Full opinion text
LA BUY, District Judge. This action is brought by the United States Government for alleged violation by defendants of Sections 1 and 2 of the Sherman Act, 15 U.S.C.A. §§ 1, 2, declaring illegal every contract, combination or conspiracy in restraint of trade and prohibiting monopolization or the attempt to monopolize trade and commerce, and Section 7 of the Clayton Act, 15 U.S.C.A. § 18, declaring illegal the acquisition of stock by a corporation in another where the effect of such acquisition may be to substantially lessen competition or tend to create a monopoly. The defendants against whom the action is brought are named and identified in the amended complaint as follows: The three defendant “manufacturers”: E. I. du Pont de Nemours and Company, General Motors Corporation, and United States Rubber Company. All of these companies transact business within the Northern District of Illinois and are found here. The three “corporate” defendants: Christiana Securities Company; Delaware Realty & Investment Corporation; and Wilmington Trust Company, individually and as trustee. The remaining defendants come within the categoric description of “members of the du Pont family.” These members of the du Pont family are divided into the following: The three “defendant individuals”: Pierre S. du Pont and Lammot du Pont, for whom Suggestions of Death were filed May 6, 1954 and January 16, 1953, respectively; and Irenee du Pont. The five “individual defendants”: Lammot du Pont Copeland; Colgate W. Darden, Jr.; Henry Belin du Pont; Pierre S. du Pont III; and George P. Edmonds. These defendants are alleged to be members of the du Pont family and to hold substantial amounts of voting stock of the defendant United States Rubber Company. The twenty-six “beneficiary” defendants, ten of whom are minors, also identified as “party in interest” defendants, who are not named as conspirators and who are beneficiaries of one or more trusts of which the defendant Wilmington is trustee. With the exception of the twenty-six beneficiary defendants, all defendants are alleged to have participated in acts which violate the anti-trust statutes. The Government’s statement of the offense is stated as follows: The Amended Complaint charges that the defendants have engaged in a conspiracy to restrain trade in certain products produced by the du Pont Company, United States Rubber, and General Motors, in violation of Section 1 of the Sherman Act, and to monopolize a substantial part of such trade in violation of Section 2 of the Sherman Act. It also alleges that the defendant du Pont Company has acquired a controlling interest in the stock or other share capital of General Motors in violation of Section 7 of the Clayton Act. The Amended Complaint states further that the defendants have done the things which they conspired to do, namely, that they have restrained trade and monopolized a part of the commerce in certain products. (Post-trial Brief, U.S., Vol. I, p. 3.) In its summary of the statement of evidence the Government states that the evidence, when viewed as a whole, shows that the defendants have designed and followed a pattern of business conduct which has three basic objectives. The first of these objectives has consisted of obtaining control of the management and policies of the three manufacturing defendants, du Pont, General Motors, and United States Rubber. The second of these objectives has consisted of the creation and exploitation of protected markets for certain of the products produced by du Pont and United States Rubber, to the exclusion of competitive suppliers. The third of these objectives has consisted of the reservation of certain exclusive fields of production to the du Pont Company. These three purposes have been served by the fostering of a network of interrelationships among the corporate and individual defendants. This has insured the perpetuation of control of the corporate entities under persons possessing in essence the same interests, and has enhanced the market position of each of the manufacturing defendants. The Government further charges that the central thread of the entire pattern of conduct is the acquisition of interlocking stock controls and the use of such controls to dominate the management of the controlled corporations. (Post-trial Brief, U.S., Vol. I, p. 5.) There is no dispute regarding the facts culminating in the formation of the present du Pont Company. From 1802 to 1899 it was operated as a family partnership. The first corporate predecessor to du Pont was formed in 1899. In 1902 T. Coleman du Pont, Alfred I. du Pont, and Pierre S. du Pont acquired the assets of the 1899 company pursuant to a proposal advanced by Alfred I. du Pont. These assets were later taken over by the 1903 company. Until 1915, T. Coleman du Pont was the largest stockholder in du Pont; his holdings being about equal to the combined holdings of Alfred I. du Pont and Pierre S. du Pont. The present du Pont Company was organized in 1915 to succeed the 1903 company. The factual approach to the issues involved herein will be clarified and simplified by division of this memorandum into two general categories: First, the aspects of alleged control reflected in stock holdings, selection of officers, board and committee members; and, second, the trade aspects. The issue of conspiracy underlying as it does both phases of the case is of necessity interwoven and inseparable and is an ultimate fact which permeates the entire case. Facts as to Control Christiana and Delaware In December 1914 T. Coleman du Pont offered to sell a. substantial block of his du Pont stock to du Pont for resale by the company to its principal younger executives, but the offer was rejected since the price was considered too high. In the early part of 1915 T. Coleman du Pont offered to sell his stock to Pierre S. du Pont and others at a higher price. It is admitted that in 1915 Christiana was formed by a syndicate composed of Pierre S. du Pont, Lammot du Pont, Irenee du Pont, together with A. Felix du Pont, R. R. M. Carpenter, and John J. Raskob, for the purpose of acquiring this stock. The evidence shows that Christiana was organized so that members of the syndicate could use the stock of the corporation as security for a loan it was necessary for them to obtain to buy the stock of Coleman du Pont. This block of stock consisting of 63,-314 shares of common and 14,599 shares of preferred was transferred to Christiana along with 28,177 shares of du Pont common transferred to it by the six syndicate members. The six incorporators of Christiana held all of the 75,000 shares of Christiana. The day after Christiana was organized each returned to its treasury approximately 15% of the Christiana stock to be distributed to the chairman of the Executive Committee of du Pont, the eight department heads of du Pont, and the Generál Counsel of du Pont under an agreement that the stock so assigned to each would be-' come his property if he continued in the employ of the company for one year and that no assignee would sell or hy-. pothecate the stock for three years.' After this allocation, the six incorporators held 68,250 shares of the 75,000' outstanding shares of Christiana. After Coleman’s stock had been acquired, Alfred du Pont and others brought suit alleging that Pierre and-his associates abused the trust of their official positions in obtaining the Coleman stock. The trial court determined to submit to a