Attorney-General v. Consolidated Gas Co.

Scott, J.: In this proceeding the Attorney-General seeks the leave o'f the court to bring an action against the Consolidated Gas Company of. Hew York to procure a judgment vacating the charter and annulling ■the corporate existence of the company. The present appeal is from an order at Special Term refusing to give the desired leave. The application is made under section 1798 of the Code- of Civil Procedure, .which authorizes the Attorney-General to bring 'such-an action, in .certain- cages, upon obtaining leave so to do-from the court. Whether or not such leave should be given rests in each casé in the sound discretion of the court, and is not to be given as a matter of course. (Matter of Attorney-General, 81 Hun, 541.) Weight, undoubtedly, is to be given to the fact that the Attorney-General has felt it to be his duty to apply for the required leave, but the court is also charged with a duty in the premises to consider seriously whether upon the facts. — 403 — presented the public interests require that such an action should be brought. In the present case we are not embarrassed by any material dispute as to the facts. It appears from the petition that the Consolidated Gas Company of ¡New York was organized in 188.4 by the consolidation of six domestic gas light companies then engaged in manufacturing and selling gas in the city of New York, in which business the Consolidated Gas Company lias engaged since its organization. This consolidation was effected under the provisions of chapter 367 of the Laws of 1884, and, so far as appears, all the formalities prescribed by that act were, duly complied with. Subsequently and at divers times the Consolidated Gas Company has acquired by purchase, either the whole, or a majority of the capital stock, of a number of electric lighting and gas lighting companies, all of which it controls by virtue of its said purchases of stock. The grounds upon which the Attorney-General seeks to annul its charter are, first, that it has violated provisions of law whereby it has forfeited its charter and-become liable to be dissolved by the abuse of its corporate powers ; and, second, that it has exercised and is exercising franchises not conferred upon-it by law. The charge that the Consolidated Gas Company has violated provisions of law and thereby forfeited its charter is based upon its purchase of the stock of other, and possibly competing, gas and electric lighting 'companies, the effect of which, it is said, is to create a monopoly and prevent competition. It is not to be denied that section 40 of the Stock Corporation Law (Laws of 1890, chap. 564, as amd. by Laws of 1892, chap. 688), which was re-enacted with an amendment by chapter 601 of the Laws of 1902, in terms permitted the purchases of stock. It provides that “ Any stock corporation * * * may purchase, acquire, hold and dispose of the stock, bonds * * of any corporation * * * if authorized so to do by a provision in the certificate of incorporation * * * or if the corporation whose stock is so'purchased * * * is engaged in a business similar to that of such stock corporation,” and under section 61, subdivision 3, of the Transportation Corporations Law (Laws of 1890, chap. 566) it seems that the Consolidated Company could have lawfully consolidated with the several companies of which it bought the stock. The learned Attorney-General — 404 — insists, however, that this authority to purchase stock in and to consolidate with other corporations must be exercised, in order to be lawful, in such a way as not to contravene section 7 of the Stock Corporation Law (as amd. by Laws of 1892, chap. 688, and. Laws of 1897, chap. 384), or the so:called Anti-Monopoly' Acts of 1897 and 1899 .(.Laws of 1897, chap. 383.; Laws of 1899, chap. 690). Section. 7 .of the Stock Corporation Law provides that “27o domestic stock, corporation, ■ and no foreign corporation doing business in this State,, shall combine with any, other corporation qr person for. the creation'-of. a monoply, or the. unlawful restraint of. trade, or -for the. prevention of competition in. any necessary of . life.” The so-called-Anti-Monopoly. Acts have frequently been . before the1 courts; Their. object is “ to■ destroy monopolies in the manufacture,, production and sale in this■ State of commodities in common use, to prevent'combinations in restraint of competition in the supply or price of such commodities, ,or ill restraint of-the free pursuit of any lawful business, trade, or qccupation., The act in this respect .is little more than a codification of .the common law upon the subject.” (Matter of Davies, 168 N. Y. 89, 101.). Conceding, as we well may, the general proposition that the power given by section 40 of the Stock Corporation Law..must be so exercised.as not to contravene the other provisions of law above cited, it still remains to be considered whether or not the-purchase1 by the Consolidated Company did in fact contravene these, statutes-. It may be conceded, as was doubtless the fact, that the purpose of acquiring a controlling interest in the several corporations mentioned in. the .petition.was to prevent Competition, so far .as possible,' by centering in the hands of the Consolidated Company the business of furnishing illuminating gas and electricity, in. so far as that business had been entered upon by the companies whose stock was purchased. But a contract or purchase of stock for the purpose of .preventing competition is. not of-itself necessarily illegal. (Rafferty v. Buffalo City Gas Co., 37 App. Div. 618; Diamond Match Company v. Roeber, 106 N. Y. 473, 483.) .. What is prohibited is the creation of a monopoly and establishing such.a competition as will result in limiting the supply and enhancing the cost of the commodity dealt im In no „ sense can the consolidation of the fighting companies in the city of J7ew York into a single cor — 405 — poration' be said to create such a monopoly, for it gains thereby no exclusive right, the field is still open to' any other company that can obtain the necessary consents from the constituted authorities, and neither the production nor the price can be arbitrarily fixed by the Consolidated Company. In this ■ respect' there is 'a .very .