National Housewares, Inc

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IN THE MATTER OF NATIONAL HOUSEWARES, INC., ET AL.

Docket 8738. Interlocutory order, Dec. 3, 1974 Order (1) denying respondents’ motion to vacate and set aside Commission’s order to show cause; (2) reopening proceeding; (3) remanding case to Office of Administrative Law Judges for purpose of hearings for receipt of evidence and entry of recommendations; and (4) denying staff counsel’s motion for consolidation of matter with Emdeko International, et al.

Appearances For the Commission: John M. Porter, Gerald E. Wright and Ralph E. Stone.

For the respondents: Edwin Rockefeller and Alan Frey, Bierbower & Rockefeller, Wash., D.C.

ORDER OVERRULING RESPONDENTS’ OPPOSITION TO ORDER TO SHOW CAUSE AND DIRECTING HEAR- INGS FOR RECEIPT OF EVIDENCE.

The Commission on June 21, 1974 issued an Order to Show Cause to the above-named parties, respondents to a final consent order issued Feb. 12, 1968 in a proceeding brought under Section 5 of the Federal Trade Commission Act. The order directed the respondents to show cause why the proceeding should not be reopened pursuant to Section 3.72(b) of the Commission’s Rules of Practice because of the failure of the original consent order adequately to remedy the violations of law 1566 Order alleged in the complaint issued Mar. 18, 1967 against the above respondents. The Order to Show Cause further alleged the Commission had reason to believe that respondents National Housewares, Inc. and Edward Gilson! have continued to violate the Federal Trade Commission Act in respect to certain practices enumerated in a Proposed Modified Complaint and. Order attached to and made a part of the Commission’s Order to Show Cause.2 It was concluded that the public interest may require altering and modifying the 1968 Order (only as to respondents National Housewares and Edward Gilson), to the form of order attached to the Proposed Modified Complaint, or to whatever form of order the Commission might adopt as a result of the consideration of record facts developed in an adjudicative proceeding on reopening.

On Aug. 2, 1974, respondents National Housewares and Edward Gilson filed an Opposition to Order to Show Cause and Joint Answer to Proposed Modified Complaint. In their opposition, respondents first denied that the 1968 order proved inadequate to remedy the violations alleged in the 1967 complaint. Second, respondents denied that any continuing violations of the F.T.C. Act had occurred. Third, it was denied that the public interest required reopening of the 1968 proceeding. Fourth, it was argued that any alteration in the terms of a finalized consent order required the consent of both parties to the order. Fifth, respondents charged that the Proposed Modified Complaint and Order are so materially different from the 1968 order that this proceeding cannot fairly be characterized as a reopening. The Rules of Practice, according to respondents, nowhere provide for a reopening accompanied by a new complaint whose factual allegations differ so substantially from those alleged in the original complaint. In their Joint Answer to Proposed Modified Complaint, respondents deny the substantive aliegations of the complaint, or state that they are without knowledge or information sufficient to form a belief as to their truth. On Sept. 30, 1974, Commission staff counsel filed a Reply to Respondents’ Answers to Order to Show Cause and Motion to the Commission to Assign Matter to Administrative Law Judge for Receipt of Evidence. Staff counsel argue that the Commission’s empowering statute, 15 U.S.C. §45(b) authorizes the Commission to reopen, alter, modify, or set aside, in whole or in part, an order issued under that Act whenever, in 1 Respondents to the original 1968 proceeding, other than National Housewares and Edward Gilaon, were served with the Order te Show Cause, as required by the Commission's Rules of Practice, but they have been notified that inasmuch as they are no longer associated with either National Housewares or Edward Gilson, they are not intended to be parties to these new proceedings.

2 Commissioner Thompson dissented.

Order 84 F.T.C.

the opinion of the Commission, conditions of fact or of law have so changed as to require such action, or if the public interest shall so require.

