INTERNATIONAL HARVESTER v. MISSOURI 234 U.S. 199 (1914)

[234 U.S. 199, 200]   Messrs. Edgar A. Banceroft, William M. Williams, Selden P. Spencer, and Victor A. Remy for plaintiff in error.

[234 U.S. 199, 202]   Mr. John T. Barker, Attorney General of Missouri, and Messrs. W. T. Rutherford, Thomas J. Higgs, W. M. Fitch, and Paul P. Prosser for defendant in error.

Mr. Justice McKenna delivered the opinion of the court:

Information in the nature of quo warranto, brought in the supreme court of the state, to exclude plaintiff in error from the corporate rights, privileges, and franchises exer- [234 U.S. 199, 203]   cised or enjoyed by it under the laws of the state, that they be forfeited, and all or such portion of its property as the court may deem proper be confiscated, or, in lieu thereof, a fine be imposed upon it in 'punishment of the perversion, usurpation, abuse, and misuse of franchises.'

The ground of the action is the alleged violation of the statutes of the state passed respectively in 1899 and 1909, and entitled 'Pools, Trusts, and Conspiracies,' and 'Pools, Trusts, and Conspiracies and Discriminations.'

The facts alleged in the information are these: Plaintiff in error is a Wisconsin corporation engaged in the manufacture and sale of agricultural implements, binders, mowers, etc., and was licensed on the 5th of April, 1892, to do business in Missouri under the name of the Milwaukee Harvester Company, and on September 18, 1902, became licensed to do and engaged in such business in the state. In that year in such business in the state. In that year New Jersey was organized with a capital stock of $120,000,000 for the purpose of effecting a combination of plaintiff in error and certain other companies to restrain competition in the manufacture and sale of such agricultural implements in Missouri, and the New Jersey company has maintained plaintiff in error as its sole selling agent in Missouri. Before the combination the companies combined were competitors of one another and of other corporations, individuals, and partnerships engaged in the same business in the state, and that thereby the people of the state, and particularly the retail dealers and farmers of the state, received the benefit of competition in the purchase and sale of farm implements. The combination was designed and made with a view to lessen, and it tended to lessen, free competition in such implements, and thereby the said corporations entered into and became members of a pool, trust, combination, and agreement. In furtherance thereof, and for the purpose of giving the International Harvester Company of New Jersey a [234 U.S. 199, 204]   monopoly of the business of manufacturing and selling agricultural implements in the state, and for the purpose of preventing competition in the sale thereof, plaintiff in error has compelled the retail dealers in each county of the state who desire to handle and sell or act as agent for it to refrain from selling implements manufactured or sold by competing companies or persons. By reason thereof competition in such implements has been restrained, prices controlled, the quantity of such implements has been fixed and limited, and plaintiff in error has been able to secure, and for several years enjoy, from 85 per cent to 90 per cent of the business, all to the great damage and loss of the people of the state, and by reason of its participation in the pool, trust, and combination, and by reason of the acts and things done by it, plaintiff in error has been guilty of an illegal, wilful, and malicious perversion and abuse of its franchises, privileges, and licenses granted to it by the state.

The answer of plaintiff in error denied that it had become a party to any combination, or that, in its transactions, there was any purpose to restrain or lessen competition, or that trade had been or was restrained.

The case was referred to a special commissioner to take the evidence and report his conclusions. He found, as alleged in the information, that the International Harvester Company of New Jersey was a combination of the properties and businesses of formerly competing harvester companies, and plaintiff in error being one of such companies, and thereafter, by selling the New Jersey company's products in Missouri, had violated the Missouri statutes against pools, trusts, and conspiracies.

In exceptions to the report of the special commissioner plaintiff in error urged that the statute of Missouri violated the equality clause and due process clause of the 14th Amendment to the Constitution of the United States, '(1) because said statute arbitrarily discrim- [234 U.S. 199, 205]   inates between persons making or selling products and commodities and persons selling labor and service of all kinds: In that each section of said statute applies only to articles of merchandise, and not to labor or services and the like, the prices of which are equally and similarly determined by competition, and may be equally and similarly the subject of combination and conspiracy to the detriment of the public. (2) Because said statute arbitrarily discriminates between the makers and sellers of products and commodities and the purchasers thereof: It prohibits manufacturers and sellers from making contracts or arrangements intended or tending to increase the market price of the articles they make or sell, but does not prohibit purchasers from combining to fix or reduce the market price of the commodities or articles to be purchased by them. (3) Because said statute, as construed by the commissioner, unreasonably and arbitrarily interferes with plaintiff in error's right to make proper and reasonable business contracts, and deprives it of property rights in respect thereto.'

