Appendix — Standard Oil Co. v. Federal Trade Commission

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Supieme Court, U. 8.

FILED

APR 15 1977

IN THE ~~

Supreme Court of the United States

No.

TEXACO INC., et al.,

Petitioners,

v.

FEDERAL TRADE COM MISSION,

Respondents.

PETITIONERS’ JOINT APPENDIX TO PETITION

FOR WRIT OF CERTIORARI

(List of Counsel Appears on Inside Cover)

WILSON - EPES PRINTIMS CO..

INC.

- RE 7-6002 - WASHINGTON, D.C. 20001

— —— — — ee =

WILLIAM SIMON

Rocer C. SIMMONS

Howrey & SIMON

1730 Pennsylvania Ave., N.W.

Washington, D.C. 20006

Rorert L. Norris

1728 Exxon Building

Ilouston, Texas 77001

Attorneys for Petitioner

Exxon Corporation

J. WALLACE ADAIR

TERRENCE C. Sure

Jon Dy Q. Brices, III

Howrey & SIMON

1770 Pennsylvania Ave., N.W.

Washington, D.C. 20006

THOMAS G. JOHNSON

One Shell Plaza

Houston, Texas 77002

Attorneys for Petitioner

Shell Oil Company

JOHN W. ITowarpb

P.O. Box 5910A

Chicago, Illinois 60680

Attorney for Petitioner

Standard Oil Company

(Indiana)

Ropert F. McGinnis

135 Fast 42nd Street

New York, New York

Attorney for Petitioner

Texaco Inc.

CHARLES F. RICE

Mobil i! Corporation

150 East 42nd Street

New York, New York 10017

Harry M. REASONER

VINSON & ELKINS

First City National

tank Building

Houston, Texas 77002

MICHAEL J. HENKE

F. SHAUN BURNS

VINSON & ELKINS

1701 Pennsylvania Ave., N.W.

Washington, D.C. 20006

Attornens far Petitioner

Mobil Oil Corporation

LEE LOEFVINGER

MARTIN MICHAELSON

Joseriu C, BELL

TIOGAN & ITARTSON

815 Connecticut Ave, N.W.

Washington, D.C. 20006

Attorneys for Petitioner

Standard Oil Company

of California

ABE KRASH

DANIFL A. REZNECK

ARNOLD & PORTER

1229 Nineteenth Street, N.W.

Washington, D.C. 20036

Attorneys for Petitioner

The Superior Oil Company

TABLE OF CONTENTS

En banc opinion, Federal Trade Commission v. Texaco

Inc., (No. 74-1547, et al.) (D.C. Cir. Feb. 23, 1977)

Order, United States Court of Appeals for the District

of Columbia (March 24, 1977) 8 3

Order, United States Court of Appeals for the Distriet

of Columbia (April 1, 1977) Porno

Stipulation Re: Issues on Which Parties Have Agreed

and Issues Which Remain to Be Resolved by the

Court and Appendix A & B (May 19, 197652

Stiplations between Federal Trade Commission and

Superior Oil Company (May 19, 1976)

a) Stipulation

b) ITC's Statement of Issues and Proposed Modi-

fications PR LT eee TALIS ED A BY

c) Statement of Superior Oil Company

Order, United States Court of Appeals for the District

of Columbia (April 21, 1976) ae

Letter, Clerk, United States Court of Appeals for the

District of Columbia Re: Wishes of the Court for

Supplemental Memorandum (March 16, 1976)

Order, United States Court of Appeals for the District

of Columbia granting petition for rehearing en banc

(February 6, 1976)

Panel opinion, Federal Trade Commission v. Texaco

Inc, 517 F.2d 137 (D.C. Cir. August 8, 1975)

FTC Order denying Motion to Quash (June 27, 1972)

FTC Resolution Directing Use of Compulsory Process

in Nonpublic Investigation (June 3, 19717 *

Affidavit and Exhibits, H. R. Hirns ĩ

Correspondence re: Negotiations between Counsel for

Mobil and Federal Trade Commission, (August-

December, 1972) *

Page

171

190

191

197

203

204

207

209

258

287

289

316

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 74-1547

FEDERAL TRADE COMMISSION, APPELLANT

v.

TEXACO, INC.

(Civil 1089-73)

No. 75-1548

FEDERAL TRADE COMMISSION, APPELLANT

V.

STANDARD OIL COMPANY

(Civil 1090-73)

No. 74-1549

FEDERAL TRADE COMMISSION, APPELLANT

V.

THE SUPERIOR OIL COMPANY, INC., A CORPORATION

(Civil 1091-73)

No. 74-1550

FEDERAL TRADE COMMISSION, APPELLANT

V.

EXXON CORPORATION, A CORPORATION

(Civil 1092-73)

A-2

No. 74-1551

FEDERAL TRADE COMMISSION, APPELLANT

V.

SHELL OIL COMPANY, A CORPORATION

(Civil 1093-73)

No. 74-1553

FEDERAL TRADE COMMISSION, APPELLANT

V.

STANDARD OIL COMPANY OF CALIFORNIA, A CORPORATION

(Civil 1095-73)

No. 74-1554

FEDERAL TRADE COMMISSION, APPELLANT

V.

MOBIL OIL CORPORATION, A CORPORATION

(Civil 1096-73)

Appeals from the United States District Court

for the District of Columbia

Argued En bane April 19, 1976

Decided February 23, 1977

Gerald P. Norton, Deputy General Counsel, Federal

Trade Commission, with whom Rex E. Lee, Assistant

Attorney General, Gerald Harwood, Assistant General

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Counsel, Federal Trade Commission and Leonard Schait-

man, Attorney, Department of Justice were on the brief

for appellant. Robert E. Duncan, William Cerillo, Attor-

neys, Federal Trade Commission and John K. Villa,

Attorney, Department of Justice, also entered appear-

ances for appellant.

William Simon, with whom Roger C. Simmons and

Robert L. Norris, were on the brief for appellee in No.

74-1550 also argued for appellees in Nos. 74-1547, 74-

1548 and 74-1551. Robert F. McGinnis, was on the brief

for appellee in No. 74-1547. John W. Howard, was on

the brief for appellee in No. 74-1548. J. Wallace Adair,

Terrence C. Sheehy and Thomas G. Johnson were on the

brief for appellee in No. 74-1551. W. C. Weitzel, Jr.,

also entered an appearance for appellee in No. 74-1547.

Terrence C. Sheehy also entered an appearance for ap-

pellee in 74-1550.

Lee Loevinger, with whom Raymond E. Vickery, Jr.,

was on the brief for appellee in No. 74-1553. Martin

Michaelson, also entered an appearance for appellee in

74-1553.

Michael J. Henke, with whom Harry M. Reasoner was

on the brief for appellee in No. 74-1554.

Daniel A. Reznick with whom Abe Krash was on the

brief for appellee in 74-1549.

Before: BAZELON, Chief Judge, WRIGHT, LEVENTHAL,

ROBINSON, MACKINNON, and WILKEY, Circuit

Judges

Opinion for the Court filed by Chief Judge BAZELON.

Concurring Opinion filed by Circuit Judge LEVENTHAL.

Dissenting Opinion filed by Circuit Judge WILKEY,

with whom Circuit Judge MACKINNON joins.

A-4

BAZELON, Chief Judge: These consolidated cases are be-

fore the court en bane on appeals by the Federal Trade

Commission (FTC) from orders of the district court

granting enforcement in part and denying enforcement

in part with respect to administrative subpoenas duces

tecum issued by the FTC to appellees, seven natural

gas producers.’ The subpoenas in question were authorized

by the FTC in aid of a formal investigation into the

procedures employed by various natural gas producers

in reporting their gas reserves—an investigation stem-

ming primarily from an unprecedented decline in these

reported reserves. That this nation currently is in the

midst of a energy crisis, however defined, need not be

detailed by this court. The extent of the energy short-

age, the reasons for it, and the appropriate governmental

and industry responses to the problem are the focus of

debate and investigation in various executive agencies

and in Congress. Such questions are largely outside the

province of the judiciary. In these cases we consider

only the propriety of these investigative subpoenas in

the context of the limited role assigned to the federal

courts in enforcement proceedings.

I. FACTUAL BACKGROUND

A. The FTC Investigation

The American Gas Association (AGA), a trade as-

sociation composed of producers, distributors, and mar-

keters of natural gas, is recognized as one of the prin-

cipal sources of authoritative statistical data concerning

the natural gas industry. In 1945 the AGA established

a Committee on Natural Gas Reserves to formulate an-

1The FTC subpoena and the district court orders are re-

produced in the appendix to this opinion.

A-5

nual estimates of proved reserves for the benefit of the

gas industry, the Government, and the general public.

To facilitate this task, the Committee has subdivided the

United States into ten regions and has assigned a sub-

* The term “proved reserves” is central to the discussion

herein. The following definition has been adopted by the AGA:

Proved Reserves are the estimated quantity of natural

gas which analysis of geologic and engineering data

demonstrate with reasonable certainty to be recoverable

in the future from known oil and gas reservoirs under

existing economic and operating conditions. Reservoirs

are considered proved that have demonstrated the ability

to produce by either actual production or conclusive for-

mation test.

The area of a reservoir considered proved is that por-

tion delineated by drilling and defined by gas-oil, gas-

water contacts or limited by the structural deformation

or lenticularity of the reservoir. In the absence of fluid

contacts, the lowest known structural occurrency of

hydrocarbons controls the proved limits of the reservoir.

The proved area of a reservoir may also include the

adjoining portions not delineated by drilling but which

can be evaluated as economically productive on the basis

of geological and engineering data available at the time

the estimate is made. Therefore, the reserves reported

should include total proved reserves which may be in

either the drilled or the undrilled portions of the field

or reservoir.

Natural gas reserves take into account the shrinkage

of the reservoir gas volume resulting from the removal

of the liquefiable portions of the hydrocarbon gases and

the reduction of volume due to the exclusion of non-

hydrocarbon gases where they occur in sufficient quantity

to render the gas unmarketable.

The proved reserves estimated are to include all gas

reserves regardless of size, availability of market, ulti-

mate disposition or use.

See “Reserves of Crude Oil, Natural Gas Liquids, and

Natural Gas in the United States and Canada and United

States Productive Capacity,” Volume 28, June 1974. The

A-6

committee of its members to compile the gas reserve

estimates for each area. Members of the subcommittees

usually are employees of the gas producers, and each

subcommittee member generally is assigned fields in

which his employer is the major producer or has some

other ownership interest.“

In May of 1969 the AGA for the first time reported

a decline in the nation’s proved reserves, occurring in

1968. The reported decrease came on the heels of a

Federal Power Commission (FPC) order instituting a

proceeding to reconsider rates for the offshore portion

of Southern Louisiana in light of the supply of gas

reserves for that area.‘ The AGA report for 1969, issued

first two paragraphs of this definition appear on page

103 of this publication, the third paragraph is derived

from page 99, and the last paragraph is derived from

pages 96 and 97.

Essentially the concept of proved reserves is bottomed on

the presence of enough technical data to ensure reasonably

accurate measurement of a known reservoir. Even proved

reserves are only estimates, however, and competent evalu-

ators may produce slightly different figures based on different

analyses of the geological data. See, e.g., Federal Power Com-

mission Staff Report on the Updated 31 Lease Investigation,

June 1976, at 16; Federal Power Commission Analysis of “Gas

Reserve Estimation of Offshore Producible Shut-in Leases in

the Gulf of Mexico,” May 1976, at 1-3. Gas producers may also

denominate reserves as “speculative,” “possible,” “probable,”

“recoverable,” or “ultimately recoverable“ —indicating the

progression of knowledge as a field is developed—but there is

no accepted use or definition of these terms by the industry.

Only proved reserves are consistently defined, and only proved

reserves are reported by the AGA.

* App. III 537a-543a, 556a-558a.

41 F.P.C. 378 (Mar. 20, 1969). The FPC order mandated

an investigation of “offshore gas supply and costs associated

therewith.” Id. at 379; see further discussion infra at 12.

In May of 1968 the Supreme Court had approved the FPC’s

A-7

in May of 1970, revealed further declines in total re-

serves for the United States and, this time, in Southern

Louisiana reserves as well. The Southern Louisiana area

is generally acknowledged to be the most important gas-

producing area in the nation, accounting for approxi-

mately one-third of our domestic natural gas production.*

By letter of September 1, 1970 to Commissioner Me-

Intyre of the FTC, Senator Philip A. Hart, chairman

of, the Subcommittee on Antitrust and Monopoly of the

Senate Judiciary Committee, stated that there were nu-

merous allegations that natural gas producers were with-

holding information on gas reserves in order to obtain

higher rates from the FPC and recommended that the

Commission conduct an investigation to determine whether

any activities in violation of section 5 of the Federal

Trade Commission Act had occurred.’ On October 13

the Secretary of the Commission replied that “in order

that the possibility of collusion or other unlawful con-

duct in this field may be more fully explored, we have

today directed our staff to commence an investigation

which will focus principally on the reporting, estima-

functional use of price “as a tool to encoura i

ge the production

of appropriate supplies of natural gas.” Permian Basi

Rate Cases, 390 U.S. 747, 796-98. 1

_* Mobil Oil Corp. v. FPC, 417 U.S. 283, 29

citing Southern Louisiana Rate Cases, 428 F.2d ph apes

Cir. 1970). The area is defined by the FPC to include all parts

of the state south of the thirty-first parallel, together with

the offshore territory in the federal domain that would be

bounded by Louisiana borders if

Mexico. Id. if extended into the Gulf of

Section 5 (a) (1) of the FTC Act, as amended. provi

40 5 : b 7 a

that “Unfair methods of competition in or — —

merce, and unfair or deceptive acts or practices in or affecting

commerce, are declared unlawful.” 15 U.S.C. 8 45 (a) (1).

A-8

tion, and deployment of reserves by the Natural Gas

Industry in one selected area of the country.” ’

After informal investigative efforts proved inadequate,

the Bureau of Competition determined that the issuance

of subpoenas would be necessary and so advised the Com-

mission. On June 3, 1971, the FTC issued a resolution

directing the use of compulsory process in furtherance

of a nonpublic investigation. The nature and scope of

the investigation were stated as follows:

The purpose of the authorized investigation is to

develop facts relating to the acts and practices of

. . . [certain named corporations] to determine

whether said corporations, and other persons and

corporations, individually or in concert, are engaged

in conduct in the reporting of natural gas reserves

for Southern Louisiana which violates Section 5 of

the Federal Trade Commission Act, or are engaged

in conduct or activities relating to the exploration

and development, production, or marketing of natu-

ral gas, petroleum and petroleum products, and

other fossil fuels in violation of Section 5 of the

Federal Trade Commission Act.*

During this period of the investigation the AGA co-

operated with the FTC on a voluntary basis. Field-by-

field estimates of each Southern Louisiana subcommittee

member for the years 1966 through 1970 were made

App. IX 1686a. Section 6(a) of the FTC Act, as amended,

empowers the Commission

To gather and compile information concerning, and to

investigate from time to time the organization, busi-

ness, conduct, practices, and management of any person,

partnership, or corporation engaged in or whose busi-

ness affects commerce, excepting banks and common

carriers subject to the Act to regulate commerce, and its

relation to other persons, partnerships and orporations.

15 U.S.C. § 46(a).

o App. III 497a.

A-9

available for the Commission’s inspection and analysis

in October 1971. The FTC staff also obtained data from

reports filed with the FPC pertaining to gas reserves

in Southern Louisiana. These reports, known as Form

15 reports, are filed by interstate natural gas pipelines

and list recoverable, saleable gas reserves committed to,

collected by, or held by the reporting pipeline company.

With information gained from these sources, as well as

from numerous interviews and depositions, the FTC

drafted a comprehensive subpoena duces tecum which

was issued on November 24, 1971 to eleven natural gas

producers.“

The FTC subpoena is premised on a thorough investi-

gation of the producers’ estimation of gas reserves for

the Southern Louisiana area, with a view towards com-

parison of the various estimates used by producers in

their internal procedures and business operations with

those reported as proved estimates to the AGA. To sum-

marize briefly, Specifications A through F of the sub-

* Section 9 of the FTC Act, as amended, provides in perti-

nent part:

For the purposes of the [FTC 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 any documentary evidence of any per-

son, partnership, or 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. Any

member of the Commission may sign subpoenas, and

members and examiners of the Commission may admin-

ister oaths and affirmations, examine witnesses, and re-

ceive evidence.

Such attendance of witnesses, and the production of

such documentary evidence, may be required from any

place in the United States, at any designated place of

hearing. 15 U.S.C. § 49.

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poena demand background information such as the com-

pany’s annual reports, subsidiaries, officers, customers,

net production, and sales volume. Specification G re-

quests documents and underlying data relating to all

reserve estimates for the Southern Louisiana area made

by the producers, both for internal purposes and for re-

ports to the AGA, during the period 1962-1970. Specifi-

cation H requires technical data concerning the location,

operations, ownership interests, and drilling status of

the fields and leaseholds for which estimates are provided

pursuant to Specification G. Specification I seeks docu-

ments commenting on or otherwise relating to the prep-

aration of various reserve estimates, the procedures em-

ployed therein, and the personnel involved. Specification

I also requires, inter alia, documents relating to “lease

nominations and bids, any agreements for joint or com-

mon leasing, exploration, development, production, pur-

chase or sale, or any cash flow or economic feasibility

studies preparatory to leasing, exploring, developing, pur-

chasing or selling, which involve Offshore South Louisi-

ana acreage.“ Specification J requires various documents

pertaining to reports of proved reserves to the AGA.

