*3 decided, however, The Commission Before VAN GRAAFEILAND regulatory efforts were foregoing BONSAL, all of NEWMAN,* Judges, Circuit and, published it inadequate, Judge.** District hearing a public proposed comment The Commission Regulation Rule. Trade GRAAFEILAND, Judge: Circuit VAN rulemaking proceeded originally under been with this petitions Twelve have filed 6(g) Fed power granted in section seeking Regulation review of a Trade Court Act, 15 U.S.C. Trade Commission eral Rule issued Federal Trade Commis- Refin which in Petroleum 46(g), National “Pro- on entitled sion December FTC, F.2d ers Association Study prietary and Home Vocational de (D.C.Cir. 1973), cert. U.S.App.D.C. nied, L.Ed.2d 438.1 Rule’s See 16 C.F.R. Schools.” enough permit (1974), was held broad stated as set broadly purpose, forth *4 proce of as well as the issuance substantive of and Pur- Commission’s Basis Statement 1975, However, 4, January on dural rules. is “to alleviate pose,2 currently abusive hearings, midst of Commission’s study practices against and home vocational Magnuson-Moss Congress passed the War students.” prospective school students and Improve ranty Trade Commission “abusive Although the Rule does define —Federal Pub.L.No.93-637, Act, ment 88 Stat. of practices”, Commission’s Statement preciseness with prescribes Title II of which that Purpose Basis and shows the Commis- authority to issue rules Commission’s decep- unfair and sion’s concern was with general policy of and out and statements sales, advertising, prac- tive and enrollment be fol rulemaking procedures lines of engaged by tices some the schools. in connection therewith. See 15 U.S. lowed 60802. Fed.Reg. See Following enact (Supp.1979). 57a C.A. § 7,000 proprietary voca- The more than legislation, ment of this Commission by schools will be covered tional comply hearing procedures changed January Rule on its effective date requirements. statutory the new Our with strangers ev- regulation. are no Almost is to primary appeal task on determine this ery legislation aimed at eliminat- State finally adopted was with the Rule whether ing some or abuses trouble general powers all of the of the Commission Trade Commission Act The United Veter- under Federal Commission. States specific provi by and refined limited ans Office Education Administration and of so, and, of section if whether sions 57a also have been active in this area. substantial evidence supported by was guide- issued a itself set of arbitrary nor capricious. was neither and private study lines for vocational and home schools, see 16 C.F.R. and has since 5(a) Federal Com- of the Trade Section proceedings against instituted several Act, 45(a), mission declares U.S.C. § under of the practices section 5 Federal Trade “unfair or acts unlawful, Act, 6(g) and 15 U.S.C. commerce” are section * Schools, Honorable of Jon Newman a United States sociation Trade and Technical Na- O. Connecticut, Schools, Judge Cosmetology District for the District of of tional Association sitting argument. designation Corporation of at time oral Insti- Data and Cleveland Control Electronics, tute of Inc. ** Bonsai, Dudley States Honorable B. United Amicus briefs have been filed the Council York, Judge, Southern District New District. Accreditation, Post-secondary on Accredited sitting designation. Proprietary Occupational and Schools of Con- necticut, (In Ad- 1. Petitioners and National Association of State are Katharine Gibbs School corporated), Institute, Computer Supervisors Processing Private ministrators Berkeley Inc., Westchester, Alba School Schools. Inc., ny College, Business Katharine Gibbs Inc., Purpose McGraw-Hill, Inc., is re- School-Huntington, 2. The Statement of Basis Na Council, printed Fed.Reg. Study at 43 60795-60817. tional Home dependent of In Association Schools, Colleges As- National designed Requirements prevent unfair
empowers the Commission make rules predicated upon the existence regulations purpose carrying practices are practices, 57a(a)(l) practices. of unfair These unfair out Section rede- provision. this underpin- authority statutorily which are the grant by providing this fines ning “requirements”, for the Commission’s may prescribe: that the Commission specificity. have been with should (A) general interpretive rules and state- of section prohibitions “Because ments of to unfair policy respect broad, quite trade Act affecting practices acts or specificity rules to define with are needed (within meaning commerce of section the statute and to conduct violates title), 45(a)(1) of this prevent requirements establish unlaw- (B) with specificity rules which define Conf.Rep.No.93-1408, ful conduct.” acts or which are unfair or de- Explanatory Joint Statement Com- affecting ceptive in or acts or Conference, reprinted mittee of in [1974] (within meaning commerce of section Ad.News, pp. Cong. U.S.Code & title). 45(a)(1) under this Rules 7755, 7763. subparagraph may include prescribed preventing requires The statute Purpose, practices. such acts or Statement Basis and accompany must shall include state- Magnuson-Moss provides Act also prevalence ments as to the of the acts or that, after rule takes ef- *5 practices by the the man- treated Rule and fect, a violation thereof shall be an unfair in practices ner which such acts or are or deceptive act 45(a)(1) under U.S.C. § deceptive. 57a(d)(l). or unfair 15 U.S.C. § provides. unless the Commission otherwise provisions meaningless These be if would 57a(d)(3). U.S.C. empowers It § practices unfair or acts civil Commission to commence a action for possible the Rule were future of violations rule, any violation of in which action the requirements. its remedial seek, may among Commission other reme- We conclude that the Commission erred dies, contracts, rescission or of reformation failing comply procedural with the the refund or money prop- the return of requirements 57a(a)(lXB). of section We erty, money damages. and 15 U.S.C. provisions also find several substantive 57b(b). defective, the Rule and the combina- contend, agree, Petitioners and we procedural tion of and substantive errors comply order with section requires that the Rule be set We will aside. 57a(a)(l)(B) the Commission must define remand the Rule to the so that specificity with in the Rule those acts or may comply the Commission with section practices which are unfair or deceptive and 57a(a)(l)(B) and or pro- delete amend those requirements include for preventing visions be improper. which we find to further, them. Petitioners contend follow, paragraphs In the we deal again agree, we challenged petitioner’s with additional claims error. does comply statutory with provi these sions. Instead of defining with specificity I practices those acts or which it found to be THE REFUND PROVISIONS deceptive, unfair or the Commission con tented itself with treating violations of defining Instead of specificity with “requirements prescribed the purpose sales, for advertising, and enrollment preventing” unfair as deceptive setting themselves it deemed unfair and the unfair practices.3 them, We think preventing that Con forth for gress expected more than this. the Commission to make it decided finan- simply any provides comply require- The Commission’s Rule school to fail with the practice is an unfair or act or for ments of the Rule. C.F.R. 438.0. practice or or tute an unfair act for covered unattractive dally who, promotion or accept a student sale the Rule to connection whatever, unlikely to finish the 438.0. reason a course. Id. § he or she had enrolled. course in which says, regulations, These by directing this its attack did struc- designed “to alter the incentive policies of the the tuition refund against enroll- obtaining vocational school ture schools. Fed.Reg. Elaborat- at 60809. ments.” 43 concededly did Although the Commission brief, in its subject the Commis- ing on this existing policies were not find that little the schools “make sion states that Fed.Reg. deceptive, see 43 either unfair if candidates to determine effort to screen they completely it directed that verbal, required reading they possess financially make more revised so as to them courses necessary skills for the mechanical ac- for the schools. This the Rule onerous they sign up “unsuitable study” make by requiring schools to complishes the Rule is said enrollees”. rationale of basis, per- pro on a strict rata refunds structural disincen- to be of] “[creation centage of the refund to be determined which, enrollment”, tives to indiscriminate attended or matching the number of classes language, less means dainty translated into completed against the total lessons incentives for “the creation structural classes, hours, to com- lessons enrollment.” discriminate 438.4. plete the course. See 16 C.F.R. § foray argues that The Commission pro on such a rata basis do Refunds a “reasoned into the field education is those costs that are fixed take into account legislative judgment” exercise of its enrollment, at the time of such salaries e., un- “plainly expertise, area within its i. staff, for teachers and classroom board- selling practices.”4 Commission coun- fair overhead, facilities, administration sel describe this as an exercise of the Com- books, supplies. The Rule does not discretion”, sub- mission’s “broad remedial “records, tapes, require a student to return ject judicial little review under to as slides, films, or any books other written *6 Act as exercised Magnuson-Moss had been materials” as condition of obtain- course prior disagree. thereto. We l(u); 438. see id. 438.4. ing a refund. Id. § Congress provided that the Com- When equipment of other furnished a The cost unfair and de- mission’s rules must define prorated must be in the same man- student clearly in- specificity, with it ceptive acts tuition, equipment unless a separate ner as the Commission’s definition tended that charge is made in the enrollment contract. judicial subject review. See would be made, separate charge if a is it will be Even refunded ment condition returned, or on a usability. pro rata basis regardless Id. § 438.4(c)(2). if the of its then equip- Al- Admin.News, (1974), reprinted in S.Rep.No.93 1408, — pp. 7702, [1974] 93d 7755, Cong., U.S.Code 7766-67. 