Dunbar v. American Tel. & Tel. Co.

• Decision Date: 19 December 1906
• Citation: 79 N.E. 423,224 Ill. 9
• Court: Illinois Supreme Court
• Parties: DUNBAR et al. v. AMERICAN TELEPHONE & TELEGRAPH CO. et al. KELLOGG v. SAME.

224 Ill. 9

79 N.E. 423

DUNBAR et al.

v.AMERICAN TELEPHONE & TELEGRAPH CO. et al.

KELLOGG

v.SAME.

Supreme Court of Illinois.

Oct. 23, 1906.

On Rehearing, Dec. 19, 1906.

Appeal from Appellate Court, First District.

Bill by Francis W. Dunbar and others against the American Telephone & Telegraph Company and others. Milo G. Kellogg filed a cross-bill. From a judgment of the Appellate Court, affirming a decree dismissing the bill and the cross-bill, the complainants in the bill and in the cross-bill appeal. Affirmed as to the decree sustaining a demurrer to the cross-bill, and reversed as to the decree dismissing the original bill.Henry S. Robbins, for appellant Dunbar.

Charles H. Aldrich and Henry S. McAuley, for appellants Miller and burlingame.

John S. Miller and Pliny B. Smith, for appellant Kellogg.

A. N. Waterman and Holt, Wheeler & Sidley, for appellees American Telephone & Telegraph Co., Western Electric Co., and Enos M. Barton.

Tenney, Coffeen, Harding & Wilkerson (Horace Kent Tenney, of counsel), for other appellees.

On June 5, 1903, appellants, Francis W. Dunbar, Kempster B. Miller, George L. Burlingame, Joseph C. Belden, Amanda W. Belden, and Anna W. Pool, minority stockholdersof the Kellogg Switchboard & Supply Company, Kellogg Switchboard & Supply Company, filed their bill for relief in the circuit court of Cook county against the appellees, American Telephone & Telegraph Company, Western Electric Company, Kellogg Switchboard & Supply Company, Milo G. Kellogg, Wallace L. DeWolf, and various other parties. The complainants in the amended and supplementary bills alleged that the Kellogg Company was an Illinois corporation, organized for the purpose of manufacturing, selling, hiring, leasing, or otherwise procuring, owning, and disposing of electric telephone and telegraph instruments of all kinds; that they were minority stockholders of the corporation; that the capital stock consisted of 5,000 shares of $100 each; that the defendant Wallace L. DeWolf was the president, Bush the vice president, and Leroy D. Kellogg the secretary and treasurer of the corporation; that upon its organization the defendant Milo G. Kellogg became the principal stockholders, owning about two-thirds of the capital stock. It further alleged that the defendant the American Telephone & Telegraph Company was organized under the laws of the state of New York and was doing business in the state of Illinois and most of the other states of the Union; that it succeeded to the business of the American Bell Telephone Company of Boston, and that the defendant Fish was its president; that it was the owner of large amounts of stock of numerous subsidiary telephone companies and operated a large system of telephone and telegraph lines in the United States; that it owned 60 per cent. of the capital stock of the defendant Western Electric Company; that the said corporation and the Western Electric Company formed what is known as the ‘Bell Telephone Monopoly,’ which for many years had exclusive control of the business in the United States as to the use of both telephone and telegraph apparatus through the numerous patents owned and controlled by it; that the defendant Fish is also a director of the Western Electric Company; that the defendant Western Electric Company is an Illinois corporation engaged in the manufacturing, buying, and selling of electric apparatus used in the construction, operation, and maintenance of telephone and telegraph systems; that the defendant Barton is its president and manager, and is dominated by said Fish and said American Company through the latter's control of the board of directors of said electric company and its ownership of a majority of its stock.

