Petition — FTC v. Standard Oil Co. of Cal.

Supreme Court brief1980

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4 FILED

79-900

K. : DEC 10 i979

CHAR fez 1A, JR., CLERR

OCTOBER TERM, 1979

FEDERAL TRADE COMMISSION, ET AL., PETITIONERS

STANDARD OIL COMPANY OF CALIFORNIA

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE NINTH CIRCUIT

WADE H. MCCREE, JR.

Solicitor General

ALICE DANIEL

Assistant Attorney General

ELLIOTT SCHULDER

Assistant to the Solicitor General

Department of Justice

Washington, D.C. 20530

MICHAEL N. SOHN

General Counsel

HOWARD E. SHAPIRO

Deputy General Counsel

WARREN S. GRIMES

Attorney

Federal Trade Commission

Washington, D.C. 20580

Page

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RI NE ins sesisnesciclnststieinntervccai 2

CTETOI TUUTITOG ann winceestccteniisetecsicnediicechetnanpnene 2

Statement .......... Kaincalllncssiasdorlandshivibsesusnisetemstiaheadiiinis 3

Reasons for granting the petition .................... 8

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CITATIONS

Cases:

Atlantic Refining Co. v. FTC, 381 U.S.

SUT | « cccceeasieenepcciaeldnaaeneealagaiannlade 14

Barlow v. Collins, 397 U.S. 159 20222022222.- 12

Bordenkircher v. Hayes, 434 U.S. 357 ...... 15

Califano v. Sanders, 430 U.S. 99 .............. 18, 21

Chamber of Commerce v. FTC, 280 Fed.

NIL alee Meme dns Re 5H SZ 20

Citizens To Preserve Overton Park v.

Fete, GOL UG. Cae vicintctecsne 6, 11

City of Tacoma v. Taxpayers of Tacoma,

SOT Ud. TRO side 18

Costello v. United States, 350 U.S. 359 .... 13

pat

Cases—Continued Page

Dunlop v. Bachowski, 421 U.S. 560 .......... 12

Ewing v. Mytinger & Casselberry, 339

Ast hs Se a in cao 18

FPC v. Metropolitan Edison Company, 304

a, isl Aca cetnaccieicd 18, 20

PIU ¥. Klesner, 260 U.S. 19 ............2...:.. 16, 19

FTC v. Sperry Hutchinson Co., 405 U.S.

Tis seaassiniegalint 14

FTC v. Universal-Rundle Corp., 387 U.S.

BE inemescrenis atch chcid tec petaiseilaneiniacascesones 14, 19

Mathews v. Eldridge, 424 U.S. 319 .......... 21

McGee v. United States, 402 U.S. 479 ...... 20

McKart v. United States, 395 U.S. 185 .... 20

Moog Industries, Inc. v. FTC, 355 USS.

RESTLESS ESSERE aU ay EO Ree 14, 15

Morris v. Gressette, 482 U.S. 491 -.......... 12

Myers v. Bethlehem Shipbuilding Corp.,

a anid aarniins 17, 21

NLRB v. Sears, Roebuck & Co., 421 U.S.

LESS Sd ee ee On 15

Parisi v. Davidson, 405 U.S. 34 -20222222-2----- 20

Petroleum Exploration, Inc. v. Public

Service Comm’n, 304 U.S. 209 -............. 21

Pillsbury Co. v. FTC, 354 F.2d 952 -........ 4

Renegotiation Board v. BannerCraft Co.,

SSE ESS RGU RNY WC 20

Schilling v. Rogers, 363 U.S. 666 -............. 12

Southern Ry. v. Seaboard Allied Milling

Corp., No. 78-575 (June 11, 1979)......8, 11, 12

Thermal Ecology Must Be Preserved v.

ME MN OO oa seh peensenenncoceene 19

United States v. Calandra, 414 U.S. 338.... 13

United States v. Morgan, 313 U.S. 409.... 9,16

Ill

Cases—Continued Page

United States v. Morton Salt, 388 U.S.

I ia ae 14

Vaon'v, Spek, SH UB. 174 2. 15

Whitney National Bank v. Bank of New

OUR, BAe SI GEE ces Se 17

Statutes and rule:

Administrative Procedure Act, 551 et

seq.:

RRR TIE dahcerctesasciacophacodacitioaieaetiae 3

5 U.S.C. 701(a) (2) ........ 2, &, 7, S, 41, 12, 16

Dee eee tka 2, 6, 8, 9,17, 18

RG WI iisiekchsensinnmnceasiveptabisiadeecdasips 19

BE 5 He, Semen anniek. meee RRO N Om 3

Clayton Act, 15 U.S.C. 21(b) .......000...-..... 10

Federal Trade Commission Act, 15 U.S.C.

41 et seq.:

pS AE RE OUR R ae Me Cee Sree: 2, 3,14

i I ME iit sacieseneesinlncailoncibagibics 3

1m UR. SO 2c. 3, 6, 11, 12, 13, 19

Fe GM IE Uiatditictents cosine 17, 19

Be rs I dictcdsincintsnccepdNndccetmacaieae 10

Ae aes PIE iapiieletaniistaniecsicoiheaeiad ns 10

Fur Products Labeling Act, 15 U.S.C.

RMI ine eee (eR CISER ep Onee SVU PED POON ERIS 10

Textile Fiber Products Identification Act,

15 U.S.C. 70 e¢ seq.:

Statutes and rule—Continued Page

Wool Products Labeling Act, 15 U.S.C. 68

et seq.:

RS cay” |) a beeeh eae Rel s Mae 10

OR 10

pT SE aN DE ETAEES SECO COLT ON RTECS 10

gh _EARISERCRSSEIESIE <r Caen OT nO 10

ch ALN Ral ER CTENR Oar ne eE OR 10

I I or canineecesiescnwenens 10

pA +) REE R es eee 10

A IR RIE i dadncesiesisnned cxcsoparsamesbiwboinin 10

ts i acacndenamnte 10

Be EID, wisiewdsnscacsidncehinenssnnrdeds 10

re EE CP ivtincitencccecenernecnsoinnie 10

Oe I ecient cakernciondeinciienn 10

Oe Me IE | aii snccblicailaiclincdnelacsicbied 10

RS I I lc 10

Miscellaneous:

G. Henderson, The Federal Trade Com-

|) | Ieee 14

S. Rep. No. 597, 638d Cong., 2d Sess.

SM Sicha le rte esllacrsassncabancenntbcieantwsiccammeivsion 14

§u the Supreme Cont of the United States

OCTOBER TERM, 1979

No.

FEDERAL TRADE COMMISSION, ET AL., PETITIONERS

Vv.

STANDARD OIL COMPANY OF CALIFORNIA

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE NINTH CIRCUIT

The Solicitor General, on behalf of the Federal

Trade Commission and its individual members, pe-

titions for a writ of certiorari to review the judg-

ment of the United States Court of Appeals for the

Ninth Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals (App. B, infra,

3a-22a) is reported at 596 F.2d 1381. The order of

the district court (App. A, infra, la-2a) is not re-

ported. The order of the Commission denying respon-

dent’s motion to dismiss the complaint (App. E, infra,

(1)

27a-28a) is not reported. The order of the Commis-

sion denying respondent’s motion for reconsideration

(App. E, infra, 29a-8la) is reported at 88 F.T.C.

1759.

JURISDICTION

The judgment of the court of appeals was entered

on May 18, 1979. A petition for rehearing en banc

was denied on August 6, 1979 (App. C, infra, 23a-

24a). On October 29, 1979, Mr. Justice Rehnquist

extended the time for filing a petition for a writ of

certiorari to and including December 10, 1979. The

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

1254 (1).

QUESTIONS PRESENTED

1. Whether the Federal Trade Commission’s de-

liberative process prior to issuing a facially valid

administrative complaint stating that it has “reason

to believe” that certain firms are engaged in unfair

methods of competition, with supporting allegations,

is a matter “committed to agency discretion by law”

and thus not subject to judicial review under 5 U.S.C.

701(a) (2).

2. If the Commission’s decision to issue an admin-

istrative complaint is not “committed to agency dis-

cretion by law,” whether such action constitutes “final

agency action” (5 U.S.C. 704) subject to immediate

judicial review during the pendency of the ensuing

administrative proceeding.

STATUTES INVOLVED

Pertinent portions of Section 5 of the Federal Trade

Commission Act (15 U.S.C. 45) and the judicial re-

view provisions of the Administrative Procedure Act

(5 U.S.C. 701-706) are set forth in Appendix D,

infra, 25a-26a.

STATEMENT

1. The Federal Trade Commission is authorized

by law to issue complaints initiating administrative

proceedings whenever the Commission determines

(1) that there is “reason to believe” that a company

has been or is using an unfair method of competi-

tion, and (2) that such a proceeding would be in the

public interest. 15 U.S.C. 45(b). On July 18, 1973,

the Commission, through its Secretary, issued a cer-

tified administrative complaint charging that respond-

ent Standard Oil Company of California and seven

other major oil companies maintained a noncompeti-

tive market structure and were therefore engaged

in unfair methods of competition in violation of 15

U.S.C. 45(a). The complaint stated that the Com-

mission had “reason to believe that the above-named

respondents have violated and are now violating [15

U.S.C. 45]” and that formal adjudicatory proceed-

ings with respect to the alleged violation would be

“in the public interest”? (R. 21).’ The complaint con-

tained allegations describing the manner in which

respondent and the other named oil companies were

said to be in violation of the law (R. 25-81).

In January 1974, respondent filed a motion to dis-

miss the administrative complaint, contending that

the Commission had issued the complaint in response

1“R.” refers to the record in the court of appeals.

to congressional pressure and without “reason to be-

lieve” that a violation had occurred and, further, that

the proceeding was not in the public interest. The

Commission denied the motion to dismiss (App. E,

infra, 27a). It also denied a motion for reconsidera-

tion, on the ground that “[o]nce the Commission

has resolved [the “reason to believe” and “public

interest” ] questions and issued a complaint, the issue

to be litigated is not the adequacy of the Com-

mission’s pre-complaint information or the diligence

of its study of the material in question but whether

the alleged violation has in fact occurred. That is

the posture of the instant matter” (App. E, infra,

30a).?

Following the denial of respondent’s motions, the

administrative proceeding went forward. The pro-

ceeding is still pending.

2. On May 1, 1975, respondent filed a civil action

in the United States District Court for the Northern

District of California, seeking an order compelling

dismissal or withdrawal of the Commission’s ad-

2The Commission noted that both the adequacy of its

determination that there is “reason to believe” that a violation

of law has occurred and its belief that an adjudicatory pro-

ceeding is in the “public interest” are matters “that go to

the mental processes of the Commissioners” and thus are not

reviewable by the court (App. E, infra, 30a). In addition,

the Commission observed that none of the communications

received from members of Congress prior to the issuance of

the complaint “is even remotely of the character deemed

improper by the courts” (id. at 29a-30a, citing e.g., Pillsbury

Co. v. FTC, 354 F.2d 952 (5th Cir. 1966) ).

ministrative complaint (R. 1-18).° Respondent alleged

that in issuing the administrative complaint the Com-

mission had acted arbitrarily and capriciously with-

out facts sufficient to support a reasonable belief that

respondent had violated the law. Respondent further

alleged that the Commission’s initiation of adminis-

trative proceedings was the result of improper con-

sideration of congressional pressure and legally ir-

relevant political and economic factors (R. 15).

