will depend on the circumstances of the case. If there is a list of consumer customers, mailings can be made. If they are concentrated in certain census tracts, mailings can go out throughout those census tracts. If they are attentive to certain media-whether local newspapers, national magazines, television, or radio— where the initial violation may have been perpetrated, such media can be used to convey the notice. Whatever means are necessary to bring to the attention of the injured consumer the availability of relief will be used. Once the consumer becomes aware that relief is available, recovery will be expeditious. He can put the process in motion simply by advising the Federal Trade Commission of his interest. The Commission will then ask the consumer to complete a form setting forth the basis for his claim. The agency should devise a simplified form for this purpose which could be adapted on a case-by-case basis. Thus, if the consumer has been defrauded through purchase of an unlawfully priced article of apparel, he might possibly be asked when and where he bought it; and whether he has any record of the purchase or the article itself. The form stating these questions could be made available through the mails in the initial notification of customers, and would be disseminated by the Commission in response to any inquiry about relief. On receipt of this form, the Commission would forward it to the defendant. In most cases the supplier, rather than undertaking the expense of contesting a claim with every prospect of losing would promptly reimburse the consumer or provide other satisfactory redress. Should he not, the hearing examiner would schedule a prompt hearing at a location convenient to the consumer, in whatever part of the country he might be. The Committee's proposal would avoid the delays involved in assembling an appropriate class, since the individual can obtain relief without awaiting agreement on group action. Moreover, the consumer will be able to avoid ponderous pretrial procedures, a full dress trial, and the numerous interlocutory appeals which arise when a multiplicity of parties at interest in a single lawsuit are involved. It will avoid necessity of consumers paying one-half to one-third of their needed recovery in the form of legal fees, for the procedure can be so uncomplicated that no lawyer may be required. Thus, the Committee's proposal would avoid a cumbersome and inappropriate format and replace it with a specially designed, expedited procedure which wil lalso avoid court costs and lawyers' fees. Moreover, the judgment upon which consumer relief will be predicated will be obtained at government expense, and will relieve the consumer of the need to undertake the financial burden of litigation, with its attendant time-consuming duties. The government has adequate resources to oppose suppliers effectively. But when the supplier does not prevail, the consumer will be able to benefit from the judgment in a very simple fashion; only the most elementary facts need to be proved as a condition for the payment of his claim, and no dilatory tactics will be available. To accomplish this objective, expedited and inexpensive procedures for appeal and enforcement of awards must be provided. Abbreviated procedures are possible because of the simplicity of the issues in litigation involving widespread consumer frauds. Unlike antitrust litigation, where class actions are frequently employed, there are typically no complex economic issues requiring lengthy trial and highly sophisticated analytical techniques involving expert witnesses and lengthy discovery procedures. In establishing the right to consumer monetary relief, there are involved relatively simple procedures of showing injury which may, however, involve different specific elements as respects different consumers. The effectiveness of consumer relief would be substantially augmented by predicating it upon a government enforcement proceeding. The creation of the Consumer Protection Division in the Department of Justice, whose sole function would be the furtherance of consumer interests, would permit vigorous government enforcement. This new agency, along with the revitalized Federal Trade Commission, would pursue significant and widespread consumer abuses. It is to be anticipated that those claims to which two government agencies do not respond either would lack merit or be de minimis in character. The courts would continue to offer the consumer a broad spectrum of state and local enforcement and remedial mechanisms, including enforcement agencies and judicial relief in state and local courts of general jurisdiction, state and local small claims courts and otherwise. It would be unfortunate if these state and local programs were relegated to an insignificant role or their growth and 39-278-70-pt. 2-20 expansion stunted by a misplaced reliance upon Federal action. Thus, the Committee believes that predicating federal relief on the existence of a prior enforcement proceeding should not limit the panorama of consumer remedies but rather would encourage the development of effective state and local programs designed to supplement a vigorous federal program and afford the consumer expeditious and effective relief. Class Actions. While the Committee believes that a private monetary remedy is a prerequisite to any effective consumer program, experience establishes that the class action mechanism is not capable of providing an expeditious and judicious determination of legitimate consumer grievances in the courts. (i) The determination of the proper members of the class has proven an unduly prolonged experience. In Union Carbide & Carbon Corp. v. Nisley, 300 F.2d 561 (10th Cir. 1962), cert. denied, 371 U.S. 801 (1963), it took more than three years for the court merely to determine the