Federal Trade Commission v. Cinderella Career and Finishing Schools, Inc.

404 F.2d 1308, 131 U.S. App. D.C. 331, 1968 U.S. App. LEXIS 7750, 1968 Trade Cas. (CCH) 72,385

• Court: Court of Appeals for the D.C. Circuit
• Decided: March 12, 1968
• Docket: 21118_1
• Status: Published

Opinions

TAMM, Circuit Judge:

This case presents, precisely and eon-cisely, the question whether the Federal Trade Commission is authorized to issue a factual news release concerning pending adjudicatory proceedings before it.

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, Appellee corporations operate and franchises for the operation of , , »„ . . . . , schools offering various courses m mod-v „ , . , , elmg, fashion merchandising, charm, and .. . , • j■ ■ , i , self-improvement. The individual appel- . . ,, , , ,, ,. „ f lee is the controlling stockholder of two . ,, . . . oi the corporations and the principal , ,, ,, stockholder of the third appellee corpo-rayon '

. Following an investigation, the appellant Federal Trade Commission, on February 13, 1967, issued a complaint (Docket No. 8729) against appellees, stating that the Commission, “having reason to believe” that the appellees had violated the Federal Trade Commission Act by engaging in unfair or deceptive practices and the use of false and misleading advertising in the operation of their business, was initiating a proceed-111 respect thereto “in the public interest.” Thereafter, the complaint enumerated the specific details constituting the charge and set forth quotations from the advertigi alleged to be deCeptive. The complaint identified the alleged fal_ sitieg in ^ advertising) described the conduet daimed ^ constitute unfair or deceptive practieeSj and concluded with the customary allegation that the identified courses of conduct were in vioIation of gection g of the Federa, Trade Com. mjssion Act¹

This complaint was mailed to appellees on February 17, 1967. On February OA ,, , , 20, 1967, appellees, mindful and aware .! „ . °f the FTC s Practlce of ^sumg news reJeages and adverse effects resulting therefrom,”² petitioned the Commission to defer the issuance of any news release with respect to this proceeding, id est, Docket No. 8729, until after a final adjudication was had in the proceeding. On March 1, 1967, the Commission notified appellees that their petition had been denied, noting that the contents of the complaint which had been issued were in the public domain. The Commission furnished appellees at that time with a copy of the proposed news release and advised appellees that the news release would be issued on March 3.³

On March 2, the appellees commenced the present action by filing a complaint in the United States District Court for the District of Columbia in which they sought a restraining order against the issuance of the news release. The motion for the restraining order was denied by a District Court judge on March 2; and on March 3, the Commission promulgated a news release announcing and describing the issuance of the complaint against appellees. As a result, accounts of the complaint appeared in at least two Washington newspapers.

On March 22, 1967, appellees filed in the District Court an amended and supplemental complaint, seeking injunctive and declaratory relief against the Commission’s issuance of further news releases with respect to the proceedings in Docket No. 8729 and requested the court to issue a preliminary injunction retraining any such action by the Commission. Appellees. charged, in affidavits supporting the complaint, that the Commission’s news releases resulted in cancellation of courses by students, inquiries from financial institutions and others with whom appellees were doing business and were generally harmful to áppellees’ business. On March 31, the Commission filed in the District Court a cross motion to dismiss the amended complaint.

At a hearing held in the District Court on April 13, 1967, the Commission’s motion to dismiss the complaint was denied. At the same time, the preliminary injunction requested by appellees was granted, and the Commission thereby was restrained from issuing any news release in Docket No. 8729 “until the Commission, after a full adjudication of the case, has issued either a cease and desist order or an order dismissing the Complaint, pending the final hearing and determination of this cause.”⁴ The District Court judge, in the findings of fact and conclusions of law supporting the injunction, found that the issuance of the news releases prior to final adjudication constituted, or gave the appearance of constituting, a prejudgment of the issues and that in the event of ultimate adjudication in appellees’ favor by the Commission, the damage suffered by them through the news releases would be beyond “repair or remedy.” The court also expressed “grave doubt” of the Commission’s authority to issue the releases prior to final adjudication, found irreparable injury to appellees, and defined the Commission’s duty in “quasi-judicial proceedings” to require the avoidance of prejudgment or the appearance of prejudgment.

