UNITED STATES v. FIRST NAT. BANK

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Argument of Daniel M. Friedman

Chief Justice Earl Warren: Number 36, Allen versus First National Bank and Trust Company of Lexington et al.

Mr. Friedman.

Mr. Daniel M. Friedman: Mr. Chief Justice and may it please the Court.

This is a civil antitrust case in which the government is appealing from the dismissal by the District Court after trial of a compliant challenging a bank merger under the Sherman Act.

The merger involved a consolidation of the largest and the fourth largest bank in Fayette County, Kentucky and resulting institution, as I shall develop, had better than 50% of all the banking assets in the area.

Now in this case, unlike the Philadelphia bank case of last term, the government did not challenge this consolidation under Section 7 of the Clayton Act.

Unknown Speaker: (Inaudible)

Mr. Daniel M. Friedman: I think Mr. Justice and the reason for it is this.

At the time this suit was filed which was approximately about the time of the Philadelphia bank decision, there was considerable uncertainty as to whether Section 7 of the Clayton Act applied to the banks mergers.

We studied this case and this seemed to us to be a very strong case under the Sherman Act and in this circumstances, it was our considerate judgment that it would appropriate to charge, tackle this bank merger solely under the terms of the Sherman Act.

The --

Justice William J. Brennan: (Inaudible)

Mr. Daniel M. Friedman: Primarily Mr. Justice.

Justice Potter Stewart: Exclusively for it's oral argument then.

Mr. Daniel M. Friedman: For it's oral argument and we -- as I have indicated we think that -- we had argued to the court that the Philadelphia Bank merger violated the Sherman Act, as I shall develop, we think this is an even stronger case than Philadelphia bank case.

The --

Justice Arthur J. Goldberg: (Inaudible)

Mr. Daniel M. Friedman: Well I just don't know Mr. Justice.

It's -- the Philadelphia case certainly gives the government a very -- only weapon in dealing with this, but I would be reluctant to say that cases might not arise where it would be appropriate for us to have the Sherman Act.

And we also -- I might say we think that this case is brought under the Sherman Act, and we think in this case we have established a violation of the Sherman Act.

Lexington, Kentucky which is the county seat of Fayette County, Kentucky, is a medium sized city of about 60,000.

It's roughly -- the population of the county is roughly twice that.

The city has -- the whole area since the war has undergone a remarkable industrial development.

Prior to that time it was primarily a farming area.

Since the war, it has undergone rapid industrialization, characterized primarily by the influx of major national concerns which set up a number of plants in the area.

At the time of the merger which was March 1st, 1961, there were total of six banks in Fayette county and preliminary matter, the District court in this case treated Fayette County as the relevant geographic market within which -- to test the effect of this merger on competition and our opponents do not challenge that ruling.

The two merging banks were the First National Bank and Trust Company and Security Trust Company.

The First National was the oldest and the largest bank in the county.

At the time of the merger, it was more than twice the size of any of the other banks.

Between its founding in 1865 and 1929, it had been involved in 12 different mergers consolidations or takeovers and at the time of the merger its deposits were $58 million.

It had $65 million in total assets and $35 million in total loans and as I shall demonstrate in a moment, this at that point represented the largest bank by far in the community.

The Security Trust Company had been organized in the 1880s by the businessmen of the community, primarily to provide corporate trust services for the community.

This bank, until 1947, had not engaged in any so called commercial banking.

It was limiting itself to making of secured loans and providing trust services.

However in 1947, it went into the commercial field and experienced a very rapid growth.

Now we have set forth at Pages 10 and 11 of our brief, charts which show the statistical pattern of the distribution of the banking business in Fayette County and the first chart at the top of Page 10 shows the situation as it was prior to the merger and the Court will notice that at that point First National had roughly 40% of all the banking business in the area.

It was at that point more than twice as large as the second bank, Citizen's Union, and was approximately three times or more the size of Security Trust.

Now the effect of the consolidation is shown in the second chart on Page 10.

The Court will note that the resulting bank now has more of the assets than all of other banks put together.

It has roughly 52 or 53% of the assets.

This bank is now three times as large as the second bank and roughly five or six times as large as the smallest bank.

The chart at the top --

Justice Potter Stewart: Isn't there a simply – third or fourth grade addition just add for (Inaudible) 39.83 plus 12.87.

Mr. Daniel M. Friedman: That's correct.

Justice Potter Stewart: Which is again 52.7?

Mr. Daniel M. Friedman: That's right, but that we think is significant Mr. Justice Stewart.

Of course it's just addition, but the significance we think is we have a big bank and this big bank has combined into a substantial bank and as I shall develop in a moment, this case rests not just on the percentages of the market.

We think we have very important and persuasive evidence that in this market, this kind of concentration does have a markedly adverse affect on competition.

Justice Arthur J. Goldberg: (Inaudible)

Mr. Daniel M. Friedman: Well one thing Mr. Justice -- I have to answer that in several steps.

One thing as far as security is concerned, is that security did have an advantage, which it had its trust business, and the trust business as the record indicates does give a bank an advantage in going into the commercial business.

But more important than that we think is that, and just let me say that they make the argument that the fact that First National at a prior period had a larger share of the market and had since drop down to 40%, that shows competition would not adversely affected within this market.

Well, we think there is two things to that, first there is affirmative evidence by the Presidents of three of the other banks in the area that in these circumstances, combining 50% into this bank, with all of the advantages which I'll come to in a moment, does place them under a serious competitive advantage.

Justice Arthur J. Goldberg: (Inaudible)

Mr. Daniel M. Friedman: Well, I think the answer Mr. Justice to that as the testimony in the record indicates that it's customary when you have a merger of two banks, if there is some attrition in the share of the merging bank for a brief period and indeed there was recognition that this was not unexpected in this particular case.

And over and beyond that we think that the competition which is to be protected in this case, the competition, the protection of the other banks that is not, the negative effects are not offset because there has been a slight increase in the percentage shares of the other banks.

The bankers, the three bankers, the presidents of the other banks in town testified, or testified that there concern was over the long range effect of this, in the long run the greater economic power that this bank would be able to bear, bring to bear.

Now I think one --

Justice Potter Stewart: In (Inaudible) -- the statute was for the protection of the other banks

Mr. Daniel M. Friedman: The statute was for the protection of competition.

Justice Potter Stewart: For the protection of competition in the interest of the public.

Mr. Daniel M. Friedman: That's correct.

And we think it's in the interest of the public that there be a number of effective banks in the area.

In other words, what the statute is prohibiting is the elimination of an important competitor where this will have adverse affects on competition.

And there are adverse effects on competition we think when the remaining competitors in the market will find it more difficult, seriously difficult to be competing as effectively as they had in the past.

I think Mr. Justice I would like to point to one aspect of the case that I haven't yet mentioned which is suggested by our chart on the top of Page 11 and that is a tremendous share of the corporate trust business which will be the result of this merger.

Although First National only went into the trust business about 20 years ago, it had managed to gain a very substantial share of that market.

At the time of the merger it had roughly 45% as against roughly 50% in terms of total trust assets of Security Trust.

Now the effect of this merger is to combine in a single bank 95% in dollar amount of all the corporate trusts in the community and I think it would be appropriate, this by the way would be 28 more times as large as any of the other banks in the area, and I think it's appropriate --

Justice Potter Stewart: Was the trust business the subject of the Section 2 part of the complaint?

Mr. Daniel M. Friedman: Well, the complaint charged that both the trust business and commercial banking business was a violation of Section 2 as -- the acquisition was both in a combination to monopolize and a restraint of trade.

We are not pressing before this Court the argument that there was a violation of Section 2 insofar as it affected a combination to monopolize commercial banking.

The reason for that is we think if we prevail on Section 1, the Court doesn't have to reach it.

If we lose on Section 1 frankly we think it is also dispositive of Section 2.

We are, however, continuing to press our argument that in the field of corporate trust services which we think is a separate part of trade and commerce that this combination, this 95%, does represent a combination to monopolize, but I don't plan to argue that in this Court.

I think we will stand on our brief on that because again the Court need to only to reach that argument if it disagrees with those of the Sherman Act point.

Justice Potter Stewart: But you do think that the trust business is a separate part of trade and commerce from commercial banks.

Mr. Daniel M. Friedman: We think it's a relevant seg market yes Mr. Justice.

Justice Potter Stewart: Like these are manufacturing companies difference between ice-skates and shoes or something.

Mr. Daniel M. Friedman: Are between men shoes and -- well between shoes and men shoes, between professional boxing and championship professional boxing.

Justice Potter Stewart: That kind of distinction.

Mr. Daniel M. Friedman: That kind of a distinction.

Chief Justice Earl Warren: What would be –

Justice William J. Brennan: (Inaudible) the argument based on the trust business is also part of your Section 1 argument?

Mr. Daniel M. Friedman: That is correct.

We -- actually now I would like to come to that we think the fact that these banks have 95% of the trust business is an important element towards showing why in this market, this combination is a restraint of trade in violation of Section 1.

Justice Arthur J. Goldberg: (Inaudible)

Mr. Daniel M. Friedman: Yes I will come to that in just one moment if I may.

This case -- this case is perhaps an unusual case in that three of the four other banks in the area, the next three largest, the presidents of those institutions all testified that in their view this merger would adversely affect competition in the community and they explained at considerable length why they believe that this would have such an effect.

The, I might also just point out once again, reiterate, they recognized that in the year since the merger, the trial is approximately one year after the merger, they had not noticed any discernible immediate effect.

In fact their percentages have grown slightly, but they were concerned, they said with the long range trend.

Now, the first reason they gave why this large bank would put them under a serious competitive disadvantage, rested on the character of the business community of Lexington.

As I had indicated Lexington has had a very remarkable economic growth and you had a large number of national firms coming in there.

And they say that when a national firm comes into an area where it is not previously familiar, what the national firm's officials generally do is they pay great weight to the balance sheet of the banks, they don't know anything about these banks, they have to select a bank in which to deposit their funds and traditionally they look around, they want to get the largest bank.

This is understandable of course because the Federal Deposit Insurance Company's insurance is limited to $10,000.

So in one of these big firms, it makes very substantial deposit, they want to be able to look and see that they have a powerful, a strong healthy institution.

And thus each of these individuals testified that the very size of the bank, the fact that it is three times bigger than the next that it has 50% of the market, that fact itself is a powerful magnet in attracting new business to the bank.

Now in addition, the size would permit the new bank to do various things which would give it a competitive advantage over some of the smaller banks.

For example, most of the banks spend a great deal of money in advertising.

This is one of the most vigorous ways in which they compete.

Traditionally, the amount they spend on advertising is directly related to the amount of their deposits, and so having more deposits, being a bigger bank is able to spend more on advertising and thus get a competitive advantage.

There are other things for example that the new bank being large, it would be in a better position to put in automated equipment, they will be better able being a larger bank to hire more specialized personnel.

