After commencement of a proceeding by the Federal Trade
Commission to compel a holding company to divest itself of the
voting stock of two competing operating companies, held by it in
alleged violation of the Clayton Act, a reorganization was brought
about through united participation of the owners of the holding
company's shares and of the preferred stock of the operating
companies, which the holding company never owned, whereby all the
properties of the operating companies were acquired, through
mergers, by a new corporation and the holding company was
completely dissolved, pursuant to the state law.
Page 291 U. S. 588
Held that the jurisdiction of the Commission was
ousted; that it had no power, even on the assumption that the
reorganization was a device of the dissolved corporation to evade
§§ 7 and 11 of the Act, to bring in the new corporation as a
respondent and require it to divest itself of one or the other of
the operating plants.
Thatcher Mfg. Co. v. Federal Trade
Comm'n, 272 U. S. 554;
Federal Trade Comm'n v. Western Meat Co., 272 U.
S. 554. P.
291 U. S.
594.
65 F.2d 336 reversed.
Certiorari, 290 U.S. 622, to review a judgment affirming an
order of the Federal Trade Commission.
Page 291 U. S. 589
MR. JUSTICE ROBERTS delivered the opinion of the Court.
The Circuit Court of Appeals [
Footnote 1] affirmed an order of the Federal Trade
Commission issued pursuant to § 7 of the Clayton Act. [
Footnote 2] A writ of certiorari was
granted upon the claim of petitioner that the formation of a
holding company which acquired all the voting shares of two
manufacturing corporations was not in violation of the section, or,
if it was, the merger of the two manufacturing corporations and
dissolution of the holding company after complaint by the Federal
Trade Commission deprived the latter of jurisdiction to make any
order against the company formed by the merger. A proper
understanding of these contentions requires a somewhat detailed
statement of events prior and subsequent to the issuance of the
complaint.
The Arrow Electric Company, hereafter called Arrow, and the Hart
& Hegeman Manufacturing Company, hereafter called Hart &
Hegeman, were Connecticut corporations engaged in the manufacture
and sale in interstate commerce of electric wiring devices. Both
were solvent and successful. There was no community of ownership of
the stock of the two concerns. Each had valuable tradenames by
which its goods were known to consumers.
Page 291 U. S. 590
Shortly after the death of the principal stockholder, who was
also the president, of Hart & Hegeman, the major interests in
that company got into touch with those controlling Arrow, and,
after some negotiation, it was agreed that economics could be
effected if the business of both were brought under common control.
In view, however, of the competition between the goods known by the
names of the two manufacturing companies, it was thought that the
tradenames and the identity of the goods could best be preserved by
retaining the separate corporate entities and the sales forces of
the two organizations. The plan evolved was therefore that of a
holding company which should own all of the common shares of both
corporations, under the control of which the manufacturing and
sales organizations should be kept separate and distinct and in
competition with each other as theretofore. In order to bring about
an equitable division of the stock of the proposed holding
corporation, Arrow issued to its common stockholders a dividend in
preferred stock. The recipients sold the preferred shares to a
syndicate, which in turn sold them to the public. Hart &
Hegeman increased its common stock and issued the new stock as a
stock dividend. It also created an issue of preferred stock, which
was sold to the public. Prior to the acquisition of the common
stock by the holding company, the capitalization was as
follows:
Arrow -- Common stock, $750,000, par $25. Preferred stock,
$2,000,000, par $100.
Hart & Hegeman -- Common stock, $500,000, par $25. Preferred
stock, $1,333,300, par $100.
The holders of preferred stock in each company were without the
right to vote for directors except upon default in the payment of
six successive dividends, in which case the preferred stockholders
were entitled to elect the board. In October, 1927, Arrow-Hart
& Hegeman, Incorporated, hereafter called the holding company,
was
Page 291 U. S. 591
organized under the laws of Connecticut. It had only common
stock. The owners of all of the common shares of Arrow exchanged
them for 120,000 shares of the stock of the holding company, and
the owners of all the common shares of Hart & Hegeman exchanged
them for 80,000 shares of the same stock.
