Court Opinion

ID: 7975286
Source: CourtListenerOpinion
Date Created: 2022-09-09 00:59:08.252429+00
Date Added: 2024-06-11T16:34:53.364385
License: Public Domain

O’Brien, J.
This action was brought under sections 5168 and 5169, R. L. 1905, for judgment forfeiting the charter of the Owatonna Manufacturing Company, a domestic corporation, and prohibiting the further transaction of business in the state of Minnesota by the Creamery Package Manufacturing Company, a corporation of the state of Illinois. The trial court found that the Owatonna Company had not violated any law, and directed judgment in its favor, but found that the Creamery Company had “entered into a pool and combination in restraint of trade,” and thereby “has forfeited its license to transact business in this state.” This appeal from an order denying a new trial is taken by the Creamery Company alone. The findings as to the appellant may be summarized as follows:
On September 12, 1899, appellant complied with the laws of Minnesota relating to foreign corporations, and ever since has been licensed to transact business in this state. Prior to February 24, 1898, the appellant, F. B. Fargo & Company, of Minnesota, and F. B. Fargo & Company, of Wisconsin, Cornish, Curtis & Greene Manufacturing Company, of Wisconsin, Cornish, Curtis & Greene Company, of Minnesota, and A. H. Barber & Company, of Illinois,, were severally engaged in manufacturing or selling in Minnesota churns and butter-making machines and creamery supplies, a large and growing business, especially “in the sale of combined chums and butter workers, which had come to be a necessary part of any complete butter-making establishment, and that during all said time there were for sale upon the market several combined churns and butter workers covered and protected by letters patent.” There was strong competition between the firms mentioned and others in the sale of those machines and supplies, and the concerns named were, accustomed to bid-for the construction complete of entire plants, and *428“it was necessary for the successful prosecution of its business that any firm or corporation so bidding should be able to supply the patented articles used.”
On February 24, 1898, the appellant entered into a combination with the companies named and C. E. Hill & Company, whereby the appellant consolidated with itself such other firms and corporations by a nominal purchase of all their property. After this, and in the spring of 1898, appellant bought out J. A. Cushman Company, of Iowa, and in 1905 it purchased the E. W. Ward Company, of Minnesota, and purchased in the same year the Freemont Butter Tub Company, of Illinois, and in 1906 purchased the stock of the Stoddard Manufacturing Company, of Vermont, and also, at a time not disclosed, a portion of the business of a corporation known as Sturgis, Cornish & Burn Company, and an Iowa concern known as Cook & Reid. The object was “to eliminate competition in the manufacture and sale of the articles dealt in by said various firms and corporations and to secure the control of the manufacture and sale of butter-making machines and creamery supplies in the state of Minnesota and adjoining states, and fix the prices of the same, and to enable the Creamery Package Manufacturing Company to establish such prices in excess of those previously paid, and to secure to said corporation a practical monopoly of the business of furnishing such creamery supplies within the state of Minnesota and elsewhere.”
After making the agreement referred to, the appellant continued to manufacture and sell general creamery supplies, but used the names of the corporations and firms so consolidated with itself in various localities. Traveling agents were sent out, each pretending to be the agent of one or the other of said concerns; but they agreed among themselves as to which should secure any particular business by the use of “stalled bids,” and afterwards the territory canvassed by such agents “was by the direction of the Creamery Package Manufacturing Company divided among them in such manner as to prevent competition.” After this combination, -competition in the sale of butter-making machinery largely ceased, and the appellant has regulated and fixed prices of churns, butter-making machines, and *429other creamery supplies, has destroyed competition, has secured and controls in Minnesota .a large part of such business “at largely increased prices, with excessive profits to itself, which prices could not have been secured in the open market with fair competition, and in the absence of the combination and trust arrangement herein-before mentioned.” This control “was secured largely by the fact that by such combination the Creamery Package Manufacturing Company became the owner of the patented articles required in such business, and particularly of the combined churns and butter workers acceptable to the general trade, and that without such ownership such monopoly could not have been secured.”
