Before MacKINNON and WILKEY, Circuit Judges, and RICHEY* , District Judge.
UNITED STATES COURT OF APPEALS, DISTRICT OF COLUMBIA CIRCUIT
COOPER-JARRETT, INC., PETITIONER v. THE UNITED STATES OF
AMERICA AND THE INTERSTATE COMMERCE COMMISSION, RESPONDENTS
Nos. 75-2011, 75-2033, 75-2061, 75-2065, 75-2108, 75-2168, 75-2169, 76-1087, 76-1215 1979.CDC.110
Date Decided: June 27, 1979; As Amended September 17, 1979.
Petitions for Review of Orders of the Interstate Commerce commission.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE RICHEY
In this case, the Association of American Railroads and numerous non-rail petitioners and intervenors seek review of two orders of the Interstate Commerce Commission ("ICC" or "the Commission") in ICC Docket No. Ex Parte 275, Expanded Definition of Term "Securities". *fn1 The original ICC order was entered on September 5, 1975 ("the 1975 Order"), 348 I.C.C. 288 (1975), and it was modified by an order of May 13, 1977 ("the 1977 Order"), 354 I.C.C. 10 (1977). Together, these orders decreed broadened definitions of the statutory terms found in section 20a of the Interstate Commerce Act, 49 U.S.C. § 11301 (formerly 49 U.S.C. § 20a); these new definitions greatly increase the number and variety of financial transactions requiring ICC approval. *fn2
Petitioners assert that the 1975 Order should be set aside for two reasons. First, they submit that, as a result of inadequate notice of the proposed rulemaking, the ICC failed to comply with the requirements of the Administrative Procedure Act, 5 U.S.C. §§ 551-706. Second, they contend that the 1975 Order promulgated a definition of the statutory phrase "securities" *fn3 which was beyond the scope of section 20a of the Interstate Commerce Act, ("section 20a"), 49 U.S.C. § 11301(a)(2) (formerly 49 U.S.C. § 20a). *fn4 After an analysis of the language and background of section 20a, the Court finds that the 1975 Order exceeds the scope of the Commission's statutory authority. It finds further that, without the 1975 Order, the 1977 Order lacks a rational basis and must also be set aside. Because the Court sets aside these orders for exceeding ICC authority, it need not reach the issues raised by petitioners regarding the Commission's compliance with the procedural requirements of the Administrative Procedure Act.
Before discussing the history and construction of section 20a, we summarize both the statutory scheme and the lengthy history of the ICC's attempts to promulgate the provisions which are at issue. I. BACKGROUND
Section 20a establishes ICC approval as a prerequisite to a carrier's *fn5 issuance of "securities;" *fn6 securities are defined as "any share of capital stock or any bond or other evidence of interest in or indebtedness of the carrier . . .." *fn7 49 U.S.C. § 20a(2) (1976) (current version at 49 U.S.C. § 11301(a)(2)). Subsection 2 of 20a is the focal point of this petition for review; this provision *fn8 states:
(2) It shall be unlawful for any carrier to issue any share of capital stock or any bond or other evidence of interest in or indebtedness of the carrier (hereinafter in this section collectively termed "securities") or to assume any obligation or liability as lessor, lessee, guarantor, indorser, surety, or otherwise, in respect of the securities of any other person, natural or artificial, even though permitted by the authority creating the carrier corporation, unless and until, and then only to the extent that, upon application by the carrier, and after investigation by the commission of the purposes and uses of the proposed issue and the proceeds thereof, or of the proposed assumption of obligation or liability in respect of the securities of any other person, natural or artificial, the commission by order authorizes such issue or assumption. The commission shall make such order only if it finds that such issue or assumption: (a) is for some lawful object within its corporate purposes, and compatible with the public interest, which is necessary or appropriate for or consistent with the proper performance by the carrier of service to the public as a common carrier, and which will not impair its ability to perform that service, and (b) is reasonably necessary and appropriate for such purpose: Provided, That nothing in this section is to be construed as applying to securities issued or obligations or liabilities assumed by the United States or any instrumentality thereof, or by the District of Columbia or any instrumentality thereof, or by any State of the United States, or by any political subdivision or municipal corporation of any State, or by any instrumentality of one or more States, political subdivision thereof, or municipal corporations.
Subsection 4 of section 20a establishes the procedural mechanism by which a carrier may obtain ICC approval of its securities. Under subsection 4, the ICC is authorized to prescribe the "form" of the application for approval as well as the "matters" which the application must contain. Id. § 20a(4). *fn9 The Commission, of course, also has the power to grant or deny, in whole or in part, the carrier's application.
