Appellants Brief — United States v. Pullman Co.

TABLE OF CONTENTS.

Page

EE 8 5 6d bo evccceesccrseccecserserceres 1

EE acco bocce bi cdberctessdcabe teueve 2

UIE, 6 ooo secavcvcccevecevevceeceess 2

Es os rn orga pon enssedhen ehvemedawe 3

Ns ns ooo s oewdenceeeh pourieeen 4

CD OD OD. cscccccccrvvecocvcossceoneee 8

Effects of the Court’s Ruling ..................... 14

The Interest of the Several States in Expanding

en «266 ceevestbedaperesteveseteees 17

The Recommendation of the Department of Justice.. 18

: EC. MOE siverervescsrcevevsesaresese 19

ES ci ctbcddnaneesdersedvasdevderevenen 20

I. Critique of the Court’s Opinion............... 20

Il. A Decree Dissolving a Combination in Restraint

of Trade Is in Effect an Equity Reorganization

for the Purpose of Disposing of the Property to

the Persons Most Capable and Best Qualified to

Re-Establish the Competitive Market Which

Has Been Destroyed by the Former Monopoly.

Therefore, the Type of Business Judgment

Which the Court is Accustomed to Exercise in

Ordinary Reorganization Must Be Used in Se-

lecting the Transferree of the Property ....... 25

IIL The Court Erred in Giving No Weight Whatever

to fhe Recommendation of the Department of

Justice That the Bid of Otis & Co. Be Accepted.. 32

IV. The Court Erred in Delegating to the Railroad

Combine the Ultimate Responsibility for the Se-

lection of an Independent Purchaser of the

Sleeping Car Business ...................... 34

V.The Court Erred in Neglecting the Criteria

Which It Should Have Applied in the Selection

of the Successful Bidder .............ceeeee0s 38

ii Index Continued.

Appendix A Page

Excerpts from the Testimony of Wendell Berge, As-

sistant Attorney General of the United States, Be-

fore the Sub-Committee on War Mobilization,

Committee on Military Affairs of the Senate of the

United States (Kilgore Committee), Washington,

D. C., February 10, 1944, Pages 1352-1359 ....... 50

Appendix B

Government’s Evidence .... ......cccesccccccccees 58

Appendix C

The Interlocking Relationships of the Directors of

Pullman Incorporated as Shown of Record at the

Hearing on Petition for Approval of Offer to Pur-

chase The Pullman Company ................... 62

TABLE OF CASES.

Appalachian Coals Inc. v. United States, 288 U. S.

344.

Atlantic Coast Line Railroad Co. v. Florida, 295 U. S.

il <4 a bas pads veinankdeuhanbbedakedsedeeseese< 30

B. B. Chemical Co. v. Ellis, 314 U. S. 495 ...........

Continental Insurance Co. v. Reading Co., 259 U. S.

Mais a. subuvas ocuaeecsdhebindnaeudecse es 26, 31, 33

DiGiovanni v. Camden Fire Insurance Ass’n, 296 U. S.

Dis dn bkaladounhcadeaeienséeecekan vets cdaes es 30

Hartford Empire Co. v. United States, 323 U. S. 386.. 31

Hecht Company v. Chester Bowles, 321 U.S. 321..... 30, 32

Inland Steel Co. v. United States, 306 U.S. 153....... 30

Morton Salt Co. v. G. S. Suppiger Co., 314 U. S. 488... 38

North American Co. v. 8. E. C., 328 U. 8S. ——, 66 S.

ik oo Made Chri Caes aubdes ciate buds have’ 32

Pennsylvania v. Williams, 294 U. 8.176 ............. 30

Scripps-Howard Radio Ine. v. F. C. C., 316 U. S. 4 . . .30, 31

Sugar Institute v. United States, 297 U. 8.553 ....... 38

Uaited States v. American Tobacco Co., 221 U.S8.106.. 30

United States v. Bausch & Lomb Optical Co., 321 U. S.

TOT oo oe wees cee cer cnccecceccccesceecescerceess

173. Pde bec nacvesvadae Seagtastncaeedes resveesen

Index Continued. iii

Page

United States v. E. I. duPont de Nemours & Co., 188 F.

ee his tll cea he dbp seneénee 6s 31

United States v. Great Lakes Towing Co., 208 F. 733... 31

United States v. Morgan, 307 U. 8. 183 .............. 30

Virginian Railway Co. v. System Fed. No. 40, 300 U. S.

OU ees in ee eee etoesasesebebus 30

STATUTES.

Sherman Antitrust Act, Sections 1, 2 and 4, July 2,

1890, as amended, 26 Stat. 209; 36 Stat. 1167; 50

ee EP Oly SE es NED cescccscccseueses

Ee —

eee CU

ER ES APSE ee eee

IN THE

Supreme Court of the Anited States

Ocroser Term, 1946.

No. 254.

Oris & Co., Appeliant,

v.

Tue Untrep States or America, Toe PuttmMan Company,

Puttman-Stanparp Car Manuracturinc Company,

Putuman Incorporaten, et al.

On Appeal from the District Court of the United States for

the Eastern District of Pennsylvania.

BRIEF FOR OTIS & CO., APPELLANT.

OPINIONS BELOW.

The opinion of the specially constituted district court (R.

726) is reported in 50 F. Supp. 123. The supplementary

opinion sur form of judgment (R. 759) is reported in 53 F.

Supp. 908. The opinion sur judgment (R. 774) is reported

in 55 F. Supp. 985. The opinion upon application for

approval of sale of The Pullman Company (R. 1193) is

reported in 64 I’. Supp. 108.

JURISDICTION.

The final order and decree of the district court was

entered on January 4, 1946, (R. 1203). Petition for appeal

was presented and allowed on March 4, 1946 (R. 1215,

1216). The jurisdiction of this Court is invoked under

Section 2 of the Expediting Act of February 11, 1903, as

amended (32 Stat. 823; 36 Stat. 1167; 15 U. S. C. 29), and

Section 238 of the Judicial Code, as amended (36 Stat. 1157;

38 Stat. 804; 43 Stat. 936, 938; 28 U. S. C. 345). Probable

jurisdiction was noted by this Court on October 14, 1946

(R. 2639).

QUESTIONS PRESENTED.

The ultimate question is whether the decision and final

order of the court approving the sale of The Pullman Com-

pany to a combination of railroads doing 95 per cent of the

passenger-carrying business of the United States should be

reversed. The above order was entered on January 4, 1946,

in a suit instituted by the United States Government under

Sections 1 and 2 of the Sherman Antitrust Act. The over-

all questions are whether the court below erred (a) in allow-

ing Pullman Incorporated, adjudged guilty of violating the

antitrust laws, to select its own successor, and (b) in ap-

proving sale to the railroad combine without appraising

the several offers to purchase in terms of the ends the suit

was designed to serve. These questions resolve themselves

into three dominant issues:

1. Whether a combination of the principal railroads of

the United States, many of which are in competition, may

acquire control of the pool of sleeping cars and facilities

now owned and operated by The Pullman Company and

through such dominance over the entire supply in practical

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3

effect eliminate all competition in the business of providing

sleeping car service.

2. Whether a sale of The Pullman Company to the com-

bination of railroads will effect a complete and permanent

separation of the sleeping car business from the railroad,

banking and manufacturing interests which are shown by

the record to have combined with The Pullman Company

in suppressing production of sleeping car equipment and

in discriminating against the weaker railroads.

3. Whether a court, in selling a business pursuant to an

antitrust decree intended to destroy a monopoly, must take

into account the compara jive qualifications, intentions and

abilities of the various bidders and select from among them

that one which gives greatest promise of removing the

stifling effects of former monopoly and of expanding the

competitive market for sleeping car service.

All of these questions are equally important, the answers

to which elicit decisive reasons for reversing the trial court.

However, it is the third question involving the power and

responsibility of the court to select a purchaser of The

Pullman Company, and the criteria to be applied by it in

such a selection to which this brief will be primarily di-

rected.

STATUTES INVOLVED.

The statutes involved are Sections 1, 2 and 4 of the Sher-

man Act of July 2, 1890, as amended (26 Stat. 209; 36 Stat.

1167; 50 Stat. 693; 15 U. S. C. 1, 2 and 4), the pertinent pro-

visions of which are as follows:

Section 1. Every contract, combination in the form

of trust or otherwise, or conspiracy, in restraint of

trade or commerce among the several States, or with

foreign nations, is hereby declared to be illegal: * * *

(15 U.S.C. See. 1).

Section 2. Every person who shall monopolize, or

attempt to monopolize, or combine or conspire with any

other person or persons, to monopolize any part of the

4

trade or commerce among the several States, or with

foreign nations, shall be deemed guilty of a misde.

meanor, * * * (15 U.S.C. See. 2).

Section 4. The several district courts of the United

States are invested with jurisdiction to prevent and re-

strain violations of sections 1-7 and 15 of this title; and

it shall be the duty of the several district attorneys of

the United States, in their respective districts, under

the direction of the Attorney General, to institute pro-

ceedings in equity to prevent and restrain such viola-

tions. * * * (15 U.S.C. See. 4).

STATEMENT OF THE CASE.

In its original opinion in this case the court found as

follows:

‘‘We find a complete monopolization in the business

of furnishing sleeping cars to railroads. This applies to

the servicing of the cars and the furnishing of such

cars both of which are completely controlled by the

defendants.’’ (R. 742)

As a remedy the court proposed a decree which provided

that

(1) the sleeping car business shall be separated from the

manufacturing of sleeping cars;

(2) the railroads may purchase used sleeping cars from

The Pullman Company;

(3) The Pullman Company shall operate and service

sleeping cars regardless of who manufactures them;

(4) any railroad may operate all or any portion of its

own sleeping car business;

(5) The Pullman Company is to be obligated to furnish

through-line sleeping car service;

(6) exclusive dealing contracts between The Pullman

Company and the railroads shall be eliminated. (R. 744)

Gant > Sn Ata 2

2 ROO 8 Bhi yer MN Se

5

In addition, the court in the following language recog-

nized the necessity of a pool of sleeping cars available to

all railroads alike:

‘*Even if a railroad could buy the cars it needed for

ordinary day-to-day use there is still the problem of

extra cars for peak loads. All roads have certain

periods when the demands increase sharply. But in

some, like the Missouri Pacific, Baltimore & Ohio,

Southern Pacific, and the Pennsylvania, the variation,

while perceptible, is comparatively slight throughout

the year. Others, like the Florida East Coast, Sea-

board, Boston & Maine, Burlington, and Northern Pa-

cific have a large amount of seasonal passenger travel

in extreme peaks and deep depressions. For instance,

the Florida East Coast Railway’s requirements may

vary from 319 cars in the height of the season to 28

in the dull season. Conversely, those of the Boston &

Maine go from a maximum of 173 in summer to a

minimum of 54 in winter. The pool of sleeping cars

that can be shifted from one road to another as de-

mands vary is called for by sound economic policy.

The plaintiff in this suit does not deny this fact and

this Court appreciates it fully. It is relevant to be con-

sidered in this connection when the practicability of

the operation of any railroad’s sleeping cars is to be

considered.’’ (R. 735, 736).

Pursuant to this opinion both the Government and The

Pullman Company submitted forms of a proposed judg-

ment. The Government urged that Pullman Incorporated !

should be directed to dispose of the manufacturing busi-

ness and continue to operate an equipment service pool.

On January 22, 1944, the court held that Pullman Incorpo-

rated should have the choice as to which one of its two

present businesses it would continue to operate. (R. 759)

To this opinion Judge Biggs dissented on the ground that

* Pullman Incorporated is a holding company which owns

all of the stock of Pullman-Standard Car Manufacturing

Company (manufacturer of sleeping cars) and of The Pull-

man Company (operator of sleeping cars).

6

the retention of the manufacturing units by Pullman In-

corporated would be contrary to the public interest.

Among the reasons he gave is the following:

‘*. . . the probable effect of the court’s decree will

be to compel the railroads of the United States, which

must maintain adequate through sleeping car service,

to purchase the stock of Pullman Company. The rail-

roads are keenly competitive. Their need for sleeping

ears varies widely. To what extent is each to contrib-

ute to the maintenance of the Pullman pool which we

are unanimous in believing must be maintained? Who

will police the operations of the pool in order to make

sure that those carriers who contribute to the purchase

of Pullman Company stock (contributions which must

vary in amount in accordance with needs and re

sources) will treat their partners in the joint enter-

prise or the public without discrimination. I know of

no power presently vested in the Interstate Commerce

ission or in any other government agency which

would enable it to regulate such a pool operation.”

(R. 762)

On May 8, 1944, the trial court entered an order requir-

ing the complete and perpetual separation of the manufae-

turing business and the sleeping car business of the de-

fendants. (R. 764) Defendants elected to dispose of their

sleeping car business. (R. 776)

Pursuant to this election, from September 1944 to March

1945 plans were formulated and a proposal put forward F

by Pullman Incorporated to sell the sleeping car business |

to the railroads. (R. 775) Not until May 12, 1945, how- F

ever, was a definite proposition made to sell the stock of |

The Pullman Company (the sleeping car business) to the

railroads. The price was to be about seventy-five million |

dollars. (R. 2246, 2254) Instead of taking affirmative ac-

tion on this offer, a committee representing the railroads

proposed a delay of eighteen months from March 22, 1946.

(R. 2057)

7

On August 27, 1945 this appellant, Otis & Co., intervened

in these proceedings and submitted its offer to purchase

the stock of The Pullman Company upon substantially the

same terms and for substantially the same sum as those

that Pullman Incorporated had offered to the railroads.

(R. 984, 1054) That offer conformed in every particular

to the decree of the court. It assured not only complete

separation of the sleeping car business from any manufac-

turing interest, but also complete separation of the sleep-

ing car business from those railroad and banking interests

which were shown by the record to have joined with The

Pullman Company in discriminating against smaller rail-

roads and suppressing the expansion of the sleeping car

business. It went further and offered to replace the entire

deet with modern equipment and to enter on a nationwide

promotion of sleeping car travel.

