Court Opinion

ID: 9418810
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:40:03.406976+00
Date Added: 2024-06-11T17:22:10.973986
License: Public Domain

Mr. Justice Stone,
dissenting.
I think the decree should be affirmed.
While this proceeding was pending before the Federal Trade Commission to compel a holding company to divest itself of the controlling common stock of two competing corporations which it had acquired in violation of § 7 of the Clayton Act, that stock was used to effectuate a merger of the competing corporations. It is now declared that, however gross the violation of the Clayton Act, how*600ever flagrant the flouting of the Commission’s authority, the celerity of the offender, in ridding itself of the stock before the Commission could complete its hearings and make an order restoring the independence of the competi-. tors, leaves the Commission powerless to act against the merged corporation. • This is the case, it is said, because the Clayton Act does hot, 'in terms, forbid mergers, which may be formed by the stockholders "of independent competing corporations; and, since the holding company was not. the “ sole and efficient agent in the accomplishment of the merger,” which was .affected upon the consent of the various classes of stockholders of the merged companies, it is concluded that the holding company, by-its divestment of the stock, complied with the Clayton Act and in effect did “ all the Commission could order,” so there is no longer any ground for complaint. Further', notwithstanding the authority broadly conferred on the Commission “ to enforce compliance ” with' § 7 “ whenever . . . any person . . . has violated ” its provisions, it is said that as the statute in terms specifies only a single method by which compliance can be compelled — ordering the offender to divest itself of the stock — the Commission can make no other form pf order.
Apart from the objection that the decision now reached is calculated to encourage hasty and ill considered action by the Commission in order to avoid defeat of its jurisdiction by the adroit manipulations of offenders against the Clayton Act; I am unable to construe so narrowly a statute designed, as I think, to prevent just such suppression of competition as this case exemplifies.
1. It is true that the Clayton Act does not forbid corporate mergers but it does forbid the acquisition by one. corporation of the stock of competing.corporations so as substantially to lessen competition. It follows that mergers effected, as they commonly are, through such ac*601quisition of stock necessarily involve violations of the Act, as this one did. Only in rare instances would there be hope of a successful merger of independently owned corporations by securing the consent of their stockholders in advance of the acquisition of a working stock control of them. Hence the establishment of such control by the purchase or pooling of the voting stock, often effected in secrecy, is the normal first step toward consolidation. It is by this process that most corporate consolidations have been brought about, often by adding-one consolidation' to another through periods of years. Compare Standard Oil Co. v. United States, 221 U.S. 1; United States v. American Tobacco Co., 221 U.S. 106; United States v. U.S. Steel Corp., 251 U.S. 417; see Bonbright and Means, The Holding Company, 30, 50.
Unless we are to close our eyes to this open chapter in the record of corporate concentration, an examination of the legislative history of the Clayton Act, and that of the earlier Sherman Act, can leave no doubt that the former was aimed at the acquisition of stock by holding companies, not only as itself a means of suppressing competition but as the first and usual step in the process of merging competing corporations by which a suppression of competition might be unlawfully perpetuated. Thus one of the evils aimed at, the merger of competing corporations through stock control, was reached in its most usual form by forbidding the first step, the acquisition of the stock of a competing corporation, and by conferring on the Trade Commission authority to deal with the violation. It seems plain, therefore, that the illegality involved in acquiring-the common stock of the competing companies, which .was the first step toward the merger, was neither lessened nor condoned by taking the next and final steps in completing it. There is, then, no basis for contending that the Act has not been violated, or that *602the violation has been excused simply because events were pushed to the very conclusion that § 7 was designed to forestall.
2. It is also true that the holding company divested itself of the stock of the two competing operating companies before the Commission had an opportunity to make its order; but it does not follow that it had done all that the Commission could command and that thus the statute was satisfied. Mere divestment of the stock is not enough. The manner of divestment is likewise subject to the requirements of the Clayton Act. This Court has recognized that the purpose of the Act is to restore the competition suppressed by the acquisition of the stock and has specifically held, over objections such as are now made, that the Commission has power not only to order divestment but to prescribe that it shall be done in a manner that will restore competition. Federal Trade Comm’n v. Western Meat Co., 272 U.S. 554.
