United States v. Celanese Corporation of America

Decision Date22 June 1950
Citation91 F. Supp. 14
PartiesUNITED STATES v. CELANESE CORPORATION OF AMERICA.
CourtU.S. District Court — Southern District of New York

Herbert A. Bergson, Assistant Attorney General, Melville C. Williams, John Drennen Hill, Malcolm A. Hoffman, Special Assistants to the Attorney General, Beatrice Rosenberg, Louis Perlmutter, Trial Attorneys, Washington, D. C., for plaintiff.

Shearman & Sterling & Wright, Rosenman, Goldmark, Colin & Kaye, New York City, Samuel I. Rosenman, Charles C. Parlin, Paul R. Russell, Seymour D. Lewis, all of New York City, of counsel, for defendant.

IRVING R. KAUFMAN, District Judge.

The defendant has moved to dismiss the claim in the complaint under Section 7 of the Clayton Act, 15 U.S.C.A. § 18, pursuant to Rule 12(b) (6) of the Federal Rules of Civil Procedure, 28 U.S.C.A., for failure to state a claim upon which relief can be granted, or in the alternative, to grant partial summary judgment dismissing the claim under Section 7 of the Clayton Act pursuant to Rule 56(b).

The complaint alleges that Celanese Corporation of America (hereafter Celanese) acquired the stock and assets of Tubize Rayon Corporation (hereafter Tubize) pursuant to a merger consummated on February 8, 1946 in violation of both Section 1 of the Sherman Act, 15 U.S.C.A. § 1, and Section 7 of the Clayton Act, 15 U.S.C.A. § 18. Defendant's motion is addressed solely to the Government's charge that the merger constitutes a violation of Section 7 of the Clayton Act.

Section 7 provides in part that: "No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital of another corporation engaged also in commerce, where the effect of such acquisition may be to substantially lessen competition between the corporation whose stock is so acquired and the corporation making the acquisition, or to restrain such commerce in any section or community, or tend to create a monopoly of any line of commerce."

It appears unquestioned that the merger itself between Celanese and Tubize, both Delaware corporations, was in conformance with the requirements of the Delaware Corporation Law. The theory advanced by the Government on this application is that the merger necessarily involved an acquisition of stock directly or indirectly; that the interest represented by shares of stock in the merging corporation (Tubize) passed to the surviving corporation (Celanese); and that the merger represents more than a mere acquisition of assets, which admittedly does not violate Section 7, since the surviving corporation obtains control over the merging corporation's profits and property which its former stock represented.

True, a merger is more than a mere acquisition of assets, for the stockholders of the merging corporation are granted proprietary rights in the management, property and assets of the surviving corporation. Yet it is difficult for this Court to comprehend how the surviving corporation can be said to be acquiring the stock of the merging corporation, or with regard to the surviving corporation, how the merger can be said to differ materially from an outright purchase of the assets, name and goodwill of a competitor. With an outright purchase of assets would go the control over the "profits and property" that the Government seems to tie to ownership of the stock itself. Hence under the Government's theory a merger, reorganization, consolidation or simply a direct purchase of assets in which two corporations are involved would constitute an acquisition of "equitable ownership" or "stock" in violation of Section 7. This is inconsistent with the position taken by the Government that an acquisition of assets is not forbidden by Section 7.

The Court, however, cannot say that the Government's theory is wholly devoid of merit. If this were the first case construing the meaning and coverage of Section 7, that theory would require serious attention. Though the questions raised upon this application were not heretofore presented in the same fashion, it is believed that these questions were answered by the Supreme Court in the case of Arrow-Hart & Hegeman Electric Co. v. Federal Trade Commission, 1934, 291 U.S. 587, 54 S.Ct. 532, 78 L.Ed. 1007.

The question presented essentially is not whether a merger involves a direct or indirect acquisition of stock, but whether Section 7 forbids a lawful merger, even assuming that an acquisition of stock can be spelled out as an incident to the process of merging.

In the Arrow-Hart case, after the Federal Trade Commission had commenced a proceeding under Section 11 of the Clayton Act, 15 U.S.C.A. § 21, to compel a holding company to divest itself of the voting stock of two competing operating companies allegedly obtained in violation of Section 7, a rather complicated merger was accomplished which united all the property of the operating companies in a new corporation, and all corporations, including the holding company, were dissolved. The Supreme Court held that the merger, even if intended to evade Section 7, divested the Federal Trade Commission of jurisdiction to order divestiture of stock or assets. The Court split 5-4 in the decision. The majority of the Court held that even if the transfer of stock to the holding company was a violation of Section 7, that the subsequent merger in effect "cured" the illegality and that the Commission could not thereafter order divestiture. The rationale of this holding is that the majority believed that the stockholders of the operating companies could have accomplished in one legal step (i. e., by merger not in violation of Section 7), what it did accomplish in two steps, one illegal (the transfer of the stock to the holding company) and the other legal (the merger). The Court said: "The statute (Section 7) does not forbid the acquirement of property, or the merger of corporations pursuant to state laws, nor does it provide any machinery for compelling a divestiture of assets acquired by purchase or otherwise, or the distribution of physical property brought into a single ownership by merger.

"If, instead of resorting to the holding company device, the shareholders of Arrow and Hart & Hegeman (the operating companies) had caused a merger, this action would not have been a violation of the act." (Emphasis added.) 291 U.S. at page 595, 54 S.Ct. at page 536, 78 L.Ed. 1007.

