PURCHASE OF PEACE
Hunting about for tax-dodgers, it was discovered by the authorities
of Pennsylvania some years ago that many foreign corporations were
doing business within the limits of the Commonwealth and enjoying
the protection of her laws, and at the same time not paying for it.
Foremost among these delinquents stood the principal company in the
oil combination with its mammoth capital, practically buying, refining
and controlling nearly the entire oil production of the State, "and
yet failing to pay one cent into the public treasury." So wrote the
Auditor-General to his successor in 1882. The combination, beginning,
like creation, with nothing, had grown, until in 1883 it was so rich
that, according to the testimony of one of its members, it owned
"between $40,000,000 and $50,000,000" in Pennsylvania alone.[311] But
though doing business in Pennsylvania, and legally within the grasp
of the taxing power, as decided by the courts, this company paid no
taxes, and would not give the State the information called for by law
as to its taxable property. It practised "voluntary taxation." "For
eight years," Auditor-General Schell says, "it had been doing business
in this Commonwealth, and had failed in all that time to file a single
report." "It was not necessary for the department to call upon it to
make reports." The law required these reports specifically and in
details that could not be misunderstood, and that was notification
enough. But year after year the Auditor-Generals, whose duty it was to
collect due contribution from each taxpayer, made special demands upon
this one for reports in compliance with the law, but with no effect.
In 1878 William P. Schell became Auditor-General, and began, shortly
after taking his oath, to see if he could find out what taxes were due
from this concern, and how they could be collected. He sent official
circulars to the company in 1878, 1879, 1880, but "there was no reply
made at any time."[312] His predecessor had had the same experience.
He then sent one of his force to Pittsburg, Philadelphia, and New York
to investigate. Whenever he could get the names of persons familiar
with the workings of the company he would visit them, to find himself
usually "not much further ahead than when he started."[313] "It was
impossible to get any information. Even the men we talked to deceived
us. Men came to Harrisburg to give us information, and afterwards we
found they were in the interests of the company."[314] The department
found itself, the Auditor-General wrote to his successor, "foiled at
all points, not only by the refusal of the company to respond to the
notices sent to its officers, but also by the great reticence of all
persons in any manner connected with or employed by the company."
These efforts to find out the nature and character of the business of
the company extended through two or three years. The first workable
indication that the company was taxable in Pennsylvania came when the
Governor of Ohio, in answer to inquiries, sent the Attorney-General a
copy of the charter of the company. The Auditor-General wrote to the
Governor and Auditor-General of New York and the Governor of Ohio for
information. Letters were sent to the president and principal members
of the company at Cleveland, Oil City, New York, and elsewhere. An
answer was finally received from the company's attorney. He said that
the company was not subject to taxation. The department replied the
same day refusing to accept this view, and insisting on reports. Then
the lawyer replied that the books and papers "were at Cleveland, and it
would take some time to prepare reports." The Auditor-General offered
to send his clerk to Cleveland "by first train," to prepare the reports
for the company if assurance was given that he would be permitted to
examine the books of the company when he got there.
No reply to this request was ever received. Then telegrams were sent,
several days in succession, asking for reports, offering more time
if the company would agree to report within any reasonable time, and
finally warning the company that if it did not comply with the law and
file its reports the Auditor-General would act under the authority
given him by the law, and charge it with taxes estimated on such
"reasonable data" as he could procure. All the department could get
were evasive letters or telegrams from the counsel in New York, such
as "letter explaining on the way." The letter came with the valuable
information that "the officers are out of the city, and the company
will answer on their return." Another "reply" was: "I have failed to
get replies from the absent officers."[315] No reports forthcoming,
the Auditor-General at last, on the best information he could get,
backed by affidavits which were placed on file in the archives of his
office, calculated the taxes due from 1872 to 1881, with penalties,
at $3,145,541.64. This was totalled on an estimate, supported by
affidavit, that the profits of the company had been two to three
millions a year from 1872 to 1876, and ten to twelve millions a year
from 1876 to 1880, figures which what is now known show to have been
near the truth. After fixing upon this amount, and before charging it
against the company, the latter was given still another chance, and
another. Two telegrams were sent notifying that the estimated tax would
be entered up if "the refusal to report" was persisted in. The last
telegram said: "Still hoping that reports will come from the company,
so that we will have some data to act upon."
