United States v. RJ Reynolds Tobacco Company, Civ. A. No. 1668-70.

• Decision Date: 07 April 1971
• Docket Number: Civ. A. No. 1668-70.
• Citation: 325 F. Supp. 656
• Court: U.S. District Court — District of New Jersey
• Parties: UNITED STATES of America, Plaintiff, v. R. J. REYNOLDS TOBACCO COMPANY, RJI Corporation, Sea-Land Service, Inc., Walter Kidde & Company, Inc., and United States Lines, Inc., Defendants.

325 F. Supp. 656

UNITED STATES of America, Plaintiff, v. R. J. REYNOLDS TOBACCO COMPANY, RJI Corporation, Sea-Land Service, Inc., Walter Kidde & Company, Inc., and United States Lines, Inc., Defendants.

Civ. A. No. 1668-70.

United States District Court, D. New Jersey.

April 7, 1971.

Raymond W. Young, U. S. Atty., Chief, Civil Division, Newark, N. J., Donald Flexner, Kenneth A. Sagat, Charles J. Walsh, Dept. of Justice, Antitrust Division, New York City, for plaintiff.

Pitney, Hardin & Kipp, by William D. Hardin, Newark, N. J., Donovan, Leisure, Newton & Irvine, by James R. Withrow, Jr., and Sanford M. Litvack, New York City, for defendants Walter Kidde & Co., Inc. and United States Lines, Inc.

Carpenter, Bennett & Morrissey, by Elmer J. Bennett, Newark, N. J., Davis, Polk & Wardwell, by Lawrence E. Walsh, Thomas P. Griesa, and Ronald V. Bryant, New York City, Ragan & Mason, by William F. Ragan, Washington, D. C., for defendants R. J. Reynolds Tobacco Co., RJI Corp., and Sea-Land Service, Inc.

Edward G. Gruis, Deputy Gen. Counsel, Federal Maritime Commission, Washington, D. C., for intervenor.

OPINION

GARTH, District Judge:

The basic issue before this Court is the statutory authority of the Federal Maritime Commission (FMC) over mergers in the shipping industry. Does Section 15 of the Shipping Act (46 U.S. C. § 814)¹ grant the FMC authority over merger agreements in providing that "every agreement * * * controlling, regulating, preventing, or destroying competition" shall be filed with the FMC and that such agreements, if approved, shall be immune from the antitrust laws?²

The chronology of events which preceded the applications before the Court may be summarized as follows: On October 27, 1969 R. J. Reynolds Tobacco Company and its subsidiary, Sea-Land Service, Inc. entered into an Agreement — Time Charter — and Equipment Lease with Walter Kidde & Company, Inc. and its subsidiary, U. S. Lines, Inc. The October Agreement provided for the lease from U. S. Lines of 16 containerships and supporting equipment to Sea-Land and granted Sea-Land an option to purchase the ships and equipment at the expiration of the term of 20 years. That Agreement was submitted to the FMC for approval pursuant to 46 U.S.C. § 814.

On November 9, 1970 the defendants modified and amended the October Agreement by restructuring the transaction as a merger into U. S. Lines of RJI Corporation, a subsidiary of Reynolds organized for the purpose of implementing the merger. Under the restructured agreement, U. S. Lines will be the surviving corporation as between U. S. Lines and RJI Corporation, and will become a wholly owned subsidiary of Reynolds (and consequently an affiliate of Sea-Land, which is also owned by Reynolds).

A Supplemental Agreement was also entered into on November 9, 1970 by Reynolds and Kidde. It provides for alternative dispositions of the stock and assets of U. S. Lines in the event that the merger cannot be consummated.

Pursuant to the terms of the Merger Agreement, the defendants filed copies thereof with the FMC and the Interstate Commerce Commission (ICC) on November 9, 1970. The FMC has commenced hearings relating to the Merger Agreement, but the ICC has apparently not yet done so. Until the approval of both Commissions is obtained, the merger will not, according to the express terms of the Merger Agreement, be consummated.

The Antitrust Division of the Justice Department filed the instant complaint on December 15, 1970 to enjoin the implementation of the Merger Agreement and to obtain an order invalidating the Supplemental Agreement. The complaint alleges these agreements to be in violation of § 7 of the Clayton Act (15 U.S.C. § 18) and § 1 of the Sherman Act (15 U.S.C. § 1), respectively, due to their present and anticipated anti-competitive effect upon certain international segments of the U.S. shipping industry.

