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

Uni

nited States ia oe

Ocrossr Tzxm, 1979

MmT9-1508 |

Aner peter eee peppers teem

— against —

Fepersi Trane Commission, Micnazt Pertscuvx,

Cuamman, Paut Ranp Dixon, Exizanets Hawrorp

Douz, Davm A. Ciaston, anp Rosert Prrorsxy,

CoMMISSIONERS,

Respondents.

PETITION OF KELLOGG CUMPANY FOR A WRIT

OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE DISTRICT

OF COLUMBIA CIRCUIT

Freperice P. Forts

Tuomas R. Fanener

Cuarues P. Woirr

Ssymour & Dupiey

1901 L Street, N.W.

Washington, D.C. 20036

Telephone: (203) 452-1711

Attorneys for Petitioner

Kellogg Company

SOWNE-PERMAY WALSH © 1045 SANSOME ST. © 6.F.. CA S4111 © (415) 961-7568

=

f eae

Been,

A. Introduction and proceedings below ................

B. The children’s advertising proceeding ...............

C. The evidence of the chairman’s prejudgment ..........

Mapas wer ee ee ek ce eee tks c eee.

This court should decide the extent to which due process re-

quires a fair and impartial decisionmaker in a proceeding

under Section 18 of the FTC Act .. ...................

A. The court below failed to recognize that Congress struck

a balance in Section 18 between administrative efficiency

and fairness to participants ......... TAR SO bet

B. The court below, in devising its “unalterably closed

mind” standard for actual personal prejudgment in Sec-

tion 18 proceedings, misconstrued decisions of this Court

which involved disqualification claims based solely on

the combination of administrative functions ......_....

C. Application of the disqualification standard adopted by

the court below would negate Congress’s efforts to insure

fair and meaningful | oe amgag in Section 18 proceed-

ings and would add nothing to the efficiency of such

D. The court below, in refusing to apply the standard for

prejudgment disqualification established for Commission

adjudicative proceedings, ignored the similarities be-

tween Section 18 rulemaking and commission adjudica-

tion SE Oe) RE ee ee ae isa is

15

15

18

21

23

i

Susyectr INDEX

II Page

The decision of the court below, if not reversed, will virtually

preclude the disqualification of any federal administrative

official from any rulemaking p ing... So RG a Sar

A. The “unalterably closed mind” standard will be applied

to that great majority of administrative rulemaking EY

ceedings which have fewer statutory safeguards

Section 18... ... . Ssadid wsdeutwae- bo nptosbedal « - 27

B. If the evidence ageiat st chairman Pertschuk is insufficient

to meet the “unalterably closed mind” prejudgment stan-

dard, then it is difficult to imagine how any administra-

tive official could ever be disqualified from a rulemaking

proceeding on the grounds of prejudgment ...... .... 28

Statement of facts and law regarding mootness ............ 30

Consett ck: 6. 62. sadhapvinteds tasks eae: «+ eats 35

eee

lll

TABLE OF AUTHORITIES CITED

Cases Page

American ———— Association v. FTC, 1980-1 CCH Trade

Cas. SGA 208 (D.C. Can BORO ee. we A er 13, 22

Association of National Advertisers, Inc. v. FTC, 1979-2 CCH

Trade Cas. { 62,950 (D.C. Cir. 1979) Pere ee toa ga

Cinderella Career and Finishing Schools, Inc. v. FTC, 425 F.2d

Ges (DG. Cie. Be eT ee . 4,5, 23, 94, 25, 26, 28

FTC v. Cement Institute, 333 U.S. 683 (1948) ........ 18, 19, 20

Fusari v. Steinberg, 419 U.S. 379 (1975) .................. 30

Gilligan, Will & Co. v. SEC, 267 F.2d 461 Mok Cir. ds cert.

denied, 361 U.S. 896 (1959) . . 4, 23

Gray v. Sanders, 372 U.S. 368 (1963) pen i + EMAL Eee TR eat S4

Hortonville Joint School District No. 1 v. Hortonville Education

Association, 426 U.S. 482 (1976) .................... 18, 19, 20

Katharine Gibbs School (Inc.) v. FTC, 1980-1 CCH Trade Cas.

FGI e AG ay SR oo i Vices ood saw ai bel Gwen 13, 22

National Petroleum Refiners Association v. FTC, 482 F.2d 672

(D.C. Cir. 1973), cert. denied, 414 U.S. 951 (1974) ...... 15, 16

Quern v. Mandley, 436 U.S. 725 (1978) ..............0..... 34

Starr v. FAA, 579 F.2d 307 (7th Cir. 1978) ................. 2%

United States v. Alaska S. S. Co., 253 U.S. 113 (1920) ........ 30

United States v. Munsingwear, Inc., 340 U.S. 36 (1950) ...... 34

United States v. Trans-Missouri Ciseatt Association, 166 U.S.

290 (1897) . eee

United States v. W. T. cess 345 U.S. 629 (1953), TINE

Withrow v, Larkin, 421 US. 35 (1975) * ete sett Ap

lv

Tasie or AuTHorities CrTeD

Statutes Page

Administrative Procedure Act, 5 U.S.C.:

Bete. 2. CESAR ae stet 5, 15, 16, 27

Seen si. oss oa Cs os ils ee 28

Gaeiee | in. «sca . a0 nketesothuke ess enesaaeeee 28

Clean Air Act Amendments of 1977, 42 U.S.C., section 7607

(Summ, TBOee ha en Seen rl

Consumer Product Safety Act, 15 U.S.C., section 2058 (1976).. 28

Department of Energy Organization Act, 42 U.S.C., section

7191 (Sepa 1b BOGE) vk. ons os setae, Was gee epites

Federal Trade Commission oe 15 U.S.C.:

Section 45 __. nee Oa . .6, 8, 10, 15, 25

Section 454m0)(1)(B) - errr, NST Sek FRIES. 25

See TD ion 0.6% 1p << + hig eae ee ae 15

SRR aaa eaters to 7°" adh 6 giles aa sale ea passim

Scion Satch{IhOB) és i Qs dos Mae Dee ae ee 17

Soctian Slate pilot RB): ~.... o>... 2c) needed satis 17

See ere atShLA) 17

Section 57a(e) (3 (A) re a re yO TE,

Section 57a(e)(3)(B) ... .. ...-.... atc haut ota

Federal Trade Commission nape, Ae, Pub. L. No.

93-637, January 4,1975 .. .. . kre a a oe

Judiciary Act, 28 U.S.C., section 1254(1) ................... 2

Occupational Safety and Health Act of 1970, 29 U.S.C., section

665 (1976) ’

Toxic Substances Control pe 15 U.S.C., section 2605 | 1976) . 28

Other Authorities

4 CCH Trade Regulation Reporter, {{ 38,001, 38,002 (1980) .. 13

1 K. Davis, Administrative Law Treatise, § 1:9 (2d ed. 1978).. 27

H.R.Rep. No. 93-1107, 93d Cong., 2d Sess. 33 (1974) ........ 16, 22

HLR. Rep. No. 93-1606, 93d Cong,, 2d Sess. 33 (1974) ........ 17

Random House Dictionary of the hen geed nadie:'% e Un-

abridged Edition (1966) ...... at

Scalia, Vermont Yankee: The APA, the D.C. Circuit, and the

Supreme Court, 1978 Sup.Ct.Rev. 345

In the Supreme Court

OF THE

United States

Ocroser TERM, 1979

No.

AssociaTION OF NationaL ADVERTISERS, Inc., AMERICAN

ASSOCIATION OF ADVERTISING AGENCIES, INc., AMERICAN

ADVERTISING FEDERATION, AND Toy MANUFACTURERS OF

America, Inc.; anp Ketitoce Company, INTERVENOR,

Petitioners,

— against —

FeperaL Trape Commission, MicHarL PertscHvk,

CuarRMAN, Pau. Ranp Dixon, EvizapetH HanrorD

Doz, Davi A. Cranton, anp Ropert Prtorsky,

CoMMISSIONERS,

Respondents.

