173 F. 177 (E.D.Mo. 1909), 5,371, United States v. Standard Oil Co. of New Jersey

Docket Nº:5,371.
Citation:173 F. 177
Party Name:UNITED STATES v. STANDARD OIL CO. OF NEW JERSEY et al.
Case Date:November 20, 1909
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit
 
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Page 177

173 F. 177 (E.D.Mo. 1909)

UNITED STATES

v.

STANDARD OIL CO. OF NEW JERSEY et al.

No. 5,371.

United States Circuit Court, E.D. Missouri, Eastern Division.

November 20, 1909

Page 178

Frank B. Kellogg and Charles B. Morrison (The Attorney General, Cordenio A. Severance, J. Harwood Graves, and Guy Chase, on the brief), for the United States.

John G. Johnson, John G. Milburn, D. T. Watson, and Moritz Rosenthal (M. F. Elliott, Martin Carey, Frank L. Crawford, Chauncey W.

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Martyn, Douglas Campbell, Walter F. Taylor, John M. Freeman, Ernest C. Irwin, and W. I. Lewis, on the brief), for defendants.

Before SANBORN, VAN DEVANTER, HOOK, and ADAMS, Circuit Judges.

SANBORN, Circuit Judge.

This is a suit brought by the United States to enjoin the Standard Oil Company of New Jersey, a corporation, about 70 subsidiary corporations, and 7 individual defendants, from continuing an alleged illegal combination in restraint of commerce among the several states, in the District of Columbia, in the territories, and with foreign nations, in violation of the Sherman anti-trust act (Act July 2, 1890, c. 647, 26 Stat. 209 (U.S. Comp. St. 1901, p. 3200)). The provisions of that act pertinent to the issues in this case are:

Section 1:

'Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal.'

Section 2:

'Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of trade or commerce among the several states, or with foreign nations, shall be deemed guilty of a misdemeanor.'

Section 8:

'The word 'person' or 'persons' wherever used in this act shall be deemed to include corporations and associations.'

Repeated discussion and consideration of the purpose and meaning of this act have established, by controlling authority, beyond debate in this tribunal, these pertinent rules for its interpretation and application to the facts of this case. The test of the legality of a contract or combination under this act is its direct and necessary effect upon competition in interstate or international commerce. If the necessary effect of a contract, combination, or conspiracy is to stifle, or directly and substantially to restrict, free competition in commerce among the states or with foreign nations, it is a contract, combination, or conspiracy in restraint of that trade, and it violates this law. The parties to it are presumed to intend the inevitable result of their acts, and neither their actual intent nor the reasonableness of the restraint imposed may withdraw it from the denunciation of the statute. Addyston Pipe & Steel Co. v. United States, 175 U.S. 211, 234, 20 Sup.Ct. 96, 44 L.Ed. 136; Northern Securities Company v. United States, 193 U.S. 197, 331, 24 Sup.Ct. 436, 48 L.Ed. 679; United States v. Joint Traffic Association, 171 U.S. 505, 577, 19 Sup.Ct. 25, 43 L.Ed. 259; Hopkins v. United States, 171 U.S. 579, 592, 19 Sup.Ct. 40, 43 L.Ed. 290.

The exchange of the stock or shares in the ownership of competitive corporations engaged in interstate or international commerce for stock or shares in the ownership of a single corporation, the necessary effect of which is a direct and substantial restriction of competition in that commerce, constitutes a combination in restraint of commerce among the states or with foreign nations that is declared illegal by this

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law. Northern Securities Company v. United States, 193 U.S. 197, 354, 366, 24 Sup.Ct. 436, 48 L.Ed. 679; United States v. American Tobacco Co. (C.C.) 164 F. 700, 718.

