Petition — Brown & Williamson Tobacco Corp. v. Federal Trade Commission

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| Office Supreme C

FIL ED U.S.

89-1010 | wwe

No. 83-

IN THE

Supreme Court of the United States

OCTOBER TERM, 1983

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BROWN & WILLIAMSON TOBACCO CORPORATION,

Petitioner,

—

FEDERAL TRADE COMMISSION,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

MARTIN LONDON

345 Park Avenue

New York, New York 10154

(212) 644-8134

Attorney for Petitioner

MARTIN FLUMENBAUM

ELIZABETH KOLTUN

DOROTHY E. ROBERTS

PAUL, WEISS, RIFKIND, WHARTON & GARRISON

A partnership including professional corporations

Of Counsel

QUESTIONS PRESENTED

The court below was called upon to review the narrow issue

of the propriety of the District Court’s order denying Peti-

tioner’s motion for a preliminary injunction and dismissing the

complaint on jurisdictional grounds. Rather than simply deny-

ing Petitioner’s request for preliminary relief and remanding

the matter to the District Court for trial, the Sixth Circuit

entered final judgment on the merits against Petitioner. The

panel reached this highly improper and unusual result even

though the only issue ever argued before both the Court of

Appeals and the District Court was Petitioner’s right to prelim-

inary relief, even though there was never any factual hearing

on the merits in the District Court, even though Petitioner did

not have an opportunity to conduct discovery or cross-examine

witnesses in order to prove the allegations of its complaint, and

even though the District Court erroneously believed it did not

have jurisdiction even to hear Petitioner’s allegations.

The questions presented are:

1. May an appellate court, reviewing a denial of pre-

liminary injunctive relief, proceed to enter judgment on

the merits when no trial on the merits has yet been held

and when the District Court never even addressed the

merits of the complaint?

2. More particularly, did the Sixth Circuit’s decision

improperly preclude Petitioner from ever proving its

claims through discovery and cross-examination at trial

and deny the District Court the opportunity to decide the

merits of the case in the first instance?

3. Should not this Court, in the exercise of its supervi-

sory powers, correct this radical departure from the

proper scope of appellate review mandated by this Court

and uniformly observed by the courts of appeals?

LIST OF PARTIES IN THE COURT OF APPEALS

The parties in the Court of Appeals for the Sixth Circuit are

those listed in the caption of this Petition. The Public Citizen

Health Research Group filed a brief as amicus curiae. Brown &

Williamson Tobacco Corporation is owned by BATUS, Inc.,

which in turn is owned by B.A.T Industries PLC. All of Brown

& Williamson Tobacco Corporation’s subsidiaries are wholly

owned.*

° A list of Brown & Williamson Tobacco Corporation's affiliates is

annexed hereto as Appendix A.

iii

TABLE OF CONTENTS

PAGE

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List of Parties in the Court of Appeals............... il

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creche. Lud sana neue ak ckeeh akawe nn Gees 2

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The Commission’s Actions..............ssee0- 2

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Petition for Reconsideration .................. 6

peeneces Ter Giraihtine the WEE «woes ccccscccsscsceces 7

I. The Sixth Circuit’s Decision Exceeded the Proper

Scope of Review Uniformly Observed by the

CAN PE k-bakscbaccs pebuctesadesdsss 7

II. The Sixth Circuit Improperly Denied Brown &

Williamson the Opportunity to Conduct Discov-

ery and to Prove Its Claims at Trial and Deprived

the District Court of Its Power to Decide the

Merits in the First Instance. .........ccccccceee 10

III. The Sixth Circuit’s Opinion Was Based on an

Erroneous Interpretation of the Law and of

Brown & Williamson’s Arguments on Appeal.... 12

PAGE

The Sixth Circuit’s Authorities are Inapposite 12

Brown & Williamson did not Waive Its Right

00 PUPtROr FPOCRT URGING 2. osc ccccccesccegs 14

rr ern ota te aa tie a eeu awk Reon 16

Appendices

A—List of Affiliates of Brown & Williamson

PE IR o cat kenses btcerctdadcvas A-1

B—Opinion of the Court of Appeals .............. B-1

C—Memorandum Opinion of the District Court..... C-1

D—Order Denying Petition for Rehearing En Banc.. D-1

E—Brown & Williamson’s Brief on Appeal......... E-1

F—Brown & Williamson’s Reply Brief on Appeal. . . F-1

TABLE OF AUTHORITIES

Cases PAGE

Allen v. Mississippi Commission of Law Enforcement,

S06 FO Bee CO) CR. FGF ov ccdisncicccacenncucs

Bath Industries, Inc. v. Blot, 427 F.2d 97 (7th Cir. 1970) 9

Berrigan v. Sigler, 499 F.2d 514 (D.C. Cir. 1974)....... 11

Browse v. Chote, 4113 U.S. S58 CIGTS < cc vivccccccessss 11

Continental Oil Co. v. Frontier Refining Co., 338 F.2d

Fee Ce Ge FID nae o cnc cdcacsvivicacuekaneee 9

Doran v. Salem Inn, Inc., 422 U.S. 922 (1975)........ 11

Eikenberry v. Callahan, 653 F.2d 632 (D.C. Cir. 1981).. 9

Gulf Oil Corp. v. Gilbert, 330 U.S. 501 (1947)........ 10

Hamilton Watch Co. v. Benrus Watch Co., 206 F.2d 738

Ce Ga SEI: 0.0004 00stcdsancdnedaetuenhe anne 9

Hanna v. Plumer, 380 U.S. 460 (1965) ............... 10

Hurwitz v. Directors Guild of America, Inc., 364 F.2d 67

(2d Cir.), cert. denied, 385 U.S. 971 (1966) ......... 13

Mason County Medical Association v. Knebel, 563 F.2d

Be ee Gk TITEP wc cccccccccccséuahensananauen 5, 14

Missouri Portland Cement Co. v. H.K. Porter Co., 535

By Fe Been rye” 8

Sacher v. United States, 343 U.S. 1 (1952)............ 10

SEC v. G. Weeks Securities, Inc., 678 F.2d 649 (6th Cir.

The Continental Group, Inc. v. Amoco Chemicals

Comm, 636 R26 353 Gb Cis. CORED. wc a ccccutavesesy 8

PAGE

Thermtron Products, Inc. v. Hermansdorfer, 423 U.S.

TAS Rae one OR eee et a Re 9

United States v. Criden, 681 F.2d 919 (3d Cir. 1982) ... 12

Young v. Motion Picture Association of America, 299

F.2d 119 (D.C. Cir.), cert. denied, 370 U.S. 922 (1962) 9

Statutes

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Miscellaneous

16 C. Wright, A. Miller, E. Cooper & E. Gressman,

Federal Practice and Procedure (1977)

IN THE

Supreme Court of the United States

OCTOBER TERM, 1983

No. 83-

BROWN & WILLIAMSON TOBACCO CORPORATION,

Petitioner,

—_—V—

FEDERAL TRADE COMMISSION,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Petitioner, Brown & Williamson Tobacco Corporation

(“Brown & Williamson”), asks that a writ of certiorari issue to

review the judgment of the Court of Appeals for the Sixth

Circuit, entered in this case on June 24, 1983.

Opinions Below

The opinion of the Court of Appeals, reported at 710 F.2d

1165 (6th Cir. 1983), is annexed hereto as Appendix B. The

unreported memorandum opinion of the United States District

Court for the Western District of Kentucky (Ballantine, J.) is

annexed hereto as Appendix C. The Court of Appeals’ order

denying Petitioner’s Petition for Reconsideration or Rehearing

with a Suggestion of Rehearing en Banc, not officially re-

ported, is annexed hereto as Appendix D. The Court of

Appeals’ order is unofficially reported at 1983-2 Trade Cas.

(CCH) 4 65,637 (Sept. 19, 1983).

Jurisdiction

The judgment of the Court of Appeals was entered on June

24, 1983. A timely Petition for Reconsideration or Rehearing

with a Suggestion of Rehearing en Banc was denied on Sepiem-

ber 19, 1983. (App. D) This Petition is filed within 90 days of

that date. The jurisdiction of this Court is invoked under 28

U.S.C. § 1254(1). Jurisdiction in the District Court was based

on 28 U.S.C. §§ 1331(a), 2201-02, and 5 U.S.C. §§ 702-06.

Statute Involved

The relevant provisions of the Administrative Procedure

Act, 5 U.S.C. §§ 551, et seg., are set forth in Appendix E

hereto.

Statement of the Case

The Commission’s Actions

On June 25, 1982, the Federal Trade Commission (the

“Commission” or the “FTC”)—in a radical departure from

fifteen years of consistent agency practice—expelled Brown &

Williamson’s Barclay brand cigarettes from the FTC’s official

testing and reporting program.' Specifically, the Commission

l Since 1967, the FTC has operated a laboratory that measures the

amount of various smoke constituents generated by cigarettes when they are

“puffed” by a machine according to a standardized testing methodology that

has come to be known as the “FTC method.” The “tar”, nicotine and carbon

monoxide contents of the smoke of domestic cigarettes—as determined by

the FTC method—are published periodically in an official FTC Report.

According to a 1970 agreement between the industry and the Commission,

announced that (a) it would no longer test Barclay or include it

in future FTC Reports “unless and until” the Commission

changes the FTC method; (b) Brown & Williamson could no

longer rely on the FTC method to substantiate claims as to

Barclay’s “tar” and nicotine yield; and (c) the December 1981

FTC Report, which had rated Barclay as a 1 mg “tar”, 0.2 mg

nicotine cigarette, would be amended to delete Barclay.

The District Court

Immediately upon learning of the FTC’s decision, Brown &

Williamson commenced an action in the United States District

Court for the Vrestern District of Kentucky to enjoin the FTC,

temporarily and permanently, from taking the actions it had

announced that day and to declare those actions unlawful

under the Administrative Procedure Act (the “APA”) and the

United States Constitution. On the afternoon of June 25, the

District Court (Circuit Judge Boyce F. Martin, sitting as

District Judge by designation), issued a temporary restraining

order to maintain the status quo until Brown & Williamson’s

motion for a preliminary injunction could be heard and deter-

mined.

In moving for preliminary injunctive relief, Brown & Wi!-

liamson contended that the FTC’s actions were unlawful under

the APA, 5 U.S.C. §§ 551 ef seq., in that this radical change in

the FTC’s cigarette testing and reporting program amounted to

substantive rulemaking which had been accomplished without

following the procedures mandated by law. In addition, Brown

& Williamson claimed that the FTC’s actions were arbitrary,

capricious and an abuse of discretion because, inter alia, they

unfairly discriminated against Barclay.

For purposes of the preliminary injunction motion, the

parties agreed to rely exclusively on affidavits and exhibits.

print advertisements for cigarettes disclose the “tar” and nicotine content of

the advertised brand, as published in the most recent FTC Report or as

determined by the manufacturer using the FTC method.

There was no discovery taken, nor was there any evidentiary

hearing on the preliminary injunction motion. The District

Court did not consolidate the preliminary injunction hearing

with a trial on the merits of Brown & Williamson’s claims. The

motion was submitted to the District Court solely on the

papers, after oral argument was heard.

The District Court never reached the merits of Brown &

Williamson’s substantive arguments for enjoining the FTC’s

actions pending trial. Instead, on September 27, 1982, District

Judge Ballantine held that the FTC’s actions were not “final

agency action” subject to judicial review under the APA, 5

U.S.C. §§ 702, 704. For that purely jufisdictional reason

alone, the District Court held that Brown & Williamson was

unlikely to succeed on the merits of its request for an injunc-

tion. The Court therefore denied preliminary relief and dis-

missed the complaint for want of jurisdiction.

The District Court’s opinion was limited to the jurisdictional

issue and did not address the other three elements required for

a preliminary injunction: irreparable injury, balance of hard-

ships and the public interest.

The District Court did, however, issue an injunction pending

appeal to preserve the status quo until Brown & Williamson’s

appeal could be heard and determined. That injunction essen-

tially continued in effect the temporary restraining order issued

on June 25.? |

The Appeal

Brown & Williamson based its appeal on the narrow juris-

dictional question upon which the District Court had relied:

whether the FTC’s announced actions were final and review-

able. Brown & Williamson argued that, because the District

Court entertained an erroneous view of the law of finality as

applied to the facts of this case, the dismissal of the complaint

2 A motion by the FTC to vacate the injunction pending appeal was

denied by a panel of the Sixth Circuit on October 28, 1982.

and the denial of injunctive relief should be reversed, and the

case remanded for further consideration of the motion for a

preliminary injunction.

The Commission did not file a cross appeal. In its brief on

appeal, it argued that the District Court’s dismissal of the

complaint and denial of preliminary relief were proper, on the

ground that the FTC’s June 25 actions did not constitute final

agency action subject to judicial review. In the alternative, the

Commission contended that if the Sixth Circuit were to hold

that those actions were reviewable, the Court should not

remand, but should proceed to review the merits of the motion

and deny the preliminary injunction on the basis of the

four-fold standard for preliminary injunctions enunciated by

the Sixth Circuit in Mason County Medical Association v.

Knebel, 563 F.2d 256 (6th Cir. 1977) (“Mason County”).

