source: Caselaw Access Project

author: WELSH, District Judge.

license: Public Domain

text:
    TUOLUMNE GOLD DREDGING CORPORATION v. WALTER W. JOHNSON CO. et al.
    Civ. 4082.
    District Court, N. D. California, N. D.
    June 9, 1945.
    George K. Ford and J. B. Zimdars, both of San Francisco, Cal., for plaintiff.
    De Lancey C. Smith and Thomas R. White, both of San Francisco, Cal., for defendant Walter W. Johnson Co.

      Thomas E. Davis, of San Francisco, Cal., for defendant Fidelity & Deposit Co.
   WELSH, District Judge.

Defendants moved for summary judgment and judgment on the pleadings, mainly on the ground that the issues raised in the amended complaint were heard and determined in certain consolidated cases in the State court. Their supplemental answers set forth that in a certain action filed in the Superior Court of the State of California, in and for the County of Stanis-laus, entitled “Western Pipe and Steel Company of California, a corporation, plaintiff, v. Tuolumne Gold Dredging Corporation, a corporation, Walter W. Johnson Company, a corporation, and Fidelity and Deposit Company of Maryland, a corporation, defendants,” which action was consolidated with other actions in said State court, and numbered 20652 in the files of the Clerk of said court, Walter W. Johnson Company filed a cross-complaint, seeking recovery of a balance due and unpaid by plaintiff herein to said Walter W. Johnson Company under a contract for the construction of the gold dredging machine described in the complaint herein and involved in said State court action.

Said supplemental answers further set forth that in said cross-complaint said Walter W. Johnson Company alleged that it had fully performed its said contract, that it had fully earned the contract price, together with certain extras, and that plaintiff herein, cross-defendant in said State court action, had failed to pay the balance due; that answers were duly filed, said consolidated State court actions were tried, judgment rendered in favor of said Walter W. Johnson Company and that an appeal was taken wherein said judgment was affirmed.

The files of this court show that the above-entitled action was commenced in the Superior Court of the State of California, in and for the County of Stanislaus and was removed to this court pursuant to an order of said State court dated the 17th day of February, 1939, on petition of said defendant Walter W. Johnson Company. Thereafter, and on the 20th day of October, 1939, plaintiff filed herein its first amended complaint consisting of 177 pages, besides the exhibits.

Subsequently, defendants made a motion to, among other things, dismiss, in connection wherewith copies of the proceedings in the above referred to consolidated actions were attached as a part thereof.

Said motion was denied by this court.

Defendant, Fidelity and Deposit Company of Maryland, subsequently filed an answer, and defendant, Walter W. Johnson Company, filed an answer and counterclaim.

These defendants, who are now moving for summary judgment and judgment on the pleadings, both pleaded in the State court action that there was another action pending between the same parties, to-wit: this action in this court. Defendant Johnson Company made the motion whereby this cause was removed from the State court to the Federal court. It appears that granting its present motion would result in denying plaintiff a determination of its rights in the forum to which its cause was removed in invitum.

This court is not inclined to act contrary to the policy of all courts to, whenever possible, dispose of lawsuits on their merits. We have examined the 963 page Transcript on Appeal in the State court, and believe that there is sufficient difference between the matters included therein and those indicated by the files herein to justify a denial of defendants’ motion.

Plaintiff is entitled to its day in this court. It should have a trial so that judgment can be rendered on the merits of the facts presented. This view has been strengthened by reading the decision of the District Court of Appeals in the consolidated State court cases.

Defendants’ memorandum of points and authorities presented herein makes the following reference to said decision:

“Each and every part of the judgment of the lower court and the findings on which it was based are affirmed in full on appeal, save and except the last paragraph of the judgment. That paragraph, which is No. 12, is contained on page 460 of the transcript, and reads as follows:

“ ‘No. 12. That Tuolumne Gold Dredging Corporation take nothing by its cross-complaint against Fidelity and Deposit Company of Maryland, or Walter W. Johnson Company, as cross-defendants to said cross-complaint.’
“The amendment of this paragraph by the District Court of Appeals reads as follows :
“‘That Tuolumne Gold Dredging Corporation take nothing by its cross-complaint against Fidelity and Deposit Company of Maryland, and that, until the final determination of the proceeding in the federal court, all proceedings under said cross-complaint against Walter W. Johnson Company, as cross-respondent to said cross-complaint be suspended.’ (Page 32 of the District Court of Appeal opinion [in 63 Cal.App.2d, page 67 of 146 P.2d].)”

The District Court of Appeals stated in the opinion referred to (Western Pipe & Steel Co. v. Tuolumne Gold Dredging Corporation et al., 63 Cal.App.2d 21, 146 P.2d 61), just preceding the sentence so quoted by defendants, as follows: “From what we have said in reference to the plea of the Johnson Company of another action pending it follows that the same plea made by the bonding company was good. If a plea of abatement only had been made the judgment in favor of the bonding company should have been interlocutory. But the plea that the action was barred by the terms of the contract compels a judgment against the Tuolumne Company on that ground alone. It is argued that the action now pending in the federal court, in which the bonding company was joined as a defendant with the Johnson Company, was filed within the six months’ period, and that that action was sufficient to stay the running of the limitation. If such action were filed within time the parties are free to litigate the issues upon the merits as nothing which we have said herein determines any issue relating to appellant and the bonding company except that, in this action, the cross-complaint was filed too late.”

It thereby recognized that there is a feature of the present case which differs from that of the consolidated cases which were tried in the State court, to-wit: that this action, filed within the six months’ period, can be litigated on its merits, whereas the plea of the statute of limitations could be, and was, raised as a bar in said State court actions.

Presiding Justice Nourse, of the California District Court of Appeal, First District, Division 2, ably analyzed another phase of the law which is helpful in this connection. He said (page 26 of the opinion in 63 Cal.App.2d, page 64 of 146 P.2d) : “In its reply brief the appellant suggests that-the judgment as entered is error and that the trial court should have followed the procedure outlined in section 597 of the Code of Civil Procedure and entered an interlocutory judgment pending determination of the proceeding in the federal court. The point was not raised before the trial court and is raised here for the first time in appellant’s reply brief. But it is one of easy solution. The Code section provides that when the answer pleads that another action is pending upon the same cause ‘the court may, upon the motion of either party, proceed to the trial of such special defense * * * and where the defense of another action pending is sustained * * * an interlocutory judgment shall be entered in favor of the defendant pleading the same * * *.’ If the judgment as entered should be interpreted as barring this appellant for all time from prosecuting its cross-complaint for affirmative relief there would be merit in the argument. But we are satisfied that the judgment should not be so interpreted. However, in order that the matter may be clear for further proceedings between the parties it is proper that the judgment in this respect be amended so as to comply with the Code section and enable the court to hear the issue after the termination of the proceedings in the federal court.”

The learned Justice thereby gives a clue to the solution of the present problem. He says, in effect, that the judgment of the Superior Court which the District Court was affirming by said opinion, should not be interpreted as barring the appellant therein (plaintiff herein) from prosecuting its cross-complaint for affirmative relief. Matters with respect thereto are suspended until this case is tried and finally determined here. He states directly: “in order that the matter may be clear for further proceedings between the parties it is proper that the judgment in this respect be amended.” This statement of the purpose of the amendment removes one of the principal grounds upon which defendants’ motion might otherwise stand.

He further states that the amendment of the judgment was made to comply with section 597 of the California Code of Civil Procedure. The portion of said section material here provides that when a plea of another action pending is made, the trial court may proceed to try special issues or defenses and enter an interlocutory judgment and no trial of other issues shall be had until the final determination of such other action.

The District Court applied said section by amending the judgment “so as to comply with the Code section and enable the court to hear the issue after the termination of the proceedings in the federal court.” Justice Nourse, by so analyzing the situation, must have intended that the Superior Court of the County of Stanislaus would take appropriate proceedings after the trial of this pending action in this federal court.

Most of the arguments of counsel for defendants can be answered by reference to this portion of the opinion of the District Court of Appeals. Its use of the expression “enable the court to hear the issue after the termination of the proceedings in the federal court” shows that it contemplated an actual trial in this court. It used the word “termination” with reference to the proceedings herein, meaning the trial of the issues, motion for new trial, and appeal, if so advised, together with all judgments and orders in connection with each of such steps in the proceedings.

If the District Court had intended that the present action would be disposed of summarily it would have used the expression “dismissal” in its reference hereto. Clearly, it would not have spoken of enabling the trial court at Modesto to “hear the issue” if it had in contemplation anything other than an actual trial here at Sacramento. There would be no issue to hear if this case were dismissed.

Thus, the judgment in the consolidated cases in the Clerk’s office at the Court House in Stanislaus County is at present interlocutory in nature. It cannot be res judicata, as the modification thereof by the District Court of Appeal has suspended all proceedings there “until the final determination of the proceedings in the federal court.” This very amendment made to the judgment by the District Court of Appeal uses the words “final determination.” The opinion of the California Supreme Court in Funeral Directors Association v. Board of Funeral Directors and Embalmers, 22 Cal.2d 104, 136 P.2d 785, indicates that “determination” of a cause necessarily presupposes that evidence be taken, weighed and evaluated before a decision is made.

