Regardless of the use made of it, a power resulting not from
normal expansion and legitimate business enterprise, but from
deliberate calculated purchase for control which enables a holding
company to dominate two great competing interstate railroad
carriers and two great competing coal companies, engaged
extensively in mining and selling anthracite coal that must be
transported to interstate markets over those railroads, is a menace
to and an undue restraint upon interstate commerce within the
meaning of the Anti-Trust Act. P.
253 U. S.
57.
By a scheme of reorganization executed after the enactment of
the
Page 253 U. S. 27
Sherman Anti-Trust Act, all the property of the Philadelphia
& Reading Coal & Iron Company, a large producer of
anthracite coal controlling about two-fifths of the supply in the
largest of the three fields in Pennsylvania where substantially all
of the anthracite of the country is found, and all the property of
the Philadelphia & Reading Railroad Company, owner of all the
capital stock of the Coal Company and of an extensive railroad
system over which that company's large output found its way to
interstate markets, was delivered into the complete control of the
Reading Company. That company became the owner of all the stock of
the Coal Company, with additional control over it through fiscal
provisions of the reorganization; of all the stock of a new
railroad company, the Philadelphia & Reading Railway Company,
to which the main railroad was transferred; of all the equipment
for operating the railroad, and of ships, terminals, short lines,
and other property which formed part of the railroad system.
Besides entering into two schemes with other carriers and coal
companies for suppressing competition, which were declared
violations of the Anti-Trust Act in
United States v. Reading
Co., 226 U. S. 324
(
see infra, p.
253 U. S. 49),
the Reading Company purchased a controlling interest in the capital
stock of the Central Railroad Company of New Jersey, a large
carrier of anthracite in competition with the Philadelphia &
Reading Railway Company, and owner of over eleven-twelfths of the
capital stock of the defendant Lehigh & Wilkes-Barre Coal
Company, which in turn owned or had leased a very large acreage in
another of the Pennsylvania anthracite fields and was a competitor
of the Philadelphia & Reading Coal & Iron Company, and
thereby, and through common officers and directors, the Reading
Company acquired and exercised active dominating control over the
last two mentioned companies, its power thus including two of the
principal competing producers, and two of the principal competing
initial carriers, of anthracite in interstate commerce. There was
evidence also of its combining with other carriers to fix excessive
flat rates to tidewater, and of special privileges extended by it
to the Philadelphia & Reading Coal & Iron Company in the
way of financial assistance and forbearance, and of similar dealing
between the Central Railroad and Wilkes-Barre Companies.
Held that the combination, both before and after the
induction of the Central Railroad Company of New Jersey, violated
the Sherman Anti-Trust Act, and that the relations between the
Reading Company, the Philadelphia & Reading Railway Company,
the Philadelphia & Reading Coal & Iron Company, and the
Central Railroad
Page 253 U. S. 28
Company of New Jersey must be so dissolved as to give to each of
them a position in all respects independent and free from stock or
other control of any of the others. Pp.
253 U. S.
43-59.
The combination between the Philadelphia & Reading Railway
Company and the Philadelphia & Reading Coal & Iron Company
through the Reading Company must also be dissolved, because the
transportation thereunder by the Railway of the coal produced by
the Coal Company violates the commodities clause of the Act of June
29, 1906. P.
253 U. S.
60.
While the ownership by a railroad company of shares of the
capital stock of a mining company does not necessarily create an
identity of corporate interest between the two such as to render it
unlawful under the commodities clause for the railroad company to
transport in interstate commerce the products of such mining
company, yet where such ownership of stock is resorted to not for
the purpose of participating in the affairs of the corporation in
which it is held in a manner normal and usual with stockholders,
but for the purpose of making it a mere agent or instrumentality or
department of another company, the courts will look through the
forms to the realities of the relation between the companies as if
the corporate agency did not exist, and will deal with them as the
justice of the case may require. P.
253 U. S.
62.
Applying this rule,
held that the relation between the
Central Railroad Company of New Jersey and the Lehigh &
Wilkes-Barre Coal Company, with the former owning over
eleven-twelfths of the capital stock of the latter and using the
latter as the coal mining department of its organization, violates
the commodities clause, and for that reason must be dissolved.
Id.
In 1871, the Lehigh Coal & Navigation Company, owner of
extensive coal-producing properties and of the Lehigh &
Susquehanna Railroad, leased the railroad for a rental of one-third
of its gross earnings to the Central Railroad Company of New
Jersey, the line leased and the line of the lessee not being in
competition, but the one forming a natural extension of the other
into the coal fields.
Held that a covenant in the lease,
assumed to require the lessor to ship to market over the leased
line three-fourths of all the coal which it should produce in the
future, was not designed to suppress interstate commerce, did not
have that effect, and does not violate the Anti-Trust Act. P.
253 U. S.
54.
Covenants in leases of coal lands by the Philadelphia &
Reading Coal & Iron Company and Lehigh & Wilkes-Barre Coal
Company obliging the lessees to ship all coal mined by rail
routes
Page 253 U. S. 29
designated or to be designated, are
held unlawful as
part of the scheme to control the mining and transportation of coal
herein condemned, and their enforcement is enjoined. P.
253 U. S.
55.
As to other charges against the Lehigh Coal & Navigation
Company, and as respects the Wilmington & Northern Railroad
Company, the Lehigh & Hudson River Railway Company, the Lehigh
& New England Railroad Company, and the surviving individual
defendants, the bill is dismissed without prejudice.
Id.
226 F. 229 affirmed in part, reversed in part.
The case is stated in the opinion. Motions to modify the decree
were made and denied at this term.
Post, 478.
Page 253 U. S. 40
MR. JUSTICE CLARKE delivered the opinion of the Court.
