239 F. 998 | D. Utah | 1917
Lead Opinion
This is a suit by the United States h> enjoin and dissolve an alleged monopoly and combination in restraint of trade and commerce, formed by a lease to the Southern Pacific Company until January 1, 1984, of the railroads of the Central Pacific Railway Company, and by the acquisition by the former company of all the stock of the latter, in violation of the Sherman Anti-Trust Act of July 2, 1890. It is also charged that the control so obtained by the Southern Pacific Company is contrary to the Pacific Railroad Acts of July 1, 1862 (12 Stat. 489, c. 120), July 2, 1864 (13 Stat. 356, c. 216), and June 20, 1874 (18 Stat. 111, c. 331).
The needs of the case do not require a history in detail of the origin and growth of the various railroads which the government regards a's composing two independent systems that should be kept separate and competitive. It will be sufficient to refer generally to the two companies and their respective constituents and predecessors, inclusively, as the Southern Pacific and the Central Pacific, and to speak moré precisely only when necessary. We may say in the beginning that the location and physical interdependence of the lines of these companies in California and Oregon give the distinct appearance of a single system of railroads. So clearly is this so of the lines in California and
It is only when we consider the Central Pacific line from San Francisco to Ogden, Utah, on the one hand, and the Southern Pacific main line from San Francisco, through Yuma and El Paso, to New Orleans, on the other, that the propriety of their common control seems in any degree debatable. This aspect of the railroad map is confirmed in great measure by the history of the construction of the various roads. The Central Pacific Railroad Company of California, the ancestor of the present Central Pacific, was incorporated in 1861. Up to 1870 it had constructed or acquired and put in operation the lines from San Francisco to Ogden, from Niles to San Jose, in California, and from Roseville to Chico, in the same state. The Southern Pacific Railroad Company was-incorporated in 1865, and in 1870 the construction of the Southern Pacific lines was actively commenced. There was not much of importance of the Southern Pacific before that year. In 1870 and prior thereto the Central Pacific was dominated and controlled by Fe-land Stanford, Charles Crocker, C. P. Huntington, and Mark Hopkins, and in that year, if not earlier, the same group of men were in control of the Southern Pacific. For at least 15 years thereafter, and during the most important constructive period of the Southern Pacific, a common control and dominance over both companies was exercised by them or the representatives of their estates. Parts of the lines of both companies were built by the same construction companies owned by Mr. Stanford and his associates, under the same superintendence, and with the same equipment. The primary financing of the enterprises was done by them. The Central Pacific was employed' as the principal or parent company and the Southern Pacific as its subsidiary, or rather as the corporate instrumentality for the expansion of its system. Except as to corporate title and bookkeeping, there were generally the aspects of a single enterprise. In this respect the conditions were not unlike those which have characterized the growth of many of the important railroad systems of the country in which, for necessity or convenience of financing and in some instances because of local laws, separate corporate organizations were utilized. Between 1870 and 1883, as fast as the Southern Pacific lines were 'built from Goshen, Cal., the terminus of tire Central Pacific, south to Los Angeles, thence eastward to Yuma, and across Arizona and New Mexico, and into Texas, they were turned over by completed sections to the Central Pacific for operation. Up to 1885 all the Southern Pacific railroads,- including the main line to New Orleans (with an unimportant exception), were officially announced, advertised, and operated
“We take it, therefore, that it may be regarded as settled, applying the statute as construed in the decisions of this court, that a combination which places railroads engaged in interstate commerce in such relation as to create a single dominating control in one corporation, whereby natural and existing competition in interstate commerce is unduly restricted or suppressed, is within the condemnation of the act.”
Prior to the stock acquisition in 1899 and since there never was a time, in our opinion, when there was in any real substantial sense “a natural and existing competition in interstate commerce” between the Southern Pacific and the Central Pacific, within the intent of the AntiTrust Act. Prior to 1870 the Southern Pacific lines were a negligible factor as a competitor in such commerce, and thereafter the situation has been as we have described. That competition of the kind mentioned might'now result from an enforced independence of the tyh>
“It is manifest from the terms of their lease that any bill for the adjustment and settlement of the debt of the Central Pacific Company must, in order to be -efficacious, contain provisions by which this lease and the obliga-tions of the Southern Pacific Company under it shail become security to the United States, and that the consent of the Southern Pacific Company shall be obtained to such provisions of the bill.”
