National Cotton Oil Company v. Texas/Opinion of the Court

by Joseph McKenna

United States Supreme Court

197 U.S. 115

National Cotton Oil Company  v.  Texas

 Argued: November 1, 2, 1904. --- Decided: February 27, 1905

The charges made against the statutes of Texas are that they deny the oil company the equal protection of the law, and take its property without due process of law. The answer to the first depends upon the effect of the statutes. The answer of the second involves their validity and broader considerations. We will deal with it first.

The specification in the demurrer of wherein the statutes deprive the oil company of its property without due process of law is indefinite and peculiar. It may be different from an attack on the validity of the statutes but counsel have treated it as tantamount to such attack, and we will so treat it.

Defendant in error contends that it is not open to the oil company to attack the constitutionality of the statutes, either as discriminating against it or as depriving it of property without due process of law, and cites Waters-Pierce Oil Co. v. Texas, 177 U.S. 28, 44 L. ed. 657, 20 Sup. Ct. Rep. 518. Counsel for the company contests the application of that case; and we will assume (not decide) with them that it is not determinative of their contention.

The acts of 1889 and 1895 are set out at length in Waters-Pierce Oil Co. v. Texas. The act of 1899, so far as the present question is concerned, is substantially the same as they. All of the acts are directed to the prohibition of combinations to restrict trade, or in any way limit competition in the production or sale of articles, or to increase or reduce their price in order to preclude a free and unrestricted competition in them. The various ways in which these purposes can be accomplished are enumerated and forbidden. Penalties are affixed to the violation of the acts, offending domestic corporations forfeit their charters, and offending foreign corporations forfeit their privileges to do business in the state.

There was also an act passed in 1903, which repealed all laws or parts of laws in conflict with it, and expressly repealed certain provisions of the Penal Code of the state, and the acts of 1895 and 1899. The right to recover penalties or to forfeit charters of domestic, or the permits of foreign, corporations, for acts committed before the going into effect of the statute, was reserved.

The argument, which is directed against the validity of the statutes, is drawn from extremes. It is difficult to present its elements in a concise way. Its ultimate foundation is the right of individuals and corporations as well, under the Constitution of the United States, to make contracts and combine in business enterprises; and, it is argued, to prohibit them from so doing 'in the ordinary way through the making of purchases and sales and the fixing of prices, is clearly to work a deprivation of property without due process of law, and to impair the well-recognized liberty of contract, involved in the acquiring, using, and dealing with property,' assured by the Federal Constitution.

To support the argument the usages and necessity of business are adduced, and partnerships and their effect are brought forward as illustrations. There are some things which counsel easily demonstrate. They easily demonstrate that some combination of 'capital, skill, or acts' is necessary to any business development, and that the result must inevitably be a cessation of competition. But this does not prove that all combinations are inviolable, or that no restriction upon competition can be forbidden. To contend for these extremes is to overlook the difference in the effect of actions, and to limit too much the function and power of government. By arguing from extremes almost every exercise of government can be shown to be a deprivation of individual liberty. It is common-place to say that it is the purpose, and indeed duty, of government, to get all it can of good out of the activities of men, and limit or forbid them when they become or tend to evil. Of course, what is evil may not be always clear; but to be able to dispute the policy of a law is not to establish its invalidity. It is certainly the conception of a large body of public opinion that the control of prices through combinations tends to restraint of trade and to monopoly, and is evil. The foundations of the belief we are not called upon to discuss, nor does our purpose require us to distinguish between the kinds of combinations or the degrees of monopoly. It is enough to say that the idea of monopoly is not now confined to a grant of privileges. It is understood to include a 'condition produced by the acts of mere individuals.' Its dominant thought now is, to quote another, 'the notion of exclusiveness or unity;' in other words, the suppression of competition by the unification of interest or management, or it may be through agreement and concert of action. And the purpose is so definitely the control of prices that monopoly has been defined to be 'unified tactics with regard to prices.' It is the power to control prices which makes the inducement of combinations and their profit. It is such power that makes it the concern of the law to prohibit or limit them. And this concern and the policy based upon it has not only expression in the Texas statutes; it has expression in the statutes of other states and in a well-known national enactment. According to them, competition, not combination, should be the law of trade. If there is evil in this it is accepted as less than that which may result from the unification of interests, and the power such unification gives. And that legislatures may so ordain this court has decided. United States v. E. C. Knight Co. 156 U.S. 1, 39 L. ed. 325, 15 Sup. Ct. Rep. 249; United States v. Trans-Missouri Freight Asso. 166 U.S. 290, 41 L. ed. 1007, 17 Sup. Ct. Rep. 540; United States v. Joint Traffic Asso. 171 U.S. 505, 43 L. ed. 259, 19 Sup. Ct. Rep. 25; Northern Securities Co. v. United States, 193 U.S. 197, 48 L. ed. 679, 24 Sup. Ct. Rep. 436; Swift & Co. v. United States, 196 U.S. 375, ante, 276, 25 Sup. Ct. Rep. 276.

