Cleary v. Chalk

• Decision Date: 12 November 1973
• Docket Number: No. 71-1153.,71-1153.
• Citation: 488 F.2d 1315
• Parties: John M. CLEARY, Appellant, v. O. Roy CHALK et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

488 F.2d 1315 (1973)

John M. CLEARY, Appellant, v. O. Roy CHALK et al.

No. 71-1153.

United States Court of Appeals, District of Columbia Circuit.

Argued June 15, 1973.

Decided November 12, 1973.

COPYRIGHT MATERIAL OMITTED

John M. Cleary, appellant, pro se.

Harvey M. Spear, New York City, with whom Manuel J. Davis, Washington, D. C., was on the brief, for appellee.

Before ROBINSON and WILKEY, Circuit Judges, and JAMESON,^* Senior United States District Judge for the District of Montana.

SPOTTSWOOD W. ROBINSON, III, Circuit Judge:

Section 10 of the Clayton Act¹ prohibits interstate common carriers and corporations with which they have interlocking directors from dealing in securities and articles of commerce aggregating in value more than $50,000 annually except on the basis of competitively-derived bids most favorable to the carrier.² Section 4 of the Act enables a person injured in his business or property by activity violative of the federal antitrust laws to sue for triple damages.³ On appellees' motion, appellant's complaint invoking Section 4 for alleged infractions of Section 10 was dismissed by the District Court on the ground that it failed to state a claim upon which relief could be awarded.⁴ We affirm.

I

From 1956 to 1973, D. C. Transit System, Inc. (Transit),⁵ engaged as a common carrier of passengers in and between the District of Columbia and its Maryland and Virginia suburbs.⁶ Between 1964 and 1970, Transit made six conveyances of improved parcels of real estate⁷ which had been withdrawn from transportation operations after they had lost their usefulness therein.⁸ Each conveyance was of a single parcel to a corporation in exchange for all of its capital stock.⁹ Each was made at the property's book value — which exceeded Section 10's $50,000 ceiling — without competitive bidding. At the time of each transaction, Transit and at least five of the conveyees were interlocked in a fashion addressed by Section 10.¹⁰ And at the inauguration of this litigation, all of the conveyees remained wholly-owned subsidiaries of Transit. These were the salient facts established on the record when the District Court acted.¹¹

Appellant was a regular farepaying rider of Transit's vehicles.¹² In that role he sued for himself and the entire class of riders.¹³ The theory of the complaint, predicated squarely on Section 10, was that Transit had conveyed properties worth substantially more than the securities — the corporate stocks — received in return, and had divested itself of the earning power and loan value which those properties possessed, all to the detriment of Transit's customers in the form of higher fares.¹⁴ For this the complaint sought treble damages,¹⁵ and jurisdiction and standing to sue were rested exclusively on Section 4.

In the view that the allegations of appellant's complaint did not provide a foundation for relief, the District Court granted appellees' motion to dismiss.¹⁶ On this appeal the parties have debated a number of points, but we find it necessary to address only the question whether the transactions described fell within the condemnation of Section 10. We answer that question in the negative.¹⁷

II

The goal of the Federal antitrust laws is to safeguard the interplay of competitive forces in the far-flung commerce of the Nation.¹⁸ The Sherman Act,¹⁹ passed in 1890, "was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade."²⁰ Its "fundamental purpose . . . was to secure equality of opportunity and to protect the public against evils commonly incident to destruction of competition through monopolies and combinations in restraint of trade."²¹ The Clayton Act, adopted in 1914,²² had these wholesome aims no less in view,²³ but sought its contribution to them through a regulatory technique of its own.

Unlike the Sherman Act, which broadly approached antitrust problems by outlawing consummated contracts and conspiracies, the Clayton Act specifically prohibits particular practices which are outside the ambit of the Sherman Act but nonetheless are steps toward the monopolistic ends which the latter had undertaken to forbid.²⁴ "In passing the Clayton Act," Congress "sought to bring within the scope of its proscriptive provisions, conduct and practices which though dangerous to the competitive structure, were not covered at all or only inadequately covered by provisions of the Sherman Act."²⁵ It was intended "to supplement the purpose and effect of other anti-trust legislation, principally the Sherman Act of 1890;"²⁶ it "sought to reach the agreements embraced within its sphere in their incipiency, and . . . to determine their legality by specific tests of its own."²⁷ In sum, by banishing designated practices, Congress endeavored to nip embryonic conspiracies and monopolies in the bud.²⁸

