Source: https://law.justia.com/cases/federal/appellate-courts/F2/527/1115/309933/
Timestamp: 2019-08-25 00:50:41
Document Index: 541813471

Matched Legal Cases: ['§ 45', '§ 45', '§ 45', '§ 1331', '§ 1335', '§ 1336', '§ 1336', '§ 45', '§ 45', '§ 45', '§ 45']

Brown & Williamson Tobacco Corp., Appellant, v. Lewis A. Engman, Chairman, Federal Trade Commission, et al.,appellees.philip Morris Incorporated, Appellant, v. Lewis A. Engman, Chairman, Federal Trade Commission, et al.,appellees.r. J. Reynolds Tobacco Co., Appellant, v. Lewis A. Engman, Chairman, Federal Trade Commission, et al.,appellees.loew's Theatres, Inc., Appellant, v. Lewis A. Engman, Chairman, Federal Trade Commission, et al.,appellees.american Brands, Inc., Appellant, v. Lewis A. Engman, Chairman, Federal Trade Commission, et al.,appellees.liggett & Myers Incorporated, Appellant, v. Lewis A. Engman, Chairman, Federal Trade Commission, et al.,appellees, 527 F.2d 1115 (2d Cir. 1975) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Second Circuit › 1975 › Brown & Williamson Tobacco Corp., Appellant, v. Lewis A. Engman, Chairman, Federal Trade Commission,...
Brown & Williamson Tobacco Corp., Appellant, v. Lewis A. Engman, Chairman, Federal Trade Commission, et al.,appellees.philip Morris Incorporated, Appellant, v. Lewis A. Engman, Chairman, Federal Trade Commission, et al.,appellees.r. J. Reynolds Tobacco Co., Appellant, v. Lewis A. Engman, Chairman, Federal Trade Commission, et al.,appellees.loew's Theatres, Inc., Appellant, v. Lewis A. Engman, Chairman, Federal Trade Commission, et al.,appellees.american Brands, Inc., Appellant, v. Lewis A. Engman, Chairman, Federal Trade Commission, et al.,appellees.liggett & Myers Incorporated, Appellant, v. Lewis A. Engman, Chairman, Federal Trade Commission, et al.,appellees, 527 F.2d 1115 (2d Cir. 1975)
US Court of Appeals for the Second Circuit - 527 F.2d 1115 (2d Cir. 1975)
Argued Oct. 29, 1975. Decided Dec. 22, 1975
Appellants principally argue that they are entitled to a stay of the accrual of civil penalties as a matter of law. They do so on the basis of a series of Supreme Court decisions which commenced with Ex parte Young, 209 U.S. 123, 28 S. Ct. 441, 52 L. Ed. 714 (1908), and include Wadley Southern Railway Co. v. Georgia, 235 U.S. 651, 35 S. Ct. 214, 59 L. Ed. 405 (1915); Oklahoma Operating Co. v. Love, 252 U.S. 331, 40 S. Ct. 338, 64 L. Ed. 596 (1920), and St. Regis Paper Co. v. United States, 368 U.S. 208, 82 S. Ct. 289, 7 L. Ed. 2d 240 (1961).6 The argument is that a party whose conduct is made subject to administrative action must be given the opportunity to obtain a judicial test of the validity of such action and, further, as a matter of due process of law, cannot be subjected to the risk that substantial penalties will accumulate during the course of the judicial proceeding. This line of cases is based on the reasoning that, regardless of the ultimate determination on the merits, due process requires that some real opportunity to challenge administrative action be afforded, and that such opportunity cannot exist where penalties are so great that noncompliance and a judicial challenge cannot be risked. The argument is the more compelling, the appellants suggest, in connection with FTC statutory penalties due to recent decisions, including our own United States v. J. B. Williams Co., 498 F.2d 414, 435--36 (2d Cir. 1974), note 5 supra, which hold that penalties imposed for noncompliance with the Commission's cease and desist order may be computed on the basis of a separate violation for each day and for each advertisement.7 Appellants thus claim that the district court's endorsement of the Government's position in this case is directly contrary to definitive Supreme Court decisions which embody the rule that a stay of penalties is required during a good faith judicial challenge to an agency determination.