Specification K asks for documents referring to any rela-

tion between the reporting of proved reserves and the

rates for natural gas permitted by the FPC. Finally,

Specification L demands the names of all employees in-

volved in the estimating and evaluating process, together

with their areas of responsibility.

All eleven gas producers filed motions to quash the

subpoenas. On June 27, 1972, the Commission denied

the motions. During subsequent negotiations between the

Commission’s staff and the gas producers, the Commis-

sion offered additional confidentiality protection for the

information to be provided under Specifications G, H,

and I;* as a result, two producers agreed to comply in

* App. IV 625a, 643a.

——— ce ee Pet Mla — eee 1%

4 8 COS peat 2 ER mene ®

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A-11

full with the subpoenas and one producer agreed to com-

ply in part. The remaining producers refused to comply.

Accordingly, petitions for enforcement were filed in the

district court on June 4, 1973.“ Shortly thereafter, one

other firm agreed to comply.

B. The FPC Proceeding

Roughly concurrently with the FTC’s investigation, the

Federal Power Commission was conducting a ratemaking

proceeding for the Southern Louisiana area. Since this

proceeding figures prominently in the arguments of the

gas producers, it will be discussed at this point. The

FPC began considering area rates for Southern Louisi-

ana in the early 1960’s, (So La I), but a final decision

was not rendered until 1968. Almost immediately, and

while So La I was still under review by the Fifth Cir-

cuit, the FPC instituted a new proceeding (So La II)

to reconsider rates for the offshore portion of Southern

1 Section 9 of the FTC Act, as amended, provides in rele-

vant part that

.. . in case of disobedience to a subpoena the Commis-

sion may invoke the aid of any court of the United States

in requiring the attendance and testimony of witnesses

and the production of documentary evidence.

Any of the district courts of the United States within

the jurisdiction of which such inquiry is carried on may,

in case of contumacy or refusal to obey a subpoena issued

to any person, partnership, or corporation issue an order

requiring such person, partnership, or corporation to

appear before the Commission, or to produce documentary

evidence if so ordered, or to give evidence touching the

matter in question; and any failure to obey such order

of the court may be punished by such court as a contempt

thereof. 15 U.S.C. § 49.

12 Area Rate Proceeding (Southern Louisiana), 40 F.P.C.

530 (Sept. 25, 1968), modified on rehearing, 41 F.P.C. 301

(Mar. 20, 1969), aff' d, Southern Louisiana Area Rate Cases,

428 F.2d 407 (5th Cir.), cert. denied, 400 U.S. 950 (1970).

A-12

Louisiana;** a few months later, the Commission ex-

panded the proceeding to include the entire area.“

The FPC was responding to numerous complaints that

the supply-demand situation had changed significantly

since the record in So La I was closed. The gas pro-

ducers argued that present supplies were diminishing

and that the rates established in So La I were inadequate

to stimulate the development of new supplies. Various

municipal distributors charged, however, that the pro-

ducers were understating their reserves in reports to the

AGA and were deliberately withholding natural gas. In

December 1969 the FPC established procedures for the

So La II proceeding and directed that a full evidentiary

record be made on the reserve data question.” As part

of a staff investigation into the accuracy of the AGA

data, the FPC ordered producers to furnish data relating

to “uncommitted” natural gas reserves in the Southern

Louisiana area; these estimates were confirmed by a

staff-supervised spot audit. From an analysis of the

pertinent Form 15 reports, the results of the uncom-

* 41 F. P. C. 378 (Mar. 20, 1969).

42 F. P. C. 1110 (Dec. 15, 1969).

The FPC stated that evidence should be taken “with

respect to the adequacy of gas supply and adequacy of service

to consumers, the demand for gas, the cause of a gas shortage,

if any, the effect of price on gas supply and demand, and

other relevant economic evidence. .. 42 F.P.C. 1110, 1112

(Dec. 15, 1969).

43 F.P.C. 444, 445 (Mar. 17, 1970). The FPC already

had data pertaining to gas reserves from Form 15 reports

filed by pipelines. Form 15 applies only to reserves “com-

mitted” or “dedicated” to interstate sale; thus, “uncommitted”

reserves are unreported. The uncommitted reserves study

was intended to supplement existing data in an effort to deter-

mine if the trends reflected in Form 15 reports were an

accurate cross-check of AGA reported reserves. See 46 F.P.C.

86, 113-114 (July 16, 1976).

——U—— 22

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mitted reserves study, and testimony from AGA officials,

the FPC staff concluded that the AGA data was re-

liable. Following extensive evidentiary hearings before

an administrative law judge, the record was certified

to the entire Commission.

The FPC issued its decision in So La II on July 16,

1971 (shortly after the FTC resolution authorizing com-

pulsory process in its investigation). The Commission

discussed in some detail both the staff’s investigation and

the contentions of several intervenors that producers had

underreported their reserves... The Commission con-

cluded that the AGA reserve data was “reasonably re-

liable for the [ratemaking] purposes used herein.” *

C. Subsequent Litigation

Pursuant to the FTC’s petitions for enforcement of

the subpoenas against the seven companies still refusing

to comply, the district court held hearings on July 30

and December 13, 1973, and considered extensive briefs

and other evidentiary materials filed by the parties. The

two orders at issue here were filed on March 22, 1974.

One order deals with the subpoenas issued to appellees

Texaco, Inc., Standard Oil Co. (Indiana), Standard Oil

Co. of California, Mobil Oil Corp., Shell Oil Co., and

„* Order and Opinion Determining Just and Reasonable

Rates for Natural Gas Produced in the Southern Louisiana

Area, 46 F.P.C. 86, 110-116 (July 16, 1971).

18 Jd. at 116. The Commission’s order was affirmed by the

Fifth Circuit, Placid Oil v. FPC, 483 F.2d 880 (5th Cir. 1973),

and the court of appeals subsequently was affirmed by the

Supreme Court, Mobil Oil v. FPC, 417 U.S. 283 (1974).

At the direction of Congress, the FPC began in 1971 a Na-

tional Gas Reserves Study. The independent survey was con-

ducted on a random sampling basis and produced estimates of

gas reserves as of December 31, 1970. A staff report, pub-

lished in May 1973, noted that the AGA total estimate was

slightly higher than the NGRS total estimate. App. VI 1048a.

A-14

Exxon Corp.; the other order pertains to the subpoena

issued to Superior Oil Co., Inc. The orders granted in

part and denied in part the FTC’s petitions.

The exact basis for each modification made by the

district judge is unclear. In the introductory paragraph

of the first order, the court noted that the gas producers

had contended “that the principles of primary jurisdic-

tion and collateral estoppel preclude the Trade Com-

mission from seeking the demanded documents or data

for purposes of determining the validity or accuracy of

natural gas reserve estimates, and. . . that certain

demands of the subpoenas are irrelevant to any proper

subject or area of investigation and are unduly broad

and burdensome. . . .” Without specifically ruling on

these arguments in relation to each demand in the sub-

poenas, the court stated that:

.. . being of the opinion that the Trade Commission

is authorized to pursue the investigation to deter-

mine whether there exists any evidence of conspir-

acy in the reporting of proved natural gas reserve

estimates to the American Gas Association by re-

spondents, but that the subpoenas duces tecum are

improper insofar as they seek data for the purposes

of enabling the Trade Commission to attempt to

determine natural gas reserves or the validity or

accuracy of natural gas reserve estimates, matters

already considered and ruled upon by the Federal

Power Commission, and the Court being of the fur-

ther opinion that the subpoenas are improper in

other respects as well and should not be enforced

as issued... .”

In the first order the district court granted enforce-

ment of Specifications A through F, dealing with back-

ground data; these specifications were not really con-

tested by the parties. For Specifications G, H, and I,

production of documents was limited to the years 1969,

1970, and 1971 and to a random sample of 100 out of

—ͤ * .

A-15

approximately 225 offshore Southern Louisiana fields.

Most importantly, production was limited to documents

containing or underlying proved natural gas reserve es-

timates; “raw field data, bid calculation data, and bid

calculation files“ were specifically excluded. The court

stated that all production pursuant to these three specifi-

cations “shall be made for the sole purpose of permitting

the Trade Commission to investigate whether there is a

conspiracy in the reporting of natural gas proved re-

serve estimates, and not for the purpose of permitting

the Trade Commission to investigate or determine the

amount of proved natural gas reserves.” In Specifica-

tions J and K production was limited to documents re-

lating to proved reserves in only those offshore fields

which were included in reports for 1971 by the AGA

subcommittee for Southern Louisiana, and to documents

from 1966 through 1971 “which were exchanged between

or among, or constitute, contain or refer to any agree-

ment, arrangement or communication between or among,

respondent or others, including the American Gas As-

sociation”; production of intra-corporate documents was

foreclosed. Specification L was limited to those employees

who “acted with respect to proved natural gas estimates”

for offshore Southern Louisiana during the period 1966

through 1971. For all specifications, the court granted

the producer the option of producing the documents at

the corporate office or field location where they were

normally maintained, rather than at the FTC’s offices

in Washington, D.C.; further, for documents furnished

at a producer’s offices, the FTC was to bear any costs

of. reproducing the documents. Finally, the court pro-

vided further protection for any documents designated

by the producer as confidential, ruling that, unless other-

wise ordered by the court, such documents were to be

held in the custody of the Commission’s Secretary, used

only in the current investigation, inspected only by Com-

mission employees assigned to the investigation, and re-

A-16

turned to the producer at the completion of the in-

vestigation.

In the second order, relating to Superior, the district

court enforced only Specifications A through F and R

through L of the subpoena; Specifications G through J,

requiring, inter alia, the production of reserve estimates,

were quashed in their entirety. The same confidentiality

protection accorded the other six producers also was

granted to Superior. While no rationale was stated in

the order, the different treatment for Superior apparently

refiects an acceptance of Superior’s argument that be-

cause it had never been a member of the AGA and had

not furnished reserve estimates to the AGA, it could

not be involved in any conspiracy to underreport reserves.

On appeal, a panel of this Court affirmed the district

judge’s orders, upholding all modifications of the sub-

poena except the limitation to data from 1969-1971 in

Specifications G, H, and I—the FTC’s demand for docu-

ments from 1962-1971 was reinstated. The FTC pe-

titioned for rehearing or rehearing en banc; on February

6, 1976 this court vacated the panel opinion and ordered

the cases reheard en banc.

II. CourT ENFORCEMENT OF ADMINISTRATIVE SUBPOENAS

—THE APPLICABLE LEGAL PRINCIPLES

The Supreme Court has made it clear that the court’s

role in a proceeding to enforce an administrative sub-

poena is a strictly limited one. The seminal case is

Endicott Johnson v. Perkins, 317 U.S. 501 (1943). The

Endicott Court held that, on application for enforcement

of a subpoena issued by the Secretary of Labor in ad-

ministrative proceedings against the petitioner under the

Walsh-Healy Public Contracts Act, the district court

lacked authority to determine whether the corporation’s

activities were covered by the statute. Rather, the Court

stated, since the evidence sought by the subpoena was

A-17

not “plainly incompetent or irrelevant to any lawful

purpose” of the Secretary, it was the district court’s duty

to order its production for the Secretary’s consideration.

Id. at 509. Shortly thereafter, in Oklahoma Press Pub-

lishing Co. v. Walling, 327 U.S. 186 (1946), the Court

applied the same principles to the enforcement of sub-

poenas issued pursuant to an investigation under the

Fair Labor Standards Act.“ Rejecting any power in the

district court to adjudicate coverage, the Court ruled

that so long as the investigation was for a lawfully

authorized purpose, the documents sought were relevant

to the inquiry, and the demand was reasonable, the

Administrator had a right to judicial enforcement of

the subpoenas. See id. at 209. Emphasizing the import-

ance of the administrative mandate to search out viola-

tions with a view to securing enforcement of the Act,

the Court stated that while the Administrator may not

act arbitrarily or in excess of his statutory authority,

“this does not mean that his inquiry must be limited

by forecasts of the probable result of the investigation’.

... Id. at 216, quoting Blair v. United States, 250

U.S. 273, 282 (1919).

In a case dealing directly with the investigative powers

of the Federal Trade Commission, United States v. Mor-

ton Salt Co., 338 U.S. 632 (1950), the Court once again

enunciated the standard: “. . . it is sufficient if the

inquiry is within the authority of the agency, the de-

mand is not toe indefinite and the information sought

is reasonably relevant.” Jd. at 652. In upholding the

Commission’s order requiring certain corporations to file

special reports demonstrating continuing compliance with

a cease and desist order, the Court distinguished the

% Notably, the Fair Labor Standards Act incorporated

sections 9 and 10 of the Federal Trade Commission Act for

the purpose of any hearing or investigation. See 327 U.S. at

200, n.24.

A-18

judicial process, which does not involve itself in so-called

“fishing expeditions” to determine if violations of law

have occurred, from the administrative function of in-

vestigation :

The only power that is involved here is the power

to get information from those who best can give it

and who are most interested in not doing so. Be-

cause judicial power is reluctant if not unable to

summon evidence until it is shown to be relevant to

issues in litigation, it does not follow that an ad-

ministrative agency charged with seeing that the

laws are enforced may not have and exercise powers

of original inquiry. It has a power of inquisition,

if one chooses to call it that, which is not derived

from the judicial function. It is more analogous

to the Grand Jury, which does not depend on a case

or controversy for power to get evidence but can

investigate merely on suspicion that the law is being

violated, or even just because it wants assurance

that it is not. When investigative and accusatory

duties are delegated by statute to an administrative

body, it, too, may take steps to inform itself as to

whether there is probable violation of the law. Id.

at 642-43.

Thus, while the court’s function is “neither minor nor

ministerial,” Oklahoma Press Publishing Co. v. Walling,

327 U.S. at 217 n. 57, the scope of issues which may

be litigated in an enforcement proceeding must be nar-

row, because of the important governmental interest in

the expeditious investigation of possible unlawful ac-

tivity. As the Ninth Circuit has noted, the “very back-

bone of an administrative agency’s effectiveness in car-

rying out the congressionally mandated duties of in-

dustry regulation is the rapid exercise of the power to

investigate. FMC v. Port of Seattle, 521 F.2d

431, 433 (9th Cir. 1975).

20 The principles set down by the Supreme Court have been

uniformly followed by the circuit courts of appeals. See, e.g.,

—

*

A-19

III. THE ISSUES

With these standards in mind, we turn to the issues

at hand. The FTC’s allegations of error in the district

court’s modifications of the subpoenas, and the producers’

arguments in response, focus on four general areas: 1)

limitations apparently grounded on relevance, 2) appli-

cation of some form of collateral estoppel to preclude

certain aspects of the FTC’s investigation, 3) limitations

premised on burdensomeness, and 4) conditions on use

and possible disclosure of the documents.”

A. Relevance Determinations

1. Limitation to Documents Relating to Proved

Reserve Estimates

The gas producers contend that the district court

properly limited production to those documents relating to

United States v. Litton Industries, 462 F.2d 14, 16 (9th Cir.

1972) ; Genuine Parts v. FTC, 445 F.2d 1382, 1391 (5th Cir.

1971) ; FTC v. Browning, 435 F.2d 96, 102 (D.C. Cir. 1970);

SEC v. Wall Street Transcript Co., 422 F.2d 1871, 1875 (2d

Cir.) ; cert. denied, 398 U.S. 958 (1970); Adams v. FTC,

296 F.2d 861, 866 (8th Cir. 1961), cert. denied, 369 U.S. 864

(1962).

21 On the initial appeal to this court, Standard Oil of Cali-

fornia maintained that the district court’s first order is not a

final decision under 28 U.S.C. § 1291 and therefore is not ap-

pealable. This argument was rejected in the panel decision,

and Standard Oil has not pressed it on rehearing en banc. We

nonetheless note that it is settled that an order of a district

court granting or denying an agency’s petition for enforce-

ment of a subpoena is final and appealable. Ellis v. ICC, 237

U.S. 434, 442 (1915); Int'l Brotherhood of Electrical Work-

ers v. EEOC, 398 F.2d 248, 251 (3d Cir. 1968), cert. denied,

393 U.S. 1021 (1969). The district court’s retention of jur-

isdiction for possible further relief after the documents were

produced does not defeat finality. See FTC v. Feldman, 532

F.2d 1092, 1098 (1976).

A-20

proved reserves on grounds of relevance.“ They argue

that because the FTC’s investigation is targeted on a

conspiracy to underreport reserves to the AGA, and only

proved reserves are reported to the AGA, only proved

reserves can be relevant to the inquiry. The FTC, on

the other hand, maintains that its investigation cannot

be so circumscribed, and that all reserve estimates made

by the producers, both for various internal business

purposes and for reports to the AGA, and however de-

nominated, are relevant to assess whether violations of

section 5 of the Federal Trade Commission Act have

taken place.

In resolving this controversy, we must determine

whether the district judge’s limitation comports with

the standard of “reasonable relevance.“ Where, as

22 As previously discussed, the district judge did not con-

cretely state the reasons for the limitation to proved reserves

in his order. During the hearings, however, the district judge

appeared to accept the producers’ arguments that only proved

reserves are relevant. App. II 398a-402a, 43la, 439a-443a.

The limitation to proved reserves was also premised in part

on an application of collateral estoppel. See discussion infra

at 38.

