Appendix — Grolier Inc. v. Federal Trade Commission

Supreme Court brief1983

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VUliCe - Sunreme Court

FILED

JUL 1983

83-50

,tz- see

U.S

One

CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1983

GROLIER INCORPORATED, ef al,

Petitioners,

Vv.

FEDERAL TRADE COMMISSION,

Respondent.

APPENDIX TO PETITION

FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

FREDERICK P. FURTH

(Counsel of Record )

THOMAS R. FAHRNER

DANIEL S. MASON

BRUCE J. WECKER

FURTH, FAHRNER, BLUEMLE

& MASON

201 Sansome Street, Suite 1000

San Francisco, California 94104

(415) 433-2070

RICHARD M. CLARK

GROLIER INCORPORATED

Old Sherman Turnpike

Danbury, Connecticut 06816

(203) 797-3500

Attorneys for Petitioners

seated

APPENDIX A

Nos. 82-7018, 82-7178

United States Court of Appeals

For THE NINTH CIRCUIT

GROLIER INCORPORATED. ef al.,

Petitioners,

Vv.

FEDERAL TRADE COMMISSION,

Respondent.

Argued and Submitted Sept. 14, 1982

Decided Feb. 10, 1983

As Amended March 2, 1983

Before KILKENNY and POOLE, Circuit Judges. and D.

Williams*, Senior District Judge.

DAVID W. WILLIAMS, Senior District Judge.

Grolier, Incorporated [Grolier] petitioned for review of a

cease and desist order of the Federal Trade Commission

[FTC] respecting certain of its sales and recruiting practices.

Petitioner is engaged in the door-to-door and mail order sale of

encyclopedias and other reference publications. This case was

before us once before and we remanded to the FTC to

reconsider whether the administrative law judge [ALJ] should

be disqualified and whether Grolier should be granted addi-

tional discovery on the subject of such disqualification. Grolier,

Inc. v. FTC, 615 F.2d 1215 (9th Cir. 1980) [Grolier I].

The issues presented by this petition are (1) whether the

Commission on remand was correct in declining to disqualify

ALJ von Brand and refusing to allow the taking of his and

others depositions; (2) whether the FTC order is reasonably

related to Grolier’s deceptive and misleading commercial prac-

tices; and (3) whether the Commission abused its discretion by

proceeding against Grolier through adjudication rather than by

fashioning rules or standards for the entire industry.

*The Honorable David W. Williams, Senior United States District

Judge for the Central District of California, sitting by designation.

A-2

THE DISCOVERY /DISQUALIFICATION ISSUE

Prior to his appointment as an ALJ, von Brand served as

an attorney-advisor to former FTC Commissioner MaclIntyre

from 1963 to 1971. ALJ von Brand became hearing officer in

this case after the original ALJ retired in 1975 and another

recused himself. At petitioner's insistence, he began what was

pracucally de novo pretrial hearings. After von Brand had

presided in the case almost a full year, Grolier’s president

testified that he may have met with Commissioner MacIntyre in

1966.' Von Brand responded that he had no recollection of any

matters involving Grolier in his work for the Commission.

Grolier then promptly demanded von Brand's recusal under the

Administrative Procedure Act 5 U.S.C. §554(d) [APA] which

provides:

An employee or agent engaged in the performance of

investigative or prosecuting functions for an agency in a

case may not, in that or a factually related case, participate

or advise in the decision, recommended decision, or agency

review . . . except as witness or counsel in public

proceedings.

Von Brand refused to disqualify himself, stating that legal

advisors to Commissioners were not agency employees within

§554(d).,

On appeal, we reversed, holding that the ALJ's former

position was covered under the APA. In tracing the legislative

history of the APA, we found that Congress intended to forbid

persons who were engaged in the performance of investigative

or prosecuting functions, or who were privy to ex parte

information concerning a case. from participating in the

decision-making process in that case. Grolier I specifically

rejected the company’s contention that disqualification is

automatic if the ALJ held his former position during a time

when an FTC investigation of Grolier was in progress:

' The actual testimony was “I only recall having met Mr. MacIntyre and

I don’t remember or I think, I am quite sure at one of the earlier discussions

with the chairman he was there, but it was a very informal discussion just

trying to say who I was and where | hoped to be able to take the company in

the following 20 years.”

A-3

We conclude, therefore, that under 554(d) attorney-

advisors are precluded only from participating in the

adjudication of cases in which they have actually per-

formed [investigative and prosecuting] functions, and in

‘factually related’ cases.

615 F.2d at 1221.

Hence, for purposes of disqualification the ALJ is not

chargeable with involvement in all cases that were before the

agency during his advisorship. Rather, Grolier must prove that

von Brand had actual possession of ex parte information

concerning the investigation or had participated in some mean-

ingful way in the events that led to the agency's decision to

prosecute.@

In remanding for reconsideration of the disqualification

issue, Grolier J also addressed the discovery that the company

should be granted on the matter:

We do not say that the FTC must grant discovery; but we

do say that a flat refusal to disclose anything at all about

ALJ von Brand’s prior involvement in the Grolier case is

error. The FTC must produce sufficient information to

permit it and a reviewing court, to make an accurate

554(d) determination.

Id. at 122.

Following Grolier J, the agency furnished Grolier with von

Brand's declaration which disclaimed receiving any ex parte

information about the Grolier case while acting as attorney-

advisory. The FTC also furnished the affidavit of former

Commissioner MacIntyre in which he stated that to the best of

his recollection he did not discuss Grolier with Mr. von Brand

and he was aware of no contacts von Brand may have had with

any Grolier matters as an attorney-advisor.3 Grolier now

2 The burden of proof is upon Grolier to show that von Brand should

have been disqualified. R.A. Holman & Co. v. SEC, 366 F.2d 446, 452 (2d

Cir, 1966).

3 Furthermore, Grolier acquired much more information from the FTC

than the two affidavits. At an earlier stage of these proceedings, after the

FTC refused to disqualify von Brand, Grolier received exhaustive document

discovery from the FTC both voluntarily and through a Freedom of

Information Act request. Apparently, Grolier could find nothing in all these

documents which connected the ALJ to the instant case.

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demands that it be allowed not only to take von Brand's

deposition, but also the deposition of MacIntyre, von Brand's

secretary and a former attorney-advisor.

The first remand was not an order that the FTC allow

depositions. We merely stated that:

While the FTC may grant discovery, it may, initially,

respond in the form of affidavits as to the existence and

extent of ALJ von Brand’s involvement with the Grolier

case while he served as attorney-advisor. (cites omitted ).

If these sworn statements adequately disclose the existence

or nonexistence of ALJ von Brand's involvement in prior

Grolier matters, Grolier, who has the burden of proof on

the disqualification issue, may rightfully be ‘obliged either

to offer evidence contradicting the sworn statements of the

[FTC], or to point out the inadequacy and inconsistency, if

any, in the sworn statements’ before it will be permitted to

subpoena FTC records. R.A. Holman & Company v. SEC,

Supra, 366 F.2d at 454.

We conclude that von Brand's and MaclIntyre’s submitted

declarations adequately show that the ALJ was not involved in

the Grolier investigation. Grolier has neither offered sufficient

evidence nor pointed out any inadequacy or inconsistency in the

sworn statements to warrant further discovery or to bear its

burden on the disqualification issue.

Moreover, Grolier points to nothing tangible that it could

explore through the depositions it requests. We feel that

Grolier is seeking to engage in a pure fishing expedition

through these depositions and is attempting to return this

marathon administrative proceeding to square one to further

delay the imposition of the FTC’s cease and desist order. We

decline to be a party to these dilatory tactics.

Grolier also argues that due process requires the ALJ's

disqualification to avoid the appearance of impropriety. This

argument Is on weak ground since the Supreme Court gives “a

heavy presumption of honesty and integrity in those serving as

adjudicators” with respect to a due process claim of bias.

Withrow v. Larkin, 421 U.S. 35, 47, 95 S.Ct. 1456, 1464, 43

L.Ed.2d 712 61975). Any appearance of impropriety here has

been dispelled by the affidavits of MacIntyre and von Brand.

A-5

PROPRIETY OF THE CEASE AND

DESIST ORDER

The Commission found that Grolier had engaged in a

number of false, deceptive and misleading trade practices. and

the company does not challenge these findings. Grolier used

many deceptive recruiting techniques such as “blind” advertise-

ments, ads misrepresenting employment positions as nonselling.

and ads listing “management trainee” positions that did not

eXISE.

The company also employed fraudulent methods to devel-

op sales leads including false surveys, promotions and contests

whose only purposes were to ensnare potential customers.

Grolier instructed its door-to-door salespeople to use deception

in gaining entrance into homes, to misrepresent prices and to

produce false and misleading endorsement letters. Finally.

Grolier regularly used fraudulent and questionable debt collec-

tion practices. In short, the undisputed record discloses that

deceptive practices permeated virtually every aspect of the

company’s recruitment activity and its relationship with custom-

ers and potential customers.

To combat Grolier’s illegal activity, the FTC order requires

the company to disclose in its recruitment advertising for door-

to-door salespeople the nature of the job offered and the basis

for compensation; it prohibits Grolier from distributing any

promotional materials or advertisements that solicit a response

from a prospective customer unless the materials clearly state

that the person responding may be contacted by an encyclo-

pedia sales representative; it requires each salesperson to

present to everyone he visits at home a 3 x 5 card stating that

the purpose of the visit is to sell encyclopedias, and, it prohibits

Grolier from using inflated “retail” prices for individual items

as a basis for comparing “combination” prices and to offer

“free merchandise which in fact is not free by imposing certain

requirements on the way prices may be presented. Appellant

argues that several of these remedies are inappropriate to the

practices sought to be eliminated.

Generally, a review of a FTC order must determine

whether the Commission’s remedial actions were “reasonably

related” to the evil to be prevented.

A-6

[The FTC] has wide latitude for judgment and the courts

will not interfere except where the remedy selected has no

reasonable relation to the unlawful practices found to

eXist.

Litton Industries, Inc. v. FTC, 676 F.2d 364, 369 (9th Cir.

1982). The reasonable relationship test is applied by exam-

ining the specific circumstances of the case and, ultimately,

determining the likelihood of Grolier committing the unfair

practices addressed in the order. Sears Roebuck & Co. v. FTC.

676 F.2d 385, 391 (9th Cir. 1982). Two important factors in

determining petitioner's willingness to flout the law are the

deliberateness and seriousness of the present violation and the

violator’s past record with respect to unfair practices. Srandard

Oil of Calif. v. FTC, 877 F.2d 653. 662 (9th Cir. 1978).

Because the FTC order limits the company’s speech,

however, Grolier asserts that the standard of review on appeal

is to analyze alternative remedies and narrowly tailor the relief

to the interest involved. Grolier bases this contention on the

demise of the commercial speech exception to the First Amend-

ment, Virginia State Board of Pharmacy v. Virginia Citizens

Consumer Council, Inc., 425 U.S. 748, 96 S.Ct. 1817. 48

L.Ed.2d 346 (1976), and the least restrictive alternative ana-

lysis prevalent in First Amendment cases.

Appellant’s contention is incorrect. The commercial

speech exception is still applicable if the commercial expression

at issue is unlawful or misleading. Central Hudson Gas and

Electric Corp. v. Public Service Commission, 447 U.S. 557. 100

S.Ct. 2343, 65 L.Ed.2d 341 (1980). Since Grolier’s practices

are both illegal and misleading. First Amendment protections

do not apply to the FTC’s order. Sears Roebuck & Co. v. FTC.

supra at 399. Moreover, the provisions of the FTC order

affecting the direct solicitation of customers by Grolier sales-

people are even less subject to constitutional constraints. In

person solicitation, because of its potential for abuse. can be

more strictly regulated than public advertising. Ohralik v. Ohio

State Bar Association, 436 U.S. 447, 457, 98 S.Ct. 1912. 1919.

56 L.Ed.2d 444 (1978).

A-7

Hence, we must analyze each of the order's remedial

provisions challenged by Grolier to see that it bears a reason-

able relation to the illegal trade practice it seeks to prevent.

The Warning Card Provision

The order commands Grolier sales representatives to show

all customers a 3 x 5 card stating that “the purpose of this

representative's call is to solicit the sale of encyclopedias.” The

record shows that Grolier has directed its salespeople to

deliberately misrepresent the purpose of their home visits so

that this warning card requirement is reasonably related to

preventing these abuses. Such a remedy has been used in the

past to correct similar unlawful activity. Enoclopaedia Brit-

anica, Inc. v. FTC, 605 F.2d 964 (7th Cir. 1979), cert. denied.

445 U.S. 934, 100 S.Ct. 1329, 63 L.Ed.2d 770 (1980). Any less

stringent disclosure requirement would be difficult to enforce

and might allow Grolier to continue its deceptive practices.

Notice to Consumer Provisions

The order requires Grolier to place a notice in its lead

gathering materials which warns that a person returning such

forms or entry blanks may be contacted by a sales representa-

tive. The company claims that the need for this notice remedy

was unsupported by substantial evidence.

The FTC's findings are proper if they are supported by

“such relevant evidence as a reasonable mind might accept as

adequate to support a conclusion.” RSR Corp. v. FTC, 602

F.2d 1317, 1320 (9th Cir. 1979). The record shows that

Grolier ran deceptive national advertisements at least 15 times

prior to 1972, when the FTC first filed a complaint against the

company. This is clearly enough evidence to support the FTC’s

finding and also to show that the notice remedy bears a

reasonable relation to Grolier’s deceptive lead gathering activi-

ules.

The Recruiting Provisions

The FTC ordered Grolier to make certain affirmative

disclosures to its employment applicants, including a verbatim

copy of the cease and desist order. The company asserts that

the disclosures will unduly hamper its recruitment efforts and

A-8

requests that the provision be deleted. These protestations are

undercut by the abundant evidence of gross misrepresentations

of fact that Grolier made in its employment advertising and

hiring activities. Requiring an employment advertisement to

state the truth should not be overly burdensome to any

recruitment effort.

The Pricing Provisions

The cease and desist order prohibits Grolier salespeople

from referring to any price as a retail price unless a “substantial

number of unit sales are made at or above the represented

price.” The Commission found that the company frequently

stated an inflated cost for its individual products. leading

prospective customers to believe they were getting a special

reduced rate for buying in bulk. Grolier also gave customers a

list of prices for individual products which were much higher

than combination prices. when. in fact. most salespeople were

unauthorized to make individual sales.

The Commission found that these pricing practices were

misleading and its order is narrowly tailored to eliminate them.

Grolier’s claims that the provisions are too costly and unneces-

sary are not Well taken.

THE ABUSE OF DISCRETION CLAIM

Finally. Grolier asserts that the FTC’s order is an abuse of

discretion because it promulgates new industry standards which

should be dealt with on an industry wide basis. rather than

through a ruling against an individual company.

Contrary to the company’s contentions, the Commission's

order adheres to established industry standards. See. Enavclo-

paedia Britanica v. FTC, 605 F.2d 964 (7th Cir. 1979);

Americana Corp, 45 F.T.C. 32 (1948). modified 46 F.T.C. 253

(1949). The unlawful business practices involved in this case

have long been the subject of litigation by the Commission and

the same remedy for these abuses has been imposed upon

Grolier’s competitors. See Enavclopaedia Britanica, Inc. v.

FTC. supra. Grolier’s abuse of discretion claim is groundless.

A-9

We conclude that the findings of the Commission are

supported by substantial evidence and that the remedies pro-

vided were reasonably related to those findings.

The order of the Board is AFFIRMED and ENFORCED.

POOLE, Circuit Judge. dissenting.

I respectfully dissent, believing that Grolier was entitled to

a confrontation by way of deposition with respect to its not-

unreasonable concern that Administrative Law Judge von

Brand's official position had been sufficiently close to the

historical litigation of the case as to raise questions concerning

his suitability for adjudication.

In Grolier I we rejected the contention that mere contem-

poraneity of tenure during prior litigation called for dis-

qualification. The majority correctly adverts to this ruling. But

I question whether having to proceed in the light of Judge von

Brand's prior relationship as attorney-advisor for eight years

during former Commissioner Maclntyre’s tenure would not

cause the average litigator to be very apprehensive when the

attorney-advisor now sits on the issues with which his principal

had dealt. Normally we would test any basis of conflict by the

“engine” of cross-examination. A deposition with face to face

questions and answers would permit such testing: an already-

prepared affidavit provides no similar satisfaction.

Grolier’s conduct of the litigation has left some tension in

feelings but I believe a deposition could be kept entirely within

bounds while the issue was explored. The majority has denied

this right to Grolier and hence I dissent.

