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SCM Corp. v. Federal Trade Commission

decided as amended.: December 23, 1977.


Petition for review of Federal Trade Commission order to cease and desist interlocking directorates in violation of Clayton Act § 8, 15 U.S.C. § 19.

Moore, Feinberg, Mulligan, Circuit Judges.

Author: Feinberg

FEINBERG, Circuit Judge:

This petition by SCM Corporation to set aside an order of the Federal Trade Commission raises an issue of first impression in this court: Whether section 8 of the Clayton Act, regulating interlocking directorates, applies to corporations as well as to individual directors. We hold that it does, but because the FTC may have applied the wrong legal standard in entering a cease and desist order against SCM, we remand for further proceedings.


This proceeding grows out of the circumstance that from 1967 to 1975 Richard C. Bond was a member of the board of directors of both SCM and Kraftco Corporation, which competed with each other in certain markets. SCM is a diversified company which manufactures and distributes such products as business equipment, home appliances, paint, food and chemicals. Its sales in the fiscal year ended June 30, 1975 were $1,287,000,000. Kraftco is a leading processor and distributor of cheese and dairy products. Its total sales in the year ending December 31, 1974 were $4,500,000,000. Both corporations sell margarine, barbecue sauce and edible oils. In fiscal 1975, SCM sold approximately $83 million of these products in competition with Kraftco. In the same period, Kraftco's sales of the same products, in competition with SCM, were approximately $258 million. The capital, surplus and undivided profits of both corporations aggregate more than $1 million.

In June 1975, the FTC issued a complaint against Kraftco, SCM and Bond, alleging that Bond's presence on the board of directors of both corporations violated section 8 of the Clayton Act, 15 U.S.C. § 19.*fn1 Shortly after the complaint was issued, Bond resigned from the SCM board. Thereafter, he consented to the entry of a cease and desist order, as did Kraftco. SCM answered the complaint and moved for summary decision, arguing, among other things, that Bond's resignation from SCM had mooted the proceeding against it, that competition between SCM and Kraftco was insufficient to justify a section 8 proceeding, that the section does not apply to corporations, and that the FTC was enforcing the section in a discriminatory fashion. The FTC also moved for summary decision. The case was submitted to the Administrative Law Judge on a stipulated record. In June 1976, the ALJ filed an Initial Decision and Order against SCM, finding that section 8 had been violated and that a cease and desist order was justified. SCM appealed to the Commission, which in January 1977 issued a written opinion, affirming the decision of the ALJ.*fn2 SCM then filed this petition for review.


In this court, SCM repeats many of the arguments made in the administrative proceedings below, and additionally contends that injunctive relief was both unwarranted and granted pursuant to an erroneous legal standard.*fn3 First, however, we turn our attention to the substantial issue concerning the scope of section 8, which provides in pertinent part:

No person at the same time shall be a director in any two or more corporations, any one of which has capital, surplus, and undivided profits aggregating more than $1,000,000, . . . if such corporations are or shall have been . . . competitors, so that the elimination of competition by agreement between them would constitute a violation of any of the provisions of any of the antitrust laws.

SCM maintains that the prohibition of this section applies only to individual directors and not to the corporations on whose boards the directors serve.

The question thus posed was noted, but not decided, by the Supreme Court in United States v. W.T. Grant Co., 345 U.S. 629, 634 n.9, 97 L. Ed. 1303, 73 S. Ct. 894 (1953). Surprisingly, the issue has received scant attention in decisions of the lower federal courts. We are cited to only two district court cases in point. In United States v. Sears, Roebuck & Co.,*fn4 Judge Weinfeld held that the corporate defendants had violated section 8 by acquiescing in the interlocked directorship. Similarly, the court in United States v. Crocker National Corp., 422 F. Supp. 686, 705-06 (N.D. Cal. 1976), appeal docketed, No. 76-3614 (9th Cir. Dec. 10, 1976), stated in dictum that the defendant corporations there would have been subject to injunction had they violated section 8. Perhaps the paucity of judicial writing on the point*fn5 is due to general acquiescence, despite the Supreme Court's express reservation of the issue, in what the FTC characterized below as "decades of Justice Department and Federal Trade Commission enforcement of the Clayton Act, via voluntary action, consent agreements, and litigation."*fn6 In any event, we have been unable to find any resolution of this issue by any court of appeals.*fn7

SCM contends that the language and legislative history of section 8 support its interpretation. SCM argues that only individuals can violate section 8 because it provides only that "no person at the same time shall be a director. . .," (emphasis supplied) and not, for instance, that a corporation is prohibited from electing, or having, a director who is also on the board of a competitor. SCM further points out that section 8 as first enacted explicitly prohibited banking corporations, but not so-called industrial corporations, from having interlocking directors.*fn8 SCM also relies on committee reports to support its construction of the section as applying only to individuals.*fn9

The FTC argues to us primarily that this restrictive reading of section 8 ignores the policies behind it. The point was well ...

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