Chapter XXXIX: Appendix (3)

Since that time the Standard Oil Company, by diligent and faithful
attention to its business, by the exercise of the most rigid
economy, by promptly taking advantage of all legitimate business
opportunities, has acquired large and valuable property at Cleveland
with a capacity to refine oil largely in excess of any local
refinery, but he denies that from 1872 to the present time, by any
conclusion, conspiracy, or undue means from first to last, the
present standing and capacity of the Standard Oil Company has been
acquired, or that it seeks to maintain its hold upon business
through any purpose to create or maintain a monopoly.

JOHN D. ROCKEFELLER.

NUMBER 45 (See page 2072)
FINDINGS OF FACT

[Transcript of record, Supreme Court of the United States, October
term, 1886. Number 1,290. The Lake Shore and Michigan Southern
Railway Company, plaintiff in error, _vs._ Scofield, Shurmer and
Teagle, in error to the Supreme Court of the state of Ohio, pages
14–21.]

This cause came on to be heard upon the pleadings, exhibits, and
testimony, and was argued by counsel; in consideration whereof the
plaintiffs, having moved for a reservation to the Supreme Court, the
judges are unanimously of opinion that important and difficult
questions exist in the case, making it proper that the same should
be reserved to the Supreme Court for decision, which questions
embrace the following propositions:

1st. Is this a case upon the face of the petition and under the laws
of the state in which the court ought to interfere by injunction?

2nd. Whether such remedy by injunction will apply as well to the
case of shipments over the defendants’ road alone, as to cases of
through shipments over such road and connecting roads?

3rd. What are the duties and obligations of common carriers at
common law as distinguished from the statutory provisions of this
and other states and countries?

4th. Are the defendants at common law obliged to carry freight at
the same price for all parties or members of the public, without
regard to quantity or circumstances connected with the
transportation?

5th. May the defendant, as a common carrier and a corporation
organised for that purpose, contract with a party controlling 90/100
or more of all the freight of a particular class, at a given city or
point, to carry the same for less than general tariff rates, in
consideration that it shall receive all the freight thus controlled
by such party?

6th. May the defendant, as a common carrier, in consideration of
receiving all the freight of such party, that the quantity shall not
be diminished, and that terminal facilities as to loading,
unloading, and delivering the freight shall be furnished different
from regular or usual freight and with less expense and risk to the
carrier, contract to carry such freight, with such convenience and
benefits, for less than general tariff rates to the public?

7th. May the defendant, as common carrier, transport over its road
large quantities of oil, amounting to many full car-loads per day,
for a less price per car-load than it charges the public generally
per barrel or for single car-loads or less, provided all persons are
charged like prices for like quantities?

8th. May defendant, as common carrier, make any distinction in
prices for carrying like freight on the ground of quantity and
covenants to continue the same if thereby it can make a greater
profit than to charge the same prices for quantities small and
great? Is defendant, under all circumstances, obliged to charge the
same prices per ton or other quantity, for the same distance, to all
persons tendering freight of the same class, or may it, in good
faith and without intention to injure other producers or patrons,
contract to carry for one party at a less price than general rates
if thereby it can secure a large and profitable business which would
otherwise be diverted from it, in whole or part?

8½. Should decree be rendered for plaintiffs; and, if so, to what
extent should it be enforced—only within the bounds of the state or
to all parts of the country within or without the state, to all
points reached by defendant and connecting lines?

9th. Was section 3373 of the Revised Statutes intended to apply to
cases like the present, and under it is there any authority for the
injunction relief prayed for in this action?

10th. Whether upon such shipments so made by the defendant’s cars by
the barrel, either in car-load lots or in less amounts, the
plaintiffs are, either by common law or by the Ohio statutes on the
subjects, entitled to have their said products carried at the same
rate of charge between like points of shipment as are allowed to
said Standard Oil Company or other shippers, either to points on its
line or branches of said road beyond?

11th. Whether the defendant, as a common carrier, may exact from the
plaintiffs upon such shipments in barrels any amount greater than
the amount charged to said Standard Oil Company upon shipment of
like amounts by such tank-cars so long as the plaintiffs offer to
ship by their own tank-cars on substantially like terms?

12th. Whether, if such defendant can be required to give to said
plaintiffs equal rates of freight upon its shipments with those
allowed said Standard Oil Company to points upon its line and
branches, it can be required to give as low a rate to terminal
points as the rate it receives for its proportion of the service to
such points, on shipments to points beyond, and on its connecting
lines on a through rate fixed by it, and such connecting line or
lines for the through shipment?

13th. Whether the fact of the existence of such arrangement, and the
fact of the said Standard Oil Company being a shipper in amounts
larger than the plaintiffs, is any justification for the making of
such charges to the plaintiffs in excess of such charges made to
said Standard Oil Company? And in order that the same may be legally
presented to said Supreme Court, the District Court do find the
facts as follows:

1st. The court find the plaintiffs are, and since 1875 have been,
partners, carrying on, in a large way, at Cleveland, Ohio, where
this refinery is situated, the business of refining petroleum and
selling the refined product mainly throughout the territory west and
northwest of Cleveland, and extending throughout the Western and
Northwestern states, this business being one in which they have
invested a large amount of capital, and in which they have
established a large and profitable trade throughout such territory,
which constitutes the natural market for the sale of such products
manufactured at Cleveland, the cost of plaintiffs’ refining being
about $70,000, with a refining capacity of about 150,000 barrels per
year.