appropriate class. While there will no doubt be some situations in which the class can readily be determined, the majority of consumer class actions would not seem to be in this category. (ii) The Committee is gravely concerned that application of the class action mechanism to the broad field of consumer frauds would place an enormous burden upon many already congested federal court dockets. In Snyder v. Harris, 394 U.S. 322 (1969), the Supreme Court demonstrated grave convern over the rising caseload of the Federal courts and already existing congested dockets. The Committee shares this concern, and opposes the expansion of permissible use of the class action mechanism in federal courts. Not only would the statutory provision for federal consumer class actions add to the already over-burdened court calendars and pending bases, but expeditious handling of consumer actions will itself be impossible. Thus, this proposed cure for consumer wrongs will aggravate another problem. Further burdens on our overcrowed court dockets cannot serve the interest of justice under any circumstances. The cure may be worse than the disease. In view of the further congestion the creation of new class actions will have on the courts, we recommend that the Judicial Conference of the United States be consulted prior to the adoption of any such proposal, and that no such proposal should be adopted without at least further provisions for additional judgeships. The recent bulletin of the Board of Editors for the Federal Judicial Center. which is reprinted as Appendix B, further evidences the concern over the class actions. For one, the Board of Editors was troubled over the more acute and complex problems that are raised by class actions in multidistrict litigation. Consumer class actions will most probably be of a multidistrict nature. Additionally, the Board was concerned by the potential abuses connected with the assembly of the class. Finally, we believe that consumer class actions will not result in effective enforcement against the types of widespread and unconscionable practices which the legislation is primarily intended to prevent. Nor do we believe that the consumer will necessarily obtain the desired relief. Consider in this regard the class action brought against the Playboy Clubs in which each member of the class received $8.00 worth of chits redeemable over two years, most of which will never be redeemed, and the lawyers received $275,000 in fees. Grossman v. Playboy Clubs Int'l, Inc. (Civ. Act 882939, L. A. Superior Court 1969). Class action experience under the only recent enactment of consumer legislation providing for this form of relief, the Truth-in-Lending Act, indicates class actions were brought not against flagrant credit frauds but against technical violations of the Act. Two prime examples of this are: Andrucci v. Gimbel Bros. (C.A. No. 69-905, W.D. Pa. filed 1969); Ruther v. Chemical Bank New York Trust Co. (69 Civ. 4195 SDNY filed 1969), See in addition, Isidoro Berkman v. Sinclair Oil Corporation, U.S.D.C., Northern District of Illinois, Eastern Division, C.A. No. 69C 2055; Isidoro Berkman v. Sun Oil Company, U.S.D.C. Northern District of Illinois, Eastern Division, C.A. No. 69C 2045; Norman M. Garland v. Mobil Oil Corporation, U.S.D.C., Northern District of Illinois, Eastern Division, C.A. No. 69C 2165; Gary M. Adelman v. Sinclair Oil Corporation, Atlantic Richfield Company, U.S.D.C., Northern District of Illinois, Eastern Division, C.A. No. 69C 2320; Norman Kroll v. Cities Service Oil Company, Cities Service Company, U.S.D.C., Northern District of Illinois, Eastern Division, C.A. No. 69C 2319; Isidoro Berkman v. Westinghouse Electric Corporation, U.S.D.C., Northern District of Illinois, Eastern Division, C.A. No. 69C 2056; Stephen L. Marcus v. Diners Club Incorporated, U.S.D.C., Northern District of Illinois, Eastern Division, C.A. No. 69C 2321; Norman Kroll v. American Express Company, American Express Credit Corporation, U.S.D.C., Northern District of Illinois, Eastern Division, C.A. No. 69C 2318. Statute of Limitation.-The absence of any period of limitations after the occurrence of the alleged unfair or deceptive act or practice in the majority of pending legislative proposals is one of their major shortcomings. Under these proposals an action could be commenced years after such event or events exposing potential defendants to liability ad infinitum. In addition to undermining judicial economy, the absence of a period of limitations promotes stale claims and results in uncertainty in business practices. Accordingly, the Committee recommends that no action may be commenced by the Department of Justice or Federal Trade Commission which can be the basis for consumer relief unless commenced within two years from the occurrence of the alleged violation. Venue. Under the legislation herein recommended, the question of venue relates primarily to actions initiated by the Department of Justice for injunctive relief and consumer redress. It is also relevant to any direct consumer civil actions for damages which Congress may consider, although such a measure is opposed in this report. The litigating resources of the government are such that fairness dictates its actions under the legislation be brought where the defendant resides or is doing business in a manner related to the alleged violation. The balance of capacity to maintain a lawsuit would be particularly weighted in favor of the government in actions involving small corporations, partnerships, and proprietorships. Section 206, the venue provision of S. 3201, particularly when considered together with the service of process provision (§ 203), is of very broad scope, and does not take into account these considerations, or adequately provide for the variety of situations which would arise under