Federal Trade Commission v. Standard Education Soc., 10.

• Decision Date: 14 December 1936
• Docket Number: No. 10.,10.
• Citation: 86 F.2d 692
• Parties: FEDERAL TRADE COMMISSION v. STANDARD EDUCATION SOC. et al.
• Court: U.S. Court of Appeals — Second Circuit

86 F.2d 692 (1936)

FEDERAL TRADE COMMISSION v. STANDARD EDUCATION SOC. et al.

No. 10.

Circuit Court of Appeals, Second Circuit.

December 14, 1936.

W. T. Kelley, Martin A. Morrison, and James W. Nichol, all of Washington, D. C., for the Commission.

Henry Ward Beer, of New York City, for respondents.

Before L. HAND, SWAN, and CHASE, Circuit Judges.

L. HAND, Circuit Judge.

This case comes up upon a petition under section 45 of title 15, U.S.Code (15 U. S.C.A. § 45) for an "enforcement order" upon an order to "cease and desist" of the Federal Trade Commission against the five respondents, two companies and three individuals. The Standard Education Society is a company which published and sold an encyclopœdia called "Standard Reference Work"; the Standard Encyclopœdia Corporation is a subsidiary, or dummy, of that company. Stanford is the president and a director, and acted as general manager, of both companies, and is the owner of 250½ out of the Education Society's 536 shares of stock; Ward is the secretary, a director of both, has charge of sales and owns the same number of shares as Stanford; Greener owns the remaining thirty-five shares, and is in charge of financial matters as comptroller and auditor. On February 25, 1929, the Commission filed a complaint against the Education Society and Stanford, alleging certain unfair trade practices; they answered, and a supplemental complaint was filed on December 4, 1929, in the same terms, but joining the Encyclopœdia Company and Ward and Greener, all of whom answered. Meanwhile the taking of testimony had begun on May 8, 1929, and was continued until June 20, 1930; and on the twenty-fourth of December, 1931, the Commission filed its findings of fact and the order to cease and desist now before us. In the findings it appears that the Education Society was incorporated in 1909 under another name and published and sold a work called "Aiton's Encyclopoedia," whose title was changed in 1912 to "Standard Reference Work." This was in ten volumes, intended to be kept up to date by a series of loose leaf supplements — called an "extension service" — which were to be sent to subscribers quarterly for ten years, and embodied, or assumed to embody, the latest information. Stanford, Ward and Greener organized the Encyclopœdia Company in August, 1929, and changed the name of the old work to the "New Standard Encyclopœdia"; but the Education Society is still disposing of some remaining sets of "The Standard Reference Work," while the Encyclopœdia Company is selling the encyclopœdia. The ordinary price of each is $69.50, and includes the "extension service"; when works of fiction are thrown in, as they sometimes are, the price is $89. It was the uniform practice upon taking subscriptions, for agents to tell buyers that the set of books was given away, and that only the service was paid for; it was the common practice to say that the regular price of the books and service was considerably higher than the offers, at times $150 or $200; it was not infrequently said that the work could take the place of such magazines as the Literary Digest and the Review of Reviews: The originals of some of the testimonials used in selling the books were redrafted, some had never been authorized, and some had originally been issued to cover "Aiton's Encyclopœdia"; the names of some persons were advertised as contributors who had never contributed. The respondents also offered a course of instruction which they called "Special Introductory Enrollment," and for which they charged at first $98, and finally $135. The agents represented to the purchaser that these were "special introductory prices," the usual price of the course being $250; and that the special price was given to ten students only; all of which was false.

The order to "cease and desist" included all the respondents, and forbad ten kinds of trade practices, as follows. The first clause forbad representing the ten books as given free and only the service as paid for; the second forbad representing that some of the sets were delivered to selected persons; the third was in substance the same as the first; the fourth forbad representing the work as "a recently completed, new, and up-to-date encyclopœdia"; the fifth, offering the same work for sale under two names; the sixth, representing its usual price as higher than that at which it was offered; the seventh, representing any person as a contributor who was not a contributor; the eighth, representing any person as giving a testimonial who had not done so; the ninth, publishing other testimonials than those actually given; the tenth, representing the course of instruction as a "Special Introductory Enrollment" at a special reduced price. Nothing was done to enforce this order until January 20, 1936, when the petition at bar was filed; the respondents answered on the first of October, repeating the allegations of their original answer, and praying that the application be dismissed, and that "the order to cease and desist herein be vacated and set aside." Treating this part of the answer as a cross petition of the respondents to vacate the order to cease and desist, the Commission styled its brief an answer. The preliminary question of procedure so raised we will dispose of at once. We held in Federal Trade Comm. v. Balme, 23 F.(2d) 615, that upon a petition for enforcement under section 45 of title 15, U.S.Code (15 U.S.C.A. § 45), we would review the correctness of the order before considering the issue of compliance; so that once a petition to enforce the order is filed, it is not necessary for the respondent to file a petition for review. The prayer of the respondents' answer here that the order to cease and desist be vacated, was therefore entirely proper in the answer because the Commission had already invoked the preliminary inquiry; and the answer should not have been regarded as a cross petition to review the order. The Commission need not have filed any answer to it, and so far as its brief is entitled an answer, it will be stricken.

The first question is as to the propriety of any order whatever against the individual respondents. Stanford and Ward were jointly in complete control of both companies; as we have said, Stanford was not only president, but acted as general manager, and he was shown to have personally conducted the correspondence. Ward was sales manager, and necessarily familiar with what advertisements went out, and with the general sales policy of the company. This was enough to hold each personally for any "unfair" advertisements or sales methods, with certain exceptions to be noted later. The same is not true of Greener who, being merely the auditor and in charge of the companies' finances, would have little or nothing to do directly with trade practices. The doctrine applicable to patent infringements controls; it is not enough that an individual be a director or an officer of the infringing corporation; he must be shown to have had such connection with the wrong as would have made him an accomplice were it a crime, or a joint tortfeasor, were the corporation an individual. However, when that is done, his office will not protect him. National Cash-Register Co. v. Leland, 94 F. 502, 507-512 (C.C.A. 1); Hitchcock v. American Plate Glass Co., 259 F. 948, 952-954 (C.C.A.3); Denominational E. Co. v. Duplex E. Co., 80 F.(2d) 186, 194 (C.C.A.4). If the opinion in Dangler v. Imperial Machine Co., 11 F.(2d) 945 (C.C.A.7), means more than this, we cannot go along. Our dictum in New Departure Mfg. Co. v. Rockwell-Drake Corp., 287 F. 328, 334, was not meant to declare that so long as an official acted within the scope of his authority he was immune; the contrary had just been decided in Guarantee Vet. Co. v. Federal Trade Commission, 285 F. 853, 860 (C.C. A.2).

The respondents insist that the forbidden practices were not shown to have affected interstate competition. It would take little evidence to satisfy us that a company publishing, and distributing generally throughout the country, an encyclopœdia or reference work, was in competition with other similar works; perhaps we might take judicial notice of that without any evidence at all. But Stanford in substance admitted that other works competed with his, and the pleadings had foreclosed the issue anyway. The first article of the complaint alleged that the respondents were "in competition with other corporations, individuals, firms, or partnerships likewise engaged in the sale and distribution in interstate commerce of books, encyclopœdias and reference works, and so-called extension service in connection therewith." The answer of the Education Society did indeed deny that it used unfair methods of competition in interstate commerce, and that any of the methods alleged were unfair; but it did not deny that it was engaged in interstate commerce, or that there were others with whom it competed. Stanford's answer was like that of...