United States v. MARYLAND & VIRGINIA MILK PRO. ASS'N

• Decision Date: 21 November 1958
• Docket Number: Civ. A. No. 4482-56.
• Citation: 167 F. Supp. 799
• Parties: UNITED STATES of America, Plaintiff, v. MARYLAND AND VIRGINIA MILK PRODUCERS ASSOCIATION, Inc., Defendant.
• Court: U.S. District Court — District of Columbia

167 F. Supp. 799

UNITED STATES of America, Plaintiff, v. MARYLAND AND VIRGINIA MILK PRODUCERS ASSOCIATION, Inc., Defendant.

Civ. A. No. 4482-56.

United States District Court D. Columbia.

November 21, 1958.

Joseph J. Saunders, Edna Lingreen, Joseph E. Waters, and A. Duncan Whitaker, Dept. of Justice, Washington, D. C., for plaintiff.

Herbert A. Bergson, William J. Hughes, Jr., Daniel H. Margolis, Daniel J. Freed, and Nicholas J. Chase, Washington, D. C., for defendant.

HOLTZOFF, District Judge.

This is a civil action brought by the United States against the Maryland and Virginia Milk Producers Association, Incorporated, under the antitrust laws, for injunctive and similar relief. While the complaint, which relates to the milk industry in the Washington Metropolitan area, is not technically divided into separate counts, it in effect sets forth three separate claims for relief or causes of action. The first cause of action charges an attempt to monopolize interstate trade and commerce in supplying milk for resale as fluid milk in the Washington Metropolitan area, comprising the District of Columbia and nearby regions of Maryland and Virginia. This cause of action is based on Section 2 of the Sherman Act, 15 U.S.C.A. § 2. The second cause of action charges a combination and conspiracy to eliminate and foreclose the competition above-mentioned by making and carrying out a contract for the transfer to the defendant of substantially all of the assets of a concern known as Embassy Dairy, Incorporated, which is a retail outlet for milk in the area. This cause of action is predicated on Sections 1 and 3 of the Sherman Act, 15 U.S.C.A. §§ 1, 3. The third cause of action which has been the subject matter of the present section of the trial, charges that the defendant on July 26, 1954, acquired substantially all of the assets of Embassy Dairy, Incorporated, and that the effects of this acquisition have been or may be substantially to lessen competition or to tend to create a monopoly in the production and sale of milk to dealers in the Washington Metropolitan area. This cause of action further charges that, with the same effect, the defendant on December 6, 1957, purchased and acquired all of the outstanding capital stock of Richfield Dairy Corporation and Simpson Brothers, Incorporated, which operated the Wakefield Dairy. This cause of action is founded on Section 7 of the Clayton Act, 15 U.S.C.A. § 18. The pertinent provision of that section is found in its first paragraph, and reads as follows:

"No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no corporation subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly."

The defendant is an agricultural cooperative association, having as members nearly two thousand milk producers, that is, persons operating dairy farms at which milk is produced. As an affirmative defense the defendant pleaded that it is immune and exempt from prosecution under the antitrust laws under Section 6 of the Clayton Act, 15 U.S.C.A. § 17, and Section 1 of the Capper-Volstead Act, 7 U.S.C.A. § 291. The Court directed a separate trial of this affirmative defense. The outcome of the separate trial was that the Court, D.C., 167 F. Supp. 45, reached the conclusion that the defense of immunity was valid as to the first cause of action, on the ground that activities of agricultural cooperative associations are expressly exempted by statute from prosecution under the antitrust laws, either in criminal or civil proceedings. The Court further held, however, that this immunity does not extend to contracts or combinations involving, in addition to agricultural cooperatives, any person or concern that is not an agricultural cooperative association and, therefore, not entitled to exemption. On this basis, the Court held that the defense of immunity did not apply to the second and the third causes of action. The Court further held that the Capper-Volstead Act did not exempt agricultural cooperative associations from the provisions of Section 7 of the Clayton Act, to which reference has been made.