it. Accordingly the Committee believes that Section 206, as drafted, is inadequate to meet the needs which it should serve." In sum, Section 206 fails to take into account the kinds of parties who may be involved and the various types of litigation which might occur under it. Moreover, it does not distinguish between those fora which are likely to have a sufficient connection with the parties, witnesses, and the transactions so that they would be logical places for the action initially to be brought, and those fora into which, on the unusual facts of particular cases, it might be appropriate later to transfer the case. Not even the venue provision of general application in the United States Code, 28 U.S.C. § 1391, which would apply were Section 206 not in the bill, provides the scope of venue of Section 206 of this bill. Ideally, a rational allocation of litigation would proceed under a well drafted single venue statute supplemented by special venue statutes only for unusual classes of cases. Therefore, if Section 1391 is adequate to deal with the cases which would arise under this bill it should be used.16 As for government suits under our recommendation, venue should be limited to the district of defendant's residence, incorporation, or principal place of 15 Specifically, the Committee felt that the venue provisions as drafted was inadequate in the following regards: 1. Section 206 draws no distinctions among the various parties that may proceed under S. 3201. The government is, for example, likely to have a far broader geographical litigating capacity than even the largest corporation, which in turn is likely to have a far broader capacity than a sole proprietorship or an individual. Yet all of these are lumped together indiscriminately in Section 206. 2. By permitting suit to be brought wherever a potential defendant may be "found," a jurisdiction with no rational nexus to the claim could entertain the action. 3. The failure to define the term "agent" contained in Section 206 could be interpreted to include those with the most attenuated business relationship with the principal, and completely unrelated to the transaction at issue in the suits. 4. Section 206 refers simply to "the defendant" taking no apparent account of the fact that there may be more than one. If "the defendant" really means "all defendants" (the language of 28 U.S.C. § 1391 (c)), then complex litigation may be handled irrationally. 5. The language of Section 206 leaves open the possibility that consumer suits might be entertained in state courts. 16 S. 3092 contains no venue provision, and 28 U.S.C. § 1391 would presumably apply. S. 3338 provides for venue in any district "in which the defendant resides or is found, or has an agent. Against individuals, in federal question cases such as those which would arise under 3201, venue must be laid under Section 1391 in the district "where all defendants reside." This is certainly more sensible than allowing suit against an individual wherever he may be found, on vacation or otherwise, as Section 206 would do. However, it would frequently preclude suit in the most convenient district, such as that where the claim business, or any district in which the defendant transacts business with respect to the violations on which the complaint is based. Liberal transfer of venue, including acceptance of waiver by either party to fora which would have been improper initially, should also be permitted. Civil Investigative Demands.-The recommendation of this Committee that the Department of Justice possess concurrent jurisdiction with the Federal Trade Commission to initiate actions which will provide the foundation for individual consumer powers should be accorded the Department. Moreover, the total administration program contemplates that the Department of Justice will be given broadened inquisitorial powers." 17 The Committee has evaluated this issue and considered analogous investigatory powers exercised in related areas of law. We have concluded that the most reasonable and effective mode of investigation is found in the "civil investigative demand." We therefore recommend its adoption and application to the Department of Justice enforcement of a Consumer Protection Act. The CID has been thought necessary in some areas of the law to permit the government, where suit is contemplated, to develop necessary information prior to filling a complaint. It has transferred some aspects of pretrial discovery into the precomplaint stage. In so doing it raises obvious dangers of abuse. There has been no demonstration that the expansive CID powers under the Antitrust Civil Process Act, which are subjected to achieve essentially the same purpose under the antitrust laws as those sought here, have proved inadequate to those purposes. In these circumstances, we cannot agree that there should be a further transference of pretrial procedures to the precomplaint stage. IV. OTHER CONSUMER RELIEF PROPOSALS The Committee's review of proposals for consumer relief was not confined to the specific foregoing recommendations. Additional remedial devices which are currently being developed to provide more effective methods of assisting the consumer have much to commend them. While they are not specifically recommended for enactment by the Committee, they deserve continuing serious consideration. Currently the American Arbitration Association is exploring the establishment of new and expeditious methods of arbitration to facilitate handling the types of complaints and injuries which are the subject of this report. Upon determination of the question of liability, the arbitrator would be empowered to award damages for plaintiffs for their injuries. The mechanism for the distribution of the damages could either be through the arbitration system itself, the utilization of a