State v. Standard Oil Co.

CourtSupreme Court of Texas
Citation107 S.W.2d 550
Docket NumberNo. 7162.,7162.
PartiesSTATE v. STANDARD OIL CO. et al.
Decision Date16 June 1937

Page 550

107 S.W.2d 550
No. 7162.
Supreme Court of Texas.
June 16, 1937.

Page 551


Page 552

Error to Court of Civil Appeals of Third Supreme Judicial District.

Suit by the State against the Standard Oil Company and others. Judgment sustaining a demurrer to plaintiff's petition was affirmed by the Court of Civil Appeals [82 S.W.(2d) 402], and the plaintiff brings error.

Judgment of the Court of Civil Appeals reversed, and judgment of the District Court reversed and rendered in part and affirmed in part, and cause reversed and remanded to the District Court subject to limitations of opinion and decree to be entered.

William McCraw, Atty. Gen., Alfred M. Scott, Asst. Atty. Gen., and Everett L. Looney, Bryan Blalock, George Mendell, and Cofer & Cofer, all of Austin, for the State.

Andrews, Streetman, Logue & Mobley and Andrews, Kelley, Kurth & Campbell, all of Houston, for Standard Oil Co.

F. A. Williams and Williams, Neethe & Williams, all of Galveston, for Socony Vacuum Co.

Black & Graves, of Austin, and William H. Burges, of El Paso, for Standard Oil Co. of California.

Thompson, Mitchell, Thompson & Young and Truman Post Young, all of St. Louis, Mo., and W. A. Keeling, of Austin, for Shell Petroleum Corporation.

Frank Andrews, E. E. Townes, and Hines H. Baker, all of Houston, and Ben H. Powell and T. H. McGregor, both of Austin, for Humble Oil & Refining Co.

H. T. Klein, of New York City, W. O. Crain and W. K. Hall, both of Houston, and Chas. L. Black, of Austin, for Texas Co.

James J. Cosgrove, of Ponca City, Okl., and Burney Braly, of Fort Worth, for Continental Oil Co.

W. H. Francis, A. S. Hardwicke, and Walace Hawkins, all of Dallas, and Dan Moody, of Austin, for Magnolia Petroleum Co.

Thompson, Knight, Baker & Harris, of Dallas, for Sims Oil Co.

Phillips, Trammell, Estes, Edwards & Orn, of Fort Worth, James W. Finley and S. N. Hawkes, both of Bartlesville, Okl., Frueauff, Burns, O'Brien & Ruch, of New York City, and Warren T. Spies, of Chicago, Ill., for Cities Service Co.

John Hancock, Clarence Wightman, and Eugene T. Adair, all of Fort Worth, for Texas Pacific Coal & Oil Co.

Henry Brooks and Polk Shelton, both of Austin, for Texas Petroleum Marketers' Ass'n.

Weeks, Morrow & Francis, of Wichita Falls, for American Petroleum Institute.

Roy T. Osborn, of New York City, C. R. Wharton, Baker, Botts, Andrews & Wharton, and Homer L. Bruce, all of Houston, V. R. Tomlinson, of St. Louis, Mo., and Cantey, Hanger & McMahon, Alfred McKnight, and Warren Scarborough, all of Fort Worth, for Sinclair Oil Co.

H. L. Stone, of Pittsburgh, Pa., John E. Green, Jr., E. A. Berry, and David Proctor, all of Houston, and P. O. Settle, of Fort Worth, for Gulf Oil Corp.

C. K. Bullard, of Dallas, and John D. Reese, of McKinney, as amici curiæ.

CURETON, Chief Justice.

The Court of Civil Appeals made a correct general statement of this case. 82 S. W.(2d) 402. The transcript, although properly reduced by agreements of counsel, is perhaps the largest ever filed in this court, being four printed octave volumes, containing two thousand, two hundred and sixty pages.

The suit was brought by the State against the defendants in error for alleged violations of the anti-trust laws, and recovery sought of statutory penalties, forfeitures of charters, cancellations of permits, and an injunction restraining defendants in error from carrying out "agreements, conspiracies and combinations in restraint of trade in violation of the anti-trust and monopoly laws of the State." The trial court sustained a general demurrer to the State's petition, on the ground, it is said, that the National Industrial Recovery Act (48 Stat. 195) and the Petroleum Code, approved by the President on August 19, 1933, superseded the Texas anti-trust laws. However, subsequent

Page 553

to this time the National Industrial Recovery Act was held unconstitutional and void by the Supreme Court of the United States (A. L. A. Schechter Poultry Corp. v. United States, 295 U.S. 495, 55 S.Ct. 837, 79 L.Ed. 1570, 97 A.L.R. 947) so that the stated basis of the action of the trial court no longer exists. The Court of Civil Appeals, however, affirmed the decree of the district court, on the conclusion that the anti-trust laws of Texas were unconstitutional and void because discriminatory and in violation of the Fourteenth Amendment to the Constitution of the United States. This conclusion was predicated directly upon the provisions of article 1642 of the Revised Penal Code of Texas of 1925, purporting to exempt agricultural products and livestock from the operations of the anti-trust laws, so long as in the hands of the producer. The State's application for writ of error was granted.

