EF Drew & Co. v. Federal Trade Commission

• Decision Date: 13 July 1956
• Docket Number: No. 210,Docket 23724.,210
• Citation: 235 F.2d 735
• Parties: E. F. DREW & CO., Inc., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Second Circuit

235 F.2d 735 (1956)

E. F. DREW & CO., Inc., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 210, Docket 23724.

United States Court of Appeals Second Circuit.

Argued February 9, 1956.

Decided July 13, 1956.

COPYRIGHT MATERIAL OMITTED

Samuel J. Loewenstein, New York City, for petitioner.

Earl W. Kintner, Gen. Counsel, Robert B. Dawkins, Asst. Gen. Counsel, John W. Carter, Jr., Alvin L. Berman, Attys. for Federal Trade Commission, Washington, D. C., for respondent.

Before MEDINA, LUMBARD and WATERMAN, Circuit Judges.

WATERMAN, Circuit Judge.

Petitioner, E. F. Drew & Co., Inc., seeks review of an order of the Federal Trade Commission directing it to cease and desist from using certain phrases in the advertising of its oleomargarine. Although petitioner questions the conclusions arrived at by the Commission, there is no dispute as to the following facts: Petitioner, a Delaware corporation having its principal place of business in New York, sells and distributes oleomargarine under the name "Farm Queen" to dairies and milk dealers in several states. In order to aid these milk dealers in the sale of its margarine to consumers, petitioner distributes in the mails and in interstate commerce a variety of circulars, letters, and other advertisements. These advertisements of petitioner's oleomargarine contained, until discontinued by petitioner, the expressions "churned to delicate, sweet creamy goodness," "country fresh," and "the same day-to-day freshness which characterizes our other dairy products." The complaint alleged that these and expressions of similar import were "misleading in material respects and constitute false advertisements, as such term is defined in Section 15 of the Federal Trade Commission Act." The hearing examiner found that the statements "churned to delicate, sweet creamy goodness" and "the same day-to-day freshness which characterizes our other dairy products" were representations that petitioner's oleomargarine is a dairy product. The Commission modified this finding by adding the expression "country fresh," and affirmed the finding as modified. The Commission adopted the other findings of the examiner, affirmed the initial decision, and issued its order to cease and desist. This court has jurisdiction over the petition for review under 28 U.S.C. § 1331 and 15 U.S.C.A. § 45(c) and (d), and the venue is proper under 15 U.S.C.A. § 45(c).

This case raises questions concerning the construction and constitutionality of § 15(a) (2) of the Federal Trade Commission Act, 15 U.S.C.A. § 55 (a) (2), and is the second such case to reach a Court of Appeals. The first, Reddi-Spred Corporation v. Federal Trade Commission, 3 Cir., 1956, 229 F.2d 557, was decided in favor of the Commission in all respects. However, the questions presented here, though similar to those involved in the Reddi-Spred case, include somewhat different arguments. The questions presented by this case may be stated as follows: (1) In a proceeding for violation of §§ 12 and 15 of the Federal Trade Commission Act, 15 U.S.C.A. §§ 52 and 55, involving oleomargarine advertisements, is it necessary to establish that the acts and practices involved are of a false and misleading character, as is required in a proceeding for violation of § 5 of the Act, 15 U.S.C.A. § 45? (2) If § 15(a) (2) of the Act, 15 U.S.C.A. § 55 (a) (2), is construed so as to make such proof unnecessary, is that subsection constitutional? (3) Are the findings of fact, upon which the order to cease and desist is predicated, supported by substantial evidence? These questions will be considered seriatim.

I

Petitioner contends that the Commission must establish that petitioner's advertisements have the tendency or capacity to deceive consumers, i. e., are of a false and misleading character, and hence that they would be likely to induce the purchase of the oleomargarine under the mistaken belief that it was a dairy product. The Commission, conceding that it has made no such finding, believes that such a finding is not required in a proceeding for violation of § 15(a) (2). We therefore turn to an examination of the pertinent statutory language.

Section 12(a), 15 U.S.C.A. § 52 (a), makes it "unlawful for any * * * corporation to disseminate, or cause to be disseminated, any false advertisement — (1) By United States mails, or in commerce by any means, for the purpose of inducing, or which is likely to induce, directly or indirectly the purchase of food * * *." Section 12(b), 15 U.S.C.A. § 52(b), provides that "The dissemination or the causing to be disseminated of any false advertisement within the provisions of subsection (a) of this section shall be an unfair or deceptive act or practice in commerce within the meaning of section 5." Section 5, 15 U.S.C.A. § 45, authorizes the Commission to institute proceedings and in a proper case to issue a cease-and-desist order. Thus the Commission has the power and the duty to issue a cease-and-desist order whenever it finds, on the basis of substantial evidence: (1) that the advertisement is disseminated by the mails or in commerce; (2) that the advertisement is false; and (3) that the advertisement is disseminated "for the purpose of inducing, or which is likely to induce, directly or indirectly the purchase of food * * *." In this case the Commission has found, and petitioner concedes, that the advertisements involved were disseminated by the mails and in commerce, and that such dissemination was for the purpose of inducing, directly or indirectly, the purchase of its "Farm Queen" oleomargarine. It follows that we need only inquire whether the Commission has properly concluded that the expressions used in petitioner's advertising constitute "false advertisements."

