Case Name: UNITED STATES v. LAKE SHORE & M. S. RY. CO. et al.
Court: United States District Court for the Southern District of Ohio
Jurisdiction: United States
Decision Date: 1912-12-28
Citations: 203 F. 295
Docket Number: No. 1,584
Parties: UNITED STATES v. LAKE SHORE & M. S. RY. CO. et al.
Judges: Before WARRINGTON, KNAPPEN, and DENISON, Circuit Judges.
Reporter: Federal Reporter
Volume: 203
Pages: 295–330

Head Matter:
UNITED STATES v. LAKE SHORE & M. S. RY. CO. et al.
(District Court, S. D. Ohio, E. D.
December 28, 1912.)
No. 1,584.
1. Monopolies (§ 16*) — Anti-Trust Act — Combination Between Coal Cab-eying Railroads.
Coal carrying railroads extending into the same coal fields, although reaching different mines, or extending into different fields where competing coal is produced. which traverse generally parallel lines and reach either directly or through their connections the same markets in other states, must be regarded as natural 'competitors in interstate commerce, and any arbitrary methods between them or between them and the coal companies, by which such natural competition is eliminated, is in violation of Sherman Anti-Trust Act July 2, 1890, c. 647, § 1, 26 Stat. 209 (U. S. Comp. St. 1901, p. 3200).
[Ed. Note. — For other cases, see Monopolies, Cent. Dig. § 12; Dec. Dig § 16.*]
2. Monopolies (§ 16*) — Anti-Trust A ot — Combination Between Coal Carrying Railroads.
The combination of a number of coal carrying railroads, which were natural competitors, and the acquiring by them of largo coal mining interests tributary to their several lines, so that both railroad and mining interests wore under a single controlling power, the result being a division of the traffic and the elimination of competition as to interstate as well as domestic shipments, and a discrimination against all new and independent mines, was one in restraint of interstate commerce, and created a monopoly of a part of such commerce in violation of Sherman Anti-Trust Act of July 2, 1800, c. 647, §§ 1, 2, 26 Stat. 209 (U. S. Comp. St. 1901, p. 3200).
[Ed. Note. — -For other cases, see Monopolies, Cent. Dig. § 12; § 16. Dec. Dig.
For other definitions, see Words and Phrases, vol. 5, pp. 4570-4574.]
3. Monopolies (§ 21*) — Persons Liable —Joinder After Conspiracy is Formed.
One who learns of a conspiracy or unlawful combination after it is formed, and then joins it or knowingly aids in the execution of the scheme and shares in its profits, becomes from that time as much a co-conspirator as if he were one of those who originally designed it.
• [Ed. Note. — For other cases, see Monopolies, Cent. Dig. § 15; Dec. Dig. § 21.*]
4. Monopolies (§ 24*) — Anti-Trust Act — Suit to Restrain Violation — Evidence.
In considering the legality of a contract between railroad companies ■ claimed to be in restraint of interstate commerce, and in violation of Sherman Anti-Trust Act July 2, 1S90, c. 647, §§ 1, 2, 26 Stat. 209 (17. S. Comp. St. 1901, p. 3200), evidence to show the relations between the parties and the previous conduct of the business affected is competent.
[Ed. Note. — For other cases, see Monopolies, Cent. Dig. § 17; Dee, Dig. § 24.*]
5. Monopolies (§ 16*) — Anti-Trust Act — Combinations in Restraint of and to Monopolize Interstate Commerce.
The Hocking Valley Railway Company and the Toledo & Ohio Central Railway Company each owns and operates a line of road in Ohio from Toledo into the Hocking coal fields in the southeastern part of the state, .and from a connection with such lines the Kanawha & Michigan Railway Company owns and operates a line across the riyer into the Kanawha coal fields in West Virginia. The principal freight business of all the roads is the carriage of coal mined in such fields and destined for lake ports or points further to the north and west. About 1899 the Hocking Valley Company, through stock purchases and otherwise, acquired control of both the other roads, and also of a large number of coal companies owning land and mines tributary thereto. Five trunk lines, again, together purchased a controlling stock interest in the Hocking Valley Company, and the entire combination was practically managed and controlled by a committee appointed by them. In an action by the state against the Hocking Valley Company, which is an Ohio corporation, such combination was adjudged illegal, and the defendant was required to dispose of its controlling interest in the other roads and also in the mines. To meet this situation, a contract was entered into between two of the trunk line stockholders, viz., the Chesapeake & Ohio Railway Company, operating a line from the coast on the south side of the Ohio river to Cincinnati and a subsidiary line from there to Chicago, its main line touching th.at of the Kanawha & Michigan Company, and the Lake Shore & Michigan Southern Railway Company, operating a line from Buffalo, through Toledo, to Chicago, pursuant to which the Chesapeake & 'Ohio Company acquired the controlling interest in the Hocking Valley Company and the Lake Shore Company in the Toledo & Ohio Central Company, while the controlling interest in the Kanawha & Michigan Company and the coal companies was divided between them, the contract providing that each should have the right to use the road, and that its north-bound coal trafiic should be fairly divided between the Hocking Valley Company and the Toledo & Ohio Central Company. Held, that such contract did not change the essential character of the previous arrangement, but was inconsistent with the established rule requiring freedom of competition in interstate commerce, and in violation of Sherman Anti-Trust Act July 2, 1S90, c. 647, §§ 1, 2, 26 Stat. 209 (U. S. Comp. St. 1901, p. 3200).
[Ed. Note. — For other cases, see Monopolies, Cent. Dig. § 12; Dee. Dig. § 16. ]
6. Monopolies (§ 24*) — Anti-Trust Apt-Suit to Enjoin Violation.
There is a clear distinction between the power to grant relief respecting the past failure to construct one of two projected parallel lines of railroad and the power to prevent the elimina lion of one of two parallel roads in actual existence and operation.
Hid. Note. — For other cases, see Monopolies, Cent. Dig. § 17; Dec. Dig. § 21. ¡
Denison, Circuit Judge, dissenting in part.
In Equity. Suit by the United States against the Lake Shore & Michigan Southern Railway Company, the Chesapeake & Ohio Railway Company, the Hocking Valley Railway Company, the Toledo & Ohio Central Railway Company, the Kanawha & Michigan Railway Company, the Zanesville & Western Railway Company, the Sunday Creek Company, the Continental Coal Company, and the Kanawha & Hocking Coal & Coke Company. Decree for complainant.
Sherman T. McPherson, U. S. Atty., of Cincinnati, Ohio, and O. E. Harrison, of Columbus, Ohio, and John L. Lott, of Tiffin, Ohio, Special Assts. to the Atty. Gen., for the United States.
Clyde Brown, Chas. T. Lewis, John H. Doyle, and Frank S. Lewis, all of Toledo, Ohio, for defendants Lake Shore & M. S. Ry'. Co., Toledo & O. Cent. Ry. Co., and Zanesville & W. Ry. Co.
Lawrence Maxwell, of Cincinnati, Ohio, LI. T. Wickham, of Richmond, Va., and -V. C. Rearick, of New York City, for defendant Chesapeake & O. Ry. Co.
Taifourd P. Linn, of Columbus, Ohio, for defendant Kanawha & M. Ry. Co.
Lawrence Maxwell, of Cincinnati, Ohio, James H. Hoyt, of Cleveland, Ohio, and John F. Wilson, of Columbus, Ohio, for defendant Hocking Valley Ry. Co.
William O. Henderson, of Columbus, Ohio, for defendant Sunday Creek Co.
Before WARRINGTON, KNAPPEN, and DENISON, Circuit Judges.
Eor other eases see same topic & § number in Dec. & Am. Digs. xao7 to date, & Kep’r Indexes
For other cases see same topic & § number in Dec, & Am. Digs. 1007 to date, & Rep’r Indexes
For other caaes see same topic & § number in Dec, & Am. Digs. 1907 to date, & Rep’r Indexes

Opinion:
WARRINGTON, Circuit Judge.
This suit was brought to enjoin further performance of certain agreements alleged to have been made in pursuance of combinations and conspiracies formed and carried out in restraint of trade among the several states, particularly trade in bituminous coal, in violation of Act Cong. July 2, 1890, commonly known as the Sherman Anti-Trust Act (July 2, 1890, c. 647, 26 Stat. 209 [U. S. Comp. St. 1901, p. 3200]); many of the acts alleged having been committed in whole and others in part within the Eastern Division of the Southern Judicial District of Ohio.
