Allis-Chalmers Mfg. Co. v. White Consolidated Indus., Inc.

• Decision Date: 18 July 1969
• Docket Number: No. 17713.,17713.
• Citation: 414 F.2d 506
• Parties: ALLIS-CHALMERS MANUFACTURING COMPANY, Appellant, v. WHITE CONSOLIDATED INDUSTRIES, INC., Appellee.
• Court: U.S. Court of Appeals — Third Circuit

414 F.2d 506 (1969)

ALLIS-CHALMERS MANUFACTURING COMPANY, Appellant, v. WHITE CONSOLIDATED INDUSTRIES, INC., Appellee.

No. 17713.

United States Court of Appeals Third Circuit.

Argued March 28, 1969.

Decided July 18, 1969.

Rehearing Denied September 9, 1969.

COPYRIGHT MATERIAL OMITTED

S. Hazard Gillespie, Davis, Polk & Wardwell, New York City (Morris, Nichols, Arsht & Tunnell, Wilmington, Del., on the brief), for plaintiff-appellant.

George I. Meisel, Squire, Sanders & Dempsey, Cleveland, Ohio (Potter, Anderson & Corroon, Blaine T. Phillips, Wilmington, Del., Richard M. Donaldson, Cleveland, Ohio, on the brief), for defendant-appellee.

Before SEITZ, ALDISERT and STAHL, Circuit Judges.

OPINION OF THE COURT

STAHL, Circuit Judge.

This appeal by Allis-Chalmers Manufacturing Company, appellant, pursuant to 28 U.S.C.A. § 1292(a) (1), is from an order of the district court¹ denying Allis-Chalmers' application for preliminary relief against allegedly threatened violations of the antitrust laws.

In December 1968, White Consolidated Industries, Inc., appellee, "a diversified manufacturer, specializing in a wide variety of machinery and equipment, household appliances, and industrial supplies," 294 F.Supp. at 1265, purchased 31.2% of the outstanding stock of Allis-Chalmers from Gulf and Western Industries. The avowed purpose underlying White's stock purchase is the acquisition of Allis-Chalmers,² and to that end White proposes to make a tender offer to Allis-Chalmers stockholders in order to increase substantially its share of ownership.

I. Proceedings in District Court

Alleging that White's acquisition of a substantial part of its stock and the proposed acquisition of additional stock constitute a violation of § 7 of the Clayton Act, 15 U.S.C.A. § 18, appellant Allis-Chalmers instituted the present action seeking a preliminary injunction to restrain White from acquiring any additional stock and from exercising its present share of ownership in any manner that would accomplish its takeover purpose.

After Allis-Chalmers filed its verified complaint, App. 5a, the district court issued an ex parte temporary restraining order prohibiting White from "directly or indirectly soliciting, contacting or communicating by public announcement or otherwise with other shareholders of Allis-Chalmers Manufacturing Company, or any other person, for the purpose of acquiring additional stock in Allis-Chalmers Manufacturing Company or announcing an intention of acquiring or of taking steps to acquire additional stock in Allis-Chalmers Manufacturing Company. * * *"³ By agreement of the parties that order was extended until such time as the district court rendered a final decision on the application for preliminary injunction.

In response to the complaint of Allis-Chalmers, White filed a verified answer, App. 28a, and both parties submitted numerous affidavits and exhibits. The decision of the district court was based on the documents presented and on a hearing held on January 14, 1969, which was limited almost exclusively to oral argument by counsel.⁴

On the basis of the affidavits, exhibits and legal arguments advanced by counsel, the district court concluded that appellant Allis-Chalmers had failed to demonstrate a reasonable probability of success on a final trial of the antitrust issues and hence denied preliminary injunctive relief.⁵

For the reasons hereafter set forth, I believe a preliminary injunction should have been granted.⁶

a. The Clayton Act

Section 7 of the Clayton Act, as amended in 1950, prohibits a corporation engaged in commerce from acquiring "directly or indirectly, the whole or any part of the stock * * * of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition, may be substantially to lessen competition, or to tend to create a monopoly." 15 U.S.C.A. § 18. The legislative history of the 1950 amendment indicates clearly the Congressional concern with "a rising tide of economic concentration in the American economy," Brown Shoe Co. v. United States, 370 U.S. 294, 315, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962).⁷

