Standard Distributors v. Federal Trade Commission

• Decision Date: 26 February 1954
• Docket Number: Docket 22458.,No. 3,3
• Citation: 211 F.2d 7
• Parties: STANDARD DISTRIBUTORS, Inc. et al. v. FEDERAL TRADE COMMISSION.
• Court: U.S. Court of Appeals — Second Circuit

211 F.2d 7 (1954)

STANDARD DISTRIBUTORS, Inc. et al. v. FEDERAL TRADE COMMISSION.

No. 3, Docket 22458.

United States Court of Appeals Second Circuit.

Argued December 9, 1953.

Decided February 26, 1954.

Rehearing Denied March 23, 1954.

COPYRIGHT MATERIAL OMITTED

Henry Ward Beer, New York City, for petitioners, LeRoy Bimstein and Standard Distributors, Inc., C. Hilding Anderson, Stephen F. Roche, Chicago, Ill., David B. Tolins and Vine H. Smith, New York City, of counsel.

William T. Kelley, Gen. Counsel, Robert B. Dawkins, Asst. Gen. Counsel, and John W. Carter, Jr., Atty., Washington, D. C., for respondent, Federal Trade Commission.

Before CHASE, Chief Judge, and L. HAND and MEDINA, Circuit Judges.

CHASE, Chief Judge (concurring in part and dissenting in part).

The petitioners, Standard Distributors, Inc., and LeRoy S. Bimstein, its president were found to have violated Section 5 of the Federal Trade Commission Act, 15 U.S.C.A. § 45, in the sale of books and were ordered by the Commission to cease and desist.¹ They here seek to have that order set aside because the evidence was insufficient to support the findings; any violation of the statute was by agents who were acting beyond the scope of their authority; the violations found were on account of conduct which has been discontinued; the petitioners were denied due process; petitioner Bimstein should have been granted immunity under Section 9 of the Act; and Section 45(l) of the statute provides for the imposition of such excessive penalties that it is unconstitutional. They also rely upon the denial of their motions (a) for a bill of particulars, (b) for leave to inspect, copy or photostat certain documents and (c) for the disqualification of the trial examiner on account of bias and prejudice against them and for the substitution, after the hearings were closed, of another to review the evidence and to make a recommended decision. We shall dispose of the motions first.

The Commission charged in its complaint of August 30, 1948, that the petitioners, and two officers of the corporation, as to whom the complaint was dismissed, had acted in concert for more than seven years immediately preceding the complaint "in the sale and distribution in a combination offer, of 10 volume sets of New Standard Encyclopedia, the Quarterly Loose Leaf Extension Service supplements thereto published under the name of World Progress and also of Webster's Unabridged Dictionary, Young Folks Library, History of the World, and other books." After alleging the interstate character of the business, allegations followed to the effect that the agents of these petitioners, falsely represented to prospective customers to induce them to purchase that the encyclopedia was entirely new and not yet on public sale, that prominent and influential persons in their community had been selected to accept a certain number of sets free, or at a nominal price, previous to offering the encyclopedia for sale to the public, and questions were asked to secure information to show whether the person approached would be a likely purchaser. That information was placed on a card and the prospect asked to sign, being told that the card would be used to determine whether he would be selected to receive a free copy of the encyclopedia. A few days later another agent would call upon the prospect, show him the card he had signed and inform him that he had been selected as one of a few outstanding persons in the community to receive the encyclopedia free upon the sole condition that within sixty days after the set was received he would give this corporate petitioner a letter recommending the set or stating his opinion of it. It would be then explained that the agent was not a salesman but had to charge one dollar to comply with legal requirements to make the gift binding upon the company. If the prospect agreed to take the set he was told the company regarded it as an exhibition set to be subject to inspection by his friends and neighbors and wanted it kept up-to-date. To do that it would be necessary for the prospect to pay for the Quarterly Loose Leaf Extension Service Supplement for ten years at from $3.95 to $8.05 per year, depending upon the type of binding chosen.

