Chapter XXI. Personal Liability Suit and the “Press” Guarantee

The summer of 1906 found the street railway fight raging fiercely. It was constantly growing in intensity and bitterness and in personal animosity towards me. This animosity culminated in the fall of 1906 in an effort to connect me personally with the three-cent-fare street railroad grants. The old company contended in one breath that these grants had no value, and in the next that my relationship to them was so close that it constituted a personal pecuniary interest. This personal liability question grew out of an injunction to prevent the low-fare people from operating cars on Concon tracks for about six hundred feet on Detroit avenue, — which tracks had been for years considered free to joint occupancy of any company with the consent of the city.

The Concon proposed to show personal financial interest in the low-fare company on my part, thereby proving invalid the grant signed by me as mayor. A summary of the low-fare movement from its inception to this time will help the reader to understand the absurdity of this foolish charge.

The aim of the low-fare propaganda was municipal ownership which the laws of Ohio did not permit, but we were getting ready for it in making the fight for better service and lower fares, thus teaching the people that they had some jurisdiction in the regulation of public service utilities. Our entire Cleveland fight in one sense was a struggle to have recognized the sacredness of public property by private interests as the sacredness of private property is recognized by public interests. We never attacked private property. We were always engaged in the struggle to force the recognition of the rights of public property, whether in public hands or private hands. We never advocated the breaking of a contract, no matter how unfair that contract was to the people, but constantly resisted the claims and quibbles of ingenious lawyers to extend over public property private rights that did not exist.

In spite of the tremendous pressure brought against it by the public service corporations, through unfair newspapers, constant litigation, and political tricks of various kinds, the low-fare movement made its way. The organization of a new traction company known as the Forest City railway Company was secured and grants were made to this company with the provision that they could be acquired by the city at not more than ten per cent. above cost, as soon as a municipal ownership law could be obtained. The Forest City line was obstructed every time it made a move, as has already been repeatedly shown. It costs money to build and equip railroads, but the expense is enormous when you add to it the cost of litigation growing out of a new injunction suit nearly every day. It was not easy to capitalize an enterprise which was so badly handicapped, and to find a person too honest to be bought, willing to take the risk of losing money without any possibility of making more than an ordinary six or seven per cent. investment was one of the most difficult tasks I had to face during the whole of the low-fare fight. But the man for just this emergency came to us in the person of my friend, ex-Congressman Ben T. Cable of Rock Island, Illinois. Mr. Cable put one hundred thousand dollars into the company and later an additional two or three hundred thousand. At any time when the fight was warm he could have sold out to the old company at an immense profit, and not only defeated the low-fare movement but brought discredit upon all connected with it. He fulfilled every obligation and his service to our cause cannot be over-estimated. I didn’t see then and I don’t see now how we could have prevented a disastrous defeat without Mr. Cable’s timely assistance.

The opposition newspapers meanly insinuated that he must have some ulterior motive and delighted in calling him my “cousin,” as if to prove thereby that he could not aid the low-fare fight in a disinterested way. When the final history of that struggle shall be written Mr. Cable’s service will surely be given the high place that it deserves.

In 1905 the city proposed to the old company a settlement of the whole vexed problem by means of the organization of a holding company. It was my idea that this holding company should take over all the street railway interests of the city as lessee. A fair rental should be paid and the property operated in the interests of the public and not for profit. As security to the old company a twenty year franchise should be granted to the holding company with the agreement that it should revert to the private interests if the holding company failed to make good under the terms of the lease. The city offered to place a valuation of eight-five dollars a share on the Concon stock, which figure was much too high, for the price offered would have given the old company about three times as much for their property and unexpired franchises as it would have cost to rebuild the whole system in first class condition. The advantages that would accrue to the city it is impossible to measure in money, as it would remove the biggest incentive for bad government by Big Business. This offer they rejected and in 1908 they were forced to accept a settlement based on a price of fifty-five dollars a share.

The Municipal Traction Company was then organized as the holding company and completed in the summer of 1906 with A. B. du Pont as president and director, Charles W. Stage, Frederic C. Howe, Edward Wiebenson and William Greif as the other directors, and W. B. Colver as secretary. The directors were salaried and self-perpetuating, but neither they nor the company were to profit in any other way. Their books were open to the public and all their transactions were public. The holding company owned no railroad, but became the lessee of the Forest City Company. The capital for construction was raised by the sale of Forest City stock at ninety cents on the dollar and deposited in trust for use in construction by the holding company. The holding company agreed to construct and operate the low-fare lines, to pay six per cent. on the capital, to pay off the capital at ten per cent. above par and to devote the entire surplus to extensions and improvements. Everything had been done openly. There had been no secret negotiations with the old company nor in other directions.

