Knoll Associates, Inc. v. Federal Trade Commission

• Decision Date: 18 June 1968
• Docket Number: No. 15900.,15900.
• Parties: KNOLL ASSOCIATES, INC., a New York corporation, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Seventh Circuit

397 F.2d 530 (1968)

KNOLL ASSOCIATES, INC., a New York corporation, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 15900.

United States Court of Appeals Seventh Circuit.

June 18, 1968.

Jacob Imberman, George G. Gallantz, Morton M. Maneker, Lawrence J. Rothenberg, New York City, for petitioner; Proskauer Rose Goetz & Mendelsohn, New York City, of counsel.

J. B. Truly, Asst. Gen. Counsel, E. K. Elkins, Atty., Federal Trade Commission, Washington, D. C., James McI. Henderson, Gen. Counsel, for the Federal Trade Commission.

Before SCHNACKENBERG, SWYGERT and CUMMINGS, Circuit Judges.

SCHNACKENBERG, Circuit Judge.

Knoll Associates, Inc., a New York corporation, petitioner, seeks our review of an order issued on August 2, 1966 by the Federal Trade Commission requiring it, directly or through its parent corporation, Art Metal, Inc., or otherwise, in connection with the sale of furniture and furniture products in commerce, to cease and desist from —

Discriminating, directly or indirectly, in the price of such furniture and furniture products of like grade and quality by selling to any purchaser at net prices higher than the net prices charged any other purchaser who competes with the purchaser paying the higher price.

The Commission found a violation of § 2(a) of the Clayton Act, as amended 15 U.S.C. § 13(a), which provides in part:

That it shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality * * where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them * * *.

Certain issues explicitly raised by petitioner refer to the Commission's determination that its purchasers include interior designers, that discriminations may cause injury to competition with favored customers, to the rejection of petitioner's affirmative defense that its discriminations had been made to meet the equally low prices of competitors, and to the fact that the Commission improperly admitted into evidence and relied on documents stolen by one Herbert Prosser, an employee in the Detroit showroom of petitioner's sales representative, Joseph Dworski, and by Prosser sent to counsel for the Commission, as well as other evidence obtained from the stolen documents by Commission counsel.

This proceeding was commenced by the issuance of a complaint on December 27, 1962, charging that Knoll discriminated in price between competing purchasers of its products in violation of § 2(a) of the act. Such purchasers were said to include those classified by it as architects, interior designers, contract houses, interior decorators, office furniture dealers, and furniture or department stores. Knoll admitted charging some purchasers list prices less 50% and other purchasers in the same cities list prices less 40%, but denied that the sales to architects, interior designers and interior decorators were for resale by them, that there existed potential competitive injury, and asserted that its 50% discounts were made in good faith to meet equally low prices of a competitor as permitted by § 2(b).

An examiner held hearings and received evidence offered by the Commission and by Knoll on the issues.

On February 24, 1964, pursuant to a notice of a hearing to be held March 9, 1964 to receive Commission evidence in rebuttal of Knoll's affirmative defense, Knoll was served with a request by the Commission counsel to admit the authenticity of certain documents. These documents later were shown to have been stolen by Herbert Prosser, an employee of Dworski, Knoll's exclusive sales representative in Detroit, from its Detroit showroom. This appeared when Knoll called for the production of all such documents and a full hearing and full disclosure of all the facts as to how the documents were procured. At a hearing held on March 17, 1964, Knoll called several witnesses in support of its motion, including Herbert Prosser, and then sought unsuccessfully to have the Commission counsel testify. Knoll's motion to suppress the documents admittedly taken from its showroom was denied by the examiner and the Commission.

The examiner found inter alia that Knoll is a New York corporation, wholly owned by Art Metal, Inc.,¹ manufacturing and selling furniture and furniture products throughout the United States; that firms, classified as designers and decorators by Knoll, actually were found to "buy and sell furniture in addition to their design service" from Knoll and other manufacturers, thus cross-competing with each other and with members of other classes; further that Knoll uses a 10% price differential among "customers" who agree to aggressively market Knoll's products and that resulting price discriminations had the requisite proscribed effect upon competition set forth in § 2(a) aforesaid. The examiner further found that, even though Knoll's favored customers received the highest discounts from other manufacturers, Knoll failed to establish a single instance of having met a competitor's price on any identified item of furniture with an equally low price and that Knoll gave its higher discount across the board on all items in its line to its favored customers. On the basis of these findings, he concluded that Knoll's pricing practices violate § 2(a) and are not within the allowed affirmative defense of § 2(b).