APPENDIX B

UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

COMMISSIONERS: James C. Miller III, Chairman

Michael Pertschuk

David A. Clanton

Patricia P. Bailey

In the Matter of Docket No. 8879

GROLIER INCORPORATED,

a corporation, ef al. Issued: March 9, 1982

FINAL ORDER

This matter having been heard by the Commission upon

remand by the United States Court of Appeals for the Ninth

Circuit, and the Commission having denied a motion to dis-

qualify Judge von Brand after allowing Grolier discovery on the

matter in an Order issued August 13, 1981, and the Commis-

sion, having made certain modifications to the original cease

and desist order issued on March 13, 1978, in an Order issued

December 10, 1981, now reissues its Final Order, with said

modifications, as follows:

It Is ORDERED that the following Order to Cease and Desist

be, and it hereby is, entered:

ORDER

It Is ORDERED that respondents Grolier, Incorporated,

Americana Corporation, Grolier Interstate, Inc., Grolier New

Era Corp., Madison Enterprises, Inc., R. H. Hinkley Company,

The Grolier Society, Inc., Spencer International Press, Inc. and

The Richards Company, Inc., corporations and their successors,

assigns, officers, agents, representatives and employees, directly

or indirectly, through any corporation, subsidiary, division or

B-2

other device. in connection with the recruitment, training. or

orientation of any person to sell. rent. lease, or distribute any

textbook, encyclopedia, reference or educational material.

training course or teaching machine. or any other publication,

merchandise or service, in or affecting commerce. as “com-

merce” 1s defined in the Federal Trade Commission Act. do

forthwith cease and desist from:

A. Representing directly or by implication, either orally or

In writing, that:

(1) any respondent is offering positions in such fields

as advertising, education, public relations, marketing, in-

terviewing, or in any field other than door-to-door sales, if

door-to-door sales is included. to any extent, in the position

for which persons are being recruited: or misrepresenting.

in any manner, the job for which any person is being

solicited:

(2) persons will be trained as management trainees.

or for other positions of responsibility concerned with

administrative office functions. unless. in fact. a formal

management training program is available to persons

accepting employment on the basis of such representations:

or misrepresenting, in any manner. the amount and type of

training that will be given:

(3) any person who may be employed will contact

prospects in their homes or places of business for the

purposes of conducting surveys, advertising promotions,

educational instruction or other nonselling functions: or

misrepresenting, in any manner, the purposes for which

any person is engaged.

B. Misrepresenting. in any manner, the amount of income

to be earned by any person or that may be earned by any

person, the method of payment, or any condition or limitation

imposed upon the compensation of any person, or the degree of

ease or difficulty in performing any said condition imposed.

C. Failing to disclose. clearly and conspicuously, in all

advertising offering employment in any way involving door-to-

door sales:

B-3

(1) that the respondent concerned is recruiting per-

sons for the sole purpose of soliciting or selling:

(2) that such soliciting or selling will be on an “in

home” basis:

(3) that the products or services being sold are

encyclopedias or services to be used in connection there-

with, or in the event that encyclopedias or such related

services are not being sold, the products and services being

sold; and

(4) the basis for compensating persons so engaged.

D. Failing to clearly and conspicuously advise, both orally

and in writing. any prospective salesperson at the initial face-to-

face interview, and prior to executing any employment agree-

ment with any such person. the following information:

(1) all those disclosures set forth in Paragraph I C

above:

(2) a complete and detailed description of each

condition and limitation imposed upon the receipt of any

compensation:

(3) where applicable, notification that such person

will not be paid for time spent during orientation and

training:

(4) a complete and detailed description of any

expense or expenses any such person may incur performing

the required duties; and

(5) the percentage of persons holding similar posi-

tions engaged by the office offering the position during the

twelve (12) months immediately preceding the offer, who

have actually received an equivalent, or greater, income

than that promised under the terms of any such agreement.

E. Failing to furnish to each applicant at the initial face-to-

face interview and prior to executing any employment agree-

ment with any such person, a copy of Paragraphs I. II and V of

this Order together with a cover letter as set forth in Appendix A

attached hereto.

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F. Making, distributing or using any training tapes, sales

manuals, or any other document, method or device which

contains any representation or instruction inconsistent with any

provision of Paragraph I or Paragraph II of the Order.

IT Is ORDERED that respondents Grolier, Incorporated,

Americana Corporation, Grolier Interstate, Inc., Grolier New

Era Corp., Madison Enterprises, Inc., R. H. Hinkley Company,

The Grolier Society, Inc., Spencer International Press, Inc., and

The Richards Company, Inc., corporations and their successors,

assigns, Officers, agents, representatives, and employees, directly

or indirectly, through any corporation, subsidiary, division or

other device, in connection with the publishing, advertising,

offering for sale, sale, rental, lease or distribution of any

textbook, encyclopedia, reference or educational material,

training course or teaching machine, or any other publication,

merchandise or service, in or affecting commerce, as “com-

merce” is defined in the Federal Trade Commission Act, do

forthwith cease and desist from:

A. Disseminating or causing to be disseminated any

advertisement of promotional material which solicits participa-

tion in any contest, drawing or sweepstakes, or solicits any

response to any offer of merchandise, service or information,

unless any such solicitation clearly and conspicuously discloses

that a person who replies as requested may be contacted

directly by a salesperson for the purpose of selling respondent's

products, using one of the following disclosures:

1. IMPORTANT: This card will let you know of my

interest and enable your [location designation, if

appropriate] sales representative to

( contact me athome ) ( information )

( call or visit me ) with ( details)

( contact me tn person ) ( facts )

on how I may (purchase) [applicable product].

( buy )

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2. IMPORTANT: Returning this card allows me to have

your [location designation, if appropriate] sales repre-

sentative

( contact me athome ) ( information )

( call or visit me ) with (— details)

( contact me in person ) ( facts )

on how I may (purchase) [applicable product].

( buy )

3. IMPORTANT: Returning this card will enable your

[location designation, if appropriate] sales representa-

tive to

( contact me athome ) ( information )

(call or visit me ) with ( details)

( contact me in person ) ( facts )

on how I may (purchase) [applicable product].

( buy )

Upon prior approval in writing of the Assistant Director of

the Division of Compliance of the Bureau of Consumer Protec-

tion, or his designee, respondent may use any other disclosure

that clearly and conspicuously discloses that a person who

replies as requested may be contacted directly by a salesperson

for the purpose of selling respondent’s products. A request for

approval shall be in writing and shall be deemed granted if not

disapproved within 30 days after receipt by the Assistant

Director of the Division of Compliance of the Bureau of

Consumer Protection.

B. Providing any return card, coupon or other device

which is used to respond to any advertisement or promotional

material covered by Paragraph II( A) above, unless one of the

disclosures set forth in such Paragraph, or a disclosure ap-

proved by the Assistant Director of the Division of Compliance

or his designee as satisfying the requirements of Paragraph

II( A), clearly and conspicuously appears in immediate proxi-

mity to the space provided for a signature or other identification

of the responding party. During the one (1) year period from

the date this Order becomes final, respondent may submit a

request to reopen these proceedings pursuant to Section 2.51 of

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the Commission’s Rules of Practice. Such petition shall contain

information demonstrating that any proposed modifications of

Paragraphs II(A) and II(B) will clearly and conspicuously

disclose to potential purchasers of respondent's products that a

person who replies as requested may be contacted directly by a

salesperson for the purpose of selling respondent's products.

The foregoing sentence shall not be construed as a limitation of

respondent’s submission of additional information regarding

the request to reopen, including information relating to the

financial impact of Paragraphs II( A) and II( B) on respondent.

Should a request be submitted. the Commission shall determine

whether to reopen these proceedings within one hundred-

twenty (120) days of receipt of such request. The procedure to

reopen the proceedings as set forth herein is in addition to. and

not in lieu of, any other procedure (or time period with respect

to such procedure ) permitted by law or the Commission's Rules

of Practice.

C. Failing to disclose clearly and conspicuously. at the

beginning of any telephone call to any prospective customer,

the fact that the individual making the call is either soliciting

the sale, rental or lease of publications. merchandise or services

for respondents, or is arranging for a sales solicitation to be

made, and that if the prospective customer so agrees. the

respondent concerned will send a salesperson to visit said

prospect for the purpose of soliciting the sale. rental or lease of

said publications, merchandise or services.

D. Visiting the h me or place of business of any person for

the purpose of soliciting the sale. rental or lease of any

publications, merchandise or service. unless at the time admis-

sion is sought into the home or place of business of such person,

a card 3 inches by 5 inches in dimension, with all words in 10-

point bold-face type. with the following information. and none

other. in the indicated order. is presented to such person:

(1) the name of the corporation:

(2) the name of the salesperson:

(3) the term “Encyclopedia Sales Representative”

[or other applicable product]:

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(4) the terminology: ‘The purpose of this representa-

tive’s call is to solicit the sale of encyclopedias” [or other

applicable product].

Provided, however, that for one (1) year from the date this

order becomes final, respondent may, in lieu of the card

required by this Paragraph of the Order, substitute a business

card of at least 2 inches by 3-% inches containing only the

following information:

1. the name of the corporation

the name of the salesperson

3. the term “sales representative”

4. An address and telephone number at which the

corporation or salesperson may be contacted.

5. the product or the corporation logo or identifying

mark.

During this one (1) year period. respondent shall comply

in all other respects with the requirements of Paragraph II(D)

above. Prior to the expiration of the aforesaid time period,

respondent may submit a request to reopen these proceedings

pursuant to Section 2.51 of the Commission's Rules of Practice.

Such petition shall contain information demonstrating that the

business card required in Paragraph II(D). as modified above.

is effective in communicating to potential purchasers. prior to

the entry into their homes or places of business by any of

respondent's sales representative, that the purpose of the sales

representative’s call is to solicit the sale of respondent's prod-

ucts. The foregoing sentence shall not be construed as a

limitation on respondent's submission of additional information

regarding the request to reopen. including information on the

financial impact of Paragraph II(D) on respondent. Should a

request be submitted, the Commission shall determine whether

to reopen these proceedings within one hundred-twenty (120)

days of receipt of such request. Respondent may continue to

use the business card, as described by this proviso, during the

time that a request to reopen these proceedings pursuant to this

Paragraph is pending, and, if such proceedings are reopened,

until the Commission determination of the matter has become

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final. The procedure to reopen the proceedings as set forth

herein is in addition to, and not in lieu of. any other procedure

(or time period with respect to such procedure) permitted by

law or the Commission’s Rules of Practice.

E. Failing to give the card. required by Paragraph II(D),

above, to each person and to provide each such person with an

adequate opportunity to read the card before engaging any

such person in any sales solicitation.

F. Using the words “Mothers Club” or words of similar

import and meaning to represent. directly or by implication, the

existence of a bona fide educational program, club, or business

entity which provides educational services or benefits to con-

sumers or using any trade name misrepresenting in any manner

the nature or purpose of their business.

G. Representing, directly or by implication, either orally

or in writing that:

(1) Any person calling on any prospective purchaser

(a) engaged in or connected with “advertising”.

“marketing”, “promotion”, “education”, or anything

other than the sale of encyclopedias or other educa-

tional or reference materials:

(b) conducting, taking or participating in a

survey, opinion poll, interview or any other infor-

mation gathering activity: or

purpose of delivering of disseminating any vacation

gift certificate, prize. gift, gift certificate, chance in any

contest. or any other merchandise or item of chance:

(2) Only a few minutes will be required to complete

the visit inside the prospective purchaser’s home or place

of business: or misrepresenting. in any manner. the period

of time required to complete the sales or other presenta-

tion:

(3) any person contacted has been specially selected

to receive any offer: or misrepresenting, in any manner, the

persons or class of persons to whom said offer is available:

R-9

(4) any encyclopedia or other reference material is a

new publication, or a publication which has not been

previously available to the public unless such ts the fact, or

misrepresenting, in any manner, the extent of editorial

revisions, in any encyclopedia or other reference material:

(5) any offer is limited, must be accepted immedi-

ately or within a specified time period, or is a special offer.

unless such is a fact; Or misrepresenting, in any manner, the

nature, scope or duration of any sales offer:

(6) any publication, merchandise or service is being

offered free, without cost, as a bonus, reduced in price or

otherwise to any prospective purchaser of any of respond-

ent’s publications, merchandise or services agreeing to

perform any advertising promotional or selling function.

including but not limited to, any of the following acts or

similar acts:

(a) permitting their names to be listed as local

owners of the product or services:

(b) providing the name of any person who may

be interested in purchasing any publication, merchan-

dise or service:

publication or other item which may be used in

advertising;

(d) displaying any publication or other item ina

conspicuous location in his home:

(e) keeping any publication or other item cur-

rent by purchasing an annual yearbook or by purcha-

sing any research service;

(f) completing installment payments for any

item in a period of time less than the period of time

initially represented; or

(g) paying a membership fee in order to partici-

pate in the Consumer Buying Educational Service, or

any other program, club, service or entity which

provides an opportunity for participants to purchase

merchandise at a savings from the retail prices for

B-10

such merchandise, or paying a fee to participate in any

similar program, club, service or entity: or

(h) misrepresenting, in any manner, that any

publication, merchandise or service is being offered

free, without cost, as a bonus, or reduced in price to

any person;

(7) any publication, merchandise or service is being

offered free, without cost. or is given as a bonus or

otherwise to any purchaser of any of respondents’ publica-

tions, merchandise or services. pursuant to any agreement

to purchase, rent or lease any other publication, merchan-

dise, or service, or combination thereof, from such re-

spondent, unless:

(a) the contract price for the purchase, rental or

lease of any such other publication, merchandise,

service, or combination thereof. has remained at the

said price or above for at least six (6) months within

the last twelve (12) months immediately preceding

the time at which the representation is made;

(b) no publication, merchandise or service has

been offered free, without cost or given as a bonus or

otherwise with the sale, rental or lease of any such

other publication, merchandise, service or com-

bination thereof, to any person for a period of at least

six (6) months within the last twelve (12) months

immediately preceding the time at which the repre-

sentation is made:

bination thereof, of equivalent or greater value, has

been eliminated by such respondent from any such

other publication, merchandise, service, or com-

bination thereof, with which the free, without cost or

bonus publication, merchandise or service is being

offered;

Provided However, any such prices as are restricted by

Paragraph II G (7)(a) of this Order may be altered at any time

by the respondent concerned to reflect bona fide changes in

market conditions.

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H. Misrepresenting. in any manner, the terms, conditions,

method, rate or time of payment actually made available to any

person.

I. Representing, directly or by implication, either orally or

in writing that:

(a) any person using any research service will receive

answers to questions On any subject: or misrepresentating,

in any manner, the scope of, or restrictions imposed upon

the use of, any such research service:

(b) any answer provided by a research service is the

product of detailed, exhaustive or original research gener-

ated by the specific question asked by any person utilizing

said service unless such is the fact; or misrepresenting, in

any manner, the extent of individual attention, research,

preparation or quality of any answer furnished by any such

research service;

suitable or acceptable substitute for any term paper, theme

or other report; or misrepresenting, in any manner, the

benefit or use of any answer provided by any research

service;

(d) any research service is being offered at any price

or that the research service has a retail value unless such is

the fact;

(e) the cost to any respondent of any research service

represents a retail value.

J. (1) Failing to disclose, clearly and conspicuously, in

writing on all promotional materials describing any research

service, and orally during the course of any sales or other

presentation relating to said service, each condition or limita-

tion placed upon the use of such research service.

(2) Failing to disclose applicable limitations on the time

within which answers will be supplied by any research service

in writing on all promotional materials and orally during the

course of any sales presentations relating thereto.

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K. (1) Representing, directly or by implication, through

the use of any oral statement, written quotation, picture or any

other means that any publication, merchandise or service has

received an endorsement, recommendation, or sponsorship

from any educational, religious, or other institution or other

entity or from any person, unless the stated endorsement is

genuine and authentic in all respects, and discloses the year or

edition of the publication to which such endorsements pertain,

if a publication is involved.

(2) Using, publishing. or referring to any testimonial or

endorsement unless (1) such use, publication, or reference is

expressly authorized in writing and unless (2) respondents

have good reason to believe that at the time of such use.

publication, or reference, the person or organization named

subscribes to the facts and opinions therein contained.

(3) Representing, in any manner, that an endorsement or

testimonial has been recently executed or is current unless this is

the fact.

(4) Misrepresenting, in any manner. that any person is

calling on a prospective customer with the endorsement, recom-

mendation, or sponsorship of another person or organization.

