DIAMOND
ALKALI AND
THE
FAIRPORT, PAINESVILLE & EASTERN
Ownership
If you found 10 people in Lake
County that have heard of the Fairport, Painesville & Eastern and asked
them "Who owned it?", at least half of those people would say
"The Diamond." But in fact,
all official documents—FP&E Annual Reports, State
of Ohio corporate filings, and ICC dockets—show that the FP&E
was an independent entity from the time it was established in 1910 until Penn
Central and Norfolk & Western took control of it on August 15, 1968. End of story, right? Well, not exactly. It turns out that though Diamond Alkali did
not own the FP&E, they controlled it from the
time of its creation until 1968. Before
I demonstrate how the Diamond controlled the railroad, there are two things I
need to briefly explain: who the founders of Diamond Alkali were, and the role
of stockholders in a corporate structure.
Diamond Alkali was
founded by gentlemen from three glass manufacturers who wanted to have their
own source of soda ash for their factories.
These gentlemen were T.R. Evans from
Macbeth-Evans Glass in Pittsburgh, C.L. Flaccus from C.L. Flaccus Glass in Pittsburgh, and J.C. Brady from
Hazel-Atlas Glass in Wheeling. (For
reasons that will become clear later, I should mention that before this formal
business relationship was established between the Evans and Flaccus
families there was already an informal relationship between them due to T.R. Evans being married to C.L. Flaccus' daughter.)
As for the role of stockholders in a corporate structure: for purposes
of the discussion that follows the key thing to keep in mind is that a
company's stockholders elect the Board of Directors—and since the Board of
Directors chooses the Officers that run the company, then whoever controls a majority
of the stock of a company can install "their people" on the Board and
thereby control that company.
Taking the above
information into account, when you look at the stockholders of the Fairport,
Painesville and Eastern Railroad through the years you quickly discover the
clever way that Diamond Alkali basically ran the railroad without owning
it. Let's start by looking at the
primary stockholders of the FP&E in 1915:
|
Shareholder |
Location |
Shares |
Notes |
|
Charles Louis Flaccus |
Pittsburgh, PA |
134 |
Diamond co-founder (CL Flaccus) |
|
Harry Darlington |
Pittsburgh, PA |
100 |
|
|
Hazel-Atlas Glass Co. |
Wheeling, WV |
77 |
Diamond corporate co-founder (&
customer) |
|
Macbeth-Evans Glass Co. |
Pittsburgh, PA |
76 |
Diamond corporate co-founder (&
customer) |
|
J.B. Ewaman |
Pittsburgh, PA |
50 |
|
|
Standard Plate Glass Co. |
Butler, PA |
38 |
Glass
maker – Diamond customer |
|
Globe Soap Co. |
Cincinnati, OH |
29 |
Soap
maker – Diamond customer(?) |
|
Fostoria Glass Co. |
Moundsville, WV |
25 |
Glass
maker – Diamond customer(?) |
|
Highland Glass Co. |
Washington, PA |
25 |
Glass
maker – Diamond customer |
|
Christoph Jacob
Baumann |
Pittsburgh, PA |
24 |
FP&E Director and Officer |
|
Arch L. Metzner |
Wheeling, WV |
23 |
Hazel-Atlas Glass Co. management employee; |
|
also FP&E
Director and Officer |
|||
|
Thomas Raymond Evans |
Pittsburgh, PA |
20 |
Diamond co-founder (Macbeth-Evans) |
|
Joseph C. Brady |
Wheeling, WV |
20 |
Diamond co-founder (Hazel-Atlas) |
|
Rub No More Co. |
Ft. Wayne, IN |
18 |
Soap
maker – Diamond customer(?) |
|
W.P. Hubbard |
Wheeling, WV |
15 |
|
|
Imperial Glass Co. |
Charleroi, PA |
13 |
Glass
maker – Diamond customer(?) |
|
Gustav A. Berghoff |
Ft. Wayne, IN |
12 |
Rub
No More Co. executive |
|
T.F. Hank |
Muncie, IN |
12 |
|
|
William G. Gundelfinger |
Pittsburgh, PA |
10 |
|
|
J.J. Holloway |
Wheeling, WV |
10 |
|
These
are the top 20 stockholders for this particular year (out of a total of 44),
and this list represents over 85% of FP&E's
shares of stock. As noted on the chart,
a large portion of the stock (42%) is owned directly by Diamond Alkali-related
companies and people, and another decent-sized portion (19%) is owned by what I
believe are Diamond Alkali customers (two of which I'm fairly certain
about)—and these figures could be higher if I could identify some of the other
people on this list, or if I knew who the other 24 stockholders were. Seeing this, it is easy to come to the
conclusion that if the FP&E's stockholders were
for the most part made up of Diamond founders and Diamond customers, and if
they exercised their stockholder votes in a coordinated manner (which I think
it is very reasonable to assume), then the members of the FP&E's
Board of Directors—and the Officers of the railroad—would end up being whoever
the Diamond wanted them to be (as it was, throughout the FP&E's
history most of its Officers were in fact also Board members). Hence, by having control of most of the FP&E's shares, the Diamond controlled the railroad.