Some time later a combination of the railroads inter-

vened for the purpose of purchasing the stock of The Pull-

man Company. (R. 1141) There were several non-railroad

bids. (R. 984, 1056, 1113) A hearing was had by the court

and evidence taken with respect to all the offers before it.

(R. 2022-2402)

The court approved the offer of the combination of rail-

roads disregarding the non-railroad bids. In so doing the

three judges, as a court of equity, held that they could

not substitute a judicial judgment for the decision of the

proprietor of The Pullman Company. The court stated:

“‘Approval of the sale to the railroads does not

imply disapproval of other bidders. We are much im-

pressed with all of them. We do not approve Pullman’s

selection because it has chosen the bid that brings it

what it regards as the most favorable terms. We ap-

prove it because, following our direction to sell, it now

appears with a buyer. That buyer is, as we said above,

the most natural purchaser, because it has the legal

responsibility for providing sleeping cars and comes

m under terms which we are satisfied are in accord-

ance with the judgment of this Court.’’ (R. 1199)

Throughout its opinion the court made it clear that it con-

sidered entirely irrelevant any question as to which bid

would most effectively dissipate the consequences of the

monopoly and restore the expanding competitive market

in sleeping car transportation.

The type of considerations which the court ignored in its

judgment of approval of the railroad bid are shown in the

intervening petition of Otis & Co. and in the evidence taken

in support thereof.

The Bid of Otis & Co.

In its intervening petition Otis & Co. described in detail

the stagnation of production and service which the Pullman

monopoly had created in sleeping car transportation. It

stated that the present fleet of about 6,250 heavyweight

Pullman cars was in a deteriorated condition ; that in design

they were obsolete; that their weight was excessive causing

unnecessary expense in fuel cost and roadbed repair and

preventing speedy travel. It showed that if the railroads

were to compete effectively with air and motor transporta-

tion the entire fleet must be replaced with modern light-

weight equipment. (R. 984)

To meet this need to dissipate the effects of the past

monopoly, and through competition to restore the expan-

sion of the business which had been halted for years, Otis

& Co. proposed to place immediate orders for sleeping car

equipment to replace the entire fleet in an amount estimated

at $500,000,000. (R. 985, 999) In addition it committed

itself and the group it represented to set up a network of

agencies over the entire United States to develop, promote

and advertise recreational and educational travel. The

commitment was described in its petition as follows:

“The Modern Service for the Railroads to Which Peti-

tioner is Committed Upon Approval of Its Petition

by This Court.

‘*Petitioner will refer herein to the service proposed

by it as New Putiman Service. Its purpose will be to

furnish the railroads with equipment and provide serv-

ices which they cannot easily or economically provide

for themselves. In broad outline, New Putiman

Service will be designed to give the railroads a service

to meet the developing needs of a nationwide market

and thus supplement the separate activities of each

railroad in its own area. It will have the advantage

of mass buying power of large orders from competing

manufacturers and thereby provide at mass production

cost a pool of modern equipment to meet the through-

line requirements and the seasonal demands of every

wiiocal. It will service this equipment for the rail-

roads in accordance with modern standards and needs.

And it will do more. It will explore for the railroads

the possibilities of the new opportunities for rail pas-

senger transportation, created by the industrial de-

velopments of the postwar world. Thus New Putuman

Service will enable the railroads to meet the competi-

tion of the rapidly developing passenger transporta-

tion by air and motor. This will require nationwide

promotion and advertising, coupled with systematic

experimentation and research.

‘*T9> understand the possibilities of such a program,

it is necessary to sketch the changed character of the

railway passenger market after the war. Railway

passenger transportation has lost its position as a

natural monopoly. Air lines today predict the rapid

expansion of their passenger market to 58,000,000 pas-

sengers annually. Pullman travel, except under the

artificial conditions of the war years, never exceeded

40,000,000 passengers annually. Bus and automobile

transportation may be expected to increase enormously

with the development of better highways and more

efficient motors. But all this does not mean that the

market for rail travel is gone, or even that it has been

impaired.

10

‘*The market is there, larger and richer than ever

before. The nation today is well along into the second

industrial revolution of electronics, giant power, light

metals. Techniques are at hand to tap the resources

of undeveloped regions. An expanding production in-

sures a rising aggregate and per capita standard of

living. The sections of the country are being rapidly

brought together into a single vast metropolitan area.

The rise in purchasing power means a great growth

in the industries which cater to education, recreation

and leisure. The market, however, can no longer be

exploited by the noncompetitive philosophy of high

cost, low usage, and security for investments in obso-

lete equipment.’’ * * *

‘**Unified service permits standardization in railway

passenger car design and procurement, with resulting

obvious economies. The advantages of mass produc-

tion have been well established in the United States

but heretofore never realized in the production of

railway passenger equipment. The outstanding ex-

ample of mass production is the automobile industry,

which produces superior cars at * eng far below those

obtaining in other countries. This is made possible

by standardization of design, materials and methods,

and is stimulated by open competition. ‘!n contrast to

the practice of the automotive industry the building of

railway passenger cars has been highly individualized.

Cars have been largely custom-built, necessitated ex-

pensive engineering, cumbersome production methods

and small unit purchasing of materials, including sucli

items as seats, lighting fixtures, air-conditioning equip-

ment, trucks, ete. e result has been to increase

greatly the cost of the product. The economies to be

realized by standardization of product and purchasing

in large quantities are enormous.

‘*Modernization of sleeping cars will produce far-

reaching beneficial effects for the railroads and the

public. At the moment a dead weight of 21% to 8 tons

per passenger is carried, dependent upon occupancy.

In the airplane it is now 1,500 pounds and it may be

reduced to half that figure. ith light metals the

11

weight may be materially reduced. The width of a

car may be fixed, but the length of the train knows no

such limit. Space may be enlarged with a sharp de-

crease in the weight that has to be hauled. The effect

of dead weight can be minimized by the use of roller

bearings, instead of the old-fashioned type of friction

bearings. Moreover, in prewar days the Pullman car

carried an average of ten passengers; the average

occupancy of the car was decidedly below 50 per cent.

Thus the cost of travel was made extravagant by the

distribution of overhead costs over a small number of

passengers. Modern equipment and improved service

should keep the cars filled towards capacity, thus mate-

rially lowering cost. Another key to low cost is to

keep the cars in use, not standing idle on sidetracks.

‘Plans for Immediate Needs.

‘*‘To meet immediate needs, New Putitman Service

proposes to provide for the railroads, as soon as it can

be constructed, the most modern fleet of sleeping cars

and observation cars that competitive engineering

brains and manufacturing facilities can produce. The

great wartime increases in productive capacity in the

equipment industries insure that all types of cars will

be built in a competitive market. This fact and the

development of new metals and new alloys, new mate-

rials, new designs, and new construction techniques

further insure the manufacture of such equipment at

costs much lower than the costs of existing equipment.

This will enable New Putian Service to render serv-

ice to the railroads at lower costs. And the railroads

in turn will be able to experiment with reductions in

rates to its customers, the public. Thus the railroads

will, at an early date, be started on their way to meet-

ing the competitive challenge of the air lines and the

needs of present day travel.

‘‘New Putiman Service also proposes to provide

other types of equipment necessary to meet railroad

needs in an expanding and wy thy market for luxury

travel. For example, to meet this increasing demand

for through coast-to-coast service, New Puniman

Service will offer to furnish the railroads every type

of equipment which will make fast schedules for these

long journeys attractive to the public.’’ * * °

‘‘New Putian Service will Promote the Unexplored

Market in Passenger Travel.

‘‘There is a vast untouched market in rail passenger

travel ready to be exploited. It was not exploited in

the past because railroads considered the passenger

business unprofitable. Its cost was beyond the reach

of the great mass market composed of persons of mod-

erate means. It was the automobile industry that

seized the opportunity to exploit that mass passenger

market. Indeed, it went further and reac even the

low-income groups.’’ * * *

‘‘Railroads today have as great an opportunity to

develop passenger travel as the motor car industry had

in 1920. They need only reach down to the mass market

of persons of moderate income. The extent of this

market is limited only by the vision and energy of

those who attempt to exploit it.’’* * *

‘‘Today persons of moderate income take long un-

pleasant trips by automobile only because they cannot

procure automobile service at their destination for a

moderate cost. The possibilities of encouraging inde-

pendent local organizations to fill this need at low cost

at the end of the journey by train or at stop-overs are

unlimited. New Puriman Service should insure a

constant flow of passengers by rail to such independent

agencies so that it would no longer be necessary for

persons on a vacation to take the entire trip by auto-

mobile. By the development of this possibility, the

automobile will become a supplement to rail travel,—

a means of increasing the number of passengers car-

ried by train instead of a competitor taking away pas-

sengers from railroads.’’ * * *

‘‘The development of this market requires a network

of supplemental means of travel which will carry pas-

sengers from rail heads to outlying areas. It is not

13

suggested that New Putiman Service own or operate

these supplemental agencies. They can be independent

and still serve the railroads through New Putimay

Service because nationwide promotion of travel gives

them a mass market of passengers.’’ (R. 996-1001)

The above commitments were made by the Otis-Young-

Kirby group represented by Otis & Co. This group re-

quired no advance guarantee that any railroad accept the

service of the New Pullman Company. Each railroad was

free to take all of the service or any part of it or none as it

pleased. Some of the larger railroads had already ordered

new equipment for their own use. The Otis offer did not

propose to take over such equipment and in no way did it

set obstacles in the way of that kind of development. Its

chanve of success lay in its ability, through mass purchas-

ing, the use of up-to-date cars, the elimination of costs

incident to obsolete methods and equipment and the stimu-

lation of a nationwide demand to furnish a service that

would be cheaper than the railroads could furnish at their

own expense. There was to be no interference with the

freedom of choice of any railroad. A new independent

source of supply of equipment and service was to be pro-

vided. It was to be offered to the railroads on a competi-

tive basis. (R. 2036, 2037, 2075, 2531, 2546, 2547, 2586-2587)

The importance to weaker railroads of this new competi-

tive supply of service and equipment is also shown in the

record. The demand for sleeping cars and vacation equip-

ment is seasonal. Weaker railroads are financially unable to

build and operate sleeping cars for peak-load and through-

line service. For that reason if the railroad combine

was to become the only—or even the principal—supplier

of Pullman car service, weaker connecting lines would be

at a constant disadvantage unless they became the economic

captives of the stronger roads. Without an independently

owned and constantly expanding pool of modern sleeping

car equipment the evils of the old monopoly would persist

14

in a different form. The carrier able to build and own its

own equipment would be in a position to dictate terms to

the weaker lines. Such a situation would aggravate the

old problem of the strong and the weak road. (R. 2090-2093).

Furthermore, vast and undeveloped recreational areas of

our country are served by weak roads, which are unable to

develop them for the benefit of the public and of the state

without access to a pool of modern sleeping cars and with-

out the help of a nationwide promotional service devoted to

the expansion of passenger travel. (R. 2066)

The petition concluded that the present static condition

into which the sleeping car business had fallen—due to the

monopolistic restrictions of the past—could only be cor-

rected by the court’s selection of a bidder who was actually

willing to risk its capital in a program for the progressive

development of the sleeping car business. (R. 1002)

The court refused to weigh the evidence on these consid-

erations or even to consider the bid of Otis & Co. Nor did

the court make any inquiry into or any attempt to appraise

the willingness and capacity of the railroad combine or of

any other bidder, to end the conspiracy, dissipate the con-

sequences of monopoly, or restore free enterprise to the

sleeping car business.

Effects of the Court’s Ruling.

The offer of the railroad combine does not contemplate

an expanding pool of sleeping cars. On the contrary, its

offer, considered in the light of the evidence, makes clear

its determination to prevent the creation of a source of

supply in competition with the new equipment being con-

structed by the larger roads. These facts were recognized

by the court for, in approving sale to the railroad combine,

it stated: ‘‘. . . we do not think it likely that The Pullman

Company, itself, will purchase new sleeping cars, . . .”

(R. 1197) Thus the court failed to make effective its find-

ings that a ‘‘pool of sleeping cars that can be shifted from

15

one road to another as demands vary is called for by sound

economic policy’’ and that ‘‘through service is a modern

essential, but most railroads cannot, by themselves, provide

such through service.’’ (R. 736)

Under the court’s decree even the present pool is to be

dismembered, the lion’s share going to the Pennsylvania

and New York Central railroads. The expressed intent in

the plan of the railroad combine is that The Pullman Com-

pany shall, during the interim period, be stripped of its

equipment, reduced to a servicing company, and then sold

to a so-called ‘‘independent’’ purchaser. (R. 1165-1168)

There is no assurance that such sale will ever be made;

but, if it is made, the new company will be independent in

name only. As the nominee of the larger roads in the com-

bine, its selection will depend upon committing itself to a

policy of sleeping-car transportation which these dominant

roads believe to be ‘‘sound.’’

Thus, for at least three years there will be complete stag-

nation in the development of a nationwide pool. Mean-

while, the larger railroads are placing orders for hundreds

of sleeping cars. (R. 2531, 2546, 2547) At the end of the

period, the stronger roads will have achieved a position of

domination of the sleeping car business. The weaker roads

will be dependent on them for their seasonal needs and

through-line requirements. (R. 2092)

Under the offer of the railroad combine, the stock of The

Pullman Company would be owned in accordance with the

percent of sleeping cars operated by the several carriers.

(R. 1166, 1167) This means that the Pennsylvania and the

New York Central railroads will own in excess of 30 per cent

of the stock, the balance being scattered among at least 40

railroads. This would give effective control of The Pull-

man Company to these railroads. Combined with a few

other large railroads operating sleeping cars—the Santa Fe,

Union Pacific and Southern Pacific railroads—control of a

majority of the stock of The Pullman Company is assured.

