Appendix — Gibson v. Federal Trade Commission

Supreme Court brief1983

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Office . xa% Court, U.S.

82-984 hodicaleg

GEC 18 1962

ALEXANDER L. STevas.

NO. LERK

IN THE SUPREME COURT OF THE

UNITED STATES

OCTOBER TERM 1982

H. R. GIBSON, SR. AND BELVA GIBSON,

Petitioners

vs.

FEDERAL TRADE COMMISSION,

Respondent

APPENDIX TO PETITION

FOR

WRIT OF CERTIORARI

Bardwell D. Odum

Attorney for Petitioners

P. O. Box 38529

Dallas, Texas 75238

(214) 348-3165

PETITION

FOR

CERTIORARI

H. R. GIBSON, SR. AND BELVA GIBSON

FEDERAL TRADE COMMISSION

TABLE OF CONTENTS

APPENDIX A: OPINION OF THE 5TH CIRCUIT,

APPENDIX B: OPINION AND ORDER OF THE

FEDERAL TRADE COMMISSION APRIL 30, 1980 (95

FTC 721-749).

APPENDIX C: PETITION FOR RECONSIDERATION

THE FEDERAL TRADE COMMISSION,

JUNE 6, 1980.

APPENDIX D: OPINION OF THE FEDERAL TRADE

COMMiSSION AMENDING THE ORDER OF APRIL 30,

1980 (96 FTC 126-133).

APPENDIX E: ALJ'S OPINION AND ORDER OF

UARY 26, 1979 (95 FTC 553-721).

APPENDIX F: 5TH CIRCUIT JUDGMENT AUGUST

APPENDIX G: 5TH CIRCUIT ORDERS DENYING

ING AND REHEARING EN BANC SEPTEMBER

13, 1982 (688 F2d 840),

APPENDIX H: TESTIMONY OF JAMES S. MILLER

Y 16, 1978.

PETITION

FOR

CERTIORARI

H. R. GIBSON, SR. AND BELVA GIBSON

FEDERAL TRADE COMMISSION

APPENDIX A

OPINION OF THE 5TH CIRCUIT

AUGUST 13, 1982

682 F.2d 554

PETITION

FOR

CERTIORARI

H. R. GIBSON, SR. AND BELVA GIBSON

FEDERAL TRADE COMMISSION

APPENDIX A

OPINION OF THE 5TH CIRCUIT

AUGUST 13, 1982

682 F.2d 554

HERBERT R. GIBSON, JR., GERALD P. GIBSON,

GIBSON'S, INC., GIBSON'S DISCOUNT CENTERS,

INC., IDEAL TRAVEL AGENCY, INC., GIBSON

WAREHOUSE, INC. AND GIBSON'S PRODUCTS CO.,

INC., Petitioners,

FEDERAL TRADE COMMISSION,

H. R. GIBSON, SR., ET AL, Petitioner, v.

FEDERAL TRADE COMMISSION, Respondent,

Nos. 80-1743, 80-1746.

United States Court of Appeals,

Fifth Circuit.

Aug. 13, 1982.

John R. Brown, Circuit Judge:

As the curtain rises, the Gibsons

appear before us once more for what we

hope will be the final act in this almost

15 year drama starring the Gibsons, mas-

ters of discount merchandising, and the

Federal Trade Commission (FTC). Unlike

1 this

the earlier scenes of this Court

time we are to arrive at the merits as

we review the FTC's final order enjoin-

ing the Gibson Petitioners from

lin two prior cases we affirmed enforce-

ment of FTC subpoenas, once during the

investigative stage, FTC V. Gibson, 460

F. 2d (5th Cir. 1972), and once follow-

ing the subsequent issuance of an FTC

complaint, FTC v. Gibson Products of

San Antonio, Inc., 569 F.2d 900 (5th

Cir. 1978). While the parties in these

two cases and the instant case are not

absolutely identical, the actions all

stem from the same FTC investigation.

engaging in assorted trade practices. As

the curtain falls, we affirm the order and

direct enforcement.2 No encores please.

Setting the Stage

In 1958 H. R. Gibson, Sr. and h's wife

Belva founded the first Gibson Discount

Center in Abilene, Texas. From this begin-

ning emerged a chain of over 500 retail

discount stores operating in 29 states,

and several small corporations providing

certain support or related services to the

retail stores. The scions of the family,

H. R. Gibson, Jr., and Gerald P. Gibson,

were actively involved in the family busi-

ness, each owning interests in several of

the retail stores, and eventually receiving

the ownership interest of their parents.

-——— oo ee

2"To the extent that the order of the

Commission is affirmed, the Court shall

thereby issue its own order commanding

obedience to the terms of such order of

the Commission.” 15 U.S.C. 845(c).

A Family Affair or Who's Minding

the Store

The Gibson retail discount stores are

generally incorporated individually and

include not only family owned and operated

stores but also stores licensed to use the

Gibson name.> In the period 1969 to

October 31, 1972, Gibson, Sr., in addition

to licensing various franchisees to use

Gibson trade names in the operation of re-

tail stores, operated a private trade show

where manufacturers displayed their products

to buyers for both Gibson-owned and fran-

chised stores. During this same period,

Gibson, Sr. and his wife Belva were majority

stockholders in several Gibson retail stores

and held a minority interest in certain other

3As of December 31, 1976, 43 retail

stores were controlled by individual mem-

bers of the Gibson family and 614 licensed

stores were operated under the Gibson

trade name. The licensees pay a monthly

fee for the use of the Gibson trade name.

