Jay Norris, Inc. v. F. T. C.

• Decision Date: 01 May 1979
• Docket Number: No. 623,D,623
• Citation: 598 F.2d 1244
• Parties: 1979-1 Trade Cases 62,623 JAY NORRIS, INC., Joel Jacobs, and Mortimer Williams, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent. ocket 78-4151.
• Court: U.S. Court of Appeals — Second Circuit

Page 1244

598 F.2d 1244

1979-1 Trade Cases 62,623

JAY NORRIS, INC., Joel Jacobs, and Mortimer Williams, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.

No. 623, Docket 78-4151.

United States Court of Appeals Second Circuit.

Argued Feb. 22, 1979.

Decided May 1, 1979.

Robert Ullman, Bass, Ullman & Lustigman, New York City, for petitioners.

Jerold D. Cummins, Deputy Asst. Gen. Counsel, F. T. C., Washington, D. C. (Michael N. Sohn, Gen. Counsel, Gerald P. Norton, Deputy Gen. Counsel, W. Dennis Cross, Asst. Gen. Counsel, Clarence R. Laing, Jr., Atty., Washington, D. C., of counsel), for respondent.

Before FEINBERG, OAKES and VAN GRAAFEILAND, Circuit Judges.

OAKES, Circuit Judge:

Petitioners, a gift and novelty mail-order house and its two shareholders, officers, and directors, launch a multi-pronged attack against one rather poorly phrased paragraph of a lengthy Federal Trade Commission cease and desist order issued under Section 5(a) of the Federal Trade Commission Act (the Act), 15 U.S.C. § 45(a). ¹ After a series of modifications ² the paragraph (Part I, Paragraph 6) prohibits petitioners from "(r)epresenting the safety or performance of any product unless such claims are fully and completely substantiated by a reasonable basis which shall consist of competent and objective material available in written form."

The attack on this paragraph the arguments tend to overlap is that it improperly shifts the burden of proof to petitioners in a possible future false or deceptive advertising charge; is beyond the Commission's statutory power under Section 5(a)(1) of the Act, 15 U.S.C. § 45(a)(1); is too broad for purposes of injunctive relief; is unduly burdensome as well as vague and indefinite; was reached by "Ad hoc adjudication" rather than by rule-making; and is an unconstitutional interference with and prior restraint on Free Speech. We are not persuaded by any of the arguments advanced, but we do rephrase the order in the interest of clarity.

I. FACTS

Petitioner Jay Norris, Inc. (Norris), has done business for twenty-five years by mail-order catalogues and advertisements in national newspapers like the New York Times and magazines like TV Guide. The instant proceeding, Norris's third before the Federal Trade Commission (FTC or Commission) within fifteen years, ³ involved false and deceptive advertising claims made as to efficacy, performance, and safety in connection with six widely varying products (1) a propane "flame gun" that would "dissolve the heaviest snow drifts, whip right through the thickest ice" ⁴; (2) roach powder that was "completely safe to use" and "never loses its killing power even after years" ⁵; (3) an "electronic miracle" that makes "your home wiring a huge (TV or FM radio) antenna for super reception" ⁶; (4) a "5-year" flashlight that carries an "absolute 5-year guarantee" ⁷; (5) a "minted" Lincoln-Kennedy Commemorative" penny accompanied by a free "Plaque of Coincidences" ⁸; and (6) " carefully maintained" cars "in regularly maintained fleet use . . . thoroughly serviced." ⁹ The quotations are selective and are by no means inclusive of the falsity and deception that the advertising blurbs relating to these six products display.

Both the administrative law judge and the Commission itself gave careful attention to the petitioners' arguments attacking the order originally proposed with the complaint by the complaint counsel, and each in turn modified that proposal. See note 2, Supra. In supporting the breadth of the order entered, the administrative law judge and Commission each relied on cases upholding somewhat similar orders requiring objective substantiation for scientific claims but involving discrete products, E. g., Fedders Corp. v. FTC, 529 F.2d 1398 (2d Cir.) (air conditioners), Cert. denied, 429 U.S. 818, 97 S.Ct. 63, 50 L.Ed.2d 79 (1976); Firestone Tire & Rubber Co. v. FTC, 481 F.2d 246 (6th Cir.) (tires), Cert. denied, 414 U.S. 1112, 94 S.Ct. 841, 38 L.Ed.2d 739 (1973); the Commission also relied on its case which held that representations of objective product characteristics made without substantiation are for that reason deceptive. National Dynamics Corp., 82 FTC 488, 559-60 (1973), Aff'd in pertinent part, 492 F.2d 1333 (2d Cir.), Cert. denied, 419 U.S. 993, 95 S.Ct. 303, 42 L.Ed.2d 265 (1974). The Commission further pointed out that the order's substantiation requirement related only to safety and performance (efficacy) claims, not other characteristics, although the order, as in American Aluminum Corp., 84 FTC 21 (1974), Aff'd, 522 F.2d 1278 (5th Cir. 1975), covers all of petitioners' products. The Commission also referred to petitioners' history of violations and noted that the deceptive advertising here covered products widely varying in price and use, making product coverage of the order incapable of limitation to a narrow subgroup. ¹⁰