. Here the Commission has held that the divestment was not a compliance with the statute. In determining whether it was right in this conclusion, the manner of divestment and the activity of the holding company after the complaint of the Commission was filed and before the final merger of the two operating companies are of crucial significance.
When the complaint was filed the holding company was in complete control of the two operating companies through ownership of their common stock, which alone had voting power. From the moment of the acquisition of the stock it had been and it continued to be a violator of the Clayton Act. Promptly after the complaint was filed it took measures to secure the fruits of its Violation. It first proposed by letter to its stockholders a consolidation of the two operating companies, and at a special meeting its board of directors formulated a detailed plan for merger. This plan involved the organization of the two *603new holding companies, the transfer to them respectively by the first holding company of its respective holdings of the common stock in the two operating companies in exchange for the distribution by the new 'holding companies of their stock to the stockholders of the first holding company. Thus for each share in the first holding company owned by its stockholders they were to receive one share in each of the new holding companies. The original holding company was then to be dissolved and the four remaining companies, the two new holding companies and the two operating companies, were to be.merged.
The plan, from the beginning, contemplated that the four companies should be bound by formal agreement to effect the merger. It was adopted at a specially called meeting of the stockholders of the first holding company and was carried into effect under its active direction and control. Before its dissolution, by exercising that control it had created the two new holding companies, committed all four of its subsidiary corporations to the merger both by their corporate action and by binding agreement, and had secured the approval of its action by its own stockholders. It will be observed that the original holding company did not divest itself of the stock of the two competing operating companies in the only manner by which competition could have been restored — by returning the stock to the respective stockholders of the operating companies, from whom it had been secured, or to their successors. Instead, it continued the suppression of competition by placing the stock of the two operating companies respectively in control of the two new holding companies, tied by contract to effect the merger, and by the method of distributing the stock of the new holding companies equally to its own stockholders it lodged common ownership and control of both the new holding companies in the two groups of stockholders of the original operating companies. The first holding company created the two new *604ones and throughout guided their policy, as it did that of the two operating companies. Acting in concert and in accord with the prearranged plan, all cooperated in executing it, and all, together with their creature, the merged company, were conscious beneficiaries of the violation of the statute.
By thus manipulating its illegally acquired stock control of the operating companies, the first holding company avoided such, a distribution of the stock as would have restored competition, and made easy the merger which, if the stock had been returned to those from whom it had originally been acquired, would have been difficult or impossible. Upon these and other facts, which need not now be detailed, the Commission made its finding, abundantly supported by evidence, that the course of action taken by the holding company was not to restore competition between the operating companies, but was “ an artifice and subterfuge designed in an attempt to evade the Clayton Act, to perpetuate the elimination of competition,” which it had brought about by the acquisition of the stock of the operating companies.
That the stockholders in the successive holding companies, who were the ultimate owners of the operating companies, consented to all this; that two-thirds of the non-voting preferred stock of the operating companies which had never been lodged in the holding companies consented to it; that the merger might possibly have been effected in some other way, had competitive conditions been restored; all seems without significance. While under local statutes merger could not have been effected without the consent of the preferred stock, equally the consent of the stock acquired through violation of the Clayton Act and its active promotion of the merger were essential to the desired end. A prohibited act is no less illegal because its success involves the cooperation of other actors. It was the suppression of competition *605by the holding company, through the use which it made of - the illegally acquired stock of the operating companies, and its manner of disposing of the stock so as to 'continue that suppression, which were violations of the Clayton Act and in conflict with the authority of the Commission. This was not any the less so because others consented.
Doubts whether the divestment effected by the first holding company was all that the Commission could have ordered are dissipated by our decision in Federal Trade Comm’n v. Western Meat Co., supra. There we upheld an order of divestment which directed that in transferring the stock the respondent corporation could not use it to acquire any of the property of the competing corr poration, and that none of the stock could be transferred to anyone having any connection with or in any way under the influence of the offending corporation. Here we need not go so far.