The defendants consist of six railroad companies and three co*xí companies, named in the margin. The railroad companies are all Ohio corporations, except the Chesapeake & Ohio, which was organized in Virginia and all are engaged in transporting interstate commerce. The coal companies named were created as follows: The Sunday Creek under the laws of New Jersey, and the other two under the laws of West Virginia.
The Railroads. It is important to understand the geographical relations of the railroads, and similarly their relations to the coal fields involved. The Lake Shore extends from Buffalo to Chicago, passing through Ohio near the southerly shore of Lake Erie to Toledo, and thence across the northerly portion of the state, and has a number of intermediate branches. A large majority of its capital stock is owned by the New York Central. The Chesapeake & Ohio extends from Old Point Comfort to Cincinnati, running generally along the south side of the Ohio River from a point east of Huntington, W. Va., to and through Kentucky to Cincinnati, and also has a number of intermediate branch lines. It owns a great majority of the stock of the Chesapeake & Ohio Railway of Indiana, and so reaches Chicago. Thus one of these east and west trunk lines passes through Ohio near its northerly boundary, and the other along the south shore of the Ohio river near the south boundary.of Ohio. Two of the remaining defendant railroads are wholly within Ohio, running generally in a north and south direction, viz., the Hocking Valley from .Toledo by way of Columbus, Lancaster, Logan, and Gallipolis to Pomeroy on the Ohio river (passing through Kanauga on the Ohio river opposite Point Pleasant, W. Va.), with a branch line running from Logan to Athens; and the Toledo & Ohio Central has two divisions running from Toledo, one by way of Fostoria, Bucyrus, and Thurston to Corning in Perry county, and the other by way of Findlay, Kenton, and Columbus-to Thurston on the first division. The Kanawha & Michigan runs south from Corning to the Ohio river, crossing the river from Kanauga, Ohio, to Point Pleasant, W. Va., and continuing thence through Mason, Putnam, Kanawha, and Fayette counties by way of Charleston to Gauley Bridge, in that state, using the tracks of the Blocking Valley between Hobson and Gallipolis, by way of Kanauga; and the Zanesville & Western runs east and west from Thurston through the counties of Fairfield, Perry, and Muskingum to Zanesville, Ohio, although it seems to be part of an old road which formerly continued westwardly from Thurston to Columbus, parallel with the Hocking Valley.
The Coal Fields. The Ohio coal fields directly in question are situated in Athens, Perry, Hocking, and Muskingum counties, and known as the Hocking Valley coal fields; and those in West Virginia are situated in the Kanawha coal district. The four railroads last named are connected with portions of these coal fields of Ohio, and the Kanawha & Michigan with the Kanawha coal fields. The principal coal mines along the Hocking Valley are located in Athens, Perry, and Hocking counties, those along the Toledo & Ohio Central are in Fair-field, Perry, Hocking, Athens, and Muskingum, those along the Zanesville & Western are in Muskingum and Perry counties, and those along the Kanawha & Michigan are in. Putnam, Kanawha, and Fayette coun ties, W. Va., besides some that are located in Perry and Athens counties, Ohio; and the principal part of the freight traffic of all the defendant railroad companies, except the Lake Shore, is bituminous coal in car load shipments, the principal mines along the Chesapeake & Ohio being in Kanawha, New River, and Big Sandy districts of West Virginia and Kentucky. A large part of the freight traffic of the Lake Shore is bituminous coal in car load shipments derived from branch roads tapping the Appalachian coal fields. The coal of the various fields mentioned is shipped on these toads from the portions of coal fields with which they are severally' connected as before pointed out, to lake ports and to points in the North and Northwest.
Competitive Conditions. The Hocking Valley and the Toledo & Ohio Central, when the latter and the Kanawha & Michigan are operated as they were for a long time as a through line, are naturally competing roads. However, evidence was offered to show that the river division of the Hocking Valley, running from Logan to Kanauga (and thence to Pomeroy, as stated), cannot be treated as a competitor of the Kanawha & Michigan, because of difficult grades on such river division. The Hocking Valley, as far south as Athens, and the Toledo & Ohio Central, are naturally competing roads. It is to be noted, however, that claim is made that competing relations cannot be ascribed to roads connected as these all seem to be with different sets of coal mines, even where such mines are located in the same coal field. As it seems to us, a broader view than this must be taken. The destinations of the coal shipped from these coal fields and the effect on the prices to be exacted of the coal purchasing and consuming pub;lie located at points beyond the lake ports and the boundaries of Ohio must be taken into consideration; and not merely the producers of coal and the carriers transporting it. Manifestly it can make no difference to the coal purchaser or consumer whether coals of the same quality be derived from one particular mine or another of the same field, no matter how close together or how far removed from one another such mines may be, so long as the prices of the coals and the freight charges to be paid are influenced by natural competitive conditions both at the mines and in transportation; and the right to have such conditions maintained cannot be validly 'abridged through arbitrary or unusual methods. This is equally plain respecting coals of different qualities originating in different fields and requiring varying distances of transportation over lines naturally competing in material parts; for the purchaser or consumer will obviously select the coal according to his particular needs or ability to sell or to pay.
It must follow that mere differences in locations of coal mines within the same general field, as well as differences in. quality owing to differences in fields, cannot rightfully be made the basis for eliminating effective competition as between railroads traversing substantially the same territory along parallel lines from neighboring mines of the same coal field, or even of different coal fields, to the same general destinations; and the evil effects upon competition concerning rail roads and coal mines so related are accentuated wherever a union of interests is created and maintained between such producers and car riers of coal,' particularly where producers and carriers through artificial methods become practically one and the same. If these views are at all applicable to a case such as this, the Kanawha & Michigan, when employed as a carrier exclusively in connection with either the Toledo & Ohio Central or the Hocking Valley, may, we think, be safely treated as a natural competitor of the one or the other of such roads, according as the connection may exist; because the destinations of its coal in either event are, in, any rational competitive sense, the same as those of the other road respecting the coal originating on its line. It results (1) that traffic originating on either the Hocking Valley or the Toledo & Ohio Central should be accorded the benefits of free competition; (2) that when coal originating on the line of the Kanawha & Michigan is carried in part over both of these other roads to destinations beyond Ohio, as also coal originating on that road in West Virginia and .destined to commpn points within Ohio, it is to the interest of the Kanawha & Michigan actually to employ the legitimate advantages arising from its opportunity to forward such coal (and this forms the great bulk of its traffic) over either of the other roads. The issue in a general sense is whether these competitive conditions have been suppressed; and the situation is further complicated by uniting coal interests with the railroad interests proper.
Combination and Conspiracy — Alleged Origin and Continuation. The combination and conspiracy averred originated in 1899 and have been continued in one form or another ever since. What happened between that time and the year 1909 resulted in a suit in quo warranto by the-state of Ohio against the Hocking Valley. State ex rel. v. Railway, 12 Ohio Cir. Ct. R. (N. S.) 49, 145. The first decision in that case was rendered April 24, 1909, and upon rehearing adhered to July 21st of that year; and on January 18, 1910, the court made a finding of facts, with separate conclusions of law thereon (set out in the present record), in terms ousting the Hocking Valley from the power of owning and holding shares of stock in the Kanawha & Michigan, the Buckeye Coal & Railroad Company, the Sunday Creek Coal Company, the Sunday Creek Company, and the Continental Coal Company; from the power of guaranteeing bonds of the Continental Coal Company; from exercising control or management of the Kanawha & Michigan, the Toledo & Ohio Central, the Zanesville & Western, and the coal companies before mentioned; and from performing a certain contract between it, the Toledo & Ohio Central, and the Continental Coal Company for division of freight between such railroads. It was adjudged, also, that the road of the Toledo & Ohio Central for its*entire length is parallel to and competitive with the road of the Hocking Valley from Toledo to Logan; that the roads of the Hocking Valley and the Kanawha & Michigan are parallel lines between Logan and Corning respectively and the Ohio river; and that the Kanawha & Michigan and Toledo & Ohio.Central together are competitive with the entire line of the Hocking Valley. This judgment was allowed to become final.