PETITION OF KELLOGG COMPANY FOR A WRIT

OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE DISTRICT

OF COLUMBIA CIRCUIT

Petitioner Kellogg Company prays that a writ of certi-

orari issue to review the judgment and opinion of the

United States Court of Appeals for the District of Colum-

bia Circuit entered in this proceeding on December 27,

1979.

OPINIONS BELOW

The opinion of the Court of Appeals, not yet reported,

is reproduced as Appendix A to this petition. The opinion,

judgment and order of the District Court, reported at 460

F.Supp. 996, is reproduced as Appendix B to this petition.

2

JURISDICTION

The judgment of the Court of Appeals for the District

of Columbia Circuit was entered on December 27, 1979.

The jurisdiction of this Court is invoked under 28 U.S.C.

§ 1254(1). A separate statement of facts and law regarding

mootness is found at the conclusion of this petition.

QUESTIONS PRESENTED

Two questions are presented by the judgment and opin-

ion of the Court of Appeals:

1. Whether due process is satisfied when a Commis-

sioner of the Federal Trade Commission who has publicly

and privately expressed his views on factual issues central

to a trade regulation rulemaking proceeding under Section

18 of the Federal Trade Commission Act can be “disquali-

fied from such a proceeding only when there is a clear and

convincing showing that he has an unalterably closed

mind” on such issues.

2. Whether Federal Trade Commission Chairman Mi-

chael Pertschuk, who has condemned advertisers who use

“sophisticated techniques like fantasy and animation [to]

manipulate children’s attitudes,” who has concluded that

“the evidence confirms ... that many children do not have

the sophistication or experience” to understand advertising,

and who has expressed “the conviction . . . that one of the

evils flowing from the unfairness of children’s advertising

is the resulting distortion of children’s perceptions of nu-

tritional beliefs,” should be disqualified from participating

in the Children’s Advertising trade regulation rulemaking

proceeding, the purpose of which is to determine whether

advertising to children is unfair or deceptive.

STATUTES

The statute involved in this case is Section 18 of the

Federal Trade Commission Act, 15 U.S.C. Section 57a.

3

The pertinent parts of this statute are set forth in Appen-

dix C to this petition.

STATEMENT OF THE CASE

A. Introduction and Proceedings Below

This case arises from the claim that Michael Pertschuk,

the Chairman of the Federal Trade Commission (“FTC”

or “Commission”) should be disqualified from participating

in the Commission’s Children’s Advertising trade regula-

tion rulemaking proceeding because he has prejudged fac-

tual issues central to that proceeding. In a Petition for

Recusal dated May 8, 1978, four trade associations’ pre-

sented the Chairman with a number of his own statements

which indicated his prejudgment, and requested that he

recuse himself from the Children’s Advertising proceeding.

Receiving no response, the trade association moved the

Commission to disqualify Chairman Pertschuk on May 18,

1978. On July 13, 1978, the Chairman responded to the May

8 petition and refused to recuse himself. On July 18, 1978,

the Commission, without the participation of the Chair-

man or of Commissioner Pitofsky, who had previously

recused himself, denied the May 18 motion.

The trade associations brought suit in the United States

District Court for the District of Columbia, seeking de-

claratory and injunctive relief. Petitioner Kellogg Com-

pany intervened as a plaintiff, seeking the same relief.’

On November 3, 1978, the District Court (Gerhard A.

Gesell, J.) acted upon the parties’ cross motions for sum-

mary judgment. The court recognized that rulemaking

proceedings commenced under Section 18 of the FTC Act,

*Association of National Advertisers, American Association of

Advertising Agencies, American Advertising Federation, and Toy

Manufacturers of America.

*The trade associations are filing a vw petition with this

Court for a writ of certiorari. Hereinafter, Kellogg Company and the

trade associations will be referred to collectively as “petitioners.”

4

such as the Children’s Advertising proceeding, have sig-

nificant adjudicative aspects, though they are “neither

wholly legislative nor wholly adjudicative.” (App. at B2)

Thus, the court found it appropriate to apply the due

process standard for disqualification of officials from ad-

ministrative proceedings set forth in Cinderella Career

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

Cir. 1970) :

“whether ‘a disinterested observer may conclude that

[the agency] 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)

The District Court determined that Cinderella required,

“as a matter of fundamental due process,” that the

“final rulemaking decision .. . be premised on factual

determinations which have not been prejudged in ad-

vance or tainted by the participation of one whose

objectivity is subject to serious question.” (App. at

B3.)

Finding “a very substantial showing . . . that the Chairman

has conclusively prejudged factual issues which will be

disputed in the rulemaking proceeding and whose resolu-

tion will be necessary for a fair determination of the rule-

making as a whole” (App. at B3-B4), the District Court

granted the declaratory relief requested by petitioners and

enjoined the Chairman from further participation in the

Children’s Advertising proceeding.

The Commission appealed. Because the case involved an

important issue of first impression—there had been no

previous determination of the appropriate disqualification

standard for prejudgment in any type of rulemaking pro-

5

ceeding—a number of amicus briefs were submitted.’ On

December 27, 1979, a divided panel‘ of the Court of Ap-

peals for the District of Columbia Circuit reversed the

District Court. The majority refused to apply the Cinder-

ella standard to Section 18 proceedings. Instead, the

majority of the Court of Appeals held that an administra-

tive official can only be disqualified for prejudgment in a

rulemaking proceeding upon “a clear and convincing show-

ing that he has an unalterably closed mind on matters

critical to the disposition of the rulemaking.” (App. at

A3-A4; emphasis added.) The majority then applied this

standard to trade regulation rulemaking proceedings con-

ducted by the FTC, despite the fact that Congress has

required significant additional procedural safeguards in

such proceedings beyond the “notice and opportunity to

comment” required in informal rulemaking under Section

4 of the Administrative Procedure Act (5 U.S.C. § 553).

Finally, the majority employed this extreme standard to

condone the most blatant case of prejudgment ever docu-

mented in federal administrative law.

*The following amici — ed affirmance of the District Court’s

— and judgment: W gton Legal Foundation, Great Plains

Legal Foundation, Air Transport Association of America, and

Grocery Manufacturers of Amaniee. Inc. Seven federal independent

regulatory agencies joined in an amicus brief ed ry EAP nrg They

are the Civil Aeronautics Board, the Consumer uct Eee Bagge

Commission, the Federal Energy Erergy Regeetn

Federal Communications Commission, ert em Maritirae ne

mission, the Interstate Commerce Conmnlision. and the Securities

and Exchange Commission.

udge Tamm wrote the 48 page theton bar opinion, Judge Leven-

thal (who died after writ'n 1g t before the opinions

were published) wrote a 14 page concurrence, arguing that the

court should not exercise its jurisdiction over matters arising- ftom

an ongoing administrative proceeding, an argument chunbaeed and

rejected by the District Court and the other panel members. Judge

MacKinnon dissented sharply in a 37 page opinion.

6

B. The Children’s Advertising Proceeding

On April 27, 1978, the Federal Trade Commission com-

menced the Children’s Advertising trade regulation rule-

making proceeding by publishing an initial notice of

proposed rulemaking in the Federal Register (Appendix

D). This action was in response to petitions filed with the

Commission in April of 1977 by two consumer groups—

Action for Children’s Television and Center for Science

in the Public Interest. The proceeding, authorized under

Section 18 of the FTC Act (15 U.S.C. § 57a), was designed

to determine whether television advertising directed to or

seen by children is an unfair or deceptive trade practice

under Section 5 of that Act (15 U.S.C. § 45).