2d Sess. Cong. & And Congress, being after informed not fault exist- when though the Commission did nonetheless, “strongly opposed” was provided, it the Commission policies, of re- newly evidence standard any comply failure to with its the substantial view,5 that stan- regulations incorporated would consti- prescribed refund nonetheless 4. Statements in the Commission’s brief decision schools, with “the limit cate that proprietary education sector. non-profit schools" the exercise of its claimed predominant category but not the is “to most apply pressing problems smaller Rule at may category expertise to the of this time it is proprietary first,” intend to that its dealing public indi- only 5. See Letter from nied & proprietary schools. House Committee Commerce, reprinted in sion Ad.News, pp. public, equal protection of distinguishes nonprofit 7702, Commission to Chairman on policies 7735-40. Interstate [1974] laws, from those and U.S.Code Commis- Foreign Cong. of time, however, response present At the being they petitioners’ de- contentions statute, II 57a(e)(3)(A),
dará see section obviously intended that a Commission rule not receive substantial evidence in the record taken as a whole.” 2d ence congressional purpose, own the final construction. cy interpretation sellschaft v. weight Cong. S.Ct. Sess. Commission’s action enabling legislation, 929, 19 & to an (1974), reprinted Ad.News, Although authority when it is consistent with the H.R.Rep.No.93-1107, L.Ed.2d 1090 FMC, agency’s Volkswagenwerk Aktienge judicial approval must be pp. courts 390 U.S. on 7702, interpretation Morton v. issues was [1974] granted normally give supported by 261, 272, judiciary 93d Ruiz, An statutory U.S.Code “unless Cong., defer agen of its ty, except as a that they too are invalid. sales, acts or hibit the ment statistics and though, disclosures. said to fall within ber 16 C.F.R. 438.3. These THE DISCLOSURE PROVISIONS making disclosure Commission’s Rule provisions dealing unlike making enrollment, petitioners of certain Again, may be said provisions may violation are defined with of other the field provisions graduation no unfair disclosures provisions require contains a factually the disclosure be such. Al- properly be advertising, rates. See job-place- specifici- refunds, contend correct num- pro- 1. Job-Placement Statistics (1974), when no “compelling there are wrong.” it is Espinoza indications Under each the Commission’s stu- Co., Manufacturing Farah 414 U.S. 94- given day dent is “cooling-off” fourteen 334, 339, (1973) 38 L.Ed.2d period during which he cancel his en- FCC, (quoting Broadcasting Red Lion Co. v. rollment without obligation financial 23 L.Ed.2d the school. After the accepted school has (1969)). the student’s enrollment contract it must Assuming, deciding, without that mail to student aptly a notice entitled power Commission has the to alter the “HOW TO CANCEL YOUR CONTRACT”. schools’ incentive structure engaging in If any prior the school has made reference high pressure or deceptive sales and enroll to the availability jobs ability practices, ment its Rule clearly so graduates its jobs, to find it must also en- scope. limited in its penalizes The Rule close in envelope the same form entitled every vocational every school for student Doing.” “How Our Students Are The in- dropout, regardless of cause. formation contained in this form must be This obligated Court take a close based knowledge” on the school’s “actual look at what Commission has done and graduates’ job experience, 16 C.F.R. *7 to determine whether it has articulated 438.3(c), which § must be stated in the “rational connection between the facts following manner: found and the choice Burlington made.” job “Since we made placement or earn- Lines, States, Truck Inc. v. United 371 U.S. ings promoting course, claims in this we 156, 246, 168, 239, S.Ct. 9 83 L.Ed.2d 207 prepared have our record these areas (1962); Office Communication of United your for review. As the Graduation Rec- FCC, Church of Christ 529, v. 560 F.2d 532 out, pointed ord graduated 50 students 1977); (2d Office, Cir. Home Box v. Inc. _to__ from this course from FCC, 142, U.S.App.D.C. 567 F.2d 185 We found that 38 76% of these 50 denied, (D.C.Cir. 1977), 168 cert. of_ graduates got jobs in the field 98 54 89 L.Ed.2d We graduation.” within 4 months of their 16 look, „ have a close we taken find no ra 438, Appendices C.F.R. § A—C. tional connection between The form must then show number of applicable universally “percent students and the of total” in each prevention specifically described salary several brackets. practices. unfair and enrollment
665 1974); 706(2)(C); Pa Cir. see U.S.C. may- information job-placement No other FTC, 472 F.2d envelope. percraft Corp. v. in the same contained many or, (7th alternatively, how students is exercis may 1973), not show school Cir. respond or did not contacted authority arbitrary could in an assigned its may not It job placement inquiries. its manner, 706(2)(A); capricious 5 U.S.C. § jobs not seek many of them did disclose how Ass’n. Nutritional Foods see National graduation after be- within four months (2d Mathews, 1977), F.2d Cir. employ- marriage, pregnancy, prior cause job- dealing with portion of its Rule ment, self-employment, continued school- stand. placement cannot disclosure in the record ing, or other reasons. Proof adherence to the Commission’s shows that 2. Graduation Statistics show job school to require one Rule would 5.8%, in fact placement rate when disclosure form entitled On the true success rate of those who employment Doing,” the schools Our Are “How Students 54%, inquiry responded to school’s the number and also to show are 80%, self-employed if those who became past classes who percentage of enrollees would have were included. Another school 438.3(a). graduated. 16 C.F.R. § figure approximate- placement to show a enclosing any prohibited from schools 67%, gradu- although almost 100% of ly with this communi additional information it. sought employment obtained ates who example, they may not cation. For state Nonetheless, must content itself each school occurred, they give dropouts may nor why quoted in the mar- with the anemic caveat pub comparative dropout statistics for privilege sending additional gin They are 438.3(e). schools. 16 C.F.R. § lic mailings. information in other however, permitted, following to make the factually
Obviously, statements so statement: “rec distorted not disclose the schools’ do evaluating figures, you “In should these job placement and earn ord” the area may drop out of a know that students ings. It unfair the school and the to both variety course of reasons. These for misguided require student the school to with the range from dissatisfaction say adequate explanatory so without com inability the work. Other course to to do ment. The failure to disclose material in personal for drop students out of school formation cause an advertisement 438.3(a)(5). reasons.” 16 C.F.R. § though be false or even it does not find as a factual The Commission did Management not state false facts. Simeon all, or even a basis FTC, (9th Corp. v. F.2d Cir. misrepre- portion, substantial 1978). designed Commission rules should be Fed.Reg. rates. 43 graduation sented their deception, to eliminate not to foster it contrary, it found that at 60805. On requiring deceptively the dissemination of a them. most schools do not disclose Id. incomplete Rog “record”. See Friedman v. However, found that 1, 19-26, ers, 440 U.S. rate information is graduation disclosure of J., (1979) (Blackmun, concur of claims proper essential evaluation ring dissenting part). Be part It concerning placement success. Id. con- attempting cause the to ex *8 occasion, that, this disclosure cluded on one power a at variance ercise “inconsistent and being buried in a design should be made without over-all of the 321, Act,” FTC, (9th accompanying v. 503 F.2d 323 material. Heater mass 438.3(b)(4) provides: area of train- in the field of to insert [school 6. 