vote of the stockholders the question of whether or not the Coleman du Pont stock should be acquired by the du Pont Company. In the ensuing proxy battle, the Pierre S. du Pont group won. Thus, Christiana at its inception held 91,491 shares of the du Pont common stock amounting to approximately 27% of the du Pont’s outstanding common shares. The evidence shows that commencing with the original acquisition of the Coleman stock, this percentage has continued throughout the years and that substantially all the stock now held by Christiana traces directly to the stock transactions occurring in 1915. No additional or other acquisitions of du Pont stock have been made by Christiana, and the evidence shows that a majority, or 68% of the outstanding Christiana stock has been held continuously by Pierre S. du Pont and the members of the du Pont family, either directly or through Delaware. In 1923 Pierre S. du Pont, having retired from active business life, decided, to invest in an annuity to provide himself and his wife with an appropriate income. His decision to buy an annuity was based in part on the favorable tax treatment granted annuities under the, existing tax laws. Pierre S. du Pont being unable to find a standard life insurance company which would offer hinr an arrangement not involving the sale of his stockholdings which event would, depreciate the value of his estate, a group of his brothers and brothers-in-law offered to sell him an annuity. ■ In 1923 Pierre S. du Pont transferred the bulk of his holdings in Christiana consisting of 49,000 shares, together-with 24,000 shares of du Pont common, and other stock in other companies to Delaware Realty & Investment Corporation, which was specifically organized to hold the same and pay him and his wife an annuity for life. The common stock of Delaware was then divided into eight equal shares for Pierre ,S. du Pont’s eight brothers and sisters or their families. The evidence shows that the stock of Delaware up to the date of the filing of the complaint has continued to be wholly owned by the members of the du Pont family and in many instances transfers were made through the formation of trusts. Delaware also holds 49,-000 shares of Christiana, being Pierre S. du Pont’s previous holdings, which constitutes about 32% of the outstanding Christiana stock. On March 29, 1944 E. H. Tinney, Secretary of Delaware, submitted a memorandum to members of the Advisory Committee of Delaware Realty and Trust dealing primarily with tax considerations on the advisability of liquidating that corporation. In addition to the tax factor, he stated: “Liquidation would afford greater flexibility, including better marketability, and permit diversification. Without liquidation, the stockholders are practically compelled to go along together; whereas if liquidated each stockholder could do as he thought best suited his individual purpose. There is no certainty whether those factors would in the final analysis represent reasons for or against liquidation. Delaware Realty, at least to some extent, facilitates control of the du Pont and General Motors industries. While liquidation would not eliminate this immediately, it would weaken it; more particularly with the passage of time.” (GTX 1335.) There is no evidence that Tinney knew anything about the relations between du Pont and General Motors and no evidence that he knew anything about the intentions of the individual- defendants or other members of the du Pont family or that he was acquainted with their state of mind as it related to Delaware. Pierre S. and Irenee du Pont both testified that Delaware was not organized for the purpose of controlling du Pont or General Motors as charged by the Government and that it was not used for that purpose. Similar testimony was given by other individual defendants. Having heard the testimony of these witnesses, the Court finds their testimony more persuasive than the statement of opinion made by Tinney. Defendants admit that Christiana holds 3,049,800 shares of du Pont common stock out of 11,158,340 outstanding du Pont stock, equivalent to 27%; that Delaware holds 304,480 shares of du Pont common stock, or 3%, of the outstanding du Pont stock; that defendant individuals and certain members of the du Pont family, who are either officers or directors of du Pont, own a further block of approximately 5.3% of the stock of du Pont; while other members of the du Pont family, who are not officers or directors of du Pont, own directly a further 2.2% of the stock of du Pont. Du Pont common stock at the time the complaint was filed was held by 82,000 shareholders. It is also admitted that 30% of the outstanding du Pont common stock held by Christiana and Delaware has been consistently voted as a block always in support of du Pont management at du Pont stockholder meetings, that directors of Christiana have in most instances been directors and officers of du Pont, and that defendant individuals, younger members of the du Pont family and officers and directors of Delaware have assumed major responsibilities in du Pont management. There is no evidence that either Christiana or Delaware, or both of them, had voting control of du Pont. However, the fact that the du Pont family had voting control of Christiana and Delaware whose du Pont stock is consistently voted -as a block in favor of du Pont management, coupled with the fact that for many years members of the du Pont family have been major executives of the corporation, indicates control of management of du Pont by the du Pont family. The Government has failed to prove that the stock held by the defendant -individuals and members of the du Pont family in Christiana and Delaware was for the purpose of perpetuating control over the du Pont Company, and has failed to prove that there was any agreement, understanding, or conspiracy that they would continue to hold such stock, keep it within their families, or dispose of or vote the Delaware stock for the purpose of utilizing du Pont to create protected markets for du Pont, or to otherwise restrain or monopolize trade. The Government has further failed to prove that either Christiana or Delaware, or both, were formed, and their stock held, for the purpose of creating protected markets for du Pont and to otherwise restrain or monopolize trade. General Motors Corporation In the spring of 1914 Pierre S. du Pont purchased approximately 2000 shares of General Motors upon the recommendation of John J. Reskob. His personal holdings from 1914 to 1917 are set forth in GTX 114. Irenee du Pont purchased 400 shares of General Motors in 1914 on the expressed enthusiasm of John J. Reskob, but did not know his brother had done the same, His personal holdings from 1914 to 1917 are set forth in GTX 115. He attended no, General Motors meetings during this period. General Motors was organized in 1908 by W. C. Durant and had acquired a number of previously independent automobile manufacturing companies— Buick, Cadillac, Oakland and Oldsmobile. In 1910 in order to raise needed working capital Durant had been compelled to borrow $14,000,000 from a group of “Boston” bankers under a voting trust agreement which supplanted Durant as President by Charles W. Nash, and gave control of the Board of Directors for five years to said bankers. Upon leaving the active management of General Motors, Durant and close associates incorporated the Chevrolet Motor Company to manufacture a new low-priced car. The