American Crystal Sugar Co. v. Cuban-American S. Co., 338

• Decision Date: 01 October 1958
• Docket Number: Docket 24962.,No. 338,338
• Parties: AMERICAN CRYSTAL SUGAR COMPANY, Plaintiff-Appellee, v. The CUBAN-AMERICAN SUGAR COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

259 F.2d 524 (1958)

AMERICAN CRYSTAL SUGAR COMPANY, Plaintiff-Appellee, v. The CUBAN-AMERICAN SUGAR COMPANY, Defendant-Appellant.

No. 338, Docket 24962.

United States Court of Appeals Second Circuit.

Argued April 8, 1958.

Decided October 1, 1958.

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Cyrus Austin, of Appell, Austin & Gay, New York City (Loeb, Churchill & Lawther, and Robert L. Loeb, New York City, on the brief), for defendant-appellant.

Robert G. Zeller, of Cahill, Gordon, Reindel & Ohl, New York City, and Marshall P. Madison, of Pillsbury, Madison & Sutro, San Francisco, Cal. (Donald S. Graham, of Lewis, Grant & Davis, Denver, Colo., on the brief), for plaintiff-appellee.

Before SWAN, HINCKS and MOORE, Circuit Judges.

HINCKS, Circuit Judge.

This is an action brought under § 16 of the Clayton Act, 15 U.S.C.A. § 26, charging a violation of § 7 of the Clayton Act, 15 U.S.C.A. § 18. Concededly the defendant¹ had acquired a block of stock in the plaintiff¹ corporation. By the action the plaintiff sought to enjoin it from making further acquisitions, from voting its stock and from obtaining representation on its Board of Directors, and to require it to divest itself of its present holdings. After trial, the trial judge filed a written decision in the form of an integral document containing findings of fact, conclusions of law and an opinion. 152 F.Supp. 387. He granted plaintiff a permanent injunction, but denied the request for divestiture. From this judgment and from an order denying a motion for new trial or for additional findings, the defendant has brought this appeal.

The background facts are as follows.² The plaintiff, American Crystal Sugar Company ("Crystal"), a processor and seller of beet sugar, was a publicly held corporation with about 423,000 shares of stock with full voting rights issued and outstanding. Crystal ranks eighth or ninth nationally in the production of refined sugar. In 1954, after several unsuccessful attempts to penetrate the beet sugar industry, the defendant, Cuban-American Sugar Company ("Cuban-American"), whose wholly owned subsidiary Colonial Sugars Company ("Colonial") refines and sells cane sugar, began to purchase Crystal stock. Colonial stands eleventh nationally in the production of refined sugar. At time of trial, Cuban-American had acquired 97,100 shares, or about 23% of Crystal's stock, and had demanded, unsuccessfully, representation on Crystal's Board of Directors. If Cuban-American should gain control of Crystal, the combination of Crystal and Colonial would rank about fourth in the whole industry.

The defendant contends that the court below wrongly interpreted § 7 of the Clayton Act. That section, designed to halt in their incipiency undue concentrations of economic power or monopoly, was amended by Congress in 1950 in two respects. Originally, the statute forbade mergers by the acquisition of stock where the effect might be substantially to lessen competition between the acquiring and the acquired corporation. 38 Stat. 731 (1914). Since any merger between competing corporations satisfied the prohibition of the statute on a literal reading, the courts felt constrained to supply a judicial gloss which forbade only a substantial lessening of competition as measured in terms of the industry involved. International Shoe Co. v. Federal Trade Commission, 1930, 280 U.S. 291, 50 S.Ct. 89, 74 L.Ed. 431; Pennsylvania Railroad Co. v. I. C. C., 3 Cir., 1933, 66 F.2d 37, affirmed by an equally divided court, 1934, 291 U.S. 651, 54 S.Ct. 559, 78 L.Ed. 1045; Temple Anthracite Coal Co. v. Federal Trade Commission, 3 Cir., 1931, 51 F.2d 656. In effect, they softened the literal statutory test of illegality. And the ineffectiveness of § 1 of the Sherman Act, 15 U.S.C.A. § 1 as thus interpreted to prevent mergers, see United States v. Columbia Steel Co., 1948, 334 U.S. 495, 68 S.Ct. 1107, 92 L. Ed. 1533, prompted Congress to enact the 1950 amendment. H.R.Rep. 1191, 81st Cong., 1st Sess. 10-11 (1949). See Report of the Attorney General's Committee to Study the Antitrust Laws, 115-17 (1955).

