Thеse cross appeals are the aftermath of the Supreme Court decisions in Hazel-Atlas Glass Co. v. Hartford-Empire Co.,
In 1941 the fraud was finally brought into the open by the anti-trust prosecution of United States v. Hartford-Empire Co. et al., D.C.N.D.Ohio, W.D.,
In accordance with that broad command of the Supreme Court these defendants filed their counterclaims in the original District Court suit. Hartford’s general defenses to the counterclaims were: 1. That there had been a settlement between the parties which was dispositive of the entire litigation; 2. that the statute of limitations barred the claims; 3. that the finding of fraud by the Supreme Court was not binding upon the District Court. After trial, the lower Court rejecting those defenses ordered restitution of amounts paid by the defendants to Hartford because of the direct order of the injunction decree. Recovery was denied to the defendants on all other items of the counterclaims.
Hartford asserts that the settlement on the accounting in connection with its original judgment amounts to a settlement subsequent tо and in place of the fraudulently secured judgment. Much law is cited to show that fraud cannot later be used to upset such a settlement. That law is not disputed. But the settlement here was not in place of a judgment. It was in place of a sum found due on an accounting which was itself merely a part of and a compliance with the fraudulently secured judgment. As the District Court correctly held, that settlement and аccounting collapse with the judgment and the monies secured thereby must be returned, with interest.
The second contention by Hartford is that the counterclaims are out of time since they were not filed till more than eleven years after the commencement of the suit which resulted in the permanent injunction of October 19, 1934. This is completely answered by the Supreme Court opinion in Shawkee, supra,
The third of Hartford’s main general -defenses is that the finding of fraud by the Supreme Court should not have been considered final by the District Court and should have been relitigated. It is difficult to follow the argument advanced in support of that proposition. Fraud was the basis of the petition filed by the defendants in this Court. Hartford denied the fraud. The Supreme Court said in the Hazel-Atlas opinion, supra,
In addition to the sums paid to Hartford in the accounting proceeding which were allowed by the lower Court, the other elements of thе counterclaims which are pressed on the appeal of the injured parties are:
1. Return of royalty fees paid under contracts to Hartford for the use of Hartford controlled feeders after the use of the royalty free feeders had been enjoined. (Glenshaw and McKee).
2. Litigation and traveling expenses and disbursements in connection therewith. (All three counterclaimants).
3. Non-rоyalty feeder dismantlement expense. (Glenshaw and McKee).
4. The damage to Glenshaw for the loss of its fruit jar business.
5. The damage to Shawkee for the loss of its feeder sales.
6. Exemplary damages. (All three coun-terclaimants).
All of these claims were denied by the District Judge who characterized them as damages in distinguishing them from the accounting sums allowed as restitution. The Court did not think that they were losses suffered as a result of literal compliance with the injunction decree. The fact that no bond had been given by Hartford upon the issuance of the injunction weighed heavily with the Trial Judge who held that in such a situation the defendants could not recover unless the original action by Hartford was a malicious prosecution. The District Court finding was that the Hartford suit lacked important elements of malicious prosecution in that it “was not instituted for mere vexatious purposes but in the definite hope of judgment.” The Court so held becаuse it had reached the conclusion that Hartford had every reason to believe “that its fraud had been deeply and safely buried.”
