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Cinderella Career and Finishing Schools, Inc. v. Federal Trade Commission

United States Court of Appeals, District of Columbia Circuit
425 F.2d 583 (1970)
ELI5:

Rule of Law:

An administrative agency's reviewing body violates due process when it disregards the evidentiary record from a hearing and decides a case de novo. Additionally, an agency commissioner must be disqualified from a proceeding if their prior public statements create an appearance of prejudgment to a disinterested observer.


Facts:

  • Cinderella Career College and Finishing Schools, Inc. (Cinderella), a for-profit school, ran advertisements targeted at recent high school graduates.
  • The Federal Trade Commission (FTC) alleged these advertisements were false, misleading, and deceptive regarding potential job opportunities, affiliations, and graduate success stories.
  • The alleged misrepresentations included claims that students could become airline stewardesses, that the school was an official headquarters for the Miss Universe Pageant, and that a prominent beauty queen was a successful graduate.
  • While an appeal of the case was pending within the FTC, Chairman Paul Rand Dixon gave a speech to a newspaper association.
  • In his speech, Chairman Dixon criticized newspapers for accepting advertisements that offer to make someone "an airline’s hostess by attending a charm school," a direct reference to the type of services offered by Cinderella.

Procedural Posture:

  • The Federal Trade Commission (FTC) filed an administrative complaint against Cinderella Career College and Finishing Schools, Inc. (Cinderella) and its principals.
  • An FTC hearing examiner conducted a 16-day adjudicatory hearing on the complaint.
  • The hearing examiner issued an initial decision dismissing all charges in the complaint against Cinderella.
  • The FTC's complaint counsel appealed the hearing examiner's decision to the full five-member Commission.
  • The full Commission reversed the hearing examiner's decision on six of the original charges and issued a final cease and desist order against Cinderella.
  • Cinderella petitioned the United States Court of Appeals for the D.C. Circuit to review the FTC's final order.

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Issue:

First, does the Federal Trade Commission violate due process when its Commissioners, on appeal, disregard the evidentiary record from a hearing examiner's proceeding and instead decide the case based on their own de novo analysis of the advertisements in question? Second, is a party denied due process when a Commissioner, who has made public statements that appear to prejudge the issues, refuses to recuse himself from participating in the case?


Opinions:

Majority - Tamm, J.

Yes, to both issues. An administrative agency's commissioners violate due process when they ignore the evidentiary record of a hearing and decide a case de novo. The Commission's own rules require it to 'consider' the record on appeal; to completely disregard a sixteen-day hearing with extensive testimony and exhibits converts the proceeding into a 'meaningless exercise.' While commissioners are not bound by a hearing examiner's findings in the same way an appellate court is bound by a trial court's (i.e., the 'clearly erroneous' standard does not apply), they must engage with the decision and the evidence in the record rather than substituting their own independent judgment based on a cold record. Furthermore, an adjudicator's participation in a case violates due process if their prior public statements would lead a 'disinterested observer' to conclude that they have 'in some measure adjudged the facts as well as the law of a particular case in advance of hearing it.' Chairman Dixon's speech, which specifically referenced the type of advertising at issue in Cinderella's pending case, created an undeniable appearance of prejudgment. The requirement for due process demands not only fairness but the 'very appearance of complete fairness,' compelling his disqualification.



Analysis:

This decision significantly reinforces two key principles of administrative law. First, it establishes that while administrative agencies have wide latitude to review the decisions of their own hearing examiners, they cannot simply disregard the entire fact-finding process. The decision mandates that the agency's final order be grounded in the evidentiary record, ensuring that adjudicatory hearings are not mere formalities. Second, the case sets a firm precedent for the disqualification of agency adjudicators based on the appearance of bias. By applying the 'disinterested observer' test, the court makes clear that an adjudicator's public statements on matters pending before them can fatally compromise the due process rights of litigants, regardless of the adjudicator's actual subjective bias or whether their vote was decisive.

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