The initial notice of proposed rulemaking “invite[d]

comment on the advisability and manner of implementa-

tion of a rule which would include the following three

elements :

(a) Ban all televised advertising for any product

which is directed to, or seen by, audiences composed

of a significant proportion of children who are too

young to understand the selling purpose of or other-

wise comprehend or evaluate the advertising;

(b) Ban televised advertising for sugared food

products directed to, or seen by, audiences composed

of a significant proportion of older children, the con-

sumption 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 di-

rected to, or seen by, audiences composed of a signifi-

eant proportion of older children, to be balanced by

nutritional and/or health disclosures funded by ad-

vertisers.” (App. at D9.)

To assist it in assessing the “advisability and manner

of implementation” of this rule, the Commission also set

7

forth fifteen “general questions and issues of fact about

which the Commission particularly desires comment. . .”

(App. at D10) These fifteer issues encompassed the two

major factual areas to be resolved in the Children’s Ad-

vertising proceeding: the ability of children to understand

the selling purpose of advertising, and the health effects,

if any, of consumption of food products commonly adver-

tised to children. Because these factual issues were to be

explored in the context of a trade regulation rulemaking

proceeding pursuant to Section 18 of the FTC Aet, all

participants in the proceeding were guaranteed the right

to make oral presentations, to conduct or have conducted

cross-examination on disputed issues of material fact, and

to present oral and written rebuttal on such disputed

issues. Further, Section 18 requires that any rule: promul-

gated by the Commission be supported by substantial

evidence in the rulemaking record taken as a whole.

C. The Evidence Of The Chairman’s Prejudgment

Petitioners presented to Chairman Pertschuk and the

District Court abundant evidence of the Chairman’s

strongly held preconceptions about the factual issues cen-

tral to the Children’s Advertising proceeding—preconcep-

tions which, petitioners argued, would render the

proceaural safeguards of Section 18 a meaningless ritual.

The evidence consisted of eleven letters, speeches, and

interviews written, delivered, or published between June,

1977, and January, 1978.° They are described generally in

Judge Tamm’s majority opinion (App. at A39-A47) and

in detail in Judge MacKinnon’s dissenting opinion (App.

at A77-A87) of the court below.

‘This evidence may be found in REes). One A.”) sub-

mite to the court below. (FA. at 3890, 7 oh cae

speech given before the Action for Children

Conference, is reprinted -paGadiakt

8

Petitioners argued that the evidence clearly showed

that the Chairman had prejudged key factual issues upon

which the Commission subsequently was to solicit com-

ments in the Children’s Advertising proceeding. Addition-

ally, the Chairman’s statements indicated that he had

reached a firm conclusion about the ultimate issue in the

proceeding: whether children’s advertising is unfair or

deceptive under Section 5. The uncontroverted evidence

presented to the District Court contains numerous ex-

amples of both the Chairman’s prejudgment of facts and

his prejudgment of that ultimate issue. For instance, the

first of the fifteen “issues of fact” pinpointed by the Fed-

eral Register notice of April 27, 1978, asked:

“Ts there a specific age below which significant num-

bers of children are unable to understand the selling

purpose of, or are otherwise unable to comprehend

or evaluate, advertising? If so, what is that age? (App.

at D10.)

The Chairman had already answered this question on

October 31, 1977. in an interview on the Today Show,

when he stated:

“T have some serious doubt as to whether any tele-

vision advertising should be directed at a three or

four or five year old, a preschooler. They’re not com-

petent to understand the nature of the message.” (J.A.

at 31.)

He reiterated his judgment about the ability of young

children to comprehend advertising eight days later in a

speech given on November 8, 1977, to Action for Children’s

Television (“ACT”), one of the consumer groups originally

petitioning for rulemaking.

“the evidence confirms ... that many children do not

have the sophistication or experience needed to under-

stand that advertising is not just another form of

informational programming.” (App. at E3.)

9

Further, the Chairman expressed his opinion that even a

clear indication of the purpose of television commercials

would be insufficient to overcome the child’s lack of

understanding.

“Even if a disclosure were made of the commercial

nature of the message, the youngest of children simply

would not understand.” (Jd.)

Petitioners contended that the ACT speech in particular

contained numerous illustrations of how, long before the

Children’s Advertising proceeding began, the Chairman

had reached personal beliefs and judgments about the

factual issues to be explored in that proceeding. In fact,

the ACT speech often seemed to parallel the initial notice

of proposed rulemaking. In the initial notice the Commis-

sion sought to explore how different attributes of foods

containing sucrose affected the likelihood that consumption

of those foods would cause tooth decay. Thus, in Question

7 the Commission asked:

“What factors affect the cariogenicity of sucrose

and what are their relative magnitudes?” (App. at

D12.)

The Chairman had anticipated this issue of fact in the

ACT speech when he noted:

“.. . advertising often fails to disclose specific ma-

terial risks. Of imminent concern, of course, is the

conclusion of many experts that sugar, especially

sticky sugar, is the preeminent cause of tooth decay.”

(App. at E6-E7.)

The Chairman then went on to express his own views

on other factual questions subsequently pinpointed for

comment in the initial notice of proposed rulemaking.

Question 9 of the initial notice, which asked:

“What evidence is there that sugar consumption con-

tributes to or acts as a potentiating factor with respect

10

to non-dental health or nutrition-related problems,

whether in childhood or in later life?” (App. at D13.)

had already been answered unequivocally by the Chairman:

“Moreover, children have become the target market

for products that promise immediate satisfaction. With

food, this often means instant pleasure—and the dan-

ger of long term malnutrition. Children lack the judg-

ment and experience to see that something that looks

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

long run. They cannot protect themselves against

adults who exploit their presentmindedness.” (App.

at E6, emphasis added.)

The Chairman also noted that “experts find sugar to be

linked to the national epidemic of obesity.” (App. at 7.)

The Chairman also left no doubt as to his views on

Question 10:

“What is the nature and extent of the awareness

of children at various ages of the impact on their

dental health or nutrition of consumption of sugared

products? .... What is the impact of advertising of

sugared products on that awareness?” (App. at D13.)

He succinctly stated:

“Cumulatively, commercials directed to children tend

to distort the rule of food. ‘Consumer, stuff thyself’

is the message.” (App. at E6.)

The views which the Chairman expressed in his speech

to ACT were not limited to factual issues central to the

Children’s Advertising proceeding. He also made clear his

views on the ultimate issues involved in the proceeding. His

speech was dotted with pithy statements and rhetorical

questions which left no doubt as to what his position would

be when called upon to determine whether children’s ad-

vertising was unfair or deceptive within the meaning of

Section 5 of the FTC Act.

11

“Advertisers seize on the child’s trust and exploit

it as a weakness for their gain.” (App. at E3.)

“If there is one salient public policy which rises

commandingly from centuries of common and statu-

tory law, it is that the commercial exploitation of chil-

dren is repugnant to a civilized society.” (App. at

E4E5.)

@ - @ *

“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 in-

creasing tooth decay and malnutrition to injecting un-

conscionable stress into the parent-child relationship?”

(App. at 7.)

°* ¢# 2 os

“In short, why isn’t such advertising unfair within

tie meaning of the Federal Trade Commission Act

and, hence, unlawful?” (App. at E6; emphasis added.)

The day after his speech to ACT the Chairman sent

copies of the speech with brief cover memos to various

individuals. In one of those cover memos, sent to Coleman

McCarthy, a Washington newspaper columnist, the Chair-

man wrote:

“Coleman, I know you share my concern in raising

public consciousness to the part we play as a society

for permitting children to be made commercial objects.

I thought you’d want to see this statement in which

I’ve tried to establish underpinings [sic] for a funda-

mental assault on television advertising directed to-

ward young children.” (J.A. at 71; emphasis added.)

