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UNITED STATES v. E. I. DU PONT DE NEMOURS AND CO.

December 3, 1954

UNITED STATES OF AMERICA, PLAINTIFF,
v.
E. L DU PONT DE NEMOURS AND COMPANY, GENERAL MOTORS CORPORATION, UNITED STATES RUBBER COMPANY, CHRISTIANA SECURITIES COMPANY, DELAWARE REALTY & INVESTMENT CORPORATION, PIERRE S. DU PONT, LAMMOT DU PONT, IRENEE DU PONT, ET AL., DEFENDANTS.



The opinion of the court was delivered by: LA Buy, District Judge.

This action is brought by the United States Government for alleged violation by defendants of Sections 1 and 2 of the Sherman Act, 15 U.S.C.A. §§ 1, 2, declaring illegal every contract, combination or conspiracy in restraint of trade and prohibiting monopolization or the attempt to monopolize trade and commerce, and Section 7 of the Clayton Act, 15 U.S.C.A. § 18, declaring illegal the acquisition of stock by a corporation in another where the effect of such acquisition may be to substantially lessen competition or tend to create a monopoly.

The defendants against whom the action is brought are named and identified in the amended complaint as follows:

The three defendant "manufacturers": E. I. du Pont de Nemours and Company, General Motors Corporation, and United States Rubber Company. All of these companies transact business within the Northern District of Illinois and are found here.

The three "corporate" defendants: Christiana Securities Company; Delaware Realty & Investment Corporation; and Wilmington Trust Company, individually and as trustee.

The remaining defendants come within the categoric description of "members of the du Pont family." These members of the du Pont family are divided into the following:

The three "defendant individuals": Pierre S. du Pont and Lammot du Pont, for whom Suggestions of Death were filed May 6, 1954 and January 16, 1953, respectively; and Irenee du Pont.

The five "individual defendants": Lammot du Pont Copeland; Colgate W. Darden, Jr.; Henry Belin du Pont; Pierre S. du Pont III; and George P. Edmonds. These defendants are alleged to be members of the du Pont family and to hold substantial amounts of voting stock of the defendant United States Rubber Company.

The twenty-six "beneficiary" defendants, ten of whom are minors, also identified as "party in interest" defendants, who are not named as conspirators and who are beneficiaries of one or more trusts of which the defendant Wilmington is trustee.

With the exception of the twenty-six beneficiary defendants, all defendants are alleged to have participated in acts which violate the anti-trust statutes.

The Government's statement of the offense is stated as follows:

The Amended Complaint charges that the defendants have engaged in a conspiracy to restrain trade in certain products produced by the du Pont Company, United States Rubber, and General Motors, in violation of Section 1 of the Sherman Act, and to monopolize a substantial part of such trade in violation of Section 2 of the Sherman Act. It also alleges that the defendant du Pont Company has acquired a controlling interest in the stock or other share capital of General Motors in violation of Section 7 of the Clayton Act. The Amended Complaint states further that the defendants have done the things which they conspired to do, namely, that they have restrained trade and monopolized a part of the commerce in certain products. (Post-trial Brief, U.S., Vol. I, p. 3.)

In its summary of the statement of evidence the Government states that the evidence, when viewed as a whole, shows that the defendants have designed and followed a pattern of business conduct which has three basic objectives. The first of these objectives has consisted of obtaining control of the management and policies of the three manufacturing defendants, du Pont, General Motors, and United States Rubber. The second of these objectives has consisted of the creation and exploitation of protected markets for certain of the products produced by du Pont and United States Rubber, to the exclusion of competitive suppliers. The third of these objectives has consisted of the reservation of certain exclusive fields of production to the du Pont Company. These three purposes have been served by the fostering of a network of interrelationships among the corporate and individual defendants. This has insured the perpetuation of control of the corporate entities under persons possessing in essence the same interests, and has enhanced the market position of each of the manufacturing defendants.

The Government further charges that the central thread of the entire pattern of conduct is the acquisition of interlocking stock controls and the use of such controls to dominate the management of the controlled corporations. (Post-trial Brief, U.S., Vol. I, p. 5.)

There is no dispute regarding the facts culminating in the formation of the present du Pont Company. From 1802 to 1899 it was operated as a family partnership. The first corporate predecessor to du Pont was formed in 1899. In 1902 T. Coleman du Pont, Alfred I. du Pont, and Pierre S. du Pont acquired the assets of the 1899 company pursuant to a proposal advanced by Alfred I. du Pont. These assets were later taken over by the 1903 company. Until 1915, T. Coleman du Pont was the largest stockholder in du Pont; his holdings being about equal to the combined holdings of Alfred I. du Pont and Pierre S. du Pont. The present du Pont Company was organized in 1915 to succeed the 1903 company.

The factual approach to the issues involved herein will be clarified and simplified by division of this memorandum into two general categories: First, the aspects of alleged control reflected in stock holdings, selection of officers, board and committee members; and, second, the trade aspects. The issue of conspiracy underlying as it does both phases of the case is of necessity interwoven and inseparable and is an ultimate fact which permeates the entire case.

Facts as to Control

Christiana and Delaware

In December 1914 T. Coleman du Pont offered to sell a substantial block of his du Pont stock to du Pont for resale by the company to its principal younger executives, but the offer was rejected since the price was considered too high.

In the early part of 1915 T. Coleman du Pont offered to sell his stock to Pierre S. du Pont and others at a higher price.

It is admitted that in 1915 Christiana was formed by a syndicate composed of Pierre S. du Pont, Lammot du Pont, Irenee du Pont, together with A. Felix du Pont, R.R.M. Carpenter, and John J. Raskob, for the purpose of acquiring this stock.

The evidence shows that Christiana was organized so that members of the syndicate could use the stock of the corporation as security for a loan it was necessary for them to obtain to buy the stock of Coleman du Pont.

This block of stock consisting of 63,314 shares of common and 14,599 shares of preferred was transferred to Christiana along with 28,177 shares of du Pont common transferred to it by the six syndicate members. The six incorporators of Christiana held all of the 75,000 shares of Christiana. The day after Christiana was organized each returned to its treasury approximately 15% of the Christiana stock to be distributed to the chairman of the Executive Committee of du Pont, the eight department heads of du Pont, and the General Counsel of du Pont under an agreement that the stock so assigned to each would become his property if he continued in the employ of the company for one year and that no assignee would sell or hypothecate the stock for three years. After this allocation, the six incorporators held 68,250 shares of the 75,000 outstanding shares of Christiana.

After Coleman's stock had been acquired, Alfred du Pont and others brought suit alleging that Pierre and his associates abused the trust of their official positions in obtaining the Coleman stock. The trial court determined to submit to a vote of the stockholders the question of whether or not the Coleman du Pont stock should be acquired by the du Pont Company. In the ensuing proxy battle, the Pierre S. du Pont group won.

Thus, Christiana at its inception held 91,491 shares of the du Pont common stock amounting to approximately 27% of the du Pont's outstanding common shares. The evidence shows that commencing with the original acquisition of the Coleman stock, this percentage has continued throughout the years and that substantially all the stock now held by Christiana traces directly to the stock transactions occurring in 1915. No additional or other acquisitions of du Pont stock have been made by Christiana, and the evidence shows that a majority, or 68% of the outstanding Christiana stock has been held continuously by Pierre S. du Pont and the members of the du Pont family, either directly or through Delaware.

In 1923 Pierre S. du Pont, having retired from active business life, decided to invest in an annuity to provide himself and his wife with an appropriate income. His decision to buy an annuity was based in part on the favorable tax treatment granted annuities under the existing tax laws. Pierre S. du Pont being unable to find a standard life insurance company which would offer him an arrangement not involving the sale of his stockholdings which event would depreciate the value of his estate, a group of his brothers and brothers-in-law offered to sell him an annuity.

In 1923 Pierre S. du Pont transferred the bulk of his holdings in Christiana consisting of 49,000 shares, together with 24,000 shares of du Pont common, and other stock in other companies to Delaware Realty & Investment Corporation, which was specifically organized to hold the same and pay him and his wife an annuity for life. The common stock of Delaware was then divided into eight equal shares for Pierre S. du Pont's eight brothers and sisters or their families.

The evidence shows that the stock of Delaware up to the date of the filing of the complaint has continued to be wholly owned by the members of the du Pont family and in many instances transfers were made through the formation of trusts. Delaware also holds 49,000 shares of Christiana, being Pierre S. du Pont's previous holdings, which constitutes about 32% of the outstanding Christiana stock.

On March 29, 1944 E.H. Tinney, Secretary of Delaware, submitted a memorandum to members of the Advisory Committee of Delaware Realty and Trust dealing primarily with tax considerations on the advisability of liquidating that corporation. In addition to the tax factor, he stated:

    "Liquidation would afford greater flexibility,
  including better marketability, and permit
  diversification. Without liquidation, the
  stockholders are practically compelled to go
  along together; whereas if liquidated each
  stockholder could do as he thought best suited
  his individual purpose. There is no certainty
  whether those factors would in the final analysis
  represent reasons for or against liquidation.
    Delaware Realty, at least to some extent,
  facilitates control of the du Pont and General
  Motors industries. While liquidation would not
  eliminate this immediately, it would weaken it;
  more particularly with the passage of time." (GTX
  1335.)

There is no evidence that Tinney knew anything about the relations between du Pont and General Motors and no evidence that he knew anything about the intentions of the individual defendants or other members of the du Pont family or that he was acquainted with their state of mind as it related to Delaware. Pierre S. and Irenee du Pont both testified that Delaware was not organized for the purpose of controlling du Pont or General Motors as charged by the Government and that it was not used for that purpose. Similar testimony was given by other individual defendants. Having heard the testimony of these witnesses, the Court finds their testimony more persuasive than the statement of opinion made by Tinney.

Defendants admit that Christiana holds 3,049,800 shares of du Pont common stock out of 11,158,340 outstanding du Pont stock, equivalent to 27%; that Delaware holds 304,480 shares of du Pont common stock, or 3%, of the outstanding du Pont stock; that defendant individuals and certain members of the du Pont family, who are either officers or directors of du Pont, own a further block of approximately 5.3% of the stock of du Pont; while other members of the du Pont family, who are not officers or directors of du Pont, own directly a further 2.2% of the stock of du Pont. Du Pont common stock at the time the complaint was filed was held by 82,000 shareholders.

It is also admitted that 30% of the outstanding du Pont common stock held by Christiana and Delaware has been consistently voted as a block always in support of du Pont management at du Pont stockholder meetings, that directors of Christiana have in most instances been directors and officers of du Pont, and that defendant individuals, younger members of the du Pont family and officers and directors of Delaware have assumed major responsibilities in du Pont management.

There is no evidence that either Christiana or Delaware, or both of them, had voting control of du Pont. However, the fact that the du Pont family had voting control of Christiana and Delaware whose du Pont stock is consistently voted as a block in favor of du Pont management, coupled with the fact that for many years members of the du Pont family have been major executives of the corporation, indicates control of management of du Pont by the du Pont family.

