CONFERENCE RECONVENED WEDNESDAY, FEBRUARY 12, 1941

Paragraph (33), page 11

The committee suggested the elimination of the word “suggesting” in line 1 The staff stated that this paragraph was not intended to limit the right of companies to post prices at its own stations. Such posting would not be consid ered as a price "suggestion." As phrased it is broad enough to prevent conpanies from suggesting retail prices for use at other than company-owned sta tions. It appears to the committee that such practice is entirely lawful unless some penalty is inflicted for failure to adopt the suggestions. The staff was requested to rewrite the paragraph so as to make it clear that only improper and coercive suggestions would be banned.

Paragraph (34), page 11

This paragraph seems unobjectionable.

Paragraph (35), page 12

This paragraph seems unobjectionable as now drafted. The staff suggests that the scope of the paragraph be broadened.

Paragraph (36), page 12

The word "concertedly” should be inserted before the word “influencing” in line 1.

Paragraph (37), page 12

This paragraph presents a serious problem. While the staff's objective seems desirable, the independents would not be bound and the result would be that the independents would get all commercial business. The staff and the committee will give this matter further thought. The committee was asked to consider the problem raised by rural service station operators who complain that the majors install tanks for the farmers and sell them gasoline at less than the retail price.

Paragraph (38), page 12

This paragraph seems unobjectionable.

Paragraph (39), page 12

The word "or" in line 1 should read "and."

The paragraph is intended to eliminate the practice of excluding truck lines from participation in joint and proportional rates. The committee pointed out that the ICC will not permit the practice thought desirable by the staff and for this reason requested that the paragraph be eliminated. The staff will give further study to this legal question. There was no objection in principle on the part of the committee to the objective of the staff as now stated in the paragraph. Mr. Berquist believes that the paragraph should be broadened to prohibit individual refusals to participate.

Paragraph (40), page 12

This paragraph must be read in the light of section XI on Page 16 which is objectionable to the committee. Furthermore, if finally agreed upon the language should be changed to permit reasonable tolerances from specifications which recognize climatic and other changes of conditions, or to permit posting of minimum specifications.

Paragraph (41), page 12a

The staff concedes that every major company individually may sell its products at any price it can get, provided that there has been no unlawful concert of action. The objection arises from the belief by the staff that the industry adopts a common method of fixing sales prices and by agreement uses arbitrary, uniform and fictitious factors in making its computations of its sales price. The committee suggested that the paragraph be prefaced by inserting the phrase "combining, conspiring or agreeing to charge". There was considerable discussion respecting possible methods of computing delivered prices but no specific suggestions were made by the staff, except that uniform formulae in existing contracts be eliminated.

Section IV, page 13 (mandatory provisions)—Preamble

The words "as such" should be inserted after the word "employees" in line 3 The words "are ordered and directed forthwith" should be deleted and the phrase "agree forthwith" substituted.

Section IV, paragraphs (1) and (2) and section V, paragraphs (1) and (2), page 13

Preliminarily, the staff stated that it is proposed to treat the antitrust and pipeline cases as a single issue, and to endeavor to settle the entire controversy by one decree to be entered in the antitrust case; that the pipeline cases could not be dismissed, however, without Mr. Jackson's approval of the penalties, if any, to be enforced.

Mr. Asbill then stated that he believed that the 8 percent rate of return tentatively fixed by the ICC, in his opinion, represented the ICC's idea of maximum tariffs only, and that the ICC would permit lower rates to be filed.

The staff said that paragraph 1 was not intended to require any company to store oil except as an incident of transportation.

The committee then pointed out that there are now pending two cases (crude and product lines) before the ICC in which the controversial matters are directly in issue: thatt all these questions should be determined by the ICC. Mr. Asbill replied that the ICC had no authority to settle the rebate question, and that the Attorney General had equal authority with the ICC to enforce (but not to fix) reasonable rates.

The staff realizes that there are different practical considerations between crude and product lines; that it is more difficult to solve the problem with respect to product lines.

The staff had no answer to the question why any company should be asked to transport oil for others at cost.

