# Petition — American Aluminum Corp. v. Federal Trade Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385003_1843%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1976 - **Citation:** 426 U.S. 906 ## Text "4 5 a 1 2 9 8 Supreme Court, U. & ee D ] OCTOBER TERM, 1975 AMERICAN ALUMINUM CORPORATION, et al., Petitioners, Vv. FEDERAL TRADE COMMISSION, Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT JOSEPH J. LYMAN 1747 Pennsylvania Avenue, N.W. Suite 300 Washington, D.C. 20006 Attorney for Petitioners ed WiLeon - Eres Printing Co.. Inc. - Re 7-6002 - WASHINGTON. D. C. 20001 TABLE OF CONTENTS a cuabiinaainbiiies ERTIES HER ria RSet NOGA SN RN OE BRE AE Reasons for Granting the Writ .....................-...-.----..-...--.. 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FTC, 522 F.2d 1278 P OcTOBER TERM, 1975 STII cciéniseiustdtieisasidapihaddagdiinceaieiiseetstadsaebaiaeaieabiareatelease ’ American Home Products Co. v. FTC, 402 F.2d ey a iceeiteaeniednaiaia 14, 15, 16 Federated Wholesalers Service Vv. FTC, 398 F.2d 253 (2d Cir. 1968). eccccoseccccccococesssccccccccssessseeeee 16, 17 erEP FTC v. Henry Broch & Co., 368 U.S. 360 (1962) _.. 17 FTC v. National Lead Co., 352 U.S. 419 (1957)... 7,14 FTC V. Pacific Paper Assn., 273 U.S. 52 (1927) -.. 8 FTC v. Universal-Rundle Corp., 387 U.S. 244 AMERICAN ALUMINUM CORPORATION, et al., RSTO StSe ALEVE. Sse amur oo Wegner ats 11 Petitioners, Grove Laboratories V. FTC, 418 F.2d 489 (5th Cir. Vv. eee oa ae 16 Marco Sales Co. v. FTC, 453 F.2d 1 (2d Cir. 1971). 11 FEDERAL TRADE COMMISSION, Mary Carter Paint Co. v. FTC, 333 F.2d 654 (5th Respondent. Cir. 1964), rev’d. on other grounds, 382 U.S. gl a cee ee ee oe 11 Moog Industries, Inc. Vv. FTC, 355 U.S. 411 (1958). 10 PETITION FOR A WRIT OF CERTIORARI TO THE Morgan V. United States, 304 U.S. 1 (1938)... 8 UNITED STATES COURT OF APPEALS FOR Niresk Industries Vv. FTC, 278 F.2d 337 (7th Cir. THE FIFTH CIRCUIT PME ES RR eS a e eS 9 Papercraft Corp. Vv. FTC, 472 F.2d 927 (7th Cir. REESE SARS ARES EERE SE ae 10 Rayer Corp. Vv. FTC, 317 F.2d 290 (2d Cir. 1963) 10 Snap-On Tools v. FTC, 321 F.2d 825 (7th Cir. RRP rere rete DATS Se Sa bs Ee 7 Spiegel, Inc. v. FTC, 411 F.2d 481 (7th Cir. 1969) 17 The petitioners, American Aluminum Corporation, a corporation, and Norman J. Foucha and Bobby G. Smith, individually and as officers of the corporation, pray that a writ of certiorari issue to review ine decision of the Statutes: United States Court of Appeals for the Fifth Circuit Statutes-at-large: ordering enforcement against all petitioners of a prohib- 88 Stat. 719. e311 ° itory order entered against them by the Federal Trade , , C. ea alia ae ae rn seal United States Code: 2 eS). | eee mera 3,4 i’ | i) eae ieihelidgiaedanebbasaemenbedidat’a 15 15 U.S.C. § 1601, et seq. 4 * References: App. ——, refers to the attached appendix. Be ID serentsenceciccsenseeniconnenieiincion 2 Note: All citations in App. -— are extractions from the printed record. Regulations: 16 C.F.R. § 3.34 wo ie ee ee ee ee ee ee eee ee ee ee eee et 2 OPINIONS BELOW The Federal Trade Commission issued a cease and de- sist order against all petitioners on July 2, 1974, un- officially reported at 3 Trade Regulation Reporter (CCH, 1975) 20,665. The Commission ruled that petitioners’ appeal from the initial decision of the administrative law judge be denied in part and granted in part. (App. 79a-80a.) This order was appealed to the United States Court of Appeals for the Fifth Circuit, which ordered enforcement of the Federal Trade Commission’s final order. American Aluminum Corp. Vv. FTC, 522 F.2d 1278 (1975). The Federal Trade Commission’s final or- der and opinion are set out in full at App. 65a-80a. The per curiam opinion of the Fifth Circuit Court of Appeals dated October 15, 1975 enforcing the Federal Trade Commission’s prohibitive order is set forth at App. 8la. JURISDICTION The judgment of the Fifth Circuit Court of Appeals was entered on October 15, 1975. (App. 8la). Mr. Jus- tice Powell extended the time for filing this Petition to March 13, 1976. This Court’s jurisdiction is invoked under 28 U.S.C. §$ 1254(1). QUESTIONS PRESENTED 1. May the Federal Trade Comn‘ssion, by denying petitioners’ pretrial motion for the issuance of subpoenas duces tecum directed to a number of competing organi- zations in petitioners’ marketing area deprive petitioners of evidence which would bear on the nature and extent of the order? 2. Is the order issued by the Commission overly broad in directing its prohibitions to “all products” of any kind which petitioners may ever sell, rather than limiting its scope to those products of the kind involved in the evi- dentiary hearing? STATUTES AND REGULATIONS INVOLVED Section 5(a)(1), Federal Trade Commission Act of September 20, 1914, c. 311, 38 Stat. 719, as amended, 15 U.S.C. § 45(a) (1) (1973 ed.): “Unfair methods of competition in commerce, and unfair or deceptive acts and practices in commerce, are declared unlawful”. Procedures and Rules of Practice for the Federal] Trade Commission. Subpart D—Discovery; Compulsory Process; 16 C.F.R. § 3.34 SUBPOENAS: “(a) Subpoenas ad testificandum. “(b) Subpoenas duces tecum. (1) Application for issuance of a subpoena requiring a person to appear and depose or testify and to produce specified docu- ments, papers, books, or other physical exhibits at the taking of a deposition, or at a prehearing con- ference, or at an adjudicative hearing shall be made in writing to the Administrative Law Judge, and shall specify as exactly as possible the material to be produced, showing the general relevancy of the material and the reasonableness of the scope of the subpoena. Any motion to limit or quash such sub- poena shall be filed within ten (10) days after serv- ice thereof, or within such other time as the Ad- ministrative Law Judge may allow. “(2) Subpoenas duces tecum may be used by any party for purposes of discovery or for obtaining documents, papers, books, or other physical exhibits for use in evidence, or for both purposes. When used for discovery purposes, a subpoena may require a person to produce and permit the inspection and copying of nonprivileged documents, papers, books, 4 or other physical exhibits which constitute or con- tain evidence relevant to the subject matter involved and which are in the possession, custody, or control of such person.” STATEMENT The Federal Trade Commission brought a complaint against the petitioners under Section 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. § 45(a) (1) °* (App. la). The petitioners at all times herein were engaged in the sale and installation of aluminum home repair and im- provement products. The business was confined chiefly to contractual relationships between petitioners and con- sumer homeowners whose residences were in need of re- pair or renovation. The complaint alleged that petitioners engaged in un- fair and deceptive acts and practices primarily by means of their advertising formats (App. 2a-5a) and selling methods respecting these aluminum products and services (App. 5a-7a). In the course of the Commission’s adjudicatory hearing which followed, the Commission was permitted to offer evidence that petitioners advertised their aluminum sid- ing and remodeling products and services by sending out “mailers” to local homeowners offering to install such aluminum products for $189.50 to $219.50, a price that was described as a saving of $431.00 (“lower priced” siding) (App. 29a-32a; 73a); that the promotional mail- ‘The complaint was framed in two counts. Count | charged violations of deceptive trade practices under Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. § 45(a); Count II charged violations of the Federal Consumer Credit Protection Act, 15 U.S.C. § 1601, et seq. The issues under Count II are abandoned. Matters in the record bearing on Count II issues are irrelevant to this proceeding. 5 ers also promised that if the attached response card were returned in seven days, a “free gift” of storm windows would be thrown in; that the mailers implied that the aluminum would last indefinitely; that homeowners who returned these mailers were visited by petitioners’ sales- men, who made every effort to switch the purchaser to a higher priced, better quality aluminum product (“pre- mium”); that the switching was accomplished by dis- paraging the lower priced product; that to induce sales, the salesmen would offer substantial reductions from a purported “regular” price of the higher priced, premium quality product, if the customer would permit the use of his home for advertising petitioners’ products and serv- ices (the “model home” pitch) (App. 32a; 7Sa-74a). 5 The Administrative Law Judge found that the adver- tisements were unfair and deceptive practices in com- merce, constituting Section 5 violations. As a consequence, the salesmen’s selling methods following in the wake of the petitioners’ advertisements were also held Section 5 unfair acts and practices. The Administrative Law Judge’s initial decision (App. 25a), affirmed as modified by the full Commission (App. 73a-80a), resulted in a final order (App. 65a) barring the petitioners from using the aforementioned advertis- ing and selling methods in future business transactions. In the course of the adjudicative hearing, the Admin- istrative Law Judge barred the petitioners from obtain- ing evidence of a like kind from area competitors, whose notorious and longstanding advertising and selling meth- ? Subpoenas may be obtained only in application to the Adminis- trative Law Judge. Rules of Practice of the Federal Trade Com- mission, 16 C.F.R. § 3.34. The subpoenas were directed to the fol- lowing corporations: National Siding Corp.; Universal Sidings; Allied Aluminum Co.; Dixieland Construction Co.; Continental Enterprises. All were located in the vicinity of Birmingham, Alabama (App. 9a). 6 ods tracked the petitioners’ activities in all material re- spects (App. 9a-24a). Petitioners’ motion for subpoenas disclosed that the competition’s mail-out advertisements used similar pric- ing of low-grade materials to induce prospective pur- chasers to return the mailers, permitting their salesmen to visit them, who in all likelihood, switched the cus- tomers to higher priced materials and services (App. 13a-18a). Petitioners’ purpose in obtaining evidence from the files of its competitors was to expose the Commission’s inconsistent standards respecting “unfair methods of competition” in the marketplace. Petitioners sought to prove that where the petitioners and their competitors beamed the same advertising and sales techniques to the public, the Commission’s prohibitory order singled out the petitioners for discrimination, while their competitors seemingly enjoyed the Commission’s solicitude. Petitioners intended further to prove through the evi- dence obtained by the subpoenas that petitioners could reasonably believe their conduct was permissible because they made no different proposals in their advertisements than those with whom they were in competition and who were apparently under some kind of Commission regula- tion.” The contention was never controverted, and the search permitted by subpoenas would, at least, have ascertained the Commission’s role. Appeals to the Com- mission (App. 20a; 23a) and the Court of Appeals (App. 8la) were fruitless. No other means of obtaining the evidence was available. Arong other things, the Commission’s final order sweepingly provided that petitioners be barred from *The complaint alleged that petitioners’ acts and practices prejudiced and injured their competitors (App. 7a, parag. 