These are appeals from a decree entered in a suit instituted by
the government to dissolve the intercorporate relations existing
between the corporation defendants for the alleged reason that,
through such relations, they
Page 253 U. S. 41
constitute a combination in restraint of interstate commerce in
anthracite coal and an attempt to monopolize or a monopolization of
such trade and commerce in violation of the first and second
sections of the Anti-Trust Act of Congress, of July 2, 1890, c.
647, 26 Stat. 209, and also for the alleged reason that the
defendants, Philadelphia & Reading Railway Company and Central
Railroad Company of New Jersey, are violating the commodities
clause of the Act of Congress of June 29, 1906, c. 3591, 34 Stat.
585, by transporting over their lines of railroad, in interstate
commerce, coal mined or purchased by coal companies with which they
are associated by stock ownership.
It will contribute to brevity and clearness to designate the
defendant corporations as follows: Reading Company as Holding
Company; Philadelphia & Reading Railway Company as Reading
Railway Company; Philadelphia & Reading Coal & Iron Company
as Reading Coal Company; Central Railroad Company of New Jersey as
Central Railroad Company; Lehigh & Wilkes-Barre Coal Company as
Wilkes-Barre Company; Lehigh Coal & Navigation Company as
Navigation Company.
Practically all of the anthracite coal in this country is found
in Northeastern Pennsylvania, in three limited and substantially
parallel deposits, located in valleys which are separated by
mountainous country. For trade purposes, these coal areas are
designated: the most northerly as the Wyoming field, estimated to
contain about 176 square miles of coal; the next southerly as the
Middle or Lehigh field, estimated to contain about 45 square miles,
and the most southerly as the Schuylkill field, estimated to
contain about 263 square miles of coal.
The annual production of the mines in these three fields in 1896
was about 43,640,000 tons, and in 1913 it slightly exceeded
71,000,000 tons. The chief marketing centers for this great tonnage
of coal are New York, distant by rail from the fields about 140
miles, and Philadelphia, distant
Page 253 U. S. 42
about 90 miles. From these cities it is widely distributed by
rail and water throughout New York and New England, and to some
extent through the South.
Such a large tonnage was naturally attractive to railroad
carriers, with the result that the Wyoming field has six outlets by
rail to New York harbor,
viz.: The Central Railroad of New
Jersey and five others, known as initial anthracite carriers. The
Lehigh field has three such rail outlets, but the largest, the
Schuylkill field, has only two direct rail connections with
Philadelphia and New York,
viz.: the Reading and the
Pennsylvania Railroads. Outlets by canal to Philadelphia and
tidewater, at one time important, may here be neglected.
This description of the subject matter and of its relation to
the interstate transportation system of the country will suffice
for the purposes of this opinion. It may be found in much greater
detail in the cases cited in the margin.
*
The essential claims of the government in the case have become
narrowed to these,
viz.:
First. That the ownership by the Holding Company of controlling
interests in the shares of the capital stocks of the Reading
Railway Company, of the Reading Coal Company, and of the Central
Railroad Company constitutes a combination in restraint of
interstate trade and commerce and an attempt to monopolize and a
monopolization of a part of the same in violation of the Anti-Trust
Act of July 2, 1890.
Second. That the Holding Company, in itself, constitutes a like
violation of the act.
Third. That certain covenants and agreements between the Central
Railroad Company and the Navigation Company
Page 253 U. S. 43
contained in a lease, by the latter to the former, of the Lehigh
& Susquehanna Railroad, constitute a like violation of the
act.
Fourth. That the transportation in interstate commerce by the
Reading Railway Company and by the Central Railroad Company, of
coal mined or purchased by the coal companies affiliated with each
of them constitutes a violation of the commodities clause of the
Act to Regulate Commerce.
Pursuant to the provisions of the Act of June 25, 1910, c. 428,
36 Stat. 854, the case was heard by three Circuit Judges of the
Third Circuit who, while holding against the contention of the
government on many of the prayers for relief in the bill, some
generally and some without prejudice, also held that the Reading
Coal Company and the Wilkes-Barre Coal Company were naturally
competitive producers and sellers of anthracite coal, and that
their union through the Holding Company and the Central Company
constituted a combination in restraint of trade within the
Anti-Trust Act, and for this reason the Central Company was ordered
to dispose of all the stock, bonds, and other securities of the
Wilkes-Barre Coal Company owned by it, and was enjoined from
requiring the Coal Company to ship its coal over the lines of the
Central Company.
The court also held that clauses in mining leases by the Reading
Coal Company and by the Wilkes-Barre Coal Company and their
subsidiaries requiring the lessees to ship all coal produced over
roads, named or to be designated, were unlawful and void.
The case has been appealed by both parties, and is before us for
review on all of the issues as we have thus stated them.
Reference to the history of the properties now controlled by the
Holding Company will be of value for the assistance it will be in
determining the intent and purpose
Page 253 U. S. 44
with which the combinations here assailed were formed.
Standard Oil Co. v. United States, 221 U. S.
1,
221 U. S. 46,
221 U. S. 76.
The Philadelphia & Reading Railroad Company was chartered by
special Act of the Pennsylvania General Assembly in 1833, and it
conducted the business of a railroad carrier prosperously for about
30 years, when, as its annual reports show, it embarked upon the
policy of attempting to control the anthracite tonnage of the
Schuylkill field by acquiring extensive ownership of coal lands.
Thus, the report of the company for 1870 contains the
following:
"Up to this time, about 70,000 acres of the best anthracite coal
lands in Pennsylvania have been acquired, and will be held by an
auxiliary company known as the Philadelphia & Reading Coal and
Iron Company, of which the Philadelphia & Reading Railroad
Company
is the only stockholder. The result of this action
has been to secure, and
attach to the company's railroad,
a body of coal land capable of
supplying all the coal tonnage
that can possibly be transported over the road for
centuries."