On March 3, 1928, the Federal Trade Commission issued a
complaint in which it charged the effect of the holding and voting
of all of the common shares of the two operating companies might be
to substantially lessen competition between the companies in
electrical wiring devices, to restrain commerce in those devices,
and to create a monopoly. The holding company filed an answer
traversing these allegations. Shortly thereafter, counsel advised
that the company be dissolved and its assets, consisting of the
stock of Arrow and of Hart & Hegeman, be distributed amongst
its stockholders, and that thereupon the two latter companies merge
into a single corporation under the laws of Connecticut, thus
transferring to the new corporation to be formed by merger all of
the assets of Arrow and of Hart & Hegeman.
It was discovered that such a program might cast heavy taxes
upon the stockholders, and a modification was suggested to work out
the plan in accordance with the reorganization sections of the
Revenue Act of 1928. The stockholders of the holding company and
the preferred stockholders of both the operating companies were
notified of the original plan and of its modification, and proxies
were asked so that their votes might be recorded at corporate
meetings intended to be held to carry out the proposal. A
two-thirds vote of both preferred and common stock is required by
the law of Connecticut to authorize a merger.
In lieu of the original program of distribution of the shares
owned by the holding company to its stockholders, the shares of
Arrow were transferred to a new company,
Page 291 U. S. 592
called the Arrow Manufacturing Company, and those of Hart &
Hegeman to another new company, known as the H. & H. Electric
Company, against the issue of all of the shares of these companies
respectively. The stock so to be issued by these two new holding
companies was, by the direction of the original holding company,
issued directly to its stockholders. As soon as this transfer of
all its assets had been made to the two new holding companies by
the old one, the latter by corporate action dissolved. Thereafter,
pursuant to directors' action, the stockholders, preferred and
common, of the four companies having an interest in the assets
(Arrow, Hart & Hegeman, Arrow Manufacturing Company, and the H.
& H. Electric Company), approved a merger agreement whereby the
petitioner, the Arrow-Hart & Hegeman Electric Company, was
formed, which directly owned in its own right all of the assets
formerly belonging to Arrow and to Hart & Hegeman. These
transactions were consummated on or prior to December 31, 1928,
except that the dissolution of the first holding company did not
become final until April 11, 1929; the law of Connecticut providing
that a final certificate of dissolution should not issue until four
months after the filing of the resolution for dissolution.
January 11, 1929, counsel notified the Commission of the
dissolution of the holding company and the formation of the
petitioner. June 29, 1929, the Commission issued a supplemental
complaint, entitled jointly against the holding company (the
original respondent) and the petitioner (the corporation formed by
the merger). After reciting in greater detail than above set forth
the action taken, this complaint asserted that the formation of the
petitioner was brought about by the contrivance and at the
instigation of the holding company; that the conveyance of the
stocks of Arrow and Hart & Hegeman to the two new holding
companies failed to restore the assets
Page 291 U. S. 593
to the ownership and control of separate groups in the manner
the shares were held and controlled before the formation of the
original holding company; that the result of the whole plan was not
a restoration of competition, as required by the Act of Congress,
and that the Commission's jurisdiction having timely attached could
not be ousted by the steps subsequently taken.
Petitioner answered the supplemental complaint, the matter was
heard, and the Commission made its findings. In addition to the
facts above recited, the Commission found that, at the time of the
acquisition of the stocks of Arrow and Hart & Hegeman by the
holding company, those corporations were in direct and substantial
competition in interstate commerce, and, after the formation of the
holding company, competition between them had been substantially
curtailed. The Commission concluded: the acquisition by the holding
company of the shares of the two manufacturing companies might
substantially lessen competition between them, restrain interstate
commerce, and create a monopoly; the divestment by the holding
company was not a compliance with the Clayton Act; the petitioner
was organized by the holding company, and its creation was an
artifice to evade the provisions of §§ 7 and 11 of the Clayton Act,
and the effect of the organization of the petitioner and "the
acquisition by it of the common or voting stocks of" Arrow and Hart
& Hegeman has been, is, and may be, to suppress competition
between the two manufacturing companies, to restrain interstate
commerce, and to create a monopoly.
