Appendix — Nash County Board of Education v. Biltmore Co.

peed.

Oflice-Supreme Court, U.S,

80-1994 FILLED

IN THE | MAY 19 1981

SUPREME COURT OF THE UNITED STATEG ““S**ANO.8 & Stevs

OCTOBER TERM, 1980 .

No,

THE NASH COUNTY BOARD OF EDUCATION,

PETITIONERS

versus

THE BILTMORE COMPANY; BORDEN, INC. ;

COBLE DAIRY PRODUCTS COOPERATIVE, INC. ;

PET, INC,; AND FLAV-O-RICH, INC.,

R ITSELF AND AS SUCCESSOR IN INTEREST

OF UNITED DAIRIES, INC.,

RESPONDENTS

Appendix to

Petition for a Writ of Certiorari to the

United States Court of Appeals for

the Fourth Circuit

Hamrick & Hamrick

J. Nat Hamrick, Esq

Counsel for Petitioner

P. O. Box 470

Rutherfordton

North Carolina 28139

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1980

No,

THE NASH COUNTY BOARD OF EDUCATION,

PETITIONERS

versus

THE BILTMORE COMPANY; BORDEN, INC. ;

COBLE DAIRY PRODUCTS COOPERATIVE, INC.;

PET, INC.; AND FLAV-O-RICH, INC.,

FOR ITSELF AND AS SUCCESSOR IN INTEREST

OF UNITED DAIRIES, INC.,

RESPONDENTS

Appendix to

Petition for a Writ of Certiorari to the

United States Court of Appeals for

the Fourth Circuit

Hamrick & Hamrick

J. Nat Hamrick, Esq

Counsel for Petitioner

P. O. Box 470

Rutherfordton

North Carolina 28139

TABLE OF CONTENTS

Opinion of United States District

Court for Eastern District of

North Carolina . ‘

Opinion of United States Court

of Appeals for the Fourth Circuit .

Complaint in State of North

Carolina, ex rel. James H.

Carson, Jr., Attorney General,

Plaintiff, vs. Biltmore Dairy

Farms, et al, Defendants .

Consent Judgment in State of

North Carolina, ex. rel., James

H. Carson, Jr., Attorney General,

General Plaintiff, vs. The

Biltmore Company, et al .

Amended Complaint The Nash County

Board of Education, Plaintiff,

vs. The Biltmore Company, et al .

Benoy Deposition .

ma Carolina General ——

tf : — Sita adi. ae erties :

i

Ne ee eg a

es ee i he

Tanne « « oe

15 U.S.C. l

15 U.S.C. 2 oe

15 U.S.C. 18 .

Amendment V

Constitution of the United States

Page

41

85

96

.105

. 118

. 120

< ee

: Bee

127

127

128

129

131

a ee

. 132

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF NORTH CAROLINA

RALEIGH DIVISION

THE NASH COUNTY BOARD )

OF EDUCATION, ;

Plaintiff, )

) Civil Action No.

Vv. ; 76-0188-CIV-5

THE BILTMORE COMPANY, )

et al,

Defendants. )

ORDER

For the reasons stated in the memorandum

of the Court this day filed and deeming it

proper so to do, it is ADJUDGED and ORDERED

that the motions of the respective defendants

for summary judgment be, and the same are here-

by granted, and they stand dismissed with

their costs.

Let the Clerk send copies of this order

to all counsel of record.

S/Robert R. Merhige

JUDGE PRESIDING

Dated 11/27/78

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF NORTH CAROLINA

RALEIGH DIVISION

THE NASH COUNTY BOARD )

OF EDUCATION,

Plaintiff, )

) Civil Action No.

Vv. ) 76-0188-CIV-5

)

THE BILTMORE COMPANY, )

et al, ‘

Defendants. )

MEMORANDUM

Plaintiff, Nash County Board of Education

(Nash County), a body politic created by the

legislature of the State of North Carolina,

brings this federal antitrust action seeking

treble damages against nine defendant dairy

companies that sell milk, ice cream, and cottage

cheese to public schools in North Carolina.

Plaintiff brings this action as a class action

pursuant to Rule 23 of the Federal Rules of

Civil Procedure on behalf of itself and all

other county and city boards of education in

North Carolina, as described in chapter 115 of

the General Statutes of North Carolina. The

nine defendants are: The Biltmore Company, a

-2-

Delaware corporation; Borden, Inc., a New

Jersey corporation; Coble Dairy Products

Cooperative, Inc., a North Carolina corporation,

Dairymen, Inc., a Kentucky corporation; Maola

Milk and Ice Cream Company, a North Carolina

corporation; Pet, Inc., a Delaware corporation;

Pine State Creamery Co., a North Carolina

corporation; Kraftco Corporation, a Delaware

corporation; and Flav-O-Rich, Inc., and its

predecessor United Dairies, Inc., both North

Carolina corporations.

Plaintiff alleges that the defendants,

jointly and severally, have combined and con-

spired since no later than February 1, 1970 to

fix prices and to monopolize and attempt to

monopolize the public school market for milk,

ice cream, and cottage cheese in North Carolina,

in violation of sections 1 and 2 of the Sherman

Act, 15 U.S.C. §§ 1 and 2. Jurisdiction is

appropriate under 15 U.S.C. § 15 and 28 U.S.C.

§ 1337. .

Each of the defendants has moved for

summary judgment on the sole ground that this

a Me

action is barred by the doctrine of res judi-

cata. The sides have addressed the issues ex-

tensively in briefs and at oral argument, and

the matter is now ripe for disposition. The

undisputed facts show that in 1973, in response

to complaints by various school boards, the

North Carolina Attorney General's office began

investigating the defendant dairy companies to

determine whether they were fixing prices and

dividing up markets in violation of North Caro-

lina'a antitrust statute. On October 21, 1974,

the Attorney General of North Carolina filed

suit on behalf of the state in the General

Court of Justice, Superior Court Division, of

Wake County, North Carolina against the same

nine dairy companies who are defendants in the

instant suit. Alleging violations of the state

(but not federal) antitrust statute, the Attor-

ney General sought both injunctive relief and

treble damages. Additionally, he sought certi-

fication, pursuant to Rule 23 (a) of the North

Carolina Rules of Civil Procedure, to represent

a class consisting of all public school systems

sie

in North Carolina that had used state tax

monies to purchase milk from any of the nine

defendants.

The purported class was never certified,

however, and the action never went to trial.

Instead, the suit was terminated on May 12,

1975 by a consent decree entered by the pre-

siding state court judge and endorsed by all

parties. The consent decree represented that

"all matters in controversy arising out of this

action have been agreed upon and settled in a

manner satisfactory both to the Plaintiff,

State of North Carolina, and to the aforemen-

tioned Defendants."' The consent decree pro-

vided injunctive relief in the form of

mandatory procedures to be followed by the

defendants over the ensuing three years for

reporting to the state Attorney General all

bids and negotiated prices for milk contracts

with North Carolina public school systems.

The decree, however, did not provide for any

monetary damages, either for the state or for

any of the school boards in the state.

=§

On June 18, 1975, approximately one month

after entry of the consent judgment, the North

Carolina Attorney General sent a letter to all

school superintendents and food service direc-

tors in the state, notifying them of the con-

sent decree and its terms. The letter also

contained the following paragraph:

Additionally, it should be pointed out

that the settlement in no way proscribes

actions by individual school systems to

recover monetary damages for overcharges

that resulted from the rigging of bids.

Apparently acting on the Attorney General's

letter, the Nash County Board of Education

filed the instant suit against all of the

defendants who were parties to the state court

consent decree. Not surprisingly, the motion

presently under consideration followed.

The principles of res judicata are well

established. The general rule was stated by

the United States Supreme Count in Commissioner

v. Sunnen, 333 U.S. 591 (1948):

The general rule of res judicata applies

to repetitious suits involving the same

cause of action. It rests upon considera-

tions of economy of judicial time and

public policy favoring the establishment

-6-

of certainty in legal relations. The rule

provides that when a court of competent

jurisdiction has entered a final judgment

on the merits of a cause of action, the

parties to the suit and their privies are

thereafter. bound "not only as to every

matter which was offered and received to

sustain or defeat the claim or demand, but

as to any other admissible matter which

might have been offered for that purpose."

Id, at 597 (quoting Cromwell v. County of Sac,

94 U.S. 351, 352 (1876)). Thus, the doctrine

of resjudicata bars relitigation when the prior

suit (1) was on the same cause of action, (2)

was between the same parties or their privies,

and (3) was concluded by a final judgment on

the merits. The Court finds that all three of

these requirements are satisfied in the instant

case.

I. The Same Cause of Action.

This inquiry has two facets. Reserving

for the moment consideration of whether the

cause of action in the instant suit is sub-

stantively the same as that in the North Caro-

lina action, the Court must first resolve the

threshold question of whether, notwithstanding

all considerations of traditional res judicata

oJe

doctrine, federal district courts are bound to

entertain all federal antitrust actions because

Congress intended the district courts to have

exclusive and mandatory jurisdiction over such

lawsuits. Simply stated, the initial inquiry

with which the Court is faced is whether, as a

matter of federal-state relations, a suit in

federal court under the Sherman Act is a

fortiorari a different cause of action from a

state court action under that state's antitrust

statute, even if conventional notions of res

judicata would otherwise bar the action.

Section 15 of Title 15 of the United States

Code provides that, "[a]ny person who shall be

injured in his business or property by reason

of anything forbidden in the antitrust laws may

sue therefor in any district court of the United

States in the district where the defendant re-

sides or is found or has an agent .. ." Nash

County relies heavily on this provision, as

several decisions of the federal courts inter-

preting it, in contending that this court must

hear the instant suit.

aie

The seminal decision in this area is Lyons v.

Westinghouse Electric Corp., 222 F.2d 184 (2d

Cir.), cert denied, 350 U. S. 825 (1955). In

an opinion by Judge Hand, the court of appeals

issued a writ of mandamus to the district

court directing the judge to vacate the stay

order he had issued in Lyons’ antitrust suit

against Westinghouse and another corporation.

Id. at 190. The district judge had stayed the

federal antitrust suit pending the resolution

of a state contract action brought by Westing-

house against Lyons, as a defense to which

Lyons pleaded that Westinghouse had violated

the federal antitrust laws. Id. at 185. As

the antitrust allegations raised by Lyons as a

defense in the state court action against him

were the same as those upon which he was sueing

Westinghouse in the federal district court, the

district court apparently decided to await the

state court's decision on the merits, if any,

of the antitrust claims. In a sweeping opinion,

the court of appeals held that the district

court acted inappropriately:

a9.

In the case at bar it appears to us that

the grant to the district courts of ex-

clusive jurisdiction over the action for

treble damages should be taken to imply

an immunity of their decisions from any

prejudgment elsewhere; at least on occa-

sions, like those at bar, where the

putative estoppel includes the whole

nexus of facts that makes up the wrong.

The remedy provided is not solely civil;

two thirds of the recovery is not remedial

and inevitably presupposes a punitive

purpose.

Id. at 189. Judge Hand further justified the

decision by asserting that uniform administra-

tion of the antitrust acts "would best be

accomplished by an untrammeled jurisdiction of

the federal courts." Id.

In the Court's view, Lyons differs from

the case at bar in at least two respects.

First, the federal plaintiff was a defendant

in the state action. Accordingly, had the

federal action been stayed pending resolution

by the state court of the contract action, the

federal plaintiff would have effectively been

denied the opportunity to select a forum where-

in to litigate his federal antitrust claims

because of the collateral estoppel effect of

the state court resolution. Second, this

-10-

denial might have proven to be unusually harsh

because New York procedure, the state wherein

the case was pending, would not have allowed

him to prosecute his antitrust defense in the

contract action in any fashion similar to the

manner in which he could litigate his claims as

a plaintiff in federal court. More importantly,

treble damages would not have been available in

the state court.

The instant plaintiff's situation is dis-

similar from that which faced the plaintiff in

Lyons. Nash County was, in the Court's view

for the reasons that follow, a party plaintiff

in the Attorney General's state antitrust action.

It follows therefore that it cannot now be heard

to say that it was denied a choice of forum.

Moreover, the North Carolina antitrust enforce-

ment mechanism almost completely mirrors its

federal counterpart, especially with respect to

the availability of treble damages. Compare

15 U.S.C. § 1 et seq. with N.C. Gen Stat,

§§ 75-1 to -29.

-ll-

Plaintiff has also directed the Court's

attention to Cream Top Creamery v. Dean Milk

Company, 383 F.2d 358 (6th Cir. 1967), where

the Sixth Circuit Court of Appeals reversed the

district court's award of summary judgment to

the defendants in a private antitrust action.

Id. at 364. The district court in that instance

had entered summary judgment for the defendants

on the grounds that a prior similar suit in

state court between the same parties under the

state's unfair competition laws was dismissed

with prejudice by the state court. Id. at 361.

Citing Lyons, the court of appeals noted that

"[uJnder 15 U.S.C. § 15 Congress gave exclusive

jurisdiction to the Federal District Court over

wrongs committed under the anti-trust acts."

Id. at 363. The court further observed that,

"[sJince the [state court action] did not and

could not have involved a claim under the

federal anti-trust statutes, the dismissal with

prejudice could not have adjudicated [the

defendants's] alleged violations of these

statutes.” Id.

-12-

It is possible to read the Sixth Circuit's

opinion in Cream Top Creamery to say that,

regardless of any similarity between the state

and federal enforcement mechanisms, federal

courts must always entertain federal antitrust

actions because state courts lack jurisdiction

to hear such actions. To whatever extent this

was the intended meaning of the court of appeals,

this court, most respectfully, cannot adopt it

for the following reasons. First, because the

alleged violations that were the basis of the

federal action occured subsequent to the dis-

missal in the state court action, id, the causes

of action were not the same. It follows there-

fore that it was unnecessary for the court of

appeals to address the Lyons issue, and all

references thereto stand as mere dicta. Second,

this dicta is unsupported by any analysis of

the distinctions between Lyons and the case

that was then under consideration. Finally, in

its discussion of Lyons the court observed

that "[t]here seems to be some question as to

whether [res judicata] is applicable when the

«49e

first forum lacks the ability to give the relief

sought in the second forum." Id. This suggests

conversely that res judicata should apply when

the state antitrust mechanism does provide

similar relief to that made available under the

federal statutes. Although this position is

inconsistent with a rule of mandatory federal

jurisdiction in federal antitrust actions, which

the Sixth Circuit initially seemed to be advo-

cating, it is, in this court's view, the more

reasonable approach.

Nash County contends further that Engel-

hardt v. Bell & Howell Co., 327 F.2d 30 (8th

Cir. 1964), reinforces its position that

15 U.S.C. § 15 mandates that this court deny

defendants’ motions for summary judgment. In

Engelhardt, the Eight Circuit Court of Appeals

affirmed the district court's award to the

defendant of summary judgment in a federal

antitrust action on the ground that previous

dismissals of the same cause of action by a

federal district court constituted res judi-

cata, even though the previous suits were

-14-

brought under the state's antitrust statute

and thereafter removed to federal court under

its diversity jurisdiction.

