Spiegel, Inc. v. F.T.C.

• Decision Date: 09 August 1976
• Docket Number: No. 75-1919,75-1919
• Parties: 1976-2 Trade Cases 61,006 SPIEGEL, INC., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 287

540 F.2d 287

1976-2 Trade Cases 61,006

SPIEGEL, INC., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 75-1919.

United States Court of Appeals, Seventh Circuit.

Argued April 12, 1976.

Decided Aug. 9, 1976.

Patrick W. O'Brien, Chicago, Ill., Basil J. Mezines, Washington, D. C., for petitioner.

Gerald Harwood, Asst. Gen. Counsel, Mark W. Haase, Atty., F. T. C., Washington, D. C., for respondent.

Before FAIRCHILD, Chief Circuit Judge, BAUER, Circuit Judge, and CAMPBELL, Senior District Judge. ^*

BAUER, Circuit Judge.

Essentially the question before us is whether the Federal Trade Commission ("FTC") has the power to prevent large retail businesses from suing customers for delinquent credit accounts in a court distant from the consumer's residence. The FTC ordered that petitioner Spiegel "cease and desist from instituting suits except in the county where the defendant resides at the commencement of the action, or in the county where the defendant signed the contract sued upon." Spiegel brings this appeal of the Commission's order.

There is no dispute as to the facts of the case. Spiegel admitted all of the material facts contained in the FTC complaint. ¹ The complaint charges that Spiegel violated Section 5 of the Federal Trade Commission Act,15 U.S.C. § 45, ² which prohibits unfair business practices, by instituting collection suits in the Circuit Court of Cook County, Illinois, against retail credit mail order purchasers who reside in states other than Illinois.

Spiegel is a Delaware corporation with its office and principal place of business in Chicago, Illinois. It is a catalog retailer engaged in the advertising, offering for sale, and distribution of clothes, household goods, appliances, tools, tires, and various other articles of merchandise. In the course of its mail order business, it receives orders in Illinois from purchasers in various states and ships products to them in their home states. It regularly extends credit to consumers in order to facilitate purchase of the products.

Previously, in the course of its collection of retail credit accounts, Spiegel regularly used Illinois courts to sue allegedly defaulting retail mail order purchasers who resided outside of Illinois. The practice of filing suits in Illinois was terminated in February 1973 because this collection method proved unsatisfactory to Spiegel. ³ In filing these collection suits Spiegel used the Illinois long-arm statute ⁴ to establish jurisdiction. Spiegel voluntarily dismissed those actions where the defendant raised an objection to the inconvenience of the forum. Of course, in order to object the consumer had to travel to the Illinois court or obtain local counsel, an act which was often impractical considering the amount in dispute in most cases.

Many of the customers sued by Spiegel live outside the State of Illinois. They received Spiegel's catalogs and advertising material in their homes and executed the contract to purchase in their home states. Almost all of them have no pertinent contact within the State of Illinois other than their dealings with Spiegel.

The administrative law judge determined that the distance, cost and inconvenience of defending such suits in Illinois placed a virtually insurmountable burden on the out-of-state defendants to appear, answer and defend. Subsequently the Commission concluded that Spiegel's collection practices through the use of the Illinois courts was offensive to clearly articulated public policy and oppressive and injurious to consumers.

On appeal Spiegel principally argues: that its conduct was legal and appropriate under Illinois law; that its conduct does not amount to a violation of Section 5 of the Act; that the Commission exceeded its authority in deciding the case on the basis of consumer's due process rights; that the Commission's order is burdensome and unwarranted since Spiegel has represented that it has stopped suing its customers in distant courts.

I. ASSUMING ARGUENDO THAT SPIEGEL'S CONDUCT WAS PROPER UNDER ILLINOIS LAW, THE FTC MAY STILL FIND A VIOLATION OF SECTION 5.

Under Illinois law Spiegel's conduct may have been perfectly proper. Whether it is unfair to hold a consumer answerable in a foreign forum for a mailorder credit account in arrears is a difficult jurisdictional question. It is clear, however, that in some cases jurisdiction would be proper.