These exceptions were urged and argued in the supreme court upon the filing of the commissioner's report. Judgment was entered upon the report, in which it was adjudged that by reason of the violation of the statutes of the state, as charged in the information, plaintiff in error had forfeited the license theretofore granted to it to do business in the state, and it was adjudged that the license be forfeited and canceled and the company ousted from its rights and franchises granted by the state to do business in the state, and a fine of $50,000 was imposed upon it. It was, however, provided that upon payment of the fine on or before the 1st of January, 1912, and immediately ceasing all connection with the International Harvester Company of New Jersey and the corporations and copartnerships with which it had combined, and not continuing and maintaining the unlawful agreement and com- [234 U.S. 199, 206]   bination with them to lessen and destroy competition in the sale of the enumerated farm implements, and giving satisfactory evidence thereof to the court, the judgment of ouster should be suspended. The company was given until March 1, 1912, 'to file its proof of willingness' to comply with the judgment. It was also adjudged that upon a subsequent violation of the statute 'the suspension of the writ of ouster shall be removed' by the court 'and absolute ouster be enforced,' and to that end the court retained 'its full and complete jurisdiction over the cause.' 237 Mo. 369, 141 S. W. 672.

A motion is made to dismiss on the ground that plaintiff in error in its answer simply denied that it had violated the antitrust laws of the state, and it is contended that by not alleging in its answer that those laws violated the Constitution of the United States, it waived such defense. It is further contended that because the Federal right was not asserted in the answer, the supreme court of the state could not have considered, and did not consider or decide it. Decisions of the supreme court of Missouri are cited to sustain the contentions. The decisions declare the proposition that constitutional questions must be raised at the first opportunity, or, as it is expressed in one of the cases (Brown v. Missouri, K. & T. R. Co. 175 Mo. 185, 74 S. W. 973), 'the protection of the Constitution must be timely and properly invoked in the trial court.'

In Dahnke-Walker Mill. Co. v. Blake, 242 Mo. 31, 145 S. W. 438, it is said: 'The rule of this court is that so grave a question [constitutional question] must be lodged at the first opportunity, or it will be deemed to have been waived. If it can be appropriately and naturally raised in the pleadings, and thereby be a question lodged in the record proper, such is the time and place to raise it;' and that it is too late to raise the question after judgment in a motion for new trial. In Hartzler v. Metropolitan Street R. Co. 218 Mo. 562, 117 S. W. 1124, it was held: 'The motion for a new trial was not [234 U.S. 199, 207]   the first door for the question to enter, and in our later decisions we have ruled that a question of such gravity must be raised as soon as orderly procedure will allow. This in order that the trial court may be treated fairly, and the question get into the case under correct safeguards, and earmarked as of substance, and not mere color.'

It is manifest, we think, that the court only intended to express the condition of appellate review to be that in the trial court constitutional questions should not be reserved until the case had gone to judgment on other issues, and then used to secure a new trial. The principle of the rulings is satisfied in the case at bar. It is, as we have seen, an original proceeding in the supreme court, and upon the report of the commissioner which brought the case to the court for decision of the issues and questions involved in it the Federal questions were made 'under correct safeguards and earmarked as of substance, and not mere color.' It is true the court has not referred to them in its opinion, but we cannot regard its silence as a condemnation of the time or manner at or in which they were raised. The motion to dismiss is therefore denied.

