People called the O.J. Simpson case the trial of the century, but its impact and duration couldn't even approach the action that forced DuPont to sell its General Motors stock.
The federal government sued E.I. DuPont de Nemours & Co. on June 30, 1949, in the District Court for Northern Illinois in Chicago, alleging that the company's interest in GM violated the Sherman and Clayton antitrust acts. The suit claimed that DuPont's 23 percent ownership of GM common stock insulated DuPont from having to compete fairly for the bulk of the automaker's paint and fabric business.
The scope of the case spanned half of the 20th century, from DuPont's huge World War I profits, to its investment in GM in 1917-19, to presidential politics in the 1940s and 1950s, to its end in the 1960s.
Eleuthere Irenee DuPont de Nemours left France in 1800 and set up a gunpowder plant in Delaware. DuPont branched into dynamite, nitroglycerin, guncotton, and smokeless powder and, by 1906, held 70 percent of the U.S. market for explosives.
World War I was particularly good for DuPont; it generated $89 million which was used to diversify into paint, plastics and dyes.
In 1915, DuPont Co. President Pierre Du-Pont became chairman of GM. He was a director of one of the Boston banks that feuded with GM founder William Durant, and he was viewed by both sides as a neutral party. Durant had regained day-to-day management of GM in 1916, after having lost it to bankers in 1910, and the next year he looked for a substantial infusion of investment capital to kick-start the company. DuPont Treasurer John Raskob urged his company, still flush with war cash, to invest in GM.
In a December 1917 memo, Raskob called the auto industry - still a very risky business-the most promising industry in the United States, a country which in my opinion holds greater possibilities for development than any country in the world.'
One of Raskob's justifications for the investment was that DuPont's interest in GM will undoubtedly secure for us the entire Fabrikoid, Pyralin, paint and varnish business of those companies.'
More than 30 years later, that reference became the basis for the government suit against DuPont, wrote Alfred P. Sloan Jr., the longtime GM president and chairman, in his book, My Years with General Motors.
On Dec. 21, 1917, DuPont's board approved a $25 million investment in GM stock. That increased to $49 million, or 28.7 percent of GM's stock, by the end of 1919.
A stock market crash in 1920 put Durant deeply in debt, so DuPont Co. took on most of his debt rather than see him dump his GM stock and destroy its investment. Durant was forced out for a second and final time, and DuPont owned 38 percent of GM.
DuPont gradually reduced the size of its GM investment, which was down to 23 percent by 1938. Over the years, GM was very good to DuPont. By 1947, GM was buying 68 percent of its paint and 38 percent of its fabric from DuPont. In 1947, GM bought $22.8 million worth of paint, fabric, solvent, adhesives and chemicals from DuPont and $21.9 million worth from its competition.
In 1948, the Truman administration launched a grand jury probe into that cozy relationship. Subpoenas went out Aug. 20, 1948, during the presidential election campaign.
From President Truman's perspective, the case would prove the antitrust resolve of his administration and help him win the election, or he would lose the election and the administration of Thomas Dewey would drop or lose the case - proving that Republicans served big business.
Truman won re-election, but the grand jury didn't bring indictments. So the government filed a civil case against DuPont on June 30, 1949. Also among the defendants were GM, two DuPont investment companies (Christiana Securities and Delaware Realty & Investment Corp.), Wilmington Trust Co. (a corporate trust company) and seven members of the DuPont family, plus 26 other beneficiaries. The government also wanted DuPont to divest its interest in United States Rubber Co.
The government was accused of overzealousness because the beneficiaries included a DuPont infant and nine other children, who were therefore portrayed as part of the plot to restrain trade.
The trial finally began in Chicago in November 1952. Oral arguments ended in December 1953. It wasn't until a year later that District Judge Walter LaBuy ruled in favor of DuPont, saying the government had failed to prove conspiracy or restraint of trade.
LaBuy said it appeared the executives involved in the dealings between DuPont and GM acted honorably and fairly' and exercised their business judgment to serve the best interests of their own companies.
But the Republican Eisenhower administration foiled Democratic strategists and exercised its right to appeal the decision to the U.S. Supreme Court. The case was argued Nov. 14-15, 1956; the Supreme Court ruled for the government on June 3, 1957.
The court ruled that LaBuy had ignored documents, including the Raskob memo, that eliminated any basis for a conclusion that the investment was made purely for investment.
The bulk of DuPont's production of automotive finishes and fabrics has always supplied the largest part of the requirements of General Motors, the one customer in the automobile industry connected to DuPont by a stock interest; and there is an overwhelming inference that DuPont's commanding position was promoted by its stock interest and was not gained solely on competitive merit,' according to the Supreme Court.
The case went back to the District Court for another trial to determine how DuPont should dispose of its GM stock.
That phase of the trial lasted from Feb. 16 to April 9, 1959. Each side took 12 days to make its case, and the government took another four days for rebuttal. There were 61 witnesses, 265 exhibits and 3,340 pages of proceedings, mostly devoted to arguments over how a sudden sale of 63 million shares of GM stock could devastate the market and cause immense capital gains liabilities for the sellers.
The Internal Revenue Service ruled that any distribution of the GM stock would be treated as taxable income at a federal tax rate of 21-91 percent, plus state taxes. That meant a potential tax bill of $770 million to $1 billion for DuPont, plus $200 million for Christiana and Delaware Realty.
On Oct. 2, 1959, LaBuy, influenced by the tax ruling, ordered that DuPont would not have to divest all of its GM stock as long as it transferred voting rights of the shares to certain DuPont shareholders and adhered to other conditions that would sterilize' its GM investment.
Again, an election year got in the way. To prove its resolve, the government appealed again to the Supreme Court, seeking complete divestiture.
The Supreme Court heard oral arguments Feb. 20-21, 1961, and on May 22, 1961, ruled 4-3 that DuPont would have to completely divest its GM stock. Two justices didn't rule: Justice Tom Clark was attorney general when the case was filed in 1949, and Justice John Harlan had worked for DuPont on the case before his appointment.
DuPont's 63 million shares of GM were worth $2.9 billion at the time. Meanwhile, Congress passed a special law that minimized the tax burden of the divestiture.
The final ruling called for DuPont Co. to distribute its GM stock to DuPont shareholders. The DuPont family, Christiana and Delaware Realty were to make their shares available in public stock offerings.
DuPont gave its shares to its stockholders at the rate of 1.63 shares of GM for each share of DuPont. The family and the investment companies sold theirs.
The last underwriting of more than 2.3 million GM shares took place in March 1965, ending the government quest that began 15 years and nine months earlier.
