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UNITED STATES v. DU PONT & CO.
- 1960-1969
Legal provision: Clayton
Argument of John F. Davis
Chief Justice Earl Warren: Number 55, United States, Appellant, versus E.I. du Pont de Nemours et al.
Mr. Davis.
Mr. John F. Davis: Mr. Chief Justice, if the Court please.
This is the second stage of the antitrust proceeding relating to du Pont's acquisition of 63 million shares of the stock of General Motors Corporation.
Four years ago, this Court held that this acquisition was a -- was in violation of Section 7 of the Clayton Act.
The present issue is what relief should be granted in order to cure this violation.
And most specifically the question is, whether the decree of the court below which transferred the voting rights in the 63 million shares from du Pont to its stockholders, the decree also eliminating interlocking directors and enjoining specific business relationships between the two corporations.
The question is whether this decree gives adequate relief.
The Government argues that the illegal acquisition should be undone by ordering a surrender of the stock.
This is a rare case in that one of the parties has tried to frighten the courts into deciding a corporate case its way by asserting that disaster will follow the divestiture and by parading a long list of expert witnesses, du Pont presents an in terrorem argument as to why it should not make a clean break with its past.
These are the same tactics which were employed in opposing the enforcement of the Public Utility Holding Company Act many years ago.
And there, they met with no success.
The truth of the matter is that there is nothing of inherent value which is taken away when one untangles one of this corporate (Inaudible).
Once the illegal advantage would -- is the object of the statute to prohibit is removed, then the corporate relationship is in effect excess baggage.
And in the end, all of the participants will gain by dividing -- by simplifying the corporate structure and separating it into its component parts.
And that is what we purpose should be done here.
Merely four years ago when the Court determined that the du Pont investment -- the du Pont holdings were in violation of Section 7 of the -- of the Clayton Act, it sent the case back to the District Court with instructions to the Court frame and appropriate decree.
The Government told the District Court that it believe that the only adequate decree must require divestiture of the acquired stock.
And when the Court requested that the -- that the Government present a specific plan, the Government presented a plan in which it suggested that the stock should be divested over a period of 10 years by the declaration of the G. M. stock as dividends to its own stockholders.
It proposed that the stock which would have been allocable to the two du Pont holding companies, Delaware Investment and -- Realty & Investment and Christiana Securities should be sold by trustees in order to prevent a continuation of any influence through these two holding companies.
It proposed that there should be a -- an outlying of interlocking directors and offices and it did propose certain -- that certain transactions between the two companies be enjoined.
The Internal -- the Internal Revenue Service advised that the declaration of the General Motors stock as dividends would be taxable to the recipients as ordinary income rather than as a capital gain.
This plan proposed by the Government was opposed by du Pont, by General Motors.
It's opposed by Christiana -- Christiana and Delaware.
It was also opposed by two amicus curiae who were appointed by the District Court to represent the interest of the stockholders of General Motors and of du Pont stockholders as such.Du Pont and the amici proposed plans under which du Pont would keep the stock but would transfer the voting rights to its stockholders.
This would mean that each du Pont's stockholder would be given a permanent proxy to vote about 1-1/3 shares of General Motors stock in addition to power he had with respect to his own du Pont stock, under this plan to interlocking directors and officers which --
Justice Potter Stewart: I didn't quite understand that.
That each du Pont --
Mr. John F. Davis: Each du Pont --
Justice Potter Stewart: -- shareholder --
Mr. John F. Davis: -- shareholder would be given a right to vote his proportionate part of du Pont's holdings of Generals Motors stock, which would mean that he would have about 1-1/3 of votes that when you distribute the 63 million shares among the 45 million stockholders of du Pont, you get about 1-1/3 votes for --
Justice Potter Stewart: For --
Mr. John F. Davis: -- each share.
Justice Potter Stewart: -- for a share --
Mr. John F. Davis: Yes.
Justice Potter Stewart: -- shareholder, but this goes first -- this doesn't go to shareholders, this goes on the amount of the shares owner.
In other words --
Mr. John F. Davis: Well, yes but --
Justice Potter Stewart: (Voice Overlap) -- on the third votes -- 1-1/3 share for each share of du Pont.
Mr. John F. Davis: Well, I'm -- I'm -- when I say shareholders, I'm wrong, I mean stock.
Each -- each stock, each share of stock would carry 1-1/3 votes of -- of General Motors.
Justice Potter Stewart: Each share would carry --
Mr. John F. Davis: Each share.
Justice Potter Stewart: -- 1-1/3 shares of General Motors.
Mr. John F. Davis: That is right.
Justice Potter Stewart: After the complete distribution.
Mr. John F. Davis: That is right.
So that if he'd have a hundred share he'd get a 130 votes of the General Motors.
The District Court held very extensive hearings on these plans in both sides presented their experts and offered studies to prove that divestiture was practical or was not practical.
The District Court published its opinion in October of 1959 followed by its decree a month later.
And that is the decree which is now before the Court.
In general, it accepted the -- the du Pont General Motors' proposals rather than the Government's proposal, not in detail but in general.
It provided that General Motors could -- that du Pont could continue to hold the stock of -- of General Motors, but did require that the votes to be passed on to the stockholders, except that it further provided that the votes which would have been passed on to Delaware and to Christiana and to the officers of those two companies should be sterilized, no one should exercise that vote.
It also provided for outlying, interlocking to officers and directors.
And it went further than the -- than the Government even went in outlying certain transactions between General Motors and -- and du Pont such transactions says, where it presumed might give some advantage to one corporation or the other.
And the decree also included the provision under which the Government could reapproach the Court for additional relief in case there was any change in the tax law or in the case it was demonstrated that the decree was not being effective to -- to terminate the violation.
Now, we believe that this decree provided inadequate relief.
And I pose to divide my argument roughly into -- into three parts.
First, I will argue that divestiture is the remedy required by the statute for violations of Section 7 of the Clayton Act.
And second, I shall argue that the Court's order provides inadequate relief in the circumstances of this case.
And then third place, I shall argue that divestiture can be achieved without the undue hardships which the appellees claim.
Justice Charles E. Whittaker: Why do the third make any difference if the first is right (Inaudible)?
Mr. John F. Davis: If the first was right -- the second and third are -- are unnecessary.
If it's a required relief, why, the Court would have to issue it whether the adequate relief could be given under the other and whether or not it caused hardships.
So that these are really in the alternative, the second too, in alternative to the first.
This -- this particular proceeding was commenced under Section 15 of the Clayton Act.
And in -- and on my first point, the question is whether Section 15 of the Clayton Act requires -- in itself requires divestiture.
Section 15 is quoted at page 5 of our brief.
It is not particularly helpful on this question because it is stated in very general language.
It provides that the Court may prevent and restrain such violations, referring to violations of the Clayton Act.
Justice Potter Stewart: It is not helpful -- it's not helpful to your (Voice Overlap) --
Mr. John F. Davis: It's not helpful to me.
Justice Potter Stewart: Yes.[Laughter]
Mr. John F. Davis: It is natural that it was stated in these general terms because of the fact that it is the general enforcement -- provision which supplies not only to Section 7, which deals with ownership of stock, but deals with Section 8 which deals with interlocking directories and it deals with the other sections of the Clayton Act which involved price discrimination in other matters.
Some help, however, can be -- can be had in the proper interpretation of Section 15 from Section 11 of the Act.
Section 11 of the Act is a section which authorizes various administrative commissions to enforce the Clayton Act, the -- the Federal Trade Commission, the Commerce Commission, the Federal and the Federal Reserve Board.
And in connection with those proceedings which are commenced through the administrative commissions, it is specifically provided that after they hold the hearing and find the facts, if they find the violation, they shall issue an order requiring such person to cease and desist from such violations and divest himself of the stock held.
In other words, Section 11 is mandatory in its language as to the relief which should be granted for a violation of Section 7.
It would seem to me that there would have to be some very persuasive reason why Congress would give a different method of relief in Section 15 and in Section 11 if it did not intend that the same procedure -- the same relief should be given.
Also, I think it helps in construing Section 15 to know that it is in terms -- is lifted verbatim from the Sherman Act, from Section 4 of the Sherman Act, I think it is.
So, one would assume that when Congress took the very language from the Sherman Act and put it in the Clayton Act, that Congress might very well have intended that there should be the same relief granted under the Clayton Act which had previously been granted by the courts under the Sherman Act.
And it is a fact that in this merger type of violation, the Sherman Act covers many other types of violation but in this merger type of violation, the relief, which has always been granted under the Sherman Act, is divestiture.
This was so before 1914 when the Clayton Act was thought it was passed and it has been so since that time.
The most -- most recent determination by this Court in the Sherman Act case was the International Boxing Club case just two years ago.
By this Court said, "It is antitrust policy to decree dissolution where the creation of the combination is itself the violation."
And it cites to support this United States against Crescent Amusement Company, although it could have cited many other cases.
Thus, when Congress borrowed this language from the -- from the Sherman Act and put it in the Clayton Act, it probably intended to impose the same type of relief which it characteristically been imposed under that statute.
So we urge that divestiture was what Congress intended.
However, if the Court should not accept this proposition, then I think that the least that can be said is that Congress intended that the normal relief, that the relief in the ordinary Section 7 case should be divestiture.
Where the offense is the acquisition of stock, it seems but natural that the cure is to undo the offense, to undo the acquisition that is to require divestiture.
The appellee say that may be so but this is an abnormal case.
And why it is abnormal?
It's abnormal in the first place because of the size of the enterprises which are involved.
Well, I think the size of the enterprises work -- works both twice.
If the fact that 2.5 to 3.5 billion dollars that is involved results in the remedy being heroic, the same fact, it means that the economic effect to the violation is also enormous.The factor of size, we do not think, is pertinent in fixing the remedy.
It may make the remedy harder to administer, it may make it harder to endure but it also makes it more necessary.
Justice Potter Stewart: What if everybody in the United States were shareholder in the General Motors or du Pont?Is public interest would be served by carrying out the total divestiture?
Mr. John F. Davis: Well, assume -- you mean -- assuming -- assuming --
Justice Potter Stewart: Assuming everybody in United States were shareholder one or the other, here about -- well, how many?
Mr. John F. Davis: I think even more would -- would be -- be necessary under those circumstances.
Justice Potter Stewart: To have everybody in United States pay tribute to the Federal Government.
Mr. John F. Davis: Well, I -- I will meet this question of paying tribute of whether it'd be any hardship but assuming for a minute --
Justice William J. Brennan: (Voice Overlap) -- higher taxes in the -- otherwise.
Mr. John F. Davis: -- assuming for a minute that it would cost the money that put this thing through.
Then the anti -- if the antitrust policy is that these businesses shouldn't be restraining trade, why, the fact that it's -- that someone's got to pay something, presumably they will get it back more and more through the divestment in the end, it's a -- it's a temporary loss rather than a permanent loss.
Justice Hugo L. Black: I presume if everybody if everybody in the country owns stock in it, confirm the statement, what could the General Motors had just (Inaudible)[Laughter]
Mr. John F. Davis: In fact -- in fact, they might be able to elect the Congress which would -- which should make an exception in the antitrust laws to take care of it too.
Justice Potter Stewart: Or at least in the internal revenue laws.
Mr. John F. Davis: [Laughs] Or at least in the internal revenue laws.
Justice Felix Frankfurter: What's your brief is this, that that is not a crucial -- at least one half of the statements that was made is not crucial.
Mr. John F. Davis: Which of the -- that's -- that's not good for General Motors.
Justice Felix Frankfurter: (Inaudible) but just supposing.
Mr. John F. Davis: That's right.
Justice Felix Frankfurter: One half of the (Inaudible)
Mr. John F. Davis: I think both house if -- are not true.
I think that -- that --
Justice Felix Frankfurter: Are you (Voice Overlap) --
Mr. John F. Davis: -- this divestiture is not -- is -- is not good -- I mean that we maintain this situation isn't good for anybody.
Justice Felix Frankfurter: I'm sorry, you should pay both has a wrong -- I was thinking of the second half, is good for the United States (Inaudible)
Mr. John F. Davis: [Laughs] The second reason, the appellee say that this is an abnormal situation is because --
Justice Potter Stewart: Well, I didn't quite get you.
Mr. John F. Davis: Yes.
Justice Potter Stewart: My -- my question was a silly one.
It was directed to your point that the -- the magnitude of this impact on the number of people isn't important from the point of view of the public interest.
I thought you said that.
Mr. John F. Davis: That's right.
I say that if it --
Justice Potter Stewart: And if this does, this may affect, how many?
Mr. John F. Davis: -- it -- it may -- it --
Justice Potter Stewart: How many thousands?
Millions of people?
Mr. John F. Davis: Yes, it is -- let's say roughly a million, and I mean counting indirect holdings of the two -- of the two corporations.
Let's assume for the purpose of the argument, and it's not particularly accurate but it's close enough.
But there are about 700,000 people directly or indirectly interested in the stock of General Motors and about 300,000, let's say, in du Pont.
So we're dealing with a million of people.
Justice Potter Stewart: A million people, a million.
Mr. John F. Davis: A lot of people.
And when you multiply as the appellees do, the tax drops in market by --
Justice Potter Stewart: Right.
Mr. John F. Davis: -- the numbers of shares involve you -- you work up for sizeable sums.
But my point is merely this.
That this size also goes to the effect of whatever antitrust restrictions there are here that it's the very size of these two corporations and they are tying together makes it tremendously more a greater economic effect and as though you have the lobsterman in -- in --
Justice Potter Stewart: But not the number of shareholders doesn't make it more serious?
Mr. John F. Davis: No.
It's the size of the corporations and the importance of the corporations and --
Justice Potter Stewart: The number of shareholders if anything would send, we would have to say (Voice Overlap) --
Mr. John F. Davis: That's right.
The number of shareholders but not the -- the amount --
Justice Potter Stewart: I mean that's what I -- that's what I was addressing myself.
Mr. John F. Davis: That is right.
The second -- the second basis for this is being an abnormal case is that the acquisition occurred about 40 years ago, and this is an unusual factor in the Section 7 case.
And it does make it more difficult to undo what happened 40 years ago.
But again, it also makes it more necessary to have divestiture because the relationships between the two companies have become that more -- much more intimate and that much more difficult to -- to cure.
If you're having new acquisition, so far the -- where the two corporations have not worked together, it's relatively simple thing, and -- and it's conceivable that -- that if you -- if you prevent voting and you have no other relationships, this will cure the situation but it isn't much less like this as this will happen when you have 40 years of -- of both connection between the two corporations.
Justice Charles E. Whittaker: Now, if there's a means of a (Inaudible) other than by divestiture under Section 15, would not the Government (Inaudible) way of him successful is that produced in this industry to the General Motors' profit?
Mr. John F. Davis: Well, not -- not if Congress intended that divestiture should be the method to be followed.
If it's mandatory, of course, not.
Justice Charles E. Whittaker: Well, I say --
Mr. John F. Davis: Yes.
Justice Charles E. Whittaker: -- if it's not mandatory.
Mr. John F. Davis: If it is not mandatory, then the -- the Government is -- would certainly doesn't want to use the divestiture or any method of relief as it club to enforce the antitrust laws.
It's perfectly willing that the -- that the corporation should work out -- the best method from its -- from its point of view of curing, curing the violation.
Justice Charles E. Whittaker: Particularly, I would seem that it should not be sold here when the Government stands as beneficiary to the extent of 52.5% of the proceeds of sales.
Mr. John F. Davis: Well, it --
Justice Charles E. Whittaker: If this is taxable --
Mr. John F. Davis: Yes.