In Henavie v. New York Cent. & H. R. Railroad Co., 154 N.Y. 278, 48 N.E. 525, 527, the court took the view that determination meant a decision of the court upon a trial.

Defendants’ argument relative to res ad-judicata does not apply.

The Supreme Court of California said in Stark v. Coker, 20 Cal.2d 839, 843, 129 P.2d 390, 393: “that only is adjudged in a former judgment which appears upon its face to have been adjudged or which was actually and necessarily included therein or necessary thereto. Code Civ.Proc., § 1911. And when it affirmatively appears that an issue was not determined by the judgment, it obviously is not res judicata upon that issue.”

It is therefore ordered that defendants’ motion for summary judgment and judgment on the pleadings be, and the same is hereby, denied.


author: LEIBELL, District Judge.

text:
    UNITED STATES v. CENTER VEAL & BEEF CO., Inc., et al. (three cases).
    District Court, S. D. New York.
    Dec. 29, 1944.

      See also 61 F.Supp. 72.
    John F. X. McGohey, U. S. Atty., of New York City (Irving Tick, Asst. U. S. Atty., of New York City, of counsel), for the United States.
    Herman Hoffman and Edward Raff, both of New York City (Herman Hoffman, of New York City, of counsel), for defendants.
   LEIBELL, District Judge.

The defendants herein have been charged in various counts of three Infor-mations, filed in this Court October 23, 1944, with having violated the Emergency Price Control Act, 50 U.S.C.A.Appendix, § 901 et seq., and Revised Maximum Price Regulation No. 169, in selling beef and veal carcasses and wholesale cuts in excess of the wholesale prices fixed by the Regulation. Information No. C118 — -335 names the defendant, Center Veal & Beef Co., Inc., and A1 Merlis as defendants, and contains 13 counts. Information No. Cl 18— 336 names the defendant, Center Veal & Beef Co., Inc., A1 Merlis and Siegfried Her-mann as defendants, and contains 5 counts. Information No. C118 — 337 'names the Center Veal & Beef Co., Inc., A1 Merlis and Nat Romanoff as defendants, and contains 29 counts. The defendants appeared and entered pleas of not guilty on.October 26, 1944. On November 20, 1944, they served a notice of motion asking for “an order granting leave to the defendants to file a complaint in the Emergency Court of Appeals against Chester Bowles, Administrator, duly appointed and acting as Price Administrator under and pursuant to the Emergency Price Control Act of 1942, as amended, setting forth objections to the validity of Maximum Price Regulation No. 169 — Beef and Veal Carcasses and Wholesale Cuts (issued pursuant to said Act), upon alleged violations of which the above entitled proceedings are based; and staying the proceedings herein during the period within which such complaint is to be filed and the pendency of all proceedings had with respect thereto; and for such other and further relief as may be just and proper.”

This motion is based upon subdivision (e), which was added to Section 204 of the Emergency Price Control Act by the amendments of June 1944. The provisions of said subdivision are set forth in a footnote.

Annexed to the notice of motion are affidavits of the individual defendants and of their attorney. In the affidavit of Mr. Merlis he states that “There are three major groups of producers and sellers of meats and meat products in the country.” One major group is made up of the so-called Big Four, which in addition to doing a slaughtering business sell “a vast variety of processed meats and by-products under highly advertised trade names.” In a second group are the so-called independent slaughterers and packers doing substantially the same kind of a business as the Big Four but on a much smaller scale. The third group is known as the “non-processing independent slaughterers” and they “confine their activities to the slaughter and sale of fresh meat itself and derive no significant revenue from any other source.”

The defendants have been indicted as wholesalers, not as slaughterers. But for reasons that will be hereinafter stated, it appears that the Center Veal & Beef Co., Inc., is for all practical purposes a department or selling agency of another concern, a so-called independent non-processing slaughterer, bearing the corporate name of Frank J. Murray Co., Inc. Revised Maximum Price Regulation No. 169 issued by the Office of Price Administration, pursuant to the Emergency Price Control applies to the operations of these defendants and of the Frank J. Murray Co., Inc.

Some of the purposes of Revised Maximum Price Regulation No. 169 (effective December 1942) were to fix prices at which various classes of slaughterers could sell beef and veal carcasses and wholesale cuts, and to permit the wholesalers to “add 75 cents per hundred-weight to the applicable zone price.” If a wholesaler pays the slaughterer the price fixed by the Regulation, then the wholesaler’s major concern is whether or not the 75$ per cwt. mark-up is fair. That would be true of the defendant Center Veal & Beef Co., Inc., if it were an independent wholesaler. But to be entitled to the mark-up a wholesaler must show that it “does not own or control in whole or in substantial part, any slaughtering plant or facilities, and is not owned or controlled, in whole or in substantial part by another person who owns or controls in substantial part any slaughtering plant or facilities.” §§ 1364.455(d) and 1364.469(d) of R. M. P. R. 169. In order to charge the extra 75$ the wholesaler must file a statement showing that it is a genuine wholesaler and is not tied up to a slaughterer as a parent or subsidiary corporation, as an affiliate, or by any common ownership.

As to the above quoted provision on ownership, the Assistant District Attorney, in an opposing affidavit, states that the defendant Merlis in June 1943 made a sworn statement to the OPA as follows: “There is no connection between Frank J. Murray Co. Inc. and Center Veal & Beef except the fact that stockholders and officers of one corporation are also stockholders and officers of the other.” However, further details are given in the affidavit of Albert Merlis, annexed to the present notice of motion, in which he states:

“It is important to bear in mind on this motion the relationship between, and the nature of, the operations of both the corporate and individual defendants herein, and Frank J. Murray Co. Inc., a slaughter house located in Chester, New York. Irm-gard Hermann and I are the sole owners of the defendant Center Veal and Beef Co. Inc., while my wife and I are the only officers thereof. My wife is wholly inactive in the operations of that business. The other individual defendants, Romanoff and Hermann (or their nominal designees) and I own all of the stock of the Frank J. Murray Co. Inc., and are the sole officers thereof.”

The Murray Company, according to the affidavit of defendant Merlis, “is engaged exclusively in the slaughter and sale of fresh beef and veal and the usual by-products thereof in unprocessed form. It does no processing of any su’ch by-products. It is what is regarded in the trade and under the various applicable government regulations as a non-processing slaughterer * * Concerning the Center Veal & Beef Co., Inc., the Merlis affidavit states:

“While the defendant company is a separate corporate entity, it has been used almost exclusively as if it were a branch or division of the Murray Co., that is, as its wholesale sales outlet. Practically all of the beef slaughtered by the Murray Co. is sold by it to the Center Veal and Beef Co. Inc., which in turn resells at wholesale. The defendant company is, therefore, in effect merely the sales agency of the Frank J. Murray Co. Inc.”

It appears therefor that under R.M.P. R. No. 169 the defendant, Center Veal & Beef Co., Inc., could not charge the 75$ per cwt. mark-up on the price it paid the slaughterer: The ownership provision of the Regulation practically makes the defendant corporation a selling agency or department of Frank J. Murray Co., Inc., as defendants contend, and would give the Center Veal & Beef Co,, Inc., a sound basis for arguing that it is subject to the Regulation in so far as the Regulation fixes prices for slaughterers, that it is vitally affected by the prices thus fixed for slaughterers.

The defendant, Center Veal & Beef Co., Inc., asserts that it did not file a “protest” in its own behalf with the OPA under § 203(a) of the Emergency Price Control Act, because so many others in the industry had done so, and that those other protests raised the contention that it was unfair to fix a maximum price for slaughterers if there in fact was no maximum price fixed for live cattle. This issue has been pending for some time before the Emergency Court of Appeals. It appears from defendants’ affidavits herein that members of the legal division of the OPA recognized the “squeeze” to which the slaughterers were subjected, between the uncontrolled high level of cattle prices and the fixed ceiling on beef and veal. This was an especial hardship to the so-called independent non-processing slaughterers, who did not have an opportunity to recoup some of their loss by the prices they could get for “processed” meats and by-products.

To correct in part the inadequacies for this group of slaughterers a subsidy of 80 cents per cwt. live weight of cattle was provided October 26,. 1943; but the non-processing slaughterers claim that this subsidy did not meet the situation because the price of live cattle was not satisfactorily controlled, even though a limit was placed on what the slaughterers could pay for live cattle.

The affidavit of Mr. Merlis also states that the “entire industry, for many months, has been anxiously awaiting the outcome of the various protest proceedings which have been pending before the Price Administrator and the Emergency Court of Appeals”; that “the objections made by the complainants in those proceedings were shared by and were equally available to all other members of the industry engaged in similar operations” ; and that “it would have been a futile act indeed for us to have instituted separate protest proceedings while such proceedings were pending”; and that “protests filed by other non-processors as well as processor independent slaughterers have been held in abeyance pending the outcome of these proceedings before the Emergency Court of Appeals.”

