The History of the Standard Oil Company/Volume 2/Chapter 11
CHAPTER ELEVEN
THE WAR ON THE REBATE
THE apathy and inaction which naturally flow from a great defeat lay over the Oil Regions of Northwestern Pennsylvania long after the compromise with John D. Rockefeller in 1880, followed, as it was, by the combination with the Standard of the great independent seaboard pipe-line which had grown up under the oil men's encouragement and patronage. Years of war with a humiliating outcome had inspired the producers with the conviction that fighting was useless, that they were dealing with a power verging on the superhuman—a power carrying concealed weapons, fighting in the dark, and endowed with an altogether diabolic cleverness. Strange as the statement may appear, there is no disputing that by 1884 the Oil Regions as a whole looked on Mr. Rockefeller with superstitious awe. Their notion of him was very like that which the English common people had for Napoleon in the first part of the 19th century, which the peasants of Brittany have even to-day for the English—a dread power, cruel, omniscient, always ready to spring.
This attitude of mind, altogether abnormal in daring, impetuous, and self-confident men, as those of the Oil Regions were, was based on something more than the series of bold and admirably executed attacks which had made Mr. Rockefeller master of the oil business. The first reason for it was the atmosphere of mystery in which Mr. Rockefeller had succeeded in enveloping himself. He seems by nature to dislike the public eye. In his early years his home, his office, and the Baptist church were practically the only places which saw him. He did not frequent clubs, theatres, public meetings. When his manoeuvres began to bring public criticism upon him, his dislike of the public eye seems to have increased. He took a residence in New York, but he was unknown there save to those who did business with him or were interested in his church and charities. His was perhaps the least familiar face in the Standard Oil Company. He never went to the Oil Regions, and the Oil Regions said he was afraid to come, which might or might not have been true. Certainly the Oil Regions never hesitated to express opinions about him calculated to make a discreet man keep his distance.
Even in Cleveland, his home for twenty-five years, Mr. Rockefeller was believed to conceal himself from his townsmen. It is certain that the operations of his great business were guarded with the most jealous care. The New York Sun sent an "experienced observer" to Cleveland in 1882 to write up the Standard concern. He speaks with amazement in his letters of the atmosphere of secrecy and mystery which he found enveloping everything connected with Mr. Rockefeller. You could not get an interview with him, the observer complained; even his home papers had ceased to go to the Standard offices to inquire about the truth of rumours which reached them from the outside. The hundreds of employees of the trust in the town were as silent as their master in all that concerned the business, and if one talked—well, he was not long an employee of Mr. Rockefeller. There was between the Standard Oil Company and the town and press of Cleveland none of the camaraderie, the mutual good-will and pride and confidence which usually characterise the relations between great businesses and their environment.
In Cleveland, as in the Oil Regions, Mr. Rockefeller's careful effort to cover up his intentions and his tracks had been at first met with jeers and blunt rebuffs, but he had finally succeeded in silencing and awing the people. It is worth noting that while all of the members of the Standard Oil Company followed Mr. Rockefeller's policy of saying nothing, there was no such popular dread of any other one of them. In the Oil Regions, for instance, there was a bitter hatred of the Standard Oil Company as an organisation, but for the most part the people liked the men who served it, and certainly had no awe of them, for these men circulated freely among their fellow-townsmen; they were active in all the pleasures and enterprises of the communities in which they lived; they were generous, able, cordial, and whatever the people said of the concern they served, they generally qualified it by expressing their personal likings for the men themselves.
A second reason for the popular dread of Mr. Rockefeller was that this man, whom nobody saw and who never talked, knew everything—even unexpected and trivial things—and those who saw the effect of this knowledge and did not see how he could obtain it, regarded him as little short of an omniscient being. There was really nothing in the least occult about Mr. Rockefeller's omniscience. He obtained part of his knowledge of other people's affairs by a most extensive and thoroughly organised system of news-gathering, such as any bright business man of wide sweep might properly employ. But he combined with this perfectly legitimate work the sordid methods of securing confidential information described in the last chapter. Certainly there is nothing of the transcendental in this kind of omniscience, and the feeling of supernaturalism which Mr. Rockefeller had inspired by 1884 has entirely evaporated since, as evidence of his methods has been circulated. The source was, however, long secret, and when again and again men who could hardly suppose their existence known to Mr. Rockefeller saw movements anticipated which they believed known only to themselves and their confidential agents, they began to dread him and to invest him with mysterious qualities. If Mr. Rockefeller had been as great a psychologist as he is business manipulator he would have realised that he was awakening a terrible popular dread, and he would have foreseen that one day, with the inevitable coming to light of his methods, there would spring up about his name a crop of scorn which would choke any crop of dollars and donations which the wealth of the earth could produce.
The effect of this dread was deplorable, for it intensified the feeling, now wide-spread in the Oil Regions, that it was useless to make further effort at a combined resistance. And yet these men, who were now lying too supine in Mr. Rockefeller's steel glove even to squirm, had laid the foundation of freedom in the oil business. It has taken thirty years to demonstrate the inestimable value of the efforts which in 1884 they regarded as futile—thirty years to build even a small structure on the foundation they had laid, though that much has been done.