The Government claims that this language is mere dictum and that in any event it does not apply to the Justice Department bringing this suit, but only to the Federal Trade Commission. The Court's statement that a merger does not violate Section 7 cannot be mere dictum, for the Court's decision is based on this belief. If the merger in the case could have been considered a violation of Section 7, the Court would not have held that two successive illegal acts divested the Commission of jurisdiction or power to act. It was their belief that the accomplished merger was ultimately proper under Section 7 that led to their decision.

The dissent by Mr. Justice Stone, in which The Chief Justice, Mr. Justice Brandeis and Mr. Justice Cardozo concurred, stated that an acquisition of stock in violation of Section 7 which accelerates and facilitates a merger should not be held to oust the Federal Trade Commission of jurisdiction. The dissenting Justices did not differ essentially from the view of the majority. They believed that the merger was the product of the unlawful transfer of stock to the holding company, and that the merger could not have been as easily effectuated had the stock been returned to those from whom it had originally been acquired. 291 U.S. at page 604, 54 S.Ct. at page 539, 78 L.Ed. 1007. The majority thought that the merger could have been effected directly with the same effort and therefore that the prior illegal transfer was in effect a nullity. 291 U.S. at pages 597-598, 54 S.Ct. at pages 536, 537, 78 L.Ed. 1007.

The minority of the Court did agree with the majority that a corporate merger is not a violation of Section 7. Mr. Justice Stone said: "It is true that the Clayton Act does not forbid corporate mergers, but it does forbid the...

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4 cases
  • Brown Shoe Co v. United States
    • United States
    • U.S. Supreme Court
    • June 25, 1962
    ...532, 78 L.Ed. 1007; Federal Trade Comm. v. Western Meat Co., 272 U.S. 554, 47 S.Ct. 175, 71 L.Ed. 405. See also United States v. Celanese Corp., 91 F.Supp. 14 (D.C.S.D.N.Y.); 1 F.T.C. 541—542; 33 Op.Atty.Gen. 225, 241. 21 This was the manner in which the Federal Trade Commission had viewed ......
  • United States v. Philadelphia National Bank
    • United States
    • U.S. Supreme Court
    • June 17, 1963
    ...the merger technique had supplanted stock acquisitions as the prevalent mode of corporate amalgamation. United States v. Celanese Corp. of America, 91 F.Supp. 14 (D.C.S.D.N.Y.1950); see Thatcher Mfg. Co. v. Federal Trade Comm'n and Swift & Co. v. Federal Trade Comm'n, decided together with ......
  • Jim Walter Corp. v. F. T. C.
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • September 12, 1980
    ...of the stock of another corporation, principally those acquisitions by 'holding companies.' " United States v. Celanese Corporation of America, 91 F.Supp. 14, 17 (S.D.N.Y.1950). It is illogical to suggest that Congress directed section 7 "primarily at the development of holding companies," ......
  • Community Publishers, Inc. v. Donrey Corp., Civ. No. 95-5026.
    • United States
    • U.S. District Court — Western District of Arkansas
    • March 30, 1995
    ...one corporation of the stock of another corporation, principally those acquisitions by `holding companies.'" United States v. Celanese Corp. of Am., 91 F.Supp. 14, 17 (S.D.N.Y.1950). It is illogical to suggest that Congress directed section 7 "primarily at the development of holding compani......
4 books & journal articles
  • Table of Cases
    • United States
    • ABA Antitrust Library Mergers and Acquisitions. Understanding the Antitrust Issues. Fourth Edition
    • December 6, 2015
    ...Cir. 1989), 9, 10 United States v. Carrols Dev. Corp., 454 F. Supp. 1215 (N.D.N.Y. 1978), 538 United States v. Celanese Corp. of America, 91 F. Supp. 14 (S.D.N.Y. 1950), 3 574 Mergers and Acquisitions United States v. Central State Bank, 564 F. Supp. 1478 (W.D. Mich. 1983), 290 United State......
  • Overview of the Applicable U.S. Antitrust Laws
    • United States
    • ABA Antitrust Library Mergers and Acquisitions. Understanding the Antitrust Issues. Fourth Edition
    • December 6, 2015
    ...United States v. Columbia Steel Co., 334 U.S. 495, 507 n.7 (1948) (citations omitted); Philadelphia Nat’l Bank , 374 U.S. at 337-38. 14 . 91 F. Supp. 14 (S.D.N.Y. 1950). 15 . See id. at 16. See generally A.D. NEALE, THE ANTITRUST LAWS OF THE UNITED STATES OF AMERICA 180-82 (1970). 16 . See ......
  • Collusive Bidding in the Market for Corporate Control
    • United States
    • University of Nebraska - Lincoln Nebraska Law Review No. 79, 2021
    • Invalid date
    ...to judicial holdings that found that mergers were outside the scope of the Clayton Act. See, United States v. Celanese Corp. of America, 91 F. Supp. 14 (S.D.N.Y. 1950); see also Arrow-Hart and Hegeman Elec. Co. v. Federal Trade Comm'n, 291 U.S. 587 (1934)(reasoning that the FTC did not have......
  • Stopping a Train: Why it is So Difficult for a Private Plaintiff to Block a Deal
    • United States
    • Antitrust Bulletin No. 58-2, June 2013
    • June 1, 2013
    ...6 See, e.g., Phila. Nat’l Bank, 374 U.S. at 337–38; FTC v. W. Meat Co., 272 U.S. 554, 556 (1926); United States v. Celanese Corp. of Am., 91 F. Supp. 14, (S.D.N.Y. 1950) (explaining that Section 7 was drafted “to deal with the evil of the secret acquisition by one corporation of the stock o......

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