As conclusions of law it was found that by the combination described, and the continuance and operation of the combination up to the time of the trial, the appellant “entered into a pool and combination in restraint of trade within this state, and created a trust agreement which tends to and does limit and control the price of butter-making machines and general creamery supplies throughout the state, and prevent and limit competition in the production and sale thereof, and which was designed so to do,” and thereby “has forfeited its license to transact business in this state, and should by the judgment to be entered herein be prohibited from continuing its business therein under such license.”
The agreement of February 24, 1898, mentioned in the findings, and the construction of which is pivotal in this case, was executed, not only by the defendant concerns which were parties to it, but by the individual stockholders' as well, and is described as follows in the brief of counsel for appellant, omitting references to folios: “The agreement recited that the Creamery Company was about to increase its capital stock by $1,600,000, making a total capital stock of $2,000,000. It was proposed to buy up the business of the other corporations and partnership, with some exceptions. It then provides for such a purchase upon the terms and conditions hereinafter set forth. Each party must guarantee payment of the debts to it. An inventory and appraisement of all the property that is the subject of the agreement is to be made, for the purpose of giving to each party stock in the Creamery Company based on the actual *430value of the property purchased. The new stock is to be distributed to the stockholders of the several corporations and the members of the partnership at the rate of one share for each one hundred dollars in value of property contributed by the Creamery Company or sold to it by the others. The unissued stock remains in the treasury, to be disposed of according to law as the directors of the Creamery Company might determine. The other corporations were to be dissolved, but the Creamery Company was given the right to carry on the business of the various concerns in the names theretofore used by them. Each of the parties was to make proper assignments to the Creamery Company of all patents, and certain litigation of E. B. Eargo & Company in regard to an infringement of a patent right was to be assumed by the Creamery Company. New directors were to be elected, consisting in part of representatives of the purchased, companies. A board of arbitrators as to values- and assets was appointed. Patents on pending applications- by any of the parties-were to be assigned to the Creamery Company; and at least one-half of the profits of the business were to be distributed each year among-the stockholders, unless otherwise determined by the unanimous vote-of the board. There were other clauses providing for the adjustment of various details. All the provisions of the contract, except those relating to the proposed issue of bonds in the amount of $300,000, were carried out.”
1. The evidence sustained the facts as found by the learned trial judge, and, although many of the assignments of error attack as-unsupported certain findings, the acts of the appellant, which must-control the decision of this case, are undisputed. Thus it is conceded that, prior to the making of the agreement of February 24, 1898, the concerns which were parties to that agreement were competitors in furnishing to the public creamery supplies, including patented as well as unpatented articles. The competition between those parties was active, and for the purpose of eliminating it theEebruary agreement was made and subsequently carried out. It is; not disputed that the object of the agreement was to eliminate the competition which actually existed. Appellant claims it was so-*431keen as to be ruinous^ and its elimination necessary; while the finding is that the competition resulted in reasonable prices.
The character of the competition is not, under the statute, material. The important question is that competition actually listed to which the agreement put an end. United States v. Trans-Missouri Freight Assn., 166 U. S. 290, 17 Sup. Ct. 540, 41 L. Ed. 1007. The agreement provided for the transfer of the property and assets of each concern to the appellant, which in return issued, to the respective stockholders of each, shares of its capital stock in the agreed amounts. This transaction is described by the court as a nominal, and by appellant as an actual and complete, purchase; but the steps actually taken are not disputed. The agreement provided the corporations so transferring their assets should be dissolved; but the appellant might continue the business in various localities under the names of the corporations so dissolved. This provision, which was carried out, probably did not of itself enlarge appellant’s rights, but is properly referred to as characterizing the agreement, as is also the fact that traveling men were subsequently employed by the appellant, who, under its direction, held themselves out as representing separate concerns, and thus kept up the appearance of competition, while in reality all represented the appellant and made no competitive bids against each other. Without taking into consideration any fact as to which there is the slightest dispute, it is apparent that the object of the February agreement was to destroy competition, and that appellant, by conducting its business along the lines indicated in the agreement, has been reasonably successful in securing the desired result.