The situation was saved at this critical time by individuals scattered through the oil world who were resolved to test the validity of Mr. Rockefeller's claim that the coal-oil business belonged to him. "We have a right to do an independent business," they said, "and we propose to do it." They began this effort by an attack on the weak spot in Mr. Rockefeller's armour. The twelve years just passed had taught them that the realisation of Mr. Rockefeller's great purpose had been made possible by his remarkable manipulation of the railroads. It was the rebate which had made the Standard Oil Trust, the rebate, amplified, systematised, glorified into a power never equalled before or since by any business of the country. The rebate had made the trust, and the rebate, in spite of ten years of combination, Petroleum Associations, Producers' Unions, resolutions, suits in equity, suits in quo warranto, appeals to Congress, legislative investigations—the rebate still was Mr. Rockefeller's most effective weapon. If they could wrest it from his hand they could do business. They had learned something else in this period—that the whole force of public opinion and the spirit of the law were against the rebate, and that the railroads, knowing this, feared exposure of discrimination, and could be made to settle rather than have their practices made public. Therefore, said these individuals, we propose to sue for rebates and collect charges until we make it so harassing and dangerous for the railroads that they will shut down on Mr. Rockefeller.
The most interesting and certainly the most influential of these private cases was that of Scofield, Shurmer and Teagle, of Cleveland, one of the firms which, in 1876, entered into a "joint adventure" with Mr. Rockefeller for limiting the output and so holding up prices.[1] The adventure had been most successful. The profits were enormous. Scofield, Shurmer and Teagle had made thirty-four cents a barrel out of their refinery the year before the "adventure." With the same methods of manufacture, and enjoying simply Mr. Rockefeller's control of transportation rates and the enhanced prices caused by limiting output, they made $2.52 a barrel the first year after. This was the year of the Standard's first great coup in refined oil. The dividends on 88,000 barrels this year were $222,047, against $41,000 the year before. In four years Scofield, Shurmer and Teagle paid Mr. Rockefeller $315,-345 on his investment of $10,000—and rebates.
After four years the Standard began to complain that their partners in the adventure were refining too much oil—the first year the books showed they had exceeded their 85,000 barrel limitation by nearly 3,000, the second year by 2,000, the third by 15,000, the fourth by 5,000. Dissatisfied, the Standard demanded that the firm pay them the entire profit upon the excess refined; for, claimed Mr. Rockefeller, our monopoly is so perfect that we would have sold the excess if you had not broken the contract, consequently the profits belong to us. Scofield, Shurmer and Teagle paid half the profit on the excess, but refused more, and they persisted in exceeding their quota; then Mr. Rockefeller, controlling by this time the crude supply in Cleveland through ownership of the pipe-lines, shut down on their crude supply. If they would not obey the contract of their own will they could not do business. The firm seems not to have been frightened. "We are sorry that you refuse to furnish us crude oil as agreed," they wrote Mr. Rockefeller; "we do not regard the limitation of 85,000 barrels as binding upon us, and as we have a large number of orders for refined oil we must fill them, and if you refuse to furnish us crude oil on the same favourable terms as yourselves, we shall get it elsewhere as best we can and hold you responsible for its difference in cost."
Mr. Rockefeller's reply was a prayer for an injunction against the members of the firm, restraining them individually and collectively "from distilling at their said works at 
WILLIAM C. SCOFIELD
Senior member of the firm of Scofield, Schurmer and Teagle, of Cleveland. Plaintiff in important suits against Lake Shore Railroad for freight discriminations.
DANIEL SCHURMER
Associate of Mr. Scofield and Mr. Teagle in the war on railroad rebates which the firm waged for nearly twenty years.
JOHN TEAGLE
Independent refiner of Cleveland, Ohio, prominent in struggle against freight discriminations by the railroads.
CHARLES B. MATTHEWS
Independent refiner of Buffalo. Plaintiff in "Buffalo case," where members of the Standard Oil Company were indicted for conspiracy.
Scofield, Shurmer and Teagle did not hesitate to take up the gauntlet, and a remarkable defence they made. In their answer they declared the so-called agreement had at all times been "utterly void and of no effect as being by its terms in restraint of trade and against public policy." They declared that the Standard Oil Company had never kept the terms of the agreement, that it had intentionally withheld the benefits of the advantages it enjoyed in freight contracts, and that it now was pumping crude oil from the Oil Regions to Cleveland at a cost of about twelve cents a barrel and charging them (Scofield, Shurmer and Teagle) twenty cents. They denied that the Standard had sustained any damage through them, but claimed that their business had been carried on at a large profit. "There is such a large margin between the price of crude oil and refined," declared the defendants, "that the manufacture and sale of refined oil is attended with large profit; it is impossible to supply the demand of the public for oil if the business and refineries of both plaintiff and defendant are carried on and run to their full capacities, and if the business of the defendants were stopped, as prayed for by the plaintiff, it would result in a still higher price for refined oil and the establishment of more perfect monopoly in the manufacture and sale of the same by plaintiff." To establish such a monopoly, the defendants went on to declare, had been the sole object of the Standard Oil Company in making this contract with them, and similar ones with other firms, to establish a monopoly and so maintain unnaturally high prices,[3] and certainly Scofield, Shurmer and Teagle knew whereof they swore, for they had shared in the spoils of the winter of 1876 and 1877, and at this very period, October, 1880, they were witnessing an attempt to repeat the coup.
