U.S. v. CITIZENS & SOUTHERN NATIONAL BANK

Transcript: 

Argument of Daniel M. Friedman

Chief Justice Warren E. Burger: We'll hear argument next 73-1933, United States against Citizens & Southern National Bank.

Mr. Friedman.

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

The Appellee, the Citizens & Southern National Bank is the largest banking organization in the City of Atlanta, Georgia.

There are six banks located in the suburbs of Georgia in each of which C&S as I shall refer to it, has a 5% stock interest.

Each of these banks is an independent corporation with its own officers and its own Board of Directors, but virtually since the organization of these banks, C&S has treated them and operated them as though they were de facto branches of C&S.

This is an appeal from a judgment of the United States District Court for the Northern District of Georgia which after trial dismissed a Government civil antitrust suit challenging the relationship between these five percent banks and C&S.

The questions presented are first, whether the arrangements between C&S and the banks which virtually eliminated all competition between them constitutes an unreasonable restraint of trade in violation of Section 1 of the Sherman Act.

The second question is whether as the District Court held the questions respecting the legality of the relationship between C&S and the five percent banks is a matter committed to the exclusive primary jurisdiction of the Federal Reserve Board of Governors.

The third question is whether the acquisition by C&S of these five percent banks, thus making permanent this existing relationship which depended largely on the inter adjustments between them and the five percent stock interest whether that acquisition of the complete interest in the five percent banks violated Section 7 of the Clayton Act.

Now with respect to the Clayton Act issue, it should involves only five rather than six of the five percent banks because with respect to the sixth bank, the Bank of Tucker, the Federal Deposit Insurance Corporation which has jurisdiction over these mergers rejected that merger.

So the Bank of Tucker is involved only in the Sherman Act aspect of the case, not in the the Clayton Act aspect.

Chief Justice Warren E. Burger: Did the FDIC state reasons Mr. Friedman for rejecting as to the sixth bank?

Mr. Daniel M. Friedman: Yes, what it said was that with respect to the Bank of Tucker which was founded in 1919, there they said the initial acquisition by C&S in the 1960's of an interest and the development of this relationship was itself anticompetitive because prior to the time, Tucker and C&S had been fully independent and competitors, whereas it distinguished the other five situations where they had said there was no competition between them from the outset.

Now, at the end of the 1950's and in the 1960's, Georgia law had two limitations upon it, which affected the ability of C&S to expand into the suburbs of Atlanta.

First, it prohibited C&S from opening branches beyond the City of Atlanta and secondly, it prohibited a bank from acquiring more than five percent of the stock in another bank.

In this period, the Atlanta suburbs like the suburbs of many metropolitan areas were expanding rapidly and C&S devised a method by which it hoped to avoid the state law limitations on branching.

What it did was to assist in the organization of these suburban banks acquired a five percent interest in each of these banks which was the maximum permitted under state law and then played a role in the operation of these banks in supervising them and advising them and managing them that made them virtually a branch of C&S.

Chief Justice Warren E. Burger: Does the government here have the burden of showing that the situation would different after the acquisition that it was under the five percent arrangement?

Mr. Daniel M. Friedman: Well, I would -- may I answer the question this way Mr. Chief Justice.

Our position is that the acquisition is bad, because were it not for the five percent arrangement, the acquisition would violate the standards that this Court has announced and our position is that you cannot rely on what we believe to be the illegal situation that led to the initial elimination of competition to justify the claim that the acquisition now it is not substantially less in competition.

I add one other factor which I adverted to earlier that the effect of the acquisition is to make permanent, to make permanent, a situation that (Inaudible) has existed as a result of relationships.

There are two instances, one relating to C&S and other one relating to the Trust Company of Georgia in which banks in this situation of the five percent banks broke away, broke away and became independent banks.

Once of course C&S acquires these banks that's the end of it.

They are part of the C&S system.

Thereafter, I assume they would be operated as branches in fact rather than the de facto branches under which they're not.

So I think to that extent, we do show that there's a different situation, because it becomes permanent.

It's cemented together would be a different situation after the acquisition that exists now.

But our other answer is, the more fundamental answer is they cannot justify, they cannot justify these acquisitions by the claim that there's no lessening of competition because there was no competition where the result of the lack of competition itself we believe violated and flowed from a violation of Section 1.

Chief Justice Warren E. Burger: Then what does the language lessening competition mean?

Mr. Daniel M. Friedman: Maybe substantially to lessen competition.

Well we think Mr. Justice, the whole policy, the whole policy of Section 7 of the Clayton Act, the purpose there preserving competition of avoiding restraints in their incipiency, in order to avoid things before they develop into full violations of the Sherman Act, we think that policy would be subverted, would not be effectuated, if we would say that because they had previously eliminated the competition.

Therefore, they can now rely on that as a justification and the word substantially lessen competition, we think we do come within that standard, because as we discussed in our brief, looking at the concentration figures in the Atlanta Market which this Court has indicated are sufficient to establish a prima facie case of violation.

The effect of this acquisition would be significantly to increase the already concentrated Atlanta bank market.

So we think within the literal terms of the statute, we have established our burden.

The only question is whether it can be offered as a defense and answer to this increase in concentration where really the increase is insignificant here, because the result of our prior violations -- it's results of our prior violations, we have eliminated the very competition that Section 7 is intended to promote.

Chief Justice Warren E. Burger: Let me see if I understand what you're saying thereby putting it into a hypothetical case Mr. Friedman.

Are you suggesting that one of these five percent banks may conceivably be located in an area that experienced a sudden growth and great deal of business and finally concluded, its directors concluded, that it could stand on its feet, independent of any relationship or guidance or help from the home office and then they would regard themselves as emancipated?

Even though the Atlanta Bank owned five percent?

Mr. Daniel M. Friedman: It could well and as I've indicated.

Chief Justice Warren E. Burger: That's the kind of situation you are talking about that you think the antitrust law must reach this in its incipiency?

Mr. Daniel M. Friedman: Yes Mr. Justice -- well what I was suggesting with something Mr. Justice, what I was suggesting was that Section 7 is intended to reach anticompetitive acquisitions in order to prevent the development of a situation where there would be the actual elimination of competition as distinguished from the potential for eliminating competition that Section 1 is designed to reach.

That's what I was trying to suggest in speaking about reaching them in their incipiency.

But we have two instances in this record one, a C&S bank, another a different bank which did breakaway for various reason and these banks are now independent and are now growing.

It may well be that if these markets develop some of these other banks would decide to break away from the control.

Now, let me just prefer briefly to the kind of control that C&S exercised here, both in the organization of the banks and in their operations.

Justice Lewis F. Powell: Mr. Friedman, before you go into that you've said a few moments ago that so far as the Sherman Act was concerned, there was an initial violation in the formation as I understand it of these five percent banks.

Mr. Daniel M. Friedman: I'm sorry Mr. Justice, perhaps I misspoke myself.

The violation was not in the formation of these banks.

The violation that we are challenging is the operating relationships between C&S and the five percent banks which stemmed from the way in which they organized them, but it was developed as time went on when they assumed virtual control over all the operations of the bank.

It's not just the organization.

We're not challenging the organization of the bank itself.

We don't say when they acquired five percent, this violated Section 1.

What we say is the whole relationship starting with the five percent acquisition then the other things they did in organizing the bank and then the way that they operated with the bank and said whole series of relationships we say violate Section 1 because it did amounts to an elimination of all competition between C&S and these independent banks.

That's our theory, not just the initial violation.

Justice Lewis F. Powell: Well, may I ask you a question on that basis of that theory.

If Georgia law had been different and these five branches had been organized as branches, would there had been any violation of the Sherman Act?

Mr. Daniel M. Friedman: No, no, of course, not, Mr. Justice.

Justice Lewis F. Powell: But what is the economic difference?

