Petition for Review of an Order of the Interstate Commerce Commission
Before Fairchild, Chief Judge, Bauer, Circuit Judge, and Decker, District Judge.*fn**
This is a petition to review an order of the Interstate Commerce Commission which found the petitioners (Navajo) violated § 7 of the Clayton Act by acquiring a 26% stock interest in Garrett Freightlines, Inc. Section 7 of the Clayton Act prohibits corporate stock acquisitions where in "any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition." As applied to common carriers, however, § 7 exempts mergers or acquisitions "where there is no substantial competition between the company extending its lines and the company whose stock, property, or an interest therein is so acquired." For the reasons hereinafter stated, we find that the government failed to establish a § 7 violation and therefore set aside the order of the Commission.
Petitioner Navajo Freight Lines, Inc. is a motor common carrier subject to the jurisdiction of the I.C.C., holding authority to transport general commodities over a network of regular routes extending generally between Fort Wayne, Indiana and Los Angeles and San Francisco. Navajo also controls, through stock ownership, several other motor common carriers which operate generally between Washington, New York, and Boston in the East, and Rock Island, Illinois and St. Louis in the West, and between Memphis and Flint, Michigan. Navajo Terminals, Inc. is a wholly-owned subsidiary of Navajo Freight Lines. Union Transportation Investment Company (UTIC) owns approximately 90% of the stock of Navajo Freight Lines and functions primarily as a holding company. UTIC is controlled by David Ratner who is Chairman of the Boards of UTIC, Navajo Freight Lines and of Navajo Terminals. Forrest Mattingley is a former executive officer of Navajo Freight Lines and of Navajo Terminals. For purposes of brevity, these petitioners will hereinafter be referred to as "Navajo."
Respondent Garrett Freightlines, Inc. (hereinafter referred to as "Garrett") is a motor common carrier of general commodities also subject to the regulatory jurisdiction of the Interstate Commerce Commission. Garrett operates over regular routes in 14 western states, generally between St. Paul-Minneapolis, Denver, and Albuquerque, in the East, and Los Angeles, San Francisco, Portland, and Seattle, in the West. For many years, Garrett's common stock has been held by the Garrett family and others closely involved in its operation and management.
The Navajo group began to purchase Garrett stock on the market in July, 1965. By the end of 1967, Navajo had acquired approximately 115,000 shares of Garrett stock which constituted more than 10% of the outstanding shares. In July of 1967, Navajo and Garrett officers met and agreed that Navajo would refrain from exercising its cumulative voting rights to elect a director to the Garrett Board in exchange for a written agreement that Navajo would be treated as if it had an elected director. Navajo, under this agreement, was to have informal representation at Garrett Board meetings, receive unaudited financial reports, and be consulted in advance on major corporate actions and changes.
After Clarence Garrett, president and largest shareholder of Garrett, died in October, 1967, Garrett, at the direction of its new president, William Wilson, repudiated its agreement with Navajo. Wilson also persuaded owners of large blocks of Garrett stock, including the widow of Clarence Garrett, to place their shares in an irrevocable ten-year voting trust. Approximately 465,000 shares, representing 57.52% of the outstanding capital stock of Garrett, were deposited in the trust. Terms of the trust included: (1) provision for extension after the initial ten-year period; (2) termination upon agreement of all of the trustees and vote of two-thirds of all the entrusted shares; and (3) transferable trust certificates. Navajo representatives were barred from even informal attendance at Garrett Board meetings and were no longer furnished information concerning Garrett's affairs.
In response to these developments, Navajo, by virtue of its stock ownership, elected two persons to Garrett's nine-member Board of Directors. Navajo continued to have two representatives on the Garrett Board until June, 1972, when Navajo cast its votes to elect an independent shareholders' nominee. During the four years in which Navajo held two of the nine Garrett Directorships, policy changes suggested by Navajo were consistently rejected by the Garrett Board. During this time, however, Navajo continued to accumulate Garrett stock. By June, 1970 Navajo held approximately 26% of the outstanding Garrett stock. It has purchased no more since August, 1970 when it was first charged with violation of § 7 of the Clayton Act. That action, begun by the Department of Justice in a district court, was dismissed on the ground the I.C.C. had primary jurisdiction.
In February of 1971, the I.C.C. instituted an investigation to determine: (1) whether a violation of § 5(5), had occurred through control of management of Navajo and Garrett in common interest without prior Commission approval; (2) whether Navajo's acquisition of Garrett stock caused a violation of § 7 of the Clayton Act by substantially lessening competition; and (3) what relief was appropriate if any violation were found. In June, 1971 Navajo sought authority, under § 5(2) of the Interstate Commerce Act to acquire control of Garrett. This petition was consolidated with the Commission's investigation.
In February, 1972 Navajo filed a motion to withdraw its § 5(2) application and proposed to dispose of its Garrett stock by September of that year through a secondary offering to the public. After notification that the secondary offering had failed, the Commission denied Navajo's motion to withdraw its § 5(2) application. In July of 1972, Navajo notified the Commission that it had executed an agreement whereby all of its Garrett securities would be placed in an irrevocable voting trust with Valley National Bank of Arizona as independent trustee. Navajo then filed a new motion to dismiss the Commission's investigation and to withdraw the § 5(2) application.
II. THE DECISIONS OF THE ADMINISTRATIVE LAW JUDGE AND THE COMMISSION
The initial decision of the Administrative Law Judge (ALJ) was served on January 8, 1975.
The ALJ found that Navajo had attempted to buy the major stockholdings in Garrett, and that Navajo's goal was consolidation. Navajo had, however, been met with hostility and counter-measures by the Garrett interests, and Navajo did not presently have control. Hence the ALJ found there was no violation of § 5(4) of the Interstate Commerce Act.
By 1970, there were only 656 stockholders in Garrett, the stock had been dropped from the daily NASD listings, and the only likely buyers were Garrett and Navajo. The Garrett controlled voting trust held some 57% of the Garrett stock, and Navajo held some 26%, including part of the voting trust shares. The latter had been purchased from Norman Stedfeld, a Garrett officer and long time employee, who desired to retire, and felt for various reasons that he had no choice but to sell to Navajo. The ALJ found that others would inevitably find themselves in the Stedfeld situation, and in "view of all this . . . that unabated the control of Garrett by Navajo is likely and impending."
In analyzing the probable anti-competitive effect of merger or of control of Garrett by Navajo, the ALJ identified a relevant product market (line of commerce in the words of § 7 of the Clayton Act) and geographic markets (sections of the country in § 7). He found that movements of less than truckload lots (LTL) general commodity traffic over regular routes by motor common carriers, of shipments weighing between 100 and 10,000 pounds, constitute a distinguishable, specific, and relevant product market.
He found four pairs of cities to be geographic markets. He made a similar identification with respect to certain transcontinental routes and two gateway cities, but the Commission did not sustain the latter findings. Accordingly, we need be concerned only with the four city pairs, as follows:
Denver Las Vegas. Seven motor carriers moved LTL traffic in 1968 and six in 1969. Garrett ranked first in each year with 56.1 percent in 1968 and 52.9 percent in 1969. Navajo ranked seventh in 1968 with 2.6 percent and sixth in 1969 with 2.1 percent. Taken together, they would have ranked first with 58.7 percent in 1968 and 55 percent in 1969. The top four carriers accounted for 88.8 percent in 1968 and 93.5 percent in 1969, and ...