Justice Charles E. Whittaker: (Voice Overlap) taxable as normal dividends.
Mr. John F. Davis: That --
Justice Charles E. Whittaker: Does it then would get 52.5%, wouldn't (Inaudible) of the -- the proceeds is there?
Mr. John F. Davis: It -- it has been estimated that's -- there is testimony to that -- to this effect.
Its --
Justice Charles E. Whittaker: Or -- or about $50 billion.
Mr. John F. Davis: How much is actually receive depends on the -- depends on what the market price as the time it's divested and the methods of divestiture.
And we -- as I shall point out later I think there are ways of divestiture where this amount is cut way, way down below that.
But if it were divested through dividends, straight dividends, with the sale of the -- sale of the Delaware and Christiana stock, then the tax is -- would be and about in that neighborhood if the price stays around 45 of General Motors stock.
Justice Charles E. Whittaker: And if it doesn't stay around 45 (Inaudible) where the stockholders (Inaudible)
Mr. John F. Davis: If it -- if it -- it is less than 45 for any reason the tax will be less.
That is right.
I'll turn now to the second point of my argument and that is whether the --
Justice Felix Frankfurter: Does your brief, I haven't looked at, does your brief on the compulsory nature of divestiture, divestiture, the compulsory feature of the decree, does your -- does the Government's brief put before us the practice regarding divestitures in past decrees --
Mr. John F. Davis: Yes.
Justice Felix Frankfurter: -- other than --
Mr. John F. Davis: Yes.
Justice Felix Frankfurter: -- or it's under the Clayton Act, under the Sherman law, and under the Sherman law.
Mr. John F. Davis: Yes, but --
Justice Felix Frankfurter: Can you differentiate between the two?
Mr. John F. Davis: Not -- not when the Clayton -- no -- in the Sherman Act violation is the merger type of violation.
Mr. John F. Davis: There are many violations of the Sherman Act which would not require divestiture because the heart of the thing isn't the merger between -- of anything like this kind.
Justice Felix Frankfurter: You -- you can -- you can make differentiation regarding Section 11, can you?
Mr. John F. Davis: No.
Section -- well --
Justice Felix Frankfurter: So that -- so that your Clayton Act -- your claim under the Clayton Act, the claim of requirement under the Clayton Act by this argumentative construction of the statute would bring about compulsion under the Clayton Act provision is not applicable to Sherman law, indeed where Sherman law violations have not been found.
Mr. John F. Davis: That is right.
That is right, because the Clayton Act goes to the tendency and -- it's -- the -- the degree of proof is -- is much less.
Justice Felix Frankfurter: Well, then the -- the reasons for the differentiation that you suggested a minute ago regarding the Sherman law violation, although practically as of -- to the Clayton violations wouldn't apply, wouldn't be operated in that.
Is that right?
Because your argument is there must be always the divestiture in Clayton Act.
Mr. John F. Davis: Under -- in Clayton Act, yes.
Justice Felix Frankfurter: Yes.
Although there may not be this threatened monopolistic tendency.
Mr. John F. Davis: Under Clayton -- well, under Clayton Act there has to be the tend -- there has to be proof that --
Justice Felix Frankfurter: It will be (Voice Overlap) --
Mr. John F. Davis: -- that tend to create a monopoly on -- in the line of commerce, under the Clayton Act --
Justice Felix Frankfurter: On --
Mr. John F. Davis: -- under Section 11 or 15 which both enforce Section 7.
Section 7 outlaws acquisitions of stock which tend to create a monopoly in any line of commerce, and you have to prove that or else to restraints.
Justice Felix Frankfurter: Or else to restraints, yes.
It is a different thing.
Mr. John F. Davis: That's right.
Justice Felix Frankfurter: That's a very different thing.
That's my point.
To may have non-monopolistic tendencies under the Clayton Act compelling to this -- from your point of view which would not be applicable, not be true of Sherman law situation.
Mr. John F. Davis: They wouldn't consider the violation of the -- of the Sherman Act.
The Clayton Act pinpoints and goes --
Justice Felix Frankfurter: No, no.
I understand that this is -- what I mean the remedy for non-monopolistic violations of the Clayton Act would be followed by divestiture whether monopolistic or merely restrain.
Mr. John F. Davis: That is right.
That is right.
And I think it would be under the Sherman Act.
I think that whenever the --
Justice Felix Frankfurter: (Voice Overlap) --
Mr. John F. Davis: -- whenever the evil is the merger evil, whenever what is causing the antitrust result is the acquisition of stock by one corporation of another which leads to restraints or leads the monopoly.
That then the cure under the Sherman Act or the Clayton Act will be divestiture and I think that --
Justice Felix Frankfurter: What --
Mr. John F. Davis: -- what's been done.
Justice Felix Frankfurter: Under the Sherman Act, it's not compulsory so.
Mr. John F. Davis: It's not -- well, if that --
Justice Felix Frankfurter: Well, either it is or it isn't, you say your point one under the Clayton Act is that they actually require divestiture.
Mr. John F. Davis: Yes.
Justice Felix Frankfurter: The Sherman law does not require though it maybe highly desirable and relevant to have it.
Mr. John F. Davis: Well, this -- as --
Justice Felix Frankfurter: Isn't that what your statement?
Mr. John F. Davis: -- as interpreted by this Court when the heart of the violation is the acquisition, then it does require it.
That is what was --
Justice Felix Frankfurter: But that's because it's an appropriate equity of remedy not because the statute requires it.
Mr. John F. Davis: Well, yes, I think that's right.
That -- that's true, that the -- the statute doesn't say so.
But the statute --
Justice Felix Frankfurter: But you say as to the Clayton Act, the statute in effect said so.
Mr. John F. Davis: I say that the -- that the statute in adopting the same language of Sherman Act which had been interpreted this way means that this should be the relief.
Justice Felix Frankfurter: Must be, not should.
Mr. John F. Davis: Must be the relief.
Justice Felix Frankfurter: It must be.
Mr. John F. Davis: Must be the relief.
We do not believe that the decree which the District Court ordered provides adequate relief.
Intercorporate marriages are -- are complex relationships.
It doesn't suffice to say that corporations are managed by their officers and the officers are chosen by the directors, and the directors are elected by the stockholders and then if you cut the line at any place you -- you've broken the control.
What we have here is a deeply ingrained combination of too extensive and very complicated business corporations.
No one would deny that in the early 20s, the du Pont Corporation, not only exercise the controlling influence of General Motors, but in the words of its own officials, it had working control of General Motors.
From the time when it first made its investment in General Motors, du Pont accepted the chief responsibility for the General Motors' financing.
From time to time, it suggested or vetoed appointments to the Board of Directors or to the slate of officers of General Motors.
When necessary, it is intervened in its -- in its day to day activities with respect to whether it is given sufficient use to du Pont products in this kind of relationship that's going on in one way or another to one degree or another for 40 years.
Now, the decree of the District Court would try to end all of these by enjoining interlocking directors, by transferring du Pont's right to vote the G.M. stock to its stockholders and by enjoining certain specific business relationships which the Court believed to be particularly dangerous.
Now, the fault with this game is that at least untouched the real heart of the matter.
Du Pont will continue to hold, as an investment, stock worth $2.5 to $3.5 billion from which it receives about 30% of its income each year.
It owned 63 million shares.
It gets $2 a share as regular dividends, gets about a $126 million a year of income from du Pont.
Now, it is not possible to conceive of these two corporations really dealing with each other as strangers under these circumstances.
General Motors cannot feel free to buy its paint from a du Pont competitor or to make its own plastics of fabrics or to go into competition with du Pont in manufacturing a gasoline additive or -- or antifreeze.
The first impediment to this freedom is the fact that even with the sterilization of the Delaware and the Christiana stock, at least 15% of General Motors voting rights will continue to be tied up with the stockholders of -- of du Pont.
There will be a group of these stockholders who have a common interest which is different from the interest of the General Motors stockholders generally.
And I suggest that there will be circumstances under which -- even without any formal combination of these hundreds of thousands of people led general interest in one direction will lead them to cast their votes in the -- in a certain tend to lead them to cast their votes in a certain way which would be advantageous to them particularly.
Justice Potter Stewart: Now, am I wrong in my understanding that the Government's plan would have put the voting power in the same people?
Mr. John F. Davis: It would, during the period of divestiture, who would temporarily place within the same people rather than --
Justice Potter Stewart: Well, temporarily until they saw the General Motors stock.
Mr. John F. Davis: That is right.
Justice Potter Stewart: I'm talking about the shareholders of du Pont.
Mr. John F. Davis: That is right.
It would --
Justice Potter Stewart: With the Government's plan, they would -- they would get the stock and therefore, would get the very voting power that you're saying is so simple right now.
Mr. John F. Davis: They -- well, they -- they would get it initially.
But it isn't tied together and it would gradually -- it would gradually dissipate.
Justice Potter Stewart: (Voice Overlap) they dispose --
Mr. John F. Davis: That is right.
Justice Potter Stewart: -- of their General Motors or their du Pont shares.
Mr. John F. Davis: That's right.
The -- the real fault with this system is that it ties these two things together in perpetuity.
If one du Pont stockholder sells his stock in the market and the new man comes in, he immediately picks up the interest in -- in General Motors, he picks up the right to vote 1 1/3 share for each share that he finds, whereas in the situation where you have a divestment by distributing the stocks, stocks separating it, this will gradually disperse itself.
Now, in some of the antitrust cases, it was felt that it was improper to -- to divest by giving the stock to the stockholders because it was felt that this continuing control by the same people would have this -- this evil effect.
The Government has not suggested that in this case except with respect to Delaware and Christiana which are so closely tied in with the -- with the du Pont history.
Justice Potter Stewart: Well, on the effect that the -- the District Court has got along.
Mr. John F. Davis: It sterilized the votes entirely.
Justice Potter Stewart: Yes (Voice Overlap) --
Mr. John F. Davis: That's right.
So that there is no voting power on those at all.
I use that as a shorthand expression.
It's more than the Delaware and the Christiana stock, it's also the -- the stock held by their officers and directors in -- but -- it's roughly 20 million shares.
Justice Charles E. Whittaker: Does not du Pont suggest in its brief here that it's neatly -- it's willing to sterilize and put its own shares?
Mr. John F. Davis: It does -- it does suggest that and it suggested in all three briefs.
This would be some help.
I mean it would end any -- it would end any effect of the voting power of these -- to the -- of the shares and to that extent, it would -- would help the matter.
Justice Charles E. Whittaker: Does it satisfy the (Inaudible)
Mr. John F. Davis: No, we would not think that even then, you have completely divided the interest of these corporations.
Lines of -- these lines of corporate relationship don't extend only through -- through voting power than they -- there are about as many subterranean lines of -- of influence between one corporation and another is -- is there are in the surface.
And remember that even if you cut off the voting power, du Pont will continue to have -- still rely on General Motors for $126 million of income annually.
They -- they must be concerned with what's going in -- in du Pont whether they have such -- in General Motors when they have such a tremendous investment.
How their influence would be -- would be exercise?
It's hard to tell.
It could be exercised through -- through their common financial advice.
Both companies who had Morgan -- had Morgan Stanley as the regular investment factors.
I'm -- I -- I don't know that this would happen but it's -- it's entirely probable that if du Pont was unhappy with something that was going in General Motors that someone in Morgan Stanley would -- would speak to General Motors and suggest that maybe it would be better if it were done differently.
Or it maybe that the -- maybe that they would be concerned about whether or not du Pont would be willing to give them his favorable contracts with respect to chemicals and -- and plastics as they would otherwise give them.
Or maybe it would be that they would have in mind that there about 300,000 stockholders of du Pont who were particularly concern with this relationship and the -- perhaps this people and their wives and their families and the businesses which they manage would turn to buying Fords or Plymouths if suddenly General Motors should start painting their -- painting their Chevrolets with -- with the competitors' paint.
The lines -- the lines of communication are -- are enormous and it's hard to tell how this influence would percolate through but the weight of it is such that it would be pretty sure ought to be felt.
The Securities and Exchange Commission in administering its statute says several of them in which the question of control is important, it appears in the Securities Act and it appears very prominently --
Justice Potter Stewart: I don't quite get.
Mr. John F. Davis: -- in the public utility holdings.
Justice Potter Stewart: Just before you -- I was trying to follow these -- some of these -- indirect subterranean lines of communication and influence that you were speculating about.
I -- I don't quite understand how that work.
Your basic -- your basic premises that whether or not there were sterilization, as you call it, of the voting power either in du Pont Company itself as it has now provided or has -- has been suggested also in the -- in the shareholders of the du Pont Company, your basic proposition is that, nevertheless, there would be a very real continuing interest -- interest on the part of du Pont and of its shareholders in the continuing prosperity and success of General Motors.
Mr. John F. Davis: That's right.
Justice Potter Stewart: Well, I don't see how this would -- could be carried out by all the shareholders buying Plymouths and Fords.
Mr. John F. Davis: Well, it also a [Laughter] -- they also have a very real interest in the prosperity of du Pont, these stockholders do.
And --
Justice Potter Stewart: But if -- if General Motors, in its own best interest in order to make maximum profits and run its companies to -- in the best possible way decided to buy chemicals and paints of somebody else, do you think that shareholders would --
Mr. John F. Davis: Well -- well, if it's a clean cut decision --
Justice Potter Stewart: -- buy Fords and Plymouths.
Mr. John F. Davis: -- if there's no question that the du Pont paint is going to peel off and the new paint is going to last forever, nobody can fit.
But these -- but these decisions must be -- we must assume that there -- there are relatively close decisions as a matter of judgement -- matters of judgement.
And all I am suggesting is that the du Pont stockholders are going to be distinctly unhappy when they see this large piece of -- when they read in the manuals about the -- the Chevrolet cost of -- have a brand new paint and they find this isn't du Pont paint, there are going to be about 308 of these potential buyers of -- of Chevrolet cars and they're going to be distinctly unhappy about it, and this isn't the way to -- to -- this is something which is a way in the minds of General Motors' management.
They -- they're not going to be anxious to -- to lose this -- this interest.
Justice Potter Stewart: Suppose we're going to speculate and I'm just thinking.
Mr. John F. Davis: [Laughs]
Justice Charles E. Whittaker: It cut two ways, doesn't it?
They're interested in selling -- they have the du Pont sell the painting, but they still would buy the Chevrolet because they want to get the dividend.
Mr. John F. Davis: That's right.
It might well cut both ways.
They might feel they were buying from their own corporation and so it was to their own advantage.
Justice Charles E. Whittaker: Well, it's pretty hard to balance that fact.
Mr. John F. Davis: It is -- it is hard to balance these things.
I'm not -- I'm not trying to foresee exactly how this thing could -- would work.
I am merely saying that these two corporations are not going to be strangers to each other and that these considerations that they're going to have to be balanced by the managements of both in all their decisions.
And that this is not a -- this is not a severing of this relationship even if you cut up the votes.
It's just a suppressing of it.
It is suggested that if these things do happen that we can then go to the Court and get further relief and a specific provision is included in the -- in the decrees so that we can.
I don't really get much comfort out of this.
We weren't able, in our main case, to prove any actual restraints by du Pont over General Motors.
Whether they existed or not, we couldn't prove that they were actual restraints.
I don't think that we would have much more luck in proving restraints if they did exist in the future.
They -- it's a very hard problem of proof.
And even if we could prove them, it would probably take four or fives years if -- if the history of this particular proceeding is -- of relief is any -- is any example.
So I don't think that, really, to say that we can get relief if it doesn't work, is any substitute for giving us adequate relief at the present time.
