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United States v. Kroger Grocery & Baking Co.

August 15, 1947


Author: Major

Before SPARKS, MAJOR and MINTON, Circuit Judges.

MAJOR, Circuit Judge.

This is an appeal from a judgment finding the defendant guilty of a criminal contempt of court. A fine was imposed in the sum of $48,000, to be paid to the United States, and the costs of the proceeding assessed against the defendant. The action was instituted on May 1, 1946, by the plaintiff's request for prosecution, alleging that the defendant violated the provisions of an Injunction Order of the United States District Court entered on September 24, 1945, restraining the defendant, its officers, agents, servants, employees and representatives from selling or offering to sell at its retail stores in the Chicago metropolitan area, meats, groceries, fresh fruits, poultry and vegetables at prices in excess of the maximum prices established by the regulations of the Office of Price Administration. In response to an order to show cause, the defendant on may 23, 1946, filed its answer. Both the request and the answer were supported by numerous affidavits. The court refused to try and decide the case on the affidavits submitted and a long trial ensued, during which many witnesses were heard.

The defendant operates approximately 3,000 stores in 18 different states, which are divided into 25 branches. The Chicago branch embraces the Chicago metropolitan area and includes 183 stores, 122 of which have meat markets, at which meats, groceries, fresh fruits, poultry and vegetables are sold to the consumer at retail. The executive offices of the defendant are located at Cincinnati, Ohio. The grocery department carries 2,000 items, not including meat. In normal times defendant's stores selling meat in Chicago carry 250 to 300 meat items in addition to grocery items. It operates its Chicago branch through an organization consisting of a branch manager, a grocery merchandiser, a produce merchandiser, a meat merchandiser, and their assistants, a general district manager, and 11 district managers. Each store has a manager, each meat market a head meat cutter and numerous other employees such as journeymen meat cutters, clerks, checkers and cashiers. In the 183 stores in the Chicago branch defendant employs approximately 825 full-time employees in the grocery and produce departments, 275 full-time employees in the meat departments, and 300 part-time employees in the grocery and meat departments, all of whom are directly connected with the distribution of merchandise to the public.

The merchandisers under the supervision of the branch manager buy all the merchandise handled in the various stores of the Chicago branch and determine and fix the selling prices of all merchandise sold. The various district managers under the supervision of the general district manager supervise the operations in the various stores and meat markets in their respective districts and are charged with the responsibilty of carrying out defendant's rules, regulations and policies.

The request for prosecution alleged 191 purchases at 31 of the defendant's retail stores during the period from November 28, 1945, to April 16, 1946, at over ceiling prices. These alleged purchases were itemized, giving the date, the item purchased, the price charged and the maximum ceiling price. All the purchases relied upon are meat items, and grocery items carried by the defendant are not involved. The overcharges of these various purchases vary from a minimum of 1› to a maximum of 15› per pound. All of the alleged purchases were supported by the affidavits of the persons making the purchase, in the main OPA investigators although a few of such purcases were supported by the affidavits of housewives. At the trial, the government produced the same witnesses who had made affidavits and their oral testimony in all material respects is the same as that contained in their affidavits.

The defendant's answer to the rule to show cause is voluminous and sets forth in detail the magnitude of its business, its system of conducting the same, and the responsibilities and duties which are imposed upon its numerous officials and employees. The answer does not deny that the purchases were made as alleged in plaintiff's request. It rather assumes that they were made but asserts that they were attributable to unavoidable conditions encountered in the sale of meat and meat products or to unintentional errors, mostly by the meat salesmen but in some instances by the employee or official who was charged with the responsibility of determining and furnishing to the various stores the maximum ceiling prices for the various items. The answer sets forth at considerable length factors which might account for numerous of the alleged overcharges.

The answer alleges that neither the meat cutters nor store clerks nor any other representative of defendant had any knowledge or recollection of the purchases set forth in the request for prosecution; that the meat cutters and store clerks never knowingly made a sale at a price in excess of the maximum ceiling price; that the selling prices were fixed by the merchandisers under the direction of the branch manager and were furnished to the meat cutters and store clerks with orders and directions to observe such prices at all times; that meat cutters, store managers or clerks had no authority or power to determine or fix the price of any commodity sold; that the meat cutters and all other store employees were repeatedly warned, admonished and directed by the management not to sell any article at a price in excess of the maximum price of the Administrator; that the merchandisers, district managers, store managers, meat cutters and other clerks in the stores were advised of the issuance of the injunction and the meaning and effect thereof and that it applied to them; that they were advised of the punishment to which they would be subjected for any violation; that the declared and announced policy of the executive officers of defendant was to cooperate with the Price Administrator in maintaining price control; that orders and directions were given to the branch managers, including the manager of the Chicago branch, to adhere to, observe and follow the price regulations issued by the Administrator; that after the issuance of the injunction the management was constantly warning the meat cutters, store managers and clerks by printed bulletins and orally through the district managers of the necessity and importance of strict compliance with the company's selling price lists, and that the errors made by the grocery merchandiser or meat merchandiser whose duty it was to fix defendant's selling prices in the Chicago branch were accidental and unintentional, and at the time they fixed the selling prices on certain of the items contained in the government's request they did not know that those prices were in excess of the maximum price fixed by the Administrator for such items.

