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7 IINITED tTATrA T. AHEEICA* TOBACCO CO. An "But, further, the purpose of the section limiting trustee's fees was to prevent the using up of the estate or exorbitant charges to be paid out,of the estat•.; and unless it could be shown that the possibility of charging for whatever services were performed for his own clients would prevent the trustee from working for the benefit of other cred- itors as well as his clients, there would seem to be no reason for stretching the letter of the law to include a case plainly not within its spirit. It may be that outside evidence or experience with individual trustees would show that an attorney representing a class of creditors might not be a suitable person to represent these cr,editors and others. But that question must be determined as one of fact, and the referee would have to make a finding as to competency in the individual case, rather than to exercise his discretion, upon general principles, as in the present instance. The certificate of the referee will be returned, with a direction that the trustee elected by the creditors be appointed by the referee, unless the referee determines that he is not a competent person to fairly rep- resent the creditors as a whole in this proceeding, under which circum- stances a new election must be called. UNITPm STATES .. AMERICAN TOBACCO CO. et aL (Circuit Court, S. D. New York. November 15, 191L) 1. M02POPOLIEa (f 20*)-A1ITI-TIIUaT ACT--C oA iOC I11 COS- PO=ATIOSCa. The fact that the common stock of two or more corporations, engaged In the same general lines of business, is oerned by the same body of in- dicidnal stoct;holders, does not alone create a condition of monopoly re- pueanant to the procisions of the'Sherman anti-trust act (Act July 2, 1S:i0, e. 647, 26 Stat. 209 [U. S. Comp. St. 1901, p. 3200ll. [Ed. Note.-For other cases, see Monopolies, Dec. Dig. ; 20.0] 2. 1tiLo1FOPOLIia (i 26*)-Asn-Tsusr scr-DiseotuTnon or ILLZGAL CoxanrA- Tioxs. In dLssoh-ing a combination adjudged to' be In restraint of interstate commerce and to constitute a monopoly in violation of the Sherman anti- trust act (Act July 2, 1890, c- 647, 26 Stat. 209 (U. S. Comp. St. 1901, p. 3.^OOj), and recreating from its elements a new condition In harmony with and not repugnant to the law, a court ts not required to reject a proposed plan of reorganization by creating new corporations between which the property and business of the illegai combination is to be dis- tributed because such corporations will be themselves largely capitalized. which does not In and of itself render them 1IIega.1, where the capitaliza- tion of neither is sumcient to enable It to dominate the business, and each Is restrained by a permanent injunction from combining with any other company; nor should further restrictions be imposed on them to which other corporations engaged in the same line of business are not subjected by the law. [Ed. Note.-For other cases, see Monopolies, Cent. Dig. f 17; Dec. Dig. j 26.'] b HosoPoLln ff 20}-Ai.•rI-Tausr Acl--Bvu ms Ylolrrroa-DneoLUrlos ol ILLLOAL Co][BIR.TIOlf. • Where a Circuit Court, pursuant to the mandate of the Supreme Court, has approved a plan for dissolution and reorganization of a combination c!'K oth.e caw ....aau topic g I rvioa Sa D.c. & Jm. Dlss. IlVI to dat., & IGp'r 1LCarr ~ - ~t'-:.-- - °- ~...,__.