Mr. Daniel M. Friedman: Well, I think the difference Mr. Justice, the difference is that the thrust of Section 1 of the Sherman Act is against restraints upon competition created by independent entities which combined.

There are many things that an individual firm can do if it's a single entity, the two independent firms can't do.

To give a simple example, if the firm has a western division and an eastern division, it can obviously direct that the Western division will sell in the west, and eastern division will sell in the east.

But --

Justice Lewis F. Powell: I understand that, but historically, I've also understood that it was a policy of the antitrust division to encourage banks to open branches which stimulate competition.

So my question directed to you related to the economic injury, in other words what interest is the Government protecting here that would not be involved or implicated if Georgia law had been different as indeed it should have been perhaps to allow banks to follow their customers into the suburbs as they move to the suburbs.

What is the economic injury?

Mr. Daniel M. Friedman: Well I think Mr. Justice, the economic interest here is the whole basic concept that under the Sherman Act, you cannot use -- make arrangements between independent entities which eliminates competition.

It would have been a very different case if Georgia law had permitted it and we would have no objection.

We would have no objection at all if these banks were merely sponsored and assisted.

If C&S had treated these banks the way it treats many banks which it has sponsored with whom it has correspondent relationships, there would be problem.

Our problem in this case is that while they purported to be creating independent competing entities, independent entities that are supposed to operate independently, in fact they weren't independent.

And we think this Court's decisions that we've cited some of them in our brief have recognized that once you use the vehicle of separate corporations for whatever reason, for whatever reason, once you have used the vehicle of separate corporations, you have got to treat them as separate entities.

You can't combine them together and say, “Well, they are separate entities for various purposes, but in terms of seeing whether what these entities are doing with each other, whether that's permissible under the Sherman Act, we shall ignore the separate entities and treat them as a single entity.

This Court many years ago in the Shanley case, an Interstate Commerce case recognized the situation.

There was a situation, the question was whether a wholly owned subsidiary of distiller was engaging in private carriages, it held as it contended or in contract carriages, the Interstate Commerce Commission had held.

And the argument was, well ignore the separate corporate entity.

It's true maybe -- it seems to be contract carriage, but we're doing it for our parent and therefore it should be treated as private carriage and this Court said “no.�?

This court said, “When you elect to operate as separate corporations, you have to comply with the requirements that the law imposes on separate corporations.�?

Now --

Chief Justice Warren E. Burger: Mr. Friedman suppose and this is not hypothetical, but it involves your projection.

Suppose you had not taken an appeal here at all.

And five years from now, the fears which you have expressed or the concerns about lessening competition were demonstrable in the view of the antitrust division, would you be in a position to move in at that time and seek a divestiture?

Mr. Daniel M. Friedman: If we had an appeal, I would very much doubt it Mr. Justice.

I don't know.

I don't know of a case like that that has happened, but if it will held that the acquisitions were valid, I would think would be hard pressed to turnaround later on and say, “Now, you should hold that they were invalid.�?

I mean, we might conceivably if C&S reach the point where it began to assume monopoly power in the Atlanta markets, we might proceed against them under Section 2.

But I find it very difficult to see how we could in effect re-litigate the issue of the validity of the acquisitions under Section 7 of the Clayton Act.

Once they had been consummated, I would say it would be comparable for example Mr. Chief Justice I'm sorry, if we had never bought this suit after the Federal Deposit Insurance Corporation had permitted the merger.

If we never brought the suit and under the statute if we don't challenge it within 30 days, the order becomes final.

I don't suppose if five years later things got much worse, we could then turnaround and challenge these acquisitions.

I assume would tell you five years too late.

I would think the same thing would apply in this situation.

Now what C&S did in the organization of these banks was about as follows.

First, they helped them obtain a charter.

That's a normal situation when they're sponsoring the bank.

They help them select a site, that's a normal situation.

They helped them sell stock that perhaps gets a little more.

They in effect selected the directors.

This gets a little more seriously.

And then in each case of each one of these five percent banks, they provided the Chief Operating officer.

Beginning in 1965, all of these five percent banks started using the C&S name.

Justice Potter Stewart: But may I say -- but you told us up to now, you do not contend this as a violation of the antitrust law?

Mr. Daniel M. Friedman: No, no, of course, not, but we're just -- I'm just trying to set the background.

Justice Potter Stewart: You're giving us the history, but I just wanted -- right.

Mr. Daniel M. Friedman: Setting the background in the light of which what they did thereafter.

Justice Potter Stewart: But all of this sponsorship and creation and everything that went with it what you told us about so far, you do not submit there is a violation of --

Mr. Daniel M. Friedman: No, we don't -- may I make something very clear Mr. Justice in light what our opponents say.

We don't claim that any particular individual thing itself is a violation, what we claim is that the whole relationship under which all competition was limited.

Justice Potter Stewart: But all of these components, the whole totality that you told us about up to know you would not say was a violation.

Mr. Daniel M. Friedman: No, not, but the last thing -- the two last things that I come to a beginning to develop reach into -- one is the selection and the placing as Chief Operating Officers of the banks of officials of C&S.

And the record shows that officials were shifted back and forth.

Every instance, the Chief Operating Officer of the bank, one of the five percent banks was the C&S official and in several instances when C&S was displeased with the way the officials were performing, they selected a new official.

Justice Potter Stewart: It seemed to me -- it would seem to me, if I may think out loud that your case would be is stronger if you do not rely on the sponsorship in creation of these banks, but rather analogize them to banks that were independently sponsored.

Mr. Daniel M. Friedman: Well, they purported to be independently sponsored.

Justice Potter Stewart: Right.

Mr. Daniel M. Friedman: But, but things began to develop.

Starting in 1965 each bank used the C&S name.

That is instead of it being a first National Bank of Sandy Springs, it was the C&S National Bank of Sandy Spring.

Justice Potter Stewart: There are some pictures here.

Mr. Daniel M. Friedman: There are some pictures showing that and they also used the logo gram which is this lollipop like thing with a distinctive letter C&S, so when the public pass by these banks, they seemed to be C&S banks.

Now, one rather interesting thing I've mentioned previously is that the bank, the first bank that they organized was something called the Bank of Stone Mountain.

And the Bank of Stone Mountain which was first one in this group was the first one out.

Stone Mountain is no longer a member of the C&S team.

And what happened was when they came around to these various banks after Georgia law had been changed in 1970 permitting banks to expand beyond the city limits of Atlanta, they wanted to merge with Stone Mountain and Stone Mountain didn't want to merge with them and the result was C&S sold its interest in the bank and Stone Mountain is now an independent functioning bank.

And it's rather revealing I think that the former President of C&S, the man named Mill Lane testified that they had a very unhappy relationship with Stone Mountain.

He said the Board of Directors of Stone Mountain was very different from the Boards of Directors of the other five percent banks.

The reason was that the Board of Director of Stone Mountain wanted to tell --

Justice Lewis F. Powell: Mr. Friedman.

Mr. Daniel M. Friedman: Yes.

Justice Lewis F. Powell: Excuse me to interrupting you, but I wonder whether the Stone Mountain as I recollect it is fairly comparable, wasn't there a stockholder who owned more than 50% of that bank?

Mr. Daniel M. Friedman: I believe 30%.

Justice Lewis F. Powell: 30%.

Mr. Daniel M. Friedman: It always 30% Mr. Justice.

Justice Lewis F. Powell: For SEC purposes, it's more than abundant for control?

Mr. Daniel M. Friedman: Yes.

Justice Lewis F. Powell: In any event, the stockholders of the other 5 percent banks as I recall were for the most part employees, officers and directors, and the stockholders of C&S.

Mr. Daniel M. Friedman: I'm not sure for the most part, there was substantial number.