Finally, Chairman Pertschuk sent the following letter

to Donald Kennedy, the Commissioner of the Food and

Drug Administration. This private correspondence between

high-ranking administrative officials, charged with the re-

12

sponsible implementation of public policy based on proper

balancing of competing interests, speaks for itself:

“November 17, 1977

Honorable Donald Kennedy

Food and Drug Administration

Parklawn Building

5600 Fishers Lane

Rockville, Maryland 20852

Dear Don:

Setting legal theory aside, the truth is that we've

been drawn into this issue because of the conviction,

which I know you share, that one of the evils flowing

from the unfairness of children’s advertising ts the

resulting distortion of children’s perceptions of nutri-

tional values. I see, at this point, our logical process av

follows: children’s advertising ts inherently unfair. As

a policy planning agency we have to make judgments

as to our priorities. The first area in which we choose

to act is an area in which a substantial controversy

exists as to the health consequences of encouraging

consumption of sugared products (not just cereals).

With this formulation we do not have to prove the

health consequences of sugared cereals. What we do

have to prove is that there is a substantial health con-

troversy regarding the health consequences of sugar—

a much lower burden of proof.

I’m convinced that the convergence of public policies

regarding the commercial exploitation of children with

the health controversy over sugared products give us

a stronger base and frankly deal directly with the

underlying concerns which prompt our action.

Sincerely yours,

Michael Pertschuk”

(J.A. at 95; emphasis added).

13

REASONS FOR GRANTING THE WRIT

This case presents an issue of first impression that has

far-reaching consequences for individuals and businesses

subject to Federal Trade Commission rulemaking proceed-

ings under Section 18 of the FTC Act. Five years ago, in

enacting the Federal Trade Commission Improvement Act

(Pub. L. No. 93-637, January 4, 1975), Congress established

an entirely new form of rulemaking proceeding for the

FTC by adding Section 18 to the FTC Act. In this petition,

this Court is asked to determine the conditions under which

an FTC Commissioner should be disqualified from partici-

pating in a Section 18 proceedings due to personal pre-

judgment of factual issues involved in the proceeding. in

the course of making that determination, this Court will be

required to undertake its first in-depth examination of the

nature and purpose of a statute which has already had a

significant impact on American businesses and consumers.°

The particular issue to be decided in this case—the

proper disqualification standard to be applied in a Section

18 proceeding—is based on the due process right to a fair

and impartial decisionmaker in an administrative proceed-

ing. That right, in turn, depends on the nature of the ad-

ministrative proceeding in question. Thus, the proper

standard for disqualification of Commissioners from Sec-

tion 18 proceedings turns on the particula. statutory frame-

work for Commission rulemaking mandated by Congress in

Section 18.

*During Section 18's five-year history four rules have been prom-

ulgated and fifteen proceedings are pending. See 4 CCH Trade

Regulation Reporter, {{ 38,001, 38,002 (1980). The two final rules

which have been subjected to judicial review have both been

remanded to the Commission for further proceedings. Katharine

Gibbs School (Inc.) v. FTC, 1980-1 CCH Trade Cas. { 63,077 (2d

Cir. 1979) (vocational schools rule); American Optometric As-

sociation v. FTC, 1980-1 CCH Trade Cas. { 63,165 (D.C. Cir. 1980)

(ophthalmic goods and services rule).

14

The court below set forth a standard whick would allow

a Commissioner to participate in a Section 18 proceeding

absent “a clear and convincing showing that he has an

unalterably closed mind on matters critical to the disposi-

tion of the rulemaking.” This standard, which effectively

insulates an FTC Commissioner from prejudgment dis-

qualification in virtually all situations, flies in the face of

the rigorous fact-testing and judicial review requirements

imposed upon the Commission by Congress in Section 18.

The decision of the Court of Appeals vitiates these Con-

gressional checks on the Commission’s broad rulemaking

powers and destroys the delicate balance between efficiency

and fairness Congress sought to establish in Section 18.

In addition to distorting the fundamental nature of Sec-

tion 18 proceedings, the decision of the Court of Appeals

sets forth a prejudgment standard which, when applied,

confers virtual immunity to biased administrative officials.

If unreviewed, this first attempt by a federal court to

impose a prejudgment disqualification standard on rule-

making proceedings will assure that prejudgment disquali-

fication is written out of such proceedings, in derogation

of fundamental principles of due process and fairness in

administrative decisionmaking. Thus, the decision of the

court below will have an enormous adverse impact on both

Section 18 rulemaking proceedings and the entire range

of rulemaking activities conducted by agencies of the

federal government. For these reasons this Court should

issue a writ of certiorari to review the decision of the

court below.

15

T

THIS COURT SHOULD DECIDE THE EXTENT TO

WHICH DUE PROCESS REQUIRES A FAIR AND

IMPARTIAL DECISIONMAKER IN A PROCEEDING

UNDER SECTION 18 OF THE FTC ACT

A. The Court Below Failed to Recognize That Congress

Struck a Balance in Section 18 Between Administra-

tive Efficiency and Fairness to Participants

This Court is called upon to decide the nature of an

acknowledged due process right—the right to an impartial

decisionmaker—that is not specifically prescribed by the

statute which establishes the decisionmaking process.

Nevertheless, the nature of the decisionmaking process is

the essential element upon which that due process right de-

pends. The court below erred by merely characterizing

Section 18 proceedings as rulemaking and by refusing to

recognize the underlying Congressional purpose of guar-

anteeing a fair opportunity to participate meaningfully in

Section 18 proceedings. That purpose is evident from a

consideration of the legislative history of Section 18.

On June 27, 1973, the Court of Appeals for the District

of Columbia Circuit held that the Federal Trade Commis-

sion, under Section 6(g) of the FTC Act (15 U.S.C.

§ 46(g)) had the power to issue substantive rules to im-

plement its authority under Section 5 of the Act to regu-

late “unfair acts or practices in commerce.” National

Petroleum Refiners Association v. FTC, 482 F.2d 672 (D.C.

Cir. 1973). The Court of Appeals further held that the

promulgation of these rules was subject only to the notice

and comment requirements of Section 4 of the Administra-

tive Procedure Act (5 U.S.C. § 553). Certiorari was denied

by this Court on February 25, 1974. 415 U.S. 951.

Less than eleven months later, on January 4, 1975, the

Federal Trade Commission Improvement Act was signed

16

into law as Public Law No. 93-637. The FTC Improvement

Act added a new Section 18 to the FTC Act which sub-

stantially altered the informal nature of the trade regula-

tion rulemaking procedures which had been enunciated in

the National Petroleum Refiners case. The impetus for

such action was clear. Congress was concerned that indi-

viduals and businesses subject to the Commission’s expan-

sive statutory authority would not receive an adequate

opportunity to participate in Commission decisions under

the informal procedures approved in the National Petro-

lewm Refiners case. The House Committee on Interstate

and Foreign Commerce, in reporting out the immediate

predecessor to Section 18, branded the notice and comment

requirements and the loose “arbitrary or capricious” re-

view standard of informal rulemaking as “inadequate for

proceedings in which the integrity of the proposed rule

may rest on the resolution of issues of material fact.”

H.R.Rep. No. 93-1107, 93d Cong., 2d Sess. 33 (1974). The

Committee explicitly stated:

“Because of the potentially pervasive and deep effect

of rules defining what constitutes unfair or deceptive

acts or practices and the broad standards which are

set by the words ‘unfair or deceptive acts or practices’,

the committee believes greater procedural safeguards

are necessary. Accordingly, it has fashioned the rule-

making procedures and judicial review provisions de-

scribed below which we believe to be more appropriate

in this context than merely relying upon the provi-

sions of sections 553 and 706 of title 5.” Id. at 45-46.

