State v. Fairbanks-Morse & Co.

246 S.W.2d 647

• Court: Court of Appeals of Texas
• Decided: February 1, 1952
• Docket: 14401
• Status: Published

Opinions

BOND, Chief Justice.

The State of Texas, by its Attorney General and the District Attorney of Dallas County, instituted this suit against Fairbanks-Morse and Company, an Illinois corporation, Universal Electric Construction Company, an Alabama corporation, H. B. Gieb and Company and its successor, Municipal Engineering and Finance Company, a Texas Corporation, Ballard-Has-sett Company, a Delaware corporation, and Albert C. Moore, a resident of Texas, to recover statutory civil penalties for alleged violation of the Anti-Trust Laws of this State (Art. 7426, R.C.S.192S); and to restrain the performance of their combinations, agreements and conspiracy.

Fairbanks-Morse and Company will be hereinafter designated as “Fairbanks-Morse,” Universal Electric Construction Company as “Universal Electric,” H. B. Gieb and Company and as successor, Municipal Engineering and Finance Corporation, as “H. B. Gieb,” Ballard-Hassett Company as “Ballard-PIassett,” and Albert C. Moore as “Moore.”

The trial court sustained Fairbanks-Morse’s special demurrers to the State’s petition and, upon the State’s attorneys refusing to amend, dismissed the suit as to all defendants; from which this appeal is prosecuted.

Approaching consideration of the questions here involved, it must be kept in mind that the sufficiency of the pleadings, irrespective of what may he the proof on trial, is the dominant controlling factor, and in passing on the questions presented we are not concerned with the evidence to be offered in support of appellant’s contentions.

The plaintiff alleged that about 1938, and subsequent thereto, Fairbanks-Morse was and is engaged in the business of manufacturing and selling Diesel units for the generation of electric current,- — power and energy; also was engaged in the business of constructing and installing municipal electric light and power plants in the State of Texas under duly authorized permit from the State; that Universal Electric was and is also engaged in the business of constructing and installing municipal light and power systems in this State; that H. B. Gieb was and is engaged in the business of consulting engineer with respect to the preparation of plans and specifications for the erection of municipal electric light and power systems, and the supervision, construction and installation of such systems in this State; that Ballard-Hassett was and is engaged in the purchase and sale of municipal electric light and power bonds without this State; and that Moore also was a consulting electrical engineer engaged in the preparation of such plans and specifications. The foregoing facts are related in State’s petition; and, further, the petition (omitting formal parts) alleges :

“VII. Plaintiff alleges that sometime about 1938 the exact date being unknown to the plaintiff, but well known to the defendants, the defendants, Fairbanks-Morse, H. B. Gieb and Albert C. Moore did combine their capital, skill or acts to create, or which tended to create, or carry out restrictions in trade or aids to commerce and to create and carry out restrictions in the free pursuit of the business of the construction and installation of municipal electric light and power systems in the State of Texas and did, pursuant to such combination, enter into an agreement or understanding whereby it was agreed that the said Fairbanks-Morse would promote the sale and installation of municipal electric light and power systems in various towns within the State of Texas. That it was of the essence of said combination, agreement or understanding that the promotion of such electric light and power systems would be done only in the smaller towns of this State, and especially in those towns which did not employ municipal engineers which were qualified to prepare plans and specifications for municipal electric light and power systems or who were qualified to supervise the construction thereof, that as a part of said combination, agreement or understanding and in furtherance thereof, Fairbanks-Morse Company agreed to sell the governing bodies of such cities upon the advantages of owning and operating a municipal electric light and power system and that as a part of the promotion of such systems. Fairbanks-Morse Company agreed to induce such towns to employ as consulting engineers the defendants H. B. Gieb or Albert C. Moore, and that the said H. B. Gieb and Albert C. Moore agreed that as their contribution to said combination, agreement or understanding, they would prepare plans and specifications for municipal electric light and power systems in the citiés in which they were employed and that in the preparation of such plans and specifications the same would be so drafted as to prevent or lessen the competition on the bidding on such construction and installation and in such manner that only Fairbanks-Morse could competitively bid its type of machinery, engines and equipment and so that only Fairbanks-Morse could bid on the construction and installation of municipal electric light and power systems; that such plans and specifications were to be prepared by the said H. B. Gieb and Albert C. Moore so as to effectively prevent or lessen competition and to create and carry out restrictions in the free pursuit of the business of the construction and installation of municipal electric light and power systems together with the equipment and material used therein, and especially with regard to the Diesel units required for such systems. That as a part of such combination, understanding or agreement, the said Albert C. Moore and H. B. Gieb were to place in such plans and specifications certain base bids on the Diesel units necessary therefore, along with certain alternate bids. In both base and alternate bids, maximum piston travel .speed was to be limited to- conjunction with maximum permitted mean effective pressures, operating rotative speeds, fuel consumption and operating water temperatures of the respective units in a manner as to permit Fair.banks-Morse to bid on both base and alternate units while at the same time effectively preventing or lessening the number of competitive manufacturers of Diesel engine units who could bid on an equal basis. In both base and alternate bids, the mechanical design and method of operation of such units such as the fuel injection, type of governor, method of crank case scavenging, alloy type and carbon content of steel used, fabrication, including the prohibition of certain 4-cycle engines were to be so limited by the plans and specifications to permit Fairbanks-Morse to bid on both base and alternate units while at the same time effectively preventing or lessening the number of competitive manufacturers who could bid on an equal -basis. That by reason thereof, not only was Fairbanks-Morse placed • in a more favored position with regard to the Diesel units required for such systems, but such combination, agreement and understanding was made for' the further purpose and did have the further effect of effectively eliminating or lessening competition in the business of the construction and installation of. municipal electric light and power systems for the reason that the construction division of the defendant, Fairbanks-Morse alone, could submit bids which could qualify under such plans and specifications with reference to the Diesel units necessary and required in such systems.