II. DISCUSSION

A. Shift in the Burden of Proof

Petitioners contend that the requirement of full and complete substantiation prior to its representation of the safety and performance of any product evidences an "explicit intention . . . to relieve the Commission of its burden of proving any alleged falsity of safety or performance representations made by Petitioners for any product." There is no doubt that the Commission has the burden of proof in administrative proceedings precedent to the issuance of a cease and desist order; petitioners correctly cite to Section 4(d) of the Administrative Procedure Act, 5 U.S.C. § 556(d), and the Commission's Rules of Practice for Adjudicative Proceedings, 16 C.F.R. § 3.43(a), in support of this principle. ¹¹

The precise claim, however, is that the practical effect of the Commission's order brings about a shift of burden of proof in a subsequent proceeding in a federal district court under Section 5(L ), 15 U.S.C. § 45(L ), to enforce a cease and desist order. For example, petitioners say, if they advertise Brand X as 100% Effective, the Commission may, utilizing the order, challenge the claim as without substantiation, without regard to whether the representation is true or false; and once the Commission raises this challenge petitioners would have the burden of producing "competent and objective material available in written form" to rebut the charge.

This court in Federated Nationwide Wholesalers Service v. FTC, 398 F.2d 253 (2d Cir. 1968), held that the shifting of the Commission's burden in a subsequent enforcement proceeding was impermissible. But see S. S. S. Co. v. FTC, 416 F.2d 226, 229 (6th Cir. 1969). However, it was the specific wording of the order at issue in Federated that brought about the shift. In Federated, the Commission's order coupled an express prohibition against a seller's representation that it was a wholesaler or sold merchandise at wholesale prices with a proviso that the seller would have a "defense" in any enforcement proceeding if the seller made substantial sales to retailers or if the prices did not exceed the prices paid by retailers. But one obvious problem with the order was that it did not take into account the evidence in the record that "40% Of the . . . sales (we)re made to retailers and (we)re therefore wholesale transactions," Id. at 259 (emphasis added); in these cases the seller's representations fell within the first part of the proviso and could not properly have been the basis for any enforcement proceeding, no matter who had the burden of proof. Another problem with the order is more relevant to the specific challenge that Norris raises with regard to the burden of proof. By absolutely prohibiting the representations and allowing a defense, "the Commission (decreed) what in effect (wa)s clearly a shifting of the burden of proof from itself to petitioners," which the court held was unwarranted. Id. at 260. ¹²

Federated obviously does not stand for the proposition that every FTC order containing a prohibition amounts to a shift in the burden of proof. The court noted, 398 F.2d at 260, that the Seventh Circuit in Western Radio Corp. v. FTC, 339 F.2d 937, 940 (7th Cir. 1964), Cert. denied, 381 U.S. 938, 85 S.Ct. 1770, 14 L.Ed.2d 701 (1965), had reviewed an order requiring the manufacturer to cease and desist from making certain statements about the merits of its product unless it established that the claims were true. The Seventh Circuit, in rejecting the argument that the order shifted the burden of proof, construed the order as only prohibiting false advertising and noted in dictum that it did not anticipate that a court in an enforcement proceeding would regard the order as having shifted the burden of proof. The court in Federated was careful to point out that it reached the issue of the burden of proof only because the order that it was reviewing was "too explicit to be subject to a validating interpretation." 398 F.2d at 260. And the Federated court in fact approved an order prohibiting the seller from representing that it was a wholesaler or sold at wholesale prices unless it made a substantial and significant number of sales to retailers and sold at prices generally paid by retailers. Id.

It is thus apparent that this case is different from Federated and that the perceived shift in the burden of proof in that case is not involved here. Here there is no defense carved out by way of proviso from an absolute and overinclusive prohibition, the express wording of which in Federated compelled the court to find a shift in the burden of proof. The order here is for all practical purposes of the same form and effect as the order approved in Western Radio Corp. and the order as modified in Federated; it is not at all like the order struck down in Federated (even though, we note, upheld in S. S. S. Co., supra ). We find no explicitness preventing "a validating interpretation"; rather, we agree with the Seventh Circuit that a court in an enforcement proceeding would recognize no shift in the burden of proof.

Norris asserts that

(w)ithout...