The charge of monopoly Scofield, Shurmer and Teagle sustained by a remarkable array of affidavits—the most damaging set for the Standard Oil Company which had ever been brought together. It contained the affidavits of various individuals who had been in the refining business in Cleveland at the time of the South Improvement Company and who had sold out in the panic caused by it. It contained a review of the havoc which that scheme and the manipulation of the railroads by the Standard which followed it had caused in the refining trade in Pennsylvania, and it gave the affidavits of Mrs. B—and of her secretary and others concerning the circumstances of her sale in 1878 (see Chapter VI). The affidavits filed by John D. Rockefeller, Oliver H. Payne and Henry M. Flagler in reply to the set presented by Scofield, Shurmer and Teagle are curious reading. From the point of view of our present knowledge they deny a number of things now known to be true.[4]
It was not necessary, however, for the defendants to have presented their elaborate array of evidence to support the charge of intended monopoly. The character of the agreement itself was sufficient to prevent any judge from attempting to enforce it. The amazement was that the Standard Oil Company ever had the hardihood to ask for its enforcement. "That it should venture to ask the assistance of a court of equity to enforce a contract to limit the production and raise the price of an article of so universal use as kerosene oil," said the Chicago Tribune, "shows that the Standard Oil Company believed itself to have reached a height of power and wealth that made it safe to defy public opinion." This case is not the only one belonging to the period which goes to support the opinion of the Tribune.
Scofield, Shurmer and Teagle were now obliged to stand on their own feet. They could refine all the oil they wished, but they must make their own freight contracts, and they found rates when you worked with Mr. Rockefeller were vastly different from rates when you competed with him. The agent of the Lake Shore Railroad, by which most of their shipments went, told them frankly that they could not have the rates of the Standard unless they gave the same volume of business. The discrimination against them was serious. For instance, in 1880, when the Standard paid sixty-five cents a barrel from Cleveland to Chicago, Scofield, Shurmer and Teagle paid eighty. From April 1 to July 1, 1881, the Standard paid fifty-five cents and their rival eighty cents; from July 1 to November 1, 1881, the rates were thirty-five and seventy cents respectively, and so it went on for three years, when the firm, despairing of any change, took the case into court. This case, fought through all the courts of Ohio, and in 1886 taken to the Supreme Court of the United States, is one of the clearest and cleanest in existence for studying all the factors in the rebate problem—the argument and pressure by which the big shipper secures and keeps his advantage, the theory and defence of the railroad in granting the discrimination, the theory on which the suffering small shipper protests, and finally the law's point of view. The first trial of the case was in the Court of Common Pleas, and the refiners won. The railroad then appealed to the District Court (the present Circuit Court), where it was argued. So "important and difficult" did the judges of the District Court find the questions involved to be, that on the plea of the railroad they sent their findings of the facts in the case to the Supreme Court of the state for decision—a privilege they had under the law in force at that time.
These findings are elaborate, including some twenty-three propositions.[5] They have been confused by certain writers with the opinion on them given later by the Supreme Court; for instance, in an economic study recently published—"The Rise and Progress of the Standard Oil Company,"—the twelfth and thirteenth and part of the fourteenth proposition which the District Court sent up to the Supreme Court in its "findings of facts" are quoted separately, and the inference from the context is that the writer supposed he was citing part of the court's opinion. As the reader will see from what follows, the paragraphs in question are important, for, taken as quoted, they seem to show that the rebate the Standard received, and which Scofield, Shurmer and Teagle wanted, was on account of facilities it gave which the other refiners could not give:
"The court further find that prior to 1875 it was a question whether the Standard Oil Company would remain in Cleveland or remove its works to the oil-producing country, and such question depended mainly upon rates of transportation from Cleveland to market; that prior thereto said Standard Company did ship large quantities of its products by water to Chicago and other lake points, and from thence distributed the same by rail to inland markets; that it then represented to defendant the probability of such removal; that water transportation was very low during the season of navigation; that unless some arrangement was made for rates at which it could ship the year round as an inducement, it would ship by water and store for winter distribution; that it owned its tank-cars and had tank stations and switches, or would have, at Chicago, Toledo, Detroit and Grand Rapids, on and into which the cars and oil in bulk could be delivered and unloaded without expense and annoyance to defendant; that it had switches at Cleveland leading to its works at which to load cars, and would load and unload all cars; that the quantity of oil to be shipped by the company was very large, and amounted to ninety per cent, or more of all the oil manufactured or shipped from Cleveland, and that if satisfactory rates could be agreed upon it would ship over defendant's road all its oil products for territory and markets west and northwest of Cleveland, and agree that the quantity for each year should be equal to the amount shipped the preceding year; that upon the faith of these representations the defendant did enter into the contract and arrangement substantially as set forth in defendant's answer; that the rates were not fixed rates, but depended upon the general card tariff rates as charged from time to time, but substantially to be carried from time to time for about ten cents per barrel less than tariff rates, and, in consideration of such reduced rates as to bulk oil, the Standard Company agreed to furnish its own cars and tanks, load them on switches at distributing points, and unload them into distributing tanks, and was also to load and unload oil shipped in barrels, and without expense to defendant, and with, by reason thereof, less risk to defendant, which entered into the consideration, and was also to ship all its freight to points west and northwest of Cleveland, except small quantities to lake ports not reached by rail, and to so manage the shipments, as to cars and times, as would be most favourable to defendant; that defendant then agreed to said terms; that said agreement so made in 1875 has remained in force ever since.