Thus, a number of procedural safeguards were added by

Congress in Section 18 to the notice and opportunity to

comment required by Section 4 of the APA and the Na-

tional Petroleum Refiners case. The statute was, and still

remains, the preeminent example of “hybrid” rulemaking-—

adding significant adjudicative features to informal rule-

making procedures. Interested persons are given the op-

17

portunity to make oral presentations as well as submit

written comments. 15 U.S.C. § 57a(¢)(1)(A). Participants

are also allowed to cross-examine witnesses and present

rebuttal submissions on disputed issues of material fact

that are necessary to resolve before promulgating a rule.

15 U.S.C. § 57a(c)(1)(B). Further, the Court of Appeals,

when reviewing a final rule promulgated under Section 18,

is required to overturn any rule in which the denial or

limitation of an interested person’s right to engage in

cross-examination or make rebuttal submissions “has pre-

cluded disclosure of disputed material facts which was

necessary for fair determination by the Commission of

the rulemaking proceeding taken as a whole.” 15 U.S.C.

§ 57a(e) (3) (B).

In addition to establishing procedures which insure that

the Commission will elicit facts central to its proposed

rules, Congress also sought to guarantee that the Commis-

sion would rely on its fact-testing process in deciding

whether a rule should issue. Thus, in Section 18 Congress

required that the reviewing court shall hold unlawful and

set aside any rule “not supported by substantial evidence

in the rulemaking record . . . taken as a whole.” 15 U.S.C.

§ 57a(e) (3) (A).

On the other hand, concern was expressed that overly

formal procedures would unduly hamper the efficiency of

Commission proceedings. See H.R. Rep. No. 93-1606, 93d

Cong., 2d Sess. 33 (1974). Thus, the Commission was given

authority to limit cross-examination and rebuttal submis-

sions “to avoid unnecessary costs or delay.” 15 U.S.C.

§ 57a(c)(2). However, Congress cautioned that such limi-

tations must be “consistent with the overall requirement of

fairness in the legislation.” H.R. Rep. No. 93-1606, supra,

at 33. In sum, Congress sought a balance in Section 18

between administrative efficiency and fair and meaningful

participation by those affected by Commission rules.

18

The majority of the court below, while paying lip service

to the statutory safeguards required by Congress in Sec-

tion 18, totally refused to recognize the basic purpose

behind those safeguards. Although it recited the fact-

testing and review requirements of Section 18 (App. at

A31, n. 35), the majority focused solely on the fact that

Section 18 is a rulemaking proceeding, not an adjudication.

It never looked beyond that superficial distinction. In so

doing, the majority went so far as to analogize the Com-

mission’s carefully circumscribed authority under Section

18 to Congress’s unfettered legislative powers (App. at

A27-A28), despite the obvious fundamental differences be-

tween legislatures and administrative agencies, as dis-

cussed by the dissent (App. at A87-A91). It is this dis-

tortion by the majority of the Congressional purpose

expressed in Section 18 which led to the extreme disquali-

fication standard developed in this case.

B. The Court Below, in Devising Its “Unalterably Closed

Mind” Standard for Actual Personal Prejudgment in

Section 18 Proceedings, Misconstrued Decisions of This

Court Which Involved Disqualification Claims Based

Solely on the Combination of Administrative Functions

The court below created a new disqualification standard

for actual personal prejudgment of factual issues in Sec-

tion 18 proceedings. It held that “[a]n agency member

may be disqualified from such a proceeding only when

there is a clear and convincing showing that he has an

unalterably closed mind on matters critical to the dispo-

sition of the rulemaking.” (App. at A3-A4.) In devising

this standard, the majority of the court below borrowed

from the language of two decisions of this Court, Horton-

vile Joint School District No. 1 v. Hortonville Education

Association, 426 U.S. 482 (1976), and FTC v. Cement In-

stitute, 333 U.S. 683 (1948) (App. at A37-A38). The

19

majority’s use of these two decisions to buttress its “un-

alterably closed mind” standard exhibits a lack of under-

standing of the nature of the case presented against

Chairman Pertschuk and, if unreviewed, will extend the

application of the Hortonville case and the Cement Insti

tute case to situations wholly different from those before

this Court in those cases.

Simply put, the Hortonville and Cement Institute cases

involved situations in which administrative bodies, re-

quired to perform two types of functions, were charged

with disqualifying bias in one function solely because they

had performed the other required function. In other words,

the disqualification claims arose solely from the combina-

tion of administrative functions. In the Hortonville case,

a school board was responsible for negotiating contracts

with the teachers of the school district. After negotiations

broke down and the teachers went on strike in violation of

state law, the board exercised its exclusive power to dis-

miss the teachers. This Court held that the board could

exercise both statutory duties—to negotiate with and to

dismiss teachers—in accord with due process. However,

this Court clearly limited the application of its decision.

It stressed that no claim was presented that Board mem-

bers were personally biased against the teachers. 426 U.S.

at 491-92. Thus, the sole issue before the Court was

whether the Board’s performance of one statutory duty

precluded it from performing another statutorily-required

function. Id. at 492-93. See also Withrow v. Larkin, 421

U.S. 35, 50 n. 16 (1975).

In the Cement Institute case, the claim was made that

the FTC should be disqualified from passing upon issues

involved in an adjudicative proceeding against the basing

point pricing system utilized by the cement industry be-

cause the Commission had previously reported to Congress

that such a system was illegal. This Court noted that the

20

Commission was obligated to obey Congressional requests

to investigate and report on particular matters. 7d. at 701.

Thus, as in the Hortonville case, the respondents would

have required that the performance of one statutory duty

barred the Commission from exercising another obligatory

function. Jd. at 702. Further, as in the Hortonville case,

if the Commission were thereby precluded from adjudicat-

ing the legality of the basing point pricing system, no

other governmental agency could undertake such action.

Id. at 701. It is little wonder then that this Court would

not disqualify the entire Commission in the Cement Instt-

tute case absent a showing that “the minds of its members

were irrevocably closed on the subject of the respondents’

basing point practices.” Id.

The present case is wholly different from the Horton-

vile case and the Cement Institute case. Chairman Perts-

chuk’s disqualification is sought because of his actual

personal prejudgment of factual issues in the Children’s

Advertising proceeding. No contention is made that Chair-

man Pertschuk should be disqualified merely because of his

participation in another statutorily-mandated function.

The majority suggests that the Commission was required

to form preliminary conclusions before issuing*the initial

notice of proposed rulemaking (App. at A38). ie addition,

the majority points to the requirement that commissioners

remain free to discuss important policy issues (App. at

A34). However, neither of these functions required the

Chairman to take the forceful, unrelenting position that

“children’s advertising is inherently unfair.” (Letter to

Donald Kennedy, J.A. at 95.) No other Commissioner,

charged with the same duties as the Chairman, exhibited

such actual personal prejudgment. By misreading this

Court’s decisions in Hortonville and Cement Instiiute, the

majority has created a standard for prejudgment disquali-

fication uniquely unsuited to Section 18 proceedings.

21

C. Application of the Disqualification Standard Adopted

By the Court Below Would Negate Congress’s Efforts

to Insure Fair and Meaningful Participation in Sec-

tion 18 Proceedings and Would Add Nothing to the

Efficiency of Such Proceedings

Application of the disqualification standard set forth by

the court below will destroy the delicate balance created

by Congress. By allowing a Commissioner to participate

in a Section 18 proceeding absent a “clear and convincing

showing of an unalterably closed mind,” the majority

would permit the participation of a Commissioner who

has fixed views on the ultimate issues to be determined

in the proceeding and equally rigid views on the factual

issues whose resolution may be necessary in reaching that

ultimate conclusion. The only showing a Commissioner

need make to avoid disqualification is that he or she might

possibly be swayed by overwhelming evidence or particn-

larly compelling lines of cross-examination—that the Com-

missioner’s prejudgment, while firm, is not “unalterable.”