General Motors Corporation

In the spring of 1914 Pierre S. du Pont purchased approximately 2000 shares of General Motors upon the recommendation of John J. Reskob. His personal holdings from 1914 to 1917 are set forth in GTX 114. Irenee du Pont purchased 400 shares of General Motors in 1914 on the expressed enthusiasm of John J. Reskob, but did not know his brother had done the same, His personal holdings from 1914 to 1917 are set forth in GTX 115. He attended no General Motors meetings during this period.

General Motors was organized in 1908 by W.C. Durant and had acquired a number of previously independent automobile manufacturing companies — Buick, Cadillac, Oakland and Oldsmobile. In 1910 in order to raise needed working capital Durant had been compelled to borrow $14,000,000 from a group of "Boston" bankers under a voting trust agreement which supplanted Durant as President by Charles W. Nash, and gave control of the Board of Directors for five years to said bankers. Upon leaving the active management of General Motors, Durant and close associates incorporated the Chevrolet Motor Company to manufacture a new low-priced car. The Chevrolet Motor Company bought stock of General Motors until in 1916 it owned 450,000 shares of common stock out of 825,000 outstanding.

About September 1915 Pierre S. du Pont and John J. Raskob became actively involved in the affairs of General Motors when both attended a stockholders meeting at the invitation of Mr. Kaufman, who was president of the Chatham & Phoenix National Bank of New York. At this meeting, Durant and the lending bankers, who were operating General Motors under the voting trust agreement which expired in 1915, became deadlocked on the composition of a new Board. A compromise was reached whereby both sides agreed that each name seven candidates and Pierre S. du Pont was empowered to name three neutral directors not connected with either Durant or the lending bankers. Pierre S. du Pont submitted the names of J.A. Haskell, who had been a vice-president of du Pont for many years and now retired; John J. Raskob, Treasurer of du Pont; and Lammot Belin, his brother-in-law. These were accepted by both factions. Pierre S. du Pont was elected Chairman of the Board.

Durant extended an invitation to Pierre S. du Pont and John J. Raskob to become members of the General Motors Finance Committee, which invitation was declined, and in October 1916 both declined chairmanship of that committee. In January 1916 Durant offered Pierre S. du Pont and Raskob the opportunity to exchange their General Motors holdings for Chevrolet Motor stock on the basis of five shares of Chevrolet for one share of General Motors, which offer was declined. Raskob stated "we were not sure he had control of the General Motors Company and being in the position of neutral directors, we might be charged with taking sides should we do anything which would tend to give one side or the other control of the Company." (GTX 119.) After it became clear in May 1916 that Durant, through Chevrolet Motors holdings in General Motors, had obtained control of General Motors, Pierre S. du Pont and Raskob availed themselves of the offer which Durant had held open for them, and as a result Pierre S. du Pont and Raskob became large holders in Chevrolet Motors which controlled General Motors.

In August 1917, Pierre S. du Pont and Raskob accepted Durant's invitation to become members of the General Motors Finance Committee, and Durant suggested that the "Wilmington people, as he called it, take more stock and more interest in the General Motors Corporation." (Pierre S. du Pont 1997.) After Pierre S. du Pont and Raskob became members of the Finance Committee both saw a "good deal" more of Durant and he talked freely to them about operations and finances of General Motors and plans for its future expansion.

Shortly prior to December 19, 1917, Raskob talked with Pierre S. du Pont with respect to a proposed company investment in General Motors. Raskob prepared a draft report in connection with this proposal which was reviewed and approved by Pierre S. du Pont and discussion was had between them regarding parts of the report. Raskob proposed to Pierre S. du Pont that he take on the promotion of such a plan with the du Pont directors and it was submitted in final form as a Report of the Treasurer to the Finance Committee of du Pont. On December 21, 1917 the Executive and Finance Committees of du Pont approved the acquisition of common stock in General Motors and Chevrolet Company in the amount of $25,000,000.

General Industries, Inc., all of whose stock was held by du Pont, was formed to acquire the General Motors stock. By March 8, 1918 General Industries, Inc., had purchased approximately 23% of the common stock of General Motors and Chevrolet. During the next two years the investment was increased to approximately $49,000,000 and in 1920 du Pont owned approximately 23.96% of the outstanding stock of General Motors.

The Raskob report submitted to the Finance and Executive Committees of du Pont in connection with the proposed purchase of General Motors and Chevrolet stock summarized the following points in favor of a substantial investment in the motor industry:

    "1. With Mr. Durant we will have joint control
  of the companies.
    "2. We are immediately to assume charge and be
  responsible for the financial operation of the
  Company. This involves the direction of cash
  balances which will aggregate upwards of
  $25,000,000 and the handling of annual gross
  receipts aggregating $350,000,000 to
  $400,000,000. From a financial standpoint, I feel
  that a consolidation of the financial divisions
  of the du Pont and General Motors Companies will
  be of tremendous advantage to us as well as to
  the General Motors Company and is a thing to be
  sought and desired from our standpoint.
    "3. The du Pont Company, if the Class A stock
  is sold to the stockholders, will share in the
  profits of the industry to an extent equal to
  120% on our investment and will receive 14% in
  annual dividends thereon; or in the event of
  carrying Class A stock in our Treasury the
  dividend rate will be about 12.6% and will share
  in the earnings about 42% and this after paying
  $20,000,000 war taxes.
    "4. Our purchase is on better than an asset
  basis.
    "5. Our interest in the General Motors Company
  will undoubtedly secure for us the entire
  Fabrikoid, Pyralin, paint and varnish business of
  those companies, which is a substantial factor.

Management

    "Perhaps it is not made clear that the
  directorates of the motor companies will be
  chosen by Du Pont and Durant. Mr. Durant should
  be continued as President of the Company, Mr.
  P.S. du Pont will be continued as Chairman of the
  Board, the Finance Committee will be ours and we
  will have such representation

  on the Executive Committee as we desire, and it
  is the writer's belief that ultimately the Du
  Pont Company will absolutely control and dominate
  the whole General Motor's situation with the
  entire approval of Mr. Durant, who, I think will
  eventually place his holdings with us taking his
  payment therefor in some securities mutually
  satisfactory. * * *" (GTX 124.)

Announcement of the purchase was made in the annual report of du Pont to its stockholders as follows:

    "Announcement was recently made of the
  acquisition of a large interest in the General
  Motors Corporation and Chevrolet Motor Company.
  Though this is a new line of activity, it is one
  of great promise and one that seems to be well
  suited to the character of our organization. The
  motor companies are very large customers of our
  Fabrikoid and Pyralin as well as paints and
  varnishes." (P.S. du Pont 2245.)

Raskob's report, the testimony of Pierre S. and Irenee du Pont and all the circumstances leading up to du Pont's acquisition of this substantial interest in General Motors, as shown by the record, establish that the acquisition was essentially an investment. Its motivation was the profitable employment of a large part of the surplus which du Pont had available and uncommitted to expansion of its own business.

The Government asserts that an agreement was made in 1917 at or about the time of du Pont's investment in General Motors which bound the latter to purchase from du Pont substantially all of its requirements of products of the kind made by du Pont. It also argues that du Pont's investment in General Motors was made with the purpose of using its alleged control of General Motors to require it to buy from du Pont.

The principal basis for both of these contentions appears to be the portion of Raskob's report wherein he stated:

    "Our interest in the General Motors Company
  will undoubtedly secure for us the entire
  Fabrikoid, Pyralin, paint and varnish business of
  those companies, which is a substantial factor."
  (GTX 124.)

The Court has also considered in passing upon these contentions of the Government the testimony of Pierre S. and Irenee du Pont and other documents written at the time of or within a few years following the investment.

The Court finds on the basis of all the evidence of record that no agreement was made in connection with du Pont's investment in General Motors, or subsequent thereto, which bound the latter to buy any portion of its requirements from du Pont. Raskob's report does not describe any such agreement. Pierre S. du Pont was party to the preparation of this report and he testified that he had no knowledge of any such agreement. Irenee du Pont similarly testified that he knew of no such agreement. The Court believes it most unlikely that an agreement of the kind alleged by the Government would have been made without the knowledge of these two important officials. On the General Motors side, neither Sloan nor Pratt was ever advised of any such agreement though both occupied positions under Durant in which they would be expected to have known of one had it existed. No document, either contemporaneous with the making of the alleged agreement or subsequently executed, makes reference even indirectly to an agreement of the kind alleged by the Government. The Court does not find in the actions over the years of du Pont's executives or salesmen or General Motors purchasing personnel corroboration of the existence of the alleged agreement.

The Court also finds based on all of the evidence of record that du Pont did not invest in General Motors with the purpose of restricting that company's freedom to purchase in accordance with its own best interests. Du Pont, the record shows, never intended to preclude General Motors from dealing with suppliers of its choice, never made any effort to so preclude General Motors, and did not limit General Motors' purchasing freedom.

Raskob's reports and other documents written at or near the time of the investment show that du Pont's representatives were well aware that General Motors was a large consumer of products of the kind offered by du Pont. Raskob, for one, thought that du Pont would ultimately get all that business, but there is no evidence that Raskob expected to secure General Motors trade by imposing any limitation upon its freedom to buy from suppliers of its choice. Other documents also establish du Pont's continued interest in selling to General Motors — even to the extent of the latter's entire requirements — but they similarly make no suggestion that the desired result was to be acheived by limiting General Motors purchasing freedom. On the contrary, a number of them explicitly recognized that General Motors trade could only be secured on a competitive basis.

At the time of this investment, Pierre S. du Pont, Haskell and Raskob were members of the General Motors Board and after the investment two additional du Pont nominees were elected to that Board. In 1919 the Board was increased to twenty members and the du Pont nominees remained at six.

The Finance Committee consisted of seven members, five of whom were du Pont representatives — Pierre S. du Pont, Irenee du Pont, John J. Raskob, Henry F. du Pont, and J.A. Haskell. Mr. Raskob was appointed chairman. It is apparent, and it is admitted, that a majority of this committee were officers and directors of du Pont.

The Executive Committee consisted of ten members, including one du Pont nominee, J.A. Haskell, with Durant as chairman and the other members consisting of management representatives.

The evidence establishes that following the period of this investment until 1920 du Pont and Durant jointly controlled General Motors and that du Pont, through its affiliation with Durant, assumed the responsibility for the financial operation of General Motors.

During 1918 and 1919 General Motors acquired the assets of the Chevrolet Company, United Motors, which was an amalgamation of a number of accessory companies, the McLaughlin Buick properties in Canada, and a sixty per cent interest in Fisher Body Corporation. This expansion of General Motors had required the raising of new capital.

The Board of Directors of General Motors in 1920, after a previous unsuccessful effort to raise the necessary additional capital by an issue of seven per cent debenture stock, authorized an issuance of approximately 3,200,000 shares of new common stock to the common stockholders at $20 per share. It was also decided that du Pont and Durant would turn over their stock subscription rights amounting to 1,800,000 shares to Nobel and Canadian Explosives, Ltd., since Durant and du Pont were reluctant to make any further investments. J. P. Morgan & Co. subscribed to 600,000 shares of the new issue and one of its partners was named to the Board, together with representatives of Nobel and Canadian Explosives. The stock acquisitions of Nobel and Canadian Explosives were in large part taken over by du Pont at a later date.