The committee was of the opinion that the existing security of the government on the Central Pacific property was inadequate, and that in case of foreclosure of the first mortgages the property would be stibstantially exhausted in satisfying them. They reported that among the plans suggested to them was one “that all the associated lines forming the Southern Pacific Company (and these include the Central Pacific as consolidated) become parties” to 2 per cent, bonds oi the United States secured by a first lien upon the consolidated properties of all -the lines. The above is but a small part of a continuous history of legislative efforts in the years preceding the act appointing the commission. Congress was fully informed of the lease and its terms, and that in any conventional settlement the Southern Pacific could not be
An agreement of settlement as of February 1, 1899, was made and signed by the commissioners, the Central Pacific, and Messrs. Speyer & Co., who were managing the reorganization of that company. It was approved by the President. Contemporaneously with the consummation of the settlement the Central Pacific was reorganized under a plan that provided for a new Central Pacific Company and its issue of $100,000,000 of first refunding 4 per cent.- mortgage bonds. The plan also contemplated the guaranty of the bonds by the Southern Pacific and its acquisition of the -stock of the new company. There was the same publicity of the details of this plan as generally attends the reorganization of important railroad systems, and the commission was advised of them in the early stages of its prejparation. By the agreement of settlement the Central Pacific was to execute to the United States 20 promissory notes, dated February 1, 1899, payable, respectively, on or before the expiration of each successive 6 months for 10 years, each for the sum of $2,940,635.48, or one-twentieth of the total debt, and bearing interest at 3 per cent, per annum, payable semiannually. Each note contained a provision for the maturity of all upon partial default, as provided in the act appointing the commission. The Central Pacific, “or its successor company having title to the aforesaid railroads,” was also to make an issue of 45-year 4 per cent, gold bonds, not exceeding $100,000,000 in all, secured by a first refunding mortgage upon all its railroads, whether bond-aided or not, and all its equipment and terminals. The bonds were to be further secured by the guaranty of the Southern Pacific, and were to be, as expressed in the agreement of settlement, “prior in lien to any lease of the railroads of said Central Pacific.” Of these bonds $58,-820,000 were to be deposited with the Treasurer of the United States as security for the 20 installment notes. In addition, Speyer & Co.,
The agreement of settlement was carried out in all its details. The lease to the Southern Pacific was subordinated to the mortgage securing the new first refunding bonds by an indenture executed by that company, which recited as consideration “the benefits and advantages fi> be derived by said party of the first part (the Southern Pacific) from the carrying out of the agreement between the United States, the Central Pacific Railroad Company, and Messrs. Speyer & Co., dated February 1, 1899.” On February 15, 1899, the commission reported to' the House of Representatives. The report was in general terms and' referred to the agreement of settlement, a copy of which accompanied it. No reference to the guaranty of the Southern Pacific appeared in the report or the agreement, but the proof is convincing that the commission regarded it as a vital feature of a settlement. In the annual report of the Attorney General to the Senate and House of Representatives' in November, 1899, the completion of the settlement was set out, but the guaranty of the Southern Pacific was inadvertently stated ag being upon the notes, instead of upon the bonds securing them. With the exception of some credits, which will be presently mentioned, the notes held in the treasury of the United States were paid by the checks of the Southern Pacific. That company charged the amounts to the Central Pacific upon their intercompany accounts.