The Commission moved to dismiss the action (R.

90). The district court concluded that the issuance

of the administrative complaint by the Commission

was not subject to judicial review (Tr. 60-61)‘ and,

accordingly, granted the Commission’s motion to dis-

miss (App. A, infra, la-2a).°

A divided panel of the court of appeals vacated

the judgment of dismissal. The court acknowledged

that “a determination by the FTC that there is ‘rea-

son to believe’ a violation of law has occurred is

within the agency’s discretion and not reviewable in

the district court” under the Administrative Pro-

3 The district court complaint named the Commission and

its individual members as defendants.

4“Tr.” refers to the transcript of the argument before the

district court on the motion to dismiss the action.

5 At the conclusion of oral argument, the district judge

stated: “I am in agreement with the suggestion of govern-

ment counsel that a review of preliminary decisions made by

administrative agencies, except under the most unusual cir-

cumstances, would be productive of nothing more than chaos”

(Tr. 60).

cedure Act (5 U.S.C. 701(a)(2)) (App. B, infra,

10a). Nevertheless, it ruled that judicial review

is available with respect to whether the Commis-

sion had in fact made the requisite “reason to

believe” determination, notwithstanding the recitation

on the face of the administrative complaint that

such a determination had been made (id. at 12a).

The court viewed the “reason to believe” provision

of 15 U.S.C. 45(b) as restricting the Commission’s

exercise of discretion to issue administrative com-

plaints, and concluded that this restriction provides

“law to apply” (Citizens To Preserve Overton Park

v. Volpe, 401 U.S. 402, 410 (1971)) to the Com-

mission’s action in issuing the complaint.

The court also concluded (id. at 14a-15a) that the

issuance of the administrative complaint constituted

“final agency action for which there is no other ade-

quate remedy at law,” and that such action is im-

mediately reviewable in the district court under 5

U.S.C. 704. It reasoned that if respondent’s claim

were not subject to review at this stage of the pro-

ceedings it might never be reviewed, for the follow-

ing reasons: (1) in the event that respondent were

to prevail in the administrative proceeding, its chal-

lenge to the issuance of the complaint would be moot;

(2) if respondent sought to raise its claim upon re-

view of a final cease and desist order, the record

of the administrative proceeding in all likelihood

would be insufficient for this purpose because the

Commission’s rejection of respondent’s claim would

have foreclosed respondent from developing relevant

facts; and (3) a court reviewing a cease and desist

order is limited to considering whether substantial

evidence supports the order and does not review al-

leged defects in the filing of a complaint (id. at

14a-15a). The district court was directed to determine

on remand whether the Commission made a “reason

to believe” determination, or “whether the complaint

was issued solely because of outside pressure or with

complete absence of a ‘reason to believe’ determina-

tion” (7d. at 14a).

Judge Carter dissented (App. B, infra, 15a-22a), on

the ground that the Commission’s action initiating

an administrative proceeding is in essence an exer-

cise of prosecutorial discretion and, as such, is ex-

empted from judicial review under 5 U.S.C. 701(a)

(2) (id. at 16a-18a).° He noted that judicial inquiry

into whether the Commission in fact made a “rea-

son to believe” determination would improperly re-

quire the courts to probe the mental processes of the

Commissioners (id. at 18a). Even assuming that

respondent’s claim may ultimately be subject to re-

view, Judge Carter concluded (id. at 20a-21a) that it

is not reviewable while the administrative proceeding

remains pending, since the issuance of an administra-

tive complaint is merely a preliminary determination

6 Judge Carter noted that in rare cases judicial inquiry

may be permitted into whether the prosecutor’s conduct falls

outside the range of his discretion, but concluded that no

such facts have been pleaded by respondent in this case (App.

B, infra, 17a).

and is not “final agency action” within the meaning of

5 U.S.C. 704. In addition, he observed (id. at 22a)

that respondent had failed to make a showing of

“irreparable injury” necessary to overcome the rule

requiring exhaustion of administrative remedies be-

fore judicial review may be sought. He predicted

that under the majority’s ruling, “there will be at-

tempts in every FTC proceeding to seek review of

some preliminary matter. This could cripple FTC’s

ability to function” (id. at 18a).

REASONS FOR GRANTING THE PETITION

This case presents important questions concerning

the application of the Administrative Procedure Act’s

judicial review provisions to discretionary and pre-

liminary determinations by federal administrative

agencies to institute adjudicatory proceedings. In

ruling that respondent may obtain review of the Com-

mission’s decision to issue an administrative complaint,

the court of appeals has undermined the discretionary

function exception to judicial review of administra-

tiv. action codified in 5 U.S.C. 701(a)(2). As this

Court’s recent decision in Southern Ry. v. Seaboard

Allied Milling Corp., No. 78-575 (June 11, 1979)

demonstrates, the ruling below misapplies the stand-

ards for determining when administrative action is

committed by law to the agency’s unreviewable dis-

cretion.’ The ruling would also require the courts to

7 Although the court of appeals’ ruling was issued before

this Court’s decision in Southern Ry., the Commission brought

the Southern Ry. opinion to the court’s attention in its petition

for rehearing en banc.

probe the Commissioners’ mental processes, contrary

to the principles established in United States v. Mor-

gan, 313 U.S. 409, 422 (1941). Moreover, the inter-

locutory review authorized here threatens serious

disruption to the administrative process, a disrup-

tion that Congress intended to avoid in enacting 5

U.S.C. 704.

The unprecedented decision of the court of appeals

is contrary to accepted principles of administrative

law and, if allowed to stand, would undermine the

effective and orderly conduct of enforcement proceed-

ings before many administrative agencies. Federal

agencies initiate hundreds of administrative proceed-

ings every year. As Judge Carter pointed out in

dissent (App. B, infra, 18a), the decision of the court

of appeals is an open invitation to respondents in

administrative proceedings to engage in disruptive

and dilatory litigation of ancillary procedural issues

in the courts during the early stages of such pro-

ceedings.* The holding affects not only the Commis-

sion,® but numerous other administrative agencies,

8 Indeed, even the majority below conceded that judicial

intervention in the administrative process ‘“‘would serve only

to hamper or thwart the FTC’s exercise of its responsibilities”

(App. B, infra, 1la). While the majority was here referring

to review of the merits of the Commission’s “reason to be-

lieve” decision, there is no workable distinction between re-

view of the merits and review of whether the Commission

“independently” made its determination. See pages 12-13,

infra.

® The ‘“‘reason to believe” standard applies not only to Com-

mission administrative complaints issued pursuant to Section

since “reason to believe’ is implied or expressed in

many statutes conferring administrative discretion

to initiate a complaint proceeding."® The questions

presented by this case are therefore of substantial

importance to the effective functioning of many ad-

ministrative agencies."

1. The Administrative Prucedure Act provides no

authority for judicial review of the Commission’s

5 of the FTC Act, but also to its attempts to obtain injunctive

relief (15 U.S.C. 53(b)) or criminal penalties (15 U.S.C.

56(b)), and to enforcement of other statutes (15 U.S.C.

68e(b), 68h (Wool Products Labeling Act); 15 U.S.C. 69f

(Fur Products Labeling Act); 15 U.S.C. 70e, 70f, 70i(b)

(Textile Fiber Products Identification Act).

10 Numerous other regulatory statutes provide that com-

plaints shall be issued if the agency has “reason to believe”

violations of law are occuring. F.g., 7 U.S.C. 9 (Commodity

Futures Trading Commission); 7 U.S.C. 193, 292 (Secre-

tary of Agriculture) ; 15 U.S.C. 21(b) (enforcement of the

Clayton Act by ICC, FCC, CAB, Federal Reserve Board, and

FTC); 15 U.S.C. 77j(b) (SEC’s authority to issue order

suspending use of prospectus and institvie hearings); 15

U.S.C. 2064(g¢) (Consumer Product Safety Commission’s

authority to seek certain court relief); 42 U.S.C. 1973aa-2,

5309(c) (Attorney General’s authority to bring certain

civil rights enforcement actions).; 42 U.S.C. 300h-3(c),

300j(e) (3) (EPA Administrator’s authority to seek TRO

or injunction). See 15 U.S.C. 77t(b), 78u(d) (authorizing

the SEC to initiate court proceedings whenever it “appear[s]

to the Commission” that violations of law are occurring).

Cf. Fed. R. Civ. P. 11 (signing of pleading by attorney certi-

fies that there is “good ground to support it’).

11 For these reasons, the general counsels of five agencies

have written to the Solicitor General expressing concern

about the harmful implications of the court of appeals’ de-

cision in this case. See App. F, infra, 32a-43a.

decision to issue an administrative complaint because

the initiation of an enforcement proceeding is

“agency action committed to agency discretion by —

law” (5 U.S.C. 701(a)(2)). The court below cor-

rectly held, under this provision, that “a determination

by the FTC that there is ‘reason to believe’ a violation

of law has occurred is within the agency’s discretion

and not reviewable in the district court under the

APA” (App. B, infra, 10a). It distinguished, how-

ever, between the substance of the “reason to be-

lieve” determination itself, and the factual ques-

tion whether the determination had been indepen-

dently made by the Commission. The court concluded

that as to the latter question, the “reason to believe”

language in 15 U.S.C. 45(b) imposes a substantive

legal restriction on the Commission’s discretion to

issue complaints which must be satisfied before the

Commission acts; that this restriction provides “law

to apply” within the meaning of Citizens to Preserve

Overton Park v. Volpe, 401 U.S. 402, 410 (1971);

and that the discretionary function exception of 5

U.S.C. 701(a)(2) is therefore inapplicable (id. at

lla-12a).

Although the discretionary function exception is

admittedly “very narrow” (Citizens to Preserve Over-

ton Park v. Volpe, supra, 401 U.S. at 410), the court

of appeals’ mechanistic application of the language

from Overton Park, without further analysis, is in-

consistent with this Court’s decisions explaining

when agency action involves unreviewable discretion.

E.g., Southern Ry. v. Seaboard Allied Milling Corp.,

supra; Schilling v. Rogers, 363 U.S. 666, 674 (1960).

“Whether agency action is reviewable often poses

difficult questions of congressional intent; and the

Court must decide if Congress has in express or

implied terms precluded judicial review or committed

the challenged action entirely to administrative dis-

cretion.” Barlow v. Collins, 397 U.S. 159, 165 (1970).

See Morris v. Gressette, 482 U.S. 491, 501 (1977);

Dunlop v. Bachowski, 421 U.S. 560, 567 (1975).

Thus, judicial review of agency action is foreclosed

by 5 U.S.C. 701(a) (2) to the extent that the sub-

stantive statute reflects Congress’ intent to vest in

the administrative agency unreviewable discretion

to exercise particuiar functions. Determination of

such an intent depends on the language, structure

and legislative history of the substantive statute, and

decisions under analogous statutes. Southern Ry. v.

