How To End the Endless Delay at the FTC

Jenkins, by John A.

How To End the Endless Delay at the FTC by John A. Jenkins The last time The Washington Monthly took a look at the Federal Trade Commission, we saw signs that new leadership was turning...

...To make speedy intervention possible, Congress provided the FTC with streamlined trial procedures designed to render swift justice outside the federal court system The whole point was to expedite the process in a separate agency, where legal procedures would not be so cumbersome...
...Finally, the Commission could sharply restrict the grounds on which a law judge’s ruling on pre-trial motions could be appealed...
...The Commission does not support them as judges, but rather as functionaries,” complains a senior FTC staff attorney...
...It isn’t surprising, then, that the American Bar Association recently opposed a bill imposing severe penalities on corporations that tie up FTC proceedings by challenging subpoenas in federal court...
...In fact, if it ever does get to trial, the oil case is likely to far surpass Geritol in the amount of time and money it swallows...
...The companies just said, ‘Well, we’re not going to give you anything more...
...This points up another major weakness in FTC procedures: its administrative law judges lack clout, and as a result they aren’t in control of the cases they are handling...
...The oil industry case, pitting 18 FTC attorneys against 200 high-paid industry lawyers, alone will cost the agency $6 million next The Washington Monthly/June 1976 year...
...Some Modest Proposals The Commission already has the power to appoint an administrative law judge or create an office whose sole function would be to rule on corporate motions to quash investigative subpoenas...
...The FTC Act should be amended to require the litigation of all Commission cases in federal court,” asserts Peter A. White, who until recently was chief counsel for the FTC in its massive, delayfraught antitrust case against eight major oil companies accused of artificially inflating petroleum prices through policies of non-competition.“With the Commission as a plaintiff in district court, the enforcement powers so sorely lacking in administrative tribunals would be available immediately...
...To enforce its mandate, the Commission has been given a flexibly worded statute (the FTC Act) that allows it to move both locally and nationally against illegal business behavior...
...To see the ultimate absurdity of the corporation’s waiting game, consider the FTC’s “cereal case...
...Incredibly, it was just last year that lawyers for the cereal makers shamelessly used what might be the ultimate delaying tactic-they asked the Commission to dismiss the entire case for lack of a speedy trial...
...With the filing of the complaint, defense attorneys moved quickly to tie the agency in procedural knots by filing motion after motion-all of which had to be ruled on before the actual trial could begin...
...It is slow...
...We think it would save time, money, and the self-respect of those who work for the FTC and the private lawyers who try to waste the Commission’s time with procedural delays...
...In either case, trial time likely would be significantly 50 reduced, and the public would benefit from speedier resolution of cases having a dollars-and-cents impact...
...In most federal cases, a company’s refusal to turn over information to a law enforcement agency could render it in contempt of court, liable to heavy fines...
...By making the FTC a purely prosecutorial agency-like the Justice Departmentwith court enforcement of its subpoenas, Congress would help to unchain our existing...
...Even without contempt power, the FTC’s judges could ask the American Bar Association to institute disciplinary proceedings against defense attorneys engaging in obvious dilatory tactics...
...The Commission’s own attorneys do not have the right to appeal a Commission decision to the federal courts, but defendants do, and they are able to forestall the ultimate day of reckoningand continue the behavior under attack-for years more by making further appeals...
...The Commission complied, and the case seemed to get moving again-until the administrative law judge assigned to it suggested last October that the massive antitrust proceeding be scuttled...
...Injunctions don’t make an unwieldy case more manageable...
...The list of administrative fiascos goes on: Five years ago, the Commission charged that Coca-Cola, PepsiCola, and five other major soft-drink makers illegally restricted their bottlers from selling outside of designated geographical areas...
...Moreover, courts won’t grant them in the FTC’s most important cases because those usually are aimed at making “new law”-they hinge on unresolved legal issues, or seek judicial expansion of the Commission’s legal authority...
...In fact, last year FTC attorneys trying the case screamed for help, claiming the case was too complex to ever bring to trial unless the Commission totally rewrote its own procedural rules for handling it...