The assignments of error necessarily involve a consideration of the statutes. The relevant provisions are contained in 10,301 of the Revised Statutes of the state of 1909, and 8,966 of the Revised Statutes of 1899

Section 10,301 provides that 'all arrangements, contracts, agreements, combinations, or understandings made or entered into between two or more persons, designed or made with a view to lessen, or which tend to lessen, lawful trade, or full and free competition in the importation, transportation, manufacture, or sale' in the state 'of any product, commodity, or article, or thing bought and sold,' and all such arrangements, etc., 'which are designed or made with a view to increase, or which tend to increase, the market price of any product, commodity, or article, or thing, of any class or kind whatsoever, [234 U.S. 199, 208]   bought and sold,' are declared to be against public policy, unlawful and void, and those offending 'shall be deemed and adjudged guilty of a conspiracy in restraint of trade, and punished' as provided.

Section 8,966 provides that arrangements, etc., such as described in 10,301, having like purpose, and all such arrangements, etc., 'whereby or under the terms of which it is proposed, stipulated, provided, agreed, or understood that any person, association of persons, or corporations doing business in' the state, 'shall deal in, sell, or offer for sale' in the state 'any particular or specific article, product, or commodity, and shall not, during the continuance or existence of any such arrangement , . . . deal in, sell, or offer for sale,' in the state, 'any competing article, product, or commodity,' are declared to be against public policy, unlawful and void; and any person offending 'shall be deemed and adjudged guilty of a conspiracy to defraud, and be subject to the penalties' provided.

By 10,304 of the Revised Statutes of 1909, it is provided that domestic offending corporations shall forfeit their charters and all or any part of their property as shall be adjudged by a court of competent jurisdiction, or be fined in lieu of the forfeiture of charters or of property.

Foreign offending corporations shall forfeit their right to do business in the state, with forfeiture also of property, or, in lieu thereof, the payment of a fine.

In State ex rel. Hadley v. Standard Oil Co. 218 Mo. 1, 370, 372, 116 S. W. 902, the supreme court held that the anti-trust statutes of the state 'are limited in their scope and operation to persons and corporations dealing in commodities, and do not include combinations of persons engaged in labor pursuits.' And, justifying the statutes against a charge of illegal discrimination, the court further said that 'it must be borne in mind that the differentiation between labor and property is so great that they do not belong to the same [234 U.S. 199, 209]   general or natural classification of rights or things, and have never been so recognized by the common law or by legislative enactments.'

Accepting the construction put upon the statute, but contesting its legality as thus construed, plaintiff in error makes three contentions: (1) The statutes, as so construed, unreasonably and arbitrarily limit the right of contract; (2) discriminate between the vendors of commodities and the vendors of labor and services; and (3) between vendors and purchasers of commodities.

(1) The specification under this head is that the supreme court found, it is contended, benefit-not injury-to the public had resulted from the alleged combination. Granting that this is not an overstatement of the opinion, the answer is immediate. It is too late in the day to assert against statutes which forbid combinations of competing companies that a particular combination was induced by good intentions and has had some good effect. Armour Packing Co. v. United States, 209 U.S. 56, 62 , 52 S. L. ed. 681, 684, 28 Sup. Ct. Rep. 428; Standard Sanitary Mfg. Co. v. United States, 226 U.S. 20, 49 , 57 S. L. ed. 107, 117, 33 Sup. Ct. Rep. 9. The purpose of such statutes is to secure competition and preclude combinations which tend to defeat it. And such is explicitly the purpose and policy of the Missouri statutes; and they have been sustained by the Supreme Court. There is nothing in the Constitution of the United States which precludes a state from adopting and enforcing such policy. To so decide would be stepping backwards. Carroll v. Greenwich Ins. Co. 199 U.S. 401 , 50 L. ed. 246, 26 Sup. Ct. Rep. 66; Central Lumber Co. v. South Dakota, 226 U.S. 157 , 57 L. ed. 164, 33 Sup. Ct. Rep. 66.