With such a Commissioner participating in a trade regu-

lation rulemaking proceeding, the right to engage in cross-

examination and submit rebuttal evidence on disputed

issues of material fact which are necessary to resolve be-

comes a hollow right, if a right at all. In fact, the most

drastic effect will occur in situations such as the Children’s

Advertising proceeding itself, with its specially devised

two-hearing process.’ The burden faced by a participant

In the first stage, termed the “legislative” hearing, any interested

person may a and make an oral presentation on any aspect

of the rule. No cross-examination is permitted at the 4

hearing. The second round of hearings will take place if the

Commission determines that there remain disputed issues of

material fact that are necessary to resolve. In that case, recall and

cross-examination of relevant witnesses and of rebuttal

witnesses will be permitted. ( App. at D15- )

In other words, the “disputed issues” hearing is a limited adjudi-

cative-type hearing. However, a Commissioner who has precon-

22

who confronts a predisposed Commissioner is completely

inconsistent with “Congress’s particular concern for the

accuracy of fact-finding . . .” in Section 18 proceedings.

American Optometric Association v. FTC, 1980-1 CCH

Trade Cas. {| 63,165 at 77,801 (D.C. Cir. 1980).

Likewise, the requirement that a reviewing court strike

down rules promulgated under Section 18 unless they are

“supported by substantial evidence on the rulemaking rec-

ord ... taken as a whole” is imperiled by the disqualifica-

tion standard embraced by the majority of the court below.

Unlike purely informal rulemaking, which requires only

that the agency determination not be arbitrary or capri-

cious, the factual basis of rules promulgated under Section

18 must be supported by record evidence. See American

Optometric Association v. FTC, supra; Katharine Gibbs

School (Inc.) v. FTC, 1980-1 CCH Trade Cas. {If 63,077

at 77,343 (2d Cir. 1979). If a decisionmaker is allowed to

prejudge central factual issues based on extrarecord

prejudices, reasoned decisionmaking—the purpose of the

substantial evidence review standard—will fall by the

wayside, as will the “integrity” of the trade regulation

rulemaking process, a goal specifically sought in the devel-

opment of Section 18. H.R. Rep. No. 93-1107, 93d Cong.,

2d Sess. 33 (1974).

Beyond directly contradicting Congress’s expressed con-

cern for fairness in Section 18 proceedings, the “unalter-

ably closed mind” standard in no way contributes to the

efficiency of the administrative process. Unlike restrictions

on cross-examination and rebuttal, an unrestrictive pre-

judgment standard neither avoids undue delay nor limits

ceived impressions on factual and ultimate issues may well conclude

that there are no disputed issues of material facts necessary to

resolve and that no “disputed issues” hearing is appropriate. In such ~

a case, the right of interested persons to engage in cross-examination

may be foreclosed absolutely, as well as practically, by the partici-

pation of a biased Commissioner.

23

irrelevant information. In short, the majority’s disquali-

fication standard imposes great costs on Section 18 but

offers no benefit whatsoever.

D. The Court Below, in Refusing to Apply the Standard

for Prejudgment Disqualification Established for Com-

mission Adjudicative Proceedings, Ignored the Similar-

ities Between Section 18 Rulemaking and Commission

Adjudication

The standard for prejudgment disqualification in Section

18 proceedings proposed by petitioners, accepted by the

District Court, but rejected by the majority of the Court

of Appeals is the disqualification standard set forth in

Cinderella Career and Finishing Schools, Inc. v. FTC, 425

F.2d 583 (D.C. Cir. 1970).

“The test for disqualification [is] . . . whether ‘a

disinterested observer may conclude that [the Com-

missioner] 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. de-

nied, 361 U.S. 896 (1959).

The majority of the court below refused to apply the

Cinderella standard to the evidence of Chairman Perts-

chuk’s prejudgment because the Cinderella standard was

developed in an adjudicatory proceeding before the Com-

mission and not a hybrid rulemaking proceeding under

Section 18. Instead, the majority relied on the presumption

that rules promulgated in: Section 18 proceedings have

industry-wide applicability, while Commission adjudicative

proceedings only determine the rights of parties to the

proceeding.

“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 formulation of specific fact, the product of

24

those procedures is ‘used in the formulation of a basi-

cally legislative-type judgment.’ [United States v.

Florida East Coast Railway, 410 U.S. 224, 246 (1973) ].

Although we recognize that the line between rulemak-

ing and adjudication ‘may not always be a bright one,’

Id. at 245, we have no doubt that section 18 proceed-

ings fall clearly on the rulemaking side of the ‘recog-

nized distinction in administrative law between pro-

ceedings for the purpose of promulgating policy-type

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

adjudicate disputed facts in particular cases on the

other.’ Id.” (App. at A26-A27.)

The majority concluded “we never intended the Cinderella

rule to apply to a rulemaking procedure such as the one

under review.” (App. at A33.)°

SJudge Tamm, the author of the majority opinion of the court

below, was also the author of the Cinderella opinion. However,

Judge MacKinnon, dissenting from Judge Tamm’s opinion below,

was also on the Cinderella panel. He expressed a very different view.

“The next assertion, by the author of the Cinderella opinion:

is that ‘we never intended the Cinderella rule to apply to a

rulemakin P ocedure such as the one under review.’ (Em-

phasis added). So far as the other judges of the division of

the Court that decided the Cinderella case are concerned, I

believe this is an overstatement. We never expressed any

opinion as to the application of our ruling in Cinderella to a

Magnuson-Moss rulemaking proceeding. t issue was not in-

volved in the case. We never concluded that the same principle

did, or did not, apply to such proceedings. We applied the rule

to disqualify the Chairman in Cinderella, a case involving an

adjudication, because the parties had a right to a fair decision-

maker. Since, as the majority admits, a fair decisionmaker also

is required here in the promulgation of substantive rules estab-

lishing specific unfair and deceptive acts and practices, no

reason exists why the same rule should not be applied to this

case in order to assure fair decisionmakers. How else could

fair decisionmakers be obtained?” (App. at A92-A93; emphasis

in original. )

Judge MacKinnon went on to develop an intermediate standard

for disqualification in Section 18 ings.

“[T]he moving party must show by a preponderance of the

evidence that the decisionmaker could not participate fairly

in the formulation of the rule because of substantial bias or pre-

25

As previously discussed, the majority’s rejection of the

Cinderella standard disregards the emphasis on fairness

imposed on the Commission by Congress through the fact-

finding and review requirements of Section 18. Addition-

ally, the majority completely ignores the impact of a

Commission adjudicative proceeding on members of an

industry who are not party to the adjudicative proceed-

ing but whose acts or practices might be called into ques-

tion during the course of the adjudication. At the same time

that it enacted Section 18, Congress granted to the Com-

mission the power to enforce adjudicative cease and desist

orders against individuals and companies not party to the

adjudication. 15 U.S.C. §45(m)(1)(B). Under this provi-

sion, a non-party may be held liable under Section 5 of the

FTC Act merely upon a determination that it engaged in

the acts or practices described in the cease and desist

order, and that it knew that those acts or practices were

illegal. Thus, the difference in impact between Commission

rulemaking and Commission adjudication, which lay at the

heart of the majority’s rejection of the Cinderella stan-

dard, is virtually nonexistent.

In fact, every reason exists to apply the Cinderella stan-

dard to Section 18 proceedings. The standard was devel-

oped to censure actions “which give the appearance that

[a Commissioner] has already prejudged the case and that

the ultimate determination of the merits will move in

predestined grooves.” Cinderella Career and Finishing

Schools, Inc. v. FTC, supra, 425 F.2d at 590 (emphasis

added). If such prejudgment were allowed, the procedural

rights of a party to an adjudication (such as cross-

examination and rebuttal) would be empty shells. The

same is true for rulemaking under Section 18, particularly

judgment on any critical fact that must be resolved in such

formulation.” (App. at A99.)