The evidence shows that this new issue was accompanied by the formation of a syndicate managed by J.P. Morgan to buy and sell General Motors stock and subscription rights for the purpose of supporting the value of General Motors stock in the market. During the Fall of 1920, Durant, through individual stock market operations apparently designed to support the market price, had become indebted in the amount of $27,000,000 to various banks and brokerage houses for which he had pledged some 2,700,000 shares of General Motors stock. These stock market investments by Durant were disclosed to Pierre S. du Pont and Raskob in November and alarm was felt as to the possible consequences in the event Durant failed in the market. Du Pont Securities Company was organized to borrow $20,000,000 and take over Durant's loans, pay his creditors and preserve for him a 40% equity in du Pont Securities stock, which was later exchanged for 230,000 shares of General Motors stock. The new company had seven million dollars in cash and loaned 1,376,000 shares of General Motors stock to borrow the balance needed. Du Pont in 1921 authorized a bond issue in order to finance the transaction.

The net result of the foregoing stock transactions was that du Pont owned, through du Pont Securities, the equivalent of 7,362,540 shares of General Motors stock at a cost of $75,581,259 and in addition owned directly 200,000 shares acquired at a cost of $4,000,000; being the equivalent of approximately 38% of General Motors stock outstanding.

In 1923 du Pont sold about 2,250,000 shares of General Motors stock (substantially the amount acquired through the 1920 stock transactions) to Managers Securities, a corporation organized by General Motors for the purpose of providing additional incentive to principal executives of General Motors. Du Pont began to surrender the voting rights on this stock in 1930, and from time to time thereafter surrendered such rights as holders of Managers Securities stock surrendered their stock and took down the underlying securities. By 1938 du Pont had surrendered the voting rights on all of this stock. It is admitted that since the release of the voting rights to such stock, du Pont has for many years owned 10,000,000 shares, or approximately 23% of General Motors common stock, and that the remaining shares in 1947 were held by 436,510 stockholders, 92% of whom owned no more than 100 shares each and 60% owned no more than 25 shares each. In 1950 a two for one split was effected resulting in du Pont holding 20,000,000 out of 88,000,000 shares, which did not change the percentage of du Pont holdings.

At the conclusion of the 1920 events Pierre S. du Pont became president of General Motors. He was urged to accept this position by the du Pont Finance Committee since du Pont had a large investment in General Motors to protect. In addition, the record discloses that he was urged to assume the presidency of General Motors by the bankers, by Sloan, and by others in the management.

Pierre S. du Pont held the presidency of General Motors until May 1923 when Alfred P. Sloan became president.

During Pierre S. du Pont's term of presidency significant and important changes were effected within General Motors. These were:

(1) A plan of reorganization for General Motors providing for substantial autonomy of the operating divisions of General Motors. The evidence shows that Pierre S. du Pont presented to the Board a plan, originated by Sloan during Durant's presidency, to decentralize the General Motors divisions.

(2) Certain changes in management and in the personnel of the Executive Committee were made. Under Durant the ten man Executive Committee consisted of managers of the operating divisions. In 1921 the Executive Committee was reduced to four members. They were Pierre S. du Pont, the President; Haskell and Sloan, heads of the Line and Staff Divisions; and John J. Raskob, Chairman of the Finance Committee. This four man committee was enlarged to six in 1922 by the addition of Charles Fisher, a General Motors director, and C.S. Mott, also a General Motors man. Durant started a competing automobile company and the question of loyalty on the part of some of the car division managers to Durant was one of the reasons for reconstituting the Executive Committee.

The Finance Committee of General Motors remained the same except the Durant vacancy was filled by Donaldson Brown, a former du Pont employee who was also a member of du Pont's Finance Committee.

(3) A General Purchasing Committee was created in 1922. This committee was created at the suggestion of Sloan in order to enable General Motors to set up machinery for standardizing items and for coordinating purchases where two or more divisions used a common product. James Lynah, who left employment of du Pont in 1919 under "acrimonious" circumstances, was appointed secretary by Sloan and the committee was composed principally of purchasing agents of the General Motors divisions. It is this committee which in September 1923 with Lynah's recommendation urged the adoption of a rule requiring a second source of supply for leather substitutes and rubber coated fabrics which were being purchased in large quantities from du Pont. John L. Pratt, who was a du Pont employee from 1905 to 1919 when he resigned and went to work for Durant at General Motors, also became a member of this committee and was its chairman from 1924 to 1929.

(4) In 1918, during the Durant regime, at the suggestion of the du Pont nominees, General Motors initiated a bonus plan to outstanding employees. Before retiring as president, Pierre S. du Pont recommended that another plan be instituted providing for additional compensation to principal executives of General Motors.

Allotment of bonus awards was made by the Chief Executive Officer of General Motors subject to the approval of the Finance Committee. This procedure was followed until 1936 when a Bonus and Salary Committee of the Board replaced that function of the Finance Committee.

In addition to these changes in General Motors, two important discoveries affecting the automotive industry occurred.

In the latter part of 1920 Edmund M. Flaherty, an employee of du Pont, invented and carried to the commercial development stage a quick-drying, durable nitrocellulose lacquer, which was patented and called "Duco".

The other was the discovery of tetraethyl lead. In 1918 General Motors engaged in an extensive investigation into the nature and the causes of "knocking" in engines. In the General Motors laboratories chemical research under the direction of Charles F. Kettering and Thomas Midgely developed that the use of tetraethyl lead blended with gasoline in proper proportions constituted an effective anti-knock. It was further revealed that TEL, as it was called, was a scarce and expensive product, production of which was extremely hazardous. General Motors discovered that TEL could be produced commercially from ethyl bromide. In 1922 General Motors and du Pont entered into an agreement under which du Pont manufactured TEL and it was distributed through a General Motors subsidiary organized to handle its marketing.

The record shows that during the 1920 to 1923 period du Pont had a 38% interest in the stock of General Motors. Three of the six members on the Executive Committee and seven of the eleven members on the Finance Committee were du Pont men. Haskell, former sales manager and vice-president of du Pont, who was willing to undertake the responsibility of keeping du Pont informed of General Motors affairs during Durant's regime, was Vice-President in Charge of the Operations Committee.

On April 24, 1923 Pierre S. du Pont informed the Finance Committee of du Pont of his desire to retire as president of General Motors and of his intention to recommend Alfred P. Sloan, Jr., as his successor. Sloan was a vice-president of General Motors and was in charge of the General Advisory Staff. He had been president of Hyatt Roller Bearing Company, one of the companies controlled by United Motors, which had been organized in 1916 by Durant. When General Motors acquired United Motors, Durant appointed Sloan as its president. The Finance Committee of du Pont adopted a resolution acquiescing in Pierre S. du Pont's decision and expressing confidence in Sloan as his successor to the presidency. Thereafter, Pierre S. du Pont informed the directors of General Motors of his intention to resign and of his recommendation of Sloan for president.

On May 10, 1923 Sloan was elected president of General Motors and also was its Chief Executive Officer from 1937 until 1946. William S. Knudsen was elected president May 3, 1937 and served as such until September 3, 1940. In 1941 Charles E. Wilson was elected President and also became the Chief Executive Officer in 1946. Shortly after Sloan became president he was elected a director of du Pont.

Board Members

On May 10, 1923 when Sloan became president, the Board consisted of thirty-two directors. The evidence shows that during the period of Sloan's presidency and that of Wilson, the du Pont nominees on the Board never exceeded six. The total number of members of the Board between 1949 and February 1, 1953 did not exceed thirty-two and was not below thirty.

Of the thirty-two directors when Sloan became president, sixteen were so-called management directors and only two of these had been connected with du Pont — Donaldson Brown and Haskell. The other then management directors were five bankers, three American industrialists and two foreign industrialists.

Sir Harry McGowan of Imperial Chemicals, William McMaster of Canadian Explosives, Seward Prosser of Bankers Trust Co., Edward P. Stettinius of J.P. Morgan, William H. Woodin of American Car & Foundry, C.M. Woolley of American Radiator, and Owen D. Young of General Electric, all became members of the Board during the 1920 financing. There is no evidence that they were added at the suggestion of the du Pont nominees.

The defendants have admitted that in 1942 du Pont suggested additional directors who were neither management nor du Pont nominees. At that time there were only three directors on the Board who were neither management nor du Pont nominees.

In July 1944 Carpenter wrote to Sloan urging selection of additional non-management and non-du Pont directors. Sloan testified he took the initiative in attempting to find qualified men who would be willing to serve. He also testified that in such search he sought suggestions from other members of the Board, including du Pont nominees, and discussed generally with all Board members the suggestions received.

In 1943 Sloan wrote to Carpenter, who was a member of the General Motors Board, that in his search for "outside" directors, he was "against Bankers on Boards of industrial companies" and had therefore eliminated the suggestions of Henry C. Alexander, Vice-President of J.P. Morgan, and R.K. Mellon, President of Mellon National Bank, whose names had been proposed by Carpenter some time previously. On January 8, 1948, five years later, R.K. Mellon was named to the Board of General Motors. at the suggestion of Donaldson Brown. Mellon had by this time become "a very large stockholder in General Motors". In 1949 at the request of Sloan, Alexander, the other banker, was added to the Board. Thus some period of time passed between Sloan's indicated aversion to bankers on boards and the subsequent appointments.

In addition, on December 18, 1944, Lammot du Pont wrote to Sloan regarding Bernard Peyton, a nephew of Eugene du Pont who owned 60,000 shares of du Pont common "which is more than enough to give him a predominating interest in the affairs of that company and indirectly in General Motors." (GTX 1230.) Lammot du Pont wondered if "this would be a suggestion for consideration from the standpoint of directorship in General Motors". Sloan's reply admitted that neither he nor Donaldson Brown, to whom he spoke about Peyton, knew Peyton, and replied that if Peyton was the owner of a large block of du Pont common involving indirectly substantial ownership in General Motors, together with his past business experience as Vice President and Treasurer of New York Air Brake Company, he would be qualified. He further stated that if necessary he would make inquiries regarding Peyton, but felt that since Lammot du Pont knew him no more was needed. In any event, Peyton never became a member of the Board.

On December 10, 1945 Sloan wrote to Carpenter, then President of du Pont and a member of the General Motors Board, regarding the suggestion of Mr. Pratt to consider General Marshall as a member of the General Motors Board, and indicated that he did not favor the suggestion. A reply came from Lammot du Pont, Chairman of the Board of du Pont and also a member of the General Motors Board, that he was not in favor of General Marshall's membership. On Sloan's letter to Carpenter, there appears a handwritten notation of the name of "E.F. Johnson", and in the following month Johnson was elected a director of General Motors. Prior to his service with General Motors, he was an employee of du Pont.

On April 22, 1930, in an exchange of correspondence, Lammot du Pont agreed with Sloan's suggestion that Mr. Bishop should not be re-elected a vice-president of General Motors but thought he should be retained as a director, and suggested further that Curtis C. Cooper, who had severed connections with the corporation, be dropped as a director. On May 1, 1930 Mr. Bishop was not re-elected Vice-President but continued as a director, and Mr. Cooper was not retained as a member of the Board.