It is true that the supreme court did not find a definite abuse of its powers by plaintiff in error, but it did find that there was an offending against the statute, a union of able competitors, and a cessation of their competition, and the court said: 'Some of the smaller concerns that were competitors in the market have ceased their struggle for existence and retired from the field.' This is one [234 U.S. 199, 210]   of the results which the statute was intended to prevent,-the unequal struggle of individual effort against the power of combination. The preventing of the engrossment of trade is as definitely the object of the law as is price regulation of commodities, its prohibition being against combinations 'made with a view to lessen, or which tend to lessen, lawful trade or full and free competition in the importation, transportation, manufacture, or sale of any commodity, or article, or thing bought or sold.' See Standard Oil Co. v. United States, 221 U.S. 1 , 55 L. ed. 619, 34 L.R. A.(N.S.) 834, 31 Sup. Cr. Rep. 502, Ann. Cas. 1912D, 734; United States v. American Tobacco Co. 221 U.S. 106 , 55 L. ed. 663, 31 Sup. Ct. Rep. 632; United States v. Patten, 226 U.S. 525 , 57 L. ed. 333, 44 L.R.A.(N.S.) 325, 33 Sup. Ct. Rep. 141.

(2) and (3). These contentions may be considered together, both involving a charge of discrimination,-the one because the law does not embrace vendors of labor; the other because it does not cover purchasers of commodities as well as vendors of them. Both, therefore, invoke a consideration of the power of classification which may be exerted in the legislation of the state. And we shall presently see that power has very broad range. A classification is not invalid because of simple inequality. We said in Atchison, T. & S. F. R. Co. v. Matthews, 174 U.S. 96, 106 , 43 S. L. ed. 909, 913, 19 Sup. Ct. Rep. 609, by Mr. Justice Brewer: 'The very idea of classification is that of inequality, so that it goes without saying that the fact of inequality in no manner determines the matter of constitutionality.' Therefore, it may be there is restraint of competition in a combination of laborers and in a combination of purchasers, but that does not demonstrate that legislation which does not include either combination is illegal. Whether it would have been better policy to have made such comprehensive classification it is not our province to decide. In other words, whether a combination of wage earners or purchasers of commodities called for repression by law under the conditions in the state was for the legislature of the state to determine. [234 U.S. 199, 211]   In Carroll v. Greenwich Ins. Co. supra, a statute of Iowa was considered which made it unlawful for two or more fire insurance companies doing business in the state, or their officers or agents, to make or enter into combinations or agreements in relation to the rates to be charged for in surance, and certain other matters. The provision was held invalid by the circuit court of the United States for the district of Iowa on the ground of depriving of liberty of contract secured by the 14th Amendment and of the equal protection of the laws. This court reversed the decision, saying, after stating that there was a general statute of Iowa which prohibited combinations to fix the price of any article of merchandise or commodity, or to limit the quantity of the same produced or sold in the state: 'Therefore, the act in question does little, if anything, more than apply and work out the policy of the general law in a particular case.' Again, 'If an evil is specially experienced in a particular branch of business, the Constitution embodies no prohibition of laws confined to the evil, or doctrinaire requirement that they should be couched in all- embracing terms.' And, 'If the legislature of the state of Iowa deems it desirable artificially to prevent, so far as it can, the substitution of combination for competition, this court cannot say that fire insurance may not present so conspicuous an example of what that legislature thinks an evil as to justify special treatment. The imposition of a more specific liability upon life and health insurance companies was held valid in Fidelity Mutual Life Asso. v. Mettler, 185 U.S. 308 , 46 L. ed. 922, 22 Sup. Ct. Rep. 662.' Other cases were also cited in illustration.

Carroll v. Greenwich Ins. Co. supra, is especially opposite. It contains the elements of the case at bar and a decision upon them. It will be observed that the statute, which it was said declared the general policy of Iowa, was a prohibition against a combination of producers and sellers. There was the same distinction, therefore, be- [234 U.S. 199, 212]   tween vendors and purchasers of commodities as in the Missouri statute, and the same omission of prohibition of combinations of vendors of labor and services as in the Missouri law. The distinction and omission were continued when the policy of the state was extended to insurance companies. The law was not condemned because it went no farther, because it did not prohibit the combination of all trades, businesses, and persons. We held that the omission was not for judicial cognizance, and that a court could not say that fire insurance might not present so conspicuous an example of what the legislature might think an evil 'as to justify special treatment.'

