UNITED STATES OF AMERICA, Appt., v. UNION PACIFIC RAILROAD COMPANY et al.
226 U.S. 61
33 S.Ct. 53
57 L.Ed. 124
UNITED STATES OF AMERICA, Appt.,
UNION PACIFIC RAILROAD COMPANY et al.
Argued April 19, 22, and 23, 1912.
Decided December 2, 1912.
[Syllabus from pages 61-64 intentionally omitted]
Attorney General Wickersham and Messrs. Cordenio A. Severance and Frank B. Kellogg, Special Assistants to the Attorney General, for appellant.
[Argument of Counsel from pages 64-68 intentionally omitted]
Messrs. P. F. Dunne and N. H. Loomis for appellees.
Mr. Paul D. Cravath for appellees Jacob H. Schiff and Otto H. Kahn.
Mr. James M. Beck for appellee James Stillman.
Messrs. H. F. Stambaugh and D. T. Watson for appellee Henry C. Frick.
[Argument of Counsel from pages 68-79 intentionally omitted]
Mr. Justice Day delivered the opinion of the court:
The case was begun in the United States circuit court for the district of Utah to enforce the provisions of the so-called Sherman anti-trust act of 1890 (26 Stat. at L. 209, chap. 647, U. S. Comp Stat. 1901, p. 3200) against certain alleged conspiracies and combinations in restraint of interstate commerce. The case in its principal aspect grew out of the purchase by the Union Pacific Railroad Company in the month of February, 1901, of certain shares of the capital stock of the Southern Pacific Company from the devisees under the will of the late Collis P. Huntington, who had formerly owned the stock. Other shares of Southern Pacific stock were acquired at the same time, the holding of the Union Pacific amounting to 750,000 shares, or about 37 1/2 per cent (subsequently increased to 46 per cent) of the outstanding stock of the Southern Pacific Company. The stock is held for the Union Pacific Company by one of its proprietary companies, the Oregon Short Line Railroad Company. The government contends that the domination over and control of the Southern Pacific Company given to the Union Pacific Company by this purchase of stock brings the transaction within the terms of the antitrust act. A large amount of testimony was taken and the case heard before four circuit judges of the eighth circuit, resulting in a decree dismissing the bill. 188 Fed. 102.
Prior to the stock purchase in 1901 the Union Pacific system may briefly be described as a line of railroad from the Missouri river to the Pacific coast; namely, from Omaha, Nebraska, or perhaps more strictly from Council Bluffs, Iowa; and from Kansas City, Missouri, to Ogden, Utah, and Portland, Oregon, with various branches and connections and a line of steamships from Portland to San Francisco, California, and from Portland to the Orient; and a line of steamships from San Francisco to the Orient (the Occidental & Oriental Steamship Company), in which the Union Pacific and the Southern Pacific each owned a half interest. The main line from Council Bluffs to Ogden, a little over 1,000 miles in length, with the branch from Kansas City, through Denver, Colorado, to Cheyenne, Wyoming, on the main line, was owned and operated by the Union Pacific; the line from Granger, Wyoming, on the main line of the Union Pacific, to Huntington, Oregon, was owned and operated by the Oregon Short Line Railroad Company, the capital stock of which was owned by the Union Pacific; and the line from Huntington to Portland was owned and operated by the Oregon Railroad & Navigation Company, the stock ownership of which was in the Oregon Short Line. The boat line from Portland to San Francisco and to the Orient, the Portland & Asiatic Steamship Company, was organized early in 1901, its stock being owned by the Oregon Railroad & Navigation Company.
