Cinderella Career and Finishing Schools, Inc. v. FTC

• Citation: 425 F.2d 583
• Decision Date: 20 March 1970
• Docket Number: No. 22624.,22624.
• Parties: CINDERELLA CAREER AND FINISHING SCHOOLS, INC., Stephen Corporation, Vincent Melzac, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

425 F.2d 583 (1970)

CINDERELLA CAREER AND FINISHING SCHOOLS, INC., Stephen Corporation, Vincent Melzac, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.

No. 22624.

United States Court of Appeals, District of Columbia Circuit.

Argued October 23, 1969.

Decided March 20, 1970.

Mr. Alan Y. Cole, Washington, D.C., with whom Messrs. Isaac N. Groner and William Kanter, Washington, D. C., were on the brief, for petitioners.

Mr. Gerald Harwood, Atty., Federal Trade Commission, with whom Mr. Karl H. Buschmann, Atty., Federal Trade Commission, was on the brief, for respondent.

Before TAMM, MacKINNON and ROBB, Circuit Judges.

TAMM, Circuit Judge:

This is a petition to review orders of the Federal Trade Commission which required petitioners Cinderella Career College and Finishing Schools, Inc. (hereinafter Cinderella), Stephen Corporation (the corporate entity which operates Cinderella), and Vincent Melzac (the sole owner of the stock of Cinderella and Stephen Corporation), to cease and desist from engaging in certain practices which were allegedly unfair and deceptive.¹

After the Commission filed its complaint under section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45 (1964), which charged Cinderella with making representations and advertising in a manner which was false, misleading and deceptive, a hearing examiner held a lengthy series of hearings which consumed a total of sixteen days; these proceedings are reported in 1,810 pages of transcript. After the Commission had called twenty-nine witnesses and the petitioners twenty-three, and after the FTC had introduced 157 exhibits and petitioners 90 (Petitioners' Brief at 7), the hearing examiner ruled in a ninety-three page initial decision that the charges in the complaint should be dismissed.²

Complaint counsel appealed the hearing examiner's initial decision to the full Commission; oral argument was heard on the appeal on May 28, 1968 (Opinion of the Commission at 2), and the Commission's final order was issued on October 10, 1968. The full Commission reversed the hearing examiner as to six of the original thirteen charges and entered a cease and desist order against the petitioners, who then brought this appeal. For the reasons which follow we remand to the Commission for further proceedings.

We are faced with two principal issues on this appeal: whether the action of the Commission in reversing the hearing examiner comports with standards of due process, and whether then Chairman Paul Rand Dixon should have recused himself from participation in the review of the initial decision due to public statements he had previously made which allegedly indicated pre-judgment of the case on his part.

I. PROCEDURAL IRREGULARITY AND DUE PROCESS

As we have indicated above, the hearing on the complaint against petitioners was exhaustive. The important question raised by petitioners here is whether the full Commission, in reviewing an initial decision, may consider the advertisements de novo, disregarding entirely the evidence adduced at a lengthy hearing, and arrive at independent findings of fact and conclusions of law, or whether the Commission is bound by its own rules and regulations, as well as concepts of due process, to review the conclusions of the hearing examiner in light of the evidence.

In their final decision the Commissioners first criticized the hearing examiner for his handling of some of the testimony, stating that "from the initial decision it appears that the examiner ignored some of this testimony and some of it was given little or no weight because the examiner either questioned the credibility of the witness or considered their testimony hearsay." (Opinion of the Commission at 4.) The Commissioners themselves then proceeded to ignore all testimony completely: "In view of our decision to independently analyze — and without assistance from consumer or other witnesses — the challenged advertisements and their impact * * * it becomes unnecessary to review the testimony of these expert and consumer witnesses." (Id. at 6; emphasis added.) Later in the opinion they again noted that "for the reasons stated above the Commission will rely on its own reading and study of the advertisements to determine whether the questioned representation has the capacity to deceive." (Id. at 13; emphasis added.) The hearing examiner in a Federal Trade Commission proceeding has both the right and duty to make determinations concerning the credibility of witnesses and the exclusion of hearsay evidence; while the Commissioners may review those determinations on appeal, in light of the record, they may not choose to ignore completely the testimony adduced at the hearing.³

