Appendix — Association of National Advertisers, Inc. v. Federal Trade Commission

owe ROAR, LER }

Supreme Court of the KnitelP ih

October Term, 1979

No, 79-1496

ASSOCIATION OF NATIONAL ADVERTISERS, aot” Seetaarate AS-

SOCIATION OF ADVERTISING AGENCIES, INC., AMERICAN AD-

VERTISING FEDERATION, and TOY MANUFACTURERS OF

AMERICA, INC.; and KELLOGG COMPANY, INTERVENOR,

Petitioners.

=

v.

FEDERAL TRADE COMMISSION, MICHAEL PERTSCHUK, CHAIRMAN,

PAUL RAND DIXON, DAVID A. CLANTON, ROBERT PITOFSKY, and

PATRICIA BAILEY, COMMISSIONERS,

Respondents.

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA CIRCUIT

Wet, GUTTMAN & Davis DonovaN LEISURE NEWTON & IRVINE

Gruzert H. Wei. Wa ter L. StraTTon

Jay S. Davis David S. VERSFELT

60 East 42nd Street 30 Rockefeller Plaza

New York, New York 10017 New York, New York 10020

(212) 687-8573 (212) 489-4100

Counsel for Counsel for

Association of National American Association of Advertising

Advertisers, Inc. Agencies, Inc.

WEITZMAN AND ROGAL Locker & GREENBERG

WiLutiuaM W. RocaL AARON LOCKER

1735 K. Street, N.W. THEODORE M. GREENBERG

Washington, D.C. 20006 One Penn Plaza

(202) 467-5424 New York, New York 10001

t Counsel for (212) 945-7000

: American Advertising Federation Counsel for

i Toy Manufacturers of America, Inc.

’ March 26, 1980

te

hy

TABLE OF CONTENTS

PAGE

Opinion of the United States

Court of Appeals for the

District of Columbia Circuit

of December 27, 1979. . ee 62 -A-1

Opinion of the United States

District Court for the

District of Columbia

of November 3, 1978. .... . A=100

Opinion of the Federal Trade

Commission of July 18, 1978. . A-111

Letter Response of Chairman

Pertschuk of July 13, 1978. . .A-113

Statutes Involved. « « © « « « « A-127

Proposed Trade Regulation Rule-

making and Public Hearing (16

CFR Part 461) (43 Fed. Reg.

17967, April ars 1978) i i A-141

Statements of Chairman Pertschuk:

Article, Advertising Age of

June y+ e ° * ° e . ° -A-170

FTC News Release of July 20,

1977 . > ° . . . . e . . . . A-175

Television Interview, Toda

Show of October 31, so metse

PAGE

Speech, Action for Children's

Television Research Confer-

ence of November 8, 1977 . . A-186

Memorandum to Coleman McCarthy

of November 9, 1977 oe "s « -A-198

Memorandum to Charlie Ferris,

Federal Communication

Commission, of November 9,

1977. © ° ° ° ° ° . ° . ” . -A-199

Memorandum to Senator Stevens

of November 9, 1977 .°. . . -A=-200

Interview, TV Guide of November

12, 1977 See Mae, \ete Ml, aoe Pe ee ae ee A-201

Letter to Hon. Donald Kennedy,

Food and — Administration,

of November Ss 1977 7-8-9 A-206

Article, Wall Street Journal

of December 28, 1977... . A-208

Article, Newsweek of

January 30, 1978 ee. & &€ &*@ A-216

FTC News Release of

January : 2 1980 ge Je ee ee -A-221

ii

; Notice: This opinion is subject to formal revision bef blicati

- = my ae ch sage po - U.S.App.D.C. Reports. ection

e Clerk of any formal errors i i

made before the bound volumes go to gp sarees gin

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 79-1117

ASSOCIATION OF NATIONAL ADVERTISERS, INC., ET AL.

V.

FEDERAL TRADE COMMISSION, ET AL., APPELLANTS

Appeal from the United States District Court

for the District of Columbia

(D.C. Civil No. 78-1421)

Argued May 1, 1979

Decided December 27, 1979

Neil H. Koslowe, Special Litigation Coun -

ment of Justice, with whom pein Ge eee

Assistant Attorney General, Earl J. Silbert United

States Attorney, Robert E. Kopp, Attorney, Department

of Justice, Michael N. Sohn, General Counsel, Gerald P.

Bills of costs must be filed within 14 da

; ys after en gmen

court looks with disfavor upon motions to file bills of se a out of tae

A-1

Norton, Deputy General Counsel, and David M. Fitz-

gerald, Attorney, Federal Trade Commission, were on

the brief, for appellants.

Frederick P. Furth, with whom Samuel H. Seymour

was on the brief, for appellee Kellogg Co.

Gilbert H. Weil, counsel for appellee Association of

National Advertisers, Inc., with whom William W. Rogal,

counsel for appellee American Advertising Federation,

and Walter L. Stratton, counsel for appellee American

Association of Advertising Agencies, Inc., were on the

brief, argued on behalf of appellees Association of Na-

tional Advertisers, Inc., et al.

Mark L. Evans, General Counsel, Interstate Commerce

Commission, Jerome Nelson, Associate General Counsel,

Interstate Commerce Commission, Andrew Krulwich,

General Counsel, Consumer Product Safety Commission,

and Robert R. Bruce, General Counsel, Federal Com-

munications Commission, were on the brief for amici

curiae Independent Regulatory Agencies, urging that the

judgment of the District Court on appeal herein be re-

versed in light of the alleged chilling effect that decision

can have upon agency rulemaking proceedings.

Daniel J. Popeo and Joel D. Joseph were on the brief

for amicus curiae Washington Legal Foundation, urging

affirmance. ,

David B. Lytle was on the brief for amicus curiae

Air Transport Association of America, urging that this

court reject the recommendations proffered by the several

Independent Regulatory Agencies as amici curiae herein.

Hope B. Eastman, Charles Morgan, Jr., and Paul F.

Colarulli were on the brief for amicus curiae Grocery

Manufacturers of America, Inc., urging affirmance.

Christopher S. Bond and Charles A. Blackmar were

on the brief for amicus curiae Great Plains Legal Foun-

dation, urging affirmance.

Morton Hollander, Attorney, Department of Justice,

and Ann S. DuRoss, Assistant United States Attorney,

also entered appearances for appellants.

Earl C. Dudley, Jr. also entered an appearance for

appellee Kellogg Co.

Joel J. McGrath, Jr. also entered an appearance for

appellee American Association of Advertising Agencies.

Before TAMM, LEVENTHAL,* and MACKINNON, Circuit

Judges.

Opinion for the court filed by Circuit Judge TAM.

Concurring opinion filed by Circuit Judge LEVENTHAL.

Opinion dissenting in part and concurring in part

filed by Circuit Judge MACKINNON.

TAMM, Circuit Judge: Plaintiffs, appellees here, brought

an action in the United States District Court for the

District of Columbia to prohibit Michael Pertschuk,

Chairman of the Federal Trade Commission (Commis-

sion), from participating in a pending rulemaking pro-

ceeding concerning children’s advertising. The district

court, citing this court’s decision in Cinderella Career

& Finishing Schools, Inc. v. FTC, 425 F.2d 583 (D.C.

Cir. 1970), found that Chairman Pertschuk had pre-

judged issues involved in the rulemaking and ordered him

disqualified. We hold that the Cinderella standard is not

applicable to the Commission’s rulemaking proceeding.

An agency member may be disqualified from such a pro-

ceeding only when there is a clear and convincing show-

* Judge Leventhal died after completing his opinion in

this case but before it was sent to the court’s printer for

publication.

A-3

ing that he has an unalterably closed mind on matters

critical to the disposition of the rulemaking. Because

we find that the appellees have failed to demonstrate

the requisite prejudgment, the order of the district court

is reversed. :

On April 27, 1978, the Commission issued a Notice of

Proposed Rulemaking that suggested restrictions regard-

ing television advertising directed toward children." The

decision to commence rulemaking under section 18 of the

Federal Trade Commission (FTC) Act? was accompanied

by a statement setting forth “with particularity the

reason for the proposed rule.”* The Commission ex-

plained that it had decided to propose a rule limiting

children’s advertising after consideration of a staff re-

port that discussed

1 The proposed rule would

(a) Ban all televised advertising for any product which

is directed to, or seen by, audiences composed of a sig-

nificant proportion of children who are too young to

understand the selling purpose of or otherwise compre-

hend or evaluate the advertising;

(b) Ban televised advertising for sugared food prod-

ucts directed to, or seen by, audiences composed of a sig-

nificant proportion of older children, the consumption of

which products poses the most serious dental health

risks ;

(c) Require televised advertising for sugared food

products not included in Paragraph (b), which is directed

to, or seen by, audiences composed: of a significant pro-

portion of older children, to be balanced by nutritional

and/or health disclosures funded by advertisers.

43 Fed. Reg. 17,967, 17,969 (1978).

215 U.S.C. $57a (1976). Congress enacted §18 in 1975

as part of as Magnuson-Moss Warranty—Federal Trade

Commission Improvement (Magnuson-Moss) Act, Pub. L. No.

93-637, § 202(a), 88 Stat. 2193 (1975).

* 15 U.S.C. § 57a(b) (1976).

facts which suggest that the televised advertising of

any product directed to young children who are too

young to understand the selling purpose of, or other-

wise comprehend or evaluate, commercials may be

unfair and deceptive within the meaning of Section

5 of the Federal Trade Commission Act, requiring

appropriate remedy. The Report also discloses facts

which suggest that the current televised advertising

of sugared products directed to older children may

be unfair and deceptive, again requiring appropriate

remedy.

43 Fed. Reg. 17,967, 17,969 (1978) (footnotes omitted) .4

The Commission invited interested persons to comment

upon any issue raised by the staff proposal.®

On May 8, 1978, the Association of National Adver-

tisers, Inc. (ANA), the American Association of Ad-

vertising Agencies (AAAA), the American Advertising

Federation (AAF), and the Toy Manufacturers of

America, Inc. (TMA) petitioned Chairman Pertschuk to

recuse himself from participation in the children’s ad-

vertising inquiry. The petition charged that Pertschuk

had made public statements concerning regulation of

children’s advertising that demonstrated prejudgment of

specific factual issues sufficient to preclude his ability

to serve as an impartial arbiter. See Appendix (A.) at

* Petitions received from Action for Children’s Television

(ACT) and the Center for Science in the Public Interest

prompted the Commission’s decision to begin rulemaking.

Each petition asked the Commission to promulgate rules

limiting the advertising on children’s television of certain

highly sugared products. In support of the relief requested,

each petition presented evidence on the amount of televised

advertising for sugared products directed toward children,

the limited ability of young children to recognize the com-

mercial intent of such messages, and the health risks attend-

ant to consumption by children of excess amounts of sugar.

483 Fed. Reg. at 17,968-69.

5 Id. at 17,969.

11, 15. The charges were based on a speech Pertschuk

delivered to the Action for Children’s Television (ACT)

Research Conference in November 1977, on several news-

paper and magazine articles quoting Chairman Pert-

schuk’s views on children’s television, on the transcript

of a televised interview, and on a press release issued by

the Commission during the summer of 1977.°

On July 18, 1978, Chairman Pertschuk declined to

recuse himself from the proceeding. Pertschuk stated

his belief that the disqualification standard appropriate

for administrative adjudications did not apply to ad-

ministrative rulemaking, id. at 57-58, and that, even if

adjudicative criteria were relevant, his remarks did not

warrant disqualification because they did not concern the

petitioners in particular; rather, they addressed the

“issue of advertising to children and the policy questions

raised by it,” id. at 64 (emphasis in original). Five days

later, the Commission, without Pertschuk participating,

also determined that Pertschuk need not be disqualified.

Id. at 65.

In August 1978, ANA, AAAA, AAF, and TMA pe-

titioned the district 5 ae Peggy Parysyo

Pertschuk should be disquali rom participatin

children’s television proceeding. ANA, AAAA, AAF, and

TMA also sought preliminary and permanent injunctions

barring Pertschuk’s participation and an order requiring

the remaining Commissioners to reconsider all matters

previously decided in the inquiry. The plaintiffs intro-

duced copies of three letters, sent by Chairman Pertschuk

on the day after he delivered the ACT speech, as addi-

tional evidence of his alleged prejudgment. The letters

accompanied a copy of the speech.

On September 8, 1978, the Kellogg Company ( Kellogg) ‘

a food manufacturer that advertises on television pro-

6 See note 56 infra.

grams regularly viewed by children, moved to intervene

as a plaintiff. The district court granted the motion on

October 4, 1978. Two days later, Kellogg introduced as

evidence in support of the motion for a preliminary

injunction a copy of a letter sent by Chairman Pertschuk

on November 17, 1977, to Donald Kennedy, Commissioner

of the Food and Drug Administration.

On November 8, 1978, the district court ruled on cross-

motions for summary judgment. The court, relying on

Cinderella, found that Chairman Pertschuk “has pre-

judged and has given the appearance of having pre-

judged issues of fact involved in a fair determination

of the Children’s Advertising rulemaking proceeding.”

Accordingly, the court granted the plaintiffs’ motion for

summary judgment and ordered Pertschuk enjoined from

further participation. Jd. at 110. This appeal followed."

II

Before we consider the merits of the district court’s

decision, we pause at a procedural way station. The

Commission asserts that the district court erred in con-

sidering the disqualification issue before the rulemaking

proceeding had ended. As a general matter, of course,

the exhaustion doctrine provides that challenges to agency

action should not be heard until relevant administrative

proceedings have been concluded. McKart v. United

States, 395 U.S. 185, 194-95 (1969). This permits an

administrative agency to develop a factual record, to

apply its expertise to that record, and to avoid piece-

meal appeals. Jd. at 193-94.

Application of the exhaustion doctrine, however, is not

inflexible. In rare circumstances, this court has con-

7 The Washington Legal Foundation and seven independent

regulatory agencies appeared as amici curiae before this

court.

sidered extraordinary prejudgment claims prior to final

agency action. See Amos Treat & Co. v. SEC, 306 F.2d

260 (D.C. Cir. 1962). See also Fitzgerald v. Hampton,

467 F.2d 755, 768 (D.C. Cir. 1972) ; Sterling Drug, Inc.

v. FTC, 450 F.2d 698, 710-11 (D.C. Cir. 1971). The

district court agreed to consider the present case prior

to exhaustion of the administrative process on the basis

of these decisions.

The exception to the exhaustion doctrine upon which

the district court relied is extremely narrow. In SEC

v. R.A. Holman & Co., 323 F.2d 284, 286-87 (D.C. Cir.

1963), for example, ‘this court refused to review a dis-

qualification contention when a commissioner whose im-

partiality was challenged denied that he had participated

in earlier administrative proceedings. This court noted

that resolution of the disqualification issue would neces-

sitate prolonged evidentiary hearings and, therefore, we

concluded that review of the due process claim should

follow final agency action. Similarly, in Associated Press

v. FCC, 448 F.2d 1095, 1106-07 (D.C. Cir. 1971), this

court refused to review, prior to final administrative ac-

tion, an insubstantial disqualification claim that involved

conflicting factual contentions.

Although the doctrine that permits review of a dis-

qualification claim prior to final agency action is restric-

tive, the present case falls within its bounds. As the

Supreme Court has emphasized, application of the ex-

haustion doctrine “requires an understanding of its

purposes and of the particular administrative scheme

involved.” McKart v. United States, 395 U.S. at 193.

For the following reasons, we find that immediate re-

view of the prejudgment claim will not thwart the pur-

poses of exhaustion.

First, the challenge to Chairman Pertschuk’s further

participation involves no disputed factual issues that

A-8

demand the creation of a better administrative record.

The agency has had an adequate opportunity to explain

why Chairman Pertschuk need not be recused.* Second,

the issue involved in this case—the prejudgment standard

required by due process for section 18 rulemaking—is a

pure question of law. The Commission can bring no

particular expertise to bear on its determination. Con-

sideration of this question of first impression will not

necessarily permit future piecemeal attacks on adminis-

trative processes.* Under the particular circumstances

* When the Commission rejected the disqualification claim,

the appellees had not yet presented as evidence of prejudg-

ment four letters later introduced before the district court.

See pp. 6-7 supra. The Commission did, however, have the

opportunity to analyze the appellees’ legal theory and to

examine the bulk of their evidence. We do not view the

presence of the letters, which merely repeat the views ex-

pressed in the ACT speech, as having decisional significance.

See note 56 infra.

*In this sense, review of the Commission’s decision not

to recuse Chairman Pertschuk is analogous to the interlocu-

tory review of a district court order permitted under 28

U.S.C. §1292(b) (1976) when the “order involves a@ con-

trolling question of law as to which there is substantial

ground for difference of opinion and . . . an immediate appeal

from the order may materially advance the ultimate termina-

tion of the litigation.” See also Kennedy, The Federal Courts

Improvement Act: a first step for Congress to take, 68

JUDICATURE 8, 12 (1979) (proposed S. 678 balances need for _

finality against desirability of hearing interlocutory appeals

by allowing “immediate appeals in cases of ‘extraordinary

importance,’ with the Court of Appeals deciding—even in the

absence of district court certification—whether or not to

entertain an appeal”).

Similarly, appellate courts reviewing claims that a district

court judge improperly refused to recuse himself, see 28

U.S.C. §§ 144, 455 (1976), have demonstrated sensitivity to

the expeditious hearing of prejudgment cases. Although a

refusal to recuse is not appealable as a final order, commen-

tators have detected a liberal trend toward use of mandamus

A-9

of this case, we therefore conclude that the appellees’

claim may be heard.