The reply brief of the defendants asserts that the Frank J. Murray Co., Inc., “recently filed” (I am informed it was on November 24, 1944) a protest with the OPA; and that the Price Administrator suggested withholding any action on it until twenty days after the decision of the Heinz case, infra, by the Emergency Court of Appeals, in view of the statement of the protestant that the facts in support of the objections were substantially the same as those presented in various pending cases, particularly the. Heinz case. Heinz et al. v. Bowles, Price Administrator, Em.App., 149 F.2d 277. Whether or not the Murray protest was “timely” under § 203(a) of the Act, Tit. 50 U.S.C.A.Appendix, § 923(a), is a matter for the Price Administrator to determine.

The amendment of § 204 of the Act by adding thereto subdivision (e) (1) indicates the purpose of Congress to grant to one charged in a “criminal proceeding, brought pursuant to section 205 involving alleged violation of any provision of any regulation or order issued under section 2 or of any price schedule * * * leave to file in the Emergency Court of Appeals a complaint against the Administrator setting forth objections to the validity of any provision which the defendant is alleged to have violated,” if the defendant can satisfy the Court that there is a reasonable and substantial excuse for his delay in filing a protest and if the Court is satisfied that the objections to the Regulation are being “made in good faith.”

The consequences to the defendant, if leave is not granted, are serious. The defendant loses the possibility of an amnesty or dismissal of the criminal proceeding, which is provided for in subdivision (e) (2) added to § 204 by June 30, 1944, amendment, from which I quote as follows: “If any provision of a regulation, order, or price schedule is determined. to be invalid by judgment of the Emergency Court of Appeals which has become effective in accordance with section 204(b), any proceeding pending in any court shall be dismissed, and any judgment in such proceeding vacated, to the extent that such proceeding or judgment is based upon violation of such provision.”

All I need decide on the present motion is whether the objections to be embodied in the complaint, which the defendant, Center Veal & Beef Co., Inc., asks leave to file with the OPA to the provisions of R. M. P. R. No. 169, are made “in good faith,” and whether there is a “reasonable and substantial excuse for the defendant’s failure to present such objection.” Except for the contention of the Government that the defendant keeps false records of sales and sells at prices 50% in excess of the ceiling price, it would seem that the pendency undetermined of a number of similar protests by others in the industry would be “a substantial and reasonable excuse” for defendant, Center Veal & Beef Co., Inc., not having filed a protest with the OPA under § 203 (a) of the Act, Tit. 50 U.S.C.A.Appendix, § 923(a), prior to the filing of the Informations herein.

On this motion the Government alleges in opposing affidavits that “there is a reasonable and substantial cause for defendant’s failure to have instituted the protest procedure heretofore” and that “the defendants were more than happy to operate under the Regulation” because they operated under false and fraudulent invoices at prices greatly in excess of the ceiling prices. The Assistant District Attorney swears that: “The evidence adduced at the trials hereof will show conclusively that defendants did not merely sell at wholesale at over ceiling prices. The evidence will be that defendants issued false and fraudulent invoices containing the correct ceiling prices. However, in addition defendants compelled the purchasers to pay amounts ranging up to more than fifty per cent of the purchase price in cash over the ceiling prices fixed by the Regulation.”

To that statement the defendant Merlis replies in an affidavit as follows: “As to the alleged issuance of ‘false and fraudulent invoices’ which, on page 2 of his affidavit, Mr. Fried states will be proved at the trial, I am advised that such evidence would not be material to the issues on our trial and this would not be admissible for the information herein charges only over ceiling sales. Surely, even if such charges were true, they could have no bearing on this motion.”

Section 902(g) of the Act as Amended provides: “Regulations, orders, and requirements under this Act may contain such provisions as the Administrator deems necessary to prevent the circumvention or evasion thereof.” R.M.P.R. No. 169 contains a provision [§ 1364.406(a)] that: “The price limitation set forth in this Revised Regulation shall not be evaded, either by direct or indirect methods etc.” Certain practices are specifically condemned in subd. (b). And § 1364.407(b) provides that: “Every person making a sale of any beef carcass, beef wholesale cut, veal carcass, or veal wholesale cut, processed product, or other meat item subject to the revised regulation, on or after December 16, 1942, in the course of trade or business or otherwise dealing therein, shall keep for inspection by the Office of Price Administrator for so long as the Emergency Price Control Act of 1942, as amended, is in effect, complete and «accurate records of each such sale, showing the date thereof, the name and address of the buyer and seller, the quantity, grade or grade and weight, of all beef carcasses, beef wholesale cuts, veal carcasses, veal wholesale cuts, processed products or other meat items subject to this regulation sold, and the price charged or received therefor.”

If there were counts in the Information charging that the defendants had violated § 902(g) of the Act as Amended and §§ 1364.406 and 1364.407 of R. M. P. R. No. 169, by failing to keep accurate records of their sales and in fact keeping false and dishonest records, those charges would serve to refute defendants’ “excuse” for failing to file a protest and would raise an issue as to the “good faith” of the defendants in filing objections to the maximum price provisions of the Regulation, which they now ask leave to file. I doubt that this Court could find that objections to the Regulation prices were being made “in good faith,” if it were shown that the objector had been engaged in the fraudulent practice of billing customers at the Regulation ceiling prices while receiving the excess over the ceiling price in cash on the side. A common sense interpretation of the statute would require that the attribute of “good faith” should be denied to the protest of a violator engaged in such practices. If the defendant corporation has indulged in such practices, how could the defendant honestly support with its own records the objections it asks leave to file to the ceiling prices fixed by R. M. P. R. No. 169? Sec. 203(a) of the Act as amended; § 35 of the Revised Procedural Regulation No. 1; Rule 11(b) of the Emergency Court of Appeals, 50 U.S.C.A. Appendix following section 924. Good faith implies honesty of purpose. It has been defined in an English statute as “the doing of a thing honestly.” See 28 C.J. p. 715 and cases therein cited in footnotes; also 35 C.J.S., Faith, p. 490.

But the difficulty here is twofold (1) that the allegation as to these illegal practices is made in general language in the opposing affidavit, with no specific supporting data as to any certain transaction; and (2) that there is no charge in any of the counts of the three Informations on file that the defendants kept false records of sales and in so doing violated the above mentioned provisions of the Act and Regulation, requiring them to keep true and accurate records of each sale. The Government still has time to file an additional Information making specific charges of the alleged practices involving the keeping of false records. The offense is a misdemeanor. Tit. 18 U.S.C.A. § 541 and § 205 (b) of the Emergency Price Control Act, Tit. 50 U.S.C.A.Appendix, § 925(b). The Statute of Limitations, Tit. 18 U.S.C.A. § 582, for the prosecution of the offense would be three years. In respect to an Information making any such charge, the' defendants would hardly ask leave to object to the provision of the Regulation requiring them to keep honest records.

The Assistant District Attorney will be permitted.to file a further affidavit on this motion setting forth the details of the alleged false records and over the ceiling payments, in respect to any transactions set forth in the various counts of the three Informations already on file. Then there will be something specific before this Court to which the defendants may reply, if they wish, and which the Court may then consider on the issue of “good faith” as hereinabove explained and in weighing the “excuse” advanced by the defendants for failing to file a protest at an earlier date. I think I should inquire further into those issues.

When the various amendments to the Emergency Price Control Act were before both Houses of the Congress in June of 1944, there was general criticism of the fact that the law as it then stood barred a person .from challenging the validity of any Regulation of the Office of Price Administration unless the objection was filed within sixty days after the issuance of the Regulations or of any amendment thereto. It appeared to be the sentiment of both Houses that an alleged violator should not be thus foreclosed by the time limit. It was suggested in the House that if the action against the alleged violator was a civil one he should have the right to apply to the District Court for leave to file objections to the Regulation and be heard by the Emergency Court of Appeals. The Senate seemed to be more concerned with the criminal proceedings against an alleged violator of the Regulations; and the first proposals in the Senate were that within five days after the conviction of a violator he be permitted to make an application to the ‘ District Court for leave to challenge the validity of the Regulation by filing a complaint ‘with the Emergency Court of Appeals. The District Court, under the provisions of the Act, lacked the power to pass upon the validity of any Regulation of the OPA issued under the Act. That power was lodged with the Emergency Court of Appeals, because Congress feared that otherwise there would be 85 District Courts expressing their own views as to the validity of the Regulations and there would be an absence of uniformity of decisions, which was essential to the effective enforcement of the Regulations issued under a Price Control Act.