The Commission seeks before this court to reverse the District Court’s order enjoining the Commission’s issuance of press releases and denying its motion to dismiss the complaint.

II.

At the threshold of this case, we are confronted with the question of whether we have jurisdiction to consider the entire case on the merits or whether our review is confined at this time to the propriety of the issuance of the injunction. The pleadings before us are at best ambiguous as to whether the Commission has endeavored to appeal the denial by the District Court of its motion to dismiss the complaint. However, the teaching of Deckert v. Independence Shares Corp., 311 U.S. 282, 61 S.Ct. 229, 85 L.Ed. 189 (1940), indicates that we do have the authority in a case involving an appeal as of right from the granting of an injunction to take note of the denial by the trial court of a motion to dismiss. While it is of course true that in Deckert there was no' question but that the defendants had sought to appeal from the order denying the motion to dismiss as well as from the granting of an injunction, we feel, nevertheless, that the Court’s language in that case minimizes the necessity of a purely formal appeal of an otherwise non-appealable order.' We conclude, therefore, that we have the authority to dispose of the case on its merits and that sound judicial administration requires us to avoid any subsequent unnecessary proceedings in the District Court. Obviously, if we conclude that the motion to dismiss was improperly denied, the question of the propriety of the injunction is moot.

III.

Congress, in 1914, enacted the Federal Trade Commission Act.⁵ The then broad purpose of the Act was to prevent unfair methods of competition in their inception. Federal Trade Comm. v. Raladam Co., 316 U.S. 149, 162, 62 S.Ct. 966, 86 L.Ed. 1336 (1941). By the Wheeler-Lea amendment,⁶ Congress, in 1938, broadened section 5 of the Act and extended the authority of the Commission to eliminate unfair or deceptive acts or practices in commerce without regard to competition. H.R.Rep.No.1613, 75th Cong., 1st Sess., 1, 3 (1937).

Section 5 of the Federal Trade Commission Act⁷ provides, inter alia, as follows:

(a) (1) Unfair methods of competition in commerce, and unfair or deceptive acts or practices in commerce, are declared unlawful.

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(6) The Commission is empowered and directed to prevent persons, partnerships, or corporations, except banks, common carriers subject to the Acts to regulate commerce, air carriers and foreign air carriers subject to the Federal Aviation Act of 1958, and persons, partnerships, or corporations insofar as they are subject to the Packers and Stockyards Act, 1921, as amended, except as provided in section 227(a) of Title 7, from using unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce.

Proceeding by Commission; modifying and setting aside orders

(b) Whenever the Commission shall have reason to believe that any such person, partnership, or corporation has been or is using any unfair method of competition or unfair or deceptive act or practice in commerce, and if it shall appear to the Commission that a proceeding by it in respect thereof would be to the interest of the public, it shall issue and serve upon such person, partnership, or corporation a complaint stating its charges in that respect and containing a notice of a hearing upon a day and at a place therein fixed at least thirty days after the service of said complaint. The person, partnership, or corporation so complained of shall have the right to appear at the place and time so fixed and show cause why an order should not be entered by the Commission requiring such person, partnership, or corporation to cease and desist from the violation of the law so chárged in said complaint. Any person, partnership, or corporation may make application, and upon good cause shown may be allowed by the Commission to intervene and appear in said proceeding by counsel or in person. The testimony in any such proceeding shall be reduced to writing and filed in the office of the Commission. If upon such hearing the Commission shall be of the opinion that the method of competition or the act or practice in question is prohibited by sections 41-46 and 47-58 of this title, it shall make a report in writing in which it shall state its findings as to the facts and shall issue and cause to be served on such person, partnership, or corporation an order requiring such person, partnership, or corporation to cease and desist %om using such method of competition or such act or practice. * * *

Section 6 of the Federal Trade Commission Act, 15 U.S.C. § 46, (1964) provides in pertinent part:

The Commission shall also have power—

Investigation of corporations

(a) To gather and compile information concerning, and to investigate from time to time the organization, business, conduct, practices, and management of any corporation engaged in commerce, excepting banks and common carriers subject to the Act to regulate commerce, and its relation to other corporations and to individuals, associations, and partnerships.

