FTC v. Cinderella Career and Finishing Schools, Inc., 21118.

• Decision Date: 12 March 1968
• Docket Number: No. 21118.,21118.
• Citation: 404 F.2d 1308
• Parties: FEDERAL TRADE COMMISSION et al., Appellants, v. CINDERELLA CAREER AND FINISHING SCHOOLS, INC., et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

404 F.2d 1308 (1968)

FEDERAL TRADE COMMISSION et al., Appellants, v. CINDERELLA CAREER AND FINISHING SCHOOLS, INC., et al., Appellees.

No. 21118.

United States Court of Appeals District of Columbia Circuit.

Argued October 27, 1967.

Decided March 12, 1968.

Asst. Atty. Gen. Edwin L. Weisl, Jr., for appellants. Acting Asst. Atty. Gen. Carl Eardley, Messrs. David G. Bress, U. S. Atty., Alan S. Rosenthal and Harvey L. Zuckman, Attorneys, Department of Justice, were on the brief for appellant. Messrs. Morton Hollander, Attorney, Department of Justice, and Harold D. Rhynedance, Jr., Attorney, Federal Trade Commission, also entered appearances for appellants.

Mr. Alan Y. Cole, Washington, D. C., with whom Messrs. Herbert J. Gildenhorn and Harvey J. Rothberg, Washington, D. C., were on the brief, for appellees.

Before McGOWAN, TAMM and ROBINSON, Circuit Judges.

TAMM, Circuit Judge:

This case presents, precisely and concisely, the question whether the Federal Trade Commission is authorized to issue a factual news release concerning pending adjudicatory proceedings before it.

I.

Appellee corporations operate and grant franchises for the operation of schools offering various courses in modeling, fashion merchandising, charm, and self-improvement. The individual appellee is the controlling stockholder of two of the corporations and the principal stockholder of the third appellee corporation.

Following an investigation, the appellant Federal Trade Commission, on February 13, 1967, issued a complaint (Docket No. 8729) against appellees, stating that the Commission, "having reason to believe" that the appellees had violated the Federal Trade Commission Act by engaging in unfair or deceptive practices and the use of false and misleading advertising in the operation of their business, was initiating a proceeding in respect thereto "in the public interest." Thereafter, the complaint enumerated the specific details constituting the charge and set forth quotations from the advertising alleged to be deceptive. The complaint identified the alleged falsities in the advertising, described the conduct claimed to constitute unfair or deceptive practices, and concluded with the customary allegation that the identified courses of conduct were in violation of section 5 of the Federal Trade Commission Act.¹

This complaint was mailed to appellees on February 17, 1967. On February 20, 1967, appellees, "mindful and aware of the FTC's practice of issuing news releases and the adverse effects resulting therefrom,"² petitioned the Commission to defer the issuance of any news release with respect to this proceeding, id est, Docket No. 8729, until after a final adjudication was had in the proceeding. On March 1, 1967, the Commission notified appellees that their petition had been denied, noting that the contents of the complaint which had been issued were in the public domain. The Commission furnished appellees at that time with a copy of the proposed news release and advised appellees that the news release would be issued on March 3.³

On March 2, the appellees commenced the present action by filing a complaint in the United States District Court for the District of Columbia in which they sought a restraining order against the issuance of the news release. The motion for the restraining order was denied by a District Court judge on March 2; and on March 3, the Commission promulgated a news release announcing and describing the issuance of the complaint against appellees. As a result, accounts of the complaint appeared in at least two Washington newspapers.

On March 22, 1967, appellees filed in the District Court an amended and supplemental complaint, seeking injunctive and declaratory relief against the Commission's issuance of further news releases with respect to the proceedings in Docket No. 8729 and requested the court to issue a preliminary injunction retraining any such action by the Commission. Appellees charged, in affidavits supporting the complaint, that the Commission's news releases resulted in cancellation of courses by students, inquiries from financial institutions and others with whom appellees were doing business and were generally harmful to appellees' business. On March 31, the Commission filed in the District Court a cross motion to dismiss the amended complaint.

