Petitioners Reply Brief — Exxon Corp. v. Federal Trade Commission

Office -Supreme Gourt, U.S.

＋ 1 D

FIL

No. 80-1895 JUL 28 1981

ALEXANGER CC STEVAS,

CLERK

IN THE

Supreme Cuurt of the United States

OCTOBER TERM, 1980

EXXON CORPORATION,

Petitioner,

v.

FEDERAL TRADE COMMISSION,

Respondent.

REPLY BRIEF OF PETITIONER IN SUPPORT OF

ITS PETITION FOR A WRIT OF CERTIORARI

J. WALLACE ADAIR

Counsel of Record

Of Counsel: RoGer C. SIMMONS

LANCE P. OLINDE, Esq. ABIGAIL A. SHAINE

MARSHALL DEUTSCH, Esq. Howrey & SIMON

D. JosEPH Potvin, Esq. 1730 Pennsylvania Ave., N.W.

EXXON CORPORATION Washington, D.C. 20006

P.O. Box 2180 (202) 783-0800

Houston, Texas 77001 Counsel for Petitioner

Attorneys for

Exxon Corporation

July 28, 1981

WILGON - EPES PRINTING Co., ING. - 769-0096 - WASHINGTON, D.C. 20001

I,

II.

III.

TABLE OF CONTENTS

SINCE PETITIONER’S ORIGINAL FILING,

THIS COURT IN FEDERATED DEPARTMENT

STORES, INC. v. MOITIE HAS CONFIRMED

THAT THERE EXIST SERIOUS DOUBTS

ABOUT WHETHER PETITIONER CAN EX-

PECT ANY FURTHER RELIEF FROM THE

NINTH CIRCUIT DESPITE THE TERMS OF

0

THIS CASE HAS SIGNIFICANT IMPLICA-

TIONS AS TO THE ABILITY OF THE JUDICI-

ARY TO EFFECTIVELY REVIEW AGENCY

%%% —A—A—A—A

A PARTIAL AND NON-BINDING OPINION

DOES NOT RENDER PETITONER’S CHAL-

LENGE TO THE VALIDITY OF THE FRAN-

.

CONCLUSION j ů j c —

Page

ii

TABLE OF AUTHORITIES

CASES

Abbott Laboratories v. Gardner, 387 U.S. 186

a REI Sie ERR DR MAES SER oy 2

Ciudadanos Unidos de San Juan v. Hidalgo County

Grand Jury Commissioners, 622 F.2d 807 (5th

Cir. 1980), cert. denied, 101 S. Ct. 1479 (1981)..

County of Los Angeles v. Davis, 440 U.S. 625

% STIRS DR A A

Crossen v. Breckenridge, 446 F.2d 833 (6th Cir.

1971) CCTV

Federated Department Stores, Inc. v. Moitie, 49

U.S.L.W. 4687 (U.S. June 15, 1981)

Grubb v. Oliver Enterprises, Inc., 858 F. Supp.

D cc snnthibhsnstigtentdisabancsucboccowevecscce

Linda R. S. v. Richard D., 410 U.S. 614 (1978) ......

McCoy-Elkhorn Coal Corp. v. EPA, 622 F.2d 260

le AC eR

Pierce v. Society of Sisters, 268 U.S. 510 (1925)

Powell v. McCormack, 395 U.S. 486 (1969) ...........

Regional Rail Reorganization Act Cases, 419 U.S.

r Sonat Tove Ears? Oe See

Southern Pacific Terminal Co. v. ICC, 219 U.S. 498

D saedieiehinssineiinitinnse

Trafficante v. Metropolitan Life Insurance Co., 409

r 7

United States v. W. T. Grant Co., 345 U.S. 629

.

Warth v. Seldin, 422 U.S. 490 (1975) q

Weinstein v. Bradford, 423 U.S. 147 (1975)

STATUTES

Administrative Procedure Act

5 U.S.C. § 553 (1976 & Supp. III 197999

5 U.S.C. 8 556 (1976 & Supp. III 197997

Federal Trade Commission Act

15 U.S.C. § 57a (e) (1) (A) (1976 & Supp. III

D .

MISCELLANEOUS AUTHORITIES

FTC Organization, Procedures, Rules of Practice,

and Standards of Conduct §1.8(b) (rev. Feb.

20, 1979)

Page

IN THE

Supreme Court of the United States

OCTOBER TERM, 1980

No. 80-1895

EXXON CORPORATION,

Petitioner,

v.