And now Mr. Justice Goldberg, I would like to discuss a question you raised, what the significance of having 95% of the trust businesses.

The witnesses discuss that at considerable detail.

The first thing they pointed out is that trust business and commercial businesses are reciprocal sources.

In other words, if you have a large active trust department this helps you in obtaining commercial business and conversely if you have a large commercial business, this helps you in obtaining trust business and the record indicates that it was the extensive trust business of Security Trust Company which enabled it to move ahead so rapidly in the commercial field.

Justice Arthur J. Goldberg: (Inaudible)

Mr. Daniel M. Friedman: Well I wouldn't fix that Mr. Justice because while they are interrelated, they do play a part, I would still think that for many purposes the trust business does have sufficiently identifiable characteristics to make it an appropriate sub-mark, but I say I'm now arguing to try to show why within the broader market the trust business has a related significance.

There was another point that was made by the witnesses, is that this combined bank with its 95% of the trust assets in the community had among other things a very substantial portion of the choice downtown real estate and this they said gave it something of an entrée in getting the commercial business of the tenants of this property.

Justice Byron R. White: (Inaudible)

Mr. Daniel M. Friedman: I just don't know that Mr. Justice.

I'm sorry I don't know.

Justice Byron R. White: (Inaudible)

Mr. Daniel M. Friedman: Well only in the – on the really conclusively findings Mr. Justice.

The District Court in this case did not make detailed finding.

The District Court's opinion is very short and he did make of course the ultimate finding that this would not restrain competition.

To that extent that has to be overturned, but I don't think there are any specific findings in the sense of the -- finding that there was no conspiracy, there is not that type of finding.

This case is somewhat unusual in that the District Court's findings and opinion occupying only about six pages of the printed record and one other little -- just a little fact on the trust business is the effect of the merger was to give this bank control of the only newspaper in town which had previously been in the hands of trust, in the hands of Security Trust and now it's now in the hands of the merged bank.

Now the testimony went beyond this, however, because all of these witnesses, these three bank officials testified that the size of Security Trust now gave it such an advantage that the other banks might well have to consider a merger in order to be able to compete effectively against the economic power of Security Trust.

In this market the number of banks has dropped from 19 -- in 1929 there were 10 banks in the area, at the time of this merger there are only five as a result of this merger and that's what we have, it seems to us in this small city in Central Kentucky, is a confirmation of the broad trend to a concentration in banking which this Court noted last term in the Philadelphia Bank case, and indeed there is dramatic evidence in this case of the danger which we think this merger poses in terms of further accretions of concentration.

The second largest bank in the city is the Citizens Union Bank which had roughly 17% of the business.

The Citizens Union Bank is itself the product of a merger.

In 1954 two of the other banks merged to form this merger and the President of the Citizens Union Bank testified that he principle reason for this merger was that so that it's bank, this new bank could compete more effectively with the First National Bank which was then the largest bank in town.

Now with this -- this is the factual situation as it existed and as the result of the merger and we think that these facts show that the consolidation constitute a combination and unreasonable restraint of trade and violation of Section 1 of the Sherman Act.

As I have indicated on this phase of the case, there is no issue as to either the relevant product market, commercial banking or the relevancy of graphical market and the question before the Court is thus, what the effect of this merger had on competition.

We rest our case on two perhaps related propositions.

First proposition is we think under the so called railroad merger cases, this merger was bad because it resulted in the elimination of substantial competition between the two merging companies.

Secondly, we say that even if it does not violate that standard that under the standards enunciated in this Court's latest decision dealing with horizontal mergers under Section 1, the Columbia Steel decision, this merger must fall.

Now, let me just briefly refer to the railroad cases.

We've set them forth, discussing them at considerable length in our brief.

These were a series of cases in the first quarter of the century in which this Court had before it combinations of railroads, they were mostly transcontinental railroads, and these cases the Court condemned as violations of both Section 1 and Section 2 apparently of the Sherman Act, a combination of railroads which eliminated substantial competition between the merging roads themselves and in reaching -- making these holdings the Court did not look to see what was the share of the market not controlled by the other railroads, did not consider how effective the remaining competition was.

And one of the leading cases for example was the Union Pacific Railroad, where this Court struck down the Union Pacific's acquisition of a controlling share in the Southern Pacific.

The Court recognized that the business for which these two carriers were competing was only a comparatively small part of their total traffic, but it nevertheless found that there was a substantial amount of competition between them, because they had competed for million of dollars worth of trade.

And in the Columbia Steel case of course this Court said that the railroad cases were not that controlling and so they were distinguishable on their facts.

However, this Court has never questioned the authority of those cases and indeed it cited them apparently with approval, last term, in the Philadelphia Bank case for the proposition of the Sherman Act does apply to horizontal mergers.

We think those cases sound and we think they basically rest on a self evident economic proposition, which is it there can be no more complete restraint of trade than the combination of two independent companies that are competing with each other.

When you have two competitors that are combined immediately and forever all competition between them terminates, that's the end of it.

As far as the marketplace is concerned there is no competition.

So that it seems to us --

Justice Potter Stewart: A simple theory, which of course what you say is actually correct, which means that any merger is a per se violative of the Sherman Act if it's in interstate commerce.

Mr. Daniel M. Friedman: And if, and if Mr. Justice, if the two merging companies are themselves engaged in substantial competition between them.

We think --

Justice Potter Stewart: Two shoe stories in a town where there are 100 shoe stories of large -- if they are in interstate commerce and that's a violation of that Sherman Act.

You are very simple and very based on what's undoubtedly perpetually correct that once they merge the competition between them is at an end forever.

Mr. Daniel M. Friedman: Well, if there was substantial competition.

Justice Potter Stewart: Now let's say they were in-vigorous substantial competition --

Mr. Daniel M. Friedman: And if there were more --

Justice Potter Stewart: -- and they are right next to each other in a town in Lexington, Kentucky and there were 15 other shoe stores in Lexington, and these two merge, that's the end of it, that's the per se violation of the Sherman Act according to what you have said.

Mr. Daniel M. Friedman: If they were sufficiently large I would say.

If you had two shoe stores in Lexington, Kentucky each of which had several million dollars in business a year, I would say I would think that would be.

Justice Potter Stewart: But now then by your answer you are conceding that there maybe some other relevant considerations in determining -- and thus the simple fact of a merger between two substantially competitive enterprises.

Mr. Daniel M. Friedman: Well, then I say it has to be viewed in the light of course of the whole picture, the whole picture.

If you had two shoe stores each to which did $10,000 worth of business a year and they combined, I wouldn't think that was violation.

Justice Potter Stewart: If what you say is correct of course, I should think there was no need to at all to enact Section 7 of the Clayton Act.

Mr. Daniel M. Friedman: Well, Mr. Justice let me suggest on that, that there are a number of other aspects of this problem.

I know that Section 7 was intended to go beyond this type of problem and to reach other types of --

Justice Potter Stewart: You've already gone so far that you swallowed up, you're way beyond the Section 7 already in your per se violation if you had two substantial competing enterprises merge.

Mr. Daniel M. Friedman: It's limited Mr. Justice I would suggest to the case where you have horizontal merger between competitors.

Now, there are many areas which obviously this rule that we are suggesting would not apply.

Now, just briefly in this case to point out that there is no question that the two banks were vigorous and strong competitors.

Each had been developing and increased their share of the market and certainly it could not be again said that in this area, the share of first security roughly -- no the share of Security Trust roughly 13% and 20 odd million dollars in deposits is a substantial amount.

Justice John M. Harlan: May I ask (Inaudible)

Mr. Daniel M. Friedman: No Mr. Justice no, and the Court found, the District Court found that the defendants had not engaged in any predatory act.

Justice John M. Harlan: (Inaudible)

Mr. Daniel M. Friedman: No I don't think so and we are not challenging the Court's finding. We do say however that the absence of any predatory purpose doesn't in any way favor this merger.

Justice John M. Harlan: (Inaudible)

Mr. Daniel M. Friedman: No, there is no claim here of any predatory or any attempt or purpose on the part of these people to restraint competition.

Now, I'd like now to turn to the Columbia Steel decision and we have set forth at page 35 of our brief, the quotation in which this Court explained the factors which it they deemed pertinent for testing the validity of this merger and the Court said that the dollar volume itself is not of compelling significance and then –

Chief Justice Earl Warren: (Inaudible)

Mr. Daniel M. Friedman: Page 35 Mr. Chief Justice.

It's indented paragraph on the bottom.

It said rather we look to six items, the percentage of business controlled, the strength of the remaining competition whether the action springs from business requirements or purpose to monopolize the probable development of the industry, consumer demand and other characteristics of the market.

Now this inquiry is very similar we think to any inquiry, the kind of inquiry that the Court traditionally makes in a case under Section 7 of the Clayton Act.

It's basically we think an enquiry to the effect of the merger on competition generally as distinguished from what I have been just suggesting the competition just between the acquired and the acquiring companies.

That of course as this Court explained in the Brown Shoe case was one of the basic changes made when Congress amended Section 7.

It shifted the emphasis from the competition between the acquiring and the acquired companies to the competition generally in the marketplace and we think therefore that it is appropriate, as this Court has itself recognized, in testing the legality of a horizontal merger under Section 1 of the Sherman Act to give full account and to give consideration to the standard of Section 7 of the Clayton Act.

And therefore we believe that when we have a merger which plainly violates Section 7 of the Clayton Act, where the affect, the restraint on competition is very clear, we think this goes a long way also to establish that it constitutes an unreasonable restraint of trade.

And I will therefore, when I now, shall now turn and discuss these various factors mentioned in Columbia Steel --

Unknown Speaker: (Inaudible)

Mr. Daniel M. Friedman: Well I wouldn't say -- we recognize of course that not every violation of Section 7 is a violation of Section 1, and so I think it's a matter of degree Mr. Justice.

We're always suggesting is that you can properly look to what the considerations in this case are.

In considering the effect on competition of this merger you can properly compare this to the situation in the Philadelphia Bank case, and as I shall attempt to demonstrate, we think that here this is a much stronger case than the Philadelphia Bank case and therefore we think that since this would plainly violate the standards of the Philadelphia Bank case, that is a very significant element in showing that it also violates the standards of Section 1.

Justice Potter Stewart: Do you say it goes a long way tort showing?

Mr. Daniel M. Friedman: Yes.

Justice Potter Stewart: It's like to saying that proving a person is guilty of manslaughter goes a long way, toward proving is guilty of first degree murder, but in order to convict him of first degree murder you have to go the whole way.

Mr. Daniel M. Friedman: Yes.

Well we have to --

Justice Potter Stewart: I don't see how it helps you here to show if you can show, and let's assume arguendo that you can show that this was violation of Section 7 of the Clayton Act, I don't see how it may go a long, hard way or a long way, towards what you need to prove under the Sherman Act, but under the Sherman Act you need to prove all that's necessary to prove under the Act, don't you?

Mr. Daniel M. Friedman: Yes.

