Opposition Brief — Cheff v. Schnackenberg

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2 CITATIONS

- Cases:

% Floersheim, In re, 316 F. 2d 423_..--.--.--.--.--.- 10

Green v, United States, 356 U.S. 165...--...------._- 5

Holland Furnace Company, In the Matter of, 55 F.T.C.

aii sadeerilacnenienrents:-eiertverareninntion 10

Holland Furnace Co. v. Federal Trade Commission,

295 F. 2d 302 8

International Union, Etc. v. United States, 177 F. 2d

29, certiorari denied, 338 U.S. 871 cena: <2

United States v. Barectt 376 U.S. 681 ‘ 10

United States v. Harris, No. 526, this Term.._.._..._. 10

- Onited States v. United Mine Workers, 330 U.S. 258-. 5,6, 10

E Statutes and rules:

3 Federal Trade Commission Act, Sec. 5(2), 52 Stat. 111,

15 U.S.C. 45(2)_---- = 7

18 U.S.C. 1(3) 2, 3, 10

Federal Rules of Criminal Procedure:

Rule 32(e) “ 8

Rule 42(b)- . 8

@

773-167—65

Gn the Supreme Gourt of the Cnited States

Octorrer TERM, 1964

No. 972 ee ee

HotLaNnD F'uRNACE COMPANY, PETITIONER

v

Eimer J. SCHNACKENBERG, Rocer 8. Kiney

anp LurHeR M. Swycert, Circuit JUDGES

No. 1043

Pau. T. CHEFF, PETITIONER

Vv.

Eutmer J. SCHNACKENBERG, Rocer S. Kiney

anD LutHeR M. Swyaert, Circuit JUDGES

ON PETITIONS FOR WRITS OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE SEVENTH CIROUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

DECISION BELOW

The decision of the court of appeals (HF Pet. 2a-

lla; C Pet. 18-28) * is reported at 341 F. 2d 548.

1“HF Pet.” refers to the petition for certiorari in No. 972;

“C Pet.” refers to the petition in No. 1043.

: (1)

2

JURISDICTION

The judgment of the court of appeals (341 F. 2d

554; HF Pet. 12a-15a; C Pet. 29-32) was entered on

January 27, 1965. Motions for rehearing, vacation

of judgment, acquittal, or new trial were denied on

February 11, 1965. The petition in No. 972 was filed

on March 10, 1965. On February 15, 1965, Mr.

Justice Clark extended the time of petitioner in No.

1043 for filing a petition for a writ of certiorari to

and including April 12, 1965, and the petition was

filed on April 8, 1965. The jurisdiction of this Court

is invoked under 28 U.S.C. 1254(1).

QUESTIONS PRESENTED

1. Whether the court of appeals abused its discre-

tion in imposing a fine of $100,000 upon petitioner in

No. 972 for its willful violation of a court order.

9. Whether the court of appeals was required to ob-

tain a pre-sentence report before fixing the punish-

ment of a corporation in a criminal contempt proceed-

ing charging violations of the court of appeals’ order.

3. Whether the evidence supports the conviction of

petitioner in No. 1043.

4. Whether the sentence of six months’ imprison-

ment imposed upon petitioner in No. 1043 was con-

stitutionally permissible in the absence of a trial by

"jury.

. STATUTE INVOLVED

Seetion 1(3) of the U.S. Criminal Code, 18 U.S.C.

1(3), reads: be vEN

Any misdemeanor, the penalty for which does

not exceed imprisonment for a period of six

ences SERRE AMIRI RSE BORER TS

3

months or a fine of not more than $500, or both,

is a petty offense.

STATEMENT

Holland Furnace Company, petitioner in No. 972,

was convicted by the court of appeals of criminal con-

tempt of that court for willfully violating an order

of the court of appeals which had enforced a Federal

Trade Commission order to cease and desist from

specified fraudulent and oppressive practices in the

sale of furnaces and parts to consumers, Paul T.