In Smiley v. Kansas, decided at this term, 196 U.S. 447, 25 Sup. Ct. Rep. 289, 49 L. ed. 546, a statute of Kansas is passed on which is identical in effect, and even in words, in all that concerns the present controversy, with the Texas statutes. The statute was assailed as 'an unwarranted attempt upon the part of the legislature to limit the rights of the individual in the matter of contracting and dealing with his fellowmen.' The right which Smiley claimed was to combine with certain grain dealers, persons, companies, and corporations, who were competitors, to pool and fix the price of grain in the town of Bison, and to prevent competition in the purchase and sale of grain at that place. We followed the ruling of the supreme court of the state in holding that the combination was within the prohibition of the statute; we concurred with that court in deciding that the prohibition was a valid exercise of the police power of the state.

It follows that the statutes of Texas do not deprive the oil company of its property without due process of law.

Next, as to the effect of the statutes.

The act of May 25, 1899, omits the discriminatory provisions of the prior acts, but, it is contended that, as the latter act is declared to be cumulative of the prior acts, their discriminations are preserved and continued, and that, under the Code provisions, the company may be criminally prosecuted, and that the excepted classes of the acts of 1889 and 1895 are exempt from prosecution. It is further urged, whether such discrimination results from the statutes is for us to determine independently of what views the courts of the state may entertain of them and their relations.

Upon the last contention depends the mode of approaching the other, and we will dispose of it first. We cannot assent to it. There are cases in which we determine for ourselves the meaning of a state law, but this is not one of them. The contention of the company is that the statutes of the state discriminate against it; in other words, deny it the equal protection of the law, by forbidding it from doing what they permit others to do in similar circumstances,-punish its acts and exempt from punishment the same acts when done by others. But the courts of the state are the tribunals appointed to administer the statutes and impose their penalties, and to do so they must necessarily interpret them. In other words, they are the tribunals to declare the meaning of the statutes, and if in declaring it they make the statutes discriminatory, then may the statutes become unconstitutional. Olsen v. Smith, 195 U.S. 332, 25 Sup. Ct. Rep. 52, 49 L. ed. 224.

What has the supreme court of Texas said of the statutes?

The court of civil appeals in the case at bar expressed the following view:

'The trial court did not err in overruling appellant's demurrers. While it has been correctly held that certain provisions of the anti-trust statutes are unconstitutional, the supreme court, in the case of State v. Shippers' Compress & Warehouse Co. 95 Tex. 603, 69 S. W. 61, relying upon the case of Waters-Pierce Oil Co. v. Texas, 177 U.S. 28, 44 L. ed. 657, 20 Sup. Ct. Rep. 518, holds that so much of these statutes that authorize the canceling and forfeiture of a charter or permit to do business within the state of Texas are valid, and are not in violation of the Constitution.'

