NOTABLE SUPREME COURT DECISIONS

The Northern Securities Company is a corporation, formed under the laws of New Jersey, for the purpose of obtaining control of a majority of the stock of the Northern Pacific Railroad and part of the stock of the Great Northern Railroad.  These roads, which parallel each other from Lake Superior to the Pacific, have been held by the courts, in the case of Pearsall vs. the Great Northern Railway, to be competing lines.

The organizers of the Northern Securities Company contended that their ultimate purpose in organizing the company was to control the two railway systems not for the purpose of suppressing competition, but to create and develop a volume of trade among the States of the Northwest and between the Orient and the United States by establishing and maintaining a permanent schedule of cheap transportation rates.

When the company had completed its organization and the full significance of the organization was known, the State of Minnesota instituted proceedings against the company in the State courts.  Later the case was transferred to the federal Circuit Court and eventually carried to the Supreme Court of the United States, where the contentions of the State were overruled.

In March, 1902, a suit was instituted by the United States in the Circuit Court of the eighth federal district.  The judges who sat upon the case decided unanimously that the acquisition of the stock of the Northern Pacific and the Great Northern Railways by the Securities Company was a combination for the restraint of trade among the States, and therefore a violation of the Sherman act.  A decree was issued by the court prohibiting the company from acquiring any more of the stock of these roads and from exercising any control over either of the roads in question.

The case was carried to the Supreme Court which by a vote of five to four, affirmed the decree of the lower court.  In the majority opinion the court took the position that the mere acquisition by the Securities Company of the stock of the two roads was in itself a combination for the restraint of trade.  The power to do things made unlawful by the Sherman act had been acquired and this in effect violated that act.

Another point was made clear by the court.  The defendants had vigorously denied that the power of Congress over interstate commerce was extended to the regulation of railway corporations organized under State laws, by reason of these corporations engaging in interstate commerce.  The court declared that while this was not the intention of the Government, the Government was acting within its rights when it took steps, not prohibited under the Constitution, for protecting the freedom of interstate commerce.  Furthermore, it was held that no State corporation could stand in the way of the enforcement of the national will by extending its authority into other States.  In substance the court denied the right of any State to endow a corporation of its creation with power to restrain interstate commerce.

The contention of the defendants, that the Sherman law was intended to prohibit only those restraints which are unreasonable at common law, was dismissed on the ground that this question had been passed upon by the lower court in other cases.

The dissenting opinions were two in number and were written by Justice White and Justice Holmes.

Several conclusions of importance may be drawn from the court’s decision.

1.  That Congress may forbid transactions of purchase and sale when such transactions confer on an individual or group of individuals the power to destroy competition.

2.  No State can create corporations and confer upon them power to interfere with interstate commerce.

3.  The Sherman law is not to be interpreted as forbidding the reasonable restraints of trade which are not objectionable at common law.

The Bailey case is one of importance by reason of the fact that the decision handed down by the Supreme Court was an effective blow against the “peonage system,” which is an evasion of the constitutional prohibition of slavery.  The Alabama law provides, in effect, that the mere act of quitting work on the part of a contract laborer is conclusive evidence that he is guilty of the crime of defrauding his employer.

Alonzo Bailey was engaged by a corporation to do farm work and signed a contract for a year, the wages being $12 a month.  The company, to bind the contract, paid Bailey $15 down and it was agreed that thereafter he should be paid at the rate of $10.75 a month.  After working a month and a few days he left.  Instead of suing him for a breach of contract and recovery of damages, the company caused the arrest of Bailey on the charge of an attempt to defraud.  No direct evidence could be produced that this was his intention, but the law expressly authorized the jury to find him guilty of fraud, on the ground that he quitted work.  The accused was not allowed to testify as to his unexpressed intention.  His opportunity to escape prison was to pay back the $15 or to work out the sum.  In case neither was done, he was to be fined double the amount paid at the time of making the contract or go to work at hard labor.

The attorneys for Bailey, wishing to test the constitutionality of the Alabama law, carried the case to the Supreme Court of the United States.  The constitutionality of the law was called into question on the following grounds:  (1) That it violated the prohibition against involuntary service; (2) it denied the plaintiff in error the right of due process of law; (3) that by laying a burden on the employee and no equivalent burden on the employer, the law denied to the plaintiff the constitutional right of equal protection of the laws.

The decision of the court was not unanimous.  Justices Holmes and Lurton upheld the Alabama law, but the majority, in an opinion written by Justice Hughes, declared the law in conflict with the Thirteenth Amendment, which prohibits slavery or involuntary servitude, except as a punishment for crime.

