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