FTC v. Virginia Homes Mfg. Corp.

• Decision Date: 21 January 1981
• Docket Number: Civ. No. Y-79-913.
• Citation: 509 F. Supp. 51
• Parties: FEDERAL TRADE COMMISSION v. VIRGINIA HOMES MANUFACTURING CORPORATION.
• Court: U.S. District Court — District of Maryland

509 F. Supp. 51

FEDERAL TRADE COMMISSION v. VIRGINIA HOMES MANUFACTURING CORPORATION.

Civ. No. Y-79-913.

United States District Court, D. Maryland.

January 21, 1981.

Donald H. Feige, Asst. U. S. Atty., Baltimore, Md., for plaintiff.

Michael N. Sohn, W. Dennis Cross, David M. Fitzgerald, and Theodore H. Hoppock, Washington, D. C., of counsel; Leonard S. Homa, Rockville, Md., for defendant.

MEMORANDUM OPINION AND ORDER

JOSEPH H. YOUNG, District Judge.

This case presents novel questions regarding the scope of § 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 53(b), as applied to the Magnuson-Moss Warranty Act (15 U.S.C. §§ 2301 et seq.) and the Disclosure Rule (16 C.F.R. § 701) promulgated thereunder. The defendant, Virginia Homes, is a company engaged in the manufacture and distribution of mobile homes. These homes are sold to consumers through 69 independent dealers in 11 states. From June of 1975 until October, 1978, each sale of a mobile home was accompanied by a Virginia Homes warranty Old Warranty. On October 20, 1978, the defendant modified this Old Warranty at the request of the Federal Trade Commission, but refused to notify the holders of the Old Warranty of the modifications. Contending that the still-outstanding Old Warranties violate the FTC Act, Magnuson-Moss, and the Disclosure Rule, the FTC seeks two types of injunctive relief from this Court. First, plaintiff requests that a permanent injunction against future violations of FTC laws be issued against Virginia Homes. Second, the FTC requests an injunction compelling the defendant to notify all Old Warranty holders that they might possess new, more expansive rights under the revised warrant New Warranty. The Commission asserts that this Court has power to grant both of these requests pursuant to § 13(b) of the Federal Trade Commission Act, and has moved for summary judgment. For the reasons set forth below, this request for summary judgment will be granted in full.

The principal legal issues presented in this action center around a proper interpretation of § 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 53(b). This section reads:

(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 purposes 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.

These issues will be dealt with in turn.¹

Issue One: Can the FTC seek permanent injunctive relief under § 13(b) on account of alleged violations of Magnuson-Moss?

Virginia Homes initially submits that the violations of law, if any, contained in the Old Warranty are violations of the Magnuson-Moss Warranty Act and nothing else. Accordingly, defendant contends that the Government should have proceeded under Magnuson-Moss and not under the Trade Commission Act. § 110(c) of the Warranty Act, 15 U.S.C. § 2301(c), authorizes the issuance of preliminary injunctions against Magnuson-Moss violators, but does not authorize the issuance of permanent injunctions. Virginia Homes thus argues that the FTC's request for a permanent injunction is inappropriate on the facts of this case. The Government counters that the alleged violations are independent violations of the Federal Trade Commission Act as well as violations of Magnuson-Moss, and further argues that § 13(b) is an appropriate mechanism for enforcing Magnuson-Moss violations in any event.

On this latter point, the Government is most certainly correct. § 110(b) of the Warranty Act, 15 U.S.C. § 2310(b), clearly states that any violation of Magnuson-Moss is also to be considered a violation of § 5 of the FTC Act, 15 U.S.C. § 45(a)(1). It is beyond dispute that § 13(b) is a proper means for seeking remedy from § 5 violations. Furthermore, § 13(b) by its very terms applies to violations of "any provision of law enforced by the FTC." It is likewise clear that Magnuson-Moss is such a "provision of law" enforced by the Commission. For these reasons, this Court holds that the Government properly proceeded under § 13(b) in bringing the present action for permanent injunction relief, even if the sole violations involved are violations of Magnuson-Moss.