The court of appeals in that case noted

that it was not faced with a Lyons problem

because "all the earlier adjudications were

made in the federal district court in actions

over which the federal court had unquestioned

jurisdiction. No issue of state court deci-

sions fettering the power of the federal court

to exercise exclusive jurisdiction in federal

antitrust actions is here presented." Id. at

35.

Had the prior dismissal been by a state

court, the Eighth Circuit would have faced

essentially the same issue as that which is

before this court. Nash County's reliance on

Englehardt is misplaced, however, because it

would be sheer speculation to conclude that

the court of appeals would have reversed the

district court if the prior dismissal had been

made by a state court. At best, oue can note

that such circumstances would present a

-15-

different question.

For purposes of deciding such a question,

perhaps the most relevant language of the

opinion is the court's recognition that the

"real problem in Lyons was not whether the

causes of action are the same but rather the

problem of whether for policy reasons an excep-

tion should be made to the general rule of

finality of prior adjudications." Id. (Empha-

sis added). Couched in such terms, the Eight

Circuit identified what the real inquiry should

be in all cases such as the one now before the

Court. The Court must go beyond a cursory

reading of the decisions discussed above, for

such a superficial review may suggest, incor-

rectly, that the Court ought to exercise juris-

diction regardless of what will later be shown

to be the complete substantive identity between

the suit at bar and the North Carolina case.

A closer analysis, however, of these cases

as well as of some of the commentary inspired

thereby, see e.g., Note, The Collateral Estoppel

Effect of Prior State Court Findings in Cases

-16-

Within Exclusive Federal Jurisdiction, 91 Harv.

L. Rev. 1281 (1978); Note, Res Judicata:

Exclusive Federal Jurisdiction and the Effect

of Prior State-Court Determinations, 53 Va. L.

Rev. 1360 (1967), reveals that the factors

underlying the rationale for recognizing an

exception to the operation of res judicata prin-

ciples in areas of exclusive federal court

jurisdiction are not present in the instant

case. Broadly speaking, unimpeded access to

federal district courts in federal antitrust

actions is meant to promote the following:

(1) availability of treble damages; (2) access

to trial by jury; (3) opportunity to proceed

under the Federal Rules of Civil Procedure,

especially the rules allowing expansive dis-

covery; and (4) uniform judicial decisionmaking

in the area of antitrust law through the appli-

cation of the same statute by judges within the

same court system.

The fulfillment of these goals does not

require a per se rule in favor of mandatory

federal court jurisdiction in antitrust cases.

i =

Rather, each case should be analyzed with regard

to the recognition of the rationale underlying

exclusive federal jurisdiction. Where most of

all of that rationale is satisfied, the Court

is of the view that the principles of res judi-

cata must be given traditional deference.

Because neither the cases not the commen-

tary offer any helpful guidance regarding the

relative importance of the various reasons

for not giving res judicata effect in cases

such as the instant one, the Court has balanced

these goals against the policy behind the

doctrine of res judicata in light of the cir-

cumstances of this case. This balancing pro-

cess has convinced the Court that, because at

least three of the four goals to which the

Court has made reference have been fulfilled by

the North Carolina case, and because of the

strong policy favoring finality that lies at the

heart of res judicata, it would be erroneous for

the Court to permit this action to proceed

soley because Nash County brings it under the

Sherman Act.

-18-

The first three goals indentified above

are completely fulfilled under North Carolina

law. Section 75-16 of the General Statutes of

North Carolina mandates that a successfull

plaintiff in a state antitrust action recover

"treble the amount fixed by the verdict."

Additionally, regarding access to trial by jury,

section 25 of article I of the North Carolina

Constitution and Rule 38 of the North Carolina

Rules of Civil Procedure provide for trial by

jury upon timely demand by either party in all

civil actions, and the record reflects that

such a demand was made by the North Carolina

Attorney General in the suit against the defend-

ant dairy companies. Finally, the North Caro-

lina } les of Civil Procedure, including the

discovery provisions, are virtually identical

to the Federal Rules in substance as well as

form.

North Carolina's antitrust enforcement

mechanisms probably satisfy the requirements

of the fourth goal as well, though perhaps not

as completely as they do the first three. As

-19-

already noted, the federal and state statutes

are quite similar. The principal distinction

between the North Carolina statute and the

Sherman Act is, of course, that the latter is

implemented by the federal courts. The impor-

tance of this distinction, if any, is unclear,

especially in light of the North Carolina

Supreme Court's recognition that, "[section

one] of our law is based upon section one of

the Sherman Act, ...[and] the body of law

applying the Sherman Act, although not binding

upon this Court in applying [North Carolina's

antitrust statute], is nonetheless instructive

in determining the full reach of that statute."

Rose v. Vulcan Materials Co., 282 N.C. 643,

194 S.E.2d 521, 530 (1970). It follows there-

fore, at the very least, that the North Caro-

lina antitrust scheme is likely to yield results

based upon and compatible with the resolution

of antitrust cases by the federal courts.

Balanced against the rationale for exclu-

sive federal court jurisdiction is the strong

interest in finality that the doctrine of

-20-

res judicata is designed to promote. The

reasons for preventing relitigation of issues

that have been or could have been once fully

adjudicated are too familiar to require reci-

tation here. Suffice it to say the Court

should recognize exceptions to the operation of

res judicata only when the interests counter-

vailing thereto are very strong indeed.

Because the Court is satisfied that the North

Carolina antitrust mechanisms adequately ful-

fill the goals underlying the need for unfet-

tered federal court jurisdiction in such

matters, the Court must defer to what in this

case are the more compelling dictates of res

judicata.

Turning now to the question of the sub-

stantive similarlity between the cause of action

brought here by Nash County and the case filed

by the North Carolina Attorney General, the

Court finds the two to be the same for purposes

of res judicata. The Attorney General alleged

in his suit that the defendant dairy companies

had fixed prices and allocated markets in

afie

connection with the sale of milk, ice cream,

and cottage cheese to the public school systems

in North Carolina. The instant suit is vir-

tually identical in that it seeks relief on

account of precisely the same conduct by the

defendants as that which gave rise to the

Attorney General's suit. That the language of

the two complaints differs in some respects

is immaterial so long as the alleged liability

producing conduct is the same.

II. The Same Parties.

Nash County argues most strenuously that

the earlier state court litigation did not

involve the "same parties or their privies" as

are in the instant action. The precise ques-

tion before the Court in this context is

whether the North Carolina Attorney General

had the authority to act on behalf of and bind

Nash County, in addition to the other county

and city school boards of North Carolina, in

the action he filed under the state antitrust

statute. That is, was Nash County a "party"

in the prior litigation? A review of North

-22-

Carolina law, as reflected in both the otewiets

and the cases, ! as well as an examination of

various federal court decisions in this area,

has satisfied the Court that the Attorney

General did indeed have the requisite authority

to represent the interest of the school boards

so that, for purposes of res judicata, they

were parties. in the state court action.

The United States Court of Appeals for the

Fifth Circuit has observed that, "(t]he office

of attorney general is older than the United

States."" Florida ex rel. Sheven v. Exxon Corp.,

526 F.2d 266, 268 (5th Cir. 1976), cert denied,

425 U.S. 930 (1977). The Court went on to note

that:

[A]ttorneys general of our states have

enjoyed a significant degree of autonomy.

Their duties and powers typically are not

exhaustively defined by either constitu-

tion or statute but include all those

exercised at common law. There is and

has been no doubt that the legislature

may deprive the attorney general of _—

fic powers; but in the absence of suc

legislative action, he typically may

exercise all such authority as the public

interest requires.

Id. (citations omitted). Because the common

-23-

law is in full force and effect in North Caro-

lina, see N.C. Gen. Stat. § 4-1, and bearing in

mind the axiom that statutes in derogation of

the common law must be strictly construed, see

Swift & Co. v. Tempelos, 178 N.C. 487, 101 S.E.

8 (1919), the Court must resolve any ambiguity

in North Carolina statutory provisions defining

the reach of the Attorney General's authority

in favor of a broader scope consistent with the

common law.

The North Carolina Constitution makes

little reference to the authority of the Attor-

ney General other than to note that his "duties

shall be prescribed by law." N.C. Const. Art.

IIL, § 7(2). These duties are generally set

out it North Carolina General Statute § 114-2,

which provides inter alia that the Attorney

General shall "represent all State departments,

agencies, institutions, commissions, bureaus or

other organized activities of the State which

receive support in whole or in part from the

State."' (Emphasis added). This section also

grants the Attorney General the authority "to

-24-

insti

[any ]

bodie

behal

zens

est."

the s

tute and originate proceedings before

. . . courts, officers, agencies or

s and... to appear before agencies on

f of the State and its agencies and citi-

in all matters affecting the public inter-

This broad grant of general authority as

tate's legal representative is supplemented

in the antitrust context by North Carolina

General Statute §§ 75-14, -15 and -16, which

provi

de as follows:

§ 75-14. Action to obtain mandatory

order. - If it shall become necessary to

do so, the Attorney General may prosecute

civil actions in the anme of the State on

relation of hte Attorney General to obtain

a mandatory order, including (but not

limited to) permanent or temporary injunc-

tions and temporary restraining orders, to

carry out the provisions of this Chapter,

and the venue shall be in any county as

selected by the Attorney General.

§ 75-15. Actions prosecuted by Attorney

General. - It shall be the duly of the

Attorney General, upon his ascertaining

that the laws have been violated by any

trust or public service corporation so

as to render it liable to prosecution in

a civil action, to presecute such action

in the name of the State, or any officer

or department thereof, as provided by law,

or in the name of the State on relation of

the Attorney General, and to prosecute all

«$S~

officers or agents or employees of such

corporations, whenever in his opinion

the interests of the public require.

§ 75-16. Civil action by person injured;

treble damages. - If any person shall be

injured or the business of any person,

firm or corporation shall be broken up,

destroyed or injured by reason of any act

or thing done by any other person, firm

or corporation in violation of the provi-

sions of this Chapter, such perosn, firm

or corporation so injured shall have a

right of action on account of such case

judgment shall be rendered in favor of

the Plaintiff and against the defendant

for trebel the amount fixed by the verdict.

The Attorney General brought the prior

state court suit under these three provisions,

seeking permanent injunctive relief under § 75-

14 and monetary damages under § 75-16. The

Attorney General was sueing on behalf of the

state as a direct purchaser of milk from the

defendants and as one of the sources of revenue

used to pay part of the purchase price of milk

bought from the defendants by the state's public

school boards. He sued also as the purported

class representative on behalf of the public

school systems. As noted above, the consent

decree in this action was entered before any

>

class was certified.

-26-

Nash County's principal assertion in

support of its position that, for purposes of

res judicata, it is not the "same party" as

the Attorney General rests on the premises that

public school boards are not "State .

agencies or other organized activities of the

State which receive support in whole or in

part from the State," see N.C. Gen. Stat. §

114-2, and therefore that the Attorney General

lacked the requisite authority to act on the

school board's behalf. Nash County offers

various arguments in this regard premised on

statutory as well as case law interpretations,

which, unfortunately for it, are unpersuasive.

The Court notes at this juncture that it

is largely irrelevant that the Attorney General

brought his suit as a class action. That no

class was certifed would assume relevance here

only if the Court were to find that the Attor-

ney General did not have the authority to act

for the school boards. In that event, Nash

County, or any other school board, could bring

this action unimpeded by res judicata, subject

-27-

of course to any applicable restrictions of

collateral estoppel. Because the Court's

judgment is that the Attorney General and Nash

County are the "same party,'’ however, the

purported class action status of the state case

is immaterial to the instant inquiry.

Public school boards in North Carolina

operate pursuant to the provisions of North

Carolina General Statute § 115-27:

The board of education of each county

in the State shall be a body corporate

by the name and style of rhe

County Board of Education," and the board

of education of each city administrative

school unit in the State shall be a body

corporate by the name and style of ''The

. City Board of Education." The

several boards of education, both county

and city, shall hold ail school property

and be capable of purchasing and holding

real and personal property, of building

and repairing schoolhouses, of selling

and transferring the same for school

purposes, and of prosecuting and defending

suits for or against the corporation.

(Emphasis added).

Nash County contends that, because it is

a "body corporate .. . capable of ... pro-

secuting . .. suits," it is separated from the

state sufficiently to prevent its falling within

-28-

the legal responsibilities of the Attorney

General. In support of this contention, Nash

County directs the Court's attention to North

Carolina General Statute § 115-31, which pro-

vides that a county "board of education shall

institute all actions, suits, or proceedings .

. for the recovery .. . of all money .

which may be due to . . . the schools."

Perhaps the most persuasive argument for

Nash County's position is grounded upon North

Car-lina General Statute § 147-17, which for-

bids the retention of counsel (other than the

Attorney General) by state agencies, departments,

or other organized activities of the state

supported partially or wholly by the state,

without the approval of the Governor. This

section also restates that portion of § 114-2

that provides that the Attorney General shall

represent these entities, but it allows him to

withdraw such representation when it is

"impracticable."

Nash County correctly submits that § 147-

17 prevents any of the listed governmental

=29-

entities, except in special circumstances,

from hiring a lawyer and suing on its own

behalf. From this premise Nash County con-

cludes that, because §§ 115-27 and 115-31

authorize a school board to sue on its own

behalf, the legislature therefore never intended

that the language "State departments, agencies,

. or other organized activities of the

State" include local school boards insofar as

such inclusion would allow the Attorney General

to represent and bind the school boards in

legal actions.

This conclusion assumes that the legisla-

ture could not have contemplated, indeed must

have rejected, the notion that school boards

could retain local counsel while at the same

time remain within the general representational

authority of the Attorney General. In the

Court's view, herein lies the major infirmity

of Nash County's position, for it can point to

no authority that establishes conclusively that

either the legislature intended or the state

supreme court has interpreted these provisions

-30-

to preclude such joint representation. In

the absence of such authority, principles of.

judicial restraint as well as considerations

of federal-state comity require that the Court

read these provisions narrowly and give effect

to the Attorney General's broad common law

authority.

In its brief submitted subsequent to the

oral argument, Nash County directs the Court's

attention to three decisions of the Supreme

Court of North Carolina that it asserts to be

dispositive of the "same parties" issue. In

Branch v. Board of Education, 233 N.C. 623,

65 S.E. 2d 124 (1951), the North Carolina

Supreme Court held that, absent certain special

circumstances, a taxpayer could not sue the

county school board to enjoin an allegedly

unlawful expenditure of school funds and to

compel a reallocation of those funds. In so

holding, the Court noted that:

[T]he right to sue for the protection

or recovery of the school funds of a

particular school administrative unit

belongs by necessary implication to the

governing body of that unit .. . Indeed,

@31~

a relevant statute confers upon the

county board of education in explicit

terms the power to sue for the preser-

vation and recovery of the money or

property of the county administrative

unit.

Id. at 625, 65 S.E.2d at 126.

Nash County's reliance on this language

is misplaced, for the court held only that the

school board, not the taxpayers, could sue to

recover school funds. The Attorney General's

authority indeed was not even an issue in the

case. Nowhere did the court suggest, and only

a dangerously expansive reading of Branch would

support, the inference that the school board's

authority to sue operates to cut back the

Attorney General's statutory and common law

authority to sue in the state's interest.