Seaboard Allied Milling Corp., supra, slip op. 17. The

court of appeals failed to engage in this necessary

analysis.

To begin with, the language and design of 15

U.S.C. 45(b) indicate that Congress intended the

Commission’s initiation of administrative proceedings

to be unreviewable. The majority below conceded

that a “reason to believe” determination by the Com-

mission—including whether the Commission had an

adequate factual basis for its allegations—is itself

purely discretionary and thus unreviewable. It dis-

tinguished, however, between the abstract merits of

the determination and whether the determination

had been independently made by the Commission.

But, for purposes of judicial review, there is no

meaningful distinction in the statute between the

Commission’s making of a determination that it has

“reason to believe” that a violation has occurred, and

the legal adequacy of the factual allegations in the

complaint providing the reasons in support of that

belief. The statute provides that “[w]henever the

Commission shall have reason to believe that any

* * * corporation * * * is using any unfair method

of competition [in respect to which a proceeding

would be in the public interest], it shall issue and

serve * * * a complaint stating its charges in that

respect * * *, 15 U.S.C. 45(b) (emphasis added).

The Commission determines that it has adequate rea-

sons to initiate a proceeding when it concludes that

the allegations in a proposed complaint are sufficient

to warrant the initiation of a proceeding; it then

directs its Secretary to issue the complaint. ‘Reason

to believe’ is thus inextricably linked to the Commis-

sion’s undisputed responsibility to decide what kinds

of business conduct may be unfair within the mean-

ing of the statute. The statutory language and struc-

ture thus reflect an unambiguous intent to confer the

widest discretion on the Commission to initiate com-

plaints, for the Commission alone is empowered to

12 Moreover, if such a distinction were accepted, the review-

ing court would be required to go behind the face of a certified

and facially valid complaint. Cf. United States v. Calandra,

414 U.S. 338, 345 (1974) ; Costello v. United States, 350 U.S.

859, 363 (1956) (an indictment valid on its face is not sub-

ject to challenge on the ground that the grand jury acted

on the basis of inadequate or incompetent evidence).

determine in the first instance whether a method of

competition or an act or practice is unfair.”

Moreover, the legislative history of the Federal

Trade Commission Act also supports nonreviewabil-

ity. The “reason to believe’ language was inserted

into 15 U.S.C. 45 by the Senate Committee on Inter-

state Commerce. S. Rep. No. 597, 63d Cong., 2d Sess.

(1914). The committee report did not discuss the

“reason to believe” standard as such. But it stressed

the need for “wide discretion” in the conduct of in-

vestigations to avoid hampering administration of

the Act, noting that “to almost every inquiry it

might be possible to make specious objections which,

while lacking any real merit, might effectually clog

the conduct of the inquiry” (id. at 12). To permit

judicial review, particularly while the administrative

proceeding is still in progress (see pages 17-21, infra),

would frustrate the objectives of Congress in enacting

the statute.

In addition, decisions in analogous cases strongly

support our contention that the decision whether the

13 See, e.g., Atlantic Refining Co. v. FTC, 381 U.S. 357, 367

(1967); Moog Industries, Inc. v. FTC, 355 U.S. 411, 413

(1958); United States v. Morton Salt, 338 U.S. 632, 640

(1950); FTC v. Universal-Rundle Corp., 387 U.S. 244, 251

(1967); cf. FTC v. Sperry Hutchinson Co., 405 U.S. 233

(1972).

14 Contemporaneous construction also reflects an under-

standing that the Commission’s initiation of proceedings is

not subject to review. A commentator reviewing the first

decade of the Act’s administration noted that no procedure

existed to put in issue the sufficiency of the Commission’s

reasons to believe that a violation had occurred. G. Henderson,

The Federal Trade Commission Act 49-50 (1924).

Commission should initiate a proceeding is committed

to the agency’s discretion and is therefore not review-

able. As Judge Carter observed in dissent (App. B,

infra, 17a), “judicial review of prosecutorial discre-

tion in the administrative area is generally rejected,”

whether the agency’s decision is in favor of, or

against, prosecution. Thus, the General Counsel of

National Labor Relations Board has unreviewable

discretion in deciding whether to issue, or deny, an

unfair labor practice complaint. See NLRB v. Sears,

Roebuck & Co., 421 U.S. 182, 188 (1975); Vaca v.

Sipes, 386 U.S. 171, 182 (1967); ef. Southern Ry.

v. Allied Seaboard Milling Corp., supra (ICC has

unreviewable discretion whether to suspend and in-

vestigate railroad tariff); Morris v. Gresette, supra

(Attorney General has unreviewable discretion wheth-

er to object to a State’s change in its election laws

under Voting Rights Act). The Commission’s discre-

tion is equally broad. See Moog Industries, Inc. v.

FTC, 355 U.S. 411, 413 (1958). If, as the court

below has held, reason to believe is a separate, review-

able legal requirement, complaining consumers and

competitors disappointed by the Commission’s failure

15 While the discretion to institute administrative proceed-

ings, like the discretion to bring criminal charges, is ex-

tremely broad, “there are undoubtedly constitutional limits

on its exercise.” Bordenkircher v. Hayes, 434 U.S. 357, 365

(1978). Thus, a claim that the Due Process Clause was vio-

lated because the decision to issue a complaint was based upon

an unjustifiable standard such as race, religion, or other

arbitrary classification would be subject to judicial review

after issuance of a final order (see note 17, infra).

to initiate a proceeding presumably could, like re-

spondent, claim a right to judicial review of whether

the Commission had made an independent ‘“‘reason to

believe” determination on their grievance. It has long

been held, however, that denial of such a request is

final and unreviewable. FTC v. Klesner, 280 U.S.

19, 25 (1929).

Finally, judicial review of whether the Commission

in fact made a “reason to believe” determination

would, as Judge Carter pointed out (App. B, infra,

18a), require the courts to inquire into the mental

processes of the Commissioners. Such an inquiry

would impair the integrity of the administrative

process. United States v. Morgan, 313 U.S. 409, 422

(1941). The collegial nature of the decision-making

process in the Commission and similar agencies ex-

acerbates the impropriety of such an inquiry. In this

case the district court would have to assess the de-

liberations of five individuals, only one of whom is

currently a member of the Commission,” to deter-

mine, among other things, whether, and to what

extent, their collective determination was influenced

by congressional pressure. The very nature of this

inquiry strongly indicates that whether the commis-

sion “independently” made a “reason to believe” de-

termination is a matter that Congress has committed

to agency discretion and is thus unreviewable under

5 U.S.C. 701 (a) (2).

16 At the time of the administrative complaint, only present

Commissioner Dixon was a member of the Commission.

2. The court of appeals’ holding that the issuance

of an administrative complaint is “final agency ac-

tion” within the meaning of 5 U.S.C. 704 independ-

ently warrants this Court’s consideration. Even if

it is assumed that the Commission’s decision to issue

a complaint is ultimately subject to judicial review

(but see pages 10-16, supra), by permitting immedi-

ate interlocutory review of that question the court

of appeals has seriously departed from the statutory

scheme established by Congress for review of Com-

mission actions. Moreover, the court appears to have

disregarded this Court’s decisions expressing the

“long settled rule of judicial administration that no

one is entitled to judicial relief fora supposed or

threatened injury until the prescribed administrative

remedy has been exhausted.” Myers v. Bethlehem

Shipbuilding Corp., 303 U.S. 41, 50-51 (1938).

Under 15 U.S.C. 45(c), any party subject to a

cease and desist order issued by the Commission may,

at the conclusion of the administrative proceeding,

petition the court of appeals for review. In enacting

that subsection, Congress provided a particular meth-

od for judicial review of the Commission’s orders.

This procedure is exclusive, for where Congress “has

enacted a specific statutory scheme for obtaining re-

view, * * * the doctrine of exhaustion of adminis-

trative remedies comes into play and requires that

the statutory mode of review be adhered to notwith-

standing the absence of an express statutory com-

mand of exclusiveness.” Whitney National Bank v.

Bank of New Orleans, 379 U.S. 411, 422 (1965);

City of Tacoma v. Taxpayers of Tacoma, 357 U.S.

320, 336 (1958). The decision so to limit judicial

review reflects a policy choice by Congress designed

to forestall piecemeal litigation and disruption of the

administrative process. See, e.g., Ewing v. Mytinger

& Casselberry, 339 U.S. 594, 600-602 (1950); FPC

v. Metropolitan Edison Co., 304 U.S. 375, 383-384,

385 (1938); Myers v. Bethlehem Shipbuilding Corp.,

supra.

The court of appeals disregarded its duty to re-

spect that choice. Cf. Califano v. Sanders, 430 U.S.

99, 108 (1977). It held (App. B, infra, 14a) that

immediate interlocutory review was available in the

district court because, under 5 U.S.C. 704, eventual

review in the court of appeals of a future cease and

desist order would not be an “adequate remedy.” But

as Judge Carter correctly concluded (id. at 20a-21a),

the “no other adequate remedy” provision in 5 U.S.C.

704 “was not intended to convert preliminary agency

decisions that otherwise become moot into final agency

actions in order to afford judicial review. Rather, it

is designed to exempt ‘final agency action’ from judi-

cial review under the APA if there is an adequate

alternative legal remedy.”

Furthermore, if the court of appeals was correct

in holding that the “reason to believe” standard is

a judicially enforceable restriction on the Commis-

sion’s discretion, there is no reason why the propriety

of the issuance of the complaint could not await re-

view of any cease and desist order ultimately issued

by the Commission.” Nor would a post-proceeding

review be inadequate because respondent has been

denied an opportunity to make a record on its claim

that the complaint was improperly issued. Such an

argument in favor of interlocutory review would

apply with equal force to every ruling made by the

agency in the course of the proceeding that limits

the admissibility of evidence. If the Commission errs

in such rulings, so that the agency record is inade-

quate on any reviewable issue, the court of appeals

may either remand the proceeding to the Commission

for supplementation of the record, or modify or set

aside the Commission’s order, with or without re-

mand as appropriate. 15 U.S.C. 45(c); 5 U.S.C. 705.

Ultimately it is the Commission that must bear the

risk that a court “will reverse its final order, con-

demn its proceeding as so much waste motion and

order that the proceeding be conducted over again

** *” Thermal Ecology Must Be Preserved v. AEC,

433 F.2d 524, 526 (D.C. Cir. 1970) (per curiam).

Moreover, the court’s conclusion that respondent is

entitled to immediate review because its challenge to

the issuance of the complaint may become moot (if

17 The Court has held, for example, that if the Commission

attempts to enforce a private claim for unfair competition, in

violation of the requirement in 15 U.S.C. 45(b) that its pro-

ceeding be in the public interest, the defect may be raised in

proceedings to enforce the Commission’s final order. FTC

v. Klesner, supra, 280 U.S. at 29-30. Similariy, a claim of

discriminatory enforcement may be reviewed on petition to

the court of appeals from the final order. FTC v. Universal-

Rundle Corp., 387 U.S. 244, 251-252 (1967).

respondent prevails in the administrative proceed-

ing) ignores one of the basic purposes of the exhaus-

tion doctrine—the avoidance of unnecessary judicial

consideration of preliminary or procedural rulings

entered in the course of an administrative proceed-

ing. See McKart v. United States, 395 U.S. 185, 192-

195 (1969); McGee v. United States, 402 U.S. 479,

484 (1971); Parisi v. Davidson, 405 U.S. 34, 37-38

(1972). The court of appeals’ mootness analysis

would read the requirement for exhaustion of reme-

dies out of the law, since its analysis necessarily

would apply to every adverse interlocutory ruling

made in the course of any administrative proceeding

that might terminate in favor of the respondent

party.”

