United States v. Inter-Island Steam Nav. Co.

• Decision Date: 10 January 1950
• Docket Number: No. 887.,887.
• Parties: UNITED STATES v. INTER-ISLAND STEAM NAV. CO., Limited, et al.
• Court: U.S. District Court — District of Hawaii

87 F. Supp. 1010

UNITED STATES v. INTER-ISLAND STEAM NAV. CO., Limited, et al.

No. 887.

United States District Court D. Hawaii.

January 10, 1950.

COPYRIGHT MATERIAL OMITTED

Herbert A. Bergson, Assistant Attorney General, Jas. E. Kilday, Special Assistant to Attorney General, Robert W. Strange, Special Assistant to Attorney General, Ray J. O'Brien, United States Attorney, District of Hawaii, Honolulu, T. H., for plaintiff.

Robertson, Castle & Anthony, Honolulu, T. H., J. Garner Anthony, Honolulu, T. H., for defendants.

McLAUGHLIN, District Judge.

1. The Facts.

With one or two amendments, which will be noted in their proper places, the Court accepts and, in condensed form, adopts plaintiff's statement of the facts as to which there is no genuine issue:

In 1929 the defendant Inter-Island Steam Navigation Company, Limited, hereinafter labeled Inter-Island, was a well and long established common carrier by water of freight and passengers in Hawaii. In that year it organized Inter-Island Airways, Limited, which later changed its name to Hawaiian Airlines, Limited, hereinafter called Hawaiian. Inter-Island caused Hawaiian to be incorporated as a common carrier by air and acquired a large majority of the latter's capital stock.

Inter-Island's purpose in organizing and acquiring control of defendant Hawaiian was to have it operate as a common carrier of passengers in Hawaii over routes substantially paralleling those over which Inter-Island then operated and to serve substantially the same areas that Inter-Island then served. Immediately after its organization, Hawaiian began so to operate and so to serve, and has continued to do so.

At all times since its organization, Hawaiian's capital stock has in the majority been owned by Inter-Island, which has controlled Hawaiian's operations as common carrier.

Except during World War II, Inter-Island since 1883 has continuously operated as a common carrier of freight and passengers, and Hawaiian since 1929 has continuously operated as a common carrier by air of passengers, except for a short period during World War II. Hawaiian has been also a common carrier of freight since 1942.

Plaintiff asserts in its statement of facts that Inter-Island and Hawaiian "have been and are in active competition for freight traffic," and that "As late as 1946, Inter-Island and Hawaiian had been and were in active competition for passenger traffic." While there is some testimony regarding certain intra-organizational rivalry between Inter-Island and Hawaiian in freight solicitation and passenger rate-making, such rivalry is not equivalent to the "competition" envisaged by the Sherman Anti-Trust Act, 15 U.S.C.A. §§ 1-7, 15 note.

Furthermore, the complaint charges that defendants "have been parties to an unlawful combination and conspiracy to restrain and monopolize and have unlawfully attempted to monopolize and have unlawfully monopolized * * * interstate and territorial trade and commerce in violation of Sections 1, 2, and 3 of the Sherman Act, in that" (B) they have jointly conducted so-called "all expense tours," and that Inter-Island denies to other air carriers the privilege of making similar arrangements with it; and that (C) "Inter-Island persuades and induces prospective passengers to patronize Hawaiian in preference to other air carriers operating among the Hawaiian Islands."

In one breath, therefore, plaintiff alleges that the two defendants competed actively, and in the next it accuses them of combining, conspiring, and co-operating.

Finally, plaintiff concedes that this "competition" between Inter-Island and Hawaiian was "synthetic." Probably "illusory" would be the more accurate word.

Here it will clarify the issue for the Court to hold unequivocally that there never was any true competition between the defendants of the character that is protected by the Sherman Act. There can be no genuine competition between creator and creature, between parent and subsidiary. As was said in United States v. Columbia Steel Co., 334 U.S. 495, 523, 68 S.Ct. 1107, 1122, 92 L.Ed. 1533; "A subsidiary will in all probability deal only with its parent for goods the parent can furnish. That fact, however, does not make the acquisition invalid."

Concluding the recital of fact, the Court agrees with plaintiff in its assertions that air carriers and water carriers in Hawaii compete for the transportation of some kinds of freight; that Inter-Island and Hawaiian are engaged in interstate and territorial commerce, though the Court believes the interstate portion of the traffic is probably small; and that the public welfare in Hawaii requires that there be both air and water transportation of freight and passengers between the Islands composing the Territory of Hawaii.