The two other cases cited to the Court

both involve the applicability of North Caro-

lina's Tort Claims Act to local school boards.

See Clary v. Alexander County Board of Educa-

tiou, 285 N.C. 188, 203 S.E.2d 820 (1974);

Turner v. Gastonia City Board of Education,

250 N.C. 456, 109 S.E.2d 211 (1959). These

decisions hold that, for purposes of

-32-

vulnerability to suit under the Tort Claims

Act, local school boards are not "state

agencies", the sovereign immunity of which the

Tort Claims Act has waived. Nash County con-

cludes that school boards are therefore not

"state agencies" for any purpose.

Once again, the plaintiff assumes too

much. Limitations of sovereign immunity, such

as that effected by state tort claims acts,

because they operate to derogate the common law,

must be construed narrowly. The Court accord-

ingly is unmoved by Nash County's analogy to

the North Carolina Tcert Claims Act and the two

cases cited. Indeed, the more persuasive

argument to be made by analogy to the Tort

Claims Act is that, because the North Carolina

Supreme Court finds schools to be within the

protective cover of sovereign immunity, such

school boards are necessarily imbued with

sufficient characteristics of the "state" to

bring them within the reach of the Attorney

General's authority under North Carolina General

Statute § 114-2.

=$3-

The decisions of various federal courts

cupport, as a general matter, the Court's

specific interpretation of North Carolina law

in this regard. Far and away the most compre-

hensive examination of a state Attorney General's

authority to represent individual organs of the

state is Florida ex rel. Shevin v. Exxon Corp.,

526 F.2d 266 (5th Cir. 1976), Cert denied,

425 U.S. 930 (1977). In Shevin the Attorney

General of Florida brought a federal antitrust

suit against seventeen major oil companies on

behalf of the state's various departments,

agencies, and political subdivisions. Id. at

267. The defendants asserted that the Attorney

General lacked the requisite authority to

prosecute such an action absent the explicit

approval of these state entities. In addition

to the general remarks quoted earlier herein

regarding the broad common law authority of a

state Attorney General, the United States Court

of Appeals for the Fifth Circuit noted that the

"individual government instrumentalities

involved have something to gain from this suit,

-34-

and nothing to lose but their causes of action

(by way or res judicata or collateral estoppel) ."

Id. at 273; accord, Alabama v. Blue Bird Body

Company, 71 F.R.D. 183 (M.D. Ala. 1976); Illi-

nois v. Brunswick Corp., 32 F.R.D. 453 (N.D.

Iii. i963).

Like the Attorney General of Florida, the

North Carolina Attorney General enjoys broad

common law authority. Moreover, because of the

absence of any explicit curtailments of this

authority by the legislature or the state

supreme court, the Court concludes that, by

virtue of the Attorney General's participation

in the prior state court antitrust action, Nash

County was a "party" in that action for pur-

poses of res judicata.

III. Final Judgment on the Merits.

The third component of res judicata is

that the prior decision must have been re-

solved by a final judgment on the merits.

There is no doubt that a consent judgment

constitutes such a final resolution. 1B

Moore's Federal Practice, 40.409[5], at

-35-

1026 (2d ed. 1974).

Nash County offers two reasons why the

consent judgment in the prior state action

should not be held binding on it for purposes

of this litigation. First, Nash County points

to the letter sent out to the school boards by

the Attorney General, following entry of the

consent decree, in which the Attorney General

notified the school superintendents and food

service directors of the consent decree. That

letter additionally informed them that the

settlement "in no way proscrib[ed] actions by

individual school systems to recover monetary .

damages for overcharges" by the dairy companies.

In this respect, the Attorney General was, in

the Court's view, simnly mistaken.

The terms of the consent decree are expli-

cit. The state that "all matters in contro-

versy arising out of this action have been

agreed upon and settled in a manner satisfac-

tory both to the Plaintiff, State of North

Carolina, and to the aforementioned Defendants."

Additionally, the terms were specific to the

-36-

effect that "the parties desire to resolve

and settle all claims and matters in contro-

versy in order to avoid the expense of pro-

tracted litigation." The federal rule regard-

ing interpretation of consent decrees is found

in United States v. Armour & Co., 402 U.S. 673,

681-82 (1971):

Consent decrees are entered into by

parties to a case after careful nego-

tiation has produced agreement on

precise terms. The parties waive

their right to litigate the issues

involved in the case and thus save

themselves the time, expense, and

inevitable risk of litigation .

. For these reasons, the scope of

a consent decree must be discerned

within its four corners.

Because the Court has concluded that Nash

County was a party to the prior state action,

it is bound by the terms of the decree. Any

subsequent assertions to the contra by the

Attorney General cannot be given effect to the

extent that they contradict the plain

language of the decree.

Nash County's second argument is simi-

larly unpersuasive. It points to the North

Carolina Supreme Court's decision in Town of

-37-

Bath v. Norman, 226 N.C. 502, 39 S.E.2d 363

(1946), in which the court vacated a consent

judgment entered into by the town's private

attorney without the express authorization from

the town board. Nash County asserts that,

because it never agreed to the consent decree

entered into by the Attorney General, it cannot

be held to the terms thereof. This argument

must fail for, as the Court has previously

pointed out, the Attorney General was the

legitimate statutory and common law representa-

tive of all the local school boards. Because

the Attorney General acted pursuant to this

broad, unencumbered authority, he did not

require explicit consent from the constituent

school boards in order to bind them to the

terms of the decree.

In sum, the Court finds that Nash County

may not maintain this action further. To the

extent that it is dissatisfied with the reso-

lution of the state's action brought by the

Attorney General, this result may seem harsh,

nevertheless, it is the price this county must

-38-

pay as a creation and financial dependent of

the state.

An appropriate order will issue.

S/Robert R. Merhige

United States District

Judge

Dated 11/27/78

FOOTNOTE

1. North Carolina law is not unequivocally

clear on this issue. Neither side has cited,

nor has the Court in its research found, any

decision by the North Carolina Supreme Court

idspositive of the issue. The Court notes,

therefore, that this case probably would be

suitable for certification to the North Caro-

lina Supreme Court for an interpretation of

the scope of the Attorney General's authority

to represent local school boards. See

Lehman Brothers v. Schein, 416 U.S. 386,

389-92 (1974). Unfortunately, North Carolina

does not have such a certification procedure.

=39~

The Court also notes that, because this is

not a diversity action, the res judicata issues

are not dependent solely on North Carolina law.

For reasons of comity as well as convenience,

however, the Court has borrowed heavily from

the state source of law.

-40-

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 79-1123

The Nash County Board of Education, Appellant,

~versus-

Tne Biltmore Company; Borden Inc. ;

Coble Dairy Products Cooperative,

Inc,; Pet Inc,; Pine State

Co,; Kraft, Inc. and Flav-o-rich, Inc.;

for itself and as Successor in Interest

of United Dairies, Inc., Appellees.

Appeal from the United States District Court for the

Eastern District of North Carolina, at Raleigh.

Robert R. Merhige, Jr., District Jtidge for the

Easter District of Virginia, sitting by designation.

Argued: March 4, 1980. Decided: January 12, 1981

Before RUSSELL AND HALL, Circuit Judges, and CHARLES

H. HADEN, II, United States District Judge for the

Northern District of West Virginia, sitting by

designation.

J. Wat Hamrick (Hamrick & Hamrick; William L. Thorp,

Thorp, Anderson & Slifkin; I. T. Valentine, Jr.,

Valentine, Adams and Lamar on brief) for Appellant;

St. John Barrett (William S. Glading, John F. Sherlock,

III, Bamett, Alagia & Carey; Jerry W. Amos, Brooks,

Pierce, McLendon, Humphrey & Leonard on brief) for

Flav-o-rich, Inc.;Fred D. Tumage (Cleary, Gottlieb,

-4i-

Steen & Hamilton; Robert H. Dusenb, Wrignt T. Dixon,

Jr., Bailey, Dixon, Wooten, McDonald & Fountain on

brief) for Pet, Inc.; ao

Hendon & Carson; Joseph R. Gladden, Jr., King &

Spalding on brief) for Biltmore Company; (John W.

Murchison, Jr., W. T. Covington, Jr., ,

, Lobdell & Hickman; Glenn S. Dennis on

brief) for Borden, Inc.; (Joseph L. Leonard, Leonard

& Snyder; J. Melville ton, Jr. Broughton, Wilkins,

Ross & Crampton on brief) for Coble Dairy Products

Cooperative, Inc.; (Henry A. Mitchell, Jr., Smith,

Anderson, Blount, Dorsett, Mitchell & Jernigan on brief)

for Pine State Creamery Co.; (John R. Jordan, Jordan,

Morris & Hoke; David L. Aufderstrasse, Chadwell,

Kayser, Ruggles, McGee & Hastings; Theodore L. Banks on

brief) for Kraft, Inc.; Jean A. Benoy, Deputy Attomey

General (Rufus L. Edmisten, Attomey General of North

ree eee Oe ee

-42-

RUSSELL, CIRCUIT JUDGE:

This is an appeal by the plaintiff-

appellant The Nash County (N.C) Board of

Education, from a grant of summary Judgment

in favor of the defendants in an antitrust

suit by the Plaintiff-appellant against nine

dairy companies operating in North a a

The basis of the district court's ruling was

that, under the principles of res judicata,

the plaintiff Board was precluded from main-

taining the action by reason of a judgment

entered in an earlier state antitrust action

filed by the Attorney General of North Carolina

ageinst the same defendents as are defendants

in this action.

The facts on appeal are not in dispute.

Following a two year investigation, the

Attorney General of North Carolina filed suit

1

Nash County Bd. of Ed. v. Biltmore Co.,

464 F.Supp. 1027 (F.D.N.C. 1978)

~43 -

in the Superior Court of Wake County, North

Carolina, against the nine dairy companies,

alleging certain state statutory authorizations

for his representation of the claims. He

identified the parties he asserted the right

to represent as "each public school system

in this state which received tax revenue

directly or indirectly from the State of North

Carolina for the conduct of educational training

and programs, which purchases fluid milk to be

resold, or given gratuitously, to members of the

student body while in registered attendance at

school." The complaint charged that the

"defendants have, at various times since February,

1970, joined in agreements, combinations, and

conspiracy in restraint of trade in the sale of

milk products to the public school systems of

North Carolina, which conspiracy and combinations

have been in continuous operation since that

time to the present date." It further alleged

that such conspiracy had the effect that [p]rice

competition in the sale of fluid milk to the

public school systems in North Carolina has

been restrained and eliminated" and "[p]rices

paid for fluid milk purchased by the public

school systems in North Carolina have been at

unreasonably high, artificial and non-competitive

prices."

This conspiracy was violative,

according to the Attorney General's complaint,

of the North Carolina antitrust laws, which, in

the event of a violation, authorized the

recovery of treble damages. N.C. Gen. Stat.

475-16 (1975). The prayer of the complaint

sought both injunctive relief and treble damages.

Though the complaint included a request for

class certification, no class was ever certified

and the case was settled with a consent decree

entered by the presiding state judge and endorsed

by all parties to the litigation.

Shortly after the consent judgment, the

plaintiff Board instituted the present suit on

October 23, 1975 in the United States district

court. On its complaint, the plaintiff

-45-

identified the subject of its action as the

purchase of "fluid milk, cottage cheese and ice

cream from one or all of the defendants since

February 1, 1970." It brought the action in

its own name as one of the North Carolina

school districts purchasing such products and

sought to represent the class of all such school

districts. It alleged the same conspiracy as

had the Attorney General in his earlier state

suit. The only differences between this action

and the earlier action were (1) that this suit

was based on the federal antitrust act and (2)

the plaintiff in this later suit sought only

treble damages but no injunctive relief. After

discovery, the defendants in this later suit

moved for summary judgment on the ground of

res judicata. ‘the district court granted the

motion, ruling that the consent decree in the

earlier suit barred the action brought by the

Board. The Board has appealed, presenting as

the sole issue whether the decree in the state

action barred under the doctrine of res judicata

abe

this federal suit. We affirm.

I

The doctrine of res judicata,which provides

that "a judgment on the merits in a prior suit

bars a second suit involving the same parties

or their privies based on the same cause of

Pr is not a technical rule but a rule of

"fundamental and substantial justice, ‘of

public policy and private peach,' which should

be cordially regarded and enforced by the courts

to the end that rights once established by the

judgment of a court of competent jurisdiction

shall be recognized by those who are bound by

it in every way, en the judgment is

entitled to respect." It is more than a

2

Montana v, United States, 440 U. S. 147,

153 (1979). See also Parklane Hosie Co. v.

Shore ,439 U. 5. 322, 326, n. 5 T1979}~ Brown v.

Felsen, 422 U. S. 127, 131 (1979).

3

Hart Steel Co. v. Railroad Supply Co., 244

U.S.294, 299 (1917).

-47 -

judicially created doctrine of repose; it is a

rule mandated by the full faith and credit clause

of the Constitution. Article 4 ¥ 1, and its

implementing statute, 28 U.S.C. { 1738, and should

be applied accordingly. As applied, the essential

elements of the doctrine are generally stated

to be (1) a final judgment on the merits in an

earlier suit, (2) an identity of the cause of

action in both the earlier and the later suit,

and (3) an identity of parties or their privies

in the two suits. We shall consider in that

order these essential requisites for the

application of the doctrine in this case.

4

American Surety Co. v. Baldwin, 287 U.S.

156, 166-6 (1932), Witchellw National Broad-

casting Company. , 553 F. 2d TS, 277 (2nd Cir.

1977); Developments in the Law- Section 1983 and

Federalism, 36 Harv. L. Rev. 1133, 1334 (1977);

Currie, Res Judicata: The Neglected Defense.

45 U.Chi.L.Rev. 317, 326

Professor Currie said:

"But federal respect for state court

judgments is not, as is occasionally argued, a

matter of judicial grace. It is the command of

(Continued on next page)

-48-

II

The plaintiff argues at the outset that

a consent decree of judgment such as that entered

by the North Carolina court in the earlier action

will not support the requirement of a final

judgment under either res judicata or collateral

estoppel. The district court found otherwise and

we agree. As Judge Soper said in Rector v.

Suncrest Lumber Co., 52 F.2d 946, 948 (4th Cir.

1931), a consent judgment "is as conclusive and

final as to any matter determined as one rendered

in invitum after contest and trial (citing

authorities]. And such a judgment cannot be

4 (Continued)

Congress in section 1738 of Title 28: 'The...

judicial proceedings of any court of any ...

State, Territory, or Possession ... shall have

t>2 same full faith and credit in every court

within the United States and its Territories

and Possessions as they have by law or usage in

the courts of such State, Territory or Possession

from which they are taken.' "Every court

within the United States,’ as one would expect,

has been construed to include federal courts."

-49-

impeached collaterally in another proceeding."

To the same effect are Safe Flight Instrument

Corp. v. United Control Corp., 576 F.2d 1340,

1344 (9th Cir. 1978); Wallace Clark & Co., Inc.

v. Acheson Industries, Inc., 532 F.2d 846, 849

(2d Cir.), cert. denied, 425 U.S. 976, reh.

denied, 427 U.S. 908 (1976); Seigel v.

National Periodical Publishers, Inc., 508 F.