In March following the Lake Shore and the Chesapeake & Ohio entered into an agreement (sometimes referred to by the parties as the Schaff-Stevens agreement and sometimes as the agreement of March 12th, and again of March 17th), which has become the subject of a controlling issue in the present cause. Indeed, the government's position is that the operation and effect of this agreement, with what has been done under it, have been to continue the scheme so condemned by the judgment of the Ohio Circuit Court; while that of the defendants is that the agreement is valid, and that the acts of the parties thereto and of all the other defendants, since the date of the agreement, have in no wise been repugnant to any federal statute. It is not claimed that the issues determined in the state quo warranto suit are decisive of issues concerning interstate commerce; but it is urged that, apart from the state case, interpretation of the March agreement and of the conduct of the parties to it and those directly affected by it is distinctly aided by looking into the conduct of those who were interested in the properties before the agreement. Stated otherwise, the contention is that a view of the situation existing before the agreement and of the situation that has since existed cannot but be helpful to a proper solution of the controversy.
We do not propose to recite or discuss all the details of either situation, for such a course would occupy far too much space, and, moreover, is not necessary. If the locations and connections of the railroads and their relations to the coal properties are recalled, as before pointed out, it will not be difficult to apply the controlling features of the evidence adduced on the one side to prove, and on the other to disprove, the alleged combination and conspiracy and continuation thereof. In 1899 a plan for the reorganization of the Columbus, Hocking Valley & Toledo Railway Company (predecessor of the Hocking Valley) was entered into under date of January 4th, and direction of J. P. Morgan & Co. After judicial sale of the railroad property of the company, the purchasing trustees at such sale conveyed this property to the Hocking Valley, and the title thereto is still in that company. It was part of this plan to' have the Hocking Valley acquire ,interests in the Toledo & Ohio Central and the Columbus, Sandusky & Hocking Railroad Companies, or successor companies, and in February, 1899, the stockholders of the Hocking Valley adopted a regulation reserving 50,000 shares of its preferred and 50,000 shares of its common stock for the purpose of acquiring such interests. These reserved shares were from time to time listed on the Xew York Exchange at the instance of the Hocking Valley and for the express purpose of acquiring such interests. The purchases of the stock in the Toledo & Ohio Central were made in the name of a New Jersey corporation, called the Middle States Construction Company, which was organized in February, 1899, for that purpose. In 1899 and 1900 the Hocking Valley, through the issue of over $8,000,000 of its reserved preferred and common stock, purchased the bonded indebtedness of this construction company; and this indebtedness was secured by and convertible into the stock of the Toledo & Ohio Central, under a deed of trust of the Construction Company to the Centraí 'Trust Company of New York. Through the issue of the remainder of itsreserved stock, the Flocking Valley, in 1902, purchased all the stock in and all the bonds of the Zanesville & Western, which through judicial sale had acquired the portion of the Columbus, Sandusky & Hocking Railroad extending from Thurston, in Fairfield county, to Zanesville, in Muskingum county, with certain branch lines. It is not definitely shown when and in what amounts the purchases of the stock in the Toledo & Ohio Central were made; but it appears by stipulation that the Construction Company, in the years 1899 and 1900, acquired 58,-921 shares of such stock, and the listing papers before mentioned show that the total issue of stock of the Toledo & Ohio Central was 102,080 shares, preferred and common. Moreover, from 1902 to 1909 the president and general manager of the Hocking Valley, not to speak of other officers selected later, occupied corresponding positions in the Toledo & Ohio Central and the Zanesville & AVestern. The control thus signified in the Hocking Valley carried with it also the control of the Kanawha & Michigan. In 1890 the Toledo & Ohio Central acquired 45,000 shares, and in 1899 an additional 100 shares of the capital stock of the Kanawha & Michigan, constituting a majority of that company's outstanding capital stock, and these two roads were operated practically as a through line; and, further, as early as February, 1891, the former guaranteed the 100-year bonds of the latter at the rate of $10,000 a mile for 134 miles, or $1,340,000, and thereafter advanced it moneys from time to time. Further, in 1903, the Hocking Valley exchanged its holdings of stock and bonds in the Zanesville & Western for the shares held by the Toledo & Ohio Central in the Kanawha & Michigan. Thus the Flocking Valley attained practical control of the two parallel s3rstems of railroad between Toledo and the Ohio river, including the Zanesville & Western; and, apart from influence exerted by certain trunk lines alluded to later, the Hocking Valley alone remained in control of this entire system of railroads until the execution of the agreement of March 12, 1910.
We shall gain a better knowledge of the situation as it existed prior to the March agreement, if at this point we look further into the coal fields, which were tributary to this system of roads and especially into certain portions of such fields that were under the practical control of the Hocking Valley. Much evidence was offered upon this subject, and some of it is clarified by admissions contained in some of the pleadings. By several methods the Hocking.Valley procured control of large coal properties both in the Hocking and Kanawha fields. Pursuant to the plan of reorganization of 1899, that company and the Buckeye Coal & Railway Company were incorporated under the laws of Ohio, February 25, 1899, and thereafter they joined in the.execution of a mortgage under date of March 1st following, providing for the issue of first-mortgage bonds in the sum of $20,000,000, and secured by the properties acquired by such companies. This coal company was. organized for the purpose of acquiring the coal properties of the Hocking Coal & Railroad Company, and these properties were bid in and conveyed to the Buckeye Coal & Railway Company by the purchasing trustees at the judicial sale; and such trustees received from the new. coal company 2,495 shares of its total capital stock of 2,500 shares, and thereupon entered into a traffic agreement with the Hock ing Valley to secure rail connections between coal mines and the main railroad line and also coal transportation, and the trustees at the same time turned over the stock in the coal company to the Hocking Valley. Out of the sales proceeds of the first mortgage bonds mentioned the Hocking Valley acquired the stock and properties of the Ohio Hand & Railway and the New York & Western Coal Companies, which had belonged to and been controlled by the Columbus, Hocking Valley & Toledo Railway Company; also all the stock in the Boston Coal, Dock & Wharf Company and the Rabould Coal Company; also a majority of the preferred and likewise of the common stock of the Sunday Creek Coal Company, and afterwards the Hocking Valley increased its holdings in that company to 12,963 shares of preferred and 19,400 shares of common out of a total issue of 15,000 shares of preferred and 22,500 of common.
A different method was adopted for securing control of the Kanawha Hocking Coal & Coke and the Continental Coal Companies, as also quite a number of other coal properties to .which we shall refer in a moment. The Toledo & Ohio Central and the Hocking Valley entered into a contract to guarantee first-mortgage bonds of the coal companies last named, the details of which are not essential to an understanding of the case. It suffices to state that agreements were made under which syndicates were formed to underwrite bonds of the companies ($3,-250,000 par value in all of the first company and $3,023,000 par value in all of the second company); the Toledo & Ohio Central and the Hocking Valley guaranteeing payment of such bonds, but the Hocking Valley assuming the entire obligation as between it and the other guarantor company. In connection with these guaranties the coal companies agreed to deliver all their coal to the Kanawha & Michigan for transportation, and by further agreement such coal was to be equally divided between the Hocking Valley and the Toledo & Ohio Central and so carried northwardly and beyond the Ohio terminus of the Kanawha & Michigan, and the Kanawha & Michigan agreed to purchase all its fuel coal from the coal companies at a price at least 20 cents per ton above production cost. The stock of these two coal companies and certain beneficial certificates of the first company were issued to J. P. Morgan & Co. to secure performance of these contracts of guaranty. The bonds so guaranteed were sold and large portions of the proceeds were used to purchase coal properties of 28 owners (consisting mostly of companies) at prices varying from $8,875 to $541,125 and aggregating $5,194,940.04. The remainder, after paying organization expenses, was placed in the treasuries of the coal companies. Further, the Toledo & Ohio Central owned the entire capital stock of the Imperial Coal Company and also the National Coal Company; the former being $300,000 and the latter -$160,000 par value.