28 This standard was urged by the FTC in its first brief on

appeal. FTC’s Brief at 16. In its supplementary brief the

FTC argues that the pertinent inquiry is whether the re-

quested material is “plainly irrelevant” to the investigation.

Supp. Brief at 5, 31.

The “plainly irrelevant” language is derived, of course,

from the Supreme Court’s statement in Endicott Johnson that

the evidence sought by the subpoena was not “plainly in-

competent or irrelevant” to any lawful purpose of the Secre-

tary. 317 U.S. at 509. The issue before the Endicott Court

was the authority of the district court to decide the ques-

tion of statutory coverage; the appropriate standard of rele-

vance was not directly addressed. In Oklahoma Press and

Morton Salt, decided after Endicott, the Court spoke of infor-

mation “relevant” and “reasonably relevant,” respectively,

to the inquiry. 327 U.S. at 209; 338 U.S. at 652. More re-

eee —— eS

— — oe

—— — 2 — ——— —— — : 2

—— — Perot +t

A-21

here, no complaint has yet been formulated and the

issues have therefore not yet been crystallized, some courts

have concluded that an attenuated standard of relevance

is appropriate.“ In our view, however, the better ap-

proach is simly to recognize that in the pre-complaint

stage, an investigating agency is under no obligation to

propound a narrowly focused theory of a possible fu-

ture case. Accordingly, the relevance of the agency’s

subpoena requests may be measured only against the

cently, the Court has stated that, for enforcement of an In-

ternal Revenue Service summons for records, the Commis-

sioner must demonstrate, inter alia, that the inquiry “may be

relevant” to a legitimate purpose. United States v. Powell,

379 U.S. 48, 57 (1964). And in See v. City of Seattle, 387

U.S. 541 (1967), the Court noted, citing Morton Salt and

Oklahoma Press, that when an administrative agency sub-

poenas corporate books or records, the subpoena must be

“sufficiently limited in scope, relevant in purpose, and spe-

cific in directive so that compliance will not be unreasonably

burdensome.” Id. at 544.

While some courts of appeal have employed a “clearly”

irrelevant standard in enforcement proceedings, see, e. g.,

FTC v. Feldman, 532 F.2d 1092, 1098 (1976) ; FTC v. Stand-

ard American, Inc., 306 F.2d 231, 235 (3d Cir. 1962), most

have utilized the “reasonably relevant” language of Morton

Salt. See cases cited at 24, n. 20. In Moore Business Forms

v. FTC, 307 F.2d 188 (D.C. Cir. 1962), a panel of this court

stated it could not say that the subpoenaed information was

“plainly irrelevant” to the charges in the complaint. Jd. at 189.

Another panel of this court, however, has recited the “rea-

sonably relevant” language. FTC v. Browning, supra n. 20,

435 F.2d at 102.

Without deciding whether a “plainly irrelevant” standard

actually is indicative of a more limited power of review, it

suffices to dispose of this case that the material sought by

the FTC is “reasonably relevant” to a permissible FTC pur-

pose.

See, e.g., Westside Ford v. United States, 206 F.2d 627,

632 (9th Cir. 1953); FTC v. Green, 252 F. Supp. 153, 156

(S.D.N.Y. 1966).

A-22

general purposes of its investigation. The district court

is not free to speculate about the possible charges that

might be included in a future complaint, and then to

determine the relevance of the subpoena requests by ref-

erence to those hypothetical charges. The court must

not lose sight of the fact that the agency is merely ex-

ercising its legitimate right to determine the facts, and

that a complaint may not, and need not, ever issue.“

Under this frame of reference, the district court’s de-

termination that only proved reserve estimates are rele-

vant cannot withstand scrutiny. The relevance of the

material sought by the FTC must be measured against

the scope and purpose of the FTC’s investigation, as set

forth in the Commission’s resolution.“ Here, however,

the gas producers have posited—and the district court

has apparently accepted—an erroneous interpretation of

the scope of the FTC’s inquiry, and they have then sought

to limit the investigation to the confines of this dis-

torted interpretation. There is no merit to the producers’

25In Oklahoma Press, the Court emphasized that the pur-

pose of the subpoena was “to discover and procure evidence,

not to prove a pending charge or complaint, but upon which

to make one if, in the Administrator’s judgment, the facts

thus discovered should justify doing so.” 327 U.S. at 201.

And in Morton Salt the Court stated that [e] ven if one were

to regard the information in this case as caused by nothing

more than official curiosity, nevertheless law-enforcing agen-

cies have a legitimate right to satisfy themselves that cor-

porate behavior is consistent with the law and the public

interest.” 338 U.S. at 652.

20 Supra, p. 8. While the language of the resolution is

broad, resolutions of this sort are not uncommon in the in-

vestigative process, and the agency was not required to artic-

ulate its purpose with greater specificity. See, e.g., FTC v.

Feldman, supra n. 23, 532 F.2d at 1093; FTC v. Standard

American, Inc., supra n. 23, 306 F.2d at 233-34; Westside

Ford v. United States, supra n. 24, 206 F.2d at 630-31; FTC

v. Green, supra n. 24, 252 F. Supp. at 154-56.

— —U— — —— ——2— 2 —

hh ante eee ae ee

OO REA ARI h

A-23

contention that the FTC is only investigating possible

underreporting of proved reserves to the AGA. The FTC’s

resolution does not even mention either the AGA or

proved reserves; further, in addition to “conduct in the

reporting of natural gas reserves,” the resolution obvi-

ously incorporates a broad range of activities “relating

to the exploration and development, production, or mar-

keting of natural gas. Although the FTC has

never denied that reporting to the AGA is one aspect

of its inquiry, it has repeatedly stated that its investi-

gation cannot be so narrowly defined.“

Basically, the gas producers would have us believe that

all the FTC has in mind is a recomputation of proved

reserve estimates submitted to the AGA. On the con-

trary, the authorized inquiry envisions an examination of

all phases of the estimating process. In particular, the

FTC seeks to compare estimates prepared for various

business purposes with those reported to the AGA. As

Specification G of the subpoena indicates, producers may

make reserve estimates in connection with bidding on

or nominating leases; deciding whether or not to erect

permanent platforms; compiling or inventorying total

company reserves or supply; negotiating or contracting

for the sale of natural gas, or for the joint or common

exploration, development, production, purchase, or sale

of acreage; obtaining bank loans; or filing depreciation

expense schedules with the Internal Revenue Service.

While some of these estimates may be labeled proved,

some may not. Producers also may refer to certain re-

serve estimates as, inter alia, speculative, possible, or

= depending on the stage of development of the

eld.

In order to asses whether proved reserve figures ac-

curately reflect economic reality, reserve estimates with

pe foe Reply Brief at 304; FTC Supp. Brief at 32-34, TR.

a ,

A-24

other labels may be important; the same or substantially

similar underlying data may give rise to distinctly de-

nominated reserve estimates. In other words, the FTC

may fairly inquire whether the companies, through the

use of an excessively restrictive approach, have ex-

cluded awareness of certain realistic and reliable es-

timates which are taken into account in making signifi-

cant business decisions but which are not labeled “proved”

and are therefore not included in the AGA reports. As

counsel for the FTC stated to the district judge, in ex-

plaining the relevance of the requested data,

This is relevant in determining whether AGA re-

serves reflect economic realities. Remember, those

reserves are based on a definition of what constitutes

a proved reserve but it may be that an examination

of the company’s practices in the way it computes its

reserves would show that the AGA reserve defini-

tions are too restrictive, that in fact the companies

themselves by their own conduct show that their

reserves are more than what they would report to

the AGA as proved reserves, or given a top and

down estimate they may pick within a wide range,

they may pick a top estimate for purposes where

it serves their purposes, and a low estimate for other

purposes where it serves their purpose.

App. II 368a-369a.

Thus, even if the FTC were investigating only the

reporting of proved reserves (and we conclude that the

inquiry is not so narrow), the analysis would certainly

not be limited to whether the gas producers have ac-

curately calculated their proved reserves. It is possible

that such calculations are entirely in accord with the

AGA’s definition of proved reserves, but that, in light of

other estimates considered significant by the producers,

this definition has an anti-competitive effect. The agree-

ment of the producers, with each other and with and

through the AGA, to use such a restrictive definition as

ln

A-25

the exclusive method of projecting the Industry’s posi-

tion may have the effect—and, indeed, the purpose—

of raising prices through its impact on purchasers and

and government. The FTC’s investigation is for the

purpose of enabling it to determine whether the com-

panies’ practices constitute an “unfair method of eompe-

tition.” An unfair method of competition may result from

concerted action even though there is no conspiracy by

the dark of the moon. And as Morton Salt noted, the FTC

may investigate either to develop the existence of a vio-

lation or to assure itself that none exists. 338 U.S. at

652. —

It is thus clear that the development and reporting of

estimates at various stages of the investment and develop-

ment process is reasonably relevant to the FTC’s purpose.

We therefore hold that the district judge’s limitation of

enforcement of the subpoena to only proved reserve esti-

mates was erroneous.” <

28 Another entirely legitimate result may ensue from an in-

vestigation of questionable conduct, even if the agegey should

conclude that the conduct does not violate existing law—the

investigation may reveal the need for changes in the law. The

underlying act gives the FTC the authority to conduct investi-

gations for the purpose of making recommendations to Con-

gress. 15 U.S.C. § 49. See generally Davis, Administrative

Law Treatise §§ 3.02-.03.

2° The dissent argues that the evaluation of the relevance of

particular documents is “essentially factual in nature,” and

that the district court’s conclusion on this point can therefore

be reviewed only for “clear error” or “abuse of discretion.”

Dissenting op. at 8, 23-4, 31. Here, however, the district

court’s relevance determinations rested upon—and, indeed,

were inseparable from—its view of the applicable law with

respect to the proper scope of the FTC’s investigation.

When relevance determinations are, in essence, factual

judgments, they are normally entitled to special deference

from appellate courts, at least where there are issues of

credibility of witnesses. We need not pause to consider to

A-26

2. The Bid Files

In addition to ruling that only proved reserve esti-

mates need be produced, the district court specifically

found that “bid calculation data and bid calculation files”

were irrelevant to the investigation, and therefore need

not be produced.“ Like the district court’s general rele-

vance determination, this more specific ruling is also

premised upon the court’s erroneous delineation of the

scope and purpose of the FTC’s investigation, and there-

fore, it, too, cannot be sustained.

Bid files are collections of documents developed for

and used in nominating and bidding for the right to lease

what extent the appellate court has greater latitude on review

where, as here, the evidence was documentary, and raised no

issues of credibility. Here the determinations of the trial

court were dependent on, and integrally related to, a legal

premise. In such a case, the appellate court has the authority

—and the duty—to determine the proper legal premise and to

correct the legal error of the trial judge, without limitation

by the doctrines of “clearly erroneous” and “abuse of discre-

tion” that are applicable to review of factual determinations.

See Del. & Hudson Ry. Co. v. United Trans. Union, 450 F.2d

603, 620-1 (D.C. Cir.), cert. denied, 403 U.S. 911 (1971):

If the appellate court has a view as to the applicable

legal principle that is different from that premised by

the trial judge, it has a duty to apply the principle which

it believes proper and sound. The reversal of the trial

judge in no way reflects a determination that he was un-

reasonable or arbitrary, or chargeable with an abuse of

discretion, but only and simply that his premise as to the

applicable rule of law is deemed erroneous by the appel-

late court.

Id. See also Natural Resources Defense Council, Inc. v. Morton,

458 F.2d 827, 832 (D.C. Cir. 1972); Perry v. Perry, 190 F.2d

601 (D.C. Cir. 1951) ; Societe Comptoir de l'Industrie v. Alex-

ander’s Dept. Stores, 299 F.2d 33, 35-6 (2d Cir. 1962); Milsen

Co. v. Southland Corp., 454 F.2d 363, 369 (7th Cir. 1971).

0 The district judge ruled from the bench that bid files

are irrelevant to the FTC’s investigation. App. II 431a.

° n ...

e

N 1

2 ee ee ee ee ee

A-27

tracts in the federal domain for oil and gas exploration.

According to the producers, bid files typically contain

speculative reserve estimates, back-up data for such es-

timates—i.e., raw geological data and interpretation

thereof, and documents reflecting the calculation of the

producer’s bid.“

The producers maintain that bid files are not relevant

to the determination of proved reserves, because bid

files contain only speculative estimates which are of no

further use once the company obtains a lease and begins

exploratory drilling. The question, however, is not rele-

vance to the calculation of proved reserves, but rele-

vance to the FTC’s investigative purpose. Admittediy, bid

file estimates are quickly superseded by more accurate

data, are not used to compute proved reserve figures, and

may be completely erroneous predictions of the amount

of natural gas eventually found. But any estimate of

reserves—however defined—on which a company relies

in the course of its business is relevant to the com-

pany’s practices in estimating and reporting reserves.

We agree with the FTC that comparative information

of this sort is “reasonably relevant” to its investigation.

While, in response to the companies’ arguments, the FTC

has advanced several examples to demonstrate the rele-

vance of bid files,“ the Commission emphasized that this

31 Mobil Brief at 6. Bid files are considered highly confi-

dential by the producers; a competitor who had access to the

bidding model developed—-at high cost—by another producer

could easily outbid his opponent.

a The FTC suggests, for example, that bid files may contain

proved reserve figures for adjacent tracts. These proved re-

serve figures could be compared with other proved reserve

figures for the same tract maintained by the company. While

Mobil asserts that none of its bid files contain such proved

reserve figures, Mobil Brief at 17-18, the affidavit of a Com-

mission attorney who has examined bid files of producers

who complied with the subpoenas states that such files have

A-28

approach—which requires, in effect, the delineation of

a particular theory of violation—is inappropriate in

the pre-complaint stage; and here, too, we agree. While

the FTC has not articulated the specific anti-competitive

practices which may be present, it could not reasonably

do so without access to the relevant documents.“ Cer-

tainly a wide range of investigation is necessary and

been found to contain proved reserve estimates, App. IV 633a.

On this record we cannot conclude that the Commission’s

supposition is obviously wrong.

Moreover, the Commission suggests that bid files might be

relevant in analyzing whether companies have deferred

drilling in some circumstances in order to minimize the ex-

tent of proved reserves which would have to be reported. The

district judge provided that if the FTC found a “situation

where a company has been awarded a bid on a property and

has delayed an unreasonable time in drilling on it so they

could come up with a proper estimate, then you may apply

and I will consider giving you the bid file on that particular

one.” App. II 431a. Without the bid files, however, it may

be difficult, if not impossible, for the FTC to identify such

instances.

The Commission also suggests that bid files could be used to

establish lease histories; such histories would enable the Com-

mission to examine the relationship, if any, between “specu-

lative” and “proved” estimates. If the Commission were to

find a reasonably stable relationship between these different

estimates—if, for example, “speculative” estimates were con-

sistently higher than the reported “proved” estimates, and by

a roughly equivalent amount—this might well be indicative

of anticompetitive practices.

In Moore Business Forms v. FTC, supra, n. 23, the com-

pany argued against enforcement on the ground that the

documents sought were not relevant—indeed, were “mean-

ingless”—to the precise theory the Government would have

to use to demonstrate a trade violation. 307 F.2d at 189. A

panel of this court enforced the subpoenas per curiam, noting

that the Commission had not yet ruled on the inherent factual

question and that the court should not “anticipate” the Com-

mission’s determination by passing on that question. Id.

eT

See er.

r Ee ee le Se ee ee ee ee

2

A-29

appropriate where, as here, multifaceted activities are

involved, and the precise character of possible violations

cannot be known in advance.

3. The Superior Order

Apparently because Superior is not a member of the

AGA and does not report proved reserve estimates to the

AGA, the district judge denied enforcement of Specifica-

tions G through J in relation to Superior. Again, this

ruling misconceives the nature of and unduly limits the

FTC’s investigation. Superior’s argument that it cannot

be guilty of a conspiracy to underreport proved reserve

estimates to the AGA is not dispositive, because the

FTC’s investigation is not restricted to this theory. Su-

perior does make reserve estimates for its fields in

Southern Louisiana; therefore, it possesses information

that could well be relevant to the FTC’s inquiry. In

point of fact, comparison of Superior’s estimating process

with that of a producer who does report to the AGA

could be a useful analysis. At this stage, whether or

not Superior has participated in some conduct that would

amount to an unfair trade practice is certainly conjec-

tural, but the Commission need not demonstrate that a

complaint is likely to issue against Superior. We hold

that the district judge erred in denying enforcement

against Superior of major parts of the subpoena.

B. Application of Collateral Estoppel

The gas producers contended in the district court that,

because the FTC determined in So La II that the AGA

proved reserve data were accurate, the FTC is precluded

from relitigating that issue by the principle of collateral

estoppel.“ Further, as we noted in our analysis of the

„In addition, the producers argued that the doctrine of

“primary jurisdiction” forecloses this issue to the FTC, since

regulatory and fact-finding expertise concerning proved re-

A-30

district eourt's relevancy findings, the producers main-

tained that accuracy of the AGA’s proved reserve esti-

mates is all that the FTC is really trying to investigate.

On appeal there is some disagreement among the pro-

ducers as to whether the district court applied a collateral

estoppel theory in modifying the FTC’s subpoenas. One

group states that the district court “properly applied”

collateral estoppel in its ruling; ** another company, how-

ever, claims that collateral estoppel “is not properly an

issue in this case,” “ and still another professes in-

difference on the ground that it is not affected by the

dispute.”

