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United States v. National City Lines Inc.

January 3, 1951

UNITED STATES
v.
NATIONAL CITY LINES, INC., PACIFIC CITY LINES, INC., FIRESTONE TIRE & RUBBER CO., L. R. JACKSON, GENERAL MOTORS CORP., H. C. GROSSMAN, PHILLIPS PETROLEUM CO., MACK MFG. CORP., STANDARD OIL CO. OF CALIFORNIA, FEDERAL ENGINEERING CORP., E. ROY FITZGERALD, FOSTER G. BEAMSLEY, AND HENRY C. JUDD.



Author: Lindley

Before DUFFY, FINNEGAN, and LINDLEY, Circuit Judges.

LINDLEY, Circuit Judge; On April 9, 1947, nine corporations and seven individuals, constituting officers and directors of certain of the corporate defendants, were indicted on two counts, the second of which charged them with conspiring to monopolize certain portions of interstate commerce, in violation of Section 2 of the Antitrust Act. The American City Lines having been dismissed, the remaining corporate and individual defendants were found guilty upon this count. From the judgment upon the verdict, the remaining eight corporate defendants and five of the individuals have perfected this appeal. They contend that the count fails to state an offense, that the evidence is insufficient to support the verdict, that a fatal variance between the proof and the charge exists and that the court erred in excluding certain evidence.

The first count of the indictment, with which, in view of the fact that defendants were acquitted thereon, we are only incidentally concerned, charged defendants with having knowingly and continuously engaged in an unlawful combination and conspiracy to secure control of a substantial number of the companies which provide public transportation service in various cities, towns and counties of the several states, and to eliminate and exclude all competition in the sale of motor busses, petroleum products, tires and tubes to such transportation companies then owned or controlled by National City Lines, Inc., or Pacific City Lines, Inc., or of which companies should acquire control, in the future, all in violation of Section 1 of the Anti-trust Act, (15 U.S.C. 1).

The second count charged defendants with having conspired to monopolize part of the interstate trade and commerce of the United States, to wit, that part consisting of the sale of busses, petroleum products, tires and tubes used by local transportation systems in those cities in which defendants National, American and Pacific owned, controlled or had a substantial financial interest in, or had acquired, or in the future should acquire ownership, control or a substantial financial interest in such transportation systems, in violation of Section 2 of the Act.

It was averred further that the conspiracy to monopolize had consisted of a continuing agreement and concert of action upon the part of defendants under which the supplier defendants, Firestone, Standard, Phillips, General Motors and Mack, would furnish capital to defendants National, American and Pacific, and the latter companies would purchase and cause their operating companies to purchase from the supplier companies substantially all their requirements of tires, tubes and petroleum products; the capital made available by the supplier defendants would be utilized by National and Pacific, to purchase control of or financial interest in local public transportation systems, located in various states, when the securing of such control and interest would further the sale of and create an additional market for the products of the supplier defendants to the exclusion of products competitive therewith; National and Pacific and their operating companies would not renew or enter into any new contracts for the purchase or use of such products from companies other than the supplier defendants without the consent of the latter; National and Pacific would not dispose of their interest in any operating company without requiring the party acquiring the same to assume the obligation of continuing to purchase its requirements of the commodities mentioned from the supplier defendants, and would not purchase any new equipment making use of products other than those sold by the supplier defendants; as National and Pacific acquired local transportation systems in the other sections of the country, those markets would be allocated to and preempted by a company selling petroleum products in such sections. The count further charged that the agreements and understandings were carried out and effectuated, thereby completing the offense of monopolization of a part of Interstate Commerce. The jury having acquitted defendants upon the first count and having found them guilty upon the second, we are concerned only with the legality of the judgment entered upon that verdict.

We shall follow the pattern adopted by the parties, who have referred to the National City Lines, Inc., and Pacific City Lines, Inc., as the City Lines defendants and to Firestone, Phillips, General Motors, Mack, Standard Oil of California and Federal Engineering Corporation as supplier defendants.

