GOODWIN, Circuit Judge.
Francis Ford, Inc. petitions this court to review an F.T.C. order finding it in violation of § 5 of the F.T.C. Act, 15 U.S.C. § 45 (unfair trade practices). We have reviewed the petition, and set aside the order.
Francis Ford, Inc. is an Oregon automobile dealership. Its practice in repossessing cars has been to credit the debtor for the wholesale value of the car, charge him for indirect expenses (i. e., overhead and lost profits) as well as direct expenses (i. e., refurbishing) associated with repossession and resale, and sell the repossessed vehicle at retail keeping the “surplus.” In doing so, Francis Ford claims it is doing what is commonly done throughout its industry.
The F.T.C. does not approve of the described practice. Nor does it approve of a number of other credit practices now commonly in use in a wide variety of industries. See its investigations of the credit business, and its recent attempted rulemaking. In re Proposed Trade Regulation Rule: Credit Practices, 40 Fed.Reg. 16,347 (1975).
[1009]*1009In order to attack Francis Ford’s practice, the F.T.C. began in 1976 an adjudicatory action against Ford Motor Co., Ford Credit Co., and Francis Ford, Inc. The commission alleged that the respondents had violated § 5 of the F.T.C. Act by failing to give defaulting customers more than wholesale value for their repossessed cars, and by improperly charging them with indirect expenses such as overhead and lost profits. Parallel proceedings were commenced against Chrysler Corp. and General Motors, their finance subsidiaries, and two dealers. The National Association of Car Dealers sought to intervene to protect the interests of its members but was not allowed to do so. Eventually, all the respondents except Francis Ford settled with the F.T.C.
Shortly after the consent decrees were entered, the administrative law judge held that Francis Ford’s credit practices had violated § 5 of the F.T.C. Act, but that the commission had failed to establish that Francis Ford’s acts were substantially injurious to its customers. Both Francis Ford and complaint counsel for the F.T.C. appealed to the full commission. The commission deleted the portion of the order favorable to Francis Ford, and affirmed'the administrative law judge’s decision. The order directed Francis Ford to cease its present credit practices, and to adopt the F.T.C.’s view of proper credit practices under ORS 79.5040 (U.C.C. § 9-504).
The narrow issue presented here is whether the F.T.C. should have proceeded by rulemaking in this case rather than by adjudication. The Supreme Court has said that an administrative agency, such as the F.T.C., “is not precluded from announcing new principles in the adjudicative proceeding and that the choice between rulemaking and adjudication lies in the first instance within the [agency’s] discretion.” NLRB v. Bell Aerospace Co., 416 U.S. 267, 294, 94 S.Ct. 1757, 1771, 40 L.Ed.2d 134 (1974). See also, Securities Comm’n v. Chenery Corp., 332 U.S. 194, 202-203, 67 S.Ct. 1575, 1580-81, 91 L.Ed. 1995 (1947). But like all grants of discretion, “there may be situations where the [agency’s] reliance on adjudication would amount to an abuse of discretion .... ” Bell Aerospace Co., 416 U.S. at 294, 94 S.Ct. at 1771. The problem is one of drawing the line. On that score the Supreme Court has avoided black-letter rules. See id. at 294, 94 S.Ct. at 1772 (“[i]t is doubtful whether any generalized standard could be framed which would have more than marginal utility....”) Lower courts have been left, therefore, with the task of dealing with the problem on a case-by-case basis.
The Ninth Circuit recently made such an attempt in Patel v. Immigration & Naturalization Serv., 638 F.2d 1199 (9th Cir. 1980). In Patel, the Immigration and Naturalization Service, by an administrative adjudication, added a requirement to a regulation governing permanent immigration to this country. The court disallowed the requirement because the requirement changed past practices through the “prospective pronouncement of a broad, generally applicable requirement, amounting] to ‘an agency statement of general or particular applicability and future effect.’ ” Id. at 1204, n.5. In the court’s view, the rule of law should have been established by rulemaking because, unlike Bell Aerospace, supra, the case before it called for a general standard, not a case-by-case determination. Id. at 1205. Patel cited Professor Davis for the view that courts should require agencies to use rulemaking procedures when the agency retroactively adopts new law or where the parties have relied on the precedents. 2 Davis, Administrative Law Treatise, § 7:25 at 124 (1979). The thrust of the Patel holding, therefore, is that agencies can proceed by adjudication to enforce discrete violations of existing laws where the effective scope of the rule’s impact will be relatively small; but an agency must proceed by rule-making if it seeks to change the law and establish rules of widespread application.