And this is from the report for 1880:
"The transportation of coal has always been a source of great
profit to the railroad company, and the only doubt in the past as
to the permanency of the earning power of the company as a
transporter was due to the
fear that rival companies would tap
the Schuylkill region, and divert the coal tonnage to their
own lines.
This danger was happily averted by the purchase of
the coal lands."
And this from the report of 1881:
"The coal estates of the Philadelphia & Reading Company . .
. consist of 91,149 acres (142 square miles) of coal lands,
which is sixty percent of all the anthracite lands in the
Schuylkill district, and thirty percent of all in
Pennsylvania."
This area of coal lands had increased by 1891 to 102,573 acres,
of which the report said:
Page 253 U. S. 45
"The coal lands comprise in extent about thirty-three percent of
the entire anthracite coal fields of the state, and, taking into
account the aggregate thickness of the veins on the company's lands
and the greater proportionate depletion of the estates in the other
regions which has been going on for many years, it must be conceded
that we have
at least fifty percent of the entire deposit
remaining unmined."
As if in further pursuit of this now settled purpose, in the
following year, 1892, the Reading Railroad Company leased the
Lehigh Valley Railroad and the Central Railroad of New Jersey for
999 years. These were both anthracite carriers competing with the
Reading, and each had an important coal mining subsidiary company.
But the lease by the Central Railroad Company was assailed in the
New Jersey courts, and all operations under it were enjoined, with
the result that both leases were abandoned.
It is obvious that these reports show an avowed and consistently
pursued purpose (not then prohibited by statute) to secure by
purchase a dominating control over the coal of the Schuylkill field
and over the transportation of it to market.
In the large financial operations incident to the expansion
policy thus described, bonds were issued secured by a mortgage on
all of the property of the Reading Railroad Company and of the
Reading Coal Company. In 1893, there was default in the payment of
interest on these bonds, and receivers were appointed who operated
both properties until 1896, when they were sold to representatives
of the creditors and stockholders of the two companies, and, under
a scheme of reorganization, the validity of which is assailed in
this suit, both properties were transferred to three corporations
in the manner now to be described.
1st. To the Reading Railway Company, a corporation newly
organized under the laws of Pennsylvania, were allotted about 1,000
miles of the railroad (but none of
Page 253 U. S. 46
the equipment) which had been owned or leased by the former
Reading Railroad Company. The capital stock of this company was
fixed at $20,000,000, and it issued $20,000,000 of bonds, all of
which were given to the Holding Company. The property thus
transferred was valued, in the representations made at the time to
the New York Stock Exchange, at $90,000,000. In 1896, this railroad
carried in excess of 9,000,000 tons of anthracite -- more than
one-fifth of the then total production of the country. But, by the
plan of reorganization adopted, it was disabled from performing its
functions as a carrier, except with the aid of the Holding Company,
for all of the equipment, engines, cars, and ships owned by the
former Railroad Company and its tidewater terminals at Philadelphia
and on New York Harbor were allotted to the Holding Company.
2nd. By the decree of sale, the Reading Coal & Iron Company
was released from its former obligations and to it, thus freed, the
principal part of the property (coal and other) owned by it before
the sale was allotted, and retransferred upon condition that it
would deliver all of its capital stock to the Holding Company,
would become co-obligor with that company on bonds to be issued,
and would join with it in executing a mortgage for $135,000,000 on
all of its property to secure such bonds. This company thus came
into possession of 102,573 acres of anthracite lands, owned and
leased -- almost two-thirds of the entire acreage of the Schuylkill
coal field -- stocks and bonds in other coal companies, coal in
storage and other property, all of the estimated value of
$95,000,000.
3rd. To serve the purposes of the intended Holding Company, a
charter granted in 1871 by special Act of the General Assembly of
Pennsylvania, but unused for 20 years, was utilized. This charter
was of the class denominated "omnibus" by the Supreme Court of
Pennsylvania,
Page 253 U. S. 47
and, in terms, it authorized the company to engage in or control
almost any business other than that of a bank of issue -- this
broad charter was the occasion for making use of the company in
this enterprise. The corporate name was changed to "Reading
Company," its capital stock was increased from $100,000 to
$140,000,000, and the purchasers at the receivers' sale allotted
and transferred to it railroad equipment, real estate, colliers and
barges, formerly owned by the Reading Railroad Company, together
with stocks which gave it control of more than 30 short line
railroads, aggregating 275 miles of track, and other property of
large value, in addition to all of the bonds and stock of the new
Reading Railway Company and all of the stock of the Reading Coal
Company.
The result of this intercorporate transfer of the property,
owned before the reorganization by the Reading Railroad Company and
the Reading Coal & Iron Company, was that the Holding Company,
without any outlay -- solely because the creditors and stockholders
of the former Reading Railroad Company and of the Reading Coal
Company desired to establish the proposed scheme for control of the
properties formerly owned by the two companies -- became the owner
of the title to railway equipment, real estate, colliers, and
barges of an estimated value of $34,400,000, plus all of the
capital stock and bonds of the new Railway Company, $40,000,000;
plus all of the capital stock of the Coal Company, $8,000,000, and
a contract by that company to mortgage, for the use of the Holding
Company, its entire property, plus other stocks, bonds, and
mortgages owned by the former Railroad Company of the estimated
value of over $38,000,000 -- making a total value, as represented
at the time to the New York Stock Exchange, of $193,613,000.
