Opinion ID: 1503668
Heading Depth: 1
Heading Rank: 8

Heading: Limited.

Text: Limited was incorporated in Canada on May 31, 1928, to take over those properties of Alcoa which were outside the United States. Only two were excepted: a Dutch company which owned bauxite deposits in Dutch Guiana; and a Canadian power transmission company, which supplied Alcoa's Massena plant. Alcoa also retained until 1931 an Italian company which it was using for experiments, and apparently for a few months forgot a small Norwegian power plant, which was transferred in October, 1928. For special reasons the Alcoa Power Company, which owned the Lower Development on the Saguenay, was not conveyed until 1938, although both parties meant from the first to include it, and indeed it would have been useless to any plant in the United States. In exchange for all the properties conveyed, Limited issued all its common shares to Alcoa's common shareholders in the proportion of one for every three; and it thus resulted that the beneficial ownership remained what it had been, except for the interest of Alcoa's preferred shareholders, who were apparently considered amply protected by the properties in the United States. At first there remained some officers common to both companies; but by the middle of 1931, this had ceased, and, formally at any rate, the separation between the two companies was complete. At the conclusion of the transfers a majority, though only a bare majority, of the common shares of Alcoa was in the hands of three persons: Andrew W. Mellon, Richard B. Mellon, his brother, and Arthur V. Davis. Richard Mellon died in 1933, and Andrew in 1937, and their shares passed to their families; but in January, 1939, the Davises, the officers and directors of Alcoa and the Mellon families  eleven individuals in all  collectively still held 48.9 per cent of Alcoa's shares, and 48.5 per cent of Limited's; and Arthur V. Davis was then the largest shareholder in both companies. The companies had a number of transactions with each other, upon which the plaintiff relies to prove that they did not deal at arms length, but that Limited was organized only as a creature of Alcoa. As one instance, Limited apparently would have been able at times to sell aluminum in the United States at a profit but did not do so, because  the plaintiff argues  they had agreed not to compete. The inference is not strong: to break into a new market protected by a tariff subject to change, particularly a market for long in the possession of a single powerful producer, is a step which an outsider might well hesitate to take. Another supposed instance of cooperation is the manufacture of some of Limited's ore into alumina at the East St. Louis plant of Alcoa during the years 1928-1936. Limited had no alumina plant of its own  except one of an experimental nature  until the end of 1936; yet, although Alcoa did make all Limited's alumina until 1932, thereafter Limited bought a great deal from foreign manufacturers. Although Alcoa sold this alumina to Limited at a lower price than it billed alumina to its own aluminum plants, Alcoa's intramural accounts are without significance. Alcoa also did some fabrication for Limited from Limited's own aluminum, and did it at only mill cost without overhead. That substantially ended by 1931; but, while it lasted, it was confessedly a favor, and indeed for a short season Alcoa undoubtedly did cast a kindly eye upon its fledgling, as Arthur V. Davis called it. Alcoa also bought three parcels of Limited's aluminum: the first two in 1929, and the last in February, 1938. The first were perhaps at a lower price than Limited would otherwise have obtained, (the judge however found the prices were fairly representative); but they are not important, for they were both at the beginning of Limited's business, while there had as yet probably been little, if any, separation of interest between the two groups of shareholders. The third purchase was of quite a different character; it was part of the consideration for the conveyance to Limited of the Alcoa Power Company. In 1928 Limited was not able to pay for this property, although, as we have said, it always expected eventually to receive it. The price, as finally fixed in 1938, was $35,000,000, of which Limited was to pay $20,000,000 in mortgage bonds issued by the company itself, and the remainder in payments of two kinds: Limited was to pay Alcoa for power at a fixed rate, which should amount to at least $330,000 a year; and Alcoa was to have an option upon 75,000,000 pounds of aluminum, at thirteen cents, which was less than the market rate. There was also some evidence that Alcoa took part in the formation of the Alliance, a foreign cartel which we shall describe later. This consists very largely of declarations of Arthur V. Davis, put in his mouth by other witnesses; of a cable of Edward K. Davis to one of Limited's other officers; and of the improbability that the Alliance should have been set up without the active cooperation of Arthur V. Davis, especially as he was concededly in Europe and in communication with some foreign producers at about the time that the Alliance was first bruited. Edward K. Davis was the originator of the Alliance; he gave as his reason for it that he feared