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UNITED STATES v. NATIONAL CITY LINES

September 19, 1955

UNITED STATES OF AMERICA
v.
NATIONAL CITY LINES, INC., ET AL.



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

This suit was brought by the United States of America under the provisions of Section 4 of the Sherman Antitrust Act, 15 U.S.C.A. § 4, 26 Stat. 209, to enjoin violations of that Act. This proceeding is the remaining vestige of a controversy that first entered the courts in 1947, when the Government commenced this suit and a companion criminal action in the District Court for the Southern District of California. Named as defendants in both actions were two groups of corporations. The first group, hereafter called collectively the City Lines defendants, was composed of National City Lines, Inc. (hereafter National), a Delaware corporation and holding company for some forty-six local public transportation companies in sixteen states, Pacific City Lines, Inc. (hereafter Pacific), also a Delaware corporation, since dissolved, and then a subsidiary of National operating or managing certain of the local transportation companies owned or controlled by National in California, Washington, and Utah, and American City Lines, Inc. (hereafter American), a Delaware corporation and a subsidiary of National organized to operate and manage local transportation companies owned or controlled by National in large metropolitan centers. American was, in 1946, merged into National. The second group of corporate defendants, hereafter referred to collectively as the supplier defendants, comprised six corporations which supplied the City Lines defendants and their operating companies with the motor buses, petroleum products, tires and tubes used in their operations. The supplier defendants include: General Motors Corporation, in its own behalf and as successor to Yellow Truck and Coach Manufacturing Company, a former subsidiary; Mack Manufacturing Corporation, a Delaware corporation; Phillips Petroleum Company; Standard Oil Company of California and its wholly-owned subsidiary, Federal Engineering Corporation; and The Firestone Tire & Rubber Company. These suppliers will be called, respectively, General Motors, Mack, Phillips, Standard, Federal, and Firestone. Seven individuals, officers or directors of the defendant corporations, were also joined as defendants in the criminal action but not in the civil case.

Briefly summarized, the offense with which these defendants were charged in both actions was a conspiracy, beginning in 1937, to acquire or to control a substantial part of the local transportation companies in the various cities of the United States and to restrain and to monopolize the interstate commerce in motor buses, petroleum products, tires and tubes used by the companies so acquired and by those already controlled or subsequently acquired by the City Lines defendants. This conspiracy, it was charged, was implemented by the supplier defendants' furnishing money and capital to the City Lines defendants, in return for which the City Lines agreed, on behalf of themselves and the operating companies then controlled or subsequently acquired, to purchase substantially all of their requirements of motor buses, petroleum products, tires and tubes from the respective supplier defendants to the exclusion of competitors.

Both the criminal and the civil actions were, upon motion of the defendants, transferred to this court for trial. The criminal case was tried in 1949, and the jury returned a verdict of guilty on one count of the indictment charging a violation of Section 2 of the Sherman Act, and a verdict of acquittal on the other count, which charged a violation of Section 1. The conviction was affirmed upon appeal, in United States v. National City Lines, 7 Cir., 1951, 186 F.2d 562, and a petition for a writ of certiorari was denied. 1951, 341 U.S. 916, 71 S.Ct. 735, 95 L.Ed. 1351.

The United States filed a supplemental complaint in this civil action setting up the criminal conviction, and thereafter moved for summary judgment in its favor on the basis of this prior adjudication. This motion was granted in part upon grounds more fully stated in a reported opinion of this court. United States v. National City Lines, D.C. 1953, 118 F. Supp. 465. Summarily stated, we there held that the facts necessary to support a conviction under the count of the indictment upon which the defendants had been found guilty should not be relitigated. Upon a consideration of the indictment, the evidence, and the opinion of the Court of Appeals in the criminal case, it was decided that a violation of Section 2 of the Sherman Act had been conclusively established for purposes of this case and that this violation consisted of a conspiracy to monopolize the sale of supplies used by the local transportation companies controlled by the City Lines defendants. An order of partial summary judgment, in the nature of a pretrial order under Rule 16, Federal Rules of Civil Procedure, 28 U.S.C.A., was accordingly entered on February 26, 1954. By this order it was established for purposes of the trial of this proceeding that all of the defendants had conspired or combined to monopolize interstate commerce through the contracts, entered into between the City Lines defendants and the individual supplier defendants, by which the City Lines defendants agreed to purchase their requirements of motor buses, petroleum products, tires and tubes from the supplier defendants, and that these acts were committed with the intent required for, and constituted, a violation of Section 2 of the Sherman Act. The plaintiff was thereby relieved of the burden of proving these matters, and the defendants were foreclosed from refuting them.