Young, Wadley, Love and St. Regis, however, do not go as far as appellants suggest. Rather, they establish that one has a due process right to contest the Validity of a legislative or administrative order affecting his affairs without necessarily having to face ruinous penalties if the suit is lost. The constitutional requirement is satisfied by a statutory scheme which provides an opportunity for testing the validity of statutes or administrative orders without incurring the prospect of debilitating or confiscatory penalties. As stated in St. Louis, Iron Mountain & Southern Railway Co. v. Williams, 251 U.S. 63, 65, 40 S. Ct. 71, 72, 64 L. Ed. 139 (1919),
See St. Regis, supra, 368 U.S. at 226--27, 82 S. Ct. 289; Wadley, supra, 235 U.S. at 667--69, 35 S. Ct. 215. See also Ford Motor Co. v. Coleman, 402 F. Supp. 475 at 483--484 (D.D.C. 1975).
Here the penalties which the appellants seek to have stayed did not attach prior to their opportunity to contest the validity of the orders. Rather, the risk of penalties began to accrue only after the appellants entered into consent decrees which acknowledged the validity of the decrees and waived the right further to challenge their validity. The statutory scheme of the Federal Trade Commission Act contemplates ample opportunity to the company accused of a deceptive practice to test the initial validity of the order. It can do so by seeking a review in the United States Court of Appeals. 15 U.S.C. § 45(c); note 5 supra; see United States v. J. B. Williams Co., supra,498 F.2d at 419 (majority opinion) and at 441 (dissenting opinion). In the instant case, however, it is not the validity of the consent orders that appellants contest; rather it is their interpretation by the FTC. The question whether one is entitled to a stay of penalties as a matter of law in a suit involving the enforcement of an admittedly valid administrative order is not concluded by the Young line of cases. Appellants have pointed to no cases which support their proposition that at the compliance or enforcement stage they are still entitled to a stay. The only cases in which the argument has been made have not accepted it, although they hardly have the weight here that the Commission would attribute to them. See Floersheim v. Weinberger,346 F. Supp. 950, 956 (D.D.C. 1972), Modified on other grounds and aff'd sub nom. Floersheim v. Engman, 161 U.S.App.D.C. 30, 494 F.2d 949 (D.C. Cir. 1973); United States v. Beatrice Foods Co., 322 F. Supp. 139, 141 n. 1 (D. Minn. 1971).
We agree, of course, with the principle enunciated by the Supreme Court in Wadley Southern Railway Co. v. Georgia, supra, 235 U.S. at 661, 35 S. Ct. 215, that a right of judicial review is merely 'nominal and illusory' if it must be exercised 'only at the risk of having to pay penalties so great that it is better to yield to orders of uncertain legality rather than to ask for the protection of the law.' But the legality of the orders here is entirely certain. The penalties are accruing in this case, if at all, only by virtue of noncompliance with perfectly valid administrative orders. At this stage the right of the government to impose fines and penalties for violation of the laws appears equally indisputable. As Wadley states, 'there is no room to doubt the power of the state to impose a punishment heavy enough to secure obedience to such orders after they have been found to be lawful; nor to impose a penalty for acts of disobedience, committed after the carrier had ample opportunity to test the validity of administrative orders and failed so to do.' 235 U.S. at 667, 35 S. Ct. at 220. Cf. Calero-Toledo v. Pierson Yacht Leasing Co., 416 U.S. 663, 684--85 n. 24, 94 S. Ct. 2080, 40 L. Ed. 2d 452 (1974).