Judge Leventhal, in his concurring opinion, voices some

concern over the jurisdiction of the district court to

entertain this action. In their complaints, however, the

plaintiffs alleged a violation of their procedural rights

under the Constitution and the Administrative Procedure

Act (APA), 5 U.S.C. §§ 551-706 (1976). Thus, the dis-

trict court clearly had jurisdiction—i.e., power—to re-

solve the contrayersy under 28 U.S.C. § 1331(a) (1976)

(cases arising under the Constitution and the laws of the

United States) and 28 U.S.C. § 1337 (1976) (cases aris-

ing under statutes regulating commerce). See generally

Califano v. Sanders, 480 U.S. 99, 105 (1977). Once a

plaintiff has alleged a nonfrivolous constitutional claim,

the district court has jurisdiction under section 1331, and

dismissal for want of jurisdiction is improper even if

dismissal for failure to state a claim upon which relief

could be granted would be proper. Bell v. Hood, 327 US.

678, 682-88 (1946). See 1 MOORE’S FEDERAL PRACTICE

7 0.62[2.-2], at 664-65 (1977). Similarly, jurispruden-

tial concerns, such as those embodied in the exhaustion

doctrine, do not bear on whether a court has jurisdiction

but only on whether it should exercise that jurisdiction.

This conclusion finds support in this court’s opinion

in Wolf Corp. v. SEC, 317 F.2d 139 (D.C. Cir. 1963)

(Burger, J.). The plaintiff in that case had asked the

district court to enjoin the Securities and Exchange Com-

mission from holding a stop-order hearing. The district

court dismissed the case not for want of jurisdiction but

for failure to state a claim upon which relief could be

ider disqualification claims. See 18 C. WRIGHT & A.

aie p themes PRACTICE AND PROCEDURE: JURISDICTION

§ 8558, at 887 (1975) ; 9 Moore’s FEDERAL PRACTICE { 110.13

[10], at 187-88 (2d ed. 1975).

A-10

granted. Jd. at 141. On appeal, this court affirmed be-

cause it believed the plaintiff should have exhausted its

remedies before the agency first. In the process, the

court stated expressly that the plaintiff’s allegation of a

due process violation was sufficient to invoke the district

court’s jurisdiction under 28 U.S.C. § 1837. It then

agreed that dismissal for failure to state a valid claim,

rather than for want of jurisdiction, was appropriate. Id.

Moreover, like the case before us, Wolf arose under a

procedural regime that provided for review of final

agency decisions in the courts of appeals, not the district

courts. Compare 15 U.S.C. § 77i (1976) (review of SEC

orders), cited in Wolf Corp. v. SEC, 317 F.2d at 141

n.6, with 15 U.S.C. § 57a(e) (1) (A) (1976) (review of

FTC rules). Thus, where the final agency decision may

be reviewed does not by itself determine the court in

which a plaintiff seeking interlocutory relief may pursue

his cause of action.

It!

The Commission attacks the substance of the district

court’s decision on two grounds. First, it insists that the

standard for disqualification of an administrative deci-

sionmaker in rulemaking differs from the standard in

adjudication. The Commission’s view rests on the differ-

ent purposes of rulemaking and adjudication and on the

long-standing rule that due process requirements are not

the same in the two contexts. Second, the Commission

asserts that under any disqualification standard, Chair-

man Pertschuk cannot be found to have prejudged issues

in contravention of due process.

The appellees respond with two contentions. First,

they support the district court’s conclusion that Cinderella

Career & Finishing Schools, Inc. v. FTC, 425 F.2d 588

(D.C. Cir. 1970), applies to Commission rulemaking

under section 18 of the FTC Act. Although Cinderella

involved an adjudication, the appellees claim that the

A-1l

existence of procedures in section 18 rulemaking pro-

ceedings that are not required in informal notice-and-

comment rulemaking under section 553 of the Adminis-

trative Procedure Act, 5 U.S.C. § 553 (1976) ,’° mandates

application of the standard set out in that case. Second,

they argue that Chairman Pertschuk’s statements indi-

cate prejudgment sufficient to bar him from further par-

ticipation in the children’s advertising proceeding.

We are, therefore, called upon to resolve two ques-

tions: (1) What is the appropriate standard by which

to decide prejudgment in the context of a section 18

proceeding? (2) Has Chairman Pertschuk made state-

ments that demonstrate prejudgment under that stand-

ard? :

Before we examine either the structure of section 18

or the content of Pertschuk’s statements, we review our

decision in Cinderella Career & Finishing Schools, Inc.

v. FTC. In Cinderella, we held that the standard for

disqualifying an administrator in an adjudicatory pro-

ceeding because of prejudgment is whether “‘a disin-

terested observer may conclude that [the decisionmaker]

has in some measure adjudged the facts as well as the

law of a particular case in advance of hearing it.’” 425

F.2d at 591 (quoting Gilligan, Will & Co. v. SEC, 267

F.2d 461, 469 (2d Cir.), cert. denied, 361 U.S. 896

(1959)). See Texaco, Inc. v. FTC, 336 F.2d 754, 760

(D.C. Cir. 1964), vacated and remanded per curiam on

other grounds, 381 U.S. 789 (1965). See also Kennecott

Copper Corp. v. FTC, 467 F.2d 67, 80 (10th Cir. 1972),

cert. denied, 416 U.S. 909 (1974). This standard guar-

antees that the adjudicative hearing of a person facing

administrative prosecution for past behavior is before a

# See note 35 infra.

A-12

decisionmaker who has not prejudged facts concerning

the events under review.

The facts of the Cinderella case illustrate application

of the standard. The Commission charged that Cinderella

Career College and Finishing Schools, Inc. (Cinderella)

made false representations in its advertising and en-

gaged in deceptive practices in contravention of section

5 of the FTC Act, 15 U.S.C. § 45 (1976). For example,

the Commission alleged that Cinderella advertised

“courses of instruction which qualify students to become

airline stewardesses” and that its graduates were “quali-

fied to assume executive positions.” 425 F.2d at 584 n.1.

An administrative law judge ruled that the Commission

had failed to prove that the acts and practices violated

the FTC Act, and he dismissed the complaint. Jd. at 584

n.2. Complaint counsel appealed the administrative law

judge’s decision to the full Commission.

While the appeal was pending before the Commission,

Chairman Paul Rand Dixon spoke at the Government

Relations Workshop of the National Newspaper Associa-

tion and stated:

What kind of vigor can a reputable newspaper ex-

hibit? . .. What standards are maintained on adver-

tising acceptance? . .. What about carrying ads that

offer college educations in five weeks, . . . or becom-

ing an airline’s hostess by attending a charm school?

. . . Granted that newspapers are not in the adver-

tising policing business, their advertising managers

are savvy enough to smell deception when the odor

is strong enough.

4 Section 5(a) (1) provides that “[{u]nfair methods of com-

petition in or affecting commerce, and unfair or deceptive

acts or practices in or affecting commerce, are declared un-

lawful.” 15 U.S.C. § 45(a) (1) (1976). The Magnuson-Moss

Act amended §5 by adding the words “or affecting.” Pub.

L. No. 98-6387, § 201(a), 88 Stat. 2198 (1975).

A-13

Id. at 589-90. Six months later, the Commission, with -

Chairman Dixon participating, found that Cinderella

neither awarded nor was capable of awarding academic

degrees, and that it offered no course of instruction that

would qualify students as airline stewardesses. School

Services, Inc., 74 F.T.C. 920, 1022, 1031, 1035 (1968).

The Commission concluded that these and other repre-

sentations were false and misleading in violation of sec-

tion 5 of the FTC Act and ordered Cinderella to cease

and desist from such practices. Jd. at 1040-42.

On review, we found that Chairman Dixon’s remarks

gave “the appearance that he ha[d] already prejudged

the case and that the ultimate determination of the mer-

its [would] move in predestined grooves.” 425 F.2d at

590. Accordingly, we held that Chairman Dixon’s par-

ticipation in the proceeding required reversal and remand

of the Commission’s order.

The district court in the case now before us held that

“the standard of conduct delineated in Cinderella” gov-

erns agency decisionmakers participating in a section 18

proceeding. A. at 107. Section 18 authorizes the Com-

mission to promulgate rules designed to “define with

specificity acts or practices which are unfair or decep-

tive.” * Basically, it allows the Commission to enforce

the broad command of section 5 of the FTC Act, which

declares “unfair or deceptive acts or practices in or af-

fecting commerce . . . unlawful.” '* The district court

ruled that a section 18 proceeding, notwithstanding the

appellation rulemaking, “is neither wholly legislative nor

wholly adjudicative.” According to the district couit, the

“adjudicative aspects” of the proceeding render Cinde-

rella applicable. Id. at 106.

1215 U.S.C. § 57a(a) (1) (1976).

18 15 U.S.C. § 45 (a) (1) (1976).

A-14

The appellees urge us to uphold the district court’s

analysis of section 18. They emphasize two allegedly

“adjudicatory aspects” of a section 18 proceeding: (1)

interested persons are entitled to limited cross-examina-

tion of those who testify to disputed issues of material

fact, see 15 U.S.C. § 57a(c) (1) (B) (1976), and (2) a

reviewing court must set aside any rule not supported

by substantial evidence in the rulemaking record taken

as a whole, see 15 U.S.C. § 57a(e) (3) (A) (1976).

The district court’s characterization of section 18 rule-

making as a “hybrid” or quasi-adjudicative proceeding,

A. at 106, ignores the clear scheme of the APA. Admin-

istrative action pursuant to the APA is either adjudica-

tion or rulemaking. The two processes differ funda-

mentally in purpose and focus:

14 The appellees also argue that

the principal characteristic of adjudicative proceedings

which necessitates the Cinderella prejudgment standard

is the requirement (which traditionally has applied to

judges but not to legislators) that the ultimate decision

be based upon record evidence. This, of course, is one of

the most significant characteristics which the Commis-

sion’s adjudicative proceedings and its Section 18 trade

regulation rulemaking proceedings have in common.

Brief of Intervening Plaintiff-Appellee Kellogg Company at

38. The appellees’ attempt to equate rulemaking with adju-

dication on the basis of a record requirement would have

more force, however, if §18 demanded rulemaking deci-

sions to be based on a closed record, as are adjudicatory

determinations. See 5 U.S.C. §556(e) (1976). Section 18, in

fact, provides that for purposes of judicial review the “rule-

making record” includes “any .. . information which the

Commission considers relevant to such rule.” 15 U.S.C.

§ 57a(e)(1)(B) (1976). Section 18 thus does not prohibit

reliance on material not adduced during the rulemaking pro-

cedures; it simply requires the Commission to acknowl

that reliance. =

A-15

The object of the rule making proceeding is the im-

plementation or prescription of law or policy for the

future, rather than the evaluation of a respondent’s

past conduct. Typically, the issues relate not to the

evidentiary facts, as to which the veracity and de-

meanor of witnesses would often be important, but

rather to the policy-making conclusions to be drawn

from the facts. . . . Conversely, adjudication is con-

cerned with the determination of past and present

rights and liabilities. Normally, there is involved a

decision as to whether past conduct was unlawful,

so that the proceeding is characterized by an accusa-

tory flavor and may result in disciplinary action.

ATTORNEY GENERAL’S MANUAL ON THE ADMINISTRATIVE

PROCEDURE ACT 14 (1947). See United States v. Flor-

ida East Coast Railway, 410 U.S. 224, 244-46 (1973).

Adjudication and rulemaking may be conducted pur-

suant to either informal or formal procedures.’* Informal

rulemaking requires the administrative agency to provide

“interested persons an opportunity to participate in the

rule making through submission of written data, views,

or arguments.” 5 U.S.C. §553(c). Under section 706

(2) (A), reviewing courts are required to uphold in-

formal rulemaking decisions unless those decisions are

“arbitrary, capricious, an abuse of discretion, or other-

wise not in accordance with law.” 5 U.S.C. § 706(2) (A)

(1976).

18 The ATTORNEY GENERAL’S MANUAL ON THE ADMINISTRA-

TIVE PROCEDURE ACT is a contemporaneous interpretation of

the Administrative Procedure Act. Because of “the role

played by the Department of Justice in drafting the legisla-

tion,” it deserves some deference. Vermont Yankee Nuclear

Power Corp. v. NRDC, 435 U.S. 519, 546 (1978) (footnote

omitted).

16 See Pedersen, Formal Records and Informal Rulemaking,

85 YALE L.J. 38, 40 n.14 (1975).

A-16

Formal rulemaking is invoked when “rules are required

by statute to be made on the record after opportunity

for an agency hearing.” 5 U.S.C. § 553(c). Under sec-

tions 556 and 557 of the APA, 5 U.S.C. $§ 556-557

(1976), formal rulemaking must include a trial-type

hearing at which a “party is entitled to present his case

or defense or oral or documentary evidence, to submit

rebuttal evidence, and to conduct such cross-examination

as may be required for a full and true disclosure of the

facts.” 5 U.S.C. § 556(d). Section 706(2)(E) governs

judicial review of formal rulemaking and requires a

court to set aside a rule that is “unsupported by substan-

tial evidence.” 5 U.S.C. § 706(2) (E).

Formal adjudication is governed by section 554 of the

APA and arises in “every case of adjudication required

by statute to be determined on the record after oppor-

tunity for an agency hearing.” 5 U.S.C. § 554(a)

(1976). Section 554 incorporates the procedural require-

ments of sections 556 and 557 and affords parties to a

formal adjudication the right to present evidence and to

conduct cross-examination. 5 U.S.C. § 554(c)-(d). Judi-

cial review of formal adjudication, like that of formal

rulemaking, is governed by the substantial evidence

standard.”

The foregoing descriptions merely outline the basic

parameters of administrative action. Congress has, in

the Magnuson-Moss Warranty—Federal Trade Commis-

sion Improvement (Magnuson-Moss) Act § 202(a), 15

17 To complete the symmetry, informal adjudication occurs

when an agency determines the rights or liabilities of a party

in a proceeding to which §554 does not apply. See, e.g.,

Camp v. Pitts, 411 U.S. 188 (1973) (per curiam) ; Aircraft

Owners & Pilots Ass’n v. FAA, 600 F.2d 965, 969-70 (D.C.

Cir. 1979).

A-17

U.S.C. § 57a (1976), and elsewhere,'* enacted specific

statutory rulemaking provisions that require more proce-

dures than those of section 553 but less than the full

procedures required under sections 556 and 557.° The

presence of procedures not mandated by section 553, how-

ever, does not, as the appellees urge, convert rulemaking

into quasi-adjudication. The appellees err by focusing

on the details of administrative process rather than the

nature of administrative action.

Our decision in Hercules, Inc. v. EPA, 598 F.2d 91

(D.C. Cir. 1978), illustrates that the difference between

rulemaking and adjudication is not affected by varying

procedural practices. In that case, although we reviewed

decisions of the Environmental Protection Agency under

the substantial evidence standard, id. at 106; see Envi-

ronmental Defense Fund v. EPA (PCBs), 598 F.2d 62,

82-83 (D.C. Cir. 1978), we refused to find that the

agency proceeding was adjudicatory. The Environmental

Protection Agency was promulgating policy-based stand-

ards of general import and, thus, was engaged in rule-

making. Similarly, the Commission’s children’s advertis-

ing inquiry is designed to determine whether certain acts

or practices will, in the future, be considered to contra-

vene the FTC Act. The proceeding is not adjudication

or quasi-adjudication. It is a clear exercise of the Com-

mission’s rulemaking authority.

18 See, e.g., Consumer Product Safety Act §9, 15 U.S.C.

§ 2058 (1976) ; Toxic Substances Control Act § 6, 15 U.S.C.

§ 2605 (1976) ; Occupational Safety and Health Act of 1970,

§ 6, 29 U.S.C. § 655 (1976) ; Department of Energy Organi-

zation Act § 501, 42 U.S.C. § 7191 (Supp. I 1977) ; Clean Air

Act Amendments of 1977, § 305, 42 U.S.C. § 7607 (Supp. I

1977). See also 1 K. DAVIS, ADMINISTRATIVE LAW TREATISE

§6:9 (2d ed. 1978).

19 Section 18, for example, affords a more limited right of

cross-examination than § 556. Compare 15 U.S.C. § 57a(c)

with 5 U.S.C. §556(d). See H.R. Rzp. No. 98-1606, 93d

Cong., 2d Sess. 38 (1974) (Conference Report).

A-18

C

The appellees also argue that we must apply Cinde-

rella because it involves a factual prejudgment similar

to the one now before us. In Cinderella, Chairman Dixon

made statements that reflected prejudgment that Cinde-

rella Career & Finishing School, Inc. had engaged in

certain acts. In this case, the appellees accuse Chairman

Pertschuk of prejudging issues of material fact in the

children’s television proceeding. We find that the appel-

lees’ argument belies a misunderstanding of the factual

basis of rules.

The factual predicate of a rulemaking decision sub-

stantially differs in nature and in use from the factual

predicate of an adjudicatory decision. The factual predi-

cate of adjudication depends on ascertainment of “facts

concerning the immediate parties—who did what, where,

when, how, and with what motive or intent.” 2 K. DAVIS,

ADMINISTRATIVE LAW TREATISE § 15.08, at 353 (1958).

By contrast, the nature of legislative fact is ordinarily

general, without reference to specific parties. Adjudica-

tive and legislative facts are also used differently :

[A] djudicative facts are those to which the law is

applied in the process of adjudication. They are the

facts that normally go to the jury in a jury case.

. . . Legislative facts are the facts which help the

tribunal determine the content of law and of policy

and help the tribunal to exercise its judgment or

re in determining what course of action to

e.

Id.® Thus, legislative facts are crucial to the prediction

* See Davis, Judicial Notice, 55 CoLum. L. REV. 945, 952-

59 (1955) ; Davis, An Approach to Problems of Evidence in

ri “wo Process, 55 Harv. L. REV. 364, 404-07

The distinction between legislative and adjudicative facts

has been widely accepted both within and without this cir-

A-19

of future events and to the evaluation of certain risks,

both of which are inherent in administrative policymak-

ing.

