This is a petition to review orders of the Federal Trade Commission which required petitioners Cinderella Career College and Finishing Schools, Inc. (hereinafter Cinderella), Stephen Corporation (the corporate entity which operates Cinderella), and Vincent Melzac (the sole owner of the stock of Cinderella and Stephen Corporation), to cease and desist from engaging in certain practices which were allegedly unfair and deceptive.
After the Commission filed its complaint under section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45 (1964), which charged Cinderella with making representations and advertising in a manner which was false, misleading and deceptive, a hearing examiner held a lengthy series of hearings which consumed a total of sixteen days; these proceedings are reported in 1,810 pages of transcript. After the Commission had called twenty-nine witnesses and the petitioners twenty-three, and after the FTC had introduced 157 exhibits and petitioners 90 (Petitioners' Brief at 7), the hearing examiner ruled in a ninety-three page initial decision that the charges in the complaint should be dismissed.
Complaint counsel appealed the hearing examiner's initial decision to the full Commission; oral argument was heard on the appeal on May 28, 1968 (Opinion of the Commission at 2), and the Commission's final order was issued on October 10, 1968. The full Commission reversed the hearing examiner as to six of the original thirteen charges and entered a cease and desist order against the petitioners, who then brought this appeal. For the reasons which follow we remand to the Commission for further proceedings.
We are faced with two principal issues on this appeal: whether the action of the Commission in reversing the hearing examiner comports with standards of due process, and whether then Chairman Paul Rand Dixon should have recused himself from participation in the review of the initial decision due to public statements
I. PROCEDURAL IRREGULARITY AND DUE PROCESS
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 concepts of due process, to review the conclusions of the hearing examiner in light of the evidence.
In their final decision the Commissioners first criticized the hearing examiner for his handling of some of the testimony, stating that "[f]rom 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: "[I]n 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; emphasis added.) 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; emphasis added.) 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.
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:
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 "[t]he 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:
(Brief for the Respondents at 14; emphasis added.) The brief further states that "[t]he 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.)
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
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) (emphasis added). 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.
Stauffer Laboratories, Inc. v. FTC, 343 F.2d 75, 79 (9th Cir. 1965) (emphasis added).
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.
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:
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 "[t]he responsibility for decision * * * placed on the Board is wholly inconsistent with the notion that it has 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.
The procedures for decision on appeal have been established for the Federal Trade Commission as follows:
16 C.F.R. § 3.54(a) (1969) (emphasis added). 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
The regulations establish the procedure the Commission is to follow:
16 C.F.R. § 3.54(b) (1969) (emphasis added). This gives the reviewing Commissioners great latitude to disagree with their hearing examiner;
II. DISQUALIFICATION OF CHAIRMAN DIXON
An additional ground which requires remand of these proceedings — and which would have required reversal even in the absence of the above-described procedural irregularities — is participation in the proceedings by the then Chairman of the Federal Trade Commission, Paul Rand Dixon.
Notice that the hearing examiner's dismissal of all charges would be appealed was filed by the Commission staff on February 1, 1968 (Brief for Petitioners at 18). On March 12, 1968, this court's decision was handed down in a prior appeal arising from this same complaint, in which we upheld the Commission's issuance of press releases which called attention to the pending proceedings.
(App. 134; emphasis added.) It requires no superior olfactory powers to recognize that the danger of unfairness through prejudgment is not diminished by a cloak of self-righteousness. We have no concern for or interest in the public statements of government officers, but we are charged with the responsibility of making certain that the image of the administrative process is not transformed from a Rubens to a Modigliani.
We indicated in our earlier opinion in this case that "there is in fact and law authority in the Commission, acting in the public interest, to alert the public to suspected violations of the law by factual press releases whenever the Commission shall have reason to believe that a respondent is engaged in activities made unlawful by the Act * * *." FTC v. Cinderella Career & Finishing Schools, Inc., 131 U.S.App.D.C. 331, 337, 404 F.2d 1308, 1314 (1968) (emphasis added). This does not give individual Commissioners license to prejudge cases or to make speeches which give the appearance that the case has been prejudged.