Finally, the court of appeals has ignored the prin-

ciple that “without a clear showing of irreparable

injury, failure to exhaust administrative remedies

serves as a bar to judicial intervention in the agency

process.” Renegotiation Board v. BannerCraft Co.,

415 U.S. 1, 24 (1974). No such injury results from

the requirement that a party respond to an adminis-

trative complaint, even though litigation expenses

may be substantial and unrecoverable and the con-

duct of litigation burdensome and inconvenient. “The

expense and annoyance of litigation is ‘part of the

18 See Chamber of Commerce Vv. FTC, 280 Fed. 45, 48-

49 (8th Cir. 1922), holding that the courts have no authority

to entertain interlocutory challenges to the Commission’s

jurisdiction. This decision was cited approvingly in FPC v.

Metropolitan Edison Co., supra, 304 U.S. at 385.

social burden of living under government.’” Pe-

troleum Exploration Inc. v. Public Service Comm’n,

304 U.S. 209, 222 (1938); Renegotiation Board v.

BannerCraft Co., supra, 415 U.S. at 24; Myers v.

Bethlehem Shipbuilding Corp., supra, 303 U.S. at

51-52.”

19 The court of appeals incorrectly relied (App. B, infra,

14a) on Mathews Vv. Eldridge, 424 U.S. 319, 331 n.11 (1976)

in support of its “irreparable injury” ruling. The decision

in Eldridge “merely adhered to the well-established principle

that when constitutional questions are in issue, the availabiilty

of judicial review is presumed, and [this Court] will not

read a statutory scheme to take the ‘extraordinary’ step of

foreclosing jurisdiction unless Congress’ intent to do so is

manifested by ‘clear and convincing’ evidence.” Califano Vv.

Sanders, supra, 430 U.S. at 109. The question whether the

Commission made an “independent” “reason to believe”

determination is clearly not of constitutional scope.

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted.

WADE H. MCCREE, JR.

Solicitor General

ALICE DANIEL

Assistant Attorney General

ELLIOTT SCHULDER

Assistant to the Solicitor General

MICHAEL N. SOHN

General Counsel

HOWARD E. SHAPIRO

Deputy General Counsel

WARREN S. GRIMES

Attorney

Federal Trade Commission

DECEMBER 1979

APPENDIX A

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF

CALIFORNIA

Civil No. C-75-0860-LHB

[Filed Oct. 3, 1975]

ORDER OF DISMISSAL

STANDARD OIL COMPANY OF CALIFORNIA,

PLAINTIFF.

Vv.

FEDERAL TRADE COMMISSION; LEWIS A. ENGMAN,

Chairman; PAUL RAND DIXON, Member; M. ELIza-

BETH HANFORD, Member; STEPHEN A. NYE, Mem-

ber, DEFENDANTS.

This action having come regularly on for hearing

before the Court on the defendants’ motion to dismiss

on the grounds the plaintiff has failed to state a claim

upon which relief can be granted, and

The Court having considered the pleadings and

heard argument of the respective parties, and the

matter having been duly submitted,

IT IS HEREBY ORDERED that:

1. Defendants’ motion to dismiss be and it is here-

by granted;

2. The complaint and action are hereby dismissed;

and

3. The respective parties shall bear their own costs

herein.

Dated:

/s/ Lloyd H. Burke

LLOYD H. BURKE

United States District

Judge

Approval as to Form.

GEORGE A. SEARS

Attorney for Plaintiff

APPENDIX B

UNITED STATES COURT OF APPEALS

NINTH CIRCUIT

No. 75-3678

STANDARD OIL COMPANY OF CALIFORNIA,

PLAINTIFF-APPELLANT,

FEDERAL TRADE COMMISSION, LEWIS A. ENGMAN,

Chairman; PAUL RAND DIXON, Member, Mayo J.

THOMPSON, Member, MARY ELIZABETH HANFORD,

Member, STEPHEN A. NYE, Member, DEFENDANTS-

APPELLEES.

May 18, 1979

Appeal from the United States District Court for

the Northern District of California.

Before ELY, CARTER and TANG, Circuit Judges.

TANG, Circuit Judge.

Standard Oil Company of California (SOCAL)

appeals from a judgment dismissing an action in

which SOCAL sought review of certain aspects of

the Federal Trade Commission’s (FTC) decision to

issue an administrative complaint under § 5(b) of the

Federal Trade Commission Act, 15 U.S.C. § 45(b)

(1970) (amended Supp. V 1975). The issue raised

is to what extent the provisions of the Administrative

Procedure Act, 5 U.S.C. §§ 701-706 (1976), allow

the district court to review the FTC’s stated deter-

mination that it has “‘reason to believe” that SOCAL

is engaged in monopolistic practices in violation of

law. Under 15 U.S.C. § 45(b), this “‘reason to be-

lieve” determination is a prerequisite to the issuance

of an FTC complaint.’ We conclude here that what

constitutes “reason to believe’ is unreviewable be-

cause the “reason to believe” determination is com-

mitted to the FTC’s discretion. However, we also con-

clude that the issue whether the FTC did or did not

in fact make a “reason to believe’ determination is

reviewable.

FACTS

Because SOCAL’s complaint was dismissed for

failure to state a claim upon which relief can be

granted, the following facts alleged in SOCAL’s com-

plaint must be accepted as true. Hast Oakland-

Fruitvale Planning Council v. Rumsford, 471 F.2d

524, 527 (9th Cir. 1972).

In December 1971, the FTC issued a resolution

stating its intention to investigate whether the petro-

leum industry was engaged in unfair trade practices.

Seventeen months passed and the FTC made no ap-

1 Section 5(b) of the Federal Trade Commission Act, 15

U.S.C. § 45(b) (1970) (amended Supp. V 1975), provides as

relevant:

Whenever the Commission shall have reason to believe

that any . . . corporation has been or is using any unfair

method of competition or unfair or deceptive act or prac-

tice in commerce. . . it shall issue and serve upon such

. . corporation a complaint stating its charges in that

respect and containing a notice of a hearing upon a day

and at a place therein fixed at least thirty days after the

service of said complaint.

parent effort to investigate SOCAL either through

examination of its officers or employees or through

review of corporate records. Then, on May 31, 1978,

Senator Henry M. Jackson, Chairman of the Senate

Interior and Insular Affairs Committee and of the

Permanent Investigation Subcommittee of the Senate

Committee on Government Operations, sent a letter

to FTC Chairman, Lewis A. Engman, requesting

that, within 30 days, the FTC provide a report on

the relation between the petroleum and related indus-

tries and the current and prospective shortages of

petroleum products. One day after the letter was

sent, the FTC issued subpoenas to three SOCAL of-

ficers and shortly thereafter on July 6, 1973, the

FTC issued SOCAL a subpoena duces tecum to pro-

duce certain corporate books and records.

On July 6, 1978, the FTC also responded to Sena-

tor Jackson’s request for a report by transmitting to

him an undated document entitled “Preliminary Fed-

eral Trade Commission Staff Report on Its Investi-

gation of the Petroleum Industry.” Chairman Eng-

man’s letter accompanying the report stated: “This

report has not been evaluated or approved by the

Commission, and the findings and conclusions con-

tained in the report do not necessarily refiect the

views of the Commission.”

On July 13, Senator Jackson released the prelimin-

ary FTC report for publication as a committee print.

In the week folowing, the FTC issued complaint num-

ber 8934 charging SOCAL and seven other oil com-

panies with various antitrust violations. However,

just two days prior to Senator Jackson’s release of

the report for publication, Chairman Engman had

warned that publication of the report would be “‘in-

consistent with [the FTC’s] duty to proceed judic-

iously and responsibly” in determining what, if any,

further action should be taken by the FTC.

Prior to the filing of its district court complaint,

SOCAL sought relief in the administrative proceed-

ing. In January 1974, SOCAL filed a motion in the

FTC proceeding for dismissal of the complaint with-

out prejudice. It argued that Congressional pressure

alone had led to the premature termination of the

FTC investigation and that the FTC had issued the

complaint without “reason to believe’ SOCAL had

committed a violation. In February, after an ad-

ministrative law judge certified SOCAL’s motion to

the FTC, the motion was denied. Later the FTC re-

fused SOCAL’s motion for reconsideration.

This action was filed in May 1975. SOCAL prayed

that the district court compel the FTC to withdraw

or dismiss the administrative complaint. SOCAL

claimed that the FTC had arbitrarily and capvic-

iously issued the complaint without facts sufficient to

warrant a reasonable belief that SOCAL had violated

the law. SOCAL also claimed that, in deciding to

issue the complaint, the FTC had improperly con-

sidered Congressional pressure and legally irrelevant

political and economic factors.

SOCAL also pleaded other facts to support its

claim that the agency lacked “reason to believe”

SOCAL had violated the Act. For example, counsel

for the FTC was unable to provide a satisfactory list

of witnesses or documents as ordered by the admin-

istrative law judge. Apparently, the FTC did not

have even one proposed witness to be called in the

proceeding. Also, in light of the FTC’s discovery

problems, the administrative law judge had recom-

mended in October 1974 that the FTC withdraw the

complaint pending further investigation. The FTC

rejected this suggestion.

In sum, SOCAL claimed that the FTC had abused

its power to issue complaints under 15 U.S.C. § 45

(b). The district court, however, dismissed SOCAL’s

action on grounds that it did not have authority to

inquire into what constituted “reason to believe”

under 15 U.S.C. § 45(b).

DISCUSSION

SOCAL argues that it is entitled to relief under

the Administrative Procedure Act (APA), 5 U.S.C.

§§ 701-706. The FTC is an agency subject to the

APA. United States v. Morton Salt Co., 338 U.S.

632, 644, 70 S.Ct. 357, 94 L.Ed. 401 (1950). More-

over, as SOCAL pleaded, the district court had juris-

diction under 28 U.S.C. § 1831. See Califano v.

Sanders, 430 U.S. 99, 97 S.Ct. 980, 51 L.Ed2d 192

(1977).

Nevertheless, the FTC claims that the issuance of

the administrative complaint is not within the pur-

view of the APA because it is not “agency action”

under 5 U.S.C. §§ 551(13) and 702. We disagree.

