Tobin, John M

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Boston College Law ReviewVolume 5 | Issue 1 Article 1510-1-1963Antitrust—Clayton Act—Application of Section 7to Bank Mergers.—United States v. PhiladelphiaNat. BankJohn M. TobinFollow this and additional works at: http://lawdigitalcommons.bc.edu/bclrPart of the Antitrust and Trade Regulation Commons, and the Banking and Finance LawCommonsThis Casenotes is brought to you for free and open access by the Law Journals at Digital Commons @ Boston College Law School. It has been acceptedfor inclusion in Boston College Law Review by an authorized administrator of Digital Commons @ Boston College Law School. For more information,please contact nick.szydlowski@bc.edu.Recommended CitationJohn M. Tobin, Antitrust—Clayton Act—Application of Section 7 to Bank Mergers.—United States v.Philadelphia Nat. Bank, 5 B.C.L. Rev. 175 (1963), http://lawdigitalcommons.bc.edu/bclr/vol5/iss1/15CASE NOTESAntitrust—Clayton Act—Application of Section 7 to Bank Mergers.—United States v. Philadelphia Nat. Bank.1—The Department of Justicebrought suit in the district court to enjoin the proposed consolidation of thesecond and third largest banks in the Philadelphia metropolitan area.2 Inaccordance with the Bank Merger Act,3 the approval of the Comptroller of theCurrency had been obtained. The resulting bank would have been the largestin the area, handling more than thirty per cent of the total banking business.The complaint, alleging violation of Section 7 of the Clayton Act,' wasdismissed on the ground that section 7 did not apply to bank mergers, andthat, assuming that it did, the proposed merger would not constitute aviolation.5 On appeal" the decision was reversed and remanded by theSupreme Court. HELD: The 1950 amendments to Section 7 of the ClaytonAct expanded its scope to include bank mergers and the proposed consolida-tion violates that section.The first part of the Court's holding dealt with the effect of the 1950amendments on the scope of section 7•7 That section was originally directedat the practice of one corporation acquiring (particularly secretly) stock orother shares in another corporation.8 It forbade such acquisitions when they1 374 U.S. 321 (1963).2 This transaction would, technically, be a consolidation since both entities woulddisappear into the resulting bank. A merger, strictly speaking, involves a transactionwhere one corporation disappears into a survivor. Nevertheless, the Court uses both termsinterchangeably and considers both types of amalgamations on the same basis. Theseare to be sharply distinguished, however, both legally and factually, from the transactionin which one corporation would buy either the stock or assets of another, both cor-porations retaining their separate identity.3 74 Stat. 129 (1960), 12 U.S.C. § 1828 (c) (Supp. II, 1959-61). The FederalReserve Board controls mergers of state banks while the Comptroller of the Cur-rency controls mergers of both state and national banks. Permission must be receivedfrom these agencies before a merger can be effected. The factors to be considered beforea merger may be approved are listed in the statute.4 38 Stat. 731 (1914), as amended, 64 Stat. 1125 (1950), 15 U.S.C. § 18 (1958). Inaddition to the various agencies specifically charged with enforcement of the Act, theDepartment of Justice has broad equity powers to institute proceedings to enjoinviolation of any part of the Act. 38 Stat. 736 (1914), 15 U.S.C. § 25 (1958). Thisproceeding was commenced under the above authority.5 201 F. Supp. 348 (El). Pa. 1962).6 The appeal was taken directly to the Supreme Court under the provisions ofthe Expediting Act. 32 Stat. 823 (1903), as amended, 15 U.S.C. § 29 (1958).7 For a comparison of the original and amended section 7, the brackets willindicate deletions—italics will indicate additions.That no corporation engaged in commerce shall acquire, directly or indirectly,the whole or any part of the stock or other share, capital and no corporationsubject to the jurisdiction of the Federal Trade Commission shall acquire thewhole or any part of the assets of another corporation engaged also in commerce,where in any line of commerce in any section of the country, the effect of suchacquisition may be [to] substantially to lessen competition [between the corpora-tion making the acquisition, or to restrain such commerce in any section or com-munity], or to tend to create a monopoly [of any line of commerce].Supra note 4.The legislative history of the 1914 Act is reviewed in Brown Shoe Co. v. UnitedStates, 370 U.S. 294 (1962).175BOSTON COLLEGE INDUSTRIAL AND COMMERCIAL LAW REVIEWwould lessen competition between the two corporations, create a monopoly orrestrain such commerce in any section or community .