As we noted in our earlier opinion, Congress has specifically vested the administrative agencies both with the "power to act in an accusatory capacity" and with the "responsibility of ultimately determining the merits of the charges so presented." 131 U.S.App.D.C. at 338, 404 F.2d at 1315.
Chairman Dixon, sensitive to theory but insensitive to reality, made the following statement in declining to recuse himself from this case after petitioners requested that he withdraw:
(App. 143.) To this tenet of self-appraisal we apply Lord Macaulay's evaluation more than 100 years ago of our American government: "It has one drawback — it is all sail and no anchor." We find it hard to believe that former Chairman Dixon is so indifferent to the dictates of the Courts of Appeals that he has chosen once again to put his personal determination of what the law requires ahead of what the courts have time and again told him the law requires. If this is a question of "discretion and judgment," Commissioner Dixon has exercised questionable discretion and very poor judgment indeed, in directing his shafts and squibs at a case awaiting his official action. We can use his own words in telling Commissioner Dixon that he has acted "irrespective of the law's requirements"; we will spell out for him once again, avoiding tired cliche and weary generalization, in no uncertain terms, exactly what those requirements are, in the fervent hope that this will be the last time we have to travel this wearisome road.
The test for disquaification has been succinctly stated as being whether "a disinterested observer may conclude that [the agency] has in some measure adjudged the facts as well as the law of a particular case in advance of hearing it." Gilligan, Will & Co. v. SEC, 267 F.2d 461, 469 (2d Cir.), cert. denied, 361 U.S. 896, 80 S.Ct. 200, 4 L.Ed.2d 152 (1959).
That test was cited with approval by this court in Texaco, Inc. v. FTC, 118 U.S.App.D.C. 366, 336 F.2d 754 (1964), vacated and remanded on other grounds, 381 U.S. 739, 85 S.Ct. 1798, 14 L.Ed.2d 714 (1965). In that case Chairman Dixon made a speech before the National Congress of Petroleum Retailers, Inc. while a case against Texaco was pending before the examiner on remand. After restating the test for disqualification, this court said:
118 U.S.App.D.C. at 372, 336 F.2d at 760. We further stated that such an administrative hearing "must be attended, not only with every element of fairness but with the very appearance of complete fairness," citing Amos Treat & Co. v. SEC, 113 U.S.App.D.C. 100, 107, 306 F.2d 260, 267 (1962). We therefore concluded that Chairman Dixon's participation in the Texaco case amounted to a denial of due process.
After our decision in Texaco the United States Court of Appeals for the Sixth Circuit was required to reverse a decision of the FTC because Chairman Dixon refused to recuse himself from the case even though he had served as Chief Counsel and Staff Director to the Senate Subcommittee which made the initial investigation into the production and sale of the "wonder drug" tetracycline. American Cyanamid Co. v. FTC, 363 F.2d 757 (1966). Incredible though it may seem, the court was compelled to note in that case that:
363 F.2d at 767 (emphasis added). It is appalling to witness such insensitivity to the requirements of due process; it is even more remarkable to find ourselves once again confronted with a situation in which Mr. Dixon, pouncing on the most convenient victim, has determined either to distort the holdings in the cited cases beyond all reasonable interpretation or to ignore them altogether. We are constrained to this harshness of language because of Mr. Dixon's flagrant disregard of prior decisions.
Berkshire Employees Ass'n of Berkshire Knitting Mills v. NLRB, 121 F.2d 235, 239 (3d Cir. 1941). This rationale was cited with approval in the American Cyanamid opinion; we adopt the position of our sister circuits on this point.
For the reasons set forth above we vacate the order of the Commission and remand with instructions that the Commissioners consider the record and evidence in reviewing the initial decision, without the participation of Commissioner Dixon.
Vacated and remanded.
The complaint also alleged that the following practices were deceptive:
(Initial Decision at 93.)