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Abstract

For many of the nation's railroads, the early 1960's was a period of financial instability. To fund necessary capital improvements and to provide supportive financing in times of crisis, some railroads were affiliated with unrelated industries possessing superior growth rates. The railroads usually formed holding companies to own and manage the outside properties. The Bangor and Aroostook Railroad (BAR) followed this pattern when it formed Bangor and Aroostook Company (BAC) in 1960. Most of the stockholders of BAR exchanged their stock for BAC stock. Four years later, BAC was merged with another conglomerate to form Bangor Punta Corporation (Bangor Punta). In 1969, Bangor Punta sold the railroad (BAR) to Amoskeag Corporation (Amoskeag), another holding company. Prior to this last sale, the Interstate Commerce Commission had initiated a study of the relationship of BAR to its parent, Bangor Punta, to measure the effects of the holding company scheme upon the operation and financial condition of BAR. The I.C.C. report issued in 1971 was sharply critical. The reporters documented a history of manipulation and overreaching by the holding company. The I.C.C. concluded its report with the recommendation that legal action be taken to recover those assets drained from BAR by Bangor Punta and BAC. Responding to this advice, BAR filed suit in the United States District Court for the District of Maine. In Bangor & A.R.R. v. Bangor Punta Operations, Inc., the district court dismissed the entire complaint, and held that BAR was estopped from pursuing the suit. The court reasoned that any BAR recovery would chiefly benefit Amoskeag, its principal stockholder. Since Amoskeag would have been barred from suing Bangor Punta derivatively under the provisions of Rule 23.1,1 any BAR recovery would result in an undeserved windfall to Amoskeag. Therefore, BAR could not maintain the action for lack of equity on the part of the real parties in interest behind its corporate form. The United States Court of Appeals for the First Circuit reversed the district court's dismissal. This Note explores the method used by the Bangor Punta court to establish the public as a real party in interest to the BAR suit. It discusses whether the public policy of the Bankruptcy Act and the railroad charters adequately justify an unconditional right to recovery. Finally, the Note questions whether the internal consistency of the decision was undermined by the failure to cite the source of the public interest in deterrence, and whether section 10 of the Clayton Act would have provided the needed statutory support.

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