Reply Brief for Appellants — Missouri-Kansas Pipe Line Co. v. United States

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IN THE . . 2s

| Supreme Court of the United Sates:

OcToBER Term, 1940.

el | 7 ae

- 268.

MISSOUREKANSAS \ IPE LINE COMPANY,

% Appellant,

THE UNITED STATES OF AMERICA, COLUMBIA GAS &

* ELECTRIC CORPORATION, COLUMBIA OILA& GASOLINE

CORPORATION, et al.

. ae No! 269.

- PANHANDLE EASTERN PIPE LINE COMPANY,

Appellant,

THE UNITED se OF AMERICA, COLUMBIA GAS &.

ELECTRIC CORPORATION, COLUMBIA OIL & GASOLINE

dia anata et al.

APPEALS FROM THE District Court or THE UniTep StaTEs

For THE do tei OF DELAWARE.

REPLY BRIEF FOR APPELLANTS.

%. ArtHur G. Loaan,

Ny * | Pei American Building,

“ ab Wilmington, Delaware.

Rosert J. BULKLEY, ms

Bulkley Building, . . :

ae Cleveland, Ohio. ; 21d

Russett Harpy,

ae - Woedward Building,

Washington, D. C.

sa Of Counsel. ' a?

Pandick Press, Inc.,.22 Thames St., New York, U. S. A..

oo 1 o

\ \

~ : \ le

a \ .

INDEX.

oe : PAGE . . oye

STATEMENT. ............ ne spiel Se a 7

PART I. .

Repiy to APPELLEES’ eel IN APPEAL No. 269.

Repiy TO — or ApPELLEn COLUMBIA On: & ‘Gaso- ; | -

LINE Corporation: IN APPEAL No. 269 2 wees |

I. Reply te Point I: 2 |

‘I. _ Reply to Point IT oo

IIL. + Reply to Point IIT... -6 0)

a TO Basiy OF Satan 7, ae Gas: & Exzo: sox wait, Se

TRIC Company 1n AppeaL No. 269... wnt 7

I. Reply to Point I TD OER 7

II. Reply to Point IT : + :

_ TIL Reply to Point IIL Y eee ame .

_ iW. Beoly to Point IV....:....... ee

PART II. |

‘Repty to Aprewiess’ Briers mx Appran No. 268.

Repty to Brizr or Corumsia On-& Gasortwe Corro-—

- RaTion In AppEaL Case No. 268 —." . 13

STATEMENT pret . , Mega:

I. Reply to Point L.......... ian” .

IX. Reply to Point II............ .

III. Reply to Point III saan ee aes

' IV. Reply to Point IV aaa ae

V.. Reply to Point V..... awe . ae

VI. Keply te Point VI.. cemenn et

en ne

e .

‘ ie: * 4

. . ¢ bad

Repty to Brier or Cotumsia Gas & Evecrric. Corro-

» RATION In APPEAL Case No, ‘268.......... —

J. Reply to Point I......... scenes ae te

. HI. Reply to Point Te esneenneecnene

IIT. .Reply to Point III........... Deatmcisuaddoeleneen |

_(a)-Re: Contention Application is Not

PMU ~ sccndliseshiocsesnensrecmnbevesnapatastenacdsanes

{b) Re: Contention Individual a2 Not

Participate in Government Anti-Trust

IND © detidtntncteaes

ee (c) and (d). The Application Does Not

Seek to Introduce New Issues Nor. .

Attack ‘or Modify the Decree ..........-.-- *

IV. Reply to Point IV. rene

. ‘PART IIL.

REPLY TO Bafer OF GovensMENT. 7

A. Government’s Pees 8s ee =

B. Contention Applications Moot............- Rerashonies o

_ Q. Errors in Government’s OS SBS eeh ee

D. Contention Relief Sought Inconsistent with Con- |

sent Decree and Proposed Fma...... eee

| eae a re

ys, Tae

¢ bee :

ts -

iii

, es ao My, ee

TaBLe or Casas. BN

. PAGE

} Ainscow v. Sanitary Company of- America, (Del. Ch.)

Os ih a a 17, 23

Arn vs. Dunnett, 93° Fed. (2d) 634 (C..0. A. stata

certiorari denied: 304 U. S. O77. ee wovnqronevssesieonseoen 20

Bay Newfoundland Co. Vv. Wilson & Co., a A. 2d (Del.

+) BED. cccomecd ane ec SEMIN EL ees vwesesine DORR DO

Bigelow on Estoppel, Sixth Edition, Page eee -20

Blask on Judgments, Vol. I, Section 242, page 358.....: 18

Buckeye Coal & Ry. Co. v. Hocking Valley Ry., 269

Pe | gs. a leer + Ra crt se ce che Me Mi oe yj

Cantor vs. Sachs, e# al., 18 Del. Ch. 359, 162 Atl. 73... 17,93

Continental Insurance Co. v. United States, a00 U. S.

I cs aoc ciate dar aieaccienbeeesenpanaiairconiinamndmenainbtelens 26

Credits Commutation Co. v. U. 8., 177'U. ‘S. 311... sila “. 14

Davenport v Dows, 18 Wail, 626 (1878) .ccgpomecscnseeee vai ™ 23

Dickerman vs..Northern Trust Co., 176 U. S. 181, Law

‘ 44 Law Ed. 423 pianuanlied 6-20

' Ea parte Leaf renee Board of Trade, aa

eee PT ae AAR a.

Frank v. Wilson and Co, 9 A. 2a f8. a a ae

In re Columbia Real Estate Co., it F. 643,645 (C:.

Ck. Pi eaesceeen ee 4, 24

i re Dolcater, 106 Fed. 2d, 30... iw REAP Te REATARD 14

& = -

‘Kelly v. Mississippi River Coaling ore 175

Fed. 482 ~. ) a 2

_-Rogers vs. Hill, 289 U. 8. 582, 77 L. Ed. 1385... ae 10

‘State of Washington: v. United Staten, 87 F. (2d)

=, 483 (C. CO. A. 9th) : 4

$y 25

é »> ; ey r)

. ¢°

" 8

Wy:

Son, DEAE es es PACH

Lnited States Trust Co. v. Chicago Terminal T. R.

me A Oe |) ee 5

U. 3. v. California Cooperqtive Cannemes, 279 U 8.

HB oc SE ESS EES OR out ARNEL OPO 15

United Copper Securities Co. vs. Amalgamated _,Cop~ :

I co corecysrtsheccecimnchicctssorotoetestajen 8

United States v. Northern Securities Co., 128 Fed. 808 25, 27

United States v. Philips, Judge, 107 F. 824 (C. C. A.

"ORE Rea Raita meas ee 5,15

United States ‘v. Radio Corporation,,3 F. Supp. 23 25, 27

United States v. Radice, 40 F. (2d) 445 (C. C. A. 2d) .§

United States-v. Reading Co., 273 Fed. 848................ 26

- United States v. Terminal Railroad Assn., 236 U. S.

VQA eeeneenrenteenennennrnntnnnnnnnnnninnnnnnenennee 26

f 7 o om ome

"Supreme Court of the Anited ates.

OcrosER TERM, 1940.

| No. 268

Amp | Massouni-Kawsas ‘Pirz Line Company,

. ’ eae —

Reiko! >

Tue Unirep States oF PAE, Cotumsra Gas & ———

Corporation, Cotumsia® Om & Gasoline Corporation,

et al.

mea

}

No. 269 — see oe

PANHANDLE ae Oe Pipe Lieve Company,

Appellant,

ee |

oo Tur Uniten States or America, Cotumsia Gas & Exzcrric

Corporation, Cotumbra Or & Gasotine Corporation,

et al..

e : j : ae

_APPEALS FROM THE District Court oF. THE Unizep States

For tye District or DELAWARE.

| REPLY BRIEF OF APPELLANTS.

by |

cx 3 Statement.

»The present applications are notmotions to intervene

__ under the intervenftgn rule. The right to procure the relief

_ sought in these applications exists independently of that

4 7

- . 9 i

rule. They are based on the language contained in Section

V of the Consent Decree of January 29, 1936 as follows:

‘“* * * that Panhandle Eastern, upon proper appli-

cation, may become a party hereto for the limited

purpose of ‘enforcing the rights conferred by Sec-

tion IV hereof.’’

This provision relieves the applicants from the require-

ments of Rule 24 concerning interventions and gives to

Panhandle Eastern an absolute right to become a party for

‘a limited purpose. - | | :

PART I.

Reply to Appellees’ Briefs in Appeal No. 269.

Reply to Brief of Appellee Columbia Oil & Gasoline

' Corporation in Appeal-No. 269.

I. Reply to Point I. eg

We take no exception to Point I of ¢ Coluinbia Oil relat-

ing to the manner of raising t question of the authority

_of the attorneys to represert Panhandle Kestern. We are

willing that this question should be determined on the

motions of oe Oil and Columbia Gas.