10). The subpoenas may well have enabled petitioners to negate the charge. 7 using any advertisement of the kind described in the order “in connection with the offering for sale, sale, dis- tribution or installation of aluminum siding, storm windows, storm doors or any other products .. .” (App. 65a-66a). (Emphasis added) REASONS FOR GRANTING THE WRIT 1. Rejecting the application for the subpoenas duces tecum deprived petitioners of relevant evidence. In fash- ioning prohibitive orders, the Commission must consider the circumstances under which violative acts occur.* The arbitrary bar to petitioners’ relevant evidence imposed by the Commission and sanctioned by the Court of Ap- peals has so far departed from the accepted and usual course of judicial proceedings as to call for an exercise of this Court’s power of supervision. As the Court has stated in FTC vy. National Lead Co., 352 U.S. 419, 429 (1957): “Those in utter disregard of the law, as here ‘call for repression by sterner measures than where the steps could reasonably have been thought permis- sible’.” Petitioners intended te prove through the testimony procured by the subpoenas that they could reasonably be- lieve their conduct permissible because petitioners made no different proposals in their mail-out advertisements than those with whom they were in competition and ap- parently under regulation. The unfair action of the Law Judge precluded testimony on this point at the hearings. To be sure, this Court has held that “the weight to be given to the facts and circumstances admitted, as well as the inferences reasonably to be drawn from them is *See, Snap-On Tools Corp. v. FTC, 321 F.2d 825 (7th Cir. 1963), reversing the Commission’s prohibitive order and dismissing the complaint. 8 for the Commission”. FTC v. Pacific Paper Ass’n., 273 U.S. 52, 63 (1927). (Emphasis added.) However, the inferences drawn by the Commission, like all inferences drawn from particular factual circumstances, are rebut- table. The inferences drawn by the Commission here could have been rebutted by the evidence which petition- © ers sought to introduce through the subpoenas duces tecum concerning petitioners’ competitors. Obviously there could have been no public or competi- tive injury—actual or speculative—as alleged in the com- plaint if, as petitioners sought to prove, petitioners gave the public no different information than their competi- tors. Yet petitioners were unable to proffer evidence concerning their competitive situation because of the arbitrary action of the Law Judge in denying petition- ers’ motion for subpoenas. The Court of Appeals’ affirmance of the Commission’s arbitrary refusal of petitioners’ request for subpoenas conflicted with the standards of fairness announced by this Court in Morgan v. United States, 304 U.S. 1, 18-19 (1938) : “The right to a hearing embraces not only the right to present evidence but also a reasonable opportunity to know the claims of the opposing parties and to meet them. The right to submic argument implies that opportunity; otherwise the right may be but a barren one. Those who are brought into contest with the government in a quasi-judicial proceeding aimed at control of their activities are entitled to be fairly advised of what the government proposes and to be heard upon its proposals before it issues its final command”, (Emphasis added.) Indeed, the courts have been sharply critical of the Com- mission’s refusal to permit the introduction of evidence which would relent the Commission’s prima facie show- ing of alleged illegal activities. As the court stated in ~> ee nt care wens Niresk Industries v. FTC, 278 F.2d 337, 340-341 (7th Cir. 1960) : “the Commission must be reprimanded for its ap- parent position in this case upon the pricing questions that it would hear just enough evidence as would, prima facie, sustain its findings as to the practices narged in the complaint and no more. The Com- mission, as other administrative agencies, occupies a unique position which was unknown to common law jurisprudence. The Commission wears all of the hats involved in proceedings instituted under its authority. It is, at once, the accuser, the prosecutor, the judge and the jury. The wide scope of its dis- cretion in the resolution of questions within its realm is founded and sustained by the courts upon the fact that its jurisdiction exists in a specialized field, wherein expertise is felt to be a necessity. Under those circumstances we feel that the Commission should assume a wider responsibility than that nec- essarily undertaken by a private litigant and sub- stantiate its injunctive orders upon the concrete basis of a thorough investigation and full presenta- tion of evidence whenever the existence of unfair or deceptive practices is charged against any re- spondent. “As we have indicated, we believe that the undis- puted testimony of those witnesses, considered in the light of the record as a whole, does form a substan- tial basis upon which the Commission’s findings rest. Upon that basis we sustain the Commission’s find- ings, but it ill behooves the Commission to take the position that it need adduce only enough evidence to barely sustain its ultimate decision. Such a position can only lead to a lessening of respect and confi- dence in the Commission’s integrity and act.” (Em- phasis added. ) In contrast to the Court of Appeals’ affirmance of the Commission’s arbitrary stance respecting these petition- 10 ers, the court in Rayex Corp. v. FTC, 317 F.2d 290, 294- 295 (2d Cir. 1963), set aside an FTC order on the ground, inter alia, that the Commission had made no effort to explore seasonal price fluctuations regarding a product susceptible to such variations, where the manu- facturer was charged with deceptive preticketing of its sunglasses, which other dealers habitually marketed at substantially less than the preticketed price. Again in contrast to the Court of Appeals’ per curiam affirmance of the Commission’s arbitrary refusal of peti- tioners’ request for five (5) subpoenas duces tecum, the Seventh Circuit Court of Appeals in Papercraft Corp. Vv. FTC, 472 F.2d 927 (1973), although sustaining the re- jection of a request for 551 subpoenas, nevertheless noted that: “the Commission’s analysis, though it may justify denial of a wholesale request for 551 subpoenas, does not justify the denial of a more limited number which might have demonstrated error in aspects of the prima facie case. This argument is valid.” Id., 472 F.2d at 429. (Emphasis added.) The government’s argument asserts that “the FTC is not precluded from stopping the law violations of a par- ticular firm merely because some other firms may be en- gaged in similar practices”, citing Moog Industries, Inc. v. FTC, 355 U.S. 411 (1958). But this is no answer to why the competition enjoys the solicitude of the Com- mission by some means, while petitioners are being an- nihilated. It is not that the Commission has simply failed to act against the competitors, but rather it has adopted some kind of regulatory approach to the com- petitors totally inconsistent with its approach toward the petitioners. It is a strange FTC which seeks to stamp out deceptive advertising generally while wading through numerous apparent violators to grab the petitioners, claiming along the way that their competitors were not 11 visible. This tactic flies in the face of this Court’s ad- monition in FTC v. Universal-Rundle Corp., 387 U.S. 244, 251 (1967): “(T]he Federal Trade Commission does not have unbridled powers to institute proceedings which will arbitrarily destroy one of many law violators in an industry.” In short, the refusal to permit the introduction of any evidence respecting the competitive situation in which petitioners found themselves is unfair. It focuses on peti- tioners for singularly onerous treatment. In conflict with the action of the Court of Appeals below, the Second Cir- cuit Court of Appeals, in Marco Sales Co. v. FTC, 453 F.2d 1, 6-7 (1971), criticized the Commission’s arbitrary action: “The arbitrary character of the Commission’s action here consists of its total failure to even advert to, much less explain, its reason for the rigid ad hoc adjudicatory stance it adopted toward the petitioner and the flexible tolerance its industry regulation dis- played to those utilizing the same or similar devices. As Circuit Judge John R. Brown pointed out in his concurring opinion in Mary Carter Paint Co. v. FTC, 333 F.2d 654, 660 (5th Cir. 1964), rev’d. on other grounds, 382 U.S. 46, 86 S.Ct. 219, 15 L.Ed.2d 128 (1965): ‘Our complex society now demands admin- istrative agencies. The variety of problems dealt with make absolute consistency, perfect symmetry, impossible. And the law reflects its good sense by not exacting it. But law does not permit an agency to grant to one person the right to do that which it denies to another similarly situated. There may not be a rule for Monday, another for Tuesday, a rule for general application, but denied outright in a specific case.’” (Emphasis added and citations omitted. ) > ; a 12 The final order of the Commission, passed under cir- cumstances where the agency shielded itself from the rele- vant facts, is a denial of elementary due process. The Commission’s conclusion that the testimony sought by petitioners under subpoena was irrelevant, was a con- tradiction in terms. How may relevance be determined without first hearing the testimony? There would be time enough then to rule on admissibility. Is the Com- mission’s so-called “expertise” so pervasive that it may attribute to itself occult powers permitting it to dis- pense with the appearance and testimony of live wit- nesses and relegate the evaluation of documentary evi- dence to guesswork? What are the limits of the Com- mission’s powers under Section 5 to declare acts “un- fair” or “deceptive’? Unless this Court intervenes to fix the parameters of Section 5 authority, the Commis- sion will continue its sweeping arbitrary action. It is strange indeed to hear the Commission’s spokes- men elucidate its industry-wide enforcement programs before Congressional committees ° and public symposiums, on the one hand, and on the other, find in practice that the Commission chooses to rack up its accomplishments in this kind of selective, one-on-one adjudicatory hearing. The pious statements of former Commissioner Jones ° ran: “Industry-wide enforcement of the law is almost a Constitutional imperative as a matter of both fair- ness and equality before the law. It is clear we have no right to and could not permit some violators to go free while prosecuting others * * *.” ‘FTC Statement, Hearings before House subcommittees on Ap- propriations, 89th Cong., 1st Sess., Book 3, pp. 408-409; also pp. 820-830. * An address on February 25, 1965 before the District of Co- lumbia Bar Association. 