"That, at a cost exceeding $100,000, said Standard Company had and constructed the terminal facilities promised and herein found; that, in fact, the risk of danger from fire to defendant, the expense of handling, in loading and unloading, and in the use of the Standard tank-cars is less (but how much the testimony does not show) than upon oil shipped without the use of such or similar terminal facilities; that said Standard Company commenced by shipping about 450,000 barrels a year over defendant's road, which increased from year to year until, in 1882, the year before filing the petition in this action, the quantity so shipped on defendant's road amounted to 742,000 barrels, equal to 2,000 barrels or one full train-load per day.
"That said arrangement was not exclusive, but was at all times open to others shipping a like quantity and furnishing like service and facilities; that it was not made or continued with any intention on the part of the defendant to injure the plaintiffs in any manner."
Now, as a matter of fact, other propositions in this same set from which the above are quoted, find that Scofield, Shurmer and Teagle offered the railroad exactly the same facilities as the Standard, a switch, loading racks, exemption from loss by fire or accident.[6] "The manner of making shipments for plaintiffs and for the Standard Oil Company was precisely the same, and the only thing to distinguish the business of the one from the other was the aggregate yearly amounts of freight shipped," said Judge Atherton, of the Supreme Court, who gave the decision on the findings of fact, and he held in common with his predecessors that a rebate on account of volume of business only was "a discrimination in favour of capital," and contrary to a sound public policy, violation of that equality of rights guaranteed to every citizen, and a wrong to the disfavoured person. "We hold, …" he said, "that a discrimination in the rate of freights resting extensively on such a basis ought not to be sustained. The principle is opposed to sound public policy. It would build up and foster monopolies, add largely to the accumulated power of capital and money, and drive out all enterprise not backed by overshadowing wealth. With the doctrine, as contended for by the defendants, recognised and enforced by the courts, what will prevent the great grain interest of the Northwest, or the coal and iron interests of Pennsylvania, or any of the great commercial interests of the country bound together by the power and influence of aggregated wealth and in league with the railroads of the land, driving to the wall all private enterprises struggling for existence, and with an iron hand thrusting back all but themselves?" Judge Atherton was scathing enough in his opinion of the contract between the Lake Shore and the Standard. Look at it, he said, and see just what is shown. In consideration of the company giving to the railroad its entire freight business in oil, they transport this freight about ten cents a barrel cheaper than for any other customer. "The understanding was to keep the price down for the favoured customer, but up for all others, and the inevitable tendency and effect of this contract was to enable the Standard Oil Company to establish and maintain an overshadowing monopoly, to ruin all other operators and drive them out of business in all the region supplied by the defendant's road, its branches and connecting lines."
Judge Atherton was particularly hard on the portion of the contract[7] which pledged the Standard to give the Lake Shore all its freight in return for the rebates, and for this reason: In 1883 a new road Westward was opened from Cleveland, the New York, Cincinnati and St. Louis. It might become an active competitor in transporting petroleum for customers other than the Standard Oil Company. It might establish such a tariff of rates that other operators in oil might successfully compete with the Standard Oil Company. To prevent this, the Lake Shore road, on the completion of the new road, entered into a tariff arrangement giving to it a portion of the Westward shipments of the Standard Oil Company, on condition of its uniting in carrying out the understanding in regard to rebates to the Standard Oil Company. "How peculiar!" exclaimed Judge Atherton. "The defendant, by a contract made in 1875, was entitled to all the freights of the Standard Oil Company, and yet, say the District Court, 'for the purpose of securing the greater part of said trade,' they entered into a contract to divide with the new railroad, if the latter would only help to keep the rates down for the Standard and up for everybody else." Such a contract so carried out was, in the opinion of the court, "not only contrary to a sound public policy, but to the lax demands of the commercial honesty and ordinary methods of business."