Il. Reply to Point II.

Columbia Oil contends that the ‘order could not be final

because it relates only to the authority of attorneys to bring

-the .application, and, therefore, could not foreclose Pan-

handle .Eastern from subsequently authorising a similar

application.

This disregards the fact that the order was based ‘on

the finding that the vote of Dunn alone could defeat a reso-

lution to authorize any attorneys to bring any application

Feo, _

at any time. Dunn’s vote was based. upon the decision that |

no application should be made by these or any other attor- ~

neys and that no relief should be sought under the Decree

or in an independent ‘action outside of that ease. If Duan

alone, voting on instructions of Columbia Oil, a party

against whom the proposed action could be taken, can pre-

vent the application, then there is, to all intents and pur-

poses, a final order which disposes forever of the practical

possibility of bringing such ‘an applicationTo ask this

Court to believe that Panhandle Eastern enjoys any ves-

tige of free will or volition to bring an adversary proceed-

‘ing against Columbia Oil while the latter has power to

direct and control the vote of the trustee, | is to pu

impossible strain on credulity. ya

Even in intervention cases the rule is that rem such

circumstances the order i is final.

«* * *. he right to review this order, there-

fore, rests on- the inquiry whether it constitutes a

final order or dec*ee,. within the meaning of the.

latter proviso’ and the general-rule is well settled

that a denial of the right to intervene is not such

final decisior, and not appealable. Ex parte Cutting,

94 U.S. 14, ob, 924 L. Ed. 49; Guion v. Insurance Co.,

109 U. S. 173, 3 Sup. Ct. 108, 27 L. Ed. 895; Credits

Commutation Co. v. U. 8., 177 U. S. 311,.317, 20

‘Sup. Ct. 636, 44 L. Ed. 782; Id., 62 U. S. App. 728,

732, 34 C. C. A. 12, 91 Fed. 570, 572; Buel v. Trust

Co, 44 C. C. A. 213, 104 Fed. 839; 1 Fost. Fed. Prac. :

(3d Ed.). 445. A just exception to this-rule arises,

-as intimated in the Credits Commutation Case,

supra, ‘where the denial of a third party to inter-

vene therein would be a practical denial of certain:

relief to.which the intervener is fairly entitled, and

. which he can only btain by intervention, and where

the ahr ig not discretionary with the chan-~

cellor’; or, as stated in 1 Fost. Fed. Prac., supra, —

: ‘where a denial of the right to intervene would be *

~ -

“thea.

to this court can be ta

; é

,* practical denial of all the relief’ to the petitioner

“perhaps an appeal will lie from an order denying

intervention’. But the authorities are uniform in

upholding the. rule, without regard. to. advantages

which may accrue through the intervention, providéd ~*~

relief upon the intervener’s claim .is not jh ae

by the denial.’? (Italies ours. )

In re Columbia Real Estate Co., 112 F. 643, 645

(C. C. A. 7th). | | /

In State of Washington v. United States, 87 F. (24) 421,

433 (C..C. A. 9th), the Court said:

“With exceptions not here. savlisient: an appeal

nt ere yeti a final decision

of the District Court. ‘28 U.S. C. A. §225. Although

the cases generally state various tests to ascertain

whether or not: an order denying ‘intervention is

appealable, the primary question is: Is the order

denying intervention a final decision?

. “The test ordinarily” applied to determine

- whether an order is final is that an order is final if it

will ‘terminate the litigation between the parties on

the merits of the case, so that if there should be an

affirmance here,sthe court below would have nothing

to do but to execute the judgment or decree it had al-

ready rendered’. Bostwick v. Brinkerhoff, 106 U. S.

3,15. Ct. 15, 16, 27 L. Ed. 73. As applied to a con-

troversy between parties to the suit and parties at-

- tempting to intervene, this simply means that if the.

order denying intervenfion terminates the litigation

of the question sought to be litigated between such

parties, then the order is final and appealable,*

under the express terms of the statute. On the other

hand, if the litigation of the question sought to be

litigated is not terminated, then the order is not ap-

a Complete ‘annotation of all cases oD point set forth i in note 18

in the opinion. ;

pealable,*. because the order does not ‘terminate the . |

litigation between the parties on the merits of the

case.’ i :

cates nothing but tlie.right to intervene, and has‘no

force as res judicata on the merits. Such a denial

+ leaves ‘the petitioner at full liberty to assert his

rights in any other appropriate form o£ proceed-

ing.’ In other words, the petitioner in an independ-

ent proceeding of some kind may litigate the. same

question which he seeks to litigate by intervention.

_ Tf there is any ‘other appropriate form of proceed-

See also

ing’ open to the intervgner, the order denying inter-

vention is not final, and therefore not appealable,

because the order does not ‘terminate the litigation

between the parties on the merits of the case.’

“However, it sometimes appears that the inter-

veners have no remedy to litigate their question, ex-

cept by intervening.in an existing action or suit. In

such cases, unless the interveners are permitted to ~

litigate their questions in the pending litigation,

their rights, whatever they may be, will be entirely,

lost, for they have no remedy by which such rights

may be protected or adjudicated. An order denying

such parties leave to intervene is, as this court stated ©

in ‘its first decision touching the question ‘a practical

denial of alt relief to the petitioner.’ Therefore such

an order is final and appealable.”’

United States v. Radice, 40 F. (2d) 446 .C. C. A.

2d) ; Lf : ¥

United States v. Philips, Judge, 107 F, 824 (C.

C. A. 8th) ; oo

- United States Trust Co. v. Chicago Terminal ;

T. R. Co., 188 F. 292, 296 (C. C. A. 7th).

* Complete annotation of all eases on point set forth in note 19 -

in the opinion.

“Ordinarily, the’ denial of the petition adjudf-

‘ ud

' kt

Pm:

purposes of the decree, he can vote only pursuant to direc-.

_ Decree itself.

Ili. Reply. to Point III.

Columbia Oil contends that the court belew was correct

in dismissing the intervention application in the name of

Panhandle Eastern Pipe Line Company because it was not »

authorized by the Company, and the attorneys making said

application and prosecuting this appeal have not been

authorized to act in its behalf. This depends on the valid-

. ity of Dunn’s vote, which was the only vote cast against

the resolution authorizing the application ‘and the employ-’

ment of the attorneys (R. 462). . i

We do not press the contention made at the stoek-

holders’: meeting that the Consent Decree required Dunn -

to" have specific instructions from the beneficial owner of

the stock with respect to each vote. It nevertheless remains

clear that, except in the single contingency where the

trustee believes the instructions te be inconsistent with the

tions from the beneficial owner.. The terms of the Consent

Decree confine his discretion to the single question of

whether any specific instruction is contrary to the purposes

of, the decree. Whatever further right the trustee might

have to vote must be conferred by instructiohs from the

beneficial owner. Any such general instructions giving.

discretion to the trustee surely could not validate a vote

which would not be valid if cast pursuant to.a specific i in-

struction; and certainly a specific instruction could net: be

given by Columbie Oil to vote its shares in opposition to

a motion to bring a proceeding against Columbia Oil itself -

for the purpose of enforcing the express provisions of the

Consent Decree. Even if the trustee-had been specifically

instructed so to vote, he should have found that the instrue-

tion was contrary to the intent and purpvse. of the Consent

_ The attempted inferencé’ of Columbia Qil’s brief in

; Appeal #269 (pp. 12, 19) that. Dunn’s tote against the

resolution to authorize this action was held valid by. the

. ©. Chancery Court of Delaware is unjustified and unfair. * An

examination of the Chancellor’s Decree and’ letter com-

mencing at page 37 and, page 39 of the same brief ‘shows

that he ‘dealt only with the election of corporate officers

_ and directors, whieh could‘not involve any question as to

whether opposition to the proposed authorization of legal

action was inconsistent with the: purpose ef the ‘Consent

‘Decree. The validity of Dutin’s vote on that question was ©

not in issue or even considered. :

s Reply to Brief of \ Apettin Columbia Gas & Electric

, Company i in Appeal No. 269.

I. Reply ~ Point I.

As stated before, we take ‘no exception to raising the

question of the authority to reproserit Panhandle Eastern

\ by the motions. . , | ‘, Sahat,

II, Reply to Point II.

Undet Point II appellee, Columbia , Gas, takes the posi- .

® tion ‘‘that the directors of a corporation , are the only per-

sons who can institute an action on behalf’ of and in the

name of the corporation’’ (Brief, p. 18). :

Columbia Gas doés not cite any authorities in support

_ of this statement which it nevetheless states is ‘well.