Modern day long-arm jurisdiction stems from a landmark decision by the Supreme Court in International Shoe Co. v. Washington, 362 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). Therein, Chief Justice Stone summarized the development of the concept of in personam jurisdiction in the following oft-quoted passage:

"(D)ue process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain (minimal) contacts with it such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.' "

The "minimal contacts" standards of International Shoe, however, did not provide for a simple, mechanical test. Instead the courts have adopted a case-by-case approach in evaluating the contact of the defendants with the forum. The Sixth Circuit recently attempted a review of the major decisions since International Shoe in In-Flight Devices Corp. v. Van Dusen Air, Inc., 466 F.2d 220 (6th Cir. 1972). The Court set out a three-part test to determine whether jurisdiction was proper:

1. the defendant must purposely avail himself of the privilege of acting in the forum state or causing a consequence in the forum state;

2. the cause of action must arise from the defendant's activities in the forum state; and

3. the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum to make the exercise of jurisdiction over the defendant reasonable.

In applying this triple test, however, the Court warned at p. 226:

"It is imperative that it be understood that the flexibility, and therein the virtue, of the International Shoe test is retained in the third condition and no mechanical consideration of the first two elements of the test can eliminate the need for an appraisal of the overall circumstances of each case if jurisdiction is to be found."

This Court has also adopted a similar position in Hutter Northern Trust v. Door County Chamber of Commerce, 403 F.2d 481 (7th Cir. 1968). Therein, Judge Swygert wrote:

"A basic consideration which underlies the law relating to jurisdiction over nonresidents is that the evidence of sufficient contacts within a state to avoid violation of due process by substituted service depends upon the particular facts of each case. Gray v. American Radiator & Standard Sanitary Corp., 22 Ill.2d 432, 176 N.E.2d 671 (1961).

Whether sufficient minimum contacts exist cannot be answered by applying a formula or rule of thumb, but by ascertaining what is fair and reasonable in the circumstances of the particular situation."

As a consequence of these decisions it is impossible to make an abstract determination that an Illinois court would have proper jurisdiction over a suit against a defaulting mail order purchaser. In some decisions, where the case-by-case method has been employed, there are rulings which might favor jurisdiction in situations similar to the instant problem. ⁵ On the other hand, there is some language in In-Flight Services v. Van Dusen Air, Inc., supra, ⁶ and other cases ⁷ which state that it would be unfair to find jurisdiction in a foreign forum over a suit based simply on a mail order contract.

Assuming arguendo that jurisdiction under Illinois law is proper, we still believe that the FTC has the power to enjoin Spiegel from bringing the suits. In Federal Trade Commission v. Sperry & Hutchinson Co., 405 U.S. 233, 92 S.Ct. 898, 31 L.Ed.2d 170 (1972), the Supreme Court left no doubt that the FTC had the authority to prohibit conduct that, although legally proper, was unfair to the public. In Federal Trade Commission v. Sperry & Hutchinson Co., supra, the defendant argued that it was beyond the power of the Commission to declare unfair its practice of successfully prosecuting trading stamp exchanges in state and federal courts. Its argument was also based on the theory that since the corporate conduct was within the technical bounds of the law it could not be prohibited by the FTC. The Supreme Court, after reviewing the legislative history and leading cases dealing with Section 5 of the Act, concluded:

"(L)egislative and judicial authorities alike convince us that the Federal Trade Commission does not arrogate excessive power to itself if, in measuring a practice against the elusive, but congressionally mandated standard of fairness, it, like a court of equity, considers public values beyond simply those enshrined in the letter or encompassed in the spirit of the antitrust laws." 405 U.S. at 244, 92 S.Ct. at 905.

Previously, this Court, in Peerless Products v. Federal Trade Commission, 284 F.2d 825 (7th Cir. 1960), cert. denied 365 U.S. 844, 81 S.Ct. 804, 5 L.Ed.2d 809 (1960), rejected the argument that a practice, legal under local law, could not be banned under Section 5. In Peerless local ordinances sanctioned the use of merchandise punchboards. The Court upheld the FTC's power to hold their use unlawful, stating:

"Unless Congress specifically withdraws authority in particular areas, the Commission, upon its general grant of authority under 15 U.S.C.A. § 45(a)(6), can restrain unfair business practices in interstate commerce even if the activities or industries have been the subject of legislation by a state or even if the intrastate conduct is authorized by state law (citations omitted)."

In determining whether Spiegel's challenged practices are unfair under Section 5 of the Act, the Commission remained faithful to its previously announced criteria. A practice is unfair when it offends...