This confusion results from the district court’s order,

which did not detail findings of fact and conclusions of

law. It is rezsonably clear, nonetheless, that the dis-

trict judge employed a variety of collateral estoppel to

restrict the FTC’s investigation. The order stated that

the subpoenas were “improper insofar as they seek data

for the purposes of enabling the Trade Commission to

attempt to determine natural gas reserves of the validity

or accuracy of natural gas reserve estimates, matters al-

ready considered and ruled upon by the Federal Power

Commission.. (emphasis added). In relation to the

modifications of Specifications, G, H, and I, the court

emphasized that all production under these specifications

was to be made “for the sole purpose of permitting the

serve estimates lies with the Power Commission. On appeal,

and particularly on rehearing en banc, the producers have

concentrated on collateral estoppel, rather than on a primary

jurisdiction argument, presumably because the district conrt’s

order appears more likely to be premised on collateral estoppel.

Texaco, et al. Supp. Brief at 2.

Standard Oil (California) Supp. Brief at 2.

* Superior Supp. Brief at 2.

A-31

Trade Commission to investigate whether there is a con-

spiracy in the reporting of natural gas proved reserve

estimates, and not for the purpose of permitting the

Trade Commission to investigate or determine the amount

of proved natural gas reserves.” Thus, so far as we can

tell, the district judge accepted the producers’ theory that

in essence the FTC was investigating only a conspiracy

to underreport proved reserves to the AGA. While the

court professed to acknowledge the FTC’s right to de-

termine “whether there exists any evidence of conspiracy

in the reporting of [such estimates] to the American

Gas Association,” the court required the FTC to take

as a “given” the accuracy of the AGA data.

Although, as we have discussed, the FTC’s investigation

is not focused exclusively on a mere recalculation of

proved reserve estimates, the district court specifically pre-

cluded any FTC inquiry which would “determine” or

even “investigate” the amount of such reserves. Such a

restriction patently hamstrings the FTC’s effort to com-

pare various estimates made by the producers and neces-

sitates constant vigilance by the Commission as to whether

it has overstepped the bounds delineated by the court.

Equally important, the district court’s constriction of

the FTC’s purpose, to determine only the possibility of a

conspiracy in the reporting of proved reserves to the

AGA, when coupled with the premise that the reli-

ability of the proved reserve data had been conclusively

established by the FPC, resulted in the exclusion on

relevancy grounds of all data not relating to proved es-

timates.

We have already determined that all of the data re-

quested by the FTC is reasonably relevant to its inquiry.

Given that assumption, the question remains whether the

FPC’s conclusions in a ratemaking proceeding can fore-

shorten the FTC’s investigation; that is, whether the

FTC can be collaterally estopped from investigating the

A-32

“amount of proved natural gas reserves.” We conclude

that collateral estoppel cannot be invoked to limit en-

forcement of the FTC’s subpoenas.

As a general rule, substantive issues which may be

raised in defense against an administrative complaint

are premature in an enforcement proceeding. The con-

trolling case again is Endicott Johnson, where the Court

stated that the petitioner had “advanced many matters

that are entitled to hearing and consideration in its de-

fense against the administrative complaint, but they

are not the kind that can be accepted as a defense against

the subpoena.” 317 U.S. at 509 (footnote omitted) .“

Moreover, in holding that an administrative subpoena

must be enforced if the information is relevant to a law-

ful purpose of the agency, and not unduly indefinite or

unreasonably burdensome, the Supreme Court has clearly

rejected other defenses. The reasons for this rule are

obvious. If parties under investigation could contest

substantive issues in an enforcement proceeding, when

the agency lacks the information to establish its case,

administrative investigations would be foreclosed or at

least substantially delayed.“ As the Court stated in

Oklahoma Press,

While the defenses urged were briefly summarized by the

Court in a footnote, see 317 U.S. at 509 n. 11, they were ex-

plained in greater (and here quite pertinent) detail in the

Second Circuit’s decision:

Defendants also urge that application of the Walsh-Healy

Act to their tanneries, etc., would be improper because

of an alleged prior inconsistent “ruling” made, as to a

different company, by the acting administrator, and be-

cause of certain conduct thought to “estop” the govern-

ment. Consideration of these issues has no place in such

a proceeding as this... . Perkins v. Endicott Johnson

Corp., 128 F.2d 208, 224, aff'd, 317 U.S. 501.

The instant case is an ample witness to the correctness

of this rationale. Enforcement proceedings began in 1973.

— it um baddies

A-33

[Pletitioners' view, if accepted, would stop much

if not all of investigation in the public interest at

the threshold of inquiry and, in the case of the Ad-

ministrator, is designed avowedly to do so. This

would render substantially impossible his effective

discharge of the duties of investigation and enforce-

ment which Congress has placed upon him. 327 U.S.

at 213.

No substantive rights are negated by this restriction, for

if a formal complaint is issued, subpoenaed parties may

assert their defenses in the subsequent administrative

proceeding. Further, the agency’s final decision in that

adjudicatory proceeding is reviewable by a court of ap-

peals.

These principles have consistently been applied when

jurisdictional defenses have been raised in enforcement

proceedings. Two recent cases are illustrative. In FMC

v. Port of Seattle, the Ninth Circuit held that the dis-

trict court erred in limiting enforcement of Maritime

Commission discovery orders to only those facts necessary

to determine the Commission’s jurisdiction to investi-

gate the Port’s consolidation services and in refusing to

permit the Commission to inquire into the “details” of

the consolidation services. 521 F.2d 431, 433-436 (1975).

Similarly, the Seventh Circuit held in SEC v. Savage

that the Commission was not required to establish its

jurisdiction by demonstrating that a company’s com-

modities future contracts were “securities” within the

meaning of the Securities Act before the subpoena would

be enforced. 513 F.2d 188, 189 (1975). The court em-

phasized that the company “would require SEC to answer

at the outset of its investigation the possibly doubtful

questions of fact and law that the investigation is de-

signed and authorized to illuminate.” Id.“

% See also SEC v. Brigadoon Scotch Distributing Co., 480

F.2d 1047, 1052-53 (2d Cir. 1973), cert. denied, 415 U.S. 915

(1974) ; FTC v. Gibson, 460 F.2d 605, 608 (5th Cir. 1972).

A-34

While the defense of collateral estoppel is very much

akin to these jurisdictional questions,” it is, if anything,

even more inappropriate in the investigatory context than

questions of statutory coverage. Because a collateral

estoppel defense rests on factual identities, an enfore-

ing court to evaluate this defense must preview the ulti-

mate complaint. In the instant case, the court must not

only foretell the various theories which the FTC’s evidence

might support and all issues which conceivably might be

raised in a FTC proceeding, but must also define all is-

sues decided by the FPC. The court then must deter-

mine if an issue decided in the first proceeding is identi-

cal to an issue to be decided in the second proceeding.

Such an exercise is unwise, if not impossible, and is in

clear violation of the Supreme Court’s admonition in

Oklahoma Press that an agency’s inquiry should not be

limited by “forecasts” of the “probable results.” 327 U.S.

at 216.

That the enforcing court should not undercut the

agency’s investigative function by such hypotheses has

been recognized by other courts of appeal. The Sixth

and Seventh Circuits recently enforced subpoenas issued

by the FTC in an investigation of taxicab companies for

possible violations of the FTC Act, despite claims of

res judicata and collateral estoppel based upon prior

Government actions brought under the Sherman Act. In

FTC v. Markin, 532 F.2d 541 (1976), the Sixth Circuit,

analogizing to cases involving a question of agency cov-

erage or jurisdiction, held that such defenses were pre-

mature in the enforcement proceeding:

“The producers specifically argued that the FTC had no

“jurisdiction” to inquire into gas reserves, by virtue of both

primary jurisdiction and collateral estoppel. App. II 218-

220a, 226a. In the second hearing in the district court, the

parties agreed to present their “jurisdictional” arguments

first. Id. 331a-332a.

it he

Dein tite ow n

A-35

Whether or not res judicata or collateral es-

toppel should be applied in this case depends on a

variety of factual determinations which should be

made by the Commission in the first instance...

The basic weakness in respondents’ position is that

neither the district court nor FTC has sufficient in-

formation at the present time to make the factual

findings required to resolve the principal issue of

res judicata or collateral estoppel. The administra-

tive proceeding should not be interrupted by judicial

intrusion before the pertinent facts are determined

and assessed by the Commission. Id. at 544.

The Seventh Circuit followed the same analysis in

FTC v. Feldman, 532 F.2d 1092 (1976). Noting that

interpretation of the factual data sought by the FTC

would involve agency expertise and discretion, and that

the FTC undoubtedly would consider, among other things,

the effect of the prior litigation in deciding whether or

not to formulate a complaint, the court concluded:

We deem it the more appropriate and orderly pro-

cedure for the Commission to proceed with the in-

vestigation within its discretion. If it ultimately

issues a complaint, appellants will then have an op-

portunity, depending on the issues raised by the

complaint, or the proof thereunder, to assert the de-

fense of res judicata or collateral estoppel, if they

see fit. Id. at 1095.

In holding that collateral estoppel is not a proper de-

fense to this enforcement proceeding,“ we do not reach

We do not hold that collateral estoppel can never be raised

in defense to an investigative subpoena. Instances of abuse

of a court’s process can be imagined, though they are unlikely.

In the instant case, we can perceive no reason to deviate from

the general principles discussed above. Moreover, because

we conclude that the assertion of collateral estoppel in this

enforcement proceeding is premature, we need not reach the

issue, discussed in Judge Leventhal’s concurring opinion, of

whether a determination in an essentially legislative rate-

making proceeding can ever be given preclusive effect.

A-36

the merits of the allegations that the FTC has intruded

into the FPC’s territory of expertise and is attempting

to relitigate an issue definitively settled by the Power

Commission. We note, however, that this is an era of

overlapping agency jurisdiction under different statu-

tory mandates. In United States v. RCA, RCA contended

that the Federal Communications Commission’s approval

of a television station exchange collaterally estopped the

Justice Department from attacking the exchange in a

separate civil antitrust suit. 358 U.S. 334, 338-39

(1959). The Supreme Court held that collateral estoppel

was inapplicable because the FCC has no power to de-

cide antitrust questions: “the issue in controversy before

In this context we note that section 15 (b) of the Federal

Energy Administration Act of 1974, P. L. 93-275, 88 Stat. 96,

109 (May 7, 1974), provides:

(b) Not later than one year after the effective date

of this act, the Administrator shall submit a report to

the President and Congress which will provide a complete

and independent analysis of actual oil and gas reserves

and resources in the United States and its Outer Con-

tinental Shelf, as well as of the existing productive ca-

pacity and the extent to which such capacity could be in-

creased for crude oil and each major petroleum product

each year for the next ten years through full utilization

of available technology and capacity. The report shall also

contain the Administration’s recommendations for im-

proving the utilization and effectiveness of Federal energy

data and its manner of collection. The data collection

and analysis portion of this report shall be prepared

by the Federal Trade Commission for the Administration.

Unless specificaliy prohibited by law, all Federal agencies

shall make available estimates, statistics, data and other

information in their files which, in the judgment of

the Commission or Administration, are necessary for the

purposes of this subsection.

Although this statute was enacted several years after the

FTC commenced its investigation, it is at least indicative

that Congress intends a major role for the FTC in the analysis

of natural gas reserves.

A-37

the Commission was whether the exchange would serve

the public interest, not whether § 1 of the Sherman Act

had been violated.” Id. at 352. Under the principles of

RCA, what the FPC found to be consonant with the

public interest could still be viewed by the FTC as an

unfair method of competition. It therefore appears that

a court should approach gingerly a claim that one agency

has conclusively determined an issue later analyzed from

another perspective by an agency with different sub-

stantive jurisdiction.

C. Burdensomeness Determinations

The FTC challenges the district court’s limitation of

production under Specifications G, H, and I to a random

sample of 100 fields out of approximately 220 in Southern

Louisiana and to the years 1969 through 1971. The Com-

mission also disputes the district court’s provision for

production where the documents are located, rather than

at FTC headquarters, at the option of the producer,

with any reproduction costs to be borne by the FTC.

These rulings ordinarily would seem to fall under the

rubric of burdensomeness. In line with the Oklahoma

Press requirement that the disclosure sought shall not

be unreasonable, 327 U.S. at 208, the district court is

authorized to impose reasonable conditions and restrie-

tions with respect to the production of the subpoenaed

material if the demand is unduly burdensome.“ It ap-

pears that such modifications rest within the discretion

of the trial judge and should be reversed by a reviewing

court only for an abuse of that diseretion.“ In this

Adams v. FTC, supra n. 20, 296 F.2d at 870 n. 7; see SEC

v. Savage, 513 F.2d 188, 189 (7th Cir. 1975); SEC v. Briga-

doon Scotch Distributing Co., supra n. 40, 480 F.2d at 1056:

Genuine Parts Co. v. FTC, 313 F. Supp. 855, 857 (N. D. Ga.

1970), aff'd, 445 F.2d 1382 (5th Cir. 1971).

See FTC v. Lonning, No. 75-1176, D.C. Cir., June 24

1976 (slip opinion at 19-20) ; FCC v. Cohn, 154 F. Supp. 899,

A-38

case, however, it is clear that determinations of burden

were intimately tied to the district court’s constrieted

view of the FTC’s investigation; that is, the district

court found the subpoenas to be unreasonably broad and

burdensome because they were, in the court’s view, du-

plicative of FPC activities.“ Since these dispositions

912 (S.D.N.Y. 1957); cf. NLRB v. Northern Trust Co., 148

F.2d 24, 29 (7th Cir.), cert. denied, 326 U.S. 731 (1945). Most

courts have not enunciated the correct scope of review. In

Adams v. FTC, supra n. 20, for example, a panel of the Eighth

Circuit overturned several modifications made by the district

court on grounds of burdensomeness without specifically stat-

ing the applicable standard. See 296 F.2d at 867-870.

«© That many of the restrictions were premised on a limited

view of the FTC’s inquiry is evident from the district judge’s

remarks towards the close of the second hearing:

Well, Gentlemen, I think this: it is within their

province to determine whether there has been any vio-

lation of the matters that are entrusted to them. For that

I don’t think it is necessary or proper that they endeavor

to obtain and to determine the entire gas reserves avail-

able to all these companies, but it may well be pertinent

that they get certain information to determine whether

or not there has been a conspiracy to get together and

violate some law in connection with these returns.

So I think the better way to handle it would be for

the Court to limit their discovery in such a manner as to

cover the purposes and not go to all out to have a fur-

ther determination of what the national gas reserve is.

Now, how do we approach that? Your present sub-

poenas are certainly, it seems to me, too broad....

App. II 397a.

In formulating the random sample limitation, the court

stated,

Say 100 out of 220, would give them, it seems to me,

ample opportunity to prove any conspiracy if there is one.

At the same time, it wouldn’t let them get into the busi-

ness of estimating all the gas reserves in the country.

App. II 438a.

n we

=

A-39

were colored in substantial measure by an erroneous con-

cept of the FTC’s purpose, and rested at least in part

on improper applications of collateral estoppel and rele-

vance, we are not bound by an abuse of discretion

standard“ and therefore review these modifications for

mere error.“

We emphasize that the question is whether the de-

mand is unduly burdensome or unreasonably broad.

Some burden on supoenaed parties is to be expected and

is necessary in furtherance of the agency’s legitimate in-

quiry and the public interest. The burden of showing that

the request is unreasonable is on the subpoenaed party.“

Further, that burden is not easily met where, as here,

the agency inquiry is pursuant to a lawful purpose and

the requested documents are relevant to that purpose.”

Broadness alone is not sufficient justification to refuse

Cf. Colonial Times v. Gasch, 509 F.2d 517, 522-24 (D.C

Cir. 1975); Societe Comptoir de L'Industrie te

eg ys yt wry v. Alexander’s Department Stores

— 2d 33, 35-36 (2d Cir. 1962); Ring v. 5

F. 2d 647, 650 (2d Cir. 1945). —

be Arguably, these questions could be remanded to the dis-

trict court for a reassessment, free from the errors made in

the areas of collateral estoppel and relevance. This litigation

already has been inordinately delayed, however; a proceeding

usually summary in nature has stretched into years. In a

protracted litigation of this sort, we need not return an issue

for another round of proceedings in the trial or appellate

courts”—even if that issue is one which normally depends on

—— = ee a we can fairly dispose of it at this

’ n io . v. Hazelti

. rp ne Research, 401 U.S.

See United States v. Powell, 379 U.S. 48, 58 (1964):

v. Standard American, Inc., supra n. 23, 306 * wg hey .

*° See 379 U.S. at 58; SEC v. Brigadoon Scotch Distributi

Co., supra n. 40, 480 F.2d at 1056; Genuine Parts Co, v. FTC.

supra n. 44, 445 F.2d at 1391; Adams v. FTC, supra n. 20

— F.2d at 867; FCC v. Cohn, supra n. 45, 154 F. Supp. at

A-40

enforcement of a subpoena." Thus courts have refused to

modify investigative subpoenas unless compliance threat-

ens to unduly disrupt or seriously hinder normal opera-

tions of a business.”

