F.T.C. v. Evans Products Co., 85-3691

• Decision Date: 12 December 1985
• Docket Number: No. 85-3691,85-3691
• Citation: 775 F.2d 1084
• Parties: , 1985-2 Trade Cases 66,864 FEDERAL TRADE COMMISSION, Plaintiff-Appellant, v. EVANS PRODUCTS COMPANY, a Delaware corporation, doing business as Capp Homes and Ridge Homes, and Evans Financial Corporation, a Washington corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1084

775 F.2d 1084

54 USLW 2276, 1985-2 Trade Cases 66,864

FEDERAL TRADE COMMISSION, Plaintiff-Appellant, v. EVANS PRODUCTS COMPANY, a Delaware corporation, doing business as Capp Homes and Ridge Homes, and Evans Financial Corporation, a Washington corporation, Defendants-Appellees.

No. 85-3691.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 28, 1985.

Decided Nov. 5, 1985.

As Amended Dec. 12, 1985.

John H. Carley, Ernest J. Isenstadt, Melvin H. Orlans, F.T.C., Washington, D.C., Randall H. Brook, Maxine R. Stansell, Kathryn C. Nielsen, Attys., F.T.C., Seattle, Wash., for plaintiff-appellant.

Chris R. Youtz, George E. Greer, Sirianni & Youtz, Seattle, Wash., for defendants-appellees.

Appeal from the United States District Court for the Western District of Washington.

Before WALLACE, FARRIS, and HALL, Circuit Judges.

FARRIS, Circuit Judge:

The Federal Trade Commission appeals the denial of its motion for a preliminary injunction to preserve the remedies of rescission, restitution, and other equitable relief sought in a suit for a permanent injunction. The district court for the Western District of Washington, McGovern, J., denied the FTC's motion, finding that the FTC had failed to demonstrate a "likelihood of success on the merits" and that the balance of equities did not favor relief.

On January 11, 1985, the FTC sought a permanent prohibitory injunction and other equitable relief against Evans Products Company and its subsidiary Evans Financial Corporation, alleging "unfair or deceptive practices" in the sale and financing of consumer-completed homes in violation of section 5 of the FTC Act, 15 U.S.C. Sec. 45. The FTC alleged that Evans' advertisements "guaranteed" permanent mortgage loans to any consumer who first obtained loans from Evans to construct "finish-it-yourself" houses sold by Evans. These advertisements were allegedly followed by written and oral representations that a fixed interest rate, permanent mortgage loan was "assured" once the consumer qualified for a construction loan.

In fact, during the years 1979-1982, approximately 4,700 of the 8,700 consumers who obtained construction loans were unable to obtain the promised permanent loans. As a result, these consumers obtained Evans' or outside mortgage financing under worse terms than those originally indicated, or suffered foreclosure by Evans. The FTC sought an injunction prohibiting Evans from 1) foreclosing on its customers, 2) transferring consumer finance contracts to third parties unless a notice preserving the consumer's defenses was affixed, and 3) selling corporate assets in excess of $50 million unless 15% of the sales proceeds were escrowed for possible future consumer redress.

On January 17, 1985, the district court granted the FTC's motion for a temporary restraining order in part, thereby suspending foreclosure actions and directing Evans to give the FTC 30 days' advance notice of any asset sales over $10 million. The order expired on February 8, 1985; the FTC moved for a preliminary injunction; and on February 27, the district court denied the motion.

The district court found that 1) the FTC was not likely to succeed in showing that Evans' advertising was misleading, since the district court believed Evans' advertising claims to be "mere puffing"; 2) the only remaining allegations--omissions and oral misrepresentations made by Evans' salespeople--required extensive oral testimony to confirm so that, standing alone, the FTC's affidavits were insufficient to establish a likelihood of success; and 3) the balance of equities indicated that the relief requested would be "too detrimental" to both Evans and its customers.

The FTC timely filed its notice of appeal; three days later, Evans filed in Florida for bankruptcy under Chapter 11. The FTC then sought an injunction pending appeal, and although the district court denied the motion, on appeal we granted the motion, enjoining all foreclosures unless Evans first obtained the consent of the bankruptcy court in Florida. The bankruptcy court, which had initially abstained pending resolution of our proceedings, granted Evans' "Motion to Continue Business Operations" and authorized Evans to commence foreclosure and sales. Following an emergency motion for clarification of our earlier injunction, we indicated that sale or foreclosure pending appeal would only be allowed when a home was in immediate danger of severe damage and the marginal delay would significantly increase Evans' costs, when consumers expressly disclaimed any interest in retaining their homes, or when consumers voluntarily abandoned homes in a state of severe disrepair.

The district court had jurisdiction under 28 U.S.C. Sec. 1331(a), Sec. 1337, Sec. 1345, and 15 U.S.C. Sec. 45. We have jurisdiction over this appeal under 28 U.S.C. Sec. 1291.