Appellants argue, of course, that it is the risk of huge accumulating penalties during the course of the enforcement proceedings in this case which calls into play the Supreme Court cases and requires the granting of the temporary relief sought. But while the cumulative aspect of Section 45(l) penalties is severe, see United States v. J. B. Williams Co., supra, 498 F.2d at 435--36, it very plainly was the view of Congress that such cumulative penalties might be the only way to enforce FTC orders in the face of profitable, repeated or continuing violations. See 96 Cong.Rec. 2974 (1950) (remarks of Congressman Cooley); id. at 2981 (remarks of Congressman Posage); id. at 3018--19 (remarks of Senator George); id. at 3025 (remarks of Senator Aiken). The legislative history of the Act, according to United States v. ITT Continental Baking Co., 420 U.S. 223, 231, 95 S. Ct. 926, 932, 43 L. Ed. 2d 148 (1975),
The cumulative penalty sections of Section 45(l) were held to be fair in ITT Continental Baking Co. because they were reasonably related to deterring cumulative violations of FTC orders in two situations: first, where detriment to the public and the advantage to the violator increases with delay of enforcement; and, second, where there exists a continuing ability on the part of the violator to eliminate the effects of his violation if so motivated. 420 U.S. at 232--33, 95 S. Ct. 926. We are satisfied, therefore, that § 45(l) cumulative penalties are not violative of due process under the circumstances of this case and that appellants are not entitled to a stay of penalties as a matter of law. We may point out in passing that while § 45 penalties are cumulative, they are also subject to the limitation of judicial discretion upon the penalties imposed.8 Moreover, our own decision in United States v. J. B. Williams Co., supra, held that in any penalty action there is a right to jury trial on contested issues of fact.
Appellants also argue that even under the district court's approach of treating the motion for a stay as an application for preliminary injunction they are entitled to relief. We need not again set forth our settled rule that to obtain such relief the litigant must either demonstrate a combination of probable success on the merits and the possibility of irreparable injury or, in the alternative, that he has raised serious questions going to the merits and that the balance of hardships tips 'decidedly' in his favor. San Filippo v. United Brotherhood of Carpenters and Joiners of American, 525 F.2d 508, 511 (2d Cir. 1975), 6387, 6392; Stamicarbon, N.V. v. American Cyanamid Co., 506 F.2d 532, 536 (2d Cir. 1974). Ultimately these motions are addressed to the discretion of the district court and its decision should not be disturbed unless an abuse of discretion is shown. In this regard, and particularly in this type of case, we must recall that courts of equity may go much further both to give or to withhold relief in furtherance of the public interest than where only private interests are involved. See Abbott Laboratories v. Gardner, 387 U.S. 136, 156, 87 S. Ct. 1507, 18 L. Ed. 2d 681 (1967); Yakus v. United States, 321 U.S. 414, 441, 64 S. Ct. 660, 88 L. Ed. 834 (1944); Gulf & Western Industries, Inc. v. Great Atlantic & Pacific Tea Co., 476 F.2d 687, 699 (2d Cir. 1973).
We agree with Judge Tenney below that appellants have doubtless posed a serious question on the merits. However, the limitations on the imposition of Section 45(l) penalties which we have discussed above, see, e.g., Floersheim v. Engman, 494 F.2d 949, 953 (D.C. Cir. 1973) ('There is room for leniency by the court, if petitioner's view of the meaning of the order is plausible and not defiant'), coupled with the strong public interest militating against the stay, preclude any finding that appellants have met their burden of showing that the equities tipped decidedly in their favor. We agree with the court in Floersheim v. Engman, supra, that the 'equitable limitations inherent in the Government's remedies are a substantial protection for a respondent with a reasonable and bona fide claim.' See note 8 supra. We also are of the view that if appellants' interpretation of the consent orders is incorrect, granting the stay would infringe the public interest in receiving adequate warnings on the hazards of cigarette smoking. We put no stock in the intimation in the appellants' brief that the public interest is not involved because Congress has specifically required warnings on cigarette packages but not on advertising. See note 2 supra. Nowhere has Congress suggested that the FTC should not continue to handle the matter of cigarette advertising, and deceptive advertising practices in general, within the confines of its existing complaint procedures under Section 45. See note 2 supra. It may be, as appellants claim, that the Commission's views on noncompliance relate to alleged 'minuscule variations in type size and type style' and 'to technical aspects' of the consent orders, but the Surgeon General's warning is a serious message which substantially affects the public interest. Noncompliance with the Commission's order is not a matter lightly to be endured.
