and on which we have other legislation either pending or recently enacted. Mr. DUNKELBERGER. Senator, if I may interrupt for a minute, I would like to say I was one of many who had the good fortune to hear your talk at the National Canners Association convention a few weeks ago, and I would like to say I think your talk made a great impact on virtually everyone in that audience who share a concern about the legitimate areas of need for consumer protection. Our major concern is that in searching for remedies; that the remedies not go beyond the established need; that they be consistent with what we believe is fair process, due process, and sound government. Senator Moss. Thank you. I appreciate your coming here today and giving us the benefit of your testimony and the position that the canners felt should be represented here, and I am sure that our objectives are the same. We hope to arrive at the same place. We certainly do not want to create an unfair situation where the distributor and the manufacturer is placed at a disadvantage that he cannot possibly bear under the market circumstances in which he must operate. At the same time we want to be sure that the consumer is protected in his rights so he does have faith in the market and that quality and quantity are used as competitive factors in the pricing of goods. We want to be sure that competition is not perverted into other areas where selling is predicated on things other than quality and quantity. (The full statement follows:) Senator Moss. Thank you very much, Mr. Dunkelberger. STATEMENT ON BEHALF OF THE NATIONAL CANNERS ASSOCIATION My name is Edward Dunkelberger; I am a member of the firm of Covington and Burling, which is counsel for the National Canners Association, a nonprofit trade association of almost 600 members from all parts of the country. Members of the Association pack approximately 85 to 90 percent of the national production of canned fruits, vegetables, juices, specialties, meat and fish. Mr. Chairman, we very much appreciate this opportunity to present the views of the National Canners Association on the consumer protection legislation currently being studied by this Subcommittee. The three bills under considerationS. 2246, S. 3092, and S. 3201-are extremely broad in scope and would directly affect virtually every commercial enterprise in the United States. The range of deceptive and fraudulent practices that have been cited by proponents as establishing a need for new consumer protection legislation has been broad, indeed, but we have seen no evidence that such practices have been found in the canning industry or that the comprehensive Federal regulatory structures presently applicable to canned foods has significant weaknesses or gaps. Particularly because the remedies proposed would have such a broad impact, far beyond the limits of the claimed need, we urge upon this Subcommittee that corrective legislation be carefully fashioned and that basic principles of fairness, due process, and sound government not be overlooked. Our testimony today will focus primarily on S. 3201, for that bill has received the most attention at these hearings, but much of what we will say also is responsive to other bills before the Commerce Committee and to other related issues that have been raised. FTC Jurisdiction You have already heard conflicting testimony from the members of the Federal Trade Commission with respect to the advisability of expanding FTC jurisdiction to reach deceptive acts and practices "affecting commerce" in addition to those "in commerce." Then Chairman Paul Rand Dixon, at the December 16, 1969, hearings of this Subcommittee, strongly urged that this new jurisdiction not be conferred upon the FTC. This expansion of FTC jurisdiction would have little, if any, impact on the canning industry, for we are confident that the interstate distribution of canned foods from even the smallest commercial canning establishment renders the Association's members fully subject to the Commission's existing jurisdiction. We concur, however, in Chairman Dixon's conclusion that this proposal will not effectively further the cause of consumer protection and believe that it may, if enacted, prove a greater disservice than service to the consumer. In our view, the Federal Trade Commission does not have the capacity to handle the additional cases that this proposal would bring within its ambit. The limitation would be felt initially in terms of manpower and facilities. The Commission is simply not equipped to deal with the multitudes of small consumer complaints by which, if the provision had its intended effect, the agency would be inundated. As Chairman Dixon indicated, the FTC would be unlikely to be able to resist the strong pressure that would be brought to bear that it accept and resolve these complaints. Perhaps the greatest criticism of FTC activity in recent years, voiced in reports of public and private study groups alike, has been an overriding absorption with small cases. FTC dockets, it has been said, are controlled by the "vicissitudes of the daily mail." This practice has led one Commissioner to voice the lament that in Commission activity, "there operates a kind of Gresham's law. The trivial and inconsequential cases leave little room for, and tend to drive out, the substantial and significant." (Gimbel Bros., 60 F.T.C. 359, 378 (1962) (Elman, Comm'r, dissenting).) In our