Hartford-Empire Co. v. Shawkee Mfg. Co.

• Decision Date: 14 August 1947
• Docket Number: 9315.,No. 9293,9293
• Parties: HARTFORD-EMPIRE CO. v. SHAWKEE MFG. CO. et al. (two cases).
• Court: U.S. Court of Appeals — Third Circuit

163 F.2d 474 (1947)

HARTFORD-EMPIRE CO. v. SHAWKEE MFG. CO. et al. (two cases).

Nos. 9293, 9315.

Circuit Court of Appeals, Third Circuit.

Argued June 4, 1947.

Decided August 14, 1947.

As Amended on Denial of Rehearing October 1, 1947.

Max Swiren, of Chicago, Ill., and Wm. B. Jaspert, of Pittsburgh, Pa. (Irving R. Brand, of Chicago, Ill., on the brief), for appellant.

Walter J. Blenko and Albert C. Hirsch, both of Pittsburgh, Pa. (Stebbins, Blenko & Webb and Weil, Hirsch & Shumaker, all of Pittsburgh, Pa., and Sidney F. Parham, of Hartford, Conn., on the brief), for appellee cross-appellant.

Before McLAUGHLIN, O'CONNELL, and KALODNER, Circuit Judges.

McLAUGHLIN, Circuit Judge.

These cross appeals are the aftermath of the Supreme Court decisions in Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 64 S.Ct. 997, 88 L.Ed. 1250, and Shawkee Manufacturing Co. et al. v. Hartford-Empire Co., 322 U.S. 271, 64 S. Ct. 1014, 88 L.Ed. 1269. Back in 1928 through gross fraud Hartford-Empire had obtained a certain "gob feeding" patent for use in the manufacture of glass containers. In the same year it sued Hazel-Atlas for infringement of the patent. The suit was dismissed in the District Court. The consequent judgment was reversed in 1932 by this Court¹ with the fraudulent foundation of the patent, a spurious article in a trade paper, in evidence in the matter, to some extent at least influencing the result. In 1933, Hartford sued the defendants for infringement of the same patent and the District Court, in view of the then outstanding Circuit judgment, upheld Hartford's claim. This Court affirmed for the same reason.²

In 1941 the fraud was finally brought into the open by the anti-trust prosecution of United States v. Hartford-Empire Co. et al., D.C.N.D.Ohio, W.D., 46 F.Supp. 541. As a result, a bill of review proceeding was commenced in this Court by the defendants. Relief was denied (one judge dissenting) on three grounds: (1) Because of the uncomplaining and inactive course pursued by the defendants and by Hazel-Atlas with respect to the said article though they had some knowledge thereof; (2) because the article had not been basic to the result arrived at by this Court; (3) because of lack of jurisdiction.³ That decision was reversed by the Supreme Court, supra, in an opinion which scourged Hartford for its corruption and detailed the steps by which the District Court was to set aside its judgment in favor of Hartford, deny the latter all relief against infringement of the patent involved, "and permit Shawkee and the others to bring such further proceedings as may be appropriate in accordance with their prayer for relief." 322 U.S. 271, 64 S.Ct. 1015.

In accordance with that broad command of the Supreme Court these defendants filed their counterclaims in the original District Court suit. Hartford's general defenses to the counterclaims were: 1. That there had been a settlement between the parties which was dispositive of the entire litigation; 2. that the statute of limitations barred the claims; 3. that the finding of fraud by the Supreme Court was not binding upon the District Court. After trial, the lower Court rejecting those defenses ordered restitution of amounts paid by the defendants to Hartford because of the direct order of the injunction decree. Recovery was denied to the defendants on all other items of the counterclaims. 67 F.Supp. 26. The defendants in Number 9293 appeal from that part of the judgment. In Number 9315, Hartford-Empire appeals from that part of the decision which rejected its above mentioned defenses and found for the counterclaimants on those sums paid to Hartford because of the express direction of the injunction decree.

Hartford asserts that the settlement on the accounting in connection with its original judgment amounts to a settlement subsequent to and in place of the fraudulently secured judgment. Much law is cited to show that fraud cannot later be used to upset such a settlement. That law is not disputed. But the settlement here was not in place of a judgment. It was in place of a sum found due on an accounting which was itself merely a part of and a compliance with the fraudulently secured judgment. As the District Court correctly held, that settlement and accounting collapse with the judgment and the monies secured thereby must be returned, with interest.

