253 U.S. 26 (1920), 3, United States v. Reading Company

Docket Nº:No. 3, 4
Citation:253 U.S. 26, 40 S.Ct. 425, 64 L.Ed. 760
Party Name:United States v. Reading Company
Case Date:April 26, 1920
Court:United States Supreme Court
 
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253 U.S. 26 (1920)

40 S.Ct. 425, 64 L.Ed. 760

United States

v.

Reading Company

No. 3, 4

United States Supreme Court

April 26, 1920

Argued October 10, 11, 1916

Restored to docket for reargument May 21, 1917

Reargued November 20, 21, 1917

Restored to docket for reargument June 10, 1918

Reargued October 7, 1919

APPEALS FROM THE DISTRICT COURT OF THE UNITED STATES

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

Syllabus

Regardless of the use made of it, a power resulting not from normal expansion and legitimate business enterprise, but from deliberate calculated purchase for control which enables a holding company to dominate two great competing interstate railroad carriers and two great competing coal companies, engaged extensively in mining and selling anthracite coal that must be transported to interstate markets over those railroads, is a menace to and an undue restraint upon interstate commerce within the meaning of the Anti-Trust Act. P. 57.

By a scheme of reorganization executed after the enactment of the

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Sherman Anti-Trust Act, all the property of the Philadelphia & Reading Coal & Iron Company, a large producer of anthracite coal controlling about two-fifths of the supply in the largest of the three fields in Pennsylvania where substantially all of the anthracite of the country is found, and all the property of the Philadelphia & Reading Railroad Company, owner of all the capital stock of the Coal Company and of an extensive railroad system over which that company's large output found its way to interstate markets, was delivered into the complete control of the Reading Company. That company became the owner of all the stock of the Coal Company, with additional control over it through fiscal provisions of the reorganization; of all the stock of a new railroad company, the Philadelphia & Reading Railway Company, to which the main railroad was transferred; of all the equipment for operating the railroad, and of ships, terminals, short lines, and other property which formed part of the railroad system. Besides entering into two schemes with other carriers and coal companies for suppressing competition, which were declared violations of the Anti-Trust Act in United States v. Reading Co., 226 U.S. 324 (see infra, p. 49), the Reading Company purchased a controlling interest in the capital stock of the Central Railroad Company of New Jersey, a large carrier of anthracite in competition with the Philadelphia & Reading Railway Company, and owner of over eleven-twelfths of the capital stock of the defendant Lehigh & Wilkes-Barre Coal Company, which in turn owned or had leased a very large acreage in another of the Pennsylvania anthracite fields and was a competitor of the Philadelphia & Reading Coal & Iron Company, and thereby, and through common officers and directors, the Reading Company acquired and exercised active dominating control over the last two mentioned companies, its power thus including two of the principal competing producers, and two of the principal competing initial carriers, of anthracite in interstate commerce. There was evidence also of its combining with other carriers to fix excessive flat rates to tidewater, and of special privileges extended by it to the Philadelphia & Reading Coal & Iron Company in the way of financial assistance and forbearance, and of similar dealing between the Central Railroad and Wilkes-Barre Companies.

Held that the combination, both before and after the induction of the Central Railroad Company of New Jersey, violated the Sherman Anti-Trust Act, and that the relations between the Reading Company, the Philadelphia & Reading Railway Company, the Philadelphia & Reading Coal & Iron Company, and the Central Railroad

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Company of New Jersey must be so dissolved as to give to each of them a position in all respects independent and free from stock or other control of any of the others. Pp. 43-59.

The combination between the Philadelphia & Reading Railway Company and the Philadelphia & Reading Coal & Iron Company through the Reading Company must also be dissolved, because the transportation thereunder by the Railway of the coal produced by the Coal Company violates the commodities clause of the Act of June 29, 1906. P. 60.

While the ownership by a railroad company of shares of the capital stock of a mining company does not necessarily create an identity of corporate interest between the two such as to render it unlawful under the commodities clause for the railroad company to transport in interstate commerce the products of such mining company, yet where such ownership of stock is resorted to not for the purpose of participating in the affairs of the corporation in which it is held in a manner normal and usual with stockholders, but for the purpose of making it a mere agent or instrumentality or department of another company, the courts will look through the forms to the realities of the relation between the companies as if the corporate agency did not exist, and will deal with them as the justice of the case may require. P. 62.