„ w 0 U . adjudged to be ia rlolation of the Sherman anti-trasr act (Act 7nly 2. - 1890; e. 647, 25 atat 200 [U. S. Comp. St. 1901, .p. 32007), by distributing tts property between existing corporations and others organized for the . purpose, the court is without power to retain jurisdiction to retake pos- aession of the property from its new owners in case the plan adopted shall provn ansatisfactoq, or because of future violations of the law. [Lrd. Note.-pbr other casea, aee Monopolies, Cent DIS. 1 11; DeeG / De. i 2L.1 !, ?A[or<ororssa (; 26y-Aaa-Tiver Act%.-Svts rros DiswLaszoA or Intxaaz Cousrn.rion-Dscaas. By a decree of the Supreme Court the American Tobacco Company was adjudged an illegsl combination, in restraint of interstate commerce, and a monopoly, In violation of the Sherman anti-trust act (Act July $ 1850, e. 647, 28 Stat. 209 [U. S. C+omp. St 1901, p. 82001), and 29 indi- adual defendants, owning 56 per cent. of Its coqimon stock, were ad- ludged parties to such illegal combination. fihe cause was remanded to the Circuit Court to bear the parties "for the purpose of determining upon some plan or method of dissolving the combination, and of recreating out of the elements ,:.ow composing It a new condition which shall be honestly in harmony with, and not repugnant to, the taw.° The do- fendant company had property and assets of some $300,000,000 In value, and by means of its own plants, etc, and through other corporations In which it acquired a majority of the stock, controlled approzimately 80 per cent of the business of the United States In tobacco and allied products as well as a very large proportion of foreign business. The plan proposed, as amended and approved by the court, provided in out- line that the company should transfer plants and property to the vaine of over $100,000,000, dividing its previous business •between four cor• porationa, and with the proceeds of such property should retire Its bonds to the amount of about $100,000,000, thus reducing its working capital and assets; that Its nreferred :toclc exceeding its common stock, pre- vio noavotin should be given fuil voting rights; that the subsidiary an controlled compan es ivided and their pre- ferred stock given voting rights, so that the business previously con- trolled by It should be In the hands of 14 separate corporations; that its share of the stocl: of such corporations should be distributed among Its stockholders; that ail contracts or covenants between it and any of its subsidiary companies, or between It or them and third parties, in restraint of interstate or foreign commerce, should be abrogated. _The _ decree further contained sweeping e provisions restrain ch. r., l of the 29 i s a ter in 1 orationa, a.nd res stock each ot e or LavL commoa officere or dt~.+etoncatA *rnm into an7 comh{nart +. ~~~g~,_.~{t!h .a~other in violation.9f law- . [Ed. Note.-Ebr other cases, see Monopolies, Cent Dig. I 1T; Dee. Dig. 1 ~•1 In Equity. Suit by the United States against the American Tobacco Company and others. On settlement of final decree. See, also, 164 Fed. "124 - 221 U. S. 106, 31 Sup. Ct. 632, 55 L. Ed. 663. • W. W. Fuller, Lewis Cass Ledyard, De Lancey Nicoll, and Junius Parker, for petitioners. William B. Hornblower, John Pickrell, William 'V. Miller, and Morgan M. Mattn, for defendant Imperial Tobacco Co. of Great Britain and Ireland. S. ~r. Stroock, for defen4ant United Cigar Stores Ca •f or oth.r ¢as.a s.. sam. topie k f uvrosa ta D.e. !Am. Dtp• 19~'M to dat~ t 8.p'r Iad.~sa f t I

1. ~ DII1T=D s2.TZ8 V. Al0'r1"CAlf TOBACCO 00. m • ~. .:..;.. ; ` and James C Att Wist n Henr U ral A S Att Th G - f Americaa Tobaoco Co o cR ld S ' Asst. A. Gen., for the United States. M Joseph II for eommttee of holders of 6 per cent. . y., y , . e e , . . e otney Paul C. Schnitzler, pro se. Before LACOMBE, COXE, WARD, and NOYES, Circuit Judges. D. Walter Brown, for Ludington Cigarette Mich. Co. Carolina. E. J. Justicx and S. A. Woodard, for Farmers' Union of North Y... Tohn W Yerkes for Independent Totriacco Manufacturers' Ass'n. :7.~ :. J. Fraser Lyon, Atty. Gen. of State of South Carohna. William A. McQuaid, for Thomas Carmody, Atty. Gen. of State of New York. ea amue . 1 lamS, tty. o ommonw g en. , •. himself, T. W. Bickett, Atty. Gen. of State of North Carolina and bacco Ass'n, Cigar Manufacturers' Ass'n of America; and Independ- ent Tobacco Salesmen's Ass'n of America. :'= Henry H. Hunter, for Independent Retail Tobacconists. lth of Vir 'nia for • l f C S 1 W W'11' A G Louis D Brandeis and Felix Levy " for National Cigar Leaf To- Tobacco Co. L. C. Krauthoff, for certain holders of common stock of American . . . Morgan J. O'Brien, for committee of holders of 4 per cent. bonds of American Tobacco Co. Adrian Z Larkin, for coaunittee of holders of preferred stock of American Tobacco Co. ' - ~. . th 1- " The ro sed 1an was filed two weeks before this hearing ;~`. " and for recreat~ng out of the elements now composing it a new condi- tion which shall $onestly be in harmony with and not repugnant to by the American Tobacco Company for "dissolving the combination sed the Supreme Court we nave heard the parties upon a plan propo ....._: LACOMBE, Circuit Judge. In compliance with the directions of , it should be remembered that in its :` fendants offer to carry it out at which not only t~he ~ pi•ties, but any persons interested who might wish to express their views as friends of the court, were given portunity so to do. ' While the plan is correctly described as the proposed plan of the smce that corporation and the other de- American Tobacco Company , present form the plan is the fruit of much discussion. For upwards of two months successive conferences, in the presence of two or more members of the court, were bad between the Attorney General and the counsel and representatives of the Tobacco Company. Objections of the Attorney General were followed by modifications of the plan; some of its most drastic provisions being inserted in order to meet or avoid his criticisms. When a point was reached where such ad- justment of differences ceased to be practicable, a time was fixed for a hearing before the whole court upon the matters remaining in dis- pute. It was in the course of these conferences that a very material reduction of the holdings of the American Tobacco Company was brought about According to the plan as originally proposed, it was ~.