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Publication of information; reports

(f) To make public from time to time such portions of the information obtained by it hereunder, except trade secrets and names of customers, as it shall deem expedient in the public interest ; and to make annual and special reports to the Congress and to submit therewith recommendations for additional legislation; and to provide for the publication of its reports and decisions in such form and manner as may be best adapted for public information and use.

Section 1.132 of the Commission’s General Procedures in effect when Docket No. 8729 was initiated, 16 C.F.R. § 1.-132 (1967) ⁸ included the following pertinent provisions:

Information in the following classes is public and may be obtained as indicated :

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(c) The decisions of the Commission in adjudicative proceedings and in proceedings disposed of by the entry of consent orders to cease and desist and texts or digests of selected advisory opinions are published periodically in official reports under the title “Federal Trade Commission Decisions.”

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(e) The pleadings, transcript of testimony exhibits and all documents received in evidence or made a part of the record in adjudicative proceedings (except evidence received in camera) * * * are avai]abie at the principal office of the Commission for inspection and copying at reasonable times. ******

(g) Additional information concerning the activities of the Commission is released from time to time through the Commission’s Office of Information.

IV.

The appellees, in their amended and supplemental complaint filed in the District Court, charged that while it has been the “uniform and long-established practice” of the Commission to issue news releases in its cases, the action, is unlawful because the Federal Trade Commission Act does not authorize such action by the Commission, violates the Due Process Clause of the Constitution, and constitutes an alignment, or appear-anee of an alignment, of the Commission “with the prosecution,” resulting in a prejudgment (or appearance thereof) of the merits of a complaint prior to hearing. Appellees charged in paragraph 14 of their complaint that the Commission action resulted in irreparable damage to them since they, by the press release, “are subjected to public and business disrepute, scorn and obloquy; will lose and be deprived of economic opportunities; will suffer serious economic injury ; and their continuing existence will be irreparably impaired.”

We have no doubt that a press release of the kind herein involved results in a substantial tarnishing of the name, reputation, and status of the named respondent throughout the related business community as well as in the minds of some portion of the general public. Three hundred eighty-eight volumes ago, it was observed that “[wjhere much has been said, something will be believed. * * ” ⁹ We are confronted, then, not with the question of whether the appellees have suffered actual damage but whether the action of the Commission is so authorized or permitted in law as to place the appellees in the position of suffering damnum absque injuria.

Confronted in 1933 with the question of the Commission’s right to hold an open or public session for the purpose of taking testimony on a complaint against the then appellant charging false and fraudulent advertising and unfair trade methods in commerce, we ruled unanimously that such proceedings were within the Commission’s authority. E. Griffiths Hughes, Inc. v. FTC, 61 App.D.C. 386, 63 F.2d 362 (1933). The thrust of the District Court’s order granting the injunction and denying the Commission’s motion to dismiss is that while the adjudicatory proceedings before the Commission may be public they may not be the subject of a factual press release. Section 1.132 and successor sections 4.8 and 4.9 of the Commission’s General Procedures, supra, make the pleadings, transcripts of testimony, documents, etc., matters of public record, open for public inspection by anyone interested in reviewing them and allow the release of additional information. These regulations, we hold, are a legal exercise of the Commission’s discretionary authority, broadly conferred by subsection (f) of 15 U.S.C. § 46 (1964).