The Senate and House passed separate amendments on this point, involving the ’right to review the validity of a Regulation. When the Bill went to conference these differences were reconciled with the result that subdivision (e) of § 204, as it emerged in its conference form, applied to both civil and criminal proceedings. In reporting the conference form of the Bill to the House on June 21st, the Chairman of the House Conferees stated:

“We have given every man the right to test the constitutionality and the validity of the orders and regulations under which he may be charged. Heretofore the regulations of the O.P.A. were incontestable after 60 days. That might make for efficient administration but it is contrary to our conception of the rights of the American citizen. To say that he has a constitutional right but that he cannot assert it after a certain time is to virtually deny him that right.
“This act changed that provision. Now those charged with violations of the orders or regulations of the O.P.A. can question the legality of those orders at any time. If the defendant is brought into the district court of the United States by the Administrator and the district court has no authority to pass upon the validity of the orders and regulations of the O.P.A., that is entirely in the jurisdiction of the Emergency Court of Appeals. If it is a criminal case, within 30 days after arraignment the defendant can apply to the district court for a stay. He can file that complaint in the Emergency Court of Appeals and have a decision rendered upon the legality of the order he has been charged with violating, and can do that within 30 days after arraignment or within 5 days after final judgment.”

There was strong objection to this amendment by the Office of Price Administration. In commenting on that fact, the Chairman of the Senate Banking Commission, when discussing the conference report, stated:

“The Price Administrator has expressed great concern lest the right accorded by this procedure be abused by defendants resorting to protests and leaves to complain as a means of deferring or even avoiding the trial of criminal cases and of staying the execution of judgment in civil proceedings. But the procedure provided in the amendment does not represent a regular method to be followed in enforcement cases. Rather, it is an exceptional procedure which has been made available to avoid the risk of injustice that existed under the original act under which a defendant who had excusably failed to file a protest within the strict time limits the act allowed, might be denied any opportunity to question the validity of the regulation which he was charged with violating. The remedial procedure prescribed by the conference committee is available only to defendants whose objections the courts find have been made in good faith, and not primarily for the purpose of delay. The committee is confident that the courts will be vigilant in administering the standard of good faith to deny stays to defendants who have not previously availed themselves of the unrestricted opportunity to protest but who have been violating regulations on the gamble that, if caught, they could then protest and secure stays of proceedings which would afford them a good chance to avoid trial or the execution of judgment.”

The last sentence above quoted seems to apply to the situation of the defendant corporation, taking the charges in the Infor-mations at their face value. The 47 counts of the three Informations filed October 23, 1944, charge 31 violations between January and June 1943 ; 6 between September and December 1943 ; 4 between January and March 1944; and 6 between July and September 1944, after subdivision (e) had been added to the Act by the June 1944 amendments.

The Congress has placed upon the District Court in which the criminal proceeding is pending, the duty of inquiring into the “good faith” of the objector. This Court, when passing upon defendants’ motion, may inquire into the surrounding facts and circumstance under which the defendants’ alleged violations occurred. Regardless of whether or not evidence of false records would be admissible on the trial of the counts of the present Informa-tions charging sales at over the ceiling prices (I think it would be admissible: Wigmore, Third Edition, § 215; 22 C.J. S., Criminal Law, § 683; United States v. Krulewitch, 2 Cir., 145 F.2d 76, at page 80), this Court, on a motion under § 204 (e) of the Act, may consider evidence of the practices of defendants in making false records of their sales, in determining the issue of “good faith”.

In this case we have individual defendants as well as the corporate defendant. The individuals are named in the Informa-tions apparently because, as officers or employees of the corporate defendant, they participated in the violations with which the corporate defendant is charged. The Assistant District Attorney will be granted one week after the filing of this opinion in which to serve and file further opposing affidavits as hereinabove indicated, which should show also the alleged participation of the individual defendants in the violations. The defendants may have one week thereafter to serve and file a reply thereto, if they are advised by their counsel to do so. The determination of defendants’ present motion will be held in abeyance pending the submission of additional affidavits.

       “(e) (1) Within thirty days after arraignment, or such additional time as the court may allow for good cause shown; in any criminal proceeding, and within five days after judgment in any civil or criminal proceeding, brought pursuant to section 205 involving alleged violation
      of any provision of any regulation or order issued under section 2 or of any price schedule effective in accordance with the provisions of section 206, the defendant may apply to the court in which the proceeding is pending for leave to file in the Emergency Court of Appeals a complaint against the Administrator setting forth objections to the validity of any provision which the defendant is alleged to have violated. The court in which the proceeding is pending shall grant such leave with respect to any objection which it finds is made in good faith and with respect to which it finds there is reasonable and substantial excuse for the defendant’s failure to present such objection in a protest filed in accordance with section 203 (a). Upon the filing of a complaint pursuant to and within thirty days from the granting of such leave, the Emergency Court of Appeals shall have jurisdiction to enjoin or set aside in whole or in part the provision of the regulation, order, or price schedule complained of or to dismiss the complaint. The court may authorize the introduction of evidence, either to the Administrator or directly to the court, in accordance with subsection (a) of this section. The provisions of subsections (b), (c), and (d) of this section shall be applicable with respect to any proceeding instituted in accordance with this subsection.
      “(2) In any proceeding brought pursuant to section 205 involving an alleged violation of any provision of any such regulation, order or price schedule, the court shall stay the' proceeding—
      “(i) during the period within which a complaint may be filed in the Emergency Court of Appeals pursuant to leave granted under paragraph (1) of this subsection with respect to such provision;
      “(ii) during the pendency of any protest properly filed by the defendant under section 203 prior to the institution of the proceeding under section 205, setting forth objections to the validity of such provision which the court finds to have been made in good faith; and
      “(iii) during the pendency of any judicial proceeding instituted by the defendant under this section with respect to such protest or instituted by the defendant under paragraph (1) of this subsection with respect 'to such provision, and until the expiration of the time allowed in this section for the taking of further proceedings with respect thereto.”


text:
    UNITED STATES v. CENTER VEAL & BEEF CO., Inc., et al. (three cases).
    District Court, S. D. New York.
    Jan. 12, 1945.
    John F. X. McGohey, U. S. Atty., of New York City (Irving Tick, Asst. U. S. Atty., of New York City, of counsel), for the United States.
    Herman Hoffman and Edward Raff, both of New York City (Herman Hoffman, of New York City, of counsel), for defendants.
   LEIBELL, District Judge.

On December 29, 1944, I filed an opinion in the above matter, 61 F.Supp. 65, in which I discussed the motion made by the defendants for “an order granting leave to the defendants to file a complaint in the Emergency Court of Appeals against Chester Bowles, Administrator, duly appointed and acting as Price Administrator under and pursuant to the Emergency Price Control Act of 1942, as amended [50 U.S.C.A.Appendix, § 901 et seq.], setting forth objections to the validity of Maximum Price Regulation No. 169 — Beef and Veal Carcasses and Wholesale Cuts (issued pursuant to said Act), upon alleged violations of which the above entitled proceedings are based; and staying the proceedings herein during the period within which such complaint is to be filed and the pendency of all proceedings had with respect thereto; and for such other and further relief as may be just and proper.” The “proceedings herein,” above referred to, are based on three Informations containing forty-seven counts setting forth alleged violations of the aforementioned Maximum Price Regulation No. 169.

In the course of my opinion I reviewed the proceedings in Congress which resulted in the adoption of an amendment, subdivision (e), to Section 204 of the Emergency Price Control Act in June 1944. I stated:

“All I need decide on the present motion is whether the objections to be embodied in the complaint, which the defendant, Center Veal & Beef Co. Inc., asks leave to file with the OPA to the provisions of R.M.P.R. # 169, are made ‘in good faith’, and whether there is a ‘reasonable and substantial excuse for the defendant’s failure to present such objection’. Except for the contention of the Government that the defendant keeps false records of sales and sells at prices 50% in excess of the ceiling price, it would seem that the pend-ency undetermined of a number similar protests by others in the industry would be ‘a substantial and reasonable excuse’ for defendant, Center Veal & Beef Co. Inc. not having filed a protest with the OPA under § 203(a) of the Act, Tit. 50 U.S.C.A. Appendix, § 923(a), prior to the filing of the Informations herein.”

The District Attorney in opposing the defendants’ motions submitted an affidavit to the effect that the defendants not only had sold at over the ceiling prices but that they had issued “false and fraudulent invoices containing the correct ceiling prices” and that they “compelled the purchasers to pay amounts ranging up to more than fifty percent of the purchase price in cash over the ceiling prices fixed by the Regulation.”

To that statement one of the defendants, Merlis, replied that he had been advised that “such evidence would not be material to the issues” and “would not be admissible for the Information herein charges only over ceiling sales.” He added “Surely, even if such charges are true, they could have no bearing on this motion.” I did not share that view and in my opinion I stated:

“I doubt that this Court could find that objections to the Regulation prices were being made ‘in good faith’, if it were shown that the objector had been engaged in the fraudulent practice of billing customers at the Regulation ceiling prices while receiving the excess over the ceiling price in cash on the side. A common sense interpretation of the statute would require that the attribute of ‘good faith’ should be denied to the protest of a violator engaged in such practices. If the defendant corporation has indulged in such practices, how could the defendant honestly support with its own records the objections it asks leave to file to the ceiling prices fixed by R.M.P.R. # 169? Sec. 203(a) of the Act as amended; § 35 of the Revised Procedural Regulation No. 1; Rule 11(b) of the Emergency Court of Appeals, 50 U.S.C.A.Appendix following section 924. Good faith implies honesty of purpose.”