A-4

retail stores. The store managers of the

majority owned stores were hired by Gibson,

Sr. who left the day-to-day operations

largely to the store managers. During this

same period, from 1969 to November 1, 1972,

both Gibson sons owned retail stores.4

The Gibson stores, family owned and fran-

chised, collectively did approximately

$1.6 billion in business in 1971.

On November 1, 1972, the Gibson busi-

nesses were reorganized so that Gibson, Sr.

and wife Belva disposed of their ownership

interest in both the franchising and

retailing aspects of the family business,

-— Lh hh Ll ll tt le le ly el | il ty

4Gerald Gibson owned Gibson stores in

Paris, Texas, Shreveport, Louisiana and

Bruton Terrace in Dallas, Texas, as well

as minority interest in stores in Pueblo,

Colorado, Garland, Texas and Temple,

Texas. H. R. Gibson, Jr. owned the

majority of stock in stores in Hutchinson,

Kansas and San Antonio, Texas, as well

owing some stock in stores located in

Pueblo, Colorado, and the following cities

in Texas: Richardson, Temple, Bruton Road

in Dallas, Plano and Fort Worth.

A-5

transferring these to their two sons,

Gibson, Jr. and Gerald Gibson. Gibson, Sr.

sold the Gibson Products Company name to

his sons and retained only the trade show

business, registered as "The Gibson Trade

Show", Gibson's, Inc., wholly owned by

Gibson, Jr. and Gerald Gibson, was the

corporate entity used to buy Gibson, Sr.'s

retail business and continues to hold the

stock of the retail stores. Gibson's

Discount Centers, Inc., a subsidiary of

Gibson's, Inc., actually carries on the

retailing and franchise business.

Franchisees of the Gibson trade name are

charged a monthly franchise fee and are sub-

ject to quality control by the franchisor.5

SThe standard licensing contract of

Gibson Discount Centers, Inc., the wholly

owned subsidiary of Gibson's, Inc., in use

since November 1, 1972, provides in part:

"9, GIBSONS shall in connection with

this Agreement render such assistance to

LICENSEE in connection with the operation

(footnote continued on next page)

A-6

Along with the use of the trade name,

franchisees receive merchandising advice

and most importantly are able to par-

ticipate in the Gibson Trade Show,

— en oO Feo ee ee Fe EE Er ee eee ee ee ee oe ee

(footnote 5 continued)

of his discount business as may be found

appropriate by GIBSONS after request by

LICENSEE, including advice as to merchan-

dising and other business practices so as

to enable the LICENSEE to benefit from the

knowledge and experience of GIBSONS in the

discount business.

10. LICENSEE agrees that GIBSONS retains

the absolute, complete and final right of

quality control over all products and items

sold and over all services rendered by

LICENSEE to customers of LICENSEE'S discount

business and associated enterprises using

the Service Marks and Trade Names licensed

hereby to see that the high standards of

GIBSONS DISCOUNT CENTERS throughout the

United States of America are maintained and

to protect the property rights of GIBSONS

in the Service Marks and Trade Names set

forth in Paragraph 1 hereof. The LICENSEE

further agrees that if GIBSONS notifies

LICENSEE that GIBSONS disapproves of the

quality of products, items or services sold

or rendered in connection with sale of items

or products in the discount business of

LICENSEE, that LICENSEE will immediately

discontinue the sale of such items, products,

and/or services, or will immediately improve

such services so that they meet the standards

of excellence maintained by GIBSONS."

ALJ opinion, p. 27-28

A-7

Tricks of the Trade

The Gibson Trade Show, an essential

element in both the Gibson franchises and

in the FTC complaint, is a private trade

show produced by Gibson, Sr. The show,

held approximately four times a year, is

basically restricted to buyers for Gibson-

owned and franchised stores. The show is

the vehicle through which representatives

of various suppliers can exhibit their

products and attempt to obtain orders from

various Gibson stores. A supplier or rep-

resentative allowed booth space in the

show in effect has authorization to sell

his products to Gibson retailers but no

guarantee that the franchisees will buy

his products. Gibson, Sr. employs "mer-

chandise managers" or "trade show buyers"

to operate the show. The trade show buyers

recruit manufacturers to participate in

the show, discuss product lines, billing

A-8

terms and prices with suppliers, and nego-

tiate with suppliers to get the best

possible deal on the products that are to

be shown. These buyers basically determine

what suppliers are allowed to participate

in the show as well as what products can be

displayed. An integral part of the trade

show operation is the show sheet (an order

form and price list) which is filled out by

the buyer after negotiations and indicates

the price and terms for each product. These

sheets, which are the exclusive order form

used at the shows, are headlined "Ship to

Gibson Products Company," followed by blank

lines for the address of a particular store.

In addition, they contain a notation in-

structing manufacturers not to ship at

prices higher than those listed or a de-

duction will be taken. In return for the

privilege of participating in the trade

show, suppliers pay for booth rental,

A-9

related service fees and show fees. Show,

fees are generally based on a percentage

of sales made at the Gibson Trade Show

although some suppliers pay a flat fee.

