PF Collier & Son Corporation v. FTC, 19549.

• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)
• Writing for the Court: WEICK, EDWARDS, and CELEBREZZE, Circuit
• Citation: 427 F.2d 261
• Parties: P. F. COLLIER & SON CORPORATION, P. F. Collier, Inc., and Crowell Collier & MacMillan, Inc., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
• Docket Number: No. 19549.,19549.
• Decision Date: 27 May 1970

427 F.2d 261 (1970)

P. F. COLLIER & SON CORPORATION, P. F. Collier, Inc., and Crowell Collier & MacMillan, Inc., Petitioners,
v.
FEDERAL TRADE COMMISSION, Respondent.

No. 19549.

United States Court of Appeals, Sixth Circuit.

May 27, 1970.

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Thomas S. Markey, Washington, D. C., Whitlock, Markey & Tait, Washington, D. C., on the brief; Austin J. Farrell, Senior Counsel, Crowell, Collier & MacMillan, Inc., New York City, of counsel, for petitioners

James P. Timony, Federal Trade Commission, Washington, D. C., John V. Buffington, General Counsel, J. B. Truly, Asst. General Counsel, Alvin L. Berman, Atty., Federal Trade Commission, Washington, D. C., on the brief, for respondent.

Before WEICK, EDWARDS, and CELEBREZZE, Circuit Judges.

CELEBREZZE, Circuit Judge.

This cause is before the Court on the petition of Crowell Collier and MacMillan, Inc. hereinafter "Crowell Collier" and two of its subsidiaries, P.F. Collier and Son Corporation alternatively referred to as "Collier & Son" and "P.F. Collier & Son Corp. #2" and P.F. Collier, Inc. hereinafter "Collier, Inc.", to review an order of the Federal Trade Commission requiring the petitioners to cease and desist from certain unfair and deceptive trade practices allegedly employed in the door-to-door sales of Collier Encyclopedias.

I.

Statement of the Facts and the Proceedings Below.

On January 18, 1960, the Commission issued an administrative complaint against Crowell Collier, a holding company, and its wholly-owned subsidiary, Collier & Son, charging that the latter had used unfair and deceptive methods in the door-to-door sales of encyclopedias in violation of Section 5 of the Federal Trade Commission Act.¹ Beginning in August, 1960, hearings were held before a trial examiner. On December 30, 1960, Collier & Son was merged into Crowell Collier; on December 22, 1960, Collier Inc. was formed to take over the business of selling encyclopedias from Collier & Son.² Nearly five years later, on September 3, 1965, the trial examiner rendered an initial decision in which he found that: Crowell Collier was not subject to an order because it was not engaged in interstate commerce; Crowell Collier had not so dominated and controlled the management of Collier & Son that the corporate identity of the latter could be ignored, that is, the parent could not be held derivatively responsible for the acts of its subsidiary; Collier & Son was not subject to an order because Federal Trade Commission orders operate prospectively, and to subject a dissolved corporation to such an order would be a "useless act"; insofar as most of the evidence adduced at the hearings involved illegal practices occurring between 1955 and 1960, the staleness of the evidence warranted a determination that it

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was "not in the interest of the public" to give further life to the proceeding. In view of these findings, the examiner made no findings with regard to the substantive violations of the Act alleged in the complaint, which he dismissed

On appeal, with two commissioners dissenting,³ the Commission vacated the initial order of the trial examiner. It made extensive findings of substantive violations of the Act by Collier & Son and, on September 30, 1966, it issued a cease and desist order enjoining "P.F. Collier & Son Corporation under this or any other name, its successor or assign * * *" from committing further violations. The Commission then abated this order pending a "limited" remand to a trial examiner for further findings on the following issues "inter alia": Whether a "successor" of Collier & Son existed against which the cease and desist order could be enforced; whether the parent (Crowell Collier) in fact so dominated and controlled the management of its subsidiaries (Collier & Son and Collier, Inc.) that it should also be subjected to the order.

Notwithstanding the petitioners' vigorous protestations that the remand proceedings were illegal, hearings were held before a second trial examiner, the first examiner having passed away prior to the Commission's order.⁴ In addition to accepting fresh evidence of "successorship" and "domination," the new examiner also accepted extensive testimony and exhibits tending to show that Collier, Inc. had perpetuated the deceptive sales practices of Collier & Son. On January 4, 1968, the hearing examiner released his lengthy decision in which he concluded that Crowell Collier so dominated and controlled the acts of Collier & Son that the corporate identity of the latter was "a mere fiction"; that Collier, Inc. was indeed a successor to Collier & Son; that Collier, Inc. had employed the same unfair and deceptive sales methods as had Collier & Son before it.⁵

On February 4, 1969, the Commission adopted the findings and conclusions of the second examiner, and reinstated the order it originally issued on September 30, 1966.⁶ It is that order and the proceedings

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giving rise to it that are now under review

There are essentially three sets of issues on this appeal: First, issues involving the lawfulness and sufficiency of the Commission's substantive findings; second, issues involving the nature of the proceedings below and the interest of the public; third, the issue of the lawfulness and propriety of the Commission's order. We shall present and discuss the issues in that sequence.

