The History of the Standard Oil Company/Volume 2/Appendix/Number 48
NUMBER 48 (See page 84)
REPORT OF THE SPECIAL MASTER COMMISSIONER GEORGE K. NASH TO THE CIRCUIT COURT
[In the case of Parker Handy and John Paton, Trustees, vs. The Cleveland and Marietta Railroad Company et al., Circuit Court of the United States, Southern District of Ohio, Eastern Division.]
To the Honoured the Circuit Court of the United States,
- Southern District of Ohio, Eastern Division.
By an order of your court made on the 18th day of December, 1885, in the case of Parker Handy and John Paton, Trustees, vs. The Cleveland and Marietta Railroad Company et al., I was appointed a special master commissioner to investigate and report to the court for its action what discriminations have been made in freights by Receiver Pease, or during his administration by those under him, and to this end I was authorised to summon and examine witnesses and to cause their testimony to be reduced to writing so far as in my discretion it might be necessary. I was also required to inquire fully and particularly into the facts and report to the court what discriminations had been made, under what arrangements and to what extent, and to report fully all the facts and show to what extent and under what circumstances discriminations have been made against shippers as well as in favour of shippers, and by whom such discriminations were authorised and by whom made. In compliance with this order I proceeded to examine the matters therein referred to, and in the course of such examination called the following-named persons as witnesses:
T. D. Dale, C. C. Pickering (auditor of the Cleveland and Marietta Railroad Company under Receiver Pease), F. G. Carrel, J. E. Terry, Daniel O'Day, George Rice, H. L. Wilgus, W. H. Slack, W. J. Cramm, George Best, Jr., and J. C. McCarty, whose evidence I caused to be reduced to writing by A. C. Armstrong, a stenographer, and is herewith submitted.
I find from the evidence that soon after General Pease was appointed receiver of the Cleveland and Marietta Railroad, an arrangement was entered into with Daniel O'Day and W. T. Scheide, by which it was agreed that the rate to be charged by Receiver Pease and his subordinates upon all crude oil shipped from Macksburg and vicinity upon the line of the Cleveland and Marietta Railroad Company to Marietta should be thirty-five cents per barrel; that the agent of the receiver at Marietta should also pay the agent of the parties represented by O'Day and Scheide; that his compensation was to be $85 per month, $60 of which was to be paid by Receiver Pease and $25 by the parties represented by O'Day and Scheide; that it was the duty of this joint agent (one F. G. Carrel) to collect from all shippers the sum of thirty-five cents per barrel, and to account to Receiver Pease for ten cents of this sum, and to the parties represented by O'Day and Scheide for the balance. This arrangement went into force on the 2Oth day of March, 1885, and continued in force until September, 1885, at which time one George Rice made complaint to your court that discriminations were being made by the receiver against oil shippers.
Negotiations for this arrangement were opened in the City of Toledo on the 8th day of February, 1885, at a meeting which was attended by Daniel O'Day, W. T. Scheide, A. G. Blair (acting general freight and passenger agent of the receiver of the Wheeling and Lake Erie Railroad Company), and J. E. Terry (general freight and passenger agent of Pease, the receiver of the Cleveland and Marietta Railroad Company). The agreement above referred to was substantially reached at this meeting. Mr. Terry reported the same to General Pease, receiver of the Cleveland and Marietta Railroad Company, who thereupon wrote a letter to his general counsel in New York, asking advice in regard thereto, which letter was transmitted to said counsel by J. E. Terry in person. E. S. Rapallo, an attorney in New York City, replied to the letter of General Pease, and a copy of his letter is now on file in your court and is a part of a report filed by General Pease in November, 1885. This arrangement seems to have been entered into with full knowledge of General Pease, the receiver, and after consultation with his counsel, and with the full knowledge of his general freight and passenger agent, J. E. Terry.
