Brown & Williamson Tobacco Corp. v. Engman(Consolidated FTC, US Dist Ct S NY 1975 Dismissed) Citation: 1975 WL 930 (S.D.N.Y. 28 Aug 1975); 1975 WL 986 (S.D.N.Y. 5 Nov 1975); 527 F2d 1115 (CA 2, NY, 22 Dec 1975)
These suits were brought by Brown & Williamson, Philip Morris, R.J. Reynolds, Loew's Theaters, and American Brands against Lewis A. Engman as Chairman of the Federal Trade Commission on August 15, 1975.
The cases were consolidated on August 25, 1975 on the motion of the Assistant United States Attorney.
The plaintiffs challenged the determinations of the FTC that the plaintiffs were in violation of the 1972 Consent Order regarding health warnings in cigarette advertising. In July, 1971, FTC charged the plaintiffs with failure to promptly disclose health hazards of smoking which resulted in a settlement and Consent Orders issued March 30, 1972. These orders contained detailed terms as to cigarette advertising and the Surgeon General's Warning. It also included a clause waiving the plaintiff's rights to any further procedural steps or judicial review of the validity of the orders. In late 1974 and early 1975, the FTC raised allegations of noncompliance including failure to file reports, and failure to disclose practices. After some negotiations, the FTC indicated it was finding noncompliance and intended to commence an enforcement action for civil penalties following the 180 day grace period to correct violations. The FTC's complaints were filed in district court on October 17, 1975. The plaintiffs filed this suit for pre-enforcement review of the FTC's determination.
The cases were heard in the United States District Court, Southern District of New York (75 Civ. 4047 - 75 Civ. 4051) before the Honorable Charles R. Tenney. On August 28, 1975, the judge (1975 WL 930 (S.D.N.Y.)) denied a preliminary injunction staying the accumulation of civil penalties on the plaintiffs for violations of their consent orders with the FTC. The injunction was inappropriate since the penalties were discretionary with the court. Also, granting the injunction would promote frivolous suits to delay penalties. Nor were the plaintiffs able to show that equity tipped decidedly in their favor.
On November 5, 1975, the judge (1975 WL 986 (S.D.N.Y.)) granted the defendant's motion to dismiss. The judge declined to exercise jurisdiction given the existence of the FTC's district court case. While recognizing the possibility of a need for pre-enforcement action, the judge found no such exceptional need or statutory authority in this case.
The United States Court of Appeals, Second Circuit (527 F.2d 1115) affirmed the denial of an injunction on December 22, 1975. The court held that by entering into consent decrees, the plaintiffs waived the right to further challenge their validity. The plaintiffs were not allowed to stay the cumulative penalties that came of enforcing those decrees. While prior cases represent that a party has a due process right to contest the validity of an order without facing ruinous penalties, the penalties here did not attach until the plaintiffs had had an opportunity to contest the validity of the order by waiving that right in the Consent Orders. Enforcement of a valid order could not be stayed on the premise of ruinous penalties, because the legality of the orders was certain. Cumulative penalties did not violate due process because they were the only way to enforce the orders against the lucrative industry.