16 § C.F.R. Also, ing]. to reach some of we were unable may, option, A school its include the fol- at So, they got jobs. graduates our our to see if lowing statement on Disclosure Form might placement percentage understated. be Appendices the manner shown A-C: record, evaluating our all remember not get job this to our students took course requires to of the Rule little Giving deference discussion. Commission’s we find reasoning, proper this be re his permit former a student to cancel en- preventing quirement decep unfair and any rollment contract without financial ob- practices. tive There a valid distinction ligation days receipt within fourteen after requirement job-place between this and the of his TO “HOW CANCEL YOUR CON- regulations ment that we have heretofore TRACT” 438.2(d). form. 16 C.F.R. § figures Dropout found to be invalid. are in provide latter shall a student be possession be school’s can accurate given deemed have constructive notice of argue stated. Petitioners do ly that the his if fails intention withdraw he done, require cannot pre- attend classes submit lessons for but contend instead that the Commission’s periods. 438.1(n). scribed 16 C.F.R. against drop ban the inclusion of additional challenge concept Petitioners do not out violates their First information Amend is, cooling-off period, designed, of a itas rights ment enunciated in Linmark Asso give the breathing space student in which ciates, Township Willingboro, Inc. v. recognize to deceptive react 85, 1614,52 U.S. practices. cooling-off unfair sales Such strong argument This cannot provisions regu- are common in state school lightly brushed aside. See Cotherman prescribed by lations and have been FTC, (5th 1969); F.2d Cir. itself connection with ordi- Products, FTC, Ultra-Violet Inc. v. 143 F.2d nary door-to-door sales. See C.F.R. (9th 1944); 816-17 Cir. FTC v. Civil prefer 429.1. Petitioners would Bureau, reaffir- Inc., Training Service 79 F.2d procedure (6th mation 1935). which enrollment Cir. contract would be automatically cancelled held, however, The Supreme Court has unless a student reaffirmed. Residential speech commercial likely less than “[is] urge schools also that class attendance be other of speech forms to be inhibited considered a cooling-off peri- waiver of the proper regulation,” Rogers, Friedman v. su- od. These appropriately were matters ar- pra, 440 S.Ct. at 894 and gued before and decided the Commis- “regulatory may prohibit commissions busi- sion. making which, nessmen from statements though true, literally are potentially decep- The same is true provisions Young tive.” Theatres, v. American Mini constructive Presiding cancellation. The Inc., ample Officer found pro- evidence of the (1976); L.Ed.2d n.31, see id. at 68 96 pensity of some create technical We believe that when the Com- procedural requirements that must be mission prescribed requirements its for pre- met before the school is to make a venting unfair or acts prac- refund, and stated that was this kind “[i]t tices, the First permitted Amendment of chicanery which pro- involved us in this reasonable latitude to avoid the emascula- ceeding place first . . .” . tion preventive requirements were reasonably might result being from their buried ain eliminating aimed at this abuse. mass of other material. We conclude that modest, the Commission’s one-time ban on
the furnishing diluting factual informa- IV tion is reasonable and does not peti- violate tioners’ First Amendment rights. THE PREEMPTION PROVISIONS preemption provisions of the Rule
Ill part read as follows: COOLING-OFF AND CONSTRUCTIVE “This preempts trade rule any CANCELLATION PROVISIONS law, rule, state or regu- challenge cooling-
Petitioners’ to the lation inconsistent with or other- *9 off and provisions constructive cancellation wise the purpose provi- frustrates of the
667 rule, traditionally occupied by states. Jones except this trade regulation sions of Co., 519, 525, 97 exempted Packing v. Rath 430 U.S. such where the Commission 1305, regulation. (1977). 604 law, or L.Ed.2d or local rule 51 a state S.Ct. any appropriate If, application upon Act, Magnuson-Moss Con- enacting agency, governmental local state or that the did intend Commission’s gress determines state “occupy so as regulations the field” should statutory regulatory provision affords regulation whatever. preclude any state than to students greater protection pre- Act no Magnuson-Moss contains provision Commission’s comparable provisions. indications emption Such requirement then the state will be rule may gleaned as congressional intent be specified to the applicable extent history from the of the 1975 en- legislative on the ex- Commission’s determination predecessor actment bills con- and the 438.9. 16 C.F.R. emption application.” show Congress7 sidered the Com- highlights the failure of provision This more regulations mission’s were to have no specificity with define that which flows preemptive effect than are practices the acts or unfair or inevitably repugnancy between from the Rule is purpose stat- deceptive. and state Commission’s valid enactments general ed in terms the alleviation of to be regulations. If the Commission had vocational practices against abusive it specificity the acts or prospective home-study school students deceptive, questions of deemed unfair* or specification In the absence of a students. rela- preemption be answered with could which the Commis- the acts An tively difficulty. entirely little differ- deceptive, sion deems the breadth picture ent when the Commis-' presented places preemption is such pre- authority sion to decree assumes the variety of state issue an indefinite laws regulation law emption state governing the regulations contractual purpose” its Rule’s which “frustrates relations between vocational schools and provisions. out One inadequately spelled their students. wonder, example, well state may what long firmly since been
It has estab said to regulations might be frustrate regulations lished that state statutes provisions, designed the refund enacted superseded by validly regu they structural disincen- are to create as the agencies lations of federal such FTC. tives to indiscriminate enrollment. See, Bland, 663, g., e. Free v. 369 U.S. 82 permits govern- fact state 1089, (1962); Spiegel, 8 180 S.Ct. L.Ed.2d agencies come the Com- mental before FTC, 287, (7th Inc. v. F.2d Cir. grace preemption mission from does seeking FTC, 741, 1976); Royal Oil 262 F.2d Corp. v. solve of overbreadth. problem 1959); (4th Cir. Chamber Commerce FTC, (8th 1926). explicitly v. 13 F.2d Cir. formulated Where However, regulation shall in conflict preemption before federal statute or occurred, law, law preemption to have there must be with state of state deemed supremacy of such from inevitably either a clear manifestation con follows VI, gressional conflicting intent or inconsist clause of Article the Constitution. 2; Bland, supra, regulations. state ency between and federal Clause Free v. Growers, 666-68, Lime & Inc. v. 1089. There is no need
Florida
Avocado
S.Ct.
Paul,
preemp
10 the
to so state. The
U.S.
(1963);
Zook,
go
provisions
336 tion
of the Commission’s Rule
L.Ed.2d
California
overboard,
beyond
They
668 unpleasant legal avoid consequences, merit in the
We find no
Commis
causes
impact
a serious
justifying
and immediate
the asserted illegality
sion’s contention that
prompt
Abbott
v.
review.
Laboratories
provisions
is not an
preemption
issue
Gardner,
152-54,
supra,
U.S. at
387
87 S.Ct.
preemption
ripe
provisions
for review.
1507;
Broadcasting System,
Columbia
Inc.
form,
they have the
are in final
force
States,
418-25,
supra,
v. United
316 U.S. at
Congress provided that not later than
law.
62
S.Ct.
sixty
promulgated any
rule is
days after a
person
petition
interested
file a
in the
already
Petitioners are
before this Court
judicial
circuit court for
review of the rule.
seeking
portions
of other
review
57a(e)(l)(A).
15 U.S.C.
A “rule” under
§
Rule.
of the Rule
Enforcement
will not
by thorough
Administrative Procedure Act includes
delayed
further
review of its
provisions.
Indeed,
cor-
agency
petitioners
“the
of an
state
if
are
part
whole or a
rect
in their
as to
particular applicability
or
contentions
the over-
general
ment of
provisions,
breadth of
preemption
designed
implement,
and future
effect
operation
efficient
of the administrative
interpret,
prescribe
policy
or
law or
. .”
.
process
will
disposition
be furthered
551(4).
5 U.S.C. §
we now make.
jurisdiction
given
This Court is
to review
chapter
the Rule in accordance
7
V
hold it
Title 5 and should
unlawful
if it is
law,
COSMETOLOGY
not
SCHOOLS
in accordance with.
5 U.S.C.
706(2)(A),
statutory
in excess
or is
7,000
Of the
schools affected
the Com-
jurisdiction
authority,
or
5 U.S.C.
2,400
mission’s
over
are
schools
706(2)(C).
broadly
provi-
These
remedial
cosmetology.
predominantly
These are
small,
sions should
be construed
not
in such
having
of them
annual
gross
petitioners
receipts
$100,000.
manner as to deprive
They
of their
of less than
right
fifty
the absence
licensed in all
review “in
of clear and
states
cosmetolo-
gy boards or
convincing
regulatory agencies,
similar
Congress
evidence
in-
so
which
graduates
also license
Cort,
prescribe
367,
tended.” Rusk v.