Nevertheless we are now required to take cognizance of petitioner's charge that the Commission improperly admitted into the record of this proceeding and relied heavily upon certain documents stolen for that purpose by said Prosser. It is alleged that these documents, as well as other evidence obtained for use by the Commission's counsel, were used in violation of the fourth amendment to the federal constitution. It is also urged that the Commission's counsel improperly intruded upon the privacy of the attorney-client relationship between petitioner and its counsel and upon its defense preparations. In these respects, it is insisted that petitioner's right to counsel was impaired and it was deprived of due process of law as guaranteed by the fifth amendment. In view of the result which we reach in this case, it is not necessary for us to consider this latter contention of petitioner.

1. Kathryn Sanders, a witness for Knoll, testified that on December 9, 1963 she was in the Knoll showroom in Birmingham, Michigan, which was run by Joseph Dworski, and saw Regional Manager Helm, Gary A. Beals,² and Prosser. Dworski came in and the four men went to lunch, and she was there when they returned from lunch. She stated that then Dworski, Beals and Helm left, but Prosser remained, and, when Rose, another employee, went to a late lunch, only she and Prosser were there; that she heard Prosser make a telephone call to a Mr. "Turiel or Turrell" at the Federal Trade Commission in Washington. Prosser's part in that conversation, as heard by the witness was as follows:

"`This is Herbert Prosser,\' * * * `I worked with Knoll Associates in Michigan,\' * * * `I have been getting a raw deal.\' * * * `The runaround, something with Knoll\'s, and I wonder how you would like to have me testify on the Government\'s Behalf.\'"

The witness added that

"* * * he did ask when the hearings were going to be in New York * * * and he said he was coming on a Christmas holiday to New York to see his family who lived there, and would be there, and would be able to testify there. * * * he was most upset, * * * but he said `I have a lot of incriminating evidence,\' or `I have enough to hang Knoll,\' * * * `I have enough papers to hang them,\' or something to that effect."

When Prosser was called as a witness for Knoll before the examiner, he testified, inter alia:

During December 1963 he was employed at the Knoll showroom in Birmingham, Michigan by Beals and Dworski.

The examiner ruled that Prosser could be examined by Knoll's counsel as a hostile witness. As such, Prosser then testified that he had attended several colleges. He was shown papers (marked Exhibits CX 1914-A through 1959-B). He denied taking these papers from Knoll, but admitted taking them from Dworski, who, he said, was the agent for Knoll, and on January 5, 1964, he sent the papers via air express to the Federal Trade Commission in New York City, marked to the attention of Bernard Turiel, its attorney.

Prosser further testified that he communicated with Turiel on December 9, 1963 by phone from the office of Dworski in Birmingham. He admitted that he "may very well have" made another call to the Commission on December 10. He also admitted calling Turiel on December 10; that between that date and March 18, 1964, he spoke with Turiel, "on any number of occasions", concerning "these proceedings" between Knoll and the Commission. The subject matter of some of these conversations was "these documents" (CX 1914-A through 1959-B, which were lying in front of the witness).

On cross-examination by Mr. Turiel, the witness said that most of the telephone conversations between himself and Mr. Turiel took place after January, 1964.

When the examiner, at the suggestion of counsel for Knoll, asked if Mr. Turiel would take the stand to testify, Turiel said he was taking the position that he and Mr. Brod³ refused to testify.

The hearing officer commented that he saw "no reason why an administrative agency should be allowed to circumvent the constitution if the courts themselves can't". He added:

"* * * the Federal Trade Commission has the broadest investigatory and subpoena powers of any agency in the Government."

During the argument before the hearing examiner, Turiel said that he believed that these documents came into the possession...