° The basic design wasto prevent possible violations of the Sherman Act "in their incipiency andwell before they have attained such effects as would justify a Sherman Actproceeding."'° The Act, however, was silent as to asset acquisitions, mergersand consolidations, although these forms of corporate amalgamations wereknown at the time.In 1926 the Supreme Court held that the Act did not apply to theacquisition by one corporation of the assets of another, but only encompassedstock purchases. Mergers were construed as asset acquisitions." Subsequentcases tended to affirm this viewpoint; however, there was doubt as towhether the actual grounds of the decisions rested on the lack of authority ofthe Federal Trade Commission rather than the lack of the court's powerunder the scope of Section 7 of the Act. 12 In United States v. Celanese Corp.,13however, the district court held that, in a merger situation, the survivingcorporation acquired nothing more than the assets of the disappearingcorporation. Since the plaintiff was the Justice Department rather than theFTC the district court's decision rested directly on the substantive scopeof section 7 rather than the procedural ground of the FTC's authority."As a result of this "loophole" in the federal antitrust laws, the numberof mergers increased sharply, particularly since the advent of the SecondWorld War, and the increase still continues." In the opinion of the FederalTrade Commission, these mergers presented problems which, as has beennoted, could not be dealt with under the original provisions of section 7,and the Commission repeatedly requested Congress to revise the Act.It was against this background that the 1950 amendment was passed.The language concerning stock acquisition was re-enacted without changeand the additional language referring to asset acquisition limits its scopeonly to corporations subject to the jurisdiction of the Federal Trade Com-mission." Since banks are expressly exempted from the jurisdiction of the9 Supra note 4.19 S. Rep. No. 1775, 81st Cong., 2d Sess. 7-8 (1950). See Transamerica Corp. v.Board of Governors of the Fed. Reserve Sys., 206 F.2d 163 (3d Cir. 1953) ; UnitedStates v. E. I. Du Pont de Nemours and Co., 353 U.S. 586 (1957).11 FTC v. Western Meat Co., 272 U.S. 554 (1926).12 Arrow-Hart & Hegeman Elec. Co. v. FTC, 291 U.S. 587 (1934). That caseinvolved a consolidation similar to the instant one, except, of course, that it did not in-volve banks. The Court held that the FTC was without a remedy since this was not astock transaction but rather an asset acquisition. Had it been a stock transaction theFTC could have ordered its divestiture. See also Hernacki, Mergerism and Section 7 ofthe Clayton Act, 20 Geo. Wash. L. Rev. 659 (1952) ; Irvine, The Uncertainties ofSection 7 of the Clayton Act, 14 Cornell L.Q. 28 (1928).12 91 F. Supp. 14 (S.D.N.Y. 1950).14 This was the sole action commenced by the Justice Department under section7 prior to the 1950 amendments. It is therefore the only case in which the questionof the authority of the FTC was not involved, The Justice Department has concurrentauthority with each of the agencies to enforce the Act. See note 4, supra.15 Bok, Section 7 of the Clayton Act and the Merging of Law and Economics, 74Harv. L. Rev. 230 (1960).16 Supra note 7.176CASE NOTESFTC," the applicability of section 7 to the banking field would, on thesurface, be limited to the acquisition of "stock or other share capital" asdefined in the original act. This interpretation of the effect of the amendmentwas almost unanimous in the first few years following its passage 1 8 It waseven, for a time, conceded by the Justice Department? This view was furthersupported by the passage, in 1960, of the Bank Merger Act 2° by a Congresswhich was apparently under the impression that the enactment of the 1950Clayton Act amendment did not reach the banking field. 21The Court in the instant case, however, held that the clause prohibitingthe acquisition of "stock or other share capital" which was re-enacted withoutchange "must be deemed expanded in its new context to include, at the veryleast, acquisitions by merger or consolidation, transactions which entail atransfer of stock of the parties," leaving the new asset-acquisition provisionto cover transactions involving no such transfer. 