Opinion ID: 289851
Heading Depth: 1
Heading Rank: 1

Heading: procedural irregularity and due process

Text: 5 As we have indicated above, the hearing on the complaint against petitioners was exhaustive. The important question raised by petitioners here is whether the full Commission, in reviewing an initial decision, may consider the advertisements de novo, disregarding entirely the evidence adduced at a lengthy hearing, and arrive at independent findings of fact and conclusions of law, or whether the Commission is bound by its own rules and regulations, as well as conclusions of due process, to review the conclusions of the hearing examiner in light of the evidence. 6 In their final decision the Commissioners first criticized the hearing examiner for his handling of some of the testimony, stating that 'from the initial decision it appears that the examiner ignored some of this testimony and some of it was given little or no weight because the examiner either questioned the credibility of the witness or considered their testimony hearsay.' (Opinion of the Commission at 4.) The Commissioners themselves then proceeded to ignore all testimony completely: 'In view of our decision to independently analyze-- and without assistance from consumer or other witnesses-- the challenged advertisements and their impact    it becomes unnecessary to review the testimony of these expert and consumer witnesses.' (Id. at 6.) Later in the opinion they again noted that 'for the reasons stated above the Commission will rely on its own reading and study of the advertisements to determine whether the questioned representation has the capacity to deceive.' (Id. at 13.) The hearing examiner in a Federal Trade Commission proceeding has both the right and duty to make determinations concerning the credibility of witnesses and the exclusion of hearsay evidence; while the Commissioners may review those determinations on appeal, in light of the record, they may not choose to ignore completely the testimony adduced at the hearing. 3 7 A further example of the Commissioners' determination to make a de novo review of the advertisements rather than considering the record as developed during the hearing is the statement that: 8 A review of the examiner's initial decision has persuaded the members of the Commission to examine firsthand and independently the challenged representations contained in respondents' advertisements rather than relying on the analysis thereof contained in the initial decision. 4 (Opinion of the Commission at 4; emphasis added.) Not only do we find this conduct on the part of the Commissioners a violation of their own rules and hence of due process, but we also seriously question their ability to make the determination called for without the aid of the testimony in the record. It should be noted that the advertisements here in question are directed at a specific, narrow part of the public-- teenage girls who are recent high school graduates and who do not intend to pursue their formal education in college. While it may be true that some advertisements are so glaringly misleading that anyone can recognize that fact, we think it could only benefit the ultimate determination if the Commissioners had before them the testimony both of experts on youth and of teenage girls themselves, in addition to their own reading of the statements alleged to be misleading. While they might initially decide that a given statement had the capacity to mislead, perhaps testimony of experts and consumers would reveal that the group at which the statements were directed was in fact more knowledgeable and sophisticated than the Commissioners had originally anticipated. In any event, we think it can only help, and certainly it will not hurt, to have the testimony before the reviewing Commissioners as well as their own reading of the advertisements. 9 As authority for the proposition that they could properly ignore the record and make a de novo determination of the capacity of the statement to mislead, the Commissioners state only that 'the Commission's authority to predicate a finding of deception on its own examination and study is too well settled to require further comment.' (Opinion of the Commission at 4.) The Commission's counsel reiterated this position on appeal. stating in the brief that: 10 The Commission, as stated in its opinion   , evaluated Cinderella's advertising entirely on the basis of its own study of the material. It found no need to resolve the conflicting expert and consumer testimony in the record bearing upon the meaning of the advertisements. 11 (Brief for the Respondents at 14; emphasis added.) The brief further states that 'the law is too well settled to admit of any doubt that the meaning of advertisements and their tendency or capacity to deceive are questions of fact to be determined by the Commission, whose determination should be upheld unless clearly wrong.' (Id.) 12 On its face this statement is true-- it is for the Federal Trade Commission to resolve such questions of fact. However, a distinction must be drawn between the 'Commission,' meaning the entire Federal Trade Commission, including the Commissioners, hearing examiners, staff, etc., and the 'Commissioners,' who are of course the five Federal Trade Commissioners. It is customary in common parlance, and occasionally even in court opinions, to use the word 'Commission' to mean both the broader term and the more restricted group at the top, which would be more accurately termed the 'Commissioners.' Thus the cases cited by the Commission in the statement that the 'law is too well settled to admit of any doubt' are clearly inapposite, for their holdings relate to the entire 'Commission,' not to the five 'Commissioners' sitting as a reviewing body. In the leading case in this jurisdiction we stated: 13 The Commission here has determined that the use of the term 'manufacturer's list price' represents to the public that that was the price at which the product was usually and customarily sold by other stores in the area. This determination was within its power, unless it was 'arbitrary or clearly wrong.' We cannot say that it was, particularly in view of the consumers' testimony adduced at the hearing. 14 Giant Food Inc. v. FTC, 116 U.S.App.D.C. 227, 231-232, 322 F.2d 977, 981-982 (1963), cert. dismissed, 376 U.S. 967, 84 S.Ct. 1121, 12 L.Ed.2d 82 (1964). From this and other statements of the court in the Giant Food case it is quite clear that the use of the words 'the Commission' related to the Federal Trade Commission, not to the Federal Trade Commissioners sitting in review of an initial decision. It is therefore not appropriate to say that the court in that case upheld the power of the five Commissioners to review the challenged advertisements de novo, making an independent judgment concerning their capacity to deceive and ignoring the evidence adduced at a lengthy hearing. 