The second contention by Hartford is that the counterclaims are out of time since they were not filed till more than eleven years after the commencement of the suit which resulted in the permanent injunction of October 19, 1934. This is completely answered by the Supreme Court opinion in Shawkee, supra, 322 U.S. at page 273, 64 S.Ct. at page 1014, 88 L.Ed. 1269, where the Court finds that there was no direct proof of Hartford's fraud available until "after the United States offered its evidence in the anti-trust suit in 1941." The District Court quite properly found as a fact that the defendants proceeded with due diligence to obtain relief from the injunction decree "after obtaining due proof that Hartford-Empire Company had committed said fraud."

The third of Hartford's main general defenses is that the finding of fraud by the Supreme Court should not have been considered final by the District Court and should have been relitigated. It is difficult to follow the argument advanced in support of that proposition. Fraud was the basis of the petition filed by the defendants in this Court. Hartford denied the fraud. The Supreme Court said in the Hazel-Atlas opinion, supra, 322 U.S. at page 245, 64 S.Ct. at page 1001, 88 L.Ed. 1250, "Here, even if we consider nothing but Hartford's sworn admissions, we find a deliberately planned and carefully executed scheme to defraud not only the Patent Office but the Circuit Court of Appeals." As the result of the findings, of fraud and of timeliness in the prosecution thereof (with the findings applying equally to both the Hazel-Atlas and to the Shawkee cases), the Supreme Court ordered that Hartford be denied all relief against infringement of the particular patent. Those findings were necessary to the decisions of the Supreme Court, for, as Mr. Justice Black said in the Hazel-Atlas opinion, 322 U.S. at page 245, 64 S.Ct. at page 1001, 88 L.Ed. 1250, "Every element of the fraud here disclosed demands the exercise of the historic power of equity to set aside fraudulently begotten judgments." The present suggestion that other evidence would make it impossible to infer fraud was submitted in substance to the Supreme Court in Hartford's applications for rehearing which were denied. Plainly, the fraud issue was litigated in this Court and in the Supreme Court and was finally disposed of by the latter tribunal. In line with our decision in Hartford-Empire Co. v. Shawkee Mfg. Co., 3 Cir., 147 F.2d 532, at page 536, the District Court was entirely justified in so determining and in refusing to permit Hartford to reopen that question.

In addition to the sums paid to Hartford in the accounting proceeding which were allowed by the lower Court, the other elements of the counterclaims which are pressed on the appeal of the injured parties are:

1. Return of royalty fees paid under contracts to Hartford for the use of Hartford controlled feeders after the use of the royalty free feeders had been enjoined. (Glenshaw and McKee).

2. Litigation and traveling expenses and disbursements in connection therewith. (All three counterclaimants).

3. Non-royalty feeder dismantlement expense. (Glenshaw and McKee).

4. The damage to Glenshaw for the loss of its fruit jar business.

5. The damage to Shawkee for the loss of its feeder sales.

6. Exemplary damages. (All three counterclaimants).

All of these claims were denied by the District Judge who characterized them as damages in distinguishing them from the accounting sums allowed as restitution. The Court did not think that they were losses suffered as a result of literal compliance with the injunction decree. The fact that no bond had been given by Hartford upon the issuance of the injunction weighed heavily with the Trial Judge who held that in such a situation the defendants could not recover unless the original action by Hartford was a malicious prosecution. The District Court finding was that the Hartford suit lacked important elements of malicious prosecution in that it "was not instituted for mere vexatious purposes but in the definite hope of judgment." The Court so held because it had reached the conclusion that Hartford had every reason to believe "that its fraud had been deeply and safely buried."

Though the royalty payments were not made by reason of any direct order of the injunction decree, under the evidence there can be no doubt but that it was the decree which forced Glenshaw and McKee to resume use of the Hartford feeders. This is conceded by the District Court opinion which says, "True, in the exercise of sound business judgment it was probably necessary for Glenshaw and McKee, as the most practicable alternative, to go back to the use of Hartford's feeders after the injunction," and further, "The recourse to them Hartford's feeders after the decree was doubtless undesired by Glenshaw et al * * *." And it is strongly supported by the record which shows that at the time the permanent injunction had been entered, five out of eight of Glenshaw's Howard and Hartford feeders had been supplanted with Shawkee feeders which latter were handling 65% of Glenshaw's production. The testimony is also that McKee, despite difficulty experienced in its early use of the Shawkee feeder, would have replaced its two Hartford machines except for the injunction. Hartford contends that the royalty free feeders were not as efficient as those controlled by Hartford. There is much testimony on this pro and con and no specific finding by the Trial Court on the merits of the respective feeders. However, we do think that the clear weight of the...