U.S. v. Johnson, 75-1959

• Decision Date: 21 September 1976
• Docket Number: No. 75-1959,75-1959
• Parties: 1976-2 Trade Cases 61,041 UNITED STATES of America, Appellee, v. Charles R. JOHNSON, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 710

541 F.2d 710

1976-2 Trade Cases 61,041

UNITED STATES of America, Appellee, v. Charles R. JOHNSON, Appellant.

No. 75-1959.

United States Court of Appeals Eighth Circuit.

Submitted May 13, 1976.

Decided Aug. 31, 1976.

Rehearing and Rehearing En Banc Denied Sept. 21, 1976.

Theodore F. Schwartz, Clayton, Mo., for appellant.

Susan J. Atkinson, Atty., Dept. of Justice, Washington, D. C., for appellee; Thomas E. Kauper, Asst. Atty. Gen., Carl D. Lawson, Atty., Dept. of Justice, Washington, D. C., on brief.

Before HEANEY and HENLEY, Circuit Judges, and SCHATZ, District Judge. ^*

SCHATZ, District Judge.

The United States brought suit pursuant to 15 U.S.C. § 45(l ) against Charles R. Johnson for civil penalties for twenty violations of a cease and desist order issued by the Federal Trade Commission and for an injunction requiring Johnson to comply with the order. The District Court ¹ found that the Federal Trade Commission order was directed against both Technical Education Corporation (T.E.C.) and Johnson who was responsible for the actions of the T.E.C. salesmen, that the order had been violated on twenty occasions, and that providing a copy of the cease and desist order to T.E.C. salesmen was not a defense to the action. Johnson was fined a total of $40,000 and permanently enjoined from violating the terms of the F.T.C. order. Johnson appeals, arguing that he should not be held individually liable for the violations. We affirm the District Court.

Mr. C. R. Johnson was the president and sole stockholder of Technical Education Corporation, a company organized by Johnson to promote and to conduct home study courses in the field of data processing. The Federal Trade Commission consent decree of July 29, 1969, which became effective October 9, 1969, directed T.E.C., its officers, agents and employees, and Johnson, individually and as an officer of the corporation, to cease utilizing specific promotional methods which were found to be unfair methods of competition and unfair and deceptive acts and practices in violation of the Federal Trade Commission Act.

The propriety of including a person both as an individual and as a corporate officer in a cease and desist order has consistently been upheld in instances where the person included was instrumental in formulating, directing and controlling the acts and practices of the corporation. F. T. C. v. Standard Education Society, 302 U.S. 112, 58 S.Ct. 113, 82 L.Ed. 141 (1937); Standard Distributors v. F. T. C., 211 F.2d 7 (2d Cir. 1954); Benrus Watch Company v. F. T. C., 352 F.2d 313 (8th Cir. 1965).

Johnson did not directly challenge his inclusion in the July 29, 1969, order by appeal and does not urge its impropriety in this action. Nor does he challenge the finding of the lower court that the alleged violations did occur. His position is that he attempted in good faith to assure compliance with the F.T.C. order by informing T.E.C. salesmen of the order, that any subsequent violations of the order by T.E.C. employees can only be attributed to the corporation, and that as a result he should not be held individually responsible for the acts of those who are not his agents.

The Federal Trade Commission in the interests of protecting the public against methods of unfair competition and unfair and deceptive trade practices ordered T.E.C. and Johnson to refrain from engaging in certain practices in advertising and offering for sale home study courses in the electronic data processing field. The effect of this order was to impose on Johnson an affirmative duty to assure that T.E.C., the company which he founded, owned and operated, would cease using the promotional practices which the F.T.C. found to be in violation of the law. This duty could not be discharged by Johnson if he simply did nothing. See In Re Dolcin Corp., 101 U.S.App.D.C. 118, 247 F.2d 524 (1956), cert. denied, 353 U.S. 988, 77 S.Ct. 1285, 1 L.Ed.2d 1143 (1957).

Johnson argues that by providing each salesman with a copy of the F.T.C. order he acted in good faith to assure compliance with the order. But from the evidence presented in the court below, it clearly appears that this effort was superficial at best. The order was a small part of the sales packet provided to new salesmen when they were hired. Its import appears not to have been emphasized in the process of training new salesmen. While Johnson formulated, directed and controlled the operations of T.E.C., the evidence indicates widespread use of methods of solicitation of prospective customers which were specifically prohibited by the cease and desist order. The philosophy communicated to T.E.C. salesmen was to enroll any person who could "walk and chew gum at the same time." In short, we are not persuaded that Johnson in good faith did everything in his power as the chief executive of T.E.C. to assure compliance with the F.T.C. order.

In any case the good faith effort of the person to whom the cease and desist order is addressed to assure compliance with that order is generally not a defense to an action for civil penalties for violation. See United States v. Beatrice Foods Company, 344 F.Supp. 104 (Supp.Op. 351 F.Supp. 969) (D.Minn.1972), aff'd, 493 F.2d 1259 (8th Cir. 1973), cert. denied, 420 U.S. 961, 95 S.Ct. 1350; United States v. Ancorp National Services, Inc., 516 F.2d 198 (2d Cir. 1975), affirming 367 F.Supp. 1221 (S.D.N.Y.1974); Guziak v. F. T. C., 361 F.2d 700 (8th Cir. 1966); United States v. Vitasafe Corporation, 212 F.Supp. 397 (S.D.N.Y.1962), and United States v. H. M. Prince Textiles, Inc., 262 F.Supp....