Chevrolet Motor Company bought stock of General Motors until in 1916 it owned 450.000 shares of common stock out of 825.000 outstanding. About September 1915 Pierre S. du Pont and John J. Raskob became actively involved in the affairs of General Motors when both attended a stockholders meeting at the invitation of Mr. Kaufman, who was president of the Chatham & Phoenix National Bank of New York. At this meeting, Durant and the lending bankers, who were operating General Motors under the voting trust agreement which expired in 1915, became deadlocked on the composition of a new Board. A compromise was reached whereby both sides agreed that each name seven candidates and Pierre S. du Pont was empowered to name three neutral directors not connected with either Durant or the lending bankers. Pierre S. du Pont submitted the names of J. A. Haskell, who had been a vice-president of du Pont for many years and now retired; John J. Raskob, Treasurer of du Pont; and Lammot Belin, his brother-in-law. These were accepted by both factions. Pierre S. du Pont was elected Chairman of the Board. Durant extended an invitation to Pierre S. du Pont and John J. Raskob to become members of the General Motors Finance Committee, which invitation was declined, and in October 1916 both declined chairmanship of that committee. In January 1916 Durant offered Pierre S. du Pont and Raskob the opportunity to exchange their General Motors holdings for Chevrolet Motor stock on the basis of five shares of Chevrolet for one share of General Motors, which offer was declined. Raskob stated “we were not sure he had control of the General Motors Company and being in the position of neutral directors, we might be charged with taking sides should we do anything which would tend to give one side or the other control of the Company.” (GTX 119.) After it became clear in May 1916 that Durant, through Chevrolet Motors holdings in General Motors, had obtained control of Generál Motors, Pierre S. du Pont and Raskob availed themselves of the offer which Durant had held open for them, and as a result Pierre S. du Pont and Raskob became large holders in Chevrolet Motors which controlled General Motors. In August 1917, Pierre S. du Pont and Raskob accepted Durant’s invitation to become members of the General Motors Finance Committee, and Durant suggested that the “Wilmington people, as he called it, take more stock and more interest in the General Motors Corporation.” (Pierre S. du Pont 1997.) After Pierre S. du Pont and Raskob became members of the Finance Committee both saw a “good deal” more of Durant and he talked freely to them about operations and finances of General Motors and plans for its future expansion. Shortly prior to December 19, 1917, Raskob talked with Pierre S. du Pont with respect to a proposed company investment in General Motors. Raskob prepared a draft report in connection with this proposal which was reviewed and approved by Pierre S. du Pont and discussion was had between them regarding parts of the report. Raskob proposed to Pierre S. du Pont that he take on the promotion of such a plan with the du Pont directors and it was submitted in final form as a Report of the Treasurer to the Finance Committee of du Pont. On December 21, 1917 the Executive and Finance Committees of du Pont approved the acquisition of common stock in General Motors and Chevrolet Company in the amount of $25,000,000. General Industries, Inc., all of whose stock was held by du Pont, was formed to acquire the General Motors stock. By March 8, 1918 General Industries, Inc., had purchased approximately 23% of the common stock of General' Motors and Chevrolet. During the next two years the investment was increased to approximately $49,000,000 and in 1920 du Pont owned approximately 23.96% of the outstanding stock of General Motors. The Raskob report submitted to the Finance and Executive Committees of du Pont in connection with the proposed purchase of General Motors and Chevrolet stock summarized the following points in favor of a substantial investment in the motor industry: “1. With Mr. Durant we will have joint control of the companies. “2. We are immediately to assume charge and be responsible for the financial operation of the Company. This involves the direction of cash balances which will aggregate upwards of $25,000,000 and the handling of annual gross receipts aggregating $350,000,000 to $400,000,000. From a financial standpoint, I feel that a consolidation of the financial divisions of the du Pont and General Motors Companies will be of tremendous advantage to us as well as to the General Motors Company and is a thing to be sought and desired from our standpoint. “3. The du Pont Company, if the Class A stock is sold to the stockholders, will share in the profits of the industry to an extent equal to 120% on our investment and will receive 14% in annual dividends thereon; or in the event of carrying Class A stock in our Treasury the dividend rate will be about 12.6% and will share in the earnings about 42% and this after paying $20,000,000 war taxes. “4. Our purchase is on better than an asset basis. “5. Our interest in the General Motors Company will undoubtedly secure for us the entire Fabrikoid, Pyralin, paint and varnish business of those companies, which is a substantial factor. Management “Perhaps it is not made clear that the directorates of the motor companies will be chosen by Du Pont and Durant. Mr. Durant should be continued as President of the Company, Mr. P. S. du Pont will be continued as Chairman of the Board, the Finance Committee will be ours and we will have such representation on the Executive Committee as we desire, and it is the writer’s belief that ultimately the Du Pont Company will absolutely control and dominate the whole General Motor’s situation with the entire approval of Mr. Durant, who, I think will eventually place his holdings with us taking his payment therefor in some securities mutually satisfactory. * * *” (GTX 124.) Announcement of the purchase was made in the annual report of du Pont to its stockholders as follows: “Announcement was recently made of the acquisition of a large interest in the General Motors Corporation and Chevrolet Motor Company. Though this is a new line of activity, it is one of great promise and one that seems to be well suited to the character of our organization. The motor companies are very large customers of our Fabrikoid and Pyralin as well as paints and varnishes.” (P. S. du Pont 2245.) Raskob’s report, the testimony of Pierre S. and Irenee du Pont and all the circumstances leading up to du Pont’s acquisition of this substantial interest in General Motors, as shown by the record, establish that the acquisition was essentially an investment. Its motivation was the profitable employment of a large part of the surplus which du Pont had available and uncommitted to expansion of its own business. The Government asserts that an agreement was made in 1917 at or about the time of du Pont’s investment in General Motors which bound the latter to purchase from du Pont substantially all of its requirements of products of the kind made by du Pont. It also argues that du Pont’s investment in General Motors was made with the purpose of using its alleged control of General Motors to require it to buy from du Pont. The principal basis for both of these contentions appears to be the portion of Raskob’s report wherein he stated: “Our interest in the General Motors Company