United States v. Southern Pacific Company (259 U.S. 214)/Dissent McKenna
Mr. Justice McKENNA dissenting.

I am unable to concur in the opinion and judgment of the court. To this I feel constrained because I think it is unjust for the government to enforce a dissolution of the relation existing between the Central Pacific Railway Company and the Southern Pacific Company. I put my action on that ground alone, though much can be said on the other grounds urged by the government and contested by the appellee companies.

Prior to this relation another existed between the two companies or systems (they may be said to have had that pretention and extent) constituted by a lease for 99 years, executed in 1885 by the Central Pacific Railroad Company to the Southern Pacific, giving to the latter the dominion of a proprietor. Waskey v. Chambers, 224 U.S. 564, 565, 32 Sup. Ct. 597, 56 L. Ed. 885, Ann. Cas. 1913D, 998.

The Central Pacific Railroad Company was a bond-aided road, and on account of it was under obligation to repay the government the aid it had received, and Congress by an act passed July 7, 1898 (30 Stat. 659), created a commission with power to settle the indebtedness. An agreement of settlement was made in which the Southern Pacific was a participant, and by it assured the payment of the securities provided for in the agreement of settlement between the Central Pacific Railroad Company and the government.

This participation was contemplated in the scheme submitted by Speyer & Company to the Commission,  and the present relation of the company is the outcome of the settlement, and it may be said, is the substitute of the rights and control the Southern Pacific, as lessee, had of the Central Pacific Railroad Company.

Was it a justifiable substitute? The answer should be in the affirmative. When the act of 1898 was passed the situation was serious, the problem complex, and because the problem was complex three Cabinet officers were selected to solve it. These were the Secretary of the Treasury, the Secretary of the Interior, and the Attorney General. Their prominence in the government, their official concern with the subject-matter, assured fidelity in the execution of the trust, and repels charge or intimation that they were, or could be, actuated by anything other than a strict consideration of duty and the exercise of their trust; and their ability assured judgment in the selection of means. The problem, it is to be remembered, was something more than to ascertain the amount of the debt. It involved, it might be, foreclosure of the government's liens and, it might also be, government ownership and all that that meant.

The debt was known to be $58,812,715.48. It was secured by a mortgage on the lines of the Central Pacific Railroad Company, it is true, but the mortgage was subordinate to other mortgages for about the same amount. It was to be rescued from this subordination, and given independent and certain solvency. The power given to the commissioners was necessary to and commensurate with the purpose. The power was 'to settle the indebtedness' 'upon such terms and in such manner' as 'might be' 'agreed upon' and to take 'such security as' might 'seem expedient.' The only limitation was that the payment was not to be extended more than 10 years.

Necessarily, therefore, there was power to view the situation and judge of it, its legal and practical aspects, and what was possible in law and fact in the interest of all concerned to be done and it may be presumed that the commission found that there was nothing exigent in the situation or that demanded the separation of the Southern Pacific from the Central Pacific, and that the guaranty of the former could be accepted, and all that would follow from it. And it is to be remembered that the action of the commission received the sanction of the President, and was reported to Congress. It either had objected, the settlement as planned could not have been accomplished, and both would have objected, if they had discerned anything sinister or inimical to law in it or that would result from it.

It is said, however, that there was no affirmative approval by Congress, and that its approval cannot be assumed from nonaction.

The government makes much of this, ignoring all else, and ventures, in a kind of desperation, against the circumstances, the incredible assertion that Congress was ignorant of the guaranty of the Southern Pacific and its contributing efficiency; and this against an irresistible presumption to the contrary and in defiance of the fact that the Attorney General reported to Congress the terms of settlement and that the notes taken in settlement were guaranteed by the Southern Pacific, and in defiance of the further fact that the bonds that it was provided were to be deposited as security for the notes with the Secretary of the Treasury had indorsed upon them the guaranty of the Southern Pacific, and that the financial and commercial journals of the country, addressing the business world-the world that was to accept the notes which Congress authorized the Secretary to sell-explained the settlement and the relation of the Southern Pacific to it, and the assurance of safety and value the guarantee of the Southern Pacific gave.

