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Federal Trade Commission v. Tuttle

April 2, 1957

FEDERAL TRADE COMMISSION
v.
W. W. TUTTLE, RESIDENT MANAGER, ERNST & ERNST.



Author: Leibell

Before: MEDINA and HINCKS, Circuit Judges, and LEIBELL, District Judge.

LEIBELL, District Judge:

The question to be decided on this appeal concerns the power of the Federal Trade Commission under Section 9 of the Federal Trade Commission Act, to subpoena documents and records of third parties "In the Matter of A. G. Spalding & Bros. Inc.," a corporation against which the Commission had filed a complaint, charging it with a violation of Section 7 of the Clayton Act (T. 15 U.S.C. § 18).*fn1 The District Court denied an application by the Commission for an order enforcing a subpoena duces tecum to compel Ernst & Ernst, the accountants for the Athletic Goods Manufacturers Association, to produce records of members of the Association in the possession of the accountants, and their own records relating thereto.

On December 8, 1955, the Commission issued a complaint against A. G. Spalding & Bros. Inc. charging it with a violation of Section 7 of the Clayton Act in that the Spalding corporation, one of the four largest manufacturers and distributors of athletic goods in the United States, had acquired on or about December 6, 1955, all of the outstanding capital stock of the Rawlings Manufacturing Company, which was also one of the four largest in that field. The complaint further charged, in some detail, that by the acquisition of the Rawlings stock, Spalding had eliminated a large competitor, and that the acquisition of the stock would have the effect of substantially lessening competition or tending to create a monopoly in the manufacture and distribution of athletic goods.

In the course of the hearing, which an examiner of the Federal Trade Commission conducted in relation to the charges contained in the complaint, a subpoena duces tecum was served upon W. W. Tuttle of the accounting firm of Ernst & Ernst. The accounting firm, under an arrangement made with the Athletic Goods Manufacturers Association, prepared annually so-called "Census Reports" for the Association, based on information the accounting firm received from the Association's members in the form of statistical data and memoranda. Under its arrangement with the Association's members, Ernst & Ernst were to keep in strictest confidence the data thus received and the data was to be destroyed as soon as it had served the accountants' purpose in the preparation of the annual census report. The accountants had been preparing these reports for the Association since 1949. The reports set forth the sales in units and dollars of various categories and types of athletic equipment.

By a subpoena dated February 24, 1956, signed by the Federal Trade Commission Hearing Examiner and addressed to W. W. Tuttle, a partner and resident manager of Ernst & Ernst, at Boston, Mr. Tuttle was required to appear and testify at a hearing before the Examiner to be held in the United States Courthouse in New York City on April 30, 1956, in the "Matter of A. G. Spalding & Bros. Inc."; and to bring with him the following books, papers and documents:

"1. Such books, records and documents as will disclose all correspondence, telegrams, memoranda, statistics, work papers, bulletins, census and reports prepared, transmitted or received by Ernst and Ernst, its officers, agents, employees, boards, council, committee or member thereof for the past four years, in the possession or control of Ernst and Ernst and relate to census reports prepared for the Athletic Goods Manufacturing Association."

Ernst & Ernst only partially complied with the subpoena duces tecum . They produced the "census reports" and also, with the permission of the two corporations, so much of the data as the accounting firm had received from A. G. Spalding Bros. and Rawlings Manufacturing Company, for the years 1954 and 1955. Information as to individual companies for the years prior to 1954 had been destroyed before the institution of the Commission's proceedings against Spalding. But Ernst & Ernst did not produce any of the data and information they had received from the other individual companies who were members of the Association for the years 1954 and 1955, or their own records.

