APPENDIX II

DECISIONS OF THE COURTS IN CASES INSTITUTED AGAINST OR BY THE COMMISSION'

WESTERN MEAT CO. v. FEDERAL TRADE COMMISSION 2 (Circuit Court of Appeals. Ninth Circuit. June 24, 1929)

No. 4064

MONOPOLIES KEY No. 24 (2)-DIVESTMENT OF STOCK UNLAWFULLY ACQUIRED NEED NOT INCLUDE DIVESTMENT OF PLANT AND PROPERTY NECESSARY TO GOING CONCERN SO AS TO RESTORE COMPETITION (CLAYTON ACT, Sec. 7; 15 USCA, Sec. 18). Divestment of stock acquired by corporation in violation of the Clayton Act, section 7 (15 USCA, sec. 18), need not include a divestment of plant and property necessary to a going concern so as to restore competition that was interrupted by unlawful acquisition of stock.

MONOPOLIES KEY No. 24 (2)-CORPORATION UNABLE TO DIVEST ITSELF OF STOCK AS ORDERED, HAD RIGHT TO SELL PROPERTY AT EXECUTION SALE TO COLLECT BONA FIDE DEBT (CLAYTON ACT, Sec. 7; 15 USCA, Sec. 18).

Where corporation, ordered to divest itself of stock acquired in violation of Clayton Act, section 7 (15 USCA, sec. 18), had tried in good faith for a period of nearly two years to sell stock and plant and property acquired, it had lawful right thereafter to sell property on execution sale for purpose of enforcing collection of bona fide debt.

(The syllabus is taken from 33 F. (2d) 824)

Petition by the Western Meat Co. to review an order of the Federal Trade Commission. On return by petitioner, in which it prays for approval of its final report, with objections thereto by respondent. Objections overruled, and report approved.

F. L. Horton, of Chicago, Ill., Sullivan & Sullivan & Theo. J. Roche and Edward Barry, all of San Francisco, Calif., and John D. Hoyt, of Reno, Nev., for petitioner.

Robert E. Healy and Alfred M. Craven, both of Washington, D. C., for respondent.

Before GILBERT, RUDKIN, and DIETRICH, Circuit Judges.

GILBERT, Circuit Judge:

The petitioner, the Western Meat Co., was a competitor of the Nevada Packing Co. in interstate selling and distributing meat

The period covered is that of this volume, namely, June 12, 1929, to May 4, 1930, Inclusive.

The case is reported in 33 F. (2d) 824.

Pursuant to a subsequent stipulation, petition for writ of certiorari, granted by the Supreme Court on October 21, 1929, was dismissed on May 19, 1930, and the case remanded to the court herein, which, on June 6, 1930, vacated and set aside its decision in the instant case overruling the Commission's objections to the report of the Western Meat Co. it appearing to the Commission that through a sale of the physicial property and assets of the Nevada Packing Co., negotiated after the decision in question and as a separate and independent transaction, and approved by the Commission, the full purpose of the original order of the Commission (See 5 F. T. C. 417), would be accomplished, and full protection of the public interest provided for.

products. In 1916 the former purchased all the stock of the latter. On February 2, 1923, the Federal Trade Commission entered an order directing the petitioner to divest itself of all capital stock of the Nevada Packing Co., so as to include in such divestment the latter company's plant and all property necessary to the operation thereof, and forbidding it either directly or indirectly to retain any of the fruits of the acquisition of said stock, and that in such divestment no stock or property so to be divested should be sold or transferred directly or indirectly to any stockholder, officer, director, employee, or agent, connected with the petitioner or any of its officers or stockholders. In Western Meat Co. v. Federal Trade Commission, 4 Fed. (2d) 233, this court held that a portion of the order thus made went beyond the authority of the Commission as defined by statute and directed that it be modified by eliminating therefrom the injunction against the acquisition of the plant and property of the Nevada Packing Co. On certiorari from the Supreme Court in Federal Trade Commission v. Western Meat Co., 272 U. S. 544,2 is was held that while the order of the Commission went beyond the letter of the statute, it must be construed with regard to the existing circumstances and must be read in the light of the general purpose of the statute and applied with a view to effectuate that purpose, since preservation of established competition was the great end which the legislature sought to secure. In [825] pursuance of the mandate of the Supreme Court, this court, on May 2, 1927, entered a final order and restored thereto the words of the original order of the Commission. Thereafter the Western Meat Co., the petitioner herein, obtained at intervals three extensions of time within which to comply with the order, representing in each petition for extension of time that it had continuously endeavored in good faith to divest itself of said capital stock of the Nevada company in accordance with the decree.