"But," say the appellees, "the relief ordered is appropriate because divestiture would be disastrous".
Now, the -- the truth of the matter is that nothing of inherent value is destroyed by divestiture.
General Motors will be released from any obligation which it now as to du Pont.
In du Pont, while it may lose -- while it will lose the illegal advantages, it is achieved through acquisition, will be relieved of the not inconsiderable problem of trying to run not only a huge chemical industry but also of the largest manufacturing complex that there is in the country.
Let's say the appellees, the income taxes which will be imposed on the recipients of the General Motors stocks, when -- when it has distributed its dividends, will be an unfair burden on what is in effect a return of capital.
Well, this is just the wrong forum to complain about the unfairness of taxation.
That is a legislative manner and not a judicial one.
If Congress, in its wisdom, feels that to transform an indirect interest in General Motors stock into a direct interest in General Motors stock is a taxable transaction, which under the tax law should be imposed, then it's not -- it's no function of the -- of the District Court to try and prevent this from occurring.
To be sure, du Pont should be given freedom within the decree to arrange its business in anyway that it can to reduce the impact of these taxes, just as they can in any of their other financial transactions.
But I'm not suggesting that the taxes themselves, the -- the very considerable taxes should be used as a club to enforce the antitrust laws.
But we think that it's -- the impact -- the fact they have to pay on this particular transaction is a matter for them to take to Congress.
Justice Felix Frankfurter: Do you think -- do you think the consequences of an existing tax system -- the existing tax systems upon the kind of a decree a District Court molds is an irrelevant consideration?
Mr. John F. Davis: It's -- yes, it's irrelevant -- it's irrelevant -- it's hard to say yes or no.
It's irrelevant in that --
Justice Felix Frankfurter: Assuming there's a choice.
I'm -- this is going beyond your first point.
Mr. John F. Davis: Yes.
Justice Felix Frankfurter: Assuming there is an area of discretion for the District Court within which you can move or cast consequences irrelevant to your selection of the charge.
Mr. John F. Davis: Well, they're not totally irrelevant in the sense that -- and this is what I mean that the Government should not order, shouldn't seek a particular decree without being conscious of what the types of consequences are so that if there is another method which accomplishes the end equally, this matter should be -- should be considered and the -- and the company should be given its right to choose the lesser of these two methods.
Unless one method is --
Justice Felix Frankfurter: I'm not talking about the company making a choice.
I'm talking about alternatives that are open, having passed the compulsory requirement --
Mr. John F. Davis: Yes.
Justice Felix Frankfurter: -- as a matter of law.
But that brings me to what scope you give for the discretionary power, if any, to the District Court in molding the decree.
That -- that's really what's involved here.
Mr. John F. Davis: Well, I --
Justice Felix Frankfurter: (Voice Overlap) --
Mr. John F. Davis: I think it has a great deal of discretion in -- in molding the decree.
I think that this Court, at many times, held that the District Courts must be given a good deal of discretion.
But I think there are limits to it.
Now, think that it's --
Justice Felix Frankfurter: Now, in -- in determining the limit, do -- does consequences have a relevant share?
Mr. John F. Davis: They have a relevant share in this respect that an order should not be entered which needlessly imposes tax consequences.
This is what Judge Wyzanski said in the Minnesota Mining case that when there are two or three methods, in -- in that case, he changed the decree when he -- when the tax consequences were pointed out to him.
He said, "There is no need of making an order in this particular way because it will have these tax consequences."
And in this respect, it's -- it's appropriate to know what is -- what is going on.
What -- what the tax consequences are.
But -- and the decree should be framed so as to allow the company to minimize this.
But that's -- that's as far as I think it can go in this.
Justice Felix Frankfurter: Well, let see if I understand that, you say that there must be divestiture in order to accomplish the result of the -- of the decision of this Court, then how does the divestiture should be accomplished may take into account of that consequence?
Mr. John F. Davis: I think that's right.
Justice Felix Frankfurter: But your starting point is that divestiture is indispensable.
Mr. John F. Davis: That is right.
Actually -- actually I'm not sure that this Court should -- should assume that the tax consequences at the time of divestiture will be the same as they are today.
Congress has in the past been quite sympathetic to the pleas for -- for relief against this involuntarily -- involuntary type of conversion.
Justice Charles E. Whittaker: Well, then for an equity court to fall on to act the statute and conditions (Inaudible) now.
Mr. John F. Davis: That is right.
But I think you can take into consideration that if the -- the Congress may well not act instantly in this situation.
Justice Felix Frankfurter: Or are you suggesting you might hold up the formulation of the decree, he'll come with expression of sympathy of what you speak.
Mr. John F. Davis: No, I'm not suggesting that, Mr. Justice Frankfurter.
I -- I think that -- I think that in tax legislations introduced the last session of Congress, of course, there was Senate, 200 and there was a house bill on the thing too.
I think no one pressed it very hard.
As a matter of fact, in the last --
Justice Potter Stewart: You're suggesting that Congress is not likely to exercise its sympathy or express its sympathy until it has some to be sympathic (Voice Overlap) --
Mr. John F. Davis: That is right.
That is right.
That's (Voice Overlap) --
Justice Potter Stewart: So far it has it.
Mr. John F. Davis: Now, I come to the next argument that the innocent stockholders are going to suffer disastrous loses because of the drop in market values of both General Motors and du Pont stock.
In a minute, I shall deal with the -- with the merits of this, but for the present, let me accept the appellees evidence at its full value just for the purposes of argument.
Their evidence is that divestiture under the Government's plan, that is, the through -- through dividends -- through declaring dividends of the General Motors stock that the divestiture would impair General Motors the -- market value of General Motors stock to the extent of 20% to 25%.
And that it would impair the value of the du Pont stock market wise 25% to 30%.
Now, no one wants to depress stock market values to any extent.
But even if this drop should occur, I suggest that it's not the other disaster that the appellees would have you believe.
During the year 1960, General Motors fell off 27% from its high of the year to the low of the year, and du Pont dropped 33% from the high of the year to the low of the year.
The innocent stockholders, so far as I know, haven't treated this as a disaster.
I mean no one is happy to see his stock go down, but the way -- the way you make it appear as a disaster is to take this -- take this drop in stock market values and -- and multiply it by the number of shares outstanding and you get the astronomical figures.
But actually -- actually, there are fluctuations up and down in the stock market.
What -- so that even if we accept their argument that there will be this drop in this -- in the -- in the stockmarket, it -- it isn't a factor which should frighten us.
I mean it's something that we may want to avoid that we can but it's something that isn't, by itself, disastrous.
As a matter of fact, stockholders, of course, when they -- when they buy common stock, pick the chances of gains and losses.
It doesn't really make much difference to them whether the loss occurs because of an antitrust decree or bad weather or an international disturbances -- disturbance.
As a matter of fact, as far as the antitrust decree goes, it may be less serious to them because in that case, as here, nothing is taken away from their corporation's earnings or -- or dividends other than the dividends of separating.
But nothing is done to the business entities so that they cannot continue to earn same kind of -- of profits that happened before and the stock market is thereupon not reflecting inherent worth, it's merely reflecting a matter of supply and demand.
This isn't much comfort if they have to sell immediately but it is some comfort if they are like the big trust and so forth that can just -- just hold on and let the -- whatever market disturbance there is right itself.
But I think that the argument that the General Motors and the du Pont stock will fall off 20% to 30% by reason of divestiture is, on its face, unsound.
General Motors' earnings -- well, earnings and the $2 dividend which is paid over the past few years will not be affected by this decree in any material effect.
And nether will du Pont's earnings or its dividend except that General Motors is taken out of it.
Now, to me, it's -- it's inconceivable that private and institutional investors which are for primarily concern with the yield of stocks would fail to come into the market and buy in very large volume, if the price of General Motors fails so that you could get a yield of 5.5% or 6% on -- on a blue-chip investment like that.
The record is replete with evidence as to the interest of particularly institutional investors of growing interest in -- in equity securities.
And if -- if they have a chance to -- to buy either one of these securities that are rate rather produced between 5.5% and 6%, it seems clear to me that they will -- will come in and this will -- will -- seems obvious would stop the fall of this stock façade of what the -- the appellees would have its belief.
The testimony of the appellees' experts which led the District Court to accept the theory that there would be disastrous falls in the market price was specifically addressed to a particular plan of divestiture.
Now, we point out in our brief on this appeal that there are various combinations of divestiture which should be left open to the -- to the appellees.
And we believe that if they are given the -- the freedom and if they really put their shoulder to the wheel that they will be able to avoid some of these difficulties which they foresee.
For example on the tax consequences, if they substitute their du Pont -- their General Motors dividend for part of their present cash dividend, so that instead of paying $2 -- instead of paying $6.50 dividends, they now pay $4 in cash and $2.50 in -- in stock, there will be no increase in the income tax burden on the -- on the du Pont stockholders.
They will have the same overall cash burden that they had before.
The company can, if it -- if it will, sell a good part of the stock either through private placements, perhaps to General Motors, perhaps to other purchases or it can make a secondary distribution as was so successfully done with the slowing stock in 1957.
And I think even more important, General Motors can, if it wish, divest itself of a very considerable portion of this stock by making exchange office of the General Motors stock to its own stockholders in return for their stock.
Now, this will have the obvious advantage that it will reduce their capitalization more or less in proportion to the -- to the reduced -- reduction in -- in the assets.
Justice Potter Stewart: Is these -- all these alternative suggestions are something new here in this Court, aren't they?
This was suggested to the District Court.
Mr. John F. Davis: It wasn't spelled out.
We were asked to provide a particular plan and they're not incorporated in our plan, but throughout our arguments in the District Court, we argue that any methods of divestiture that could be -- that they could work out would be -- would be desirable and -- and would be acceptable to the Government.
The plans -- the specific plans did not include these matters.
Justice Potter Stewart: So this -- was the -- for example, the tax consequences of this exchange alternative you just mention, was that -- was that --
Mr. John F. Davis: That --
Justice Potter Stewart: -- the ruling has gotten on that?
Mr. John F. Davis: There's been no ruling nor receive -- there was no ruling out --
Justice Potter Stewart: (Voice Overlap) --
Mr. John F. Davis: That is right.
Then, certainly before --
Justice Potter Stewart: (Voice Overlap) --
Mr. John F. Davis: -- before it was done, a ruling would have to be honest.
Justice Potter Stewart: Could be the equivalent of a dividend even though --
Mr. John F. Davis: Well --
Justice Potter Stewart: -- technically even though it were informal exchange, could it not?
Mr. John F. Davis: I think -- I think it would not be so held.
I mean the -- the nature of it is very different from the dividend, then I think it would not be held to be a dividend.
As a matter fact on the exchange offer, it's interesting that in the -- in the Christiana-Delaware merger proposal, which was approved by the Securities and Exchange Commission, I think in January and which will be voted on by the stockholders of those two companies in -- later this week, the proposal is to merge Delaware and Christiana.
And one of the assets which is involve in -- in this merger, 300,000 shares of Hercules Powder Company, which Delaware holds.
And for some reason, and I don't pretend I know the reason of why, there is a feeling that's inappropriate for this merged corporation to hold the du Pont Powder, there is some -- some apprehension about the antitrust aspects of it.
So it's been determined that this will be divested.
And the plan proposed by Delaware and Christiana for divesting this -- these 300 shares of -- of Hercules Powder is through making an exchange offer to the -- to the stockholders of -- of Christiana.
I don't suggest that the $16 million which were involved or may be it's $14 million that's involved from the Hercules Powder case is the same as this case.
But this isn't -- this isn't a new steam to this people.
They -- they know how to -- they know how to divest stock by making exchange of it when they want to.
Now, if the Court agrees with us that the decree of the District Court should be reversed, I believe that it would be appropriate that this Court include in its order, some provision to prevent the case from going back to the District Court for another four or five years.
This dispute between us is to who's responsible for this delay.
I don't think it's important who's -- who's responsible for the delay.
The -- the public is the one that is hurt by the antitrust laws not being carried out.
And I suggest to this Court that it give consideration to including in its order a provision that the dividends on the du Pont stock on the General Motors stock be held up if divestiture is not commenced within one year, after the order of this Court.
This is -- this is a harsh relief.
This is the kind of relief that used to be ordered in the railroad -- in the railroad cases.
It would do one thing, it would -- it would ensure that whoever is responsible for the delay in the past that there would be promptness in -- in framing and agreeing to a decree.
I'll save the rest of the time for rebuttal.
Chief Justice Earl Warren: You may.
Mr. Cox.
Argument of Hugh B. Cox
Mr. Hugh B. Cox: May it please the Court.
I should like to begin by addressing myself to the question whether the judgment which the District Court entered in this case after a flow hearing and in the exercise of its equitable discretion is an effective judgment.
We submit it is effective because it complies with a mandate of this Court.
It removes the -- eliminates the effects of this stock acquisition that are offensive to the statute.
Now, I am aware that logically, perhaps I should begin this argument with -- by considering the question whether it's divestiture of the complete legal title is mandatory as a matter of law in every Section 7 case.
I do propose to deal with that question but with the Court's permission, I -- I should prefer to have that -- to defer that question until I can put the question of this judgement, what it is and what it does, the question of its effectiveness, before the Court, because I think that the two things are so related that perhaps the second question might better be deferred until I have explained our position on the first, realizing that, of course, if it's mandatory, as a matter law, that there'd be complete divestiture of the legal title.
That's the end of the case because the judge below didn't order complete divestiture of the legal matter.
Now, I should like to supplement very briefly in few respects the description that counsel for the appellant gave of the judgement.
As he said, the judgment, in the first instance, divested du Pont of any right to vote 63 million shares of General Motors which it owns.
It can't vote it.
It can't influence anybody else in the way that he shall vote it.
The judgment, as counsel said, passes those votes on to the du Pont stockholders except that no votes can be exercise by the officers and directors of du Pont or by Christiana or by their officers and directors.
The judgment does more than really simply abolish interlocking directors.
What the judgment does is it provided a period of grace of 90 days in which anybody who was on both boards had to resign.
Everyone who was on both boards resigned from one of the others so that there are no interlocking directors.
That is the usual interlocking director provision.
But this judgement goes beyond them because it provides that if, after that 90-day period, a man has ever on the board or an officer of du Pont Company, he cannot, ever again, by resigning from the du Pont Company, qualify himself to be an officer or a director of General Motors.
And the same thing works the other way.
So that after the 90-day period, as far as the officers and directors are concern, there is a clean and absolute and permanent rate, there could no be shifting back and forth by resignations.
That's the end of that relationship.
As far as the injunctive provisions of the judgment are concerned, I think it's worthwhile to say that those provisions enjoining all contracts require when it comes to the relation of all contracts which -- under which General Motors might buy any percentage no matter how small of its requirements of any commodity from du Pont.
For three years, no contracts of that kind at all can be made.
After three years, a contract of that kind can be made if it's limited to one year or to one model car year.
That's what --
Justice Potter Stewart: Of what kind?
A requirement's contract?
Mr. Hugh B. Cox: Contract that requires or provides for the purchase by General Motors at any percentage of its requirements of commodity.
Justice Potter Stewart: Any percentage --
Mr. Hugh B. Cox: Any percentage --
Justice Potter Stewart: -- of its total requirements.
Mr. Hugh B. Cox: -- of its total requirements.
Justice Potter Stewart: That kind of a contract.
Mr. Hugh B. Cox: 1%, 2%, 3%, 4%, any percent.
The injunctive provisions forbid any exclusive granting of patent rights by one company to the other.
They forbid General Motors from giving du Pont any -- exclusive right to exploit or manufacture or develop any chemical discovery that's made by General Motors.
