UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA
January 19, 1977
UNITED STATES OF AMERICA, Plaintiff,
PAPERCRAFT CORPORATION, A Pennsylvania Corporation, Defendant
The opinion of the court was delivered by: SNYDER
This matter is before the Court on remand from the United States Court of Appeals for the Third Circuit, United States v. Papercraft Corporation, 540 F.2d 131 (3rd Cir. 1976), for reassessment of civil penalties under Section 11(l) of the Clayton Act, 15 U.S.C. § 21(l). We granted summary judgment on the violation of the Federal Trade Commission Order to the Defendant to divest itself of C.P.S. Industries, Inc., 393 F. Supp. 408 (W.D.Pa. 1975), and we assessed penalties of $3,817,500.
On appeal, the Third Circuit required the application of the penalty provisions of the Clayton Act
and not of the Federal Trade Commission Act
as used by this Court, and thus ordered that the penalty be reassessed. The Circuit added "certain suggestions which the district court will be free to accept or reject at its discretion." 540 F.2d at 140. These suggestions involved considerations that there were peculiar circumstances which might, upon reflection, lead the district court to apply less than the maximum daily penalty of $5,000 as it had in applying less than the maximum daily penalty of $10,000, and further, that the district court might be disposed to impose different daily penalties for those violations of the FTC's Divestiture Order before the Commission clearly indicated that it would seek civil penalties. Argument of counsel was heard and briefs considered.
We do not propose to again analyze the facts; these were detailed in our prior opinions. We do, however, need to discuss the principal contentions of the Defendant:
1. That this Court should reconsider "the good or bad faith of the defendants, the injury to the public, and the defendants' ability to pay." (See Judge Friendly's Opinion in United States v. J. B. Williams Co., 498 F.2d 414, 438-39 (2d Cir. 1974);
2. That this Court should apply a far different penalty to the period before the notice by the Federal Trade Commission of its intent to seek penalties;
3. The amount of any fine imposed in other cases to date has been under $500,000 and this Court should consider this as precedent in making a final determination of a fine to be imposed here;
4. That now, the fine's purpose of forcing compliance has been fulfilled since divestiture is complete, and since C.P.S. was sold for a price less than that which could have been received had it been divested earlier, Papercraft has been disgorged of its illegally obtained profits.
These contentions will be discussed seriatim.
This Court, in its Opinion of May 9, 1975, 393 F. Supp. 415, held that the background for the penalty in the case sub judice was the finding by this Court that the asking price for C.P.S. was so unreasonable as to discourage inquiries. Papercraft considered substantial offers as "frivolous" and demonstrated a failure to realistically approach the subject of divestiture. It was apparent to the Court that Papercraft did not exercise that good faith which the Divestiture Order required, and proceeded with attempts to sell C.P.S. as though no order existed.
The Third Circuit recognized that this Court had "identified the proper factors to be considered in assessing the civil penalty" and noted that we had not assessed the maximum penalty. Our original conclusion was:
"In considering Papercraft's financial ability to pay, and the harm caused by the delay, the degree of bad faith, and the benefits received by Papercraft, we do not think that the penalty assessed should be the maximum." 393 F. Supp. at 427.
No persuasive reasoning causes us to change our basic approach except, of course, the maximum of the statutory penalty under the Clayton Act changes the actual figures we are working with.
Papercraft has also asked this Court to consider the violation of the FTC Order as a palatable consequence of the business environment, where a violation of a mandatory Order must be balanced with trying to justify the divestiture to the stockholders. Such argument cannot prevail. The record here is replete with profit motivation of the corporate officers. They were aware of the consequences of their decisions.
As Judge Aldisert pointed out, this Court was correct in holding that:
"Papercraft violated the divestiture order when it failed to divest by December 16, 1973. Nothing in the subsequent correspondence between Papercraft and the FTC detracts from this view. Nor is this a case in which Papercraft argues that it received an informal extension of time in which to comply." 540 F.2d at 140.
Thus, penalties could be assessed from the date the original FTC Order required divestiture (December 16, 1973).