The Southern Pacific Company, a holding company of the state of Kentucky, also engaged in operating certain lines of railroad under lease, controlled a line of railroad extending from New Orleans through Louisiana, Texas, New Mexico, Arizona, California, and Oregon to Portland, reaching Los Angeles and San Francisco, with several branch lines and connections extending into tributary territory. A line of boats running between New York and New Orleans was also owned and operated by the Southern Pacific, and later the same ships entered the port of Galveston, where also the Southern Pacific reached tidewater, and it had branches extending to various points in northern Texas, connecting with other lines of road. The Southern Pacific also operated, under lease, the railroad of the Central Pacific Railway Company, all the stock of which is owned by the Southern Pacific. The lines of the Central Pacific consisted of the road from San Francisco to Ogden, about 800 miles, in length, and connecting at the latter place with the Union Pacific and the Denver & Rio Grande Railroad Company's line. It also had various branches in and about California, aggregating in mileage about 500 miles. The Southern Pacific also owned a majority of the stock of the Pacific Mail Steamship Company, which operated a line of steamships plying to ports in the Orient and running between San Francisco and Panama, which, with the Panama Railroad and its boats, constituted the so-called Panama Route.
The contention of the government is that, prior to the stock purchase, the Union Pacific and Southern Pacific were competing systems of railroad engaged in interstate commerce, and acted independently as to a large amount of such carrying trade, and that since the acquisition of the stock in question the dominating power of the Union Pacific has eliminated competition between these two systems, and that such domination makes the combination one in restraint of trade, within the meaning of the 1st section of the act of Congress of July 2, 1890, and the transaction an attempt to monopolize interstate trade within the provisions of the 2d section of the act.
In view of the recent consideration of the history and meaning of the act (Standard Oil and Tobacco Cases, 221 U. S. 1, 55 L. ed. 619, 34 L.R.A.(N.S.) 834, 31 Sup. Ct. Rep. 502, and 221 U. S. 106, 55 L. ed. 663, 31 Sup. Ct. Rep. 632, respectively), it would be superfluous to enter upon any general consideration of its origin and scope. Ct. Rep. 548; United States v. Joint Traffic considered and its construction authoritatively settled, and in determining the present controversy we need but briefly restate some of the conclusions reached. The act applies to interstate railroads as carriers conducting interstate commerce, and one of the principal instrumentalities thereof. United States v. Tranx-Missouri Freight Asso. 166 U. S. 290, 41 L. ed. 1007, 17 Sup. Ct. Per. 548; United States, v. Joint Traffic Asso. 171 U. S. 505, 43 L. ed. 259, 19 Sup. Ct. Rep. 25. The act is intended to reach combinations and conspiracies which restrain freedom of action in interstate trade and commerce, and unduly suppress or restrict the play of competition in the conduct thereof. United States v. Joint Traffic Asso. supra. In that case an agreement between competing interstate railroads for the purpose of fixing and maintaining rates was condemned.
'It is,' said the court (p. 571), 'the combination of these large and powerful corporations, covering vast sections of territory, and influencing trade throughout the whole extent thereof, and acting as one body in all matters over which the combination extends, that constitutes the alleged evil, and in regard to which, so far as the combination operates upon and restrains interstate commerce, Congress has power to legislate and to prohibit.'
In the Northern Securities Co. v. United States, 193 U. S. 197, 48 L. ed. 679, 24 Sup. Ct. Rep 436, this court dealt with a combination differing in character from that considered in the Trans-Missouri and Joint Traffic Cases, and it was there held that the transfer to a holding company of the stock of two competing interstate railroads, thereby effectually destroying the power which had theretofore existed to compete in interstate commerce, was a restraint upon such commerce, and Mr. Justice Harlan, announcing the affirmance of the decree of the circuit court, said (p. 337):
'In all the prior cases in this court the anti-trust act has been construed as forbidding any combination which, by its necessary operation, destroys or restricts free competition among those engaged in interstate commerce; in other words, that to destroy or restrict free competition in interstate commerce was to restrain such commerce. Nor, can this court say that such a rule is prohibited by the Constitution, or is not one that Congress could appropriately prescribe when exerting its power under the commerce clause of the Constitution? Whether the free operation of the normal laws of competition is a wise and wholesome rule for trade and commerce is an economic question which this court need not consider or determine.'