The Commission entered an order commanding the petitioner to
cease and desist from violation of the provision of § 7 of the
Clayton Act, and to divest itself "of all the common stock of" Hart
& Hegeman "so as to include in such divestment" the said
company's manufacturing plants and equipment, and all other
property necessary to the conduct and operation thereof as a
complete
Page 291 U. S. 594
going concern, and so as neither directly nor indirectly to
retain any of the fruits of the acquisition of common stock of Hart
& Hegeman; or, in the alternative, to divest itself of "all the
common stock of" Arrow in the same manner. It was further ordered
"that such divestment of the common stock or assets" of Arrow or
Hart & Hegeman, as the case might be, should not be made
directly or indirectly to the petitioner or any stockholders,
officers, employees, or agents of or under the control of the
petitioner.
The findings with respect to the effect of the acquisition and
ownership by the holding company of the shares of the two
manufacturing corporations are attacked as unsupported in fact and
unjustified in law. The record is said to disclose that competition
was not in fact diminished, but preserved. And it is further argued
that, if competition was or might be in some measure curtailed by
the device of a holding company, the result is unimportant and
insignificant unless the public was injured, and not only is there
a total absence of proof of injury to the public, but much
affirmative evidence that consumers were benefited by reduction of
prices consequent on manufacturing efficiency made possible by
unified control.
It is unnecessary to discuss or to decide the questions thus
raised, for we think the Commission lacked authority to issue any
order against the petitioner.
Section 7 of the Clayton Act forbids any corporation to acquire
the whole or any part of the share capital of two or more
corporations where the effect of the acquisition or the use of the
stock by voting or otherwise may be to substantially lessen
competition between such corporations, restrain competition in
interstate commerce, or create a monopoly in any line of commerce.
Section 11 [
Footnote 3]
specifies the remedy which the Commission may apply,
Page 291 U. S. 595
namely, that it may, after hearing, order the violator to divest
itself of the stock held contrary to the terms of the Act. The
statute does not forbid the acquirement of property, or the merger
of corporations pursuant to state laws, nor does it provide any
machinery for compelling a divestiture of assets acquired by
purchase or otherwise, or the distribution of physical property
brought into a single ownership by merger.
If, instead of resorting to the holding company device, the
shareholders of Arrow and Hart & Hegeman had caused a merger,
this action would not have been a violation of the Act. And if,
prior to complaint by the Commission, the holding company, in
virtue of its status as sole stockholder of the two operating
companies, had caused a conveyance of their assets to it, the
Commission would have been without power to set aside the transfers
or to compel a reconveyance.
Thatcher Mfg. Co. v. Federal Trade
Comm'n, 272 U. S. 554,
272 U. S.
560-561.
Clearly, also, if the holding company had, before complaint
filed, divested itself of the shares of either or both of the
manufacturing companies, the Commission would have been without
jurisdiction. And it might with impunity, prior to complaint, have
distributed the shares it held
pro rata amongst its
stockholders. The fact that in such case the same group of
stockholders would have owned shares in both companies, whereas
theretofore some owned stock in one corporation only and some held
stock solely in the other, would not have operated to give the
Commission jurisdiction. For, if the holding corporation had
effectually divested itself of the stock, the Commission could not
deal with a condition thereafter developing, although thought by it
to threaten results contrary to the intent of the Act.
