A Sherman Act consent decree provided for divorcement of a
motion picture company's production-distribution assets from its
theater assets. Two new companies were to be formed; their stock
was to be distributed to stockholders of the old company, and the
latter was to be dissolved. Relative to appellant, who owned 24% of
the stock of the old company, the decree provided that he might
"either" sell his stock in one or the other of the new companies
"or" deposit such stock with a court-designated trustee under a
voting trust agreement to remain in force until appellant "shall
have sold" his stock in one of the companies. Appellant chose not
to sell any stock, and the District Court appointed a trustee and
approved the agreed terms of a voting trust. Without evidence or
findings of fact, and over appellant's protests, the District Court
later amended its order appointing the trustee and ordered that the
trusteed stock be sold.
1. The provision of the decree did not require that appellant
sell his stock within a reasonable time. Pp. 342 U. S.
2. Under the powers reserved in the consent decree, the District
Court can require the sale of appellant's stock, but that would be
a substantial modification of the consent decree, which cannot be
made without a hearing that includes evidence and a judicial
determination based upon it. Pp. 342 U. S.
From an order of a three-judge District Court in a Sherman Act
proceeding, compelling appellant to sell certain shares of stock,
he appealed directly to this Court under 15 U.S.C. § 29.
p. 342 U. S.
Page 342 U. S. 354
Opinion of the Court by MR. JUSTICE BLACK, announced by MR.
A three-judge District Court has construed certain provisions of
a Sherman Act consent decree as compelling the sale of certain
moving picture stocks owned by the appellant Hughes. This case is
properly here on appeal from an order entered to compel the sale.
15 U.S.C. (Supp. IV) § 29.
These antitrust proceedings were originally brought by the
United States against Radio-Keith-Orpheum Corporation and other
moving picture producers, distributors, and exhibitors. From the
District Court's judgment in the case, both the Government and
defendants appealed. We affirmed in part and reversed in part.
United States v. Paramount Pictures, Inc., 334 U.
. We remanded the case to the District Court
leaving it free to consider whether it was necessary to require the
production and distribution companies to divest themselves of all
ownership and interest in the business of exhibiting pictures.
Thereafter, a consent decree was entered containing detailed
provisions for complete divorcement of R.K.O.'s
production-distribution assets from its theater assets. To
accomplish this, R.K.O. was to form two new holding companies: one,
the "New Picture Company," was to take over all R.K.O. subsidiaries
engaged in production and distribution; the other, the "New Theater
Company," was to own and control R.K.O. subsidiaries which operated
theaters. Upon formation of the new companies, R.K.O. was to be
dissolved. Former stockholders were to become the owners of all the
capital stock of the two new companies.
Page 342 U. S. 355
A factor considered in connection with this divorcement was that
Howard R. Hughes, appellant here, owned 24% of the common stock of
R.K.O. No other person or corporation owned as much as 1%. He and
government representatives agreed on terms to meet this situation.
Their agreement was embodied in the consent decree, becoming
section . This section of the decree, set out below,* is the center
of the present controversy. It provides that Hughes may "either"
(A) sell his stock in one or the other of the two newly formed
companies, "or" (B) deposit such stock with a court-designated
Page 342 U. S. 356
under a voting trust agreement to remain in force until Hughes
shall have sold his stock in one of the companies. Hughes chose not
to sell any stock, and he and the United States agreed on a trustee
and the terms of a voting trust, which agreement was approved by a
court order. Later, by motion, the United States sought a court
order forcing the trustee to sell Hughes' stock. Without evidence
or findings of fact, and over Hughes' protests, the District Court
amended its order appointing a trustee by providing that,
"if the stock trusteed shall not have been disposed of by Howard
R. Hughes by February 20th, 1953, the trustee shall dispose of such
stock within two years thereafter."
Appellant Hughes urges that it was error to order his stock sold
in so summary a manner.