As taken essentially from the affidavit of Eric M. Rubin, an FTC staff sttorney, the history was as follows. In June, 1964, after the Surgeon General released the Report of his Advisory Committee on Smoking and Health, the FTC issued a proposed rule requiring the inclusion of a health warning in all cigarette labeling and advertising. Congress, however, adopted the Cigarette Labeling and Advertising Act of 1965, Pub. L. No. 89--92, 79 Stat. 282, requiring a health warning on all cigarette packages, but barring until July 1, 1969, the FTC from requiring such a warning in cigarette advertising. 1965 U.S.Code Cong. & Admin.News 2350, 2351. When that time expired the FTC again announced its intention to promulgate a trade regulation rule requiring a warning to be included in all cigarette advertising. Congress again intervened to enact the Public Health Cigarette Smoking Act of 1969, 15 U.S.C. § 1331 et seq. This act prohibited radio and television advertising of cigarette and little cigars after January 1, 1971, 15 U.S.C. § 1335, and foreclosed any action by the FTC 'with respect to its pending trade regulation rule proceeding' before July 1, 1971, 15 U.S.C. § 1336(a). The Act also required that if the FTC planned to take any action in this area after July 1, 1971, the Commission had to give six months' notification to Congress of its determination to do so. But Congress specifically left untouched the FTC's authority with respect to unfair or deceptive cigarette advertising acts or practices. 15 U.S.C. § 1336(b). On July 1, 1971, the FTC served on each of the appellants individual complaints charging them with failure to disclose the Surgeon General's warning. Agreements containing consent orders agreeing to such disclosure were negotiated in January of 1972 and in March of 1972 the orders were finally issued and thereafter served
15 U.S.C. § 45(a) (1) declares unfair or deceptive acts in commerce unlawful. The statute empowers and directs the Commission to prevent such acts, 15 U.S.C. § 45(a) (6). It authorizes the issuance of cease and desist complaints, provides for agency hearings thereon and affords review of FTC orders in the court of appeals. 15 U.S.C. § 45(b)--(d). The penalties for violation of orders are set forth in 15 U.S.C. § 45(l) as follows:
For a general discussion of the penalty mechanism, see United States v. J. B. Williams Co., 498 F.2d 414 (2d Cir. 1974), noted in 41 Brooklyn L.Rev. 792 (1975), 43 Geo. Wash. L. Rev. 307 (1975), 88 Harv. L. Rev. 1035 (1975).
Ex parte Young, 209 U.S. 123, 28 S. Ct. 441, 52 L. Ed. 714 (1908), held that state statutes establishing maximum rail rates and providing large penalties (including imprisonment) for violation therof where constitutionally invalid since the parties had been given no opportunity to contest validity of the rates and were effectively denied judicial review of the rates by the magnitude of the penalties. Id. at 147--48, 28 S. Ct. 441. Wadley Southern Ry. v. Georgia, 235 U.S. 651, 669, 35 S. Ct. 214, 59 L. Ed. 405 (1915), held that where a state railroad commission joint rate order was made after hearing and where the carrier did not avail itself of a 'safe, adequate, and available' statutory judicial review to test the validity of the order, the statute authorizing a $5,000 a day penalty for violation was not invalid. Oklahoma Operating Co. v. Love, 252 U.S. 331, 40 S. Ct. 338, 64 L. Ed. 596 (1920), followed Young where there was no opportunity for judicial review of a state agency order. St. Regis Paper Co. v. United States, 368 U.S. 208, 82 S. Ct. 289, 7 L. Ed. 2d 240 (1961), held that fixed statutory forfeitures of $100 per day for failure to file special reports in compliance with FTC orders were not invalid where 'petitioner did not try to obtain judicial review prior to the commencement' of the Government's penalty action, and where the petitioner did not 'seek a stay once the litigation had begun.' Id. at 225, 82 S. Ct. at 299. The Court seemed to indicate that a declaratory judgment action would have lain to contest the validity of the orders and pointed out that even after the Government commenced the enforcement action a stay of penalties could have been but was not sought. Id. at 225--27, 82 S. Ct. 289
The courts have recognized the limitation inherent in this section. See United States v. ITT Continental Baking Co., 420 U.S. 223, 229 n. 6, 95 S. Ct. 926, 930 (1975) ('. . . the statutes prescribe no minimum penalty, and the District Court has discretion to determine the amount of the penalty for each violation whether the transactions are construed as single or as continuing violations'). See also United States v. J. B. Williams Co., 498 F.2d 414, 438 (2d Cir. 1974); Floersheim v. Engman, 494 F.2d 949, 952--54 (D.C. Cir. 1973); Ford Motor Co. v. Coleman, 404 F. Supp. 475 at 489 (D.D.C. 1975).