Another fact found by the District Court incensed Judge Atherton. This was that the contract "was not made or continued with any intention on the part of the defendant to injure the plaintiffs in any manner." It does not "make any difference in the case," he declared. "The plaintiffs were not doing business in 1875, when the contract was entered into, and, of course, it was not made to injure them in particular. If a man rides a dangerous horse into a crowd of people, or discharges loaded firearms among them, he might, with the same propriety, select the man he injures and say he had no intention of wounding him. And yet the law holds him to have intended the probable consequences of his unlawful act as fully as if purposely directed against the innocent victim, and punishes him accordingly. And this contract, made to build up a monopoly for the Standard Oil Company and to drive its competitors from the field, is just as unlawful as if its provisions had been aimed directly against the interests of the plaintiffs."[8]
Having lost their case in the Supreme Court of the state, the Lake Shore now appealed to the Supreme Court of the United States, and the record was filed in November, 1886. It was never heard; the railroad evidently concluded it was useless, and finally withdrew its petition, thereby accepting the decision of the Supreme Court of Ohio restraining it from further discrimination against Scofield, Shurmer and Teagle.
This case, which was before the public constantly during the six or seven years following the breaking up of the Producers' Union, in which the Oil Regions presented no united 
BURST IN A PIPE LINE
One other case came out in this war of individuals on the rebate system which heightened the popular indignation against the Standard. It was a case showing that the Standard Oil Company had not yet abandoned that unique feature of its railroad contracts by which a portion of the money which other people paid for their freight was handed over to them! This peculiar development of the rebate system seems to have belonged exclusively to Mr. Rockefeller. Indeed, a careful search of all the tremendous mass of materials which the various investigations of railroads produced shows no other case—so far as the writer knows—of this practice. It was the clause of the South Improvement contracts which provoked the greatest outcry. It was the feature of Mr. Cassatt's revelations in 1877 which dumfounded the public and which no one would believe until they saw the actual agreements Mr. Cassatt presented. The Oil Regions as a whole did not hesitate to say that they believed this practice was still in operation, but, naturally, proof was most difficult to secure. The demonstration came in 1885, through one of the most aggressive and violent independents which the war in oil has produced, George Rice, of Marietta, Ohio. Mr. Rice, an oil producer, had built a refinery at Marietta in 1873. He sold his oil in the state, the West, and South. Six years later his business was practically stopped by a sudden raise in rates on the Ohio roads—an advance of fully 100 per cent being made on freights from Marietta, where there were several independent refineries, although no similar advance was made from Wheeling and Cleveland, where the Standard refineries were located. These discriminations were fully shown in an investigation by the Ohio State Legislature in 1879. From that time on Mr. Rice was in constant difficulty about rates. He seems to have taken rebates when he could get them, but he could never get anything like what his big competitors got.
In 1883 Mr. Rice began to draw the crude supply for his refinery from his own production in the Macksburg field of Southeastern Ohio, not far from Marietta. The Standard had not at that time taken its pipe-lines into the Macksburg field; the oil was gathered by a line owned by A. J. Brundred, and carried to the Cincinnati and Marietta Railroad. Now, Mr. Brundred had made a contract with this railroad by which his oil was to be carried for fifteen cents a barrel, and all other shippers were to pay thirty cents. Rice, who conveyed his oil to the railroad by his own pipe-line, got a rate of twenty-five cents by using his own tank-car. Later he succeeded in getting a rate of 17½ cents a barrel. Thus the rebate system was established on this road from the opening of the Macksburg field. In 1883 the Standard Oil Company took their line into the field, and soon after Brundred retired from the pipe-line business there. When he went out he tried to sell the Standard people his contract with the railroad, but they refused it. They describe this contract as the worst they ever saw, but they seem to have gone Mr. Brundred one better, for they immediately contracted with the road for a rate of ten cents on their own oil, instead of the fifteen cents he was getting, and a rate of thirty-five on independent oil. And in addition they asked that the extra twenty-five cents the independents paid be turned over to them! If this was not done the Standard would be under the painful necessity of taking away its shipments and building pipe-lines to Marietta. The Cincinnati and Marietta Railroad at that time was in the hands of a receiver, one Phineas Pease—described as a "fussy old gentleman, proud of his position and fond of riding up and down the road in his private car." It is probably a good description. Certainly it is evident from what follows that the receiver was much "fussed up" ethically. Anxious to keep up the income of his road, Mr. Pease finally consented to the arrangement the Standard demanded. But he was worried lest his immoral arrangement be dragged into court, and wrote to his counsel, Edward S. Rapallo, of New York City, asking if there was any way of evading conviction in case of discovery.
"Upon my taking possession of this road," the receiver wrote, "the question came up as to whether I would agree to carry the Standard Company's oil to Marietta for ten cents per barrel, in lieu of their laying a pipe-line and piping their oil. I, of course, assented to this, as the matter had been fully talked over with the Western and Lake Erie Railroad Company before my taking possession of the road, and I wanted all the revenue that could be had in this trade.
