Southwest Sunsites, Inv. v. FTC

785 F.2d 1431 (9th Cir. 1986)

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Nature of the Case

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Facts

Ps are engaged in the sale of undeveloped rural land in west Texas for use as farms, ranches, homesites, and commercial uses. Land is marketed through newspaper, television and radio advertisements. In the average deal, land was bought at about $27 per acre and sold 5, 10, and 40-acre parcels from that tract for $600.00 to $700.00 per acre. Some land was acquired for $50.00 per acre in 1976 and sold for $800.00 to $1,200.00 per acre. Brochures produced by P touted the land as a good, safe investment. Buyers were told that the land was a good investment because industrial development was likely. Oil, rubber, nuclear and uranium interests were all potential developments. Ps also represented the land as suitable for homesites, subsistence farms, and non-commercial ranches. D lodged a three-count complaint contending that Ps engaged in unfair and deceptive practices in violation of Sec. 5 of the Federal Trade Commission Act. Ps (1) misrepresented that the parcels were a good investment involving little or no financial risk and deceptively failed to disclose material information regarding their financial risk, (2) misrepresented that the land was suitable for residential use, farming, and ranching, and deceptively failed to disclose material information regarding the suitability of the properties for these purposes, and (3) sold land that was of little or no value for the represented purposes and unfairly retained proceeds from the sales. An administrative law judge dismissed the complaint, the Commission reversed and issued a cease and desist order, from which Ps timely appeal. The ALJ dismissed the complaint under the deception standard that 'any advertising representation that has the tendency and capacity to mislead or deceive a prospective purchaser is an unfair and deceptive practice.' The Commission applied a 'new' standard: 'The Commission will find deception if there is a representation, omission or practice that is likely to mislead the consumer acting reasonably in the circumstances, to the consumer's detriment.' Ps contend that application of the new deception standard violated the Administrative Procedures Act (APA), 5 U.S.C. Sec. 554(b) which requires that they be 'timely informed of the matters of fact and law asserted.'