Opinion · Supreme Court of the United States
Northern Securities Co. v. United States
24 S. Ct. 436
- Type
- Opinion
- Court
- Supreme Court of the United States
- Jurisdiction
- Federal
- Date
- 1904-03-14
- Topic
- general
asserting that "Lopez stands for the proposition that Commerce Clause legislation may be unconstitutional if it directly supersedes official state action in an area of traditional state concern" | invalidating an agreement among stockholders in competing interstate railway companies to form one corporation with a controlling interest in the stock of each railway | where Justice Holmes wrote "I think it useless and undesirable, as a rule, to express dissent...." | finding illegal an appar- ently permanent profit pooling arrangement | misconstruing the rule applied by the majority | misconstruing the rule applied by the majority | dissenting opinion by Justice Holmes | characterizing railroads as “quasi-public corporations”
Citator
- Cited by
- 379 opinions
NORTHERN SECURITIES CO.v. UNITED STATES,193 U.S. 197(1904)
24 S.Ct. 436
NORTHERN SECURITIES COMPANYv. UNITED STATES.
APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE DISTRICT OF
MINNESOTA.
No. 277.
Argued December 14, 15, 1903.
Decided March 14, 1904.
HARLAN, BROWN, McKENNA and DAY, JJ.1
The combination is, within the meaning of the act of Congress of July 2, 1890, known as the Anti-Trust Act, a "trust"; but if not, it is a combination in restraint of interstate and international commerce, and that is enough to bring it under the condemnation of the act. From prior cases in this court, the following propositions are deducible and embrace this case: Although the act of Congress known as the Anti-Trust Act has no reference to the mere manufacture or production of articles or commodities within the limits of the several States, it embraces and declares to be illegal every contract, combination or conspiracy, in whatever form, of whatever nature, and whoever may be parties to it, which directly or necessarily operates in restraint of trade or commerce among the several States or with foreign nations. The act is not limited to restraints of interstate and international trade or commerce that are unreasonable in their nature, but embraces all direct restraints, reasonable or unreasonable, imposed by any combination, conspiracy or monopoly upon such trade or commerce. Railroad carriers engaged in interstate or international trade or commerce are embraced by the act. Combinations, even among private manufacturers or dealers, whereby interstate or international commerce is restrained, are equally embraced by the act. Congress has the power to establish rules by which interstate and international commerce shall be governed, and by the Anti-Trust Act has prescribed the rule of free competition among those engaged in such commerce. Every combination or conspiracy which would extinguish competition between otherwise competing railroads, engaged in interstate trade or commerce, and which would in that way restrain such trade or commerce, is made illegal by the act. The natural effect of competition is to increase commerce, and an agreement whose direct effect is to prevent this play of competition restrains instead of promotes trade and commerce. To vitiate a combination, such as the act of Congress condemns, it need notPage 199be shown that such combination, in fact, results, or will result, in a total suppression of trade or in a complete monopoly, but it is only essential to show that by its necessary operation it tends to restrain interstate or international trade or commerce, or tends to create a monopoly in such trade or commerce, and to deprive the public of the advantages that flow from free competition. The constitutional guarantee of liberty of contract does not prevent Congress from prescribing the rule of free competition for those engaged in interstate and international commerce. Under its power to regulate commerce among the several States and with foreign nations, Congress had authority to enact the statute in question.United Statesv.E.C. Knight Co.,156 U.S. 1;United Statesv.Trans-Missouri FreightAssociation,166 U.S. 290;United Statesv.Joint TrafficAssociation,171 U.S. 505;Hopkinsv.United States,171 U.S. 578;Andersonv.United States,171 U.S. 604;Addyston Pipe Steel Co. v.United States,175 U.S. 211;Montague Co. v.Lowry,193 U.S. 38. Congress may protect the freedom of interstate commerce by any means that are appropriate and that are lawful and not prohibited by the Constitution. If in the judgment of Congress the public convenience or the general welfare will be best subserved when the natural laws of competition are left undisturbed by those engaged in interstate commerce, that must be, for all, the end of the matter, if this is to remain a government of laws, and not of men. When Congress declared contracts, combinations and conspiracies in restraint of trade or commerce to be illegal, it did nothing more than apply to interstate commerce a rule that had been long applied by the several States when dealing with combinations that were in restraint of their domestic commerce. Subject to such restrictions as are imposed by the Constitution upon the exercise of all power, the power of Congress over interstate and international commerce is as full and complete as is the power of any State over its domestic commerce. No State can, by merely creating a corporation, or in any other mode, project its authority into other States, so as to prevent Congress from exerting the power it possesses under the Constitution over interstate and international commerce, or so as to exempt its corporation engaged in interstate commerce from obedience to any rule lawfully established by Congress for such commerce; nor can any State give a corporation created under its laws authority to restrain interstate or international commerce against the will of the nation as lawfully expressed by Congress. Every corporation created by a State is necessarily subject to the supreme law of the land. Whilst every instrumentality of domestic commerce is subject to state control, every instrumentality of interstate commerce may be reached and controlled by national authority, so far as to compel it to respect the rules for such commerce lawfully established by Congress.Page 200BY MR. JUSTICE BREWER.
The act of July 2, 1890, was leveled, as appears by its title, at only unlawful restraints and monopolies. Congress did not intend to reach and destroy those minor contracts in partial restraint of trade which the long course of decisions at common law had affirmed were reasonable and ought to be upheld. The general language of the act is limited by the power which each individual has to manage his own property and determine the place and manner of its investment. Freedom of action in these respects is among the inalienable rights of every citizen. A corporation, while by fiction of law recognized for some purposes as a person and for purposes of jurisdiction as a citizen, is not endowed with the inalienable rights of a natural person, but it is an artificial person, created and existing only for the convenient transaction of business. Where, however, no individual investment is involved, but there is a combination by several individuals separately owning stock in two competing railroad companies engaged in interstate commerce, to place the control of both in a single corporation, which is organized for that purpose expressly and as a mere instrumentality by which the competing railroads can be combined, the resulting combination is a direct restraint of trade by destroying competition, and is illegal within the meaning of the act of July 2, 1890. A suit brought by the Attorney General of the United States to declare this combination illegal under the act of July 2, 1890, is not an interference with the control of the States under which the railroad companies and the holding company were, respectively, organized.
THE pleadings in this action and the decree of the Circuit
Court are as follows:
PETITION.1
To the judges of the Circuit Court of the United States for the
District of Minnesota:
Now comes the United States of America, by Milton D.
Page 201
Purdy, the United States attorney for the District of Minnesota,
acting under direction of the Attorney-General of the United
States, and brings this its proceeding by way of petition against
the Northern Securities Company, a corporation organized and
existing under the laws of the State of New Jersey; the Great
Northern Railway Company, a corporation organized and existing
under the laws of the State of Minnesota; the Northern Pacific
Railway Company, a corporation organized and existing under the
laws of the State of Wisconsin; James J. Hill, a citizen of the
State of Minnesota and a resident of St. Paul, and William P.
Clough, D. Willis James, John S. Kennedy, J. Pierpont Morgan,
Robert Bacon, George F. Baker, and Daniel Lamont, citizens of the
State of New York and residents of New York City, and, on
information and belief, complains and says:
I. The defendants, the Northern Pacific Railway Company and
the Great Northern Railway Company, were, at the times
hereinafter mentioned, and now are, common carriers, employed in
the transportation of freight and passengers among the several
States of the United States and between such States
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and foreign nations, and, as such carriers so employed, were and
are engaged in trade and commerce among the several States and
with foreign nations.
II. On and prior to the 13th day of November, 1901, the
defendants, James J. Hill, William P. Clough, D. Willis James,
and John S. Kennedy, and certain other persons whose names are
unknown to the complainant, but whom it prays to have made
parties to this action when ascertained (hereinafter referred to
as James J. Hill and his associate stockholders), owned or
controlled a majority of the capital stock of the defendant, the
Great Northern Railway Company, and the defendants, J. Pierpont
Morgan and Robert Bacon (members of and representing the banking
firm of J.P. Morgan Co., of New York City), George F. Baker and
Daniel S. Lamont, and certain other persons whose names are
unknown to the complainant, but whom it prays to have made
parties to this action when ascertained (hereinafter referred to
as J. Pierpont Morgan and his associate stockholders), owned or
controlled a majority of the capital stock of the defendant, the
Northern Pacific Railway Company.
III. The Northern Pacific Railway Company and the Great
Northern Railway Company, at and prior to the doing of the acts
hereinafter complained of, owned or controlled and operated two
separate, independent, parallel, and competing lines of railway
running east and west into or across the States of Wisconsin,
Minnesota, North Dakota, Montana, Idaho, Washington, and Oregon,
the Northern Pacific system, extending from Ashland, in the State
of Wisconsin, and from Duluth and St. Paul, in the State of
Minnesota, through Helena, in the State of Montana, and Spokane,
in the State of Washington, to Seattle and Tacoma, in the State
of Washington, and Portland, in the State of Oregon, and the
Great Northern system, extending from Superior, in the State of
Wisconsin, and from Duluth and St. Paul, in the State of
Minnesota, through Spokane, in the State of Washington, to
Everett and Seattle, in the State of Washington, and to Portland,
in the State of Oregon, with a branch line to Helena, in the
State of Montana, thus furnishing
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to the public two parallel and competing transcontinental lines
connecting the Great Lakes and the Mississippi River with Puget
Sound and the Pacific Ocean. At the times mentioned, these two
railway systems, which will hereafter be referred to respectively
as the Northern Pacific system and the Great Northern system,
each of which, with its leased and controlled lines, main and
branch, aggregates over 5,500 miles in length, were the only
transcontinental lines of railway extending across the northern
tier of States west of the Great Lakes, from the Great Lakes and
the Mississippi River to the Pacific Ocean, and were then engaged
in active competition with one another for freight and passenger
traffic among the several States of the United States and between
such States and foreign countries, each system connecting at its
eastern terminals, not only with lines of railway, but with lake
and river steamers to other States and to foreign countries, and
at its western terminals with sea-going vessels to other States,
Territories, and possessions of the United States and to foreign
countries.
IV. Prior to the year 1893 the Northern Pacific system was
owned or controlled and operated by the Northern Pacific Railroad
Company, a corporation organized and existing under certain acts
and resolutions of Congress. During that year the company became
insolvent, and the line was placed in the hands of receivers by
the proper courts of the United States. While in this condition,
awaiting foreclosure and sale, and arrangement was entered into
between a majority of the bondholders of the Northern Pacific
Railroad Company and the defendant, the Great Northern Railway
Company, for a virtual consolidation of the Northern Pacific and
Great Northern systems and the placing of the practical control
of the Northern Pacific system in the hands of the defendant, the
Great Northern Railway Company. This arrangement contemplated the
sale, under foreclosure, of the property and franchises of the
Northern Pacific Railroad Company to a committee of the
bondholders, who should organize a new corporation, to be known
as the Northern Pacific Railway Company, which was to become the
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successor of the Northern Pacific Railroad Company; one-half of
the capital stock of the new company was to be turned over to the
shareholders of the defendant, the Great Northern Railway
Company, which in turn was to guarantee the payment of the bonds
of the Northern Pacific Railway Company. An agreement was to be
entered into for the exchange of traffic at intersecting and
connecting points and for the division of earnings therefrom. The
carrying out of this arrangement was defeated by the decision of
the Supreme Court of the United States in the case ofPearsall
v.The Great Northern Railway Company(which was decided March
30, 1896, and is reported in the one hundred and sixty-first
volume of the reports of said court, beginning on page 646, to
which reference is made), in which it was held that the practical
effect would be the consolidation of two parallel and competing
lines of railway, and the giving to the defendant, the Great
Northern Railway Company, a monopoly of all traffic in the
northern half of the State of Minnesota, as well as of all
transcontinental traffic north of the line of the Union Pacific,
to the detriment of the public and in violation of the laws of
the State of Minnesota.
V. Early in the year 1901 the defendants, the Great Northern
and Northern Pacific Railway companies, acting for the purpose of
promoting their joint interests, and in contemplation of the
ultimate placing of the Great Northern and Northern Pacific
systems under a common source of control, united in the purchase
of the total capital stock of the Chicago, Burlington and Quincy
Railway Company, of Illinois, giving the joint bonds of the Great
Northern and Northern Pacific Railway companies, payable in
twenty years from date, with interest at 4 per cent per annum,
for such stock, at the rate of $200 in bonds in exchange for each
$100 in stock, and in this manner purchased and acquired about
$107,000,000 of the $112,000,000 total capital stock of the
Chicago, Burlington and Quincy Railway Company, or about 98 per
cent thereof. In this manner, at the time stated, the defendants,
the Great Northern and Northern Pacific Railway companies,
secured control of the vast system of railway
Page 205
lines known as the Burlington system, about 8,000 miles in
length, extending from St. Paul, in the State of Minnesota, where
it connects with the Great Northern and Northern Pacific Railway
systems, through the States of Minnesota, Wisconsin, and
Illinois, to Chicago, in the State of Illinois, and from these
two cities through said States and through the States of Iowa,
Missouri, Nebraska, Colorado, South Dakota, Wyoming, and Montana,
to Quincy, in the State of Illinois; to Burlington and Des
Moines, in the State of Iowa; to St. Louis, Kansas City, and St.
Joseph, in the State of Missouri; to Omaha and Lincoln, in the
State of Nebraska; to Denver, in the State of Colorado; to
Cheyenne, in the State of Wyoming, and to Billings, in the State
of Montana, where it again connects with the Northern Pacific
Railway system, these States lying west of Chicago and south of
the States crossed by the Great Northern and Northern Pacific
systems, and constituting the territory occupied in part by what
is known as the Union Pacific Railway system, which has been and
is a parallel and competing system within said territory with the
said Burlington system.
VI. The attempt to turn over a controlling interest in the
stock of the Northern Pacific Railway Company to the Great
Northern Railway Company and thus effect a virtual consolidation
of the two railway systems, having thus, in the year 1896, been
defeated by a decision of the Supreme Court of the United States,
the defendants James J. Hill and his associate stockholders of
the defendant, the Great Northern Railway Company, owning or
controlling a majority of the stock of that corporation, and the
defendants J. Pierpont Morgan and his associate stockholders of
the defendant, the Northern Pacific Railway Company, owning or
controlling a majority of the stock of that corporation, acting
for themselves as such stockholders and on behalf of the said
railway companies in which they owned or held a controlling
interest, on and prior to the 13th day of November, 1901,
contriving and intending unlawfully to restrain the trade or
commerce among the several States
Page 206
and between said States and foreign countries carried on by the
Northern Pacific and Great Northern systems, and contriving and
intending unlawfully to monopolize or attempt to monopolize such
trade or commerce, and contriving and intending unlawfully to
restrain and prevent competition among said railway systems in
respect to such interstate and foreign trade or commerce, and
contriving and intending unlawfully to deprive the public of the
facilities and advantages in the carrying on of such interstate
and foreign trade or commerce theretofore enjoyed through the
independent competition of said railway systems, entered into an
unlawful combination or conspiracy to effect a virtual
consolidation of the Northern Pacific and Great Northern systems,
and to place restraint upon all competitive interstate and
foreign trade or commerce carried on by them, and to monopolize
or attempt to monopolize the same, and to suppress the
competition theretofore existing between said railway systems in
said interstate and foreign trade or commerce, through the
instrumentality and by the means following, to wit: A holding
corporation, to be called the Northern Securities Company, was to
be formed under the laws of New Jersey, with a capital stock of
$400,000,000, to which, in exchange for its own capital stock
upon a certain basis and at a certain rate, was to be turned over
and transferred the capital stock, or a controlling interest in
the capital stock, of each of the defendant railway companies,
with power in the holding corporation to vote such stock and in
all respects to act as the owner thereof, and to do whatever it
might deem necessary to aid in any manner such railway companies
or enhance the value of their stocks. In this manner, the
individual stockholders of these two independent and competing
railway companies were to be eliminated and a single common
stockholder, the Northern Securities Company, was to be
substituted; the interest of the individual stockholders in the
property and franchises of the two railway companies was to
terminate, being thus converted into an interest in the property
and franchises of the Northern Securities company. The individual
stockholders of the
Page 207
Northern Pacific Railway Company were no longer to hold an
interest in the property or draw their dividends from the
earnings of the Northern Pacific system, and the individual
stockholders of the Great Northern Railway Company were no longer
to hold an interest in the property or draw their dividends from
the earnings of the Great Northern system, but having ceased to
be stockholders in the railway companies and having become
stockholders in the holding corporation, both were to draw their
dividends from the earnings of both systems, collected and
distributed by the holding corporation. In this manner, by making
the stockholders of each system jointly interested in both
systems, and by practically pooling the earnings of both systems
for the benefit of the former stockholders of each, and by
vesting the selection of the directors and officers of each
system in a common body, to wit, the holding corporation, with
not only the power but the duty to pursue a policy which would
promote the interests, not of one system at the expense of the
other, but of both at the expense of the public, all inducement
for competition between the two systems was to be removed, a
virtual consolidation effected, and a monopoly of the interstate
and foreign commerce formerly carried on by the two systems as
independent competitors established.
VII. In pursuance of the unlawful combination or conspiracy
aforesaid, and solely as an instrumentality through which to
effect the purposes thereof, on the 13th day of November, 1901,
the defendant, the Northern Securities Company, was organized
under the general laws of the State of New Jersey, with its
principal office in Hoboken, in said State, and with an
authorized capital stock of $400,000,000. A copy of the
articles of incorporation of such company is attached to and made a part
of this petition. Among the purposes and powers designedly
inserted in said articles is the purpose and power, not only to
"purchase" and "hold" "shares of the capital stock of any other
corporation or corporations," under which said company wrongfully
claims and is exercising the power to acquire by exchange
Page 208
and hold the stock of the Northern Pacific and the Great Northern
Railway companies, but the purpose and power, while owner
thereof, "to exercise all the rights, powers, and privileges of
ownership;" that is, to vote such stock, collect the dividends
thereon, and in all respects act as a stockholder of such railway
companies; and the purpose and power "to aid in any manner any
corporation . . . of which any bonds . . . or stock are held, . . .
and to do any acts or things designed to protect, preserve,
improve, or enhance the value of any such bonds . . . or stock,"
meaning thereby to do whatever it may deem necessary to aid in
any manner the Northern Pacific and the Great Northern Railway
companies, or to preserve or enhance the value of their stocks or
bonds.
VIII. In further pursuance of the unlawful combination or
conspiracy aforesaid, and solely as an instrumentality through
which to effect the purposes thereof, on or about the 14th day of
November, 1901, the defendant the Northern Securities Company was
organized by the election of a board of directors and the
selection of a president and other officers, the defendant James
J. Hill, the president and controlling power in the management of
the defendant the Great Northern Railway Company, being chosen a
director and president thereof; and thereupon, in further
pursuance of the unlawful combination or conspiracy aforesaid,
the defendants James J. Hill and his associate stockholders of
the defendant the Great Northern Railway Company assigned and
transferred to the defendant the Northern Securities Company, a
large amount of the capital stock of the Great Northern Railway
Company, the exact amount being unknown to complainant, but
constituting a controlling interest therein, and complainant
believes a majority thereof, upon the agreed basis of exchange of
$180, par value, of the capital stock of the said Northern
Securities Company for each share of the capital stock of the
Great Northern Railway Company; and the defendants J. Pierpont
Morgan and his associate stockholders of the Northern Pacific
Railway Company assigned and transferred to the defendant the
Northern Securities Company a
Page 209
large majority of the capital stock of the defendant the Northern
Pacific Railway Company, the exact amount being unknown to
complainant, upon the agreed basis of exchange of $115, par
value, of the capital stock of the said Northern Securities
Company for each share of the capital stock of the Northern
Pacific Railway Company; and thereafter, in further pursuance of
the unlawful combination or conspiracy aforesaid, the defendant,
the Northern Securities Company, offered to the stockholders of
the defendant railway companies to issue and exchange its capital
stock for the capital stock of such railway companies, upon the
basis of exchange aforesaid, no other consideration being
required. In further pursuance of the unlawful combination or
conspiracy aforesaid the defendant the Northern Securities
Company has acquired an additional amount of the stock of the
defendant railway companies, issuing in lieu thereof its own
stock upon the basis of exchange aforesaid, and is now holding,
as owner and proprietor, substantially all of the capital stock
of the Northern Pacific Railway Company and, as complainant
believes and charges, a majority of the capital stock of the
Great Northern Railway Company, but if not a majority, at least a
controlling interest therein, and is voting the same and is
collecting the dividends thereon, and in all respects is acting
as the owner thereof in the organization, management, and
operation of said railway companies, and in the receipt and
control of their earnings, and will continue to do so, unless
restrained by the order of this court. By reason whereof a
virtual consolidation under one ownership and source of control
of the Great Northern and Northern Pacific Railway systems has
been effected, a combination or conspiracy in restraint of the
trade or commerce among the several States and with foreign
nations formerly carried on by the defendant railway companies
independently and in free competition one with the other has been
formed and is in operation, and the defendants are thereby
attempting to monopolize, and have monopolized, such interstate
and foreign trade or commerce, to the great and irreparable
damage of the people of the United
Page 210
States, in derogation of their common rights, and in violation of
the act of Congress of July 2, 1890, entitled "An act to protect
trade and commerce against unlawful restraints and monopolies."
IX. If the defendant the Northern Securities Company has not
acquired a large majority of the capital stock of the defendant
the Great Northern Railway Company, it is because the individual
defendants named, and their associates in the combination or
conspiracy charged in this petition, or some of them, since it
became apparent that the legality of their corporate device for
the merger of the stock of competing railway companies, through
the instrumentality of a central or holding corporation, would be
assailed in the courts, have purposely withheld, or caused to be
withheld, a large amount of the capital stock of said railway
company from transfer for the stock of the Northern Securities
Company, and have purposely discouraged and prevented the
transfer and exchange of such stock for the stock of the Northern
Securities Company, all for the purpose of concealing the real
scope and object of the unlawful combination or conspiracy
aforesaid, and of deceiving and misleading the state and Federal
authorities, and of furnishing a ground for the defence that the
Northern Securities Company does not hold a clear majority of the
stock of the Great Northern Railway Company. The complainant
avers that such stock, so withheld or not transferred to the
Northern Securities Company, is now in the hands of some person
or persons (unknown to the complainant) friendly to and under the
influence of the individual defendants named and their associates
aforesaid, or some of them, and will either not be voted, or be
voted in harmony with the Great Northern stock held by the
Northern Securities Company, until the question of the legality
of this corporate device for merging competing railway lines
shall be finally and judicially determined, when such stock will
either be turned over to the Northern Securities Company or
continue to be held and voted outside said company but in harmony
with the Great Northern
Page 211
stock held and voted by it, as may at the time seem advisable.
X. In further pursuance of the unlawful combination or
conspiracy aforesaid, the Northern Securities Company (subject,
it may be, to the condition stated in the next preceding
paragraph) is about to and will, unless restrained by the order
of this court, receive and acquire, and hereafter hold and
control as owner and proprietor, substantially all of the capital
stock of the defendant railway companies, issuing in lieu thereof
its own capital stock to the full extent of the authorized issue,
of which, upon the basis of exchange aforesaid, the former
stockholders of the Great Northern Railway Company have received
or will receive and hold about 55 per cent thereof, the balance
going to the former stockholders of the Northern Pacific Railway
Company.
XI. No consideration whatever has existed, or will exist, for
the transfer as aforesaid of the stock of the defendant railway
companies from their stockholders to the Northern Securities
Company, other than the issue of the stock of the Northern
Securities Company to them in exchange therefor, for the purpose,
after the manner, and upon the basis aforesaid.
The defendant, the Northern Securities Company, was not
organized in good faith to purchase and pay for the stocks of the
Great Northern and the Northern Pacific Railway companies. It was
organized solely to incorporate the pooling of the stocks of said
companies and to carry into effect the unlawful combination or
conspiracy aforesaid. The Northern Securities Company is a mere
depositary, custodian, holder, and trustee of the stocks of the
Great Northern and the Northern Pacific Railway companies, and
its shares of stock are but beneficial certificates issued
against said railroad stocks to designate the interest of the
holders in the pool. The Northern Securities Company does not
have and never had any capital sufficient to warrant such a
stupendous operation. Its subscribed capital was but $30,000, and
its authorized capital stock of $400,000,000 is just sufficient,
when all issued, to
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represent and cover the exchange value of substantially the
entire stock of the Great Northern and Northern Pacific Railway
companies, upon the basis and at the rate agreed upon, which is
about $122,000,000 in excess of the combined capital stock of the
two railway companies taken at par.