that the other foreign producers who had already joined in a cartel, would shut him out. When these producers came to Canada in 1931 to arrange for the Alliance, they visited Arthur V. Davis and made an extended visit to Alcoa's plants in the East. As anticipatory confirmation that the Alcoa had had a share in forming the Alliance, the plaintiff also introduced evidence to show that before 1928 Alcoa had already had an understanding with foreigners as to prices. This consisted largely of the statements of what others had said about an agreement to keep their prices the same as Alcoa's. The plaintiff rested particularly upon the testimony of Haskell, (who testified, not only upon this point, but more generally), because, when Haskell testified, although he had been one of the important figures in the Baush company, he had made his peace with Alcoa which had employed him in some advisory capacity. It must be remembered, however, that he had already testified in the action of the Baush company against Alcoa, and that he could scarcely have repudiated what he then said. The Davises in answer to all this evidence swore that Limited had been organized for three reasons, quite different from controlling prices in the United States. First, there was at that time a growing nationalism in the British Empire  where Alcoa sold most of its foreign aluminum  which manifested itself in the slogan: Buy British, and which would be better satisfied, if the properties were owned by a Canadian corporation, even though its shareholders were American. Next, Alcoa had neglected its foreign properties  relatively  and they would better prosper under a management, singly devoted to them. Finally, the time was coming when Arthur V. Davis wished to take a less active part in affairs; and there would be embarrassment in choosing between Hunt and Edward K. Davis, as his successor. Both said that the separation between the companies had been actually as complete as it was in form. Arthur said that, although while in Europe shortly before the Alliance was formed, foreign producers had spoken to him, he had then and always referred all their inquiries to his brother. He had discussed little with Edward any questions of policy about Limited; they had talked for the most part only about the history, development and future of the properties. He had indeed seen a preliminary draft of the agreement, forming the Alliance, but not its final form until the time of the trial; and he had had nothing whatever to do with its formation. As for the trip of the foreign producers in the United States, it was purely social; a good-will excursion, so to say, in which the relations of Alcoa and foreign production was not discussed. Upon the whole evidence the judge found that by 1935 Limited had become altogether free from any connection with Alcoa, and that Alcoa had had no part in forming the Alliance, or in any effort at any time to limit imports, to fix their price, or to intervene in price fixing cartels in Europe  except the early ones. In short, he again felt persuaded by the testimony against any inferences to be drawn from the conceded facts, and from the declarations put in the mouths of the Davises. As before, to do otherwise he would have had to find that both these men had deliberately perjured themselves; and we cannot see that these findings present us with anything different in substance from those on which we have already passed. Considering the interests in Limited which Arthur V. Davis and both the Mellons had, it would perhaps have taxed our credulity to the breaking point to believe that they knew nothing about the formation of the Alliance. Arthur V. Davis did not go as far as that; and that he and the Mellons should have put into the hands of Edward K. Davis the whole management of Limited, does not appear to us to pass the bounds of reasonable entertainment. Alcoa had had collisions in plenty with the plaintiff and others before 1931; the first Baush action, which challenged the price squeeze, had been filed in April, 1928, and the second in July, 1931. It was not unreasonable to believe that Arthur V. Davis and the Mellons, seeing that some kind of cartel might be an inescapable incident to continuing business abroad, wished in 1931 to keep Alcoa as far removed from it as possible. Even so, the question remains whether Alcoa should be charged with the Alliance because a majority of its shareholders were also a majority of Limited's shareholders; or whether that would be true, even though there were a group, common to both, less than a majority, but large enough for practical purposes to control each. It is quite true that in proportion as courts disregard the fictitious persona of a corporation  as perhaps they are increasingly disposed to do  they must substitute the concept of a group of persons acting in concert. Nevertheless, the group must not be committed legally except in so far as they have assented as a body, and that assent should be imputed to them only in harmony with the ordinary notions of delegated power. The plaintiff did not prove that in 1931, to say nothing of 1936, there was not a substantial minority in each company made up of those who held no shares in the other; and the existence of the same majority in the