37~ : .. . . 391 rsnusa. ssrowrss , to retain in its treasury, its addition ta its working capital, sufficient to pay the outstanding bonds when they matured, about $104,000,000: To this the Attorney General at once objected, insisting that the pos- session of this enormous amount of money over and above its capital: invested in the tobacco business was fraught with possibilities of eva use; that it would be a standing menace to all competitors and could. not be tolerated. While not fully conceding the justice of this crit- icism, counsel for defendants promptly stated that they would under-. take to eliminate it. After. discussion of two different methods of so doing, they themselves at the last conference submitted the present' scheme, whereby half of the outstanding bonds would be.bought up (and canceled) at a price in excess of their present value, thus insur-' ing a willing surrender of them by present holders, and for the other, half securities of the new companies would be offered on a basis of • exchange which would insure acceptance of the offer. Since the plan was filed the market reports have given quotations of such bond; of the new companies "if and when." While such reports are possibly. not competent evidence in the trial of a cause, they seem to indicate that, if the present plan be approved, a very brief period will sufficw for the disappearance of substantially all the old bonds and the elim- ination from the treasury of the American Company of the money or securities required to make them'good at maturity. Thus the menace of holding an enormous amount of money, additional to what is legiti- mately used in the business of the American Company, will disappear. Upon the hearing, committees representing a majority of the holders of both issues of bonds appeared and requested the court to approve the plan. Out of the entire two issues, amounting to over $100,00Q; 000, one holder only of ten 4 per cent. bonds appeared to object on the ground that the terms offered for sale and exchange were not satis- factory to him. Inasmuch as he is under no obligation to accept the offer if it does not please him, and the security for his bonds, if the plan be carried out, will be ample, no modification of the plan is nec- essary to protect him or others similarly situated. A committee repre- senting a majority of the preferred stockholders also asked that the proposed plan be approved. The plan contains very many provisions, necessarily so because of the intricate nature of the combination of corporations about to be di.;- rupted. It would unreasonably extend this ' iort 'to ndertake to epitomize these provisions. An admirabI cl ar summa f them has been by the~pr~oponents, and may be co si ere as m the n.atue of, a'ecita to t isF opinion. Besides distributing among its _common stockho ers a arge-3fllnt of the stock it now holds in other com- panies, the American Tobacco Company will be split into three com- Qanies which, with a fourt se r~' ee of con ro y'e terican Cocn- pany t~rou h su istn u on o oc , w ivi e een t~ieins~Te ves n-pr9pert~± _now owned and . mess no ne e Amencan ' Comvanv. Each o~ these four companies willl thus ve a usiness which in txrsybranch. of it -will-falLmatezially~TVow?-Mrccuxage.suffi- ient to -conirQL There are similar disruptions among the accessory 1: I ~-~

i ~75 LPIITED BTATEi V..KEStc.a ToaAccu CO. companies, for the details of which the plan or the summary may be consulted. Some of those who have been heard in opposition insist that no plan is practicable; that in conformity with the statute as construed by the Supreme Court the only thing for this court to do is to seize the prop- erty through receivership, and proceed to sell it. This proposition need not be discussed. Evidently the Supreme Court believed some plan was practicable, or it would not have directed this court to in- quire into the matter. Upon the hearing other plans for dissolving and recreating were submitted, plans not merely suggesting modifications of the one pro- posed, but differing widely from it in form and scope. One of them calls for a division into upwards of 60 different companies, others for a distribution of properties by specific allotments, as in the case of a partition of real estate. No time need be given to a consideration of any of these, since there is no suggestion that the defendants will adopt them. On the contrary, counsel for the defendants expressly stated on the argument that they would not tuidertake to carry them out. Presumably they think they might better take their chances at receiver's sale. This court has neithet-authoritv iior *+owou to out and enforce any the owne 0 m p an orarn 0 rea