Mr. Justice Brewer, who delivered a concurring opinion, while expressing the view that the former cases were rightly decided, said that they went too far in giving the reasons for the judgments, and declared his view that Congress only intended to reach and destroy those contracts which were in direct restraint of trade, unreasonable, and against public policy. He was nevertheless emphatic in condemning the combination effected by the Northern Securities Company and the transfer of stocks to it, which policy, he declared, might be extended until a single corporation with stocks owned by three or four parties would be in practical control of both roads; or, viewing the possibilities of combination, the control of the whole transportation system of the country; and, in concluding his concurring opinion, said (p. 363):
'It must also be remembered that under present conditions a single railroad is, if not a legal, largely a practical, monopoly, and the arrangement by which the control of these two competing roads was merged in a single corporation broadens and extends such monopoly. I cannot look upon it as other than an unreasonable combination in restraint of interstate commerce,—one in conflict with state law, and within the letter and spirit of the statute and the power of Congress.'
Of the Sherman act and kindred statutes, this court, speaking by Mr. Justice McKenna, said in National Cotton Oil Co. v. Texas, 197 U. S. 115, 129, 49 L. ed. 689, 694, 25 Sup. Ct. Rep. 379: 'According to them, competition, not combination, should be the law of trade. If there is evil in this, it is accepted as less than that which may result from the unification of interest, and the power such unification gives. And that legislatures may so ordain this court has decided. United States v. E. C. Knight Co. 156 U. S. 1, 39 L. ed 325, 15 Sup. Ct. Rep. 249; United States v. Trans-Missouri Freight Asso. 166 U. S. 290, 41 L. ed. 1007, 17 Sup. Ct. Rep. 548; United States v. Joint Traffic Asso. 171 U. S. 505, 43 L. ed. 259, 19 Sup. Ct. Rep. 25; Northern Securities Co. v. United States, 193 U. S. 197, 48 L. ed. 679, 24 Sup. Ct. Rep. 436; Swift & Co. v. United States, 196 U. S. 375, 49 L. ed. 518, 25 Sup. Ct. Rep. 276.'
In the recent discussion of the history and meaning of the act in the Standard Oil and Tobacco Cases this court declared that the statute should be given a reasonable construction, with a view to reaching those undue restraints of interstate trade which are intended to be prohibited and punished; and in those cases it is clearly stated that the decisions in the former cases had been made upon an application of that rule, and there was no suggestion that they had not been correctly decided. In the Tobacco Case, after referring to the previous decision in the standard Oil Case and the decisions in the Trans-Missouri and Joint Traffic Cases, the doctrine was tersely summarized by the Chief Justice, speaking for the court, as follows (p. 179):
'Applying the rule of reason to the construction of the statute, it was held in the Standard Oil Case that, as the words 'restraint of trade' at common law and in the law of this country at the time of the adoption of the anti-trust act only embraced acts or contracts or agreements or combinations which operated to the prejudice of the public interests by unduly restricting competition, or unduly obstructing the due course of trade, or which, either because of their inherent nature or effect, or because of the evident purpose of the acts, etc., injuriously restrained trade, that the words as used in the statute were designed to have and did have but a like signifacance. It was therefore pointed out that the statute did not forbid or restrain the power to make normal and usual contracts to further trade by resorting to all normal methods, whether by agreement or otherwise, to accomplish such purpose. In other words, it was held not that acts which the statute prohibited could be removed from the control of its prohibitions by a finding that they were reasonable, but that the duty to interpret which inevitably arose from the general character of the term 'restraint of trade' required that the words 'restraint of trade' should be given a meaning which would not destroy the individual right to contract, and render difficult, if not impossible, any movement of trade in the channels of interstate commerce,—the free movement of which it was the purpose of the statute to protect.'
We take it, therefore, that it may be regarded as settled, applying the statute as construed in the decisions of this court, that a combination which places railroads engaged in interstate commerce in such relation as to create a single dominating control in one corporation, whereby natural and existing competition in interstate commerce is unduly restricted or suppressed, is within the condemnation of the act. While the law may not be able to enforce competition, it can reach combinations which render competition impracticable. Swift & Co. v. United States, 196 U. S. 375, 49 L. ed. 518, 25 Sup. Ct. Rep. 276.