369 U.S.
379-
training requirements.
primary goal
80,
794,
787,
(1962).
S.Ct.
L.Ed.2d 809
of cosmetology students
is to
secure
question
presented by petitioners’
license,
necessarily
job.
a full-time
challenge
legal one,
purely
e.,
i. whether
Many graduates
work,
only part-time
seek
given
been
power
go
themselves,
into business for
leave
preemption
declare a blanket
practice
reenter the
of their profession as
law, rule,
state
that “frus-
their needs dictate.
trates
purpose”
of its Rule. See Abbott
Petitioner, National Association of Cos-
Gardner,
Laboratories v.
387 U.S.
Schools,
metology
asserts that
there was
(1967);
18 L.Ed.2d
Gard-
little if any
showing
evidence introduced
ner
Association,
v.
Inc.,
Toilet Goods
that cosmetology schools
guilty
were
Commission,
abuses
that concern
(1967);
Broadcasting System
Columbia
Inc.
argues that
schools
those
should have been
States,
United
exempted
completely
from
require-
L.Ed. 1563
ments of the Rule. The Commission does
persons”
Petitioners are “interested
with-
assertion,
seriously
petitioner’s
dispute
meaning
57a(e)(l)(A).
section
but
petitioner’s argument
answers
by point-
They have an immediate and pressing need
ing to
provisions
57a(g)(l),
of section
to know whether the Commission has valid-
permit
cosmetology
ly
laws,
preempted
rules,
all state
regu-
petition the
for exemption.
lations that “frustrate the purpose” of the The
long
Commission cites a
line of
cases
Rule because their conduct in each of the
support of its contention that “an agency
fifty
governed
states must be
accordingly. may adopt
shown to
appropriate
a rule
conform,
This need to
based on the
generality
desire
of instances
and leave
*11
individuals,
upgrade
or
improve
or
qualify
applications by
injustices to
correction of
need,
employment
Nu
for
.
.
National
those concerned
the skills individuals
761,
FDA,
F.2d
trade,
v.
504
job
Foods Ass’n
or
occupation,
tritional
in
any specific
in
denied,
946,
1974), cert.
420 U.S.
(2d Cir.
mechanical,
technical,
positions requiring
(1975);
1326,
L.Ed.2d 424
see
S.Ct.
trade, artistic,
business,
supervisory, clerical
Allegheny-Ludlum Steel
United States
“gener-
not include
other
but does
skills”
1941,
749,
Corp., 406
which do not
self-improvement
al
courses
Permian Basin Area
(1972);
necessary to ob-
training
purport
offer
to
Cases,
Rate
390 U.S.
specific
skill or
employment
tain
VI
found
port
Presiding
at
Officer
DEFINITION OF “COURSE”
employed, he
already
“if
the student
presti-
for a more
prepare
wants
himself
in the Rule
term “course” is defined
pay, perhaps in
program
“purports
prepare
gious position
as a
with better
cosmetology
already
cosmetology
evidence that
re-
absence
8. The
schools have
engaged
quested
exemption,
have
an
disposi-
prevent
designed
proceeding pursuant
“cannot
to 5
Rule
commenced a
U.S.C.
exemption
exemption
determining
from
an
tive in
whether
553 to determine whether
appropriate.”
granted.
Id. at 40931.
should
In the
Invita-
argument
Comment,
Fed.Reg.
(July
accepting
40929-32
the Commission’s
tion
adequate protec-
that,
exemption
1979),
provisions furnish
on
stated
based
schools,
it,
cosmetology
do not
we
tion
the evidence then before
it was “unable
for
exemption
necessarily
adopt
finding required
above-
the Commission’s
make the
an
provisions.
quoted interpretation of those
this time.” Id. at 40929.
Is also stated that the
field’,
acquire
allegedly
‘up-and-coming
or to
and an
biased staff do not disclose
addi-
knowledge
improve
skills
that will
tional
properly
are more
process
lack
due
present working capability
pre-
and/or
his
Congress.
addressed to
See Vermont Yan-
increases,
pare
pay
promotions
himself
Corp. v.
kee Nuclear Power
National Re-
re-designations
higher-paying posi-
into
Inc.,
Council,
sources Defense
tions, or
into supervisory posi-
advancement
539-49,
(1978);
cluding “Beginning such courses as Typ- CONCLUSION ing”, “Trouble-shooting Systems”, Fuel stated, For the reasons above we conclude Grinding “Identification Wheels”. It ar- formulated, that presently is gues quite reasonably that the furnishing unlawful and must be set aside. The mat- graduation rates for two-hour courses and ter is remanded for fur- job-placement rates for courses such as “Be- ther proceedings not inconsistent with this ginning Typing” hardly can be what Con- opinion. See NLRB Food Employ- v. Store gress had in mind when it authorized the Union, 1, 9-11, ees 417 U.S. 94 S.Ct. prescribe requirements (1974). L.Ed.2d preventing unfair acts or practices. NEWMAN, Judge, dissenting: Circuit Because we predict cannot what form the This is the first case to decide the lawful- Commission’s revision of present its Rule ness of a promulgated by rule the Federal take, approve will we will disapprove newly Trade Commission its under con- existing It hoped, definition. authority firmed to use the rulemaking however, that Commission will recog- power protect American consumers from legitimate nize the complaints merits of deceptive unfair practices. trade such as those Control Data and will make Congress settled long-standing appropriate modifications in either its re- question of whether the Federal Trade quirements, definition, both, its so as to Commission has substantive rule-making relieve expenditures those schools of authority by enacting 202(a) Mag- § reasonably related to or for the nuson-Moss Warranty Trade Com- —Federal prevention practices. of unfair acts and Improvement Act, mission Pub.L.No. 93- 88 Stat. codified at 15 VII legislation 57a § U.S.C. This made PETITIONERS’ REMAINING explicit the Commission’s substantive rule- CONTENTIONS making authority respect to unfair or complaints
Petitioners’ ex parte deceptive practices. acts or Cf. National communications between the Commission Petroleum Refiners Ass’n. Federal Trade any application 9. The Rule excludes from scope This exclusion so limited in as to price course practical whose total contract is less than have little effect. The Commission’s “provided one hundred dollars suggestion any petition student school for the any has not exemption any enrolled in other course with that of its courses under section during year 57a(g) school equally impractical calendar view statutory school does not requirement rulemaking proce- offer other ‘course’ as paragraph, petition for one hundred dure must on be followed each ($100) exemption. dollars or more.” § C.F.R. 438.- § See U.S.C. 1(c)(4). procedurally the Rule is majority believes Commission, 157 482 F.2d U.S.App.D.C. did not denied, because defective cert. (D.C.Cir.1973), deceptive practice (1974) each first define affirm- separately stated follow with a authority promulgate then FTC (upholding remedy practice. each 6(g) requirement of the Feder under ative rules substantive case, I find the Act, 46(g) of this 15 U.S.C. In the circumstances al Trade Commission proce- matter of the Rule for lawful as a entirely invalidates (1976)). The Court Study based on a consider- My and Home conclusion is Proprietary Vocational dure. (1979), Schools, part 438 conclud 16 C.F.R. the statute and ation of procedural and the Rule violates that informed Con- rule-making experience Magnuson substantive the statute. enactment of gressional concern respects. in four These Moss two-step ap- contemplates a The statute pro practices, definition of of an un- mandatory definition proach: job-placement dis remedy, rata refund permitted practice and fair or provi preemption closure and the remedy, But the terms of remedying of it. *13 that the sion. Court also concludes The definition require that do not statute challenges all the other- Rule survives independently always be remedy and the Believing that petitioners. mounted would be an requirement a stated. Such response lawful respects in all a the Rule is many situations in empty formalism prac deceptive unfair and to documented aspects and remedial the definitional where to exist tices found the Commission An obvi- practice coincide. deceptive aof field, I vocational school proprietary whenever the Commis- example occurs ous dissent. partic- in a that consumers sion determines Deceptive Practices 1. Definition of being misled because certain are ular field the Rule is them. In such situa- that is not disclosed to majority The concludes data is the failure to tions, practice failure to define procedurally deceptive defective for data, re- and the obvious deceptive practices pertinent acts or unfair or disclose the 57a(a)(l)(B) the data be quired by requirement remedy U.S.C. is a deceptive provision authorizes the Commission This disclosed. The definition opposite it are prescribe remedy for practice and the happens, When this of the same coin. sides (B) specificity rules which define with prevent read to not be or de- the statute should which are unfair practices acts or decep- defining as a from affecting com- the Commission ceptive practices acts the re- the failure to observe practice tive (within meaning of section merce purpose would be remedy. No 45(a)(1) title). quired under this of this Rules the Commission by insisting that requirements served subparagraph may include fail- practice the deceptive as a prescribed preventing first define for the data and then pertinent ure to disclose practices. such acts or obligation to dis- specify remedy as a of the Vocational School The structure close the data.1 imposes upon undisputed: is the Rule However, adopted are not some remedies require- the schools several affirmative is itself unfair or deceptive practice a because their absence as a ments and defines deceptive