...The FTC has never sought the other tools it needs to be effectivecontempt power, the ability to enforce subpoenas without going into court, and the authority to halt pretrial proceeding before they reach the Rip Van Winkle stage...
...The adhnistrative process at the FTC is toothless, because procedural delays are built into the agency’s trial framework...
...We’d like to reduce that to two layers: with the FTC prosecutors arguing their cases before the federal district court or new Antitrust Court, and appeal possible only to the Supreme Court...
...The FTC‘s major problem lies not in its case selection, but, as we have seen, in the very nature of its administrative process...
...Injunctions are a powerful litigating weapon and an incentive to quick resolution of FTC cases...
...The list of the Commission’s antitrust targets during Engman’s tenure was formidableExxon and its seven sisters, Xerox, ITT, and the nation’s four largest cereal makers, to name a few-but so far, these cases haven’t saved the public a penny...
...The FTC‘s feeble subpoena author-ity is the weakest link in its tenuous chain of investigation and trial...
...consumer watchdog...
...As things stand now, the overworked Commission itself must rule on each motion, and this months-long process could be shortened considerably by delegating the task...
...Though the case was relatively “young”-only two years old-Judge Alvin L. Berman proposed that the Commission instead launch a new investigation of the energy crisis...
...This two-step process within the Commission’s walls often consumes years...
...The goal of our proposal for major reform is simple enough: a reduction in the stages of litigation necessary to reach a final decision about whether a company’s actions are harming the public...
...In 1967, Commission attorneys began investigating the nation’s four largest ready-toeat cereal makers for e& dence of antitrust violations...
...motions to quash subpoenas based on boilerplate objections that the Commission has already repeatedly rejected...
...With millions of dollars riding on the case, seven of the eleven companies (Texaco, Standard of Indiana, Standard of California, Superior, Exxon, Shell, and Mobil) refused to comply...
...Where is the natural gas case now...
...Against Hi-C...
...The hapless 48 agency took six years to decide whether a Dry Ban deodorant commercialwhich had long since disappeared from the airwaves-illegally implied that the product was dry “by some absolute [legal] standard...
...Lately, though, the agency has been concentrating more resources on antitrust cases that are national in scope...
...The Commission then considers the case anew, sometimes totally disregarding the law judge’s decision in reaching its conclusions...
...Halverson claimed the use of “intentionally dilatory tactics” by defense lawyers in FTC trials was widespread, and said the obstructive efforts were damaging the FTC‘s law enforcement efforts and breeding cynicism and frustration among trial attorneys...
...If they are not-and many critics suggest this is the case-then Congress must make a radical change in the FTC’s trial procedures by forcing the agency to shed its adjudicative role...
...We were powerless,” says a former FTC attorney who now is on a Senate committee staff...
...An obvious solution to this problem lies with Congress-it could provide law judges with authority to hold dilatory defense counsel in contempt of court, so that they could quickly punish lawyers who persist in filing frivolous, delay-causing motions...
...Only after the Commission has ruled can the case enter the federal court system, where it would have been to begin with if the Justice Department (which has comparable statutory authority in the antitrust area) had filed the case...
...Lewis Engman left the FTC after two-and-a-half years to run for the Senate, where he hoped he could make a real contribution to consumer protection...
...Several quit the agency...
...Once filed, the forward momentum of the investigation evaporates...
...If the FTC’s experience is a guide, regulatory reform won’t work as long as the “reformed” agency itself is saddled with layer upon layer of administrative rules and regulations that govern its every action and make it nearly impossible to move any program off dead center...
...Cereal” is one of two shared monopoly cases lodged by the FTC...
...Still, the question lingers: Are changes in the administrative process sufficient to awaken the somnolent FTF...
...Against Dry Ban...
...If the companies conspired to create a phony natural gas shortage, it would be a serious antitrust violation...
...But not so at the FTC, because its administrative law judges don’t have contempt authority...
...At the FTC, 62 years’ worth of rules designed to preserve “due process” (and Congress is adding more all the time) have crippled the regulatory agency...
...Litigated to Death Often the delay of an FTC case seems tragic because of the case’s public importance...
...Consumers were the big loser, said the agency, because this lack of competition forced them to pay higher-thannormal prices...