Nor do we think it can make any difference that instead of resorting to a holding company, as was done in the Northern Securities Case, the controlling interest in the stock of one corporation is transferred to the other. The domination and control, and the power to suppress competition, are acquired in the one case no less than in the other, and the resulting mischief, at which the statute was aimed, is equally effective whichever form is adopted. The statute in its terms embraces every contract or combination, in form of trust or otherwise, or conspiracy in restraint of trade or commerce. This court has repeatedly held this general phraseology embraces all forms of combination, old and new. 'In view of the many new forms of contracts and combinations,' said the Chief Justice in the Standard Oil Case (p. 59), 'which were being evolved from existing economic conditions, it was deemed essential by an all-embracing enumeration to make sure that no form of contract or combination by which an undue restraint of interstate or foreign commerce was brought about could save such restraint from condemnation.' A more effectual form of combination to secure the control of a competing railroad than for one road to acquire a dominating stock interest in the other could hardly be conceived. If it is true, as contended by the government, that a stock interest sufficient for the purpose was obtained in the Southern Pacific Company, with a view to securing the control of that company and thus destroying or restricting competition with the Union Pacific in interstate trade, the transaction was, in our opinion, within the terms of the statute.
That the purchase was legal in the state where made, and within corporate powers conferred by state authority, constitutes no defense, if it contravenes the provisions of the anti-trust act, enacted by Congress in the exercise of supreme authority over interstate commerce. Northern Securities Co. v. United States, 193 U. S. 334, 48 L. ed. 699, 24 Sup. Ct. Rep. 436; Standard Oil Co. v. United States, 221 U. S. 68, 55 L. ed. 648, 34 L.R.A.(N.S.) 834, 31 Sup. Ct. Rep. 502; United States v. American Tobacco Co. 221 U. S. 183, 55 L. ed. 695, 31 Sup. Ct. Rep. 632.
It is said, however, and this was the view of the majority of the circuit judges, that these railroads were not competing, but were engaged in a partnership in interstate carriage as connecting railroads; and it was further said that the Southern Pacific, because of its control of the line from Ogden to San Francisco and other California points, was the dominating partner. A large amount of the testimony in this voluminous record was given by railroad men of wide experience, business men and shippers, who, with practical unanimity, expressed the view that, prior to the stock purchase in question, Union Pacific and Southern Pacific systems were in competition, sharp, welldefined, and vigorous, for interstate trade. To compete is to strive for something which another is actively seeking and wishes to gain. The Southern Pacific, through its agents, advertisements, and literature, had undertaken to obtain transportation for its 'Sunset' or southerly route across the continent, while the Union Pacific had endeavored in the same territory to have freight shipped by way of its own and connecting lines, thus securing for itself about 1,000 miles of the haul to the coast
To preserve from undue restraint the free action of competition in interstate commerce was the purpose which controlled Congress in enacting this statute, and the courts should construe the law with a view to effecting the object of its enactment.
Competition between two such systems consists not only in making rates, which, so far as the shipper was concerned, the proof shows, were by agreement fixed at the same figure whichever route was used, and then apportioned among the connecting carriers upon a basis satisfactory to themselves, but includes the character of the service rendered, the accommodation of the shipper in handling and caring for freight, and the prompt recognition and adjustment of the shipper's claims. Advantages in these respects were the subjects of representation and the basis of solicitation by many active, opposing agencies. The maintenance of these by the rival companies promoted their business and increased their revenues. The inducement to maintain these points of advantage—low rates, superiority of service and accommodation did not remain the same in the hands of a single dominating and common ownership as it was when they were the subjects of active promotion by competing owners whose success depended upon their accomplishment.
The consolidation of two great competing systems of railroad engaged in interstate commerce by a 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 (United States v. Joint Traffic Asso. 171 U. S. 577, 43 L. ed. 290, 19 Sup. Ct. Rep. 25). It directly tends to less activity in furnishing the public with prompt and efficient service in carrying and handling freight and in carrying passengers, and in attention to and prompt adjustment of the demands of patrons for losses, and in these respects puts interstate commerce under restraint. 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. Pearsall v. Great Northern R. Co. 161 U. S. 646, 676, 40 L. ed. 838, 848, 16 Sup. Ct. Rep. 705; United States v. Joint Traffic Asso. supra.