The significance of the decision is this-slavery has been outlawed by our highest court, and one more legal barrier to the progress of the black man has been removed.

The case of Loewe vs.  Lawler, probably better known to the public as the Danbury Hatters case, was decided by the Supreme Court in February, 1908, Chief Justice Fuller rendering the decision.  The action was brought originally in the United States Circuit Court for the District of Connecticut and, after passing through the Circuit Court of Appeals, reached the Supreme Court late in 1907.

The plaintiffs, who were manufacturers of hats, complained that the defendants-members of the United Hatters of North America, an organization which was a part of the American Federation of Labor-were “engaged in a combined scheme and effort to force all manufacturers of fur hats in the United States, including the plaintiffs, against their will and their previous policy of carrying on their business, to organize their workmen . . . into an organization of the said combination known as The United Hatters of North America, or, as the defendants and their confederates term it, to unionize their shops, with the intent thereby to control the employment of labor in, and the operation of, said factories . . . and to carry out such scheme, effort and purpose by restraining and destroying the interstate trade and commerce of such manufacturers by means of intimidation of, and threats made to such manufacturers and their customers in the several States, of boycotting them, their product and their customers . . . until . . . the said manufacturers should yield to the demand to unionize their factories.”

These methods had been successfully employed before, as is evidenced by the fact that seventy of the eighty-two manufacturers of fur hats had been compelled to accept the conditions set forth by the American Federation of Labor.  The boycott against the Danbury, manufacturers began in July, 1902, and was widened to include the wholesalers who handled the goods of the Danbury concern, the dealers who bought from the wholesalers, and customers who bought from these dealers.  Notices to this effect were printed in the official organs of the American Federation of Labor and the United Hatters of North America.  To make the feeling against the manufacturers more intense, statements were published to the effect that they were practising an unfair, un-American policy in discriminating against competent union men in favor of the cheap unskilled foreign labor.

The counsel for the defence argued that no case could be set up under the Sherman act, since the defendants were not engaged in interstate commerce, implying that a combination of laborers was not a violation of the act.  The court held that an action could be maintained in this case and that the combination as it existed was “in restraint of trade” in the sense designated by the act of 1890.  The significance of the decision lies in the fact that the Supreme Court made no distinctions between classes.  Records of Congress show that efforts were made to exempt, by legislation, organizations of farmers and laborers from the operation of the act and that their efforts failed.  Therefore the court held that every contract, combination, or conspiracy in restraint of trade was illegal and cited a former decision (The United States vs.  Workingmen’s Amalgamated Council) to show that the law interdicted combinations of workingmen as well as capital.

The Sherman act was passed by Congress in 1890.  It was entitled “An Act to Protect Trade and Commerce against Unlawful Restraints and Monopolies.”  Since its passage various cases falling under it have been decided, but until the decisions in the Standard Oil Company and the American Tobacco Company cases the extent and intent of this act have not been understood.

In the Standard Oil case the question involved was this:  Was the Sherman act violated by the existence and conduct of this corporation, which owned or controlled some eighty corporations originally in competition?  The control had been acquired for the purpose of monopolizing the sale and distribution of petroleum products in the United States, and had been acquired by various means of combination with the intent either by fair or unfair methods “to drive others from the field and to exclude them from their right to trade.”  The proof was that, to destroy competitors, prices had been temporarily reduced in various localities, spies had been used on competitors’ business, bogus independent companies operated, and rebates given and taken.

In the case of the American Tobacco Company, there were more than one hundred formerly competing companies united under the control of a single organization and the market in nearly all tobacco products was monopolized.  This domination was secured “by methods devised in order to monopolize the trade by driving competitors out of business.”

In each case the court found the defendants guilty on the grounds that the agreements and the conduct of the defendants indicated a purpose to destroy competitors and monopolize trade in certain articles.  The desired result was accomplished by wrongful means which injured the public as well as the competitors.

The facts in neither case required the consideration of the question as to whether the Sherman act prohibited every unification of formerly competing properties and every restraint of trade, reasonable or unreasonable but, owing to the uncertainty of the public concerning the meaning of the law, the court stated definitely the meaning and scope of the act.  From appearances the Supreme Court has practically amended the Sherman act by limiting its application to “unreasonable” restraints of trade.  The significance of the decisions lies here rather than in the fact that both companies were compelled to dissolve.  The best legal authorities believe that the new interpretation of “reasonableness” and “unreasonableness” of restraint of trade has increased rather than decreased the effectiveness of the law, inasmuch as the meaning has always been obscure.  The new policy is a notification to combinations of capital that to exist without prosecution they must not resort to any unfair, oppressive, or illegal methods to control competition or crush competitors.