United States v. MacAndrews & Forbes Co.

• Decision Date: 01 December 1906
• Citation: 149 F. 823
• Parties: UNITED STATES v. MacANDREWS & FORBES CO. et al.
• Court: U.S. District Court — Southern District of New York

149 F. 823

UNITED STATES v. MacANDREWS & FORBES CO. et al.

United States Circuit Court, S.D. New York.

December, 1906

[Copyrighted Material Omitted]

Henry L. Stimson, U.S. Atty., and Edwin N. Hill, Special U.S. Atty (Henry W. Taft, Felix H. Levy, Edwin P. Grosvenor, and Oliver E. Pagan, Special Assistants to the Attorney General, of counsel).

A. H Burroughs, for corporate defendants.

Ernest E. Baldwin, for individual defendants.

De Lancey Nicoll, W. W. Fuller, John D. Lindsay, and Junius Parker, of counsel for all the defendants.

HOUGH District Judge.

The indictment demurred to alleges violations of sections 1 and 2 of the act of July 2, 1890 (chapter 647, 26 Stat. 209 (U.S. Comp. St. 1901, p. 3200)), commonly known as the 'Sherman Anti-Trust Law,' and contains three counts, the first charging a combination, and the second a conspiracy in restraint of interstate trade and commerce, while the third asserts an attempt to monopolize a portion of the same. All the counts are based upon the same allegations of fact, and, in effect, assert that the same doings, facts, and circumstances constitute at once a combination, conspiracy, and monopoly.

The indictment sets forth in the first count that: (1) Between December 8, 1903, and June 18, 1906, (2) the corporate defendants were engaged in certain business, and (3) the individual defendants were the presidents of the said corporations, and (4) by authority thereof carried on the same business, which (5) was interstate business, and (6) amounted to 85 per cent. of the whole trade in licorice paste, (7) which business should have been conducted competitively as to (8) prices, (9) relative extent of each company's trade, (10) customers sought for and obtained by each company, and (11) terms and conditions of sale, and (12) this competitive method of business the corporate defendants would have followed if (13) all the defendants had not (14) engaged in an unlawful combination, which (15) during the period first specified (16) they all did engage in, and (17) did so by the several means next described in the indictment, whereby (18) interstate trade was restrained (19) in the several ways next also described. Then follows a general description of the 'ways' in which, and the 'means' by which trade was restrained, during the period alleged, to wit: First competition was destroyed (this is a 'way in which') because (a) the defendants agreed that there should be no competition, and (b) fixed excessive noncompetitive prices accordingly, and (c) sold for such prices only, and (d) procured others to do the like. (a) to (d) are 'means by which.' The second 'way in which' is that all customers were apportioned among the corporate defendants and their allies; the third that production was limited, and the fourth that uniform contracts were required from customers. Appropriate 'means' are alleged 'by which' the second, third and fourth 'ways' were rendered effective.

The first (or combination) count then shows at great length very numerous 'overt acts' which are really statements of intended evidence, and reveal the sequence of events and the resulting conditions as follows: Prior to and on December 8, 1903, the MacAndrews & Forbes Company (hereinafter called the 'MacAndrews Company') was engaged in the manufacture and sale of licorice paste, having factories in Newark and Camden, in the state of New Jersey, and offices in the city of New York; the J. S. Young Company (hereinafter called the 'Young Company') was similarly engaged at Baltimore, Md. The defendants Jungbluth and Young were (and at the time of the presentment of this indictment still were) the presidents of the MacAndrews Company and Young Company, respectively. Licorice paste is a substance made from a root not grown in the United States, and is (beside certain apparently limited uses in pharmacy) a prime necessity for the manufacture of plug and smoking tobacco, as well as of snuff and cigars. At the time first mentioned the MacAndrews Company seems to have been by much the largest producer of paste in this country, and, taken together, the two corporate defendants are said to have supplied about 85 per cent. of our national requirements for this substance. There was and is also a manufacturer in Providence, R.I.-- one Lewis-- and also one in New York--Weaver & Sterry-- neither doing a large business, but both seemingly worthy of consideration. Collectively these four producers of paste appear to have been actually supplying almost the entire trade demand. On December 8, 1903, a written agreement was executed by and between the corporate defendants, whereby, through the device of owning control of the common stock of the Young Company, and guarantying ample dividends on the preferred stock thereof, the MacAndrews Company became for all practical purposes the owner of the Baltimore business, and after that date the Young Company, although maintaining a separate corporate existence, became the creature of the MacAndrews Company, whose officers even issued orders directly to at least one person known to the public only as an agent of the Young Company. Shortly afterward, and on December 31, 1903, the Young Company effected a written contract with Lewis, of Providence, whereby the latter agreed for the space of five years to limit his production to a fixed amount per annum, on which the Young Company guarantied him a certain profit, one-fourth of which, however, was semiannually to flow back to the Young Company, while the profit on any excess production and sale by Lewis was to go entirely to the latter company, which was also given power to regulate Lewis' sale price, provided that his minimum profit was not thereby destroyed. For reasons not shown, Lewis' price was always to be one-quarter of a cent per pound less than that of the Young Company. The subsequently alleged transactions show that the control of Lewis' business thus established extended to limiting his customers, and declaring to whom he could and could not sell his produce.