The committee stated that if the staff intends to stick to its position that pipeline operation must be at cost, the negotiations may as well cease; that if the staff has in mind a reasonable rate of return, the explorations should be continued. It was made clear that the industry itself is divided upon the question whether high or low pipeline rates is more advantageous economically.

Mr. Asbill stated that the Department had no definite views; that there was no present intention to force divorcement; that compliance with an ICC rate order would not preclude the Department from later suing on the theory that there had been rebates.

The committee stated that if the majors could not in a settlement obtain security for the future from rebate attacks, the negotiations might as well cease. Mr. Asbill said that if the Department agreed to a specific rate of return (for example 8 percent) and earnings increased, tariffs would have to be lowered; that a future Attorney General would be bound by a decree of court in the antitrust suit approving the agreed rate of return and holding it not to constitute a rebate thus giving the industry the security desired; that if conditions changed the decree could on petition be revised upward or downward.

The obvious impracticalities of the existing ICC order were pointed out by both the staff and the committee.

The staff stated that the economic aims of the Department were (1) to require pipelines to be operated as common carriers in fact and (2) by means of lower rates to give the independent producers an opportunity to ship to the market if he so desired.

The tax saving to the industry from lower rates was stressed.

The committee contended that the only purpose of high rates is to receive from independent shippers a compensatory fee for the service performed; that if there was no possibility of carrying oil for others, rates could be cut to 10 percent of present rates, with resulting large tax savings.

It was pointed out that any rate of return approved by the court would of necessity be based upon a rate fixed or approved by the ICC; that others than pipeline companies had an interest in the rates; that railroads might complain to the ICC which might order the pipelines to increase their rates; that any decree would have to be sufficiently flexible to protect the pipeline companies in such event.

It was suggested by the committee that forcing a major with a full pipeline to carry oil for independents at low rates does not help the consumer because the major is compelled to ship part of his oil by rail at a high rate, thereby increasing the major's costs.

Section VI, page 14

The purpose of this paragraph is to compel defendants which do not now file tariffs with the ICC to do so in the future.

It was pointed out that nondefendants are not affected and would produce an unfair result.

The question was raised whether any company which so desires, cannot now withdraw as a common carrier and become a mere plant facility. The staff be lieves that the ICC would take immediate action if this were done. It is debatable whether the last Valvolene case decides this point.

Section VII, page 14

The words "as such" will be added in line 2 after the word "employees."

The paragraph is subject to the same objections made with respect to paragraph (15) on page 7.

Section VIII, page 14

This paragraph is subject to the same objections made with respect to paragraphs (15), (21), and (25) on pages 7, 9, and 10.

Section IX, page 16

The words "as such" will be added after “employees" in line 2.

The phrase "commission agents" in line 4 is objected to.

The phrase "result in requiring" in line 6 is objected to.

Substantially all problems raised by subparagraphs (1) to (13), inclusive. have previously been discussed and changes in prior paragraphs will cause changes in section IX.

In the concluding clause the phrase "as further ordered and directed" should be eliminated and the word "agrees" substituted; "30" days should read "90" days.

Section X, page 16

The words "as such" should be inserted after "employees" and the phrase "are ordered and directed" should be eliminated and the word "agree" substituted. Other problems raised by this paragraph are discussed under paragraphs (15), (21), and (25) on pages 7, 9, and 10. However, the paragraph as drafted is more restrictive than the Robinson-Patman Act and should be rewritten.

Section XI

The words "as such" should be inserted after "employees" and the phrase "are ordered and directed" should be eliminated and the word "agree" substituted. The paragraph was objected to in principle by the committee who explained to the staff that the same plan had proved impractical when required under State laws and had been abandoned by State legislatures.

The staff argued that the public was becoming specification conscious and that the adoption of the practice desired would help to cause better competition on quality of product.

The conference ended with a discussion of possible penalties in the pipeline suits. Assuming a satisfactory settlement of all issues involved in the antitrust suit the staff will recommend to the Attorney General and the Solicitor General the waiver of any claim for damages.