"Mr. O'Day, manager of the Standard Oil Company, met the general freight agent of the Western and Lake Erie Railroad and our Mr. Terry, at Toledo, about February 12, and made an agreement (verbal) to carry their oil at ten cents per barrel. But Mr. O'Day compelled Mr. Terry to make a thirty-five cent rate on all other oil going to Marietta, and that we should make the rebate of twenty-five cents per barrel on all oil shipped by other parties, and that the rebate should be paid over to them (the Standard Oil Company), thus giving us ten cents per barrel for all oil shipped to Marietta, and the rebate of twenty-five cents per barrel going to the Standard Oil Company, making that company say twenty-five dollars per day clear money on George Rice's oil alone.
"In order to save the oil trade along our line, and especially to save the Standard Oil trade, which would amount to seven times as much as Mr. Rice's, Mr. Terry verbally agreed to the arrangement, which, upon his report to me, I reluctantly acquiesced in, feeling that I could not afford to lose the shipment of 700 barrels of oil per day from the Standard Oil Company. But when Mr. Terry issued instructions that on and after February 23 the rate of oil would be thirty-five cents per barrel to Marietta, George Rice, who has a refinery in Marietta, very naturally called on me yesterday and notified me that he would not submit to the advance, because the business would not justify it, and that the move was made by the Standard Oil Company to crush him out. (Too true.) Mr. Rice said: 'I am willing to continue the 17½ cent rate which I have been paying from December to this date.'
"Now, the question naturally presents itself to my mind, if George Rice should see fit to prosecute the case on the ground of unjust discrimination, would the receiver be held, as the manager of this property, for violation of the law? While I am determined to use all honourable means to secure traffic for the company, I am not willing to do an illegal act (if this can be called illegal), and lay this company liable for damages. Mr. Terry is able to explain all minor questions relative to this matter."[9]
Mr. Rapallo, after consulting his partner and "representative bondholders," "fixed it" for the receiver in the following amazing decision:
"You may, with propriety, allow the Standard Oil Company to charge twenty-five cents per barrel for all oil transported through their pipes to your road; and I understand from Mr. Terry that it is practicable to so arrange the details that the company can, in effect, collect this direct without its passing through your hands. You may agree to carry all such oil of the Standard Oil Company, or of others, delivered to your road through their pipes, at ten cents per barrel. You may also charge all other shippers thirty-five cents per barrel freight, even though they deliver oil to your road through their own pipes; and this, I gather from your letter and from Mr. Terry, would include Mr. Rice."[10]
Now, how was this to be done "with propriety"? Simply enough. The Standard Oil Company was to be charged ten cents per barrel, less an amount equivalent to twenty-five cents per barrel upon all oil shipped by Rice. "Provided your accounts, bills, vouchers, etc., are consistent with the real arrangement actually made, you will incur no personal responsibility by carrying out such an arrangement as I suggest." Even in case the receiver was discovered nothing would happen to him, so decided the counsel. "It is possible that, by a proper application to the court, some person may prevent you, in future, from permitting any discrimination. Even if Mr. Rice should compel you, subsequently, to refund to him the excess charge over the Standard Oil Company, the result would not be a loss to your road, taking into consideration the receipts from the Standard Oil Company."
Fortified by his counsel, Receiver Pease put the arrangement into force, and beginning with March 20, 1885, a joint agent of the Standard pipe-line and of the Cincinnati and Marietta road collected thirty-five cents per barrel on the oil of all independent shippers from Macksburg to Marietta. Ten cents of this sum he turned over to the receiver and twenty-five cents to the pipe-line. When Mr. Rice found that the rate was certainly to be enforced he began to build a pipe of his own to the Muskingum River, whence he was to ship by barge to Marietta. By April 26 he was able to discontinue his shipments over the Cincinnati and Marietta road. This was not done until a rebate of twenty-five cents a barrel had been paid to the Standard Oil Company on 1,360 barrels of his oil—$340 in all.
Mr. Rice, outraged as he was by the discrimination, was looking for evidence to bring suit against the receiver, but it was not until October that he was ready to take the matter into court. On the 13th of that month he applied to Judge Baxter of the United States Circuit Court for an order that Phineas Pease, receiver of the Cleveland and Marietta Railroad, report to the court touching his freight rates and other matters complained of in the application. The order was granted on the same day the application was made. It was specific. Mr. Pease was to report his rates, drawbacks, methods of accounting for discrimination, terms of contracts, and all other details connected with his shipment of oil. No sooner was this order of the court to Receiver Pease known than the general freight agent, Mr. Terry, hurried to Cleveland, Ohio, to meet Mr. O'Day of the Standard Oil Company, with whom he had made the contract. The upshot of that interview was that on October 29, twelve days after the judge had ordered the contracts produced, a check for $340, signed by J. R. Campbell, Treasurer (a Standard pipe-line official), was received from Oil City, headquarters of the Standard pipe-line, by the agent who had been collecting and dividing the freight money. This check for $340 was the amount the pipe-line had received on Mr. Rice's shipments between March 20 and April 25. The agent was instructed to send the money to the receiver, and later, by order of the court, the money was refunded to Mr. Rice. But the Standard was not out of the scrape so easily.