No word of reply came.
Then the Auditor-General formally entered the amount he had estimated
on his books, as the law authorized him to do.[316] His investigations
had consumed his entire term, and the filing of this estimate was
almost his last official act. It is a fact of record that after all
this, officers of the company, in seeking to have this estimate of
taxes due set aside, stated in writing that "there was no neglect
or refusal on the part of said company to furnish any report or
information which could lawfully be required of it by any officer or
under any law of the State of Pennsylvania."[317]
Suit was now brought by the Attorney-General of the State to recover
this tax, as was his duty, and then the company began to stir
itself. To assist him in procuring and interpreting evidence the
Attorney-General, who knew nothing of the oil business, obtained
the services of a man who knew more about it than any one else in
Pennsylvania. This person was a practical oil man. He was one of the
leaders of the producers and refiners' association, which in the
exciting times of 1872, when law and order in Pennsylvania stood on
the edge of a crater, compelled the railroads to abandon the South
Improvement scheme, "in name," and to give in writing the pledge that
"all arrangements for the transportation of oil after this date shall
be upon the basis of perfect equality to all," though he could not
find a way to make them keep the pledge. He was prominent six years
later in the uprising of the people when they found that all these
promises were being broken, and all their rights on the highways being
violated. It was largely through his influence that the producers
determined to proceed against the oil combination as a criminal
conspiracy, and procured the indictment of its principals in Clarion
County, Pennsylvania, on charges of crime.[318] "When," as was said
before the Pennsylvania Legislative Committee of 1883, "the doors of
the penitentiary were gaping wide to receive them; when a true bill had
been found before the Grand Jury; when, if they ever were in jeopardy
before to-day, they were in jeopardy."
He was chairman of the Committee on Transportation of the Oil
Producers' Association, and was one of the "legal committee" of five
who represented the producers in having the "anti-discrimination suits"
brought and pushed against the Pennsylvania Railroad by the State
in 1879. By these suits the discriminations and favoritisms, which,
though known, it had till then been impossible to prove, were forced
into the light as facts, and the evidence was furnished without which
the indictments just referred to could not have been found. When the
accused, frightened at last, succeeded in getting the aroused producers
to agree not to push the criminal trial, in consideration of a solemn
pledge that all secrecy and favoritism in transportation should be
given up, he withdrew from the negotiations and would not sign the
compromise. He had assisted the Congressional Committees of Commerce at
Washington in 1872 and 1876 in their ill-starred investigations, and
had been active in the effort to get another investigation begun in
1880. He had also been one of the principal witnesses before the New
York Legislative investigation of 1879. For eighteen years he had been
on this quest. With him the Attorney-General now arranged to get the
evidence on which the State could support its claim for taxes.
The members of the great corporation saw that they must act. In
out-going Auditor-General Schell they had met the first officer of
the people who was as determined to make them pay as they were not to
pay. The policy of silence and nullification was abandoned. One of
the members of the trust came in person to the State capital to see
the Attorney-General. He made an unexpected overture. He volunteered
to furnish the State with a full disclosure of the facts it needed to
prove its claim.
"I confess," said the Deputy Attorney-General, "that I little knew in
what direction to cross-examine him."[319] He therefore sent for the
expert who had been employed by the Attorney-General. The "trustee"
protested against his presence; but the Deputy Attorney-General said
that he had been employed by the State, and it would be necessary that
he should take part. The representative of the trust, moved, as he
afterwards testified, by the patriotic consideration that "the regular
cumbersome way of taking oral testimony ... would result in great labor
and expense to the State, and would be an obstruction and labor to us
that could be avoided," made a suggestion that the State go to the
trial of the case upon a statement of facts of their business which he
and his associates would make. This offer to become a volunteer witness
was agreed to, and the delinquent corporation and the State went into
court with an "agreement as to facts." The Attorney-General reserved
for the State the right to add to these facts, but did not at any time
during the proceedings do so.
