Koscot Interplanetary, Inc

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IK THE MATTER OF KOSCOT INTERPLANETARY , DIC., ET AL.

Docket 8888. Opinion and Order, May 2.!, 1978. Opinion and order granting complaint counsel's motion for leave to file a supplemental answer and receiving and filing the supplemental answer to respondents ' motion for withdraw\va! of the case from the adjudication process; and denying respondents ' said motion for withdrawal from adjudication.

OPINIOK OF THE COMMISSION This matter is before the Commission upon a certification by the administrative law judge fied with the Commission on March 30 , 1973, and consists of a " Motion for an Order Withdrawing this Case from the Adjudication Process " filed with the administrative law judge on March 5 , 1973 , by Koscot Interplanetary, Inc. , Glenn W. Turner Enterprises, Inc., and four of the remaining seven individual respondents. The motion was made under Rule 2. 34(d) of the Commission s Rules of Practice and the purpose for the withdrawal is to permit the negotiation of a settlement by the entry of a consent order. Complaint counsel, on March 15 , 1973, fied an answer in opposition to the motion. The administrative Jaw judge recognized in his order certifying the matter to the Commission that he has no authority to rule upon a motion of this character. He recommends in his order, however, that the motion be KOSCOT INTERPLANf:TARY , I:-C., ET AI" 1465 1-64 Opinion granted by the Commission. After the certification ofthe motion to the Commission, complaint counsel on April 11 , 1973 , filed with the Commission a motion for leave to file a supplemental answer which was attached to the motion. The motion avers that the supplemental answer deals with events which occurred after complaint counsel' s answer to respondents ' motion was filed. The four individual and two corporate respondents base their motion to have the case withdrawn from adjudication upon developments in the pending case In re Glenn W. Turner Enterprises (MDL Dkt. No. 109) No. Misc. 5670, in the United States District Court for the Western District of Pennsylvania and their willingness now to enter into a consent order containing the prohibitions in the Notice Order issued with the complaint in the proceeding before the Commission except a provision relating to restitution which the complaint states may be included in the final order if warranted by the facts. These respondents contend that the District Court litigation now pending will result in adequate restitution, thereby making unnecessary any such provision in any order of the Commission; On May 7, 1973 , the United States Court of Appeals for the Third Circuit entered orders staying all proceedings in the District Court, except any settlement negotiations conducted among the parties, pending disposition by the Court of Appeals petitions filed with it challenging certain actions of the District Court.

The District Court papers attached to respondents' motion show that the case is a consolidation of numerous private suits and class actions brought against respondents and others by separate plaintiffs. It is alleged that the plaintiffs purchased contracts or agreements based on the defendants misrepresentations. The jurisdiction of the District Court rests in part, upon the Federal Securities Acts. On the basis offindings that the separate suits involve common questions of fact, the Judicial Panel on Multidistrict Litigation under 28 U. C. 1407 , :-o o'ojectio ) co cornpla:r:t COLJ'l el' s )'lotion 11115 been 11"de hy ,' ponde)1ts, Th" motion i gTimted and the s\.pp:emental ,lnoW"!" ",,,I PilP(' '; iltt,H' "d th"reto will be con5idererl. Complaint counsel has filed copies" wi thc\, t ooj ection_, b,' respon d en I." of cou j. t o, riers en ered at v a rio' J, times e: liti g to the cla, actior. relied upon oy responder. ts. These court onlen will "Iso be con.:dered I466 FEDERAL TRADE CO IISSION DECISIONS Opinion 82 F.

ordered the various suits transferred and consolidated in the class action proceeding now pending in the District Court. The District Court in its memorandum and order filed January , 1973 , and supplemental orders has not enjoined the Commission from going forward with this administrative proceeding. Indeed, the respondents in their motion, while broadly construing the Court's orders, do not contend that the Court has enjoined any aspect of the proceeding before the Commission. There is no conflict between the Court litigation and the proceeding before the Commission. The Court action is to vindicate private individual rights; the Commission proceeding is to enforce the Federal Trade Commission Act. Respondents in their motion and supporting papers have failed to demonstrate sufficient reason or facts to warrant the Commission foreclosing at this time the inclusion of an appropriate restitution provision in any ceasewand-desist order. The proposed settlements in the pending litigation do not purport to require an of the respondents to disburse to their customers an funds retained by them as a result of alleged violations of Section 5 of the Federal Trade Commission Act. Until there is a clear showing that respondents have accomplished disbursement of an such funds, it is premature at this time to determine that no provision for restitution should be included in any Commission order.

The violation for which restitution in some instances is an appropriate corrective action occurs when the seller s retention of its customers ' money or property is an unfair trade practice, in and of itself, in violation of the Federal Trade Commission Act. Curtis Publishing Co. 3 Trade Reg. Rep. 719 , p. 21 759 (D. 8800, 1971 (78 F. C. 14721); Universal Credit Acceptance Corp. Trade Reg. Rep. 120 240, p. 22 242 (D. 8821 , 1973 rSee p. 570 herein)). If the private parties involved agree to an approved settlement, they win be bound by its terms, but this does not bar a restitution provision in a cease and desist order by the Commission if one is issued. An effective remedy may require complete disbursement of such funds to the victims of the unlawful practices up to the amount of their actual payments and the possibility that this may result in some parties receiving funds in addition to amounts they have received in settlement of their claims does not prevent such restitution. The public policy KOSCOT INTERPLANETARY , IXC., ET AL. 1467 U64 Opinion expressed in the Federal Trade Commission Act is, of course paramount. Universal Credit Acceptance Corp., supra at pp. 248 , 22 251.

For the reasons stated, exceptional and unusual circumstances do not exist which would justify withdrawing this matter from adjudication and respondents have not shown good cause for withdrawal as is required by Rule 2. 84(d) of the Commission s Rules of Practice.

ORDER DENYING MOTTO;'' TO WITHDRAW FROM ADJUDICATION AND GRANTING MOTIO:- FOR LEAVE TO FILE SGPPLEMENTAL A!\'SWER Upon consideration of respondents' Motion for an Order Withdrawing this Case from the Adjudication process filed March 5 , 1973 , and certified to the Commission by the administrative law judge on March 30 , 1978 , and upon consideration of complaint counsel's :\otion for Leave to file Supplemental Answer in further response to respondents motion, the Commission, for the reasons set forth in the accompanying opinion, has determined that respondents motion should be denied and complaint counsel' s motion should be granted. Accordingly, It is ordered That the motion fied by respondents for an order withdrawing this matter from the adjudication process be, and it hereby is, denied.

It is fl rther ordered That the motion filed by complaint counsel for leave to file a supplemental answer be, and it hereby , granted and the supplemental answer is received and filed.