After a short recess, the trial was then resumed as to the third cause of action, and has just been concluded. The Court might observe at this juncture that, as a result of the efforts of counsel and the commendable cooperation between them, the various discovery weapons provided by the Federal Rules of Civil Procedure, 28 U.S.C.A., have been used in this litigation to the utmost extent. Requests for admissions numbering 1624 were submitted by the plaintiff and 211 such requests were submitted by the defendant. The great majority of these requests resulted in admissions. Interrogatories were used to a considerable degree and stipulations were made as to authenticity of documents. In addition, numerous stipulations of facts were entered into, some at a series of pretrial hearings and others outside of the courtroom. The result of this enlightened course of procedure has been that the factual disputes have been reduced to a minimum and the amount of evidence introduced at the trial was greatly diminished in volume, thereby shortening the trial by a considerable extent.

The issues arising out of the third cause of action are now before the Court for decision. Section 7 of the Clayton Act, which has been heretofore quoted, as originally enacted was limited to acquisitions of capital stock. By an amendment enacted on December 29, 1950, the Act was extended so as to cover acquisitions of assets as well. In addition, the amendment generally broadened the phraseology of the statute. In 1950 it became sufficiently comprehensive and inclusive in its terms so as to bring under its ban both horizontal and vertical acquisitions, either of capital stock or of assets of other concerns. In this connection it might be said that by "horizontal" acquisition is meant the acquisition or control of one competitor by another; while the word "vertical" is applied to an acquisition or control by a concern in one echelon, of a concern in another echelon in the same line of trade or commerce, such as a transaction between a manufacturer and a jobber or between a wholesaler and a retailer or between a manufacturer or dealer and a customer.

The statute was construed recently by the Supreme Court in United States v. E. I. duPont de Nemours & Company, 353 U.S. 586, 77 S.Ct. 872, 1 L.Ed.2d 1057. The facts of that case were unique. In 1917 duPont and Company acquired a considerable block of stock of General Motors Corporation. Obviously, the two corporations were not competitors and were not engaged in the same line of business. DuPont and Company, however, was selling certain commodities, such as fabrics, that were used in the manufacture of automobiles. Among the customers for these products was General Motors Corporation. The latter purchased some of these products from duPont and some from other manufacturers and dealers. In 1949 the Government brought a civil suit attacking the stock acquisition on the ground that it violated Section 7 of the Clayton Act, in that it tended to lessen competition between duPont and other dealers in similar products, all of whom were selling or endeavoring to sell their goods to General Motors Corporation. The Court held that the transaction violated Section 7 of the Clayton Act.

In discussing the construction to be accorded to the statute, the Court held that it was immaterial whether actual restraints or monopolies in fact resulted from a merger or an absorption condemned by the Clayton Act or in fact whether there was actually a substantial lessening of competition. The Court went even further and held that it was immaterial whether a substantial lessening of competition was intended. The test formulated in the duPont case was whether there was a reasonable probability that a substantial lessening of competition or a monopoly might result from the acquisition by one corporation of the capital stock or the assets of another corporation. On this point the Court said, 353 U.S. at page 589, 77 S.Ct. at page 875:

"The section is violated whether or not actual restraints or monopolies, or the substantial lessening of competition, have occurred or are intended."

In order to be within the ban of the statute, it is, of course, necessary that there be reasonable probability of a lessening of competition or the creation of a monopoly within an area of effective competition. The market affected must be substantial and it must appear that competition may be foreclosed in a substantial share of that market. The Court expressly held that the Act applies both to horizontal and to vertical acquisitions.

So, too, the Court also indicated that the fact that all concerned acted honorably and fairly, each in the honest conviction that his actions were in the best interests of his own company, and without any design to overreach anyone, does not defeat the right of the Government to relief. Finally, the Court held, for the purposes of the case before it, that the test was whether at the time of the institution of the suit, and not necessarily at the time of the acquisition of the capital stock or assets, there was reasonable probability that the transaction was likely to result in the condemned restraints.

It must be observed that the duPont case was decided by a vote of four to two, with three members of the Court abstaining from participation. A query, therefore, arises whether this decision should be regarded only as res judicata as between the parties to it or whether it sets forth binding principles as well on the basis of stare decisis. We do not have the...