Three of the four above-mentioned producers of paste having thus been bound together by careful contracts, the Young Company, on January 2, 1904, authorized Lewis to sell at 7 cents per pound, and on January 11 it informed the trade generally that its price was 7 1/4 cents. So far as alleged in the indictment trade conditions remained as above outlined until the middle of March, when the defendant Young advised Jungbluth that he thought Weaver & Sterry of New York were ready 'to come to some agreement,' and quoted Sterry as thinking the time ripe for a 'sharp advance.' Apparently some of the consumers were of the same opinion, and by May 9th Young wrote that some manufacturers had concluded to 'stock up all they can,' and furnished Jungbluth with a list of certain orders received by his company, tending to prove the truth of his suspicion. Whereupon, on May 14th the MacAndrews Company, having received an order from a manufacturer on Young's list, replied that they had raised their price to 9 cents per pound, and by circular letter informed the trade to the same effect. Two days later the Young Company advised the trade that their price had risen to 8 1/2 cents, and thereafter it is alleged that the quoted rates for licorice paste furnished by the MacAndrews Company were always higher by 1/2 cent per pound than those of the Young Company, which in turn gave a price one-quarter of a cent a pound greater than that of Lewis. This 'sharp advance' evidently did not quench the desire of some manufacturers to lay in an ample supply of paste against the possibility of a further rise, which desire was met in the instances given by informing one applicant that, 'owing to political and other conditions in the licorice root producing countries,' no continuing contract for deliveries could or would be made, and telling another that the quantity demanded was beyond his 'normal requirements,' therefore, only one-quarter of the amount asked for would be sold to him. This last applicant was the well known house of Bagley & Co., and in early June the Young Company warned both Lewis and the MacAndrews Company against this concern's tendency to 'stock up,' which the defendant Young had so paternally checked. By the end of June, 1904, the negotiations between Young and Weaver & Sterry had resulted in an alleged agreement, not reduced to formal contract, so far as shown, that the uniform minimum price for paste should be fixed at 9 1/2 cents per pound after July 1st, that no contracts for furnishing an indefinite quantity even at that price should be made, and that such price agreement should endure, as between the paste producers, until the close of 1906. Jungbluth was in Europe at this time, but cabled his assent to the scheme on July 2, 1904.

Subsequent events appear to show that for the limited trade permitted to Lewis the minimum price was still to be one-quarter cent per pound lower than that charged by the Young Company and Weaver & Sterry. Immediately after July 2d, therefore, it is alleged that the Young Company advised customers of the 9 1/2 cent price, while the MacAndrews Company quoted 10 cents as their price. Weaver & Sterry having thus been placated, and 'maintaining their own prices at not less than 9 1/2 cents,' the MacAndrews Company, on July 23d, advised the New York agent of the Young Company that it was 'the better policy' for Lewis to enter into 'further contracts,' the form of which was then 'under discussion.' A short time afterwards the form and substance of the proposed contracts was declared to the trade at large, and the perfected trade arrangement is alleged to have been explained in a letter from the Young Company's New York agent to Lewis, substantially as follows: As far...