XII. If the Government fails to prevent the carrying out of
the combination or conspiracy aforesaid, and the defendant, the
Northern Securities Company, is permitted to receive and hold and
act as owner of the stock of the Northern Pacific and Great
Northern Railway companies as aforesaid, not only will a virtual
consolidation of two competing transcontinental lines, with the
practical pooling of their earnings, be effected, and a monopoly
of the interstate and foreign commerce formerly carried on by
them as competitors be created, and all effective competition
between such lines in the carrying of interstate and foreign
traffic be destroyed, but thereafter, to all desiring to use it,
an available method will be presented, whereby, through the
corporate scheme or device aforesaid, the act of Congress of July
2, 1890, entitled "An act to protect trade and commerce against
unlawful restraints and monopolies," may be circumvented and set
at naught, and all transcontinental lines, indeed the entire
railway systems of the country, may be absorbed, merged, and
consolidated, thus placing the public at the absolute mercy of
the holding corporation.
XIII. In furtherance of the purpose and object of the unlawful
combination or conspiracy aforesaid to monopolize or attempt to
monopolize the trade or commerce among the several States, and
between such States and foreign countries, formerly carried on in
free competition by the defendants, the Northern Pacific and
Great Northern Railway companies, and to place a restraint
thereon, the individual defendants named and their associate
stockholders of the defendant railway companies, have combined or
conspired with one another and with other persons (whose names
are unknown to the complainant, but whom it prays to have made
parties to this action when ascertained) to use and employ, in
addition to the corporate scheme
Page 213
or device aforesaid, and in aid thereof, various other schemes,
devices, and instrumentalities, the precise details of which are
at present unknown to the complainant but will be laid before the
court when ascertained, by means of which, unless prevented by
the order of this court, the object and purpose of the unlawful
combination or conspiracy aforesaid may and will be accomplished.
PRAYER.
In consideration whereof, and inasmuch as adequate relief in
the premises can only be obtained in this court, the United
States of America prays your honors to order, adjudge, and decree
that the combination or conspiracy hereinbefore described is
unlawful, and that all acts done or to be done in carrying it out
are in derogation of the common rights of all the people of the
United States and in violation of the act of Congress of July 2,
1890, entitled "An act to protect trade and commerce against
unlawful restraints and monopolies," and that the defendants and
each and every one of them, and their officers, directors,
stockholders, agents, and servants, and each and every one of
them, be perpetually enjoined from doing any act in pursuance of
or for the purpose of carrying out the same, and, in addition,
that the several defendants be respectively enjoined as follows:
First. That the defendant, the Northern Securities Company,
its stockholders, officers, directors, executive committee, and
its agents and servants, and each and every one of them, be
perpetually enjoined from purchasing, acquiring, receiving,
holding, voting (whether by proxy or otherwise), or in any manner
acting as the owner of any of the shares of the capital stock of
either the Northern Pacific Railway Company or the Great Northern
Railway Company; and that a mandatory injunction may issue
requiring the Northern Securities Company to recall and cancel
any certificates of stock issued by it in purchase of or in
exchange for any of the shares of the capital stock of
Page 214
either of said railway companies, surrendering in return therefor
to the holders thereof the certificates of stock in the
respective railway companies in lieu of which they were issued.
Second. That the defendant, the Northern Pacific Railway
Company, its stockholders, officers, directors, agents, and
servants, and each and every one of them, be perpetually enjoined
from in any manner recognizing or accepting the Northern
Securities Company as the owner or holder of any shares of its
capital stock, and from permitting such company to vote such
stock, whether by proxy or otherwise, and from paying any
dividends upon such stock to said company or its assigns, unless
authorized by this court, and from recognizing as valid any
transfer, mortgage, pledge, or assignment by such company of such
stock, unless authorized by this court.
Third. That the defendant, the Great Northern Railway Company,
its stockholders, officers, directors, agents, and servants, and
each and every one of them, be perpetually enjoined from in any
manner recognizing or accepting the Northern Securities Company
as the owner or holder of any shares of its capital stock, and
from permitting such company to vote such stock, whether by proxy
or otherwise, and from paying any dividends upon such stock to
said company or its assigns, unless authorized by this court, and
from recognizing as valid any transfer, mortgage, pledge, or
assignment by such company of such stock unless authorized by
this court.
Fourth. That the individual defendants named, and their
associate stockholders, and each and every stockholder of either
of said railway companies who has exchanged his stock therein for
the stock of the Northern Securities Company, be each,
respectively, perpetually enjoined from in any manner holding,
voting, or acting as the owner of any of the stock of the
Northern Securities Company, issued in exchange for the stock of
either of the said railway companies, unless authorized by this
court; and that a mandatory injunction may issue requiring each
of the said defendants to surrender any stock of the Northern
Securities Company so acquired and held by him, and accept
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therefor the stock of the defendant railway company in exchange
for which the same was issued.
Fifth. That the individual defendants named, and their
associate stockholders, and each and every person combining or
conspiring with them, as charged in Paragraph XIII hereof, and
their trustees, agents, and assigns, present or future, and each
and every one of them, be perpetually enjoined from doing any and
every act or thing mentioned in said paragraph, or in furtherance
of the combination or conspiracy described therein, or intended
or tending to place the capital stock of the defendant railway
companies, or the competing railway systems operated by them, or
the competitive interstate or foreign trade or commerce carried
on by them, under the control, legal or practical, of the
defendant, the Northern Securities Company, or of any person or
persons, or association or corporation, acting for or in lieu of
said company, in the carrying out of the unlawful combination or
conspiracy described in said paragraph.
The United States prays for such other and further relief as
the nature of the case may require and the court may deem proper
in the premises.
To the end, therefore, that the United States of America may
obtain the relief to which it is justly entitled in the premises,
may it please your honors to grant unto it writs of subpoena
directed to the said defendants, the Northern Securities Company,
the Northern Pacific Railway Company, the Great Northern Railway
Company, James J. Hill, William P. Clough, D. Willis James, and
John S. Kennedy, and their associate stockholders of the Great
Northern Railway Company, as their names may become known to
complainant and the court be advised thereof, J. Pierpont Morgan,
Robert Bacon, George F. Baker, and Daniel S. Lamont, and their
associate stockholders of the Northern Pacific Railway Company,
as their names may become known to complainant and the court be
advised thereof, and the persons referred to in Paragraph XIII
hereof, as their names may become known to complainant and the
court be advised thereof, and to each of them, commanding them, and
Page 216
each of them, to appear herein and answer (but not under oath)
the allegations contained in the foregoing petition, and abide by
and perform such order or decree as the court may make in the
premises; and that, pending the final hearing of this case, a
temporary restraining order may issue enjoining the defendants
and their associates, and each of them, and their stockholders,
directors, officers, agents, and servants as hereinbefore prayed.
The petition was signed and verified by Milton D. Purdy,
Attorney of the United States for the District of Minnesota, and
also signed by Philander C. Knox, Attorney-General of the United
States, and John K. Richards, Solicitor-General of the United
States.
Annexed to the petition as an exhibit was the charter of the
Northern Securities Company, as follows:
CERTIFICATE OF INCORPORATION OF NORTHERN SECURITIES COMPANY.
STATE OF NEW JERSEY,ss:
We, the undersigned, in order to form a corporation for the
purposes hereinafter stated, under and pursuant to the provisions
of the act of the legislature of the State of New Jersey entitled
"An act concerning corporations" (revision of 1896), and the acts
amendatory thereof and supplemental thereto, do hereby certify as
follows:
First. The name of the corporation is Northern Securities
Company.
Second. The location of its principal office in the State of
New Jersey is at No. 51 Newark street, in the city of Hoboken,
county of Hudson. The name of the agent therein, and in charge
thereof, upon whom process against the corporation may be served,
is Hudson Trust Company. Such office is to be the registered
office of the corporation.
Third. The objects for which the corporation is formed are:
(1) To acquire by purchase, subscription, or otherwise, and to
hold as investment, any bonds or other securities or evidences of
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indebtedness, or any shares of capital stock created or issued by
any other corporation or corporations, association or
associations, of the State of New Jersey, or of any other State,
Territory, or country.
(2) To purchase, hold, sell, assign, transfer, mortgage,
pledge, or otherwise dispose of any bonds or other securities or
evidences of indebtedness created or issued by any other
corporation or corporations, association or associations, of the
State of New Jersey, or of any other State, Territory, or
country, and while owner thereof to exercise all the rights,
powers, and privileges of ownership.
(3) To purchase, hold, sell, assign, transfer, mortgage,
pledge, or otherwise dispose of shares of the capital stock of
any other corporation or corporations, association or
associations, of the State of New Jersey, or of any other State,
Territory, or country, and while owner of such stock to exercise
all the rights, powers, and privileges of ownership, including
the right to vote thereon.
(4) To aid in any manner any corporation or association of
which any bonds or other securities or evidences of indebtedness
or stock are held by the corporation, and to do any acts or
things designed to protect, preserve, improve, or enhance the
value of any such bonds or other securities or evidences of
indebtedness or stock.
(5) To acquire, own, and hold such real and personal property
as may be necessary or convenient for the transaction of its
business.
The business or purpose of the corporation is from time to
time to do any one or more of the acts and things herein set
forth.
The corporation shall have power to conduct its business in
other States and in foreign countries, and to have one or more
offices out of this State, and to hold, purchase, mortgage, and
convey real and personal property out of this State.
Fourth. The total authorized capital stock of the corporation
is four hundred million dollars ($400,000,000), divided into
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four million (4,000,000) shares of the par value of one hundred
dollars ($100) each. The amount of the capital stock with which
the corporation will commence business is thirty thousand
dollars.
Fifth. The names and post-office addresses of the
incorporators, and the number of shares of stock subscribed for
by each (the aggregate of such subscriptions being the amount of
capital stock with which this company will commence business),
are as follows:
----------------------------------------------------------------------------
Name and post-office address | Number of
| shares.
— --------------------------------------------------------------|-----------
George F. Baker, jr., 258 Madison avenue, New York, N.Y. ...... | 100
Abram M. Hyatt, 214 Allen avenue, Allenhurst, N.J. ............ | 100
Richard Trimble, 53 East Twenty-fifth street, New York, N.Y. .. | 100
----------------------------------------------------------------------------
Sixth. The duration of the corporation shall be perpetual.
Seventh. The number of directors of the corporation shall be
fixed from time to time by the by-laws; but the number, if fixed
at more than three, shall be some multiple of three. The
directors shall be classified with respect to the time for which
they shall severally hold office by dividing them into three
classes, each consisting of one-third of the whole number of the
board of directors. The directors of the first class shall be
elected for a term of one year, the directors of the second class
for a term of two years, and the directors of the third class for
a term of three years; and at each annual election the successors
to the class of directors whose term shall expire in that year
shall be elected to hold office for the term of three years, so
that the term of office of one class of directors shall expire in
each year.
In case of any increase of the number of the directors the
additional directors shall be elected as may be provided in the
by-laws, by the directors or by the stockholders at an annual or
special meeting, and one-third of their number shall be elected
for the then unexpired portion of the term of the directors of
the first class, one-third of their number for the unexpired portion
Page 219
of the term of the directors of the second class, and one-third
of their number for the unexpired portion of the term of the
directors of the third class, so that each class of directors
shall be increased equally.
In case of any vacancy in any class of directors through
death, resignation, disqualification, or other cause, the
remaining directors, by affirmative vote of a majority of the
board of directors, may elect a successor to hold office for the
unexpired portion of the term of the director whose place shall
be vacant, and until the election of a successor.
The board of directors shall have power to hold their meetings
outside the State of New Jersey at such places as from time to
time may be designated by the by-laws, or by resolution of the
board. The by-laws may prescribe the number of directors
necessary to constitute a quorum of the board of directors, which
number may be less than a majority of the whole number of the
directors.
As authorized by the act of the legislature of the State of
New Jersey passed March 22, 1901, amending the seventeenth
section of the act concerning corporations (revision of 1896),
any action which theretofore required the consent of the holders
of two-thirds of the stock at any meeting after notice to them
given, or required their consent in writing to be filed, may be
taken upon the consent of, and the consent given and filed by,
the holders of two-thirds of the stock of each class represented
at such meeting in person or by proxy.
Any officer elected or appointed by the board of directors may
be removed at any time by the affirmative vote of a majority of
the whole board of directors. Any other officer or employe of the
corporation may be removed at any time by vote of the board of
directors, or by any committee or superior officer upon whom such
power of removal may be conferred by the by-laws or by vote of
the board of directors.
The board of directors, by the affirmative vote of a majority
of the whole board, may appoint from the directors an executive
committee, of which a majority shall constitute a quorum,
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and to such extent as shall be provided in the by-laws such
committee shall have and may exercise all or any of the powers of
board of directors, including power to cause the seal of the
corporation to be affixed to all papers that may require it.
The board of directors may appoint one or more
vice-presidents, one or more assistant treasurers, and one or
more assistant secretaries, and, to the extent provided in the
by-laws, the persons so appointed, respectively, shall have and
may exercise all the powers of the president, of the treasurer,
and of the secretary, respectively.
The board of directors shall have power from time to time to
fix and determine and to vary the amount of the working capital
of the corporation; to determine whether any, and if any, what
part of any accumulated profits shall be declared in dividends
and paid to the stockholders; to determine the time or times for
the declaration and payment of dividends, and to direct and to
determine the use and disposition of any surplus or net profits
over and above the capital stock paid in; and in its discretion
the board of directors may use and apply any such surplus or
accumulated profits in purchasing or acquiring its bonds or other
obligations, or shares of the capital stock of the corporation to
such extent and in such manner and upon such terms as the board
of directors shall deem expedient; but shares of such capital
stock so purchased or acquired may be resold, unless such shares
shall have been retired for the purpose of decreasing the capital
stock of the corporation to the extent authorized by law.
The board of directors, from time to time shall determine
whether and to what extent, and at what times and places and
under what conditions and regulations, the accounts and books of
the corporation, or any of them, shall be open to the inspection
of the stockholders, and no stockholders shall have any right to
inspect any account or book or document of the corporation except
as conferred by statute of the State of New Jersey, or authorized
by the board of directors or by a resolution of the stockholders.
Page 221
The board of directors may make by-laws, and from time to time
may alter, amend, or repeal any by-laws; but any by-laws made by
the board of directors may be altered or repealed by the
stockholders at any annual meeting or at any special meeting,
provided notice of such proposed alteration or repeal be included
in the notice of the meeting.
In witness whereof we have hereunto set our hands and seals
the 12th day of November, 1901.
Signed, sealed and acknowledged by Geo. F. Baker, Jr., Abram
M. Hyatt and Richard Trimble.
The answer of the Northern Securities Company to the petition
of the United States of America, was as follows:
I. This defendant admits and avers that the defendant railway
companies were, at the time mentioned in the petition, and are
now common carriers employed in transportation of freight and
passengers within and among those States of the United States in
which the railway operated by them are situated, and not further
or otherwise, but were and are engaged in commerce among the
several States and with foreign nations.
II. This defendant admits that, on and prior to November 13,
1901, the capital stock of the defendant railway companies was
owned and controlled by their respective shareholders, and it
avers, on information and belief, that the outstanding capital
stock of the Great Northern Railway Company was owned by more
than eighteen hundred (1,800) separate owners, and the
outstanding capital stock of the Northern Pacific Railway Company
was owned by more than thirty-five hundred (3,500) separate
owners; and that among the shareholders of the Great Northern
Railway Company (hereinafter called the Great Northern Company)
were the defendants Hill, Clough, James, Morgan, and Kennedy; and
that among the shareholders of the Northern Pacific Railway
Company (hereinafter called the Northern Pacific Company) were
the defendants Morgan, Bacon, Baker, Hill, Kennedy, James, and
Lamont. It avers that the persons named and meant to be
designated in the petition
Page 222
as owning, controlling, or as being associated in the ownership
and control of a majority of the stock of the Great Northern
Company, did not at any time, nor in any manner, own or control a
majority of said stock, nor as much as one-third (1/3) part
thereof. Their holdings in said stock were at all times separate
and individual, and not in association with each other, or with
any other person or persons, and neither of them was under any
obligation or promise to any of the others, or to any other
person, to hold, use, or vote his stock otherwise than as he
should, from time to time, determine to be best for his own
individual interest. The persons named and meant to be designated
in the petition as owning, controlling, or as being associated in
the ownership and control of a majority of the stock of the
Northern Pacific Company, did not, at the date named, nor at any
time, or in any manner, own or control a majority of such stock,
nor as much as one-third (1/3) part thereof. Their holdings in
said stock were at all times separate and individual, and neither
of them had any control of the holdings of the other, or of any
other person or persons, and neither of them was under any
promise of obligation to the other, or to any person, to hold,
use or vote his stock otherwise than as he should, from time to
time, determine to be best for his own individual interest.
Except as herein admitted and averred, this defendant denies
each and every allegation of subdivision II of the petition.
III. This defendant admits that the Northern Pacific Company
owned and operated a railway from Ashland, in Wisconsin, via
Duluth, and from St. Paul, across Minnesota, North Dakota,
Montana, Idaho, and Washington, and into Oregon, passing through
Helena, in the State of Montana, and Spokane, in the State of
Washington, and extending to Tacoma and Seattle in Washington,
and to Portland in Oregon; and that the Great Northern Company
operated lines of railway extending from St. Paul, in the State
of Minnesota, across said State and North Dakota, Montana, Idaho,
and Washington to Everett and Seattle in Washington, passing
through Spokane in that State.
Page 223
It admits that the said lines so operated by said companies
connected with other railway lines, and that, either directly or
by means of such other railway lines, they connected with lines
of steamships on the Great Lakes and the ocean; and that the
mileage operated by said companies aggregated about fifty-five
hundred (5,500) miles for the Northern Pacific Company and about
forty-one hundred and twenty-eight (4,128) miles for the Great
Northern Company.
It denies that the lines operated by said companies are
parallel or competing, except for the short distances and to the
limited extent hereinafter mentioned, and denies that said
companies were engaged in active competition with each other,
except in the manner and to the extent hereinafter stated.
Except as hereinabove and hereinafter stated, it denies each
and every allegation in subdivision III of said petition.
IV. This defendant admits and avers that prior to 1893 those
portions, and those portions only, of the lines of the Northern
Pacific Company which had been built and were operated by virtue
of the act of Congress incorporating the Northern Pacific
Railroad Company, approved July 2, 1864, were owned and operated
by the last-named company, and that in the year 1893 that company
became insolvent and its lines passed into the hands of receivers
appointed by various Federal courts.
It admits that while in this condition a contract was made, as
set forth in the report of thePearsallcase, referred to in
the petition. It avers that said contract was made under and in
conformity with the provisions of the act of incorporation of the
Great Northern Company, and that the only objection made to the
validity of the contract was that the provisions in said charter
under which it was made had been repealed by subsequent general
laws of the State. It denies that the case, or that the decision
therein, is correctly stated in the petition. And it avers that
neither the said contract nor the issues raised and decided in
the said case have any relevancy to the matters in controversy in
this case.
V. This defendant admits and avers that in the winter and
Page 224
spring of 1901 the defendant railway companies, for the purpose
of promoting their several interests and the interests of the
country traversed by their lines and by those of the Chicago,
Burlington and Quincy Railroad Company, purchased in equal parts
the stock of the last-named company to the amount and at the
price and upon the terms of payment stated in the petition. It
admits that the lines operated by the Chicago, Burlington and
Quincy Railroad Company and its connections are substantially as
stated in the petition. It denies that what is called in the
petition the Burlington system was or is parallel to or competing
with what is therein called the Union Pacific system, but admits
that some of the lines of each system compete with some lines of
the other.
It denies that said purchase of stock was made in
contemplation of the ultimate placing of the Great Northern and
Northern Pacific systems under a common source of control, or
that it was made for any other motive or with any other purpose
than as hereinafter stated.
Except as herein admitted, it denies each and every allegation
in subdivision V of the petition.
VI. This defendant denies that prior to its organization the
defendants James J. Hill or J. Pierpont Morgan, or said Hill and
Morgan, or any persons associated with them, or either of them,
owned or controlled a majority of, or held a controlling interest
in, the stock of either of said railway companies.
It denies that said persons, or that any of the persons
concerned in its organization, contrived or intended any of the
things alleged in subdivision VI of the petition or entered into
any agreement or conspiracy to do any of the things charged in
said subdivision.
It admits and avers that said James J. Hill and other holders
(not exceeding ten in number) of the stock of the Great Northern
Company, but not including the defendants Morgan, Bacon, or
Lamont, did plan its organization with an authorized capital of
four hundred million dollars ($400,000,000) for the purposes, and
those only, set forth in its certificate of incorporation.
Page 225
It denies that James J. Hill and J.P. Morgan agreed between
themselves, or with other stockholders of either of the defendant
railway companies, or with either of said railway companies, or
with anyone whomsoever, that a controlling interest of the stock
of either of said railway companies should be turned over or
transferred to this defendant, whether in exchange for its stock
or otherwise.
It denies that any of the matters stated in said subdivision
VI of the petition were contemplated or intended, or have
resulted, or will result, from its formation and operation. And
it denies the allegation that it is the duty of the directors of
said railway companies to pursue a policy which will promote the
interest of both systems at the expense of the public.
It alleges that the motives and intentions of the persons so
forming this defendant were and are such, and such only, as are
in this answer stated, and it denies each and every allegation in
subdivision VI of the petition not herein expressly admitted or
specifically denied.
VII. This defendant admits its formation under the laws of New
Jersey, with the articles, a copy of which is attached to the
petition, and that the provisions of said articles were
designedly inserted therein and were fully authorized by the
general corporation laws of that State. And it says that the
exercise of the powers of a stockholder provided for in said
articles was not, as wrongly stated in the petition, confined to
the stock of the defendant railway companies which this defendant
might hold. It avers that the clause in said articles, partially
quoted in paragraph VII of the petition, was not intended to, and
does not, enlarge its powers, as the same are set forth in the
preceding clauses of said articles, but makes clear its power to
do such acts as making or procuring advances of money to any
corporation whose securities are held by it, the indorsement or
guaranty by it of the obligations of such corporation, becoming
surety therefor, or in any lawful manner using its name or
resources in aid of such corporation.
VIII. This defendant admits and avers that on or about the
Page 226
14th day of November, 1901, its directors and officers were
elected, and among them the defendant James J. Hill as a director
and president, but denies that he was or is the controlling power
in the management of the Great Northern Company.
It admits and avers that thereafter the defendant James J.
Hill and other stockholders of the Great Northern Company,
severally and each acting for himself alone, and without any
agreement to that effect with any other stockholder, sold to this
defendant a large amount of Great Northern stock at one hundred
and eighty dollars ($180) per share in exchange for stock of this
defendant at par, but it avers that the stock so sold was not
within twenty-six million dollars ($26,000,000) of a majority of
the stock of the Great Northern Company.
It admits and avers that thereafter and about November 22,
1901, it offered like terms of purchase to the other shareholders
of the Great Northern Company, the offer to hold good for sixty
days from its date, and that many of the shareholders of that
company, each acting for himself alone, accepted such offer and
made such sale.
It admits and avers that the defendant J.P. Morgan and other
shareholders of the Northern Pacific Company sold to the
defendant a majority of the stock of the Northern Pacific
Company; and that this defendant has received such dividends as
have been paid on the shares held by it, in the same manner and
at the same rate as other shareholders; but it denies that it has
acted, whether as owner of stock or otherwise, in the management
or direction of either of said railway companies or in receipt or
control of the earnings of either of them, and it avers that no
change whatever has taken place in the management of the said
railway companies, or either of them, and that each of them is
managed by the same board of directors and officers as existed
before the organization of this defendant.
It denies that any of the things done by the defendants James
J. Hill and J. Pierpont Morgan, or by either of them, or by this
defendant or its promoters, directors, officers, or stockholders,
or any of them, were done in pursuance of the pretended
Page 227
combination or conspiracy alleged in subdivision VIII of the
petition, or as an instrumentality to effect the purposes
thereof, and it denies that by reason of the matters or any of
them in the petition alleged a virtual or any consolidation of
said defendant railway companies or their business has been
effected or intended; and it denies any conspiracy or combination
in restraint of trade or commerce among the States, or with
foreign nations, or that the defendants or any of them are
attempting or intending to monopolize or restrain any such trade
or commerce.
