THE NORTHERN SECURITIES CASE JAMES WILFORD GARNER, PH.D. The history of the conception, organization and undoing of the Northern Securities Company cannot fail to be of interest to students of transportation problems and constitutional law. The recent decision of the Supreme Court which restrains the company from carrying out its real purposes is generaily regarded as one of the most important ever pronounced by that august tribunal. Opinions differ widely, however, as to the merits of the decision; soine have gone so far as to say that it means more to the people of the United States than any other event which has happened since the Civil War; others assert with equal confidence that a more iniquitous decree was never made by a court. In this article an effort will be made to review the steps leading up to the organization of this remarkable corporation, the purposes for which it was formed, the various legal prosecutions which it underwent, the decision of the Supreme Court in its various bearings, and the perplexing question of readjustment following the decision. I. CONCEPTION AND ORGANIZATION. The Northern Securities Company is a corporation formed under the laws of New Jersey in November, 1901, for the primary purpose of acquiring and holding a majority of the stock of the Northern Pacific Railway Company, a Wisconsin corporation, and a part of the stock, but not a majority (so the Company alleges) of the Great Northern Railway Company, a Minnesota corporation. The ultimate purpose, it was asserted, was not to vest the control of the two railroad systems in one body with a view to suppressing competition, but to protect the Northern Pacific road from the destructive raids of a third system and for the creation and development of a great volume of trade among the States of the Northwest and between the United States and the Orient by 1 Remarks of Governor Van Sant, of Minnesota: Associated Press dispatch of March 14th 2 Prof. C. C. Langdell: Harvard Law Review, vol. 16, p. 549. establishing and maintaining a permanent schedule of cheap transportation rates. The Great Northern and Northern Pacific railroads are substantially parallel lincs extending from Lake Superior through the States of Minnesota, North Dakota, Montana, Idaho and Washington to the Pacific Ocean, each connecting with lines of steamships at their termini on the Great Lakes and the Pacific Ocean. Their aggregate length exceeds 10,000 miles and although separated at most points by an intervening country hundreds of miles in extent, they touch at several places, notably Duluth, St. Paul, Fargo, Helena, Spokane, and Seattle. The total amount of their interstate traffic which may be said to be distinctively competitive, is relatively small. Mr. Hill testified that it did not exceed ten per cent.3 while counsel asserted that it did not exceed three per cent.1 and this the Government did not deny, but asserted that even if the minimum estimate were true the total amount of traffic affected would approximate $800,000 per year. Whatever may be the actual facts as to this point, the Supreme Court had already decided in a previous case that the two roads were parallel and competing lines.6 Both have competitors in the Union Pacific Railroad on the South and the Canadian Pacific Railroad on the North, each of which extends to the Pacific Ocean, and the latter of which touches at St. Paul. The policy of the Great Northern Railroad since 1893 has been determined mainly by Mr. James J. Hill and his associates, not through the ownership of a majority of the stock, for they have never owned more than one-third of the total, but by reason of the implicit confidence which the stockholders have reposed in Mr. Hill's remarkable ability and success. The destinies of the Northern Pacific since its reorganization in 1896 have been mainly controlled by Mr. J. P. Morgan and his associates, who have acted in concert with Mr. Hill in matters affecting the interests of both systems. The first instance of this joint action was in 1896, when Mr. Morgan, 3 Record, pp. 714, 715. 4 Mr. Young's brief, p. 7; Mr. Grover's brief, pp. 4-7. 5 Brief for the United States, p. 11; Mr. John G. Johnson, of Counsel for the defendants, thought as much as 25 per cent. of the interstate traffic of the two roads is nominally competitive, but that more than one-fifth of this could be transported by other systems.-(Johnson's brief, p. 5.) 6 Pearsall vs. Great Northern Railway, 161 U. S., 646. in effecting a reorganization of the Northern Pacific, entered into an arrangement with Mr. Hill by which the stockholders of the Great Northern were to take over one-half the capital stock of the Northern Pacific and to guarantee its bonds. This arrangement, however, was held to be a violation of the law of Minnesota which forbids the consolidation of parallel and competing lines of railroad, and the decision marks the first of the series of defeats which the Hill-Morgan interests have encountered in their efforts to establish a "community of interest" between the two roads. A second instance of the kind was a joint attempt early in 1901 to purchase the Chicago, Milwaukee and St. Paul Railroad, but the negotiations fell through. A joint effort was then made to purchase the Chicago, Burlington and Quincy, an extensive system embracing about 8,000 miles, traversing the States of Illinois, Iowa, Missouri, Nebraska, Wyoming and Colorado. This effort was successful, the purchase price being $200 per share, or about $216,000,000 in all, payable in the joint bonds of the two companies.8 The motive alleged for the purchase was the desire to effect an arrangement by which west-bound freights could be secured for the empty lumber cars returning from the Mississippi Valley to the Pacific Coast, so as to reduce transportation rates on lumber and other heavy natural products from the far West. If markets for Eastern and Southern products could be created on the Pacific Coast and in the Orient, the problem of return freights for empty cars would be solved. To create this new trade it was necessary to give the Oriental importer assurance that the low transportation rates offered would be permanent. No such assurance, it was asserted, could be given if the Burlington road, which constituted an essential link in the connecting chain of transportation, might in the future be induced to make changes in its rates. Immediately after the purchase of the Burlington became known, those interested in the Union Pacific Railroad, chief of whom was Mr. E. H. Harriman, realizing the danger from a permanent competition which the transfer of the Burlington to the Hill-Morgan combination assured, made overtures for an allotment to them of a portion of the Burlington shares, but their request was denied.10 Mr. Young's brief, p. 31.; brief for the United States, p. 17. Mr. Johnson's brief, p. 7. |