Thus, this scheme of reorganization, adopted and executed
Page 253 U. S. 48
six years after the enactment of the Anti-Trust Act, combined
and delivered into the complete control of the board of directors
of the Holding Company all of the property of much the largest
single coal company operating in the Schuylkill anthracite field,
and almost 1,000 miles of railway over which its coal must find its
access to interstate markets. This board of directors obviously,
thus acquired power to increase or decrease the output of coal from
very extensive mines, the supply of it in the market, and the cost
of it to the consumer, to increase or lower the charge for
transporting such coal to market, and to regulate car supply and
other shipping conveniences, and thereby to help or hinder the
operations of independent miners and shippers of coal. This
constituted a combination to unduly restrain interstate commerce
within the meaning of the act.
United States v. Union Pacific
R. Co., 226 U. S. 61.
Obviously also, it made the Coal Company and the Railway Company
mere agents or instrumentalities of the Holding Company -- the
mining and transportation departments of its business -- for
producing, purchasing, and selling coal and for transporting it to
market. The Reading Railway Company and the Reading Coal Company
each had, thereafter, but one stockholder -- the Holding Company --
and their earnings were to be distributed not in proportion to the
shares of their capital stocks, aggregating $28,000,000, but were
to go to the creditors and shareholders of the Holding Company,
with its mortgage debt of $135,000,000 and its capital stock of
$140,000,000. The Holding Company thus served to pool the property,
the activities, and the profits of the three companies.
Northern Securities Co. v. United States, 193 U.
S. 197,
193 U. S. 327,
193 U. S.
362.
It will be profitable to consider next what use was made of the
great power thus gathered into the one Holding Company.
Page 253 U. S. 49
In 1898, this Holding Company entered into a combination with
five other anthracite carrying railroad companies to prevent the
then contemplated construction of an additional line of railway
from the Wyoming field to tidewater, which independent miners and
shippers of coal were promoting for the purpose of securing better
rates on their coal to the seaboard. In a mere holding company, the
Temple Iron Company, all six carriers combined, as stockholders for
the purpose of providing $5,000,000 with which the properties of
the chief independent operators, Simpson and Watkins, were
purchased, and thereby the new railroad project was defeated. The
president of the Holding Company was active in the enterprise, and
that company, although only one of six, became responsible for 30
percent of the required financing. In
United States v.
Reading, 226 U. S. 324,
226 U. S. 351,
this Court characterized what was done by this combination, under
the leadership of the Holding Company, in these terms:
"The New York, Wyoming & Western Railroad Company was
successfully strangled, and the monopoly of transportation
collectively held by the six defendant carrier companies was
maintained."
And, again, p.
226 U. S.
355:
"We are in entire accord with the view of the court below in
holding that the transaction involved a concerted scheme and
combination for the purpose of restraining commerce among the
states in plain violation of the Act of Congress of July 2,
1890."
About the year 1900, the Holding Company and many other initial
anthracite carriers and their controlled coal Companies, pursuant
to an agreement with each other, made separate agreements with
nearly all of the independent producers of coal along their lines
to purchase at the mines "all the anthracite coal thereafter mined
from any of their mines now opened or operated or which might
thereafter be opened and operated," and to pay therefor
Page 253 U. S. 50
65% of the average price of coal prevailing at tidewater points
at or near New York, computed from month to month. In the case
above cited, this Court discussed these contracts and declared that
they were made for the purpose of eliminating the competition of
independent operators from the markets, and thus removing "a menace
to the monopoly of transportation to tidewater which the defendants
collectively possessed;" that, before these contracts, there
existed not only the power to compete, but actual competition,
between the coal of the independents and that produced by the
buying defendants, but that, after the contracts were made, "such
competition was impracticable;" that the case fell well within not
only the
Standard Oil and
Tobacco cases,
221 U. S. 1,
221 U. S. 106, but
was of such an unreasonable character as to be "within the
authority of a long line of cases decided by this Court," and
finally that the defendants had combined, by and through the
instrumentality of the 65% contracts with the purpose and design of
unlawfully controlling the sale of the independent output of coal
at tidewater.
Thus, this Court held that, once within two years and again
within four years after it was organized, this Holding Company used
the great power which we have seen was centered in its board of
directors, by adroit division of property and of corporate agency,
for the purpose of violating, in a flagrant manner, the Anti-Trust
Act of 1890.
Almost immediately after the two attempts to monopolize the
trade in anthracite thus condemned by this Court, the Holding
Company, in January, 1901, purchased a controlling interest in the
capital stock of the Central Railroad Company. When this suit was
commenced, that company was operating 675 miles of track, over
which it carried, in 1913, 10,783,000 tons of anthracite -- almost
one-half of its total freight traffic. Its capital stock was then
$27,436,000 and its funded debt was $46,881,000.
This Central Company owned at the time in excess of
Page 253 U. S. 51
eleven-twelfths of the capital stock of the Wilkes-Barre Coal
Company, with a capital stock of over $9,000,000 and a funded debt
of about $17,000,000. And that company owned or had leased in
excess of 14,000 acres of coal bearing lands -- 13,000 acres in the
Wyoming field -- and, in the year ending June 30, 1913, it shipped
from its lands thus owned or controlled 6,243,000 tons of coal,
which was sold for over $20,000,000.
Immediately after this purchase, the president of the Holding
Company, Mr. Baer, was made president of the Central Railroad
Company and of the Wilkes-Barre Coal Company, and remained such
until his death, after the commencement of this suit, and from
one-third to one-half of the directors of each company were
thereafter chosen from the board of the Holding Company. Thus, from
the time of this purchase, both companies have been actively
dominated by the Holding Company management.