They forbid General Motors to deal on any basis with du Pont to that all for first du Pont.
And then there is another provision in which I -- we think it was improperly included in the judgement but we haven't appealed which specifically enjoins du Pont from giving any favors to General Motors, in its dealings with General Motors.
Now, I should like to invite the Court's attention to those provisions of the judgement which operate directly upon the stock, not these injunctive provisions that I have been speaking of but the stock provisions.
It is our position that -- that the -- what those provisions do is to deprive du Pont of every right and privilege and power that is inherit in stock ownership that might be used or that by -- might, by its mere existence, had any capacity to control or to influence General Motors.
I should have suppose until this issue arose today that everyone would agree that the capacity of the stockholder, capacity of the stockholder influence or control corporate action depends ultimately upon his capacity to exercise, in one way or another, voting rights.
That is what appellant heretofore has always argued in this case.
When the case was here before, appellant argued that du Pont could control or influence General Motors because du Pont voted 23% of the stock of the stockholders' meeting.
It's frequently a very large percentage of the stock present.
That that right to vote gave du Pont representation on the Board of Directors of General Motors.
That it gave it representation on the Committees of the Board.
And indeed that it give it representation in the management of General Motors.
Those were the arguments that were made by appellant, an argument which it prevailed.
Now, I invite the Court's attention to the fact that each one of those things is going into this judgement.
Du Pont can't vote.
It can't have anybody on the Board.
It can't have anyone who is an officer or a director.
It can't serve on the Committees of the Board.
It can't influence through that stock ownership the conduct of General Motors in any way.
I should like to -- now, I point out that when the -- what is left here, so far as the du Pont Company is concerned, is a legal title.
And I think it's useful for us to -- to consider what that title means in terms of control or influence of General Motors.
Title itself, of course, is an abstraction that means a bundle of rights.
Now, what are the rights and privileges that are elected?
Well, in the first place du Pont, under this judgement, can sell its stock provided it gets the approval of the Court and provided appellant doesn't object.
But that's not a right that can be used to influence or control General Motors.
In the second place, if there is a liquidation or dissolution of General Motors, du Pont, by virtue of this legal title, could share pro rata in the assets.
Well, I think everyone will agree that's of no practical consequence.
Now, the third thing is that du Pont continues to receive dividends on the stock.
Two points I should like to make about those dividends.
In the first place, so far as this is important to consider whether du Pont can control or influence General Motors, I suggest that the fact that General Motors pays du Pont dividends in exactly the same way, in the same amount that it pays every other stockholder of General Motors, certainly doesn't give du Pont any capacity to control or to influence General Motors.
The other comment I should like to make is, that -- and this I -- I feel and perhaps it's not apparent known to the Court.
It has been that consistent practice of du Pont for years to pass the amount of those dividends on to its own shareholders less the amount of the intercorporate dividend tax.
Du Pont is merely a conduit to those dividends.
That practical situation isn't any different than it would be, if, really, General Motors, to some arrangement, even under an order of the Court, paid the dividends directly to the shareholders of du Pont.
Now, counsel for the appellant has referred to fact that the amount of dividends that are paid to du Pont and that are passed on by du Pont to its shareholders is very substantial, and that is true.
But I ask the Court, what does that have to do with the violation of law that was found in this case?
What relationship is there between those payments and the probability that there may be some restraints or monopolization of trade?
The mere receipt of that money, I think, from the face of it, has no relationship.
It creates no possibility or threat.
Restraint particularly in view of the facts to dividends had been direct and passed on to shareholders.
There is no suggestion of the fact to the presented testimony in the court below that that's what du Pont intended to do.
Now, oddly enough, the plaintiff, although it talks the appellant or it talks about the dividends here, didn't ask for any relief as to the dividends in the court below.
So that -- that is what the judgement leaves in the du Pont Company and most -- it's a sterile kind of investment which is deprived of any capacity or power, we submit, to influence or to control General Motors.
Now, what -- what does the appellant say in criticism of this judgement.
Well, it first makes the point that was made this afternoon that the stockholders of du Pont who are entitled to exercise these voting rights on 15% of the stock may act in the concerts or they may follow some common program or perhaps in management of General Motors will fear that they will do so and will act accordingly.
Now, I -- the appellant -- we press the appellant on this point in order to be more precise about this in our brief and in its reply brief at page 9, the comment it made was this, that even if the shareholders didn't act in concert and didn't go to the stockholders' meeting with any prearranged plan, they could ask questions which would be very troublesome and difficult.
I really think we are entitled to somewhat more precise argument than that.
Does appellant mean that by this independent questions at the stockholders' meeting, the management of General Motors is going to be intimated or coerced into buying paint from du Pont even it doesn't want to buy or it doesn't mean that the stockholders unorganized their 200,000 of -- are going to conduct a proxy campaign for the opening of a valid purpose of removing the management of General Motors because it won't buy paint from du Pont?
I think -- I submit to the Court, when you state these arguments with any degree of precision and look at them in terms of practicalities, they fall of their own weight.
Now, there is another argument or -- or group of arguments which -- before I leave that subject let me say this.
Of course, if there is any danger, we think there isn't, but if there is any danger in this exercise of voting rights by the stockholders of the du Pont Company, it does not require this divestiture of the legal title to deal with it.
I think that perhaps appellant's counsel this afternoon, in effect, conceded that.
You could adopt measures that would prevent the stock from being voted at all.
Or you could, as an alternative, you could provide that it should be voted as a mechanical administrative matter in exactly the same percentages that the other 76% of the stock is voted.
And if that should be done, we don't think it's necessary, we are not advocating it.
We think it's preferable to the divestiture of the legal title because it will not have the consequences to the stockholders of the two companies that divestiture would.
But if that should be done, it would remove completely any possibility that the exercise of voting rights by 200,000 diverse and independent shareholders could have any effect upon the practices of General Motors.
Justice Potter Stewart: I don't quite understand the second suggestion.
Mr. Hugh B. Cox: That suggestion, Mr. Justice Stewart, is this, there are two suggestions.
One, is you sterilize.
Justice Potter Stewart: Live stock.
Mr. Hugh B. Cox: The other suggestion is that you provide that that stock shall be voted under the direction of the Court at the stockholders' meeting in exactly the same percentages that the balance of the General Motors stock is voted, that is, if you have 76% of the stock of General Motors held by people who have no connection with this case.
Justice Potter Stewart: Right.
Mr. Hugh B. Cox: If a proposition comes before the stockholders' meeting and 15% of the stock voters' votes for and the rest of it votes against, then you would take these shares of du Pont and split them the same way and vote them the same way.
It would make myself (Voice Overlap) --
Justice Charles E. Whittaker: Wouldn't that be --
Justice Potter Stewart: Well, I'm just saying the same thing if ever would.
Mr. Hugh B. Cox: Yes.
That's right.
Justice Charles E. Whittaker: Wouldn't that be exactly the same thing, Mr. Cox, is sterilizing --
Justice Potter Stewart: Yes.
Justice Charles E. Whittaker: -- the stock?
Mr. Hugh B. Cox: It is -- it is the same thing.
I think that if there are some situations where possibly --
Justice Potter Stewart: Need a certain number of votes.
Mr. Hugh B. Cox: -- need a certain number of votes were that might solve the problem.
No, I don't think that's a very likely situation.
You -- you're aware, Mr. Justice Whittaker, sometimes, you need 60% or 70% of the votes to do certain things but --
Justice Charles E. Whittaker: One more question if I may.
Mr. Hugh B. Cox: Yes.
Justice Charles E. Whittaker: How do you (Inaudible) 23% down to 15%?
Mr. Hugh B. Cox: Well, the -- the -- that is because the -- the judgement passes through the votes on an amount of the 63 million shares of du Pont that is equal to about 15% of the outstanding stock of General Motors.
The balance of it is sterilized under the provisions that have been described here this afternoon.
Now, I would -- before I dealt with this matter of the -- of the last comment I made on the voting rights, I was about to deal with the other argument which is the only other argument which appellant's counsel has made this afternoon in attacking the effectiveness of this judgment in effect.
And I -- I must concede to the Court that it is a difficult argument for me to get my hands on because it is a vague argument and it seems to me that tend to pretend when I lay hands on it in one shape and changes into another shape.
But as I understand the argument, and I -- I perhaps run the dangers of stating it more precisely than -- than the counsel for appellant had, it is an argument that under this judgement, du Pont will retain a large financial interest in General Motors.
And that is true in a limited sense that I've spoke of a little while ago.
It will hold a legal tittle to this stock.
Appellant argues that because of this financial interest, there will be some tendency, possibility or probability that General Motors will favor du Pont in their commercial dealings.
For example, that it will continue to buy paint from du Pont instead of buying it from competitive sources.
Now, here, again, we press appellant in our brief to be specific and in response, appellant made two arguments.
One of which has been made here this afternoon.
That is the argument that if in the future, Chevrolet, for example, should decide to stop buying paint from du Pont.
And again, buying paint from General Motors, these 200,000 shareholders of the du Pont Company or all the shareholders of du Pont Company would stop buying Chevrolet cars because they were annoyed by the change of the paint's suppliers.
Now, I'm not sure how much I should say about that argument.
It -- it seems to me to assume or rather extraordinary situation or make extraordinary assumptions about the buying habits of the American public.
As I understand the argument, it -- it posits a situation like this.
Chevrolet salesman goes around to a prospective customer and says, "I would like to sell you a Chevrolet."
And the customer says, "Alright, now, before I ask you anything else about this car or before you tell me anything about it, I want to know who makes the paint on the car because I'm the shareholder of the du Pont Company and I'm interested in that."
Now, I don't know what the salesman would say.
I think in reality, he would probably say, "Well, look, brother, I don't know who made the paint but I could tell you one thing, it's a very good paint."
But let's assume that he knows everything about the paint that a plant superintendent of the Chevrolet Company knows.
And then he would say, "Well, it is true, they use to buy that paint from du Pont."
But now, that's a little different.
The -- the topcoat on this car is made by Rinshed-Mason and the undercoat is made by Rin -- Rinshed-Mason.
I think they still get the primer which goes underneath both of them from du Pont.
And as far as that black on the engine is concerned, that comes from the Acme Paint & Varnish Company."
And then the customer says, "Alright, that's enough for me.
I don't care what the car cost, I don't care what it looks like, I don't care how many miles you get the gallon of gas or what kind of an engine it has, I'm finish.
I'm going to find a car that has nothing but du Pont paint on it."
I think I should leave that argument.
The other argument that I make, which was again advanced, I think, this afternoon, is an argument which I think -- so that I shall not run any risk of -- of misstating it, with the Court's permission, I shall read on page 10 of their reply brief.
This is a separate argument on this financial interest point.
Appellant says, "And it is wholly possible for du Pont without overt action to exert considerable pressure through its other business and financial connections."
I take it that was the same argument that was being made this afternoon when appellant's counsel referred to Morgan Stanley.
Now, there are two comments.
I think they are very important about that argument.
The motive for du Pont to do anything of that kind is, of course, a desire to increase the volume of what it sells to General Motors.
Now, that motive will remain even if you have complete divestiture of the legal title.
So that by divesting yourself of the legal -- du Pont of the legal title, it does not remove the motive.
The other comment I should like to make is, that these connections, as to which there is no evidence in the record, but these connections would exist whether you divest it to legal title or not.
Precisely the same situation would exist.
You would have the motive, what the mystery story writers call "the opportunity".
And you can't change that by divesting the legal title.
So on that point, appellant's proposals are no wit nor sufficient than ours.
That comment, I think, applies also to appellant's argument that simply because of buying habits or custom or old acquaintance, the purchasing agents will keep on dealing with people from du Pont.
I don't know whether that's true or not.
I doubt whether it have a "quantship" quite that strong in the business where a cost is so important.
But assume it is.
You can't change that by divesting the legal title.
Those are -- are parallels or imaginary dangerous which are not touched by appellant's proposal.
In our judgment, they do not justify appellant's demand for complete divestiture of the legal type.
Appellant has made another argument in its brief, which it has not made this afternoon here, and for that reason I'm not -- I'm trying not to say very much about it, but I think I should mention it, and that is that even if you assume that this judgement is completely affected to prevent General Motors from favoring du Pont, it isn't effective to prevent du Pont from favoring General Motors.
That is an argument which turns this case upside down.
The appellant prevailed in this Court before on the argument that the vice in this situation was that by reason of the stock ownership, du Pont was in a position where it could preempt the market represented by General Motors' purchasers to its own advantage and to the detriment of its competitors.
This other argument, as I say, is an argument that reversed its answer.
It says that the danger is not bad at all.
The danger is that du Pont, by giving favors to General Motors, will enable General Motors to gain some advantages or monopolistic position in the markets in which General Motors operates.
I should like to make these comments about that argument.
In the first place, there is no adjudication in this case by this Court or by the District Court which would make it permissible in our view for the Court to grant divestiture on any such basis as that.
Certainly the fear that General -- du Pont would give General Motors some advantages, which would now allow General Motors to monopolize some market, was not a probability adjudicated by this Court in its -- on the merits.
The second, there are no findings, there are no evidence.
Such evidence, as there is, is directly contrary to this argument.
There is -- there are evidences -- it's for the meager evidence because this issue was never tried.
There are three instances in the record where du Pont developed an extraordinary and remarkable product which it given the General Motors on exclusive basis with no doubt has given an -- an advantage.
That didn't happen in those cases.
Duco is the most striking one because there, General Motors asked for the exclusive right to use it and was refused.
The fact is that on -- in economic terms, taking into account the amount of sales of -- to General Motors in relation to du Pont's total sales, it would not, I think, ever be du Pont's advantage to do anything of that kind.
But beyond that, I should like to leave the Court with this contention this afternoon, that the -- there is no authority precedent which would entitle appellant to obtain relief, the radical relief of divestiture.
On a legal theory that has never been adjudicated as to which there are no conclusions or findings which such evidence as there is, is contrary to the appellant's contention.
In short, it is a theory in which the Court to accept would have to suppress what facts there are and invent other facts to supply the basis of the holding.
Chief Justice Earl Warren: We'll recess now.
Argument of Hugh B. Cox
Chief Justice Earl Warren: -- Appellant, versus E.I.du Pont, et al.
Mr. Cox, you may continue your argument.
Mr. Hugh B. Cox: May it please the Court.
This morning, I should like to discuss the appellant's legal argument that Section -- in Section 7 cases, divestiture is a mandatory remedy as a matter of law.
Before I do so, however, there are two very brief comments that I should like to make in concluding the argument that I made yesterday about the effectiveness of the judgment.
I had been discussing when the Court wrote as my proposition that the mere existence of a financial interest in the attenuated form in which it continues to exist in du Pont under this judgment, did not carry with it any potential or capability or create any probability of a restraint trade.
Now, of course, I can conceive of circumstances in which a mortgagor or a large creditor, even a general creditor of a corporation, might, in certain conditions, have some capacity to influence or control a conduct of that corporation.
The point I was making yesterday and make now is, that when that happens, it is not because of the existence of the financial interest itself, but because of the potential rights or privileges or powers that in herein or go with financial interest.
Under this judgment, du Pont has none of the rights of a mortgagor or of a creditor.
It doesn't even have the rights of a preferred stockholder.
And before I leave this subject, I should like to remind the Court that Section 7 itself does not ream on financial interest per se.
The Section does not prohibit the acquisition of stocks or bonds or other evidences of indebtedness.
It does not indeed prohibit the acquisitions of stock done purely for investment purposes and if not used by voting or otherwise, to achieve a restraint of trade.
This is not a legal argument.