FEDERAL TRADE COMMISSION,

Respondent.

REPLY BRIEF OF PETITIONER IN SUPPORT OF

ITS PETITION FOR A WRIT OF CERTIORARI

This reply brief addresses new matters occurring since

Petitioner’s original filing, as well as the arguments

raised in the Federal Trade Commission’s (“FTC”)

brief in opposition.

I. SINCE PETITIONER’S ORIGINAL FILING, THIS

COURT IN FEDERATED DEPARTMENT STORES,

INC. v. MOITIE HAS CONFIRMED THAT THERE

EXIST SERIOUS DOUBTS ABOUT WHETHER

PETITIONER CAN EXPECT ANY FURTHER RE-

LIEF FROM THE NINTH CIRCUIT DESPITE THE

TERMS OF ITS ORDER

When the Ninth Circuit dismissed Petitioner’s appeal

from the Franchise Rule, it did so with the comment:

“The petitions for review. . . are dismissed, without

prejudice to the right of the petitioners to contest the

validity of the rule on its application in any future

2

proceeding.” (Appendix A to Petition.) As indicated in

Petitioner’s initial brief, there exists substantial doubt

as to the authority of the Ninth Circuit to render a dis-

missal of this case on appeal on the merits “without

prejudice.”

Subsequent to the filing of this petition for a writ

of certiorari, this Court decided Federated Department

Stores, Inc. v. Moitie, 49 U.S.L.W. 4687 (U.S. June 15,

1981), a case arising out of the Ninth Circuit involving

a specific application of that court’s questionable ap-

proach toward the final effect of a dismissal. In Fed-

erated, the Ninth Circuit applied a “simple justice”

concept to permit an otherwise dead appeal to possess

continuing vitality, similar to the objective the Ninth

Circuit sought to accomplish with its order here. Of

major significance to the instant proceeding, this Court

in Federated overruled the Ninth Circuit in light of the

basic rule of res judicata which precludes a party or its

privy from relitigating issues that were or could have

been raised in the original action, stating:

A final judgment on the merits of an action pre-

cludes the parties or their privies from relitigating

issues that were or could have been raised in that

action. Nor are the res judicata consequences

of a final, unappealed judgment on the merits al-

tered by the fact that the judgment may have been

wrong or rested on a legal principle subsequently

overruled in another case.

49 U.S.L.W. at 4689. Similarly here, the Magnuson-

Moss Act, which provided the statutory basis for Peti-

tioner’s appeal from the Franchise Rule, provides that

an appeal must be filed within 60 days and that certain

procedural and evidentiary aspects of a rule “may be re-

viewed only in [such] a proceeding.” (See Appendix E

at 15a-17a of the Petition.)

The Court’s holding in Federated may create an irrec-

oncilable conflict with the Ninth Circuit’s statement in

its Order that the validity of the Franchise Rule could

be “litigated anew” if another case or controversy arises

concerning the sale of franchises other than service sta-

tions. Unless the Court hears this petition and instructs

the Court of Appeals for the Ninth Circuit to correct its

erroneous dismissal of this litigation, later courts facing

the issue of the validity of the Franchise Rule in “any

future proceeding” may be powerless to correct the mani-

fest injustice caused by the Ninth Circuit’s dismissal.

II. THIS CASE HAS SIGNIFICANT IMPLICATIONS

AS TO THE ABILITY OF THE JUDICIARY TO

EFFECTIVELY REVIEW AGENCY ACTION

The FTC has not challenged, nor can it challenge,

Petitioner’s assertion that the Franchise Rule was il-

legally promulgated.' Nor does it deny that it has sys-

tematically tried to evade judicial review. In the course

of formulating the Rule, the FTC accumulated more than

10,000 pages of secret comments from franchisors whose

economic interests differ from Petitioner’s interests re-

garding the merits of the Franchise Rule. Petitioner

was never provided an opportunity to comment on the

substance of any of these ex parte contacts prior to

the promulgation of the Franchise Rule. If the FTC’s

strategy of systematically evading judicial review pre-

vails, and the Ninth Circuit’s Order remains unreviewed,

it is possible that no court will ever have the opportunity

to review an illegal substantive rule governing a sig-

nificant segment of the economy.

The FTC persists in its evasionary tactics, character-

izing its July 17, 1980 Exemption Order as “permanent

and unqualified.” (Brief for the FTC in Opposition at

7 n.6.) But the FTC glosses over the fact that the ex-

1 For purposes of determining whether this litigation is moot,

the court should accept as true all of Petitioner’s material allega-

tions. See Warth v. Seldin, 422 U.S. 490, 501 (1975).