Suppliers who refused to pay show fees

were generally not permitted to par-

ticipate in the trade show.

Prologue

Although the FTC made a cameo

appearance as early as 1967 when it first

began investigating the Gibsons, it was not

until February 1975 that it obtained star

billing by issuing a three-count complaint

alleging violations of the Federal Trade

Commission Act and the Robinson-Patman Act

against several Gibson-owned corporations,

Gibson, Sr., his wife, and sons, Herbert

and Gerald. Count I charged the petitioners

with inducing suppliers to pay promotional

allowances in connection with the Gibson

Trade Show which were not proportionately

A-10

available to other customers of the sup-

pliers, violating Section 5 of the FTC Act,

15 U.S.C. §45(a). Count IT, also alleging

violation of Section 5, concerned the boy-

cott of suppliers who did not grant the

promotional allowances charged in Count I.

This count focused on the experience of

three different suppliers, Toastmaster,

Tucker Manufacturing Co., and Jeannette

Glass Company. Count III alleged the pay-

ment of illegal brokerage in violation of

Section 2(c) of the Clayton Act, as amended

by the Robinson-Patman Act, 15 U.S.C.

§13(c).6 The focus of Count III was on

6Section 2(c) provides:

"(c) Payment or acceptance of com-

mission, brokerage or other compen-

sation. It shall be unlawful for any

person engaged in commerce, in the

course of such commerce, to pay or

grant, or to receive or accept anything

of value as a commission, brokerage, or

other Oy og teed or any allowance or

discount in Lieu thereof, except for

services rendered in connection with

(footnote continued on next page)

A-11

brokerage paid to Gibson, Sr. by two

brokers, Barshell, Inc. and Al Cohen Asso-

ciates, Inc., which successively repre-

sented Ray-0-Vac in sales to the Gibson

stores.’ After extensive pretrial pro-

ceedings and a ten-month trial, the ALJ

issued a 235 page opinion, accompanied by

a two and one-half page order. The ALJ

dismissed Count I. Under Count II, the

boycott of suppliers, the ALJ issued an

8 6 eet Oe ee ee et Ee Et a ee = FF eee et eee

(footnote 6 continued)

the sale or purchase of goods, wares,

or merchandise, either to the other

party to such transaction or to an

agent, representative, or other inter-

pager 4 therein where such intermediary

is acting in fact for or in behalf, or

is subject to the direct or indirect

control of any gh to such trans-

action other than the person by whom

such compensation is so granted or

paid,"

7Barshell, Inc., originally charged in

the FTC complaint, negotiated a consent

settlement in 1976. Al Cohen Associates,

Inc., word ag solely in Count III, was

dismissed by the ALJ after trial for failure

by the FTC to prove the allegations of the

complaint.

A-12

order against all respondents except

Gibson's, Inc, Under Count III, the ALJ

issued an order only against Gibson, Sr.

Both parties appealed the ALJ's decision

to the Commission, The Commission affirmed

the dismissal of Count I. It extended the

order as to Count II to include Gibson's,

Inc., finding that the boycott continued

after November 1, 1972 under the manage-

ment of Gibson's, Inc. and that it was

proper and necessary to include Gibson's,

Inc. in the order as the successor to the

operations of a corporation found to be

guilty of unfair trade practices. As to

Count III, the Commission extended the

provisions of the order concerning illegal

brokerage to all Gibson family and cor-

porate respondents on the basis of their

complete interdependence and common control

during the period of violations. The Com-

mission's decision and accompanying order

A-13

issued on April 30, 1980. The petitioners

filed motions for reconsideration in mid-

June 1980, challenging certain aspects of

the order. In addition, the respondents

argued that certain actions taken by the

Commission during periods of allegedly

lapsed appropriations violated the Anti-

deficiency Act, 31 U.S.C. §665(a), and thus

required dismissal or remand of the case.

The third ground for reconsideration, and

the only one pursued beyond the Commission,

is based on the alleged disqualification

of the ALJ, von Brand, based on his earlier

service as an attorney-adviser to former

Commissioner MacIntyre. The petitioners

allege that in light of the opinion of the

Ninth Circuit in Grolier, Inc, v. FIC, 615

F.2d 1215 (9th Cir. 1980), von Brand

should have been disqualified from serving

as an ALJ and thus dismissal or remand of

the case was necessary. The Commission

A-14

issued a further opinion and order denying

the majority of relief sought.

Another Opening, Another Show

In seeking to have the FTC order set

aside the Gibsons raise several challenges,

no. only in their case, but to the general

administrative system developed by the FTC.

In addition, they contend there is insuf-

ficient evidence on both the Count II

boycott charge and the Count III Robinson-

Patman charge. Although the arguments in

both cases, that against Gibson, Sr. and

his wife and that against the Gibson sons

and Gibson corporations, are, like their

briefs, almost identical, the Gibson sons

and corporations also maintain that there

is no evidence to connect them, as opposed

to Gibson, Sr., with the allegations.