The Government argues that section V should be
read as compelling Hughes to sell his stock within a reasonable
time. We hold that the language of the section imposes no such
requirement. A reading of the either/or wording would make most
persons believe that Hughes was to have a choice of two different
alternatives. Hughes would have no choice if the first
"alternative" was to sell the stock and the second "alternative"
was also to sell the stock. Moreover, section V provided that, if
Hughes did not sell his stock, but chose to place it in a voting
trust, this trust should remain in force "until Howard R. Hughes
shall have sold" his stock. This would ordinarily mean that Hughes,
not the Court, could decide whether his stock should be sold. Nor
can a different inference be drawn from the language authorizing
the court to provide the trust's general "terms or conditions,
including compensation to the trustee." This language cannot
support an inference that the court was empowered to deprive Hughes
of either of his expressly granted alternatives.
Arguing on a broader front than the mere language of section V,
the Government urges: that section V must
Page 342 U. S. 357
be interpreted so as to achieve the purposes of the entire
R.K.O. consent decree; that the basic purpose of that decree was
divorcement of production-distribution companies from theater
exhibition companies, and that Hughes cannot consistently with this
purpose be left with a 24% interest in both types of companies. It
may be true, as the Government now contends, that Hughes' large
block of ownership in both types of companies endangers the
independence of each. Evidence might show that a sale by Hughes is
indispensable if competition is to be preserved. However, in
section V, the parties and the District Court provided their own
detailed plan to neutralize the evils from such ownership. Whatever
justification there may be now or hereafter for new terms that
require a sale of Hughes' stock, we think there is no fair support
for reading that requirement into the language of section V. The
District Court's order cannot be supported by reliance on such an
interpretation. Consequently, the court's command to sell the stock
effected a substantial modification of the original decree.
The Government finds support for the
substantial change in the decree by reference to (1) provisions in
the decree reserving jurisdiction to amend, and (2) the inherent
equity powers of the court. We entertain no doubt concerning the
District Court's power to require sale of Hughes' stock after a
proper hearing. When this case was formerly here on other phases,
334 U. S. 334
131, we had occasion to point out the District Court's power to
require some companies to divest themselves of ownership of other
companies where necessary to preserve competition and to prevent
monopoly. The guiding principles there set out would also justify
compulsory divestment of stocks by an individual. But there has
been no adequate hearing of this issue as to Hughes. Neither when
the present order was considered nor when the original decree was
entered were any findings of fact
Page 342 U. S. 358
made to support an order of compulsory sale of Hughes' stock. As
previously pointed out, the consent of Hughes did not include
consent to make him sell. At every stage, Hughes objected to the
order forcing sale of his stock without a hearing that included
evidence and a judicial determination based on it.
In these circumstances, we hold that it was error to enter an
order forcing Hughes to sell his stock.
MR. JUSTICE JACKSON and MR. JUSTICE CLARK took no part in the
consideration or decision of this case.
"V. Howard R. Hughes represents that he now owns approximately
24 percent of the common stock of Radio-Keith-Orpheum Corporation.
Within a period of one year from the date hereof, Howard R. Hughes
shall either: "
"A. Dispose of his holdings of the stock of (1) the New Picture
Company, or (2) the New Theater Company, as he may elect, to a
purchaser or purchasers who is or are not a defendant herein or
owned or controlled by or affiliated with a defendant in this
"B. Deposit with a trustee designated by the court all of his
shares of the New Picture Company or the New Theater Company, as he
may elect, under a voting trust agreement whereby the trustee shall
possess and be entitled to exercise all the voting rights of such
shares, including the right to execute proxies and consents with
respect thereto. Such voting trust agreement shall thereafter
remain in force until Howard R. Hughes shall have sold his holdings
of stock of the New Picture Company or the New Theater Company to a
purchaser or purchasers who is or are not a defendant herein or
owned or controlled by or affiliated with a defendant herein, and
upon such sale and transfer such voting trust agreement shall
automatically terminate. Such trust shall be upon such other terms
or conditions, including compensation to the trustee, as shall be
prescribed by the Court. During the period of such voting trust,
Howard R. Hughes shall be entitled to receive all dividends and
other distributions made on account of the trusteed shares, and
proceeds from the sale thereof."
"For the purpose of evidencing his consent to be bound by the
terms of section V of this decree, Howard R. Hughes individually
has consented to its entry, and it shall be binding upon his agents