2. Appellant, was admitted to transact business in this state as a foreign corporation September 12, 1899, and inasmuch as the agreement now claimed to be unlawful was executed February 24, 1898, it is argued that the revocation of its license would violate the contract between the state and the appellant. The appellant was licensed to transact business lawfully. Even though the license from Minnesota was a contract, it was that appellant would transact its business in a lawful manner and subject to the exercise by the state of its police power. If the Eebruary agreement was unlawful, its *432maintenance and the continuance of its terms continue to be unlawful. United States v. Bradford (C. C.) 148 Fed. 413; Ochs v. People, 124 Ill. 399, 16 N. E. 662. If the agreement was not prohibited by any law of this state at the time it was entered into, but the conduct of appellant’s business in accordance with its provisions is now prohibited by a valid law, a continuance of such unlawful conduct justifies a forfeiture of appellant’s license.
It is now settled beyond dispute that a corporation accepts its charter subject to the proper exercise of the police power. The appellant, a foreign corporation, cannot claim any greater sanctity for its license from Minnesota than could a corporation directly organized under her authority. Minneapolis & St. L. R. Co. v. Minnesota, 186 U. S. 257, 22 Sup. Ct. 900, 46 L. Ed. 1151; Pennsylvania R. Co. v. Miller, 132 U. S. 75, 10 Sup. Ct. 34, 33 L. Ed. 267; State v. Smith, 58 Minn. 35, 59 N. W. 545, 25 L.R.A. 759; American Smelting Co. v. Colorado, 204 U. S. 103, 27 Sup. Ct. 198, 51 L. Ed. 393; Hammond Packing Co. v. Arkansas, 212 U. S. 322, 29 Sup. Ct. 370, 53 L. Ed. 530; United States v. Trans-Missouri Freight Assn., supra. Individual citizens exercise their respective callings subject to the same power, and in a multitude of instances have been compelled to submit to laws regulating their conduct, although their entrance upon the business or professional pursuit involved antedated the law regulating it. State v. State Medical Examining Board, 32 Minn. 324, 20 N. W. 238, 50 Am. 575; State v. Zeno, 79 Minn. 80, 81 N. W. 748, 48 L.R.A. 88, 79 Am. St. 422; Minnesota State Pharmaceutical Assn. v. State Board of Pharmacy, 103 Minn. 21, 114 N. W. 245.
We believe the February agreement to have been unlawful under the common law. State v. Duluth Board of Trade, 107 Minn. 506, 121 N. W. 395, 23 L.R.A. (N.S.) 1260. But we do not find it necessary to. rest our decision upon that ground, nor to discuss the various statutes created since the making of the agreement in 1898. The state claims appellant is a party to and now maintains a combination in restraint of trade, in violation of section 5168, R. L. 1905, which forbids entering into any pool, trust agreement, combination, or understanding whatsoever with others in restraint of trade, or to limit, *433fix, control, maintain, or regulate the price of any article of trade, manufacture, or use, or to prevent or limit competition in the purchase and sale of such articles. As already said, appellant is subject to that statute, and we have left to consider whether appellant is violating it, and, if so, is the statute a valid police regulation by the state as applied to appellant, whose transactions consist principally in the sale of patented articles.
3. It is argued that when the February agreement, providing for the transfer to the appellant of the properties of the other concerns, was carried out, a purchase of those properties was completed, which was lawful in itself. The contract, it is claimed, was. fully executed, and thereafter the appellant, as the absolute owner of all the property, might lawfully continue its business; further, that the use of the names of the other concerns and the fictitious competition between appellant’s agents did not change the fact that, instead of a combination between two or more persons, the appellant was in truth only conducting its own business in the way of its choosing.