I am now making respect to that aspect of the statute.
I am merely suggesting to the Court that when Congress formed its legislative judgment as to the kinds of relationships it was going to cover in Section 7, apparently, it did not believe that a mere financial interest accompanied -- unaccompanied by any right to vote was the kind of interest that created the economic probabilities that the Section was designed to prevent.
Justice Felix Frankfurter: The suggestion of the Government, as I get it, is largely that there's a momentum to the old relationship --
Mr. Hugh B. Cox: Yes.
Justice Felix Frankfurter: -- which continues.
Mr. Hugh B. Cox: That -- and I think yesterday, what I said about that, I would say again Mr. Justice Frankfurter, that the extent that that momentum and I think in the terms of the appellant's argument, I can regard it this way that the terms -- that the extent of that momentum exists, it does not exist because of the stock relationship which should be left under --
Justice Felix Frankfurter: That -- that -- I have an extra -- extra push to the momentum as it were.
Mr. Hugh B. Cox: That, I suppose, is a contention.
But my answer to that is that their proposal for a complete divestiture does not take away that extra push.
The other brief comment I should like to make is an address to an argument which appellant makes, which seems to me, in large part, semantic, but I think it deserves a word of comment.
In their briefs and yesterday, the theme recurs that the trouble with this judgment is that it does not suppress the evil or the disease itself.
It only suppresses the effects or the symptoms.
I think that argument is an argument in which (Inaudible) tries to do the work of analysis, because what appellant describes as the symptoms or the effects, in my judgment, is the evil or the illegality itself.
The statute does not prohibit the acquisition of stock per se.
It prohibits the acquisition of stock when certain economic consequences or the probability of those consequences follows.
With the Court's permission with some diffidence, I should like to refer to the mandate of this Court in this case because I think that mandate properly construed the statute.
The mandate directed the District Court to enter a judgment which would eliminate the consequences of the stock acquisition which were offensive to the statute.
That is what the District Court did.
And when it eliminated those -- the probability of those consequences, which is what this judgment did, it eliminated the disease and the illegality and the evil as well as the symptoms and the effects.
Now, that brings me to appellant's legal argument that divestiture is a mandatory remedy in all Section 7 cases.
As counsel for appellant quite candidally stated yesterday, this is an argument of why the application -- it means that in every Section 7 case, there must be complete divestiture of the legal title even though admittedly, that may not be necessary to effective relief.
And even though admittedly, it may inflict injurious consequences on persons who were innocent in any real sense, of any wrongdoing.
That is as -- an application.
It has nothing to do with the facts to this case as I understand it.
It goes across the board in every case, no matter what the facts are.
Now, appellant also frankly conceded that it gets little comfort from the words of Section 15, which is the source of the Court's jurisdiction in this case.
To grant a jurisdiction is general, the Section does not specify any particular remedy or remedies.
I suggest to the Court that at the very outset, appellant's argument runs into direct conflict with the principle -- with the principle this Court has laid down.
That limitations and restrictions on the equity jurisdiction, the historic equity powers of the federal courts, are not to be imposed by implication or inference or innuendo, but nothing short of a direct and explicit statutory command will do.
We have cited at page 120 of our brief, cases including Hecht against Bowles and Stewart against Warner which announced and applied that principle.
I think the appellant's difficulties are enhanced and not assisted when you consider the relationship between Section 15 of the Clayton Act and Section 4 of the Sherman Act.
The two Sections are stated in exactly the same words.
And the legislative history of Section 15, and there is no dispute between us on this point, shows that when Congress passed Section 15, it said, is intended to give the federal courts the same power, same range of equitable discretion under Section 15 (a) and under Section 4.
Now, as I understand the appellant's argument, it says that under Section 4 in Sherman Act cases, divestiture is mandatory in certain kinds of situation, to wit, where the heart of the illegality is the acquisition of stock.
There is nothing in the words of Section 4 which says that and there's nothing in the legislative history of Section 4 or Section 15 which says that.
But appellant says that as a matter of judicial interpretation prior to the passage of the Clayton Act, that principle had been recognized and that Congress must have been aware of that and therefore, when Congress passed Section 15, it intended, although it did not say so that divestiture should be a mandatory remedy in certain class of cases.
I suggest that the decision of this Court in United States against the Terminal Company of St. Louis is fatal to that argument.
That case was decided in 1912, two years before the passage of the Clayton Act.
The heart of the illegality in that case was the acquisition of stock.
A terminal company had acquired the stock of two competing companies that run terminal facilities and by that means, had obtained a stranglehold over all the terminal facilities in St. Louis.
The Government in that case, asked for divestiture or dis -- dissolution.
This Court decided that an alternative form of relief would be effective and more appropriate.
Now, there is one significant thing I should like to add about that case.
It was decided by a court of seven justices.
Every one of those seven justices had sat and concurred in the opinions in the Tobacco and the Standard Oil case which had been divided -- decided about two years or a year before.
Those are two other cases which appellant says, before the passage of the Clayton Act, laid down this rule that divestiture was mandatory whenever there was an unlawful acquisition of stock.
Yet, in refusing to order divestiture in the terminal case, this -- not one of the seven justices appeared to recognize that rule.
Indeed, in the very passage of the case or the opinion in which the Court discusses relief, the Court cited the Standard Oil case without any recognition explicit or -- or implicit, that that case laid down any rule and divestiture was mandatory in any particular kind of case.
Now, the appellant -- I will say this.
We have in our brief and in the interest of conserving time for the counsel for the other -- appellees here, I should like to rest on the brief on this point.
We have cited in our brief, cases and instances of administrative practice since the passage of the Clayton Act which we think established that no court has ever held that divestiture is a mandatory remedy as a matter of law, under either the Sherman Act or the Clayton Act, without -- in any particular kind of case.
Cases that hold that it's an appropriate remedy and it may be granted from cases hold in certain circumstances.
It's the best remedy, those points aren't in dispute.
But we submit that law shall -- that there is no rule, what it has meant or in a sense of -- that there is a rule that limits the equitable discretion of the Court.
The appellant -- before I leave that point, I -- with diffidence again, I should like to refer the fact that in its prior opinion in this case, this Court said that the District Courts are closed with large discretion to mold their judgments to the exigency of a particular case.
I don't want to argue that point.
I just suggest that I find it difficult at least to reconcile appellant's argument with that statement.
Appellant also relies on Section 11 of the Clayton Act.
That is a section that has nothing to do with the District Courts or with their jurisdiction.
It is a section that is confined entirely to the procedures to be followed by administrative agencies.
We have discussed that Section in our brief and again, with the Court's permission, I should prefer rest on that discussion in the brief.
We make essentially two points there.
First that we think, the plaintiff or the appellant has misconstrued Section 11.
But even in administrative proceedings, divestiture is not always a mandatory remedy and we point out the two agencies who have important responsibilities under that -- under Section 11, the Federal Trade Commission and the ICC have in the past, in our judgment, not construed it in that way.
We say in second place that even if you assume it is mandatory in those proceedings which have brought before administrative agency, it does not follow that the Section imposes any comparable limitation on historic equity powers of the District Courts.
And we have cited authorities which we think support that argument.
And I should therefore, like to leave the question of Section 11 submitted on our brief.
At points in appellant's argument, it seems to retreat from the position that divestiture is always mandatory as a matter of law.
And to argue rather that it should be and must be applied in this case, because it is customary or usual.
Now, I should just like to say this about that argument.
It seems to me that an argument that any particular remedy must be applied in a particular case, because it has been customary or usual, is an argument that is inconsistent with the basic notion of equity jurisdiction.
Equity judgments are not standardized.
One of the justices of this Court in a dissenting opinion said that an equity decree is not like a standardized product or the packaged goods that are produced in this machinery.
They have one thing in common.
And that is that each one is molded to fit the facts of the particular case.
We therefore suggested as a matter of law, jurisdiction of the discretion of a federal court seeking inequity is not controlled or limited by any rule of law that is founded in custom or habit or practice.
The situation has to be judged and the remedy applied and devised from the light of facts in the particular case.
Now, that brings me to the question of what the consequences would be in this case if plaintiffs demand -- or appellants demand for divestiture should be granted.
And I should like to be clear that I have put that question in the proper context for this Court.
The District Court did not act on the assumption that it should grant ineffective relief in order to protect the stockholders and we are not arguing that.
The District Court recognized that its primary duty was to formulate a judgment complied with the mandate of this Court and remove the probability that was offensive to Section 7 of the Clayton Act.
And that is what in our opinion, the District Court did.
Now, the District Court did say that in choosing between effective remedies, it thought, it was entitled to take into consideration the effect that one remedy as opposed to another, might add upon the interest of the stockholder.
There are substantially more than a million beneficial owners of stock in these two corporations.
And -- include men and women and all walks and ranges of life, variety of institutions, investment trust, insurance companies, charities, hospitals, universities, we submit that it was a proper exercise of equity jurisdiction for the Court to take their interest into account.
Now, as I understand appellant's argument, it does not seriously deny that divestiture will inflict some inquiry on stockholders, but it says that some cases, it's irrelevant or in other cases, it is not -- and this is appellant's word, undue and yesterday, it argued that it would only be immediate or short ranged.
It wouldn't over a long historical view, be very serious.
I should like to suggest the Court that since this judgment is an effective judgment, it is really not necessary to assess or try to appraise the exact quantum, the injury that maybe inflicted by divestiture.
If the judgment is effective and we say it is, then any injury whether it's immediate or long term or whether it's moderate or large, seems to us, unnecessary.
I -- I think, I should make it clear to the Court that I am not arguing in quite the mellow dramatic term suggested by counsel that disaster will follow if divestiture is ordered.
We are suggesting that if divestiture is ordered, the stockholders of these companies will suffer the serious injury.
And I -- I suppose it's unnecessary, but I -- I should like to show the Court that I am not engaged in projected terrorize to frighten this Court.
I have no confidence in my capacity to do that even if I were of a mind to do it.
But, we were before -- we are before a court of equity and we assume that it's proper for us to invite the Court's attention to what the consequences of one form of relief maybe as against another.
And that's what we did in the District Court and that's what we are doing here.
Now, that brings me to how this divestiture that appellant is -- wants, could be accomplished.
In our judgment, there are only two ways which it could be done.
One would be to sell the stock, the other would be to distribute the stock as dividends to shareholders of du Pont Company.
In this Court for the first time, appellant has suggested that perhaps the stock could be divested by exchanges and I hope that I shall have time to explain to the Court why that is not a feasible method of divestiture.
I should say that in the District Court it seems to me, appellant recognized that the only two methods of divestiture that are really possible were sales or distributions of dividends.
It brought into the District Court and defended their specific plan that provided for divestiture by sales and distribution.
It appears now, it will abandon that plan or at least, not to the insisting upon it.
But, I think at least then it recognized what we think is true that those are the two ways that will have to be employed.
Now, as to sale, this stock has a present market value of 65 million shares, of about two and a half billion dollars.
The forced sale of that stock or at any substantial part in a 10-year period as appellant insist in gradable amounts each year during that period, will the evidence establishes, have a substantially depressing effect upon the market price of General Motors.
And that's in effect that will be felt by all the more than 700,000 shareholders of General Motors, because any shareholder who has to sell in that time will suffer the effects of this depression.
Counsel for General Motors is going to discuss the market in fact of sales and I therefore, I'm not going to -- to say anything more about that.
There is one other thing, however, that I should like to say about the sales.
Of course that is this, to the extent that sales are ordered, a capital gains tax will be imposed on those sales.
If you sold all of the 65 million shares, the capital gains tax would be about $600,000,000.
To sell half of them, it would be about $300,000,000.
Now, there's nothing wrong with the imposition of a capital gains tax when a taxpayer voluntarily decides to sell property on which he has a profit in order to get his proceeds, reinvest them in something else.
But this is a forced sale and our judgment an unnecessary sale because it isn't required for effective relief.
The counsel for appellant yesterday referred that the Minnesota Mining & Manufacturing Company case, that was the case in which the District Court refused to order dissolution of the company when it found that other relief was effective because he thought the dissolution was unnecessary and it would impose the same capital gains taxes upon the defendant in that case.
I shall leave sales with that discussion, since it would be discussed by counsel for General Motors and now deal with the question of distribution in a form of dividends.
There are three ways in which that could be done.
One way would be to distribute ratable numbers of these shares and each of the 10 years on top, in addition to, the normal du Pont dividend which in the last 10 years has averaged about $6 a year.
A second way would be to -- for du Pont to discontinue this cash dividend altogether and distribute the $6 entirely in General Motors stock.
A third way would be to pay a part of the $6 dividend, normal dividend in cash and the balance in General Motors stock.
For example, you pay might -- du Pont might pay two-thirds of the dividend in cash and third in stock.
The tax and market consequences, the first two ways of distributing the stock as dividend, on top of the dividend or totally in lieu of dividend, are so harsh and severe that as I understand the appellant's position, it's no longer really talking about those.
It recognizes that that is something that should not to be done.
So that what is left is really the third alternative, which is to pay a part of the normal dividend in stock and the balance in cash.
Justice Potter Stewart: I don't understand why the second alternative was so harsh from the tax point of view.
Mr. Hugh B. Cox: Well, I think I was combining the two things, Mr. Justice Stewart.
The tax impact is very harsh and severe in the first, where you do it on top of the dividend.
The -- the -- I combined tax and market because I was talking about them together.
The market impact is much more severe under the second method than under -- than any of the other method.
Justice Potter Stewart: But tax impact would be nil.
Mr. Hugh B. Cox: The tax impact would be normal.
That is they would pay no increased taxes and would not be a distribution of capital with some market impact under the second, tax impact under the first.
So that, now, the thing to -- there are two points that I should like to make about this method of distributing the stock.
In the first place, that method will itself have some market impact.
The people who receive it while our income taxes will not to be increased, will have to pay taxes and of course, we all know that people live on dividends or when they do not get cash but get, say, a third of the dividend in stock, they are going to have to sell that stock to raise cash to pay taxes and for their income purposes.
So that -- that method of distribution will itself have an impact on the market price of General Motors stock and that is a matter again the counsel for General Motors will discuss.
The other point I should like to make is that you cannot use this method of distribution in the 10-year period, as suggested by appellant, without accompanying it by a very substantial sale.
If you distribute a third of the stock that way, which is -- what would happen if you pay the third of the du Pont dividend in -- in stock, it works out that way, then you would have to be selling two thirds of the stock in that 10-year period.
So that the market impact to those people who stockholders of du Pont who had to sell because they needed cash to pay taxes to live, would be added to and would enhance the market impact which would be caused by the sale of the other two-thirds of the share.
You would have to have the two things going on in large measure through the same completeness, to the same period of time.
And of course, a stockholder of the du Pont Company or a stockholder of General Motors who has to sell his stock on that depressed market is not greatly comforted by the assurance of appellant's counsel that no real value has been taken away from him because in the long run, the value will still be there.
Somebody else will have the advantage of that value.
If you -- if you distributed one-third of the stock as a dividend and were allowed that no other -- engaged no other method of divestiture, you could distribute the entire 65 million shares.
This is purely a matter of arithmetic in about somewhere, assuming present market prices, assuming a $6 dividend level by du Pont.
You could divest of the 65 -- the 65 million shares in about -- somewhere a neighborhood of 34 years.
And that -- well, that would have some market consequence terms that General Motors stock the impact would be far less, probably than the impact of the other proposals that I have discussed.
That brings me to the subject of exchanges which I fear that I cannot discuss in detail because of the time, but I should like to say this about it, as I have said.
This matter is something that's brought into this Court for the first time by appellant.
