Arthur Murray Studio of Washington, Inc. v. FTC

• Decision Date: 11 May 1972
• Docket Number: No. 71-1807.,71-1807.
• Citation: 458 F.2d 622
• Parties: ARTHUR MURRAY STUDIO OF WASHINGTON, INC., et al., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Fifth Circuit

458 F.2d 622 (1972)

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., et al., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.

No. 71-1807.

United States Court of Appeals, Fifth Circuit.

March 21, 1972.

Rehearing and Rehearing Denied May 11, 1972.

Tom M. Schaumberg, Washington, D. C., for petitioners; Gadsby & Hannah, Washington, D. C., of counsel.

Joseph Martin, Jr., Ronald M. Dietrich, Gen. Counsels, Harold D. Rhynedance, Jr., Asst. Gen. Counsel, Robert E. Duncan, Thomas F. Howder, Federal Trade Commission, Washington, D. C., for respondent.

Before BELL, DYER and CLARK, Circuit Judges.

Rehearing and Rehearing En Banc Denied May 11, 1972.

BELL, Circuit Judge:

This is a petition to review and set aside a cease and desist order of the Federal Trade Commission entered against four Arthur Murray dance studio corporations and two individuals who were officers of each of the corporations. The primary issue before this court is whether the Federal Trade Commission may properly prohibit these dance studio petitioners from entering into contracts for dance instruction in an amount in excess of $1,500. A second issue is whether it was error for the hearing examiner to reopen the record for reception of evidence on the $1,500 limitation after the parties agreed that it be closed and the issues determined on their stipulations of fact. The petition will be denied and the order enforced.

The complaint in this matter was issued by the Commission on April 3, 1969, charging the petitioners with unfair methods of competition in commerce and deceptive acts and practices in commerce in violation of § 5 of the Federal Trade Commission Act, 15 U.S.C.A., § 45.¹ More specifically, petitioners were charged with various misleading and deceptive acts intended to induce unwary members of the public into entering dance lesson contracts at exorbitant prices. Attached to the complaint was a proposed order which, inter alia, would prohibit petitioners from entering into contracts which would obligate any individual to pay a total amount which exceeds $1,500 at any one time. (The only portion of this order in dispute is the monetary limitation.)

The petitioners answered, denying any illegality, and thereafter entered into a proposed settlement agreement with Commission counsel. Under the proposed settlement, the limit on indebtedness was raised to $4,000. However, the Commission rejected this provision, indicating that any acceptable consent order would require the $1,500 limitation.

Stipulations of fact were entered and the record closed to the reception of evidence, subject however, "to a motion by complaint counsel if they so wish to reopen the record on good cause shown for the introduction of further evidence." Shortly thereafter, and over objection of petitioners, the record was reopened for the reception of evidence on the $1,500 limitation. Hearings were then held, and the hearing examiner found that the charges against petitioners had been sustained. The examiner's cease and desist order incorporated the $1,500 limitation and his order was affirmed on appeal to the Commission.

I.

Petitioners' contention that it was error to reopen the record for the introduction of evidence on the $1,500 limitation is without merit for at least two reasons. First, as stated, the record was closed subject to a motion by Commission counsel to reopen it on good cause shown for the introduction of further evidence. This order was well within the authority of the hearing examiner under the Commission rules, 16 C.F.R. § 3.51(d), which vests in the hearing examiner the authority in his discretion to reopen the record for the reception of evidence at any time prior to filing his initial decision. Here the examiner added "the good cause shown" requirement which was otherwise not necessary. The good cause shown was sufficient. It was the need for a record centering on the unconscionable activities of petitioners in their trade practices which might indicate the propriety of the monetary limitation to protect the public. Second, there is no showing of prejudice to petitioners by the reopening of the record. In order to make out a case of denial of procedural due process, there must be a showing of substantial prejudice. Cf. Pacific Molasses Co. v. Federal Trade Commission, 5 Cir., 1966, 356 F.2d 386.

We therefore hold that there was no error in reopening the record for the introduction of evidence on the $1,500 limitation.

II.

The more difficult question is presented by the argument that it was improper to limit petitioners' contracts with individual dance students to an amount not exceeding $1,500 at any one time. Basically, they argue that this aspect of the remedy does not have a reasonable relationship to the unlawful practices found to exist and thus fails to meet the standard established by Federal Trade Commission v. National Lead Company, 1957, 352 U.S. 419, 77 S.Ct. 502, 1 L. Ed.2d 438. See also Jacob Siegal Company v. Federal Trade Commission, 1946, 327 U.S. 608, 613, 66 S.Ct. 758, 90 L.Ed. 888.

Our determination of the question presented must be made in light of the authority of the Commission to eliminate unfair methods of competition and unfair or deceptive acts or practices, as this authority has been construed by the Supreme Court. No better statement on the subject can be found than that of Justice Clark, speaking for an unanimous court, in Federal Trade Commission v. National Lead Company, supra:

"The Court has held that the Commission is clothed with wide discretion in determining the type of order that is necessary to bring an end to the unfair practices found to exist. In Jacob Siegal Co. v. Federal Trade Com., 327 U.S. 608, 66 S.Ct. 758, 90 L.Ed. 888 (1946), the Court named the Commission `the expert body to determine what remedy is necessary to eliminate the unfair or deceptive trade practices which have been disclosed. It has wide latitude for judgment and the courts will not interfere except where the remedy selected has no reasonable relation to the unlawful practices found to exist.\' Id. 327 U.S. at pages 612-613, 66 S.Ct. at page 760. . . . Again, in Federal Trade Com. v. Ruberoid Co., supra, 343 U.S. at page 473 72 S.Ct. at page 803, we said that `if the Commission is to attain the objectives Congress envisioned, it cannot be required to confine its road block to the narrow lane the transgressor has traveled; it must be allowed effectively to close all roads to the prohibited goal, so that its order may not be by-passed with impunity.\' We pointed out there that Congress had placed the primary responsibility for fashioning orders upon the Commission." 352 U.S. at 428-429, 77 S.Ct. at 509.

And, as is also stated in National Lead, the Commission has the authority to restrict otherwise lawful practices and activities when they are likely to be used to carry out an unlawful purpose. 352 U.S. at 430, 77 S.Ct. 502. On § 5 cases involving fact posture, see also Jacob Siegal Company, supra; S & S Pharmaceutical Company v. Federal Trade Commission, 5 Cir., 1969, 408 F. 2d 487; Slough v. Federal Trade Commission, 5 Cir., 1968, 396 F.2d 870; All-State Industries of North Carolina, Inc. v. Federal Trade Commission, 4 Cir., 1970, 423 F.2d 423.

The right of petitioners to contract must be accommodated by the Commission if at all possible with its statutory duty to formulate a remedy to eliminate unfair and deceptive trade practices, once such practices have been found. Jacob Siegal Company, supra, teaches this principle in the context of...