Compare
National Harness Mfrs. Assn. v. Federal Trade Commission, 268
F. 705;
Chamber of Commerce v. Federal Trade Commission,
280 F. 45.
Page 291 U. S. 596
Moreover, the holding company could have ousted the Commission's
jurisdiction after complaint filed, by divesting itself of the
shares, for that was all the Commission could order. And, if it had
so divested itself, the transferees of the shares could immediately
have brought about a corporate merger without violating the Clayton
Act. We think that is precisely the legal effect of what was done
in the present case. The holding company divested itself of the
shares, and thereafter the owners of these common shares united
with the holders of the preferred shares to bring about a
merger.
The Commission apparently was doubtful of its authority to
promulgate the order which it entered. This is evidenced by the
terms of the findings and the order. In its final conclusion, the
Commission refers to
"the acquisition by the said new respondent [the petitioner]
through merger, of the common or voting stocks of the said Hart
& Hegeman Manufacturing Company and Arrow Electric Company, . .
."
and denominates this a violation of § 7 of the Clayton Act.
This, of course, is in the teeth of the obvious fact that the
petitioner never acquired the stock of either Arrow or Hart &
Hegeman. In its order, the Commission directs that the petitioner
cease and desist from violation of the provisions of § 7 of the
Act, and "divest itself absolutely, in good faith, of all common
stock of the Hart & & Hegeman Manufacturing Company
acquired by it as a result of the merger," and then adds that it
shall do this so as to include in such divestment the manufacturing
plants and assets of Hart & Hegeman, and, in the alternative,
the order applies to the stock and manufacturing plants of Arrow.
This is a tacit admission that the Commission is without
jurisdiction to act unless the alleged violator holds stocks of
other corporations. The Commission's own findings show that the
petitioner never held any stock of either company, but the
Page 291 U. S. 597
order nevertheless requires that the petitioner divest itself of
those stocks.
The argument on behalf of the Commission is that, while it is
true the petitioner never owned any stock of Arrow or Hart &
Hegeman, the holding company, against whom the complaint was
originally directed, did hold such stocks in violation of the
statute when the proceeding was initiated, and, instead of parting
with the shares in good faith, ineffectually attempted to alter the
status by initiating and carrying through the merger, the
dissolution of which is the aim of the Commission's order.
We think the Commission's premise with respect to the activities
of the holding company in bringing about the merger is without
support. When the Commission filed its complaint, those who had
previously been the common stockholders of Arrow and Hart &
Hegeman, respectively, had become the owners of the shares of the
holding company. While those shares represented at two removes the
physical assets of the enterprise, they nevertheless evidenced the
equity ownership of those assets. At that time, Arrow and Hart
& Hegeman were still separate corporate entities, and about 73
percent of their outstanding capital stock was preferred stock held
by the public, in no wise affected by the creation of the holding
company. After the holding company had conveyed the Arrow stock to
a new holding company and the Hart & Hegeman stock to another
new holding company, the only persons who could bring about a
merger and consequent consolidation of assets were the preferred
and common stockholders of Arrow and Hart & Hegeman. Under the
laws of Connecticut, two-thirds of the outstanding stock of each
class had to vote affirmatively to authorize a merger. While the
holding company proposed the plan for accomplishing a merger, and
sponsored the preliminary steps to that end, obviously that company
had no power to consummate
Page 291 U. S. 598
it. That power resided in the equity owners of the assets, the
preferred and common stockholders of Arrow and Hart & Hegeman.
The common stockholders acted through the two holding companies,
but the ultimate decision and action was theirs, through whatever
instrumentality effected. Quite as vital to the accomplishment of
the plan was the consent of preferred stockholders. It is true the
consent was given through execution of proxies, but the
shareholders were at liberty to give or to withhold their proxies,
and it would be quite beyond reason to hold, as the Commission
suggests, that all corporate entities and all stockholder
relationship to the property should be disregarded, and the
original holding company be treated as the sole and efficient agent
in the accomplishment of the merger. To do this would be to
disregard the actualities, including the fact that the holding
company had been effectually dissolved before the merger was voted
upon by any of those having an equity interest in the assets.