The committee again emphasized that it will be more difficult to reach a reasonable settlement of the product line problem than the crude line problem; that a minimum tender which is reasonable for crude lines might be impractical with respect to product lines because of loss by contamination; that 25,000 barrels is generally considered the smallest practical tender for product lines.

CIT: JS

2/17/41

MEMORANDUM RE METHOD OF TERMINATING ANTITRUST AND PIPELINE SUITS AGAINST THE OIL INDUSTRY

The pipeline litigation involves no serious problem. If, as, and when a plan has been agreed to in the Mother Hubbard suit and put in the form of an adjudication or decree and actually entered by a court, the pipeline cases will be discontinued. In order that the record in each of these cases will show that the same issues cannot be raised again, the defendants should insist that decrees of dismissal containing self-explanatory preambles be entered. Any such decree would have to be approved by Thurman Arnold and also by the Solicitor General and the Attorney General.

Mr. Arnold's ideas of the proper method of disposing of the antitrust suit are obscure to the staff, to the Exploratory Committee and probably to Mr. Arnold himself. What he has said and repeated on several occasions is that the defend

ants should file answers or amended answers denying the averments of the bill, averring the immateriality of the allegations and setting up a plan for future operation. Upon a record made in this manner the court would be asked to enter a decree. Since the defendants, having approved the plan and being desirous of the termination of the litigation, will not object to the entry of a decree, it is obvious that the litigation must be terminated by a consent decree.

The usual disadvantages of a consent decree are: (1) an inflexible method of operation is prescribed which specifically prohibits conduct of business in accordance with specified and condemned practices; (2) there is a possibility, if not a probability, that each defendant's books, records, and method of operation will be continually investigated by the Department of Justice for the purpose of determining whether restraints imposed by the decree are being adhered to; (3) directors and officers conduct future business with the continuous threat of a contempt proceeding hanging over them.

If these three principal disadvantages are to be eliminated in the method selected for termination of the antitrust case against the oil industry, the consent decree must: (a) terminate the litigation; (b) contain a provision that the court does not retain jurisdiction for the purposes of future modifications; and (c) in effect, constitute a dismissal of the bill of complaint.

We are not sufficiently sanguine to believe that Mr. Arnold in his loose talk about eliminating the objectionable features of a consent decree would agree to any such result.

We think that Mr. Arnold had in mind the type of procedure recently adopted in the automobile finance cases.

The facts of this case were briefly as follows:

In 1938 Ford, Chrysler, and General Motors and affiliated finance companies and 59 individual officers and directors were indicted for violation of the Sherman Act. The principal allegations of the indictment were: (1) defendants discriminated against independent finance companies; (2) defendants coerced dealers to do their business with affiliated finance companies; and (3) defendants by their method of operation obtained exhorbitant, excessive, and concealed profits from the purchasers of financed cars.

The decree contained a section imposing prohibitions against practices which Ford and Chrysler conceded to be in violation of the Sherman Act. General Motors refused to accept a consent decree and went to trial and the case against it has not yet been finally decided.

The novelty of the Ford and Chrysler decree arose from the fact that two additional sections were included. The first provided in effect that the restraints imposed would not be effective if General Motors was acquitted. (The plan of settlement therefore depended upon a subsequent contingency, i. e., the conviction of General Motors.) Second, a method was set up under which independent or competing finance companies who were not defendants were permitted to "register" with the court, thereby obtain certain advantages in their dealings with the defendant finance companies and become at the same time contingently restrained by the provisions of the decree affecting Ford and Chrysler practices.

In order fully to understand Mr. Arnold's meaning, we believe that the recent automobile finance case must be read in conjunction with such prior cases as United States v. Columbia Gas & Electric Corporation (104 C. C. H. Federal Trade Reg. Serv., par. 7428). In that case the court entered a consent decree enjoining numerous practices of the defendant, but specifically approved certain other practices, the legality of which had been attacked by the Department and was not entirely free of doubt.