The business of the defendants is the production and the purchase of petroleum, its storage, its transportation from the producing wells to refineries, the refining of this oil, and the transportation and sale of its products to purchasers in this and other countries. In 1865 John D. Rockefeller, William Rockefeller, Samuel Andrews, Henry M. Flagler, and Stephen D. Harkness, owned two refineries, and had a domestic trade in oil at Cleveland and a warehousing business and an export trade at the port of New York, which they vested in the Standard Oil Company of Ohio, a corporation with a capital stock of $1,000,000, which they then organized. Between the organization of that corporation in 1870 and April 8, 1879, Henry H. Rogers, John D. Archbold, Oliver H. Payne, and Charles M. Pratt associated themselves with the Rockefellers and Flagler and became stockholders in this corporation, and these 7 defendants and their associates increased the number of its stockholders to 37, its capital stock to $3,500,000, the value of its property to a much larger sum, and acquired for the stockholders of that corporation, by the purchase of property conveyed directly to it, by the exchange of its stock for stock of other corporations and for interests in partnerships, and by placing the title to the business and property obtained in new corporations organized to hold them, and then vesting the title to a majority of all of their stock in various individuals in trust for the stockholders of the Standard Oil Company, more than 40 competitive refineries located, respectively, in Cleveland, Pittsburg, Titusville, Parkersburg, Baltimore, Philadelphia, Bayonne, New York Harbor, Boston, and other places, and the ownership of the entire interest or of a controlling interest in more than 30 companies, some of which were corporations, while others were partnerships, engaged in the same general business. The result was that on April 8, 1879, the stockholders of the Standard Oil Company were, by their holdings of stock and by their position as cestuis que trust, practically the owners of controlling interests in the property and the business of more than 30 companies engaged in the oil business, the title to which was held in trust for them by the Standard Oil Company and other trustees in proportion to their ownership of the stock of that corporation. Thereupon on that day the Standard Oil Company and all the other trustees conveyed their interests in the stock, property, and business of these concerns to George H. Vilas, M. R. Keith, and George F. Chester, in trust, to hold and manage them for, and to divide and distribute them among, the 37 stockholders of the Standard Oil Company in proportion to their respective holdings of the stock of that company. The trustees, however, did not divide or distribute, but operated the refineries and the companies which they held under this deed, and with their earnings purchased other property and the stock of other companies, until in 1882 they held in this trust property worth more than $55,000,000.

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In January, 1882, the owners, as cestuis que trust and otherwise, of all this property, and the trustees, George H. Vilas, M. R. Keith, and George F. Chester, entered into a trust agreement to the effect that all the stocks they owned in the Standard Oil Company of Ohio and in all other corporations and limited partnerships engaged in the oil business, 39 of which were mentioned in the contract, were conveyed to 9 trustees during their lives and the life of the survivor of them and for 21 years thereafter, unless the trust was sooner dissolved by vote of the shareholders; that these trustees might organize other corporations to produce, manufacture, refine, and deal in petroleum and its products; that they might buy with the trust funds bonds or stocks of other companies engaged in similar or collateral business; that as stockholders of the various corporations they should elect the officers of those corporations; that they should issue and deliver, to each of the equitable owners of the stocks, bonds, and property held by them, trust certificates, which should show the value and extent of his interest in the trust in shares of the par value of $100 each; and that they should supervise the business of all the companies whose stock they held, collect the dividends upon the stock and the interest upon the bonds in their possession, and distribute the income thus derived in dividends upon the trust certificates. Six of the individual defendants were six of the nine trustees, and these trustees issued for the stocks, the title to which was thus conveyed to them, trust certificates of the par value of $70,000,000, and between 1882 and March 21, 1892, additional certificates of the par value of $27,250,000, so that on the latter date there were outstanding certificates for 972,500 shares in the trust.

In March, 1892, the Supreme Court of Ohio decided that the making and operation of this trust of 1882 were beyond the corporate powers of the Standard Oil Company of Ohio and tended to create a monopoly, and enjoined that corporation from continuing its operation. State v. Standard Oil Company, 49 Ohio St. 137, 30 N.E. 279, 291, 15 L.R.A. 145, 34 Am.St.Rep. 541. A few days later, on March 21, 1892, the holders of the trust certificates met and resolved that the trust agreement was terminated on that day, that the trustees should sell all the trust property except the stocks of companies held by them, and that these stocks should be distributed to the owners of the trust certificates, who then numbered several thousands, in proportion to their respective ownerships of shares in the trust. The trustees then held stocks in 84 companies. They first transferred the stocks they held in 23 of these companies to the Standard Oil Company of New Jersey, the stocks they held in 11 of these companies to the South Penn Oil Company, the stocks they held in 4 of them to the Forest Oil Company, the stocks they held in 2 of them to the Standard Oil Company of Indiana, the stocks they held...

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