Though the royalty payments were not made by reason of any direct order of the injunction decree, under the evidence there can be no doubt but that it was the decree which forced Glenshaw and McKee to resume use of the Hartford feeders. This is conсeded by the District Court opinion which says, “True, in the exercise of sound business judgment it was probably necessary for Glenshaw and McKee, as the most practicable alternative, to go back to the use of Hartford’s feeders after the injunction,” and further, “The recourse to them [Hartford’s feeders] after the decree was doubtless undesired by Glenshaw et at * * * .” And it is strongly supported by the record which shows that аt the time the permanent injunction had been entered, five out of eight of Glenshaw’s Howard and Hartford feeders had been supplanted with Shawkee feeders which latter were handling 65% of Glenshaw’s production. The testimony is also that McKee, despite difficulty experienced in its early use of the Shawkee feeder, would have replaced its two Hartford machines except for the injunction. Hаrtford contends that the royalty free feeders were not as efficient as those controlled by Hartford. There is much testimony on this pro and con and no specific finding by the Trial Court on the merits of the respective feeders. However, we do think that the clear weight of the evidence, as indicated, is that but for the injunction the Hartford feeders would have been superseded by non-royalty machinеs.. The injunction stopped all that and forced Glenshaw and McKee to retain their old royalty contracts with Hartford (which otherwise could have been terminated) and to renew them at their expiration. The enforcement therefore of Hartford’s fraudulent patent resulted in certain royalty payments to the former by McKee and Glen-shaw which otherwise would not have been made. The cause of action arising is not one calling for compensatory damages but is squarely under the doctrine of restitution. Restatement, Restitution, Section 1 et seq.; General Casmir Pulaski B. & L. Ass’n v. Providence Trust Co.,
The leading case on this point, insofar as the precise facts before the Court are concerned, is Arkadelphia Milling Co. v. St. Louis Southwestern R. Co.,
“As to that portion of the claims which accrued after the final decrees, this, as we already have held in the McKnight Case [St. Louis, Iron Mountain & Southern Ry. Co. v. McKnight],244 U.S. 368 , 374,37 S.Ct. 611 ,61 L.Ed. 1200 , was not recoverable upon the injunction bonds, nor against the sureties therein. On a fair construction of the conditions of those instruments, their obligation expired by limitation when the suits were brought to a final conclusion. Hence, to the extent that the supplemental decree now under review awards a recovery against the sureties for claims accruing after thе final decrees, it must be modified.
“But, in our opinion, this portion of the claims is allowable against the railway companies themselves upon the principle, long established and of general application, that a party against whom an erroneous judgment or decree has been carried into •effect is entitled, in the event of a reversal, to be restored by his adversary to that which he has lost thereby. This right, so well founded in equity, has been recognized in the practice of the courts of common law from an early period. Where plaintiff had judgment and execution, and defendant .afterwards sued out a writ of error, it was regularly a part of a judgment of reversal that the plaintiff in error ‘be restored to all things which he hath lost by occasion of the said judgment’; and thereupon, in a plain cаse, a writ of restitution issued at once; but if a question of fact was in doubt, a writ of scire facias was first issued. Anonymous, Salk, 588; citing Good-yere v. Ince, Cro.Jac. 246; Sympson v. Juxon, Cro.Jac. 698; Vesey v. Harris, Cro. Car. 328. See, also, Lil.Ent. 641, 650; Arch.Append. 195, 200. The doctrine has been most fully recognized in the decisions of this court. Bank of the United States v. Bank of Washington,6 Pet. 8 , 17,8 L. Ed. 299 ; Erwin v. Lowry,7 How. 172 , 184,12 L.Ed. 655 ; Northwestern Fuel Co. v. Brock,139 U.S. 216 ,11 S.Ct. 523 ,35 L.Ed. 151 .
“That a course of action so clearly consistent with the principles of equity is one proper to be adopted in an equitable proceeding goes without saying. It is one of the equitable powers, inherent in every court of justice so long as it retains control of the subject-matter and of the parties, to correct that which has been wrongfully done by virtue of its process. Northwestern Fuel Co. v. Brock,139 U.S. 216 , 219,11 S.Ct. 523 ,35 L.Ed. 151 ; Johnston v. Bowers,69 N.J.L. 544 , 547,55 A. 230 .
“It is argued that the claimant is not in a position to invoke the principle of restitution in this proceedings because it was not a party to the original proceedings, but came in by intervening before the master. This point is unsubstantial. The Railroad Commission, in defending the rate schedules against the attack of the railway companies, represented all shippers; the permanent injunctions that were awarded by the final decrees restrained all shippers from taking advantage of the commission rates; and during the time that those decrees remained unreserved the railway companies obtained the benefit of the injunction by exacting from this claimant, among others, in addition to the commission rates, those excess charges that form the basis of the present claims. It is a typical case for the application of the principle of restitutiоn; and the District Court properly held the commission to be the representative of the shippers for this purpose.”