We have been unable to find any case in which the Department agreed to the entry of a consent decree which terminated the litigation, eliminated future control of the defendant's business by the court, or excluded the possibility of a citation for contempt.

In his casual lectures to the industry, Mr. Arnold referred to International Harvester and International Business Machines cases.

In the Harvester case a consent decree was entered and the court retained jurisdiction. From the point of view of the defendant, the decree turned out to be beneficial, because later the Department sought to reopen the decree and impose additional limitations. The Supreme Court held that under the circumstances of the case it could not do so.

We have carefully read the International Business Machines case and find that the only bearing that it has on the problem under discussion lies in the

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fact that certain defendants did not go to trial and agreed to be bound by the terms of any consent decree entered against the remaining defendants. (For example, all the defendants in the oil case might now agree with the Depart ment to accept any consent decree later entered against Standard of Jersey.) Further light is thrown upon Mr. Arnold's statements by the packers consent decree of 1920 discussed in Swift & Co. v. U. S. (276 U. S. 311). In that decree the preamble read as follows:

"[the defendants] maintain the truth of their answers and assert their innocence of any violation of law in fact or intent, they nevertheless, desiring to avoid every appearance of placing themselves in a position of antagonism to the Government, have consented and do consent to the making and entry of the decree now about to be entered without any findings of fact, upon condition that their consents to the entry of said decree shall not constitute or be considered an admission, and the rendition or entry of said decree, or the decree itself, shall not constitute or be considered an adjudication that the defendants or any of them have in fact violated any law of the United States."

In spite of this language, injunctive provisions were included in the decree. The whole problem is discussed at length in two articles in volume LIII, Harvard Law Review, pages 386 and 415.

The apprehension felt particularly by the Phillips Co. that an adjudication in the antitrust case establishing the legality under the Elkins Act of a specific rate of return from pipeline operations would not bind the Government, seems unwarranted.

U. S. v. International Harvester Co. (274 U. S. 693), stands for the proposition that a consent decree binds the United States just as much as it binds the defendants.

MEMORANDUM OF MEETING OF THE 22 MAJOR DEFENDANTS IN THE UNITED STATES VERSUS OIL INDUSTRY SUITS IN THE OFFICES OF THE AMERICAN PETROLEUM INSTITUTE, NEW YORK CITY, 10:30 A. M., FEBRUARY 20, 1941

Forty-six members of the industry, as given on the attached sheet, met at the American Petroleum Institute in response to a call by Robert H. Colley, acting chairman of the group.

Mr. Colley called the meeting to order and stated that the purpose of the meeting was to receive the report of the exploratory committee; second, to decide whether they wished to continue the negotiations with the Antitrust Division of the Department of Justice; and, third, to select the committee to carry on such negotiations.

The chairman stated that a résumé of the subject matter discussed between the industry's committee and the Justice Department staff had been prepared and circulated by the exploratory committee to the 22 principal major defendants and that opportunity would be given for questions and comment. He assumed. however, that each representative had familiarized himself with the material and was in a position to act upon the motion to continue negotiations. The chairman stated that unless there was anyone voicing a contrary opinion he would assume that a continuation of the negotiations was the wish of the industry. There being no voice raised the chairman declared it the will of the industry to continue the negotiations.

The chairman then said that the selection of the committee was in order and that he hoped and expected that the industry would have the wisdom to continue the committee that had operated so successfully in the initial contacts with the staff, and the motion was made and seconded that the present committee be authorized to continue. The motion was put and carried unanimously.

The chairman stated that if it was satisfactory to the assembled group he would suggest that the chairman be empowered to augment the committee, or to replace vacancies that might occur, in his discretion, in order to effectuate the work. Unless there was some objection he would assume that such procedure was satisfactory. No objection was offered.1

The chairman then said that Colonel Klein had discussed with him that some conditions interfered with his continuance as chairman of the negotiating committee and the chairman said he would ask Colonel Klein to speak for himself and tendered the floor to Colonel Klein.

1 The chairman said that he presumed the assembled group had no objections to leaving the selection of a chairman for the negotiating committee to that committee and there was no objection voiced in this procedure.