Staff counsel defend the issuance of the Proposed Modified Complaint and Order as part of the reopening process because they allege that the illegal practices charged in the new complaint are substantially similar to the practices which were the subject of the former order. Staff counsel also argue that a reopening of the 1968 proceeding is preferable to the issuance of an altogether new complaint because of the decision of the United States Court of Appeals for the District of Columbia Circuit in The Elmo Division of Drive-X Company, Inc. v. Dixon. Staff counsel finally request that this proceeding be consolidated with Emdeko International, Inc., et al., Docket 8973, because the allegations of both cases are substantially identical and arise out of the same transactions and occurrences, presenting common questions of law and fact.‘ On Oct. 3, 1974, respondents filed a Request for Leave to Respond to Reply of Complaint Counsel.’ In this document, respondents argue essentially two points. First, they repeat their argument that the Commission’s Order to Show Cause is improper because the Proposed Modified Complaint and Order incorporated in the show cause procedure charges entirely new practices which were not challenged in the 1967 complaint. Respondents view the new proposed order as an effort to fashion relief based not on practices held illegal under the 1968 consent order, but on entirely new post-1968 practices, as detailed in the Proposed Modified Complaint.* Second, respondents object to staff counsel’s motion to join these proceedings at this time with those in the Emdeko matter. According to respondents, this request is premature in the first instance, and is secondly a matter properly to be decided by an administrative law judge should this matter be set down for hearings. The key issue in this matter, simply put, is whether the Commission should properly proceed against these respondents by de novo complaint, or by reopening the older proceeding and modifying the 1968 consent order. We believe that the basis for the Commission’s proceeding as it has thus far is mandated by the decision in The Elmo Division of Drive-X Company, Inc., et al. v. Dixon.7 In that ease,.a 1952 consent order was entered against respondents in which it was stipulated that 9348 F.2d 342 (D.C. Cir. 1965).

4 Both Emdeko and the instant matter were voted by the Commission on the same day, and are related. 5 By order dated Oct. 15, 1974, respondents were granted leave to file their reply. §See Paragraphs 2, 3, 6, and 7 of the Proposed Modified Complaint. 7348 F.2d 342 (D.C. Cir. 1965).

1566 Order the consent order could be set aside in whole or in part by means of a reopening procedure, after which, under the original or a new complaint, adversary hearings could be held resulting in a new modified order. Rather than following this procedure, the Commission elected the comparatively simple expedient of issuing a totally new complaint—— much as National Housewares and Edward Gilson are now urging. Elmo challenged the Commission’s procedure, arguing that the newly challenged practices were substantially the same matters as those covered by the 1952 consent order, and that Elmo was therefore being subjected to a second full scale round of litigation on the same issues. The United States Court of Appeals for the District of Columbia Circuit held that the Commission was bound to proceed against Elmo in the manner stated in the original 1952 consent order, by a reopening process to modify the consent order in light of new, substantially similar practices to those covered in the original consent order. Here, as in Elmo, the original Agreement Containing Consent Order states that the order entered “may be altered, modified or set aside in the manner provided for other orders.” Staff counsel urge that in cases _ where the newly alleged illegal practices bear a striking similarity to those originally attacked, the phrase, “in the manner provided” for alteration or modification has reference to the reopening procedures set out in the Rules of Practice.

Respondents argue that the practices’ alleged in much of the new complaint® are not substantially similar to the practices set out in the original complaint, and they point to the concluding statement of the court in Elmo indicating that if the practices alleged in the Commission’s second Elmo complaint had varied substantially from those circumscribed in the 1952 consent order, then perhaps the complaint route was preferable to reopening.® We agree that the determining question is whether the practices alleged in the Proposed Modified Complaint are substantially similar to those alleged in the original 1967 complaint. In the original proceeding, respondents were charged with deception in the marketing of various types of household appliances, among other products. The central theme of these allegations was that customers were solicited to purchase respondents’ products through elaborate and deceptive representations regarding special savings, free prizes, and purported participation in consumer surveys and product testimonials. The Proposed Modified 7348 F.2d 342 (D.C. Cir. 1965).

5 Paragraphe 2, 3, 6, and 7 of the Proposed Modified Complaint. ® Respondents also cite Floersheim v. F.T.C., 411 F.2d 874 (9th Cir. 1969), Exposition Preaa, Inc. v. F.T.C., 295 F 2d 869 (2d Cir. 1961) for the proposition that where new charges are leveled againat respondents which go beyond those involved in prior cases, a new complaint is preferable to a reopening procedure. Order 84 F.T.C.