George Rice was the owner of certain oil wells in the Macksburg Oil Region and he also purchased some oil from the owners of certain other wells in the same district. The oil which he produced and also the oil which he purchased he was in the habit of transporting to his refinery at Marietta, Ohio, by means of the Cleveland and Marietta Railroad. Before the arrangements to which I have referred went into effect he had been charged upon the shipment made by him the sum of seventeen and one-half cents per barrel. After the 20th of March, 1885, he was charged thirty-five cents per barrel upon all oil shipped by him. Between the 20th of March and the 30th of April following, Mr. Rice shipped from Macksburg to Marietta over the Cleveland and Marietta Railroad, 1,360 barrels of oil. Upon this oil he was charged thirty-five cents per barrel, or the sum of $476. This money was collected by F. G. Carrel, the agent of the receiver and also the agent of the parties represented at Toledo by O'Day and Scheide. This money was divided according to the agreement, and $136 was sent by Carrel to the bank of the receiver at Cambridge, Ohio, and the remaining $340, or twenty-five cents for each barrel of oil shipped by Rice, was sent by Carrel to the oil parties who had their headquarters at Oil City, Pennsylvania. On or about the 29th of October, 1885, this $340 was returned to Mr. Carrel at Marietta, by a check from Oil City, which check was signed by one J. R. Campbell, treasurer. This money was sent by Carrel to the bank in Cambridge in which the receiver made his deposits. It will be observed that this money was returned from Oil City some ten or twelve days after Judge Baxter made his order directing the receiver to make a report showing what discriminations, if any, had been made by him in the shipments of oil, which order had been obtained upon the complaint of George Rice. It was also returned after a consultation had by J. E. Terry with Daniel O'Day in the City of Cleveland. Mr. Terry states that the receiver was made acquainted with the steps taken by him in connection with this transaction. The receiver did not submit himself to an examination in regard to this matter, but filed an affidavit with me which I attach to this report, in which he states in substance that he did not know at the time he filed his reports with your court that that part of the agreement between himself and the oil parties which required that twenty-five cents per barrel of the moneys collected by him should be paid to the oil parties had been carried out, or that the money thus paid by Rice, and by Carrel paid over to the oil parties, had been returned. The reason given by Receiver Pease and by Mr. Terry for entering into this agreement was that the parties represented by O'Day and Scheide were threatening to put down a pipe-line from Macksburg to Parkersburg, through which to transport the oil produced by them in this region to the latter city, and that if this threat was carried out, the Railroad Company would be prevented from carrying oil produced by them to Marietta. They further stated that in consideration of the arrangement to which I have referred, the parties represented by O'Day and Scheide agreed not to put down a pipe-line, but to ship their oil over the Cleveland and Marietta Railroad.
As soon as George Rice found that the rates on oil had been raised from seventeen and one-half to thirty-five cents per barrel, and that he could not get any better terms for his shipment from the railroad, he commenced to lay a pipe-line from his wells in the Macksburg field to Lowell, on the Muskingum River. This line was completed about the first of May, 1885, and from that time he transported all his oil through this pipe to Lowell, and thence shipped it to Marietta by boat on the Muskingum River. As soon as the parties represented by O'Day and Scheide ascertained that Rice was putting down a pipe-line, they proceeded also to lay a pipe-line from the Macksburg oil field to Parkersburg, in West Virginia. Since the completion of their pipe-line all the oil sent to Parkersburg and Marietta has been sent through this pipe-line. For several months they continued to ship some of their oil North over the Cleveland and Marietta Railroad to Cleveland, but during the last two months these shipments have ceased, and all the oils now produced by the parties represented by O'Day and Scheide are sent by them through their pipe-line to Parkersburg.
Mr. Rice, since the completion of his pipe-line, has shipped through it to Marietta more than forty-five thousand barrels of oil. The shipments by Mr. Rice might have been retained for the benefit of the railroad had the rate of seventeen and one-half cents per barrel been continued. It is probable that had not the arrangement which we have been considering been entered into, a line would have been put down by the parties represented by O'Day and Scheide, but without the arrangement the patronage of Mr. Rice could have been retained. The result of the arrangement seems to be that the railroad has lost the patronage not only of the parties represented by O'Day and Scheide, but also of Mr. Rice, and it is not to-day carrying a barrel of oil.