Master, or the payment into a special fund which could be admiinstered by a court appointed Master or Referee who would make appropriate payments. In this regard, consideration should be accorded to exempting companies from Federal Trade Commission redress proceedings if they were willing to submit to arbitration of consumer claims or to participate in other recognized consumer grievance redress machinery. The advantage of these approaches would be the expeditious resolution of claims with the greatest informality. arose. Moreover, where there is more than one defendant, it may be impossible to bring them together in a common convenient forum. In these respects defects of Section 206 are shared by 28 U.S.C. § 1391. Under 28 U.S.C. § 1391 a corporation may be sued wherever it is "incorporated or licensed to do business or is doing business." Section 206 would add three bases of venue to the general statute: where the corporation is "found, has an agent," or where "the claim arose." While from the point of view of transfer of venue to the most convenient possible forum these grounds may not be too broad (indeed, perhaps they are too narrow), there is no reason why the initial choice of fora should be so broad. Therefore, even with the difficulties of 28 U.S.C. § 1391, it would be preferable to Section 206 as now written. In view of the inadequacies of Section 206, it should be redrafted if any direct consumer action is adopted contrary to the proposal of this report. The overall objective should be to secure regularly the ultimate availability of the most convenient forum, while at the same time not opening to plaintiffs the opportunity of harassing defendants by initially bringing litigation in obviously inappropriate places. Particular attention must be given to each type of suit which will be brought under the statute, and the initial choice of fora should be narrowed for each type of suit to the most likely convenient forum. 17 See S. 3240 and H.R. 14758, 91st Cong. 1st Sess. S. 3240 and H.R. 14758 also propose civil investigative demands, in language closely paralleling that of Section 3 of the Antitrust Civil Process Act (76 Stat. 549; 15 U.S.C. § 1312), and adopts by reference Sections 4 and 5 of that Act. To the extent that the proposal follows the Antitrust Civil Process Act, the Committee approves of it in is present form; to the extent that it deviates, except as necessary to define the different subject matter being investigated, the changes appear both unnecessary and unwise and do not meet with the approval of the Committee. V. CONCLUSION The Committee reaffirms its support for federal legislation to provide expeditious means for preventing frauds on the consumer and to provide effective redress therefor. In our opinion, legislation presently pending in Congress, because of its undue and almost exclusive reliance on class actions, fails to promote these ends. We therefore, urge that legislation be enacted consistent with our recommendations herein set forth. Respectfully submitted. SPECIAL COMMITTEE ON CONSUMER LEGISLATION. Edgard E. Barton, Chairman; H. Thomas Austern, Allen C. Holmes, [Identical to H.R. 14931, S. 3201, 91st Cong., first sess.] A BILL To amend the Federal Trade Commission Act to provide increased protection for consumers, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Consumer Protection Act of 1969". TITLE I-DECEPTIVE SALES AFFECTING COMMERCE SEC. 101. Section 5 of the Federal Trade Commission Act, as amended (38 Stat. 719; 15 U.S.C. 45) is amended by changing the words "in commerce" wherever they appear to "affecting commerce". SEC. 102. Subsection (a) of section 13 of the Federal Trade Commission Act (52 Stat. 115; 15 U.S.C. 53 (a)) is amended to read as follows: "(a) Whenever the Commission has reason to believe "(1) that any person is engaged in, or is about to engage in, the dissemination or the causing of the dissemination of any advertisement in violation of section 12, or any act or practice which is unfair or deceptive to a consumer and is prohibited by section 5, and "(2) that the enjoining thereof pending the issuance of a complaint by the Commission under section 5, and until such complaint is dismissed by the Commission or set aside by the court on review, or the order of the Commission to cease and desist made thereon has become final within the meaning of section 5, would be to the interest of the public the Commission by any of its attorneys designated by it for such purpose may bring suit in a district court of the United States to enjoin the dissemination or the causing of the dissemination of such advertisement or any such act or practice. Upon proper showing of need, a temporary restraining order or preliminary injunction may be granted without bond: Provided, however, That if a complaint under section 5 is not filed within sixty days of the issuance of the restraining order or preliminary injunction, the order or injunction shall be dissolved and of no further force and effect." TITLE II-ENFORCEMENT OF CONSUMER INTERESTS UNFAIR OR DECEPTIVE ACTS OR PRACTICES SEC. 201. As used in this title (a) "unfair or deceptive practice" means any of the following acts or practices (1) offering goods or services intending not to sell them as offered; (2) advertising goods or services intending not to supply reasonably expectable public demand, unless the advertisement discloses a limitation; (3) stating that services, replacements, or repairs are needed with knowledge that they are not; (4) representing that the consumer is legally obligated to pay for, safeguard, or return unsolicited goods knowing that the consumer is not; (5) representing that the consumer will obtain any rights, privileges, or remedies knowing that the consumer will not; (6) representing that goods are new knowing that they are not; |