The case law demonstrates that the factual component

of generalized rulemaking cannot be severed from the

pure policy aspects of the rule.** FCC v. National Citi-

zens Committee for Broadcasting, 436 U.S. 775 (1978),

is illustrative. There, the Supreme Court reviewed the

Federal Communication Commission’s decision to order

prospective divestiture in cases of newspaper-television

cross-ownership. The agency had based its decision on

an assessment of the relevant market conditions. The

Court, upholding the administrative action, stated that

“complete factual support in the record for the [Federal

Communication] Commission’s judgment or prediction is

not possible or required; ‘a forecast of the direction in

which future public interest lies necessarily involves de-

ductions based on the expert knowledge of the agency.’ ”

Id. at 814 (quoting FPC v. Transcontinental Gas Pipe

cuit. See, e.g., Drummond v. Fulton County Dep’t of Family

& Children’s Servs., 563 F.2d 1200, 1210 (5th Cir. 1977) (en

banc) ; Alaska Airlines, Inc. v. CAB, 545 F.2d 194, 200 (D.C.

Cir. 1976) ; Zamora v. Immigration & Naturalization Serv.,

534 F.2d 1055, 1062 & n4 (2d Cir. 1976); Independent

Bankers Ass’n v. Federal Reserve Sys., 516 F.2d 1206, 1219-

22 (D.C. Cir. 1975) ; Washington Util. & Transp. Comm’n v.

FCC, 518 F.2d 1142, 1165 (9th Cir.), cert. denied, 423 U.S.

886 (1975); American Bancorporation v. Federal Reserve

Sys., 509 F.2d 29, 36-87 (8th Cir. 1974) ; Thompson v. Wash-

ington, 497 F.2d 626, 688 n.4 (D.C. Cir. 1973) ; SEC v. Frank,

888 F.2d 486, 491-92 (2d Cir. 1968) ; Marshall v. Sawyer, 365

F.2d 105, 111 (9th Cir. 1966) ; Dayco Corp. v. FTC, 362 F.2d

180, 186 (6th Cir. 1966); American Airlines, Inc. v. CAB,

859 F.2d 624, 688 (D.C. Cir. 1966) (en banc).

21 See also Ethyl Corp. v. EPA, 541 F.2d 1, 37-38, 51 n.112

(D.C. Cir.) (en banc), cert. denied, 426 U.S. 941 (1976) ;

Industrial Union Dep’t, AFL-CIO v. Hodgson, 499 F.2d 467,

475 (D.C. Cir. 1974).

A-20

Line Corp., 365 U.S. 1, 29 (1961)). See American Air-

lines, Inc. v. CAB, 359 F.2d 624 (D.C. Cir. 1966) (en

banc) .”

Because legislative facts combine empirical observation

with application of administrative expertise to reach gen-

eralized conclusions, they need not be developed through

evidentiary hearings. See American Airlines, Inc. v.

CAB, 359 F.2d at 632-33.% To the contrary, however,

“(where adjudicative, rather than legislative, facts are

involved, the parties must be afforded a hearing to allow

them an opportunity to meet and to present evidence.”

Alaska Airlines, Inc. v. CAB, 545 F.2d 194, 200 (D.C.

Cir. 1976) (footnote omitted). This distinction has been

established in judicial, as well as administrative, proc-

esses,

22In American Airlines, we reviewed a Civil Aeronautics

Board (Board) decision that allowed all-cargo airlines—

but not passenger airlines—to offer reserved cargo space at

reduced rates. The Board had designed the reserved space

service in an effort to increase the commercial use of air-

lines. The Board feared that the success of the program would

be threatened, and the financial strength of all-cargo airlines

weakened, if passenger airlines were to offer the service as

well. Further, the Board assumed that the financial effect of

the new program on all-passenger airlines would not be sig-

nificant. 359 F.2d at 626-27. The court deemed this last

finding a “ ‘legislative’” fact and rejected an attack on the

Board’s position explaining: “It is the kind of issue involving

expert opinions and forecasts, which cannot be decisively

resolved by testimony. It is the kind of issue where a month

of experience will be worth a year of hearings.” Jd. at 633.

23 See also Independent Bankers Ass’n v. Federal Reserve

Sys., 516 F.2d 1206, 1219-22 (D.C. Cir. 1975). See generally

Zamora v. Immigration & Naturalization Serv., 534 F.2d

1055, 1062 (2d Cir. 1976).

*% The Advisory Committee for the Federal Rules of Evi-

dence embraced the general rule that legislative facts need

not be developed through evidentiary hearings. Rule 201

A-21

Evidentiary hearings, although nof necessary to deter-

mine legislative facts, nevertheless may be helpful in

certain circumstances. For example, Congress, when it

enacted the Magnuson-Moss Act, recognized that special

circumstances might warrant the use of evidentiary pro-

ceedings in determining legislative facts. Under section

of the Federal Rules of Evidence governs judicial notice of

adjudicative facts. No evidentiary rule refers to judicial

notice of legislative facts because, as the Advisory Com-

mittee noted, “any limitation in the form of indisputability,

any formal requirements of notice other than those already

inherent in affording opportunity to hear and be heard and

exchanging briefs, and any requirement of formal findings

at any level” are inappropriate to judicial access to legislative

facts. Fep. R. Evi. 201 note.

Courts consistently have considered legislative facts that

were not the product of trial-type proceedings. In Muller v.

Oregon, 208 U.S. 412, 421-22 (1908), for example, the Su-

preme Court took “judicial cognizance of all matters of gen-

eral knowledge” in upholding a state law that prohibited

women from working more than ten hours a day in a laundry.

The Court principally relied upon a brief, filed by Louis

Brandeis, that set forth support for the propor'tion that long

working hours were physically dangerous .. women. For

other examples of judicial notice of legislative fact, see Paris

Adult Theatre I v. Slaton, 413 U.S. 49, 68 (1978) (“a sensi-

tive, key relationship of human existence, central to family

life, community welfare, and the development of the human

personality, can be debased and distorted by crass commercial

exploitation of sex”) ; Frontiero v. Richardson, 411 U.S. 677,

686 (1973) (“women still face pervasive, although at times .

more subtle, discrimination in our educational institutions, in

the job market and, perhaps most conspicuously, in the politi-

cal arena’’) ; Javins v. First Nat’] Realty Corp., 428 F.2d 1071,

1078-80 (D.C. Cir.) (“Tenants have very little leverage to

enforce demands for better housing. . . . The increasingly

severe shortage of adequate housing further increases the

landlord’s bargaining power and escalates the need for main-

taining and improving the existing stock.”) (footnote

omitted), cert. denied, 400 U.S. 925 (1970).

A-22

18(c) (1) (B)** and section 18(c) (2) (B),** the Commis-

sion must conduct a hearing, with a limited right of

cross-examination, when it resolves disputed issues of

material fact. The legislative history of the Magnuson-

Moss Act states that “(t]he only disputed issues of mate-

rial fact to be determined for resolution by the Commis-

sion are those issues characterized as issues of specific

fact in contrast to legislative fact.” H.R. REP. No. 93-

1606, 98d Cong., 2d Sess. 33 (1974) (Conference Report).

Although neither the Conference Report nor subsequent

congressional debate amplify the term “specific fact,” its

genesis can be traced to a recommendation of the Admin-

istrative Conference of the United States (ACUS).?

*5 Section 18(c) (1) (B) provides that

an interested person is entitled . . . if the Commission

determines that there are disputed issues of material fact

it is necessary to resolve, to present rebuttal submissions

and to conduct (or have conducted under paragraph

(2) (B)) such cross-examination of persons as the Com-

mission determines (i) to be appropriate, and (ii) to be

required for a full and true disclosure with respect to

such issues.

15 U.S.C. § 57a(c) (1) (B).

6 Section 18(c) (2) (B) provides that the Commission may

prescribe rules that include

requirements that any cross-examination to which a per-

son may be entitled under paragraph (1) be conducted

by the Commission on behalf of that person in such

manner as the Commission determines (i) to be ap-

propriate, and (ii) to be required for a full and true

disclosure with respect to disputed issues of material fact.

15 U.S.C. § 57a(c) (2) (B).

** The Administrative Conference of the United States

(ACUS) is empowere! to study administrative procedure

and to make recommendations about administrative pro-

cedure to the President, the Congress, or the Judicial Confer-

ence of the United States. 5 U.S.C. §574(1) (1976). Congress

specifically asked ACUS to study and to evaluate the pro-

A-23

rior to congressional action on the Magnuson-Moss Act,

ACUS alan ta Recommendation No. 72-5, which sug-

gested that Congress should not require _trial-type pro-

cedures “for making rules of general applicability, except

that it may sometimes appropriately require such pro-

cedures for resolving issues of specific fact.” 1 C.F.R.

§ 305.72-5 (1974). In a letter dated July 27, 1973, then-

ACUS Chairman Antonin Scalia answered Congressman

Moss’s request for a definition of the term “specific fact”:

Conference Recommendation 72-5 is addressed ex-

clusively to agency rulemaking of general applica-

bility. In such a proceeding, almost by definition,

adjudicative facts are not at issue, and the agency

should ordinarily be free to, and ordinarily would,

proceed by the route of written comments, supple-

mented, perhaps, by a legislative-type hearing. Yet

there may arise occasionally in such rulemaking pro-

ceedings factual issues which, though not adjudica-

tive, nevertheless justify exploration in a trial-type

format—because they are sufficiently narrow in focus

and sufficiently material to the outcome of the pro-

ceeding to make it reasonable and useful for the

agency to resort to trial-type procedure to resolve

them. These are what the Recommendation refers

to as issues of specific fact.”

A review of this and subsequent ACUS correspondence

demonstrates that the term “specific fact” refers to a

category of legislative fact, the resolution of which may

be aided by the type of adversarial procedures inherent

in an evidentiary proceeding with limited cross-examina-

tion. See Citizens for Allegan County v. FPC, 414 F.2d

edures of § 18. See Magnuson-Moss Act, Pub. L. No. 93-637,

§ 202(d), A Stat. 2198 (1975), as amended by Act of Nov. 1,

1978, Pub. L. No. 95-558, 92 Stat. 2130, reprinted in 15

‘U.S.C.A. § 57a note (West Supp. 1979).

28 Appellants’ Supplemental Memorandum, Attachment 8,

2.

A-24

1125, 1129 (D.C. Cir. 1969). Nothing in the legislative

history or background of section 18 suggests, however,

that Congress believed that the use of evidentiary hear-

ings transformed the nature of the proceedings from

rulemaking to adjudication or altered the factual predi-

cate of rulemaking from legislative to adjudicative fact.

29 While the House version of the Magnuson-Moss Act was

pending, Chairman Scalia commented upon the bill, which

at that time allowed cross-examination “as may be required

for a full and true disclosure of all disputed issues of material

fact.” See H.R. REP. No. 93-1107, 98d Cong., 2d Sess. 18

(1974). Scalia suggested that the proposed House provision

would be unworkable because it would routinely require use

of “a procedural technique designed for the resolution of

particularized factual disputes” in the formulation of gen-

erally applicable rulemaking. Appellants’ Supplemental Memo-

randum, Attachment 9, at 1. Scalia noted, however, that evi-

dentiary proceedings might be appropriate for the resolution

of “specific facts.” Jd. at 2. Chairman Scalia’s successor,

Robert Anthony, repeated these views in a subsequent letter

to Congressman Staggers, a member of the Conference Com-

Te Appellants’ Supplemental Memorandum, Attachment

The Conference Committee changed §18 to allow cross-

examination if there “are disputed issues of material fact,

and ... it is necessary to resolve such issues.” See H.R.

REP. No. 93-1606, supra note 19, at 33. As we previously

noted, the Conference Report defined material issues of dis-

puted fact as specific fact. See pp. 23-24 supra. After the final

version of the Magnuson-Moss Act passed both houses of

Congress, but prior to presidential action, the Office of

Management and Budget requested ACUS’s comments on

the bill. ACUS Executive Secretary Richard K. Berg stated:

If the courts look to the Conference report as an authori-

tative interpretation of the statutory phrase “disputed

issues of fact,” the problem. of the Commission bogging

down in excessive trial-type procedures is greatly reduced.

Since consideration of many, if not most proposed rules

of general applicability involve exclusively questions

of legislative fact, the Commission would often be able to

dispense with cross-examination entirely.

Appellants’ Supplemental Memorandum, Attachment 11, at 2.

A-25

Accordingly, the appellees’ contention that the Cinderella

standard must be applied to section 18 rulemaking be-

cause it invokes the same type of factual judgments as

Commission adjudication is simply incorrect.

D

Our conclusion that neither the procedures nor the

factual predicate of section 18 rulemaking converts it

into adjudication is supported by United States v. Florida

East Coast Railway, 410 U.S. 224 (1973). In that

case, the Supreme Court held, over the protests of two

dissenting Justices, that an Interstate Commerce Com-

mission ratemaking proceeding was rulemaking. The

dissent maintained that the rate order was “ad)udicatory

in the sense that [it] determine[d] the measure of finan-

cial responsibility of one road for its use of the rolling

stock of another road.” Id. at 252 (Douglas, J., joined

by Stewart, J., dissenting). The dissent emphasized that

the agency decision was based on “evidential facts,” id.

at 254, and that it could “have devastating effects on a

particular [railroad] line,” id. at 256. Nevertheless, the

Court found that the proceeding was rulemaking because

the agency final order was applicable to all common car-

riers rather than any particular railroad. The Court

explained that the agency had predicated its decision on

“factual inferences . . . used in the formulation of a

basically legislative-type judgment, for prospective appli-

cation only, rather than in adjudicating a particular

set of facts.” Id. at 246.

The same analysis applies to section 18 rulemaking.

A section 18 proceeding is directed to all members of an

affected industry and is based on legislative fact. Even

when evidentiary procedures are employed in the formu-

lation of specific fact, the product of those procedures is

“used in the formulation of a basically legislative-type

judgment.” Jd. Although we recognize that the line

A-26

between rulemaking and adjudication “may not always

be a bright one,” id. at 245, we have no doubt that sec-

tion 18 proceedings fall clearly on the rulemaking side

of the “recognized distinction in administrative law be-

tween proceedings for the purpose of promulgating policy-

type rules . . . on one hand, and proceedings designed to

adjudicate disputed facts in particular cases on the

other.” Jd. Accordingly, we now decide the standard of

disqualification applicable in a section 18 rulemaking

proceeding.

IV

A

Had Congress amended section 5 of the FTC Act to

declare certain types of children’s advertising unfair or

deceptive, we would barely pause to consider a due

process challenge. No court to our knowledge has im-

posed procedural requirements upon a legislature before

it may act. Indeed, any suggestion that congressmen may

not prejudge factual and policy issues is fanciful. A

legislator must have the ability to exchange views with

constituents and to suggest public policy that is depend:

ent upon factual assumptions. Individual interests im-

pinged upon by the legislative process are protected, as

Justice Holmes wrote, “in the only way that they can

be in a complex society, by [the individual’s] power,

immediate or remote, over those who make the rule.”

Bi-Metallic Investment Co. v. State Board of Equaliza-

tion, 239 U.S. 441, 445 (1915).

Congress chose, however, to delegate its power to pro-

scribe unfair or deceptive acts or practices to the Com-

mission because “there were too many unfair practices

for it to define.” S. REP. No. 597, 63d Cong., 2d Sess.

13 (1914). In determining the due process standards

%© Rulemaking under the APA similarly embodies the dele-

gation of legislative authority to administrative agencies.

During debate preceding passage of the APA, Representative

A-27

applicable in a section 18 proceeding, we are guided by

its nature as rulemaking." When a proceeding is classi-

fied as rulemaking, due process ordinarily does not de-

mand procedures more rigorous than those provided by

Congress. See Vermont Yankee Nuclear Power Corp. v.

NRDC, 435 U.S. 519, 524 & n.1, 542 & n.16 (1978).

Congress is under no requirement to hold an evidentiary

hearing prior to its adoption of legislation, and “Con-

gress need not make that requirement when it delegates

the task to an administrative agency.” Bowles v. Willing-

ham, 321 U.S. 503, 519 (1944) (citing Bi-Metallic In-

vestment Co. v. State Board of Equalization, 239 US.

441 (1915)). Accordingly, we must apply a disqualifica-

tion standard that is consistent with the structure and

purposes of section 18.

Congress regarded the authority to promulgate rules

pursuant to section 18 as an “important power by which

the Commission can fairly and efficiently pursue its im-

portant statutory mission.” H.R. Rep. No. 93-1606,

Walters, chairman of the subcommittee that reported ; the

APA to the House, see 92 Conc. REc. 5655 (1946), explained

that rulemaking encompasses

the legislative functions of administrative agencies, where

they issue general or particular regulations which in

form or effect are like the statutes of the Congress. tee

Congress—if it had the time, the staff, and the organiza-

tion—might itself prescribe these things. Because Con-

gress does not do so itself and yet desires that these things

be done, the legislative power to do them has been con-

ferred upon administrative officers or agencies.

Id. at 5648.

31 See Cafeteria & Restaurant Workers Local 478 v. Mc-

Elroy, 367 U.S. 886, 895 (1961) (“[t]he very nature of due

process negates any concept of inflexible procedures uni-

versally applicable to every imaginable situation”).

A-28

supra at 31. Through rulemaking, the Commission may

allocate resources more efficiently, act with greater speed,

and give specific notice to industries of the scope of sec-

tion 5. See National Petroleum Refiners Association v.

FTC, 482 F.2d 672, 690-91 (D.C. Cir. 1973), cert. denied,

415 U.S. 951 (1974).% More important, rulemaking

*2 The Conference Report explained that “ [b]ecause the

prohibition of section 5 of the Act is so broad, trade regula-

tion rules are needed to define with specificity conduct that

violates the statute and to establish requirements to prevent

unlawful conduct.” H.R. REP. No. 93-1606, supra note 19, at

31.

