Trans World Accounts, Inc., a California Corporation, and Floyd T. Watkins v. Federal Trade Commission

594 F.2d 212, 1979 U.S. App. LEXIS 15822

• Court: Court of Appeals for the Ninth Circuit
• Decided: March 29, 1979
• Docket: 78-1398
• Status: Published

Opinions

KELLEHER, District Judge:

Trans World Accounts, Inc., a debt collection agency operating in a number of western states, and its president, Floyd T. Watkins, appeal from a FTC order prohibiting certain practices used in their collection operations.

The Commission challenges Trans World’s “flat rate” collection service. Under the flat rate service, Trans World mails out a series of five or six form letters to delinquent debtors, encouraging prompt payment to the creditor. The letters are sent at prearranged intervals of ten to fourteen days. The letters state that legal action may be initiated immediately against the debtor if payment is not made within a specified period. If an alleged debtor does not respond to one letter in the series, the next letter is automatically sent until the series of five or six letters has run its course. If the flat rate series is concluded without payment or contact by the recipient, the account may be transferred to Trans World’s percentage collection division, at which time Trans World examines the details of the particular account to determine whether or not further action should be taken. Thus, from the date of receipt of the first letter, it is usually about 90 days before Trans World even considers whether legal action should be taken against any individual debtor.

The FTC issued an administrative complaint on September 20, 1975, charging Trans World and Watkins with the commission of unfair and deceptive practices in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. The complaint alleged that the letters misrepresented the imminence of legal action, and that the letters' were deceptive in format because they were made to look like Western Union Telegrams or Mailgrams.¹ The administrative law judge (“ALJ”) entered an initial decision sustaining the allegations of the complaint.

Trans World and Watkins appealed the decision to the FTC. On October 25, 1977, the FTC adopted, in large measure, the findings and conclusions of the ALJ. The Commission deleted the ALJ’s proposed fourth paragraph barring all misrepresentations in debt collection, and also modified the third paragraph of that order. Trans World and Watkins are now appealing, claiming that there was not substantial evidence to support the findings of the Commission, and that paragraphs 2 and 3 of the order are unconstitutionally vague and overbroad. We hold that there is substantial evidence to support the Commission’s findings, but that the third paragraph of the Commission’s order is overbroad and vague. Accordingly, we affirm in part and reverse and remand in part.

Authority of the FTC

We note initially that the FTC has the authority to consider the questions herein presented. Section 5 of the Federal Trade Commission Act proscribes, inter alia, “unfair [and] deceptive acts or practices in or affecting commerce.” 15 U.S.C. § 45(a) (1970). The deceptive acts or practices forbidden by the Act include those used in the collection of debts. See, e. g., Floersheim v. FTC, 411 F.2d 874 (9th Cir. 1969), cert. denied, 396 U.S. 1002, 90 S.Ct. 551, 24 L.Ed.2d 494 (1970).

Proof of actual deception is unnecessary to establish a violation of Section 5. Misrepresentations are condemned if they possess a tendency to deceive. See, e. g., Resort Car Rental System, Inc. v. FTC, 518 F.2d 962, 964 (9th Cir.), cert. denied sub nom. MacKenzie v. United States, 423 U.S. 827, 96 S.Ct. 41, 46 L.Ed.2d 42 (1975). The Commission has the discretion to interpret the meanings of various communications and the “impressions they would likely make upon the viewing public.” Libbey-Owens-Ford Glass Co. v. FTC, 352 F.2d 415, 417 (6th Cir. 1965). The Commission may draw its own inferences regarding the likelihood of deception based upon the representations before it. Stauffer Labs., Inc. v. FTC, 343 F.2d 75, 78 (9th Cir. 1965).

Format of the Letters (Paragraph 2)

Appellants object to paragraph 2 of the FTC’s order which prohibits Trans World from “using or placing in the hands of others for use, envelopes, letters, forms, or any other materials which by simulating telegrams or other methods or forms or types of communication misrepresent the nature, import, or urgency of any communication.” Appellants maintain that the letter series contain no misrepresentation. Rather, they assert that the letters are urgent because businesses have a genuine interest in the prompt collection of debts. Appellants also argue that the FTC order is overbroad and vague in that it does not specify whether Trans World’s use of the Trans-O-Gram format violates the order.