only they ap- because are an each of these but school’s failure observe propriate response decep- to some unfair or requirements. believes that practice occurring perti- tive expected more from the Commis- Congress prac- industry. nent The failure to observe that deceptive of a sion than the definition comply remedy sort of is not what the statute tice in terms of a failure Apparently permits to condemn as requirements. affirmative practice deceptive making analysis applies conduct such as the 1. The same to Commission particular misleading speci- prohibit specified a claim and also remedies that Commission need not conduct. fy remedy separately as a that the claim not be made. define as a deceptive practice, invalidating way unfair or and the Com- in which the Commis- adopt rule mission therefore cannot authority. sion has exercised that practice. provisions for unfair or calls such a failure an unfair or son-Moss. This wording ure to port ate two version, simply authorized the definition of bill, House of deceptive practice give found to be unfair or failure This from the the unfair or when the analysis comply independently independent In those situations where the fail- substantially Representatives deceptive, observe a 57a(a)(l)(B) legislative history Magnu- with a FTC history failure deceptive practice flexibility, deceptive, required remedy, statute, rule-making remedy requirements. became the enacted defined in terms of indicates that itself statute version of the remedy.2 permitting designed draws not to cre- properly requires itself sup- but be doubt that the forming met.” several No.93-1107, min.News, reprinted quired within ic definitions of such sion from School Rule would and the specific Furthermore, “reasonably its ambit of the remedies. Indeed, the schools of “the definition activity in order to rules under its pp. defining 93d [1974] provisions Congress to be avoided.” Cong., 2d Sess. 46 extremely specific Congress required specif- U.S.Code 7727. There can them experience are too prevent unfair obligation fairly general of the Vocational did obligation complain precise. so that a Cong. terms of inform those with trade rule-mak- to be require H.R.Rep. Commis- & (1974), in in- to be rule met Ad- re- no prior authority Magnu- as exercised deceptive practices, spe- unfair or *14 without son-Moss supports further the Commission’s cifically authorizing remedies. H.R. approach requirements to the structural of 202(a), 93d 2d Cong., Cong.Rec. Sess. 120 § rule-making its authority. When the Com- (1974). 31743 The report Conference makes began issuing regulation mission trade rules clear that second sentence of initially specific decep- in it attacked 57a(a)(l)(B) § was added “for purpose practices precisely tive that be of could clarifying perhaps what was a technical occurring defined in terms of what was in deficiency in rule-making provi- the House place. the market of S.Rep.No.93-1408, sion.” The use “cut size” Cong., 93d 2d Cong. Sess. 31 & (1974), Admin.News, reprinted pp. in [1974] U.S.Code 7763. dimensions finished unaccompanied by product was found dimensions misleading of Thus, drafting Magnuson- sleeping bags in as to 16 its version of tablecloths. Moss, (1979). apparently parts designa- House C.F.R. 404 The believed that the first 57a(a)(l)(B) sentence of tion was as already misleading § “automatic” found prescribe included authority sewing part to machines. 16 C.F.R. 401 remedies. It is ironic (1979). designation “leakproof” the conferees’ decision to The was add language confirming the misleading found as to batteries. 16 C.F.R. broad authority case, become (1979). should a basis for part remedy 403 In each 2. support existence of circumstances contends its under which failure deceptive always practice view deceptive that a must make a disclosure is to consumers. independently remedy defined prevalent of a found in What is is the absence of certain provision concerning data, the Act’s of the content a under circumstances where the data is purpose. contexts, statement of deception. basis and That state- In needed to avoid other prevalence ment prevalent “the of describe what are the various false practices claims, misleading rule, acts or the rule.” 15 treated not defined a but view, 57a(d)(l)(A). majority’s In U.S.C. a purpose, described in a statement of basis and newly requirement imposed failure to observe a and remedied the affirmative deceptive practice could itself be a imposed Perhaps why by a rule. previously “prevalent.” it because was not In 57a(d)(l)(A) prevalence prac- refers to the of view, my adequately docu- by rule, tices a “treated” rather than defined prevalence practice deceptive ments the of a a rule. widespread when record demonstrates leading deception possible. on to areas curring could was achieved first imposed affirmative ure to the rule on practice by defining C.F.R. remedy) g., ladders, practice into a single structure. The Rule line either in the absence of octane U.S.App.D.C. at tive and remedial A specified C.F.R. this first played claims confronting as a [sic] tional Petroleum Refiners Commission, supra, troleum Refiners Ass’n simple These rules were of two basic A second The Octane description rule on Fed.Reg. remedy (1979); simple prohibition of deceptive type and use part at part term. and to prohibition as a generally that occasioned A was type gas combatted specified designations. Purpose. glass C.F.R. detailed presence type variety of (always began consumers leather content rule only trade station market more failure practice octane of the description place of As fiber 85, n.1, (1979). of rule (1979); by establishing rule, part on radio to include the Commission moved (1971), reprinted described, was a where the nature of aspects in a Statement of Base complex, upheld requirements. defining in a codified misleading fabrics, 16 pumps, place ratings deceptive techniques misleading the use the failure to do so. who combining promulgated by Fed.Reg. misleading statement of basis rule classic comply practice Ass’n, supra, 157 F.2d at was not these cases of a Federal purchase gaso transistors, and but of belts. 16 rule. on extension must be National types. soon a rule C.F.R. statements a rule example rules that it prevalent See, deceptive with the at 23871. precision the mis- situation substan the fail- ratings always See, octane found Trade e. part was most Na dis n.1. Pe oc- g., e. That rule cancel door-to-door off” practice. of the evolution of the Commission’s quired that each informing him of his cancellation to-door quired The rule makes and the cancellation change the Commission’s proach ing a Code Rep.No.93 1107, supra, ure gives no indication that Conference The Octane the House 93-1408, the Octane thority trade ity to use making from unfair or cluding Code exercise under sought to confirm the Commission’s hearing rights of affected businesses must be gress protect and & overturn 15 U.S.C. § In *15 Admin.News, p. to observe course of the provided period Commission, notable Cong. & deceptive practice in terms of Cong. & practices. enacting Magnuson-Moss, required that legislative clear that their to trade notice the Commission was sales. those supra, supported by — any defined failure rule-making required those Report. Report went further: it Rule sales to 57a(b), (c). example was the rule on purchases within Admin.News, of that a subject sought three rule that Magnuson-Moss. Admin.News, purchaser receive a notice history of There Congress as an rule-making proceedings. affirmative Congress C.F.R. the Commission’s Id. business reviewing rules themselves. rights [1974] permit to alter to Commission rule- “cooling-off” substantial specifically at to combat arbitrary example Congress wished at approach 32-33, was not so no part was who Magnuson-Moss at rules, see H.R. U.S.Code as a expanded the addition, purchasers to basis for give days p. p. requirement. fully continue [1974] court [1974] make actions structural S.Rep.No. deceptive deceptive “cooling- evidence, Congress noted the re- it cited the au- author- (1979). rights. during period a fail- aware defin- Cong. door- could Con- U.S. con- sup- rule ap- re- To era pre-Magnuson-Moss Congress pre- ported. 57a(e)(3)(A). Id. § misleading by identi- protections combatted statements to such real procedural ferred practice imposed by as an to the ma- fying protection, unfair the failure the artificial Commission to provide jority, requires consumers a means of avoid- with verbal recitations. ing consequence deception. engage of the The in formalistic requiring took step the obvious remedial Analysis of the Vocational Rule School fully why it satisfies the defi- demonstrates their The Rule coalesces these disclosure. 