## Facts

- Several land-sales corporations and their principal officers acquired roughly 40,000 acres of undeveloped, semi-arid rural land in West Texas (1973–1977), subdivided it, and sold small parcels primarily to out-of-state purchasers.
- One tract was purchased at about $27 per acre and resold in small parcels at roughly $600–$700 per acre; another was purchased at about $50 per acre and resold at about $800–$1,200 per acre.
- The region had low rainfall and limited capacity for livestock; utilities and water were difficult and expensive to obtain, limiting feasible residential, farming, or ranching use for typical buyers.
- Petitioners conducted extensive advertising and sales efforts, including high-frequency broadcast ads, multiple sales offices, promotional dinners, and telephone sales by independent brokers using company-provided materials and scripts.
- Sales presentations represented that the parcels were a “good, safe investment,” that industrial development was likely, and that the land was suitable for homes, farming, and small-scale ranching.
- The FTC found that the sales prices greatly exceeded fair market value, there was virtually no resale market, and the land was not realistically suitable for the promoted uses.

## Issues

1. Whether the FTC violated due process or the APA by reformulating and applying a “new deception standard” in an adjudication.
2. Whether ex parte communications between FTC staff and Commissioners required reversal because they tainted the administrative process.
3. Whether substantial evidence supported the Commission’s findings of deception, including attribution of brokers’ statements and individual liability of corporate officers.
4. Whether the cease-and-desist order was overbroad or insufficiently connected to the violations found.

## Decision

- The Ninth Circuit affirmed the FTC’s findings and cease-and-desist order in full.
- The court held that the FTC could articulate and apply a refined deception standard through adjudication without violating due process or the APA, particularly where the standard increased the agency’s burden rather than expanding regulated parties’ exposure.
- The court held that the identified ex parte communications did not require vacatur because they were disclosed and petitioners had an opportunity to respond, and no prejudice warranting reversal was shown.
- The court held that substantial evidence supported findings that petitioners deceptively marketed investment value, development prospects, and suitability for residential, farming, and ranching uses.
- The court upheld attribution of deceptive broker statements to petitioners based on actual and apparent authority arising from petitioners’ authorization, provision of materials, and benefit from sales.
- The court upheld individual liability for principal officers due to their control over and participation in the challenged sales practices.
- The court upheld the breadth of the remedial order as reasonably related to preventing recurrence of similar misrepresentations.

## Legal Principles

- An agency may develop and apply refined standards through adjudication rather than rulemaking, consistent with due process and the APA, when parties have an opportunity to litigate the relevant facts and issues.
- The agency, as final decisionmaker, may reject an ALJ’s findings if its own findings are supported by substantial evidence on the record as a whole.
- Under § 5 of the FTC Act, representations about investment value, development prospects, and product suitability are deceptive when likely to mislead reasonable consumers and are material in light of actual conditions.
- A seller may be responsible for deceptive statements made by independent brokers when the brokers act with actual or apparent authority attributable to the seller.
- FTC remedial orders are reviewed for a reasonable relation to the unlawful practices found and may be framed broadly to prevent future violations in similar contexts.

## Conclusion

The Ninth Circuit sustained the FTC’s determination that petitioners deceptively marketed rural land as a safe investment with favorable development and use prospects, rejected procedural challenges based on adjudicative standard-setting and ex parte contacts, found substantial evidence supporting liability (including for broker statements and individual officers), and upheld a broad cease-and-desist order as reasonably related to the violations.


Southwest Sunsites, Inc. v. Federal Trade Comm'n, 785 F.2d 1431 (9th Cir. 1986)