...FTC complaints could be filed in federal district courts, or in a specialized Antitrust Court...
...When the Commission is deciding a case on appeal from a law judge’s decision, for example, it is presented with a complete trial record and with issuerefining briefs from both FTC attorneys and opposing defense lawyers...
...He perceived the potential benefits for consumers from antitrust action against big industries widely believed to be fueling inflation...
...That case was filed at the height of the 1973 gasoline shortage amid much fanfare, but now it languishes...
...The Commission is both prosecutor and jury...
...Its judges are powerless...
...Of course, the staff has appealed, so add another year or two for the Commission to decide the case, and add several more if the case is appealed to the federal courts...
...Berman argued that international economic changes and the probablility of a new national energy policy made the case irrelevant...
...But such injunctions and restraining orders are sought by the agency only in its most routine cases-precisely the ones in which they are least needed...
...After that was done, the Commission had to write its own memo to Justice...
...the sooner an administrative trial is completed, the sooner the federal court will lift its injunction...
...After two years of litigation, the Commission finally decided it wasn’t unfair to advertise that Wonder “Helps build strong bodies 12 ways...
...He might also contemplate the bureaucratic lesson of the FTC...
...Last April, after it had been litigated to death, the Commission decided the case had been tried on the wrong “legal theory”-a polite way of saying it should never have been fded-and dismissed it...
...This is exactly what happened in an important FTC antitrust investigation of major natural gas producers...
...In short, the subpoena enforcement procedure followed by the Commission has seriously undermined the effectiveness of the Commission...
...So the enforcement staff had to go to the [FTC] general counsel’s office, which wrote a memo to the Commission asking it to enforce the subpoenas through Justice...
...By adopting this practice, the FTC said, the companies kept a cut-rate seller of, say, Coke from entering a new terri-tory to sell Coke at lower prices...
...Today, such disciplinary referrals simply aren’t made by the Commission’s cautious bureaucrats...
...This should translate directly into dollars and cents savings for consumers, because competition should breed efficiency and lower prices, and truthful advertising helps people find the best value...
...This vulnerability to dilatory tactics has a shattering effect on the morale of FTC attorneys, as a 1974 FTC internal memorandum suggests: “The [defense] motion to quash [an FTC subpoena], as things stand now, is a dagger in the heart of any investigation...
...Although the FTC is one of the few governmental agencies that can actually save consumers money, its cases are all tThe delay problem persists despite efforts by its last two chairmen to “revitalize” the Commission, and their failure implies an important lesson for those who would make our administrative agencies more responsive to consumer needs...
...The other is the petroleum complaint filed under the Engman regime...
...In fact, we didn’t get to court until June 4, 1973,” more than a year after the companies had formally told the FTC they intended to disobey the subpoenas...
...unnecessary or repeated requests for extensions of deadlines for subpoena compliance...
...Fed up with corporate efforts to use due process as a stalling tactic, Engman’s chief trustbuster, James T. Halverson, attacked the private bar in a 1973 speech...
...He handles the trial, but lacks important procedural tools-such as contempt powerthat federal judges can use to maintain control of a proceeding...
...In many cases, injunctions would defuse corporate delaying ploys...
...The natural gas case demonstrates what the memo suggests...
...But it took the agency 13 years...
...That’s because in federal court (either a district court or a new Antitrust Court) defendants can’t tie up the agency for years in “collateral litigation” on procedural questions unrelated to the merits of a given case...
...The defen dan ts’ countervailing protection should be the right to a stay of afinal FTC order, pending appeal to a higher court...
...The ambitious antitrust efforts have only served to highlight an FTC axiom: the bigger the case, the longer the delay...
...If the High Court chose not to hear an appeal, the decision of the expert Antitrust Court judge would stand...
...Even so, the Dry Ban doctrine calling for “better” cases is only symptomatic medicine-a small BandAid for the FTC’s Achilles heel...
...Today, one staff member (not one of the original four) works on the case in his spare time...
...And justice delayed is justice denied...
...The FTC investigation centers on whether eleven major oil companies underreported their natural gas reserves in order to create the illusion of a natural gas shortage that would, in turn, prompt the government to deregulate gas prices as an incentive to exploration...