I need not dwell on the contention of the government; the court has not been impressed by it. The court's view is, rejecting that of the District Court, that there was no acceptance by the commission of the Southern Pacific's guaranty which carried obligation, and that the guaranty was the prompting of interest on the part of the Southern Pacific. I concede the latter. The enterprise that is necessary, and is exhibited in the conduct of great railroad systems, whose traffic is concerned with a continent, is not induced by the altruistic; it is, and naturally must be, prompted by interest; but it, as other transactions of the business world, is entitled to legal sanction and remedy.

The court asserts an interest in the Southern Pacific that urged its guaranty, but does not explain the interest. It is of pertinent concern to consider what it was. It manifestly was no other than the relation of the company to the Central Pacific Railway Company through stock ownership. The company would necessarily have no concern or interest in the Central Pacific (the new company), or the payment of the old company's debts to the government, if it was to be separated from the Central Pacific and declared a competitor and a business antagonist; and this must have been apparent to every one connected with the transactions, if they gave any reflection to them-anything but a haphazard and reckless attention, inconsiderate of practical and legal consequences. This cannot be assumed, and the contrary must be; that is, that the guaranty of the Southern Pacific was accepted as necessary to the settlement of the debt.

I repeat, and summarize, that the situation was of great concern to the government. Its solution was the consummation desired, and through the aid of the Southern Pacific. The company's guaranty was assurance to the business world that behind the notes and bonds of the Central Pacific were the great properties of the Southern Pacific and the competency of its management; and the company made sacrifices in addition to the guaranty, and they, and it, were accepted by the government, and therefore the benefit that the company expected cannot be denied it.

There was no thought in any one's mind that the acquisition of stock by the Southern Pacific in the Central Pacific would be a restraint upon competition, or a detriment to the public interest. The attitude of those concerned in the transaction can be accurately realized by the reflection that the interest-control, if it may be so called-that the Southern Pacific acquired in or over the new company (the railway company) was not greater nor more offensive to law than it had in or over the old company (the railroad company). The latter control existed from the enactment of the law until it was superseded by the agreement, a period of 8 years. And there was no revulsion against or condemnation of the control-not by the government, whose duty it was to proceed against it, if it violated the Anti-Trust Law; not by any business interest, though for such interest the law was enacted as a protection. This suit was not brought until 1914, 15 years after the agreement; not, however, by the government of the agreement, but by the government of a much later time.

I think, however, that the decree of the District Court should be affirmed. 

Notes

'Q. Please state whether the Central Pacific could have complied with the conditions imposed by that act of Congress [act of 1898] without a financial readjustment of their affairs of the kind contained in the readjustment which you arranged for?'

The question was objected to, but the witness answered.

'The Witness: Without some kind of readjustment, they could not have complied. I am not prepared to say that the adjustment we

made was the only kind; but some kind of adjustment seemed absolutely necessary.'

By Mr. Blair:

'Q. And you made a plan of readjustment?

'A. We did.

'Q. I put before you, for convenience of reference, the plan of readjustment which was used when Mr. Ruhlender was testifying. You recognize that as the plan of readjustment which was arranged for?

'A. I do.

'Q. Mr. Speyer, when you started to work upon that plan of readjustment did you expect and count upon the intervention and aid of the Southern Pacific Company?

'A. I knew I could not carry it through without the help of the Southern Pacific, or some other railroad company, in case the Southern Pacific had not come to assist.

'Q. Did you ever contemplate or work upon any plan which did not involve the intervention and aid of the Southern Pacific Company?

'A. I did not.

'Q. And that plan could not have been carried through without the intervention and aid of the Southern Pacific Company.'

The question was objected to.

'Q. Mr. Speyer, considering the terms required by the act of Congress, namely, the requirement that the entire debt of $58,800,000, in round numbers, would have to be paid in 10 years, in 20 semianual installments, would any one at all familiar with the Central Pacific affairs know that the Central Pacific, with its own resources and credit, could not comply with those conditions?

'A. He would.

'Q. It would be obvious to any one at all familiar with the affairs of the Central Pacific that it could not with its own resources and credit comply with the terms of that act?

'A. Yes, sir.

'Q. In making the agreement which you participated in with the United States, what did you count upon to enable you to carry out the agreement with the United States.

'A. The co-operation of the security holders of the Central Pacific and of the Southern Pacific Company.'