Proceeding, then, to consider whether the Commission may act affirmatively and on its own initiative in publicizing items relating to pending adjudicatory matters by releasing factual information from its own records, we turn, first of course, to the statute creating and empowering the Commission. By 15 U.S.C. § 45(a) (6) (1964), the Commission is “empowered and directed to prevent * * * unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce.” The Commission is required by 15 U.S.C. § 45(b) (1964), when it “shall have reason to believe” that a person or corporation has been, or is, using “any unfair method of competition or unfair or deceptive act or practice in commerce,” and if in the Commission’s judgment a proceeding in respect thereto “would be to the interest of the public,” to issue a complaint, serve it on the respondent, and set a date for a hearing. The complaint (and any additional pleadings or orders) becomes, as heretofore pointed out, a matter of public record. That the basic purpose of the Act is the protection of the public is evident from the clause, “would be to the interest of the public,” quoted above, and as emphasized at 15 U.S.C. § 46(f) (1964), supra, “as it shall deem expedient in the public interest.” Indeed, court decisions hold, “[t]he purpose of the Federal Trade Commission Act is' to protect the public, not to punish a wrongdoer, * * * and it is in the public interest to stop a deception at its incipiency.” Regina Corporation v. FTC, 322 F.2d 765, 768 (3d Cir. 1963), citing Gimbel Bros., Inc. v. FTC, 116 F.2d 578, 579 (2d Cir. 1941), and Progress Tailoring Co. v. FTC, 153 F.2d 103, 105 (7th Cir. 1946).

In defining the Commission’s authority and responsibility in protecting the public interest, Congress specifically authorized the Commission “[t]o make public from time to time such portions of the information obtained by it hereunder * * * as it shall deem expedient in the public interest * * 15 U.S.C. § 46(f) (1964). We reject ap-pellees’ contention that this subsection is applicable only to the antitrust responsibilities of the Commission. We construe “hereunder” in the quoted phraseology as applying to the entire chapter 2 of Title 15 U.S.C., restricted of course by the specific limitations set forth in the chapter itself.

Since the Commission is charged by the broad delegation of power to it to eliminate unfair or deceptive business practices in the public interest, and since it is specifically authorized to make public information acquired by it, we conclude that there is in fact and law authority in the Commission, acting in the public interest, to alert the public to suspected violations of the law by factual press releases whenever the Commission shall have reason to believe that a respondent is engaged in activities made unlawful by the Act which have resulted in the initiation of action by the Commission. The press releases predicated upon. official action of the Commission constitute a warning or caution to the public, the welfare of which the Commission is in these matters charged. We note that there is no contention in this case that the allegations in the Commission’s complaint were knowingly false.¹⁰

We recognize that in legislating in the public interest and for the public welfare, Congress was acting to afford protection on a broad and comprehensive scale to millions of citizens residing and working at points far from the scene of Commission complaint, hearing, or other action. Moreover, “[t]he law is not made for experts but to protect the public, — that vast multitude which includes the ignorant, the unthinking and the credulous, who, in making purchases, do not stop to analyze but too often are governed by appearances and general impressions.” Aronberg v. FTC, 132 F.2d 165, 167 (7th Cir. 1942), citing Florence Manufacturing Co. v. Dowd, 178 F. 73 (2d Cir. 1910).

If the unsophisticated consumer is to be protected in any measure from deceptive or unfair practices, it is essential that he be informed in some manner as to the identity of those most likely to prey upon him utilizing such prohibited conduct. Certainly advice through news media as to the actions being taken by a government agency in his behalf constitutes a prophylactic step addressed ultimately to the elimination of the conduct prohibited by the statute.

The Commission, in attempting to bring its action relative to what it has reason to believe is unlawful conduct to the attention of the widely spread public by the issuance of factual press releases, is, we conclude, acting within its authority as defined by statute. In addition, we observe that Congress obviously has long been aware of and acquiesced in the Commission’s press release procedures. See: 1962 FTC Ann.Rep. 20; 1961 FTC Ann.Rep. 20; 1956 FTC Ann. Rep. 18; Hearings before the Subcommittee on Independent Office Appropriations for 1960 of the House Appropriations Committee, 86 Cong., 1st Sess. 109 (1959)’. Replies From Federal Agencies to Questionnaire Submitted by the Special Subcommittee on Governmental Information of the Committee on Government Operations, 84th Cong., 1st Sess. 207-221, Nov. 1, 1955.