The language of § 551(138) admits of the interpre-

tation that the subsection is illustrative rather than

exclusive. Moreover, Congress has manifested its in-

tent that the APA cover a “broad spectrum of ad-

ministrative actions.” Abbott Laboratories v. Gard-

ner, 387 U.S. 136, 140, 87 S.Ct. 1507, 18 L.Ed.2d

681 (1967). Consequently, the APA’s generous re-

view provisions are given a hospitable interpretation.

Id. at 140-41, 87 S.Ct. 1507. There is also a pre-

sumption of judicial review under the APA unless

there is clear and convincing evidence that Congress

intended to foreclose review of a final agency action

either by a specific statute or by committing action

to agency discretion. See, e.g., Morris v. Gressette,

432 U.S. 491, 500-01, 97 S.Ct. 2411, 538 L.Ed.2d 506

(1977) ; Dunlop v. Bachowski, 421 U.S. 560, 567, 95

S.Ct. 1851, 44 L.Ed.2d 377 (1975); Abbott Labora-

tories v. Gardner, supra,,.387 U.S. at 140, 87 S.Ct.

1507; Washington v. United States Environmental

Protection Agency, 573 F.2d 588, 587 (9th Cir.

2 The cited statutes provide as relevant:

“TA]gency action” includes the whole or a part of an

agency rule, order, license, sanction, relief, or the equiva-

lent or denial thereof, or failure to act.

5 U.S.C. § 551(13).

A person suffering legal wrong because of agency action,

or adversely affected or aggrieved by agency action with-

in the meaning of a relevant statute, is entitled to judicial

review thereof.

5 U.S.C. § 702.

1978); Montana Chapter of Association of Civilian

Technicians, Inc. v. Young, 514 F.2d 1165, 1168 (9th

Cir. 1975). Therefore, the relevant question is not

whether the FTC’s issuance of complaint number

8934 is “agency action” as to SOCAL—for almost

any act an agency takes can be “agency action”—but

whether, under the APA, it is reviewable agency

action. The latter inquiry triggers the following

questions: first, whether a statute precludes judicial

review, 5 U.S.C. §701(a)(I); second, whether

agency action is committed to agency discretion by

law, 5 U.S.C. § 701(a) (2); and third, whether there

is final agency action for which there is no adequate

judicial remedy other than review under the APA.°

There is no statute precluding judicial review of

the FTC’s determination that there is “reason to

believe” the charged party has violated the law.

Therefore, inquiry proceeds to whether the ‘reason

to believe” determination lies entirely within the

FTC’s discretion. 5 U.S.C. §701(a)(2). The

8 The cited statutes provide as relevant:

This chapter [5 U.S.C. §§ 701-706] applies, according to

the provisions thereof, except to the extent that —

(1) statutes preclude judicial review; or

(2) agency action is committed to agency discretion by

law.

5 U.S.C. § 701 (a).

Agency action made reviewable by statute and final

agency action for which there is no other adequate rem-

edy in a court are subject to judicial review.

5 U.S.C. § 704.

10a

APA’s exception for actions committed to agency dis-

cretion applies ‘in those rare instances where ‘sta-

tutes are drawn in such broad terms that in a given

case there is no law to apply.’” Citizens to Preserve

Overton Park, Inc. v. Volpe, 401 U.S. 402, 410, 91

S.Ct. 814, 821, 28 L.Ed.2d 136 (1971). When no law

fetters the exercise of discretion, the courts have no

standard by which to measure the lawfulness of

agency action, and consequently, the action is not sus-

ceptible to judicial review. City of Santa Clara v.

Andrus, 572 F.2d 660, 666 (9th Cir. 1978), cert de-

nied, —— U.S. ——, 99 S.Ct. 177, 58 L.Ed.2d 167

(1978).

Under this standard, a determination by the FTC

that there is “reason to believe” a violation of law

has occurred is within the agency’s discretion and not

reviewable in the district court under the APA. In

Hills Bros. v. Federal Trade Commission, 9 F.2d 481,

483-84 (9th Cir.), cert. denied, 270 U.S. 662, 46

S.Ct. 471, 70 L.Ed. 787 (1926), this Court stated

that a determination that an FTC complaint would

be in the public interest, like the determination that

there is “reason to believe” the law has been violated,

lies within the FTC’s discretion. Later case law up-

holds the validity of this early statement. Section 5

of the Federal Trade Commission Act is a broad dele-

gation of power by Congress to the FTC. The Act

empowers the FTC to determine in the first instance

whether a method of competition or an act or practice

is unfair. See, Atlantic Refining Co. v. Federal

lla

Trade Commission, 381 U.S. 357, 367, 85 S.Ct. 1498,

14 L.Ed.2d 443 (1965) ; United States v. Morton Salt

Co., supra, 388 U.S. at 640-41, 70 S.Ct. 357. The

necessary companion to the FTC’s power to develop

in the first instance the meaning of the statutory

term “unfair” is the power to determine whether

there is “reason to believe” that a party is engaged

in “unfair” conduct. Judicial intervention in this

legitimate decision making process would serve only

to hamper or thwart the FTC’s exercise of the power

granted to it by Congress.

However, the facts alleged in SOCAL’s complaint

do not allow inquiry to end with our conclusion that

the determination of what constitutes “reason to

believe” is committed to the FTC’s discretion. The

rule of Citizens to Preserve Overton Park, Inc. v.

Volpe, supra, provides that judicial review is fore-

closed when there is no law to apply in a “given

case.” Accordingly, a complaint in a given case must

be examined to see whether it raises claims for which

there is law to apply. Strickland v. Morton, 519 F.2d

467, 471 (9th Cir. 1975). In this respect, the courts

will review an agency acticn when the alleged abuse

of discretion is the violation of “constitutional, sta-

tutory, regulatory or other legal mandates or restric-

tions.” Ness Investment Corp. v. United States De-

partment of Agriculture, 512 F.2d 706, 715 (9th Cir.

1975). See also City of Santa Clara v. Andrus,

supra, 572 F.2d at 666. Such issues must be re-

viewed “though other aspects of the agency action

12a

may be committed to the agency’s expertise and dis-

cretion.” Hast Oakland-Fruitvale Planning Council v.

Rumsford, supra, 471 F.2d at 533.

Under the above standard, there is a reviewable

issue in this case. A restriction on the FTC’s dis-

cretion is embodied in the very terms of 15 U.S.C.

§ 45(b). The FTC must first in fact make a “reason

to believe” determination that the law has been vio-

lated. See Hunt Foods and Industries, Inc. v. Federal

Trade Commission, 286 F.2d 808, 806 (9th Cir.),

cert. denied, 365 U.S. 877, 81 S.Ct. 1027, 6 L.Ed.2d

190 (1961). The restriction provides “law to apply”

in this case because SOCAL claims that the FTC dis-

regarded the restriction and acted outside the term

of the statute. SOCAL claims that FTC complaint

number 8934 was hurriedly issued with hardly any

precomplaint investigation of SOCAL and under the

pressure of outside influences. In short, SOCAL

claims that the FTC did not make and, in the cir-

cumstances, could not have made the “reason to be-

lieve” determination despite a recitation on the face

of the FTC complaint that the determination had

been made.

The allegations in SOCAL’s complaint and the rea-

sonable inferences from the allegations support

SOCAL’s claim. As alleged, no investigation of

SOCAL occurred for 17 months after the FTC had

resolved to investigate the petroleum industry. Then,

immediately after the reception of Senator Jackson’s

request, the FTC took the testimony of three SOCAL

l3a

officers. Shortly thereafter, the FTC subpoenaed

SOCAL records. But at the same time the subpoena

issued, the FTC sent Congress a report which, as

FTC Chairman Engman expressly stated, had not

been evaluated or approved by the FTC. Chairman

Engman also stated that publication of the report

would be inconsistent with the FTC’s duty to pro-

ceed judiciously and responsibly. Nonetheless, within

a few days of publication, complaint number 8934

issued naming SOCAL as a respondent. All the above

described events occurred in the brief period May 30

to July 18, 1978. Moreover, after administrative pro-

ceedings on the complaint had commenced, the FTC

ran into severe discovery difficulties. This led the

administrative law judge to suggest that the FTC

might wish to consider dismissing the complaint so

that a fuller investigation could take place.

Considering the alleged timing and circumstances,

SOCAL’s allegations are sufficient to raise the claim

that the FTC either acted without deliberation as to

SOCAL or felt itself goaded into action by outside

influences. Because FTC complaints should not issue

other than as prescribed in 15 U.S.C. § 45(b),

SOCAL’s claims should be reviewed. However, we

emphasize that review is limited. It cannot extend

to an assessment by the district court of what con-

stitutes “reason to believe” but simply whether the

FTC disregarded the mandate and restriction of 15

U.S.C. § 45(b) by not even making a “reason to be-

lieve” determination at all.

14a

If the district court finds as a fact that the FTC

made the “reason to believe” determination albeit

with outside pressures, then it can be concluded that

the FTC has complied with 15 U.S.C. § 45(b) and

further review would be foreclosed. If on the other

hand the district court finds that the complaint was

issued solely because of outside pressure or with com-

plete absence of a “reason to believe” determination,

then the FTC has not complied with the Act.

We must further determine whether there has been

a “final agency action” as to SOCAL for which there

is no adequate judicial remedy other than review

under the APA. The finality element in 5 U.S.C.

§ 704 should be interpreted in a “pragmatic” way.

Abbott Laboratories v. Gardner, supra, 387 U.S. at

149, 87 S.Ct. 1507. If possible, statutory finality re-

quirements in general should not be construed so

as “to cause crucial collateral claims to be lost and

potentially irreparable injuries to be suffered.”

Mathews v. Eldridge, 424 U.S. 319, 331 n. 11, 96

S.Ct. 893, 901, 47 L.Ed. 18 (1976). Im this case,

SOCAL has exhausted administrative remedies by

raising its claim before the FTC. SOCAL is pres-

ently obligated to respond in administrative proceed-

ings that allegedly have been initiated in an unlaw-

ful manner. Without review now, the alleged unlaw-

fulness is likely to become insulated from any review.

If SOCAL should prevail in the FTC proceedings, the

claims raised now would become moot and, therefore,

unreviewable. Moreover, assuming that a court of ap-

15a

peals could properly entertain SOCAL’s present

claims upon review of a cease and desist order under

15 U.S.C. § 45(¢), it is unlikely that the record of

the completed administrative proceedings would be

sufficient to determine the claims for the simple rea-

son that the FTC has already rejected them on legal

grounds and thus foreclosed SOCAL from develop-

ing relevant facts. Furthermore, an appellate court

would proceed to consider only whether the FTC

order is supported by the evidence and a reasonable

legal theory, and, therefore, would have no reason to

reach the issue raised by SOCAL of an unlawful com-

plaint. 15 U.S.C. § 45(c); Atlantic Refining Co. v.

Federal Trade Commission, supra, 381 U.S. at 367-

68, S.Ct. 1498. We therefore find that the issuance

of the FTC complaint number 8934 was a “final

agency action” as to SOCAL.

CONCLUSION

The judgment of the district court is vacated and

the case is remanded for proceedings consistent with

this opinion.

