United States v. General Dynamics Corporation

• Decision Date: 13 April 1972
• Docket Number: No. 67 C 1632.,67 C 1632.
• Citation: 341 F. Supp. 534
• Parties: UNITED STATES of America, Plaintiff, v. GENERAL DYNAMICS CORPORATION et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

341 F. Supp. 534

UNITED STATES of America, Plaintiff, v. GENERAL DYNAMICS CORPORATION et al., Defendants.

No. 67 C 1632.

United States District Court, N. D. Illinois, E. D.

April 13, 1972.

John E. Sarbaugh, John T. Cusack, Robert L. Eisen, Robert L. Futterman, Hugo S. Sims, III, and Richard J. Braun, Dept. of Justice, Chicago, Ill., for plaintiff.

Hammond E. Chaffetz, Reuben L. Hedlund, Donald G. Kempf, Jr., Samuel A. Haubold, Richard H. Irving, III, of Kirkland & Ellis, Hodson, Chaffetz & Masters, Chicago, Ill., for defendants General Dynamics Corp., The United Electric Coal Companies and Freeman Coal Mining Corp.

Greg K. Kimberlin, Plainfield, Ind., and Sidley & Austin, Chicago, Ill., for defendant Public Service Co. of Indiana, Inc.

DECISION ON THE MERITS

ROBSON, Chief Judge.

In this antitrust divestiture action, the Government attacks the 1966 merger of General Dynamics Corporation with The United Electric Coal Companies (United Electric). The Government bases its complaint upon the contention that the General Dynamics-United Electric merger violated Section 7 of the Clayton Act. 15 U.S.C. § 18.¹ The jurisdiction of the court pursuant to 15 U.S.C. § 25 is undisputed. After a trial on the merits and evaluation of the massive quantity of evidence submitted by the parties,² this court is of the opinion that judgment should be rendered for the defendants.

I. THE DEFENDANTS

General Dynamics

The defendant General Dynamics Corporation (General Dynamics) is a Delaware corporation with its principal executive offices located in New York. General Dynamics is a large, diversified corporation selling to government services and agencies, as well as to industrial and commercial customers. Over 85 per cent of General Dynamics' annual sales are to government services and agencies, and principally consist of aircraft, space, communications, and marine products. General Dynamics' sales to industrial and commercial consumers include commercial communication equipment, building materials, lime, machinery, and the subject of this litigation: coal.

The evidence at trial reveals that General Dynamics acquired Material Service Corporation (Material Service) in 1959, as part of its attempt to diversify into commercial, nondefense business. Material Service was at that time a midwest producer and supplier of building materials, concrete, coal and limestone; it owned all of the stock of the defendant Freeman Coal Mining Corporation (Freeman) and 34 per cent of the outstanding stock of the defendant United Electric.

At the time of the General Dynamics-Material Service merger, General Dynamics was also seeking diversification through development of commercial products stemming from such subsidiary programs as the Convair 880/990 jet transport; Canadair's commercial turbo-prop CL-44 and CL-540 aircraft; General Atomic's nuclear research maritime and power reactors; Liquid Carbonic's industrial gases; and Stromberg-Carlson's telephone and high fidelity sound equipment. By the time of trial, however, these diversification ventures had been discontinued or sold, with the exception of Stromberg-Carlson's communication equipment business. In the early 1960's, General Dynamic's Convair Division phased out its commercial jet transport production program. During 1967, General Dynamics sold General Atomic to Gulf Oil Corporation, and in 1969, as a result of an adverse decision in United States v. General Dynamics Corp., 258 F.Supp. 36 (S.D.N.Y.1966), it sold Liquid Carbonic to Houston Natural Gas Corporation.

General Dynamics is the fifth largest coal miner among commercial producers. Through its two coal subsidiaries, Freeman and United Electric, General Dynamics had combined sales of nearly 15 million tons in 1967. The evidence did not disclose that General Dynamics presently engages in any aspect of either the electric utility or fuel industries other than coal production.

Freeman Coal Mining Corporation

The defendant Freeman is an Illinois corporation headquartered in Chicago, Illinois. Freeman was acquired by the Burton Coal Company in 1922, the same year it acquired its first mine, the Bobby Dick, located in Williamson County, Illinois. Throughout its history, Freeman's mining operations have been centered in Jefferson, Franklin and Williamson counties in the Southern Illinois Freight Rate District.³ In addition, it has operated the Crown Mine in the Springfield Freight Rate District located in central Illinois.