L. Failing to disclose:

(1) clearly to the officials of any educational in-

stitution being visited, where a purpose of such visit is to

obtain the institution's permission to disseminate through

the institution promotional material which solicits the sale

of any product to the parents of the children enrolled in the

educational institution, and which is designed to secure

leads for 'n-home sales presentations, prior to any such

dissemination, that the purpose of disseminating such

promouonal materials is to secure leads for in-home sales

presentations;

(2) conspicuously on the face of such promotional

materials within the scope of L( 1) that dissemination of

such promotional materials through the educational in-

stitution does not constitute an endorsement or a recom-

mendation by the institution or its officials that such

materials being promoted should be purchased unless such

is the fact.

B-13

M. Representing to any person, directly or by implication,

either orally or in writing that:

(1) any price is the retail, regular, usual or words of

similar import or effect, price for any publication in any

binding, merchandise of service, unless the respondent

concerned is making a substantial number of its unit sales

for each such publication in each such binding, merchan-

dise or service, individually, at or above the represented

price;

(2) any price is the retail, regular, usual, or words of

similar import or effect, price for any set of publications in

any binding and in combination with any other publica-

tion, merchandise or service, unless the respondent con-

cerned is making a substantial number of its unit sales for

each such set of publications in each such binding individ-

ually or in combination at or above the represented price;

(3) savings may be realized by the purchase, rental

or lease of any publication, merchandise or service, or any

combination thereof, from any of respondents’ former

prices for its products unless:

(a) such savings claims are based upon retail,

regular, or usual prices, or combination prices, arrived

at in accordance with Paragraph II M(1) and (2)

above;

(b) respondents clearly and conspicuously speci-

fy the publication, merchandise or service, or com-

bination thereof, and the price from which the savings

are to be realized; and

comparable quality in all materials respects with the

publication, merchandise or service sold at the higher

price;

(4) savings may be realized by the purchase, rental

or lease of any publication, merchandise or service, or any

combination thereof, from comparable products of com-

petitors unless:

B-|4

(a) the respondent concerned clearly and con-

spicuously specifies the publication, merchandise or

service, or combination thereof, from which the sav-

ings are to be realized:

(b) the price utilized for comparison purposes is

the price at which a substantial number of persons

have purchased the item referred to in (a) immedi-

ately above:

comparable quality in all material respects to the

product being sold:

(d) respondents have in good faith conducted a

market survey or obtained a similar representative

sample of prices in the trade area where the com-

parison is made which establishes the validity of said

compared price.

N. Misrepresenting in any manner, either orally or in

writing:

(1) the amount of savings to be realized by any

person who enters into an agreement with any respondent

for any publication, merchandise or service: or

(2) that any publication. merchandise or service is

being offered free or without charge. or is given to any such

person.

O. Failing to comply with any and all provisions of the

Commission's Trade Regulation Rule. Cooling-Off Period For

Door-To-Door Sales (16 C.F.R. 421.1). which are in effect on

the date this Order becomes effective. and with any modi-

fications or changes in the aforesaid Rule which may be made.

A copy of the said Rule shall be made a part of this Order for

purposes of complying with other provisions hereof.

P. Initiating contact with any purchaser through any

means for any reason from the time said purchaser enters into

any agreement containing a NOTICE OF CANCELLATION,

as required by Paragraph Il O of this Order. until said buyer's

cancellation period has expired.

B-15

Q. Failing to maintain a copy of each NOTICE OF

CANCELLATION received pursuant to Paragraph II O of this

Order, and making said documents available for inspection and

copying by the Commission’s staff upon reasonable notice. Any

respondent receiving such NOTICE shall maintain it for a

period of three (3) years from date of receipt.

R. Failing to create adequate records, which shall be

maintained for a period of three (3) years and made available

to the Commission's staff for inspection and copying upon

reasonable notice, from which the validity of any savings

claims, retail price claims, comparative value claims, or other

representations of the type described in Paragraphs II G( 7), II

M and II N of this Order can be determined, and making any

pricing claims within the scope of this provision unless there are

in existence for at least the six (6) months preceding such

claims records from which the validity of such claims can be

determined.

S. Failing to attach to any contract for the sale, rental or

lease of any publication, merchandise, service or combination

thereof a written statement that clearly and conspicuously

discloses, and only discloses, the following information in the

indicated order and manner:

(1) in 12-point bold-face type size the terminology:

PRICE LIST

THE FOLLOWING PRICES ARE THE ONLY AU-

THORIZED PRICES AT WHICH THE LISTED ITEMS

MAY BE OFFERED.

ANY PRICE NOT LISTED BELOW IS UNAUTHO-

RIZED AND FALSE.

(2) a list of all publication, merchandise, services or

combination thereof currently offered for sale, rental or

lease, and in immediate conjunction thereto each price at

which any respondent is authorized to offer said product or

service pursuant to Paragraph II M of this Order.

(3) in 12-point bold-face type the terminology, when

applicable:

B-16

FREE ITEMS

ONLY THE FOLLOWING PRODUCTS AND SER-

VICES MAY BE OFFERED FREE. YOU ARE PAY-

ING FOR ANY ITEMS RECEIVED AND NOT LISTED

BELOW.

(4) a list of all publications, merchandise or services

currently offered as free, without cost, or as a bonus

pursuant to Paragraph II G( 7) of this Order.

T. Failing to orally instruct any person at the time said

person signs any contract for sale. rental or lease. of any

publication, merchandise. service or combination § thereof,

pursuant to an oral sales presentation, that a “Price List” is

attached to said person’s contract.

It Is FURTHER ORDERED that respondents Grolier, In-

corporated. American Peoples Press. Inc.. American Interstate

Corp.. Career Institute. Inc., Grolier Enterprises, Inc., and

Grolier Reading Programs, Inc.. corporations, and their succes-

sors or assigns, their officers, agents, representatives and em-

ployees. directly or indirectly, through any corporation, subsidi-

ary or division, or other device. in connection with the advertis-

ing. offering for sale, sale or distribution of any textbook,

encyclopedia, reference or educational material, training course

or teaching machine. or any other publication, merchandise or

service through the use of any program, plan, method or device,

that provides or purports to provide for the sale or distribution

of any of said items to any person on an approval basis, in or

affecting commerce, as “commerce” is defined in the Federal

Trade Commission Act. do forthwith cease and desist from:

A. Representing, directly or by implication, either orally or

in writing that:

(1) any person has the option to receive each publi-

cation, merchandise or service. separately and individually,

and to accept or reject same. unless such person is allowed

in all instances to receive and to purchase or reject each

such publication, merchandise or service separately and

individually:

B-17

(2) any person will not receive any further publica-

tion, merchandise or service after the respondent con-

cerned has received a timely notification of the person’s

cancellation of any such program, plan or method of sale

or distribution, unless such is the fact; or misrepresenting,

in any manner, any consequence resulting from any per-

son’s cancellation of his participation in any such program,

plan, or method of sale or distribution: and

(3) any person incurs no risk or obligation by joining

Or participating in any such program, plan, or method of

sale or distribution; or misrepresenting, in any manner, any

condition, right, duty of obligation imposed on any person.

B. Disseminating, or causing the dissemination of, any

advertisement which fails to disclose in a clear and conspicuous

manner:

(1) a description of the conditions and terms of any

such program, plan, or method of sale or distribution, and

the duties, risks and obligations of any subscriber thereto:

and

(2) a description of each publication, merchandise or

service to be offered for sale, the billing charge to be made

therefor, the anticipated total number of publications,

merchandise or services included in any such program,

plan or method of sale or distribution, the number of

publications, merchandise or services that will be included

in each shipment of such items, and the number of and the

intervals between each such shipment.

C. Failing to disclose, clearly and conspicuously, on any

return coupon, order form or any other document used for

responding to any such program, plan, or method of sale or

distribution, the following information:

(1) the anticipated total number of publications,

merchandise or services included in any such program,

plan, or method of sale or distribution;

(2) the number of publications, merchandise or

services that will be included in each shipment of such

items; and

(3) the number of and the intervals between each

such shipment.

B-18

D. Failing to disclose, clearly and conspicuously, in imme-

diate conjunction with any publication, merchandise, service or

notice thereof sent to any subscriber the anticipated date on

which the respondent from whom the subscriber obtained any

of such items will initiate processing of the next shipment of any

such item.

E. Failing to provide to any person in conjunction with

each notice of any shipment of any publication, merchandise or

service, a clear and conspicuous means by which said person

may exercise his option or right to cancel said shipment. if such

is his right.

IT Is FURTHER ORDERED that respondents Grolier, In-

corporated, American Peoples Press. Inc.. Americana Corpo-

ration, Americana Interstate Corp.. Federated Credit Corp.,

Career Institute, Inc., Grolier Interstate Inc.. Grolier New Era

Corp.. Madison Enterprises, Inc.. R. H. Hinkley Company,

Spencer International Press, Inc.. The Grolier Society. Inc., and

The Richards Company, corporations, and their successors,

assigns, officers, agents, representatives and employees. directly

or indirectly, through any corporation, subsidiary. division or

other device, in connection with the collection or attempted

collection of any debt allegedly due and owing pursuant to any

contract or other agreement relating to the purchase or other

receipt of any textbook, encyclopedia. reference or educational

material, training course or teaching machine, or any other

publication, merchandise or service, in or affecting commerce,

as “commerce” is defined in the Federal Trade Commission

Act. do forthwith cease and desist from:

A. Representing, directly or by implication, either orally or

in writing that:

(1) any company, corporation, or entity engaged in

collection of monies allegedly due or owing to such

concerns or any other company, corporation or entity has

separate bona fide departments or divisions for legal

matters, unless such are the facts; or misrepresenting, in

any manner, the existence, or functions of any division or

department of any company, corporation or entity:

B-19

(2) the Code of Federal Regulations, or any other

federal regulation or statute, provides that any employee of

the Federal Government who has any outstanding debt

due or owing may be subject to dismissal from the federal

service for failure to pay said debt unless the respondent

concerned can demonstrate that sufficient facts exist with

regard to the employee to whom the representation was

made which establish the propriety of such claim;

(3) any person who utilizes the United States mails to

obtain any publication, merchandise or service and who

fails to pay or becomes delinquent in paying for any such

item will be subject to prosecution for mail fraud under

federal law unless the respondent concerned can demon-

Strate that sufficient facts exist, with regard to persons to

whom the representation was made, which establish the

propriety of such claims; or misrepresenting, in any man-

ner, the rights, duties, or obligations of any person arising

from any federal, state, or local statute, ordinance, or

regulation;

(4) any respondent utilizes the services of credit

reporting companies or other entities for persons who

disseminate credit information in a manner which will

adversely affect the public or general credit rating of any

person who has become delinquent in paying any debt

unless the respondent concerned can demonstrate that

sufficient facts exist, with regard to the person to whom the

representation was made, which establish the propriety of

such claim, Or misrepresenting, in any manner, that any

person’s public or general credit rating will be adversely

affected;

(5) any letter, notice or other communication which

has been prepared, originated or composed by any re-

spondent has been prepared, originated or composed by

any other person, firm or corporation;

(6) suit will be instituted to recover any delinquent

debt, or that any delinquent debt will be transferred to any

attorney with instructions to institute suit, or that any other

legal step to collect any outstanding debt will be taken,

unless a definite date is set forth for such action and such

B-20

are the facts; or misrepresenting. in any manner, respond-

ents’ relationship with, or instructions to, any attorney. or

the course of action that will be taken by any attorney or

misrepresenting in any manner that any account has been

transferred to any person or entity for collection unless

those are the facts.

B. Using any correspondence forms or any written mate-

rials which appear to depict official legal process.

For the purpose of the following provisions of this Order,

the terms “respondents” shall apply to each of the respondents

named in Paragraph I and II of the Order.

IT 1s FURTHER ORDERED that respondents:

A. Deliver by registered mail. a copy of this Decision and

Order to each of their salesmen. agents. solicitors, or other

persons engaged by respondents, solicitors. or other persons

engaged by respondents for the promotion, sale or distribution

of any of the publications, merchandise or services included in

this Order. and to any person engaged by respondents to

perform such duties in the future at the time such person is so

engaged:

B. Obtain from each person described in Paragraph V A, a

signed statement setting forth their intention to conform their

business practices to the requirements of this Order; retain said

statement during the period of three (3) years thereafter: and

make said statement available to the Commission's staff for

inspection and copying upon reasonable notice;

C. Advise each such present and future salesman, agent.

solicitor, or other person engaged by respondents for the

promotuon, sale or distribution of any of the publications,

merchandise or services included in this Order that respondents

will terminate the engagement or services of any such person,

unless such person agrees to and does furnish to respondents a

statement required by Paragraph V B. above: and

D. If any such person will not agree to file a statement

with respondents as required by Paragraph V B above. and be

B-21

bound by the provisions of this Order, the respondents shall

immediately terminate the services of such person.

E. Furnish the Commission on a quarterly basis with a list,

including business addresses. of those independent or outside

distributors who have purchased or otherwise obtained for

resale any of the publications, merchandise or services included

in this Order.

IT Is FURTHER ORDERED that the respondent shall forthwith

distribute a copy of this Order to each of their operating

divisions.

VII

IT is FURTHER ORDERED that respondents shall notify the

Commission at least thirty (30) days prior to any proposed

change in any of the corporate respondents such as dissolution,

assignment or sale resulting in the emergence of a successor

corporation, the creation or dissolution of which may affect

compliance obligations arising out of this Order.

VIII

IT is FURTHER ORDERED that respondents shall, within sixty

(60) days after the effective date of this Order. file with the

Commission a report in writing setting forth in detail, the

manner and form in which they have complied with this Order.

By the Commission.

SEAL

Carol M. Thomas

Secretary

B-22

APPENDIX A

NOTICE

Attached hereto are the pertinent provisions of a cease and

desist order entered against Grolier, Incorporated and certain

of its subsidiaries, including Grolier Interstate. Inc. by the

Federal Trade Commission, an agency of the Federal Govern-

ment. Violation of any provision of this Order can result in

severe monetary penalties to Grolier. Incorporated and Grolier

Interstate, Inc. If you are employed by Grolier, Incorporated or

any of its subsidiaries, you will be required to observe the

provisions of this Order. Violation of any provision of this

Order by an employee constitutes a violation of a federal law.

You should carefully read this Order before agreeing to

any employment arrangement with Grolier, Incorporated or

any of its subsidiary companies. (President)

( President)

GROLIER. INCORPORATED

APPENDIX C

No. 78-2159

United States Court of Appeals

For the Ninth Circuit

GROLIER INCORPORATED, ef al.,

Petitioners,

Vv.

FEDERAL TRADE COMMISSION,

Respondent.

Jan. 24, 1980.

As Amended on Denial of Rehearing

April 17. 1980.

Before WALLACE and ANDERSON, Circuit Judges, and

SOLOMON,”* District Judge.

OPINION

WALLACE, Circuit Judge:

On March 13, 1978, the Federal Trade Commission

(FTC) entered a final cease and desist order against Grolier,

Incorporated and 14 of its wholly-owned subsidiaries (Grolier )

designed to correct Grolier’s adjudged violations of 15 U.S.C.

§45. By this appeal, pursuant to 15 U.S.C. §45, Grolier seeks

to have that order set aside because of alleged procedural and

substantive errors. We set aside the order and remand this case

to the FTC for further consideration.

* Honorable Gus J. Solomon, United States District Judge, District of

Oregon, sitting by designation.

C-2

Grolier is engaged in the door-to-door and mail order sale

of encyclopedias and related reference publications. On March

9, 1972, the FTC issued an administrative complaint charging

Grolier with unfair methods of competition and unfair or

deceptive acts or practices in connection with its sales activities,

pricing representations, promotion techniques, recruitment

practices, debt collection, and mail order operations. The case

was initially assigned to an Administrative Law Judge (ALJ),

who, after presiding at hearings throughout 1973 and 1974,

retired from federal service before rendering a decision. A

second ALJ was then assigned to complete the case, but he

promptly recused himself. In February 1975, Theodore P. von

Brand, the third ALJ assigned to the case, began hearings and

decided to recall many of the witnesses who had previously

testified in the proceedings. In January 1976. four months

before completion of the hearings, ALJ von Brand informed the

parties that he had served as an attorney-advisor to former FTC

Commissioner A. Everett MacIntyre from 1963 through Jan-

uary 1971, during which period Grolier was intermittently

investigated and charged by the FTC. Records available to

Grolier indicated that Commissioner MacIntyre attended at

least one meeting between it and representatives of the FTC.

Upon learning of ALJ von Brand’s advisory responsibilities

during the eight-year period, Grolier requested that the judge

disqualify himself from further participation in the proceedings.

