Source: http://pa.findacase.com/research/wfrmDocViewer.aspx/xq/fac.19760908_0040051.C03.htm/qx
Timestamp: 2017-01-18 12:18:25
Document Index: 764115208

Matched Legal Cases: ['§ 45', '§ 45', '§ 7216', '§ 5', '§ 5', '§ 316', '§ 7216', '§ 45', '§ 5', '§ 5', '§ 316', '§ 5', '§ 5', '§ 316', '§ 316', '§ 316', '§ 5', '§ 316', '§ 5']

| Beneficial Corp. v. Federal Trade Commission
Beneficial Corp. v. Federal Trade Commission
filed: September 8, 1976; As Amended September 14, 1976.
BENEFICIAL CORPORATION, A DELAWARE CORPORATION, AND BENEFICIAL MANAGEMENT CORPORATION, A DELAWARE CORPORATION, PETITIONERS,v.FEDERAL TRADE COMMISSION, RESPONDENT
ON PETITION FOR REVIEW OF AN ORDER OF THE FEDERAL TRADE COMMISSION (Federal Trade Commission No. 8922)
Van Dusen, Gibbons and Rosenn, Circuit Judges. Van Dusen, Circuit Judge, dissenting and concurring in part.
We here consider a petition for review of a final order of the Federal Trade Commission, filed pursuant to 15 U.S.C. § 45(c). The order directed the petitioner Beneficial Corporation to cease and desist from certain practices in connection with its loan and tax preparation business.*fn1 Beneficial challenges both the Commission's violation determinations and the breadth of its remedy. We enforce the Commission's order in part, but vacate and remand in part because we conclude that the order is overbroad in one respect.
On April 10, 1973, the Federal Trade Commission filed a complaint charging Beneficial with unfair and deceptive trade practices in connection with the preparation of income tax returns and the making of consumer loans in the loan offices of the Beneficial Finance System, in violation of section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. Beneficial, through 1400 branches operated by wholly-owned subsidiaries comprising the Beneficial Finance System, engaged in the business of making loans to members of the public based on their credit-worthiness. In the spring of 1969 Beneficial decided to go into the business of income tax return preparation. Because of developments in computer technology, Beneficial's loan officers were able to gather the information necessary for a computer to prepare tax returns accurately and at reasonable cost. The decision to enter the tax return preparation business was based on the belief that customers for the service who needed funds to pay the tax found to be due would find it convenient to borrow such funds from Beneficial. It soon became apparent, however, that most such customers would actually receive tax refunds. Beneficial decided to advertise a loan providing for an immediate use of money in anticipation of the tax refund, thus eliminating the wait for a refund check from the government. The Commission and Beneficial agreed that the tax refund loan is nothing other than Beneficial's usual loan service, based on the credit-worthiness of the borrower as to which the anticipated tax refund may have no bearing. The parties differed on (1) whether the advertising of the loan deceived customers as to its nature, and (2) whether Beneficial improperly used the tax information it obtained in its tax return preparation service to solicit customers for loans. After an evidentiary hearing an administrative law judge on October 21, 1974, found Beneficial to be in violation in both respects. The Commission affirmed this decision on July 15, 1975, and entered a cease and desist order which, among other things, prohibited Beneficial from using in its copyrighted advertising the term "'instant tax refund,' or any other word or words of similar import or meaning," and from using customer tax information in loan solicitations except under prescribed conditions.
"Do you have a refund coming to you on your income taxes this year? Well, there's no need to wait weeks for your refund check. Get the money right now - even before you mail your return - with a cash advance from Beneficial. We call it the Instant Tax Refund, a special service of Beneficial Finance Instant Tax Refund. At Beneficial you're good for more. . . ."
General rule. - Any person who is engaged in the business of preparing, or providing services in connection with the preparation of returns of the tax imposed by chapter 1, or declarations or amended declarations of estimated tax under section 6015, or any person who for compensation prepares any such return or declaration for any other person, and who -
This statute establishes a general prohibition against the disclosure or use for non-tax purposes of tax information gathered by a tax preparer like Beneficial. Treasury regulations adopted in 1974 under the authority of § 7216(b)(3), however, permit*fn2 the use of such information with the customer's written consent.*fn3 The new law compelled Beneficial to alter its solicitation practices. In attempting to comply with the requirements, Beneficial adopted a Form BOR-56, reproduced in the margin in its entirety,*fn4 and required that its loan officers first procure a tax return customer's signature on that form before soliciting the customer for a loan. The Commission held that the pre-1972 use of tax information for loan solicitations was an unfair and deceptive trade practice amounting to an abuse of a confidential relationship, in violation of § 5. It also held that Form BOR-56 was inadequate as an informed consent. Without deciding whether Beneficial's present practices violated the Revenue Act of 1971, the Commission held that those practices continued to violate § 5 and entered an order prohibiting Beneficial from:
9. A statement by the taxpayer that he consents to the use of such information for the specific purpose described in subparagraph (3) of this paragraph.