“Settled.” The authorities quoted on page 19 of the brief

“Shave nothing to do with this problem as the same are quota-

tions concerning rights of individual stoékholders and not

the rights of stockholders acting in meeting. The authori-

ties cited on pages 20-24, inclusive, are likewise cases which

have nothing to do witli the instant problém as the same

: define the rights of individnal stockholders either suing in: “_

‘8

their own enpacition or in derivative capacities. However,

these defivative cases do clearly show that a resolution

passed at an annual stockholders’ meeting directing a cor-

poration to sue supersedes any discretion in directors, —

because one of the conditions precedent to a successful ©

derivative suit is that demand to sue:be made on n the stock-

holders. ee

In United Copper Securities Co. vs. Amalgamated

Copper. Co., 244.U. S. 261, 263-264, this Conrt pointed out:

‘Whether or not a corporation shall seek to énforce -

_ in the courts a cause of action for damages is, like

other business questions, ordinarily a matter of in-

ternal management and is left.to the discretion of the

directors, in the absence of instruction by vote of the

stockholders. Courts interfere seldom to control

such discretion intra vires the corporation, except

where the directors are guilty of misconduct equiva- -

lent to a breach of trust, or where they stand in a

dual relation which prevents an unprejudiced éxer-

cise of judgment; and, as a rule, only after applica-

tion to the stockholders,* * *. * * * No application

appears to have been made to the stockholders as a

body. * * *.’’ (Italics ours.)

‘Apparently Columbia Gas is confused concerning the’

‘true nature of the authority under which the application

was filed by Panhandle Eastern. At the annual meeting of

stockholders of Panhandle Eastern, on March 11, 1940, a.

resolution was proposed authorizing the filing of ‘the in-

stant application.. The question of whether or not it was

passed is’ treated in our main brief, and elsewhere herein,

pages 6 and 7. If the resolution was properly passed,

then the application herein’was one made by. Panhandle

Eastern under and by virtue of the resolution adopted at

the annual meeting of stockholders. If the resolution was

not ‘adopted, then, of course, the instant application was

- not properly ‘filed. The question has nothing to do with

derivative actions nor with stockholders acting i in their in-

dividual capacities. hg

Section 2, paragraph 2, of the Delaware Corporation

Law, authorizes Delaware corporations : ‘‘to sue and be:

sued, complain and defend‘in any court of law or equity.’’

Sectign 3 of the Delaware Corporation Law places this

power in the stockholders. Section 3, which allows addi-

. tional powers to corporations provides: ‘In ‘addition to

the powers enumerated in the second section of this Chap-

ter, every corporation, its officers, directors and stockhold-

ers, shall possess and exercise all the powers and privi-

_leges’’ ete.

In other words, the power contained in section 2, para-

graph 2, ‘‘to sue’’ is placed in the corporation, its officers,

directors and stockholders. The by-laws of Panhandle

Eastern, under which the respective rights of officers, direc-

tors and stockholders are set forth, do not specifically state

whether the right to exercise the power ‘‘to sue’’ shall be

in the directors or stockholders, but instead, in Article 13,

provide generally as. follows: _ ;

: “13. The: Board of Directors may exercise all

_ such powers of the corporation and do all such law-

ful acts and things as are not by statute or by the |

Certificate of Incorporation, or by these: By-Laws,

directed or required to be exercised or done by the

.stockholders’’ (Record, 491).:

From this we find that the stockholders conferred per-

mission upon the directors to exercise the power to~sue

but in doing so did not abrogate the right themselves to

exercise such power, as the right i is merely that the direc-

tors -‘‘may exercise” this power. The — of this

oonwneliie

ae power, being | a permissive. one, did not curtail the ek

holders’ own power to exercise it.

- In the case of Rogers‘vs. Hill, 289 U.S. 582, 77 L, Ed.

1385, a statute provided that the stockholders ‘““may”’

fer upon directors the power to make and alter the bylaws

\ _ This was done. Subsequently, at an annual meeting, the

: stockholders themselves adopted a new ss aii This Court

said at pages 588-589 :

insti gens But plaintiff argues that the incites }

having delegated to the directors authority to adopt

by-laws lost th power to adopt the one in question.

-. That is inconsistent with the purpose of the statute.

Power to prescribe rules for the government of busi-

ness“corporations reasonably is deemed an incident

of ownership and the voting power of the sbares. It

is quite generally conferred by statute or charter

provisions upon.the stockholders. Here the statu-

tory grant to them i8 plenary. The charter provision .

is subordinate and not inccnsistent. There are many

thousand holders of shares of this corporation. Their

annual meetings are the only regular ones, but the

directors -meet frequently. The company’s business ~

- ig extensive and complex and considerations of con-

venience may have suggested delegation to directors

of authority to make ‘and alter by-laws.

That the statute did not intend to divest stock-

- holders is clear for it expressly makes by-laws passed

by directors ‘subject to alteration and repeal by the

stockholders. In the absence of statutory provision

definitely and clearly disclosing thet tmtention, a

charter provision or by-law adopted by incorporators.

or shareholders delegating power to directors may

not reasonably be held to take from the stockholders

any of the power conferred upon them by the statute.

Plaintiff’s contention would leave the stockholders

full power to alter and repeal by-laws made by direc-

“tors but would deny them power to, originate or adopt

il —#

any by-law or to amend or repeal isis re -

_ themselves. We find no reason in stipport of that

5 construction. Moreover, it seems:in direct conflict

') with the decision of the highest court of New Jersey.

In the case of Re A. A. Griffing Iron Co., 63 N. J. L.

168, 41 Atl, 931, affirmed in the Court of Errors and

‘Appeals on the opinion below, 63 N. J. L. 357, 46 Atl.

_ 1997, the court declared (p. 171): * * “That the

stockholders had delegated to the directors power to

amend the by-laws ‘did not curtail their own power to

amend them, and of course the later statute’ [Revi-

sion, 1896] removed all possible restriction on such

power. * * *It would be preposterous to leave the

_real owners of the corporate property at the mercy

of their agents, and the law ‘has not done “no

(Itahes ours.)

Columbia Gas apnarendie does a: recognize ae the

stockholders, assembled in meeting as they were at the

annual meeting on March 11, 1940, constitute the eorpora-

. tion itself and that their actions are superior to any action

which the Mrectors could take, at. least within the field -

where they have joint jurisdiction, such as in connection

_ with the exercise.of the power ‘‘to sue,’’ where the by-

laws merely provide that the same may be exercised by

the directors, and where the statute says that the same

shall be in directors and stockholders. »

In 5 Fletcher Cyc. Corp. (Perm. Ed.), See. 2097, pages

337- -338, we find the following statement indicating the rela-

tive role,of stockholders and directors in a matter such as

this:

‘In the absence of a provision to the contrary in

the charter of a corporation or the general law, the

: management and control of the corporation is vested

primarily in the stockholders or members ‘vollec-

: tively, as, constituting the corporation, and in them

alone. No one else can act for or bind the corpo-

ration unless authorized by them, or by the charter

.or general law; and it is for them to elect or appoint

the officers or agents to represent and act for the

‘ corporation, and to define their powers, unless there

is some charter or statutory provision to the con-

trary. In other words, if there.is no statute nor

charter provision vesting-control in a board of direc- °

tors or trustees, then the-stockholders retain the —

right to manage the corporation, although in such a ,

case they may confer by a by-law such power upon

the board of directors or trustees. What the stock-

holders thus exercise is power, the ¢orporate power,

‘granted them as a collective body—the corporation

—by the state in the charter; and what the directors

or officers exercise is authority given to them by law

_ for the corporation or by it. In this,sense and sub-

\y ject to qualifications hereafter noted, stockholders

or members of a corporation represent and may bind ©

the corporation by vote of the majority at a corpo-

rate "meeting, =r. Cole es

‘Thus, inf the event the Court finds that the vate of Gano

' ‘Dunn should have been rejected, and accor dingly finds. that

the resolution to authorize the application was passed-the~

Court should find that. the resolution was the act- of the

corporation and the application was properly filed pursu-

ant to such act, as the stockholders had retained Ge right

to exercise the ieee ier o

Ill. Reply to Point III.

We repeat here the argument contained in reply to Point ©

III in the brief of Columbia Oil, supra, pages 6 and 7.

IV. Reply to Point IV.

_ We repeat that the proceedings in the Delaware Court

of Chancery related only to the election of officers and direc-

tors and, did not involve any issue cr question concerning

- the resolution te bring the instant applicati n.

Finally; Columbia Gas urges that oniy a derivative ac- ,

tion would raise the question of whether or not the instant

resolution passed. A’ derivative action could only be

brought on the theory that the resolution was defeated. We

contend it passed. That is the issue on this appeal:

PART Il.

Resly to Appellees’ briefs in Appeal No. 268.

Reply to. Brief of Columbia Oil & Gasoline.

Corporation in Appeal Case No. 268.

-. Statement.