13 Former Chairman Paul Rand Dixon publicly stated: * “It must be recognized that some illegal practices are so widespread within an industry that to single out a few of the sinners would be unfair. Simple justice would dictate that the approach to the prob- lem be of sufficient scope to give all violators an opportunity to rid themselves of the illegality simul- taneously and without suffering competitive injury in the process.” On another occasion Mr. Dixon said: * “The man who is willing to comply with the law simply cannot afford to if his competitor is allowed to go on violating it.” The two faces of the Commission, one of concern for equality when gingerly approaching Congress for funds, and the other fashioned as a sword to annihilate selec- tively those denied its solicitude, require the spotlight of this Court’s examination. The Federal Trade Commis- sion’s unbridled power needs some “fencing in”. 2. The Commission’s “all products” order, affirmed and enforced by the Fifth Circuit Court of Appeals be- low, conflicts with other Fifth Circuit decisions and those of the Sixth and Seventh Circuit Courts of Appeal striking down “al] products” orders as excessive and be- yond the power of the Federal Trade Commission. The Commission’s complaint and adjudication proceed- ings against the petitioners confined the charges and evi- dence to issues of unfair and deceptive acts and practices respecting their advertising and sale of aluminum home improvement products and services. Nothing pointed to *On June 15, 1965 before the Georgia Association of Broad- casters, Inc., Pine Mountain, Georgia. _* Voluntary Law Enforcement: “An Approach to Administra- tive Delay”, briefing Conference on Restraint of Trade and Trade Regulations, at Washington, D. C., March 17, 1965. 14 the petitioners as habitual violators or to even a single prior contact with the Federal Trade Commission or any other regulatory agency. While petitioners must expect some “fencing in”,’ the final prohibitory order tends rather to eradicate them from the marketplace. The words, “er any other prod- ucts”, without limitation, leave no doubt of the Commis- sion’s zeal to annihilate the petitioners. The final order directed the petitioners to cease and desist from a list of acts and practices “in connection with the advertising, offering for sale, sale, distribution or installation of aluminum siding, storm windows, storm doors or any other products, in commerce, as ‘commerce’ is defined in the Federal Trade Commission Act . . .” (Emphasis added). (App. 65a-66a). Justification for the sweeping “all products” order stemmed from the Commission’s undocumented, tea-leaf prophecy of petitioners’ planned dishonesty for the rest of their lives. The order’s sole support for the “all prod- ucts” language is the following: (App. 78a-79a) “Having systematically misrepresented their products and their terms of trade for so many years ( the firm was organized in 1965), it would be unrealis- tic, we think, to expect them to voluntarily adopt a program of honest business dealing when and if they find it in their i:terest to begin selling some new line of products.” TF me Recognition of the Commission’s vast and undefined ex- pertise” has not, until now, embraced the oracle’s role. The overreaching effect of the Commission’s order should be harnessed and modified to conform to the deci- sion and rationale limiting the scope of prohibitive orders respecting the term “any products” in American Home 4 These words were contained in the Commission’s opinion, citing FTC v. National Lead Co., 352 U.S. 914, 431 (1957). App. 79a). are ws - 15 Products Corp. v. FTC, 402 F.2d 232 (6th Cir. 1968). Modifying a sweeping Commission order, the court said at 237: “We are also of the opinion that the order must be modified by striking the provision which prohibits petitioners from disseminating any advertisement ‘in connection with the offering for sale, sale, or distribution of any “drug” * * * which misrepresents directly or by implication the efficacy of such drug’. An order of the Commission must bear a reasonable relationship to the unlawful practice found to ex- ist * ¢4 o. “The proceedings * * * in this case dealt exclusively with Preparation H; no other drug was involved. It was not established that petitioner was an habitual violator of the Federal Trade Commission Act, even though it is not a first offender. The effect of this provision of the Commission’s order is to admonish petitioner not te violate the law again. Such an order would in practical effect, transfer the task of enforcing the Federal Trade Commission Act, as regards this petitioner, to the district courts under 15 U.S.C. § 56. This is not within the contemplation of the Act.” Unless this Court intervenes (at least to require modi- fication of the existing order striking the terms “or any other products”), limiting the prohibitions to products and services of a like kind to aluminum home improve- ments, these petitioners shall remain subject to civil pen- alties in a district court proceeding under 15 U.S.C. § 56 *° despite the absence of a Section 5 administrative *° 15 U.S.C. §56 provides: “Whenever the Federal Trade Com- mission has reason to believe that any person, partnership, or corporation is liable to a penalty under section 54 of this title or under subsection (1) of section 45 of this title, it shall certify the facts to the Attorney General, whose duty it shall be to cause appropriate proceedings to be brought for the enforcement of the provisions of such section or subsection.” 16 cease and desist order respecting a future business wholly unrelated to the advertising and sale of aluminum home improvement products and services. Tracking the rationale of American Home Products, supra, the Fifth Cireuit Court of Appeals in Grove La- boratories Vv. FTC, 418 F.2d 489 (1969), held the Com- mission’s order covering “any drug’, without limitation, too broad. Striking the term “any drug’ from the order, and limiting the prohibitions to hemorrhoidal ointments, the court held, 418 F.2d at 496: “It will be noted that this prohibition refers to any and all drugs which may be sold by the petitioner and not just to those confined to treatment of hem- orrhoids. In other words it is an all-encompassing prohibition that covers all drugs of every kind and character. It would subject the petitioner to con- tempt penalties as set forth in the Act should it be violated with respect to any drug sold by the peti- tioner”’. Unless this Court intervenes to modify the outstand- ing order by striking the terms “or any other products”, absurd results may occur. As matters stand, these peti- tioners, on the one hand, may be subjected to heavy pen- alties and fines under their broad order for advertising and selling drugs and ointments in violation of the Com- mission’s notions of “fairness” under Section 5 of the Act. On the other, Grove Laboratories and American Home Products, under their respective limiting orders, would be immune from such penalties for Section 5 vio- lations in the advertising and sale of aluminum home improvement products and services. The Commission and the Court of Appeals below ad- monished that “those caught violating the Act must ex- pect some fencing in”. (App. 79a). But no court should sanction a remedy which leaves no path on which a past violator can “travel without anxiety”. Federated Whole- men rT seer 17 salers Service v. FTC, 398 F.2d 253, 260 (2d Cir. 1968). The Commission and the court below have so far departed from the usual course of judicial proceedings as to call for an exercise of this Court’s power of supervision lest the petitioners, through rank discrimination, be denied their right to make a living in the community. The Seventh Circuit Court of Appeals recognized this kind of power abuse in Spiegel, Inc. v. FTC, 411 F.2d 481 (1969). Spiegel was charged under Section 5 of the Act with promoting the sale of merchandise using false and misleading claims. The overbroad prohibitory order issued by the Commission recited: “3. Misrepresenting, in any manner, the savings available to purchasers of (petitioner’s) merchan- dise.” (Jd., at 484.) Holding the order too broad, it was modified “limiting it to the type of sale found violative here. Paragraph 3 should be stricken.” Spiegel, Inc. v. FTC, supra, at 485. On this score, the Spiegel court reasoned, 411 F.2d at 484: “This provision is so broad and imprecise that Spie- gel might well be fearful of advertising any kind of sale of its merchandise in the future. * * * In any event there is no justification for the imprecisely drawn, excessively broad order entered by the Com- mission.” The broad scope of the final order below ignores this Court’s warning to the Commission in FTC v. Henry Broch & Co., 368 U.S. 360 (1962), respecting the neces- sity for clarity in its orders. At 368 U.S. 367-368 this Court said: “The severity of possible penalties prescribed * * * for violations of orders which have become final underlies the necessity for sustaining orders which are, at the outset, sufficiently clear and precise to avoid raising serious questions as to their meaning and application.” 