United States Retail Credit Association, Inc. v. FTC

• Decision Date: 28 February 1962
• Docket Number: No. 8335.,8335.
• Citation: 300 F.2d 212
• Parties: UNITED STATES RETAIL CREDIT ASSOCIATION, INCORPORATED, a corporation, and its officers, George M. Hyde and William C. Childs, individually and as officers of said corporation, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Fourth Circuit

300 F.2d 212 (1962)

UNITED STATES RETAIL CREDIT ASSOCIATION, INCORPORATED, a corporation, and its officers, George M. Hyde and William C. Childs, individually and as officers of said corporation, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.

No. 8335.

United States Court of Appeals Fourth Circuit.

Argued October 5, 1961.

Decided February 28, 1962.

Walter E. Gallagher, Washington, D. C. (Gallagher, Connor & Boland, Washington, D. C., and Wayne R. Milburn, Painesville, Ohio, on brief), for petitioners.

Thomas F. Howder, Atty., F. T. C., Washington, D. C. (James McI. Henderson, Gen. Counsel, Alan B. Hobbes, Asst. Gen. Counsel, and John W. Carter, Jr., Atty., F. T. C., Washington, D. C., on brief), for respondent.

Before SOBELOFF, Chief Judge, and BOREMAN and BRYAN, Circuit Judges.

BOREMAN, Circuit Judge.

This case is here on petition for review of a cease and desist order issued by the Federal Trade Commission at the conclusion of an administrative proceeding wherein United States Retail Credit Association, Incorporated, hereinafter referred to as "Association, Inc.," William C. Childs and George M. Hyde¹ (the two named persons individually and as officers of said corporation) were found to be violating the Federal Trade Commission Act.²

In May 1959 the Commission issued its complaint alleging that the accused were engaged in the business of operating, in interstate commerce, a collection agency and "have been in substantial competition" with others engaged in the same business; that through the use of the name of the corporation and the name "United States Retail Credit Association", through reference to subscribers to Association, Inc.'s service as "Members of United States Retail Credit Association", through dissemination to the public of many false, misleading and deceptive statements and representations, more particularly hereinafter described and explained, the accused had falsely represented that Association, Inc., was, and carried on the business of, a retail credit association on behalf of its "members." The accused, while admitting certain acts and practices, denied that the same constituted unfair methods of competition in violation of the Federal Trade Commission Act.

Evidence was taken before a hearing examiner who filed his initial decision containing his findings, conclusions and a cease and desist order.³ On appeal, the Commission set aside the examiner's decision, made its own findings of fact, stated its own conclusions and enlarged the cease and desist order.⁴ There were no material conflicts in the evidence and thus the credibility of the witnesses is not involved. The basic facts which will be later set forth are not in dispute.

In May 1956, Hyde organized and secured a charter of incorporation for Association, Inc., a stock corporation organized for profit. The corporation's office and principal place of business is located in rented property at 1423 Mentor Avenue, Mentor, Ohio. It appears from the evidence that, prior to the organization of Association, Inc., George M. Hyde operated a collection agency under the name of "Security Credit Acceptance Corporation," of which he was the dominant stockholder. In this operation William C. Childs was "Collection Correspondent" and the business was conducted from a building at 1420 Mentor Avenue, Mentor, Ohio. Before going with Mr. Hyde, Childs worked for another collection agency and before that he was in the poultry business. Insofar as shown by the record, the principal business experience of Hyde and Childs was that of operating a collection agency. All the stock of Association, Inc., is owned by Hyde and his wife. Hyde became president and later Childs became Secretary-Treasurer.

The accused are engaged in selling a service to business and professional men. By the terms of a contract entitled "Official Membership Application and Agreement," Association, Inc., furnishes to a subscriber a portfolio called the "Credit Secretary," containing (1) a metal membership emblem, (2) a supply of stickers, (3) a booklet containing "Official Delinquency Notices and Association Forwarding Data," (4) blank forms for listing accounts forwarded under the terms of the contract to Association, Inc., for collection, and (5) a booklet of "Official Goodwill Budget Plan Notes."

