U.S. v. Papercraft Corp., 75-2052

• Decision Date: 09 July 1976
• Docket Number: No. 75-2052,75-2052
• Citation: 540 F.2d 131
• Parties: 1976-2 Trade Cases 60,972 UNITED STATES of America v. PAPERCRAFT CORPORATION, a Pennsylvania Corporation, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 131

540 F.2d 131

1976-2 Trade Cases 60,972

UNITED STATES of America v. PAPERCRAFT CORPORATION, a Pennsylvania Corporation, Appellant.

No. 75-2052.

United States Court of Appeals,

Third Circuit.

Argued May 6, 1976.

Decided July 9, 1976.

Abe Fortas, Fortas & Koven, Ian D. Volner, Cohn & Marks, Washington, D. C., J. Tomlinson Fort, James H. Hardie, Pittsburgh, Pa., Eric F. Stoer, Washington, D. C., Reed Smith Shaw & McClay, Pittsburgh, Pa., for appellant.

Thomas E. Kauper, Asst. Atty. Gen., Robert B. Nicholson, Robert J. Wiggers, Attys., Department of Justice, Washington, D. C., for appellee; Joseph J. Gercke, Assistant Director, Bureau of Competition, Wayne E. Kaplan, Ronald Baylor Rowe, William L. Haynes, Attys., Federal Trade Commission, Washington, D. C., of counsel.

Before ALDISERT, GIBBONS and GARTH, Circuit Judges.

OPINION OF THE COURT

ALDISERT, Circuit Judge.

This appeal requires us to review a civil penalty assessed against Papercraft Corporation for failure to comply with a divestiture order of the Federal Trade Commission. The district court set the penalty at $7,500 for each of 509 days of determined noncompliance for a total penalty of $3,817,500. ¹ We reverse and remand.

I.

As the case comes to us, the historical facts are not in dispute. In late 1967, Papercraft acquired the stock of CPS Industries, Inc. In 1969, the FTC issued a complaint alleging that the acquisition violated § 7 of the Clayton Act, 15 U.S.C. § 18. Ultimately, the Commission found that CPS had been the largest and Papercraft had been the second largest manufacturer in the gift-wrap industry, and that the acquisition, resulting in a combined market share of 22 per cent in an industry tending toward concentration, had eliminated substantial competition in violation of the Act. The FTC therefore ordered Papercraft to divest CPS and enjoined Papercraft from acquiring interests in any gift wrapping concern for a period of 10 years. Papercraft petitioned the United States Court of Appeals for the Seventh Circuit for review. The court, per then-Judge Stevens, modified the FTC order but, for all purposes here relevant, affirmed. Papercraft Corp. v. FTC, 472 F.2d 927 (7th Cir. 1973).

Some five months after the decision of the Seventh Circuit, the FTC issued its amended order, requiring divestiture within six months of service of the order on Papercraft, i. e., by December 16, 1973. For various asserted reasons, including poor market conditions, Papercraft did not divest by December 16, 1973.

By letter dated December 3, 1973, however, the company requested a nine-month extension from the Commission. The FTC responded by letter dated January 16, 1974. This letter related:

The Commission, for lack of a majority vote, has not granted your request for an extension of time, and advises that Papercraft is under a continuing obligation to divest the CPS facilities as required by the order.

The Commission further notes that the methods and objective of compliance efforts have been unsatisfactory. You are directed to consult the Compliance staff for further direction.

Appendix at 95 (hereinafter cited as App.).

Papercraft thereafter filed a second request for an extension of time, ² stating, inter alia, "(t)he Commission has not proceeded against Papercraft because of the expiration of time originally allowed for divestiture and we know of no present intention on the part of the Commission to do so." App. at 97. By letter dated March 29, 1974, the Commission denied this request and said:

You are hereby advised that it is the Commission's opinion that Papercraft Corporation is in violation of the provisions of the order in the captioned matter. Papercraft Corporation is further advised that it has a continuing and immediate obligation under the order to effectuate the required divestiture. The Commission's right to seek enforcement of the order through a civil penalty or contempt proceeding for any past, present, future or continuing violation of the order is hereby expressly reserved.

App. at 108.

Papercraft continued to be unable or unwilling to divest. Accordingly, on August 27, 1974, the Department of Justice commenced the instant action in the Western District of Pennsylvania seeking a mandatory injunction of divestiture and the maximum daily civil penalty for noncompliance with an FTC order $10,000. 15 U.S.C. § 45(l ).