We are unable to discover from the evidence the acreage of these coal lands or their precise locations. An estimate made by the vice president of the Sunday Creek Company, of its unmined coal acreage on December 31, 1910, showed that there were 42,710 acres in Athens, Perry, and Flocking counties of Ohio and 33,000 in Kanawha and Fayette counties of West Virginia. But in July, 1905, the Sunday Creek Company (not the Sunday Creek Coal Company, another subsidiary company of the Hocking Valley) was organized under the laws of New Jersey with an áuthorized capital stock of $4,000,000 for the purpose of engaging in business in the state of Ohio and owning and developing lands containing coal and other minerals.. It is averred in the bill that the Sunday Creek Company controls more than 100,000 acres of land, including about 50 mines and about 350 coke ovens, and owns the beneficial certificates of the Continental Coal Company and the Kanawha & Hocking Coal & Coke Company; and these averments are admitted in the answer of the Sunday Creek Company, as also in the joint answer of the Hocking Valley and the Chesapeake & Ohio, and the coal property held by the Sunday Creek Company seems to comprise all the coal properties so accumulated as before shown. At the time of the incorporation of the Sunday Creek Company the Hocking Valley exchanged $3,236,300 par value of the stock it held in the Sunday Creek Coal Company for the same amount of stock of the Sunday Creek-Company; and the Toledo & Ohio Central exchanged 2,037 shares of the preferred and 3,100 shares of the common stock it held in the Sunday Creek Coal Company for a like amount of the stock of the Sunday Creek Company. Thus the Hocking Valley and' the Toledo & Ohio Central, in the proportions mentioned, acquired, $3,750,000 par value of the total of $4,000,000 par value of the capital stock of the Sunday Creek Company; and on April 23, 1906, 2,488 shares were ordered to be issued in a single certificate in the name of the Central Trust Company of New York, to the end that they would ñot be issued except with its approval, the remaining 12 shares having apparently been issued as qualifying shares for directors.
The ' Trunk Lines' Purchase of a Majority of the Hocking Valley Capital Stock. Prior to the merger so made of the coal interests of the Hocking Valley, to wit, June 29, 1903, five of the trunk line railroads, viz,, Lake Shore & Michigan Southern Railway Company, Erie Railroad Company, Baltimore & Ohio Railroad Company, Chesapeake & Ohio Railway Company, and the Pittsburgh, Chicago, Cincinnati & St. Louis. Railway Company, entered into an agreement with J. P. Morgan & Co. to purchase from that company 69,242 shares of common capital stock of the Hocking Valley at a price and upon terms specified; Morgan & Co. having "arranged to borrow the moneys forthwith to make payment for .said shares to' the depositors under a syndicate agreement dated December 4, 1902." Morgan & Co. were to carry the loan for the benefit of the purchasing companies for three years; • and such purchase was completed. The aggregate purchase .price w.as $7,270,410, and each of the purchasing companies obtained one-sixth interest in the shares so purchased, except the Pittsburgh, Chicago,' Cincinnati & St. Louis, which acquired two-sixths. As indicative of the effect of this upon the policy of the Hocking Valley, it' is. sufficient to st.ate that an advisory committee (composed of rep-, resentatives of the trunk lines) and the president of the Hocking Valley h;ad frequent conferences relative to the financial affairs of the Hocking Valley and the coal companies in which it was interested, ' and the introduction or not o(f track, c.onnectio.ns between, the lines. of the Hocking Valley system and the independent coal mining operators and the like. Among the results of these conferences were •the incorporation of the Sunday Creek Company for the purpose of handling the coal interests of the Hocking Valley, as before pointed out, and maintaining an operating system that was satisfactory to the trunk lines. 'One of the features of this operating system was to restrict rail connections with coal mines to such as were already in operation, and to refuse and by litigation to contest applications for rail connections with new mines. These conditions were in practical effect-continued until the agreement of March, 1910.
Shares of Capital Stock in the Sunday Creek Company Placed in Names of Trustees. It should be stated here that, when the Sunday Creek Company was organized, the 5,137 shares of stock in that company, which belonged to the Toledo & Ohio Central, were issued in one certificate in the name of John H. Doyle, as trustee, who indorsed the certificate in blank and delivered it to the vice president and general manager of the Toledo & Ohio Central; and, further, in April, 1908, just before the commodities clause of the Hepburn Act was to take effect, it is testified that such stock was sold to him to be held as trustee for the stockholders of the Toledo & Ohio Central, in whose names its stock might from time to time be registered on the books of the company, and to whom any dividends should be paid. This arrangement was effected through the redelivery of the old stock .certificate to the trustee, from which he at the time erased his original indorsement, and a contract executed by him and the Toledo & Ohio Central bearing date April 30, 1908; and this certificate and contract are still in his possession. After the date of this contract the trustee on two or three occasions issued a proxy to the president of the Sunday Creek Company, at his request, to vote the stock at annual meetings; but the trustee has not received any request or any suggestion from the Toledo & Ohio Central, or the officers of any other railroad company, with respect to the giving of proxies or the voting of the stock. On April 30, 1908, another contract, similar to the one so made between John H. Doyle and the Toledo & Ohio Central, was entered into between the Hocking Valley and the Central Trust Company of New York, respecting the shares of the Hocking Valley in the Sunday Creek Company. After reciting that the Hocking Valley is the owner of 32,375 shares of the Sunday Creek Company (also, among other things, that all these shares with others were pledged through a trustee as collateral security for the bonds issued under the first consolidated mortgage of the Hocking Valley and the Buckeye Coal & Railway Company, and that in view of the penalties imposed for violation of the Hepburn Act (Act June 29, 1906, c. 3591, 34 Stat. 584 [U. S. Comp. St. Supp. 1911, p. 1288]) and of a desire to obey the law if constitutional, and at the same time to preserve to the owners of the capital stock of the railway the equity in such coal properties, which could not be disposed of by reason of such pledge), it was agreed that the railway company had sold and assigned to the trustee all its interest in such shares of stock, subject to the lien of the mortgage and the rights of the bondholders thereunder, in trust, for the proportionate benefit of the holders of record of the stock of the Hocking Valley and for any distribution of its assets; that the trustee should have the right to vote the shares of stock at all meetings of stockholders of the company, to collect dividends, and (if the Hocking Valley is not in default under its mortgage) to distribute them among the holders of the stock. The only other provisions of the contract so made with John H. Doyle and the Central Trust Company that "need be noticed are set out in the margin.
Nothing further has been done with the stock of the Sunday Creek Company, and no sale or oth.er disposition of the coal properties has been made in pursuance of these trusts or otherwise. The railroad control of the coal interests remained practically the same, at least until the date of the March agreement, as it was before.
Conclusion Respecting Situation Prior to March Agreement of 1910. We are bound to hold that the situation described was indefensible under the Anti-Trust Act; indeed, no attempt has been made here to justify it. It is quite plain that by the. reorganization commenced in 1899 and the course pursued thereafter until the trunk lines obtained their interests in the Hocking Valley the purpose was to unite and hold the four railroads, and their several' coal interests under a single controlling power; and we are satisfied from the evidence that this design was consummated at the instance of such companies, and finally rendered more secure through the interests and indirect control of the trunk lines. One of the reasons offered to induce and defend the reorganization was the existence of "undue and bitter competition." After stating that the principal business of the Columbus, Hocking Valley & Toledo (the predecessor of the Hocking Valley) was the transportation of bituminous coal from mines on adjacent property, it was declared that the business was strictly and intensely competitive, and that the field in Ohio was covered by seven railroad lines (including in their number the lines of the present'Hocking Valley, the Toledo & Ohio Central, and the Columbus, Sandusky & Hocking, the predecessor of the Zanesville & Western), and that of these seven lines three operated in one district and the other four lines in a field lying east of that district. The three lines so alluded to could have been no others than the exclusively Ohio lines now in question. It was further declared that, in addition to the competition above indicated, the situation was complicated by the fact that of late years the West Virginia coals were rapidly supplanting the Ohio coals in the markets reached by the latter. And, in short, the evidence fairly shows that the union of interests so induced was carefully developed, and that its inevitable tendency and effect were to combine and monopolize the stocks and interests of these railroad companies and coal companies, and so to stifle competition in restraint of trade among the states within the settled meaning of the Anti-Trust Act.
