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United States v. St. Regis Paper Co.

decided: January 19, 1966.

UNITED STATES
v.
ST. REGIS PAPER CO.



Moore, Smith and Anderson, Circuit Judges. Smith, Circuit Judge (dissenting).

Author: Moore

MOORE, Circuit Judge:

In 1959 the Federal Trade Commission (FTC) issued a consent cease and desist order prohibiting appellant, St. Regis Paper Co. and 16 other manufacturers of multiwall paper shipping sacks, from engaging in certain concerted pricing practices. During the years 1962, 1963 and 1964, the Antitrust Division of the United States Justice Department convened two grand juries in the United States District Court for the Eastern District of Missouri to investigate possible violations of the Sherman Act, 15 U.S.C. §§ 1, 2, by appellant and others, arising out of their pricing practices. No indictment, however, was returned against any party. Thereafter, the Attorney General, at the request of the FTC*fn1 and in reliance on information obtained during the three-year grand jury investigation commenced the present suit in the United States District Court for the Southern District of New York to recover civil penalties under Section 5 (l) of the Federal Trade Commission Act (FTCA), 15 U.S.C. 45 (l),*fn2 in the amount of $230,000 for the alleged violation by appellant of the 1959 FTC consent cease and desist order.

Subsequently, appellant moved to dismiss the complaint asserting that the district court lacked subject matter jurisdiction since the FTC had not, in accordance with its usual practice, certified the case to the Attorney General pursuant to Section 16 of the FTCA, 15 U.S.C. § 56.*fn3 Appellant contended that the requirements of Section 16 were jurisdictional and that the Attorney General had no power to proceed under Section 5 (l) absent an FTC certification. The district court denied the motion, finding that the Section 16 certification procedure was not "so essential a part of the statutory scheme" that congressional intent would be frustrated if the Attorney General proceeded under Section 5 (l) without it. The court concluded that Section 16 merely defines an administrative function of the FTC, "a method to be used by . . . [it] in the normal course of discharging its duty," which does not affect the power of the Attorney General to institute civil penalty suits under Section 5 (l). United States v. St. Regis Paper Co., 240 F. Supp. 36, 38 (S.D.N.Y. 1965).

Upon appellant's motion, the district court amended its decision to conform to the requirements of the Interlocutory Appeals Act, 28 U.S.C. § 1292(b). Thereupon, appellant applied to this court for leave to appeal and the application was granted April 7, 1965.

This appeal very possibly raises for the first time the question of whether Section 16 of the FTCA, which provides that whenever the FTC has reason to believe that anyone subject to a Commission cease and desist order is liable to a penalty under Section 5 (l) of the FTCA, "it shall certify the facts to the Attorney General, whose duty it shall be to cause appropriate proceedings to be brought" to enforce Section 5 (l), constitutes an absolute limitation on the Attorney General's power to commence suits for civil penalties under Section 5 (l). Appellant contends that Section 16 and Section 5 (l) of the FTCA must be read and applied together,*fn4 and points out that this is the first civil penalty suit in which the Attorney General has proceeded under Section 5 (l) on his own motion. The Government, while conceding that civil penalty suits are customarily initiated by FTC certification, regards that procedure as merely a convenient means for informing the Attorney General of possible violations of the Commission's orders. It contends that Section 5 (l) fully empowers the Attorney General to initiate civil penalty suits on the basis of independently obtained information, regardless of the Commission's view concerning the alleged violation of its order, and asserts that the courts have implicitly recognized the jurisdictional completeness of Section 5 (l). The question of the interrelationship between Section 5 (l) and Section 16, however, was not raised in any case cited by the Government, see United States v. American Greetings, Corp., 168 F. Supp. 45 (N.D. Ohio), aff'd 272 F.2d 945 (6th Cir. 1958); United States v. Piuma, 40 F. Supp. 119 (S.D. Cal.), aff'd 126 F.2d 601 (9th Cir. 1941); United States v. Hindman, 179 F. Supp. 926 (D.N.J. 1960), nor has it been raised in any case litigated to date under the FTCA.