I'm somewhat surprised that it should've been done, because at the end of the hearing in the District Court, toward the end, I ask in open court, the appellant, whether it had any additional suggestions or modifications or proposals put before the Court with respect to the plan that it had proposed.
And I said at that time that it would be most unfortunate in my opinion, if after the record is closed and there was no opportunity to present evidence, but then appellant should come forward with some proposal when they would not have the facts which the proposal could be appraised.
Well, that is exactly what has happened.
It seems to me what has happened is exactly what this Court said in the Salt case should not happen.
You'll recall the Court there said in an antitrust case that when a claim was made, the modification of a judgment, the basis for the claim should appear in evidentiary form before the District Court and not an argumentative form before this Court.
There is only three points that I can make here about in time that I have about the exchanges.
One is that we think for tax reasons, it would not be feasible or possible to dispose of any substantial part of the stock that way.
Appellant concedes that you have to get a ruling in advance from the Commissioner of Internal Revenue before you could do it.
Now, under the regulations, it is our view that the Commissioner would never give you that ruling whether good or bad as to the consequences, until he could determine a net effect of the whole transaction.
And with 200,000 shareholders, to whom you make a pro rata offer, you could never determine that in advance until you knew how many were going to exchange and how much each one was going to exchange.
If appellant really thinks it would be so easy to get a -- and that a ruling would be favorable, I'm somewhat surprised that appellant has not obtained the ruling itself, which it could do.
I think it is asking the Court to assume that this is -- is a feasible method of exchange merely on the basis of an argumentative statement about the state of the tax law, when appellant itself conceives that no one is going to exchange -- engage in these exchanges unless there is a prior ruling by the Commissioner.
If a stockholder is not interested in litigation, he's not going to accept the assurance of counsel no matter how eminent, but he won't be taxed, he wants a rule.
The other point is that -- that appellant leaves the Court I fear, with the impression that if you exchange this stock, you'll have no effect in the market price of General Motors.
What if this -- proposal had been -- been brought forward in the District Court, we could've introduced and would have introduced evidence which was shown that that was not correct.
You're going to have an exchange of this kind.
You were going to have to give the exchanging stockholder a substantial premium or in other words, you're going to have to discount the market value of the General Motors stock.
Share of stock, General Motors bringing $40 in the market for example, is going to have to be offered in the exchange at 20% or 25% or 30% discount from that price.
And the more shares you want to exchange, the larger the discount has to be.
Now, we could, I think, have established in the District Court, if this had been done, the stock would've being sold at a discounted price.
That would've had an effect on market price of General Motors and indeed that about a third of all the stock exchanged, would have been thrown in a very short time upon the market and would have had the depressing effect that those sales would naturally have, since they would be disorganized individual sales not under written offering.
The reference was made to a proposal by -- that possibility that Christiana might exchange some Hercules stock.
That is not in the record, but I think again, if I had the time, I could explain to the Court that that transaction, which involves a stock with a market value of 1% of the stock that's involved in this case, has no relevance whatsoever to this proposal that plaintiff has made.
That, as a matter of fact, that transaction, if consummated, is not at all sure that will be done, as opposed to some other method of disposition, can only be consummated on the expectation that most of the stock will be taken by a smaller number of tax-exempt institutions.
There's just one more thing I want to say and I shall have done.
And I think perhaps that this is an important point although it is implicit and never explicit in plaintiff's argument but I think it relates back to something that Mr. Justice Frankfurter said.
I think what appellant is really saying here is that in this case, because of the size of the company and the wide attention the case has received, that relief which is merely effective in fact, relief which admittedly does away with consequences is not really enough, but there must be and should be some dramatic and symbolic and ceremonial act which will symbolize that this relationship is forever terminated.
Now, I concede the importance of the ceremonial in the law, but I raised a question with the Court whether the injury of the shareholders that would be caused by divestiture can be justified in the name of ritual or ceremony.
In Hecht against Bowles, this Court said that the essential qualities of equity jurisdiction or practicality and mercy, practicality and mercy.
And that was by the exercise of those qualities that the Court in equity for the just and reconcile of the public interest in private needs.
It is those qualities of the Court's equity jurisdiction, practicality and mercy which we invoke.
We submit the judgment should be affirmed.
Chief Justice Earl Warren: Mr. Stern.
Argument of Robert L. Stern
Mr. Robert L. Stern: May it please the Court.
I appear on behalf of the General Motors Corporation.
It's concerned with this case and its interest in having the decree below affirmed arises from the fact that any plan of forced divestiture such as the Government proposes, will seriously injure its stockholders.
In this connection, it should be noted that General Motors has not been found to have violated the Clayton Act and that obviously, its stockholders apart from du Pont, are completely innocent of any wrongdoing at all.
I don't want, however, to talk about the effect upon General Motors stockholders as if it were a part of the case in vacuo or by itself or as if we were arguing that no antitrust decree could ever do anything which would injure stockholders or that divestiture can never be ordered when it might diminish the value of stock.
Here, this Court ordered that the District Court enter a decree which would eliminate the effect of du Pont's acquisition of General Motors stock, offensive to the statute.
The basic question in the case which Mr. Cox has already covered is whether the decree entered below is a reasonable means of doing that.
In choosing between different forms of remedies, it is appropriate to consider the effect upon General Motors stockholders, so long as the remedies are effective.
Now, this was the District Court's approach to the problem.
We submitted, has been this Court's approach to the problem in the cases in the past.
And I would like to refer particularly though I have not time to quote it to the passage in the American Tobacco case which is quoted on page 57 of our brief, which sets forth the three principal guiding elements which equity courts consider in entering antitrust decrees.
One of those elements was the effect upon innocent stockholders and that's the case which both sides cite, as guiding authority in this area.
Now, the Government says that the District Court regarded the interest of the stockholders as the principal factor in this case, rather than the public interest in effective enforcement.
For this, it relies on a few expressions in the opinion which we submit, are taken completely out of context.
And here again, I would like to read the opinion or large parts of it to you, but I don't have time and I would like to refer you particularly to pages 3196 to 3198 and pages 3246 to 3248 where you find what the District Court himself said on this Court.
Now, we don't understand the Government really to argue that it is proper -- that it is improper to consider hardship to innocent persons in choosing between effective remedies.
Its arguments really are that no remedy but divestiture can be effective or alternative that divestiture is required as a matter of law.
Mr. Cox has discussed these points and I will not go over them again.
They are covered in our brief.
But I would like to make two observations before coming to the main subject which I do intend to cover, the harm the General Motors stockholders.
The first place, Government counsel said yesterday that divestiture with free General Motors from the restraints which had previously been imposed upon it.
To that, the answer is that the decree imposed by the court below has already done that.
There is no possible way in which the du Pont can now influence General Motors to force it to take or to prefer du Pont products such as the Court found was improper before.
Secondly and to elaborate perhaps unnecessarily on an -- on the question asked by Mr. Justice Whittaker, I would like to comment on Mr. Davis' suggestion that 300,000 du Pont stockholders which switched from buying General Motors cars to Fords and Plymouths, if these cars didn't have du Pont paint upon them.
The first place we think this is other nonsense.
They wouldn't know or care what kind of paint is on the cars.
Most stockholders I'm sure don't know anything about that.
There's no suggestion that du Pont stockholders in the past have been less willing to buy Oldsmobiles or even Cadillacs, which have never had du Pont paint upon them and -- and the other type of car.
And that appears in the prior record, page 1923 to 1927.
In this case, I'd like to tell you our argument down at the record which is distinct from some of the speculation which you heard yesterday.
Now, even if it were true that the du Pont stockholders would not like to buy General Motors cars, they didn't have du Pont paint on them that really wouldn't do them any good.
It wouldn't do General Motors any good because they would do the same thing if they didn't have any interest in General Motors at all.
It would be just as much loss to General Motors, the du Pont stockholders didn't have voting rights in General Motors stock.
There would indeed, be much less incentive for them to switch if that were the case.
So unbalance and that was the question asked by Mr. Justice Whittaker yesterday.
Unbalance just a brief statistical analysis of the facts and the reports of the companies which are in the record, shows that they would have much more to lose by switching from General Motors to a car which had some other -- with possibly had du Pont paint upon them.
Because the record shows from this simple calculation, that the profit on General Motors sales for each share of du Pont which these stockholders which would have the shares of both companies would have, would be either 25 times as much or six times as much depending in how you calculate it, I haven't got time to do it early.
As their profit on the proportion of du Pont sales which go to General Motors, that proportion I add has been -- it's going down.
It's about 2% of du Pont sales now and it's less than 1% of General Motors' total purchases.
That's what we're concerned about.
Now, I'd like to come to the problem of what would be the effect of divestiture.
What would happen if du Pont had to get rid of these 63 million shares of stock which are worth well over $2.5 billion, depending on how they're valued?
There has never been anything like that amount forced on the market under any circumstances before.
The plan proposed by the Government below was for 43 million shares to be distributed to all the General Motors stockholders except Christiana, Delaware and some officers and for the 20 million shares to be sold over a period of 10 years.
Now, the evidence unquestionably showed and the District Court found that the supply -- firstly, that the supply would be increased by the forced sale of this 20 million shares.
And also, by the sale of a large part of the 43 million shares by recipients who needed the money to pay the additional income taxes.
And that in addition, there would be other sales by persons -- other stockholders who wouldn't want to hold General Motors during a period in which it wouldn't -- in which it would leg behind of the -- the rest of the market because of the effects of the decree.
The first two of these items would add over three million shares a year to the nine million normally traded on the market now, over a third more -- at least over a third more and then the present market.
Now, this increase in supply would be accompanied by no increase in demand.
On the contrary, the effect of a decree of divestiture would be to decrease the demand, at least at the same price, because people wouldn't want to buy a stock which they thought would go down or at least not go up as much as the rest of the market.
So, the result of a substantial increase in supply with no increase in demand and indeed a decrease in demand would obviously be a substantial decline in the price.
In the testimony of the financial experts, most qualified to speak in this subject, was that this decline would be in the area of 20% to 30%.
But even if it were substantially less than that, the effect could be a serious one.
And the stockholders who would be for any reason, unable to retain their stock for the full period of divestiture perhaps 10 years, would lose at least hundreds of millions of dollars.
Now, our brief summarizes the testimony in that.
You may wonder why we spent 36 pages to prove what seems to be so obvious.
We thought this whole treatment was necessary, however, to deal with an -- to meet the way in which the Government dealt with the problem in its brief.
In its brief, it does not say, however, that the findings of the District Court along the line which I have summarized are clearly erroneous and that's what has to say as I read the rule to if it is to have those findings disregarded by this Court.
It does say that disagrees with the findings.
And then it makes the peculiar argument in its replied brief that its position is supported and I quote because I wouldn't dare state this without quoting, "Is supported by weight of the testimony of several of the expert witnesses in the case."
And then it cites the cross-examination of a few of the witnesses on its side.
Why any attention should be paid by the court or any other court to the weight of the testimony of a few witnesses without regard to the testimony of all the other witnesses and at least a thousand pages of record or indeed, the cross-examination of these same witnesses, I find it hard to understand.
Obviously, this Court, like the District Court, must consider the record as a whole and not merely the direct examination of a few of the Government's witnesses.
The Government's brief never mentioned to the rest of the evidence in the case.
Now, yesterday, Government counsel didn't make that statement.
I think he probably had to make sense too early, but he said that we exaggerate greatly are trying to -- frightened the Court with respect to the -- our argument about market consequences.
It was clear to him, he said, that the General Motors stock could be sold at yields which returned 5.5% to 6%.
That people would then flock into the market to buy it.
Now, that is exactly the range of yield which the witnesses for the appellees testified, would bring General Motors stock -- would enable du Pont to sell its General Motors stock around 6% was there -- what they generally said.
Now, that 6% if you do a little calculating based upon General Motors' $2 dividend which both sides assume will be continued, would mean that the stock would be sold at 33 and a third.
At the time of the trial, it was selling at $46.
Right now, it's selling at $43 in the fraction.
So, if you would see what the difference is between either 46 or 43 and 33 which is what Mr. Davis seems to agree with the testimony now, would mean you find that the value of General Motors would be decreased exactly 20% to 30%, which is what the witnesses said it would.
And I may add that that 10 points off of the value of General Motors stock is almost $3 billion.
Now, the differences between us therefore, it seemed to be not matters of fact as to whether there would be a decrease in the value of stock or how much there will be a decrease.
What matters of -- what adjectives you apply to them.
We think that the amount is substantial.
We don't have to contend it's disastrous and would even pinpoint the exact amount.
And the Government said that nobody is going to be hurt by all these because after 10 years, General Motors probably will be just as well-off as before.
But, a lot of General Motors stockholders who can't wait 10 years to keep their stock, then will may have to sell for any number of reasons like sending a boy to college or selling a house or winding up in the State.
Ten years is a temporary period from some points of view, but not from the points of view of a lot of stockholders, will suffer 20% to 30% loss and they'll think that is the very severe loss indeed.
We're not dealing with a big corporation here, even just with a lot of wealthy stockholders even though -- even wealthy stockholders I think are entitled consideration by this Court.
The average loss over the whole group of General Motors stockholders would be about $3000 each.
Most of these stockholders are smaller and I submit that that is a substantial item which the Court should take into account.
Now, yesterday, the Government counsel said that the stock market fluctuates a lot anyhow and that in the last year, it went up and down about 27%.
Therefore, it went down 20% or 30% more well, what difference does that make?
Well, all we have that adding or rather subtracting this 20% or 30% from whatever would happen to the market otherwise, would make a very big difference and would hurt the people to whom I have referred.
Now, the Government seeks to undermine the findings on market impact by arguing that prices ultimately are determined by anticipated earnings and yields and actual earnings and yields.
And though they don't quite say this, they imply that supply and demand really don't have very much to do with it at all.
But the testimony of the witnesses, even their witnesses show that it was not that simple.
A very important factor in stock evaluation is how much is the stock going to go up or down in the next period of time?
Now, the records showed and the witnesses testified that if the market is not artificially disturbed, all of these factors, earnings and dividends and yields and the like, are reflected in supply and demand.
But if for external or noneconomic reasons, the supply to be sold is greatly increased without any accompanying increase in the demand, the additional sales can only be made at a lower price.
There won't be any other way of getting the stock sold.
And this depress price will continue for as long as the additional supply over hangs the market.
The Government says these effects will be only temporary, but here, the effect would be under the plans they proposed which all seemed to cover about 10 years for that period of time.
Now, this was all admitted by the principal government economic witness Dr. Friend on his cross-examination.
And I would like to take the time to read a rather short statement of his, on pages 1024 and 1025 of the record, but time is running and I think possibly, I'd better not.
So I'd like to call the Court's attention to the passage at the bottom of page 1024 of the record and running on to the next page, where he admitted that the effect on the market would run along for the period of the divestiture and not barely be a short time effect such as is the case when you only have a one shot offering.
Now, the Government makes other proposals as to other ways in which this might be done.
And Mr. Cox has referred to them in his argument.
But I would like to say a word with respect to how they would affect General Motors stock.
Each of them were separately or in combination, they would lead to the sale or distribution of tremendous quantities of stock and the effects would be about the same as I have said.
In the first place, the Government proposes that there might be a distribution to the du Pont -- to the du Pont stockholders.
Now, if all of these stocks were distributed, it has been indicated the recipients would feel impelled to sell large quantities of it, because they've been accustomed of living off the dividends in that stock.
And the testimony was that the effect of such sales in that quantity would be much worse than under the Government's plan.
These people would need this for ordinary expenses.