Applying this rule, held that the relation between the Central Railroad Company of New Jersey and the Lehigh & Wilkes-Barre Coal Company, with the former owning over eleven-twelfths of the capital stock of the latter and using the latter as the coal mining department of its organization, violates the commodities clause, and for that reason must be dissolved. Id.

In 1871, the Lehigh Coal & Navigation Company, owner of extensive coal-producing properties and of the Lehigh & Susquehanna Railroad, leased the railroad for a rental of one-third of its gross earnings to the Central Railroad Company of New Jersey, the line leased and the line of the lessee not being in competition, but the one forming a natural extension of the other into the coal fields. Held that a covenant in the lease, assumed to require the lessor to ship to market over the leased line three-fourths of all the coal which it should produce in the future, was not designed to suppress interstate commerce, did not have that effect, and does not violate the Anti-Trust Act. P. 54.

Covenants in leases of coal lands by the Philadelphia & Reading Coal & Iron Company and Lehigh & Wilkes-Barre Coal Company obliging the lessees to ship all coal mined by rail routes

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designated or to be designated, are held unlawful as part of the scheme to control the mining and transportation of coal herein condemned, and their enforcement is enjoined. P. 55.

As to other charges against the Lehigh Coal & Navigation Company, and as respects the Wilmington & Northern Railroad Company, the Lehigh & Hudson River Railway Company, the Lehigh & New England Railroad Company, and the surviving individual defendants, the bill is dismissed without prejudice. Id.

226 F. 229 affirmed in part, reversed in part.

The case is stated in the opinion. Motions to modify the decree were made and denied at this term. Post, 478.

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CLARKE, J., lead opinion

MR. JUSTICE CLARKE delivered the opinion of the Court.

These are appeals from a decree entered in a suit instituted by the government to dissolve the intercorporate relations existing between the corporation defendants for the alleged reason that, through such relations, they

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constitute a combination in restraint of interstate commerce in anthracite coal and an attempt to monopolize or a monopolization of such trade and commerce in violation of the first and second sections of the Anti-Trust Act of Congress, of July 2, 1890, c. 647, 26 Stat. 209, and also for the alleged reason that the defendants, Philadelphia & Reading Railway Company and Central Railroad Company of New Jersey, are violating the commodities clause of the Act of Congress of June 29, 1906, c. 3591, 34 Stat. 585, by transporting over their lines of railroad, in interstate commerce, coal mined or purchased by coal companies with which they are associated by stock ownership.

[40 S.Ct. 427] It will contribute to brevity and clearness to designate the defendant corporations as follows: Reading Company as Holding Company; Philadelphia & Reading Railway Company as Reading Railway Company; Philadelphia & Reading Coal & Iron Company as Reading Coal Company; Central Railroad Company of New Jersey as Central Railroad Company; Lehigh & Wilkes-Barre Coal Company as Wilkes-Barre Company; Lehigh Coal & Navigation Company as Navigation Company.

Practically all of the anthracite coal in this country is found in Northeastern Pennsylvania, in three limited and substantially parallel deposits, located in valleys which are separated by mountainous country. For trade purposes, these coal areas are designated: the most northerly as the Wyoming field, estimated to contain about 176 square miles of coal; the next southerly as the Middle or Lehigh field, estimated to contain about 45 square miles, and the most southerly as the Schuylkill field, estimated to contain about 263 square miles of coal.

The annual production of the mines in these three fields in 1896 was about 43,640,000 tons, and in 1913 it slightly exceeded 71,000,000 tons. The chief marketing centers for this great tonnage of coal are New York, distant by rail from the fields about 140 miles, and Philadelphia, distant

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about 90 miles. From these cities it is widely distributed by rail and water throughout New York and New England, and to some extent through the South.

Such a large tonnage was naturally attractive to railroad carriers, with the result that the Wyoming field has six outlets by rail to New York harbor, viz.: The Central Railroad of New Jersey and five others, known as initial anthracite carriers. The Lehigh field has three such rail outlets, but the largest, the...

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