It is generally recognized that whether procedural requirements such as those set forth in Section 16 of the FTCA are mandatory cannot be determined by merely examining the form of the statute involved, i.e., by a mere literal reading of the law, but "can only be determined by ascertaining the legislative intent. If a requirement is so essential a part of the plan that the legislative intent would be frustrated by a noncompliance, then it is mandatory." Vaughan v. John C. Winston Co., 83 F.2d 370, 372 (10th Cir. 1936); Van Keppel v. United States, 206 F. Supp. 42 (D. Kan. 1962). See generally 3 Sutherland, Statutory Construction §§ 5801-5826 (3d ed. 1943). Unfortunately, the legislative history of Sections 16 and 5 (l) is sparse and unilluminating and, thus, sheds little light on their intended relationship. Both provisions were enacted as part of the 1938 WheelerLea Amendment to the FTCA which was aimed primarily at broadening the FTC's jurisdiction by granting it power to regulate "unfair or deceptive acts or practices in commerce" in addition to "unfair methods of competition in commerce," and at eliminating the cumbersome procedures for the enforcement of FTC cease and desist orders by providing that they would become final unless an appeal were taken within the statutory time period provided. 15 U.S.C. §§ 45(a), (g). Both Section 5 (l) and Section 16 were introduced into Congress and included in the 1938 amendment with little explanation or elaboration in hearings or debates.*fn5 See Austern, Five Thousand Dollars a Day, ABA Section of the Antitrust Law 285, 289 (1962). The Government urges, however, that a remark made by Congressman Lea while discussing the relation between Section 16 and Section 14 of the FTCA, 15 U.S.C. § 54, which provides for fines and imprisonment for false advertising in violation of 15 U.S.C. § 52(a),*fn6 to the effect that the Attorney General could prosecute violations of that section on his own motion, without awaiting FTC certification,*fn7 demonstrates that certification is equally dispensable with respect to Section 5 (l) civil penalty suits. We do not feel that this expression of opinion has any significance for the problem presented here. The Government's position fails to recognize the fundamental difference in kind between the rule of conduct enforced under Section 5 (l) -- a cease and desist order issued by the FTC in an adjudicatory proceeding or with the consent of the party proceeded against, and the rule of conduct enforced under Section 14 - (a) federal criminal statute. While it is reasonable to presume that when Congress enacts a criminal statute it intends to authorize the Attorney General to enforce the statute on his own motion, i.e., public policy favors the unencumbered enforcement of criminal laws, no such presumption of public policy operates here where the authority of the Attorney General to punish violations of FTC cease and desist orders is at issue.

Since there is no direct evidence of congressional intent with respect to the relation between Section 5 (l) and 16, it must be ascertained by examining the purposes and objectives of the FTCA as a whole in terms of objective criteria, i.e., the relevant inquiry is "how, one supposes, it . . . would appear to a 'reasonable' interpreter." Bishin, The Law Finders: an Essay in Statutory Interpretation, 38 So.Cal. L.Rev. 1, 3 (1965). We regard the view that Section 5 (l) fully empowers the Attorney General to initiate civil penalty suits as inconsistent with the grant of farreaching and exclusive regulatory power to the FTC in Section 5 of the FTCA, 15 U.S.C. § 45 (l). It is highly unlikely that Congress intended to grant the Attorney General plenary power to punish violations of Commission orders in view of the fact that when it enacted Sections 5(a) and (b) of the FTCA, 15 U.S.C. § 45(a), (b), it granted the FTC exclusive authority to enforce the proscription against unfair methods of competition and deceptive acts or practices in commerce and, also, granted the FTC exclusive authority to issue orders to cease and desist from such practices.*fn8 The duty and responsibility for determining what business practices fall within the purview of Section 5 and for determining whether cease and desist orders issued to eliminate the anti-competitive effects of those practices have been complied with or violated was delegated solely to the FTC. While one objective of the 1938 Wheeler-Lea amendment, including Section 5 (l), was to "streamline" the procedure for enforcing the Commission's cease and desist orders, it is nowhere indicated that Congress by providing a civil penalty enforcement procedure intended to transfer the responsibility for interpreting and investigating violations of such orders to the Attorney General.