For openers, the Gibsons lead with

their weakest argument, contending the FTC

system of prosecution-adjudication deprives

A-15

them of their right to a fair trial and

due process. Specifically, the Gibsons

challenge the role of the Commission in

investigating, adjudicating and reviewing

complaints. "The Commission not only votes

the complaint, but it determines by its

adjudicatory powers what constitutes

‘unfair' practices under Section 5." The

Gibsons also challenge the role of the FTC

attorney who coordinated the investigation

in the pre-complaint period and then later

served as "complaint counsel". The ALJ, a

former attorney-advisor to Commissioner

MacIntyre, also figures in to the "can't

win" system of the FTC. Continuing their

attack, the Gibsons assert that they have

been before the FTC for 13 years, "awaiting

this opportunity for a meaningful review

by a fair and unbiased tribunal, a Court

of Law." Finally, totally removed from

any context, the Gibsons present a tirade

A-16

against the use of consent orders in

general, relying on the testimony before a

Congressional subcommittee of Fredric

Scherer, a Director of the Bureau of

Economics of the Federal Trade Commission,

{1-3} The FIC, however, clearly holds

the trump in this hand, relying first on

the Commission's organic legislation pro-

viding for the Commission to issue adminis-

trative complaints and subsequently sit as

an adjudicative body. Federal Trade Com-

mission Act §5(b), 15 U.S.C. 845(b). The

combination of investigative and judicial

functions within an agency has been upheld

against due process challenges, both in the

context of the FTC and other agencies,

FTC v. Cinderella Career And Finishing

Schools, Inc., 404 F.2d 1398, 1315 (D.C.

Cir. 1968); Pangburn v. CAB, 311 F.2d 349,

356 (lst Cir. 1962); FIC v. Cement Insti-

SS ee ee ee

tute, 333 U.S. 683, 700-03, 68 S.Ct. 793,

A-17

808-04, 92 L.Ed. 1010, 1035 (1948); Withrow

v. Larkin, 421 U.S. 35, 51-56, 95 S.Ct.

1456, 1466-69, 43 L.Ed.2d 712, 726-28

(1975). Further, the participation of the

staff attorney in both investigation and

subsequent prosecution of a case is clearly

allowed under 5 U.S.C. 8554(d). Nor is

there any merit to the Gibsons' contention

that they were denied due process by the

13-year delay. First, although the initial

decision to investigate the Gibsons

occurred in 1967, the administrative com-

plaint was not issued until 1975. Second,

as the FTC points out, the delay must be

credited in part to the Gibsons themselves.

See, FTC v. Gibson Products of San Antonio,

Se ee ee re ee ee ee ee ee ee eee

Inc., 569 F.2d 900 (Sth Cir. 1978); FIC v.

Gibson, 460 F.2d 605 (Sth Cir. 1972). As

to the argument that consent decrees are

used for coercion, we find this point

irrelevant since the Gibsons are not here

A-18

seeking to be relieved of a consent order

and have failed to indicate how this argu-

ment has any connection with the merits of

their own case. Forcing the Gibsons to

choose between consenting to an order or

incurring the burdens and expenses of a

defense is inherent in the adversary pro-

cess and is basically “part of the social

burden of living under government." FTC

v. Standard Oil Co., 449 U.S. 232, 244,

101 S.Ct. 488, 495, 66 L.Ed.2d 416, 427

(1980), quoting Petroleum Exploration, Inc.

_—_——— Ee

v. Public Service Commission, 304 U.S. 209,

—_—-e--—-=- -_——— ss = eee ee

222, 58 S.Ct. 834, 841, 82 L.Ed. 1294

(1938).

Changing Roles -- From

Understudy to Lead

With FTC taking the first trick, the

Gibsons next present their strongest and

longest argument, that concerning the

qualific@tion of the ALJ in light of his

A-19

prior service as attorney-advisor to an FTC

Commissioner.

The Gibsons' chief argument as to the

administrative process concerns Theodor

von Brand's metamorphosis from attorney-

advisor to administrative law judge. Von

Brand had served previously from 1963

through January 1971 as an attorney-advisor

to former Commissioner Everett MacIntyre.

In February 1977, at a prehearing con-

ference, von Brand apprised counsel for

Gibsons of his prior service with Com-

missioner MacIntyre. In a discussion off

the record, as to which there is no real

difference of view, von Brand indicated he

had no recollection of anything coming

across his desk while serving as attorney-

advisor concerning the Gibsons and deter-

mined that the Gibsons had no objection to

his continuing to serve as the ALJ in this

case. Then, to avoid any future problem,

A-20

von Brand specifically put the following

in the record,

Judge von Brand: "All right. The first

thing I want to raise is something that

I have raised off the record. I have

informed counsel that in the period

1963 to 1970 I was legal advisor to

Conaissioner MacIntyre.

Now, it is my understanding that none

of the respondents in this proceeding

would raise an objection to my con-

tinuing in this case on that ground,

Is that correct, Mr. Odom {attorney

for Gibson, Sr. and Belva Gibson)?"

Mr. Odom: “That's correct as far as I'm

concerned, yes, sir."

zk ke R

Mr. Raider fattorney for Gibson sons and

corporations): "That's correct, Your

Honor."

A-21

Subsequently, von Brand presided over the

ten-month trial, during which no objection

was raised concerning von Brand's qualifi-

cation. On February 26, 1979, von Brand

issued his initial decision and order.

