U.S. v. Danube Carpet Mills, Inc.

• Decision Date: 30 July 1984
• Docket Number: No. 82-8456,82-8456
• Citation: 737 F.2d 988
• Court: U.S. Court of Appeals — Eleventh Circuit
• Parties: 1984-2 Trade Cases 66,125 UNITED STATES of America, Plaintiff-Appellee, v. DANUBE CARPET MILLS, INC., and Carl D. Hagaman, Defendants-Appellants.

Page 988

737 F.2d 988

1984-2 Trade Cases 66,125

UNITED STATES of America, Plaintiff-Appellee, v. DANUBE CARPET MILLS, INC., and Carl D. Hagaman, Defendants-Appellants.

No. 82-8456.

United States Court of Appeals, Eleventh Circuit.

July 30, 1984.

Santarelli & Gimer, Richard H. Gimer, M. Stuart Madden, Washington, D.C., for defendants-appellants.

Richard H. Gimer, Washington, D.C., for intervenor.

William J. Roberts, Barry Grossman, Nancy C. Garrison, Benjamin P. Schoen, Antitrust Div., U.S. Dept. of Justice, Washington, D.C., Curtis E. Anderson, Asst. U.S. Atty., Atlanta, Ga., Nancy C. Garrison, Dept. of Justice, Washington, D.C., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Georgia.

Before RONEY, FAY and CLARK, Circuit Judges.

CLARK, Circuit Judge:

Appellants, ¹ Danube Carpet Mills, Inc. (Danube) and its president, Carl D. Hagaman (Hagaman), appeal from an adverse summary judgment ruling in a civil penalty action instituted under the Federal Trade Commission Act (FTCA), 15 U.S.C. Sec. 45(a)(1). The government alleged that appellants violated a consent decree that they had entered into with the Federal Trade Commission (FTC). Appellants and the FTC entered into the agreement pursuant to a FTC investigation of the appellants' carpet manufacturing operations which revealed nonconformance with the flammability standard established in the Flammable Fabrics Act (FFA), 15 U.S.C. Sec. 1191 et seq. ² The district court, 540 F.Supp. 507 (D.C.Ga.1982), held that appellants had committed seven separate violations of the decree and ordered them to pay a civil penalty of $3,500 for each violation. We have jurisdiction. 28 U.S.C. Secs. 1291 & 1294 (1982).

I.

A. The Regulatory Framework

The FFA authorized the Secretary of Commerce (Secretary) to promulgate standards to protect the public against the risks associated with flammable fabric products. 15 U.S.C. Sec. 1193. The Secretary promulgated a carpet flammability standard effective April 16, 1971. This standard is codified at 16 C.F.R. Sec. 1630.1-.5. The manufacture, distribution or sale of products which fail to conform to this standard is a violation of the FFA, 15 U.S.C. Sec. 1192.

Congress originally entrusted the FTC with enforcement of the FFA but in 1973 transferred such authority to the Consumer Product Safety Commission (CPSC). ³ Apparently, neither the FTC nor the CPSC issued a binding regulation or published a policy statement which would have guided carpet manufacturers in their attempt to comply with the flammability standard. The FTC did, however, promulgate "Guaranty Regulations" which prescribed "reasonable and representative tests" to support any guaranties which manufacturers may voluntarily have issued under FFA Sec. 8, 15 U.S.C. Sec. 1197. ⁴ These "Guaranty Regulations" required testing at three stages of production: (1) at the inception, (2) after production of the first 100,000 square yards, and (3) after production of every 200,000 square yards thereafter. 16 C.F.R. Sec. 302.15(c). Separate testing is required under these regulations for each "quality" of carpet as defined in 16 C.F.R. Sec. 302.15(a)(6). Essentially, a line of carpets constitutes a separate "quality" for purposes of the testing requirement if it is not "substantially alike" another line of carpets in those respects enumerated at 16 C.F.R. Sec. 1630.31(a)(6). It should be noted that "Guaranty Regulations" were not binding upon Danube because appellants (as was true of most carpeting mills at the time) had not issued FFA Sec. 8 guaranties. They were, nevertheless, the only published evidence of the enforcing agencies' concept of a reasonable testing program under the flammability standard, and, therefore, Danube, like many other mills, referred to the "Guaranty Regulations" for guidance in their attempt to comply with the standard. Appellant's Brief at 12.