There's figures in the records and it varies from bank to bank, but I don't believe that there maybe have been one or two, I don't believe in most part that even the employees, officers of C&S or C&S affiliates were majority stockholders of any of these five percent banks.

C&S general policy was not to get away with a situation unless their five percent block was the largest.

But Stone Mountain was operated up to this point as one of these five percent C&S banks, it had the name, C&S Bank of Stone Mountain.

And the complaint was, the complaint that Mr. Mills had was the Board of Directors of Stone Mountain wanted to tell him the President of the Bank what to do and did so.

In other words, they disconnected, they disaffiliated with Stone Mountain, because they couldn't control Stone Mountain.

Stone Mountain was an independent bank and had the (Inaudible) to try to be an independent bank and they didn't like that.

Now, the District Court spelled out in its findings at pages 50 (a) to 55 (a) of the Appendix to our jurisdictional statement and while these findings are made in connection with the Section 7 discussion of the District Court, the facts they set forth are equally applicable to the Section 1 issue, exactly what it is that C&S does in its relationship between these banks.

As I indicated, the officials move around from bank to bank for purposes of the C&S pension and profit sharing plans, service with the C&S bank is considered the same as service with one of the five percent banks.

C&S people review after they have made certain loans made by the subsidiary banks.

A C&S official sits on the Board of Directors of everyone of these banks as an Advisory Director.

C&S has an organization called “The Branch Supervisory Department�? and its supervises these allegedly independent banks.

The customers of the banks have available at anyone of the five percent branches, all the services rendered and made available to customers of C&S.

And particularly significant, the officers and officials of the five percent banks receive and rely upon the manuals, directives and instructions that C&S puts out and these include specific instructions and advice with respect to their pricing practices.

Now, a number of these instructions show at the bottom of the instruction that a copy goes to the President of the five percent bank, which C&S describes as a correspondent associate for information only.

That's what it says.

But I think when you look at the text of these things, it's quite clear that these copies for information only would just not sent out in order to keep the officials of these five percent banks informed as to what C&S was doing or what C&S was thinking.

They leave no doubt, we think, that C&S intended them to be followed.

Let me just cite three examples.

Chief Justice Warren E. Burger: To what point now do you direct these examples Mr. Friedman?

Mr. Daniel M. Friedman: This is to show --

Chief Justice Warren E. Burger: Are you speaking of the past situation aren't you?

Mr. Daniel M. Friedman: Well, not that far.

Chief Justice Warren E. Burger: The five percent arrangement.

Mr. Daniel M. Friedman: The five percent arrangement.

This is directed to show that in fact this wasn't just a situation in which C&S gave out some ideas and these banks voluntarily said, this sounds like a good thing to do, we will independently follow.

This is well designed to show that in fact -- in fact what you had in this situation was an agreement in violation of Section 1 of the Sherman Act between C&S and the five percent banks that they were to eliminate competition.

And in everything including price and one of the purpose of these examples is to show that C&S was in effect telling the five percent banks what to charge, what practices to follow.

Let me just --

Chief Justice Warren E. Burger: Does that not also suggest, doesn't that lessen the distinction that you were previously making between the situation as it was and the situation as it will be after the acquisition?

Mr. Daniel M. Friedman: No, no.

Chief Justice Warren E. Burger: I think you're narrowing the gap when you press that point.

Mr. Daniel M. Friedman: Mr. Justice, obviously if as we say and as they concede in effect, there is no competition barring the acquisitions will not indirectly increase competition.

What it will do though is to keep alive the potential for possible de-concentration of these concentrated banking markets, which this Court has recognized repeatedly is one of the functions under Section 7.

But in addition to that, coming back to what I had said before just to repeat it, that we don't think they can rely on the violation of Section 1, a violation of Section 1 has a justification for a merger that is prima facie in violation of Section 7.

If I may refer to these, couple of these things, the first one is at E140 and I should mention that this record is paginated that the exhibit volumes are separately paginated beginning with E1.

This is a note which goes not just to the C&S officials with an information copy, but this is directly written, typed out to the Presidents of the correspondent associates which are the 5-percent bank.

Effective November 12, the C&S National Bank, that's the lead bank, lowered its prime rate to seven and one quarter percent.

For the time being, this will affect only those rates that are tied to the prime.

All other rates will remain the same until further notice.

If you should have any questions, please give me a call.

This is from the Assistant Vice President of the Division of Branch Superintendent.

Then at E145 is to all of the managers and the affiliates with again information copy to the President of the five percent banks, encloses a memorandum and revised rate chart from Gordon Trulock as always, the chart reflects the minimum rate which should be charged and then at the bottom of the paragraph, loans to local corporations should carry a rate of at least 10%.

And finally at page E147, the 1969 memorandum saying, “Rates on all L&D loans except prime customers should be adjusted to 8%.

And then it goes on at the bottom of that page and says, “We are still not making speculative real estate and development loans.�?

Justice William H. Rehnquist: Mr. Friedman, you say this supports -- would support a finding of an agreement not to compete?

Mr. Daniel M. Friedman: We act out stronger than that.

I go stronger than that Mr. Justice.

This, we think, compels the conclusion that what was done here was the result of an agreement, of a combination of a concert of action.

Justice William H. Rehnquist: Did the Government submit proposed findings to the District Court to this effect?

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

Justice William H. Rehnquist: And the District Court refused to make this finding.

Mr. Daniel M. Friedman: What the District Court found -- the District Court found in this case that this was not the result of any agreement because as it put it, this denied that the service or information received by these banks from C&S was the result of any tacit or explicit combinations rather than the natural deference of the recipient to information from one with greater expertise or better sources.

Justice William H. Rehnquist: Then the Government to upset the District Court's conclusion has to say that it's clearly erroneous.

Mr. Daniel M. Friedman: We think the ultimate finding, the ultimate finding of no agreement in this case is clearly erroneous.

It's clearly erroneous, because we think it fails to recognize the many decisions of this Court defining what constitutes an agreement for purposes of Section 1 of the Sherman Act.

Under Section 1, you don't have to have an explicit agreement.

It's rare that you have that.

It's a course of conduct and you look to the entire course of conduct to determine whether what happened was the result of wholly independent business judgment or whether it was the result of some tacit understanding.

Now, I suggest that it's difficult to believe that wholly independent banks, that wholly independent banks with their own officers, with their own Boards of Directors responsible to all of the stockholders would permit a five percent stockholder to have an advisory director sitting with them at all the board meetings to have a five percent bank stockholder review their loans would follow all of these instructions raising prices, changing prices, failing to change prices when C&S objected that they would have done that without there being some tacit understanding that this is how the banks were going to operate and we think this is very clear from the whole record in this case that it was understood.

It was understood that this is how it was going to operate and this is the way it operated.

Let me give one very --

Justice Byron R. White: Plus the name.

Mr. Daniel M. Friedman: Plus the name, thank you Mr. Justice.

Normally an independent bank without some understanding wouldn't permit its business to be operated under the name of someone else and wouldn't permit its customers to have available at it, all the services that are supplied in a five percent struggle.

Let me just give one very illuminating example I think of the kind of relationship in control you had in this case, which is something we cited in our reply brief.

The President of Bank of Chamblee, one of the five citizens in Southern Bank of Chamblee wanted to raise his interest rates on deposits from 3.5% to 4%, because he felt he needed this to compete with another local bank in the area.

But before he undertook this step, he felt it necessary to write to C&S and find out if they had any objection to it.

So he so wrote and he then had a discussion with a C&S official who objected and the result of it was the President of Chamblee did not raise his interest rates to 4%.

We had another example described in our main brief at pages 11 in the lengthy footnote, footnote 2 that C&S put out an announcement that it was changing and increasing its service rates on checking accounts.

It didn't state the date.

This was in February 1970.