This decision was appealed to the Commis-

sion which issued a decision and order on

April 30, 1980. Not until June 12, 1980

did the Gibsons seek von Brand's disquali-

fication, in a petition for reconsideration

of the Commission's order. The Commission,

in an order of August 8, 1980, refused this

relief. The basis for the Commission's

decision was threefold: (1) failure by the

Gibsons to file a disqualification motion

and supporting affidavits as required by

the Commission's rule §3.42(g)(2), 16

C.F.R. §3.42(g)(2); (2) failure to

file a timely objection; (3) no demonstra-

tion or assertion of prejudice. In its

opinion the Commission devoted substantial

A-22

attention to the Ninth Circuit opinion in

Grolier, Inc.. v. FIC, 615 F.2d 1215 (9th

Cir. 1980), discussed in more detail below.

The Gibsons' primary argument is that

Section 5 of the Administrative Procedure

Act (APA), 5 U.S.C. 8554(d),8 by prohibit-

ing an "employee or agent" from performing

—_—_—— — ee ee -—\. “<a eoee ee e

8section 554(d) provides:

"(d) The employee who presides at the

reception of evidence pursuant to sec-

tion 556 of this title {5 USCS 8556]

shall make the recommended decision or

initial decision required by section

557 of this title [5 USCS 8557}, unless

he becomes unavailable to the agency.

Except to the extent required for the

disposition of ex parte matters as

authorized by law, such an employee may

not --

(1) consult a person or party on a

fact in issue, unless on notice and

opportunity for all parties to

participate; or

2) be responsible to or subject to

the supervision or direction of an

employee or agent engaged in the

performance of investigative or pro-

secuting functions for an agency.

An employee or agent engaged in the per-

Eormaicé “OF investigative or prosecuting

(Footnote “Continued on ext “page

A-23

"investigative or prosecuting functions"

and also participating or advising in the

decision, places on the adjudicative pro-

cess limitations which are essentially

jurisdictional, and in addition, cannot be

waived. The Gibsons contend that an

attorney-advisor as opposed to a Commis-

sioner, is not exempt from the disqualifi-

cation by 5 U.S.C. §554(d)(2)(C). To the

Gibsons, the basic concern of §554(d) is

—_————— —— -——-— ee eee

(footnote 8 continued)

functions for an agency in a case may

not, in that or a factually rélated ~

tase, participate or advise in €he™

decision, récommendéd décision, or

agency review pursiidnt €6 Séction 5$7

OF this titlé [5 USCS 8557], excépt as

Witness Or Counsel in public pro-~~ ~

céédings. This subséction does not

apply

(A) in determining applications for

initial licenses;

(B) to proceedings involving the

validity or application of rates,

facilities, or practices of public

utilities or carriers; or

membérs o£ the body comprising the

(emphasis added).

A-24

the public interest in fairness, an

interest that may not be waived. The

Gibsons assert that their right to insist

upon the disqualification of von Brand is

"secondary to the public interest." Finally,

in response to any criticism of the Gibson's

delay in raising this issue, they maintain

that the right of disqualification was not

apparent until the Ninth Circuit decision

in Grolier, supra.

Taking a Due from the Ninth

The Grolier case, so heavily relied upon

by the Gibsons, actually involved the same

ALJ. ALJ von Brand has served as an at-

torney-advisor to Commissioner MacIntyre

during the period when Grolier was inter-

mittently investigated and charged by the

FTC. Records indicated that Commissioner

MacIntyre had attended at least one meeting

between Grolier and the representatives of

the FTC. Grolier, upon learning of ALJ

von Brand's prior service to Commissioner

MacIntyre, requested that the ALJ dis-

qualify himself from further participation

in the proceedings. Von Brand denied the

request, stating that he did not recall

working on matters involving Grolier while

serving as a legal advisor. Grolier then

filed a formal motion for disqualification

and removal of the ALJ with the FTC and

requested that the FTC permit discovery of

certain FTC records which might reveal the

nature and extent of the ALJ's contact

with the Grolier case. Both the requested

discovery and the motion for disqualifica-

tion were denied by the FTC. In its peti-

tion for review in the Ninth Circuit,

Grolier argued that the failure to dis-

qualify ALJ von Brand violated both §554(d)

of the APA and the Due Process guarantee of

the Fifth Amendment. Grolier also alleged

A-26

error by the FTC in denying the requested

discovery.

The Ninth Circuit, in an opinion issued

January 24, 1980 as amended on denial of

rehearing April 17, 1980, determined that

the exemption under 5S U.S.C. 8554(d)(2)(C)

did not apply to ALJ von Brand once he was

no Longer an attorney-advisor. The Court

specifically rejected the per se disquali-

fication argument of Grolier that the ALJ

was chargeable with knowledge of all in-

vestigative and prosecutorial activities

undertaken by the FTC during his tenure as

an attorney-advisor. In adopting a test

focusing on the activity of the ALJ at the

time that he serve as an attorney-advisor,

the Ninth Circuit indicated that disquali-

fication was necessary only if the ALJ "was

sufficiently involved with the case to be

apprised of ex parte information,..."

