Sunbeam Corporation v. Golden Rule Appliance Co.

• Decision Date: 30 January 1958
• Docket Number: No. 107,Docket 24658.,107
• Citation: 252 F.2d 467
• Parties: SUNBEAM CORPORATION, Petitioner-Appellee, v. GOLDEN RULE APPLIANCE CO., Inc., Respondent-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

252 F.2d 467 (1958)

SUNBEAM CORPORATION, Petitioner-Appellee, v. GOLDEN RULE APPLIANCE CO., Inc., Respondent-Appellant.

No. 107, Docket 24658.

United States Court of Appeals Second Circuit.

Argued November 22, 1957.

Decided January 30, 1958.

Thomas J. Burns, New York City (Raphael, Searles, Levin & Vischi, New York City, on the brief), for respondent-appellant.

Alfred P. O'Hara, New York City (Rogers, Hoge & Hills, New York City, on the brief), for petitioner-appellee.

Before HAND, HINCKS and LUMBARD, Circuit Judges.

HINCKS, Circuit Judge.

This is an appeal from a judgment holding the appellant, Golden Rule Appliance Co., Inc., in civil contempt for violation of a consent decree entered in an injunction action brought by Sunbeam Corporation to enforce a claim of unfair competition under the New York Fair Trade Law, N.Y. General Business Law § 369-a et seq. Among other terms, the consent decree forbade Golden Rule from advertising or selling any price-fixed Sunbeam product below the list price set by Sunbeam pursuant to the New York Fair Trade Law.

The judgment below has three main provisions: (1) Golden Rule is to pay Sunbeam $1,000 as a "fine"; (2) Golden Rules is to pay Sunbeam $2,500 as reimbursement for all costs of this litigation including counsel fees; (3) Golden Rule is to pay Sunbeam a $2,500 fine for every future sale of a Sunbeam product in violation of the consent decree.

Golden Rules is a "discount house" located in New York City which sold, among other products, electrical appliances, including some of Sunbeam's. The discount operation is based upon large volume with a comparatively low profit margin upon the individual items. This type of operation, as are other retail operations, is subject to the New York Fair Trade Law, which permits manufacturers of trademarked products in open competition to maintain a desired price level in the state. Sunbeam took advantage of the statute's provisions and duly established minimum prices for the resale of its products in the State of New York. Its conduct in so doing was saved from conflict with the Antitrust Laws of the United States by the Miller-Tydings Act, 15 U.S.C.A. § 1, as supplemented by the McGuire Act, 15 U.S.C.A. § 45.

In June 1954, Sunbeam commenced suit against Golden Rule for alleged violations of Sunbeam's established prices. The consent decree, referred to above, was filed on August 1, 1956. The present proceeding, commenced in January 1957 by the issuance of a show-cause order, is based upon sales made by the defendant in November and December, 1956, at prices below the established resale price. At the hearing several professional shoppers testified to such sales.

Golden Rule asserted several defenses: the alleged sales never occurred; and even if the sales were made they were legal under that provision of New York law which authorizes close-out sales at less than list prices. Further, it is contended that Golden Rule entered into the consent decree upon Sunbeam's representation, not subsequently carried out, that it would repurchase all of Golden Rule's present stock of Sunbeam products.

The judge below found that the proscribed sales had, in fact, taken place as the professional shoppers had testified. He also found the violations of the injunction to be willful and part of an "intentional sales policy" directed toward a "cold-blooded evasion" of the court's earlier decree. He did not credit Golden Rule's claim that Sunbeam had promised to repurchase its product from Golden Rule. The judgment of contempt followed.

On this appeal, Golden Rule attacks the finding that proscribed sales occurred and the refusal to find an agreement by Sunbeam to repurchase the stock on hand. But if Judge Walsh chose to credit Sunbeam's witnesses, as he did, there was ample evidence to sustain his determinations of fact. Not having been shown to be clearly erroneous, Fed.Rules Civ.Proc., Rule 52(a), 28 U.S.C.A., the findings are sustained.