57a(a)(l)(B). requirement of Es- § nitional aspects defin- substantive and remedial sentially imposes the Rule four affirmative deceptive failure practice as a requirements, and defines as an unfair or graduation job-placement disclose the failure practice comply served, useful data. No would with each them. four requirements The Congress, certainly required by none (1) are: schools must disclose the number forcing put provi- in one percentage enrolled students in each sion of the Rule a definition that failure to graduated; (2) course who schools that deceptive practice disclose the data is a express concerning make claims availability provision of the a remedy another jobs earnings achieved must requires disclosure the data. number, percentage, disclose and salary provisions and refund cancellation ranges graduates of recent known have subject analysis. the Rule are to similar jobs; (3) found schools must afford stu- many Commission found “cooling-off” dents a fourteen-day period in making claims misleading false and which enrollment contracts be can- job- concerning graduation rates and celled and must inform students of their concerning placement success also a stu- but rights cancellation and how to exercise attending experience dent’s while classes. them; (4) schools must refund to stu- prevalence “exagger- *16 Fed.Reg. at 60801. The there- Commission dents in First, least respects. two it specified permit fore that it is unfair not to denies students information to needed make students cancel entirely to their contracts an informed choice as to whether and where “cooling-off” period after a and also unfair spend to money their for vocational educa- not permit to them cancel contracts Second, tion. to their it leaves unrebutted the mis- during leading partially pro a course and receive a that making claims some schools are Following rata concerning graduation their refund. the structure of the job-place- and rule, ment rates. door-to-door sales the fully The Commission Commission has ex- plained practice these considerations defined as unfair the failure in its State- to ment of and Purpose (SBP) accompa- Basis observe the Commission’s cancellation and nying Fed.Reg. 60796, the requirements. Again, Rule. 43 refund as a 60805- matter (1978). OS Having procedure, point that found the absence there is no in demand- graduation job-placement and ing data is first as an the Commission define substantively misleading, the Commission practice unfair the failure to afford these SBP, in of defined instead described opportunities refund cancellation and provision in the a second then include the Rule itself. opportunities.
requiring these 57a(a)(l)(B) au- is no doubt that There § provision be satis- refund can While the in a rule to include thorizes Commission instance as factorily analyzed another “prescribed requirements aspects definitional and remedial where the preventing practices,” referring acts or such coincide, deceptive practice an unfair or the rule practices or defined in itself. to acts proce- has further invited Commission hastily not be concluded that it should But objection provision dural refund adopted requirements be remedial can acknowledging provision refund deceptive prevent only practices defined remedial,3 thereby recognizing essentially the rule. To read the statute body it remedies is practice which that the unfair propel the frequently would fashion man- the failure to simply observe regula- a Commission into more extensive In the Com- requirement.4 dated refund practices thought than it nec- tion of trade a provision mission’s view refund example, in this case the Com- essary. For deceptive remedy for various unfair or practice, in the practices, deceptive some of which are defined as a mission has defined which in the Rule and some of are described Rule, gradua- in the the failure to disclose cites as example, the Commission SBP. For placed job-placement data but tion and the refund deceptive practice remedied deceptive practices in the various SBP job- provision a school’s failure to disclose and mislead- concerning discovered false it placement earnings data. SBP them- ing claims made about the schools Fed.Reg. at The diffi- C(6)(a), 43 60809. § required to selves. If the Commission were analysis mislead- with that is that the culty place Rule all false and of these will not job-placement claims nature them as de- misleading claims define many students until apparent become variety of conduct ceptive practices, wide provision when refund graduation, after Rule, found readily be to violate could remedy. an effective To will not be subjected being to individualized instead provision is a reme- extent that the refund 5 of the Federal adjudication under Section dy, deceptive practices remedies primarily Act, § Trade Commission U.S.C. to be discovered students while likely practices are long deceptive So school, misleading still in such as false defined, with sufficiently and documented While concerning claims the school itself. evidence, why I reason see no substantial fully claims described in deceptive such force their should read to the statute SBP, question further arises whether consequent ex- placement in the provi- can adopt a refund panded regulation, that are instead of the SBP.5 remedy sion to “predicat- discusses the in its SBP 3. states that it has then The Commission remedy re- unfair ed the 438.4 as a for other [the Section provision] ability prevent deceptive practices. fund on its remedy practices 5 of the violative of Section Act, pursuant FTC Act 18 of the FTC Section objection possible permitting remedies A empowers adopt deceptive practices in the Rule to linked to require- trade rules which include 57a(e)(5)(C) insulates the SBP is designed prevent ments of acts occurrences judicial review. But of an SBP from contents that have been as unfair or apply, should Com- insulation C(6)(a), under Section 5.” SBP otherwise, not claim to review mission does Fed.Reg. at 60809. *17 sufficiency deceptive placed practices in the body Rule itself. rather than in the SBP respect approach the is Congress sub- the wanted courts to review designated anomalous. somewhat It has not any deceptive was the practice that stance require- provision in the refund Rule as a the regard- predicate requirement, for a remedial deceptive prac- preventing unfair or ment tices, deceptive print- practice was the by 57a(a)(l)(B), preferring less of where permitted § as practice deceptive ed. the to define as an unfair or requirement. But the failure to observe refund Thus, some always I because of the schools will not pro- am satisfied that the refund procedurally proportionate is either recoup vision valid because share of able provide the failure to prop- “cooling-off” provision refunds itself fixed costs. The erly practice, effect, defined as an unfair obliged be- a school the same because the provision cause refund bears a suffi- make total refunds to students who cancel ciently relationship decep- remedial “cooling-off” period during 14-day will practices tive are forgo profits money to and sometimes lose adequately are set forth in the SBP. school has incurred extent ad- teachers, expenses, as extra ditional such persuade All of these considerations me expectation of increased enrollment. that the entire pro- Vocational School Rule Realizing profits of forgoing the risk cedurally complies 57a(a)(l)(B). Of losing if either money even students cancel course, procedural compliance the Rule’s during the and obtain total refunds “cool- e., no validity, assurance of substantive i. ing-off” period pro and obtain or withdraw supported by Rule is “substantial thereafter, thereby rata refunds schools are rulemaking evidence in the record . using deceptive from dissuaded whole,” as required by 57a(e)(3)(A), as will learn enroll students who later and not otherwise unlawful. Of the several rightfully truth and demand return of all or Rule, affirmative requirements in portion of their tuition. majority finds provi- two —the refund sion and the job-placement disclosure of preven- Despite the obvious remedial statistics —to be substantively I deficient. provi- tive the refund purposes achieved now turn to two requirements. these sion, it for majority invalidates what
2. The Refund Provision appear possibly to be two related reasons. First, points majority out that the re- pro The provision, rata refund which the provision applies fund to all schools covered majority invalidates, primarily serves they whether or not have same remedial “cooling-off” as the engaged specific deceptive provision, cancellation major- which the occasioned the need for refund ity upholds. “cooling-off” remedy pro- provision remedy. The refund is also avail- vides an opportunity student to undo students, all regardless why able to they the financial commitment that has been course, choose withdraw. Of the same made, instances, at least in some reliance “cooling-off” observations are true of the on a school’s Similarly, claims. remedies, period and cancellation which the refund permits the student to upholds. But the fundamen- more undo, basis, at least pro on a rata the finan- tal answer is that the of sub- was, cial instances, commitment he in some rules, power stantive all like exercises of wrongfully induced make. nature, essentially legislative that is fre- provision, the “cooling- like quently cover than more instances those off” period, entirely legiti- also serves an requirement. that prompted the preventive mate purpose of deterring the objection using universality schools from has a histo- deceptive practices. It by lessening ry does so incentive for as old itself. com- voca- plaint application tional schools add to has usually their of universal enrollment students legal who have been been the last lured and least successful ar- gument claims. These will find regulated industry. students out that Cf. Buck claims Bell, about the school true and
will therefore
their
(1927),
claim
refunds. The
677
redress of demonstrated evils as distinct
assigning cars
respect to
requirements with
mines,
prevention
potential
from the
ones.” Pa
Brandéis observed
at coal
Justice
general appli
European
v. Federal
establishing a rule of
cific Coast
Conference
that “in
Commission,
cation,
validity
supra,
U.S.App.