Columbia Oil persists throughout‘its brief ‘in stating’

that _the instant application in Appeal No. 268, is Mokan’s

fourth intervention petition. This is a misstatement of the

record. Mokan-did file two motions seeking leave to inter-

vene which were denied. od 321, 371). Those were filed

by Mokan in its own right. > a

The instant application is the first-and _only application

that has ever been made by Mokan in the ‘Tight_of Pan-

handle Eastern. The application in Appeal Case No.269__

is not by Mokan. °

ee?

Po 14

I. Reply to Point I.

We have set forth, supra, pages 3 to 5 inclusive, .the

authorities showing that when an application to be made

a party is denied, the order denying the same is appeal-

able where, as here, there would be a practical denial of

certain relief to which the applicant is fairly entitled. This -

rule is recognized by this Court in the case of Credits -

Commutation Co. v. U. S., 177 U. 8. 311. In the recent

ease of In re Dolcater, 106 Fed. 2d, 30, 31, the’ Court.

pointed out that an appeal from an application to inter-

vene should be allowed where the ‘intervention iS SO es-

sential to the preservation of the petitioner’s rights’’,

Applying to our situation the rule recognized by this Court,

supra; clearly demonstrates the appealability of the decree

which: denied to Mokan the‘right to seek, on behalf of

Panhandle Eastern, the relief which Section V provides

“ may be cbtained' in this case. Section IV of the Consent

Decree deal’ with specific rights and Section V states that

Panhandle Eastern may, upon proper application, enforce

these as a party. How else could Panhandle Eastern en-

force these rights?| It is obvious that the same rights can-

not be appropriately asserted in any other proceeding: —

The denial of the application cannot be a discretionary

matter because under the terms of the Consent Decree itself’

_ the only limitation provided upon the right of Panhandle

Eastern to be made a party is that a proper application

be made. The words ‘‘upon proper application”’ cannot

be interpreted as having the same meaning as ‘‘in the

Court’s discretion’’. If ‘‘proper application’’-was made,

then the Court was without.discretion in the matter, as the

. right was absolute. The denial of this absolute right was

a final adjudication.

ek aS jo eee

ae rene os Orn nt EN ON NET CEEOL RY PTR AE OT AE

Fe SE A aa

‘In a case of .U. 89. v. Phillips, Judge, 107 Fed. 824

(€. C. A. 8).the Court said:

‘“When a Chan¥llor denies the right to inter-

‘vene in a case beionging ‘to the second class (where

right to intérvene is absolute) an appeal lies because

the Chancellor’s action was. not discretionary, and

because such action was a final adjudication in that

it denied him relief which he could obtai n only by

an intervention in the perding cause.’

“I. Reply to Point II.

We refer to our Statements as to Jurisdiction in No.

268 and No. 269 in reply to this Point Il of Appellee and |

to the statements contained herein, supra, pages 2 to 5

with respect to the final nature of the order entered by. the

District Court.

~ Columbia Oil. takes the senitien that ‘‘ ‘Mokan i is free to

institute an action for damages outside ‘of this sait’’ and

that therefore the decree below was not*a final one (brief,

p. 35): That is not the issue. The decree below is cer-

tainly a final determination that Panhandle Eastern shall

not be a party to this action for the purposes set out in its”

prayers. Any relief which might be had outside this case is

not the same relief as could be“had by Panhandle Eastern

as a party to the instant case. In U. 8. v. Calsfornia

‘Cooperative Canneries, 279 U. S. 533, this court indicated

that orders denying intervertion to those who have a direct _

and immediate interest in the res which is the subject of

the suit are appealable. This Court said at page 556:

“That Court’? (the Court of Appeals of the Dis-’

trict of Columbia) ‘‘* * * did not refer to the deci-

‘sions which hold that an order denying leave to inter-

yene is not appealable (Citations), except where he.

_who_seeks to intervene has a direct ‘and immediate

interest in a res which is the subject of the suif

(Citations).’’

ae , ae.

The instant appeal comes directly within the- exception

specifically recognized hy this. Court because the res

‘‘which is the subject’’ of the suit below is the right.

of Panhandle Kastern to pnsage in interstate commerce

unmolested by unlawful réstraints of these defendants, and

_ the instant application is made in the right of one who ‘‘has |

a direct and immediate interest’’ in that res. Furthermore, |

the exception hereinabove set forth concerning finality and

lack of opportunity to-assert rights in other proceedings ‘is

so inherent in this matter as to create a sound exception

giving rights to an immediate appeal under the Expediting

Act to this Court.

III. Reply to Point III.

The doctrine of res adjudicata is not applicable and |

does not estop Mokan from asserting the rights of Pan-

handle Eastern as it seeks to do herein for the following’

reasons: - vo a :

- (a) The first Mokan intervention petition was not in

the right of Panhandle~Kastern. ‘The insteut application

- is. The Mokan motion of February 6, 1939 did not ask

that Panhandle Eastern be. made a party, nor did the peti-

tion annexed thereto, (R. 284) and so the granting of

that motion would not have made Panhandle Hastern a—

party. It follows that the denial of the motion cannot .

operate ‘as res adjudicata against Panhandle Eastern’s -

right under Section V to become a party. Both the order

and the opinion of the court below confirm the view that

the motion was not in Panhandle Eastern’s right.

But appellee’s. contention would not be helped by ad-

mitting that the Mokan motion was intended to make-use of

such right, for in that case it\was subject to the fatal

defect. of failing to make Panhandle Eastern a party

adjudication of the merits of Panhandle Eastern’s right.

Intention is no substitute for venieeten’ allegations or

- necessary parties. “.

_ Nor éould the denial of that motion be a final deter-

nfination even of -the right of Mekan to make application .

derivatively in the right of Panhandle Eastern, since the

failure to ask that Panhandle Eastern be made a party was

a formal defect sufficient to justify the denial of the motion

without prejudice to Mokan’s right to present subsequently

a bcana’ motion or application. * :

‘In order to bring .a derivative action on behalf of a

corporation it is 3 necessary that the corporation be made a

eae 4 | :

Davenport v. Dows, 18 Wall. 626 (1873).

The reason is; as this Court pointed out in the Davenport

ease that te’ rights asserted by the stockhdlder are -the}

rights of the corporation and therefore: ne MP

. “manifestly the proceedings for this purpose should

«. - beso conducted that any decree which shall be made

‘on the merits shall conclude the corporation. This

can only be done by mp the corporation a party

defendant. The relief asked is on behalf of the cor-

poration, not the individual shareholder,’’ etc...

- P , _ o

' See also: vm

Cantor vs. Sachs, et al., 18 Del, Ch. 359, 162 Atl.

73: | | .

Ainscow v. Sanitary Company of America,

(Del. Ch.) 180 Atl 614.- © | *

In other words one of the essentials in order for a judg- |

ment to give rise to the doctrine of rés adjudicata was not

ee Se ee

/ .

present in the first two petitions to intervene, namely, ‘the . _

proper parties must be present’’.

Black on ai nti Vol. I, Section 242, page

358. . bias

Even if the decree appealed from had sought to pass

upon Panhandle Kastern’s right¢ which are herein asserted,

the judgment would have been invalid because Panhandle

Eastern was not a party, and therefore would not give

risé to the doctrine of res adjudicata.

Black on onenerh Vol. I, Section 1 249, page

858.

Columbia Gas itself originally took the position that the

‘ first intervention petition could not have been in the right

_‘of Panhandle Eastern. On page 24 of the brief filed by

Columbia Gas in opposition to the first motion of Mokan

to intervene, the denial of which Columbia Gas now con-

tends has worked an estoppel, Columbia Gas said:

' “On the Supposition that this petition should be

considered as filed by irate in the right of Pan-

handle Eastern.’’

“If the petition is considered as filed, not in

the right of Mokan, but in the right of Panhandle |

astern, on the analogy of a minority stockholder’s

bill, it is vitally defective for its failure to comply

with certain essentials for the filing of a minority

stockholder’s bill, namely (1) its absence to show

that the directors of Panhandle Eastern were guilty

of bad faith and misconduct in refusing to bring suit ~

and (2) its affirmative showing that petitioner. was

not a stockholder of Panhandle Eastern at the time

of the acts complained of and (3) its failure to join

Panhandle Eastern as a party defendant.’’ —

"49

- Columbia Gas then took up the three alleged defects in

order and after extensively arguing its points (1) and (2),

made the sy Seca argument concerning point (3) :

‘* (8) The petition does not join ‘Panhandle East-

ern as a,defendant. Ina suit in which stockholders

sue on behalf of the corporation, it is well settled

_ that the corporation is an indispensable party. It is

probably superfluous to cite-authorities for such a

well-settled proposition, but, from a multitude of

those available, we may cite ‘Davenport v. Dows, 18

Wall. 626. |

(Columbia Gas here quotes from several cases.)