In developing the criteria for determining the anticompetitive effects of mergers and acquisitions, the Supreme Court has made it abundantly clear that the focus is on "probabilities, not certainties. * * * Mergers with a probable anticompetitive effect were to be proscribed by this Act." Id. at 323, 82 S. Ct., at 1523. (Emphasis added.) And, more recently, in FTC v. Procter & Gamble Co., 386 U.S. 568, 87 S.Ct. 1224, 18 L.Ed.2d 303 (1967), the Supreme Court again noted that § 7 is designed to thwart anticompetitive practices in their incipiency, and that that policy would be frustrated by a "requirement that the anticompetitive power manifest itself in anticompetitive action before § 7 can be called into play." Id. at 577, 87 S.Ct., at 1229.

b. Application for Preliminary Relief

Basing its action on § 7 of the Clayton Act, Allis-Chalmers alleged that its acquisition by White would substantially lessen competition in each of several lines of commerce. Injunctive relief was sought under § 16 of the Clayton Act, 15 U.S.C.A. § 26, which empowers a federal court to grant relief in a private action,

against threatened loss or damage by a violation of the antitrust laws * * * when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity * * * and upon the execution of proper bond against damages from an injunction improvidently granted and a showing that the danger of irreparable loss or damage is immediate, * * *.

Thus, as the district court noted, "injunctive relief is particularly suited to the preventive function of § 7 and Congress has expressly extended the availability of the injunctive remedy to private parties * * *." 294 F.Supp. at 1265. The Supreme Court has declared "that the purposes of the antitrust laws are best served by insuring that the private action will be an everpresent threat to deter anyone contemplating business behavior in violation of the antitrust laws * * *." Perma Life Mufflers Inc. v. International Parts Corp., 392 U.S. 134, 139, 88 S.Ct. 1981, 20 L.Ed.2d 982 (1968). See also Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 89 S.Ct. 1562, 23 L.Ed. 2d 129 (1969).

Recognizing that preliminary relief is a serious remedy,⁸ and because application for such relief, particularly in a complex case, is often based on a record less comprehensive than that which a full adjudication would yield, the courts have required that a plaintiff show a reasonable chance of ultimately prevailing on the merits. In an action by a private party, the plaintiff must also show that it will suffer irreparable injury unless relief is granted. Note, 40 N.Y.U.L.Rev. 771, 778 (1965).

In a case in which the Government sought to enjoin corporate acquisitions which allegedly violated § 7 of the Clayton Act, we said that,

* * * The United States is required to establish at the present stage of this case * * * the probability of a lessening of competition and a showing of a reasonable probability of success on final hearing * * *. (Emphasis added.) United States v. Ingersoll-Rand Co., 320 F.2d 509, 525 (3d Cir. 1963).

The burden so imposed is warranted by the extraordinary nature of the relief which is sought. But I am also mindful of the fact that it is preliminary relief which is being requested, and if the moving party establishes a reasonable probability of a § 7 violation the "possibility that the court may decide the right to permanent relief adversely to plaintiff does not preclude it from granting the temporary relief * * *." Bergen Drug Co. v. Parke-Davies Co., 307 F.2d 725, 727 (3d Cir. 1962). (In Bergen we reversed the denial of preliminary relief by the district court in a private antitrust action).

To the same effect, Judge Biggs, speaking for this court in Ingersoll-Rand, said:

* * * We wish to make clear, however, * * * that there has been no final hearing; that the facts, after final hearing, when the defendants have had a chance to consummate their defense or defenses in full, may appear of different substance and texture and possess very different legal effects * * *. 320 F.2d at 523.

Of similar import is Judge Bryan's explanation of a district court's function when preliminary relief under the Clayton Act is requested and granted:

* * * On this motion for a preliminary injunction the ultimate merits of any of the substantive issues are not before me for determination. Indeed, they could not be determined on this limited record.

* * * * * *

It should be noted, of course, that nothing said in this opinion is to be taken as an attempt to determine finally any aspect of the ultimate merits of this case. The ultimate merits remain fully open for determination at trial. United States v. Atlantic Richfield Co., 297 F.Supp. 1061, 1067, 1074 (S.D.N.Y.1969).

c. Status of the Parties

Allis-Chalmers is a large manufacturing company with annual sales of $821,000,000 during 1967.⁹ With 18 plants and more than 30,000 employees, Allis is a major manufacturer of diverse capital goods and equipment for numerous industries, and is also a major manufacturer of construction and agricultural machinery and electrical generation, transmission, distribution and utilization equipment.

White is also a highly diversified manufacturer, with total sales of approximately $825,000,000 in 1968. White's tremendous growth in recent years has resulted in large part from a series of acquisitions,¹⁰ one of the most recent being the 1968 acquisition of Blaw-Knox Company. Blaw-Knox is a major producer of foundry and mill machinery products, finishing and processing lines for the steel and non-ferrous metal industries, steel castings, material handling equipment and construction equipment. In addition, a significant part of...