At a hearing held in the District Court on April 13, 1967, the Commission's motion to dismiss the complaint was denied. At the same time, the preliminary injunction requested by appellees was granted, and the Commission thereby was restrained from issuing any news release in Docket No. 8729 "until the Commission, after a full adjudication of the case, has issued either a cease and desist order or an order dismissing the Complaint, pending the final hearing and determination of this cause."⁴ The District Court judge, in the findings of fact and conclusions of law supporting the injunction, found that the issuance of the news releases prior to final adjudication constituted, or gave the appearance of constituting, a prejudgment of the issues and that in the event of ultimate adjudication in appellees' favor by the Commission, the damage suffered by them through the news releases would be beyond "repair or remedy." The court also expressed "grave doubt" of the Commission's authority to issue the releases prior to final adjudication, found irreparable injury to appellees, and defined the Commission's duty in "quasi-judicial proceedings" to require the avoidance of prejudgment or the appearance of pre-judgment.

The Commission seeks before this court to reverse the District Court's order enjoining the Commission's issuance of press releases and denying its motion to dismiss the complaint.

II.

At the threshold of this case, we are confronted with the question of whether we have jurisdiction to consider the entire case on the merits or whether our review is confined at this time to the propriety of the issuance of the injunction. The pleadings before us are at best ambiguous as to whether the Commission has endeavored to appeal the denial by the District Court of its motion to dismiss the complaint. However, the teaching of Deckert v. Independence Shares Corp., 311 U.S. 282, 61 S.Ct. 229, 85 L.Ed. 189 (1940), indicates that we do have the authority in a case involving an appeal as of right from the granting of an injunction to take note of the denial by the trial court of a motion to dismiss. While it is of course true that in Deckert there was no question but that the defendants had sought to appeal from the order denying the motion to dismiss as well as from the granting of an injunction, we feel, nevertheless, that the Court's language in that case minimizes the necessity of a purely formal appeal of an otherwise non-appealable order. We conclude, therefore, that we have the authority to dispose of the case on its merits and that sound judicial administration requires us to avoid any subsequent unnecessary proceedings in the District Court. Obviously, if we conclude that the motion to dismiss was improperly denied, the question of the propriety of the injunction is moot.

III.

Congress, in 1914, enacted the Federal Trade Commission Act.⁵ The then broad purpose of the Act was to prevent unfair methods of competition in their inception. Federal Trade Comm. v. Raladam Co., 316 U.S. 149, 162, 62 S.Ct. 966, 86 L.Ed. 1336 (1941). By the Wheeler-Lea amendment,⁶ Congress, in 1938, broadened section 5 of the Act and extended the authority of the Commission to eliminate unfair or deceptive acts or practices in commerce without regard to competition. H.R.REP.No.1613, 75th Cong., 1st Sess., 1, 3 (1937).

Section 5 of the Federal Trade Commission Act⁷ provides, inter alia, as follows:

(a) (1) Unfair methods of competition in commerce, and unfair or deceptive acts or practices in commerce, are declared unlawful.

* * * * * *

(6) The Commission is empowered and directed to prevent persons, partnerships, or corporations, except banks, common carriers subject to the Acts to regulate commerce, air carriers and foreign air carriers subject to the Federal Aviation Act of 1958, and persons, partnerships, or corporations insofar as they are subject to the Packers and Stockyards Act, 1921, as amended, except as provided in section 227(a) of Title 7, from using unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce.

Proceeding by Commission; modifying and setting aside orders

(b) Whenever the Commission shall have reason to believe that any such person, partnership, or corporation has been or is using any unfair method of competition or unfair or deceptive act or practice in commerce, and if it shall appear to the Commission that a proceeding by it in respect thereof would be to the interest of the public, it shall issue and serve upon such person, partnership, or corporation a complaint stating its charges in that respect and containing a notice of a hearing upon a day and at a place therein fixed at least thirty days after the service of said complaint. The person, partnership, or corporation so complained of shall have the right to appear at the place and time so fixed and show cause why an order should not be entered by the Commission requiring such person, partnership, or corporation to cease and desist from the violation of the law so charged in said complaint. Any person, partnership, or corporation may make application, and upon good cause shown may be allowed by the Commission to intervene and appear in said proceeding by counsel or in person. The testimony in any such proceeding shall be reduced to writing and filed in the office of the Commission. If upon such hearing the Commission shall be of the opinion that the method of competition or the act or practice in question is prohibited by sections 41-46 and 47-58 of this title, it shall make a report in writing in which it shall state its findings as to the facts and shall

...