U.S. v. American Cyanamid Co., s. 1237

• Citation: 719 F.2d 558
• Decision Date: 05 October 1983
• Docket Number: D,Nos. 1237,1455,s. 1237
• Parties: 1983-2 Trade Cases 65,656 UNITED STATES of America, Plaintiff-Appellee, v. AMERICAN CYANAMID CO., Defendant-Appellee and Cross-Appellant, Melamine Chemicals, Inc., Intervenor-Appellant-Cross-Appellee. ockets 83-6041, 83-6053.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 558

719 F.2d 558

1983-2 Trade Cases 65,656

UNITED STATES of America, Plaintiff-Appellee, v. AMERICAN CYANAMID CO., Defendant-Appellee and Cross-Appellant Melamine Chemicals, Inc., Intervenor-Appellant-Cross-Appellee.

Nos. 1237, 1455, Dockets 83-6041, 83-6053.

United States Court of Appeals Second Circuit.

Argued May 12, 1983.

Decided Oct. 5, 1983.

Ray S. Bolze, Washington, D.C. (Robert J. Brookhiser, Jr., Jean M. Allison, Howrey & Simon, Washington, D.C., James K. Leader, Holly S. Stein, Townley & Updike, New York City, John C. Biehl, Ashland Oil, Inc., Ashland, Ky., Alfred L. Price, First Mississippi Corp., Jackson, Miss., on the brief), for intervenor-appellant-cross-appellee.

Edward T. Hand, Washington, D.C. (William F. Baxter, Asst. Atty. Gen., Abbott B. Lipsky, Jr., Barry Grossman, Gregory B. Hovendon, Joan S. Huggler, Dept. of Justice, Washington, D.C., on the brief), for plaintiff-appellee.

Kenneth E. Newman, New York City (Peter R. Chaffetz, James L. Stengel, Donovan, Leisure, Newton & Irvine, New York City, on the brief), for defendant-appellee-cross-appellant.

Before OAKES, CARDAMONE and PIERCE, Circuit Judges.

PIERCE, Circuit Judge:

Melamine Chemicals, Inc. (MCI) appeals from an order of the United States District Court for the Southern District of New York, Charles L. Brieant, Judge, 556 F.Supp. 361, entered on January 25, 1983, granting the motion of the American Cyanamid Co. (Cyanamid), made with the consent of the government, to terminate all provisions of a Consent Decree entered against Cyanamid by Judge Levet on August 4, 1964, and resulting from a civil antitrust action brought by the government against Cyanamid. ¹ Cyanamid cross-appeals from an order entered November 11, 1982, granting MCI and Dart Chemicals, Inc. leave to intervene permissively, 556 F.Supp. 357. At issue herein is the termination of Part XI of the decree, which compelled Cyanamid to purchase a portion of its requirements for melamine from other producers of melamine. In particular, the issues to be addressed are: (1) whether the district court erred in permitting MCI and Dart Chemicals, Inc. to intervene; (2) whether the district court erred in applying a "public interest" standard to decide whether to terminate Part XI of the decree which provided its own higher standard, simply because the government consented to the termination; and (3) having found that a phase-out for Part XI would be desirable, whether the district court erred in declining to order such a phase-out "solely for reasons of judicial impossibility." For the reasons set forth below, we hold that MCI was properly allowed to intervene, but that the district court erred in applying the "public interest" standard and in failing to devise a reasonable phase-out period.

I. FACTS

Melamine is a white, crystalline powder used in the manufacture of resins which, in turn, are used in the manufacture of high-pressure laminates such as "Formica," laminate resins, adhesives, artificial china, plastic parts for the auto industry, molding compounds, and coatings for textile and paper products. Melamine is a fungible material, with no significant difference in quality or chemical content according to plant or country of origin. MCI and Cyanamid are currently the only domestic United States producers of melamine.

Defendant-appellee-cross-appellant Cyanamid produces a wide variety of chemicals and chemical-based products, including all of the products made from melamine listed above. A portion of the melamine which it produces is used internally in the manufacture of these products, and the rest is sold by Cyanamid in the "merchant market"--i.e., to domestic producers of products containing melamine.

Intervenor-appellant-cross-appellee MCI is a melamine producer which is a joint venture between Ashland Oil, Inc. ² and First Mississippi Corp. MCI supplies melamine to the "merchant market." MCI is not vertically integrated and therefore does not use internally any of the melamine which it produces.