2nd. That the defendant is a consolidated railroad company, owning
and operating a railroad extending from Buffalo, in the state of New
York, to Chicago, in the state of Illinois, and passing through
parts of the states of New York, Pennsylvania, Ohio, Indiana,
Michigan, and Illinois, and also owning and operating branches from
Toledo, in the state of Ohio, to Detroit, in the state of Michigan,
and also from White Pigeon, in the state of Michigan, to Grand
Rapids, in the state of Michigan.

3rd. That said railroad, so far as the same is constructed and
operated in the state of Ohio, extends from the Easterly line of
Ashtabula County to the Westerly line of Williams County; that it is
a corporation engaged as common carrier in the business of
transporting persons and property for hire and reward over its said
line of road and branches.

4th. That it crosses and connects with other lines of railroads at
Toledo, Coldwater, and Chicago, over which it can and does forward
passengers and freight to their destination and consignment points
as requested and directed; that it holds itself out as ready to make
and does make the rates to points reached by connecting roads; that
defendant, as such common carrier, has been accustomed to receive
for transportation property over its line and branches to points
beyond the termini of the same by delivering the same at such
termini to connecting roads for carriage to the points of
consignment.

5th. That the rates for such through freights are fixed by agreement
between the different companies owning the lines over which such
freights are carried, and not by the defendant alone, and are
charged by like agreement, from time to time.

6th. That what are termed local rates, being for property received
and delivered at points on the line of defendant’s road, are fixed
exclusively by the defendant.

7th. That some of the towns and cities on the main line and branches
of the defendant’s road can only be reached by shippers from
Cleveland over its said road and branches; and all of them, as well
as the towns on most of its connecting branches, can be most
directly reached by means of its line from Cleveland.

8th. That the defendant is sufficiently supplied with cars and
engines and appliances for transportation necessary to enable it, in
the ordinary course of its business, to receive and carry for the
plaintiffs such products from Cleveland to such markets.

9th. That for a period of time extending back beyond the time when
plaintiffs commenced the manufacture of oil in the City of
Cleveland, the defendant has published for the benefit of the
public, tariff rates for local and through freights, which have been
frequently changed, and including rates for the carriage of oil in
barrels.

10th. The plaintiffs commenced and established their present
business in Cleveland in the spring or summer of 1875, and
subsequently, in July, 1876, became engaged in the same by
arrangement with the Standard Oil Company to the partial extent of
their own manufacturing establishment.

10½. That during the time in the petition named the Standard Oil
Company, the plaintiffs’ principal competitor in business, has also
been and still is engaged in a like business with them, it having at
Cleveland a large refinery from which it sells like products in same
markets; that the refineries of both are situate on the line of
railroads other than that of the defendant, but having like
connection with it; that each has switch tracks extending to their
refineries from the main lines of its roads on which they are
situate, by means of which shipments from them are made, the course
of business in making shipments by defendant’s road by the car-load
(which is the manner in which nearly all the business is done) being
for the defendant, on request of either, to furnish its cars, which
are switched from its connecting track by the road on which the
refineries are situate to the refineries, then loaded by the
shippers, and by said road drawn out and placed on the defendant’s
tracks for shipment by its road. By some traffic arrangement between
the roads a switching charge per car for such service is charged by
the local road against the defendant, which is by it at its
discretion charged against the shippers with its general freight
charge. Upon shipments in less than car-load lots delivery is made
to the defendant’s freight depot.

11th. That the Standard Oil Company was then, and ever since has
been, engaged in the same business at Cleveland and elsewhere, and
did then and ever since has manufactured and shipped more than
ninety one-hundredths of all the illuminating oil and products of
petroleum manufactured and shipped at and from the City of
Cleveland.

12th. The court further find that prior to 1875 it was a question
whether the Standard Oil Company would remain in Cleveland or remove
its works to the oil-producing country, and such question depended
mainly upon rates of transportation from Cleveland to market; that
prior thereto said Standard Company did ship large quantities of its
products by water to Chicago and other lake points, and from thence
distributed the same by rail to inland markets; that it then
represented to defendant the probability of such removal; that water
transportation was very low during the season of navigation; that
unless some arrangement was made for rates at which it could ship
the year round as an inducement, it would ship by water and store
for winter distribution; that it owned its tank-cars and had
tank-stations and switches or would have at Chicago, Toledo,
Detroit, and Grand Rapids, on and into which the cars and oil in
bulk could be delivered and unloaded without expense and annoyance
to defendant; that it had switches at Cleveland leading to its works
at which to load cars, and would load and unload all cars; that the
quantity of oil to be shipped by the company was very large, and
amounted to 90 per cent. or more of all the oil manufactured or
shipped from Cleveland, and that if satisfactory rates could be
agreed upon it would ship over defendant’s road all its oil products
for territory and markets west and northwest of Cleveland, and agree
that the quantity for each year should be equal to the amount
shipped the preceding year; that upon the faith of these
representations the defendant did enter into the contract and
arrangement substantially as set forth in defendant’s answer; that
the rates were not fixed rates, but depended upon the general card
tariff rates as charged from time to time, but substantially to be
carried from time to time for about ten cents per barrel less than
tariff rates, and, in consideration of such reduced rates as to bulk
oil, the Standard Company agreed to furnish its own cars and tanks,
load them on switches at distributing points, and unload them into
distributing tanks, and was also to load and unload oil shipped in
barrels, and without expense to defendant, and with, by reason
thereof, less risk to defendant, which entered into the
consideration, and was also to ship all its freight to points west
and northwest of Cleveland, except small quantities, to lake ports
not reached by rail, and to so manage the shipments, as to cars and
times, as would be most favourable to defendant; that defendant then
agreed to said terms; that said agreement so made in 1875 has
remained in force ever since.

