U.S. Supreme Court APPALACHIAN COALS v. UNITED STATES, 288 U.S. 344 (1933)

[Page 288 U.S. 344, 357]

convenience Appalachian territory) lying in Virginia, West Virginia, Kentucky, and Tennessee. These districts, described as the Southern High Volatile Field, form part of the coal bearing area stretching from central and western Pennsylvania through eastern Ohio, western Maryland, West Virginia, southwestern Virginia, eastern Kentucky, eastern Tennessee, and northeastern Alabama. In 1929 (the last year for which complete statistics were available) the total production of bituminous coal east of the Mississippi river was 484,786,000 tons, of which defendants mined 58,011, 367 tons, or 11.96 per cent. In the so-called Appalachian territory and the immediately surrounding area, the total production was 107,008,209 tons, of which defendants' production was 54.21 per cent., or 64 per cent. if the output of 'captive' mines (16,455,001 tons) be deducted. [Footnote 1] With a further deduction of 12,000,000 tons of coal produced in the immediately surrounding territory, which, however, is not essentially different from the particular area described in these proceedings as Appalachian territory, defendants' production in the latter region was found to amount to 74.4 per cent. [Footnote 2]

[Page 288 U.S. 344, 362]

energy supply in the United States, the total substitution between 1915 and 1930 has been equal to more than 200,000,000 tons per year. [Footnote 4] While proper allowance must be made for differences in consumption in different parts of the country,5 the adverse influence upon the coal industry, including the branch of it under review, of the use of substitute fuels and of improved methods is apparent.

[Page 288 U.S. 344, 364]

purchasing substantial tonnages, 'constitute unfavorable forces.' 'The highly organized and concentrated buying power which they control and the great abundance of coal available have contributed to make the market for coal a buyers' market for many years past.'

It also appears that the 'unprofitable condition' of the industry has existed particularly in the Appalachian territory where there is little local consumption as the region is not industrialized. 'The great bulk of the coal there produced is sold in the highly competitive region east of the Mississippi river and north of the Ohio river under an adverse freight rate which imposes an unfavorable differential from 35 cents to 50 cents per ton.' [Footnote 6] And in a graphic summary of the economic situation, the court found that 'numerous producing companies have gone into bankruptcy or into the hands of receivers, many mines have been shut down, the number of days of operation per week have been greatly curtailed, wages to labor have been substantially lessened, and the states in which coal producing companies are located have found it increasingly difficult to collect taxes.'

[Page 288 U.S. 344, 369]

'This excess capacity over actual production,' the court said, 'could be brought into production at moderate expense and with reasonable promptness.' As to potential, undeveloped capacity in Appalachian territory, the court found that in the eight districts in this region not held by any operating, or by any captive, company, there are approximately 760,000 acres containing more than 4,300,000,000 tons of recoverable coal. In addition, in the same territory 'owned by captive companies and not being operated, or owned by operating companies who are using only a very small proportion of their holdings,' there is an additional 860,000 acres, containing more than 4,600,000,000 tons of coal. Within the twenty-four counties in which defendants' mines are located, and immediately adjacent to them, on railroads already operating, 'with the exception of short, feeder extensions,' there are over 1,620,000 acres of coal bearing land, containing approximately 9,000,000,000 net tons of recoverable coal 'comparable both in quality and mining conditions with the coal now being mined in that region.' 'The opening up of this acreage would involve only the extension of short branch lines from the railroads and the building of mining plants. The price of these lands at the present time would be less than half of the value of two or three years ago, and considerably less on a royalty basis. Coal produced from these districts is available for any market in which Appalachian coal is sold. Conditions in the coal industry are such that new companies are free to enter the business of producing and marketing coal in competition with existing companies.' In connection with this proof of developed and potential capacity, the 'highly organized and concentrated buying power' that can be exerted must also have appropriate consideration. [Footnote 7]

[Page 288 U.S. 344, 370]

Consumers testified that defendants' plan will be a benefit to the coal industry and will not restrain competition. Testimony to that effect was given by representatives of the Louisville & Nashville Railroad, the Norfolk & Western Railroad, and the Chesapeake & Ohio Railroad, 'the largest railroad users of coal operating in the Appalachian region,' and by representatives of large utility companies and manufacturing concerns. [Footnote 8] There

[Page 288 U.S. 344, 376]

tion in Appalachian territory. But only a small percentage of that production is sold in that territory. The finding of the court below is that 'these coals are mined in a region where there is very little consumption.' Defendants must go elsewhere to dispose of their products, and the extent of their production is to be considered in the light of the market conditions already described. Even in Appalachian territory it appears that the developed and potential capacity of other producers will afford effective competition. [Footnote 9] Defendants insist that on the evidence adduced as to their competitive position in the consuming markets, and in the absence of proof of actual operations showing an injurious effect upon competition, either through possession or abuse of power, no valid objection could have been interposed under the Sherman Act if the defendants had eliminated competition between themselves by a complete integration of their mining properties in a single ownership. United States v. United States Steel Corporation, 251 U.S. 417, 40 S.Ct. 293, 8 A.L.R. 1121; United States v. International Harvester Company, 274 U.S. 693, 47 S.Ct. 748. We agree that there is no ground for holding defendants' plan illegal merely because they have not integrated their properties and have chosen to maintain their independent plants, seeking not to limit but rather to facilitate production. We know of no public policy, and none is suggested by the terms of the Sherman Act, that in order to comply with the law those engaged in industry should be driven to unify their properties and businesses in order to correct abuses which may be corrected by less drastic measures. Public policy might indeed be deemed to point in a different direction. If the mere size of a single, embracing entity is not enough to bring a combination in corporate form within the statutory inhibition, the mere number and extent of the production of those engaged in a co-operative endeavor to

[Page 288 U.S. 344, 378]

reference to purposes and anticipated consequences without the advantage of the demonstrations of experience. If in actual operation it should prove to be an undue restraint upon interstate commerce, if it should appear that the plan is used to the impairment of fair competitive opportunities, the decision upon the present record should not preclude the Government from seeking the remedy which would be suited to such a state of facts. We think also that in the event of future controversy arising from the actual operation of the plan the results of the labor of both parties in this litigation in presenting the voluminous evidence as to the industry, market conditions and transportation facilities and rates, should continue to be available, without the necessity of reproducing that evidence.