Brown & Williamson’s reply brief on appeal conceded that

the Court of Appeals had the power to consider the merits of

the preliminary injunction motion, but urged the Court to

remand the case to allow the District Court to consider, in the

first instance, whether the appropriate preliminary injunction

standards had been met.

The Panel’s Opinion

Oral argument on the appeal focused almost entirely on the

finality issue—the basis of Brown & Williamson’s appeal.

Shortly thereafter, the Court of Appeals issued an order dis-

solving the injunction pending appeal on the basis of the

four-part Mason County test. The opinion on the appeal,

however, did not even mention Mason County.

The panel reversed the District Court’s dismissal of the

complaint, holding that the FTC’s June 25 actions were final

agency action subject to judicial review. At that point, the

panel had two choices: remand the case to the District Court

for decision on the preliminary injunction motion, or proceed

to decide for itself whether Brown & Williamson had met the

Mason County standard for preliminary injunctive relief. That

standard requires, first of all, finding that the movant has

shown it is likely to succeed at trial in proving its case on the

merits. At most then, the panel was entitled to affirm the

District Court’s denial of preliminary relief on grounds not

addressed by the District Court itself.

The panel went further, however. It decided not that Brown

& Williamson had failed to prove likelihood of success on the

merits, but that the company had not succeeded on the merits.

The panel took this extraordinary step despite the fact that

Brown & Williamson had yet to exercise its rights to discovery

and trial, including cross-examination, on the merits of its

claims. In effect, the panel, sua sponte, improperly found facts

and commented on the evidence as if there had been a record

of a plenary litigation, and took the unprecedented step of

entering judgment on the merits.

The panel disregarded the abbreviated nature of the prelimi-

nary injunction proceedings below and the limited scope of

appellate review, and decided the merits of Brown & William-

son’s substantive claims in the first instance.

Petition for Reconsidcration

Brown & Williamson moved for reconsideration and re-

hearing of the Sixth Circuit’s decision, arguing that the panel

had exceeded the scope of appropriate appellate review and

denied Brown & Williamson the opportunity to conduct dis-

covery and to prove its claims at trial. Brown & Williamson

also argued that the Sixth Circuit had entered judgment on the

merits under the misapprehension that the company had con-

sented to decision of its ultimate substantive claims on the

limited record before the District Court. In fact, Brown &

Williamson had simply consented to have the preliminary

injunction motion decided on such a record.

The Court of Appeals denied Brown & Williamson’s petition

for reconsideration on September 19, 1983. It again ignored

the narrow scope of review of a district court’s denial of

preliminary injunctive relief and reasoned instead that the

scope of appellate review extended beyond issues decided by

the district court, allowing entry of final judgment. The panel

avoided the serious problems of the lack of an evidentiary

hearing below and the denial of Brown & Williamson’s right to

discovery and trial by again misconstruing the company’s

arguments on appeal. The panel erroneously stated that Brown

& Williamson had fully consented to present its plenary case on

the basis of the limited record filed in the District Court.

REASONS FOR GRANTING THE WRIT

THE SIXTH CIRCUIT'S DECISION EXCEEDED THE

PROPER SCOPE OF REVIEW UNIFORMLY OBSERVED

BY THE COURTS OF APPEALS

The panel’s decision to enter final judgment on the merits of

Brown & Williamson’s substantive claims, rather than remand

for trial, far exceeded the limited scope of review uniformly

observed by the appellate courts. The established rule is that

appellate review of a grant or denial of preliminary injunctive

relief, because of the limits of the hearing below, is strictly

confined to the propriety of the district court’s decision.

One of the clearest explanations of this narrow scope of

review is by the Sixth Circuit itself. In SEC v. Senex Corp., 534

F.2d 1240, 1241 (6th Cir. 1976), the Court, in affirming a grant

of preliminary injunctive relief, refused to reach the merits of

the underlying claims, even though the parties had briefed and

argued the appeal as if it were from a fina’ judgment on the

merits:

While the hearing below was extensive, it was in no

sense a final hearing and hence our role upon review is

not to pass upon the final merits of the case, but rather

whether the district judge abused his discretion in entering

the order appealed from. .. .

While each of the parties in the appeal would like us to

reach an immutable decision in his favor, our review must

necessarily recognize that, as observed by Judge Jerome

Frank in Hamilton Watch Co. v. Benrus Watch Co., 206

F.2d 738, 742 (2d Cir. 1953):

“The judge’s legal conclusions, like his fact-findings,

are subject to change after a full hearing and the

opportunity for more mature deliberation. For a

preliminary injunction—as indicated by the numer-

ous more or less synonymous adjectives used to label

it—is, by its very nature, interlocutory, tentative,

provisional, ad interim, impermanent, mutable, not

fixed or final or conclusive, characterized by its

for-the-time-beingness.”

Accordingly, we believe that we should abstain from

any discussion of the merits lest our premature comments

lead counsel or the trial court to accept as final that which

may, upon full hearing prove to have been incorrect.

534 F.2d at 1241. Accord SEC v. G. Weeks Securities, Inc., 678

F.2d 649, 653 (6th Cir. 1982) (Ultimate legal questions should

not be decided by appellate court reviewing a grant or denial of

a preliminary injunction).

These principles have been followed by the other circuits as

well in reviewing a district court’s grant or denial of prelimi-

nary relief. See, e.g., The Continental Group, Inc. v. Amoco

Chemicals Corp., 614 F.2d 351, 357 (3d Cir. 1980) (“Because

the grant or denial of a preliminary injunction is based on a

limited hearing that frequently produces an abbreviated set of

facts . . . the scope of appellate review of the trial court’s

decision is necessarily narrow”); Missouri Portland Cement

Co. v. H.K. Porter Co., 535 F.2d 388, 392 (8th Cir. 1976)

(Appellate court may not consider appellant's contentions on

the merits where additional evidence remains to be presented in

district court and additional discovery will be taken); Allen v.

Mississippi Commission of Law Enforcement, 424 F.2d 285,

290 (Sth Cir. 1970) (Despite appellants’ contention that case

was ripe for final disposition, Court of Appeals would not

consider ultimate merits of complaint); Bath Industries, Inc. v.

Blot, 427 F.2d 97, 111 (7th Cir. 1970) (Appellate court may not

“at this juncture review the case in its entirety on the merits”);

Continental Oil Co. v. Frontier Refining Co., 338 F.2d 780,

781 (10th Cir. 1964) (“. . . [OJur review of an order granting

or denying a preliminary injunction is limited to determining

whether the trial court abused its discretion and, in making

such a determination, the merits of the case may be considered

only insofar as they have a bearing, if any, upon the question

of sound judicial discretion”); Young v. Motion Picture Asso-

ciation of America, 299 F.2d 119, 121 (D.C. Cir.), cert. denied,

370 U.S. 922 (1962) (“. . . [O]rdinarily this court will not

consider the merits of the case further than necessary to

determine whether [the district court’s] discretion was

abused”); Hamilton Watch Co. v. Benrus Watch Co., 206 F.2d

738, 742 (2d Cir. 1953) (Because of tentative nature of prelimi-

nary injunction, Court of Appeals could not determine

whether district court should have dismissed complaint on

merits). See also Eikenberry v. Callahan, 653 F.2d 632, 636

(D.C. Cir. 1981) (where “District Court’s attention was fo-

cused almost entirely on the jurisdictional question,” better

practice is “to return the case to the District Court for it to

deter:nine for the first time the merits of the case”).

The Sixth Circuit’s decision in this case to grant judgment on

the merits contravenes these principles and confuses the role of

the appellate court when reviewing decisions on preliminary

injunction motions with its role upon review of judgments on

the merits after a full trial below. This Court, in the exercise of

its supervisory powers, should grant certiorari to rectify the

Sixth Circuit's departure from the proper scope of appellate

review.

3 This Court has often granted certiorari to review similar questions of

federal jurisdiction and procedure in order to ensure the proper and uniform

functioning of the federal judiciary. See, e.g., Thermtron Products, Inc. v.

Hermansdorfer, 423 U.S. 336 (1976) (District court's authority to remand

case to state court and court of appeals’ jurisdiction to review district court

THE SIXTH CIRCUIT IMPROPERLY DENIED BROWN &

WILLIAMSON THE OPPORTUNITY TO CONDUCT DIS-

COVERY AND TO PROVE ITS CLAIMS AT TRIAL AND

DEPRIVED THE DISTRICT COURT OF ITS POWER TO

DECIDE THE MERITS IN THE FIRST INSTANCE

The Sixth Circuit’s extreme departure from the accepted

scope of appellate review resulted in two serious deprivations.

First, the Court’s decision improperly precluded Brown &

Williamson from ever proving its substantive claims through

discovery and trial. The limited proceedings before the District

Court on Brown & Williamson’s motion for preliminary relief,

consisting solely of oral argument and the submission of

affidavits and exhibits, was no substitute for a full adversarial

trial.

Brown & Williamson was never able to challenge at trial the

fairness of the process by which the Commission decided to act

against Barclay. There was no opportunity to probe the conclu-

sions of the three FTC consultants upon which the Commis-

sion purported to rely for its June 25 determinations, to depose

the consultants or FTC staff members, to cross-examine them

in court, or to reveal to the court any error, inconsistency or

bias in their judgments. More important, Brown & Williamson

never had the chance to challenge, through discovery and

cross-examination, its principal competitors in the tobacco

industry who had submitted the data upon which the consult-

order by mandamus); Hanna v. Plumer, 380 U.S. 460, 463 (1965) (Certiorari

granted “[bjecause of the threat io the goal of uniformity of federal

procedure posed by the decision below”); Sacher v. United States, 343 U.S.

1, 4-5 (1952) (“. . . [T]he importance of clarifying the permissible practice

{under Rule 42(a) of the Federal Rules of Criminal Procedure] persuaded us

to grant certiorari”); Gulf Oil Corp. v. Gilbert, 330 U.S. 501 (1947) (District

court's power to dismiss action pursuant to doctrine of forum non conve-

niens).

ants and the Commission claimed to have relied. The denial by

a trial or appellate court of a preliminary injunction does not

limit or preclude the parties from fully litigating the merits of

the case. Berrigan v. Sigler, 499 F.2d 514, 518 & n.11 (D.C. Cir.

1974). The panel’s decision to reach the ultimate merits of

Brown & Williamson’s claims in spite of the inadequacy of the

proceedings below was patently improper.

The second deprivation caused by the panel’s failure to

remar.d the case for trial was its denial of the District Court’s

opportunity to decide the merits of Brown & Williamson’s

substantive claims. While it is true that in some limited circum-

stances the appellate court may go beyond the specific issue

presented on appeal in order to review a collateral decision of

the district court, the panel here decided the merits of the case

in the first instance—before they were fully developed or even

considered by the court below. This extreme action is contrary

to this Court’s admonition in Doran v. Salem Inn, Inc., 422

U.S. 922, 931-32 (1975), that “the standard of appellate review

is simply whether the issuance [or denial] of the injunction, in

the light of the applicable standard, constituted an abuse of

discretion.” Accord Brown v. Chote, 411 U.S. 452, 457 (1973)

(affirming grant of preliminary injunction where no abuse of

discretion was found, refusing to address the ultimate merits of

the underlying claim, and remanding for trial on the merits).

This Court should not permit such disregard of the stan-

dards which it has mandated for appellate review, especially

where, as here, the result has a severe impact on the litigants

and on the balance of roles in the federal judiciary.

THE SIXTH CIRCUIT'S OPINION WAS BASED ON AN

ERRONEOUS INTERPRETATION OF THE LAW AND OF

BROWN & WILLIAMSON’S ARGUMENTS ON APPEAL

The Court of Appeals’ decision to rule on the merits of the

case in the first instance rests on both an erroneous view of the

proper scope of appellate revicw and a basic misunderstanding

of Brown & Williamson’s arguments on appeal.

The Sixth Circuit's Authorities Are Inapposite

The Court’s first misinterpretation was of the law that

governs the scope of appellate review. The authorities cited in

the panel’s opinion in support of its decision to grant final

judgment on the merits are totally inapposite. (App. B, p. 12

n.3). The section from 16 C. Wright, A. Miller, E. Coopér &

E. Gressman, Federal Practice and Procedure: Jurisdiction,

§ 3937 (1977), relates to the appellate court’s exercise of

pendent jurisdiction to review a collateral order of the district

court, not independently appealable, to avoid further delay in

the termination of the litigation. It has nothing to do with the

power of an appellate court to decide the merits of a complaint

when the only record is limited to an application for prelimi-

nary relief. In this situation, the panel in essence usurped the

litigation below altogether and, in the process, prevented

Brown & Williamson from exercising any of its rights to

conduct that litigation.

The panel’s reliance on United States v. Criden, 681 F.2d

919 (3d Cir. 1982) is also misplaced. In Criden, the Third

Circuit chose to determine which portions of videotapes intro-

duced at trial could be copied, rather than remand to the

district court for a second time, in light of the lower court’s

failure to comply with the appellate court’s ‘‘clear-cut instruc-

tions’? on a prior remand of the same issue. 681 F.2d at

921-922. Here, the District Court never had an opportunity to

decide the merits of Brown & Williamson’s claims, because it

erroneously believed that it lacked the jurisdiction even to

consider them. Thus, in addition to preventing Brown &

Williamson from proving its claims through discovery and

cross-examination, the panel also denied the District Court the

opportunity to decide the merits of the case in the first

instance.