“VIII. Plaintiff alleges that after the formation of such combinations, agreements or understandings above alleged and pursuant thereto, the said H. B. Gieb was employed and did prepare plans and specifications for the cities of San Augustine, Sanger, Garland, Crosbyton and Seymour, and the said Albert C. Moore was employed and did prepare plans and- specifications' for the cities of Weatherford, Baird and Sonora; that pursuant to such combination, agreement and understanding, said plans and specifications in each respective city contained the provisions alleged in paragraph VII hereof, and by virtue thereof, did in truth and in fact effectively prevent or lessen competition and tended to create and carry out restrictions in the free pursuit of the business of the construction and installation of municipal electric light and power systems.

“IX. Plaintiff further alleges that in the preparation of such plans and specifications by the said H. B. Gieb -and Albert C. Moore as above alleged, said defendants were, at all times material hereto in truth and in fact, but carrying out their part and portion of said combination, understanding and agreement, above alleged, and were at all times material hereto acting as a member of such combination, understanding and agreement while at the same time holding themselves out to said cities and representing to said cities that they were acting for and on behalf of said cities.

“X. Plaintiff further alleges that the combinations, agreements and understandings hereinbefore alleged between Fairbanks-Morse, H. B. Gieb and Albert C. Moore continued until about 1940, the exact date of which is unknown to plaintiff but is well known to the defendants, at which time the defendants, Universal Electric and Ballard-Hassett were and did become a part of and joined said combination, agreement or understanding and the same was expanded by additional agreements and understandings as hereinafter alleged, so as to not only .effectively prevent or lessen competition in the construction and installation of municipal electric light and power systems and in the material and equipment used therein, but so as to restrict and lessen competition in all of its phases, including the construction and installation of such systems, the furnishing of equipment and material therefor and the financing thereof.

“That about 1940, the exact date being unknown to plaintiff, but well known to defendants, the defendant Albert C. Moore withdrew from said combination, agreement and understanding, and thereafter said combination, agreement and understanding was carried out by the defendants Fairbanks-Morse, H. B. Gieb, Universal Electric and Ballard-Hassett. That as a part of said expanded combinations, agreement and understanding, it was agreed by and between the members thereof that in addition to effectively lessening or restricting competition as set forth in paragraph VII herein, that the business of the construction of such plants would be further controlled by an agreement with the defendant H. B. Gieb that in such cities in which the combination above alleged might be able to induce his employment, he would provide in such plans and specifications that bidders would be required to bid on the project as a whole rather than by sections. That the defendant, Fairbanks-Morse, agreed as a part of said combination, agreement or understanding to sell its engines only to Universal Electric, and further agreed that its construction division would not bid upon projects on which Universal Electric was bidding, and that Fairbanks-Morse would add ten points to the price of the Diesel engines to cover the profit it would have made if it had bid on such construction. That in addition thereto, it was agreed by and between the defendants as a part of such combination, agreement and understanding above alleged that in the plans and specifications for the construction and installation of such systems, it would be required that bidders accept revenue bonds in lieu of cash for services rendered and materials furnished in constructing and installing municipal electric light and power systems and the defendant, Ballard Hassett, agreed, as its part of said combination, understanding and agreement that it would purchase exclusively from Universal Electric bonds accepted by Universal Electric in lieu of cash. That Universal Electric as a part of such expanded combination, agreement and understanding, agreed that it would bid only upon the construction and installation of municipal electric light and power systems when and only when the plans and specifications provided that bidders for the construction and installation of municipal electric light and power systems should be required to accept revenue bonds in lieu of cash for services and material furnished in connection 'therewith, and when and only when said plans and specifications provided said project should be bid as a whole. * *

