Porter & Dietsch, Inc. v. F. T. C.

Decision Date16 October 1979
Docket Number78-1497,Nos. 78-1324,s. 78-1324
Citation605 F.2d 294
Parties1979-2 Trade Cases 62,796 PORTER & DIETSCH, INC., a corporation, William H. Fraser, Individually and as officer of said corporation, Kelly Ketting Furth, Inc., a corporation, and Joseph Furth, Individually and as officer of said corporation, and Pay'n Save Corporation, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
CourtU.S. Court of Appeals — Seventh Circuit

Jerold W. Dorfman, New York City, Michael R. Rayton, Seattle, Wash., for petitioners.

William A. E. Doying, F. T. C., Washington, D. C., for respondent.

Before PELL and TONE, Circuit Judges, and KIRKLAND, District Judge. *

TONE, Circuit Judge.

This case comes to us on a petition to review a Federal Trade Commission false advertising order relating to non-prescription weight reducing tablets. 1 Petitioners raise a variety of issues, which include the propriety of participation in the decision by two of the commissioners, collateral estoppel, sufficiency of the evidence, procedural due process, and the appropriateness of the relief granted. We approve the order with minor exceptions.

Petitioners are Porter & Dietsch, Inc., which packages the subject "X-11" tablets and sells them through retail drug stores and the mail; William Fraser, its president and sole shareholder; Kelly Ketting Furth, Inc., its advertising agency; Joseph Furth, the agency's account executive responsible for X-11 advertising; and Pay'n Save Corporation, a retail drug store chain that sells X-11 tablets. All petitioners except Pay'n Save took an active role in the creation of the advertisements in question and were aware that representations in them posed potential legal problems. Pay'n Save's only connection with the X-11 advertising was its participation in Porter & Dietsch's co-operative advertising programs, through which it received advertising materials and instructions for their publication from Porter & Dietsch, and caused them to be published bearing Pay'n Save's name. Nothing in the record indicates that Pay'n Save had any knowledge that the representations in the advertisements were false or unsubstantiated.

After an evidentiary hearing, an FTC Administrative Law Judge rendered an initial decision finding that petitioners had made the following representations in their advertising, as the FTC complaint had alleged:

1) Users of X-11 tablets can lose weight without restricting their accustomed caloric intake and while they continue to eat the foods of their choice.

2) Petitioners have a reasonable basis from which to conclude that substantially all users of X-11 tablets will lose a significant amount of weight.

3) The X-11 tablet contains a unique ingredient.

In addition, the ALJ found, petitioners omitted the following material facts from their X-11 advertisements:

1) The typical and ordinary experiences of consumers do not parallel the experiences reported in testimonials appearing in the advertisements.

2) Persons with high blood pressure, heart disease, diabetes, or thyroid disease should only use X-11 tablets as directed by a physician.

3) A low-caloric diet is a part of the X-11 plan.

The ALJ found that these representations and omissions were false and misleading and constituted unfair and deceptive acts and practices in violation of §§ 5 and 12 of the Federal Trade Commission Act (15 U.S.C. §§ 45 and 52). On appeal to the Commission, the ALJ's proposed findings, conclusions, and recommended order were adopted with minor modifications.

I.

Participation in the Decision by Commissioners Who Were Not

Active Commissioners at the Time of Oral Argument.

Petitioners' first contention is that two of the five commissioners of the FTC should not have participated in the decision. Only three commissioners were present at the oral argument before the Commission on September 29, 1976. At that time Commissioner Dole was on leave of absence because of her husband's candidacy for Vice-President of the United States, and Chairman Pertschuk was not yet a member of the Commission. Commissioner Dole resumed her duties as a commissioner and Chairman Pertschuk assumed his office many months before the case was decided.

Commissioner Dole remained a commissioner throughout the period of her leave. 16 C.F.R. § 3.52(f), which gives the FTC discretion to decide any case without oral argument, states:

(A) member of the Commission absent from an oral argument may participate in the consideration and decision of the appeal in any case in which the oral argument is stenographically reported.

The oral argument before the Commission in this case having been stenographically recorded, Commissioner Dole was permitted by rule to participate in the decision.