126
a condition of its
Maritime
it is not
235,
appro
evidence of its
at
priateness
respect
every
railroad
objection prevail
universality
Nor can the
.
.
applicable.
which it will be
.
[T]he
provision applies
the refund
because
Commission,
legislators, may rea
like other
by the
to all of the schools covered
general.”
particular
son from the
students, regard-
all of the
Rule but also to
Cases,
564, 583,
274
Assigned
The
Car
U.S.
seeking refunds.
less of their
reason for
727, 734,
(1927).
1204
47 S.Ct.
71 L.Ed.
See Agencies exercising substantive rule-mak-
Allegheny-Ludlum
also
United States
improper
conduct
authority
prevent
742,
1941,
32
Corp., 406 U.S.
Steel
their remedies so
are not
to tailor
(1972);
European
Pacific Coast
that none but
precisely as to insure
Maritime
Conference v. Federal
Commis wronged can ever benefit from them. All
230, 235,
sion,
U.S.App.D.C.
126
376 F.2d
regulations improve
many
sorts of
the lot of
785,
(D.C.Cir. 1967) (“[T]he essence of
suffer be-
persons
specifically
who did not
application”).
rule-making
generality
is
cause of the
that occasioned the
simply that the
complaint
The
here is not
regulation.
Congress
that enacted
particu-
from the
Commission has reasoned
aware,
Magnuson-Moss was well
for exam-
general
concluding
lar to the
that a wide- ple, of the Commission’s rule on door-to-
spread
pointed
The more
condition exists.
sales, permitting
door
consumers to cancel
objection seems to be that
the Commission any
days, regardless
within three
contract
requirement
imposed
upon
has
a remedial
had
of whether the salesman
committed
class not all of whose members have been
deception
regardless
of the consumer’s
shown
improperly.
to have acted
When
cancelling.
reason for
imposed upon
remedies are
a class that
in-
however,
point,
basic
is that
cludes one or more identifiable subclasses to
always
availability of the refund
serves the
remedy
whom a
has not been
shown
purpose
deterring deceptive practices,
appropriate, courts have not hesitated to
preventive
effect
lessened
g.,
intervene. E.
United States v. Nova
simply
sometimes
becáuse
claimed
Corp.,
Products
Scotia Food
from students without “a needlessly on plausible, tion is but rests interest Whether the stu- course.” interpretation rigid of the Rule. ma- dent is serious or frivolous would seem to misleading job-place- jority considers he have little connection to whether disclosed percentage ment deceptively been enrolled. But overall job-placement school that makes any quoted paragraph plain makes thrust requires per- claims. The primary deterring focus is on en- course, reflect, centage the ratio of rollment of the deceived student. Whether graduates jobs to have found prove or not the refund will to be known within way deterring graduation to the total effective four months of practices, clearly I way. 438.3(b), find graduates. rational number C.F.R. §
(c). rate, placement graduates, That known from all its as the the actual rate is not contend, petitioners may be lower than the unavailability knowable. The of the actual placement actual rate because the school placement rate preclude should not may be unable to contact graduates some requiring Commission from disclosure of Furthermore, jobs. who did obtain pe- placement the known rate.6 contend, titioners required placement Ironically, majority provides eloquent rate is based on the gradu- total number of testimony very on the need for the remedy ates rather job- than the total number of it has The majority invalidated. refers to seekers, considerably less. one instance where the Commission’s Rule I readily agree can that any remedy re- *21 requires report, a school to truthfully, that quiring the misleading distribution of infor- 5.8%, the job-placement known rate is mation contrary would be to the Federal majority whereas what the calls “the true Act, Trade Commission but I find no such employment success rate of those who re- violation here. The Commission faced a sponded” was 54%. There are two reasons difficult choice selecting the ratio that why highly misleading it is to call this 54% fairly indicates job-placement a school’s suc- employment First, “true success rate.” cess. It considered alternatives and for suf- the majority acknowledges, but as schools ficient rejected reasons them. SBP do, rarely only this rate is based on those C(4)(b), Fed.Reg. at 60807. If it had responded who to the school’s inquiry. The industry’s succumbed to the suggestion that majority’s example is a television servicing the base only graduates include who had 2,270 school that graduates, had of whom contacted, been the resulting placement only responded job-placement to the rate inflated, would have been falsely since inquiry. (McGraw-Hill 9-10). Brief at it presumed can be that employed gradu- school, Neither the majority, the pro- nor ates are likely more unemployed than grad- spective students may who read the school’s respond uates to inquiries. to school Exclu- advertisement any have reason to think sion from the base of those not seeking jobs that placement rate for the more than also risked false placement inflation of the half graduates of the respond who did not rate because some of those not available for anywhere high near as as for those who did. employment may have become so reason of their initial inability to job. find a Secondly, as fails to ac- knowledge, the 54% success percentage is reality Faced with the single that no per- not based graduates on all the 929 who centage give could complete picture of the responded, but on job-placement the 244 of these rate, opted Commission (26%) reported who they for a that percentage seeking were reports that very one sig- part-time full- jobs. Again, nificant and entirely truthful neither the por- fact: majority, school, tion of graduates nor the prospective known nor jobs to have within four graduation. any way months of students have of knowing I see how no prohibit reason to many seeking jobs Commission from 685 students not re- quiring the disclosure of dropped that statistic. out of the labor market because of statistic, most course, useful would the difficulty finding job or because- placement But, actual rate. unless the woefully course left them unprepared to school has contacted and responses received handle one.