will undoubtedly secure for us the entire Fabrikoid, Pyralin, paint and varnish business of those companies, which is a substantial factor.” (GTX 124.) The Court has also considered in passing upon these contentions of the Government the testimony of Pierre S. and Irenee du Pont and other documents written at the time of or within a few years following the investment. The Court finds on the basis of all the evidence of record that no agreement was made in connection with du Pont’s investment in General Motors, or subsequent thereto, which bound the latter to buy any portion of its requirements from du Pont. Raskob’s report does not describe any such agreement. Pierre S. du Pont was party to the preparation of this report and he testified that he had no knowledge of any such agreement. Irenee du Pont similarly testified that he knew of no such agreement. The Court believes it most unlikely that an agreement of the kind alleged by the Government would have been made without the knowledge of these two important officials. On the General Motors side, neither Sloan nor Pratt was ever advised of any such agreement though both occupied positions under Durant in which they would be expected to have known of one had it existed. No document, either contemporaneous with the making of the alleged agreement or subsequently executed, makes reference even indirectly to an agreement of the kind alleged by the Government. The Court does not find in the actions over the years of du Pont’s executives or salesmen or General Motors purchasing personnel corroboration of the existence of the alleged agreement. The Court also finds based on all of the evidence of record that du Pont did not invest in General Motors with the purpose of restricting that company’s freedom to purchase in accordance with its own best interests. Du Pont, the record shows, never intended to preclude General Motors from dealing with suppliers of its choice, never made any effort to so preclude General Motors, and did not limit General Motors’ purchasing freedom. Raskob’s reports and other documents written at or near the time of the investment show that du Pont’s representatives were well aware that General Motors was a large consumer of products of the kind offered by du Pont. Raskob, for one, thought that du Pont would ultimately get all that business, but there is no evidence that Raskob expected to secure General Motors trade by imposing any limitation upon its freedom to buy from suppliers of its choice. Other documents also establish du Pont’s continued interest in selling to General Motors — even to the extent of the latter’s entire requirements — but they similarly make no suggestion that the desired result was to be acheived by limiting General Motors purchasing freedom. On the contrary, a number of them explicitly recognized that General Motors trade could only be secured on a competitive basis. At the time of this investment, Pierre S. du Pont, Haskell and Raskob were members of the General Motors' Board and after the investment two additional du Pont nominees were elected to that Board. In 1919 the Board was increased to twenty members and the du Pont nominees remained at six. The Finance Committee consisted of seven members, five of whom were du Pont representatives — Pierre S. du Pont, Irenee du Pont, John J. Raskob, Henry F. du Pont, and J. A. Haskell. Mr. Raskob was appointed chairman. It is apparent, and it is admitted, that a majority of this committee were officers and directors of du Pont. The Executive Committee consisted of ten members, including one du Pont nominee, J. A. Haskell, with Durant as chairman and the other members consisting of management representatives. The evidence establishes that following the period of this investment until 1920 du Pont and Durant jointly controlled General Motors and that du Pont, through its affiliation with Durant, assumed the responsibility for the financial operation of General Motors. During 1918 and 1919 General Motors acquired the assets of the Chevrolet Company, United Motors, which was an amalgamation of a number of accessory companies, the McLaughlin Buick properties in Canada, and a sixty per cent interest in Fisher Body Corporation. This expansion of General Motors had required the raising of new capital. The Board of Directors of General Motors in 1920, after a previous unsuccessful effort to raise the necessary additional capital by an issue of seven per cent debenture stock, authorized an issuance of approximately 3,200,000 shares of new common stock to the common stockholders at $20 per share. It was also decided that du Pont and Durant would turn over their stock subscription rights amounting to 1,800,000 shares to Nobel and Canadian Explosives, Ltd., since Durant and du Pont were reluctant to make any further investments. J. P. Morgan & Co. subscribed to 600,000 shares of the new issue and one of its partners was named to the Board, together with representatives of Nobel and Canadian Explosives. The stock acquisitions of Nobel and Canadian Explosives were in large part taken over by du Pont at a later date. The evidence shows that this new issue was accompanied by the formation of a syndicate managed by J. P. Morgan to buy and sell General Motors stock and subscription rights for the purpose of supporting the value of General Motors stock in the market. During the Fall of 1920, Durant, through individual stock market operations apparently designed to support the market price, had become indebted in the amount of $27,-000,000 to various banks and brokerage houses for which he had pledged some 2,700,000 shares of General Motors stock. These stock market investments by Durant were disclosed to Pierre S. du Pont and Raskob in November and alarm was felt as to the possible consequences in the event Durant failed in the market. Du Pont Securities Company was organized to borrow $20,000,-000 and take over Durant’s loans, pay his creditors and preserve for him a 40% equity in du Pont Securities stock, which was later exchanged for 230,000 shares of General Motors stock. The new company had seven million dollars in cash and loaned 1,375,000 shares of General Motors stock to borrow the balance needed. Du Pont in 1921 authorized a bond issue in order to finance the transaction. The net result of the foregoing stock transactions was that du Pont owned, through du Pont Securities, the equivalent of 7,362,540 shares of General Motors stock at a cost of $75,581,259 and in addition owned directly 200,000 shares acquired at a cost of $4,000,000; being the equivalent of approximately 38% of General Motors stock outstanding. In 1923 du Pont sold about 2,250,000 shares of General Motors stock (substantially the amount acquired through the 1920 stock transactions) to Managers Securities, a corporation organized by General Motors for the purpose of providing additional incentive to principal executives of General Motors. Du Pont began to surrender the voting rights on this stock in 1930, and from time to time thereafter surrendered such rights as holders of Managers Securities stock surrendered their stock and took down the underlying securities. • By 1938 du Pont had surrendered the voting rights on all of this stock. It is admitted that since the release of the voting rights to such stock, du Pont has for many years owned 10,000,000 shares, or approximately 23% of General Motors common stock, and that the remaining shares in 1947 were held by 436,510 