The decree will be reversed, and the cause will be remanded to the District Court with instructions to enter a decree dismissing the bill of complaint without prejudice and with the provision that the court shall retain jurisdiction of the cause any may set aside the decree and take further proceedings if future developments justify that course in the appropriate enforcement of the Anti-Trust Act.

It is so ordered.

Mr. Justice McREYNOLDS thinks that the court below reached the proper conclusion and that its decree should be affirmed. Footnotes

Footnote 1 'Captive' mines are thus designated as they produce chiefly for the consumption of the owners.

Footnote 2 Defendants contend that, in calculating their position upon a percentage basis, surrounding territory should be included and that their percentage thus lies 'somewhere between 54.21 and 64 per cent.' The District Court found: 'The coal produced in the surrounding territory is the same kind of coal as that produced in the Appalachian territory and is suitable for the same purposes and available to the same markets, generally on the same freight rates, and for all practical purposes might have been included in the territory described as Appalachian territory.'

Footnote 3 Exception is made of deliveries on contracts then outstanding and of coal used in the operations of defendant's mines or sold to its employees.

Footnote 4 The findings show that: 'The number of domestic oil burners in use has increased more than sixty fold ... from 1921 to 1931. ... About fifty per cent. of all oil burners, both domestic and commercial, are in the markets in which Appalachian coals are sold. The railroads have improved combustion methods and reduced their fuel consumption from 1916 to 1929 by 32,000,000 tons. In freight service, their consumption of coal per thousand freight ton miles dropped from 164 pounds in 1919 to 125 pounds in 1929. The electric industries decreased consumption of coal per kilowatt hour from approximately 3.2 pounds to 1.6 pounds and thereby reduced their requirements for coal in excess of 47,000,000 tons. Efficiency in the smelting of pig iron decreased the consumption of coal in relation to the pig iron made by 10,000,000 tons. The saving in by- product coke manufacturers over the bee hive system amounted to 12,000,000 tons.'

Footnote 5 The court below points out that the use of natural gas and fuel oil is limited to certain areas. Gas is not available to all sections of the country and the great centers of fuel oil consumption are California, the southwest, the midcontinent field, and the Atlantic seaboard. Moreover, in the states in which Appalachian coal is chiefly marketed, the substitute fuels combined supply only about 10 per cent. of the total energy consumption. In the year 1929 about 50 per cent. of defendants' coal, other than railroad fuel, went into the states of Ohio, Michigan, Indiana, and Illinois. In these states the percentage of total energy comsumption derived from bituminous coal in 1929 ranged from 88.7 per cent. to 92.7 per cent.

Footnote 6 Defendants insist that 'the real spread is from 25 cents to $1.84 per ton.'

Footnote 7 J. M. Dewberry, general coal and coke agent of the Louisville & Nashville Railroad, a large consumer of Appalachian coal, testified: 'It is a well known fact to-day that the buying power of these large consumers of coal is more intelligent, more forceful, more far reaching than ever before in the history of the industry. And it just sounds to me like a joke for somebody to talk about Appalachian Coals or somebody else dictating the price that they are going to pay. They dictate their own price. The purchaser makes it. And he makes it because of the tremendous force and influence of his buying power. Why, it is nothing these days for one interest or one concern to buy several million tons of coal.'

Footnote 8 The District Court in its findings, after referring to the railroads above mentioned, continues: 'A representative of a large public utility company' (with extensive power lines in the middle west and on the Atlantic seaboard) 'consuming annually approximately 2,485,000 tons of coal has stated that the organization and operation of Appalachian Coals, Inc., will not affect competition in the markets in which his company buys coal, and that it will have a beneficial effect on the coal industry. A representative of a power company operating throughout the state of Georgia ... using from 30,000 to 125,000 tons of coal annually, has stated that the organization and operation of Appalachian Coals, Inc., will not restrain competition in the markets in which his company buys coal. A representative of the Carbide & Carbon Corporation which uses annually about 250,000 tons of bituminous coal, 100,000 tons of coke made from bituminous coal, and 40,000 to 50,000 tons of petroleum coke, and operating plants that consume coal at South Charleston, W. Va.; Niagara Falls, N.Y.; Cleveland, Ohio; Sault Ste. Marie, Mich.; Indianapolis, Ind., and Fremont and Fostoria, Ohio, has stated that the organization of Appalachian Coals, Inc., will have a beneficial effect in the coal industry and will not restrain competition in the markets in which his company buys coal. The largest purchaser of coal in the states of North Carolina, South Carolina, Georgia, and eastern Tennessee who purchases approximately 600,000 tons of coal annually under normal conditions for use by textile mills, located in those states, has stated that the organization and operation of Appalachian Coals, Inc., will not control or dominate the price in the markets in which he purchases coal, and that he will be able to purchase coal in an open and competitive market.'

Footnote 9 Supra, Pp. 10,11.