United States v. Danube Carpet Mills, Inc., Civ. A. No. C78-70R.
| Decision Date | 26 May 1982 |
| Docket Number | Civ. A. No. C78-70R. |
| Parties | UNITED STATES of America, Plaintiff, v. DANUBE CARPET MILLS, INC., and Carl D. Hagaman, Defendants. |
| Court | U.S. District Court — Northern District of Georgia |
Benjamin P. Schoen, Atty., Deren E. Manasevit, Consumer Affairs Section, Anti-trust Div., U.S. Dept. of Justice, Washington, D.C., Curtis E. Anderson, Asst. U.S. Atty., Atlanta, Ga., for plaintiff.
Richard H. Gimer, Santarelli & Gimer, Washington, D.C., for defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This matter came before the Court on the issue of penalties to be imposed against Danube Carpet Mills, Inc. ("Danube") and its President, Carl D. Hagaman, ("Hagaman") for breach of a cease and desist order issued by the Federal Trade Commission ("FTC") under the Flammable Fabrics Act ("FFA"), 15 U.S.C. § 1191 et seq. By orders dated June 29, 1979 and June 18, 1980, this Court earlier determined that Danube and Mr. Hagaman had violated the cease and desist order, and that seven violations had occurred.
This controversy initially began with issuance by the FTC of a draft complaint in which defendants were charged with violating the FFA and § 5(a) of the Federal Trade Commission Act ("FTCA"), 15 U.S.C. § 45(a), by manufacturing a style of carpeting that failed to meet the Carpet Flammability Standard. That dispute ended in the issuance by the FTC of an order to cease and desist with the consent of defendants, which was dated June 22, 1972 and became final on October 13, 1972. The order prohibited defendants from selling, offering for sale, or introducing into commerce any fabric or related material, including carpet, which failed to conform to the Carpet Flammability Standard under the FFA.
Between November, 1974 and March, 1975, the Consumer Products Safety Commission ("CPSC") conducted an investigation of Danube in which a number of rolls of Danube's carpet styles were tested for compliance with the Carpet Flammability Standard. Certain rolls of Brady (foam) carpet manufactured by defendants failed the Carpet Flammability Test.
This civil penalty action was initiated under § 5(a)(1) of the FTCA, 15 U.S.C. § 45(a)(1), against Danube and Mr. Hagaman, individually and as an officer of the company. On March 2, 1979, the plaintiff moved this Court for partial summary judgment on the issue of liability, which was granted on June 29, 1979. The parties submitted legal briefs on the question of number of violations in response to this Court's request, and on June 18, 1980, the Court sustained plaintiff's contention that seven violations, one for each failing roll manufactured or sold, occurred. Defendants filed a motion for interlocutory appeal pursuant to 28 U.S.C. § 1292(b) that was denied on September 22, 1980.
On March 29-30, 1982, the parties appeared before this Court for a hearing upon the issue of penalties. The Court heard evidence and the parties submitted proposed findings of fact and conclusions of law. The Court makes the following Findings of Fact and Conclusions of Law:
FINDINGS OF FACT
1. Danube is a Georgia corporation originally chartered in 1960 under the name of Braids, Inc. Since 1962 Carl D. Hagaman has continuously been Danube's sole owner, principal stockholder, and chief executive officer.
2. Danube manufactures tufted carpet. One line of product is directed at the commercial or contract market. Another line of product is directed at the manufactured housing market. The carpets manufactured by Danube are made primarily from synthetic nylon fibers.
3. Danube presently owns and operates a yarn spinning operation. During the investigation in 1974-1975 that led to the complaint in this case, the sole aspect of manufacturing of carpet performed by Danube in its own plant consisted of tufting of the greige goods, i.e., tufting of the face fiber into the primary backing material. The other principal aspects of carpet manufacture are dyeing the face fiber and applying the secondary backing. As is customary in the carpet industry, particularly for small and medium sized firms, both of these latter functions were performed by commission finishers for defendants in 1974-1975.
4. In 1964, Mr. Hagaman hired Charles Housch, a man with significant carpet experience by that time. From 1964-1980, Danube was operated primarily by division of responsibilities between Mr. Hagaman and Mr. Housch.
5. Carl D. Hagaman is President of Danube Carpet Mills, Inc., at this time and has held such position with Danube since its purchase by him.