The single case cited by the panel in its order denying Brown

& Williamson’s petition for reconsideration—Hurwitz v.

Directors Guild of America, Inc., 364 F.2d 67 (2d Cir.), cert.

denied, 385 U.S. 971 (1966)—also involved a situation entirely

different from that facing the Sixth Circuit in this case.

Hurwitz was an appeal from the denial of a preliminary

injunction directing the defendant union to grant union mem-

bership to plaintiffs pending the outcome of their challenge to

the union’s requirement that members sign a non-Communist

oath. The Second Circuit first set forth the established rule that

‘‘when an appeal is taken from the grant or denial of a

preliminary injunction, the reviewing court will go no further

into the merits than is necessary to decide the interlocutory

appeal.’’ 364 F.2d at 70. The Court noted a narrow exception,

however, where ‘‘the appellate court may dismiss the com-

plaint on the merits if its examination of the record upon an

interlocutory appeal reveals that the case is entirely void of

merit.’’ Id. (emphasis added). The Second Circuit reasoned

that since the oath in question was ‘‘unreasonable as a matter

of law’’ it had the power not only to reverse the denial of the

preliminary injunction motion, but also to direct the district

court to grant final relief to plaintiffs. Jd. (emphasis added).

Here, the Sixth Circuit did not hold that Brown & William-

son’s complaint was entirely void of merit as a matter of law.

Rather, it improperly found facts and applied its conclusions

of law to those facts to reach a final decision in favor of the

Commission, without giving the District Court any opportu-

nity to do so.*

4 The cases cited in 16 C. Wright, A. Miller, E. Cooper & E.

Gressman, Federal Practice and Procedure § 3921 (1977), to which the panel

referred (App. D, p. 2), involved either dismissal by the court of appeals

Brown & Williamson did not Waive Its Right

to Further Fact-Finding

The Court’s second misinterpretation was of Brown & Wil-

liamson’s arguments on appeal. The Sixth Circuit’s opinion

implies that Brown & Williamson agreed that the entire litiga-

tion could be resolved by the District Court based on the

record before it and that no further fact-finding would ever be

required (App. B, p. 12, n.3). The panel’s denial of Brown &

Williamson’s petition for reconsideration was based on the

same misapprehension. The panel stated that the company

made a ‘‘complete turnabout”’ from its position on appeal that

the Court of Appeals could decide the merits of the case,

without further fact-finding below (App. D, p. 3). The panel,

however, was mistaken.

In fact, Brown & Williamson had agreed only that the

preliminary injunction motion could be resolved by the District

Court without an evidentiary hearing. The FTC had submitted

over 150 exhibits to the District Couri (see App. C, p. 4 n.1)

which, the Commission claimed, contained the entire ‘‘ad-

ministrative record.’’ Brown & Williamson never conceded

that these exhibits contained everything the Commission had

considered, or that the Commission had reviewed all the

exhibits the FTC had submitted to the District Court (App. G,

p. 17 n*).° Nevertheless, in the interests of expedition, Brown

& Williamson agreed to make the showing required by Mason

County on papers alone. But the company made no such

agreement with respect to its rights to full discovery and trial

on its complaint.

where there was an ‘‘insuperable objection’’ to the complaint and defendant

was entitled to judgment as a matter of law or review of a collateral decision

by the district court that was ‘‘so far bound up with preliminary injunction

orders as to warrant review on interlocutory appeal.’’ 16 C. Wright, A.

Miller, E. Cooper & E. Gressman, supra, § 3921, at 18-19. As discussed

above (pp. 11-13), this case falls into neither of these two exceptions to the

limited scope of appellate review.

5 Brown & Williamson's brief and reply brief on appeal are annexed

to this Petition as Appendix F and Appendix G, respectively.

In appealing the District Court’s jurisdictional decision,

Brown & Williamson argued, inter alia, that the FTC’s June

1982 actions were final and reviewable because judicial review

would not interrupt an ongoing agency proceeding. The FTC

had represented that its deliberations as to Barclay were termi-

nated by its June 1982 determinations (App. F, p. 22 & n*). It

was in this context that Brown & Williamson’s initial brief on

appeal—which focused exclusively on the finality issue—stated

that its ‘‘challenges to the legality of the Commission’s con-

duct raise purely legal issues that require no further factfinding

at the agency level for clarification. The evidence upon which

the Commission based its decisions is before the district

court.’’ (App. F, p. 3 (emphasis added)); see also App. F, p. 20

(‘these challenges too present legal issues that will never be

made more con-rete or fit for judicial consideration by further

agency proceedings’’ (emphasis added)).

Brown & Williamson never waived its right to further fact-

finding by the District Court before its claims for declaratory

and permanent injunctive relief could be finally determined.

Indeed, when the Commission’s brief on appeal raised fac-

tual issues that went to the merits of Brown & Williamson’s

claims, we urged the Sixth Circuit to remand after reversing on

jurisdiction, rather than proceeding to decide even the prelimi-

nary injunction motion:

This case is appropriate for remand. The FTC has

raised fact issues regarding the 1970 agreement, notice,

waiver and irreparable injury that require district court

findings.

(App. G, p. 11); see also App. G, p. 6 (‘We urge this Court to

reverse and remand rather than proceed to decide all the issues

the lower court has not yet considered.’’).

Brown & Williamson also emphasized that, should the Court

of Appeals refuse to remand, but instead exercise its authority

to determine the merits of the preliminary injunction motion,

that step would still require reinstatement of the complaint

(App. G, pp. 10-11 & n*). In sum, Brown & Williamson

believed that the most the appellate court could legitimately do

was to affirm the District Court’s denial of preliminary relief

on grounds not considered by Judge Ballantine.

At no time did Brown & Williamson consider the possibility

that the Court of Appeals might proceed to resolve the entire

case without opportunity for discovery and trial. Indeed,

Brown & Williamson always believed that the Sixth Circuit

was, at most, considering only whether to decide the prelimi-

nary injunction motion, rather than remand to the District

Court for determination of that motion.

Review by this Court is necessary to correct the Sixth

Circuit’s errors which led the panel to exceed the proper

bounds of review.

CONCLUSION

For the foregoing reasons, we ask the Court to grant

certiorari, and, upon that grant, to vacate the judgment on the

merits entered by the Court of Appeals.

Dated: New York, New York

December 16, 1983

Respectfully submitted,

MARTIN LONDON

345 Park Avenue

New York, New York 10154

(212) 644-8134

Attorney for Petitioner

MARTIN FLUMENBAUM

ELIZABETH KOLTUN

DOROTHY E. ROBERTS

PAUL, WEISS, RIFKIND, WHARTON & GARRISON

A partnership including professional corporations

Of Counsel

APPENDICES

Appendix A

Listing pursuant to Rule 28.1 of the Rules of the Supreme

Court of the United States

Brown & Williamson Tobacco

Corporation Affiliates*

% equily

shares held

United Kingdom

+ British-American Tobacco Co Ltd 100

Ardath Tobacco Co Ltd 100

BAT (UK and Export) Ltd 100

BAT Services Ltd 100

Cia Continental de Cigarros Ltd 100

East African Tobacco Co (UK Ltd) 99

Moorgate Tobacco Co Ltd 100

The Raleigh Investment Co Ltd

(incorporated in the Isle of Man) 96

+ BAT Stores Holdings Ltd 100

BAT Stores PLC 91

Argos Distributors Ltd 100(91)

International Stores Ltd 100(91)

Mainstop Ltd 100(91)

+ British-American Tobacco

Investment p.l.c. 100

The Wiggins Teape Group Ltd 100

Jointine Products Co Ltd 100

Samuel Jones & Co Ltd 100

Wiggins Teape (UK) PLC 100

Wiggins Teape Europe Ltd 100

° Each of the companies listed in this appendix is a subsidiary of

B.A.T Industries, the parent company of Brown & Williamson Tobacco

Corporation. Subsidiaries held directly by B.A.T Industries are indicated

thus +; all other subsidiaries are held by sub-holding companies and B.A.T

Industries’ interest is shown in brackets where this differs from that of the

sub-holding company.

% equily

shares held

Wiggins Teape European Sales Ltd 100

Wiggins Teape (Mill Sales) Ltd 100

Wiggins Teape Overseas Ltd 100

Wiggins Teape Overseas Sales Ltd 100

Wiggins Teape Paper Ltd 100

Wiggins Teape Research & Development Ltd 100

Wiggins Teape (Stationery) Ltd 100

+ Mardon Packaging International Ltd 100

Ashton Containers (Southern) Ltd 100

Ashton Containers (Midlands) Ltd 100

Ashton Containers (Scotland) Ltd 100

Ashton Paper Mill Ltd 100

Celloglas Ltd 100

Cundell Cartons Ltd 100

Cundell Corrugated Ltd 100

Cundell Plastics Ltd 100

Cundell Sheet Plants Ltd 100

Fibrenyle Ltd 100

Forman Marshall Ltd 100

Iridon Ltd 100

Lloyds Cartons Ltd 100

Mardon Composites Ltd 100

Mardon Flexible Packaging Ltd 100

Mardon Illingworth Ltd 100

Mardon Son & Hall Ltd 100

Mardon Wrappings Ltd 100

Severnside Waste “aper Ltd 100

Smith Brothers (Whitehaven) Ltd 100

The Pazo Co Ltd 100

Thomas Forman & Sons Ltd 100

William Thyne Ltd 100

+ BAT International Finance p.|.c. 100

+ Tobacco Insurance Co Ltd 100

+ British-American Cosmetics Ltd 100

Cyclax Ltd 100

Germaine Monteil (UK) Ltd 100

Lentheric-Morny Ltd

Yardley and Company Ltd

Europe

Austria

Durmont Teppichbodenfabrik

Hartberg GmbH & Co KG

Belgium

BAT Benelux-Ets Odon Warland SA

Velasques Sigarenfabrieken NV

Haseldonckx SA

Wiggins Teape (Belgium) SA

Channel Islands

The Jersey Tobacco Distributors Ltd

Cyprus

BAT (Cyprus) Ltd

Finland

Suomen Tupakka OY

Aarne Laaksonen Oy

France

Papeteries de Montevrain SA

Societe Roannaise des Papiers SA

Ferry Peter SA

Giraudet Emballages SA

Imprimeries Debar SA

Compagnie Francaise de Fabrication et

de Distribution SA

Germany

BAT Cagaretten-Fabriken GmbH

BAT (Deutschland) Export GmbH

Ernst Hammans GmbH

Rotopack GmbH

% equily

shares held

100

100(64)

A-4

% equity

shares held

Huppe GmbH 99

Klingenberg Dekoramik GmbH 100(64)

Peguform-Werke GmbH 100(64)

Pegulan-Werke AG 64

Schock Bad GmbH 100(99)

Wehra Teppiche und Mobelstoffe GmbH 100(64)

Germaine Monteil Cosmetiques GmbH 100

Juvena Produits de Beaute GmbH 100

Jacques Weindepot Wein

Einzelhandel GmbH 100

Weinkruger, Weinhandels-und

Gaststatten GmbH 100

Interversa Gesellschaft fur

Beteiligungen mbH 100

Italy

Ci-Esse SpA 100

Wiggins Teape Italiana SpA 100

Gruppo Ceramiche Ricchetti S.p.A. 60(38)

Netherlands

BAT Nederland BV 100

Henri Wintermans’ Sigarenfabrieken BV 100

BAT Finance BV 100

Republic of Ireland

Superior Packaging Ltd 100

Wiggins Teape (Ireland) Holdings Itd 100

Switzerland

BAT (Suisse) SA 99

Juvena Produits de Beaute AG 100

North America

Canada

+ Imasco Limited 100

Lawson & Jones Lid 75

Lawson Business Forms (Manitoba) Ltd

Lawson Graphics Pacific Ltd

RBT Printing Ltd

United States

Arnold Cellophane Corporation

Boyertown Packaging Corporation

Lawson & Jones (Nevada)

Mardon Packaging Corporation

Michigan Lithographing Company

NER Data Products Inc

Pan American Industries Inc

Gimbel-Saks Retailing Corporation

The Kohl Corporation

Marshall Field & Company

Appleton Papers Inc

BAT Capital Corporation

BATUS Inc

BATUS-Wisconsin, Inc.

Brown & Williamson Industries Inc.

Germaine Monteil Cosmetiques Corporation

Tuvache, Inc.