Granted, due to the
fact that the FP&E was primarily created to serve
the new chemical firm, and due to the Diamond basically being the only customer
the FP&E had for the first 20-something years of
its existence, I suppose it would not be unusual to have so many
Diamond-related stockholders during the railroad's early, foundational
years. However, the Diamond's control of
the FP&E did not end after those early
years: When you look at the lists of
stockholders over the next five decades, you continue to see a large number of
"Diamond people" holding stocks.
For example, let's look at the primary stockholders of the FP&E in 1963 (which is about the same as the
stockholder lists for the previous twenty years):
|
Shareholder |
Location |
Shares |
Notes |
|
MAC
& Co. |
Pittsburgh, PA |
7587 |
Mellon National Bank & Trust (Raymond
Evans was a Director) |
|
Evelyn Fawell
Evans |
Pittsburgh,
PA |
6841 |
TR Evans niece |
|
Raymond Flaccus
Evans |
Cleveland, OH |
4874 |
CL Flaccus grandson, TR Evans son;
Diamond executive |
|
Margaret Evans Berdan |
Pittsburgh, PA |
4867 |
CL Flaccus granddaughter, TR Evans
daughter |
|
William
Howard Evans |
Cleveland, OH |
4117 |
CL Flaccus grandson, TR Evans son;
Diamond executive |
|
Ida
Virginia Evans |
Pittsburgh, PA |
4117 |
CL Flaccus granddaughter, TR Evans
daughter |
|
Elizabeth May Evans Bascom |
Pittsburgh, PA |
4117 |
CL Flaccus granddaughter, TR Evans
daughter |
|
Bertha G. Baumann |
Painesville, OH |
3030 |
Widow of former FP&E
executive Christoph J. Baumann |
|
NOM
& Co. |
Pittsburgh, PA |
2550 |
American Fletcher National Bank & Trust |
|
George J. Edwards Jr. |
Painesville, OH |
2225 |
FP&E executive |
|
John
T. Richards |
Pittsburgh, PA |
2145 |
Former Diamond executive |
|
Laura Evans Ford |
Detroit, MI |
1982 |
TR Evans niece |
|
Charles Lewis Flaccus
Jr. |
Pittsburgh, PA |
1950 |
CL Flaccus grandson |
|
ELM
& Co. |
Pittsburgh, PA |
1867 |
Pittsburgh National Bank |
|
TNOM & Co. |
St.
Louis, MO |
1852 |
St.
Louis Union Trust |
|
A.A. Welsh & Co. |
Cleveland, OH |
1325 |
Cleveland Trust (Raymond Evans was a
Director) |
|
John
F. White |
Pittsburgh,
PA |
1315 |
FP&E executive |
|
Emma
E. Dixon |
Painesville, OH |
1237 |
Widow of former FP&E
executive L.L. Dixon |
|
Carolyn Marsh Lancaster |
Pittsburgh, PA |
1227 |
Widow of former Diamond executive Frederic
Lancaster |
|
Mary
F. Richards |
Pittsburgh, PA |
1170 |
Wife
of former Diamond executive John T. Richards |
|
John
D. Evans Jr. |
Pittsburgh, PA |
1037 |
TR Evans son-in-law; FP&E
executive |
|
Lillian M. Troutman |
Butler, PA |
1012 |
Sister-in-law of former Diamond Director
John H. Troutman |
|
J.H. McNash |
Wheeling, WV |
750 |
Hazel-Atlas executive; FP&E
executive |
|
Jane
Louise Flaccus |
Pittsburgh, PA |
570 |
CL Flaccus granddaughter |
|
L.A.
Hart |
Dallas, TX |
525 |
|
|
Gertrude
T. Campbell |
Butler, PA |
510 |
Daughter of former Diamond Director John H.