But this is a part, seems to -- this is a part.

The policy, the basic congressional policy which Section 7 reflects, the policy of concern over the rising trend of concentration that we think this is appropriate to consider in looking to the effects of this merger on competition under the somewhat stricter standards of Section 1.

Unknown Speaker: (Inaudible)

Mr. Daniel M. Friedman: No, no Mr. Justice. You have in fact – well, the Court has frequently stated that the two statutes are complementary, and in the Columbia Steel case they suggested that the policy of Section 7 illuminates the question of whether there is a violation and we're not saying that the standards are the same, we're just saying that this --

Justice Tom C. Clark: (Inaudible) the proof must be much stronger?

Mr. Daniel M. Friedman: Oh yeah certainly I mean we have to proof more here, I think it's a matter of degree.

Justice Tom C. Clark: (Inaudible) Philadelphia on both (Inaudible)

Mr. Daniel M. Friedman: Well we did but those doubts were resolved by this Court.

Now on -- let me if I may I'd like to discuss the various factors which the Court said discussed in Columbia Steel and point out why we think that under those standards this merger does run afoul of Section 1.

The first standard is percentage of business control.

Here the evidence was that they controlled more than 50%, that they had more than 90% of the trust business, and that the trust business was an important element in developing the commercial business.

So that in this case the share of the market held by the merging banks is roughly 50% greater than the share of the market held in the Philadelphia Bank.

The second question is the strength of the remaining competition.

Well, the merged bank as I have indicated is at least three times as large as the next largest bank.

It's six times as large as the remaining bank and in the trust field is 28 times as large.

In the Philadelphia case, the two combining banks were less than twice as large as the next bank.

So once again what we have here is the two merging firms, have a very substantial advantage over the next one.

The third thing is whether the action springs from business requirements or purpose to monopolize.

Since I advised Mr. Justice Harlan, there is nothing in this record to show any predatory purpose in this record.

On the other hand, the District Court did find that the banks were healthy and that there was no necessity for this merger to protect the depositors or the stockholders of the banks, and I will in a moment come to the business justifications, which the defendants have suggested for the merger.

I might just say in anticipation, we don't think those are sufficient justifications to validate the merger.

The fourth item is the probable development of the industry.

Here again, we have a record of an increase in concentration.

The number of banks was cut by 50% in a period of less than 35 years.

The presidents of the three other banks testified that they would have to consider margining in order to meet the economic power of this bank and that finally, one of the leading banks in the community was itself a product of a merger whose purpose was to compete more effectively with the big bank.

The fifth item is consumer demand.

Now the merger, the elimination of a strong and vigorous bank took place at a time when this community, this area was undergoing a remarkable economic growth and when as the Federal Deposit Insurance Company stated in it's report to the Comptroller of the Currency, that the merger had an adverse effect on competition, there was a strong demand for credit in the area.

And finally the less (Inaudible) of other characteristics of the market we think here the fact of the bigness of the bank in this particular market attracting other customers, the advantages possessed by the trust business and so on.

I now like to turn to the justifications which the appellees have offered for this merger.

Basically their justification is that the larger bank will be able to obtain deposits from two new sources.

First they say being a larger and stronger bank they will be able to obtain deposits from these large corporations coming into the area which they have hitherto not been able to obtain.

Secondly, they state that being larger, they will be able to obtain from the country banks and the surrounding area, the so called correspondent deposits which they have hitherto been unable to obtain and as large volume as they had hoped and which have been going to larger cities such as Cincinnati and Louisville.

And the argument then is that having this additional cash in the way of deposits in the bank, and as a result of an increase in the bank's capital due to combining the two banks, this will enable them to make greater loans and this will benefit to the community.

Now we have a number of answers to this, the first answer is as far as increasing of the capital is concerned the record shows there are other methods by which a bank may increase it's capital than merging with a competitor.

They can issue stock.

It has been done by some of the banks and there was testimony that -- one the witnesses, one of the defendant's witnesses that he thought this bank could have sold stock.

They can transfer some of their undivided profits to surplus and thus increase their capital and increase their individual loan limit.

And as far as making larger loans are concerned, these can be made through participation with the correspondent banks because just as some of the smaller banks maintain deposits in the Lexington banks, so the Lexington banks in turn maintain deposits with larger banks and the larger citizens.

But basically we think this argument comes down to the contention that because this merger will be beneficial to the community, because it'll help banking in the community this somehow validates it.

Now, really we think this is basically the same argument which was made in the Philadelphia Bank case in which this Court rejected in Philadelphia Bank case.

The argument is frequently made in anti-trust cases that what has been done is valid because it's serving a legitimate commercial purpose.

For example in the Fashion Originators Guild the argument was made that what was there been done was all right because it was necessary to prevent style piracy.

And we think that when conduct as this kind of a merger has what is to us a demonstrated anti-competitive effect.

It doesn't lose it's anti-competitive consequence, because of the fact that in other areas, in other aspects of the economy there maybe certain beneficial advantages.

Now, the legal argument, the legal argument that is made here basically is that the fact and I've referred to this earlier, the fact that the share of the market which the first National Bank had some 20 years ago, at that time it was 50% and in the intervening period it has dropped to roughly 40%.

The argument is that this decline in the shares of the, of the old bank indicates that having this kind of a share of the market does not in fact cause any injury to competition.

That smaller banks are able to compete despite the size of the large bank and then of course the stress point is also made that this is confirmed according to the appellees by the statistic showing that in the 10 months since the merger, the merging bank's share of the market has declined slightly 1% to 2% as I have indicated on that.

There was evidence that this is not unusual and was anticipated.

Now, the record doesn't show why in a 20-year period the First National Bank's share of the market dropped from roughly 50% to roughly 40%.

We don't know whether the conditions that existed in this market at that time are comparable to those today.

We do know and the record shows that at the present time, the competing banks are very much concerned at the increase in the power of, the economic power which this bank would have as a result of the merger.

And as far as it can be told, as far as this record shows, what has happened is that in the 20-year period since the First National had 50% of the market, it dropped as little as 10 points presumably as a result of normal competitive process, this is competition.

You may have one share of the market and if you don't competitive effectively you may not be able to hold it and we think that if this one thing that's clear under the antitrust laws is that when you lose part of your market through the normal processes of competition, if you want to get that share of the market back, you have to get it back through competition and you can't, having less than 10% through competition, get the 10% back by buying up one of your competitors.

I'd like to reserve the balance of my time.

Chief Justice Earl Warren: Okay.

Mr. Odear.

Argument of Robert M. Odear

Mr. Robert M. Odear: Mr. Chief Justice, honorable members of the Court, distinguished counsel for the opposition.

As I listened to the argument of distinguished counsel for the opposition, I could not help, but arrive at the conclusion that what they're attempting to do or ask this Court to do in this case is to apply the Clayton Act test to a Sherman Act case.

Now in getting to that I would like to first address myself to a question which Mr. Justice Goldberg asked and that is as to the importance of the decision in this case as a precedent, and it seems to me that since the decision in the Philadelphia case that there is practically no importance precedent wise in the decision of this case and therefore it's not of great importance to the government or the Department of Justice.

That is not true if you turn the situation around because this is a case of first impression in this Court.

On the proposition that here is a bank which has already merged and has operated for a substantial period of time as a merged bank and now you are being asked to adjudge that bank guilty of a violation of the Sherman Act on proof which amounts to almost nothing more than percentage of concentration without any proof as to the effect of that percentage, which might be proper and a Clayton Act test which we submit is no answer at all in the Sherman Act test.

And we are faced on the other hand it is a matter of grave importance to us, because if a divestiture should ordered and that is, that is the remedy which the government seeks in this case, it puts our bank in small community of Lexington in a position that no banks has ever been in before and it's difficult to know what would result from that.

Unknown Speaker: When was the merger (Inaudible)

Mr. Robert M. Odear: The merger was effected on March 1st, 1961.

Unknown Speaker: (Inaudible)

Mr. Robert M. Odear: Sir?

Unknown Speaker: (Inaudible)

Mr. Robert M. Odear: The suit was filed on the same day that the merger took place if Your Honor please, later in the day.

The -- I want to address myself to the proposition of the time schedule a little later on if I may, but as to what the effect of ordering a divestiture in the case of a bank which has merged and has operated for a considerable period of time, the effect of that would be appalling and I like to quote from, for you very briefly if I may from an affidavit which was filed by my good friend Mr. Larry Williams who tried this case for the government in Lexington, Kentucky.

And in that affidavit which was filed in the California bank litigation, he had trust litigation, he said in these cases where the merging banks have merged before a temporary restraining order or temporary injunction could issue, serious problems, insoluble by a divesture decree may have been created.

Even attempts made in good faith to separate the properties and accounts of merged banks pending a final decision on the merits of a challenged merger cannot avoid inconvenience, extreme inconvenience to (Inaudible).

Now that's very appropriate in this case because at the outset the District Court entered an order directing the merged bank to try to keep separate books to show what business might have belonged to one bank and what business might have belonged to the other.

But the court recognized that that had never been tried before and might be impossible and so he (Inaudible) order in the language that the merged bank could, should do that insofar as it could do it in conformity with banking regulations and existing laws and in conformity with the standards of good sound banking and we have tried this situation.

We have tried to keep those books in that manner and it has proven to be physically and absolutely impossible to do so.

So that language from Mr. William's affidavit is very appropriate, he is right.

Justice Hugo L. Black: (Inaudible) had any notice from the government or the banks of the filing of the suite on the day of the merger?

Mr. Robert M. Odear: Yes, not on the day of the merger, no Your Honor.

The situation on that, I might as well go into the time schedule since you are interested in it.

Justice Hugo L. Black: What I meant was had the government been notified of this, had there been any talk about it according to the record or it just come like bolt out of the blue?

Mr. Robert M. Odear: No sir it did not come just like bolt out of the blue.

Now let me address myself to that if I may.

This application for merger was filed in the later part of 1960 and of course when that is filed with the Comptroller, the Justice Department is immediately notified and they are immediately are under the duty to investigate the situation as to the competitive effects, which might result and the affect on interstate commerce which might result from the merger.

And so the government in this case did make such an investigation and we are fully cognizant of the situation long before the merger took place, when they filed their report with the Comptroller.

Now back in January the 10th the banks received a letter from the Justice Department in which they said, we are looking into this matter.

In effect they said, we are looking into this matter of your merger and if there is anything wrong with it, we are going to let you know.

Now the next thing we knew and we knew that the Department of Justice and the FDIC and various other branches of control were supposed to file reports and the final decision of the Comptroller was to be based on those.

We didn't know whether the report of the Justice Department was favorable or unfavorable, but some weeks after we got that letter, on the 24th day of February of 1961, we received a telephone call from the Comptroller's office advising us that the merger had been approved.