2d 909, 913 (2d Cir. 1974) ("... a consent

judgment does have res judicata effect ...');

Belvit Culligan Soft Water Service, Inc. v. —

Culligan, Inc., 274 F.2d 29, 35 (7th Cir. 1959);

Urbino v. Puerto Rico Ry. Light & Power Co.,

164 F.2d 12, 15 (lst Cir. 1947); Steyer v.

Westvaco Corp., 450 F.Supp. 384, 397 (D.Md.

1978); William v. Codd, 459 F.Supp. 804, 811-12

(S.D.N.Y. 1978); Vulcan, Inc. v. Fordees Corp.,

450 F.Supp. 36, 41-42 (N.D.Ohio 1978); Hemphill

v. Hemphill, 398 F.Supp. 1134, 1136-37 (N.D.Ga.

1975); Brunswick Corporation v. Chrysler

Corporation, 287 F.Supp. 776, 777 (E.D.Wis. 1968);

United States v. Radio Corporation of America,

-50-

46 F.Supp. 654, 655m (D.Del. 1942), appeal dis.,

318 U.S. 796 (antitrust consent decree). Of

course, as Judge Maris pointed out in Radio

Corporation, supra, consent decrees "may be

set aside for lack of actual consent to the

decrees, as entered, for fraud in their pro-

curement, or for lack of federal jurisdiction."

46 F Supp. at 656 It was because of a "lack of

> In United States v. Radio Corporation, 46

F. Supp. at 655, Judge Maris put it:

"A consent decree, although based upon an

- oy of the parties rather than a finding

facts by the court, is not a mere authenti-

cation or eo of that agreement. It is

a judicial act (United States v. Swift & Co.

286 US 106, 115, 52 S.Ct. 460, 76 L.Ed. 959)

and, therefore, involves a determination by

the chancellor that it is equitable and in the

public interest."

We have assumed that this issue of the res

judicata effect of a consent judgment in this

context would be a matter of federal law. There

is authority that, in diversity actions, the

issue is one controlled by local state law, see

Graves v. Associated Transport, Inc., 344 F. 2d

894, 896 (4th Cir. 1965), Bee this would not

alter the result here, since North Carolina law

gives res judicata affect to consent judgments.

Simpson v. er, 258 N.C. 390, 397, 128 S.E.

2d B73, B48 T1563) ; ; McRory v. McRory, 228 N.C.

714, 719, 47 S.E. 2d , aL (1948).

-51-

actual consent" by the party of interest that

the consent decree was invalidated in West v.

Bank of Commerce & Trusts, 167 F.2d 664 (4th

Cir. 1948). There is, however, no contention

in this case that the judgment was procured by

fraud or with lack of "consent" by the Attorney

General, who was the party plaintiff in the state

action. We have accordingly no difficulty in

concluding, as did the district court, that the

consent judgment in the state court constituted

for res judicata purposes, a final judgment on

the merits. ©

pe a

The second requirement for res judicata is

identity of causes of action. Unfortunately,

SsSee, also, Annotation: Consent Judgment as

Res Judicata, 97 L.Ed. 1188 at LI91-92 eLEDE

"As a general proposition, it is well

settled that a valid judgment or decree entered

by agreement or consent operates as res judicata

to the same extent as a judgment or decree

entered after answer and contest, and is binding

and conclusive upon the parties, and those in

privity with them."

-52=

the authorities do not provide any precise

uniform definition of "cause of action" in

connection with the application of res judicata.

A "much broader" definition of "cause of action"

in connection with the doctrine of res judicata

has developed under modern authorities, Williamn-

son v. Columbia Gas & Electric Corp., 186 F 2d

464, 469 (3d Cir. 1950), cert. denied, 341 U.S.

921 (1951). Under this modern rule, the term,

"cause of action," has been given varied appli-

cation, depending largely on the facts in each

case. Thus, in some cases, it has depended for

its application on whether the facts in the two

cases are the same ; ’ in other cases, on whether

7This was the test e loyed in The Haytian

Republic, 154 U.S. 118, 125 (1894), (* ¥ ¥

whether the evidence necessary to prove one cause,

of action would establish the other"), and

accords with the one expressed in Williamson v.

Columbia Gas & Electric Corp., supra. 186 F. 2d

at 469-70, which held there was Yaencity when

the same operative facts were present even though

there were different theories of recovery.

See, also, McNellis v. First Federal Savings

& Loan Assn., 364 F. 2d 251, 255 (2d Cir. 1966).

8

the same primary right is asserted. See

Note, Res Judicata: Exclusive Federal Juris-

diction and the Effect of Prior State-Court

Determinations, 53 Va. L. Rev. 1360, 1361

(1967); lb Moore's Federal Practice, § 0.410[1]

at 1154 (3d ed. 1974). But, irrespective of

which test is applied and however broad or

narrow the definition, it is manifest that there

is identity of causes of action between the

action begun by the Attorney General in the state

court and that instituted by the plaintiff in

the federal court. Both suits deal with the same

subject-matter, i.e., the purchase of fluid milk

and milk products solely by the various school

districts of North Carolina. They involve no

other purchases. The two suits allege the same

8the authorities supporting this view are

illustrated by Baltimore S.S. Co. v. Phillips,

274 U.S. 316, 321 (1927); see also, Norman

Tobacco & Candy Col v. Gillette Safety Razor

*

Oi, ° ’ t z=.

the same alleged breach of duty").

wrongful act, the same illegal price-fixing

conspiracy, the same operative facts in support

of such conspiracy. The state and federal

statutes upon which the two actions are based

are indentical in language except in the require-

ment of the federal statute, but not of the

state statute, of a showing of interstate com-

merce. In both cases, the evidence will be

identical and the damages recoverable and the

relief available the same.

Under established precedent, the identity

of two actions, as intimately tied together as

these two, will not be destroyed in the res

judicata context simply because the two suits

are based on different statutes. This was

clearly held in Williamson, supra, where one

suit was under the Clayton Act and the other

under the Sherman Act. Nor will the rule be

any different because a state statute is the

authority for one action and a federal statute

for the other, when the two statutes afford the

same right or interdict the same wrong, Mitchell

v. National Broadcasting Co., 553 F.2d 265

(2d Circ. 1977).2 In the cited case, a final

state court judgment under a state civil rights

statute was held to be res judicata of a later

federal court action under § 1981, 42 U.S.C.,

involving the same parties. 553 F.2d at 266-8.

This is equally so when the state action is

one at common law and the later federal action

is under a federal statute or statutes (§ 1983

and § 1985). This was expressly ruled in

Davis v. Towe, 379 F.Supp. 536, 538 (E.D. Va.

1974), aff'd. without opinion, 526 F. 2d 588

9Note, State Agencies, State Courts, Res

Judicata, and Section 1981: Mitchell v. National

Broadcasting co., 553 F.2d 205 (2d Cir. 1977),

10 Conn. ie 967 (1978); Note, Employment

Discrimination-State Judicial Procedure Fore-

closes Federa me nder 3. Uy :

Mitchell v. NBC, 31 utgers L.Rev. 9).

While these commentators look with a some-

what jaundiced eye on this and recent related

decisions from the same circuit, they recognize

that the decision is expressive of a more liberal

attitude toward a plea of res judicata and

collateral estoppel, prompted as it is by the

multiplication of repetitive actions in state

and federal courts and by an understandable

desire on the part of the courts to checkmate

a growing practice of forum shopping.

wthe

(1975). It has, also, been held that the same

rule will apply even though the subsequent fed-

eral action is one over which federal courts

have exclusive jurisdiction, provided, again

of course, the state and federal actions in-

volve the same "operative facts" and the same

basic "delict" or wrong. Williamson v. Colum-

bia Gas & Electric Co., 186 F.2d at 467; Con-

nelly v. Balkwill, 174 F.Supp. 49, 60 (N.D.

Ohio 1959), aff'd., 279 F.2d 685 (1960) ;1°

Kaufman v. Shoenberg, 154 F.Supp. 64, 67-8

(D. Del. 1954). Both Connelly and Kaufman

involved state actions in fraud which were

urged as res judicata against a federal action

charging the same fraud as violative of the

L0tis decision is discussed and its

result approved by Professor Moore in 1B,

Moore's Federal Practice, § .410[2], n. 38

at 1182-3 (1974 ed.). See Note, The Effect

of Prior Nonfederal Proceedings on Exclusive

Federal Jurisdiction Over Section put) 2

the Securities Exchange Act o U

L.Rev. 9360, 944-5 TIS FL)

Securities and Exchange Act, which gave exclu-

sive jurisdiction to federal courts over any

action thereunder. In both cases, the plea

of res judicata was upheld. In Williamson

it was held that an antitrust judgment barred

on res judicata grounds a later conspiracy

suit. These cases merely illustrate what was

said in Astron Industrial Associates, Inc.,

v. Chrysler Motors Corp., 405 F. 2d 958,

961 (5th Cir. 1968) that, " in regard to

the identity of the two lawsuits, it is the

substance of the actions that must be com-

pared and not their form." And this rule has

been applied where the earlier state action

was under a state antitrust statute and the

latter under the federal antitrust act, which

is this case.

The earliest case to confront the problem

whether a prior state action under a state

antitrust statute barred under the doctrine of

res judicata a later federal antitrust suit

.was Straus v. American Publishers' Assn.,

201 F. 306, 310, (2d Cir. 1912), appeal dis.

255 U.S. 716. In sustaining the bar, the

Court in that case said:

"The fact that the judgment in the

state court depended upon the state

statute, which is not within the

jurisdiction of the state court,

makes no differerce The plaintiffs,

having the option to go to either

court, chose the state court and

their claim, having been there

adjudicated, cannot be presented ll

the second time to any other court."

In Englehardt v. Bell & Howell Co., 327

F 2d 30 (8th Cir. 1964), the situation was

identical with that presented by the facts

me Sherman Act itself does not pre-

scribe exclusive federal jurisdiction but

exclusive jurisdiction has been read into

the Act by judicial decisions. See Note,

Exclusive Jurisdiction of the Federal Courts

in Private Civil Actions, 70 Harv.L Rev 509,

Bi6-—e—n 135 (1957):

¥The legislative history of the Sherman

Act indicates that exclusive jurisdiction

was not intended Although Congress felt

that treble damages constituted a penalty

and, as such, were unenforceable in the

state courts, it was apparently intended

that the injured parties should be allowed

to sue in those courts for compensatory

damages (citing the legislative references. )

The conception that the state courts could

not constitutionally award treble damages

seems to have been erroneous even at the

time the Sherman Act was passed, see Claflin

zw. Houseman, 93 U.S. 130, 137 (1976) (dictum)

and clearly is not the law today in view of

Testa v. Katt, 330 U.S. 386 (1947) * * * "

of this case The plaintiff had filed a prior

action in the state court under the state anti-

trust statute. The case was voluntarily dis-

missed by the plaintiff, after its removal to

the federal court for diversity. That dismis-

sal was held to bar the later federal action

under the Sherman Act on principles of res

judicata. The only difference between Engle-

hardt and this case is the removal of the state

action to the federal court This difference

is, however, unimportant; the important fact

is that the action dismissed was the action

on the state statute, not the federal statute,

ard it was that dismissal which barred the

maintenance of the subsequent federal Sherman

Act action, In short, the Court held expressly

that the action on the state statute was the

same as the action under the Sherman Act and

that a voluntary dismissal of that earlier

action on the state statute constituted a

bar to the maintenace of the later Sherman

Act action on the same facts.

In Woods Exploration & Producing Co.,

Inc. v. Aluminum Company of America, 438 F.

2d 1286 (5th Cir. 1971), cert. denied 404

U. S. 1047, the Court considered two suits,

ome under the Texas antitrust statute and

the other under the federal antitrust statute.

It followed Englehardt and held that the two

actions constituted merely "alternative

grounds of recovery for the same causes of

action" and that "the principle of res judicata

enforceable by injunction, would thus preclude

relitigation in the state court following this

federal judgment if the state and federal

courts involve substantially the same wrongs

measured by similar standards of liability so

that recovery in the federal suit will have com-

pensated plaintiffs for the total harm suffered."

Id. at 1314-15. The court found that the two

suits asserted "the same wrong," albeit on

like statutes of two separate jurisdictions,

and granted injunctive relief on the grounds

of res judicata against the further maintenance

of the state suit as to those parts of the

federal judgment which were not reversed.

It is true that there are federal anti-

trust cases which have denied res judicata

effect to judgments entered in state actions

under a state antitrust suit where the state

statute did not authorize recovery of treble

damages. The rationale of these cases was

well stated by the Court in Hayes v. Solomon,

597 F.2d 959, 984 (5th Cir. 1979).

"The principle of res judicata which

prohibits splitting a cause of action

applies only to claims 'then capable

of recovery' in the first action

(citing an authority.)

In this case, the first forum, the

Texas state court, could not provide

the relief sought in the second

-61-

forum, federal antitrust damages i.e.,

treble damages . We hold, therefore,

that this case was not barred by the

splitting prohibition."

To the same effect is Cream Top Creamery

v. Dean Milk Co., 383 F.2d 358, 363 (6th Cir.

1967.)

In this suit, however, under the state

statute, modeled as it is after the federal

statute and offering the same right to re-

cover treble damages as the federal statute,

there is not the ground for denying res judi-

cata effect to the state court judgment stated

in Hayes and Cream Top for denying res judicata

effect in this case to the earlier state court

judgment. The plaintiff, though, contends

that Lyons v. Westinghouse Electric Corp., 222

F.2d 184 (2d Cir.) veh. denied, 222 F.2d 195,

cert. denied, 350 U.S. 825 (1955) which over-

ruled Straus, supra, is conclusive against res

judicata application in this case.

It should be noted at the outset that

Lyons -did not involve a plea of res judicata

proper but of collateral estoppel. It is,

however, proper to assume that the same rule

generally would apply with reference to both

pleas since collateral estoppal is generally

regarded as merely a "branch" or "other prong"

of res judicata. The issue in Lyons grew out

of a motion to stay a federal action under the

Sherman Act because of a judgment on appeal in

~62-

a state action between the same parties.

The state action had been a suit on a con-

signment contract account. In that action

the defendant had asserted by way of a defense

the invalidity of the consignment contract on

antitrust grounds. The state court, in its

judgment, found against the antitrust plea

and awarded judgment to Westinghouse. Lyons,

the defendant in the state action,). then filed

his antitrust action ir the federal court.

Westinghouse sought a stay of the federal

action pending disposition of the appeal of

the state judgment. ‘the district court granted

the stay but, on appeal, the Circuit Court

vacated the stay, concluding that the state

court judgment would not bar on collateral

estoppel grounds the federal suit. in reach-

ing tnat conclusion, tne court conceded tnat,

absent antivrust exclusivity, collateral es-

toppel would apply to "the whole nexus of

facts" constituting the antitrust causes of

action, thereby "ending the jurisdiction of

the district court." 222 F.2d at 188 and 189.

Thus, it said that "the grant to the district

courts of exclusive jurisdiction over the

action for treble damages should be taken

to imply an immunity of their decisions from

any prejudgment eisewhere; at least on occa-

sions, like those at bar, where the punitive

estoppel includes the whole nexus of facts

that make up a wrong. The remedy provided

is not solely civil; two thirds of the re-

covery is not remedial and inevitably pre-

supposes a punitive purpose." 222 F.2d at 189.

