WEINFELD, District Judge.
Plaintiff moves for summary judgment in an action seeking inter alia an order directing the resignation of the individual defendant as a director of one or both of the corporate defendants because he is alleged to be an interlocking director in violation of § 8 of the Clayton Act, 38 Stat. 733, as amended, 15 U.S.C.A. § 19.
The relevant portion of § 8
The following facts are admitted by defendants: that Sears, Roebuck & Company (hereafter called Sears) and The B. F. Goodrich Company (hereafter called Goodrich) are New York corporations of the required size; that the defendant Sidney J. Weinberg (hereafter called Weinberg) has been for many years, and now is, a director of both Sears and Goodrich; that each corporation is engaged in commerce as the term is used in the Clayton Act; that they are competitors in the sale of the following items at retail in commerce as the term is used in the Clayton Act: (1) refrigerators, washers, stoves and other home appliances; (2) hardware; (3) automotive supplies; (4) sporting goods; (5) tires, tubes and recaps; (6) radios and television sets; (7) toys.
The defendants further admit that Sears and Goodrich are competitors in the sale of the aforesaid seven categories of items in 97 communities located in 31 states of the United States through 110 retail stores of Sears and 112 retail stores of Goodrich, located in the same communities; that for 1951, the approximate total annual dollar volume of sales of the said items by Sears' 110 retail stores in the 97 communities was in excess of $65,000,000, and the approximate total annual dollar volume of sales of the same items by Goodrich's 112 stores in the 97 communities was in excess of $16,000,000; and that for 1951, the approximate average annual dollar volume of sales of each of the seven items per each Sears store was $592,000, and per each
The basic issue presented for decision under the admitted facts is whether Sears and Goodrich are "competitors, so that the elimination of competition by agreement between them would constitute a violation of any of the provisions of any of the antitrust laws." If so, then § 8 forbids Weinberg to be a director of both. The case is one of novel impression involving the first construction of this section of the Clayton Act since its passage in 1914.
Defendants in substance contend that the clause just quoted severely limits the scope of the prohibition upon interlocking directorates; that it requires a finding that a hypothetical merger between the two corporations would violate the antitrust laws before the same director is forbidden them; that plaintiff has not demonstrated that the combined position of the two corporate defendants in the sale of the particular commodities is such that there is a "reasonable probability that they could together substantially restrain trade or create a monopoly" and that, therefore, the plaintiff cannot succeed since a merger would not be violative of the antitrust laws without such a showing. In essence, the defendants would apply the merger test as spelled out in § 7 of the Clayton Act, 15 U.S.C.A. § 18.
The plaintiff urges to the contrary that "a violation of any of the provisions of any of the antitrust laws" is not limited to a merger or acquisition situation; that it includes agreements to fix prices or divide markets; that such agreements are illegal per se; and that, therefore, Sears and Goodrich may not retain in their service the same director since an agreement between them to fix prices or to divide territories would constitute a per se violation of § 1 of the Sherman Act, 15 U.S.C.A. § 1.
The Senate and House Reports on the various proposals antecedent to the passage of § 8 of the Clayton Act and the Congressional Debates shed little light on the precise point at issue. However, the broad purposes of Congress are unmistakably clear. Section 8 was but one of a series of measures which finally emerged as the Clayton Act, all intended to strengthen the Sherman Act, which, through the years, had not proved entirely effective. Congress had been aroused by the concentration of control by a few individuals or groups over many gigantic corporations which in the normal course of events should have been in active and unrestrained competition.
It is in the context of this history that defendants' argument must be evaluated. They argue that to read the "so that" clause as the government urges does violence to the language of § 8. They say that the application of the per se rule to the "so that" clause renders it meaningless since § 8 minus the clause would still bring about the result contended for by the government.
Nor does the use of this test render the "so that" clause meaningless, as defendants urge. Stripped of the clause, § 8 would in essence read as follows:
By its terms, such a provision would forbid an interlocking directorate to corporations engaged partially in interstate commerce and partially in intrastate commerce, even if they were competitors solely in intrastate commerce. It would involve the Constitutional problem as to whether Congress had the power to forbid a common director to corporations which were purely intrastate competitors solely on the basis of their engaging, but not competing with each other, in interstate commerce. It is the "so that" clause which precludes such an interpretation and, hence, such a problem by requiring that the corporations compete with each other in interstate commerce before the prohibitory features of § 8 apply.
Thus, the clause covers the type of situation involved in Addyston Pipe & Steel Co. v. United States, 175 U.S. 211, 247-248, 20 S.Ct. 96, 109, 44 L.Ed. 136, where the Supreme Court held the injunction granted by the court below to be too broad because it could be construed as applying to "commerce wholly within a state" and "modified and limited [it] to that portion of the combination or agreement which is interstate in its character."
No member of the Senate stated his agreement or disagreement with Senator Cummins' apparent belief that a consolidation was the only means by which competition might be eliminated within the meaning of § 8.