Judge MacKinnon would have disqualified Chairman Pertschuk

under this

26

in the Children’s Advertising proceeding, of which another

court has already observed

“one gets the impression that the proceeding itself

is window dressing for the benefit of a court passing

on a final trade regulation rule that was in stock long

before its tentative models were displayed in the chil-

dren’s advertising Notice.” Association of National

Advertisers, Inc. v. FTC, 1979-2 CCH Trade Cas.

{ 62,950 at 79,398 (D.C. Cir. 1979).

Likewise, prejudgment in adjudicative proceedings has

been deemed unacceptable because it

“may have the effect of entrenching a Commissioner

in a position which he has publicly stated, making it

difficult, if not impossible, for him to reach a different

conclusion in the event he deems it necessary to do so

after consideration of the record.” Cinderella Career

and Finishing Schools, Inc. v. FTC, supra, 425 F.2d

at 590; emphasis added.

This basic incompatibility between factual prejudgment

and reliance on record evidence is well-established.

“There can be no doubt that courts have insisted

and will insist on absence of partiality or even the

appearance of it by those exercising quasi-judicial

functions, or authorized to form conclusions of fact or

law upon written records.” Starr v. FAA, 589 F.2d

307, 315 (7th Cir. 1978).

As discussed, Section 18 requires just such a written

record. The factors which led to the development of the

Cinderella standard for Commission adjudicative proceed-

ings—the need for an open-minded scrutiny of the facts

developed during the proceeding and the need to substan-

tiate any decision with record evidence—are present in

Section 18 proceedings as well. The decision of the court

below disregards these basic facts and should be reversed.

27

II

THE DECISION OF THE COURT BELOW, IF NOT

REVERSED, WILL VIRTUALLY PRECLUDE THE

DISQUALIFICATION OF ANY FEDERAL ADMINIS-

TRATIVE OFFICIAL FROM ANY RULEMAKING

PROCEEDING

A. The “Unalterably Closed Mind” Standard Will Be Ap-

plied to That Great Majority of Administrative Rule-

making Proceedings Which Have Fewer Statutory

Safeguards Than Section 18

Over the past forty years Congress has delegated in-

creasing authority to federal administrative agencies.

During this period, and in the past decade in particular,

the administrative agencies have come to exercise their

delegated authority more and more frequently through the

promulgation of rules of general applicability, rather than

through case-by-case adjudication.

“The multiplication of rulemaking during the 1970’s

is in such volume that predictions that rulemaking will

become the mainstay for carrying out government pro-

grams are no longer appropriate. Such predictions

have already come true. Rulemaking is now the main-

stay. And the prospects are that it will continue to in-

crease.” 1 K. Davis, Administrative Law Treatise,

§1:9 at 34 (2d ed. 1978) ; emphasis in original.

The decision of the court below, if not reversed, will apply

to the great majority of rulemaking proceedings currently

undertaken by federal agencies. The broad application of

the “unalterably closed mind” standard will insulate vir-

tually all administrative officials, not just FTC Commis-

sioners, from disqualification for prejudgment of factual

issues in rulemaking proceedings.

The Administrative Procedure Act provides two models

for rulemaking: informal, notice and comment proceedings

under Section 4 (5 U.S.C. § 553), and formal, on the record

28

proceedings under Sections 7 and 8 (5 U.S.C. §§ 556, 557).

In recent years, use of formal rulemaking procedures has

decreased dramatically. At the same time, Congress has

enacted a number of “hybrid” rulemaking statutes for par-

ticular agencies,® employing aspects of both “informal” and

“formal” rulemaking. Of these hybrid statutes, only two—

Section 18 of the FTC Act and Section 6 of the Toxic Sub-

stance Control Act (15 U.S.C. § 2605)—provide for both

cross-examination and substantial evidence review. If the

“unalterably closed mind” standard is applied to Section 18

proceedings, then that same disqualification standard must

apply to all rulemaking proceedings with less comprehen-

sive statutory guarantees. In short, if unreviewed, the “un-

alterably closed mind” standard will apply to all rule-

making proceedings short of formal rulemaking.”°

B. If the Evidence Against Chairman Pertschuk is Insuf-

ficient to Meet the “Unalterably Closed Mind” Pre-

judgment Standard, Then it Is Difficult to Imagine

How Any Administrative Official Could Ever Be Dis-

qualified From a Rulemaking Proceeding on the

Grounds of Prejudgment

Often it is difficult to predict what effect a particular

standard or rule will have in practice merely by examining

it on its face. The majority of the court below, however,

*Besides Section 18 of the FTC Act, 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. § 665 (1976); Department of Energy

Organization 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).

*°In fact, it may apply to formal rulemaking, too. That application

was proposed by the seven independent regulatory agencies who

filed a joint brief with the Court of Appeals, as amici curiae. See

footnote 3, supra; Amici’s Brief at 14. The reasoning of Judge

Tamm’s opinion—that the Cinderella standard should not be ap-

plied in proceedings designed to consider rules of general ote 4

cability—would suggest the same result.

29

has provided an excellent opportunity to see the actual

contours of the “unalterably closed mind” standard by ap-

plying it to this case. The majority’s application of that

standard to excuse Chairman Pertschuk’s conduct in the

Children’s Advertising proceeding is a stark confirmation

of Judge MacKinnon’s view “that evidence of bias and

prejudice would not be disqualifying unless it could sur-

mount a fence that is horse high, pig tight and bull strong.”

(App. at A77.) The majority opinion, if unreversed, will

build such a fence to surround virtually all rulemaking pro-

ceedings conducted by federal agencies.

The facts of this case are set forth above and in Section

IV of Judge MacKinnon’s dissent (App. at A77-A87). They

need not be recounted in depth here. Suffice it to say that

the Chairman has repeatedly referred to children’s tele-

vision advertising as “evil” and “unfair”. He has flatly

stated that advertisers “exploit” and “manipulate” chil-

dren, treating them as “commercial objects”, and has ex-

pressed concern about the “moral myopia” that allows such

practices to continue. Finally, the Chairman, in his letter

to Food and Drug Commissioner Donald Kennedy, stated

the “conviction” that “children’s advertising is inherently

unfair”.

The District Court described the Chairman’s statements

and letters as consisting of “conclusory statements of fact’’

and “emotional use of derogatory-terms and characteriza-

tions”, indicating “his affirmative efforts to propagate his

settled views. .. .” (App. at B4.) Judge MacKinnon con-

cluded that the Chairman was “a vigorous public advocate

‘committed’ to curing the ‘evils’ and ‘moral myopia” evi-

dent in the ‘exploitation’ of children’s advertising on TV”.

(App. at A99). Professor Antonin Scalia, former Chairman

of the Administrative Conference of the United States, has

observed that “it is admittedly difficult to recall so vigorous

an expression of prejudgment in a pending proceeding.”

30

Scalia, Vermont Yankee: The APA, the D.C. Circuit, and

the Supreme Court, 1978 Sup.Ct.Rev. 345, 408 n. 255. How-

ever, the majority of the court below saw the Chairman’s

remarks, considered as a whole, as merely “discussion, and

perhaps advocacy, of the legal theory that might support

exercise of the Commission’s jurisdiction over children’s

advertising.” (App. at A41.)

Thus, under the majority’s standard, it is clear that an

administrative official can only be disqualified from a rule-

making proceeding for prejudgment if he or she expressly

states, “Nothing will change my mind.” In reality, the

majority has completely written prejudgment disqualifica-

tion out of federal administrative rulemaking proceedings.

The decision of the court below is fundamentally at odds

with basic notions of Constitutional due process and fair-

ness. This Court should grant petitioners’ request and issue

a writ of certiorari to review the decision below.