We might leave the discussion with that and the other cases. They decide that we are helped little in determining the legality of a legislative classification by making broad generalizations, and it is for a broad generalization that plaintiff in error contends,-indeed, a generalization which includes all the activities and occupations of life; and there is an enumeration of wage earners in emphasis of the discrimination in which manufacturers and sellers are singled out from all others. The contention in deceptive, and yet it is earnestly urged in various ways which it would extend this opinion too much to detail. 'In dealing with restraints of trade,' it is said, 'the proper basis of classification is obviously neither in commodities nor services, nor in persons, but in restraints.' A law, to be valid, therefore, is the inflexible deduction, cannot distinguish between ' restraints,' but must apply to all restraints, whatever their degree or effect or purpose; and that because the Missouri statute has not this universal operation it offends against the equality required by the 14th Amendment. This court has decided many times that a legislative classification does not have to possess such comprehensive extent. Classification must be accommodated to the problems of legislation; and we decided in Ozan Lumber Co. v. Union County Nat. Bank, 207 U. S. [234 U.S. 199, 213]   251, 52 L. ed. 195, 28 Sup. Ct. Rep. 89, that it may depend upon degrees of evil without being arbitrary or unreasonable. We repeated the ruling in Heath & M. Mfg. Co. v. Worst, 207 U.S. 338 , 52 L. ed. 236, 28 Sup. Ct. Rep. 114, in Engel v. O'Malley, 219 U.S. 128 , 55 L. ed. 128, 31 Sup. Ct. Rep. 190, in Mutual Loan Co. v. Martell, 222 U.S. 225 , 56 L. ed. 175, 32 Sup. Ct. Rep. 74, Ann. Cas. 1913B, 529, and again in German Alliance Ins. Co. v. Lewis, 233 U.S. 389, 418 , 58 S. L. ed. --, 34 Sup. Ct. Rep. 612. In the latter case a distinction was sustained against a charge of discrimination between stock fire insurance companies and farmers' mutual insurance companies insuring farm property. If this power of classification did not exist, to what straits legislation would be brought. We may illustrate by the examples furnished by plaintiff in error. In the enumeration of those who, it is contended, by combination are able to restrain trade, are included, among others, 'persons engaged in domestic service' and 'nurses;' and because these are not embraced in the law, plaintiff in error, it is contended, although a combination of companies uniting the power of $120,000,000, and able thereby to engross 85 per cent or 90 per cent of the trade in agricultural implements, is nevertheless beyond the competency of the legislature to prohibit. As great as the contrast is, a greater one may be made. Under the principle applied a combination of all the great industrial enterprises (and why not railroads as well?) could not be condemned unless the law applied as well to a combination of maidservants or to infants' nurses, whose humble functions preclude effective combination. Such contrasts and the considerations they suggest must be pushed aside by government, and a rigid and universal classification applied, is the contention of plaintiff in error; and to this the contention must come. Admit exceptions, and you admit the power of the legislature to select them. But it may be said the comparison of extremes is forensic, and, it may be, fallacious; that there may be powerful labor combinations as well as powerful industrial combinations, and weak ones of both, and that the law, to be valid, cannot distin- [234 U.S. 199, 214]   guish between strong and weak offenders. This may be granted (Engel v. O'Malley, 219 U.S. 128 , 55 L. ed. 128, 31 Sup. Ct. Rep. 190), but the comparisons are not without value in estimating the contentions of plaintiff in error. The foundation of our decision is, of course, the power of classification which a legislature may exercise, and the cases we have cited, as well as others which may be cited, demonstrate that some latitude must be allowed to the legislative judgment in selecting the 'basis of community.' We have said that it must be palpably arbitrary to authorize a judicial review of it, and that it cannot be disturbed by the courts 'unless they can see clearly that there is no fair reason for the law that would not require with equal force its extension to others whom it leaves untouched.' Missouri, K. & T. R. Co. v. May, 194 U.S. 267, 269 , 48 S. L. ed. 971, 972, 24 Sup. Ct. Rep. 638; Williams v. Arkansas, 217 U.S. 79, 90 , 54 S. L. ed. 673, 677, 30 Sup. Ct. Rep. 493, 18 Ann. Cas. 865; Watson v. Maryland, 218 U.S. 173, 179 , 54 S. L. ed. 987, 990, 30 Sup. Ct. Rep. 644.

