The opinion of the court was delivered by: WEINFELD
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* provides:
" * * * No person at the same time shall be a director in any two or more corporations, any one of which has capital, surplus, and undivided profits aggregating more than $ 1,000,000, engaged in whole or in part in commerce, * * * if such corporations are or shall have been theretofore, by virtue of their business and location of operation, 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. * * * "
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 Goodrich store was $ 145,000 in each of the aforesaid 97 communities.
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.
Instead, and because of such control, the healthy competition of the free enterprise system had been stifled or eliminated. Interlocking directorships on rival corporations had been the instrumentality of defeating the purpose of the antitrust laws. They had tended to suppress competition or to foster joint action against third party competitors. The continued potential threat to the competitive system resulting from these conflicting directorships was the evil aimed at. Viewed against this background, a fair reading of the legislative debates leaves little room for doubt that, in its efforts to strengthen the antitrust laws, what Congress intended by § 8 was to nip in the bud incipient violations of the antitrust laws by removing the opportunity or temptation to such violations through interlocking directorates.
The legislation was essentially preventative.
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.
I do not think this argument is valid. While it may be acknowledged that the clause is not crystal clear, to infuse it with the meaning contended for by the defendants would defeat the Congressional purpose "to arrest the creation of trusts, conspiracies and monopolies in their incipiency and before consummation."
This conclusion is compelled because of the futility of trying to decide whether a given hypothetical merger would violate the pertinent sections of the antitrust laws.
Such a decision would involve a consideration of many factors, not the least important of which is "whether the action [viz., the contemplated merger] springs from business requirements or purpose to monopolize".
These factors can be applied only in an actual case and not in a hypothetical situation. Thus, the Court in applying to the "so that" clause the merger test contended for by the defendants, would, amongst other items, have to analyze the intent and motivation of those who are hypothetically undertaking the merger. Obviously this could be done only if the corporations involved were actually, and not hypothetically, contemplating merger, for the nature of one's purpose in doing an act cannot be determined unless he, in fact, intends to do it. The Court would be called upon to determine the nature of a non-existent purpose. This difficulty suggests that the merger test would result in complete nullification of the law prohibiting interlocking directorates in all but the rawest situation, as where, for example, the two corporations concerned had between them the entire business in their field in the United States and it was clear that no valid business requirement could warrant a hypothetical merger. The government's position presents no such difficulty. To accept its workable per se test, instead of the defendants' alternative, permits the prohibitory features of § 8 to be administered with the full scope which the legislators must have contemplated.
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:
" * * * No person at the same time shall be a director in any two or more corporations * * * engaged in whole or in part in commerce,
* * * if such corporations are or shall have been theretofore, by virtue of their business and location ...