We had no reason to suspect if there was an adverse report from the Justice Department, because on January the 10th they have said, don't you contact us, we'll let you know, we'll let you hear from us and we had heard nothing and it was in the press and the government knew that it had been approved and they took -- they didn't tell us that we shouldn't, they took no steps to stop us and so we asked the Comptroller to make it affective on March the 1st and Comptroller acquiesced in that and did make it affective on March the 1st This merger was approved at the same time that the Philadelphia merger was approved.

Government had no difficult in stepping in and filing their suit before the Philadelphia banks merged and thereby didn't allow them to get themselves and not only themselves, but the general public into the situation which we would be faced with, of trying to separate these merged banks, and so the government, they knew what was going on and they told us that they would write us a letter and let us hear from them about their decision in their matter and we heard nothing and we went on in normal course of business and merged on the 1st day of March.

Justice John M. Harlan: (Inaudible)

Mr. Robert M. Odear: The next proceedings in the litigation were that the government attorneys contacted us as attorneys for the bank and they said that we don't -- we are going to make a what amounts to an ex parte motion today for a temporary restraining order to enjoin you from going any further with this proposition.

Justice John M. Harlan: (Inaudible)

Mr. Robert M. Odear: That was on the first day of March, the same day when the merger took place and when the lawsuit was filed.

Justice William J. Brennan: (Inaudible) bank until March the 1st.

Mr. Robert M. Odear: Between us and the bank?

Justice William J. Brennan: With you on the part of antitrust.

Mr. Robert M. Odear: No.

Justice William J. Brennan: You or the bank before March the 1st.

Mr. Robert M. Odear: No except the communication which they had sent us on January the 10th saying that were investigating it and would let us know. They said to us in effect that while we are not, it is not legal notice, you would happy to have you come up and be present and so we appeared and were present and they – sir?

Justice Tom C. Clark: On the first of March?

Mr. Robert M. Odear: On the first day of March yes sir, they presented to the District Court the ex parte, although we were there with no preparation of any kind and without any notice except the invitation to that day, they presented to the District Court a motion for a temporary injunction and the Court asked us if we accepted notice and would it be an ex parte proceeding or would we be in it and we said we were only there by invitation and not by notice and were not prepared.

So he said well nevertheless if the affidavit supporting this motion shows that any irreparable injury might occur, the Court be inclined to consider to ex parte and so they addressed themselves to that proposition and this hearing I'm mistaken, it was on the second day of March, the day following, I'm still on the first, I was in error there.

My recollection was from the same day, but it was the next day.

Justice William J. Brennan: I wonder if I -- but it's still the fact that Mr. Odear that the government initiated the action on the first?

Mr. Robert M. Odear: Yes.

Justice William J. Brennan: And did you have notice of it on the first?

Mr. Robert M. Odear: The only notice we had on the first it was that heard of it.

Justice William J. Brennan: But you were not officially advised by anyone in -- any government attorney of the filing of the action?

Mr. Robert M. Odear: Oh yes, I think they contacted us.

Justice William J. Brennan: On the first.

Mr. Robert M. Odear: Yes sir, that's correct, after the merger had taken place but on the same day.

Justice William J. Brennan: What hour of the day was the merger complete?

Mr. Robert M. Odear: You see Your Honor it was early in the morning, not early by -- I don't mean we got up before daylight and did it, but it was to it was our intention to close business off for the two banks as of the end of the month and to start them -- start the new bank as of the first of the month and therefore when it opened its doors and business commenced it was our purpose that it would be commenced as a merged bank and therefore we got (Inaudible) to do it on the first and took the necessary steps, got the notices out and took the necessary steps with the Board of Directors of two banks and so forth to open on that day, and later in the day the government filed its action and we heard of it.

Unknown Speaker: (Inaudible)

Mr. Robert M. Odear: Yes, that all --

Justice Tom C. Clark: Did you actively merge the assets of the two banks, that day you put all the money together and all the stock and bonds and everything else?

Mr. Robert M. Odear: As to whether we did that physically or not, I'm sure that some of it was done but whether it was completely accomplished on that day I wouldn't be able to say.

In effect two original banks went out of existence on that day.

Justice Tom C. Clark: And even merged that.

Mr. Robert M. Odear: Yes sir that is --

Justice Tom C. Clark: I know you said (Inaudible) mentioned in his order denying the writ of temporary restraining order, (Inaudible) directs you to maintain your books in such a way that you could divest yourself (Inaudible)

Mr. Robert M. Odear: He didn't make it absolute if Your Honor please what I said a moment ago.

He said that insofar as you can maintain separate records compatibly with sound banking practices and compatible with the rules and regulations and the laws governing the conduct of banking you do that.

We found it was impossible to do it many fields of the bank's activities and in many others it was very much incompatible with sound banking practices.

As a matter of fact just for example there were checks of course, printed checks on this Security Trust and on the First National Bank and by trying to keep separate accounts somebody who had money in the merged bank might write a check on the First National and that would be on the Security Trust in these records and these check would get sent back insufficient funds when as a matter of fact he had plenty of money in the merged bank to take care of it and there were many fields where it mixed us up so that it was just not in accordance with sound banking principles to be able to do it.

In others we had continued to up to the present time as best we could.

We have given bonafide effort to fulfill in that direction of the Court.

Justice John M. Harlan: (Inaudible) and acquisition time to discuss the merger because you are up here as the presenting party --

Mr. Robert M. Odear: Exactly sir, exactly sir.

Justice Byron R. White: (Inaudible) on a preliminary injunction following of course that this wouldn't have been any more steps taken to implement the merger isn't that?

Mr. Robert M. Odear: Exactly we would have abided by the order of the Court.

Justice Byron R. White: And if that had happened and you, then you happened lose this case, there would be no problem about that (Inaudible)

Mr. Robert M. Odear: Well, it would have been a different situation I think which would have --

Justice Byron R. White: Well I understand that it was possible it was different but if that had occurred there would be no problem about the divesture (Inaudible)

Mr. Robert M. Odear: If that had occurred I think we would have probably sought permission to get the banks separate again and then try to case out and put them back together afterwards which would have relieved us from the situation which we found ourselves.

Justice Byron R. White: (Inaudible)

Mr. Robert M. Odear: How is that?

Justice Byron R. White: You did object to injunctive relief at that stage.

Mr. Robert M. Odear: Yes sir, the Court didn't hear it on that ex parte hearing.

He put it off till we had notice and we did go back and appeared, and of course we didn't know.

It had never been tried before in the history of banking.

We didn't know whether we could practically comply with that order or not until we tried it and so we went ahead.

As the Court said we might as merged bank and tried honestly and faithfully to do that, but it just worked out, it was impossible in many fields of bank.

Now getting down to the situation of whether or not we are guilty of the Sherman Act rather than addressing myself to the relief in case we are and that is the main issue as far as we are concerned, I think the other one has been somewhat relieved by the Justice Department's concession in his response to our motion that they are not asking this Court to judge a divestiture now, they are merely asking this -- well they are asking the Court to do, but they wouldn't object if this Court didn't judge that, but would send it back to the take proof on what would be the appropriate remedy on all the circumstances, but even that puts us in a position where we don't know what might happen to our bank.

It might cost a run on the bank, except we have no crystal ball, we don't know, it's never been tested.

I am almost at 2:30, so I like to just read you one very short quotation on that particular problem before I go on to the question of whether the Sherman Act has actually been violated here or not, and that is a quotation from a Mr. Funk who is an eminent writer on the Laws of Banking and economics and in a work entitled Antitrust Legislation Affecting Bank Mergers here is what he had to say.

The picture of an attack on a bank merger after it has been consummated is a shocking one.

Public confidence in the institution would be shaken and might be entirely destroyed.

The task of disentangling the two components of the merged bank would be almost inseparable.

Great loss might result to the shareholders and possibly to the public and that's what we are up against.

Print this transcript Transcript: 

Argument of Robert M. Odear

Chief Justice Earl Warren: Number 36, United States, Appellant, versus First National Bank and Trust Company of Lexington et al.

Mr. Odear.

Mr. Robert M. Odear: Mr. Chief Justice, members of this honorable Court, distinguished counsel of government.

At the close of the session yesterday there had been two questions asked to me, which I would like to briefly augment my answer to at this time.

Mr. Justice Brennan enquired as to whether or not the Justice Department had gotten in touch with the bank in any way prior to the actual merger of the banks and you will recall that I said that January the 10th, we had a received a letter from the Justice Department.

Now in background of that, very briefly, the application for merger was filed on the first day of December of 1960 and in that the banks asked for permission to merge on January 17th of the following year.

All of the necessary approval of the stockholders and the Board of the Directors was had early in the history of that matter and on the 10th day of January the bank received a letter from the Department of Justice in which they informed us first that their report to the Comptroller had been adverse on the question of the competitive affects of the merger itself.

And then --

Chief Justice Earl Warren: (Inaudible) advise you that it was adverse.

Mr. Robert M. Odear: They advised us that their report to the Comptroller was adverse, yes Your honor.

Chief Justice Earl Warren: Yes, I didn't still understand you --

Mr. Robert M. Odear: No, that's the reason I am going back to clear it up Your Honor.

What they further advised us was though to this effect and I'd like to quote from the letter, the Department also advised that in view of the serious anticompetitive effects of which this consolidation may have on the Lexington area and in response to a number of complaints made to the Department in connection with the matter, it has initiated an investigation to determine whether such consolidation would create any violation of the Federal Antitrust laws.

In other words, that had -- they had not determined that Question - which is the one before us and the letter continued, “as soon as this investigation is completed we will inform you as to what, if any, action the Department intends to take with respect to the consolidation.

Now, the only thing we --

Justice Potter Stewart: What was the date of that letter?

Mr. Robert M. Odear: That was January of the 10th.

Justice Potter Stewart: January 10th.

Mr. Robert M. Odear: Weeks went by and we heard nothing and finally on the 24th of February we were advised by a telephone call from the Comptroller's office that the merger had been approved and from that we assume that whatever difficulties there were had been ironed out in our case and we then asked the Comptroller for permission to merge on the first day of March.

On the 25th of February the same -- the following day after we had received that communication and I might note that on the 24th the Philadelphia bank was also notified of their right to consolidate in the opinion of the Comptroller, the following day the government filed its suit in Philadelphia, on the 25th.

But the time progressed and on until the 1st of March and we in answer your question Mr. Justice Brennan, we received no information by telephone, letter, otherwise, none at all, and so we proceeded to merge.

The first information we had that the Justice Department was going to take any action upon us was after the suit was filed when the United States Marshall served the summons on the President of the Bank –

Unknown Speaker: (Inaudible)

Mr. Robert M. Odear: -- and that was on March 1st.

Now then Mr. Justice White, enquired about -- yes sir.

Chief Justice Earl Warren: You say that a suit was filed on what day, 1st?

Mr. Robert M. Odear: The -- in our case on the first day of March, following the merger --

Chief Justice Earl Warren: What did you told us just before that, something --

Mr. Robert M. Odear: I said in the Philadelphia case the approval was granted by the Comptroller, in the Lexington case and in the Philadelphia case on the same day, and on the 25th the day following that the government filed a suit in Philadelphia, but they filed no suit against us until after the merger.