Cheff, petitioner in No. 1043, who had been president

and board chairman of the corporation, was also con-

victed of willfully causing and aiding and abetting in

causing the corporation’s violations. The court sen-

tenced the corporation to pay a fine of $100,000, and

| sentenced petitioner Cheff to six months’ inmprison-

ment.’

The order. which was violated was issued by the

Court of Appeals for the Seventh Cireuit on August 5,

1959, at an early stage of the protracted proceedings

for review of the Federal Trade Commission decision.

The court then found that immediate enforeement of

the Commission’s order was necessary to prevent in-

jury to the public and to petitioner’s competitors

pendente lite, and it directed the corporation and its

officers to comply with the Commission’s order pend-

ing judicial review of that order. The court subse-

quently affirmed the Commission’s decision and order

(295 F: 2d 302) and, on November 7, 1961, issued a

~2Two other officers, also convicted, were each fined $500.

They have-not petitioned for certiorari, —

4

decree making permanent its earlier enforcement

order. The Commission’s order, as enforced by the

court of appeals, directed the company, its officers and

employees to cease and desist from making representa-

tions that its employees were inspectors and its sales-

men heating engineers; from tearing down and

dismantling furnaces without permission; and from

misrepresenting the condition of dismantled furnaces

and the feasibility of their repair.

In March 1962, the Commission filed in the court of

appeals a petition for the institution of criminal con-

tempt proceedings against the corporation, supported

by 168 affidavits relating to alleged violations. The

court issued show cause orders to both petitioners and

to other officials of the corporation. The corporation

admitted some violations and requested a judgment on

the pleadings. Petitioner Cheff filed an answer deny-

ing guilt. He also filed a demand for a jury trial,

which was denied by the court.

Pursuant to stipulation, the affidavits attached to

the contempt petition and certain other documents

were considered by the court in lieu of the testimony

of live witnesses with regard to the corporation’s

alleged violations of the order; the hearing dealt pri-

marily with the complicity of petitioner Cheff and

other company officials. On January 27, 1965,

in the presence of counsel for petitioners and all

but one of the other defendants, the court heard

counsel for the corporation (who had been ex-

cused from attending the hearing), announced and is-

sued its findings and conclusions of law, and entered

its order fixing the punishments of those convicted.

The court said that it was convinced beyond a reason-

NRE Si he ots lauaee revi eG Sn aan ceak eae

5

able doubt, on the basis of the entire record, that the

company, through a “‘regular and usual’’ sales prac-

tice, had knowingly, willfully and intentionally vio-

lated the order of August 1959. It was also convinced

beyond a reasonable doubt that respondent Cheff

knowingly, willfully and intentionally caused and

aided and abetted in causing violations by the com-

pany; that he was the dominant head of the company

until May 1962, and was well aware of the condemned

sales practices and of the prohibitions in the order;

that he made no bona fide attempt to comply or achieve

compliance with the order but, on the contrary, pur-

sued a course of conduct designed to construct an ap-

parent compliance and insulate himself from guilt as

a facade behind which to continue the condemned sales

practices.

. ARGUMENT

1. The corporation, petitioner in No. 972, contends

that the fine imposed upon it constituted an abuse of

diseretion in light of the standards prescribed by this

Court in United States v. United Mine Workers, 330

U.S. 258, and Green v. United States, 356 U.S. 165,

187-189. The record in this case, however, supported

the court’s conclusion that the 25 specific violations

admitted by the corporation were merely representa-

tive of “a regular and usual method” (HF Pet. 6a; C

Pet. 22) of operations in which petitioner engaged

during an extended period of time ‘“‘throughout the

entire territory in which’’ petitioner conducted its

operations (tbid.). This flagrant and sustained course

of conduct, which admittedly was in violation of the

court’s order, warranted the imposition of a substan-

tial fine. As this Court observed in United States v.