‘‘In the instant case, if the petition be gonstrued as

brought in the right of Panhandle Eastern, it is con-

sequently fatally defective because of the failure to

join the Panhandle Hastern as a party defendant.”’

(Col. Gas. Brief in Court below, pp. 29-30.)

_ Inthe brief of Columbia Oil filed with the District Court

at that time, we find the following on page 23:

**In passing, it should be noted that if Mokan’s peti-

tion is filed ‘in behalf of itself and for the benefit of

Panhandle Eastern on the analogy of a minority

stockholders’ bill then the petition is vitally defec-

tive as it has failed to join Panhandle EKastern as a

necessary party defendant.

‘*Kelly v. Mississippi River | a Company,

175 Fed., 482.”’

The first petition filed by Mokan to intervene was not

in-the right of Panhandle Eastern, but if the language con-

tained in Paragraph XXXIITI should be construed as an in-:

dication that Mokan was seeking to intervene in the right

of Panhandle Eastern, the petition was as Columbia Gas

then said, ‘‘fatally defective because of the failure to join

the Panhandle Eastern as a party defendant’’. Of course,

the doctrine of res is “adjudicate is not applicable in either

event.

Mokan is entitled in this derivative application to have

the rights asserted by it ‘‘measured by the right of the

corporation {Panhandle Eastern) to such relief’’,

_ Arn vs. Dunnett, 93 Fed. (2d) 634 (C. C. A.

10th), certiorari denied 304 U. S. 577;

Dickerman vs. Northern Trust Co., 116 U.S.

181, 44 Law Ed. 423. |

(b) The denials by the dies court of Mokan’s two

earlier motions for leave to intervene were not on‘the mer-

its. In Bigelow on oe Sixth Edition, Page 65, the

author states:

“* * * 9 judgment, in order to work an éstoppel

against another litigation upon the same cause of

action, must have been rendered upon the merits of

‘the cause. If the decision was rendered upon a mere

motion or a summary application, or if the case was

dismissed on some preliminary ground *:* * for

want. of jurisdiction, deficiency in the pleadings * * *

or the like, the parties are at liberty to raise the

main issue again”’ ete.

_ Much of the appellee ’s brief in this Court is devoted.to

a comparison of the ultimate substantive facts stated in the

several applications, on the theory that there has been a ,

- final judgment on the merits. But at no stage have these ~

facts been considered or an adjudication been based upon

them. In short, no’ judgment has been entered upon the |

merits. The effect of the several orders ‘has been to pre-

vent this by barring entry into that substantive field of

controversy. If appellee’s theory be correct it is not now |

acme oo ee RN PER MN ree

i Sere eae

possible for either Mokan or Panhandle Eastern, at any

time in any tribunal, to procure any hearing and adjudica-

tion upon the merits of me severenny. j

IV. Reply to Point IV.

The Government and both Columbia companies stipu-

lated that the Consent Decree be entered and, therefore,

are now estopped from urging that the rights eonferred

on Panhandle Eastern by..Sections IV ‘and V cannot be

litigated in the suit below. The prayers of the Mokan

application state the type of relief Sections IV and V con-

templated, but the Court below, if it finds that the prayers.

go beyond the relief permitted by these Sections, will, of

course, limit the relief accordingly.

V. Reply to Point V.

The application does not attack the Consent Decree nor

seek to modify the provisions thereof. See infra, pp. 32-39.

VI. Reply to Point VI.

Columbia Oil’s contention that the. relief contemplated

by Sections IV and V should be denied under the doctrine *

of laches is based upon the claim that the cause of action

‘accrued in 1936. The cause of action asserted in the

instant application is based upon the continuing use of the

properties, as well as upon the acquisition by Columbia Oil

of the stock and the cr by Columbia Gas of oe

extension.

In its brief Columbia Oil states, but without any record

support: “<considerable sums of money have been expended

by Columbia Oi in reliauce upon these agreements.’’? No

suggéstion is to be found in the Record that Columbia Mil

has suffered any loss whatsoever or has coages its position

, ~ *

‘ since the cause of action arose. Nor is any showing made

that any loss will be suffered. On the other hand, the in-

stant application points out that Columbia Gas has secured

unconscionable and ex2essive returns on its investments by

virtue-of the violations of the terms of the consent decree

(R. 531, 535-537). The defense of laches requires not

mere lapse of time, but also a change of position to the -

detriment of the person against whom a right is asserted.

In the cere of Bay Newfoundland-Co, v. Wilson & Go.,'4 A.

-2d. (Del. Ch.) 668 at 671, the Court states the rule: ,

**It seems that the equitable rule, with-respect to

‘laches, is not ordinarily based on the mere delay of

a complainant, in asserting his rights, baton delay

that works a disadvantage to another,. after notice

of the invasion of such rights. Chase v. Chase, 20

R. I.-202, 37 A. 804; 4 Pom. Eq. Jr. (4th Ed.) p.

3418; Scotton et al. v. Wright et al., 13 Del. Ch. 214,

117 A. 131.’ ’

See also: Frank v. Wilson and Co., 9 A. 2d. 82, 86.

Reply to Brief of Columbia Gas & Electric

Corporation. in Appeal Case No. 268.

‘I. Reply to Point I.

The contention of Columbia Gas that’ tne failure ‘to

join Panhandle Eastern as a party is a-bar to any pro-

ceeding on this application”’ is untenable. Mokan ‘sought

to make the application on behalf of Panhandle Eastern

- and prayed for ‘‘the relief to which Panhandle East-

ern is entitled under Sections IV and V of the decree’’,

Mokan. recognized that, as it was asserting derivative .

rights, Panhandle Eastern would have to be made a party

"to the canse as the rights were being asserted on its behalf

. ° oes . / ~ , = ‘ - ow :

and the judgment would have to be in favor of Panhandle

Eastern. Ainscrow vs. Sanitary Co. of America (Del. Ch.),

180 A. 614; Canton, et al. vs. Sachs, et al., 18 (Del. Ch.),

359. 162 A. 73. Recognizing this principle, Mokan in ‘

prayer Number 5-asked that ‘‘Panhandle Eastern be cited

., to appear before the court”? (R. 540). ;

As Mokan asked that an order be entered citing Pan-

handle Hastern to appear, it complied with all possible

requirements. Of course, in an ordinary derivative, suit

- started by a stockholder, parties are named and subpoenas |

issued, but where, as heré, application had to be made

to the court to file the application and to bring new parties

into the suit, Mokan’s prayer that Panhandle Eastern be

~@tted was sufficient. The application was denied, which

constituted a denial of the prayer to make Panhandle Kast-

ern a party. ‘That is part’ of the action which we are asking

this court to reverse. Had the court below granted our

application and cited. Panhandle Eastern to appear, then,

of course, it would have been before that court and any de-

cree made on the merits would conclude it as this Court has

said must be done. ees vs. Dow 's, 18 Wall. 626.

li. Reply to Point i.

On pages 2 to 5, supra, we have, reviewed the reasons

and set forth the authorities showing orders such as those ~

entered by the court below are appealable, There we ap-

' plied the cases to the application filed by Panhandle Kast-

ern, Even. more certain is the situation with respect to

the instant application filed by Mokan in the right of Pan-

handle E \stern because the denial, if not reversed, would

forever bar Mokan from asserting on behalf of Panhandle

Eastern (in the event Panhandle Eastern continues under

domination which causes: it to refuse to assert its rights),

the limited rights to which Panhandle Eastern is entitled

- ‘a practical denial of certain relief to which the intervenor

ae bs

under Sections IV and V of the Consent Decree. As it would |

be impossible to assert said rights in any other form of ¢ |

proceéding, the denial is appealable, because it constituted

* (appellant) is fairly entitled and which he can only obtain

by intervention’’. In re Columbia Real Estate Co., 112 F.

643, 645. : :

The om test of whether or not the.instant application

should have been granted can only be found i in an analysis

of the right conferred by Sections IV and V of the Consent

Decree. The general rule concerning interventions, Rule

24, does not limit these specific rights set forth in the Con-

sent D&ree. )

The suggestions contained on pages 30 to 33 nilesive

that the application seeks relief broader than that contem-

plated by .Sections IV and V of the Consent Decree is

answered merély by pointing out that, if so, the District —

Court: should and -will correctly limit the relief. The ap-

-plication contaims a prayer for general relief, but within

the ‘‘limited purpose”’ permitted by Section V.

III. Reply to Point III. 4

(a) Re: Contention Application is Not Timely.

Under Point III Columbia Gas urges that the applica-

_tion was properly denied because not timely. This _

contention is based upon language in Rule 24. We have

pointed out that Rule 24 does not govern. The argument

about timeliness is merely another way of saying that

laches constitutes a defense. Nothing is in the record to

_ show that Columbia Gas or Columbia Oil changed position

to their disadvantage ‘because this application was not

made immediately after Columbia Oil acquired the stock

and Columbia Gas acquired the Detroit extension.