-clear distinction "between -a company supplying gas Or electricity, and á corporation or combination of producers who deal in ice, envelopes, bluestone, milk, sheep and lambs, coal and lard, as to all of- which our courts have condemned combinations organized for the- purpose Of controlling output and fixing pricés. - The -kind of- combinations" which the law forbids is well- described in the leading case- of Cummings v. Union Blue Stone Co. (164 N. Y. 401) as a combina-' tion Which threatens £: a monopoly "with which the individual would be practically powerless to compete, and the many consumers who . would be severally exposed and coerced'would be either compelled to submit to its exactions, or to forego the purchase of the. commodity of customary use needful to -them, and- but for this monopoly obtainable in'the market at a reasonable price. * . * * And hence it" is that contracts by Which the parties to them combine.for the purpose of creating a monopoly in restraint of trade,, to prevent competition, to control and thus to limit production, to increase prices and maintain them are contrary to sound" public policy and are void.” In the case of the-Consolidated . Gas Company it cannot, as a résult of its control of "the business of" furnishing light, either limit production or increase prices and maintain them, because both of those matters are within the control of the Legislature. It is within' the power of that body, and it has frequently used the power to. fix" the .maximum rate which may be charged-to consumers, and it is well settled that any person within the territory served by a gas or electric light company'is entitled to be-furnished with such gas or electricity as lie requires upon payment of the statutory price therefor, and can compel the company so to furnish it. That a single company thus regulated by law as to price- and production does not offend against the Anti-Monopoly Laws, even although its field of operation extends over a whole city, seems to be- quite clear. Competition ’ between two- or moré companies, each occupying exclusively a separate field of operation, could benefit no one. A competition which would operate to reduce prices must be between — 406 — companies occupying the same field, and while the consolidation of control effected by the purchasers of stock in other companies by the Consolidated Company does not necessarily prevent such competition, it is the settled policy of the State to discourage.competition •of this character .and the reasons for the adoption of this policy have been,clearly stated by the Court of Appeals. (People ex rel. New York Electric Lines Co. v. Ellison, 188 N. Y. 523.) By section 11 of the Gas and Electric Commission Act. of .1905 (Laws of 1905,-.chap. 737), it was provided that" no corporation for the manufacture .and supply of gas should exercise its powers without first obtaining-a certificate of authority from the commission, and the commission .was authorized to withhold its. certificate if “ the territory, within which such corporation-proposes to operate is already supplied by an ample and well constructed system, furnishing the service which .such corporation proposes to furnish, at a fair and reasonable rate,” and while the act containing-this provision has been superseded and repealed by the Public Service Commissions Law (Laws of 1907, chap. 429), that act continues the' prohibition of t-lie exercise of its powers by any gas or electrical corporation until it shall first have obtained the permission and approval of. the proper commission .provided for by the act. We are, therefore, of the opinion that' the organization of the Consolidated Gas Company of New York, under the provisions of chapter 367 of the Laws of 1884, was lawful and valid, and its subsequent purchase of the stock of-the companies named in the petition was authorized by section 40. of the Stock Corporation Law, and- that neither by the organization of the. com.pany nor by its. purchase of the stock of - other -companies was an unlawful monopoly, created within the meaning of section 7.of ,/ihe Stock Corporation Law or of the Anti-Monopoly Act of 1899. ■The second ground upon which -the Attorney-General seeks to vacate the charter of the Consolidated Gas Company, and thus terminate its corporate existence, is that: “It lias, exercised and. is exercising franchises- not conferred upon it by law.” The basis for this contention is that -certain" consents or permits issued by the municipal authorities of the city of New York, to the -constituent companies by the consolidation of which; the Consolidated Ccm> paiiywas' created were so framed as to contain a limit of time during which they should continue to be effective, and that.that — 407 — time has:expired. Section 