Brown & Williamson Tobacco Corp. v. Engman

• Decision Date: 22 December 1975
• Docket Number: Nos. 398,s. 398
• Citation: 527 F.2d 1115
• Parties: 1975-2 Trade Cases 60,649 BROWN & WILLIAMSON TOBACCO CORP., Appellant, v. Lewis A. ENGMAN, Chairman, Federal Trade Commission, et al., Appellees. PHILIP MORRIS INCORPORATED, Appellant, v. Lewis A. ENGMAN, Chairman, Federal Trade Commission, et al., Appellees. R. J. REYNOLDS TOBACCO CO., Appellant, v. Lewis A. ENGMAN, Chairman, Federal Trade Commission, et al., Appellees. LOEW'S THEATRES, INC., Appellant, v. Lewis A. ENGMAN, Chairman, Federal Trade Commission, et al., Appellees. AMERICAN BRANDS, INC., Appellant, v. Lewis A. ENGMAN, Chairman, Federal Trade Commission, et al., Appellees. LIGGETT & MYERS INCORPORATED, Appellant, v. Lewis A. ENGMAN, Chairman, Federal Trade Commission, et al., Appellees. to 403, Dockets 75--6081, 75--6084, 75--6085, 75--6087, 75--6088 and 75--6090.
• Court: U.S. Court of Appeals — Second Circuit

Page 1115

527 F.2d 1115

1975-2 Trade Cases 60,649

BROWN & WILLIAMSON TOBACCO CORP., Appellant, v. Lewis A. ENGMAN, Chairman, Federal Trade Commission, et al.,

Appellees.

PHILIP MORRIS INCORPORATED, Appellant, v. Lewis A. ENGMAN, Chairman, Federal Trade Commission, et al.,

Appellees.

R. J. REYNOLDS TOBACCO CO., Appellant, v. Lewis A. ENGMAN, Chairman, Federal Trade Commission, et al.,

Appellees.

LOEW'S THEATRES, INC., Appellant, v. Lewis A. ENGMAN, Chairman, Federal Trade Commission, et al.,

Appellees.

AMERICAN BRANDS, INC., Appellant, v. Lewis A. ENGMAN, Chairman, Federal Trade Commission, et al.,

Appellees.

LIGGETT & MYERS INCORPORATED, Appellant, v. Lewis A. ENGMAN, Chairman, Federal Trade Commission, et al.,

Appellees.

Nos. 398 to 403, Dockets 75--6081, 75--6084, 75--6085,

75--6087, 75--6088 and 75--6090.

United States Court of Appeals Second Circuit.

Argued Oct. 29, 1975.

Decided Dec. 22, 1975.

Martin London, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, Eugene R. Anderson, Anderson Russell, Kill & Olick, P.C., New York City (Lewis A. Kaplan, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, Abe Krash, Melvin Spaeth, Jerome I. Chapman, Leonard H. Becker, Washington, D.C., Donald Fried, Thomas F. Ahrensfeld, Alexander Holtzman, New York City, Aronld & Porter, Washington, D.C., Conboy, Hewitt, O'Brien & Boardman, David, Polk & Wardwell, New York City, Paul C. Warnke, John F. Kovin, Washington, D.C., H. C. Roemer and Max H. Crohn, Jr., of counsel, Clifford, Warnke, Glass, McIlwain & Finney, Washington, D.C., Irving Scher, Stanley A. Rothstein, Weil, Gotshal & Manges, Chadbourne, Parke, Whiteside & Wolff, New York City, Daniel J. O'Neill, Charles K. O'Neill, Anderson, Russell, Kill & Olick, P.C., New York City, Grainger R. Barrett, New York City, Joseph Greer, Lanny J. Davis, Patton, Boggs & Blow, Washington, D.C. of counsel), for appellants.

Richard J. Weisberg, Asst. U.S. Atty. (Paul J. Curran, U.S. Atty. for the Southern District of New York, Steven J. Glassman, Asst. U.S. Atty., of counsel), for appellees.

Before MULLIGAN, OAKES and MESKILL, Circuit Judges.

OAKES, Circuit Judge:

This appeal is from the denial of appellants' motion for a stay of penalties under Section 5(l) of the Federal Trade Commission Act, 15 U.S.C. § 45(l) (1975 Supp.). The motion for a stay was sought by the six appellants who collectively produce about 99 per cent of the cigarettes manufactured in the United States. They have instituted declaratory judgment actions to obtain review of the Federal Trade Commission's interpretation of six cease and desist consent orders previously entered against them. Appellants have sought review prior to any enforcement proceedings brought by the FTC. The United States District Court for the Southern District of New York, Charles H. Tenney, Judge, denied the motion for a stay. He concluded that appellants were not entitled to a stay as a matter of law and that they had failed to show that without the stay they will suffer irreparable injury or that the balance of the equities tipped decidedly in their favor. We affirm. ¹