It is argued that the Central Railroad, thus acquired, and the
Reading System were not competitors, but this question is put
beyond discussion by the testimony of Mr. Baer, the president of
the Reading Company, and his immediate predecessor in office, Mr.
Harris. The former testified:
"Q. You are president of the defendants, the Reading Company,
Philadelphia & Reading Railway Company, Philadelphia &
Reading Coal & Iron Company, the Central Railroad of New
Jersey, the Lehigh & Wilkes-Barre Coal Company, and the Temple
Iron Company?"
"A. I am . . ."
"Q. What do you regard as the competitors of the Philadelphia
& Reading now in New York Harbor as to anthracite coal?"
"A. All the companies that ship to New York. They would be the
Pennsylvania Railroad, the Lehigh Valley, the Delaware &
Lackawanna, the Delaware & Hudson,
Page 253 U. S. 52
the Erie, Ontario & Western. I guess those are all the roads
leading to New York directly or indirectly. [He did not name the
Central Company, because it was a part of the Reading System when
he testified.]"
"Q. Those roads are all carrying anthracite coal to New York
Harbor?"
"A. Yes, sir."
"Q. And you regard them as competitors who must be considered in
fixing rates?"
"A. Yes, sir, unquestionably."
Mr. Harris testified:
"Q. During the time that you were president of the Philadelphia
& Reading Railroad Company, from 1893 to 1901, what were the
competitive roads in the coal trade with which you came in
competition?"
"A. We came in competition with all the roads that were carrying
coal from Pennsylvania."
"Q. Name the principal ones in reference to carrying coal from
the coal mines to New York Harbor."
"A. The Reading, the Lehigh Valley,
the Central Railroad of
New Jersey, the Delaware, Lackawanna & Western, the Erie,
and the Pennsylvania Railroad."
That the Reading Coal Company and the Wilkes-Barre Coal Company
were competitors before the latter passed under the control of the
Holding Company is obvious, but Mr. Baer put this also beyond
disputed by testifying:
"Q. Prior to 1901, were the Philadelphia & Reading Coal
& Iron Company and the Lehigh & Wilkes-Barre Company
competitors as sellers of coal in New York Harbor?"
"A. Yes, and they are today."
"Q. And generally, throughout the eastern territory, they were
competitors at that time?"
"A. Yes, sir; through that northern territory. Not in this
territory, nor in the southern."
Thus, by this purchase, the Reading Holding Company
Page 253 U. S. 53
acquired complete control not only of one of the largest
competitive anthracite carriers, but also of one of the largest
competitive coal producing and selling companies in the country.
The anthracite tonnage of the Central and Reading Railway
Companies, thus combined, exceeded at the time 18,000,000 tons --
over one-third -- of the then total production of the country, and
the revenue derived from it was more than one-third of the total
earnings of the two railroad companies.
In 1915 the Interstate Commerce Commission concluded an
investigation of the "rates, practices, rules and regulations
governing the transportation of anthracite coal," which had been in
progress for three years. The eleven initial anthracite carriers
which have lines penetrating the coal producing region were
required to furnish special reports as to their anthracite coal
transportation operations, and they appeared and participated in
the hearing. The result of this exhaustive investigation was that
the commission found that, since about 1901, with variations and
exceptions which are negligible here, the carriers have had the
same fixed and flat rates to tidewater regardless of the distance
and character of the haul; that these rates were the result of
cooperation or combination among the carriers, and that they were
excessive to such an extent that material reductions by all of the
carriers were ordered, including, of course, those of the Central
and Reading Companies. The commission also found, and this appears
in the record of this case, that the Reading Coal Company had never
paid any dividends on its stock, and that, while the books of the
Holding Company showed the Coal Company to have been indebted to it
in a sum exceeding $68,000,000 for advances of capital made by the
Reading
Railroad Company before the reorganization in
1896, it has paid interest thereon only occasionally and in such
small amounts that, up to 1913, it fell short by more than
$30,000,000 of equaling 4% per
Page 253 U. S. 54
annum on the indebtedness. In the meantime, advances of large
sums had been made by the Holding Company to the Coal Company, and
unusual credits had been allowed the latter in the payment of its
freight bills. This dealing of the Holding Company with the Reading
Coal Company, and similar dealing of the Central Company with the
Wilkes-Barre Coal Company and the Navigation Company, are denounced
by the Commission as unlawful discrimination against other shippers
of coal over the rails of these two companies, and obviously such
favoritism tends to discourage competition and to unduly restrain
interstate commerce.
Upon this history of the transactions involved, not controverted
save as to some findings of the Interstate Commerce Commission, we
must proceed to judgment, and very certainly it makes a case
calling for the application of repeated decisions of this Court,
which clearly rule it.
It will be convenient to first dispose of several minor
contentions.
In 1871, the Navigation Company leased the Lehigh &
Susquehanna Railroad, which it owned, to the Central Railroad
Company by an instrument containing a covenant which the government
claims requires the Navigation Company to ship to market over the
leased line three-fourths of all of the coal which it should
produce in the future. This covenant has been amended and
supplemented by several agreements, but not so as to essentially
modify it with respect to the contention we are to consider.
It is argued that this covenant necessarily imposed an undue
restriction upon the Navigation Company in selecting its markets
and in shipping its coal, in violation of the Anti-Trust Act.
Is is not entirely clear that the covenant will bear the
restrictive interpretations as to shipments which the
Page 253 U. S. 55
government puts upon it, but, assuming that it may be so
interpreted, nevertheless, the conditions and circumstances of the
case considered, the result contended for cannot be allowed.