’* Two commentators have explained the practical signifi-

cance of the Commission’s power to adopt legislative rules:

Ordinarily, when the FTC encounters a business practice

it considers deceptive, it issues a complaint against the

responsible company. If the recipient is not prepared to

change its practices, the matter is set for a trial-type

hearing at wl ich the Commission bears the burden of

showing that the respondent’s practices have deceived,

or are likely to deceive, a substantial number of pur-

chasers. Counsel for the Commission customarily must

introduce evidence sufficient to support the complaint’s

theory of deception. In the Petroleum Refiners context,

this would mean that Commission counsel would attempt

to show the wide range of octane levels among marketed

gasolines, general consumer ignorance of the ratings of

specific brands, the waste of purchasing more octane

than one’s car engine requires, and, probably, the ten-

dency of consumers, in the absence of information, to

purchase more octane than their cars require. On each

of these issues the respondent would be entitled to pre-

sent evidence and cross-examine witnesses. Following

the evidentiary hearing the Commission would make find-

ings of fact and decide whether the facts found demon-

strated a violation. If the Commission concluded that

they did, its decision would be subject to limited court

review. Probably the most important feature of this

process, from the respondent’s viewpoint, is the assur-

ance of an opportunity to present his own evidence and

\

A-29

i nati i that

allows an agency to gather information and views

might be irrelevant to the narrowly focused concerns of

adjudication:

ilizing rule-making procedures opens up the

eee sntter teaaiatled to a broad range

of criticisms, advice and data that is ordinarily less

likely to be forthcoming in adjudication. Moreover,

the availability of notice before promulgation and

wide public participation in rule-making avoids the

problem of singling out a single defendant among a

group of competitors for initial imposition of a new

and inevitably costly legal obligation.

Id. at 683.

In determining the type of rulemaking procedures to

be employed by the Commission, Congress sought ‘to

avoid rigid or cumbersome procedures that could involve

undue costs and delay.” H.R. REP. No. 93-1606, supra

cross-examine adverse witnesses on the central factual

issues in the case.

What procedure may the Commission follow now that

its aotharke to adopt the octane-posting rule has been

upheld? The basic procedural steps remain —

unchanged, but the issues to be litigated are narrow

significantly. If any gasoline distributors fail to comply

with the rule, the Commission must initiate the com-

plaint, hearing, decision, ned court Scrat gues pre-

ivously outlined against one. How L

the Commission’s rule is valid, it need only show that the

respondent has failed to comply with the rule—not that

his omission of octane ratings is deceptive under § 5.

The Commission will have established the necessary fac-

tual predicate for its judgment—that such omission is

deceptive—in the original rulemaking proceeding. The

respondent may of course present evidence and cross-

examine on the issue of whether the required postings

were made, but he will not be allowed to relitigate the

factual premises underlying the Commission’s rule.

. MasHaw & R. Meret, THE AMERICAN PuBLIC LAW

E..- 247-48 (1975). See United States v. Storer Broadcast-

ing Co., 851 U.S. 192, 201-08 (1956).

A-30

at 33. To this end, Congress gave the Commission auth-

ority to limit rebuttal and cross-examination. In so

acting, Congress heeded the advice of ACUS, which, when

asked to comment upon the House proposal, warned that

requiring “trial-type procedures ... [in] rulemaking of

general applicability [may] produce a virtual paralysis

of the administrative process.” *

Although Congress refused to subject section 18 proceed-

ings to formal rulemaking requirements, it did order use

of procedures not required in informal rulemaking under

the APA.* Congress intended these additional proceed-

* Appellants’ Supplemental Memorandum, Attachment 11,

at 2. Then-Chairman Robert Anthony, in a letter to Congress-

man Staggers, explained:

The Food and Drug Administration is required to use

trial-type techniques for much of its general rulemaking

pertaining to standards for food products. No proceeding

subject to this requirement has been completed in less

than two years; two have taken more than ten years;

a hearing transcript of over 7,700 pages has been devoted

exclusively to the question whether peanut butter should

consist of 8714 percent or 90 percent peanuts.

Id.

Many recent commentators have echoed ACUS’s view that

full use of formal rulemaking provisions unnecessarily hamp-

ers the administrative process. See, e.g., 1 K. DAVIS, supra

note 18, §6:8; G. ROBINSON & E. GELLHORN, THE ADMINIS-

TRATIVE PROCESS 542 n.47 (1974) ; Hamilton, Rulemaking on

a Record by the Food and Drug Administration, 50 Tex. L.

REV. 1132, 1153-56 (1972).

35 The requirements imposed by § 18 that are not mandated

by § 553 of the APA include the following:

(1) The Commission must publish a “notice of proposed

rulemaking stating with particularity the reason for the

proposed rule.” 15 U.S.C. §57a(b) (1). Section 553(b) re-

quires issuance of a “[g]eneral notice of proposed rule mak-

ing” with certain exceptions. 5 U.S.C. § 553(b).

(2) The Commission must allow public comment and must

A-31

“make all such submissions publicly available.” 15 U.S.C.

§ 57(a) (2). Section 553 does not have an analogous publica-

tion requirement. 5 U.S.C. § 553(b).

(3) The Commission must conduct an informal hearing at

which at interested person is entitled “to present his position

orally or by documentary submissions (or both).” 15 U.S.C.

§57a(c)(1)(A). If the Commission determines disputed

issues of material fact exist, then such persons have such a

right to rebuttal and cross-examination as is (i) appropriate

and (ii) “required for a full and true disclosure with respect

to such issues.” 15 U.S.C. § 57a(ve) (1) (B). The Commission

is given the explicit, additional authority to “prescribe such

rules and make such rulings . . . as may tend to avoid unneces-

sary costs or delay,” including “reasonable time limits on each

interested person’s oral presentations.” 15 U.S.C. § 57a(c) (2).

Under appropriate conditions, the Commission may also limit

the representation of a group of persons who “have the same

or similar interests ... .” 15 U.S.C. § 57a(c) (8) (A).

Section 553(c) merely requires that “the agency shall give

interested persons an opportunity to participate in the rule

making through submission of written data, views, or argu-

ments with or without opportunity for oral presentation.” 5

U.S.C. § 553(c).

(4) The Commission must include in its statement of basis

and purpose that accompanies a rule:

(A) a statement as to the prevalence of the acts or

practices treated by the rule; (B) a statement as to

the manner and context in which such acts or practices

are unfair or deceptive; and (C) a statement as to the

economic effect of the rule, taking into account the effect

on small business and consumers.

15 U.S.C. §57a(d) (1). Section 553(c) requires an agency

only to issue a statement of basis and purpose. 5 U.S.C.

§ 553 (c).

(5) A reviewing court must set aside a Commission de-

cision “not suppoxted by substantial evidence in the rulemak-

ing record .. . taken as a whole.” 15 U.S.C. § 57a(e) (8) (A).

The rulemaking record consists of the rule, the statement of

basis and purpose, the transcript of the hearing, any written

submissions, and “any other information which the Commis-

sion considers relevant to [the] rule.” 15 U.S.C. § 57a(e)

(1) (B). A reviewing court must also set aside a rule when

A-32

ures “to improve the quality of information available to

the Commission,” H.R. Rep. No. 93-1606, supra at 33,

and to compel reexamination of the proposed rule in light

of the arguments adduced during the comment period.

Incorporation of this information into a rulemaking rec-

ord also allows a reviewing court to exercise meaningfu!

supervision over the Commission’s decision.

B

We never intended the Cinderella rule to apply to a

rulemaking procedure such as the one under review. The

Cinderella rule disqualifies a decisionmaker if “‘a dis-

interested observer may conclude that [he] has in some

measure adjudged the facts as well as the law of a parti-

cular case in advance of hearing it.’” 425 F.2d at 591

(quoting Gilligan, Will & Co. v. SEC, 267 F.2d at 469).

As we already have noted,” legislative facts adduced in

rulemaking partake of agency expertise, prediction, and

risk assessment. In Cinderella, the court was able to

cleave fact from law in deciding whether Chairman Dixon

had prejudged particular factual issues. In the rulemak-

ing context, however, the factual component of the policy

decision is not easily assessed in terms of an empirically

verifiable condition. Rulemaking involves the kind of

‘issues “where a month of experience will be worth a year

of hearings.” * Application of Cinderelia’s strict law-fact

the Commission’s rulings on rebuttal and cross-examination

have “precluded disclosure of disputed material facts...

necessary for fair determination by the Commission of the

rulemaking proceeding taken as a whole.” 15 U.S.C. § 57a(e)

(3). A court reviewing rulemaking conducted pursuant to

§ 553 will set aside an agency decision that is arbitrary

or capricious or “without observance of procedure required

by law.” 5 U.S.C. § 702(2) (A), (D).

36 See pp. 19-21 supra.

** American Airlines, Inc. v. CAB, 359 F.2d 624, 683 (D.C.

Cir. 1966) (en banc).

A-33

dichotomy would necessarily limit the ability of adminis-

trators to discuss policy questions.

The legitimate functions of a policymaker, unlike an

adjudicator, demand interchange and discussion about

important issues. We must not impose judicial roles upon

administrators when they perform functions very dif-

ferent from those of judges. As Professor Glen O. Robin-

son, a former member of the Federal Communications

Commission, has commented:

Although members of agencies such as the FCC cer-

tainly do perform significant judicial functions in

deciding individual cases, they perform even more

tasks of a legislative or an executive character. When

the FCC, for example, promulgated regulations bar-

ring common ownership of local newspapers and

broadcast stations, it performed a legislative task,

pure and simple. In reaching the decision, the Com-

mission was neither bound by, nor expected to con-

form to, the confining procedures or standards of a

court. Why then should the decisionmakers be

stamped from a judicial cast? Insofar as the agency

is delegated broad legislative powers and responsi-

bilities, would it not be at least as appropriate to

measure agency members against standards used to

evaluate legislators? Such standards would place

agency members on a better standing with respect

to judges and would create an entirely new frame

of reference for assessing agency performance. The

supremacy of carefully reasoned principle—the sup-

posed ideal of judicial decision—necessarily would

yield to the dictates of political compromise and

expediency, which are the accepted hallmarks of

legislative action. Correspondingly, the standard for

evaluating the composition of the agencies would

shift from an emphasis on professional training to

an emphasis on representativeness.

A-34

Robinson, The Federal Communications Commission: An

Essay on Regulatory Watchdogs, 64 Va. L. REv. 169,

185-86 (1978) (footnotes omitted) .*

The Cinderella view of a neutral and detached adjudi-

cator is simply an inapposite role model for an adminis-

trator who must translate broad statutory commands

into concrete social policies. If an agency official is to

88 See 1 SENATE COMM. ON Gov’T OPERATIONS, 95TH

CONG., 1sT SESs., STUDY ON FEDERAL REGULATIONS 156-61

(1978) (recommending that regulatory philosophy be a prin-

cipal factor in selection of administrators). As one commen-

tator has observed in a slightly different context:

Agencies are created to maintain or to restructure cer-

tain areas of private activity in light of expressed statu-

tory policies. Thus, unlike courts, agencies should be

positive actors, not passive adjudicators.

. . . [A]n agency should not apologize for being pre-

disposed to implementing the goals that Congress has set

for it. To call such an attitude “bias” . . . misses this

central point.

Pedersen, The Decline of Separation of Functions in Regula-

tory Agencies, 64 Va. L. REV. 991, 994 (1978).

*° The APA provisions governing adjudication accordingly

impose limitations on administrators not placed on rule-

makers. Section 554(d) prohibits ex parte contacts between

prosecutors and administrators within the same agency. 5

U.S.C. § 554(d). This separation-of-functions provision does

not apply in either informal or formal rulemaking. See Her-

cules, Inc. v. EPA, 598 F.2d 91, 124-25 (D.C. Cir. 1978). The

ATTORNEY GENERAL’S MANUAL ON THE ADMINISTRATIVE PRO-

CEDURE ACT 15 (1947) attributes this distinction to the dif-

ference between the roles of rulemakers and adjudicators:

Even in formal rule making proceedings subject to sec-

tions [556 and 557], the Act leaves the hearing officer

entirely free to consult with any other member of the

agency’s staff. In fact, the intermediate decision may be

made by the agency itself or by a responsible officer other

than the hearing officer. This reflects the fact that the

purpose of the rule making proceeding is to determine

A-35

be effective he must engage in debate and discussion

about the policy matters before him. As this court has

recognized before, “informal contacts between agencies

and the public are the ‘bread and butter’ of the process

of administration.” Home Box Office, Inc. v. FCC, 567

F.2d 9, 57 (D.C. Cir.) (per curiam), cert. denied, 434

U.S. 829 (1977).”

licy. Policy is not made in Federal agencies by indi-

vidual elcid examiners; rather it is formulated by the

agency heads relying heavily upon the expert staffs which

have been hired for that purpose. And so the Act recog-

nizes that in rule making the intermediate decisions will

be more useful to the parties in advising them of the real

issues in the case if such decisions reflect the views of

the agency heads or of their responsible officers who

assist them in determining policy. In sharp contrast is

the procedure required in cases of adjudication subject to

section [554(d)]. There the hearing officer who presides

at the hearing and observes the witnesses must personally

prepare the initial or recommended decision required by

section [557]. Also, in such adjudicatory cases, the agency

officers who performed investigative or prosecuting func-

tions in that or a factually related case may not partici-

pate in the making of decisions. These requirements re-

flect the characteristics of adjudication ....

- See generally Pedersen, supra note 38, at 996-1001.

“In Home Box Office, a panel of this court ruled that

“communications which are received [by an agency] prior to

issuance of a formal notice of rulemaking do not, in general,

have to be put in a public file,” although discussions following

publication of a notice of rulemaking must be so filed. 567

F.2d at 57. Later, another panel questioned the wisdom of

even this restriction on ex parte contacts in rulemaking. See

Action for Children’s Television v. FCC, 646 F.2d 458 (D.C.

Cir. 1977). Two other cases have faced similar situations and

reached differing conclusions. Compare United States Lines,

Inc. v. FMC,. 584 F.2d 619, 5686-48 (D.C. Civ. 1978), with

Hercules, Inc. v. EPA, 598 F.2d 91, 128-28 (1).C. Cir. 1978).

We need not reach the question of whether /Jome Box Office

A-36

Our view is consistent with two Supreme Court opinions

that detail prejudgment standards for administrators who

speak out on public policy matters. In Hortonville Joint

School District No. 1 v. Hortonville Education Associa-

tion, 426 U.S. 482 (1976), the Court held that the due

process clause did not bar a local school board, which was

negotiating renewal of a collective-bargaining agreement

with teachers, from dismissing teachers who were en-

gaged in an illegal strike following failure of the contract

negotiations.** The Court stated that a decisionmaker

need not be disqualified “simply because he has taken a

position, even in public, on a policy issue related to the

dispute, in the absence of a showing that he is not ‘cap-

able of judging a particular controversy fairly on the

basis of its own circumstances,’” Id. at 498 (quoting

United States v. Morgan, 318 U.S. 409, 421 (1941) ).

is indeed the law of this circuit, for in this case, Chairman

Pertschuk’s remarks preceded the Commission’s notice of

proposed rulemaking, see pp. 5-6 supra, 44 in;ra, and, as just

noted, Home Boz Office by its own terms does not apply to

this situatioz.

*! The Court gave three reasons why the school board could

not be disqualified from deciding whether teachers partici-

pating in a strike prohibited by law should be discharged:

(1) the school board did not have a financial or personal

stake in the decision, see, e.g., Ward v. Village of Monroe-

ville, 409 U.S. 57 (1972); Mayberry v. Pennsylvania, 400

U.S. 455 (1971); (2) in the absence of a showing that a

decisionmaker is incapable of judging a particular contro-

versy fairly, he will not be disqualified because of “[m]ere

familiarity with the facts of a case” or his having taken a

position on a policy issue; and (3) the legitimate government

interest in preserving the school board as the creator of local

policy would be thwarted if familiarity with the factual cir-

cumstances of the contract negotiations forced disqualifica-

tion. 426 U.S. at 491-96.

A-37

The Court’s decision in FTC v. Cement Institute, 333

U.S. 688 (1948), is likewise instructive. There, a trade

association urged that the Commission be disqualified

from deciding whether a trade practice violated the anti-

trust laws because its membeis previously had endorsed

the view before both the Congress and the President that

the practice was the equivalent of illegal price-fixing.

The Court rejected the trade association’s claim because,

inter alia, the earlier statements “did not necessarily

mean that the minds of [Commission] members were

irrevocably closed.” Jd. at 701.“

A similar standard is applicable to section 18 rule-

making. Section 18 outlines a process by which the Com-

mission must form a preliminary view on a proposed

rule, must hear comment from concerned parties, and in

some cases, must hold trial-type proceedings before de-

ciding whether to promulgate a rule. There is no doubt

that the purpose of section 18 would be frustrated if a

Commission member had reached an irrevocable decision

on whether a rule should be issued prior to the Commis-

sion’s final action. At the same time, the Commission

could not exercise its broad policymaking power under

section 18 if administrators were unable to discuss the

wisdom of various regulatory positions. That discussion

necessarily involves the broad, general characterizations

of reality that we label legislative fact.

Accordingly, a Commissioner should be disqualified

only when there has been a clear and convincing showing

that the agency member has an unalterably closed mind

on matters critical to the disposition of the proceeding.

The “clear and convincing” test is necessary to rebut the

*2 As a separate ground, the Court noted that disqualifi-

cation of the entire Commission would “immunize” the trade

association from regulation under the Federal Trade Commis-

sion Act. 883 U.S. at 701-02.

A-38

presumption of administrative regularity. See, e.g., With-

row v. Larkin, 421 U.S. 35, 55 (1975) ; Hercules, Inc. v.