Nothing in the above provision is intended to relieve respondents of any further requirements imposed on them by the Revenue Act of 1971, Pub. L. 92-178, title III, § 316(a), December 10, 1971; 26 U.S.C. § 7216 or regulations issued pursuant to it."
At the outset, Beneficial contends that the Commission's finding that its "Instant Tax Refund" advertising campaigns were deceptive lacks evidentiary support, and that in the absence of such a finding, supported by record evidence, no order could properly have been entered respecting its advertising. Section 5(c) of the Act, 15 U.S.C. § 45(c), provides that "[the] findings of the Commission as to the facts, if supported by evidence, shall be conclusive" upon review in the Court of Appeals. The law is clear that properly interpreted, the statute requires review by the substantial evidence in the record as a whole standard.*fn5 The parties agree that the tendency of the advertising to deceive must be judged by viewing it as a whole, without emphasizing isolated words or phrases apart from their context.*fn6 An intent to deceive is not an element of a deceptive advertising charge under § 5.*fn7 Moreover, the FTC has been sustained in finding that advertising is misleading even absent evidence of that actual effect on customers; the likelihood or propensity of deception is the criterion by which advertising is measured.*fn8 Whether particular advertising has a tendency to deceive or mislead is obviously an impressionistic determination more closely akin to a finding of fact than to a conclusion of law. Cf. FTC v. Colgate-Palmolive Co., 380 U.S. 374, 385, 13 L. Ed. 2d 904, 85 S. Ct. 1035 (1965). At the same time, evidence that some customers actually misunderstood the thrust of the message is significant support for the finding of a tendency to mislead.
The initial advertising quoted above (1969-early 1970) did not indicate, at least in words, that the offered "advance" was actually a loan, that the customer would have to meet regular standards of credit-worthiness, or that if the customer had a satisfactory credit rating, he could obtain a Beneficial loan even though he was not a tax return preparation customer. Beneficial's own advertising agency reported that the initial campaign resulted in fairly widespread public confusion as to the nature of the "refund" being offered. The Commission concluded:
This finding is supported by substantial evidence. While not conceding the validity of the Commission's finding with respect to the initial advertising, Beneficial does not seriously dispute that we must accept it. It contends, however, that because the early text was soon abandoned with no prompting from the Commission, the finding cannot support a cease and desist order. But this and other courts have held that at least where a discontinued deceptive trade practice could be resumed, the prior practice may be the subject of a cease and desist order.*fn9 Here the Commission's complaint was not filed until three years after the early advertising was discontinued, and there is no evidence from which the Commission could infer that it would in the early form be repeated. Beneficial urges that the entry of a cease and desist order in such circumstances, based solely on the early violations, would amount to an abuse of discretion.*fn10
We need not decide that issue in this case, however, for we conclude that the Commission's finding that even the later advertising had a tendency to deceive or mislead has a sufficient evidentiary support in the record as a whole. The testimony of some consumers, credited by the Commission, was that during the later period they failed to understand that Beneficial was offering only its normal loan service with normal finance charges. Their impression was that the main qualification for the Instant Tax Refund loan was entitlement to an actual government refund. These consumers may well have been singularly dense.*fn11 They were, nevertheless, a part of the audience to which the advertisements were directed. We cannot second guess the Commission's finding respecting the later advertising. FTC v. Colgate-Palmolive Co., supra; Fedders Corp. v. FTC, 529 F.2d 1398, 1403 (2d Cir. 1976), cert. denied, 429 U.S. 818, 97 S. Ct. 63, 50 L. Ed. 2d 79 (1976). Thus whether or not the Commission could have acted solely on the basis of the earlier advertising, it certainly did not abuse its discretion in concluding that some remedy was still appropriate since the confusion persisted.