On the question of the alleged false records I also stated:

“The Assistant District Attorney will be permitted to file a further affidavit on this motion setting forth the details of the alleged false records and over the ceiling payments, in respect to any transactions set forth in the various counts of the three Informations already on file. Then there will be something specific before this Court to which the defendants may reply, if they wish, and which the Court may then consider on the issue of ‘good faith’ as hereinabove explained and in weighing the ‘excuse’ advanced by the defendants for failing to file a protest at an earlier date. I think I should inquire further into those issues.
sfc ijt
“In this case we have individual defendants as well as the corporate defendant. The individuals are named in the Informa-tions apparently because, as officers or employees of the corporate defendant, they participated in the violations with which the corporate defendant is charged. The Assistant District Attorney will be granted one week after the filing of this opinion in which to serve and file further opposing affidavits as hereinabove indicated, which should show also the alleged participation of the individual defendants in the violations. , The defendants may have one week thereafter to serve and file a reply thereto, if they are advised by their counsel to do so. The determination of defendants’ present motion will be held in abeyance pending the submission of additional affidavits.”

On January 3rd there was delivered to my Chambers a letter from Herman Hoffman, the attorney for the defendants, from which I quote the following:

“I feel constrained to respectfully suggest that the Court, in its direction to the U. S. Attorney to submit affidavits setting forth more in detail the alleged factual violations by defendants, and affording the latter an opportunity to meet them by cross affidavits, overlooked one of the cardinal principles of criminal law: that the defendants cannot be called upon to submit proof of their guilt or innocence in advance of the trial, and without the opportunity of cross examination.”

I replied to Mr. Hoffman’s letter the following day, in part as follows:

“You did not have to make the motion at the time you did. Under the statute you can make it five days after a verdict of conviction. But since you have made it at this time you have presented to the Court the question of the ‘good faith’ of your clients in now objecting to the price regulation in question. The term ‘good faith’ means something, and the Chairman of the Committee of the Senate, which included the amendment in the Bill as reported by the conferees of both Houses, stated what he understood was the duty of the Court in considering this question of ‘good faith’ on an application such as you have made. There is nothing in the statute which requires me to take testimony on a motion of this kind, although I suppose I could, if sharp questions of fact are presented by the opposing affidavits. Neither side has requested any oral examination of witnesses. Your clients are not being compelled to submit replying affidavits to whatever the Government may include in the additional affidavits which it may now submit. But you may do so, if you see fit. This motion is not the same as the trial of a criminal case, as you must have realized when you made the motion in advance of any trial.
“As I read subdivision (e) (1) as added to Section 204 of the Emergency Price Control Act by the amendment of June 1944, your clients may, if their present motion is denied, renew it within five days after judgment of conviction, if they are convicted. You may withdraw your motion, if you see fit. Apparently you decided that you should make your motion before the trial and not after the trial. If the motion were made after a judgment of conviction, the objections you raise in your letter of the 3rd certainly would have no basis whatsoever. I do not think it was the purpose of Congress to prevent the Government from offering proof on the ‘good faith’ issue, where a defendant makes his motion in advance of the trial. I see no reason for changing any part of my memorandum of December 29th, 1944.”

M!r. Fried, the Chief Attorney, Food Enforcement Unit of the Office of Price Administration, Metropolitan Operating Office, pursuant to the leave granted by the Court, submitted an affidavit on January 4th, in which he states:

“The evidence in the possession of the United States Attorney will show conclusively that defendants placed the ceiling prices of the- commodities sold on their records and invoices but, in fact, compelled their purchasers to pay an additional consideration above the ceiling price. Their fraudulent practices were varied. The patterns adopted by defendants were in some cases to collect the invoice price by check and, as stated, the additional amount in cash. In other cases defendants would sell and deliver' one commodity and invoice another commodity with a higher ceiling price to make up the illegal price. In still a third class of cases defendants would sell one commodity, invoice that at the ceiling price, include on the invoice items which were never sold or delivered to the purchasers but paid for by them.
“The proof will be that in Information C-l 18-335, wherein Center and Merlis are the defendants, the transaction was handled by Merlis personally, that he set the illegal price, issued the false invoice and accepted the illegal consideration; that in C-l 18-337, wherein Center, Merlis and Romanoff are the defendants, they personally did one or more of the illegal acts in concert; and in C-l 18-336, wherein Center, Merlis and Hermann are the defendants, Merlis and Hermann committed the illegal acts.”

Mr. Fried’s affidavit then recites in considerable detail what the proof will be in respect to Count One of Information C-118-337, which names the Center Veal & Beef Co., Romanoff and Merlis as defendants in 29 separate counts; what the proof will be on Count One of Information C-l 18-335, which contains 13 counts and names Center and Merlis as defendants; and what the proof will be on Count One of Information C-l 18-336 which names Center Veal & Beef Co., Merlis and Her-mann as defendants and contains 5 counts.

I received on January 11th a reply affidavit made' by Herman Hoffman, the attorney for the defendants. In the opening paragraph he says:

“I am of counsel to the defendants herein and respectfully submit this affidavit in connection with the determination of this Court in its opinion, dated December 29th, 1944, requiring the Government and the defendants to file further affidavits herein.”

The statement contained in that sentence is incorrect. There was nothing in my opinion of the 29th which required the Government to file further affidavits, and certainly as to the defendant it was made crystal clear that they would be given a week’s time in which to serve and file a reply to the Government’s affidavit “if they are advised by their counsel to do so.”

The second sentence in Mr. Hermann’s affidavit is as follows:

“I assume, from a reading of the entire opinion that, subject to consideration of the matters to be presented in such affidavits, this Court has concluded that the defendants have satisfied the conditions prerequisite to the relief sought upon this motion.”

That assumption is unfounded if the entire opinion is read. I suggested that the Government file a further affidavit, because the statements made in Mr. Fried’s first affidavit as to the keeping of false records, were too general. If I was to give them consideration, I felt that they should be more specific. The whole tenor of my opinion was that if the records were false then there was lacking both the “good faith” and the “reasonable and substantial excuse for the defendant’s failure to present such objection” to the Regulation in a protest at an earlier date.

I think counsel misconceives the purpose of the Amendment, when he states in his affidavit:

“All considerations, therefore, point to the fact that it was intended that the issue of ‘good faith’ should not only be determined in a proceeding entirely independent of the main trial, but by reference to issues wholly unrelated to the defendant’s guilt or innocence of the main charges.”

The Chairman of the Senate Banking Committee, at the time the conference report in relation to the proposed amendment (subdivision (e) of Section 204) was before the Senate, explained the purpose of the procedure outlined in the amendment. He said:

“The Price Administrator has expressed great concern lest the right accorded by this procedure be abused by defendants resorting to protests and leaves to complain as a means of deferring or even avoiding the trial of criminal cases and of staying the execution of judgment in civil proceedings. But the procedure provided in the amendment does not represent a regular method to be followed in enforcement cases. Rather, it is an exceptional procedure which has been made available to avoid the risk of injustice that existed under the original act under which a defendant who had excusably failed to file a protest within the strict time limits the act allowed, might be denied any opportunity to question the validity of the regulation which he was charged with violating. The remedial procedure prescribed by the conference committee is available only to defendants whose objections the courts find have been made in good faith, and not primarily for the purpose of delay. The committee is confident that the courts will be vigilant in administering the standard of good faith to deny stays to defendants who have not previously availed themselves of the unrestricted opportunity to protest but who have been violating regulations on the gamble that, if caught, they could then protest and secure stays of proceedings which would afford them a good chance to avoid trial or the execution of judgment.”

In my opinion of December 29th I wrote:

“The last sentence above quoted seems to apply to the situation of the defendant corporation, taking the charges in the In-formations at their face value. The 47 counts of the three Informations filed October 23, 1944, charge 31 violations between January and June 1943; 6 between September and December 1943 ; 4 between January and March 1944; and 6 between July and September 1944, after subdivision (e) had been added to the Act by the June 1944 amendments.”

And I expressed the view that on a motion under Section 204(e) of the Act the Court before whom the motion is made “may consider evidence of the practices of defendants in making false records of their sales, in determining the issue of 'good faith.’ ” It was not the intention of Congress that motions under Section 204 (e) (1) should be considered in a vacuum, without any consideration of the manner in which defendant had conducted its business or the extent and nature of the violations contained in the indictment or information. If that were so, then the Government would be denied its most effective means of showing lack of “good faith” on the part of the defendants, and the Courts could not “be vigilant in administering the standard of good faith.”

From a consideration of the entire record before me on the motions of these defendants, I have concluded that the motions should be denied on the merits.


author: LABUY, District Judge.

text:
    NATIONAL NUT CO. OF CALIFORNIA v. KELLING NUT CO. et al.
    No. 43 C 423.
    District Court, N. D. Illinois, E. D.
    Jan. 25, 1945.