The Conditions Created by and Maintained Since the March Agreement. Has the situation described been so changed by or under the agreement of March 12, 1910, as to entitle defendants as they claim to a dismissal of the bill? They forcibly urge that what was done prior to the March agreement has nothing to do with what has been done since. Objections were continuously made to the introduction of evidence tending to show conditions existing before the agreement. Complainant insists that what followed the execution of the March, agreement was but a continuation of what preceded it. The fact that we have considered the evidence shows, of course, that we regard it as admissible. It cannot escape notice that some of the defendants were parties to such earlier transactions, and that others acquiesced in and adopted such transactions before the March agreement was made. Lincoln v. Claflin, 74 U. S. (7 Wall.) 132, 138, 19 L. Ed. 106; United States v. Standard Oil Co. (C. C.) 152 Fed. 290, 294, per Sanborn, Circuit Judge, and Circuit Judges Van Devanter,. Hook, and Adams concurring. The acts and transactions of the first period therefore ought to aid in some measure to elucidate the intent and effect of the March agreement, and of the acts and transactions of the parties since, no matter what conclusion may be reached touching the second period. Standard Oil Co. v. U. S., 221 U. S. 1, 76, 31 Sup. Ct. 502, 55 L Ed. 619, 34 L. R. A. (N. S.) 834, Ann. Cas. 1912D, 734; Darius Cole Transp. Co. v. White Star Line, 186 Fed. 66, 108 C. C. A. 165 (C. C. A. 6th Cir.); U. S. v. E. I. Du Pont De Nemours Co. (C. C.) 188 Fed. 128, 134.
The March Agreement. The agreement was signed by the Lake Shore and the Chesapeake & Ohio, and, so far as now material in substance provided, that the Lake Shore would purchase from the Hocking Valley the bond it held of the Middle States Construction Company, which as stated was exchangeable for the entire capital stock of the Toledo & Ohio Central (such stock to carry with it, for the benefit of the Toledo & Ohio Central, the ownership of 45,100 shares of stock in the Kanawha & Michigan, 5,137 shares of stock in the Sunday Creek Company, and the entire capital stock in and all the bonds of the. Zanesville & Western) at an aggregate purchase price of $10,197,874.67; and would make provision for loaning to the Sunday Creek Company as needed and on its notes $1,143,110.50. Such purchase to be coupled with an agreement that a contract for 25 years would be made and should provide that the line of the Hocking'Valley and the line of the western division of the Toledo & Ohio Central, between their terminals at Toledo and their connections with the Kanawha & Michigan at Chauncey, might (for cost alone of maintenance and operating expenses according to joint .usage) be used at the option of either for the movement of its through freight trains; that an additional agreement should be made to protect the Toledo & Ohio Central and the Hocking Valley under their previous guaranty of bonds of coal companies, and given (as before stated) under an agreement for an equal division of the coal traffic derived from the properties of such coal companies; that an arrangement for distribution of the business, so far as could-legally be made, should be effected to protect the interests of the Toledo & Ohio Central and the Hocking Valley respecting their guaranty of such coal bonds. Upon making such purchase, the Lake 'Shore was to sell to the Chesapeake & Ohio 22,550 shares of the'Kanawha & Michigan for, $1,623,600 and 11,540 shares of the Hocking Valley for $1,384,800 (which latter stock seems to have been the one-sixth interest that the Lake Shore acquired at the time of the purchase made by the trunk lines). Still another contract was to be made "for trusteeing or otherwise jointly handling" the 45,100 shares (a majority of the stock and called the "controlling interest then to be owned by the two companies") in the Kanawha & Michigan. In case the stock was so - placed in trust, provision was to be made for such trackage agreements with the Kanawha & Michigan as would protect the purchasing companies against loss of control of the property. Privilege was to be given- to make' certain connections between the Kanawha & Michigan Railway with the Virginian Railway or with the Lake Shore or Chesapeake & Ohio, the intent being that the lines of the Kanawha & Michigan could be used to the fullest extent by either of the purchasing companies' in building up its interest either in local territory on. the' Kanawha & Michigan or in making through routes and connections beyond it, protecting, however, all the stockholders of that company. Provision was also made for acquiring all or part of the outstanding stock of the Kanawha & Michigan; for having the Kanawha & Michigan purchase the securities of the Pomeroy Belt Railway Company and indemnifying the Hocking Valley against liability assumed by it in the purchase thereof and granting to it a trackage right over such belt road, etc., for securing to the Hocking Valley trackage between Athens and Hobson over the Kanawha & Michigan for Hocking Valley through business from or to its line between Galliopolis and Pomeroy. The whole agreement was made subject to a condition that the other roads embraced in the trunk line purchase, before pointed out, should sell their holdings in the stock of the Hocking Valley to the Chesapeake & Ohio.
The Chesapeake & Ohio thereupon acquired the holdings of the other trunk lines of Hocking Valley stock, which, with the one-sixth it had previously obtained through the trunk lines syndicate purchase and the one-sixtli derived under the March agreement, gave to the Chesapeake & Ohio 69,240 shares of such stock. The preferred stock of the Hocking Valley was retired in April, 1910, leaving 110,000 shares of common, of which the Chesapeake & Ohio now owns (through increase of its holdings) 88,258 shares, and that company and the Lake Shore now each own 40,271 shares of the stock of the Kanawha & Michigan (being 80,542 of a total capital of 90,000 shares). The result is that, instead of live trunk lines holding as formerly, only two, to wit, the Lake Shore and the Chesapeake & Ohio, now hold the controlling-power, it is true through independent ownerships, in the Hocking Valley, the Toledo & Ohio Central, the Kanawha & Michigan, the Zanesville & Western, and also (subject to the trusts and pledge before stated) the Sunday Creek Company. Their interests in the Sunday Creek Company cover its entire outstanding capital stock (included in ibis are the 12 qualifying shares belonging to the Hocking Valley).
Now it is to be observed of the March agreement that its avowed purpose was not to avoid violation of any federal act, but to comply with the decree of the Ohio Circuit Court in the quo warranto case. Such a purpose might, it is true, be entirely consistent with the federal Anti-Trust Act; but whether this was so here must be tested by the intent to be inferred both from the agreement and the extent and nature of the control thereby secured over the railroads and the coal traffic and other commerce dependent on them (United States v. St. Louis Terminal. 224 U. S. 394, 395, 32 Sup. Ct. 507, 56 L. Ed. 810); and such intent and control may, we think, be further ascertained from comparison of important features of the situation existing before the agreement with some of those found in the situation created tinder it. In applying these tests, it should be stated in the outset that the government has failed in several respects to sustain the averment that there has been since the agreement a continuation of the same conditions as those existing before. Admittedly a change in the ownership of the stocks and bonds of the railroads has been made under the agreement, as before pointed out; and it must he conceded under the evidence adduced that the independent coal operators ill the coal fields in question have received greater concern and accommodations at the hands of the railroads since the agreement than they were given before. But we are convinced that the changes so wrought in ownership of slocks have resulted in a concert of action and control of the railroads and coal interests secured by the agreement, which is inconsistent with the rule requiring freedom of competition in commerce among the states; and that rule is too firmly established to be shaken by argument against the beneficial results ascribed to it. United States v. Union Pacific R. R. Co., 226 U. S. 61, 87, 88, 33 Sup. Ct. 53, 57 L. Ed. -; United States v. St. Louis Terminal, supra, 224 U. S. 401, 32 Sup. Ct. 507, 56 L. Ed. 810; Loewe v. Lawlor, 208 U. S. 274, 293, 28 Sup. Ct. 301, 52 L. Ed. 488, 13 Ann. Cas. 815; Northern Se curities Co. v. United States, 193 U. S. 331, 332, 24 Sup. Ct. 436, 48 L. Ed. 679; Pearsall v. Great Northern Railway, 161 U. S. 646, 676, 16 Sup. Ct. 705, 40 L. Ed. 838; United States v. E. C. Knight Co., 156 U. S. 1, 16, 15 Sup. Ct. 249, 39 L. Ed. 325; Chesapeake & O. Fuel Co. v. United States, 115 Fed. 619, 620, 53 C. C. A. 256 (C. C. A. 6th Cir.); United States v. Standard Oil Co. (C. C.) 173 Fed. 177, 188 (C. C. A. 8th Cir.).