We do not believe that the Commission's conclusion as to the capacity of qualifying language to apprise Beneficial's audience of the true nature of the offered service can be sustained. We acknowledge, of course, that we are ordinarily obliged to defer broadly to the Commission's exercise of informed discretion in framing remedial orders that bear some rational relationship to the removal or prevention of an established violation. See FTC v. National Lead Co., 352 U.S. 419, 1 L. Ed. 2d 438, 77 S. Ct. 502 (1957); FTC v. Colgate-Palmolive Co., supra; Windsor Distributing Co. v. FTC, 437 F.2d 443, 444 (3d Cir. 1971) (per curiam); Consumer Products of America, Inc. v. FTC, 400 F.2d 930, 933 (3d Cir. 1968). But we are dealing in this case with the government regulation of a form of speech. The first amendment requires, we believe, an examination of the Commission's action that is more searching than in other contexts.
It is now established beyond dispute that there is no commercial speech exception to the first amendment. See Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 96 S. Ct. 1817, 48 L. Ed. 2d 346, 44 U.S.L.W. 4686 (1976); Bigelow v. Virginia, 421 U.S. 809, 44 L. Ed. 2d 600, 95 S. Ct. 2222 (1975); see also Young v. American Mini Theatres, Inc., 427 U.S. 50, 96 S. Ct. 2440, 49 L. Ed. 2d 310, 44 U.S.L.W. 4999 (1976). That does not mean that an advertiser may engage in speech that is an essential part of a scheme to violate an otherwise valid law. Pittsburgh Press Co. v. Pittsburgh Commission on Human Relations, 413 U.S. 376, 388, 37 L. Ed. 2d 669, 93 S. Ct. 2553 (1973). It does mean that the remedy for the perceived violation can go no further in imposing a prior restraint on protected commercial speech than is reasonably necessary to accomplish the remedial objective of preventing the violation. See, e.g., United States v. O'Brien, 391 U.S. 367, 382, 20 L. Ed. 2d 672, 88 S. Ct. 1673 (1968); New Jersey State Lottery Commission v. United States, 491 F.2d 219 (3d Cir. 1974) (en banc), vacated as moot, 420 U.S. 371, 95 S. Ct. 941, 43 L. Ed. 2d 260 (1975); Veterans & Reservists For Peace in Vietnam v. Regional Commissioner of Customs, 459 F.2d 676 (3d Cir.), cert. denied, 409 U.S. 933, 34 L. Ed. 2d 188, 93 S. Ct. 232 (1972); Linmark Associates, Inc. v. Township of Willingboro, 535 F.2d 786, slip. op. at 49-54 (3d Cir. 1976)(Gibbons, J., dissenting).
Even before the demise of Valentine v. Chrestensen, 316 U.S. 52, 86 L. Ed. 1262, 62 S. Ct. 920 (1942), was heralded in Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., supra, and Bigelow v. Virginia, supra, the Supreme Court held that the Federal Trade Commission abused its discretion in ordering the excision from advertising of a valuable business asset like a trade name without considering whether modification of the message could eliminate the objectionable portion. Jacob Siegel Co. v. FTC, 327 U.S. 608, 90 L. Ed. 888, 66 S. Ct. 758 (1946); FTC v. Royal Milling Co., 288 U.S. 212, 77 L. Ed. 706, 53 S. Ct. 335 (1933). The Second Circuit has said that where qualifying explanatory language does not inherently contradict the advertiser's identifying language it should be accepted in preference to requiring excision. Elliot Knitwear, Inc. v. FTC, 266 F.2d 787, 790 (2d Cir. 1959). The Commission attempts to distinguish these authorities on the ground that no combination of words in which "instant" and "refund" appear in a proximate relationship can avoid conveying the impression that Beneficial is offering an instant tax refund from the government rather than an instant loan. We do not believe that the following examples convey that impermissible impression:
We reject the limiting construction that the Commission attaches to Royal Milling. This conclusion is based in part upon the difficulty we have in accepting the Commission's differentiation between trade names and copyrighted advertising material - a distinction without a difference in the spirit of Royal Milling. The conclusion is reached not unmindful of the long shadow cast by the first amendment, however, for doubtless the Commission's broad construction of its § 5 remedial authority cannot survive the demise of the commercial speech exception to the first amendment. While Royal Milling in terms merely describes a statutory limitation upon the Commission's remedial power in a particular class of cases, the rule it announced has subsequently evolved into a general statement of constitutional principle.