      John J. McLaughlin, of Chicago, Ill., and Charles S. Evans and Hugh N. Orr, both of San Francisco, Cal., for plaintiff.
    Arthur D. Welton, Jr., Winston, Strawn & Shaw, James C. Leaton, and West, Leaton & West, all of Chicago, Ill., for defendant.
   LABUY, District Judge.

The complaint filed herein contains three separate causes of action (a) a claim for infringement of letters patent of the United States; (b) a claim for damages arising under the anti-trust laws of the United States; and (c) a claim for damages for unfair competition. These claims are made against seven named defendants and three unidentified defendants.

The defendants, The Kelling Nut Company, The General Nut Company, The Susu Nut Company, Max J. Kelling and Robert S. Kelling, have filed their written motions herein for a bill of particulars and to strike as immaterial certain portions of said complaint.

A. The Motions with Reference to the Charges of Infringement.

The defendants have filed under paragraphs Al to A18 specifications of particulars in which they claim that they are entitled to a bill of particulars.

Paragraph A.1 requests that plaintiff “Specify which of the several claims of the patent in suit plaintiff asserts to be infringed by each defendant.” There are seventeen claims in the patents which plaintiff claims have been infringed. The defendants are entitled to know whether the plaintiff claims that all seventeen of these claims have been infringed by the defendants, and if not all seventeen, which of the seventeen claims have been infringed.

The motion for a bill of particulars on this point is sustained.

Paragraph A.2 requests that plaintiff specify which machine or machines made, used or sold by each defendant, plaintiff asserts to infringe the patent in suit, specifying the particular claim or claims asserted to be infringed by each machine.

The complaint names seven defendants and three who are unnamed. The complaint should be dismissed as to the three unnamed defendants as they are not proper parties herein. If the plaintiff can subsequently join any additional defendants by name, the fact that there are certain fictitious defendants named herein will not assist the plaintiff nor will it serve as any basis for not serving with process any additional defendants herein. Also, the naming of these fictitious defendants will not be binding or conclusive on any actual persons who are not named defendants herein in their own proper name.

With reference to the machines used or sold by the defendants, which plaintiff asserts infringe the patent in suit, the court has above directed that the plaintiff specify the particular claim or claims which the plaintiff asserts have been infringed. The defendants are familiar with the machines they have made, used or sold and the plaintiff should not be bound to specify at this time all of the acts of the defendants which may be peculiarly within the knowledge of the defendants.

The three fictitious defendants herein should be dismissed as defendants in this case, and the motion for a bill of particulars as specified in A.2 is denied.

Paragraph A.3 requests that plaintiffs specify which machine or machines plaintiff will assert to have been jointly made, used or sold by the defendants, specifying the particular claim or claims asserted to be infringed thereby.

For the reasons above set forth this portion of the motion will be denied.

Paragraph A.4 requests that plaintiff specify what plaintiff asserts to be new and patentable in each of the claims asserted to be infringed, and if, in response, plaintiff states that the combinations of elements recited in the respective claims are new and patentable, specify in what respects plaintiff contends that these combinations differ t'rom combinations old in the prior art.

When motions similar to the one above requested have been made, the courts have almost universally held that a bill of particulars should not be allowed. In these decisions the courts have held that where a defendant has requested that the plaintiff state precisely what he asserts or claims as new and patentable in each of the claims of his patents, that such request should be denied. The reasons given for-such holdings are that such request calls for evidentiary detail, for plaintiffs interpretation of the claims and his opinion thereon, and for plaintiff’s theory as to infringement. A. B. Dick Co. v. Underwood Typewriter Co., D.C., 235 F. 300; Midwest Mfg. Co., Inc. v. Staynew Filter Corporation, D.C., 11 F.Supp. 705; E. I. DuPont DcNemours & Co. v. Byrnes, D.C., 1 F.R.D. 34.

The motion for particulars as set up in Paragraph A.4 is denied.

Paragraph A.5 requests that plaintiff specify how, when and in what manner the defendants named in Section IV of the bill of complaint have jointly infringed the patent in suit.

For the reasons set up under Paragraph A.2 above, this motion is denied.

Paragraph A.6 requests that the plaintiff specify whether or not plaintiff will contend that the sale of edible nuts by defendants, or either of them, infringes the patent in suit.

Under Paragraph A.l above the court directed that the plaintiff furnish particulars with reference to the claims of plaintiff’s patent which it alleges have been infringed by the defendants. Such requirement is sufficient and will not be extended.

The motion set up in Paragraph A.6 is denied.

Paragraph A.7 to A.10, inclusive, requests that plaintiff specify whether or not plaintiff contends that defendants, Max J. Kelling, Robert S. Kelling, Carl Elmer Johnson and Paul M. Kleinwachter, have individually made, used or sold any machine which has infringed any claim of the patent in suit.

In Schiff v. Hammond Clock Co., 7 Cir., 69 F.2d 742, the court said (page 745 of 69 F.2d): “The test which determines an officer’s liability for infringement of a patent by the corporation was set forth in Dangler, et al. v. Imperial Machine Co., 7 Cir., 11 F.2d 945.” It may be stated as follows: “When one who is an officer of a corporation personally or individually participates in the manufacture or sale of the infringing article — that is, acts other than as an officer — or when he uses the corporation as an instrumentality to carry out his own wilful and deliberate infringements, or when he knowingly uses an irresponsible corporation for the purpose of avoiding responsibility for the damages resulting from patent infringements, he is liable jointly with the company.”

Each of these defendants are charged in Section IV of the complaint with having “heretofore jointly and severally infringed and now' are infringing said Letters Patent by manufacturing, selling, leasing and using nut treating machines embodying said patented invention, and by supplying such machines for use by others.” This is a direct charge of participation by the individual defendants in the manufacture and sale of the machines claimed to infringe the patent of plaintiff, and comes within the rule stated in the above decision.

The motion of defendants under Paragraphs A.7 to 10, inclusive, will be denied.

Paragraphs A.11 to A.16. The motions under these paragraphs are waived by defendant, hence it is not necessary that the court pass upon same.

Paragraph A.17 requests that plaintiff specify precisely in what manner, construction, operation and respects the nut treating machines complained of are “similar” to the machines adjudged to infringe the patent in suit in National Nut Co. v. Sontag Chain Stores Co., 9 Cir., 107 F.2d 318, as alleged in Section V.

An examination of the complaint shows that Section V and Section VI must be read together. Plaintiff alleges that the defendants aided, abetted, controlled and directed the defense of the action referred to, and are bound by all of the issues decided therein which were not reversed upon appeal to the Supreme Court of the United States, 310 U.S. 281, 60 S.Ct. 961, 84 L.Ed. 1204. This amounts to a claim of prior adjudication as to the matters decided in the Circuit Court of Appeals in and for the Ninth Circuit which were not reversed on appeal.

It appears that the decision of the United States Circuit Court of Appeals was reversed by the Supreme Court. Under the authorities the reversal of a decree sets aside the adjudication of such decree and same becomes no longer of any force and effect. After the reversal the situation was as if no decree had been entered by the Circuit Court of Appeals. Kaplan v. Joseph, 7 Cir., 125 F.2d 602; Keller v. Hall, 9 Cir., 111 F.2d 129; Bondy v. Harvey, 2 Cir., 62 F.2d 521; Leader v. Apex Hosiery Co., 3 Cir., 108 F.2d 71.

, Inasmuch as the court hereinafter under Paragraphs A(f) and (g) holds that Sections V and VI of the complaint should be stricken for the above reason, the motion of the defendants for a bill of particulars cannot be passed on by the court.

Paragraph A.18. This paragraph of the motion of the defendants has been waived so that it is unnecessary for the court to pass thereon.

The defendants have filed under Paragraphs A(a) to A(g) specifications of allegations in the complaint which defendants assert are immaterial, and they move to strike same from the complaint.

Paragraph A(a) is a motion to strike that part of the fifth paragraph of Section I of the complaint reading as follows : “and as such controls and directs the activities of said company and other companies, including defendants The Susu Nut Company and General Nut Company, associated therewith.”

This is an allegation of direction of the activities of certain companies by the defendant, Max J. Kelling, and in the opinion of the court is sufficient.

The motion to strike under this paragraph will be denied.

Paragraphs A(b) to A(d) are motions to strike similar allegations with respect to the direction and control of the defendant, Max J. Kelling, as indicated the court is of the opinion that these allegations should not be stricken.

The motion to strike under these pleadings are all denied.

Paragraph A(e) seeks to strike all of the ninth, tenth, eleventh and twelfth paragraphs of Section I of the complaint.

In these paragraphs the plaintiff attempts to implead fictitious defendants, John Doe, Richard Roe and John Doe Company. As above set up under Paragraph A(2), the allegations of the complaint as to fictitious defendants cannot be sustained.

For the reasons set forth above the motion of the defendants to strike paragraphs 9 to 11 of Section I of the complaint will be sustained.