IX. It denies each and every allegation in subdivision IX of
the petition.
X. This defendant says that it does not know and cannot set
forth how much additional stock of either defendant railway
company it is likely to acquire, since each acquisition of shares
by it depends, among other contingencies, on the willingness of
the holders of the said stock to sell it upon terms which this
defendant may be willing to accept.
XI. This defendant says it has bought and paid for and has
caused to be transferred to it upon the records of the Great
Northern Company, in accordance with the by-laws of that company,
about five-twelfths (5/12) of the shares of that company's stock;
and has also negotiated for, but has not yet caused to be
presented to the Great Northern Company for transfer upon its
records, other shares of the stock of that company aggregating
about four-twelfths (4/12) of the total amount of its stock, but
has not acquired a right to vote as stockholder of the Great
Northern Company on stock not so transferred. This defendant, in
acquiring shares of the Great Northern Company and of the
Northern Pacific Company, dealt solely with the separate owners
of the said shares in their respective individual capacities. It
has no knowledge of any agreement, promise, or understanding
between any of the holders of said stock concerning the sale
thereof to it, and it denies that any such agreement, promise, or
understanding was ever made. All the sales and transfers of the
said stock to this defendant
Page 228
were absolute and without any reservation of any right or
interest in any share thereof to the seller or to any other
person.
This defendant has not paid for all the stock of the Great
Northern Company and of the Northern Pacific Company acquired by
it in shares of its own stock, but, on the contrary, has expended
upward of forty million dollars ($40,000,000) cash in the making
of such purchases. Every share of the Great Northern Company and
the Northern Pacific Company acquired by this defendant has been,
and so long as it remains the property of this defendant will
continue to be, held and owned by it in its own right, and not
under any agreement, promise, or understanding on its part, or on
the part of its stockholders or officers, that the same shall be
held, owned, or kept by it for any period of time whatever, or
under any agreement that in any manner restricts its right and
power immediately to sell or otherwise dispose of the same, or
that restricts or controls to any extent any use of the same,
which might lawfully be exercised by any other owner of said
stocks. There has been and is no agreement, promise, or
understanding between any of the holders of said stock so
acquired by this defendant, or between any of them and any other
person or corporation, that any of said shares should at any time
be held, used, or voted by this defendant for the purpose of
combining or consolidating or placing under one common management
or control the railways of the Great Northern Company and of the
Northern Pacific Company, or the business thereof, or for the
purpose of monopolizing or restraining traffic or competition
between the said railways. Many stockholders of the said
companies have not sold, and may never sell, their shares to this
defendant; and the said railway companies have not nor have any
of the directors of either of them, by any act, formal or
informal, or by suggestion, ever solicited any of their
respective shareholders to sell their shares to this defendant.
This defendant was organized in good faith, and it denies all the
allegations in subdivision XI of the petition.
Page 229
XII. This defendant denies each and every allegation in
subdivision XII of the petition.
XIII. This defendant denies each and every allegation in
subdivision XIII of the petition.
SECOND.
Further answering the petition, this defendant, upon
information and belief, says that the facts as to the purchase of
the shares of the Chicago, Burlington and Quincy Railroad Company
(hereinafter called the Burlington Company) and the planning and
forming of this defendant and the motives, intentions, and
purposes of the persons and corporations concerned in these
enterprises, or either of them, were not as erroneously stated in
the petition, but were and are as follows:
I. When projecting the line of the Great Northern Company to
the Pacific coast, that company and its directors contemplated
the necessity of creating for the line not merely State and
interstate, but an international commerce. Nearly all the country
traversed or reached by the line was then but sparsely settled or
not settled at all. It was principally agricultural, grazing, or
timber land, with mineral deposits in the mountain ranges
believed to be large and valuable, but not developed or explored.
Whatever commodities the region might furnish for carriage would
be raw material, of great weight and bulk in proportion to its
value, which would not bear transportation to market except at a
low mileage rate, such as could be made possible only by every
practical reduction in the cost of transportation. The available
market for all such products was far from the places of
production.
In Washington and Oregon are the largest and finest bodies of
standing timber in the United States, the best market for which
is in the prairie States of the Mississippi Valley east of the
Rocky Mountains; but the lumber and shingles from the Pacific
coast would not bear the cost of transportation to those States
if the cars carrying them had to be hauled back empty, or nearly
so, for a distance of from 1,500 to 2,000 miles. And
Page 230
the same is true of the other products. On the other hand, the
unoccupied or sparsely populated country along the line, or
reached by it, could not furnish a market for commodities enough
to load the returning cars; the result being that unless the
company could secure traffic for carriage beyond the Pacific
coast no great traffic either way could exist or be created.
To meet these conditions the Great Northern Company not only
went to great additional expense in the construction of its line
to obtain gradients lower than those of any other line to the
Pacific coast, but also made great efforts to create and increase
in the countries of eastern Asia a demand for the products of
this country; and soon after the completion of its railway in
1893 it induced a Japanese company to run a line of steamships,
connecting with its railway, on the route between Seattle and
ports of Japan, China, and Russian Siberia, and succeeded in
creating and has since been actively engaged in building up a
commerce in which the flour manufactured along its line, cotton
(both raw and manufactured), iron and steel (especially steel
rails and plates), machinery, and such other manufactures of this
country as a market could be found or made for in eastern Asia,
have been carried to oriental ports, and return cargoes of such
oriental products as are consumed in this country have been
brought back. A large west-bound, as well as an increased
east-bound, traffic has thus been secured by the company,
enabling it to make such rates on lumber and other products of
the country served by it as permit them to be shipped to Eastern
markets with a profit to the shippers.
One year before the Burlington purchase, this oriental traffic
had reached such proportions that the Great Northern Company
caused to be begun the construction of steamships to run from
Seattle to ports in Japan, China, and the Philippines, which,
from their great carrying capacity (being the largest in the
world), will be able to carry at very low rates (if full cargoes
can be secured), and thus enable the company to move the largest
volume of west-bound traffic (and also of east-bound traffic) at
the lowest cost.
Page 231
In the interstate and international commerce which the Great
Northern Company has thus built up, it competes both in this
country and on the ocean with the other transcontinental lines
(including the Canadian Pacific), and at the oriental ports it
competes for commerce of the world. Its rates are and must be
made in competition with the rates of ocean carriers and by way
of the Suez Canal.
The policy thus followed by the Great Northern Company in
building up an international, and thereby interstate, commerce
has been followed by the Northern Pacific Company since its
reorganization in 1896.
In creating and maintaining this competitive interstate and
international commerce both the Great Northern Company and the
Northern Pacific Company were hampered and placed at a
disadvantage with the other transcontinental railways, as well as
with European competitors, by the want of sufficient direct
connection with the territory offering the best markets for the
products of the country along their lines, and with the places of
production and great centers of distribution from which their
traffic must be supplied. For many months before the purchase of
the Burlington shares they had considered the best means of
getting closer to such markets and sources of supply. The lines
of the Burlington, better than those of any other company,
fulfilled the requirements of both the Great Northern Company and
the Northern Pacific Company in respect of markets for east-bound
and freight for west-bound traffic. The Burlington lines traverse
the treeless States of Illinois, Iowa, Missouri, Nebraska,
Wyoming, Kansas, and Colorado, which afford the best markets for
the lumber of the Pacific coast. They reach Denver, Kansas City,
Omaha, and Aurora, where are located the principal smelters of
silver-lead ores, such as are mined near the lines of the
defendant railway companies.
They reach Omaha, Kansas City, and Chicago, where are the
great packing houses and the great markets for the cattle and
sheep of the ranges of North Dakota, Montana, Wyoming, Idaho,
Oregon, and Washington.
Page 232
They reach St. Louis and Kansas City, connecting there with
lines traversing the cotton States, from which come raw and
manufactured cotton required for shipment to China and Japan.
At Chicago and St. Louis they connect with the lines which
reach the points of supply of manufactured iron, steel,
machinery, and other manufactured articles that find a market in
Japan and China.
The Burlington line southward from Minneapolis and St. Paul
along the Mississippi River reaches the great coal deposits of
southern Illinois, the largest west of Pennsylvania and West
Virginia; and its light gradients and consequent low cost of
transportation make it possible to supply such coal to points on
the lines of each defendant railway company east of the Missouri
River, relieving the people and the railways of that territory
from entire dependence upon the Pennsylvania and West Virginia
mines, the supply from which is yearly becoming more costly and
less certain.
The price paid for said Burlington stock was lower per mile of
main track covered by the stock than that for which the stock of
any other large and well established system in the same general
territory could have then been bought.
The purchase of the Burlington stock by the Northern Pacific
and Great Northern companies in equal parts served each company
as well as if it were the sole owner of such stock, while such
purchase might have been beyond the financial means of either
company by itself.
The Great Northern and Northern Pacific companies therefore
each purchased an equal number of shares of the Burlington stock
as the best means and for the sole purpose of reaching the best
markets for the products of the territory along their lines, and
of securing connections which would furnish the largest amount of
traffic for their respective roads, increase the trade and
interchange of commodities between the regions traversed by the
Burlington lines and their connections and the regions traversed
or reached by the Great Northern and Northern Pacific lines, and
by their connecting lines of shipping on
Page 233
the Pacific coast. These connections and such interchange of
traffic were deemed to be and are indispensable to the
maintenance of their business, local as well as interstate, and
to the development of the country served by their respective
lines, and of like advantage to the Burlington lines and the
country served by them, and strengthen each company in the
competition with the more southerly lines to the Pacific coast,
with the Canadian Pacific Railway, and with European carriers,
for the trade and commerce of the Orient.
In such purchase there was no purpose to lessen any
competition of the Burlington lines with those of either of the
purchasers, for they are not competitive, or to lessen any
competition between the purchasers. Such purchase was not
intended to have, and it cannot have, any such effect.
The purchase of the Burlington stock was not made in view of
the formation of this defendant, but solely from the motives and
with the purposes already stated.
II. The project of forming a holding company of any kind was
not the result, in any way, of the failure of the plan which was
defeated by the decision of the Supreme Court in thePearsall
case. There was no connection whatever between the two.
The project of a holding company which finally developed into
the formation of this defendant had its inception years before
that date, among several gentlemen, not exceeding ten in number,
who had been large shareholders in the Great Northern Company and
its predecessor, the St. Paul, Minneapolis and Manitoba Railway
Company; some of them from the original organization of the
latter company in 1879, and others from dates not long after that
time. They have never held a majority of the stock of the Great
Northern Company, but have taken an active interest in its policy
and administration; have aided it when necessary in financing its
operations; have acted together in promoting its interests; have,
with some exceptions, served from time to time as directors and
officers (Mr. Hill having been president of the successive
companies since 1882); and by reason of their active interest in
the company and services
Page 234
to it have influenced to a large degree its policy and
management. As far back as 1893, most of these gentlemen being
well advanced and some far advanced in years, they began to
discuss together what would be the effect upon the policy which
under their influence the company had pursued with great benefit
to its shareholders and the public, should their holdings by
death or otherwise become scattered, and by what means their
holdings could be kept together, so as to secure the continuance
of such policy in the management of the company. It was
considered that if a company should be formed to which they might
transfer their individual holdings, their shares were likely to
be held together, so long as the majority in the holding company
should so wish, and this would tend to give stability to the
policy of the Great Northern Company, be of aid to it in
financial operations, and maintain the value of their
investments. These conclusions were the result of various
consultations among the persons mentioned, or some of them, but
no definite agreement was made for forming such a company or
binding anyone to transfer his shares to it if formed.
From time to time, beginning with the reorganization of the
Northern Pacific Company in 1896, Mr. Hill and said other Great
Northern shareholders who had discussed with him the plan of
forming a holding company, had made large purchases of Northern
Pacific shares, individually, each for himself, without any
concerted action, and solely as investments. About May 1, 1901,
their aggregate holdings of the common stock of the Northern
Pacific Company amounted to nearly twenty million dollars
($20,000,000) of the eighty million dollars ($80,000,000) common
stock of the company, which also had a preferred stock, amounting
to seventy-five million dollars ($75,000,000), with the same
voting power as the common stock. At this time the firm of J.P.
Morgan Co. held about six million dollars ($6,000,000) of the
common stock. In the fall of 1900 Mr. Hill and said Great
Northern shareholders discussed the question of putting their
holdings of Northern
Page 235
Pacific stock into the proposed holding company, as well as the
suggestion that all the other stockholders of the Great Northern
Company should be given the opportunity of selling and
transferring their shares to the holding company, and that its
capital stock should be made large enough to enable it to buy
such holdings, though it was not known that the holders of any
considerable amount of Great Northern stock, other than those
above named, would desire to make such transfer.
At the time of the purchase of the Burlington shares it was
not contemplated by either purchasing company or its shareholders
that any alliance between the purchasing companies, or among
their shareholders, was needed to preserve to each company its
fair share of the advantages secured by the purchase. It was
thought that the manifest interest of each company rendered any
further guaranty or security needless. But pending or just after
the conclusion of the negotiations for the Burlington stock,
parties acting in the interest of the Union Pacific Railway
system did purchase Northern Pacific shares, both common and
preferred, to the amount of about seventy-eight million dollars
($78,000,000), being a clear majority of the entire capital stock
of that company. The apparent intent of such purchase was to
defeat and, if successful, it would have defeated, the carrying
out of the purposes for which the Burlington shares had been
bought by the Great Northern and Northern Pacific companies, and
the development of the interstate and international commerce of
each of them, and would have subordinated the policy of each to
an interest adverse to both the Great Northern and Northern
Pacific companies, and to the public served by their lines.
To protect the interests of the shareholders of the Northern
Pacific Company, J.P. Morgan Co. made additional purchases of
Northern Pacific common stock, which, with the holdings in said
stock of Mr. Hill and other Great Northern shareholders who had
discussed with him the plan of forming a holding company,
constituted about forty-two million dollars ($42,000,000), being
a majority of the common stock. In
Page 236
view of the injury apprehended to both companies, and to their
shareholders, and the better to protect their interests in the
future, the Great Northern shareholders holding Northern Pacific
shares, deemed it advisable that the projected holding company
should have power to purchase not only their own Great Northern
and Northern Pacific shares, but also the shares of such other
Great Northern and Northern Pacific shareholders as might wish to
sell their stock to said holding company, and the shares of
companies already formed, and others that might be formed, for
the purpose of aiding the traffic or operations of the Great
Northern and Northern Pacific companies, respectively. At this
time it was not expected by any of the persons concerned that any
Northern Pacific shares except the said forty-two million dollars
($42,000,000) would be acquired by the proposed holding company.
The organization of such company was not dependent on any
agreement that it should acquire a majority of the shares of
either defendant railway company. It would have been organized if
the Burlington purchase had not been made, and if its promoters
had had no other shares to transfer to it than the thirty-four
million dollars ($34,000,000) Great Northern stock and the twenty
million dollars ($20,000,000) Northern Pacific stock held by them
on May 1, 1901. It was not known that all or how many of the
shareholders of either of the railway companies would be likely
to transfer their shares to this defendant when formed. After its
organization this defendant bought and still holds about one
hundred and fifty million dollars ($150,000,000) of the stock of
the Northern Pacific Company; and it has also purchased and
negotiated for the purchase of the stock of the Great Northern
Company, as hereinbefore stated. Neither the said persons who
were concerned in the formation of this defendant, nor the said
persons from whom it has acquired the stocks of said railway
companies, nor this defendant itself since its formation, nor its
stockholders, directors, or officers, have planned or intended
that the stock of said railway companies acquired by this
defendant, or any part thereof, should be held, used, or voted by
Page 237
it, or by its officers, agents or proxies, for the purpose of
combining, consolidating or placing under one common management
or control the railways of the Great Northern and Northern
Pacific companies, or the business thereof; or for the purpose of
monopolizing or restraining competition between the said railway
companies; or for any other purpose than the election by each of
said railway companies of a competent and distinct board of
directors, able and intending to manage each of them
independently of the other, and for the benefit of their
shareholders and of the public. By the acts of the legislature of
the State of Minnesota incorporating the Great Northern Railway
Company, and by the acts of the legislature of the State of
Wisconsin incorporating the Northern Pacific Railway Company, it
is, in substance, provided that the business and affairs of each
railway company shall be managed by a board of directors to be
elected by the stockholders, and that all the powers of each
corporation relating to said matters shall be vested in such
board.
Every share of stock issued by this defendant has been issued
to the persons and corporations receiving the same in good faith,
for full value paid to it, either in cash or its equivalent, and
in accordance with the provisions of its articles of
incorporation and with the laws of the State of New Jersey. No
agreement, promise, or understanding has been made between this
defendant and any of its stockholders, or between its
stockholders themselves or any of them, or between said
stockholders or any other persons or corporations, that the stock
of this defendant should be held, used, or voted other than by
each stockholder, separately and individually, and in such way as
he should see fit; and there has been no agreement, promise, or
understanding between said stockholders themselves, or any of
them, or between said stockholders and any other person or
corporation, that they or any of them should use, hold, or vote
their stock in this defendant in association or for any common
purpose or object. The owners and holders of stock of this
defendant are more than thirteen hundred (1,300) in number, and
the ownership
Page 238
of the stock is being changed from day to day by sales and
transfers in the usual course of dealing. The said persons who
formed or were otherwise concerned in the formation of this
defendant have never, all together, held, owned or otherwise
controlled an amount of stock of the said company equal to so
much as one-third of the whole amount thereof now outstanding.
This defendant has no contract or obligation to purchase or
acquire any shares whatever in either railway company, in
addition to those which it has purchased or negotiated to
purchase, as above stated. Its authorized capital was fixed by
persons who planned its organization to enable it to give to each
stockholder in each of the defendant railway companies an
opportunity to sell his stock to it, should he see fit to do so,
and should this defendant desire to acquire it. The sum fixed was
deemed ample by those who planned the formation of this defendant
to furnish the means to pay for all such shares as would likely
be acquired by it, and to leave remaining a large amount to be
used for the purchase of stock in other corporations, not common
carriers, which this defendant might consider beneficial to
acquire. This defendant was not formed as a scheme or a device to
evade the act of Congress known as the "Anti-Trust Act," or any
other law whatever, but solely for the purposes hereinbefore
stated.
III. This defendant was not formed, nor did any of those
concerned in its formation, nor any of those who sold their
shares of stock to it, have any purpose or intention, to restrain
trade or commerce, or to lessen competition between said railway
companies, or to monopolize traffic in any manner whatever; nor
can any such results follow from the formation or operation of
this defendant. In point of fact, since the organization of this
defendant rates on the defendant railway companies' lines,
including rates to and from points common to both, have
voluntarily been so reduced as to decrease their earnings by
upwards of a million of dollars annually. For all interstate
commerce on the lines of either the defendant railway companies,
except traffic beginning and ending on their own lines
Page 239
respectively, the rates are fixed by joint tariffs with
connecting lines. In respect to all such traffic neither of the
defendant companies has ever had, or can have, any independent
rate-making power or control of traffic or rates. All joint
tariffs with other companies to or from points common to the
lines of the defendant railway companies have always been, and
necessarily must be, the same, whether the traffic is carried by
one or the other of said companies. The total amount of all other
interstate traffic, that is, traffic between common points on the
two roads, which is not competitive both as to rates and quality
of service with other carriers having equal rate-making power
with them, is less than 2 per cent of the total interstate
traffic of the two companies.
IV. The sale and transfer of property, whether in the form of
shares of corporate stock or otherwise, has never been adjudged
to be, and is not, in violation of the act of Congress of July 2,
1890, known as the "Anti-Trust Act."
This defendant is not a railroad company, and it has no power
to operate or manage railways or make or control rates of
transportation, nor to monopolize or restrain traffic of any
kind. So far from intending to violate any provision of said act
of Congress, the persons who were concerned in organizing this
defendant and those who have sold their shares to it had every
reason to believe and did believe that such sales were not in any
way in contravention of that act. In common with the general
public, they were aware that during the eleven years since the
passage of that act in many instances the stock of a competing
railway company has been acquired by its competitor or the
shareholders thereof, such acquisition including many of the
principal railways doing business throughout the country. This
has been done without objection from any branch of the Government
of the United States, and has invariably proven beneficial to the
railway companies concerned and to the public, and those making
sales of stocks to this defendant had no reason to believe that
such sales were open to any legal objection or question whatever.
Page 240
V. This defendant was not organized for the purpose of
acquiring a majority of the stock of either the Great Northern or
the Northern Pacific Company, but merely to purchase the stock of
those who wished to sell, as above stated, and was not organized
for the purpose of controlling railway rates in the slightest
degree, and has not had and cannot have any such effect. The
transactions referred to in the petition have consisted in the
organization of a lawful corporation and the purchase of property
by it. All acts done in relation to the organization of this
defendant and in the conduct of its business have been expressly
authorized by law, and have had no effect whatever to restrain
trade or commerce among the several States or with foreign
nations. If these lawful transactions should hereafter have any
effect to restrain trade or commerce among the several States or
with foreign nations (which is hereby denied), that effect would
be merely indirect, remote, incidental, and collateral, and not
intended, and as nothing compared with the great expansion of the
volume of interstate and international commerce which was
intended, and which this defendant believes is destined to result
from the enterprise of the two railway companies, that culminated
in the purchase of the Burlington stock.
And this defendant says:
1. The "Anti-Trust Act" was not intended to prevent or defeat
an enterprise in aid of a great competitive interstate and
international commerce merely because such enterprise may carry
with it the possibility of incidental restraint upon some
commerce, trifling both as respects territory and volume.
2. Nor was the act intended to limit the power of the several
States to create corporations, define their purposes, fix the
amount of their capital, and determine who may buy, own, and sell
their stock.
3. Otherwise construed, the act would be unconstitutional,
because:
The power to regulate commerce with foreign nations and
Page 241
among the States does not give Congress the power to regulate any
of the matters above mentioned in respect to corporations created
by the States; and because
Persons may not be deprived of their property without due
process of law, by taking from them the right to sell it as their
interest may suggest.
VI. There is a defect of necessary parties defendant, because,
as already set forth, the persons who made sales of stock of the
said railway companies to this defendant were numerous, exceeding
more than 1,300 in number, and few of them had any connection
whatever in the planning or forming of this defendant, and in
their absence from this litigation no decree can be made
affecting their rights in the premises.
VII. And this defendant denies all and all manner of unlawful
combination and confederacy wherewith it is by the said petition
charged, without this, that if there is any other matter, cause,
or thing in the petition contained material or necessary for this
defendant to make answer unto, and not herein or hereby well and
sufficiently answered, confessed, traversed, and avoided or
denied, the same is not true to the knowledge or belief of this
defendant; all of which matters and things this defendant is
ready and willing to aver, maintain, and prove as this honorable
court shall direct, and humbly prays to be hence dismissed, with
its reasonable costs and charges in this behalf most wrongfully
sustained.
Signed (no verification) for the Northern Securities Company,
by John W. Griggs and Geo. B. Young, solicitors and counsel.
A separate answer was filed by the defendants James J. Hill,
William P. Clough, D. Willis James, John S. Kennedy, and George
F. Baker, which was substantially the same as the answer of the
defendant Northern Securities Company.
The answer of the Great Northern Railway Company was
substantially the same as that of the Northern Securities Company
Page 242
with the omission of Paragraph II of the second statement of
defence.
The answer of the defendant the Northern Pacific Railway
Company was as follows:
I. This defendant admits the allegations of Paragraph I of the
petition that this defendant and the Great Northern Railway
Company were at the times mentioned in said petition and now are
common carriers employed in the transportation of freight and
passengers among the several States of the United States within
which the railways operated by them are situated.
This defendant denies each and every other allegation of
paragraph I of the petition.
II. This defendant admits the allegations of Paragraph II of
the petition that prior to November 13, 1901, the stock of this
defendant was owned and controlled by its shareholders, and that
among them were the parties in that behalf alleged.
This defendant denies any knowledge or information sufficient
to form a belief of each and every other allegation of Paragraph
II of the petition.
III. This defendant admits the allegations of Paragraph III of
the petition that this defendant at the times mentioned owned and
operated a railway extending from Ashland in Wisconsin via
Duluth, Minnesota, and from St. Paul, Minnesota, across
Minnesota, North Dakota, Montana, Idaho, and Washington, passing
through Helena, in the State of Montana, and Spokane, in the
State of Washington, and extending to Tacoma and Seattle, in
Washington, and to Portland, in Oregon; that the Great Northern
Company operated lines of railway extending from St. Paul
aforesaid across Minnesota, North Dakota, Montana, Idaho, and
Washington, passing through Spokane and extending to Everett and
Seattle, in the State last aforesaid; that the said lines
connected with other railway lines, and either directly or by
means of such other railway lines connected with lines of
steamships on the Great Lakes and the ocean, and that the mileage
operated by said companies aggregated about five thousand five
hundred miles for this defendant
Page 243
and about four thousand one hundred and twenty-eight miles for
the Great Northern Company.