Latin America & Caribbean

Argentina

Nobleza-Piccardo SAICyF

SA Alejandro Bianci & Cia Ltda

Brazil

Cia Industrial de Papel Pirahy

Cia Souza Cruz Industria e Comercio

Contab-Continental, Participacoes,

Administracao de Bens e Planejamento SA

Suvalan-Cia de Produtos de Frutas

Chile

Cia Chilena de Tabacos SA

Litografia Moderna SA

% equils

shares held

100(75)

100

100(75)

100

100(75)

100

_100

100

100(70)

100

88(66)

100(S0)

A-6

Colombia

Yardley of London Colombiana SA

Costa Rica

Republic Tobacco Co

El Salvador

Cigarreria Morazan SA de CV

Honduras

Tabacalera Hondurena SA

Nicaragua

Tabacalera Nicaraguense SA

Panama

Tabacalera Istmena SA

Suriname

Tobacco Company of Suriname NV

venezuela

CA Cigarrera Bigott Sucs

Yardley of London Venezolana CA

Barbados

British-American Tobacco Co (Barbados) Ltd

Guyana

Demerara Tobacco Co Ltd

Trinidad & Tobago

The West Indian Tobacco Co Ltd

Asia

Bangladesh

Bangladesh Tobacco Co Ltd

% equity

shares held

100

65(63)

A-7

Hone Kone

British-American Tobacco Co

(Hong Kong) Ltd

Wiggins Teape Ltd (Hong Kong)

India

Tribeni Tissues Ltd

Indonesia

PT BAT Indonesia

Japan

Wiggins Teape (Japan) Ltd

Malaysia

Malaysian Tobacco Co Berhad

Wiggins Teape (Malaya) Sdn Berhad

Yardley of London (Malaysia) SB

Pakistan

Pakistan Tobacco Co Ltd

Singapore

British-American Tobacco Co

(Singapore) Ltd

Yardley of London (Singapore) Private Ltd

Wiggins Teape (Singapore) Private Ltd

Sri Lanka

Ceylon Tobacco Co Ltd

Africa

Kenya

BAT Kenya Ltd

Liberia

The Monrovia Tobacco Corporation

% equity

shares held

100

60( 59)

A-&

% equity

shares held

Malawi

BAT (Malawi) Ltd 75

Mauritius

British-American Tobacco (Mauritius)

p.l.c. (incorporated in the UK) 100

Nigeria

Nigerian Tobacco Co Ltd 59

Sierra Leone

Aureol Tobacco Co Ltd 6

South Africa

Utico Holdings Ltd 63

Wiggins Teape (Pty) Ltd 100

Willards Foods (Pty) Ltd 100(63)

Yardley of London (Africa) (Pty) Ltd 100

Zaire

BAT Zaire SARL 100

Zambia

Wiggins Teape (Zambia) Ltd 100

Zimbabwe

BAT Central Africa Ltd 85

Export Leaf Tobacco Co of Africa

(Pvt) Ltd 100

Mardon Printers (Pvt) Ltd §2

Typocrafters (Pvt) Lid §2

Australia

+ Amati! Limited 100

British-American Cosmetics (Australia)

Pty Lid i00

A-9

Juvena Cosmetics Pty Ltd

Lentheric Morny Cyclax Australia

Pty Ltd

New Zealand

WD &H O Wills (New Zealand) Ltd

Wiggins Teape New Zealand Ltd

% equity

shares held

100

100(86)

100

B-1]

Appendix B

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

No. 82-5594

Decided and Filed June 24, 1983

BROWN & WILLIAMSON TOBACCO CORPORATION,

Plaintiff-Appellant,

_Vo—

FEDERAL TRADE COMMISSION,

Defendant-Appellee.

ON APPEAL from the United States District Court

for the Western District of Kentucky.

Before:

KEITH and MERRITT, Circuit Judges;

BROWN, Senior Circuit Judge.

MERRITT, Circuit Judge. The appellant, Brown & William-

son Tobacco Company (B&W), appeals the decision of the

District Court for the Western District of Kentucky dismissing

its suit against the Federal Trade Commission (FTC). Brown &

Williamson challenges the following proposed actions and

B-2

Statements of the FTC which the agency planned to publish in

the Federal Register:

(1) the FTC has concluded that its present testing meth-

odology does not accurately assess the “tar” and

nicotine yields of B & W’s Barclay cigarettes;

(2) the FTC’s December, 1981 Report, which stated that

the “tar” yield of Barclay cigarettes is 1 mg., is

inaccurate and should be corrected;

(3) pending a revision in the test methodology, future

FTC reports, if any, will not include results for Bar-

clay cigarettes; and

(4) the FTC has concluded that “there is a significant

likelihood” that the FTC method of testing does not

assess accurately the “tar” and nicotine yields of B &

W’s Kool Ultra and Kool Ultra 100’s which use the

same filter design as the Barclay cigarette.

This June 25, 1982 announcement concluded a year long study

by the FTC into the “tar” and nicotine content of Barclay

cigarettes.

I. Background

The FTC has a long history of involvement in the testing and

reporting of the “tar” and nicotine content of cigarettes. In

1967, the FTC established its own testing laboratory; the

agency has made periodic reports to the public since that time.

In 1971, while the FTC was in the process of promulgating a

rule requiring the cigarette companies to include “tar” and

nicotine figures in their advertisements, ‘he major companies

voluntarily entered into an agreement among themselves to

advertise the figures.

In June, 1981, the FTC received a complaint from the R. J.

Reynolds Tobacco Company, a competitor of B & W, alleging

that the testing system presently used by the FTC to measure

the “tar” content of the Barclay cigarette is inaccurate. The

FTC method was never intended to provide precise measure-

ments of “tar” and nicotine delivery to each smoker because

B-3

consumers smoke cigarettes in different fashions. Instead, the

tests were designed to provide consumers with figures by which

to compare the many brands of cigarettes on the market.

Cigarette manufactures have traditionally lowered the “tar”

content of cigarettes by allowing air to be mixed with the

smoke to dilute the intensity of the smoke. Most low “tar”

cigarettes have a filter surrounded by porous paper with one or

more rows of small ventilating holes encircling the filter which

allow air into the smoke channel. The Barclay cigarette,

however, has four lengthwise channels to conduct the air from

the ventilating holes directly into the mouth. The air does not

mix with the smoke until both are in the smoker’s mouth. The

amount of air dilution in the Barclay cigarette may be reduced

if the smoker crushes or blocks channels with his lips.

Citing its own studies, R. J. Reynolds argued to the FTC

that the unique filter on the Barclay cigarette was being

enclosed by smokers’ lips so that the claimed reductions in

“tar” and nicotine were not occurring with Barclay. R. J.

Reynolds claimed that the testing machine does not collapse

the filter as does a human smoker and that the machine

indicates a much lower “tar” content when testing Barclay

than is typically delivered by Barclay to consumers.

After receiving the R. J. Reynolds letter, the FTC solicited

comments from the five major cigarette companies including

Brown & Williamson. The FTC also retained three indepen-

dent experts who reviewed the extensive studies submitted by

the cigarette companies. After a year of study, the FTC

determined that the Barclay cigarette was indeed incorrectly

measured by the testing machine. To prevent further dis-

semination to the public of what the FTC believed to be

misleading information, the agency in a press release made the

announcement described above which it proposed to publish in

the Federal Register.

On that same day, June 25, 1982, Brown & Williamson filed

suit in District Court to prevent the FTC from taking the

actions described in the proposed Federal Register notice.

Circuit Judge Boyce F. Martin, sitting as District Judge by

B-4

designation, issued a temporary restraining order so as to

preserve the status quo pending a comprehensive review of the

issues. The TRO prevented the FTC from:

(1) prohibiting B & W from relying upon the FTC’s

present cigarette testing methodology and upon the

figures for Barclay reported in the December, 1981

FTC Report to substantiate B & W’s advertising claim

that Barclay is a 1 mg. “tar,” 0.2 mg. nicotine ci-

garette;

(2) amending the December, 1981 FTC Report as to the

“tar” and nicotine content of Barclay;

(3) refusing to continue to test Barclay cigarettes with the

FTC’s present methodology or to publish the results

of these tests in future FTC Reports;

(4) publishing in the Federal Register any notice of

changes or proposals to alter the FTC’s present ci-

garette testing or reporting program.

District Judge Ballantine continued the temporary restraining

order on July 27, 1982 and further ordered that the administra-

tive record and other documents filed by the FTC be placed

under seal. On September 27, 1982 the District Court dissolved

the temporary restraining order and denied Brown & William-

son’s motion for injunctive relief after concluding that the

court lacked jurisdiction to hear the case. The District Court

ruled that the FTC had not taken final agency action that was

reviewable in federal court at that time.

Judge Ballantine did, however, issue a stay identical to the

temporary restraining order pending appeal to this Court in

order to prevent immediate and irreparable injury to Brown &

Williamson. The FTC challenged the stay before a motions

panel of this Court, but the motion was denied. After oral

argument on March 22, 1983, this Court ordered that the stay

be lifted, with the exception of the District Court’s seal on all

documents. We held that the appellant had failed to show that

it was likely to succeed on the merits, one of the four require-

ments for a stay pending appeal.

B-S

Brown & Williamson maintains in this appeal that the

District Court had jurisdiction to decide this case because the

actions to be announced in the Federal Register notice consti-

tuted final agency action. On the substantive issues, appellant

claims first, that the FTC did not follow the procedures

mandated by the Administrative Procedure Act, 5 U.S.C.

§§ 551, ef seq., governing the promulgation of a rule by an

agency. Specifically, B & W alleges that the FTC failed to

comply with the notice and comment requirements of 5 U.S.C.

§§ §53(b) and (c). Second, Brown & Williamson argues that

the actions of the FTC were arbitrary, capricious and an abuse

of agency discretion. The appellant urges this Court to remand

the case for review on the merits by the District Court and to

reinstate the stay pending the lower court’s ruling on the

motion for an injunction.

The FTC argues that the District Court's dismissal of the

case was appropriate because its attempt to publish the an-

nouncement did not constitute agency action but was merely a

statement of future policy. Even if the announcement should

fall within the APA’s definition of agency action in 5 U.S.C.

§ 551(13), the FTC maintains that it was not /fina/ agency

action under 5 U.S.C. § 704 and, therefore, not subject to

judicial review. The FTC pouats to the lack of any enforcement

proceeding pending or threatened. The agency stresses that

pre-enforcement judicial intervention is warranted only upon a

showing that the aggrieved party must incur unduly burden-

some business expenses to comply or face grave risks of

criminal and civil sanctions for non-compliance.

The Public Citizen Health Research Group, a non-profit

consumer organization which engages in research, education

and advocacy on a range of health and safety issues, has filed a

brief in this case as amicus curiae. Their primary objective is to

have this Court lift or substantially modify the seal placed by

the District Court on the administrative record and all other

documents filed by the FTC. They maintain that the public has

a right of access to these papers under the Freedom of

Information Act, the First Amendment, and the common law.

B-6

For the reasons discussed below, we hold that the District

Court erred when it dismissed this action for lack of jurisdic-

tion. The steps taken by the FTC on June 25, 1982 were final

agency action subject to judicial review to prevent substantial

hardship to Brown & Williamson. We also hold, reaching the

merits, that Brown & Williamson's claims under the APA are

lacking in substance and are unsupported by the record.

Finally, we reverse the District Court’s order placing the

documents in the case under seal and hold that under applica-

ble legal principles they should be released for public inspec-

tion as are other court records and documents.

Il. Final Agency Action

Judicial review under the Administrative Procedure Act may

be sought only by a “person suffering legal wrong because of

agency action or adversely affected or aggrieved by agency

action within the meaning of a relevant statute... .” §

U.S.C. § 702. Agency action is defined in § U.S.C. § 551(13)

as “the whole or a part of an agency rule, order, license,

sanction, relief, or the equivalent or denial thereof, or failure

to act... .” The FTC denies that it issued an order or

promulgated a rule. The agency seeks to portray its June 25,

1982 announcement as the sole action taken. It analogizes the

proposed publication to an announcement of an investigation

or an enforcement policy, or the issuance of a complaint—

which are generally not reviewable in court.

The FTC fails to acknowledge, however, that the announce-

ment was Only a small part of the action taken on June 25,

1982. The agency did notify the public of the Barclay investiga-

tion and of its doubts as to the accuracy of the Barclay

“ultra-low tar” advertising claim. This alone might not have

been subject to immediate review in court. But the FTC also

halted the testing of Barclay cigarettes, stated that it would

refuse to publish any “tar” or nicotine content figures for

Barclay, and amended the 1981 Report which lists Barclay as a

1 mg. “tar” cigarette. As a result, it would now appear to be

inappropriate for Brown & Williamson to continue to cite the

B-7

figures in the 1981 Report in its Barclay advertisements. '

Although the FTC did not order Brown & Williamson to desist

from making the “ultra-low tar” claim in its advertisements for

Barclay, that is the effect of the action taken on June 25, 1982.

The FTC may not have labelled its action on that date an order

or a rule, but we find, nevertheless, that such dispositive

decision-making falls within the definition of agency action.

The more difficult question is whether this agency action

was final and otherwise ripe for judicial review. Ruling on this

issue, the District Court concluded that:

[The] FTC's proposed publication in the Federal Register

is not a definitive ruling or regulation. It has no legal

force or practical effect on plaintiff's daily business other

than the disruptions that accompany any major litigation.

Immediate judicial review would serve neither efficiency

nor enforcement of the Act. These pragmatic considera-

tions counsel against the conclusion that the proposed

publication is final agency action.

We reverse the District Court because we believe the court

failed to apply the principles of judicial intervention enun-

ciated by the Supreme Court in Abbott Laboratories v.

Gardner, 387 U.S. 136 (1967), and its two companion cases,

Toilet Goods Ass’n vy. Gardner, 387 U.S. 158 (1967) and

Gardner v. Toilet Goods Ass'n, 387 U.S. 167 (1967).