A further example of the Commissioners' determination to make a de novo review of the advertisements rather than considering the record as developed during the hearing is the statement that:

A review of the examiner\'s initial decision has persuaded the members of the Commission to examine firsthand and independently the challenged representations contained in respondents\' advertisements rather than relying on the analysis thereof contained in the initial decision.⁴

(Opinion of the Commission at 4; emphasis added.) Not only do we find this conduct on the part of the Commissioners a violation of their own rules and hence of due process, but we also seriously question their ability to make the determination called for without the aid of the testimony in the record. It should be noted that the advertisements here in question are directed at a specific, narrow part of the public — teenage girls who are recent high school graduates and who do not intend to pursue their formal education in college. While it may be true that some advertisements are so glaringly misleading that anyone can recognize that fact, we think it could only benefit the ultimate determination if the Commissioners had before them the testimony both of experts on youth and of teenage girls themselves, in addition to their own reading of the statements alleged to be misleading. While they might initially decide that a given statement had the capacity to mislead, perhaps testimony of experts and consumers would reveal that the group at which the statements were directed was in fact more knowledgeable and sophisticated than the Commissioners had originally anticipated. In any event, we think it can only help, and certainly it will not hurt, to have the testimony before the reviewing Commissioners as well as their own reading of the advertisements.

As authority for the proposition that they could properly ignore the record and make a de novo determination of the capacity of the statement to mislead, the Commissioners state only that "the Commission's authority to predicate a finding of deception on its own examination and study is too well settled to require further comment." (Opinion of the Commission at 4.) The Commission's counsel reiterated this position on appeal, stating in the brief that:

The Commission, as stated in its opinion * * *, evaluated Cinderella\'s advertising entirely on the basis of its own study of the material. It found no need to resolve the conflicting expert and consumer testimony in the record bearing upon the meaning of the advertisements.

(Brief for the Respondents at 14; emphasis added.) The brief further states that "the law is too well settled to admit of any doubt that the meaning of advertisements and their tendency or capacity to deceive are questions of fact to be determined by the Commission, whose determination should be upheld unless clearly wrong." (Id.)

On its face this statement is true — it is for the Federal Trade Commission to resolve such questions of fact. However, a distinction must be drawn between the "Commission," meaning the entire Federal Trade Commission, including the Commissioners, hearing examiners, staff, etc., and the "Commissioners," who are of course the five Federal Trade Commissioners. It is customary in common parlance, and occasionally even in court opinions, to use the word "Commission" to mean both the broader term and the more restricted group at the top, which would be more accurately termed the "Commissioners." Thus the cases cited by the Commission in the statement that the "law is too well settled to admit of any doubt" are clearly inapposite, for their holdings relate to the entire "Commission," not to the five "Commissioners" sitting as a reviewing body. In the leading case in this jurisdiction we stated:

The Commission here has determined that the use of the term "manufacturer\'s list price" represents to the public that that was the price at which the product was usually and customarily sold by other stores in the area. This determination was within its power, unless it was "arbitrary or clearly wrong." We cannot say that it was, particularly in view of the consumers\' testimony adduced at the hearing.

Giant Food Inc. v. FTC, 116 U.S.App.D.C. 227, 231-232, 322 F.2d 977, 981-982 (1963), cert. dismissed, 376 U.S. 967, 84 S.Ct. 1121, 12 L.Ed.2d 82 (1964) (emphasis added). From this and other statements of the court in the Giant Food case it is quite clear that the use of the words "the Commission" related to the Federal Trade Commission, not to the Federal Trade Commissioners sitting in review of an initial decision. It is therefore not appropriate to say that the court in that case upheld the power of the five Commissioners to review the challenged advertisements de novo, making an independent judgment concerning their capacity to deceive and ignoring the evidence adduced at a lengthy hearing.⁵ Counsel for the Commission have therefore seriously misread the cases which they have cited. We are unable to find any authority for their proposition — that A sixteen-day hearing may be completely ignored if the Commissioners are dissatisfied with the result reached by their hearing examiner. In fact, language in an opinion which the Commission cites cuts...