U.S. v. Work Wear Corp., s. 77-3140

• Decision Date: 28 June 1979
• Docket Number: 78-3482,Nos. 77-3140,s. 77-3140
• Citation: 602 F.2d 110
• Parties: 1979-2 Trade Cases 62,732 UNITED STATES of America, Plaintiff-Appellee, v. WORK WEAR CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 110

602 F.2d 110

1979-2 Trade Cases 62,732

UNITED STATES of America, Plaintiff-Appellee, v. WORK WEAR CORPORATION, Defendant-Appellant.

Nos. 77-3140, 78-3482.

United States Court of Appeals Sixth Circuit.

Argued Feb. 8, 1979.

Decided June 28, 1979.

Harry C. Nester, Albert I. Borowitz, Hahn, Loeser, Freedheim, Dean & Wellman, Stephen J. Knerly, Bennet Kleinman, Kahn, Kleinman, Yanowitz & Arnson, Cleveland, Ohio, John D. Swartz, Pollak, Swartz, Stark & Amron, New York City, for defendant-appellant.

Robert M. Dixon, Joan Farragher Sullivan, Dept. of Justice, Antitrust Division, Frederick M. Coleman, U.S. Atty., Cleveland, Ohio, Griffin B. Bell, Atty. Gen. of United States, Robert B. Nicholson, Daniel J. Conway, Barry Grossman, U.S. Dept. of Justice, Washington, D.C., for plaintiff-appellee.

Before EDWARDS, Chief Judge, and CELEBREZZE and KEITH, Circuit Judges.

KEITH, Circuit Judge.

This case presents the question whether the district court ^* abused its discretion in refusing to reduce by half a civil contempt fine of over $1 million. Since we are unable to find an abuse of discretion on the record before us, we affirm.

I.

In June of 1968, the Anti-Trust division of the Justice Department filed suit against defendant Work Wear Corporation, alleging that defendant's acquisition of a number of industrial laundries violated section 7 of the Clayton Act, 15 U.S.C. § 18. After extensive negotiations, the parties agreed upon a consent settlement of the case. This consent decree was approved by the district court and entered on September 27, 1971.

Under the terms of the consent decree, Work Wear had the choice of divesting either: (1) each of the affiliated manufacturing facilities listed in Exhibit A of the decree or (2) each of the affiliated industrial laundries listed in Exhibit B of the decree. On May 23, 1973, Work Wear filed with the district court its intention to divest and 11 industrial laundries listed in Exhibit B. ¹ It contemplated either individual sale of the 11 laundries, or wholesale disposition of all of its approximately thirty domestic industrial laundries via "spin-off" ² "split-off" ³ or sale of assets. By this date, Work Wear had already sold three of the 11 laundries; in the fall of 1973 the company sold another.

Disposing of the remaining eight ⁴ laundries proved troublesome. By letter dated July 8, 1974, Work Wear informed the government of its desire to "spin-off" all of its domestic industrial laundries. Since the three-year divestiture deadline of September 22, 1974 was fast approaching, Work Wear requested an extension of time. The government was agreeable and stipulated to an extension of time to June 30, 1975, for Work Wear to comply with the Consent Judgment.

Work Wear failed in its efforts to obtain Internal Revenue Service approval of the proposed spin-off's tax-exempt status, however, and, on April 28, 1975, informed the government that the spin-off plan was no longer feasible. As an alternative, Work Wear proposed to modify the consent decree to require that only three of the eight remaining laundries be divested. The government refused to acquiesce in any modification of the decree and, on July 1, 1975, filed a Petition For An Order To Show Cause Why Work Wear Should Not Be Found In Civil Contempt. Work Wear countered with its partial divestiture proposal. In the alternative, the Company urged that no contempt sanctions were warranted since it had at all times acted in good faith. Specifically, the company argued that selling a service business was difficult in the first place since most of such a business' assets are goodwill and that only a purchaser involved in the laundry business would risk buying it. Work Wear urged that these difficulties were compounded by then-existing economic conditions and problems associated with securing approval for the sales from the Justice Department's anti-trust division.

After a full hearing on the matter, the district court on August 15, 1975, found 1) that Work Wear was in "technical" contempt of court for its failure to divest, 2) that Work Wear had acted in good faith, and had been stymied by circumstances beyond its control ⁵ and 3) that Work Wear's proposed modification of the consent decree was unwarranted. ⁶ The court refused to impose contempt sanctions and gave Work Wear an additional 16 months to comply with the decree until December 31, 1976. At the same time, the court warned that failure to divest by that date would result in Work Wear's being found in contempt of court and a fine payable at the rate of $5,000 per day until divestiture took place.

