United States v. Beatrice Foods Co.

• Citation: 493 F.2d 1259
• Decision Date: 08 March 1974
• Docket Number: No. 73-1120.,73-1120.
• Parties: UNITED STATES of America, Appellee, v. BEATRICE FOODS CO., Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

493 F.2d 1259 (1974)

UNITED STATES of America, Appellee, v. BEATRICE FOODS CO., Appellant.

No. 73-1120.

United States Court of Appeals, Eighth Circuit.

Submitted October 15, 1973.

Decided March 8, 1974.

COPYRIGHT MATERIAL OMITTED

Edward L. Foote, Chicago, Ill., for appellant.

George Edelstein, Atty., U. S. Dept. of Justice, Antitrust Div., Washington, D. C., for appellee.

Before LAY and BRIGHT, Circuit Judges, and EISELE, District Judge.^*

LAY, Circuit Judge.

This is an appeal from a summary judgment granted by the District Court for the District of Minnesota, the Honorable Philip Neville presiding, in a suit brought by the United States against Beatrice Foods Company under § 11(l) of the Clayton Act, 15 U.S.C. § 21(l); and § 5(l) of the Federal Trade Commission Act, 15 U.S.C. § 45(l). The government sought civil penalties and injunctive relief for two violations of a Federal Trade Commission consent order. The trial court granted summary judgment in favor of the United States, assessed monetary penalties and ordered divestiture of Beatrice's holdings acquired in violation of the FTC order.¹

On appeal Beatrice contends that:

(a) Under Count I, there has been no showing that Beatrice's transactions with Maple Island Dairies violated the consent decree;

(b) The district court erred in granting summary judgment in that questions of fact exist as to the intended meaning of the consent decree;

(c) The district court erred in imposing daily penalties for the Maple Island transactions, first, because Beatrice was not given adequate notice of the alleged order violation, and second, because there was no continuing violation but only a single illegal acquisition;

(d) The district court lacked the power to grant injunctive relief requiring Beatrice to divest itself of its interest in Maple Island; and

(e) Under Count II, the court erred in requiring Beatrice to divest its minority stock interest in Valley Gold Dairies.

Background

In 1956, the Federal Trade Commission instituted proceedings against Beatrice and three of its competitors alleging acquisitions in violation of § 7 of the Clayton Act, 15 U.S.C. § 18, and § 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. § 45(a) (1). The proceedings against Beatrice's competitors were all settled by consent decrees.² In March, 1964, an FTC hearing examiner held that five of Beatrice's recent acquisitions violated § 7 of the Clayton Act. The examiner ordered divestiture of the five firms and enjoined Beatrice for ten years from acquiring "the whole or any part of the stock, share capital or assets" of any dairy firm. On April 26, 1965, the FTC affirmed the examiner's decision.

Beatrice petitioned for review of the order in the Ninth Circuit. While the petition was pending, the FTC and Beatrice agreed to settle the case with entry of a modified order. In May, 1967, the Ninth Circuit modified the FTC order to reflect the settlement and affirmed the order as modified. On June 7, 1967, the FTC issued the modified order.

The modified order required divestiture of five unlawfully acquired dairies, whether owned in whole or in part by Beatrice, to a single purchaser.³ The order also contained the following cease and desist provision:

Beatrice shall cease and desist, for a period of ten (10) years from the effective date of this order from acquiring, directly or indirectly, any interest in any firm, corporate or noncorporate, engaged principally or as one of its major commodity lines at the time of such acquisition in any State of the United States or in the District of Columbia in the business of manufacturing, processing or distributing at wholesale or on retail milk routes any of the products described in Paragraph I of this order, without the prior approval of the Commission.

COUNT I: THE MAPLE ISLAND TRANSACTIONS

Count I of the government's complaint alleged that Beatrice violated the above cease and desist order by acquiring an "interest in" Maple Island Dairies. The district court so found.

Maple Island Dairies distributed dairy products in Minnesota and Wisconsin. In 1968, Maple Island decided to dispose of its unprofitable "northern division" distribution system. This division had been distributing dairy products bearing the Maple Island label (1) at four stores owned by Maple Island,⁴ (2) along 11 routes operated by Maple Island employees, and (3) along 11 routes owned and operated by independent distributors.