JAMES M. CARTER, Circuit Judge, concurring

and dissenting:

(1) I concur in that portion of Judge Tang’s opin-

ion holding that a determination by the Federal

Trade Commission (hereafter “FTC”) that there is

“reason to believe” a violation of law has occurred, is

within the agency’s discretion and not reviewable in

16a

the district court under the Administrative Proced-

ure Act (hereafter “APA”). (2) I dissent from the

holding that there is reviewable by the court the ques-

tion as to whether the FTC did or did not make a

“reason to believe” determination. (3) I also dissent

from the holding that FTC’s action was ‘“‘final action”

and thus reviewable.

The Remand to Determine if the FTC Made a

Determination

The opinion should have ended after point (1)

above. In my opinion the discussion of the additional

points (2) and (8) above referred to is foreclosed by

what the majority decided as to the first point. If

the “reason to believe” decision is not reviewable,

then it seems wrong to me to decide whether the

FTC did or did not make a “reason to believe” de-

termination is reviewable. Had the first point been

decided otherwise, namely, that the determination as

to “reason to believe” a violation had occurred was

reviewable, then, of course, it would follow there

could be reviewed also the question as to whether or

not the FTC did actually make a “reason to believe”

determination. But since the majority held that the

“reason to believe” decision was not reviewable but

rested in agency discretion, it seems wrong to me to

hold, as the majority does, as to the second point.

The government’s brief demonstrates the rule that

action by the FTC in starting a proceeding is agency

action committed to agency discretion. The law is

17a

based upon the general theory of prosecutorial dis-

cretion and the APA exception for agency discre-

tion. Thus judicial review of prosecutorial discre-

tion in the administrative area is generally rejected,

whether the agency’s decision is for prosecution (¢.g.,

Miles Laboratories, Inc. v. FTC, 50 F.Supp. 484

(D.D.C. 1943), affirmed, 78 U.S.App.D.C. 326, 140

F.2d 683, cert. denied, 322 U.S. 752, 64 S.Ct. 1268,

88 L.Ed. 1582 (1944); Hills Bros. v. FTC, 9 F.2d

481 (9 Cir.), cert. denied, 270 U.S. 662, 46 S.Ct. 471,

70 L.Ed. 787 (1926)), or whether the agency’s de-

cision is against prosecution (e. g., Vaca v. Sipes,

386 U.S. 171, 182, 87 S.Ct. 9038, 17 L.Ed.2d 842

(1967) (NLRB) (dictum); Kixmiller v. SEC, 160

U.S.App.D.C. 375, 379, 492 F.2d 641, 645 (1974)).

In such cases the regularity of prosecutorial dis-

cretion is generally assumed. Only the most unusual

and compelling circumstances, which must be spe-

cially pleaded, will permit inquiry into whether the

prosecutor’s conduct falls outside the discretion per-

mitted to him and be subject to review. See Yick Wo

v. Hopkins, 118 U.S. 356, 373-74, 6 S.Ct. 1064, 30

L.Ed. 220 (1886) ; United States v. Steele, 461 F.2d

1148 (9 Cir. 1972). No such facts are pleaded in this

case.

In Hills-Bros. v. FTC, supra, this circuit held that

notwithstanding the ‘reason to believe” standard in

the FTC Act, the discretion of the FTC to issue com-

plaints was no different from other generally non-

reviewable prosecutorial determinations. It held it

18a

was not necessary for the FTC to list its specific

grounds for its “reason to believe.”

Although the APA was enacted in 1946, the pro-

vision for exceptions from judicial review “agency

action . . . committed to agency discretion by law”

was a restatement of existing law. See ‘‘Adminis-

trative Procedure Act, Legislative History,” S.Doc.

248, 79th Congress, 2d Session, 229-30 (1946). Thus

the principles set forth in Hills Bros. in 1926 were

reaffirmed by Congress when it enacted the APA in

1946.

Finally, judicial review of whether FTC made a

determination of “reason to believe,” ete., would re-

quire courts to probe the mental processes of the

Commissioners, a procedure disapproved in United

States v. Morgan, 313 U.S. 409, 422, 61 S.Ct. 299,

85 L.Ed. 1429 (1941).

The decision in the case at hand as to the second

point, allowing review to determine if the FTC

actually made a determination of “reason to believe,”

would open a can of worms and lead to various ap-

peals of preliminary acts and orders. The decision

is incorrect and inconsistent with the prior holding

that the “reason to believe” decision is action com-

mitted to agency discretion and not reviewable by

this court.

With the slight opening for review provided by the

second point of this decision, I foresee that there will

be attempts in every FTC proceeding to seek review

of some preliminary matter. This could cripple

FTC’s ability to function.

19a

I would hold that since determination of the “rea-

son to believe” issue was committed to agency dis-

cretion and exempted from judicial review under 5

U.S.C. § 701(a) (2), and since nothing in plaintiff’s

district court complaint creates any genuine issue as

to the regularity of the Commission’s complaint, ju-

dicial review of the Commission’s decision to issue

the complaint is unwarranted and improper.

Final Agency Action Under 5 U.S.C. § 704

The majority also holds that the action of the FTC

was final agency action under 5 U.S.C. § 704 (point

(8), supra). I disagree. The review of the Commis-

sion’s proceedings should await the final action of

the Commission.

In Gifford-Hill & Co. v. FTC, 173 U.S. App.D.C.

135, 187, 523 F.2d 780, 732 (1975), the court held

that a “decision [by the FTC] to institute an adju-

dicatory proceeding is not an ‘agency action’—and

most certainly not a ‘final agency action’—made re-

viewable by the [Administrative Procedure Act].”

See also Miles Laboratories v. FTC, 78 U.S. App.D.C.

326, 328, 140 F.2d 683, 685, cert. denied, 322 U.S.

752, 64 S.Ct. 1268, 88 L.Ed. 1582 (1944).

In Chamber of Commerce v. FTC, 280 F. 45 (8

Cir. 1922) the FTC filed a complaint alleging that

the Commission had reason to believe that petitioners

were engaging in unfair competition. The petitioners

sought judicial review of the issuance of the com-

plaint. The court of appeals held that “neither the

District Court nor this court has power under the act

20a

[FTC] to interfere with the investigation and in-

quiry of the Commission” (id., p. 48), and dismissed

the action. The court’s holding was specifically ap-

proved by the Supreme Court in Petroleum Explora-

tion, Inc. v. Public Service Comm’n, 304 U.S. 209,

222, n. 21, 58 S.Ct. 834, 82 L.Ed. 1294 (1938) and

in Federal Power Comm’n v. Edison Company, 304

U.S. 875, 385, 58 S.Ct. 963, 82 L.Ed. 1408 (1938).

Plaintiff contends that the issue of the administra-

tive complaint should be treated as “final” under 5

U.S.C. § 704 and that exhaustion of administrative

remedies should not be required, because, in the ab-

sence of judicial review at the preliminary stage, the

validity of the issuance of the administrative com-

plaint cannot later be reviewed or becomes moot.

Plaintiff contends that if the complaint is ultimately

dismissed by the Commission, there would be nothing

to review; that if the proceedings ultimately result in

a cease and desist order, a review is limited to the

validity of that order and does not extend to the pro-

priety of the issuance of the underlying complaint,

citing Hills Bros. v. FTC, supra (9 F.2d at 484).

Thus piaintiff argues that the issuance of the admin-

istrative complaint should be deemed “final” for re-

view purposes because, otherwise, there would be ‘‘no

adequate remedy in a court” for a review of the

matter.

The contention is without merit. The issuance of

the complaint is a preliminary agency determina-

tion and not “final” in any effective sense. Plain-

2la

tiff’s argument is based on a misconception of the

purpose and meaning of the “no other remedy” pro-

vision in 5 U.S.C. § 704. That provision or condi-

tion was not intended to convert preliminary agency

decisions that otherwise become moot into final

agency actions in order to afford judicial review.

Rather, it is designed to exempt “final agency action”

from judicial review under the APA if there is an

adequate alternative legal remedy. See, e. g., Warner

v. Cox, 487 F.2d 1801, 1804 (5 Cir. 1974). See gen-

erally Richfield Oil Corporation v. United States, 207

F.2d 864, 869, 870 (9 Cir. 1953).

Plaintiff’s remedy, which is an adequate one, is to

test the validity of the final effective agency action.

The cease and desist order is subject to judicial re-

view and the findings of the Commission must be

supported by substantial evidence.

Plaintiff is seeking an exception to the rule requir-

ing exhaustion of administrative remedies. APA’s

limitation of judicial review to cases involving “final

agency action” is a codification of the “exhaustion”

rule. The rule is justified by “very practical notions

of judicial efficiency ... .” McKart v. United States,

395 U.S. 185, 194, 195, 89 S.Ct. 1657, 1663, 23 L.Ed.

2d 194 (1969).

Legal expenses in pursuing defenses to adminis-

tration action (or remedies) is not a sufficient reason

to avoid the exhaustion requirement. Petroleum Ex-

ploration Inc., supra (304 U.S. 209, 222, 58 S.Ct.

963, 82 L.Ed. 1408).

22a

“To permit judicial review ... of every pro-

cedural, preliminary and interlocutory order or

ruling by which a person may consider himself

aggrieved, would afford opportunity for constant

delays ... and would render orderly administra-

tive proceedings impossible. Moreover, it would

result in bringing to the courts such an ava-

lanche of trivial procedural questions as largely

to monopolize their time and energies.” Utah

Fuel Co. v. National Bituminous Coal Comm'n,

69 App.D.C. 338, 339, 101 F.2d 426, 432 (1938).

Exceptions to the exhaustion doctrine apply only

in “very unusual and limited circumstances,” Lone

Star Cement Corp. v. FTC, 339 F.2d 505, 510 (9 Cir.

1964) ; and require, for one thing, a showing of sub-

stantial prejudice, z.¢., “irreparable injury.” Rene-

gotiation Board v. Bannercraft Co., 415 U.S. 1, 24,

94 S.Ct. 1028, 39 L.Ed.2d 128 (1974); McKart v.

United States, supra (395 U.S. at 197, 89 S.Ct.

1657) (incarceration). No irreparable injury to

plaintiff is shown in this case.

The decision should be limited to the first point

referred to above. I would affirm on that basis alone.

28a

APPENDIX C

IN THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

No. 75-3678

[Filed Aug. 6, 1979]

STANDARD OIL COMPANY OF CALIFORNIA,

PLAINTIFF-APPELLANT

vs.

FEDERAL TRADE COMMISSION: LEWIS A. ENGMAN,

Chairman; PAUL RAND DIXON, Member, Mayo J.

THOMPSON, Member; MARY ELIZABETH HANFORD,

Member; STEPHEN A. NYE, Member, DEFENDANTS-

APPELLEES

ORDER

Before: ELY, CARTER and TANG, Circuit

Judges

The majority of the panel as constituted above has

voted to deny the petition for rehearing and to reject

the suggestion for rehearing en banc.

Judge Carter votes to grant the petition for re-

hearing and recommends granting the petition for

rehearing en banc.