The scope of appellate review of factual findings made by the FTC is narrow. Section 5(c) of the FTC Act states that “findings of the Commission as to the facts, if supported by evidence, shall be conclusive.” As this Court has noted:

Findings of fact cannot and will not be set aside if the evidence in the record reasonably supports the administrative conclusion, even though suggested alternative conclusions may be equally or even more reasonable and persuasive. The findings must stand unless they [are] wrong, and they cannot be wrong — that is reversibly wrong — if substantial evidence supports them.

Ash Grove Cement Co. v. FTC, 577 F.2d 1368, 1378 (9th Cir. 1978), quoting, Colonial Stores, Inc. v. FTC, 450 F.2d 733, 739-40 (5th Cir. 1971).

The precise boundaries of “substantial evidence” are often elusive. With respect to appellate review of the findings of the Federal Trade Commission, “[substantial evidence is ‘such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.’ ” RSR Corp. v. Federal Trade Commission, (9th Cir. Jan. 8, 1979, docket no. 77-1413, Slip Op. 74 at 77), quoting Consolo v. Federal Maritime Commission, 383 U.S. 607, 620, 86 S.Ct. 1018, 16 L.Ed.2d 131 (1966). See also, Consolidated Edison Co. v. National Labor Relations Board, 305 U.S. 197, 229, 59 S.Ct. 206, 83 L.Ed. 126 (1938) (more than a mere scintilla; relevant evidence which a reasonable mind might accept to support conclusion); International Association of Machinists v. National Labor Relations Board, 71 App.D.C. 175, 181, 110 F.2d 29, 35 (1939), aff’d, 311 U.S. 72, 61 S.Ct. 83, 85 L.Ed. 50 (1940) (it is only convincing evidence, not lawyers’ evidence); National Labor Relations Board v. Remington Rand, Inc., 94 F.2d 862, 873 (2d Cir. 1938) (evidence on which responsible persons are accustomed to rely).

In making his findings of fact, the AU listened to all the testimony and reviewed all the exhibits on file. His findings of deception are supported by relevant evidence that a reasonable mind might accept as adequate to support a conclusion. Accordingly, they will not be overturned on appeal.

Trans World’s contention that the second paragraph of the FTC order is over-broad and vague has no merit. Addressing the overbreadth issue, the FTC has authority to frame an order which extends beyond the immediate facts of the decided case. Jacob Siegel Co. v. FTC, 327 U.S. 608, 66 S.Ct. 758, 90 L.Ed. 888 (1946); Fedders Corp. v. FTC, 529 F.2d 1398 (2d Cir. 1976), cert. denied, 429 U.S. 818, 97 S.Ct. 63, 50 L.Ed.2d 79. These “fencing in” provisions are needed to prevent similar and related violations from occurring in the future. FTC v. Mandel Bros., 359 U.S. 385, 79 S.Ct. 818, 824, 3 L.Ed.2d 893 (1959). With respect to vagueness, the record indicates that both the AU and the Commission addressed the question of whether paragraph 2 would apply to the Trans-O-Gram. Both concluded that it did.²

In summary, substantial evidence supports the Commission’s findings that the telegram and the Trans-O-Gram formats are deceptive under Section 5 of the FTC Act. Both the ALJ and the Commission have expressly indicated an intent to proscribe the Trans-O-Gram format. Given the power vested in the FTC, FTC v. Mandel Bros., supra, and the specificity of its decision, we hold that the second paragraph of the Commission’s order is neither over-broad nor vague.

The Content of the Letters (Paragraph 3)

The Commission found that the letters sent by Trans World were deceptive in that they threatened imminent legal action when no such action was contemplated: even when the letter series had been completed, legal action would not be taken until an evaluation of the individual file had been made. This factual finding will not be overturned if there is substantial evidence supporting it. Ash Grove Cement Co., supra. Upon reviewing the evidence here, we find that there is substantial evidence to support the Commission’s findings.³ Nonetheless, we remand paragraph 3 of the FTC order for further consideration because it is overbroad and vague.