The Argand Oil Works and the Argand Refining Company, two corporations located at Marietta, Ohio, have made complaint that from the eighteenth day of February until the fourteenth day of October, 1885, they were shippers of oil from the Macksburg Oil Region, over the Cleveland and Marietta Railroad, and that they were discriminated against by the receiver and his agents. I conceived that the order of your court referring this subject to me was broad enough to cover the complaint made by these corporations and I accordingly called W. H. Slack, W. J. Cramm, C. C. Pickering, and F. G. Carrel as witnesses in regard to this complaint, and their testimony is herewith submitted, together with the account presented by these two corporations and the receipted bills taken by them in payment of freight. From the evidence of these witnesses it appears that these corporations, during the time covered by the complaint, were engaged in refining oil at Marietta, Ohio. They purchased their crude oil of the parties represented by O'Day and Scheide at Macksburg. Their purchases were made by ordering their oil when needed by telegraph from a man by the name of Seep, located at Oil City, Pennsylvania, and they were charged therefor the market price of oil at Oil City on the day when the telegraphic order was given. The oil was then shipped to them over the Cleveland and Marietta Railroad and a bill for freight presented to them in the form following: "The Argand Oil Works, Marietta, Ohio, To the Cleveland and Marietta Railroad Company, Dr."
In these bills they were charged for all oil shipped at the rate of thirty-five cents per barrel. This amount was paid by them to Carrel, the agent of the receiver, at Marietta, Ohio. Of this amount Carrel paid to the receiver ten cents, and to the parties represented by O'Day and Scheide, twenty-five cents. I am of the opinion that these parties were in the same position as George Rice, with the exception that Mr. Rice produced his oil from the ground and shipped it over the Cleveland and Marietta Railroad, and these parties bought their oil instead of producing it from the ground. I cannot see as this difference modifies in any way the discrimination made against them. They claim that from February 18, 1885, until October 14, 1885, they shipped 3,6796⁄10 barrels of oil, for which they were charged $1,232.06 as freight, and that the discriminations against them amounted to $888.70. From their bill certain reduction should be made. All shipments made prior to March 20, 1885, should be excluded for the reason that the discriminating arrangement entered into between the receiver and the parties represented by O'Day and Scheide did not go into effect until the 20th of March, 1885. Two shipments, one made on the 7th of August, and the other made on the 2 1st of September, from Dexter City, should also be excluded for the reason that all oils shipped from Dexter City were charged for at the same rates as these complainants were taxed. After making these deductions, I find that under the contract complained of, the Argand Oil Works and the Argand Refining Company shipped from the 20th of March until the 14th of October, 2,695 barrels of oil; that they were required to pay upon these shipments the sum of $894.59, and that of this sum Carrel, the agent of the receiver at Marietta, paid to the receiver the sum of $245.44, and to the parties in Pennsylvania represented by O'Day and Scheide the sum of $649.15.
A complaint of a similar character is made by the Marietta Oil Works, a partnership engaged in the business of refining oils at Marietta, Ohio. Upon their complaint, I examined George C. Best, Jr., J. C. McCarty, W. H. Slack, C. C. Pickering, and F. G. Carrel as witnesses, and their evidence is submitted herewith in full, together with the account presented by this partnership and the receipted bills presented by the Cleveland and Marietta Railroad and paid by them. Their case in all respects seems to be precisely like that of the Argand Oil Works and the Argand Refining Company. They claim that from the 1st day of April until the 31st day of August, 1885, inclusive, they shipped 2,717 barrels of oil, for which they were charged as freight $950.95, and that they were discriminated against to the extent of $679.25. From their bill I think that there should be excluded two shipments from Dexter City, one made on the 12th day of June, and the other on the 18th day of June, for the reason that no discriminations were made in freights, by the receiver, of oils shipped from Dexter City. After taking into account these two shipments, I find that the Marietta Oil Works shipped from Macksburg and Elba on their account 2,547 barrels of oil; that the freights paid by them upon these shipments amounted to the sum of $891.45, and that out of this sum Carrel, the agent at Marietta, paid to the receiver the sum of $251.70, and to the parties represented by O'Day and Scheide the sum of $639.75.
