Brief for the Respondent in Opposition — All-State Industries of North Carolina, Inc. v. Federal Trade Commission

an the Supreme court of he Waited Sites

Oc TOBER ‘TERM, 1970

= ‘ e — 379 an °

.

Au -STATE Ixpusraes, INC., ET ‘AL., PETITIONERS

7) P > U.*

FepeRAL TRADE CoxLMISSION

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. ON PETITION FOR A. WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT p

a ; :

BRIEF FOR THE FEDERAL TRADE COMMISSION IN OPPOSITION

OPINIONS BELOW

The opinion of the eourt-of appeals (Pet.-App. Al-

AD5) is reported at 423-F. 2d 423. The order and. opinion °

of the Federal Trade Commission denying petitioners’

motion-to dismiss (J.A. 27-33), the jiitial decision and

order of the heari Ing exammer (J.A. 117-131), and-the

final owlog and opinion of the Commission (J.A, 138-

1 153) are not officially re ported, ror

JURISDICTION:

The judgment of the court of appeals (Pet. App. Bl)

Wasentered on'April 13, 1970, The petition for.a writ of |

TAIL*.F.A.” references are to the joint appendin hefore the court |

~ of appeals.” Ae

(1)

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-certioragi was filed on July 14, 1970." The jurisdiction of “\>_

_this Court is inveked under 28 U.S.C. 1 ne xy

ae ae . QUESTIONS ‘PRESENTED,

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EY Whether: ‘the KB ‘deral) Trade, Comimission’s re

“a@ponse ‘to a i ‘ongressional inquiry disqualifie mi it from.

-adjudicating. its unfair’ practices coniplaint ag gainst.

a. “ P é antes ;

. Whetter, on the Tacts of this ease, petitioners” <

{' aihie e to advi ise credit Clistomers that thet ir conditional,

sales contracts and promissory notes would he trans-

ferred to third parties ‘and the possible —— er

there of, is adeceptive practice.

STATUTES INVOLVED , MA OC

Seetion 5(a) of the Federal Trade Commission Act,

38 St it. 719, as oe 1 > U.S.C. 45(a), ache fh oa

1 iv te eeth a

(1) U nfs air methods of competition in com- *

meree, and unfair pr deceptive acts or practices

m. conimerce, are hereby declared tnlawful.

% * % * %

» (6) The Canantienion is empowered and. di-

rected to prevent persons, partnerships,’or cor-

_porations -_ * > from using unfair-methods of

egmpetition in commerce and unfair-or decep- ;

tike acts or practices in commerce. _

Section 6 of the Rederal Trade Commission’ ‘Act,

38. Stat. 721, 15 US.C..46, provides iy part:

That the Commission Shall ajso pave power—

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(f') To make public front time to time stich

peranns of the information obtained by it-here-

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Srtder, except ti ‘ade seeréts and names od eus-

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tomers, as‘It shall deem expedient in the public ;

-interest ; and to make annual’ and special *re-

Sore ports to the Congress’ and’ to submjt there-

> with -recommendations® for additional Tegisla-

tion ; and’ to provide for ‘thie publication of its. -

reports and decisions in such. form and manner

as mi ay be best adapted for publlig information

and use, :

STATEMENT

The F ede ral Trade Conimission issued a complaint

in June 1967 charging petitioners With making amis-

representations and using deceptiv e practices as’ part |

of a ‘bait and switeh’’ scheme for sellnrg residential

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‘aluminum sidiiie, storm windows ‘and sPorum doors, and

othe® home improvement produé ts (JA. 13-14). The’

complaint “wleged, ater alia; that 1 i ‘substantial ~ .

number of cases- petitioners\failed to advise credit —

purchaser's that their conditional sales contracts. and

promissory notes would: be negotiated or assigned to

third parties to whom they would. the ‘n. be. obligated

for. payment and against whom ther might. not be.

able to assert their claims under the purchase ¢on-

tracts -(J.A, 9). The complaint: explicifiy stated that

the Commission Was taking Offieial notice of the mate-

riality of the failure to disclose (thi Fe - x “.

In Felguary 1968, bibisadoe move aa to dismiss the

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proceedings, relyi Ing in part upon alleged Commission

prejudgment of the case as reflec ‘ted in a letter signed

by its then Chairman, Paul Rand ‘Dixon (Pet. “App.