In Abbott, the Supreme Court was asked to review a

regulation promulgated by the Food and Drug Administration

even though the agency had not initiated an enforcement

action. The Food, Drug and Cosmetic Act required that the

generic name of a prescription drug be printed prominently on

the drug’s label. Interpreting the provision, the agency issued a

regulation requiring that the generic name appear every time

1 In a letter to Brown & Williamson dated July 15, 1982, FTC

Chairman Miller discussed the options left to B & W concerning its advertise-

ments of Barclay. These did not include advertising Barclay as a | mg. “tar”

cigarette with a citation to the 1981 Report as B & W currently advertises.

App. at 473.

B-8

the brand name was printed on the package. The government

took the position, and the Third Circuit agreed, that the drug

companies would have to wait to test the validity of the

regulation until the agency initiated an enforcement proceeding

for mislabelling, denied a license for a new drug, or brought a

criminal proceeding against a manufacturer. Abbot Laborato-

ries v. Celebrezze, 352 F.2d 286 (3d Cir. 1965).

The Supreme Court reversed the Third Circuit in an opinion

which remains the leading authority on pre-enforcement judi-

cial review. The Court set out the following two-step test: (1) is

the issue fit for judicial determination; and (2) how great is the

hardship to the parties of refusing jurisdiction at this time. The

fitness question was resolved in Abbott in favor of review

because the Court characterized the case as involving a purely

legal question with further factual development unnecessary.

Analyzing the hardship prong of the test, the Court empha-

sized that:

These regulations purport to give an authoritative in-

terpretation of a statutory provision that has a direct

effect on the day-to-day business of all prescription drug

companies; its promulgation puts petitioners in a dilemma

that it was the very purpose of the Declaratory Judgment

Act to ameliorate. . . . If petitioners wish to comply they

must change all their labels, advertisements and promo-

tional material. . . . The alternative to compliance—con-

tinued use of material which they believe in good faith

meets the statutory requirements, but which clearly does

not meet the regulation of the Commissioner—may be

even more costly. That course would risk serious criminal

and civil penalties for the unlawful distribution of ‘mis-

branded’ drugs.

Id. at 152-53. In addition to the hardship factor, the Court

noted that review at that time would speed the process of

compliance if the regulation proved valid. Pre-enforcement

review, in other words, was not calculated by the drug compa-

nies to stall or frustrate the operation of the regulation.

B-9

The Court applied the Abbott two-prong test in Gardner v.

Toilet Goods Ass’n, 387 U.S. 167 (1967), again allowing

pre-enforcement review of a controversial FDA regulation.

The Food, Drug and Cosmetic Act required the Commissioner

of the FDA to approve all color additives in food, drugs and

cosmetics. At issue was the Commissioner's determination that

the statute applied to diluents, additives used as diluting

agents. Referring to the first part of the Abbort test, the Court

determined that the question was essentially a legal one which

would not necessarily be made clearer if raised in the context

of a specific attempt to enforce the challenged regulation. The

Court again emphasized that without immediate review, the

companies were faced with an unreasonable choice. They could

challenge the regulation through noncompliance, risking

criminal seizure or injunctive suits filed by the government, or

comply, which would entail substantial business expenses.

In the final companion case, Toilet Goods Ass'n v. Gardner,

387 U.S. 158 (1967), the Supreme Court denied jurisdiction for

lack of ripeness. The FDA regulation under scrutiny provided

that the Commissioner could suspend certification to any

manufacturer who refused to allow FDA employees access for

inspections. The Court acknowledged that the regulations

constituted final agency action and that the case raised a purely

legal issue. Nevertheless, | = Court denied review primarily

because the drug manufacturers could not show that direct and

immediate harm would come if they failed to. comply and then

challenged the regulation in an enforcement proceeding. The

Court also found that it could not resolve the issue adequately

without a more fully developed factual record containing

information as to how and why the Commissioner was utilizing

the regulation requiring access.

The Abbott two-part test remains the key to determining

whether to permit pre-enforcement review of agency action.

See 4K. Davis, Administrative Law Treatise 405 (2d ed. 1983);

Vining, Direct Judicial Review and the Doctrine of Ripeness in

Administrative Law, 69 MICH. L. REV. 1443 (1971).

B-10

The issues raised by Brown & Williamson in the court below

are fit for judicial review. The company challenges the FTC

action as violating the APA’s rule-making process—a question

of law which, under the record before us, requires no further

fact-finding. Brown & Wiilliamson’s second contention, that

the FTC acted arbitrarily and capriciously, is a mixed question

of fact and law. However, the appellant urged below that this

issue be resolved upon the facts submitted to the District

Court.’ The FTC argues that the process of determining what

Brown & Williamson may now advertise is ongoing. The

agency argues that, as in the second Joilet Goods case, the

issues would be framed better in an enforcement proceeding if

and when the FTC sues Brown & Williamson for illegal

advertising practices. While we agree that any controversy over

future advertising campaigns is best left to an enforcement

proceeding, the issues before us now involve only those deci-

sions made by the FTC on June 25, 1982. The determination

that the Barclay cigarette was incorrectly tested is well docu-

mented in the studies and discussions which are before this

Court. Further fact-finding on the basis for the FTC’s actions

would not clarify at this time whether the FTC acted inappro-

priately in the summer of 1982.

The second prong of the test, the hardship factor, clearly

counsels in favor of pre-enforcement review. The resemblence

between the Abbott facts and those before us is striking. In

both situations, the parties challenging the agency action were

faced with significant changes in business operations to comply

with the agency’s determinations. The impact of the agency

action in both cases was “direct and immediate.” Abbott,

supra, 387 U.S. at 152. As Brown & Williamson stresses, the

key to the successful marketing of the Barclay cigarette has

been its portrayal as a less carcinogenic product with the taste

2 Brown & Williamson states in their main brief that their arguments

on the merits also “present legal issues that will never be made more concrete

or fit for judicial consideration by further agency proceedings. . . . To

resolve Brown & Williamson's substantive challenge, the district court need

only apply the law to the facts already before it.” Appellant's Brief at 29.

B-!1

and flavor of a more robust cigarette. By eliminating Barclay

from the testing and reporting program, the FTC has not

merely issued a statement of intent to investigate; if allowed to

stand, the FTC’s actions will force changes in the marketing

Strategies of Brown & Williamson. The hardship to Brown &

Williamson of requiring the company to wait to resolve the

issues until an enforcement proceeding appears to us to be no

less than the hardship faced by the drug companies in Abbott.

The FTC argues that we should look to the hardship stan-

dard which the Supreme Court relied upon in Gardner v. Toilet

Goods Ass’n, supra, to deny pre-enforcement review. In that

case, however, the drug companies were only required to

permit access to FDA investigators. Compliance did not entail

the expenditures or marketing alterations which will befall B &

W if it wishes to avoid an enforcement proceeding.

In addition to the hardship to Brown & Williamson, we must

consider the impact on the FTC and the public of permitting

pre-enforcement judicial intervention. The FTC resists judicial

review because the agency would like to proceed informally

with Brown & Williamson to negotiate a permissible advertis-

ing strategy. We believe, however, that these negotiations could

only be enhanced by the resolution of this case so that both

parties may know the legal effect of the FTC’s decisions of

June 25, 1982.

In addition, there are clear advantages to the general public

of judicial review at this time. The FTC’s involvement in

Cigarette testing and reporting is designed to reduce the health

risks of smoking by disseminating current, valid statistics on

the content of the many cigarette brands. Declining jurisdic-

tion would only delay the dissemination of the most up-to-date

information on Barclay cigarettes. The reliance that smokers

who are concerned about health risks place on representations

of the “tar” and nicotine content of cigarettes underscores the

public interest in resolving this controversy in this forum.

B-12

Ill. The Merits

A. Procedural Adequacy

The District Court never ruled on Brown & Williamson’s

two arguments on the merits because the court below erro-

neously held that it lacked jurisdiction. Rather than remand

the case which would entail further delay, we have decided in

the interest of judicial economy to reach the merits of this

case.’ After careful review of the entire record, we find that the

appellants have failed to present supportable arguments for

further disrupting the FTC’s proposed program concerning the

testing and reporting of Barclay cigarettes.

Brown & Williamson first contends that the actions of the

FTC constituted rule-making and, therefore, must be invalid

because the FTC failed to follow the APA’s rule-making

procedures as provided in § 553:

(b) General notice of proposed rule making shall be

published in the Federal Register, unless persons subject

thereto are named and either personally served or

otherwise have actual notice thereof in accordance with

law. The notice shal! include—

(1) a statement of the time, place and nature of

public rile making proceedings;

(2) reference to the legal authority under which

the rule is proposed; and

(3) zither the terms of substance of the proposed

rule or a description of the subjects and issues

invol\ ed.

3 See 16 C. Wright, A. Miller, E. Cooper & E. Gressman, Feperat

PRACTICE AND Procepure: Jurispiction § 3937 (1977); United States v. Criden,

681 F.2d 919, 922 (3d Cir. 1982). We note that Brown & Williamson

acknowledges in its brief that:

Both parties submitted the case below on the law. Neither side argued

to the District Court that further fact-finding was necessary to decide

the issues presented.

Appellant's Brief at 27.

B-13

Except when notice or hearing is required by statute, this”

subsection does not apply—

(A) to interpretative rules, general statements of policy,

or rules of agency organization, procedure, or practice; or

(B) when the agency for good cause finds (and incorpo-

rates the finding and a brief statement of reasons therefor

in the rules issued) that notice and public procedure

thereon are impracticable, unnecessary, or contrary to the

public interest.

shall give interested persons an opportunity to participate

in the rule making through submission of written data,

views, Or arguments with or without opportunity for oral

presentation. After consideration of the relevant matter

presented, the agency shall incorporate in the rules

adopted a concise general statement of their basis and

purpose... .

(d) The required publication or service of a substantive

rule shall be made not less than 30 days before its

effective date, except—

(1) a substantive rule which grants or recognizes

an exemption or relieves a restriction;

(2) interpretative rules and statements of policy;

(3) as otherwise provided by the agency for good

cause found and published with the rule.

5 U.S.C. § 553.

The parties spend a great deal of time debating whether the

actions taken by the FTC on June 25, 1982 fall within the

exceptions in the statute for general statements of policy. We

do not need to resolve that issue because we find that the

appellant had actual notice and an adequate opportunity to

comment on the proposed changes.

The statute makes an exception to the requirement that a

notice of proposed rule-making be published in the Federal

B-14

The documents submitted to the District Court leave no room

for doubt that Brown & Williamson was repeatedly notified

both of the FTC’s questions concerning the accuracy of the

Barclay | mg. “tar” claim and of the agency’s contemplation

of a change in testing methodology. Congress enacted Section

553 to insure that any rules or regulations promulgated by

federal agencies which affect the day-to-day activities of busi-

nesses and individuals be conceived in an atmosphere immune

from prejudice. But when the purposes of the procedural

requirements have been fully met, there is no need for the

courts to require rigid adherence to formalistic rules. See Duke

City Lumber Co. v. Butz, 382 F.Supp. 362, 372 (D.D.C. 1974).

Reviewing the record, it is difficult to comprehend how

Brown & Williamson can contend that they received no actual

notice of the FTC’s intended course of action. On June 11,

198l1—over a year before the proposed Federal Register

notice—the FTC sent a letter to Brown & Williamson advising

the company that the agency had received a complaint from

R.J. Reynolds and was studying the possibility of adopting a

new testing methodology in order to measure Barclay cigarettes

more accurately. The letter stated:

The purpose of this letter is to begin a dialogue between

the Commission staff and the members of the cigarette

manufacturing industry on the merits of the R.J. Rey-

nolds proposal and to provide all members of the industry

with an opportunity to comment informally on the pro-

posal at the earliest possible stage.

App. at A26. On October 9, 1981, the FTC sent a follow-up

letter apprising Brown & Williamson of the status of the

investigation. Although each company had submitted studies

during the summer months, the letter stated that it was the

staff opinion that additional information was needed. On

December 15, 1981, the FTC published in the Federal Register

one of its periodic reports on the “tar” and nicotine content of

most brands of cigarettes. The report identified Barclay as a |!

mg. “tar” cigarette but it also included three paragraphs

B-15

describing in detail the R.J. Reynolds complaint that Barclay

was incorrectly measured by the FTC smoking machine.* FTC

Report of “Tar,” Nicotine and Carbon Monoxide of the Smoke

of 200 Varieties of Cigarettes, 46 Fed. Reg. 61828, Dec. 15,

1981.

By February 1982, the FTC had sent all of the material

submitted by the cigarette companies to the three independent

experts, Drs. Bock, Guerin and Kozlowski. Each expert con-

cluded that the FTC smoking machine does not measure the

Barclay cigarette accurately, and recommended that the testing

methodology be changed. App. at A161, A-235 and A243.

Copies of all of these reports were sent to Brown & Williamson

on March 17, 1982. Although there may be some dispute as to

the number and dates, it is clear from a Brown & Williamson

letter dated June 11, 1982 that the company had several

opportunities to talk with the Commissioners about the pro-

posed changes shortly prior to the FTC’s June 25, 1982

actions. See App. at A348.