Petitioners argue that Chairman Pertschuk was not similarly covered by the rule, because he was not a member of the Commission at the time of oral argument. If one in his position could participate, they argue, the President could "pack" the Commission, and also it would be impossible for litigants to frame contentions "in reliance" on the existing composition of the Commission. Neither argument is persuasive. Even if we were willing to assume a President would act in bad faith, which we are not, prohibiting a commissioner appointed after oral argument from participating in the decision would not solve the problem. Nothing would prevent the Commission, after the addition of the new member, from ordering reargument or from rehearing the case after it was decided. As for the reliance argument, a litigant has no cognizable interest in the composition of the tribunal that will decide his case and is entitled only to impartiality in that tribunal. Cf. Friedman v. Rogers, 440 U.S. 1, 99 S.Ct. 887, 898, 59 L.Ed.2d 100 (1979).

The District of Columbia Circuit held in Gearhart & Otis, Inc. v. SEC, 121 U.S.App.D.C. 186, 348 F.2d 798 (1965), that participation in a decision by a member of the Securities and Exchange Commission appointed after oral argument was proper when the parties had agreed to that participation. The court then added:

The decisions of numerous courts and administrative agencies establish that even without agreement of the parties, a member of an administrative agency who did not hear oral argument may nevertheless participate in the decision where he has the benefit of the record before him.

121 U.S.App.D.C. at 190, 348 F.2d at 802 (footnotes omitted); See id. at nn.12 & 13. The court distinguished its earlier decision in WIBC, Inc. v. FCC, 104 U.S.App.D.C. 126, 259 F.2d 941, Cert. denied sub nom. Crosley Broadcasting Corp. v. WIBC, Inc., 358 U.S. 920, 79 S.Ct. 290, 3 L.Ed.2d 239 (1958), on which petitioners in the case at bar rely, on the ground, not only that there was no comparable waiver in that case, but also that the Communications Act, 75 Stat. 422, 47 U.S.C. § 409(b), requires oral argument. See 121 U.S.App.D.C. at 190 n.14, 348 F.2d at 802 n. 14. The FTC is not similarly restricted by statute and has a rule, 16 C.F.R. § 3.52(f), quoted above, permitting participation in the decision by a commissioner who was not present at oral argument. In Au Yi Lau v. United States Immigration and Naturalization Service, 181 U.S.App.D.C. 99, 105, 555 F.2d 1036, 1042 (1977), the court affirmed an agency decision even though a majority of the participating members became members of the agency after the oral argument. Accord, Arthur Lipper Corp. v. SEC, 547 F.2d 171, 182 n. 8 (2d Cir. 1976), Cert. denied, 434 U.S. 1009, 98 S.Ct. 719, 54 L.Ed.2d 752 (1978).

The participation of Chairman Pertschuk and Commissioner Dole in the decision of the case at bar was proper.

II.

Confusion of the Issues.

Petitioners allege that they were misled to their detriment by the statements made during the hearing by the ALJ and complaint counsel concerning the relevance of whether the principal ingredient of X-11 tablets, phenylpropanolamine hydrochloride (PPA), * is an effective appetite suppressant.

Some confusion as to the relevance of the efficacy of PPA did exist at the hearing. The ALJ correctly stated, however, that the issue was the veracity of the representations made in the X-11 tablets advertisements, and that the efficacy of PPA was relevant only for its bearing on whether X-11 fulfilled those representations. Although petitioners contend that they were misled by the confusion and were unable effectively to cross-examine the Commission's expert witness on the efficacy of PPA, the record shows the contrary. Petitioners did cross-examine the experts on the efficacy of PPA and were not hampered in any way in their cross-examination. In addition, the record also contains numerous studies and excerpts from learned treatises on this subject. As the Commission correctly held, petitioners were not misled in the manner alleged.

III.

Collateral Estoppel.

Petitioners argue that determinations of fact made in three prior administrative proceedings preclude relitigation of the controlling issues here. The three decisions relied upon are In re Alleghany Pharmacal Corp., 75 F.T.C. 990 (1969), and two Postal Service cases, consolidated for hearing before the ALJ, In re Hanover House and Romar Sales Corp., Postal Service Docket Nos. 2/143 and 2/149 (1975). These three cases involve allegedly false and misleading advertising for a product called "Hungrex," which is said to be virtually identical to X-11. 2 The Commission rejected the collateral estoppel argument, as do we.

The doctrine of collateral estoppel "precludes relitigation of issues actually litigated and determined in the prior suit." Lawlor v. National Screen Service Corp., 349 U.S. 322, 326, 75 S.Ct. 865, 867, 99 L.Ed. 1122 (1955); Montana v. United States, 440 U.S. 147, 99 S.Ct. 970, 973-974, 59 L.Ed.2d 210 (1979); Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n. 5, 99 S.Ct. 645, 649 n. 5, 58 L.Ed.2d 552 (1979). The...

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