Feil v. FTC

• Decision Date: 22 December 1960
• Docket Number: No. 16699.,16699.
• Citation: 285 F.2d 879
• Parties: Maurice J. FEIL and Leo A Loeb, Individually and as Co-partners Trading as the Enurtone Company, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Ninth Circuit

285 F.2d 879 (1960)

Maurice J. FEIL and Leo A Loeb, Individually and as Co-partners Trading as the Enurtone Company, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.

No. 16699.

United States Court of Appeals Ninth Circuit.

December 22, 1960.

Harold Easton, Los Angeles, Cal., for petitioner.

Daniel J. McCauley, Jr., Gen. Counsel, Alan B. Hobbes, Asst. Gen. Counsel, Jno. W. Carter, Jr., Washington, D. C., for the Federal Trade Commission.

Before BARNES and KOELSCH, Circuit Judges, and YANKWICH, District Judge.

YANKWICH, District Judge.

Before us is a petition to review¹ an order of the Federal Trade Commission, to be referred to as "Commission" or "respondent", dated October 2, 1959, ordering Maurice J. Feil and Leo A. Loeb, individually and as co-partners trading as the Enurtone Company, to be referred to as "petitioners", to

"forthwith cease and desist from representing directly or indirectly:

"That the use of said device is of value in stopping bed-wetting or correcting the bed-wetting habit, unless expressly limited in a clear and conspicuous manner to cases of bed-wetting not involving organic defects or diseases."

This order modified the initial order issued on February 24, 1959, by one of the Commission's Hearing Examiners, which would have ordered that the petitioners

"do forthwith cease and desist from representing, directly or indirectly:

"That the use of such device is of value in stopping bed-wetting or in correcting the bed-wetting habit in cases of enuresis involving organic defect or diseases."

I The Proceedings Before the Commission

The proceedings before the Commission were initiated by a complaint filed by the Commission, through its secretary, and dated June 7, 1956. The complaint, in substance, stated the following facts:

Maurice J. Feil and Leo A. Loeb are individuals trading as the Enurtone Company, with their principal place of business at Beverly Hills, California. For two years preceding the date of the complaint, they were engaged in leasing a device named "Enurtone", for use in cases of enuresis, or bed-wetting, in the course of which they have represented, by means of advertisements inserted in newspapers and circulars and other forms of advertising matter

"that the use of said device will stop bed-wetting and correct the bed-wetting habit in all cases."

They also furnished advertising materials to their lessees, who use it in soliciting the rental of the device.

The representations were false, misleading and deceptive in that the use of the device will not stop or correct bed-wetting

"except in cases of functional bed-wetting not involving organic defects or diseases."

There followed allegations that the petitioners were in substantial competition with others engaged in the leasing and sale of devices intended for the same purpose and that the use by the petitioners and their lessees of the false representations had tendency to mislead and deceive a substantial portion of the purchasing public into the erroneous and mistaken belief that the statements therein were true and to induce a substantial portion of the purchasing public to rent the device. The final allegations read:

"As a consequence thereof, trade in commerce has been unfairly diverted to respondents from their competitors and injury has thereby been done to competition in commerce. * * *

"The aforesaid acts and practices of respondents, as herein alleged, were and are all to the prejudice and injury of the public and of respondents\' competitors and constitute unfair and deceptive acts and practices and unfair methods of competition, in commerce, within the intent and meaning of the Federal Trade Commission Act.

"Wherefore, the Premises Considered, the Federal Trade Commission, on this 7th day of June, A.D. 1956, issues its complaint against said respondents."

There followed notice of hearing before the Commission on August 21, 1956.

The Answer, dated July 6, 1956, admitted the partnership. It alleged that they were the exclusive licensees of the device under United States Letters Patent No. 2,644,050 and United States Letters Patent No. 2,127,538, up to the time of its expiration. Admitting that other concerns are engaged in selling enuresis devices they denied that they were in competition with them. They also denied that they or their lessees used any false, misleading or deceptive representations or that their practices were injurious to the public or to their competitors.

The hearings began on September 24, 1956, before Hearing Examiner Edward F. Haycraft. At the conclusion of the initial hearing the then counsel for the Commission moved for an adjournment of the hearings to Chicago for the purpose of taking depositions of the Commission's medical experts. The motion was denied.