We quite agree with the Court of Civil Appeals that, if the Texas anti-trust statutes are valid, the State's petition was not subject to general demurrer. The petition (comprising 294 printed pages) is entirely too long for us to state its details in this opinion. It appears to be primarily predicated upon the alleged action of the defendants in error in originating and becoming parties to a certain "Code of Practices for the Marketing of Refined Petroleum Products," as a basis for carrying out restrictions in trade, and as an instrumentality for violating the anti-trust laws of the State. The history of the origin and execution of this code is fully stated, and finally it is said that the code was approved by the Federal Trade Commission, a governmental agency created by Congress. This code consists of 21 rules, with interpretations thereof, relating primarily to the sale of petroleum products through filling stations in intrastate commerce in Texas. The Court of Civil Appeals was of the opinion that, while some of the rules might furnish a basis for the State's charges, some were not unlawful. We express no opinion as to the correctness of the last conclusion. All that we are now to consider is whether or not the State's petition as a whole states a cause of action.

In our opinion, the rules, when considered as a whole, in the light of the State's allegations, do furnish a basis for an actionable charge against the defendants in error. Indeed, some of the rules on their faces are strongly suggestive of a violation of the anti-trust statutes. This is plainly true of rule 1, of group 1, in which the defendants in error undertake to restrict or prohibit the installation and loaning of filling station equipment free of charge, and agree among themselves as to what charges should be made for certain units of installation. R.C.S.1925, art. 7426, subds. 1, 2, 3, 4, and 5. Rule 1, as well as the other rules referred to herein, will be copied in the margin at the close of this opinion.1 Rule 7, of group 2, is equally suggestive as being a restriction of trade-in violation of the anti-trust laws of the State. Briefly, the effect of the rule was to prohibit the use of the lease and license plan by which a refining company or wholesaler would lease filling stations, and sublet them to its retailer for a smaller rental, etc. It is a fair deduction that the purpose of this rule was to create a common practice among the oil companies so as to avoid competition. Rules 8 and 9 are certainly restrictive and quite suggestive of a violation of the anti-trust laws of the State. They prohibit the donation of petroleum products in the aviation industry, and the donation of money or other things of value in connection with the purchase of such products. Rules 10, 11, 12, and 13 are also suggestive of a violation of the anti-trust laws. Rule 10 prohibits refiners, wholesalers, etc., from assisting retailers in the construction of their stations, or the loaning of money for such purpose, or the loaning of operating equipment. Rule 11 also prohibits the loaning of certain classes of equipment to distributors, etc. Rule 12 prohibits refiners, distributors, etc., from paying rentals or allowances to retailers for installations and display advertising. Rule 13 prohibits refiners, distributors, etc., from renting from dealers or consumers any delivery equipment, and from purchasing any such equipment for more than its actual value. Rules 14 and 16 are also suggestive of a violation of the anti-trust laws. Rule 14 provides that refining companies, wholesalers, etc., may own service stations, and may lease such stations to dealers who distribute their products, but restricts the right to lease for less than a fair return on the value of the property for filling station purposes. Rule 16 prohibits the donation of oil or other thing of value, or the granting of special inducements on opening of filling stations, or special sale days or other occasions. Rule 17 requires refiners, distributors, jobbers, and wholesalers to post their prices conspicuously, and not deviate therefrom.

Page 554

The State alleges that the purpose and resultant effect of this rule, as followed by defendants in error, was to destroy any competition in the sale of petroleum products, and we cannot say on demurrer that such may not have been its purpose and effect. Rules 19 and 20, prohibiting discounts from posted prices by the use of coupon books, or by allowances and credits upon change in the prices posted, have the same object as rule 17, and were capable of being used for the same purposes as that rule.

Without passing on omitted rules, we have named the above rules and copied them in the margin for the purpose of showing that this code furnishes some basis for the State's allegations that the defendants in error entered into a conspiracy to, and did, violate the anti-trust laws. Corroborative of the State's allegation that the execution of this code was for the purpose of creating an instrumentality by which the antitrust laws of Texas could be violated, and consistent with our conclusion that certain rules thereof are suggestive of such purpose, is a purported...

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