Lyons, however, "has received a mixed

response from legal commentators (citing

authorities), and a number of courts have

refused to folléw it," New York State Team-

sters Pension & Retirement Fund v. Pension

Benefit Guaranty Corp., 591 F.2d 953, 956~7

(D.C. Cir. 1979); in fact, the author of

Developments in the Law--Section 1983 and

Federalism, 90 Harv.L.Rev. 1133, 1135, n.

20, states that "most later decisions have

not fellowed the Lyons result, see, e.g.

Azalea Drive-in Theatre, Inc. v. Hanft, 540

MSE Ae EER RT EERE, | mame

F.2d 713 (4th Cir. 1976) * * *," This

unfavorable response can only be taken as

ae

To the same effect is the Note,

Collateral Esto 1 of State Court Judg-

ment in Feder 8, al.

sent _in Federal intTtra tou Se author

States that "for patent cases, Rule 10b

cases, . . . both of which are within

exclusive federal jurisdiction and argu-

ably, for limitation of liability proceed-

ings (were it not for the stipulation ex-

acted from the state court claimant), the

prior findings of state courts will be con-

Clusive in subsequent federal proceedings,

notwithstanding the grant of exclusive

subject matter jurisdiction" to the federal

court in such cases.

an expression of dissatisfaction with the

reasoning behind the decision in Lyons. We

look now to that reasoning.

The reasoning of the Court in Lyons

rests on two grounds. The first was the ex-

clusivity of the federal remedy under the

Sherman Act; the second was the unavailability

in the state action of the treble damage re-

covery, which the Court regarded as a "crucial"

and essential part of the feceral right of

action. In developing his first reason arising

out of the exclusivity of the federal remedy,

Judge Hand in Lyons ‘seemed to concede that

collateral estoppel based on a single fact

determination in the state action, if not

decisive of the whole issue of federal anti-

trust violation, was a permissible plea in a

later federal antitrust suit between the same

parties. But if the plea of collateral estop-

pel in such a case extended to what Judge Hand

called "the whole nexus of facts that make up

the wrong" (i.e., the antitrust violation),

its recognition would operate in similar

fashion to strict res judicata and operate

to "end the jurisdiction of the district

court" thus frustrating the exclusivity of

federal jurisdiction. It was this latter

situation that Judge Hand in Lyons found

-65-

invalid,

Unquestionably, there is a certain logic

in Judge Hand's reasoning. When the plea of

collateral estoppel based on a prior state

action between the parties embraces all the

constituent elements of the federal antitrust

Claim, its acceptance does in effect defeat any

exclusive right in the federal court to decide

independently the federal antitrust action.

The result is in reality no different than had

a plea of res judicata been accepted in its

effect on the principle of federal exclusivity.

But, contrary to Judge Hand's opinion in Lyons,

later decisions, as well as decisions prior to

Lyons including one from the United States

Supreme Court which Judge Hand unsuccessfully

sought to distinguish, have not found the

result objectionable. Thus, as the author of

the Note in 53 Va.L.Rev., supra, at 1369 said

that, "In several cases following Lyons

“13

The Court sought to distinguish

Becher v. Contoure Laboratories, Inc., 279

eclaring erroneously

‘nat the collateral estoppel upheld in that

case applied only to "one of the constituent

facts that together made up the claim,"

not to "the whole nexus of facts."

14

Actually, the Supreme Court in Becher

v. Contoure Laboratories Inc., 279 U.S. at

9 ready done exactly that Judge

(Continued on next page.)

-66-

tederal courts, considering the effect cf a

state-court judgment on a later claim within

exclusive jurisdiction of the federal courts,

have largely ignored the importance that Judge

Hand attached to the maintenance of unfettered

exclusive federal jurisdiction." And tne

Court in new York State Teamsters, supre, uv

y5/ made tne sume point, observing in that

connection that our own case of Azalea was

one of the cases which had not followed Lyons

on this point. For a recent example of a like

application of collateral estoppel, see,

14 (Continued)

Hand had found invalid in Lyons - It held

that issues involving patent law, over which

federal courts have express exclusive juris-

diction, as decided in a prior state action

between the parties should receive finality

through collateral estoppel, even though the

effect was to foreclose federal determir.ation

of exclusive federal claims. 279 U.S. et 390-

2. Judge Hand recognized the applicability

of Becher and sought to distinguish it but,

ss hoy “ices, a elle ag Deve lopments-

ection 9 -L.Rev. a 35,

n. 20, puts it, "It is questionable whetner

Judge Hand distinguished Becher v. Contoure

Laboratories, 279 U.S. 388 (1920) -whefe the

Supreme Court held that a state court judg-

ment that a patent holder held a patent as a

constructive trust for another precluded a

federal suit for patent infringement within

the exelusive. federal jurisdiction, 28 U.S.C.

1338 (1970). "

-67-

McNally v. Esmark, 427 F. Supp. 1211, at 1218-

22 ( N.D. I11.- 1977).'? If the second federal

action, which is within exclusive federal

jurisdiction, can thus be barred by collateral

estoppel based on a decision in a prior state

action, without violating the rvle of exclu-

sivity of federal jurisdiction, there can be

no logical reason for not holding that/such

action can be barred by res judicata where there

is identity of causes of action between the

parties, and this is exactly what the court did

in Straus, Englehardt and Woods, supra.

Judge Hand's second reason is more per-

suasive; and it seems to have been the main

thrust of his opinion. It is the same reason

as that stated and applied by the Court in

TS in this case, which was under the

Securities Act where there is an express provi-

sion for federal exclusivity of remedy as dis-

tinguished from a judicially created exclu-

sivity as under the Sherman Act, the Court

refused to apply res judicata but applies

collateral estoppel in the very way Judge Hand

in Lyons said the Court, in recognition of the

exclusivity of federal jurisdiction, could not

do: It dismissed the federal antitrust action

as barred by collateral estoppel, which worked

the same result as a plea of res judicata.

For a discussion of McNally, see Einhorn

& Gray, The Preclusive Effect oF State Court

Determinations in Federal Actions under the

Securities & Exchange Act o 9 ournal

orp. Ww °

Hayes and Cream Top, supra. In Lyons, the

remedy in the state court was found to be

different from that available in the federal

court because only in the federal court could

a recovery of treble damages be had. Assuming

that res judicata requires that the same right

01 recovery be available in both suits, this

would be a second reason for Judge Hand's con-

clusion. But this point is unimportant here

and raises no bar to the application of res

judicata in this case, ior the North Carolina

statute again is identicai in the plaintiff's

right of recovery under the Sherman Act, if

successful: It can secure treble damages on

the same terms under both statutes.

There is another ground raised in Lyons

but dismissed by Judge Hand for giving col-

lateral estoppel effect to the state court

action in this case. It would, if upheld, be

equally a ground for granting res judicata

effect to a state judgment in a prior identical

state suit, if the ground is deemed sound.

The rationale for this ground begins with the

fact that the plaintiff in Lyons had been the

defendant in the state contract suit. Had he

filed the state action as plaintiff, the situa-

tion would be different, even though Judge Hand

in Lyons, by way of a dictum thought differently,

because, as Professor Moore, in his comment on

-69-

Connelly, referred to in note 10, supra, has

argued, the plaintiff, by choosing to file the

state actior on the same cause of action, had

voluntarily waived the benefits, if any, of a

federal forum and both res judicata and col-

lateral estoppel should be available to bar a

subsequent federal action on that same cause of

action, even though the federal action was

within the exclusive jurisdiction of a federal

court. This result--at least, so far as col-

lateral estoppel is concerned--was approved by

the author of the Note in 53 Va. L. Rev., cited

supra, at 1383:

"When this choice-of-forum is present,

it is difficult to justify providing im-

munity from estoppel effect on the ground

that a litigant has the privilege to

litigate under federal procedure--he has,

in effect, waived any such privilege by

Pe a state court for the first

suit.

Indeed, the good sense of this conclusion is so

great that the writer of the Note, The Collater-

al Estoppel Effect of Prior State Court Findings

in Cases within Exclusive Federal Jurisdiction,

91 Harv.L.Rev. 1281, 1290, who is sympathetic

to the Lyons view and who is critical of our

decision in Azalea Drive-In Theatre, concedes:

"In certain cases, the equities

between the parties are so one-sided

that the application of traditional

collateral estoppel rules is warranted,

Such a case arises when a losing state

=70@

plaintiff, who originally had a choice

of bringing suit in either state or

federal court, subsequently brings a

federal claim based on the same trans-

action as the earlier state suit."

Certainly, this case fits the equities

which support the waiver doctrine as presented

by Professor Moore. The plaintiff in the state

case was the privy of the plaintiff in this

later federal suit. 1° The right to recover for

an alleged conspiracy to fix prices of fluid

milk sold to North Carolina school districts

and paid for with funds, in whole or in part,

advanced the school districts by the State of

North Carolina was first submitted to the

North Carolina courts by the plaintiff's privy

under a state statute which was for all prac-

tical purposes in this connection an exact

duplicate of the federal statute. Having

brought the suit originally in the state court

through its privy, the plaintiff cannot, after

judgment in the state court, seek another

"bite at the cherry" by filing a like action

in federal court. It has, as Professor Moore

suggests, voluntarily waived its right to

maintain the second suit and res judicata

and collateral estoppel snould be and are

available to bar this second suit, wnen the

TOpoy the discussior o: ‘tie status of the

two plaiytiffs i» the state a d federal actios,

see Section IV, set forth later.

-71<

seco d suit is, as here, identical with the

earlier action.

we accordingly condlude, as did the able

district judge, that there was sufficient

identity of causes of action between the state

and federal actions to support a finding of

res judicata based on the judgment in the

earlier state action.

IV.

We now turn to the final requirement for

res judicata, i.e., identity of parties, a

requirement mandated both at common law and by

due process, It may be accepted that under

this requirement the doctrine of res judicata

binds only parties or their privies by a prior

judgment. In this case, there is no conten-

tion that the plaintiff was a party to the

earlier suit begun in the name of the State of

North Carolina by its Attorney General, which

ended with a consent judgment. The defendants

did claim, though, that the plaintiff in this

suit was in privity with the plaintiff in that

earlier action by the Attorney General and

thus is bound by the consent judgment therein.

This conclusion, the defendants assert, com-

plies with the common law requirement and

satisfies tne demands of due process. The

district judge sustained the defendants in this

position. The plaintiff contests that conclu-

sion of the district judge. The resolution of

@72-

this contention of the plaintiff turns sub-

stantially on the meaning of the term "privity"

as applied in the res judicata context.

Privity is a term without any "generally

prevailing definition * * * which can be auto-

matically applied to all cases involving the

doctrine of res judicata," Heaton v. Southern

Ry. Co. 119 F. Supp. 654, 660 (W.D.S.C. 1954).

It has been appropriately described as "an

elusive concept, without any precise defini-

tion of general applicability * * * [which in

essence] designates [for res judicata purposes]

a person so identified in interest with a party

to former litigation that he represents pre-

cisely the same legal right in respect to the

subject matter involved," Jefferson School of

Social Science Subversive Act. Com. Bd.,

331 F. 2d 76, 83 (D.C. Cir. 1963). Or, as the

Court similarly declared in Aerojet General

Co ere 511 F. 2a 710, 719, (5th Cir.

1975), cert. denied 423 U.S. 908,” the term

17,

+ S180, to the same effect:

Electri ne, 554 F.2d 122

er » 434 U.S. 903 (1977);

Alderman v. oS 480 F. “ee: °

607 (E D. Va. 7875}; Hann rson, 2F.

Supp. 854, 861 (M. D. Fie Yana and Currie,

supra, at 333-4,

In Expert Electric, the Court said at

1233:

(Continued on next page.)

-73-

is sufficiently inclusive "(under the federal

law of res judicata [that) a person may be bound

by a judgment even though not a party if one of

the parties to the suit is so closely aligned

17 (continued)

"The threshold pt uirement of identity

of parties, qualified by the doctrine of

privity, finds its roots in the ancient

notion, now supplemented by the due pro-

cess clause, that a person cannot be

bound by a judgment without notice of a

claim and an opportunity to be heard.

Whether such identity is evident is a

factual determination of substance, not

mere form. Astron Industrial Associates

’ r. ;

Co v. Askew, 511 F. as 9

Cir.), cert. denied, 423 U , SS.

Ct. 210, ED. Od 137 (19753. "Gen-

erally speaking, one whose interests

were adequately represented by another

vested with the authority of representa-

tion is bound by the judgment, although

not formally a party to the litigation.

Aerojet General C - Vv kew, ra

at we Rode ¥. Vv. Hichselten, 373 upp.

53, 55 ( le often

justified by the doctrine of privity,

the theory underlying this general pro-

position is that the party bound is in

substance the one whose interests were

at stake in the prior litigation.

Therefore, we need first examine, in

order to determine whether there was

an identity of parties between the state

and federal court actions, the degree

of representative authority vested in

the sponsor JAC to administer the terms

of the program."

-7h-

with his interests as to be his virtual re-

presentative.]" Perhaps, however, the most

apt definition of "privity" in this connection

was that phrased by Judge Goodrich in his con-

curring opinion in Bruszewski v. United States,

181 F. 2d 419 at 423 (3d Cir.) cert. denied,

340 U.S. 865 (1950):

"Privity states no reason for

including or excluding one from the

estoppel of a judgment. It is merely

a word used to say that the relation-

ship between the one who is a party

on the record and another is close

enough to include that other within

the res judicata."

Applying this definition, we have no difficulty

in finding the appellant School District in

privity with the Attorney General, in insti-

tuting the earlier state court proceeding.

The Attorney General in filing his state

action, the judgment in which constituted the

basis for the District Court's finding of

res judicata, declared himself the legal repre-

sentative, entitled to commence and maintain

such suit on behalf of "each public school

system in this state which received tax

revenue directly or indirectly from the State

of North Carolina . . . [for the purchase of]

fluid milk to be resold, or given gratuitously,

to members of the student body while in regis-

tered attendance at such school." The plaintiff

in this action was concededly such a school

district. The authority of the Attorrey General

@75=

to sue as the representative of the school

districts of the State, including the plaintiff

School District, seems clear both at common

law and under the relevant statutory law of

North Carolina. At common law, an attorney

general, in the absence of some restriction on

his powers by statute or constitution, has

complete authority as the representative of the

State or any of its political subdivisions

"to recover damages [whether under state or

federal law] alleged to have been sustained

by any such agency or political subdivisions,"

even though those subdivisions may not have

"affirmatively authorized suit." For an

excellent discussion of this common law

authority of the office of attorney general,

see State of Florida ex rel. Shevin v. Exxon

Corp., 526 F. 2d 266, 270 (5th Cir. 1976),

cert. denied, 429 U.S. 829 (antitrust suit in-

stituted by the State A,torney General on

behalf of State and various political subdi-

visions); State of Illinois v. Bristol-Myers

Corp., 470 F. 2d 1276 (D.C. Cir. 1972) (anti-

trust suit on behalf of "all political subdi-

visions" of State); Wade v. Mississippi

Cooperative Extension Serv., 392 F. Supp. 229

(N.D. Miss. 1975); State of Illinois v. Asso-

ciated Milk Producers, Inc., 35 F. Supp. 436

(N.D. I11. 1972) (antitrust suit on behalf,

among others, school districts, in purchases

of fluid milk).