Now, the -- what the effect of that kind of a plan or of anything along this line would be that although du Pont would save -- the du Pont stockholders would save taxes, the effect upon the General Motors stockholders would be considerably worse, because more stock would be sold than under another kind of distribution.
Now, the Government now says that one-sixth or one-third of the du Pont dividend should be paid in General Motors stock.
Now, this would amount to either from a -- from one to two and a half million shares a year.
Of this, about one-third would be allocable to Christiana and Delaware and on the Government's theory, would have to be sold.
So when you combine this with the parts of this -- with the parts of the one in -- one to two million which the stockholders would have to sell, you come out again with substantial sales.
Now, if this proposed divestiture would be a -- were to be accomplished by this means alone, it would take from 27 to 55 years, depending on how it was done.
Otherwise, it would have to be combined with other methods if the -- if the whole job was to be done within 10 years.
But when you combined it with other methods, each of which would have a similar effect as I shall show, you come out about the same kind of effect as under the plan proposed by the Government below.
The Government seems to concede, you'd have to sell about half of this stock.
About 3 million shares a year, which would have obviously as great and impact upon the market prices, if you -- as if it was sold under the plan proposed below or is admitted the two million shares would have to be sold for you.
But the Government says General Motors itself, could buy a lot of these stocks and du Pont for its bonus and other plans.
Now to some extent, General Motors now does buy stock for these plans on the market.
But to the extent that it does this already and has done it for years, this demand as a part of the existing demand and to shift the purchase of that stock to stocks sold by du Pont wouldn't change the imbalance between supply and demand which of course the divestiture would cause by one iota.
So that wouldn't have any effect in helping the situation.
Now, as to exchange of these, du Pont should exchange its General Motors stock for its own stock.
Well, I'm not going to get into the tax side of -- that -- that's a du Pont problem.
Whether or not such a plan would harm du Pont, it would have an adverse effect upon the General Motors stockholders as I don't think it would take me a very long show.
The Government admits that in order to induce persons who had bought General Motors -- du Pont -- du Pont stock to shift to General Motors, they would have to make what the Government somewhat euphemistically calls, reasonably favorable offers.
Inclining the stock means, they'd have to allow a big discount because otherwise, why would people who preferred on du Pont stock want to shift to General Motors stock?
They always could've bought General Motors stock at the market if they wanted it.
So, that if any substantial portion of du Pont's General Motors stock is to be disposed of in this way, would have to be at a big discount.
But this would affect the market price of General Motors stock generally, since anyone could obtain General Motors of a discount by buying du Pont.
Now, I can't tell you how much this effect would be.
And nobody really here can because as Mr. Cox has said, this point wasn't made -- raised below and the defendants didn't have any opportunity to divest any evidence to it.
This news suggestion therefore shows why it is improper for the Government to present such proposals for the first time when defendants have no opportunity to meet them.
Now, in some each of these various plans which have been proposed by the Government would have an effect upon the -- upon the price of General Motors stock.
And if the plans were to be effective in 10 years, their effect in combination, would be just as great as that which was discussed below.
Now, I -- only to make one more deal -- only one more question, which wasn't discussed upon Mr. Davis' orally, but it is discussed in their briefs and that he might be awaiting reply, I think I may -- I'd better say something about it.
The Government argues that other large stock offerings have been made over the years without any difficulty or adverse market consequence.
But even the Government's own witnesses admitted that no prior offerings were remotely comparable to what would be required if divestiture ordered here.
Not only would be that the amount to be distributed be tremendously greater here, $2.5 to $3.5 billion depending upon the value of General Motors, but the requirement that they're being repeated regular, substantial forced sales over a period of 10 years, would mean that the impact of overhanging a market for that period of time.
The Government's brief refers to the largest of these distributions, presumably on the ground that they are the closest to the distribution here involved.
With respect to every one of those stocks, the statement in the Government's brief always omits the critical fact which shows how different the situation is from that which we have here.
Our time only for a few examples and I hope the Court will compare what we say in our briefs with respect to these items with the Government brief and then check the record for yourself to see who's right about it.
If she's not convinced that we're right just from the mere statement of it.
The Government brief first refers to offerings of stock to stockholders, rights offerings by General Motors in 1955 by Aluminium over few of them on the 1950s and by AT&T and these were pretty large, though nowhere near as large is what we're concerned with here.
But the Government doesn't reveal that each of these offerings was at a discount from 26% to 40%.
The success of these rights offerings and rights offerings really aren't comparable with secondary offering such as we have here, because rights can be sold a lot more simply and a lot more easily than secondary offering.
The success of these offerings doesn't prove that a larger amount of stock can be sold without a discount.
The Government refers to the Sloan Foundation secondary offering in 1956, says that didn't have much effect on the value of General Motors stock.
Well, the evidence, the record shows that it did knock the price down a few percent, 3% to 5% or 6% at the time that was made.
But that was a one shot proposition that was offered over as soon as it was finished.
It was only one-third as much as each of the annual amounts to be sold under the Government's plan below and we don't think it proves anything as to what the much larger distribution -- what could be done here with the much larger amount involved.
Now, the Government refers to the aluminium situation because there was a 10-year divestiture required under the decree in the Alcoa case.
The Government says that despite the forced sales of aluminium -- not aluminium but aluminium stock under that decree, the stock did better bearing the 10-year, an industrial stock, generally.
Therefore, the decree had no impact.
What the Government doesn't point out is that in comparison with the remainder of the aluminum industry, aluminium did very, very poorly.
In fact, all the other aluminum stocks went up three to 10 times as much during this period.
And I refer you specifically to du Pont Exhibit 47, which points this out very accurately and graphically.
I also add that only $150,000,000 worth of stock was offered under that case, which amounts to about 6% of the stock which is involved here.
A reference is made to a large offering by A&P grocery chain, $80,000,000 in one year, again in one shot offering.
The Government doesn't point out that its own witness, Dr. Friend, said that that stock went off 10% to 15% at the time of that much smaller offering.
And the Government may refer as it does in its brief to the big sale by the Ford Foundation when Ford stock was first put upon the market.
That was $650,000,000.
But there, the Government point does not point out there ever was any Ford stock upon the market before.
There was a tremendous demand by people who never been able to get Ford and of course, there were no prior prices to compare this Ford offering with.
On the contrary, anyone who's been able to fill -- purchase General Motors stocks over the years.
I won't go into the others.
They are covered in our brief.
I would like to conclude with the point I made at the beginning.
It was entirely proper for the District Court in choosing a remedy to select that which would have the least harmful effect upon the hundreds of thousands of innocent stockholders involved in this case, so long as the remedy is effective.
Here, there is no possibility that du Pont can continue to influence General Motors under the decree of the court below.
And for that reason, we submit that the decree should be affirmed.
Chief Justice Earl Warren: Mr. Bushby.
Argument of Wilkie Bushby
Mr. Wilkie Bushby: If the Court please.
I represent Christiana Securities Company and the Delaware Realty and Investment Company, who are nominal defendants and appellees in this case.
Our brief is the small white brief, which I hope will not be lost in the shuffle of these large debts.
These companies are registered investment companies under the Investment Company Act.
Christiana has some 4000 stockholders among whom many charitable and educational institutions and insurance companies.
Christiana and Delaware together, own about 30% of the common stock of du Pont and 535,000 shares of stock for General Motors.
They were named as defendants in this action with an allegation that they had violated the Sherman Act.
There was no allegation that there was any violation of the Clayton Act by them, nor any facts stated which would show as such a violation.
Now, there was no finding in this case of any violation of the Sherman Act.
Accordingly, there is no charge and no finding of violation of any law, any statute whatsoever against my clients, Christiana and Delaware.
Because of that, we have taken the position that the courts or without the power or authority to enter any order of direct relief against them, without their consent and they did expressly consent to the minor amount of direct relief contained in the present decree that is the sterilization of the vote.
However, the Government is not now present for the relief it asked for below and you will recall, the relief asked for below was to have du Pont make annual distributions of all its General Motors stock for 10 years and have the stock allocable to my clients sold in the market.
That would've caused a loss to my clients, as is shown in the table on the bottom of page 4 of our brief, of -- from $233,000,000 to $430,000,000 depending on whether the price realized was $46, the then current market of 30% or 30% to 20% or 30% appreciation.
But that was a real loss, it would never be cured when the stockmarket came back for General Motors stock 10 years hence, the stock would be gone.
However, the Government, as I say, the Government isn't pressing for that relief here.
And they agree with us and I point to the footnote on page 14 of the Government's reply brief, where they agree that the point isn't before the Court now and is premature.
And accordingly, I'm not going to argue it here.
If the Court is curious, the case is on the point in our brief at the bottom of page 6 in the footnote.
However, Christiana and Delaware have another interest in this case.
We are stockholders of du Pont and of General Motors.
And I would like to speak very briefly on the merits with few points.
I think the present decree is fully effective and that the Government's criticism of it is fungible.
I have been at the bar 40 years, mostly in corporate field, and I know of no way out of their investment to their legal title for equity interest in this General Motors stock that can be used to influence General Motors in any way.
If there is one point of proper criticism that both du Pont has, is going to be passed through perpetually to du Pont stockholders, then that could be corrected very easily.
Take Mr. Cox's suggestion and have that stock voted by du Pont, by court order exactly in the same proportions if its main body of General Motors stock is voted.
Those who have no interest in du Pont, there can be now possible use of that stock or that vote to influence the General Motors.
Now, what should be weighed by the Court in considering the savage relief that Government wants.
First, I'd like to point out as I think Mr. Justice Frankfurter did here, that the Clayton Act is not a penal statute.
It is not a criminal statute, it is purely remedial.
Further, this Court simply held when a case was last here that because of a stock acquisition in 1918 that it was now the possibility that that stock would devote there along, might be used to influence General Motors' purchases of automotive paints, finishes and fabrics.
There was no instance cited or no example of the actual use of that influence.
Accordingly, there is no crime here in this case and there is no guilt.
And therefore, these statements in the Government's reply brief in page 2 and 15, that some of the stockholders are associates of du Pont's but the decedents of du Pont's that there's somehow guilt by association or corruption of blood has no place here.
There isn't any crime of which to be associated and there is no crime of which to corrupt blood of descendants.
And I think that ought to be borne in mind, when the Court is exercising its equity powers here.
There are two other factors that bear on the severe losses that we suffered by two million I think, beneficial owners of the stock of these two companies.
There's no use going into detail over the tax impact.
Everybody knows it will be severe.
Mr. Justice Douglas as a past Chairman of the S.E.C. knows it.
The tax impact was severe in the enforcement of the Public Utility Holding Company Act and that has impeded enforcement and that the losses of employments played under the tax laws of 1950s and where under the tax laws of the 1930s.
And I say that --
Justice Potter Stewart: Isn't there a special statute governing divestiture under the Public Utility Holding Company Act?
Mr. Wilkie Bushby: Yes, because of the enforcement being impeded, Mr. Justice Douglas was sponsor of the amendment of tax laws to help the enforcement of that Act.
Yes, sir.
And I think the Government has no right to come here and offer tax plans, exchange plans and on mere assertion that they are practicable, they had the opportunity to put those plans in evidence in the court below and we could've met -- and I say if it's an improper -- that a procedure -- and I say the proper procedure is that there's anything wrong with the effectiveness of this decree to let them go in the District Court under Section 9 of the decree, show us something wrong and then prove these other methods.
And show that practicable and we will meet them there.
As to the market impact, every single and practical investment manner testified whether for the Government or for the companies in the court below, said there would be a serious market impact 15%, 20%, 25%, in case the Government plan there proposed was carried out.
Now again, there's no use going into the trivia of the evidence, that every factual man in the Court said that would be so.
Finally, I'd like to close by saying this, that there's nothing to the legal point that divestiture is mandatory under the Clayton Act.
To hold that would seriously circumscribe and limit the equity power to this Court.
It's been enforced of 45 years and nobody ever grant that point up before.
It just doesn't exist.
And as I say, it would so limit the powers to this Court is to be a very bad thing, very bad, stopped in the modern trend and we very seriously the stockholders of these companies very seriously need the equity powers of this Court right now.
Chief Justice Earl Warren: Mr. Davis.
Argument of John F. Davis
Mr. John F. Davis: Mr. Chief Justice, if the Court please.
If I appraise this argument correctly, I think probably the most significant issue before the Court at the present time in it, is whether or not the decree of the District Court will actually give adequate relief.
If the District Court's decree will not give adequate relief, then it's not important whether or not, it is -- whether the statute is mandatory or not, because this relief shouldn't be followed.
And if the relief is not adequate, it also does not make any difference that there will be hardships which will be imposed upon the people who are involved.
So that, at least in one respect, this is -- this is the heart of the case.
Now, Mr. Cox's persuasive argument on this issue left me wondering yesterday afternoon whether perhaps, I might not be wrong in whether it might not be true that if voting rights were taken away that du Pont would no longer have any power to control General Motors.
But then, it occurred to me that if I was wrong, that I was in good company because, I didn't invent the idea that control over corporations depends upon things other than voting rights.
This isn't a novel -- a novel concept.
There are very large pieces of the studies and the reports of the -- technical -- the -- the temporary National Economic Committee which deals with this very subject, Volume 2 of the Securities & Exchange Commission's report on protective committees.
It feels with the same thing and probably the -- the patriarch of the problem of how corporations can be run is any pass Justice of this Court.
Justice Brandeis in his book, other people's money is -- is much smaller than -- than these other reports on this thing, but it carries a tremendous impact.
And the theme, the theme of other people's money is that the bank is -- were controlling the corporations.
And Justice Brandeis didn't think the bank is -- were controlling those corporations by reason of stock control.
Justice Potter Stewart: Now, it's one thing to say that there are other ways of controlling --
Mr. John F. Davis: That's right.
Justice Potter Stewart: -- the corporations to be signed that being able to vote as shareholders of it?
Mr. John F. Davis: That's right.
Justice Potter Stewart: But it's another thing to say that it doesn't automatically follow that a nonvoting shareholder has such -- any such control.
Mr. John F. Davis: That -- that is right, it doesn't.
But when you -- this is where, we don't answer the question by saying we cut off the -- the stock control.
I mean that, it doesn't automatically say we cut the chain and therefore, there can be no control.
There are other methods and it has been my purpose to persuade the Court that when you have 40 years of interrelationships, when you have a company which has every motive to continue to control, by having the motive I mean that it's -- that it's got two and a half to three and a half billion dollars tied up in the enterprise.
It's got $126,000,000 a year as dividends coming in from the enterprise.
It has every -- every motive to -- to want that corporation to do well and if it thinks it's not doing well to try to stare it in -- in the positive things that should go.
So that I say, you have 40 years of -- of influence of one kind or another, you have the continuing motive to exercise that influence.
And I'm persuaded that there are methods in which that they can continue to -- to have this felt.
Now, it doesn't mean next year, one of the ways of the course, is through the votes of their stockholders.
But, it doesn't mean that this year or next year, General Motors is going to come to some shop turning of the way and that it's going to have a definite problem of what du Pont is going to do about it.
This is -- but this is a continuing pressure from du Pont on General Motors as the scheme has worked out, these stocks are tied together in such a way that no individual stockholder can separate his interest.
Any person who buys an interest in du Pont is going to buy an interest in General Motors.
And that's going to continue just as long as this -- as this decree is in effect.
Justice Potter Stewart: Would you think Mr. Davis of the suggestion that the -- that the stock now owned by du Pont be voted proportionately to the stock or the General Motors stock in the hands of shareholders in no way connected with du Pont?
Mr. John F. Davis: Well, that will -- that will reduce any -- any influence which would come from the exercising the voting rights.