Paragraph 3 of the order prohibits appellants from “[mjisrepresenting directly or by implication, that legal action with respect to an alleged delinquent debt has been, is about to be, or may be initiated, or otherwise misrepresenting in any manner the likelihood or imminency of legal action.” In delineating the parameters of the order, the Commission stated:

Respondents should not state or imply that legal action may be taken unless they can demonstrate from their experience that suit is the ordinary response to nonpayment. . . . Suit in more than half the instances of nonpayment will suffice under this order to substantiate a claim that legal action may be taken.

FTC Decision and Order at 12. This interpretation of the meaning of the word “may” is overly restrictive because it attributes to the word a statistical meaning counter to common sense and usage.

Thus, although appellant’s communications have been found to be deceptive, and although that factual finding is supported by substantial evidence, cease- and-desist orders must be sufficiently “clear and precise to avoid raising serious questions as to their meaning and application.” FTC v. Henry Broch & Co., 368 U.S. 360, 367-8, 82 S.Ct. 431, 436, 7 L.Ed.2d 353 (1962). The Federal Trade Commission’s power to fashion remedies for deceptive practices does not carry with it the concomitant power to be deceptive or ambiguous in dealing with persons and businesses subject to its jurisdiction. Here, appellant acts at its peril if its common-sense definition of the word “may” fails to comport with the statistical interpretation which the FTC urges.

We recognize that the FTC may order certain “fencing in” provisions. FTC v. Mandel Bros., supra. Although we are certain that the FTC could draft an appropriate “fencing in” order, paragraph 3 is not such an order. It is not needed to prevent similar and related violations from occurring in the future: the very nub of the deception, in this case, was not whether appellant sued 50 percent of the time, 75 percent of the time, or 25 percent of the time. Rather, the deception arose from the fact that no decision regarding suit was made until 90 days following mailing of the last Trans-O-Gram, although appellant represented that such a decision was automatic.

To conclude, paragraph 3, as presently drafted, is overbroad and vague. Accordingly, we remand that portion of the order for further clarification by the Commission.

The order of the Federal Trade Commission is affirmed in part, and reversed and remanded in part for further proceedings in accordance with this Opinion. Pursuant to F.R.App.P., Rule 19, the Commission shall serve and file a proposed judgment in conformity with this Opinion.

1 . Trans World had used letter formats that closely resemble Western Union Telegrams and Mailgrams. Trans World’s “Telegram” consisted of a yellow window envelope on which was printed a return address with no name. The word “Telegram” was printed in large black type over the window and on the reverse side of the envelope. A yellow printed form, headed by the word “Telegram,” was inserted in the envelope. Unlike a Western Union telegram, the Trans World communication was sent through the regular mail. In 1975, Trans World stopped using the Telegram and began to use what it called a “Trans-O-Gram.” The Trans-O-Gram was a blue and white envelope containing a form message printed by a computer.

2 . The administrative law judge stated that the use of the Trans-O-Gram was not challenged in the complaint, and thus he was not required to determine its validity. Yet, after he held the telegram format deceptive and violative of the FTC Act, the judge stressed that the essence of his comments about the telegram applied to the subsequent Trans-O-Gram format as well. The FTC opinion was even more explicit. The Commission stated: Respondents (Trans World) ask . . . whether the second paragraph of the order prohibits their use of the Trans-O-Gram format. For purposes of assisting them in interpreting the order, we reiterate the answer of the Administrative Law Judge: ‘Yes’ ”.

3 . By way of example, the following three paragraphs were contained in three of the letters in the letter series which Trans World sent:

1. Urgent — Appear at Claimant’s Office within four days to pay above claim or protest liability. Failure to appear in person or have legal counsel represent you may result in immediate litigation by our client with ultimate seizure of property, auto, bank accounts and other personal assets if judgment is obtained.

2. You are hereby directed to appear at our client’s office at 9:00 a. m. next Tuesday to protest liability of the above claim. Failure to comply may result in immediate commencement of litigation by our client. If judgment is granted, property, including monies, automobile, credits and bank deposits now in your possession could be attached. If our client receives payment in full prior to the time of protest as scheduled, your appearance will not be required.

3. Urgent — Immediately contact our client and make arrangements for payment. Imperative to avoid further action which may be taken against you under provisions of state statutes. If settlement is not made within 5 days after receipt of this telegram, you may wish to consult your attorney regarding your legal liability.