18 So much of the final order reciting the words “or any other products” should be stricken. CONCLUSION The Petition for a writ of certiorari should be granted. Respectfully submitted, JOSEPH J. LYMAN 1747 Pennsylvania Avenue, N.W. Suite 300 Washington, D.C. 20006 Attorney for Petitioners APPENDIX la [2] UNITED STATES OF AMERICA BEFORE FEDERAL TRADE COMMISSION Docket No. 8865 In the Matter of AMERICAN ALUMINUM CORPORATION, a corporation, and NORMAN J. FOUCHA and Bossy G. SMITH, individually and as officers of said corporation. COMPLAINT Pursuant to the provisions of the Federal Trade Com- mission Act and of the Truth in Lending Act and the regulations promulgated thereunder, and by virtue of the authority vested in it by said Acts, the Federal Trade Commission, having reason to believe that American Aluminum Corporation, a corporation, and Norman J. Foucha and Bobby G. Smith, individually and as officers of said corporation, hereinafter referred to as respond- ents, have violated the provisions of said Acts and of the regulations promulgated under the Truth in Lending Act, and it appearing to the Commission that a proceed- ing by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges in that respect as follows: PARAGRAPH ONE: Respondent American Aluminum Corporation is a corporation organized, existing and doing business under and by virtue of the laws of the State of Alabama, with its principal office and place of 2a business located at 1624 6th Avenue North, Birmingham, Alabama. Respondents Norman J. Foucha and Bobby G. Smith are the principal officers of the said corporate respond- ent. They formulate, direct and control the acts and practices of the corporate respondent, including the acts and practices hereinafter set forth. Their business ad- dress is the same as that of the corporate respondent. [3] PARAGRAPH TWO: Respondents are now, and for some time iast past have been, engaged in the advertis- ing, offering for sale, sale and distribution of residential aluminum siding, storm windows, storm doors and var- ious other home improvement products to the public and in the installation thereof. COUNT I Alleging violations of Section 5 of the Federal Trade Commission Act, the allegations of Paragraphs One and Two hereof are incorporated by reference in Count | as if fully set forth verbatim. PARAGRAPH THREE: In the course and conduct of their business, respondents now cause, and for some time last past have caused, their said products, advertis- ing and promotional material, contracts, and other busi- ness papers and documents to be shipped and trans- mitted from and to their place of business, located as aforesaid in the State of Alabama and from the suppliers of said products, located in various states of the United States to their prospective purchasers and purchasers thereof, located in various other states of the United States, other than the State of Alabama and the states in which said suppliers are located, and maintain, and 3a at all times mentioned herein have maintained, a sub- stantial course of trade in said products, in commerce, as “commerce” is defined in the Federal Trade Commis- sion Act. PARAGRAPH FOUR: In the course and conduct of their business, as aforesaid, and for the purpose of in- ducing the purchase and installation of their home im- provement products, respondents have made numerous statements and representations, in their advertising, pro- motional material, direct mail advertising and through oral statements and representations made by their s+‘es- men or representatives to prospective purchasers, respect- ing the nature of their offer and the price, time limita- tions, guarantee and the quality of their products. Typical and illustrative of respondents’ published ad- vertising representations, but not all inclusive thereof, are the following: “ALL-ALUMINUM SIDING SALE MANY MONTHS TO PAY—LOW MONTHLY PAYMENT PAY NOTHING FOR MONTHS AFTER IN- STALLATION $199.50 [4] FREE BONUS Special offer to you—If you act promptly we will include Storm Windows for every window in your home as a FREE bonus with the purchase of our All Aluminum or Siding Special. 100% Guaranteed Genuine Aluminum , Siding Completely installed by our expert home finishers Absolutely no extras to pay 4a One lifetime installation protects forever THIS CARD IS WORTH $431.00 TO YOU AND YOU GET A BONUS GIFT FREE WITH PUR- CHASE THIS IS A LIMITED OFFER!! Mail this card within 7 days to become eligible for this savings, plus FREE Storm Windows for every window in your home with the purchase of this Aluminum Siding for your home.” PARAGRAPH FIVE: By and through the use of the aforesaid statements and representations and others of similar import and meaning not specifically set out here- in, and through oral statements made by their sales- men or representatives, respondents represent, and have represented, directly or by implication, that: 1. The offer set forth in said advertisements is a bona fide offer to sell the advertised products at the prices and on the terms and conditions stated. Respondents’ products are being offered for sale at special or reduced prices, and that savings are thereby afforded to purchasers from respondents’ regular selling price. Respondents’ advertised offer is made for a limited time only. That purchasers of respondents’ products would receive a Free Bonus or gift in the form of free storm windows. After the installation of respondents’ aluminum siding is completed, the homes of purchasers will be used for demonstration and advertising purposes by the respondents; and, as a result of allowing 5a [5] their homes to be used as models, purchasers will be granted reduced prices or will receive allow- ances, discounts or commissions. 6. Certain of respondents’ home improvement products are unconditionally guaranteed or guaranteed for life. 7. Respondents’ siding materials will never require painting. PARAGRAPH SIX: In truth and in fact: i. Respondents’ said advertised offers are not genuine or bona fide offers but are made for the purpose of obtaiuing leads as to persons interested in the purchase of respondents’ products. After obtain- ing such leads, respondents’ salesmen or representa- tives call upon such persons at their homes and, according to their established mode of operation, respondents’ salesmen or representatives disparage the advertised product and otherwise discourage the purchase thereof and attempt to sell and fre- quently do sell a different and more expensive prod- uct instead of the advertised product for which the customer was originally solicited. 2. Respondents’ products are not being offered for sale at special or reduced prices, and savings are not thereby afforded purchasers because of reduc- tions from respondents’ regular selling prices. In fact, respondents do not have regular selling prices but the prices at which respondents’ products are sold vary from customer to customer depending on the resistance of the prospective purchaser. 3. Respondents’ advertised offer is not made for a limited time only. Said merchandise is advertised regularly at the represented prices and on the terms and conditions therein stated. 6a 4. Purchasers of respondents’ products do not receive a Free Bonus gift in the form of free storm win- dows. 5. After installation of respondents’ aluminum sid- ing is completed, homes of purchasers are not used for demonstration or advertising purposes; and pur- [6] chasers, as a result of allowing their homes to be used as models, are not granted reduced prices, nor do they receive allowances, discounts or com- missions. 6. Respondents’ home improvement products are not unconditionally guaranteed or guaranteed for life. Such guarantee as may be provided is subject to numerous terms, conditions and limitations respect- ing the duration of the guarantee and the extent and manner of performance thereunder. Further- more, in a substantial number of cases, respondents or their salesmen or representatives fail to furnish any written guarantee to the customer and fail to disclose the life during which said guarantee ap- plies. 7. Respondents’ siding materials will require painting. Therefore, the statements and representations set forth in Paragraphs Four and Five hereof were and are false, misleading and deceptive. PARAGRAPH SEVEN: In a substantial number of instances and in the usual course of their business, re- spondents sell and transfer their customers’ obligations, procured by the aforesaid unfair, false, misleading and deceptive means, to various financial institutions. In any subsequent legal action to collect on such obligations, these financial institutions or other third parties, as a — ee Ee OY Oem ee nee oe 7a general rule, have available and can interpose various defenses which may cut off certain valid claims customers may have against respondents for their failure to per- form or for certain other unfair, false, misleading or deceptive acts and practices. PARAGRAPH EIGHT: In the conduct of their afore- said business, at all times mentioned herein, respondents have been in substantial competition, in commerce, with corporations, firms and individuals in the sale of alumi- num siding and other home improvement products of the same general kind and nature as those sold by re- spondents. [7] PARAGRAPH NINE: The use by respondents of the aforesaid false, misleading and deceptive statements, rep- resentations and practices has had, and now has, the capacity and tendency to mislead members of the pur- chasing public into the erroneous and mistaken belief that said statements and representations were and are true and into the purchase of substantial quantities of respondents’ products by reason of said erroneous and mistaken belief. PARAGRAPH TEN: The aforesaid acts and practices of respondents, as herein alleged, were and are all to the prejudice and injury of the public and of respondents’ competitors and constituted, and now constitute, unfair methods of competition in commerce and unfair and de- ceptive acts and practices in commerce, in violation of Section 5 of the Federal Trade Commission Act. COUNT II (Count II Not Material to the Petition.) 8a WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this 4th day of October, A.D. 1971, issues its complaint against said respondent. =~ 23 enews ae 9a [63] MOTION FOR SUBPOENA DUCES TECUM To: Honorable Edward Creel, Director, Hearing Examiners Respondents herein move the Hearing Examiner for issuance of subpoenas directed to the following named entities: 1. 2. 3. 4. 5. National Siding Corp. Universal Sidings Allied Aluminum Co. Dixieland Construction Co. Continental Enterprises Attached hereto are points and authorities in support of this Motion. There is also attached an aopendix setting [64] forth the specificatio s for the subpoenas with respect to each entity. Respectfully submitted, /s/ Joseph J. Lyman Joseph J. Lyman 1200 18th Street, N.W. Washington, D.C. 20036 {Attorney for Respondents] 10a [65] POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR SUBPOENA DUCES TECUM The Complaint charges the respondents with making false, misleading and deceptive representations with re- spect to the sale of certain home improvement products. The Complaint further alleges that respondents are in substantial competition with other entities in the sale of similar products inferring that respondents’ selling methods injure competition. The respondents’ advertising techniques are extensively used hy its competitors in the market place where re- spondents do business. Nevertheless, the Complaint al- leges that respondents injure their competitors in the course of its business (paragraph 8 of the Complaint). [66] - In order to determine what effects respondents’ ad- vertising have had on its competitors, it is necessary to look into the actual practices of these competitors. At- tached are sample advertisements (collected within the period of the Complaint) by a selected group of highly visible competitors of the respondents. These ads offer the same inducements for purchase in almost the same language as that used by respondents. The respondents, the butt of this Complaint, insert no materially different qualifications with respect to sales than that of their competitors, who