United States v. EI du Pont de Nemours and Company

• Citation: 177 F. Supp. 1
• Decision Date: 02 October 1959
• Docket Number: Civ. A. No. 49 C-1071.
• Parties: UNITED STATES of America, Plaintiff, v. E. I. DU PONT DE NEMOURS AND COMPANY, General Motors Corporation, Christiana Securities Company, and Delaware Realty & Investment Corporation, Defendants.
• Court: U.S. District Court — Northern District of Illinois

177 F. Supp. 1

UNITED STATES of America, Plaintiff, v. E. I. DU PONT DE NEMOURS AND COMPANY, General Motors Corporation, Christiana Securities Company, and Delaware Realty & Investment Corporation, Defendants.

Civ. A. No. 49 C-1071.

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

October 2, 1959.

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George D. Reycraft, Eugene Metzger, Bill G. Andrews, Edmund D. Ludlow, and Paul A. Owens, Antitrust Division, Washington, D. C., for the Government.

Sidley, Austin, Burgess & Smith, by George Ragland, Jr., Chicago, Ill., and Covington & Burling, by Hugh B. Cox, John Lord O'Brian, Charles A. Horsky, Daniel M. Gribbon, and Alvin Friedman, Washington, D. C., for defendant, E. I. du Pont de Nemours and Co.

Charles A. Rittenhouse III, and Irving S. Shapiro, Wilmington, Del., for Legal Department, E. I. du Pont de Nemours and Co.

Mayer, Friedlich, Spiess, Tierney, Brown & Platt, by Leo F. Tierney, Bryson P. Burnham, and Lee N. Abrams, Chicago, Ill., and Henry M. Hogan and Robert A. Nitschke, Detroit, Mich., for defendant, General Motors Corp.

Kirkland, Ellis, Hodson, Chaffetz & Masters, by Howard Ellis and Don H. Reuben, Chicago, Ill., Dewey, Ballantine, Bushby, Palmer & Wood, by Wilkie Bushby, Philip C. Scott, and Aram J. Kevorkian, New York City, for defendant, Christiana Securities Co. and Delaware Realty & Investment Corp.

Andrew J. Dallstream, Milton H. Cohen, and Burton R. Rissman, Chicago, Ill., amicus curiæ with respect to interest of Stockholders of E. I. du Pont de Nemours and Co.

Manuel E. Cowen and Francis M. Clamitz, Associate Counsel, Chicago, Ill., amicus curiæ with respect to interest of Stockholders of General Motors Corp.

LA BUY, District Judge.

On June 3, 1957, the Supreme Court of the United States held that the acquisition by E. I. du Pont de Nemours & Company of approximately 63,000,000 shares of common stock of General Motors Corporation violated Section 7 of the Clayton Act, 15 U.S.C.A. § 18. It remanded the case to this Court "for a determination, after further hearing, of the equitable relief necessary and appropriate in the public interest to eliminate the effects of the acquisition offensive to the statute." (353 U.S. 586, 607, 77 S.Ct. 872, 885, 1 L.Ed.2d 1057) The decision of the Supreme Court reversed the prior determination of this Court, D.C., 126 F. Supp. 235, that the acquisition of stock of General Motors by du Pont did not violate Section 7 of the Clayton Act but did not review or reverse the findings of this Court that there had been no violation by any of the defendants of Sections 1 or 2 of the Sherman Act, 15 U.S.C.A. §§ 1, 2.

The defendants now before the Court, in addition to du Pont, include General Motors Corporation, Christiana Securities Company which owns 12,199,200 shares of du Pont common stock, and Delaware Realty and Investment Company which owns 1,217,920 shares of du Pont common stock and 49,000 shares of common stock of Christiana. Christiana and Delaware's motion for dismissal of the appeal as to them was denied by the Supreme Court, with the direction that they be retained as parties "pending determination by the District Court of the relief to be granted." 353 U.S. 586, 608, 77 S.Ct. 872, 885, 1 L.Ed.2d 1057.

The Court appointed Andrew J. Dallstream amicus curiae to represent the interests of the stockholders of du Pont, and Manuel E. Cowen amicus curiae to represent the interests of the stockholders of General Motors. Both are among the leading members of the Illinois bar. Mr. Dallstream is a past president of the Chicago Bar Association and a lawyer with vast experience in the field of corporate law and finance. Mr. Cowen is a Master of the United States District Court of the Northern District of Illinois, Eastern Division, and has had wide experience in corporate law. The order appointing the amici curiae provides that they study the various plans proposed by the litigants and conduct the necessary investigation in order to present plans and make recommendations to the Court.