22 In short, the Court heldthat the amendment was directed at closing the "loophole" in the antitrustlaws by subjecting all corporate, including bank, mergers to the prohibitionsof section 7. The objective of the phrase "corporations subject to thejurisdiction of the Federal Trade Commission" 2° was not intended "to limitthe amalgamations to be covered by the amended statute but to make explicitthe role of the FTC in administering the section." 24Support for this construction could not, of course, come from the literallanguage of the statute itself in the light of prior judicial interpretations. TheCourt necessarily had to resort to the legislative history of the amendment,which it noted to be silent on the specific questions of "why the amendmentmade no explicit reference to mergers, why assets acquisitions by corporationsnot subject to FTC jurisdiction were not included, and what these omissionssignify." 25 It is certainly a possibility that these omissions signify that Con-gress did not intend to reach mergers generally, but merely wished to extend17 38 Stat. 719 (1914), as amended, 15 U.S.C. § 45(a) (6) (1958).18 Wemple and Cutler, 16 Bus. Law. 994 (1961); Celler, The New AntimergerStatute: The Current Outlook, 37 A.B.A.J. 897 (1951); Note, 75 Harv. L. Rev. 756(1962); Hernacki, supra note 12; Note, 71 Yale L.J. 502 (1962).12 See, e.g., Testimony of Attorney General Brownell: "On the basis of theseprovisions the Department of Justice has concluded . . . that asset acquisitions bybanks are not covered by section 7 [of the Clayton Act] as amended in 1950." Quoted inthe dissenting opinion, United States v. Philadelphia Nat. Bank, supra note 1, at 378;2 Antitrust Bull. 519 (1957).20 Supra note 3. Among the considerations to be considered by the banking agencyapproving a merger is the effect of the transaction on competition, including anytendency towards monopoly. Approval must not be given unless the merger be in thepublic interest after balancing all the factors. The Act requires the Attorney Generalto submit reports on the competitive factors involved.21 S. Rep. No. 196, 86th Cong., 1st Sess. 1-2 (1959): " 'Since bank mergers arecustomarily, if not invariably, carried out by asset acquisitions, they are exempt fromsection 7 of the Clayton Act..'" Quoted in the dissenting opinion, United States v.Philadelphia Nat. Bank, supra note 1, at 378. See also H.R. Rep. No. 1416, 86th Cong., 2dSess. 5 (1960).22 Supra note 1, at 346.23 Supra note 4.24 Supra note 1, at 346.25 Id. at 341.177BOSTON COLLEGE INDUSTRIAL AND COMMERCIAL LAW REVIEWthe prohibitions of section 7 to asset acquisitions by corporations subject toFTC jurisdiction: leaving corporations not subject to FTC jurisdiction un-affected. This possibility was rejected by the Court.The Court based its construction of the amended statute on four proposi-tions: (1) that it would be illogical and inimical to the Congressional purposeof closing a "loophole" to construe the statute as applying only to corpora-tions under FTC jurisdiction, leaving a large area of commerce beyond • thereach of the prohibitions; (2) that Congress was well aware that there wasa vital difference between merger and pure asset acquisition," and that theannounced Congressional purpose of preventing mergers of all types neces-sitates an expanded construction of the stock-acquisitions provision; (3) thatthe reference to the FTC in the amendment merely defines that agency'senforcement role and does not in any way limit the• coverage of the statute,although the Court correctly noted that there had always been a certainamount of doubt as to the basis of the decisions exempting mergers fromsection 7;27 (4) that immunity from the antitrust laws is not lightly implied.In addition, the Court held that the Bank Merger Act" was ineffective inconferring any immunity on banks from the federal antitrust laws. The Actitself conferred no express immunity," and immunity by implication isutilized only where there is strong repugnancy between the antitrust andregulatory provisions. Although the Comptroller was required to considerthe effect of the merger on competition, he was not required to give it anyparticular weight,3° and he found no such repugnancy here.Several basic difficulties are apparent in the Court's analysis. It issignificant that Congress, in 1950, re-enacted without change, those clausesof section 7 that dealt with stock acquisition.31 As a rule, courts will draw aninference that re-enactment of previously construed language indicates alegislative intent to adopt the judicial construction.32 As has been noted,mergers were excluded from the previous judicial definition of "stock