apparently move free in the competi- tive market without restraint. Therefore it is relevant to examine in detail the prac- tices of respondents’ competitors in order to deter- mine in what respect their advertisements and selling practices conform to the Commission’s rules while re- spondents’ appear to be in violation. Respondents rea- ek ne ee lla sonably believe that no vendor gives merchandise away and they further believe that their offers of bonuses and the like are a common place selling practice to stimulate selling activity for home improvement prod- ucts. We have a situation where the allegations of de- ception are so tenuous that respondents are entitled to (67) develop fully either the activity of their competitors, as a matter of reality, different from theirs so as to war- rant the apparent solicitude of the Commission, while respondents become subjected to penal sanctions. Without specified evidence from its competitors, any record made against respondents should remain specula- tive with respect to what is the fact regarding false and deceptive statements in all of the advertisements, re- spondents and competitors alike. The similitude of respondents’ and their competitors’ advertisements, in the light of the charges of deception set out in the Complaint, requires that respondents’ mo- tion for the issuance of subpoenae be granted so that respondents will be afforded due process with respect to its defenses. If this issue were tried pursuant to the Federal Rules of Civil Procedure, parties defendant in the position of these respondents would have an uninhibited right to explore and develop evidence in aid of their defenses. No reason presents itself why these respondents should have limitations placed on their development of their defenses in an administrative hearing. [68] Wherefore, the respondents move the Hearing Exam- 12a 13a iner for issuance of subpoenae duces tecwm directed to each of the corporations listed in the motion attached. Respectfully submitted, . O . Stes i /s/ Joseph J. Lyman ; ener oe. | Joseph J. 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" e ee tS . a w uw C 2 As + “Higigl ss 38% of] THe ‘Ao 19 3532! i. an - ; 4 ae vy) Pd Felt > a +o ee) CSG | Weal pon det Ez NES, fF Mt I | lees BS ui] Do le |S (oa ) ’ » oe . £f - ey eo — rasa , it , Bide FE awit WO 4 CAO J ote Se GM [essed Bedi 88 bolle | age ~ a4 a ae «20 oy >in A a . cP COE gr My \) f2ss21§ zine) SE e) F295 “ a ' ro 53a mission Act, and representations merely having the capacity to deceive are unlawful. Charles of the Ritz Dist. Corp. v. FTC, 143 F.2d 676, 680 (2nd Cir. 1944). ce. “The important criterion in determining the meaning of an advertisement is the net impres- sion that it is likely to make on the general popu- _ lace.” National Bakers Services, Inc. v. FTC, 329 F.2d 365, 367 (7th Cir. 1964). In determin- ing the impression created by an advertisement, the Commission need not look to the technical interpretation of each phrase but must look to the overall impression likely to be made on the buying public. Murray Space Shoe Corporation v. FTC, 304 F.2d 270, 272 (2nd Cir. 1962). d. Although a statement “may be obviously false to those who are trained and experienced |this] does not change its character, nor take away its power to deceive others less experienced.” FTC v. Standard Education [379] Society, et al, 302 U.S. 112, 116 (1937). The fact that the representation may be obviously _ false to the more sophisicated is immaterial. 52. The aforesaid acts and practices of respondents, as herein found, were and are all to the prejudice and injury of the public and of respondents’ competitors and constituted and now constitute unfair methods of com- petition in commerce and unfair and deceptive acts and practices in commerce, in violation of Section 5 of the Federal Trade Commission Act.* This deception of pur- * Respondents admit that they have been in substantial compe- tition in commerce, with corporations, firms and individuals in the sale of aluminum siding and other aluminum home improvement products of the same kind. (Comp. par. 8; Ans. par. 8). 54a chasers constitutes unfair competition. FTC v. Winsted Hoisery Co., 258 U.S. 483 (1922). In reaching this con- clusion, the Administrative Law Judge has evaluated re- spondents’ practices in light of the capacity of the ad- vertisements to deceive, and the inherent unfairness of the advertisements and the practices, and not on the basis of a demonstrated injury to purchasers. Mont- gomery Ward & Co. v. FTC, 379 F.2d 666 (7th Cir. 1967); Charles of the Ritz, supra. 53. Moreover, by the acts described above, respond- ents have failed to comply with the provisions of Regu- lation Z, the implementing regulation of the Truth in Lending Act duly promulgated by the Board of Gov- ernors of the Federal Reserve System, which failure constitutes a violation of the Federal Trade Commission Act pursuant to Section 103(q) of the Truth in Lending Act. 54. In their proposed findings and conclusions of law, respondents urge the Administrative Law Judge to con- clude that there “is no evidence to support the allega- tions of the complaint that respondents Norman J. foucha and Bobby G. Smith, in their individual capacities, vio- lated the provisions of the Federal Trade Commission, or the Truth-in-Lending Act.” However, the named indi- vidual respondents admittedly were the persons responsi- ble for the management, direction and control of the cor- porate respondent. Effective administration of the Fed- eral Trade Commission Act and the Truth in Lending [380] Act dictate that an outstanding order be directed against the responsible individuals and not merely against a life- less corporate entity. For respondents Norman J. Foucha and Bobby G. Smith were, and Bobby G. Smith now is, in fact, the alter ego of American Aluminum Corporation. il APO a APN ae ek 55a Cf. Fred Meyer, Inc., 63 F.T.C. 1; Pati-Port, Ine. v. Federal Trade Commission, 313 F.2d 103, 105 (4th Cir. 1963). 55. Since one of the essential purposes of both the Federal Trade Commission Act and the Truth in Lending Act is the protection of the public, the Commission nec- esSarily must “be allowed effectively to close all roads to the prohibited goal, so that its order may not be by- passed with impunity.” Federal Trade Commission v. Ruberoid Co., 343 U.S. 470, 473 (1952). The remedy in the accompanying order has a reasonable relationship to the unlawful practice here found to exist. It is the only action which reasonably could be calculated to preclude a revival of the illegal practices. 56. The Federal Trade Commission has jurisdiction of and over respondents and the subject matter of this pro- ceeding. 57. The complaint herein states a cause of action and this proceeding is in the public interest. 58. This decision is not a major Federal action sig- nificantly affeciiig the quality of the human environment within the meaning of the National Environmental Policy Aci of 19069." * Section 102 of the National Environmental Policy Act of 1969 (Public Law 91-190), specifically requires that all agencies of the Federal Government shall, to the fullest extent possible, “(C) include in every recommendation or report on proposals for legislation and other major Federal actions significantly effecting the quality of the human environment, a detailed statement by the responsible official on— (i) the environmental impact of the proposed action, [381] (ii) any adverse environmental effects which cannot be avoided should the proposal be impleemnted, [Footnote continued on page 56a] 56a [382] ORDER IT IS ORDERED that respondents American Alumi- num Corporation, a corporation, and its officers, and Norman J. Foucha and Bobby G. Smith, individually and as officers of said corporation, and respondents’ agents, representatives and employees, directly or through any ® [Continued } (iii) alternatives to the proposed action, (iv) the relationship between local short-term uses of man’s environment and the maintenance and enhancement of long-term productivity, and (v) any irreversible and irretrievable commitments of resources which would be involved in the proposed action should it be implemented.” But see Harlem Valley Transportation Association v. George M. Stafford, Civil No. 73-Civ. 1330, S.D.N.Y., June 21, 1973, where the Court emphasized that the agency “should determine at the out- set of * * * proceedings whether ‘major Federal actions signifi- cantly affecting the quality of the human environment’ are in- volved within the meaning of 42 U.S.C. § 4332(2)(C), and, if so, (2) to require staff preparation of a draft impact statement for circulation to the parties. . .”; and Hanly v. Kleindienst, 471 F.2d 823 (2nd Cir. 1972) where the Second Circuit Court of Appeals held at p. 836 that: “Notwithstanding the absence of statutory or administrative provisions on (threshold determinations), this Court has al- ready held in Hanly J * * * that federal agencies must ‘affirm- atively develop a reviewable environmenta! record . . . even for purposes of a threshold (NEPA) determination.’ We now go further and hold that before a preliminary or threshold determination of significance is made the responsible agency must give notice to the public of the proposed major federal action and an opportunity to submit relevant facts which might bear upon the agency’s threshold decision. * * * The precise procedural steps to be adopted are better left to the agency, which should be in a better position to determine whether solution of the problems with respect to a specific major fed- eral action can better be achieved through a hearing or by in- formal acceptance of relevant data.” 57a corporate or other device, in connection with the adver- tising, offering for sale, sale, distribution or installation of aluminium siding, storm windows, storm doors or any other products, in commerce, as “commerce” is defined in the Federal Trade Commission Act, do forthwith cease and desist from: 1. Using, in any manner, any advertising, sales plan, scheme or device wherein false, misleading or deceptive statements or representations are made in order to obtain leads or prospects for the sale of other merchandise or services. 2. Making representations purporting to offer mer- chandise for sale when the purpose of the rep- resentation is not to sell the offered merchandise but to obtain leads or prospects for the sale of other merchandise at higher prices. [383] 3. Discouraging the purchase of or disparaging any merchandise or services which are advertised or offered for sale. 4. Representing, directly or by implication, that any merchandise or services are offered for sale when such offer is not a bona fide offer to sell such merchandise or services. Al Representing, directly or by implication, that any price for respondents’ products and/or services is a special or reduced price, unless such price con- stitutes a significant reduction from an estab- lished selling price at which such products and/or services have been sold in substantial quantities by respondents in the recent regular course of their business; or misrepresenting, in any man- ner, the savings available to purchasers. 