Prior to 1964, dicyandiamide (Dicy) was the primary raw material from which melamine was made. Cyanamid was able to control domestic supply and price of melamine through ownership and operation of the only Dicy production plant in North America. Through its control of the United States Dicy industry, Cyanamid allegedly had become an influential member of an international cartel of melamine producers. This cartel allegedly controlled the worldwide price and supply of melamine and allocated markets, including restricting the importation of foreign melamine into the United States. Cyanamid also controlled the use of melamine technology through its Dicy and melamine-related patents.

A. The Consent Decree

The government filed a complaint against Cyanamid on October 5, 1960, alleging that Cyanamid had violated Sections 1 and 2 of the Sherman Anti-Trust Act, 15 U.S.C. Secs. 1, 2 (1976) and Section 7 of the Clayton Act, 15 U.S.C. Sec. 18 (1976). In particular, the factual allegations in the complaint were that Cyanamid was, within the period covered by the complaint, the sole producer of melamine for sale in the merchant market in the United States; that Cyanamid had conspired with six foreign and domestic companies, enabling it to exploit the advantage it derived from its exclusive control in the United States of Dicy; that it had manipulated the availability and prices of Dicy, thereby discouraging domestic melamine manufacture by others; that it had caused foreign producers to refuse to sell melamine to anyone in the United States without Cyanamid's approval; and that, in 1956, it had acquired Formica Co., a leading consumer of melamine resins, for the purpose of foreclosing others from selling melamine to Formica Co. and eliminating a substantial independent competitive factor in the manufacture of laminating resins and laminates. As a result, the complaint alleged inter alia that the prices of melamine and melamine-containing products were maintained at unreasonably high levels; that competition in the manufacture of melamine and products containing melamine was lessened; that actual and potential competition in melamine was foreclosed; and that the public was deprived of an adequate supply of melamine and products containing melamine.

A settlement agreement was entered by the parties without trial or adjudication of any issue, and a final judgment was entered on August 4, 1964. ³ The final judgment, inter alia, required Cyanamid to divest itself within two years of one of its two melamine producing plants; to share its technology in melamine-related fields for up to ten years; to forego acquisitions in melamine-related fields for ten years and obtain government or court approval for any such acquisition in the following ten years; to limit for ten years the amount of melamine that Cyanamid could produce; and not to engage in certain acts including entering into or maintaining agency relationships with the co-conspirator companies named in the decree. At issue in this case is Part XI of the decree, which states in part:

Cyanamid is ordered and directed to purchase annually from other producers of melamine (with the preference to United States producers) an amount of melamine equivalent to the requirements of Cyanamid for melamine for use by Cyanamid in the production of laminates in the United States provided that at any time after ten (10) years from such date, Cyanamid may petition to this Court to be relieved from this provision, such relief to be granted upon a showing by Cyanamid to the satisfaction of this Court that the effect of such relief will not be substantially to lessen competition or tend to create a monopoly in any line of commerce in any section of the country.

Under this provision, Cyanamid was to purchase the melamine requirements for its recently acquired Formica subdivision from the merchant market. As noted by the government, the provision was designed to "deny to Formica the benefits which might accrue from vertical integration with Cyanamid and to require Formica to compete worldwide for melamine with other producers of laminates." ⁴ Although Cyanamid was not ordered to divest itself of Formica Co., the purchase requirement obviously was intended to prevent Cyanamid from foreclosing other suppliers from selling melamine to Formica Co.

Many provisions of the consent decree have expired or been fully satisfied since the final judgment was entered. In particular, Cyanamid divested itself of one of its melamine plants in 1964 and additionally the following provisions have expired: the ban on acquisitions, the melamine production limitations, and many of the patents subject to technology-sharing requirements. Moreover, Cyanamid and the government argue that many significant changes in the industry have occurred during the intervening years. One such change was the replacement of the Dicy-based melamine manufacturing process with a urea-based process owned and licensed by Samicarbon N.V. of the Netherlands. A second change is that Cyanamid is no longer the sole source of melamine, as MCI presently also produces melamine. Other changes in the market are discussed infra.

B. Consent Decree Termination Proceedings

In May, 1981, Cyanamid sought the government's consent to terminate the remaining provisions of the final judgment. Cyanamid argued that the melamine purchase provision had become an anticompetitive subsidy to MCI. The government undertook a fifteen-month investigation of the alleged changes, during which comments from interested parties were sought, and concluded that the decree itself had indeed become anticompetitive. The government proposed to give its consent if Cyanamid would dedicate certain patents to the public, and Cyanamid agreed.

On August 9, 1982, Cyanamid moved in the district court to terminate the consent decree, and on the same day the government filed a memorandum in support of Cyanamid's motion. MCI and Dart...