. Evidence was adduced to show that, owing to litigation and other causes, some of the provisions of the March agreement have not been carried out; and some of the evidence tends to show that, if all its provisions had been carried into effect, it would have resulted beneficially to the volume of traffic and those interested in it along the lines of the roads in question. This does not indicate a purpose not to carry out the March agreement ultimately; but it does show that a virtual consolidation of all these naturally competing roads (coupled with the division of the coal traffic provided for), so far as concerns the through' traffic in coal to the lakes, is necessary to accomplish the result stated, although it does not purport to show how long such increase in volume would last. It is contended by learned counsel, however, that all the provisions of the agreement are valid and enforceable, so long at least as the interested stockholders themselves are satisfied with its performance. >
Moreover, evidence was offered to show that the Ohio roads are controlled and operated independently of one another and of either the Lake Shore or the Chesapeake & Ohio or both; and similarly as respects the Sunday Creek Company, and all these roads either collectively or separately. It is'true that the officers of the railroads and the railroad offices are distinct, and this is true of the Sunday Creek Company ; also that the managerial officers of these subordinate companies • have been instructed to exercise their own judgment respecting the interests they represent, and yet the natural and probable effect of all this needs but little consecutive thought. Such officials are at last dependent for their positions upon the will of the two trunk line companies controlling the stocks; and it is vain to say that such officers do not become sensitive to the interests and policies of the real masters of the situation. Illustrations of this, as also of the effect of the new regime upon interstate commerce and trade, are contained in the evidence relating to both the coal and railroad properties. We have seen that the Sunday Creek Company still holds the same title to the coal properties that it held before the execution of the agreement of March, 1910; and that the Chesapeake & Ohio and the Lake Shore together have-been.brought into the same relation to the entire capital stock of this coal company that the Hocking Valley alone previously bore to it. In the March'agreement no allusion was made to the trust agreements under which the stock of the Sunday Creek Company was on April 30, 1908, placed in the names of trustees. The shares placed (rather continued) in the name of John H. Doyle, as trustee, were in the March agreement treated as the property of the Toledo & Ohio Central; and the same general policy concerning the coal handled by the Sunday Creek Company that prevailed before the March agreement has been pursued since. This has resulted in the continuance of an equal division substantially of the coal traffic originating on the Kanawha & Michigan between the Hocking Valley and the Toledo & Ohio Central. All the coal carried in Kanawha & Michigan equipment is so divided. While the coal that is carried in the equipment furnished by the other two companies respectively is divided according to such equipment, yet it would seem from the correspondence and testimony that the desire and effort are to equalize either the cars received or the advantages and consequent profit of transportation, say as between coal and coke, since coke appears to yield more freight revenue to the carrier than coal. Further, some of the evidence (concerning at least the conduct of the Fake Shore) discloses an apparently asserted right to demand, rather than a design simply to persuade, the allowance of such division; and seemingly the officers of the Kanawha & Michigan are disposed to yield it in the same spirit. This augments the similarity in purpose between the division now made of the coal traffic, and the division that was admittedly made prior to' the March agreement in obedience to contract.
We do not overlook the testimony to the effect that this additional agreement has not been executed; but it is not perceivable how the companies can in substance do the same thing that the agreement provided for, and escape its effect on the ground either that it has not been reduced to writing and signed, or that such a division is fair. In short, our interpretation of the evidence is that this division of traffic is not due alone to a desire to be fair to connecting companies; but that it is actuated also by a purpose practically to carry out the provision of the March agreement in this behalf, and so protect the Toledo & Ohio Central and the Hocking Valley as joint guarantors "on the bonds of certain coal companies for equal division of the coal from these coal properties." Such a provision or practice is inconsistent with the statutory right accorded to shippers since 1910, say along the Kanawha & Michigan, to secure the benefit of competitive through rates by routing their own traffic by way of either the Flocking Valley or Toledo & Ohio Central, according as they might be able through perfectly legitimate means to induce the one or the other company to file and publish lower rates. See amendment to section 15 of Interstate Commerce Act (Act Feb. 4, 1887, c. 104, 24 Stat. 384 [U. S. Comp. St. 1901, p. 3165]), passed June 18, 1910, c. 309, § 12, 36 U. S. Stat. F. 552 (U. S. Comp. St. Supp. 1911, p. 1301), striking from amended section 15, Act June 29, 1906, c. 3591, § 4, 34 Stat. F. 590 (U. S. Comp. St. Supp. 1911, p. 1301), the limitation: "Provided no reasonable or satisfactory through route exists." That it would be entirely practicable for shippers of coal to secure, with respect to through traffic, a substantial competition with the Hocking Valley and the Toledo & Ohio Central, but for the joint ownership and control of the Kanawha & Michigan, seems to us obvious. The president of the Kanawha & Michigan, and its general freight agent, testified, in substance, that they had made no effort to secure from the Hocking Valley or the Toledo & Ohio Central in favor of their own company a greater division of the freight rate charged for through traffic; in other words, the motive is lacking to bring about real competition between these parallel roads. Nor does it appear that the officers of either the Hocking Valley or the Toledo & Ohio Central have done anything respecting a greater or less division of the freight rate charged for through traffic. And we do not discover that the officers of the Sunday Creek Company have ever sought to induce any of these railroads to file or publish lower freight rates; and the president of the company (who has filled the office since June, 1910) testified:
<-We do not do any routing unless it is where coal must be delivered on one road or the other."
Further similarity between the course pursued before the March agreement and since is to be found in the "operating proposition" as. it is characterized in the evidence, which "practically makes each road (the Hocking Valley and the Toledo & Ohio Central) a double track railroad." The arrangement consists of moving the north-bound through freight trains of the Toledo & Ohio Central, over the Hocking Valley railroad from Hobson to Fostoria, and of returning the south bound freight trains of the Hocking Valley over the western division of the Toledo & Ohio Central from Hickox to Columbus; and this is a continuation of the same reciprocal use that was commenced in 1901. Stress is laid both in the evidence and argument upon the economy o,f this interchange of facilities, since it secures easier grades over the Hocking Valley, as compared with those of the Toledo & Ohio Central, and avoids the necessity of building double tracks, and of operating opposing trains over single track' roads with the usual sidings. These advantages may be conceded from an operating point of view; yet the logic of it all would in the end destroy competition between parallel roads generally. The reciprocal use in this instance developed only with the noncompetitive period of these railroads. It is. not meant by this that there may not be circumstances under which reciprocal trackage arrangements may to a certain extent be lawfully entered into and carried out. Nor is it meant that this trackage arrangement, standing alone disassociated from the joint ownership and control of the Kanawha & Michigan, would violate the federal Anti-Trust Act.. What is meant is that this trackage arrangement, considered in connection with the other facts pointed out, tends to disclose a unity of purpose and concert of action on the part of the companies involved to maintain conditions that are inimical to effective competition. Testimony was offered to show that giving to the Chesapeake & Ohio and the Lake Shore equal interests in the Kanawha & Michigan and adding the' advantages of this reciprocal use of tracks, operate to stimulate-rather than to retard the transportation of coal, and, in fact, have re-stilted in substantial increase in volume of traffic; and, further, that, if these arrangements were broken up, the traffic in West Virginia coal would be monopolized by the Kanawha & Michigan and the Tole do & Ohio Central. This loses sight of the natural development of the coal fields tributary to the Kanawha & Michigan, which should occur under normal conditions. It also evades the obvious question whether, if the Kanawha & Michigan were owned and operated independently'of both the Hocking Valley and Toledo & Ohio Central, and those roads were brought into competition for the traffic originating on the Kanawha & Michigan, there would not be a still greater stimulus given to interstate trade than has heretofore existed. There would, in that event, be neither reason, nor opportunity for a monopoly of such traffic by the Kanawha & Michigan and Toledo & Ohio Central. The conceded easier grades of the Hocking Valley furnish adequate answer to the suggestions of such a monopoly. Pearsall v. Great Northern Railway, 161 U. S. 676, 16 Sup. Ct. 705, 40 L. Ed. 838; United States v. Union Pacific R. R. Co., supra.