C1+C12). The letter was addressed to Senator Magnu-

son, as Chairman of the Sen: ite Committee on Com- .

merce, and Wwasein response to the Senator’s earlier

ms

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inquiry —- requesting as ealtineol tise Commission’ s

current progrant, in the area of home improvement.

frauds together with ‘“uggestions for additional legis-

lation to improve the epforeement program insthis - :

- field’ (J A. 29). The lengthy letter’ described the

home impr ovement industr' V and some of the practices

and artificies employed: dy the less serupiious firms

,in the market (Pet. App. C1 C+). The letter further”

described the Commission’s activities in the field and

“made . recommendations for apprdpriate legislation

(Pet.. App. C4-C12). | eee ee

In clainiing that the Coimmission’s response

~ summarizing the sharp, practices. of. certain “fringe

operators” evidenced prejudgment of their case, peti-

~tioners foews@d upon the letter’s statement that *gen-

erally speaking, these firms operate” through a

-prograam. of offering. phony bargains, easy credit and’

exacgerated performance elaims’? (JA. LT: Pet? App:

C2). They also’ contended that the letter contained a’

alétajled restateme nt of the : allegations in the, instant

complaint, and foted. the subsequent reference: to two

cases ‘presently bei ‘ing litigated’’ (7bid.). Ina sepa-

rate written opinion, the Commission dauied pre-

judement of either the facts or issues. in proc ode

ing and refused to; disqualify itself (S.A; 28-33).

The hearing examiner found petitioners to be.

engaged. in “bait and switch’? sales activities, but,

infer alia, rejected the claim thi it failure to advise

credit pure ‘hagers concerning the transfer of evedit in-,

struments ‘and ‘the possible consequences .thereof “was

de ceptive CJ. A. 117-1: 30). The (gommission rever sed the ‘

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is R= gar at ov. tH Y Bh

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~~" hearing ¢ Xguiner . in paft, finding the Failure bs discioas.

24 “tobe deceptive GIA, 141-153). 'Ehe latter Siding was ;

premised. upon the pr aetice s thie ‘rent units Himess ‘and

"the Ce; mmission’ *% offic ial notice of. fac ts de dnonstratine

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Reis = eRe ipaeity tad dere ‘ive (Jn\. 148-153). mee vs

| The cotixt: of appeals a ‘affirmed the

H ° ° e - F a 2

Commission's ‘cons

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did des sist order,

ARGUMENT ts

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\ . fctk . als . a Pa

?, . . Phe issties presented are not suustsatint. Wits « nl

rectly decided below, and do not scarratit review, Hy

aan this” Court.’ Tee at =

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ince coe! © donee has authorized the Be "de ‘ral Trade Come

Mission te. aké annual and special reports ae the”

Congress and to subnit-therewithtFeconmendations for:

additional legisl itien” Fe dé rel Trade Coamission: 4: ‘ft,

S60, BS eeat. 721, 15 i mCi - 2G (1), \Thie Coii tis

as tah ston s Ietter to. Senator Magnuson was writterr pursue

Vale od ee “ant.to? ‘this authority and reflected ho pre jt udgnicg it of

Lathe tase, The ter Wi; as Plivased, 11 een ral te tet and

“~ deseribed-a broad ar aly of sharp practicos eitipyl loved

aby fringe opel rators’ in the, heme improvenient tiyld.

That y isa description ‘ot fraudulent practiécs i me

business, hot a parg phrase of the complaint in this yar 2.

v° teular case, is readily apparerit. wAs this € gurt Atated

ina similar conte xt, ve & |f the Commission's: spin ons

its- membe TS from acting in unfair tradi) roceedings, : -

it would appear that opinions expressed. in the first

basing point unfair tr rade, proc eeding would sinulsaghy

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expressed ii ‘CONLTE ssiommbly reqtiired repos would bear

. 5

oe a “702. Phat proposition Was re jected ee and must

’ Bee dilsé pe rejected here. |

-. a Contrary to petitioners’ suggestion (Pet . 5), there x

ie ee 4 ho vontlict with , Conderella Career’ ard Binishing

aE ry Scliools, lice. ¥.4F edergl Trade Commission, 425 I. ‘Od

ST. 5Be (CA. D. C.). That case does Hot hold that public

Foference -to any ns — case requires, disqualification®

eee “but tims rather upon a case-ly ease factual test:

PAY ether rjoa ieee observer may conélude

ae that. the Ageney has in some measure adjudged

se: the facts as well as” the ‘law of a particular

‘ eke ese in advance of hearime’ ic (Pet, App. 16).

pe | Bee Anegicon Cyanamid Co. v. Federak Trade*Com-

mission, BBE. 2d (54, TH3-TO8 (CLA, 6); J'eraco, *

Tne v. Federal Trade ¢ Commission? 336 F.2d Ty T59-

~— 760) (CUAL DCL). pateated aya remanded On other

growids, 38] Us S. 739: Amos Treat tide C% 0. ¥. Sccuritics

and’ KE rehninge: Cc ommissian, 306 F . 2d 260, 267 (C. A.