Paragraphs A(f) and (g) of the motion to strike are now modified or amended by the Amended Motion of June 30, 1944. By the motions set up in these two paragraphs it was originally sought to strike portions of Section V and all of Section VI of the Complaint, and by the amended motion it is sought to strike all of Sections V and VI of the Complaint.

The court has already stated under Paragraph A.17 that the decision of the United States Circuit Court of Appeals in the Sontag suit as alleged in Sections V and VI of the Complaint, cannot operate as res judicata of any question because said decision was reversed by the Supreme Court of the United States. Therefore, the motion tp strike Sections V and VI of the Complaint will be sustained.

B. The Motions with Reference to the Anti-Trust Claim.

‘ In suits with reference to the Sherman Act, the objects and purposes of the acts were to protect free competition. It has been held that such act is valid and that Congress has the power to establish rules by which interstate commerce shall be governed. Northern Securities Co. v. United States, 193 U.S. 197, 24 S.Ct. 436, 48 L.Ed. 679. It has also been held that the words “restraint of trade” does not embrace all those normal and usual contracts essential to individual freedom and the right to make which were necessary in order that the course of trade might be free. (United States v. American Tobacco Co., 221 U.S. 106, 31 S.Ct. 632, 55 L.Ed. 663.) The Clayton Act, 38 Stat. 730, was intended to operate as a supplement to the Sherman Act, 15 U.S.C.A. §§ 1-7, 15 note, and had as its purpose to strike down two forms of competition where the effect may be to substantially lessen competition or tend to create a monopoly in any line of commerce. The Robinson-Patman Act, 15 U.S.C.A. §§ 13 — 13b, 21a, prohibits certain methods of competition which have the purpose or effect of injuring or eliminating competitions.

The court has examined the allegations under the anti-trust claim set up in the complaint in order to determine whether the facts alleged tend to substantially lessen competition, or tend to create a monopoly, or which injure or eliminate competition. As facts thus tending, the plaintiff alleges that the defendants

(1) unlawfully exacted from retail dealers throughout the United States an agreement to purchase from the respective defendant companies all unpatented and un-patentable supplies displayed and sold through the various machines supplied by the said companies respectively, in violation of 15 U.S.C.A. §.14.

In the opinion of the court if such facts are proved upon the hearing of this cause, such facts will tend to substantially lessen competition, or create a monopoly, or tend to injure or eliminate competition, and such allegation will be allowed to stand, and the motion for a bill of particulars with reference thereto is denied.

(2) unfairly and unlawfully discriminated among various dealers in the same and in different trade territories with respect to the consideration charged by the defendant companies of the same character, for the purpose and with the effect of destroying competition by plaintiff.

If the price fixed by the defendants for the purchase of machines sold by them is uniform, it may be lower than the price charged by plaintiff for its machines, without subjecting defendants to the charge of lessening competition, creating a monopoly, or injuring or eliminating competition. But a practice of underselling plaintiff in certain territory where plaintiff has an established business and maintaining a higher level of prices in other localities where competition with plaintiff or other companies is not so keen is a practice condemned by the anti-trust laws, and is a practice which may permit a remedy to plaintiff if such practices are established upon the trial of this cause, and a resulting damage to plaintiff is proved.

The motions to strike and for more particulars with reference to this allegation are, therefore, denied.

(3) unfairly and unlawfully discriminated among various dealers in the same and in different trade territory with respect to prices charged, discounts allowed and benefits extended to users of machines for goods supplied by the respective defendant companies, including:

(a) unwarranted price discriminations in different trade territories;

(b) unwarranted differences in discounts allowed to different dealers in the same and in different trade territories;

(c) the allowance to some customers but not to all, of quantity discounts upon cumulative purchases of small quantities of merchandise over extended periods of time;

(d) the furnishing of excessive free sample goods to some customers, but not to others;

(e) the unwarranted and discriminatory refunding to some customers but not to others of part or all of the consideration paid by them for the use of machines, by the issuance of credit memoranda, by furnishing merchandise without charge, by cash refund, and/or by other artifices;

(f) the furnishing of special services including advertising, the services of “hostesses”, and similar benefits, to selected customers, without extending such services and benefits to other customers in the same and different trade territories.

Considering the above in their order, sub-paragraph (a) contains an allegation “unwarranted price discriminations.” This amounts to a conclusion of the pleader. Different prices might be charged for the same article in different trade territories and still not tend to lessen or eliminate competition or create a monopoly. The differential in price might be justified by different conditions in the different trade territories, such as the difference between delivery in one territory and a “pick up” by the customer in another territory; a differential in freight rates in the different territories; and other instances might be cited. It, therefore, does not follow that different prices in different trade territories result in a violation of the antitrust laws, but such difference may not be justified by any of the conditions which would lawfully permit a different price. Therefore, the plaintiff should specify in a bill of particulars what were the “unwarranted price discriminations” in different trade territories. The allegation will not be stricken as it will be considered in connection with the bill of particulars.

Motion to strike (a) denied, and motion for bill of particulars allowed.

Sub-paragraph (b) contains an allegation of “unwarranted differences in discounts”. This allegation also amounts to a conclusion of the pleader. Discounts may be proper where they are allowed uniformly as a trade practice such as a discount of 2% for payment of an invoice if paid within a certain number of days after the date of the invoice and prior to the usual net payment of the invoice; but this trade discount must be uniform and extended to all customers. If the discount is based upon some circumstance which is not uniform with all customers, such as a discount allowed by chance, by a lottery, because the customer sends in another customer, or if the discount is allowed not as a general trade practice but as a cover up means of a differential in price in a certain territory when not allowed in another, then such discounts may be held with other circumstances as tending to lessen or eliminate competition or to create a monopoly. The plaintiff is, therefore, entitled to prove any facts with reference to discounts but, such claims should be specifically set forth so that the charges are not general, when the general charge may be legal or illegal as the specific facts may demonstrate.

The motion for bill of particulars with reference to sub-paragraph (b) is allowed. Motion to strike same denied foi; Same reason as under (a) above.

Sub-paragraph (c) contains the allegation of “the allowance to some customers but not to all, of quantity discounts upon cumulative purchases of small quantities of merchandise over extended periods of time.”

This allegation, if proved, is material to the charges of violation of the anti-trust laws as tending to lessen or eliminate competition or to create a monopoly. However, the phrase “quantity discounts” does not completely and adequately set up the situation. A bill of particulars with reference to this phrase should be filed with the plaintiff and in all other respects the sub-paragraph should stand.

Under sub-paragraph (d) it is alleged that the defendants furnished excessive free sample goods to some customers, but not to others. The language of this paragraph requires clarification. The defendants could furnish free sample goods to some customers and not to others and this might or might not tend to lessen or eliminate competition. If the defendants were introducing their machine in a new territory, the furnishing of free samples might be permissive, but the furnishings of free samples as a means of granting a differential in price to certain customers might tend to lessen or eliminate competition.

The wording of this paragraph also is not clear. The defendants could not furnish “excessive free samples” to all of its customers, yet the sub-paragraph alleges that “excessive free samples” were furnished to some customers but not to others. The pleader probably meant that free samples were furnished to all customers but that a considerably larger amount of free samples were given to some customers than to other customers. This sub-paragraph should be clarified.

The motion for bill of particulars with reference to this sub-paragraph is allowed.

- Under sub-paragraph (e) the allegations refer to “the unwarranted and discriminating refunding to some customers but not to others of part or all of the consideration paid by them for the use of machines, by the issuance of credit memoranda, by furnishing merchandise without charge, by cash refund, and/or by other artifices.”

The court is of the opinion that subject to the bill of particulars directed to be filed by plaintiff with reference to price discriminations and discounts that this sub-paragraph is proper and should be allowed to stand.

The motions for a bill of particulars and to strike this sub-paragraph are, therefore, denied.

Under sub-paragraph (f) the allegations refer, to “the furnishing of special services including advertising, the services of ‘hostesses’ and similar benefits, to selected customers, without extending such services and benefits to other customers in the same and different trade territories.”

As above pointed out, where the defendants were introducing their machine in new territory, special services consisting of advertising, etc., might be furnished without subjecting the defendants to any claim that same tended to lessen or eliminate competition. Therefore, two constructions may be placed upon these services, and the plaintiff should more particularly allege the character of same so as to bring them within the charge of lessening or eliminating competition.

Therefore, the motion for bill of particulars with reference to this sub-paragraph is allowed and motion to strike denied.

Under paragraph (4) allegations are made concerning the utilization of equipment, personnel, resources and credit of each of the defendant companies for aiding the other defendants to violate said antitrust laws.

This allegation is merely an allegation of joint operation by the various defendants and it will be allowed to stand.

Motion for bill of particulars and to strike denied.

Under paragraph (5) allegations are made concerning the commingling of stocks of machines, parts and merchandise for the purpose as therein alleged.

This allegation may stand, motion for bill of particulars and to strike denied.