In 1928, Raskob, while chairman of the General Motors Finance Committee became Chairman of the National Democratic Committee in connection with the candidacy of Alfred E. Smith for President. Sloan testified he considered it unsound for Raskob to manage a political campaign and at the same time continue as "unofficial" spokesman for General Motors because he felt it put General Motors in politics. Raskob differed with Sloan's view and was supported by Pierre S., Irenee, and Coleman du Pont. The episode resulted in Raskob's resignation and also the resignation of Pierre S. du Pont as Chairman of the Board. Both, however, remained as members of the Board and the Finance Committee. Lammot du Pont succeeded Pierre S. du Pont as Chairman of the General Motors Board and held that position until 1937.

Mr. Sloan testified that he discussed prospective directors, particularly "outside" directors, with the entire Board.

A majority of the directors have always been the nominees of management. Sloan testified that management directors were always nominated by him when they had achieved in the management hierarchy of the corporation a position which entitled or required that they be on one of the committees of the Board, and further that he never discussed these nominations with anyone except the management group and after his recommendation their election was automatic. Sloan and Carpenter testified that no du Pont nominee ever objected to the number of management directors which Sloan wanted on the Board.

Committees of the Board

The Executive Committee, until merged with the Policy Committee in 1937, dealt with operational management problems. In May 1923 when Sloan became president of General Motors there were six members, three of whom were du Pont representatives, i. e., Pierre S. du Pont, Chairman of the Board, John J. Raskob, Chairman of the Finance Committee, and Donaldson Brown, a member of the Finance Committee. The membership of this committee was increased to twelve during the period 1923-1934, and new members were added at the suggestion and request of Sloan.

It is the Government's contention that du Pont directly intervened in decisions touching on changes in the membership of the Executive Committee and refer to the incident following the resignation of Raskob and Pierre S. du Pont from the Executive Committee. Irenee du Pont, then Vice-Chairman of the Board of du Pont wrote to Lammot du Pont, Chairman of the Board of General Motors, reminding him of the recommendations made by Pierre S. du Pont and Raskob for their vacancies — that Knudsen be placed on the Executive Committee for Raskob, Mr. Mooney in place of Mr. Mott, and possibly Walter Carpenter in place of Pierre S. du Pont. Knudsen was placed on the Executive Committee within three months; Mooney became a member of the Executive Committee some six years later; and instead of Carpenter, Lammot du Pont took Pierre S. du Pont's place on that committee. Neither Knudsen nor Mooney was connected with du Pont.

On April 22, 1930 Sloan received a reply from Lammot du Pont, then Chairman of the Board of General Motors, which approved of Sloan's idea expressed in an earlier letter of abolishing the Operations Committee and of placing its members on the Executive Committee. Lammot du Pont went on to say this meant that Bradley, Grant, Hunt and Wilson, all of whom were vice-presidents, would have to become members of the Executive Committee and presumably would have to be elected directors, but added there was no reason why Glancey, Reuter and Strong, who were also vice-presidents, should be added to the Board. Some four or five years later, 1934 and 1935, Bradley, Hunt and Wilson were-added to the Executive Committee and to the Board. The others mentioned by Lammot du Pont never became directors.

Lammot du Pont, Chairman of the General Motors Board, who had become a member of the Executive Committee in 1930, resigned as a member in 1934. In this connection Sloan wrote to Lammot du Pont inquiring whether Lammot du Pont would like to have Carpenter elected in his place. The evidence shows that Carpenter did not go on the Committee and no one replaced Lammot du Pont. After his resignation, du Pont had no representative on the Executive Committee. Donaldson Brown remained a member of this committee.

The Finance Committee until merged with the Policy Committee in 1937 dealt primarily with financial matters. In 1923 of the eleven members, seven were du Pont men. These were Pierre S. du Pont, Chairman of the Board of du Pont, Irenee du Pont, President of du Pont, Lammot du Pont, Vice President and a director of du Pont, John J. Raskob, a director and member of the du Pont Finance Committee, J.A. Haskell, a vice-president and director of du Pont, H.F. du Pont, a director and member of the Finance Committee, and Donaldson Brown, a director and member of the Finance Committee of du Pont. With the death of Haskell in 1923, the du Pont representation was reduced to six. The Finance Committee in 1923 with continuing du Pont representation reflected the original understanding with Durant that in financial matters the du Ponts would assume the primary responsibility.

In 1924 this committee was increased to twelve and eventually to fourteen. In 1927 Carpenter became a member of this committee.

With the resignation of Raskob from the Executive Committee and Chairmanship of the Finance Committee, Lammot du Pont, then President of du Pont and a director of General Motors, wrote to Sloan regarding the chairmanship of this committee stating that he felt it was up to du Pont to make a nomination since du Pont "has always assumed the responsibility for the financial direction of General Motors" and suggested the appointment of Carpenter and, if not agreeable, Donaldson Brown. The record shows that Donaldson Brown succeeded Raskob as Chairman.

On May 3, 1937, the membership of the Finance Committee was fourteen, seven of whom were du Pont representatives, i. e., Pierre S., H.F., Irenee, and Lammot du Pont, Raskob, Brown and Carpenter. The other members were Baker, Prosser, Sloan, Whitney, Morgan, Mott and Bradley. Sloan testified that most of the additions to this committee during the period 1923-1937 had been at his suggestion.

In 1937 at the insistence of Sloan, the two committee operation was consolidated into the Policy Committee. Sloan testified that the change was desirable because experience proved that the Finance Committee for some years prior to 1937 had dealt with problems which though financial in nature were operating problems as well. After some discussion, his recommendation was accepted and a Policy Committee which had complete authority to deal with broad policy questions was established. At this time Sloan resigned as President and was succeeded by Knudsen. Sloan remained the Chief Executive Officer and Chairman of the Board.

The one committee idea had been discussed with du Pont representatives. It was considered by the Finance Committee of du Pont and the committee was in favor of the objectives of the proposal, but misgivings were expressed with respect to the discontinuance of the Finance Committee without creating some body whose particular function would be the handling of financial problems. A proposed compromise plan was submitted which was not adopted.

In connection with the 1937 reorganization, Lammot du Pont wrote to Carpenter reporting on a conference held in New York. Those present, including himself, were Alfred Sloan, Donaldson Brown, J.T. Smith, John Raskob, John Pratt and Pierre S. du Pont. At this conference it was agreed that the Board would be reduced to 28 omitting McGowan, H.F. du Pont, W.A. Fisher, Kaufman, Opel, Swayne, Woolley and Young; a Policy Committee would be appointed consisting of Bradley, Brown, Knudsen, Sloan, Smith, Wilson and three representatives of du Pont; and an Administrative Committee would be appointed with Wilson as Chairman. In addition it was agreed that eventually Sloan should become Chairman of the Board and Knudsen, President. Lammot du Pont stated that Sloan seemed so insistent on his one committee idea, which was concurred in by the others, that he felt any objections Carpenter or he had should be waived in view of the fact that some other man of financial experience from du Pont might be named on the Policy Committee.

The record shows that during the life of the Policy Committee, continued misgivings were expressed as to its efficacy. Sloan, Carpenter and Lammot du Pont exchanged correspondence with reference to the weaknesses disclosed by operating under the Policy and Administration Committees. Sloan had reached the conclusion that the committee set up should be altered. In writing to Donaldson Brown, Sloan stated "we put too many things on the Policy Committee that involve administration and do not confine their work sufficiently to broad questions of policy." In addition, Sloan in his correspondence with Lammot du Pont stated that the General Motors Organizational scheme of things was not adaptable to the same type of organizational set up existing in du Pont. A change in committee organization was effected in 1946 by a return to the two committee plan: one was the Financial Policy Committee and the other the Operations Policy Committee. Mr. Sloan testified as to the considerations evoking a return to this system. He also testified that the reason correspondence evidence existed with the du Pont group and none with the management group of directors was that the management group was in the same office and these matters of organization changes were discussed orally with them.

The Policy Committee always consisted of nine members. During the entire period of this committee the following du Pont officers and directors, not including Sloan, were members: Donaldson Brown, Carpenter and Lammot du Pont. The management members were Bradley, Sloan, Smith, Wilson and Knudsen, who was replaced by Hunt in 1940 on the nomination of Sloan. The other member was George Whitney of J.P. Morgan. With the exception of Knudsen, the personnel of this committee remained the same throughout its life.

In 1943 Sloan wrote to Lammot du Pont asking his reaction to the suggestion of Kettering as a member of the Policy Committee. Lammot du Pont did not favor the suggestion and Kettering was not appointed. Testifying regarding this incident, Sloan stated that others agreed with Lammot du Pont, including himself after giving the subject further consideration. Sloan also testified that he consulted with all the directors regarding the appointments to the Policy Committee.

In 1946 with the change of committee organization, there were no du Pont representatives on the Operations Policy Committee. The Financial Policy Committee started with nine members and was later increased to ten. At no time during its existence were there more than three du Pont representatives on this committee.

The evidence shows that since 1934, with the exception of Donaldson Brown, no du Pont representative was on the Executive Committee. Brown had been described by Sloan as a General Motors man although he was a former officer of du Pont, retained his membership on its Board and its Finance Committee when he went to General Motors. Brown became a part of the General Motors organization in 1921 when Raskob in a letter to Irenee du Pont, who was then President of du Pont, wrote that General Motors needed expert financial assistance and that the person selected should not only be a man of unquestioned ability but one who enjoyed the absolute confidence of the directors of du Pont, which now controlled General Motors. He recommended Donaldson Brown and stated that since the financial interests of both companies were so closely interwoven, Brown should be retained as a director and member of the Finance Committee of du Pont. Brown eventually succeeded Raskob in General Motors and became chief financial advisor to its president.

There is no evidence that Brown was active in commercial relations between du Pont and General Motors or that he ever did anything to encourage the use of du Pont products by General Motors.

During the life of the Policy Committee, of a membership of nine, three, including Brown, were du Pont representatives. There were no du Pont representatives on the Operations Policy Committee.

On the Finance Committee, which was changed to the Policy Committee in 1937, there were seven du Pont representatives, including Brown, in a total membership of fourteen. Of the ten members on the Financial Policy Committee in 1946, three were du Pont representatives. Thus, numerically, the du Pont representatives were not in a majority on the governing committees of General Motors. The record shows that during 1941 du Pont was interested in the retention and placing of able personnel in the financial departmert of General Motors.

The Court finds it highly significant that in all of the correspondence regarding General Motors directors the attitude of the suggested nominee toward du Pont was in no instance a consideration in his approval or disapproval. Accordingly, the Court finds, based on all the evidence, that du Pont's participation in the selection of General Motors directors and management does not establish that it controlled General Motors or that it sought through such participation to place people in General Motors who would further du Pont's interests as a supplier or as a chemical manufacturer.

Bonus Plans and Awards

The record shows that in 1923 du Pont sponsored and supported the Managers Securities Plan. The idea had been suggested by Pierre S. du Pont, then President of General Motors, and the details, with some variations before the final adoption, are set forth in a report prepared by Raskob and Brown. This report was submitted to the du Pont Finance Committee and stated that Pierre S. du Pont's interest in the plan caused the report to be made. The report stated that Pierre S. du Pont felt that the most effective manner of attaining maximum success in the conduct of the affairs of General Motors was to interest its principal men as substantial stockholders or partners in the business, that du Pont with its large and controlling interest in General Motors would enhance the value of its own investment by the adoption of such a plan in General Motors and would retain the same control of General Motors through owning two-thirds of the stock of General Motors Securities Company, plus the fact that "it will definitely tie up with us in the management and control of this huge investment the men in General Motors Corporation who are definitely charged with the responsibility and success of the corporation." (GTX 235.)