On the other hand, as we pointed out in the application

(R. 531, 535-537) Columbia Gas has, through its illegal acts

and violations of the Consent Decree, obtained property

rightfully belonging to Panhandle -EKastern, whereby

Cokumbia Gas and Columbia Oil ‘have secured ‘‘to_them-

selves a further monopoly in the commerce of natural gas

in Indiana, Ohio and Michigan’’ (R. 536). The application

points out that through the March 17, 1936 contract,

Columbia Gas was able to control the markets in Indiana,

Ohio. and Michigan “and sell gas ‘‘at prices and on terms

. satisfactory to Columbia Gas’’ (R. 537).

Through Michigan Gas, Columbia Gas ‘‘has received -,

and is now receiving excessive profits therefrom, all in

violation of the express provisions of the decree afore-

said’? (R. 531). In view of this Columbia Gas cannot urge

the defense of laches or untimeliness. Bay Newfoundland

Co. v. Wilson & Co., 4A. 2d. (Del. Ch.) 668 at 671.

(b) Re: Contention Individual May Not Participate in

Government Anti-Trust ‘Suit.

It is contended by the appellees that the dismissal of

the’ applications is supported by the following cases, be-

cause of thé asserted conflict and because of.a supposed -

rule that an individual may not participate in. a ‘suit

brought under the anti-trust laws by the Attorney General

of the Tastee States.

United States v. Northern ‘Securities Co., 128

; Fed. 808;

| Buckeye Coat & Ry. Co. v. Hocking sesh Ry, :

269 U.S. 42. | ‘a

' Ex parte Leaf Tobacco Board of Trade, 222

U.S. 578;

United States v. Radio sia sat canted 3 F. is

23 ;

(Brief of Cbheasbin Gas, pp. 39-44; of Columbia

Oil, pp. 56-59). ,

> ow .

But these cases and some others now referred to show-

that the applications should have been allowed and that

their dismissal was errer.

In United States v. Terminal Raibroad Assn., 236 U.&

_,194, parties whose interest, was more remote pi much “ra

_ substantial and certain than the interest of these appli-

cants, were pesmitted. to intervene for modifitation of a

decree in an anti-trust case. The interveners were mer- ,

chants located on the lines of the ‘Terminal Association, for

. whom .the. Association performed local: transportation

service. An objection to intervention by the Attorney Gen-

eral was overruled. This Court said:

‘The challenge by the United States of the right

to hear the intervening petitioners is without, merit, |

| since even, although the petitioner's were not parties,

- . they are entitled to be heard concerning the settle-

ment of the decree in so far as it might operate pre-

judicially to their rights’’ (p. 199).

The Court ordered that the decree be so modified as to

permit the Terminal Association to serve the interveners.

In United States v. Reading Co., 273 Fed. 848, interven- ;

tion of preferred and common stockholders of a corpora-

tion defendant in an anti-trust dissolution case, wag per

mitted by a three judge court. There the question was with

regard to the provisions of a decree to dissolve a eombina-

tion in the anthracite coal trade. The action was approved

in Continental Insurance Co. Vv. United States, 259 U. &.

156.~" —_

- The Terminal Association cage and the Reading case —

' recognize the ‘obvious propriety and desirability of per-

witting the intervention of parties whose property or busi-

ness ititerest may. be affected by the perenne of an anti-

trust decree. ta” seat

‘eae

; —

‘

_ ;

<ee

-In Buckeye Coal’ £ Ry. Co. v. Hocking Valley Co., 269

U.S., 42; 203 Fed. 295; parties wltose interest was in mort-

gage liens ‘upon their lands were permitted to intervene.

The intervention was: granted, although the relief sought,

i.e., the cancellation of the liens, was denied,

‘ (c) and (d) The Application Does Not Seek to iain

New Issues Nor Attack or Modify ‘the Decree.

Cases like United States v. Radio Corperation, 3 F.

Supp. 23, and United States v. Northern Securities Co., 428

Fed. 808, in which intervention was denied to parties who

sought to attack anti-trust decrees, to pull them up by-the

roots, so to speak, do not support a rule against parties -

who seek the relief specifically provided for by a decree and

who.seek to procure relief in perfect accord with the anti-

trust laws, not in. conflict with the existing decree, and

_ whose action if successful will promoté the policy of the

* anti- trust faws to protect the private. and: public interests ;

" affected.

The contentions that the application seeks to ‘sides

new issues and that under settled rules of practice inter-

_vention will*not be permitted after entry of the decree are

answered by the simple fact ,that the only relief sought is

that specifically provided for ©: the Consent Decree. See

infra, pages 32-39. ~~

IV. Reply to Point IV.

an: ol ne *

-In its Point IV Columbia Gas seeks to ragse the defense’

of -res adjudicata. We have pointed out supra, pages 16 to

91, that. the defense of res adjudicata cannot perly be

eked |

‘ 9 ; ee A

28 e

PART lil.

Reply to Brief of Government. = wv \

A. Government’s Position.

The reasons given by the Government ‘in its memoran-

dum for its opposition to the relief sought by the instant

applications is.merely that the litigation pending in the

District Court would be protracted. On page 8 the Gov-

ernment points out in a note that:

‘“‘The public interest would sarees be eek by

either plan.’?

The Government apparently is not certain that even if

the Plan considered by the Court below is put into effect

it will terminate the illegal control, as we find on pages 7

and 10 the Government saying that ‘‘it is believed’’ the

Plan will terminate the illegal control. The Court below,

although, indicating it would approve the. Plan, stated in its

* opinicn that the changes are such that the effect will be

- that ‘‘the influence of Columbia Gas over Columbia Oil will.

be minimized or removed.”’

B. Contention Applications Moot.

The Government contends that the relief sought by the

instant applications has become moot because J udge Nields

handed down an opinion on January 18, 1941 stating that

he would approve the Plan upon certain conditions being

met. But the conditions, namely, the approval of the Se-

curities & Exchange Commission, and the sale by certain

stockholders of their Columbia Oil stock, may never bemet,

and no decree approving the Plan can be entered until they

‘are met. The Court below has only said that if certain ~

blocks of Columbia Oil stock, including 65,872 now owned

a a i

<€

by Philip G. Gossler, the present Chairman of the Board

of Columbia Gas, are sold, and the approval of the Securi-

ties & Exchange Commission is secured, the Plan will be

approved. Thus one of the principal original conspirators,

‘ Gossler himself, can indefinitely postpone the entry of the

| new decree by simply holding his Columbia Oil stock, mean- , .

time maintaining the presently existing restraint of trade

in exactly the same form which was condemned by the Gov- °

ernment petitions of January 12 and May 15, 1939.

| Furthermore, as the Court. below said:

““The plan by its terms is made subject to the

approval af the Securities and Exchange Commis-

sion and to suclt corporate action by stockholders of

Columbia Oil as may be necessary and appropriate’’

(Government Brief, p. 19).

What assurance is there that the S. E. C.’or Columbia

Oil stockholders will approve? And’ when?

And, as the Gov ernment’ s objections to the Plan have

not been met (see discussion immediately following), an .

appeal may be taken from any new decree. ,

C. Errors in Government’s Brief. |

We call attention to certain errors of fact contained in ~~

the Memorandum for the United States —, called

the Government Brief) filed herein: _

(1) On page 6 the Government states:

.. ‘‘The United States as. plaintiff in the cause below

‘ + did not object to the approval ef that plan provided

& ~ that certain conditions be included therein. The Dis-

- trict Lourt in Ve opinion directed thé inclusion of

8 |. those conditionsx”

This is an error. The-Government objécted to the approval

of the Plan unless certain. blocks of common stock of

eee

Columbia Oil be disposed of by the owners, and included in

the designated blocks are 30,358 shares held by Mrs.

Katherine Clay, daughter of Mr. Gossler, and 25,009 shares;

held by.E. W. Edwards, a former director of Columbia Gas

(R. 403-404, 391). See statement to this effect in opinion

of District Court annexed to Government Brief, page 24.

The Distriet Court’s opinion contains no indication that

the final decree will provide that these blocks of stock be

sold as the Government’s objection sought, but instead

said: | |

‘‘A different situation, however, exists with respect

to the st»ck of Edwards and of Mrs. Clay, daugitter

of Gossler. Neither of those persons is a defendant -

in this cause. The court has no. jurisdiction or con- _

,. trol over them. Edwards has not {been a director of

Columbia Gas since 1938. Possibly some agreement

may be reached by the parties with respect to the

treatment of these two blocks of stock before the time

arrives for. the entry of a final decree’’ (Govern-

ment’s Brief, pp. 26, 27).

