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United States v. Apple Inc.

United States Court of Appeals, Second Circuit

May 28, 2015

UNITED STATES OF AMERICA, Plaintiff-Appellee,
v.
APPLE INC., Defendant-Appellant, HACHETTE BOOK GROUP, INC., HARPERCOLLINS PUBLISHERS L.L.C., VERLAGSGRUPPE GEORG VON HOLTZBRINCK GMBH, HOLTZBRINCK PUBLISHERS, LLC, d/b/a MACMILLAN, THE PENGUIN GROUP, a division of PEARSON PLC, PENGUIN GROUP (USA), INC., SIMON & SCHUSTER, INC., Defendants. STATE OF TEXAS, STATE OF CONNECTICUT, STATE OF ALASKA, STATE OF ARIZONA, STATE OF COLORADO, STATE OF ILLINOIS, STATE OF IOWA, STATE OF MARYLAND, STATE OF MISSOURI, STATE OF OHIO, COMMONWEALTH OF PENNSYLVANIA, COMMONWEALTH OF PUERTO RICO, STATE OF SOUTH DAKOTA, STATE OF TENNESSEE, STATE OF VERMONT, STATE OF WEST VIRGINIA, COMMONWEALTH OF VIRGINIA, STATE OF NEW YORK, STATE OF ARKANSAS, STATE OF LOUISIANA, STATE OF WISCONSIN, STATE OF DELAWARE, STATE OF UTAH, STATE OF NORTH DAKOTA, STATE OF NEBRASKA, STATE OF ALABAMA, DISTRICT OF COLUMBIA, STATE OF MICHIGAN, COMMONWEALTH OF MASSACHUSETTS, STATE OF NEW MEXICO, STATE OF KANSAS, STATE OF IDAHO, ALL PLAINTIFFS, STATE OF INDIANA, Plaintiffs-Appellees,
v.
APPLE INC., Defendant-Appellant, PENGUIN GROUP (USA) INC., SIMON & SCHUSTER, INC., SIMON & SCHUSTER DIGITAL SALES, INC., HOLTZBRINCK PUBLISHERS, LLC, aka MACMILLAN, Defendants

Argued March 10, 2015.

Page 132

Apple Inc. appeals from orders of the United States District Court for the Southern District of New York (Cote, J.), concerning the imposition of an external compliance monitor through a permanent injunction. In particular, the Notice of Appeal challenges: (1) the denial of Apple's motion to disqualify the appointed monitor, and (2) the alleged modification of the injunction to expand his role. Our jurisdiction is limited to review of those issues. We conclude that: (1) on the record before it, the district court did not abuse discretion in declining to disqualify the monitor; and (2) in light of this Court's more recent construal of the injunction, the terms are not currently affected by any modification rendered by the district court. We therefore affirm, without prejudice to further applications in the district court based on evidence that was excluded from consideration on this appeal, or on subsequent events.

For Appellant: THEODORE J. BOUTROUS, JR. (with Daniel G. Swanson, Blaine H. Evanson, on the brief), Gibson, Dunn & Crutcher LLP, Los Angeles, California; Cynthia E. Richman, Gibson, Dunn & Crutcher LLP, Washington, District of Columbia; Lawrence J. Zweifach, Gibson, Dunn & Crutcher LLP, New York, New York.

For Appellee United States: FINNUALA K. TESSIER (with Mark W. Ryan, Daniel McCuaig, Kristen C. Limarzi, Robert B. Nicholson, David Seidman, on the brief), for William J. Baer, Assistant Attorney General, U.S. Department of Justice, Antitrust Division, Washington, District of Columbia.

For Appellees Plaintiff-States: Daniel T. Hodge, John Scott, Jonathan F. Mitchell, Eric Lipman, for Greg Abbott, Attorney General of Texas, Austin, Texas; W. Joseph Nielsen, for George Jepsen, Attorney General of Connecticut, Hartford, Connecticut; Andrew W. Amend, for Eric T. Schneiderman, Attorney General of the State of New York, New York, New York.

Before: JACOBS and LOHIER, Circuit Judges, and FURMAN, District Judge.[*] Jesse M. Furman, District Judge, concurs in the opinion of the Court and files a separate concurring opinion.

