## Facts

- Francis Ford, Inc., an Oregon Ford dealer, repossessed vehicles from defaulting customers and credited debtors with the car’s wholesale value.
- The dealer charged defaulting customers direct repossession/resale expenses (e.g., refurbishing) and indirect expenses (e.g., overhead and lost profits).
- The dealer resold repossessed vehicles at retail and retained any surplus over the amount credited to the debtor.
- In 1976, the FTC began adjudicatory proceedings against Ford Motor Company, Ford Motor Credit Company, and Francis Ford, Inc., alleging unfair practices under § 5 of the FTC Act.
- The FTC pursued similar proceedings against other manufacturers, finance affiliates, and dealers; most resolved by settlement, leaving Francis Ford to contest the case.
- During the same period, the FTC was conducting a broader credit practices rulemaking addressing related issues.

## Issues

1. Whether the FTC abused its discretion by proceeding through adjudication, rather than rulemaking, to announce new, broadly applicable principles governing repossession and deficiency practices.
2. Whether the FTC’s cease-and-desist order operated as a rule of general applicability without the procedural protections of rulemaking.
3. Whether the FTC could premise a federal § 5 unfairness determination on a contested interpretation of Oregon’s version of U.C.C. § 9-504 governing disposition of collateral and deficiency calculations.

## Decision

- The Ninth Circuit granted the petition for review and set aside the FTC’s cease-and-desist order.
- The court held that, although agencies may choose between adjudication and rulemaking, the FTC’s use of adjudication here was an abuse of discretion.
- The court viewed the FTC’s action as effectively creating prospective, industry-wide standards while contemporaneously pursuing a rulemaking on the same subject.
- The court found significant notice and fairness concerns because the FTC applied a novel and not clearly foreshadowed interpretation to past conduct.
- The court criticized the FTC’s reliance on an unsettled interpretation of Oregon secured-transactions law as a key predicate for declaring the practices unfair under § 5.

## Legal Principles

- An agency may announce new principles in adjudication, but the choice between adjudication and rulemaking can be set aside as an abuse of discretion when practical effects and statutory context make adjudication unfair or inappropriate.
- When an adjudicatory order functions in substance as a new, broadly applicable standard for an industry, rulemaking procedures may be required to provide adequate notice and participation.
- Retroactive application of newly announced regulatory standards raises fairness concerns, especially where the challenged practice is widespread and previously uncondemned.
- Heavy reliance on a novel, uncertain construction of state commercial law to define federal “unfairness” can weigh against using adjudication to impose new obligations.

## Conclusion

The Ninth Circuit vacated the FTC’s order because the Commission used adjudication to impose new, forward-looking repossession and deficiency rules with industry-wide effect, without the notice and procedural safeguards associated with rulemaking and while resting its unfairness finding on a contested interpretation of Oregon secured-transactions law.


Ford Motor Co. v. FTC, 673 F.2d 1008 (9th Cir. 1981)