United Egg Producers v. Standard Brands, Inc.

United States Court of Appeals,

Eleventh Circuit.

No. 93-8391.

UNITED EGG PRODUCERS, Plaintiff-Appellant, Cross-Appellee,

J.B. Gay and Son, Inc., on Behalf of Itself and all Others
Similarly Situated, Plaintiffs,

v.

STANDARD BRANDS, INC., Defendant-Appellee, Cross-Appellant.

NABISCO BRANDS, INC., Plaintiff-Appellee, Cross-Appellant,

v.

UNITED EGG PRODUCERS, Defendant-Appellant, Cross-Appellee.

Feb. 9, 1995.

Appeals from the United States District Court for the Northern
District of Georgia. (No. 92-CV-2536-WCO), William C. O'Kelley,
Chief Judge.

Before EDMONDSON and BIRCH, Circuit Judges, and HILL, Senior
Circuit Judge.

EDMONDSON, Circuit Judge:

This case comes to us on United Egg Producers' (UEP) appeal

from the district court's refusal to enforce a Settlement

Stipulation (Stipulation) entered into between UEP and Standard

Brands in 1978. The district court refused to enforce the

Stipulation because it concluded that the stipulation violates the

First Amendment. This conclusion is reviewed de novo. In Re

Thomas, 883 F.2d 991 (11th Cir.1989).

United Egg Producers filed suit in the 1970s in response to

advertisements by Standard Brands, Inc. (producers of Egg Beaters)

which, UEP alleged, wrongfully disparaged eggs. At the time, a

real controversy in the scientific community existed about
cholesterol and its effect on human health ("diet-heart

controversy"). There are two kinds of cholesterol: dietary (found

in the food we eat) and serum (manufactured by the body and found

in the bloodstream). The controversy concerned whether the intake

of dietary cholesterol could raise the level of serum cholesterol.

High levels of serum cholesterol have been linked to heart disease.

The contested advertisements claimed that eggs were high in

cholesterol and, therefore, contributed to an increase in serum

cholesterol.

In October 1978 the parties agreed to settle the case. They

signed a Settlement Stipulation which was entered into the docket

by court order. The Stipulation said that neither party would run

advertisements that disparaged the other party's product within the

context of this diet-heart controversy. The parties still were

able to make factual statements about cholesterol content and

comparative statements about nutrition and taste. The ban on

statements about the diet-heart controversy was limited to mass

media advertising. The Stipulation required the parties to submit

to arbitration if disputes about interpretation of its terms should

arise. The Stipulation also provided that a party could move for

modification of the Stipulation in the district court "for good

cause shown." In 1978 the district court endorsed the Stipulation

and dismissed the case.

In 1990 Nabisco Brands, Inc. (Nabisco)1 began running a

commercial called "Cracks II", which, according to UEP, violated

the Stipulation. UEP asked Nabisco to stop running the ads; but

1
Nabisco is Standard Brands' successor-in-interest.
Nabisco refused, saying the ads did not violate the Stipulation.

UEP filed a demand for arbitration. In August 1992 the arbitration

panel determined that the ads violated the Stipulation.

Nabisco still refused to stop running the ads; so UEP moved

for enforcement of the Stipulation in district court. Nabisco then

filed a petition to vacate the arbitration decision and to modify

the Stipulation for good cause shown. The district court denied

Nabisco's petition to vacate the arbitration award and granted

Nabisco's motion to modify the 1978 Stipulation and Order.2 UEP's

motion to enforce the Stipulation was also denied by the district

court because the court concluded that the Stipulation violates the

First Amendment.

The district court's refusal to enforce the Stipulation can

only be upheld if court enforcement of the Stipulation would

constitute prohibited governmental action. Without governmental

action there can be no First Amendment violation.3 Columbia

Broadcasting System v. Democratic National Committee, 412 U.S. 94,

93 S.Ct. 2080, 36 L.Ed.2d 772 (1973); Cohen v. Cowles Media Co.,

501 U.S. 663, 111 S.Ct. 2513, 115 L.Ed.2d 586 (1991). Thus, the

issue controlling this case is whether court enforcement of the

Stipulation constitutes governmental action as contemplated by the

2
The district court's denial of Nabisco's petition to vacate
the arbitration award and the court's grant of Nabisco's motion
to modify the 1978 Stipulation and Order are both reviewed under
the abuse of discretion standard; and both decisions are
AFFIRMED.
3
Because we decide the case on governmental action grounds,
we do not address the issues of waiver of First Amendment rights
or whether the restriction on the parties' speech might violate
the First Amendment if governmental action were involved.
First Amendment.

The Supreme Court has held that court enforcement of an

agreement between private parties can, in some circumstances, be

considered governmental action for constitutional analysis.

Shelley v. Kraemer, 334 U.S. 1, 68 S.Ct. 836, 92 L.Ed. 1161 (1948)

(holding that state court enforcement of racially restrictive

covenants constitutes action by state). But, the reach of Shelley

remains undefined outside of the racial discrimination context.

That parties be able to enter into enforceable settlement

agreements as a means of ending controversies is a good thing. And

we, in the absence of compelling authority, are slow to interfere

with or to undercut settlements of commercial disputes. In holding

that court enforcement of the Stipulation is not governmental

action, we follow other courts which have indicated that where a

court acts to enforce the right of a private party which is

permitted but not compelled by law, there is no state action for

constitutional purposes in the absence of a finding that

constitutionally impermissible discrimination is involved. See

Cable Invest., Inc. v. Woolley, 680 F.Supp. 174, 177 (M.D.Pa.1987)

(citing Parks v. "Mr. Ford", 556 F.2d 132, 136, n. 6a (3d

Cir.1977)). See also Gresham Park Community Organization v.

Howell, 652 F.2d 1227, 1239 (5th Cir.1981); Schreiner v. McKenzie

Tank Lines & Risk Management Services, Inc., 408 So.2d 711, 719

(Fla.Dist.Ct.App.1982).

This reasoning is persuasive because, "if, for constitutional

purposes, every private right were transformed into governmental

action by the mere fact of court enforcement of it, the distinction
between private and governmental action would be obliterated."

Edwards v. Habib, 397 F.2d 687, 691 (D.C.Cir.1968).

Where two disputing parties in positions of equal bargaining

power agree, through a Settlement Stipulation, to restrict, in a

limited degree, their First Amendment rights on commercial speech

as was done here, we hold that court enforcement of that agreement

is not governmental action for First Amendment purposes. The

district court's refusal to enforce the Stipulation is REVERSED.

REVERSED in part, and AFFIRMED in part.