...In 1972, after a five-year investigation, the Commission filed a landmark antitrust complaint testing a novel legal theory-that the four companies shared illegal monopoly power by using big advertising budgets as a barrier to entry in their industry...
...As delays mounted, they turned their attention elsewhere...
...This would cut down on the delay-causing appeals that presently burden the agency’s internal trial process...
...The Dry Ban decision may have helped the Commission move in that direction...
...He may as well have said delay made the case irrelevant...
...Four agency attorneys once worked full time on the investigation...
...The trial attorneys and economists assigned to the matter become demoralized or disinterested and drift off to other assignments or other employment while the enforce ment process slowly works its way...
...How To End the Endless Delay at the FTC by John A. Jenkins The last time The Washington Monthly took a look at the Federal Trade Commission, we saw signs that new leadership was turning this once-moribund regulator into a vigorous defender of consumers’ rights...
...As an administrative agency, the FTC is unique...
...Five years after it was filed, the administrative law judge finally decided the case-against the FTC...
...Halverson catalogued the “ingenious” steps used by defense attorneys to delay FTC cases: broken promises to voluntarily comply with subpoenas...
...It is in these major cases where delays are the longest . One way to speed things up would be to remove FTC cases from the administrative forum...
...The agency should ask Congress for these powers now...
...We were wrong...
...direct our lawyers to get on with the serious business of stopping practices that are artificially inflating the prices and/or debasing the quality of the goods and services bought by our 200 million American consume rs...
...If I have to pick one huge, unsolved problem here, that would be the one...
...The powerless law judges don’t make gutsy decisons on which they might be reversed, and this caution inevitably leads to manipulative delays by the defense bar...
...Both are tremendously complex cases for an agency with such a small antitrust budget ($18 million this year, $23 million next year...
...Without question, deregulation would mean consumers would pay more...
...Bear in mind that Congress created the FTC in 1914 to give consumers quick relief from unfair or deceptive corporate practices...
...It oversees all industries, not just one or two, as do other regulatory agencies, and its charter is simple: remove the imperfections of the market by restoring competition and preventing deceptive advertising...
...42 from the air...
...If the Commission utilized its injunctive authority more vigorously, corporations would actually have a strong incentive to help expedite FTC proceedings...
...The six-year-old natural gas case is a memorial to the investigative inertia which develops when an agency lacks the power to enforce its subpoenas and to punish corporations that won’t cooperate in investigations...
...Commission attorneys subpoenaed The Washington Monthly/June 1976 the companies’ internal gas reserve data on November 24, 1971, a year after its investigation began...
...Commented thenCommissioner Mayo J. Thompson: “Surely we can find more important work for our legal staff than litigating the question of whether somebody’s underarm deodorant is ‘dry’ in the ‘non-liquid’ sense or in the ‘non-oily’ sense...
...When Commission lawyers file charges against an alleged corporate wrongdoer, the case first goes to an administrative law judge at the Commission...
...If an Antitrust Court were created, Congress could provide for direct appeal of cases to the Supreme Court, further reducing adjudicative delays...
...Again, the expert judges of the Antitrust Court would have the power-which FTC judges lack-to effectively shepherd a complex antitrust case to trial, and decisions would be rendered quickly because their dockets wouldn’t be crowded...
...Often, the solution to the problem of regulatory bureaucracy seems an intractable, ideological muddle...
...and r e quests for issuance of subpoenas to third parties who, in turn, can be expected to tie up the matter in federal court...
...When the matter is ultimately resolved 46 in the Commission’s favor, and the documents arrive, the staff originally assigned to the matter is often either gone, immersed in other projects, or no longer as interested in the investigation as it once was...
...Dilatory tactics notwithstanding, the nine-year-old cereal case recently went to trial...
...There was a certain irony to the Geritol case...
...Since all the important FTC cases (in which defendants are found guilty) end up in federal court anyway, critics suggest they should begin there...
...The Commission expects its law judges to write their opinions within 60 to 90 days, yet Commissionerswho aren’t pressured to come up with quick verdicts-often take a year or more to write their decisions...