13th. That at a cost exceeding $100,000 said Standard Company had
and constructed the terminal facilities promised and herein found;
that, in fact, the risk of danger from fire to defendant, the
expense of handling, in loading and unloading, and in the use of the
standard tank-cars is less (but how much the testimony does not
show) than upon oil shipped without the use of such or similar
terminal facilities; that said Standard Company commenced by
shipping about 450,000 barrels a year over defendant’s road, which
increased from year to year until, in 1882, the year before the
filing the petition in this action, the quantity so shipped on
defendant’s road amounted to 742,000 barrels, equal to 2,000 barrels
or one full train-load per day.

14th. That said arrangement was not exclusive, but was at all times
open to others shipping a like quantity and furnishing like service
and facilities; that it was not made or continued with any intention
on the part of the defendant to injure the plaintiffs in any manner;
that plaintiffs knew of an arrangement between defendant and
Standard Oil Company years before January 1, 1880, and on or about
July 20, 1876, contracted with the Standard Company to give it the
control of the shipments of plaintiffs’ oil and the plaintiffs the
benefit, if any, of any arrangements then existing or that might
thereafter exist with the Standard Oil Company upon shipment of oil,
and which plaintiffs received until about January 1, 1880, when they
ceased operating with the Standard Oil Company, and thereafter were
charged and paid the regular tariff rates published by defendant and
by it charged and collected from all the public except the Standard
Oil Company under the arrangement aforesaid.

15th. That the testimony on behalf of the plaintiffs fails to show
the quantity manufactured or shipped by them, and how much they
could or would ship by defendant’s road if the Standard Company were
charged tariff rates, does not appear in the testimony, although the
testimony does show that plaintiffs shipped many car-loads, but the
court find that the Standard Company have shipped and do ship over
defendant’s road more than 90/100 of all the oil manufactured at and
shipped from Cleveland.

16th. The court further find that at the time of filing the
petition, and at all times after November 29, 1882, the prices
charged the Standard Company from Cleveland to Chicago was fifty
cents per barrel on oil in barrels, and forty dollars for each
tank-car; that at the time of filing the petition, and from and
after May 19, 1883, the tariff rate between the points aforesaid was
sixty cents per barrel, while from November 20, 1882, to May 19,
1883, the tariff was seventy cents per barrel; that prior to the
dates aforesaid the tariff rates and rates to the Standard
frequently changed, and the difference was frequently greater than
after said dates; that sixty-one barrels constitute a car-load and
eighty barrels are estimated to the tank, but that some tanks hold
one hundred and some one hundred and twenty barrels, and that at no
time were tariff rates made or published for tank-cars carried by
defendant with refined oil except when furnished by said Standard
Company.

17th. That after said May 19th, 1883, about the same difference of
ten cents per barrel existed between tariff rates and the prices
charged to the Standard Oil Company to the different points along
the line and consignment points beyond the termini of defendant’s
road; that five barrels of oil make a ton, and that the prices
charged the Standard after November, 1882, from Cleveland to
Chicago, amounted to 70/100 of one cent per ton, per mile, and
tariff rates to 83/100 of one cent per ton per mile; that the
contract of arrangement made with defendant has been largely
profitable to defendant; that during the season of water navigation
the Standard Company could have shipped to said distributing points
on vessels by the lakes and river barreled oil for a less sum than
the rates charged to it by defendant—to plaintiffs and the public
were reasonable rates in themselves.

18th. That the defendant from time to time published and still does
publish and hold forth to the public a certain printed tariff of
rates of charge for the shipment and delivery of all classes of
freight, including the products of the plaintiffs’ refinery, between
Cleveland aforesaid and the various towns and cities upon its said
line, branches, and connecting lines, and has refused and still does
refuse to ship such products for the plaintiffs to any of such
points named in its tariff or schedule except for the prices therein
named; and that such schedule fixes the prices for oil shipment at
so much per barrel to the public, irrespective of their being
shipped in barrels by ordinary freight cars or in bulk by means of
tank-cars.

19th. That the plaintiffs have since December, 1879, frequently
applied to the defendant both for reduced rates upon such tariff
rates and for like rates with those made to such Standard Oil
Company, both upon their general shipments by the ordinary freight
cars of the defendant and also upon shipments to be by them made in
bulk by means of tank-cars owned by them, they proposing to load and
unload the same at terminal points, and to assume all risks by fire
or leakage; but that the defendant has and still does refuse to
allow them by either course of shipment rates less than such tariff
rates, the tariff charged and demanded upon such shipments in bulk
being on the basis of eighty barrels allowed to be shipped by each
tank-car.