Under Section X a general allegation of damages is made. The element of damage to the business of plaintiff is a matter of proof on the trial of this cause. Plaintiff might add that it lost customers, that its credit was destroyed, etc., but such allegations would not add to the allegations of damage when taken in connection with the other allegations in the complaint with reference to plaintiff’s business. The question of damage can best be determined by interrogatories, by depositions or at the hearing of this cause.

Motion for bill of particulars and to strike said Section X both denied.

C. The Motions with Reference to the Unfair Competition Allegations in the Complaint.

The claim of plaintiff on the charge of unfair competition against the defendants is based on claimed acts of defendants as follows:

(1) supplying to users machines infringing plaintiff’s patent rights, for a consideration substantially less than the reasonable value of said machines, for the purpose and with the effect of destroying competition by plaintiff;

(2) unfairly advertising and otherwise representing to users and prospective users of defendants’ machines that such users require licenses from defendants or certain of them and are licensed by said defendants under alleged patent rights relating to methods and apparatus for treating edible nuts, for the purpose and with the effect of inducing such users to acquire and use said infringing machines; whereas in fact such licenses from defendants or certain of them have been and now are unnecessary and of no material advantage or benefit to said users and the use of said machines by said users places them in the position of infringers of plaintiff’s patent rights;

(3) unfairly disseminating, among the retail trade, false and misleading statements with respect to the alleged cost of operating the machines acquired from defendants or certain of them as compared to the alleged cost of operating plaintiff’s machines made under plaintiff’s patent herein referred to, for the purpose and with the effect of inducing retail dealers to acquire and use defendants’ infringing machines rather than plaintiff’s patented machines.

The defendants have moved to strike Section XI which contains said allegations and Section XII which relates to damages on the ground that they do not set up a cause of action against the defendants for unfair competition.

In determining whether plaintiff’s charge of unfair competition can be sustained, we must determine same by the law of the State of Illinois. In the case of Time v. Viobin Corporation, 7 Cir., 128 F.2d 860, 862, this question was passed on, the court saying: “We think there can be no question but that plaintiff’s charge of unfair competition must be determined by the law of Illinois. This court so decided in Addressograph-Multigraph Corporation v. American Expansion Bolt & Mfg. Co., 7 Cir., 124 F. 706, 708. It may be pertinent to note of this case that there was no charge of trade-mark infringement, but it related solely to unfair competition. We reiterated our holding in this respect in the recent case of Rytex Co. v. Ryan, 7 Cir., 126 F.2d 952. In this case, as in the instant one, both trade-mark infringement and unfair competition were in issue. The validity of our holding in these two cases appears to have been approved in the recent decision of the Supreme Court in Pecheur Lozenge Co., Inc., Petitioner v. National Candy Co., Inc. [315 U.S. 666], 62 S.Ct. 853, 86 L.Ed. [1103] wherein the court said: ‘ * * * The only cause of action that this record could possibly support is for unfair competition and common law “trademark infringement”, to which local law applies.’ ”

In passing on the law of Illinois in unfair competition cases, the court said (128 F.2d at pages 862, 863):

“Some of the more important Illinois cases which announce the determinative rule as to unfair competition are: DeLong Hook & Eye Co. v. Hump Hairpin Mfg. Co., 297 Ill. 359, 130 N.E. 765; [Nestor] Johnson Mfg. Co. v. Alfred Johnson Skate Co., 313 Ill. 106, 144 N.E. 787; The Stevens-Davis Co. v. Mather & Co., 230 Ill. App. 45, and Soft-Lite Lens Co., Inc., v. Ritholz, 301 Ill.App. 100, 21 N.E.2d 835. In the Stevens-Davis case is found a lengthy discussion and analysis of Illinois cases, as well as those of other jurisdictions, and a determination that the so-called ‘palming off’ doctrine is the rule in. Illinois. On page 65, of 230 Ill.App., the court said: ‘The courts in this State do not treat the “palming off” doctrine as merely the designation of a typical class of cases of unfair competition, but they announce it as the rule of law itself — the test by which it is determined whether a given state of facts constitutes unfair competition as a matter of law. * * * ’
“This rule was later approved in the Soft-Lite case, supra.
“Plaintiff contends that the rule thus announced does not defeat its cause of action for the reason that defendant is ‘palming off’ its goods as those of the plaintiff by representing that the plaintiff is in some way identified with, and is sponsoring and approving, defendant’s product. We are satisfied, however, that the Illinois decisions do not permit an interpretation of the ‘palming off’ doctrine so as to include results so indirect and speculative in their nature. It consists of passing off or attempting to pass off the goods of one person as and for those of another. As was said in the Stevens-Davis case, supra, pages 66, 67 of 230 Ill.App.:
“ ‘ * * * Each case is not to be left to the discretion of the court to be decided according to the court’s idea of justice and right. The “palming off” rule is expressed in a positive, concrete form which will not admit of “broadening” or “widening” by any proper judicial process. It is rigid and inelastic. * * *
“ We feel bound, therefore, to follow the rule of law of this State, and to hold that unfair competition “consists in the sale of the goods of one manufacturer or vendor for those of another, and if defendant so conducts its business as not to palm off its goods, as those of complainant, the action fails.” DeLong Hook & Eye Co. v. Hump Hairpin Mfg. Co., supra.’ ”

The later case of Lady Esther, Ltd. v. Lady Esther Corset Shoppe, 317 Ill.App. 451, 454, 455, 46 N.E.2d 165, 167, adhered to the “palming off” doctrine where there is competition between the parties, the court said: “Counsel for defendant contends that ‘Illinois adheres to the “palming off” rule in case of unfair competition. Where there is no competition, there can be no “palming off.” Since defendant was not in competition with the plaintiff, in any manner whatsoever, plaintiff was not entitled to the injunction prayed for in its complaint.’ And in support of this four Illinois cases are cited: Stevens-Davis Co. v. Mather & Co., 230 Ill.App. 45; DeLong Co. v. Hump Hairpin Co., 297 Ill. 359, 130 N.E. 765; [Nestor] Johnson Mfg. Co. v. Johnson Skate Co., 313 Ill. 106, 144 N.E. 787, and Ambassador Hotel Co. v. Hotel Sherman Co., 226 Ill.App. 247. Without stopping to analyze the four cases, we think it sufficient to say that an examination of them discloses the fact that in each there was direct competition between the parties in the business each was conducting — plaintiff and defendant being engaged in the same line of business — and therefore the ‘palming off’ rule was applicable. The holding in those cases, that where there was direct competition between plaintiff and defendant there must be a ‘palming off’ to warrant relief, is far from saying that courts will not grant injunctive relief where the defendant’s conduct is likely to cause confusion of the traders so that the public believes or is likely to believe that the goods of the defendant are the goods of the plaintiff, or that the plaintiff is in some way connected with or is a sponser of the defendant. In such situation relief will be granted although there is no competition.”

This is an extension of the “palming off” doctrine to the extent that any attempt by a person to capitalize on the reputation or good will of another is declared unfair trade and will be enjoined, even in the absence of “palming off” or competition between the parties.

In the case of Investors Syndicate v. Hughes, 378 Ill. 413, 422, 38 N.E.2d 754, 759 the court in passing on the modern trend in unfair competition cases said: “Even in injunction cases between competing corporations the trend of decision is to place less emphasis on competition and more on confusion * * *: Vogue Co. v. Thompson-Hudson Co., 6 Cir., 300 F. 509, Aunt Jemima Mills Co. v. Rigney & Co., 2 Cir., 247 F. 407, L.R.A.1918C, 1039. As was said in Ward Baking Co. v. Potter-Wrightington, 1 Cir., 298 F. 398, 403, ‘The test should be whether the public is likely to be deceived.’ ”

Assuming that those two cases extend the law of unfair competition where there is competition between the parties to include cases where there is no “palming off”, it must still be observed that both those cases hold thát to warrant injunctive relief the defendants’ conduct must be likely to cause confusion as to the product of the two parties, so that the public believes that the goods of the defendant are the goods of the plaintiff or that the plaintiff is in some way connected with or a sponsor for the defendant. This is an extension of the rule to include non-competing parties within the unfair trade rule. But where there is competition between the parties as in the present case, the most that can be said is that there must be a confusion of the plaintiff’s goods with those of the defendants’ in the eyes of the public, and that constitutes no variation of the “palming off” doctrine.

There are no allegations in the complaint of confusion between the machines of plaintiff and the defendants, and there is no charge that the defendants are “palming off” their machines as those of plaintiff. The allegations under this head fairly belong under the anti-trust charges. The facts alleged, if proved, might be considered to show acts of the defendants to lessen competition and to create a monopoly.

The court holds that there are no sufficient allegations in the complaint to substantiate a claim of unfair competition. The preamble to Section XI and Section XII will be stricken from the complaint. The allegations of Section XI may stand (if the plaintiff so elects) as allegations under the anti-trust portion of the complaint. If the plaintiff does not so elect, then said Section XI will also be stricken.

In view of the foregoing it is not necessary that the court pass on the motions for a bill of particulars as to Sections XI and XII of the complaint.

Orders may be prepared for entry in accordance with the above.