Managers Securities Corporation was organized by General Motors to purchase 2,250,000 shares, or approximately one-third of the common stock of General Motors Securities Company, the du Pont Company which held 7,500,000 shares of common stock in General Motors. Du Pont from time to time surrendered voting control of the 2,250,000 shares until 1938 when the successor corporations, General Motors Securities, was liquidated.

In the course of evolving this additional compensation plan, the evidence shows that Irenee du Pont had certain objections and suggested that the stock for Managers Securities be procured through circularization of General Motors stockholders. Mr. Laffey, Chief Counsel for du Pont, advised Irenee du Pont that a direct sale of the stock to General Motors would have incurred a federal capital gains tax. Irenee du Pont testified to this as one of the considerations for the plan ultimately adopted. The plan originally proposed by Raskob and Brown, and objected to by Irenee du Pont, was retained and du Pont supplied the stock which was the sole asset of Managers Securities. The Managers Securities common stock was sold to General Motors and resold by it to about eighty of its executives.

The executives purchasing Managers Securities stock paid one-seventh of the purchase price in cash and the balance was paid on a deferred payment basis out of future bonuses and out of the earnings of the stock purchased.

The Board of Directors created a committee which was empowered to designate the employees of General Motors who were to participate in the Managers Securities stock. This committee consisted of three members — Pierre S. du Pont, Chairman of the Board, and two other directors, Seward Prosser of J.P. Morgan, and Arthur G. Bishop, President of a Flint, Michigan, bank.

Sloan testified the stock allotments were made and determined by the special committee, then submitted to him as Chief Executive Officer for consideration and recommendation in the way of changes in the allotments. The initial awards of Managers Securities stock were made November 22, 1923 when Pierre S. du Pont wrote to the two other members of his committee making suggestions as to the distributions of stock. Sloan testified that the original allotment by the committee was made before submission to him, that Exhibit GM 30 contained the final allotment after submission to him, and showed the changes he had made.

Pierre S. du Pont testified the general method followed in bringing to the Special'Committee recommendations for allotments for General Motors personnel of Managers Securities stock was that allotments were initiated by heads of the different departments of General Motors in a recommendation to the president of the corporation, who expressed his opinion thereon and passed the entire recommendation to the committee of three and so far as he knew no recommendation was changed by the committee after it came from Sloan. Sloan testified that bonuses were distributed by the Chief Executive Officer of the corporation whose recommendations went before the. Finance Committee for approval. He further testified that although the chief executive officer had jurisdiction so far as the higher executives of the corporation were concerned, their compensation came through Managers Securities and he made no allotments to the higher officers since it was automatic and determined by the Special Allotment Committee. With respect to the operation of the bonus plan, he stated that although the responsibility rested with the chief executive officer he could not determine the allotments in the lower echelon of authority. A certain amount was allocated to a division and the chief executive of the division was the responsible agent in distributing the bonus within that division. He then submitted his recommendations to the chief executive officer who in turn submitted them to the Finance Committee until the year 1936 and thereafter to the Bonus and Salary Committee. Sloan testified that he could not remember any instance where the recommendations so made were changed by the Finance Committee or the Bonus and Salary Committee.

In 1923 the Finance Committee of General Motors, which received the recommendations of the Chief Executive, and the heads of the divisions, still reflected the original understanding with Durant that in financial matters du Pont would assume primary responsibility. Du Pont had six representatives in a total membership of eleven. After the membership was increased to fourteen in 1923, there were six du Pont representatives.

For the years preceding 1941 there are no records of the personnel of the Bonus and Salary Committee which replaced the function of the Finance Committee in connection with the compensation plan. From 1941 to 1948, Government Exhibit 276 shows that of the five directors constituting this committee, the majority were du Pont representatives. They were W.S. Carpenter 1941-1944; H.B. du Pont 1944-1948; John J. Raskob 1941-1945; Echols 1946-1948; and Lammot du Pont 1941-1945, who was also its chairman during that period. The other members were John L. Pratt 1941-1946; George Whitney 1941-1948; and E.F. Johnson 1947-1948. Carpenter suggested his position on the Bonus and Salary Committee in 1944 be taken by H.B. du Pont and added that this would give H.B. du Pont "an excellent opportunity to better familiarizing himself with the personnel" of General Motors. (GTX 210.)

Mr. Sloan and Pierre S. du Pont testified that in the allocations made no consideration was given to the purchasing practices or attitudes of any executives toward du Pont.

The Managers Securities Plan as submitted and approved by the General Motors stockholders gave the corporation an irrevocable option to repurchase all or any part of the Class A or B stock and provided that the Finance Committee make a yearly review of the recipients of stock for the purpose of determining whether their stockholdings were disproportionate to the service being rendered, and providing for repurchase of stock in the event it was so found.

The Managers Securities Plan was terminated in 1929 because with the increase in the number of executives it was felt "something had to be done to broaden the scope of the plan." On January 1, 1930 a new seven year plan was developed and General Motors Management Corporation was organized. Du Pont did not provide any of the stock for this new corporation. Upon the expiration of the Management Corporation plan in 1938, General Motors reverted to the old Bonus Plan as the sole vehicle for rewarding its personnel.

The Court finds no evidence that any action taken by du Pont representatives with respect to the compensation of General Motors executives was intended to influence those executives to deal with du Pont or to refrain from dealing with du Pont competitors. Nor is there evidence of any instance in which a General Motors executive favored du Pont out of consideration for the latter's sale of stock to Managers Securities Company or out of deference to the position of du Pont representatives on the General Motors board.

Du Pont for many years has had supplemental compensation plans in various forms. Pierre S. and Irenee du Pont testified that they believed strongly that management should share in the success of a company and should participate in its earnings as owners. Their sponsorship of the Managers Securities Plan was no more than the application to General Motors of a business principle they had long practiced.

The record shows that some du Pont representatives did participate in the determination of the allotments under the Managers Securities plan and the bonus awards. There was opportunity, therefore, for them, in passing judgment on such matters, to attempt to further du Pont interests as a supplier of General Motors and as a chemical manufacturer. However, there is no evidence that any of them made any such attempt. The witnesses who testified and who would have been parties to such efforts vigorously denied the Government's charges. The Court refers to Pierre S. du Pont, Irenee du Pont, and Carpenter. A number of other executives who were witnesses such as Sloan, Kettering, Pratt, Lawrence Fisher, Lynah, and Wilson are among those who would have been "influenced", if the Government's contention is correct. These men, the record shows, acted at all times solely in the best interest of General Motors.

The record as a whole and the findings made in the previous sections of this memorandum support these further findings on the issue of the alleged control of General Motors.

After the dramatic collapse of Durant and the ensuing financial crisis when du Pont representatives were thrust into positions of responsibility in General Motors, and after General Motors had been rescued from that crisis, du Pont's influence and position in General Motors declined radically. During the twenties, a force of considerable strength arose in General Motors that was important in determining any question of control. This force was the management, headed by such a forceful and resolute character as Sloan and including such positive personalities as Kettering, the Fisher brothers, Knudsen, Pratt, Brown, and Wilson.

More than a quarter of a century has passed since the twenties, and the strength and standing of the management have continued to increase and improve. The du Pont representatives who had originally been interested in General Motors have died or retired. These developments are reflected in the contemporaneous documents, the changes in the membership of the board, the various committees of the board, and in the testimony of Sloan and other witnesses.

Irrespective of what its position may have been before and during the Durant crisis, since the 1920's du Pont has not had, and does not today have, practical or working control of General Motors. On the basis of all of the evidence the Court finds as a fact that du Pont did not and could not conduct itself, for the past 25 years, as though it were the owner of a majority of the General Motors stock.

The Government cross-examined Sloan respecting GTX 1307 which shows the percentage that the du Pont stock voted at the annual General Motors stockholders meetings bears to the total stock voted at such meetings. Counsel for the Government sought to obtain from him an admission or concession that du Pont's block of stock was at all times sufficient to prevail at a stockholders meeting. Sloan's position was that he did not believe one could tell what would happen if there was a conflict at a stockholders meeting. He pointed out that, for instance, in the year 1932 there were 17 million shares which were not represented at the meeting and further stated that, if there had been a contest for directors, there would have been a much larger representation than 26 million shares. His conclusion was that he did not think that anyone could tell how that large representation would vote because it would depend upon the issue that caused a particular conflict. He further stated that the stockholders owning those shares would be guided by the record of General Motors Corporation with respect to the advancement of its competitive position, its earnings, and its dividends.

Sloan testified that at no time had there been a contest over the selection of directors. He said that while it was true that the du Pont block of stock represented over 51% of the stock at certain of the meetings he emphasized that it was not 51% of all the stock entitled to vote. In this connection he said:

    "In case of conflict you immediately — the
  interest you arouse and all that, and the issues
  that are put before the stockholders, would mean
  that a much larger percentage of the stockholders
  would come into the meeting, and that would dilute
  in a way the du Pont interest. So I can't just say
  what would happen. * * * It would depend, as I say,
  upon a lot of circumstances that I can't evaluate."
  (3087.)

The Court finds the testimony of Sloan on this question of control both reasonable and persuasive.

United States Rubber Company

It is admitted that in June 1927 the defendant individuals, together with Henry B. du Pont, Lammot du Pont Copeland and certain other members of the du Pont family and their close business associates formed a syndicate to purchase United States Rubber stock. It is the Government's contention that the syndicate's acquisition of this stock stemmed from a scheme to bring United States Rubber into the alleged conspiratorial plan involving General Motors and the du Pont Company. United States Rubber Company at this time was one of the largest manufacturers of rubber products in the United States.

In 1913 Irenee du Pont purchased 400 shares of United States Rubber common as a personal investment. He testified he made this initial investment through his confidence in a former fraternity brother, Raymond B. Price, who had invented a rubber reclaiming process which was sold to United States Rubber, and because he "was quite aware of the peculiar properties of rubber" and felt a "rubber company ought to be a good growing business." He later increased his holdings to 12,000 shares and the extent of his investment from 1913-1926 is set forth in GTX 1029. During this same period, Lammot du Pont had also invested in United States Rubber common without the knowledge of his brother, Irenee.

Irenee du Pont testified as to the background, the reasons and circumstances which caused the formation of the syndicate to buy United States Rubber Stock. He stated that in 1927 the stock took a very "sudden nosedive", but the stock of other rubber companies remained firm; that he believed the drop in price was due to the fact that "somebody knew the position of the United States Rubber Company was not what it ought to be; that there had been mismanagement somewhere, and somebody wanted to get out of it and get into something else"; that the United States Rubber balance sheet showed excessive accounts receivable, and excessive inventories, materials, supplies, and finished products which he thought indicated incompetent financial management. However, he thought this was a good time for a profitable investment in United States Rubber, but since it would have required a larger investment than he could properly go into alone, he discussed the formation of a syndicate to purchase United States Rubber stock with his brother-in-law, William Winder Laird. He testified that he and Laird were of the opinion that if they could get a group to purchase a large block they would establish prestige with the management and be in a position to make suggestions and offer criticisms.