2. The Pleadings.

For the purposes of this memorandum, and in the light of the preceding statement of facts, the pleadings need be summarized only briefly.

After setting forth the corporate history of the two defendants, most of which has already been outlined herein, the complaint sets forth that Inter-Island is required to file and does file its rates, fares, and regulations with the United States Maritime Commission, and that Hawaiian reports and is responsible similarly to the Civil Aeronautics Board. It is further alleged that in 1939, after the Civil Aeronautics Act of 1938, 49 U.S.C.A. § 401 et seq., became effective, Hawaiian secured under the grandfather clause of that Act a certificate of convenience and necessity, and has been operating since under that certificate.

Inter-Island was the only common carrier furnishing water transportation for both passengers and freight among the Islands. (In 1948 Inter-Island discontinued its passenger service, disposed of or laid up most of its fleet but continues to engage in the transportation of freight between the Islands by means of barge operations and one freighter which can carry but twelve passengers. There is and has been for some time a barge line engaged in transporting freight between the Islands, known as Young Bros., Limited.)

It is also stated that from time to time air carriers other than Hawaiian have undertaken to operate non-certificated non-scheduled flights for the transportation of passengers and freight, but that because of the "unlawful" acts of the defendants, some of the allegations regarding which have already been herein summarized, "these operations have been unsuccessful and have furnished no effective competition to" the defendants in such transportation. It should be noted here, however, that in 1948 the Civil Aeronautics Board granted Trans-Pacific Airlines a temporary five-year certificate as a common carrier by air, and since that time Hawaiian has had real competition for the carriage of passengers and freight between the Islands.

Plaintiff upon its allegations prays that the Court adjudge the conspiracy, the attempts to monopolize, etc., to be illegal and in violation of the Sherman Act; that Inter-Island be required to divest itself of all its interest in the capital stock of Hawaiian, and that none of that stock be sold to any stockholder, officer, etc., of Inter-Island or of any of its subsidiaries, etc., or to any stockholder, officer, etc., of any such subsidiaries. It is also prayed that each of the defendants, its officers, agents, etc., be perpetually enjoined from monopolizing, attempting to monopolize, etc., air or water transportation in Hawaii, or from otherwise violating the Act. Simultaneously with the complaint a motion for a temporary restraining order and preliminary injunction was filed, asking that defendants be restrained from furthering or consummating a modified proposal for reorganization. The details of that plan need not be here set forth, except to say that the plaintiff's motion asserts that such modified plan would result in the control of Hawaiian passing from Inter-Island to Inter-Island's stockholders; that it would not have the effect of removing the defendants or their successors from the common control and management prohibited by the Act; and that if the plan of reorganization is consummated prior to the final adjudication of this case, plaintiff would be unduly burdened by having to commence and maintain an action against a "multitude of stockholders, changing in name and amount from day to day," etc.

In their answer, defendants admit a number of allegations contained in the complaint that have been incorporated in the foregoing statement of facts. They deny, however, the existence of any unlawful combination or conspiracy or the commission of unlawful acts, and assert as separate defenses that the complaint fails to state a claim upon which relief can be granted and that Inter-Island's control of Hawaiian "has been a matter of record among all of the agencies of the United States having to do with the transportation of freight, passengers and mail between points in Hawaii for many years last past." Upon this final allegation, the answer sets up the defense of laches, and asserts that since the formation of Hawaiian by Inter-Island there have been substantial changes of position by Inter-Island, with the result that the delay in bringing the action has been prejudicial.

The defense that this Court lacks jurisdiction over the subject matter has not been pressed, and is, indeed, devoid of merit. 15 U.S.C.A. § 4. Too, defendants' related contention that the matters complained of are within the primary jurisdiction of the Civil Aeronautics Board is likewise untenable.

Plaintiff has filed a motion, based upon certain affidavits attached thereto, for summary judgment in its favor, pursuant to Rules 56(a) and (c), Federal Rules of Civil Procedure, 28 U.S.C.A., on the ground that there is no genuine issue as to any material fact and that plaintiff is entitled to a judgment as a matter of law.

There is on record a stipulation by the parties, approved by the Court, that the Court may consider the record in...