It is urged that this competitive traffic was infinitesimal when compared with the gross amount of the business transacted by both roads, and so small as only to amount to that incidental restraint of trade which ought not to be held to be within the law; but we think the testimony amply shows that, while these roads did a great deal of business for which they did not compete, and that the competitive business was a comparatively small part of the sum total of all traffic, state and interstate, carried over them, nevertheless such competing traffic was large in volume, amounting to many millions of dollars. Before the transfer of the stock, this traffic was the subject of active competition between these systems; but by reason of the power arising from such transfer it has since been placed under a common control. It was by no means a negligible part, but a large and valuable part, of interstate commerce which was thus directly affected
The fact that the Southern Pacific had a road of its own from the Gulf to the Pacific coast did not prevent competition for this traffic. The Union Pacific and its connections were engaged in the same carrying trade, and as a matter of fact were competing for that trade by all the usual means of competition resorted to by rival railroad systems. As this court said, speaking by Mr. Justice Holmes, in Swift & Co. v. United States, 196 U. S. 398, 49 L. ed. 525, 25 Sup. Ct. Rep. 276: 'Commerce among the states is not a technical legal conception, but a practical one, drawn from the course of business.' That commerce, as conducted from the East to the Pacific coast, was, in a substantial part, the subject-matter of rivalry and competition between these two systems. Since the stock transfer the companies have common officers, and the rival soliciting agencies have been, for the most part, abandoned.
It is contended that the Union Pacific was but a connecting road and really had no line to San Francisco, but was dependent upon the Southern Pacific for such terms as it could make over the old Central Pacific line from Ogden to San Francisco. The facts disclose, as we have already said, that the Union Pacific had a line to Portland by way of the Oregon Short Line and the Oregon Railroad & Navigation Company, and thence to San Francisco by steamboat connection It may be admitted that this was a much longer route than by way of the Ogden connection, and that, as a practical matter, nearly all of the freight intended for San Francisco and nearby points went over the Ogden route; nevertheless, the Portland route was a factor in rate making to the coast, and the testimony shows that the Union Pacific and the Southern Pacific, up to the time of the sale of the stock, had been working for many years under a satisfactory arrangement as to rates. It is going too far to say that the Union Pacific was entirely at the mercy of the Southern Pacific in making rates for freight by way of the Ogden connection, because the latter company controlled the old Central Pacific line to San Francisco. It certainly would have been very detrimental to the Southern Pacific to have declined an arrangement for the carriage of freight received from the Union Pacific and its connections for transportation to California by way of the Ogden route. The traffic manager of the Southern Pacific testified that the division of the through rate from Omaha to San Francisco has been the same since 1870; that he thought it unfair to the Southern Pacific, but that it was the best that could be obtained at the time. One of the reasons for the Central Pacific leasing its lines to the Southern Pacific, as set forth in the lease, was that the Union Pacific had secured control of the Oregon Short Line, and thereby obtained an outlet to the Pacific, other than over the Central Pacific, 'and thus in that respect placed itself in opposition to the interests of the Central Pacific,' and that it was 'not only to the best interests of, but absolutely necessary that, the Central Pacific Railroad Company, in order to maintain itself against these diversions (of the Union Pacific and others), should be operated in connection with a friendly through line to the waters of the Atlantic.'
