Hopkins v. United States

This suit was commenced by the United States attorney for the district of Kansas, acting under the direction and by the authority of the attorney general of the United States, against Henry Hopkins and the other defendants, residents of the state of Kansas, and members of a voluntary unincorporated association known and designated as the Kansas City Live-Stock Exchange. The purpose of the action is to obtain the dissolution of the exchange, and to perpetually enjoin the members from entering into or from continuing in any combination of a like character.

As a foundation for the relief sought, it was alleged in the bill that the members of this association known as the Kansas City Live-Stock Exchange have adopted articles of association, rules, and by-laws, which they have agreed to be bound by; that the business of the exchange is carried on and conducted by a board of directors at the Kansas City stock yards, which are situated partly in Kansas City in the state of Missouri, and partly in Kansas City in the state of Kansas, the building owned by the stock-yards company being located one-half of it in the state of Missouri, and the other half in the state of Kansas, and half of the defendants have offices and transact business in these stock yards, and in that part of the building which is within the state of Kansas, and the other half in that part of the building which is in the state of Missouri; that the Kansas City Stock-Yards Company is a corporation owning the stock yards where the business is done by the members of the exchange; that substantially all the business transacted in the matter of receiving, buying, selling, and handling their live stock at Kansas City is carried on by the defendants herein, and by the other members of the exchange, as commission merchants, and that large numbers of the live stock, consisting of cattle and hogs and sheep bought and sold and handled at the stock yards by the defendants and their fellow members in the exchange, are shipped from the states of Nebraska, Colorado, Texas, Missouri, Iowa, and Kansas, and the territories of Oklahoma, Arizona, and New Mexico; that when this stock is received at the stock yards it is sold by the defendants, members of the exchange, to the various packing houses situated at Kansas City, Mo., and Kansas City, Kan., and it is also sold for shipment to the various other markets, particularly Chicago, St. Louis, and New York; that vast numbers of cattle, hogs, and other live stock are received annually at the stock yards, and handled by the members of the exchange.

The bill also alleges that large numbers of the live stock sold at the stock yards by the defendants are incumbered by mortgages thereon executed by their owners in the various states and territories, which mortgages have been given to various defendants as security for money advanced by them to the different owners to enable them to feed and prepare the cattle for market, and that, when the live stock so mortgaged are ready for shipment, they are sent to the defendants, who have advanced the money and received the mortgages, and on the sale of the stock the amount of these advances and interest is deducted from the proceeds of the sale of the cattle by the commission merchants owning the mortgages; that 90 per cent. of the members of the exchange make such advances, and that the market is largely sustained by means of the money thus advanced to the cattle raisers by the defendants, and that Kansas City is the only place for many miles about which constitutes an available market for the purchase and sale of live stock from the large territory located in the states and territories already named; that it is the custom of the owners of the cattle, many of them living in different states, and who consign their stock to the Kansas City stock yards for sale, to draw drafts on the commission merchants to whom the live stock is consigned, which the consignors attach to the bill of lading issued by the carrier, and the money on these drafts is advanced by the local banks throughout the Western states and territories. These drafts are paid by the consignees, and the proceeds remitted to the various owners, through the banks.

The business thus conducted is alleged to be interstate commerce, and it is further alleged that, if the person to whom the live stock is consigned at Kansas City is not a member of the exchange, he is not permitted to, and cannot, sell or dispose of the stock at the Kansas City market, for the reason that the defendants, and all the other commission merchants, members of the exchange, refuse to buy live stock or in any manner negotiate or deal with or buy from a person or commission merchant who is not a member of the exchange, and thus the owner of live stock shipped to the Kansas City market is compelled to reship the same to other markets, and by reason of the unlawful combination existing among the defendants and the other members of the exchange the owner is prevented from delivering this stock at the Kansas City stock yards, and the sale of stock is thereby hindered and delayed, entailing extra expense and loss to the shipper, and placing an obstruction and embargo on the marketing of all live stock shipped from the states and territories to the Kansas City market which is not consigned to the stock-yards company, or to the defendants, or some of them, members of the stock exchange.

It is alleged that the defendants, as members of the exchange, have adopted certain rules, among them being rules 9 and 16, which are particularly alleged to be in restraint of trade and commerce between the states, and intended to create a monopoly, in contravention of the laws of the United States in that behalf.

Rule 9 provides as follows:

'Section 1. Commissions charged by members of this association for selling live stock shall not be less than the following named rates.'

Sections 2, 3, 4, 5, 6, and 7 relate to the amounts of such commissions, and it is alleged that in some instances the commissions are greater than had theretofore been paid.

Section 8 permits the members to handle the business of nonresident commission firms, when the stock is consigned directly to or from such firm, at half the rates fixed by the rule, provided the nonresident commission firms are extablished at the markets named in the section.

Section 10 prohibits the employment of any agent, solicitor, or employ e, except upon a stipulated salary, not contingent upon the commissions earned; and it provides that not more than three solicitors shall be employed at one time by a commission firm or corporation, resident or nonresident of Kansas City.

Section 11 forbids any member of the exchange from sending or causing to be sent a prepaid telegram or telephone message quoting the markets, or giving information as to the condition of the same, under the penalty of a fine as therein stated. The rule, however, permits prepaid messages to be sent to shippers, quoting actual sales of their stock on the date made; also, to perties desiring to make purchases on the market.

Rule 16 provides, in section 1, 'that no member of the exchange shall transact business with any persons violating any of the rules or regulations of the exchange, or with an expelled or suspended member, after notice of such violation, suspension, or expulsion shall have been issued by the secretary or board of directors of the exchange.'

