Montgomery Ward & Co., Inc. v. F.T.C.

Citation691 F.2d 1322
Decision Date09 November 1982
Docket NumberNo. 81-7421,81-7421
Parties1982-83 Trade Cases 65,030 MONTGOMERY WARD & CO., INCORPORATED, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
CourtU.S. Court of Appeals — Ninth Circuit

Newton N. Minow, Sidley & Austin, Chicago, Ill., for petitioner.

Linda A. Heary, Jerold D. Cummins, F.T.C., Jerold D. Cummins, Washington, D.C., for respondent.

On Petition for Review of an Order of the Federal Trade Commission.

Before KILKENNY and HUG, Circuit Judges, and BROWN *, District Judge.

HUG, Circuit Judge:

Montgomery Ward & Co., Incorporated ("Wards") appeals a Federal Trade Commission ("Commission" or "FTC") 1 ruling that Wards violated 16 C.F.R. Sec. 702.3 (1982) by failing to provide potential customers with ready access to written warranty information prior to the sale of merchandise priced at over fifteen dollars. As a result of its ruling, the Commission entered a cease and desist order enjoining Wards from further violations.

On appeal, Wards argues that the Commission's ruling is not based on substantial evidence, that the ruling is an abuse of discretion because it calls for a standard of conduct that is markedly different from the language of the regulation, that the entry of a cease and desist order is inappropriate, and that the order is too vague to be enforceable.

I FACTS

Wards is a chain of approximately 650 retail department and catalog stores. As a retail seller, Wards is affected by the Magnuson-Moss Warranty Act, 15 U.S.C. Secs. 2301-12 (the "Act"), which provides, in part, that the FTC "prescribe rules requiring that the terms of any written warranty ... be made available to the consumer (or prospective consumer) prior to the sale of the product ...." 15 U.S.C. Sec. 2302(b)(1)(A).

Using that grant of authority, the FTC promulgated the pre-sale availability rule ("pre-sale rule" or the "rule"), which appears at 16 C.F.R. Sec. 702.3. 2 The pre-sale In an effort to meet the requirements of the binder option, Wards's management developed a program of warranty binder distribution and maintenance, which was implemented shortly before the January 1, 1977 effective date of the pre-sale rule. In addition to normal management oversight, Wards included compliance with the warranty binder program as part of its internal auditing procedure.

rule provides sellers with four alternative methods to make warranty information available to consumers. Wards decided to use the method set out at section 702.3(a)(1)(ii), the binder option. 3

To implement its binder program, Wards delivered three sets of binders and from two to eight informational signs (depending on store size) to each store during November, 1976. Over the next three months, an additional 1,100 signs were sent to the stores upon individual requests. The store managers were instructed to place signs at the location of the binders and in prominent areas in the appliance department, the main entrance/exit of the store, and near escalators or elevators. The binders were to be placed at the Customer Accommodation Center (an information and service desk), in the automotive department (often a separate building), and at a third location on a floor not already containing a binder. The specific location was left to the store manager's discretion because of lack of uniformity in store layouts.

Toward the end of 1977, FTC investigators surveyed a number of Wards's stores to check compliance with the rule. Numerous violations were found, including the failure to post signs, the failure to have the binders available upon request, and the failure of employees to direct questioning customers to the binders. 4

In February, 1978, the FTC informed Wards that it was not in full compliance with the pre-sale rule. In response, Wards repeated its initial sign distribution, stepped up the priority of compliance on its internal audit schedule, and sent additional memos to its store managers emphasizing the importance Despite these efforts, the FTC believed Wards's compliance to be insufficient. In September, 1978, it issued a complaint alleging that Wards had failed to make written warranty materials available to consumers prior to sale, in violation of the Act and the pre-sale rule. 5

of compliance with the rule. In addition, Wards introduced a new sign program in June, 1978, involving the distribution of ten to twenty-five signs per store, to be affixed to cash registers in areas where covered products were sold.

II THE DECISION BELOW

After extensive hearings, an administrative law judge ("ALJ"), on December 19, 1979, held Wards to be in violation of the rule and the Act, and issued a cease and desist order. Both parties appealed to the Commission, which, after modification, affirmed the ALJ's order on April 30, 1981.