The supreme court refused a writ of error, and thereby, as we understand the local rule to be, approved the views of the court of civil appeals. Subsequently the supreme court expressed itself explicitly in State v. Shippers' Compress & Warehouse Co. 95 Tex. 603, 69 S. W. 58, and State v. Laredo Ice Co. 96 Tex. 461, 73 S. W. 951.

The object in State v. Shippers' Compress & Warehouse Co. was to forfeit the charter of the compress company for violating the anti-trust law of 1895, in that the incorporators combined 'to restrict aids to commerce.' The law was attacked as unconstitutional. To the contention the court said:

'The defendant insists that the law is unconstitutional, therefore void in whole, and will not support the action to forfeit the charter. Upon the same objection we held the anti-trust law of 1889 to be constitutional, and there is no such difference between the two laws as would affect the decision of this question. We believe that our decision is correct; that the law is not in contravention of the Constitution of the state, nor of the United States. Houck v. Anheuser-Busch Brewing Asso. 88 Tex. 189, 30 S. W. 869.'

The court then referred to Connolly v. Union Sewer Pipe Co. 184 U.S. 540, 46 L. ed. 679, 22 Sup. Ct. Rep. 431, and in submission to its authority held the law of 1895, so far as it came within the terms of that case, invalid, and would not support an action by the state to recover a penalty for a violation of the law; nor would it, in suits between corporations and individuals, support a defense based upon the fact that the right of action originated in violation of the anti-trust law. 'But,' the court remarked, 'to the extent that the statute of this state is not embraced in the decision of the Supreme Court of the United States, we shall adhere to our former decision that it is constitutional and valid, and therefore enforceable by the state.'

That is, the court decided the act of 1895 was valid to the extent that it authorized the state to revoke the license of a foreign corporation, and to forfeit the charter of a domestic corporation. The other provisions of the act were held invalid, and the right to make this distinction was based on Waters-Pierce Oil Co. v. Texas.

State v. Laredo Ice Co. was instituted to recover penalties for the violation of the anti-trust law of 1899. The ice company was a domestic corporation, and it was proceeded against for having formed a combination to regulate and fix prices. In defense, the company asserted the unconstitutionality of the act.

It is provided in § 14 of the act of 1899 that the provisions of preceding sections and the fines and penalties provided for violations of the act shall be held and construed to be cumulative of all laws now in force in the state. It was contended, as it is contended here, that this provision made one law of the act and the act of 1895, and that the exemptions of the latter became part of the former and made it unconstitutional. In other words, the effect was (we quote from the opinion of the court) 'thereby to give exemption from prosecution under the law of 1899 to those persons who are exempted by the provisions of the law of 1895.' The supreme court of Texas rejected the contention. Its reasoning was not very direct or circumstantial, but it in effect held that the act of 1899 did not continue the provisions of the prior acts, whether constitutional or unconstitutional, merely because it was declared to be cumulative. And the court decided the law of 1899 to be constitutional, because it did not contain the discriminating features of the prior laws. Under the laws of Texas, therefore, combinations of the kind described in the various anti-trust laws, whether by agriculturalists or organized laborers or others, are forbidden and penalized, and the oil company is not discriminated against.

But it may be said that, if the inequalities of prior anti-trust acts have been removed by the act of 1899, they still remain in the Revised Statutes of the state and in the Penal Code, and by those statutes and that Code the excepted classes are exempted from indictment and punishment, while the oil company is subject to both. We need not consider the statutes referred to or consider how far this discrimination can exist, in view of the decision of the supreme court of the state in State v. Laredo Ice Co. Granting it can exist, the case at bar is not a criminal prosecution. It involves only the anti-trust laws and their prohibitions, and penalties. And in them, we have seen, by the effect of the act of 1899 there is no inequality of operation. It is the effect of that decision also that the laws of the state against combinations and trusts are formed into a harmonious system, of which the criminal provisions in other statutes and the Code are a part, and that their provisions can be adjusted and reconciled so as to have constitutional operation.

Judgment affirmed.

Notes