The judge denied the request, stating that he did not recall

working on matters involving Grolier while serving as legal

advisor to the Commissioner. Grolier then filed with the FTC a

formal motion for disqualification and removal of ALJ von

Brand, at the same time requesting the FTC to permit discovery

of specified FTC records which would have tended to show the

nature and extent of the judge’s contact with the Grolier case.

The FTC denied both the motion for disqualification and the

requested discovery.

After hearing a substantial part of the case de novo, ALJ

von Brand concluded the hearings in May 1976 and issued his

decision and recommended cease and desist order in October

C-3

1976. On appeal, the FTC adopted in large part the decision

and order of ALJ von Brand and reaffirmed denial of the

disqualification motion and request for discovery.

Grolier argued before the FTC, and now argues before us,

that failure to disqualify ALJ von Brand from the case violated

both section 554(d) of the Administrative Procedure Act

(APA), 5 U.S.C. § 554(d), and the Due Process guarantee of

the Fifth Amendment. Grolier also claims that the FTC erred

in denying the requested discovery. Upon considering the

554(d) claim and the denial of discovery. we remand the case

to the FTC for further consideration. Consequently, we do not

here reach Grolier’s claims of due process violation and of error

in the cease and desist order.

A. Section 554(d)

Most federal administrative agencies combine within one

organization a number of responsibilities that our system of

government normally seeks to separate. They formulate policy

as does the legislature, administer policy as does the executive,

and adjudicate controversies as does the judiciary. They

investigate infractions of statutes or regulations, prosecute those

against whom their investigation has established a prima facie

case, and judge the case they themselves have presented. W.

Gellhorn & C. Byse, Administrative Law, Cases and Comments

1035 (1974). Nowhere is this combination of functions more

apparent than in the FTC.

[T]he Federal Trade Commission receives a charge,

ordinarily filed by a consumer or a competitor, that a

business concern is engaging in an unfair trade practice.

The charge is investigated by the Commission's personnel.

If the Commission’s investigator digs up enough evidence

to show the charge to be substantial, a complaint issues in

the Commission’s name. An attorney employed by the

Commission presents evidence (or “prosecutes”) in sup-

port of the complaint at a hearing before an administrative

law judge named by the Commission. The Commission’s

C-4

designated judge considers whether the Commission’s at-

torney has proved the soundness of the Commission’s case

against the respondent. And in the end the Commission,

aided by its staff, decides whether or not the respondent

has committed the unfair trade practice of which the

Commission had complained.

Id. at 1035-35.

In an effort to minimize any unfairness caused by this

consolidation of responsibilities, the APA mandates an internal

separation of the investigatory-prosecutorial functions from

adjudicative responsibilities. The relevant portion of APA

§ 554(d) states:

An employee or agent engaged in the performance of

investigative or prosecuting functions for an agency in a case

may not, in that or a factually related case, participate or advise

in the decision, recommended decision, or agency review

pursuant to section 557 of this title....

5 U.S.C. § 554(d).1 To violate section 554(d), then, an agency

employee must, in the same or a factually related case, (1)

' The full text of section 554 separation of functions provision states:

(d) The employee who presides at the reception of evidence pursuant to

section 556 of this title shall make the recommended decision or initial

decision required by section 557 of this title, 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 in-

vestigative or prosecuting functions for an agency.

An employee or agent engaged in the performance of investigative or

prosecuting functions for an agency in a case may not, in that or a

factually related case, participate or advise in the decision, recommend-

ed decision, or agency review pursuant to section 557 of this title, except

as witness or counsel in public proceedings. This subsection 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

prising the agency.

§ US.C. § 554(d).

C-5

engage in “investigative or prosecuting functions,”’? and (2)

‘participate or advise in the decision.”’ Neither Grolier nor the

FTC contests the fact that ALJ von Brand’s actions meet the

latter of these two requirements. The point of their dis-

agreement, and the issue which we must resolve, is whether

ALJ von Brand meets the first requirement, i.e., whether his

employment as an attorney-advisor to Commissioner MacIntyre

constituted “investigative or prosecuting functions” in this or a

factually related case.

Grolier contends that attorney-advisors come within the

meaning of “investigative or prosecuting functions” because

they are chargeable with knowledge of all matters that come

before the FTC during their employment. Grolier urges that

Congress intended to prevent adjudication by persons pre-

viously exposed to ex parte information like that developed by

the FTC in its investigative and prosecutive activities. In other

words, because ALJ von Brand is presumed to have knowledge

of every FTC investigation conducted during his eight-year

tenure as an attorney-advisor, Grolier would disqualify him

from participating in the adjudication of any case investigated

during that period, even those with which he had no contact.

The FTC’s argument is equally extreme. It contends that

because Congress was principally concerned with preventing

adjudication by those who have developed, through in-

vestigative or prosecutorial zeal, a “will to win” that is in-

compatible with objective adjudication, section 554(d) applies

only to those employed in the actual investigative and prose-

cutive branches of the FTC. Since attorney-advisors are

employed in neither of those branches, the FTC contends that

2 Despite the statutory language that an employee is precluded from

participating in the adjudication of a case only when he is “engaged” in the

investigation or prosecution of that case, we conclude that Congress did not

intend to limit the separation of functions to those persons contemporaneously

performing both. Such a reading would permit an agency employee to

become immersed in the investigation of a case, resign from the investigative

position, and then be appointed judge to render the decision. Such was not

the intention of Congress. See S.Rep. No. 572, 79th Cong., Ist Sess. 18

1945), reprinted in Administrative Procedure Act—Legislative History, 79th

Congress 1944-46, at 204 (1946); H.R.Rep. No. 1980, 79th Cong., Ist Sess.

27 (1946); reprinted in Administrative Procedure Act—Legislative History,

79th Congress 1944-46, at 262 (1946).

C-6

ALJ von Brand is not disqualified by section 554(d). Under

such analysis, even an attorney-advisor who involves himself in

a case to the point of losing all objectivity could later, without

violating the APA, render judgment in that case simply because

he was never employed in certain branches of the FTC

organization. Neither Grolier’s nor the FTC’s position is

convincing. To determine the scope of section 554(d), we must

examine the legislative history of the APA.

In 1939 President Roosevelt “directed the Attorney Gener-

al to name ‘a committee of eminent lawyers, jurists, scholars,

and administrators to review the entire administrative process

in the various departments of the executive Government and to

recommend improvements, including the suggestion of any

needed legislation.’”” Wong Yang Sung v. McGrath, 339 US.

33, 38-39, 70 S.Ct. 445, 449, 94 L.Ed. 616, modified, 339 U.S.

908, 70 S.Ct. 564, 94 L.Ed. 1336 (1950). The report of this

committee became the blueprint for the APA and is “still a

primary source of information about the federal administrative

process."’ K. Davis, Administrative Law and Government 13

(2d ed. 1975):, Wong Yang Sung v. McGrath, supra, 339 U.S.

at 44, 70 S.Ct. 445. In responding to the much criticized union

of the investigative, prosecutive and adjudicative functions

within agencies, the committee report suggested the creation of

hearing commissioners, now administrative law judges, as a

“separate unit in each agency’s organization” with “no func-

tions other than those of presiding at hearings... and...

deciding the cases that fall within the agency’s jurisdiction.”

Report of the Attorney General’s Committee on Administrative

Procedure 50 (1941), S.Doc. No. 8, 77th Cong., Ist Sess. 50

(1941) (footnote omitted ). Two reasons crucial to our decision

were given for this recommended separation: “the investigators,

if allowed to participate [in adjudication], would be likely to

interpolate facts and information discovered by them ex parte

and not adduced at the hearing, where the testimony is sworn

and subject to cross-examination and rebuttal”; and “[a] man

who has buried himself in one side of an issue is disabled from

bringing to its decision that dispassionate judgment which

Anglo-American tradition demands of officials who decide

questions.” Jd. at 56.

It is evident that Congress intended to address these two

concerns by separating investigative-prosecuting functions from

adjudicative functions. Section $54(d)( 1) expressly forbids

ALJ acquisition of ex parte information. This provision, along

with 5 U.S.C. § $57(d)(1),4 illustrates Congress’ concern over

possible use in the decision process of information received

outside of the controlled adjudicative setting. Congress’ second

concern, precluding from adjudicative functions those who have

developed a “will to win,” is evident in the legislative history of

the APA. In explaining its adoption of language substantially

the same as that currently contained in section 554(d), the

Senate Judiciary Committee specifically adopted the majority

recommendation of the Attorney General's Committee, ex-

pressing concern over the “man who had buried himself in one

side of an issue.”’ Senate Judiciary Committee Print, 79th

Cong., Ist Sess. 15 (1945), reprinted in Administrative Proce-

dure Act-Legislative History, 79th Congress 1944-46, at 25

(1946) (hereinafter “APA Legislative History”).

Regarding the APA, the Supreme Court has stated that “it

would be a disservice to our form of government and to the

administrative process itself if the courts should fail, so far as

the terms of the Act warrant, to give effect to its remedial

purposes where the evils it was aimed at appear.”’ Wong Yang

Sung v. McGrath, supra, 339, U.S. at 41, 70 S.Ct. at 450. We

conclude that by forbidding adjudication by persons “engaged

3 See note |, supra.

4Section $57(d) states in part:

“(d)(1) In any agency proceeding which is subject to subsection (a) of

this section, except to the extent required for the disposition of ex parte

matters as authorized by law—

“(A) no interested person outside the agency shall make or

knowingly cause to be made to any member of the body com-

prising the agency, administrative law judge, or other employee

who is or may reasonably be expected to be involved in the

decisional process of the proceeding, an ex parte communication

relevant to the merits of the proceeding;

“(B) no member of the body comprising the agency,

administrative law judge, or other employee who is or may

reasonably be expected to be involved in the decisional process of

the proceeding, shall make or knowingly cause to be made to any

interested person outside the agency an ex parte communication

relevant to the merits of the proceedings;

C-8

in the performance of investigative or prosecuting functions”

Congress intended to preclude from decisionmaking in a

particular case not only individuals with the ttle of “in-

vestigator™ or “prosecutor,” but all persons who had, in that or

a factually related case, been involved with ex parte informa-

tion, or who had developed, by prior involvement with the case,

a “will to win.” An attorney-advisor may, therefore, come

within the prohibition of section 554(d) if he has had such

involvement. The FTC decision to the contrary was error.5

The FTC argues, however, that even if section 554(d) has

the broad meaning that we conclude it does, ALJ von Brand

and all other former attorney-advisors are exempted from the

554(d) prohibition by APA language immunizing “the agency

or a member or members of the body comprising the agency.”

5 U.S.C. §554(d)(2)(C). It contends that the necessarily

close relationship between attorney-advisors and agency mem-

bers requires that an advisor be extended privileges coequal

with his commission member's responsibilities so that he may

freely advise the member on the full range of problems

considered by the FTC. This argument would be compelling if

made on behalf of an attorney-advisor or other FTC employee

who must counsel the member at both the investigative and

decision-making stages of a case. But ALJ von Brand is no

longer an attorney-advisor; his ALJ position does not necessi-

tate involvement in the adjudication of this particular case. The

exemption from 554(d) was created only for those positions in

which involvement in all phases of a case is dictated “by the

very nature of administrative agencies, where the same author-

ity is responsible for both the investigation-prosecution and the

hearing and decision of cases.” S.Rep. No. 572, 79th Cong., Ist

Sess. 18 (1945), reprinted in APA Legislative History at 204;

H.R.Rep. No. 1980, 79th Cong., Ist Sess. 27 (1946), reprinted

in APA Legislative History at 262; see Amos Treat Co. v.

5 In concluding that former attorney-advisors are not within the proscrip-

tion of SS4(d), the FTC focused solely upon the congressional desire to

prevent adjudication by those who had developed a “will to win.” /n re

Grolier, Inc., 87 F.T.C. 179, 180 (1976). With such a narrow focus, their

conclusion was not unreasonable. It was erroneous, however, because it

overlooked the equally important congressional desire to prevent adjudicative

interpolation of ex parte facts.

C-9

S.E.C., 113 U.S.App.D.C. 100, 106, 107, 306 F.2d 260, 266-67

(D.C. Cir, 1962). We reject the argument that ALJ von Brand

is exempted from the 554(d) separation of functions.

As mentioned earlier, Grolier contends that ALJ von

Brand is chargeable with knowledge of all investigative and

prosecutorial activities undertaken by the FTC during his

tenure as an attorney-advisor. Therefore, it argues, actual

possession of ex parte information in the Grolier case need not

be shown; ALJ von Brand is disqualified per se by virtue of his

former position. The authority cited in support of this argu-

ment is not persuasive. Moreover, we can find no court that

has adopted a per se approach to disqualification under 554(d).

On the contrary, those courts which have considered the

question have focused not upon the former position of the

challenged adjudicator, hut upon his actual involvement, while

in that former position, with the case he is now deciding. See

Au Yi Lau v. I.N.S., 181 U.S.App.D.C. 99, 106, 555 F.2d 1036,

1043 (D.C. Cir. 1977); Cisternas-Estay v. I.N.S., 531 F.2d 155,

158, 160-61 (3d Cir.), cert. denied, 429 U.S. 853, 97 S.Ct. 145,

50 L.Ed.2d 127 (1976); Twigger v. Schultz, 484 F.2d 856, 858,

861 (3d Cir. 1973); R. A. Holman & Co. v. S.E.C., 366 F.2d

446, 451-54 (2d Cir. 1966), modified, 377 F.2d 665, cert.

denied, 389 U.S. 991, 88 S.Ct. 473, 19 L.Ed.2d 482 (1967);

Amos Treat Co. v. S.E.C., supra, 306 F.2d at 265-67. We

conclude, therefore, that under 554(d), attorney-advisors are

“precluded only from participating in the adjudication of cases

in which they have actually performed such [“investigative and

® Grolier seeks support from FTC decisions denying former attorney-

advisors the right to practice before the FTC in a particular case. E.g.,

National Talent Association, Inc., | 1976-79 Transfer Binder] Trade Reg. Rep.

(CCH) FTC Complaints & Orders 21,366 (1977). Such decisions are not

authority for a per se approach in the altogether different area of dis-

qualification. Moreover, they are no longer followed by the FTC even in

cases where they have precedential value. Letter from the FTC to Robert

Wald (Aug. 16, 1978).

The position urged by Grolier would also produce an unnecessarily

impractical approach to the problem of separation of functions. ALJ von

Brand, who served as an attorney-advisor from 1963 to 1971, would be

disqualified from judging any case that was investigated or prosecuted by the

FTC during that eight-year period. We need not adopt such a restrictive

approach in order to comply with the mandate of section §54(d).

C-10

prosecuting’’] functions, and in ‘factually related’ cases.” Au Yi

Lau v. I.N.S., supra, 181 U.S.App.D.C. at 106, 555 F.2d at

1043. For purposes of disqualification, they are not chargeable

with involvement in all cases that were before the agency

during their advisorship.

In resolving the question of ALJ von Brand’s qualification

to adjudicate the Grolier case, then we must look to his activity

during the time that he served as attorney-advisor to Commis-

sioner MacIntyre. If he was sufficiently involved with the case

to be apprised of ex parte information, 554(d) requires his

disqualification. His current inability to recall that information

is irrelevant. Once an attorney-advisor is shown to have been

“engaged in the performance of investigative or prosecuting

functions” through prior acquaintance with ex parte informa-

tion, 554(d) says he “may not... participate or advise in the

decision . . .”’ of the case. It does not condition this dis-

qualification upon recollection of the ex parte facts.

Grolier has the burden of showing ALJ von Brand’s prior

acquaintance with ex parte information. R. A. Holman & Co. v.

S.E.C., supra, 336 F.2d at 452; S.E.C. v. R. A. Holman & Co.,

116 U.S.App.D.C. 279, 282, 323 F.2d 284, 287 (D.C. Cir.),

cert. denied, 375 U.S. 943, 848.Ct. 350, 11 L.Ed.2d 274 (1963),

Where, as here, the court is presented with no evidence of

actual involvement in the Grolier case by then attorney-advisor

von Brand, the normal course of action would be to refuse to

disqualify him. In this case, however, Grolier attempted to

require such evidence by requesting discovery of specified FTC

documents. If discovery was wrongly denied, Grolier was

improperly hindered in its efforts to meet its burden of proof

and failure to do so should not weigh against it. We therefore

consider the propriety of the FTC’s refusal to permit discovery.

B. Discovery Request

The FTC’s denial of Grolier’s request for discovery was the

direct result of its erroneous conclusion that attorney-advisors

did not perform “investigative or prosecuting functions” within

the meaning of 554(d). After making that conclusion it stated:

“Because we do not believe that Judge von Brand would be

C-11

subject to disqualification even if it could be shown that he

advised Commissioner MacIntyre on matters pertaining to

these respondents, the discovery requests are denied.” Jn re

Grolier, Inc., 87 F.T.C. 179, 181 (1976). From the discussion

in Part A of this opinion, it is evident that ALJ von Brand's

prior involvement in the case is not irrelevant as the FTC

supposed; rather, it is the very crux of the disqualification issue.