On September 25, 1957 the Court held a pre-trial conference to determine the mode of procedure following the mandate of the Supreme Court. On October 25, 1957 the Government submitted its proposed final judgment. On May 14, 1958 du Pont filed its proposed final judgment. In June 1958 General Motors filed its objections to the final judgment proposed by the Government, but did not offer a form of decree. In August 1958 each of the amici curiae submitted proposed final judgments and detailed comments on the plans submitted. Prior to the trial which commenced on February 16, 1959, the parties took numerous depositions and submitted interrogatories.

Christiana and Delaware filed a motion to strike certain provisions affecting them from the final judgment proposed by the Government. The motion was argued orally before trial, briefs were filed, and the matter taken under advisement.

The Government's proposed judgment provides, in substance (a) that du Pont, Christiana and Delaware deliver to a trustee to be appointed by the Court certificates representing the shares of General Motors stock held by them; (b) that the trustee deliver to each du Pont stockholder of record, other than Christiana and Delaware (Christiana owns 535,000 shares of General Motors and Delaware owns none)¹, notices of meetings of stockholders of General Motors and proxies authorizing such stockholders to vote the shares of General Motors stock held by the trustee pro rata according to their holdings of the shares of du Pont stock, including the stock to be deposited by Christiana and Delaware; (c) that du Pont declare annually for ten years a dividend of one-tenth of the shares of General Motors stock held by it, or 6,300,000 shares per annum (there are about 1.38 shares of General Motors common stock allocable to each share of du Pont); (d) that the trustee sell the General Motors shares comprised in such dividends allocable to Christiana and Delaware and to persons who are stockholders of Delaware (approximately 2,000,000 shares per annum), within twelve months after receipt; (e) that du Pont, Christiana and Delaware be enjoined from acquiring any General Motors stock or exercising any control or influence over General Motors; (f) that du Pont and General Motors be ordered to terminate any agreement between them which provides (1) that General Motors purchase any specified percentage of its requirements of any product of du Pont, (2) that either grant to the other any exclusive patent rights, and (3) that General Motors grant to du Pont a first or preferential right to manufacture or sell any chemical discovery made by General Motors; (g) that General Motors and du Pont be enjoined from having any joint enterprise; and (h) that General Motors on the one hand, and du Pont, Christiana and Delaware on the other, be enjoined from having any common officer or director.

The Government proposal also provides that stockholders of du Pont (other than Christiana and Delaware, and persons who are stockholders of Delaware), will have the option to fill out any fractions of shares received as dividends into full shares by purchasing fractions out of the shares owned by Christiana, Delaware and persons who are stockholders of Delaware held by the trustee and, further, that the stockholders of du Pont (other than Christiana, Delaware and persons who are stockholders of Delaware) are to be given fifteen-day options to purchase the shares owned by Christiana, Delaware and the stockholders of Delaware required to be sold annually by the trustee, all at an unspecified price or prices. Also, the trustee is given the right to apply to the Court to postpone any annual sale if, in his judgment, reasonable market conditions did not prevail, provided that such sales did take place before the end of the ten-year period. The proposed judgment further provides that reasonable market conditions shall not be deemed to exist if the price which can be realized at the time by the trustee is not sufficiently high to reflect the fair value and true worth of the stock. The proposed decree also provides that the trustee may, in his own discretion, sell in any one year more shares of stock than the shares received by Christiana, Delaware and persons who are stockholders of Delaware as a dividend for that year from du Pont.

The Commissioner of Internal Revenue ruled that under the Government's proposed judgment the annual dividends payable by du Pont in shares of General Motors stock would be taxable as ordinary income to the extent of du Pont's current earnings and accumulated earnings and profits. In the case of individual stockholders the Commissioner ruled that the amount of the dividend would be the fair market value (at the time of the hearing it ranged from $46 to $48 per share, and is now around $55 per share)² of the General Motors shares at the time of each annual distribution. In the case of tax paying corporate shareholders the amount of the dividend would be the lesser of the fair market value of the shares or du Pont's tax basis which is approximately $2.09 per share of General Motors. Such corporate shareholders would be taxed at the regular corporate rate after allowance of the dividends received deduction which would result in an effective rate of approximately 7.8% on the amount of the dividend received. The Commissioner of Internal Revenue also ruled that gain on the sales of General Motors stock required under the Government's proposed judgment would be taxable to Christiana, Delaware and the stockholders of Delaware at the capital gains rate of 25%.

The position of du Pont is that the proposed Government decree would bring about disastrous tax consequences to stockholders of du Pont, and that the sales of General Motors stock by the trustee, the additional sales by du Pont stockholders which will be made to raise money with which to...