Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

UNITED STATES v. PAPERCRAFT CORP.

May 9, 1975

United States of America, Plaintiff,
v.
Papercraft Corporation, A Pennsylvania Corporation, Defendant


Snyder, D.J.


The opinion of the court was delivered by: SNYDER

SNYDER, D.J. :

 Proceedings for divestiture were initiated by the FTC on April 10, 1969, alleging illegal acquisition of CPS by Papercraft in December of 1967. FTC's initial Order requiring divestiture was issued June 30, 1971. On June 6, 1973, a Modified Order was entered in compliance with the unappealed Mandate of the Seventh Circuit Court of Appeals. *fn1" The Modified Order required Papercraft, within six months of the date thereof, to "divest, absolutely and in good faith, subject to the approval of the Federal Trade Commission, all assets, properties, rights and privileges, . . . of CPS Industries, Inc., . . .". None of the assets were permitted to be transferred to any person who was an officer, director or employee of Papercraft or affiliated corporations, or who controlled more than 1% of the shares of Papercraft Corporation, or to anyone who was not approved in advance by the FTC. However, it was provided that Papercraft could divest itself without the preceding limitations being applicable, if such divestiture was accomplished through a new corporation whose shares could be distributed to the stockholders of Papercraft in proportion to their holdings of Papercraft stock. For a period of ten years, Papercraft was ordered not to acquire, in whole or in part, stock or assets of any concern engaged in the manufacture, production, sale or distribution of any decorative gift wrap product.

 Papercraft twice requested extensions of the FTC Order which were rejected, and on August 6, 1974, the FTC, pursuant to Section 16 of the Federal Trade Commission Act, 15 U.S.C. § 56, certified the proceedings to the Attorney General of the United States setting forth that Papercraft had neither divested itself of CPS nor presented to the FTC any plan for divestiture of CPS by sale or spin-off.

 Papercraft in this Court unsuccessfully asserted error of the FTC in denying requests for extension, and rather obliquely challenged the FTC's certification to the Attorney General. This Court entered Summary Judgment on the Order violation. A rather lengthy hearing was held by this Court on the imposition of civil penalties and the framing of a mandatory injunction to prevent continuation of the violation of the FTC Divestiture Order.

 Non-Compliance

 The Government's suit was brought under both the Federal Trade Commission Act and the Clayton Act. Section 5 (l) of the Federal Trade Commission Act (15 U.S.C. § 45 (l)), *fn2" authorized a penalty of not more than $5,000 for each violation. Under Section 11 (l) of the Clayton Act (15 U.S.C. § 21 (l)), *fn3" a penalty of not more than $5,000 for each violation was established. The maximum penalty for violation of Section 5 (l) of the Federal Trade Commission Act, 15 U.S.C. § 45 (l), has since been increased from $5,000 to $10,000. See, Pub. L. 93-153, Title IV, § 408(c), 87 Stat. 591, 592 (1973). These statutes must be read in pari materia. Federal Trade Com. v. Cement Institute, 333 U.S. 683, 690, 68 S. Ct. 793, 92 L. Ed. 1010 (1948); Federal Trade Commission v. Reed, 243 F.2d 308 (7th Cir. 1957). Thus, maximum penalties of $10,000 per day are available as contended for by the Government. *fn4"

 Congress, as evidenced by the legislative history, was fully cognizant of the problem before the Court of determining sufficient monetary penalties to provide incentive for prompt compliance with FTC Orders. Thus, in recommending passage of the 1959 Amendment to the Clayton Act, to bring it into accord with the 1938 Wheeler-Lee Amendment to the Federal Trade Commission Act, the House Committee on the Judiciary observed:

 
". . . Although the maximum penalty may be severe, in certain cases it would be appropriate. In the absence of the maximum penalty for a continuing offense, for example, commission and board orders with respect to mergers and interlocking directorships would be ineffective."

 The House further went on to add that:

 
". . . In such cases, unless the maximum penalty applied and each day of a continuing violation considered a separate offense, an order dissolving an unlawful merger could be ignored after the mere payment of a $5,000 fine."
 
(House Report No. 580, 86th Congress, First Session, U.S. Code, Congressional and Administrative News, 1804, 1807 (1959).)

 The United States Supreme Court in United States v. ITT Continental Baking Co., 420 U.S. 223, 95 S. Ct. 926, 43 L. Ed. 2d 148 (1975), in the same context stated as follows ( 43 L. Ed. 2d at p. 158):

 
"The legislative history also makes clear that Congress was concerned with avoiding a situation in which the statutory penalty would be regarded by potential violators of FTC orders as nothing more than an acceptable cost of violation, rather than as a deterrence to violation. . . ."

 One of the clearest expositions of the court's approach to civil penalties was given by Judge Lay in United States v. Beatrice Foods Co., 493 F.2d 1259 (8th Cir. 1974), cert. denied, 420 U.S. 961, 95 S. Ct. 1350, 43 L. Ed. 2d 438, where the following appears in a factual situation very close to ours (at pp. 1270-1271):

 
". . . As the government persuasively urges here:
 
'For competitive purposes there is nothing intrinsically wrong with the "act of acquisition" in and of itself. Rather it is the effect of an acquisition, the relationship it creates which may lead to its proscription. . . . The order's express and agreed terms barred further "acquisitions" and that term plainly had the same meaning as in Section 7 of the Clayton Act. The anti-competitive effects of acquisitions condemned by Section 7 come from the fact that, by holding the assets, the acquiring firm changes the competitive structure of the industry involved. It is the permanent effect of prohibited acquisitions which Congress sought to remedy in the statute. . . . [Any other interpretation] would convert all orders barring future acquisitions into minor expenses of any acquisition or merger, for the prohibition could be avoided by payment of a $5,000 penalty.'
 
"In Gottesman v. General Motors Corp., 414 F.2d 956 (2d Cir. 1969), cert. denied, 403 U.S. 911, 91 S. Ct. 2208, 29 L. Ed. 2d 689 (1971), the court reasoned:
 
'Here the very acquisition and position of potential control which was found violative of the Clayton Act as of 1949 continued through 1961. We need not dispute the statement of the district court that, in the ordinary antitrust case, there is no "presumption of continuance of unlawful conduct." Here, however, what was unlawful was du Pont's status as stockholder in General Motors, and that status continued until divestiture.'
 
Id. at 965.
 
"Similarly, in United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586, 77 S. Ct. 872, 1 L. Ed. 2d 1057 (1957), the defendants argued that where the challenged stock acquisition occurred in 1917, the government could not bring suit in 1949 to undo the acquisition since § 7 was applicable only to the acquisition and not to the subsequent holding of the stock. The Supreme Court rejected this argument:
 
'We repeat, that the test of a violation of § 7 is whether, at the time of suit, there is a reasonable probability that the acquisition is likely to result in the condemned restraints. . . . The fire that was kindled in 1917 continues to smolder.
 
Id. at 607, 77 S. Ct. at 884.
 
"In United States v. Schine, 260 F.2d 552 (2d Cir. 1958), cert. denied, 358 U.S. 934, 79 S. Ct. 318, 3 L. Ed. 2d 306 (1959), the defendants were found to have violated an antitrust decree by acquiring interests in theaters without prior court approval. The defendants tried to argue that the ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.