The method of selecting directors further evidences this

16

control. The plan in the offer of the railroad combine pro-

vides for a board of directors for The Pullman Company

of 15 members, 3 from each of three regions, the East, the

Southeast, and the West, the remaining six to be chosen at

large. (R. 1163) Thus, through the stock ownership and

organizational set-up provided for in the offer of the rail-

road c«mbine as approved by the court, and through the

interlocking relationships hereinafter discussed, the major

railroads and affiliated interests would effectively control

the sleeping car business of the country.

The kind of policy which the larger railroads consider

‘*sound’’ was called to the attention of the trial court by

Otis & Co. Evidence of that policy is found in the record in

the original trial. It is also to be discovered in documents

introduced at committee hearings in Congress of which the

Court may take judicial notice. For example, the so-called

‘Western Agreement’’ was investigated by the Committee

on Military Affairs of the United States Senate in 1944.

Under that agreement the western lines by concerted action

stopped competing improvements in sleeping car trans-

portation. The western commissioner, the appointee of the

Western Association of Railroad Executives, hampered and

prevented the introduction of air conditioning in railroad

ears. We have set out in Appendix A relevant portions of

the testimony before the Congressional Committee. We

believe that this history of the railroads’ attitude towards

expanding the supply of equipment is significant and should

have been considered by the court in connection with the

plan in the offer of this railroad combine which is equally

opposed to expansion.

Further light on the meaning and intention of the rail-

road plan is found in the record of this case, excerpts of

which we set out in Appendix B. Briefly summarized, that

record shows that the Pennsylvania and New York Central

railroads conspired with The Pullman Company to obtain

more than their proportionate share in Pullman revenue. It

shows that Pennsylvania Railro~d and New York Central

17

attempted and succeeded in maintaining a strong position

in the management of The Pullman Company. It shows

that Pennsylvania Railroad and New York Central were

co-conspirators with Pullman in retarding the introduction

of lightweight equipment; that they assisted in restraining

the introduction of new sleeping car equipment.

The Interest of the Several States in Expanding

Transportation.

The States of California, Colorado and Georgia filed in-

tervening petitions. (R. 1104, 1112, 2235) California pre-

sented a recitation of facts which compelled the conclusion

that an expanding sleeping car service could not be ex-

pected from a railroad-dominated combination. The facts

presented were either contained in the record of the case

or they came from public documents of whicb this Court

could take judicial notice. California urged the approval of

the sale of the Pullman service to an independent purchaser

in order to put an end to the former monopoly. Georgia

joined in the California petition. (R. 2235-2239) Colorado

in a supplemental petition stated that it took no position for

or against the railroad acquisition of The Pullman Com-

pany. (R. 1170) However, it as well as the other inter-

vening states concluded their petitions as follows:

‘The Western States must have adequate passenger

transportation service to stimulate their future growth.

Automotive and air transportation will not suffice.

“‘The great bulk of passenger transportation must

continue to be by rail. This transportation will not

take place unless the antiquated and obsolete Pullman

Service is replaced with a modern and streamlined

service,

‘The entertainment of and caring for visitors and

vacationists to the States of Colorado and California

has become a business of first magnitude. Great ex-

nape are made in soliciting this patronage. A

ge percen of peer visitors must rely en-

tirely upon railroad facilities for their transportation.

18

In 1941 a total of 1,000,025 relied upon railroad trans-

Portation to visit the State of Colorado. The efficiency

of such transportation is a matter of vital interest to

the States of Colorado and California. Failure on the

part of the Pullman Company to plan and into

effect an energetic and attractive poem for better

equipment and service is a natural and obvious result

following the court decree. It is of vital interest to

Colorado and California that the provisions of the

decree be fulfilled without unnecessary delay.

‘*Over two million persons came to California in 1941

as visitors. Over 1,000,000 visitors in Colorado in 1941

relied upon railroad facilities for-their transporta-

tion ; visitors by train, 1,000,025 [in] 1941; by automo-

bile, 2,000,079; by bus, 263,000, and by airplane, 7,800.

From these visitors come future residents who in time

become interested in western industries. A passenger

service, adequate and modern and priced to suit the

An of the average citizen will increase this flow of

r \

‘*Pullman Service has not furnished such a service.

‘*A request for a delay of 18 months by the railroads

does not augur well for the improvement of the serv-

ice,’? (R. 1110, 1111)

Although such considerations lie at the very heart of the

problem of relief, the court put them aside as irrelevant.

The Recommendation of the Department of Justice.

After the evidence was in, the Department of Justice at

the request of the court made its recommendation. (R.

2242, 2558, 2261) It advised the court that the Otis & Co.

bid would best serve the paramount public interest in future

competition. On the negative side it advised the court

that acceptance of the bid of the railroad combine ‘‘ would

substitute a more vicious monopoly than that stricken down

by the court.’’ (R. 2561) The court did not discuss the

validity of the government’s objections. It held the con-

siderations urged by the Government were beyond its

authority to consider.

19

SPECIFICATIONS OF ERROR.

The nineteen assignments of error relied on in this

appeal may be summarized in the statement that the court

erred in failing to take the necessary precautions to insure

the sale of the stock in The Pullman Company in such a

way as to accomplish the ends for which the suit was

brought. This general statement may be broken down

into these fundamental errors:

1. The court erred in delegating to Pullman Incorpo-

rated, an adjudicated wrongdoer, its power as a court of

equity to select the successful bidder.

2. The court erred in giving no consideration whatever

to the recommendation of the Department of Justice.

3. The court erred in permitting a combination of the

principal railroads in the United States, many of which

are in competition with each other, to acquire control of

a pool of sleeping cars and facilities now owned and

operated by The Pullman Company, thus in practical effect

eliminating competition in the business of providing sleep-

ing cars and service to independent competing railroads.

4. The court erred in ignoring facts in the record which

bore on the relationship of the members of the railroad

combine with the former conspiracy and which required at

the very least a further inquiry.

5. The court erred in ignoring the public interest in

expanding transportation.

6. The court erred in refusing to evaluate the various

bidders according to their respective qualifications, inten-

tions and capacities to dissipate the effects of the former

monopoly and to expand the competitive market which

had been destroyed by it.

ARGUMENT.

L

Critique of the Court’s Opinion.

The dominant error, running through all the various

separate errors made by the court is best described in its

own words. The court dealt with the sale of the stock of

The Pullman Company as a ‘“‘by-product’’ not the ‘‘end-

product”’ of the suit. It thus regarded a mere physical

separation from Pullman Incorporated—whatever corpo-

rate ties were left uncut and whatever hazards to the pub-

lie interest were allowed to endure—as enough to satisfy

the law. It took no steps to make certain that the separa-

tion it had decreed would prove a separation in fact or to

assure itself that a sale to the railroad combine would be

a sale to a party distinct from the seller. In turning an

end-product into a by-product, the court below committed

a number of errors, because it did nothing to assure itself

that a sale to the railroad combine would serve the ends

for which the suit was brought.

(a) The court below, by allowing Pullman Incorporated

to select its own successor, delegated to the malefactor a

power inherent in the process of equity.

The sale of the stock of The Pullman Company is not

to be viewed as a thing apart. It is set within an anti-

trust proceeding; it is a step in bringing the sleeping car

business within the tolerance of the law. To insist, as

did the court below, that since Pullman Incorporated ap-

peared with a buyer, the transaction must be approved,

is to treat the sale as if it was of concern only to the con-

tracting parties and was in no way affected with a public

interest.

- It is submitted that Pullman Incorporated had no legiti-

mate interest which would give it any voice whatsoever in

the selection of a buyer. It had been ordered to divest itself

of The Pullman Company. It had been assured a reason-

able compensation for the properties with which it had been

forced to part. In respect to the price to be paid for the

stock and the terms and conditions of sale, the various

bids were substantially equivalent. There was no pecu-

niary or financial reason for the seller to find one offer

more advantageous than another. If Pullman Incorporated

was to choose, its judgment would have to turn upon cri-

teria which only a court of equity could apply.

Criteria were at hand to guide the court below in its

choice. The sale offered the conflicting possibilities of fur.

thering or preventing the restoration of effective compe-

tition to the sleeping car business. The court was under a

duty not to approve any prospective purchaser—and cer-

tainly not the elect of the wrongdoer—until it had taken

reasonable precautions to make certain that the sale gave

promise of serving the public interest by dissipating the

effects of the conspiracy. And when four distinct offers

were before it, the court committed serious error in not

bothering to evaluate them in terms of the objectives of

the antitrust law. That obligation rests squarely upon the

court below. And it is not equity for that court to delegate

its judicial duty to a party it has adjudged to be a wrong-

doer.

(b) The opinion approves without adequate inquiry, the

sale of the stock of The Pullman Company to parties shown

by the record to be co-conspirators.

If the divestment ordered was to be realized in fact and

not in word alone, the court was under a duty to make

certain that the new purchaser was alike independent of

the seller and guiltless of wrong doing. The mere separa-

tion in corporate identity is not enough. It is a matter

of common knowledge that in the railroad field, the power-

to-make policy lies with a group of banks and insurance

companies which seek security for investments rather than

returns from capital risked in progressive enterprise. The

task of the court below could not stop with looking at

appearance. In giving effect to public policy it was under

a duty to ask where the power to make decisions lay, to

probe to the actual seat of discretion. Anything short of

this would fulfill a legal ceremonial without furnishing the

information essential to the court’s remedial task.

(c) The control and management of the railroad combine

is inseparably tied in with the control and management of

the Pullman-Standard Car Manufacturing Company.

The interests which control and manage Pullman Incor-

porated are the interests which control and manage the

railroads which in combination are seeking to purchase

The Pullman Company. Indeed, at the time of the hearing

on petitions for approval of offers to purchase, out of a

board of 15 directors of Pullman Incorporated, none were

free to select a purchaser other than a purchaser deter-

mined for them by the other institutions they represented.

And these other institutions are preponderantly railroads,

members’ of the combine, and their traditional bankers.

These facts are conclusively established in the record as

set forth in Appendix hereto.

At the time of the hearing, 27 railroads were in the pur-

chasing combine. (R. 1141, 1142) Of these 4 were directly

and 14 indirectly (through various interrelationships) rep-

resented on the board of directors of Pullman Incorporated

which controls Pullman-Standard Car Manufacturing Com-

pany.

In every move he made, Mr. Crawford, president of Pull-

man Incorporated, took counsel with his directors and the

selection of the rails as the successful bidder was made by

them. Yet J. P. Morgan & Co. and the Mellon interests, as

the record discloses, dominated both Pullman Incorporated,

which was parting with its property and the buyer which it

elected to come into possession. Such facts were not con-

sidered by the court, and along these lines no inquiry was

instituted to guard the public interest.

Testimony from the record and from public documents

of which the court below agreed to take judicial notice

has been cited to the effect that actual choice of the offer

of the rails was made by representatives of the rails; that,

back of formal corporate organization, the closest and

strongest bonds of unity exist between Pullman Incorpo-

rated and the rails; and that, in terms of past performance

and current unbroken ties, the railroad combine can not

safely be entrusted with the control of The Pullman Com-

pany. But, assuming for the sake of argument, that the

testimony falls short of being conclusive, the least com-

pelling view is that it establishes a strong presumption,

against ownership and control of the sleeping car busi-

ness by the railroad combine. As the custodian of the

public interest, which it is the very purpose of the anti

trust acts to serve, the court was under an obligation to

explore all these issues. The questions could be succinctly

put, the answers were easily to be found either in testimony

before it, or in documents of which the court could take

judicial notice. The result of such an inquiry—whatever

it might yield—was a necessary antecedent to an approval

of the sale to the railroad combine.

Nor did the court explore the effect on future combina-

tion of ownership of the Pullman service by ninety-five

percent of the railroads. It must be evident to anyone that

the railroad combination will be controlled by the dominant

railroads. It follows that they will have a strong incen-

tive not to operate the pool in a way that will strengthen

their weaker competitor for passenger traffic. Yet the court

did not compare the advantages of selling to an indepen-

dent concern which offered to expand the Pullman service

on a nationwide scale for all railroads alike.

(d) At the end of an interim period the railroad combi-

nation propose to sell to an independent. Yet the court

did not consider the obvious fact that an indepenent

selected by the larger railroads would necessarily be the

captive of the combination to which it owed its power.

The net effect of the court’s decision has been to exclude

a vigorous independent competitor from the business and

to entrust The Pullman Company to the bidder who prom-

ises to do least in the development of sleeping car service.

The court has refused to consider offers intended to put

the maximum of supplies and equipment on the market.

It has sanctioned a sale which will prevent the replacement

of the obsolete worn-out equipment by a fleet of modern

light-metal cars. It has virtualy enjoined a national sales

organization to promote the progressive increase in the

volume of educational and recreational travel. It can

hardly be denied that the competition between sleeping-

car service offered by the several railroads and an inde-

pendent company would be to the advantage of the public.

It is hard to see how an independent service offered to the

various railroads on a voluntary basis could injure any

legitimate interest which is theirs. The threat of such a

service can only be to some equity in monopoly which the

combine of carriers seeks lawfully to vest.

The action of the trial court, therefore, raises the ques-

tion which will be the principal theme of this brief. This

question may be given an affirmative or a negative state-

ment. In affirmative terms it is that it is the duty of a

court, in effecting a reorganization of a business pursuant

to an antitrust decree, to take into account the compara-

tive intentions, qualifications and capacities of the several

bidders to effect the ends for which the suit was brought.

In negative terms it is that the court cannot, without rig-

orous inquiry, sanction a sale to a combination of members

of the same industry controlling 95 percent of the volume

of traffic in the face of facts warrasting the presumption

that the evil sought to be remedied will reappear in a new

form.

