# Appendix — Grolier Inc. v. Federal Trade Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385011_0053%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1983 - **Citation:** 464 U.S. 891 ## Text 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. A-4 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 I 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. B-4 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 ) B-5 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 B-6 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]: B-7 (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 to 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 B-8 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 (c) calling on said prospect for the primary 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: (c) writing a letter evaluating the merits of any 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: (c) no publication, merchandise, service, or com- 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. B-11 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; (c) any answer provided by any research service is a 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. B-12 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 (c) the publication, merchandise or service is of 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: (c) the item referred to in (a) above is of 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. IV 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. Vv 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. VI 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 I 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 (C) to the agency or a member or members of the body com- 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. Cc 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). 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 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385011_0053%3A2. Public record. Not legal advice.