Both the Cleveland Electric and the Forest City were seeking franchises. As the Cleveland Electric was known as Concon, so the Forest City and the other low-fare companies organized later were call the Threefer.

Here is a parallel comparison of their offers to the city for such franchises:

Early in the summer council ordered the Concon to move its tracks on Fulton road from the center of the street to one side to make room for the tracks of the Forest City, which company had a franchise to lay tracks on the west side of the street. Having had so much previous experience with the old company’s disregard of orders from council the city was authorized to remove the tracks at the Concon’s expense, provided the latter had not complied with the order at the end of the thirty-day period stipulated therein. No attention whatever was paid to the city’s order; it wasn’t even acknowledged. The thirty days elapsed, then two weeks more; then, early on the morning of July 25 a big force of workmen under the direction of the mayor and Server Springborn proceeded to rip up the tracks. Every preparation for getting the work done quickly and in the best possible way, and with the least damage to the pavement, had been made in advance. The ends of the tracks were torn up first so that the cars of Concon could not block the work. This move on the part of the city was a complete surprise and found the old company quite unprepared. It was about eleven o’clock a.m. (and the work had been going on since seven) before the injunctions were served on the mayor and Mr. Springborn. These injunctions were so ambiguously worded, due not doubt to haste and to the court’s lack of information regarding the real facts in the matter that it was anything but clear what they proposed to restrain. It was too late anyway to restrain us from removing the tracks that were already up. Our “lawlessness” occasioned a great howl among the real law-breakers and Mr. Springborn and I were charged with contempt of court. The contempt proceedings occupied about a week and at the end of that time, on August 3, I was exonerated, but Mr. Springborn – certainly the least culpable of any person connected with the transaction from first to last – was found guilty. He was fined one hundred dollars, which, I am happy to say, he never paid.

The Forest City company, which had proceeded with the laying of its tracks on the west side of the street, was enjoined July 26 and the work had to stop while the matter was fought out in the courts. Eventually it was able to proceed once more. In the city’s case we were also successful, the court holding that the city had acted within its rights and was under no obligation to replace the old company’s tracks.

The track which the city tore up was, by a curious coincidence, on the very street the bidding on which had been the occasion of my coming to Cleveland twenty-seven years before. It was on this street in 1879 that I had been beaten by Simms and Hanna, and it was over this street too that a three-cent car was to run a few months later.

When stock of the Forest City Company to the amount of $400,000 was offered for sale, the Cleveland Press editorially recommended it as a safe investment for persons of small means and more profitable than savings bank deposits, describing the plan July 1, 1906, as follows:

“The Forest City Railway Company has sold $350,000 worth of stock at 90. It has offered for sale and is now soliciting subscriptions for $400,000 more of the stock. All of this stock is to be put out at 90. The Municipal Traction company under theterms of its lease of the Forest City Railway company has guaranteed 6 per cent. cumulative dividends on the par value of this stock. The entire amount received for the sale of this $750,000 worth of stock at 90 is to be invested in about 13 ½ miles of street railway construction and equipment. This means a capitalization of about $50,000 a mile; not bonds; no water. The Cleveland Electric Railway Company (the old monopoly company) is bonded and capitalized at about $150,000 a mile. The difference in these two propositions must be apparent to the merest tyro in finance.”

The stock sales as a result of this stand on the part of the Press and from advertisements in various magazines were very satisfactory. The Forest city railroad was fast nearing completion, twenty-four injunctions had expired one by one, there were fewer obstacles in the way of success than at any time before, and a three-cent-fare railroad in actual operation in a city where such a thing had for five years been declared impossible, and where no stone had been left unturned to render it impossible, was hourly becoming more and more certain of accomplishment. This was the status of affairs when the personal liability question was raised. For five days I was kept on the witness stand in a notary’s court testifying to facts which were matters of common knowledge. The opposition newspapers of Cleveland referred to these as testimony “wormed” out of me, “dragged” from me, etc., and through the Associated Press the newspapers of the whole country were furnished with a great talking power against our movement. One of the mooted questions was whether I had guaranteed the Cleveland Press against loss when that newspaper had invited and guaranteed stock subscriptions. The Press’s own statement on the matter is so clear and comprehensive that I quote it in full. On October 24, 1906, it had the following:

“Here’s a Nice Little Scoop on the Concon Lawyers.”

_________

The Only Authentic Records of the Deep, Dark Mystery of That “Press” Guarantee.