It was further alleged that the agent usually showed to the prospect what purported to be sample pages of the encyclopedia and of the supplement, showing pictures and printing on excellent paper superior to the pictures, printing and paper of the books delivered. It was alleged also that the agent falsely told the prospect that when the encyclopedia and its supplement were offered for sale to the public the charge would be $100 or some other price above the price at which they were then being offered. Other allegations were that these petitioners had made such false and misleading representations, or some of them, "in service guarantee certificates, brochures, contract forms, form letters and testimonials usually contained in the sales kits of their agents" but this allegation was not established by proof and there was no finding that the petitioners themselves made any misrepresentations in that or any other way. The complaint ended with formal allegations that the misrepresentations tended to, and had deceived a substantial portion of the purchasing public, misled it to believe them and induced it to buy the encyclopedia and supplements to its prejudice and injury, all in violation of the Federal Trade Commission Act.

Before answer, these petitioners and the other then respondents moved to dismiss the petition on the ground that the Commission was without jurisdiction in that no sufficient public interest had been alleged and, in the alternative, for a bill of particulars and for leave to permit "the inspection and copying or photographing" of numerous documents, papers, books, cards and the like designated in seven numbered paragraphs and in a final eighth one as "Each and every document, paper, book, account, letter and other written material which constitute or contain evidence herein and/or which will be produced and/or used and/or marked for identification, and/or marked in evidence at any and all hearings on this complaint."

This motion was denied and a trial examiner was appointed to hold hearings which were held over a period of about four months at intervals in Minneapolis, Minn., Milwaukee, Wis., Chicago, Ill., Sisketon, Mo., and Washington, D. C.

The complaint set forth a course of conduct in making sales which was a general pattern, as it was alleged, of the sales technique employed in selling the books. It was a plain statement of what it was claimed had been done in violation of the Act and gave the then respondents reasonable notice of what they would be called upon to meet in preparing their defense. It apparently served that purpose since at none of the hearings did their counsel request any adjournment because of surprise. No greater particularity in pleading was necessary. Mansfield Journal Co. v. Federal Communications Commission, 86 U.S.App.D.C. 102, 180 F.2d 28; N. L. R. B. v. Piqua Munising Wood Products Co., 6 Cir., 109 F.2d 552.

Though at the start of the hearings counsel for the Commission made it plain, in response to an inquiry by the trial examiner, that no conspiracy was charged but only that the respondents were acting in concert with their agents in making the sales in violation of the statute and the hearings proceeded on that basis, these petitioners persist in contending that they were entitled to full particulars, examination and discovery comparable to what is customary in anti-trust cases in which conspiracy is charged. However, this proceeding neither was nor need have been based on conspiracy. Section 5(b) of the Act, 15 U.S.C.A. § 45(b), requires that when the Commission has reason to believe the Act has been violated and it appears to it that a proceeding by it is in the interest of the public it shall issue and serve a complaint "stating its charges in that respect". The complaint here complied with that and in the absence of any specific instance of surprise which prejudiced the respondents the denial of a motion for a bill of particulars was harmless. Cf. N. L. R. B. v. Pacific Gas & Electric Co., 9 Cir., 118 F.2d 780. Moreover, these were stage by stage hearings and as was said of a bill of particulars in N. L. R. B. v. Remington Rand, Inc., 2 Cir., 94 F.2d 862, 873, "it is of slight value in a trial by hearings at intervals." For the same reasons, it was not erroneous to deny the motion for leave to inspect and copy or photograph the Commission's documentary evidence or data before the hearings began.

An examination of the record has disclosed that the charge of bias and prejudice made against the trial examiner was so unfounded that no discussion of that in detail would serve any useful purpose. There were times when the provocative conduct of counsel for these petitioners made the preservation of orderly procedure difficult and it seems clear that the charge of bias and prejudice grew out of resentment at rulings which were reasonably required to cope with that. Moreover, it should be noticed that the Commission reviewed the evidence and made findings of its own. The motion to substitute another trial examiner was not for the purpose of having new hearings in substitution for those already held, but to have the substituted examiner review the evidence taken and submit a recommended decision which after all would have been only what its name implies and since the Commission did make findings of its own, any possible bias on the part of the trial examiner in recommending decision, and we do not mean to suggest that any was shown, was so isolated as to be harmless. Cf. N. L. R. B. v. Air Associates, 2 Cir., 121 F.2d 586.

The Commission found that the misrepresentations charged in the complaint to have been made by agents of these petitioners were made by salesmen in selling the books...