stockholders, 92% of whom owned no more than 100 shares each and 60% owned no more than 25 shares each. In 1950 a two for one split was effected resulting in du Pont holding 20,000,000 out of 88,000,-000 shares, which did not change the percentage of du Pont holdings. At the conclusion of the 1920 events Pierre S. du Pont became president of General Motors. He was urged to accept this position by the du Pont Finance Committee since du Pont had a large investment in General Motors to protect. In addition, the record discloses that he was urged to assume the presidency of General Motors by the bankers, by Sloan, and by others in the management. Pierre S. du Pont held the presidency of General Motors until May 1923 when Alfred P. Sloan became president. During Pierre S. du Pont’s term of presidency significant and important changes were effected within General Motors. These were: (1) A plan of reorganization for General Motors providing for substantial autonomy of the operating divisions of General Motors. The evidence shows that Pierre S. du Pont presented to the Board a plan, originated by Sloan during Durant’s presidency, to decentralize the General Motors divisions. (2) Certain changes in management and in the personnel of the Executive Committee were made. Under Durant the ten man Executive Committee consisted of managers of the operating divisions. In 1921 the Executive Committee was reduced to four members. They were Pierre S. du Pont, the President; Haskell and Sloan, heads of the Line and Staff Divisions; and John J. Raskob, Chairman of the Finance Committee. This four man committee was. enlarged to six in 1922 by the addition of Charles Fisher, a General Motors director, and C. S. Mott, also a General Motors man. Durant started a competing automobile company and the question of loyalty on the part of some of the car division managers to Durant was one of the reasons for reconstituting the Executive Committee. The managers of the operating divisions became an Operating Committee under Haskell. Four out of five car division managers were appointed by Pierre S. du Pont, upon the recommendation of Sloan. Of the four replaced, two resigned and two were replaced as a result of disputes regarding contract rights under employment agreements made during Durant’s presidency. The four new managers recommended by Sloan had in each case been with General Motors for years and never had any connection with du Pont. Testimony of witnesses shows that the changes in managers were unrelated to the use of du Pont products. The Finance Committee of General Motors remained the same except the Durant vacancy was filled by Donaldson Brown, a former du Pont employee who was also a member of du Pont’s Finance Committee. (3) A General Purchasing Committee was created in 1922. This committee was created at the suggestion of Sloan in order to enable General Motors to set up machinery for standardizing items and for coordinating purchases where two or more divisions used a common product. James Lynah, who left employment of du Pont in 1919 under “acrimonious” circumstances, was appointed secretary by Sloan and the committee was composed principally of purchasing agents of the General Motors divisions. It is this committee which in September 1923 with Lynah’s recommendation urged the adoption of a rule requiring a second source of supply for leather substitutes and rubber coated fabrics which were being purchased in large quantities from du Pont. John L. Pratt, who was a du Pont employee from 1905 to 1919 when he resigned and went to work for Durant at General Motors, also became a member of this committee and was its chairman from 1924 to 1929. (4) In 1918, during the Durant regime, at the suggestion of the du Pont nominees, General Motors initiated a bonus plan to outstanding employees. Before retiring as president, Pierre S. du Pont recommended that another plan be instituted providing for additional compensation to principal executives of General Motors. Allotment of bonus awards was made by the Chief Executive Officer of General Motors subject to the approval of the Finance Committee. This procedure was followed until 1936 when a Bonus and Salary Committee of the Board replaced that function of the Finance Committee. In addition to these changes in General Motors, two important discoveries affecting the automotive industry occurred. In the latter part of 1920 Edmund M. Flaherty, an employee of du Pont, invented and carried to the commercial development stage a quick-drying, durable nitrocellulose lacquer, which was patented and called “Duco”. The other was the discovery of tetra-ethyl lead. In 1918 General Motors engaged in an extensive investigation into the nature and the causes of “knocking” in engines. In the General Motors laboratories chemical research under the direction of Charles F. Kettering and Thomas Midgely developed that the use of tetraethyl lead blended with gasoline in proper proportions constituted an effective anti-knock. It was further revealed that TEL, as it was called, was a scarce and expensive product, production of which was extremely hazardous. General Motors discovered that TEL could be produced commercially from ethyl bromide. In 1922 General Motors and du Pont entered into an agreement under which du Pont manufactured TEL and it was distributed through a General Motors subsidiary organized to handle its marketing. The record shows that during the 1920 to 1923 period du Pont had a 38% interest in the stock of General Motors. Three of the six members on the Executive Committee and seven of the eleven members on the Finance Committee were du Pont men. Haskell, former sales manager and vice-president of du Pont, who was willing to undertake the responsibility of keeping du Pont informed of General Motors affairs during Durant’s regime, was Vice-President in Charge of the Operations Committee. The defendants have conceded that “during the period of P. S. du Pont’s Chief Executive Offieership nominees of du Pont were thrust into positions of responsibility in General Motors which went beyond the financial supervision which had been their earlier role.” (D. P. Brief p. 332.) On April 24, 1923 Pierre S. du Pont informed the Finance Committee of du Pont of his desire to retire as president of General Motors and of his intention to recommend Alfred P. Sloan, Jr., as his successor. Sloan was a vice-president of General Motors and was in charge of the General Advisory Staff. He had been president of Hyatt Roller Bearing Company, one of the companies controlled by United Motors, which had been organized in 1916 by Durant. When General Motors acquired United Motors, Durant appointed Sloan as its president. The Finance Committee of du Pont adopted a resolution acquiescing in Piei're S. du Pont’s decision and expressing confidence in Sloan as his successor to the presidency. Thereafter, Pierre S. du Pont informed the directors of General Motors of his intention to resign and of his recommendation of Sloan for president. On May 10, 1923 Sloan was elected president of General Motors and also was its Chief Executive Officer from 1937 until 1946. William S. Knudsen was elected president May 3, 1937 and served as such until September 3, 1940. In 1941 Charles E. Wilson was elected President and also became the Chief Executive Officer in 1946. Shortly after Sloan became president he was elected a director of du Pont. Board Members On May 10, 1923 when Sloan became