Control Data Corporation

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IN THE MATTER OF CONTROL DATA CORPORATION, ET AL.

Docket 8940. Order, Nov. , 1.97.' Affrmation of administrative law judge s order denying- motion by Control Data Corporation to strike Paragraph Eleven of the complaint. Appearances For the Commission: Sharon S. Feather, Peter E. Greene and Edward D. Steinm.an.

respondents: Oppenheimer, Wolff Foster, Shepard & For the Donnely, St. Paul, Minn. and Jam.es F. Hogg, Bloomington, Minn. INTERLOCUTORY ORDER These matters are before us upon two applications for review and a certification by an administrative Jaw judge. In Electronic Computer Prograrnrning Insb:tute, Inc. the administrative law judge denied complaint counsel' s application for a subpoena duces tecum seeking, in part, evidence needed to support restitutionary relief and granted complaint counsel the right to appeal pursuant to Section 3.23(b) of the rules of practice. Respondents had argued that the subpoena sought information which was irrelevant in view of Heater v. P.T. 503 F. 321 (9th Cir. 1974), which held that the Commission lacks authority under Section 5 to order restitution for deceptive practices that occurred prior to the issuance of a final cease and desist order retroactive restitution. ). The law judge, without deciding the relevancy of the subpoena s specifications, suggested that the Commission might consider whether further proceedings in this matter should be deferred pending final review of Heater in the Supreme Court. In Lafayette United Corporation the administrative law judge issued an order denying respondents' motion to strike the notice order provision providing that consumer redress might be sought, granted in part and denied in part respondents' motion to quash a subpoena duces tecum, and granted respondents' motion for a protective order. The law judge certified to the Commission the limited question whether further proceedings should be stayed, in whole or in part, pending the Commission s decision whether it would be in the public interest to aUow complaint counsel to continue to seek restitutionary relief. Finally, in Control Data Corporation respondent Control Data filed a motion to strike Paragraph Eleven of the complaint which alleges in p"rt that Control Data s retention of funds obtained for "virtually 'Tile Commissinn subsequently rlec iced not t" seek review in the uprem" C"urt , 109:3 Order worthless" courses of instruction was an unfair act or practice in violation of Section 5. Respondent contended that the paragraph was included in the complaint solely to lay the groundwork for an award of retroactive restitution, barred by the Heater decision. The law judge denied the motion but granted respondent permission to appeal under Section 3.2a(b).

On July 15 , 1975 (p. 180, herein), the Commission placed the abovecaptioned matters on its docket for review pursuant to Section 3.23(b) of the rules of practice and invited the parties to brief the following issues:

(1) To what extent, if any, should evidence be presenter! and findings be made in the administrative proceedings regarding the nature and extent of the injuries sustained by consumers as a result of the challenged acts or practices? (2) To what extent, if any, should evidence be presented and findings be mane on thp issue whether the challenged acts or practices are such that "a reasonable man would have known under the circumstances (that they are) dishonest or fraudulent"? (Federa! Trade Commission Act, 9(a)(2), as amended by Federal Trade Commission Improvement Act, Pub. Law 9: 6a7, 9206 (Jan. 4, 1975)). Although the Commission adheres to its view that Heater was wrongly decided, we have determined that restitution under Section 5 wil not be ordered in these cases. In the event, however, that cease and desist orders issue in these matters, and should the circumstances warrant, the Commission reserves the right to bring consumer redress actions under these cases is whether inquiry into issues relating solely to redress under Section 19 should be permitted befor" the administrative law judges.

Section 19(a)(2) authorizes the Commission, after it has issued a final cease and desist order, to seek consumer redress in a court of competent jurisdiction. "If the Commission satisfies the court that the act or practice to which the cease and desist order relates is one which a reasonable man would have known under the circumstances was dishonest or fraudulent, the court may grant relief under subsection(b)."2Section 19(c)(I) provides that in a consumer redress action the findings of the Commission as to the material facts in the proceeding under Section 5(b)* * ' shall be conclusive unless (i) the terms of such cease and desist order expressly provide that the Commission findings shall not be conclusive, or (ii) the order became final by reason of Section 5(g)(1) (providing that a cease and desist order becomes final if a timely appeal is not taken j, in which case such finding shall be conclusive if supported by evidence.

Section 19 clearly contemplates that the Commission will make all , Subsection (b) auth')rizes the court to y;rant sud r Ji..f,," m:lY h" n "essary to r"dr""s injury, including, but n"l limit..d to "rescission "r rcform"tiun of clmtr"ets. the rf.fund of mon"y nr rdurn or property, tn.. paympnt or d"m"I1"" arulpublicnntific;,tionre"p.,ctinl1 th,'unrairordec"ptivcact"rpractic.. 217-184 0 - 76 - 70 1096 EDERAL TRADE COMMISSION DECISIONS Order 86 F.