OPINION

Page 133

DENNIS JACOBS, Circuit Judge:

Apple Inc. appeals from orders of the United States District Court for the Southern District of New York (Cote, J.), which imposed an external compliance monitor through a permanent injunction, allegedly modified that injunction to expand the role of the monitor, and denied Apple's motion to disqualify the appointed monitor, Michael Bromwich. See United States v. Apple Inc., 992 F.Supp.2d 263 (S.D.N.Y. 2014). In separate appeals that are not before this panel, Apple challenges the district court's finding as to liability, and Apple and other defendants challenge the district court's final judgment and permanent injunction. See United States v. Apple Inc., Nos. 13-3741, 13-3748, 13-3783, 13-3857, 13-3864, 13-3867. This opinion does not impact those appeals.

This appeal touches upon: the scope of a district court's power under Federal Rule of Civil Procedure 53 to create and modify a monitorship over the objection of the monitored party; the professional and

Page 134

structural constraints on that monitor's activities; and the remedy available to the monitored party when it believes that the monitor has overreached. These largely procedural questions have considerable resonance because the fairness and integrity of the courts can be compromised by inadequate constraint on a monitor's aggressive use of judicial power.

While some of Apple's allegations against the monitor give pause, we are limited by both the record and our appellate jurisdiction. In view of those limitations, we review only (1) the district court's denial of the motion to disqualify the appointed monitor, and (2) modifications of the injunction. We affirm, on the grounds that (1) on the record then before the district court, it did not abuse discretion in declining to disqualify the monitor, and (2) in light of this Court's intervening interpretation of the injunction, the terms of the injunction are not currently affected by modifications (if any) made by the district court.

BACKGROUND

Following a bench trial, the district court found Apple liable for a violation of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. See United States v. Apple Inc., 952 F.Supp.2d 638 (S.D.N.Y. 2013). Specifically, the district court found that five of the six largest e-book publishers in the United States had entered a horizontal " conspir[acy] with each other to eliminate retail price competition in order to raise e-book prices," and that Apple, which was considering entry as a retailer, violated Section 1 by " facilitating and executing that conspiracy." Id. at 647. (That ruling is currently on appeal before another panel of this Court.)

On September 5, 2013, the district court entered an omnibus order, styled " Plaintiff United States' Final Judgment and Plaintiff States' Order Entering Permanent Injunction" (" the injunction" ). Two sections of the injunction are relevant to this appeal: Apple is required to adopt policies and training to promote its compliance with the antitrust laws (Deferred Appendix (" D.A." ) 472-74); and an external compliance monitor is to be appointed pursuant to Federal Rule of Civil Procedure 53, " to review and evaluate" Apple's adoption of the required policies and training (D.A. 474-78). In addition, the injunction granted Apple leave to file with the district court written objections to the monitor's conduct and to his recommendations, provided that Apple first raised these objections with the plaintiffs. (D.A. 476-77.)

The injunction specified that the plaintiffs (the U.S. Department of Justice, 31 states, the District of Columbia, and the Commonwealth of Puerto Rico) would recommend monitor candidates to the district court. Apple, meanwhile, was not permitted to recommend a candidate without the agreement of the plaintiffs (though Apple had an opportunity to object to the plaintiffs' recommendations). The plaintiffs recommended Michael Bromwich as monitor, and the district court appointed him on October 16, 2013.

The relationship between Bromwich and Apple, which got off to a contentious start, raises three salient issues:

1. Apple argues that Bromwich opened inquiries prematurely. The injunction called upon the monitor to " assess whether Apple's internal antitrust compliance policies and procedures, as they exist 90 days after his or her appointment, are reasonably designed to detect and prevent violations of the antitrust laws." (D.A. 475.) Apple interpreted this provision as restricting Bromwich's role during the first 90 days of his appointment (i.e., until January 14, 2014), when the policies subject to

Page 135

his scrutiny were yet to be formulated. Bromwich responded that he understood from his ex parte conversations with the district judge that he was " to get off to a fast start," and that he gave that impression " far more weight than" the aspects of the district court record on which Apple relied. (D.A. 570.) Thus, Bromwich began his inquiries within six days after his appointment (four business days), requesting interviews with members of Apple's Board of Directors. (D.A. 651 ¶ 17.)

He encountered push-back from Apple's counsel as to the timing and scope of the inquiries, and by the sixteenth calendar day after his appointment, Bromwich began to accuse Apple of " fail[ing] to provide any of the materials it had promised" and stalling in the scheduling of " brief preliminary ...


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