president, the Board consisted of thirty-two directors. The evidence shows that during the period of Sloan’s presidency and that of Wilson, the du Pont nominees on the Board never exceeded six. The total number of members of the Board between 1949 and February 1, 1953 did not exceed thirty-two and was not below thirty. Of the thirty-two directors when Sloan became president, sixteen were so-called management directors and only two of these had been connected with du Pont — Donaldson Brown and Haskell. The other then management directors were five bankers, three American industrialists and two foreign industrialists. Sir Harry McGowan of Imperial Chemicals, William McMaster of Canadian Explosives, Seward Prosser of Bankers Trust Co., Edward P. Stettinius of J. P. Morgan, William H. Woodin of American Car & Foundry, C. M. Woolley of American Radiator, and Owen D. Young of General Electric, all became members of the Board during the 1920. financing. There is no evidence that they were added at the suggestion of the du Pont nominees. The defendants have admitted that in 1942 du Pont suggested additional directors who were neither management nor du Pont nominees. At that time there were only three directors on the Board who were neither management nor du Pont nominees. In July 1944 Carpenter wrote to Sloan urging selection of additional non-management and non-du Pont directors. Sloan testified he took the initiative in attempting to find qualified men who would be willing to serve. He also testified that in such search he sought suggestions from other members of the Board, including du Pont nominees, and discussed generally with all Board members the suggestions received. In 1943 Sloan wrote to Carpenter, who was a member of the General Motors Board, that in his search for “outside” directors, he was “against Bankers on Boards of industrial companies” and had therefore eliminated the suggestions of Henry C. Alexander, Vice-President of J. P. Morgan, and R. K. Mellon, President of Mellon National Bank, whose names had been proposed by Carpenter some time previously. On January 8, 1948, five years later, R. K. Mellon was named to the Board of General Motors. at the suggestion ■ of Donaldson Brown. Mellon had by this time become “a very large stockholder in General Motors”. In 1949 at the request of Sloan, Alexander, the other banker, was added to the Board. Thus some period of time passed between Sloan’s indicated aversion to bankers on boards and the subsequent appointments. In addition, on December 18, 1944, Lammot du Pont wrote to Sloan regarding Bernard Peyton, a nephew of Eugene du Pont who owned 60,000 shares of du Pont common' “which is more than enough to give him a predominating interest in the affairs of that company and indirectly in General Motors.” (GTX 1230.) Lammot du Pont wondered if “this would be a suggestion for consideration from the standpoint of directorship in General Motors”. Sloan’s reply admitted that neither he nor Donaldson Brown, to whom he spoke about Peyton, knew Peyton, and replied that if Peyton was the owner of a large block of du Pont common involving indirectly substantial ownership in General Motors, together with his past business experience as Vice President and Treasurer of New York Air Brake Company, he would be qualified. He further stated that if necessary he would make inquiries regarding Peyton, but felt that since Lammot du Pont knew him no more was' needed. In any event, Peyton never became a member of the Board. On December 10, 1945 Sloan wrote to Carpenter, then President of du Pont and a member of the General Motors Board, regarding the suggestion of Mr. Pratt to consider General Marshall as a member of the General Motors Board, and indicated that he did not favor the suggestion. A reply came from Lammot du Pont, Chairman of the Board of du Pont and also a member of the General Motors Board, that he was not in favor of General Marshall’s membership. On Sloan’s letter to Carpenter, there appears a handwritten notation of the name of “E. F. Johnson”, and in the following month Johnson was elected a director of Gen-feral Motors. Prior to his service' with General Motors, he was an employee of du Pont. On April 22, 1930, in an exchange of correspondence, Lammot du Pont agreed with Sloan’s suggestion that Mr. Bishop should not be re-elected a vice-president of General Motors but thought he should be retained as a director, and suggested further that Curtis C. Cooper, who had severed connections with the corporation, be dropped as a director. .On May 1, 1930 Mr. Bishop was not re-elected Vice-President but continued as a director, and Mr. Cooper was not retained as a member of the Board. In 1928, Raskob., while chairman of the General Motors Finance Committee became Chairman of the National Democratic Committee in connection with the candidacy of Alfred E. Smith for President. Sloan testified he considered it unsound for Raskob to manage a political campaign and at the same time continue as “unofficial” spokesman for General Motors because he felt it put General Motors in politics. Raskob differed with Sloan’s view and was supported by Pierre S., Irenee, and Coleman du Pont. The episode resulted in Raskob’s resignation and also the resignation of Pierre S. du Pont as Chairman of the Board. Both, however, remained as members of the Board and the Finance Committee. Lammot du Pont succeeded Pierre S. du Pont as Chairman of the General Motors Board and held that position until 1937. Mr. Sloan testified that he discussed prospective directors, particularly “outside” directors, with the entire Board. A majority of the directors have always been the nominees of management. Sloan testified that management directors were always nominated by him when they had achieved in the management hierarchy of the corporation a position which entitled or required that they'be on one of the committees of the Board, and further that he never discussed these nominations with anyone except the management group and after his recommendation' their election was automatic. Sloan and Carpenter testified that no du Pont nominee ever objected to the number of management directors which Sloan wanted on the Board. Committees of the Board The Executive Committee, until merged with the Policy Committee in 1937, dealt with operational management problems. In May 1923 when Sloan became president of General Motors there were six members, three of whom were du Pont representatives, i. e., Pierre S. du Pont, Chairman of the Board, John J. Raskob, Chairman of the Finance Committee, and Donaldson Brown, a member of the Finance Committee. The membership of this committee was increased to twelve during the period 1923-1934, and new members were added at the suggestion and request of Sloan. It is the Government’s contention that du Pont directly intervened in decisions touching on changes in the membership of the Executive Committee and refer to the incident following the resignation of Raskob and Pierre S. du Pont from the Executive Committee. Irenee du Pont, then Vice-Chairman of the Board of du Pont wrote to Lammot du Pont, Chairman of the Board of General Motors, reminding him of the recommendations made by Pierre S. du Pont and Raskob for their vacancies — that Knudsen be placed on the Executive Committee for Raskob, Mr. Mooney in place of Mr. Mott, and possibly Walter Carpenter in place of Pierre S. du Pont. Knudsen was placed on the Executive Committee within three