Justice Byron R. White: (Inaudible)

Mr. Robert M. Odear: If the suit had been filed, yes, that's exactly what I wanted to answer to your Question.

It would have been quite different because then we would not have as yet merged and we -- it would have been a different proposition that we would then faced with.

Well if --

Justice Byron R. White: (Inaudible)

Mr. Robert M. Odear: That would have probably depended on the whether the Court state a temporary injection or not, but the Court would have an opportunity to have sustained such an injection if the suit had been filed before we merged.

In the sense it was filed after we merged, the two banks had gone out of existence, they could -- they didn't have charters to operate as individual banks anymore the only way they could operate was as merged banks.

And so the Court ordered and we agreed, so they are only saying that we could do under those circumstances, which was to try to the best of our ability to keep the separate records and I won't make that clarification of what I stated yesterday.

Now, I'd like to address myself to what I consider to be the real and possibly almost the only question for this Court in this case and that is the question as to and it's a question which was decided a question of fact, which was decided on the evidence by the Trial Court, namely that the evidence presented at the trail of this action, did not sustain the position of a violation of Section 1 or Section 2 of Sherman Act.

Now, unless the decision of the Trial Court on that issue of fact was clearly erroneous then it should be affirmed and in order to be able to answer that Question, I see no escape from discussing the evidence.

The distinguished counsel for the government said that he was pitching or placing their case on the testimony of three live witnesses who appeared at the trial of the case, the only witnesses introduced by the government and the statistics which were in the form of the exhibits, that is the total of the government's case.

Now, the testimony of these three live witnesses, who were Presidents of other local banks in Lexington, did not go so far as to say on the basis of expert opinion that this merger would and had created an unreasonable restraint on trade and commerce.

All that they said and as this was found by the Trail Court and the records sustains it, all that they said in effect was, that they were apprehensive or they feared that it might put their banks in a position where it would be more difficult for them to compete which is a long way from saying as a matter of fact that in their opinion it did constitute an unreasonable restrain for trade as we see it.

But they gave no facts on which to support, even their fears and their apprehensions and I had the opportunity to cross examine those gentlemen.

Yes, you may Your Honor.

Justice William J. Brennan: (Inaudible)

Mr. Robert M. Odear: About a year, it was tried in the 1962.

Justice William J. Brennan: What was the date?

Mr. Robert M. Odear: February the 1960, almost a year later.

The banks had an opportunity to observe or practically speaking a full year's operation with the merged bank operating as a merged bank and to see the experience which to place there from.

Justice William J. Brennan: Was there much in the way of discovery going on in that year?

Mr. Robert M. Odear: Yes.

Justice William J. Brennan: On both sides?

Mr. Robert M. Odear: On both sides.

We bloomed this discovery and which was --

Justice William J. Brennan: I gather you weren't ready to trail and, the trail anyway and that was completed.

Mr. Robert M. Odear: That's correct.

We suffered no delay from any cause except the necessity of both sides to prepare themselves.

One of the three witnesses that the government speaks about was President of one of the local banks Mr. Clarke and in testifying on cross examination, he was asked these questions and this is very brief, but it goes the heart of thing and here is what he said.

Mr. Clarke in your opinion are the borrowing needs of the citizens of Lexington adequately taken care of at this time by commercial banks, this is after, a year after the merger?

Answer - I think they are.

Question - Are they adequately taken -- were they adequately taken care of prior to the merger in March of 1961?

Answer - I think they were.

Question - And they still are?

Answer - yes sir.

Question - In your opinion has any worthy borrower with a properly bankable loan, been refused to have his loan made in this community because of this merger?

Answer - Not to my knowledge.

Mr. Clarke further testified as follows.

Question - Prior to the merger there was competition between the banks in Lexington for practically all the facets of commercial banking, was there not?

Answer - I'm sure there was.

Question - And since the merger there has continued to be competition for all those same facets of commercial banking, has there not?

Answer - With one less competing?

Question - But competition has -- competition still continues to exist in all facets of banking?

Oh sure.

Question - Has your particular bank experienced any particular difficulty in the obtaining of new business or deposits or other facets of commercial banking since the merger which it did not experience prior to the merger?

Answer - I haven't been able to see much change.

Now, testifying in these Philadelphia case that same witness Mr. Clark from Lexington, when he was asked by government counsel as to the effect of concentration of banking facilities upon small and intermediate borrowers in Lexington area, Mr. Clarke said, "I think the banks in our community take pretty good care of the borrowers.

I don't think any deserving customers have not been able to meet their needs.”

Further, as to the effect of the elimination of one bank, by reason the merger in Lexington, Mr. Clarke --

Justice Byron R. White: What page are you reading from?

Mr. Robert M. Odear: This is from the original record only in the Philadelphia case.

Justice Byron R. White: In what?

Mr. Robert M. Odear: In the Philadelphia case where the witness was talking about Lexington.

It is not in the record in this case.

Shall I refrain from -- completely?

Chief Justice Earl Warren: The Judge entitled to take that into consideration?

Mr. Robert M. Odear: It's a record in this Court Your Honor.

Chief Justice Earl Warren: I beg your pardon?

Mr. Robert M. Odear: It is of the record in this Court.

Chief Justice Earl Warren: No but we are judging the record in the Court below is --

Mr. Robert M. Odear: Perhaps not sure Honor and I won't pursue that.

Now in the Lexington case and this is in the record and I'm reading from record -- page 274, this was from the testimony of another one bankers Mr. Stills.

Question - In your opinion carrying that a step further Mr. Stills, if there is a person in Lexington who has need for a good bankable loan would he have any difficulty in finding a place to take out that loan?

Answer - No I don't think so.

Question - Before this proposed merger there were six alternate choices where he could go, were there not?

Answer - That is correct.

Question - And now there are five?

Answer - That is correct.

You know of any occasion where a borrower with a bankable loan has been unable to place it one of the five present alternate choices?

Answer - I don't know of any, no.

Now, two Judges commented on that testimony.

The Trial Judge, in his opinion, stated as follows and this is the record page 1249.

In addition to statistical facts shown by the numerous exhibits filed the plaintiffs introduced as witnesses to sustain its contention only in the presence of three local banks who expressed considerable fear that the consolidation would result in serious loss to other banks and would be disastrous to some of them.

The testimony given by these witnesses seems based merely upon surmise and he is lacking in factual support.

Now that comment by the Trial Judge in this case is very similar to the language used by this Court in the opinion in the Philadelphia case in which a similar type of testimony was being discussed by this Court and in which Mr. Justice Brennan in writing the opinion of the Court stated, there was to be sure testimony by bank officers to the effect that competition among banks in Philadelphia was vigorous and would continue to be vigorous after the merger.

We think however, that the District Court's reliance on such evidence was misplaced.

This lay evidence also complex and economically no problem as to the substantiality of the effect of this merger upon competition was entitled to little weight in view of the witnesses failure to give concrete reasons for their conclusions, and --

Justice John M. Harlan: (Inaudible)

Mr. Robert M. Odear: That is correct.

They are proceeding solely on the Sherman Act.

The complaint alleges --

Justice John M. Harlan: (Inaudible)

Mr. Robert M. Odear: That's correct and the proof was directed to that issue.

Now, in addition to the testimony of those three live witnesses which was based not merely their fear and apprehension, a conclusion upon which they gave no facts whatsoever to support and which this Court has said was therefore entitled to little weight, we have the statistics offered by the government.

Most of the voluminous exhibits filed by the government were addressed to problems which no longer exist, such as what was the relative market and should competition with other lending agencies be involved and things of that kind.

So really the only statistical evidence which bore on this particular problem was the statistical evidence which show that following the merger in excess of 50% of the banking assets of the community would be in the hands of the merged bank and also the exhibit with reference to the concentration in the trust field.

Now, the government's statistics and figures directed themselves to what existed on one particular day only, there was no expert testimony offered as to the affect of that concentration on competition in Lexington, Kentucky, there -- no expert was introduced, no attempt made in evidence to explain them or to deduce anything from that.

Justice John M. Harlan: (Inaudible)

Mr. Robert M. Odear: That one day was as the close of business in 1961, 1960, end of 1960 which was immediately prior to the merger two months before the merger took place.

There are no figures available as of the first of March and so they took the figures for two months in advance of that which was the, were the year end figures and it's based on 1960, end of the year.

Now, as apposed to that the defendants offered exhibits which show not only the exist -- the condition which existed on a day two months prior to this merger, but showed number one what had happened in the way of competition between these banks in Lexington for the year's operation, 10 months of which was after the merger had taken place, to see what effect on competition the merger had had in Lexington.

The proof on that show that that the time of the merger or two months in advance thereof that the merged bank held 52.7% of the total resources.

And after a year had elapsed in competition between the merged bank and the other existing banks that figure had gone down to 51%.

Now that in itself might not be too significant except if you consider it in the light of what had happened before in the same community, Lexington community, under the same circumstances where the lead bank had in that case more than 52% they had 53% plus of the banking assets and that was the condition in 1942 in Lexington, the First National Bank at that time held 53.7% of all deposits in Lexington.

11 years later in competing with the bank holding that amount of concentration, the smaller banks had been able to compete so well that they had grown much more rapidly than the lead bank and the lead bank's concentration or possession of assets had then dropped to 38.7% and so you can sometimes foretell a situation by what has happened in the past and you can examine the situation in the light of what has happened in the past under practically identical circumstances.

We didn't stop there.

We introduced evidence which showed what had happened under similar circumstances in other cities of comparable size to Lexington, not Philadelphia or New York, but we went to the east of us to Huntington, West Virginia, that's the first city of comparable size of Lexington that you come through going in that direction.

There the lead bank had held 75% of the banking assets and in 15 years that shrank under competition with the other banks to 59%, looking to the south at Chattanooga, Tennessee, there the lead bank had held 61%.

And in competition over a short period of time with the other banks that dropped to 52%.

To our west, Louisville, Kentucky, that's a larger than Lexington, but it's the first large city you come to and is the closest want to us, there the lead bank and held at 63% and in competition with that bank the other banks in a short period of time were able to cut that down to 53%.

Justice Byron R. White: Those deposits, loans, assets?

Mr. Robert M. Odear: That's total resources of those figures were based on.

Justice Byron R. White: Are those -- are the figures for the other items in the record comparable figure for loans for example?

Mr. Robert M. Odear: The loans, there are figure showing the loans, but I don't think they're in those other cities they're just in Lexington.

Justice Byron R. White: And deposit –

Unknown Speaker: In Chattanooga?

Mr. Robert M. Odear: We do have them in Chattanooga but not in Huntington, West Virginia or Louisville.