The bill further alleges that the telephone switchboards, instruments, and other apparatus of the independent exchanges throughout the United States have been manufactured by several companies organized and operated for that purpose, the largest and most important of which are the Kellogg Company and the Stromberg-Carlson Company, both of Chicago, each of said companies exceeding in capacity and amount of business that of any other telephone manufacturing company except the Western Electric; that the business of the Kellogg Company for the larger independent exchanges has considerably exceeded that of the Stromberg-Carlson Company or any other independent company; that because of the conditions and circumstances above stated, and in order to stifle competition in trade and create a monopoly in itself and its licensee companies, and for the purpose of enabling them to exact and maintain unreasonable and excessive rates and charges, said American Company conceived the illegal purpose of acquiring at least two-thirds of the stock of the Kellogg Company, and through such ownership to elect and maintain a board of directors which should not act in the real interests of said Kellogg Company, but in the interests of and subservient to the American Company, and free that company and its licensees from the competition of the Kellogg Company and independent exchanges; THAT TO ACCOMPLISH SAID ILLEGAL PURPOSE said american company intends, as is charged on information and belief, by voting said stock to dissolve said Kellogg Company and in the meantime to conceal from the public the real facts concerning the control of the Kellogg by the American Company, and thereby temporarily enlarge the business of the Kellogg Company and increase its importance to the efficient operation and existence of said independent exchanges, so that they may be more seriously crippled when the dissolution of the Kellogg Company is accomplished, and also to temporarily cut the prices of manufactured products to the independent exchanges and thus cripple and destroy said Stromberg-Carlson Company and other independent manufacturing companies, and also to impair the efficiency of the manufactured products and appliances of the Kellogg Company, and eventually to embarrass and cripple said independent exchanges by refusing to sell said manufactured products, especially those covered by the patents of said Kellogg Company, to any of said independent exchanges or manufacturing companies, and by refusing to furnish promptly and of the required quality such additional apparatus as might be required; that the unavoidable consequence and result of this will be that the knowledge of the real control of said American Company cannot be longer suppressed from the trade, and is now only suppressed by the denials of the American Company and said Barton and others connected therewith, and as persons connected with independent exchanges learn that the Kellogg Company is really controlled by the American Company they will decline to make further purchases from the Kellogg Company, and its business and good will and the value of its stock (now worth more than par) will be greatly lessened and impaired, if not wholly destroyed.

The bill further alleged that prior to January 4, 1902, the defendant Milo G. Kellogg owned 3,307 shares of the Kellogg Company, defendant Buckingham owned 262 shares, DeWolf owned 202 shares, and Mrs. Catharine W. Wright owned 13 shares; that Milo G. Kellogg was then in ill health and absent in California, but had authorized the defendant DeWolf, by a general power of attorney, to sell and dispose of his stock; that to accomplish said illegal purpose said American Company caused Barton to enter into a certain contract with DeWolf for the sale of the shares owned by Kellogg, and that DeWolf, as the agent of Kellogg, Buckingham, and Mrs. Wright, delivered to Barton certificates of stock of the Kellogg Company amounting to 3,783 shares, and that by reason thereof the American Company now claims to own, and does control, the same and the voting thereof; that said Barton agreed to pay for said shares and all other shares offered by DeWolf to Barton prior to January 15, 1903, at the rate of $45 per share, in cash, upon delivery of the certificates, and also to pay, in addition, per share, the pro rata proceeds of any and all bills and accounts receivable due and owing to said company on December 1, 1901, amounting to $323,248.09, as the same are paid and collected; that it was further agreed that the indebtedness of the Kellogg Company then existing at the banks should not be increased without the consent of said DeWolf and said Barton; that it was further provided that the ‘business of said company shall be carried on in the usual manner for the space of one year, so that all bills and accounts receivable due on December 1, 1901, can be collected in the usual course of business'; that to further accomplish said illegal purpose said 528 shares were purchased through the said Barton, who immediately delivered them to Fish, who now holds said certificates, which are in reality held for the American Company; that the money paid for such stock was furnished by and was the money of the American Company; that when the defendant Kellogg recovered his health and learned of the sale of said stock he heartily disapproved thereof and sought in every way to repurchase the same, in order that the company might be managed in the interest of the stockholders, and not be used as an instrument to create and perpetuate in said American Company a monopoly of the telephone business; that Barton and Fish, while willing to sell a portion thereof, insistedupon retaining sufficient to constitute two-thirds of the total stock of said company.

The prayer of the bill is that the defendants may answer, answer under oath being waived; that a temporary injunction may issue, and upon final hearing be made perpetual, restraining the American Company, Barton, and the Western Electric Company from selling said 3,783 shares of stock of said Kellogg Company, and enjoining Fish from transferring said 528 shares of stock of said company purchased in Baker's name, as aforesaid, and enjoining the Kellogg Company and...