It is undisputed that on April 1, 1939, defendant National City Lines, Inc., had grown from an humble beginning in 1920, consisting of the ownership and operation of two second-hand busses in Minnesota, to ownership or control of 29 local operating transportation companies located in 27 different cities in 10 states. At the time the indictment was returned, the City Lines defendants had expanded their ownership or control to 46 transportation systems located in 45 cities in 16 states. The supplier defendants are manufacturers and marketers of busses, tires, tubes and petroleum products necessarily used by the local operating companies of the City Lines defendants and others. The value of their products introduced in commerce and sold to the City Lines defendants and their operating companies for the year 1946 was over 11 million dollars and, for the period from 1937 to May 1, 1947, over 37 million dollars.

There is no dispute that the City Lines defendants and the suppliers entered into various oral and written arrangements in accord with which the latter purchased preferred stock from the former, at prices in excess of the prevailing market prices, amounting in total cost to over nine million dollars and that the money received from the sales of such stock was used by City Lines defendants to acquire control of or a substantial interest in various local transportation companies throughout the United States. The respective supplier defendants entered into separate ten-year contracts with City Lines under which all of the busses, tires, tubes, and petroleum products requirements of the City Lines operating companies were purchased from the suppliers with an agreement not to buy any part of the same from any party competing with them. They provided, in short, that existing purchase contracts of all operating companies with other competitive suppliers should be terminated at their earliest possible moment; that the operating companies would equip all their units with defendant suppliers' products to the exclusion of any products competitive therewith and that City Lines and their operating companies would not renew or enter into any new contracts with third parties for the purchase of such products or change any then existing type of equipment or purchase any new equipment using any fuel or means of propulsion other than gas.

National City Lines, organized in 1936, as a holding company to acquire and operate local transit companies, had bought, up to the time when the contracts were executed, its necessary equipment and fuel products from different suppliers, with no long-term contract with any of them. Pacific City Lines was organized for the purpose of acquiring local transit companies on the Pacific Coast and commenced doing business in January 1938. American was organized to acquire local transportation systems in the larger metropolitan areas in various parts of the country in 1943. It merged with National in 1946.

Additional facts, while not largely in dispute, are partially controverted, at least in so far as inferences are concerned; however, we think the evidence adequately justified the jury in finding affirmatively that they existed. In 1938, National conceived the idea of purchasing transportation systems in cities where street cars were to longer practicable and supplanting the latter with passenger busses. Its capital was limited and its earlier experience in public financing convinced it that it could not successfully finance the purchase of an increasing number of operating companies in various parts of the United States by such means. Accordingly it devised the plan of procuring funds from manufacturing companies whose products its operating companies were using constantly in their business. National approached General Motors, which manufactures busses and delivers them to the various sections of the United States. It approached Firestone, whose business of manufacturing and supplying tires extends likewise throughout the nation. In the middle west, where a large part of its operating subsidiaries were to be located it solicited investment of funds from Phillips, which operates throughout that section but not on the east or west coast. Pacific undertook the procurement of funds from General Motors and Firestone and also from Standard Oil of California, which operates on the Pacific coast. Mack Truck Company was also solicited. Eventually each of the suppliers entered into a contract with City Lines defendants of the character we have described whereby City Lines companies agreed that they would buy their exclusive requirements from the contracting supplier and from no one else. We think the evidence is clear that when any one of these suppliers was approached, its attitude was that it would be interested in helping finance City Lines, provided it should receive a contract for the exclusive use of its products in all of the operating companies of the City Lines, so far as busses and tires were concerned, and, as to the oil companies, in the territory served by the respective petroleum companies. It may be of little importance, but it seems to be the fact, at least we think the jury was justified in inferring it to be the fact, that the proposal for financing came from City Lines but that proposal of exclusive contracts came from the suppliers. At any rate, it is clear that eventually each supplier entered into a written contract of long duration whereby City Lines, in consideration of suppliers' help in financing City Lines, agreed that all of their operating subsidiaries should use only the suppliers' products. These were not joint contracts; each supplier entered into a separate agreement. Whether the action of the suppliers in this connection was so concerted as to justify the jury in finding that defendants conspired to monopolize that segment of interstate commerce reflected by the purchase and shipment in commerce of busses, tires and petroleum products to the operating companies, we shall discuss more fully later. The facts related present only a sketchy outline of the setup as it was presented to the jury.