Now, that's what's happened in our neighboring cities that are comparable in size and situation to us and those figures are in the record and we think those figures demonstrate that these smaller banks are just as able to compete against a bank of that size, but we also looked at the situation nationally in comparable cities and we found that and this is a defendant's exhibit 89, there are 122 cities in the United States in 1946 with populations of between 50 to 100,000 population, Lexington was 62,000.

And in those 122 cities, 66 of those cities or more than half of them the lead bank hell more than 50%.

In 122, out of those 122 cities 35 of them, the lead bank held more than 60%, and in 47 of the others the lead bank was between 35% and 50%.

Now, for Lexington to have a lead bank with 50% where more than half of the other cities of the United States of comparable size have lead banks of having more than 50% seems to us to show that it is not unreasonable because it's not on unusual it's the norm that is the average situation which exists.

Government has suggested that the question of reasonable be determine on the basis of Tort law and there it's what is usual and customary and what do you expect to find and that is the situation in -- throughout the United States and cities of comparable size to Lexington, Kentucky and so we say that those figures are very indicative themselves.

Now what happened in those cities throughout the United States?

Well, in the 35 cities throughout the United States of comparable size where the lead bank held more than 60% of the assets over a period of a few years, four of those 35 cities they -- lead bank gained slightly, in two of those cities there was only one bank so it couldn't go up or down it had hold the business to start with so you have to eliminate that.

In 29 of the cities as compared to four, the percentage went substantially down and so with -- those figures are indicative and are a basis for the Trial Court's finding in this matter.

Justice Byron R. White: (Inaudible)

Mr. Robert M. Odear: That's exactly right.

Now, in Lexington if you compare just the dollar volume over a period of years when the First National Bank was the lead bank and had the percentage we're talking about its total assets went up $15 million.

And over a similar period of time, a bank which started from scratch and had no percentage they were able to obtain $12 million. So, while the First National got 3 million more than they did was an insignificant amount in view of the ability of that bank to grow and compete.

Justice Byron R. White: (Inaudible) your figures -- are there, are your figures not only broken down to the total of the other banks but also individually.

Mr. Robert M. Odear: Yes.

Justice Byron R. White: In there -- for the past?

Mr. Robert M. Odear: Yes Your Honor in the exhibits they're so (Inaudible).

So that is a brief comparison of the statistical figures offered by the government and offered by the defense and we submit that produced a situation in the evidence which were warranted in the Trial Court in arriving at this conclusion.

And of which it seems to us it would be improper to say that his conclusion was clearly erroneous.

I would like to compare also very briefly the live witnesses offered by the defendant at the trial of the case with the three live witnesses of which counsel for the government spoke. We went to some of these other cities where banks had been competing against lead banks which had more than 50% of assets, banking assets of that community.

We brought them there from Huntington, West Virginia and Chattanooga, various other cities and without exception and these were not men who ran the lead bank, these were bankers who were in the smaller banks and who had had the experience themselves of competing against a bank which have more than 50% of the banking assets and without exception they said that it offered them no difficulty in competition, that they were just as able to compete as they would otherwise be.

Justice Byron R. White: (Inaudible)

Mr. Robert M. Odear: We do not, now in my figures about the 122 cities I left out purposely states where branch banking was allowed because I did not think that was a comparable situation.

Justice Byron R. White: They got affiliates.

Mr. Robert M. Odear: County-wide branch banking, we do have, we don't have state-wide branch bank.

Justice Byron R. White: So you could, as a matter of fact does this, did this bank have branches within the county?

Mr. Robert M. Odear: Yes Your Honor.

Justice Byron R. White: How many?

Mr. Robert M. Odear: The record show that we had the -- out of the, merge bank has five.

Justice Byron R. White: And before the merger?

Mr. Robert M. Odear: Before the merger First National had three and the Security Trust had two, no had one, pardon me, one.

Chief Justice Earl Warren: In those other cities, did the lead bank have as much as 93% of all of the Trust business in the community?

Mr. Robert M. Odear: Yes Your Honor please, in Birmingham, Alabama, that situation existed and the proof in the record is that that did not create a situation where there was any undue advantage to commercial banking by reason of that fact.

I want to talk a little further in length about the Trust business in just a moment Your Honor, but that is effective, that is in the record about Birmingham and we took that proof and bought it to the Court.

Chief Justice Earl Warren: Was that brought about by a merger?

Mr. Robert M. Odear: I think it was brought about by a historical development, if Your Honor please.

Now, in addition to that, yes Your Honor.

Justice Byron R. White: How many new bank have there been in there last 10 years in Lexington?

Mr. Robert M. Odear: In the last new bank in Lexington was the Central Bank, started originally as Central Exchange and that was in 1945.

Justice Byron R. White: 1945, is that either state or national bank?

Mr. Robert M. Odear: No, it's a state bank.

Justice Byron R. White: That's a state bank, that's the last new bank either state or national.

Mr. Robert M. Odear: That's correct, Your Honor.

The Security Trust Company only went into commercial banking around 1947 but prior to that time they had been almost exclusively in the Trust business.

So that during that time there had been two that have entered into the field of commercial banking in Lexington.

And in those cases, they were able to grow and compete healthily against a bank which had 50% or so of the banking assets.

Now, we went to these cities as I say and brought in these witnesses who testified from their experience which makes it different from a witness giving an opinion upon which he has no facts to base.

They had the fact of their actual experience in the same situation on which to base their opinion and they gave that.

Now in spite of the fact that there were 66 comparable cities in the United States which in 1946, the lead bank had more than 50%, the government didn't produce one single witness from any of those to testify that there was any adverse affect, banks felt thereby reason of that concentration.

The record is absolutely in a vacuum on that proposition except for our testimony which is of course that, the anti competitive effects merely from concentration in a city of a city of the size of Lexington those not accomplish any unreasonable restrain of trade.

We also brought two experts, a professor from the university and a man who had been in the office of the Comptroller and who had acted as acting Comptroller for a while, both of them well qualified in the field of economics and they said that in an area or a setting like Lexington, a city of this size and comparable surroundings, that this situation would not, in their opinion --

Justice Byron R. White: (Inaudible) brought under section 7 and had been decided after the Philadelphia bank decision in this Court that you would say this same evidence would justify the decision for the bank.

Mr. Robert M. Odear: If Your Honor please, in the bank case the language of the opinion says that in the absence of clear evidence to the contrary that when you are dealing with a Clayton act case, that 30% in a setting like Philadelphia is, per se or prima facie too much so as to what the outcome would be if we have been trying this case under the Clayton Act would be to the question of whether or not that evidence clearly showed to the contrary, but we had no such burden in this case because this was a Sherman Act case.

You are not dealing with what --

Justice Hugo L. Black: (Inaudible) relationship between the two.

Congress has decided that it's unreasonable restrain of trade to merge under the condition set out in section 7.

It decided by itself that's an unreasonable restrain of trade.

The evidence here clearly showed that it was a kind of merger the Congress had said in a statement was an unreasonable restrain of trade, but it is your argument that the Court, the Court could find different than Congress have said about those?

Mr. Robert M. Odear: I don't think it's a question, if Your Honor pleases, of the Court finding different from what the Congress said, but the job the Court has to do is different in the Clayton Act than what the Court has to do in the Sherman Act.

And if there is testimony in a Clayton Act case that this situation might reasonably be expected to lead to a diminution in competition that, then its duty of the Court to keep that from happening.

That's right.

Justice Hugo L. Black: (Inaudible) then under that situation there would be an unreasonable restrain of trade.

Mr. Robert M. Odear: I think it's not a matter of what the Court should do if it finds certain things to be effect, as it is a difference of the type of evidence that is necessary in order to establish that when you are trying a Clayton Act case and when you are trying a Sherman Act case Your Honor please, because it's a different test, that's to be applied.

If this merger unreasonably restrains trade then certainly it's a Sherman Act violation and that's the, that's the intent back of both the acts of course.

Justice Hugo L. Black: The Sherman Acts makes the policy of this country that you will have no unreasonable restrain of trade.

The Clayton Act comes along and says that mergers of this kind against the law which seems to me and they say that it's an unreasonable restrain of trade and against the policy of the other country.

It's a little difficult for me to see why is the evidence, if it were conceded as evidence or precisely enough to justify action under section 7, we shouldn't recognize the fact that Congress has declared that we are not using the words unreasonable restrain of trade, but it's done in pursuant to that policy.

Mr. Robert M. Odear: Your Honor, I certainly intended to, do not intend to concede that under the same set of facts that this would be a violation of the Clayton Act.

If Your Honor understood me to say that --

Justice Hugo L. Black: No, I didn't understood your -- I understood the argument was leading up to that point.

Mr. Robert M. Odear: No, the point I was trying to lead to was this.

I think that under either act this would not be a violation, because here you have clear evidence to the contrary but that would be the question the Court would have to decide.

While in the Philadelphia case you did have this percentage of concentration and no evidence this Court found which was -- upon which the Court could arrive at a different conclusion and therefore the Court had nothing to do but to say there was a violation, but here in the, in this case, we do have what I consider to be clear evidence to the contrary.

That's the differences I see here.

Justice Byron R. White: (Inaudible) at the close of the government's case, at the close of the government's case, in a section 7 case, if this had been brought under section 7, I take it that there would have been a prima facie case made out, if the case had been tried after Philadelphia.

Mr. Robert M. Odear: If you get over the proposition of the setting in which it lies assuming that the difference in the setting has no -- has no difference in it, then it would be a --

Justice Byron R. White: Well assuming that there were two counts in the complaint, one is Sherman Act and two, Section 7 and at the close of government's case Section 7 violation is then made out prima facie, how about the Sherman Act on account of that time.

Mr. Robert M. Odear: My feeling is that that would not have necessarily made out a case under the Sherman Act, because the type of evidence which is necessary, the Court, this Court has said many times that it takes a great deal more evidence to substantiate a finding of violation of the Sherman Act than it does with the Clayton act.

And therefore although the prima facie test which you apply in the Clayton act might well show that a violation existed if you get over the proposition of the difference in the setting at the end of the government's testimony.

But I don't think that will necessarily follow, nor follow at all that that would have proved the violation of the Sherman Act and certainly after the conclusion of the evidence of the defendants we think the evidence is, is preponderant on our side and would well warrant the finding of the Trial Court that there was no violation of the Sherman Act.

And of course you have decided in, I think in the Times-Picayune case that if the government proceeds under the Sherman Act they must meet the rigid tests of evidence of the Sherman Act, and they have chosen the weapon and they can't by some means bring themselves under the Clayton Act unless they bring the suit under the Clayton act.

Justice Tom C. Clark: (Inaudible)

Mr. Robert M. Odear: Consider the Clayton Act?

Yes I think it should be consider in relation to the Sherman Act but I think it should, I think it should be considered in the proper perspective of what that relation is, and that's been very well defined by this Court in previous decisions.

Justice Tom C. Clark: (Inaudible)

Mr. Robert M. Odear: I think that, I think that's what this Court held in the Times-Picayune case that its --

Justice Tom C. Clark: (Inaudible)

Mr. Robert M. Odear: Apply the Sherman but --

Justice Tom C. Clark: (Inaudible)

Mr. Robert M. Odear: Your honor I think that's exactly correct, I believe that.