There is no doubt that these subpoenas are broad in

scope, but the FTC’s inquiry is a comprehensive one—

and must be so to serve its purposes. Further, the breadth

complained of is in large part attributable to the magni-

tude of the producers’ business operations. Although

some of the producers have alleged that the time and ex-

pense involved in compliance with the subpoenas as

presently drawn would be extreme,“ it is clear that

clarification of some misunderstandings and limitation of

some back-up data by the FTC staff have alleviated

these concerns to some extent. Mobil Oil admits that the

alleged burdensomeness of its subpoena was “substan-

tially mitigated” during the course of extensive negotia-

tions with Commission attorneys.“ Moreover, we cannot

ignore the fact that those gas producers who complied

with the subpoenas were able to submit the required data

without undue effort."

e Adams v. FTC, supra n. 20, 296 F.2d at 867. The Fifth

Circuit has stated that the Commission must be accorded

“extreme breadth” in conducting its investigations. Genuine

Parts Co. v. FTC, supra n. 44, 445 F.2d at 1382, citing United

States v. Morton Salt, 338 U.S. at 652.

% See, e. g., SEC v. Savage, supra n. 44, 513 F.2d at 189;

SEC v. Wall Street Transcript Corp., supra n. 20, 422 F.2d

at 1381; FTC v. Standard American, Inc., supra n. 23, 306

F.2d at 235.

53 See, e.g., App. IX 1759a-1762a.

„Mobil Brief at 5; see App. XI 2014a-2081a.

%s See FTC Brief at 52-53; App. IV 628a. Gulf Oil, a com-

pany with extensive natural gas operations, informed the

Commission that 2028 man-hours were spent gathering the

documents. Two other companies compiled, reproduced, and

forwarded the data to the FTC within three months. /d.

A-41

We turn now to the specific limitations at issue. The

FTC maintains that the random sample limitation would

seriously undermine its ability to compare the data sup-

plied by producers who volutarily complied with the sub-

poenas with the data from these producers. Compari-

son of the producers’ estimates with all data submitted

to the AGA for this region also would be foreclosed to

some extent. The Commission notes that other studies have

utilized random sampling techniques and that, in its opin-

ion, such studies are inadequate for its purposes. We

are reluctant to approve such a limitation in light of the

fact that the district court rested its restriction largely

on collateral estoppel grounds.“ We therefore enforce the

subpoena as originally conceived, without production on

a random sample basis.

The district court’s limitation of Specifications G

through I to the years 1969, 1970, and 1971 also cannot

be sustained. The impetus for the FTC investigation was

the drop in 1968 and 1969 of proved reserves as reported

by the AGA. Clearly data from an earlier period would

be necessary for comparative purposes. The Commis-

sion’s requirement of data beginning in 1962 is rein-

stated.”

The FTC argues that the producers’ option to release

the documents for inspection where they are stored, when

coupled with the FTC’s required assumption of any re-

production costs, is in derogation of the Commission’s

subpoena power. We agree. The FTC is specifically

authorized to compel production of evidence “from any

place in the United States, at any designated place of

5¢ See note 46 supra.

The district court also changed the beginning date in

Specification K from 1962 to 1966. This modification must

fall for the same reason.

A-42

hearing.” * While room for accommodation and com-

promise is certainly available, the district court’s place-

ment of the entire burden of travel and expense on the

Commission was unwarranted on this record.“ We en-

force the subpoena without this modification.

D. Confidentiality Protection

The district court imposed various conditions on the

disclosure by the FTC of any documents designated as con-

fidential by the producers. The producers are, of course,

justifiably concerned about the confidentiality of these

documents, some of which could be classified as trade

secrets; however, the district court’s order goes too far

in an effort to protect these valid interests.

In essence, the order requires that any release or use

of the documents beyond the investigation first be

cleared with the court. Thus, the Commission apparently

could not use the documents in an adjudicatory proceed-

ing without gaining the court’s permission. Nor could

the Commission exercise its discretion to determine what

15 U.S.C. § 49; see n. 9 supra. While this statute grants

the FTC the power of “access” and the “right to copy” any

documentary evidence of an entity under investigation, it also

enables the FTC to require such evidence via a subpoena

duces tecum. See id. Here the FTC chose to act pursuant to

its subpoena power, not its access power.

°° This is not a case in which the subpoena is directed to a

third party not under investigation. See FTC v. Bowman, 149

F. Supp. 624, 630 (N.D. II.), aff'd, 248 F.2d 456 (7th Cir.

1957). Cf. United States v. Friedman, No. 75-1277, 3rd Cir.,

Mar. 22, 1976 (slip opinion); United States v. Davey, 426

F.2d 842 (2d Cir. 1970); United States v. Dauphin Deposit

Trust Co., 385 F.2d 129 (3d Cir. 1967), cert. denied, 390

U.S. 921 (1968).

There is no indication that the bulk of these documents

are in current business use; in fact, since the investigation

is focused on the period 1962-1971, the situation appears to

the contrary. See, e.g., App. IX 1762a. See also FTC v. Stand-

ard American, Inc., supra n. 23, 306 F.2d at 235.

A-43

documents are exempt from public disclosure under the

FTC Act or the Commission’s rules.“ Although the

FTC’s argument that the order would prohibit even the

Commissioners from viewing the documents seems some-

what strained, the order would unquestionably place the

court in a position of supervision and control over the

Commission in the exercise of its statutory duties.

At least until the subpoenaed information has been

made available to the agency and it has had an opportun-

ity to rule on specific requests for confidential treatment,

such a protective order is premature and improper. See

FCC v. Schreiber, 381 U.S. 279, 290-1, 295-6 (1965).

Accordingly, we accept with some modifications, the

FTC’s proposed confidentiality protection, which would

provide notice to the producers of any FTC decision.

Specifically, we order that the FTC not disclose any of

the documents produced which a company designates as

confidential to any person“ outside the employ of the

FTC (other than an outside consultant retained by the

e See 15 U.S.C. § 46(f) ; 16 C.F.R. §§ 3.45, 4.10, 4.11.

en In the past, some courts have conditioned enforcement of

bpoena upon a protective order. See, e.g., FTC v.

Mensies, 145 F. Supp. 164 (D. Md. 1956), aff'd, 242 F.2d

81 (4th Cir.), cert. denied, 353 U.S. 957 (1957) ; FCC v. Cohn,

supra n. 45, 154 F. Supp. at 912-913. The Schreiber decision

makes clear, however, that it is the agencies, not the courts,

which should, in the first instance, establish the procedures

for safeguarding confidentiality. See 381 U.S. 295-6. See

also FTC v. United States Pipe and Foundry Co., 304 F. 14

1254, 1260 (D.D.C. 1969), FTC v. Green, supra n. 24, 1 — ;

Supp. at 157; Gellhorn, “The Treatment of Confidential In or-

mation by the Federal Trade Commission: Pretrial Practices,

36 U.Chi.L.Rev. 113, 126 (1968).

—— : . he pro-

es We think it not unreasonable to require notice to t

ducers even in the event of a proposed release to —

since the circumstances surrounding such a disclosure canno

presently be ascertained. See Ashland Oil v. FTC, No. 76-1174

(D.C.Cir. Sept. 20, 1976).

A-44

FTC who has agreed not to disclose the documents) with-

out first giving the company ten days’ notice of its

intention to do so. Such a procedure would, of course,

provide an opportunity for judicial review at some later

date, if the producers believe that a particular proposed

disclosure is improper.

IV. CONCLUSION

Using its own conception of the proper scope of the

FTC’s investigation, the district court limited the sub-

poena on a composite of relevance and collateral estoppel

grounds. We have determined that these limitations,

which effectively blocked legitimate avenues of the FTC’s

inquiry, cannot be reconciled with the narrow ambit—as

defined by the Supreme Court—of a court asked to

enforce an agency’s investigative subpoena. We have

also concluded that the district court erred in terms of

other modifications founded on burdensomeness, and

that certain confidentiality restrictions operated to usurp

the agency’s initial decision-making power. We therefore

enforce the subpoenas as issued by the FTC, with the ex-

ception of the two modifications, in regard to raw filed

data and the suspected location of nautral gas in cur-

rently unleased acreage, proposed by the FTC and ac-

cepted by the producers.“ We also charge the FTC with

implementation of the modifications to Specifications G

through K offered by the Commission but rejected by the

producers as unacceptable for settlement purposes.“ Pro-

** Stipulation re Issues on Which Parties Have Agreed and

Issues Which Remain to Be Resolved by the Court, May 19,

1976, at 5.

Id. at 7-9, | 15-17; FTC’s Statement of Issues and Pro-

Modifications (re Superior Oil), May 19, 1976, at 3-5,

A-45

duction is to be made within 90 days of the date of this

— So Ordered.

„ The district court ordered that the documents be pro- .

duced within 180 days. However, the experience of those

companies that have already complied with the 14 —

evidence which was, of course, not available to the distrie

court indicates that 90 days should suffice. See notes 54 and

55 supra and accompanying text. To remand this issue to the

district court for re-evaluation in light of this new evidence

would only prolong this already protracted litigation unneces-

sarily. See note 48 supra.

A-46

APPENDIX A

SUPOENA DUCES TECUM

UNITED STATES OF AMERICA

FEDERAL TRADE COMMISSION

To Mr. A. C. Long, Chairman Executive Committee &

Chief Executive Officer,

Texaco, Inc., 135 East 42nd Street, New York, New

York. 10017

You are hereby required to appear before Donald K.

Tenney, an Attorney and Examiner of the Federal Trade

Commission, at Room 368, Federal Trade Commission

Building, 6th and Pennsylvania Avenue, N.W., in the

City of Washington, D.C. 20580 on the 5th day of

January, 1972, at 10:00 a. m., to testify in connection

with the Commission’s investigation of various corpora-

tions and persons, File No. 711 0042, pursuant to Com-

mission Resolution dated June 3, 1971, a copy of which

is attached and made a part hereof, for the urposes

stated therein. | :

And you are hereby required to bring with you and

produce at said time and place the following books, pa-

pers, and documents: See attached “Definitions” and

“Specifications.”

Fail not at your peril

In testimony whereof, the undersigned,

an authorized official of the Federal Trade

Commission, has hereunto set his hand and

caused the seal of said Federal Trade Com-

A-47

mission to be affixed at Washington, D. C.,

this 24th day of November, 1971.

[SEAL]

/3/ 2

Assistant Director, Bureau of Competition.

DEFINITIONS

As used herein, the term “documents” means all writ-

ings of every kind including books, records, folios, min-

utes, reports, memoranda, correspondence, agreements,

discounted cash flow studies, cover sheets, calculation

sheets, print outs, telegrams, diary entries, pamphlets,

notes, charts, and tabulations in the possession, custody

or control of the Company. The term “documents” also

includes voice recordings and reproductions or film im-

pressions of any of the aforementioned writings as well

as copies of documents which are not identical dupli-

cates of the originals and copies of documents of which

the originals are not in the possession, custody or control

of the Company. The term “documents further includes

all punch cards or other cards, tapes or recordings used

in data processing, together with the programming in-

structions and other written material necessary to under-

stand or use such punch cards, tapes or other recordings.

In response to specifications in which the term “docu-

ments” is followed by an asterisk (*), a verified written

statement by an officer of the company containing the

requested information may be submitted in lieu of the

documents called for provided that the underlying docu-

ments or source materials are listed or otherwise specifi-

cally identified in, or as part of, such verified statement.

Each document submitted must be identified as to the

specification or specifications to which it is responsive.

A-48

The term “the Company” means the corporation upon

which this Subpoena was served as well as its directors,

officers, employees, and agents; its subsidiaries and af-

filiates; and the directors, officers, employees and agents

of its subsidiaries and affiliates. The term “the cor-

poration” means the corporation upon which this Sub-

poena was served.

Unless otherwise stated, the following definitions apply

to the specifications that ensue:

1. South Louisiana. That geographical area delineated

by Map III, page 84, of the May, 1971 edition of Re-

serves of Crude Oil, Natural Gas Liquids, and Natural

Gas in the United States and Canada and United States

Productive Capacity as of December 31, 1970 includ-

ing the offshore area. The term “Offshore South Lou-

isiana” is defined as that geographic area which lies

seaward from the Louisiana coastline. The South Louis-

iana Offshore Area is sometimes referred to as Federal

Areas 1 through 4 and includes the West Cameron Area,

East Cameron Area, Vermilion Area, South Marsh

Island Area, Eugene Island Area, Shoal Area, South

Pelto Area, Bay Marcnand Area, South Timbalier Area,

Grand Isle Area, West Delta Area, South Pass Area,

Main Pass Area, Breton Sound Area, Chandeleur Area

and Chandeleur Sound Area and any additions thereto,

as indicated on the United States Geographical Survey

“Oil and Gas Development Map of the Gulf Coast State

of Louisiana Outer Continental Shelf’, as revised on

January 5, 1971.

2. Net Production. The definition appearing in Tech-

nical Report No. 1, Standard Definitions for Petroleum

Statistics (First Edition, July 1, 1969), at page 11, is

adopted.

3. Natural Gas Present or Recoverable or Ultimately

Recoverable.

A-49

a. Present. Natural Gas in place, i.e., existing

either in the gaseous phase or in solution with crude

oil in a natural underground reservoir or reservoirs.

b. Recoverable. Natural gas in place that is pro-

ducible.

e. Ultimately recoverable. Natural gas in place

that is producible, together with its cumulative pro-

duction.

4. Field. A field is an area consisting of a single

reservoir or multiple reservoirs all grouped on, or re-

lated to, the same individual geological features and/or

stratigraphical condition. A reservoir is a porous and

permeable underground formation containing an individ-

ual and separate natural accumulation of hydrocarbons

(oil and/or gas) which is confined by impermeable rock

or water barriers and is characterized by a single natural

pressure system.

5. Completion Date. The first date on which any

permanent equipment for the production of oil or gas

is installed in a well. Completion reports may relate to

the abandonment of a well or to the installation of per-

manent productive equipment.

6 & 7. Associated Gas; Dissolved Gas. The definitions

of these two terms that appear in Technical Report No.

1, Standard Definitions for Petroleum Statistics (First

Edition, July 1, 1969), page 6, are adopted.

8. Nonassociated Gas. Natural gas which is in a

reservoir or reservoirs not containing significant quanti-

ties of crude oil.

9-18. Proved Reserves; Revisions; Extensions; New

Field Discoveries; and New Reservoir Discoveries in Old

Fields. The definitions of these five terms that appear

in Reserves of Crude Oil, Natural Gas Liquids, and

Natural Gas in the United States and Canada and United

States Productive Capacity as of December 31, 1970 at

pages 102-104, are adopted.

A-50

14. Dedicated Reserves. The volume of natural gas

committed to a pipeline company and for which both

the seller and the pipeline company have received cer-

tificate authorization from the Federal Power Commis-

sion.

SPECIFICATIONS

A. Documents* which will indicate the correct legal

name and business address of the corporation, its date

and state of incorporation, and the name, position and

home address of each officer and director of said cor-

poration.

B. Documents“ which will indicate the correct legal

name and business address of the parent of the cor-

poration, the date and state of incorporation of the

parent and the percentage ownership the parent has in

the corporation, and the name, position and home address

of each officer and director of the parent.

C. The corporation’s Annual Reports for each of the

years 1966, 1967, 1968, 1969 and 1970.

D. Documents * which will indicate the name and ad-

dress of each subsidiary, affiliate, and division of the

corporation and of the divisions of each such subsidiary

and affiliate engaged in the exploration, development, pro-

duction, or distribution of natural gas; the function(s)

as heretofore set forth of each; and the dates and states

of incorporation and the names, positions, and addresses

of officers, directors, managers of each subsidiary, affili-

ate, and division.

E. Documents which will indicate (1) each type of

customer purchasing natural gas, produced in South

Louisiane, from the corporation, its subsidiaries and af-

filiates and (2) the manner and methods of distribution

of such natural gas to each type of customer.

A-51

F. Documents * which will indicate the following for

each of the years 1966 through 1970:

1. Total net production of natural gas, in units,

in (a) the United States and (b) South Louisiana,

by the corporation, it subsidiaries and aifiliates.

2. Total unit and dollar volume of sales of the

total net production of natural gas produced in (a)

the United States and (b) South Louisiana, by the

corporation, its subsidiaries and affiliates.

8. Total dollar volume of sales of the total net

production of natural gas produced in South Louisi-

ana by the corporation, its subsidiaries and affiliates

to each type of customer identified in Specification

E(1)—for 1969 and 1970 only.

G. Documents either received (from whatever source)

or written by the Company, in whole or in part, at any

time between January 1, 1962 to December 31, 1970,

which contain estimates or evaluations of the volume of

natural gas present or recoverable or ultimately recover-

able (1) throughout all of South Louisiana (2) through-

out all of Offshore South Louisiana and/or (3) in spe-

cific fields, portions of fields, leaseholds and/or portions

of leaseholds located in Offshore South Louisiana.

Excluded from this specification are any documents

previously made available to the Commission by the

American Gas Association and presently in the custody

of Price, Waterhouse & Company, 1801 K Street, Wash-

ington, D.C. Included in this specification by way of

illustration but not limitation are documents contain-

ing estimates or evaluations including re-estimates or

reevaluations made in connection with or in preparation

for or as the result of the following: (1) bidding on or

nominating leases (2) deciding whether to erect per-

manent platforms (3) compiling or inventorying total

company reserves or supply (4) negotiating or contract-

ing for the sale of natura! gas, or for the joint or com-

A-52

mon exploration, development, produetion, purchase or

sale of acreage, or for obtaining bank loans (5) filing

depreciation expense schedules with Internal Revenue

Service or (6) submitting field-by-fleld estimates to sub-

committees or committees of the American Gas Associa-

tion or the American Petroleum Institute.