The Federal Trade Commission on May 17, 1956, filed a petition in the United States District Court, Southern District of New York, for an order compelling Mr. Tuttle, resident manager ofErnst & Ernst, to fully comply with the requirements of the subpoena duces tecum . The jurisdiction of the District Court to hear and consider the petition is derived from the third unnumbered paragraph of Section 9 of the Federal Trade Commission Act.*fn2

Mr. Tuttle filed an answer to the petition and set up three special defenses:

(1) That under Section 9 of the Federal Trade Commission Act the petitioner, the Commission, does not have the power or authority to obtain by subpoena duces tecum documentary evidence of any corporation not being investigated or proceeded against, and that therefore the Commission cannot obtain by subpoena from Ernst & Ernst the reports of individual companies other than Spalding and Rawlings; and that the Court does not have the power to order the Respondent Tuttle, or Ernst & Ernst, to produce the reports of those other companies.

(2) That Section 9 of the Federal Trade Commission Act if it grants the Commission that power of subpoena violates the Fifth Amendment of the United States Constitution, in that the Commission would be taking part of the business of Ernst & Ernst which it conducts as accountants for this Association and other similar groups, and would deprive Ernst & Ernst of a valuable business, without due process of law.

(3) That in view of the hardship it would impose on Ernst & Ernst if they are required to disclose this confidential information, which they assert is merely hearsay and not competent proof in the Spalding matter, enforcement of the subpoena would violate Section 6(c) of the Federal Administrative Procedure Act, as being unreasonable and oppressive and therefore not "in accordance with law."

The District Judge concluded "that the plain words of Section 9 of the Federal Trade Commission Act do not authorize the issuance of this subpoena." He held that the Commission's power of subpoena under Section 9 was limited to the production of any documentary evidence of any corporation being investigated or proceeded against; that the respondent (Mr. Tuttle as Resident Manager of Ernst & Ernst) is neither being investigated nor proceeded against (nor are the so-called other companies); and that "the subpoena is unauthorized and the application (of the Commission to enforce the subpoena) is denied."

The Commission on this appeal contends (1) that the District Court erred in its construction of the subpoena clause in Section 9 of the Federal Trade Commission Act; (2) and that although the Court did not reach other objections to the subpoena raised by respondent, they are without merit and the subpoena should be enforced.

The respondent-appellee in addition to the contentions asserted in the special defenses set forth in their answer, argue that the Commission has no authority to issue a subpoena duces tecum in a proceeding brought by it to enforce the Clayton Act.

Before taking up the main issue presented by this appeal, the construction of Section 9 of the Federal Trade Commission Act, the collateral issues will be considered.

Section 9 of the Federal Trade Commission Act is not unconstitutional if its provisions permit the service of the subpoena duces tecum in this case. The petitioner is seeking the production by the respondent of 150 reports which were furnished by members of the Athletic Goods Manufacturers Association to Ernst & Ernst to enable it to prepare the annual "census report" for the industry. The 150 reports are not "privileged" or confidential communications. The data sought it relevant to the issues that will arise under the allegations of the complaint which the Commission has filed against Spalding, as a reading of the complaint will show.The "reports" have a bearing on the competitive relationship of the members of the Association and will serve to establish the extent of the market control that may have resulted from Spalding's purchase of the Rawlings stock. For those reasons also the subpoena does not violate the Federal Administrative Procedure Act ( § 5c) in relation to subpoenas.*fn3 The subpoena is not unreasonable in its scope, nor in any way oppressive, and it is in accordance with law, if the Commission had the power under Section 9 of the Federal Trade Commission Act, to issue the subpoena.

The use of the subpoena would not be unconstitutional even if it indirectly had an adverse effect on a certain part of Ernst & Ernst's accounting business. The public interest to be served is superior. If the Association and similar groups wish to have the "census reports" prepared annually, accountants from convenient offices of Ernst & Ernst (they have 60 offices in the United States) could examine the necessary data at the offices of the Association's members. There appears to be no reasonable basis for respondent's contention that either the petitioner or the United States, of which it is an Agency, is taking respondent's property without due process of law.