It is alleged that the defendants, in adopting these rules and in forming the exchange, and carrying out the same, have violated and are violating the statute of the United States, approved July 2, 1890, entitled. 'An act to protect trade and commerce against unlawful restraints and monopolies'; and it is charged that it was the purpose of the defendants, in organizing the exchange and in adopting the rules mentioned, to prevent the shipment or consignment of any live stock to the Kansas City market unless it was shipped or consigned to the Kansas City stock yards, and to some one or other of the defendants, members of the exchange, and to compel the shippers of live stock from other states and from the territories to pay to the defendants the commissions and charges provided for in rule 9, and to prevent such shippers from placing their property on sale at the Kansas City market unless these commissions were paid.

The answer of the defendants admitted their forming the exchange and becoming members thereof, and adopting, among others, the rules specially mentioned in complainants' bill. They denied that the exchange itself engaged in any business whatever, and alleged that it existed simply in order to prescribe rules and provide facilities for the transaction of business by the members thereof, and to govern them by such rules and regulations as have been evolved and sanctioned by the developments of commerce, and which are universally recognized to be just and fair to all concerned.

It was further set up in the answer that each member of the organization was in fact left free to compete in every manner, and by all means recognized to be fair and just, for his share of the business which comes to the point at which the members of the organization do business; that in adopting their rules they followed in all substantial respects the provisions which had been made upon the same subject, respectively, by the exchanges theretofore established at Chicago and East St. Louis, Ill., and which have been since established at St. Louis, Omaha, Indianapolis, Buffalo, Sioux City, and Ft. Worth; that the exchange at no time refused to admit as a member any reputable person who was willing to comply with the conditions of membership, and to abide by the rules of the organization.

Various allegations in the bill as to the effect of the organization in precluding any sales or purchases of cattle other than by its members are denied.

The defendants also deny that the exercise of their occupation as commission merchants doing business as members of the exchange constitutes or amounts to interstate commerce, within the meaning of the constitution or laws of the United States. They allege that they have no part in or control over the disposition of the live stock sold by them to others, nor of live stock purchased by them as commission merchants acting for others. They allege that the stock-yards company permits any person whatsoever to transact business at its yards who will pay the established charges of that company for its services, and that in point of fact a very large part of the business done at said yards is transacted by persons who are not members of the exchange, and without the interposition of such members. It is also alleged in their answer that they are under no obligations to extend the privileges of the exchange to a person who is not a member thereof, who has violated its rules and been suspended from membership, and who has voluntarily withdrawn therefrom, and announced his purpose to carry on his business as a competitor of the members of such exchange, to the destruction of said organization and its rules, and to the injury of his competitors.

It is also set up that defendants cannot be compelled to deal with a nonmember of their organization, or a person violating its rules, or with one who has been suspended for such violation, or who has withdrawn therefrom, or who has announced his intention to destroy said organization and to compete with the members thereof; and the defendants allege that they cannot be compelled to deal with any person whatsoever, and that they had a right to establish said exchange, and now have the right to maintain the same, and to require the observance of its rules and regulations on the part of their associates so long as they desire to retain the privileges of membership in the body. They allege that their rules are in harmony with the rules and regulations of commercial exchanges which have existed for more than 100 years, and which are now to be found in every state almost in the United States and throughout the world, and that such rules and regulations are in all respects legal and binding. They deny all general and special allegations of illegal agreements, combinations, or conspiracies to violate any law of the United States or of the state of Kansas.

The complainants, in addition to their bill, used several affidavits, the tendency of which was to show that by virtue of the adoption of rules 9 and 16 the members of the exchange refused to deal with one who had violated a rule and had been suspended by reason thereof, and that by reason of this refusal to do business the member thus suspended was* substantially incapacitated from carrying on his business as a commission merchant, and that, by this combination, defendants, in forming such rule and in adhering to it, have greatly injured the business of such member.

The defendants read counter affidavits for the purpose of sustaining their answer, which were replied to by the complainants filing affidavits in rebuttal, and upon these affidavits and the pleadings above described an application for an injunction was made to the circuit court of the United States for the district of Kansas, First division. That court, after argument, granted an injunction restraining the defendants from combining by contract, express or implied, so as by their acts, conduct, or words to interfere with, hinder, or impede others in shipping, trading, selling, or buying live stock that is received from the states and territories at the stock yards in Kansas City, Mo., and Kansas City, Kan.; also, enjoining them from acting under the rules of the exchange known as 'Rules 9 and 16,' and from attempting to impose any fines or penalties upon members for trading or offering to trade with any person respecting the purchase and sale of any live stock; and also from discriminating in favor of any member of the exchange because of such membership, and especially from discriminating against any person trading at the stock yards, and from refusing, by united or concerted action, or by word, persuasion, threat, or by other means, to deal or trade with persons with respect to such live stock who are not members of the association because they are not members of such association, or in any manner from interfering with the right and freedom of all and any persons trading or desiring to trade in such live stock at the stock yards, the same as if the exchange did not exist. The defendants were also enjoined from agreeing or attempting to limit the right of any person in business at the Kansas City stock yards to employ labor or assistance in soliciting shipments of live stock from other states or territories, and from enforcing any agreement not to send prepaid telegrams from the stock yards to any other state or territory.

The district judge delivered an opinion upon granting the injunction, which will be found reported in 82 Fed. 529. From the order granting it an appeal was taken by the defendants to the United States circuit court of appeals for the Eighth circuit, which court certified to this court certain questions under the provisions of section 6 of the act of March 3, 1891; and thereupon a writ of certiorari was issued from this court, and the whole case brought here for decision.

L. C. Krauthoff, John S. Miller, and G. a. Koerner, for appellants.

Samuel W. Moore, and Sol. Gen. Richards, for the United States.

Mr. Justice PECKHAM, after stating the facts, delivered the opinion of the court.