We conclude, therefore, that the case should be remanded

to the FTC for reconsideration of the discovery denial and, in

light of the results of that reconsideration, the disqualification

motion. We do not say that the FTC must grant discovery; but

we do say that a flat refusal to disclose anything at all about

ALJ von Brand’s prior involvement in the Grolier case is error.

The FTC must produce sufficient information to permit it and a

reviewing court, to make an accurate 554(d) determination.

The need for such response has been recognized by the Second

Circuit:

If the Commission had refused to divulge anything at all

about the nature of the preliminary investigation into

petitioner’s activities, and Woodside’s role in that in-

vestigation, this would be an unfair restriction of an inquiry

into possible disqualification and, if permitted, would

render the 7reat decision [which focused on the actual

investigative involvement of the challenged adjudicator] a

meaningless admonition, easily circumvented.

R.A. Holman Co. v. S.E.C., supra 366 F.2d at 453; see San

Francisco Mining Exchange v. S.E.C., 378 F.2d 162, 170-71

(9th Cir. 1967). While the FTC may grant discovery, it may,

initially, respond in the form of affidavits as to the existence and

extent of ALJ von Brand’s involvement with the Grolier case

while he served as attorney-advisor. E.g., Au Yi Lau v. L.N.S.,

supra, 181 U.S.App.D.C. at 106, 555 F.2d at 1043; Adolph

Coors Co. v. FTC, 497 F.2d 1178, 1189 (10th Cir. 1974), cert.

denied, 419 U.S. 1105, 95 S.Ct. 775, 42 L.Ed.2d 801 (1975);

R.A. Holman & Co. v. S.E.C., supra, 366 F.2d at 453-54. If

these sworn statements adequately disclose the existence or

nonexistence of ALJ von Brand’s involvement in prior Grolier

matters, Grolier, who has the burden of proof on the dis-

C-12

qualification issue, may rightfully be “obliged either to offer

evidence contradicting the sworn statements of the [FTC], or

to point out the inadequacy and inconsistency, if any, in the

sworn statements” before it will be permitted to subpoena FTC

records. R.A. Holman & Co. v. S.E.C., supra, 366 F.2d at 454.

After proceedings pursuant to our remand, it may be

unnecessary for us to reach Grolier’s constitutional challenge to

the FTC procedures employed in this case. If, after the

discovery issue has been properly considered by the FTC, ALJ

von Brand is disqualified, the issue will become moot. If not, it

may be that a more adequate record will be developed for any

future determination of the due process claim. At this juncture,

therefore, we do not reach that contention. Similarly, it would

be inappropriate for us to consider now the merits of the

appeal.

ORDER SET ASIDE AND CAUSE REMANDED.

APPENDIX D

UNITED STATES OF AMERICA

BEFORE THE FEDERAL TRADE COMMISSION

)

In the Matter of Docket No. 8879

GROLIER INCORPORATED,

a corporation, ef al. Issued: December 10, 1981

ORDER MODIFYING CEASE AND DESIST ORDER

On August 13, 1981, the Commission issued an order

denying respondent's motion to disqualify the Administrative

Law Judge who rendered the Initial Decision in this proceed-

ing. In its order, the Commission also invited the parties in this

matter to file before the Commission their views as to whether

the original Final Order of the Commission, 91 FTC 315

(1978), should be modified to conform to the modified order in

Encyclopedia Britannica, 96 FTC 778 (1980).

On September 30, 1981, respondent filed a response to the

Commission’s order. In this submission, respondent first pro-

posed modifying the Grolier order to incorporate modifications

made in Britannica on October 28, 1980. Second, respondent

asked for guarantees that any future modifications in Britannica

also be granted to respondents here. Third, respondent moved

that the instant proceeding be stayed until the Commission

takes action on a pending motion for further modifications in

the Britannica order. Finally, respondent also seeks a stay on

the ground that a trade regulation rule-making, rather than an

adjudication, is the appropriate manner to conduct further

proceedings involving Grolier.

Complaint counsel, on October 14, 1981, filed its answer to

respondent’s submission, pursuant to the August 13 order.

Complaint counsel do not oppose modification of the Grolier

order to conform with modifications already made in Brit-

annica, But, they oppose any assurances of future modi-

fications on the ground that in the event of such modifications,

D-2

the Commission’s rules afford Grolier an appropriate procedu-

ral vehicle. Rule 2.51(b), by which Grolier may petition for

further modifications in its order. An assessment of whether

further modifications should be made in either of the orders in

question depends on facts and circumstances particular to the

acts and practices of each company. Complaint counsel also

Oppose granting any stay in order to facilitate a conversion of

this adjudication to a rulemaking proceeding.

The Commission agrees with the parties that the modi-

fications in the Britannica order granted on October 28, 1980,

should now be granted to Grolier. However, the Commission

believes that the issue of further modifications in Britannica

cannot now be resolved with respect to this respondent because

the request for further modifications that Britannica made ( and

which we will allow Grolier to make) depends upon experience

in complying with the first modification. See paragraphs 2 and

3, infra. Britannica has had this experience, but Grolier has

not.* Moreover, Grolier has available to it a right to petition

the Commission for reopening the Grolier matter should any

further modifications in Britannica justify similar treatment of

Grolier. Therefore, a stay of this matter pending further events

in Britannica would be inappropriate.

Nor does the Commission believe a stay is justified pend-

ing resolution of this matter by an industrywide rulemaking

proceeding. Respondents rely on Ford Motor Co. v. FTC, 654

F.2d 599 ( 9th Cir. 1981) for the proposition that rulemaking is

preferable to adjudication where the Commission is attempting

to change existing law or to establish rules of widespread

application. In this matter the Commission did not engage in

any novel interpretation of existing law as the court of appeals

believed occurred in Ford Motor Co., but rather the Commis-

sion declared practices to be unlawful that were established as

violations of Section 5 of the FTC Act over a decade ago, see,

* Grolier’s argument that it would be at a competitive disadvamage if

the Commission does not now assure Grolier it will receiwe all future

modifications granted in Britannica is disingenuous. As matters now stand,

Britannica is bound by our order while Grolier is not. Grolier has offered no

evidence that it is voluntarily complying with our order and until it does

comply it probably has a competitive advantage.

D-3

e.g., P.F. Collier & Son Corp. v. F.T.C. 427 F.2d 261 (6th

Cir. ), cert. denied, 400 U.S. 926 (1970). It is true that issues of

relief involving affirmative disclosures distinguish Grolier from

earlier cases, but the crafting of relief is particular to the facts

and circumstances of each case. In this instance, affirmative

disclosures were ordered because of the Commission’s ex-

perience that mere cease and desist order provisions were

inadequate to remedy the abuses found to be in violation of

Section 5, practices that had persisted over time, despite earlier

prohibitive relief. Grolier, Inc., 91 F.T.C. 315, 437, n.98. In

this regard, the Seventh Circuit held, in a related case, that

rulemaking was not required to replace adjudication where

relief differed because “[a] prior insufficient order does not

necessitate the insufficiency of all later orders.” Encyclopaedia

Britannica, Inc. v. FTC, 605 F.2d 964, 974 (7th Cir. 1979),

cert. denied, 445 U.S. 934 (1980).

THEREFORE, IT IS ORDERED, that Paragraphs II( A), (B),

(D), and (E) of the Order issued in this docket on March 13,

1978, shall be modified as follows:

1. Paragraph II(A) shall read:

A. Disseminating or causing to be disseminated any

advertisement of promotional material which solicits participa-

tion in any contest, drawing or sweepstakes, or solicits any

response to any offer of merchandise, service or information,

unless any such solicitation clearly and conspicuously discloses

that a person who replies as requested may be contacted

directly by a salesperson for the purpose of selling respondent's

products, using one of the following disclosures:

1. IMPORTANT: This card will let you know of my

interest and enable your [location designation, if

appropriate] sales representative to

( contact me athome ) ( information )

( call or visit me ) with ( details)

( contact me in person ) ( facts )

on how I may (purchase) | applicable product].

( buy )

D-4

2. IMPORTANT: Returning this card allows me to have

your [location designation, if appropriate] sales repre-

sentative

( contact me athome ) ( information )

( call or visit me ) with (~ details)

( contact me in person ) ( facts )

on how I may (purchase) [applicable product].

( buy )

3. IMPORTANT: Returning this card will enable your

[location designation, if appropriate] sales representa-

tive to

( contact me at home ( information )

( call or visit me ») with (— details)

( contact me in person ) ( facts )

on how I may (purchase) [applicable product].

( buy )

Upon prior approval in writing of the Assistant Director of the

Division of Compliance of the Bureau of Consumer Protection,

or his designee, respondent may use any other disclosure that

clearly and conspicuou~ loses that a person who replies as

requested may be conta..cu directly by a salesperson for the

purpose of selling respondent's products. A request for appro-

val shall be in writing and shall be deemed granted if not

disapproved within 30 days after receipt by the Assistant

Director of the Division of Compliance of the Bureau of

Consumer Protection.

2. Paragraph II(B) shall read:

B. Providing any return card, coupon or other device

which is used to respond to any advertisement or promotional

material covered by Paragraph II( A) above, unless one of the

disclosures set forth in such Paragraph, or a disclosure app-

roved by the Assistant Director of the Division of Compliance

or his designee as satisfying the requirements of Paragraph

II( A), clearly and conspicuously appears in immediate proxi-

mity to the space provided for a signature or other identification

of the responding party. During the one (1) year period from

D-5

the date this order becomes final, respondent may submit a

request to reopen these proceedings pursuant to Section 2.51 of

the Commission’s Rules of Practice. Such petition shall contain

information demonstrating that any proposed modifications of

Paragraphs Il(A) and II(B) will clearly and conspicuously

disclose to potential purchasers of respondent's products that a

person replies as requested may be contacted directly by a

salesperson for the purpose of selling respondent’s products.

The foregoing sentence shall not be construed as a limitation of

respondent’s submission of additional information regarding

the request to reopen, including information relating to the

financial »act of Paragraph II( A) and II( B) on respondent.

Should é sest be submitted. the Commission shall determine

whether to reopen these proceedings within one hundred-

twenty (120) days of receipt of such request. The procedure to

reopen the proceedings as set forth herein is in addition to, and

not in lieu of, any other procedure (or time period with respect

to such procedure) permitted by law or the Commission’s rules

of practice.

3. Paragraph II(D) shall be amended by adding the following

proviso at the end thereof:

Provided, however, that for one (1) year from the date this

order becomes final, respondent may. in lieu of the card

required by this Paragraph of the Order, substitute a business

card of at least 2 inches by 3'2 inches containing only the

following information:

1. the name of the corporation

2. the name of the salesperson

3. the term “sales representative”

4. an address and telephone number at which the

corporation or salesperson may be contacted

5. the product or the corporation logo or identifying

mark.

During this one (1) year period. respondent shall comply in all

other respects with the requirements of Paragraph II( D) above.

Prior to the expiration of the aforesaid time period. respondent

may submit a request to reopen these proceedings pursuant to

Section 2.51 of the Commission’s Rules of Practice. Such

petition shall contain information demonstrating that the busi-

ness card required in Paragraph II(D). as modified above. is

D-6

effective in communicating to potential purchasers. prior to the

entry into their homes or places of business by any of the

respondent's sales representatives, that the purpose of the sales

representative's call is to solicit the sale of respondent's prod-

ucts. The foregoing sentence shall not be construed as a

limitation on respondent's submission of additional information

regarding the request to reopen, including information on the

financial impact of Paragraph II(D) on respondent. Should a

request be submitted, the Commission shall determine whether

to reopen these proceedings within one hundred-twenty (120)

days of receipt of such request. Respondent may continue to

use the business card, as described by this proviso, during the

time that a request to reopen these proceedings pursuant to this

Paragraph is pending, and, if such proceedings are reopened.

until the Commission determination of the matter has become

final. The procedure to reopen the proceedings as set forth

herein is in addition to, and not in lieu of. any other procedure

(or time period with respect to such procedure) permitted by

law or the Commission’s Rules of Practice.

4. Paragraph II(E) shall be amended by striking the words

“to direct each such person to read the information

contained on such card.” The amended Paragraph shall

read:

E. Failing to give the card. required by Paragraph II( D).,

above, to each person and to provide each such person with an

adequate opportunity to read the card before engaging any

such person in any sales solicitation.

It Is FURTHER ORDERED. That the foregoing modifications

shall become effective upon service of this Order.

It Is FURTHER ORDERED, That in all other respects. re-

spondent’s other requests are denied.

By Direction of the Commission.

SFAL

Carol M. Thomas

Sei retary

APPENDIX E

UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

COMMISSIONERS: Michael Pertschuk, Chairman

Paul Rand Dixon

Elizabeth Hanford Dole

David A. Clanton

In the Matter of Docket No. 8879

GROLIER INCORPORATED, r

a corporation. Issued: March 13, 1978

OPINION OF THE COMMISSION

By DOLE, COMMISSIONER:

Grolier, Inc. and its wholly-owned subsidiaries,’ [here-

inafter referred to as “respondent”] appeal from the initial

decision of Administrative Law Judge Theodor P. von Brand

that certain of respondent's practices violated Section 5 of the

Federal Trade Commission Act. Complaint counsel have filed

a cross-appeal.2

Respondent is engaged in the publication and distribution

of encyclopedias, other reference works and services, training

courses, and teaching machines. Respondent sells its products

door-to-door as well as through mail solicitations. Its products

have included Encyclopedia Americana, Encyclopedia Inter-

national, New Book of Knowledge, World's Greatest Classics,

‘American Peoples Press, Inc.. Americana Interstate Corp., Career

Institute, Inc., Grolier Enterprises, Inc., Grolier Reading Programs, Inc.,

Americana Corporation, Spencer International Press, Inc., The Grolier So-

ciety, Inc., R. H. Hinkley Co., Grolier New Era Corp., The Richards Co., Inc.,

Madison Enterprises, Inc., Grolier Interstate, Inc., and Federated Credit Corp.

were named as respondents and found by the Administrative Law Judge to be

wholly-owned corporate subsidiaries of respondent Grolier, Inc. See LD.

Findings 2-15.

2 For convenience, the following abbreviations are used in this opinion:

1.D.—Initial decision of the administrative law judge:

Tr.—Transeript of testimony;

CX—Commission exhibit.

E-2

Book of Popular Science, and Children’s Hour.’ Both door-to-

door selling and mail order solicitations account for substantial

sales volume.4

On the basis of an extensive hearing record, the law judge

sustained the complaint allegations that respondent has en-

gaged in a host of deceptive and unfair practices. We agree

with his determination that respondent has violated Section §.

Like the appeals before us, this opinion is directed mainly to the

rather technical issues raised by the judge's proposed order ‘to

cease and desist.

The law judge’s findings deal with respondent's personnel

recruitment activities, sales and promotion practices, and debt

collection procedures. With respect to personnel recruitment he

found, inter alia, that respondent misrepresented that the jobs

offered were non-selling positions and that the conditions

placed upon salary or income guarantees were not disclosed to

job applicants.S He also determined that respondent employed

a variety of deceptive sales and promotional practices. For

example, he concluded that respondent misrepresented the

regular retail price of its products. Furthermore the judge

found that respondent had misrepresented to consumers the

purpose of in-home sales presentations.®

3 Respondent has also sold products not published by Grolier, Inc.

These include the Harvard Classics, The Bible, and the Hammond Atlas. See

LD. Finding 90.

“In 1969 respondent's door-to-door sales were $70,000,000 while mail

order sales of certain subsidiaries accounted for $41.§ million. In 1970, sales

door-to-door accounted for $63.4 million while mail order volume was $49

million, In 1972, mail order volume exceeded door-to-door sales by $63

million to $38.3 million, respectively, See LD. Findings 16 and 17.