Grolier, 615 F.2d at 1221. The Court also

A-27

placed the burden of showing the ALJ's prior

acquaintance with ex parte information on

Grolier, the party challenging the qualifi-

cation of the ALJ. After determining that

the FTC wrongly concluded that attorney-

advisors do not perform “investigative or

prosecuting functions" within the meaning

of §554(d), the Ninth Circuit remanded the

case to the FTC for reconsideration of the

denial of discovery and in light of the

results of that reconsideration, the

disqualification motion. The Court very

clearly indicated that the FTC did not

necessarily have to grant discovery but it

could not simply rely on a flat refusal to

disclose anything concerning von Brand's

involvement. The Court suggested that the

FTC might initially respond through affi-

davits concerning the extent of von Brand's

A-28

involvement with the Grolier case while he

served as attorney-advisor.9

The FTC's primary argument is that the

Gibsons expressly waived the claim for

disqualification during th pretrial pro-

ceedings and did not timely renew any

claim, In addition, the FTC distinguishes

the Grolier case on facts. In Grolier

there was no express waiver of von Brand's

continuing to preside. Grolier specifi-

cally objected to the ALJ's participation

and filed a motion to disqualify the ALJ

prior to the Commission's decision. Nor

does the FTC believe that the statutory

OS ee ee eet eee © ee me me oe

9The Ninth Circuit specifically did not

reach the due process claim of Grolier,

indicating that if von Brand is ) arial fe

a more adequate record might be developed

for the Court's determination of the due

process claim.

Upon remand, the Commission denied the

motion to disqualify von Brand and sub-

sequently reissued its final order with

modifications on March 9, 1982,

A~29

separation of functions requirement cannot

be waived. Rather, the FTC contends that

the Gibsons' decision not to raise the

issue of the ALJ's disqualification in its

appeal to the Commission or prior to the

issuance of the Commission's opinion was a

calculated litigation decision, one which

paid off in part since von Brand in his

initial decision dismissed the principal

charge in the complaint. The rationale

supporting the waiver of this technical

procedural requirement is analogous to the

rule imposed on litigants that points of

error will not be considered for the first

time on appeal unless manifest injustice

will result. To the FTC there is nothing

unfair in holding a party to an express,

knowing waiver.

Prior to the Ninth Circuit opinion in

Grolier, the FTC took the position that

§554(d) did not apply to former attorney-

A-30

advisors since they did not perform in-

vestigative or prosecutorial functions

within the meaning of that section. In

reaching such an outcome, the FTC focused

upon the Congressional desire to prevent

adjudication by those who had developed a

"will to win", In re Grolier, Inc., 87

F.T.C. 179 (1976). In reversing the FTC

decision, the Ninth Circuit found an

“equally important Congressional desire to

prevent adjudicative interpretation of ex

parte facts." Grolier, 615 F.2d at 1220

n.5. The Ninth Circuit, while rejecting

the FTC position that §554(d) was not

applicable to the situaion, specifically

refused to accept the position here urged

by the Gibsons and the ALJ was chargeable

with knowledge of all investigative and

prosecutorial activities undertaken by the

FTC during his tenure as an attorney-

advisor. Grolier, 615 F.2d at 1221, It

A-31

is obvious from the decision that the

Ninth Circuit did not view the situation

as fundamentally unfair or jurisdictionally

void since it refused a per se disqualifi-

cation rule, choosing rather to remand the

case to determine whether Grolier could

meet the burden of showing that von Brand

had prior acquaintance with ex parte in-

formation, Thus the Ninth Circuit opinion

in no way forecloses the possibility of

waiver, a concept wholly compatible with

placing the burden or establishing prior

knowledge on the proponent. Without

rejecting the opinion of the Ninth Circuit

in Grolier, there is a clear distinction,

In the Grolier case, Grolier clearly and

vigorously raised the issue of von Brand's

participation in a timely manner, both

before the ALJ and the FTC. This is a far

cry from the Gibsons' express waiver of

any objection to von Brand's continuation

A-32

in the case after the ALJ's candid revela-

tion of the facts.

The Waive of the Past

[4] We may agree, without deciding,

that 8554(d) applies to the situation of

an attorney-advisor who subsequently serves

as an ALJ. We do this because we hold

that the Gibsons -- with explicit awareness

of the facts or at least of the facts in-

dicating the necessity for further factual

inquiry open to them under FTC rules --

expressly waived any objection they might

have. Not only did the Gibsons clearly

indicate that they had no objection to von

Brand continuing to preside in their case,

they failed to raise at any meaningful

point or in any meaningful way the issue

of disqualification. Subsequent to the

ALJ's opinion, the Gibsons in their appeal

to the Commission did not mention the

issue of disqualification. Nor did they

mention it at oral argument on the appeal

or once the case was under advisement by

the Commission. Even after the Ninth

Circuit issued its opinion in Grolier, the

Gibsons failed to direct the Commission's

attention to this case or to raise this

issue. Only after the Commission had

issued its decision, one less favorable to

the Gibsons than that of the ALJ, did the

Gibsons indicate any objection to the ALJ's

participation. If the Gibsons objected to

von Brand's participation, at the minimum

they should have preserved this objection

three years earlier when they were asked

specifically by the ALJ if they objected

to his continued participation.