Work Wear persisted in its efforts to divest all of its domestic industrial laundries via a spin-off. A formal spin-off plan was submitted to the government on April 23, 1976, but the Anti-Trust division objected because it did not think that the new company would be sufficiently independent. When the Internal Revenue Service declined to give a favorable tax ruling, Work Wear went back to the drawing board. A new proposed spin-off plan followed, but the Internal Revenue Service proved to be recalcitrant and the plan, as amended to meet IRS objections, could not be implemented by the December 31, 1976, deadline.

On December 29, 1976, two days before the deadline, Work Wear once again asked for an extension of time. It represented that it was on the verge of divestiture and requested that it be given until March 31, 1977, to divest. Alternatively, Work Wear suggested that the threatened $5,000 per day fine be imposed, subject to forgiveness if divestiture took place by March 31, 1977. The government opposed this request and countered by seeking civil contempt sanctions. The matter was brought before a hearing on January 14, 1977.

By Memorandum Opinion and Order of January 19, 1977, the district court, tired of Work Wear's procrastination, ⁷ imposed the $5,000 per day contempt fine, effective January 1, 1977. This fine was in accord with the judge's order of August 15, 1975, where he had warned that no additional extensions would be granted. ⁸

Work Wear appealed to this court, advancing a host of reasons why the district court had abused its discretion when it imposed contempt sanctions. In the meanwhile, Work Wear proceeded with its spin-off plan. Although S.E.C. and I.R.S. approval was forthcoming, problems developed with the anti-trust division over a potential conflict of interest which the government feared would perpetuate a substantial and anti-competitive relationship between Work Wear and its "divested" laundries. ⁹ After much wrangling, the conflict of interest problem was resolved ¹⁰ and the government approved the spin-off. On June 17, 1977, all involved parties signed a Stipulation and Order embodying the divestiture agreement. The district court approved it on June 22, 1977. Divestiture was finally accomplished on July 26, 1977. However, since 207 days had passed between January 1, 1977, and July 26, 1977, when divestiture was finally completed, Work Wear's contempt fine had accumulated to $1,035,000.

After divestiture took place and while its appeal of the imposition of the contempt fine was pending before this Court, Work Wear approached the government regarding the possibility of reducing the fine. ¹¹ After extensive negotiations, the parties reached an agreement. The government would not oppose a F.R.Civ.Pro. 60(b)(6) motion seeking reduction of the fine by one-half, plus $5,000 attorney's fees. In return, Work Wear agreed that in the event the district court refused to reduce the fine, it would limit any appeal of that decision to challenging only that portion of the fine exceeding $517,000 plus $5,000 attorney's fees. This Court granted a limited remand to the district court to allow presentation of the Rule 60(b)(6) motion.

After a hearing, the district court denied the relief requested in an opinion which concluded with the following words:

To accede to the joint request of the parties to retroactively diminish the fine imposed to an arbitrary amount of one-half the total amount accrued, without just cause or a showing of mitigating circumstances, would denigrate the authority of the Court and sanction mere lip service to its Orders. The action of the Government attorneys in attempting to stipulate the reduction of the fine is a presumption upon the jurisdiction and authority of the Court and an interference with its power of contempt. ¹²

Work Wear has appealed from the district court's denial of relief, claiming that it was an abuse of discretion to refuse to reduce the fine. In accord with its stipulation, Work Wear has abandoned its contention that the district judge abused his discretion in imposing the fine in the first place. Thus, the sole issue before, us is whether the court erred in failing to grant Work Wear's Rule 60(b)(6) motion.

II.

We have outlined the facts of this protracted case in some detail in order to give a flavor to the difficulties faced by the parties and the district court. This case is over 10 years old. It took Work Wear over 27 months after the three years contemplated in the consent decree to accomplish divestiture. It is established law that modification of a judgment pursuant to Rule 60(b) is extraordinary relief which requires the showing of special circumstances. Ackerman v. United States, 340 U.S. 193, 202, 71 S.Ct. 209, 95 L.Ed. 207 (1950); Silvers v. TTC Industries, Inc., 395 F.Supp. 1318, 1321 (E.D.Tenn.1974), Aff'd. 513 F.2d 632 (6th Cir. 1975). On appeal, we can reverse the failure to grant a Rule 60 motion only on a showing of abuse of discretion. Villareal v. Braswell Motor Freight Lines, Inc., 545 F.2d 978, 979 (5th Cir. 1977); Douglass v. Pugh, 287 F.2d 500, 501 (6th Cir. 1961).

Work Wear seeks to make this showing by arguing that the district court applied an erroneous standard of law, that the district court failed to give sufficient weight to the recommendation of the anti-trust division...