Opinion ID: 455766
Heading Depth: 2
Heading Rank: 2

Heading: Discerning Limits on the FTC's Authority to Define Unfair Practices

Text: 46 While both the Wheeler-Lee Amendment and the Magnuson-Moss Act legitimized and facilitated the Commission's consumer protection activities, neither shed much light on the standards to be used in identifying unfair acts or practices. Congress has not at any time withdrawn the broad discretionary authority originally granted the Commission in 1914 to define unfair practices on a flexible, incremental basis. 9 Courts have accordingly adopted a malleable view of the Commission's authority. See, e.g., FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 244, 92 S.Ct. 898, 905, 31 L.Ed.2d 170 (1972) (comparing FTC to a court of equity in carrying out implementation of the elusive, but congressionally mandated standard of fairness); Atlantic Refining Co. v. FTC, 381 U.S. 357, 367, 85 S.Ct. 1498, 1505, 14 L.Ed.2d 443 (1965) (Congress intentionally left the development of the term unfair to the Commission); R.F. Keppel & Bro., 291 U.S. at 310, 54 S.Ct. at 425 (Congress did not intend to confine forbidden practices to fixed and unyielding categories). Nonetheless as this court has stated: The Commission is hardly free to write its own law of consumer protection.... National Petroleum Refiners Ass'n, 482 F.2d at 693. The Commission's exercise of its unfairness authority in any particular instance is subject to judicial review and may be affirmed or set aside by the court. See Sperry & Hutchinson, 405 U.S. at 249, 92 S.Ct. at 907; R.F. Keppel & Bro., 291 U.S. at 314, 54 S.Ct. at 427. 47 The judiciary remains the final authority with respect to questions of statutory construction and must reject administrative agency actions which exceed the agency's statutory mandate or frustrate congressional intent. See, e.g., FEC v. Democratic Senatorial Campaign Comm., 454 U.S. 27, 32, 102 S.Ct. 38, 42, 70 L.Ed.2d 23 (1981); Volkswagenwerk v. FMC, 390 U.S. 261, 272, 88 S.Ct. 929, 935, 19 L.Ed.2d 1090 (1968); NLRB v. Brown, 380 U.S. 278, 291, 85 S.Ct. 980, 988, 13 L.Ed.2d 839 (1965); FTC v. Colgate-Palmolive Co., 380 U.S. 374, 385, 85 S.Ct. 1035, 1042, 13 L.Ed.2d 904 (1965). The Supreme Court has made clear, however, that in reviewing an agency's construction of a statute which it administers, courts must give deference to the agency's interpretation: 48 If Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation. Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute. 49 Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., --- U.S. ----, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984); see also Colgate-Palmolive Co., 380 U.S. at 385, 85 S.Ct. at 1042 (This Court has frequently stated that the [FTC's] judgment is to be given great weight by reviewing courts.). Thus we must perform our quintessential judicial function of determining whether the Commission has acted within the bounds of its statutory authority while at the same time according due deference to the Commission's judgment as to what constitutes an unfair practice. We do not understand the dissent to disagree with the foregoing principles of judicial review. See Dissent at 991-992. We are consequently taken aback by its characterization of our performance as being anesthetized by deference to the Commission. See Dissent at 998. In our view, it is the dissent that would stray outside the established bounds of judicial review and effectively usurp the role of the FTC. The dissent presents its own selective review of the Commission's stated rationale while disregarding the totality of the Commission's reasoning, and ultimately supplants the final judgment of all five Commissioners with respect to the wisdom of their determination that the taking of HHG security interests and wage assignments are unfair creditor practices. We decline to view our role so broadly. See Atlantic Refining Co., 381 U.S. at 367, 85 S.Ct. at 1505 ([O]ur function is limited to determining whether the Commission's decision 'has warrant in the record and a reasonable basis in law.' ) (quoting NLRB v. Hearst Publications, Inc., 322 U.S. 111, 131, 64 S.Ct. 851, 860, 88 L.Ed. 1170 (1944)). 50 The broad delegation of discretionary authority to the FTC to define unfair practices makes our task particularly difficult in this case. In ascertaining whether the FTC has exceeded the limits of its statutory authority by defining HHG security interests and wage assignments as unfair creditor practices we would be materially aided by a particularization of the congressionally intended legal standard for assessing the fairness of particular acts or practices. Yet, Congress has expressly declined to delineate such a legal standard claiming that the standard must be stated in broad terms to allow the Commission to respond to evolving market conditions and practices. If that were Congress' last word, the court would be left with two equally unattractive alternatives: articulating a legal standard of unfairness which Congress has expressly refused, on policy grounds, to articulate or deciding the reasonableness of the Commission's unfairness determination based on our own views of what should be deemed an unfair practice without benefit of any concrete standards for judgment. Fortunately recent interactions between Congress and the Commission provide the court with some tangible guideposts for review. 51 Considerable controversy developed during the mid to late seventies over the FTC's exercise of its consumer unfairness regulatory authority. Spurred on by the criticisms in the late sixties of the Commission's lack of effectiveness in the realm of consumer protection, the prodding of congressional committees, and the passage of the Magnuson-Moss Act, the Commission vigorously stepped up its consumer protection activities under its unfairness regulatory authority. See supra p. 967; H.R.Rep. No. 809, Pt. 1, 97th Cong., 2d Sess. 10-11 (1982). The Commission's new activism engendered commentators' criticism of the vagueness and breadth of the unfairness doctrine. 10 The controversy over the Commission's consumer protection activities peaked in the late-1970's with the Commission's particularly controversial foray into regulation of television advertising directed at children; the proposed rule would have completely prohibited the advertising of certain products during children's programming. 