From these numerous contacts and written communications,

well-documented in the record, it is abundantly clear to us that

Brown & Williamson had actual notice of the FTC’s actions—

whether or not such notice was required by the Administrative

Procedure Act.

In addition to notice, § 553 requires that interested persons

be given an Opportunity to comment and otherwise participate

in the rule-making procedure. 5 U.S.C. § 553(c). Brown &

Williamson contends that it “had no advance opportunity

whatever to comment on the action taken on June 25th.”

Appellant’s Reply Brief at 16. The appellant tries to distinguish

between the opportunities it had to comment on the “wide-

4 The report concluded:

Thus, it is contended that the Commission's current testing methodol-

Ogy does not accurately measure the relative level of “tar” delivered by

Barclay to smokers when compared with other | mg. “tar” cigarettes.

The Commission is currently investigating these allegations, and has

not made a final determination on the merits of this Complaint.

App. at A77.

B-16

ranging inquiry conducted before-hand” and the opportunity

to comment on the June 25, 1982 actions of the FTC. We reject

this distinction. The record contains multiple invitations for

comments from the FTC to Brown & Williamson and the other

cigarette companies covering every aspect of the investigation

and encompassing the actions taken on June 25, 1982.

As discussed above, Brown & Williamson was fully aware of

the proposals to change the testing methodology and to remove

Barclay from the testing and reporting process. The studies

submitted by B & W throughout the year of agency review

addressed in detail the FTC’s proposed actions of June 25,

1982. Following the FTC’s June 11, 1981 letter apprising B &

W of the R.J. Reynolds complaint, Brown & Williamson

representatives met with the FTC staff to present their view

that Barclay was correctly labelled a 1 mg. “tar” cigarette.

Counsel for Brown & Williamson sent an 18 page letter to the

FTC on July 16, 1981 describing the meeting and documenting

B & W’s position against revising the “tar” figures for Barclay

or the testing methodology. On June 20, 1981, the agency sent

each company the submissions of their competitors and en-

couraged the companies to comment on or criticize the conclu-

sions contained in the reports. On October 23, 1981, after

several extensions from the FTC, Brown & Williamson filed an

extensive report totaling 185 pages, including three studies by

the company’s own experts. Brown & Williamson was then

given an opportunity to answer specific questions posed by the

three independent consultants. Following the dissemination of

the reports filed by the three experts, Brown & Williamson was

invited to comment on the statements and conclusions con-

tained in the reports. Finally, representatives from and counsel

for B & W had the opportunity to discuss the company’s

position orally before the Commissioners prior to June 25,

1982.

The reports, studies and discussions in which Brown &

Williamson participated focused precisely on whether the FTC

should take action regarding the advertising of the Barclay

cigarette. The FTC repeatedly allowed and encouraged Brown

B-17

& Williamson to defend the accuracy of the present testing

methodology. Brown & Williamson knew from the proposals

included in the R.J. Reynolds complaint that the FTC was

considering revising the “tar” statistics of Barclay. We can see

no benefit in requiring the FTC to follow further comment

procedures. As the Court of Appeals for the D.C. Circuit

wrote in a similar case:

If the purpose of notice when requiring in any case is to

give notice, the appellants-petitioners here had it. There is

no showing that they were deprived of the opportunity in

any measure to take whatever steps their own situation

might suggest, whether by way of counter-proposal and

comment or by evidence to establish their own position.

That they are not happy over the result is clear. That they

sustained legal injury is not.

Owensboro On the Air v. United States, 262 F.2d 702 (D.C.

Cir. 1958).

B. Agency Abuse of Discretion

In addition to its procedural challenges, Brown & William-

son maintains that the FTC’s actions were arbitrary, capricious

and an abuse of discretion in violation of 5 U.S.C. § 706.

Although B & W separates this argument into four claims—in-

sufficient evidence, arbitrariness, discrimination, and vague-

ness—the company essentially objects to the Barclay brand

being singled out by the FTC. B & W asserts that there was no

evidence before the FTC to support any different treatment

than that given other cigarettes with filters that can be crushed

in the mouth of the consumer.

The record, however, contains studies and opinions by the

independent experts and the other cigarette companies which

show just such a difference in filter effectiveness between

Barclay and the other ultra-low “tar” brands.° Dr. Lynn

5 Dr. Kozlowski, one of the independent experts, even points to the

Gori-Darby study conducted by B & W as being supportive of the conclusion

that Barclay was more inaccurately measured. App. at AS7.

B-18

Kozlowski unequivocally stated that “Barclay presents greater

risks of high tar and nicotine yields to smokers than do other

ultra-low-tar brands.” App. at AS7. The expert concluded:

To summarize, I think that Barclay is not properly

assayed to smokers out of proportion to its ranking on the

FTC lists. It should be noted that all ventilated filter

Cigarettes . . . are subject to a similar violation of the

integrity of the rankings, but that Barclay (as supported

by the PM air-dilution studies, the Lorillard Uninhaled-

Puff Study, and the above analysis of the Gori Studies) is

significantly more prone to this violation than are conven-

tional ventilated-filter cigarettes.

App. at A68. The second expert, Dr. Michael R. Guerin, also

carefully analyzed the many studies submitted by the five

companies and concluded that “[i]t is my carefully considered

opinion that the contention of [R. J. Reynolds] and [Phillip

Morris] is correct in that the current FTC method does not

appropriately rank the delivery of cigarettes containing the

Barclay-type filter.” App. at A235. Finally, Dr. Fred G. Bock

reached the same conclusions that the Barclay cigarette is

inaccurately tested. H. emphasized that “the ventilation

Studies indicate that smokers handle Barclay cigarettes dif-

ferently than other | mg. cigarettes. . . . The preponderance

of data thus indicate that the present FTC tar and nicotine

yield values of Barclay cigarettes are misleading.” App. at

A258.

The FTC did not act arbitrarily. The conclusions of the three

experts are consistent and clear. All three experts reviewed the

extensive materials filed by the companies and weighed the

persuasiveness of the methodologies utilized in the studies.

Faced with such overwhelming evidence that Barclay was

inaccurately being reported as a 1 mg. “tar” cigarette, the FTC

appropriately took action to halt the dissemination of mislead-

ing and incorrect statistics to the public.

Nor did the FTC act in an immpermissibly discriminatory

manner. The studies focused on the difference between the

B-19

Barclay type of filter and the filters prevalent in the market-

place. The experts all concluded that there were significant

differences between the Barclay inaccuracies and the possible

errors in testing other brands. The problems of testing Barclay

arise from its unique filter construction. The FTC did single

out Barclay in its actions of June 25, 1982, but the agency did

so for legitimate and well-documented reasons. Agencies must

be able to distinguish in their orders among products on the

market which subject the public to varying degrees of risk. In

this case, Brown & Williamson had every opportunity for over

a year to show that Barclay delivers as little “tar” and nicotine

to the consumer as do other ultra-low “tar” brands. They

failed to do so.

IV. The Seal On Documents

The District Court’s orders placed all documents filed by the

FTC under seal and continued the seal pending this appeal.

The Public Citizens Health Research Group has filed a com-

prehensive amicus brief opposing this action, and Brown &

Williamson has ably defended it. Because of its importance, we

reach the question on our own motion. Under the First

Amendment and the common law, we conclude that the

District Court erred by failing to state findings or conclusions

which justify nondisclosure to the public. The order of the

District Court sealing the documents in the case is, therefore,

vacated.

According to Brown & Williamson’s brief and the affidavit

of Martin London, appellant’s counsel, the parties agreed at

the outset of the administrative proceedings that the record be

sealed to protect the agency’s confidentiality commitment to

Brown & Williamson and the other four cigarette companies

which submitted information to the FTC. After the FTC

subsequently objected to the in camera treatment of all of the

documents in the judicial proceeding, Judge Ballantine re-

quested that the parties submit a list of the documents which

they agreed should not be disclosed, with briefs discussing the

B-20

remainder. When the FTC failed to meet with counsel for

Brown & Williamson or to file briefs on the issue, Judge

Ballantine simply placed a seal on the entire record in the case.

The Citizens Group argues that the seal was improper on

three grounds—the Freedom of Information Act, the First

Amendment guarantees of freedom of speech and press, and

the common law presumption of access to court documents.

Brown & Williamson, on the other hand, argues that the FOIA

has no relevance outside of the context of an administrative

agency's decision whether to release documents to the public.

Furthermore, the company asserts that the District Court has

broad discretion to contro! access to documents submitted in

cases on the court’s docket. The company stresses that this

discretion was not abused because the Court properly honored

the agreement between the five tobacco companies and the

FTC that all information furnished the agency during the year

of investigation be kept confidential.

A. The Freedom of Information Act

We disagree with the Citizens Group that the FOIA operates

as a limiting standard in this situation. Congress enacted the

Freedom of Information Act in order to provide the public

with access to records of federal agencies. See, e.g., S. Rep.

No. 813, 89th Cong., Ist Sess. 3-6 (1965). Included in the

FOIA are a list of exceptions to the general requirement that

agencies furnish upon request all documents within their pos-

session. 5 U.S.C. § 552(b). The Freedom of Information Act

specifically exempts the federal courts from its disclosure

requirements. 5 U.S.C. § 551(1)(B). It is clear that the Act was

not intended to restrict the federal courts—either by mandating

disclosure or by requiring non-disclosure under the § 552

exemptions. Crystal Grower’s Corp. v. Dobbins, 616 F.2d 458

(10th Cir. 1980). Thus, we reject the argument that the District

Court below should have limited its seal to those documents

not available to individuals under the exemptions to the FOIA.

B-21

B. Discretion of Trial Court

Although we reject the suggestion that the FOIA places

limitations on the District Court’s discretion to seal court

documents, the First Amendment and the common law do

limit judicial discretion. Brown & Williamson points out that

courts on occasion have emphasized the discretion of the trial

court in this area. In Nixon v. Warner Communications, Inc.,

435 U.S. 589 (1978), the Supreme Court stated that “every

court has supervisory power over its own records and files, and

access has been denied where court files might have become a

vehicle for improper purposes.” /d. at 598. In Krause v.

Rhodes, 671 F.2d 212 (6th Cir. 1982), this Court reiterated the

Supreme Court’s position that “the decision as to access is one

best left to the second discretion of the trial court.” /d. at 219.

See also, United States v. Criden, 681 F.2d 919 (3rd Cir. 1982);

Note, The Common Law Right to Inspect and Copy Judicial

Records: In Camera or On Camera, 16 GEORGIA L. REV. 659,

666-72 (1982).

Having “supervisory power” or “discretion” to deny access

to documents does not, however, imply that the District Court

operates without standards. In this case, the District Court

placed a seal on a// of the documents filed by the FTC without

discussion. The District Court’s decision is not insulated from

review merely because the judge has discretion in this domain.

The District Court’s discretion is circumscribed by a long-es-

tablished legal tradition.

C. The Standards

The English common law, the American constitutional sys-

tem, and the concept of the “consent of the governed” stress

the “public” nature of legal principles and decisions.°

6 Long ago Locke emphasized the need for “promulgated standing

laws” —established, settled, Known laws received and allowed by common

consent”—without which “men would not quiet the freedom of the state of

Nature.” They would not “put a force into the magistrate’s hands to execute

B-22

Throughout our history, the open courtroom has been a funda-

mental feature of the American judicial system. Basic princi-

ples have emerged to guide judicial discretion respecting public

access to judicial proceedings. These principles apply as well to

the determination of whether to permit access to information

contained in court documents because court records often

provide important, sometimes the only, bases or explanations

for a court's decision.

In the leading case of Richmond Newspapers, Inc. v. Vir-

ginia, 448 U.S. 555 (1980), the Supreme Court elaborated on

the historical and philosophical underpinnings of the right of

access. There the trial court had closed the proceedings to the

press and public on the motion of the defendant and without

objection from the prosecution on the ground that jurors

would improperly obtain information through the media. Re-

versing the trial court, the Supreme Court in Richmond News-

papers found that the public right of access applies to criminal

trials primarily because of the long history of open court-

rooms. In England the practice developed from an obligation

to attend into a right of access to be enjoyed at will by

memebers of the community. /d. at 565. The Supreme Court

concluded:

[{Tjhe historical evidence demonstrates conclusively that at

the time when our organic laws were adopted, criminal

trials both here and in England had long been presump-

tively open. This is no quirk of history; rather, it has long

been recognized as an indispensible attribute of an Anglo-

American trial.

Id. at 569. See also Globe Newspaper Co. v. Superior Court,

etc., 102 S.Ct. 2613, 2619-20 (1982).

his unlimited will arbitrarily upon them.” Locke, Treatise of Civil Govern-

ment §§ 124, 136-37 (1690). The development of the concept of public access

to judicial proceedings in the seventeenth and eighteenth centuries arose in

part as a reaction to secret proceedings in the Star Chamber and other

prerogative courts. See Jn Re Oliver, 333 U.S. 257, 268-70 (1948).

B-23

The Supreme Court's historical argument is based on policy

considerations developed in the past that remain valid today.