Subsection 9 of the statute, however, exempts from the approval requirement notes which mature within two years of the date of issuance and which, together with all other such notes, comprise less than five percent of the par value of the carrier's outstanding securities. Id. 20a(9). *fn10 Yet, even when exempt notes are issued, the carrier must still file a notification similar to the regular application for approval. Id. *fn11
The Commission's review of carrier applications is supplemented by the mandate of subsection 6 of section 20a. This provision requires the ICC to file a copy of the carrier's application with the governor of each state in which the carrier operates and to allow the "appropriate State authorities" to comment upon the application. Id. S 20a(6). *fn12 This subsection expressly authorizes the Commission to hold hearings to assist its review of the matter. Id. *fn13
Finally, subsection 11 establishes sanctions for non-compliance. Securities issued, or obligations assumed, without ICC authorization or without compliance with the conditions of such authorization are void; in addition, civil liabilities, as well as criminal penalties, may be imposed on the directors, officers, and agents responsible for the improper issuance. Id. § 20a(11). *fn14 Thus, section 20a enacts a comprehensive scheme for the regulation of the issuance of a carrier's securities. *fn15
B. The 1975 and 1977 Orders.
In Ex Parte 275, Expanded Definition of Term "Securities," 348 I.C.C. 288 (1975), the Commission greatly expanded the definition of the term "securities," as employed in section 20a(2) (current version at 49 U.S.C. § 11301(a)(2)). Under this new standard, it was decreed that the statutory language, "evidence of interest in or indebtedness of the carrier," included: (1) advances payable to affiliated companies; (2) loan agreements; (3) credit agreements; (4) mortgages; (5) chattel mortgages; (6) deeds of trust; (7) equipment trusts; (8) security agreements; and (9) purchase agreements covering property having a useful life in excess of one year. *fn16 348 I.C.C. at 319. In addition, the Commission's order construed the statutory phrase, "assume any obligation or liability . . . in respect of the securities of any other person," *fn17 to include a carrier's advance of funds to an affiliated company. Id. In 1977, the Commission amended Ex Parte 275 by deleting several controversial filing requirements established in appendix C to the 1975 Order. These requirements concerned the information which a carrier had to submit as part of its application for authorization. Expanded Definition of Term "Securities," 354 I.C.C. 10, 22 (1977), Amending 348 I.C.C. 288, 318 (1975). Together, the 1975 and 1977 Orders represented the culmination of a review process which had started in 1971.
The history of this rulemaking proceeding is significant. On April 7, 1971 the ICC first published a notice of proposed rulemaking regarding the definition of the term "securities," *fn18 as contained in 49 C.F.R. 1115.2(c). *fn19 36 Fed.Reg. 6595 (1971). At that time, the phrase had been defined to include only the traditional forms of securities, like bonds, notes, and capital stock. In its notice, the ICC indicated that a change in the definition was rendered necessary because in "the present-day situation . . . a substantial amount of financing by carriers is represented by instruments other than . . . the traditional forms of securities." Id. The Commission proposed to amend the definition to include "conditional sale contracts, chattel mortgages, security agreements, mortgages, deeds of trust, loan agreements, credit agreements, and advances." Id. (to have been codified at 49 C.F.R. 1115.2(c)).
A year later, the Commission issued a report and an order concerning the proposed rulemaking. Expanded Definition of Term "Securities," 340 I.C.C. 817 (1972) ("the 1972 Order"). After reviewing the opposition to
(It) appears that the past interpretation of the term "securities" by this Commission to include stocks, bonds, notes, and instruments that read like notes was essentially the fair and correct interpretation of section 20a of the act.
340 I.C.C. at 824. The Commission, however, reasserted its conviction that changes in the financing practices of carriers necessitated corresponding changes in ICC practice. As a result, it decided to adopt amendments to the application form *fn20 for ICC approval of section 20a securities. 340 I.C.C. at 826.
The 1972 Order, however, was never put into effect. During the time period within which petitions for reconsideration could be filed, the ICC, on its own motion, decided to re-open the proceeding. The
In the order presently under review, the ICC adopted yet another definition of the term "securities;" it also propounded, for the first time, a construction of the statutory phrase "assume any obligation or liability." Expanded Definition of Term "Securities," 348 I.C.C. 288 (1975). In sum, the Commission ruled:
It is ordered, That the term "securities" as found in section 20a of the Interstate Commerce Act be henceforth interpreted as including, among other things, those instruments specifically enumerated in section 20a(2) as well as other evidences of interest in or indebtedness of carriers, which include, but are not limited to advances payable to an affiliated company, loan agreements, credit agreements, mortgages, chattel mortgages, deeds of trust, equipment trusts, security agreements, and purchase agreements of property having a useful life in excess of 1 year whose terms provide for other than full payment at the time of consummation, but shall not at this time be interpreted to include agreements entered into for the sole purpose of acquiring motor carrier operating equipment.
It is further ordered, That the terms "assume any obligation or liability" as found in section 20a of the Interstate Commerce Act be henceforth interpreted as including ...