EPA, 598 F.2d 91, 128 (D.C. Cir. 1978). The “unalter-

ably closed mind” test is necessary to permit rulemakers

to carry out their proper policy-based functions while

disqualifying those unable to consider meaningfully a

section 18 hearing.*

V

We view the statements offered as grounds for dis-

qualification as a whole to discern whether they evidence

a clear and convincing showing that Chairman Pertschuk

has an unalterably closed mind on matters critical to the

children’s television proceeding. The most important evi-

dence submitted by the appellees is a speech Chairman

Pertschuk delivered in November 1977 to the ACT Re-

search Conference. The other materials generally derive

from this speech.“

The speech focused on whether section 5 of the FTC

Act, which prohibits “unfair or deceptive acts or prac-

tices,” may be applicable to children’s advertising. Perts-

chuk first asserted that children have only a minimal

understanding of the nature of television commercials

and are unable to distinguish between advertising and

other forms of information. He quoted a finding by the

Federal Communications Commission that “many chil-

dren do not have the sophistication or experience needed

“8 See generally Carolina Environmental Study Group v.

United States, 510 F.2d 796, 801 (D.C. Cir. 1975) (due process

challenge to Atomic Energy Commission’s order allowing

construction of nuclear power plants on basis of agency’s

“promotional bias” favoring use of atomic energy rejected

because “[a]gencies are required to consider in good faith,

and objectively evaluate arguments presented to them ; agency

officials, however, need not be subjectively impartial”).

See note 56 infra.

A-39

to understand that advertising is not just another form

of informational programming.” “

Pertschuk then set out relevant legal principles. He

quoted a Supreme Court opinion that gave the Commis-

sion wide-ranging discretion to declare a trade practice

unfair.“* He noted the legal recognition of children’s lack

of evaluative capacity and the concomitant protection for

children built into commercial and tort law. Among the

doctrines he mentioned were the unenforceability of a

contract signed by a child, the prohibition against selling

children otherwise legal goods, such as liquor and ciga-

rettes, the bar against children leaving school or driving

a car, and the “attractive nuisance” rule of liability,

which holds persons who maintain conditions on their

property that are likely to entice small children responsible

for harm to those children.

Pertschuk continued by discussing the effects of adver-

tising on children. He explained that “children are not

adults in miniature. Instead, they bring to advertising

a special perspective and sensibility—a credulousness

that comes from inexperience—which advertisers ex-

ploit.” ** He stated that sugared foods may be harmful

to children and that children may not understand the

health problems, like tooth decay, that can result from

excessive consumption of sugared products: “Children

lack the judgment and experience to see that something

that looks good to them in the short run can hurt them

in the long run.” ** He suggested that children’s adver-

tising might be deceptive because it highlights the gen-

45 A. at 89.

«©FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 244

(1972).

“7 A. at 44.

48 Id. at 42.

A-40

eral desirability of sugared foods without providing

material information on the health risks.

Finally, Pertschuk noted that any action taken against

children’s advertising would bring opposition from af-

fected economic interests. He said that “[i]f the Com-

mission is to reach sound and reasoned judgments, it

must also hear from the parents, the teachers, the pedia-

tricians, the dentists, those health and education special-

ists on whom we rely for the advocacy of our children’s

best interest.” *® Pertschuk concluded by stating: “[Wle

must be rigorous and operi-minded in our analysis of both

law and fact.” ©

Chairman Pertschuk’s remarks, considered as a whole,

represent discussion, and perhaps advocacy, of the legal

theory that might support exercise of the Commission’s

jurisdiction over children’s advertising. The mere dis-

cussion of policy or advocacy on a legal question, how-

ever, is not sufficient to disqualify an administrator.

49 Td. at 46.

60 Id.

51 Even judges are free to decide cases involving policy

questions on which they previously have expressed a view.

Laird v. Tatum, 408 U.S. 1 (1972), is particularly illustrative.

In that case, the petitioners attacked on first amendment

grounds the constitutionality of the Army’s collection of in-

formation about public activities thought to have some po-.

tential for civil disorder. The Supreme Court held, by a 5-4

vote, that the jurisdiction of a federal court could not be in-

voked by “a complainant who alleges that the exercise of

his First Amnedment rights is being chilled by the mere

existence of a governmental investigative and data-gathering

activity that is alleged to be broader in scope than is reason-

ably necessary for the accomplishment of a valid govern-

mental purpose.” Jd. at 10.

Following the Court’s decision, the petitioners asked Justice

Rehnquist, who was a member of the majority, to recuse

himself, nunc pro tunc, on the basis of earlier statements he

A-41

had made on the constitutionality of governmental surveil-

lance. Justice Rehnquist, before his nomination and con-

firmation as an Associate Justice of the Supreme Court, had

testified before a Senate subcommittee as a representative

of the Justice Department. The hearings were called to

consider, inter alia, authority of the Executive Branch

to gather information. In the course of his testimony, Justice

Rehnquist concluded that domestic surveillance was consti-

tutional.

In a separate memorandum, Justice Rehnquist dismissed

the contention that he should disqualify himself because he

had expressed views contrary to the legal position of the

petitioner in Laird v. Tatum. He surveyed the actions of

Justices in this century and concluded that “none of the

former Justices of this Court since [enactment of the judicial

disqualification statute] have followed a practice of dis-

qualifying themselves in cases involving points of law with

respect to which they had expressed an opinion or formulated

policy prior to ascending to the bench.” Laird v. Tatum, 409

U.S. 824, 831 (1972) (memorandum of Rehnquist, J.). In-

deed, Justice Rehnquist suggested that

[i]t would not be merely unusual, but extraordinary, if

[Justices] had not at least given opinions as to con-

stitutional issues in their previous legal careers. Proof

that a Justice’s mind at the time he joined the Court was

a complete tabula rasa in the area of constitutional ad-

judication would be evidence of lack of qualification, not

lack of bias.

Id. at 835.

Justice Rehnquist’s opinion is in full accord with the

general principle that a federal judge will not be disquali-

fied pursuant to 28 U.S.C. § 147 or § 455 (1976) because of

prior expression of views on a legal question. See, ¢.g.,

Antonello v. Wunsch, 500 F.2d 1260, 1262 (10th Cir. 1974) ;

v. TVA, 484 F.2d 760, 765 (6th Cir. 1970) ; Knoll

v. Socony Mobil Oil Co., 369 F.2d 425, 430 (10th Cir. 1966) ;

Knapp v. Kinsey, 232 F.2d 458, 466 (6th Cir.), cert. denied,

A-42

To present legal and policy arguments, Pertschuk not

unnaturally employed the factual assumptions that under-

lie the rationale for Commission action. The simple fact

that the Chairman explored issues based on legal and

factual assumptions, however, did not necessarily bind

him to them forever. Rather, he remained free, both in

theory and in reality, to change his mind upon considera-

tion of the presentations made by those who would be

affected.

In outlining his legal theory of “unfairness,” Perts-

chuk suggested that children might be harmed by over-

consumption of sugared products and that they might

not be able to comprehend the purpose of advertising.

Insofar as these conclusions are ones of fact, they are

certainly of legislative facts. Neither conclusion bears

on the particular activities of any specific advertiser or

food manufacturer or makes reference to the health or

comprehension of any particular child. These conclusions

are broad and general, far removed from the narrow,

detailed facts that were at the heart of the Cinderella

case.°?

Together, the two conclusions tend to show that chil-

dren may be “injured” by the advertising of highly

sugared products. The Commission has stated that it

will consider three factors in deciding whether a trade

practice is unfair: whether the action is (1) offensive

to public policy as established by some legal doctrine,

(2) immoral, and (3) substantially injurious to con-

discuss policy questions and to take judicial notice of legis-

lative fact. See note 24 supra. Due process, which recog-

nizes a distinction between judges and rulemakers, allows

rulemakers greater freedom. See pp. 20-21, 27-80 supra.

52 In Cinderella, Chairman Dixon had referred specifically

to the adjudication pending before the Commission and had

prejudged precise factual issues. See pp. 138-14 supra.

A-43

sumers.** Chairman Pertschuk scarcely could have dis-

cussed the “unfairness” doctrine without assuming for

the purpose of discussion that some injury might result

from the trade practice in question.

We also note that Chairman Pertschuk made the chal-

lenged comments before the Commission adopted its notice

of proposed rulemaking. This court has never suggested

that the interchange between rulemaker and the public

should be limited prior to the initiation of agency action.™

The period before the Commission first decides to take

action on a perceived problem is, in fact, the best time

for a rulemaker to engage in dialogue with concerned

citizens. Discussion would be futile, of course, if the

administrator could not test his own views on different

audiences. Moreover, as we stated earlier,*> an expres-

sion of opinion prior to the issuance of a proposed rule-

making does not, without more, show that an agency

member cannot maintain an open mind during the hear-

ing stage of the proceeding.

Indeed, section 18 in effect requires the Commission

to formulate tentative judgments on suggested rules.

Before the Commission initiatec rulemaking proceedings,

it must “publish a notice of proposed rulemaking stating

with particularity the reason for the proposed rule prior

to the comment stage of the proceeding.” 15 U.S.C.

§ 57a(b). The Conference Committee on the Magnuson-

53 Statement of Basis and Purpose of Trade Regulation Rule

408, Unfair or Deceptive Advertising and Labeling of Ciga-

rettes in Relation to the Health Hazards of Smoking, 29 Fed.

Reg. 8355 (1964), quoted in FTC v. Sperry & Hutchinson

Co., 405 U.S. 288, 245 n.5 (1972). See Pitofsky, Beyond

Nader: Consumer Protection and the Regulation of Advertis-

ing, 90 Harv. L. REv. 661, 681-87 (1977).

5 See note 40 supra.

55 See pp. 41-48 supra.

A-44

Moss Act referred to the period following this notice as

one during which affected parties could “challenge the

factual assumptions on which the Commission is proceed-

ing and to show in what respect these assumptions are

erroneous.” H.R. REP. No. 93-1606, supra at 38. Con-

gress intended for the Commission to develop proposals

that subsequently would be published and discussed

openly. To perform this task intelligently necessarily

involves making tentative conclusions of fact, even if they

later are open to public challenge.

In sum, we hold that the materials adduced by the

appellees are insufficient to rebut the strong presumption

of administrative regularity.** The materials, as a whole,

°° A review of other materials relied upon by the appellees

supports our conclusion. As a group, they demonstrate only

that Chairman Pertschuk articulated the legal theory put

forth in the ACT speech:

(1) A Commission press release, dated J uly 20, 1977, stated

that Chairman Pertschuk had met with ACT representatives

and had suggested that children’s advertising might be unfair

without being deceptive because children “are a vulnerable

population that may require special protection from adver-

tisers.” A. at 33.

(2) Chairman Pertschuk was quoted, in a newspaper

column, as stating that “a 4 to 5-year-old child .. . may not

understand what advertising is about.” Jd. at 47.

(3) In an article published in Newsweek magazine, Chair-

man Pertschuk was quoted as saying that he was committed

to taking action on the problem of commercialization of

children and that “[a]dvertisers seize on the child’s trust

and exploit it as a weakness for their gain.” A. at 48.

(4) In an interview published in TV Guide, Chairman

Pertschuk stated that children are not sophisticated con-

sumers, noted that the Commission might have the power to

limit certain children’s advertising, and predicted that “[a]s

soon as the Commission proposes action” it will be involved

in a long fight with advertisers. A. at 50.

: (Continued]

A-45

86 [Continued]

In an article in the Wall Street Journal, two passages

Pi Chairman Pertschuk’s ACT speech were quoted. A. at

49. :

uring interview televised on the “Today Show,

conseee Pertechuk engaged in the following colloquy with a

viewer and interviewer Bob Abernathy: ae

AN LOVETT: Mr. Pertschuk, I'd like to know

dem being done about advertising on TV for children

and all the garbage that’s advertised for the kiddies.

PERTSCHUK: Well, I’m glad you asked the question.

It’s an area of prime concern to me and to the Commis-

sion itself. There’s a very basic question in our ao

and that is the question to which—the extent to whic

children are to be treated as commercial objects. One

advertiser in New York described advertising directed

to children as guided missiles, turning the g-vambee

into guided missiles through the heart of the paren

aan = Is it personal opinion that no

ABERNATHY: it your

television advertising, for instance, should be directed

at children?

PERTSCHUK: I have some serious doubt as to

whether any television advertising should be directed vat

a three or four or five year old, a preschooler. They’re

not competent to understand the nature of the message.

We've never treated children as commercial objects in

our society. And of course, print advertising only reaches

those who can read. But television advertising in the

home, directed to children, is a new phenomenon in our

society, and I think a troublesome one.

ABERNATHY: Would you like to see the FTC ban it

altogether?

PERTSCHUK: Not necessarily. But we've not ex-

cluded the possibility of bans on certain advertising _of

certain products to children.

The Trade Commission has not, as a body—you know,

there are four other commissioners who must address

this issue for the Commission to act—has not, as a body,

yet approached the question of the remedy for the evils

A-46

merely demonstrate that Pertschuk discussed a legal

theory by which the Commission could adopt a rule, if

circumstances warranted. The statements do not demon-

strate that Chairman Pertschuk is unwilling or unable

to consider rationally argument that a final rule is un-

necessary because children are either unharmed by

sugared products or are abie to understand advertising.

The appellees have failed to make a clear and convincing

showing that Chairman Pertschuk has an unalterably

closed mind on matters critical to the children’s television

proceeding.

VI

The appellees have a right to a fair and open proceed-

ing; that right includes access to an impartial decision-

maker. Impartial, however, does not mean uninformed,

unthinking, or inarticulate. The requirements of due

process clearly recognize the necessity for rulemakers to

formulate policy in a manner similar to legislative action.

The standard enunciated today will protect the purposes

of a section 18 proceeding, and, in so doing, will guaran-

tee the appellees a fair hearing.

we see in children’s advertising. We’ll do that next month.

A. at 31.

(7) In three letters dated the day after delivery of the ACT

speech, Chairman Pertschuk said that the speech set forth the

legal underpinings for Commission action against children’s

advertising. A. at 71-73.

(8) In a letter to Food and Drug Commissioner Donald

Kennedy, Chairman Pertschuk outlined the logical steps un-

derlying the legal theory that children’s advertising is unfair.

In particular, he noted that the Commission would have to

be able to demonstrate “that there is a substantial health

controversy regarding the health consequences of sugar.”

A. at 95.

None of these materials significantly adds to the legal

theory presented in the ACT speech, nor do they raise issues

of legislative fact not addressed therein.

A-47

We would eviscerate the proper evolution of policy-

making were we to disqualify every administrator who

has opinions on the correct course of his agency's future

action. Administrators, and even judges, may hold policy

views on questions of law prior to participating in a

proceeding. The factual basis for a rulemaking is so

closely intertwined with policy judgments that we would

obliterate rulemaking were we to equate a statement on

an issue of legislative fact with unconstitutional pre-

judgment. The importance and legitimacy of rulemaking

procedures are too well estabished to deny administrators

such a fundamental tool.

Finally, we eschew formulation of a disqualification

standard that impinges upon the political process. An

administrator’s presence within an agency reflects the

political judgment of the President and Senate. As Judge

Prettyman of this court aptly noted, a “Commission’s

view of what is best in the public interest may change

from time to time. Commissions themselves change, un-

derlying philosophies differ, and experience often dictates

changes.” Pinellas Broadcasting Co. v. FCC, 230 F.2d

204, 206 (D.C. Cir.), cert. denied, 350 U.S. 1007 (1956).

We are concerned that implementation of the Cinderella

standard in the rulemaking context would plunge courts

into the midst of political battles concerning the proper

formulation of administrative policy. We serve as guar-

antors of statutory and constitutional rights, but not as

arbiters of the political process. Accordingly, we will not

order the disqualification of a rulemaker absent the most

compelling proof that he is unable to carry out his duties

in a constitutionally permissible manner.

Reversed.

A-48

LEVENTHAL, Circuit Judge, concurring: I concur in

Judge Tamm’s opinion for the court. It makes important

contributions to our understanding of the issues. My

comments on the merits are to add the perspective that a

concurring opinion sometimes permits. On the jurisdic-

tional issues, I have additional views which in the end

I do not present for this case but set forth to govern

future proceedings.

A.

The ultimate test announced by Judge Tamm as to the

merits is that disqualification from a rulemaking pro-

ceeding results “only when there has been a clear and

convincing showing that the agency member has an un-

alterably closed mind on matters critical to the disposition

of the proceeding.” The test reflects a Supreme Court

ruling as to administrative agencies.’

It is not far removed from the test used in considering

challenges to those considered for the duty as jurors

quintessentially engaged in specific fact-finding. It is

similar to a standard articulated as to recusal of judges.*

The application of this test to agencies must take into

account important differences in function and functioning

between the agencies and court systems. In fulfilling the

1 FTC v. Cement Institute, 383 U.S. 683, 701 (1948) (Com-

mission’s expression of views).

* The test is whether “the juror can lay aside his impression

or opinion and render a verdict based on the evidence pre-

sented in court.” Dobbert v. Florida, 482 U.S. 292, 302

(1977) ; Murphy v. Florida, 421 U.S. 794, 800 (1975) ; Irvin

v. Dowd, 366 U.S. 717, 722-23 (1961); United States v.

Haldeman, 181 U.S.App.D.C. 254, 288, 559 F.2d 31, 60 (1977)

(en banc).

* United States v. Grinnell Corp., 384 U.S. 568, 588 (1966)

(“manifesting a closed mind on the merits,” as applied to

views expressed after hearing some evidence).

A-49

functions of applying or considering the validity of a

statute, or a government program, the judge endeavors to

put aside personal views as to the desirability of the law

or program, and he is not disqualified because he per-

sonally deems the program laudable‘ or objectionable.’

In the case of agency rulemaking, however, the decision-

making officials are appointed precisely to implement

statutory programs, and with the expectation that they

have a personal disposition to enforce them vigilantly

and effectively. They work with a combination rather

than a separation of functions, in legislative modes, and

take action on the basis of information coming from

many sources, even though that provides a mindset before

a proceeding is begun, subject to reconsideration in the

light of the proceeding.