The rule as to the persuasive force of an administrative construction of statutes is a familiar one, and is frequently applied, but in the case before us there was more than the ordinary acts of public officers subject to legislative restraint. Here there was a commission, composed of the very highest officials of the government, specially created and charged with the adjustment of a difficult and complicated business that had for years engaged the attention of Congress. Limitations upon their power and conditions to be observed were expressly set forth in the statute, but none remotely suggesting any obstacle in the Anti-Trust Act. Except as to those limitations and conditions, plenáry power was given them. The relations between the Southern Pacific and the Central Pacific, long a matter of public history, naturally foreshadowed the engagement of the former in any adjustment of the financial condition of the latter; and additional considerations then affecting the other transcontinental railroad companies pointed the same way. So natural, if not inevitable, was the settlement that was made that the omission of limitations now urged is most significant. We do not say the commission was authorized to violate or to sanction tire violation of the act of Congress, but the adjustment they effected necessarily involved tire question of its pertinence to' the business in hand. The acceptance of the guaranty of the Southern
With knowledge of the settlement, and, it may be fairly presumed, of the details that were public history, Congress authorized the Secretary of the Treasury to dispose of “any notes in his possession touching the indebtedness of the Central Pacific Railroad Company to the United States.” Act March 3, 1899, c. 427, 30 Stat. 1245. Further, by Act March 3, 1901, c. 831, 31 Stat. 1023, the Secretary of the Treasury' was authorized and directed to settle claims for interest growing out of transportation services for the government “over non bond-aided lines of the Southern Pacific Company and Central Pacific Railroad Company by crediting” the amounts upon the Central Pacific installment notes. This was done. The claims were just debts of the government, and the legislative direction to credit those due the Southern Pacific upon the indebtedness of the Central Pacific was a recognition, in some degree, at least, of a relationship between the two companies that justified it. There was no other warrant or authority than that which arose from the proprietary position of the Southern Pacific.
It is contended by both parties that the opinion and decision of the Supreme Court in United States v. Union Pacific, supra, has a decisive bearing upon the case at bar. Aside from the controlling principles of law announced by the court and a matter presently to be mentioned, we do not think so. The Central Pacific was not a party to that suit, and though the relations between it and the Southern Pacific were mentioned in the opinion the references were not condemnatory, but were explanatory of the railroad situation and the movements of traffic. The court said, however, that nothing in its opinion should be considered as preventing the court below from approving or adopting a plan providing for the retention by the Union Pacific of the Central Pacific line from San Francisco to Ogden. There is a relevance here in the necessary inference that such retention by the Union Pacific would not have been regarded as contrary to the Anti-Trust Act. On the record then before the court it appeared that the Union Pacific already controlled the line from Portland, Or., to Granger, Wyo., and was largely interested in the line from San Pedro, Cal., to Salt Rake City, Utah. The retention by the Union Pacific of the Central Pacific road from San Francisco to Ogden would have given the former company lines from the three important ports — Portland, San Francisco, and San Pedro — to connections with its main line in Utah and Wyoming. In corporate origin each of the three lines was separate and distinct from the othérs and from the Union Pacific, in the same sense a a
After the decision of the Supreme Court that the combination of the Union Pacific and the Southern Pacific was unlawful, those companies, to meet the suggestions of the Attorney General, incorporated in the plan to dissolve the combination provisions for the surrender by the Southern Pacific to the Union Pacific of all the Central Pacific lines except one from Northern California to the northern state line and a branch therefrom into Oregon. These provisions were in excess of the mandatory requirements of the Supreme Court, and their consummation depended upon the approval of the Railroad Commission of California. Upon a consideration of them the Commission expressed the belief that the arrangement would “not substantially benefit the shippers of transcontinental freight either in rates or in service,” and that it would be a distinct detriment to local commerce within the state. However, the Commission made certain modifications and conditions as to features within its jurisdiction; but the railroad companies were unable to agree to them, and that part of the plan was abandoned. The failure to agree was followed by this suit to separate the Southern Pacific and the Central Pacific, but we think the doubts of the California Commission would apply with equal force to the result now sought to be accomplished. It may be observed in this connection that this case of the government, unlike others of similar character, finds little, if any, support in testimony from complaining shippers or the public generally.
The petition is dismissed.
<S=>For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes
<£s^For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes
Dissenting Opinion
(dissenting). It is difficult 'to determine from the opinion of the majority exactly upon what ground or grounds the bill in this case is dismissed. The opinion states that:
“Prior to the stock acquisition in 1899 and since there never was a time, in our opinion, when there was in any real substantial sense ‘a natural and existing competition in interstate commerce’ between the Southern Pacific and the Central Pacific within' the intent of the Anti-Trust Act. * * * That competition of the kind mentioned might now result from an enforced independence of the two companies and a separation of.their railroads may be true, but we do not think the statute was intended to create competition by destroying a proprietary relation formed long before its passage and by the very means of which a railroad system has been brought into existence.”