If these deductions were sound, we would have for determination how far one may go in good faith and for a lawful purpose in talcing over by actual purchase the business of each competitor whom be encounters. Stewart v. Erie & Western Transportation Co., 17 Minn. 348 (372); Lydiard v. Chute, 45 Minn. 277, 47 N. W. 967; Kronschnabel-Smith Co. v. Kronschnabel, 87 Minn. 230, 91 N. W. 892; Espenson v. Koepke, 93 Minn. 278, 101 N. W. 168; State v. Duluth Board of Trade, supra. To our mind no such question, is before us. The reason for authorizing the creation of corporations and their legal status when formed are familiar to all. A characteristic quality of a corporation, which is essential to the utility of the association, is that for the transaction of its legitimate business it be a legal entity, having its own life and individuality distinct from its members; but when the corporate form is assumed, by individuals for the purpose of evading the law, and as a mere cloak under which unlawful practices may be concealed, the courts. will disregard the appearance and consider the substance, and thus determine the propriety of the transaction under scrutiny. People v. North River, 121 N. Y. 582, 24 N. E. 834, 9 L.R.A, 33, 18 Am. St. 843; *434Unckles v. Colgate, 148 N. Y. 529, 43 N. E. 59; Gallagher v. Germania Brewing Co., 53 Minn. 214, 54 N. W. 1115; State v. Standard, 49 Oh. St. 137, 30 N. E. 279, 15 L.R.A. 145, 34 Am. St. 541; Harding v. American, 182 Ill. 551, 55 N. E. 577, 64 L.R.A. 738, 74 Am. St. 189; Northern Securities Co. v. United States, 193 U. S. 197, 24 Sup. Ct. 436, 48 L. Ed. 679; Cook, Corp. (6th Ed). §§ 663, 664.
The February agreement contemplated no absolute purchase and sale of the various properties. Upon the contrary, the plan was to place all the properties in the possession of the appellant, to be managed jointly for the benefit of the original owners, each of whose interest was to be evidenced by shares of the capital stock of appellant .issued to each in proportion to his original holding. If in place of the corporation an individual had been selected, who, when the legal title was vested in him, issued certificates of trust, the violation of law would be apparent. This agreement went further. It provided for directors, representing those who made transfers of property, and for a minimum division of profits, thus continuing the control of each interest, instead of leaving such control with the majority of the stock, where it is ordinarily found; and, notwithstanding the provision for dissolution of the corporations so transferring their respective properties, the right to use the name-of each for the purpose of simulating competition was attempted to be conferred upon the appellant. The record does not disclose the terms Upon which the properties of the concerns not parties to the agreement were subsequently taken over, but, without regard to those transactions, it must be held that the learned trial judge was entirely correct in describing the transfer made pursuant to the February agreement as a nominal purchase. State v. Duluth Board of Trade, supra; Dunbar v. American, 224 Ill. 9, 79 N. E. 423, 115 Am. St. 132; Continental Securities Co. v. Interborough R. T. Co. (C. C.) 165 Fed. 945.
4. In the fourteenth finding of the trial court it is said that the control of the general creamery supply business “was secured largely by the fact that by such combination the Creamery Package Manufacturing Company became the owner of the patented articles re*435quired in such business, and particularly of the combined churns and butter workers acceptable to the general trade, and that without such ownership such monopoly could not have been secured.” From this and certain other of the findings it is argued the only combination found by the court, and made the basis of its order for judgment, is the combination between patent owners in respect to their monopoly, with only an indirect and incidental effect on other commodities, and that it is beyond the power of the state to detract from or limit the monopoly granted to the patentee of an article when letters patent had been duly issued to him under the authority of the federal government.
The findings, taken in their entirety, are undoubtedly to the effect that the principal articles sought to be controlled are protected by patents, and in the absence of such control the combination would probably never have been made. But it is equally true that the evidence fully sustains the findings that the appellant’s dealings are not confined to patented articles, but there are included general creamery supplies, amounting sometimes to the construction of the entire plant. We have not here for determination whether it is within the power of the state to prohibit a combination to control the manufacture and sale of patented articles, but whether the inclusion in a combination otherwise unlawful of provisions with reference to such articles so leavens the transaction as to make it lawful in its entire scope.