Many of the five percent banks had different service rates, but on the first of April, all of a sudden all of them, all of them, everyone of them suddenly adopted uniform rates and not only the special checking accounts but the regular checking account, rates that will uniform with those that C&S had adopted.

Now, the argument is made to which Mr. Justice Powell alluded earlier that this was perfectly alright because if it hadn't been for the restrictions of Georgia banking law, the banks would have been organized initially as branches of C&S and if they had been branches of C&S everything that we challenge would have been permissible.

Now, these banks as I want to repeat again because I think it's at the crux of our case.

These banks are separate entities.

These banks are separate entities and a separate entities, and the separate entities.

These banks have to operate the way the Sherman Act requires the separate entities.

They cannot themselves eliminate and restrain competition between them.

Let me if I may read two sentences from the Court's opinion in the Perma Life Muffler case in 392 U.S. where that was a private case and the Court of Appeals had dismissed the Sherman Act claim on the theory that the two respondents Midas and its apparent which owned all of the stock international were a single entity, and therefore incapable of conspiracy and the Court rejected that argument.

What it said was, “But since the respondents Midas international avail themselves of the privilege of doing business through separate cooperations, the fact of common ownership could not save them from any of the obligations that the law imposes on separate entities.

That was the case where there were wholly own subsidiaries.

This is a case where they're only 5% subsidiaries.

Now, let me turn to one other aspect of this case, the Court -- District Court set as an alternative ground of dismissing the complaint that this was a matter that lay wholly within the exclusive primary jurisdiction of the Federal Reserve Board.

It's rather technical argument, it turns on the language of the Bank Holding Company Act.

We have I believe fully covered it in our brief.

I will just summarize in the sentence or two that the Bank Holding Act authorizes the board to approve acquisitions, mergers or consolidations or acquisitions of control and that's the only thing it gives the board jurisdiction of it.

I challenged -- I've indicated is not to the acquisition or to the control as such but to the way in which they exercised it.

And there is a specific provision in the Bank Holding Company Act which we have set forth at page 47 of our brief that says, “Nothing in this in anyway prevents the liability under the antitrust laws.

And we think that whatever one may think of the role of the Federal Reserve Board in dealing with this situation quite clearly, it is covered by this exemption.

Now, the District Court in this case assumed for purposes of discussion under the Section 7 issue, the markets that the Government had posited.

It didn't define the markets.

And if we are correct in our submission to this Court, the case must be remanded for the District Court to define the relevant markets.

And it also set forth in considerable detail the increases in concentration that would result in the event this merger took place.

But then it said all of this really is beside the point, because as a result of what is previously happened, there is no competition now between C&S and the five percent banks.

In other words what they're saying is that the defendants can overcome the prima facie illegality of this merger under the settled standards, because of their own violations of Section 1.

We think as we've said in our brief, this would just stand Section 7 on its head.

The purpose of Section 7 is to prevent these restraints at the outset, in their incipiency before they develop into full blown violations of Section 1.

Now the claim is that the full blown violation of Section 1 somehow saves from illegality a merger which had it not been for that violation under this Court's standards would be illegal.

We don't think that is the way Section 7 can be read and we think that under this Court's decisions, this merger the arrangements violate Section 1 and the merger cannot pass muster under Section 7.

Chief Justice Warren E. Burger: Well, are you saying that each of these five percent situations was violation or only that taken all together against this whole background?

Mr. Daniel M. Friedman: I would say each one -- I would say each one Mr. Justice was because in each case, each five percent bank was an independent entity and in each instance what you had was the complete elimination of competition between C&S and the fives.

Indeed, in the one case, the Bank of Tucker that I mentioned earlier, for -- from 1919 to 1965, Tucker was a wholly independent bank.

And then C&S acquired to 5% interest rate in Tucker changed its name to the Bank of Tucker and proceeded to treat it as though it were a branch.

I think this is the clearest example, but the others never had even a chance to develop as independent entities.

From the outset C&S stifled their competitive potential.

Justice Byron R. White: Do you think we need any market analysis in the case at all on the Sherman Act?

Mr. Daniel M. Friedman: I don't believe so Mr. Justice.

Justice Byron R. White: Well, just tell what is the -- what is the per se violation, just an agreement not to compete?

Mr. Daniel M. Friedman: An agreement and understanding not to compete at all in anyway.

Not just fixing prices, but not to compete in anyway.

Justice Byron R. White: And so if the price fixing agreement is per se this is a fortiori.

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

That is our position.

Justice William H. Rehnquist: Well, if what the bank in Birmingham agreed with the bank in Atlanta not to compete and in fact there was no real realistic possibility of competition between, would that be a violation of the Sherman Act?

Mr. Daniel M. Friedman: If there was no realistic possibility at all, if they were completely independent, I doubt it very much, but that's not this case.

That's not this case Mr. Justice because C&S itself had three subsidiaries in which it owned 90% or more of the stock which puts conceivably -- might have been competing with these banks.

We don't know.

Justice William H. Rehnquist: But don't you have to know something about the market then in order to answer Justice White's question.

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

Justice William H. Rehnquist: You know that.

Mr. Daniel M. Friedman: Yeah, I interpreted Justice White's question as meaning whether it would be necessary to define a market in the way that it is normally defined for Section 7 purposes, my answer is no, not under Section 1.

But this is all -- this is in the Atlanta area and these are suburban banks and there is -- there is -- for example the record shows that not infrequently people may want to -- there's a question whether you want to bank where you live out in the suburbs or whether you're going to bank in town.

If it's an independent bank, you may decide to bank in the suburbs and not bank in town.

So there could have been we think very real competitive potential between C&S and truly independent banks in the suburbs, independent banks that were not operated by C&S's branches.

Thank you.

Chief Justice Warren E. Burger: Mr. Hodgson.

Argument of Daniel B. Hodgson

Mr. Daniel B. Hodgson: Mr. Chief Justice, may it please the Court.

We would like to approach our argument today this way.

First, we would like to touch on some of the facts that we believe should have emphasis in order to land the importance to our sponsors to the Government's grave charges.

Secondly, we would like to make our argument that because C&S and its associated five percent banks have been so closely related from the very beginning without change, no lessening of competition would result from the acquisitions.

And then we would like to add Sir, the department's charges that these relationships are in violation of the Sherman Act.

In some instances, it appears to be claimed per se by virtue of the entire association between these banks and then again it appears to be per se basically on the price information memoranda that had been discussed this morning.

Then we would like to discuss what is perhaps the most important charge whether or not the association amounts to an unreasonable restraint, absent a per se finding.

And then we would like to conclude without thesis that an affirmance by this Court would bring only beneficial competitive results.

Now the department is very lightly and selectively touched upon some of the facts although it is surely not misrepresented there.

I think it's important for us to place ourselves in the environment in which all of this conduct took place.

The City of Metropolitan Atlanta has exploded in the last two decades, or decade and a half.

There are no geographical barriers or restrictions to this growth and it has been heavy.

But the political response to this growth has not been comparable.

The City of Atlanta has been restrained since 1952 to a bare city limits of a mean radius of seven miles and there seems to be no hope to get that remedy.

It is surrounded by numerous small towns and villages and small cities.

At the time the case was tried, the Standard Metropolitan Statistical Area encompassed five counties with the rough radius of 25 miles, much larger.

And today the SMSA is 15 counties with a rough radius of 40 miles.

Now as these political restrictions on city limits are clear, it is also clear that the limitations on internal, extension and expansion by banks in the State of Georgia has been seriously restricted.

Because beginning as early as 1927, no branching has been allowed in the State of Georgia except within the city limits where the bank is located.

And until 1960, it could -- they could not expand even where they had owned any branches.

Only 13 states continue so absolutely to restrain internal bank expansion.

None of Georgia's neighbors does.

C&S system is expansive mandate.