His expert shrewdly foresaw that another defeat for the people was to
be the result of this policy. "I objected very strenuously," he says.
"It was my pet scheme to examine them orally in court or by commission,
and I gave it up very reluctantly. I told the Attorney-General I could
not believe those gentlemen were in earnest, that I knew I could ask
a string of questions of any one of them which if answered would have
given the case away to the State."[320] But the Attorney-General,
the same who as counsel for the people, in 1879, against the members
of the same corporation, led his clients to defeat, overruled him.
The old campaigner saw the mistake of 1880 about to be repeated, and
an agreement with the offenders substituted for trial and for the
defeat of them he believed would follow. He determined to prevent
the consummation of this second catastrophe. He sent his counsel to
New York to the headquarters of the oil combination with a notice
that he would not adhere to the bargain made by the Attorney-General
at Harrisburg with reference to "the agreement of facts." "I propose
to attack," was the message he sent.[321] He was to have received
compensation from the State. He believed that this gave him an interest
in the matter sufficient to gain a footing in the courts for action by
himself independently of the Attorney-General. In pursuance of this
idea, when the case came up for trial, he appeared with his private
counsel ready to take part in the proceedings if permitted.
The notice of attack was received "with surprise," but was met with a
characteristic move. "I raised the question with him"--the counsel--"as
to what possible motive" his client "had in the matter," the "trustee"
testifies, "and as to whether it would not be better for him to desist
from it; whether it would not be possible for us, if he was needing
business, to find some position in which he could legitimately earn
a living."[322] The lawyer replied that he had no right to treat on
any such basis, and withdrew from all connection with the case. But
this was the opening of a negotiation which through another lawyer
"resulted," as the expert of the State afterwards confessed, "in peace
between us." He had given notice that he meant to attack, and the
"negotiation" which followed "was whether anybody would give me as much
as there was in my contract with the State if I would not attack."[323]
Meanwhile the Attorney-General marched gayly to another defeat of his
client--the people--going into court with no other ammunition than the
facts furnished by the men he was suing. He did not put his expert,
nor the Auditor-General, nor his assistant, nor the men on whose
information and affidavits the estimate had been made of taxes due,
nor any one else on the stand. He was "perfectly satisfied," he says,
"that these facts were true," and that the company were "in good faith
doing exactly what they undertook to do--namely, to furnish me with
all the information that was necessary to establish the Commonwealth
case."[324]
His method was as singular with the argument as with the testimony.
He insisted, in opposition to the opinion of Auditor-General Schell,
that such a corporation must pay taxes on all its capital stock,
whether it represented property in the State or out of it. The court
decided against him. It held that it was taxable "only on so much of
its capital stock as was represented by the business and property of
the company within the State." As to what the amount of this property
and business within the State was the court took the facts furnished
by the delinquent itself, as they were the only ones presented to it
by the Attorney-General. The amount originally charged for taxes by
Auditor-General Schell, who had forced the fighting, was $3,145,541.64.
The Attorney-General, on his mistaken theory of the law and on the
facts volunteered by those he was suing, had "split the difference" and
sued for only $796,642.20. The court cut this down to $33,270.59, and
on appeal this was still further reduced to $22,660.10.[325]
This decision was not final or conclusive as to either the State or the
company, both of whom afterwards sued out writs of error. The expert,
who had been pushed to one side, at once determined to take what steps
he could to reopen the case and mend the fortunes of the State. The
moment the decision was announced he telegraphed the Attorney-General
again for another conference, and was told to come to Philadelphia. He
told the Attorney-General that he thought "the hope of the State to get
the largest amount of money was to get a rehearing and let us have an
oral examination." But the "satisfied" Attorney-General refused to do
anything but carry the same argument and the same agreement of facts up
to the Supreme Court. He refused to move for a new trial, and not only
told his expert so, but told the "trustee" so. The trustee, by one of
those coincidences which prove how much better it is to be born lucky
than rich, happened to have come at the same time to stay in the same
hotel with the Attorney-General.