VC.) : GMa, Will & Co. v. Securitics and Ev-

change Cofniiicsion, WT F.2d 461, 468-469 (CLA, a),

certiorari denis WL BER U.S. 896. The court below: ap-

plied this test but concluded oti “the Facts that no pres

judgment hi ut beer? made. Moreover, in the discharge

of its responsihitities to the public and Congress, an.

administrative agency may publicly state its general

. views on subjects within its competence, United States

ie ~~ vy, Morgan, 313 U.S. 409, 421. aN

ty ay here refutes the presumption that the Commissioners:

Niing in the record

; are “men of: conscience. and ‘intellectual discipline,

; ee ce capable of judging a ‘particular controversy fairly on

i /

f

.360 F. 2d 268 (GA. 10). ee

The Commission found the petitioners’ pr actice of

the basis of its own cirenmstances, - United States Vv.

pline supra at 421. |

2. Petitioners’ contention - that thie | Commission

_tioners’ customers that. financing documents: might be

cassigned to third parties is unfounded. ‘Secfien Dd of

the Federal Tradé Commission Act is * * * abroad

delegation of power * * * to deterniine whether. a

Inethod® of competition or the act or practice com-

plained of is tmfair, ‘The. Congress intentionally left

deve lopment of the term ‘unfair’ to the Commission

rather than attempting to define ‘ ‘the many and variable.

'

dicseied its: powers in ordering disclosire to peti- :

unfair practi¢&’ which prevail-in commerce. * * *° 7”

-APlaictie.R noes v.F ederal Trade Commission, 381

U.S. 357, 367; Federal Trade Commission: v. Texaco,

393 U.S. ie 26: Federal Trade Commission v.

Cement ‘Tnstitute, 333 U.S. 683, 720. Furthermore,

th HF. KX

pure ‘hasér’s decision to buy. "3 Federal Trade Commis-

sion Y. Colgate Palmolive Co., 380 U.S:. 374, 392. A

tendenc ‘y or capacity to deceive. is enough: Portwood

. Federal Trade Gommissioir, 418 Fy 2d 419, 421-422

ee: AY 10) ; ; Montgomer y Ward & Co. v. Federal Trade

Lagle Libricants, Ine. v. Féderal Trade Commission,

ae |

*

assigning financing documents, without first inform-

ing. credit purefiasers of that fact -and the possible

_ consequénces thereof, ‘to: Lan inherently unfair trade

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when the Commission finds deception it is also

author ized, w ithin: the bounds of" reason, .to infer that -

the deception’ will constitute a material factor in a-

(! OMIMISsTON, 3019 BY. 2d. 666, 670-671 (CLA. 7): Double

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léver to enforee*his contiact rights (JA. 1495152 :

This. determination Was “ supported by experience

wey gained in numerous investigs ations and ‘aitore than a.

doze N, cases (JA. 152-153), which demonstrated that

‘dinleisats ave in fagt deceived by. this practice (J.A.

. 149.-1 Sf, 1. V7.and 21). Althongly “petitioners were duly

notified ‘of. ‘the 4 facts ottic tially noticed (A.A. 9), they

. made noé-atte mpt to demonstrate the contre ary} Sine e:

“the tindings of dece ‘ption are Wi ar parte dL by the record:

and have * a reasonable basis its law. ( Hantic Refining

Cary. Federal, Trade Commission, pee: ‘a at 307: Labor

Bor ard v. Hearst Publications, Ines, 322 U. S. Hil, ‘131,

there is no basis fox furthe r review. >

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plactice because the avéfage consumer ts unaWare that

“he may thereby lose. the - thre: it of nolpayment: as a

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res ‘Federal T) ‘ade C OMMISSION, /

a if. eZ CONCLUSION eae eC Pee

Se For The reasons stated, the vétlitien for a writ of

‘certiorari should. be° denied. - | -

—— submitted. > @

. Erwin N N. Griswor,

Solicitor General. .

ciel eo en Harb W. McLaren,

aoe) Assistant Attorney ‘Genetal,

2 ' “Howarp Et SHAPIRO, x

eee) Are Lee A, Rav,

ee

-. ‘Attorneys.

Tost: PH “MARTIN, ee ; ; /

Geavral: Counsel, -

-

Haro D. Ruyxepancr, JR., 3 4

Assistait General C onnsel, 7 ‘

, Aivin L. Berman, eS poe if

Rope Oe RAR ee rs So Whe es

Attorneys, as ae 3 at Lae

/

Avat ST 1970.

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