5 See LD. Findings 60-88.

® See 1.D. Findings 114-132. In addition, the judge found that the

salesmen of respondent Spencer International Press, Inc.. in approaching

parochial school principals, had misrepresented that they were from the

“National Catholic Educator's Association” and that respondent Spencer's

Promotional packets, printed with a “bold cross in the upper left hand

corner.” as well as its follow-up phone talks and sales presentation had the

capacity to lead parents to believe that the product had been endorsed by the

parochial school or the archdiocese. See 1D. Finding 91-101. Respondent,

The Richards Company, Inc., according to the law judge. distributed to its

salesmen a picture of Pope Paul with the American People’s Encyclopedia,

although the Holy See had not endorsed the encyclopedia for commercial

purposes. See 1D Finding 184. Judge von Brand also determined that a

letter written in 1983 by the President of the University of Notre Dame

concerning a 1953 encyclopedia edition was used by respondent Spencer as

promotional material. after the date had been removed, as late as 1969-70

See 1D Finding 185

E-3

The administrative law judge's order places respondent

under a number of prohibitions and requires respondent to take

certain affirmative actions. The order is directed to respond-

ent’s personnel recruiting practices, debt collection procedures,

promotions aimed at schools to obtain entry to students’ homes,

misrepresentations as to the purpose of salesmen’s calls and

payment plans, misleading pricing claims and offers of free

goods, and other unfair or deceptive advertising practices.

Liability

While respondent addresses its appeal, in the main, to

selected provisions of the judge’s order, it also contends that the

evidence adduced by complaint counsel at the hearing in this

matter compels a dismissal of all counts of the complaint. See

Respondents’ Appeal Brief at 3. We find no merit in this

argument or in respondent's alternative argument that com-

plaint counsel's evidence of Section 5 violations was de minimis.

We have carefully reviewed the record in light of the initial

decision and have found ample evidence to support the judge’s

findings. Respondent also contends that the evidence is

insufficient to hold it accountable for any deceptive recruitment,

sales or debt collection practices of its employees. We reject

this contention. It is well settled that firms cannot avoid the

requirements of Section 5 by passing off responsibility for

deception to their employees. As the court stated in Parke,

Austin Lipscomb, Inc. v. FTC, 142 F.2d 437, 440 (2d Cir.

1944), “| H]owever unauthorized the offending conduct of the

salesmen may have been and however condemned and dis-

couraged by their superiors, it still was conduct which subjects

the employers to the jurisdiction of the Commission and its

cease and desist order.” See Goodman v. FTC, 244 F.2d 584

(9th Cir, 1967). In any case, the record indicates that

respondent initiated several of the illegal practices. We,

therefore, adopt the judge's findings and conclusions, except to

the extent that they are inconsistent with the findings and

conclusions set forth in this opinion,

E-4

Order Provisions

I. DECEPTIVE RECRUITMENT PRACTICES

The judge’s order requires respondent in recruitment

advertisements to disclose that prospects will be hired to sell

encyclopedias on an “in-home” basis.” The provision is based

on the judge’s finding that respondent recruited its door-to-door

encyclopedia salesmen by affirmatively misrepresenting that the

positions offered were in public relations work, marketing and

promotions, sales administration and management.® Although

phone numbers were listed in respondent's recruitment

advertisements, it was respondent's policy not to disclose over

the phone the nature of the employment offered.? While some

applicants were informed during their initial interview that the

position involved encyclopedia sales.'° other recruits did not

realize that until training was actually in progress or had been

completed.'’ In some instances recruits were explicitly told that

the jobs did not involve selling.'? Under these circumstances,

the order provision requiring respondent to disclose in advertis-

ing that it is recruiting “encyclopedia salesmen” is necessary to

prevent a continuation of the type of deception which has

misled job applicants in the past.'?

Respondent asserts that a simple “help wanted” ad would

be in violation of the order,’4 and that an ad that includes no

more than a telephone number does not mislead." Respond-

? Respondent argues that the evidence establishes only unauthorized and

infrequent recruiting Violations and that therefore no order provisions relaung

to recruitment should be included in the order. The administrative law judge,

however, correctly found that respondent's recruitment advertisements fre-

quently and affirmatively misrepresented that the positions offered were non-

selling in nature, see 1D. Finding 60: that “management trainee” recruits

were in fact hired to work as door-to-door salesmen, see 1D. Finding 67; and

that respondent frequently advertised compensation guarantees for the posi-

tions offered without disclosing the conditions which applicants would be

required to meet in order to receive the guaranteed compensation, see LD.

Findings 68 and 70

8 See LD. Finding 60.

9 See LD. Finding 63.

0 See LD. Finding 73

'’ See LD. Finding 75,

'? See LD. Finding 76

‘9See Order Paragraph 1(C)

4 See Respondents’ Appeal Briet at $2

'® See Transeript of Oral Argument at 14 (remarks of Me Furth)

E-5

ent contends that an affirmative disclosure that the sole job

responsibility is to solicit and sell encyclopedias in the home

will effectively preclude recruitment advertisement.'® However,

in view of the affirmative misrepresentations as to the nature of

the job which have been made both in advertising and at the

initial interview, we conclude that the affirmative disclosure

required by the order is justified.

The law judge required’? that certain paragraphs of the

order'’® be furnished to applicants at the initial face-to-face

interview. Respondent argues that it should be permitted,

instead, to furnish the applicant with a summary of the order.

The order does not preclude respondent from furnishing a

prospective employee with an accurate explanation of the

order, orally or in writing. The Commission has determined,

however, not to modify the requirement that respondent furnish

copies of the pertinent provisions specified. See Encyclopedia

Britannica, Inc.‘9

II. Deceptive SALES AND PROMOTION PRACTICES

Respondent objects to the judge’s order requirement that

its sales representatives present a three inch by five inch card at

the time admission is sought into the home for the purpose of

soliciting sales. Respondent's representatives must direct the

consumer to read the information contained on the card. The

card discloses the name of the corporation, the name of the

sales person, and the term “ENCYCLOPEDIA SALES REP-

RESENTATIVE” (or reference to other applicable product).

The record shows that re#pondent’s sales representatives

failed to disclose and have misrepresented the purpose of the

in-home visit in both telephone calls to consumers and in door-

to-door canvassing.2° As Judge von Brand concluded:

6 See Transcript of Oral Argument at 14 (remarks of Mr. Furth). We

note, however, that respondent's President and Chairman of the Board. Mr.

Murphy, testified at the hearing that he would be amenable to a statement in

recruitment advertising that the job involved direct selling in the home, see

Tr. at 16458, and that on occasion he would be willing to disclose in

advertising that the products to be sold were encyclopedias. See Tr. at 16459,

‘7 Order Paragraph I (E).

8 Paragraphs I, Il and V.

987 F.T.C, 421, 528 (1976). appeal pending, No. 76-1477 (7th Cir. ).

20 See 1.D. Finding 108-130,

E-6

The purpose of respondents’ sales representatives’ contact,

which is to sell, is a material fact in a prospect's decision to

let such representative into [his] home. The failure to

disclose at the outset, and in many instances, to affirmati-

vely misrepresent, the purpose of contacting prospective

customers was false, misleading and deceptive.?'

Respondent’s assertion that instances of deception-at-the-

door “are clearly isolated and untypical examples of individual

sales representatives acting in contravention of respondents’

corporate policies” 22 is contradicted by the record.23 Both the

sales manual issued under the letterhead of The Grolier Society,

Inc. Publishers?* and distributed to the company sales repre-

sentatives,25 as well as respondent Spencer’s manual, instruct

salesmen to affirmatively misrepresent the purpose of the in-

home visit.26

21 ,.D. Finding 132 (citation omitted). <A similar requirement was

included in the Commission's order in Encyclopaedia Britannica, supra 87

F.T.C. at $24, 527.

22 Respondents’ Appeal Brief at 56.

23 See CX 419, Tr. at 664, 693-95 (testimony of Mr. Romano); CX

6S1A-C, Tr. at 5662-63; 1.D. Finding 136.

24CX $63(a).

25 See Tr. at 2836-38 and CX 563(a).

26*Hello, Mr./Mrs. blank, blank, blank? My name is blank, blank,

blank, and I'm with the Grolier Society. I don't know whether that name

means anything to you but Grolier is the world’s largest publisher of

educational reference books. We actually publish 20 different sets of

Encyclopedias—but please do not be alarmed Mr./Mrs. blank, blank,

because / didn't call you to give you a sales talk! The purpose of my call is

this:

“Grolier has approximately 7,000 sales people across the country

and we have to provide these sales people with prospects to call on.

Right now we are getting some help from several families in each

community and in return for that help we are paying these families in

Grolier merchandise... .

“Notes: If prospect says they won't be home then set it up for

tomorrow night—or for Sat. and Sun,

“If prospect says they are not interested—say ‘That's fine—all I

want to do is explain what we are doing and like I said I am not coming

out there to give you a sales talk.”

CX $63(1) (emphasis in original)

Telephone talk number II makes the same affirmative misrepresentation.

See CX 563(0).

Respondent Spencer International Press, Inc. likewise utilized a training

manual which contained both a “door approach” and “telephone talk” that

Footnotes continued on following page

E-7

It is clear from the in-home presentation talks set forth in

the manuals that the purpose of the in-home visit is to sell the

company’s products.2? Indeed, the instruction accompanying

one of the telephone talks points out that “when you have an

appointment you take your samples with you.” 28

Respondent has argued that the Commission should not

mandate the exact disclosures to be made. Each of the

Footnotes continued from preceding page

misrepresented the purpose of the in-home visit. See CX 871-F; CX 871-V;

I.D. Finding 100. The training manual instructed the sales representative to:

FOLLOW PRESENTATION Do not deviate—it must be done our way,

which is the successful way,

CX 871-B (emphasis in original). The door approach set forth in the training

manual is as follows:

Hi, | wonder if you could give me some information? (wait for

reaction )

I'm conducting a series of special interviews in the

area this evening and I was supposed to ask you and the Mrs. a ae

of questions. (show questionnaire) By the way my name is

(Hold out hand) Do you mind if I step in? (If ques. use follow up.

Also when known, use family name )

CX 871-F.

The Telephone Talk represents the home visitor as an “instructor” in

programmed learning:

Hello. Is this Mrs. __-____? Good! This is Mr. ——-__

calling from the Catholic School Division of Programmed Learning.

I'm calling in reference to the announcements the children took home

from (Name) School. ( Pause.) You probably remember it. As you

know, we agreed to give each family a free demonstration on prog-

rammed learning as a public service. And the reason I'm calling now is

that our instructors will be in the (Name) area tonight. I thought I'd

call first to make sure both you and Mr, _..___. will be in this

evening. It takes about 10 minutes, since each instructor sees about 6 or

7 families an evening.....

CX 871-V.

Judge von Brand found that certain of respondent's documents contain

directives that full disclosure be made of the identity of the callers and the

purpose of the call. He found further that these documents reflected the

company’s “official policy.” See Finding 126. We disagree. This label is

inconsistent with the evidence in the record and with other findings of the

administrative law judge. See, e.g., Finding 129. Accordingly we have

modified Finding 126 by deleting the statement that “respondents’ official

policy prohibited misrepresenting to a prospective customer the purpose of a

telephone call or home visit.”

47 See CX 563 J-K; CX 871 P-T.

28 CX 563-1 and O.

“You have now prepared your prospects for the next step which is

the presentation of products. Do not ask them if you can go get your

samples. Do it!!" CX 563-K.

E-8

disclosures required to be included on the card however is

necessary to prevent future violations. While respondent might

be allowed to make undefined, “appropriate” disclosures, such

an order provision would inject unnecessary uncertainty into

respondent’s compliance obligations.

Respondent also suggests as an alternative to the 3x5 card

the use of a normal size business card. However, if all of the

necessary information were included on a business card the

print would be so small that the disclosure would be unintelli-

gible. Moreover, business cards are normally accepted for

purposes of future reference, whereas the purpose of this

requirement is to encourage the consumer immediately to refer

to the card so that he will be placed on notice that the caller is

there for the purpose of selling him a set of encyclopedias.

We are not persuaded by respondent’s argument that the

“notice to consumer” provisions of the order are unjustified.

This portion of the order requires that lead-gathering advertis-

ing which, for example, invites participation in a contest,

contain a disclosure that consumers who respond may be

contacted by a salesperson for the purpose of selling the

applicable products. As the judge concluded, respondent’s

lead-generating advertising failed to disclose this material

fact.29 Furthermore, certain of the advertising in question

creates the impression that the consumer who responds to an

offer of free information will receive delivery by mail and will

not be subjected to a salesman’s call.30

With respect to the proposed disclosure in the lead-getting

material respondent objects to the requirement that it be placed

in ten point bold face type and also renews its argument that

29 See I.D. Finding 105, I.D. p. 149.

30 The copy at the end of respondent's “Uncle George” ad, CX 1614-H,

states:

Now we've run out of space, but we would like to tell you more. So

please send for our free brochure. The coupon below will bring it... .

The coupon which the customer is requested to send in states in part:

Gentlemen:

1 am interested and would like to know more. I understand there's

no charge and no obligation... .

Ibid. See CX 1614-G.

E-9

the Commission should not prescribe specific language.3' We

find that it is necessary to place this important language in ten

point bold face to assure that the consumer will be apprised of

the message. The proposed language includes a disclosure that

the consumer may be contacted by a sales representative for the

purpose of selling the applicable product. There is no question

that the main purpose of respondent's sales representatives in

contacting persons at their homes is to sell its products. Any

other assertion or inference would be deceptive.

We turn now to respondent’s objections concerning the

pricing provisions of the order.32 Respondent's contract ad-

joining the retail price list, states that “‘a combination purchase

of two or more of the products shown in bold face automati-

cally entitles the customer to an approximate 30% price advan-

tage from the individual prices. If, however, you purchase just

one product you pay the full price shown.”’33 The prices listed

for the designated publications, however, are not the prices at

which significant numbers of sales are made.34 They represent

the prices charged when the products are sold on an individual

basis and sales of individual publications constitute only a small

percentage of respondent’s sales.35 The law judge found that

the sales representatives are frequently not even authorized to

make individual sales of the publication or are discouraged

from doing so. Respondent’s sales representatives are trained

instead to sell the products in combination, and respondent

distributes standard combination schedules to its respective

sales representatives which set forth the various publications

included in each combination as well as the price of each

31 Order Paragraph II (A) requires the following disclosure in lead-

gathering adverusing.

NOTICE TO CUSTOMER—PERSONS WHO REPLY AS RE-

QUESTED MAY BE CONTACTED BY A SALESPERSON FOR

THE PURPOSE OF SELLING [insert name of applicable product}.

Order Paragraph II (B) requires a similar disclosure on the coupon used to

respond to the advertisement.

NOTICE TO CONSUMER— PERSONS WHO RETURN THIS [ insert

name of applicable device} MAY BE CONTACTED BY A SALES-

PERSON FOR THE PURPOSE OF SELLING | insert name of appli-

cable product].

32 Order Paragraphs Il (M) and (S).

33 1.D. Finding 158.

% 1D. Findings 158 and 160

351.D. Finding 157. See 1D. Finding &9

E-10

combination.3¢ We take the title “retail price list” to be

tantamount to a representation that these are regular prices at

which the designated publications have been sold. In view of

the fact that the publications were only rarely sold at these

prices, the list deceptively represented to consumers that cost

savings could be realized through combination purchases.97

The order recommended by the judge, therefore, prohibits

respondent from representing a price for a product as its regular

retail price unless substantial sales are made at the level

represented as the regular price. In addition, the order requires

that respondent attach to each contract a list of all products and

36 See 1.D. Findings 89, 157-58. Indeed, beginning in late 1973

respondent added a statement to the retail price list which disclosed that

“only a small fraction of Grolier’s sales of any of these products is on an

individual basis.” I.D. Finding 158.

37 We uphold the order provisions which address respondent’s “contin-

uity programs” and other methods of selling its products by mail on an

approval basis. Under the “continuity programs” respondent would ship the

first three volumes of a set singly, at intervals, but transmitted the balance of

the set in one shipment unless the customer had tendered a timely notice of

cancellation. The judge found that respondent failed to disclose that a bulk

shipment of the remaining volumes would be made after shipment of the first

three volumes. See I.D. Finding 230 and I.D. p. 166. Respondent argues

that these order provisions are unwarranted since, prior to the issuance of the

Part III complaint in this matter, it followed a policy of “full disclosure” of

shipment sequences. However, the Commission has been “parsimonious, if

not totally unyielding, in its adjudicative recognition of the defense of

abandonment, the courts have been reluctant to vacate Commission orders on

those grounds except in the most extreme circumstances not present here, such

as where a corporate respondent had existed from the relevant lines of

business under circumstances in which reentry seemed improbable.” See

Fedders Corp., 85 F.T.C. 38, 72 (1975), aff'd, 529 F.2d 1398 (2d Cir. ), cert.

denied, 429 U.S. 818 (1976).

In addition, respondent contends that the testimony of customers called

by complaint counsel was not sufficient to support this portion of the order.

Respondent's arguments are untenable. Moreover, as the administrative law

judge observed:

“Respondents also represented that persons joining or participating in

such programs do so at no risk or obligation. However, participating in

such continuity programs did entail certain risks and obligations.