Representatives from Maple Island met frequently with representatives of Russell Creamery of Wisconsin, Inc., a wholly-owned subsidiary of Beatrice. As a result of these discussions, the 11 routes owned by Maple Island were converted into independent distributorships. The new distributors purchased from Maple Island the assets used to operate the routes, including inventory and accounts receivable. The purchase of seven of the 11 routes was financed primarily by Beatrice. The new distributors agreed to distribute Maple Island products exclusively. They also executed conditional sales contracts, factor's liens, and notes in favor of Maple Island. Then, Beatrice, Maple Island, and each distributor signed an agreement whereby Maple Island assigned to Beatrice the conditional sales contract, factor's lien, note and franchise agreement, and the distributor accepted the assignment. On September 1, 1968, Russell Creamery (Beatrice) began supplying the dairy products for all but a few of the new distributors.

The 11 independent Maple Island distributors, who owned their own physical facilities, only owed Maple Island for their 30-day trade accounts. Four paid these amounts themselves, six were financed by Beatrice and one was dropped from the arrangement. Maple Island also granted to Beatrice the right to use Maple Island's labels in the northern division for five years.

As a result of the above transactions, the government charged that Beatrice had violated the consent cease and desist order by acquiring an "interest in" Maple Island.

On appeal, Beatrice argues that the phrase used in the FTC order, "interest in," "does not apply to assets or interests of a dairy, but rather prohibits the acquisition of an interest in a dairy." In rejecting this argument, and in holding that there was no dispute of facts, Judge Neville found that the term "interest" has a consistent and commonly understood meaning in relationship to property, business and other things of value, citing the Restatement of Property § 5:

The word `interest\' is used in this Restatement both generically to include varying aggregates of rights, privileges, powers, and immunities, and distributively to mean any one of them.

The district court then found that:

"Interest" includes, by definition, the rights transferred here to Beatrice by Maple Island. The license to use the label, the notes, distributorship agreements, sales contracts and factor\'s liens are all "rights in the nature of property" and valuable rights forming a part of the business and in many instances comprising assets of Maple Island. Whereas before, Maple Island held all rights, privileges, powers, and immunities relating to the assets transferred, after the transfer, Beatrice held some of those rights and the independent distributors held the rest. And while the sales contracts, factor\'s liens and notes did not give Beatrice title, Beatrice clearly held a security interest, i.e., a right of ownership contingent upon the default of the titleholder. Such interests are no less interests within the terms of the order because contingent upon default of the debtor. Perhaps most significant, prior to the transfer, Maple Island had the "rights to the benefits" inseparable from the property transferred, i.e., the sales of its milk to the customers along Maple Island\'s former routes. After the transfer, Beatrice had those rights at least for the minimum period of the distributorship agreements and the advantage of an established and continuing relationship with the distributors. Beatrice thereby gained access to all or most of the customers—the sales volume—who previously bought milk from Maple Island. The net result was an increase in gross sales of Russell Creamery in Superior alone of nearly $1 million, about 30%.

United States v. Beatrice Foods Co., 344 F.Supp. 104, 111-112 (D.Minn.1972).

Beatrice's argument is that the trial court was totally preoccupied with defining "interest" and failed to recognize that the real term of art within the decree is the preposition "in" as distinguished from the possible use of the word "of." Thus it is argued that the compromise decree allows the purchase of interests of a dairy and proscribes only the acquisition of interests in a dairy. We think the argument disingenuous. Neither preposition in the context of the overall decree demonstrates, a definitive, special meaning. Both "in" and "of" are, in common usage, words of function bearing similar connotations of active and possessive participation. See Webster's Third New International Dictionary 1139, 1565 (1967). We must give the decree its "normal meaning" rather than one party's view of its purpose.

It is urged the trial court erred in failing to admit evidence of the pre-order negotiations between the parties to ascertain "the purpose" of the decree. Similarly, it is argued that post-decree conduct is also material.⁵ We reject this contention on the same grounds that the trial court did. In United States v. Armour & Co., 402 U.S. 673, 682, 91 S.Ct. 1752, 1757, 29 L.Ed.2d 256 (1971), the Supreme Court observed:

The scope of a consent decree must be discerned within its four corners, and not by reference to what might satisfy the purposes of one of the parties to it. (emphasis added).

See also Gila Valley Irrigation Dist. v. United States, 118 F.2d 507 (9th Cir. 1941); United States v. J. B. Williams Co., Inc., 354 F.Supp. 521 (S.D.N.Y.), appeal docketed, No. 73-1624 (2d Cir. 1973); 80 Harv.L.Rev. 1303, 1315 (1967).

Althou...