Judge Tamm’s opinion for the court ventilates im-

portant distinctions between rulemaking and adjudication

and their consequences in terms of standards of dis-

qualification, and the differences between adjudicative

facts pertinent to specific parties and generalized legis-

lative facts, including predictions and underlying views

oa policy. As Judge Tamm notes, the differences gener-

ally identify differences in procedure required for their

determination.* The difference in nature of issues per-

sists, as Judge Tamm points out, even though some of

the tasks of rulemaking are carried out with adaptations

of adjudicative forms, whether this additional procedure

_ is adopted voluntarily by the agency, as has sometimes

been the case, or is required by court or legislation.

‘Eisler v. United States, 170 F.2d 278, 278 (D.C. Cir.

1948).

5 Idaho v. Freeman, No. 79-1097 (D. Idaho, Oct. 4, 1979)

(48 L.W. 2296).

¢ American Airlines, Inc. v. CAB, 359 F.2d 624 (D.C. Cir.

1966) (en banc).

A-50

The provisions of the Moss-Magnuson Act have been

widely recognized as in effect incorporating into statutory

law the approach identified in a number of decisions,

primarily decisions of this court. Those decisions set

forth the proposition that although rulemaking generally

proceeds merely upon the basis of written comment on a

proposal, some specific issues are of such a nature that

meaningful opportunity for comment requires additional

scope for presentation, perhaps by oral submission in the

form of a legislative hearing, perhaps by cross-examina-

tion in matters involving a specific factual issue where

meaningful comment requires a predicate of probing the

basis for the contrary views. The train of opinions in

this circuit runs from American Airlines, through Halm

v. Hardin, to International Harvester, which had the

highest visibility and became the focal point of discus-

sion.”

It is fair to say that in all of our opinions the assump-

tion was that particuar issues might require additional

procedures, if they were contested, but that the basic

framework of the rulemaking proceeding as one primarily

dependent on general policy formulation was unaffected

by the particular procedures. Of course, there remains

a requirement of fairness for those with authority to act

by rulemaking but the standards are not identical with

those pertinent for judicial-type decisionmaking in ad-

judicatory actions.

Consider, for example, the assertions of an agency

head that he discerns abuses that may require corrective

regulation. One can hypothesize beginning an adjudica-

7 American Airlines, Inc. v. CAB, 359 F.2d 624 (D.C. Cir.

1966) (en banc); Walter Holm & Co. v. Hardin, 449 F.2d

1009 (D.C. Cir. 1971) (Judges McGowan, Leventhal and

Van Pelt) ; International Harvester Co. v. Ruckelshaus, 478

F.2d 615 (D.C. Cir. 1973) (Judges Bazelon, Tamm and

Leventhal).

A-51

roceeding with an open mind, indeed a blank mind,

. ie rasa vdeeale of any previous knowledge of the

matter. In sharp contrast, one cannot even conceive of

an agency conducting a rulemaking proceeding unless it

had delved into the subject sufficiently to become con-

cerned that there was an evil or abuse that required

regulatory response. It would be the height of absurdity,

even a kind of abuse of administrative process, for an

agency to embroil interested parties in a rulemaking

proceeding, without some initial concern that there was

an abuse that needed remedying, a concern that would be

set forth in the accompanying statement of the purpose

of the proposed rule.

In its administrative setting an agency’s effort is not

limited to one type of activity. Investigation and policy-

making are integral to the total function just as much

as decisionmaking. It is appropriate and indeed manda-

tory for agency heads and staff to maintain contacts

with industry and consumer groups, trade associations

and press, congressmen of various persuasions, and to

present views in interviews, speeches, meetings, conven-

tions, and testimony. The agency gathers information

and perceptions in a myriad of ways and must use it for

a myriad of purposes.* With capacity and willingness to

reconsider there is no basis for disqualification.

8 Ash Grove Cement Co. v. FTC, 577 F.2d 1868, 1375-1376

(9th Cir. 1978) :

Information gathered by the Commission under its

broad investigatory powers can be used for a variety of

purposes, including promulgation of new rules, reporting

to Congress, disseminating economic knowledge to the

ublic, or, as here, to prepare an economic survey or re-

sole to enable the Commission to better administer the

statutes over which it has jurisdiction. In addition, fac-

tual material compiled by the agency may call its atten-

tion to situations which warrant an adjudicative enforce-

ment proceeding. . . . Indeed, one of the purposes of

A-52

The tests of disqualification cannot be applied iden-

tically for judges and agency heads, for reasons already

identified. Yet even judges are not disqualified merely

because they have previously announced their positions on

legal issues,® even as to announcements outside the course

of written decisions.’° Judicial disqualification cannot be

based on general frame of reference, attitudes or assump-

tions as to the processes of society.‘' And even a judge’s

industry investigations is to provide the agency with in-

creased expertise in administering the law by exposing it

to the factual background of relevant industries against

which to judge individual mergers and acquisitions.

Likewise, the fact that some of the Commissioners’

conclusions expressed in the Enforcement Policy were

mirrored in the complaint does not prove prejudgment.

The Enforcement Policy was openly cautious to phrase

its conclusions tentatively.

® FTC v. Cement Institute, 333 U.S. 688, 701 (1948) (Court

used judicial analogy in the course of holding that Commis-

sion’s expression of opinion on legality of a particular trade

practice did not disqualify it from passing upon the lawful-

ness of the practice in an adjudicatory proceeding).

0 Laird v. Tatum, 409 U.S. 824 (1972).

“The great tides and currents which engulf the rest of

men do not turn aside in their course, and pass the judges

by.” B. N. Cardozo, The Nature of the Judicial Process 167-

68 (1921). “[A] judge is not prevented from sitting because

he comes into every case with a background of general per-

sonal experiences and beliefs.” Jn re Union Leader Corp.,

292 F.2d 381, 388 (1st Cir. 1961). See In re J. P. Linahan,

Inc., 138 F.2d 650 (2d Cir. 1943), for Judge Frank’s wide-

ranging discussion, distinguishing between the need for dis-

interestedness in courts, as essential to democracy, and the

presence of preconceptions and attitudes which are inevitable.

The opinion urges self-scouting as to uniquely personal

prejudices. It concludes that a referee is not disqualified from

conducting a trial because he earlier came to a j

that was reversed. sa en's

[Continued]

A-53

public comment giving a general impression of a state

of facts does not present a rigidity against refinement

and reflection that disqualifies him from sitting in judg-

men on a particular fact issue.”

B.

I now turn to what I consider a jurisdictional problem.

In part it is addressed in part II of Judge Tamm’s

opinion, dealing with the doctrine of exhaustion of ad-

ministrative remedies. I concur in many of Judge Tamm’s

observations, and the court’s result. But my analysis is

somewhat different.

The jurisdictional problems that concern me are first,

whether, and under what circumstances, a Federal court

has jurisdiction of an action to halt ongoing proceedings

before an “agency” of the United States on the ground

that they reflect impermissible bias or prejudice, and

second, whether this can ever be done by a district court

that has no jurisdiction to review the agency’s final

actions.

The doctrine of exhaustion of administrative remedies,

which Judge Tamm discusses, is a judge-made prudential

11 [Continued]

See also Price v. Johnston, 125 F.2d 806, 811 (9th Cir.),

cert. denied, 316 U.S. 677 (1942), rejecting disqualification

under 28 U.S.C. § 25, when the allegations “do not indicate

a ‘personal’ prejudice or bias against the accused, but charge

an impersonal prejudice, and go to the judge’s background

_and associations rather than his appraisal of the defend-

ant personally.”

12 United States v. Haldeman, 559 F.2d 31, 135ff. (D.C. Cir.

1976) (Judge Sirica’s statement in a television interview, at

the time of the 1974 Judicial Conference, that defendants “can

get just as fair a trial in the District of Columbia as any

federal court,” did not reflect “inability or indisposition on

the judge’s part to objectively weigh and act upon a request to

relocate the place of trial should it develop that an unbiased

jury could not be assembled in the District of Columbia.”

A-54

doctrine—a “rule of judicial administration that no one

is entitled to judicial relief for a supposed or threatened

injury until the prescribed administrative remedy has

been exhausted.” Myers v. Bethlehem Shipbuilding Corp.,

303 U.S. 41,50-51 (1938). The Court gave little weight

to the claim “that the mere holding of the prescribed

administrative hearing would result in irreparable dam-

age.” 303 U.S. at 51.

The jurisdictional difficulty arises out of the require-

ment of finality, a related doctrine which also comes into

play in this case, and which overlaps the requirement of

exhaustion of administrative remedies but is analytically

distinct. One requirement may be applicable even when

the other is not.

The Administrative Procedure Act provides, § 10(c),

now 5 U.S.C. § 704: “Agency action made reviewable by

statute and final agency action for which there is no

other adequate remedy in a court are subject to judicial

review. A preliminary, procedural, or intermediate

agency action or ruling not directly reviewable is subject

to review on the review of the final agency action.”

Statutes with special provisions for judicial review re-

flect the same basic approach, of limiting review to final

actions, and that is the case for the Moss-Magnuson Act’s

provision for judicial review (in the court of appeals)

of FTC rulemaking.”

13 See 15 U.S.C. §57a(e) providing that an interested per-

son may file a petition “for judicial review” of a rule, not

later than 60 days after a rule is promulgated by the Federal

Trade Commission. Section 57a(e) (5) (B) provides:

The United States Court of Appeals shall have exclu-

sive jurisdiction of any action to obtain judicial review

(other than in an enforcement proceeding) of a rule

prescribed under subsection (a) (1)(B) of this section,

if any district court of the United States would have

jurisdiction of such action but for this subparagraph.

A-55

Section 10(c) of the APA is a generalized provision

for judicial review by the district court where no other

form of judicial review is prescribed by Congress. But it

requires more than exhaustion of administrative reme-

dies, it also requires a final agency action. Association

of National Advertisers, Inc. v. FTC, 565 F.2d 237 (2nd

Cir. 1977). It is elementary that the mere conduct of

proceedings on a proposal of a rule, which may never be

adopted or enforced, is not final action, and a court will

not enjoin a rulemaking proceeding on a claim that the

agency had no statutory or constitutional authority to

promulgate the proposed rule. Bristol-Myers Co. v. FTC,

138 U.S.App.D.C. 22, 27, 424 F.2d 935, 940, cert. denied,

400 U.S. 824 (1970).

If a proceeding should eventuate in a rule that a party

opposes, the party may challenge the final action adopt-

ing the rule on the ground that the rule is defective for

reasons of disqualification of a member. Accordingly, this

is not a case of agency action (other than final action)

“for which there is no other adequate remedy in a court.”

Only in rare instances is a non-final agency action re-

viewed in tne teeth of a general denial of jurisdiction.

In Leedom v. Kyne, 358 U.S. 184 (1958) the Court was

willing to bypess a general jurisdictional barrier when an

agency clearly violated an express statutory prohibition.

But the Leedom exception “is a narrow one.”™ It is

reserved for the kind of clear case that identified the

original doctrine of mandamus.

A court must disclaim jurisdiction notwithstanding the

claim that action already taken realistically means that

the ongoing proceeding will be waste motion and will have

14 Boire v. Greyhound Corp., 376 U.S. 473, 481 (1964) (no

jurisdiction to enjoin a representation election) ; In Switch-

men’s Union v. National Mediation Board, 320 U.S. 297

(1943), the Court held Congress precluded review of a rep-

resentation decision of the National Mediation Board.

A-56

to be done over again. This is “part of the price we pay

for the advantages of an administrative process” and

preferable to having the process “clogged if there were

interlocutory appeals to the courts.” Thermal Ecology

Must Be Preserved v. Atomic Energy Comm., 139 U.S.

App.D.C. 366, 368, 433 F.2d 524, 526 (1970). That opin-

ion noted the possibility of an exception “in extreme

instances where the action is held to constitute an effec-

tive deprivation of appellant’s rights.” Id. See also Ster-

ling Drug, Inc. v. FTC, 146 U.S.App.D.C. 237, 250, 450

F.2d 698, 711 (1971).

Given these strong walls of jurisdictional barriers, and

narrow gates of entrance, it is time to turn to the situa-

tion of a claim of prejudice or bias alleged to infect

an agency proceeding at its core.

When a claim of bias is filed against a trial judge, his

refusal to recuse himself is not appealable, there being

no final order. However, there has been some tendency of

the appellate courts to accept jurisdiction of the claim,

notwithstanding their general confinement to review of

final orders, of district courts, by reference to consider

the matter on application for a writ of mandamus, at

least in unusual cases, with jurisdiction predicated on the

All-Writs Act, 28 U.S.C. § 1651.5 That jurisdiction is

not routinely invoked, and rulings are generally phrased

in terms of “exceptional circumstances.” ** Mandamus

was denied in Mitchell v. Sirica, 163 U.S.App.D.C. 373,

502 F.2d 375, cert. denied, 418 U.S. 955 (1974), not-

withstanding the view of the dissent that the case was one

of the “really extraordinary cases” that warrant man-

15°C. Wright & A. Miller, Federal Practice and Procedure:

Jurisdiction § 3553 at 387 (1975); 9 Moore’s Federal Prac-

tice {/110.13[10] at 187-188 (2d ed. 1975), cited in Judge

Tamm’s opinion at note 10.

*® Action Realty Co. v. Will, 427 F.2d 843 (7th Cir. 1970) ;

Green v. Murphy, 259 F.2d 591 (8d Cir. 1958).

A-57

damus, and that mandamus was appropriate under the

All-Writs Act in cases “which are subject to our eventual

appellate jurisdiction.” (502 F.2d at 387).

Even assuming arguendo that the case is one which this

court would consider at an interlocutory stage as to a

request for disqualification of a judge, it by no means

follows that a court has jurisdiction to intervene in an

ongoing administrative process. The courts have a limited

supervisory province as to agencies,’’ but it is not as

direct as the supervision of appellate courts over trial

courts, and there are distinct limitations on available

judicial remedies. Vermont Yankee Nuclear Power Corp.

v. National Resources Defense Fund, 435 U.S. 519

(1978) ; FCC v. Pottsville Broadcasting & Co., 309 U.S.

134 (1940) ; Greater Boston TV Corp. v. FCC (II), 149

U.S.App.D.C. 322, 335, 463 F.2d 268, 281 (1971).

If there is to be an analogy to an expansion of man-

damus of district judges, based on the existence of the

appellate court’s prospective jurisdiction, the jurisdic-

tion would not lie in the district court, but in the court

of appeals, which is where Congress has lodged general

jurisdiction to review FTC orders and rules, 15 U.S.C.

§ 57a. To the extent that the All Writs Act has been

used in connection with FTC matters, it is the court of

appeals that has been found to have the power to grant

relief. FTC v. Dean Foods Co., 384 U.S. 597 (1966).

On this thesis I posit a total lack of jurisdiction in the

district court to consider the merits of plaintiff’s case in

any way or to any extert. Thus, even if this case fell

within an exception to the finality requirement, juris-

diction to consider the interlocutory action would lie in

this court and not the district court. But I recognize that

this thesis has not previously been identified by the court

17 Greater Boston TV Corp. v. FCC (I), 143 U.S.App.D.C.

383, 444 F.2d 841 (1970).

A-58

and was not perceived in the 1962 Amos Treat decision,

to be discussed below. Amos Treat issued prior to the

Supreme Court’s Dean Foods decision and is subject to

reconsideration on this point.* But since this point is

novel, and was not argued, I agree that it should not be

given effect retrospectively.

Reverting to issues of bias or prejudice, this court has

basically exercised its supervision in the context of re-

view of final orders, Cinderella Career & Finishing

Schools, Inc. v. FTC, 188 U.S.App.D.C. 152, 425 F.2d

583 (1970) ; Texaco, Inc. v. FTC, 118 U.S.App.D.C. 366,

336 F.2d 754 (1964), vacated and remanded on other

grounds, 381 U.S. 739 (1965).

To the extent that there is any judicial jurisdiction to

halt an ongoing agency proceeding—or what is the equiva-

lent, to enter a declaratory judgment that it cannot

result in a valid final action—that jurisdiction, whether

exercised by this court or (let it be assumed) by a dis-

trict court, is available only in a limited class of cases,

not including the case at bar. There is always some prob-

lem of analysis when a court’s determination of whether

it has jurisdiction requires it to take a “peek at the

merits.” ** But I think the doctrine can be etched fairly

clearly.

The precedent primarily relied on by plaintiffs is

Amos Treat & Co. v. SEC, 118 U.S.App.D.C. 100, 306

F.2d 260 (1962). The court enjoined an adjudicatory

proceeding because one of the commissioners who had

participated in certain rulings had previously, as a mem-

ber of the staff, participated in the investigation. That

18 The 1972 decision in Fitzgerald is not pertinent because

the “final” agency order in that case would have been review-

able in the district court.

1° Internat’l Bro. of Teamsters v. Bro. of Railway, Airline

and Steamship Clerks, 131 U.S.App.D.C. 55, 64, 402 F.2d

196, 205, cert. denied, 393 U.S. 848 (1968).

A-59

decision was a ruling of a structural incapacity, which

was necessary for a “fair trial” (306 F.2d at 263). The

next year another panel, Judges Bazelon, Bastian and

Burger, described it as an “exceptional” case, SEC v.

R. A. Holman & Co., 116 U.S.App.D.C. 279, 323 F.2d

284, cert. denied, 875 U.S. 943 (1963). In Holman the

court refused to halt an SEC adjudicatory proceeding on

the ground that one of the commissioners had headed a

division with responsibility over the registration state-

ment involved. In Associated Press v. FCC, 145 U.S.App.

D.C. 172, 448 F.2d 1095 (1971), the court followed Hol-

man, not Amos Treat. And in Sterling Drug, Inc. v.

