State v. Swift & Co.

Decision Date21 March 1945
Docket NumberNo. 9481.,9481.
Citation187 S.W.2d 127
PartiesSTATE v. SWIFT & CO. et al.
CourtTexas Court of Appeals

Appeal from District Court, Travis County; J. D. Moore, Judge.

Suit by the State of Texas against Swift & Company and Consumers Cotton Oil Company to recover from first-named defendant statutory penalties for doing business in the state without a permit, to cancel first-named defendant's permit to do business in the state, and to forfeit the corporate charter of the other defendant. From a judgment that it take nothing by its suit against either defendant, plaintiff appeals.

Judgment affirmed.

Grover Sellers, Atty. Gen., and Benjamin Woodall, Fred C. Chandler, Eugene Alvis, J. C. Davis, and Elbert Hooper, Asst. Attys. Gen., for appellant.

Baker, Botts, Andrew, & Wharton, Walter H. Walne, and John P. Bullington, all of Houston, and Dan Moody, of Austin, for appellees.

BLAIR, Justice.

The State of Texas instituted this suit against Swift & Company, herein called Swift, an Illinois meat packing corporation with permit to do business in Texas, and against Consumers Cotton Oil Company, herein called Consumers, a Texas corporation engaged in the cottonseed oil mill and gin business in Texas. The State alleged that Swift owns all of the stock of Consumers and so dominates and controls it as to make Swift in fact doing the cottonseed oil mill and gin business in Texas without a permit to do so, in violation of the provision of Art. 1529, R.S.1925, requiring a foreign corporation to obtain a permit before doing any business in Texas, and therefore subject to the penalties imposed by Art. 1536, R.S. 1925, Vernon's Ann.Civ. St. Art. 1536, for doing business without a permit, which penalties the State sought to recover. The State further alleged: 1. That the ownership of all or substantially all of the stock of Consumers by Swift is per se unlawful, because through such ownership of all the stock is authorized to dominate and control Consumers to the extent that Swift is in fact engaged in the cottonseed oil mill business in Texas without a permit to do so. 2. That since Swift is a meat packing corporation it is acting ultra vires and in excess of the powers granted by its permit to do that business in Texas by owning all of the stock, and dominating and controlling Consumers, the Texas corporation engaged in the cottonseed oil mill and gin business, in violation of the provision of Art. 1349, R.S. 1925, inhibiting a foreign corporation from employing or using its means, assets, or other property for any purpose other than for the legitimate business for which it is created, and therefore subject to the forfeiture of its permit to do business in Texas under the provision of Art. 1351, R.S. 1925, Vernon's Ann.Civ.St. Art. 1351. Because of these two alleged unlawful activities of Swift the State sought to cancel its permit to do business in Texas and to forfeit the corporate charter of Consumers as in a quo warranto proceeding under the provisions of Arts. 6253, 6257, and 6258 (now Texas Rules of Civil Procedure, rule 782), R.S. 1925.

Swift specially excepted to the portion of the petition seeking to recover penalties for doing business without a permit, because the petition alleged that it did have a permit to do business in Texas; which exception was sustained. Swift further answered by denying that it dominates and controls Consumers through its stock ownership, or that such stock ownership is unlawful; and by a plea of res adjudicata of all matters set up in this suit under certain judgments rendered in the case of the State of Texas v. Swift & Company, et al., filed in the 26th District Court of Travis County, Texas, in 1915, the judgments relied upon being fully plead. The Consumers answered by a general denial.

The trial to the court without a jury resulted in judgment that the State take nothing by its suit against either Swift or Consumers; hence this appeal by the State.

Three questions are presented:

1. Is the ownership of all of the stock of Consumers by Swift per se unlawful as authorizing Swift to engage in the cottonseed oil mill and gin business in Texas without having a permit to do so?

2. If not per se unlawful, does the evidence show that Swift through such ownership of stock actually dominates and controls Consumers so as to be in fact itself engaged in the cottonseed oil mill and gin business in Texas without having a permit to do so?