Troutman |
|
Margaret R. Noyes |
Cleveland, OH |
500 |
|
|
Fostoria Glass Co. |
Moundsville, WV |
495 |
Diamond customer? |
|
William M. Robinson Jr. |
Taos, NM |
375 |
Son
of former Diamond Director William M. Robinson Sr. |
These
are the top 30 stockholders for 1963 (out of a total of 114), and this list
represents over 85% of FP&E's shares of
stock. As you can see, the list for this
year is dominated by Flaccus and Evans descendants as
well as current and former Diamond executives and/or their relatives; in
addition, you might as well count any current and former FP&E
executives and/or their relatives as "Diamond people" because an
officer or manager at the FP&E would have only
had a job at the railroad with the direct or indirect blessing of
Diamond-related stockholders. All told,
in 1963 "Diamond people" held at least 65% of the FP&E's
stock (and that's not including shares from the two banks where Raymond Evans—the
Diamond's Chairman of the Board at the time—was a Director). Once again, if all of the Diamond-related
stockholders exercised their votes in a coordinated manner (which I believe is
an especially safe assumption given the people on this list), then the
result would be that Diamond Alkali controlled the Board of Directors and
thereby controlled the FP&E.
I
think the best way to sum things up is to say this: Diamond Alkali did not technically own
the Fairport, Painesville & Eastern Railroad, they practically owned
it.
Rate Conflict?
The only information that appears to
contradict the above conclusion is a case brought before the Interstate
Commerce Commission in 1918. In Docket
10236, Diamond Alkali Company v. Fairport, Painesville & Eastern
Railroad Company, Director General, et al., Diamond Alkali complained about
the rates it was being charged for incoming and outgoing shipments by the FP&E and the trunk lines it connected to (which were
the Baltimore & Ohio via Fairport and the New York Central via
Painesville). But if Diamond Alkali
controlled the FP&E, then why would there be any
conflict between the two? Well, when you
read through the ICC decision documents regarding this case (which are listed
in the "Federal Documents" section on my FP&E
Resources page) it becomes clear that though the title of the docket
implies that the case is "Diamond Alkali versus the FP&E,"
a better description of the case would be "Diamond Alkali and the FP&E versus the Trunk Lines."
Diamond Alkali was
being charged a "combination rate" for its shipments, which meant
that for each shipment they were paying a line-haul rate to the trunk lines in
addition to a local rate to the FP&E. When the Diamond noticed that its competitors
(who were in a similar transportation situation—they were served by terminal
railroads that connected to trunk lines) were being charged using a different
rate structure that was less expensive, Diamond Alkali cried
"foul." This different rate
structure was a "through rate," which meant that for each shipment a
single amount was paid to a trunk line that covered the entire haul, including
any switching by a terminal railroad; if there was terminal switching involved,
the trunk line would reimburse the terminal railroad a portion of the
"through rate" for its part of the haul. The FP&E
supported the Diamond's position, but more importantly it wanted to make sure
that its portion of the "through rate"—an amount which was determined
by the trunk lines—was fair.
Before the case came
before the ICC the trunk lines had already agreed with Diamond Alkali that
their rates should have been and should be "through rates"—so what
made it necessary for the ICC to get involved was actually a conflict between
the trunk lines and the FP&E: in the
"through rate" contracts the trunk lines proposed to the Diamond and
the FP&E, the trunk lines were only willing to
pay the FP&E about $1.75 per shipment because
they viewed it as an "industrial railroad," whereas the FP&E believed it should get about $4.00 per shipment
because it considered itself to be a "common carrier" ("common
carriers" were allowed more money in rate divisions than "industrial
railroads" because the latter were considered to be extensions of the
companies that owned them, and so did not need to make a profit). Ultimately, the ICC a) confirmed that the
Diamond should have been and should be charged a "through rate" for
its shipments and ordered reparations to be paid to Diamond Alkali by the
parties involved for past overcharges, b) agreed that the FP&E
was a common carrier, and, after a back-and-forth lasting three years, c) set
the amount for the FP&E's portion of the
"through rate" at $3.50—close to what the FP&E
had asked for.
So
in the end, though on the surface the case looked like the Diamond was fighting
with the FP&E over rates, what actually happened
was that the Diamond and the FP&E teamed up to,
on the one hand, make sure Diamond Alkali was charged with the most beneficial
rate structure for its shipments by the trunk lines (and get some money
refunded to them in the process), and on the other hand, make sure the
Fairport, Painesville & Eastern received the proper portion of the
"through rate" from the trunk lines.
Created
by Scott Nixon
October
2010