Opinion ID: 410287
Heading Depth: 2
Heading Rank: 5

Heading: Cease and Desist Order.

Text: 61 Having held that the Commission's order concerning sign placement is invalid and is thus unenforceable, we now consider the operation of the remaining portion of the order, concerning the placement of the warranty binders. We have no difficulty with the order in the respect that it announces an interpretation of the rule that is to apply in the future. Our concern is with the retroactive effect of the cease and desist order. 62 The Commission is allowed wide latitude in determining what type of order is necessary to bring an end to the illegal practices found to exist. FTC v. National Lead Co., 352 U.S. 419, 428-29, 77 S.Ct. 502, 508-09, 1 L.Ed.2d 438 (1957) (unfair competition); Litton Industries, Inc. v. FTC, 676 F.2d 364, 370 (9th Cir.1982) (false advertising). The remedy selected by the Commission, however, must have a reasonable relation to the unlawful practices found to exist. FTC v. Colgate-Palmolive Co., 380 U.S. 374, 394-95, 85 S.Ct. 1035, 1048, 13 L.Ed.2d 904 (1965). Among the circumstances which should be considered in evaluating the relation between the order and the unlawful practice [is] whether the respondents acted in blatant and utter disregard of the law .... Standard Oil Co. of California v. FTC, 577 F.2d 653, 662 (9th Cir.1978). 63 In the case at hand, the Commission's order, in substance, requires Wards to comply with the one-binder-per-floor definition of ready access. Wards argues that the cease and desist order was an abuse of discretion. The basis of Wards's position is that its good faith efforts to comply with the rule demonstrate that no cognizable danger of recurrent violation[s] exists. See United States v. W.T. Grant Co., 345 U.S. 629, 633, 73 S.Ct. 894, 898, 97 L.Ed. 1303 (1953). Without some greater possibility of future violations, Wards argues, a cease and desist order is improper. 64 The FTC contests Wards's statements of good faith. It points out that approximately ten percent of Wards's stores were found to be in violation of the rule and that Wards's internal audit program is not yet consistent with the Commission's statement of the rule. As the Commission's order is not yet final and enforceable, see 15 U.S.C. Sec. 45(g), we are not persuaded by evidence of Wards's failure to comply with it. 65 The FTC also argues that this case involves a cease and desist order that applies prospectively only. While we agree that a cease and desist order leads only to future sanctions, we also note that those sanctions would not be possible except for Wards's conduct prior to the Commission's explanation of ready access in its order. If the FTC had utilized its rule-making proceedings to define ready access, this retroactivity problem would not exist. 19 We must therefore examine the retroactive effect of the order relating to the placement of the binders. 66 In balancing a regulated party's interest in being able to rely on the terms of a rule as it is written, against an agency's interest in retroactive application of an adjudicatory decision, a good framework for analysis is set forth in Retail, Wholesale and Department Store Union v. NLRB, 466 F.2d 380, 390-93 (D.C.Cir.1972). 20 67 Among the considerations that enter into a resolution of the problem are (1) whether the particular case is one of first impression, (2) whether the new rule represents an abrupt departure from well established practice or merely attempts to fill a void in an unsettled area of law, (3) the extent to which the party against whom the new rule is applied relied on the former rule, (4) the degree of the burden which a retroactive order imposes on a party, and (5) the statutory interest in applying a new rule despite the reliance of a party on the old standard. 68 Id. at 390. 69 In considering the first three criteria, we observe that the requirement of one binder per floor was not an abrupt departure from established practice. Although this is a case of first impression, Wards's involvement in the rule-making process would indicate that such a requirement would not be a complete surprise, or have misled Wards from a requirement upon which it had relied. Thus, these first three factors do not weigh heavily in Wards's favor. 70 The fourth factor relates to the burden imposed on Wards by enforcement of the order. Because the FTC takes the position that a cease and desist order acts prospectively only, it argues that the burden on Wards, if any, is miniscule. We are directed to our decision in NLRB v. Guy F. Atkinson Co., 195 F.2d 141 (9th Cir.1952), which involved approval of an order to cease and desist from recognizing a union. The nature of the order in Guy F. Atkinson is factually distinct, however, from that in the case at hand. There, the order dealt with a discrete restriction on contact between the employer and the union. Such an order presents a very small burden, as there is only a low potential for violation through poor oversight or inadvertence. To violate the order would almost necessarily require intentional disobedience. 21 71 Wards, on the other hand, is faced with an order containing innumerable variables, collectively presenting considerable opportunity for human frailty to allow non-complying conduct. Wards must control the placement and upkeep of many hundreds of binders in stores spanning the country. Any instance of non-compliance will subject Wards to a civil penalty of up to ten thousand dollars for each violation. 15 U.S.C. Sec. 45(l ). In contrast, non-compliance by Wards's competitors, who have now been clearly notified that large retail stores must have at least one set of binders per floor, will not result in fines, but rather in a cease and desist order. Thus, Wards is placed at a serious disadvantage compared to its competitors because of its conduct prior to the Commission's articulation of the one-per-floor standard. 72 The final question in our analysis is the regulatory interest in applying the new statement of the rule retroactively. The FTC argues that its inherent authority to interpret its rules would be vitiated if we were to decide not to enforce its order here. As is apparent from our earlier discussion, it was a close question whether the Commission's restatement of the ready access requirement constituted a proper interpretive decision, or was rather an inappropriate short cut to an amendment of the rule. There is no indication that, given a clear legal duty, Wards would not fully comply. It would seem, then, that the enforcement of the order would be of minor significance to the realization of the goals of the Act and of the pre-sale rule, and would place an unfair burden on Wards. We therefore conclude that the Commission's order may not be applied retroactively. IV