Material Service acquired Freeman and the assets of Burton Coal Company, both of which were in bankruptcy, in 1942. Empire Building Corporation which, like Material Service, was controlled by the Henry Crown family, acquired the stock of the Chicago, Wilmington & Franklin Coal Company (CW&F) in 1954. After the acquisition of CW&F stock by Empire Building Corporation, Freeman operated the mines of CW&F and sold the coal which they produced. Thus from 1955 forward CW&F and Freeman were, for all practical purposes, one coal company.

Among 37 coal producers in the mid-west, Freeman ranks eighth in terms of coal reserves in Illinois, Indiana and western Kentucky, but controls less than four per cent of the total midwest reserves controlled by these companies in 1968. Of the nine "leading" Illinois coal producers⁴ reporting their coal reserves, Freeman ranks sixth in reserve holdings. Of the 11 "leading" producers in the three-state area, Freeman ranks seventh in reserve holdings. Freeman controls 6.5 per cent of the more than 2 billion tons of coal reserves dedicated to existing mines in Illinois, Indiana and western Kentucky as of 1968.

While Freeman's reserves in central Illinois are of relatively low BTU value⁵ and have a sulphur content of over three per cent, substantially all of the reserves and production at Freeman's Orient mines are high quality, high BTU coal with a sulphur content of less than 2.5 per cent, and ranging as low as one per cent. Approximately one-half of Freeman's other reserves in Williamson and Jefferson counties have a sulphur content of less than 1.5 per cent.

Approximately eight per cent of Freeman's production is sold for metallurgical purposes, and an additional 10 to 11 per cent is sold as dust.⁶ All of Freeman's mines are deep shaft operations and, aside from its relationship with United Electric, Freeman does not appear to have ever operated any strip mines and apparently possesses neither experience nor expertise in strip mining. None of Freeman's mines or coal reserves are located in a Freight Rate District in which United Electric operates a mine or controls reserves.

The United Electric Coal Companies

The defendant United Electric was formed in 1919 as a consolidation of several coal properties located in the vicinity of Danville, Illinois. United Electric presently operates only the following four strip or open pit mines, all of which are in Illinois: the Cuba Mine located in Fulton County and opened in the early 1920's; the Fidelity Mine located in Perry County and opened in 1928; the Buckheart Mine located in Fulton County and opened in 1937, and the Banner Mine located in Fulton and Peoria counties and opened in 1960. In addition, United Electric has operated the following strip mines for the periods of time indicated: the Freeburg Mine located in St. Clair County, Illinois, was reopened in 1936, having been idle since 1933, and was closed in 1949; the Solar Mine located in Schuyler County, Illinois, was opened in 1945 and was closed in 1949; the Buffalo Creek Mine located near Madisonville, Kentucky, was opened in 1947 and was closed in 1959; the Skyline Mine located in Breathitt County, Kentucky, was opened in 1952 and was closed in 1956; and, finally, the Mary Moore Mine located in Vermillion County, Illinois, was opened in 1955 and was closed in 1965 upon the exhaustion of strippable reserves. United Electric also had a small deep coal mine in the 1920's and an underground mining operation at its Buffalo Creek Mine from June of 1952 until 1954. The evidence indicates that although United Electric was the largest strip coal mining company in Illinois in 1948, during the succeeding 20 years it opened only two new mines in the midwest (Banner and Mary Moore) and closed four mines (Solar, Freeburg, Buffalo Creek, and Mary Moore). Furthermore, it was shown at trial that the Cuba Mine was likely to close in the immediate future, while the Banner Mine would be exhausted in approximately five years.

Ownership and management of United Electric remained essentially the same from the late 1930's until 1954, when Material Service acquired 10 per cent of United Electric's stock. This acquisition was disclosed that year to both the Government and United Electric's stockholders. During the course of the next few years, Material Service increased its ownership in United Electric; by 1959, Material Service controlled more than one-third of United Electric's outstanding stock. That year Material Service (and Freeman, its wholly-owned coal subsidiary) requested and received representation on United Electric's Board of Directors. As a result, Frank Nugent, President of Freeman, was made Chairman of United Electric's Executive Committee.

With the affiliation of Freeman and United Electric thus formalized in 1959, common control of the two coal companies was achieved.⁷ This development was immediately disclosed to the public, as well as to competitors and customers of both Freeman and United Electric. Within months, Material Service was itself acquired by General Dynamics. An investigation by the Antitrust Division of the Department of Justice ensued, during which the Government was furnished information with respect to the stock ownership of Freeman and United Electric. No further action was taken by the Government.

During the early 1960's, General Dynamics continued to purchase United Electric stock, and, by 1966, immediately prior to its tender offer for the balance of United...