The consent orders here involved were formally issued by the FTC on March 30, 1972. Essentially they require, in very detailed terms as to size of print, location, color and shape, that appellants include in their newspaper, magazine and other periodical advertising the now famous Surgeon General's warning reading 'Warning: The Surgeon General has determined that cigarette smoking is dangerous to your health.' The history underlying the consent orders is not particularly relevant for present purposes, so that it is set out only in the margin. ² Suffice it to say that the orders were entered into after negotiations resulting from the FTC's serving appellants with proposed complaints charging them with deceptive practices under 15 U.S.C. § 45(a) for the failure to disclose in their advertising the hazards of using cigarettes. The important thing for our purposes is that in the consent order each of the appellants waived 'any further procedural steps' and 'all rights to seek judicial review or otherwise to challenge or contest the validity of the order entered pursuant to this agreement.' It should also be mentioned that the consent orders required the submission of compliance reports. These reports were filed in September 1972, with the result that the FTC reported to Congress in December 1972 and January 1974 that industry practice was in substantial compliance with the orders. Subsequently, however, the FTC claimed that prior to and since September 1972 appellants had engaged in practices which did not comply with the consent orders' detailed requirements. Accordingly the Commission initiated a compliance investigation. From November 1974 through January 1975 attempts apparently were made to settle the FTC's claims of violations of the orders, but the settlement negotiations broke down. The companies claim that the FTC demanded too high a sum as a penalty for past violations and the FTC counters that such a sum was not a condition to further negotiation, and that appellants had refused to accept the staff's interpretation of the consent orders. On March 17, 1975, appellants asked the FTC Commissioners to reject the staff's interpretation. On August 1, 1975, the Commission, by letters to the companies, formally indicated that the Commissioners supported the staff's interpretation and that pursuant to the provisions of 15 U.S.C. § 56(a) ³ it would notify the Attorney General of its intention to commence an action for civil penalties and for other relief on the basis of these violations. The letters of August 1 stated, however, that for certain of the alleged violations of the orders the Commission would hold the civil penalty action in abeyance for 180 days. ⁴ Appellants thereafter, on August 14, 1975, commenced actions for a judgment declaring that the 'determinations' in the Commission's letters of August 1 are inconsistent with the provisions of the orders and that the appellants are not liable for civil penalties. They also sought an order staying pending final judgment the accumulation of penalties for alleged violations of the orders under Section 5 of the Act, 15 U.S.C. § 45. ⁵ The six complaints were consolidated, since they contain identical questions of law, and after a hearing the court denied the motion for a stay of penalties, treating it essentially as an application for a preliminary injunction.

Appellants principally argue that they are entitled to a stay of the accrual of civil penalties as a matter of law. They do so on the basis of a series of Supreme Court decisions which commenced with Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908), and include Wadley Southern Railway Co. v. Georgia, 235 U.S. 651, 35 S.Ct. 214, 59 L.Ed. 405 (1915); Oklahoma Operating Co. v. Love, 252 U.S. 331, 40 S.Ct. 338, 64 L.Ed. 596 (1920), and St. Regis Paper Co. v. United States, 368 U.S. 208, 82 S.Ct. 289, 7 L.Ed.2d 240 (1961). ⁶ The argument is that a party whose conduct is made subject to administrative action must be given the opportunity to obtain a judicial test of the validity of such action and, further, as a matter of due process of law, cannot be subjected to the risk that substantial penalties will accumulate during the course of the judicial proceeding. This line of cases is based on the reasoning that, regardless of the ultimate determination on the merits, due process requires that some real opportunity to challenge administrative action be afforded, and that such opportunity cannot exist where penalties are so great that noncompliance and a judicial challenge cannot be risked. The argument is the more compelling, the appellants suggest, in connection with FTC statutory penalties due to recent decisions, including our own United States v. J. B. Williams Co., 498 F.2d 414, 435--36 (2d Cir. 1974), note 5 supra, which hold that penalties imposed for noncompliance with the Commission's cease and desist order may be computed on the basis of a separate violation for each day and for each advertisement. ⁷ Appellants thus claim that the district court's endorsement of the Government's position in this case is directly contrary to definitive Supreme Court decisions which embody the rule that a stay of penalties is required during a good faith judicial challenge to an agency determination.

Young, Wadley, Love and St. Regis, however, do not go as far as appellants suggest. Rather, they establish that one has a due process right to contest the Validity of a legislative or administrative order affecting his affairs without necessarily having to face ruinous penalties if the suit is lost. The constitutional requirement is satisfied by a statutory scheme which provides an opportunity for testing the validity of statutes or administrative orders without incurring the prospect of debilitating or confiscatory penalties. As stated in St. Louis, Iron Mountain & Southern Railway Co. v. Williams, 251 U.S. 63, 65, 40 S.Ct. 71, 72, 64 L.Ed. 139 (1919),

where such an opportunity (to contest the validity) is afforded and the (statute or administrative order) is adjudged valid, or the carrier fails to avail itself of the opportunity (to contest the validity), it then is admissible, so far as due process of law is concerned, for the state to enforce adherence to the rate by imposing substantial penalties for deviations from it.

See St. Regis, supra, 368 U.S. at 226--27, 82 S.Ct. 289; Wadley, supra, 235 U.S. at 667--69, 35 S.Ct. 215. See also Ford Motor Co. v. Coleman, 402 F.Supp. 475 at 483--484 (D.D.C.1975).

Here the penalties which the appellants seek to have stayed did not attach prior to their opportunity to contest the validity of the orders. Rather, the risk of penalties began to accrue only after the appellants entered into consent decrees which acknowledged the validity of the decrees and waived the right further to challenge their validity....