Complaint alleges all these same practices are occurring, though not in a manner which violates the narrow letter of the rather restrictive 1968 consent order. In addition, various other deceptive practices, still related to the sale of these same products, are also alleged. We have no difficulty in determining that these allegations, if true, are substantially similar to those made in the original proceeding, sufficient to support reopening of this matter for evidentiary adversary hearings. We feel the Order to Show Cause states a reason to believe that the original order has not corrected the deception and sales abuses originally alleged, and that such deception is continuing. The most forthright manner of dealing with the apparent problem of an ineptness of expression in the original order would be through a reopening and modification, in effect, a clarification of the original order.1 Under the applicable Commission Rule of Practice, 3.72(b), the Commission may decide to reopen on one of two grounds. There may be either a finding of changed facts, or there may be reason to believe the public interest requires reopening. In this instance, the Order to Show Cause makes clear that it is the second ground that is relied on." The public interest is in remedying alleged violations of law not remedied by the original order, which violations are on account of the weakness of the original order, alleged to be continuing today. We find no merit in respondents’ last line of defense on this point, which is that a consent order may not be reopened without the consent of all the original parties. As noted, the consent order itself provides for a possible reopening, and, in any event, the statute, 15 U.S.C. §45(b) grants to the Commission the clear authority to reopen and modify its own orders under its Rules of Practices establishing standards for so doing and assuring adversary hearings to respondents on the issues themselves. 2 The sole issue remaining to be resolved in this matter is whether, at this time, to consolidate this proceeding with that in Emdeko, International, Inc., et al., Docket 8973, a case arising out of the same facts and circumstances. We are aware of the fact that but for the decision to reopen the 1968 proceedings in which National Housewares and Edward Gilson were parties, those two respondents and Emdeko International and Anthony J. Wanlass would have been joined in a single complaint.