When the lease was made, in 1871, the Central Railroad extended
from Jersey City to its western terminus at Phillipsburg, New
Jersey, and it was without access to the coal fields. The Lehigh
& Susquehanna Railroad was about 100 miles in length, and
extended from Phillipsburg into the Wyoming field, where the
Navigation Company owned extensive coal producing properties and
mines. The lines of the two companies were in no sense competitive,
but, on the contrary, the Lehigh & Susquehanna line served as a
natural extension of the Central Company's lines to the great
tonnage producing coal districts. The rental to be paid was
one-third of the gross earnings of the railroad, and it was natural
and "normal" that the lessor should desire that the traffic should
continue to be as large as possible. Plainly this covenant was not
written with the purpose of suppressing interstate commerce and the
history of its operation shows that, instead of suppressing it, it
has greatly promoted it. The claim is quite too insubstantial to be
entertained, and the decree of the district court with respect to
it will be affirmed, and the bill, as to it, dismissed.
In many leases for the operation of coal producing lands, the
Reading Coal Company and the Wilkes-Barre Coal Company incorporated
a covenant that the lessee should ship all coal mined by rail
routes, which were named or which were to be designated. Since this
covenant was resorted to as a part of the scheme to control the
mining and transportation of coal which is condemned as unlawful in
this opinion, the decree of the district court enjoining the
lessors and the other defendants herein from attempting to enforce
such covenants will be affirmed.
The other charges against the Lehigh Coal & Navigation
Page 253 U. S. 56
Company and the case stated in the bill with respect to the
Wilmington & Northern Railroad Company, the Lehigh & Hudson
River Railway Company, and the Lehigh & New England Railroad
Company are substantially abandoned in the government's brief, and,
having regard to the results arrived at with respect to the
principal defendants, the ends of justice will be best served by
dismissing the bill as to all of these defendants, without
prejudice, as was done by the district court as to all but the
Wilmington & Northern Railroad Company, as to which the
dismissal was unqualified. A majority of the individual defendants
have died since the suit was instituted, and their successors in
office have not been made parties, and, since the conclusion to be
announced can be given full effect by an appropriate decree against
the corporation defendants, the case as against the remaining
individual defendants need not be considered, and as to them, the
bill will be dismissed without prejudice.
We are thus brought to the consideration of what the decree
shall be with respect to the really important defendants in the
case, the three Reading Companies, the Central Railroad Company of
New Jersey, and the Wilkes-Barre Coal Company.
Before the reorganization of 1896, the gathering of more than
two-thirds of the acreage of the Schuylkill field into the control
of the two Reading Companies was, as their reports show, for the
frankly avowed purpose, then not forbidden by statute, of
monopolizing the production, transportation and sale of the
anthracite coal of the largest of the three sources of supply.
When in 1896 the problem was presented of reorganizing the
financial affairs of the two companies, it was not solved as it
might have been, by creating separate coal and railroad companies
to conduct independently interstate commerce in the two departments
to which their railroad and coal properties were adapted, but, on
the
Page 253 U. S. 57
contrary, and very obviously for the purpose of evading the
provision of the Constitution of Pennsylvania prohibiting any
incorporated common carrier from, directly or indirectly, engaging
in mining "articles" for transportation over its lines
(Constitution of Pennsylvania 1874, Art. 17, ยง 5), and also of
evading the provisions of the federal Anti-Trust Act against
restraining and monopolizing interstate commerce, resort was had to
the holding company device, by which one company was given
unrestricted control over the other two, with the power, inherent
in that form of organization, of continuing and carrying forward
the restraint and monopoly which had previously been acquired over
that large volume of interstate commerce which was to be conducted
by the coal and railroad companies.
Again, when, in 1901, a rivalry, imaginary or real, arose for
the control of the Central Railroad Company, the Holding Company,
regardless of the law, did not hesitate to purchase control of that
great competing anthracite coal carrying system, with its extensive
coal owning and mining subsidiary. This acquisition placed the
Holding Company in a position of dominating control not only over
two great competing interstate railroad carriers, but also over two
great competing coal companies, engaged extensively in mining and
selling anthracite coal, which must be transported to interstate
markets over the controlled interstate lines of railway.
Again, and obviously, this dominating power was not obtained by
normal expansion to meet the demands of a business growing as a
result of superior and enterprising management, but by deliberate,
calculated purchase for control.
That such a power, so obtained, regardless of the use made of
it, constitutes a menace to and an undue restraint upon interstate
commerce within the meaning of the Anti-Trust Act has been
frequently held by this Court.
Page 253 U. S. 58
Thus, in
Northern Securities Co. v. United States,
193 U. S. 197,
193 U. S. 327,
when dealing with a holding company, such as we have here, this
Court, in 1903, held:
"No scheme or device could more certainly come within the words
of the act -- 'combination in the form of a trust or otherwise . .
. in restraint of commerce among the several states or with foreign
nations' -- or could more effectively and certainly suppress free
competition between the constituent companies. . . .
The mere
existence of such a combination and the power acquired by the
holding company as its trustee, constitute a menace to, and a
restraint upon, that freedom of commerce which Congress intended to
recognize and protect, and which the public is entitled to
have protected."
And again, in
United States v. Union Pacific R. Co.,
226 U. S. 61,
226 U. S. 88,
decided nine years later, in 1912, this Court held:
"The consolidation of two great competing systems of railroad
engaged in interstate commerce by transfer to one of a dominating
stock interest in the other creates a combination which restrains
interstate commerce within the meaning of the statute, because, in
destroying or greatly abridging the free operation of competition
theretofore existing, it tends to higher rates. . . . Nor does it
make any difference that rates for the time being may not be raised
and much money be spent in improvements after the combination is
effected.
It is the scope of such combinations and their power
to suppress or stifle competition or create monopoly which
determines the applicability of the act."