We shall, therefore, in the argument which follows, in-

sist that the judgment be reversed on the ground that

the court below held as a matter of law that the merits of

the several bids were not a subject for judicial scrutiny.

We also insist that the court delegated its duty to a private

party, neglected to guard the public interest in supervising

the sale, and failed to apply to the selection of a buyer all

these criteria of law enforcement which should have guided

choice.

II.

A Decree Dissolving a Combination in Restraint of Trade

Is in Effect an Equity Reorganization for the Purpose

of Disposing of the Property to the Persons Most

Capable and Best Qualified to Re-Establish the Com-

petitive Market Which Has Been Destroyed by the

Former Monopoly. Therefore, the Type of Business

Judgment Which the Court is Accustomed to Exer-

cise in Ordinary Reorganization Must Be Used in

Selecting the Transferree of the Property.

In an equity reorganization the interests to be protected

are the conflicting types of stockholders and creditors, In

approving a plan the court must and always does exercise

its judgment as to the comparative abilities of various trans-

ferees to conduct the business successfully in the future for

the benefit of those conflicting interests. No one would

suggest that the court can wash its hands of this problem

and accept the nominee either of the bankrupt or of any

particular class of creditors on the ground that a judg-

ment between bidders was beyond the authority of the

court.

The same principles apply to an equity reorganization

under the Sherman Act, though it should be neted that the

interests represented are different. The paramount inter-

est in an ordinary equity reorganization is the interest of

the creditor. The paramount interest in a government suit

to enforce the antitrust laws is the public interest in ex-

panding competition. There is no other possible purpose

in the institution of an antitrust proceeding by the gov-

ernment.

The case of Continental Insurance Co. v. Reading Co.,? is

an illustration of the kind of economic considerations and

business judgment a court of equity must exercise in an

antitrust reorganization. That case involved a separation

of interlocking interests controlling railroads and coal

mines contrary to the Sherman Act. An interim period

was necessary before certain of the properties could be

sold, but the court during the interim did not leave the

properties in the control of the culprit. Instead it put its

own trustees in charge until final disposition. The Attorney

General made a recommendation based on business facts

which the Supreme Court as a matter of course considered.

It modified that recommendation in the light of economic

considerations which had occurred subsequent to the Attor-

ney General’s opinion. The type of considerations under-

lying the Court’s judgment is illustrated by the following

passage:

‘It is asserted further by the Reading Company, and

not denied, that, when this decree was entered by the

District Court, the monetary situation was such that it

would have been impossible to secure a purchaser of

the Reading Coal Company properties at any fair

price; that, indeed, the transaction could not have been

financed at all.

‘‘The considerations influencing the District Court

and the government against a drastic readjustment of

the interests of the bondholders under the general

mortgage and the holdings of the two offending com-

panies were of manifest weight in the then business

and monetary situation. Even now this court would

hesitate to order a sale of this kind of property worth

probably $100,000,000 with confident hope of realizing

an adequate amount with the necessary restrictions as

to the purchaser. We agree with the Attorney General

in his disinclination to insist upon such a sale under the

circumstances. Since the time of settling the decree,

however, a change for the better has come in the finan-

2 259 U. S. 156.

27

cial situation. We think that this justifies us now in

making some modifications in the plan, which were not

presented to the parties or considered by the court,

possibly because they might have been unwise in the

critical conditions then existing. They involve a de-

parture from the contract provisions of the general

mortgage and the bonds it secures.’’ (p. 170)

It is true that such judgments can only be informed

guesses as to the future based upon the most reliable evi-

dence which the court can secure. Nevertheless, the duty

to make such judgments is inescapable from any type of

equity reorganization. If such considerations are ignored

in an antitrust reorganization, the result of the suit may

for the future result in the creation of a stronger monopoly

than that which existed in the past.

In this case the old monopoly had left the public and the

railroads with an obsolete fleet of sleeping cars. A com-

pelling need—both to the weaker railroads and to the public

—was replacement of that fleet by an independent in a posi-

tion to offer the service to all the railroads alike on the

same terms. It is essential that the independent shall have

no ties with the former conspiracy. It is imperative that

the reorganized company be not dominated by any group

having an interest which runs counter to that of the public

or the weaker railroads.

Yet the court below approved the transfer of the sleep-

ing-car business to a group of carriers dominated by the

New York Central and the Pennsylvania railroads and un-

der the influence of the banker group closely connected with

the major raiJroads. It put to one side the history of

. that group in failing to expand the Pullman fleet. It ignored

the positive evidence of the conspiracy between that group

and The Pullman Company to discriminate against weaker

railroads. It overlooked the obvious financial interests of

the larger passenger-carrying roads in maintaining a com-

petitive advantage over the smaller rvads. Finally, it elim-

inated from the field the only supplier of equipment and

service that affirmatively promised to replace the obsolete

fleet.

The reason it gave was as follows (R. 1199) :

‘‘A great deal of argument has been presented to us

during the hearing about the majority of the companies

which own and operate the railroads of the country.

They are said to be sleepy and unprogressive. The

roads in turn, have offered testimony to the effect that

they are industrial greyhounds, straining upon the

start. We make no finding of fact on this point, nor

confer either encomium or epithets. We are concerned

only with a small fraction of the total railroad business,

that which has to do with sleeping cars. This part wiil

probably rise little 4 oy than the general level of

railroad competence. We do not think, in any event, it

is within judicial responsibility or competence to make

it do so.

‘‘We are also told that the railroads are dominated

by a group of bankers and that the influence of the

latter, if not sinister, is at least unprogressive and

monopolistic in its tendency. When we reach this ques-

tion we are beyond the scope of issues in this lawsuit

which had Pullman, not the railroads, as defendants.

The record tells us nothing of the operations of railroad

bankers nor of the war between them, if such there is.

Surely we should be going far beyond proper judicial

process if we played, either way, any hunches we may

have, about this question.’’ (Emphasis supplied)

The error of the court may be highlighted by applying

such reasoning to the ordinary equity reorganization where

the qualifications of bidders for the property to be sold are

under consideration. A judgment based upon the reasoning

of the court below in this antitrust case would make no -

sense whatever when applied in an ordinary equity reor-

ganization proceeding. Such a summary disposition of the

ease ignoring the public interest involved constitutes re-

versible error.

A court of equity in an antitrust reorganization is con-

fronted with two closely connected, yet distinct, tasks. The

one is analytical; it must discover and lay bare the wrong.

The second is constructive; it must devise a remedy to

eliminate the evil it has found. The two tasks drive to the

same result. The analysis is of no avail unless it is fol-

lowed by the relief; the remedy is likely to miscarry unless

it is based upon the analysis. The same resources—hear-

ing, the calling of witnesses, the taking of evidence—are

alike available for both tasks. The duty upon the court to

pursue all pertinent issues, to examine all relevant testi-

mony, to avoid arbitrary decisions, to give practical effect

to the law, applies equally to the two parts of the task.

Unless relief can be made effective, the suit is of no avail.

If relief is to be made effective, the offers-to-purchase

must be reviewed by the court with the most critical

scrutiny. Pullman Incorporated, the seller, has been ad-

judged to be a law-breaker. The easy, in fact an obvious

way to escape the law, is for the malefactor to install its

own successor. The court fails in its duty if it is not at

pains to make sure that the control which it has ousted is

not perpetuated in a new form. The railroads, as the record

of the case makes clear, are co-conspirators with Pullman

Incorporated. The evidence before the court establishes a

strong presumption that they are not lawfully qualified to

take over The Pullman Company. Instead of resolving such

doubts by proper judicial inquiry, the court has acted as

if the identity of the buyer, its financial and business con-

nections, its repute is for being law-abiding, its ability in

respect to antitrust to come into court with clean hands,

are irrelevant. If the relief it decrees is to be effective—

and not merely nominal—the court is under obligaticn to

scrutinize closely the credentials of the successor which is

to be installed; to inquire thoroughly into the matter of

whether the railroads are free agents; to make certain

beyond any reasonable doubt that banking and financial

houses—which stand to gain by restraint of trade—are not

in control of any party or group seeking to buy. It is the

public interest which Congress seeks to protect through the

antitrust suit. The court must assure itself that this public

interest is not through a sale which it approves put in

future jeopardy.

The court’s conduct of the instant case does not measure

up to these standards. It has throughout acted as if the

discovery of wrong was its duty; as if relief was a matter

of minor importance. Yet the established rule of equity

affords this court adequate power to make the election and

to shape the terms of sale. It is the mark of equity that it

can carry its remedy to the very character of the wrong.

It has, as Mr. Justice Douglas has put it,’ ‘‘a wide range of

discretion . . . to mould the decree to the exigencies of the

particular case.’’ In fact, as he elaborated in Hecht Co. v.

Chester Bowles, 321 U. S. 321, 329,

‘The qualities of mercy and practicality have made

equity the instrument for nice adjustment and recon-

ciliation between the public interest and private

needs .. .”’

The demand is, as succinctly put by Mr. Justice White in

United States v. American Tobacco Co., 221 U. S. 106, 185,

‘‘to award relief coterminous with the ultimate redress of

the wrongs which we find to exist.’’ As was neatly stated

by Mr. Justice Cardozo, in Atlantic Coast Line Railroad

Co. v. Florida, 295 U. S. 301, 316, a court of equity is ‘‘to

mould its plastic remedies in adaptation to the instant

need.’”’ As was said by Mr. Justice Stone, in Virginian

Railway Co. v. System Fed. No. 40, 300 U. S. 515, 552,

‘‘Courts of equity may, and frequently do, go much farther

both to give and withhold relief in furtherance of the public

interest than they are accustomed to go when only private

interests are involved.’”*

8 United States v. Crescent Amusement Co., 323 U.S. 173, 185.

‘Noted by Mr. Justice Frankfurter, in Scripps-Howard

Radio Inc. v. Federal Communications Commission, 316 U. S. 4,

15. See also Pennsylvania v. Williams, 294 U. S. 176, 185;

United States v. Dern, 289 U. S. 352, 360; United States V.

— 307 U. S. 183, 194; Inland Steel Co. v. United States,

306 U. S. 153, 156; DiGiovanni v. Camden Fire Insurance Ass’n.,

296 U. S. 64, 73.

31

This is not to say that all parties in interest are not free

to suggest to the court plans of divestment. But all pro-

posals to purchase, all terms and conditions of sale, must

be appraised in respect to relative capacity to effectuate

the objectives of the decree. In Continental Insurance Co.

v. Reading Co., 259 U. 8. 156, 170, the Supreme Court made

“‘some modifications in the plan which were not presented

to the parties or considered”’ in the lower court. Although

this case may be viewed as lying on the frontier of judicial

control, even ordinary practice puts emphasis upon the

court’s ultimate responsibility. Note as typical, the decree

in United States v. E. I. duPont de Nemours € Co., 188 F.

127, inviting all parties to submit plans to the end that the

court may ascertain and determine upon a plan; and

United States v. Great Lakes Towing Co., 208 F. 733, 746,

which seeking to give play to every legitimate interest, pro-

vides that the combination should be so dissolved as to

neutralize the force of the unlawful power.’’

In an action like this, where the ends sought are to secure

conduct in accordance with law, there is no reasonable

place in which to lodge the power of election other than

the court. For, as it was so compellingly put by Mr.

Justice Frankfurter, in Scripps-Howard Radio Inc. v. Fed-

eral Communications Commission, 316 U. 8. 4, 15, ‘‘Courts

no less than administrative bodies are agencies of govern-

ment. Both are instruments for realizing public purposes.”’

And as stated by Mr. Justice Reed, in United States v.

Bausch & Lomb Optical Co., 321 U. S. 707, 726, the court

may ‘‘use quite drastic measures to achieve freedom from _

the influence of the unlawful restraint of trade.’”

* An illuminating, even if formally not authoritative, state-

ent of the matter has been given by Mr. Justice Rutledge,

dissenting in Hartford Empire Co. v. United States, 323 U. S.

386, te a. — injunction pone Fn in = ‘a

proceeding in ty.’ In substance, it is a public prosecution,

with civil rather than criminal sanctions, for vindication of

age, right and for redress and prevention of public injury.

© regard the fashioning of appropriate relief in such a suit

For in all such actions, as Mr. Justice Douglas has said

in Hecht Co. v. Bowles, 321 U. 8. 321, 331, ‘‘the standards

of the public interest not the requirements of private

litigation measure the propriety and need’’ of the relief

to be decreed.

Ill.

The Court Erred in Giving No Weight Whatever to the

Recommendation of the Department of Justice That the

Bid of Otis & Co. B» Accepted.

An analogy to the Holding Company Act is in point

here. That Act, in intent and design, is at once a corporate

securities and an antitrust act.’ Its purpose, within the

specific field of its operation, is to break up monopolistic

control. By its provisions the Securities and Exchange

Commission is empowered to make a judgment on the type

of organization which best effectuates the objectives of the

Act. In its decision the court is required to follow the

recommendations of the S. E. ©. if they have support in

the record. The reasons for this are quite obvious. The

S. E. ©. is an expert body, familiar with trade practices in

its field, without an interest of its own to serve, and with

an obligation to give effect to public policy. It has oppor-

tunities to make extensive investigations on which to ground

as identical with the same function in private litigation is to

disregard at once the former’s statutory origin, its public

character, and the public interest it protects. The equitable

garb of the proceeding therefore does not determine or con-

ceal its true character. Nor does it limit the required relief

merely to what will prevent repetition of the illegal conduct

by which the combination has been formed, its property

acquired, and its dominating position secured.” It is of note

that this statement is quite in accord with that just quoted in

which Mr. Justice Reed set down for the Supreme Court the

rule of equity in antitrust cases.

In North American Co. v. S. E. C., 328 U. S. ——, 66 S. Ct.