H. Documents indicating any or all of the following

with regard to each field and leasehold in Offshore South

Louisiana for which estimates or evaluations of the

volume of natural gas, pertaining to the whole or a por-

tion thereof, are produced pursuant to Specification G:

1. For each such field and portion thereof, its

name and the number(s) of each block number com-

prising said field or portion thereof—if the field

or field portion is situated at least in part in a

portion of a block, the portion of the block as well,

e.g., “NW %4”;

2. For each such leasehold and portion thereof,

the OSC number and name(s) and location(s) of the

field(s) and portion (s) thereof comprising such lease-

hold or portion thereof;

3. The pipeline company (ies) serving each such

field, leasehold, or portion thereof;

4. The producer(s) and the operator(s) of each

such field, leasehold, or portion thereof, indicating

the precise interest each such producer and operator

has in the acreage;

5. For each such field, leasehold and portion

thereof, the location (on the map) and designation

of each well drilled including (for each such well) :

a. The current status as classified by the

Company, e.g., “dry and abandoned”, “tempor-

arily abandoned”, “suspended”, “shut-in”, “serv-

ice”, “producer”, etc. ;

A-53

b. Whether classified by the Company as an

oil or gas well at the time of (1) application

for drilling (2) the filing of each completion

report (3) currently;

e. The number of reservoirs containing na-

tural gas that have been penetrated by the

well;

d. The date drilling commenced; the date

total depth was reached; first date of testing;

first date of testing officially reported; com-

pletion date; date commenced producing.

I. Documents either received (from whatever source)

or written by the Company, in whole or in part, at any

time subsequent to January 1, 1962, which refer, analyze,

compare, comment on, set forth, and/or relate to any

or all of the following:

1. Any natural gas estimates or evaluations called

for by Specification G; the preparation or comple-

tion of such estimates or evaluations; the procedures,

criteria or interpretations used in such preparation

or completion; the identity of organizational units

and personnel of the Company involved in such prep-

aration or completion;

2. Any natural gas estimates or evaluations made

available to the Commission by the American Gas

Association and presently at Price, Waterhouse &

Co., or appearing in any American Gas Association

Report on Natural Reserves, published subsequent

to January 1, 1967, including the constituent cate-

gories of these estimates such as “proved reserves”,

“revisions”, “extensions”, “new field discoveries”,

“new reservoir discoveries in old fields”; the prep-

aration or completion of such estimates or evalua-

tions; the procedures, criteria or interpretations used

in such preparation or completion; the organiza-

tional units and personnel of the Company involved

in such preparation or completion;

A-54

8. Any lease nominations and bids, any agree-

ments for joint or common leasing, exploration, de-

velopment, production, purchase or sale, or any cash

flow or economic feasibility studies preparatory to

leasing, exploring, developing, purchasing or selling,

which involve Offshore South Louisiana acreage;

4. Any compilation, report or study of “dedicated

reserves“;

5. Whether any well designated in response to

Specification H—5 contains natural gas in sufficient

quantities as to be capable of producing in paying

quantities.

J. Documents either received (from whatever source)

or written by the Company, in whole or in part, at any

time subsequent to January 1, 1966, which refer, analyze,

compare, comment on, set forth, and/or relate to any

or all of the following:

1. Any failures or delays, for whatever reason, in

reporting proved reserves of natural gas to the

American Gas Association, including any failures or

delays by personnel of the Association to identify to

subcommittee members all fields containing proved

reserves ;

2. The classification or exclusion or inclusion of

volumes of natural gas as proved reserves;

3. The relationship between increases or decreases

of crude oil proved reserves with increases or de-

creases of associated, dissolved or associated-dissolved

natural gas proved reserves;

4. Negative revisions to American Gas Associa-

tion proved reserve estimates because of clerical or

mathematical error.

K. Documents either received (from whatever source)

or written by the Company, in whole or in part, at any

time subsequent to January 1, 1962, which refer, analyze,

A-55

compare, comment on, set forth, and/or relate to any or

all of the following:

1. The relation between the amount of “proved

reserves” and the rate allowed, to be allowed, or

that may be allowed for natural gas by the Federal

Power Commission;

2. The reporting of lower “proved reserve” fig-

ures.

L. Documents naming all employees of the corpora-

tion, its subsidiaries and affiliates who have, any time

since January 1, 1966 with regard to Offshore South

Louisiana, estimated, evaluated or enumerated natural

gas proved reserves, dissolved gas proved reserves, po-

tential gas supply or well drilling activity either for

the American Gas Association, American Petroleum In-

stitute, Potential Gas Committee, American Association

of Petroleum Geologists or the International Oil Scouts,

including local scout checks, indicating for each person

named (1) the association for which he estimated or

enumerated (2) whether a member of the association

(3) what was estimated or enumerated and (4) the dates

for which he estimated or enumerated for the particular

association.

A-56

APPENDIX B

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

Civil Action No. 1089-73

FEDERAL TRADE COMMISSION

v.

TEXACO, INC.

Civil Action No. 1090-73

FEDERAL TRADE COMMISSION

V.

STANDARD OIL Co. (INDIANA)

Civil Action No. 1092-73

FEDERAL TRADE COMMISSION

v.

EXXON CORPORATION

Civil Action No. 1093-73

FEDERAL TRADE COMMISSION

v.

SHELL OIL COMPANY

Civil Action No. 1095-73

FEDERAL TRADE COMMISSION

Vv.

STANDARD OIL COMPANY OF CALIFORNIA

A-57

Civil Action No. 1096-73

FEDERAL TRADE COMMISSION

v.

Mon. OIL CORPORATION

ORDER

The Federal Trade Commission (“Trade Commission” )

having petitioned on June 13, 1973, for enforcement of

subpoenas duces tecum issued by an Assistant Director

of the Trade Commission’s Bureau of Competition to

each of the above captioned respondents on November

24, 1971, in the course of a Trade Commission investiga-

tion into natural gas reserve reporting procedures (FTC

Investigation File No. 7110042); and the respondents

having opposed enforcement of said subpoenas, contend-

ing that the principles of primary jurisdiction and col-

lateral estoppel preclude the Trade Commission from

seeking the demanded documents or data for purposes

of determining the validity or accuracy of natural gas

reserve estimates, and contending further, inter alia, that

certain demands of the subpoenas are irrelevant to any

proper subject or area of investigation and are unduly

broad and burdensome; and the parties having fully

briefed and presented oral argument on the issues; and

the Court upon consideration of all the premises, being

of the opinion that the Trade Commission is authorized

to pursue the investigation to determine whether there

exists any evidence of conspiracy in the reporting of

proved natural gas reserve estimates to the American

Gas Association by respondents, but that the subpoenas

duces tecum are improper insofar as they seek data for

the purposes of enabling the Trade Commission to at-

tempt to determine natural gas reserves or the validity or

A-58

accuracy of natural gas reserve estimates, matters al-

ready considered and ruled upon by the Federal Power

Commission, and the Court being of the further opinion

that the subpoenas are improper in other respects as

well and should not be enforced as issued:

It is now therefore ordered:

1. Enforcement of specifications A, B, C, D, E, and

F of the subpoenas duces tecum is hereby granted. En-

forcement of specifications G, H, I, J, K, and L is hereby

denied except as provided below.

2. Respondents shall produce documents as called for

by specifications G, H, and I of the subpoenas duces

tecum for the years 1969, 1970 and 1971, subject to the

following modifications and limitations:

(a) Production shall be limited to documents con-

taining or underlying proved natural gas reserve

estimates. Raw field data, bid calculation data, and

bid calculation files are not required to be produced.

As regards underlying back-up data for each esti-

mate called for by specification G, only the immediate

data used to make the estimate need be submitted.

For estimates arrived at volumetrically, specifica-

tion I(1) will be satisfied by supplying all the un-

derlying numbers which were used in the formula

including the recovery factor and the size of the

reservoir(s). As for the estimates arrived at by

pressure decline curves, specification 1 (1) will be

satisfied by submitting the curve used.

(b) Production of documents shall be made with

respect only to a random sample of 100 of those off-

shore Southern Louisiana fields which were included

in reports for 1971 by the Southern Louisiana Sub-

committee of the American Gas Association Commit-

tee of Natural Gas Reserves. This random sample

shall be selected by a procedure agreed upon between

Trade Commission and respondents.

A-59

(e) Each respondent shall make production with

respect to the fields, selected in the manner described

in paragraph 2(b), in which it had an ownership

interest as of the date reports were submitted by the

Southern Louisiana Subcommittee of the American

Gas Association Committee of Natural Gas Re-

serves.

(d) All production ordered pursuant to this para-

graph 2 shall be made for the sole purpose of per-

mitting the Trade Commission to investigate whether

there is a conspiracy in the reporting of natural

gas proved reserve estimates, and not for the pur-

pose of permitting the Trade Commission to inves-

tigate or determine the amount of proved natural gas

reserves.

3. Respondents shall produce documents as called for

by specifications J and K of the subpoenas duces tecum,

subject to the following modifications and limitations:

(a) Production shall be limited to documents re-

lating to proved natural gas reserve estimates in

those offshore Southern Louisiana fields which were

included in reports for 1971 by the Southern Louisi-

ana Subcommittee of the American Gas Association

Committee of Natural Gas Reserves.

(b) Production shall be limited to documents pre-

pared or dated during the years 1966 through 1971,

inclusive, which were exchanged between or among,

or constitute, contain or refer to any agreement,

arrangement or communication between or among,

respondent or others, including the American Gas

Association.

4. Respondents shall produce documents as called for

by specification L, except production shall be limited to

the employees who have acted with respect to proved

natural gas reserve estimates for offshore Southern Louis-

iana during the year 1966 through 1971, inclusive.

A-60

5. In complying with this Order, the definition of terms

contained in the original subpoenas duces tecum shall

apply.

6. Respondents shall comply with this Order within

180 days after the date upon which they are advised of

the sample fields selected in accordance with paragraph

2(b) hereof.

7. Each respondent shall have the option of producing

documents called for by this Order at the corporate office

or field location where the responsive documents are nor-

mally maintained or at the Federal Trade Commission’s

offices in Washington, D.C. With respect to documents

as-to which any respondent elects to make production

at a corporate office or field location, the Trade Com-

mission shall inspect and reproduce any of said docu-

ments at such office or field location at, such other loca-

tion as agreed upon by the respective parties, and shall

bear any costs of reproduction or copying which the

Trade Commission may require or desire.

8. Any document produced under this Order which

contains confidential information may be designated as

being confidential by the respective respondents, in which

event all documents so designated shall be subject to the

following protective treatment:

(a) Documents designated as confidential by a

respondent shall be deposited with and be maintained

by a custodian who shall be the Secretary of the

Commission. Unless and until otherwise ordered by

the Court upon due notice to all affected parties

documents so designated may be inspected only at

the depository location and only by employees of

the Trade Commission officially assigned to the

Trade Commission’s investigation entitled “File No.

711 0042.” Said documents shall be used only in

connection with said investigation, and said employees

shall not suffer or permit disclosure or copying of

A-61

any such document, or any portion thereof, or any

information contained therein to any other person.

(b) Unless and until otherwise ordered by the

Court upon due notice to all affected parties, docu-

ments designated confidential under this Order shall

remain in custody of the Custodian and neither the

documents nor any copies thereof shall be removed

from such custody.

(c) At the conclusion of the Trade Commission’s

investigation pursuant to which such confidential doc-

uments have been produced, all documents so de-

signated as confidential, together with all copies

thereof, shall be returned to the respective respond-

ent unless the Trade Commission seeks and obtains

an order of the Court providing otherwise.

(d) The protective provisions of this Order shall

be deemed to apply to the Trade Commission, to the

individual Commissioners of the Trade Commission

and to all persons in the employ of the Trade Com-

mission; sanctions for violation of any provision of

this Order may be imposed on the Trade Commis-

sion, or any person who violates any provision of

this Order.

9. The Court reserves its ruling as to any and all

matters, contentions or issues not specifically disposed of

by this Order. Jurisdiction over these proceedings is

retained for the purposes of providing other and further

relief as necessary.

So ordered this 22nd day of March, 1974.

/s/ George L. Hart, Jr.

Chief Judge

A-62

APPENDIX C

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

Civil Action No. 1091-73

FEDERAL TRADE COMMISSION

v.

St RIOR OL Co ANY

ORDER

Upon consideration of the Federal Trade Commission's

petition for enforcement of a subpoena duces tecum, the

matter having been fully briefed and argued before the

Court, and the Court being advised in the premises, it

is this 22nd day of March, 1974,

ORDERED, That the respondent, The Superior Oil Co.,

Inc., shall comply, within 180 days from the date on

which this Order becomes final, with Specifications A

through F and K through L of the subpoena, provided

that Specifications A, B. D. E and F may be complied

with by submitting a verified written statement by an

officer of the Company containing the requested infor-

mation in lieu of the documents specified, and it is

FURTHER ORDERED, That as to the respondent, The

Superior Oil Co., Inc., Specifications G through J of the

subpoena be, and the same hereby are, denied enforce-

ment and quashed; and it is

FURTHER ORDERED, That any document produced un-

der this Order which contains confidential information

may be designated as being confidential by the respond-

ent, in which event all documents so designated shall be

subject to the following protective treatment:

A-63

; ial by a

Documents designated as confidential *

. Bon shall be deposited with and be —

tained by a custodian who shall be the rn

the Commission. Unless and until otherwise o — —

by the Court upon due otice to all affected pa ie

documents so designated may be inapected * a

the depository location and only by employees — —

Trade Commission officially assigned to the. 17e

Commission’s investigation etititied “File No. 4

0042.” Said documents shall be used only in conn

tion with said investigation, and said — ＋

shall not suffer or permit disclosure er copying o

any such document, or any portion thereof, or any

information contained therein to any other person.

: . the

less and until otherwise ordered by

ous —— due notice to all affected parties, —

ments designated confidential under this Order *

remain in custody ef the Custodian and neither t —

documents nor amy copies thereof shall be remov

from such custody.

conclusion of the Trade Commission’s

neem pursuant to which such confidential

documents have been produced, all oe 80

designated as confidential, together with al i

thereof, shall be returned to the respondent 3 7

the Trade Commission seeks and obtains an order o

the Court providing otherwise.

e proteetive provisions of this Order shall

be 2 to apply to the Trade Commission, to the

individual Commisioners of the Trade ear a

and to all persons in the employ of the Trade 5

mission; sanetions for violation of any provision

this Order may be imposed on the Trade a ov

sion, or any person who violates any provision of this |

Order.

: its ruli Il matters,

The Court reserves its ruling as to any and a

contentions or issues not specifically disposed of by 7

Order. Jurisdiction over these proceedings is retained for

A-64

the purposes of providing other and further relief as

necessary.

So ORDERED THIS 22 Day oF MARCH, 1974.

GEORGE L. Hart, Jr.

George L. Hart, Jr.

Chief Judge

A-65

LEVENTHAL, Circuit Judge concurring: I concur fully

in Chief Judge Bazelon’s majority opinion. I write sepa-

rately to record another strand of doctrine that supports

the court’s judgment. In substantial if elusive measure

the District Court projected the defense contention that

the FTC is collaterally estopped from investigating cer-

tain matters because of a prior determination by the

FPC in the course of ratemaking. In my view the whole

doctrine of preclusive effect, whether cast as collateral

estoppel or res judicata, is inapplicable to the conclusion

of sn agency exercising such a legislative function as

ratemaking, Arizona Grocery Co. v. Atchison, Top. and

Santa Fe, Ry. Co., 284 U.S. 370, 389 (1982); 2 K.

Davis, Administrative Law Treatise, § 18.08 at 597

(1968). The doctrines of res judicata and collateral

estoppe! preelude litigation of an issue even though a

“wrong” result was reached the first time. But the Fed-

eral Power Commission itself would not have been pre-

cluded from changing its mind concerning reserves if

it had started a new ratemaking investigation, and would

not be precluded from starting a new investigation to

eomsider whether it should change its mind or method.

In recent years, I am aware, notions of res judicata

and collateral estoppel have been extended as to adminis-

trative proceedings. See Cartier v. Secretary of State,

165 U.S. App. D. C. 130, 135 n.3, 506 F.2d 191, 196 n.3,

cert. denied, 421 U.S. 947 (1974). Authoritative doc-

trine, however, still retains the concept that such pre-

clusive effect is to be accorded determinations “in a

judicial capacity.” United States v. Utah Construction

Co., 384 U.S. 394, 422 (1966). The need for finality

with respect to appraisal of an event that has passed

outweighs any desire the agency may have to change its

policies for future rulings.

Different considerations emerge, and a different bal-

ance is struck, when an agency exercises an essentially

A-66

legislative fumetion like ratemaking, especially the kind

of broad area ratemaking lately conducted by the Fed-

eral Power Commission. The agency must remain free

“to adapt [its) rules and policies to the demands of

changing circwmstances.” Permian Basin Area Rate

Cases, 390 U.S. 747, 784 (1968). Changes may occur

not only in objective circumstances but in the way the

agency perceives the critical facts, whether, say, service

life of equipment, or calculations of gas reserves. With

such legislative activity focused primarily prospectively,

the need for flexibility outweighs any interest in repose.