II.

A. Whether the Commission's finding that Crowell Collier dominated and controlled the operation of Collier & Son, and should thereby be subject to the order to cease and desist, is supported by substantial evidence and in accordance with law.

The general rule is that, absent highly unusual circumstances, the corporate entity will not be disregarded. See H. G. Henn, Corporations 204-205 (1961); W. M. Fletcher, Cyclopedia of the Law of Corporations §§ 41-46 (rev. ed. 1963). However, it is well established that where stock ownership is resorted to for the purpose of controlling a subsidiary so that it may be used as "a mere agency or instrumentality" of the parent

"the courts will not permit themselves to be blinded or deceived by mere forms or sic law but, regardless of fictions, will deal with the substance of the transaction involved as if the corporate agency did not exist and as the justice of the case may require." Chicago, Milwaukee & St. Paul Railway Company v. Minneapolis Civic and Commerce Association, 247 U.S. 490,

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501, 38 S.Ct. 553, 557, 62 L.Ed. 1229 (1918).

North American Company v. Securities Exchange Commission, 327 U.S. 686, 66 S.Ct. 785, 90 L.Ed. 945 (1946); National Labor Relations Board v. Deena Artware, Inc., 361 U.S. 398, 403, 80 S.Ct. 441, 4 L.Ed.2d 400 (1960), citing opinion of Cardozo, J. in Berkey v. Third Avenue Railway Company, 244 N.Y. 84, 94-95, 155 N.E. 58, 61, 50 A.L.R. 599, 604-605 (1926). See Stevens on Corporations §§ 17, 18 (2d ed. 1949). Manifestly, where the public interest is involved, as it is in the enforcement of Section 5 of the Federal Trade Commission Act, a strict adherence to common law principles is not required in the determination of whether a parent should be held for the acts of its subsidiary, where strict adherence would enable the corporate device to be used to circumvent the policy of the statute. See Joseph A. Kaplan & Sons, Inc. v. Federal Trade Commission, 121 U.S.App.D.C. 1, 347 F.2d 785, 787 n. 4 (1965). Cf. Bowater S. S. Co. v. Patterson, 303 F.2d 369 (2d Cir. 1962), cert. denied, 371 U.S. 860, 83 S.Ct. 116, 9 L.Ed.2d 98 (Norris-LaGuardia Act); Higgins v. Smith, 308 U.S. 473, 60 S.Ct. 355, 84 L. Ed. 406 (1940) (Revenue Act of 1932).

The Commission's conclusion that Crowell Collier dominated and controlled Collier & Son, and that they formed a single enterprise for the purposes of section 5, is supported by substantial evidence on the record as a whole, Section 5(c), Federal Trade Commission Act, 15 U.S.C. § 45(c) (1964); Universal Camera Corporation v. National Labor Relations Board, 340 U.S. 474, 487-488, 71 S.Ct. 456, 95 L.Ed. 456 (1951), and is otherwise in accordance with the foregoing legal principles. The factual findings buttressing this conclusion, which shall be summarized below, were that the parent not only wholly-owned its Collier subsidiaries, but also that it: interchanged personnel with its subsidiaries and maintained common or overlapping officers and directors; operated through its subsidiaries, which were often created and dissolved for purposes unrelated to the business carried on by the corporate complex; approved the use by its subsidiaries of the parent's name and goodwill in order to develop favorable public associations between the parent and its subsidiaries; and possessed and exercised ultimate control over Collier & Son.

Overlapping of officers and directors among the parent and its subsidiaries. Between 1950 and the present date, the following corporations have sold Collier Encyclopedias:

Sales Corporation Operative Time Period
                P. F. Collier & Son Corp. #1 1950 — Jan. 2, 1952
                Crowell Collier
                 Through a Division Jan. 2, 1952 — July 16, 1954
                P. F. Collier & Son Corp #2 July 16, 1954 — Dec. 30, 1960
                P. F. Collier, Inc. Dec. 30, 1960 — Present
                

When P.F. Collier & Son Corp. #1 was dissolved at the beginning of 1952, its sales managers went to work for Crowell Collier, and its three directors were also vice president, president, and chairman of the board of the parent company, as well as directors of the parent. Furthermore, the subsidiary's president was a vice president of the parent, and its treasurer, assistant treasurer, and secretary held the same positions in the parent.

For the next two years, when the parent sold the encyclopedias through a division, the officers of that division were the same men who had been officers of

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the dissolved P.F. Collier & Son Corp. #1.

When P.F. Collier & Son Corp. #2 assumed the sales of...