-76-

there is no North Carolina statutory or

constitutional provision limiting the authority

of the North Carolina Attorney General. In

fact, the thrust of the North Carolina statutory

law is to the contrary. ‘thus, those statutes

expressly authorize the Attorney General of

that State to "represent all State departments,

agencies . .. or other organized activities

- « « Of the State which receive support in

whole or in part from the State." G.S. Sec.

114-2 (2). (Italics added) It was this statute

on which the Attorney General, in his state

action, based his authority to sue on benalr

of the various school districts of the State,

which had "received tax revenues directly or

indirectly from the State of North Cerolina

for . . . purchases [of] fluid milk to be

resold, or given gratuitously, to members of

the student body while in registered attendance

at such school." The State action was

specifically limited in scope to purchases of

"fluid milk" by the school districts with

funds supplied "in whole or in part" by the

State. It sought treble dameves for no other

transactions. Those were tra..sactions in

which both the State and the school districts

such as the plaintiff in this suit were in-

volved finarcially, in which both had suffered

damages if there was an antitrust violation.

The state action was unquestiorably one the

Attorney General, both under his commor law

-77-

authority and under his express authority, had

the right to maintain and it was one in which

the interests asserted by the Attorney General

were identical with those stated by the ap-

pellant School District in this federal action.

In that state antitrust suit the Attorney

General sought to recover on behalf of the

plaintiff and the other school districts of

the State overpayments for dairy products

occasioned by the appellees' alleged price

fixing and market control mechanizations.

These are precisely the interests and the right

to recover over-payments which the appellant

now asserts in the case at bar. The money

used to pay for the dairy products in question

came, in part at least, from the coffers of

state government and the state itself had a

direct stake in the litigation."® these and

180he case at bar should be distinguished

from other antitrust suits brought by the state

as n triae. Here state ds are in-

volved and the State of North Carolina, through

its ists gaps Sey. neral, is the real nd in

interest. is action would be subject to

close rg ag if it were of the n petpiae

oxompt $3 ae %

ge te F » 2350 sas Vv

Up es, 204 U.S. 331 (1907) sian

U.S. 101900); Vv 8 :

WY Vv. Loutstane, 108 U.S. °

iar a

ns Patriae Suits for

8 cinder the rus 9 P

-78-

these only are the stakes and the interests

which the Attorney General sought to represent,

i.e., the recovery of past over-payments and

equitable protection against future price

control schemes by the appellees. We cannot

imagine a factual setting more clearly demon-

strative of the requisite unity in interest in

both suits. The interests of the State in the

state action, and the plaintiff School District

in the federal action are identical, not

merely contextually related.

The appellant suggests that even if the

Attorney General possesses the authority to

represent state agencies, this authorization is

superseded by the North Carolina statutes ‘9

which empower local school boards to sue and be

sued in their own behalf. -° The statutes

19 c.Gen. Stat. Sections 115-27 and

115-31,

20mnis same argument was advanced, and

e Court stated:

"The Board's final, and most serious,

contention is that Sec. 213-A of Missis-

sippi's Constitution, inserted in 1944,

created the Board as an autonomous

agency entrusted with the management and

control of Mississippi's senior colleges

and universities, and thus invested the

Board with the power to employ legal

(Continued on next page.)

summarily rejected in Wade v. Mississippi

Cooperative Extension Serv., 392 F. Supp. at

234, where the Court stat d

relied upon do create a urique right it the

school boards, but these statutes do not con-

tradict the Attorney General's right to repre-

sent such school districts. When North Caro-

lina General Statutes, Secs. 115-27 and 115-31,

which are the statutes on which the appellant

relies for this contention, were enacted in

1955 the legislature intended to create a new

remedy but it is not to preclude one already in

wziarwnce. It would seem self-evident that

common sense dictates that when an alleged

wrong affects governmental units on a state-

20 (Continued)

counsel in all cases to which it is a

party, independently of the Attorney

where expressly grants to the Board

authority to engage counsel for the

purpose of conducting litigation of

state-wide interest, the Board's as-

sertion that Sec. 213-A bestows such

authority can only be based upon a

claim that Sec. 213-A impliedly effects

a pro tanto repeal of the plenary

authority conferred on the Attorney Gen-

eral by Sec. 173 to represent the State

in all litigation of such character. ...

It is easily perceptible that even if the

foregoing statute purports to give the

Board authority to retain private legal

counsel as professional advisors, no

statutory enactment can override the

well-established constitutional author-

ity of the Attorney General in this

area of strong State concern."

wide basis, the state should seek redress on

their behalf as well as on its own rather than

parcelling out the actions among local agencies.

However, to ease the administrative burden on

the Attorney General's office, when a single

local school board is wronged, that unit should

individually pursue the remedy it deems appro-

priate. This is the scheme, we believe, that

the North Carolina Legislature had in mind .

when it adopted Secs. 115-27 and 115-31. It

necessarily follows that these statutes were

not intended to infringe upon the then-

existent powers vested in the Attorney General.

the appellant's next line of attack re-

tates to the Attorney General's tailure to give

notice to the Board of the state antitrust

21

2)

When the claim advanced is statewide

in scope and involves geographically diverse

agencies of state government, courts have found

the Attorney General to be the best represen-

tative to poring the action. Spare of ihuete

v. Associated Milk Producers NC., .

Supp. 456; state of Iilinois Harper & Rc

Pub is he ~ , fe . supp. 453! V.D, .

969); State of Illinois v. Brunswick Cor-

e

ade v. ss ippi ti en n

erv., . Supp.

action@* and in the failure to consult with

the Board prior to settlement. While the ap-

pellant relies heavily on these omissions,

they are of no moment in the instant case. The

Attorney General as legal representative of the

sovereign and its constitutional subdivisions

had both common law and statutory power to bind

the State and the subdivisions by his acts.

Moreover, it goes without saying that the At-

torney General is not limited in his authority

to settle or compromise claims by a require-

ment of consultation with those agencies which

might be tangentially affected by a proposed

settlement. Here the claims involved both the

State and numerous school districts. To im-

pose a requirement that the Attorney General

to whom authority was granted expressly bv

22mnis is a somewhat disingenuous argu

ment. The School District knew the Attorney

General was investigating, with a view to

litigation, the purchases of milk by the

school districts. He had sent investigators

to this School District and these investiga-

tors had reviewed those records. The School

District thus knew that the Attorney General

contemplated filing his action. Later the

Attorney General gave wide publicity to the

institution of his action. It imposes too

much credibility to suggest that the School

District was ignorant of the Attorney Gener-

al's action.

-8 2-

statute, must corsult with and obtain the con-

sent of every school district before he may

exercise his statutory authority would not

only be a voiding of the Attorney General's

statutory authority but, in addition, would be

the creation of a cumbersome system leading to

almost ludicrous results. By engrafting this

restriction upon the Attorney General's author-

ity, the State's legal representative, in at-

tempting to exercise his statutory authority,

would be buffeted from hither to yon according

to the whims of various local agency directors.

Clearly the Attorney General's failure to con-

sult with the Board prior to settlement in no

way denigrates the legal significance of the

consent decree,

The appellant School District, in addi-

tion, argues that the Attorney General never

intended or sought to represent the individ-

ual School Districts in his action. To

support this argument, it emphasizes that in

his complaint the Attorney General prayed for

class certification and that, if the Attorney

General intended his representation to include

the rights of the School Districts he would

not have prayed for class certification, a

prayer which ircidentally was never pressed

or granted. The difficulty with this argumert

is thet it is completely cortradictory cf the

/ttorrey General's own allegation of his

<£3~

representation. Ir the begivrirg paragraphs

of his complaint, the Attorrey General clearly

identified the parties he was representing.

These parties were, as we have already noted,

"each public school system in the State. ..."

In the face of this asserted right of repre-

sentation by the Attorney General of all the

State's School Districts, including the appellant

School District, it was superfluous to certify

the school districts as a class, if the At-

torney General had a right in propria persona

to represent the school districts. The Attorney

General, as we have seen, had that right both

at common law and by statute. It follows that,

whether there was class certification or not,

the requirement of unity of parties or their

privies existed in the two actions under the

circumstances involved here.

CONCLUSION

In summary, the District Court was correct

in finding that the action by the appellant

School District was barred by the doctrine of

res judicata. The judgment of the District

Court is accordingly

AFFIRMED.

<Bh-

STATE OF NORTH CAROLINA IN THE GENERAL COURT

OF JUSTICE

COUNTY OF WAKE SUPERIOR COURT

DIVISION

CIVIL NO.

THE STATE OF NORTH

CAROLINA, ex. rel.

JAMES H. CARSON, JR.,

ATTORNEY GENERAL,

)

)

)

Plaintiff,

) COMPLAINT FOR

Vv. ) INJUNCTIVE RELIEF

) AND DAMAGES

BILTOMRE DAIRY FARMS, ) Jury

INC,.; BORDEN, INC.; ) Demanded

COBLE DAIRY PRODUCTS )

COOPERATIVE, INC.;

DAIRYMEN, INC.; MAOLA

MILK AND ICE CREAM )

COMPANY; PET, INC.; )

PINE STATE CREAMERY )

COMPANY; KRAFTCO )

CORPORATION; AND )

UNITED DAIRIES, INC. ;

)

Defendants.

The Plaintiff, complaining of the defend-

ants, alleges:

A. PARTIES

1. The plaintiff is the State of North

Carolina, and brings this action on the rela-

tion of James H. Carson, Jr., the Attorney

General of North Carolina pursuant to the duty

and authority of the Attorney General as set

-85-

forth in N.C. Gen Stat. §§74-

75-16.

2. (a) The defendants

and described as follows:

14, 75-15 and

are identified

Name of State of Principal Place

Corporation Incorporation of Business

Biltmore North Carolina Biltmore, N.C.

Dairy Farms,

Inc.

Borden, Inc. New Jersey New York, N.Y.

Coble Dairy North Carolina Lexington, N.C.

Products

Cooperative,

Inc,

Dairymen, Kentucky Louisville, KY

Inc.

Maola Milk North Carolina New Bern, N.C.

and Ice

Cream Company

Pet., Inc, Delaware Dover, Delaware

Pine State North Carolina Raleigh, N.C.

Creamery Company

Kraftco Delaware Wilmington,

Corporation Delaware

United North Carolina Greensboro, N.C.

Dairies, Inc.

(b) Each of the foregoing defendants

conducts and transacts business within the

State in the line of products described below

-86-

throught its officers, agents and employees,

each of whom at all times mentioned in this

Complaint were acting in the course and scope

of their employment.

B. JURISDICTION AND VENUE

3. This is a civil antitrust action

seeking permanent injunctive weiter as pro-

vided for in G.S. §75-14 and money damages

as provided for in G.S. §75-16, against each

of the defendants, jointly and severally, as

named in paragraph 2 above.

C. CLASS ACTION REQUESTED

4. (a) This action is brought on plain-

tiff's own behalf as a direct purchaser of

fluid milk from the defendants and as one of

the sources of revenue used to pay part of the

purchase price of fluid milk by the various

public school systems of North Carolina; and

as the class representative of a class of

"persons" described below, which have purchased

fluid milk from the defendants, as is author-

ized by Rule 23(a), N.C. Rules of Civil

Procedure.

oS?

(b) The class of persons which have pur-

chased fluid milk from the defendants, which

plaintiff seeks to represent in this action,

in addition to itself, are described as follows:

each public school system in this state which

received tax revenue directly or indirectly

from the State of North Carolina for the con-

duct of educational training and programs,

which purchases fluid milk to be resold, or

given gratuitously, to members of the student

body while in registered attendance at such

school. There are at least one hundred forty-

nine (149) such public school systems in North

Carolina.

(c) The persons constituting the class

described above are so numerous as to make it

impracticable to bring them all before the

court and the plaintiff will fairly insure the

adequate representation of all.

D. STATUTORY PROVISIONS INVOLVED

5. Chapter 75 of the North Carolina

General Statutes prohibit as illegal:

a. Every contract, combination in

-88-

the form of trust or otherwise, or

conspiracy in restraint of trade or

commerce in the State of North

Carolina. . . [G.S. 75-11];

b. While engaged in. .. selling any

goods in this State, to have any agree-

ment or understanding, express or

implied, with any other person not to

. . . sell such goods within certain

territorial limits within the State,

with the intention of preventing com-

petition in selling . . . such goods

within these limits. [G.S. §75-5(b) (6)];

c. .. . [A]ny contract, obligation

or agreement of any kind by which the

parties thereto or any two or more of

them bind themselves not to sell or

dispose of any goods . .. below a

common standard figure or fixed value,

or establish or settle the price of

such goods between them, or between

themselves and other, at a fixed or

raduated figure, so as directly or

ndirectly to preclude a free and

unrestricted competition among them-

selves, or any purchasers or consumers

in the sale of such goods. [G.S. §75-5

(b)(7)]; and

d. [All] [u]nfair methods of competi-

tion and unfair or deceptive acts or

practices in the conduct of any trade

or commerce . .. [G.S. §75-1.1].

6. Conscious adherence to a commonly

understood and agreed upon scheme, whether such

agreement is express or tacit: (a) to sell

goods at a common standard figure or fixed value;

or (b) to establish or settle the price of such

-89-

goods at a fixed or a graduated figure so as

to directly or indirectly preclude a free and

unrestricted competition among themselves in

the sale of goods is an unfair method of com-

petition and an unfair act or practice within

the meaning of G.S. §75-1.1.

E. THE PRODUCT AND GEOGRAPHIC MARKET

7. The products involved in this action

are fluid milk, ice cream and cheese sold to

public school systems within the State of

North Carolina.

F. BACKGROUND TO VIOLATIONS ALLEGED

8. Prior to and during the year 1970,

the North Carolina Milk Commission (hereafter

"the Commission") had promulgated and issued

Fair Trade orders (hereinafter "FTO") which

required milk processors doing business in

North Carolina to file with the Milk Cc mission

the processors’ home market prices for fluid

milk products. Additionally the processor was

required to advise his competitors of his filed

prices. The FTO prohibited the processor from

selling fluid milk at prices other than the

-90-

filed price without first giving the Milk

Commission and all of his competitors ten days

advance notice of change of price. Any of the

processors’ competitors could then change their

price to meet the processor's changed price

without advance notice.

9. The Milk Commission's Fair Trade

Order applied to processors' sales to the public

school systems throughout North Carolina until

1970. During 1970, the Milk Commission res-

cinded those provisions of its Fair Trade Order

which required prior notice be given to the

Commission and competitors on sales to public

school systems.

G. THE VIOLATIONS ALLEGED

10. Upon information and belief, on or

about February, 1970, in a meeting room at

Biltmore Dairy Plant in Asheville, North Caro-

lina at which representatives of the defendants

were present, a representative of one of the

defendants announced in a clear and audible

voice that notwithstanding the change of the

Commission's regulations as they related to

«$i

sales to public school systems, he was satis-

fied with methods then in use under the FTO's

by which milk was sold to the school systems.

