Mary Carter Paint Co. v. FTC

• Citation: 333 F.2d 654
• Decision Date: 19 June 1964
• Docket Number: No. 19982.,19982.
• Parties: MARY CARTER PAINT CO., a corporation, John C. Miller and I. G. Davis, Jr., as officers of said corporation, and Robert Van Worp, Jr., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

333 F.2d 654 (1964)

MARY CARTER PAINT CO., a corporation, John C. Miller and I. G. Davis, Jr., as officers of said corporation, and Robert Van Worp, Jr., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.

No. 19982.

United States Court of Appeals Fifth Circuit.

June 19, 1964.

David W. Peck, New York City, for petitioners.

J. B. Truly, Asst. Gen. Counsel, Charles C. Moore, Jr. and James M. Henderson, Atty., Federal Trade Comm., Washington, D. C., for respondent.

Before HUTCHESON and BROWN, Circuit Judges, and CHRISTENBERRY, District Judge.

HUTCHESON, Circuit Judge:

This case is before the court on a petition to review and set aside a Federal Trade Commission order directing petitioners to cease and desist from engaging in certain unfair and deceptive practices and unfair methods of competition in connection with the interstate sale of paint.

The Commission's complaint charged that petitioners, in connection with the interstate sale of paint, had published advertisements which falsely represented "that the usual and customary retail price of each can * * * is the price designated in the advertisement; that this advertised price is a factory price; and that if one can * * * is purchased at the advertised price, a second can will be given `free' * * *". In their answer, petitioners admitted the publication of the advertisements, but denied the misrepresentations alleged.

The undisputed facts as developed at the hearings before a hearing examiner of the Commission are set out in the margin.¹

After hearing the evidence, the hearing examiner issued his decision wherein he found that petitioners had not misrepresented that their advertised price was a factory price, but had misrepresented the usual and regular price of their paint and had falsely represented that a second can was given free with every can purchased. Accordingly, he issued an order to cease and desist, designed to prohibit the practices found to be violations of the Federal Trade Commission Act.

On review, the Commission accepted the examiner's holding that Mary Carter's advertising was not permissible because the "free" second can of paint was not a gift or gratuity, though the Commission felt obliged to state in its decision that it did not thoroughly understand the hearing examiner's reasoning on this point, and in a detailed opinion² modified, and as modified adopted as its own, the initial decision and the order to cease and desist contained therein. Commissioner Elman filed a dissenting opinion.

It is the contention of petitioners: that the decision of the Commission is wholly unsupported by and not in accordance with the probative and substantial evidence and the law of the case; that on the one material issue of whether and how the advertising is misleading or deceptive there is no supporting finding; and that the decision of the Commission is arbitrary and capricious and not in accordance with law. Petitioners also contend that there were substantial errors in the exclusion of material evidence and that the order entered is too vague and imprecise to be meaningful, and that all of these are grounds for review and reversal by this court under the provisions of the Administrative Procedure Act, 5 U.S.C. §§ 1006-1009.

As to the order³ itself, it is petitioners' contention that it is no more than a generality of legal statement which lacks any precision of meaning adequate to satisfy the requirement of clarity and applicability which the Supreme Court has said is the essence of a Commission order. F.T.C. v. Henry Broch, Inc., 368 U.S. 360, 82 S.Ct. 431, 7 L.Ed.2d 353. For the reasons and upon the considerations hereafter stated, we agree.

The complaint and opinion of the Commission, Commissioner Elman dissenting, is that the second can is not "free" because it is not a "gratuity", that is the purchaser must buy one can to get the second can free, hence the cost of the second can is included in the price of the first can and the price paid is therefore the price of two cans rather than one can; and that it is misleading or deceptive to advertise that the second can is "free". The case, therefore, turns on and revolves entirely around Mary Carter's use of the word "free" in its advertising. There is no question or issue as to the quality of Mary Carter paint or as to the double value which it gives the public. The claim of the Commission is, however, that there is something misleading or deceptive in Mary Carter's expressing and advertising the bargain given in the terms of every second can "free".