THE SUFFICIENCY OF THE INDICTMENT

Defendants' first point is stated thus: "Count II alleges as a violation of Section 2 of the Sherman Act no more than a conspiracy to monopolize sales to certain specified customers. That allegation does not charge an offense against the United States, since section 2 of the Sherman Act applies only to the monopolization of a geographic market." We have seen that the charge is that defendants conspired to monopolize the sale of petroleum products, busses and tires, to the subsidiary operating companies of the City Lines defendants with the result that competition was done away with in the sale of those products to those customers. But, say the defendants, there is no averment that the purchases of petroleum products, busses and tires by the City Lines defendants constituted a substantial portion of the total market for such products. Though defendants recognize that Section 2 makes it unlawful to conspire to monopolize trade or commerce among the several states, they insist that sales to the City Lines defendants and their subsidiaries do not constitute a part of interstate trade within the meaning of Section 2, for the reason that they amount only to control of a single customer's business. They admit that, if the statute were to be given literal reading, the Government's position would be supportable, for the words "any part" are broad enough to apply to a single customer. However, relying upon Standard Oil Co. v. United States, 221 U.S. 1, they argue that the commerce referred to by the words "any part" has both a geographical and a distributive significance not present in the indictment. They admit that it is not open to a monopolist to defend his monopoly on the ground that he controls sales in only a limited geographic area, and that monopolization of the sale of any one product in any city may be unlawful, even though sales throughout the nation are not controlled, but they insist that the indictment does not charge monopolization of the sale of gas, tires or busses in any state, city or region but only of sales to one customer which are beyond the rule of reason established in the Standard Oil case, 221 U.S. 1 at 61. They also rely upon Patterson v. United States, 222 Fed. 599, cert. den. 238 U.S. 635, and United States v. Standard Oil Co., 173 Fed. 177, 191, where Judge Sanborn said: "If the second section of the act prohibits every attempt to monopolize any part of interstate commerce, it forbids all competition therein, and defeats the only purpose of the law; for there can be no competition, unless each competitor is permitted * * * to draw to himself, and thereby to monopolize, some part of the commerce." They argue that requirement contracts with separate customers do not monopolize any part of interstate trade and that this contention is supported by United States v. Columbia Steel Co., 334 U.S. 495. Zealous argument is made in support of their contention that, under the decisions upon which they rely, the charge in the indictment is not sufficient to sustain a conviction under Section 2 of the Act. However, in spite of the ardor of counsel, after mature consideration, we are not persuaded of the soundness of the argument.

The indictment charges a concerted conspiracy by the City Lines defendants and supplier defendants to monopolize that part of interstate commerce which consists of all the busses, all the tires and tubes and all the gas, oil and grease, used by the public transportation systems of some 45 cities owned or controlled by the City Lines companies. That, to our mind, is a very substantial segment of interstate commerce, having "geographic and distribution" significance. It is charged that, under the plan of defendants, competing suppliers may not be patronized; that only the suppliers' products and theirs alone will be accepted. It is perfectly obvious that under such averments, that part of commerce which would be reflected in other suppliers furnishing products would be foreclosed and barred. Their competition is completely eliminated and the business of supplying busses, tubes, tires to the public transportation system of the 45 cities is entirely in the hands of the suppliers, - in other words, monopolized by them. We conclude that, on the face of the indictment, there is a charge of elimination of competition, of monopolization, as to a substantial segment of interstate commerce, within the language of the Act and as limited by the "rule of reason."

We are impelled largely to this conclusion by United States v. Yellow Cab Co., 332 U.S. 218. In the course of that opinion, the court employed language, which, to our minds, is well-nigh conclusive upon the issue of sufficiency of this indictment. On pages 226 and 227 is found a paragraph which we adopt, substituting, however, for the words "cab" and "taxi" therein the words "bus and busses." With that change only, it reads as follows: "By excluding all bus manufacturers other than CCM from that part of the market represented by the bus operating companies under their control, the appellees effectively limit the outlets through which busses may be sold in interstate commerce. Limitations of that nature have been condemned time and again as violative of the Act. Associated Press v. United States, 326 U.S. 1, 18-19, and cases cited. In addition, by preventing the bus operating companies under their control from purchasing busses from manufacturers other than CCM, the appellees deny those companies the opportunity to purchase busses in a free, ...


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