Insistence is made that a number of the things complained of were in and of themselves lawful, and so, in effect we take it, their union or joint use could not become unlawful. Eor instance, it is urged that it would have been well within the power of the Lake Shore to purchase the entire stock of the Toledo & Ohio Central and the Kanawha & Michigan, because the Kanawha & Michigan is a continuation of the Toledo & Ohio Central. Likewise it is insisted in respect of the Chesapeake & Ohio that it possessed charter power to purchase the stock of the Hocking Valley, and that it was both its purpose and right to secure control of a railroad leading directly to the lake ports. Let these claims be conceded for sake of discussion; still, does it follow that the Lake Shore and the Chesapeake & Ohio could lawfully become joint and equal owners in the controlling portion of the stock in the Kanawha & Mid ligan? Could they at the same time add to this mutual control of that road the reciprocal trackage arrangement respecting the other roads, and so virtually consolidate these railroads as respects the through traffic in coal? These questions are stated, not merely with reference to the apparent violation involved of the statutory policy of Ohio respecting parallel and competing railroads (State v. Hocking Valley, 12 Ohio Cir. Ct. R. [N. S.] 66, 67, before cited), but particularly with respect to the effect that such joint ownership and trackage arrangement must have upon interstate commerce. The policy of the. United States and of Ohio, as expressed by legislation and judicial interpretation, is quite as distinctly opposed to any union of ownership and arrangement involving the power to control parallel railroads or the transportation of traffic that is tributary to and must pass over one or both of them, as it is to formal consolidation of such railroads. Northern Securities Case, supra, 193 U. S. 362, 24 Sup. Ct. 436, 48 L. Ed. 679; United States v. St. Louis Terminal, supra, 224 U. S. 395, 32 Sup. Ct. 507, 56 L. Ed. 810; United States v. Union Pacific R. R. Co., supra; State v. Hocking Valley, supra. We have seen that the Ohio Circuit Court ousted the Hocking Valley from the power of owning and holding shares of stock in the Kanawha & Michigan. The Hocking Valley, it is true, does not now own stock in the Kanawha & Michigan; but the Chesapeake & Ohio, does, and it also owns the controlling interest in the Hocking Valley. The Chesapeake & Ohio thus holds stock in two roads, which are in substantial degree parallel and naturally competing. Can this .result, or the results before pointed out as brought about since the March agreement was executed, be rightfully traceable to the charter powers of these two railroad companies, the one to reach the lake ports and the other the coal fields?
It cannot be that those companies can justify their separate stock purchases.of the control of these roads, and also escape responsibility for the inevitable tendency of the present conditions to stifle free competition simply on the theory that the companies holding the legal, titles to the roads are alone responsible for this result; for that would be to overlook, not only the manifest unity of purpose of the Lake Shore and the Chesapeake & Ohio, but also and especially their acquiescence, not to say concurrence, in the acts of the subordinate companies. This cannot be avoided, on the ground that corporate ownership of stock in railroad corporations created by a state is not interstate commerce (considered in the Northern Securities Case); nor, in the present instance, by the fact that capital stock in two of the competing roads is held separately by two corporations instead of one corporation; for the other matters involved here, or anything like them, were not present in the Northern Securities Case. To ignore such matters would be to furnish an easy method to frustrate the statutory inhibitions in question. Indeed, if these two purchasing companies are not in effect equivalent to a committee to regulate rates, certainly the subordinate railroad companies under their control are, within the meaning of the concurring opinion of the late Justice Brewer, in the Northern Securities Case. 'yVhen speaking of the single holding company in question there, the learned justice said (193 U. S. 362, 24 Sup. Ct. 467, 48 L. Ed. 679):
"In this ease it was a mere instrumentality by which separate railroad properties were combined under one control. That combination is as direct a restraint of trade by destroying competition as the appointment of a committee to regulate rates."
If the intention of placing the ownership of the stocks in question in the Lake Shore and the Chesapeake & Ohio can be rightly inferred from what has actually been done since, "the purpose to combine and by combination destroy competition" (Northern Securities Case, 193 U. S., at page 362, 24 Sup. Ct. 467, 48 L. Ed. 679) existed when the March agreement was executed, quite as certainly as such purpose was held to exist in that case "before the organization of the corporation, the Securities Company." The form given to a combination is of no consequence. As the learned Chief Justice said in the Tobacco Case, 221 U. S. 181, 31 Sup. Ct. 648, 55 L. Ed. 663:
" It was pointed out (in the Standard Oil Case) that the generic designation of the first and second sections of the law, when taken together, embraced every conceivable act which could possibly come within the spirit or purpose of the prohibitions of the law, without regard to the garb in which such acts were clothed."
It hardly need be said that the cases relied on by the defense, like Bigelow v. Calumet & Hecla Mining Co., 167 Fed. 721, 728, 94 C. C. A. 13, decided by the present Mr. Justice Lurton in this court, and by Judge Knappen in the court below, have no application.
There is to be added the apparent purpose of the Lake Shore and the Chesapeake & Ohio to retain their relations with the Sunday Creek Company. The feature of the trust agreements of present importance is quoted in the margin of an earlier portion of this opinion. It provided that, in case the Supreme Court should hold the commodities clause constitutional, each trustee was to dispose of the equity in the railroad companies in the Sunday Creek stock, as directed by the holders of a majority of the capital stock of the Hocking Valley and the Toledo & Ohio Central respectively, and distribute the entire net sales proceeds among such holders. It need not be stated that the commodities clause, as construed by the Supreme Court, has been held to be constitutional. United States v. Delaware & Hudson Co., 213 U. S. 366, 29 Sup. Ct. 527, 53 L. Ed. 836; United States v. Lehigh Valley R. R. Co., 220 U. S. 257, 31 Sup. Ct. 387, 55 L. Ed. 458. The first of these cases was decided May 3, 1909, about 10 months prior to the date of the March agreement, and considerably more than a year before the commencement of this suit. It is said that such sales cannot be enforced in this case, because of infirmities in the pleadings. If in the view we take of the evidence this objection can be regarded as material (Lockhart v. Leeds, 195 U. S. 427, 436, 25 Sup. Ct. 76, 49 L. Ed. 263), we perceive no sufficient reason why at this stage of the case the objection cannot be met by amendment. Neale v. Neale, 76 U. S. (9 Wall.) 8, 9, 19 L. Ed. 590; The Tremolo Patent, 90 U. S. (23 Wall.) 527, 23 L. Ed. 97. As respects the power of the court to require such sales and distributions to be made, we think it is clearly given by section 4 of the Anti-Trust Act (26 U. S. Stat. 209; Standard Oil Case, 221 U. S. 78, 31 Sup. Ct. 502, 55 L. Ed. 619, 34 L. R. A. (N. S.) 834, Ann. Cas. 1912D, 734; Union Pacific Case, supra); and, if the trustees or the absent stockholders, in the blocking Valley are indispensable parties defendant, they may be brought in (Hoe v. Wilson, 76 U. S. [9 Wall.] 501, 504, 19 L. Ed. 762; Rogers v. Penobscot Mining Co., 154 Fed. 606, 616, 83 C. C. A. 380). It is to be observed that there is no Ohio legislation authorizing railroad companies to hold shares of stock in coal companies. The Ohio Circuit Court held in the quo warranto suit before cited that the blocking Valley was not a "kindred" corporation within the meaning of the statute empowering private corporations to hold shares of stock "in other kindred but not competing private corporations," etc. Section 8683, 4 Ohio Gen. Code, 239; 12 Ohio Cir. Ct. R. (N. S.) 59-63. If these companies are to be allowed potential control both of producing and transporting coals in 100,000 acres of coal lands, it is difficult to see why in spite of the commodities clause common carriers may not combine the benefits of transportation with the benefits arising from the control of any of the other necessaries of life, no matter in what quantities. Attorney General v. Great Northern Ry. Co., 29 Law Journal (N. S. Equity) 798, 799; approved in New Haven R. R. v. Interstate Com. Com., 200 U. S. 393, 26 Sup. Ct. 272, 50 L. Ed. 515.
The only remaining matter needing consideration is the testimony offered in open court tending to show that the grades of the southern division of the Hocking Valley are so difficult as to prevent successful movement over it of through coal trains; and, further, that by reason of the configuration of the territory adjacent to the Kanawha river there is no room for the construction of a track' additional to that of the Kanawha & Michigan on the one side or to the tracks of the Chesapeake & Ohio on the other.