Receiver Pease filed his report on November 2, but the judge found it "evasive and unsatisfactory," and further information was asked for. Finally the judge succeeded in securing the correspondence between Mr. Pease and Mr. Rapallo, quoted above, and enough other facts to show the nature of the discrimination. He lost no time in pronouncing a judgment, and he did not mince his words in doing it:
"But why should Rice be required to pay 250 per cent. more for the carriage of his oil than was exacted from his competitor? The answer is that thereby the receiver could increase his earnings. This pretence is not true; but suppose it was, would that fact justify, or even mitigate, the injustice done to Rice? May a receiver of a court, in the management of a railroad, thus discriminate between parties having equal claim upon him, because thereby he can accumulate money for the litigants? It has been repeatedly adjudged that he cannot legally do so. Railroads are constructed for the common and equal benefit of all persons wishing to avail themselves of the facilities which they afford. While the legal title thereof is in the corporation of individuals owning them, and to that extent private property, they are by the law and consent of the owners dedicated to the public use. By its charter and the general contemporaneous laws of the state which constitute the contract between the public and the railroad company—the state, in consideration of the undertaking of the corporators to build, equip, keep in repair and operate said road for the public accommodation, authorised it to demand reasonable compensation from everyone availing himself of its facilities, for the service rendered. But this franchise carried with it other and correlative obligations.
"Among these is the obligation to carry for every person offering business under like circumstances, at the same rate. All unjust discriminations are in violation of the sound public policy, and are forbidden by law. We have had frequent occasions to enunciate and enforce this doctrine in the past few years. If it were not so, the managers of railways in collusion with others in command of large capital could control the business of the country, at least to the extent that the business was dependent on railroad transportation for its success, and make and unmake the fortunes of men at will.
"The idea is justly abhorrent to all fair minds. No such dangerous power can be tolerated. Except in the modes of using them, every citizen has the same right to demand the service of railroads on equal terms that they have to the use of a public highway or the government mails. And hence when, in the vicissitudes of business, a railroad corporation becomes insolvent and is seized by the court and placed in the hands of a receiver to be by him operated pending the litigation, and until the rights of the litigants can be judicially ascertained and declared, the court is as much bound to protect the public interests therein as it is to protect and enforce the rights of the mortgagers and mortgagees. But after the receiver has performed all obligations due the public and every member of it—that is to say, after carrying passengers and freight offered, for a reasonable compensation not exceeding the maximum authorised by law, if such maximum rates shall have been prescribed, upon equal terms to all, he may make for the litigants as much money as the road thus managed is capable of earning.
"But all attempts to accumulate money for the benefit of corporators or their creditors, by making one shipper pay tribute to his rival in business at the rate of twenty-five dollars per day, or any greater or less sum, thereby enriching one and impoverishing another, is a gross, illegal, inexcusable abuse of a public trust that calls for the severest reprehension. The discrimination complained of in this case is so wanton and oppressive it could hardly have been accepted by an honest man having due regard for the rights of others, or conceded by a just and competent receiver who comprehended the nature and responsibility of his office; and a judge who would tolerate such a wrong or retain a receiver capable of perpetrating it ought to be impeached and degraded from his position.
"A good deal more might be said in condemnation of the unparalleled wrong complained of, but we forbear. The receiver will be removed. The matter will be referred to a master to ascertain and report the amount that has been as aforesaid unlawfully exacted by the receiver from Rice, which sum, when ascertained, will be repaid to him. The master will also inquire and report whether any part of the money collected by the receiver from Rice has been paid to the Standard Oil Company, and if so—how much, to the end that, if any such payments have been made, suit may be instituted for its recovery."[11]
On December 18 George K. Nash, a former governor of Ohio, was appointed master commissioner to take testimony and clear up the point doubtful in the judge's mind—to whom had the extra money paid by Rice been paid; the receiver declared that he never paid the Standard Oil Company any part of Rice's money. Mr. Nash summoned a large number of witnesses and gradually untangled the story told above. Mr. Pease spoke truly, he had never paid the Standard Oil Company any part of Mr. Rice's money. A joint agent of the railroad and the pipe-line had been appointed, at a salary of eighty-five dollars a month, sixty dollars paid by Pease and twenty-five dollars by the Standard, who collected the freight on independent shipments and divided the money between the two parties. It was from this agent that it was learned that, twelve days after Judge Baxter ordered Receiver Pease to bring his contracts into court, the money paid on Mr. Rice's oil had been returned by the Standard Oil Company.[12] While the investigation in regard to Mr. Rice's oil was going on, complaints came to Commissioner Nash from two other oil works at Marietta that they had been suffering a like discrimination for a much longer time. The commissioner investigated the cases and found the complaints justified. The Standard Oil Company had received $649.15 out of the money paid by one concern to the railroad for carrying its oil, and $639.75 out of the sum paid by another concern! Both of these sums were returned by the Standard.[13]
Of course the case aroused violent comment. In 1888 it came before the Congressional Committee which was investigating trusts, and an effort was made to explain the twenty-five cents extra as a charge of the pipe-line for carrying oil to the railway. Now, the practice in vogue in the Oil Regions then and now is that the purchaser of the oil pays the pipe-line charge. The railroad has nothing to do with it. Even if the Standard Oil Company puts a tax on railroads for allowing them to take oil carried by its pipe-lines—thus collecting double pay—the tax would not apply in Mr. Rice's case, for the oil came to the Cincinnati and Marietta road not through Standard pipes but through Mr. Rice's own pipes. This much Mr. O'Day was obliged to admit in 1888:
