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The one great rule of composition is to speak the truth. THOREAU We will serve no group or party but will hew hard to the truth as we find it and the right as we see it. The TeY a Observer _ral Weekly Newspaper Vol 51 ,AS, SEPTEMBER 18, 1959 10c per copy No. 24 A History of rexas Anti-Trust in Oil \(Fourth in a series on the ecoAUSTIN No sketch of economic and political forces in Texas would be complete without a review of the history of antitrust laws, their application and attempted application by the state attorney general’s office, and the steady centralization of the oil industry that has continued as the dominant corporate folkway throughout the 70 year history of judicial monopoly regulation. AUSTIN Texas’s last broad-scale anti-trust prosecution against major oil companies occurred in 1955 and involved a Supreme Court decision written by a man prominently mentioned as a candidate for governor, Will Wilson, the present Attorney General. Involved were nine major oil corporations and one minor company: Magnolia, Gulf, Sinclair, Texas Company, Humble, Cities Service, Standard of Texas, Phillips Petroleum, Continental, and Arkansas Fuel Oil Company. Styled State of Texas vs. Arkansas Fuel Oil, et al., the case was fought, amid unusual circumstances, to the State Supreme Court, where the judgment on behalf of the defendants was written by Judge Wilson. In detailing the scope of the case, the state’s brief said, “The state’s cause of action is predicated primarily upon the existence of identical tank wagon prices, the uniform and simultaneous price increases and the substantially identical business practices adopted by all the defendants … a mutual participation in the activities of the same trade association and more particularly in the activities of the American Petroleum Institute, which have resulted in the development of substantial uniformity of action with respect to marketing policies; a practice of engaging in exchange of gasoline with each other and the subsequent marketing of such exchanged gas under the trade and brand name of the recipient defendant, which suggests a mutual interest and close cooperation with each other … a control and domination of a large percentage of the total business in the manufacturing, refining, marketing and retailing industry in Texas … which offered an opportunity and ability to achieve and to maintain an agreed pricing structure at the tank wagon level … a number of factors indicative of the artificiality of the tank wagon prices, including the maintenance of higher tank wagon prices than in other states more distant from the production of crude oil and refineries located in Texas; the In Texas, the history of antitrust is an old one, dating back to 1889 when the state became one of the first in that era of trusts to attempt to restrain the formation of industrial combination. The passage of Texas’s pioneer anti-trust statute predated the federal Sherman Act by one year and the state’s first substantial victory over Standard Oil Company came in 1907, four years before the U.S. Supreme Court ordered a partial breakup of the Rockefeller oil empire on the national level. But since that efficient beginning, prosecution of anti-trust has Will Wilson `Not Enough,’ Said the Judge maintenance of uniform tank wagon prices in Texas despite the fact that the costs of manufacturing and marketing gasoline varies as among each defendant …” Control, Prices The body of the state’s evidence rested on these circumstances, attributed to the defendants coltrol of 90 percent of the business trol of 65 per cent of the refining profits over and above the cost of doing business during the exHigher tank wagon prices in Texas than in other areas more distant from the source of production, specifically in the states of Maryland, New Jersey, Virginia, Maine, Massachusetts, New York, Rhode Wand, North Carolina, Louisiana and the District of Columbia, where the posted prices of gasoline were three tenths of a cent to one cent lower than in Texas. The case had one feature which both the court and the participating assistant attorneys general agreed was odd. The state’s initial pleading in district court was challenged by a large number of exceptions filed by the scores of defense lawyers retained by the major companies. District Court encountered far more failures than successes and the dates of major cases in Texas-1913, 1924, 1938, 1943, 1952, and 1955have traced a constricting circle of enforcement as court interpretations successively narrowed the scope of the original statutes. Today, even corporation lawyers agree that the doctrine of anti-trust as conceived at the turn of the century has been proven a legal failure. Stopped on one point of law, corporations have devised other methods of combining that have been sustained by modern courts. With the ebbing of public indignation that marked the era of the robber barons, greater and greater industrial combinations have been formed and put into operation while the long test cases have droned through the courts unnoticed by public and press alike. The Texas Law Review, a technical periodical written for lawyers, quotes an address delivered before the Association of American Law _Schools, “The study of federal anti-trust cases has been said to constitute ‘an. observation of the process of the judicial emasculation of a statute.’ ” Continues the Texas law journal, “Something similar might be said with reference to the Texas decisions.” Noting that die federal statute was general in its definitions of the evils to be remedied, while the Texas laws attempted to be specific, the Review observes, “The results seem to be equally unfortunate … judicial interpretation has, it is believed, rendered the statutes more … obscure.” Franklin Roosevelt’s biographer, Arthur Schlesinger, records that upon coming to power in 1932, liberal Democrats admitted the realitythat the formation of industrial combinations could not be effectively presentedand decided on a course of regulating the mature adult rather than attempting to abort the infant. Yet, regulation, too, has proved disappointing to its advocates as the federal agenciesSecurities Exchange Commission, Federal Trade Commission, Federal Power Commission, Federal Communications Commission and the Interstate Commerce Commisionhave increasingly over the years come to reflect the positions and attitudes of the industries they were to regulate. This in turn has given rise to questions about lobbying tactics, big business influences in both national parties, countervailing pressures from other citizen groups such as farmers and organized labor, and the changing nature of government in a pluralistic society. As these questions are probed in the 1950’s by economists, political scientists and intellectuals generally, the debate swirls amid a composite of public opinion that still regards anti-trust legislation as a permanent guarantee against the crushing of free enterprise by integrated corporate empires. In Texas, where thousands of independent oilmen, acting individually and in intermittent associations, have grappled with the major petroleum companies for a half century, the outcome of anti-trust prosecution has had a visible effect on the state’s poli tical climate and economic makeup. To trace the history of antitrust actions in Texas, then, is to deal with a subject central to the attitudes, prejudices and pocketbooks of Texans in the year 1959. The Scoreboard Cases The scoreboard of pathfinder cases would include the state’s indirect victory over Standard Oil in 1907; a pivotal $99 million case in 1913 that seemed to reverse the effect of the 1907 decision; a 1924 suit against Humble and indirectly against Standard Oil, lost by the state in a ruling which further lessened the impact of the 1907 ruling; an exhausting seven year case, 1931-38, in which the state tackled all the majors as a group, again losing; the famed FairbanksMorse case of 1952, first won by the state, then lost on a rehearing in which the Dallas Appeals Court laid down some far-reaching prerequisites for future anti-trust In the long history of antitrust cases, one of the most sweeping decisions affecting Texas anti-trust enforcement came in 1952. A current assistant attorney general says that the case, styled State vs. Fairbanks-Morse, et al., “is a real thorn in our side ; it makes it terribly difficult for us to prove violations in these cases.” Fairbanks-Morse had an unusual history. The state lost in the trial court, appealed, and won a reversal at the Court of Appeals level. The defendants were then granted a rehearing before the three-man appeals court in Dallas which reversed itself, the initial two to one verdict for the state becoming two to one against the state as Justice Cramer changed his opinion. When the state’s request for a further rehearing was denied, the issue was settled against the state. Four firms had been charged with conspiracy in the selling, construction, and financing of municipal electric light and power systems. The defendants were Fairbanks-Morse Co. of Illinois, manufacturer of diesel generators for such systems; Universal-Electric Construction Co. of Alabama, which built them; Ballard-Hassett Corp. of Delaware, which handled the financing; and a consulting firm of two engineers, H. B. Gieb and Albert C. Moore, who wrote specifications for the cities involved. The state alleged that these four concerns formed a conspiracy to promote the sale and installation of municipal electric light and power systems. According to the state’s brief, the defendants agreed to operate only in smaller towns, “especially those which did not employ municipal engineers prosecutions; and the 1955 Arkansas Fuel Oil case, in which Texas again challenged the majors, the state winning at the Appeals Court level, but being overruled by the State Supreme Court in a decision authored by Associate Justice Will Wilson. As a result of interpretations embodied in these decisions, future Texas attorneys general must heed the following judicial opinions: A statutory combination in restraint of trade cannot exist unless two or more persons engaged therein are independent and capable of acting in competition with one another. \(St. vs. FairbanksMorse, The main current of our business system seems to encourage the standardization of basic products. Uniform prices are not condemend by the antitrust act. \(St. vs. Arkansas Fuel who were qualified to prepare plans and specifications” for the complex power systems. Said the state: “Fairbanks-Morse agreed to sell the governing bodies of such cities on the advantages of owning and operating a municipal electric light and power system and as part of the promotion, Fairbanks-Morse agreed to induce such towns to employ as consulting engineers the defendants H. B. Gieb and Albert C. Moore … and their contribution to said combination would be to so draft the specifications that only Fairbanks-Morse could competitively bid its type , of machinnery … especially with regard to diesel units for such systems.” Agreements Alleged Further, Fairbanks-Morse agreed to permit Universal Electric to construct the systems and to sell its diesel engines to U-E exclusively, the state alleged, and in return Fairbanks-Morse would add ten points to the price of diesel engines to cover the profit it would have made had it bid on such construction itself. As for the financing, the state alleged that the parties to the conspiracy inducted the cities to pay the bidders in revenue bonds in lieu of cash and that the company of Ballard-Hassett agreed to purchase exclusively from U-E all such bonds. Finally. alleged the state, after the conspiracy was formed, Fairbanks-Morse “surreptitiously induced and obtained the employment of Gieb and Moore” by the cities. When the case was reached the appeals court, the state’s argument* were affirmed in an opinion by Justice Bond. When the case was reheard before the same court; the opinion in favor of the defendants was written by Justice WILSON’S ROLE CRUCIAL IN 1955 Fairbanks Case Narrowed Law \(‘,