United States v. Cleveland Trust Company

• Decision Date: 30 July 1974
• Docket Number: No. C70-301.,C70-301.
• Citation: 392 F. Supp. 699
• Parties: UNITED STATES of America, Plaintiff, v. The CLEVELAND TRUST COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Ohio

392 F. Supp. 699

UNITED STATES of America, Plaintiff, v. The CLEVELAND TRUST COMPANY, Defendant.

No. C70-301.

United States District Court, N. D. Ohio, E. D.

July 30, 1974.

Robert D. Zuckerman, Frank B. Moore, Dept. of Justice, Cleveland, Ohio, for plaintiff.

Richard W. Pogue, Gerald W. Palmer of Jones, Day, Reavis & Pogue, Cleveland, Ohio, for defendant.

MEMORANDUM OPINION AND ORDER

BATTISTI, Chief Judge.

This is an action brought to restrain alleged violations of Sections 7 and 8 of the Clayton Act, 15 U.S.C. §§ 18 and 19. Jurisdiction is predicated on Section 15 of the Clayton Act, 15 U.S.C. § 25. The sole defendant in this action is the Cleveland Trust Company, an Ohio corporation, and allegedly the sixteenth largest bank in the United States in terms of total trust assets. (Amended Complaint, para. 4.)

I.

The Government's section 7 case,¹ as described in its amended complaint filed October 4, 1972, arises from defendant's alleged holdings, in various fiduciary accounts, of substantial aggregates of the common stock of both the Acme-Cleveland Corporation (Acme) and the Pneumo-Dynamics Corporation (Pneumo).² It is alleged that defendant, through its trust department, acquired, for purposes of section 7, approximately twenty-seven percent of the outstanding common stock of Acme and approximately fourteen percent of the outstanding common stock of Pneumo. As of September, 1968, defendant allegedly had full power to vote about twenty percent, and qualified power to vote about five percent, of Acme's stock. As of November 27, 1968, defendant allegedly had full power to vote all its Pneumo shares. (Amended Complaint, para. 15.)

Acme and Pneumo are characterized in the amended complaint as substantial competitors, on a nationwide basis, in the manufacture and sale of multiple spindle automatic bar and chucking machines (hereinafter referred to as "MSA machines"). These machines, and single spindle automatic bar and chucking machines (hereinafter referred to as "SSA machines") are defined in the amended complaint as "complex machine tools which perform a variety of integrated processes, such as cutting, polishing, boring, and reaming of ferrous and non-ferrous bars, tubes, castings, and forgings." (Amended Complaint, para. 6(a)).³

Both MSA and SSA machines are alleged to fall within a broad market, including some or all of the following types of horizontal and vertical metal cutting equipment: automatic tool rotating machines, numerically controlled lathes, center turning stations, turret lathes, tracer lathes, transfer lines and engine lathes, as well as certain types of forming equipment such as cold heading machines. (Amended Complaint, para. 6(a)). Sales of new, American MSA machines, however, are alleged to constitute an identifiable submarket and relevant "line of commerce" within the meaning of section 7.

The amended complaint relates that sales of MSA machines, manufactured and sold in the United States (including tooling, attachments, accessories, and parts sold with originally produced machines) amounted to approximately $63,000,000. in 1969. (Amended Complaint, para. 6(b).) Acme, with sales of such MSA machines reaching $21,943,000. in 1969, accounted for about 34.8 percent, or the largest share of total sales. Pneumo, with sales approximating $9,014,000. in 1969, accounted for about 14.3 percent, or the fourth largest share. (Amended Complaint, paras. 7, 9(a).) The Government submits that if Acme and Pneumo had merged in 1969, the resulting company would have controlled 49.1 percent of dollar sales of MSA machines in that year, and that such a merger would have been violative of section 7. (Amended Complaint, para. 9(b).)

The Government avers that defendant does not hold the stock of either Acme or Pneumo "solely for investment" within the meaning of section 7,⁴ but actually uses the voting rights of these shares to elect directors and to influence important management and policy decisions affecting the two companies. (Amended Complaint, para. 16.) It is not contended that defendant, by virtue of its alleged stockholdings, is in actual control of either of these companies. The amended complaint charges, however, that the effect of defendant's alleged stock acquisitions "may be to substantially lessen competition . . . in the following ways, among others: Actual and potential competition between Acme and Pneumo in the manufacture and sale of MSA machines may be lessened." (Amended Complaint, para. 17.)

The Government prays that defendant's acquisition, retention, and use of the stock of Acme and Pneumo be adjudged violative of section 7; that defendant be required to divest itself of its alleged stockholdings in either Acme and Pneumo; and that defendant be ordered to withdraw from participation in the direction, control or management of either of these two companies. (Prayer for relief contained in Amended Complaint, paras. 1, 2, 3.)