But, if we assume that the holding company against which the
complaint was originally directed brought about a change in legal
status, so that, before the Commission acted, that company ceased
to exist, as did the shares it formerly owned, and a corporation
formed by merger held all the assets in direct ownership, the
respondent's position is no better. The Commission is an
administrative body possessing only such powers as are granted by
statute. It may make only such orders as the Act authorizes; may
order a practice to be discontinued and shares held in violation of
the Act to be disposed of; but, that accomplished, has not the
additional powers of a court of equity to grant other and further
relief by ordering property of a different sort to be conveyed or
distributed on the theory that this is necessary to render
effective the prescribed statutory remedy.
Compare
Page 291 U. S. 599
Federal Trade Comm'n v. Eastman Kodak Co., 274 U.
S. 619,
274 U. S. 623.
Where shares acquired in violation of the Act are still held by the
offending corporation, an order of divestiture may be supplemented
by a provision that, in the process, the offender shall not acquire
the property represented by the shares.
Federal Trade Comm'n v.
Western Meat Co., 272 U. S. 554. In
the present case, the stock which had been acquired contrary to the
Act was no longer owned by the holding company when the Commission
made its order. Not only so, but the holding company itself had
been dissolved. The petitioner, which came into being as a result
of merger, was not in existence when the proceeding against the
holding company was initiated by the Commission, and never held any
stock contrary to the terms of the statute. If the merger of the
two manufacturing corporations and the combination of their assets
was in any respect a violation of any antitrust law, as to which we
express no opinion, it was necessarily a violation of statutory
prohibitions other than those found in the Clayton Act. And, if any
remedy for such violation is afforded, a court, and not the Federal
Trade Commission, is the appropriate forum.
Compare Federal
Trade Com'n v. Western Meat Co., supra.
The judgment is
Reversed.
[
Footnote 1]
65 F.2d 336.
[
Footnote 2]
Act of October 15, 1914, c. 323, § 7, 38 Stat. 731, U.S.C. Title
15, § 18. The relevant paragraph is as follows:
"No corporation shall acquire, directly or indirectly, the whole
or any part of the stock or other share capital of two or more
corporations engaged in commerce where the effect of such
acquisition, or the use of such stock by the voting or granting of
proxies or otherwise, may be to substantially lessen competition
between such corporations, or any of them, whose stock or other
share capital is so acquired, or to restrain such commerce in any
section or community, or tend to create a monopoly of any line of
commerce."
[
Footnote 3]
U.S.C. Title 15, § 21.
MR. JUSTICE STONE, dissenting*
I think the decree should be affirmed.
While this proceeding was pending before the Federal Trade
Commission to compel a holding company to divest itself of the
controlling common stock of two competing corporations which it had
acquired in violation of § 7 of the Clayton Act, that stock was
used to effectuate a merger of the competing corporations. It is
now declared that, however gross the violation of the Clayton Act,
however
Page 291 U. S. 600
flagrant the flouting of the Commission's authority, the
celerity of the offender in ridding itself of the stock before the
Commission could complete its hearings and make an order restoring
the independence of the competitors leaves the Commission powerless
to act against the merged corporation. This is the case, it is
said, because the Clayton Act does not, in terms, forbid mergers,
which may be formed by the stockholders of independent competing
corporations; and, since the holding company was not the "sole and
efficient agent in the accomplishment of the merger," which was
effected upon the consent of the various classes of stockholders of
the merged companies, it is concluded that the holding company, by
its divestment of the stock, complied with the Clayton Act and in
effect did "all the Commission could order," so there is no longer
any ground for complaint. Further, notwithstanding the authority
broadly conferred on the Commission "to enforce compliance" with §
7 "whenever . . . any person . . . has violated" its provisions, it
is said that, as the statute in terms specifies only a single
method by which compliance can be compelled -- ordering the
offender to divest itself of the stock -- the Commission can make
no other form of order.