4

emption is not all encompassing. The illusion of a com-

plete exemption created in the FTC’s brief equates the

FTC’s exemption proceeding (which is not part of this

appeal) with the appeal here which involved all of Peti-

tioner’s business operations. As to the non-service sta-

tion operations of Petitioner, the FTC asserts only that

“it knows of no other businesses of Exxon that might

be covered by the Rule. (Brief for the FTC in

Opposition at 5 n.2.)

Such qualified assurances simply cannot moot an ap-

peal under longstanding precedent in this Court and in

the lower courts. Under the Commission’s own proce-

dural rules, informal advice given by the FTC is not

final, but is “without prejudice to the right of the Com-

mission to reconsider the questions involved. FTC

Organization, Procedures, Rules of Practice, and Stand-

ards of Conduct §1.3(b) (rev. Feb. 20, 1979).? See

Grubb v. Oliver Enterprises, Inc., 358 F. Supp. 970 (N.D.

Ga. 1972). If the FTC is successful in blocking judicial

review of the Franchise Rule on the basis of a qualified

and non-binding opinion, there will be nothing to bar the

agency from deciding that the Rule is applicable to Peti-

tioner at a later point in time when the 60-day statu-

tory period for direct appeals has run.

2 The rule provides in pertinent part:

Any advice given by the Commission is without prejudice to

the right of the Commission to reconsider the questions in-

volved and, where the public interest requires, to rescind or

revoke the action.

Id. (emphasis added).

One such shift in views has already occurred here. On October

5, 1979, the FTC issued an informal advisory opinion to Marathon

Oil Company concluding that rental payments made by Marathon’s

branded independent service station dealers and jobbers pursuant

to Service Station Leases and Jobber Leases would be considered

“required payments” as that term is used in the Franchise Rule.

5

The FTC does not dispute that the judicial review

provisions of the Magnuson-Moss Act were considered

by Congress to be crucial. (See Petition at 8-13.) Under

the Ninth Circuit’s Order, the FTC has thus far wholly

frustrated a serious challenge to the validity of the

Franchise Rule simply by offering non-binding advice.

The Ninth Circuit’s opinion provides the FTC with the

same type of “powerful weapon against public law en-

forcement” condemned by the Court in United States

v. W. T. Grant Co., 345 U.S. 629, 632 (1953).

III. A PARTIAL AND NON-BINDING OPINION DOES

NOT RENDER PETITIONER’S CHALLENGE TO

THE VALIDITY OF THE FRANCHISE RULE

MOOT

The purpose of Petitioner’s suit was to challenge the

serious procedural violations engaged in by the FTC in

promulgating the Franchise Rule and the total lack of

any evidentiary support for it. Petitioner argued, inter

alia, that the Rule was invalidly promulgated, and that

Petitioner was illegally denied participation in certain

crucial meetings pertaining to the contents of the Rule.

To date, the only relief which Petitioner has received

is a partial exemption and some qualified advice. It

cannot be said that because of such limited relief, “the

issues presented are no longer ‘live’ or [that] the parties

lack a legally cognizable interest in the outcome.” Powell

v. McCormack, 395 U.S. 486, 496 (1969).* Such advice

Less than one year later, on September 30, 1979, the FTC con-

cluded that such payments, to the ‘extent they had not been ex-

empted by virtue of the July 17, 1980 Exemption Order, did not

constitute “required payments.”

* The numerous standing cases cited by the FTC do not suggest

a contrary conclusion. A party has standing whenever it “has

clearly fits within the doctrine of conduct which is “ca-

pable of repetition yet evading review.” Southern Pacific

Terminal Co. v. ICC, 219 U.S. 498, 515 (1911); Wein-

stein v. Bradford, 423 U.S. 147, 149 (1975). Voluntary

cessation of the challenged conduct does not render a

suffered ‘some threatened or actual injury resulting from the

putatively illegal action Warth v. Seldin, 422 U.S. 490, 499

(1975), quoting Linda R.S. v. Richard D., 410 U.S. 614, 617 (1973).

The impact of the Rule on Petitioner’s daily business operations

and the inevitable impact on new business opportunities alone is

sufficient injury to give Petitioner standing. Trafficante v. Metro-

politan Life Ins. Co., 409 U.S. 205 (1972).