20th. The defendant has received ever since the first day of
December, 1879, and still does receive from said Standard Oil
Company at Cleveland and ship for _him_, like products to those of
the plaintiffs at rates much less than such schedule rates, and
receives and ships for said Standard Oil Company oil for shipment in
bulk to such points by means of tank-cars of said Standard Company
at rates much less than said schedule rates and much less than the
rates allowed to said company for the shipment of oil by barrels in
ordinary freight cars, and that such reduced rates to said Standard
Oil Company by means of such tank-cars are allowed both by the
making to it a lower rate upon its shipments by the defendant’s cars
in barrels, and also by means of its being allowed to ship by means
of its said tank-cars to their full capacity, running from 80 to 120
barrels each, and averaging over 100 barrels each, and the reduced
rate being charged on a basis of 80 barrels per car. The defendant
charged the plaintiffs the switching charge, and omitted to charge
the same to the Standard Oil Company; that it was a further part of
such understanding, that should the defendant give to other shippers
like rates, said Standard Oil Company would as far as possible
withdraw from it its shipments; and that for the purpose of
effectually securing at least the greater part of said trade, the
defendant, on the completion of the New York, Cleveland and St.
Louis Railway, a competing line from Cleveland to the West, in the
year 1883 entered into a traffic arrangement with it, giving to it a
portion of the shipments of said Standard Oil Company west, on a
condition of its uniting with it in the carrying out of such
understanding as to reduced rates to said Standard Company, which
arrangements still exist.

21st. That upon the shipment made by the defendant for said Standard
Oil Company of such products the rates paid for shipment to points
of delivery upon the defendant’s connecting lines and beyond its
line have been and are less for the rateable amount of carriage
charged for the distance transported over its own line, than said
schedule rates or than the lower rates charged to said Standard Oil
Company for shipments to the terminal points at which said shipments
went from said road to its connecting line; how much less the
defendant has refused to state.

22nd. That the reduced rates charged to said Standard Oil Company
upon its shipments are arrived at by charging upon such shipments
full tariff rates, and afterward, in accordance with some
prearranged method agreed on with said Standard Oil Company,
refunding to it a portion of the freight so charged and collected,
the amount refunded being known as a “drawback” or “rebate.”

23rd. That the evidence does not establish the fact whether or not
all the various advantages claimed as secured to defendant by its
contract with the Standard Oil Company are the equivalent for the
discrimination made to it in freights.

NUMBER 46 (See page 2080)
LETTER OF EDWARD S. RAPALLO TO GENERAL PHINEAS PEASE, RECEIVER CLEVELAND
AND MARIETTA RAILROAD COMPANY

[Proceedings in Relation to Trusts, House of Representatives, 1888.
Report Number 3,112, pages 576–577.]

32 NASSAU STREET, NEW YORK, March 2, 1885.

GENERAL PHINEAS PEASE,
Receiver Cleveland and Marietta Railroad Company.

_Dear Sir_: My opinion is asked as to the legality of your making
such an arrangement with the Standard Oil Company as set forth
below.

The facts, as I understand them, are as follows:

The Standard Oil Company proposes to ship or control the shipping of
a large amount of oil over your road, say a quantity sufficient to
yield to you $3,000 freight per month. That company also owns the
pipes through which oil is conveyed from the wells owned by
individuals to your railroad, except those pipes leading from the
wells of George Rice, which pipes are his own. The company has, or
can acquire, facilities for storing all its oil until such time as
it can lay pipes to Marietta, and thus deprive your company of the
carriage of all its oil.

The amount of oil shipped by Mr. Rice is comparatively small, say a
quantity sufficient to yield $300 per month for freight.

The Standard Oil Company threatens to store, and afterward pipe all
oil under its control unless you make the following arrangements,
viz.: You shall make a uniform rate of thirty-five cents per barrel
for all persons excepting the Standard Oil Company; you shall charge
them ten cents per barrel for oil and also pay them twenty-five
cents per barrel out of the thirty-five cents collected from other
shippers.

It may render the subject less difficult of consideration to
determine, first, those acts which you cannot with propriety do as
receiver.

You are by the decree vested with all the powers of receiver,
according to the rules and practice of the court; are directed to
continue the operations of the railroad and can safely make
disbursements from such moneys as come into your hands for such
purposes only as the decree directs, viz.: wages, interest, taxes,
rents, freights, mileage on rolling stock, traffic balances and
certain debts for supplies.

In my opinion this would not protect you in collecting freight from
one shipper and paying it over to another.

All moneys received, therefore, from any person for freight over
your road, must pass into your hands and there remain to be
disbursed by proper authority. After an examination of your statute,
however, I find no prohibition against your allowing a discount, or
charging a rate less than a schedule rate to a shipper on account of
the large amount shipped by him.

As you are acting, therefore, in the interest of the company, and
endeavouring to increase its legitimate earnings as much as
possible, I find nothing in the statutes to prevent your making a
discrimination, especially where the circumstances are such that a
large shipper declines to give your road his freight unless you
allow him to ship at less than the schedule rates. Therefore, there
is no legal objection to the making of an arrangement which in
practical effect may be the same as that proposed, provided the
objections pointed out above are obviated.

You may with propriety allow the Standard Oil Company to charge
twenty-five cents per barrel for all oil transported through their
pipes to your road, and I understand from Mr. Terry that it is
practicable to so arrange the details that the company can, in
effect, collect this direct, without its passing through your hands.
You may agree to carry all such oil of the Standard Oil Company or
of others delivered to your road through their pipes, at ten cents
per barrel. You may also charge all other shippers thirty-five cents
per barrel freight, even though they delivered oil to your road
through their own pipes, and this I gather from your letter and from
Mr. Terry would include Mr. Rice.