FTC, 146 U.S.App.D.C. 237, 450 F.2d 698 (1971), the

court followed Holman and referred to Amos Treat as a

case “where the agency has very clearly violated an im-

portant cons ‘tutional or statutory right.” (450 F.2d at

710) (emphasis added).

The only instance where Amos Treat was followed, in

terms of judicial intercession at a non-final stage, was

Fitzgerald v. Hampton, 152 U.S.App.D.C. 1, 467 F.2d

755 (1972), and that, too, was a structural violation—

the denial of a public hearing.

If a federal court, district or appellate, is to take

jurisdiction before final agency action, it can only be

in a case of “clear right” such as outright violation of a

clear statutory provision (Leedom) or violation of basic

rights established by a structural flaw, and not requiring

in any way a consideration of interrelated aspects of the

merits—which can only be done appropriately on review

of a final order. This statement of the doctrine of the

exceptions to finality is etched more sharply here than

in some of our previous opinions, though it is offered as

an accurate statement of what the opinions as a whole

were driving at. However, this sharpening of doctrine

has aspects of novelty, since earlier expressions referred

to denial of basic rights and did not articulate the qualifi-

cations of structural flaw, or defiance of an outright

A-60

prohibition. On that basis, as will be indicated below,

I am prepared to agree that the district court’s accept-

ance of jurisdiction not be rescinded retroactively, and

to acquiesce in its taking jurisdiction. That still leaves

us, however, with the necessity to determine whether the

judicial ruling (of disqualification) was proper on the

merits. And it was not proper, in my view, for reasons

developed in Judge Tamm’s opinion for the court.

A strict logician might have ground to attack this

concept of a jurisdictional ruling announced for the fu-

ture. In the same way, a strict logician could assail the

doctrine whereby courts deliberately decide, on prudential

grounds, to pass over jurisdictional questions and to

dispose of a case on the merits. But that doctrine is

alive, and fortified by pragmatic considerations involved

in sound judicial administration.”

The case at bar is one where the very inquiry posed

by plaintiff obviously requires some analysis of the views

expressed by Chairman Pertschuk, and comparison with

the issues as they will actually be focused in the ongoing

proceeding. The Government puts forward substantial

considerations in justification of Chairman Pertschuk’s

remarks—the proper purpose of calling the public’s atten-

tion to possible abuses and to factors enhancing public

understanding, the propriety of a hortatory role on a

wide range of issues, the breadth of the underlying policy

issues, as contrasted with the quality of rulings on

specific, adjudicative effects (with the corollary likelihood

of specific condemnation and stigma). But even if one

pretermits all such considerations, the actual conduct of

the proceeding may bear significantly on the relationship

of the remarks to ultimate issues, let alone dispositions,

* The doctrine is established by a number of precedents.

See Secretary of the Navy v. Avrech, 418 U.S. 676, 677-78

(1974) ; United States v. Augenblick, 393 U.S. 848, 351-52

(1969); Ripon Society v. National Republican Party, 178

U.S.App.D.C. 350, 361 n.28, 525 F.2d 567, 578 n.28 (1975)

(en banc), cert. denied, 424 U.S. 983 (1976).

A-61

which are necessary aspects of any claim of prejudicial

bias. |

These factors make it clear to me that any residue of

the Amos Treat doctrine is inapplicable to this case.

C.

If this matter were to arise subsequent to the instant

decision, it would in my view have been obligatory of the

district court to deny jurisdiction, even assuming pre-

finality intervention as to the FTC is not confined to a

circuit court of appeals, because this was not a case

involving a defiance of an explicit statute, or a structural

flaw denying basic rights. And in the future any exer-

cise of jurisdiction by a district court should be reversed

by a judgment vacating the district court’s order, with

instructions to dismiss for lack of jurisdiction. However,

in this case I join in the order of reversal. This is partly

due to the area of doubt left in the wake of our previous

rulings, including Amos Treat and Fitzgerald, making it

proper to consider that a more firm rule of prohibiting

consideration of the merits should be announced for

prospective application, under the Sunburst 1g approach

—so as to avoid undoing a ruling of district court Juris-

diction to consider the merits, that was not unreasonable

when made. Reinforcing our decision to corsider the

merits in this case is the fact that under its not unreason-

able assertion of jurisdiction the district court issued a

ruling on the merits that for more than a year” has

constituted a stain on the FTC proceedirig. That stain

would persist if the appellate court confined itself to a

jurisdictional ruling, to the detriment of sound govern-

mental process.

21 Great Northern Ry. Co. v. Sunburst Oil & Refining Co.,

287 U.S. 358 (19382).

22 The district court ruling issued November 3, 1978. As-

sociation of Nat’l Advertisers v. FTC, 460 F. Supp. 996

(D.D.C. 1978).

A-62

MACKINNON, Circuit Judge (dissenting in part and

concurring in part). I concur in the Court’s decision

insofar as it holds that (1) the Appellee, Association of

National Advertisers (hereafter Association) is not re-

quired to exhaust the rulemaking process before filing a

court challenge to disqualify one of the Commissioners

for bias in such rulemaking proceeding; and (2) that

affected parties are entitled to have substantive rules of

the Federal Trade Commission proscribing specific un-

fair or deceptive acts or practices promulgated by fair

decision makers. However, I cannot agree with the hold-

ing of the majority that a member of the Commission

engaged in the rulemaking proceeding can be disqualified

only upon a showing by clear and convincing evidence

that he has an unalterably closed mind on matters critical

to the disposition of the rulemaking. Also, based on the

analysis hereinafter detailed, I would hold that the Chair-

man has disqualified himself in this rulemaking proceed-

ing even if the majority’s “unalterably closed mind”

standard is applied.

In my opinion the “unalterably closed mind”, where it

exists, in many cases is practically impossible to prove,

imposes too high a barrier to the public’s obtaining fair

decisionmakers and is a higher standard than the Su-

preme Court has applied in its recent decisions. I would

require any Federal Trade Commissioner to recuse him-

self, or failing that to be disqualified, upon a showing

by a preponderance of the evidence that he could not

participate fairly in the formulation of the rule because

of substantial bias or prejudgment with respect to any

critical fact that must be resolved in such formulation.

Also, in my view the majority opinion places too much

reliance on the strict rulemaking/adjudication dichotomy,

applied in earlier cases under the Administrative Pro-

cedure Act. The Magnuson-Moss Act creates a rulemak-

ing procedure that combines elements of both rulemaking

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and adjudication, as those functions are exercised under

the Administrative Procedure Act, and this blending

of the two procedures makes it impossible to look at

Magnuson-Moss rulemaking as anything but a combina-

tion of the two.

I. RULEMAKING BEFORE AND AFTER THE

MAGNUSON-Moss ACT.

Congress enacted the Magnuson-Moss Act on January

4, 1975. These amendments were part of the Federal

Trade Commission Improvements Act (also known as

the Magnuson-Moss Act, hereafter the Act) in which

Congress limited the prior wide open authority of the

Federal Trade Commission to make “rules which define

with specificity acts or practices which are unfair or

deceptive acts or practices in or affecting Commerce...”

Section 18a(1)(B). (Emphasis added). The Act blends

some of the administrative procedures—rulemaking and

adjudication—that had theretofore been rigidly separated

in the Administrative Procedure Act. 88 Stat. 2193,

15 U.S.C. § 57A.

Prior to the Magnuson-Moss Act the Federal Trade

Commission possessed great latitude in exercising its in-

formal rulemaking authority. As was pointed out in the

Senate debates, the amendment of its rulemaking powers

by the Federal Trade Commission Improvement Act, as

embodied in S. 356 of the 98rd Congress, 2nd Session

(1974), was considered necessary because the Supreme

Court “in a recent ruling had given the Federal Trade

Commission very broad rulemaking power that was sub-

ject only to the due process requirement [and thereafter

the House side in its consideration of S. 356 worked out]

. . . considerable procedural safeguards . . . relating to

the rulemaking power of the Federal Trade Commission.”

(Remarks of Senator Taft, 120 Cong. Rec. 40723, De-

cember 18, 1974).

A-64

The House Committee Report on the bill also com-

plained of the “inadequate” proceedings that the Federal

Trade Commission followed in its rulemaking.

The only procedural requirements that the FTC is

required to observe are to afford notice of the pro-

posed rulemaking, including a statement of its legal

basis and the substance of the proposed rule or a

description of the subjects and issues involved, and

opportunity for comment in accordance with Section

553 of Title 5, United States Code. On judicial review

such rules may only be set aside if they are found

to be arbitrary, capricious, an abuse of discretion or

otherwise not in accordance with law; contrary to

Constitutional right, power, privilege, or immunity;

in excess of statutory jurisdiction, authority, or lim-

itations, or short of statutory right; or without ob-

servance of procedures required by law.

Your committee believes these rulemaking proced-

ures and the scope of judicial review are inadequate

for proceedings in which the integrity of the pro-

posed rule may rest on the resolution of issues of ma-

terial fact. We believe that the rulemaking pro-

cedures and judicial review provisions of section 202

(described below) afford the safeguards which are

needed.

H. Rep. No. 93-1107, June 18, 1974, 98rd Cong., 2nd

Sess., 33. To provide the “needed . . . safeguards” the

House passed its bill that with some modifications made

by the Senate, resulted in the Federal Trade Commission

Improvements Act of 1974, supra. It is obvious from the

foregoing that one of the principle purposes of the

amendments was to improve the “integrity [of Commis-

sion rulemaking that rested] . . . on the resolution of

issues of material fact.” This is an obvious reference to

the adjudicative function involved in the promulgation

of rules on unfair and deceptive practices by the

Commission.

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In adopting the Magnuson-Moss (M-M) Amendments

Congress authorized the Commission to promulgate rules

that defined specific “unfair or deceptive acts or prac-

tices in or affecting Commerce” and tightened up the

procedures that the Commission was required to follow

in exercising this very considerable authority. See section

18(a) (1) (B). The M-M Amendments provided for (1)

advance notice of the proposed rule and the reason there-

for, (2) an informal hearing with oral or written sub-

missions, (3) cross-examination on disputed issues, (4)

right to rebuttal, (5) verbatim transcripts of all oral

presentation to be made available to the public; and that

(6) the rule be supported by the whole of the rulemaking

record, and (7) the basis and purpose of the rule be set

forth in a statement. The Commission was also required

to take into account (8) the economic effect of any such

rule and (9) the effect on small business and consumers.

(10) The promulgation of the rule was made subject

to judicial review by the Courts under 5 U.S.C. § 706(2)

and (11) could be declared unlawful if the Court found

it was not “supported by substantial evidence in the

rulemaking record . . . taken as a whole.”! (12) The

1 The statute provides:

“(3) Upon the filing of the petition under paragraph

(1) of this subsection, the court shall have jurisdiction to

review the rule in accordance with chapter 7 of title 5,

United States Code, and to grant appropriate relief, in-

cluding interim relief, as provided in such chapter. The

court shall hold unlawful and set aside the rule on any

ground specified in subparagraphs (A), (B), (C), or

(D) of section 706(2) of title 5. United States Code

(taking due account of the rule of prejudicial error),

or if—

“(A) the court finds that the Commission’s action

is not supported by substantial evidence in the rule-

making record (as defined in paragraph (1) (B) of

this subsection) taken as a whole, or

[Continued]

A-66

subsequent amendment or repeal of rules was also made

subject to judicial review in the same manner as the

original adoption of such rules. In addition (13) the

court was required to find the rule to be unlawful if the

Commission, by the denial of cross examination or re-

buttal submissions, had precluded disclosure of material

facts which was necessary for fair determination by the

Commission of the Rulemaking proceeding taken as a

whole.”

1 [Continued]

“(B) the court finds that—

“(i) a Commission determination under sub-

section (c) that the petitioner is not entitled to

conduct cross-examination or make rebuttal sub-

missions, or

ss (ii) a Commission rule or ruling under sub-

section (c) limiting the petitioner’s cross-

examination or rebuttal submissions,

has precluded disclosure of disputed material facts

which was necessary for fair determination by the

oe of the rulemaking proceeding taken as

a whole.

88 Stat. 2195-2196, 15 U.S.C. § 57a(e) (3).

§ 18(e) (1) (B) provides:

Be. For purposes of this section, the term ‘rulemak-

ing record’ means the rule, its statement of basis and

purpose, the transcript required by subsection (c)(4),

= hag ge submissions, and any other information

whic e Commission considers relevant to

(Emphasis added). see

§ 18(c) (4) provides:

(4) A verbatim transcript shall be taken of any oral

er ae ae er andre in an informal hear-

ing to whic is subsection applies. Such tra i

be available to the public. sae ata

2 Td.

A-67

Senator Taft commented on the effect of these pro-

visions of the Bill as follows:

I would particularly like to point out that the pro-

visions relating to rulemaking power are very

broad. When we are dealing with the FTC, its au-

thorizations, and areas of procedure we are not

dealing with what we usually consider to be a rule-

making power of a Government agency.

We are dealing with an agency where, under the

antitrust laws, rules are often made that relate to

very specific cases, particularly specific industries,

and prescribe certain requirements relating to those

industries. They perhaps even limit the type of ma-

terial that can be produced, the type of material that

can be sold and how it can be sold.

In other words, the actual rights of individuals and

business concerns are involved here.

So we are really dealing not merely with the rule-

making proceedings, but in many cases, for all prac-

tical purposes, with an adversary proceeding.

120 Cong. Rec. 40723-40724, December 18, 1974. (Em-

phasis added)

It is thus apparent that the promulgation of unfair

or deceptive practices under the Magnuson-Moss Act dif-

fers greatly from mere informal rulemaking under the

tight compartments first established by the Administra-

tive Procedure Act in 1946 (60 Stat. 238-239).

The majority’s opinion criticizes the characterization

by the District Court of Federal Trade Commission rule-

making under the Magnuson-Moss Act as “hybrid” or

quasi-adjudicative on grounds that it “ignores the clear

scheme of the APA”. Of course sch Magnuson-Moss Act

rulemaking ignores the clear scheme of the APA. That

was one of the stated and obvious purposes of the Act—

to provide greater protection to the public that would

A-66

be affected by the FTC ruies, by providing some reason-

able safeguards when the Commission promulgated rules

prescribing specific “unfair or deceptive acts or prac-

tices.” * Rulemaking under the Administrative Proce-

dure Act prior to the Magnuson-Moss Act was ordinarily

cast either in an adjudicatory or rulemaking context but

the Magnuson-Moss Act changed all of this for rulemak-

ing of unfair or deceptive acts or practices by the Federal

Trade Commission.t See Majority Opinion p. 15.

The Court’s opinion is couched too much in a rulemaking/

adjudication dichotomy and tries to pigeonhole Commis-

sion action into one or the other. For instance, it states

that the “presence of procedures not mandated by Section

553 . . . does not . . . convert rulemaking into quasi-

adjudication. . . .” That statement however blinks at the

reality that exists in this instance of rulemaking. It

should also be noted that Professor Davis, in setting

forth his suggested “Official Notice” for rulemaking pro-

ceedings, defines “adjudicative facts [as] facts relating

to the parties to the case . . . when a rule is formulated

in an on-the-record proceeding.” * The Commission’s ac-

tion in promulgating the instant rules is required to be

supported by substantial evidence in the rulemaking

record as a whole. However, regardless of labels, the

procedures required by M-M in this case certainly con-

3 Jd.

* See this court’s opinion in Chocolate Manufacturers As-

sociation of the United States, Inc. v. F.T.C., No. 79-1082

slip opinion, (D.C. Cir. decided October 2, 1979) in which we

referred to the Magnuson-Moss Act as “a codification of the

hybrid approach between adjudication and rulemaking” (slip

op. at 6).

5 Davis, Administrative Law of the Seventies, § 15.00-8,

at 376 (1976). There is no indication that Professor Davis

intended to refer to “rules . . . made on the record”, the

phrase that triggers formal rule making under §§ 556, 557 of

the Administrative Procedure Act.

A-69

the Commission's action into something that is

peri ooh covered by Section 553 and that is not wholly

quasi-adjudication. The Act creates a new form of Com-

mission action that is outside the informal rulemaking

category as previously covered solely by section 553, a

the addition of elements that definitely involve adjudi-

cation.

II]. ADJUDICATIVE CHARACTER OF MAGNUSON-MOss

ACT PROCEEDINGS.

Professor Davis has pointed out that some rulemaking

may involve the determination of adjudicative facts:

The first step is probably to recognize that the reality

[of rh ner Ai procedures] is a spectrum rather

than a dichotomy; some facts are clearly adjudica-

tive, some are clearly legislative, some are probably

one or probably the other but not clearly, and some

seem impossible to classify. So the adjudicative or

legislative character of facts is a variable, and other

variables must also be taken into account—the degree

of doubt or certainty about the facts, and the degree

of their bearing upon the controversy. When facts

are clearly adjudicative, disputed, and critical, a

party should be entitled to all the procedural pro-

tections of a trial. When facts are legislative, rea-

sonably clear, and peripheral to the controversy, the

tribunal may assume them without even mentioning

them. The problem cases are those in which the

three variables pull against each other. (Emphasis

added).

These observations clearly describe many of the aspects

of the Magnuson-Moss Rulemaking and in the last sen-

tences reach the facts of this case.

® Davis, Administrative Law of the Seventies, § 15.00-8,

at 375 (1976).

A-70

The adjudicative character of some of the proceedings

under the Magnuson-Moss Act is also reflected in the

April, 1979 recommendation made by the Administrative

Conference with respect to the trade regulation rulemak-

ing project of the Federal Trade Commission. Therein

the Conference stated:

As a general practice the Commission, after the close

of the first period of submission of written comments,

should conduct a legislative-type hearing, following

which it should determine whether there are “dis-

puted issues of material fact it is necessary to re-

solve’. If there are determined to be such issues,

they should be designated with specificity, and a

quaust-adjudicative hearing, in accordance with section

18(c) of the Federal Trade Commission Act, should

be held on them.