ac-quisition." In order to redefine the phrase, the Court found it necessary26 The authority relied upon by the Court in support of this: H.R. Rep. No. 1191,81st Cong., 1st Sess. 8-9 (1949); Remarks of Senator Kilgore at Hearings before a Sub-committee of the Senate Committee on the Judiciary on Corporate Mergers andAcquisitions, 81st Cong., 1st and 2nd Sess. 176 (1950), although it indicates thatCongress wished to place mergers on the same footing as stock acquisitions, does notnegate the inference from the statute that they wished this extension to be limitedto corporations subject to the jurisdiction of the FTC.27 Supra note 12 and accompanying text.28 Supra note 4.29 Ibid. For example the Interstate Commerce Act exempts railroads, motor andwater carriers from the antitrust laws when the consolidation is approved by theInterstate Commerce Commission. 49 U.S.C. § 5 (1958). Neither, however, does the Actcontain what is known as a saving clause—that is, a clause specifically stating that theAct would not be construed as conferring exemption from the antitrust laws. TheJustice Department had requested that such a clause be added. Wemple and Cutler, supranote 18, at 998.39 Supra note 4. After weighing all the factors the Comptroller must decide whetherthe merger is in the public interest.31 Supra note 7.32 See for example: United States v. Dixon, 347 U.S. 381 (1954); Overstreet v.North Shore Corp., 318 U.S. 125 (1943).178CASE NOTESto consult the legislative history, which is usually resorted to only whenthere is an ambiguity in the statutory language. In the light of the priordecisions, it is difficult to detect any ambiguity in the amended statute. Thisis true even though some of the previous judicial constructions may havebeen dicta; they were nevertheless the only judicial definitions available toCongress. Mergers were defined as asset acquisitions, and Congress onlyextended the prohibitions of section 7 to asset acquisitions by corporationssubject to the jurisdiction of the FTC. Nothing could be less ambiguous,particularly when one considers that the FTC was the agency requesting theamendment. The ambiguity, where it existed, was in the legislative historyrather than the statutory language. 33 If the construction given by the Courtwas the one intended, Congress, as the dissent stated, "went at the matterin a very peculiar way."34Given this extension of section 7, the remainder of the decision fallslogically into place. The Bank Merger Act did not oust jurisdiction overmergers under the Clayton Act if that jurisdiction was already present.35In addition, if section 7 is applicable, this merger would violate it. 3° Com-mercial banking is a "line of commerce" and the four-county Philadelphiaarea would constitute a relevant geographical area according to the previousdefinitions of the Court." Since the new bank would have more than thirtyper cent of the banking business in this area, and since section 7 is designedto prevent possible violations of the Sherman Act in their incipiency, thenecessary elements for an injunction appear to be present.In conclusion, the primary problem with the decision is that Congressmay, by recognizing the peculiar nature of banking in relation to the rest ofthe economy, have intended a different system of regulation: one thatwould not rely on enforced competition through the somewhat mechanicalrequirements of the Clayton Act, but one which would allow large, evenmonopolistic, amalgamations, when in the opinion of the regulatory author-ities, they are in the public interest. If this was the Congressional intent whenthe section 7 amendment and the Bank Merger Act were passed, this intentis frustrated by the Court in this decision.JOHN M. TOBINAntitrust—Sherman Act—Conspiracy in Restraint of Trade to Elimi-nate Competition by the Transfer of Ownership of Patent Rights.—United States v. The Singer Mfg. Co.'—Singer Manufacturing Company,the sole domestic manufacturer of household zigzag sewing machines, de-veloped an improved multicam zigzag machine. Singer executed a non-33 See note 25 and accompanying text.37 Supra note 1, at 387.33 United States v. Borden Co., 308 U.S. 188 (1939).36 For a discussion of the necessary elements for the maintenance of a section 7 suit,see More Ado About Mergers: Brown Shoe Co. v. United States, 4 B.C. Ind. & Corn. L.Rev. 159 (1962).37 E.g., Brown Shoe Co. v. United States, supra note 8.1 374 U.S. 174 (1963).179

Antitrust—Clayton Act—Application of Section 7 to Bank Mergers.—United States v. Philadelphia Nat. Bank

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