It was three years after the petitioner acquired the capital stock of the Nevada company that the Federal Trade Commission filed its complaint charging violation of section 7 of the Clayton Act. During that period the petitioner advanced about $715,000 to the Nevada company and the latter expended $225,000 of that sum in the enlargement and betterment of its plant. Thereafter payments were made by the Navada company on account of the indebtedness until on June 22, 1928, the balance unpaid was $275,000. During the third extension of time so allowed the petitioner, and after many futile efforts to divest itself of the stock of the Nevada company, the petitioner brought an action against the latter company alleging an indebtedness of the latter in the sum of $275,000, secured judgment thereon by default, and on execution sale bid in the plant of the Nevada company, consisting of all real property and machinery and merchandise of the value of $110,000 and thereafter transferred the capital stock to one H. H. Scheeline, who had been made a party to the proceeding. At the time of the transfer of the stock to Scheeline the physical assets of the Nevada company had all been disposed of and there remained only certain bills and accounts receivable of the face value of $99,436.92 and cash in the sum of

1 Also reported in 8 F. T. C. 623.

Also reported in 11 F. T. C. 629.

$6,447.61, and the indebtedness of the Nevada Packing Co. in the form of notes and accounts was $99,299.11, and since such transfer the accounts, except about $1,000 in amount, have been collected and applied to that indebtedness. In selling to Scheeline, the petitioner delivered to him the certificates representing the stock, together with the seal of the Nevada company and the stock book and stock ledgers. No conditions were attached to the sale. Scheeline became in good faith and has since remained the sole and exclusive owner of said stock. After that sale the petitioner filed its report with this court and with the Commission.

The case comes on to be heard upon the return made by the petitioner in which it prays that its final report be approved by the court. The Federal Trade Commission, in objecting to the final report, has failed to point out definitely the particulars of the petitioner's default or to specify distinctly what was left undone that ought to have been done or what was done that ought not to have been done. Its position seems to be that inasmuch as the preservation of established competition was the great end which the legislature sought to secure by the Clayton Act, an act which was intended to supplement the purpose and effect of the Sherman Act, Standard Fashion Co. v. Magrane-Houston Co., 258 U. S. 346, 355, the order of the Commission prohibits any divestment of the stock of the Nevada company which would enable the petitioner to retain any benefit or any outcome, result, or effect of the acquisition thereof, that the divestment must carry with it the plant and physical assets of the Nevada company as a going concern and be effectual to render possible the restoration of the competition that had been wrongly suppressed, in short, that the divestment of the stock must include a divestment of the plant and property necessary to a going concern so as to restore the competition that was interrupted by the unlawful acquisition of the stock. That position is, we think, wholly unsustainable. In purchasing the stock of the Nevada company the petitioner paid presumably the full market value thereof. It owed nothing therefore to the former owners of that stock and it was not the purpose of the order of the Commission that it restore to the Nevada company or to its stockholders anything which it acquired by the purchase. The order of the Commission requiring the petitioner to divest itself of the stock is not susceptible of the construction which is suggested, and unquestionably such an order would have been beyond the powers of the Commission. Counsel for the Commission makes no question of the [826] good faith of the petitioner's effort to divest itself of the stock or of the good faith of the indebtedness for which it obtained its judgment and on which it caused the properties of the Nevada company to be sold. It does say, however, that inasmuch as the petitioner still held the stock of the Nevada company, it had no right to proceed as it did by its action at law for the collection of that company's debt to it. A similar contention was made in Aluminum Co. of America v. Federal Trade Commission, 299 Fed. 361, where it was urged that the debt on which the Aluminum company sued was fraudulent and that therefore it should be restrained from collecting the same. But the court found that the indebtedness was not fraudulent, and not being fraudulent, the court was powerless to restrain the judgment creditor from proceeding in any manner provided by law for the collection of its debt. Said the court:

"Does the Clayton Act, in a case like this, thus nullify other laws and deprive such a creditor of the right to resort to them? We have found nothing in its terms which indicates that it does."

Counsel for the Commission fails to point out the further steps that should have been taken by the petitioner to reestablish the Nevada company as a going concern. Obviously that result could only have been accomplished by inducing others to invest in the stock of the company. All efforts to sell the stock and plant with a view to reestablishing the industry failed, and it is inferable that the failure resulted from the petitioner's inability to show that the venture would be successful. We can not see that it could have done more than it did. It tried in good faith for a period of nearly two years to sell the stock and the plant and the property which it has acquired from the Nevada company, and what it did thereafter we think it had the lawful right to do.