Justice Potter Stewart: That would --
Mr. John F. Davis: It doesn't reduce the motive.
It doesn't reduce the interest of General -- of du Pont in General Motors.
It doesn't -- it doesn't change the -- the thought there's still -- there's still a desire to have been due as the -- as the direct -- as the du Pont would want them to do.
But it does cut off in the direct voting control.
Justice Potter Stewart: It would be preferable I suppose of this technically to sterilizing as the word's been used, any -- any voting rights at all in anybody.
Mr. John F. Davis: Yes.
It's -- well, it has the same effect as sterilizing.
Justice Potter Stewart: Except under state law there might -- you might need a certain number of votes.
Mr. John F. Davis: I -- I may say that whenever we're sterilizing stock value -- a stock voting power, we're running somewhat contrary to -- to what people believe today as corporate democracy.
You're -- you're turning over to the management, the power to manage without any direction in the whole object of the Securities & Exchange Commission in its proxy regulations and so forth, is to get more direction, more responsibility to the owners of a corporation rather than less.
So that, on a technical basis when you -- whenever which sterilizing any stock of this kind, we have -- running against the trend of corporate democracy.
Justice Potter Stewart: But -- but the other provision would -- would put the management of the corporation in those shareholders who were completely --
Mr. John F. Davis: That's right.
Justice Potter Stewart: -- affiliated in any way with du Pont.
Mr. John F. Davis: That is right.
That's -- as far as --
Justice Potter Stewart: And at least --
Mr. John F. Davis: -- to direct -- any direct open control --
Justice Potter Stewart: And at least contained complete corporate democracy by all those with that franchise to run the --
Mr. John F. Davis: The corporate democracy would be by part of the owners and part of the owners would -- part of the owners of the -- of the stock would by hypothesis, have no sale anymore.
Justice Potter Stewart: But those who say the ones --
Mr. John F. Davis: Well, those -- on the antitrust --
Justice Potter Stewart: -- suppose be possibly be changed.
Mr. John F. Davis: -- from the antitrust position, those are the ones we say should not --
Justice Potter Stewart: Yes.
Mr. John F. Davis: -- have it.
We think it is a preferable -- a preferable remedy -- far preferable remedy, beside from the fact that I -- that I do not believe that would be effective.
It would be a far preferable remedy to distribute the stocks so that the owners could continue to have their -- have a control of what's done with their money.
Justice Felix Frankfurter: Mr. Davis, before you sit down, would you be good enough to indicate the Government's view regarding the relationship of this Court to the -- this presumable discretion exercised by the District Court --
Mr. John F. Davis: Yes.
Justice Felix Frankfurter: -- on the assumption that you haven't get to use the word.
On the assumption that what the District Court did and should being informed that any in this decree was not an arbitrary act or beyond its power, what do you say for it?
Mr. John F. Davis: No.
No, I don't say it was -- well, it was beyond its power, if we take the views that the statute is mandatory.
And if we (Voice Overlap) then -- then we have --
Justice Felix Frankfurter: -- would imply that with that.
Mr. John F. Davis: That's right.
Justice Felix Frankfurter: Alright.
Mr. John F. Davis: So that we come then to the question of what the area of discretion is in the District Court if -- if there is a choice in remedies.
Now --
Justice Felix Frankfurter: What our function is --
Mr. John F. Davis: Yes -- well --
Justice Felix Frankfurter: -- in reference to what this District Court did or District Court does?
Mr. John F. Davis: In the first place, I think that you can have not only statutory limitations on the discretion.
You can have judicial limitations on the discretion.
And if this Court has decided as I think it did in the International Boxing case and in the Crescent Amusement Company case, that in these cases where you have a merger situation, then there must be divestiture in order to cure it.
That this is the heart of the case and that is what this Court said in the Crescent Amusement case and in the Boxing case.
Then these two will limit the -- the discretion of the District Court in -- in what it would do in this type of case.
Justice Felix Frankfurter: What you're saying --
Mr. John F. Davis: But this again is a mandatory --
Justice Felix Frankfurter: What you're saying is if that's a rule of law and these kinds of a case to have divestiture --
Mr. John F. Davis: That's right.
Justice Felix Frankfurter: Not from the statute explicitly, but from the effectuation of the statute.
Mr. John F. Davis: That is right.
Then, the question comes.
If this is not so, but that this -- but the Court had a pre hand and that the -- and that this Court was only speaking of specific cases and not meaning to -- to limit discretion of the District Court with respect to the cases generally.
Then, I think our problem is whether or not, the District Court properly appraised this evidence.
And when Mr. Stern speaks of, if having of that Rule 52 -- is it 52?
And the fact that if it's supported by any evidence, then this Court shall not overrule it, I think that this really doesn't carry much weight in this type of a case where the type of evidence which is involved its expert testimony of the kind which is here involved.
I think that even though hundreds of witnesses, expert witnesses are called in du Pont and General Motors to have call as many as they felt was effective to give these estimates of market value and what -- what the -- what the effect on General Motors and du Pont stockholders would be, I think that the court below could've disregarded this and -- and followed the concepts of its own -- of its own judgment and I think this Court in appraising what the District Court did, can do the same thing.
Justice Potter Stewart: You're addressing yourself now in a little different point.
That is the - the function of fact finding, Rule 52 --
Mr. John F. Davis: That's right.
Justice Potter Stewart: -- that is findings of fact.
Mr. John F. Davis: That's right.
Justice Potter Stewart: What Mr. Justice Frankfurter asked you, it seems to me to put the finger on it -- on a somewhat different and --
Mr. John F. Davis: Well --
Justice Potter Stewart: -- being important --
Mr. John F. Davis: Well, I think --
Justice Potter Stewart: And that is this or is it up to you to argue here to us as a quote of equity now that this is the decree that you ideally should issue in this case, rather isn't it -- don't you have to argue to us that the decree that was issued by the District Court was an abuse of his --
Mr. John F. Davis: I think -- I think I did stray away from the point and I think you state it correctly.
I think that this Court had said many times that in -- by framing decrees and these antitrust cases that the primary duty is on the District Court and not in this Court.
And, I think I'd get nowhere to argue that that was not so.
So I --
Justice Felix Frankfurter: Insofar as -- insofar as the decree is an allowable exercise of judgment.
Mr. John F. Davis: That's right.
Justice Felix Frankfurter: We don't see here de novo, do we?
Mr. John F. Davis: That is right.
You -- you would have to -- you would -- the judgment is a judgment for the District Court primarily.
Justice Felix Frankfurter: Well, now, where do you think it was a disallowable exercise of judgment by the District Court?
Mr. John F. Davis: Well, I think it was a not allowable exercise of discretion, because I think that on the base of it, this does not give adequate relief.
This does not prevent the continuation of the -- of the evil which supposed to be eliminated.
Justice Felix Frankfurter: Which itself is an exercise of judgment.
Mr. John F. Davis: Well, it is.
And it's a question of decree.
It's a question of decree.
Justice Felix Frankfurter: I -- semantic as allergic.
I'm allergic to that.
I don't mean to have been indulging it.
Mr. John F. Davis: Yes.
Justice Felix Frankfurter: I just like all talk, words are medium -- media of talk of course of thinking in this field.I mean need to get into --
Mr. John F. Davis: Well, I -- I didn't -- I didn't mean that.
Justice Felix Frankfurter: If that's what you're holding that this was not an -- that -- that in deciding whether it was effective, you're exercising a judgment.
It's a forecast.
It's partly a prophecy to what extent these influences will continue and there is subterranean way to which they could continue.
That's -- that's --
Mr. John F. Davis: That's -- that is right.
Justice Felix Frankfurter: -- that is (Voice Overlap) --
Mr. John F. Davis: That's right.
Justice Felix Frankfurter: -- doesn't it?
Mr. John F. Davis: It does come down to that.
I think that -- I think that this Court should give very great weight to what the District Court did.
But I think if you read the District Court's decree, if you read its findings, you will feel that they went beyond the discretion which the District Court had in framing a decree.
Justice Felix Frankfurter: Do you -- when you say the findings that the other point to which you addressed yourself when Justice Stewart intervened.
Are you challenging any of the findings on the basis of which it formed the judgment?
As I understand it, you don't.
You simply said, sine this was rest on expert testimony.
We may reject the expert testimony, although you don't challenge the finding based on that expert testimony.
Mr. John F. Davis: Well, we -- we -- I think that as Mr. Stern stated that quite accurately, we say if we disagree with the findings, we think the Court made improper findings on that.
We think the evidence -- pardon?
Justice Felix Frankfurter: I do not know what that mean.
You disagree with them, but you don't -- you don't address yourself to say they were undeservedly or improperly made, do you?
Mr. John F. Davis: Yes, I think we do.
We say that the -- the losses that the Court improperly found, appraised the evidence in finding that these losses would occur, that these losses are not inherent in divestiture.
We say to the Court for example, used the wrong -- the wrong standards.
The Court considered whether or not, a particular and it considered evidence which was addressed to a particular method of divestiture.
We say that if any method of divestiture can be worked out which is effective, then it is preferable to -- to the plan which the Court adopted.
Justice Felix Frankfurter: Of course you attacked the conclusion drawn from the findings namely that divestiture is not required.
Mr. John F. Davis: That's right.
Justice Felix Frankfurter: It doesn't add up to that legal conclusion, but that's a very different thing from saying you disagree with the underlying basis on which that conclusion was drawn.
This isn't in other words, the medical case that we had (Voice Overlap) --
Mr. John F. Davis: No, it isn't the medical case.
It's more like the case that was before the Court on the merits.
We -- we've challenged the fact that there will be as larger tax impact as the Court found.
We've challenged the fact that there will be as large market losses as the Court found.
We do not challenge -- there's no -- there's no real basis to challenge the individual testimony.
We don't claim that anyone was lying in the -- in the case, so that actual demonstrable facts are wrong.
We object to the conclusions which were drawn from it.
Justice Felix Frankfurter: You're asking us on the basis of all the materials in the argument to make a different informed guest in the District Court.
Mr. John F. Davis: That's right.
And we think that --
Justice Felix Frankfurter: Isn't that right?
Mr. John F. Davis: I think that's right and we say that the -- the District Court's guest was so bad that that's what you should do.
That's in effect what we're doing.
I -- I would like to address myself too to this -- just very briefly to the relief which was granted under the Sherman Act.
As you remember, I argued that by lifting Section 4 of the Sherman Act and making it the relief under the Clayton Act, that Congress intended the same type if relief to be adopted.
And the -- Mr. Cox cited today that showed that -- to show that divestiture was not required under the Sherman Act.
He cited the Terminal Company of St. Louis, a case which appears in 224 U.S.
This case gives me some trouble.
Most of the early cases are straight merger cases and a straight dissolution.
The Terminal Company of St. Louis was a case in which a group of interstate railroads, the Katy, the St. Louis and San Francisco, Baltimore and Ohio and several others, combined together by agreement to limit the access to the study of St. Louis.
And in order to make their plan effective, they joined together the terminal companies in the -- into the Terminal Company of St. Louis.
And this was the device they used to restrain this traffic.
I treat this case as not a straight merger case.
I treat this case as the kind of a case where a group of corporations, by combination conspiracy, get together and agree to work out a system of restraining commerce.
And they used as a device to do this, the Terminal Company of St. Louis which is a corporation, the stock of which is owned.
And the question was raised whether this would have to be divested.
And as I read the opinion of the Court, it says it doesn't have to be divested.
This isn't the heart of the trouble.
It isn't the case of their buying of a merger case as we have here.
It's a case of a combination and if the terminal company is merely used as a device to carry out the combination.
Justice Felix Frankfurter: What you're doing is -- you're saying if no divestiture is decreed, then there is no merger.
Is that it?
Mr. John F. Davis: Well, there was no merger between the Katy, the St. Louis to San Francisco.
Then the main -- the -- the main people who combined, there was no merger --
Justice Felix Frankfurter: No, no, I (Voice Overlap) --
Mr. John F. Davis: -- insofar as there was a combination, this Court said that must cease.
Justice Felix Frankfurter: That case came here again as I remembered for construction of what it was to the Court really decided, isn't that true?
Mr. John F. Davis: If so, I don't -- I don't have notes on that.
I don't know.
Justice Felix Frankfurter: I was wondering whether they said what they meant after which.
Mr. John F. Davis: Well, I shall -- I -- I hope that they did but they said what I have just said.
Justice Felix Frankfurter: Well, I -- I do think it came here, you know.[Laughter]
Mr. John F. Davis: I want to say a very brief word about the impact of divestiture on -- on the interest of the various stockholders.
If in some comments that if it were divested in this way or that, that would take a long period of time, some, say, 26 years if it's -- if the dividends are in such number or if you sell it in a certain amount, it'll take 20 years.
Our plan, the plan we proposed in the District Court called for 10-year period for the divestiture, with a right to approach the Court if more time was necessary.
The period of 10 years although it was thought appropriate at the time in the law, I think it is appropriate now, is not the essence of our -- of our plan.
As far as I'm concerned, I think that if you -- if the effects are so bad that you need more time to separate this thing, it's much better thing to give more time for the separation.
But to get it started on its way rather than to have a continuation of this relationship into the indefinite future and that is what their plan suggests.
So that if it is only a question of whether it should be 10 or 20 years, I think this -- this is the kind of a thing that can be worked out with the Court, with the District Court.
I think it's just exactly the kind of thing where a District Court's discretion is -- is important and -- and where they can -- where they can readily -- really appraise the evidence.
Now, just one -- just one more point on this and that is with respect to the impact of the -- of the tax, income tax on the -- on the stockholders.
I want to point out that if we're thinking of little stockholders, we're going to be embarrassed to pay their taxes.
That the evidence which was introduced by the appellees in this case is that for holders of stock from 1 to 100 shares of du Pont, and 100 shares of du Pont is -- is a sizeable investment itself for over $200 of share, but the holders are from 1 to 100 shares, the average increase in income tax will be $50 a year.
Now, actually just taking by a number of stockholders --
Justice Potter Stewart: Is that assuming that they didn't know any other securities or --
Mr. John F. Davis: No, this is -- this is from an analysis which the appellees made of their income from all sources.
They'd sent out --
Justice Potter Stewart: (Voice Overlap) I see.
Mr. John F. Davis: -- questionnaires so that they assume they would be in an income bracket of 16,000 to 20,000 from the ounces that they got.
Justice Potter Stewart: This was not a theoretical projection.
This was a sampling of actual facts.
Mr. John F. Davis: That's right.
A sampling of actual fact, they found that -- that in this group, they get $16,000 to $18,000 income and that the increase in the -- in their income and the tax would be $50.
Now, actually, if you're going to look at numbers and I don't propose that numbers are the only things that are important, but there are -- of the -- of the holders of the -- total of holders of the du Pont stock, there are 201,000 who hold 1 to 100 shares, they're -- which is, what, about 87% or something like that.
87% of the number of stockholders so that number wise, we don't -- we don't have to be worried about the little stockholder who's going to have to sell.
I mean, the truth of the matter is the impact on him -- even the impact on the -- on the steepest kind of divestiture would be about $50 a year if it's done over a 10-year period.
The impact on the very large stockholders will be very large.
Their income tax will be -- will be up in the 89% bracket.
There is a list of this income -- of these stockholders in -- in the record.
And if you run through that list, you will find that these are the stockholders who have been associated with the du Pont Enterprise or their families have been, from the very beginning.
So that these are the people who in effect have profited by this relationship in the past and if anyone is -- is to stand the loss in connection with the divestiture, these are the people who can best afford to stand that loss.