On January 5, 1971 the FMC petitioned for leave to intervene as a party, pursuant to Rule 24, F.R.C.P., and applied for a stay or dismissal of the instant proceedings to enable it to complete the FMC proceedings concerning the subject matter herein. The disposition of these FMC applications depends upon the answer to the question initially set forth, to wit: Does Section 15 of the Shipping Act (46 U.S.C. § 814) grant the FMC authority over merger agreements in providing that "every agreement * * controlling, regulating, preventing, or destroying competition" shall be filed with the FMC and that such agreements, if approved, shall be immune from the antitrust laws?

At the outset, the issue of this Court's jurisdiction must be clarified. The Sherman and Clayton Acts invested the several District Courts with jurisdiction to restrain violations of said Acts, 15 U.S.C. §§ 4 & 25. Nothing in the Shipping Act can be construed as a withdrawal of jurisdiction from this Court over antitrust actions concerning shipping agreements which have not yet been approved by the FMC, Carnation Co. v. Pacific West-bound Conference, 383 U.S. 213, 86 S.Ct. 781, 15 L.Ed.2d 709 (1966), or though approved, were outside the statutory competence of the FMC. Hence, the issue before the Court is the appropriateness of "prior resort", i. e., "* * * whether * * * the Court should exercise * * * its jurisdiction initially or require `prior resort' to the appropriate administrative agency."³

The chief argument of the FMC and the defendants is that the ordinary meaning of the statutory language ("every agreement * * * controlling, regulating, preventing, or destroying competition") is broad enough to include the Merger Agreement. The Justice Department vigorously opposes this contention by recourse to legislative history.

This Court is persuaded that Congress did not intend to subject merger agreements to the supervision of the FMC. Therefore, the answer to the question initially posed above is that Section 15 does not grant the FMC authority over merger agreements. In so holding, I rely in large part upon the Alexander Report,⁴ which was the source of the Congressional policy embodied in the Shipping Act. My interpretation of Congress' intent in this area is based on numerous factors, including the distinctive utilization of the term "agreement" in the Alexander Report.

Section 15 of the Shipping Act is substantially a transcription of the recommendations of the Alexander Report.⁵ The essential provisions as well as the unique terminology of the Report are evident in the Act. The agreements referred to in Section 15 are exemplified in the eighty agreements discussed in the foreign trade segment of the Alexander Report.⁶

The catalog or "full classification of these agreements"⁷ (i. e., the "agreements" to which the Alexander Committee's attention was primarily directed and to which its recommendations were exclusively directed) does not include a single agreement of merger or other form of corporate reorganization. The "agreements" represented in the Report are all "on-going" in nature.⁸ Most of these "agreements" are cooperative working arrangements. These "agreements" describe practices or regular activities in which two or more shipping companies have agreed to participate over a considerable period of time. None of the "agreements" studied by the Alexander Committee bears the slightest resemblance to an agreement of merger, which is essentially a single, discrete event, which transforms the relationship of the merging parties at the instant of merger.

Consistently throughout the Report, mergers and other corporate reorganizations, when occasionally mentioned, are referred to by the terms "consolidation by ownership"⁹ and "control through acquisition"¹⁰, or variations thereof. Never is the word "agreement" used in the Report to refer to a merger agreement. It is clear that the Alexander Committee distinguished conceptually between agreements in the sense of on-going, cooperative agreements and agreements of "consolidation" or "acquisition" (of which merger agreements are a form).

"The numerous methods of controlling competition between water carriers in the domestic trade, referred to in the preceding pages, may be grouped under three headings, viz, (1) control through acquisition of water lines or the ownership of accessories to the lines; (2) control through agreements or understandings; and (3) control through special practices." Alexander Report at 409.

It must be assumed that the Alexander Committee knew that acquisitions of water lines and ownership of accessories to such lines were the products of contracts or agreements, as that term is commonly understood. Hence, the separation by headings (in the quotation above) of "(1) control through acquisition" from "(2) control through agreements", as distinct methods of controlling competition, is meaningless if the term "agreement" is construed as broadly as the FMC urges.

I, therefore, reach the unavoidable conclusion that "agreement" is a term of art, a word of technical legal significance, as used by the Alexander Committee and Congress in enacting Section 15 of the Shipping Act.

I find support for this view on the face of the statute itself. The statute sets forth in a series, seven types of agreements which must be submitted to the FMC. Five of the categories in the series are specific and unambiguous.¹¹ The last category is obviously more generalized ("or in any manner providing for an exclusive, preferential, or cooperative working arrangement"). Each of the five specific, unambiguous categories logically falls within the generalized last "catch-all" category.

Finally there is the clause in dispute here: "controlling, regulating, preventing, or destroying competition", which appears as the third of the seven categories but differs in character from the others. The plaintiff submits that the last "catch-all" clause must be read as limiting the "anti-competitive" clause which precedes it. Sutherland, Statutory Construction § 4908 (3rd ed.). Thus, plai...