Cotherman v. FTC
| Decision Date | 03 October 1969 |
| Docket Number | No. 26031.,26031. |
| Citation | 417 F.2d 587 |
| Parties | Lester S. COTHERMAN, individually and as General Manager of Consolidated Mortgage Company, and Willian F. Sullivan, individually and as Treasurer of Consolidated Mortgage Company, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Thomas B. Lemann, Monroe & Lemann, New Orleans, La., Dutton, Gwirtzman, Zumas & Wise, Nicholas H. Zumas, Milton S. Gwirtzman, Washington, D. C., for petitioners.
James McI. Henderson, General Counsel, Federal Trade Commission, Thomas F. Howder, Louis Rosenman, J. B. Truly, Asst. Gen. Counsel, Karl H. Buschmann, Attys., FTC., Washington, D. C., for respondent.
Before WISDOM and DYER, Circuit Judges, and KRENTZMAN, District Judge.
This case arises upon a petition to review an order issued by the Federal Trade Commission directing petitioners Lester S. Cotherman and William F. Sullivan to cease and desist from deceptive advertising and unfair lending practices in violation of section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45.1 The petitioners do not challenge the Commission's substantive findings; they challenge the Commission's jurisdiction to issue the order and the breadth of the order. We hold that the Commission had the authority to issue the order, but that the order is overly broad. Accordingly, we set aside the order and remand the case to the Commission.
In October 1963 Cotherman organized Consolidated Mortgage Company in Providence, Rhode Island, to engage in the business of making loans to the general public. Cotherman was general manager and chairman of Consolidated's two-man board of directors. He hired Sullivan, an experienced loan man, to serve as president, office manager, and as the other director. Sullivan served in these capacities until 1965 when Cotherman became president and Sullivan became vice-president. As general manager, Cotherman formulated Consolidated's advertising program and approved loans submitted to him by Sullivan. Sullivan was the "front" man; he met the applicants and received their loan applications.2
In the course of its lending business, Consolidated regularly advertised in newspapers and on radio and television.3 The following advertisement is typical of Consolidated's newspaper advertising:
"Homeowners
Borrow $2000
For Any Worthwhile Purpose
Repay $16.88 Per Month
1st, 2nd, & 3rd
Mortgages
Borrow $ 1,000 Repay $ 8.44 Per Mo
Borrow 1,500 Repay 12.66 Per Mo
Borrow 2,000 Repay 16.88 Per Mo
Borrow 3,000 Repay 25.32 Per Mo
Borrow 5,000 Repay 42.20 Per Mo
Borrow 10,000 Repay 84.39 Per Mo.
1st Mortgage Repayment Schedule.
If you're a home owner (or are in the process of buying a home)
you can consolidate all your bills and make one low monthly payment.
Call 421-0116.
Consolidated Mortgage Company, 605 Hospital Trust Bldg., Prov."
The Commission charged that Consolidated, Cotherman, and Sullivan falsely represented that an applicant could arrange a loan on the repayment schedules advertised. The hearing examiner concluded that Consolidated and Cotherman engaged in deceptive advertising. The favorable terms which were advertised were available only "to borrowers who qualify for such loans" — but few applicants "qualified", Consolidated "rarely made loans at the advertised repayment schedules", and most repayment schedules were substantially higher than those advertised.4 The examiner found that Consolidated and Cotherman failed to disclose that borrowers would have to pay various closing expenses, such as fees for legal services and title searches, which might run as high as $450. The examiner dismissed the complaint against Sullivan because he found that Cotherman formulated, directed, and controlled Consolidated's advertising and lending practices.
The Commission affirmed the examiner's findings that Consolidated and Cotherman violated § 5 of the Act and approved the examiner's cease and desist order. The Commission overruled the examiner's dismissal of Sullivan, on the ground that Sullivan had managerial responsibility for the corporation's lending practices and benefitted from the corporation's loan business. After the Commission issued its final order, Cotherman dissolved Consolidated. The Commission then dismissed its order against Consolidated.
