United States v. HM Prince Textiles, Inc.

• Decision Date: 17 March 1966
• Docket Number: 63 Civ. 1159.
• Citation: 262 F. Supp. 383
• Parties: UNITED STATES of America, Plaintiff, v. H. M. PRINCE TEXTILES, INC., a corporation, Prince Mills, Inc., a corporation, and Hugo M. Prince, individually and as an officer of said corporations, Defendants.
• Court: U.S. District Court — Southern District of New York

262 F. Supp. 383

UNITED STATES of America, Plaintiff, v. H. M. PRINCE TEXTILES, INC., a corporation, Prince Mills, Inc., a corporation, and Hugo M. Prince, individually and as an officer of said corporations, Defendants.

63 Civ. 1159.

United States District Court S. D. New York.

March 17, 1966.

Robert M. Morgenthau, U. S. Atty., for plaintiff, David E. Montgomery, New York City, of counsel.

Halperin, Shivitz, Scholer & Steingut, New York City, for defendants, David I. Shivitz and Shirley R. Levittan, New York City, of counsel.

CANNELLA, District Judge.

Judgment for the Government in the amount of $1000 in civil penalties. Government's requested injunctive relief is denied.

This court has jurisdiction of the action pursuant to 28 U.S.C. § 1345 and § 1355.

This case was tried before this court without a jury on January 17, 1966. It is an action for civil penalties for violation of a Federal Trade Commission (FTC) cease and desist order, 15 U.S.C. § 45(l) and for an injunction against future violations of the order.¹

On February 10, 1953 the FTC issued a complaint against defendants H. M. Prince Textiles, Inc. and Hugo Prince, among others, charging them with violations of the Wool Products Labeling Act of 1939, 15 U.S.C. § 68 et seq. On August 6, 1953 a consent cease and desist order was issued against the defendants.

In June of 1962, Prince Textiles (hereafter referred to as Prince) entered into negotiations with Toyo Boshi Kogyo Co., Ltd. (hereafter referred to as Toyo Boshi), which it believed to be a reputable firm, for the purchase of 20,000 pounds of yarn, which was to consist of 60% cashmere and 40% wool. Hugo Prince testifed that to the best of his knowledge Prince had dealt with Toyo Boshi on one or two prior occasions. The defendants allege that all correspondence exchanged with Toyo Boshi clearly indicates that the product to be purchased must be 60% cashmere and 40% wool.

It was agreed that a sample shipment would be sent by Toyo Boshi to Prince by air freight. This was done in July of 1962.

A contract was entered into with Toyo Boshi on September 17, 1962. Hugo Prince testified that on the same day, after the defendants had an opportunity to have the yarn woven into fabric they sent a sample of the product to the United States Testing Company (hereafter referred to as U. S. Testing), (a recognized testing organization, as testified to by Dr. Golub, a government witness) to be tested for fiber content.

Defendants contend that the sample was returned on September 25, 1962. U. S. Testing informed the defendants that a proper test could not be conducted from the finished dyed material. A new sample was sent to U. S. Testing on the same date, accompanied by a letter from Prince stating its belief that the goods to be tested were 65% cashmere/35% wool.

On September 28, 1962, U. S. Testing reported that the sample tested was 58.4% cashmere/41.6% wool. On the basis of this test result, Prince, on October 2, 1962, established the letter of credit required for the purchase from Toyo Boshi of 20,000 pounds of material 60% cashmere/40% wool at $1.75 per pound, c. i. f.

The 20,000 pounds of yarn labelled as 60% cashmere, 40% wool was sent by Toyo Boshi to Prince in four shipments in October and November of 1962. The material was then sent out to various companies to be spun, finished and sponged.

On January 3, 1963, Hart, Shaffner and Marx ordered 30 pieces of the material woven into Prince Style No. 458/10.

On January 28, 1963, Prince sent another sample to U. S. Testing for analysis, accompanied by a letter from Prince stating its belief that the sample was 75% cashmere/25% wool. On February 6, 1963, a written report was sent to Prince stating that the sample was 55.7% cashmere (down), 1.0% cashmere (beard), 42.2% wool and 1.1% other. The defendants claim that the report was initially received on January 29, 1963 and the February 6, 1963 report merely confirmed the earlier report made by telephone.

On January 31, 1963, four (4) pieces of fabric were shipped to Hart, Shaffner and Marx. They were invoiced as 58% cashmere/42% wool, although labeled 60% cashmere/40% wool.² On February 8, 1963 four more pieces were shipped to Hart, Schaffner and Marx.³

On January 18, 1963, the FTC, apparently unknown to the defendants, had sent a sample of Toyo Boshi yarn, secured from Customs, to an independent testing company. A report dated January 28, 1963, stated that the yard contained 84.4% wool/15.6% cashmere.