(2) On page 4 of-its Brief the Government states that

the

penaianilini of Panhandle Risters, readjust-

ment of Columbia Oil’s interest in Panhandle Hast-

ern, and readjustment of Columbia Gas’ interest in +

Columbia Oil”? —

wa “pursuant to”’ the provisions ‘of the original consent

uae ‘That is not the fact as the consent decree shows.

- The ‘‘readjustment of Columbia Oil’ s interest in Pan-

handle Eastern’’ included the acquisition of a majority of

the common stock, and all of two issues of preferred

stock, which is characterized as a violation of the anti-trust

laws in the Government’s petition of May 15, 1939 (R. 348).

(3) On page 6 of its Brief the Government states that

~~ the District Court ‘approved the Plan”. The District

Court did not approve the Plan as the same was presented

to it by the Columbia Companies. The’ District Court

stated that 7t would approve the Plan-upon certain condi.

tions being met, The Court said:

‘*Final approval of the plan and euneniinent of

the consent decree will be conditioned upon the prior —

disposal by Gossler to another person or persons

’ having no direct cr indirect interest in or connection

_ with Columbia Gas of any and all common stock of /

Columbia Oil which he may own. /

' Similar considerations apply to the stock held

by officers and directors of Columbia Gas. They

should not be interested in. voting securities of

‘Columbia Oil. > {Government Brief, p.26.)

(4) Th its final paragraph on page 11, the Government

takes the position that.the decision of the District Court

- has resulted in the Consent Decree being changed and ‘‘the

substitution of an entirely new plan’’. That is not the case.

The District Court has indicated that upon certain condi-

tions being complied with (see supra) it will enter a‘final

decree approving the Plan advanced by the Columbia Com-

panies. No final decree has been entered and therefore the

Consent Decree is still in full foree. There is no showing

in this record or in the opinion of the Court below (annexed

to the Government’s Brief) that the voluntary Plan will

ever be approved or the present Consent Decree ever be. .

modified. 1. ne te | 3 e

“- (5) On page 9 the Government socks to show the differ-

ence between the proposed Plan and the relief sbught by -

the instant applications. Several misstatements are made:

“ (a) The Plan does not give Panhandle Eastern a

firm option: for one year but merely a refusal which

could very easily be used to prevent Panhandle East-:

ern from ever acquiring the Detroit extension (R. 361).

. ay °

ier er memmmerneenemnmnrreermmemnnsemasesnesiesnen sanentnensssensenccssccessctstil :

° x .

(b) The instant applications do not seek the ap-

pointment of a trustee ‘“to rétain and dispose”’ of the

extension, but instead to hold the same as trustee for

Panhandle Eastern (R. 423-424, 539).

a segregation of control ‘‘at a point between Columbia —

Gas and Columbia Oil; whereas the applications*now

on review seek divestment at the point between Colum-,

bia Oil and Panhandle Eastern th ugh the enforced

sale of Columbia Oil’s stock@wnership in Panhandle

Dalern’” That is not the case. The applications on

_ appeal do not seek divestment through sale of any of

* Columbia Oil’s stock ownership of Panhandle Eastern;

instead they seek only to eliminate the voting rights

incident to certain parts of that stock and only to those

parts which are alleged to be legally held (2. 424,

539).

D. Contention Relief Sought Inconsistent with

Consent Decree and Proposed Plan.

Appellees assert that these applications constituted °

an attack upon the consent decree and are made for. the

purpose of modifying and impeaching that decree. ( Briefs

in No. 268 of Columbia Gas, pp. 52, 53; and of Columbia —

Oil, p. 61.) The Memorandum of the United States asserts

that there is a conflict between the proposed new decree

' and the relief sought by the appellants.

In fact, the relief sought by.the appellants is in com-

plete accord with the objectives of the Consent Decree, it

will promote a dissolution of the unlawful restraint and —

monopolization, and will not prevent the operation of any

provision of the existing Consent Decree or the proposed «.

new decree. ‘This will be shown by comparing the relief

' sought in these applications, the traditional remedy here-

tofore applied i in similar cases, and the provisions of the

proposed new decree. ,

The acquisition of a majority of the stock of Pan-

handle Eastern was the principal means used by the defend-

ants to effectuate and maintain the unlawful restraint and

monopolization. Hence, the simple, certain and. prompt.

‘method of ending the unlawful condition would have been

the complete and absolute divestiture of that stock, the °

obvious remedy being simply to undo what has been done.

In all. other sim‘lar anti- trust cases‘in which the United

' States has prevailed that method has been used; that is

to say, there has been a ‘divestiture of the very stock or |

other property unlawfully acquired. During the fifty. years

from the. enactment of the Sherman Act in: 1890 to the pres-

ent time, there have been twenty-nine such cases, not

including this case.* In the twenty-three in which the

United States has either prevailed or accepted. a consent

‘ decree, the decrees have required a divestiture of stocks,

‘properties, bonds, liens, le ses, ete., for the purpose of

effecting a dissolution of the combination. ous case is the

only exception. |

U. S. 1. Dismissed.

U. 8. v. Northern Securities Co., 120 Fed. 721; 193 U.S.

197. March 14, 1904.

29, 1911.

106. Nov. 16, 1911.

U.S. v. Du Pont €o., 188 Fed. 127. June 13, 1912.

U. 8. v. Union Pacific R. R. Co., 188 F. 102; 226 U. S. 61;

266 U.S. 470. June 30; 1913,

=~ SF - # 3

656. Relief refused—no corporate combination case

_ mdde out.

8. U.S. v.“American Sugar Refining Co., Southern District,

'_" __ New York. Consent decree, May 9, 1922.

' 9. U. 8. v. Lake Shore Ry. Co., 203 Fed. 295.’ March 94, 1914.

10. U.S8..v. U. 8. Steel Corporation, 223 Fed. 55; U. S.

417. Dismissed.

11. U.S. v. United: Shoe Machinery Co.,, 222 Fed. 349; 247

U. S. 32. Dismissed.

U.S. v. E. C. Knight Co., 60 Fed. 306; 60 Fed. 934; 156

U.S. v. Standard Oil Co., 172 Fed. 177; 221 U. S. 1. July

U. 8. v. American Tobacco Co., 164 Fed. 700; 221 wy. Ss.

U. 8.v. Great Lakes Towing Co., 208 Fed.°733; 217 Fed.

™

. ‘The prayers for relief in the several petitions and com-

: plaints filed in this case by. the United States followed those

cases. . Thus, divestiture of the Panhandle Kasteyn stock: |

_was demanded in the original petition of March 6, 1935; ° |

again, in the. first Amended ard Supplemental. Petition of

October 30, 1935-(R. 30) ; again, in the-second Supplemental

| Complaint of January 12, 1939 (R. 281) ; and finally, in the

| third proposed Amended and Supplemental Compiint of .

May 15, 1939 (R348). But the United States does hot now

insist on.that ‘relief. Pai

The. view af the ‘special ‘aaatee to whom was ‘referred

the proposed new decree, ¥ was. t&the same effect. He stated

12. U. 8.N. desea ever Co., 214 Fed. 987. Nov.

2,1918. -

13. Us. v. Corn, Products Co., 234 Fed, 964. Nov. 13, 1916.

14,. U. 8. v. Eastman Kodak Co., 226 Fed. 62. June 20, 1916.

* 15. U.S. v. Quaker Oats Co., 232 Fed: 499. Dismissed.

16. U. S.v. Reading Co., 226 Fed. 229 ; 253 U. S. 26. June

76, 3921.

17. U.S.V. American Can Co., 230 Fed.-859; 234 Fed. 1019.

*. _-- Dismissed. :

18. U.S. v. Southern Pacific Co., 239 Fed. 998 ; 259 U.S. 2140

‘19. U. 8.x. Lehigh Valley R..R. Co, 225 ‘Fed. 399 ; 254 U.S.

- . 255. Nov. 7, 1923.

20° U.S: v. New York, New econ é Hartford R. R., South- |

. ern District, New York. Consent decree, Oct. 7, 1914...

21:-°U, Sv. New England Fish Exchange, caemniren of Mass., ~

, _ 208 Fed. 932. Dec. 4, 1919.

22. U.S. v. Swift & Co., -Supreme Court, District of Columbia.

pa decree, Feb. 27, 1920.

23. -U. S. v. Cement Securities Co., District of Colorado. Con. .

6 sent decree, Dec. 13, 1924. + .

24. U.8.v. Ward Food Products Co., District of Maryland.

Consent decree, April 3, 1926.

25. U.S.v. National Food Products Corporation, Southern

District, New York. . Consent decrge, March 4, 1926.

26. U.8.v. Rand Gardex Bureau, | thern District, New

York. Consent decree, Dec. 9, 1926.