It will suffice to add that this doctrine was referred to as the
settled conclusion of this Court in 1914, when discussing a similar
state Anti-Trust Act in
International Harvester Co. v.
Missouri, 234 U. S. 199,
234 U. S. 209,
it was said:
"The specification under this head is that the Supreme Court [of
Missouri] found, it is contended, benefit -- not
Page 253 U. S. 59
injury -- to the public had resulted from the alleged
combination. Granting that this is not an overstatement of the
opinion, the answer is immediate.
It is too late in the day to
assert against statutes which forbid combinations of competing
companies that a particular combination was induced by good
intentions and has had some good effect. . . . The purpose of
such statutes is to secure competition and preclude combinations
which tend to defeat it."
Thus, this record clearly shows a group of men selecting the
Holding Company with an "omnibus" charter and not only investing it
by stock control with such complete dominion over two great
competing interstate carriers and over two great competing coal
companies extensively engaged in interstate commerce in anthracite
coal as to bring it, without more, within the condemnation of the
Anti-Trust Act, but it also shows that this power of control was
actually used, once successfully, to suppress the building of a
prospective competitive railway line, and a second time,
successfully until this Court condemned the 65% contracts as
illegal, to suppress the last prospect of competition in anthracite
production and transportation. To this it must be added that, up to
the time when this suit was commenced, this Holding Company had
continued in active, dominating control of the Reading Railway
Company and of the competing Central Railroad System, and also of
the two coal companies, thus effectually suppressing all
competition, between the four companies and pooling their earnings.
It is difficult to imagine a clearer case, and in all essential
particulars it rests on undisputed conduct and upon perfectly
established law. It is ruled by many decisions of this Court, but
specifically and clearly by
United States v. Union Pacific R.
Co., supra.
For flagrant violation of the first and second sections of the
Anti-Trust Act, the relations between the Reading
Page 253 U. S. 60
Company, the Reading Railway Company and the Reading Coal
Company and between these companies and the Central Railroad
Company of New Jersey must be so dissolved as to give to each of
them a position in all respects independent and free from stock or
other control of either of the other corporations.
With respect to the contention that the commodities clause of
the Act of June 29, 1906, 34 Stat. 584, 585, is being violated by
the Reading Railway Company and the Central Railroad Company:
The circuit judges centering their attention upon the fact that
the Reading Railway Company did not own any of the stock of the
Reading Coal Company, that the two companies had separate forces of
operatives and separate accounting systems, and upon the importance
of maintaining "the theory of separate corporate entity" as a legal
doctrine, concluded, upon the authority of
United States v.
Delaware & Hudson Co., 213 U. S. 366,
213 U. S. 413,
that the evidence did not justify holding that, in transporting the
products of the Reading Coal Company's mines to market, the Reading
Railway Company was carrying a commodity "mined or produced by it
or under its authority" or which it owned "in whole or in part" or
in which it had "any interest, direct or indirect."
But the question which we have presented by this branch of the
case is not the technical one of whether ownership by a railroad
company of stock in a coal company renders it unlawful for the
former to carry the product of the latter, for here, the railroad
company did not own any of the stock of the coal company. The real
question is whether combining in a single corporation the ownership
of all of the stock of a carrier and of all of the stock of a coal
company results in such community of interest or title in the
product of the latter as to bring the case within the scope of the
provisions of the act.
The purpose of the commodity clause was to put an
Page 253 U. S. 61
end to the injustice to the shipping public which experience had
shown to result from discriminations of various kinds which
inevitably grew up where a railroad company occupied the
inconsistent positions of carrier and shipper. Plainly, in such a
case as we have here, this evil would be present as fully as if the
title to both the coal lands and the railroads were in the Holding
Company, for all of the profits realized from the operations of the
two must find their way ultimately into its treasury -- any
discriminating practice which would harm the general shipper would
profit the Holding Company. Being thus clearly within the evil to
be remedied, there remains the question whether such a controlling
stock ownership in a corporation is fairly within the scope of the
language of the statute.
In terms, the act declares that it shall be unlawful for any
railroad company to transport in interstate commerce
"any article or commodity . . . mined or produced by it, or
under its authority, or which it may own in whole or in part, or in
which it may have any interest, direct or indirect."
Accepting the risk of obscuring the obvious by discussing it,
and without splitting hairs as to where the naked legal title to
the coal would be when in transit, we may be sure that it was mined
and produced under the same "authority" that transported it over
the railroad. All three of the Reading Companies had the same
officers and directors, and it was under their authority that the
mines were worked and the railroad operated, and they exercised
that authority in the one case in precisely the same character as
in the other -- as officials of the Holding Company. The manner in
which the stock of the three was held resulted, and was intended to
result, in the abdication of all independent corporate action by
both the Railway Company and the Coal Company, involving as it did
the surrender to the Holding Company of the entire
Page 253 U. S. 62
conduct of their affairs. It would be to subordinate reality to
legal form to hold that the coal mined by the Coal Company, under
direction of the Holding Company's officials, was not produced by
the same "authority" that operated the Reading Railway lines. The
case falls clearly within the scope of the act, and for the
violation of this commodity clause, as well as for its violation of
the Anti-Trust Act, the combination between the Reading Railway
Company and the Reading Coal Company must be dissolved.
The relation between the Central Railroad Company and the
Wilkes-Barre Coal Company presents a different question, for here
the Railroad Company owns over eleven-twelfths of the stock of the
Coal Company, and therefore the holding in 213 U.S.
213 U. S. 366,
supra, is especially pressed in argument -- that the
ownership of stock by a railroad company in a coal company does not
cause the former to have such an interest in a legal or equitable
sense in the product of the latter as to bring it within the
prohibition of the act. But this holding was considered in
United States v. Lehigh Valley R. Co., 220 U.