Consumers were subject to the risk of receiving a bulk shipment if the

negative option provided by respondents was not successfully exercised.

If books were not wanted, the consumer had to reject them and do so

within the allotted time. If a timely notice of cancellation was not

received due to delays in the mail, they msked being billed for

publications even after such publications had been returned. LD. p.

166.

E-11

services and, in immediate conjunction thereto, the actual

selling price pursuant to the “substantial” sales standard. The

price list will enable the contracting consumer to judge whether

the offer is a bargain—to compare the contract with the

authorized list prices and determine whether or not any savings

claims are true. Encyclopaedia Britannica, supra.%®

Complaint counsel advocate the adoption of an order

provision which would prohibit respondent from representing

that a price is a regular retail price unless, for the previous 6

month period, at least 30 percent of its sales for that product

have been made at the price, or a higher price. As in

Encyclopaedia Britannica39 we are not persuaded that the

order should depart from the Commission's guides on deceptive

pricing, 16 C.F.R. § 233, which provide, inter alia, that the

retail price may be described as a selling price if “substantial”

sales are made at the retail level.

Both respondent and complaint counsel object to Para-

graph V of the proposed order. In essence Paragraph V

requires respondent to furnish each person engaged in the

promotion, distribution and sale of respondent’s products and

services, including independent contractors (distributors), with

a copy of the order; to obtain a signed statement from each

person declaring his intention to conform his business practices

with the requirements of the order; and to cease doing business

with each person who will not so sign. Respondent points to

certain findings in the initial decision that respondent neither

controlled nor was responsible for the actions of distributors.4°

For example, when respondent, The Richards Company,

withdrew from direct sales, most of the company’s key sales

personnel became distributors.41 While respondent furnished

assistance to the former Richards employees in helping them

become distributors,42 the law judge concluded that

38 87 F.T.C. at $29.

39 Id.

40 See I.D. Findings 276-288 and I.D. p. 172.

4" LD. Finding 282.

42 See I.D. Findings 283-86.

E-|2

[b]y and large... . the contacts between respondent’s

officials and these distributors are not inconsistent with a

finding that they were normal business communications

such as may be expected of any manufacturer and his

outside retailers. On balance. the evidence does not sustain

a finding that respondents controlled or are responsible for

the actions of such distributors.43

Complaint counsel, while conceding that Paragraph V

should not apply to wholly independent distributors whose only

connection with respondent is the purchase of books for resale

to consumers, contend, nevertheless, that independent dis-

tributors who maintain a significant connection** with respond-

ent should be subject to this order provision. Complaint

counsel argue that there is a “very real possibility that the

respondents will attempt to do, through distributors. what the

Order prohibits them from doing directly.”45 We are not

persuaded that it is necessary to include independent con-

tractors within the purview of Paragraph V, and we have

modified the order accordingly.46 Should the violations ad-

dressed in these proceedings be practiced by persons other than

respondent's salesmen or agents. the Federal Trade Commis-

sion Act47 affords sufficient means of proceeding against the

alleged offenders.48

SD pr 112.

#4 Complaint counsel would apply Paragraph V to persons or entities:

(1) receiving direction, control or approval from respondent for sales

Practices: (2) receiving promotional materials or sales aids from respondent:

or (3) receiving financing from respondent for any contracts procured.

#5 Answering Brief of Counsel Supporting the Complaint at $4.

4° Compare Housewares, Inc.. Docket No. 8733. Opinion and Final

Order ( November 19. 1977). There. respondent Emdeko developed and

refined an illegal “package selling scheme” and actively promoted its

adoption by distributors. Unlike National Housewares, respondent cannot be

said to be “active participants in the illegal practices.” id. at 18-19 (slip

opinion), of the distributors. Now would its conduct subject it to liability

“closely akin to the liability of a contributing ‘tort feasor.”” id. at 13 (slip

opinion).

4715 U.S.C. § 45(m)(1)(B).

We also note that other portions of the order place restrictions upon

possible attempts by the respondent to accomplish. through distributors. what

the order prohibits it from doing directly. See Order Paragraph 1( F).

48 The judge's order requires that respondent furnish the Commission

with the names of the independent distributors with whom it does business

and we adopt this provision. In addition. we will require respondent to

furnish the addresses of its independent distributors and have modified

Paragraph V accordingly.

E-13

Procedural Issues

As the final matter, we now consider respondent’s procedu-

ral arguments. Respondent reasserts in its appeal a claim which

the Commission has dealt with previously in this proceeding,

that Judge von Brand should have been disqualified from

conducting the hearing. The Commission concluded in its prior

order addressing this issue4? that Judge von Brand would not

be subject to disqualification even if it could be shown that,

while serving as attorney advisor to Commissioner MaclIntyre,

he advised the former Commissioner on matters pertaining to

respondent. Respondent has marshalled no additional argu-

ments in its briefs which dissuade us from this view.5° Re-

spondent asserts that “an attorney advisor bears an ethical

responsibility as stringent as that of the Commissioners them-

selves’’5’ and therefore that Judge von Brand should be

disqualified. The fallacy in respondent’s argument is that the

Federal Trade Commission Act provides for participation by

Commissioners in both the investigative and the adjudicative

stages of a proceeding.5? Section 554(d) of the Administrative

Procedure Act explicitly recognizes the dual role of ‘members

of the body comprising the agency”; that legislation specifically

authorizes a member’s participation in both the investigative

prosecutorial function and the adjudicative decision-making

process.

Respondent also appeals the denial of its motion to dismiss

or stay the adjudicative proceedings and contends that the

Commission should proceed by way of an industrywide trade

regulation rule. It argues that while a principal competitors is

subject to similar affirmative relief provisions, other competitors

are not.

4987 F.T.C. 179 (1976).

5° In conjunction with respondent's arguments as to disqualification of

the law judge, respondent contends that the Commission was in error in

denying discovery of certain documents reasonably calculated to lead to

evidence concerning contacts between the Commissioners and the respondent

during the period in which Judge von Brand was an attorney advisor. We

reaffirm our ruling. 87 F.T.C. at 180-81.

5’ Transcript of Oral Argument at 6 (remarks of Mr. Furth).

52 See 15 U.S.C. §§45(b) and 49.

53 Encyclopaedia Britannica, supra.

E-14

While rulemaking would not necessarily be inappropriate

in this circumstance, it is well established that the Commission

may proceed by adjudication against an alleged offender

without simultaneously pursuing all others. Moog Industries v.

FTC, 355 U.S. 411, 413 (1958). The Commission, of course,

does not have “unbridled power to institute proceedings which

will arbitrarily destroy one of many law violators in an in-

dustry.” FTC v. Universal-Rundle Corp., 387 U.S. 244, 251

(1967). However, respondent has not substantiated its claim

that the order provisions would cause substantial economic

injury to its business. The record in this case demonstrates

egregious violations of the Federal Trade Commission Act and

the order imposed by the Commission is reasonably related to

the violation and necessary to correct these abuses.54

54 Respondent's claim of “fundamental unfairness” as to the card-at-the-

door and the advertising and promotional disclosure provisions is without

merit.

We also reject respondent's contention that it was error for the adminis-

trative law judge to deny respondent's request to call as a witness a former

director of the Commission's Office of Policy Planning and Evaluation.

Respondent sought his testimony with respect to whether or not alternative

relief provisions might be incorporated in the order which were “less drastic”

than those proposed by the law judge. We cannot find that the judge abused

his discretion in denying this request.

We uphold the administrative law judge’s determination to deny dis-

covery of an internal staff memorandum. entitled “Analytical Program Guide

for the Direct Selling Industry”, and related documents. Respondent sought

the memorandum to support its assertion that the Commission has prejudged

this proceeding, upon the basis of “secret evidence and secret law.’ Respond-

ent’s Appeal Brief at 38. The Commission's determination and its order in

this matter rest solely upon the record compiled in Docket No. 8879. See

Encyclopaedia Britannica, Inc., 87 F.T.C. 378 (1976).

Also without merit is respondent's argument that it was error to deny it

access to the total number of complaints and the subject matter of each

complaint received from its customers by the Federal Trade Commission.

The complaint information is relevant, according to respondent, to the

formulation of appropriate relief. Specifically, respondent would seek to

show “if negligible consumer injury or dissatisfaction has resulted from the

Practice which the particular form of relief is designed to rectify.” Respond-

ents’ Appeal Brief at 39. The administrative law judge noted that the

presence or absence of consumer complaints is of marginal utility in the

formulation of the order provisions. Moreover, as stated by the law judge in

denying discovery of the complaint information, the request was made “at a

late stage of the proceeding . . . in the midst of trial.” His denial of

respondent's request for complaint information cannot be said to constitute an

abuse of discretion.

E-15

Having considered the arguments of respondent and com-

plaint counsel in this matter, we have determined that the

public interest is best served by the issuance of the appended

order [not included in this Appendix to Petition for Writ of

Certiorari to the United States Court of Appeals for the Ninth

Circuit].

APPENDIX F

UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

COMMISSIONERS: David A. Clanton, Acting Chairman

Paul Rand Dixon

Michael Pertschuk

Patricia P. Bailey

In the Matter of | Docket No. 8879

GROLIER INCORPORATED,

a corporation, et al. | Issued: August 13. 1981

a =

ORDER DENYING MOTION TO

DISQUALIFY JUDGE VON BRAND

This matter is before us once again on Respondent's

Motion for Disqualification and Removal of the Administrative

Law Judge (“Renewed Motion’). Grolier was given the

Opportunity to raise this issue a second time when the United

States Court of Appeals for the Ninth Circuit remanded the

case because it believed that there was an erroneous “flat

refusal” by the Commission to disclose to Grolier anything at

all about Administrative Law Judge von Brand’s prior partici-

pation in the Grolier case while he served as an attorney-

advisor to former Commisioner MacIntyre. Grolier, Inc. v.

FTC, 615 F.2d 1215, 1222 (9th Cir. 1980).

The Commission denied Grolier’s discovery request when

it held that, as a matter of law, attorney-advisors were not

engaged in investigating or prosecuting matters so as to bring

them within the proscription of Section 554(d) of the Adminis-

trative Procedure Act (“APA”), 5 U.S.C. §554(d). See

Grolier, Inc., 87 F.T.C. 179, 181 (1976). The Ninth Circuit

held however that Section 554(d) precluded attorney-advisors

to the Commissioners “from [subsequently] participating in the

adjudication of cases [as administrative law judges] in which

F-2

they have actually performed... [‘investigative and prose-

cuting’] functions, and in ‘factually related cases.” and stated

that “[o]nce an attorney-advisor is shown to have been

‘engaged in the performance of investigative or prosecuting

functions,’ through prior acquaintance with ex parte informa-

tion, 554(d) says he ‘may not... participate or advise in the

decision ....." /d., 615 F.2d 1221. The Ninth Circuit there-

fore held that Judge von Brand's “actual involvement” with

“information received outside of the controlled adjudicative

setting” (615 F.2d 1220, 1221) was the critical determination

to be made on disqualification. The court remanded the case

for us to reconsider the denial of discovery and thereafter the

disqualification motion.

Since the case was remanded. Grolier has made extensive

submissions, mostly consisting of documents from the Commis-

sion’s files, which it had prior to the Ninth Circuit's decision.

Despite directions to Grolier to state the impact these docu-

ments might have on the disqualification issue." Grolier has

presented only a recast version of an argument previously

rejected by both the Commission and the court of appeals.

Although advanced at length, the argument is simply that

because Judge von Brand served as an attorney-advisor he 1s

presumed to have a close relationship with his Commissioner

and further presumed to be aware of everything circulated

among the Commissioners? and, because the Commission

considered several matters involving Grolier while he was an

attorney-advisor. Judge von Brand must be presumed to have

been exposed to information outside of the controlled adjudica-

tive setting and, hence. disqualified. See Renewed Mouon.

Grolier also argues that, although the Commission has searched

its files thoroughly and repeatedly for relevant material, Grolier

is entitled to further discovery because it is still unable to

connect Judge von Brand with any prior Grolier matter. We

shall address these issues after a brief review of the history of

this matter to put Grolier’s present arguments in perspective.

‘Order Reopening Proceeding and Directing Submission of Further

Information, September 12. 1980.

2 The argument has apparently escalated because now Groher would

charge Judge von Brand with knowledge of every document possessed by the

staf! even though there is no indication It Was previously seen by the

Commissioners. E.g.. Renewed Motion, 7. 8: Johns Affidavit, Exhibits D-F. f:

Righthand Affidavit, Exhibits | and M; see footnotes 12 and 13, infra.

F-3

History of the Disqualification Motion

Judge von Brand served as an attorney-advisor to Commis-

sioner MacIntyre from 1963 to 1970. The Commission issued

its complaint against Grolier on March 8, 1972.3 Hearings on

the complaint extended from 1973 to 1976 and were conducted

before two Administrative Law Judges.4 Judge von Brand's

prior role at the Commission was related in a Commission press

release announcing his appointment as a judge on March 18,

1975, and reported in the Antitrust and Trade Regulation

Reporter on March 25, 1975 (706 ATRR 32, 33) (R. 3301-02).

The first prehearing conference before Judge von Brand was

held on March 19, 1975. Jd. Judge von Brand reheard much of

the testimony at Grolier’s insistence (R. 1804-29, 1967-81).

Almost a year later, just five days before the end of hearings

before Judge von Brand, Grolier’s president testified that

Commissioner MacIntyre may have met with him in 1966 or

that he may have met Commissioner MaclIntyre.> Judge von

Brand immediately disclosed that he had worked for Commis-

sioner MacIntyre but stated that he had no recollection of any

events involving Grolier.

Armed with this bit of testimony Grolier filed a motion to

disqualify Judge von Brand along with a discovery request for

all documents relating to Grolier which were before the Com-

mission during the period from 1963 to 1971. Judge von Brand

entered a statement in the record pointing out that his former

position had been a matter of public (and published) record

since he presided over the case: that he had no recollection of

3 The original record revealed, in affidavit form, the undisputed fact that

the recommendation to issue a complaint. based on the results of the staffs

investigation, was not forwarded to the Commission until after Judge von

Brand left Commissioner MacIntyre's office. R. 4663-64. Exhibit BB to the

Righthand Affidavit indicates that the Commission was advised that the

investigation was progressing while Judge von Brand was an attorney-advisor

Nothing in the record or in Commission practice indicates that the Commis-

sion knew the substance of the information Grolier provided at that time to

the investigatory staff.

4 The first judge assigned to hear the case retired after a year of hearing

had been held (R. 1973),

5 The actual testimony was: “I only recall having met Mr. MacIntyre and

I don’t remember, or I think, | am quite sure at one of the earlier discussions

with the Chairman he was there, but it was a very informal discussion just

trying to say who I was and where I hoped to be able to take the company in

the following 20 years.” (Tr. 16115).

F-4

working on Grolier matters; that he had asked a former

secretary to search Commissioner MaclIntyre’s former suite of

offices for any records relating to Grolier; that no such records

were located nor were there any logs that would show who

worked on any particular matter, and that he had searched his

own files and could find nothing related to Grolier in them.

Statement of Administrative Law Judge Concerning Motion for

Disqualification, January 30, 1976. On February 10, 1976, the

Commission declined to disqualify Judge von Brand and denied

discovery. Grolier, Inc., 87 F.T.C. 179 (1976).

On April 30, 1976, Grolier replicated its discovery motion

for documents in a Freedom of Information Act (“FOIA”)

request. On May 17, 1976, the Secretary of the Commission

granted the request in part and denied it in part. Grolier

appealed this determination to the Commission. On June 28,

1976, the Commission granted Grolier access to most of the

documents but withheld, in whole or in part. 41 documents.

Submission of Documents in Response to the Commission’s

Order of September 12, 1980 (“Submission”), Exhibit A.

paras. 26-29; Exhibit C. On August 20, 1976. Grolier filed a

lawsuit under FOIA to obtain the 41 documents withheld.

Grolier, Inc. v. FTC, Civil Action No. 76-1559 (D.D.C.). On

November |, 1976, an affidavit and a index of the 41 docu-

ments withheld were filed by the Commission. Submission,

Exhibits B and C. On May 6, 1977, the Commission responded

to interrogatories propounded by Grolier about the nature of

the Commission’s search for documents and about how Com-

mission records are maintained. Submission, Exhibit D. On

July 22, 1977, the district court ordered an additional search for

documents which was conducted with negative results. Submis-

sion, Exhibit E. On March 10, 1978, the district court granted

summary judgment for the Commission, holding that the

documents withheld were exempt from production under

FOIA. Submission, Exhibit F. Grolier appealed. Then,

because the District of Columbia Circuit had changed its

interpretation of the status of Commission “blue minutes,’ 6 the

Commission sought a remand. On remand the Commission, on

March 13, 1979, voluntarily released 11 of the 14 blue minutes

in their entirety. Minor deletions were made in the three

® Bristol-Myers Co. v. FTC. 194 US. App. D.C. 288, 898 F.2d 18 (1978),

F-5

remaining minutes. Submission, Exhibit G. The district court

subsequently ordered the release of all the blue minutes.