Apart from the objection that the decision now reached is
calculated to encourage hasty and ill considered action by the
Commission in order to avoid defeat of its jurisdiction by the
adroit manipulations of offenders against the Clayton Act, I am
unable to construe so narrowly a statute designed, as I think, to
prevent just such suppression of competition as this case
exemplifies.
1. It is true that the Clayton Act does not forbid corporate
mergers, but it does forbid the acquisition by one corporation of
the stock of competing corporations so as substantially to lessen
competition. It follows that mergers effected, as they commonly
are, through such acquisition
Page 291 U. S. 601
of stock necessarily involve violations of the Act, as this one
did. Only in rare instances would there be hope of a successful
merger of independently owned corporations by securing the consent
of their stockholders in advance of the acquisition of a working
stock control of them. Hence, the establishment of such control by
the purchase or pooling of the voting stock, often effected in
secrecy, is the normal first step toward consolidation. It is by
this process that most corporate consolidations have been brought
about, often by adding one consolidation to another through periods
of years.
Compare Standard Oil Co. v. United States,
221 U. S. 1;
United States v. American Tobacco Co., 221 U. S.
106;
United States v. United States Steel
Corp., 251 U. S. 417.
See Bonbright and Means, The Holding Company 30, 50.
Unless we are to close our eyes to this open chapter in the
record of corporate concentration, an examination of the
legislative history of the Clayton Act and that of the earlier
Sherman Anti-Trust Act can leave no doubt that the former was aimed
at the acquisition of stock by holding companies, not only as
itself a means of suppressing competition, but as the first and
usual step in the process of merging competing corporations by
which a suppression of competition might be unlawfully perpetuated.
Thus, one of the evils aimed at -- the merger of competing
corporations through stock control -- was reached in its most usual
form by forbidding the first step, the acquisition of the stock of
a competing corporation, and by conferring on the Trade Commission
authority to deal with the violation. It seems plain, therefore,
that the illegality involved in acquiring the common stock of the
competing companies, which was the first step toward the merger,
was neither lessened nor condoned by taking the next and final
steps in completing it. There is, then, no basis for contending
that the Act has not been violated, or that
Page 291 U. S. 602
the violation has been excused simply because events were pushed
to the very conclusion that § 7 was designed to forestall.
2. It is also true that the holding company divested itself of
the stock of the two competing operating companies before the
Commission had an opportunity to make its order; but it does not
follow that it had done all that the Commission could command and
that, thus, the statute was satisfied. Mere divestment of the stock
is not enough. The manner of divestment is likewise subject to the
requirements of the Clayton Act. This Court has recognized that the
purpose of the Act is to restore the competition suppressed by the
acquisition of the stock, and has specifically held, over
objections such as are now made, that the Commission has power not
only to order divestment, but to prescribe that it shall be done in
a manner that will restore competition.
Federal Trade Com'n v.
Western Meat Co., 272 U. S. 554.
Here, the Commission has held that the divestment was not a
compliance with the statute. In determining whether it was right in
this conclusion, the manner of divestment and the Activity of the
holding company after the complaint of the Commission was filed and
before the final merger of the two operating companies are of
crucial significance.
When the complaint was filed, the holding company was in
complete control of the two operating companies through ownership
of their common stock, which alone had voting power. From the
moment of the acquisition of the stock, it had been and it
continued to be a violator of the Clayton Act. Promptly after the
complaint was filed, it took measures to secure the fruits of its
violation. It first proposed by letter to its stockholders a
consolidation of the two operating companies, and, at a special
meeting, its board of directors formulated a detailed plan for
merger. This plan involved the organization of the two
Page 291 U. S. 603
new holding companies, the transfer to them respectively by the
first holding company of its respective holdings of the common
stock in the two operating companies in exchange for the
distribution by the new holding companies of their stock to the
stockholders of the first holding company. Thus, for each share in
the first holding company owned by its stockholders they were to
receive one share in each of the new holding companies. The
original holding company was then to be dissolved and the four
remaining companies, the two new holding companies and the two
operating companies, were to be merged.