On February 7 and 13, 1963, investigators of the FTC visited Prince and informed the defendants that they suspected that the yarn purchased from Toyo Boshi was mislabelled. Defendants claim that they were informed of the alleged mislabelling for the first time on February 12, although the government alleges that such suspicions were made known on the first visit on February 7.

Upon learning of these conditions, Prince had additional samples of the material tested by various companies. The results showed that the cashmere content of the material was substantially below 60%. The results included retests by U. S. Testing of the samples which it had previously tested and had reported to have had cashmere contents close to 60%.

During February and March, 1963, the FTC had nine samples of the yarn tested and the results indicated a low cashmere content (the most favorable result indicated a cashmere content of only 36.6%).

After an agent of the FTC had visited Hart, Schaffner and Marx on February 19, 1963 to secure samples of the material shipped by Prince to Hart, Schaffner and Marx, Hart, Schaffner and Marx notified Prince that an FTC agent had been there and questioned the content of the material. Thereafter, on March 8, 1963, Prince requested Hart, Schaffner and Marx to return the eight pieces sent to them and this was done. The samples of material taken from Hart, Schaffner and Marx produced the following results: 1) 57.3% wool/42.7% cashmere; 56.5% wool/43.5% cashmere.

While this action was pending, an expert agreeable to both sides tested ten samples of the fabric and the results again showed that the cashmere content was well below 60%. As a result, the parties agreed that Prince would sell the fabric labelled as 74% wool/26% cashmere, which it did to Howard Stores, allegedly at a loss of over $35,000.

Defendants made a claim for their losses against Toyo Boshi and U. S. Testing. The claim against Toyo Boshi was settled for $10,000. The litigation against U. S. Testing is still pending.

The government charges the defendant with four violations of the 1953 cease and desist order⁴ viz.: 1) importing into the United States misbranded woolen yarn; 2) manufacture of the misbranded woolen fabrics for introduction into commerce; 3) introducing said misbranded woolen fabrics into commerce; and 4) selling, transporting and distributing said woolen fabrics in commerce. The government seeks the maximum civil penalty ($5000) for each violation⁵ in addition to an injunction.

The defendants contend that the 1953 order was concerned exclusively with the use of reprocessed or reused wool in blankets and even if they mislabelled the wool products involved in this action, there would be no violation of the order. A perusal of the cease and desist order indicates that although the FTC might have been substantially concerned with blankets, it was not exclusively so concerned. The order reads blankets or other "wool products".⁶ If the FTC had intended the order to relate only to blankets, there would have been no need to insert the words "or other `wool products'".

Even if the FTC was primarily concerned with blankets, to limit the scope of such a cease and desist order to prohibiting only those violations which have been presently found to exist would be placing an undue burden on the FTC in the discharging of its functions. The FTC is also concerned with preventing future illegal practices. The Supreme Court in F. T. C. v. Ruberoid Co., 343 U.S. 470, 473, 72 S.Ct. 800, 803, 96 L.Ed. 1081 (1952) has stated:

Orders of the Federal Trade Commission are not intended to impose criminal punishment or exact compensatory damages for past acts, but to prevent illegal practices in the future. In carrying out this function the Commission is not limited to prohibiting the illegal practice in the precise form in which it is found to have existed in the past. If the Commission is to attain the objectives Congress envisioned, it cannot be required to confine its road block to the narrow lane the transgressor has traveled; it must be allowed effectively to close all roads to the prohibited goal, so that its order may not be by-passed with impunity.

See F. T. C. v. Colgate-Palmolive Co., 380 U.S. 374, 85 S.Ct. 1035, 13 L.Ed.2d 904 (1965); F. T. C. v. Henry Broch & Co., 368 U.S. 360, 82 S.Ct. 431, 7 L.Ed.2d 353 (1961); Hunter Mills Corp. v. F. T. C., 284 F.2d 70 (2d Cir. 1960), cert. denied, 366 U.S. 903, 81 S.Ct. 1045, 6 L.Ed.2d 203 (1961).

The FTC has broad discretion in framing the order that it believes is required under the circumstances. Courts will not interfere with such an order if it has a reasonable relation to the illegal practices that exist. In addition, courts have constantly found that is reasonable to frame an order broadly enough to prevent illegal practices in the future. F. T. C. v. Colgate-Palmolive Co., supra, 380 U.S. at 395, 85 S.Ct. 1035. There is sufficient similarity between mislabelling wool as to the content of reprocessed or reused wool and mislabelling cashmere-wool fabrics as to fiber content to justify considering the misbranding⁷ in this case as violative of the 1953 cease and desist order.

The defendants' further claim that even if there was a mislabelling or misbranding it was not done wilfully or intentionally and therefore they should not be subject to any penalties. They indicate that the very words used in the order, viz., "falsely and deceptively" import the idea of a wilful...