10. 11. 58a Representing, directly or by implication, that any offer to sell products is limited as to time or is limited in any other manner. Representing, directly or by implication, that persons will receive a gift of a specified article of merchandise, or anything of value. [384] Representing, directly or by implication, that the home of any of respondents’ customers or pros- pective customers will be used as a model home, or otherwise, for advertising, demonstration or sales purposes. Representing, directly or by implication, that any allowance, discount or commission is granted by respondents to purchasers in return for per- mitting or agreeing to allow the premises on which respondents’ products are installed to be used for model homes or demonstration purposes. Representing, directly or by implication, that any of respondents’ products are guaranteed, unless the nature and extent of the guarantee, the iden- tity of the guarantor, and the manner in which the guarantor will perform thereunder are clearly and conspicuously disclosed; or making any direct or implied representation that any of respond- ents’ products are guaranteed unless in each in- stance a written guarantee is given to the pur- chaser containing provisions fully equivalent to those contained in such representations. [385] Representing, directly or by implication, that any product is guaranteed for life without clearly ee es 12. 13. 14, 15. 59a and conspicuou:ly disclosing the life to which such reference is made; or misrepresenting, in any manner, the duration, nature or extent of any guarantee. Representing, directly or by implication, that re- spondents’ products will never require repainting; or misrepresenting, in any manner, the durability or efficacy of respondents’ products. Failing to deliver a copy of this order to all present and future salesmen or other persons engaged in the sale of respondents’ products and to secure from each salesman or person a = statement acknowledging receipt of said order. Assigning, selling or othgrwise transferring re- spondents’ notes, contracts or other documents evidencing a purchaser’s indebtedness, unless any rights or defenses which the purchaser has and may assert against respondent are preserved and may be asserted against any assignee or subse- quent holder of such note, [386] contract or other documents evidencing the in- debtedness. Failing to include the following statement clearly and conspicuously on the face of any note, con- tract or other instrument of indebtedness exe- cuted by or on behalf of respondents’ customers: “NOTICE” “Any holder takes this instrument subject to the terms and conditions of the contract. which gave rise to the debt evidenced here- 60a by, any contractual provision or other agree- ment to the contrary notwithstanding.” 16. Failing to maintain adequate records: (a) (b) (¢c) For a period of five (5) years which disclose the factual basis for any representations or statements as to special or reduced prices, as to usual and customary retail prices, as to savings afforded to purchasers, and as to similar representations of the type described in paragraph 5 of this order. [387] For a period of five (5) years, with regard to each and every contract hereafter entered into between respondents and their custom- ers, which disclose, in itemized form, what each customer was charged, exclusive of in- terest or finance charges, for materials and for labor, and for those contracts involving siding, or the installation of siding, or both, additional information as to the total amount of siding materials and other materials in- stalled or delivered to the customer, the type and grade of said siding and other mate- rials, a description of the installation per- formed, the total amount of money paid to salesmen, agents or representatives for the solicitation of the said contracts, and what each customer was charged exclusive of in- terest or finance cherges per square foot for the performance of the said contract. . [388] For a period of five (5) years invoices, no- tices for payment and all similar documents I | i Oe ee ee ee eee ° 6la which respondents receive in the conduct of their business from suppliers, subcontractors and other persons, and for a period of five (5) years copies of all contracts entered into between respondents and their custom- ers, II IT IS FURTHER ORDERED that respondents Amer- ican Aluminum Corporation, a corporation, and its offi- cers, and Norman J. Foucha and Bobby G. Smith, indi- vidually and as officers of said corporation, and respond- ents’ agents, representatives and employees, dir®ttly or through any corporate or other device in connection with any advertisement or consumer credit sale of home im- provement products or services, or any other products or services, as “advertisement” and “credit sale” are de- fined in Regulation Z (12 CFR 226) of the Truth in Lending Act (P.L. 90-321, 15 U.S.C. 1601 et seg.), forth- with cease and desist from: 1. Representing, directly or by implication, in any advertisement as “advertisement” is [389] defined in Regulation Z, the amount of the down- payment required or that no downpayment is re- quired, the amount of any installment payment, the dollar amount of any finance charge, the num- ber of installments or the period of repayment, or that there is no charge for credit, unless all of the following items are stated in terminology pre- scribed under Section 226.8 of Regulation Z: (i) the cash price; 62a (ii) the amount of the downpayment required or that no downpayment is required, as ap- plicable; (iii) the number, amount, and due dates or pe- riod of payments scheduled to repay the indebtedness if the credit is extended; (iv) the amount of the finance charge expressed as an annual percentage rate; and (v) the deferred payment price. [390] . Representing, directly or by implication, on re- tail installment contracts, promissory notes, or on any written document or orally, that customers will or may be liable for damages, penalties or any other charges for exercising their right to rescind that is provided by Section 226.9 of Regulation Z. Supplying any additiona! information, contract clause or other statement about the customer’s liability or obligations in the event that the cus- tomer exercises his right to rescind except that information furnished in accordance with Section 226.9 of Regulation Z. Supplying any additional information, in writing or orally, that is stated, utilized or placed so as to mislead or confuse the customer or that con- tradicts, obscures or detracts attention from the information that is required to be disclosed by Regulation Z, as prohibited by Section 226.6(c) of Regulation Z. Failing, in any consumer credit transaction or advertisement, to make all disclosures, 63a [391] determined in accordance with Sections 226.4 and 226.5 of Regulation Z, in the manner, form and amount required by Sections 226.6, 226.8, 226.9 and 226.10 of Regulation Z. Ill IT IS FURTHER ORDERED that the respondent cor- poration shall forthwith distribute a copy of this order to each of its operating divisions. IT IS FURTHER ORDERED that respondents shall forthwith deliver a copy of this order to cease and desist to all present and future salesmen or other persons en- gaged in the sale of respondents’ products or services, and shall secure from each such salesman or other person a signed statement acknowledging receipt of said order. IT IS FURTHER ORDERED that respondents notify the Commission at least thirty (30) days prior to any proposed change in the corporate respondent such as dis- solution, assignment or sale resulting in the emergence of a successor corporation, the creation or dissolution of subsidiaries or any other change in the corporation which may affect compliance obligations arising out of the order. IT IS FURTHER ORDERED that the individual re- spondents named herein promptly notify the Commission of the [392] discontinuance of their present business or employment and of their affiliation with a new business or employ- ment. Such notice shall include respondents’ current business address and a statement as to the nature of the 64a business or employment in which they are engaged as well as a description of their duties and responsibilities. /s/ David H. Allard DAvip H. ALLARD, Administrative Law Judge. 65a [482] (Issued: July 2, 1974) UNITED STATES OF AMERICA BEFORE FEDERAL TRADE COMMISSION COMMISSIONERS: Lewis A. Engman, Chairman Paul Rand Dixon Mayo J. Thompson M. Elizabeth Hanford Stephen Nye Docket No. 8865 In the Matter of AMERICAN ALUMINUM CORPORATION, a corporation, and NORMAN J. FOUCHA and Bossy G. SMITH, individually and as officers of said corporation. FINAL ORDER This matter having been considered on respondents’ appeal from an initial decision of the administrative law judge of October 9, 1973, and the Commission having determined that said appeal should be granted in part and denied in part in accordance with the accompanying opinion of the Commission: IT IS ORDERED that respondents American Alumi- num Corporation, a corporation, and its officers, and Norman J. Foucha and Bobby G. Smith, individually and as officers of said corporation, and respondents’ agents representatives and employees, directly or through any corporate or other device, in connection with the adver- 66a tising, offering for sale, sale, distribution or installation of aluminium siding, storm windows, storm doors or any other products, in commerce, as “commerce” is defined in the Federal Trade Commission. Act, do forthwith cease and desist from: or [483] Using, in any manner, any advertising, sales plan, scheme or device wherein false, misleading or deceptive statements or representations are made in order to obtain leads or prospects for the sale of other merchandise or services. : Making representations purporting to offer mer- chandise for sale when the purpose of the repre- sentation is not to sell the oeffred merchandise but to obtain leads or prospects for the sale of other merchandise at higher prices. Discouraging the purchase of or disparaging any merchandise or services which are advertised or offered for sale. Representing, directly or by implication, that any merchandising or services are offered for sale when such offer is not a bona fide offer to sell such merchandise or services. Representing, directly or by implication, that any price for respcndents products and/or services is a special or reduced price, unless such price con- stitutes a significant reduction from an estab- - lished selling price at which such products and/or services have been sold in substantial quantities by respondents in the recent regular course of their business; or misrepresenting, in any man- ner, the savings available to purchasers. Representing, directly or by implication, that any offer to sell products is limited as to time or is 10. 