This defendant denies each and every other allegation of
Paragraph III of the petition.
IV. This defendant admits the allegations of Paragraph IV of
the petition that, prior to the year 1893, a corporation known as
the Northern Pacific Railroad Company, organized and existing
under certain acts and resolutions of Congress, and which then
operated some parts of the lines of this defendant, became
insolvent and was placed in the hands of receivers appointed by
various courts of the United States; that, while in this
condition, a plan of reorganization was entered into by the
bondholders of said company, and that an arrangement was proposed
between the said bondholders and the Great Northern Company which
was never carried out. This defendant admits that a case entitled
Pearsall against the Great Northern Railway Company was decided
by the Supreme Court of the United States on March 30, 1896, and
is reported in volume 161 of the reports of said court, beginning
on page 696.
This defendant denies any knowledge or information sufficient
to form a belief of each and every other allegation of Paragraph
IV of the petition. It is informed and believes that said
paragraph is wholly irrelevant to the cause of action, if any,
stated in the petition.
V. This defendant admits the allegations in Paragraph V of the
petition that early in the year 1901 this defendant and the Great
Northern Company, acting for the purpose of promoting their
several interests, each purchased shares of stock of the Chicago,
Burlington and Quincy Railroad Company of Illinois, paying
therefor with the joint bonds of the Great Northern Company and
the Northern Pacific Company, payable in twenty years from date,
with interest at 4 per cent per annum, at the rate of $200 in
bonds for each $100 in stock, and in this manner the said
companies severally purchased and acquired each about 49 per cent
of said stock; that the lines operated by said
Page 244
Burlington Company and its connections were geographically as
stated in the petition, and that some of said lines compete with
some lines of what is called in the petition the Union Pacific
system.
This purchase was made by these defendants primarily in order
to secure a terminus in Chicago and permanent connection with the
eastern and southeastern markets, which are especially valuable
to the agricultural and mineral products of the northwest, and
also because the Burlington system serves a large and growing
territory, and the purchase was deemed desirable and profitable
in itself. It had no connection with the future formation of any
company whatsoever and was not made with intent to violate the
statute or common law of any State or of the United States, and
was not in violation of any such law.
This defendant denies each and every other allegation of
Paragraph V of the petition. It is informed and believes that
said paragraph is wholly irrelevant to the cause of action, if
any, stated in the petition.
VI. This defendant denies any knowledge or information
sufficient to form a belief of each and every allegation of
Paragraph VI of the petition.
VII. This defendant admits the allegation of Paragraph VII of
the petition, that the defendant Northern Securities Company was
heretofore organized, as it is informed and believes, under the
general laws of the State of New Jersey.
This defendant denies any knowledge or information sufficient
to form a belief of each and every other allegation of Paragraph
VII of the petition.
VIII. This defendant admits the allegations of Paragraph VIII
of the petition that the defendant, Northern Securities Company,
has purchased and now holds and owns a large majority of the
capital stock of this defendant, and that the Securities Company
has received such dividends as have been paid on any shares held
by it.
This defendant denies any knowledge or information sufficient
Page 245
to form a belief of each and every other allegation of Paragraph
VIII of the petition.
IX. This defendant denies any knowledge or information
sufficient to form a belief of each and every allegation of
Paragraph IX of the petition.
X. This defendant denies any knowledge or information
sufficient to form a belief of each and every allegation of
Paragraph X of the petition.
XI. This defendant denies each and every allegation of
Paragraph XI of the petition.
XII. This defendant denies each and every allegation of
Paragraph XII of the petition. It is informed and believes that
said paragraph consists merely of expressions of opinion, and is,
therefore, without weight in support of any cause of action.
XIII. This defendant denies any knowledge or information
sufficient to form a belief of each and every allegation of
Paragraph XIII of the petition.
XIV. As this defendant is informed and believes, the purchase
by the Northern Securities Company of shares of stock of this
defendant and the sale thereof by the owners have been expressly
authorized by law. They have had no effect whatever, in law or in
fact, in restraint or monopoly of trade or commerce among the
several States or with foreign nations. The petition does not
allege that at any place within the jurisdiction of this court or
elsewhere any such restraint or monopoly has been effected.
If these lawful transactions, consisting merely of the
purchase and sale of property, should hereafter have any effect
in restraint or monopoly of trade or commerce among the several
States or with foreign nations, that would not be their direct
effect, but would be merely indirect, remote, incidental, and
collateral, and would, therefore, not bring said transactions
within said act of Congress above mentioned. Any other
construction would render the statute unconstitutional, as beyond
the power of Congress, and as depriving the sellers of the stock
thus sold and also the stockholders of this defendant who have
not sold
Page 246
their shares to the Securities Company, of liberty and property
without due process of law, because, thus construed, it would be
an inhibition upon their right to sell their property. If
complainant's contention be sustained, the right of the owner of
property to sell the same will be dependent upon what the courts
at any future time may hold to have been the intention of the
purchaser in buying such property. This result would seriously
impair the liberty of the owner and the value of his property,
and is contrary to the constitutional guaranties thereof.
These transactions are, therefore, not within the act of
Congress above mentioned; nor has Congress any constitutional
power to annul or prohibit action thus expressly authorized by
state statutes under which the same has been or may hereafter be
taken.
XV. There is a defect of necessary parties defendant herein,
because in this suit it is sought to annul all sales of shares
made by shareholders of this defendant to the Northern Securities
Company and to cancel all certificates of stock of the latter
company issued in purchase of the same. The parties making such
sales are numerous, and many of them had no connection with the
matter save to sell their shares to the Securities Company after
its organization. It is obvious that in their absence no
adjudication can be made annulling such sales to the Securities
Company. A decree to such effect as prayed for by the petition
necessarily would deprive such original sellers of their property
without due process of law. All persons who sold shares in this
defendant to the Securities Company are, therefore, necessary
parties, and the petition is bad by reason of their absence.
XVI. And this defendant denies all and all manner of unlawful
combination and confederacy wherewith it is by the said petition
charged, without this, that if there is any other matter, cause,
or thing in the petition contained material or necessary for this
defendant to make answer unto, and not herein or hereby well and
sufficiently answered, confessed, traversed, and
Page 247
avoided or denied, the same is not true to the knowledge or
belief of this defendant; all of which matters and things this
defendant is ready and willing to aver, maintain, and prove as
this honorable court shall direct, and humbly prays to be hence
dismissed with its reasonable costs and charges in this behalf
most wrongfully sustained.
The first five paragraphs of the answer of the defendants, J.
Pierpont Morgan and Robert Bacon, were substantially the same as
the same paragraphs of the answer of the Northern Pacific Railway
and the remainder of the answer of such defendants was as
follows:
VI. These defendants admit that the defendant James J. Hill
and certain other persons decided upon the formation of a
securities company for the purposes set forth in the certificate
of incorporation of the Northern Securities Company attached to
the petition and in all respects as therein stated.
These defendants deny each and every other allegation of
Paragraph VI of the petition.
VII. These defendants admit the allegations of Paragraph VII
of the petition that on November 13, 1901, the defendant Northern
Securities Company was organized under the general laws of the
State of New Jersey, with its principal office in Hoboken, in
said State, and with an authorized capital stock of $400,000,000,
and that a copy of the articles of incorporation of said company
correctly stating its powers is attached to the petition.
These defendants deny each and every other allegation of
Paragraph VII of the petition.
VIII. These defendants admit the allegations of Paragraph VIII
of the petition that on or about November 14, 1901, the defendant
Northern Securities Company was organized by the election of
directors and officers; that the defendant James J. Hill was
chosen a director and president thereof; that thereupon the said
James J. Hill and other stockholders of the Great Northern
Company, each individually and separately
Page 248
from the others, sold to the Securities Company a large amount of
the capital stock of the Great Northern Company for the price of
$180 par value of the capital stock of the Securities Company for
each share of the capital stock of the Great Northern Company;
that these defendants and other stockholders of the Northern
Pacific Company, each individually and separately from the
others, sold to the Securities Company a large amount of the
capital stock of the Northern Pacific Company; that the
Securities Company also offered, for a limited period, like terms
of purchase to the other shareholders of the Great Northern
Company; that the Securities Company now holds and owns a large
majority of the capital stock of the Northern Pacific Railway
Company, and a large amount, though less than a controlling
interest, of the stock of the Great Northern Company, and has
negotiated for the purchase of additional shares of that company,
and that the Securities Company has received such dividends as
have been paid on any shares held by it.
These defendants deny each and every other allegation of
Paragraph VIII of the petition.
IX. These defendants deny each and every allegation of
Paragraph IX of the petition.
X. These defendants deny any knowledge or information
sufficient to form a belief of each and every allegation of
Paragraph X of the petition.
XI. These defendants deny each and every allegation of
Paragraph XI of the petition.
XII. These defendants deny each and every allegation of
Paragraph XII of the petition. They are informed and believe that
said paragraph consists merely of expressions of opinion, and is,
therefore, without weight in support of any cause of action.
XIII. These defendants deny each and every allegation of
Paragraph XIII of the petition.
XIV. In July, 1896, the capital stock of the Northern Pacific
Railway Company was fixed at $155,000,000, of which
Page 249
$75,000,000 were preferred and $80,000,000 common stock. The
preferred stock of the company was issued in exchange for various
obligations of the former Northern Pacific Railroad Company
because the holders thereof would not accept new common stock
therefor. At the same time it was contemplated that the time
would arrive when said preferred stock should properly be
retired, and it was, accordingly, then provided that the
preferred stock might be retired in whole or in part at par on
any first day of January, up to and including January 1, 1917.
Both classes of stock were made subject to a voting trust in this
defendant Morgan and others, continuing until November 1, 1901,
but terminable by the trustees in their discretion at an earlier
date.
The Northern Pacific Company shared in the recent prosperity
of the country, and its common stock appreciated in value until
it was deemed practicable to carry out the original intention of
retiring the preferred stock and also to terminate the voting
trust. Accordingly said trust was terminated by the trustees upon
January 1, 1901, and the preferred stock was retired. Although
the latter action was in contemplation and was practically
decided upon some time before the termination of the voting
trust, it was not made the subject of formal action by the board
of directors until November 13, 1901, and was completed upon
January 1, 1902.
XV. As hereinbefore stated, early in 1901, the Northern
Pacific Company, and the Great Northern Company, each purchased
about 49 per cent of the capital stock of the Chicago, Burlington
and Quincy Railroad Company. This purchase was made by the
Northern Pacific Company primarily in order to secure a terminus
at Chicago and permanent connection with the eastern and
southeastern markets, which are especially valuable for the
agricultural and mineral products of the northwest, but also
because the Burlington system serves a large and growing
territory, and the purchase was deemed desirable and profitable
in itself.
These purchases were not made, as the petition alleges, "in
Page 250
contemplation of the ultimate placing of the Great Northern and
Northern Pacific system under a common source of control." They
had no connection whatever with the future formation of the
Northern Securities Company, or any other company whatsoever, and
had no connection with the fact alleged in the petition that the
Union Pacific Railway system is to some extent a competing system
with the Burlington system.
The said purchases were not made with intent to violate the
statute or common law of any State or of the United States; were
not in violation of any such law, and are not charged in the
petition to have been in any respect unlawful.
XVI. During the reorganization of the Northern Pacific system
the firm of J.P. Morgan Co., of which these defendants are
members, acted as reorganization managers, and ever since the
reorganization of the Northern Pacific Company has been its
fiscal agent. Said firm has accordingly at all times desired to
further the best interests of the company and all its
stockholders, and especially to aid in steadily developing the
business of the company and the prosperity of the country which
it serves. Said firm considered that these results were
accomplished, so far as possible, by the policy of the company
during the existence of the voting trust, as above stated. Not
long after the termination of the voting trust, however, and very
early in May, 1901, said firm became aware that unusually large
purchases of both classes of stock were in progress in the stock
market, apparently in a single interest. Said firm was
apprehensive that these purchases were for the purpose of
securing control of the direction of the Northern Pacific Company
and thus managing it, not for what said firm conceived to be the
best interest of the company, but for some ulterior purpose of
which said firm was not informed.
Accordingly said firm, prior to May 7, 1901, purchased common
stock of the Northern Pacific Company in considerable amounts,
and their holdings upon that day amounted to about two hundred
thousand shares. In making these purchases said
Page 251
firm acted on its own account and in behalf of no other person
whomsoever, and was actuated by no motive save those above
stated.
The said purchases were not made with intent to violate the
statute or common law of any State or of the United States, and
were not in violation of any such law.
XVII. For some years the defendant Hill and others who were
interested in the Great Northern Company, but not including these
defendants, had in contemplation the formation of a corporation
for the purpose of purchasing their separate interests in that
company, with the general object that said interests should be
held together and the policy and course of business of the Great
Northern Company should be continuous in developing the company's
system and the territory served by it, and not subject to radical
change and possible inconsistency from time to time. In or about
August, 1901, as this plan was approaching maturity, said parties
for similar reasons determined that they would also sell to the
new company, when formed, their interests in the Northern Pacific
Company, which were considerable in amount, and that the capital
of the new company should be made sufficiently large to enable it
to purchase all shares of the Great Northern and Northern Pacific
companies which the holders might desire to sell and any other
shares which the new company might deem it advisable to acquire.
By this time it had become known that the purchases in the
market of shares of the Northern Pacific Company, to which
reference is made above, had been made in behalf of a corporation
known as the Oregon Short Line Railroad Company, controlled by
the Union Pacific Railroad Company; that there were held in that
interest shares of the Northern Pacific Company to about the
amount of $41,000,000 of preferred stock, which, however, was to
be retired on January 1, 1902, and $37,000,000 of common stock,
together making 780,000 shares and constituting an absolute
majority of the total capital stock of the Northern Pacific
Company. Thereupon and therefore,
Page 252
with the view and for the purpose of protecting the Northern
Pacific Company and the holders of its common stock against the
possible control of the direction of said company in an adverse
interest, these defendants determined and also advised their
friends to sell their Northern Pacific stock to the new company.
As set forth in the petition, the Northern Securities Company
was duly organized pursuant to the laws of New Jersey upon
November 13, 1901. It was organized according to law, and
possesses all the powers set forth in its certificate of
incorporation, and has full power to do every act which it has in
fact done, and the petition does not allege the contrary.
It having become known that the Oregon Short Line Company was
not disinclined upon satisfactory terms to sell its holdings of
the major part of the Northern Pacific stock, the firm of J.P.
Morgan Company, deeming such action for the best interest of
the Northern Pacific Company, purchased from said Oregon Short
Line Company all its holdings of the capital stock of the
Northern Pacific Company.
After its organization the Northern Securities Company duly
purchased all the shares of the Northern Pacific Company and of
the Great Northern Company hereinbefore mentioned, including
those purchased by the firm of J.P. Morgan Company from the
Oregon Short Line Company, for which it paid partly in cash and
partly in its own shares. It also was willing to purchase the
shares of any other shareholders of the Great Northern Company,
who desired to sell the same, for the price of one hundred and
eighty dollars for each share of the Great Northern Company,
payable in its own shares, and did actually purchase and pay for
considerable amounts of said stock at such price.
None of these purchases by the Northern Securities Company
were made with intent to violate the statute or common law of any
State or of the United States, or were in violation of any such
law.
XVIII. The foregoing is a correct statement of all the matters
Page 253
mentioned in the petition, omitting its many irrelevant
adjectives, adverbs, and conclusions, and of some other facts in
addition thereto. The transactions prior to the formation of the
Northern Securities Company had no connection whatever with the
formation thereof, save as above stated. That company was
organized, not for the purpose of acquiring a majority of the
stock of either the Great Northern or the Northern Pacific
Company, but as above set forth. It was not organized for the
purpose of affecting railway rates or competition in the
slightest degree, and has not had any such effect. In the
transactions above stated these defendants and, so far as they
are aware, the other parties who have been engaged therein have
never sought or intended to violate the act of Congress of July
2, 1890, entitled "An act to protect trade and commerce against
unlawful restraints and monopolies" (26 Stat. 209, c. 647), or to
enter into any contract, combination in the form of trust or
otherwise, or conspiracy in restraint of trade or commerce among
the several States or with foreign nations, or to monopolize or
attempt to monopolize, or combine or conspire with any other
person or persons to monopolize, any part of the trade or
commerce among the several States or with foreign nations.
The transactions have consisted merely in the organization of
a lawful corporation of New Jersey and the sale to and purchase
by it of property lawfully salable. All acts done in relation to
the organization of the Securities Company and the purchase by it
of shares of stock of the railway companies and the sale thereof
by the owners have been expressly authorized by law. They have
had no effect whatever, in law or in fact, in restraint or
monopoly of trade or commerce among the several States or with
foreign nations. The petition does not allege that at any place
within the jurisdiction of this court or elsewhere any such
restraint or monopoly has been effected.
If these lawful transactions, consisting merely of the
purchase and sale of property, should hereafter have any effect
in restraint or monopoly of trade or commerce among the several
States or with foreign nations, such effect would not be their
Page 254
direct effect, but would be merely indirect, remote, incidental,
and collateral, and aside from any intention of the parties, and
therefore would not bring said transactions within said act of
Congress. Any other construction would render the statute
unconstitutional as beyond the power of Congress, and as
depriving these defendants and the sellers generally of the stock
thus sold, of liberty and property without due process of law,
because, thus construed, it would be an inhibition upon their
right to sell their property. If complainant's contention be
sustained, the right of the owner of property to sell the same
will be dependent upon what the courts at any future time may
hold to have been the intention of the purchaser in buying such
property. Such a result would seriously impair the liberty of the
owner and the value of his property, and is contrary to the
constitutional guaranties thereof.
These transactions are, therefore, not within the act of
Congress above mentioned; nor has Congress any constitutional
power to annul or prohibit action thus expressly authorized by
state statutes under which the same has been taken.
XIX. There is a defect of necessary parties defendant herein
because in this suit it is sought to annul all sales of shares
made by shareholders of the Great Northern Company and the
Northern Pacific Company to the Northern Securities Company, and
to cancel all certificates of stock of the latter company issued
in purchase of the same. As already set forth, the parties making
such sales are numerous, and many of them had no connection with
the matter save to sell their shares in the railway companies to
the Securities Company after its organization. It is obvious that
in their absence no adjudication can be made annulling such sales
to the Securities Company. A decree to such effect as prayed for
by the petition necessarily would deprive such original sellers
of their property without due process of law. All persons who
sold shares in the railway companies to the Securities Company
are, therefore, necessary parties, and the petition is bad by
reason of their absence.
XX. And these defendants deny all and all manner of
Page 255
unlawful combination and confederacy wherewith they are by the
said petition charged, without this, that if there is any other
matter, cause, or thing in the petition contained material or
necessary for these defendants to make answer unto, and not
herein or hereby well and sufficiently answered, confessed,
traversed, and avoided or denied, the same is not true to the
knowledge or belief of these defendants; all of which matters and
things these defendants are ready and willing to aver, maintain,
and prove as this honorable court shall direct, and humbly pray
to be hence dismissed with their reasonable costs and charges in
this behalf most wrongfully sustained.
The answer of the defendant Daniel S. Lamont was substantially
the same as that of defendants Morgan and Bacon except that
certain allegations as to the actions of J.P. Morgan Co. in
Paragraphs XVI and XVII were omitted.
On April 9, 1903, after the case had been tried before a
Circuit Court consisting of Circuit Judges Caldwell, Sanborn,
Thayer and Vandevanter (for opinion of Judge Thayer, see
120 F. 720), the following decree was entered:
"Ordered, adjudged and decreed as follows, to wit:
"That the defendants above named have heretofore entered into
a combination or conspiracy in restraint of trade and commerce
among the several States, such as an act of Congress, approved
July 2, 1890, entitled `An act to protect trade and commerce
against unlawful restraints and monopolies' denounces as illegal.
"That all the stocks of the Northern Pacific Railway Company
and all the stock of the Great Northern Railway Company, now
claimed to be owned and held by the defendant, the Northern
Securities Company, was acquired and is now held by it in virtue
of such combination or conspiracy in restraint of trade and
commerce among the several States.
"That the Northern Securities Company, its officers, agents,
servants and employes be and they are hereby enjoined from
Page 256
acquiring, or attempting to acquire further stock of either of
the aforesaid railway companies.
"That the Northern Securities Company be enjoined from voting
the aforesaid stock which it now holds or may acquire and from
attempting to vote it, at any meeting of the stockholders of
either of the aforesaid railway companies and from exercising or
attempting to exercise any control, direction, supervision or
influence whatsoever over the acts and doings of said railway
companies or either of them by virtue of its holding such stock
therein.
"That the Northern Pacific Railway Company and the Great
Northern Railway Company, their officers, directors, servants and
agents be and they are hereby respectively and collectively
enjoined from permitting the stock aforesaid to be voted by the
Northern Securities Company, or in its behalf, by its attorneys
or agents at any corporate election for directors or officers of
either of the aforesaid railway companies.
"And that they, together with their officers, directors,
servants and agents, be likewise enjoined and respectively
restrained from paying any dividends to the Northern Securities
Company on account of stock in either of the aforesaid railway
companies which it now claims to own and hold;
"And that the aforesaid railway companies, their officers,
directors, servants and agents, be enjoined from permitting or
suffering the Northern Securities Company or any of its officers
or agents, as such officers or agents, to exercise any control
whatsoever over the corporate acts of either of the aforesaid
railway companies.
"But nothing herein contained shall be construed as
prohibiting the Northern Securities Company from returning and
transferring to the Northern Pacific Railway Company and the
Great Northern Railway Company, respectively, any and all shares
of stock in either of said railway companies which said, The
Northern Securities Company, may have heretofore received from
such stockholders in exchange for its own stock; and nothing
herein contained shall be construed as prohibiting
Page 257
the Northern Securities Company from making such transfer and
assignments of the stock aforesaid to such person or persons as
may now be the holders and owners of its own stock originally
issued in exchange or in payment for the stock claimed to have
been acquired by it in the aforesaid railway companies.
"It is further ordered and adjudged that the United States
recover from the defendants its costs herein expended, the same
to be taxed by the clerk of this court, and have execution
therefor."
1. For some years prior to 1901 the two railway companies had been engaged in an enterprise of building up a great interstate and Oriental commerce.
2. In April, 1901, they purchased nearly all the Burlington shares at a cost of over $200,000,000, paying for them with their joint bonds, and not with the bonds of the Burlington as stated in the decision of the lower court. They made the purchase not with any view of placing the two companies, their shares or their commerce, under a single control.
3. Immediately after this purchase, persons interested in the Union Pacific attempted to obtain the stock control of the Northern Pacific, their object being to prevent the carrying out of the enterprise of the defendant railway companies, and especially to prevent the use of the Burlington road in carrying out that enterprise.
4. This "raid" (as it is called) on the Northern Pacific stock failed, the failure being largely due to an error of the raiders in buying common instead of preferred stock. But there was imminent danger that another like attempt might be made and be successful.
5. Such a raid, if successful, would destroy the commerce the railway companies were building up, and in aid of which they had bought the Burlington shares.Page 258
6. For some years prior to 1901, Mr. Hill and ten other shareholders in the Great Northern Co., holding less than 30 per cent of its stock had contemplated the formation of a company to which they should make absolute transfers of their shares in consideration of the shares of such new company. Their purpose was that the shares should be voted alike in the future as they had been in the past, and that they should fare alike in any sale of them that might be made.
7. In June, 1901, after the defeat of the raid, it was first suggested that the proposed company should be enlarged so as to include the Northern Pacific common stock (about $21,000,000) held by the same persons, and later the plan was still further widened so as to include the Northern Pacific common stock (about $20,000,000) held by J.P. Morgan Co. should they desire to make such disposition of the stock held by them.
8. It had all along been the purpose of Mr. Hill and his ten associates that every shareholder in the Great Northern Co. should be given an opportunity to join the company as originally planned, — this not because they needed or desired the accession of such other shareholders, but to avoid any complaint of unfair treatment on their part.
