166 F. 254 (2nd Cir. 1908), 74, Pennsylvania Sugar Refining Co. v. American Sugar Refining Co.

Docket Nº:74.
Citation:166 F. 254
Case Date:December 15, 1908
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

Page 254

166 F. 254 (2nd Cir. 1908)




No. 74.

United States Court of Appeals, Second Circuit.

December 15, 1908

Page 255

H. Snowden Marshall and George H. Earle, Jr. (Frank S. Black, Joseph De F. Junkin, and John W. Hutchinson, Jr., on the brief), for plaintiff in error.

John G. Johnson (Henry W. Taft, on the brief), for defendants in error American Sugar Refining Co. and John E. Parsons.

Howard Taylor, for other defendants in error.

Before LACOMBE, COXE, and NOYES, Circuit Judges.

NOYES, Circuit Judge.

This is an action for the recovery of treble damages under the seventh section of the federal anti-trust

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statute (Act July 2, 1890, c. 647, 26 Stat. 210 (U.S. Comp. St. 1901, p. 3202)).

The complaint alleges, in substance, that the plaintiff, a Pennsylvania corporation, had from the year 1883 to the year 1898 been engaged in the business of importing raw sugar from other states and foreign countries into the state of Pennsylvania, manufacturing it there into refined sugar, and exporting the manufactured product to other states and countries; that the plaintiff ceased carrying on such business in 1898 on account of the Spanish War, and had not actually resumed at the time of the conspiracy complained of, but at such time had erected a new and enlarged sugar refinery upon its premises in said state of Pennsylvania, and was prepared and intended to resume and continue the business which it had before carried on; that the defendants conspired to prevent the plaintiff from re-engaging in business, and that they accomplished their object by inducing one Segal, who indirectly held a controlling stock interest in the plaintiff corporation, to accept a loan of a large sum of money and to turn over to them such interest, with the voting power attached thereto, which they exercised to elect new directors and caused such directors to vote that the plaintiff should do no business. The defendants answered, and the case came on for hearing, when a motion was made to dismiss the complaint upon the ground that it failed to state a cause of action. This motion was granted by the trial court.

Upon this writ of error we must assume that the plaintiff, if given the opportunity, would have established the allegations of its complaint-- would have shown that it was directly engaged in importing raw sugar, refining it, and exporting the finished product; that it temporarily ceased to do business, and was prepared to resume with larger facilities, when, through the defendants' conspiracy, it was prevented from so doing.

The defendants first contend that the conspiracy stated in the complaint relates to manufacture-- to production-- and, consequently, does not directly restrain interstate commerce, in violation of the anti-trust statute. This contention is founded upon the decision in United States v. E. C. Knight Co., 156 U.S. 1, 15 Sup.Ct. 249, 39 L.Ed. 325, upon which the trial court based its decision. A comparison of the Knight Case with the case at bar shows some striking superficial resemblances. Both relate to actions of the American Sugar Refining Company in obtaining control of independent sugar refining companies in Philadelphia. But there is this fundamental distinction between them: The one was an agreement for the restriction of competition which related directly to manufacture and only indirectly to interstate commerce; the other was a conspiracy to prevent a manufacturer from engaging in business which necessarily directly restrained interstate commerce. An agreement or combination for the elimination of competition, from an economic point of view, may not operate in restraint of trade. It may actually develop and increase trade. Such an agreement, however, from a legal viewpoint, is necessarily in restraint of trade. The law regards competition as the life of trade, and so that which restricts competition restrains trade. But a contract in restraint

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of trade may or may not be in restraint of interstate trade.

If it directly affect only production within the limits of a state, it is in restraint of intrastate trade and is subject only to state laws. Any remote or incidental effect upon interstate trade is insufficient to bring it within the federal enactment. If, however, the contract go further and, for example, control the disposition of the manufactured article across state lines, it directly affects interstate commerce, and thus may contravene both state and national laws. On the other hand, a conspiracy to prevent a manufacturer who procures his supplies and disposes of his products by means of interstate commerce from engaging in business at all necessarily places restraints upon such commerce. Its flow is restricted and interrupted. The importation and exportation of articles of commerce are directly prevented, and none the less so because the conspiracy may be of so wide a scope as to interfere with interstate commerce also.

Now, in the Knight Case there was an agreement for the elimination of competition, and not a conspiracy. In that case the United States brought suit to annul certain contracts by which the American Sugar Refining Company acquired, through the exchange of shares, controlling interests in several competing refineries in Philadelphia. These refineries continued in operation after such acquisition of control, and the amount of sugar refined in Philadelphia was increased. The arrangement had for its object a unification of interests in the business of sugar refining in Pennsylvania. No intention to place any restraint upon interstate commerce was shown, and the contracts in question bore no direct relation to such commerce. Any restraint which was created by legal construction was indirect and remote. In the present case the elements of agreement and combination for the elimination of competition are wholly absent. The object of the conspiracy was to exclude the plaintiff from business, not to unite with it. The refinery was to be shut down and not operated. The interstate shipments which would have resulted from its operation were prevented. Instead of there being a development of business and increase of traffic, the possibility of there being any traffic at all was excluded.

The decision in the Knight Case was that upon the proofs the agreements there in question related to manufacture-- to production-- and were not in restraint of interstate commerce, although they may have affected such commerce incidentally and indirectly. But there is present in this case that which Mr. Chief Justice Fuller said was absent in the Knight Case, 156 U.S. 1, 17, 15 Sup.Ct. 249, 39 L.Ed. 325:

'There was nothing in the proofs to indicate any intention to put a restraint upon trade or commerce, and the fact, as we have seen, that trade or commerce might be indirectly affected, was not enough to entitle complainants to a decree.'

In the present case the proofs, if supporting the allegations, would show a conspiracy which could have no other possible result than to put a direct restraint upon interstate commerce. The complaint alleges specifically that the object and intention of the...

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