3. Is the judgment or judgments plead by Swift res adjudicata of the questions presented?

Preliminary to a discussion of the questions presented a brief history of the transactions leading to this litigation will be stated. Swift & Company is an Illinois corporation engaged in the slaughtering and meat packing business. It has had a permit to engage in that business in Texas since 1907. Neither its charter nor the laws of Illinois prohibit it from owning the stock of said Consumers Cotton Oil Company. Prior to 1915 Swift and other corporations became involved in the ownership, operation and control of a large number of cottonseed oil mills and cotton gins in Texas to such an extent as to violate the Texas anti-trust laws. This resulted in the suit being filed by the State in 1915 in the 26th District Court of Travis County, Texas, to recover statutory penalties for such violations and to forfeit the charter and the permit to do business in Texas of each offending corporation. The suit was compromised and settled and on December 14, 1915, a consent decree was entered in the case. Under the terms of the agreement and consent decree applicable to Swift three trustees were appointed to supervise the management of the group of mills and gins owned or controlled by Swift until such time as same could be sold at reasonable prices upon court approval so as to continue them as "competitive factors" in the cottonseed oil mill and gin business or industry. A few of the mills and gins were sold under court approval, but the majority remained unsold. Later, the number of trustees was reduced to one who continued to supervise the operation of the properties; the consent decree reserving in the court jurisdiction to enter such other and further orders as might be necessary to effectuate the purpose and intent of the consent decree. After twenty-three years a sale of a majority of the properties had not been made. In 1938 counsel for Swift discussed the situation with W. A. Keeling, the then trustee of the court, and he suggested that the terms of the consent decree having been complied with as to payment of fines and penalties, the remaining terms of the consent decree could be complied with by Swift causing a Texas corporation to be formed and conveying all the properties to it; Swift to own all the stock of such Texas corporation. A petition was then filed by Swift in the anti-trust proceeding seeking authority to form the Texas corporation, with authority to own all its stock to be operated so as to not violate the anti-trust laws of Texas. The Attorney General filed an answer opposing the relief sought by Swift; but after a hearing of the matter the court granted the relief prayed for and authorized Swift "to cause to be formed a Texas corporation to which it may cause to be conveyed all of the oil mill and gin properties now owned by it as hereinabove found, and at or after such conveyance that Swift and Company may acquire and own all of the capital stock of said corporation." Pursuant to this court decree appellee Consumers Cotton Oil Company was formed, and appellee Swift & Company acquired all of the stock of Consumers, which has continued to operate the properties under such set-up. On May 11, 1944, after this suit was filed, Swift & Company of Illinois sold the stock to Swift & Company of Nevada, a Nevada corporation having no permit to do business in Texas, and doing none in Texas. The facts as to the relationship of the two corporations under the stock ownership and acts carrying on the business of Consumers since 1938, to the date of the filing of this suit for the purposes hereinabove stated, will be later found and discussed. The foregoing facts and transactions will suffice to determine the first question presented.

The first question: Is the ownership of all of the stock of Consumers by Swift per se unlawful as authorizing Swift to engage in the cottonseed oil mill and gin business in Texas without having a permit to do so? We think the question should be answered in the negative.

The cases are legion which deal with the relationship of two or more corporations as the result of the ownership of the stock of one in another or others. It is generally held that the "ownership, alone, of capital stock in one corporation by another, does not create an identity of corporate interest * * * or create the relation of principal and agent or representative between the two"; and that the parent or corporation owning the stock of another is regarded as principal only "where stock ownership has been resorted to, not for the purpose of participating in the affairs of the corporation in the normal and usual manner, but for the purpose of controlling a subsidiary company so that it may be used as a mere agency or instrumentality of the owning company or companies." Chicago, M. & St. P. R. v. Minneapolis Civic & Commerce Ass'n., 247 U.S. 490, 38 S.Ct. 553, 557, 62 L.Ed. 1229; United States v. Lehigh Valley R. Co., 220 U.S. 257, 31 S.Ct. 387, 55 L.Ed. 458; United States v. Reading Co., 253 U.S. 26, 40 S.Ct. 425, 64 L.Ed. 760; United States v. Delaware, L. & W. R. Co., 238 U.S. 516, 35 S.Ct. 873, 59 L.Ed. 1438. Nor does the mere fact that the same persons are directors or managers of two corporations make them one entity, or create of them the relationship of principal and agent or representative. The same persons may form as many separate corporations to carry on as many separate businesses as the...

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