{5} Nor can we accept the Gibsons'

argument that they were under no duty to

raise the issue since the FIC had indi-

cated in its Grolier decision that dis-

qualification was not necessary. Because

A-34

the Gibsons expressly waivec any objection,

they are in no position to argue that a

challenge to the ALJ's participation would

have been fruitless. <A party in an admin-

istrative proceeding, as in litigation in

a court, has the duty and responsibility

to bring to the attention of the agency an

objection so that the agency has the oppor-

tunity to reconsider its position. This

is no different than our requirement that

a party provide the lower court with the

opportunity to correct its errors by point-

ing out those errors to the District Judge

first. It is certainly conceivable that

von Brand would have recused himself in

the case which had not yet gotten under

way or that the FTC, if presented with

other arguments, might have reconsidered

Nor are we convinced by the Gibsons'

argument that they were afraid to raise

the issue of von Brand's participation for

fear of antagonizing the ALJ. Counsel for

Gibson, Sr. would have us believe that his

reticence was based on his personal famil-

which were also being held in the Dallas

FTC offices at the same time. We are not

persuaded. Counsel for Grolier obviously

harbored no such fear, filing timely an

objection to von Brand's participation.

Even if we were to acquiesce in this

excuse for failing to raise the issue

before von Brand, this argument offers no

succor for the Gibsons' failure to raise

the issue subsequently before the Commis-

sion. Certainly the Gibsons did not hesi-

tate to contest the ALJ's opinion in other

aspects, objections which called into

question prior opinions of the FTC in

other areas, Rather we are presented with

a situation where, due to the fortuitous

A-36

intervening decision of the Ninth Circuit

in Grolier, the Gibsons are not able to

advance, retrospectively, an argument for

disqualification of the ALJ. They are,

however, unable to convince us of the

applicability of Grolier to an express

waiver of the kind involved here. The

atteapted end run around the need for

timely objection through the argument of a

situation analogous to exhaustion of reme-

dies provides no yardage. While the

Gibsons rely on Board of Education v.

Harris, 622 F.2d 599 (2d Cir. 1979), cert

denied sub nom, Hufstedler v. Board of

OO ee me ee eee

Education, 449 U.S, 1124, 101 S.Ct. 940,

67 L.Bd.2d 110 (1981), that case specifi-

cally distinguishes the issue of exhaustion

from waiver of objection.

Case law supports the concepts of

timely objection with its complementary

notion of waiver within the context of

A-37

disqualification under 8554(d). In Inter-

national Paper Co. v. Federal Trade Com-

-—-—— = ee er ee ee ee ee

mission, 438 F.2d 1349 (2d Cir.), cert

—<——.<- -

denied 404 U.S. 827, 92 S.Ct. 61, 30

L.Ed.2d 56 (1971), the Second Circuit, in

considering alleged violations of due pro-

cess and §554(d) based on the participation

of the general counsel and other FPC

employees both prosecutorial and decision

making functions, found a waiver from the

failure of a party to object timely.

"Appellant made no timely challenge to

this purported practice nor did counsel

call it to the attention of the Com-

mission at the time the stipulation of

facts agreed to had been reviewed and

approved by the Assistant General

Counsel and General Counsel, before the

supposed error was committed. This

knowing inaction and calculated lying

in wait, taken with the hope of

upsetting a future adverse decision of

the Commission, constituted a waiver of

appellant's rights."

438 F.2d at 1357.

The D.C. Circuit in Democrat Printing

_— = = rrr eee

Co. v. FCC, 202 F.2d 298 (D.C.Cir. 1952)

“-—- eee ee ee

A-38

also found a waiver from the failure to

raise a timely objection.

Aside from these specific interpreta-

tions of 8554(d), the requirement for

filing of a timely objection finds support

in the language of §556(b) of the APA

which provides: "On the filing in good

faith of a timely and sufficient affidavit

of personal bias or other disqualification

of a presiding or participating employee,

the agency shall determine the matter as a

part of the record and decision in the

case." The Ninth Circuit, in considering

a motion for disqualification based on bias

on the part of the Commissioner, in Safeway

——-——- + - =

Stores, Inc. v. FTC, 366 F.2d 795, 802

eS Oe Se ee ee ee

(9th Cir. 1966), cert denied 386 U.S. 932,

87 S.Ct. 954, 17 L.Ed.2d 805 (1967), found

that a motion was not timely where the

objecting party had been silent during

trial, briefing, and argument to the

A-39

Commission and had only raised the argu-

ment several months after the Commission

issued an unfavorable decision. In Marcus

v. Director, Office of Workers' Compensa-

————— = =F Fe EH KK ee Fe re rr eee HH er ee ee

tion Programs, 548 F.2d 1044, 1050-51

(D.C.Cir. 1976), the D.C. Circuit, while

indicating that disqualification under

§554(d) is mandatory, also stated:

"The general rule governing disqualifi-

cation, normally applicable to the

federal judiciary and administrative

agencies alike, requires that such a

claim be raised as soon as practicable

after a party has reasonable cause to

believe that grounds for disqualifica-

tion exist. It will not do for a

claimant to suppress his misgivings

while waiting anxiously to see whether

the decision goes in his favor. A

contrary rule would only countenance

and encourage unacceptable inefficiency

in the administrative process. The

APA-mandated procedures afford every

party ample opportunity to enforce and

preserve its due process rights."