The full court has been advised of the suggestion

for rehearing en banc, and no judge of the court has

24a

requested a vote on the suggestion for rehearing

en bane. Fed. R. App. P. 35(b).

The petition for rehearing is denied and the sug-

gestion for rehearing en banc is rejected.

25a

APPENDIX D

STATUTES

1. 15 U.S.C. 45 provides in pertinent part:

(a)(1) Unfair methods of competition in or

affecting commerce, and unfair or deceptive acts

or practices in or affecting commerce, are de-

clared unlawful.

* * * *

(b) Whenever the Commission shall have rea-

son to believe that any such person, partnership,

or corporation has been or is using any unfair

method of competition or unfair or deceptive act

or practice in or affecting commerce, and if it

shall appear to the Commission that a proceeding

by it in respect thereof would be to the interest

of the public, it shall issue and serve upon such

person, partnership or corporation a complaint

stating its charges in that respect and contain-

ing a notice of a hearing upon a day and at a

place therein at least thirty days after the serv-

ice of said complaint. * * *

required by an order of the Commission to cease

and desist from using any method of competition

or act or practice may obtain a review of such

order in the court of appeals of the United

States, within any circuit where the method of

competition or the act or practice in question

was used or where such person, partnership, or

corporation resides or carries on business * * *.

26a

2. 5 U.S.C. 701 provides in pertinent part:

(a) This chapter applies, according to the

provisions thereof, except to the extent that—

(1) statutes preclude judicial review; or

(2) agency action is committed to agency

discretion by law.

* * * *

3. 5 U.S.C. 703 provides in pertinent part:

The form of proceeding for judicial review is

the special statutory review proceeding relevant

to the subject matter in a court specified by

statute or, in the absence or inadequacy thereof,

any applicable form of legal action * * *

Except to the extent that prior, adequate, and

exclusive opportunity for judicial review is pro-

vided by law, agency action is subject to judicial

review in civil or criminal proceedings for judi-

cial enforcement.

4. 5 U.S.C. 704 provides in pertinent part:

Agency action made reviewable by statute and

final agency action for which there is no other

adequate remedy in a court are subject to judi-

cial review. A preliminary, procedural, or inter-

mediate agency action or ruling not directly re-

viewable is subject to review on the review of the

final agency action.

* * * *

27a

APPENDIX E

BEFORE FEDERAL TRADE COMMISSION

UNITED STATES OF AMERICA

Commissioners: Lewis A. Engman, Chairman

Paul Rand Dixon

Mayo J. Thompson

M. Elizabeth Hanford

Docket No. 8934

IN THE MATTER OF

EXXON CORPORATION

a corporation, ET AL.

ORDER DENYING MOTION TO DISMISS

By motion to the administrative law judge dated

January 2, 1974, respondent, Standard Oil Company

of California, requested, among other things, dis-

missal of the complaint herein. The administrative

law judge at first denied this request but subse-

quently, upon respondent’s motion, he certified this

matter to the Commission. He also certified certain

motions to dismiss which were made and denied at

the prehearing conference held December 18, 1973.

(Tr. 99-100). This action was proper because re-

spondents’ motions raise questions regarding the

Commission’s exercise of its administrative discre-

tion which involve considerations outside the judge’s

adjudicative authority. Crush International Limited,

80 F.T.C. 1023 (1972).

28a

Upon consideration of respondents’ motions to dis-

miss the Commission finds no reason to reconsider

its decision to issue this complaint. Accordingly,

IT IS ORDERED that the aforesaid motions be,

and they hereby are, denied.

By the Commission.

/s/ Charles A. Tobin

CHARLES A. TOBIN

Secretary

ISSUED: February 12, 1974

29a

IN THE MATTER OF

EXXON CORPORATION, ET AL.

Docket 8934. Interlocutory Order, June 4, 1974

Order denying respondents’ motions for reconsidera-

tion of Commission’s prior denial of respond-

ents’ motions to dismiss complaint.

ORDER DENYING RECONSIDERATION

By order dated February,1, 1974, the administra-

tive law judge properly certified to the Commission

certain oral and written motions to dismiss the com-

plaint in this matter on the grounds that (1) the

Commission lacked reason to believe respondents had

violated the law at the time it issued the complaint

and (2) the proceeding is not in the public interest.

The Commission denied these motions by order of

February 12, 1974, and respondents now urge re-

consideration on those same grounds and, in addition,

on an alleged denial of due process and the fact that

complaint counsel are pursuing additional post-com-

plaint investigation. Complaint counsel urge the

Commission to grant the request for reconsideration

and clarify its policy in the area of post-complaint

investigations.

Respondents’ argument that Congressional interest

rather than the public interest prompted the issuance

of this complaint is misplaced. None of the com-

munications received by this agency from any mem-

30a

ber of Congress is even remotely of the character

deemed improper by the courts. Pillsbury v. FTC,

354 F. 2d 952 (5th Cir. 1966); D.C. Federation of

Civic Associations v. Volpe, 459 F. 2d 1281 (D.C.

Cir. 1971). And it has long been settled that the

adequacy of the Commission’s “reason to believe” 2

violation of law has occurred and its belief that a

proceeding to stop it would be in the “public interest”

are matters that go to the mental processes of the

Commissioners and will not be reviewed by the

courts. Once the Commission has resolved these

questions and issued a complaint, the issue to be

litigated is not the adequacy of the Commission’s pre-

complaint information or the diligence of its study

of the material in question but whether the alleged

violation has in fact occurred. That is the posture

of the instant matter.

Nor is there any merit in respondents’ argument

on the issue of post-complaint investigation. As we

have said many times before and reiterated most

recently in Food Fair Stores, Inc., Docket 8935, Or-

der of April 23, 1974, the division of the Commis-

sion’s total investigative effort between the pre-

complaint and post-complaint stages is entirely a

housekeeping matter between the Commission and

its staff, not one that can be used to challenge

a post-complaint subpoena or the sufficiency of the

Commission’s pre-complaint investigation and hence

of its “reason to believe” a violation has occurred.

Post-complaint discovery by complaint counsel is en-

3la

tirely proper and the sole limits on its proper scope

are the requirements of due process that govern in

any judicial proceeding, e.g., definiteness of the de-

mand, relevance of the data sought to the issues

raised in the pleadings, etc. United States v. Morton

Salt Co., 338 U.S. 632, 641 (1950). Nothing in the

papers before us suggest that complaint counsel in

this proceeding have exceeded these bounds in their

discovery efforts.

The Commision finds no grounds here for recon-

sidering its prior denial of respondents’ motions to

dismiss the complaint in this mater. Accordingly,

It is ordered, That respondents’ motions for recon-

sideration be, and they hereby are, denied.

Commissioner Nye did not participate.

32a

APPENDIX F

October 23, 1979

The Honorable Wade McCree, Jr.

Solicitor General of the United States

United States Department of Justice

Washington, D.C. 20530

Dear Sir:

We understand that the Federal Trade Commis-

sion, by letter dated September 21, 1979, has re-

quested that you file a petition for a writ of certior-

ari in the case of Standard Oil Co. of California v.

Federal Trade Commission, 596 F.2d 1381 (9th Cir.

1979). We urge that you grant that request.

Standard Oil holds that the Federal Trade Com-

mission’s decision to issue an administrative com-

plaint is “final agency action,” subject to immediate

court review under the Administrative Procedure

Act. The opinion strongly implies that the district

court may conduct, at this stage of the proceedings,

an extensive review of FTC actions leading up to the

complaint, including the amount of evidence pre-

sented to the Commission and the Commissioners’

reasons for approving the action.’ Although the case

1The FTC statute at issue, 15 U.S.C. § 45(b), states:

* “whenever the Commission shall have reason to believe that

any * * * corporation has been or is using any unfair method

of competition or unfair or deceptive act or practice in com-

merce * * * it shall issue and serve upon such * * * corpora-

tion a complaint * * *” (emphasis added). This language is

similar to the standard for instituting administrative pro-

ceedings in the statutes of various federal agencies. See, e.g.,

Section 10(b) of the Securities Act of 1933, 15 U.S.C. § 77(b).

33a

admittedly arose in an unusual situation involving

the FTC and congressional pressures put upon it, and

should be limited to its facts, the court’s reasoning is

contrary to basic principles of administrative law,

generally applicable to other agencies. In addition,

we are concerned that the court’s opinion is sus-

ceptible to various interpretations that could have an

adverse impact on the administrative processes of

other agencies in other contexts. The legal bases for

our concern over these holdings are presented in de-

tail below. But we wish to emphasize at the outset

that our concerns are grounded in one very practical

consideration: by opening administrative proceed-

ings to such extensive review, and at such an early

stage, this opinion threatens to affect adversely the

law enforcement efforts of many administrative

agencies.

Finality

The majority opinion in Standard Oil concluded

that the FTC’s decision to issue a complaint pursuant

to Section 5 of the Federal Trade Commission Act,

15 U.S.C. § 45, was “final agency action,” immedia-

tely reviewable under the APA. In this respect, the

opinion represents a significant departure from the

settled doctrine requiring exhaustion of administra-

tive remedies. The majority based its conclusion upon

a concern that, unless the FTC’s action was held final

and reviewable at this stage, “crucial collateral

claims [would] be lost and potentially irreparable

injuries [would] be suffered,” citing Mathews v.

34a

Eldridge, 424 U.S. 319, 331 n.11. But, neither

Standard Oil Company nor the court has identified

any meaningful injury that would befall the com-

pany if judicial review were withheld at this time;

nor have they properly analyzed whether the com-

pany’s “collateral claims” would be lost.

The only suggested “injury” Standard Oil might

suffer from foregoing interlocutory judicial review

is the trouble and expense of responding to the ad-

ministrative complaint. Numerous cases have held,

some of them in rather strong terms, that this

trouble and expense do not rise to the level of a

legally recognizable “injury.” See, e.g., Myers v.

Bethlehem Shipbuilding Corp., 303 U.S. 41, 51-52

(1988) ; Small v. Kiley, 567 F.2d 168, 165 (2d Cir.

1977) (per curiam). The only exception to this prin-

ciple arises where the expense or burden of complying

with the order for a hearing is extraordinary or dis-

proportionate to the business of the respondent. Pe-

troluem Exploration Inc. v. Public Service Commis-

sion, 804 U.S. 209, 220 (1938) ; Sears, Roebuck & Co.

v. NLRB, 473 F.2d 91, 93 n.3 (D.C. Cir. 1972), cert.

denied, 415 U.S. 950 (1974). There is certainly no

suggestion that this is true in the present case.

Nor would Standard Oil lose forever the oppor-

tunity to obtain meaningful review of its “crucial col-

lateral claims” if the court were to deny the company

relief at this stage. The APA makes clear that any

claimed illegality in the issuance of the complaint

may be reviewed upon completion of the action, un-

35a

less the matter is one committed exclusively to the

agency’s discretion.’

