Mississippi River Corporation v. FTC

• Decision Date: 26 January 1972
• Docket Number: No. 19844.,19844.
• Parties: MISSISSIPPI RIVER CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Eighth Circuit

454 F.2d 1083 (1972)

MISSISSIPPI RIVER CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 19844.

United States Court of Appeals, Eighth Circuit.

January 26, 1972.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

William R. McDowell, Dallas, Tex., Cleon L. Burt, T. M. Armstrong, St. Louis, Mo., for petitioner.

Frederick H. Mayer, Atty., Joseph Martin, Jr., Gen. Counsel, Harold D. Rhynedance, Jr., Asst. Gen. Counsel, Thomas F. Howder, Atty., F. T. C., for the Federal Trade Comm.

Before VAN OOSTERHOUT, HEANEY and ROSS, Circuit Judges.

VAN OOSTERHOUT, Circuit Judge.

This is a timely petition to review a Divestiture Order by the Federal Trade Commission pursuant to Section 7 of the Clayton Act, as amended, 15 U.S.C.A. § 18. The jurisdiction of this Court is provided by 15 U.S.C.A. § 21(c) and (d).

On January 22, 1965, the Federal Trade Commission (Commission) issued a complaint charging that the acquisition of the stock of Stewart Sand and Material Company (Stewart), the assets of Richter Concrete Corporation and Richter Transfer Company (Richter), and a majority interest in John A. Denie's Sons Company (Denie's) by Mississippi River Fuel Corporation (Mississippi) violated Section 7 of the Clayton Act. Mississippi, in 1965, changed its name to Mississippi River Corporation. On January 29, 1968, a Hearing Examiner concluded that Complaint Counsel had not proven a violation and the complaint should be dismissed. On appeal the Commission on May 20, 1969, vacated the order of the Examiner and ordered divestiture. The appeal to this Court followed.

Mississippi bases this appeal on five main contentions:

I. The Commission's order is contra to the purposes of the Clayton Act.

II. Mississippi's entry into the cement industry is procompetitive rather than anticompetitive.

III. The conclusion of the Commission is not based on substantial evidence.

IV. The Commission lacked jurisdiction over Richter.

V. Mississippi's Vice President was denied his right to counsel and due process of law in violation of the Administrative Procedure Act and the Fifth Amendment by a Hearing Examiner's ruling.

We affirm the order of the Federal Trade Commission for the reasons hereinafter set out.

BASIC FACTS.

Mississippi. The acquiring company, organized in 1928, is incorporated and exists under the laws of the State of Delaware with its principal place of business in St. Louis, Missouri. Mississippi is new to the cement industry. Until Mississippi decided to diversify, the company and its subsidiaries were primarily engaged in the exploration, production, transportation, and sale of natural gas and oil, and in the operation of the Missouri Pacific Railroad. In 1963 (the year the acquisitions were authorized by Missisippi's Board) Mississippi had total assets of $151.9 million, revenues of $72.3 million, and net income of $9.06 million. By 1966 Mississippi's total assets equaled $190.8 million, revenue equaled $107.95 million and net income equaled $10.1 million. The total earnings figures do not include those of the Missouri Pacific Railroad except to the extent of dividends received by Mississippi on its stock in the Railroad. In 1950 Mississippi bought a tract of land (the Selma tract) consisting of 4,500 acres along the Missouri River located at Festus, Missouri. About 1,000 acres of the tract were utilized for the construction of a nitrate plant which later was sold to a fertilizer company. The remaining 3,500 acres contained valuable deposits of limestone and silica sand. Mississippi later decided to use this tract for the production of portland cement, the main ingredient in the production of ready-mixed cement. The effect of this decision will be dealt with later in this opinion.

Stewart. This acquired company is a corporation organized and existing under the laws of Missouri principally based at Kansas City, Missouri. At the time of the acquisition Stewart was principally engaged in the production and sale of ready-mixed concrete and mineral aggregates in the States of Missouri and Kansas. For 1962 Stewart had net sales of $6.87 million and net (after tax) profits of $275,540. Prior to the acquisition Stewart was the largest purchaser of portland cement and the largest producer of ready-mixed concrete in the Kansas City area.

Denie's. This acquisition is a corporation organized and existing under the laws of the State of Tennessee with its principal office located in Memphis, Tennessee. Denie's was engaged in the production and sale of ready-mixed concrete and other allied businesses. For 1962 Denie's had a total income of $7.24 million, net income (before Federal Income taxes) of $308,756.00 and assets of $4.59 million. Prior to September 1963 Denie's was one of the two largest purchasers of portland cement and manufacturers of ready-mixed concrete in the Memphis area.