In the present case, the F.T.C., by its order, has established a rule that would require a secured creditor to credit the debtor with the “best possible” value of the repossessed vehicle, and forbid the creditor from charging the debtor with overhead and lost profits. The administrative deci[1010]*1010sion below so holds. Framed according to Patel, the precise issue therefore is whether this adjudication changes existing law, and has widespread application. It does, and the matter should be addressed by rulemaking.
The F.T.C. admits that industry practice has been to do what Francis Ford does— credit the debtor with the wholesale value and charge the debtor for indirect expenses. But the F.T.C. contends that Francis Ford’s particular practice violates state law (ORS 79.5040); that the violation will not be reached by the proposed trade rule on credit practices; and that this adjudication will have only local application. The arguments are not persuasive.
By all. accounts this adjudication is the first agency action against a dealer for violating ORS 79.5040 by doing what Francis Ford does. Although the U.C.C. counterpart of ORS 79.5040 is enacted in 49 states, nearly word for word, we have been cited to no case which has interpreted the provision to require a secured creditor to credit the debtor for the “best possible price” and not charge him for overhead and lost profits. It may well be that Oregon courts will interpret U.C.C. § 9-504 in the manner advocated by the F.T.C. if the question is put to them. But it is speculation to contend, as does the F.T.C. here, that Francis Ford is in violation of existing
Free access — add to your briefcase to read the full text and ask questions with AI
GOODWIN, Circuit Judge.
Francis Ford, Inc. petitions this court to review an F.T.C. order finding it in violation of § 5 of the F.T.C. Act, 15 U.S.C. § 45 (unfair trade practices). We have reviewed the petition, and set aside the order.
Francis Ford, Inc. is an Oregon automobile dealership. Its practice in repossessing cars has been to credit the debtor for the wholesale value of the car, charge him for indirect expenses (i. e., overhead and lost profits) as well as direct expenses (i. e., refurbishing) associated with repossession and resale, and sell the repossessed vehicle at retail keeping the “surplus.” In doing so, Francis Ford claims it is doing what is commonly done throughout its industry.
The F.T.C. does not approve of the described practice. Nor does it approve of a number of other credit practices now commonly in use in a wide variety of industries. See its investigations of the credit business, and its recent attempted rulemaking. In re Proposed Trade Regulation Rule: Credit Practices, 40 Fed.Reg. 16,347 (1975).
[1009]*1009In order to attack Francis Ford’s practice, the F.T.C. began in 1976 an adjudicatory action against Ford Motor Co., Ford Credit Co., and Francis Ford, Inc. The commission alleged that the respondents had violated § 5 of the F.T.C. Act by failing to give defaulting customers more than wholesale value for their repossessed cars, and by improperly charging them with indirect expenses such as overhead and lost profits. Parallel proceedings were commenced against Chrysler Corp. and General Motors, their finance subsidiaries, and two dealers. The National Association of Car Dealers sought to intervene to protect the interests of its members but was not allowed to do so. Eventually, all the respondents except Francis Ford settled with the F.T.C.
Shortly after the consent decrees were entered, the administrative law judge held that Francis Ford’s credit practices had violated § 5 of the F.T.C. Act, but that the commission had failed to establish that Francis Ford’s acts were substantially injurious to its customers. Both Francis Ford and complaint counsel for the F.T.C. appealed to the full commission. The commission deleted the portion of the order favorable to Francis Ford, and affirmed'the administrative law judge’s decision. The order directed Francis Ford to cease its present credit practices, and to adopt the F.T.C.’s view of proper credit practices under ORS 79.5040 (U.C.C. § 9-504).
The narrow issue presented here is whether the F.T.C. should have proceeded by rulemaking in this case rather than by adjudication. The Supreme Court has said that an administrative agency, such as the F.T.C., “is not precluded from announcing new principles in the adjudicative proceeding and that the choice between rulemaking and adjudication lies in the first instance within the [agency’s] discretion.” NLRB v. Bell Aerospace Co., 416 U.S. 267, 294, 94 S.Ct. 1757, 1771, 40 L.Ed.2d 134 (1974). See also, Securities Comm’n v. Chenery Corp., 332 U.S. 194, 202-203, 67 S.Ct. 1575, 1580-81, 91 L.Ed. 1995 (1947). But like all grants of discretion, “there may be situations where the [agency’s] reliance on adjudication would amount to an abuse of discretion .... ” Bell Aerospace Co., 416 U.S. at 294, 94 S.Ct. at 1771. The problem is one of drawing the line. On that score the Supreme Court has avoided black-letter rules. See id. at 294, 94 S.Ct. at 1772 (“[i]t is doubtful whether any generalized standard could be framed which would have more than marginal utility....”) Lower courts have been left, therefore, with the task of dealing with the problem on a case-by-case basis.