It must be kept in mind that the "Federal Trade Commission Act is not a revenueraising or penal measure," Quaker Oats Co. Trade Reg. Rep. (FTC Complaints, Orders, Stipulations, 1961-63) para. 15858 at 20651 (Elman, Comm., dissenting), but is one "in which Congress, to make its policy [to preserve and promote competition] . . . effective, has relied upon the initiative of administrative officials and the flexibility of the administrative process." United States v. Morton Salt Co., 338 U.S. 632, 640, 94 L. Ed. 401, 70 S. Ct. 357 (1950). The fact that the FTC has the exclusive power and expertise to formulate policy in its efforts to maintain competition and regulate unfair business practices commands the conclusion that Congress intended it to have the exclusive power to implement that policy by initiating civil penalty suits under Section 5 (l). It is sufficient that the Attorney General has a kind of veto power in that he can refuse to prosecute cases certified to him when, in reliance on his own legal expertise, he considers the evidence insufficient to warrant prosecution.

In support of its contention that Section 16 does not affect the power of the Attorney General to commence suits for civil penalties under Section 5 (l) the Government relies heavily on decisions which have construed allegedly analogous statutory requirements as non-jurisdictional. In United States v. Morgan, 222 U.S. 274, 56 L. Ed. 198, 32 S. Ct. 81 (1911), the United States sought to prosecute a drug dealer for violation of Section 44 of the Pure Food & Drug Act of June 30, 1906, 34 Stat. 768 (repealed -- its modern counterpart is the Federal Food, Drug & Cosmetic Act, 21 U.S.C. §§ 301-392) which provided that any dealer who shipped adulterated or misbranded goods in interstate commerce was guilty of a misdemeanor. It was contended that the suit was improper since a provision in the act requiring the Department of Agriculture to provide potential defendants with a hearing prior to certifying facts to the Attorney General for prosecution of alleged violations of the Act had not been complied with. Since another section of the Act expressly empowered the Attorney General to prosecute violations of the Act upon the complaint of a state health officer, the Court concluded that Congress did not intend the hearing procedure to be mandatory. See also United States v. Dotterweich, 320 U.S. 277, 278-79, 88 L. Ed. 48, 64 S. Ct. 134 (1943) (relied on Morgan for similar construction of Section 305 of the Federal Food, Drug and Cosmetic Act, 21 U.S.C. § 335). In United States v. Gris, 247 F.2d 860 (2d Cir. 1957), this court held that the Congressional authorization of the Federal Communications Commission to request the Attorney General to prosecute violations of the Federal Communications Act, 47 U.S.C.§§ 501, 605, did not affect his power to prosecute violations on his own motion. In both Morgan and Gris, the court refused to impose limitations on the general power of the Attorney General to enforce federal criminal statutes in the absence of a more explicit direction from Congress. These cases clearly cannot be relied on to guide our construction of Section 16 of the FTCA, for we are not concerned either with the scope of the Attorney General's authority to enforce federal criminal statutes or with the effect of a statutory provision authorizing an administrative agency to initiate prosecutions of such statutes on his power to prosecute. (Admittedly, the Attorney General has the primary responsibility for enforcing federal criminal laws.) Rather, we are concerned with the extent of his authority to prosecute violations of FTC cease and desist orders which the Commission has the primary responsibility for issuing and interpreting. Moreover, in contrast to the legislative scheme set forth in the Pure Food & Drug Act of June 30, 1906, dealt with by the Court in United States v. Morgan, supra, Section 16 of the FTCA constitutes the exclusive penalty enforcement provision provided by Congress for Section 5 (l). In Section 16, which specifically refers to Section 5 (l), Congress prescribed the circumstances under which civil penalty actions for violations of Commission orders shall be commenced and the officer of the United States who shall prosecute them and in Section 5 (l) it prescribed the amount of the penalty and the appropriate manner for filing a suit.