The answer also alleged that on or about the date of the injunction the defendant employed a shopping service (Merit Protective Service of Illinois) to check the prices charged at the various stores as well at the competency and integrity of its employees, to determine whether they were complying with the OPA rules, regulations and directives, and with defendant's price list distributed to its stores. The answer set forth in detail the result of this survey, which disclosed that from November 1, 1945 to April 30, 1946 (substantially the same time covered by the government's witnesses), 240 stores were shopped in the Chicago area and that the aggregate number of items of merchandise purchased was 4,448. Upon the purchase of such items they were taken to the office of the district manager and each item analyzed for the purpose of determining if they had been sold above the ceiling price, and the district manager was instructed to and did return such items to the various store managers or head meat cutters, and to discuss with them the reason for the price charged. In analyzing the purchases thus made it was found that 829 items were ostensibly in excess of defendant's selling price but that only 448 items constituted actual overcharges and that 352 items were sold at prices below defendant's selling price. This survey showed that the aggregate amount of charges ostensibly in excess of defendant's selling price was $24.69, and the aggregate amount of charges less than the company's selling price was $9.13. (It will be noted that the result which the defendant obtained from this shopping service was strikingly similar to that obtained by the government's secret agents, as detailed in its request for prosecution.)

In making an analysis of the items purchased in this survey all doubts, so the answer alleges, were resolved against the retail store as it was the desire of the branch manager to emphatically impress on each store employee the importance of compliance. It was determined that many of the ostensible overcharges were due to what is known in the trade as "shrink" and "skin and trim" of meat products, and to "marginal error" in weighing items sold by weight. The items where overcharges had been made were returned to the store manager or head meat cutter and in the presence of the employee who had actually made the sale, if his identity could be determined, the error was demonstrated and an explanation required as to why it was made. The employees were warned that a repetition of the offense would result in their discharge. District managers reported to the general district manager the result of these interviews, including the explanations obtained as to the overcharges. After a careful analysis of such reports, it was concluded by the branch manager that while some overcharges had been shown, they were the result of unintentional error.For this reason it was determined that the overcharges found did not generally justify the discharge of the persons involved, although two employees were discharged because their explanation was not satisfactory.

The government's request alleged that the defendant since the entry of the injunction order "has knowingly, repeatedly, flagrantly, and wilfully disobeyed the said provisions of said judgment." This allegation was specifically denied by the defendant in its answer. While the defendant in its answer did not admit that the 191 sales were made above ceiling price in the manner and on the occasions detailed in the government's request, neither did it deny such sales but for the purpose of its answer assumed that they had been made. Any doubt as to the issue for trial was completely removed by counsel for the defendant in his opening statement, wherein he stated: "So our defense here is that, while we admit that there were sales made in excess of our selling prices, and also the ceiling prices, that they were not intentional; it was not by way of any spirit of intention to defy the order of this Court or defy the regulations of the Price Administrator."

The court found that the 191 sales alleged and proven were made deliberately and that the defendant "has knowingly, repeatedly, flagrantly, and wilfully violated the terms and provisions of the said injunction * * * and is guilty of criminal contempt of court as charged." Whether this finding is supported by substantial evidence is the overshadowing issue presented on this appeal. Neither the plaintiff nor the defendant, either by their affidavits or by oral proof, sought to contradict in any material respect the proof offered by the other. Plaintiff in support of the finding relies entirely upon the fact that sales were made by the defendant at over ceiling prices in the manner alleged, proven and admitted. The case was tried by the plaintiff and is presented to this court on the theory that the intent with which the overcharges were made was immaterial, but if it was, the burden was upon the defendant to disprove such intent.

That this was and is plaintiff's theory is shown by its statement of the contested issue on this point as follows: "Whether a denial of intent to commit contempt is a defense in a prosecution for criminal contempt, and whether such defense was in fact proved." That this is and was its theory is further evidenced by its argument here. In its brief it states:

"As we have heretofore pointed, out, the uncontradicted testimony of the witnesses for the plaintiff shows that they purchased 191 food items at 31 stores of the defendant and were charged overceiling prices in each and every instance; that the one and only defense relied upon by the defendant in its sworn answer, in the opening statement of its attorney and by the testimony of its witnesses was that the violations were not intentional. In other words, all ...

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