STATEMENT OF FACTS AND LAW

REGARDING MOOTNESS

Shortly after judgment was entered by the court below,

an additional development occurred which might lead re-

spondents to argue that this case is moot.’* On January 7,

1980, eleven days after judgment was entered by the Court

41Although it appears that Chairman Pertschuk has in fact met

even this test. “Conviction” is defined as “the state of being con-

vinced; a fixed or firm belief.” “Inherent” is defined as “existing in

something as a permanent and inseparable element, quality or at-

tribute”. The Random House Dictionary of the Englich Language,

Unabridged Edition (1966). Both words appear prominently in the

Chairman’s statements on children’s advertising.

“While petitioners conclude that the subsequent development

does not render this case moot, and will set forth the basis for that

conclusion in this section, the question of mootness is a jurisdic-

tional question. United States v. Alaska S. S. Co., 253 U.S. 113

(1920). As such, petitioners recognize their duty to bring the moot-

ness question before this Court. See Fusari v. Steinberg, 419 U.S.

379, 390-391 (1975) (Burger, C.J., concurring).

31

of Appeals and almost twenty months after he was first

requested to step down, Chairman Pertschuk recused him-

self from the Children’s Advertising proceeding. In a state-

ment prepared as a press release (Appendix F), the Chair-

man lauded the Court of Appeals decision as confirming

“the lawfulness and appropriateness of my participation in

this proceeding.” (App. at F2.) He reasserted the position

he had taken throughout the litigation. “I declined [to

recuse myself] because I knew I could and would decide the

issues involved fairly and objectively based upon the

record.” (Jd.) However, he voluntarily ceased his partici-

pation in the Children’s Advertising proceeding, ostensibly

to insure that the current Congressional debate on the

propriety of the Children’s Advertising proceeding itself

would not focus on “a diversionary issue”—the Chairman’s

participation in those proceedings. (App. at F3.)

Petitioners submit that Chairman Pertschuk’s voluntary

recusal from the Children’s Advertising proceeding does

not deprive this Court of jurisdiction to hear this case. The

Chairman’s recusal, coming within two weeks after he re-

ceived a favorable opinion from a divided panel of the

court below, is a classic example of a well-recognized ex-

ception to the mootness doctrine—the “voluntary cessation

of allegedly illegal conduct.” United States v. W. T. Grant

Co., 345 U.S. 629 (1953).

The rationale behind the development of the “voluntary

cessation” exception is clear. This Court has long recog-

nized that if a party to litigation could shield itself from

judicial review by unilaterally suspending its challenged

conduct while continuing to assert the legality of that con-

duct, individual parties could easily gain undue control

over the judiciary’s power to resolve controversies. United

States v. Trans-Missouri Freight Association, 166 U.S.

290 (1897).

32

Thus, this Court has not permitted a sole party to in-

sulate its conduct from judicial review by merely ceasing

that conduct when review is imminent. The principle is

best illustrated by the leading case in this area, United

States v. W. T. Grant Co., 345 U.S. 629 (1953), a case in

which the actions of the defendants closely approximate

those of Chairman Pertschuk. In W. T. Grant, after five

years of administrative effort, the government brought

suit to enjoin one Hancock from sitting on the boards of

directors of corporations who were substantial competitors

with one another. Soon after the complaints were filed

against Hancock and the corporations, Hancock resigned

from certain of the boards, which alleviated the allegedly

illegal conduct. Defendants refused to acknowledge the

illegality of their conduct; however, they disclaimed any

intention of reviving the interlocking directorates. This

Court held that Hancock’s resignations did not moot the

case.

“Both sides agree to the abstract proposition that

voluntary cessation of allegedly illegal conduct does

not deprive the tribunal of power to hear and deter-

mine the case, 7.e., does not make the case moot...

A controversy may remain to be settled in such cir-

cumstances, ... e.g., a dispute over the legality of the

challenged practices. ... The defendant is free to re-

turn to his old ways. This, together with a public in-

terest in having the legality of the practices settled,

militates against a mootness conclusion. For to say

that the case has become moot means that the defend-

ant is entitled to a dismissal as a matter of right,...

The courts have rightly refused to grant defendants

such a powerful weapon against public law enforce-

ment.

“The case may nevertheless be moot if the defendant

can demonstrate that ‘there is no reasonable expecta-

tion that the wrong will be repeated.’ The burden is

a heavy one. Here the defendants told the court that

the interlocks no longer existed and disclaimed any

33

intention to revive them. Such a profession does not

suffice to make a case moot although it is one of the

factors to be considered in determining the appropri-

ateness of granting an injunction against the now-

discontinued acts. Id. at 632-33; citations and footnotes

omitted; emphasis added.

The principle enunciated in W. T. Grant applies directly

to the present case. Chairman Pertschuk was first requested

to recuse himself from the Children’s Advertising proceed-

ing in May of 1978. On July 13, 1978, he refused to recuse

himself, claiming that he could consider the issues raised

in the proceeding impartially. Eighteen months later, after

vigorous litigation in the District Court and the Court of

Appeals, the Chairman reversed his decision of July 13,

1978, and withdrew from the proceeding. In the press re-

lease announcing his withdrawal, the Chairman indicated

that his change of position was taken “in the best interest

of the FTC generally and the Children’s Advertising pro-

ceeding in particular” (App. at F2), and was prompted

by the controversy in Congress surrounding the Commis-

sion’s activities. There was no indication that his recusal

was influenced in any way by a reassessment of the pro-

priety of his continued participation in the Children’s

Advertising proceeding; in fact, the Chairman forcefully

reasserted the legality of his continued participation.

Petitioners do not know whether the Chairman will as-

sert that his action has mooted the decision below. How-

ever, if the Chairman adopts such a position, this Court

cannot allow such brazen maneuvering to undermine its

jurisdiction. Obviously, the Chairman’s recusal was

prompted by more than just his concern over the Congres-

sional debates about the FTC. Those-debates were just as

heated eleven days before the Court of Appeals decision

as they were eleven days after. If his recusal were allowed

to moot this controversy, there is no statutory or regula-

34

tory provision that would expressly prohibit Chairman

Pertschuk from resuming participation if he subsequently

found it “in the best interest of the FTC generally and the

Children’s Advertising proceeding in particular.”™ In short,

the Chairman has left open much more of a reasonable

expectation that he will “return to his old ways” than did

the defendants in W. T. Grant. The Chairman’s current

recusal, if it has any bearing at all, relates only to the

injunctive relief sought and received by petitioners in the

District Court, not to the declaratory judgment rendered

by the District Court. Nor is this case in any way affected

by the fact that it is the government’s unilateral activity

which is in question, see Gray v. Sanders, 372 U.S. 368,

375-76 (1963); Quern v. Mandley, 486 U.S. 725, 733, n. 7

(1978), nor that the Chairman withdrew after receiving a

favorable opinion, United States v. Trans-Missouri Freight

Association, supra, 166 U.S. 290 (1897). In this case of

great importance to all those subject to the federal regu-

latory process, petitioners respectfully submit that the

consideration of this Court should not be frustrated by

political jockeying.”

13E.g., if the vagaries of political sentiment improved the relation-

ship between the Commission and Congress, or if the Children’s

Advertising proceeding some became stalled, as it has once before,

by the lack of three qualified Commissioners besides the Chairman.

‘ 14In the oo Court does find the Chairman’s recusal =

cient to render the case moot, petitioners ——— request that

this Court vacate the judgment of the Court o preen fl and remand

the case to that court for entry of an order directing the District

Court to dismiss the action as moot. United States v. Munsingwear,

Inc., 340 U.S. 36, 39 (1950).

35

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be granted.

Respectfully submitted,

Freperick P. FurtH

Tuomas R. FaHRNER

Cuar.es P. WoLFr

Scott RigHTHAND

Furtu, Fanrner, BLuEMLE,

Mason & Wonc

SamuE. H. Seymour

Seymour & DupDLEy

Attorneys for Petitioner

Kellogg Company