United Mine Workers, 330 U.S. 258, 303:

* * * In imposing a fine for criminal con-

tempt, the trial judge may properly take into

consideration the extent of the willful and de-

iberate defiance of the court’s order, the seri-

ousness of the consequences of the contumacious

behavior, the necessity of effectively terminat-

ing the defendant’s defiance as required by the

public interest, and the importance of deterring

such acts in the future. * * *

Moreover, the $100,000 fine was not excessive 1

light of the serious harm to the consuming public

which the corporation caused by its violations of the

court order. The total charges to the customers in-

volved in the admitted violations, for example, came

to more than $12,200.’ In addition, between 1956 and

1961 a woman more than 70 years of age was sold seven

furnaces for one house at a total cost exceeding $18,500.*

Other documents in evidence tended to establish addi-

tional violations (not admitted, however, by peti-

tioner) in which the charges totalled more than

$26,500, The court could consider these injuries to

&See the affidavits attached to the petition for institution of

the contempt proceeding. Item 1, Envelope 1, Record in No.

1043,

*See Attachment 5 to the reply to the corporation’s answer,

which is in evidence by stipulation. The reply is Item 20, En-

velope 3, Record in No. 1048.

®See Attachments 8, 11, 12, 24, 36, 51, 55, 56, 65, 71, 76, 7,

80, 85, 92, 112, 121, 128, 190, 150, 153, 156, to the petition for

institution of the contempt jic<ceding. Item 1, Envelope 1,

Record in, No, 1043,

7

the public, as well as the evidence in the record regard-

ing petitioner’s total sales,’ in determining the appro-

priate fine to be imposed on petitioner.

Nor is there any merit to the claim that the fine

must be abated because of the change in the corpora-

tion’s management and operations (HF Pet. 8-9).

The facts were presented to the court of appeals be-

fore sentencing and in petitioner’s motion to modify

the sentence, and they were, upon due consideration,

rejected as a ground for reduction of sentence. The

new management took on the corporation with its

then-existing liabilities, which included the possible

imposition of a fine for its unlawful conduct; the

corporation should not be absolved of t» criminal

liability merely because it may prove expensive to its

stockholders or creditors. In light of the substantial

benefits derived by the corporation from its long use

of the illegal practices—which presumably inured to

the benefit of stockholders and creditors—it was not

“harshly punitive’’ for the court of appeals to impose

on the corporation a fine of $100,000.’

2. There is no substance whatever to petitioner’s

glaim that ‘he court was required to obtain a pre-sen-

tence report before imposing a fine on the corporation.

‘The corporation’s total sales exceeded $29,000,000 in 1960,

gnd $24,000,000 in 1961. 1961 Annual Report, p. 3, Envelope

13, Record in No. 1048.

Section 5(7) of the Federal Trade Commission Act, 15

U.S.C. 45(2), authorizes the imposition of a $5,000 civil penalty.

for each, violation of a Federal Trade Commission order. In a

civil suit, therefore, petitioner could have been penalized $125,000

for its 25 admitted violations.

Assuming arguendo that Rule 32(c) of the Federal |

Rules of Criminal Procedure applies to criminal con-

tempt proceedings conducted in conformity with Rule

42, Rule 32(c) leaves it to the discretion of the court ©

whether or not to request such a report. Moreover,

the notion of a probation report with respect to a cor-

poration is a singular one. Petitioner did not request

such a report nor does it now suggest what such

a report might contain or how it could be heipful to

the court in determining the sanction to be imposed.

Nor was petitioner deprived of any right of allocu-

tion or right to be heard prior to sentencing. Peti-

tioner’s counsel was hoard before sentencing, and he

then presented the facts regarding the changes in

management—which were again presented to the court

in the motion to reduce sentence.