6. Hagaman and Danube are named as respondents in a 1972 Cease and Desist Order, FTC Docket No. C-2303 (Order) and are the same entities now before this Court named as defendants in this action.
7. Danube and Hagaman consented to the entry of the Order which became final on October 13, 1972.
8. Hagaman owns 100 percent of Danube stock.
9. Hagaman was named as a respondent in the Order as President of Danube and individually, signed the Order and was responsible for compliance with the Order individually and in his capacity as chief executive officer of Danube.
10. Danube and Hagaman did not change or increase the frequency with which they tested carpeting for flammability after they signed the Order in 1972.
11. Danube and Hagaman did not change or increase the frequency with which they tested carpeting for flammability after the Consumer Product Safety Commission informed Danube and Hagaman that several rolls of Brady style carpet had failed flammability tests.
12. In the years 1972-1981, there was no written policy or guideline within Danube specifying when or how often to test carpeting for flammability.
13. In the years 1972-1981, Danube and Hagaman did not institute a sampling plan which determined if, when, or how often Danube carpeting would be tested for flammability.
14. The carpet style at issue in this proceeding, Brady, was tufted by Danube at its Ft. Oglethorpe facilities, and was printed and backed by commission finishers in the North Georgia area.
15. Commission finishing houses are recognized and established businesses in the carpet industry, and are relied upon for various aspects of the carpet finishing process by mills of all sizes, including the largest carpet mills. Small mills and many medium size mills depend upon outside commission finishers for the dyeing and finishing of most or all of their carpet products.
16. Danube Carpet Mills selects its commission finishers on the basis of the finishers' reputation for performing particular types of work, and engages in discussions with the commission finishers concerning the finishing process in general, and the specifications for finishing of each carpet style in particular. These discussions include an exchange of specifications to be used, understandings concerning the amounts and types of latex to be applied, amounts and types of secondary backings, colors, quantities of chemical flame retardants to be added to the latex precoats or adhesives, if any, and other considerations relevant to the manufacturing process. The commission finishers on occasion test the finished goods to determine their compliance with the Carpet Flammability Standard.
17. Danube monitored the performance of the commission finishers employed by it to dye and finish its greige by having its own employees present at the plant of the commission finishers while Danube's goods were being dyed or finished.
18. A carpet, including Brady-style carpet, consists of the face tufted into a primary backing to which a latex precoat or adhesive is first applied, followed by the application of a foam or a jute secondary backing. The face fiber may be dyed at the time the fiber or yarn is produced, or, at some point, after the goods are in greige form.
19. The first step in the carpet manufacturing process is the tufting of dyed or undyed spun yarns into a primary backing. The resulting product is known as greige. Greige is produced as a part of a tufting run, the length of which is a function of the quantity of yarn being tufted and the density of the pile. The average tufting run is approximately 6000 linear feet, but it is not unusual to tuft 100,000 pounds of yarn in a single tufting run. Tufting runs are assigned a number for identification purposes.
20. Tufting runs of Brady involved yarn lots of from 20,000-25,000 pounds.
21. The yardage of greige produced in a tufting run is subdivided first into manufacturing rolls, which typically are up to 600 linear feet long.
22. Carpet in greige form is not suitable for sale to consumers insofar as it must be dyed and have a secondary backing applied. For this reason, greige goods are not susceptible of accurate flammability testing in their greige form.
23. Greige is sent to be dyed and finished in the form of manufacturing rolls, or in cuts from such rolls, depending upon a variety of factors, including the type of backing to be applied, the color involved, the amount of orders received, the manufacturers' inventory practices, and the commission house practices with respect to minimum yardage to be finished.
24. Greige rolls have a number assigned to them, and this number is modified as pieces are cut from the manufacturing roll, either for production or for subsequent shipment. After the manufacturing roll is finished, it is subdivided into shipping rolls or pieces and these rolls are assigned new numbers.
25. A carpet consists of yarn, primary backing, latex, and secondary backing. Danube purchases the raw materials used in its carpet from suppliers who produce raw materials and components especially designed for use in the manufacture of carpet. Brady carpet was manufactured from a good quality, 100% continuous filament heat-set nylon manufactured by DuPont. The yarn was tufted into a primary backing. It was commission-finished by a commission house that performs similar services for other mills...
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