Richter. This vertical acquisition also involves a series of horizontal acquisitions. In 1964 Stewart organized a corporation by the name of Richter (Richter '64) under the laws of Ohio with principal offices in Cincinnati, Ohio. Richter '64 then acquired all the assets of Richter Concrete Corporation, an Ohio corporation formed in 1933 (Richter '33), and trucks and vehicles formerly owned by Richter Transfer Company, another Ohio corporation. Richter '33 was principally engaged in the production and sale of ready-mixed concrete and Richter Transfer Company in the hauling business. Richter '33 and Richter Transfer were owned and operated as family owned businesses under a common direction and control with essentially the same personnel. For present purposes it is not necessary to distinguish the three companies and "Richter" will be used to refer to the entire business enterprise. Richter is a wholly owned subsidiary of Stewart. Prior to the 1964 acquisitions, Richter was the largest purchaser of portland cement and the largest producer of ready-mixed concrete in the Cincinnati area.

Background of Acquisitions. In 1959 Mississippi began investigating development of the 3,500 acre tract previously referred to for the production of portland cement. Attempts were made to engage in a joint venture with an already established portland cement company. When those attempts failed, Mississippi embarked upon a program of developing a facility of its own. Mississippi on the basis of surveys in 1961 and 1962 concluded that the best outlets for its product would be the St. Louis and Kansas City, Missouri, Memphis, Tennessee, and Cincinnati, Ohio, markets. It was felt by Mississippi's board that these markets were so rigidly controlled by "covert" methods of tying customers that captive outlets were essential for entry. Further investigations made by Mississippi in early 1963 served to reinforce that conclusion. Simultaneous with the award of the contract for engineering and planning the design of the portland cement plant, Mississippi's board approved the acquisitions of Stewart and Denie's. These acquisitions were made in late 1963. In January of 1964 the Richter arrangements were made. When all the acquisitions were completed, the first contracts for the construction of the cement plant were awarded. The plant began operation in 1965.

I.

The first issue raised by Mississippi takes issue more with the application of Section 7 than with the findings of fact of both the Examiner and the Commission. Mississippi contends that since it is a relatively small company its attempt to add to the economic growth of St. Louis, Missouri, by adding a new entity to the cement industry through internal expansion and acquisitions does not fall within the scope of Section 7. This contention raises the issue of the scope of Section 7.

Section 7, as amended, was intended to "arrest in their incipiency restraints * * * in a relevant market." United States v. E. I. DuPont De Nemours & Co., 353 U.S. 586, 589, 77 S.Ct. 872, 875, 1 L.Ed.2d 1057. As the Supreme Court said of vertical integrations in Brown Shoe Co. v. United States, 370 U.S. 294, 324, 82 S.Ct. 1502, 1523, 8 L.Ed.2d 510:

"The arrangement may act as a `clog on competition,\' Standard Oil Co. of California and Standard Stations v. United States, 337 U.S. 293, 314, 69 S.Ct. 1051, 1062, 93 L.Ed. 1371, which `deprives * * * rivals of a fair opportunity to compete.\' H.R.Rep.No. 1191, 81st Cong., 1st Sess."

It is further recognized that not all vertical mergers violate the Act. Section 7 proscribes vertical acquisitions whose effect "may be substantially to lessen competition in any line of commerce in any section of the country." To find a violation of the Act an acquisition is to be examined as to its adverse effect on competition.

Both the Examiner and the Commission found that Mississippi's entry into the cement market was not achieved by internal expansion. We find substantial evidence in the record to support that finding. An internal expansion presupposes a company doing business in one of the markets and then expanding internally either forward or backward into the other market. Mississippi relies greatly on the fact that the cement plant went on stream subsequent to the purchase of the ready-mixed companies. Therefore, Mississippi contends that this situation involves an established ready-mixed chain building its own cement plant. The record clearly supports the finding that the acquisitions were part of an overall plan. Mississippi's President testified that they would not have entered the markets without the assurance of a captive buyer for the product. The decision to produce portland cement did not arise out of the established ready-mixed business, but was conceived before entering the ready-mixed business. This is a case of an established corporation entering two markets in essentially one series of transactions utilizing the device of vertical acquisition. Each transaction was dependent upon the other to effect entry into the market. If the acquisitions meet the criteria discussed...