two corporations was not enough by itself to identify the two. Alcoa would not be bound, unless those who held the majority of its shares had been authorized by the group as a whole to enter into the Alliance; and considering the fact that, as we shall show, it was an illegal arrangement, such an authority ought convincingly to appear. It does not appear at all. For support of this proposition we need look no further than to the decisions of the Supreme Court under the Commodity Clause. United States v. Delaware & Hudson Co., 213 U. S. 366, 29 S.Ct. 527, 53 L.Ed. 836; United States v. Lehigh Valley R. Co., 220 U.S. 257, 31 S.Ct. 387, 55 L.Ed. 458; United States v. Delaware, Lackawanna & Western R., 238 U.S. 516, 35 S.Ct. 873, 59 L. Ed. 1438; United States v. Reading Co., 253 U.S. 26, 40 S.Ct. 425, 64 L.Ed. 760; United States v. Lehigh Valley R. Co., 254 U.S. 255, 41 S.Ct. 104, 65 L.Ed. 253; United States v. Elgin, Joliet & Eastern R. Co., 298 U.S. 492, 56 S.Ct. 841, 80 L.Ed. 1300. There was in all these cases strong reason to hold that the railroads had an indirect interest in the coal moved, yet the decisions uniformly assumed that the ownership, not of a majority of the shares, but even of all the shares, did not make the corporations coalesce. Except when there was evidence that those in nominal control of one of the two corporations, exercised no independent decision, but followed the directions of the other, they were treated as juridically separate. Indeed, were it not so, a minority of shareholders would always be compelled to see to it that a majority  perhaps even a controlling fraction  of the shares did not pass to a confederated group who had a similar control over another corporation. For these reasons we conclude that Alcoa was not a party to the Alliance, and did not join in any violation of § 1 of the Act, so far as concerned foreign commerce. Whether Limited itself violated that section depends upon the character of the Alliance. It was a Swiss corporation, created in pursuance of an agreement entered into on July 3, 1931, the signatories to which were a French corporation, two German, one Swiss, a British, and Limited. The original agreement, or cartel, provided for the formation of a corporation in Switzerland which should issue shares, to be taken up by the signatories. This corporation was from time to time to fix a quota of production for each share, and each shareholder was to be limited to the quantity measured by the number of shares it held, but was free to sell at any price it chose. The corporation fixed a price every year at which it would take off any shareholder's hands any part of its quota which it did not sell. No shareholder was to buy, borrow, fabricate or sell aluminum produced by anyone not a shareholder except with the consent of the board of governors, but that must not be unreasonably withheld. Nothing was said as to whether the arrangement extended to sales in the United States; but Article X, known as the Conversion Clause, provided that any shareholder might exceed his quota to the extent that he converted into aluminum in the United States or Canada any ores delivered to him in either of those countries by persons situated in the United States. This was confessedly put in to allow Limited to receive bauxite or alumina from Alcoa, to smelt it into aluminum and to deliver the aluminum to Alcoa. Edward K. Davis gave as an explanation of this that Limited needed some protection against Alcoa's possible refusal to convey Alcoa Power Company, which Alcoa had never actually bound itself to transfer. Although in 1931 Alcoa had all the producing capacity which it seemed likely to need (and so the event proved, for the clause was never invoked), Davis said that he did not know whether in the future the demand might not outrun that capacity, and whether Alcoa might not therefore be tempted to hold onto the Lower Development, unless Limited would smelt its alumina. That does indeed seem a somewhat farfetched reason; but on the other hand it is hard to suppose that Alcoa really feared that it could not meet its future needs and meant to lean upon Limited. The incident may be thought to have a bearing on Alcoa's implication in the Alliance; but its only substantial importance, so far as we can see, is as showing whether the 1931 agreement was intended to cover the United States. That question arose very shortly after the agreement was made, and Edward K. Davis took the position that the United States was included, relying upon absence of any exception in the general language. His interpretation would seem to have been plainly right, not only for the reason he gave, but because otherwise there would have been no occasion for the Conversion Clause. However, the other shareholders overruled him, and until 1936, when the new arrangement was made, imports into the United States were not included in the quotas. The issue turned out to be unimportant anyway, for the annual average of imports during the five years was in the neighborhood of only fifteen million pounds. The agreement of 1936 abandoned the system of unconditional quotas, and substituted a system of royalties. Each shareholder was to have a fixed free quota for every share it held, but as its production exceeded the sum