_________

At the examination of May Tom by the Concon attorneys Wednesday morning, the question was asked as to whether Mayor Tom had guaranteed The Cleveland Press against loss when The Press guaranteed the stock of the Threefer.

Mayor Tom said that whatever there was in the way of such a guarantee was in writing and that he would decide at the afternoon hearing whether or not he would produce the writing.

It makes little difference whether May Tom decides to produce the writing or not, as The Press happens to have a copy and by publishing it herewith scores a scoop on the Concon lawyers:

Here’s the writing:

Whereas, The Forest City Railway company is inviting subscriptions to its six per cent. (6%) cumulative dividend stock, and the undersigned desire to aid in the establishment of a 3-cent-fare street railway in the city of Cleveland, with the ultimate municipal ownership thereof, and to that end desire to induce popular subscriptions in small sums from the people of Cleveland; and

Whereas, The Cleveland Press proposes to invite subscriptions to such stock and to recommend its readers to make such subscriptions, and to offer to them the guarantee hereinafter set out:

Now, therefore, the undersigned hereby agree, each with the other, and with the Scripps Publishing Company, publishers of The Cleveland Press, and with each subscriber to such stock through the columns of The Press as follows, to wit:

To each original subscriber or his personal representative whose subscription has been made through The Cleveland Press, and who subscribed for an amount not exceeding two thousand dollars ($2,000) of the par value of said stock, we agree to purchase the stock so subscribed on sixty days’ notice, given within ten (10) days after any dividend or interest period, and to pay therefor the amount paid by each subscriber with six per cent. (6%) interest thereon from the date of his payment, less any interest or dividend which he has received; this offer to purchase to be open for two (2) years from the date thereof.

They also severally agree with The Scripps Publishing Co., its successors and assigns, that they will each on demand repay to it any sums which it may pay out under the following guarantee:

[Here appears a copy of the guarantee which was attached to the stock of each subscriber, who subscribed for stock through this newspaper.]

In making the above agreement and guarantees, each of the undersigned agrees to bear and discharge one-half of the same, it not being intended that this shall constitute a joint obligation of each for the whole.

It is mutually understood and agreed that the amount of stock to be sold under the above guarantee shall not exceed the sum of four hundred thousand dollars ($400,000) of par value.

In testimony whereof we have hereunto set out hands and affixed out seals this 29th day of June, A. D., 1906.

E.W. Scripps

Tom L. Johnson

The circumstances under which this contract was drawn up are interesting.

E.W. Scripps, the founder and controlling stockholder of The Press was in Cleveland last June and expressed a desire to see Mayor Tom.

Mayor Tom called on him and among other things discussed was the progress of the fight for lower street car fares.

Mayor Tom outlined what had been and what was proposed to be done, and Scripps said: “If you are so sure of the success ofyour plans why don’t you personally guarantee the stock of the low-fare company?”

“I am perfectly willing to do so to the extent of my fortune,” was the mayor’s answer.

“Well, I’ll go halves with you to the extent of $400,000 work of stock which is now for sale WITH THE DISTINCT UNDERSTANDING THAT NEITHER OF US IS TO PROFIT TO THE EXTENT OF A DOLLAR,” said Scripps.

Up to this point the matter of guaranteeing the stock was a personal matter between Scripps and Johnson.

How to get this guarantee before the people in the best possible way was then taken up by Scripps with H. N. Rickey, editor-in-chief of The Press.

After some discussion the whole matter was turned over to Rickey, to handle in any way he saw fit, or not to handle at all so far as The Press was concerned.

Rickey consented to guarantee the stock through The Press, provided neither Johnson nor Scripps would consider any step taken or any contract drawn up as confidential and that Rickey would be under no obligation, either stated or implied, to keep any of the facts here set forth from the readers of The Press, whenever in his judgment they would make a good news article.

This seems to be the psychological – not to say dramatic – moment.

In passing it might not be out of place to suggest that there probably will not be any doubt, if there ever has been any, that The Press guarantee is worth 100 cents on the dollar.

The next day the Press said editorially:

THAT HELPS SOME.

The horrible accusation is made by the Concon and its newspapers against E. W. Scripps, The Cleveland Press and Mayor Tom, that to the extent of guaranteeing investors against loss, they have lent their credit to a three-cent street railway company in Cleveland.

For E. W. Scripps and itself, The Cleveland Press pleads guilty to this accusation.

As Mayor Tom has admitted the accusation at least fifty times during the past year, no further proof seems to be necessary.