Nor do we think it can be justly said that, because of the connection with the Rio Grande road at Ogden, the Southern Pacific was in position to discriminate at will against the Union Pacific in such wise as to greatly impair the latter road's carrying trade upon eastbound freight. In this connection it is said that since the consolidation, notwithstanding the former published rates are maintained, the favoring attitude of the Southern Pacific to the Union Pacific practically destroyed the carrying trade from Ogden to the East for the Rio Grande system, and necessitated the contruction by the latter road of a new connection for California points, and that such would have been the fate of the Union Pacific upon disagreement as to rates with the Southern Pacific. In reference to this point we think it is pertinent to consider the acts of Congress known as the Pacific Railroad acts. These acts required the two roads, the Central Pacific and Union Pacific, to be 'operated and used for all purposes of communication, travel, and transportation, so far as the public and government are concerned, as one connected, continuous line' (12 Stat. at L. 489, 495, act of July 1, 1862, § 12, chap. 120), and in such operation and use 'to afford and secure to each equal advantages and facilities as to rates, time, and transportation, without any discrimination of any kind in favor of the road or business of any or either of said companies or adverse to the road or business of any or either of the others. . . .' (31 Stat. at L. 356, 362, act of July 2, 1864, § 15, chap. 216). They also authorized the consolidation of the roads. These acts, it is said, are only intended to secure the permanent physical connection of the roads, and to provide for equal accommodations upon the basis of independent carriage, and outline no method by which the two roads can be compelled to make a joint through rate, and that at the time of the stock transfer there was no such provision in the interstate commerce acts. Therefore, it is said that the Union Pacific, no less than the Rio Grande, would have been practically at the mercy of the Southern Pacific in the favorable or unfavorable treatment which might have been accorded to it in the matter of through business to be transported eastwardly. The purpose of Congress to secure one permanent road to the coast, so far as physical continuity is concerned, is apparent; but we do not think the acts stop with that requirement. It is provided that facilities as to rates, time, and transportation shall be without any discrimination of any kind in favor of either of said companies, or adverse to the road or business of any or either of the others; and the purpose of Congress to secure a continuous line of road, operating from the Missouri river to the Pacific coast as one road, is further emphasized in the act of Congress of June 20, 1874 (18 Stat. at L. 111, chap. 331, U. S. Comp. Stat. 1901, p. 3577), making it an offense for any officer or agent of the companies authorized to construct the roads, or engaged in the opperation thereof, to refuse to operate and use the same for all purposes of communication, travel, and transportation, so far as the public and government are concerned, as one continuous line, and making it a misdemeanor to refuse, in such operation and use, to afford and secure to each of said roads equal advantages and facilities as to rates, time, and transportation, without any discrimination of any kind in favor of or adverse to any or either of said companies. Such practices of systematic and preconcerted discrimination as are said to have destroyed the Rio Grande's carrying trade as a connection for the East for business at Ogden would have violated the statute as discriminations adverse to the Union Pacific, and be equally violative of the letter and spirit of the acts of Congress Certainly such discriminations could be restrained by the courts (Union P. R. Co. v. Chicago, R. I. & P. R. Co. 163 U. S. 564, 603, 604, 41 L. ed. 265, 279, 16 Sup. Ct. Rep. 1173), and might possibly have resulted in a forfeiture of all rights under the acts of Congress. The obligation to keep faith with the government continued, as did the legislative power of Congress concerning these roads, notwithstanding changed forms of ownership and organization. Union P. R. Co. v. Mason City, & Ft. D. R. Co. 199 U. S. 160, 50 L. ed. 134, 26 Sup. Ct. Rep. 19.
It is further contended that the real purpose in acquiring the stock was not to obtain the control of the Southern Pacific as a system, but to secure the California connection via Ogden, and to avoid the situation which has been termed the 'bottling up' of the Union Pacific at that point. That process, we have undertaken to show, might have been detrimental to the Southern Pacific business in California, as it is apparent that much of it would not have gone over the 'Sunset' route of the Southern Pacific. It may be conceded, as is undoubtedly the fact, that the connection at Ogden was a valuable one, the one practically and largely, if not exclusively, used in the transportation of freight to and from the state of California; but this case is not to be decided upon the theory that only so much of the Southern Pacific system as operates between Ogden and San Francisco has been acquired. Conceding for this purpose that it might have been legitimate, had it been practicable, to acquire the California connection at Ogden over the old Central Pacific line, we must consider what was in fact done; and that was the purchase of the controlling interest in the entire Southern Pacific system, consisting of ocean and river lines with a mileage of about 3,500 miles, and railroad lines aggregating over 8,000 miles, together forming a transportation system from New York and other Atlantic ports to San Francisco and Portland and other Pacific Coast points, with various branches and connections, besides a steamship line from San Francisco to Panama and from San Francisco to the Orient, and a half interest in another line between the two latter points. The purchase may be judged by what it in fact accomplished, and the natural and probable consequences of that which was done. Because it would have been lawful to gain, by purchase or otherwise, an entrance into California over the old Central Pacific, does not render it legal to acquire the entire system, largely engaged in interstate commerce in competition with the purchasing road.