Without discussing the identity of the syndicate members with Irenee du Pont, Laird drew a syndicate agreement. With the exception of Raymond Price and Henry Davis, who were solicited by Irenee du Pont, Laird solicited the other ten members of the first syndicate who were, in the main, clients of Laird's brokerage firm.

Irenee du Pont wired Raymond Price on June 17, 1927, as follows:

    "Would you join syndicate to buy control your
  former company." (GTX903.)

He also sent him a letter reciting the fact that it would be a good plan to organize a syndicate to acquire control. Price accepted the invitation. On June 30, 1927, Irenee du Pont wrote inquiring whether Price would return to United States Rubber if "we should succeed in getting a large block and had a voice in the management". (GTX906.) Irenee du Pont testified this invitation to Price was not to replace anybody with him, since they "were backing the management, not through revamping the management" but supporting the management with the best advice. He stated that the syndicate thought the company would be impressed by the weight of a large stockholder, would get the matter "cleaned up" and as a result the company as a whole would prosper.

The syndicate agreement dated June 30, 1927 recited that the purpose was to acquire common stock in "quantities sufficient to give practical control, or at least a voice in the management". There were twelve persons in the syndicate at its inception. With the exceptions of Price and Henry Davis, all were stockholders in Christiana Securities and four — Irenee, Lammot and H.B. du Pont and W.W. Laird — who subscribed for over half of the amount were Delaware stockholders. Six of the subscribers were directors of the du Pont Company and the rest, with the exception of Price and Davis, were members of the du Pont family. At this time Irenee du Pont was Vice-Chairman of the Board of du Pont and Lammot du Pont was its President. Both were serving on the Finance Committees of the General Motors and the du Pont Company.

A report, addressed to Mr. Laird and presumably undertaken at his suggestion, was submitted on August 4, 1927 by Mr. Lytle on the problems and potentialities of United States Rubber. It was brought to Irenee du Pont's attention and he testified that it confirmed his views of the problems besetting United States Rubber.

A second syndicate was formed September 2, 1927 after the first syndicate had purchased 97,750 shares of United States Rubber stock. The second syndicate was formed in order to admit six additional subscribers. Among them was Pierre S. du Pont, who was Chairman of the Board of du Pont and General Motors, a member of the Executive Committee of General Motors, and also a member of the Finance Committees of du Pont and General Motors. With the exception of H.S. Meeds, Jr., the additional subscribers were Christiana or Delaware stockholders.

By December 9, 1927 the syndicate had purchased 154,750 shares of common stock, or 11% of the 1,379,503 total outstanding shares, both preferred and common, since both had voting rights. Of the 154,750 shares, the defendant individuals and members of the du Pont family, all of whom were stockholders in Christiana or Delaware, held 149,500 shares and the balance of 5,250 shares was held by Henry Davis, Raymond Price, and H.S. Meeds.

In December 1927 the syndicate operation was closed and some 154,000 shares of United States Rubber common were distributed to the syndicate members. Irenee du Pont testified that because they already had the ear of management there was no further need for the syndicate. In connection with the syndicate dissolution, H.B. du Pont wrote to Irenee and Lammot du Pont and other members on December 30, 1927 suggesting a voting trust of the syndicate stock be formed. On January 25, 1928 Henry B. du Pont, in writing to Pierre S. du Pont, indicated that all the members of the syndicate approved the idea and it was agreed that the trustees — Irenee and H.B. du Pont and H.S. Meeds — were to receive the stock from the syndicate members, deposit it in a box at the Wilmington Trust Company, and vote the stock as they saw fit. Irenee du Pont testified the reason for this procedure was to reassure Seger, then President of United States Rubber, that the investment by the group was not for speculation and also to make it possible to vote the stock as a unit.

In connection with the formation of Rubber Securities, Irenee du Pont invited Cyrus Eaton, a banker, to join in the purchase of Rubber Securities stock and sell his United States Rubber shares to Rubber Securities. It appears from the record that Eaton, through Continental Shares, had about 100,000 shares of United States Rubber stock. Irenee du Pont testified that he thought it would be a very good thing to have him "definitely working with us rather than against us." Eaton refused the invitation.

The idea of centralizing the stock holdings of the syndicate members was one of the purposes for the creation of the new corporation. This is shown by both the record and testimony of Pierre S. du Pont.

Rubber Securities issued 106,335 shares of stock. A total of 101,146 shares was held by the members of the du Pont family; 80,930 shares were held by Delaware stockholders, and 5,159 shares were held by others who were not stockholders in Delaware or Christiana. Thus, 95% of Rubber Securities stock was held by Delaware and Christiana stockholders. Rubber Securities Company in December 1929 held 314,000 shares of United States Rubber common and 46,000 shares of preferred, or about 17% of the voting stock of 2,107,915 shares. It is admitted that this stock was voted as a unit at United States Rubber stockholders meetings.

The stock of Rubber Securities was closely held and kept intact until November 13, 1937 when, in anticipation of its dissolution, its stockholders received United States Rubber preferred and common stock on an approximate pro rata exchange for Rubber Securities stock. The reason for the dissolution of Rubber Securities, which was completed by December 1, 1938, was stated by Irenee du Pont to be a feeling among the stockholders that they would like to have something of tangible value on the stock exchange that they could borrow on as collateral and, further, the need for holding the group together had disappeared because they had the ear of management.

After the dissolution of Rubber Securities, the holdings of United States Rubber stock were held by individuals and members of the du Pont family. These holdings have remained substantially intact since the dissolution of Rubber Securities. On June 30, 1949 the members of the du Pont family held a total of 324,516 shares of United States Rubber common, or 18% of a total of 1,761,000 shares, and 75,619 preferred, or 11%, of a total of 651,000 shares. The record shows that there were 14,000 other stockholders in United States Rubber besides the holdings above described. United States Rubber has introduced evidence showing that from 71.7% to 76.8% of United States Rubber stockholders were represented at the annual stockholders meetings for the years 1947-1949. At no time subsequent to the dissolution of Rubber Securities have the members of the du Pont family held more than 17% of the United States Rubber voting stock.

In this connection the Government asserts that the Wilmington Trust Company is controlled by the du Pont family and this control directed the voting of shares of United States Rubber held by Wilmington Trust as trustee.

George Edmonds, President and Director of the Wilmington Trust Company, testified that the provisions regarding the holding and voting of securities underlying the trusts were entirely usual and in common use throughout the country; that specific or "blanket" approval by the Advisor to vote all the stock in a particular trust in favor of the management, provided there is no dispute, is required before the trustee will vote the stock; that where there is no contest for election of directors or other controversial question, the trustee follows the policy of voting for the management.

The members of the du Pont family hold 31,590 shares of voting stock in Wilmington Trust, and Christiana Securities hold 7,210 shares, constituting 24% of the total 161,150 shares of outstanding Wilmington Trust stock. The Raskob report lists the Wilmington Trust under the heading of "du Pont control". The government has introduced GTX 3 and 1276 to show that members of the du Pont family and their close associates have been and are directors of Wilmington Trust. As of June 1949, the board of Wilmington Trust consisted of twenty-two directors, seven were members of the du Pont family and three were their close associates.

Kuhn, Loeb & Co. had been issuing bankers for United States Rubber since 1917 and had been underwriters for about twelve issues of United States Rubber securities before 1927. It was in connection with the 1917 financing that Seger became a director in United States Rubber on recommendation of Kuhn, Loeb.

Beginning in October 1927 Irenee du Pont had a series of meetings with Charles B. Seger, whom he met for the first time in July and who was the President and Chairman of the Board of United States Rubber. Irenee du Pont testified that the first time he met him, Seger inquired whether he had called to obtain his resignation. Irenee du Pont replied that they had bought into United States Rubber to support him and give what assistance they could to effect an improvement in the financial setup of the corporation. He also testified that he was favorably impressed with Mr. Seger and that he felt reassured that conditions would improve with guidance from some one who had been "through the mill" in similar problems. He sent Seger a copy of the Lytle report and a copy of the du Pont bonus plan, with the suggestion as to the latter that Seger see John J. Raskob, who had no interest in United States Rubber, regarding his views on United States Rubber adopting some such plan.

When the syndicate made its investment Irenee du Pont at a meeting with Wiseman and Schiff of Kuhn, Loeb & Co., subsequent to his meeting with Seger, informed Kuhn, Loeb of the syndicate investment in United States Rubber and asked for their cooperation in improving its financial management. At Schiff's suggestion, Irenee du Pont and the Kuhn, Loeb representatives met with Seger. Irenee du Pont offered to help Seger solve United States Rubber's problems of excessive accounts receivable and inventories. Seger appeared receptive to the views expressed at these meetings.

After the meetings with Irenee du Pont, Seger invited him to become a member of the United States Rubber Board but he declined for the reason he did not want to undertake the burdens and feared the presence of a du Pont name on the Board might mislead the public as to the value of United States Rubber stock.

Early in 1928 when the price of crude rubber dropped from forty cents to twenty cents a pound, United States Rubber having a large inventory was faced with a possible inventory loss of almost two million dollars. This drop in the price of rubber reduced the value of the company's assets below the point at which payment of dividends was permitted under the terms of one of its note indentures, and the decline in the value of its assets made it imperative to conserve the company's cash for meeting approaching maturities on its borrowings.

Wiseman and Irenee du Pont testified that Seger was reluctant to recommend that no dividend be paid, but was eventually persuaded by Kuhn, Loeb to recommend to the Board that no dividend be declared. Seger, in a letter to the stockholders on April 5, 1928, explained the action of the company and stated that "except for the limitations imposed by the Indenture" there was no reason why the dividend should not have been declared at this time. Wiseman testified that Seger's reluctance to recommend non-payment of the preferred dividend strengthened the Kuhn, Loeb view that Seger needed help in running the company.

During the Spring and Summer of 1928 the price of crude rubber continued to decline and the company's loss of inventory value, plus a twenty million dollar indebtedness, created, concern among its creditors and it was feared that a receivership might result.

In April 1928 Lewis L. Strauss of Kuhn, Loeb prepared a plan for the issuance of new common stock by United States Rubber. Irenee du Pont also regarded the raising of new capital necessary. Seger, however, took no action regarding it.

In the Summer of 1928 the syndicate sold 27,600 shares of United States Rubber stock at a loss. Irenee du Pont testified the sale was made by the syndicate members for the reason that they suspected there might be a receivership and "that we had better sell some of the stock and reduce our commitments". In October 1928 the Guaranty Trust Co. threatened to cut off its credit to United States Rubber and several other banks expressed concern to Kuhn, Loeb about the continuance of credit to the company. Seger was finally persuaded that it was necessary to raise new capital, and at his request in October 1928 Kuhn, Loeb drafted another plan for the issuance of common stock. The issue of 728,412 shares of common was to be offered to the existing common stockholders on a share for share basis. Kuhn, Loeb invited other banking and brokerage firms to participate in the underwriting, including Laird, Bissell & Meeds, who were included at the request of Irenee du Pont.

Sir William Wiseman testified that as early as 1927, Kuhn, Loeb had come to the conclusion that Seger should be replaced as President because of his poor health, his difficulty in reaching decisions on pressing problems, and for the reason that United States Rubber was making a poor showing in comparison with its leading competitors.