785, 797 the court stated: “In fashioning the remedy decreed

by Section 11(b) (1), Congress was following a pattern set

— years ago by decisions applying the Sherman Antitrust

Oe o's

its decisions, it has acquired a wealth of experience in

dealing with varied and unlike situations. ‘It possesses not

only facts, but an understanding of affairs in action upon

which the courts can rely. It alone, among all parties

concerned with or participating in a proceeding can give

intelligent representation to the public interest. In the

domain of antitrust the Department of Justice possesses 1

knowledge and understanding comparable with that of

S. E. C. in respect to corporate organization. In fact the

Department of Justice is the only governmental body that

makes investigations of monopolized industry from the

point of view of the public interest in expanding competi-

tion. All other parties before the court in antitrust suits

instituted by the government represent private interests.

No other agency—and certainly no single court—has the

competence gained from continuous experience with the eco-

nomic problems involved in Sherman Act enforcement.

Of course, the weight which should be given to the rec-

ommendations of the Department of Justice in an antitrust

reorganization is nowhere in the statutes precisely spelled

out. The authority to make recommendations is not con-

ferred by any express provision of the antitrust law. It is

rather a necessary consequence of that law which compels

the Department to make elaborate investigations as part

of the enforcement program, for Congress has placed the

entire responsibility for the preservation of competition

through the enforcement of the Sherman Act on the Depart-

ment of Justice. For it must decide when not to prosecute,

as well as when to prosecute; and every decision it makes

is a judgment concerned to protect the public interest. Its

studied decisions, shaped by searching inquiry and a care-

ful balancing of values, are entitled to serious considera-

tion. That this is so is shown in the opinion of this Court

in Continental Insurance Co. v. Reading Co., supra., wherein

the recommendation of the Attorney General with respect

to an antitrust reorganization was considered and discussed

at length.

In the instant case the District Court asked the Depart-

ment of Justice for its views on all bids and its recommen-

dation as to the bid which would comply with the provisions

of its judgment of May 8, 1944. (R. 2242) Pursuant thereto

the Department of Justice submitted its views in detail

and recommended the approval of the proposal submitted

by Otis & Co. as ‘‘the only offer that meets both of the

essential requirements of the Court’s order, namely, com-

petition in both the manufacturing of sleeping cars and in

the furnishing and servicing of sleeping cars... ’’ (R.

2556-2561) The court then completely ignored that ree-

ommendation. This we submit is reversible error.

IV.

The necessity for the ultimate disposition of the pool of

sleeping cars to an independent company is as obvious as

the necessity that a public utility should not be controlled

by its larger customers. It is, therefore, not a matter of

surprise that the railroad combine should propose that,

after an interim period of three years, The Pullman Com-

pany, stripped of many of its assets, should go to an inde-

pendent. It should be noted, however, that the bid of the

railroad combine offers no assurance that this disposition

to an independent even in a limited form, will be made.

It does, however, allow a railroad to withdraw from the

combine if such disposition is not made. The economic bene-

fits which the railroads might secure through such with-

drawal are negligible. The probability is that at the end

of the interim period the sleeping car pool available to all

the railroads will consist of equipment vastly inferior to

that purchased by the larger railroads. We wili not dis-

cuss that here. We simply point out that although the in-

tention to transfer the sleeping car business to an inde-

pendent is declared, there is no assurance that it would

occur.

The net effect of the decision is, therefore, as follows: a

court of equity has delegated to a group of railroads, whose

domirating influence has been linked with past discrimina-

tions against weaker railroads, the court’s power to select

the purchaser, reserving no control over the carrying out

of such a plan. Ordinarily a court faced with an interim

situation appoints its own trustees who are responsible to

the court and who must report to it. Even this protective

device is ignored in the dispositions made below.

We submit that the court had no power to delegate its

duty in the selection of a purchaser even to a disinterested

group. It could not appoint a committee of prominent bus-

inessmen and tell that committee to select an independent

purchaser, It might have used a master for this purpose

but in such a case it would have passed upon the recom-

mendations of the master. Here at the end of three years,

the railroad combine, if its expression of intent is carried

out, would act as a master in chancery to determine the

disposition of the property without any control by the court.

Only two reasons were advanced by the court for this

extraordinary delegation of power. The first was that The

Pullman Company has obeyed the former order of the court

and brought in a bidder. The court seemed to think that

this deprived it of jurisdiction to consider the matter fur-

ther. We assert the exact contrary. The least the court

could do was to ask the seller to bring in a lawfully quali-

fied bidder; and, since the seller had been adjudged a male-

factor, the burden of proof in respect to the character and

capacity of its candidates was upon it. In any event the

power of the seller should not have gone beyond nomination

and any party nominated by it to take over should before

selection by the court have had its credentials scrutinized

with utmost care. The fact that the bidder had been chosen

by the culprit should have led the court to impose upon

itself the highest degree of care. The history of the combi-

nation between The Pullman Company and the railroads

should have increased the court’s reluctance to approve

such a sale. And finally, the fact that the railroads pro-

posed affirmatively the policy of non-expansion of the Pull-

man fleet made their bid the one which gave the greatest

promise of continuing scarcity of facilities for Pullman

travel.

The second reason given by the court for delegating its

duty to select the independent, that is to operate eventually

the pool of sleeping cars, is stated as follows:

‘The railroads are the natural and obvious people

to do sleeping car business. They are the ones who

own the rails on which the cars are drawn; it is their

locomotives which pull sleeping cars as well as coaches

and freight cars. It is the railroads’ obligation to fur-

nish the sleeping car service. This we think to be a

point of highest importance in this connection. ‘Pull-

man service is like a public utility,’ we have been

told. ‘Would you allow a public utility to be run by

its chief customers?’ The analogy is almost completely

inaccurate. Sleeping car service, like dining car serv-

ice, is part of the essential business of carriage of pas-

sengers in a country where distances between points

are as they are in the United States. The carrier is

obligated to furnish the service or see that it is pro-

vided. Were it not for the historical accident of the

independent development of the sleeping car company

as a concessionaire to furnish the service, one would

expect to find it furnished by the railroad itself.’’ (R.

1195-1196)"

The court’s observation that the independent develop-

ment of the sleeping car business was ‘‘an historical acci-

TIn ing it may be stated that this reason is in conflict

with the court’s assertion that it has no authority to make a

business judgment. The above quotation is nothing more or

less than a business or an economic judgment concerning the

proper operation of the railroads. We do not complain of it

on that ground. As we have reiterated, it is the duty of the

court to make an economic judgment in an antitrust reorgani-

zation. We do say, however, that this particular economic

judgment is in conflict with the record. It is made without

consideration of the evidence; it is historically inacurrate; it

will not provide for competition in the future.

37

dent’”’ is incorrect. Independent control of this pool was

the result of an economic development. (R. 745-758, 1240-

1248, 1292-1422) In its former opinion the court found that

a pool of sleeping cars available to meet the seasonal de-

mands of all railroads was essential to adequate passenger

transportation. It follows, therefrom, that the pool must

be in independent hands if the weaker railroads are to be

served without discrimination. No sound economic judg-

ment would place an essential supply necessary to all rail-

roads in the control of a few larger competitors. If a sup-

ply of any commodity is to be divided equally between A, B,

and C, such an equitable division cannot be expected if A—

or A and B—control it. It is this obvious economic and busi-

ness principle rather than ‘‘an historical accident’’ which

led to the growth of an independent supplier of sleeping

cars to meet seasonal demands.

Nor will the court’s economic judgment that the rail-

roads ‘‘are the natural and obvious people to do the sleep-

ing car business’’ stand up under analysis. It is, of course,

true, as the court points out that the sleeping-car service is

a part of the essential business of carrying passengers and

that the railroad locomotive pulls not only the coaches and

freight, but also the Pullman cars. But the court overlooks

the fact that the sleeping car demand varies widely in dif-

ferent sections of the country from season to season; that

in every section the locomotives have more cars to pull at

some times than at others. The weaker railroads need a

pool of most modern equipment to enable them to compete.

The combination of carriers is not the ‘‘natural and obvious

people’’ to provide that pool. Indeed it is impossible for

them to provide it without outside aid. The elimination of

an independent who offers to replace the entire fleet with

modern equipment impairs rather than aids the railroads

in their function of furnishing sleeping-car service. It is a

rule of competition that the more sleeping-cars there are

for the railroads to pull the greater will be their competi-

tive opportunity. The business judgment of the court that

a combination of large railroads is the natural person to

operate a pool of sleeping-car equipment is contrary to eco-

nomic fact.

Vv.

The Court Erred in Neglecting the Criteria Which It Should

Have Applied in the Selection of the Successful Bidder.

The criteria by which the court should have judged the

several offers are as explicit as the purpose and policy of

the Sherman Act. This means that among the several offers

that one should have been selected which was best calcu-

lated to give effect to the public policy written into the

antitrust laws. As former Chief Justice Hughes has said,

it is a charter of economic freedom."

It is designed not only to remove the restraints which

have prevented competitive expansion in the past but aleo

by affirmative action to create new competitive opportuni-

ties for the future. That consideration must be the court’s

determining principle in its choice among the several offers.

This principle is illustrated by a series of recent cases,

typical of which are Morton Salt Co. v. G. 8S. Suppiger Co.,

314 U. 8S. 488, and B. B. Chemical Co. v. Ellis, et al., 314

U. 8. 495. Applying this principle the following criteria

should have been considered by the court:

(a) The most acceptable offer is the one which most

effectively dissipates the consequences of the past monop-

oly, i.e., the offer which assures the greatest amount of

modern equipment and service available to all railroads.

* Appalachian Coals, Inc. v. United States, 288 U. S. 344, 359;

in Sugar Institute v. United States, 297 U. S. 553, 600, Mr. Chief

Justice Hughes, in speaking for the Court, stated “We have said

that the Sherman Anti-trust Act, as a charter of freedom, has a

generality and adaptability comparable to that found to be

desirable in constitutional provisions.”

(b) A second and equally important test is whether the

new management is one that proposes to stimulate and ex-

pand a nationwide demand for sleeping car travel in com-

petition with air and motor travel.

(c) A third test is the competitive record of the new

management.

Too many antitrust decrees in the past have failed of

their purpose because the former noncompetitive manage-

ment continued in control and followed their traditional

attitude against competitive expanson.

(d) A fourth test is which offer provides for the most

complete separation of the sleeping car company from any

ownership or control, direct or indirect, of Pullman Incor-

porated, or its affiliates, and from all parties which share

with it a community of interest.

These are the affirmative tests, the essential requisites to

enable a court of equity to undo the harm that has been

done. Equally important are the negative tests—the tests

which safeguard competitive expansion in the sleeping car

business for the future.

(f) The acceptable proposal must preserve the right of

every railroad to provide its own equipment, if it finds it

economical to do so, without losing the necessary privilege

to use a pool of equipment or service for needs which the

individual railroad cannot economically provide.

The right of the individual railroads to provide their own

equipment must not be used as a cloak under which a domi-

nant group combines and captures control over the hotel

service, thus stifling the development of a unified national

service to meet seasonal demands. The temptation on the

part of the dominant railroads to keep smaller roads in an

inferior competitive position by this means would be very

great even if they gave lip service to expansion of the pool.

In this case the railroad group making the offer does not

leave its intentions to inference. It boldly commits itself

to a program of stifling the development of the future pool

of sleeping cars, relying on the curious argument that this

is one of the inherent ‘‘rights’’ of rail management witli

which the court must not interfere. By acquiring control

of the hotel service they propose to keep the sleeping car

pool at a low level of development and compel railroads

unable to supply equipment adequate for their peak de-

mands to use cast-off and inferior equipment.

These are the essential criteria by which an acceptable

offer must be judged. In respect to the court’s failure to

apply such criteria as these io the selection of the successful

bidder, we assert that:

1. The Court erred in not considering which offer would

produce (a) the greatest possible supply of sleeping car

equipment in the immediate future and (b) stimulate and

encourage sleeping car travel, thus dissipating the conse-

quences of the restrictive policies of the former monopoly.

The Otis & Co. offer proposed to replace the present fleet

at a cost of $500,000,000. Appellant contended at the trial

that for that reason it was the only proposal which would

establish competition in sleeping car manufacture and dis-

sipate the effects of monopoly which was maintained by

Pullman Incorporated for so many years. ;

As has been pointed out, the reestablishment of condi-

tions which lead to the greatest possible competitive expan-

sion of the sleeping car industry is the fundamental purpose

of this proceeding. The only offer which will immediately

stimulate the maximum competition in the sleeping car in-

dustry is one which provides a continuous flow of large

orders for thousands of cars instead of the driblets which

have starved this industry in the past.

The entire capacity of the industry, which today consists

of only three companies in the United States, probably does

not exceed four sleeping cars a day (R. 2063, 2064). The

Otis & Co. offer proposes to pour into that industry orders

41

for thousands of cars,—a revolutionary expansion, new in

railroad history. (R. 2064-2067) This is an advantage to

everyone, and a penalty to no one. There is no hardship

to any party which must be weighed against the obvious

public interest in favor of the offer of Otis & Co.

Not only would this new demand for sleeping cars stim-

ulate competitive expansion in manufacture; it would also

stimulate the aggressive promotion of travel, and encourage

new industries which cater to expanding travel. Air and

motor travel are on the march. They expect to carry mil-

lions of passengers where before the war they carried

thousands. That competitive threat requires planning for

an aggressive nationwide campaign to sell sleeping car

travel. No such aggressive sales promotion of travel has

ever been attempted before, in spite of the vast sums in-

vested in railroads. Advertising and sales efforts to pro-

mote passenger travel in the past have been pitifully smal!

in comparison with even a single product like Coca-Cola.

The new competition, particularly with airplanes, requires

a different program for the future.