27. U. 8. v. Fox Theatres Cor oration, Southern District, New

York. Consent decrée, April 15, 1931. ’ :

28. U.&.9. Foster & Kteiser Co., Southe District, Califor-

. nia. ‘ Consent decree, March 18,

* 29. U. 8. v. Radio Corporation of America, District of’ Dela-

were, Consent decree, Nov. 21, 1932.

that divestiture of the Panhandle Sisto. stock “would

be much simpler from a procedural point of view, would ¥e |

sure to accomplish the result intended -by the consent de- ,

cree and would be acceptable to the Government. * i

371, 381, 394.) °

Mo party to this case has even , attempted to controvert

thie. efficagy of a divestiture of the Panhandle Eastern

| stock, or has cited any reason for failure to apply that |

remedy. This record coiitains nd evidence of any fact to

_- support any reason for avoidance of that. remedy. | Hence,

it is safe to assume that that rémedy has not been avoided

because of its inapplicability to'this case.

The inefficacy of the Consent Decree and the proposed, ¢

new decree is not an issue on Phese applications, . as that

issue could not be raised by Panhandde Eastern under the °

- limited purpose of these applications. These applications.

‘ could not be based upon the proposition that those decrees

- are inadequate. The United States asserts, however, that

‘the Consent Decree has failed utterly, and it is ostensibly

because of that dissatisfaction that the: defendants have

proposed the new decree (R. 338, 340). - :

That divestiture of the very stock inlawfully acquired

has been the traditional _remedy, is mentioned merely to

show: that the return of ‘80, 000 shares of the amlawfully ;

acquired Panhandle Eastern’ stock and transfer of the

Detroit extension, as sought by the appellants, are in

accord with the well settled remedy and with the objectives

of the anti-trust laws. The provisions of: the proposed

new decree are mentioned, not to.show their inefficacy or

to ask that they be changet; but merely to.show. that the

‘return of the 80,000 shares and transfer of. the Detroit

extension, may ‘be made without interfering in the slight-

est degree with those provisions. ,

a a 36

. The principal provisions of the proposed new decree are . §

the following: _ Eee Gr aes ‘

ae As to the relation between Columbia Gas and Colum-

.bia Owl. Columbia Gas will divest itself of 400,000 shares

- * Columbia’ Oil (R. 358-359). ay

2. As to the relation between Columbia Gas and Michi-

gan Gas. Columbia Gas will sell Michigan Gas, giving Pan-

handle Kastern a one year refusal to buy (RB. 361).

3. As to the ‘felation between Columbia Oil. and Pun

- Randle Eastery The Department of Justice is to have a

veto privilege as to officers and directors of Columbia Oil

-. and Panhandle Eastern. The plan for the proposed decree

' states: | |

All olhieré and directors of Columbia Oil shall ~ |

_ resign upon the entry of the’order and the approval

of the Plan by tue Secnrities and Exchange Commis-

sion (to the extent required by law), and be replaced

by officers and directors. not objectionable to the -

‘ Department of Justice, such directors to own no stock

or securities.of Columbia Gas. Such directors shall

abe not include anyone who is now, or eyer has been, an

officer, director or employee of Columbia Gas or

any of its subsidiary companies. “

* * . _* . £ *

the copvesentatives of Columbia Oil on the Board

of Diréctors of Panhandle Eastern shall be directors —

of Columbia Oil (R. 360-361). .

The veto privilege is to be limited to five years; after

which the protection ceases (R. 393).

Columbia Oil will ‘‘agree to use-its best efforts to aus.

| pose of the $10 ,000,000 Class A preferred stock of Pan-

Hae Pie

handle Qastern owned by it ...’’ (R. 359). Note that dis-

position is: not mandatory, but depends upon the mere -

volition of Columbia Oil. There is not even an allusion to

“disposition of the. $1, 000,000 of Class B preferred stock, .

_ which elects -two directors. That is to be retained by

Columbia Oil. ae °

The proposed new decree has: been formulated and

offered, not, by the Attorney General, but by the defendants. -

\. The conspicuous’ facts about it are its many serious omis-

Stens. They are: No separation betwéen Columbia Oil and.

. ‘ Panhandle Eastern. No dissolution of the general com-

‘munity of stockholders of Columbia Gas and Columbia Oil,

except that the Court below, as a condition to its final

approval of the plan, will require a complete and absolute

~~ divestiture by gertain stockholders oftheir shares in-Colum-——__-

bia Oil (Brief of U. S., p. 26). No change is absolutely

‘required in the status of debtor and creditor which obtains

between Cokimbia Oil and Columbia Gas, whereby Colum--

bia Gas holds the entire funded debt of Columbia Oil, in

\ the amount of $21,000,000.

It is evident that the court below feele no assurance

_ that the proposed new decree will be effectual to end the —

restraint and monopoly. After reviewing the provisions of

that decree, the court states that ‘‘the influence of Columbia

Gas over Columbia Oil will be minimized or removed”’

(Go%ernment brief, p. 20). A decree which merely reduces

the unlawful influence, or merely-reduces a restraint’ and -

monopoly, does not meet the requirements of the law, whose

objective i is to completely and certainty end suck conditions.

‘The prayers of the AppeHagts’ applications rela-

tive to the Detroit extension provide for transfer by

Columbia Gas of the stock of Michfgan Gas to a trustee

for the benefit of Panhandle Eastern and for repayment.

. to Columbia Gas of all sums advanced by it to or fom Michi-|

ov .

. ‘Bem,

"het IP Zane.

Pian

gai Gas, less dividends and 1 money received from Michigan ,

Gas. : <i, |

The provisions of the preposed. decree ‘on the same

_ subject, are that an option will be given to Panhandle |

Eastern to purehase the Detroit extension (otherwise

._ known. as Michigan Gas Transmission Corporation), at —

actual Investment ; and if that option’is not exercised or

a sale is not made elsewhere, a trustee shall be appointed

_ to make a sale (R. 3@1). Thus, the‘appellants-seek, an¥ the |

new decree proposds, a- transfer of the Detroit extension.

- Both provide fox ah acquisition by Panhandle Eastern.

The repayment of advancements “by Coldmbia Gas and.

_ the return of dividends and profits to Panhandle Kastern

pr ed for’ by’ the appellants, are not inconsistent with -

rQposed decree. The differences,’ if any, are imma-

“may be~ easily” recoriciled by the. court below

on mandate frem this Court.

Thé prayers relative. to the 80,000 shares of Panhandle

‘Eastern comm n stock are that they be’ surrendered to

Panhandle Eastern i in.exchangé for securities without vot-

ing rights. ‘Columbia Oil now has 404, 326 shares of Pan-

handle Eastern commoy; stock out of a total of 807,367 (R.

431): outstanding: A return of 80,000 shares: ‘would reduce °

‘its common stock holdings to 324,326, and its percentage of

the total from a majority to a fraction over 40 percent.

” The appellees would no longer exercise control and be able

‘to prevent that full and free development and extension

of the Panhandle Eastern business which it is to the inter-

est of Mokan to bring about, and which would follow an.

_ independent and unrestrained use of the Detroit extension.

. . ; od ; by

Os tre? Fie - ‘ oP 2 €" Sate

‘ : 39

The same is trite of; the relief saad relative to the.

preferred stock. i

But the appellees contend that return of the 80, 000

shares would be in conflict with the decree,.on the theory

that they are permitted by the decree to own and. -hold.the

‘Panhandle Eastern stock, and that that stock must be

retained by them for the purposes of that deeree (Brief of

Columbia Gas, Pp. 52, 53; of Columbia Oil, p. 62).

Neither the Consent Decree nor the proposed new decree,

. however, requires retention of any stock, ‘securities, prop-

erty of, or: aporoent in, Panhandle Eastern by the defend-

ants. é-¢ ;

_ Tk contention is based on iis erroneous view that the

Co sent Decree and the proposed. nett decree constitute 4

nts. Those decrees are limi-

sto the defendants. Wheir

rights in the Panhandle Eastern ek are derived, like.

all property rights, from the general law. The prohibi-

tion of certain acts by the decrees are not: grants of per-

mission to do all ‘acts not’ prohibited. If appellees’ con- °.

tention were ‘correct, they would have no niget "to. dispose

~of the Panhandle Eastern stock. ee ay

Another objection, equally untenable, is that the Con-

sent Decree under which these applications have been made,

has been ° ‘substantially repealed.’’ (Government Brief, p.

4.) The theory must ‘be that the act of the appellees. in

" submitting,another decree has wiped out the right of the.

Appellants to relief under the Consent Decrée. How?

Why?

b: x é:

But the Cohsent. Becree has*not been wiped out.. No

new decree has been entered, and may never be entered.

See supra, pp. 28-29. $ :

« Respectfully submitted;

Articr G, Loaan,

> Coritinental American Building,

Wilmington; Delaware.

Rosert’ J. Buixuey,

Bulkley Building,

Cleveland, Ohio. +

RussteLL Harpy,

- Woodward Building, .

Washington, D. C.

Of Counsel. ~ max

Pad

(6334)

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