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FTC v. CONSOLIDATED FOODS CORP.

December 16, 1974

FEDERAL TRADE COMMISSION, Plaintiff,
v.
CONSOLIDATED FOODS CORPORATION, a corporation, Defendant



The opinion of the court was delivered by: KNAPP

MEMORANDUM AND ORDER

 KNAPP, D.J.

 In this action, brought pursuant to Sections 5(l), 5(m) and 16(b) of the Federal Trade Commission Act, as amended, 15 U.S.C. §§ 45(l), 45(m) and 56(b), and Section 11(l) of the Clayton Act, as amended, 15 U.S.C. § 21(l), the Federal Trade Commission is seeking civil penalties and equitable relief for Consolidated Foods Corporation's alleged failure to obey a final Commission Consent Order to cease and desist from discriminating in the pricing of its decorative fabric trimming and trimming accessories products. The case is now before us on plaintiff's motion for summary judgment on liability alone, Fed. R. Civ. Proc. 56, and defendant's cross motion to dismiss the complaint, Fed. R. Civ. Proc. 12(b). These motions raise the following questions:

 
(1) Where the Commission has in fact taken all procedural steps necessary to establish its right to bring a civil penalty action, does its failure to enumerate such steps in the complaint deprive this court of subject matter jurisdiction?
 
(2) Is a consent order rendered null and void by the fact that it contains a paragraph, not contained in the prior Consent Agreement, which requires the respondent to file a compliance report?
 
(3) In a civil penalty action under the antitrust laws, is it mandatory that the Federal Trade Commission give formal notice to the defendant *fn1" that it is in violation of its order prior to instituting the action?
 
(4) Assuming the validity of the consent order entered into between the parties, under what circumstances are the statutory defenses of cost justification and meeting competition available to defendant?

 This action is one of the first to be brought by the Commission under its new statutory authority *fn2" to sue in its own right. Moreover, correspondence in the record between the Commission and the Attorney General indicates that the action was brought as a "test case" to define such new authority. A more extensive opinion than might otherwise be required therefore seems appropriate.

 The action dates back to the Federal Trade Commission proceeding In the Matter of Consolidated Foods Corporation, FTC Docket No. C-2454. On or before January 26, 1972, the Commission notified defendant of the commencement of an investigation to determine whether Consolidated's Conso Products Company Division had discriminated in price between its competing direct-buying retail purchasers in the distribution and sale of Conso's drapery trimmings products, in violation of S ubsection 2(a) of the Clayton Act, as amended, 15 U.S.C. § 13(a). Subsequently, at defendant's request, Commission staff counsel conferred with defendant's counsel to discuss a draft administrative complaint and the possibility of terminating the proceeding by consent order. These negotiations resulted in a consent agreement, executed on June 1, 1973, in which the parties stipulated that the Commission would issue, without findings, an order requiring defendant to abandon the discriminatory pricing practices which were the focus of the Commission's investigation.

 The agreement contained various important provisions, among which was, in paragraph three, a waiver by defendant of:

 
"(a) Any further procedural steps;
 
(b) The requirement that the Commission's decision contain a statement of findings of fact and conclusions of law; and
 
(c) All rights to seek judicial review or otherwise to challenge or contest the validity of the order entered pursuant to this agreement."

 In paragraph six, the agreement provided that, following entry of the order by the Commission,

 
". . . the order to cease and desist shall have the same force and effect and shall become final and may be altered, modified, or set aside in the manner and within the same time provided by statute for other orders. The complaint may be used in construing the terms of the order."

 Finally, in paragraph 8 of the agreement, the parties recognized defendant's duty to file compliance reports:

 
"Officers of proposed respondent have read the proposed complaint and order contemplated hereby, and they understand that once the order has been issued, they will be required to file one or more compliance reports showing that they have fully complied with the order, and that they may be liable for a civil penalty of up to $5,000 for each violation of the order after it becomes final."

 The consent agreement with proposed order and the administrative complaint were placed on the public record for thirty days, until August 25, 1973, as required by the agreement. On September 12, 1973, the Commission formally issued its complaint and decision and order to cease and desist, which were subsequently served on defendant on September 26, 1973. Defendant was directed thereafter to cease and desist from

 
"Discriminating, directly or indirectly, in the price of [decorative fabric trimmings and trimming accessories] products of like grade and quality by selling to any purchaser at net prices higher than the net prices charged to any other purchaser competing in fact in the resale or distribution of such products."

 The order contained one additional paragraph, not included in the prior consent agreement, which required the defendant to file a compliance report within sixty days of service of the order.

 By letter dated October 24, 1973, the Commission's compliance staff suggested an outline for defendant's first compliance report, due November 26, 1973. Defendant responded to this letter on October 30, 1973, by requesting a 30-day extension of time within which to submit its first compliance report. The Commission, by letter of November 6, granted defendant the 30-day extension, but asserted that such extension did not suspend or relieve defendant from its obligation to comply with the substantive portions of the order by November 26, the day on which it became final under §§ 11(c) and 11(g) of the Clayton Act as amended, 15 U.S.C. §§ 21(c) and 21(g). On December 20, defendant requested another extension of time for filing its compliance report, which was immediately granted by the Commission.

 Defendant finally submitted its compliance report on January 3, 1974. The Commission, by letter dated January 17, 1974, requested an explanation as to why defendant had not discontinued use of its prior pricing and discount plan. Defendant replied in a supplemental report dated January 23, 1974 that its discount structure had not been discontinued because of its poor financial condition, the necessity of meeting competition, and the ...


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