V.

Invoking a constitutional ground, the appellees, in the proceedings in the District Court, contended that the Commission has a duty in a quasi-judicial proceeding to avoid prejudgment, or giving the appearance of prejudgment, and that the press release program, by violating this duty, constitutes a violation of their due process rights. In substance, it was contended that the Commission, although it must ultimately pass judgment upon the merits of its complaint against the appellees, does, by the issuance of press releases appearing to support and justify its action, prejudge — or give the appearance of prejudging — the complaint before the respondents have been afforded a hearing. Declaring due process in an administrative hearing must meet the standards prescribed for criminal proceedings, the appellees conclude that “Due process requires that the accused receive a trial by an impartial jury free from outside influences.” Sheppard v. Maxwell, 384 U.S. 333, 362, 86 S.Ct. 1507, 1522, 16 L.Ed.2d 600 (1966). Pointing out that the Commission’s press releases set forth to the public that the Commission has found “reason to believe” that the law has been violated, the appellees conclude that the Commission members are thereafter under a very real pressure to vindicate themselves and justify the charges to which the publicity has been given. “[Ajgency members have a more active and affirmative commitment to achieving the goals and effectuating the policies declared by Congress; their success is measured by the agency’s results in striving to obtain those positive objectives.” Elman, A Note on Administrative Adjudication, 74 Yale L.J. 652, 653 (1965).

Congress has, as a general practice, vested administrative agencies with both the specified power to act in an accusatory capacity through the initiation of an action designed to enforce compliance with or prevent further violation of a statutory provision and with the responsibility of ultimately determining the merits of the charges so presented. In fact, this procedure is recognized by the Administrative Procedure Act, 5 U.S.C. § 500 (Supp. II, 1965-6), et seq. More specifically, while 5 U.S.C. § 554(d) (Supp. II, 1965-6) requires separation of the adjudicatory and prosecutorial functions in an agency, subpart (C) of subsection (d) excepts the “agency” or a “member or members of the body comprising the agency” from that requirement. The Federal Trade Commission’s practice of reviewing the recommendations of subordinate investigative employees of the Commission and then making the decision to initiate a complaint is clearly within this exception to the Administrative Procedure Act. Davis Administrative Law, § 13.10, p. 242 (2d ed. 1959). “It is well settled that a combination of investigative and judicial functions within an agency does not violate due process. Belizaro v. Zimmerman, 200 F.2d 282 (3rd Cir., 1952); United States ex rel. Catalano v. Shaughnessy, 197 F.2d 65 (2nd Cir., 1952); Levers v. Berkshire, 159 F.2d 689 (10th Cir., 1947); Roccaforte v. Mulcahey, 169 F.Supp. 360 (D.C.Mass. 1958), aff’d. per curiam, 1 Cir., 262 F.2d 957; Brikley v. Hassig, 83 F.2d 351 (10th Cir., 1936); 2 Davis, Administrative Law Treatise, § 13.02. See, Federal Trade Comm. v. Cement Institute, 333 U.S. 683, 68 S.Ct. 793, 92 L.Ed. 1010 (1948).” Pangbum v. CAB, 311 F.2d 349, 356 (1st Cir. 1962). While we are unwilling to go as far as the Fifth Circuit in declaring “the contention that the press release in some manner denied petitioner due process of law in that it prevented the Hearing Examiner and the Judicial Officer from acting fairly in the premises is frivolous,” ¹¹ we conclude that the appellees have not been deprived of any due process right by the Commission’s press release in this case.

VI.