...The FTC won the case: the ads were withdrawn John A. Jenkins is a Washington reporter who has covered the Federal Trade Commission...
...But Congress’ vision has turned into the FTC‘s nightmare...
...The FTC could preempt corporate delaying tactics by using its existing power to get court orders immediately stopping illegal business behavior...
...At present, there are four timeconsuming layers of decision: before an administrative law judge, before the full Commission, before the Circuit Court of Appeals, and before the Supreme Court...
...The shift to an antitrust emphasis came two-and-a-half years ago, when Engman became chairman...
...Alternatively, the Commission’s cases could be channeled to a specialized Antitrust Court, like the existing Tax Court, where federal judges experienced in antitrust law would oversee litigation...
...It’s like watching a snail,” says FTC attorney Chris White...
...The Commis sion should be able to deprive defendants of all rights of delay during the FTC decision-making process...
...The FTC staff believes the companies purposely under-reported their reserves to the Federal Power Commission...
...Because the Commission must rule whether a case will be filed in the first place, this decision could signal a new FTC effort to select more cases with an immediate pocketbook impact on consumers...
...Moreover, the Commission should aggressively use its injunctive power to get court orders stopping illegal corporate behavior...
...The FTC was to be prosecutor, judge and jury for a host of pocketbook crimes against consumers-from deceptive advertising to monopoly...
...And the five-member Commission has been loath to quicken its pace of justice...
...Moreover, some of the information the subpoenas seek is already as much as eight years old...
...I would...
...All that took time...
...It says something about our government that an agency which was intended to replace the time-consuming decision process of the court system ended up duplicating it-adding a new layer of bureaucracy which created work for thousands of high-paid lawyers but gave the taxpayers nothing but trouble for their money...
...Defense counsel and corporate presidents may scream bloody murder about “due process,” but they should be permitted to sue the government for damages if they can prove the injunction was truly unwarranted...
...Thirteen years...
...Agency attorneys familiar with the FTC’s internal administrative malaise say the Commission itself is to blame for much of the delay, and that Commission-inspired delays are the least excusable of all...
...Case dismissed...
...The Federal Trade Commission decided that Geritol’s claims to cure “tired blood” and “iron deficiency anemia,” delivered for many years ’on the Lawrence Welk Show and to other “tired blood” markets, weren’t true...
...Sometimes, however, the delay needlessly extends trivial cases that never should have been brought to begin with: Against Wonder Bread...
...Lewis Engman, until recently the FTC’s chairman, told me shortly before he left the Commission in January: “I’m very impatient about the problem of delay...
...says an FTC attorney presently handling the case...
...This is what happened in the Geritol case...
...If he makes it, he might think about introducing the legislation needed to make these reforms...
...The importance of these procedural reform proposals (which we’ll analyze in more detail later) is that they would significantly reduce the time needed to litigate an FTC case...
...The bottlers fiercely resisted this legal challenge and sought help in Congress...
...With the FTC, though, there are several steps that could be taken-both by the Commission and by Congress-to speed cases along for the consumers’ benefit...
...It is impossible to recapture the degree of interest which existed in the early stages of the investigation...
...The solution to this problem is quite simple: the Commission must set deadlines for itself and meet them...
...Defense lawyers know they can exploit this weakness, gaining a competitive advantage by forcing the agency into court-or theatening to do so-at the slightest provocation...
...Buried deep in its opinion was a section indicating the Commission would dismiss cases in the future where an advertisement’s “economic harm” to consumers has been negligible and no health or safety considera tions exist...
...Commission attorneys said the drink didn’t contain enough vitamin C. “You want vitamin C? We’ll give you vitamin C,” answered its makers...
...Nearly six years have passed, and the Commission still does not have the data it needs...
...The law judge’s decision can be appealed to the Commission, and almost always is, by one side or the other...
...The most exciting agency in Washington, ’’ we said in introducing h-arrison Wellford’s article, “How Ralph Nader, Tncia Nixon, the ABA and Jamie Whitten Helped Turn the FTC Around” (October 1972...
...But this is only a partial solution...

Vol. 8 • June 1976 • No. 4


 
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