Opinion ID: 747684
Heading Depth: 1
Heading Rank: 3

Heading: jurisdiction

Text: 28 As an initial matter, we address the FTC's jurisdiction over the CDA. The Commission has the authority to prevent persons, partnerships or corporations from engaging in unfair methods of competition and unfair or deceptive acts or practices. 15 U.S.C. § 45(a)(2). The question here is whether the FTC erred in finding that the CDA was a corporation within the meaning of the statute. The FTC Act's definition of corporation includes any company or association, incorporated or unincorporated, without shares of capital or capital stock or certificates of interest, except partnerships, which is organized to carry on business for its own profit or that of its members. 15 U.S.C. § 44. As a nonprofit organization under California law, the CDA is an incorporated company without shares of capital. The FTC's authority thus turns on whether the CDA is organized to carry on business for its own profit or that of its members. 29 This court has not addressed the exact meaning of this language, and consequently the extent of the FTC's jurisdiction over nonprofit entities. The FTC has consistently held that it has jurisdiction over a nonprofit entity if a substantial part of the entity's total activities provides pecuniary benefits to its members. See In re American Medical Assoc., 94 F.T.C. 701, 983-84 (1980), aff'd, 638 F.2d 443 (2d Cir.1980), aff'd by an equally divided court, 455 U.S. 676, 102 S.Ct. 1744, 71 L.Ed.2d 546 (1982) (AMA ). It lacks jurisdiction, however, if the beneficial activities are merely incidental to noncommercial activities. Id. 30 Among the other circuits there is a split on the issue, and although the Supreme Court agreed to review the matter in AMA, it was equally divided and produced no opinion. See 455 U.S. 676, 102 S.Ct. 1744. The Eighth Circuit has held that a community blood bank was outside the FTC's jurisdiction because it was run for charitable purposes, rather than for its own profit or that of its members. Community Blood Bank v. FTC, 405 F.2d 1011, 1022 (8th Cir.1969). The court held that the FTC has jurisdiction over an entity that engages in business for profit within the traditional meaning of that language. Id. at 1018. Profit, the Eighth Circuit said, was gain from business or investment over and above expenditures. Id. at 1017. Alternatively, it defined the test as whether dividends or other pecuniary benefits are contemplated to be paid to members. Id. 31 The Second and Seventh Circuit have applied a somewhat more expansive view of profit. In affirming the FTC's decision in AMA, which involved an organization much more like CDA than the one in Community Blood Bank, it held that despite its many charitable functions, the AMA engaged in sufficient business activities to support jurisdiction. See 638 F.2d 443, 448 (2d Cir.1980). It distinguished Community Blood Bank as involving a purely charitable organization and focused on the fact that the FTC's cease and desist order concerned advertising, solicitation and contractual relationships, which relate to business rather than charitable functions. Id. The Seventh Circuit took a similar approach in FTC v. Nat'l Comm'n on Egg Nutrition, 517 F.2d 485, 487-88 (7th Cir.1975), which upheld jurisdiction over a trade association of egg producers. It relied on the fact that the association was intended to promote the general interests of the egg industry. It also found that the association was organized for the profit of the industry even though it pursued that profit indirectly--by trying to increase egg consumption and allaying fears about cholesterol. Id. at 488. 32 We agree with the approaches of the Second and Seventh Circuits and hold that the FTC possessed jurisdiction over this case. Given that Congress apparently did not intend to provide a blanket exclusion for nonprofit corporations, see Community Blood Bank, 405 F.2d at 1017, we think that the construction of the statute urged by CDA is too narrow. While we agree with the Eighth Circuit that truly charitable organizations should be exempt from the FTC's reach, we would not exclude the many nonprofit corporations that conduct substantial commercial and related activities. They may not directly distribute gain to their members in the same sense as a for-profit corporation, but no genuine nonprofit entity does. The FTC's approach of looking at whether the organization provides tangible, pecuniary benefits to its members as a surrogate for profit is a proper way of deciding which nonprofit organizations are subject to its jurisdiction. 33 Under this standard, we are confident that the facts of this case support the FTC's jurisdiction. Like the AMA and the National Commission on Egg Nutrition, the CDA is engaged in substantial business activities that provide tangible, pecuniary benefits to its members. Many of the CDA's functions, such as marketing, and lobbying for insurance and Medicare reform, directly enhance the profits of member dentists. Other activities, such as continuing education and financing assistance, indirectly make members' practices more efficient and reduce their costs. Furthermore, the activities that are the subject of the FTC's order--the regulation of advertising and solicitation--relate particularly to the business affairs of its members. The FTC is not purporting to regulate the CDA's charitable or educational activities; as in AMA, the Commission is concerned with CDA behavior that directly affects the profitability of its members' practices. Under these circumstances, the FTC properly exercised jurisdiction over the CDA.