Opinion ID: 366386
Heading Depth: 2
Heading Rank: 1

Heading: Shift in the Burden of Proof

Text: 5 Petitioners contend that the requirement of full and complete substantiation prior to its representation of the safety and performance of any product evidences an explicit intention . . . to relieve the Commission of its burden of proving any alleged falsity of safety or performance representations made by Petitioners for any product. There is no doubt that the Commission has the burden of proof in administrative proceedings precedent to the issuance of a cease and desist order; petitioners correctly cite to Section 4(d) of the Administrative Procedure Act, 5 U.S.C. § 556(d), and the Commission's Rules of Practice for Adjudicative Proceedings, 16 C.F.R. § 3.43(a), in support of this principle. 11 6 The precise claim, however, is that the practical effect of the Commission's order brings about a shift of burden of proof in a subsequent proceeding in a federal district court under Section 5(L ), 15 U.S.C. § 45(L ), to enforce a cease and desist order. For example, petitioners say, if they advertise Brand X as 100% Effective, the Commission may, utilizing the order, challenge the claim as without substantiation, without regard to whether the representation is true or false; and once the Commission raises this challenge petitioners would have the burden of producing competent and objective material available in written form to rebut the charge. 7 This court in Federated Nationwide Wholesalers Service v. FTC, 398 F.2d 253 (2d Cir. 1968), held that the shifting of the Commission's burden in a subsequent enforcement proceeding was impermissible. But see S. S. S. Co. v. FTC, 416 F.2d 226, 229 (6th Cir. 1969). However, it was the specific wording of the order at issue in Federated that brought about the shift. In Federated, the Commission's order coupled an express prohibition against a seller's representation that it was a wholesaler or sold merchandise at wholesale prices with a proviso that the seller would have a defense in any enforcement proceeding if the seller made substantial sales to retailers or if the prices did not exceed the prices paid by retailers. But one obvious problem with the order was that it did not take into account the evidence in the record that 40% Of the . . . sales (we)re made to retailers and (we)re therefore wholesale transactions, Id. at 259 (emphasis added); in these cases the seller's representations fell within the first part of the proviso and could not properly have been the basis for any enforcement proceeding, no matter who had the burden of proof. Another problem with the order is more relevant to the specific challenge that Norris raises with regard to the burden of proof. By absolutely prohibiting the representations and allowing a defense, the Commission (decreed) what in effect (wa)s clearly a shifting of the burden of proof from itself to petitioners, which the court held was unwarranted. Id. at 260. 12 8 Federated obviously does not stand for the proposition that every FTC order containing a prohibition amounts to a shift in the burden of proof. The court noted, 398 F.2d at 260, that the Seventh Circuit in Western Radio Corp. v. FTC, 339 F.2d 937, 940 (7th Cir. 1964), Cert. denied, 381 U.S. 938, 85 S.Ct. 1770, 14 L.Ed.2d 701 (1965), had reviewed an order requiring the manufacturer to cease and desist from making certain statements about the merits of its product unless it established that the claims were true. The Seventh Circuit, in rejecting the argument that the order shifted the burden of proof, construed the order as only prohibiting false advertising and noted in dictum that it did not anticipate that a court in an enforcement proceeding would regard the order as having shifted the burden of proof. The court in Federated was careful to point out that it reached the issue of the burden of proof only because the order that it was reviewing was too explicit to be subject to a validating interpretation. 398 F.2d at 260. And the Federated court in fact approved an order prohibiting the seller from representing that it was a wholesaler or sold at wholesale prices unless it made a substantial and significant number of sales to retailers and sold at prices generally paid by retailers. Id. 9 It is thus apparent that this case is different from Federated and that the perceived shift in the burden of proof in that case is not involved here. Here there is no defense carved out by way of proviso from an absolute and overinclusive prohibition, the express wording of which in Federated compelled the court to find a shift in the burden of proof. The order here is for all practical purposes of the same form and effect as the order approved in Western Radio Corp. and the order as modified in Federated; it is not at all like the order struck down in Federated (even though, we note, upheld in S. S. S. Co., supra ). We find no explicitness preventing a validating interpretation; rather, we agree with the Seventh Circuit that a court in an enforcement proceeding would recognize no shift in the burden of proof. Norris asserts that 10 (w)ithout the slightest change in its meaning or impact of the words being used, the order in the instant case might just as well use the words that Petitioner shall cease and desist from: 11 (m)aking representations as to the safety or performance of any product; provided, however, that it shall be a defense in any enforcement proceeding under this order for petitioners to show: 12 (a) that such claims are fully and completely substantiated by a reasonable basis and 13 (b) that such reasonable basis consists of competent and objective material available in written form. 14 But the change in . . . meaning or impact of the words being used is the very difference between the Commission's order in Federated, which the court held was impermissible, and the order that the court itself in Federated imposed. Under the order in the instant case, the Commission has the burden of showing in a civil penalty proceeding in federal district court both (1) that Norris made a safety or performance representation and (2) that it lacked adequate substantiation at the time that it made the advertising claim. Under the Norris version above the Commission would only have to show that Norris made the claim. Norris's failure, if any, to comply with the requirement of prior substantiation is part of the Commission's case; compliance is not part of Norris's case by way of defense. 15 To the extent that any such requirement imposes a burden, it is more akin to a burden of production than a burden of proof. The issue is whether the order as a whole is reasonable in light of the Commission's findings and its broad remedial powers. See note 12 Supra. As we stated recently in ITT Continental Baking Co. v. FTC, 532 F.2d 207, 220-21 (2d Cir. 1976): 16 (T)he Commission has a wide discretion in its choice of a remedy to 'cope with the unlawful practices' disclosed by the record, Fedders Corp. v. FTC, 529 F.2d 1398, 1401 (2 Cir. 1976), quoting FTC v. Mandel Bros. Inc., 359 U.S. 385, 392, 79 S.Ct. 818, 3 L.Ed.2d 893 (1959), and . . . (s)o long as the remedial order is reasonably related to the unlawful practices found to exist, the Commission's order should be upheld. Fedders, supra, at 1402. 17 See also Chrysler Corp. v. FTC, 182 U.S.App.D.C. 359, 366, 561 F.2d 357, 364 (1977). To that question we now turn.