3. The evidence was sufficient to sustain the con-

viction of petitioner Cheff. The court’s finding that

“he pursued a course of conduct designed to construct

an apparent compliance with the order and to devise

a defense against charges of violation’? (HF Pet. 7a;

C Pet. 23) is supported, inter alia, by petitioner’s own

testimony on cross-examinaiion, wherein he admitted

having taken no other steps in 1959 to obtain compli-

ance than he had taken in 1952, in an earlier purported

attempt—which he knew to have been ineffective—to

stop the corporation’s unlawful practices.’ The rec-

ord also supports the court’s conclusion that petitioner

“‘complained of recommendations to discharge sales-

* Compare Transcript 2065-2067 with Transcript 2080, Record

in No. 1043.

ee

9

men’”’ who had violated the court’s order and that with

his ‘‘knowledge and approval * * * salesmen whom

[the head of the complaint division] revommended

discharging were praised in the [corporation’s house

organ]’’ (HF Pet. 7a; C Pet. 24). Petitioner was the

author of an article making such a complaint, pub-

lished on page 1 of the issue dated November 2, 1959

(Prosecution Exhibit 35).° That was the first is-

sue after the head of the complaint division had ree-

ommended to petitioner that a salesman who had

violated the court order be discharged.” The article

complained about such discharge recommendations,

and, in effect, repeated the same objection petitioner

had made several days before in a letter to the cor-

poration’s counsel (Prosecution Exhibit 87). A spe-

cial issue of the house organ published in March 1960

commended that salesman and others involved in simi-

lar incidents (Prosecution Exhibit 43).

Petitioner’s related claim that the order did not put

him on notice that failure to correct the practices en-

gaged in by the corporation’s salesmen might consti-

tute a violation (C Pet. 6-11) lacks substance. The

order directed the corporation and its agents to cease

engaging in certain specified misrepresentations and

deceptive or unlawful conduct “directly or through

any corporate or other device.”” This adequately in-

formed petitioner—the managing officer of the cor-

poration—that if he did not take appropriate steps to

modify his salesmen’s practices, he could be held in

contempt.

* Transcript 789-790, 894-896, Record in No. 1043.

% Transcript 247-255, 783-787, Record in No. 1043.

10

The court of appeals.listed a number of factors which

“contributed to a condition which lent itself to un-

disciplined sales practices,” included among which

were certain details of the corporation’s sales policies,

organization, structure, and operations, and petitioner

Cheff’s management methods, behavior, and attitude

(C Pet. 25). There is no merit to the contention (C

Vet. 8-11) that Cheff had no notice that those factors

were contributory to the corporation’s use of the pro-

hibited practices; the Commission so found in its de-

cision issued over a year before the court order, 55

F.'T.C, 55, 78, 88-89 (1958). The court clearly had

the right to consider petitioner's actions in this con-

text even though the policies, standing alone, might

have been entirely lawful. Cf. International Union,

Rte. v. United States, 177 F. 2d 29, 35-36 (CLA.D.C.),

certiorari denied, 338 U.S. 871; United States v. United

Mine Workers, 330 U.S, at 267. When the actual basis

of Cheff’s conviction is thus recognized, there plainly is

no contlict between the decision below and thai of the

Ninth Cireuit in Jn re Floersheim, 316 F, 2d 423 (1963),

4. The six months’ imprisonment imposed on peti-

tioner Cheff after denial of his demand for a jury

trial is within the allowable punishment for a “petty

offense” as defined in 18 U.S.C, 1(3), p. 2, supra

This satisfies the dictum in United States vy. Barnett,

376 U.S. 681, 694-695, n. 12, as to the maximum per-

missible punishment pursuant to a non-jury trial.

The issue involved in Harris v. Untted States, No.

526, this Term, is not, therefore, presented by this

CASO,

eee

ll

CONCLUSION

For the foregoing reasons we respectfully submit

that the petitions for writs of certiorari should be

denied.

ARCHTBALD Cox,

Solicitor General.

J. B. Truty,

K. K. ELKins,

Mies J. Brown,

Attorneys appointed to prosecute on behalf of

the court of appeals,

May 1965,

US. GOVERNMENT PRINTING OFFICE, 1008