The plan, from the beginning, contemplated that the four
companies should be bound by formal agreement to effect the merger.
It was adopted at a specially called meeting of the stockholders of
the first holding company and was carried into effect under its
active direction and control. Before its dissolution, by exercising
that control, it had created the two new holding companies,
committed all four of its subsidiary corporations to the merger
both by their corporate action and by binding agreement, and had
secured the approval of its action by its own stockholders. It will
be observed that the original holding company did not divest itself
of the stock of the two competing operating companies in the only
manner by which competition could have been restored -- by
returning the stock to the respective stockholders of the operating
companies from whom it had been secured, or to their successors.
Instead, it continued the suppression of competition by placing the
stock of the two operating companies respectively in control of the
two new holding companies, tied by contract to effect the merger,
and, by the method of distributing the stock of the new holding
companies equally to its own stockholders, it lodged common
ownership and control of both the new holding companies in the two
groups of stockholders of the original operating companies. The
first holding company created the two new
Page 291 U. S. 604
ones, and throughout guided their policy as it did that of the
two operating companies. Acting in concert and in accord with the
prearranged plan, all cooperated in executing it, and all, together
with their creature, the merged company, were conscious
beneficiaries of the violation of the statute.
By thus manipulating its illegally acquired stock control of the
operating companies, the first holding company avoided such a
distribution of the stock as would have restored competition, and
made easy the merger which, if the stock had been returned to those
from whom it had originally been acquired, would have been
difficult or impossible. Upon these and other facts which need not
now be detailed, the Commission made its finding, abundantly
supported by evidence, that the course of action taken by the
holding company was not to restore competition between the
operating companies, but was "an artifice and subterfuge designed
in an attempt to evade the Clayton Act, to perpetuate the
elimination of competition," which it had brought about by the
acquisition of the stock of the operating companies.
That the stockholders in the successive holding companies, who
were the ultimate owners of the operating companies, consented to
all this, that two-thirds of the nonvoting preferred stock of the
operating companies which had never been lodged in the holding
companies consented to it, that the merger might possibly have been
effected in some other way, had competitive conditions been
restored, all seems without significance. While, under local
statutes, merger could not have been effected without the consent
of the preferred stock, equally the consent of the stock acquired
through violation of the Clayton Act and its active promotion of
the merger were essential to the desired end. A prohibited act is
no less illegal because its success involves the cooperation of
other actors. It was the suppression of competition
Page 291 U. S. 605
by the holding company, through the use which it made of the
illegally acquired stock of the operating companies, and its manner
of disposing of the stock so as to continue that suppression, which
were violations of the Clayton Act and in conflict with the
authority of the Commission. This was not any the less so because
others consented.
Doubts whether the divestment effected by the first holding
company was all that the Commission could have ordered are
dissipated by our decision in
Federal Trade Com'n v. Western
Meat Co., supra. There, we upheld an order of divestment which
directed that, in transferring the stock, the respondent
corporation could not use it to acquire any of the property of the
competing corporation, and that none of the stock could be
transferred to anyone having any connection with or in any way
under the influence of the offending corporation. Here, we need not
go so far.
3. There remains the question whether the Commission is now
powerless to undo a consummation which, at an earlier stage, it
could have prevented. It is said, as a matter of statutory
construction, that the grant to the Commission of specific power to
command offenders to divest themselves of illegally acquired stock
excludes the possibility of its ordering anything more or
different, however incidental or necessary it may be to the
exercise of the granted power.
