F. T. C. v. H. N. Singer, Inc.

• Decision Date: 26 February 1982
• Docket Number: 81-4119,Nos. 80-4508,s. 80-4508
• Citation: 668 F.2d 1107
• Parties: 1982-1 Trade Cases 64,569 FEDERAL TRADE COMMISSION, Plaintiff-Appellee, v. H. N. SINGER, INC., et al., Defendants, and Michael Quinlan and James Earl Weihoff, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1107

668 F.2d 1107

1982-1 Trade Cases 64,569

FEDERAL TRADE COMMISSION, Plaintiff-Appellee, v. H. N. SINGER, INC., et al., Defendants and Michael Quinlan and James Earl Weihoff, Defendants-Appellants.

Nos. 80-4508, 81-4119.

United States Court of Appeals Ninth Circuit.

Submitted Sept. 14, 1981.

Decided Feb. 26, 1982.

Jeremiah Casselman, Los Angeles, Cal., for defendants-appellants.

Laurence O. Masson, San Francisco, Cal., Edward F. Glynn, Jr., Atty., F. T. C., Washington, D. C., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of California.

Before DUNIWAY and FERGUSON, Circuit Judges, and HOFFMAN, ^* district judge.

DUNIWAY, Circuit Judge:

Defendants appeal from a preliminary injunction and from an order modifying it. We affirm.

I. The Nature of the Case.

In its complaint, filed in the district court, the Federal Trade Commission alleged violations of its trade regulation rule "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures," 16 C.F.R. Part 436 (The Franchise Rule), and sought redress for third parties under Section 19 of the Federal Trade Commission Act, 15 U.S.C. § 57b(a)(1) and (b). It also alleged false promises and false and misleading representations contrary to Section 5(a) of the Act, 15 U.S.C. § 45(a), and sought a permanent injunction under Section 13(b) of the Act, 15 U.S.C. § 53(b) and refunds for third parties as a form of relief ancillary to that equitable relief.

The Commission asked for a preliminary injunction against further violations of the Franchise Rule, freezing the defendants' assets (except for "ordinary business and living expenses") pending a trial on the merits, and requiring an accounting of assets acquired by the defendants as a result of the defendants' activities. The preliminary injunction was sought in accordance with the procedures of F.R.Civ.P. 65(a) and on the authority of both § 13(b) and § 19. The district judge granted a preliminary injunction in terms somewhat different from those requested. Two individual defendants, Quinlan and Weihoff, appeal. That is our number 80-4508. They also asked the district court to modify its order on the ground that the requirement that they provide an accounting was a violation of their privilege against self-incrimination guaranteed by the Fifth Amendment to the United States Constitution. The district court agreed and amended its order so that the defendants were required to file only "all current accountants' reports, bank statements, documents indicating title to real or personal property, and other indicia of ownership or interest in property of any of the defendants...." The same defendants appeal from the order modifying the injunction. That is our number 81-4119.

The alleged violations of the law by the defendants arose from the sale of franchises for "Hot Box Products." Franchisees were to distribute frozen pizzas and ovens to retail outlets. They paid substantial amounts for the franchises. The details of the fraud need not concern us. The appellants do not challenge the sufficiency of the evidence to support preliminary injunctive relief against them.

II. The Form of the Preliminary Injunction.

The appellants argue that the injunction should be vacated because the district judge failed to make findings of facts as is required by F.R.Civ.P. 52. But the injunction made it clear that the court had considered the pleadings, memoranda and affidavits and had concluded that the Commission was likely to prevail upon the merits and that in the absence of preliminary relief immediate and irreparable harm would occur. In this case explicit findings of fact were not necessary for meaningful appellate review. See Magna Weld Sales Co. v. Magna Alloys & Research Pty., 9 Cir., 1976, 545 F.2d 668.

III. The Power to Issue a Preliminary Injunction.

Rule 65 concerns the procedure for issuing a preliminary injunction. The substantive basis and the jurisdictional authority for use of this procedure must be sought elsewhere. 7-Pt. 2 Moore's Federal Practice P 65.03(1). There are two bases for jurisdiction to issue the preliminary injunction. One is Section 19 of the Act, 15 U.S.C. § 57b(a)(1) and (b):

(a)(1) If any person, ... violates any rule under this chapter respecting unfair or deceptive acts or practices ... then the Commission may commence a civil action against such person, ... for relief under subsection (b) of this section in a United States district court....