The plaintiff further alleged that after the formation of the expanded combination, agreement and understanding above related, and in pursuance thereof, Fairbanks-Morse surreptitiously induced and obtained the employment of H. B. Gieb and Moore by the cities named in the petition as consulting engineers to formulate their plans and specifications, — as a basis, presumably, for fair competitive bidding under the requirements of Art. 2368a, Vernon’s Ann. Civ.St.; that in furtherance of and pursuant to such design, H. B. Gieb and Moore were employed by said cities to prepare plans and specifications, which, unknown to the governing authorities of said cities, effectively prevented or lessened competition in the free pursuit of the construction and installation of their municipal light and power systems; and that, in absence of such plans and specifications prepared by H. B. Gieb and Moore, Fairbanks-Morse and Universal Electric refused to bid against each other in the construction and installation of such municipal light and power systems; and, further, that Fairbanks-Morse refused to sell its Diesel engines and equipment to any bidder or potential bidder other than the Universal Electric; that the Universal Electric refused to purchase Diesel engines and equipment from any source other than Fairbanks-Morse, or to bid on the construction and installation of any municipal light and power system except where the bidders were required to accept municipal bonds instead of cash, and, in turn, the bonds be sold by the cities only to Ballard-Hassett; and that Ballard-Hassett in pur- - suance of such agreement and understand¹-ing refused to buy any such bonds from any source other than from Universal Electric, and Universal Electric refused to sell to any purchaser other than Ballard-Has-sett.

By virtue of the above alleged facts,, the State’s contention is that by entering into the aforesaid exclusive arrangements, agreements and understandings, carried out by Fairbanks-Morse and Universal Electric in the bidding and construction of municipal light and power systems in the cities of Jasper, Sonora and Winters, aided and abetted by H. B. Gieb and Albert Moore and Ballard-Hassett, the parties have violated the Anti-Trust Laws of this State, thus becoming liable to the State for statutory penalties; and that because of the expanded arrangements, understandings and agreements and the carrying-out of same by all of the alleged parties, they effectively created an unlawful trust and a monopoly in restraint of trade; thus guilty of violation of law. Arts. 7426, 7428, R.S.1925, Vernon’s Ann.Civ.St., arts. 7426, 7428.

Statute 7426 defines a “trust” as “a combination of capital, skill or acts by two or more persons, firms, corporations or associations of persons, or either two or more of them * * * ” entered into for the purpose of carrying out restrictions in trade or preventing or lessening competition in the manufacture, sale or purchase of any commodity, or to abstain from engaging in or continuing in any business authorized or permitted by the laws of this State. State v. Central Power & Light Co., 139 Tex. 51, 161 S.W.2d 766.

In the last analysis, in legal effect the plaintiff’s petition relates a combination of capital, skill and acts of the defendants which tends to create, and did create, restrictions in trade. The planning and combination of capital, skill and acts in the construction of municipal electric light and power plants as to stifle or interfere with, or prevent, free competitive bidding for the construction of municipal light and power plants, is a trust condemned by the statutes, supra.

Furthermore, on the face of plaintiff’s petition, a monopoly was effectively created in violation of Art. 7428a, Vernon’s Ann. Civ.St. The defendant Fairbanks-Morse contributed its generating electric units and materials — its capital investment, and contributed the acts and skill of its promotional department; Fairbanks-Morse further agreed to sell its generating units to no other bidder than Universal Electric, and not to bid against an.y other member of the combination. The Universal Electric also agreed to and did contribute its skill as a construction company and such of its capital and acts as were necessary to carry out its end of the unlawful scheme. The defendants Gieb and Moore contributed their skill, separately and at different times, in planning and specifying restricted electric light and power units in aid and abetment of the combination scheme. The defendant Ballard-Hassett contributed its capital by agreeing to purchase the municipal revenue bonds only when the Universal Electric had secured the construction of such plants and had taken as payment for its services the municipal bonds. By virtue of such combination of capital, skill and acts, the defendants are and were able to obtain an advantage in the bidding and construction of such plants.

It will be observed that Art. 7426(1), supra, is very comprehensive and contains no word of limitation or exception. The only requirement is that the combination be created for the purpose of, or will carry out, restriction in the free pursuit of any business authorized by law. Art. 1108, Vernon’s Ann.Civ.St., authorizes cities to construct, purchase or acquire electric light and power systems; and the law authorizes such cities to issue revenue bearing bonds in payment thereof. Art. 2368a provides that the contract for the construction, purchase or acquisition of the electric light and power system shall be let to competitive bidders, where all parties so inclined would have an equal right to bid on such construction work; and any combination of capital, skill or acts so entered into as to preclude fair competitive bidding, or prevent the procuring of engineers, or the procuring of financial assistance in furtherance of such enterprise, such combination, as here alleged, is condemned as against public policy. “While the mere purpose without the combination does not constitute the offense, the formation of the purpose and the agreement upon a contract by which it is to be carried out, in the execution of which contract the capital, skill, or acts of both are to be used, does complete the offense.” State v. Missouri, K. & T. R. Co., 99 Tex. 516, 91 S.W. 214, 219. Such incriminatory facts and circumstances are susceptible of proof by direct and circumstantial evidence on trial of the cause.