A. Ready Access to Warranty Binders.

The Act requires that written warranty terms be made available to consumers and potential consumers prior to the sale of covered products. 15 U.S.C. Sec. 2302(b)(1)(A). The pre-sale rule, under the binder option, requires that warranty binders be made available in each department selling covered products, "or in a location [providing] ready access" to the binders. 16 C.F.R. Sec. 702.3(a)(1)(ii) (fully set out at footnote 2, supra ).

The FTC, in the proceedings below, urged that this section means that a binder must be placed in every department selling covered goods. The ALJ rejected the FTC's position as contrary to the language of the regulation. Indeed, as the Commission noted in its decision, the FTC's interpretation had been expressly rejected during the rule-making proceedings leading to the promulgation of the pre-sale rule. See 40 Fed.Reg. 60,168, at 60,183 (1975). 6

The ALJ and the Commission agreed that providing prospective consumers with ready access to the warranty binders requires, for large retailers, that one set of binders must be available on each selling floor. Wards was held to be in violation of this requirement and was ordered to comply.

B. Location of Signs.

The binder option also requires a seller to provide notice of the availability of the binders by placing "signs reasonably calculated to elicit the prospective buyer's attention in prominent locations in the store or department ...." 16 C.F.R. Sec. 702.3(a)(1)(ii)(B). The ALJ focused on the "reasonably calculated" language and concluded that signs are required in reasonable proximity to the point of sale.

The ALJ based his proximity conclusion on an analysis of the other three compliance options. He noted that all three have some explicit proximity or "point of sale" requirement. See footnote 2, supra. He concluded, therefore, that the "reasonably calculated" language, when read in the context of the other options, means that the signs must be "in sufficient proximity to the point of sale so that buyers are likely to see such notice before making their purchases." The ALJ's order requires Wards to place signs on all cash registers in departments selling goods covered by the rule. He reasoned that signs in such prominent locations at the point of sale would be an excellent way to elicit the prospective buyer's attention.

The FTC argued that the signs should be near the products, as opposed to the point of sale. The ALJ rejected that approach, noting that the purpose of the rule is to make warranty terms available prior to the The Commission rejected the ALJ's analysis, with the observation that by the time a customer approaches the cash register, the purchasing decision usually already has been made; thus the notification is no longer pre-sale, and the purpose of the rule is not accomplished. The Commission ordered that, if Wards put one set of binders on each floor rather than in each department, it must place signs "in a prominent location in each department of each retail establishment where warranted products are sold, in a manner reasonably calculated to elicit the prospective buyer's attention. If two adjacent departments share a wall, one sign may be placed on that wall." (Emphasis added). 7

sale. He concluded that the rule makes no requirement that the signs or binders be visible to the prospective buyer during examination of the product.

III DISCUSSION
A. Substantial Evidence.

The Federal Trade Commission Act, at 15 U.S.C. Sec. 45(c), states that "findings of the Commission as to the facts, if supported by evidence, shall be conclusive." This language has been judicially interpreted to mean that the FTC's findings of fact are to stand inviolate on review if supported by substantial evidence. Ash Grove Cement Co. v. FTC, 577 F.2d 1368, 1377-78 (9th Cir.), cert. denied, 439 U.S. 982, 99 S.Ct. 571, 58 L.Ed.2d 653 (1978). Substantial evidence means "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Consolo v. Federal Maritime Commission, 383 U.S. 607, 620, 86 S.Ct. 1018, 1026, 16 L.Ed.2d 131 (1966).

Wards contends that the Commission's conclusion that it was not in compliance with the pre-sale rule is not supported by substantial evidence. The FTC presented a large amount of testimony from its investigators that showed violations of both the sign placement and binder availability requirements. The crux of Wards's position seems to be that the Commission erred in crediting the investigator's testimony over the rebuttal evidence Wards presented.

As the Fifth Circuit once indicated, substantial evidence to support an agency finding of fact may exist "even though suggested alternative conclusions may be equally or even more reasonable and persuasive." Colonial Stores, Inc. v. FTC, 450 F.2d 733, 739 (5th Cir.1971) (adopted by this court in Ash Grove, 577 F.2d at 1378). Thus, while we acknowledge that the evidence presented by Wards did, in some instances, persuasively rebut the FTC's showing of violations, we are satisfied that the Commission's factual findings were supported by substantial...

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