of its quotas, it was to pay a royalty, graduated progressively in proportion to the excess; and these royalties the Alliance divided among the shareholders in proportion to their shares. This agreement  unlike the first  did not contain an express promise that the Alliance would buy any undisposed of stocks at a fixed price, although perhaps § 3 of Subdivision A, of Part X may have impliedly recognized such an obligation. Probably, during the two years in which the shareholders operated under this agreement, that question did not arise for the demand for aluminum was very active. Nevertheless, we understand from Limited's answer to an interrogatory that the last price fixed under the agreement of 1931 was understood to remain in force. Although this agreement, like its predecessor, was silent as to imports into the United States, when that question arose during its preparation, as it did, all the shareholders agreed that such imports should be included in the quotas. The German companies were exempted from royalties  for obvious reasons  and that, it would seem, for practical purposes put them out of the cartel for the future, for it was scarcely possible that a German producer would be unable to dispose of all its production, at least within any future period that would be provided for. The shareholders continued this agreement unchanged until the end of March, 1938, by which time it had become plain that, at least for the time being, it was no longer of service to anyone. Nothing was, however, done to end it, although the German shareholders of course became enemies of the French, British and Canadian shareholders in 1939. The Alliance itself has apparently never been dissolved; and indeed it appeared on the Proclaimed List of Blocked Nationals of September 13, 1944. Did either the agreement of 1931 or that of 1936 violate § 1 of the Act? The answer does not depend upon whether we shall recognize as a source of liability a liability imposed by another state. On the contrary we are concerned only with whether Congress chose to attach liability to the conduct outside the United States of persons not in allegiance to it. That being so, the only question open is whether Congress intended to impose the liability, and whether our own Constitution permitted it to do so: as a court of the United States, we cannot look beyond our own law. Nevertheless, it is quite true that we are not to read general words, such as those in this Act, without regard to the limitations customarily observed by nations upon the exercise of their powers; limitations which generally correspond to those fixed by the Conflict of Laws. We should not impute to Congress an intent to punish all whom its courts can catch, for conduct which has no consequences within the United States. American Banana Co. v. United Fruit Co., 213 U.S. 347, 357, 29 S.Ct. 511, 53 L.Ed. 826, 16 Ann.Cas. 1047; United States v. Bowman, 260 U.S. 94, 98, 43 S. Ct. 39, 67 L.Ed. 149; Blackmer v. United States, 284 U.S. 421, 437, 52 S.Ct. 252, 76 L.Ed. 375. On the other hand, it is settled law  as Limited itself agrees  that any state may impose liabilities, even upon persons not within its allegiance, for conduct outside its borders that has consequences within its borders which the state reprehends; and these liabilities other states will ordinarily recognize. Strassheim v. Daily, 221 U.S. 280, 284, 285, 31 S.Ct. 558, 55 L.Ed. 735; Lamar v. United States, 240 U.S. 60, 65, 66, 36 S.Ct. 255, 60 L.Ed. 526; Ford v. United States, 273 U.S. 593, 620, 621, 47 S.Ct. 531, 71 L.Ed. 793; Restatement of Conflict of Laws § 65. It may be argued that this Act extends further. Two situations are possible. There may be agreements made beyond our borders not intended to affect imports, which do affect them, or which affect exports. Almost any limitation of the supply of goods in Europe, for example, or in South America, may have repercussions in the United States if there is trade between the two. Yet when one considers the international complications likely to arise from an effort in this country to treat such agreements as unlawful, it is safe to assume that Congress certainly did not intend the Act to cover them. Such agreements may on the other hand intend to include imports into the United States, and yet it may appear that they have had no effect upon them. That situation might be thought to fall within the doctrine that intent may be a substitute for performance in the case of a contract made within the United States; or it might be thought to fall within the doctrine that a statute should not be interpreted to cover acts abroad which have no consequence here. We shall not choose between these alternatives; but for argument we shall assume that the Act does not cover agreements, even though intended to affect imports or exports, unless its performance is shown actually to have had some effect upon them. Where both conditions are satisfied, the situation certainly falls within such decisions as United States v. Pacific & Artic R. & Navigation Co., 228 U.S. 87, 33 S.Ct. 443, 57 L.Ed. 742; Thomsen v. Cayser, 243 U.S. 66, 37 S.Ct. 353, 61 L.Ed. 597, Ann.Cas.1917D, 322 and United States v. Sisal Sales Corporation, 274 U.S. 268, 47 S.Ct. 592, 71 L.Ed. 1042. (United States v. Nord