I said I wanted to, I see my time is almost up, I certainly want to talk something about the, this Trust situation, and I'll do just briefly as I can.

Trust situation in Lexington enrolls in a rather unusual manner in that the Security Trust Company for a long time was the only corporation which offered corporate trust services and their clients were other banks, the other banks helped to form it.

And they held 100% of the corporate fiduciary business.

Proof shows that about 20 years ago with the First National Bank decided to go into the trust business and they were able to compete successfully and obtain a substantial portion of the trust business against a bank which had a 100% to start with.

Now, the real competition in the trust business is the competition against individual appointments because by far the great percentage of appointments in Fayette County for trustees are various types are individuals.

Over a 21 year period -- we made a study, over a period of 21 years, individuals received 91% of the trust apartments, so there is the place where trust business must come from and where you must compete in order to get it.

Trust business is also a little different from the business where the -- the business continues and you get the same customer over and over again as you do in a shoe store for example because once you are appointed as a trustee for all practical purposes there is no competition between banks to take that appointment or that particular trust away from one bank that has it and gave it to another one, and so it's in a -- really in an entirely different field.

The testimony in this case un-contradicted that kind of concentration since you are only competing for a new business and not against each other for the business you already have, that holding that percentage is no detriment to competition, it doesn't keep another bank from competing that has been born out by the fact that this record that in – since just shortly before this merger took place, the other banks who had formally not even been interested in getting trust business went into the field and have been able to get it.

We brought an expert who said that that was perfect, natural, and normal because it's, if I may use a home illustration, it's kind of like going fishing and you arrive at the pond a little late and there is that fellow that's already caught a pile of fish, you don't catch the fish but ones – and the fact he already has in there are the ones he has got, doesn't keep you from being in just as good position to catch fish from there on out as he is and I think it's comparable to the situation in the trust business, not in other businesses where you continue and you compete for the business the other man already has, you don't do that in the trust business.

Now there has been some intimation in the record and by counsel for the government that the First National arrived at its size by previous mergers.

And I would like to call this to the Court's attention and this is substantiated in the record, the 12 mergers or takeovers or whatever you want to call them which the First National Bank had previously had, many of them by the way were where banks were about to go under and -- well the last one in 1929, the Fayette National Bank was in difficulty and the government asked the First National to take it – that bank over so that the depositors wouldn't lose their deposits. But after all those 12 had been accomplished 30 years ago and there has been none since, the First National Bank was only $11 million bank.

It only had assets of $11 million.

So it did not get its growth from those mergers.

The Security Trust Company had had no previous merger before this one.

I have -- my time up.

Argument of Daniel M. Friedman

Mr. Daniel M. Friedman: Mr. Chief Justice, may it please the Court.

My opponent has criticized the witnesses that the government presented the presidents of the three banks on the ground they just testified as to general apprehension and concern and there was also a suggestion that the witnesses hadn't testified given facts to backup their concern.

I would first like to invite the Court's attention to Page 201 of the record in which Mr. Clarke, the president of the second largest bank to whom my opponent –

Unknown Speaker: (Inaudible)

Mr. Daniel M. Friedman: Mr. Clarke.

Unknown Speaker: (Inaudible)

Mr. Daniel M. Friedman: He is the president of the Citizens Union Bank, the second largest bank in town and he is speaking of the difficulties in the middle of the page, he is speaking of the --

Unknown Speaker: (Inaudible)

Mr. Daniel M. Friedman: 201 Mr. Chief Justice, he is speaking of the difficulties of attracting deposits from large corporations as against what First National and Security were able to do prior to the merger and he was asked, “What affect on competition this would have?”

And he answered in the middle of the page, “Well as I said a minute ago, I think the treasurers of National Corporations are unduly influenced by size.

It was difficult enough with the largest bank in town having 40% of deposits.”

In other words he said that even before the merger they were having trouble competing.

I think it will be that much more difficult with the largest bank having between 52% and 53% of the deposits.

I think it is a sort of progressive influence and then previous to that on Page 199, he had echoed this thought, made it a little earlier when he was asked what effects will the increased size of the consolidated bank have on the ability of your bank to compete and his answer is the long paragraph at the bottom of the page and that halfway through that quotation he said, “My experience in soliciting accounts of national concerns is that size has a tremendous influence.

It is hard to understand it, but it does on the decisions of treasures of national corporations as to the bank of their choice in a community where they have a branch or an operation of some kind.”

And he went on and he said, “There are also -- there are certain local people who wanted to do business with the biggest institution.”

Then also I might like to invite the court's attention to Page 249 of the record, where Mr. Clarke in reference to the suggestion that at the –

Unknown Speaker: (Inaudible)

Mr. Daniel M. Friedman: 249, reference to the suggestion that the witnesses were unable to point to any harm they had suffered in the year from the time of the merger to the time of the trial.

He said, about the sixth or seventh line, Mr. Clarke stated, “I have stated all through my testimony that my apprehension is over the long run not the immediate effect.”

And we think that in this record there is clear and definite proof, testimony by these other bankers giving facts as to the reason why they would be under a competitive disadvantage.

Now to us it in no way refutes that testimony because bankers in other cities, not Lexington, bankers in other cities testified that in their view they did not have any difficulties, they are competing with a larger bank, because we don't know what the situation is and it seems that if witnesses testify to a certain situation in city A, it's quite immaterial we think that witnesses in another city testify that there they do not have the adverse affect.

Justice Byron R. White: What about in Lexington?

Mr. Daniel M. Friedman: In Lexington they testified that they would have the adverse effects.

Justice Byron R. White: Well how about in the past when one of the banks had a large amount and then lost as years went on?

Mr. Daniel M. Friedman: Well I think there are several answers to that Mr. Justice.

First the situation seems somewhat different today than it was at that time.

First of all at the present time -- at that time there was no indication that the largest bank First Security had anywhere near this percentage of the trust business.

In fact First National had only gone into the Trust Business in 1940.

Justice Arthur J. Goldberg: (Inaudible)

Mr. Daniel M. Friedman: What --

Justice Arthur J. Goldberg: (Inaudible)

Mr. Daniel M. Friedman: Well, we strongly deny Mr. Justice that they would be unable to divest and let me, let me start by saying that the same argument of course could be made in case under Section 7 and the government has been unfortunately singly unsuccessful in its attempts to obtain preliminary injunctions in bank merger cases.

Justice Arthur J. Goldberg: (Inaudible)

Mr. Daniel M. Friedman: Well we have just recently a few months ago unable to obtain an injunction attempt to stay in the Crocker-Anglo case and the Manufactures Hanover case, the banks were merged one hour before we filed our application for a preliminary injunction.

So that the problem is a recurring problem and if in fact, if in fact the confirmation of the merger, the day before, hours before, conceivably minutes before the government files its suit means that this the end of any relief, it just seems to me an impossible situation, but I like to come to this very case.

First of all as my opponent has conceded, these people received letters on the 10th of January approximately a month-and-a-half before the merger that the government had told the Comptroller of the Currency that the merger would have an adverse effect on competition and that we were further looking into it and we also had told that we had recommended it be disapproved.

Unknown Speaker: (Inaudible)

Mr. Daniel M. Friedman: That was on January 10th Mr. Justice.

Justice Potter Stewart: By the same token you had all had time to file a law suit too before the merger was consummated?

Mr. Daniel M. Friedman: Well --

Justice Potter Stewart: It's not as though by the very statutory scheme, it's not as though these things happen without notice to you, the Justice Department has given notice under the statute.

Unknown Speaker: (Inaudible)

Mr. Daniel M. Friedman: We found out that the Comptroller had occurred – I'll have to go outside the record on this Mr. Justice, we found out the Comptroller had approved it the day before we filed our suit.

Justice William O. Douglas: They give you any formal notice?

Mr. Daniel M. Friedman: They sent us formal notice in the form a letter, a very short letter which we received the day before and as soon as we found out about it -- I found out about it we sent man to Lexington to file the suit.

Now I think it's very significant in this connection, what happened on the motion for the preliminary injunction?

We filed the motion the day after we filed the suit and in supporting papers we set forth at considerable detail at pages 23 to 33 of the record affidavits by various local bankers as to the difficulties, the difficulties that would exist if after consummation there had to be divestiture, we recognize it will be difficult, but we don't think it's anywhere near impossible, it will be difficult and our opponents here opposed that motion and the -- we think this record makes it quite clear that both the District Court and the appellees recognized that if the government ultimately should prevail in this suit that they would have to separate these banks.

I would like to invite the Court's attention to two passages in the record.

The first is at page 43, about four-fifths of the way down, the last statement of the Court, and the Court says there, these people have had ample notice that your suit has been filed.

They have had ample notice of what the results maybe if they continue to carry out a so called merger.

They would have to stand the damage that would be occasioned by having to make a segregation of all assets that are commingled, that was the Court speaking.

Then at page 77 Mr. Park, counsel for the appellees at the very bottom of the page stated, I may say at this time that we recognize the possibility that at the end of litigation, we may have to restore these banks to their former status and we recognize that for our own protection we must do everything that we can to keep the assets segregated and identifiable so they can be restored, that we expect to do, that is what the appellees' counsel tells the District Court.

The District Court entered an order which had two sections to it.

I just like to call this to the Court's attention.

The District Court's order, the so called order directing them to keep separate books and records is set forth at pages 71 to 73 and the order is basically in two parts.

On page 72 paragraph two states until further orders of the Court the defendants shall insofar as maybe reasonably possible under the National Banking Laws and in accordance with sound banking practices keep and maintain it's assets et cetera, et cetera in such manner that in the event of consolidation is ultimately to be dissolved, the consolidated banks will be able to divide.

Then the order goes on in paragraph three with seven specific provisions, directing them what they ought to do and then in paragraph four it says the orders shall continue in full force in effect until further orders of the Court and the Court reserved the right to make any modification or supplemental orders that maybe necessary from time to time in the premises.

The first government knew that these defendants had not complied with this order, was roughly three weeks ago when we read it in their brief.

We had assumed all the time that they were complying with this order.

In fact, we told this Court both in our jurisdictional statement and in our brief that even though the order had expired apparently upon the completion of the trial that they were continuing to observe it.

We are now told for first time that they not complied with this order and I would think that at a minimum in face of this order if they found it as they say impossible to comply with that they at least should have gone before the Court or given us notice.

Perhaps if we were told that this segregation of the assets cannot be continued it might have been possible to have had a speedier trial, I don't know, but it just seems to us in all these circumstances that the claim that because it's now going to be difficult to unscramble the assets that is reason why this Court should nevertheless presumably refrain from decided the case in the government's favor, we find this the most unappealing argument Your Honor.

Justice Tom C. Clark: (Inaudible) lost their corporate existence because they organized the new company and the others were merged with it, I wonder if the Security, was that a state corporation?