The petitioners advance three arguments in support of their position. (1) The Federal Trade Commission has no subject-matter jurisdiction, since Section 5 of the Act does not apply to credit or lending practices unrelated to sales or products. (2) The Commission improperly judged the advertisements by the standards of the Truth-In-Lending Act,5 a statute enacted long after Consolidated had made its last loan in August 1966. (3) The Commission's complaint and cease-and-desist order should be dismissed as not in the public interest when the record shows that the petitioners have abandoned the money lending field and have declared under oath that they have no intention to return to the business.
A. The Commission takes the position that the petitioners failed to raise their first two arguments when this case was on appeal before the agency. Indeed, the Commission asserts, the petitioners in oral arguments waived all contentions except the third. Petitioners contend that "the jurisdictional question was raised at an early stage by Consolidated and the petitioners before the Commission". In fact, the issue was raised before the examiner only, who ruled against it, and it was not appealed to the Commission. Under decisional law, petitioners' action does not constitute raising the issue before the agency and does not satisfy the rule requiring exhaustion of administrative remedies. NLRB v. Seven-Up Bottling Co., 1953, 344 U.S. 344, 350, 73 S.Ct. 287, 290-291, 97 L.Ed. 377, 383; NLRB v. International Union of Operating Engineers, Local 66, 3 Cir. 1966, 357 F.2d 841.
During the oral argument Commissioner Elman asked Mr. Zumas, counsel for the petitioners, which issues he wished to preserve and which he would waive. Commissioner Dixon pointed out that the Commission rules required counsel to determine which issues to waive and which not to waive. Mr. Zumas replied:
We will address ourselves only to the one issue, and that issue is whether or not it is in the public interest to issue a cease and desist order against a defunct corporation and against individual respondents who have abandoned and left the field and are involved in other fields of endeavor unrelated to the subject of the cease and desist order and have indicated a positive intent not to re-enter the field. 6
Although counsel for the petitioners did say, early in the colloquy, "we do not waive any of the other questions involved in the record in this case", the colloquy with the Commission establishes the fact that when the question was pinpointed Mr. Zumas knew that he would waive issues not presented to the Commission. He decided to proceed only on the issue of the propriety of the cease and desist order. Moreover, the petitioners in their brief before the Commission argue only this one point. Commissioner Elman called to Mr. Zumas's attention that "the appeal brief is quite limited", that is, it did not deal with the jurisdictional question. Mr. Zumas answered: "That is correct." We conclude the Commission was not afforded an opportunity to consider subject-matter jurisdiction.
Even granting that the petitioners' counsel consciously waived the issue of subject matter jurisdiction before the Commission, we must still decide whether this waiver necessarily precludes judicial review. Courts have often said that failure to raise a question before an administrative agency precludes judicial review of that question. See United States v. L.A. Tucker Truck Lines, 1952, 344 U.S. 33, 73 S.Ct. 67, 97 L.Ed. 54; Myers v. Bethlehem Shipbuilding Corp., 1938, 303 U.S. 41, 58 S.Ct. 459, 82 L.Ed. 638; Presque Isle TV Co. v. United States, 1 Cir. 1967, 387 F.2d 502, 504-505; Davis, Administrative Law § 20.06 (1958); cf. Hormel v. Helvering, 1941, 312 U.S. 552, 61 S.Ct. 719, 85 L.Ed. 1037. This general rule, however, like most general rules, is a "verbal coat of too many colors".7 In Hormel the Supreme Court pointed out:
Ordinarily an appellate court does not give consideration to issues not raised below * * * but there may always be exceptional cases or particular circumstances which will prompt a reviewing or appellate court, where injustice might otherwise result, to consider questions of law which were neither pressed nor passed upon by the court or administrative agency below. 312 U.S. at 556, 61 S.Ct. at 721, 85 L.Ed. at 1041.
The problem, therefore, is whether this case is a run-of-the-mine case or an exceptional one.
In Hormel, the Court reversed on a ground not urged before the Board of Tax Appeals. Professor Jaffe has observed that the circumstances in Hormel were particularly compelling for judicial review and reversal on the new issue:
(a) Although remand was technically necessary to give the defeated party a chance to present evidence to meet the new theory, there was little likelihood that he could do so, (b) liability was clear, which is to say that application of the waiver principle...
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