11. 67a limited in any other manner, unless such repre- sented limitations are actually in force and are in good faith adhered to. Falsely representing, directly or by implication, that persons will receive a gift of a specified article of merchandise, or anything of value. Falsely representing, directly or by implication, that the home of any of respondents’ customers or prospective customers will be used as a model home, or otherwise, for advertising, demonstra- tion or sales purposes. [484] Falsely representing, directly or by implication, that any allowance, discount or commission is granted by respondents to purchasers in return for permitting or agreeing to allow the premises on which respondents’ products are installed to be used for model homes or demonstration pur- poses. Representing, directly or by implication, that any of respondents’ products are guaranteed, un- less the nature and extent of the guarantee, the identity of the gurantor, and the manner in which the guarantor will perform thereunder are clearly and conspicuously disciosed; or mak- ing any direct or implied representation that any of respondents’ products are guaranteed un- less in each instance a written guarantee is given to the purchaser containing provisions fully equivalent to those contained in such rep- resentations. Representing, directly or by implication, that any product is guaranteed for life without clearly and 12. 13. 14. 68a conspicuously disclosing the life to which such reference is made; or misrepresenting, in any manner, the duration, nature or extent of any guarantee. Representing, directly or by implication, that respondents’ products will never require repaint- ing; or misrepresenting, in any manner, the dur- ability or efficacy of respondents’ products. Failing to deliver a copy of this order to all present and future salesmen or other persons engaged in the sale of respondents’ products and to secure from each salesman or person a signed statement acknowledging receipt of said order. Failing to maintain adequate records: ia) For a period of five (5) years which dis- close the factual basis for any representa- tions or statements as to special or reduced prices, as to usual and customary retail prices, as to savings afforded to purchasers, and as to similar representations of the type described in paragraph 5 of this order. [485] (b) For a period of five (5) years, with regard to each and every contract hereafter entered into between respondents and their custom- ers, which disclose, in itemized form, what each customer was charged, exclusive of in- terest or finance charges, for materials and fer labor, and for those contracts involving siding, or the installation of siding, or both, additional information as to the total amount of siding materials and other materials in- stalled or delivered to the csutomer, the type | 69a and grade of said siding and other materials, a description of the installation performed, the total amount of money paid to salesmen, agents or representatives for the solicitation of the said contracts, and what each cus- tomer was charged exclusive of interest or finance charges per square foo. for the per- formance of the said contract. (c) For a period of five (5) years invoices, no- tices for payment and all similar documents which respondents receive in the conduct of their business from suppliers, subcontractors and other persons, and for a period of five (5) years copies of all contracts entered into between respondents and their customers. II iT IS FURTHER ORDERED, that respondents Ameri- can Aluminum Corporation, a corporation, and its offi- cers, and Norman J. Foucha and Bobby G. Smith, indi- vidually and as officers of said corporation, and respond- ents’ agents, representatives and employees, directly or through any corporate or other device in connection with any advertisement or consumer credit sale of home im- provement products or services, or any other products or services, as “advertisement” and “credit sale” are de- fined in Regulation Z (12 CFR 226) of the Truth in Lending Act (P.L. 90-321, 15 U.S.C. 1601 et seg.), forth- with cease and desist from: [486] 1. Representing, directly or by implication, in any advertisement as “advertisement” is defined in. Regulation Z, the amount of the downpayment required or that no downpayment is required, the 70a amount of any installment payment, the dollar amount of any finance charge, the number of in- stallments or the period of repayment, or that there is no charge for credit, unless all of the following items are stated in terminology pre- scribed under Section 226.8 of Regulation Z: (i) the cash price; (ii) the amount of the downpayment required or that no downpayment is required, as applicable; (iii) the number, amount, and due dates or period of payments scheduled to repay the indebtedness if the credit is extended ; (iv) the amount of the finance charge expressed as an annual percentage rate; and iv) the deferred payment price. . Representing directly or by implication, on re- tail installment contracts, promissory notes, or on any written document or orally, that custom- ers will or may be liable for damages, penalties or any other charges for exercising their right to rescind that is provided by Section 226.9 of Regulation Z. . Supplying any additional information, contract clause or other statement about the customer’s liability or obligations in the event that the cus- tomer exercises his right to rescind except that information furnished in accordance with Sec- tion 226.9 of Regulation Z. . Supplying any additional information, in writ- ing or orally, that is stated, utilized or placed so as to mislead or confuse the Tla [487] customer or that contradicts, obscures or detracts attention from the information that is required to be disclosed by Regulation Z, as prohibited by Section 226.6(c) of Regulation Z. 5. Failing, in any consumer credit transaction or advertisement, to make all disclosures, deter- mined in accordance with Sections 226.4 and 226.5 of Regulation Z, in the manner, form and amount required by Sections 226.6, 226.8, 226.9 and 226.10 of Regulation Z. Ill IT IS FURTHER ORDERED that the respondent cor- poration shall forthwith distribute a copy of this order to each of its operating divisions. IT IS FURTHER ORDERED that respondents shall forthwith deliver a copy of this order to cease and desist to all present and future salesmen or other persons en- gaged in the sale of respondents’ products or services, and shall secure from each such salesman or other person a signed statement acknowledging receipt of said order. IT IS FURTHER ORDERED that respondents notify the Commission at least thirty (30) days prior to any proposed change in the corporate respondent such as dissolution, assignment or sale resulting in the emer- gence of a successor corporation, the creation or dis- solution of subsidiaries or any other change in the cor- poration which may affect compliance obligations arising out of the order. IT IS FURTHER ORDERED that the individual re- spondents named herein promptly notify the Commission of the discontinuance of their present business or em- ployment and of their affiliation with a new business or 72a employment. Such notice shall include respondents’ cur- rent business address and a statement as to the nature of the business or employment in which they are en- gaged as well as a description of their duties and re- sponsibilities. [488] IT IS FURTHER ORDERED that respondents, Amer- ican Aluminum Corporation, Norman J. Foucha and Bobby G. Smith shall, within sixty (60) days after serv- ice upon them of this order, file with the Commission a report, in writing, setting forth in detail the manner and form in which they have complied with the order to cease and desist. By the Commission, Commissioner Nye not participat- ing. /s/ Charles A. Tobin CHARLES A. TOBIN Secretary ISSUED: JULY 2, 1974 oo 73a [489] OPINION OF THE COMMISSION By Thompson, Commissioner : This matter is before the Commission on appeal from an initial decision of an administrative law judge find- ing that American Aluminum and two of its officers have failed to make certain credit disclosures required by the Truth-in-Lending Act, 15 U.S.C. $$ 1601, et seqg., and have engaged in certain deceptive acts and practices in the advertising and sale of various home-improvement products, particularly aluminum siding, all in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45(a). The order issued by the law judge would require respondents to make the credit disclosures re- quired by the former statute in their future contracts and advertising and to cease and desist from the other deceptive acts and practices in their future business dealings. . The law judge found, and respondents do not deny: (1) That respondent American Aluminum advertises its aluminum-siding business by sending out “mailers” to local homeowners offering to install such aluminum sid- ing for $189.50 to $219.50 (“low priced siding”), a price that is [490] described as a “saving” of $431.00; (2) that these pro- motional mailers also promise that, if the attached re- sponse card is returned within seven days, a set of storm windows will be thrown in as a “free gift’ or bonus; (3) that these mailers also imply that the aluminum siding in question will last indefinitely; (4) that home- owners who return these mailers are visited by salesmen who, after execution of the contract for the purchase of the advertised low-priced siding, make every effort to T4a “switch” the purchaser to a higher-priced product (re- spondents’ “Imperial” aluminium siding); (5) that this “switching” of the customer to the higher-priced product is accomplished by showing him an unpainted and unat- tractive sample of the advertised low-priced siding, dis- paraging its durability, and explaining that it would re- quire periodic painting and other costly maintenance; (6) that respondents’ salesmen also offer substantial reduc- tions from a purported “regular” price of the higher- priced “Imperial” siding if the customer will permit the use of his home for advertising purposes and promise a written guarantee that the siding will last indefinitely; (7) that in fact all of these representations are false, i.e., no such guarantees are provided, the product does not last indefinitely, customers’ homes are never used for advertising or demonstration purposes, and there are no “regular” prices from which a discount could be given (the salesmen charge whatever the individual customers will pay, up to certain maxima that are well below the purported “regular price); (8) that respondents have rarely, if ever, actually installed the advertised low- priced siding, even when it has been demanded by par- ticular customers; and (9) that American Aluminum has failed to make a number of