The net result to the people of this city of the efforts which Mayor Tom and The Cleveland Presshave made for lower street car fares in Cleveland is this:

A three-cent line has been built and equipped and will be ready to carry passengers over its fourteen miles of track just the minute that the Concon injunction department will permit. This three-cent line is prepared to take over every Concon franchise as fast as it expires.

As for the Concon, that company is, figuratively speaking, on its knees, begging the people to extend its franchises for twenty years at seven tickets for a quarter.

Not a bad situation FOR THE PEOPLE OF THIS CITY to be in, is it?

Were it not for the well-known innate modesty of The Press, we might be inclined to crow a little over the part we have played in bringing about this most delightful situation.

If either the Concon or its newspapers will show us how it is possible for the people to lose when two street railway companies are fighting like the very devil for the privilege of carrying passengers at a rate of far e which will mean the saving of millions to street car riders in the next decade, we shall never again say one word in favor of lower street car fares in this city.

No matter how hard The Press tries to please the other newspapers of this city, it doesn’t seem able to do it.

After twenty-seven years of effort in this direction, it doesn’t appear to be any nearer to it than when it started.

Our only consolation is the THE PEOPLE generally seem to approve of us and our methods; and after all THAT HELPS SOME.

My own position in the matter had been publicly set forth in a formal statement made at the time of the “Press guarantee,” in which I said:

“Inasmuch as I am associated, in the public mind, with the enterprises herein set forth, I deem if fitting that I make a full statement of my position. I am not now and never have been financially interested in the Forest City Railway Company. I have, however, in the discharge of my pledges to the people of Cleveland, aided in every way in my power the efforts to construct and operate a system of low-fare railroads in this city. I have in the past a number of times when requested become liable as surety in bonds and guaranteed the payment of obligations of the Forest City Railway Company, but the net result is that while I have in the past stood to lose if the enterprise failed, I never have and never will reap any financial benefit from its success. I believe that it will succeed and that the people who ride on street cars will benefit from reduced fares and that those who invest money in the low-fare road will reap fair dividends and profits from the venture. To my mind this is not a philanthropic enterprise, but rather a plain and sound business proposition. I believe that publicity and the high personal integrity of the directors of the Municipal Traction Company will guarantee the carrying out of the plans set forth in absolute fairness to the public and to the stockholders of the Forest City Railway Company. Secrecy and over-capitalization are two cardinal vices of the modern public service corporation. Neither of these can have any place in this plan. With the utmost regard for all the rights of existing companies, I shall do all in my power to further the success of the Forest City Railway company and the Municipal Traction Company, but my interest shall not be of a pecuniary nature. In lending such aid and encouragement I feel that I shall be doing more than I have promised the people of Cleveland. For five years a struggle has been waged in Cleveland to secure reasonable fares. In all that time I have, as mayor, and as a citizen, waged no unfair war on any private interest. This enterprise shall have my hearty support and I confidently invite the support of the public, both has citizens and as investors. The grants to the Forest City Railway Company will establish street railroad facilities where they are very much needed, and will, on a capitalization of fifty thousand dollars a mile, in my judgment, produce a net revenue of more than fourteen per cent. on the actual capital invested. The Cleveland Electric is earning eight per cent. net on a capitalization of about one hundred and fifty thousand a mile. This would mean, if capitalized at actual cost, between twenty and twenty-four per cent, so that the estimate of fourteen per cent. net earnings is conservative. The city of Cleveland has made the greatest growth in its history in the last six or eight years, and during all that time the building of street railroad tracks had been almost at a standstill. Extensions equaling one-third of the present system are now greatly needed. The lowering of the fare will greatly stimulate traffic, and make more tracks and equipment necessary. When asking for grants for extensions, both in new territory, and for grants on streets where franchises have or will expire, the Forest City Railway Company is likely to receive at the hands of the city favorable consideration not only because the fare is lower, but because all earning above the fixed payment to the investors are to accrue indirectly to the benefit of the city. The city shall provide in all grants to that company proper safeguards, but can afford to be much more liberal in making grants under these circumstances than where there is no limitation of future profits. This plan really secures to the people of Cleveland better service and lower fare and the benefit of all future growth in franchise values and economies in the operation of street railways.

“The evidence showed plainly that if the low-fare project failed, I should lose about four hundred thousand dollars, but that in no event could I profit a penny by the enterprise. When the court asked me why I had made guarantees to creditors and stockholders, I answered:

“I’ll tell you why. Some men like to leave monuments behind them; some build hospitals, some libraries. Other build universities. I want to see that there is a street railroad built that will be run in the interests of the people.”