I. Preliminary injunctive relief under Sec. 13(b).

The FTC first argues that the district court may grant preliminary relief under section 13(b) of the FTC Act, 15 U.S.C. Sec. 53(b). Although the relevant proviso of Sec. 13(b) explicitly only authorizes permanent relief--"in proper cases the Commission may seek, and after proper proof, the court may issue, a permanent injunction," 15 U.S.C. Sec. 53(b) (emphasis added)--we have held that "because the district court has the power to issue a permanent injunction to enjoin acts or practices that violate the law enforced by the Commission, it also has authority to grant whatever preliminary injunctions are justified by the usual equitable standards." FTC v. H.N. Singer, Inc., 668 F.2d 1107, 1111 (9th Cir.1982). See also Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288, 291-92, 80 S.Ct. 332, 334-36, 4 L.Ed.2d 323 (1960); Porter v. Warner Holding Co., 328 U.S. 395, 398, 66 S.Ct. 1086, 1089, 90 L.Ed. 1332 (1946); FTC v. Southwest Sunsites, Inc., 665 F.2d 711, 718-19 (5th Cir.), cert. denied, 456 U.S. 973, 102 S.Ct. 2236, 72 L.Ed. 846 (1982). Therefore, we must determine whether the FTC has brought a "proper case" that meets the "usual equitable standards" for preliminary relief.

A. The FTC's theory of a "proper case": a violation of any law enforced by the FTC.

The FTC argues that a "proper case" for which Sec. 13(b) injunctive relief may be sought includes 1) any case involving a law enforced by the FTC, or 2) any case involving a likelihood that a past violation of a law enforced by the FTC will recur. We accord "considerable weight" to the meaning given a statute by the agency charged with administering it. See, e.g., Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 2782-83, 81 L.Ed.2d 694 (1984).

We accepted the FTC's first assertion in Singer: "Congress ... gave the district court authority to grant a permanent injunction against violations of any provisions of law enforced by the Commission...." 668 F.2d at 1113 (emphasis added). See 15 U.S.C. Sec. 53(b)(1) (FTC may seek a temporary restraining order or preliminary injunction whenever it has reason to believe that any person "is violating, or is about to violate, any provision of law enforced by the Federal Trade Commission...."); S.Rep. No. 151, 93rd Cong., 1st Sess. 30-31 (1973) (quoted in Singer, 668 F.2d at 1110-11); see also FTC v. Simeon Management Corp., 532 F.2d 708, 712 (9th Cir.1976); 119 Cong.Rec. 22979 (July 10 1973) (Statement of Sen. Jackson). Such a comprehensive reach for Sec. 13(b) has been expressly, see FTC v. Virginia Homes Manufacturing Corp., 509 F.Supp. 51, 54 (D.Md.), aff'd, 661 F.2d 920 (4th Cir.1981); FTC v. H.N. Singer, Inc., 1982-83 Trade Cas. (CCH) p 65,011 at 70,618 (N.D.Cal.1982), and implicitly confirmed, see FTC v. Brown & Williamson Tobacco Corp., 580 F.Supp. 981 (D.D.C.1983); United States v. National Dynamics Corp., 525 F.Supp. 380 (S.D.N.Y.1981), by other courts which have granted permanent injunctions under Sec. 13(b).

In attempting to limit Sec. 13(b) to cases involving "routine fraud" or violations of previously established FTC rules, Evans misreads both the case law, see Singer, 668 F.2d at 1111, and the legislative history. See S.Rep. No. 151, 93rd Cong. 1st Sess. 31 (1973) (Sec. 13(b) authorizes 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," as well as in "the routine fraud case") (quoted in Singer, 668 F.2d at 1111).

B. Does a "proper case" include charges of past violations of the FTC Act?

Evans' more serious contention is that a Sec. 13(b) "proper case" does not encompass violations that completely ceased before the FTC brought suit and have not been shown to be likely to recur. ¹

Evans' view that Sec. 13(b) cannot be used to remedy past violations is supported by the statutory language. The FTC may only seek a temporary restraining order or a preliminary injunction when it believes a person "is violating, or is about to violate" any law enforced by the FTC; the statute does not mention past violations. 15 U.S.C. Sec. 53(b)(1). The sparse legislative history also indicates that Congress only contemplated ongoing or future violations which required the "quick handling" that an injunction could provide. See, e.g., S.Rep. No. 151, 93rd Cong., 1st Sess. 30 (1973), quoted in Singer, 668 F.2d at 1111 (Sec. 13(b) would be used "to bring an immediate halt to unfair or deceptive acts.... At the present time such practices might continue for several years until agency action is completed."); see also 119 Cong.Rec. 36597 (November 12, 1973) (Statement of Rep. Melcher); 119 Cong.Rec. 36609 (November 12, 1973) (Statement of Rep. Smith). The legislative history is silent about the use of Sec. 13(b) to preserve remedies for a past violation of the law.

As a general rule, "[p]ast wrongs are not enough for the grant of an injunction"; an injunction will issue only if the wrongs are ongoing or likely to recur. See, e.g., Enrico's, Inc. v. Rice,...