months; Mooney became a member of the Executive Committee some six years later; and instead of Carpenter, Lammot du Pont took Pierre S. du Pont’s place on that committee. Neither Knudsen nor Mooney was connected with du Pont. On April 22, 1930 Sloan received a reply from Lammot du Pont, then Chairman of the Board of General Motors, which approved of Sloan’s idea expressed in an earlier letter of abolishing the Operations Committee and of placing its members on the Executive Committee. Lammot du Pont went on to say this meant that Bradley, Grant, Hunt and Wilson, all of whom were vice-presidents, would have to become members of the Executive Committee and presumably would have to be elected directors, but added there was no reason why Glancey, Reuter and Strong, who were also vice-presidents, should be added to the Board. Some four or five years later, 1934 and 1935, Bradley, Hunt and Wilson were added to the Executive Committee and to the Board. The others mentioned by Lammot du Pont never became directors. Lammot du Pont, Chairman of the General Motors Board, who had become a member of the Executive Committee in 1930, resigned as a member in 1934. In this connection Sloan wrote to Lammot du Pont inquiring whether Lammot du Pont would like to have Carpenter elected in his place. The evidence shows that Carpenter did not go on the Committee and no one replaced Lammot du Pont. After his resignation, du Pont had no representative on the Executive Committee. Donaldson Brown remained a member of this committee. The Finance Committee until merged with the Policy Committee in 1937 dealt primarily with financial matters. In 1923 of the eleven members, seven were du Pont men. These were Pierre S. du Pont, Chairman of the Board of du Pont, Irenee du Pont, President of du Pont, Lammot du Pont, Vice President and a director of du Pont, John J. Raskob, a director and member of the du Pont Finance Committee, J. A. Haskell, a vice-president and director of du Pont, H. F. du Pont, a director and member of the Finance Committee, and Donaldson Brown, a director and member of the Finance Committee of du Pont. With the death of Haskell in 1923, the du Pont representation was reduced to six. The Finance Committee in 1923 with continuing du Pont representation reflected the original understanding with Durant that in financial matters the du Ponts would assume the primary responsibility. In 1924 this committee was increased to twelve and eventually to fourteen. In 1927 Carpenter became a member of this committee. With the resignation of Raskob from the Executive Committee and Chairmanship of the Finance Committee, Lammot du Pont, then President of du Pont and a director of General Motors, wrote to Sloan regarding the chairmanship of this committee stating that he felt it was up to du Pont to make a nomination since du Pont “has always assumed the responsibility for the financial direction of General Motors” and suggested the appointment of Carpenter and, if not agreeable, Donaldson Brown. The record shows that Donaldson Brown succeeded Raskob as Chairman. On May 3, 1937, the membership of the Finance Committee was fourteen, seven of whom were du Pont representatives, i. e., Pierre S., H. F., Irenee, and Lammot du Pont, Raskob, Brown and Carpenter. The other members were Baker, Prosser, Sloan, Whitney, Morgan, Mott and Bradley. Sloan testified that most of the additions to this committee during the period 1923-1937 had been at his suggestion. In 1937 at the insistence of Sloan, the two committee operation was consolidated into the Policy Committee. Sloan testified that the change was desirable because experience proved that the Finance Committee for some years prior to 1937 had dealt with problems which though financial in nature were operating problems as well. After some discussion, his recommendation was accepted and a Policy Committee which had complete authority to deal with broad policy questions was established. At this time Sloan resigned as President and was succeeded by Knudsen. Sloan remained the Chief Executive Officer and Chairman of the Board. The one committee idea had been discussed with du Pont representatives. It was considered by the Finance Committee of du Pont and the committee was in favor of the objectives of the proposal, but misgivings were expressed with respect to the discontinuance of the Finance Committee without creating some body whose particular function would be the handling of financial problems. A proposed compromise plan was ■submitted which was not adopted. In connection with the 1937 reorganization, Lammot du Pont wrote to Carpenter reporting on a conference held in New York. Those present, including himself, were Alfred Sloan, Donaldson Brown, J. T. Smith, John Raskob, John Pratt and Pierre S. du Pont. At this conference it was agreed that the Board would be reduced to 28 omitting McGowan, H. F. du Pont, W. A. Fisher, Kaufman, Opel, Swayne, Woolley and Young; a Policy Committee would be appointed consisting of Bradley, Brown, Knudsen, Sloan, Smith, Wilson and three representatives of du Pont; and an Administrative Committee would be appointed with Wilson as Chairman. In addition it was agreed that eventually Sloan should become Chairman of the Board and Knudsen, President. Lammot du Pont stated that Sloan seemed so insistent on his one committee idea, which was concurred in by the others, that he felt any objections Carpenter or he had should be waived in view of the fact that some other man of financial experience from du Pont might be named on the Policy Committee. The record shows that during the life of the Policy Committee, continued misgivings were expressed as to its efficacy. Sloan, Carpenter and Lammot du Pont exchanged correspondence with reference to the weaknesses disclosed by operating under the Policy and Administration Committees. Sloan had reached the conclusion that the committee set up should be altered. In writing to Donaldson Brown, Sloan stated “we put too many things on the Policy Committee that involve administration and do not confine their work sufficiently to broad questions of policy.” In addition, Sloan in his correspondence with Lammot du Pont stated that the General Motors Organizational scheme of things was not adaptable to the same type of organizational set up existing in du Pont. A change in committee organization was effected in 1946 by a return to the two committee plan: one was the Financial Policy Committee and the other the Operations Policy Committee. Mr. Sloan testified as to the considerations evoking a return to this system. He also testified that the reason correspondence evidence existed with the du Pont group and none with the management group of directors was that the management group was in the same office and these matters of organization changes were discussed orally with them. The Policy Committee always consisted of nine members. During the entire period of this committee the following du Pont officers and directors, not including Sloan, were members: Donaldson Brown, Carpenter and Lammot du Pont. The management members were Bradley, Sloan, Smith, Wilson and Knudsen, who was replaced by Hunt in 1940 on the nomination of Sloan. The other member was George Whitney of J. P. Morgan. With the exception of Knudsen, the personnel of this committee remained the same throughout its life. In 1943 Sloan wrote to Lammot du Pont asking his reaction to the suggestion of Kettering as a member of the Policy