bank, 308 U.S. 371, 375, 60 S. Ct. 317, 84 L. Ed. 329 (1940). This rule is subject to exceptions if the policy underlying the doctrine of res judicata is outweighed in the particular case by the policy against permitting the court to act beyond its jurisdiction. Restatement of Judgments, § 10 (1942). The resolution of this issue is further complicated by the fact that the initial proceeding was before an administrative agency rather than a court. See Developments in the Law Res Judicata, 65 Harv.L.Rev. 818, 865 (1952).
We need not resolve this issue, however, because we hold that the ICC had jurisdiction to impose Condition 33. Section 5(2)(d) gives the ICC authority in a railroad merger proceeding to require the inclusion in the merged line of another railroad in the same territory "as a prerequisite to its approval" of the merger. In the present case, the ICC merely conditioned its approval of the merger on, Inter alia, a five year reservation of jurisdiction to consider § 5(2)(d) petitions for inclusion of other railroads in the territory. The ICC has such authority. Section 5(2)(b) provides in part that the ICC shall approve a proposed merger if it finds that
subject to such terms and Conditions and such modifications as it shall find to be just and reasonable, the proposed (merger) . . . will be ...