Standing can also be established when a legal interest created

by a statute is invaded, even if there would be no injury without

such a statute. Warth v. Seldin, supra, at 500; Linda R.S. v. Richard

D., supra, at 617 n.3; Trafficante v. Metropolitan Life Ins. Co.,

supra, at 212. In this case Petitioner has alleged injury from a

violation of certain provisions of the Administrative Procedure

Act which has in no way been remedied by the FTC’s Exemption

Order. The Exemption has done nothing to repair the deprivation

of Petitioner’s right to participate fully in any presentation of

evidence concerning the contents of the rule being promulgated by

the FTC. 5 U.S.C. §§ 553, 556 (1976 & Supp. III 1979).

Further, the FTC’s argument that Petitioner does not have

standing is in direct conflict with the basic principle that a party

should not have to subject itself to the risk of an enforcement

proceeding in order to obtain judicial review. Abbott Laboratories

v. Gardner, 387 U.S. 186 (1967). See also Regional Rail Reorgani-

zation Act Cases, 419 U.S. 102, 143 (1974) (a party can challenge

a statute prior to its effective date when it is inevitable that the

party will be affected by the statute) ; Pierce v. Society of Sisters,

268 U.S. 510 (1925) (suit to challenge statute was not premature,

although it was brought before the statute’s effective date) ;

McCoy-Elkhorn Coal Corp. v. EPA, 622 F.2d 260 (6th Cir. 1980)

(suit challenging certain proceedings under the Clean Air Act was

proper before the termination of the proceedings because their

very existence was impairing business opportunities); Crossen v.

Breckenridge, 446 F.2d 833, 838 (6th Cir. 1971) (litigants need

not subject themselves to the possible harm of a criminal prose-

cution before seeking relief from an allegedly unconstitutional

statute).

7

controversy moot. United States v. W. T. Grant Co.,

supra. The burden of establishing that the challenged

wrong will not be repeated is a heavy one, Ciudadanos

Unidos de San Juan v. Hidalgo County Grand Jury

Commissioners, 622 F.2d 807, 825 (5th Cir. 1980), cert.

denied, 101 S. Ct. 1479 (1981), and the FTC has failed

to meet that burden. The FTC repeatedly refused to

stipulate with Petitioner that it will not apply the Fran-

chise Rule to any of Petitioner’s businesses. Nowhere

in its brief does the FTC state unqualifiedly that the

Franchise Rule will never be applied to Petitioner’s busi-

ness. If the party claiming mootness fails to establish

that there is no “reasonable expectation” that the alleged

violation will recur, the case is not moot. County of

Los Angeles v. Davis, 440 U.S. 625, 631 (1979).

Despite the limited exemption and the FTC’s tenta-

tive advice as to Petitioner’s other business endeavors,

Petitioner must make business decisions daily in struc-

turing its various operations which the FTC may later

claim are significantly impacted by the Rule. Under Sec-

tion 18(e) (1) (A) of the Federal Trade Commission Act,

15 U.S.C. S 57a(e) (1) (A) (1976 & Supp. III 1979),

“any interested person (including a consumer or con-

sumer organization)” has a right to challenge the validity

of a rule promulgated by the FTC. (Emphasis added).

Certainly Petitioner, who operates many businesses

which may be challenged under the Rule, cannot have

less of a “legally cognizable interest” in the validity of

the Rule than a consumer or an organization of con

sumers.°

5 Indeed, even if the Ninth Circuit determined that the Franchise

Rule was moot as to its businesses, Petitioner would still retain

the right to challenge the validity of the Rule as a consumer since

it purchases many services from franchises, e.g., rental cars, tempo-

rary employees. Although the FTC cavalierly dismisses this idea

(FTC Brief in Opposition at 6 n.3), it ought to be beyond dispute

that a corporation the size of Exxon would have standing either

as an “interested” person or as a consumer under this statutory

provision. 15 U.S.C. § 57a (e) (1) (A) (1976 & Supp. III 1979).

CONCLUSION

The petition for a writ of certiorari should be granted.

In the alternative, Petitioner seeks a summary remand

to the Court of Appeals for the Ninth Circuit for further

consideration in light of the Court’s decision in Federated

Department Stores, Inc. v. Moitie, supra.

Respectfully submitted,

J. WALLACE ADAIR

Counsel of Record

Rocer C. SIMMONS

ABIGAIL A. SHAINE

Howrey & SIMON

1730 Pennsylvania Ave., N. W.

Washington, D.C. 20006

(202) 783-0800

Counsel for Petitioner

July 23, 1981