The growth of the automobile industry was the result of

a vast network of independent sales agencies, creating a

market for the product, building new enterprise in every

city in the land. Firms in the industry were refused funds

by bankers who knew that the existing market would not

support the investment. But, for some years a price was

fixed for a car which was lower than the average cost of

production for the year before. Low prices assured profits

through exploiting a larger and larger market which the

bankers did not know existed. The plan of Otis & Co. for

expansion of the pool means that it must follow the same

kind of a program. Its efforts cannot be limited to build-

ing cars. It must in cooperation with the industry, create

the demand to fill those cars. Subsbidiary interests which

promote travel—such as cheap automobile transportation

to mountain resorts and camps from rail heads—at low

cost to take the place of dingy roadside accommoda-

tions, must be encouraged. States will be encouraged to

develop their recreational areas to meet the present un-

touched passenger market. New enterprises may be ex-

pected to spread from an expanding travel industry as rip-

ples spread over a pool.

The States of California, Georgia and Colorado, repre-

senting the paramount public interest in expanding trans-

portation, intervened in this case to no avail. The court

ignored their petitions, though the end purpose of this

action should be to serve the very interests that they rep-

resent.

Thus it appears that a host of interests, tangible and

intangible, are at stake in the court’s approval of an offer

to purchase. The several offers are to be appraised, not

in their formal terms, but by what they give reasonable

assurance of bringing about. The public here is no abstrac-

tion; it translates itself into such concretions as speedy and

comfortable travel, an increasing volume of employment,

an expanding sleeping car business, orders for all the

supply industries, a great impetus to reconversion. To

overlook such values is to forget the very office the anti-

trust laws fulfill in our national economy.

2. In approving the bid of the railroad combine, the court

erred in failing to consider the evidence and the facts of

which it should have taken judicial notice, which demon.

strates (a) the continuous non-competitive policy of the

major railroads in the combination with respect to the

sleeping car business and (b) the control of the railroad

combine is inseparably tied in with the control of the Pull-

man-Standard Car Manufacturing Company.

‘One explanation of the opposition of the major railroa4s

to an expanding sleeping car service is found in the past

history of their opposition to improvements in passenger

service.

43

(a) Anti-competitive policies of the major Western Rail-

roads.

The traditional opposition of major western roads to a

competitive expansion of sleeping car service is demon-

strated in memoranda taken from their files and published

in hearings of Congressional committees concerned with

the so-called Western Agreement. Excerpts from this tes-

timony are set forth in Appendix A hereto. For example,

the following letter from the ‘‘Western Commissioner’’,

an appointee of the Western roads is revealing:

‘* At a meeting of the Western Association of Railway

Executives held on October 20th a resolution was

adopted to the effect that air conditioning for 1934

would be restricted to observation, lounge and dining

ears. Subsequent to that time it developed that one

of the roads in Western Territory would find it neces-

sary to air-condition combination sleeping-observation

cars inasmuch as full observation cars were not oper-

ated on certain of its trains. This action on the part

of that carrier again brought the subject of air con-

ditioning before Western Roads for reconsideration

and at the meeting of the Association held on Dee. 12,

1933, the action previously taken was rescinded and

superseded by a resolution providing that no coaches,

chair cars or tourist cars will be air-conditioned during

1934, Western lines are accordingly recanvassing their

program for 1934 and will submit to me, prior to the

January meeting of the Association, revised programs,

in order that competitive situations may be met for the

1934 Summer season without imposing hardships upon

any of the carriers.’’ (Letter dated January 2, 1934).

In the same letter, the Western Commissioner (responsible

to no public authority) referred to a conference which he

had held on February 21, 1933, with the Missouri Pacific

and the Missouri Kansas & Texas lines, and stated that

the compromise there effected had ‘‘avoided the spreading

of this competitive feature for 1933 to other lines and

obviated the expenditure of a considerable sum of money by

Western carriers in meeting competitive situations.’’

(b) Anti-Competitive policies of the major Eastern Rail-

roads.

The following facts, taken from the record in the instant

case, are significant :

(1) At the time of the trial, the railroads making the

present offer took the position that a pool of sleeping cars

was necessary and that the administration of The Pullman

Company was fair and equitable.

(2) It affirmatively appears that the Pennsylvania and

the New York Central railroads were obtaining secret ad-

vantage from The Pullman Company through absorption

by Pullman of various categories of train operating ex-

penses, such as car cleaning, which other railroads were

compelled to bear. Government Exhibit 525, an historical

memorandum taken from the Pullman files, referred to this

special arrangement favoring the Pennsylvania and New

York Central railroads, as follows:

‘‘It is very definitely a part of the background of these

negotiations, though for manifest reasons not expressed

in words in the resultant contract documents, that with

increasing a of profitableness in the Pullman op-

erations on these roads, Pullman would give to the

Railroad a concealed participation therein, by Pullman

absorbing items of train operating expense that the

Railroads had previously borne.’’ (R. 1982)

These practices resulted in transferring costs of opera-

tion on the Pennsylvania and the New York Central rail-

roads to the smaller roads served by Pullman.

(3) Further evidence of this policy is set forth in Appen-

dix B hereto. For example, Mr. Crawford, President of

The Pullman Company, writes:

‘‘Mr. Carry reports that there is very definite feeling

on the part of the Pennsylvania people that if Pullman

consents to installation by the New York Central of

non-standard accommodations in the new Century

train, the result will be a ‘breakdown’ of the present

standardized system of Pullman accommodations, and

the appearance of a strongly competitive ive-away

practice in that business. From this I wo ther

that the Pennsylvania people think Pullman not

encourage the New York Central in their idea of a

mn special-type set of Century trains.”’ (R.

197

(c) The activities of the major railroads since the decree

im this case was entered show that their former policy of

concerted opposition toward competitive expansion of the

sleeping car business still prevails.

The decree was handed down on May 8, 1944. With the

approaching end of the war a crisis in sleeping car trans-

portation was imminent. The fleet was obsolete. Practi-

cally no new cars were on order. There were no plans to

meet the needs of the roads with a seasonal demand. The

larger passenger-carrying roads seemed content with their

relatively superior position to the smaller roads and did

nothing. The smaller roads whose management was con-

nected with the New York banking interests also did noth-

ing.

On May 12, 1945, Pullman Incorporated—authorized by

the court to dea! with the railroads ‘‘and others’’—made a

proposal to the railroads, the terms of which were roughly

the basis of all the offers before the court. This proposal

met with what Mr. Crawford, President of Pullman Incor-

porated, referred to as ‘‘ prolonged inactivity on the part of

the Special Pullman Committees appointed in the three

Railroad Conference regions.’’ (R. 2261).

Prior to the intervention of Otis & Co., Mr. Clement,

president of the Pennsylvania Railroad Co., had written a

letter outlining a plan for dismemberment of the pool and

its elimination as a future expanding service. (R. 2278)

There were no offers at this time. Therefore, the status

quo was being adequately preserved by the device of delay.

After Otis & Co. came forward with its offer, mere delay

no longer would do. The railroads were faced with the

necessity of taking positive steps to prevent the pool from

expanding. This is dramatically shown by the memoran-

dum of Mr. W. F. Place, vice-president of the New York

Central Company. After pointing out the ultimate advan-

tages of dismembermert of the pool, he writes:

‘While this may be the ultimate situation in the fu-

ture, the railroads appear to be faced with the necessity

of iramediate action as a result of the petition made by

the syndicate of Otis & Co.’’ (R. 2303)

Thus it is clear that it was not the crisis in sleeping car

transportation but the crisis caused by the Otis offer which

compélled the major railroads to take action for the first

time in the two and a half years which had elapsed since

the decree.

The policy of the dominant carriers, adhered to through-

out the last fifteen years, has been to discourage competi-

tive railway service or equipment that might disturb their

dominant position.

CONCLUSION.

The reasons why the decision to sell the sleeping car

business to the railroad combination must be reversed may

he consolidated into two general arguments, one positive

and the other negative.

On the positive side the court was under duty to select

the bid which offered the greatest competive expansion

of passenger transportation. The public interest in pas-

senger transportation is the very core of this proceeding.

This is not a private suit for treble damages. It is an ef-

fort on the part of the Government not only to destroy a

monopoly but to eliminate the results of that monopoly.

The two principal evils against the public interest in pas-

senger transportation which still survive as a consequence

of the former Pullman monopoly are:

47

(1) Sleeping car equipment is scarce and obsolete. There

is not enough to supply all railroads. There is not enough

to expand passenger transportation in undeveloped areas.

(2) The first-rate equipment is concentrated in the hands

of a few roads. The weaker roads can never catch up.

There is no independent agency free from the domination

of major railroads which can give the weaker railroads

the advantages of large orders and mass production.

There is only one remedy for these two surviving evils

created by the former Pullman monopoly. It is to transfer

the sleeping car business to a service which is independent

and which promises the greatest expansion of sleeping car

service available to all.

The plan of the railroad combine approved by the Court

is practically a guarantee that these evils will continue,

that abundant equipment will not be available for weaker

railroads, that the present advantage of the larger rail-

roads will increase.

An aspect of the public interest in passenger transporta-

tion is the necessity, under competitive stimulus, for an ex-

pansion and modernization of the fleet of sleeping cars.

That interest was stifled by the monopoly power of The

Pullman Company to stifle new sources of supply and to

perpetuate obsolete equipment. There is only one remedy :

—to increase the order for cars given to competing manu-

facturers. The Otis bid promises to flood the manufac-

turers with orders for seven thousand new cars. By fur-

nishing a service to the competing equipment which the

railroads may buy for themselves, it promises also to stim-

ulate railroads’ orders.

The bid of the railroad combine is a positive guarantee

that orders on a large scale will not be forthcoming. It

eliminates any independent source of orders for cars ex-

cept from the railroads themselves, most of which cannot

expand new territory with their own equipment because of

fluctuating seasonal] demands,

The court below found fault with none of these bids. It

did not even suggest that an expansion of the facilities for

over-night travel was a factor in appraising the bids. In

polite but unspecific language it commended all of them.

Its decision must be reversed because it washed its hands

of its duty to evaluate them in the light of the purpose

which the antitrust laws and this proceeding were designed

to accomplish.

On the negative side in accepting the bid of the railroad

combine the court has not met the requirements of law.

It cannot be overlooked that the reasons presented by the

court are arguments against, rather than in support of, its

choice :

1. The railroad combine is the nominee of Pullman In-

corporated—that it is named by the party which has been

convicted of monopolistic practices ;

2. The railroad combine, the bidder most closely con-

nected with the railroad and banking interests shown by the

record to have conspired with The Pullman Company, is

‘*the most natural purchaser;’’ that is, if the malefactor

is to give up the business, it must go to its co-conspirators ;

3. The control of the combination which comes into pos-

session is to be in the hands of railroads whose present

dominant position in the passenger-carrying business would

be imperiled by an independent expanding supply of sleep-

ing car equipment available to weaker railroads.

We submit that, under the decisions of this Court, the com-

bination of railroads formed to take over the sleeping car

business operated by The Pullman Company constitutes an

undue restraint upon interstate commerce and a flagrant

violation of the prohibition against monopoly in the first

and second sections of the Sherman Act. In this view, the

judgment must be reversed and the case remanded with

directions as to the criteria which shall guide the court be-

low in passing upon the bids before it. We have set forth

49

those criteria which we believe are essential to the dis-

sipation of the effects of the former monopoly and which

will insure the greatest competitive expansion in the in-

dustry. We respectfully urge their adoption by this Court.

Respectfully submitted,

Tuvurman ARNOLD,

Arne C. Wirrvup,

Attorneys for Otis & Co.,

Appellant.

February 17, 1947.

50

APPENDIX A.

Excerpts from the Testimony of Wendell Berge, Assistant

Attorney General of the United States, Before the Sub-

Committee on War Mobilization, Committee on Mili-

tary Affairs of the Senate of the United States (Kilgore

Committee), Washington, D. C., February 10, 1944,

Pages 1352-1359.

Under the western agreement, certain ‘‘changes in

practice’’ could be initiated by a member road only after

compliance with the procedure contemplated by the agree-

ment. ° * °,

There had been some experimenting with air-condition-

ing of dining cars on the Santa Fe and the Northwestern

railroads in 1931, but the first real air-conditioning west

of St. Louis came in the summer of 1932 with the air-con-

ditioning of dining cars on five trains. On December 15,

two weeks after the Western Agreement became effective,

Mr. Ralph Budd, President of the Chicago, Burlington &

Quincy Railroad, wrote to the Western commissioner that

he thought that dining and club cars would require air-con-

ditioning on his railroad, and that by arriving at an under-

standing that air-conditioning should be limited to such

equipment the railroads could avoid a repetition of what

happened between Chicago and St. Louis where all passen-

ger cars on four trains in each direction had been air-con-

ditioned.

In response to this request to use his efforts to limit air-

conditioning to dining and lounge cars, the Western com-

missioner wrote to Mr. Paul Shoup, Vice Chairman of the

Southern Pacific, on January 9, 1933:

Air conditioning appears to be an innovation which

the public is demanding and I presume the Western

roads will desire to keep abreast of other territories in

its adoption. However, it seems very probable that

if something like a uniform policy could be determined

— a very considerable sum of money might be

sav

51

To which Mr. Shoup replied on January 14, 1933, stating:

The roads in California have an understanding among

themselves that without previous conference they will

not undertake air conditioning of any cars except din-

ing cars. It would appear that this understanding will

control for the year 1933 except as it may possibly

be affected by the conclusion of President Baldwin of

Missouri-Pacific that their line, which has air con-

ditioned its dining cars, would be obliged to air con-

dition lounge cars instead for service between St. Louis

and E] Paso and St. Louis and South Texas.

It is unquestionably desirable that the Western lines

should air condition their trains to the same extent

that their connections in the East have done but in view

of the certainty of light passenger traffic during the

coming summer, which arises from causes that cannot

be substantially combatted by the improved service of

air-conditioned trains, it would seem to be best to post-

pone for another year any extension of air conditioning

except as some lines may find it necessary to air con-

dition more of their dining cars.