It is aggressive.

In 1928, it met these barriers by forming a holding company which over a period of the next 20 odd years, formed a majority owned affiliates throughout the state, three of which are in the Metropolitan in Atlanta.

But in 1956, a barrier was put up again and today no bank -- no bank holding company may expand through the holding company affiliation realm in the State of Georgia.

The legislative forces supported by the protectionist demanded the unit bankers in the state as we see it have drawn hard barriers against competitive expansion, all market extension, barriers drawn sharply at the city limits.

Now the purpose of this historic exercise is to demonstrate why this was done.

There was no purpose here to do anything in violation of antitrust laws.

It's simply that was developed an innovative and entirely pro-competitive expansion procedure which had to observe their requirements, their restrictions on stock ownership required by the state bank holding company law.

So here's what was done.

Let's leave out, Tucker for a moment.

With respect to the five banks which are before this Court today on the Section 7 charge.

If C&S organized these new banks, it didn't participate with all of us in doing so, it organized them.

In areas where banks had never been before and beyond the city limits of Atlanta where C&S could not go and could not compete and could not until the law was changed allowing these applications for merger.

Second, it did so in instances where other local interest had tried and failed and this is in the record.

Had tried and failed because the absence of significant financial footings and banking knowhow.

It was done in every instance with the expectation of everyone involved all of the shareholders and the record is replete with this.

The neighbors, the competitors, all knew that it was formed this way under C&S sponsorship to be managed by C&S so far as law permitted ultimately to merge into C&S.

And this procedure was supported by the responsible bank regulators.

State and federal realizing that the strength of C&S Financial and managerial support would be behind these new little banks and thus would ensure their solvency and their success.

And serve the convenience and needs of these communities which otherwise were not being served and the record is clear that others had tried.

These historic organizational factors are unique and they were complete from the beginning.

They did not change.

The department said this was competitively insignificant when made, the District Court found there were no changes in this respect.

And the burden was on the Government to prove it if it were so from the time they were formed until the time this case was trialled.

I would not mention the Stone Mountain Bank except that it's been brought up here, because the record is so clear, so clear.

C&S did not organize that bank.

It had been in existence two years before any affiliation occurred.

C&S was asked by the Stone Mountain Incorporators, do you have anyone who can help us?

They said, “Yes sir.

There's a fellow named Arthur Drew who used to work for C&S.

He is retired.

He might help you.

He was the motivating force there.�?

It is clear that the McCarthy family owned 35% of the stock of that bank.

It is also clear that there was continued resistance to support and advice from C&S to that bank and the District Court found that it was not a comparable circumstance just as it did with the Peachtree Bank & Trust Company.

The trust companies affiliate in the Chamblee area which likewise had serious distinguishing characteristics which do not appear in this case.

They are not appropriate for argument that these banks would break away, would become independent competitive forces and the District Court found that is a fact also.

Now, during the decade of the 60s, all six of these little banks including Tucker for this purpose retained the following important characteristics which further distinguished them.

The ownership of shares -- stock shares over and above that held by the holding companies, the five percent permitted by state law was spread among many individuals.

There were no blocks.

Any concentration being in the Chief Executive Officer of the five percent associated bank and many offices, directors and friends of C&S generally who were aware of the purpose and intent of this program to supply these services in these areas.

These five percenters were authorized to use the C&S names and share a joint identification with C&S services advising the public they were competing as C&S banks.

Now, the point is made, this happened later.

Justice Potter Stewart: This was in no way of violation of state law to use the C&S name.

Mr. Daniel B. Hodgson: No sir.

If Your Honor please, it is not.

As long as you get consent from the commission of banking finance then superintendent of the banks is perfectly alright, just as it is for the Coca-Cola Company to authorize the Coca Cola-Bottling Company of Thomasville, the Coca-Cola Bottling Company of Albany and so forth.

Chief Justice Warren E. Burger: Franchisees?

Mr. Daniel B. Hodgson: Very some, if Your Honor please, in an area where at this point in time C&S could not go, could not have its own direct operation.

Let me say something has been made to the fact that the name was not part of the original package where for most it was, the later one.

And the earlier ones it was no surprise to anyone, the record is complete.

That all knew these were C&S banks.

The Citizen's Bank of Sandy Springs for example had its lollipop, C for Citizen's and S for Sandy Springs.

There was no doubt in anyone's mind that these were C&S banks owned by other stockholders because this was required, but operated by C&S in order to supply these services there.

A third critical distinction is that full C&S services in advice were regularly and systematically supplied and no one offended the requirements of corporate law and fiduciary duties imposed upon directors and officers to serve their shareholders.

But this information expertly was supplied by C&S to these little banks including categories of services that were not routinely furnished to correspondents.

There were no secrets about these services, none whatsoever.

Anyone can see anything they want to see.

Most importantly, these services were expected and relied upon by these little banks.

Otherwise, the regulators would not have issued charters in the first place.

And as I suggested there was the expressed intent and expectation to merge just as soon as state law, the restrictive branching law, or the restrictive holding company law permitted this to be done de jure.

May we observe at this point that when the General Assembly of Georgia allowed branch expansion into the counties which isn't much, immediately indeed, foreseeing this in January 1, ‘71 these applications were filed.

And they were described in the application a copy of which went to the Department of Justice as being virtually operated and directed as de facto branches.

There was no secret about it then as they had never been.

This was the very language, which the department used before this Court, four years later in the Marine case to describe what it called a sanction pro-competitive procedure in instances where de novo branching -- de jure branching was denied.

The regulators knew it and all of the competitors of C&S and these banks were precisely interviewed by the Commission of Banking and Finance to see whether or not they had objection and they had none, why?

Because they were C&S banks from the beginning.

And then the department filed this suit, which stated the acquisitions, charge for the first time, the first news we had that these were charges of having engaged in violation of Section 1 of the Sherman Act.

We argue of course, that because C&S and its associated banks have been so closely related from the beginning that no lessening of competition could possibly result from these acquisitions.

The department relies on market statistics, you've heard the argument this morning.

But the department neglected to present any evidence for relating those statistics to the circumstances of this case so far as Sherman 7 is concerned.

Most importantly its own economic expert Dr. Scott Tait testified that he did not take into account the relationship between C&S and its associated banks when he was examining the economic consequences of the proposed transactions.

That which he did not take into account is at the heart of this case.

Our case is, C&S market shares for purposes of applying the standards of the Bank Merger Act or of Section 7 of the Clayton Act have always included the market shares of its associates.

Since the five percent banks have never competed as anything but C&S banks.

They were created de novo by C&S for that very purpose.

They are part of a single enterprise in fact and in substance though they take the separate corporate form only to avoid violation of the state bank holding company law.

And without that organization, the evidence is clear that the separate competitive forces in DeKalb County and beyond the city limits of Atlanta would not be in the marketplace today.

Put in another way, at the very time that these small banks were organized, the de facto merger took place.

De facto by open and notorious behavior and declared intent not that de jure because of restrictive state law.

The form being used only in order to allow market extension without the violation of that law.

The substance was to produce de facto branches.

And for purposes of applying the antitrust laws which deal with competitive and anti-competitive purpose in effect the teaching of this Court to us to look to substance and not form, indeed the department's own authorities take us this way and indeed this is the very procedure, the department sanctioned in Marine and this is what it said, “Banks in the state of Washington have achieved de novo entry and to areas foreclosed to de novo branching by sponsoring the organization of an affiliate bank and later acquiring the bank.

Since the associates were created by and have always competed as C&S banks to this entire history for every intended purpose.�?

There is no possibility that a former corporate reorganization will produce anything but the same corporate substance and the same competitive statistics.

The department said that when the original sponsorship of the new banks and C&S commitment to the charting authorities was made.

This did not violate the act.