If the language first quoted means natural and existing competition in fact, then it is entirely consistent with the claim of counsel for the United States, which is that no such competition existed or could exist by reason of the common control since 1899 of the Central Pacific by the Southern Pacific. If the language means that there could be no competition between the two railroad systems, then.the language is inconsistent with the language which follows, wherein it seems to be conceded that but for the common control there would be competition. As the breaking up of an unlawful combination does not create natural competition, but simply removes the barriers which prevent the free flow of interstate commerce, the concession that there might be competition if the combination was broken is also a concession that there is natural competition which is suppressed by reason of the control of the Central Pacific by the Southern Pacific.
The combination which is complained of in this case is alleged to have originated in 1899 in the acquirement of all the stock of the Central Pacific by the Southern Pacific. The fact that prior to the passage of the Anti-Trust Law there had been a practical control of the Central Pacific by the Southern Pacific through a leasing arrangement in no way validates the present combination, if it be unlawful. Standard Oil Co. v. United States, 221 U. S. 1, 31 Sup. Ct. 502, 55 L. Ed. 619, 34 L. R. A. (N. S.) 834, Ann. Cas. 1912D, 734; United States v. American Tobacco Co., 221 U. S. 106, 31 Sup. Ct. 632, 55 L. Ed. 663; United States v. Trans-Missouri Freight Association, 166 U. S. 290, 17 Sup, Ct. 540, 41 L. Ed. 1007; United States v. Delaware & Hudson Co., 213 U. S. 366, 29 Sup. Ct. 527, 53 L. Ed. 836; Philadelphia, Baltimore & Washington R. R. Co. v. Schubert, 224 U. S. 603, 32 Sup. Ct. 589, 56 L. Ed. 911; Waters-Pierce Oil Co. v. Texas, 212 U. S. 86, 29 Sup. Ct. 220, 53 L. Ed. 417; United
There does not seem to be any conflict in the authorities upon this proposition. The evidence in the record in my opinion establishes beyond question that the Southern Pacific, extending from San Francisco Bay to New Orleans, with its steamship connection with New York, is a natural competitor of the Central Pacific, both as to California-Atlantic Seaboard freight and central and western United States freight to and from California. A mere inspection of the different routes over which interstate commerce is moved through the El Paso and Ogden gateways would seem to show that the two roads are natural competitors. If they are competitors, and the Southern Pacific, as it is admitted, controls the Central Pacific, it follows that the free flow of interstate commerce is restrained. United States v. Union Pacific Railroad Co., 226 U. S. 61, 33 Sup. Ct. 53, 57 L. Ed. 124; Northern Securities Co. v. United States, 193 U. S. 197, 24 Sup. Ct. 436, 48 L. Ed. 679.
I do not think the evidence shows that the Central Pacific and the Southern Pacific were created originally and have always continued to be one system. They have always been and are now operated as separate systems. The settlement by the United States of the debt of the Central Pacific in 1899 cannot be held to estop the United States from insisting at this time that the combination between the two roads is in violation of the Anti-Trust Act. It is not remarkable that in the proceedings resulting in the settlement, so far as they, appear of record, the Anti-Trust Law was not referred to, as little attention was given in those days to the Antitrust Law of July 2, 1890.
Finally, I am unable to reconcile the decision of the Supreme Court in the case of United States v. Union Pacific Railroad Co., 226 U. S. 61, 33 Sup. Ct. 53, 57 L. Ed. 124, with the conclusion reached by the majority in this case. The Union Pacific and the Central Pacific constitute one transcontinental line from Omaha, Neb., to the Pacific Coast. Of course, it would not be objectionable for the Union Pacific to control the Central Pacific, so far as anything in the record in this case is concerned, because it would simply be the same through line, with no competition involved as between these two roads; but the Supreme Court held in the case cited that the control of the Southern Pacific by the Union Pacific was a combination in restraint of commerce that should be broken up.
In this case the Southern Pacific, which the Supreme Court held was in competition with the Union Pacific, controls the Central Pacific, or another section of the through line from Omaha to the Coast. How is the decree of the Supreme Court in the Union Pacific Case to become effective, with the competitor of the Union Pacific controlling the Central Pacific? If it was unlawful for the Union Pacific, being one section of the through line, to control the Southern Pacific, why is it not unlawful for the Southern Pacific to control the other section of the through line. It is said in the opinion that there is no
For these reasons, briefly stated, I dissent from the conclusion reached by the majority.