view, the local complaints that fall beyond the "in commerce" language of Section 5 of the FTC Act can much more readily be dealt with by local agencies which, because of their local character, can deal more directly and often extra-legally to resolve problems and disputes. There is a real danger that this amendment, if enacted, would discourage the continuation and expansion of consumer protection activities on the part of state and local units of government in this area. Preliminary Injunctions A second aspect of S. 3201 (and S. 2246) requiring serious reconsideration is the authority that would be given the Commission to obtain preliminary injunctions and temporary restraining orders The Association believes that the Federal Trade Commission should have the power to prevent the continuance of allegedly deceptive acts or practices pending trial on the merits in appropriate cases. Because of the drastic nature of the remedy, however, it is critically important that the circumstances in which such an order is appropriate should be carefully and clearly prescribed. The measures before this Subcommittee would authorize the Commission to seek, and a United States district court to grant, either a temporary restraining order or a preliminary injunction. As to the temporary restraining order, there is no apparent justification for it in the commercial context to which this legislation will apply. We are talking here about an ex parte order, which may in effect constitute a decision without trial, without even an opportunity for the alleged violator to present his side of the case. We urge that the mere possibility of such an occurrence is sufficient ground in itself to warrant removal of the temporary restraining order aspects of the bill. Similarly, even a preliminary injunction should not issue prior to the issuance of a complaint in the Commission, as is contemplated by the legislation as presently drafted. There appears no justification for the imposition of this harsh penalty unless information sufficient to warrant a complaint has been accumulated. In a commercial context, a preliminary order may well bring an end to the whole controversy and, indeed. the entire enterprise. The possibility of ultimate vindication in the Commission is strictly theoretical in many cases after public announcement that an injunction has been issued Such a power over economic life and death should not be left free for exercise at whim or on surmise. If information sufficient to warrant issuance of a complaint exists, the complaint should issue. If such information does not exist, the preliminary order should not be available. Even when a complaint issues, the preliminary injunction should be available, not as a matter of course, but only under carefully circumscribed conditions, where the danger posed by the allegedly deceptive act or practice is so great as clearly to warrant imposition of so severe a penalty before trial. Initially, it should be made manifest in the legislation that the traditional rules of equity applicable to the consideration of whether or not a preliminary injunction should issue are to be fully applicable to the operation of this section. President Nixon, in his October 30 Message on Protection of Interests of Consumers, stated in this context that: "The judicial process includes safeguards which will assure that this authority is fairly used. Courts will retain their usual discretion to grant or deny an injunction in the light of all the consequences for both the accused and the plaintiff. Parties will, of course, retain their right to a fair hearing before any injunction is issued." (Emphasis added.) The question of who should be authorized to seek injunctive relief before the courts also is a troublesome one. As the bill is presently drafted, it is the "Commission" which is authorized to obtain an injunction, through a designated attorney. This does not appear appropriate in view of the fact that the Commission must subsequently act upon the case in its judicial function, and the appearance, if not fact, of prejudgment would be exceedingly difficult to overcome Some have suggested that the Commission's General Counsel be given authority to seek a preliminary injunction, so as to screen the Commission from an appearance of prejudgment. Even this approach might be troublesome in view of the fact that the General Counsel is an employee of the Commission, but it would be preferable to the Commission itself becoming an advocate in a proceeding in which it will ultimately sit as a judge. Perhaps the authority should not be vested in the Commission at all, but should rest with some outside authority, such as the Justice Department. Private Recovery Possibly the most troublesome of the proposals before the Subcommittee are those providing for the payment of damages, or civil or criminal penalties, for violations of Section 5 of the Federal Trade Commission Act. The Federal Trade Commission was not established as an agency to penalize offenders, and its statute is not drafted in a manner that such a purpose can be fairly achieved. In fact, the Commission, as conceived by Senator Newland and Louis Brandeis, was originally intended to serve only an advisory function; it was to be an overseer of business, responding to a growing fear of economic concentration. It was only by amendment of the original Bill that the Section 5 proscription of "unfair