The Ninth Circuit recently made such an attempt in Patel v. Immigration & Naturalization Serv., 638 F.2d 1199 (9th Cir. 1980). In Patel, the Immigration and Naturalization Service, by an administrative adjudication, added a requirement to a regulation governing permanent immigration to this country. The court disallowed the requirement because the requirement changed past practices through the “prospective pronouncement of a broad, generally applicable requirement, amounting] to ‘an agency statement of general or particular applicability and future effect.’ ” Id. at 1204, n.5. In the court’s view, the rule of law should have been established by rulemaking because, unlike Bell Aerospace, supra, the case before it called for a general standard, not a case-by-case determination. Id. at 1205. Patel cited Professor Davis for the view that courts should require agencies to use rulemaking procedures when the agency retroactively adopts new law or where the parties have relied on the precedents. 2 Davis, Administrative Law Treatise, § 7:25 at 124 (1979). The thrust of the Patel holding, therefore, is that agencies can proceed by adjudication to enforce discrete violations of existing laws where the effective scope of the rule’s impact will be relatively small; but an agency must proceed by rule-making if it seeks to change the law and establish rules of widespread application.
In the present case, the F.T.C., by its order, has established a rule that would require a secured creditor to credit the debtor with the “best possible” value of the repossessed vehicle, and forbid the creditor from charging the debtor with overhead and lost profits. The administrative deci[1010]*1010sion below so holds. Framed according to Patel, the precise issue therefore is whether this adjudication changes existing law, and has widespread application. It does, and the matter should be addressed by rulemaking.
The F.T.C. admits that industry practice has been to do what Francis Ford does— credit the debtor with the wholesale value and charge the debtor for indirect expenses. But the F.T.C. contends that Francis Ford’s particular practice violates state law (ORS 79.5040); that the violation will not be reached by the proposed trade rule on credit practices; and that this adjudication will have only local application. The arguments are not persuasive.
By all. accounts this adjudication is the first agency action against a dealer for violating ORS 79.5040 by doing what Francis Ford does. Although the U.C.C. counterpart of ORS 79.5040 is enacted in 49 states, nearly word for word, we have been cited to no case which has interpreted the provision to require a secured creditor to credit the debtor for the “best possible price” and not charge him for overhead and lost profits. It may well be that Oregon courts will interpret U.C.C. § 9-504 in the manner advocated by the F.T.C. if the question is put to them. But it is speculation to contend, as does the F.T.C. here, that Francis Ford is in violation of existing Oregon law. One of the basic characteristics of law is that potential violators have, or can obtain, notice of it. No notice of the F.T.C.’s view of the law has been pointed out to us.
The F.T.C. could have formulated its position on U.C.C. § 9-504 and its application to the credit practices of car dealerships in its proposed trade rule on credit practices. It did not do so. The pending rulemaking proceeding and this adjudication seek to remedy, more or less, the same credit practices. . Although the former is directed against the practices, inter alia, of car dealers in their accounting of deficiencies, and the latter is directed against a car dealer by reason of his practices in failing to account for surpluses, both matters are covered by U.C.C. § 9-504. If the rule for deficiencies is thought by the F.T.C. to be “appropriately addressed by rulemaking,” it should also address the problem of accounting for surpluses by a rulemaking proceeding, and not by adjudication.
Ultimately, however, we are-persuaded to set aside this order because the rule of the case made below will have general application. It will not apply just to Francis Ford. Credit practices similar to those of Francis Ford are widespread in the car dealership industry; and the U.C.C. section the F.T.C. wishes us to interpret exists in 49 states. The F.T.C. is aware of this. It has already appended a “Synopsis of Determination” to the order, apparently for the purpose of advising other automobile dealerships of the results of this adjudication. To allow the order to stand as presently written would do far more than remedy a discrete violation of a singular Oregon law as the F.T.C. contends; it would create a national interpretation of U-C.C. § 9-504 and in effect enact the precise rule the F.T.C. has proposed, but not yet promulgated.
Under these circumstances, the F.T.C. has exceeded its authority by proceeding to create new law by adjudication rather than by rulemaking.
The order is vacated.
ORDER
The panel voted to deny the petition for rehearing and to reject the suggestion for rehearing en banc.
The full court having been advised of the suggestion for an en banc rehearing, a judge in active service requested that a vote be taken on the suggestion for rehearing en banc. Fed.R.App.P. 35(b). Upon the vote of the eligible judges in active service, a majority voted against en banc rehearing.
The petition for rehearing is denied and the suggestion for rehearing en banc is rejected.