9. This purpose was carried into the enlarged project, and at the instance of Mr. Morgan, the same opportunity was to be given to holders of Northern Pacific stock. And like the company originally projected, the enlarged company was to be authorized and was expected to acquire shares in coal mines and in industrial enterprises of utility to the railways, but whose stock the railway companies could not hold, and also to be a financial as well as an investment company, with power in that capacity to aid the operations of the railway companies, or of any other companies whose shares or securities it might hold.
10. The amount of Great Northern stock held by Mr. Hill and his ten associates was from 33 to 35 millions out of a total capital of $125,000,000. In 1896, they had severallyPage 259acquired $29,000,000 of Northern Pacific common stock, which amount had, on May 1, 1901, been reduced by sales to $20,000,000.
11. In forming the Northern Securities Co. it was the intention of its promoters that it should acquire, if it could, a majority of Northern Pacific stock, thereby protecting such stock from future raids, and protecting the commerce of the railways from the ruin that would result from a successful raid.
They did not desire or expect that the Securities Co. should acquire a majority of Great Northern shares. Such acquisition was not deemed necessary for the protection of the stock of that company or of the commerce of the roads.
12. While the capitalization of the Securities Co. is nearly, it is not (as stated in the opinion) theexactamount required to pay for all the shares of the two railway companies at the prices ($180 for Great Northern and $115 for Northern Pacific) fixed for such exchanges.
13. Mr. Hill and his ten associates who promoted the Securities Co. did not agree or bind themselves even to transfer their own shares to the Securities Co. Each of them was left to decide for himself. Mr. Hill retained between two and three millions of his shares.
And neither they, nor any one concerned in promoting the Securities Co., nor J.P. Morgan Co. ever agreed in any manner that upon the organization of the Securities Co. they would "use their influence to induce other stockholders in their respective companies to do likewise," as erroneously stated in the decision of the lower court.
14. The Securities Co. is not a railway company and has no power to build or operate railways. Its powers are limited to buying, selling and holding stocks, bonds and other securities, with power to aid in any manner any company whose stock or bonds it may hold, and to do all acts designed to aid any company whose shares or securities it may hold, and protect or enhance the value of its investment; also to hold any real or personal property required for the transaction of its business.Page 260In short, it is at once an investment and a financial company.
15. Soon after its organization, and on November 18, 1901, the Securities Co. purchased the Northern Pacific shares that had been acquired by those concerned in the raid, known as the Harriman shares. Those had been purchased from them by J.P. Morgan Co. The purchase comprised $37,023,000 of common stock and $41,085,000 of preferred stock, at a lump price of $91,407,500, payable (and paid) $8,915,629 in cash, and $82,491,871 in shares of the Securities Co. at par. About the same time it received from its promoters and J.P. Morgan Co., the Northern Pacific common stock (about $42,000,000) held by them. It availed itself of its right as a common stockholder of the Northern Pacific to purchase at par for cash, the new common stock (issued to replace the $75,000,000 preferred stock retired) to the amount of 75-80 of the amount of common stock held by it. As a result of these purchases, the Securities Co., at the beginning of the year 1902, and before this suit was begun (in March, 1902) held about $152,000,000 of the total $155,000,000 stock of the Northern Pacific.
16. Soon after its organization, Mr. Hill and the other promoters of the Securities Co. transferred to it about 30 millions of Great Northern shares at $180 in exchange for Securities shares at par, and within three months from its organization, (and before the commencement of this suit,) the Securities Co. had acquired, on the same terms and from other holders, about 65 millions of Great Northern shares, making its total holdings 95 millions of the total capital of 125 millions.
17. It is not the fact, as stated in the decision that the Securities Co. was enabled to make the purchase of 65 millions of stock bought from non-promoters, or of any of it, by the advice, procurement or persuasion of the Great Northern shareholders who had been instrumental in organizing the Securities Co. There is not any evidence in support of this finding, and the evidence is conclusive against it.
The facts proved beyond question are that each purchasePage 261was an independent transaction between the seller of stock, and the Securities Co., without solicitation, persuasion or other influence by the Securities Co., or any one else.
18. At the time of the formation of the Securities Co., the Great Northern shareholders were 1,800 in number. Of them about 1,200 transferred their shares to the Securities Co.
When this suit was begun, in April, 1902, the shareholders of the Securities Co. were more than 1,300; in October, 1902, they were about 1,800.
19. The Securities Co. is the absolute owner of the shares acquired by it and of the dividends thereon. The shares are not pooled or consolidated, nor are the earnings of the two roads pooled. It is in no sense a "trust."
20. The promoters of the Securities Co. — Mr. Hill and his ten associates — do not, all of them together hold, nor have they ever held more than one-third of the $360,000,000 stock of the Securities Co. that has been issued and is outstanding, and these gentlemen and J.P. Morgan Co. have never held more than $140,000,000.
21. By the charter of each railway company, its commerce is controlled and directed wholly by a board of directors, the members of which are chosen for prescribed terms and cannot be removed during their terms. And by the laws of Minnesota and Wisconsin no person who is a director in one company can be a director in the other.
22. The Securities Co. has not attempted to control or meddle with the commerce or the management of either railway, nor is there any evidence that it purposes doing either. Ever since its formation such commerce has been conducted by the two boards of directors in complete independence of each other.
23. There has been no agreement to suppress and no suppression of competition between the two railway companies, which is as active as it was before the Securities Co. was formed.
24. The entire interstate commerce of the two railways, the rates on which can be controlled by those companies without other competition or consent of connecting lines, falls shortPage 262of three per cent of their total interstate commerce; and any restraint that could be in any event imposed by the Securities Co. on their interstate commerce could only affect this three per cent.
All the interstate commerce of each railroad (including the competitive three per cent) has been largely increased since the organization of the Securities Co., owing to the great advantages of the Burlington connection, and to the protection afforded to all the commerce of the roads by placing a majority of Northern Pacific shares beyond the reach of raids, in the ownership of the Securities Co. And during such period rates have been reduced to such an extent as to reduce net earnings by upwards of $1,000,000.
25. There has been no increase of capitalization of either railway company, nor any watering of that of the railway companies or of the Northern Securities Co. The capital of each railway remains unchanged. If the Securities Co. had issued its shares at par for cash, and used the money to buy the railway shares for cash in the market at their market value, its outstanding shares would be more than at present. It would have had to issue and sell at least 190 of its shares, to be able to buy for cash each 100 shares of Great Northern which it has obtained by exchange of only 180 of its own shares. And it would have had to pay more than $115 for Northern Pacific. The course pursued, instead of watering in any way the Securities Co.'s stock, has furnished that company with properties of a market and intrinsic value considerably in excess of the par value of the shares issued by it in payment for them.
Appellants contend as to the Anti-Trust Act and its meaning:
1. The act is wholly a criminal law, directed to the punishment and prevention of crime. The remedy by injunction, etc., given by the fourth section is not to protect property interests, but solely to prevent "violations of this Act" (i.e. crimes, for every violation of the act is a crime, and, without this section, would not be within the competence of a court of equity to restrain by injunction).Page 263
2. Being a criminal statute, the act is not to be enlarged by construction. The first section cannot be stretched so as to make criminal (and whatever the section declares unlawful, it makes criminal, and makes nothing criminal it has not declared unlawful) every agreement, combination or conspiracy that merely tends to restrain commerce among the States, or that confers on the parties to it or any one else the power to restrain trade.
3. The act makes unlawful and criminal every contract, combination or conspiracy in direct restraint of interstate trade or commerce.
The gist of the crime is the contract, combination or conspiracy, and the offense is complete on the making of such contract, or the formation of such combination or conspiracy, though nothing be done to carry it out, and though trade be not in fact restrained.
But to constitute a combination or conspiracy in restraint of interstate trade or commerce, the parties must combine or conspire to do acts, which, if performed, will of themselves restrain such trade or commerce, and will directly restrain it — that is, acts which operate directly on such commerce.
If the acts which the parties combine or conspire to do fall short of this, if they are not such as operate directly on the commerce, and by such operation directly restrain it, then the combination or conspiracy is not within the act.
4. The act makes criminal those contracts, combinations and conspiracies only which directly and immediately restrain interstate trade or commerce — that is by acting directly and immediately upon such trade or commerce.171 U.S. 568,592;175 U.S. 234,245.
5. As the crime consists in contracting, combining or conspiring to do acts which by their own operation will directly and immediately restrain interstate commerce, it necessarily follows that if the acts which the parties contract or combine to do are of that description, they violate the law, though they had no conscious purpose or "specific intent" to restrain interstatePage 264commerce by the means of such acts or at all.156 U.S. 341.
On the other hand, if the acts to be done are not such as by their own operation on interstate commerce directly restrain it, the contract, combination or conspiracy to do those acts is not a crime under the Anti-Trust Act.175 U.S. 234.
6. The act makes criminal every contract, etc., in direct restraint of commerce, without respect of persons.
A contract or combination or conspiracy that would be criminal as in restraint of interstate commerce or trade if made between two or more railway companies, is equally a crime if made between two or more interstate carriers by wagon or stagecoach or ferry, or between two or more interstate traders wholesale or retail.166 U.S. 312.
7. Any restraint of interstate commerce, or power to restrain it, directly consequent upon the acquisition of property and incident to its ownership, is not, nor is the agreement for such acquisition made criminal by, this act.156 U.S. 16.
Hence, where competitors in interstate trade or commerce agree to and do form a partnership or a corporation, or where one of them buys out the other, or a third person or association of persons buys out both, whatever suppression of competition or power to suppress competition may follow is not, nor is the agreement to form such corporation, partnership or association for such purchase, made criminal by the act.171 U.S. 505,567.
8. So where a combination is formed to acquire, and which does acquire, nearly all of an article in common use throughout the country and shipped in large quantities among the States, such ownership, though it gives the power to control the interstate trade and commerce in such article, and to suppress such trade and commerce altogether, is not, nor is such combination, a restraint of commerce prohibited by the Anti-Trust Act, the power being an incident of ownership.156 U.S. 1,16.
9. By this act Congress regulates commerce by punishingPage 265the making of certain contracts by fine and imprisonment. The regulation is and must be uniform throughout the United States, for an act made criminal when done in Minnesota cannot be innocent when done in Massachusetts. The matters embraced in the act, thus requiring a uniform regulation throughout the country, are matters within theexclusivejurisdiction of Congress, and no matters that are not within such exclusive jurisdiction are within the act. If it appears that the States have jurisdiction of any matter (e.g., the ownership of stock in or the consolidation of railway companies doing an interstate business) claimed to be within this act, the existence of jurisdiction in the States is conclusive that such matter is not within the act.
The appellants, therefore, maintain the following propositions:
1. The Government is not entitled to maintain this proceeding under sections 1 and 4 of the Anti-Trust Act, nor had the Circuit Court jurisdiction of it under those sections, for the conspiracy or combination charged in the petition and found by the Circuit Court, if it ever existed, had done all it was formed to do, and had come to an end, before the proceeding was instituted.
2. The only combination of which there is any evidence is a combination formed in aid of commerce, to liberate, protect and enlarge and not to restrain it, and which has liberated, protected, aided and enlarged it, and has not restrained and does not threaten to restrain it.
3. There is no evidence of the combination or conspiracy charged in the petition, or of the combination or conspiracy found by the Circuit Court.
4. The conspiracy or combination in question whether as alleged in the petition or as found by the Circuit Court, was not a combination or conspiracy in restraint of interstate commerce, for the only things which the parties thereto combined or conspired to do or procure to be done were (1) the organization of the Securities Co., and (2) the acquisition by the SecuritiesPage 266Co., with their help, of a large majority of the shares of each of the defendant railway companies in exchange for its own shares.
The things so to be done or procured to be done (whether taken separately or together) are such as do not and cannot in any wise restrain interstate commerce, and hence a combination or conspiracy to do them or procure them to be done is not in restraint of interstate commerce.
The Circuit Court erred in holding (1) that the Securities Co., having acquired such majority of shares, has power to suppress competition between the railway companies. In fact, the Securities Co. is without power to suppress competition. It is a mere shareholder and not a director. The office of director is created by the State and not by the shareholder. As to power of directors being distinct from those of shareholders, seeHoytv.Thompson,19 N.Y. 207,216;Burrillv.Nahant Bank, 2 Metc. 163;Pullman Car Co. v.Missouri Pac. Ry. Co.,115 U.S. 587. The charter of each railway company gives to the board of directors all the powers attributed to it in the foregoing decisions. Rev. Stat. Wisconsin, 1878, c. 87, § 1804; Gen. Stat. Minnesota, 1894, § 2717; (2) that it obtained and holds such power by means of and as a party to the combination or conspiracy and not as an incident of its ownership of the shares; (3) that the possession of such power to suppress competition is of itself, and irrespective of its exercise, a restraint of interstate commerce; and therefore (4) the combination or conspiracy in question was in restraint of such commerce.
5. The petition does not allege nor do the proofs disclose any facts showing a monopoly or a conspiracy or attempt to monopolize any interstate or foreign commerce. For definition of monopoly, seeTexas Pacificv.Interstate Com. Com.,162 U.S. 197,210;United Statesv.Freight Association,166 U.S. 290;Pearsallv.Great Northern,161 U.S. 646,676;UnitedStatesv.E.C. Knight Co.,156 U.S. 1,10;In re Corning, 51 F. 205, 211.Page 267
6. The case is not within the Anti-Trust Act, for in any view of the matters complained of, their effect upon commerce — whether much or little, for good or for ill — is indirect and remote. The Anti-Trust Act and the regulative power of Congress under the commerce clause of the Constitution, are alike strictly limited to matters which directly and immediately affect interstate or foreign commerce.
In determining what is a combination in direct restraint of commerce the distinction between direct and indirect regulations of commerce becomes important, seeFargov.Michigan,121 U.S. 230;Phila. S.S. Co. v.Pennsylvania,122 U.S. 326,328;N.Y., L. Erie c. R. Co. v.Pennsylvania,158 U.S. 431;Mainev.Grand Trunk Railway Co.,142 U.S. 217;Pickardv.Pullman Co.,117 U.S. 34;Pullman Co. v.Pennsylvania,141 U.S. 18,25. In the declarations of the limitations of the act and of the power of Congress, the court has merely repeated its settled doctrine.Hooperv.California,155 U.S. 648,655;Williamsv.Fears,179 U.S. 270,278.
Where subjects for commercial regulation are of a nature to require or admit of one uniform system or plan of regulation, the power to regulate them is exclusively in Congress, and any attempted regulation by a State whether to enlarge or restrain, is simplyultra vires, for it is a usurpation of a power vested exclusively in Congress.Wabash Railway Co. v.Illinois,118 U.S. 557,574;Robbinsv.Shelby Taxing District,120 U.S. 489,492;Philadelphia S.S. Co. v.Pennsylvania,122 U.S. 326,336;Bowmanv.Chicago, etc., R.R. Co.,125 U.S. 465,480. Anything, therefore, not exclusively within the jurisdiction of Congress is not within the act.
7. The very general language of the Anti-Trust Act was not intended to include combinations to purchase railways or railway shares, competing or non-competing, nor consolidations actual or "virtual" of railways or railway companies. Congress, when passing the act did so with full knowledge of the situation.Ches. O. Tel. Co. v.Manning,186 U.S. 238,245. It knew that the railway systems of the countryPage 268rested on such combinations authorized by state laws, some of them having existed many years.
These are matters of public history and within the knowledge of the court.Ohio L. T. Co. v.Debold, 16 How. 416, 435;R.R. Co. v.Maryland, 21 Wall. 456, 469;Brownv.Piper,91 U.S. 37,42;Phillipsv.Detroit,111 U.S. 604,606;Lehigh Valleyv.Pennsylvania,145 U.S. 192,201;LouisvilleNashvillev.Kentucky,161 U.S. 677,699;Prestonv.Browder, 1 Wheat. 115, 121;United Statesv.Union Pacific,91 U.S. 72,79;Plattv.Union Pacific,99 U.S. 48,55.
If Congress had meant to declare such consolidations and stock purchases of competing companies to be illegal, the securities issued by them void and state legislation unconstitutional, it would have said so in plain, specific and apt language.
The construction put on the act by all branches of the government and by everybody down to the commencement of this proceeding, has been in full accord with our position that the act has nothing to do with combinations to own railways or railway shares. The following consolidations of competing railroad lines existed at the time of the passage of the act or have been effected since that time: Boston Maine Railroad Company and competing lines; New York, New Haven Hartford Railroad Co., and New England Railroad Co. and other roads; New York Central Railroad and the West Shore and Rome, Watertown and Ogdensburg and other railroad companies; Pennsylvania Railroad Company and Baltimore and Ohio and other companies; the Reading Company.
8. Even though the Government were entitled to any injunction, the decree goes far beyond what the Government was entitled to receive, or the Circuit Court authorized to grant.Mr. John G. Johnson, for appellant, Northern Securities Company, argued:
The facts found by the court below cannot be deduced from the testimony and the substratum of the bill filed, of the argumentsPage 269below in its support, and of the decision of the lower court was the assertion of a conspiracy which never existed. It is conceded that the Securities Company did acquire a majority of stock of both railroad companies and such acquisition was because of its intent to acquire. The company is chargeable with all the legal consequences of an intentional acquisition of such shares. It is denied, however, that any individuals or corporations conspired to do anything except to form a corporation and acquire shares of the Northern Pacific Railway Company belonging to them, and about twenty-seven per cent of the stock of the Great Northern Railway Company. The subsequent acquisition of an additional fifty per cent of the Great Northern stock was for third persons over whom the defendants had no control but who simply accepted an invitation to sell their stock issued by the Securities Company after its formation. The authorized capital of that company was made sufficiently large to enable it to acquire all the stock of both roads but this was not in pursuance of any combination, conspiracy or contract but of the policy of the appellants to let every co-shareholder of the railroad companies have the benefit of every advantage obtained for themselves.
Everything of which the Government complains was done with the intention of working out with permanent results the problem of interstate and international commerce. In order to effect permanent arrangements and to promote a great public end through a greatly increased commerce, at low rates, the two railway companies purchased the shares of the Burlington road for over $200,000,000, paid by their joint and several bonds, thus being able to give assurances of permanency of low rates and do such other things as were necessary in building up and enlarging this great commerce. This resulted in demands by the Union Pacific for a part of the traffic and on their being refused the Oregon Short Line acting for the Union Pacific acquired a large amount, almost a controlling interest, in the stock of the Northern Pacific. The situation was critical and the organization of the Securities CompanyPage 270and all that followed was for the purpose of preventing a raid on the stock similar to that which had so nearly succeeded and was done solely with the attempt to secure the maintenance of the benefit to commerce, which had resulted, and which, still more in the future, would result from the acquisition of the Burlington shares.
Such alliances as that of the Burlington with the Northern Pacific and Great Northern are valuable because they give an opportunity of securing a large number of markets in a great and rich territory under a fairly permanent transportation policy. They are of enormous value to the people along the lines of the railroads, to the country generally and to the world. To transact business, large investments must be made and the condition prerequisite thereto is reasonable assurance of continuance. When the Government seeks to condemn an arrangement which promotes the interest of the whole nation by pretending that it was intended to restrain trade, it must establish convincingly the existence of the illegal intent alleged.
The sole question of law to be determined is whether or not the acquisition by a corporation of a controlling interest in the shares of two competitive railway companies, violates the Sherman Act. It is not illegal for an existing corporation to acquire such controlling interest; it is not illegal for persons holding a sufficient number of shares to enter into an agreement that will form a company to acquire such control. An agreement to do what is legal cannot be an illegal conspiracy, combination or contract.
The Sherman Act is a penal one, defining a criminal offense, for which it provides a punishment. It is an indispensable prerequisite to a conviction for a criminal misdemeanor, especially if there be no criminal intent, and such does not exist in the present case, that the offense condemned shall be clearly defined, and it is well settled that penal laws are to be strictly construed.United Statesv.Willberger, 5 Wheat. 76;United Statesv.Whittier, 5 Dillon, 35, citingUnitedStatesv.Morris, 14 Pet. 464;United Statesv.Sheldon, 2 Wheat. 119;UnitedPage 271Statesv.Clayton, 2, Dillon, 219; Bishop on Statutory Crimes, sec. 41;Andrewsv.United States, 2 Story, 213;United Statesv.Hartwell, 6 Wall. 385, 396;Swearingenv.United States,161 U.S. 446,451;Francev.United States,164 U.S. 676,682;Schooner Paulina's Cargov.United States, 7 Cr. 52, 61;United Statesv.Reese,92 U.S. 214,219;United Statesv.Comerford, 25 F. 902;United Statesv.Chase,135 U.S. 255,261;United Statesv.Goldenberg,168 U.S. 95,102;Sarllsv.United States,152 U.S. 570,575.
This court will not legislate but will merely discharge its duty of construction. If the legislation is incomplete a crime cannot be fastened upon one who has done innocently something not defined as criminal. An act not made criminal cannot be condemned because it may seem equally, or even more, evil than the one made criminal. That Congress had no clearly defined understanding of the nature of the misdemeanor at which it struck, is evidenced by the final debates in the House of Representatives.
The purchase by a person or corporation, of a majority of the shares of two competing railway companies, is not "a contract, combination in the form of a trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States." The Sherman Act prohibits, not a contracttendingto restrain trade, but one actually in restraint thereof. The meaning of "restraint of trade" was well understood when the Sherman Act was passed.United Statesv.Freight Association,166 U.S. 290,328. In theAddyston Case,175 U.S. 211, the contract was actually in restraint of trade.
The holding by a person or corporation as owner of a majority of the shares of two competing railway companies, is not "a contract or combination or conspiracy in restraint of trade" within the meaning of the act.
A corporation, though incorporated for the purpose of holding, and actually holding, a majority of the shares of two competing railway companies is not such a combination or conspiracy. See thePearsall Case,161 U.S. 646;United StatesPage 272v.Joint Traffic Association,171 U.S. 505,567. A person or corporation, by purchasing a majority of the shares of two competing railway companies does not monopolize, or attempt to monopolize, "any part of the trade or commerce among the several States." As to what a monopoly is, seeIn re Green, 52 F. 104; dissenting opinion of Story, J., inCharles RiverBridgev.Warren Bridge, 11 Pet. 420, 606; 20 Am. Eng. Ency. of Law, 846; 2 Rawle's Bouvier's Dictionary, 435, and cases cited; Blackstone, Bk. IV, 159; Century Dictionary.
The purchase by one person, of the property of his rival, with the intention thereby to destroy his competition, is not illegal, although by the purchase he will acquire the power to prevent the same.Oregon Coal Co. v.Winsor, 20 Wall. 64. A person or corporation, by holding, as owner, the majority of the shares of two competing railway companies, does not monopolize, or attempt to monopolize "any part of the trade or commerce among the several States."
The power of Congress to regulate commerce does not confer upon it a right to prescribe the persons who may engage therein, or to regulate, or to control, the ownership of shares of stock of corporations engaging therein.United Statesv.Knight,156 U.S. 1;Louisville Nashvillev.Kentucky,161 U.S. 677,693.
The States create railroad corporations and may prescribe the manner of issuance of their shares, and the method of transfer of title thereto. In the use and operation of railroads engaged in interstate commerce, the corporations owning the same must submit to Federal jurisdiction but this does not involve any right on the part of the United States to control the transfer of shares by the shareholders, even though as a result of said transfers the controlling interest may be transferred. It is not within the power of the Federal government to destroy the title to property created by the State.
Congress has unrestricted power to prevent restraint or monopolization of interstate commerce, as the authorities definePage 273those words, but not as the United States now claims. Properly interpreted, the Sherman Act is constitutional but the United States is now endeavoring to have its provisions interpreted so as to be violative of States' rights. Such a construction should not be adopted, if there is one which harmonizes with the Constitution.Grenada Countyv.Brogden,112 U.S. 261;Hawaiiv.Mankichi,190 U.S. 197.
The mere ownership of property cannot be an illegal restraint of trade. As to the power of the State over railroad corporations, seeRailroad Co. v.Maryland, 21 Wall. 456;Ashleyv.Ryan,153 U.S. 436.
The relief decreed by the lower court was improper under any aspect of the case.United Statesv.Knight,156 U.S. 1,17.Mr. Charles W. Bunnfor appellant, Northern Pacific Railway Company, argued:
The Sherman Act only declares those contracts illegal which are in restraint of trade. The government cannot rest on proof of combination and conspiracy but must establish restraint of commerce and to do this must prove that the ownership by one person of the stocks of two competing roads isper sesuch restraint.