The decision of the Supreme Court in Federal Trade Commission v. Western Meat Co. must be read in the light of the other decisions of the court rendered at the same time and disposed of in the same opinion. Thus in Thatcher Manufacturing Co. v. Federal Trade Commission the court said: "When the Commission institutes & proceeding based upon the holding of stock contrary to section 7 of the Clayton Act, its power is limited by section 11 to an order requiring the guilty person to cease and desist from such violation, effectually to divest itself of the stock, and to make no further use of it. The act has no application to ownership of a competitor's property and business obtained prior to any action by the Commission, even though this was brought about through stock unlawfully held. The purpose of the act was to prevent continued holding of stock and the peculiar evils incident thereto." The court went on to say that if the purchase of property has produced an unlawful status a remedy is provided through the courts, but that the Commission is without authority under such circumstances. Here the debt of the Nevada company to the petitioner was incurred in good faith prior to any action of the Federal Trade Commission. No valid reason is advanced for holding that the petitioner was powerless to subject the debtor's property to the payment of the debt. Had the petitioner succeeded in its efforts to sell the stock of the Nevada company to a purchaser or purchasers who would acquire the same and assume the indebtedness of that company to the petitioner, no question could be made of the right of the petitioner to enforce the satisfaction of its claim by an action at law.

The Commission cites cases which arose under the Sherman Act, such as Standard Oil Co. v. United States, 221 U. S. 1; United States v. American Tobacco Co. 221 U. S. 106; Continental Insurance Co. v. United States, 259 U. S. 156; and others, to the effect that public interests are paramount to private interests and that if for reasons of public policy the legislature declares that a railway shall not become the purchaser of a competing line, the purchase is none the less unlawful because the parties choose to have it take the form of a judicial sale, and it is argued that while there was no direct prohibition in the decree forbidding the petitioner to acquire the physical assets of the Nevada Packing Co., it is still true that the decree specifically provided such a divestiture of the stock and has pre

cluded the petitioner from acquiring and retaining in any manner any of the physical assets. But the Clayton Act, as we have seen, contains no such broad grant of power as does the Sherman Act, and the punishment can be only that which the statute prescribes, Wilder Mfg. v. Corn Products Co. 236 U. S. 165. The harmful result of the purchase of the stock by the petitioner was the suppression of competition and the injury to the public. But it did not call for restitution [827] or reparation to any injured person A decree ordering that a divestment of stock so unlawfully acquired be made in such a way as to restore competition would be incapable of enforcement. The most that could be done was that which was done here, to require the divestment of the stock and the property and to dery the offender the right to obtain or keep any advantage which might be the result, directly or indirectly, of its unlawful act. We find no ground for sustaining the Commission's contention that the petitioner has failed to comply with the order of the Commission and the decree of this court.

The objections to the final report are overruled and the report is approved.

FEDERAL TRADE COMMISSION v. SMITH ET AL.1

(District Court, S. D. New York. July 18, 1929)

TRADE-MARKS AND TRADE-NAMES AND UNFAIR COMPETITION KEY-NO. 80%1⁄2FEDERAL TRADE COMMISSION MAY COMPEL PERSONAL ATTENDANCE OF NECESSARY WITNESSES (FEDERAL TRADE COMMISSION ACT, SEC. 6 (a) (d); 15 USCA, SEC. 46 (a) (d)).

Under Federal Trade Commission Act, section 6 (a) (d); 15 USCA, section 46 (a) (d), Federal Trade Commission, in exercise of powers of investigation, may compel the personal attendance of such witnesses as may be regarded as able to furnish information concerning subject-matter which Commission has under investigation, and such witnesses, when called, may be required, subject to their constitutional immunities, to testify concerning their knowledge of such subject-matter as is within the jurisdiction of the Commission.

TRADE-MARKS AND TRADE NAMES AND UNFAIR COMPETITION KEY-No. 80DUCES TECUM SUBPOENAS OF FEDERAL TRADE COMMISSION, DIRECTED TO OFFICER OF INTERSTATE CARRIER OF ELECTRICITY, REQUIRING PRODUCTION OF CERTAIN DOCUMENTS, HELD NOT SUSTAINABLE.

Duces tecum subpoenas of Federal Trade Commission, to require officer of interstate carrier of electricity to produce operating expense ledgers and certain other papers of such carrier, held not sustainable, since Congress had not, as yet, undertaken to regulate interstate carrier of electricity in the same manner as interstate common carriers, and books and vouchers sought by Commission related not alone to interstate business of carrier, but to its intrastate business as well.

SEARCHES AND SEIZURES KEY-NO. 7 (25)-UNTIL PARTICULAR DOCUMENTS BECOME EVIDENTIARY, CARRIER NEED NOT LAY BEFORE FEDERAL TRADE COMMISSION ITS DOCUMENTS FOR SCRUTINY, TO DETERMINE WHETHER ANTITRUST LAWS HAD BEEN VIOLATED (CONST. U. S. AMEND. 4).

1 Reported in 34 F. (2d) 323.