First, public trials play an important role as outlets fot “com-

munity concern, hostility, and emotions.” Richmond Newspa-

pers, supra, at 571. When judicial decisions are known to be

just and when the legal system is moving to vindicate societal

wrongs, members of the community are less likely to act as

self-appointed law enforcers or vigilantes. “The crucial pro-

phylactic aspects of the administration of justice cannot func-

tion in the dark; no community catharsis can occur if justice is

‘done in a corner [or] in any covert manner.’ ” /d. at 571.

Second, public access provides a check on courts. Judges

know that they will continue to be held responsible by the

public for their rulings. Without access to the proceedings, the

public cannot analyze and critique the reasoning of the court.

The remedies or penalties imposed by the court will be more

readily accepted, or corrected if erroneous, if the public has an

opportunity to review the facts presented to the court. In his

concurrence, Justice Brennan emphasized this link between

access to the courtroom and the popular control necessary in

our representative form of government. /d. at 592. Although

the federal judiciary is not a majoritarian institution, public

access provides an element of accountability. One of the ways

we minimize judicial error and misconduct is through public

scrutiny and discussion.

Finally, Justice Brennan points out that open trials promote

“true and accurate fact finding.” Jd. at 596. See also, Globe

Newspaper Co. v. Superior Court, etc., 102 S.Ct. 2613, 2620

(1982). When information is disseminated to the public

through the media, previously unidentified witnesses may come

forward with evidence. See Jn Re Oliver, supra. Witnesses in an

open trial may be less inclined to perjure themselves. Public

access creates a critical audience and hence encourages truthful

exposition of facts, an essential function of a trial.

The Supreme Court’s analysis of the justifications for access

to the criminal courtroom apply as well to the civil trial. The

Supreme Court has acknowledged the broad application of

B-24

these principles. Justice Burger’s plurality opinion notes that

“whether the public has a right to attend trials in civil cases is a

question not raised by this case, but we note that historically

both civil and criminal trials have been presumptively open.”

Richmond Newspapers, supra, at 580 n.17. Justice Stewart,

concurring, states emphatically that “the First and Fourteenth

Amendments clearly gives the press and the public a right of

access to trials themselves, civil as well as criminal.” /d. at 599.

The historical support for access to criminal trials applies in

equal measure to civil trials. See Gannett Co. v. DePasquale,

443 U.S. 368, 386 n.15 (1979) (“For many centuries, both civi!

and criminal trials have traditionally been open to the public.”)

See also Fenner & Koley, Access to Judicial Proceedings: To

Richmond Newspapers and Beyond, 16 Harv. C.R.—C.L.L.

Rev. 430-31 (1981); Cox, Foreword: Freedom of Expression in

the Burger Court, 94 Harv. L. Rev. 1, 156 n.42 (1980); Note,

Trial Secrecy and the First Amendment Right of Public Access

to Judicial Proceedings, 91 Harv. L. Rev. 1899, 1921-23

(1978).

The policy considerations discussed in Richmond Newspa-

pers apply to civil as well as criminal cases. The resolution of

private disputes frequently involves issues and remedies affect-

ing third parties or the general public. The community cathar-

sis, which can only occur if the public can watch and

participate, is also necessary in civil cases. Civil cases fre-

quently involve issues crucial to the public—for example,

discrimination, voting rights, antitrust issues, government reg-

ulation, bankruptcy, etc.

The concern of Justice Brennan that secrecy eliminates one

of the important checks on the integrity of the system applies

no differently in a civil setting. In either the civil or the

criminal courtroom, secrecy insulates the participants, masking

impropriety, obscuring incompetence, and concealing cor-

ruption.

Finally, the fact-finding considerations relied upon by Jus-

tice Brennan obviously apply to civil cases. Openness in the

courtroom discourages perjury and may result in witnesses

B-25

coming forward with new information regardless of the type of

the proceeding.

The right of access is not absolute, however, despite these

justifications for the open courtroom. Courts have carved out

several distinct but limited common law exceptions to the

strong presumption in favor of openness. The exceptions to the

practice of maintaining openness in the courtroom fall into

two broad categories: those based on the need to keep order

and dignity in the courtroom and those which center on the

content of the information to be disclosed to the public. The

first type of access restriction resembles the traditional time,

place and manner restrictions on speech. In Richmond News-

papers, supra, the Supreme Court noted that “a trial judge, in

the interest of the fair administration of justice, [may] impose

reasonable limitations on access to atrial. . . . It is far more

important that trials be conducted in a quiet and orderly

setting than it is to preserve that atmosphere on city streets.”

Id. at 581 n.18. Any such regulations must pass the following

three-part test: that the regulation serve an important govern-

mental interest; that this interest be unrelated to the content of

the information to be disclosed in the proceeding; and that

there be no less restrictive way to meet that goal. See United

States v. O’Brien, 391 U.S. 367, 377 (1968). These limitations

on access, such as regulating the number of spectators or the

use of flashbulbs or cameras, have been accepted in many

instances as based on the legitimate societal interest in protect-

ing the adjudicatory process from disruption. See, e.g., /llinois

v. Allen, 397 U.S. 337, 343 (1970); Sheppard v. Maxwell, 384

U.S. 333, 354 (1966); Fenner & Koley, Access to Judicial

Proceedings, To Richmond Newspapers and Beyond, 16 Harv.

C. R.—C. L. L. Rev. 444-46 (1981).

It is the second group of limitations on access to court

proceedings that concerns us here. Under the common law,

content-based exceptions to the right of access have been

developed to protect competing interesis. In addition to the

defendant's right to a fair trial, these interests include certain

privacy rights of participants or third parties, trade secrets and

B-26

national security. See Nixon v. Warner Communications, Inc.,

435 U.S. 589, 598 (1978); Note, Trial Secrecy and the First

Amendment Right of Public Access to Judicial Proceedings, 91

Harv. L. Rev. 1899 (1978).

Simply showing that the information would harm the com-

pany’s reputation is not sufficient to overcome the strong

common law presumption in favor of public access to court

proceedings and records. In Joy v. North, 692 F.2d 880 (2d Cir.

1982), for example, the special litigation committee of a bank

sought to have their report placed under court seal. The report

recommended to the corporation that a stockholder derivative

Suit be terminated. The committee argued in part that the

report contained a candid review of internal business opera-

tions of the bank which, if made public, would adversely affect

the bank and the local community. Lifting the District Court’s

seal, the Second Circuit said:

[A] naked conclusory statement that publication of the

Report will injure the bank in the industry and local

community falls woefully short of the kind of showing

which raises even an arguable issue as to whether it may

be kept under seal. The Report is no longer a private

document. It is part of a court record. Since it is the basis

for the adjudication, only the most compelling reasons

can justify the total foreclosure of public and professional

scrutiny. The potential harm asserted by the corporate

defendants is in disclosure of poor management in the

past. This is hardly a trade secret.

Id. at 894. The Second Circuit was responding in the case

above to the natural desire of parties to shield prejudicial

information contained in judicial records from competitors

and the public. This desire, however, cannot be accommodated

by courts without seriously undermining the tradition of an

open judicial system. Indeed, common sense tells us that the

greater the motivation a corporation has to shield its opera-

tions, the greater the public’s need to know. In such cases, a

court should not seal records unless public access would reveal

B-27

legitimate trade secrets, a recognized exception to the right of

public access to judicial records.

Brown & Williamson seeks to justify the imposition of the

court-ordered seal on the FTC documents in this case by

pointing to the confidentiality agreement between the five

cigarette companies and the FTC. There is no trade secret

issue. All of the major competitors have had complete access

to the documents.’ The cigarette companies voluntarily submit-

ted their reports to the FTC under the Federal Trade Commis-

sion Act, 15 U.S.C. § 57b-2(c) which provides for confidential

treatment of certain information as follows:

(c)(1) All information reported to . . . the Commis-

sion . . . shall be considered confidential when

so marked by the person supplying the informa-

tion and shall not be disclosed. .. .

Brown & Williamson maintains that the understanding be-

tween the agency and the companies entered into at the time

when the documents were submitted and which is sanctioned

by the FTC Act should override the presumption of public

access. In other words, B & W seeks to have an exception

created to maintain in a court proceeding the confidentiality

promised during an agency investigation. ™

The Federal Trade Commission Act, however, specifically

limits the confidentiality provisions so that they apply only to

the agency:

(2) Any disclosure of relevant and material informa-

tion in. . . judicial proceedings to which the Com-

mission is a party shall be governed by. . . court

rules or orders. .. .

7 At oral argument, counsel for Brown & Williamson responded as

follows to a question from the Court as to whether there was a claim that the

documents contained trade secrets:

There is no such claim. The claim arises under the confidentiality

agreement

B-28

15 U.S.C. § 57b-2(d)(2). Thus, the court must apply the rules

and principles governing the right of access to court documents

as in any other civil case. The confidentiality agreement be-

tween the parties does not bind the court in any way.

We decline to carve out an exception to the right of access in

order to protect the secrecy of an administrative record. The

public has a strong interest in obtaining the information

contained in the court record. The subject of this litigation

potentially involves the health of citizens who have an interest

in knowing the accurate “tar” and nicotine content of the

various brands of cigarettes on the market. The public has an

interest in knowing how the government agency has responded

to allegations of error in the testing program. The public has

an interest in ascertaining what evidence and records the

District Court and this Court have relied upon in reaching our

decisions.

Accordingly, the orders of the District Court sealing docu-

ments in the case are vacated. The order of the District Court

dismissing the case on jurisdictional grounds is reversed. Judg-

ment will be entered for the defendant on the merits for the

reasons stated.

C-1

Appendix C

UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF KENTUCKY AT LOUISVILLE

No. C 82-0373-L(B)

[Filed September 27, 1982]

BROWN & WILLIAMSON TOBACCO CORPORATION

Plaintiff

—vV,. —

FEDERAL TRADE COMMISSION

Defendant

MEMORANDUM

This matter is before the Court on the motion of the

plaintiff for a preliminary injunction.

This action was filed June 25, 1982. On that date Circuit

Judge Boyce F. Martin, Jr., sitting by designation, granted a

temporary restraining order which restrained defendant, Fed-

eral Trade Commission (FTC), from:

“1. Prohibiting Brown & Williamson from relying

upon defendant’s present cigarette testing methodology

and upon the ‘tar’ and nicotine figures for Barclay re-

ported in the FTC ‘Tar’ and Nicotine Report published by

defendant in December, 1981 to substantiate Brown &

Williamson’s claim that Barclay is a 1 mg ‘tar,’ 0.2 mg

nicotine cigarette.

2. Amending the FTC ‘Tar’ and Nicotine Report

published by defendant in December, 1981 as to plaintiff's

Barclay cigarette;

C-2

3. Refusing to test Barclay for ‘tar’ and nicotine by

means of defendant's present testing methodology or to

publish the results of such tests in future FTC ‘Tar’ and

Nicotine Reports.”

Thereafter, on July 23, 1982, the Court heard oral arguments

on plaintiff’s motion for preliminary injunction and the matter

now stands submitted on that motion.

Without extending this memorandum to an unreasonable

length, it may be noted that as the result of negotiations

between the FTC and the tobacco industry, cigarette manufac-

turers, including plaintiff, agreed to display on their cigarette

packages the “tar” and nicotine content expressed in milli-

grams. This voluntary agreement led the FTC to conclude that

there was no longer a need to adopt a Trade Regulation Rule

requiring publication of “tar” and nicotine content of cig-

arettes.

The “tar” and nicotine content were to be determined by the

use of a device which measured the substances in the smoke.

This is known as the Cambridge Filter method which, for

brevity, we will hereafter refer to as the FTC method.

No one contends that the FTC method in any way approx-

imates the smoking habits of human beings. The test is de-

signed to determine the relative amounts of “tar” and nicotine

in various brands of cigarettes.

Recent public pronouncements by various agencies and or-

ganizations concerning the effects of cigarette smoking and,

particularly, of “tar” and nicotine on the human system, led

the six major manufacturers of cigarettes to try to develop

cigarettes that are as low in “tar” and nicotine as possible, yet

which retain a degree of taste that makes them marketable.

The Court is well aware that the cigarette industry is fiercely

competitive and, thus, a cigarette that is significantly lower in

“tar” and nicotine would be attractive to those smokers who

are concerned about the health questions.

In January, 1981, plaintiff began to market a new brand of

cigarettes called “Barclay.” Barclays were fitted with an inno-

vative filter which produced significantly less “tar” and nico-

C-3

tine than its competing low “tar” and nicotine brands. Barclay,

by the FTC method, produced | mg. “tar” and 0.2 mg.

nicotine. An intensive advertising campaign by plaintiff led to

Barclay’s capturing a significant share of what is termed the

ultra-low tar market. Barclay apparently gored the oxen of R.

J. Reynolds and Phillip Morris, the two largest cigarette

producers in America. They complained to the FTC asserting

that the FTC method was an inaccurate device by which to

measure the “tar” and nicotine content of Barclay cigarettes.

R. J. Reynolds and Phillip Morris suggested that tests which

they had conducted indicated a substantially higher measure-

ment of “tar” content and they requested the FTC to adopt a

new measurement of testing.

Plaintiff urged the staff of the FTC to enter into negotia-

tions to attempt to resolve the dispute among its, plaintiff's,

data, and data submitted by R. J. Reynolds and Phillip Morris

and the data furnished the staff by consultants employed by

the FTC. Nothing came from these urgings and the staff

submitted to the FTC a report, the contents of which were

withheld {,om plaintiff.