Submission, Exhibit H. Grolier again appealed.’

Meanwhile, in the adjudicative proceeding, Judge von

Brand issued his initial decision on October 12, 1976. Grolier,

Inc., 91 F.T.C. 331 (1978). Grolier appealed this decision to

the Commission which issued a Final Order and Opinion on

March 13, 1978. Grolier, Inc., 91 F.T.C. 476 (1978). Grolier

did not attempt to use the documents it obtained in June 1976,

or the Index describing the withheld documents it obtained in

November 1976, when it made its disqualification and dis-

covery arguments to the Commission and the court of appeals.

On remand from the Ninth Circuit Judge von Brand has

executed an affidavit reaffirming that he has no recollection of

working on Grolier matters as an attorney-advisor. In view of

the time period involved and the volume of documents that

passed through Commissioner MaclIntyre’s office, he cannot

positively say he never saw a circulation relating to Grolier.

Judge von Brand also relates conversations he had with a

former secretary to Commissioner MacIntyre and the Commis-

sioner himself and states that both recall that another attorney-

advisor, Mr. Powers (now deceased), worked on Grolier

matters. Judge von Brand also describes searches he made for

records that might show his involvement with Grolier matters.

First, he searched his personal files and found nothing related

to Grolier. Second, he had another former secretary search

Commissioner MaclIntyre’s former suite of offices for Grolier

related documents or anything that would show which

attorney-advisor worked on Grolier matters. The results were

negative. Finally, he directed the Secretary of the Commission

to search the Grolier files for anything that would show whether

he had prepared documents related to Grolier. Again, nothing

was found. Affidavit of Theodor P. von Brand.

Commissioner MacIntyre has also filed an affidavit stating

that he compartmentalized work assignments in his office. He

assigned investigational matters to Mr. Powers and, after his

departure, to Mr. Volhard. Motions were assigned to Mr.

7 The appeal was dismissed after the Commission released all the

documents in this proceeding. See Order, March 10, 1981.

F-6

Michaels and adjudicatory matters were assigned to Judge von

Brand. To the best of his recollection. Commissioner MacIntyre

did not discuss matters relating to Grolier with Judge von

Brand and he was not aware that Judge von Brand had contact

with any Grolier matters as an attorney-advisor. Finally,

Commissioner MacIntyre states that all his official files re-

mained in his office when he left the Commission. that the

personal files he removed have since been destroved and that

he has no documents related to Grolier now \tiidavit of

Everette MacIntyre.

Finally. although none of the 28 documents withheld in the

FOIA case shed any light on Judge von Brand’s involvement

with Grolier matters. we provided them to Grolier as a matter

of discretion. Order, March 10, 1981.

Further Discovery is Unnecessary

Grolier again contends it is entitled to discovery beyond its

original request for documents and that if this discovery is

denied an adverse inference must be drawn against Complaint

Counsel. Renewed Motion. 18-27. No further discovery is

necessary. Our March 10, 1981. Order in essence granted

Grolier’s original request for documents but rejected additional

requests Grolier made.® We are satisfied. both independently

and in light of the court of appeals decision, that there is

sufficient information available in the record to make an

accurate determination under Section $54(d) of the Adminis-

trative Procedure Act (5 U.S.C. § $54(d)) that there is no

basis to disqualify Judge von Brand.

The affidavits of the two principals. Commissioner MacIn-

tyre and Judge von Brand. demonstrate that neither recalls

discussing any Grolier matters with the other. Furthermore,

both state that Judge von Brand handled only adjudicatory

matters for Commissioner MacIntyre. More Importantly, our

tiles have been searched several times for any document that

Judge von Brand might have seen. and a district court has

approved the adequacy of some of those searches. Grolier has

®Groher sought ten categories of documents and to depose Commission-

er Macintyre. Judge von Brand and three other individuals formerly em-

Ployed in Commissioner MacIntyre’s office

F-7

been given every document relating to Grolier that circulated

among the Commissioners while Judge von Brand served as an

attorney-advisor as well as many documents that were not. Not

a single document connects Judge von Brand with a single

Grolier circulation.

Grolier has substantially more information than available

in other cases where courts have upheld an agency decision to

deny discovery on the possible disqualification of a decision-

maker. For example, in San Francisco Mining Exch. v. SEC,

378 F.2d 162, contended that additional discovery had been

improperly denied because it appeared that the agency had

authorized the commencement of adjudication in 1962 based

on a staff letter and that some decisionmakers had earlier

served on the prosecuting staff of the agency (as late as July 15,

1960). The Ninth Circuit rejected the contention. It held that

even if a decisionmaker had Participated in investigating or

Prosecuting earlier proceedings, that fact would not be enough

to justify additional discovery, especially because the earlier

proceedings were alluded to in the opinion and thus were either

in the administrative record or would have been known through

official notice. The court also held that. absent a factual

showing of some ground to believe that an improper com-

mingling of functions did occur. further discovery was not

appropriate. It was not enough to allege. as Grolier does here.

that the decisionmaker “might have” participated in an earlier

investigation or adjudication. Jd. 378 F.2d at 170. See also,

Au Yi Lau vy. 1.N.S., 558 F.2d 1036, 1042-43 (D.C. Cir. 1977)

( affidavit by decision-maker Previously employed as prosecutor

that he had “no knowledge of or familiarity with” the case in

that capacity held sufficient to defeat a motion to disqualify ):

Adolph Coors Co. v. FTC, 497 F.2d 1178 (10th Cir. 1974),

cert. denied, 419 U.S. 1105 (1975) (affidavit by attorney-

advisor that he had not Participated in decision held sufficient):

R.A. Holman and Co. vy. SEC, 377 F.2d 655, cert. denied, 389

U.S. 991 (1967) (discovery and disqualification properly de-

nied where decision-maker’s affidavit Stated that he had not

“acquired substantial knowledge of the facts in issue.” even

though he had been a Prosecutor when the investigation

began).

F-8

Thus, it is clear to us that, under established judicial

Precedents, the fact that Grolier can find no indication of Judge

von Brand's participation in earlier matters related to it does

not mean that it is entitled to still further discovery. rather it

means simply that there is no basis for disqualifying Judge von

Brand. See Grolier, Inc. v. FTC. supra, 615 F.2d at 1221.

Grolier also argues that because we have refused to allow

further discovery. an adverse inference should be drawn.

Renewed Motion, 22-27. Complaint Counsel has responded by

asserting that an adverse inference should not be drawn where.

as here. a proper assertion of privilege is made to withhold

documents, Answer to Respondent's Motion for Dis-

qualification of the Administrative Law Judge. 3-4. Although

Complaint Counsel is correct. there are other reasons not to

draw an adverse inference against Complaint Counsel.

First. the adverse inference rule applies to the parties. not

the deciding tribunal. Complaint Counsel is not withholding

any information om Grolier. Indeed. the very case Grolier

relies upon in urg hat the inference be drawn. /nternational

Union (UAW) vy. NLRB, 459 F.2d 1329, 1338 (D.C. Cir.

1972). holds that the inference dissipates if. as here. a

decisionmaker sanctions the withholding of evidence. Second.

even if an inference adverse to Complaint Counsel could have

been drawn from our earlier refusal to grant discovery, it was

eliminated when we provided Grolier with every document it

originally sought. Finally. Grolier’s argument stands the

inference in its head. The Supreme Court has held that an

adverse inference arises when a Party provides weak evidence

but refuses to produce strong evidence in its control. See. e.g.,

Interstate Circuit, Inc. v. United States. 306 U.S. 208, 226

(1939). Here we have given Grolier the strong evidence ( every

document that exists and proof that no other records exist) but

it seeks to obtain weak evidence (the testimony of those who

have sworn they cannot recall any involvement by Judge von

Brand with Grolier matters ).

In any event. if we were to infer anything from the fact that

Grolier’s review of all the documents before the Commission

fails to establish a single connection between Judge von Brand

and Grolier matters, it would be to infer not that evidence of a

nexus between the two must exist. but that none eXISts.

F-9

There is No Basis to Disqualify

Judge von Brand

Despite the tremendous volume of paper that accompanies

Grolier’s motion, its substantive argument for disqualification

covers barely a page (Renewed Motion, 27-28) and can be

summarized in a sentence. Basically, the argument is that

because several matters involving Grolier were before the

Commission while Judge von Brand served as attorney-advisor,

it must be assumed that he saw them and that he should

therefore be disqualified. With such an uncritical treatment of

the issue, we could safely reject the motion by relying on the

court of appeals statement that “Where [there is]... no evi-

dence of actual involvement in Grolier matters by then

attorney-advisor von Brand, the normal course of action would

be to refuse to disqualify him.” Grolier, Inc. v. FTC, supra, 615

F.2d at 1221. But to finally resolve any doubts on the issue. we

shall discuss Grolier’s specific contentions.

Grolier argues that because Judge von Brand's 1976

statement referred to the fact that he worked on adjudicative

and “informal matters” there is circumstantial evidence he was

exposed to anything it characterizes as an informal matter.? See

Renewed Motion, 5, 7, 14. 16. 17. 18. 27. We reject this

argument for several reasons.

First, as Complaint Counsel points out ( Answer, 1-3) this

argument is the same per se argument, advanced under another

name, that the court of appeals squarely rejected. See. Grolier,

Inc., supra, 615 F.2d at 1221.°° Like the Ninth Circuit. we hold

that “[flor the purposes of disqualification [ attorney-advisors |

9 Grolier argues that an earlier consent order and assurance of voluntary

complhance must be considered informal matters that Judge von Brand must

have seen. While these procedures are informal methods of ending in-

vesugations, both arise under Part 2 of our Rules of Practice. 16 C.F.R. § 2.1

et seq. governing “Nonadjudicative Procedures”. As such. they would

normally be handled by an attorney-advisor connected with an investigation,

not adjudicatory matters.

In any event. Grolier’s speculation about what Judge von Brand meant in

1976 when he said he worked on “informal matters” as well as adjudicative

matters is insufficient to create a factual issue, particularly in light of the

affidavits of Judge von Brand and Commissioner Macintyre.

that were in the record before the court of appeals. We note that Grolier

challenged the verity of this statement when it was before the court of appeals

Footnotes continued on following page

F-10

are not chargeable with involvement in all cases that were

before the agency during their advisorship.” 615 F.2d at 1221.

Second, we note that none of the attachments to the Furth

Affidavit would serve as a basis for disqualification because the

Ninth Circuit held that one of Congress’ concerns in enacting

Section 554(d) was to prevent the “possible use in the decisio-

nal process of information received outside of the controlled

adjudicative setting... .° 615 F.2d at 1220. All the documents

appended to the Furth Affidavit were introduced as evidence in

the conirolled adjudicative setting (introduced mainly by Gro-

lier) and therefore there is no danger that Judge von Brand

improperly used these documents in arriving at a decision."

See San Francisco Mining Exch. v. SEC, supra, 378 F.2d at

169.

Third, it is undisputed that none of the documents Grolier

submitted involve the prosecution of this case. The recommen-

dation to issue a complaint was not forwarded to the Commis-

sion until after Judge von Brand ceased to serve as an attorney-

advisor.’ Affidavit of Edward Steinman. Very few of the

documents Grolier has filed even concern the formal in-

vestigation of this case and none of them contain facts or

information not adduced at the hearing that could have been

interpolated by Judge von Brand.'3 See Final Report of the

Attorney General’s Committee on Administrative Procedure. 56

(1941): Grolier, Inc. v. FTC, supra, 615 F.2d at 1219-20. See

also San Francisco Mining Exch. v. SEC, supra, 378 F.2d at

168, 170-71.

Footnotes continued from preceding page

and it should not be allowed to rely upon it now for the first time. See

Petitioners’ Reply Brief, No. 78-2159 (9th Cir.) at 25-26 n.12. We ordered

Grolier to address the issue of timeliness ( Order. September 12 (980 at 3),

but it chose not to do so. We. therefore, hold this aspect of the matter is

untimely.

‘t In any event, the Supreme Court has made clear that due process is not

violated by the mere fact that a decisionmaker has knowledge of investigative

facts. Withrow vy. Larkin, supra, 421 US. at $5.

‘One document in the record (Johns Aff.. Exh. W) is dated after the

staff recommended that the complaint issue, but that matter was not before

the Commission until after Judge von Brand left his Position as attorney-

advisor and therefore has no bearing on the issue.

'? The Commission's investigation leading to this adjudication began on

February 22, 1970. with a staff memorandum (Righthand Aff. Exh. AA)

requesting the issuance of an investigational resolution and of an Order to File

a Special Report. That memorandum recounted Public facts about prior

Footnotes continued on following page

F-11

Fourth, all the other documents Grolier has referred to

concern other matters involving Grolier.'4 Our Order reopen-

ing this proceeding directed Grolier to comment on whether

any of the documents it submitted fell within the legal defini-

tion of “factually related case” as that term is used in the

Administrative Procedure Act. 5 U.S.C. §554(d). Grolier

chose not to address this issue, apparently relying on the

assumption that any time the same party was before the agency

a factually related case is involved. The assumption does not

withstand analysis.'S The matters before the Commission while

Judge von Brand was an attorney-advisor resulted in a consent

order, an assurance of voluntary compliance (“AVC”) and

compliance reports that followed them. Renewed Motion, 7-

13. Under the Commission’s present (and former) Rules, both

Footnotes continued from preceding page

matters involving Grolier, stated that the information on hand was outdated

and discussed what information each question in the Special Report was

designed to elicit. The Commission authorized both (Johns Aff.. Exh. S):

(Righthand Aff, Exhs. R and S). No other documents were before the

Commission during the formal investigation and therefore could not have

been before Judge von Brand. Grolier’s Response to the Special Report

(Furth Aff, Exh. T), in addition to being presented in the controlled

adjudicative setting, clearly went to the staff and not to the Commission (See

Johns. Aff, Exh. BB). In April and July 1970, representatives of the Attorney

General of Texas and Maryland, respectively. were to examine our files

(Johns Aff, Exhs. U and V). On November 7, 1970. staff submitted a

Progress report to the Commission indicating that it had: received a response

to the Special Report; requested and received a supplemental submission:

conducted interviews and proposed a questionnaire; and it expected to

transmit a proposed complaint in 458 days. There is no allusion to the

substance of any of these matters ( Righthand Aff. Exh. BB).

'* Several of the documents submitted by Grolier duplicate each other.

Compare Righthand Aff., Exhs. L. M, N and P with Johns Aff. Exhs. J, N, O

and P. Several documents are memoranda to the file which were prepared

and retained by the Commission's staff and therefore were not available to the

Commission (or Judge von Brand). Righthand Aff.. Exhs. | and M: Johns

Aff, Exhs. D, E. F, Band I. Many of the documents contain no substantive

facts or information regarding Grolier but only reflect assignments of a matter

(to a Commissioner or to staff) or other procedural matters. Righthand Aff,

Exhs. D, F,G. H. K, Q. R,S, T, U, V, X and Z: Johns Aff., Exhs. G. H. K. Q,

R. S. T, U. V and W.

'$ The Court of Appeals for the District of Columbia recently stated that

“it would be a mistake to assume automatically” that Section $54(d) prevents

any ex parte communication between the Commission and its staff simply

because adjudication arose at one point. RSR Corp. v. FTC, —_F.2d___

(D.C. Cir. No. 80-2131, April 30, 1981) (slip op. at 10-11). See also DF v.

DPA, 5\0 F.2d 1292, 1305 (D.C. Cir. 1975); Alaska S.S. Co. v. FMC. 356

F.2d $6, 61 (9th Cir. 1966).

F-12

a consent order and an AVC brought to an end the matter

under investigation and required the submission of compliance

reports. Neither the consent order (concerning the pre-1964

debt collection practices of Grolier) nor the AVC ( concerning

the pre-1967 home solicitation and recruiting practices of

Grolier) could have formed, or did form, the basis of the

complaint in this matter which, by and large, depended on

post-1969 evidence. See Grolier, Inc., supra, 91 F.T.C. at 437

and n.99. That a respondent may have recidivist tendencies

does not make the earlier proceedings “factually related”

cases.'® This interpretation is confirmed by the Attorn

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