The statute must be interpreted so as to fall within the constitutional powers of Congress which do not extend to determine the ownership of stock in corporations or to the regulation of consolidations of railroad companies chartered by the States.
This power belongs to the States; Congress only has the power to regulate the use of such property in commerce between the States. See definition of commerce inGibbonsv.Ogden, 9 Wheat. 1, 189, 196, as repeated by this court inPassengerCases, 7 How. 283, 394, 462;Hendersonv.Mayor,92 U.S. 259,270;Lottery Case,188 U.S. 321,346. Congress has power only under § 8, Art. I, of the Constitution, and by Amendment X all power not thus granted is reserved to the States. Under the guise of regulating commerce CongressPage 274cannot prescribe general rules as to transfer of real or personal property or prohibit the purchase of stock and bonds because when bought they may be used in a business carried on with intent to monopolize or restrict interstate commerce.In re Greene, 52 F. 104, 113, citingCounty of Mobilev.Kimball,102 U.S. 691,702;Gloucester Ferry Co. v.Pennsylvania,114 U.S. 196,203;United Statesv.E.C. Knight Co.,156 U.S. 1. The power of Congress extends only to those things that directly and immediately pertain to commerce; the powers of the States include many things which operate indirectly though importantly on commerce.Gibbonsv.Ogden, 9 Wheat. 1, 203. For cases involving this demarkation between national and state powers, seeUnited Statesv.Joint Traffic Association,171 U.S. 505;Addyston Pipe Co. v.United States,175 U.S. 211,228;Hopkinsv.United States,171 U.S. 578,592;Andersonv.United States,171 U.S. 604,615;Sherlockv.Alling,93 U.S. 99;Louisville Nashvillev.Kentucky,161 U.S. 677,701. In the last case this court cites decisions in which state statutes prohibiting or permitting consolidation were enforced. This would have been erroneous if the things complained of fell within the power of Congress, for that power if it exists is exclusive of all state action, and must be so in order that it be uniform. As to matters in regard to which the States may act until Congress acts, seeCooleyv.Board of Port Wardens, 12 How. 299;The James Grayv.The John Fraser, 21 How. 184;Poundv.Turck,95 U.S. 459;Robbinsv.Shelby TaxingDistrict,120 U.S. 489,492; and cases citedsupra. No rule of law is introduced by the Sherman Act; what was restraint of commerce is the same now; the only feature of the act is making the preliminary conspiracy a crime. The Constitution itself forbade restraint of interstate commerce.In re Debs,158 U.S. 564. A combination that is restraint of trade now was restraint of trade before the act of leasing, buying and consolidation of competing railroads has gone on for fifty years both before and since the act of 1890.Page 275
If a thing restrains interstate commerce it is immaterial how innocent the intent may be, and if it does not restrain it, it is immaterial how evil the intent may be. The question is does the agreement restrain trade or commerce.United Statesv.FreightAssociation,166 U.S. 290,341;Addyston Case, supra. If an action be lawful its purpose is immaterial. This is elementary.Phelpsv.Nowlen,72 N.Y. 39,45;Kiffv.Youmans,86 N.Y. 324,329;Woodv.Amory,105 N.Y. 278,281;Loughv.Outerbridge,143 N.Y. 271,282;Adlerv.Fenton, 24 How. 407, 410;United Statesv.Greenhut, 51 F. 205, 211;In re Greene, 52 F. 104, 111;Randallv.Hazleton, 12 Allen, 412, 418;Brackettv.Griswold,112 N.Y. 454;United Statesv.Isham, 17 Wall. 496;Dickermanv.Northern Trust Co.,176 U.S. 181;Fahrneyv.Kelly, 102 F. 403;Mogul S.S. Co. v.McGregor, App. Cas. (1892) 25, 41;Allenv.Flood, L.R. App. Cas. (1898) 1;Bohn Mfg.Co. v.Hollis,54 Minn. 223,234. The opinion of the court below proceeds upon the proposition that a combination of two competitors is a restraint of trade because it lessens competition. This is error. TheTrans-Missouri, Joint TrafficandAddystoncases prove only that a contract restraining rival companies from competing is a restraint of trade. No such agreement exists in this case. The law does not require competition. The business of a rival may be purchased for the purpose of being rid of his competition.Gamblev.QueensCounty Water Co.,123 N.Y. 91,104;Diamond Match Co. v.Roeber,106 N.Y. 473;Raffertyv.Buffalo City Gas Co.,37 A.D. 618,621;Trenton Potteries Co. v.Olyphant,56 N.J. Eq. 680;Oakdale Co. v.Garst,18 R.I. 484.
The Securities Company is neither alleged nor proved to have done or omitted anything which can be construed as a violation of the Anti-Trust Act. If it has the power to suppress or diminish competition it has not used it and if the act has been violated at all it must be due to the mere existence of the Securities Company, to its powers as applicable to railway companiesPage 276or to something illegal in its origin. The illegality can not be sustained under the decisions of this court.Mr. John W. Griggsfor appellant, Northern Securities Company, submitted a brief:
The acts of the defendants do not constitute a contract, combination, or conspiracy in restraint of interstate trade or commerce within the meaning and prohibition of the Sherman Act. The United States rests its case upon two allegations:First. That the Northern Securities Company has been formed and has taken over a majority of the shares of the two railroad companies in the manner indicated by the pleadings and proofs.Second. That the intended and the necessary effect of those acts is to destroy competition between the two railroad companies.
The answer of the defendants is:First. That the formation of the Northern Securities Company and the acquirement by it of stock of the two railroad companies was a lawful transaction, governed solely by local state laws, and not in contravention of any provision of the Federal Constitution or statutes.Second. That the acts of the defendants were all done in good faith, without any purpose to destroy competition or restrain trade.
To put it more concisely: The defendants contend that what they have done is lawful, has no direct effect in restraint of competition, and was not intended to restrain competition.
The creation of railway corporations; the form of their corporate organization; the character and qualities of their corporate stock; the routes which their roads shall take, whether they may connect with other roads running in the same general direction, whether they may or may not consolidate with parallel lines, or operate parallel lines through different portions of a State — all these matters are, and always have been, subjects of state jurisdiction.Louisville Nashville R. Co. v.Page 277Kentucky,161 U.S. 677,702;Pearsallv.Great Northern,161 U.S. 646;Lake Shore Mich. Southernv.Ohio,173 U.S. 285;Missouri, Kansas Texasv.Haber,169 U.S. 613;Cleveland c. Railwayv.Illinois,177 U.S. 514.
The lower court did not find as matter of fact that the defendants had in any way restrained trade or commerce; or that they had attempted so to do; or that they had contracted or combined so to do. What the court did find and decide was, that the defendants had done certain things whereby they had obtained the power to suppress competition between two interstate carriers who own and operate competing and parallel lines of railroad. This idea is repeated again and again throughout the opinion. It speaks of "a direct restraint of interstate commerce because it would have placed in the hands of a small coterie of men the power to suppress competition between two competing interstate carriers."
To say that one person, or several persons, cannot acquire or own a majority of the stock of two competing railroad corporations because they are thereby occupying a vantage ground from which they can, if they choose, effect an agreement or understanding between the two companies in restraint of competition, is to say that the power to commit a crime is equivalent to its actual commission.
The acts of the defendants beingprima facielawful, the burden of proof is upon the Government to show that they were, as the Attorney General charges, notbona fide, but a mere formal device intended to defeat the provisions of the Sherman Act.Joint Traffic, Trans-Missouri, Addyston Pipe Cases; UnitedStatesv.Hopkins,171 U.S. 578;United Statesv.Workingmen's Amalgamated Council, 54 F. 994;Statev.Shippers Compress Warehouse Co., 67 S.W. Rep. (Texas) 1049; S.C., affirmed,69 S.W. 58.
Any restraint of trade or commerce which may result from the acts done by the defendants is indirect and incidental only, and not covered by the act. In every instance where this court has had occasion to pass upon the meaning of the actPage 278it has carefully distinguished between acts which directly restrain commerce, and acts which only indirectly or incidentally have that effect.United Statesv.E.C. Knight Co.,156 U.S. 1,12,16;Joint Traffic Case,171 U.S. 505,566;UnitedStatesv.Ches. Ohio Fuel Co., 105 F. 93; S.C., affirmed, 115 F. 610.
If the Sherman Act can be so construed as to forbid the sale of stock in two competing railroad corporations to one purchaser, then that act is an attempted interference on the part of Congress with transactions which are wholly within the control of the States of the Union, and in that respect the act is unconstitutional.
As to the extent of state legislative power over the instrumentalities of interstate commerce, seeLouisvilleNashville Case,161 U.S. 677,702;C. C. Bridge Co. v.Kentucky,154 U.S. 204. Regulation of commerce, to be constitutional, must be confined to commerce itself, and cannot reach out to those things which not being designed as agencies of such commerce, or not being actually enjoined therein, may yet have an indirect or ultimate relation thereto.
Such a construction of the Constitution would vest in Congress the regulation of all branches of productive business from their first beginnings.License Tax Cases, 5 Wall. 462.
The fact that an article was manufactured for export to another State does not make it an article of interstate commerce.Coev.Errol,116 U.S. 517;Kiddv.Pearson,128 U.S. 1.
The creation of state corporations and the regulation of the sales of corporation shares belong to the class of business affairs over which the States have exclusive jurisdiction.United Statesv.Boyer, 82 F. 425;Clarkv.CentralR.R. Banking Co. of Georgia, Jackson, J., June 30, 1893, U.S. Circuit Court, Savannah;In re Greene, 52 F. 104, 112;Pearsallv.Great Northern,161 U.S. 646,671;Rogersv.Nashville c. Ry. Co., 92 F. 312.
But assuming that Congress may, under the commerce clause of the Constitution and as a regulation of commerce, restrainPage 279the States in the exercise of their prerogatives from permitting two or more corporations to which the States have given life from merging, yet such a purpose on the part of the Government ought to be clearly and distinctly expressed, and not be found in the judicial interpretation of doubtful language contained in a penal statute.
So that, if it be argued that Congress may forbid the sale of one railroad to another, it is enough to reply that it has never done so; that the Sherman Act does not expressly, or by any just interpretation, do so.
The Sherman Act is a penal statute; every act which may be prevented by injunctive order would, if committed and proven, subject the parties to criminal prosecution. The rule of strict construction must be therefore applied.United Statesv.Whittier, 5 Dillon, 35;United Statesv.Sheldon, 2 Wheat. 119;United Statesv.Hartwell, 6 Wall. 385;United Statesv.Shackford, 5 Mason, 445;United Statesv.Clayton, 2 Dillon, 219;United Statesv.Garretson, 42 F. 22; Dwarris' Stat. 641;Hubbardv.Johnstone, 3 Taunt. 177.
Acquiescence by the Government for more than eleven years in the actual merger and consolidation of many important parallel and competing lines of railroads and steamships engaged in interstate and international commerce, has given a practical construction to the act of July 2, 1890, to the effect that it was not intended to forbid, and does not forbid, the natural processes of unification which are brought about under modern methods of lease, consolidation, merger, community of interest, or ownership of stock. As held in 1803 inStuartv.Laird, 1 Cranch, 299, where the right of a justice of the Supreme Court to sit as a Circuit Judge was challenged, upon the ground that, not having been appointed as such, and not having been distinctly commissioned as such, the act of Congress of 1789, under which the Circuit Court was originally instituted, was unconstitutional.
"Practice and acquiescence for a period of several years, commencing with the organization of the judicial system,Page 280affords an irresistible answer, and has indeed fixed the construction. It is a contemporary interpretation of the most forcible nature. This practical exposition is too strong and obstinate to be shaken or controlled. Of course, the question is at rest, and ought not to be disturbed."
This is a just principle of jurisprudence, founded upon the very highest considerations of public equity.
It has frequently been invoked and enforced in order to prevent the disturbance and unsettlement of important affairs which have been transacted in reliance upon a general public and private belief that the law did not include them in its terms of condemnation.
But we venture the assertion that no case has ever arisen in which a disregard of that salutary rule of construction would result in such widespread and irremediable injury to vested interests as this. Not that any decree which this court could make against these defendants would particularly or radically affect their property interests, but because the decision once made that the Sherman Act applies to such transactions as the purchase, lease, merger or consolidation of parallel lines of transportation, would render every such transaction for the last thirteen years unlawful, and require the Attorney General, in the due discharge of his duty, to bring suit for dissolution and injunction. Unnumbered millions of dollars of capital stock and bonds issued upon railroad mergers and consolidations would be tainted with illegality, or affected in value by the withdrawal of the property against which they were issued. Purchases of stock in underlying roads long ago made and paid for would be unsettled, and financial chaos would result.Mr. M.D. Groverfor appellant, Great Northern Railway Company, submitted a brief:
The findings of fact upon which the decree rests are contrary to the evidence. This is made clear by separating the findings and considering the evidence bearing on eachPage 281separately. There was no desire or intent to evade the Anti-Trust Act, to restrain competition, to monopolize trade, to inflate securities, water stock, or create fictitious capital.
I. It is not denied that the Northern Securities Company is a corporation lawfully organized under the laws of the State of New Jersey, with charter power to purchase and sell securities of all kinds, and to purchase, hold, vote and sell all the shares of stock of any single corporation or of non-competing corporations. Its right to purchase, hold, vote and sell all the stock of the Great Northern Railway Company alone, or the Northern Pacific Railway Company alone, is not denied.
II. The organization of the company was the result of a plan to form an investment or holding company, which had its inception years before its articles were filed, among not exceeding ten large holders of Great Northern stock, who had taken an active interest in the policy of the company and its administration, but who never had held in the aggregate to exceed one-fourth of its outstanding stock. It was thought that if a company were formed to which they might sell their individual holdings, their shares would be likely to be held together, so long as a majority of the holding company should wish, and that this would tend to give stability to the policy of the company, be of aid to it in its financial operations, and maintain the value of its investments.
III. The Burlington purchase was made to enlarge trade, not to restrain it; to increase competition, not to suppress it. At the time of the purchase it was not contemplated by either purchasing company or its shareholders that any alliance between the purchasing company or its shareholders was needed to preserve to each company its fair share of the advantages secured by the purchase.
IV. At the time of the organization of the Securities Company the Great Northern shareholders referred to owned about $30,000,000 of Great Northern stock, and $35,000,000Page 282of Northern Pacific common stock, having increased their holdings of the latter by purchases from J.P. Morgan Co. They did not control a majority of the shares of either of the defendant railway companies. In view of the injury apprehended to both companies, and their shareholders, and the better to protect their interests in the future, against raids of adverse interests, the Great Northern shareholders referred to deemed it advisable that the holding company which they had considered should be organized, should have power to purchase, not only their own Great Northern and Northern Pacific shares, but also the shares of such other Great Northern and Northern Pacific shareholders as might wish to sell their stock to it, and also the shares of companies already formed, and others that might be formed, for the purpose of aiding the traffic operations of the Great Northern and Northern Pacific companies.
V. At this time it was not expected by any of the persons concerned, that any Northern Pacific shares, except the $42,000,000 owned by them and by J.P. Morgan Co. would be acquired by the proposed holding company. The organization of the company was not dependent on any agreement that it should acquire, nor upon the question of, a majority of the shares of either of the defendant railway companies. There was no agreement or understanding between the Great Northern shareholders referred to, that they or either of them would undertake to influence any one of the other 1,800 Great Northern shareholders, or of the other 3,600 Northern Pacific shareholders, to sell their shares to the company.
VI. The Great Northern shareholders referred to, upon the organization of the Northern Securities Company and the sale of their shares to it, parted with such stock control as they had in the Great Northern and Northern Pacific companies. They do not own to exceed one-third of the outstanding capital stock of the Securities Company. At the time of the trial the stock of the Securities Company was held by 1,800Page 283separate owners. The stock control of the Securities Company is, therefore, not in the eight or ten Great Northern shareholders referred to, but in the 1,790 other shareholders of the Securities Company, owning at least two-thirds of its outstanding shares.
VII. Nothing has been done except the purchase by the Securities Company of a majority of the stock of the Great Northern and Northern Pacific companies.
VIII. The Securities Company as owner of the stock so purchased may sell it or pledge it. It has made no agreement as to what it will do with it, or how it will vote it, or how it will dispose of the dividends received upon it. It is not a trustee of those from whom it received such shares, and owes them no duty or obligation respecting the shares, since they have no further interest in them.
IX. It is not claimed or pretended that the defendant railway companies have entered into any contract or combination in restrain of trade, or that either of them has done anything to restrain trade or in violation of law. It is not claimed that the Securities Company can restrain trade, except through the exercise of its right, as owner of the shares it purchased, to vote them at stockholders' meetings, in the election of a separate board of directors for each of the defendant railway companies; for the boards must be separate under the laws of the States of Minnesota and Wisconsin.
X. This suit was not brought to prevent or restrain the execution of a contract, or the forming of a combination, in restraint of trade, but to restrain the Securities Company from voting the stock it owns at stockholders' meetings, and from receiving dividends thereon, thereby preventing payment of dividends upon its own shares issued in payment for the shares it purchased, upon the ground that mere possession of the voting power of the shares, is an unlawful restraint and regulation of the interstate commerce of the defendant railway companies.
XI. The Government has no financial interest in this suit.Page 284The only way in which the Securities Company could restrain the commerce of the two railway companies, is through the voting power of the shares it owns. If it had purchased the shares of only one of the companies, its right to vote such shares would not be questioned. Trade could not, within the contention of the Government, or the ruling of the court, be restrained by the Securities Company, should its voting powers be limited to the shares of one of the companies. The decree enjoins it from voting the shares of either company and from receiving dividends from either. The effect of the decree is to deprive it of the means to pay dividends upon its own stock whether issued in payment for the stock it purchased, or issued for cash. Thus the decree destroys the earning power of the stock of the Securities Company, a large majority of which is now held by over eighteen hundredbona fideholders in the usual course of business not parties to the suit.
The important questions are: 1. Does the commerce clause of the Constitution of the United States confer upon Congress jurisdiction to regulate the issue, sale and ownership of the capital stock of corporations organized under the laws of any one of the several States, or to inquire into the motives of incorporators, or of the buyers or sellers of their shares?
2. Has Congress, under the commerce clause of the Constitution of the United States, power to forbid or regulate the purchase or lease, by one railway company engaged in interstate commerce, of the railway of its competitor, or the purchase or lease by the owner of one ferryboat, stage coach or river steamboat, engaged in interstate trade, of the ferryboat, stage coach or river steamboat, of a competitor, on the ground that through such purchase or lease competition may be restrained, and commerce regulated?
3. Is the unity of ownership through purchase, partnership, consolidation or lease, of a majority of the shares of competing corporations, engaged in interstate trade, a contract or combination in the form of trust or otherwise, forbidden by the Anti-Trust Act, as in restraint of trade?Page 285
4. Is there anything in connection with the organization of the Northern Securities Company, or its purchasers of stock, that in any way distinguishes its right to vote and receive dividends upon such stock from the right of any single interest, individual or corporate, to vote and receive dividends upon shares of competing corporations engaged in interstate trade, purchased in the ordinary course of business, or acquired by gift or inheritance?
5. This suit was brought under section 4 of the Anti-Trust Act, which gives the court jurisdiction to prevent and restrain violations of the act. Every violation of the act is criminal. The court is, therefore, given jurisdiction to prevent and restrain the commission of a crime. Months before the suit was begun, the Securities Company had acquired a large majority of the shares of the defendant railway companies, from time to time, from hundreds of individual shareholders, who sold their holdings in good faith, and much of the stock so taken in payment therefor has since been sold and exchanged, and passed through many hands, in the usual course of business. Does the Anti-Trust Act give the court jurisdiction to annul the purchases made by the Northern Securities Company, and compel a return of the shares it purchased? Payment for the shares it bought was made in its own stock in part only. It paid cash to the amount of over $40,000,000. The owners of such shares are changing from day to day; they are not before the court. The decree does not restrain a contract or combination in restraint of trade. It destroys or impairs the value of millions of dollars worth of property, owned by many hundreds of people who acquired their title in good faith and who are not parties to this suit.First. The commerce clause of the Constitution of the United States does not take away from the several States the right to authorize the formation of corporations, define their business, fix the amount of their capital or purchasing power, and regulate the issue, sale and ownership of their capital stock.
As respects the purchase by one corporation of the sharesPage 286of another, the matter rests with the States which have created the corporations. Should unification of ownership of property in corporations proceed to such an extent as to be thought against public policy, it may be prevented by the several States, through limiting the power of corporations, and restraining their right to engage in business.
It has been the practice, since the infancy of railroads in this country, for one railroad company to purchase or lease the railroad of a competing company, or to acquire a majority of the shares of a competing company, or of two companies competing with each other, or to effect the consolidation of competing companies. This has been done without objection from any branch of the Federal Government, and has invariably proven beneficial to the railway companies concerned, to their shareholders, and to the public. The extent to which this has been done appears in the record, and is shown by extracts from Poor's Manual and from the annual reports made by the Interstate Commerce Commission to Congress, from 1889 to 1900. And see the brief of Judge Young where this subject is discussed at length with proper reference to the record.Second. Unity of ownership of shares of competing corporations, engaged in interstate trade, does not restrain such trade, and is not forbidden by the Anti-Trust Act, nor is such unity of ownership a regulation of interstate commerce, and thus subject to exclusive Federal jurisdiction under the commerce clause of the Constitution.Joint Traffic, Trans-MissouriandAddyston Pipe Co. cases.
There is a distinct difference between an agreement between the owners of competing concerns, to divide territory, to restrain output, or to maintain prices, and the unconditional sale of the property or business of one of them to the other, or of the property of business of both to another person. In the former case, the agreement in terms restrains competition in trade operations, between separate owners or establishments, or instrumentalities engaged in such operations. The agreementPage 287relates to the manner in which competitors shall conduct their business. If one competing concern buys the plant or business of its competitor, competition is not thereby directly restrained. The restraint in such case, if any, is merely an incident to the ownership of property, and the fact that there may be such a restraint does not forbid the acquiring of such ownership. By unity of interest output is not necessarily limited, prices are not necessarily increased. On the contrary, the public may be benefited, prices may be less by reason of greatly increased volume of business and less cost per unit of production.Third. The Anti-Trust Act is a penal statute and, as construed by the court below, it makes unity of ownership of a majority of the shares of competing corporations engaged in interstate trade, no matter how such ownership is acquired, criminal, because such ownership gives power to commit crime.
It is conceded that such ownership, so far as it may control the policy of the corporations, can be exercised for a lawful purpose, for building up trade, increasing competition and reducing prices.
It is not claimed or pretended that in the case under review trade has been restrained, yet the court below held that unity of ownership of a majority of the stock of the defendant railway companies was unlawful, and, therefore, criminal, because such ownership has necessarily caused the doing of something that has not been done; has necessarily restrained trade, though trade has not been restrained.
Stated in another way, the court below decided that ownership by the Securities Company of a majority of stock of the defendant railway companies regulates the commerce of the companies, and though such commerce has in fact been so regulated as to build up trade, increase competition and reduce prices, in law it has necessarily been so regulated as to restrain trade, suppress competition and increase prices because through unity of ownership motive to compete has been destroyed.Tozerv.United States, 4 I.C.C. Rep. 246;R.R. Co. v.Dey,Page 2882 I.C.C. Rep. 325;Schooner Paulina's Cargov.United States, 7 Cranch, 52, 61;United Statesv.Reese,92 U.S. 214.Fourth. Trade has not been restrained through the exercise of the voting power of these stocks. The ruling that trade has been restrained, is contrary to the facts, and charges the individuals engaged in this transaction with a crime, that has not been committed nor intended.
When this suit was begun, the shares of the Northern Securities Company were held by over eighteen hundred separate owners who had purchased them in good faith, in the usual course of business. The shareholders of the defendant railway companies, who were instrumental in organizing the Securities Company, have never owned to exceed one-third of its stock. The control of the Securities Company, so far as stock ownership can control it through the election of a board of directors, is not in the eight Great Northern shareholders who were concerned in the organization of the company, but in the seventeen hundred and ninety shareholders owners of more than two-thirds of its stock. The combination of which the court convicted the eight individual defendants, was not one by which they were to acquire control over the two railway companies, for themselves, but one through which such control would necessarily be conferred upon the seventeen hundred and ninety other stockholders of the Securities Company.