Thus, the Supreme Court has repeatedly held that an

individualized ratemaking is not res judicata.’ The perti-

nent considerations are multiplied when what is involved

is the kind of broad ratemaking now conducted by the

FPC, an approach approved in Permian Basin, and now

used with rulemaking procedures.’

Of course, the Rule of Administrative Law restrains

agencies from “arbitarily” or “capriciously” reopening

earlier determinations and reaching new results. An

agency changing its course must be able to explain its

departure from prior. policy. Greater Boston Television

Corp. v. FCC, 143 U.S.App.D.C. 383, 394, 444 F.2d 841,

852 (1970), cert. denied, 403 U.S. 923 (1971). Some

comparable doctrine may be fashioned to prevent ar-

bitrariness even when a second agency is involved.

Whether a determination has been arbitrary is an en-

tirely different question, however, from whether inquiry

has been precluded by a prior determination that is

1 Prentis v. Atlantic Coast Line Co., 211 U.S. 210 (1908) ;

Tagg Bros. & Moorhead v. United States, 280 U.S. 420, 445

(1930) ; State Corporation Commission v. Wichita Gas Co.,

290 U.S. 561, 569 (1934); St. Joseph Stock Yards Co. v.

United States, 298 U.S. 38, 64 (1936).

? See Shell Oil Company v. FPC, 520 F.2d 1061 (5th Cir.

1975).

A-67

binding. The FTC, in the exereise of its funetions and

responsibilities, has only begun to seek out the relevant

facts. One cannot possibly say that it is acting unrea-

sonably in beginning its examination. The opinion of

Chief. Judge Bazelon effectively establishes that con-

clusion.

A-68

A-69

WILKEY, Circuit Judge, with whom joined MacKinnon,

Circuit Judge, dissenting: This litigation is an outgrowth

of a Federal Trade Commission (FTC) investigation into

the reporting of natural gas reserves by natural gas

producers in Southern Louisiana: The issues concern

1 Outline of this opinion:

OUTLINE

Page

I. THE FACTS, THE ISSUES, AND THE ARGU-

MENTS * 3

II. THE FEDERAL POWER COMMISSION IN-

r SNE i eT CR 13

III. COURT ENFORCEMENT OF ADMINISTRA-

. 20

IV. RELEVANCE 6 OLE 25

A. Purpose of Inquiry, Test of Relevancy, and

Standard of Judicial Review -........................

B. Raw Field Data, Bid Calculation Data, and

Bid Calculation Files — — 37

C. Summary on the Relevance Issue 53

V. BURDENSOMENESS eee 58

VI. COLLATERAL ESTOP PEL 66

A. The Appropriateness of Considering the Issue

of Collateral Estoppel in this Subpoena En-

forcement. Proceeding -......................------------.--- 72

B. Giving Collateral Estoppel Effect to a Find-

ing of Fact Made in the Context of a FPC

Ratemaking Proceeding .................................. 81

C. Giving Collateral Estoppel Effect to a Find-

ing of Fact Made for Ratemaking Purposes..

VII. CONFIDENTIALITY AND PRODUCTION AT

1 —— ——

VIII. THE SUPERIOR ORDER

IX. CONCLUSION

& E 8 &

A-70

the District Court’s action in modifying and enforcing the

Trade Commission’s subpoenas.

We see the issues in this case quite differently from

the majority. Fundamentally, our colleagues state the

issues and write as if the court were reviewing directly

the action of the Trade Commission in issuing these sub-

poenas. We are not. We are reviewing the action of a

District Court in modifying and enforcing those sub-

poenas. It is the validity and reasonableness of the Dis-

trict Court’s action which we judge. What we review

and the standards we employ are determined by that.

The District Court modified the subpoenas in two prin-

cipal ways: (A) limiting the material to be produced

to any and all material containing data on proved re-

serves and their reporting; and (B) limiting the use of

the data to purposes other than establishing the accuracy

of the proved reserve figures, such estimates having been

established for the same time period by three separate

investigations of the Federal Power Commission.

In so modifying and enforcing the subpoenas the

District Court acted on three separate and independent

grounds: (1) relevance of the data sought to the pur-

pose of the Trade Commission investigation, the reporting

of proved gas reserves (applicable to the content or pro-

duction limitation); (2) burdensomeness of producing

material already twice or thrice furnished before (ap-

plicable to both the content and use limitations); (3) ad-

ministrative collateral estoppel as to one finding of fact,

the accuracy of the proved reserve figures, already made

by the agency primarily responsible, the Federal Power

Commission (applicable to the use limitation).

The first two grounds are essentially factual, within

the sound discretion of the District Court, and must be

respected unless clearly erroneous. The third ground is

a question of law, initially for determination by the

District Court.

A-71

I, THE FACTS, THE ISSUES, AND THE ARGUMENTS

A.

The American Gas Association (AGA) is a trade as-

sociation of producers, distributors, and marketers of

natural gas. Through its Committee on Natural Gas Re-

serves, the AGA has since 1946 been providing the in-

dustry, the Government, and the general public with

annual estimates of the proved natural gas and natural

gas liquid reserves of the United States.’

* Throughout this opinion we will use the term “proved

reserves.” The following is the definition of proved reserves

adopted by the AGA in its annual publication, “Reserves of

Crude Oil, Natural Gas Liquids, and Natural Gas in the

United States and Canada and United States Productive Ca-

pacity,” Volume 28, June 1974. The first two paragraphs of

the following definition appear on page 103 of this publication,

the third paragraph is derived from page 99 and the last

paragraph is derived from pages 96 and 97 (emphasis added) :

Proved Reserves are the estimated quantity of natural

gas which analysis of geologic and engineering data

demonstrate with reasonable certainty to be recoverable

in the future from known oil and gas reservoirs under

existing economic and operating conditions. Reservoirs

are considered proved that have demonstrated the ability

to produce by either actual production or conclusive for-

mation test.

The area of a reservoir considered proved is that por-

tion delineated by drilling and defined by gas-oil, gas-

water contacts or limited by the structural deformation

or lenticularity of the reservoir. In the absence of fluid

contacts, the lowest known structural occurrency of hy-

drocarbons controls the proved limits of the reservoir.

The proved area of a reservoir may also include the

adjoining portions not delineated by drilling but which

can be evaluated as economically productive on the basis

of geological and engineering data available at the time

the estimate is made. Therefore, the reserves reported

should include total proved reserves which may be in

——

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In May 1969 when the AGA reported its 1968 figures,

they indicated a decline in proved reserves nationally,

the first such decline ever reported. Before the year

1969 was out, this and other information reaching the

Federal Power Commission (FPC) prompted a reopening

of its just-concluded Southern Louisiana Area Rate Pro-

ceeding.

In late 1970 the Federal Trude Commission began an

investigation into the reporting of natural gas reserves

in Southern Louisiana, On 3 June 1971 the investiga-

tion achieved more formal status when the Trade Com-

mission issued a resolution authorizing the use of com-

pulsory process in furtherance of a nonpublic investi-

gation. From the beginning of the investigation the

AGA cooperated with the Trade Commission on a volun-

tary basis. As a result the Commission was able to ob-

tain the field-by-field estimates of proved reserves made

by each Southern Louisiana subcommittee member for the

years 1966 through 1970.“ The Commission also ob-

either the drilled or undrilled portions of the field or

reservoir.

Natural gas reserves take into account the shrinkage

of the reservoir gas volume resulting from the removal

of the liquefiable portions of the hydrocarbon gases and

the reduction of volume due o the exclusion of non-

hydrocarbon gases where they occur in sufficient quantity

to render the gas unmarketable.

The proved reserves estimated are to include all gas

reserves regardless of size, availability of market, ulti-

mate disposition or use.

See also note 91 infra.

* These statistics were made available to the FTC subject

to an agreement restricting access to and disclosure of the

data. The agreement provided, inter alia, that:

(2) Representatives of your Bureau [i.e., the Com-

mission’s Bureau of Competition] will make use of such

reports only in connection with its current investigation

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tained reserve information from Form 15 reports filed

with the Federal Power Commission. These reports are

filed by interstate natura! gas pipelines and list recover-

able, saleable gas reserves committed to, collected by, or

held by reporting pipelines.

Approximately one year after beginning its investiga-

tion, on 24 November 1971, the Commission staff issued

identical administrative subpoenas duces tecum to eleven

natural gas producers. All eleven producers moved to

into the reporting of natural gas reserves by the Ameri-

can Gas Association, and for the purpose of verification

of natural gas reserves estimates reported by the A.G.A.

Committee on Natural Gas Reserves; and shall not re-

lease, disclose, disseminate or publicize in any manner,

to any person, any statistic or data contained in such re-

ports, unless otherwise available in published records or

documents, without twenty days prior notice, and oppor-

tunity to seek appropriate legal protection or relief, to

A. G. A. and to each member of the South Louisiana Sub-

committee whose statistics are to be disclosed by the

Commission.

Supplemental Brief for Appellee Mobil Oil Corp. (filed 4

April 1975), Exhibit A at 2. (Emphasis supplied). The agree-

ment also provided that custody of the documents be main-

tained by a neutral third party, Price Waterhouse & Co.

The producers have alleged in supplemental filings before

this court that the FTC breached this agreement by releasing

to a Congressman certain staff and working papers containing

excerpts from the AGA reserve statistics after less than 72

hours’ notice. In a reply the Commission conceded that it had

released the information to the Congressman, who by a phone

call “required that the documents be immediately released” to

him. The Commission argues, however, that the above para-

graph was intended to prohibit disclosure of the data to the

public or to competitors, and was not meant to cover the case

where a member of Congress or congressional committee

might immediately require use of the data. In addition, the

Trade Commission argues that it lacks the statutory power

to keep this data confidential when a Member of Congress

demands disclosure.

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quash the subpoenas. Following the Commission’s denial

of the motions, the Trade Commission’s staff, after ne-

gotiations with the gas producers, offered additional safe-

guards for confidentiality of the information to be sup-

plied. As a result two producers agreed to comply fully

with the subpoenas and one agreed to comply in part.

Soon after petitions for enforcement were filed in the

District Court, one more firm agreed to comply with

the subpoena.

Petitions for enforcement of the remaining subpoenas

were filed in the District Court on 4 June 1973. The two

orders here under review were filed on 22 March 1974.

One order covered the subpoenas issued to appellees Tex-

aco, Inc., Standard Oil Co. (Indiana), Shell Oil Co.,

Exxon Corp., Standard Oil Co. of California, and Mobil

Oil Corp. (hereinafter the “Six-Company Order”) and

enforced specifications A through F and K through L in

full.

During the hearings held on 30 July and 18 December

1973, the District Court found the subpoenas to be overly

broad and unduly burdensome because they sought to du-

plicate investigations of the Federal Power Commission

which had already resulted in a finding that AGA proved

reserve estimates were valid and accurate. As a result,

specifications G through I were modified so that raw field

data, bid calculation data, and bid calculation files need

not be produced.“ However, all documents, wherever lo-

* Preliminarily, it is necessary to recognize the central im-

portance of specification G of the FTC’s subpoena. This speci-

fication, if left wnmodified by the District Court's order of

any of the subsequently agreed upon stipulations, calls for

the production of

Documents either received (from whatever source) or

written by the Company, in whole or in part, at any

time between January 1, 1962 to December 31, 1970,

which contain estimates or evaluations of the volume of

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cated, containing or underlying proved reserve estimates

in the Southern Louisiana area are to be produced under

the District Court’s order.

The court, in an attempt to make the subpoenas less

burdensome, limited production of the documents called

for by specifications G through I to a random sample of

100 out of the approximately 225 relevant fields and

to the years 1969, 1970, and 1971. Specifications J, K,

and L were also modified so that only documents relating

to proved natural gas reserve estimates in the offshore

natural gas present or recoverable or ultimately recover-

able (1) throughout all of South Louisiana (2) through-

out all of Offshore South Louisiana and/or (3) in specific

fields, portions of fields, leaseholds and/or portions of

leaseholds located in Offshore South Louisiana.

Excluded from this specification are any documents

previously made available to the Commission by the

American Gas Association and presently in the custody

of Price, Waterhouse & Company, 1801 K Street, Wash-

ington, D.C. Included in this specification by way of illus-

tration but not limitation are documents containing esti-

mates or evaluations including re-estimates or reevalua-

tion made in connection with or in preparation for or as

the result of the following: (1) bidding on or nominating

leases (2) deciding whether to erect permanent platforms

(3) compiling or inventorying total company reserves or

supply (4) negotiating or contracting for the sale of natu-

ral gas, or for the joint or common exploration, develop-

ment, production, purchase or sale of acreage, or for ob-

taining bank loans (5) filing depreciation expense sched-

ules with Internal Revenue Service or (6) submitting

field-by-field estimates to subcommittees or committees of

the American Gas Association or the American Petroleum

Institute.

FTC Subpoena, App. I at 54a. This is the most significant

specification of the subpoena not only because of the enormous

breadth of its coverage but also because the next two specifi-

cations (H and I(1)) define their breadth by referring back

to the documents produced pursuant to specification G. Id. at

55a-56a.

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Southern Louisiana area need be submitted. The court,

however, enforced the subpoena as regards any docu-

ments prepared between 1966 and 1971, inclusive, “which

were exchanged between or among, or constitute, contain

or refer to any agreement, arrangement or communica-

tion between or among, respondents or others, including

the American Gas Association.” Finally, the subpoenas

were modified so that additional protections were afforded

to confidential information and the producers were ac-

corded the option of producing records for inspection

where they were stored.

B.

Because the producers have not cross-appealed, the is-

sues before us relate solely to those limiting modifica-

tions fashioned by the District Court which were not

subsequently accepted by the Trade Commission and the

producers in their field stipulations. Those issues, in the

order we will deal with them, are as follows:

1. Did the District Court abuse its discretion under

the relevance standard of United States v. Morton Salt

Co., in refusing to order the production of documents

which did not relate to estimates of proved reserves?

In other words, was the District Court’s finding that

documents related to nonproved reserve estimates ( 6. g.,

raw field data and bid files) were not “reasonably rele-

vant” to the investigation described in the FTC’s resolu-

tion of 8 June 1971 a clearly erroneous finding? (a

relevance issue—an essentially factual determination for

the District Court)

2. Considering the purpose of the Power Commission’s

investigation and the FPC’s previcus factual determina-

tion that AGA proved reserve data was reasonably re-

* 388 U.S. 632 (1950).

* FTC v. Lonning, 539 F.2d 202, 210 n.14 (D.C. Cir. 1976).

See text, infra, at note 89.

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liable for ratemaking purposes, would the effort and

expense involved in producing documents so that the

FTC could determine for itself the validity and accuracy

of all natural gas reserve estimates (proved or unproved)

have imposed an unfair and unreasonable burden on the

producers? If so, did the District Court abuse its dis-

cretion in (1) limiting enforcement of the subpoenas to

documents containing or underlying proved reserve es-

timates and (2) restricting use of the documents to an

investigation of an alleged conspiracy in the reporting

of natural gas proved reserve estimates? (a burdensome-

ness issue—a determination within the sownd discretion

of the District Court)

3. Was the District Court in error in refusing to

permit the Trade Commission to use the documents

called for by specifications G through I “to investigate or

determine the amount of proved natural gas reserves,

i.e. in ordering this production “for the sole purpose

of permitting the Trade Commission to investigate

whether there is a conspiracy in the reporting of natural

gas proved reserve estimates. (the administrative

collateral estoppel issue—a question of law initially for

the District Court)

4. Did the District Court abuse its discretion in:

a. limiting the production of documents called for

under specifications G through I to a random sample of

fields in which the producers “had an ownership inter-

est as of the date reports were submitted by the Southern

Opinion and Order Determining Just and Reasonable Rates

for Natural Gas Produced in the Southern Louisiana Area

(So La IT), 46 F. P. C. 86, 115 (16 July 1971), aff'd sub nom.,

Placid Oil Co. v. FC, 483 F.2d 880 (5th Cir. 1973), aff'd sub

nom., Mobil Oil Corp. v. FPC, 417 U.S. 283 (1974).

* App. IV at 807a (d.).

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Lousiana Subcommittee of the [AGA]” for the years

1969, 1970, and 19717 *

b. limiting the production of documents called for

under specifications J and K to “. .. documents relating

to... estimates. . which were included in reports for

1971 by the Southern Louisiana Subcommittee of the

[AGA)” and “ . . prepared or dated during the years

1966 through 1971, inclusive, [and] which were er-

changed between or among, or constitute, contain or refer

to any agreement, arrangement or communication be-

tween or among, [the producers] or others, including the

[AGA)”? ”

e. permitting documents to be produced for in-

spection at their situs? ™

d. Attaching conditions to disclosure to insure con-

fidentiality? *

e. allowing the producers .. . 180 days after the

date upon which they are advised of the sample felds

selected . . .” in which to comply with the subpoenas? “

5. Was the District Court in error, under the rele-

vance standard of United States v. Morton Salt Co.,

in affording Superior Oil Co. differing treatment?” (a

relevance issue—an essentially factual determination for

the District Court).

Id. at 806a-07a (U 2.a.-c.) (emphasis added).

„Id. at 807a-08a (93) (emphasis added).

* Id. at 808a (7).

Id. at 809a-10a (7 8).

“Id. at 80Ba (J 6).

* 338 U.S. 682 (1950).

App. III at 469a-71a.

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C.