Beneficial does not contend that the use of the tax information in loan solicitation, absent § 316 of the Revenue Act of 1971, is a subject matter beyond the reach of the Commission's § 5 authority. Rather, it contends that the latter statute and the Treasury Regulations issued thereunder preempt the field, that it is now in full compliance with those regulations, and that the Commission's order requiring more is invalid. While admitting that § 5 originally gave the Commission authority to find unfair trade practices in relation to tax preparation services, Beneficial argues that § 316 was intended by Congress to circumscribe that power. Nothing on the face of § 316 supports that construction, and we have been referred to no legislative history which would tend to suggest such an intention.*fn12 The criminal prohibition in § 316 appears to be directed at preserving the confidentiality of tax return information except under specified circumstances. Enforcement under § 5 of the Federal Trade Commission Act, in contrast, is aimed at preventing unfair and deceptive acts and practices. There is nothing inconsistent between the two policies, and there is no reason for attributing to Congress the intention of reducing the Commission's power to prevent deception or unfairness. If the Commission had directed conduct which is inconsistent with the confidentiality policy of § 316, we could understand Beneficial's objection. But in this case the Commission is pursuing a separate governmental objective in a manner wholly consistent with that policy. That the Commission's order goes beyond the requirements of Treasury Regulation 301.7216-3 in several insignificant respects seems to us unexceptionable. Nor does Beneficial's contention*fn13 that the Internal Revenue Service has approved its Form BOR-56 change our view. Assuming such approval, nothing in the Revenue Act of 1971 or any other statute confers on the Internal Revenue Service authority to determine what is an appropriate remedy for a violation of § 5 of the Federal Trade Commission Act.
The petition for review will be granted insofar as the Commission's order requires total excision of the words "Instant Tax Refunds" from all Beneficial advertising. That part of the order will be set aside and the case remanded to the Commission for further proceedings consistent with Part IIB of this opinion. In all other respects the petition for review will be denied.
I respectfully dissent from part II-B of the majority opinion,*fn1 which states that the Commission did not consider whether modification of the message advertised could eliminate the objectionable, deceptive portion of such message. The majority opinion overlooks this language of the Commission's opinion (part II-C):
"In some instances, it is true, respondents have been allowed to retain trade names which had become valuable business assets, because the misleading qualities of the names could be dispelled by explanation. . . . If explanatory language is insufficient to qualify a deceptive trade name or is inherently contradictory, its effect is simply to confuse the public and the Commission in framing a proper remedy must excise the offending phrase altogether. [Citations omitted.] Moreover, the Commission has wide latitude in judgment, particularly in determining whether qualifying words will eliminate a deceptive trade name . . . .
[Footnotes omitted.] (1198a-1200a)
Given the Commission's consideration of the possibility of a lesser remedy, its broad discretion, and Beneficial's inability to produce an advertisement which was not misleading, I believe the excision order should be sustained. See Baker's Franchise Corp. v. FTC, 302 F.2d 258, 262 (3d Cir. 1962), where this court said: "The matter of the choice of remedy is one for the Commission." See also cases cited at the top of page 13 of the majority opinion. At the least, I believe the Commission in the first instance should be permitted to consider any new advertisements using the Instant Tax Refund language before they are used.
Although it is now clear that commercial speech enjoys "some" First Amendment protection, the Supreme Court has been careful to state that "regulatory commissions may prohibit businessmen from making statements which, though literally true, are potentially deceptive." Young v. American Mini Theatres, Inc., 427 U.S. 50, 96 S. Ct. 2440, 49 L. Ed. 2d 310, 44 U.S.L.W. 4999, 5004 and n.31 (1976); see Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 96 S. Ct. 1817, 48 L. Ed. 2d 346, 44 U.S.L.W. 4686, 4693 and n.24 (1976), where the Court said: "The First Amendment, as we construe it today, does not prohibit the State from insuring that the stream of commercial information flows cleanly as well as freely."
In Young v. American Mini Theatres, Inc., supra at 5004 n.31, the Court stated: "The power of the Federal Trade Commission to restrain misleading, as well as false, statements in labels and advertisements has long been recognized [citing cases]."
In Jacob Siegel Co. v. Federal Trade Commission, 327 U.S. 608, 90 L. Ed. 888, 66 S. Ct. 758 (1946), the Court repeatedly emphasized the "limited" scope of our review of Commission discretion. In Siegel, the record did not indicate whether a remedy short of excision had been considered or would be adequate. The Court declined to hold that excision was inappropriate and simply remanded for consideration of a more limited remedy. See also Federal Trade Commission v. Algoma Lumber Co., 291 U.S. 67, 78 L. Ed. 655, 54 S. Ct. 315 (1934) (upholding an excision order).
Here the Commission has considered and rejected a more limited remedy, and the Siegel case states at page 613 that: "The courts will not interfere except where the remedy selected has no reasonable relation to the unlawful practices found."