3. There remains the question whether the Commission is now .powerless to undo a .consummation which, at an earlier stage, it could have prevented. It is said, as a matter of statutory construction, that the grant to the Commission of specific power to command offenders to divest themselves of illegally acquired stock excludes the possibility of its ordering anything more or different, however incidental or necessary it may be to the exercise of the granted power.
It would seem that this point also had been settled by our decision in the Western Meat Company case, where the offending company, through stock ownership, had acquired possession of the property and control of. the business of a competitor. It wished to be free to divest itself of the stock without restriction, in order that it might acquire .ownership of the competitor’s property by . transferring the stock to hands that would make merger easy. It was argued to us there, as it is here, that' the statute *606provides only that the Commission may order divestment of the stock; that it does not say that the Commission can command relinquishment of the power, derived from the stock ownership, to bring the'competitor, or its property, under the control of the offending corporation, either directly, or through transfer of the stock into friendly hands. But that argument was rejected, and the order directing divestment of both the property and stock by placing both in the hands of those not under the influence or control of the offender was upheld. This Court said, p. 559:
“ Further violations of the Act through continued ownership could be effectively prevented only by requiring the owner wholly to divest itself of the stock and thus render possible once more free play of the competition which had been wrongfully suppressed. The purpose which the lawmakers entertained might be wholly defeated if the stock could be further used for securing the competitor’s property. And the same result would follow a transfer to one controlled by or acting for the respondent.”
No more here, than there, should it be said that the purpose of the statute must be defeated because the lawmakers did not attempt to provide with a meticulous precision how the Commission should proceed in every contingency that might arise. The dominating purpose of the statute is to restore to its original state the competition suppressed by the acquisition of the stock, and, just as we rejected a rigid literalism there in order to effect that purpose, and upheld an order which was but incidental, though necessary, to the effective exercise of the power specifically granted, so we should reject it now. Just as in that case we upheld the Commission’s order directing the surrender of one of the fruits of the wrongful stock ownership — the power to place a competing unit under the offender’s domination — so should we now sus*607tain the order commanding relinquishment of another of the fruits of that ownership — the accomplished merger.
Even if the question were a new one in this Court, no. .plausible reason has been advanced for interpreting this remedial statute as though it were a penal law. The Clayton Act was designed to prevent abuses growing from deficiencies due to the generality of the Sherman Act. It sought to accomplish that end by conferring upon the Commission the power to strike at specific practices. In this, as in most schemes for regulation by administrative bodies, there must be a balance between the general and the particular. When the courts are faced with interpretation of the particular, administration breaks down and the manifest purpose of the legislature is defeated unless it is recognized that, surrounding granted powers, there must be a penumbra which will give scope for practical operation.' In carrying such schemes into operation the function of courts is constructive, not destructive, to make them, wherever reasonably possible, effective agencies for law enforcement and not to destroy them.
That the merged corporation is different from the original offender should lead to no different conclusion. It is but the creature and alter ego of the offender, created by the offender’s .exercise of power over the illegally acquired stock for the very purpose of perpetuating the suppression of competition which the Commission from the start had power to forbid. To declare that an offender, whose cause is pending before the Commission, can effect through its creatures and agents what it may not itself do, nullifies the statute.
Some scope may be given to the doctrine of lis pendens. It is true that the Commission is an administrative body, and not a court. But it exercises many of the powers conventionally deemed judicial. It is authorized to bring offenders before it to determine whether they are violators of the Act and, if so, “ to enforce compliance ” by *608commanding that the violation cease. There is as much reason to believe that Congress did not intend to deny to the Commission the authority to exercise effectively the granted power, and thus to preserve its jurisdiction until its function could be executed, as there would be were similar powers extended to a court of inferior jurisdiction. This is the more evident when it is remembered that obedience to the Commission’s orders cannot be compelled without first subjecting them to the scrutiny of a ■ court. Recognition of its authority involves-neither departure from accepted principles nor any risk of abuse.
These considerations demand our rejection of the contention that an offender against the Clayton Act, properly brought before the Commission and subject to.its order, can evade its authority and defeat the statute by taking refuge behind a cleverly erected screen of corporate dummies.
The Chief Justice, Mr. Justice Brandeis, and Mr. Justice Cardozo concur in this opinion.