I find that during the receivership of General Pease, no oils were shipped from Macksburg North over the Cleveland and Marietta Railroad except such as were shipped by the parties represented by Messrs. O'Day and Scheide.
I have purposely referred to the parties who entered into this arrangement with Receiver Pease and his freight agent, J. E. Terry, as "the parties represented by O'Day and Scheide," for the reason that I have not been able to ascertain who or what the parties are. It appears from the evidence that during the time that M. D. Woodford had control as manager of the Cleveland and Marietta Railroad, one W. J. Brundred and T. D. Dale conceived the idea of running pipes to all the wells in the Macksburg Oil Regions, and then by concentrating them together convey all the oils thus gathered through the main line to the Cleveland and Marietta Railroad and deposit it in tanks, and with this end in view entered into a contract in writing with said Woodford, a copy of which contract is attached to the report of Receiver Pease, filed in your court in November, 1885. After this contract was entered into, they organised a corporation known as the Ohio Transit Company, with T. D. Dale as president and W. J. Brundred as vice-president, to which corporation this contract was assigned. This company continued in the business until January, 1885. Mr. Dale, the president, states that "We said we could not compete with the Standard Oil Company, and for that reason we sold out at a fair price." When asked to whom his company sold their property, Mr. Dale answered, "I don't know what company, but my recollection is that it might have been the National Transit Company." "It was done in their office. I don't know whether the bill of sale was made to Mr. O'Day or to Mr. Scheide." Mr. Dale further states that "Mr. O'Day was vice-president of the National Transit Company, and that Mr. Scheide was its general manager; it, however, is conjecture on my part." In another place Mr. Dale states that the gentleman managing the National Transit Company bought the property of the Ohio Transit Company, and gives as their names Daniel O'Day, W. T. Scheide, and J. R. Campbell. The corporation or partnership, or whatever it is which now manages the pipe-line system in Macksburg oil fields, and extending from there to Parkersburg, is known as the Macksburg Pipe Line. One Daniel O'Day, now having his headquarters at Macksburg, is the manager of this pipe-line. When O'Day was asked, "To whom does the Macksburg Pipe Line belong?" he answered, "I do not believe I can answer that; I do not know." When asked, "Who has general control of it?" he answered, "Mr. Scheide, Mr. O'Day, and J. R. Campbell." He stated that "Mr. Scheide lives in Titusville, Mr. Campbell at Oil City, and Mr. O'Day at Buffalo." He also stated that these gentlemen were officers of the National Transit Company and the United Pipe Line, a division of the National Transit Company; that Mr. O'Day is general manager of the National Transit Company, and when asked whether the Macksburg Pipe Line is also a branch of the same system, he answered, "Really, I am not well enough posted to know, but I presume it is." Daniel O'Day also stated that the National Transit Company is a corporation organised under the laws of New York, and that its principal office is located in New York City. He also stated that "its property is located throughout the state of New York and the state of Pennsylvania, and some in Ohio." The line located in Ohio he described as running from Parker's Landing, in Pennsylvania, to Cleveland. He also stated that the United Pipe Line is a division of the National Transit Company which runs from wells to railroad points or pumping stations, and that the wells to which he referred are located in Alleghany County, New York, and throughout a large portion of Pennsylvania. He also stated that the Macksburg Pipe Line controls, by lease and deed, sixty or seventy acres of land in this state of the line of the Cleveland and Marietta Railroad Company, and that the lease and deeds for this land are in the name of one Benjamin Brewster, of New York City, and that said Brewster is the vice-president of the National Transit Company. When Mr. O'Day was asked, "What relation does the National Transit Company and the United Pipe Line Company sustain to the Standard Oil Company?" he answered, "I believe that people having stock in the National Transit Company or the United Pipe Line can hold stock, and do hold stock, in the Standard Oil Company, but I do not know what further relations they have."
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I have attempted to summarise in a very brief manner the evidence which has been taken by me under the order of your court, but in order to obtain a full understanding of the situation, it will perhaps be necessary to read all the evidence which is herewith submitted in full, in connection with the reports and exhibits filed by General Pease, in November, 1885.
Respectfully submitted,
(Signed)George K. Nash,
Special Master Commissioner.