There is sharp conflict of authority as to whether an agreement which has reference solely to patented articles is subject to the statute of a state prohibiting acts in restraint of trade, and the contention of appellant’s counsel that, under the federal constitution and laws, a complete and absolute monopoly in such articles is conferred upon the patentee and his assigns, which cannot be limited dr controlled by legislative enactments of a state designed to restrain monopolies, is not without support. Columbia Wire Co. v. Freeman Wire Co. (C. C.) 71 Fed. 302; Rubber Tire Wheel Co. v. Milwaukee Rubber Works Co., 154 Fed. 358, 83 C. C. A. 336; Heaton-Peninsular Button Fastener Co. v. Eureka Speciality Co., 77 Fed. 288, 25 C. C. A. 267, 35 L.R.A. 728; Ex parte Robinson, 2 Biss. 309, Fed. Cas. No. 11,932.
*436That the grant from the federal government does not protect a patentee who resorts to practices forbidden by a state enactment, which conduct, together with the ownership of the letters patent, results in establishing a monopoly in restraint of trade, has also support. National Harrow Co. v. Hench (C. C.) 76 Fed. 667; National Harrow Co. v. Hench, 83 Fed. 36, 27 C. C. A. 349, 39 L.R.A. 299; National Harrow Co. v. Hench (C. C.) 84 Fed. 226; Vulcan v. Hercules, 96 Cal. 510, 31 Pac. 581, 31 Am. St. 242; Blount Mnfg. Co. v. Yale & Towne Mnfg. Co. (C. C.) 166 Fed. 555; Bobbs-Merrill Co. v. Straus (C. C.) 139 Fed. 155; Mines v. Scribner (C. C.) 147 Fed. 927.
The state has power, in the absence of a federal statute regulating sales of letters patent within its territory, “to make reasonable regulations concerning the subject, calculated to protect its citizens from fraud.” Allen v. Riley, 203 U. S. 347, 355, 27 Sup. Ct. 95, 51 L. Ed. 216. See also Ozan Lumber Co. v. Union County Nat. Bank, 207 U. S. 251, 28 Sup. Ct. 89, 52 L. Ed. 195; Bement v. National Harrow Co., 186 U. S. 70, 22 Sup. Ct. 747, 46 L. Ed. 1058.
There can be no question that the holder of a duly issued patent has a lawful monopoly in its use, and he violates no public policy in protecting his monopoly to the fullest extent. But it does not follow from this that the patentee acquires the right by combining with other patentees to extend the monopoly granted to each, and thus abuse the privilege conferred upon him by the government. However this may be, we have no doubt that the combination under consideration is within the prohibition of the statute. It includes the manufacture and sale of many articles not protected by patents, and the fact that the patented articles constituted the principal ones dealt in by appellant, ■ and that without a merger as to them no monopoly in the other articles would have been attempted, cannot be accepted as a justification of the combination.
Our conclusion is that the activities of the appellant in their entirety are subject to the statutory regulations of the state, and that the district court correctly found that the practices and attitude of the parties to the agreement of February 24, 1898, violate the laws of this state, in that the effect of the agreement was to establish a *437pool or combination in restraint of trade, which continues in force and operation, to all of which the appellant is a party, and by such conduct has forfeited its license to transact business in Minnesota.
Order affirmed.
On June 3, 1910, the following opinion was filed:
Per Curiam.
In a proper petition for a reargument defendant’s counsel have with great ability urged that this court erred in holding that tbe evidence sustained tbe facts found upon tbe trial; and further, in bolding that defendant bad been reasonably successful in destroying competition; and again, in bolding that tbe transfer to the defendant of tbe properties of tbe various concerns mentioned in tbe opinion amounted to no more than a nominal purchase by tbe defendant; and finally, that tbe judgment sustaining tbe order of tbe district court be modified so as to provide for affirmance unless tbe trial court should on a further bearing determine that the methods of business condemned by tbe decisión of this court bad been abandoned by tbe creamery company.
Tbe application must be refused. Our views with reference to tbe three exceptions taken by defendant to our holdings in tbe original opinion remain unchanged. Tbe effect of granting the final request would be to grant a new trial of tbe action in spite of our bolding that tbe order denying a new trial should be affirmed. Tbe judgment of tbe court, being an affirmance of tbe order denying a new trial, does not, of itself, preclude tbe district court from entertaining any application by tbe defendant made to it in accordance with tbe judicial procedure of this state, and we do not feel justified in making any modification of tbe order which would imply or suggest any departure from tbe regularly established rules governing such cases.