competition" enforceable by a cease and desist order became part of the Act. A reading of the legislative history indicates that the language was intentionally vague, to afford the Commission broad opportunity, in effect, to write its own law of unfair competition. As a result of subsequent court cases limiting the Commission's power to proscribe "unfair competition" to situations where it was shown that a competitor and not merely consumers, was injured by the practice, Congress passed the Wheeler-Lea Act of 1938, amending Section 5 to include a prohibition of "unfair acts or practices." It is under this broad proscription that the FTC has proceeded literally to create a law of false and deceptive advertising. This very flexibility-this effective delegation of the Congressional power to legislate over a broad spectrum-renders Section 5 totally inappropriate as a vehicle for creating a direct private remedy. No one knows what Section 5 prohibits until the Commission speaks, and, when necessary, its word is sustained by the courts. It is difficult to conceive of a more vague proscription than that of "deceptive acts or practices." Simply stated, no one should be punished for doing what, until he did it, had not been deduced to be wrong. Businessmen should not be required to become seers in order to predict on pain of penalty what the Federal Trade Commission-or a court-may determine are deceptive acts or practices. In a very real sense, what we are talking about here is in its effect a retroactive or ex post facto lawmaking. I cannot stress too greatly the importance of this concept of the need for notice, for fair warning, for clear definition of what the law forbids—a concept basic to Anglo-American law-a concept that is inherent in all our laws that prescribe a penalty for failure to observe a prohibition. When Congress chose to delegate its legislative function to the FTC with respect to unfair or deceptive acts or practices, it carefully limited the Commission's authority to that of enjoining continuation of a practice found to be in violation. The Administration Bill-S. 3201-was apparently drafted with this problem in mind, for it would confine the imposition of a penalty in the form of damages to those instances in which a person committed one of the unfair or deceptive practices specified in Section 201. Even this approach raises troublesome questions, however, for the specified practices are in some instances phrased so broadly or ambiguously as to give inadequate notice to those who will be regulated and penalized. For example, the term "new" in subsection 201 (a) (6) is vague, and open to various meanings. It connotes considerably more than the negative formulation, "unused." The subsection might be more precisely phrased, without losing any of its intended or legitimate coverage, if it read “representing that goods are not used or reconditioned knowing that they are ;". The terms "grade" and "quality" in subsection 201(a) (7) are equally troublesome, since they may include within their connotation representations of opinion, taste or subjective evaluation of a product. Certainly, a manufacturer or seller should not be exposed to damage actions merely because some consumers or even a trier of fact-might differ with his nonobjective description of a product as having a "good taste,” a “pleasant fragrance,” or “satisfying texture." Similar difficulties inhere in the terms "performance" and "benefits" in subsection 201 (a) (11), particularly where such factors are described in subjective terms. The more specific factors in the "laundry list" appear adequately to cover those situations where a supplier should be well aware that a contemplated claim or practice would be unfair or deceptive. But even if the "laundry list" were revised to eliminate ambiguous and subjective terms, substantial questions would remain concerning the proposals to introduce the class action technique into consumer protection suits at the Federal level. Given the characteristics of the type of consumer fraud that has often been referred to in these hearings-one that is perpetrated in a substantially similar manner upon a large number of consumers and at a relatively small financial loss to each individual-the class action might appear to be a most appropriate means of insuring that the remedy afforded is both practicable and effective. There are inherent dangers in the concept, however, with which the Subcommittee is undoubtedly familiar, but which are significant enough to warrant rehearsing. The first serious difficulty is the potential, too often realized, that the threat of a class action lawsuit and the attendant publicity and expense may be employed as a vehicle for harassment and coercion. The second and related concern is that it provides an incentive for the filing of suit in situations where, if the potential fees to be derived by an attorney were not so great, the merits of the case would not justify the filing of a suit. Society obviously has an interest in the existence of an effective means for the prevention of fraud and deceit and for compensating those found to be injured by such practices. There is also a substantial public interest in discouraging frivolous, harassing or inconsequential litigation, which unduly clogs our judicial system, constitutes an unnecessary social cost, and threatens the economic life of the potential defendants. We firmly believe