The principal points in the case of the United States v. the Southern Pacific Company were as follows. A glance at the accompanying map will show that the Central Pacific Railroad, from Ogden to Sacramento, and the Western Pacific, from Sacramento to Oakland, were in practical effect but the western end of a route of which the Union Pacific formed the eastern part. So far as competition was concerned, all parts of the route were on a parity. If the Union Pacific competed with the Southern Pacific when it hauled eastern freight from Omaha to Ogden, the Central Pacific did likewise when it hauled the same freight from Ogden to Sacramento. If it would promote competition to place the Southern Pacific and the Union Pacific in separate hands, the same could be said of the Central Pacific and its southern neighbor. So much is reasonably clear even from a cursory examination of the facts.
In at least two important respects, however, the relations between the Southern Pacific and the Central Pacific differed from those between the Southern Pacific and the Union Pacific. These points were emphasized in the briefs of counsel, and formed the basis of the companies’ defense. Unlike the Union Pacific, the Southern Pacific had obtained control of the stock of the Central Pacific at a time when and under circumstances in which the federal government was an interested party. If the details of the reorganization of 1898 are recalled, it will be remembered that the government then accepted notes in satisfaction of its claims against the Central Pacific which were secured by mortgage bonds carrying a Southern Pacific guaranty. This guaranty, in turn, was offered by the guaranteeing company as one element in a series of transactions which included the acquisition of Central Pacific stock by the Southern Pacific in exchange for the latter’s own stock certificates. The implications of this episode were mentioned when the transaction was described. While it certainly gave no permission to the Southern Pacific to violate the Sherman or any other law as a consideration for assisting the Central Pacific to pay its debts, the government did lay itself open to the charge of having at one time approved and enjoyed the fruits of a transaction of which it later complained.
The more important distinction between the later and the earlier merger cases in which the Southern Pacific was involved, lay in the circumstances that the combination of the Union Pacific and the Southern Pacific had been a recent matter, while the relations between the Central Pacific and the Southern Pacific had begun almost as soon as the latter corporation had been organized. In discussing the construction of the Southern Pacific, the remark has been made that the two enterprises were originally but different manifestations of the activities of a single group of men. The first statement in the brief of Mr. Herrin, chief counsel for the defense in the Central Pacific case, was similarly that: “This case does not involve any combination of competitive units, or any combination at all, for the Southern Pacific and Central Pacific lines were projected and built and have been operated since their organization as one property.”[597] These two characterizations indicate a difference of considerable significance between the Union Pacific and the Central Pacific cases.
Final Decision Doubtful
It must be pointed out, nevertheless, that in spite of the long and close association between the Central and the Southern Pacific railroads, there were certain features in this controversy which made it difficult to forecast the final decision of the Supreme Court of the United States. Counsel for the railroad company in the Union Pacific case dwelt much upon legal technicalities. But in the Southern Pacific case the forms were all opposed to the company’s contentions. For one reason or another, doubtless largely for political effect, the associates had always scrupulously insisted upon the separate identity of the two companies concerned. The corporations had been made to appear to deal with each other at arm’s length, and there had even been much discussion of the relative profitableness to each of the contracts concluded between them.
Nor was the matter one of form alone, as we have seen in earlier chapters of this study. While the construction of both roads was financed by the same parties, after 1880 the associates disposed of the greater part of their Central Pacific holdings. The Southern Pacific and the Central Pacific were still held together by lease relations, it is true, but they then became separate, not merely in organization but also in ownership. The separate ownership continued until 1899, when the new arrangements were made to undo which the government brought suit. It followed that counsel for the defendant railroads were in the position of defending a combination of legally distinct corporations, owned by different parties, with no connection between them save through the minority holdings of individual stockholders and through the very arrangements of which complaint was made. As an answer to this indictment, the circumstance that the same parties had found their profit in building each of the defendant lines could hardly be given weight, nor was the fact that the original consolidation antedated the Sherman law important.
The suit of the United States v. Southern Pacific Company was argued before the circuit judges of the Eighth Circuit sitting at St. Louis in December, 1915. The decision of a majority of this court was rendered in March, 1917, and was unfavorable to the government’s contention.[598] The grounds of this opinion were not brought out with complete distinctness, but two judges held that there had never been a “natural and existing competition” in interstate commerce between the Southern Pacific and the Central Pacific. Nearly half of the text of the decision, moreover, was devoted to a description of the financial settlement of 1899, in which Congress appeared to have treated the control of the Central Pacific by the Southern Pacific as consistent with the statutes of the United States. Judge Carland dissented from the conclusions of his colleagues in a carefully prepared opinion. The case was appealed, and after full oral argument, was submitted to the Supreme Court on April 19, 1921. An early decision is expected. Meanwhile, the continued close relations between the Central Pacific and the Southern Pacific are approved by public sentiment upon the Pacific Coast, while the continuance for the present of common control of the two companies certainly avoids many practical difficulties.