It was in vain that the expert pointed out omissions of property and
facts which he thought "had not been clearly shown in the agreement
as to facts," and afterwards other matters he had discovered. After
the defeat of the State he prepared an affidavit containing additional
facts. He employed an attorney in the preparation of this affidavit and
a petition to the court to have the case reopened. His purpose was "to
get another chance at this trial."
"To get another trial?"
"Anything."
"Another hearing?"
"Anything." Anything to prevent the miscarriage of this last attempt to
"round up" the men he had been trying for nearly twenty years to bring
to justice. The Attorney-General would not present this petition. After
this, still before the final decision, he saw the Attorney-General
again to renew his pressure for a change of policy. Three times he saw
the Attorney-General to lay his additional facts before him, and urge
that a different method of conducting the case be tried.[326] Some of
the new points he raised the Attorney-General referred and deferred to
the company he was pursuing, and "we showed him how they were fully
included in the statement rendered by us to the State, and he (the
Attorney-General) expressed his entire satisfaction with every point
raised." Others of the new points the Attorney-General declared to be
"immaterial."[327] The Attorney-General showed no wish to bring proof
into the case of any facts except those furnished by the people being
sued. Although the decision of the lower court had been a warning that
the theory on which the State had gone into court was bad, and that
the amount of taxes to be recovered depended on the amount of tangible
property in the State, he refused to use the right he acknowledged he
had--to call other witnesses, to put the men who had made the agreed
statement of facts upon the stand, and cross-examine them.
From the Attorney-General, who knew little of either the facts, as he
confessed, or the law as the court declared it, who accepted their
statements as gospel, and who asked them whether new facts offered
him should be admitted into his side of the case against them, the
company had nothing to fear. But this old opponent of theirs, whom
the Attorney-General had employed, was at large, and was a dangerous
man. He knew the facts; he had the right theory of the law; he was
tremendously in earnest. The case had only got as far as the first
decision of the lower court. There were still opportunities for all
kinds of legal proceedings. By virtue of this contract he claimed such
an interest in the proceedings as to give him a right to ask the courts
to interfere. He might get a new trial and carry out his "pet scheme
of oral examination." He might rouse the people as he had roused them
before. He might interfere through the Legislature. He might raise a
storm which could not be quieted until in this suit, or some other, his
pet plan might be carried out, of getting these silent gentlemen into a
witness-box. He considered himself to be in the service of the State.
"I was under a contract with the State,"[328] he says. And we find the
Attorney-General in close consultation with him in Philadelphia down to
the very last day.
The company sees that something must be done, and does it. Its
"trustee" calls upon the expert at his hotel.[329] He renews the
suggestion he had made in New York when word had been sent by
the expert that he would not be bound by the agreement of facts,
and "proposed to attack." He finds his man cast down, utterly
discouraged by the decision of the lower court and the attitude of
the Attorney-General. Time and again he had seen the people denied
justice, and their enemies escape even so much as the necessity of
appearing in court. He had seen, in every one of the proceedings
against them, from 1872 to 1880, committees of Congress, State
governors, judges of the Supreme courts, State legislatures,
attorney-generals, railroad officials, every trustee of the people,
wilt, like green leaves in a fire, before this flashing wealth. His
resolution gave way. He was to have received, under his agreement
with the Attorney-General, in salary and commissions, $23,000, or
less, according to the amount recovered. That he saw fading out of
sight in consequence of the, to him, inexplicable course of the
Attorney-General. Every one else who had tried to stand up for the
people against this power had gone down; why should he be quixotic and
poor?
"We want peace," the "trustee" said, and the, till then, faithful
friend of the people sold him all he had of that commodity for $15,400,
to be paid in instalments, and a salary of $5000 for a year.
"I proposed to reopen it"--the case--"and I did not."
"Why did you not?"
"Simply because I was assured I should have just as much money out of
the transaction as my original contract would have paid me."
