Reconstruction Finance Corp. v. Foust Distilling Co.

• Decision Date: 20 April 1953
• Docket Number: No. 10782.,10782.
• Citation: 204 F.2d 343
• Parties: RECONSTRUCTION FINANCE CORP. v. FOUST DISTILLING CO.
• Court: U.S. Court of Appeals — Third Circuit

204 F.2d 343 (1953)

RECONSTRUCTION FINANCE CORP. v. FOUST DISTILLING CO.

No. 10782.

United States Court of Appeals Third Circuit.

Argued December 4, 1952.

Decided April 20, 1953.

COPYRIGHT MATERIAL OMITTED

Eugene Nogi, Scranton, Pa., William Hoffenberg, Baltimore, Md. (Nogi, O'Malley & Harris, Scranton, Pa., on the brief), for appellant.

Arthur J. Sullivan, Philadelphia, Pa. (David H. Frantz, Philadelphia, Pa., James G. McDonough, Scranton, Pa., on the brief), for appellee.

Before BIGGS, Chief Judge, and MARIS and HASTIE, Circuit Judges.

BIGGS, Chief Judge.

Reconstruction Finance Corporation (R FC), as transferee¹ of Defense Supplies Corporation (DSC), brought suit in the court below against Foust Distilling Company, a Pennsylvania corporation. The complaint contains two counts, asking (1) simple damages for breach of contract, and (2) treble damages under section 205(e) of the Emergency Price Control Act of 1942, 56 Stat. 23, as amended, 50 U.S.C.A.Appendix and Cumm.Supp. § 925(e), for violation of maximum price regulations and refund orders. Reasonable attorney's fees, interest and costs were also requested. The defendant moved to dismiss the complaint, and this motion was denied. See 87 F.Supp. 632. The defendant then filed an answer and counterclaim, and the plaintiff moved for summary judgment on the complaint, and to dismiss the counterclaim or alternatively for summary judgment thereon. See FRCP, 28 U.S.C.A., rules 56(a), 12(b) and 56(b). The record consisted of the complaint, to which were attached the contract between the defendant and DSC and the applicable price orders, the answer and counterclaim, and the plaintiff's supporting affidavits and defendant's counter affidavit.

The facts as they appear from the pleadings are as follows: On January 1, 1944, Foust entered into a contract with DSC. An amendatory agreement was entered into on July 1, 1944, but the amendments are not pertinent here. The January agreement provided that Foust was to sell and DSC was to buy ethyl alcohol in accordance with the appropriate regulations of the Office of Price Administration. It was also provided that pending determination of the maximum price by the OPA, DSC would make pro forma payments to Foust for the alcohol sold and delivered. If, subsequently, downward price adjustments were made by OPA Foust would refund to DSC. Alcohol was sold by Foust under this arrangement to DSC. The OPA then fixed maximum prices and, inter alia, made two price orders, one of April 18, 1947, the other of January 8, 1947, pricing at lower figures alcohol payment for which had already been received by Foust. The details of the accounting are set out in notes 5, 6 and 7 to the opinion of the court below. See 103 F. Supp. at pages 170-171. The orders referred to specifically ordered Foust to refund to DSC the difference between the amounts paid by DSC to Foust and those set by the Administrator for the alcohol purchased and delivered to DSC substantially two years before.

The court below made no specific findings of fact (since it entered summary judgment) as to the use to which the alcohol purchased by DSC from Foust was put but relied on two separate affidavits of officers of DSC, somewhat conflicting, the first stating that 75% of the alcohol was transferred — in 1944 and 1945, years with which we are not concerned — at DSC's cost to the Army and Navy, 25% being sold at OPA ceiling prices for essential civilian use. The other affidavit states that all of the alcohol with which we are concerned was stockpiled by DSC.

The court below granted summary judgment on the complaint, awarding simple damages for breach of contract and treble damages under section 205(e) of the Emergency Price Control Act, for those claims not barred by the one year statute of limitations imposed by that section, together with interest and costs. Summary judgment in favor of the plaintiff was also given on defendant's counterclaim, and the plaintiff's counsel was allowed five thousand dollars as a fee. See 103 F.Supp. 167. Only the issue of treble damages and counsel fee are involved in the instant appeal by defendant.

