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UNITED STATES v. PAPERCRAFT CORP.

March 11, 1975

United States of America Plaintiff,
v.
Papercraft Corporation, a Pennsylvania Corporaton, Defendatn


Snyder, D.J.


The opinion of the court was delivered by: SNYDER

SNYDER, D.J. :

 This is a proceeding for civil penalties instituted by the United States on behalf of the Federal Trade Commission (FTC) for violations of a final order requiring Papercraft Corporation (Papercraft), to divest itself of CPS Industries, Inc. (CPS). This action was brought under § 16(b) of the Federal Trade Commission Act, as amended, 15 U.S.C. § 56(b), pursuant to § 11 (l) of the Clayton Act, as amended, 15 U.S.C. § 21 (l), and §§ 5 (l) and 5(m) of the Federal Trade Commission Act, as amended, 15 U.S.C. §§ 45 (l) and 45(m).

 On April 10, 1969, the Federal Trade Commission issued its Complaint against Papercraft challenging Papercraft's acquisition, on or about December 27, 1967 of CPS, as a violation of § 7 of the Clayton Act, as amended, 15 U.S.C. § 18. The proceeding resulted in a Commission order on June 30, 1971 requiring the divestiture. Upon review, the United States Court of Appeals for the Seventh Circuit on February 22, 1973 ordered modification in part the Commission's order, but affirmed the order of divestiture. Papercraft Corporation v. F.T.C., 472 F.2d 927 (7th Cir. 1973).

 In accordance with the mandate of the Seventh Circuit, the Commission's modified order was issued on June 6, 1973, and was duly served on the Defendant on June 16, 1973. It read in pertinent part as follows:

 
" It Is Ordered that respondent, The Papercraft Corporation, a corporation, and its officers, directors, agents, representatives, employees, subsidiaries, affiliates, successors and assigns, within six (6) months from the date of service upon it of this Order, shall divest, absolutely and in good faith, subject to the approval of the Federal Trade Commission, all assets, properties, rights and privileges, tangible and intangible, including, but not limited to, all plants, equipment, machinery, inventory, customer lists, trade names, trademarks and goodwill, acquired by The Papercraft Corporation as a result of its acquisition of CPS Industries, Inc., together with all additions and improvements thereto, of whatever description, made since the acquisition."

 Neither party filed a petition for certiorari in the Supreme Court of the United States and the Commission's order became final by operation of law on July 6, 1973, as provided in § 11(i) of the Clayton Act, as amended, 15 U.S.C. § 21(i), and in § 5(i) of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45(i).

 Notwithstanding the final order of the Commission to divest itself of CPS within six months of June 16, 1973, the date of service of the order, or by no later than December 16, 1973, the Defendant failed to comply and continued in its failure to divest itself of CPS, or to submit a proposed plan for divestiture of CPS to the Commission for its approval. The Complaint asked for a mandatory injunction directing compliance with the modified order and for judgment to be entered against the Defendant in the sum of $10,000 per day for each day of continuing violation, together with costs. *fn1"

 Papercraft filed an Answer admitting the failure to divest, and in a Counterclaim alleged that FTC acted in excess of its statutory authority in denying Papercraft the right to a hearing on a Request for an Extension of Time, and acted arbitrarily and capriciously in failing to properly review Papercraft's petitions for modification of the deadline provisions of the Order. Papercraft also filed a Motion to Join Additional Parties, i.e., the Federal Trade Commission and the individual members of the Commission as Counterclaim Defendants, allegedly in accordance with Rules 13 and 19 of the Federal Rules of Civil Procedure. After briefing and argument, on December 15, 1974, this Court denied the defendant's Motion to Join Additional Parties finding that complete relief could be accorded the defendant on its Counterclaim in the instant proceedings, rendering unnecessary any further claim for relief against the Commission or its members. We held at that time: "While not necessary for the disposition of the Motion, it is noted that the Commission's denial of the Request for Extension has been considered to be a matter of the exercise of the discretion of the Commission and not the Court. United States v. Beatrice Foods Co., 344 F. Supp. 104, 117 (D. Minn. 1972), aff'd., 493 F.2d 1259 (8th Cir. 1974), pet. for cert. pending in the U.S. Sup. Ct; United States v. Swingline, Inc., 371 F. Supp. 37, 45 (E.D.N.Y. 1974)."

 On November 15, 1974, the United States filed a Motion for Partial Summary Judgment, interlocutory in nature on the issue of whether or not defendant Papercraft was in violation of the Federal Trade Commission's order based on an affidavit of Charles A. Tobin, together with exhibits, reserving for later hearing the consideration of the appropriate penalty and other relief. In addition, the United States seeks to have summary judgment dismissing defendant Papercraft's Counterclaim. It was contended that the Counterclaim raised no issues of fact concerning Papercraft's violation of the order, and was thus not a defense in any way to the instant proceedings. The motions of the United States will be granted.

 Administrative History

 This proceeding was initiated by the Federal Trade Commission on April 10, 1969 (In The Matter of The Papercraft Corporation, FTC Docket No. 8779), challenging, as violation of § 7 of the Clayton Act, as amended, 15 U.S.C. § 18, Papercraft's acquisition on or about December 27, 1967 of CPS Industries, Inc. Hearings were held and on June 30, 1971, the Commission issued an Order requiring Papercraft to divest itself of CPS. As noted, United States Court of Appeals for the Seventh Circuit entered a final Order on February 22, 1973, modifying in part the Commission's order by deleting Paragraph IX (which concerned Papercraft's post-divestiture relationship with CPS customers) and affirming and enforcing the order as modified.

 Papercraft twice filed requests for nine month extensions of time in which to divest CPS. The first request was filed December 3, 1973, and the Commission rejected this request by letter dated January 16, 1974. Papercraft's second request was filed March 4, 1974, and rejected by the Commission on March 29, 1974.

 Papercraft has not presented to the Commission a plan for divestiture of CPS by sale or spin-off nor has it divested CPS. Thus, on August 6, 1974, the Commission, pursuant to Section 16 of the Federal Trade Commission Act, certified the facts in this proceeding to the Attorney General (Exhibit 1 to Tobin affidavit), and the Attorney General thereafter directed a suit be instituted seeking civil penalties for Papercraft's continuing failure to comply with the Commission's Order, and for enforcement.

 Papercraft's Answer admits all of the above matters except that it asserts that the Commission's errors in the handling of its requests for extensions were such that they constitute a defense to the enforcement of the Order, and thus, Defendant rather obliquely ...


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