You are at liberty, also, to arrange for the payment of a freight by
the Standard Oil Company calculated upon the following basis, viz.:

Such company to be charged an amount equal to ten cents per barrel,
less an amount equivalent to twenty-five cents per barrel upon all
oil shipped by Rice, the agreement between you and the company thus
being that the charge to be paid by them is a certain sum
ascertained by such a calculation. If it is impracticable so to
arrange the business that the Standard Oil Company shall, in effect,
collect the twenty-five cents per barrel from those persons using
the company’s pipes from the wells to the railroad without its
passing into your hands, you may properly also deduct from the price
to be paid by this company an amount equal to twenty-five cents per
barrel upon the oil shipped by such persons provided your accounts,
bills, vouchers, etc., are consistent with the real arrangement
actually made, you will incur no personal responsibility by carrying
out such an arrangement as I suggest. It is possible that by a
proper application to the court, some person may prevent you in the
future from permitting any discrimination. Even if Mr. Rice should
compel you, subsequently, to refund to him the excess charged over
the Standard Oil Company, the result would not be a loss to your
road, taking into consideration the receipts from the Standard Oil
Company, if I understand correctly the figures. There is no theory,
however, in my opinion under the decisions of the courts, relating
to this subject, upon which, for the purpose, an action could be
successfully maintained in this instance.

Yours truly,
EDWARD S. RAPALLO.

NUMBER 47 (See page 2084)
TESTIMONY OF F. G. CARREL, FREIGHT AGENT OF THE CLEVELAND AND MARIETTA
RAILROAD COMPANY

[In the case of Parker Handy and John Paton, Trustees, _vs._ The
Cleveland and Marietta Railroad Company _et al._, Circuit Court of
the United States, Southern District of Ohio, Eastern Division.]

_Q._ The auditor reports it (the $340) remitted on October 29, 1885.
Please state by whom it was held from the first of May to that time.

_A._ We might as well go back of that, and I will make a clean
sweep, so far as I am concerned. This overcharge of twenty-five
cents was held by the Macksburg Pipe Line Company. Whether this was
my fault or the fault of the general agent I am not able to say. I
know no difference between Mr. Rice’s oil and the Pipe Line
Company’s.

_Q._ The books of the company show from the 26th of March, 1885,
until April 28, 1885, Mr. Rice shipped from Macksburg to Marietta
1,360 barrels; that upon these shipments $340, or twenty-five cents
per barrel, were reported to the auditor of the Cleveland and
Marietta Railway upon the 29th of October. Who sent the
money—$340—to the railroad company, and who reported the amount of
money to the auditor?

_A._ If I understand correctly, if it is the amount I think it is,
that is the amount for overcharge. It came through my office.

_Q._ In whose hands had the $340 been from the time paid by Mr. Rice
until it was sent by you to the bank at Cambridge?

_A._ I received check from Pipe Line.

_Q._ How soon did you send money to Cambridge after receiving check?

_A._ I think the next day.

_Q._ How did you come to get that check?

_A._ I don’t understand.

_Q._ Did you go after it?

_A._ No, sir; it was sent to me by mail.

_Q._ Where was it mailed?

_A._ Oil City, I think.

_Q._ By whom was the check signed?

_A._ By the treasurer, J. R. Campbell, I think.

* * * * *

_Q._ If I understand the arrangement during the month of April,
1885, you collected thirty-five cents per barrel for all oil shipped
by George Rice, and paid ten cents to the receiver of the railroad
company and twenty-five cents to the Macksburg Pipe Line?

_A._ Yes, sir; as long as Mr. Rice shipped.

_Q._ Afterwards the Macksburg Pipe Line Company sent the money thus
paid to it to you, and you paid the money into the depository of the
railroad company on the 29th of October, 1885?

_A._ Yes, sir.

NUMBER 48 (See page 2084)
REPORT OF THE SPECIAL MASTER COMMISSIONER GEORGE K. NASH TO THE CIRCUIT
COURT

[In the case of Parker Handy and John Paton, Trustees, _vs._ The
Cleveland and Marietta Railroad Company _et al._, Circuit Court of
the United States, Southern District of Ohio, Eastern Division.]

TO THE HONOURED THE CIRCUIT COURT OF THE UNITED STATES,
Southern District of Ohio, Eastern Division.

By an order of your court made on the 18th day of December, 1885, in
the case of Parker Handy and John Paton, Trustees, _vs._ The
Cleveland and Marietta Railroad Company _et al._, I was appointed a
special master commissioner to investigate and report to the court
for its action what discriminations have been made in freights by
Receiver Pease, or during his administration by those under him, and
to this end I was authorised to summon and examine witnesses and to
cause their testimony to be reduced to writing so far as in my
discretion it might be necessary. I was also required to inquire
fully and particularly into the facts and report to the court what
discriminations had been made, under what arrangements and to what
extent, and to report fully all the facts and show to what extent
and under what circumstances discriminations have been made against
shippers as well as in favour of shippers, and by whom such
discriminations were authorised and by whom made. In compliance with
this order I proceeded to examine the matters therein referred to,
and in the course of such examination called the following-named
persons as witnesses:

T. D. Dale, C. C. Pickering (auditor of the Cleveland and Marietta
Railroad Company under Receiver Pease), F. G. Carrel, J. E. Terry,
Daniel O’Day, George Rice, H. L. Wilgus, W. H. Slack, W. J. Cramm,
George Best, Jr., and J. C. McCarty, whose evidence I caused to be
reduced to writing by A. C. Armstrong, a stenographer, and is
herewith submitted.