Issue Two: Can the FTC seek compulsory notification under § 13(b)?

Virginia Homes next argues that the government should not be permitted to seek compulsory notice under § 13(b). It is conceded by the parties that notice is nowhere expressly authorized by § 13(b). It is further evident that only 19(b) of the Federal Trade Commission Act expressly authorizes "public notification respecting a rule violation or an unfair or deceptive act or practice, as the case may be." From this background, Virginia Homes asserts that the Government should not be permitted to seek a remedy under one section of the FTC Act which is authorized by an entirely distinct section of the same Act.

This Court finds the defendant's arguments unpersuasive. To begin, it should be noted that § 57b(b) is concerned with an entirely different procedural scenario than is presented in this case. That section authorizes compulsory notice in those circumstances where the FTC has issued a cease-and-desist order and subsequently seeks enforcement from the federal district courts. In the instant matter the FTC has chosen to proceed not via the cease-and-desist order route, but rather to seek relief directly from the federal court. Any effort on the part of the Government to invoke § 19(b) as authority for its requested relief would, of course, have been ill-advised.

The question remains, however, whether § 13(b) itself authorizes compelled notice. A review of a number of cases concerning the Commission's authority to issue various orders is highly instructive. At one time, the Supreme Court was of the opinion that the FTC's authority did not exceed that expressly conferred by statute. FTC v. Eastman Kodak Co., 274 U.S. 619, 47 S.Ct. 688, 71 L.Ed. 1238 (1927). The more modern trend is decidedly to the contrary. In FTC v. Dean Foods Co., 384 U.S. 597, 86 S.Ct. 1738, 16 L.Ed.2d 802 (1966), for example, the Court upheld the Commission's power to seek a preliminary injunction against a proposed merger despite the absence of express statutory authority for such a power. In the words of the Supreme Court, "such ancillary powers have always been treated as essential to the effective discharge of the Commission's responsibilities." Id. at 607, 86 S.Ct. at 1744. See also, Pan American World Airways, Inc. v. United States, 371 U.S. 296, 83 S.Ct. 476, 9 L.Ed.2d 325 (1963). More recently, the District of Columbia Circuit Court held that the FTC had the power, under § 19(b), to compel the manufacturers of Listerine to broadcast corrective advertising although such advertising was not expressly authorized by statute. Warner-Lambert Co. v. FTC, 562 F.2d 749 (D.C.Cir.1977), cert. denied, 435 U.S. 950, 98 S.Ct. 1575, 55 L.Ed.2d 800 (1978). These opinions, when viewed in conjunction, make abundantly clear that the Commission has power to shape remedies which go beyond those expressly delegated by Congress.

In the present case, it is the authority of the courts rather than the authority of the Commission which is at issue. The guiding principles, however, should be no less liberal. Indeed, the powers of a court of equity to issue appropriate orders are, if anything, more expansive than the powers of the independent agencies. FTC v. Eastman Kodak Co., supra. For these reasons, this Court finds that compulsory notice is implicitly authorized by § 13(b) so long as such notice would be essential to the effective discharge of the Court's responsibilities.² The Government is thus entitled to seek such relief.

Issue Three: Can the permanent injunctive relief authorized by § 13(b) be granted solely on the basis of past violations of the FTC laws?

The Government has sought to justify the appropriateness of its requested injunctive relief on two separate theories. First, plaintiff asserts that a permanent injunction and compulsory notice are proper sanctions to remedy the past illegal activity of Virginia Homes. This past illegal activity, according to the FTC, consists of defendant's former use of the Old Warranty. Second, and alternatively, the Government claims that the continuing refusal of Virginia Homes to notify current Old Warranty holders is, assuming the Old Warranty is found to be unlawful, a present violation of federal law ripe for injunctive relief. Virginia Homes, on the other hand, vigorously contends that its former use of the Old Warranty is not a proper basis for § 13(b) relief for at least three reasons: (1) the Old Warranty has never, up to now, been adjudged unlawful; (2)...