Committee. Lammot du Pont did not favor the suggestion and Kettering was not appointed. Testifying regarding this incident, Sloan stated that others agreed with Lammot du Pont, including himself after giving the subject further consideration. Sloan also testified that he consulted with all the directors regarding the appointments to the Policy Committee. In 1946 with the change of committee organization, there were no du Pont representatives on the Operations Policy Committee. The Financial Policy Committee started with nine members and was later increased to ten. At no time during its existence were there more than three du Pont representatives on this committee. The evidence shows that since 1934, with the exception of Donaldson Brown, no du Pont representative was on the Executive Committee. Brown had been described by Sloan as a General Motors man although he was a former officer of du Pont, retained his membership on its Board and its Finance Committee when he went to General Motors. Brown became a part of the General Motors organization in 1921 when Raskob in a letter to Irenee du Pont, who was then President of du Pont, wrote that General Motors needed expert financial assistance and that the person selected should not only be a man of unquestioned ability but one who enjoyed the absolute confidence of the directors of du Pont, which now controlled General Motors. He recommended Donaldson Brown and stated that since the financial interests of both companies were so closely interwoven, Brown should be retained as a director and member of the Finance Committee of du Pont. Brown eventually succeeded Raskob in General Motors and became chief financial advisor to its president. There is no evidence that Brown was active in commercial relations between du Pont and General Motors or that he ever did anything to encourage the use of du Pont products by General Motors. During the life of the Policy Committee, of a membership of nine, three, including Brown, were du Pont representatives. There were no du Pont representatives on the Operations Policy Committee. On the Finance Committee, which was changed to the Policy Committee in 1937, there were seven du Pont representatives, including Brown, in a total membership of fourteen. Of the ten members on the Financial Policy Committee in 1946, three were du Pont representatives. Thus, numerically,' the du Pont representatives were not in a majority on the governing committees of General Motors. The record shows that during 1941 du Pont was interested in the retention and placing of able personnel in the financial department of General Motors. The participation of the du Pont representatives in the selection of General Motors directors and in determining the organization of the board and the composition of its committees does not establish that du Pont has been the controlling force in the direction of General Motors affairs, or has been in a position to act as if it owned a majority of General Motors stock. The record shows consultation and conference, but not domination. Moreover, in all these matters Sloan has clearly been the leader and the dominating influence and has largely determined the results. With a minimum of consultation with du Pont representatives he has selected the management. In large part, though with somewhat more consultation with du Pont, he has suggested the names of directors and led the discussion in that respect. Sloan’s testimony and the record as a whole are convincing that at all times he acted independently and steadfastly in the best interests of General Motors. The Court finds it highly significant that in all of the correspondence regarding General Motors directors the attitude of the suggested nominee toward du Pont was in no instance a consideration in his approval or disapproval. Accordingly, the Court finds, based on all the evidence, that du Pont’s participation in the selection of General Motors directors and management does not establish that it controlled General Motors or that it sought through such participation to place people in General Motors who would further du Pont’s interests as a supplier or as a chemical manufacturer. Bonus Plans and Awards The record shows that in 1923 du Pont sponsored and supported the Managers Securities Plan. The idea had been suggested by Pierre S. du Pont, then President of General Motors, and the details, with some variations before the final adoption, are set forth in a report prepared by Kaskob and Brown. This report was submitted to the du Pont Finance Committee and stated that Pierre S. du Pont’s interest in the plan caused the report to be made. The report stated that Pierre S. du Pont felt that the most effective manner of attaining maximum success in the conduct of the affairs of General Motors was to interest its principal men as substantial stockholders or partners in the business, that du Pont with its large and controlling interest in General Motors would enhance the value of its own investment by the adoption of such a plan in General Motors and would retain the same control of General Motors through owning two-thirds of the stock of General Motors Securities Company, plus the fact that “it will definitely tie up with us in the management and control of this huge investment the men in General Motors Corporation who are definitely charged with the responsibility and success of the corporation.” (GTX 235.) Managers Securities Corporation was organized by General Motors to purchase 2,250,000 shares, or approximately one-third of the common stock of General Motors Securities Company, the du Pont Company which held 7,500,000 shares of common stock in General Motors. Du Pont from time to time surrendered voting control of the 2,250,000 shares until 1938 when the successor corporations, General Motors Securities, was liquidated. In the course of evolving this additional compensation plan, the evidence shows that Irenee du Pont had certain objections and suggested that the stock for Managers Securities be procured through circularization of General Motors stockholders. Mr. Laffey, Chief Counsel for du Pont, advised Irenee du Pont that a direct sale of the stock to General Motors would have incurred a federal capital gains tax. Irenee du Pont testified to this as one of the considerations for the plan ultimately adopted. The plan originally proposed by Raskob and Brown, and objected to by Irenee du Pont, was retained and du Pont supplied the stock which was the sole asset of Managers Securities. The Managers Securities common stock was sold to General Motors and resold by it to about eighty of its executives. General Motors agreed to pay Managers Securities 5% of its earnings annually, plus $2,000,000 per year, after deducting 7% on invested capital. Pn- or to Managers Securities, General Motors had annually set aside 10% of its earnings, after deducting 6% on invested capital, for the bonus fund. With the creation of Managers Securities, one-half of the 10% previously set aside for the bonus plan, or 5%, was allocated to Managers Securities for distribution in Class A stock, having a par value of $100, and Class B stock, having a par value of $25. Sloan testified that the Class A, five million par value stock of Managers Securities was not entirely allotted to executives, a reserve being held so that in subsequent years the allotment to Managers Securities was reduced below 5%, the balance going to the bonus fund. The Class B stock of Managers