The metal membership emblem, to be displayed in the subscriber's office or place of business, announces that unpaid accounts are forwarded to the United States Retail Credit Association and advises patrons to "Protect Your Credit Rating — Pay Accounts Promptly When Due." It also bears the legend, "Member of United States Retail Credit Association." The stickers are of red paper and in the shape of a shield. Imprinted thereon in white letters are the words, "Member — Past Due Accounts sent to the United States Retail Credit Association for Collection." These stickers are to be pasted on monthly statements mailed by the subscribers to charge account customers. If the debtor continues in default, the subscriber mails an "Official Delinquency Notice" which advises that unless prompt payment is made the account will be forwarded to the Association for collection. The forms are to assist the subscribers in collecting their own accounts before seeking help from Association, Inc.

Each subscriber is entitled to forward to Association, Inc., a specified number of accounts for collection, varying according to the amount of enrollment fee paid. There are eleven different enrollment fees ranging from $40 to $720. A subscriber paying a fee of $40 is entitled to forward to Association, Inc., thirty-five accounts for collection during the year; one paying the maximum fee is entitled to forward seven hundred accounts for collection. No charges are made by Association, Inc., for collecting these accounts until it has collected and remitted to the subscriber an amount equal to the enrollment fee paid; thereafter a fee of 15% is charged on all accounts collected. It is undisputed that Association, Inc., is in substantial competition in interstate commerce with others engaged in the business of collecting delinquent accounts.

It was found that the accused feature the full corporate name of Association, Inc., as well as the name, "United States Retail Credit Association," and refer to their subscribers as "Members of United States Retail Credit Association." The Commission found that by this means the accused represent that Association, Inc., is a retail credit association composed of retail credit men banded together for the mutual benefit of the members and for educational and social purposes; that these representations are false, misleading and deceptive; that Association, Inc., is not a retail credit association and is not engaged in carrying on such activities for members; that the accused are engaged, essentially, in the sale of materials for their subscribers' use in collecting their accounts and in furnishing a collection service to those of their "members" who forward delinquent accounts for collection. The accused identify their business as a "nationwide association of business and professional men dedicated to the preservation and maintenance of sound credit practices." The Commission found that the accused thereby represent that their business is an association composed of business and professional men banded together for the compilation, maintenance and dissemination of credit information for members and represent that their organization is nationwide in scope, operation and coverage. Such representation the Commission found to be false, misleading and deceptive since the accused are not an association and do not operate an association of business or professional men of any kind for any purpose. The Commission further found that the accused have made many statements in reference to the nature, extent and size of their business, the length of time in which it has been in operation and the services afforded to subscribers;⁵ that Association, Inc., had been in business only about four years; that it does not have professional collectors throughout the United States, all collection activities being conducted from offices in Mentor, Ohio, and limited to contacting delinquent debtors through the mails; that there are no investigations made through banks, employers or others; that the accused did not issue credit reports; that there are no branch offices in various sections of the United States.

The Commission reached the conclusion that the use by the accused of these false and misleading statements and representations had the capacity and tendency to mislead the public, including business concerns and debtors, into the mistaken belief that such statements were true, resulting in substantial trade being unfairly diverted to the accused from their competitors.

We get the impression that the accused are laboring under the mistaken idea that if the Commission's order be upheld, they will be forced to discontinue their present business. In their brief they state: "Therefore, it is obviously incongruous for this Commission to seek to deprive the Petitioner Association from engaging in a legitimate business * * *." However, we find nothing to indicate that the Commission is here attempting to prevent the accused from continuing to engage in the business of operating a collection agency or service which the Commission finds to be their real and only business. The Commission's primary and basic objective is to require discontinuance of the unlawful use of representations calculated to deceive and create the false impression that their business is other than that in which they are actually engaged.

One of the principal points raised on review is that the Commission's findings, insofar as they are in conflict with those of the examiner, are not supported by substantial evidence and should be set aside. The accused urge support and approval of the examiner's findings and conclusions which,...