Q. But did that other oil which was in competition with you pass through your pipe?
A. No, sir.
Q. Did not they, therefore, on that oil which only passed over their railroad and not through your pipe-line, pay to you the same allowance or rebate that they did on your oil which did pass?
A. They did, but we returned it through the advice of our counsel, Mr. Dodd.
Q. Now, out of that sum how much did you get from the railroad out of what they had received from Mr. Rice?
A. We did not get any; that is, we did not retain any. The railroad company agreed to account to us for the oil that went over its lines, and they did make an accounting, to my recollection, of about $200, or something like that, on oil other than that which passed through the lines. Our counsel, Mr. Dodd, advised me that we could not do that business, and we refunded the money.
Soon after the report of the Congressional Committee was published John D. Rockefeller himself explained the case in an interview published in the New York World for March 29, 1890: "When the arrangement was reported to the officers of the company at New York," Mr. Rockefeller told the interviewer, "it was not agreed to because our counsel pronounced it illegal in so far as it embraced oil carried by the pipe-line. Some $250 had been paid to the pipe-line under this contract on oil which the line had not transported. This was refunded. We repudiated the contract before it was passed upon by the courts and made full recompense. In a business as large as ours, conducted by so many agents, some things are likely to be done which we cannot approve. We correct them as soon as they come to our knowledge. The public hears of the wrong—it never hears of the correction." In the Digest of Evidence made by the Industrial Commission in its report published in 1900 (page 158), it is stated that the money collected was refunded before suit was brought. The facts show that the statement in the report of the Industrial Commission that the money was refunded before suit was brought is wrong, and that, while Mr. Rockefeller is technically correct in stating that the Standard repudiated the contract before it was passed on by the courts, he should have added they did not repudiate the contract until eight months after it was made, and did not refund the money until twelve days after it became certain that the contract would be produced in court. He also does not explain why the Standard Oil Company did not return the money unjustly paid to them on the shipments of the other independent oil concerns of Marietta until exposure by Commissioner Nash's investigation made it inevitable.[14]
But it was not only manipulation of the railroads by the Standard Oil Company of which the public was complaining at this time. The policy of making it impossible for even small independent concerns to do business was attracting more and more attention. Indeed, there was going on in Buffalo, New York, simultaneously with these two cases, a most sensational trial, growing out of an indictment for the crime of conspiracy, by the Grand Jury of Erie County, New York, of three prominent members of the Standard Oil Company—H. H. Rogers, John D. Archbold and Ambrose McGregor—with two refiners with whom they were associated—H. B. Everest and C. M. Everest. The case is reported in the next chapter at some length, because of the importance it has assumed in the popular controversy which has been going on for the last twenty years over "Standard methods," it being the case on which is based the often-repeated charge that Mr. Rockefeller, to win his point, has been known to burn refineries.
- ↑ See Chapter V, page 165.
- ↑ See Appendix, Number 42. Standard Oil Company's petition for relief and injunction.
- ↑ See Appendix, Number 43. Answer of William C. Scofield et al.
- ↑ See Appendix, Number 44. Affidavit of John D. Rockefeller.
- ↑ See Appendix, Number 45, Findings of Fact.
- ↑ See Appendix, Number 45.
- ↑ Number 20, Findings of Facts. See Appendix, Number 45.
- ↑ Ohio State Reports, 43, pages 571-623.
- ↑ Proceedings in Relation to Trusts, House of Representatives, 1888. Report Number 3,112, pages 575-576.
- ↑ See Appendix, Number 46. Letter of Edward S. Rapallo to General Phineas Pease, receiver Cleveland and Marietta Railroad Company.
- ↑ Proceedings in Relation to Trusts, House of Representatives, 1880. Report Number 3,112, pages 577-578.
- ↑ See Appendix, Number 47. Testimony of F. G. Carrel, freight agent of the Cleveland and Marietta Railroad Company.
- ↑ See Appendix, Number 48. Report of the Special Master Commissioner George K. Nash to the Circuit Court.
- ↑ The documents from which the statements are drawn are all on file in the office of the Clerk of the United States Circuit Court for the Southern District of Ohio, Eastern Division.