Defendant's contention that the Federal Trade Commission does not have the power to issue subpoenas in a proceeding under the Clayton Act, overlooks the fact that both the Clayton Act and Federal Trade Commission Act were under consideration by the Congress at the same time;*fn4 that the Congressional debates show that investigations under the Clayton Act were to be conducted by the Commission;*fn5 that the Commission is mentioned in Sections 2, 7 and 11 of the Clayton Act; and that under Section 11 of the Clayton Act ( § 21 of T. 15 U.S.C.) the Federal Trade Commission is authorized to enforce compliance with Section 7 of the Clayton Act ( § 18 of T. 15 U.S.C.). Likewise the Commission was granted the power under Section 1 of the Robinson-Patman Act ( § 13 of T. 15 U.S.C.) to investigate and institute proceedings to enforce the provisions of the Robinson-Patman Act. The Supreme Court has held that the Commission possess "broad power of investigation and subpoena" which it may use prior to the filing of a complaint for price discrimination, a violation of the Robinson-Patman Act. Automatic Canteen Co. v. F.T.C., 346 U.S. 61, 79. The subpoena power necessary for that purpose is found in Section 9 of the Federal Trade Commission Act. The Robinson-Patman Act contained no subpoena powers.

An adequate subpoena power is essential to any investigation of offenses under the Clayton Act*fn6 and to the enforcement of Section 7 of that Act. The Congress evidently concluded that it was unnecessary to incorporate the full subpoena power in both Acts and was content to set it forth in Section 9 of the Federal Trade Commission Act.*fn7 The Congress followed a similar course in later anti-monopoly and unfair trade-practices Acts,*fn8 relating to certain specific industries or markets, and it did not in those Acts set forth the subpoena powers required for the investigations to be conducted by the Commission.

The main issue on this appeal is the scope of the subpoena power given the Federal Trade Commission in Section 9 of the Federal Trade Commission Act. The argument of respondent on that point is that the subpoena power is limited to documents and records of the corporation being investigated or proceeded against, which in this case would be the Spalding corporation and possibly the Rawlings corporation. Respondents stress the use of the word "such" in the first sentence of Section 9, which states:

"Sec. 9. That for the purposes of this Act the commission, or its duly authorized agent or agents, shall at all reasonable times have access to, for the purpose of examination and the right to copy and documentary evidence of any corporation being investigated or proceeded against; and the commission shall have power to require by subpoena the attendance and testimony of witnesses and the production of all such documentary evidence relating to any matter under investigation."

The word "'such' is a rather slippery word" as Judge Dobie remarked in United States v. Legg, 157 F.2d 990, 992. Some of its many meanings, depending upon its context, are discussed in 85 C.J.S. p. 771. As a rule it is used to refer to an antecedent. The respondent argues that its antecedent in the first setnence of Section 9 is "documentary evidence of any corporation being investigated or proceeded against." That contention might appear to be reasonable if we read only the language of the first sentence of Section 9 disregarding the other provisions of Section 9; the purpose and policy of the Federal Trade Commission Act; its legislative history; the Congressional intent; and the effect of respondent-appellee's construction of Section 9, if adopted, upon the Commission's functioning under the Act. There is sufficient ambiguity here to permit consideration of relevant legislative history." Mastro Plastics Corp. v. Labor Board, 350 U.S. 270, 287. In that case the Court ruled on "a narrowly literal construction of the words" of Section 8(d) of the National Labor Relations Act, as the court observed in Labor Board v. Lion Oil Co., 352 U.S. 282, 288.

The Federal Trade Commission Act was the work of the 63rd Congress, 2nd Session.In April 1914, a bill known as H.R. 15613 was introduced in the House of Representatives and was referred to its Committee on Interstate and Foreign Commerce. It was passed by the House on June 5, 1914. On June 13, 1914, the Senate Committee on Interstate Commerce, to which H.R. 15613 had been referred, reported as a substitute Senate Bill No. 4160 which had been reported favorably to the Senate on June 6th. The Senate and House bills went to conference and a conference bill emerged. The House conference report is No. ...


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