The petitioners insist: that the opinion of the Commission is a mere quibble and in addition it is contrary to its established and long time rulings; that in Matter of Walter J. Black, 50 F.T.C. 225 (1953) and Matter of Book-of-the-Month Club, 50 F.T.C. 778 (1953), the Commission held that just such a bargain as Mary Carter gives can be expressed and advertised in the terms of a second article "free" with the purchase of one article; and that the Commission enunciated that rule after the most careful consideration and rejection of the argument which it now advances, that the second article could not be considered "free" because acquisition of the second article required the purchase of an article and hence there was no gratuity in the giving of the second article. In short, the transaction is the same as the well-nigh universal one cent sale practice where the merchants advertise that if you buy one article you can get another of the same article for one cent.

The majority opinion of the Commission states that the facts in this case are distinguishable from the facts in the Black and the Book-of-the-Month cases. Petitioner, however, and we, as the reviewing court, are in the fortunate situation in this case that Commissioner Elman, speaking not as the scribes and pharisees and the bureaucrats do, but as one having authority, has clearly, vigorously and incontrovertibly pointed out in his dissenting opinion the fallacious and quibbling nature of the majority's effort to support its position and to distinguish the cited cases.

Further, Commissioner Elman rightly noted, as "perhaps the most serious deficiency in the majority opinion", that "nowhere does the Commission explain what was `unfair or deceptive' about what Mary Carter did"; and finally Commissioner Elman found the order issued by the Commission so "indefensibly vague" and "puzzling" that he did not know how respondents could comply with it. It should be added that Commissioner Elman also aptly and devastatingly observed, "As a result, uncertainty and confusion are being introduced, needlessly and unsettlingly, into an area of business activity where businessmen and the bar have long and correctly regarded the Commission's position as definite and clear".

Contrary to the tone and tenor of most dissenting opinions, Commissioner Elman's opinion, instead of being a polemic directed at sustaining his own contrary view, is devoted to a careful, thoughtful and positive demonstration that the Commission, in reaching its conclusion, had devoted its efforts to tithing mint, anise and cummin, while neglecting and disregarding the weightier things of the law.

We find ourselves in agreement with Commissioner Elman's dissenting opinion: that the opinion of the Commission is completely erroneous; and that its order is lacking in the precision and definiteness which the statute requires of such an order as this. We reject, as Commissioner Elman does, the Commission's opinion: that Mary Carter's advertising is misleading because "The second can of paint was not, and is not now free"; that it was not, and is not now given without cost to the retail purchaser since the purchaser paid the advertised price; and that this was, and is now, the usual and regular retail price at which two cans of Mary Carter paint were ordinarily sold.

In short, we agree with Commissioner Elman's demonstration that in sustaining the complaint in this case and holding that Mary Carter's advertising is misleading and deceptive in the respects alleged, it is clear that the Commission has departed from its established rules, on which Mary Carter had "every right to rely", and has reverted to its discarded reasoning in the first Book-of-the-Month Club case. "This", as Commissioner Elman observes, "it has not done forthrightly", however, but by purporting to find that this case is "distinguishable" from the Black case, which it purports to still recognize as law. We agree with Commissioner Elman that the cases are "indistinguishable" and the decision of the Commission to the contrary is unsupported in law.

The brief of petitioners has presented in a thorough-going and lawyer-like way petitioners' position. We are spared, however, the necessity of more thoroughly presenting their views and arguments by the fact that we find it sufficient to say that we adopt and approve the reasoning and the result in Commissioner Elman's dissenting opinion,⁴ and particularly this concluding statement from it:

"This brings me to what is perhaps the most serious deficiency in the majority opinion. The duty of the Commission in this case was to determine whether Mary Carter had violated Sec. 5 of the Federal Trade Commission Act by engaging in any `unfair or deceptive acts or practices\'. Yet nowhere does the Commission explain what was `unfair or deceptive\' about what Mary Carter did. The word `deceptive\' appears in the Commission\'s opinion on page 2 in a description of the allegations of the complaint and again on page 10 in the observation that a good motive cannot justify a deceptive practice. But we are never informed as to who is, or might be, misled by Mary Carter\'s `Buy one and get one free\' offer, or as to how that deception might be brought about."

Finally, Commissioner Elman noted⁵ that the Commission's order to cease and desist was "indefensibly vague", particularly in the light of the Supreme Court's recent call for...