The obligation on the part of C&S and the expectation of these little banks that C&S would supply them full management counsel and advice, the department declared was competitively insignificant.

The District Court found later, the Government has not carried its burden of demonstrating any substantial increase in the degree of control or change in quantity of competition between the date of initial acquisitions and the date of trial.

If competitively insignificant when created and if all that's happened since that time has been the carrying out of the original obligations openly declared.

The perpetuation of an association must likewise be competitively insignificant where no change has occurred.

The District Court so found.

The only thing that would prompt any further argument before this Court today is the charge made by the department that the relationships that are involved here violate the Sherman Act.

And so we turn to those charges.

As we do so, we asked the Court carefully to notice the department's total failure to prove a nexus between the alleged Section 1 violations that are so broadly and vaguely talked about here today.

And the Section 7 complained.

The department assumes take away the behavior which it's hard to describe, it charges violate Section 1 and the summit holding the association would break apart.

And C&S and its associates, banks will compete aggressively with one another.

The assumptions are not proved anywhere in this record and they are not logical.

The name and the public identification would not be removed.

The associated operations would remain.

The expectation of being merged and the realization of being part of the C&S system would remain.

The nature of the competitive posture in the marketplace would not change.

They would continue to function as C&S banks and the public and the competitors would continue so to see them as they always have and to use them that way, a single competitive force in separate markets as they've always been.

Even if the issuance of these memos that so much is made off, or the obtaining of the information from the C&S related to pricing and ours were condemned even though it's used only as a part of a large bit of information that these small banks exercised to determine the only competitive strategy.

That would not affect the relationships not because the conduct is in this case trivial which it is, but because the associate bank officers would continue to determine their charges and their rates independently with their boards as they have testified they now do.

Finally --

Chief Justice Warren E. Burger: Could it be -- they would be capable of the -- this emancipation that I discussed with Mr. Friedman, would they not?

Mr. Daniel B. Hodgson: Oh, Mr. Chief Justice indeed they would be capable of this emancipation as they always have been.

As I believe in almost in any similar circumstances.

But the evidence is clear from all parties in the pulls and the testimony was broad spread and comprehensive shareholders, directors, officers, employees everyone alike that there was no probability of this.

Before the FDIC this question was raised.

That's a very tough agency over there and they raised this question, the probability of disaffiliation.

And we supplied tremendous amounts of information to demonstrate that this was though possible was absolutely improbable which is the standard that this Court must apply.

The same procedure was followed through with the District Court.

Surely, the possibility is there.

But this is no Stone Mountain situation.

This is no Peachtree Bank situation.

No one wants them to break apart.

They all like it like it is.

These are C&S banks.

They are C&S banks just as much as a branch would have been, had it been allowed to go out there from the beginning.

There is absolutely no difference, so far as the laws under which this case has been tried or concerned.

The District Court sir --

Justice Byron R. White: Do you know -- does the record show whether there were restrictions on the transfer of the bank stocks.

Mr. Daniel B. Hodgson: Restrictions on transfer of bank stock?

Justice Byron R. White: Internally, when the bank -- when the stock was issued to bank people, were there any buy and sell arrangements --

Mr. Daniel B. Hodgson: There is no evidence to that effect and I can ensure Your Honor, so far as I know there are none.

Justice Byron R. White: So the stock was -- could be free transferred.

Mr. Daniel B. Hodgson: Oh, yes sir, yes sir, freely transferable stock, no limitations and then not let away --

Justice Byron R. White: People sometimes need money and sell their stock and sometimes they die.

So the stock --

Mr. Daniel B. Hodgson: Yes sir, but I believe--

Justice Byron R. White: In the same hands forever.

Mr. Daniel B. Hodgson: Yes sir.

But I believe that such could have been the case in Trans Texas of course, which really proves another point, stock ownership alone may not be so strong a summit, in our judgment it's not nearly so strong a submit as the circumstances of this case.

But -- sir --

Justice Byron R. White: The economics?

Mr. Daniel B. Hodgson: Yes sir, the economics of it.

In this case I should say though that the record is clear, that there is very little movement.

There was very their little movement in sale to the stock in the critical period.

Chief Justice Warren E. Burger: In a hypothetical bank what Mr. Justice Rehnquist I think asked you about the bank over in Birmingham closely set out on a plan to buy above the stock that's got available in anyone of these five banks, against the possibility that one day they might want to enter that market.

Mr. Daniel B. Hodgson: I don't believe much would be sold if Your Honor please, but it's totally hypothetical.

There's a series of affidavits in the filing of this case that we got up with the FDIC, and went on and solicited all the shareholders and they all affirmed that they like it with C&S and they weren't interested in to selling and they know C&S management and they know the success of C&S in the State of Georgia.

They know C&S knows its business.

I really believe they would not be inclined to sell.

It's kind of hard to roundup that kind of stock.

Most importantly as we --

Chief Justice Warren E. Burger: Also very difficult hypothetical question for you to answer to me, because it is possible isn't it?

Mr. Daniel B. Hodgson: Oh, if Your Honor please of course it's possible.

And I could not responsibly stand here and argue to the other -- to the opposite as much as I would be inclined to believe.

Justice Lewis F. Powell: It is also a fact, an economic fact in some localities that when banks of this kind are organize the stockholders looked down the road to the day when laws will permit mergers and then they will acquire the stock of the C&S bank.

Mr. Daniel B. Hodgson: If Your Honor please, there is expressed evidence in this record to that effect.

These are the affidavits of the shareholders that we obtained that there is suggestion of FDIC and they were so put before the Court.

And that --

Chief Justice Warren E. Burger: We'll resume there after lunch.

Mr. Daniel B. Hodgson: Thank you Your Honor.

Chief Justice Warren E. Burger: Mr. Hodgson you may continue.

Mr. Daniel B. Hodgson: Mr. Chief Justice and may it please the Court again.

May we conclude our argument with respect to the Section 7 charges by reminding the Court that the District Court's finding just like that of the corporation before it foresaw no probability of a change in the relationship which is a finding exactly like that of the District Court in General Dynamics we submit.

Where the Court foresaw no new coal reserves being found and likewise that finding unless its charge is being clearly erroneous which it has not should be affirmed by this Court.

Turning to the Sherman Act charges, let me say that it is our strong view at the outset that this just is not a Sherman Act case.

And we believe that through our briefs and argument we can satisfy the Court, it is nothing more than a means the department would use in this case to frustrate these mergers.

Let us look at the charges that the department makes as being violations.

First, sort of a two-headed charge the best we can determine of a per se violation.

Now, preliminary maybe I say one other thing, we are not asking this Court for any exemption or pardon from any Sherman Act violations.

But we do urged this Court not to extend it's per se doctrine to the totality of the pro-competitive and beneficial behavior that the record discloses in this case.

And we ask this Court to restrict the application of the per se doctrine to such pernicious conduct as real price fixing, real market allocation and real boycotts.

Otherwise, it is so extended.

It occurs to us would require that a merger agreement itself would become a per se violation and obviously that cannot be the case.

Now, we would think that a real per se violation is glaringly evident to anyone especially to the public officers charged with enforcing those laws and to the competitors of the charge defenders.

We all know that's where they are first ascertained.

They were and they are glaringly and immediately evident in all of the cases cited by the department to prove conspiracy in the absence of an expressed agreement.

Why?

Because the behavior reflected in the records in those cases, so clearly reflect a clear, flagrant, naked and offensive purpose and effect, either to fix prices, to restrain trade, to allocate markets to customers or eliminate competition.

There is none such here much less a combination of separate firms to maintain prices above a competitive figure, a classic definition of a cartel.

Now, if a per se violation exists by virtue of the totality of behavior that was openly involved in the associations of this case, well known to the regulators and the public alike.

Why did not the department see it and at least call attention to it when they participated in 1968 now, in the Federal Reserve Board hearing.