Section 7 in its present content, so far as here relevant, now forbids the acquisition of the whole or any part of the stock or assets of a corporation where, in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition. 15 U.S.C.A. § 18. The legislative history of the amendment makes it plain that Congress intended by § 7 to forbid mergers which were beyond the reach of the Sherman Act as judicially interpreted. Sen.Rep. 1175, 81st Cong., 2d Sess. 4-5 (1950). Thus under § 7 as amended the Sherman Act test is no longer appropriate, H.R.Rep. 1191, 81st Cong., 1st Sess. 8 (1949), and conduct may fall under the ban of amended § 7 before it has attained the stature of an unreasonable restraint of trade. See Pillsbury Mills, Inc., 50 F.T.C. 555, 569 (1953). And the ban on a substantial lessening of competition "in any line of commerce in any section of the country," requires, for determination of a violation, first, a definition of a relevant market in which a lessening of competition has probably occurred and, second, analysis of the nature and extent of the competition within that market. Consequently, the parties are agreed that an acquisition is not illegal because of its impact on competition between the corporations involved: that the proper test is one of the qualitative substantiality of the resulting effect on competition in the relevant market. We too agree. We hold that only an acquisition which in the long run may reasonably be expected to substantially lessen competition within a relevant market, will violate § 7 as amended.

The opinion below makes it abundantly plain that the judge understood the proper test of illegality. He stressed the necessity for "consideration not merely of the competition between the two companies, but also the competitive situation of the industry." He spoke of the conduct of sugar refiners in selling their product as "here of prime relevance" and sketched the history of successive attempts by the industry to stabilize sugar prices. He outlined the somewhat limited extent to which competition had been foreclosed by the National Sugar Act, 7 U.S.C.A. § 1100 et seq., and emphasized the still available room for competition in the sale and distribution of refined sugar. He examined the structure of the refined sugar industry and noted particularly the incentive which the legislative restrictions on production put on expansion by acquisition of existing refinery facilities as distinguished from expansion by the construction of new facilities. He recognized that refined sugar, both beet and cane, was the relevant market product.³ He considered the competition between the cane and beet refiners and pointed to its intensity in the "price-conscious industrial sugar market" where the parties were "prime forces." He defined a ten-state area,⁴ the so-called River Territory in the middle west, in which the plaintiff and Colonial were in especially active competition and the market was subject to common economic forces. He noted the capacity and policy of Crystal, Colonial, and of the leading refiners for expansion both by acquisition and by competition. And he gave particular consideration to the impact of these and other forces in the ten-state area. These, then, were among the factors upon which the trial judge found a violation of § 7. Beyond doubt, he rightly understood the applicable law and sought to give it application.

The defendant, however, asserts that the ultimate conclusion reached is not sufficiently supported by findings: that the only findings made go no further than to support a conclusion, pertinent only under a test of quantitative substantiality, of lessened competition between Crystal and Colonial — a test now obsolete under § 7 as amended. But this criticism is based, at least in large part, on the defendant's contention that the only findings made in support of the ultimate conclusion of illegality were statements serially numbered under "Issue I" and "Issue II" in the "Findings of Fact, Conclusions of Law" below, 152 F.Supp. at pages 390 to 393, to the exclusion of additional, and non-contradictory, unnumbered findings appearing under the heading of "Opinion." We think, however, that this contention stems from misapprehension of the basic structure of the decision below. For that decision comprised one integral writing which included numbered "findings of fact" addressed to specified "Issues" each capped by a subsidiary and numbered "conclusion." None of these numbered conclusions purported to state the ultimate conclusion of illegality: that was not articulated until the last page of the section of the decision denominated "Opinion" which followed the numbered "findings" and "conclusions." 152 F.Supp. at page 400. There, after reciting and discussing many facts not included in the earlier, numbered, findings, the judge wrote: "This record leads to the conclusion that the common control of Colonial and Crystal would not only extinguish competition between them but also lessen competition in the sale of refined sugar in a ten state section. Thus, violation of § 7 of the Clayton Act has been established." (Emphasis added.)

We think it altogether plain that the judge meant his ultimate holding of illegality to rest on the findings contained in all sections of his decision — the unnumbered findings in his "opinion" as well as the earlier stated numbered findings. Accordingly, we may properly test the validity of his holding on that same basis. Stone v. Farnell, 9 Cir., 239 F.2d 750, at page 755; Life Savers Corp. v. Curtiss Candy Co., 7 Cir., 182 F.2d 4, at pages 6 and 7. We doubt that this ruling is in conflict with such cases as Ohlinger v. United States, 9 Cir., 219 F.2d 310, and Federal Trade Commission v. B. F. Goodrich Company, 100 U. S.App.D.C. 58, 242 F.2d 31, at page 35. For in...