I find from the evidence that soon after General Pease was appointed
receiver of the Cleveland and Marietta Railroad, an arrangement was
entered into with Daniel O’Day and W. T. Scheide, by which it was
agreed that the rate to be charged by Receiver Pease and his
subordinates upon all crude oil shipped from Macksburg and vicinity
upon the line of the Cleveland and Marietta Railroad Company to
Marietta should be thirty-five cents per barrel; that the agent of
the receiver at Marietta should also pay the agent of the parties
represented by O’Day and Scheide; that his compensation was to be
$85 per month, $60 of which was to be paid by Receiver Pease and $25
by the parties represented by O’Day and Scheide; that it was the
duty of this joint agent (one F. G. Carrel) to collect from all
shippers the sum of thirty-five cents per barrel, and to account to
Receiver Pease for ten cents of this sum, and to the parties
represented by O’Day and Scheide for the balance. This arrangement
went into force on the 20th day of March, 1885, and continued in
force until September, 1885, at which time one George Rice made
complaint to your court that discriminations were being made by the
receiver against oil shippers.

Negotiations for this arrangement were opened in the City of Toledo
on the 8th day of February, 1885, at a meeting which was attended by
Daniel O’Day, W. T. Scheide, A. G. Blair (acting general freight and
passenger agent of the receiver of the Wheeling and Lake Erie
Railroad Company), and J. E. Terry (general freight and passenger
agent of Pease, the receiver of the Cleveland and Marietta Railroad
Company). The agreement above referred to was substantially reached
at this meeting. Mr. Terry reported the same to General Pease,
receiver of the Cleveland and Marietta Railroad Company, who
thereupon wrote a letter to his general counsel in New York, asking
advice in regard thereto, which letter was transmitted to said
counsel by J. E. Terry in person. E. S. Rapallo, an attorney in New
York City, replied to the letter of General Pease, and a copy of his
letter is now on file in your court and is a part of a report filed
by General Pease in November, 1885. This arrangement seems to have
been entered into with full knowledge of General Pease, the
receiver, and after consultation with his counsel, and with the full
knowledge of his general freight and passenger agent, J. E. Terry.

George Rice was the owner of certain oil wells in the Macksburg Oil
Region and he also purchased some oil from the owners of certain
other wells in the same district. The oil which he produced and also
the oil which he purchased he was in the habit of transporting to
his refinery at Marietta, Ohio, by means of the Cleveland and
Marietta Railroad. Before the arrangements to which I have referred
went into effect he had been charged upon the shipment made by him
the sum of seventeen and one-half cents per barrel. After the 20th
of March, 1885, he was charged thirty-five cents per barrel upon all
oil shipped by him. Between the 20th of March and the 30th of April
following, Mr. Rice shipped from Macksburg to Marietta over the
Cleveland and Marietta Railroad, 1,360 barrels of oil. Upon this oil
he was charged thirty-five cents per barrel, or the sum of $476.
This money was collected by F. G. Carrel, the agent of the receiver
and also the agent of the parties represented at Toledo by O’Day and
Scheide. This money was divided according to the agreement, and $136
was sent by Carrel to the bank of the receiver at Cambridge, Ohio,
and the remaining $340, or twenty-five cents for each barrel of oil
shipped by Rice, was sent by Carrel to the oil parties who had their
headquarters at Oil City, Pennsylvania. On or about the 29th of
October, 1885, this $340 was returned to Mr. Carrel at Marietta, by
a check from Oil City, which check was signed by one J. R. Campbell,
treasurer. This money was sent by Carrel to the bank in Cambridge in
which the receiver made his deposits. It will be observed that this
money was returned from Oil City some ten or twelve days after Judge
Baxter made his order directing the receiver to make a report
showing what discriminations, if any, had been made by him in the
shipments of oil, which order had been obtained upon the complaint
of George Rice. It was also returned after a consultation had by J.
E. Terry with Daniel O’Day in the City of Cleveland. Mr. Terry
states that the receiver was made acquainted with the steps taken by
him in connection with this transaction. The receiver did not submit
himself to an examination in regard to this matter, but filed an
affidavit with me which I attach to this report, in which he states
in substance that he did not know at the time he filed his reports
with your court that that part of the agreement between himself and
the oil parties which required that twenty-five cents per barrel of
the moneys collected by him should be paid to the oil parties had
been carried out, or that the money thus paid by Rice, and by Carrel
paid over to the oil parties, had been returned. The reason given by
Receiver Pease and by Mr. Terry for entering into this agreement was
that the parties represented by O’Day and Scheide were threatening
to put down a pipe-line from Macksburg to Parkersburg, through which
to transport the oil produced by them in this region to the latter
city, and that if this threat was carried out, the Railroad Company
would be prevented from carrying oil produced by them to Marietta.
They further stated that in consideration of the arrangement to
which I have referred, the parties represented by O’Day and Scheide
agreed not to put down a pipe-line, but to ship their oil over the
Cleveland and Marietta Railroad.

As soon as George Rice found that the rates on oil had been raised
from seventeen and one-half to thirty-five cents per barrel, and
that he could not get any better terms for his shipment from the
railroad, he commenced to lay a pipe-line from his wells in the
Macksburg field to Lowell, on the Muskingum River. This line was
completed about the first of May, 1885, and from that time he
transported all his oil through this pipe to Lowell, and thence
shipped it to Marietta by boat on the Muskingum River. As soon as
the parties represented by O’Day and Scheide ascertained that Rice
was putting down a pipe-line, they proceeded also to lay a pipe-line
from the Macksburg oil field to Parkersburg, in West Virginia. Since
the completion of their pipe-line all the oil sent to Parkersburg
and Marietta has been sent through this pipe-line. For several
months they continued to ship some of their oil North over the
Cleveland and Marietta Railroad to Cleveland, but during the last
two months these shipments have ceased, and all the oils now
produced by the parties represented by O’Day and Scheide are sent by
them through their pipe-line to Parkersburg.