The question of an injunction bond was expressly held not determinative. The payments for which restitution was granted were originally made because of the injunction but were not expressly ordered by the injunction decree. Indeed, they could not have been, because the injured shipрers there were as free to go out of business as the injured glassmakers here; they were just as free to transport their goods by other methods than railroads as these injured *479 glassmakers were to make their glass by-hand. Moreover, the fact that the Arka-delphia case was a carrier matter will not serve to distinguish it from the case at bar, since, as Justice Pitney stated in the above quoted portion of his opinion, the rule he used was “long established and of general application.”
Therefore whatever portion of the royalties plus interest to which they are entitled must be repaid to Glenshaw and McKee. Nor is the Arkadelphia case a lone precedent for that law. Baltimore
&
Ohio R. Co. v. United States,
In reaching a contrary conclusion the Court below relied on Greenwood County v. Duke Power Co., 4 Cir.,
The District Court has found as fаcts the specific amounts of the royalty payments by Glenshaw and McKee after the permanent injunction which prohibited the use of non-royalty feeders. On the present state of the record, however, it is impossible to decide whether reimbursement should be made of those full amounts. There may be elements which might possibly affect the-amounts of royalties to be refunded and we-express no оpinion as to this. Testimony should be taken in the District Court on the-question and the specific amounts of royalties to be refunded, determined by that Court.
The remainder of the claims, expenses of litigation, losses in connection with the non-royalty feeders, loss of business and punitive damages do not come under the rule of restitution and if recoverable at all. are recoverable as damages.
The Court below refused to allow counterclaimants legal and traveling expenses and incidental disbursements because of the conclusion that Hartford’s-original suit was not a malicious prosecution. Hartford defends that decision by referring to cases which hold such expenses unrecoverable under an injunction bond. Neither ground recognizes the claim for-what it really is, namely, damages sustained, through Hartford’s fraud and hence enforceable against the latter. Catts v. Phalen, supra; Kraemer v. Graf, 10 Cir.,
The claim for loss of profits on behalf of Glenshaw because the injunction: prohibited that company from using the Shawkee feeder in the manufacture of. fruit jars was denied by the Court below on the same ground, as the litigation expense and royalty demands and on the additional ground, carefully considered by the District Judge, that the proof offered to-support it “takes us into a field of pure- *480 speculation.” It is true that vigorous argument is made on behalf of Glenshaw that its proof was adequate on this branch of the case, but since our own examination of the record reveals substantial justification for the District Judge’s conclusion regarding this largely factual problem — that the evidence as to this business loss was too speculative — we must sustain that finding.
Shawkee’s claim for loss of feeder business was also found to have been speculative, with the Court below saying, “It was but an attempt to enter the manufacture of glass feeders.” Since the record again gives a firm basis for that decision of a fact question, we are bound by it.
The remaining claim submitted on this appeal is for punitive damages. This was denied by the District Judge solely because he considered that Hartford’s action did not partake of the еlements of malicious prosecution. That reason as above shown is inapplicable.
The seriousness, the long duration and the aggravated character of the fraud which has necessitated this litigation is set forth in the cited opinions of the Supreme Court. In those circumstances, the trial court has power to inflict such damages, “ ‘having in view the enormity of * * * [the] offense rather than the measurе of compensation * * *.’ ” Denver & Rio Grande Ry. v. Harris,
This case calls for such damages although it is for the District Court, as the trier of fact, to assess them, taking into consideration the whole wretched scheme as ascertained and etched in unmistakable terms by the Supreme Court.
So much of the judgment below as was appealed from in Number 9315 will be affirmed. The fraud is res adjudicata, as the Trial Court found. The monies paid to Hartford in the settlement under the accounting were properly ordered returned, with interest.
So much of the judgment below, appealed from in Number 9293, as concerns the damages from loss of fruit jar business by Glenshaw and the damages from loss of business by Shawkee, will be affirmed for the reasons stated.
The remainder of the judgment appealed from in Number 9293 will be reversed and remanded to the District Court for liquidation, where necessary, аnd award, to the injured parties in accordance with this opinion.
Notes
Hartford-Empire Co. v. Hazel-Atlas Glass Co., 3 Cir.,
Shawkee Mfg. Co. et al. v. Hartford-Empire Co., 3 Cir.,
Hartford-Empire Co. v. Hazel-Atlas Glass Co. et al., 3 Cir.,
Only one Pennsylvania ease is cited in this connection, Gould v. McFall,