This confession made on the stand, under the strain of
cross-examination in a civil suit in which he was a witness, startled
the country with its first hint of the real cause of the failure of
the great tax case, and led to an investigation by the Legislature of
Pennsylvania.[330]
The first payment was $7500. This was paid, not in a check, as is the
usual method between business men in legitimate transactions, but in
bank-notes--$500's or $1000's.[331] That this method of payment was
inconvenient and unusual was shown by the statement of the recipient,
that he went to the Chemical Bank and got a bank certificate for his
$7500 of bank-notes. "Of course I did not carry that amount of money
around with me.[332] Bank-notes and bank drafts, not the company's
checks, were used in the succeeding payments also.
"In sending him money to Titusville, where you had a bank account, why
did you not send him a check on your own bank or draft?"
"Well, there was nobody at Titusville who had any knowledge of the
matter. It was not necessary to acquaint them with it," said the
"trustee."[333]
This representative of the company was diligent in business, as he
understood business, and was always forehanded. He made the first
moves and kept the lead. He went all the way to Harrisburg to meet the
Attorney-General. He got control of the case by making the overture
to volunteer testimony. He called first on the lawyer sent to New
York with notice of "attack," called first on the State's expert in
Philadelphia and New York, made the first suggestion for "peace," and
got it "cheap."[334] But after he had bought "peace" the next interview
is at the company's office. The other man must walk now. When put on
the stand, the purchaser, of course, denied that this "purchase of
peace" had anything to do with the case against his company, or with
the suppression of the only expert in the employ of the State in that
suit.
"With reference to the tax case," he said, "the payment of this money
had no bearing whatever."
"Then why did you pay him the money?"
"Well, I have already said, two or three times, that I paid him the
money for the purpose of having him desist from further malicious
attacks upon our company."
The man of whom he had bought "peace" was not then engaged in any
proceedings against "our company," except the tax case. He had been
engaged in nothing for two years, since the proceedings of the
Producers' Association in 1880. There were no other movements in
prospect. The only war, actual or contemplated, was this tax war.
Pressed through several pages of cross-examination, and challenged to
name a single instance of war by this man upon them, at the time of
the purchase of "peace," or since 1880, which would account for their
willingness to pay him so large a sum, he was finally forced to say: "I
cannot do it."[335]
The Attorney-General, who had thought it unnecessary to collect more
testimony by putting the defendants on the stand under oath, testified,
of course, that there had been no suppression of testimony. The seller
of peace himself, when he was afterwards brought to book before the
Legislature, attempted to stand to a similar denial that he had in
any way been unfaithful to his trust as the expert of the State and
representative of the people. But he broke down. He was asked if his
agreement with the company had any relation to this case.
"Unquestionably. To all cases--this case and all others."
"You were to do nothing further for the Commonwealth in this or any
other case?"
"Precisely."
"If the Supreme Court had subsequently reversed the case, and it
had gone back for a new trial, and had been tried before a jury, so
that the company's officers could have been subpoenaed and compelled
to testify, would you then, after receiving this money, have been
at liberty to assist in getting that testimony together for the
Commonwealth, and aiding the Commonwealth?"
"I should say not."
"You were free to do it prior to your arrangement?"
"Certainly."
"By whom was it"--the negotiation--"begun?" he was asked.
"By the representative of the company," he replied, naming him.[336]
When this bargain was arranged and the first payment made only an
opinion had been filed. No judgment had been entered. There was still
time to make any one of many moves. Reargument and new trial both were
possible.
These men seduced this representative of the people only to cast him
aside, as seducers always do. They did not pay him "cash down" when
they bought his "peace," but in instalments, and part of his pay was in
the shape of $5000 for a year's service for which he was to do no work.
This kept the whip-hand of him until the tax matter was finally settled
and irrevocably past reopening. When that had been done they cast him
off with scorching contumely. The secretary of the trust waved him into
obloquy as a black-mailer.