5 Counsel for the Commission have therefore seriously misread the cases which they have cited. We are unable to find any authority for their proposition-- that a sixteen-day hearing may be completely ignored if the Commissioners are dissatisfied with the result reached by their hearing examiner. In fact, language in an opinion which the Commission cites cuts decidedly the other way: 15 This finding (that advertising tended to deceive) was amply supported by evidence adduced in the proceedings before the Commission   . The applicable section of the Act provides    that upon a review of this kind 'the findings of the Commission as to the facts, if supported by evidence, shall be conclusive.' 16 Stauffer Laboratories, Inc. v. FTC, 343 F.2d 75, 79 (9th Cir. 1965). 17 There is a reason for the procedures set forth in the rules and regulations promulgated under the Federal Trade Commission Act. The procedures which have been established are designed to provide for proceedings in which both the Commission and the responding party have a fair and equal opportunity to present exhibits and witnesses designed to establish the legitimacy of their argument. The regulations are drawn so as to require reliance on that evidence by the hearing examiner. 6 We think it as preposterous for the Commission to claim a right to ignore that evidence and, with more daring than prudence, to decide a case de novo as it would be for this court to claim a right to ignore the findings of fact and conclusions of law of a district court in a proceeding here, substituting the judgment of this court on a cold record for that of the finder of the fact below. 18 Counsel for the Commission referred at oral argument to the Supreme Court's decision in FCC v. Allentown Broadcasting Corp., 349 U.S. 358, 75 S.Ct. 855, 99 L.Ed. 1147 (1955), in an effort to convince the court that the Commission could make an independent review of the advertisements without regard to the evidence adduced at the hearing. In that case the Court said: 19 The Court of Appeals' conclusion of error as to evasiveness relies largely on its understanding that the Examiner's findings based on demeanor of a witness are not to be overruled by a Board without a 'very substantial preponderance in the testimony as recorded'   . We think this attitude goes too far. It seems to adopt for examiners of administrative agencies the 'clearly erroneous' rule of the Fed.Rules Civ.Proc., 52(a), applicable to courts. 20 349 U.S. at 364, 75 S.Ct. at 859. Of course, we agree with that statement; we do not mean by our previous statement that the same rule applies to both courts and administrative agencies. The Court went on to cite the Universal Camera opinion for the proposition that 'the responsibility for decision    placed on the Board is wholly inconsistent with the notion that it was power to reverse an examiner's findings only when they are 'clearly erroneous. Universal Camera Corp. v. NLRB, 340 U.S. 474, 492, 71 S.Ct. 456, 467, 95 L.Ed. 456 (1951). The determination we make here is not contrary to these statements by the Supreme Court; we do not say that the Commission must find an examiner's findings of fact and conclusions of law 'clearly erroneous' before overturning an initial decision, but we do say that it must consider that decision and the evidence in the record upon which it is based, rather than dismissing the proceedings at the hearing out of hand. To hold otherwise would put us in an impossible situation: the substantial evidence test as explained in Universal Camera requires us to review all of the record in determining whether the agency's decision is supported by substantial evidence, yet the Commission contends that it has the power to make an independent determination without reference to the evidence. We hardly think it permissible for the Commission to draw such independent conclusions, while ignoring the record and consequently converting the entire hearing proceeding into a meaningless exercise, leaving it for the court to review the record to find whether there is evidence to support those conclusions. 21 The procedures for decision on appeal have been established for the Federal Trade Commission as follows: 22 Upon appeal from or review of an initial decision, the Commission will consider such parts of the record as are cited or as may be necessary to resolve the issues presented and, in addition, will, to the extent necessary or desirable, exercise all the power which it could have exercised if it had made the initial decision. 23 16 C.F.R. 3.54(a) (1969). Surely this language makes it clear that the five Commissioners, in reviewing an initial decision, are not to speak as verbum regis, but must consider the evidence adduced at the hearing. The regulation makes it clear that the Commissioners will consider the record, and that they may additionally exercise the powers they could have exercised had they made the initial decision. We do not hold that the Commissioners could not have reviewed the advertisements independently if they had been responsible for the decision from the outset; but when a proceeding which involves sixteen days, 1,810 pages of testimony, fifty-two witnesses, and 247 exhibits, has been established, the Commissioners are not free to boil over in aggression and completely dismiss those proceedings either because they are dissatisfied with the outcome, or for any other reason. Such procedure is rooted in nothing and places the Commission in the position of being both the instrument and the musician at the same time. The result, legally, is a ragged and confusing mosaic defying the very archetype of due process, abandoning the merit in hearings of the power of persuasion for the persuasion of power and thereby producing a self-justifying system that makes fairness not really the controlling factor in practice that it seems in metaphor. 24 The regulations establish the procedure the Commission is to follow: 25 In rendering its decision (on appeal or review), the Commission will adopt, modify, or set aside the findings, conclusions, and rule or order contained in the initial decision, and will include in the decision a statement of the reasons or basis for its action.    26 16 C.F.R. 3.54(b) (1969). This gives the reviewing Commissioners great latitude to disagree with their hearing examiner; 7 it does not, however, give them the option of completely ignoring the testimony of many witnesses and the findings of the examiner on premises which are legally evanescent. If they choose to modify or set aside his conclusions they must state that they are doing so and they must give reasons for so doing. To hold otherwise is to ignore the objectives of adversary proceedings before the Commission. Only if such rules are carefully adhered to can a reviewing court properly analyze the action taken by the Commission; only then can the wheat of meaningful agency action be separated from the chaff of arbitrary and capricious conduct. The Commissioners may not turn away in haughty administrative aloofness from the entire body of law governing their procedures. 8