w f justment e 0 ers 0 w of js r s;t!aw Q5 ration 0 d bonds. It the wouio be a srwaste ot time, tneretore, ly different from the one now before u§. not create the con diilnne nCg.g~}_}n rnr Oil ni sider any plan radi- finA hi plan would Di iiJ nr if g„ch_ations as we may *.GQs±ire as a condition of aivi nSa M ' a roval are not ac ted defendants, we must obe the mandate I of a cou , mus sezze the r ~n a ropna nvenient lots, applying the proceeds of the sale to e p t-af including the mortgages) or of such dividend thereon as the proceeds may allow, turning over the surplus, if any, to the owners of the equity. [ 1] The main _objestion to the proposed plan, an ob j ection found in every document filed by those who were given permission to be heard and which seemed to be principally relied on by those who spoke, is what is referred to as "common st ing." For instance, under the plan t new com 'es "Lorillard" and "I,i tt & M er " witt be formed out erican w ch w itse , us r uc ro su.e, conti eun existence. The same individ the present or ore common st 1[e7 N r.a wWb : ra:T,N E-,-. nmn OL CUL on stock of each of the ot ies. A'' ar eondition wii exist wi some, at least, of the other comyanies. It is contended that, although under such circumstances there mav be potential com- petition, no real competition can exist. With this argument or 'the reply to it, it seems to me this court is not concerned. In two recent cases (the Northern Securities and the Standard Oil) the Supreme Court found a combination of corporations to have offended against the anti-trust act. As a result of such finding there was a disintegra- tion of the combination. In each thesiisintettration left the stock of the separate entities into whi ~_ ~---- grouA was sp iTM:Pf.-.t t it in ®

rV l c tune body of individual stockhoTdts~ S'iace there was no disappro.il o sd~cated in either opinion, it would seem that the question w ther or not common stockholding is "re- pugnant to the law"--that is, repugnant to the anti-trust act-has been =- settled for this court by controlling authority. t u trne at the Supreme Court did not enter into any discussion of this question of "common pwnership," but its existence in both cases was so plainly manifest that it is diflicult to understand how the court could have approved of the new arrangement, unless it was satisfied that such arrangement did not contain the same vice as the old one, which they held must be terminated. If this be so, discussion here of the question whether or not common ownershi,p is within the prohibition of the statute would sarn`to be academic. This also seems to be the view of the povernnxn _v~discuss common 'kh~ldi~ ~iJ The next~hjection f~resented by those not parties who have been heard is directed to tl size of the companies. As an illustration, it appears from the statistics subeiitTidthrSf the total smoking tobacco _gQmpanies will have the following per- business of the country four centages : American, 33.08 • Lt ett &Mers 20.05 ; Lorillard, 22.82J ]R - T--r -- eyaQl r da ~ Tt ts msiste at ese arge companies should be still further disintegrated. The plan is further criticised because each of these companies is described as "completely equipped for the conduct of a large tobacco business," whereas existing independent concerns are none of them so equipped, and it is argued that there can be no effective competition until the several concerns which are to carry for- ward the business of the trust are put into the same condition as to size and equipment as now prevails among existing independent con- cerns. It is further contended that no company engaged in the plug tobacco business should be allowed to take over any cigarette or cigar business; that a compa.-iy taking a cigarette business should not take over any smoking tobacco, plug, or cigar business, and so on; that there should be a rearrangement of factories and brands, an intricate subject, which is fully discussed in a report from the bureau of corpo- rations, filed at the hearing. Manifestly the minuter the fragments into which the old combination is split, and the more they are prohib- ited from conducting business as other companies are free to conduct it, the less will be their ability to compete with such other companies. This whole line of argument deals with the economics of the tobacco business. No doubt the novel problem presented to this court is con- nected with questions of economics as well as with questions of law. But this is a court of law. .iei. a:-,)mmerce commission, and the legal side of the proposition would seem to be the controlling one. The true way to state the problem, as I understand it, is this: Assume that a group of corporations engaged in some business which conees within the domain of interstate commerce is charged before the Supreme Court with violation of the anti-trust act. Assume that they are or- ganized as the companies provided for in this plan will be; that they are similarly capitalized; that the business they do is similar in amount and similarly distributed; that their stock is similarly held, I