In determining the validity of this combination, we have a right to look also to the intent and purpose of those who conducted the transactions from which it arose, and to the objects had in view. (Swift & Co. v. United States, 196 U. S. 396, 49 L. ed. 524, 25 Sup. Ct. Rep. 276; United States v. Terminal R. Asso. 224 U. S. 383, 395, 56 L. ed. 810, 813, 32 Sup. Ct. Rep. 507.) It appears that at the time the Union Pacific was about to raise the means to effect the Southern Pacific stock purchase it authorized the issuance of $100,000,000 of bonds 'for the purpose of meeting present and future financial requirements of the company,' provision being made for the use of the proceeds from $40,000,000 of this amount in the purchase of the Southern Pacific stock, with no designation whatever as to the purpose to which the balance, $60,000,000, should be applied. It is said that the remaiding $60,000,000 were intended to be used in the acquisition of a part interest in the railroad system of the Chicago, Burlington, & Quincy Railway Company, in view of the imminent probability of the purchase of that system by the Northern Pacific Railway Company and the Great Northern Railway Company. As a matter of fact, the Northern Pacific and Great Northern having each secured a half interest in the Burlington, the Union Pacific did acquire a large amount of the Northern Pacific stock with this $60,000,000. The failure to secure control of the Northern Pacific by acquiring a majority of its common stock resulted in the formation of the Northern Securities Company, terminating in the litigation of the Northern Securities Case and the judgment of this court, reported in 193 U. S. 197, 48 L. ed 679, 24 Sup. Ct. Rep. 436. When that combination was declared illegal, the Union Pacific interests undertook to compel a return of the Northern Pacific stock which they had turned over to the Northern Securities Company, and opposed a distribution among the stockholders of the latter company of the stock of the Northern Pacific Company and the Great Northern Company, which had been put into the combination. That attempt was dealt with in Harriman v. Northern Securities Co. 197 U. S. 244, 49 L. ed. 739, 25 Sup. Ct. Rep. 493, and of the effect of the return of the Northern Pacific stock to the Union Pacific interests instead of the distribution of the stock and assets of the Northern Securities Company among its stockholders, this court said (p. 297): It is clear enough that the delivery to complainants of a majority of the total Northern Pacific stock, and a ratable distribution of the remaining assets to the other Securities stockholders, would not only be in itself inequitable, but would directly contravene the object of the Sherman law and the purposes of the government suit.
'The Northern Pacific system, taken in connection with the Burlington system, is competitive with the Union Pacific system, and it seems obivious to us, the entire record considered, that the decree sought by complainants would tend to smother that competition.'
In view of the testimony, we think the evident purpose of issuing the $100,000,000 of bonds was to acquire a fund to be used for the acquisition of the stock of the Southern Pacific, a great competitive system, and also of the stocks of other competing roads.
After acquiring the Southern Pacific stock, Mr. Harriman, who dominated in the affairs of the Union Pacific, became president and chairman of the executive committee of the Southern Pacific Company, with the same ample power which he had in like positions in the Union Pacific Company and the companies owned and controlled by it. These facts cannot be lost sight of in determining the object and scope of the transaction in question, which resulted, as we have said, in that unified control which has in its power the suppression of competition.