Counsel for the Defendant now argues with merit that it was not clear that civil penalties would be sought by the FTC during the period when the Commission did not have a majority for or against the requested extension of time for divestiture. With this in mind, we conclude that we will apply a limited penalty of $200 per day from December 16, 1973 to March 29, 1974. We do so believing that a company cannot ignore divestiture orders while extensions are requested but not granted.
In our initial analysis of the fine, we referred to the factors considered in assessing civil penalties given 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 (1975) and United States v. Swingline, 371 F. Supp. 37, 45 (E.D.N.Y. 1974). By reference to the principles therein, we concluded and again so find that considering Papercraft's ability to pay, the harm caused by the delay, the degree of bad faith, and the benefits received by Papercraft, the penalty assessed should not be the maximum. We will impose a penalty of $3,500 per day for the period from March 29, 1974, to the date of our original penalty order -- a period of 406 days for a total of $1,421,000.
As to the precedents of other fines, Judge Aldisert pointed out in the remand Opinion:
"That the largest penalty previously assessed in a divestiture case was $200,000 and that the largest penalty for violation as any FTC order was $465,000 . . . are simply irrelevant considerations, given the statutory maximum . . . ." 540 F.2d at 141.
Papercraft further argues that a penalty assessed in this case would affect the stockholders after corporate taxes as though it were twice as much. Such effect is taken into full account by this Court.
Looking to Judge Aldisert's acknowledgement of the Supreme Court's equation of public harm with the measure of the violator's profit, United States v. ITT Continental Baking Co., 420 U.S. 223, 95 S. Ct. 926, 43 L. Ed. 2d 148 (1975), and further recognizing the lack of direct evidence showing the economic effect of the harm inflicted upon the public by Papercraft's failure to timely divest, it should be noted that both tiers of the fine imposed here are less than the profit received by Papercraft during the period it was in violation of the Order. See 393 F. Supp. at 422.
It is argued that the case before us is now in a different posture than when we considered the question of penalties before. At that time, Papercraft had not yet divested itself of C.P.S. and the fine which we imposed was, in part, to force compliance with the FTC Order. Now, divestiture is complete and one of the major purposes of the statute and the fine has been accomplished. Papercraft argues that since it disgorged C.P.S. for a price substantially lower than it originally had been asking, the fine should be reduced. Of course, had Papercraft exercised good faith in complying with the Order to begin with, it might well have received a higher price than it actually did in light of the offers it had.
Since part of the purpose of the fine which we imposed has been fulfilled, this justifies a reduction from the original amount, and we have therefore assessed a significantly lesser penalty. However, a consideration of the other factors discussed in this Opinion still dictate the imposition of a substantial penalty.
In summary, the total fine we are now imposing consists of $200 per day for the period from December 16, 1973 to March 29, 1974 (103 days for $20,600) and $3,500 per day for the 406 days thereafter to the May 9, 1975 Order ($1,421,000) for a total of $1,441,600.
An appropriate Order will be entered.
DANIEL J. SNYDER, JR. / UNITED STATES DISTRICT JUDGE
[EDITOR'S NOTE: The following court-provided text does not appear at this cite in 426 F. Supp.]
AND NOW, to-wit, this 19th day of January, 1977, after due consideration of the evidence, briefs and arguments of counsel;
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that civil penalties in the amount of $200 a day are hereby assessed against Papercraft Corporation, from December 17, 1973 to March 29, 1974, for a penalty of $20,600.
IT IS FURTHER ORDERED that civil penalties in the amount of $3,500 a day are hereby assessed against Papercraft Corporation, from March 29, 1974 to May 9, 1975, for a additional penalty of $1,421,000.
IT IS FURTHER ORDERED that Judgment be and the same is hereby entered for the civil penalties, in favor of the United States of America and against Papercraft Corporation in the total amount of $1,441,600, to be satisfied and paid within 60 days from the date of this Order by payment through the Office of the Clerk of this Court to the Treasurer of the United States.
DANIEL J. SNYDER, JR. / UNITED STATES DISTRICT JUDGE