that the degree of regulation applicable to food products— and in particular to canned foods-strikes a reasonable and effective balance between the competing needs of the public. As we have indicated, we are not aware that the fraud and deceit said to give rise to a need for new consumer protection legislation can be found in the canning industry. Indeed, the intensive regulatory controls embodied in the Federal Food, Drug. and Cosmetic Act provide a high degree of protection for consumers against fraud and deceit in food labeling and composition. The great bulk of canned foods are governed by definitions and standards of identity, minimum standards of quality, and standard for fill of container. All of the labeling and adulteration prohibitions are backed up by strict criminal liability, by seizure of violative products, and by sweeping injunctive authority. In addition, the Wheeler-Lea amendments to the Federal Trade Commission Act provided special protection to consumers against false advertising of foods, drugs and cosmetics—including provision for preliminary injunctions and criminal penalties. With this broad range of Federal controls against fraud and deception in the marketing of foods-most of which have their counterparts in state laws and regulations we see no basis whatever for the canning industry being exposed to the potential harassment, expense and publicity of class actions that can not possibly provide consumer protection in as rational, comprehensive and effective a manner as existing Federal and state regulatory controls. If some class action legislation is deemed by Congress to be necessary as a supplement to inadequate or ineffective Federal laws, then it would seem to be reasonable to limit the legislation to the problem areas, or to preclude its application to products now regulated under the Federal Food, Drug, and Cosmetic Act and the Wheeler-Lea Act. Perhaps the best approach would be to explore alternative means of private recovery, such as empowering the Federal Trade Commission to bring suit for damages to be held in custody for injured consumers. But here again it would be essential to provide for a penalty in the form of damages only for specified, well defined fraudulent or deceptive practices. Carefully developed legislation along these lines might well avoid the serious problems inherent in unlimited class actions while at the same time making unnecessary the two step recovery contemplated in S. 3201. Thank you. Senator Moss. This then will close our hearings for today. We have no further hearings scheduled, but should they be, they will be announced publicly and made available. If those who appeared as witnesses have additional comment they want to submit to us in writing, they may do so, and they will be placed in the record if they are timely received. We appreciate those who have given attention to these hearings today and the previous ones we have held. We are now adjourned. (Thereupon, at 12:35 p.m., the subcommittee was adjourned.) Senator FRANK E. MOSS, LAW OFFICES OF WEIL, LEE & BERGIN, Chairman, Subcommittee on Consumer Affairs, DEAR MR. CHAIRMAN: May I again express my great appreciation for the privilege of partaking in colloquy with you and members of your subcommittee on Tuesday morning, February 3rd. Your courtesy and interest were most gratifying. You will recall having extended me an opportunity to propose suggestions as to allowing consumer class actions for violations that are truly substantial, without precipitating what would amount to little more than strike actions based upon conduct that is classifiable as a violation only by the retroactivity of a new decision, or on the basis of a highly technical legal construction, or which, in any event, does not result in damage to individual consumers of any real significance. Reduced to the simplest terms, it seems that we are dealing with the question of substantiality at two points: 1) substantiality of the "wrongdoing" and 2) substantiality of the injury it causes. As to the first of these, I find no alternative that seems better than to eliminate violations of $5 of the Federal Trade Commission Act (which can be so unpredictable, tenuous and legalistically hypertechnical) as a basis for class actions. This would mean, as I have already submitted to you, rejecting that aspect of S. 2246, as well as § 201(a) (11) from S. 3201. As to the second, I am unable to think of any means to objectively formularize significance or substantiality other than by quantitative measure. While the present minimum amount of damage to create federal jurisdiction, $10,000, is obviously astronomical for this purpose, I do propose that a minimum per capita amount to qualify one as a member of the class should be established, even if it be only $10. I am not insensitive to the fact that one can feel very put upon even though no more than a few pennies may have been involved in an incident. Nonetheless, since consumer class actions are bound to impose certain costs upon the community which must eventually recirculate back to consumers themselves, whether in the form of taxes, higher prices, further clutter of already overcrowded court calendars, I suggest that some practical limitation be established below which it may be deemed that potential recompense to given persons is quite outweighed by detriments it imposes upon the total society. One cannot expect much discipline |