The instances of these cases are instructive. In the first there was a difference made between landowners as to liability for permitting certain noxious grasses to go to seed on the lands. In the second, the statute passed on made a difference between businesses in the solicitation of patronage on railroad trains and at depots. In the third, a difference based on the evidence of qualification of physicians was declared valid. clared valid.

In Western U. Teleg. Co. v. Commercial Mill. Co. 218 U.S. 406 , 54 L. ed. 1088, 36 L.R.A.(N.S.) 220, 31 Sup. Ct. Rep. 59, 21 Ann. Cas. 815, a distinction was made between common carriers in the power to limit liability for negligence. In Engel v. O'Malley, supra, a distinction between bankers was sustained; and in Provident Inst. for Sav. v. Malone, 221 U.S. 660 , 55 L. ed. 899, 34 L.R.A.(N.S.) 1129, 31 Sup. Ct. Rep. 661, deposits in savings banks were distinguished from deposits in other banks in the application of the statute of limitations.

Other cases might be cited whose instances illustrate the same principle, in which this court has refused to accept the higher generalizations urged as necessary to the fulfilment of the constitutional guaranty of the equal pro- [234 U.S. 199, 215]   tection of the law, and in which we, in effect, held that it is competent for a legislature to determine upon what differences a distinction may be made for the purpose of statutory classification between objects otherwise having resemblances. Such power, of course, cannot be arbitrarily exercised. The distinction made must have reasonable basis. Magoun v. Illinois Trust & Sav. Bank, 170 U.S. 283 , 42 L. ed. 1037, 18 Sup. Ct. Rep. 594; Clark v. Kansas City, 176 U.S. 114 , 44 L. ed. 392, 20 Sup. Ct. Rep. 284; Gundling v. Chicago, 177 U.S. 183 , 44 L. ed. 725, 20 Sup. Ct. Rep. 633; Petit v. Minnesota, 177 U.S. 164 , 44 L. ed. 716, 20 Sup. Ct. Rep. 666; Williams v. Fears, 179 U.S. 270 , 45 L. ed. 186, 21 Sup. Ct. Rep. 128; American Sugar Ref. Co. v. Louisiana, 179 U.S. 89 , 45 L. ed. 102, 21 Sup. Ct. Rep. 43; Griffith v. Connecticut, 218 U.S. 563 , 54 L. ed. 1151, 31 Sup. Ct. Rep. 132; Chicago, R. I. & P. R. Co. v. Arkansas, 219 U.S. 453, 466 , 55 S. L. ed. 290, 296, 31 Sup. Ct. Rep. 275; Lindsley v. Natural Carbonic Gas Co. 220 U.S. 61, 79 , 55 S. L. ed. 369, 377, 31 Sup. Ct. Rep. 337, Ann. Cas. 1912C, 160; Fifth Ave. Coach Co. v. New York, 221 U.S. 467 , 55 L. ed. 815, 31 Sup. Ct. Rep. 709; Murphy v. California, 225 U.S. 623 , 56 L. ed. 1229, 41 L.R.A. (N.S.) 153, 32 Sup. Ct. Rep. 697; Rosenthal v. New York, 226 U.S. 269, 270 , 57 S. L. ed. 216, 217, 33 Sup. Ct. Rep. 27; Missouri, K. & T. R. Co. v. Cade, 233 U.S. 642 , 58 L. ed. --, 34 Sup. Ct. Rep. 678.

And so in the case at bar. Whether the Missouri statute should have set its condemnation on restraints generally, prohibiting combined action for any purpose and to everybody, or confined it as the statute does to manufacturers and vendors of articles, and permitting it to purchasers of such articles; prohibiting it to sellers of commodities and permitting it to sellers of services, was a matter of legislative judgment; and we cannot say that the distinctions made are palpably arbitrary, which we have seen is the condition of judicial review. It is to be remembered that the question presented is of the power of the legislature, not the policy of the exercise of the power. To be able to find fault, therefore, with such policy, is not to establish the invalidity of the law based upon it.

It is said that the statute as construed by the supreme court of the state comes within our ruling in Connolly v. Union Sewer Pipe Co. 184 U.S. 540 , 46 L. ed. 679, 22 Sup. Ct. Rep. 431, but we do not think so. If it did, we should, of course, apply that ruling here.

Judgment affirmed.