Decisions are cited to show that these physical conditions warrant alike disuse of the southern division for through coal service, and the joint control acquired of the stock in the Kanawha & Michigan. Among these is United States v. Union Pacific R. Co. (C. C.) 188 Fed. 102, reversed in part December 2, 1912 (226 U. S. 61, 33 Sup. Ct. 53, 57 L. Ed. -, before cited). We think the undisturbed portion of the decision below is distinguishable, and what is said 'in this behalf will serve, to indicate our views concerning the other cases cited in connection with it. The material points of distinction appear in certain facts: (a) The San Pedro line from Salt Lake to Los Angeles was found to be practically a continuation of the Union Pacific or (its subsidiary company) the Oregon Short Line, and not a natural competitor of any other line in question; (b) the physical obstacles encountered on the San Pedro line find no analogy here, unless it be south of the Ohio river and adjacent to the Kanawha & Michigan or a portion 'of the Chesapeake & Ohio, but it is not shown that connection between the Chesapeake & Ohio and the Hocking Valley is not otherwise reasonably available; (c) there was nothing in the Union Pacific Case to correspond in any way with the combined coal interests here and the relations between them and the present railroad companies. In that case the failure to build two projected parallel lines of railway between Salt Lake City and Los Angeles was held not to be violative of the Anti-Trust Act; while here, without repeating what has been said before respecting the present railroads and coal properties, the resultant fact cannot be ignored that between Toledo and Kanauga, two actually existing parallel lines, of railroad have practically been converted into one line so far as respects the through traffic in coal. The disuse of the southern division of the Hocking Valley is claimed to be justified in the face of several admitted facts. It was constructed as a substantial portion of the Hocking Valley system, and there is no showing that it was not projected by experienced railroad men. At the time the reorganization was commenced in 1899, the railroad agencies concerned found that there had been undue and bitter competition in the coal traffic dependent upon the railroads operating in the Hocking field. The suppression of competition worked out through that reorganization was obviously calculated to engender neglect of either the Kanawha & Michigan north of the Ohio river, or the southern division of the Hocking Valley, as respects the movement of heavier trains. The railroad defendants here were participants in the policy that succeeded that plan of reorganization. And yet it is in effect insisted that the original plan and construction of the road, as well as its continued maintenance, should be condemned as part of a through line and its practical abandonment for that purpose sanctioned by judicial decree.
There is a clear distinction between the power to grant relief respecting past failure to construct one of two projected parallel lines, as occurred in the Union Pacific Case along the course of the San Pedro division, and the power to prevent the elimination of one of two parallel roads in actual existence and operation. After all, the difficulty north of the Ohio river is due alone to differences in grades, and it may be judicially noticed that grades may be changed. Delavan v. New York, N. H. & H. R. Co. (Sup.) 137 N. Y. Supp. 207, 212. It hardly would be contended, even apart from express statutory inhibition that such differences would warrant formal consolidation. It may be said of this situation as Mr. Justice Lurton said December 16, 1912, of a situation involved in the cases of the Reading Company concerning prices of coal at the seaboard, that "the situation is therefore one which invites concerted action and makes exceedingly easy the accomplishment of any purpose to dominate the supply and control the prices" of coal at the lake ports and beyond. The paramount evil here is the joint ownership of the Kanawha & Michigan, and, so long as that continues, effective competition will we think remain impossible. Effective competition is not limited alone to a matter of freight rates. It embraces a variety of other subjects, such as quality and promptness and sufficiency of service both as to equipment and roadbed, which are dependent above all upon separate and independent ownership or control alike of the competing roads and of the commerce under compulsion to use them. Surely the necessity to maintain such conditions as these is not affected, as claimed, by anything contained in the act to regulate commerce; for plainly that act was not intended to supplant either the settled rule respecting freedom of competition or the purpose of the Anti-Trust Act to deal with corporate ownerships or agreements that constitute barriers to such competition.
In the Northern Securities Case, after declaring the comprehensive character of the statute, Justice Harlan expressed the prevailing general rule, as we understand it, thus (193 U. S. 332, 24 Sup. Ct. 454, 48 L. Ed. 679):
"That to vitiate a combination, sncli as the act of Congress condemns, it need not be shown that the combination, in fact, results or will result in a total suppression of trade or in a complete monopoly, but it is only essential to show that by its necessary operation it tends to restrain interstate or international trade or commerce or tends to create a monopoly in such trade or commerce and to deprive the public of the advantages that flow from free competition."
Are the averments of the bill charging continuance in different form of the combination begun in 1899, so far supported by the proofs offered in that behalf as to justify the granting of relief touching the situation created by and under the March agreement? Comparison of that agreement: and what has been done under it, with the first situation, cannot we think fail to show material identity between the two periods in dispute. True, combination by the March agreement or by anything done sincé then is denied by the answers, and testimony was introduced in support of the denial. We need not recapitulate either the terms of the agreement or the facts and conditions already stated. We cannot believe that the changes in ownership of stocks, in managerial officers and the like, have operated to relieve the railroads and coal interests in question from the influence in practical effect and consequence of a unified control. It cannot be that, in the absence of intent or design, substantially the same things of controlling importance could have been worked out during the later period that were before. It is not necessary' that the-proofs should show that precisely similar methods were adopted to bring about the continuance averred, or that all the parties .theretofore engaged, like the withdrawing trunk lines, oontinued as actors. The results attained and continued through a unity of purpose and concert of action by those remaining in the combination at and after the date of the March agreement are the true tests of the trend of the evidence as an entirety.
Upon the whole we conclude that the March agreement, and what has been and is being done under it, operate unreasonably to restrain and monopolize commerce among the states, and consequently that complainant is entitled to relief; but the precis'e extent and nature of relief to be awarded cannot at this stage be determined. The case has been tried on the issue of continuance or not of the antecedent combination and restraint; and this has resulted in leaving the court unadvised of the claims of counsel for either side as to the nature and extent of relief, if any, that should be granted. However, we now hold (1) that the equity of the Take Shore and of the Chesapeake & Ohio in the capital stock of the Sunday Creek Company shall be disposed of by absolute sale, and to this end the trustees in whose names such stock is held shall be made parties defendant to this suit (Bates Fed. Eq. Proc., § 639; Perrin, Adm'r, v. Lepper [C. C.] 26 Fed. 545, 548; St. Louis, etc., Ry. Co. v. Wilson, 114 U. S. 60, 62, 5 Sup. Ct. 738, 29 L. Ed. 66; Woodward v. McConnaughey, 106 Fed. 758, 45 C. C. A. 602 [C. C. A. 9th Cir.]); (2) that the joint ownership and control of- the Kanawha & Michigan must be terminated. The questions not decided and upon which leave will be given for further argument are (a) whether the holders of capital stock in the Hocking Valley, other than the Chesepeake & Ohio, are indispensable parties to the cause; (b) in what manner the termination of the joint ownership and control of the Kanawha & Michigan shall be effected; (c) whether in connection with the means adopted for the termination of such joint ownership and control of the Kanawha & Michigan the reciprocal. trackage arrangement over the Hocking Valley and the Toledo & Ohm Central must be terminated; and (d) to what further extent and in what further respects, if any, relief shall be granted touching the control and operation of the other railroads mentioned.
Such further argument will be had at a date hereafter to be fixed between January 21st and 31st next.
KNAPPEN, Circuit Judge, concurs.
The Lake Shore & Michigan Southern Railway Company, the Chesapeake & Ohio Railway Company, the Hocking Valley Railway Company, the Toledo & Ohio Central Railway Company, the Kanawha & Michigan Railway Company, the Zanesville & Western Railway Company, vhe Sunday Creek Company, the Continental Coal Company, the Kanawha & Hocking Goal & Coke Company.
- 2 "In the event, however, that the said -Supreme Court shall decide said commodity clause of said Hepburn Act constitutional, then said trustee shall dispose of the equity in said coal stocks sold and assigned to it in trust for the purposes of this agreement (subject, however, to the lien of the first consolidated mortgage, and its rights as pledgee trustee thereunder), when and as directed in writing by the persons, firms or corporations holding and owning of record a majority in amount of the stock of the Railway Company as hereinafter provided, and when such sale or distribution is made by the trustee hereunder, and the entire proceeds, whether of stocks, bonds, moneys, or other securities, shall have been actually paid to and received by the said trustee, then the said trustee shall distribute, less its proper charges and expenses, all such proceeds in kind received from the disposition of said stocks, among such persons, firms and corporations, their successors and assigns, as shall be stockholders of record of the Railway Company on the first day of the months in which said proceeds and all of them shall have been finally received, pro rata in proportion to their said record holdings of stock of the Railway Company. Any such sale or disposition, however, it is understood shall be made subject to the lien of the first consolidated mortgage thereon and to all- the terms and conditions of the said mortgage, and only in the event that said Railway Company is not then in default of any requirement of said mortgage."
The Columbus, Hocking Valley & Toledo, the Toledo & Ohio Central, the Columbus, Sandusky & Hocking, and the Kanawha & Michigan Railway Companies.
Compare holding shown by stipulation- (Xiec. 572), wilh holding stated in Exhibit E, to bill.
It should be stated that as early as June, 1905, provision was made by the Sunday Creek Company for purchasing certain trust certificates representing the beneficial interests in the stock of the other two coal companies which are parties to this cause, and this arrangement seems to have been carried out.