11 52 In response to this controversy, Congress enacted the Federal Trade Commission Improvements Act of 1980, Pub.L. No. 96-252, 94 Stat. 374 (codified as amended in scattered sections of 15 U.S.C.) which suspended the Commission's controversial rulemaking on children's advertising and placed a moratorium on the initiation of any new rulemakings aimed at regulating commercial advertising as an unfair practice pending congressional oversight hearings. 12 Although Congress has subsequently solicited statements and held oversight hearings on the question of whether the FTC's unfairness authority should be eliminated or permanently restricted, 13 it has taken no definitive legislative action to define the limits of that authority. Bills were introduced in both the 97th and 98th Congresses which would have amended section 5 to provide a definition of unfair acts or practices. 14 The definition proposed in these bills was the definition supplied by the Commission at the request of Congress in a 1980 policy statement. See Letter from Federal Trade Commission to Senators Ford and Danforth (Dec. 17, 1980), reprinted in H.R.Rep. No. 156, Pt. 1, 98th Cong., 1st Sess. 33-40 (1983) [hereinafter cited as Policy Statement with page references to H.R.Rep. No. 156]. 53 In its Policy Statement, subscribed to by all five Commissioners, the FTC responded to the criticism levelled at the Commission's implementation of its unfairness authority by delineating a concrete framework for the future application of that authority. See Policy Statement at 34 (This letter thus delineates the Commission's view of the boundaries of its consumer unfairness jurisdiction and is subscribed to by each Commissioner.). The Commission noted that Congress by framing section 5 in general terms expected the underlying criteria to evolve and develop over time, thus, [t]he present understanding of the unfairness standard is the result of an evolutionary process. See Policy Statement at 35. The Commission's Policy Statement was basically a refinement of an earlier three-part standard of unfairness it had set out in 1964. 54 In 1964 the Commission determined that enough cases had been decided to enable the Commission to identify three criteria used in determining whether a practice, which is neither anticompetitive nor deceptive, is nonetheless unfair to consumers. 55 (1) whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise--whether, in other words, it is within at least the penumbra of some commonlaw, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers (or competitors or other businessmen). 56 Unfair or Deceptive Advertising and Labeling of Cigarettes in Relation to the Health Hazards of Smoking, Statement of Basis and Purpose, 29 Fed.Reg. 8355 (1964). The Commission noted that the Supreme Court cited these criteria with apparent approval in Sperry & Hutchinson, 405 U.S. at 244-45 n. 5, 92 S.Ct. at 905-906 n. 5. See Policy Statement at 36 & n. 9 (citing Spiegel, Inc. v. FTC, 540 F.2d 287, 293 n. 8 (7th Cir.1976); Heater v. FTC, 503 F.2d 321, 323 (9th Cir.1974)). The Supreme Court appended footnote 5, citing what have come to be termed the S & H criteria, to the following statement comparing the FTC to a court of equity: 57 [T]he Federal Trade Commission does not arrogate excessive power to itself if, in measuring a practice against the elusive, but congressionally mandated standard of fairness, it, like a court of equity, considers public values beyond simply those enshrined in the letter or encompassed in the spirit of the antitrust laws. 58 Sperry & Hutchinson, 405 U.S. at 244, 92 S.Ct. at 905. In Sperry & Hutchinson, the Supreme Court thus put its stamp of approval on the Commission's evolving use of a consumer unfairness doctrine not moored in the traditional rationales of anticompetitiveness or deception. 15 59 In its 1980 policy statement addressed to Congress, the Commission stated that since Sperry & Hutchinson, the Commission has continued to refine the standard of unfairness in its cases and rules, and it has now reached a more detailed sense of both the definition and the limits of these criteria. Policy Statement at 36. The Commission set forth the following standard for identifying practices which are unfair to consumers: 60 To justify a finding of unfairness the injury must satisfy three tests. It must be substantial; it must not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and it must be an injury that consumers themselves could not reasonably have avoided. 61 Id. It was this standard that the Commission relied on in determining that the taking of HHG security interests and wage assignments were unfair practices. See Credit Practices Rule, 49 Fed.Reg. at 7743. 62 While the Commission's three-part unfairness standard sets forth an abstract definition of unfairness focusing on unjustified consumer injury, it does little towards delineating the specific kinds of practices or consumer injuries which it encompasses. 16 Yet petitioners' challenge in this case raises the exact question left open by the Commission's standard--what specific types of unfair practices and resultant consumer injuries are cognizable? Petitioners' claim that the Commission has exceeded its statutory authority to proscribe unfair practices is predicated on their arguments that the FTC has no authority to proscribe the kinds of practices or prevent the kinds of consumer injury at issue in this case. Thus despite the Policy Statement's purpose of providing greater certainty in application of the unfairness doctrine, it falls short of providing any concrete guidance to the court in resolving the issues raised by petitioners in this case. To date, however, the consumer injury test is the most precise definition of unfairness articulated by either the Commission or Congress. 17 Thus we determine the validity of the Commission's actions by reviewing the reasonableness of the Commission's application of the consumer injury test to the facts of this case, and the consistency of that application with congressional policy and prior Commission precedent. See Atlantic Refining Co., 381 U.S. at 367, 85 S.Ct. at 1505 (Where the Congress has provided that an administrative agency initially apply a broad statutory term to a particular situation, our function is limited to determining whether the Commission's decision 'has warrant in the record and a reasonable basis in law.' ) (quoting NLRB v. Hearst Publications, Inc., 322 U.S. 111, 131, 64 S.Ct. 851, 860, 88 L.Ed. 1170 (1944)). 63