findings pertinent to the Section 5(b) proceeding and the court will make those additional determinations relevant to the redress action. Thus, the court wil decide whether redress is warranted under the reasonable man" standard, applicable to actions brought under Section 19(a)(2), the nature of the relief necessary to redress any injury to consumers, and which consumers, if any, are entitled to relief. However, as complaint counsel argue, the roles of the Commission and the court will frequently overlap. Subject to the exceptions set forth in Section 19(c)(1), "the findings of the Commission as to the material facts in the proceeding under Section 5(b) * * * shah be conclusive " Frequently, findings material to the Section 5 proceeding will also have a bearing on whether the "reasonable man standard has been satisfied and on consumer injury issues. For instance, while an advertiser s knowledge of the falsity of a representation is not an element of a Section 5 violation, see DD. Corp. v. 125 F.2d 679 (7th Cir. 1942), it may be relevant to issues relating to the scope of relief and the degree to which a respondent must be "fenced in" to prevent recurrences of the ilegal conduct in the future. See, F. C. v. National Lead Co., 352 U. 419, 429 (1957); William H. Rorer, Inc. v. F.T. 374 F.2d 622, 626 (2d Cir. 1967); Joseph A. Kaplan Sons, Inc. v. 347 F.2d 785, 789 (D.C. Cir. 1965); Taylor-Friedsam Co. Inc. 69 F. C. 483, 497 (1966). Moreover, while a showing- of actual injury to consumers is not necessary to a finding that Section 5(b) has been violated, see Northern Feather Works, Inc. v. 234 F.2d 335 (3d Cir. 1956), evidence relevant to injury may, under some circumstances, also be pertinent to whether the challenged representations were false and hence, in violation of Section 5. The complaints in the instant cases allege that respondents falsely represented the availabilty of jobs for which their students were trained. A finding that graduates were not placed in such jobs would be relevant both to whether the representations were false and to whether consumers were injured. Nevertheless, it is clear that findings pertinent to Section 19 issues but not material to Section 5 issues, would not be conclusive in a consumer redress action. This does not mean that inquiry into Section 19 consumer redress issues,1 should await the issuance of a cease and desist order. If consumers are to be afforded the relief to which they are entitled, redress actions must be commenced as soon as possible and the actions must be prosecuted expeditiously. Delay in such cases would often reduce the chances of granting fully effective relief to , I ues relevant t" the Section 19 action hut nut to the determination of Section ;, liability wil heneerorth be referred to as "Section 19 isslJe Evidence relevant to whether a Section 19 actionhnulrl be brought and to the ddermination of Section 191iahility, but not to liability under Section 5, wil be referred to a Sectiun 19 evidence. 1093 Order consllmers since, with the passage of time, evidence inevitably becomes more difficult to obtain, assets are dissipated or bidden, and some of the consumers to be granted redress become impossible to locate. There can be little doubt that during the pre-complaint stage of an investigation, the Commission can collect Section 19 evidence since the prospect of obtaining consumer redress wil often be a factor in de6ding whether the issuance of a complaint would be in the public interest. Information collected during the pre-complaint investigation wil, of course, also be available at the close of the administrative proceedings to assist the Commission in deciding, assuming law violations have been found, whether to commence a redress action. It is likely that information collected during the pre-complaint investigation and tbe record of the Section 5 proceeding will provide the Commission with most of the information it wil need to decide whether to commence a redress action.

Therefore, we can see litte reason why proceedings before the law judges should be delayed by the discovery and reception of evidence relevant only to Section 19 issues. We have, thus, determined that the law judges should not permit the discovery or introduction of evidence relevant only to Section 19. On tbe other hand, efforts to obtain or introduce evidence material to the Section 5(b) proceeding shall not be objectionable merely because the evidence might also be relevant to a Section 19 redress action.

With these guidelines in mind, we shall consider the motions now before us:

I. Control Data Corporation, et a1.

We agree with complaint counsel that Paragraph Eleven should not be stricken from the complaint. Since a seller s retention of its customer s money can be an unfair trade practice in and of itself Curtis Publishing Co., 78 F. C. 1472, 1516 (1971), the paragraph states a cause of action, and, if proved, might warrant the ordering of other than restitutionary relief.

2. Electronic Computer Programming, Inc., et a1. Now that we have ruled how the redress issues in these cases should be treated, there is obviously no need to defer further proceedings. Since the law judge has not ruled on the propriety of complaint counsel' s discovery requests, he should now consider their application in accordance with the guidelines set forth in this opinion. 3. Lafayette United Corporation, et al.

As in Electronic Computer Programrning Institute, Inc. there is . Recau 1! or (Jur deej jon hot to permit inquiry into S..cti"/1 1!1 i5. ues during" the proceedings below, We find it unnecessary at this time to d"cide daims made in Dock"t Nos. H940 arid H9fj that discovery of Section 19 ..vid.."".. would b,'inappropriate bccauseS..etion 1!1 dots not reach acts that oceurred prinrto. lan. 197:, thedateofenactment or th,. Improvement Act. or prinr to the issuance "fthe complaints in these matt..rs. Complaint 86 F.

now no need to stay further proceedings. Respondents' claim that restitution is inappropriate in this matter because their services :rere not "worthless" has largely been mooted, in view of our decision not to order retroactive restitution under Section 5 in this matter. To the extent that it might be relevant to other kinds of relief under Section 5 a determination of respondents' claim wil have to await a fuller record. Accordingly, It is ordered That the administrative law judge s order in Docket No. 8940 denying the motion by respondent Control Data Corporation to strike Paragraph Eleven of the complaint is affirmed; the order of the administrative law judge in Docket No. 8952 denying complaint counsel's appHcation for a subpoena duces tecum is remanded for reconsideration in accordance with the guidelines set forth at p. 5 this interlocutory order; and the motion in Docket No. 8963 that further proceedings in this matter be stayed is denied..