B. Danube's Business Operations

Danube is a carpet manufacturing company located in Georgia. As a smaller firm, Danube is involved only in the primary stage of carpet production, which involves the tufting of carpet yarns or "face fiber" into a primary backing. The resulting product, known as "greige," is suitable neither for sale to customers nor for flammability testing. Appellant's Brief at 9. Therefore, Danube contracts with "commission finishers" who perform the remaining stages of production. These commission finishers perform according to Danube's instructions. Once the finishers have completed their portion of the manufacturing process, the carpet is suitable for flammability testing. Because Danube does not possess the in-house capability to test the completed product, it must either instruct the finisher to conduct testing or contract with an outside testing laboratory. Appellant's Brief at 5.

C. The 1972 Consent Order

One method of FFA enforcement is the filing of administrative complaint proceedings to secure cease and desist orders, the subsequent violation of which exposes the respondent to civil penalties under FTCA Sec. 5(l), 15 u.s.c. Sec. 45(l). After a FTC investigation revealed that one sample of a carpet style manufactured and sold by Danube failed a flammability test, both Danube and its president, Mr. Hagaman, became signatories to such an administrative order. ⁵ This order provides, in pertinent part, that appellants shall not manufacture for sale, sell or distribute any carpeting that fails to conform "to an applicable standard or regulation continued in effect, issued or amended under the provisions" of the FFA. On October 13, 1972, the FTC approved the decree, and it has continued in force and effect from that date to the present.

D. Violation of the Order

During 1973, Danube tufted a quantity of DuPont nylon into "greige" for use in a nylon shag carpet, known as "Cason." In 1974, Danube adopted a different coloring process for "Cason": printing as opposed to immersion in a dye beck. With the adoption of this new coloring process, Danube changed the carpet's name from "Cason" to "Brady." Although "Cason" and "Brady" were identical save for the coloring process, the newly adopted coloring process adversely affected the flammability characteristics of the previously tested and approved "Cason" product. Appellants manufactured about 15,000 square yards of "Brady" carpet, of which approximately 12,000 square yards were sold to consumers.

Between November 1974 and March 1975, the CPSC investigated Danube's compliance with the flammability standard. Seven rolls of appellants' "Brady" carpet failed the test. ⁶ On June 10, 1977, the CPSC certified to the Attorney General facts indicating that the consent order had been violated, and on November 25, 1977, the United States Department of Justice filed a complaint seeking civil penalties for seven violations of the decree. ⁷

E. Proceedings Below

On March 2, 1979, the CPSC moved for partial summary judgment on the issue of whether appellant had violated the consent decree. On June 29, 1979, the court granted the motion without an evidentiary hearing. At the court's request, the parties submitted legal briefs on the question of the number of violations. On June 18, 1980, the court granted judgment in accordance with the government's contention that seven violations had occurred, i.e., one for each roll of "Brady" carpet which failed the flammability test. ⁸ On March 29-31, 1982, the parties appeared before the district court for a hearing on the appropriateness of penalties. By Order dated May 26, 1982, the court ordered defendants Danube and its president, Hagaman, to pay a civil penalty of $3,500 per violation for a total of seven violations, amounting to a jointly imposed penalty of $24,500.

II.

Appellants raise numerous issues in this appeal, only a few of which merit discussion. Two of appellants' principal contentions arise because the district court decided this case on the government's motion for summary judgment. Appellants argue that summary judgment was inappropriate because the affidavits they submitted and sworn answers to interrogatories raised a triable issue of material fact concerning the presence of a violation, and because the trial court incorrectly construed the consent decree in finding seven separate violations. Appellants next argue that the district court erred in assessing civil penalties. Finally, Hagaman challenges the imposition of personal liability against him as president of Danube.

III.

A. Summary Judgment

In determining whether appellants had violated the consent decree, the district court considered whether the seven rolls of carpet described in the complaint violated the order by failing to conform to the flammability standard. Appellants contend that the issue is not simply whether the seven specified rolls were nonconforming, but whether an unspecified majority of "Brady" samples failed to meet the standard. In other words, appellants argue that if their affidavits demonstrated that a majority of the products of the type at issue conformed to the standard, a triable issue of fact existed as to the existence of a violation.

To support its motion for summary judgment, the government presented affidavits by CPSC officials demonstrating that all seven rolls of carpet had been sampled and tested in accordance with the carpet flammability regulations and that each roll had failed the test. In opposition, appellant submitted the affidavit of its president, Mr. Hagaman, which stated that Danube had tested "Brady" style carpet for compliance with the flammability standard; however, this affidavit did not controvert the CPSC's test results as to the seven rolls of carpet involved in this case. The district court ruled that, regardless of the successfulness of flammability tests conducted on other "Brady" style carpet, Mr. Hagaman's affidavit raised no factual issue concerning the accuracy of the CPSC's test on the seven rolls listed in the complaint. (R. 357).

Cle...