April, 1979 Recommendations of the Administrative

Conference, paragrapk 12. (emphasis added)

One should not be blind to the fundamental changes

made in Commission procedures for regulating unfair and

deceptive acts and practices by the Magnuson-Moss Act.

The Separate Views on Title II of the Act by 12 mem-

bers of the House Commerce Committee that strongly sup-

ported the new rulemaking procedures of the Magnuson-

Moss Bill, also indicated that Congress knew that it was

making substantial changes in the informal rulemaking

proceedings provided for in section 553 of the Administra-

tive Procedure Act. Cf., Commission’s pre-1975 Rules and

Procedures, Section 1.16 to (¢), (d). The statement of

the 12 members included the following:

When a statute provides authority to a Federal ad-

ministrative agency to issue rules of general applic-

ability but is silent on the procedures which the

agency is required to follow in issuing such rules,

only the procedural requirements of Section 553 of

Title 5, United States Code apply to any rulemak-

ing proceeding undertaken pursuant to that author-

ity. This means that the agency is required to do

no more than to provide notice of the proposed rule-

making in the Federal Register and allow interested

persons the opportunity to submit written com-

ments on the proposal. There is no right to appear

in person before the agency, to cross-examine, to sub-

mit rebuttal evidence or to insist that the agency de-

cide solely on the basis of information available at

the public hearing. Also, the scope of judicial re-

view under such procedures is very narrow. On judi-

cial review, such rules could be set aside if they were

found to be arbitrary, capricious or an abuse of dis-

cretion, unconstitutional, in excess’ of statutory

authority or without observance of procedures re-

quired by law. (H.R. Rep. No. 93-1107, 93rd Cong.

2d Sess. (1974) at 85.) (Emphasis supplied.)

These criticisms of informal rulemaking under Section

553 were what the 12 members considered they were

changing for the making of unfair and deceptive acts

and practices rules by the Federal Trade Commission

under the Magnuson-Moss Act.

III. DOES THE SUBSTANTIAL EVIDENCE STANDARD OF THE

MAGNUSON-Moss ACT APPLY ONLY TO DISPUTED

ISSUES OF MATERIAL FACT OR DOES IT ALSO APPLY

TO FINDINGS AND DETERMINATIONS OF LEGISLATIVE

Fact?

The substantial evidence scope of review of a Magnuson-

Moss proceeding further illustrates its adjudicatory na-

ture. However, the Commission contends that “the sub-

stantial evidence” standard for judicial review was in-

tended only to apply to “the findings and conclusions of

the Commission with regard to disputed issues of ma-

terial fact on which the rule is based” and “would not

A-72

apply to findings or determinations of legislative fact’.*

The Conference Report does make this statement but the

plain language of Section 18(e)(3) provides that the

Court shall set aside the rule if:

(A) the court finds that the Commission’s action

[promulgating the rule] is not supported by substan-

tial evidence in the rulemaking record . . . taken

as a whole.

15 U.S.C. § 57(e) (3) (A).

The Commission’s contention in this respect, which

seeks to answer attacks upon the “rule” that the Com-

mission promulgated, in addition to being contrary to the

language of the statute, is also contrary to the statements

of Senator Moss and Representative Broyhill and others

made on the floor of Congress during passage of the

Magnuson-Moss Act. The reason for such amendments

to the Commission Act was explained by Senator Moss

as follows:

The concurrent resolution corrects a technical de-

ficiency in the conference report whereby the words

“with regard to disputed issues of material fact on

which the rule was based” modified both the words

“findings” and “conclusions” whereas they pertained

only to findings. In order to clarify the situation,

the word “action” was chosen to indicate the inten-

tion to have factual determinations reviewed on the

basis of substantial evidence. Conclusions arising

from these factual determinations would be reviewed

7 Whether the “disputed issues of material fact’ involve

adjudicative or legislative facts is clearly not settled. The

majority opinion finds that the Section 18 hearing on dis-

puted issues of material fact does not involve legislative

facts—and also cites authority that it does. Maj. op. at 21-26.

I note only that whatever characterization be accorded

such disputed issues of material fact, the Commission is

not authorized to prejudge them prior to the Section 18

hearing.

A-73

as is normal: Do the facts supported by substantial

evidence support the conclusions on the basis of

logic. (120 Cong. Rec. 40725 (Dec. 18, 1974) (re-

marks of Sen. Moss) (emphasis added) ; accord, id.

at 40724 (remarks of Sen Taft).)

Similarly as Representative Broyhill observed:

[I]t is necessary to clarify the language in the

conference report, not because of any disagreement

among the conferees but because of some legal in-

terpretation of the language which was included in

the conference report. We want to make crystal clear

that any rules issued by the commission must be based

upon the substantial evidence that is developed in

consideration of the rule. That is the purpose of

the amendment—to clarify the provision in the Ju-

dicial Review section. (120 Cong. Rec. 41408 (Dec.

19, 1974) (remarks of Rep. Broyhill) (Emphasis

added) .)

Senator Taft remarked:

[AJjs I understand it ... [the resolution] will have

the effect of amending that provision to read that the

clerk [sic] [court] finds that the Commission action

is not supported by substantial evidence in the rule-

making record taken as a whole. (120 Cong. Rec.

40724 (Dec. 18, 1974) remarks of Sen. Taft).)

This legislative history indicates, and Representative

Broyhill’s statement is the clearest, that “substantial

evidence” in the rulemaking record as a whole is re-

quired to support any rule proscribing any specific unfair

or deceptive act or practice promulgated by the Com-

mission. To the extent that the statement by Senator

Moss expressed a different formulation, it only varied

slightly to require that any rule that the Commission

adopted must follow logically from findings of fact sup-

ported by substantial evidence on the record as a whole.

A-74

If there is any material difference in the actual applica-

tion of these two analyses, it is relatively immaterial in

determining the Chairman’s disqualification in this case,

because both point to the controlling effect that results

from decisions of the Commission on factual findings

and conclusions therefrom and these are the precise areas

where the Chairman by his prior statements and conduct

has indicated his bias and prejudgment.

To all of these comments with respect to Section 18

rulemaking should be added an extract from a recent ar-

ticle by Professor Antonin Scalia, the former Chairman

of the Administrative Conference of the United States.

In the article, Professor Scalia decries the “balkaniza-

tion of administrative law” and blames (besides this

court) Congress’ increasing interest in promulgating

unique procedural requirements with each new statute.

Scalia would opt instead for “standardizing mandatory

administrative procedures within a manageable number

of well-known and well-litigated forms,’ and describes

how Congress’ disinclination to do so in the Magnuson-

Moss Act necessarily produced the result reached by Judge

Gesell in the court below.

That such a consummation is devoutly to be desired

is exemplified—indeed, almost caricatured—by the

recent case of Association of Nat’l Advertisers, Inc.

v. FTC [460 F.Supp. 996 (D.D.C. 1978)], involv-

ing a petition to disqualify the Chairman of the FTC

for prejudice in a rulemaking proceeding conducted

pursuant to the peculiar procedures of the FTC Im-

provement Act of 1975... Chairman Pertschuk had

forcefully expresed his firm veiws concerning the

subject of the proceeding—FTC regulation of child-

ren’s advertising. Such expression of prejudice would

clearly have been disqualifying in formal adjudica-

tion and almost certainly in formal rulemaking. It

has never been thought to be disqualifying in in-

formal rulemaking, though it is admittedly difficult

A-75

to recall so vigorous an expression of prejudgement

in a pending proceeding. But the FTC Improvement

Act had given what it called informal rulemaking so

many of the characteristics of formal adjudication

(or formal rulemaking) that it was difficult to de-

cide which standard of conduct should govern. As

Judge Gesell noted, it was “in fact a hybrid pro-

ceeding, unique to the Federal Trade Commission.

(Id. at 997.] The court’s disqualification of Chair-

man Pertschuk was based on constitutional grounds

—to which the foregoing considerations should be ir-

relevant. I think, however, that the issue should

have turned upon statutory intent with respect to

a procedural area (expression of bias or prejudice)

not specifically addressed by the APA. On that point,

the nature of the statutorily prescribed procedures

would be crucial, and infinite variation would make

predictability most difficult. (Scalia, Vermont

Yankee: The APA, the D.C. Circuit and the Supreme

Court, 1978 Sup.Ct. Rev. 345, 408-409 n. 255.)

(Emphasis added).

Thus, Professor Scalia agrees that the result reached

by Judge Gesell, with which I agree, is dictated by the

unusual procedural model of the Magnuson-Moss Act.

His italicized characterization of the “[forceful and]

vigorous . . . expression of prejudgment [and] .. .

prejudice” is a sound evaluation of the prejudicial char-

acter of the Chairman’s remarks and conduct by an

impartial and learned observer. It is also my view that

Chairman Pertschuk’s disqualification can be supported

on statutory grounds, i.e., the statute requires action

to be determined by the Commission on the record evi-

dence as a whole; such determination necessarily implies

a fair determination, otherwise the presentation of evi-

dence is a hollow formality.

A-76

IV. THE MAJORITY’S DESCRIPTION OF THE CHAIRMAN’S

REMARKS & CONDUCT.

The majority opinion holds, and I agree with such

holding, that “the appellees have a right to a fair and

open proceeding; that right includes access to an im-

partial decisionmaker.” Maj. Op. at 47. However, the

majority considers that one qualifies as an “impartial

decisionmaker” unless he is shown by clear and convine-

ing evidence to have an unalterably closed mind on mat-

ters critical to the children’s television proceeding. Such

rule would establish a legal principle that evidence of

bias and prejudice would not be disqualifying unless it

could surmount a fence that is horse high, pig tight

and bull strong. In my view that is too much protection

for a biased decisionmaker. In a great many instances

it would deprive the public of decisionmakers that are

actually “impartial”.

The current case is a good example and also illustrates

how strong evidence of prejudgment can be played down

to almost sanitize the attitudes expressed. Such softening

of the Chairman’s remarks is illustrated by the follow-

ing excerpts from the majority opinion:

Chairman Pertschuk’s remarks, considered as a

whole represent discussion, and perhaps advocacy, of

the legal theory that might support exercise of the

Commission’s jurisdiction over children’s advertising.

The mere discussion of policy or advocacy on a legal

question, however, is not sufficient to disqualify an

administrator. To present legal and policy argu-

ments, Pertschuk not unnaturally employed the fac-

tual assumptions that underlie the rationale for Com-

mission action. The simple fact that the Chairman

explored issues based on legal and factual assump-

tions, however, did not necessarily bind him to them

forever. Rather, he remained free, both in theory and

in reality, to change his mind upon consideration of

A-77

the presentations made by those who would be af-

fected.

Maj. Op. at 41-43. [Footnote omitted].

The opinion then indulges in a more particularized dis-

cussion of some of the specific comments that the Chair-

man made and that are not denied on this record, and

further concludes:

The materials [Pertschuk’s comments], merely

demonstrate that Pertschuk discussed a legal theory

by which the Commission could adopt a rule, if cir-

cumstances warranted. The statements do not dem-

onstrate that Chairman Pertschuk is unwilling or

unable to consider rationally argument that a final

rule is unnecessary because children are either un-

harmed by sugared products or are able to under-

stand advertising. The appellees have failed to make

a clear and convincing showing that Chairman Pert-

schuk has an unalterably closed mind on matters

critical to the children’s television proceeding.

Maj. Op. at 45-47.

This bland characterization of the opinions and attitudes

expressed in public and private by Chairman Pertschuk

completely fails to portray the “prejudgment” and bias

that is indicated by his actual remarks and conduct. It

nowhere expresses the predisposition that his remarks

actually revealed and thus fails accurately to evaluate

the Chairman’s state of mind on children’s TV advertis-

ing. And this is not all; the majority raises even further

obstacles to disqualify a Commissioner on the ground

of actual bias by asserting: |

We are concerned that implementation of the Cin-

derella standard in the rulemaking context would

plunge courts into the midst of political battles con-

cerning the proper formulation of administrative

policy. We serve as guarantors of statutory and con-

stitutional rights, but not as arbiters of the political

A-78

process. Accordingly, we will not order the disqualifi-

cation of a ‘rulemaker absent the most compelling

proof that he is unable to carry out his duties in a

constitutionally permissible manner.

Maj. Op. at 48.

No mention is made of the necessity that the rulemaker

be a fair decisionmaker as implicitly required by the

statute. There is no support for this attempt to inject

“political” fears as a factor to negate disqualification.

Of course, some can find politics in most everything done

by government, but there is no showing here that it

would be an improper interference with the “political

process” to apply the proper rule of disqualification, any

more than it was when this court found Chairman Dixon

of the Federal Trade Commission to be disqualified to

participate in a particular FTC adjudicative matter.

Cinderella Career and Finishing Schools, Inc. v. FTC,

425 F.2d 583 (D.C. Cir. 1970). While it may have been

Congress’ design to place Commissioners in the dual roles

of policymaker and decisionmaker, it was also Congress’

intent that parties to Magnuson-Moss Act rulemaking

have their evidence considered fairly and impartially.

Hence, in disqualifying a decisionmaker who cannot de-

cide with the requisite degree of fairness and impartial-

ity, we would protect the political process, rather than

interfere with it.

In addition to understating the Chairman’s remarks,

the majority does not attempt to actually portray them,

or to apply them in all their verbiage, against the stand-

ard for disqualification that the majority establishes.

This needs to be done.

I begin such analysis with the definite opinions ex-

pressed by the Chairman. On TV’s Today Show on Oc-

tober 31, 1977 he admitted that “the implicit indication

of [his] personal opinions in these replies are [sic] self-

evident.” By this statement he recognized that it is the

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implicit indications of his personal opinions that snould

be evaluated. He next stated: “I have some serious

doubt as to whether any television advertising should

be directed at a 3 or 4 or 5 year old, a pre-schooler.. .

we have never treated children as commercial objects

in our society.” This expresses a very firm opinion that,

by its advertising, television was treating such children

as “commercial objects”—presumably trigger words in

his vocabulary.

Next, in response to the question whether he would

like to see the Federal Trade Commission ban children’s

advertising altogether he replied “not necessarily. But

we’ve not excluded the possibility of bans on certain adver-

tising of certain products to children.” In the next para-

graph, in an apparent attempt to save the Commission

from the taint of any bias that his personal statements

indicate, he attempts to spread the responsibility by stat-

ing that there are 4 other Commissioners and consequently

his views do not bind the others. However, a Commission

is prohibited from acting with even one biased Commis-

sioner. See American Cyanamid Company v. FTC, 363

F.2d 757, 767 (6th Cir. 1966) ; Berkshire Employees As-

sociation of Berkshire Knitting Mills v. NLRB, 121 F.2d

235, 239 (8rd Cir. 1941). Then the Chairman stated that

the Commission has “not as a body yet approached the

question of a remedy for the evils we see in children’s ad-

vertising.” So the Commission (we) had already deter-

mined that the advertising was “evil”. Apparently the

only issue was what remedy to apply.

Next, in his speech to the Action for Children’s Tele-

vision Research Conference at Boston on November 8,

1977, he referred to the “moral myopia of children’s tele-

vision advertising.” (Emphasis added). He also stated

that “advertisers seize on the child’s trust and exploit it as

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a weakness for their gain.” (Emphasis added). These

remarks evidence definite conclusions, definite opinions

and a biased slant. Later he stated: “using sophistica-

tion techniques like fantasy and animation, they [TV

advertisers] manipulate children’s attitudes”. (Emphasis

added). This also indicates a prejudgment of the purpose

and intent of TV advertisers.

He then argued:

Why isn’t [the] ... principle [that those respon-

sible for children’s well being are entitled to the sup-

port of laws designed to aid discharge of that re-

sponsibility] applicable to television advertising di-

rected at young children? Why shouldn’t established

legal precedents embodying this public policy be ap-

plied to protect children from this form of exploita-

tion? In short, why isn’t such advertising unfair

within the meaning of the Federal Trade Commission

Act and, hence, unlawful? (Emphasis added)

Can any reasonable person contend that such remarks

do not indicate that he has prejudged TV Advertising

and decided that it exploits children?

He next delves into the millions of family relationships

and indicates that he has decided that Commission action

is required because he finds:

[children] cannot protect themselves against adults

[the advertisers] who exploit their present-mind-

edness ... (and exploit their “credulousness’’).

He has already concluded that children under five in the

United States are not sufficiently under parental control

to prevent them from being victimized by TV advertising.

The foregoing remarks indicate that Chairman Pertschuk

has already decided that children are being subject to

“exploitation” by children’s advertising. That may be so,

and the evidence might prove it, but it is apparent that

he so decided before any evidence was introduced.

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Finally he asserts:

Shouldn’t society apply the law’s strictures against

commercial exploitation of children, and the law’s

solicitude for the health of children to ads that

threaten to cause imminent harm—harm which

ranges from increasing tooth decay and malnutrition

to injecting unconscionable stress into the parent-

child relationship?

This indicates the Chairman has already formed an opin-

ion that television advertising is interfering with the

relationship between parents and their children that only

intervention by the Federal Trade Commission can

correct.

Also, his recounting that he has talked about the “uwn-

fairness of advertising aimed at children” indicates he

has concluded that such advertising is “unfair”. With

such conclusion already reached the only problem is how

to prove it and what to do about it. He thus indicated

he is not seeking to find what the evidence proves but

what evidence can be found to prove his prejudgment.

Whether it is “unfair” or not is the precise issue that

was supposed to be the subject of the hearings.

In addition, he stated that “only a ban on the advertis-

ing of these products on programs directed towards the

young child can remedy their inherent defect, although

we must explore all remedial approaches to the problem.”

(Emphasis added). In other words, he has concluded

that children’s advertising has “inherent defect[s]”,

which he does not identify, “that only a ban” can correct

the situation, and that he would explore other approaches.

In his final statement to the Conf

This text is long and has been trimmed here. Open the source document for the complete record.