Judge C. H. Hanford decides Cowell v. McMillin, vindicating John McMillin's operation of Roche Harbor lime works, on June 20, 1909.

  • By Boyd C. Pratt
  • Posted 9/25/2014
  • HistoryLink.org Essay 10933

On June 20, 1909, United States District Court Judge C. H. Hanford issues his decree in Cowell v. McMillin, bringing to a close a three-year legal battle between two titans of the West Coast lime industry. In 1906, Ernest (E. V.) Cowell (1858-1913), the son of West Coast "Lime King" Henry Cowell (1819-1903), brought John S. McMillin (1855-1936) to court over the dealings of the Tacoma and Roche Harbor Lime Company, founded and dominated by McMillin, which operated the West Coast's largest limeworks at Roche Harbor on San Juan Island. The lawsuit not only offers insight into the specific history of the two men and their companies, but also provides a window into the business practices of the time: monopolistic control of markets, price fixing and undercutting, and manipulation of corporate structure.

The lawsuit had as its basis the premise that the Cowells held shares in the Tacoma and Roche Harbor Lime Company, but not a controlling interest. Ernest Cowell claimed that McMillin had formed the company through fraudulent means (by liquidating the assets of the Tacoma Lime Company); that he received an excessive salary -- determined by himself -- as manager; and that operations and activities of the Staveless Barrel Company were improper and irregular, resulting in a loss of dividends for stockholders.

Henry Cowell and John McMillin

In 1849 Henry Cowell arrived at San Francisco during the height of the California Gold Rush. He first captured the carting and storage market, and then in 1865, along with Isaac Davis, bought a share in a lime manufacturing concern in Santa Cruz. Cowell moved there to supervise the new firm of Davis & Cowell. Upon Davis's death in 1888, Cowell acquired his share, thus becoming the sole owner of the largest lime manufacturing empire (the Cowell Lime & Cement Company) in California, and therefore the West Coast -- except for Roche Harbor.

John S. McMillin, who founded the Tacoma and Roche Harbor Lime Company, grew up in Indiana. In 1882 he moved to Tacoma, where he was first involved in lime in the Puyallup Valley. In 1883, the Tacoma Lime Company incorporated; McMillin later relied upon both its assets and the economic and political support of its directors as well as other businessmen in the Tacoma area.

The lawsuit was the culmination of a continuing feud between Henry Cowell, who held an interest in the Tacoma Lime Company, and McMillin. Stemming from an initial dispute over the purchase of the Roche Harbor lime works at the north end San Juan Island, the suit was ultimately about control of the Pacific Northwest lime industry. Skirmishes had already been fought over ownership of Lime Kiln (another lime works on San Juan Island, located on the island's west side not far from Roche Harbor), but they were exacerbated by McMillin's business practices at Roche Harbor. McMillin had a controlling interest in the Tacoma and Roche Harbor Lime Company with 341 shares, compared to Cowell's 167.

As for McMillin's salary, according to his own testimony it was first fixed at $2,500 per annum, and then rose to $3,000 in 1889, doubled to $6,000 two years later, and then doubled again to a whopping $12,000 in 1895 -- two years into one of the worst depressions in U.S. history! In the meantime, although there were substantial profits from the operation, the company issued no dividends until 1903.

Ruthless Practices

John S. McMillin was the Tacoma and Roche Harbor Lime Company. It was largely through his sound business acumen that he was able to turn a middling operation into the largest lime works in the Pacific Northwest, and thus challenge Henry Cowell, the Lime King of the West Coast. He was able to do this through near-dictatorial power at Roche Harbor and through ruthless business practices typical of the Robber Baron era. Among these were price fixing and monopolistic control of the market, at a time when the demand for lime first saw unprecedented opportunity and then a precipitous decline following the Panic of 1893.

During the 1880s, the population of the Pacific Northwest swelled by a phenomenal 165 percent, and devastating fires in Seattle and other cities led to new construction techniques. New buildings were built of brick with lime mortar instead of easily burned wood, generating enormous demand for lime as mortar in the Northwest as well as the entire West Coast.

Prior to the legislation of the Progressive Era "Trust-busters," lime manufacturers, in common with other industries, colluded to set fixed prices for the commodity itself, the minimum required lot size for purchase, and freight or shipping charges. In July 1900 McMillin drafted a proposed contract for all lime manufacturers in the state of Washington. Under the terms of the agreement, producers would sell lime for no less than $1.25 per barrel. This price was reserved for dealers or agents who bought in lots of 100 barrels or more, with the exception of dealers in Whatcom and Snohomish counties, where the minimum lot size was 50 barrels. McMillin's proposal went on to include a different price -- $1.50 per barrel -- for dealers not described in the contract. No rebates or discounts were to be allowed, nor would any manufacturer be allowed to purchase any empty second-hand barrels.

However, McMillin proceeded to underbid the fixed prices that he helped establish. The Panic of 1893, which originated with the collapse of the railroad and banking industries, precipitated an almost decade-long national depression that hit the West Coast particularly hard. During this period, there was little to no construction, so lime manufacturers, among other building material suppliers, competed fiercely for major government projects. George Willey, an agent for both Cowell and McMillin, testified that McMillin secured the contract for one of the state university buildings by going below the established price for the sale of lime prevailing in Puget Sound. This initiated the "Lime War," a four-year period following the Panic of 1893, when the price of lime was anything but uniform. In 1891 the retail price of lime in Western Washington was $1.60 per barrel; by 1904, the price had dropped to less than a dollar per barrel.

Staveless Barrels

Another means of dominating the market was through vertical integration: controlling the lime industry from quarrying through processing, barreling, and warehousing to shipping. McMillin focused on barreling when he purchased rights to the "staveless barrel" manufacturing process, whereby barrels were constructed of two one-piece halves, as opposed to normal barrels, with some 17 staves and joints.