Our conclusion that Sections 16 and 5 (l) were intended to be mutually inter-dependent disposes of the Government's attempt to invoke the plenary authority of the Attorney General to prosecute all civil actions in which the United States is interested, 28 U.S.C. § 507(a) (2), (b) as a basis for permitting him to initiate suits under Section 5 (l). The general duty of United States Attorneys to conduct litigation on behalf of the United States can be invoked only in the absence of statutory directions delineating the circumstances under which civil actions can be instituted, i.e., "'except as otherwise provided by law' . . ., " 28 U.S.C. § 507(a), such as those set forth in Section 16 of the FTCA. E.g., United States v. California, 332 U.S. 19, 27-29, 91 L. Ed. 1889, 67 S. Ct. 1658 (1947); see United States v. Zucca, 351 U.S. 91, 100 L. Ed. 964, 76 S. Ct. 671 (1956).*fn9

In determining the effect -- mandatory or directory -- to be given Section 16, it is not only appropriate for this court to examine the nature and objectives of the FTCA as a whole but "a significant consideration . . . is a comparison between the results to which each such construction would lead." Holbrook v. United States, 284 F.2d 747, 752 (9th Cir. 1960); 3 Sutherland, supra, para. 5806. Concurrent surveillance and enforcement of FTC cease and desist orders by the Commission and the Attorney General would necessarily involve the possibility of conflicting interpretations of such orders. Thus, such a system could result in stultifying the Commission's implementation of its policies, for the Attorney General in proceeding under Sectroper by the Commission and which, as a result of the FTC's compliance procedures, may have been undertaken with the Commission's consent. Moreover, the situation might arise where a penalty suit threatens injury to competition, i.e., a small company or a new entrant into a highly competitive or highly concentrated market might be prevented from effectively competing in that market by the payment of a large penalty and litigation expenses. If the Commission were not able to exercise control over the situation and effect compliance with its order through some means other than a civil penalty suit, it could not effectively perform its regulatory function. In addition, to require the Commission to relinquish control over a carefully formulated order at the instant it is issued would defeat the purpose of granting it wide discretion in determining the type of order best suited to combat the competitive ills it uncovers, FTC v. National Lead Co., 352 U.S. 419, 428, 1 L. Ed. 2d 438, 77 S. Ct. 502 (1957); cf. FTC v. Mandel Bros., 359 U.S. 385, 3 L. Ed. 2d 893, 79 S. Ct. 818 (1959); see generally Comment, 29 U. Chi. Law Rev. 706 (1962), to wit, "to exercise a special competence in formulating remedies to deal with problems in the general sphere of competitive practices," FTC v. Ruberoid Co., 343 U.S. 470, 473, 96 L. Ed. 1081, 72 S. Ct. 800 (1952). It is readily apparent that broad discretion and exclusive authority to select the means for enforcing the Commission's orders is a necessary corollary of its wide discretion and exclusive power to formulate the order being enforced.*fn10 Thus, appellant's position, namely, that the certification procedure provided for in Section 16 should be considered the exclusive means for initiating civil penalty suits authorized in section 5 (1) is entirely consistent with the responsibilities of the Commission and the regulatory function it is expected to perform.

To relinquish jurisdiction to the Attorney General after the issuance of a cease and desist order would be most unrealistic, for the Commission alone knows the scope of its orders and has been "provided with staffs to institute proceedings and to follow up decrees and police their obedience . . . which are expected to . . . take the lead in following through to effective results." United States v. Morton Salt Co., 338 U.S. 632, 640, 94 L. Ed. 401, 70 S. Ct. 357 (1950). In recognition of the fact that "the public interest expressed in the Act is not secured simply by collecting fines and penalties," Quaker Oats Co. Trade Reg. Rep. (FTC Complaints, Orders, Stipulations 1961-1963) para. 15858 at 20651 (Elman, Comm., dissenting), and to implement "the basic objective of the Commission, not to exact penalties, but to secure compliance," Austern, supra 323, the Commission has developed practices and procedural rules designed to effect voluntary compliance with its orders. Mr. Morehouse, FTC Assistant General Counsel in charge of compliance, described the practice of the Commission prior to certifying a case to the Attorney General in the following manner:

We never yet have requested a certification without notifying the respondent that he is considered to be in violation and affording him an opportunity, if he wishes, to come in and discuss the matter in the Compliance Division . . . In other words, we don't immediately jump down his throat. We . . . see if we can get together and get him to amend his practices so that he can conform to what we think is the requirement of the order . . . [Moreover,] respondent is afforded an opportunity to ...


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