Irenee du Pont, in November 1928, wrote the members of the syndicate informing them of the decision for the new issue of stock and suggesting that in order to improve the management the Board be enlarged by three additional members and to fill the two vacancies; that these appointees should be two from Kuhn, Loeb, two from the syndicate, and the proposed new president. In December 1928 Roger Winthrop and Sir Wiseman of Kuhn, Loeb and Henry Davis, for the syndicate, were elected members of the Board. In addition, it was contemplated that these members of the Board would become members of the Finance Committee. Irenee du Pont testified that the decision to replace Seger as president became necessary because nothing had been accomplished to improve the weak financial structure of the company, and because of his unrealistic attitude in the dividend controversy and the new stock issue.

With the exception of H.F. and H.B. du Pont, all of the syndicate members decided to subscribe to the new stock issue. H.B. du Pont testified he was discouraged over the prospects of United States Rubber and did not wish to risk more capital in the company.

In the underwriting of the new common stock issue, Kuhn, Loeb allotted to Laird, Bissell & Meeds a 20% participation which was approximately the percentage which the syndicate members held in the common stock of United States Rubber. Wiseman testified this was a common arrangement. Thereafter, Laird, Bissell & Meeds and the syndicate members had an agreement whereby the syndicate members would receive a discount of $2.40 out of each $3.00 cost of underwriting their stock. The new stock was issued January 11, 1929 and the syndicate acquired 125,150 shares at a cost of over four million dollars.

Preceding the investment and issuance of the new stock, Irenee du Pont testified that the syndicate members had decided that if they were to take up their subscription rights to the new issue some safeguard against lack of proper financial management would be necessary and took "the position with Kuhn, Loeb that we should have some representation on a body which might be termed a finance committee so that we would have some control over the financial management of the company". This concern over the financial structure and the desire of the syndicate to assume that responsibility is reflected in several letters written by Irenee du Pont.

Officers, Directors

Wiseman testified that he and Mr. Schiff, his partner, urged Seger to become Chairman and that a younger and more active man be made President. Kuhn, Loeb were unable to find anyone whom they considered suitable and in November 1928 asked Irenee du Pont to try to find such a person.

Irenee du Pont testified that H.S. Meeds suggested F.B. Davis, Jr. to him and Davis stated that Meeds had advised him he might be approached by Irenee du Pont. Shortly after the suggestion of Meeds, Irenee du Pont saw Davis and asked if he would be willing to take the post if elected, and Davis accepted.

On January 5, 1929 Irenee du Pont wrote a letter to Schiff of Kuhn, Loeb, sending a copy to Seger and Davis stating he had found a suitable man for the office of President. That same month, at the request of Irenee du Pont, Davis met with Schiff and Wiseman of Kuhn, Loeb. Schiff and Wiseman introduced Davis to some of the directors — J.S. Alexander, H.R. Winthrop, Matthew Brush, and L.B. Gawtry. Wiseman stated that they were impressed with Davis' qualifications and concluded he was an excellent candidate for president. Mr. Schiff advised Irenee du Pont that Seger had no objection to bringing F.B. Davis into the situation, but that there was difference of opinion as to how this could be accomplished without unfavorably affecting the organization. Wiseman negotiated with Seger as to the terms of his retirement. Irenee du Pont in writing Wiseman January 11, 1929 stated he was in favor of continuing Mr. Seger's contract with United States Rubber and his salary payment "if it will assure the Rubber Corporation of his good advice based on many years' experience as head of that institution."

At a meeting of the Board on January 15, 1929 presided over by Wiseman, Seger resigned as President and Chairman of the Board, and F.B. Davis was elected President, Chairman of the Board and a director. Wiseman testified that Kuhn, Loeb, when sponsoring the election of Davis, did not know or inquire into the amount of stock held by the syndicate.

At the time F.B. Davis, Jr. was elected President, the syndicate's representation on the Board was one director — Henry Davis. In addition there were the two representatives from Kuhn, Loeb. There were fifteen members, including Seger, on the Board at this time.

F.B. Davis, Jr. was the President of the Viscoloid Company, a du Pont subsidiary, at the time he accepted the presidency of United States Rubber. In 1909 he had been in charge of the black powder division of du Pont, later becoming superintendent of the sporting powder divisiou when Lammot du Pont was its divisional manager. Following the end of World War I, he was assigned to the du Pont Central Office as assistant in charge of salvage and later became superintendent of the Pyralin operations. He left du Pont because he was ambitious and felt there were too many bosses over him, going to General Motors as assistant in charge of its Saginaw Products Division where he remained until 1923. He was asked to return to du Pont by a member of the du Pont Executive Committee and accepted because, as he stated, du Pont had changed its organization to a decentralized type and because the compensation offered was larger than he was receiving. He became assistant general manager of the Pyralin Department, later its general manager, and was also made a du Pont director. The Pyralin Department was consolidated with the Viscoloid Company and in 1927 Davis became its president. After he became President of United States Rubber he continued as a director of du Pont until about 1941. He was also one of the incorporators of Rubber Securities, organized in December 1929. Irenee du Pont testified that F.B. Davis was known to all members of the syndicate and that therefore they were familiar with his record. He also said that he had discussed the suggestion of Challen Parker as president with the syndicate, but since none of the members knew him he withdrew the suggestion. Irenee du Pont stated that he felt it was a requisite that the new president be personally known so that they would know what kind of a man they were getting.

Both Davis and Pierre S. du Pont testified that while Davis was president of United States Rubber he visited with the du Ponts, particularly Irenee and Lammot. He discussed with them the affairs of United States Rubber, consulting with them regarding the financial side, because as he said, "that was the part of it that they were most vitally interested in", but did not seek their advice on management or the operating end except to report on accomplishments.

Davis testified that the first thing he did on becoming president was to get acquainted with the Board, appraise the value of each individual member, and consult with them as to their desire to continue with United States Rubber; that he determined who would be most helpful to him and made up a proposed slate to be elected at the annual meeting. He testified further that he selected all the directors.

Davis testified that he not only discussed this proposed slate with the du Ponts but also with Sir William Wiseman of Kuhn, Loeb and "anyone else that seemed to me could be helpful in giving me advice on that subject". In addition, he stated he felt it was not only proper to discuss directors with important stockholders, but also with each member of the Board.

In March 1929, prior to the first meeting, Davis submitted his proposed slate to the members of the syndicate. This list consisted of twenty-eight names, some already members of the Board, and indicated that as to non-company representation, John W. Davis, and Samuel M. Nicholson desired to resign and that he did not favor continuing Lewis Gawtry. In addition he suggested that Henry L. Hotchkiss be dropped for reasons of age and Homer E. Sawyer be discontinued since he was relinquishing active duties with United States Rubber. He listed eight directors as outside representatives and three company representatives whom he considered desirable to retain, and these were approved by the syndicate. The syndicate also approved three suggested additions for company representatives. Lammot du Pont replied to Davis' suggestions stating the syndicate members approved the retention of the men already on the Board; approved five of nine suggested additions to outside representatives; and stated in the event Gerard Swope, Victor M. Cutter and James A. Farrell would not serve as outside representatives, that the syndicate did not favor the suggestions made by Davis to substitute Carle C. Conway, Harold E. Talbott, or Lewis Gawtry.

Charles B. Seger and Gerard Swope did not wish to serve and Homer E. Sawyer and James A. Farrell were not elected. Lewis Gawtry and Carle C. Conway were elected directors on April 16, 1929 and August 6, 1929, respectively.

Davis testified that following 1929 when he became more experienced in United States Rubber operations there was no necessity for discussing changes on the Board with the du Ponts and syndicate members, but he did discuss the changes with every member of the Board to obtain their approval.

B.W. Doyle, a former Vice President of du Pont's Viscoloid Company, became a Board member in 1939; George P. Edmonds, a du Pont son-in-law and president of the Wilmington Trust, became a Board member in 1944; John L. Pratt was a director of General Motors at the time of his election to the Board of United States Rubber in 1937; W.P. Allen, a former vice-president and director of du Pont became a Board member in 1936; and H.E. Humphreys, Jr., a former employee of Delaware Realty, went on the Board in 1938. Allen, Doyle and Pratt were personally known to F.B. Davis. Between June 21, 1927 and June 30, 1949, a total of fifty-three men served on the United States Rubber Board, seven of whom were elected as temporary directors, leaving a total of forty-six regular members of the Board who served during this period at different times.

Davis and de Krafft did not get along together and eventually de Krafft resigned on June 30, 1938. Davis had previously met H.E. Humphreys, Jr., and thought he would be a suitable replacement. He asked Irenee du Pont whether Humphreys could be released from his duties as Secretary of Delaware Realty. Irenee du Pont approached Humphreys regarding United States Rubber, and when it was clear that he was interested his release was obtained and Humphreys was proposed by Davis as a member of the Board.

In 1942 Herbert E. Smith became President of United States Rubber when F.B. Davis resigned. Davis remained as Chairman of the Board and Chief Executive Officer. Smith had been an employee of United States Rubber for about fourteen years before the syndicate was formed. Smith testified that he had only a casual acquaintance with the three du Pont brothers. He stated that following his election he had discussions with the du Ponts and many other stockholders a few times a year regarding the financial situation in United States Rubber.

When Davis retired as Chairman of the Board on December 31, 1948, Smith became the Chairman and the office of President was filled by Humphreys.

In this connection Lammot du Pont Copeland on April 5, 1948 wrote to the three defendant individuals and George Edmonds about a discussion he and Wiseman had concerning the situation when Davis would retire. Lammot du Pont wrote to Davis asking what his views were and stated that he knew of no candidates for president, with a single exception. Herbert E. Smith testified that the "one man who had what it took, had all of the qualifications that I recognized to succeed me, was Elmer Humphreys".

After he became President, Humphreys stated that he discussed with the du Ponts certain proposals of importance involving financial matters, and followed their advice only half the time and acted contrary to their advice at other times.

Executive Committee

In a letter to the stockholders on April 23, 1929 Davis stated the Executive Committee was to be made up of those members of the organization who had been heretofore charged with the responsibility of some of the major activities of United States Rubber and would hold meetings each week to advise the president on all operations relating to manufacturing, selling, development and research. On April 23, 1929 the Executive Committee consisted of Edward J. Coughlin who had been with United States Rubber since 1892; William O. Cutter, an employee since 1916 who resigned from the Executive Committee in January 1930; William de Krafft who became a member in 1930; Ernest Hopkinson, an employee of United States Rubber since 1897; Herbert E. Smith, an employee since 1913; Lucius D. Tompkins, an employee since 1916; Eric Burkman, an employee since 1919; F.B. Davis, Jr., Chairman 1929. It is this committee which had the responsibility of approving contracts involving the sale or purchase of goods.

Six members of this Executive Committee were on Irenee du Pont's recommended list in addition to five others who were not elected. Irene du Pont had included all the company's chief executive officers on this committee for the reason he felt that experienced operating personnel should be members. Tompkins stated he was approached by F.B. Davis with respect to becoming a member and that thereafter Davis discussed with him appointments or recommendations to that committee. Tompkins testified that Davis indicated to him that length of service was one of the qualifications for membership. Aside from Davis and de Krafft, the other members of the committee had all been employees of United States Rubber for many years before 1929.