6. The ratings Commission faced deceptive. a somewhat similar Fed.Reg. octane was problem deciding Then, whether and how to re- when the Commission de- quire ratings.. Industry require disclosure of octane ratings, cided to disclosure of octane it required sources industry contended that disclosure of faced contentions that no one of the rating misleading octane would rating systems entirely because three available ac- public mistakenly situation, would tend to believe curate. In that the Commission did rating key this gaso- was the thought indicator of not even select the one it was the best quality line available; to the exclusion of all rating sys- other factors. instead it invented a new objection, tem, average reckoned with existing based on an of two of but decided Id. at 23882-83. systems. nonetheless the absence of and it further appendices place- the known fact remains notice “shall con- provides required graduates is 5.8%. the school’s ment rate of representa- no other information respond- tain true that of the who It is also 438.3(e). It true tions.” 16 C.F.R. ed, jobs. is also 132 or 14% obtained seeking still respondents the 244 that of provisions these not construe I would jobs.7 any- But jobs, or 54% obtained from includ- prohibit the schools the Rule majority’s opinion and reads one who statement truthful ing in the disclosure thinking he or she up for this course signs necessary to make the re- reasonably data finding will be chance of work 54% job-place- the known quired disclosure of disappointed. I see no reason to fault sadly misleading. percentage ment thinking that when the wording to be used properly sets forth the fails to figure reports school 54% specifies required for the notices qualifications that report important the two representations no other information placement rate known reduce that to a true nor on disclosure statement may appear 5.8%, misleading prospective rate any other materials be included in students. envelope in which the statement provisions These insure that apparent is the Rule’s mailed. More troublesome required to be furnished is simultaneous disclosure information prohibition of the *22 form, data, in reasonably data available readable see SBP any other even made Fed.Reg. and C(9), 43 not hidden necessary put required job-placement to the pamphlets. of other But those perspective. into The known a welter statistic representation benign purposes upon not be relied rate a truthful should placement is fact, interpretation to Rule a that misleading give rigid if it were the but it could be rep- prohibit factually a inclusion of by prospective mistaken student as a would the placement necessary to avoid a actual rate. accurate data mislead- resentation the recognized ing impression and that the disclosure state- The Commission this risk permitted might to. state in the have. the schools ment otherwise required disclosure statement that not all of Rule example, says the the For when took a course to obtain a school’s students may caveat modi- include the that jobs, that the was unable to reach school significance place- of the known fies the they got jobs, and graduates, some to see if rate, interpreted per- ment it should be that, result, placement percentage as a the percent what of the mit a school state majority The criti- might be understated. graduates or not were not contacted- did “anemic,” a description cizes this caveat as graduates of the percent and what respond so, entirely if it as the not undeserved get job. the a The did not take course contends, the may that school not permitted caveat that wording of the states many respond show how did not students could reach “some” the the school jobs. seeking were not graduates they got jobs see if and the assumption data on these items of the took course to “not all” students data, get the appear required job. the disclosure a If school has truthful on interpret support prohibi- statement from the text of there is no reason to the draws only specifies against disclosing Rule. The Rule not the tion “other information” the disclosed, so from percentage rigidly prevent must be it also as the school required replacing states that the “format” of the “some” and “not all” words examples percentages. forth notice must conform set with the actual numbers percentages, majority reports, high all the As as as well as other are flawed 7. rate as can be if includes inclusion of those em- derived the denominator in the numerator 80% misleading only only only part-time. Surely responded ployed those who it is and those seek- jobs graduate “employed” if his the numerator includes not that a to claim employment servicing averages than hour a those who but also those TV less one found self-employed. who became In addition to week. text, figure, problems in the discussed 80% greater preemptive job-placement the known effect than that which That would leave percentage ratio to be disclosed between rules results from conflict these e., only graduates requires, i. with enactments. state jobs responding and known to have explicitly disclaimed agrees also and has graduates, including numerator all (Commission’s any greater power. Brief at those who enrolled without intention 116). language states seeking jobs, if denominator. But “preempts any provision the Rule the school data put required has the law, rule, regulation which is any state percentage perspective, it should not be inconsistent with or otherwise frustrates doing from so. is no barred There reason to purpose provisions trade interpret prohibition on “other informa- simply paraphrases rule.” This way tion” forces preemption the test for that has estab- been arguably misleading disclosure to be Supreme lished Court. Colorado See possibly prohibi- therefore That unlawful. v. Anti-Discrimination Commission Conti- tion can still keep serve off disclosure Inc., Lines, 714, 722, nental Air 372 U.S. statement and out of the transmittal en- (1963) (“To L.Ed.2d velope all topics, information on other while pur- hold that a state statute identical permitting vague words of the caveat to pose federal statute invalid under quantified. Clause, the Supremacy we must able to construed, required job-place- Thus conclude that of the federal misleading ment disclosure is neither nor statute would to some extent be frustrated arbitrary capricious. statute.”); by the state Davis Elmira Bank, Savings Preemption Provision (1896) (state L.Ed. law The majority pre- also concludes that the Supremacy violates Clause when “frus- rule, emption provision of the 16 C.F.R. *23 purpose trates the the legisla- national 438.9, power Congress exceeds the grant- accord, tion”); Nash v. Florida Industrial ed to the Magnuson- Commission in the Commission, 235, 240, 389 U.S. Moss Act. The Commission contends that (1967) Davis). (quoting validity the preemption provision of the is ripe not adjudication. for This be true majority upon “pur- seizes the word for a the challenge provision as applied. pose” provision preemption the challenge A of that sort adju- should await scope provision Rule to inflate the of the dication in the alleged context of an conflict beyond what the Commission intends. In specific with some regulation. state law or view, majority’s provision the would Optical, Cf. Lee Inc. v. Board of Examiners preempt any state law that conflicts not in Optometry, (W.D. Civ. No. 77-0326-T only with the operation Rule but 5, 1979) (adjudicating Okl. Feb. and uphold- also for adopting reasons the Rule. ing the preemptive effect Commis- example, For majority fears that sion’s rule ophthalmic goods, on 16 C.F.R. remedy preempt only would con- part (1979), upon specific statute). laws, flicting any state refund but also laws out, But as the majority points a facial concerning structure, the schools’ incentive challenge to provision appropriate is provision designed which the refund now, adjudication because it does not in- affect. Since the Commission does not volve any specific consideration of state claim interpretation such broad and the statute. Supreme preemption Court cases do not au- Having reached issue of facial validi- reading, thorize such a broad there is no ty, however, I would conclude that majority reason for the to read the rule so validly Commission had power exercised its broadly thereby find it invalid. The under the Magnuson-Moss Act. I agree Rule properly understood mean that a with the Congress did not state law would frustrate the intend the Commission’s rules have provided if it Rule a lesser refund or deceptive practices pro- field of sive attempted not if it “cooling-off” period,8 schools. study vocational and home prietary in some school abuses regulate vocational major on the Rule said, petitioners’ assault “The The As the Court way. unrelated investigation is that regu- that resulted from that state both federal and test of whether N.R.A.-type in a new era of regulation it ushers indus- or the state may operate, lations ground- codes. That fear is not regulations try-wide way, is whether both give must type exempli- the fed- Whether codes of the impairing without less. can be enforced field, challenged in this case are superintendence eral fied way protect similar or differ- consumers from they are aimed at whether a sound Avocado and whether the Lime & objectives.” misleading ent Florida trade 132, 142, Paul, is worth the Growers, regulation Inc. v. resulting burden Congress. 10 L.Ed.2d issues for policy benefits clearly agency intended substantive was the test that was gives This Congress When large exceed the it a and it does not it accords authority, rule-making It is the re- power. legislative power. measure of how to determine Congress sponsibility of suggestion, a majority’s Contrary to the Our task- being used.9 wisely power as this one is preemption provision limited being is to determine whether conflicting state laws is displacement the Rule judgment lawfully. my used the existence unnecessary not rendered entirely lawful. challenged in this case is with, begin To Supremacy Clause. preemp- that this makes clear provision intended, leaving rather than tive effect is open for intent question of Commission importantly, litigation. More
subsequent adopted by the preemption provision actually the natural reduces
scope preemption in certain circumstanc-
es, such as those where the Commission Petitioner, JAIN, Prakash Om determines that the state offers the Rule protection consumers more than Invalidating does. the entire AND NATURALIZA- IMMIGRATION SERVICE, Respondent. increasing impact risks of the federal TION *24 legislation, rule on state since even state 79-4138. No. Docket laws than the federal stronger Appeals, United States Court requirements might preempted under Second Circuit. Supremacy Clause in the absence of provision. Commission’smodest Argued Nov. 5. Conclusion 21, 1979. Decided Dec. Magnuson-MossAct Congress enacted the vigor- to take empower consumers ous action on behalf of American deceptive trade protect against them spent four
practices. The Commission documenting exten-
years investigating authority. rule-making No- providing equivalent greater On Commission’s 8. A law state Representatives protection to consumers either would be held vember the House (1979), Cong., passed Sess. not “inconsistent” with the 1st H.R. 96th legisla- likely exemption subjecting or would be a candidate for rules to all trade 1,205-06 (daily Cong.Rec. ed. Commission. HI tive veto. 125 27, 1979). Nov. body Congress ready 9. At least one significant legislative oversight assert over notes dent who withdraws SBP completing before concerning ated or false statements part course a of the proportional tuition facilities,” equipment school’s “the part the unfinished of the course. quality provided,” of instruction and “the Initially, may be observed that the rule availability part-time employment oppor- literally 57a(a)(l)(B). complies § during tunities course.” SBP Rule does define unfair several B(3)(b)(l), Fed.Reg. at 60799. The § practices and does so with specificity. Commission concluded that it is unfair not While the Rule these practices defines opportunity to escape afford students an terms of remedy, ap- consequences deceptions financial of the proach, for all stated, previously reasons they subjected. Having to which had been is valid since as to each surveyed existing cancellation Rule, the aspects definitional and remedial practices, the Commission found that of each deceptive practice coincide. The though practices were these not themselves provisions first two previously fit men- deceptive, C(6)(a), unfair or 43 Fed. SBP pattern represented tioned by the Octane Reg. such resulted “in Rule. The Commission has found that large losses and attendant harsh financial absence of graduation and job-placement B(6)(c), consequences for students.” SBP data is seriously misleading potential stu-