The ruling of the court that the possession of the voting power of a majority of the shares of the defendant railway companies by the Securities Company, necessarily restrains trade through suppressing competition, finds no support in facts. The boards of directors of both railway companies may be elected by the Securities Company. The executive officers of the two companies will be elected by these boards, and the ruling of the courts rests upon the proposition, that such boards and officers will be influenced, persuaded or coerced in such way, that they will lack their former incentive to compete for traffic, to obtain it from each other, and to underbid each other for the purpose of getting it; that they will enterPage 289into contracts or in some way through concert of action, maintain higher rates than ought to be maintained; in other words, that they will charge unreasonable rates, will not provide adequate facilities, nor extend construction of lines.
The Northern Securities Company has no power or motive to restrain trade which any single owner of a majority of the shares of defendant railway companies would not have, and which the individual owners of the shares did not have, by lawful conference and concert of action, before they transferred their shares to it.
The defendant railway companies were hampered and placed at disadvantage with other transcontinental railways, as well as with ocean competitors by the want of sufficient direct connection with traffic centers offering the best markets for the products of the country along their lines, and with places of production and distribution from which their traffic must be supplied. Through the Burlington purchase they acquired permanent access to markets and sources of supply, instead of a temporary one resting upon joint rates subject to change at any time without regard to their interest. Having made the purchase and assumed the resulting joint and several obligations, it became a matter of the highest importance to each company that the burdens should be equally borne and the advantages equally shared. Through placing the ownership of a majority of the shares of both companies in the hands of a single owner, the benefits of the Burlington purchase became better assured than would be the case if the shares were held in many hands, and liable at any time to be sold to an interest adverse to the building up of the business of the defendant railway companies and the country which their lines traverse.
It has not been shown that the power of the defendant railway companies to restrain competition can affect more than three or four per cent of their interstate traffic, or that it has affected or can affect construction or extension of their lines, or the amount or quality of their equipment. Through theirPage 290ownership of Burlington shares, and by reason of the obligation assumed in paying for the shares, they have a common interest in building up the traffic of each in connection with the Burlington Company. This connection became necessary to their prosperity, to the welfare of their patrons, and to the successful meeting of a world-wide competition. What has been done was done, not to restrain competition, but to enlarge it.
The unity of ownership of their shares has not restrained the commerce of either, and the extent to which such unity can restrain it, is as nothing compared with the great increase in volume of interstate and international commerce which was intended, and which will result from the carrying out of the enterprise of the two companies in the purchase of the Burlington stock, and the preservation of the purchase, and its benefits, by placing the stock of the railroad companies where it is less likely to become scattered and to pass under control of adverse interests, than it would be if held by many owners.Mr. Francis Lynde StetsonandMr. David Willcoxfor appellants, Morgan, Bacon and Lamont, submitted a brief:
The transactions alleged are entirely lawful in their character. They consisted merely in the organization of a lawful corporation of New Jersey, and in the sale to, and purchase by, it of property lawfully salable. All the acts were expressly authorized by law. The legal effect of the transaction has been that the owner of stock in one of the railway companies has sold the same to the Securities Company, and has received therefor stock of the Securities Company, which company owns the stock not merely of one of the railway companies, but the stock of both. So that each individual who has transferred his property to the Securities Company has obtained therefor something entirely different — namely, an interest in a company holding stock of the other railway company as well. It is manifest that in the fullest possible sense this constituted a sale of the property.Bergerv.U.S. SteelPage 291Corp., 53 Atl. Rep. (N.J.) 68. The title passed for valuable consideration to a purchaser authorized to hold the property. Aside from the corporate form of the transaction, the effect, too, was that each stockholder in one of the railway companies transferred an interest in his holdings to every other such stockholder.
These transactions being lawful are not affected by allegations as to the motive which actuated them. As the means employed were lawful, the only question must be whether the result accomplished was unlawful.Pettibonev.United States,148 U.S. 197,203;United Statesv.Isham, 17 Wall. 496;Adlerv.Fenton, 24 How. 407, 410;Kiffv.Youmans,86 N.Y. 324,329; cited with approval inConnollyv.Union SewerPipe Co.,184 U.S. 540,546;Randallv.Hazleton, 12 Allen, 412, 418;Dickermanv.Northern Trust Co.,176 U.S. 181,190;Straitv.National Harrow Co., 51 F. 819;Phelpsv.Nowlen,72 N.Y. 39,45;Woodv.Amory,105 N.Y. 278,281;Loughv.Outerbridge,143 N.Y. 271,282;National Assn. v.Cumming,170 N.Y. 315,326,340;Mogul Steamship Co. v.McGregor, App. Cas. 1892, pp. 25, 41, 42;Allenv.Flood, L.R. App. Cas. 1898, p. 1;Penderv.Lushington, L.R. 6 Ch. Div. 70, 75.
An intent to violate the Anti-Trust Act, and therefore to commit a crime, could not in any case be inferred, but must be actually proved.
No indirect or remote effect of these lawful transactions upon competition between the railway companies could bring them within the Federal Anti-Trust Act.
The mere fact that a contract has the effect of restraining trade or suppressing competition in some degree does not render it injurious to the public welfare and thus bring it within the police power.Oregon Co. v.Winsor, 20 Wall. 64;Gibbsv.Gas Co.,130 U.S. 396;Hyerv.Richmond Co.,168 U.S. 471,477, affirming, 80 F. 839;Continental Ins. Co. v.Board, 67 F. 310;Diamond Match Co. v.Roeber,106 N.Y. 473;Hodgev.Sloan,107 N.Y. 244;Lesliev.Lorillard,110 N.Y. 519;Todev.Gross,127 N.Y. 480;Matthewsv.Associated Press,Page 292136 N.Y. 333;Loughv.Outerbridge,143 N.Y. 271,145 N.Y. 601;Oakesv.Cattaraugus Co.,143 N.Y. 430;Curranv.Galen,152 N.Y. 33,36;Watertown Co. v.Pool, 51 Hun, 157, affirmed127 N.Y. 485;Central Shade Roller Co. v.Cushman,143 Mass. 353.
InUnited Statesv.E.C. Knight Co.,156 U.S. 1;Hopkinsv.United States,171 U.S. 578;Andersonv.United States,171 U.S. 604, andAddyston Pipe Steel Co. v.United States,175 U.S. 211,246, the Anti-Trust Act concerns only those agreements of which the direct and immediate effect is to restrain commerce. The transaction now under review was lawful, and, however considered, was not prohibited by the Anti-Trust Act, because such restraint upon interstate trade or commerce, if any, as it might impose, would be indirect, collateral and remote.
This actis a criminal statute pure and simpleand its meaning and effect as now determined must also be its meaning and effect when made the basis of a criminal proceeding. Conversely, the act should not receive such construction only as it would receive upon the trial of those indicted for violating its provision. Criminal intent is essential to constitute a crime, and the testimony bearing thereon is always a question for the jury.Peoplev.Wiman,148 N.Y. 29,33;Peoplev.Flack,125 N.Y. 324,334.
Regardless of all other considerations presented on this argument, the judgment under review must be reversed unless it is to be establishedas matter of lawthat the mere possession of the power to control all the means of transportation of two competing interstate commerce carriers operates as the effectual exercise of such power and directly affects interstate commerce, notwithstanding the fact that such power has never been exercised by its possessors, and the further fact that it is perfectly practicable for them to exercise it in a perfectly proper way. Support for the proposition now under review was sought below in thePearsall case,161 U.S. 646,674, theJoint Traffic case, theTrans-Missouri caseand theAddystonPage 293Pipe case. The proposition, however, can be deduced from these cases only by what to us seems violent distortion. As to the case first cited, seeMinnesotav.Northern Securities Co., 123 F. 692, 705.
In the other cases and also in cases decided by the Circuit Court and Court of Appeals, the combinations had been formed by corporations or individuals engaged in business independently of one another and they had agreed to regulate their prices or mode of carrying on their business by the rules of the combination.United Statesv.Jellico Coal Co., 46 F. 432;UnitedStatesv.California Coal Dealers Association, 85 F. 252;Chesapeake Fuel Co. v.United States, 115 F. 610;Gibbsv.McNeeler, 118 F. 120.
It has been held repeatedly that such restraints as result from the sale or the purchase of property are not within the provisions of anti-trust statutes. Indeed, it is the settled law that the transfer of a business is not illegal because it restrains trade, even by an express covenant.Oregon Co. v.Winsor, 20 Wall. 64;Union Co. v.Connolly, 99 F. 354, aff'd184 U.S. 540;Fisheries Co. v.Lennen, 116 F. 217;Harrisonv.Glucose Co., 116 F. 304;Hodgev.Sloan,107 N.Y. 244;Lesliev.Lorillard,110 N.Y. 519;Todev.Gross,127 N.Y. 480;Oakesv.Cattaraugus Co.,143 N.Y. 430;Watertown Co. v.Pool, 51 Hun, 157, approved127 N.Y. 485;Woodv.Whitehead Co.,165 N.Y. 545;Walshv.Dwight, 40 A.D. (N.Y.) 513;Park Sons Co. v.Druggists' Association, 54 A.D. (N.Y.) 223;S.C.,175 N.Y. 1;Diamond Match Co. v.Roeber,106 N.Y. 473.
So, too, it has been ruled precisely that the formation of associations or corporations is not illegal, because the result will be to restrain competition.Hopkinsv.United States,171 U.S. 578;Andersonv.United States,171 U.S. 604;United States Vinegar Co. v.Foehrenbach,148 N.Y. 58;Raffertyv.Buffalo City Gas Co., 37 A.D. (N.Y.) 618;Gamblev.Queens County Water Co.,123 N.Y. 91,104;In reGreene, 52 F. 104;United Statesv.Greenhut, 51 F. 205;In re Terrell, 51 Fed.Page 294Rep. 213;Trenton Potteries Co. v.Olyphant,58 N.J. Eq. 507;Mogul S.S. Co. v.McGregor, App. Cas. (1892) 25;Loughv.Outerbridge,143 N.Y. 283;Statev.Continental TobaccoCo., 75 S.W. Rep. (Mo.) 737.
It is very doubtful whether in any case the second section of the act applies to railroads. Prof. Langdell, 16 Harvard Law Review, 545, June, 1903; Mr. Thorndike, Pamphlet, 1903,TheMerger Case, p. 32.
In theJoint Trafficcases the court did not specifically define "monopoly," but said that it had the meaning given to it in the body of the Anti-Trust Act, which was not involved in thePearsallcase, and the decision there cannot now be urged upon this court as a limitation upon its freedom of construction of the statute. SeeLaredov.International Bridge Co., 66 F. 246.
Obviously, a consolidation of two railroads authorized by the laws of every State which they enter would not be condemned as constituting a monopoly; nor would a purchase of all the stock of one road by a competing road similarly authorized be so condemned; nor would a combination to induce the legislatures of the several States to authorize such a consolidation or such a purchase. It cannot be that, in prohibiting monopolies, the Congress intended to forbid these familiar processes of railroad amalgamation, and if, when authorized by state law, the consummated act is not a monopoly, it would not be such merely because it has not been so authorized.
The construction claimed would make the statute unconstitutional because it would deprive the Securities Company of its property without due process of law. Corporations are entitled to the same constitutional protection of their property rights as natural persons.Minneapolis Railway Co. v.Beckwith,129 U.S. 26;Carrington Turnpike Co. v.Sandford,164 U.S. 578,592;Gulf Co. v.Ellis,165 U.S. 150,154;Lake Shore Co. v.Smith,173 U.S. 684,690;County of SantaClarav.Southern Pacific R.R. Co., 18 F. 385, 404;CountyPage 295of San Mateov.Southern Pacific R.R. Co., 13 F. 722, 745, 760.
This constitutional provision protects the right to acquire property — equally with the right — to hold the same after it has been acquired.Holdenv.Hardy,169 U.S. 366,391;Statev.Goodwill,33 W. Va. 179;Statev.Julow,129 Mo. 163,173;Knight Case,156 U.S. 1.
ThePearsall Case,161 U.S. 646, distinctly recognizes that a natural person would be entirely at liberty to buy all the shares which his means permitted of the stock of the Northern Pacific Railway Company and the Great Northern Railway Company. The State creating a corporation might limit its power in this respect, but Congress had no such general authority to cut down the powers granted by the States to their corporations, merely because they are artificial instead of natural persons. Therefore, it is obvious that a corporation having authority by its charter to make such purchases cannot, merely because it is a corporation, be prevented from so doing without depriving it of that right without due process of law.
As construed and applied by the Circuit Court the Anti-Trust Act is unconstitutional, in that it discriminates between persons in the matter of property rights and privileges on grounds that are purely arbitrary and are without justification in reason.
The power to suppress competition between two competing interstate railroad companies being always existent and under the theory of the Circuit Court always attaching to a majority of the shares of both, whether owned by one person or by several, the Anti-Trust Act, if understood as intended to do away with such power, should be enforced so as to prevent any one person, as much as any two or more persons, from acquiring stock in both of such competing companies.
If as construed by the court below, the Anti-Trust Act arbitrarily and without reason discriminates between persons in the matter of their property, rights and privileges, the actPage 296is beyond the power of Congress as clearly as it would be beyond the power of any state legislature.
"Liberty," as used in the Fifth Amendment to the Constitution means not merely bodily liberty — freedom from physical duress, but in effect comprehends substantially all those personal and civil rights of the citizen which it is meant to place beyond the power of the general government to destroy or impair.SlaughterHouse Cases, 16 Wall. 36, 122, 127;Munnv.Illinois,94 U.S. 113,142;Peoplev.Walsh,117 N.Y. 60;Butchers' UnionCo. v.Crescent Co.,111 U.S. 746;Allgeyerv.Louisiana,165 U.S. 578;United Statesv.Joint Traffic Association,171 U.S. 505,572;Addyston Pipe Steel Co. v.United States,175 U.S. 211,228;Bertholfv.O'Reilly,74 N.Y. 509;In reJacobs,98 N.Y. 98;Peoplev.Gillson,109 N.Y. 389;Peoplev.King,110 N.Y. 418;Godcharlesv.Wigeman,113 Pa. 431. And seeReginav.Druitt, 10 Cox C.C. 592, 600.
It follows that, as used in the Fifth Constitutional Amendment, "liberty" includes equality of rights under the law and secures citizens similarly situated against discriminations between them which are arbitrary and without foundation in reason.United Statesv.Cruikshank,92 U.S. 542,554;YickWov.Hopkins,118 U.S. 356,369;Gulf, Colorado Santa FeRy. Co. v.Ellis,165 U.S. 150,160.
Hence, the principles affirmed and acted upon by this court in applying the Fourteenth Amendment to state legislation, are equally applicable to legislation by Congress, and, as construed by the court below, the Anti-Trust Act is invalid as trespassing upon the "liberty" of citizens, by denying them equality of rights and discriminating between them in the matter of their property rights, arbitrarily and without reason.Cottingv.Kansas City Stock Yards,183 U.S. 106;Connollyv.UnionSewer Co.,184 U.S. 540;Barbierv.Connolly,113 U.S. 27,31.
As construed and applied by the Circuit Court, the statute is unconstitutional because without due process of law, itPage 297would deprive these defendants and all others who sold to the Securities Company of their property. If there were any prohibitions on the companies it would not apply to their stockholders. A corporation and its stockholders are different entities.Pullman Co. v.Missouri Pacific,115 U.S. 587;Watsonv.Bonfils, 116 F. 157;American PreservesCo. v.Norris, 43 F. 711;Electric Co. v.JamaicaCo., 61 F. 655, 678.
Any effort to limit the right to sell necessarily would deprive these defendants of their property without due process of law.Cleveland Co. v.Backus,154 U.S. 439,445;People exrel. Manhattan Co. v.Barker,146 N.Y. 304,312;People exrel. Manhattan Institutionv.Otis,90 N.Y. 48,52;Holdenv.Hardy,169 U.S. 366,391;Peoplev.Marx,99 N.Y. 377,386;Peoplev.Gillson,109 N.Y. 389;Forsterv.Scott,136 N.Y. 577;Ingersollv.Nassau Co.,157 N.Y. 453,463;Purdyv.Erie R.R. Co.,162 N.Y. 42,49;Cityv.CollinsBaking Co., 39 A.D. (N.Y.) 432;Rochester Turnpike Co. v.Joel, 41 A.D. (N.Y.) 43;Peoplev.Meyer, 44 A.D. (N.Y.) 1;Ingrahamv.National Salt Co., 72 A.D. (N.Y.) 582;Janesvillev.Carpenter,77 Wis. 288,301.
If complainant's contention should be sustained, the right of an owner of property to sell the same would be dependent upon what the courts at any future time might hold to be the intention of the purchaser in buying the property. Such a result would seriously impair the liberty of the owner, and the value of his property.
Whatever view be taken of the character of the transaction the decree of the Circuit Court transcended the authority of the court under the statute, which was the sole ground and source of its jurisdiction.Mr. Attorney General Knox, with whomMr. William A. Day, Assistant to the Attorney General, was on the brief, for the United States, appellee:
The bill was filed by the United States to restrain a violationPage 298of the Anti-Trust Act of July 2, 1890,26 Stat. 209; the defendant, Northern Securities Company, is a corporation organized under the general laws of New Jersey; the two railway companies are common carriers engaged in freight and passenger traffic among the several States and with foreign nations; the Great Northern was chartered by the State of Minnesota and the Northern Pacific Railway Company operates under a Federal franchise originally granted to the Northern Pacific Railroad Company, and in taking over that franchise it not only became invested with the rights and privileges incident thereto, but also became charged with the duties, obligations and conditions which Congress attached to the granting thereof. The Northern Pacific Railroad Company was the constant concern of Congress. See Act of July 2, 1864, Res. May 7, 1866, extending time for completion; Act of June 25, 1868, relative to filing reports; Joint Resolution, July 1, 1868, extending time for completion; Joint resolution of March 1, 1869, allowing issue of bonds; Joint Resolution, April 10, 1869, granting right of way; Resolution of May 31, 1870, authorizing issue of bonds; act of September 29, 1890, forfeiting certain granted lands; act of February 26, 1895, providing for classification of mineral lands; act of July 1, 1898, granting lands in lieu of those taken by settlers.
The individual defendants were, prior to November 13, 1901, large and influential holders of the stock, some of one railway company and some of both companies. The two railroads are practically parallel for their entire length; each system runs east and west through Minnesota, North Dakota, Montana, Idaho and Washington; each connects with steamers on Lake Superior running to Buffalo and other eastern points and at Seattle with lines of the steamships engaged in trade with the Orient. The lower court found that the roads "are, and in public estimation have ever been regarded as, parallel and competing." The testimony in this case establishes that fact which is alsores judicata, Pearsallv.Great Northern Railway Co.,161 U.S. 646, and even if the roads only competed forPage 299three per cent of their interstate business they would be competing lines.
It has been the ever present aim of those dominating the policy of the Great Northern and the Northern Pacific, during the past few years, to bring about a community of interest or some closer form of union to the end that the motive from which competition springs might be extinguished. On at least three prior occasions Mr. Hill and Mr. Morgan and their associates acted in concert in transactions affecting both roads: the attempted transfer of half the stock of the Northern Pacific to the Great Northern in exchange for a guarantee of the bonds of the Northern Pacific which was held to be violative of the laws of Minnesota,Pearsallv.Great Northern Ry. Co.,161 U.S. 646; the joint purchase of the Burlington in 1901; in the events leading up to the panic of May, 1901. After the refusal to admit the Union Pacific to an interest in the Burlington purchase, those in control of the Union Pacific attempted to acquire control of the Northern Pacific and as soon as Mr. Hill and Mr. Morgan heard of this attempt they reached an understanding to oppose it in concert, and this resulted in the threat to retire the preferred stock of the Northern Pacific, and the subsequent conference at which the plan announced in the statement of June 1, in the Wall Street Summary, was arranged. The testimony of defendants shows that the incorporation of the Securities Company, and its acquisition of a large majority of the stock of both railway companies were the designed results of a plan or understanding between the defendants Hill and Morgan and their associates, which was carried out to the letter by the parties thereto. The facts, as the Government asserts them, are recapitulated in the opinion of the Circuit Court.
On the facts as proved the Government maintains that a combination has been accomplished by means of the Securities Company which is in violation of § 1 of the act of July 2, 1890; that the defendants have monopolized or attempted to monopolize a part of the interstate or foreign commerce of the UnitedPage 300States and that if either result has been accomplished, the relief granted by the Circuit Court was authorized by law. The contention as to whether the Anti-Trust Act is or is not a criminal statute is not material. Nor was it in theJointTraffic Case,171 U.S. 505. The primary aim of Congress in passing the act was not to create new offenses but to pronounce and declare a rule of public policy to cover a field wherein the Federal government has supreme and exclusive jurisdiction. As the United States has no common law, contracts in restraint of trade would not be repugnant to any law or rule of policy of the United States in the absence of a statute, and the controlling purpose of the act was to declare that the public policy of the nation forbade contracts, combinations, conspiracies, and monopolies in restraint of interstate and international trade and commerce, and the jurisdiction conferred upon courts of equity to restrain violations of the act was intended as a means to uphold and enforce the principle of public policy therein asserted, not as a means to prevent the commission of crimes.United Statesv.Trans-Mo. Freight Assn.,166 U.S. 290,342.
If the Anti-Trust Act is a criminal statute, it is also in the highest degree a remedial statute; as such it is invoked in the case at bar, and as such it ought to be construed liberally and given the widest effect consistent with the language employed. It ought not to be frittered away by the refinements of criticism. Broom's Legal Maxims, 5th Am. ed., 3d London ed., 80; Potter's Dwarris on Stat. and Const. 231, 234; Pierce and Hopper, Str. 253. It makes no difference in the application of these rules that the statutes have a penal as well as a remedial side. Ch. Prac. 215.
A statute may be penal in one part and remedial in another part. But in the same act a strict construction may be put on a penal clause and a liberal construction on a remedial clause. Sedgwick on Construction of Statutory and Constitutional Law, (2d ed.) 309, 310; Dwarris on Statutes, 653, 655;Hydev.Cogan, 2 Doug. 702.Page 301
The Anti-Trust Act was purposely framed in broad and general language in order to defeat subterfuges designed to evade it. It is framed in sweeping and comprehensive language which includes every combination, regardless of its form or structure, in restraint of trade or commerce among the several States or with foreign nations, and every person, natural or artificial, monopolizing, attempting to monopolize, or combining with any other person to monopolize any part of such trade or commerce.
The form or framework is immaterial. Congress, no doubt, anticipated that attempts would be made to defeat its will through the "contrivances of powerful and ingenious minds," and to meet these it used the broad and all-embracing language found in the act; and it is in this light that that language is to be construed. And the device of a holding corporation for the purpose of circumventing the law can be no more effectual than any other means. Noyes on Intercorporate Relations, § 393.
This court has decided that this act applies to common carriers by railroad, as well as all other persons, natural or artificial.Trans-Missouri Case,166 U.S. 290. The words in restraint of trade as used in the act extend to any and all restraints whether reasonable or unreasonable, partial or total, and there are peculiar reasons why this applies to railroad corporations.
In exercising its powers over commerce Congress may to some extent limit the right of private contract, the right to buy and sell property, without violating the Fifth Amendment. It may declare that no contract, combination, or monopoly which restrains trade or commerce by shutting out the operation of the general law of competition shall be legal.Trans-Missouri Case,supra; Joint Traffic Case, supra; Addyston Pipe Co. Case,175 U.S. 211.
When its natural effect is to stifle, smother, destroy, prevent, or shut out competition, the agreement or combination is in restraint of trade or commerce and illegal under section 1 ofPage 302the act if in interstate or international trade or commerce.Trans-Missouri Case, supra.
"To prevent or suppress competition" and "to restrain trade" are, in fact, often used by judges as convertible terms to express one and the same thought.Mogul S.S. Co. v.McGregor, L.R. App. Cas. (1892), 25, was decided upon common law principles, there being no statute, such as the Federal Anti-Trust Act, making it unlawful and criminal to enter into agreements or combinations in restraint of trade.
Both the Court of Appeal and House of Lords held that the action could not be maintained because, even if it were in restraint of trade, an agreement in restraint of trade was not unlawful at common law in the sense that it furnished cause for a civil action by one damaged by it, but only in the sense that it was void and unenforceable if sued on.