Section 15(a) (1), 15 U.S.C.A. § 55(a) (1), defining the term "false advertisement" as used in § 12, 15 U.S.C.A. § 52, provides that any advertisement which is misleading in a material respect is a "false advertisement." We now arrive at the crucial statutory provision, subsection (a) (2) of § 15, 15 U.S.C.A. § 55(a) (2). This subsection, in effect, provides a special definition of "false advertisement" for use in certain cases involving oleomargarine: "In the case of oleomargarine or margarine an advertisement shall be deemed misleading in a material respect if in such advertisement representations are made or suggested by statement, word, grade designation, design, device, symbol, sound, or any combination thereof, that such oleomargarine or margarine is a dairy product * *." Since the word "suggested" modifies the word "representations," it is clear that any oleomargarine advertisement which represents or suggests in any manner that it is a dairy product is "misleading in a material respect", and hence, because of the provisions of § 15(a) (1), is a "false advertisement" within the meaning of § 12. Section 15(a) (2) of the Federal Trade Commission Act clearly constitutes a finding by Congress that a representation that oleomargarine is a dairy product is misleading in a material respect and hence is a false advertisement. We therefore hold that the Commission, in a case coming within § 15(a) (2), is relieved of the requirement of finding that the advertising is in fact false and misleading. Reddi-Spred Corporation v. Federal Trade Commission, 3 Cir., 1956, 229 F.2d 557. We think the statutory language is so clear and unambiguous that we think it unnecessary to discuss the extended legislative history of § 15(a) (2). See Ex parte Collett, 1949, 337 U.S. 55, 61, 69 S.Ct. 944, 959, 93 L.Ed. 1207; United States v. Missouri Pacific R. Co., 1929, 278 U.S. 269, 278, 49 S.Ct. 133, 73 L.Ed. 322, and cases there cited. Suffice it to say that the legislative history supports in copious detail the construction we have given the statute.¹

Petitioner also contends that the Commission is not authorized to issue a cease-and-desist order for violation of § 15(a) (2), 15 U.S.C.A. § 55 (a) (2), but can issue such orders only for violation of § 5, 15 U.S.C.A. § 45. Petitioner's argument rests on the thesis that the definition of false advertisement set forth in subsections (a) (1) and (a) (2) of § 15 applies only to § 13 of the Act, 15 U.S.C. A. § 53, which provides for preliminary injunctions, and § 14, 15 U.S.C.A. § 54, which creates criminal penalties. Examination of the statutory language demonstrates that petitioner's contention is unsound: the definitions in § 15 are specifically stated to be "For the purposes of Sections 12, 13 and 14"; and § 12 in turn provides that any violation of that section is a violation of § 5.² We so stated in Fresh Grown Preserve Corp. v. Federal Trade Commission, 2 Cir., 1942, 125 F.2d 917, 919. The Commission's action in issuing a cease-and-desist order under § 5 as a sanction for violations of §§ 12 and 15 has been sustained in numerous cases. See, e. g., Charles of the Ritz Distributors Corp. v. Federal Trade Commission, 2 Cir., 1944, 143 F.2d 676.

II

Petitioner asserts that § 15(a) (2), as we have construed it, is an unconstitutional abridgment of the freedom of speech guaranteed by the First Amendment. The Commission, relying on Valentine v. Chrestensen, 1942, 316 U.S. 52, 54, 62 S.Ct. 920, 86 L.Ed. 1262; Breard v. City of Alexandria, 1951, 341 U.S. 622, 641-642, 71 S.Ct. 920, 95 L.Ed. 1233; and Pollak v. Public Utilities Commission, 1951, 191 F.2d 450, 457, 89 U.S.App.D.C. 94, reversed on other grounds 343 U.S. 451, 72 S.Ct. 813, 96 L.Ed. 1068, replies that all commercial advertising is without the protection of the First Amendment. We think it sufficient to state that Congress can prohibit or control misleading advertising under the postal fraud statutes, Donaldson v. Read Magazine, 1948, 333 U.S. 178, 191, 68 S.Ct. 591, 92 L.Ed. 628, or under its commerce power, American Medicinal Products v. Federal Trade Commission, 9 Cir., 1943, 136 F.2d 426, 427, without deprivation of First Amendment rights. There is no constitutional...