Nature of relief available

(b) The court in an action under subsection (a) of this section shall have jurisdiction to grant such relief as the court finds necessary to redress injury to consumers or other persons, partnerships, and corporations resulting from the rule violation or the unfair or deceptive act or practice, as the case may be. Such relief may include, but shall not be limited to, rescission or reformation of contracts, the refund of money or return of property, the payment of damages, and public notification respecting the rule violation or the unfair or deceptive act or practice, as the case may be; except that nothing in this subsection is intended to authorize the imposition of any exemplary or punitive damages.

It is clear that under this section a district court has jurisdiction to issue a preliminary injunction.

The second legal basis is Section 13(b) of the Act, 15 U.S.C. § 53(b):

Temporary restraining orders; preliminary injunctions

(b) Whenever the Commission has reason to believe-

(1) that any person, partnership, or corporation is violating, or is about to violate any provision of law enforced by the Federal Trade Commission, and

(2) that the enjoining thereof pending the issuance of a complaint by the Commission and until such complaint is dismissed by the Commission or set aside by the court on review, or until the order of the Commission made thereon has become final, would be in the interest of the public-

the Commission by any of its attorneys designated by it for such purpose may bring suit in a district court of the United States to enjoin any such act or practice. Upon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest, and after notice to the defendant, a temporary restraining order or a preliminary injunction may be granted without bond: Provided, however, That if a complaint is not filed within such period (not exceeding 20 days) as may be specified by the court after issuance of the temporary restraining order or preliminary injunction, the order or injunction shall be dissolved by the court and be of no further force and effect: Provided further, That in proper cases the Commission may seek, and after proper proof, the court may issue, a permanent injunction. Any such suit shall be brought in the district in which such person, partnership, or corporation resides or transacts business.

The Commission argues that the second proviso gives it the power to seek an injunction in the district court in proper cases without also initiating administrative proceedings. The appellants disagree. They read the clause as granting the Commission the power to seek permanent injunctions only under the conditions laid down earlier in the section for the issuance of preliminary injunctions. We agree with the Commission. The proviso in question does not on its face condition the issuance of a permanent injunction upon the initiation of administrative proceedings.

What little legislative history there is supports our conclusion. Section 13(b) was enacted as part of the Trans-Alaska Pipeline Act, P.L. 93-153, but was originally a part of the Senate bill for the Federal Trade Improvement Act of 1973, P.L. 93-637. In the Senate Report on that bill the intent of the final clause of § 13(b) was explained:

This section would permit the Commission to obtain either a preliminary or permanent injunction through court procedures initiated by its own attorneys against any act or practice which is unfair or deceptive to a consumer, and thus prohibited by section 5 of the Federal Trade Commission Act. The purpose of section 210 is to permit the Commission to bring an immediate halt to unfair or deceptive acts or practices when to do so would be in the public interest. At the present time such practices might continue for several years until agency action is completed. Victimization of American consumers should not be so shielded.

Section 210 authorizes the granting of a temporary restraining order or a preliminary injunction without bond pending the issuance of a complaint by the Commission under section 5, and until such complaint is dismissed by the Commission or set aside by the court on review, or until the order of the Commission made thereon has become final within the meaning of section 5. The test the Commission would have to meet in order to secure this injunctive relief is similar to the test it must already meet when attempting to secure an injunction against false advertising of food, drugs, devices, or cosmetics. (See 15 USC 53(a).)

Provision is also made in section 210 for the Commission to seek and, after a hearing, for a court to grant a permanent injunction. This will allow the Commission to seek a permanent injunction when a court is reluctant to grant a temporary injunction because it cannot be assured of a (sic) early hearing on the merits. Since a permanent injunction could only be granted after such a hearing, this will assure the court of the ability to set a definite hearing date. Furthermore, the Commission will have the ability, in the routine fraud case, to merely seek a permanent injunction in those situations in which it does not desire to further expand upon the prohibitions of the Federal Trade Commission Act through the issuance of a cease-and-desist order. Commission resources will be better utilized, and cases can...