On September 1, 1914, he offered the following amendment in its stead:
This amendment was defeated on the day of its introduction by 44 to 15 with 37 not voting.
It must be borne in mind that Senator Cummins deemed the proposed § 8 woefully inadequate, "a half hearted and feeble way" to meet the menace of interlocked directorships, and was placing his own interpretation upon it to emphasize what he considered its shortcomings to win support for his amendment.
Are we to infer from the amendment's rejection that the Senate agreed with Senator Cummins' interpretation, expressed five days earlier, and acted as it did because it intended the section to apply only the consolidation test? We might with equal reason infer that his interpretation was not in accord with the understanding of the other Senators, that they did not see the difficulty he saw and that they, therefore, rejected his amendment because they saw no need for it.
These possibilities assume that rejection of the amendment turned on the question of the consolidation test. It is just as likely that the Senate found to be decisive one or more of the substantial differences between what was to become § 8 and the proposed amendment with its far more drastic provisions.
It is also to be observed that no member of the House supported the position of Senator Cummins. And not to be overlooked is the fact that President Woodrow Wilson had given leadership to the move to strengthen the Sherman Act. His strong views on the need to curb the evils of interlocking directorates had been the subject
Senator Cummins was in the role of an advocate. His individual expression of views, clearly calculated to give weight to his contention as to the inadequacies of the proposed § 8 and to gain support for his amendment, may not be considered as reppresentative of the understanding of the members of the House and Senate as to the meaning of the "so that" clause. It seems to me, therefore, that the legislative history of § 8 is inconclusive on the precise question before me. It affords no evidence permitting progress from speculation toward certainty.
It may not be amiss to direct attention to the admonition of Mr. Justice Jackson in Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384, 395-396, 71 S.Ct. 745, 751, 95 L.Ed. 1035:
Defendants also rely on the asserted necessity for reading § 8 in connection with § 7 of the Clayton Act, 38 Stat. 731, as amended, 64 Stat. 1125, 15 U.S.C.A. § 18, which deals with mergers and interdicts the acquisition by one corporation of the stock or the assets of another where the effect of such acquisition "may be substantially to lessen competition, or to tend to create a monopoly."
Defendants argue, as set forth above, that § 8 does not prohibit defendant Weinberg's directorship on the two Boards, absent a showing that the effect of an assumed consolidation between Sears and Goodrich "may be substantially to lessen competition, or to tend to create a monopoly", as set forth in § 7. The vital distinction between § 7 and § 8, however, is that the latter omits the § 7 test and promulgates its own substantiality standard in the form of the one million dollar size requirement. The omission of "substantially to lessen competition, or to tend to create a monopoly" from § 8 in contradistinction to its inclusion in § 7 and other sections of the same Act
Finally, defendants urge that no policy reasons have been advanced to show that the public interest is affected by the dual directorship of the defendant Weinberg on the Boards of the corporate defendants. They say that the government has failed to show that there exists between Sears and Goodrich any agreement fixing prices, restricting territories or otherwise restraining competition between them or that there is a likelihood of any such agreement; further, that no contention is made that the individual defendant's dual directorship has had the effect, or has the potentiality, of restraining competition. But this argument ignores the preventative nature of § 8. The instant case presents a good example of what the section was intended to avert.
The defendants have conceded that they are competitors in the sale of the seven categories of items at retail in commerce as the term is used in the Clayton Act. The sales of the seven items in the 97 communities amounted to $80,000,000 for 1951. The fact that this volume of sales may represent but a small percentage of either or both of the corporate defendants' annual sales, or a fraction of the annual retail sales volume of all distributors in the country of those commodities, does not militate against the undesirability of directorates common to both corporations. Actually, commerce in a particular product, using refrigerators as an example, while perhaps insignificant as related to the corporate defendants' total sales of all their other products or infinitesimal compared to the national retail volume, may, nonetheless, represent the total absorptive capacity of a given community within which they are competitors.
Assume that Sears and Goodrich are selling refrigerators competitively in a town of 30,000 population, the effective and easy means is at hand, through a price fixing agreement or the withdrawal of either Sears or Goodrich from the territory or an agreement not to sell the refrigerators in the same area, to eliminate or lessen competition. While the government does not charge that any such agreement has here been made or is contemplated, a director serving in a dual capacity might, if he felt the interests of an interlocking corporation so required, either initiate or support a course of action resulting in price fixing or division of territories or a combination of his competing corporations as against a third competitive corporation. The fact that this has not happened up to the present does not mean that it may not happen hereafter.
In summary, an agreement between Sears and Goodrich which fixed the prices at which they would sell the seven categories of items would eliminate competition,
Surely the sales of $80,000,000 do not come within the de minimis principle.
Since Sears and Goodrich are competitors, since a price fixing or division of territory agreement would eliminate competition between them, and since such an agreement would per se violate at least one "of the provisions of * * * the antitrust laws", namely § 1 of the Sherman Act, it follows that § 8 forbids defendant Weinberg to be a director of both corporations.
The government's motion for summary judgment is granted. Settle order on notice.