Mr. Rice, since the completion of his pipe-line, has shipped through
it to Marietta more than forty-five thousand barrels of oil. The
shipments by Mr. Rice might have been retained for the benefit of
the railroad had the rate of seventeen and one-half cents per barrel
been continued. It is probable that had not the arrangement which we
have been considering been entered into, a line would have been put
down by the parties represented by O’Day and Scheide, but without
the arrangement the patronage of Mr. Rice could have been retained.
The result of the arrangement seems to be that the railroad has lost
the patronage not only of the parties represented by O’Day and
Scheide, but also of Mr. Rice, and it is not to-day carrying a
barrel of oil.

The Argand Oil Works and the Argand Refining Company, two
corporations located at Marietta, Ohio, have made complaint that
from the eighteenth day of February until the fourteenth day of
October, 1885, they were shippers of oil from the Macksburg Oil
Region, over the Cleveland and Marietta Railroad, and that they were
discriminated against by the receiver and his agents. I conceived
that the order of your court referring this subject to me was broad
enough to cover the complaint made by these corporations and I
accordingly called W. H. Slack, W. J. Cramm, C. C. Pickering, and F.
G. Carrel as witnesses in regard to this complaint, and their
testimony is herewith submitted, together with the account presented
by these two corporations and the receipted bills taken by them in
payment of freight. From the evidence of these witnesses it appears
that these corporations, during the time covered by the complaint,
were engaged in refining oil at Marietta, Ohio. They purchased their
crude oil of the parties represented by O’Day and Scheide at
Macksburg. Their purchases were made by ordering their oil when
needed by telegraph from a man by the name of Seep, located at Oil
City, Pennsylvania, and they were charged therefor the market price
of oil at Oil City on the day when the telegraphic order was given.
The oil was then shipped to them over the Cleveland and Marietta
Railroad and a bill for freight presented to them in the form
following: “The Argand Oil Works, Marietta, Ohio, To the Cleveland
and Marietta Railroad Company, Dr.”

In these bills they were charged for all oil shipped at the rate of
thirty-five cents per barrel. This amount was paid by them to
Carrel, the agent of the receiver, at Marietta, Ohio. Of this amount
Carrel paid to the receiver ten cents, and to the parties
represented by O’Day and Scheide, twenty-five cents. I am of the
opinion that these parties were in the same position as George Rice,
with the exception that Mr. Rice produced his oil from the ground
and shipped it over the Cleveland and Marietta Railroad, and these
parties bought their oil instead of producing it from the ground. I
cannot see as this difference modifies in any way the discrimination
made against them. They claim that from February 18, 1885, until
October 14, 1885, they shipped 3,679–6/10 barrels of oil, for which
they were charged $1,232.06 as freight, and that the discriminations
against them amounted to $888.70. From their bill certain reduction
should be made. All shipments made prior to March 20, 1885, should
be excluded for the reason that the discriminating arrangement
entered into between the receiver and the parties represented by
O’Day and Scheide did not go into effect until the 20th of March,
1885. Two shipments, one made on the 7th of August, and the other
made on the 21st of September, from Dexter City, should also be
excluded for the reason that all oils shipped from Dexter City were
charged for at the same rates as these complainants were taxed.
After making these deductions, I find that under the contract
complained of, the Argand Oil Works and the Argand Refining Company
shipped from the 20th of March until the 14th of October, 2,695
barrels of oil; that they were required to pay upon these shipments
the sum of $894.59, and that of this sum Carrel, the agent of the
receiver at Marietta, paid to the receiver the sum of $245.44, and
to the parties in Pennsylvania represented by O’Day and Scheide the
sum of $649.15.

A complaint of a similar character is made by the Marietta Oil
Works, a partnership engaged in the business of refining oils at
Marietta, Ohio. Upon their complaint, I examined George C. Best,
Jr., J. C. McCarty, W. H. Slack, C. C. Pickering, and F. G. Carrel
as witnesses, and their evidence is submitted herewith in full,
together with the account presented by this partnership and the
receipted bills presented by the Cleveland and Marietta Railroad and
paid by them. Their case in all respects seems to be precisely like
that of the Argand Oil Works and the Argand Refining Company. They
claim that from the 1st day of April until the 31st day of August,
1885, inclusive, they shipped 2,717 barrels of oil, for which they
were charged as freight $950.95, and that they were discriminated
against to the extent of $679.25. From their bill I think that there
should be excluded two shipments from Dexter City, one made on the
12th day of June, and the other on the 18th day of June, for the
reason that no discriminations were made in freights, by the
receiver, of oils shipped from Dexter City. After taking into
account these two shipments, I find that the Marietta Oil Works
shipped from Macksburg and Elba on their account 2,547 barrels of
oil; that the freights paid by them upon these shipments amounted to
the sum of $891.45, and that out of this sum Carrel, the agent at
Marietta, paid to the receiver the sum of $251.70, and to the
parties represented by O’Day and Scheide the sum of $639.75.

I find that during the receivership of General Pease, no oils were
shipped from Macksburg North over the Cleveland and Marietta
Railroad except such as were shipped by the parties represented by
Messrs. O’Day and Scheide.