The appellant contends that close-out sales at less than the manufacturer's list price are legal under N.Y.General Business Law § 369-a, subd. 2(a) which states that price maintenance agreements do not apply "in closing out the owner's stock for the purpose of discontinuing delivering any such commodity." There are two answers to this contention; one factual and one legal. The evidence indicated that more than a month after the consent decree was signed Golden Rule received and accepted a shipment of Sunbeam products it had ordered. This tended to prove that Golden Rule was not in fact closing out. Merely posting a sign advertising a "close-out" does not automatically bring all sales within the statutory provision just quoted. However that may be, in New York it seems settled that a close-out sale is no defense to a proceeding for contempt based upon violation of a prior injunction. General Electric v. Big Three Appliance Center, N.Y.L.J., Nov. 1, 1956, p. 7, col. 4; Revere Copper & Brass Inc. v. Harvard Stores, N.Y.L.J., Jan. 14, 1955, p. 8, col. 3; General Electric v. Greeley Appliance Corp., 125 N.Y. L.J. 858 (1951). The proper procedure is for the defendant to request a modification of the earlier decree allowing such a sale. General Electric v. Goldwitz, N.Y. L.J., April 10, 1956, p. 7, col. 1. Another factor militates against the appellant's contention. The consent decree on which this contempt proceeding is based does not in terms prohibit only such sales as are interdicted by the New York Fair Trade Law but, instead, and without exception, purports to forbid all sales below the fair trade prices as set by Sunbeam.

The appellant's main attack is directed against the three pecuniary provisions of the decree enumerated above. It contends that these, because punitive and confiscatory, have no proper place in a decree for civil contempt.

This, to be sure, is a proceeding brought for a civil contempt and, as the appellant says, the authorities plainly hold that such a proceeding is remedial and compensatory, and not punitive. United States v. United Mine Workers, 330 U.S. 258, 304, 67 S.Ct. 677, 91 L.Ed. 884. In Gompers v. Buck's Stove & Range Co., 221 U.S. 418, 441, 31 S.Ct. 492, 55 L.Ed. 797, it was stated that in a civil contempt proceeding "the punishment is remedial, and for the benefit of the complainant." It is only in a criminal contempt that "the sentence is punitive, to vindicate the authority of the court." See, generally, Moskovitz, Contempt of Injunctions, Civil and Criminal, 43 Colum.L.Rev. 780; Civil and Criminal Contempt in Federal Courts, 57 Yale L.J. 83; and Civil and Criminal Contempt in Federal Courts, 17 F.R.D. 167.

The first pecuniary provision of the decree requires Golden Rule to pay Sunbeam $1,000 as compensation for past violations of the injunction. I agree with Judge HAND that the order for the $1,000 fine cannot stand. I think I should say, however, that I reach the result he indicates by a somewhat different approach. In a Fair Trade case such as this, in which the defendant's violation, without depriving the plaintiff of any sales which it might otherwise have made, has only caused some injury to the plaintiff's good will, I find it difficult to view the defendant's profits as included in the concept of compensation to the plaintiff. In such cases the relationship between the defendant's profits and "compensation" to the plaintiff seems substantially more remote than in patent infringement cases such as Leman v. Krentler-Arnold Hinge Last Co., 284 U.S. 448, 52 S.Ct. 238, 76 L.Ed. 389, which Judge HAND cites, in which it is plausible to infer that sales of the patented article made by the defendant would have been made by the plaintiff but for the defendant's wrongful conduct. Restatement, Torts, § 747.

The problem now presented to us is whether, in a contempt proceeding arising from violation of the decree of a federal court in a Fair Trade case, an award of the defendant's profits to the plaintiff may be viewed as "compensatory" relief within the well established federal rule that only compensatory relief may be awarded in civil contempt proceedings. United States v. United Mine Workers, supra; Gompers v. Buck's Stove & Range Co., supra. In the federal contempt cases I find no intimation that the notion of "compensatory relief" differs from that applied by the federal courts in shaping the recovery in patent infringement cases. Leman v. Krentler-Arnold Hinge Last Co., supra. And since our immediate problem relates to the power of a federal court to enforce its decree, even in a diversity case such as this a remedy provided by a State contempt statute is not applicable: we may not give effect to § 773 of the New York Judiciary Law which provides that the plaintiff may recover $250 for each violation of a civil contempt decree even absent proof of damages. Guaranty Trust Co. of New York v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079.

However, it now seems established that in trade-mark cases, in which as in Fair Trade cases the plaintiff has suffered injury to his good will, the infringer, like the patent infringer, is held to the accountability of a trustee for profits derived from property illegally dealt with. Blue Bell Co. v. Frontier Refining Co., 10 Cir., 213 F.2d 354, 362-363; Maternally Yours, Inc., v. Your Maternity Shop, 2 Cir., 234 F.2d 538, 545; Dad's Root Beer Co. v. Doc's Beverages, 2 Cir., 193 F.2d 77. In both types of cases the crucial injury is one to the plaintiff's good will; in both the plaintiff may recover the defendant's profits. I think that in the one type as in the other the recovery may be classified as compensatory, rather than punitive, within the meaning of the federal rule limiting awards in civil contempt cases to those which are compensatory. An award in such cases surely cannot be characterized as "punitive." For its effect goes no further than to give to the plaintiff the profits derived by the defendant's wrongful conduct: it...