This Day in the Law
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January 2

Standard Oil Company Organizes as a Trust (1882)


On January 2, 1882, John D. Rockefeller, with the help of his skillful lawyers, organized the Standard Oil Company into a legal trust – creating the first monopoly trust in American history. In effect, Rockefeller, one of the richest individuals to live in the history of the world, organized his giant oil company into a trust to maintain his monopoly over the American oil industry. A bit of history and legal knowledge will help to show the importance of this event and the eventual dissolution of the trust.

John D. Rockefeller began his rise as an oil tycoon in Cleveland, Ohio in the early 1860s. Then, in 1870, Rockefeller created the Standard Oil Company, which controlled a huge network of refineries, pipelines, and other systems in the oil industry. By 1880, Standard Oil controlled around 90% or more of oil produced in the United States. And just two years later, on this day in January 2, 1882, Rockefeller created the Standard Oil Trust which held the companies and properties that made him rich.

In short, a trust is a legal arraignment in the form of a document where property is managed by one or more individuals or companies (called trustees) for the benefit of one or more individuals or corporations (called beneficiaries). The trust allowed Rockefeller to combine competing companies into one main legal body (called horizontal integration) and control all stages of the petroleum process from production to sale (called vertical integration).

So, Rockefeller took his companies and the assets they owned and put them into a trust where he acted as both the trustee and beneficiary of the trust. In other words, Rockefeller controlled the distribution of the assets in the trust, which included distributing the assets to himself! Too good to be true? Well, yes. But it took a number of years before the U.S. government caught on and figured out how to combat Rockefeller’s legal trust arraignment.

In 1892, the Ohio Supreme Court ordered Standard Oil Trust to dissolve. But Rockefeller just moved his headquarters to New York City. Later, in 1909, the US Department of Justice sued Standard Oil under the Sherman Anti-Trust Act of 1890, federal anti-trust laws, and for maintaining a monopoly over trade and commerce. In essence, the U.S. government argued that Standard Oil unfairly undercut competitors by lowering prices, then raising prices on its customers once its competitors went out of business. The U.S. government argued that Standard Oil merely disguised itself into many different companies, when in reality all the different companies were controlled by Rockefeller.

Finally, after two years of battle between the U.S. government and Standard Oil, the U.S. Supreme Court held in Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911), that the Standard Oil Trust was in violation of anti-trust laws and ordered the trust’s dissolution, i.e. termination. The Court required the trust to be separated into more than 30 different companies with different boards of directors.

Rockefeller’s Standard Oil Company was eventually separated into 6 main entities, including: (i) Standard Oil of New Jersey (now Exxon), (ii) Standard Oil of New York ( now Mobil), (iv) Standard Oil of Indiana (now Amoco, part of BP), (v) Standard Oil of California (now Chevron), and (vi) Standard Oil of Ohio.

It’s amazing how the skillful creation of the Standard Oil Trust, and the legal battles that followed, led to the foundation of some of the U.S. anti-trust laws still used today.


Sources:
The Railways and the Republic, James F. Hudson, 3rd Edition, Harper and Brothers Franklin Square, New York, p.97 (1889
www.scripophily.net
www.answers.com
www.nytimes.com