S. 257,
220 U. S. 272,
and it was there held not applicable where a railroad company used
its stock ownership for the purpose of securing a complete control
over the affairs of a Coal Company, and of treating it as a mere
agency or department of the owning company. This rule was repeated
and applied in
United States v. Delaware, Lackawanna &
Western R. Co., 238 U. S. 516,
238 U. S. 529.
It results that it may confidently be stated that the law upon this
subject now is that, while the ownership by a railroad company of
shares of the capital stock of a mining company does not
necessarily create an identity of corporate interest between the
two such as to render it unlawful under the commodities clause for
the railroad company to transport in interstate commerce the
products of such mining company, yet where such ownership of stock
is resorted to not for
Page 253 U. S. 63
the purpose of participating in the affairs of the corporation
in which it is held in a manner normal and usual with stockholders,
but for the purpose of making it a mere agent, or instrumentality
or department of another company, the courts will look through the
forms to the realities of the relation between the companies as if
the corporate agency did not exist, and will deal with them as the
justice of the case may require.
United States v. Lehigh Valley
R. Co., 220 U. S. 257,
220 U. S.
272-273;
United States v. Delaware, Lackawanna &
Western R. Co., 238 U. S. 516,
238 U. S. 529;
Chicago, Milwaukee & St. Paul R. Co. v. Minneapolis Civic
& Commerce Association, 247 U. S. 490,
247 U. S.
501.
Applying this rule of law to the relation between the Central
Railroad Company and the Wilkes-Barre Coal Company, with the former
owning over eleven-twelfths of the capital stock of the latter and
using it as the coal mining department of its organization, we
cannot doubt that it falls within the condemnation of the
commodities clause, and that this relation must also, for this
reason, be dissolved.
It results that the decree of the district court will be
affirmed, as to the Lehigh Coal & Navigation Company, the
Lehigh & New England Railroad Company, the Lehigh & Hudson
River Railway Company, as to the restrictive covenants in the
mining leases with respect to the shipping of coal, as to the
dissolution of the combination between the Philadelphia &
Reading Coal & Iron Company and the Lehigh & Wilkes-Barre
Coal Company, maintained through the Reading Company and the
Central Railroad Company of New Jersey. As to the Wilmington and
Northern Railroad Company and as to the individual defendants, the
bill will be dismissed without prejudice. As to the Reading
Company, the Philadelphia & Reading Railway Company, the
Philadelphia & Reading Coal & Iron Company, and the
Page 253 U. S. 64
Central Railroad Company of New Jersey, the decree of the
district court will be reversed, and the cause remanded with
directions to enter a decree in conformity with this opinion,
dissolving the combination of the Reading Company, the Philadelphia
& Reading Railway Company, the Philadelphia & Reading Coal
& Iron Company, the Central Railroad Company of New Jersey and
the Lehigh and Wilkes-Barre Coal Company, existing and maintained
through the Reading Company, with such provision for the
disposition of the shares of stock and bonds and other property of
the various companies, held by the Reading Company, as may be
necessary to establish the entire independence from that company
and from each other, of the Philadelphia & Reading Railway
Company, the Philadelphia & Reading Coal & Iron Company,
the Central Railroad Company of New Jersey, and the Lehigh &
Wilkes-Barre Coal Company, and also that such disposition shall be
made by the decree of the stocks and bonds of the Lehigh &
Wilkes-Barre Coal Company held by the Central Railroad Company of
New Jersey as may be necessary to establish entire independence
between these two companies to the end that the affairs of all of
these now combined companies may be conducted in harmony with the
law.
Affirmed in part; reversed in part, and remanded, with
direction to enter a decree in conformity with this
opinion.
*
United States v. Reading Co. et al., 183 F. 427;
United States v. Reading Co. et al., 226 F. 229;
United States v. Delaware & Hudson Co., 213 U.
S. 366;
United States v. Lehigh Valley Railroad
Co., 220 U. S. 257;
United States v. Delaware, Lackawanna & Western Railroad
Co., 238 U. S. 516;
United States v. Reading Co., 226 U.
S. 324.
MR. CHIEF JUSTICE WHITE, MR. JUSTICE HOLMES, and MR. JUSTICE VAN
DEVANTER, dissenting.
Except insofar as the decree below commanded a separation of
interest between the Central Railroad of New Jersey and the Lehigh
& Wilkes-Barre Coal Company, the court below dismissed, for
want of equity, the bill of the United States brought to sever the
existing relations
Page 253 U. S. 65
between the Reading Company, the Philadelphia & Reading
Railway Company, the Philadelphia & Reading Coal & Iron
Company, the Central Railroad of New Jersey, the Lehigh &
Wilkes-Barre Coal Company, and other corporations, on the ground
that the relations between those companies resulted in a monopoly
or combination in restraint of trade in violation of the Sherman
Act and gave rise to a disregard of the commodities clause of the
Act of Congress.
By the opinion now announced, this action of the court below,
insofar as it directed a dismissal, is reversed, and virtually the
full relief prayed by the government is therefore granted. We are
unable to concur in this conclusion because, in our opinion,
neither the contentions as to the Sherman Act, nor the reliance
upon the commodities clause, except to the extent that in the
particulars stated they were sustained by the court below, have any
foundation to rest upon. We do not state at any length the reasons
which lead us to this view because the court below, composed of
three circuit judges, in a comprehensive and clear opinion
announced by McPherson, Judge, sustains the correctness of the
action which it took and also demonstrates the error involved in
the decree of this Court reversing its action.
United States v.
Reading Co., 226 F. 229. To that opinion we therefore refer as
stating the reasons for our dissent.