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U.S. Supreme Court

United States v. Southern Pacific Co., 259 U.S. 214 (1922)

United States v. Southern Pacific Company

No. 5

Argued April 18, 19, 20, 1921

Restored to docket for reargument January 9, 1922

Reargued April 11, 12, 13, 1922

Decided May 29, 1922

259 U.S. 214


1. A combination whereby one railroad system, through stock purchases, acquires control of the whole or a vital part of another, with the effect of materially reducing free and normal competition in interstate trade between the two, violates the Sherman Anti-Trust Act. P. 259 U. S. 229.

2. Inasmuch as the Central Pacific Railway System, with its eastern connections, and the Southern Pacific Railway System are normally competitors for railway traffic moving between California chanrobles.com-red

Page 259 U. S. 215

and the Atlantic seaboard and intermediate places, the acquisition in 1899 by the Southern Pacific Company, owning the Southern Pacific System, of a controlling part of the stock of the Central Pacific Railway Company, owner of the Central Pacific lines, constituted a combination made unlawful by the Sherman Act. P. 259 U. S. 229. United States v. Union Pacific R. Co., 226 U. S. 61.

3. The principle of United States v. Union Pacific R. Co., 226 U. S. 61, and of the previous cases upon which it rested, does not depend upon the existence of competition when the combination is formed. P. 259 U. S. 230.

4. The history of the two railroad systems here involved, considered and held not to justify the stock purchase in question upon the theory that there was a prior practical consolidation of them, antedating the Sherman Act, through their physical relations and community of stock ownership and control. P. 259 U. S. 232.

5. In view of the important rights and franchises conferred upon the Central Pacific Railroad Company by the United States, a ninety-nine year lease of its railroad made by it in 1885 to its competitor, the Southern Pacific Company, was beyond its corporate capacity in the absence of any act of Congress authorizing or approving it. P. 259 U. S. 233.

6. Approval of this lease is not to be inferred from the fact that Congress had opportunity to learn of it through reports of committees or otherwise. P. 259 U. S. 234.

7. The fact that a combination or contract in restraint or monopoly of interstate trade was entered into before the date of the Sherman Act does not exempt it from the operation of that statute. P. 259 U. S. 234.

8. Under the Act of July 7, 1898, c. 571, 30 Stat. 659, which constituted the Secretaries of the Treasury and Interior and the Attorney General a commission with full power to settle the debt of the Central Pacific Railroad Company to the United States, subject to the approval of the President and to terms laid down in the act, a plan was approved and reported to Congress whereby the company's notes were to be delivered to the government and be secured by bonds to be issued under a first mortgage on all its lines. Execution of the plan upon the part of the railroad (then under lease to the Southern Pacific Company) accompanied a reorganization involving creation of the Central Pacific Railway Company, its succession to the property of the Central Pacific Railroad Company, issuance by the new company of mortgage bonds secured by the property and guaranteed by the Southern Pacific Company, chanrobles.com-red

Page 259 U. S. 216

part of which were delivered to the government as the collateral called for by the settlement agreement, and acquisition by the Southern Pacific Company of a controlling part of the new company's stock. The guaranty, not mentioned in the settlement agreement, was referred to in the Attorney General's report of the settlement to Congress, and Congress later passed acts authorizing the Secretary of the Treasury to dispose of any notes in his possession touching the indebtedness of the Central Pacific Railroad Company, and to settle claims of that road and of the Southern Pacific for transportation services by credits on the Central Pacific notes. The notes were paid primarily by checks of the Southern Pacific.

Held that the commission's acceptance of the guaranty was neither in intention nor in effect a condonation of the violation of the Sherman Act committed in the acquisition of the stock, and that the settlement did not estop the government from prosecuting under that statute. P. 259 U. S. 235.

9. The decree in United States v. Union Pacific R. Co., 226 U. S. 61, does not conclude the government on the issues here involved, since the Central Pacific Railway Company was not a party in that suit up to the final decree in this Court, and the subject matter of that case and the questions decided in it differ from the subject matter here and the questions here presented for decision. P. 259 U. S. 240.

10. Delay of fourteen years in instituting this suit to set aside the control gained by the Southern Pacific through purchase of Central Pacific stock in 1899 was not laches in view of the time consumed by the intervening prosecution to set aside the control gained by the Union Pacific Railroad Company through purchase of Southern Pacific stock in 1901. P. 259 U. S. 240.

11. Whether the leases to the Southern Pacific Company and its acquisition of Central Pacific stock were, in and of themselves, violative of the Pacific Railroads Act of 1862 and supplemental legislation -- not decided. P. 259 U. S. 241.

12. The decree to be entered should sever the control by the Southern Pacific of the Central Pacific by stock ownership or lease, protect, as far as compatible the mortgage of the Central Union Trust Company, and insure both railroads proper access to San Francisco Bay over the several terminals, lines and cut-offs leading thereto, constructed or acquired during the unified control of the two systems, and similar provision should be made respecting lines extending from San Francisco Bay to Sacramento and Portland, Oregon. P. 259 U. S. 241. chanrobles.com-red

Page 259 U. S. 217

13. In framing the decree, the district court may bring in additional parties. P. 259 U. S. 241.

23 F.9d 8 reversed.

Appeal from a decree of the district court dismissing, upon final hearing, a suit brought by the United States for relief against an alleged unlawful combination between the two railroad companies. The facts are stated in the opinion, post 224. chanrobles.com-red

Page 259 U. S. 224


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