Finance Committee

The old Executive Committee of United States Rubber served the functions of a Finance Committee during the Seger regime and when Davis became president it became the Finance Committee. Its members on April 23, 1929 were James S. Alexander, F.B. Davis, Henry Davis, and Sir William Wiseman. William de Krafft became a member in January 1930 when James S. Alexander's membership ended. Charles H. Sabin and D. Dwight Douglas were also added to the committee the same year. In November 1948 the following were members of the Finance Committee of United States Rubber: Colgate W. Darden, Jr., F.B. Davis, Jr., Henry Davis, Bernard W. Doyle, George P. Edmonds, H.E. Humphreys, Jr., Herbert E. Smith, and Sir William Wiseman.

On Apri 8, 1947 Lammot du Pont Copeland wrote Pierre S. du Pont, stating that he, Copeland, and Lewis Strauss had resigned as members of the Board and Finance Committee, that Colgate Darden was elected to fill his place but that the bankers' nominee remained open on the Board, and that Wiseman had suggested Schiff be appointed which idea was not accepted. He stated that because Wiseman was frequently absent, the management group on the Finance Committee were a majority, and since United States Rubber was again pretty well in debt, the Finance Committee should be strong and play a dominant part in watching the finances. At that time the Finance Committee was composed of three management representatives, F.B. Davis, H.E. Smith, and Elmer Humphreys; and three non-management representatives, B.W. Doyle, Henry Davis and Sir William Wiseman. Copeland testified that his concern was that stockholder representation on the Finance Committee constitute a majority in order to maintain the proper balance between the Finance Committee and the Executive Committee; otherwise, a majority of management representatives on the Finance Committee would be approving their own actions, which "seemed like a weak position". In answer to this, Pierre S. du Pont replied, stating:

    "I do not fear the result of the management
  group being in the majority. If such fear is
  real, we should change the management."

Pierre S. du Pont testified that he used the noun "we" as meaning all the stockholders. Copeland in his letter to Pierre S. du Pont had suggested that Darden and Edmonds become members of the Finance Committee but since Darden's other interests were heavy, he suggested that Davis be urged to put Edmonds and Whelpley on that Committee. Irenee du Pont wrote Copeland April 21, 1947 stating that Darden should be given a chance to refuse, that Edmonds had his approval, and that he did not know Whelpley. Edmonds was elected to the Board and he and Whelpley became members of the Committee.

Incentive Plan

The stockholders of United States Rubber adopted an executive's incentive compensation plan in 1929 by a vote of 1,245,269 to 100. A study of several plans was made before the Managers Share Plan was finally adopted. The Plan provided that the Company should issue 100,000 shares of its common stock at $35 per share and the trustees would issue to the company 100,000 trust shares without par value, representing ownership of the assets to be held by the trustees of the plan. The plan further provided that the company should from time to time sell the trust shares to employees occupying responsible positions, including directors, actively engaged as officers, employees or members of the Executive Committee, to be chosen by a Special Committee of directors in such quantities as the committee determined and on such terms of payment, interest and prices as fixed by the Finance Committee of United States Rubber.

On December 20, 1929 Irenee du Pont wrote to Lammot, A. Felix and H.B. du Pont, H.S. Meeds and Henry Davis, officers of Rubber Securities, that he had discussed with F.B. Davis and William de Krafft the question of apportionment of Managers Securities stock and the setting aside of some 3000 shares of Rubber Securities stock for Davis to be paid out of bonuses voted him by Rubber Securities.

The members of the Special Committee appointed to act upon the allotment of trust shares from 1930 to 1949 were:

  Matthew Brush, Chairman, 1930-1936
  Lewis L. Strauss, Chairman, 1936-1947
  Bernard W. Doyle, 1947-1949
  Sir William Wiseman, 1930 to date, Chairman since
    1947
  Henry Davis, 1930 to date
  F.B. Davis, Jr., 1948 to date

Wiseman testified that he consulted with Irenee du Pont with respect to the original allotment to be made under the plan in 1930 for the reason he had more experience than possibly any of the directors of United States Rubber and also asked him what allotment should be made for F.B. Davis. Irenee du Pont stated Davis should receive 15,000 shares. On March 28, 1930, Davis was allotted 20,000 shares by the Special Committee and Wiseman advised Irenee du Pont of that action. This action of the Special Committee was approved by the Rubber Securities Board and Henry B. du Pont testified that when there was an increase in Davis' allotment from 15,000 to 20,000 shares it obviated the necessity of Rubber Securities assigning stock to him.

Irenee du Pont stated that at the time F.B. Davis went to United States Rubber his salary should not be less than Seger was receiving. The salary was fixed at that figure by a special sub-committee appointed for that purpose. Wiseman testified he did not know that Irenee du Pont had discussed with Davis the probability that his salary would be the same as Seger's. In 1937, after a study by a sub-committee of the Finance Committee, the company entered into an employment contract with Davis for a term of six years effective January 1, 1938 which remained in effect until his retirement in 1948. This action was adopted by vote of the stockholders. The contract fixed his salary at a definite figure and made him ineligible for any further participation under the incentive plan.

There is no evidence that the syndicate, or Rubber Securities Co., or the du Pont family in the aggregate ever had voting control of United States Rubber. The Government, moreover, has failed to show that the United States Rubber stock held by the defendant individuals and the members of the du Pont family was acquired with the intent to create a protected market for du Pont or for United States Rubber, or was ever used for that purpose. While much of the rubber stock acquired by the syndicate continues to be held, directly or indirectly, by members of the du Pont family there is no proof of any agreement or understanding that it will continue to be so held, or that it will be voted in concert.

Trade

Prior to 1910 du Pont had confined itself principally to the manufacture of military and commercial explosives. Nitrocellulose, a nitrated cotton, was the principal raw material used by du Pont in the manufacture of both military and commercial smokeless powder. Du Pont sold its military powder largely to the United States Army and Navy. By 1908, these principal customers had erected and were operating plants of their own and du Pont foresaw the ultimate loss of its smokeless powder business and recognized that diversification and expansion into other fields was essential to its progress.

To this end in 1908 the Executive Committee of du Pont appointed a committee to report "what additional steps they would recommend, in the direction of developing further uses for guncotton or any of the other products of our smokeless powder plants." The Development Department whose immediate jurisdiction it was to explore these fields, made an investigation of new outlets for the excess nitrocellulose in 1909 and found the most important industries in order of size were celluloid, artificial leather, artificial silk, and lacquer, which du Pont was already producing.

In 1910 du Pont purchased the Fabrikoid Company, the largest manufacturer of artificial leather, which in 1913 was incorporated as the du Pont Fabrikoid Company.

During World War I, du Pont plant facilities, sales and profits in the powder and explosives fields expanded and its net profits from all business during 1915-1918 totaled approximately $232,000,000. In addition during 1917 the du Pont Company, anticipating the end of World War I and the cessation of orders for powder and explosives, determined to utilize part of its war profits to expand into fields other than gunpowder and explosives.

In September 1915 du Pont purchased the Arlington Company, one of the two largest celluloid companies in the United States.

In June 1916, the du Pont Fabrikoid Company, manufacturers of artificial leather, purchased the entire stock of the Fairfield Rubber Company, producers of rubber coated fabrics for automobile and carriage tops. The principal customer of Fairfield was the Ford Motor Company, which accounted for 60% of Fairfield's total business. Fairfield was dissolved and the entire stock was taken over by the Fabrikoid Company.

A report of the Development Committee of du Pont in August 1916 "recommended the paint and varnish industry shall be accepted as a suitable expansion of operations at Parlin" and it further recommended "to acquire by purchase one or more suitable going concerns * * * with a view to transfer of operations to Parlin at the first opportune time."

In March 1917, du Pont purchased Harrison Brothers & Company, Inc. manufacturers of paint, varnish, acids, and certain inorganic chemicals used in paint manufacture. The Harrison Company owned 52% of the capital stock of the Beckton Chemical Company, the other 48% being owned by Cawley Clark & Company, a color manufacturer. In the middle of 1917 Harrison purchased Cawley Clark & Company, including its interest in Beckton Chemical Company. In 1917 the Bridgeport Wood Finishing Company, a varnish manufacturer, was acquired by Harrison.

After considerable study, du Pont in February 1917 decided that consideration of new industries at that time should be confined to five chemical fields: Dyestuff and allied organic chemicals; vegetable oil industry; paint and varnish; water soluble chemicals; and industries related to cellulose and cotton purification.

Thus by the end of 1917, preceding the investment in General Motors, du Pont had made investments in companies manufacturing artificial leather, celluloid, rubber coated goods, paints and varnishes. In 1917 du Pont was engaged in the production of paints, varnishes and related products although it was still principally producing powder and explosives and manufactured few items used in the production of automobiles; among these were celluloid, used in making side curtains, and artificial leather, used in seats and upholstery.

A few months after the Flint investment, du Pont acquired certain assets of the New England Oil Paint & Varnish Company.

A report by the Development Department in 1920 showed that existing facilities at Flint were insufficient to meet the demands of General Motors and a considerable volume of that business was being diverted to competitors. In April, 1920, W.S. Carpenter, Vice President of du Pont, reported to its Executive Committee, that the Sales Department anticipated increased orders from General Motors and other automobile companies, prompting an interest in an additional plant, that he favored acquisition of The Chicago Varnish Company. That year du Pont acquired certain assets of the Chicago Varnish Company, and in 1934 it acquired the assets of Mountain Varnish and Color Works.

In addition to the above acquisitions, du Pont also made investments in and acquisitions of other companies as set forth in ¶¶ 88, 90, 91, 92, 94, 95, 96, 98, 99 100, 101, 102, 103 and 104 of the Amended Complaint.

It is admitted that du Pont is a substantial producer in the United States of explosives, powder and chemicals and that its principal manufacturing operations are conducted throught ten departments. These departments and their products are:

Electrochemicals: Electro and industrial chemicals, including sodium, cyanides, peroxides, chlorinated solvents for metal cleaning, dry cleaning and extraction, refrigerants, formaldehyde, polyvinyl alchohol and acetate, ceramic decorations, and furfural products;

Explosives: Commercial explosives, blasting accessories, miscellaneous chemicals, liquid and solidified nitroglycerin, oil and gas well torpedo service, military and sporting powders, and commercial nitrocellulose.

Fabrics and Finishes: Pyroxylin, synthetic resin, neoprene and rubber coated fabrics, and processed plastic sheeting, window shade fabrics, rug underlay, and synthetic rubberized tubing, protective and decorative finishes for all industrial automotive, marine, transportation, and household purposes, wire enamels, automotive maintenance specialties, adhesives, plasticizers, and pyroxylin solutions.

Film: Cellophane, cellulose bands, cellulose sponges and sponge yarns, cellulose acetate film, and polythene film.

Grasselli: Inorganic and organic acids and heavy chemicals, zinc and zinc products, fungicides, seed disinfectants, household sprays and dusts, insecticides, animal remedies, weed killers, adhesives, wood preservatives, and chemicals for the textile, water purification, paper, leather, steel and food industries.

Organic Chemicals: Dyestuffs, tetraethyl lead, neoprene, ethyl alcohol, camphor, and other organic chemicals for the rubber, petroleum, textile, ...


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