548 F.2d at 1051 (footnotes omitted).

See also Capitol Transportation, Inc. v.

—_—--= -—-——- -——— + = eon eer we ee ee Fe eer te ee ee

United States, 612 F.2d 1312, 1325 (lst

—_——— ee ee

Cir. 1979) (claim of bias on part of ALJ

first raised on petition for reconsidera-

tion after final order of agency.)

The Commission, in denying the Gibsons'

motion for reconsideration, indicated that

disqualification claims must be raised as

soon as practicable and cited several cases

in support. In addition, the Commission

relied on its Rule of Practice §3.42(g)(2)

governing the filing of disqualification

motions.10 The motion and supporting

Se eet eH tr ee ee ee ee ee ee

10Rule of Practice §3.42(g)(2) as in

effect at the time provides:

(g) Disqualification of administra-

tive law judges

zk kk

(2) Whenever any party shall deem

the Administrative Law Judge for any

reason to be disqualified to preside,

or to continue to preside, in a par-

ticular proceeding, such party may file

with the Secretary a motion addressed

to the Administrative Law Judge to

disqualify and remove him, such motion

to be supported by affidavits setting

forth the alleged grounds for disquali-

fication. If the Administrative Law

(footnote continued on next page)

A-41

affidavits must set forth the grounds for

disqualification. The ALJ has ten days

within which to disqualify himself. Should

he not do so, he must certify the motion

to the Commission which must determine

promptly the validity of the claim. As the

Commission indicated in its denial of the

Gibsons' motion for reconsideration:

"The requirement of affidavits funder

Rules of Practice §3.42(g)), grounded in

5 U.S.C. §556 (1976), is not an empty

formality to be cast aside unilaterally

by a party to a Commission proceeding.

There are many reasons for such a

requirement. An affidavit provides an

exact, sworn recitation of facts,

collected i» one place; a disqualifica-

tion motion must not be made by a

party, nor taken by the Commission,

SS A ES EE OE i A

(footnote 10 continued)

Judge does not disqualify himself

within ten (10) days, he shall certify

the motion to the Commission, together

with any statement he may wish to have

considered by the Commission. The

Commission shall promptly determine the

validity of the grounds alleged, either

directly or on the report of another

Administrative Law Judge appointed to

conduct a hearing for the purpose."

A-42

lightly ..... Accordingly, the affida-

vit requirement serves not only to

focus the facts underlying the charge,

but to foster an atmosphere of solem-

nity commensurate with the gravity of

the claim. Respondents' failure to

submit affidavits is thus an indepen-

dently sufficient basis to deny their

petitions in this respect."

{6} This Court has implied a timeli-

ness requirement within the context of

disqualification claims in an analogous

Situation, that concerning judicial

disqualification under 28 U.S.C. §455,11

llsection 455 provides:

8455. Disqualification of justice,

judge, or magistrate

(a) <Any justice, judge, or

magistrate of the United States shall

disqualify himself in any proceeding in

which his impartiality might reason-

ably be questioned.

(b) He shall also disqualify him-

self in the following circumstances:

(1) Where he has a personal bias or

prejudice concerning a party, or

personal knowledge of disputed

evidentiary facts concerning the

proceeding;

(2) Where in private practice he

served as lawyer in the matter in

controversy, or a lawyer with whom

he previously practiced law, served

(footnote continued on next page)

A-43

In Delesdernier v. Porterie, 666 F.2d 116

_—— ee ee em me

(Sth Cir. 1982), we found that a motion to

ee ae

(footnote 11 continued)

during such association as a lawyer

concerning the matter, or the judge

or such lawyer has been a material

witness concerning it;

(3) Where he has served in govern-

mental employment and in such capacity

participated as counsel, adviser or

material witness concerning the pro-

ceeding or expressed an opinion con-

cerning the merits of the particular

case in controversy;

(4) He knows that he, individually

or as a fiduciary, or his spouse or

minor child residing in his house-

hold, has a financial interest in

the subject matter in controversy or

in a party to the proceeding, or any

other interest that could be sub-

stantially affected by the outcome

of the proceeding;

(5) He or his spouse or a person

within the third degree of relation-

ship to either of them, or the

spouse of such a person:

(i) Is a party to the proceeding,

or an officer, director, or trustee

of a party;

(ii) Is acting as a lawyer in the

proceeding;

(iii) Is known by the judge to have

an interest that could be substan-

tially affected by the outcome of

the proceeding;

(iv) Is to the judge's knowledge

likely to be a material witness in

the proceeding.

A-44

disqualify raised for the first time on

appeal after two full trials on the merits

was too tardy to consider. Looking to the

policies underlying the disqualification

of judges statute, we stated:

"{£ disqualification may be raised at

any time, a lawyer is then encouraged

to delay making 9 8455(a) motion as

long’ as possible if he believes that

there is any chance that he will win at

trial. If he loses, he can always

claim the judge was disqualified and

get a new trial. This result would not

comport well with the purposes behind

§455(a) .... Lack of a timeliness

requirement encourages speculation and

converts the serious and laudatory

business of ensuring judicial fairness

into a mere litigation stratagem."

666 F.2d at 121