Mr. Daniel M. Friedman: That was a -- Security was state bank and --

Justice Tom C. Clark: They had a building I suppose and an office.

Mr. Daniel M. Friedman: Yes.

Justice Tom C. Clark: It wasn't dissolved was it at that time?

Mr. Daniel M. Friedman: Well, I don't know enough frankly about what the technicalities were under state law, but what happened it was there was an agreement of consolidation entered into under the banking laws and in effect I suppose they issued new stock in this consolidate company.

I assume the stock was not issued between the Board of Directors meeting early in the morning and between the opening of the bank that day.

Justice Tom C. Clark: They occupied the same building I suppose, they went in to the national -- First National building.

Mr. Daniel M. Friedman: Yes as I understand it, the main office, the former main office of the Security Trust Company is now the Security Trust office of the First National Bank.

Justice Tom C. Clark: That was the same building.

Same corporate structure owns both building.

Mr. Daniel M. Friedman: I assume so, I just don't know, I don't know that the record shows that.

Justice Tom C. Clark: They seemed to say -- I thing rather indicated that they couldn't roll back even on March the 1st when they first learned of the suit (Inaudible)

Mr. Daniel M. Friedman: Well, I don't know whether they could they couldn't have rolled back the corporate structure, but I would have thought they could have deferred taking any further steps toward implementing the merger I would think at a minimum, that's all really we asked them to do, they had merged and we say all right you have merged but at least freeze the thing in the situation so that there is divesture.

Now in contrast to this situation I think it's striking contrast to what happened in the Philadelphia case.

In the Philadelphia case we did file our suit before the merger had taken place and the parties voluntarily withheld any action.

We did not get a stay there.

They agreed to withhold pending the determination of the case.

Here they just went ahead and insisted on consummating the merger as fully as --

Justice Tom C. Clark: Well I understood Mr. Odear to say that they had a phone call on April -- on March wasn't it?

Mr. Daniel M. Friedman: February.

Justice Tom C. Clark: February 25th, you didn't get your notice until the --

Mr. Daniel M. Friedman: 28th.

Justice Tom C. Clark: 28th?

Mr. Daniel M. Friedman: Yes.

I don't know -- of course the record doesn't – we don't anything about the phone call.

Let me point out also to Mr. Justice I believe the 25th was a Friday, the 28th was -- no the 25th was a Saturday, the 28th was a Monday -- no I am correct, the first the day of the merger was on a Wednesday and they got their notice on 28th.

They got their notice from the Comptroller or by telephone at the end of the previous week, they got a telegram the day before they consummated the merger and of course one other thing is that --

Justice Tom C. Clark: You didn't get a telephone.

Mr. Daniel M. Friedman: No we did not.

Comptroller did not tell us that he had approved this merger, and of course the fact that they were authorized to merge by the Comptroller, they were authorized to merge, it doesn't mean they had to merge.

They could have held off the merger at that time had they seen fit.

Chief Justice Earl Warren: (Inaudible) no correspondence between you and the Comptroller after you wrote your letter in January stating that you thought that this was a violation of Trust Act, Antitrust Act.

Mr. Daniel M. Friedman: No there was none, because under the law, the law requires us to advice the Comptroller of our views on it.

Chief Justice Earl Warren: Yeah, but the Comptroller never thereafter discussed the matter with you.

Mr. Daniel M. Friedman: No he did not, and I might also mention Mr. Chief Justice that here in the Philadelphia Bank case not only the Attorney General but also the Federal Deposit Insurance Company and the Board of Governors of the Federal Reserve System made adverse recommendations to the Comptroller on this merger.

I would also like just very briefly Mr. Chief Justice, you raised the question as to the situation in Birmingham as to the concentration of the trust business, the record is not entirely clear on that, but the record I think – makes -- indicates that the largest bank in Birmingham had nowhere near 95% of the trust business.

I would like to invite your attention to page 681 of the record.

This is a deposition of Mr. Hurley, if I may just finish this?

Chief Justice Earl Warren: Mr. who --

Mr. Daniel M. Friedman: Pardon, Mr. Hurley H-U-R-L-E-Y, who was the trust officer of the Alabama Bank --

Justice Hugo L. Black: Six hundred and what?

Mr. Daniel M. Friedman: 681.

Now here they gave some figures when he was asked to the relative size in the middle of the page and he indicated that the largest bank in Birmingham had a total of 200 million to 225 million trust assets and the second largest bank had between 80 and 100 million.

So on its face that it would seem to suggest that at most largest bank in Birmingham had 65% which is quite different from the 95%, which we had in this case in which the witnesses testified did give a substantial advantage to the merging bank.

Justice Byron R. White: (Inaudible) the evidence in the record showing the possible consequences of this merger or the actual consequences other than the affect on the competitors, the other banks in the city?

Mr. Daniel M. Friedman: Well, no.

Justice Byron R. White: Is that the sole -- going to be the sole major whether there is a restraint of competition or not, the affect on the other banks in sense of growth or deposits or loans.

Mr. Daniel M. Friedman: Difficulty is in competing; well there are two affects, one affect is the possibility that was suggested that the other banks might have to merge and secondly although it's not shown by the record, it seems that it is self evident proposition that what you have done is eliminated once source of credit for people there instead of there being six sources to which they may turn, there are now five.

Justice Byron R. White: Let's assume for some reason this -- the trial of this case had been delayed for five years, and it was shown that the merged bank remained -- retained exactly the same percentage in the community as it did, that is as it had the day after the merger and all the others five years hence also retained their same percentage, all of them had grown and gotten their share of the business, would that be of any real relevance or not?

Mr. Daniel M. Friedman: Well, I would think so under our theory of case because --

Justice Byron R. White: You have nothing.

Mr. Daniel M. Friedman: And so our theory of the case would be that the mere grabbing of this additional percentage, the mere accretion is enough, of course Your Honor just to reiterate that's not this case.

I'm sure Your Honor understands because here we do have some evidence.

Now if five years from now the presidents of the other banks had testified that in fact it hadn't hurt them, that might be quite a different case in terms of the (Inaudible), we'd still I think the arguing the case, but I don't think I have to take on that problem because here there is we think clear evidence in the case and I might just like to suggest one other thing if I may Mr. Justice White on this business of the alternative sources of credit, that specific argument that there would be alternative sources of credit available to most of the borrowers and therefore no injury, was specifically discussed and rejected by this Court in the Philadelphia Bank case at page 367 of its opinion where it said equally little weight we think of the assurance offered by appellees witnesses that customer dissatisfied with the services of the resulting bank may readily turn to the 40 other banks in the Philadelphia area, we think it's similarly irrelevant that customers who maybe dissatisfied with the merged bank may turn to one of the four other remaining banks.

Justice Potter Stewart: Why is it irrelevant?

Mr. Daniel M. Friedman: Well, because I think --

Justice Potter Stewart: I heard what you said, what you quoted from that opinion, but that opinion didn't say why it was did it and why is it?

Mr. Daniel M. Friedman: Well I think it's because of the very nature, the very nature of what the antitrust laws are designed to protect as competition, and when you eliminate a significant source to which a customer can turn, that is an elimination of competition, that does injure competition.

Justice Potter Stewart: As if it does, but if you can show that it doesn't then it doesn't?

Mr. Daniel M. Friedman: Well under this analysis Mr. Justice, the testimony for example of Mr. Jennings, Mr. Jennings the principal witness who had also testified in Philadelphia Bank case, he suggest that as long as there were three sources available, as long as any customer had a choice among three banks that was adequate competition.

Well this means you could just keep combining and combining until you got the point where you had three banks –

Unknown Speaker: (Inaudible)

Mr. Daniel M. Friedman: No we're not at that point.

Unknown Speaker: Now on the Clayton Act terms this is a Sherman Act case.

Mr. Daniel M. Friedman: Well this is a Sherman act case but I suggest Mr. Justice that the possibility, the possibility of -- shown in this record that the banks may have to consider merging in order to get equal to able to develop power is the factor to be considered, it may not to be entitled to its great weight as in a Clayton Act case, but I think it is the fact that it cannot be overlooked.

Justice John M. Harlan: (Inaudible) this litigation does the -- this courts decision in the Philadelphia Bank case and --

Mr. Daniel M. Friedman: This Court's decision was rounded on, in the Philadelphia Bank on the day that probable jurisdiction was noted in this case.

Justice John M. Harlan: That was after the trial.

Mr. Daniel M. Friedman: Oh yeah it was -- see July 17th it was almost a year-and-a-half after the trial and roughly almost a year after the decision.

Unknown Speaker: (Inaudible)

Mr. Daniel M. Friedman: Yes Mr. Justice that's at Pages 892 and 893 of the record.

There are two parallel letters, one to each bank.

Unknown Speaker: Thank you.

Justice Byron R. White: You do suggest that the possible adverse consequences on customers is a legitimate consideration?

Mr. Daniel M. Friedman: Yes, yes we do.

Justice Byron R. White: And is there any evidence like that in this case – in this record?

Mr. Daniel M. Friedman: Well there is, there is this, the only evidence I can point to is the evidence that there is apparently in this area, no source of credit outside of the community on contrast to the Philadelphia situation.

There was testimony by our banker witnesses that in a city like Lexington realistically the only source of credit the local businessman has is the local banks because those are the only areas where he is known, where people can evaluate his credit standing, his reliabilities.

So there was – candidly there was no testimony by customers saying that we would like to have a six bank, but it seems to us self evident that if you have a relatively small number of banks anyhow and you eliminate an important one this does significantly narrow the alternatives available to the customer.

Justice Byron R. White: Do you know whether there is a standard set of trust fees in Lexington.

Mr. Daniel M. Friedman: Standard set of what -- as I understand it the two banks --

Justice Byron R. White: What if I want to set up a living trust and I-- before this merger I went to one bank or the other.

Is there any difference in what the -- what it cost me to have my trust (Inaudible)

Mr. Daniel M. Friedman: I just don't know that Mr. Justice.

I would suppose that I would just assume normally that the probate court would set the same standards for all of you.

Justice Byron R. White: I'm not asking about a probate court, I'm talking about a living trust.

Mr. Daniel M. Friedman: Oh just to the banks charge issue.

Justice Byron R. White: Yeah.

Mr. Daniel M. Friedman: I just don't know that Mr. Justice whether -- we do know, we do know for example that there are variations in the interest rates they charge.

They all have roughly comparable service charges of number of items and so on.

I would -- they should presumably, unless there's been some understanding, each bank should set its own charges.

Justice Byron R. White: If I was a corporation, if I had corporation before the merger that I have two places to go, if I wanted someone to act a transfer agent, you know what – whether there was any competition between the banks for those in the business?

Mr. Daniel M. Friedman: The record doesn't show that I would – I would assume there was because of the fact they were both in this business, they were both prior to the merger rendering corporate to fiduciary services.

Although in candor I have to say that was relevant, a small part of their business.