credit disclosures re- quired by the Truth-in-Lending Act and has used con- tracts that tend to mislead the customer as to his right to rescind under that statute. Respondents contend on appeal, however: (a) That the record does not support the law judge’s finding that the two individual respondents, Smith and Foucha, are le- gally responsible for the bait-and-switch practices of the firm’s salesmen; (b) that their competitors are engaged in similar practices and hence that the law judge and the Commission committed prejudicial error in denying respondents’ pretrial motion for the issuance of subpoenas duces tecum directed to a 75a [491] number of such competing organizations; (c) that the record does not support the law judge’s finding of injury to the public; and (d) that the order issued by the law judge is overly broad insofar as it (i) directs its prohi- bitions to “all” products respondents might sell in the future rather than to those involved in its past decep- tions, (ii) prohibits certain representations without re- gard to whether they might in fact be true, and (iii) abrogates the “holder-in-due-course” doctrine on respond- ents’ future credit sales. We agree that the order goes too far in the last two particulars but otherwise affirm and adopt the law judge’s decision. It is a well-settled principle of law that the Federal Trade Commission is not precluded from stopping the law violations of a particular firm merely because some other firms might be engaged in similar practices. Moog In- dustries, Inc. v. Federal Trade Commission, 355 U.S. 411 (1958); United Biscuit Co. v. Federal Trade Commis- sion, 350 F.2d 615, 624 (7th Cir. 1965), cert. denied, 383 U.S. 926 (1966). And since injury to competitors is not a necessary element of a case charging deception of the public, Federal Trade Commission v. Algoma Lumber, 291 U.S. 67, 81 (1934), the data respondents sought to gather by the requested subpoenas duces tecum would have been irrelevant to this proceeding. Nor is it a de- fense in such a case to show that the public has not in fact been injured' by the challenged deception. Section 5(b) of the Federal Trade Commission Act requires that, as a condition to filing a complaint, (1) the Commission must have “reason to believe’ an unfair or deceptive act ‘American Aluminum’s officials testified that its prices were 30% to 50° lower than those of a particular competitor. Tr. 516- 522, 661-664, 725-727. Since complaint counsel had not legal obliga- tion to attempt a rebuttal of this irrelevant testimony, it naturally stands “‘uncontroverted” in the record. 76a or practice has occurred and (2) it must “appear” to the Commission that a proceeding to stop that violation “would be to the interest of the public .. .” 15 U.S.C. 45(b). Once such a complaint has been issued, however, the courts will not review the mental processes of the Commission in arriving at that decision nor permit the [492] charged party to litigate the adequacy of the data on which the Commission acted.* The issue to be litigated, rather, is “whether the alleged violation has in fact oc- curred.” Exxon Corporation, Docket 8934 (Order of the Commission, June 4, 1974). The two corporate officers, Smith and Foucha, con- cede their responsibility for the firm’s violations of the Truth-in-Lending Act and the deceptive claims in their printed advertisements, their denials of liability being limited to the “bait-and-switch” practices of their sales- men. The record is clear, however, that they knew about and were involved in those practices. First, they admit their responsibility for sending out the “bait,” the mailers purporting to offer the product at a price ($189.50 to $219.50, for an alleged “saving” of $431.00) they will not in fact accept. In other words, the “offers” these two men sent out to the local homeowners in such large quan- 2 This is not to imply, of course, that the Commission itself does not have at least a duty to consider, in deciding whether a particular proceeding is likely to be “to the interest of the public,” the issue of consumer injury. Sensible resource allocation requires that, other things being equal, the Commission focus its limited resources on those matters in which the probable economic benefits to the consuming public are likely to be the largest. These are internal policy questions, however, not issues on which a law violator him- self is entitled to be heard. ED ee a a ES, A NA et St —-s ok, Ml eet es St ene ae a ee eee ell 7Ta tities ° were not, as the law judge correctly found, bona fide offers. Secondly, both of these men were clearly aware of the “switching” operations practiced by their salesmen. Foucha, president and sole stockholder of the firm until January 1971, described the company’s sales plan as “step-up selling,” i.e., persuading the customer to shift to a higher-priced product after he has already been sold a lower-priced one.‘ Smith, the man who supervised the firm’s salesmen prior to his purchase of the company from Foucha in 1971 and its president [493] and sole stockholder since that time, devised the sales- man-compensation plan used to encourage customer “switching.” (The salesman gets “a couple of dollars” if he sells the low-priced siding, versus as much as $150 if he sells the higher-priced product.°) Third, both of these men knew that the firm could not have been oper- ated profitably if the product had actually been sold at the advertised low prices.* Fourth, a former salesman testified without contradiction that both men had told him he had to sell the higher-priced product in order t: 2 Approximately 50,000 of these mailers were sent out each week. Tr. 714. * Tr. 610-611. 5 The salesman receives a commission of 50% on that part of the sales price that exceeds $65 per “square” (a surface measuring 10 feet by 10 feet or a total of 100 square feet). Since the firm’s average sales price is approximately $90 per square, the average sales commission is some $12.50 per square or roughly $125 on a somewhat below average 10-square (1,000 square feet) installation or job. See tr. 412, 621, 678, 739. ® Initial Decision, pp. 8-9. “On a $199.50 job, the siding would cost [respondents] a minimum of $100, the installation cost would 78a get a commission.’ Fifth, the number of protests lodged with the company by customers demanding performance at the advertised low price or their money back is simply inconsistent with any possibility that these men could have been unaware of what was going on.* [494] These same considerations persuade us that any order issued here, if it is to be effective, must extend to “all” products these respondents might sell in the future. This is not a case in which a relatively remote corporate offi- cial is being charged with constructive responsibility for an unlawful act committed by a couple of salesmen in violation of an established and enforced company policy. These men were the corporation—its “alter ego’”—and their acts were its policies. Deception is a way of life with these respondents, a major part of their stock-in- trade. Having systematically misrepresented their prod- ucts and their terms of trade for so many years (the firm was organized in 1965), it would be unrealistic, we think, to expect them to voluntarily adopt a program of honest business dealing when and if they find it in their interest to begin selling some new line of products. As modified by us, the law judge’s proposed order will bar no legiti- be $60.00 and overhead expense would be $69.23. This would total $229.23.” Id., p. 9. Respondents would thus lose some $30 on each installation at the advertised $199.50 price, even if they (a) paid no commission to their salesmen and (b) omitted (as they did any- way) the promised free storm windows. Id. (The prices quoted are for a quantity sufficient to cover 10 squares, i.e., 1,000 square feet. Id., p. 8; tr. 620.) In fact, respondents charge an average price of $900 for a job of this size. See note 5, supra. 7Tr. 410. ‘Initial Decision, pp. 10-12. One such customer testified, for example, to having made at least 15 telephone calls to the company in an effort to get the lower-priced product installed or his money back. Tr. 220-236. Despite his own and the efforts of the Chatta- nooga and Birmingham Better Business Bureaus on his behalf, he got neither. Id. ee 79a mate business activity. It will serve, rather, to reinforce those honest impulses that are said to survive to at least some degree in the human breast after even the most prolonged association with a fast branding iron, These are precisely the kinds of respondents the courts had in mind when they affirmed the principle that those caught violating the law must expect some “fencing in.” Fed- eral Trade Commission v. National Lead Company, 352 U.S. 419, 431 (1957). The record is insufficient, however, to support the pro- vision in the law judge’s order that would bar respond- ents from future recourse to the holder-in-due-course doc- trine. This is an appropriate remedy where there is “some evidence of actual or imminent injury from the operation of the doctrine.” Southern States Distributing Company, Docket 8882 (December 26, 1973), at 13. The respondents in the case before us do negotiate their cus- tomer contracts but only one witness testified (and not too clearly) that such negotiation had been used as a bar to his claim against respondents.” The Commission will require a more definite showing than this before denying any individual respondent, on a case by case basis, the right to negotiate his commercial paper. [495] We also agree that even these respondents should not be prohibited from making a claim they can prove is true. Again such a remedy is appropriate in the situa- tion where the nature of the product dictates that a certain representation, if made, will necessarily be a false one. Lane v. Federal Trade Commission, 130 F.2d 48 (9th Cir. 1942). Such is not the case here. If re- spondents should actually adopt the policy of giving away additional “bonus” items, for example, to people who buy * Tr. 255. 80a their aluminium siding, we see nothing inherently unfair or deceptive about their saying so in their advertise- ments. The decision and order of the administrative law judge will be modified in accordance with this opinion and, as so modified, adopted as the decision and order of the Commission. July 2, 1974 8la IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT No. 74-3364 AMERICAN ALUMINUM CORPORATION, NORMAN J. FOUCHA and Bonsy G. SMITH, Petitioners, versus FEDERAL TRADE COMMISSION, Respondent. Petition for Review of an Order of the Federal Trade Commission (Alabama Case) (October 15, 1975) Before GODBOLD, SIMPSON and CLARK, Circuit Judges. PER CURIAM: AFFIRM and ENFORCE. See Local Rule 21.' 1See N.L.R.B. v. Amalgamated Clothing Workers of America, 5 Cir., 1970, 430 F.2d 966. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385003_1843%3A1. Public record. Not legal advice.