10 Mohr. et al. v. F.T.C., 272 F.2d 401 (9th Cir. 1959), cert. denied, 362 U.S. 920 (1960). Thes 1 5 2 1 2 675 2313 66 23 96.457512 public5 1 5 2 1 3 757 2313 87 19 95.910583 interests 1 5 2 1 4 858 2314 159 19 95.910583 determinations 1 5 2 1 5 1033 2316 58 18 96.907616 made5 1 5 2 1 6 1105 2316 20 18 96.928139 in5 1 5 2 1 7 1139 2316 120 19 96.884430 connections 1 5 2 1 8 1274 2316 48 19 96.992104 with5 1 5 2 1 9 1336 2322 12 13 96.928818 a5 1 5 2 1 10 1363 2318 111 23 95.929527 reopening5 1 5 2 1 11 1489 2317 16 18 95.929527 is5 1 5 2 1 12 1519 2318 94 19 96.723373 identical5 1 5 2 1 13 1626 2321 21 16 96.929276 to5 1 5 2 1 14 1661 2319 34 18 96.538651 thes 1 5 2 1 15 1710 2319 65 23 96.538651 public5 1 5 2 1 16 1790 2319 84 20 96.923790 interest4 1 5 2 2 0 550 2346 1324 28 -1 5 1 5 2 2 1 550 2346 154 19 96.974060 determinations 1 5 2 2 2 712 2346 112 19 94.414742 associated5 1 5 2 2 3 833 2347 46 19 96.544655 with5 1 5 2 2 4 888 2348 35 18 96.998260 thes 1 5 2 2 5 931 2348 91 18 94.126373 issuance5 1 5 2 2 6 1030 2349 39 18 96.309494 of5 1 5 2 2 7 1059 2342 12 36 95.431549 a5 1 5 2 2 8 1075 2349 25 18 95.431549 de5 1 5 2 2 9 1107 2355 51 12 88.381935 novo5 1 5 2 2 10 1165 2349 114 23 95.670547 complaint.5 1 5 2 2 11 1287 2349 39 19 96.150490 Thes 1 5 2 2 12 1333 2350 61 18 96.150490 Elmo5 1 5 2 2 13 1402 2350 113 24 96.504341 Company,5 1 5 2 2 14 1522 2351 41 19 93.299652 Inc.5 1 5 2 2 15 1571 2358 18 12 91.549759 v.5 1 5 2 2 16 1597 2352 73 22 82.832428 F.T.C.,5 1 5 2 2 17 1675 2353 38 18 92.865929 3895 1 5 2 2 18 1722 2352 46 19 72.918274 F.2d5 1 5 2 2 19 1777 2354 36 17 0.000000 5505 1 5 2 2 20 1819 2354 55 19 0.000000 (D.C.4 1 5 2 3 0 551 2378 1323 30 -1 5 1 5 2 3 1 551 2378 39 20 95.721153 Cir.5 1 5 2 3 2 603 2379 59 21 96.374634 1967),5 1 5 2 3 3 673 2381 46 17 95.737274 cert.5 1 5 2 3 4 729 2379 79 22 95.737274 denied,5 1 5 2 3 5 817 2380 37 18 96.378166 3925 1 5 2 3 6 866 2380 46 19 95.869354 U.S.5 1 5 2 3 7 922 2381 37 18 90.799957 9065 1 5 2 3 8 969 2382 72 20 96.354858 (1968).5 1 5 2 3 9 1051 2381 48 19 96.711372 This5 1 5 2 3 10 1108 2388 47 12 96.711372 cases 1 5 2 3 11 1166 2382 16 18 92.504402 is5 1 5 2 3 12 1193 2388 11 13 95.837311 a5 1 5 2 3 13 1216 2382 52 19 95.837311 later5 1 5 2 3 14 1277 2382 74 19 96.138435 reviews 1 5 2 3 15 1361 2383 24 18 96.597321 of5 1 5 2 3 16 1393 2383 35 18 96.995979 thes 1 5 2 3 17 1439 2382 61 19 95.506973 Elmo5 1 5 2 3 18 1511 2384 97 23 96.708221 litigation5 1 5 2 3 19 1620 2385 114 23 95.325470 previously5 1 5 2 3 20 1745 2385 91 19 97.003754 referred5 1 5 2 3 21 1847 2389 27 15 96.534950 to.3 1 5 3 0 0 595 2408 1279 32 -1 4 1 5 3 1 0 595 2408 1279 32 -1 5 1 5 3 1 1 595 2408 65 22 0.000000 l2ITT5 1 5 3 1 2 673 2412 133 19 96.802505 Continental5 1 5 3 1 3 820 2413 80 23 96.377876 Baking5 1 5 3 1 4 914 2414 114 23 96.377876 Company,5 1 5 3 1 5 1042 2415 68 20 94.767700 (orders 1 5 3 1 6 1121 2415 100 23 96.399986 directing5 1 5 3 1 7 1235 2415 93 24 96.817589 hearings5 1 5 3 1 8 1341 2416 33 19 97.014610 for5 1 5 3 1 9 1386 2417 76 23 96.922775 receipts 1 5 3 1 10 1474 2417 23 18 96.744568 of5 1 5 3 1 11 1508 2418 104 20 96.133263 evidence)5 1 5 3 1 12 1624 2419 23 17 93.182098 815 1 5 3 1 13 1663 2418 67 19 87.450256 F.T.C.5 1 5 3 1 14 1744 2419 46 18 96.847290 10215 1 5 3 1 15 1804 2420 70 20 96.854271 (1972). 1566 Order However, the question of consolidating proceedings is traditionally left to an administrative law judge to determine, based on his analysis of whether the matters are sufficiently factually and legally related to justify being consolidated for the purpose of hearings to receive evidence. We also leave to the Judge the question of how to treat respondents’ Joint Answer to the Proposed Modified Complaint for it addresses the issues we rely upon the hearings to resolve. The Commission having found reason to believe that the 1968 consent order entered here fails adequately to protect the public interest, and having found reason to believe that the public interest would therefore be served by the reopening of this matter, accordingly: Now, Therefore, It is ordered, That respondents’ motion to vacate and set aside the Commission’s Order to Show Cause be, and it hereby is, denied;

It if further ordered, That this proceeding be, and it hereby is, reopened;

It is further ordered, That this matter be, and it hereby is, remanded to the Office of Administrative Law Judges for assignment to an administrative law judge to begin expeditious hearings, in accordance with this order, for the purpose of receiving evidence to determine if the Commission’s 1968 consent order should be altered or modified to encompass the practices alleged as illegal in the Proposed Modified Complaint and remedied by the proposed form of order thereto attached;

It is further ordered, That upon termination of the hearings the administrative law judge shall within 90 days thereafter enter his recommendations, confined to the issues hereinabove specified which shall be subject to review and final consideration by the Commission under Subpart F of Part III of the Commission’s Rules of Practice. It is further ordered, That staff counsel’s motion that this matter be consolidated at this time with Emdeko International, et al. be, and it hereby is, denied.

Commissioner Thompson dissenting.

Complaint 84 F.T.C.