The district court granted the government's motion for partial summary judgment on the issue of Papercraft's violation of the FTC order. 393 F.Supp. 408 (W.D.Pa. 1975). After conducting a hearing on the amount of the penalty to be assessed, the court determined: that it could assess a penalty of up to $10,000 a day, pursuant to the FTC Act, notwithstanding that the original complaint issued under the Clayton Act; that "the penalties must be sufficient to (1) eliminate the benefit which Papercraft has had through its failure to divest CPS; (2) compel it to divest; and (3) create a deterrent to further delay in compliance, so that others will not choose a like course in the future" ³; that Papercraft did not exercise "good faith" in seeking to divest; and that Papercraft's profits from the retention of CPS had to be disgorged, both as a measure of the injury to the public and as a discouragement to potential future violators of divestiture orders. The court concluded:

In considering Papercraft's financial ability to pay, and the harm caused by the delay, the degree of bad faith, and the benefit received by Papercraft, we do not think that the penalty assessed should be the maximum, however, it must be large enough to deter Papercraft and anyone else in the future from showing as little concern as Papercraft did for the need to meet the FTC timetable.

A penalty of $7,500 a day is determined to represent a fair consideration of all of the factors involved, for a total of $3,817,500. ⁴

On appeal, ⁵ Papercraft presses three basic contentions. First, it argues that the district court erred in assessing penalties under the FTC Act, which has a maximum daily fine of $10,000, rather than under the Clayton Act, which has a maximum daily fine of $5,000. Second, Papercraft urges that the district court erred in using December 16, 1973 as the date from which to calculate the penalty. Third, Papercraft argues that the district court erred in applying the relevant criteria to fix the daily penalty at $7,500. Specifically, the company contends that the court erred in its considerations of the "public interest" and of "good faith", and that it "relied upon clearly erroneous findings, reasoning and conclusions as to Papercraft's 'profits' and their relevance". Appellant's Brief at 16-17.

We will treat these arguments seriatim.

II.

Before delving into the three tendered issues, we deem it helpful to emphasize exactly what is before us, and the standards that govern our review.

We are not here concerned with whether Papercraft did violate the Clayton Act. The Seventh Circuit opinion is controlling on that score for purposes of this appeal.

Nor are we confronted with a question as to whether Papercraft violated the divestiture order. The district court granted summary judgment on the issue of noncompliance. Of course, the order was interlocutory in nature. On this appeal from final judgment, however, Papercraft does not contest the district court's resolution of liability.

Rather, this appeal is limited to issues concerning the penalty for violation of the divestiture order. Specifically, we are concerned with the maximum penalty applicable, the date from which that penalty should be calculated, and the amount of the total penalty assessed in light of several factors.

The maximum penalty issue turns on whether the district court applied the proper provision of law on whether it chose the proper legal precept. See generally R. Aldisert, The Judicial Process 464-92 (1976). Accordingly, our scope of review is plenary.

The date issue depends on a factual determination of when Papercraft violated the divestiture order. The narrative or historical facts are not in dispute and what amounted to a violation is a question of law. Thus, we are in as good a position as the trial judge to consider it.

With respect to the amount issue, the Supreme Court has instructed:

(T)he District Court has discretion to determine the amount of the penalty for each violation whether the transactions are construed as single or as continuing violations. Thus, while totaling the penalty as a series of daily violations rather than as a single violation could raise substantially the total penalty assessed, the statutory scheme does not require that result, and the trial judge's determination would prevail in the absence of an abuse of discretion.

United States v. ITT Continental Baking Co., 420 U.S. 223, 229 n. 6, 95 S.Ct. 926, 931, 43 L.Ed.2d 148 (1975). Thus, on the amount issue, we may upset the district court's determinations if we conclude that they are arbitrary or unreasonable, or if we find error in the identification and application of relevant criteria or clearly erroneous findings of fact. See Lindy Bros. Builders, Inc. v. American Radiator & Standard Sanitary Corp., --- F.2d ----, ---- (3d Cir., 1976) (in banc); Merola v. Atlantic Richfield Co., 493 F.2d 292, 295 (3d Cir. 1974).

III.

The maximum penalty issue is easily stated: If the FTC adjudicates that a company's acquisition of another firm violates § 7 of the Clayton Act, and if the acquiring company violates an FTC order of divestiture, should the penalty be assessed with reference to the maximum permitted by the Clayton Act, 15 U.S.C. § 21(l ), ⁶ or with reference to the maximum permitted by the FTC Act (FTCA), 15 U.S.C § 45(l )? ⁷

Prior to 1973, this question would have held academic interest, at best, for the maxima were identical $5,000 for each violation. See notes 6-7 supra. In 1973, however, and as a result of a rider to the Trans-Alaska Pipeline Authorization Act, ⁸ C...