The defendant has narrowed the issues on appeal. It does not challenge the action of the court below in granting summary judgment on its counterclaim and in refusing to credit its defenses of estoppel and laches. It further concedes that RFC is the lawful transferee of DSC, possessed of all the rights formerly accruing to DSC against the defendant. The defendant admits that among these rights is the claim for simple damages for breach of contract stated in count one of the complaint, and it offers no defense to this claim. The defendant seems to have abandoned in this court the defense, asserted by it to both counts in the court below, viz., that the price orders, issued by the Office of Price Administration, revising downward the defendant's prices for ethyl alcohol produced under the contract, were invalid and unenforceable. The defendant rests its case in this court on three propositions: (1) that RFC is not the proper party plaintiff in a suit against the defendant for treble damages under section 205(e) of the Emergency Price Control Act; (2) that treble damages under that section should not have been awarded on the pleadings without giving the defendant an opportunity to prove that any violation by it was neither willful nor the result of failure to take practicable precautions; and (3) that the court below should have authorized the filing of an amended answer. In the view we take of this case the last two contentions need not be considered.

Section 205(e) provides: "If any person selling a commodity violates a regulation, order, or price schedule prescribing a maximum price or maximum prices, the person who buys such commodity for use or consumption other than in the course of trade or business may, within one year from the date of the occurrence of the violation, except as hereinafter provided, bring an action against the seller on account of the overcharge. In such action under this subsection, the seller shall be liable for reasonable attorney's fees and costs as determined by the court, plus whichever of the following sums is the greater: (1) Such amount not more than three times the amount of the overcharge, or the overcharges, upon which the action is based as the court in its discretion may determine, or (2) an amount not less than $25 nor more than $50, as the court in its discretion may determine: Provided, however, That such amount shall be the amount of the overcharge or overcharges * * * if the defendant proves that the violation of the regulation, order, or price schedule in question was neither wilfull nor the result of failure to take practicable precautions against the occurrence of the violation." Section 205(e) goes on to state that where the buyer is not entitled to bring action against a violator, the Price Administrator may do so.

Both parties and the court below considered that the determination of this case must turn on whether DSC, an instrumentality of the United States Government, purchased ethyl alcohol from defendant "for use or consumption other than in the course of trade or business". The defendant contends that DSC's activities related to the use and distribution of the alcohol clearly amounted to "trade or business". The plaintiff contends DSC's activities were not "trade or business" within the intendment of the statute but were mere governmental functions. The District Court agreed with plaintiff, and held that RFC could maintain its action. After an examination of the legislative history, language and judicial construction of the statute we have reached another conclusion.

The control bill passed by the House of Representatives outlined the authority of the Price Administrator and the procedures for establishing, and protesting, maximum prices, but enforcement was limited to criminal prosecutions and suits by the Administrator to enjoin violations of his regulations and orders. See H.R. Report No. 1409, 77th Cong., 1st Sess. The Senate amended the House bill and these amendments reflect concern for the effectiveness of the legislation. Reciting the evils of steadily rising prices, the Senate Report stated, "These prospects the committee cannot face with equanimity. We must make adequate provision to prevent their occurrence. Accordingly, in amending the House bill, the committee has sought to strengthen it." Senate Report No. 931, 77th Cong., 2d Sess., p. 3.

With this purpose in mind the Senate committee proposed (1) amending section 4(a) of the bill to make it unlawful not only to sell but also "in the course of trade or business to buy or receive" any commodity in violation of any regulation or order establishing a maximum price; (2) added Section 205(e) giving any purchaser of a commodity "for use or consumption other than in the course of trade or business" a right to sue the seller who violated a maximum price regulation or order; and (3) added Section 205(f) authorizing licensing under certain circumstances of sellers subject to price regulations or orders.

In explaining the addition of section 205(e) the Senate Report stated: "To discourage initial violations, the committee substitute provides for actions at law to recover $50 or three times the amount of the illegal overcharges.² This will permit private purchasers who buy for personal use or consumption, rather than in the course of trade or business, to protect themselves against violations of the act. * * * (b) Actions to recover damages. — Such actions have proved valuable * * both to relieve the Government of a part of the burden of enforcement and to deter initial violations. They afford a remedy at law to persons damaged by having had to pay unlawfully high prices. An action of this sort may be brought by any person who buys for use or consumption other than in the course of trade or business, to recover from the seller...