One further aspect of this case requires brief comment. As we have already noted, the practical effect of the Commission’s initial press release, in this or any other complaint proceeding, is undoubtedly deleterious to the respondents’ economic, business, and community status. Recognizing this result, the Commission, in this present proceeding and apparently in all subsequent similar cases, incorporated restrictive and cautionary phraseology in its press release. The second paragraph of the press release issued by the Commission on March 8, 1967 describing the complaint filed against appellees stated:

(Note — A complaint is issued whenever the Commission has found “reason to believe” that the law has been violated and that a proceeding is in the public interest. It is emphasized! that the issuance of a complaint simply marks the intiation of a formal proceeding in which the charges in the complaint will be ruled upon after a hearing and on the record. The issuance of a complaint does not indicate or reflect any adjudication of the matters charged.)

The quoted caution was well intended and is commendable. We have no doubt, however, that its practical value in minimizing the derogatory inferences upon the respondents’ integrity was at best minimal, “for many will read the charge who may never see the answer * * Respublica v. Oswald, 1 U.S. (1 Dall.) 319, 324, 1 L.Ed. 155 (1788). We agree with the learned and experienced trial judge that “[i]n the event the final adjudication in Docket No. 8729 were to be in Plaintiffs’ [appellees] favor, Plaintiffs would not be able to repair or remedy the damage suffered by them through the issuance and distribution of these news releases.” 12 Unfortunate though this result may be, we are convinced that this damage does not constitute a transgression of the appellees’ legal rights. In appraising a somewhat similar situation involving another government agency, we held that “[i]n the discharge by Congress of a dominant trust for the benefit of the public, the possibility of incidental loss to the individual is sometimes unavoidable.” American Sumatra Tobacco Corporation v. SEC, 71 App.D.C. 259, 262-63, 110 F.2d 117, 120-21 (1940).

The action of the District Court in denying the Commission’s motion to dismiss is reversed, and the case is remanded to that court with instructions to dismiss appellees’ complaint.

Reversed.

1 . 15 U.S.C. § 45 (1964).

2 . Brief for Appellees at 6.

3 . The issuance of the news release at this stage of the proceedings was in accord with the procedure and practice followed since 1918. This Commission’s uniform practice is to issue press releases (1) at the time of filing of the complaint; (2) upon the filing of the respondent’s answer (unless respondent requests otherwise) ; (3) upon the issuance of the hearing examiner’s decision; and (4) upon the issuance of the Commission’s final order. On occasion, the Commission issues press releases relating to interlocutory matters.

4 . Cinderella Career and Finishing Schools, Inc. v. FTC, Civil Action No. 503-67 (D.D.C., Apr. 13, 1967). Joint Appendix at 109a.

5 . Pub.L.No. 203, ch. 311, 38 Stat. 717 (1914).

6 . Pub.L.No. 447, ch.. 49, 52 Stat. 111 (1938).

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8 . The Commission’s General Procedures were reorganized, effective July 1, 1967, and provisions substantially the same as subsections (c), (e) and (g) of section 1.132, quoted in the text, are now found in 16 C.F.R. § 4.9(d), (e) (4) and (e) (11), 32 Fed.Reg. 8458-9 (1967).

9 . Respublica v. Oswald, 1 U.S. (1 Dall.) 319, 325, 1 L.Ed. 155 (1788).

10 . We note also that the case does not involve 1) an allegation that the plaintiff was subjected to a discriminatory exercise of the Commission’s authority to make news releases or 2) an allegation that the news release did not fairly and accurately summarize the Commission’s complaint. We intimate no opinion as to the sufficiency of a complaint containing any of these three allegations. See B. C. Morton Int’l Corp. v. FDIC, 305 F.2d 692 (1st Cir. 1962).

11 . Bowman v. United States Department of Agriculture, 363 F.2d 81, 86 (5th Cir. 1966).

12 . Cinderella Career and Finishing Schools, Inc. v. FTC, Civil Action No. 503-67 (D.D.C., Apr. 13, 1967), Joint Appendix at 107a.