Story Case

The New Orleans Cotton Exchange is an organization created among the cotton brokers of that city to regulate the manner of buying and selling cotton. James Drew was the manager of the exchange, whose members acted as brokers between the cotton growers and the cotton buyers for the northern and European mills. Consignments of cotton were received from the various states, and when sold, the broker accounted to the grower for the proceeds, less his selling commission. In the fall of 1914, the cotton exchange made certain stringent rulings, as a result of the European war, concerning the advancement of money on cotton and the holding of security by the brokers. Because of these rulings, the local United States attorney was under the impression that there was an interference with interstate commerce, and brought an action against Drew, as manager, to test the validity of the rulings. What shall be done?

Ruling Court Case. United States Vs. Hopkins, Volume 171 United States Reports, Page 578

Henry Hopkins, and others named as defendants, were members of a voluntary unincorporated association known as the Kansas City Live Stock Exchange. They were engaged in their business at its stock yards, situated partly in Kansas City, Missouri, and partly in Kansas City, Kansas. The business of its members individually was to receive live stock from owners from various states. After receiving them, they prepared the stock for market, sold the same, and accounted to the owners for their portion of the proceeds. Each member individually solicited stock from cattle growers, and advanced money to them on such consignments. The association referred to above, adopted certain rules to govern each member in his individual business. The rules forbade a member to buy from any commission merchant in Kansas City, who was not a member of the exchange. One of the main rules was that commission for selling stock should be governed by the association; that no member should sell for any commission less than that fixed by the association. This was an action brought by the United States attorney against Hopkins and others. The United States contended that the agreement herein referred to was in violation of the act of Congress, which forbade monopolies and agreements in restraint of trade and commerce.

Hopkins contended that, assuming their agreement was in restraint of trade, it did not fall within the congressional statute, because they were not in any sense engaged in interstate commerce.

Mr. Justice Peckham said: "To treat as condemned by the act, all agreements under which, as a result, the cost of conducting an interstate commercial business may be increased, would enlarge the application of the act far beyond the fair meaning of the language used. There must be some direct and immediate effect upon interstate commerce in order to come within the act. The state may levy a tax upon the earnings of a commission merchant which were realized out of the sales of property belonging to nonresidents, and such a tax is not one upon interstate commerce, because it affects it only incidentally and remotely, although certain money agreements suggest themselves which relate only to facilities furnished commerce, or else touch it only in an indirect way, while possibly enhancing the cost of transacting the business, and which at the same time we would not think of as agreements in restraint of interstate commerce. It is difficult to imagine agreements of the character indicated. For example, cattle, when transported long distances by rail, require rest, food and water. To give them these accommodations, it is necessary to take them from the car and put them in pens or other places for their safe reception. Would an agreement among the landowners along the line not to lease their lands for less than a certain sum be a contract within the statute as being in restraint of trade or commerce ? Would it be such a contract even if the lands, or some of them, were necessary for use in furnishing the cattle with suitable accommodations? Would an agreement between the dealers in corn at some station along the line of the road not to sell it below a certain compensation come within the restriction of the statute? In our opinion all these queries should be answered in the negative."

In accordance with the opinion, the court concluded that this agreement concerned a mere incident of commerce, the effect of which upon interstate commerce is so slight and indirect as not to come within the statute in question. Judgment was given for Hopkins.

Ruling Court Case No. 2. United States Vs. Swift And Company, Volume 196 United States Reports, Page 375

Swift and Company were engaged in the business of buying live stock at the stock yards in Chicago, Omaha, and at other cities, and slaughtering such live stock at their respective plants, and converting the live stock into fresh meat for human consumption. They were also engaged in the business of selling the meat at various places throughout the United States. It appeared that Swift and Company, together with other defendants, controlled about six-tenths of the whole trade and commerce in fresh meats among the states. In order to restrain competition among themselves as to the purchase of live stock, the defendants agreed among themselves never to bid competitively for the purchase of live stock; to bid up prices for a few days in order to induce the cattle men to send cattle to the stock yards, and then let the prices drop, much to the disadvantage of the cattle men.

The United States attorney now brings this action against Swift and Company and other defendants, for their violation of the law prohibiting combinations in restraint of trade and commerce. Swift and Company contended that its agreement did not concern interstate commerce, and, therefore, was not within the law referred to.

Mr. Justice Holmes said: "The line is distinct between this case and United States vs. Hopkins, Volume 171 United States, Page 578. All that was decided there was that the local business of commission merchants was not commerce among the states, even if what the brokers were employed to sell was an object of such commerce. The brokers were not like the defendants before us, themselves the buyers and sellers. They furnished only certain facilities for the sales. Therefore, the effect of the combination of brokers upon commerce was only indirect and not within the act. Here, the subject matter in sales, and the very point of the combination is to restrain and monopolize commerce among the states in respect to such sales. For the foregoing reasons, we are of the opinion that the carrying out of the scheme alleged, by the means set forth, properly may be enjoined. Judgment was given for the United States.

Ruling Law. Story Case Answer

The courts will not go to the extreme of saying that all transactions which are incidental to interstate commerce come within Federal control. If this were true, practically every man's occupation would come within the scope of national control. We have already learned that manufacture is not commerce. Now, if a business is a mere aid or facility to interstate commerce, or a by-product of the same, it is not interstate in character, and not subject to Federal control.

The brokers, in the Story Case, were not doing an interstate business, and, therefore, the local Federal attorney is in the wrong.