The Staveless Barrel Company was incorporated in Tacoma at the end of December 1894, and McMillin sold his rights in the process to the new company. However, principal ownership of the company remained in the family, because his wife Louella held the majority of stock through mortgaging some of her estate holdings. William Shultz, secretary and stockholder of the Tacoma and Roche Harbor Lime Company, was vice president and trustee, as well as bookkeeper, of the Staveless Barrel Company. The cost of a barrel prior to 1893 was 32.5 cents; the contract set a new price of 30 cents each, but with a 1.5-cent royalty to McMillin.

McMillin used the barreling operation as a means of establishing a shadow corporation that was able to generate income and, in particular, transfer the profit to himself, thus sidestepping the Cowells's interest in the principal corporation, the Tacoma and Roche Harbor Lime Company. According to the testimony, although the Staveless Barrel Company did not issue a dividend until 1896, some $7,000 to 21,000 per annum was paid out; in addition, over this 10-year period McMillin was paid approximately $125,000.

Ambitious Plans

In the early 1900s, lime production changed with the growing use of Portland cement in conjunction with reinforced steel rods. On nearby Vancouver Island in British Columbia, the Vancouver Portland Cement Company, under Robert P. Butchart (1856-1943), had established a cement plant at Tod Inlet in 1904. McMillin developed ambitious plans for manufacturing Portland cement at Roche Harbor, seeking capital and partners from Canada and the East Coast. Blueprints dated June 1903 delineate a hugely ambitious plan to convert the existing plant into a Portland cement operation. The Roche Harbor Lime and Cement Company incorporated on November 2, 1905.

McMillin cultivated both a social and business relationship with Butchart. On behalf of a number of prospective business partners from Eastern Canada, Butchart began negotiations with McMillin to purchase his stock in the Tacoma and Roche Harbor Lime Company. Their intention was to develop a large Portland cement manufacturing plant with the capacity of 5,000 barrels a day. In addition to acquiring McMillin's stock, the consortium sought to buy out all remaining stockholders. Blocked by Ernest Cowell, who refused to dispose of his shares, Butchart and his associates abandoned their plans. They declined to purchase McMillin's stock, effectively leaving him without the capital and wherewithal to modernize and build the facility.

During the course of the lawsuit McMillin had been enjoined from selling or transferring the property itself, its assets and business, or the capital stock or shares in the Tacoma and Roche Harbor Lime Company, a further blow to his plans to modernize and become a player in the burgeoning and lucrative cement industry.

The Ruling

When Judge Hanford finally issued his decree, he dismissed Cowell's complaint and exonerated McMillin:

"All this fuss has cost me labor in digesting a mass of chaff and straw in order to find a kernel of matter supposed to be contained therein. But there is no kernel" (Court Case No. 1413).

But the vindication came too late for McMillin to realize his dream of turning Roche Harbor into a major cement plant. Instead, despite losing the Roche Harbor case, it was Ernest Cowell who built in California one of the largest cement plants on the West Coast (and a company town named Cowell). Construction of the plant began in 1906 and the Cowell Portland Cement Company plant, comprising eight oil-fired rotary kilns on a 2,000 acre site, opened in February 1908, almost a year before Judge Hanford ruled.


Sources:

"To Manufacture Cement," San Juan Islander, August 13, 1903, p. 1; "Roche Harbor Cement Plant," Ibid., February 25, 1905, p. 1; "Cement Works at Roche Harbor," Ibid., March 3, 1906, p. 1; "John S. McMillin Charged With Fraud," Ibid., June 9, 1906, p. 1; "An Interesting Tale of High Finance," Ibid., June 16, 1906, p. 1; "Some Revelations and Observations," Ibid., June 16, 1906, p. 1; "Receivership Denied," Ibid., June 23, 1906, p. 1; "McMillin Wins the Cowell Case," Ibid., June 27, 1908, p. 1; "A Remarkable Vindication," Ibid., June 27, 1908, p. 1; Cowell v. McMillin, U.S. Circuit, Seattle Court Case No. 1413, Folders 1-5, Box 228, RG 21, National Archives and Records Administration, Seattle, Washington; "Articles of Incorporation of the Roche Harbor Lime and Cement Company," November 29, 1905, Secretary of State, Washington State Office of the Secretary of State, Corporations Collection, 1855-2004, Washington State Archives, Olympia, Washington; "Who Was Henry Cowell?" California Department of Parks and Recreation website accessed August 29, 2014 (http://www.parks.ca.gov/?page_id=918); William T. Larkins, "A General Introduction to the Cement Plant and Town of Cowell," Cowell Historical Society Website accessed February 25, 2014 (http://cowellhistoricalsociety.org/html/cowell.html); Laurie MacDougall, "Cowell Family," Santa Cruz History--People, Santa Cruz Public Libraries website accessed August 29, 2014) (http://www.santacruzpl.org/history/topics/13/); "Map Showing Property of Tacoma & Roche Harbor Lime Co.," June 1903, copy in possession of  Roche Harbor Resorts, Roche Harbor, Washington; Boyd C. Pratt and Nancy Larsen, "San Juan Lime Company/Cowell's National Register of Historic Places Nomination Form," Washington State Department of Archaeology and Historic Preservation website accessed August 29, 2014 (https://fortress.wa.gov/dahp/wisaard/dahpreports/registerreport.aspx?id=1937&ug=1); Jeffery Karl Ochsner and Dennis Alan Anderson, Distant Corner: Seattle Architects and the Legacy of H. H. Richardson (Seattle: University of Washington Press, 2003); Carlos A. Schwantes, The Pacific Northwest: An Interpretive History (Lincoln: University of Nebraska Press, 1989).


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