De Koven v. Lake Shore & M.S. Ry. Co.

• Decision Date: 05 September 1914
• Citation: 216 F. 955
• Parties: DE KOVEN et al. v. LAKE SHORE & M.S. RY. CO. et al.
• Court: U.S. District Court — Southern District of New York

216 F. 955

DE KOVEN et al. v. LAKE SHORE & M.S. RY. CO. et al.

United States District Court, S.D. New York.

September 5, 1914

Cadwalader Wickersham & Taft, of New York City (George W. Wickersham, of New York City, Otto Kirchner, of Detroit, Mich., H. M Daugherty, of Columbus, Ohio, and Edwin P. Grosvenor, of New York City, of counsel), for plaintiffs.

Charles C. Paulding, of New York City (Walter C. Noyes, of New York City, Alexis C. Angell, of Detroit, Mich., and Albert H Harris, of New York City, of counsel), for defendant Lake Shore & Michigan Southern Ry. Co.

Alexander S. Lyman, of New York City (Walter C. Noyes, of New York City, Alexis C. Angell, of Detroit, Mich., and Albert H Harris, of New York City, of counsel), for defendant New York Cent. & H.R.R. Co.

GRUBB District Judge.

This is an application by the plaintiffs for a preliminary injunction, restraining the defendant from completing a projected consolidation of the two railroad companies who are the defendants in the bill of complaint. The bill is filed by one of the minority stockholders of the defendant the Lake Shore & Michigan Southern Railway Company, owning 500 shares of its capital stock, on behalf of the plaintiffs and all other of its stockholders, who may after its filing desire to unite with plaintiffs therein.

The proposed consolidation is attacked by the plaintiffs and its completion asked to be restrained upon three separate grounds: (1) Because it is alleged that the proposed consolidation will be in violation of the anti-trust laws of the states of Michigan, Ohio, and Pennsylvania. (2) Because it is alleged that the proposed consolidation will be in violation of the act of Congress, approved July 2, 1890, known as the Sherman Anti-Trust Law. (3) Because it is alleged that the terms of the proposed consolidation are unfair and inequitable to the minority and dissenting stockholders of the defendant the Lake Shore & Michigan Southern Railway Company.

First. While the bill alleges that the proposed consolidation will violate the anti-trust laws of the states of Ohio, Michigan, and Pennsylvania, it avers no facts showing a restraint of anything but interstate commerce, between the city of Buffalo, in the state of New York, and the city of Chicago, in the state of Illinois. The restraint or monopoly of interstate transportation is provided for by the Sherman Anti-Trust Law, and it displaces the jurisdiction of the states to regulate or prohibit with regard to that subject-matter. There is no averment of any restraint upon any transportation exclusively within any one of the states mentioned, to which the anti-trust laws of any one of those states might apply, even if it be conceded that the regulation or prohibition of such restraints or monopolies would still be held to be within the competency of the states, in view of the existing legislation of Congress upon the subject of restraints and monopolies in transportation.

Second. It is alleged that the proposed consolidation will be in violation of the Sherman Anti-Trust Law. The lines to be consolidated are neither competing or parallel lines. The defendant the New York Central & Hudson River Railroad Company, however, is the owner of a controlling interest in the capital stock of the Michigan Central Railroad Company, which, by virtue of its controlling stock ownership in the Canada Southern Railway Company, forms a line from Buffalo to Chicago, which, separately owned, would compete with the line from Buffalo to Chicago, which will be formed by the consolidation of the two defendants. It also appears that the defendant the New York Central & Hudson River Railroad Company is the owner of the capital stock of the Western Transit Company, which owns a line of steamships operating between Buffalo and Chicago, and which would, separately owned, compete with the consolidated line. The defendant the Lake Shore & Michigan Southern Railway Company also owns the New York, Chicago & St. Louis Railroad Company, which is a practically parallel line to it from Buffalo to Chicago. It is by virtue of this situation that the plaintiffs contend that the proposed consolidation will continue and perpetuate the existing control of all four lines in the consolidated company, and so operate in violation of the Sherman Law.

The defendants' reply to this contention that: (a) It is the well-settled rule in the Second Circuit that a suit in equity under the Sherman Law will only lie at the instance of the United States; (b) that the bill and affidavits fail to show any restraint or monopoly of interstate transportation arising out of the proposed consolidation; (c) that the control, which is alleged to be in violation of the law, already existed for many years before the plan of consolidation was considered, and would not be intensified by the completion of the plan; and (d) that the former control is changed by the plan of consolidation in form only, and not substantially in degree, and that the United States has for years acquiesced in that control, through failure of the department of justice to act, and affirmatively through the approval of the Interstate Commerce Commission.

(a) The plaintiffs contend that the bill is not a suit in equity under the Sherman Act, and that the decisions from the Second Circuit, relied upon by the defendants, do not therefore apply. It seems to me that the plaintiffs' contention is correct. The present suit is one by a dissenting minority stockholder to restrain the majority stockholders from accomplishing what is asserted to be an illegal or ultra vires act. It is, therefore, a well recognized species of general equity jurisdiction, and not a mere statutory remedy, conferred by the Anti-Trust Law. The plaintiffs would be entitled to resort to this remedy if the Sherman Law had provided no equitable remedy for its enforcement, and the fact that it did provide one, available only to the United States, cannot be held to deprive an individual of an equitable remedy which was open to him before and independent of the statute. The fact that the relief granted to the government in an equity suit, instituted by it under the Sherman Law, might be of the same nature as that granted an individual plaintiff cannot change the result. Nor can the fact that the illegal or ultra vires act is made so only by the statute, which creates the equitable statutory remedy, do so. If it be an illegal or ultra vires act, however made so, a minority stockholder had, under the general principles of equity jurisprudence, a remedy to restrain the corporation and the majority stockholders from accomplishing it, of which he is not deprived by the creation of a statutory equitable remedy in favor of the government alone, and of which he is not permitted to avail. It seems clear that if the Sherman Law had declared combinations in restraint of trade illegal and ultra vires, and provided no equitable remedy in favor of the government or any one else, the interest of a minority stockholder that his shares should not be involuntarily transferred from a lawful to an unlawful enterprise would entitle him to complain of the proposed action of the corporation, through the majority stockholders, in a suit in equity. The providing of such a statutory remedy, which could be availed of only by the government, ought not to be construed to take away by implication the existing remedy of the individual stockholder under general equity principles. A dissenting stockholder would have a standing in equity to enjoin a proposed consolidation of competing parallel lines, in violation of a state constitutional provision prohibiting such consolidations, upon the ground that it was ultra vires. I can see no distinction between the effect of such a constitutional provision and that of the Sherman Law in this respect.

(b) The averments of the bill are sufficient to put in issue, as a matter of pleading, the illegality of the proposed consolidation under the Sherman Act, and the affidavits of...