It can only be because it was not perceived as such.

It simply wasn't recognized as such.

And we cannot perceive it as such today.

It was to this very argument I make that the District Court found.

The Department of Justice acquiescence in 1968 in an understanding involving the more substantial elements of what it now claims to be Section 1 violations is indicative to at least a smaller degree that such practices were not so violently anticompetitive as to constitute per se violations.

In action, the District Court said by the Department of Justice with such a knowledge would have been a violation of each public duty and the Court does not impute such negligent in action to it nor do we.

The very same associations, the very same transactions involved in this case with this five banks was involved in 1969 with the acquisition of a small bank, all the C&S Belvidere Bank.

What did the department perceive then, Sherman Act violations?

Not a one and yet we must concede that none were perceived because the factors were the same.

And the department noted that the Citizens and Southern Holding Company has had full management control of Belvidere Bank since its inception.

Going on to say, the situation is not unlike de novo branch banking in those states where such activity is lawful.

The department noted no violations in its first competitive report in this case.

When it noted the reorganizations were essentially internal and the parties had never represented independent competitive forces.

A competitive posture of the department now says that C&S and its associates in separate markets must take toward each other just for one reason only, just because they are organized in the form of separate corporate bodies.

And even when the department reversed its competitive position letter, in February of ‘71 it did so not on the grounds that the relationship and the behavior between the persons violated the Sherman Act because of the very opposite, it concluded that the associated banks were not necessarily controlled by C&S.

Now, we've never understood the consistency of the department's position with respect to our transactions, but that's really beside the point.

We want to make it clear today that we do not charge the department with bad faith on the contrary and we surely do not claim an estoppel, I doubt it would be available.

But we cite this instances to clearly and unequivocally demonstrate that no Sherman Act violations were apparent even to the expert eye.

In the sponsorship and managerial relationships that are part of these associations much less per se violations, if not then not now.

Indeed, the first time that the Chairman was charged was in the complaint denominated vaguely a close working relationship.

In the jurisdictional statement to this court, the charge became interchanges of information personnel and other resources leading to lack of competition.

We say there never was any, you could not lead to it, if there never was any.

The ingredients of a per se charge did not even then appear and the nature of the restraint did not appear.

Only in the brief before this Court did we first hear that we were charged with a per se violation.

The brief says in one place, not merely the exchange of past price information which affects current pricing practices that's contained on its progeny, but a mutual understanding to fix actual current prices a classic per se offense.

Citing Socony-Vacuum and Park Davis, not even the most biased reading of the evidence in this case will reflect a single factual circumstance similar to Socony-Vacuum and Park Davis or any of the other per se cases cited.

Masonite, Baush & Lomb, Keefer Stuart, General Motors, Celine, PermaLife, they are all flagrant violations, clearly so.

And everyone of the sets and circumstances in those cases, the sole purpose and the overwhelming effect was to fix prizes, really fix them to maintain markets, allocate customers.

Its strange reason to suggest that the relationships here between C&S and its associated banks that it formed, many of these services at the heart of the correspondent bank relationship, many of them essential to franchise dealings.

Many of them the focal part of management consultation services, indeed anyone's imagination familiar with the commercial world can come up with many similarities to these sorts of relationships.

All of them in this case calculated to supply new competitive forces to new markets.

And if it's followed by such advice as to make the successful operation of these little banks as associated competitors in their separate markets, it's strange reason to suggest that such relationships could possibly be found to be conspiracies in restraint of trade much less of such predatory and unconscionable character so lacking in redeeming virtue.

That is to allow no inquiry into the purpose or effect or the reason to administer of the association.

A conclusion entirely necessary for there being categorized per se.

Take the entire relationship as an onion.

Peel back the layers of explicit behavior.

Even the department admitted here today that each layer standing alone is no violation possibly the pricing memoranda which we will come to.

Yet somehow the whole onion taken together becomes a cartel.

Use of the common name is no violation.

This Court has allowed this in Topco.

Loose common ownership over the bulk of the stock is no violation, Trans Texas and many others.

Non stabilizing furnishing of price information is not a per se violation container and progeny.

Surely the supply of personnel, operational, security, accounting and all of the other services cannot be violations of the Sherman Act.

Anyone with the time and this Court hasn't the time I fear, but anyone with the time going through two volumes of a joint appendix, the consumer credit guide that inadvertently got in the record, but I'm glad it's there now.

If you have time in some through two volumes being just the consumer credit guide look at the multitude of information that has to be available to a young bank, a small bank in order to compete in today's complex highly regulated market.

How can this be a per se violation?

The District Court found it non-violative and should be affirmed.

But now the department charges that certain memoranda circulated to five percent banks and incidentally everyone else in the system relating to rates, charges and hours were conclusive evidence of price fixing and therefore a per se violation.

Now, if it were the law, if it were the law, that the existence of such memoranda standing alone creates an irrebuttable presumption of price fixing in violation of the Sherman Act then coupled with authorities holding that a per se violation is such a violation as can have no redeeming virtues, the District Court would summarily have found that this particular behavior was unlawful and he would have enjoined it.

He found to the contrary.

We know of no law or decision further that says that such memoranda standing alone create an irrebuttable presumption that a conspiracy to fix prices exists.

Or that any other per se violation has been proved.

Further, it is clear from the record that these memoranda alone are but a small and unimportant aspect of the entire relationship between C&S and its associates much more important to the branch banks to which they went.

And their prohibition would in no way if you would eliminate them all affect the closeness of the relationships or the propriety of the acquisitions.

What rational purpose could have been served by C&S and these associated banks making an agreement or having a tacit understanding to fix prices in these separate markets.

The department has suggested none and we can conceive of none.

We can only believe that it would be harmful.

There was no evidence whatever that the occasional transmissions of this information relative to price in anyway resulted in stabilization.

Now, C&S in its system has always been extremely conservative and cautious about the Sherman Act.

And although one could well make an argument that this being a single enterprise, sorts of conduct that are generally prosecutable under this Act couldn't occur.

But to be doubly cautious memoranda have been consistently going out in the end of this record obliging separate entities to make their pricing and their charging decisions separately and independently all were reminded frequently of the criminal illegality of agreements between banks relating to prices.

And everyone who's testimony was taken in this case without exception.

The testimony of every principal officer of the five percent banks, of directors of the five percent banks, said that out of an abundance of caution we set our own pricing standards and our own charges.

Sure, we use the C&S information it was handy and they're pretty good too.

And we took that into account.

But we also probe the competition.

We took the various financial journals.

We knew what was going on at the Fed and we knew what was going on particularly with respect to our competitors and then we set our prices.

Furthermore, a close look at the evidence discloses that while the Government points an accusatory finger at these memos which standing alone might have been a circumstance that could lead to a determination that you had a violation.

It neglects to note that his memoranda were but the smallest part of the whole continuing advisory service to all branches affiliates and associates, fails to note that the information contained in these memos was only a portion of the market and information obtained by the associate banks in setting their prices.

Fails to note that there is a multitude of evidence that all of these men, well knew what the service charges deposed on deposit accounts and the interest paid on savings account were among all of the competition.

And changes of such rates and changes of such deposit charges are typically announced in full paid newspaper adds and radio and TV spots.

They are no secret.

The department fails to observe that the evidence is clear in this case that shows extreme variations of rates charged on the loans.

And substantial variations on service charges and interest paid as between the C&S and its associates.

Now, Mr. Friedman has argued about Mr. Harris testimony about consulting downtown about something.

Allow me, if I may to give you some other of his evidence.

And the best way I know to do is to put this to you this way and if you have time to read the depositions of each of the bank officers of these little banks, it would be extremely profitable.

You will see that this is a charge without substance.

Question to Mr. Harris, how did you decide on the initial service charges on checking accounts when the bank opened?