The panel majority also expresses a concern that

because of the posture of this case, Standard Oil may

not be able to develop the record necessary to a

proper review of the “reason to believe” issue on

appeal. But if the case were to arrive in the court

of appeals with a record that was inadequate because

the agency had made an error of substantive law, the

court likely would remand it to the agency to further

develop the record. Indeed, the section of the FTC

Act here in question specifically allows for such a

2“Any preliminary, procedural, or intermediate agency

action or ruling not directly reviewable shall be subject to

review upon the review of the final agency action.” 5 U.S.C.

§ 704. The reviewing court

“shall * * * hold unlawful and set aside agency action,

findings, and conclusions found to be (A) arbitrary,

capricious, an abuse of discretion, or otherwise not in

accordance with law; * * * (C) in excess of statutory

jurisdiction, authority, or limitations, * * *; [or] (D)

without observance of procedure required by law.” 5

U.S.C. § 706.

The majority relies upon Atlantic Refining Co. v. FTC, 381

U.S. 357, 367-68 (1965), for the proposition that an appellate

court, reviewing an agency’s cease and desist order, would

consider “only whether the FTC order is supported by the

evidence and a reasonable legal theory.” 596 F.2d at 1387.

But the petitioners in Atlantic Refining apparently had chal-

lenged only the final cease and desist order. Thus, the case

does not discuss the standard of review a court should apply

upon a challenge to other stages of an agency proceeding. If

one may generalize at all from the case, it suggests that the

standard of review is determined by the amount of discretion

the agency had in making the decision under review.

36a

remand.’ See Dolcin Corp. v. FTC, 219 F.2d 742,

750-52 (D.C. Cir.), cert. denied, 348 U.S. 981

(1955).

In sum, the majority’s approach to finality effec-

tively sets the Mathews v. Eldridge standard to a

nullity. It suggests that the expense of defending

oneself in an administrative proceeding is “irrepar-

able injury.” Yet this expense appears in every ad-

ministrative case. And, by the majority’s reasoning,

every challenge to an administrative complaint would

be lost if the respondent’s challenge were delayed

until the administrative proceeding had run its

course. Thus, every respondent in every administra-

tive case could claim that, unless he obtained inter-

locutory review of the complaint, “crucial collateral

claims [would] be lost and potentially irreparable in-

juries fwould] be suffered.” Nor is there any lan-

guage in the opinion to suggest that a respondent

must make a high threshold showing of apparent

unfairness and abuse before he is entitled to this

review. In our view, this result is clearly incon-

sistent both with the governing case law and with

sound policy.

8 “Tf either party shall apply to the court for leave to

adduce additional evidence, and shall show to the satis-

faction of the court that such additional evidence is

material and that there were reasonable grounds for the

failure to adduce such evidence in the proceeding before

the Commission, the court may order such additional

evidence to be taken before the Commission and to be

adduced upon the hearing in such manner and upon such

terms and conditions as the court may deem proper.”

15 U.S.C. § 45(c).

37a

Prosecutorial Discretion

The Standard Oil opinion directs the district court

to probe an executive decision to prosecute an ap-

parent violator. The opinion indicates that certain

of the Commission’s possible motivations are suspect,

in that they take too great an account of congres-

sional expressions of interest. But, prosecutorial

agencies have wide discretion in determining whether,

and when, to institute proceedings. Vaca v. Sipes,

386 U.S. 171, 182 (1967); Oyler v. Boles, 368 U.S.

448, 456, (1962); Moog Industries v. Federal Trade

Commission, 355 U.S. 411, 4138-14 (1958) ; Kivmiller

v. Securities & Exchange Commission, 492 F.2d 641

(D.C. Cir. 1974); but see Medical Committee for

Human Rights v. Securities & Exchange Commission,

432 F.2d 659 (D.C. Cir. 1970), dismissed as moot,

401 U.S. 973 (1971).

Judicial review of the decision to prosecute is nar-

rowly circumscribed. To defend successfully on the

basis of abuse of prosecutorial discretion, “one must

prove that the selection was deliberately based on an

unjustifiable standard, such as race, religion, or

other arbitrary classification.” United States v.

Steele, 461 F.2d 1148, 1151 (9th Cir. 1972). Fur-

thermore, the abuse must be obvious from the pro-

ferred evidence. Federal Trade Commission v. Uni-

versal-Rundle Corp., 387 U.S. 244, 250-51 (1967).

Successful challenges, such as that in Yick Wo v.

Hopkins, 118 U.S. 356, 378-74 (1886), have been

characterized by striking disparities between those

prosecuted and those not. No substantial indication of

38a

an “arbitrary classification” or the like appears here.

Thus, the extensive inquiry proposed by the court,

and which we discuss below, would represent serious

and unprecedented interference with the authority of

administrative agencies to carry forward their en-

forcement activities.

Scope of Judicial Inquiry

The Standard Oil opinion sets very indefinite, if

not actually contradictory, boundaries for the district

court’s review, and implies that the lower court is

to probe the minds of the Commissioners. In provid-

ing guidance to the district court, the majority opin-

ion states:

“Tf the district court finds as a fact that the

FTC made the ‘reason to believe’ determination

albeit with outside pressures, then it can be con-

cluded that the FTC has complied with 15 U.S.C.

§ 45(b) and further review would be foreclosed.

If on the other hand the district court finds that

the complaint was issued solely because of out-

side pressure or with complete absence of a ‘rea-

son to believe’ determination, then the FTC has

not complied with the Act.” 596 F.2d at 1386

(emphasis added).

Use of the disjunctive in the second sentence suggests

that, even if the Commission made a formal deter-

mination that there was a reasonable basis for in-

stituting the action, the district court should still

make a separate inquiry into whether the complaint »

was issued solely because of outside pressure. In

39a

other words, the district court may inquire into the

Commissioners’ reasons for issuing the complaint.

It seems to us quite likely that this type of judicial

inquiry would prove inappropriately intrusive. For

example, the district court might conclude that it

should ask what evidence was before the Commis-

sion at the time it made its decision. If the agency

produces some such evidence, but a small amount, the

court might well proceed to adjudicate whether that

evidence was so insufficient as to warrant the con-

clusion that the complaint was issued “solely” in re-

sponse to congressional pressures. Several other as-

pects of the opinion, detailed in the margin, heighten

our concern that the court’s review might extend to

matters such as these.* Such broad judicial review,

* Other aspects of the opinion that point up the prospect of

inappropriately broad judicial intervention inherent in the

panel majority’s approach include:

1. As the FTC’s brief on appeal pointed out, the admin-

istrative complaint stated on its face that the Com-

mission had found “reason to believe” that Standard

Oil had violated the antitrust laws. The Ninth Cir-

cuit’s persistence in the face of this assertion might

be read as suggesting that the district court should

go beyond examining formal indicia of a “‘reason to

believe” determination.

2. The opinion recites the chronology of facts leading

to the issuance of the FTC’s complaint. It emphasizes

the short time that elapsed between the Commission’s

July 11 statement to Senator Jackson (indicating that

the Commission had not determined what, if any,

further action it should take) and the Commission’s

Ada

however, is inconsistent with the intent of the FTC

Act, which commits these matters to agency discre-

tion,> with the Administrative Procedure Act, which

exempts from court review matters committed by law

to agency discretion,® and with the continued effec-

tiveness of administrative law enforcement generally.

Further, such probing into the Commissioners’ men-

issuance of the Standard Oil complaint seven days

later. This portion of the opinion might be read as

questioning whether seven days is enough time for

the Commissioners properly to weigh the staff’s input

and make a determination.

8. The opinion emphasizes the FTC’s failure to submit a

list of witnesses when requested by the ALJ, suggest-

ing that the district court should be impressed by the

number of facts—or the lack of them—that the FTC

had on hand when it made its decision to issue a

complaint.

5 Hills Bros. v. Federal Trade Commission, 9 F.2d 481,

483-84 (9th Cir.), cert. denied, 270 U.S. 662 (1926) ; Mont-

gomery Ward v. Federal Trade Commission, 379 F.2d 666,

672 (7th Cir. 1967) (determination under Section 5 of FTC

Act that proceeding would be in the public interest is a

matter committed to agency discretion).

65 U.S.C. § 701 (a) (2):

This chapter applies, according to the provisions thereof,

except to the extent that—

* * * * *

(2) agency action is committed to agency discretion by

law.

See also Action on Safety and Health v. Federal Trade Com-

mission, 498 F.2d 757, 760-62 (D.C. Cir. 1974).

4la

tal processes is precisely the sort of inquiry forbidden

by United States v. Morgan, 313 U.S. 409 (1941).’

In sum, the Standard Oil decision threatens to up-

set the proper balance between individual rights and

effective law enforcement efforts by all administra-

tive agencies. Under the present system of adminis-

trative law and judicial review, enforcement pro-

grams are not subject to premature and disabling

judicial intervention, except in circumstances where

7In Morgan, the Secretary of Agriculture, acting pursuant

to statutory authority, had established maximum prices for

trading in the Kansas City Stockyards. Upon review, the

lower court authorized the entities challenging the maximum

pricing scheme to take the Secretary’s deposition. He was

questioned at length regarding the process by which he

reached his conclusions, including the manner and extent of

his study of the record and his consultations with subordi-

nates. The Supreme Court condemned this excursion in

strong terms:

“But the short of the business is that the Secretary

should never have been subjected to this examination.

‘The proceeding before the Secretary has a quality re-

sembling that of a judicial proceeding.’ Morgan v. United

States, 298 U.S. 468, 480. * * * We have explicitly held

in this very litigation that ‘it was not the function of the

court to probe the mental processes of the Secretary’ 304

U.S. 1,18.” 313 U.S. at 442.

In Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402,

420 (1971), the Court held that, despite Morgan, examina-

tion of administrative officials is proper in certain limited

circumstances. But, in Overton Park, the Court was pre-

sented with a clear and objective set of factors which the

administrator should have considered in making his decision.

Overton Park thus has no application to the present case,

where the “reason to believe” decision is committed entirely

to the agency’s discretion.

42a

respondents would otherwise suffer irreparable in-

jury. The Ninth Circuit’s opinion, however, would

greatly increase the interruptions in administrative

processes and tip the balance unreasonably toward

delay. Federal agencies conduct hundreds of adminis-

trative proceedings every year. These agencies can-

not function effectively if a substantial number of

these proceedings are to be interrupted for premature

review, or if Commissioners are constantly required

to articulate for the courts the mental impressions

that went into formulating their decisions to prose-

cute.

43a

We trust you share our concern over this unfor-

tunate opinion, and we hope you will give prompt

and favorable consideration to the FTC’s request.

Please feel free to make whatever use of this letter

you deem appropriate.

Sincerely,

/s/

Ralph C. Ferrara /s/ Brien Kehoe

RALPH C. FERRARA BRIEN KEHOE

General Counsel General Counsel

Security and Federal Maritime

Exchange Commission

Commission

/s8/ Norton J. Come

Andrew S. Krulwich NORTON J. COME

ANDREW S. Acting General

KRULWICH Counsel

General Counsel National Labor

Consumer Product Relations Board

Safety

Commission

Robert R. Bruce

ROBERT R. BRUCE

General Counsel

Federal Communica-

tions Commission

WU. S. GOVERNMENT PRINTING OFFICE; 1979 g06414 155

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.