Chrysler Corp. v. F.T.C.
| Decision Date | 25 July 1977 |
| Docket Number | No. 76-1586,76-1586 |
| Citation | 561 F.2d 357,182 U.S.App.D.C. 359 |
| Parties | , 1977-1 Trade Cases 61,510 CHRYSLER CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Lee Loevinger, Washington, D.C., with whom James H. Sneed and Weldon H. Latham, Washington, D.C., were on the brief, for petitioner.
William A. Horne, Atty., F.T.C., Washington, D.C., with whom Gerald P. Norton, Deputy Gen. Counsel and Jerold D. Cummins, Acting Asst. Gen. Counsel, F.T.C., Washington, D.C., were on the brief, for respondent.
Before McGOWAN, MacKINNON and ROBB, Circuit Judges.
Opinion for the Court filed by McGOWAN, Circuit Judge.
This is a petition for review of a Federal Trade Commission order requiring petitioner, the Chrysler Corporation, to cease and desist from false and deceptive advertising. The order is based on a finding that Chrysler violated § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, by misrepresenting fuel economy test results in advertising its Plymouth Valiant and Dodge Dart automobiles. This finding is challenged, first, because evidence was admitted by the Commission after oral argument of the case, a procedure allegedly contrary to due process; and second, on the ground that the Commission's conclusion is not supported by substantial evidence in the record. In addition, petitioner asserts that, even if the finding of a violation was justified, the scope of the cease and desist order is overly broad, both by comparison with an allegedly similar order entered against one of its competitors, and as measured against the general purposes of the governing statute.
For the reasons set forth below, we sustain the Commission's finding that Chrysler engaged in misleading advertising, but modify the order to reflect the limited nature of the violation found.
The advertisements at issue here were part of a sales campaign by Chrysler during the "energy crisis" of 1973-74, promoting its compact cars through comparisons with the subcompact and compact cars produced by its competitors. The first advertisement in dispute, the third in a series of full-page newspaper ads published in various cities throughout the country, was entitled The text under this caption stated in pertinent part:
You can buy a Chevrolet Nova OR you can buy a small car that can beat it on gas mileage. **
The answer is a small car at your Chrysler-Plymouth and Dodge Dealer's.
See all the Darts at your Dodge/Dodge Trucks Dealer.
See the Dusters and Valiants at your Chrysler-Plymouth Dealer.
Pictured in the advertisement were a Dodge Dart Swinger Special and a Plymouth Duster. The asterisks in text were keyed to the following footnote:
Gas mileage figures based on October 1973 Popular Science magazine. Tests performed by Popular Science for its report were conducted on '73 vehicles with figures adjusted by Popular Science for 1974 model changes and the results of E.P.A. tests.
The second controverted advertisement, published in March 1974 in Reader's Digest, included the following colloquy:
Which small cars . . . can go farther on a gallon of gas than Nova? These small cars from Chrysler Corporation are the answer.
Beneath the latter statement, a Dodge Dart Sport and a Plymouth Duster were depicted. The text of the ad continued as follows:
Small cars are not created equal
Compare these small cars from Chrysler Corporation with any small car you may be considering. They not only give you the handling and economy of a small car, but a lot of the things you'd expect only in a big car. . . .
So, find out for yourself why the small cars from Chrysler Corporation are outselling all other compact cars.*
See all the Darts at your Dodge/Dodge Trucks Dealer.
See the Dusters and Valiants at your Chrysler-Plymouth dealer.
The asterisk in text was tied to the following footnote, virtually identical to the one in the first disputed advertisement:
Gas mileage claim based on October 1973 Popular Science magazine. Tests performed by Popular Science for its report were conducted on '73 vehicles. Figures were adjusted by Popular Science to reflect 1974 model changes and the results of E.P.A. tests.
The Popular Science tests referred to in these two ads in fact showed that the Plymouth Valiant and Dodge Dart automobiles equipped with six-cylinder engines obtained better gas mileage than Chevrolet Novas equipped with either a six-cylinder or a V8 engine. However, the tests also showed that Valiants and Darts equipped with V8 engines got poorer gas mileage than Novas equipped with comparable V8 engines, and Novas equipped with six-cylinder engines.