As a result of this order, the present controversy was narrowed to first, the question of the need for equitable relief to prevent recurrence of this established violation of Section 2 of the Sherman Act, and second, the question of whether the defendants had violated Section 1 of the Sherman Act by conspiring to restrain trade by acquiring control of a substantial part of the local transportation companies in the cities of the United States, the offense of which the defendants had been accused but acquitted in the criminal case. The alleged violation of Section 1 and the charge of a conspiracy to acquire control of local transportation companies have since been abandoned by the Government, leaving only the issues of appropriate equitable relief under the established violation of Section 2.

The scope of the controversy has been still further diminished by a consent decree entered by this court upon the agreement of the Government and the existing City Lines defendants on December 14, 1954. This decree directs the defendant National to take all action within its power to cancel certain remaining supply contracts between National, its subsidiaries or affiliates, and some of the supplier defendants, enjoins National from entering into any supply contracts conditioned upon the supplier's financing the operations of the transit company supplied, and establishes a bidding procedure for contracts for the purchase of petroleum products and tires and tubes. Jurisdiction has been retained for carrying out, modifying, or enforcing this decree.

With the City Lines defendants eliminated from the controversy by this decree, the only issue remaining for trial was the equitable relief to which the Government might be entitled against the supplier defendants, relating to the violation of Section 2 of the Sherman Act established in the criminal action.

This remaining issue has been tried upon the basis of the record of the criminal case, depositions of various witnesses, interrogatories submitted by the Government and the defendants' answers thereto, additional documentary and oral evidence, and the stipulations of counsel. The court has had the benefit of very helpful and exhaustive briefs presented on behalf of all parties, and the controversy, or this final remnant of it, is now ripe for decision.

The only question to be decided is of the necessity and propriety of injunctive relief. As the Supreme Court has admonished, "It will simplify consideration of such cases as this to keep in sight the target at which relief is aimed. The sole function of an action for injunction is to forestall future violations." United States v. Oregon State Medical Society, 1952, 343 U.S. 326, at page 333, 72 S.Ct. 690, at page 695, 96 L.Ed. 978. With this purpose in view, the prayers for relief as set forth in the Government's complaint will be considered.

The first prayer of the complaint requests that the court adjudge and decree that the defendants have engaged in an unlawful combination and conspiracy in violation of Sections 1 and 2 of the Sherman Antitrust Act. As to the alleged violation of Section 2, this aim has already been achieved by the Government. This court and the Court of Appeals for this Circuit have adjudicated the defendants' guilt in the criminal action, and the finality of this determination has been recognized in this proceeding by the prior ruling upon the motion for summary judgment. Nothing that this court could now decree would add weight or force to those findings. So much of the prayer as requests an adjudication that the defendants violated Section 1 of the Sherman Act has been abandoned by the plaintiff in its briefs. Nothing remains to be granted, therefore, under this prayer.

The second prayer for relief is that the supplier defendants be required to divest themselves of all common and preferred stock or other financial interest in the defendants National, American, Pacific, and their operating companies. It is established by the evidence, and it is uncontroverted by the plaintiff, that all of the supplier defendants have disposed of their investments in the City Line companies and their subsidiaries, and that no supplier defendant has, since 1952, held any financial interest in these companies. This requested relief having already been obtained without the compulsion of a decree, no divesting order is required.

In the third prayer of the complaint the plaintiff seeks a declaration that all sales or investment contracts, written or oral, between the supplier defendants and the City Lines defendants and their operating companies are void, unenforceable, and of no legal effect. Since the investment contracts have all been abandoned or canceled, any such declaration as to them would be futile. Similarly, most of the sales contracts between the City Lines and the supplier defendants have expired or have been canceled. Those remaining in force at the time of trial are considered with the issues raised by the sixth prayer, below.

The fourth and fifth prayers for relief relate solely to the City Lines defendants, and request no relief directed against the supplier defendants. In view of the final judgment rendered in the consent decree of December 14, 1954, dropping the City Lines defendants from the case, there is no need to consider these prayers.

The core of the controversy between these parties is the prayer for orders controlling the future conduct of the supplier defendants as set forth in the sixth prayer of the ...


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