We took those that were used by every bank in Atlanta (Inaudible).

Question, before making a change in service charges on checking account, would you also review that with C&S?

Yes, we would, but we would have to review more with the area generally than to just C&S.

Because I can't have a charge out there that varies too widely from the other banks.

Because people move their account from one bank, after all, all the banks have offices around there.

I've got to stay pretty close to what the downtown banks charge.

I used C&S every way possible to help in making decisions.

I confer with them on many points.

Then we discuss it with the directors and we try to get all the information from whatever source we could.

We took every banking magazine, periodic, trying to stay abreast of what was going on.

So that with many of those things that was just part of the movement in the money market and you had to follow it.

This testimony is not just an earnest denial of no violation or no unlawful conduct.

It's an honest report of telling it like it is.

Information obtained from C&S along with information that obtained from many other sources, competitors, the market journals and publications was used to arrive that independently established rates, charges, and hours.

I would not have mentioned this but Mr. Friedman makes much of what we thought we'd put to rest in our brief this morning.

The change by all of these banks suddenly to a lower service charge.

He didn't mention it was lower but it was.

Now, the testimony is clear and it's specifically referred to in our brief that here's what happened.

Trust Company of Georgia, a major competitor came out with full page ad one day, that said “We are reducing the service charge on our deposit accounts from a minimum of 500 to a minimum of 250.�?

Well, now what do you think everyone did when they saw that?

They said, “Good Lord, they are going to take all our account.

We got to find out about this.�?

And they all scattered around and found out what happened.

What did C&S do?

Now, C&S has a more significant research department than to the five percent banks.

It determined that this could be done without a significant threat to the profitability of the operation of this deposit accounts and it's so advised everybody.

So what did they do?

They met the competition of the lower service charge.

Now that's what happened in this case if you really examine the record.

I do not believe that that is a sort of thing that this Court is going to condemn as a per se violation of the Sherman Act.

The department has cited no authority that requires that these behaviors either the entire associate relationship with the furnishing of these memos be found the violation of the Sherman Act much less per se, nor that the facts permit such a conclusion had the District Court been so inclined.

We would have been here on the appellant's side.

But instead the District Court found, these activities however do not amount to collusive price fixing.

If there is no per se violation then the question becomes how the party is so combined as to produce an unreasonable restraint.

The department argues just because apparently, just because they are incorporated separately, they are obligated to compete vigorously or at least the C&S should abandon the sponsored bank.

No authorities have cited for this proposition.

And totally ignores the single reason for the choice of the separate corporate form which turns out to be a nuisance.

That is to avoid the restrictive state branching laws that prevented C&S from competing.

The only response the department produces to fill the void of any legal mandate for C&S to compete with its own associates consistent cases holding first, if the corporate relationships are not determinative of the applicability of the Act, it suits us, or second where corporately related entities combined to enter in to expressed agreements to commit naked per se violations of the Sherman Act by fixing prices and allocate territories in markets.

While holding themselves out to be competitors with one another, they will not be able to allowed to defend behind the veil of corporate separateness.

It would not well serve antitrust principles to leap from authorities which condemn flagrant and clear violations which would defend it only by a plea of common ownership.

That was the only defense to a condemnation of the entirely beneficial and pro-competitive associations of this case because the entities are separate informed.

The department asks this Court to pronounce an unreasonable commitment to form over substance.

In area traditionally devoted to substance over form.

A totally novel doctrine that would require one company and its de facto subsidiary held out to the public to be a subsidiary with the same name aggressively to compete with one another.

Is it being asked to beat it, it's a little prodigies brings out with vigorous competition, confusing the public, delighting the competition and amazing them somewhat.

Infuriating the regulators who had depended upon C&S to furnish this service, betraying the shareholders, officers and employees of the sponsored bank and destroying the bank of what purpose would this sponsorship be under those circumstances.

What would be left with which ultimately to merge or should it be supported and competed with the same time.

Or should there be maybe just a little bit of competition enough to keep the wolf from the door.

There is no element of reality in this position.

What rational expensive mandate, but well managed Bank Holding Company would follow such a course.

How would it ever develop that this bank could be merged?

We urge this Court also to recognize that no floodgate of adverse circumstances would occur if this Court affirms.

This plan -- this unique plan, no precedent or anything else would take place.

And finally this can't ordinarily happen again.

If someone wants to go to this procedure again they have got to go to the Fed under Section 382 and after making application get approval for the formation of subsidiary with the department notifier who can come in and participate.

If they don't like it they can file a petition for review to the nearest Circuit Court.

No floodgates will be open, only beneficial results will occur here.

And this unique little case will take its place on the dusty shelf of this Court and I dare say never be looked at again.

Thank you Your Honor.

Chief Justice Warren E. Burger: Mr. Friedman do you have anything further?

Rebuttal of Daniel M. Friedman

Mr. Daniel M. Friedman: Yes, Mr. Chief Justice, I'd like to just answer two or three things -- say two or three things.

First, we are not of course, suggesting that there should be any court decree ordering these banks to compete.

What we're asking is that a Court decrees stop these restraints upon competition that have been imposed through this relationship.

The reason we didn't challenge this relationship in 1968 when the Federal Reserve Board staff had an investigation because we didn't know all the facts at that time, indeed Mr. Layne told the Federal Reserve Board hearing that they'd always follow the philosophy of influencing but not controlling these banks.

It wasn't until we really began to investigate this case after we received notice from the FDIC that these applications for merger had been filed that we discovered all of the facts.

Now I also want to make it very clear that we have no objection to the organization of these banks, to their assistance in organizing those banks.

And indeed, in the Marine Bank Corporation case to which reference has been made, there our argument was that this was a permissible method of a bank entering into a new market by sponsoring a new bank and ultimately perhaps acquiring it.

But sponsoring a bank and joining a normal correspondent relationship with it as a far cry from what C&S has done in this case.

Now the argument that's been suggested -- this whole thing is an exercise in futility, because if we were to prevail there is no reason to think that the C&S five percent banks would disassociate from C&S things would be continued in their previous manner.

I think the answer to that is if we are correct in our argument that this arrangement violates the Sherman Act, steps will have to be taken to terminate this kind of a relationship.

They are not going to continue in the same way despite a holding that the arrangement violates the Sherman Act there undoubtedly going to have to stop using the name, they're going to have to stop reviewing their loans.

They're going to have to stop having a director sitting as an advisory man on the Board of Director.

There's going to be some changes in the relationship.

And once these changes have taken place it may well be that some of these five percent banks, that are so satisfied with the present relationship may take another look at it.

They may then decide that without this crutch, without this control on operation by C&S maybe they'd be better off in an independent basis.

Now whatever the reasons there may be for C&S wanting these banks not to compete, the question was put to why on earth would C&S want to stop these banks from competing?

The fact is for whatever reasons that's exactly what they have done.

They have an arrangement between them under which the banks don't compete and they in effect tell the banks how to compete.

We challenge the basic underlying arrangement.

You can't segmentize an arrangement eliminating competition by saying, “Well this memo didn't do it and that piece of paper doesn't do it.�?

I think you've got to look at the totality of the relations.

And when you look at the totality of the relationship I think the fact that the five percent banks are independent banks that they are not branches of C&S.

They were started originally as independent banks.

C&S has always claimed that they are independent banks.

C&S says, “We don't control these banks.

They are independent banks.�?

But when you look to see how they behave in the light of their understanding with C&S, we see they are not independent banks at all.

C&S treats them as though they were branches.

They are not branches, they are independent entities with independent duties and responsibilities and as independent entities, they can not understand and agree with the C&S to eliminate all competition between.

Chief Justice Warren E. Burger: Thank you Mr. Friedman.

Thank you Mr. Hodgson.

The case is submitted.