Deutcher Lloyd, 223 U.S. 512, 32 S.Ct. 244, 56 L.Ed. 531, illustrates the same conception in another field.) It is true that in those cases the persons held liable had sent agents into the United States to perform part of the agreement; but an agent is merely an animate means of executing his principal's purposes, and, for the purposes of this case, he does not differ from an inanimate means; besides, only human agents can import and sell ingot. Both agreements would clearly have been unlawful, had they been made within the United States; and it follows from what we have just said that both were unlawful, though made abroad, if they were intended to affect imports and did affect them. Since the shareholders almost at once agreed that the agreement of 1931 should not cover imports, we may ignore it and confine our discussion to that of 1936: indeed that we should have to do anyway, since it superseded the earlier agreement. The judge found that it was not the purpose of the agreement to suppress or restrain the exportation of aluminum to the United States for sale in competition with Alcoa. By that we understand that he meant that the agreement was not specifically directed to Alcoa, because it only applied generally to the production of the shareholders. If he meant that it was not expected that the general restriction upon production would have an effect upon imports, we cannot agree, for the change made in 1936 was deliberate and was expressly made to accomplish just that. It would have been an idle gesture, unless the shareholders had supposed that it would, or at least might, have that effect. The first of the conditions which we mentioned was therefore satisfied; the intent was to set up a quota system for imports. The judge also found that the 1936 agreement did not materially affect the    foreign trade or commerce of the United States; apparently because the imported ingot was greater in 1936 and 1937 than in earlier years. We cannot accept this finding, based as it was upon the fact that, in 1936, 1937 and the first quarter of 1938, the gross imports of ingot increased. It by no means follows from such an increase that the agreement did not restrict imports; and incidentally it so happens that in those years such inference as is possible at all, leads to the opposite conclusion. It is true that the average imports  including Alcoa's  for the years 1932-1935 inclusive were about 15 million pounds, and that for 1936, 1937 and one-fourth of 1938 they were about 33 million pounds; but the average domestic ingot manufacture in the first period was about 96 million and in the second about 262 million; so that the proportion of imports to domestic ingot was about 15.6 per cent for the first period and about 12.6 per cent for the second. We do not mean to infer from this that the quota system of 1936 did in fact restrain imports, as these figures might suggest; but we do mean that nothing is to be inferred from the gross increase of imports. We shall dispose of the matter therefore upon the assumption that, although the shareholders intended to restrict imports, it does not appear whether in fact they did so. Upon our hypothesis the plaintiff would therefore fail, if it carried the burden of proof upon this issue as upon others. We think, however, that, after the intent to affect imports was proved, the burden of proof shifted to Limited. In the first place a depressant upon production which applies generally may be assumed, ceteris paribus, to distribute its effect evenly upon all markets. Again, when the parties took the trouble specifically to make the depressant apply to a given market, there is reason to suppose that they expected that it would have some effect, which it could have only by lessening what would otherwise have been imported. If the motive they introduced was over-balanced in all instances by motives which induced the shareholders to import, if the United States market became so attractive that the royalties did not count at all and their expectations were in fact defeated, they to whom the facts were more accessible than to the plaintiff ought to prove it, for a prima facie case had been made. Moreover, there is an especial propriety in demanding this of Limited, because it was Limited which procured the inclusion in the agreement of 1936 of imports in the quotas. There remains only the question whether this assumed restriction had any influence upon prices, Apex Hosiery Co. v. Leader, supra, 310 U.S. 469, 60 S.Ct. 982, 84 L.Ed. 1311, 128 A.L.R. 1044. To that Socony-Vacuum Oil Co. v. United States, supra, 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129, is an entire answer. It will be remembered that, when the defendants in that case protested that the prosecution had not proved that the distress gasoline had affected prices, the court answered that that was not necessary, because an agreement to withdraw any substantial part of the supply from a market would, if carried out, have some effect upon prices, and was as unlawful as an agreement expressly to fix prices. The underlying doctrine was that all factors which contribute to determine prices, must be kept free to operate unhampered by agreements. For these reasons we think that the agreement of 1936 violated § 1 of the Act.