Before embarking on our analysis of these issues we

will briefly summarize the arguments of the parties.

The producers have never quarreled with the power or

the right of the Federal Trade Commission to investi-

gate the natural gas industry to uncover violations of the

antitrust laws or unfair trade practices. However, they

do argue that there can be no possible reason for want-

ing documents that do not relate to proved reserve es-

timates simply because it is only proved reserve estimates

that are taken into account by the Federal Power Com-

mission in setting area rate ceilings and it is only proved

reserve estimates that are reported to the AGA and then,

through the AGA, to the public. Alternatively, the pro-

ducers argue that the Federal Power Commission, the

only agency possessing the requisite expertise, has deter-

mined that AGA proved reserve data are accurate. There-

fore, the FTC is collaterally estopped from relitigating

this one issue of fact.

The Trade Commission, on the other hand, points out

that there is no provision in the Federal Trade Commis-

sion Act (FTCA) excepting gas producers from the

coverage of the Act, as there is for banks and certain

common carriers, and that therefore jurisdiction to in-

vestigate exists. They argue that such jurisdiction is

broad, “reaching not only existing violations of . . .

(the Sherman and Clayton Acts], but trade practices

which conflict with their basic policies.“ The Trade

Commission goes on to argue that, as a factual matter,

its investigation does not duplicate studies made by the

Wederal Power Commission and that, even if it did, col-

lateral estoppel would be inapplicable because its purpose

in determining the accuracy of reserve data is different

Brief for Appellant (filed 30 Aug. 1974) at 17-18.

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from the Power Commission’s purpose in determining

accuracy.

Although the producers are correct in arguing that

data relating to any reserves other than proved reserves

would not be “reasonably relevant” to the investigation

defined by the Trade Commission’s resolution of 3 June

1971 (and that this part of the District Court’s order

could properly be supported on relevance grounds alone),

it is not clear from the transcript of the 13 December

1973 hearing whether the District Court reached the issue

of relevance in regard to all documents subpoenaed. Since

the Trade Commission had subpoenaed all reserve records

so that it could determine independently the total gas

reserves of the area, and since the Power Commission had

already determined that the AGA figures were accurate,

the court apparently was of the view that the Trade Com-

mission was collateraly estopped from forcing the pro-

ducers to relitigate this matter, and that therefore it was

unnecessary to reach the issue of relevance for all docu-

ments. In any event, it seems clear that the District

Court also felt that it would be unduly burdensome to

permit yet another plenary investigation (for the third

time in two years) of natural gas reserves.”

™ United States v. Morton Salt Co., 338 U.S. at 652.

In addition to So La II, on 23 February 1971 the Power

Commission commenced work on the National Gas Reserves

Study (NGRS), a massive audit of all United States gas

reserves. In its final report, issued May 1973, the Commis-

sion concluded that AGA proved reserve estimates slightly

overstated total reserves. FPC Starr REPORT ON NATIONAL

Gas RESERVE STUDY (May 1973) at 3, App. VI at 1048a.

See infra at pp. 19-20.

Counting NGRS and So La II, the investigation contemplated

by the Trade Commission’s subpoenas would have been the

third plenary investigation into the same gas reserve data,

i.e., proved reserve estimates in South Louisiana as of 31

December 1970. Since its NGRS report, the Power Com-

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Thus, there are three independent grownds for affirm-

ing the District Court’s most important limiting modifica-

tions: relevance (issue 1 supra), burdensomeness (issue

2 supra), and administrative collateral estoppel (issue 3

supra). For the sake of clear analysis, we will attempt

to keep these three grounds separate as we now proceed

to a discussion of the issues.”

II. THE FEDERAL POWER COMMISSION INVESTIGATIONS

First, we turn to the District Court’s determination

that, for the years covered by the Trade Commission’s

subpoena, the Federal Power Commission had already

(1) considered and ruled upon the validity and accuracy

of natural gas reserve data, and (2) determined natural

gas reserves.“ The majority opinion implicitly agrees

with this District Court finding, but some development

of this point is necessary, as it forms the background of

the whole case.

mission has continued to monitor closely the accuracy of

the AGA reports.

„ As we shall see, the two most important modifications

made by the District Court—(1) limiting the production of

documents to those containing or underlying proved reserves

and (2) restricting the use of this „ — — —

tigation of an alleged conspiracy in the repo

— reserves—can and should each be affirmed on two of

these three grounds.

20 Rule 18 (a) (3), FD. R. CIw. P., provides that the Federal

Rules of Civil Procedure. apply to proceedings to

compel the giving of testimony or preduction of documents

in accordance with a subpoena issued by an officer or agency

of the United States We are thus bound by Rule 52

(a), FD. R. C. P., which states that [findings of fact

shall not be set aside unless clearly erroneous... .

„ App. IV at 805a.

r

A-82

Although the Power Commission began area rate pro-

ceedings in 1961 for the Southern Louisiana area, it was

not until 1968 that the Commission rendered a final de-

cision, which in turn was modified in early 1969. Even

before oral argument could be heard before the Fifth

Circuit on petitions for review sought by producers, pipe-

line companies, and consumers, the FPC had instituted

new proceedings (So La II) “to reconsider all major

actions it had taken” in the prior proceedings.“ As the

* Southern Louisiana Area Rate Cases, 428 F.2d at 421.

This second proceeding was initially denominated the

“Offshore Louisiana Area” proceeding to distinguish it from

So La I (the “Louisiana Area” proceeding). The impetus

for this proceeding was contained in the record of So La I

where the FTC said:

. . . the pleadings do lead us to the conclusion that the

vital importance of future additional gas supply from

the offshore areas in Southern Louisiana warrants the

immediate commencement of the further proceeding we

had contemplated in our original Opinion herein looking

towards a possible revision of the area price ceilings

for such gas.

41 F. P. C. at 307. The Court of Appeals for the Fifth Circuit

expressly endorsed the FPC’s new initiative commenting on

“new evidence of a possible impending gas supply shortage”

and leaving the proceeding open to explore this development.

See In re Southern Louisiana Area Rate Cases, 444 F.2d 125,

126 (5th Cir. 1970). This new proceeding initially focused

strictly on the offshore area, 41 F.P.C. at 307-08, but was

later enlarged to include onshore Southern Louisiana, 42

F.P.C. 1110. The order officially beginning the record pro-

ceedings was entered on 20 March 1969. 41 F.P.C. 378. The

FPC subsequently stayed the effectiveness of its So La I

orders at the request of the Court of Appeals for the Fifth

Circuit. 41 F.P.C. 675-76. This stay was continued on 15

December 1969. 42 F.P.C. 1110, 1111. When the Fifth Cir-

cuit issued its opinion in June 1970, it expressly left the

So La I record open for “retrospective as well as prospective

adjustments.” 444 F.2d at 126-127. Since the FPC had never

made its orders fully effective, it was legally and conceptually

A-83

FPC stated in its order instituting So La II, Phase I

of its new proceeding solicited “. . . evidence with re-

spect to the adequacy of gas supply and adequacy of

service to consumers, the demand for gas, the gas short-

age, if any, the effect of price on gas supply and de-

mand, and other relevant economic evidence. .. .” ™

The FPC was concerned in So La II with complaints

that adequate supplies of natural gas were not being

produced and would not be produced under the recently

ordered area rate ceilings. More important for present

purposes, the FPC during So La II was presented with

the argument by Municipal Distributors Group (MDG) ;

an intervenor which represented the interests of municipal

and other publicly owned gas distribution systems, that

the supply shortage was more apparent than real. It was

argued that “the sharp decline in the supply picture in

1968-69 is revealed by the above record evidence to be

caused. . . largely by revisions in the estimates” of

proved reserves reported by the ACA.“ Such a con-

tention went to the heart of the Power Commission in-

vestigation. If it were true that the decline in reserves

was a matter of definition and not of economics, the con-

cern of the FPC that new area rates might be required

to encourage production would be obviated.

In its final opinion in So La II the FPC discussed

testimony which was used by MDG to impeach AGA data.

logical for it to consolidate So La I with the new proceeding,

— it did so on 24 December 1970, 44 F. P. C. 1638, in order

to assess supply factors which it had ignored in So La I.

28 Order Enlarging Investigation and Proposed Rulemaking

Area Rate Proceeding (Southern Louisiana Area), 42 F. P. C.

1110, 1112 (15 December 1969).

% See MDG’s Initial Brief in So La II at 15.

A-84

The testimony outlined several methods by which pro-

ducers could withhold reserves from the AGA. Discussed

also were MDG’s arguments relating to discrepancies be-

tween figures gathered by the FPC and those submitted

by the AGA. Additionally, the FPC referred in some de-

tail to the testimony and exhibits supporting the re-

liability of AGA data.“ As a result, it reached the follow-

ing conclusions:

As part of its examination of the false shortage allega-

tions, the FPC had conducted a spot audit of natural gas

reserves requiring producers to report uncommitted reserves

in the Southern Louisiana area. A composite of this data

was admitted into evidence in So La II after the FPC had

closely audited both the composite and the underlying individ-

ual responses of the producers. The data underlying the pro-

ducers’ uncommitted reserve estimates, (e.g., electric and

other technical logs, core analyses, formation tests, shut-in

and flowing pressure tests, structure maps, isopachus maps,

directional surveys, daily drilling records, etc.) was also

thoroughly scrutinized by the FPC auditing team. See 43

F. P. C. 444-48 (1970). According to appellees, In most of

tne analyses, the audit team derived independent factors for

estimating reserve volumes and made its own reserve esti-

mate based upon these independent factors.” Supplemental

Memorandum for Appellees Texaco Inc., Standard Oil Co.

(Indiana), Shell Oil Co., Exxon Corp., and Mobil Oil Corp.

(filed 13 April 1976) at 6. The FPC staff members in charge

of the So La II audit concluded that APA reserve data was

accurate and established “. . . beyond any doubt that a

serious gas supply shortage does in fact exist throughout

the nation’s gas supply areas, and in Southern Louisiana in

particular.” Hearings on Concentration by Competing Raw

Fuel Industries in the Energy Market and its Impact on

Small Business Before the Subcomm. on Special Small Busi-

ness Problems of the House Select Comm. on Small Business

(hereinafter 1971 House Concentration Hearings) , 92d Cong.,

Ist Sess. A43 (1971). Of the AGA data, the FPC staff also

stated, |

Certain parties have questioned the reliability of the

AGA data in these proceedings. . However, the

record establishes the validity and reliability of the

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AGA and Form 15 data show similar trends of re-

serves and reserve-to-production (R/P) ratios. AGA

data indicates a steady decline in the national R/P

ratio from 19 in 1963 to 13 in 1969. Form 15 data

indicates a similar decline in the national R/P ratio

from 20 in 1963 to 14 in 1969. The American Gas

Association reserve data is not impeached, in our

opinion, in this discrepancy.”

For the reasons stated herein, we find the AGA

reserve data is reasonably reliable for the purposes

used herein. Accordingly, and because petitioner has

not raised any new evidence, we deny the petition to

reopen.”" :

In other words, while in 1963 AGA data started with

nineteen years of reserves and the Form 15 data started

with twenty years of reserves, by 1969 each calculation

had dropped 6 years of reserves off its proved reserve

figure, so the two calculations were comparable. Other

substantial corroborating evidence, including the fact and

extent of pipeline curtailments of gas service, was re-

reported AGA reserves data beyond any reasonable

doubt.

Id. at A56. See also id. at A72.

20 Opinion and Order Determining Just and Reasonable

Rates for Natural Gas Produced in the Southern Louisiana

Area, 46 F.P.C. 86, 113 (16 July 1971) aff'd sub nom., Placid

Oil Co. v. FPC, 483 F.2d 880 (5th Cir. 1973), aff'd sub nom.,

Mobil Oil Corp. v. FPC, 417 U.S. 283 (1974). In affirming,

the Supreme Court expressly approved the FPC’s reliance

on the non-cost factor of supply and noted that both the

Commission and the Fifth Circuit were working“. . . against

the background of a serious and growing domestic gas short-

age... .” 417 U.S. at 320.

* Id. at 116.

A-86

ceived and considered by the FPC during So La II.“

Thus, AGA data was shown to be reliable.

The underreporting issue was again raised on review

before the Fifth Circuit and received the following ex-

tensive rebuttal in a footnote:

. . . Standing virtually alone against the National

(and record) judgment of a near energy calamity,

the American Public Gas Association (APGA) con-

tends that the current critical shortage of natural

gas is but a pretextual “cry of wolf” calculated to

mislead FPC into establishing artifically high rates

in the producers’ behalf. APGA would have us be-

lieve that the energy crisis is a mirage—indeed, a

hoax! APGA claims that “there appear to be ade-

quate supplies of gas in the domestic United States

to satisfy the projected demands of U.S. consumers

well into the 21st Century.” APGA Supp. Brf. at 5

n. 9. But to talk of “Supplies” of gas is a misleading

oversimplification. Obviously, the gas is not presently

available. At most, if there is appropriate explora-

tion, the demonstrable reserves may be exploited to

meet the needs. Given a system which depends on

private stewardship and marshalling of natural re-

sources, there is a supply shortage if the producers

do not produce. FPC has the statutory duty, not only

to guard the consumers against super-profits reaped

from artificially inflated rates, but also to protect

consumer interests by making sure that the rate

schedule is high enough to elicit an adequate supply.

It is a delicate balancing test. FPC must fix its

course to attain the utopian “optimum” rate sched-

ule. Given the current shortage of available supply

FPC must swing the pendulum towards the incen-

2 supply-eliciting side of rates. And so it has

one.“ ö

* See 46 F. P. C. at 113.

0 Placid Oil Co. v. FPC, 483 F.2d 880, 894 n. 13 (5th Cir.

1973), aff'd sub nom., Mobil Oil Corp. v. FPC, 417 U.S. 283

(1974).

A-87

In addition to the examination undertaken in relation

to the So La IT proceedings, the Power Commission under-

took in early 1971, at the direction of Congress, a Na-

tional Gas Survey, a portion of which was the National

Gas Reserves Study (NGRS). The NGRS was a com-

pletely independent survey of reserves and did not rely

on AGA figures at any point. However, in the final staff

report of the NGRS (issued May 1973) a comparison

was made with AGA figures:

The NGRS estimate is lower than the estimate

by A.G.A.; however, the difference is less than 10

percent. The difference of 23.5 Tef between the esti-

mate of the non-associated and associated re-

serves for the 6,358 entries in the repo fields

category (a) is the primary difference between the

total estimates. The gas reserves in the A. G. A.

omitted fields” are a relatively insignificant part in

the total NGRS estimate, and it seems evident that

the 62 entries in the “omitted” category (b) are

small fields. The two dissolved gas estimates differ by

1.7 Tef or by about 5 percent.“

Thus, this independent study concluded that, if anything,

AGA proved reserve estimates overstated the true picture.

In these Power Commission investigations the FPC

necessarily analyzed and checked the AGA reserve data

in So La I and So La II, the FPC considered the data

offered by the Municipal Distributors Group to impeach

the AGA data and found that this data (derived from

the regular Form 15 reports) confirmed rather than con-

tradicted the AGA data, all of which was reviewed by the

Fifth Circuit and the Supreme Court. Then separately

and in addition to the above, the Power Commission made,

in 1971-73 at the request of Congress, a completely in-

dependent analysis, not relying on AGA data in any way,

% FPC STAFF REPORT ON NATIONAL GAS RESERVE Srupr

(May 1973) at 3, App. VI at 1048a.

A-88

called the National Gas Reserves Study, which concluded

that proved gas reserves were actually somewhat less

than calculations based on the AGA figures showed.

While the analyses of the FPC in the So La I and

So La II proceedings were made for ratemaking pur-

poses, the National Gas Reserves Study was not. And

in both instances the Power Commission made findings

of fact on the precise issue (accuracy of reported re-

serves) which the Trade Commission now seeks to re-

litigate. Hence the District Court made the factual

determination that the Power Commission had already

(1) considered and ruled upon the validity and accuracy

of natural gas reserve estimates and (2) determined

natural gas reserves. The District Court’s finding of fact

should not be confused with the question of law which

necessarily followed, whether it was appropriate to give

this finding of fact collateral estoppel effect, which we

explore in section VI, infra.

III. Court ENFORCEMENT OF

ADMINISTRATIVE SUBPOENAS

A. Court Enforcement of Administrative Subpoenas

The Trade Commission and a majority of this court

apparently would have us proceed as if there were on

appeal here an order of the Trade Commission, entitled

to deference as an exercise of that agency’s expertise.

To the contrary, this is an appeal from orders of the

District Court enforcing the Commission’s subpoena with

some limiting modifications. Accordingly, it is not the

views of the Commission staff which must be accorded

deference, but the determinations of the District Court

which must be upheld unless clearly erroneous or an

abuse of discretion.

There are limits to the subpoena power of an admin-

istrative agency, and the duty and authority to enforce

A-89

those limits rests in our federal district courts. As the

Ninth Circuit has stated,

There is no rule requiring a court to act against

conscience. The proceeding [judicial enforcement of

administrative subpoenas] is equitable in character.

Equitable considerations should prevail. There is no

power to compel a court to rubberstamp action of

an administrative agency simply because the latter

demands such action.”

By arguing as if it had been denied the ability to

proceed with its investigation, and by arguing that its

subpoena must be enforced unless “the evidence sought

is plainly irrelevant to any purpose within [its] statutory

authority . .,“ “ the Trade Commission demonstrat

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