On October 9, 1974, respondent Commission issued a complaint against Chrysler, charging that the two advertisements were deceptive and unfair in their representations of the Popular Science tests results. The matter was tried before an Administrative Law Judge on April 29, 1975. FTC counsel introduced into evidence copies of the disputed advertisements, and two stipulations of facts which included, inter alia, statistics showing that approximately one-fourth of the Plymouth Valiants and one-third of the Dodge Darts sold during the 1973 model year and the first portion of the 1974 model year were equipped with V8 engines.
In response, Chrysler called five witnesses including the Chrysler executives in charge of the advertising campaign and the advertising agency executives who prepared the two ads in question each of whom testified that all of the ads in the small car campaign, including the challenged ads, were meant only to cover automobiles with six-cylinder engines, and not those with V8 engines. Petitioner also introduced into evidence copies of the other twelve advertisements in the campaign, each of which explicitly mentioned Chrysler's "Slant-Six" (six-cylinder) engine in connection with the fuel economy claims made therein. Finally, petitioner submitted several exhibits, including Product Information Bulletins on its compact cars and the results of a study relating to consumer perception of the term "small car."
On September 4, 1975, the ALJ issued his decision. His conclusion was that the two ads in question conveyed the representation that Popular Science magazine had reported all Chrysler small cars to be superior in gasoline mileage to all Chevrolet Novas, and to all Novas equipped with comparable engines; that the ads had the capacity and tendency to deceive prospective customers into believing Chrysler's misrepresentations as to the Popular Science tests results; and that such misrepresentations constituted unfair methods of competition and unfair and deceptive acts in violation of section 5 of the Federal Trade Commission Act. The ALJ also found that Chrysler's failure to disclose that the Popular Science tests had shown that Valiants and Darts with V8 engines obtained inferior gas mileage to Novas equipped with six-cylinder and comparable V8 engines was an omission of a material fact, and constituted an unfair trade practice in violation of section 5.
Chrysler appealed this decision to the Commission, and oral argument was held on January 16, 1976. Chrysler's principal contention was that the term "small car" in the disputed ads was intended to refer only to compacts equipped with six-cylinder engines; consumers would not perceive that term as referring to compacts with V8 engines; and, consequently, the ads did not convey a false impression of the Popular Science test results.
Following oral argument, but prior to decision, FTC complaint counsel moved, pursuant to sections 3.71 and 3.72 of the Commission's Rules of Practice and Procedure, 16 C.F.R. §§ 3.71-.72, to reopen the proceeding for the limited purpose of filing "new documentary evidence," which was attached to the motion. This evidence was submitted to show that Chrysler's own promotional materials had referred to an automobile sold exclusively with a V8 engine the Plymouth "Road Runner" as a "small car." The proffered materials included two versions of a television commercial which was broadcast on December 20, 1975, and came into complaint counsel's hands only after oral argument before the Commissioners; two letters from an in-house attorney for Chrysler, confirming that these ads had been broadcast, and that the Road-Runner was available only with a V8 engine (a fact that complaint counsel apparently was not aware of until some time after he received the copies of the commercial); and a catalogue used by Chrysler as point-of-purchase advertising, describing Plymouth Volare as its "new small car" and stating that the Road Runner is a type of Volare, as well as making a "small car economy" claim next to a picture of a Road Runner.
Chrysler opposed this motion on the ground that the record could not be re-opened without a remand of the entire proceeding to the ALJ. Its memorandum of opposition generally denied the "authenticity of some of the material and the relevance of all of it," and stated that if complaint counsel were to be allowed to submit this additional evidence, Chrysler should be allowed to introduce further evidence as to the meaning of the advertisements challenged in the complaint. FTC counsel responded to Chrysler's attack on the authenticity of the new documents by submitting an additional copy of the audio portion of the Road Runner TV commercial, a copy which had been attached by Chrysler's in-house attorney to a letter sent to FTC counsel concerning the commercial.
On April 13, 1976, the Commission issued an opinion unanimously upholding the decision of the ALJ. The opinion relied primarily on an examination of the disputed advertisements themselves to support its findings that the ads were misleading and omitted material facts. 1 In addition, in rejecting Chrysler's defense that the ads referred only to...
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