with the natural temptation to co-operate which such common stock- "' holding mg be calculated to induce, but are also curbed and restrained ~ from yielding to such temptation as these companies .vill be by the b~ injunction which will accompany our approval of this plan, a perma- ~ nent injunction binding all defendants in this suit and their prnvies, 4 and all new companies created under the plan and their pnvies. - ~ Would the Supreme Court hold that the condition thus presented was •`repugnant to the law"-that is,.repugnant to the anti-trust statute? A long and careful study of the last two deliverances of that court (in the Standard Oil Case and in this case) has convinced me that its an- swer to that question would be in the negative. I may be wrong in interpretation of its deliverances- if so, it will not be for the first time-but, since such is my conviction, there would seem to be no necessity for discussing on its economic side a question already settled ~ by controlling authority. ' Leaving for the moment the objections and suggestions of persons ;~ not parties, those of the Attorn General may be next considered. '` He does not attack the gene features or-die proposed plan with its division of the business controlled by the old company among 14 com- K+ ~ anies, nor does he contend that "common stockholding" is in and by a self an infractiod of the anti-trust statute. His suggested modifica- ~ tions are directed mainly towards providing u~safeguards for the future that the 14 com anies ma not so conduct theu operalionsas o vio e e provisions of the statuta at the following conditions to any approval of the ~ plan submitted be imposed-resumably the more convenient way to ~ impose most of such restrictions would be by injunctive provisions in- _ corporated in the final decree : ~ (1) That during a period of not less than five years no one of the ~ corporations among whi t e properties an usinesses now in the combination are to be distributed shall have .ofSceF-or director who is also an officer or director in any at su corporatioas. ~ This suggestion is approv~ (2) That the plan 9 so modified that rin ' al r.,mpany shall ~ dispose of, and, when the disintegration is complete, shall not re ~tain any of the stocks-of any of the accessory companies, aaexlt'b#-the acc~ panies s dispose o~Ia I of e s held by it of the principal and of each of the other accessory companies held by it. The general proposition here advanced is sound and is approved, but the last clause seems to be already provided for, and there is ob- ably an exception or two necessary to be made in the first clause by reason of the rights of outstanding stockholders not connected with the American Tobacco Company. Counsel can probably agree as to phraseology which will conform more especially to the facts. (3) That no one of the corporations among which the property and busiaesses no.v m e are to be distributed shall during the same period retain or employ the same agency for the purchase of tobacco sal o bacco or other tod as tha± r,fg,ny auc corporations should be a change of phraseology in is aa3-some of the

. .91 ~ 3?a 2!*_rsassaL sss+oa~s =--.: other requests. It is not eatire]y clear whether the ptoh ihibition is d- rected to all the 14 companies or only to a part of them. It should i 1 to all. After the words "ageaqr fnr tt- n„rct,ase' there-31OW a e words "in the United States." This request with such modifications is appr , aa may agree on a phraseology which will cover any possible eaceptions arising from the allotments in the ptan. (4) That no one of the co*rations among which the property and businesses now in distn'buted shall retain or employ the same clerical or other or '' ti n or occupy the same office or co tions. This ' roved with modifications suailar to those indicated as to the request nez abovf. (5) That no one of the corTorations among which the properties and businesses now in-t~e combinatson are to be distributed shall retain and hold capital stor3c in an other y part of whose st is so re man e d any of the other of the corporations among which such properties and businesses are to be distributed, or shall purchase or ac re anv st other of such co ratio is a rov ut should contain an exception, upon w it is un erstood