He further announced he was going to continue

his practice in the future and invited the

other processors’ representatives present to

do the same. All of those present audibly

expressed their agreement with the practice.

11. Upon information and belief, since

that time processors have called competitors

by telephone, discussed and agreed to prices

to be bid to public school systems.

12. Upon information and belief, defend-

ants have, at various times since February,

1970, joined in agreements, combinations, and

conspiracy in restraint of trade in the sale

of milk products to the public school systems

of North Carolina, which conspiracy and combi-

nations have been in continous operation since

that time to present date.

13. Upon information and belief, in

furtherance of the agreements, combinations,

and conspiracy in restraint of trade as set

-92-

forth above, defendants at various times con-

tinuously since February, 1970, either have

submitted identical bids or limited service

bids to public school systems in North Carolina.

14. Upon information and belief, various

other milk processors, individuals, and milk

distributors, not made defendants herein, par-

ticipated as conspirators in the violations

alleged above and performed acts in further-

ance thereof.

15. Upon information and belief, for

the purpose of forming and effectuating the

aforesaid combination and conspiracy, the

defendants and co-conspirators have done

those things which they combined and conspired

to do.

H. EFFECTS

16. Upon information and belief, the

aforesaid combinations and conspiracy have had

the following effects among others:

(a) Price competition in the sale

of fluid milk to the public school

systems in North Carolina has been

restrained and eliminated;

-93-

(b) Prices paid for fluid milk pur-

chased by the public school systems

in North Carolina have been at unrea-

sonably high, artificial and non-

competitive prices;

I. PRAYER

1. Wherefore, Plaintiff prays:

(a) This action be tried before a jury.

(b) This action be determined a class

action within Rule 23 of the N.C. Rules

of Civ. Procedure.

(c) That the court adjudge and decree

that the defendants, and each of them,

have engaged in an unlawful combination

and conspiracy in unreasonable restraint

of trade in violation of Chapter 75 of

the North Carolina General Statutes.

(d) That each of the defendants, their

successors, assignees, and transferees,

and the officers, directors, agents, and

employees thereof, and all other persons

acting or claiming to act on behalf

thereof, be perpetually enjoined and

restrained from, in any manner, directly

or indirectly, continuing, maintaining,

or renewing the sioxenatt violation and

from engaging in any other combination,

conspiracy, contract, agreement, under-

standing, or concert of having a

similar purpose or effect.

(e) That plaintiff, and the class it

represents, recover of the defendants

treble mee for the injuries suffered

by Plaintiff and the class it represents,

as provided for by G.S. §75-16.

~9he

(f) That the plaintiff have such

other and further relief as the nature

of the case may require and the Court

may deem just and proper.

(g) That the plaintiff recover the

cost of this action.

This the 2lst day of October.

JAMES H. CARSON, JR.

Attorney General

/s/ Jean A. Benoy

Deputy Attorney General

NC Department of Justice

P. 0. Box 629

Raleigh, North Carolina

27602

JURY DEMANDED

Plaintiff hereby demands trial by jury

pursuant to Rule 38 of the North Carolina

Rules of Civil Procedure.

/s/ Jean A. Benoy

-95-

STATE OF NORTH CAROLINA IN THE GENERAL COURT

OF JUSTICE

COUNTY OF WAKE SUPERIOR COURT

DIVISION

CIVIL NO.

THE STATE OF NORTH

CAROLINA, ex. rel.

RUFUS L. EDMISTEN,

Attorney General,

Plaintiff,

vs. CONSENT JUDGMENT

THE BILTMORE COMPANY;

BORDEN INC.; COBLE

DAIRY PRODUCTS

COOPERATIVE, INC.;

MAOLA MILK AND ICE

CREAM COMPANY; PET,

INCORPORATED; PINE

STATE CREAMERY COMPANY;

KRAFTCO CORPORATION;

and FLAV-O-RICH, INC.,

for itself and as

successor in interest

of United Dairies, Inc.

~

ue NF a a a a a a a a I II I I SS ee”

Defendants. )

This matter coming on to be heard and

being heard before the undersigned Judge

presiding over the General Court of Justice,

Superior Court Division of the Tenth Judicial

District; and

-96-

IT APPEARING to the Court from statements

made by counsel for the Defendants named in

the caption above and counsel for the Plain-

tiff that all matters in controversy arising

out of this action have been agreed upon and

settled in a manner satisfactory both to the

Plaintiff, State of North Carolina, and to the

aforementioned Defendants, and that the parties

hereto desire to consent to the entry of this

judgment without the said consent judgment

constituting evidence of, or being construed

as, an admission by either party with respect

to any issue of fact or law; and

IT FUTHER APPEARING to the Court that:

1. The State of North Carolina insti-

tuted this action pursuant to the provisions

of G.S. 75-14, 75-15, and 75-16 and alleged

violations of G.S. 75-1, 75-1.1, and 75-5.

2. The Defendants deny that they have

jointly or otherwise engaged in any acts con-

stituting a violation of G.S. 75-1, 75-1.1,

75-5, or any other law or laws in their

dealings with the State or public school

-97-

systems, districts, or Boards of Education

of the State of North Carolina.

3. Upon the express understanding that

Defendants deny that they have jointly or

individually violated the laws of the State

of North Carolina, and before the taking of

any testimony and without trial or adjudica-

tion of any issue of fact or law, the parties

desire to resolve and settle all claims and

matters in controversy in order to avoid the

expense of protracted litigation.

NOW THEREFORE, before the taking of any

testimony and without trial or adjudication

of any issue of fact or law herein, and upon

the consent of the parties hereto, it is

hereby

ORDERED, ADJUDGED AND DECREED AS FOLLOWS:

1. Defendants, their officers, directors,

agents, and employees shall not in any manner,

directly or indirectly, with each other or

with any competitor, put into effect, be a

party to any agreement, or engage in any

combination, conspiracy,.contract, agreement,

-98-

understanding, or concert of action having the

purpose of restraining or eliminating competi-

tion in the price of fluid milk, ice cream,

and cottage cheese sold to the public school

systems of North Carolina whether by bid or

otherwise.

2. Defendants shall, independently of

each other or any competitor, determine all

fluid milk, ice creas and cottage cheese

prices to be charged to any public school

system within the State of North Carolina.

Each Defendant, upon responding to ar invi-

tation for competitive bids, shall concurrently

forward by mail a copy of the bid submitted

to any public school system to the Attorney

General, provided, however, that the Attorney

General shall be prohibited from opening any

such bids until after the date specified by

the school system for bid opening, if shown

on the envelope containing said bid. In the

event of negotiated sales, at the termination

of negotiations with a public school system,

the negotiated price shall be forwarded to

-99-

the Attorney General.

3. All copies of bids or negotiated

prices shall be accompanied by a certification

that such bid or negotiated price was arrived

at independently, without any combination,

conspiracy, contract, agreement, understanding,

or concert of action with any stated Defendant

or any other competitor.

4. Within 30 days after receipt of bids

or negotiated prices, upon written request by

the Attorney General, each Defendant agrees

to supply the Attorney General a written

statement setting forth how such bid or price

was arrived at by such Defendant. Any infor-

mation furnished to the Attorney General

thereunder shall be considered confidential and

not revealed except to the Court in aid of the

enforcement of this judgment or any other

proceeding instituted by the Attorney General

to enforce the antitrust laws of the State of

North Carolina.

5. Each Defendant shail file with the

Attorney General within 30 days and on each

-100-

anniversary date of this judgment during the

term hereof, a report setting forth the steps

which it has taken to advise its officers,

employees, and agents who are directly

involved in the sale of fluid milk, ice

cream, and cottage cheese to the public

school systems in North Carolina, of their

obligations under the terms of this judgment

and shall certify through an authorized agent

that it has not, to the knowledge of such

person, violated the terms of this judgment.

6. The term "public school systems" as

used in this judgment shall mean any school

or schools within any Board of Education as

defined in G.S. 115-27.

7. The provisions of this judgment shall

not prohibit any Defendant from complying with

any law administered by or regulations pro-

mulgated by the North Carolina Milk Commission,

and shall not prohibit any Defendant from

entering into agreements with its distributors

or subdistributors as to any prices paid to

such Defendant by such distributors or subdis-

-101-

tributors, and such distributors and subdis-

tributors who are independent contractors

shall not be considered agents of the Defend-

ant for any purpose of this judgment. Further,

the provisions of this judgment shall not pre-

vent any agricultural cooperative association

from exercising the rights conferred upon it

by 7 USC Sections 291, 292 and 455 and by

N.C.G.S. Sections 54-132, 54-141, and 54-156;

provided, that nothing in the foregoing statutes

shall be construed to authorize any Defendant

cooperative association to fix or agree with

a competitor on the price of fluid milk, ice

cream, and cottage cheese to be bid to any

public school in North Carolina as defined in

this judgment.

8. In the event the Attorney General or

the Defendants cannot agree to the meaning of

the terms herein, ox are of the opinion that

the terms have been or are being violated,

they shall first communicate with the other

party and by conference, after notice, attempt

to resolve the differences between themselves.

-102-

In the event such conference or conferences

are of no avail, either the Attorney General

or the Defendants may apply to the Court by

motion in the cause after due notice given,

and jurisdiction is retained by this Court

for the purpose of enabling the parties to

this judgment to apply to this Court for a

construction of this judgment or for such

further order and direction as may be necessary

to carry out this judgment, or for the en-

forcement of compliance therewith, and for

the punishment of the violation of any of the

provisions contained herein in the discretion

of the Court.

9. This judgment and any and all re-

porting provisions herein shall terminate and

cease to be effective three (3) years from

the date of the entry of this judgment.

This the 12th day of May, 1975.

/S/ C. E. Brewer

Judge Presiding

-103-

CONSENTED TO:

STATE OF NORTH CAROLINA, ex rel.

RUFUS L. EDMISTEN, Attorney General

By: /S/ Ruful L. Edmisten

FLAV-O-RICH, INC.

JORDAN, WRIGHT, NICHOLS, CAFFREY

& HILL, Attorneys

BROOKS, PIERCE, McLENDON, HUMPHREY

& LEONARD, Attorneys

By: /S/Welch Jordan

-104-

UNITED STATES DISTRICT COURT

DISTRICT OF SOUTH CAROLINA

COLUMBIA DIVISION

Civil No. 75-1876

THE NASH COUNTY BOARD

OF EDUCATION,

Plaintiff,

vs. AMENDED

THE BILTMORE COMPANY; : COMPLAINT

BORDEN, INC.; COBLE

DAIRY PRODUCTS COOP-

ERATIVE, INC.; DAIRY-

MEN, INC.; MAOLA MILK

AND ICE CREAM COMPANY;

PET INCORPORATED; PINE

STATE CREAMERY COMPANY ;

KRAFTCO CORPORATION;

and FLAV-O-RICH, INC.,

For Itself and as Suc-

cessor to Interest of

United Dairies, Inc.,

ue a a a a a a I I YY SI Se ae

Defendants

Plaintiff complaining of defendants

. Says:

DESCRIPTION OF PLAINTIFF AND CLASS

l.

(a) The plaintiff, the Nash County

Board of Education, is a body politic

created by the Legislature of the State

of North Carolina and authorized and dir-

-105~

ected to administer the public schools of

Nash County, North Carolina. Pursuant to

the administration of such schools, plaintiff

is charged with the duty and authority to

purchase fluid milk, ice cream and cottage

cheese for the public schools of Nash’ County.

(b) Plaintiff brings this action as a

class action under Rule 23 of the Federal

Rules of Civil Procedure on behalf of itself

and all other County and City Boards of

Education as described in Chapter 115 of the

General Statutes of North Carolina located

in the State of North Carolina.

(c) The plaintiff is representative

of the class described in Chapter 115 of

the General Statutes of North Carolina loca-

ted in the State of North Carolina, who

have purchased fluid milk, cottage cheese

and ice cream from one or all of the defen-

dants since February 1, 1970.

(d) With respect to the class referred

to, the class is so numerous that joinder of

-106-

all members is impractical. There are

questions of law or fact common to the

entire class. The claim of the plaintiff

is typical of the claims of the class and

the plaintiff will fairly and adequately

protect interest of the entire class.

Questions of law or fact common to the

members of class predominate over individual

questions and a class action is superior to

all other available methods for adjudication

of this controversy.

JURISDICTION

This court has jurisdiction of the

parties and subject to this action under

the provisions of 15 U.S.C., Sections l,

2, 13, 13(€a), 15 and 22 and also under the

provisions of 28 U.S.C., Section 1337 and

plaintiff brings this action under the pro-

visions of those statutes.

DESCRIPTION OF DEFENDANTS AND CO-DEFENDANTS

3.

(a) The defendants are identified and

-107-

described as follows:

Name of State of Principal Place

Corporation Incorpor- of Business and

ation Registered Agent

In South Carolina

The Piltmore

Company Delaware Biltmore, N. C.

C. T. Corpora-

tions Systems

409 East North St.

Greenville, S. C.

New York, New York

Prentice Hall Corp.

Borden, Inc. New Jersey

Inc.

Palmetto State

Life Bldg.

1310 Lady Street

Columbia, S. C.

Coble Dairy North Lexington, N. C.

Products Carolina Ted T. Ridge

Cooperative, 1606 West Pal-

Inc. metto Street,

Florence, S. C.

Dairymen, Kentucky Louisville,

Inc. Kentucky

Venable Vermont

158 W. Main St.

Spartanburg, S.C.

Maola Milk North New Bern, N. C.

and Ice Carolina Registered

Cream Agent: None

Company

Pet Delaware Dover, Delaware

Incorporated C. T. Corpor-

-108-

ations Systems

409 East North

Street

Greenville,

s. C.

Flav-0- North Greensboro, N.C.

Rich and Carolina Registered

its Pre- Agent: None

decessor,

United

Dairies,

Inc.

(b) Each of the foregoing defendants

conducts and transacts business within the

State of North Carolina in the sale and

distribution of milk, cottage cheese and

ice cream as described below through its

officers, agents and employees, each of

whom at all times mentioned in this com-

plaint were acting in the course and scope

of their employment.

COMBINATION TO RESTRAIN TRADE AND

4,

Beginning not later than February l,

1970, and continuing up to the date of the

filing of this complaint, defendants and

co-conspirators and other persons acting

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for each of them have jointly and severally

engaged in:

(a) A continuing combination and

conspiracy to restrain interstate and

foreign commerce of the United States in

fluid milk, cottage cheese and ice cream

in violation of Section 1 of the Sherman

Act.

(b) A combination and conspiracy to

monopolize and a combination and conspiracy

to attempt to monopolize interstate and

foreign commerce of the United States in

fluid milk, cottage cheese and ice cream

in violation of Section 2 of the Sherman

Act; and

(c) An attempt to monopolize and

pursuant thereto have in fact achieved

monopoly of interstate and foreign com-

merce of the United States in fluid milk,

cottage cheese and ice cream in violation

of Section 2 of the Sherman Act.

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-

The substantial terms of the re-

straints, monopolization and attempts

and conspiracies to monopolize have been

that defendants and co-conspirators jointly

and severally agreed inter alia and carried

out such agreements:

(a) By agreement, understanding and

joint conduct eliminated all competition

between themselves which was based upon

or resulted from geographical location.