Turning to appellees’ counterpoints of error, it is contended that H. B. Gieb and Moore being employees or agents of the cities involved, in the preparation of plans and specifications for municipal electric light and power plants (thus acting for the cities), there could be no conspiracy or combination in violation of the Anti-Trust Laws. If such agents were in fact unrestricted, which is not alleged, but, on the contrary, were in effect members of the combination, pawned to the cities as part of the conspiracy to so restrict all plans and specifications of the kind and character of materials to be used in the construction of the plants as to hinder competitive bidding (unknown to the authorities of said cities), they became parties to the criminal act. And, further, the appellees contend that the cities involved are indispensable parties to the suit. To this we cannot agree. The cities involved in the alleged transactions were mere victims of the alleged conspiracy, and not open parties thereto. The offense alleged was and is against public interest, and not directed against the cities alone. Contracts tending to lessen competition, restricting the submission of bids, in restraint of trade, or stifling competition, are inhibited by law and contrary to public policy. Uvalde Construction Co. et al. v. Shannon, Tex.Civ.App., 165 S.W.2d 512, 513; State v. Missouri, K. & T. R. Co., supra. “Under our statute the effect on the public of an agreement which is against public policy is not essential; the tendency is enough to bring it within the condemnation of the law.” State v. Racine Sattley Co., 63 Tex.Civ.App. 663, 134 S.W. 400, 403. Indeed, the cities named in the petition were parties to the alleged contracts for the construction of their electric light and power plants; and, ordinarily, it may be true, without deciding, that a combination between a municipality and a third party does not come under the condemnation of the statute. In the instant case, however, the cities named are alleged to be innocent victims of an unlawful combination, and were secretly imposed upon by the engineers Gieb and Moore. It may be said that the acts and deeds of the engineers as agents of the cities, in law, would be the acts and deeds of their principals, in absence of the alleged secret arrangements induced by Fairbanks-Morse for the purpose of aiding and abetting the combination; but the acts and deeds of said engineers, allegedly, were outside the purview of their employment, and detrimental to the best interests of the cities; because of which, the cities do not come under the condemnation of the statute perforce of the engineers’ deeds and acts.

The appellees further contend that the trial court erred in overruling their plea to the jurisdiction, particularly as to Fairbanks-Morse; that it being a foreign corporation, manufacturing its electric units out of the State and not having its units within the State, the suit abridges its rights in interstate commerce, because of which the United States Courts only have jurisdiction over the subject-matter in suit. The Fairbanks-Morse corporation is doing business in this State under duly authorized permit, and, at the time complained of in this suit, is alleged to have entered into the unlawful combination in restraint of trade in this State, a violation of the laws of this State. The corporation therefore is amenable to the laws of this State and the courts of this State have jurisdiction of plaintiff’s suit. The suit in no way interferes with the defendants’ lawful pursuit of business.

In the light of the record and briefs forcefully presented, we have carefully considered all of appellees’ counterpoints of error, with which we are not in accord. They are severally overruled. We sustain appellant’s contentions. Accordingly the judgment below is reversed and cause remanded to the trial court to be tried on the merits in consonance with the views herein expressed.

1 . Inclusion of Messrs. Gieb and Moore in the suit -at all is highly questionable. On the occasions in question they were officers of the respective cities, performing ' duties within their jurisdiction and discretion and no less immune than the courts from civil suit. Judge Bonner, in Rains v. Simpson, 50 Tex. 495, upon vigorous restatement of this fundamental rule, quotes from an early authority, viz.:

“ T prefer to place the decision on the broad ground that no public officer is responsible in a civil suit for a judicial determination, however erroneous it may be, and however malicious the motive which prompted it. Such acts, when corrupt, may be punished criminally, but the low will not allow malice and corruption to he cha/rged in a civil suit against such an officer for what he does in the performance of a judicial duty. The rule extends to judges from the highest to the lowest; to jurors, and to all public officers, whatever name they may bear, in the exercise of judicial power.’ ” (Emphasis mine.)

In the same connection, counsel for Gieb also poses the question of whether under the circumstances of this case, his agency for the city can be raised by appellant in face of the sell settled rule that in transactions where the agent acts for both parties unknown to one of them, the issue is available only to the principal and not to a third party. See Newton v. Mann, 111 Colo. 76, 137 P.2d 776, 147 A.L.R. 772 and cases there cited.