counse are in accord, in the single case of the Porto Rican Leaf Tobacco Company. Counstl_mav_Agtee_upQn t~-phraseology to be inserted in the decree. (6) That no one of the- corporations among which the properties and businesses now in the combination are to be distributed shall, dur- ing a period o5 "ve vears, di ' i ac uire an stock in any on~ of the others of said co orations or urchase or acquire e prope or usmess, or , o any other of said corporations. Wi 9AM 0 0 LIAM-WE ~ the 14 com anies this reyuest is a4nr~rtd. A similar request is oun among those submitted by ot er oj rs, with an additional clause forbidding any one of these 14 companies "from makin loans or OrM WT-si-e-xtendi " ers. ts suggestion is r one and may be embodied in the Attorney General's re- quest. (7) To the end that th 29 indi ' ts in this suit shall not increase their eontrot over any of the corporations among which the propertio and businesses now in the combination are to be dis- tributed, pursuant to su e~en an severa y en- join3'from, at any time within five yean from the a of the decree, a.cquiring, directly or m r or eouitable owaershiv off any oun o s ocic ui an rations in addition to the amoun w ey will respectively hoI i an when the plan shall have been carried out as proposed. This is appbut the phraseology should be modified as already indicated. Upon the argument the Attorne~ General stated that he would be willing to substitute "tlp,' for "five years." Such change seems desirable as it would p_robably result in more rapid distribution of pres t o There should also be a proviso excepting from .,° Ca ~o v cn ~ . . ~._.-.:~

i crrrsW sr.rs.. scMu,.x aoa.cao CO. Yt9 the operation of tbis prohibition any and all sales and purchases by these 29 iadividuals inter sese, the phraseology of which counsel may agree upon. . _ It may not be a wise public policy to make it easy for fore-Waers to take over the control of the British-American Company, with its large and growing business in foreign countries, notably in South Africa and the Far Fast, now in American hands. That is what would proba- bly happen if the 29 defendants be prohibited from increasing their holdings of that stoc]c We do not undertake to determine this ques- tion of public policy, which is one for the consideration of the execu- tive branch of the government. It is suf6cient to sky that a further ex- ception of the shares of that company from the operation of this para- graph would not in our opinion make the plan repugnant to the law. (8) That the preferred stock of the American Cigar Company, ag- gregating in book value $2,53Q216•69, held y~ncan Snuff Company, and the stock ~_bonds of American Tobacco Company, held by the American Snuff Company, referred to on page 11 of the plan (footnote "a'),1 be sold Qr otherwise be dis sed of within one year, instead of xhree , as propose -me p an, wrth leave to de- fendants to apply to court to extend such period for not more than two years. ,~ There seems to be no goodsrea~oa ~ar modifying the plan in this . particular. (9) That in the distribution of the properties and businesses now held in the combination pursuant to the plan of disintegration no cor- poration shall be allowed to acquire ro n'ble or inta'ble, whi wcd mveswi as muc as 40 r cent. in volume or in value o any e o the o - usiness. This is substantially what the olan now provides The few instanc- es in which the 40 per cent.~lim tai tion is exceeded result from inher- ent difficulties of distribution, which it seems impracticable to elimi- nate. These instances are so few, and the excess in each instance so small, as to be fairly negligible. The :°,:._st is denied. (10) That theks.of the Li ett EL yerM s"1'obacco Company and P. Lorillard Company, provided to e plan, "bl! e si e with the Guaranty Trust Company of New York as the agent or depository of this court in this cause for the purposes speci- fied in the plan, and that at the end of the period designated the court make an order for their further disposition. That in the meantime no voting right with respect to such stock shall be exercised, except as the eourt may from time to time order. All of this is already s~ntly provided for in the plan. (11) That all the covenants m any way re~sn~g he-sight of any company or individual m~combination to uyb , manufacture, or sell tobacco or its products should be rescinded bj-*c-jMfmative action of the respective parties thereto, w`Tio e parties to this suit. This is appr~o~~ved~, except that there should be a proviso excepting certain foragn b~ess, the phraseology of which counsel may agree upoa _... m s.r.Ma . - ..~.~~_

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