But it is said that no such control was in fact obtained; that at no time did the Union Pacific acquire a majority of the stock of the Southern Pacific, and that at first it acquired but thirty-seven and a fraction per cent, which was afterwards somewhat increased and dimininshed until about 46 per cent of the stock is now held. In any event, this stock did prove sufficient to obtain the control of the Southern Pacific. It may be true that in small corporations the holding of less than a majority of the stock would not amount to control, but the testimony in this case is ample to show that, distributed as the stock is among many stockholders, a compact, united ownership of 46 per cent is ample to control the operations of the corporation. This is frankly admitted in the testimony of Mr. Harriman, the prime mover in the purchase of the Southern Pacific. It was purchased, he declared, for the purpose of getting a dominating interest in the Southern Pacific Company, and, he added, the Union Pacific did thus acquire such interest.
Reaching the conclusion that the Union Pacific thus obtained the control of a competing railroad system and thereby effected a combination in restraint of trade, within the meaning of the Sherman act, the question remains, What should be the relief in such circumstances? The remedies provided in the statute, generally speaking, were said by this court in the Standard Oil Case, supra, to be twofold in character (p. 78):
'1st. To forbid the doing in the future of acts like those which we have found to have been done in the past which would be violative of the statute. 2d. The exertion of such measure of relief as will effectually dissolve the combination found to exist in violation of the statute, and thus neutralize the extension and continually operating force which the possession of the power unlawfully obtained has brought and will continue to bring about.'
In applying this general rule of relief we must deal with each case as we find it; and in the present one the object to be attained tained is to restrain the operation of and effectually terminate the combination created by the transfer of the stock to the Union Pacific Company. In that view the decree to be entered in the district court shall provide an injunction against the right to vote this stock while in the ownership or control of the Union Pacific Company, or any corporation owned by it, or while held by any corporation or person for the Union Pacific Company, and forbid any transfer or disposition thereof in such wise as to continue its control, and shall provide an injunction against the payment of dividends upon such stock while thus held, except to a receiver to be appointed by the district court to collect and hold such dividends until disposed of by the decree of the court.
As the court below dismissed the government's bill, it was unnecessary there to consider the disposition of the shares of stock acquired by the Union Pacific Company, which acquisition, we hold, constituted an unlawful combination in violation of the anti-trust act. In order to effectually conclude the operating force of the combination, such disposition shall be made subject to the approval and decree of the district court, and any plan for the disposition of this stock must be such as to effectually dissolve the unlawful combination thus created. The court shall proceed, upon the presentation of any plan, to hear the government and defendants, and may bring in any additional parties whose presence may be necessary to a final disposition of the stock in conformity to the views herein expressed.
As to the suggestion made at the oral argument by the Attorney General, in response to a query from the court as to the nature of the decree, that one might be entered which, while destroying the unlawful combination in so far as the Union Pacific secured control of the competing line of road extending from New Orleans and Galveston to San Francisco and Portland, would permit the Union Pacific to retain the Central Pacific connection from Ogden to San Francisco, and thereby to control that line to the coast, thus effecting such a continuity of the Union Pacific and Central Pacific from the Missouri river to San Francisco as was contemplated by the acts of Congress under which they were constructed, it should be said that nothing herein shall be considered as preventing the government or any party in interest, if so desiring, from presenting to the district court a plan for accomplishing this result, or as preventing it from adopting and giving effect to any such plan so presented.
Any plan or plans shall be presented to the district court within three months from the receipt of the mandate of this court; failing which, or, upon the rejection by the court of plans submitted within such time, the court shall proceed by receivership and sale, if necessary, to dispose of such stock in such wise as to dissolve such unlawful combination.
The government has appealed from the decree, which is a general one, dismissing the bill. So far as concerns the attempt to acquire the Northern Pacific stock and the stock of the Atchison, Topeka, & Santa Fe Railway Company, afterwards abandoned, and a certain interest in the San Pedro, Los Angeles, & Salt Lake Railroad Company, and other features of the case which were dealt with and disposed of by the decree and opinion of the court below, it is sufficient, without going into these matters in detail, to say that as to them we find no reason to disturb the action of the court below, but for the reasons stated the decree should be reversed, and one entered in conformity to the views herein expressed, so far as concerns the acquisition of the Southern Pacific stock.
Reversed in part, the District Court to retain its jurisdiction to see that the decree above outlined in made effectual.
Mr. Justice Van Devanter took no part in the hearing or determination of this case.