(b) By agreement, understanding and

joint conduct have fixed, manipulated and

affected the price of fluid milk, cottage

cheese and ice cream. Defendants have

carried out such agreement by various

methods including meeting together and

communicating with each other in person,

by telephone and by other means, by adopt-

ing uniform prices for their milk according

to a scheme which effectuated an allocation

of markets among the various defendants

-lll-

and effectively eliminated competition

between defendants in regard to the sale

of fluid milk, cottage cheese and ice

cream to plaintiff and each member of

this class.

(c) By agreement, understanding and

joint conduct have exchanged trade inform-

ation and adopted other similar methods of

doing business all with the purpose of

stabilizing the price of milk sold to the

plaintiff and all members of the class at

non-competitive levels effectively elimin-

ating competition and maintaining prices

substantially higher than would have been

charged in a competitive market.

INJURY TO PLAINTIFF AND MEMBERS OF THE

CLASS

6.

(a) The effect of the combination

alleged above has been that plaintiff and

members of the class have been denied the

benefits of a free market price for fluid

milk, cottage cheese and ice cream and

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have been required to pay a higher price

for said products than they would have

paid if the defendants had not combined

and acted to supress competition as

alleged.

(b) Each of the methods alleged herein

as having been utilized to violate the

anti-trust laws has contributed to the

artificially higher prices which plaintiff

and members of the class have been required

to pay as aforesaid.

(c) During the period from February

1, 1970, until the institution of this

action, plaintiff and the members of the

class have purchased milk, cottage cheese

and ice cream from defendants and the co-

conspirators in the sum of approximately

$100 ,000,000. The injuries to plaintiff

and each member of the class described

above have caused said plaintiff and

members of the class to suffer monetary

damage in-an amount not now susceptible

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to precise measurement or estimate but

which will be substantially determined and

supplied by amendment to this complaint or

otherwise as the court shall direct.

FRAUDULENT CONCEALMENT

7.

(a) Neither plaintiff nor any member

of the class knew or with due diligence

could have known of the existence of the

combination in restraint of trade and com-

bination to monopolize and only learned

of the nature and full extent of the com-

bination a short time before the filing of

this complaint. Defendants acting jointly

and as a part of the aforesaid combination

in restraint of trade and to monopolize

concealed the combination and its nature,

terms and methods by secret meetings and

other communications between themselves

which were not disclosed to the public or

to purchasers or to any government agency

or to anyone from whom plaintiff or any

-114-

member of the class could have acquired

knowledge concerning the combination.

(b) The nature, terms and methods

used by the defendants were of a type

which were self-concealing and were not

and could not have been apparent to plain-

tiff or any member of the class in the

regular course of the business relation-

ships between them and defendants.

(c) Defendants as to the above al-

legations specifically and fraudulently

represented to plaintiff and members

of the class that the prices of milk,

cottage cheese and ice cream were estab-

lished in accordance with law.

Plaintiff and all members of the

class demand trial by jury pursuant to

Rule 38(b) of the Federal Rules of Civil

Procedure.

WHEREFORE, plaintiff demands:

(a) That the alleged combination and

conspiracy among the defendants, the

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conspiracy and attempt to monopolize and

monopolization be adjudged and decreed

to be in violation of Sections 1 and 2 of

the Sherman Act.

(b) That judgment be entered against

defendants and in favor of plaintiff and

each member of the class represented by

plaintiff for treble the damages deter-

mined to have been sustained by them to-

gether with the costs of suit including

reasonable attorneys' fees.

(c) Such other and further relief as

may appear necessary and appropriate to

the court.

This the 23rd day of October, 1975.

Respectfully submitted,

/s/ I. T. Valentine, Jr.

109 North Court Street

Nashville, N. C. 27856

Telephone (919) 459-7141

/s/ Harris A. Marshall, Jr.

130 Centre St.

Orangeburg, S. C. 29115

Telephone (803) 834-1221

-116-

Of Counsel:

J. Nat Hamrick, Esq.

P. O. Box 470

Rutherfordton, N. C. 28139

Telephone (704) 287-3359

William L. age Esq.

P. O. Drawer 47

Raleigh, N. D. 27602

Telephone (919) 828-2467

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BENOY DEPOSITION

(page 146 ) “[H]e said we are only settling

the State's claims in settling, in settling

this judgment. We are not concerned with

any local government units, county or school

boards ."'

(page 147 ) "Wright Dixon. And then we,

just, when the Attorney General said, are

you going to sign the judgment Benoy, I

said no, it is prepared for your signature

and he said, well, let's see it. And he

said, well, now at that point in signing

this we are not settling any claims except

the state's, and, and in substance, Mr.

Dixon said that, that was the chance that

they were taking."

(page 35 ) "On that occasion, did Mr.

Estimen say in substance in the presence

of any of the counsel for the defendants

that he was settling only the state claims,

not those of the school boards?"

A "Yes, he did. He said that at the

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signing of the judgment."

(page 115 ) "I told him as I understood

the methodology that is used for establishing

a class, you have to move the court to estab-

lish a class. You have to give notice to

the class. And that involves, as I under-

stand the class action of the rule and the

case law, that would require a notice to

them of any intended settlement."

Q "A notice to whom?"

A "To the members of the class."

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§ 75-1. Combinations in restraint of

trade illegal.

Every contract, combination in the form of

trust or otherwise, or conspiracy in restraint

of trade or commerce in the State of North

Carolina is hereby declared to be illegal.

Every person or corporation who shall make

any such contract expressly or shall know-

ingly be a party thereto by implication, or

who shall engage in any such combination or

conspiracy, shall be guilty of a misdemeanor,

and upon conviction thereof such person shall

be fined or imprisoned, or both, in the dis-

cretion of the court, whether such person

entered into such contract individually or

as an agent representing a corporation, and

such corporation shall be fined in the dis-

cretion of the court not less than one

thousand dollars ($1,000).

-120-

§ 75-1.1. Methods of competition, acts

and practices regulated; legis-

lative policy.

(a) Unfair methods of competition in or

affecting commerce, and unfair or deceptive

acts or practices in or affecting commerce

are declared unlawful.

(b) For purposes of this section, "commerce"

includes all business activities, however

denominated, but does not include profes-

sional services rendered by a member of a

learned profession.

(c) Nothing in this section shall apply to

acts done by the publisher, owner, agent, or

employee of a newspaper, periodical or

radio or television station, or other ad-

vertising medium in the publication or dis-

semination of an advertisement, when the

owner, agent or employee did not have know-

ledge of the false, misleading or deceptive

character of the advertisement and when the

-121°

newspaper, periodical or radio or television

station, or other advertising medium did not

have a direct financial interest in the sale

or distribution of the advertised product or

service.

(d) Any party claiming to be exempt from the

provisions of this section shall have the

burden of proof with respect to such claim.

§ 75-5. Particular acts prohibited.

(a) As used in this section:

(1) "Person" includes any person, part-

nership, association or corporation;

(2) "Goods" include goods, wares,

merchandise, articles or other things of

value.

(b) In addition to the other acts declared

unlawful by this Chapter, it is unlawful for

any person directly or indirectly to do, or

to have any contract express or knowingly

implied to do, any of the following acts:

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(1) To agree or conspire with any other

person to put down or keep down the price of

any goods produced in this State by the labor

of others which goods the person intends,

plans or desires to buy.

(2) To sell any goods in this State

upon condition that the purchaser thereof

shall not deal in the goods of a competitor

or rival in the business of the person making

such sales.

(3) To willfully destroy or injure,

or undertake to destroy or injure, the

business of any competitor or business rival

in this State with the purpose of attempting

to fix the price of any goods when the com-

petition is removed.

(4) While engaged in buying or selling

any goods within the State, through himself

or together with or through any allied, sub-

sidiary or dependent person, to injure or

destroy or undertake to injure or destroy

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the business of any rival or competitor,

by unreasonably raising the price of any

goods bought or by unreasonably lowering the

price of any goods sold with the purpose

of increasing the profit on the business

when such rival or competitor is driven out

of business, or his business is injured.

(5) While engaged in dealing in goods

within this State, at a place where there is

competition, to sell such goods at a price

lower than is charged by such person for the

same thing at another place, when there is

not good and sufficient reason on account of

transportation or the expense of doing busi-

ness for charging less at the one place than

at the other, or to give away such goods,

with a view to injuring the business of

another.

(6) While engaged in buying or selling

any goods in this State, to have any agree-

ment or understanding, express or implied,

with any other person not to buy or sell such

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>

goods within certain territorial limits

within the State, with the intention of

preventing competition in selling or to fix

the price or prevent competition in buying

such goods within these limits.

(7) Except as may be otherwise pro-

vided by Article 10 of Chapter 66, entitled

"Fair Trade," while engaged in buying or

selling any goods in this State to make,

enter into, execute or carry out any

contract, obligation or agreement of any

kind by which the parties thereto or any two

or more of them bind themselves not to sell

or dispose of any goods or any article of

trade, use or consumption, below a common

standard figure, or fixed value, or establish

or settle the price of such goods between

them, or between themselves and others, at

a fixed or graduated figure, so as directly

-or indirectly to preclude a free and unre-

stricted competition among themselves, or

-125-

any purchasers or consumers in the sale

of such goods.

(c) Nothing herein shall be construed to

make it illegal for an agent to represent

more than one principal, but this provision

shall not be deemed to authorize two or more

principals to employ a common agent for

the purpose of suppressing competition or

preventing the lowering of prices.

(d) This section does not make it illegal

for a person to sell his business and good-

will to a competitor, and agree in writing

not to enter business in competition with the

purchaser in a limited territory if such

agreement does not violate the principles

of the common law against trusts and does not

otherwise violate the provisions of this

Chapter.

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§ 75-14. Action to obtain mandatory order.

If it shall become necessary to do so,

the Attorney General may prosecute civil

actions in the name of the State on relation

of the Attorney General to obtain a mandatory

order, including (but not limited to) perma-

nent or temporary injunctions and temporary

restraining orders, to carry out the provi-

sions of this Chapter, and the venue shall

be in any county as selected by the Attorney

General.

§ 75-15. Actions prosecuted by Attorney

General.

It shall be the duty of the Attorney

General, upon his ascertaining that the

laws have been violated by any trust or

public service corporation, so as to render

it liable to prosecution in a civil action,

to prosecute such action in the name of the

State, or any officer or department thereof,

as provided by law, or in the name of the

-127-

State on relation of the Attorney General,

and to prosecute all officers or agents or

employees of such corporations, whenever

in his opinion the interests of the public

require it.

§ 75-16. Civil action by person injured;

treble damages.

If any person shall be injured or the

business of any person, firm or corporation

shall be broken up, destroyed or injured by

reason of any act or thing done by any other

person, firm or corporation in violation

of the provisions of this Chapter, such

person, firm or corporation in violation of

the provisions of this Chapter, such person,

firm or corporation so injured shall have

a right of action on account of such injury

done, and if damages are assessed in such

case judgment shall be rendered in favor of

the plaintiff and against the defendant for

treble the amount fixed by the verdict.

-128-

§ 1. Trusts, etc., in restraint of trade

illegal; exception of resale price

agreements; penalty |

Every contract, combination in the form

of trust or otherwise, or conspiracy, in

restraint of trade or commerce among the

several States, or with foreign nations, is

declared to be iloegal: Provided, That

nothing contained in sections 1 to 7 of

this title shall render illegal, contracts

or agreements prescribing minimum prices for

the resale of a commodity which bears, or the

label or container of which bears, the trade-

mark, brand, or name of the producer or

distributor of such commodity and which is in

free and open competition with commodities

of the same general class produced or dis-

tributed by others, when contracts or agree-

ments of that description are lawful as

applied to intrastate transactions, under

any statute, law, or public policy now or

-129-

hereafter in effect in any State, Territory,

or the District of Columbia in which such

resale is to be made, or to which the commoc

dity is to be transported for such resale,

and the making of such contracts or agree-

ments shall not be an unfair method of com-

petition under section 45 of this title:

Provided further, That the preceding proviso

shall not make lawful any contract or agree-

ment, providing for the establishment or

maintenance of minimum resale prices on any

commodity herein involved, between manufac-

turers, or between producers, or between

wholesalers, or between brokers, or between

factors, or between retailers, or between

persons, firms, or corporations in compe-

tition with each other. Every person who

shall make any contract or engage in any

combination or conspiracy declared by sec-

tions 1 to 7 of this title to be illegal shall

be deemed guilty of a misdemeanor, and, on

-130-

conviction thereof, shall be punished by

fine not exceeding fifty thousand dollars,

or by imprisonmmet not exceeding one year,

or by both said punishments, in the dis-

cretion of the court.

§ 2. Monopolizing trade a misdemeanor;

penalty

Every person who shall monopolize, or

attempt to monopolize, or combine or conspire

with any other person or persons, to mono-

polize any part of the trade or commerce

among the several States, or with foreign

nations, shall be deemd guilty of a misde-

meanor, and, on conviction thereof, shall

be punished by fine not exceeding fifty

thousand dollars, or by imprisonment not

exceeding one year, or by both said punish-

ments, in the discretion of the court.

§ 15. Suits by persons injured; amount of

recovery.

Any person who shall be injured in his

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business or property by reason of anything

forbidden in the antitrust laws may sue

therefor in any district court of the

United States in the district in which the

defendant resides or is found or has an

agent, without respect to the amount in

controversy, and shall recover threefold

the damages by him sustained, and the cost

of suit, including a reasonable attorney's

fee.

AMENDMENTS

Amendment V.

No person shall be held to answer for

a capital or otherwise infamous crime,

unless on a presentment or indictment of a

grand jury, except in cases arising in the

land or naval forces, or in the militia ,

when in actual service in time of war or

public danger; nor shall any person be

subject for the same offense to be twice

put in jeopardy of life or limb; nor shall

-132-

be compelled in any criminal case to be a

witness against himself, nor be deprived

of life, liberty, or property, without due

process of law; nor shall private property

be taken for public use without just com-

pensation.

Amendment XIV

§ 1. All persons born or naturalized

in the United States, and subject to the

jurisdiction thereof, are citizens of the

United States and of the state wherein they

reside. No state shall make or enforce any

law which shall abridge the privileges or

immunities of citizens of the United States;

nor shall any state deprive any person of

life, liberty, or property, without due

process of law; nor deny to any person

within its jurisdiction the equal protection

of the laws.

-133-

Rule 23. Class actions.

(a) Representation. --If persons con-

stituting a class are so numerous as to

make it impractable to bring them all

before the court, such of them, one or more,

as will fairly insure the adequate repre-

sentation of all may, on behalf of all,

sue or be sued.

(b) Secondary action by shareholders.-

In an action brought to enforce a secon-

dary right on the part of one or more share-

holders or members of a corporation or an

unincorporated association because the

corporation or association refuses to

enforce rights which may properly be as-

serted by it, the complaint shall be

verified by oath.

(c) Dismissal or compromise.--A

class action shall not be dismissed or

compromised without the approval of the

judge. In an action under this rule,

-134-

notice of a proposed dismissal or compromise

shall be given to all members of the class

in such manner as the judge directs.

-135-