The Government does not claim that ordinary corporations and partnerships formed in good faith in ordinary course of business come within the prohibitions of the act because incidentally they may to some extent restrict competition, but those where the corporation or partnership is formed for the purpose of combining competing businesses. The act embraces not only monopolies but attempts to monopolize. The term monopoly as used by modern legislators and judges signifies the combining or bringing together in the hands of one person or set of persons the control, or thepowerof control, over a particular business or employment, so that competition therein may be suppressed.Peoplev.Chicago Gas Trust Company,130 Ill. 294;Peoplev.North River Sugar Refining Co., 54 Hun (N.Y.), 377;United Statesv.E.C. Knight Co.,156 U.S. 1. And as to railroads, seePearsallv.Great Northern Railway,161 U.S. 646,677;Louisville Nashville R.R. Co. v.Kentucky,161 U.S. 677.
A combination or monopoly exists within the meaning of the act even if the immediate effect of the acts complained of is not to suppress competition or to create a complete monopoly.Page 303It is sufficient to show that theytendto bring about those results. Cases citedsupra, andSalt Co. v.Guthrie,35 Ohio St. 672.
It is not essential to show that the person or persons charged with monopolizing or combining have actually raised prices or suppressed competition, or restrained or monopolized trade or commerce in order to bring them within the condemnation of the act. It is enough that the necessary effect of the combination or monopoly is to give them the power to do those things. The decisive question is whether the power exists, not whether it has been exercised. In theTrans-Missouri, Joint Traffic, PearsallandAddyston Cases, supra, this court held that it was immaterial that trade or commerce had not actually been restrained — that it made no difference, even, that rates and prices had been lowered, it being enough to bring the combination within the condemnation of the act that it had thepowerto restrain trade or commerce. The very existence of thepower, under these rulings, constitutes a restraint.
It is not necessary in order to bring a combination or conspiracy within the operation of the act that the membersbindthemselves each with the other to do the acts alleged to be in restraint of trade. It is enough that they act together in pursuance of a common object, and while, of course, this presupposes agreement between them in a broad sense, an agreement or contract in the technical sense is not at all essential.Reg. v.Murphy, 8 C. P. 397.
A combination or a monopoly, the necessary effect of which is to restrain trade or commerce, is a violation of the act, and the aim, motive, intention, or design with which the combination is entered into or the monopoly created is wholly immaterial and outside the question. It may have been to aid and further commerce rather than to restrain it; but if in point of law the effect or the tendency of the combination is to restrain trade or commerce the combination is unlawful, and the motive behind it, however beneficent, does not alter that fact in thePage 304slightest degree.Trans-Missouri Case,166 U.S. 290,341;C.O. Fuel Co. v.United States, 115 F. 623.
A combination or monopoly of competing lines of interstate railway — of competing instrumentalities of interstate commerce — is a combination or monopoly in restraint of interstate commerce within the prohibition of the act. The transportation of persons and things is commerce and if a combination or monopoly of such transportation is a combination or monopoly in restraint of commerce within the act, and hence illegal, it follows as a corollary that a combination or monopoly of the means or instrumentalities of transportation is likewise a combination or monopoly in restraint of commerce, because a monopoly of the means of transportation leads directly and inevitably to a monopoly of transportation itself.
Again, a monopoly of themeansof transportation puts it in thepowerof the monopolist to stifle competition in thebusinessof transportation, and a combination or monopoly which had thepowerto stifle competition in thebusinessof transportation among the States is in restraint of interstate commerce and therefore illegal.
From still another standpoint, Congress may prohibit, and has prohibited, combinations and monopolies in thebusinessof interstate and international transportation. But what does this power amount to if Congress may not also prohibit monopolies of themeans and instrumentalitiesof such transportation — of the roads themselves? Virtually nothing; for he who has a monopoly of the means of transportation has a monopoly of transportation itself. See theTrans-Missouri Case, Joint Traffic CaseandPearsall Case, supra.
The Anti-Trust Act prohibiting combinations and monopolies in restraint of interstate and foreign commerce is an exercise of the power granted to Congress to regulate commerce,Championv.Ames,188 U.S. 321, and the term "commerce" as used in that grant embraces the instrumentalities by which commerce is or may be carried on.Railroad Co. v.Fuller,Page 30517 Wall. 560, 568;Weltonv.Missouri,91 U.S. 275,280;Pensacola Tel. Co. v.West. Un. Tel. Co.,96 U.S. 1;Gloucester Ferry Co. v.Pennsylvania,114 U.S. 196,203.
But put the proposition as it is put by appellants: Can Congress regulate the ownership of interstate railroads under its power to regulate commerce among the States, and has it done so by this act of 1890? Most certainly, yes. Congress can regulate anything and everything in the sense that it can prohibit and prevent its use in a way that will defeat a law that Congress may constitutionally enact. For this purpose, the supreme power operates upon everything, upon every one.
No device of State or individual creation can be interposed as a shield between the Federal authority and those who attempt to subvert it. No rules of law which govern the relations which individuals have createdinter sese, or which have been assumed between themselves and a State, are to be considered in an issue between them and the United States to defeat the ends of a constitutional law. The Federal power would not be supreme if the operation of its laws could be defeated, embarrassed, or impeded by any means whatsoever.
It is no violation of the reserved rights of the States, but, on the contrary, is clearly within the Federal power for Congress to enact that no persons, natural or artificial, shall form a combination of the instrumentalities of any part of interstate commerce the effect or tendency of which would be to restrain interstate trade or commerce, and that no person or persons, natural or artificial, shall acquire a monopoly of such instrumentalities. This is a natural and logical deduction from the supreme, plenary, and exclusive nature of the power of the Federal Government over foreign and interstate commerce, in the exercise of which Congress may descend to the most minute directions.
The "penetrating and all-embracing" nature of this power has often been stated, explained, and emphasized by this court.Gibbonsv.Ogden, 9 Wheat. 1, 197, and see concurring opinion of Johnson, J., also. The principles announced inPage 306this case have never been departed from, but have been reaffirmed time and again by this court, notably inBrownv.Maryland, 12 Wheat. 419;Passenger Cases, 7 How. 283;In re Debs,158 U.S. 564;Championv.Ames,188 U.S. 321;Stocktonv.Baltimore N.Y.R. Co., 32 F. 11, 16.
The fact that in recent years interstate commerce has come to be carried on by railroads and over artificial highways has in no manner narrowed the scope of the constitutional provision or abridged the power of Congress over such commerce. On the contrary, the same fullness of control exists in the one case as in the other, and the same power to remove obstructions from the one as from the other.
Of course, it makes no difference whether the obstruction be physical or economic — whether it be a sand bar, a mob, or a monopoly — whether it result from the sinking of a vessel or the stifling of competition — the power of Congress to remove it is the same in each case.Gilmanv.Philadelphia, 3 Wall. 713, 724.
On these subjects the state legislatures have no jurisdiction.Addyston Pipe Co. Case,175 U.S. 211,232;Boardmanv.LakeShore c. Ry. Co.,84 N.Y. 157,185.
Congress has the power to legislate upon the subject of consolidations of railroad corporations when the consolidations form interstate lines; in the absence of legislation by Congress, the power exists in the States to legislate upon the subject, but in the presence of legislation by Congress the power of the States over the subject is excluded. Noyes on Intercorporate Relations, § 19, citingLouisville Nashvillev.Kentucky,supra.
This exclusive jurisdiction of the Federal Government over commerce with foreign nations and among the States, and over the instrumentalities of such commerce, includes the power of police, or, that which is its equivalent, over those subjects in all its undefined breadth and fullness and which is just as full, complete, and far-reaching as is the police power of the state legislatures with reference to subjects within thePage 307exclusive jurisdiction of the States. In either case there are no limitations to its exercise, except the constitutional guaranties in favor of life, liberty, and property. Thayer's Cases on Const. Law, 742, note; Cooley's Const. Lim. 723; Noyes on Intercorp. Rel. § 409.
Anti-trust statutes are enacted in the exercise of the police, or an analogous, power.Statev.Firemen's Fund Ins. Co.,152 Mo. 46;Statev.Schlitz Brewing Co.,104 Tenn. 715;Waters-Pierce Co. v.State,19 Tex. Civ. App. 1.
Congress having the police power, or its equivalent, over foreign and interstate commerce and the instrumentalities thereof, may in exercising it, strike down restraints upon such commerce, whether they result from combinations and monopolies of the agencies of transportation or otherwise, just as a State could prohibit similar restraints upon interstate commerce. To contend otherwise is to contend that the Federal power over interstate and foreign commerce is not supreme, but is in some respects subordinate to state authority; that the police powers or the reserved powers of the States are, for some purposes, paramount to the powers of Congress in fields wherein the Federal Government has been invested by the Constitution with complete and supreme authority. This, of course, is not so.New OrleansGas Co. v.Louisiana Light Co.,115 U.S. 650,661.
TheLouisville Nashville Case, supra, does not hold that Congress has no power to prohibit the consolidation of competing interstate railroads. Congress has created "the instruments of such commerce," and it has passed regulations concerning them, and the power to do these things is now unquestioned.Californiav.Pacific Railway Co.,127 U.S. 1. What the court meant in theLouisville Casewas that in respect of matters of a local nature, which did not admit or require uniform regulation, the States may "regulate the instruments of such commerce" until Congress legislates on the same subjects, while in respect of matters of national importance, or which admit of uniform regulation, the powerPage 308of the States is wholly excluded. The distinction was stated inWeltonv.Missouri,91 U.S. 275.
Ownership of a majority of its stock constitutes the control of a corporation when the inquiry is whether a combination or monopoly has been formed to stifle competition between two or more rival and competing railroads. Noyes on Intercorp. Rel. § 294;Farmers' L. T. Co. v.N.Y. c. R.R. Co.,150 N.Y. 410,424;Peoplev.Chicago Gas Trust Co.,130 Ill. 268,291; Greenhood on Public Policy, 5;Richardsonv.Crandall,48 N.Y. 343;Salt Co. v.Guthrie,35 Ohio St. 666;Milbankv.N.Y., L.E. W., 64 How. (N.Y.) 29;Pearsallv.GreatNorthern Railway,161 U.S. 646,671;Pullman Co. v.Mo. Pac.R. Co.,115 U.S. 587;Pa. R. Co. v.Commonwealth, 7 Atl. Rep. 368, 371.
The Great Northern and Northern Pacific Railway companies, competing interstate carriers, have been combined in violation of section 1 of the Anti-Trust Act, that is to say, a majority of the stock of each road has been transferred to a common trustee, the Securities Company, which is thus vested with the power to control and direct both roads for the common benefit of the stockholders of each.
The Anti-Trust Act condemns in express terms every "combination in the form of trust," and if those companies have been combined "in the form of trust," a violation of the very letter of the statute has been proved.
There is no great difficulty in getting at what Congress meant by a "trust." The meaning of the term was well understood in the economic and industrial world at the time of the passage of the Anti-Trust Act, and is now. The word was first used to describe an arrangement whereby the business of several competing corporations is centralized and combined by causing at least a majority of the stock of the constituent corporations to be transferred to a trustee, who, in return, issues to the stockholders "trust certificates." The trustee holds the legal title to the shares and has the right to vote them, and in this way exercises complete control over thePage 309business of the combination. The trustee also receives the dividends on the shares, and out of these pays the former stockholders of the constituent corporations dividends on the "trust certificates." See Century Dictionary; Am. Eng. Ency. Law, 2d ed., title Monopolies Trusts;Statev.Standard OilCo.,49 Ohio St. 137; Eddy on Combinations, § 582; Noyes on Intercorp. Rel. § 304; Dodd's Pamphlet on Combinations: Their Uses and Abuses. The facts show that the Northern Securities Company constitutes a trust — it has all the essential elements of one. It is a trustee, and as such holds the stock of two competing companies; it has the legal title, its stockholders have the equitable title, to the property. Morawetz, § 237, and cases cited. There is a trust agreement, the terms whereof are in the charter; it is sufficient to show an agreement if the stockholders acted in pursuance ofanyunderstanding plan or scheme, verbal or otherwise.Hardingv.Am. Glucose Co.,182 Ill. 551. The certificates of stock of the company represent and fill the same office as trust certificates; the company has the power to vote the stock of both railways and thus elect the directors of both. As trustee, it collects the dividends on the stock of both companies and thereout pays dividends on its own stock exactly as a trustee of a trust collects and pays on the trust certificates.
It constitutes a trust in another light also. As the courts throughout the country held with practical unanimity that the class of "trusts" just described is illegal, a second class was invented of corporations that have acquired control of other corporations by purchasing their stock. This organization is of the same general character as the preceding, but the form is changed in order to escape the force of the decisions of the courts relating to corporate partnerships. Beach on Monopolies and Industrial Trusts, § 159. The Securities Company clearly comes within this second classification of "trusts." Noyes on Intercorp. Rel. §§ 310, 285, 393;Peoplev.Chicago Gas TrustCo.,130 Ill. 268,292,302, citingChicago GasPage 310Light Co. v.People's Gas Light Co.,121 Ill. 530;Am.Glucose Case, supra.
It is not essential, however, to show that the Great Northern and Northern Pacific Railway companies have been combined in the technical form of "trust," or "corporate combination," as some writers call it when the trustee is a holding corporation. Section 1 of the Anti-Trust Act covers any and every form of combination. A violation of that section will have been established, therefore, if it is shown that —
Mr. Hill, Mr. Morgan, and the other individual defendants, acting in concert or in pursuance of a previous understanding, have caused the title to a majority of the shares of the Great Northern and Northern Pacific companies to be vested in a single person — the Securities Company — thereby centering thecontrolof the two roads in a single head and in that way effecting acombinationof them, the effect or tendency of which is to suppress competition between them.
When analyzed the disguise by which the defendants sought to hide the fact of the combination, and their connection therewith, appears so thin and transparent that it is a cause of wonder that they should ever have adopted such a flimsy device.
It may succeed for a time in baffling persons who may have an interest in preventing its being done and has succeeded, but it was a mere crafty contrivance to evade the requisition of the law.Attorney-Generalv.The Great Northern Railway Company, 6 Jur. (N.S.) 1006;S.C., 1 Drew. Smale, 159.
The defendants seem to have thought that they could procure the organization of a corporation and have it do what they could not lawfully do themselves or through the agency of natural persons, as if that which would have been illegal if done through the agency of a natural person would lose the stamp of illegality if done through the agency of a corporate organization; but seeAttorney Generalv.Central R. Co.,50 N.J. Eq. 52;Fordv.Chicago Milk Shippers' Assn., 155 Illinois,Page 311166, 178, 180, citing Morawetz, § 227; 1 Kyd on Corp. 13;Stateex rel. v.Standard Oil Co.,49 Ohio St. 137;Distilling andCattle Feeding Co. v.People,156 Ill. 448,490.
Defendants insist that it is immaterial that a combination can be discovered by going behind the fiction that the Securities Company is a private person with an existence separate and apart from its members, because, as they say, the law will not allow that fiction to be disregarded or contradicted — will not allow the acts of the corporate entity to be treated as the acts of the natural persons who compose it. The defendants thus seek to defeat the ends of the law by a fiction invented to promote them. This proposition cannot be sustained.Peoplev.North RiverSugar Rfg. Co.,121 N.Y. 582,615.
It can never be a question as to whether parties to a combination in restraint of trade are individuals or corporations; it is always a question as to the nature, effect, and operation of the combination.
Of course a State has certain powers over the instrumentalities of commerce which it creates, as it has over the individuals by whom commerce is conducted. But a State has no power over either instrumentalities or individuals that can be interposed between them and the obligations imposed by a Federal statute regulating interstate commerce.
Where the subject is national in its character the Federal power is exclusive of the state power.Weltonv.Missouri,91 U.S. 280.
Congress has power to regulate commerce among the States, and when in the exercise of that power it becomes necessary to legislate respecting the instrumentalities of commerce, it may do so, irrespective of the question as to how or by what authority those instrumentalities were created.
And if regulation of the control of these instrumentalities is essential to prevent the subversion of a policy of Congress it may regulate that control.Page 312
The power to regulate commerce among the several States includes the power to prevent restraint upon such commerce.
To restrain commerce is to regulate it.
Therefore any law of any State which restrains interstate commerce is invalid; and any contract between individuals or corporations, or any combination in any form which restrains such commerce is invalid.
The supreme power extends to the whole subject. Under this plenary power Congress has supervised interstate commerce from the granting of franchises to engage therein, to the most minute directions as to its operation. For this purpose it possesses all powers which existed in the States before the adoption of the National Constitution, and which have always existed in the Parliament of England.In re Debs,158 U.S. 586;Gilmanv.Philadelphia, 3 Wall. 725.
If the arrangement accomplishes that which the law prohibits, through the means which the law prohibits, it is certainly within the prohibition of the law, and if thiswerea consolidation under stateauthority insteadof being a combination which effects that which defies the law of every foot of land which these railroads occupy, there should be no hesitation in saying that it violated the Federal statute, if it accomplished a restraint upon interstate commerce. To hold otherwise would be to read into the law a proviso to the effect that the act should not apply when the combination took the form of a railroad consolidation under authority of state legislation.
Fictions of law, invented to promote justice, can never be invoked to accomplish its defeat."In fictione juris semperaequitas existit." Mostynv.Fabrigas, Cowper, 177;Morrisv.Pugh, 3 Burr. 1243; Morawetz, §§ 1, 227; Taylor on Corporations, § 50; Clark and Marshall on Private Corporations, 17, 22;Statev.Standard Oil Co.,49 Ohio St. 137;Fordv.Milk Shippers, supra, and other cases citedsupra.
The Northern Securities Company, in violation of section 2 of the Anti-Trust Act, has monopolized a part of interstate commerce by acquiring a large majority of the shares of thePage 313capital stock of the Great Northern and Northern Pacific Railway companies — two parallel and competing lines engaged in interstate commerce; and the Northern Securities Company and the individual defendants, or two or more of them, have combined, each with the other, so to monopolize a part of interstate commerce.
From the facts and the argument already made it appears that by acquiring a majority of the shares of the Great Northern and Northern Pacific the Securities Company has obtained the control of, and, therefore, the power to suppress competition between, two rival and competing lines of railway engaged in interstate commerce, and in that way has monopolized a part of interstate commerce. This conclusion is sustained by the judgment of this court in the case ofPearsallv.Great Northern Railway,supra, which is conclusive of the case at bar, since it establishes the principle that to vest, designedly, in one person or set of persons, a majority of stock of two competing lines of interstate railway is to monopolize a part of interstate railroad traffic.
Even if a natural person could lawfully have done what the Securities Company has done, that would be no argument to prove that the Securities Company, in so doing, has not violated the law against monopolies.Peoplev.North River Sugar RefiningCompany, supra, p. 625.
It is not denied that the very spirited contention that the construction the Government puts upon the law in question interferes with the power of people to do what they will with their property.
That was the very object of the law, and it was certainly contemplated that the rights of purchase, sale, and contract would be controlled, so far as necessary, to prevent those rights from being exercised to defeat the law.
A combination cannot be imagined coming into existence without more or less redistribution of property between individuals through purchases, sales, or contracts. Combinations are never bestowed upon us ready made.Page 314
It must be remembered that the monopoly complained of is a monopoly of railway traffic resulting from centering in a single body controlling stock interests in two competing railways, and whatever may be the power of Congress or state legislatures over monopolies in general, they may unquestionably, in the exercise of their broad regulative powers overquasi-public corporations, prohibit any monopoly of railway transportation within their respective spheres of action.
As to the contention that the transaction is simply a sale of stock to an investor and to stamp it as illegal would be an unwarranted infringement upon the right of contract, and that the Securities Company never intended to take any active part in the controlling of the two companies, the argument is not sincere and it is demonstrated by the testimony of the individual defendants that the Securities Company was the designed instrument for directing and controlling the policies of the competing lines.
As to the circular of Mr. Hill to the stockholders, it is well settled that because a person has the right to purchase stock it does not follow that stockholders of two or more competing corporations can combine among themselves and with such person to sell him their stock and induce others to do the same, so as to center the controlling stock interests of the several corporations in a single head, in violation of statutes against combinations, consolidations, and monopolies. Noyes on Intercorp. Rel. § 36;Penna. R. Co. v.Com., 7 A. 373.
This distinction between an actualbona fidesale, and one which is merely nominal and really a cloak under which to accomplish a combination sometimes leads to confusion of language or thought. SeeTrenton Potteries Co. v.Olyphant,58 N.J. Eq. 507; Noyes on Intercorp. Rel. § 354.
As to the argument of the appellants that the "acquiescence by the Government for more than eleven years in the merger and consolidation of many important parallel and competingPage 315lines of railroad and steamships engaged in interstate commerce and foreign commerce has given a practical construction to the Anti-Trust Act of July 2, 1890, to the effect that it was not intended to forbid and does not forbid the natural processes of unification which are brought about under modern methods of lease, consolidation, merger, community of interest, or ownership of stock," there is no force whatever to the contention which the court below evidently deemed too flimsy even to refer to. But the answer to it is threefold — the case of a company formed for the purpose of holding stocks of two competing lines of interstate railways is a new one and arose for the first time in this case; the constitutionality of the act and its application to railroads was not settled until 1898 by the decision ofTrans-MissouriandJoint Traffic Cases, supra;even if there had been acquiescence as to certain combinations it would not amount to an estoppel against the Government for prosecuting this action.Louisville Nashvillev.Kentucky,161 U.S. 677,689.
The combination and monopoly charged by the United States operate directly on interstate commerce, and do not affect it only indirectly, incidentally, or remotely. Noyes on Intercorp. Rel. § 392, and authorities there cited.
The question in this case is not whether the means by which the power of the combination is brought into play are direct or indirect, but whether the combination itself, whenever its power has been brought into play — it matters not how indirect may have been the means employed in bringing it into play — operates directly on interstate or international commerce. The failure of the defendants' counsel to bear this in mind has led them to make very elaborate arguments to show that the combination charged by the Government affects interstate commerce only indirectly and remotely. In reply to the contention on this point, see opinion of the court below, after citingUnited Statesv.E.C. KnightCompany,156 U.S. 1;Hopkinsv.United States,171 U.S. 578;Andersonv.United States,171 U.S. 604, on which counsel for defendants rely,Page 316properly held that no combination could more immediately affect such commerce.
The relief granted by the Circuit Court was authorized by section 4 of the Anti-Trust Act.
The gist of the Government's charge being that a combination of the two railway companies has been formed by centering the title to a majority of their respective shares in the Securities Company, which by obtaining such majority of both stocks has acquired a monopoly — all in violation of the Anti-Trust Act and as unlawful combination and monopoly exists solely by virtue of the Securities Company's ownership of such majorities the logical and most direct way to destroy the combination and monopoly and prevent the continued violation of the statute is to strip such ownership, which was acquired in pursuance of an illegal object, of its powers and incidents — to disarm it of its power to violate the law. And this is what the Circuit Court did. Clearly this decree violates no rights of property which the Securities Company or any of the other defendants is entitled to claim.
It is proper to grant this relief even though the purpose of the company had already been accomplished. The combination charged by the Government is a combination of the two railways, formed by concentrating in the Securities Company the power to control both roads. This combination did not "come to an end," did not "accomplish its purpose," with the organization of the Securities Company, and therefore the violation of the Anti-Trust Act did not "come to an end" there, but continued on without interruption, and under the act the Circuit Courts can prevent, restrain, enjoin or otherwise prohibit violations thereof, and are left free to frame their remedial process to meet the exigencies of the case, and as courts of equity they enjoy the same wide latitude in formulating relief in cases of this class that they enjoy in any other class of cases within the jurisdiction of equity.Taylorv.Simon, 4 Mylne Craig, 141;Chicago, R.I. P. Ry. Co. v.Union Pacific Ry. Co., 47 F. 15, 26.Page 317
There is no defect of parties; all interests materially affected by the decree of the Circuit Court are represented by the parties before the court.
There were 1,300 persons who exchanged stock of the railway companies for stock of the Securities Company, and in a court of equity the interests of absent parties are represented when there are parties having similar interests before the court.Smithv.Swornstedt, 16 How. 288, 302.
Any question as to a defect of parties which might have existed has been removed from the case by the form of the decree entered by the Circuit Court, which simply adjudges that the parties defendant have entered into an unlawful combination and conspiracy in restraint of interstate commerce, and then proceeds to enjoin the defendants, the Securities Company, and the railway companies from doing the things which alone give life and force to the combination. The decree thus operates only on the parties to the bill and materially affects only their interests. The defendant corporations stand for the interests of their respective stockholders.Sangerv.Upton,91 U.S. 59;Hawkinsv.Glenn,131 U.S. 329;Minnesotav.NorthernSecurities Co.,184 U.S. 199.
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