When the trustee who negotiated the "peace" was before the committee
of the Pennsylvania Legislature in 1883 which investigated this
miscarriage of justice in the tax cases, he was asked if the man of
whom he had bought "peace" had used the positions he had held in the
producers' and other associations to further his own ends. He answered:
"I think he would prostitute anything to further his own mercenary
ends."[337]
The committee of the Legislature appointed to investigate this
"purchase of peace" furnishes in its report the facts we have recited,
which were uncontradicted, but declares that the transactions they
disclose "did not prejudice the rights of the Commonwealth," and that
nobody had done anything wrong. An effort was made after the failure
of the tax case to get the Attorney-General of the State to issue a
warrant against the purchaser of peace, upon which he could have been
held to trial in a criminal court for bribery and corrupt solicitation
of a public officer. An affidavit charging the crime in the usual
form was presented to the Attorney-General. There was by this time a
new Attorney-General, but he ditched this move with the same skill
for the management of his adversaries' case that his predecessor had
exhibited in the tax suit. He demanded that affidavit be made by
some one who could testify to the bribery of his personal knowledge
before the committing magistrate. As the facts were known only to
the two principals, and neither of them could be expected to come
forward to make affidavit and application for his own commitment, the
Attorney-General demanded the impossible.[338] The fact of bribery was
publicly known by the confession under oath of one of these principals,
and the Attorney-General had been presented with the affidavit of a
citizen, prepared in due and regular form, upon which he could have
proceeded to issue a warrant, as is done in the case of less powerful
offenders. Failing with the Attorney-General to have this transaction
taken into the courts, the effort was renewed with the committee
the Legislature had appointed to investigate. It was asked to do as
committees had done before--to send the case to a criminal court and
let it be tried. The distinguished lawyer acting for the people before
the committee offered to appear as a volunteer Attorney-General in the
prosecution of the trustee. "There is not an honest jury," he said,
"in the State of Pennsylvania which upon the testimony would not send
him to the penitentiary for the crime of bribery."[339] The committee
refused to send the matter to the courts.
Upon the only occasion when the "Trustees" seemed in real danger of
being brought in person and on specific charges to trial, criminally,
the Supreme Court of Pennsylvania saved them. In the Clarion County
cases it took the unprecedented step of interfering with the criminal
jurisdiction of the lower courts. It was in reference to this that Mr.
Gowen said before the Committee of Commerce of Congress in 1880: "I
was a member of the Constitutional Convention of Pennsylvania, and I
know that if that convention did anything effectively it was when it
declared that the Supreme Court should not have original jurisdiction
in criminal cases, and yet I have seen three judges of the Supreme
Court lay their hands upon an indictment in a county court and hang it
up." The effect of this interposition of the Supreme Court is summed up
as follows in the history of the contest between the Producers' Union
and their powerful antagonists: "This practically terminated the last
legal proceeding conducted by the general council of the producers of
petroleum." "It was the greatest violation of law," said Mr. Gowen
before the Pennsylvania Legislative Committee, "ever committed in the
Commonwealth."[340]
That some such action might have been expected could be inferred from
the remark in _Leading Cases Simplified_, by John D. Lawson, warning
the student of the law of carriers "not to pay much heed to the
decisions of the Supreme Court of Pennsylvania--at least, during the
past ten or fifteen years. The Pennsylvania Railroad appears to run
that tribunal with the same success that it does its own trains."[341]
Some time after these events the purchaser of this peace gave
some money to a hospital for cancers, and, in recognition of his
philanthropy, was made its president. This hospital was for cancers of
the body--not for moral cancers of the kind propagated for money by
men who corrupt the Commonwealth. It would have been full expiation
in the good old times of the priest and the baron Ruskin describes to
donate to the cure of an evil a fraction of the profits of the culture
of it. The newspapers in May, 1891, chronicled the opening of another
pavilion of this hospital, and the delivery of "an interesting address"
by the new president. One of the journals remarks that "this interest,
combined with his well-known liberality in Church and humane matters
generally, suggests a thought concerning the peculiar development on
this line of many of our very rich men." But what the "thought" was the
journalist did not go on to state.