On March 11, 1957, the Commission substituted a new Hearing Examiner, Earl J. Kolb, who, over the protests of the petitioners, proceeded to hold the hearings on March 13. The new Hearing Examiner ordered that the hearings resume in Los Angeles on March 26, 1957, and that hearings be had for three days commencing May 1, 1957, in San Francisco, for the taking of medical testimony. When the hearings were resumed in San Francisco, counsel for the Commission was permitted to amend the complaint by adding at the end of Paragraph Five the words

"* * * or in cases of functional bed-wetting involving emotional tensions."

The effect of the amendment was to make Paragraph Five of the complaint read

"Paragraph Five: The said representations were and are false, misleading and deceptive. In truth and in fact, the use of said device will not be effective in stopping bed-wetting or correcting the bed-wetting habit in cases involving organic defects or diseases or in cases of functional bed-wetting involving emotional tensions."

An answer was filed by the petitioners denying the material allegations of the complaint, as amended. After the amendment was allowed, the Hearing Examiner sustained the objection of the petitioners to all the testimony theretofore given, ordered it stricken and ordered a trial de novo. Hearings were rescheduled and held at San Francisco on October 22, 23 and 24, 1958. The initial decision of the Hearing Examiner, filed on March 18, 1959, has already been given as has also the final order of the Commission, dated October 2, 1959, modifying it.

This is a petition to review the Order. Relief is sought upon the following grounds:

(1) The decision of the Commission is not supported by substantial evidence on the record considered as a whole;

(2) Assuming that there is substantial evidence on the record, considered as a whole, to support the Commission's finding that the use of the Enurtone device is not of value in stopping bed-wetting or in correcting the bed-wetting habit in cases of enuresis involving organic defects or diseases, the order of the Commission exceeds its powers and is, therefore, illegal and void.

On the basis of these contentions, it is urged that the following relief be granted:

(1) That the Final Order of the Commission issued under date of October 2, 1959, in Docket No. 6564 be set aside;

(2) In the alternative, in the event that the Court determines that the said Final Order should not be set aside, that the Final Order be modified to conform to the form of order contained in the Initial Decision of the Hearing Examiner issued under date of February 24, 1959.

II Considering the Records as a Whole

A. The Scope of Review

The scope of review in a case of this character, as defined by the Act, as modified by the requirements of the Administrative Procedure Act, requires that the findings of the Commission be sustained unless they are

"unsupported by substantial evidence,"²

or are

"arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law."³

These criteria have been applied by this and other courts in many recent cases.⁴ They hold that it is the function of the Commission and not that of the reviewing court to pass upon the credibility of witnesses, the weight to be accorded to their testimony and to draw inferences from admitted facts. These cases insist that the Commission, not we, must resolve conflicts in expert medical testimony.⁵ These rulings merely reemphasize the rule of substantiality long expressed by the Supreme Court that

"The weight to be given to the facts and circumstances admitted as well as the inferences reasonably to be drawn from them is for the Commission."⁶

The principle is applied with equal rigor in cases arising under Section 12 of the Federal Trade Commission Act, one of the objects of which is to prevent the dissemination of false advertisement for the purpose of inducing or which is likely to induce, directly or indirectly, the purchase, in commerce, of food, drugs, devices or cosmetics.⁷ The orders will be sustained if shown to be of a character to warrant the inferences by the Commission that they are likely to deceive, although actual deception does not, in reality, appear.⁸

As the device is not sold but leased in commerce, the present proceeding was instituted under Section 5 of the Federal Trade Commission Act,⁹ which declares unlawful

"Unfair methods of competition in commerce, and unfair or deceptive acts or practices in commerce."¹⁰

The Commission is empowered and directed by the Act to prevent persons, partnerships or corporations from using such methods, acts or practices in commerce. The Supreme Court has held that this and related sections

"empower the Commission to prevent the use of unfair methods of competition and authorize it, after finding an unfair method present, to enter an order requiring the offender `to cease and desist\' from using such unfair method,"¹¹

and that the Commission

"is clothed with wide discretion in determining the type of order that is necessary to bring an end to the unfair practices found to exist."¹²

So the questions raised on this appeal relating to the sufficiency of...