I have purposely referred to the parties who entered into this
arrangement with Receiver Pease and his freight agent, J. E. Terry,
as “the parties represented by O’Day and Scheide,” for the reason
that I have not been able to ascertain who or what the parties are.
It appears from the evidence that during the time that M. D.
Woodford had control as manager of the Cleveland and Marietta
Railroad, one W. J. Brundred and T. D. Dale conceived the idea of
running pipes to all the wells in the Macksburg Oil Regions, and
then by concentrating them together convey all the oils thus
gathered through the main line to the Cleveland and Marietta
Railroad and deposit it in tanks, and with this end in view entered
into a contract in writing with said Woodford, a copy of which
contract is attached to the report of Receiver Pease, filed in your
court in November, 1885. After this contract was entered into, they
organised a corporation known as the Ohio Transit Company, with T.
D. Dale as president and W. J. Brundred as vice-president, to which
corporation this contract was assigned. This company continued in
the business until January, 1885. Mr. Dale, the president, states
that “We said we could not compete with the Standard Oil Company,
and for that reason we sold out at a fair price.” When asked to whom
his company sold their property, Mr. Dale answered, “I don’t know
what company, but my recollection is that it might have been the
National Transit Company.” “It was done in their office. I don’t
know whether the bill of sale was made to Mr. O’Day or to Mr.
Scheide.” Mr. Dale further states that “Mr. O’Day was vice-president
of the National Transit Company, and that Mr. Scheide was its
general manager; it, however, is conjecture on my part.” In another
place Mr. Dale states that the gentleman managing the National
Transit Company bought the property of the Ohio Transit Company, and
gives as their names Daniel O’Day, W. T. Scheide, and J. R.
Campbell. The corporation or partnership, or whatever it is which
now manages the pipe-line system in Macksburg oil fields, and
extending from there to Parkersburg, is known as the Macksburg Pipe
Line. One Daniel O’Day, now having his headquarters at Macksburg, is
the manager of this pipe-line. When O’Day was asked, “To whom does
the Macksburg Pipe Line belong?” he answered, “I do not believe I
can answer that; I do not know.” When asked, “Who has general
control of it?” he answered, “Mr. Scheide, Mr. O’Day, and J. R.
Campbell.” He stated that “Mr. Scheide lives in Titusville, Mr.
Campbell at Oil City, and Mr. O’Day at Buffalo.” He also stated that
these gentlemen were officers of the National Transit Company and
the United Pipe Line, a division of the National Transit Company;
that Mr. O’Day is general manager of the National Transit Company,
and when asked whether the Macksburg Pipe Line is also a branch of
the same system, he answered, “Really, I am not well enough posted
to know, but I presume it is.” Daniel O’Day also stated that the
National Transit Company is a corporation organised under the laws
of New York, and that its principal office is located in New York
City. He also stated that “its property is located throughout the
state of New York and the state of Pennsylvania, and some in Ohio.”
The line located in Ohio he described as running from Parker’s
Landing, in Pennsylvania, to Cleveland. He also stated that the
United Pipe Line is a division of the National Transit Company which
runs from wells to railroad points or pumping stations, and that the
wells to which he referred are located in Alleghany County, New
York, and throughout a large portion of Pennsylvania. He also stated
that the Macksburg Pipe Line controls, by lease and deed, sixty or
seventy acres of land in this state of the line of the Cleveland and
Marietta Railroad Company, and that the lease and deeds for this
land are in the name of one Benjamin Brewster, of New York City, and
that said Brewster is the vice-president of the National Transit
Company. When Mr. O’Day was asked, “What relation does the National
Transit Company and the United Pipe Line Company sustain to the
Standard Oil Company?” he answered, “I believe that people having
stock in the National Transit Company or the United Pipe Line can
hold stock, and do hold stock, in the Standard Oil Company, but I do
not know what further relations they have.”

* * * * *

I have attempted to summarise in a very brief manner the evidence
which has been taken by me under the order of your court, but in
order to obtain a full understanding of the situation, it will
perhaps be necessary to read all the evidence which is herewith
submitted in full, in connection with the reports and exhibits filed
by General Pease, in November, 1885.

Respectfully submitted,
(Signed) GEORGE K. NASH,
_Special Master Commissioner_.

NUMBER 49 (See page 2120)
A STATEMENT FROM AN OIL-PRODUCER’S STAND-POINT FOR 1886

[Circular used in the campaign against the Billingsley Bill.]

Total production for the year, 25,145,088 barrels.

Average price per barrel, .71½.

The gross income from the entire Oil Regions, based on these
figures, $17,978,237.

The cost of producing the above amount of oil was as follows:

Wells drilled, 3,525—at an average cost of
$3,000 each $10,575,000
Cost of pumping and raising the oil to the
surface and keeping rigs and wells in repair,
estimated at .25 per barrel of production 6,286,272
Add estimated cost of royalty, one-eighth 2,247,342
———————————
Total expenditures $19,108,614
Deduct total income of the entire Oil Regions 17,978,737
———————————
Net loss to oil producers during the year $1,129,877

If the estimated value of the one-eighth royalty be not added, then
the value of five acres of land should be added to the cost of each
well and the result would be practically the same.

The daily production January 1, 1886, was
59,603 barrels, valued at $750 per barrel $44,702,250

The daily production January 1, 1887, was
66,383 barrels, valued at $500 per barrel 33,191,500
———————————
Showing a shrinkage in value of the producing
territory for the year 1886 to be $11,510,750

NOTE.—To make it more clear to the uninitiated, the foregoing means
that producing territory was bought and sold in 1885 on the basis of
$750 to each barrel of production, and in 1886 on the basis of $500.
It is on this basis that the value of oil-producing territory is
estimated. A well producing one barrel a day at the present time is
valued at $500; one year ago it was worth $750.