5 of chapter 367' of the Laws of 1884, under which the Consolidated Gas Company was organized by a combination of six constituent companies, provided that the “ new corporation shall hold and enjoy the same and all rights of property, privileges, franchises and interests in the same manner and to the same extent as if the said several companies so consolidated had continued to retain the title and transact the business of such corporations.” . The several statutes under which the constituent companies were organized gave to them power and authority to manufacture, distribute and sell gas, with incidental power and authority to lay pipes or mains in the public streets and avenués, subject, however, to the qualification that no street or highway should be dug into for the purpose of laying such mains without the consent of the municipal authorities first had and obtained. The franchise to be a corporation and to transact business comes from the State, as does also the right, incidental and necessary to the enjoyment of the franchise, to lay pipes and mains in the streets, to maintain them when laid so long as necessary for the beneficial enjoyment of the corporate franchise, and for that purpose to dig into and open the streets. -The State might have given authority to open the streets without any consent from the local authorities and has done so in many cases, but in general and particularly in the case of the constituent companies mentioned in the petition it has required the consent -of the local authorities to be obtained before a street surface should be disturbed for the purpose of laying gas mains. In these cases the right to lay mains comes from the State, permission to exercise the right being made dependent upon the consent of the local authorities. It was competent for the local authorities to give a general consent covering a fixed period of time, or running during the life of the corporation, or to give consents from time to time as the necessity for opening the street surface arose. Thé first alternative was chosen, and to each company was given a general consent, limited as to areas to which it applied, and as to the time during which it should remain effective. These periods of time have expired, and while it was undoubtedly competent for the local authorities to extend the time, or to have granted new consents, it appears that this had not been done, unless acquiescence — 408 — amounts to such a consent. (People ex rel. New York & Richmond Gas Co. v. Cromwell, 89 App. Div. 291.) The contention 'of the Attorney-General is that with the expiration of the time limited by. the municipal consent for’the laying of pipes then also expired the right to maintain and- use those already laid. Although-we do’ not consider it-necessary to pass upon this question,-wb may say that the' argument in favor of. the Attorney-General’s contention-' in this regard appears to us to be far from conclusive. . It is sufficient - to say that-the- matter'is one for consideration by the-municipal authorities, and is' no concern of the State (People v. Equity Gas Light Co., 141 N. Y. 232), and even if it should be considered that the Consolidated Gas Company needed a,' further consent from -the municipal' authorities to Open streets, or - to- maintain the pipes and mains already placed therein,'its failure-to apply and obtain such consents-would not amount to the exercise of franchises not conferred upon it by law within the meaning of those Words as used in section 1798 of the Code of Civil'Procedure. -We are, therefore, of the- opinion that upon the conceded facts no case is made which would justify the court, in the exercise of a' sound- discretion, in giving its. leave to bring such an action as the Attorney-General desires to-commence. In arriving at this conclusion, we are aided by a consideration of the fact that' the petition fails: to show, or even ■to allege, that as a result of the acts complained of, any specified injury has been done to the People of the State at large, or to the persons who are obliged to purchase gas . and'electricity from the Consolidated Company. As has already been, shown, the power which the’ State retains and has exercised to fix a reasonable price upon the commodity, and to compel its delivery to any person desiring to purchase it, removes any danger of the especial ■ vice- which attaches to monopolies in other articles, in common-use,- and as has also' been shown, the consolidation of control-brought about by the purchases of stock complained of does not in any proper sense create such á monopoly as the- common law and our statutes condemn.. - No public-purpose would thereby 'be served by süch a judgment as tlie Attorney-General seeks tó apply for,-while most serious disaster would flow, from a judgment which Would result in depriving the inhabitants’ of the city of New York of gas and electricity for lighting purposes even for a- -limited — 409 — period. A judgment vacating the charter of the Consolidated Company would at once prevent it from carrying on the business of manufacturing and selling gas and -electricity. So far as we are aware there is no other company ready to take up the business, at once, and the erection and installation of' the necessary plant to supply the needs of a great city would necessarily take a considerable time. . The order appealed from must be affirmed, with ten dollars costs and disbursements. . .. Patterson, P. J., McLaughlin and Clarke, JJ., concurred; Laughlin, J., dissented.