It would seem that this point also had been settled by our
decision in the
Western Meat Company case, where the
offending company, through stock ownership, had acquired possession
of the property and control of the business of a competitor. It
wished to be free to divest itself of the stock without restriction
in order that it might acquire ownership of the competitor's
property by transferring the stock to hands that would make merger
easy. It was argued to us there, as it is here, that the
statute
Page 291 U. S. 606
provides only that the Commission may order divestment of the
stock; that it does not say that the Commission can command
relinquishment of the power, derived from the stock ownership, to
bring the competitor, or its property, under the control of the
offending corporation, either directly or through transfer of the
stock into friendly hands. But that argument was rejected, and the
order directing divestment of both the property and stock by
placing both in the hands of those not under the influence or
control of the offender was upheld. This Court said, p.
272 U. S.
559:
"Further violations of the Act through continued ownership could
be effectively prevented only by requiring the owner wholly to
divest itself of the stock, and thus render possible once more free
play of the competition which had been wrongfully suppressed. The
purpose which the lawmakers entertained might be wholly defeated if
the stock could be further used for securing the competitor's
property. And the same result would follow a transfer to one
controlled by or acting for the respondent."
No more here than there should it be said that the purpose of
the statute must be defeated because the lawmakers did not attempt
to provide with a meticulous precision how the Commission should
proceed in every contingency that might arise. The dominating
purpose of the statute is to restore to its original state the
competition suppressed by the acquisition of the stock, and, just
as we rejected a rigid literalism there in order to effect that
purpose, and upheld an order which was but incidental, though
necessary, to the effective exercise of the power specifically
granted, so we should reject it now. Just as in that case we upheld
the Commission's order directing the surrender of one of the fruits
of the wrongful stock ownership -- the power to place a competing
unit under the offender's domination -- so should we now
sustain
Page 291 U. S. 607
the order commanding relinquishment of another of the fruits of
that ownership -- the accomplished merger.
Even if the question were a new one in this Court, no plausible
reason has been advanced for interpreting this remedial statute as
though it were a penal law. The Clayton Act was designed to prevent
abuses growing from deficiencies due to the generality of the
Sherman Anti-Trust Act. It sought to accomplish that end by
conferring upon the Commission the power to strike at specific
practices. In this, as in most schemes for regulation by
administrative bodies, there must be a balance between the general
and the particular. When the courts are faced with interpretation
of the particular, administration breaks down and the manifest
purpose of the legislature is defeated unless it is recognized that
surrounding granted powers there must be a penumbra which will give
scope for practical operation. In carrying such schemes into
operation, the function of courts is constructive, not destructive,
to make them, wherever reasonably possible, effective agencies for
law enforcement and not to destroy them.
That the merged corporation is different from the original
offender should lead to no different conclusion. It is but the
creature and
alter ego of the offender, created by the
offender's exercise of power over the illegally acquired stock for
the very purpose of perpetuating the suppression of competition
which the Commission from the start had power to forbid. To declare
that an offender whose cause is pending before the Commission can
effect through its creatures and agents what it may not itself do
nullifies the statute.
Some scope may be given to the doctrine of
lis pendens.
It is true that the Commission is an administrative body, and not a
court. But it exercises many of the powers conventionally deemed
judicial. It is authorized to bring offenders before it to
determine whether they are violators of the Act and, if so, "to
enforce compliance" by
Page 291 U. S. 608
commanding that the violation cease. There is as much reason to
believe that Congress did not intend to deny to the Commission the
authority to exercise effectively the granted power, and thus to
preserve its jurisdiction until its function could be executed, as
there would be were similar powers extended to a court of inferior
jurisdiction. This is the more evident when it is remembered that
obedience to the Commission's orders cannot be compelled without
first subjecting them to the scrutiny of a court. Recognition of
its authority involves neither departure from accepted principles
nor any risk of abuse.
These considerations demand our rejection of the contention that
an offender against the Clayton Act, properly brought before the
Commission and subject to its order, can evade its authority and
defeat the statute by taking refuge behind a cleverly erected
screen of corporate dummies.
THE CHIEF JUSTICE, MR. JUSTICE BRANDEIS, and MR. JUSTICE CARDOZO
concur in this opinion.