That, which is so true of the Clayton Act, generally, is no less so of Section 10, which imposes the prohibition upon which appellant relies. In its features relevant to this case, Section 10 provides that:

No common carrier engaged in commerce shall have any dealings in securities . . . or other articles of commerce, . . . to the amount of more than $50,000, in the aggregate, in any one year, with another corporation, . . . when the said common carrier shall have upon its board of directors or as its president, manager, or as its purchasing or selling officer, or agent in the particular transaction, any person who is at the same time a director, manager, or purchasing or selling officer of, or who has any substantial interest in, such other corporation, . . . unless and except such purchases shall be made from, or such dealings shall be with, the bidder whose bid is the most favorable to such common carrier, to be ascertained by competitive bidding under regulations to be prescribed by rule or otherwise by the Interstate Commerce Commission.²⁹

As we shall see, both the legislative history and a consistent course of judicial construction unveils Section 10 as "a narrowly drawn statute designed to meet a particular set of experienced evils."³⁰

Section 10 followed in the wake of public concern over abuses flowing from interlocking directorates among railroads and their suppliers and bankers shortly after the turn of the century.³¹ Interlocked office-holding in these industries created the potential for such activities as purchases by railroads at exhorbitantly high prices, issuance of railroad securities at exhorbitantly low prices, and loans to railroads at excessively high rates of interest.³² President Wilson, in his message to Congress of January 20, 1914, proposed "laws which will effectively prohibit and prevent such interlockings of the personnel of the directorates of great corporations."³³ The House promptly responded with a bill which would have outlawed certain kinds of interlocks between carriers and bankers.³⁴ The Senate expanded the House version to cover dealings in supplies and other articles of commerce, but contrasted it by supplanting the total ban on interlocks with a requirement for competitive bidding.³⁵ In conference, the Senate bill prevailed,³⁶ and became Section 10 of the Act in the exact form in which it appears today.

So it is that, as the Supreme Court has observed, "while history shows a rather wide pattern of railroad misconduct leading to § 10, that section is a rather narrow prohibition applicable to activity that is conceptually within the antitrust philosophy."³⁷ For, as the Court has declared, "the evident purpose of § 10 of the Clayton Act was to prohibit a corporation from abusing a carrier by palming off upon it securities, supplies and other articles without competitive bidding and at excessive prices through overreaching by, or other misfeasance of, common directors, to the financial injury of the carrier and the consequent impairment of its ability to serve the public interest."³⁸ It is clear, on the other hand, that Section 10 bars noncompetitive dispositions as well as noncompetitive acquisitions by carriers in transactions with an interlocked corporation.³⁹ It is equally clear, on the other hand, that the section is not to be extended to business activities which are not infected with the wrongdoing for which Congress intended redress.

III

It is against the historical and adjudicative background of Section 10 that we must examine the case which appellant advanced in the District Court. In essence, it was as we have said,⁴⁰ a claim that Transit transferred illegally — that is, without competitive bidding — six parcels of real estate to six subsidiaries at book value rather than true market value in return for securities — all of the capital stock — of the subsidiaries. In this fashion, appellant's complaint charged, Transit divested itself of assets for less than their fair value, and of the earning power those assets had and of the assistance they might have afforded Transit in obtaining loans to bolster its financial stability. Since these transactions occurred without competitive bidding, appellant insists that they fell within the purview of Section 10.

It may be that the facts stated in the complaint could be jammed into the mold of the literal language of Section 10, but the ability to do so would not constitute the full proof of its applicability. "Literalness may strangle meaning,"⁴¹ and "the decisions of the Supreme Court have repeatedly warned of the dangers of an approach to statutory construction which confines itself to the bare words of a statute."⁴² We ourselves have had previous occasion to point out that "the literal wording of a statute is . . . not the sole index to legislative intent,"⁴³ and that "it cannot prevail over strong contrary indications in the legislative history;"⁴⁴ rather, as we have added, "we must look through the statute itself to what lay behind it."⁴⁵ These admonitions deserve special heed in Section 10 cases, wherein courts before us...