? > . . * * . 7 - .

At a meeting of the Executive Committee of the

Western Association of Railway Executives on February

3, 1933, the subject of air conditioning was further dis-

cussed. Following this meeting, Mr. E. Flynn, Vice-Presi-

dent of the Chicago, Burlington & Quincy, hereafter re-

ferred to as the Burlington, wrote the Western Commis-

sioner on February 6, stating that in view of the objections

expressed by practically all of the other roads, the Burling-

ton had decided to forego its plans to install air condition-

ing in the dining and lounge cars of the Burlington’s “ Aris-

tocrat,’’ operating between Chicago and Denver. This letter

continued :

There is much that can be said in support of our pro-

posal, and it is with reluctance that we defer it. \Ve

are all frequently seeing and reading that the rail-

roads must improve their methods and service if they

are to regain, or even hold their traffic as against com-

peting forms of transportation.

52

On the same day, February 6, 1933, the Missouri

Pacific advised the Western Commissioner of its intention

to air condition certain dining and lounge cars in order to

meet competition, and thereafter notified other interested

railroads.

On February 7, the Western Commissioner notified the

Missouri Pacific that its proposal would be considered in

connection with the protest of other railroads.

On February 13, the St. Louis & San Francisco, here-

after referred to as the Frisco, advised the Commissioner

of its air conditioning plans, stating ‘‘that this does not

violate the Agreement made between the executives as to

air cooling certain equipment.’’

However, in view of the protests against the program

of the Missouri Pacific, the Commissioner advised the

Frisco to hold its plans in abeyance, and the Frisco ac-

quiesced.

On February 15, the Western Commissioner had also

asked the Missouri Pacific to withhold action on its air con-

ditioning, which that road agreed to do for two weeks.

On February 21, the Western Commissioner held a meet-

ing with representatives of the Missouri Pacific, the Frisco,

the Missouri, Kansas & Texas, the latter of which was

vigorously protesting and was worried about its own pro-

gram; and a week later he rendered a formal decision, ef-

fective for the year 1933, carrying out a compromise

reached at the February 21st meeting.

The decision provided for a reduced program of air con-

ditioning. The Western Commissioner’s report was dis-

tributed to all parties to the Western Agreement.

Subsequently, the Wabash advised the Commissioner that

it assumed that it had the right to expand its air condition-

ing service, on the ground that it was in competition with a

number of the air-conditioned services permitted by the

decision, but the Commissioner took a different view,

stating:

53

Not contemplated that air conditioning would extend

beyond limits outlined in my report. Were you to in-

stall air-conditioned diners in conjunction with the

Union Pacific service now, it would jeopardize present

situation and very likely result in other lines follow-

ing suit. Union Pacific agreed would not install any

new service as result of this agreement. I hope, there-

fore, you can hold in abeyance for this year any plans

you have in this connection.

The Receiver of the Wabash refused to accede to this

request, and proceeded with some air conditioning.

The Western Commissioner reported periodically on these

matters to the Committee of Directors. In a letter of Jan-

uary 2, 1934, he advised them of the activities of the rail-

roads against the spread of air conditioning in 1934, stating:

At a meeting of the Western Association of Railway

Executives held on October 20, a resolution was adopted

to the effect that air conditioning for 1934 would be

restricted to observation, lounge and dining cars. Sub-

sequent to that time it developed that one of the roads

in Western Territory would find it necessary to air-

condition combination sleeping-observation cars, inas-

much as full observation cars were not operated on

certain of its trains. This action on the part of that

carrier again brought the subject of air conditioning

before Western Roads for reconsideration and at the

meeting of the association held on December 12, 1933,

the action previously taken was rescinded and super-

seded by a resolution providing that no coaches, chair

cars, or tourist cars will be air-conditioned during 1934.

Western lines are accordingly recanvassing their pro-

gram for 1934 and will submit to me, prior to the Jan-

uary meeting of the association, revised programs in

order that competitive situations may be met for the

1934 summer season without imposing hardships upon

any of the carriers.

In the same letter, the Western Commissioner referred

to the conference on February 21, 1933, which he had held

54

with the Missouri Pacific and the Missouri, Kansas & Texas

lines, and stated that the compromise there effected had

‘avoided the spreading of this competitive feature for 1933

to other lines and obviated the expenditure of a consider-

able sum of money by western carriers in meeting competi-

tive situations.’’

On February 1, 1934, the western commissioner reported

by letter to the committee of directors on the January

5, 1934 meeting of the Western Association of Railway

Executives, at which the railroads’ 1934 programs had been

presented, stating that about 300 cars would be air condi-

tioned and that ‘‘as a general practice air conditioning

will not be extended to sleeping-car equipment this year.’’

In April 1934, the commissioner ruled that with the ex-

ception of cars chartered on a pier diem basis, no railroad

could operate any air conditioned equipment unless it was

cleared by the Commissioner.

On May 4, 1934, the Southern Pacific complained to the

western commissioner that the Rock Island was making

ready to run an air-conditioned cafe-sleeping car from

Dallas to Houston after it had arrived from Minneapolis,

and that it was afraid the effect would be to induce other

roads to leave air-conditioning equipment functioning be-

tween Fort Worth and Houston instead of disconnecting it

upon the arrival of the cars at Fort Worth.

The western commissioner intervened in this situation,

but while he did not forbid the Rock Island to continue the

protested action, in part because of the cooling of a car on

the Southern Pacific’s ‘‘Sunbeam’’ he did advise the South-

ern Pacific, on May 19, that ‘‘other Dallas-Houston lines

will not enlarge their program.”’

. ” . . . * . . >. . *

In a special situation involving a single car, the

Western Association of Railway Executives, on May 11,

1934, granted the Union Pacific an exception from what they

;

:

55

regarded as the agreement resulting from the submission of

the 1934 programs. The spirit of the railroads in strictly

adhering to their plan to avoid competition is indicated by

the resolution adopted:

Resolved, that in view of the written commitment made

by the Union Pacific prior to the adoption of air-condi-

tioning program for Western Railroads for the year

1934, they be relieved from observance of the agree-

ment in the specific instance cited, with the understand-

ing that such action shall not establish a precedent to

be followed in the future.

On January 6, 1934, the Illinois Central, the Wabash, and

the Chicago and Eastern-Illinois protested to the Western

Commissioner against the Chicago & Alton’s plan to air-

condition sleeping cars between Chicago and St. Louis;

and on January 22, the three protesting roads sent the

Commissioner a written statement supporting the proposal

that they should not be compelled by the Alton’s competi-

tion to install air conditioning. On March 21, 1934, the

Commissioner decided against the Alton; he ruled that it

could move to St. Louis the air-conditioned cars delivered

to it by the Baltimore & Ohio, but without putting the air-

conditioning machinery into operation. On March 26 the

Alton protested the ruling, and on April 4, the Commis-

sioner announced his refusal to change his previous deci-

sion. On June 23, the Alton advised the Commissioner that

it would keep the air conditioning in operation on the Bal-

timore & Ohio trains.

After 1934, the restrictions on the installation of air-

conditioned equipment were relaxed. However, until March

29, 1937, the railroads were required to give 60 days’ notice

to the Chairman of the Western Association of Railway Ex-

ecutives before placing air-conditioned equipment in opera-

tion.

In response to a resolution adopted by the Western

Association of Railway Executives on October 4, 1934, the

Western Commissioner, acting as Chairman of the Western

Association of Railway Executives, appointed a committee

on October 24, 1934 to discuss with the Pullman Company

the creation of a pool of air-conditioned Pullman equipment.

The substance of the terms and conditions agreed upon by

the railroads as the basis for the operation of the Pullman

pool was reduced to writing by the Committee on November

30, 1934. Among other terms, it was proposed that any

air-conditioned pool cars, not required by the pool members

to which they were assigned, might be utilized by the Pull-

man Company on other Western lines which were members

of the pool, but not on the lines of non-members in the

West, although the cars might be used in the East or the

South. And carrying further the same objective, it was

proposed that air-conditioned cars assigned to Hastern

roads should not be ased by the Pullman Company on the

lines of non-member Western roads, except where the East-

ern cars were in the West to replace Western cars which

had gone Kast.

It was not difficult for the Western Association of Rail-

way Executives to persuade the Pullman Company to co-

operate in controlling the air-conditioning of Pullman cars.

The Pullman Company was prepared to make air-condi-

tioned equipment available to the railroads with which it

had contracts, provided the railroads entered into supple-

mentary agreements for the quick amortization of Pull-

man’s investment in air-conditioning Pullman’s equipment.

The ability of the Pullman Company through its monopolis-

tic power to carry out this policy of shifting most of the

cost of air-conditioning Pullman equipment in large mea-

sure to the contracting railroads undoubtedly had the effect

of deterring the railroads from asking for as much air-

conditioned equipment as they would otherwise have used.

57

Statement of Senator Wheeler, Chairman, before the

Committee on Interstate Commerce, United States Senate,

78th Cong., Ist Sess., on May 25, 1943, at p. 239 of hearings

on S, 942, Regulation of Rate Bureaus.

“I must confess that this agreement was a shock to

me because it evidences quite clearly the control the

powerful nonrailroad interests in the East have over

transportation rates in the West. We have heard a

great deal in recent months about discrimination

against the West and the South. It seems to me this

agreement, which has been in existence since 1932, may

well be the instrument of control by which these dis-

criminations have been perpetuated. ’’

Statement of W. A. Harriman before the Committee on

Interstate Commerce, United States Senate, 78th Cong., 1st

Sess., on June 23, 1943, at ~. 975, of hearings on S. 942,

Regulation of Rates.

‘Looking back over the operation of the Commissioner

plan, I am satisfied that it has served a valuable part

in preparing the western railroads for their necessary

and efficient part in the present war. The plan has

facilitated the impartial consideration of many pro-

posals, the protection of the railroads from impositions

of unscrupulous or grasping shippers, from the ex-

cesses of zeal or inexperience of their own traffic em-

ployees. If this is a conspiracy, then the railroads of

this country need bigger and better conspiracies. ”’

APPENDIX B.

The Evidence Introduced by the Government in the

Pullman Case Reveals the Following:

1. It appears that down through the years Pullman has

favored P. R. R. and N. Y. C. over smaller roads by giving

the former a larger porportionate share in Pullman revenue

and by absorbing for P. R. R. and N. Y. C. various categor-

ies of train-operating expenses, such as car cleaning, which

Pullman required all other railroads to absorb. As stated

in Ex. G. 525, ‘‘It is very definitely a part of the back-

ground of these negotiations, though for manifest reasons

not expressed in words in the resultant contract documents

that with increasing degree of profitableness in the Pull-

man operations on these roads, Pullman would give to the

railroad a concealed participation therein, by Pullman ab-

sorbing items of train-operating expenses that the railroads

had previously borne’’ and which all other railroads were

still compelled to bear. (R. 1982) In view of Pullnan’s

practice of averaging operating expenses over all cars

operated, the practice just destribed resulted in trans-

ferring costs of operation on P. R. R. and N. Y. C. to the

smaller roads in the Pullman system.

Vice-President Deasy of the P. R. R. testified for Pullman

that he believed Pullman relationships to P. R. R. to have

been fair and equitable.

II. On the question of interlocking directors, Pullman

down through the years has been solicitous to maintain a

strong position on the board of P. R. R. and N. Y. C.

It appears that this consideration alone, prompted Pull-

man in 1924 to reorganize the manufacturing department

into a separate subsidiary. Pullman wrote to Vanderbilt

(Ex. G. 501) ‘‘In regard to the question of directorship

which you raised, the New York Central is really the only

point where there would be any disadvantage because of

yourself and Mr. Baker’s being on our board and I believe

7

a way will be found; in fact, a way must be found, as it

would be very unfortunate for the Pullman Company if you

and Mr. Baker were to desert it. While the Clayton Act

would suffice as an excuse, it would not restore the senti-

ment and the vital influence that emanates from the di-

rectory.’’ (R. 1979)

Pullman wired Baker (Ex. G. 504) ‘‘Understand N. Y. C.

are buying cars. They have not asked Pullman Company

for figures. STOP. If you have chance to say good word

for us without least embarrassment to yourself will appre-

ciate it.’’ (R. 1980)

Whenever Pullman encountered contract difficulties with

P. R. R. or N. Y. C. negotiators, Crawford customarily re-

ferred deadlocks to Whitney, Mellon, and McLennan.

Whenever N. Y. C. and P. R. R. operating people were

intransigent in negotiations Crawford would appeal to

Whitney or Mellon. See Ex. G. 106, Crawford’s letter to

Whitney. (R. 1953)

F In Ex. G. 146 Crawford wires McLennan, ‘‘George tells

( me that the meeting today was harmonious and reflected

) very substantial progress toward working understanding

between the two interests concerned STOP * * * He sug-

gested that in order to close these points out without a lot

of argument through committees the three presidents in-

volved might very well meet and work out agreement on a

list of points in contention which he is preparing and will

send on to me for study in advance of meeting. * * * ’’ (R.

1956)

Im Ex. G. 110, Mellon, responding to numerous letters

from Crawford soliciting his assistance, reports, ‘I kave

had a most satisfactory conversation with Mr. Hankins and

Mr. Scheaffer in the Pennsylvania Railroad offices in Phila-

delphia.’’ (R. 1955)

In Ex. G. 115 Crawford writes, ‘‘Mr. R. K. Mellon called

me on the ’phone this morning to say that he has had an-

other talk with Mr. Clements about the Pennsylvania oper-

ating contract matter.’’ (R. 1956)

60

Pullman also had occasion to rely on Whitney and Mellon

to prevent P. R. R. or N. Y. C. buying Budd cars. In Ex.