The Government's section 8⁵ allegations charge that defendant, through alleged agents, Mr. George F. Karch and Mr. Allan K. Shaw, has been and remains a member of the Board of Directors of Pneumo, the Warner & Swasey Company (W & S) and White Consolidated Industries, Inc. (White). Amended Complaint, para. 18).

The Government alleges that as of the date of the filing of its original complaint, Karch was Chairman of defendant's Board of Directors, and Shaw was defendant's Executive Vice President. (Amended Complaint, para. 5.) It is further alleged that all three companies, as of December 31, 1969, had capital surplus and undivided profits aggregating more than $1,000,000; that defendant does substantial banking business with the companies; and that the three companies "compete," for purposes of section 8, in the following respects: (a) Pneumo competes with W & S in the sale of MSA machines; (b) Pneumo competes with the Bullard Company (Bullard), a subsidiary of White located in Bridgeport, Connecticut, in the sale of MSA machines; (c) W & S, in its sales of SSA machines, competes with Bullard in its sale of MSA machines; and (d) the G. A. Gray Company (Gray), a subsidiary of W & S, located in Cincinnati, Ohio, competes with Bullard in the sale of vertical boring mills.⁶ (Amended Complaint, paras. 9(a), 11, 13, 14(b), and 16.)

The relief sought is as follows: (a) that defendant be adjudged to have violated section 8 of the Clayton Act; (b) that defendant be ordered to remove its agents from all but one of the Boards of Directors of Pneumo, W & S, and White; and (c) that further injunctive relief be granted foreclosing future violations of section 8. (Prayer for Relief contained in Amended Complaint, paras. 4,5,6.)

Defendant, in its amended answer, denies many of the essential allegations contained in the Government's amended complaint. Certain admissions, however, have been made. With respect to the Government's section 7 claim, defendant admits: (a) that as of November 27, 1968, it held, as a fiduciary, about fourteen percent of Pneumo's outstanding common stock (Amended Answer, para. 15);⁷ (b) that the market and product definitions are as set forth in the amended complaint with new, American-made MSA machines constituting a "line of commerce" for purposes of section 7 (Amended Answer, para. 6); (c) that the Government's allegations setting forth 1969 sales figures of MSA machines and the respective dollar totals and percentages of such sales attributable to Acme and Pneumo are correct (Amended Answer, paras. 7, 9(a)); (d) that a merger of Acme and Pneumo in 1969 would have been violative of section 7 (Amended Answer, para. 9(b)); and (e) that as a fiduciary, defendant does exercise "the voting rights pertaining to such of the shares of corporations held by it in a fiduciary capacity as it is in a position to exercise with respect to election of directors." (Amended Answer, para. 16.)

As to the Government's section 8 claim, defendant admits: (a) that, as of the date of the original complaint, Karch and Shaw occupied the positions with defendant as alleged (Amended Answer, para. 5); (b) that Karch is on the Board of W & S, and Shaw is on the Boards of Pneumo and White (Amended Answer, paras. 10, 12, 14); (c) that all three companies, as of December 31, 1969, had capital, surplus and undivided profits aggregating more than $1,000,000. (Amended Answer, paras. 9(a), 11(a), 13(a)); (d) that Pneumo sold MSA machines in 1969 (Amended Answer, para. 9(a)); (e) that W & S sold MSA machines and SSA machines in 1969, and that its subsidiary Gray sold vertical boring mills in 1969 (Amended Answer, para. 11(a)); (f) that White's subsidiary Bullard sold MSA machines and vertical boring mills in 1969 (Amended Answer, para. 13(a)); and (g) that defendant does banking business with Pneumo, W & S, and White (Amended Answer, paras. 11(b), 13(b), 16).

II.

The Government has filed a motion for summary judgment pursuant to Rule 56, F.R.Civ.P. contending that there is no genuine dispute as to any material facts pertinent to either its Sections 7 or 8 claims, and that it is entitled to judgment as a matter of law. Defendant vigorously opposes this motion. Both parties have submitted briefs, affidavits, depositions, stipulations of fact, answers to interrogatories, and other papers and exhibits in support of their respective positions.⁸

Defendant has, in its turn, filed a motion to dismiss the Government's amended complaint, or, in the alternative, for summary judgment, on the ground that intervening events occurring since the initial institution of this action have mooted the Government's Section 7 and Section 8 claims. Oral argument was heard on all motions before the Court on March 26 and 27, 1974. Since defendant's motion raises a threshold issue going to the Court's jurisdiction to proceed further with this case, see DeFunis v. Odegaard, 416 U.S. 312, 94 S.Ct. 1704, 40 L.Ed.2d 164 (1974); North Carolina v. Rice, 404 U.S. 244, 246, 92 S.Ct. 402, 30 L.Ed.2d 413 (1971...