G 416 Sturgis wires Crawford, ‘‘With no desire on our

part to mar your well-deserved holiday, Mr. Whitney and

I think you should know that we are very much worried

about the fact that Williamson seems completely sold on

Budd-built, stainless steel cars for a new Century won >

Whitney is leaving August 3rd for a holiday. Is there any

chance we could get this matter threshed out before then?”’

(R. 1975)

III. On the general proposition that P. P. R. and N. Y.C.

were really co-conspirators with Pullman in retarding the

introduction of light-weight equipment generally, and in

restraining the introduction of Budd equipment entirely,

the Government introduced much evidence showing that P.

R. R. and N. Y. C. mutually agreed to introduce as little

lightweight equipment as possible, and precisely the same

amount, and at precisely the same time.

Crawford writes Ex. G. 418, ‘‘Mr. Carry reports that

there is very definite feeling on the part of the Pennsy]l-

vania people that if Pullman consents to installation by the

New York Central of non-standard accommodations in the

new Century train, the result will be a ‘breakdown’ of

the present standardized system of Pullman accommoda-

tions, and the appearance of a strongly competitive give-

away practice in that business. From this I would gather

that the Pennsylvania people think Pullman should not en-

covrage the New York Central in their idea of tailor-made,

special-type set of Century trains.’’ (R. 1977)

In Ex. G. 419 Carry writes, ‘‘Messrs. Deasy and Hankins

were in town yesterday for Marian Newcomet’s funeral and

I had quite a chat with both of them. I saw Hankins before

I did Deasy and he seemed to be amused at the jam they

have gotten into as a result of putting the new cars into

secondary services where they do not intend to keep them.

Apparently at a recent staff meeting this subject was fully

61

aired and Mr. Clement instructed Mr. Franklin to get out

of any agreement or understanding he had with the New

York Central. As near as I can tell from their conversation,

they will refrain from putting the new equipment on

‘Broadway’ until the New York Central is ready to start

the new ‘Century,’ but they intend to go ahead with the

‘Liberty’ and the ‘American’ immediately.’’ (R. 1977)

In Ex. G. 422 Holden writes to Crawford, ‘‘I talked to

Mr. Williamson of the New York Central this afternoon

concerning the 50 new light weight sleeping cars that his

people have asked us to provide for their services and find

that he seems to have considerable question in his mind as

to the economic justification of going ahead with addi-

tional cars at this time. He stated that the only reason his

people made the request on us was because he understood

we were definitely going ahead with a somewhat similar

program for the Pennsylvania but that his opinion was the

proper thing to do is to hold up both programs.

“Mr. Williamson also stated that the joint committee of

officers and directors recently formed with the Pennsyl-

vania, including among others, himself, Mr. Clement, Mr.

Whitney and Mr. Gates were to have a meeting on either

October 4th or 5th to discuss various questions related to

competitive waste between the two roads and that he would

bring this question of new equipment up before the meeting

with definite recommendation that no additional cars be re-

quested from the Pullman Company over and above 52 cars

that have already been placed on each Road. He asked that

I come back to see him after this meeting takes place to

discuss the matter further.”’ (R. 1978, 1979)

The result was that as of March 31, 1941 (Stipulation,

page 117) P. R. R. and N. Y. C. each had precisely 142

light-weight cars. (R. 1414)

APPENDIX C.

The Interlocking Relationships of the Directors of Pull-

man Incorporated as Shown of Record at the Hearing

on Petition for Approval of Offer to Purchase The Pull-

man Company.’

Director George Whitney is president and director of

J. P. Morgan & Co., Inc. He is also a director of the New

York Centrai, West Shore, and Pittsburgh & Lake Erie

railroads, and a member of the executive committee and di-

rector of the Cleveland, Cincinnati, Chicago & St. Louis

and the New Haven and Harlem railroads. Gustav Metz-

man, president and director of the New York Central Rail-

road Company (and president and/or director of numerous

other railroads) and a director of J. P. Morgan & Co., Inc.,

testified for the railroad proposal. (R. 2219-2230) W. F.

Place, vice-president of the New York Central Railroad

Company, prepared the memorandum of the plan that was

originally presented by Mr. Metzman to the railroads. (R.

2303) This in substance is the offer filed by a group of

railroads with this court. Other directors of J. P. Morgan

& Co., Inc., are directors of railroads, as follows: Thomas

W. Lamont, chairman of the board, is a director of the

Atchison, Topeka & Santa Fe Railway Company, and

Arthur M. Anderson is a director of the Northern Pacific

Railway Company. All of the above railroads are directly

or indirectly members of the railroad purchasing group.

Director Harold S. Vanderbilt is a director of the New

York Central Railroad Co., and 29 railroad affiliates. Mr.

Vanderbilt is also a director of the First National Bank of

the City of New York. On that board sit Jackson E. Rey-

nolds and Myron C. Taylor, directors of the New York Cen-

tral Railroad Co., John R. Morron, director of the Balti-

more & Ohio Railroad Co., Landon K. Thorne, director of

I The District Court ruled that it would take judicial notice of

Poor’s Register of Directors and Executives. (R. 2217, 2229.)

>.

63

the Southern Pacifie Co., and Alexander C. Nagle, director

of the Great Northern Railway Co. All of the above rail-

roads are members of the railroad purchasing group.

Director Richard K. Mellon is a director of the Penn-

sylvania Railroad, which is a member of the railroad pur-

chasing group. He is also president and director of the

Mellon National Bank of Pittsburgh and a director of the

Union Trust Company of Pittsburgh. On the board of the

Mellon National Bank sits L. N. Murray, director of the

New York Central Railroad Co. Mr. Mellon is also a

director of a number of railway supply companies, includ-

ing the Westinghouse Air Brake Co. and the Union Switch

and Signal Company. He is also a director of the Aluminum

Company of America and the Carborundum Company.

Henry A. Phillips, vice president, secretary and a director

of Pittsburgh Equitable Meter Company (name changed to

Rockwell Manufacturing Co.), is a director of the Car-

borundum Co. and of the Mellon National Bank.

Director J. Frank Drake is the president and director

of the Gulf Oil Co., on the board of which sit Richard K.

Mellon and William L. Mellon, as does Alan M. Scaife,

director of Pullman Incorporated. Mr. Drake is also a

vice president and director of the Rockwell Manufacturing

Co. (formerly Pittsburgh Equitable Meter Co.). Mr. Drake

is also a director of the Chase National Bank of New York,

on the board of which sit F. H. Brownell, director of the

Northern Pacific Railway Co., Newcomb Carlton, director

of the Union Pacific Railroad Co., Bertram Cutler, director

of the New York Central Railroad Co., Austin S. Iglehart,

director of the Chicago & Eastern Illinois Railroad Co.,

Jeremiah Milbank, director of the Southern Railway Co.,

and A. W. Robertson, director of the Westinghouse Electric

& Manufacturing Co. All of the above railroads are di-

rectly or indirectly members of the purchasing group.

Director John R. Morron is a director of the Baltimore

and Ohio Railroad Co., a member of the railroad purchasing

64

group, as well as a director of the First National Bank of

the City of New York, which bank, as noted, has a number

of directors who are also directors of numerous railroads.

Mr. Morron is also a director of the Alton Railroad

Company.

Director Alan M. Scaife is vice president and member

of the executive committee and director of the Gulf Oil

Company. He is also a director of the Mellon National

Bank and other institutions, including Pittsburgh Coal Co.

and the Air Reduction Co. On the board of the Air Redue-

tion Co. sits Frederick B. Adams, a director of the

Atlantic Coast Line Railroad Company, Guy Cary and

Knight Woolley, directors of the Southern Railway Co., and

Clarence Francis, a director of the Northern Pacific Rail-

way Co.

Director Alfred P. Sloan, Jr., is chairman and director

of the General Motors Corporation and a director of J. P.

Morgan & Co., Inc., George Whitney, president and director

of J. P. Morgan & Co., is a director of General Motors

Corp., as are directors Henry B. duPont, Henry F. duPont,

Lammot duPont, of E. I. duPont de Nemours & Co. Mr.

Sloan is a director of the duPont Co. Pierre S. duPont

is a director of the Pennsylvania Railroad Company. Mr.

Sloan is also director of Kennecott Copper Co., as is George

Whitney and E. Tappan Stannard, directors of J. P. Mor-

gan & Co.

Director Sewell L. Avery is chairman and director of

Montgomery Ward & Co., Inc., on the board of which sit

George Whitney, David A. Crawford, president and di-

rector of Pullman Incorporated, and Charles F. Glore, of

Glore, Forgan and Co., investment bankers. Mr. Avery is

also a director of Armour & Co., upon the board of which

sit Elisha Walker, partner of Kuhn, Loeb & Co. and David

A. Crawford. Mr. Avery is also a director of the U. 8.

Steel Corporation, on the board of which sit Thomas L.

<n nies ae

65

Lamont and Arthur M. Anderson of J. P. Morgan & Co.,

and Robert C. Stanley, a director of the Canadian Pacific

Railway Co.

Director James F. Bell is chairman and director of Gen-

eral Mills, Inc., upon the board of which sits Henry F.

Sturgis, a director of Pullman Incorporated and vice presi-

dent of the First National Bank of the City of New York.

Mr. Bell is also a director of American Telephone and Tele-

graph Company, on the board of which sit Myron C. Taylor,

Samuel A. Welldon and Walter S. Gifford, directors of the

First National Bank of the City of New York (Samuel A.

Welldon is also a director of the Northern Pacific Railway

Co., a member of the purchasing group), Charles P. Cooper

and John W. Davis, directors of Guaranty Trust Co. of New

York, David A. Crawford, president and director of Pull-

man Incorporated, and Tom K. Smith, director of Ann

Arbor Railroad, Lake Erie & Fort Wayne Railroad,

Manistique & Lake Superior Railroad, Menominee & St.

Paul Ry., New Jersey, Indiana & Illinois Railroad, Toledo

Central Station Railway, and the Wabash Railroad; Lewis

H. Brown, director of the Pacific Southwestern Railroad,

Charles Francis Adams, director of the New York, New

Haven and Hartford Railroad, and the Boston and Albany

Railroad.

Director Arthur O. Choate is a director of the American

Can Co., upon the board of which sits M. W. Kellogg, a

director of the Guaranty Trust Co. of New York and of

Pullman Incorporated. Mr. Choate is also a director of

J. I. Case Co., upon the board of which sits Mr. Henry S.

Sturgis, director of Pullman Incorporated and vice presi-

dent of the First National Bank of the City of New York.

Director Henry S. Sturgis is vice president of the First

National Bank of the City of New York and a member of

the finance committee and director of the Erie Railroad.

Mr. Sturgis is also a director of the West Virginia Coal

66

and Coke Corp., upon the board of which sits David A.

Crawford, president and director of Pullman Incorporated.

Director M. W. Kellogg is president and director of

M. W. Kellogg Co. (recently acquired by Pullman), and is

also a director of the Guaranty Trust Co. of New York

and of the American Can Co. On the board of the latter

company sits William Ewing, a director of Morgan, Stanley

& Co., J. Luther Cleveland, a director of Morgan, Stanley

Co. of New York and the Atchison, Topeka and Santa Fe

Railway Co., is a director of the M. W. Kellogg Co. Diree-

tors of the Guaranty Trust Co. of New York are directors

of railroads as follows: Eugene W. Stetson is chairman of

the executive committee and director of the Illinois Central

Railroad Company and director of the Yazoo & Mississippi

Valley Railroad. Fanning W. Charske is chairman of the

executive committee and director of the Union Pacific Rail-

road Co., Oregon Short Line Railroad Co., Oregon-Wash-

ington Railroad & Navigation Co., and the Los Angeles &

Salt Lake Railroad Co. He is also a director of the Railway

Express Agency, Inc. Arthur C. Dorrance is a director of

the Pennsylvania Railroad. Walter S. Franklin is vice

president and director of the Pennsylvania Railroad, direc-

tor of New York Connecting Railroad, director of Wabash

Railroad, director of Norfolk & Western Railway, vice

president and director of Pittsburgh, Cincinnati, Chicago &

St. Louis Railroad, vice president and director of Northern

Central Railway, vice president and director of Philadel-

phia, Baltimore & Washington Railroad, director of Pitts-

burgh, Baltimore & Washington Railroad, director of

Pittsburgh, Youngstown & Ashtabula Railway, director of

Pennsylvania, Ohio & Detroit Railroad, director of Western

New York & Pennsylvania Railway, director of Lehigh &

Hudson River Railway, and director of Pennsylvania Grey-

hound Lines Ine. He is also a director of Railway Express

Agency, Inc. John A. Hartford is director of New York,

New Haven and Hartford Railroad and Long Island Rail-

oa leat I it aaa Pe

67

road. George E. Roosevelt is a director of Union Pacific

Railroad, of Oregon-Washington Railroad & Navigation

Co., of Oregon Short Line Railroad and of the Los Angeles

& Salt Lake Railroad.

It must be abundantly clear that these 12 directors are

not free to select a purchaser for The Pullman Company

other than a purchaser determined for them by the institu-

tions which they represent. Thus they have no choice but

to select a purchaser who would be controlled by the same

interests which control the Pullman Standard Car Manu-

facturing Co. The remaining 3 directors, namely, David A.

Crawford, John F. Lane and L. 8S. Taylor, are paid officers

of Pullman Incorporated and The Pullman Company; thus

their concurrence in the action of the 12 is assured. It

should be added that David A. Crawford is also a director

of the Continental Illinois National Bank and Trust Com-

pany, on the board of which sit W. J. Cummings, receiver

of the Chicago, Milwaukee, St. Paul & Pacific Railway Com-

pany and of the Chicago Railways Company, James R.

Levell, director of the Chicago & Eastern Illinois Railroad

Company, A. Sprague, director of the Baltimore & Ohio

Railroad Company, and R. L. Williams, director of the

Chicago and Northwestern Railroad Company.