The FTC reached a determination that it would prohibit

plaintiff from relying on the FTC mehtod when advertising

Barclays. This lawsuit followed.

Plaintiff advances the appealing argument that the decision

of FTC to prohibit plaintiff’s advertising the “tar” and nico-

tine as measured by the FTC method places plaintiff between

Scylla and Charybdis. If plaintiff advertises without disclosing

the “tar” and nicotine content, or if it persists in advertising its

“tar” and nicotine content by use of the FTC method, it runs

the risk “of facing an enforcement action charging unfair or

deceptive practices. The only other avenue is the elimination of

all Barclay advertising, an even less appealing prospect.

In determining whether to grant injunctive relief the Court

must look to the four tests articulated in Mason County

Medical Association v. Knebel, 563 F.2d 256 (6th Cir. 1977):

“In determining on appeal whether the District Court

abused its discretion in granting or withholding prelimi-

C-4

nary injunctive relief, this Court has set forth four stan-

dards which must be considered:

1) Whether the plaintiffs have shown a strong or sub-

stantial likelihood or probability of success on the

merits;

2) Whether the plaintiffs have shown irreparable in-

jury;

3) Whether the issuance of a preliminary injunction

would cause substantial harm to others;

4) Whether the public interest would be served by

issuing a preliminary injunction.”

563 F.2d at 261.

FTC proposed a Federal Register notice that would set forth

its determination that the FTC method of measuring “tar” and

nicotine was inaccurate so far as Barclay was concerned and

therefore unacceptable. FTC further determined that a new

test method was indicated based on the fact that independent

consultants had concluded that Barclay’s correct “tar” rating

was from 3 mgs. to 7 mgs. FTC further proposed amending its

December, 1981 report of comparative “tar” and nicotine

ratings of various cigarettes by adding the Federal Register

notice as an addendum, thereby effectually deleting Barclay’s

ratings. The proposed notice also took aim at two other brands

manufactured by plaintiff which used the same filter as Bar-

clay. The relevant portions of the notice concluded with a

request for comments on three proposed modifications to the

FTC method and for comments on the desirability of an even

broader examination of the FTC method.'

It is the substance of this proposed publication that is the

subject of the temporary restraining order.

l The Court's inquiry into this matter has been hampered by the fact

that FTC apparently purchased six 3-ring, loose-leaf binders from the low

bidder. Attempts to remove the binders from the box in which they were

delivered to the Court invariably resulted in most of the documents falling in

a disorderly heap in the bottom of the box.

C-5

The threshhold question before the Court is whether the

restrained publication is “agency action” as that term is used in

Title 5 U.S.C. Section 702. Engrafted onto that question is

whether plaintiff will suffer a legal wrong or is adversely

affected or aggrieved within the meaning of a relevant statute.

If the proposed publication is not final agency action,

judicial consideration of plaintiff’s claim is forbidden. Dairy-

men, Inc. v. FTC, 684 F.2d 376 (6th Cir. 1982). See also, First

National Monetary v. Commodity Futures Trading, 677 F.2d

522 (6th Cir. 1982). In FTC v. Standard Oil of California

(Socal), 449 U.S. 232, 101 S.Ct. 488 (1980), the Court, in

considering the question of finality of agency action and prior

judicial intervention observed:

“Judicial intervention into the agency process denies the

agency an Opportunity to correct its own mistakes and to

apply its expertise. (Citation omitted.) Intervention also

leads to piecemeal review which at the least is inefficient

and upon completion of the agency process might prove

to have been unnecessary. * * * * Finally, every respondent

to a Commission complaint could make the claim that

Socal had made. Judicial review of the averments in the

Commission’s complaints should not be a means of turn-

ing prosecutor into defendant before adjudication con-

cludes.” 449 U.S. at 242-243, 101 S.Ct. at 494.

Paraphrasing the Soca/ court, we conclude that FTC’s pro-

posed publication in the Federal Register is not a definitive

ruling or regulation. It has no legal force or practical effect on

plaintiff’s daily business other than the disruptions that accom-

pany any major litigation. Immediate judicial review would

serve neither efficiency nor enforcement of the Act. These

pragmatic considerations counsel against the conclusion that

the proposed publication is final agency action.

In view of our conclusion we must determine that plaintiff

cannot satisfy the first test of Mason County Medical Associa-

tion, supra, and the Court’s ultimate determination is that it is

without jurisdiction to review the proposed action.

C-6

The foregoing discussion constitutes the Court’s findings of

fact and conclusions of law. F.R.Civ.P. 52(a).

The temporary restraining order will be dissolved, the mo-

tion for preliminary injunction will be denied, and this action

will be dismissed.

An appropriate Order has been entered this 27th day of

September, 1982.

THOMAS A. BALLANTINE, JR.

Thomas A. Ballantine, Jr.

United States District Judge

Copies to:

Counsel of record

D-1

Appendix D

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

No. 82-5594

[Filed September 19, 1983]

aoe

BROWN & WILLIAMSON TOBACCO CORPORATION,

Plaintiff-Appellant,

—

FEDERAL TRADE COMMISSION

Defendant-Appellee,

PUBLIC CITIZEN HEALTH RESEARCH GROUP,

Amicus Curiae.

Before:

KEITH and MERRITT, Circuit Judges;

BROWN, Senior Circuit Judge.

ORDER DENYING PETITION FOR

REHEARING EN BANC

Plaintiff-Appellant, Brown & Williamson Tobacco Corp.,

has filed an unusual petition for en banc review and for

reconsideration of this Court’s opinion and judgment. No

judge of the Court has suggested en banc review, and the

original three-judge panel holds to its view that the case was

correctly decided and should not be reconsidered. Brown &

Williamson’s petition is therefore denied.

D-2

We address briefly a striking inconsistency between the

arguments of counsel for Brown & Williamson in their en banc

petition and their arguments in their original appellate briefs.

Counsel for the Company now claims that the Court, after

deciding the initial jurisdictional issue (the “final agency ac-

tion” issue), lacked power to address the merits because the

record is not complete and because further extensive discovery

is necessary. This assertion is contrary to the position counsel

took in their initial and reply briefs and in oral argument.

It is elementary that an appeal from the denial of injunctive

relief brings the whole record before the appellate court and

that the “scope of review may extend further [than the immedi-

ate question on which the District Court ruled] to allow

disposition of all matters appropriately raised by the record,

including entry of final judgment.” 16 Wright & Miller Federal

Practice § 3921 (1977). We have “jurisdiction to deal with all

aspects of the case that have been sufficiently illuminated to

enable decision by the Court of Appeals without further trial

court development.” /bid. This principle is supported by nu-

merous precedents and by policy considerations. See, e.g.,

Hurwitz v. Directors Guild of America, Inc., 364 F.2d 67,

69-70 (2d Cir. 1966), and the cases cited in Wright & Miller,

supra, § 3129.

In their opening appellate brief, counsel for the company

Stated several times: “Both parties submitted the case below on

the law. Neither side argued to the District Court that further

factfinding was necessary to decide the issues presented.” Brief

of Appellant, p. 27. For similar statements, see Appellant’s

Brief, pp. 4, 28-29, 32-33.

Counsel for the FTC, in their brief, agreed with the position

that the record was developed and that no further factfinding

was necessary. Their brief stated that “If the Court determines

that the Commission’s action is reviewable now [as final

agency action], there is a compelling need to resolve the dispute

in this Court without remand.” Brief of Appellee, pp. 28-29.

The FTC then argued the merits of the case for the next 20

pages of its brief.

D-3

In their reply brief, counsel for the company say that

“Should this Court decide to conduct the necessary in-depth

review in the first instance” to decide the merits, Reply Brief,

p. 18, the merits should be decided in the Company’s favor.

Counsel then spends twelve pages arguing the merits of the

“rulemaking” and the “arbitrary and capricious” issues. Reply

Brief, pp. 12-24. Not once in either its Opening or Reply Brief

does the Company suggest that additional proof is necessary or

that the record is incomplete or that this Court is without

authority to decide the case on the merits.

It is not unusual in seeking review after losing for counsel to

shift ground subtly, but we have not before witnessed such a

complete turnabout. Counsel appear to have taken literally to

heart Emerson’s admonition in his Essay on Self Reliance:

A foolish consistency is the hobgoblin of little minds,

adored by little statesmen and philosophers and divines.

With consistency a great soul has simply nothing to

do. . . . Speak what you think now in hard words and

tomorrow speak what tomorrow thinks in hard words

again, though it contradict every thing you said today.

Ralph Waldo Emerson: Essays and Journals, 95 (Munford, ed.

1968). We do not think that the “great souls” Emerson had in

mind include lawyers and judges in the process of deciding this

kind of case.

Accordingly, the petition is denied.

ENTERED BY ORDER OF THE COURT

___/s/ John P. Hehman

Clerk

This order was prepared by Judge Merritt

E-]

Appendix E

5 U.S.C. § 551 provides as follows:

Definitions

For the purpose of this subchapter—

(1) “agency” means each authority of the Government of

the United States, whether or not it is within or subject to

review by another agency, but does not include—

(A) the Congress;

(B) the courts of the United States;

the United States;

(D) the government of the District of Columbia;

or except as to the requirements of section 552 of this title—

(E) agencies composed of representatives of the parties

or of representatives of organizations of the parties to the

disputes determined by them;

(F) courts martial and military commissions;

(G) military authority exercised in the field in time of

war or in occupied territory; or

(H) functions conferred by sections 1738, 1739, 1743,

and 1744 of title 12; chapter 2 of title 41; or sections 1622,

1884, 1891-1902, and former section 1641(b)(2), of title

50, appendix;

(2) “person” includes ar individual, partnership, corpora-

tion, association, or public or private organization other than

an agency;

(3) “party” includes a person or agency named or admitted

as a party, or properly seeking and entitled as of right to be

admitted as a party, in an agency proceeding, and a person or

agency admitted by an agency as a party for limited purposes;

(4) “rule” means the whole or a part of an agency state-

ment of general or particular applicability and future effect

designed to implement, interpret, or prescribe law or policy or

E-2

describing the organization, procedure, or practice require-

ments of an agency and includes the approval or prescription

for the future of rates, wages, corporate or financial structures

or reorganizations thereof, prices, facilities, appliances, ser-

vices or allowances therefor or of valuations, costs, or ac-

counting, Or practices bearing on any of the foregoing;

(5) “rule making” means agency process for formulating,

amending, or repealing a rule;

(6) “order” means the whole or a part of a final disposi-

tion, whether affirmative, negative, injunctive, or declaratory

in form, of an agency in a matter other than rule making but

including licensing;

(7) “adjudication” means agency process for the formula-

tion of an order;

(8) “license” includes the whole or a part of an agency

permit, certificate, approval, registration, charter, member-

ship, statutory exemption or other form of permission;

(9) “licensing” includes agency process respecting the

grant, renewal, denial, revocation, suspension, annulment,

withdrawal, limitation, amendment, modification, or condi-

tioning of a license;

(10) “sanction” includes the whole or a part of an agency—

(A) prohibition, requirement, limitation, or other con-

dition affecting the freedom of a person;

(B) withholding of relief;

(D) destruction, taking, seizure, or withholding of

property,

(E) assessment of damages, reimbursement, restitution,

compensation, costs, charges, or fees;

(F) requirement, revocation, or suspension of a license;

(G) taking other compulsory or restrictive action;

(11) “relief” includes the whole or a part of an agency—

(A) grant of money, assistance, license, authority, ex-

emption, exception, privilege, or remedy;

E-3

(B) recognition of a claim, right, immunity, privilege,

exemption, or exception; or

tion of, and beneficial to, a person;

(12) “agency proceeding” means an agency process as de-

fined by paragraphs (5), (7), and (9) of this section;

(13) “agency action” includes the whole or a part of an

agency rule. order, license, sanction, relief, or the equivalent or

denial thereof, or failure to act; and

(14) “ex parte communication” means an oral or written

communication not on the public record with respect to which

reasonable prior notice to all parties is not given, but it shall

not include requests for status reports on any matter or

proceeding covered by this subchapter.

5 U.S.C. § 553 provides as follows:

Rule making

(a) This section applies, according to the provisions thereof,

except to the extent that there is involved—

(1) a military or foreign affairs function of the United

States; or

(2) a matter relating to agency management or person-

nel or to public property, loans, grants, benefits, or

contracts.

(b) General notice of proposed rule making shall be

published in the Federal Register, unless persons subject

thereto are named and either personally served or otherwise

have actual notice thereof in accordance with law. The notice

shall include—

(1) a statement of the time, place, and nature of public

rule making proceedings;

(2) reference to the legal authority under which the rule

is proposed; and

(3) either the terms or substance of the proposed rule

or a description of the subjects and issues involved.

E-4

Except when notice or hearing is required by statute, this

subsection does not apply—

(A) to interpretative rules, general statements of policy,

or rules of agency organization, procedure, or practice; or

(B) when the agency for good cause finds (and incorpo-

rates the finding and a brief statement of reasons therefor

in the rules issued) that notice and public procedure

thereon are impracticable, unnecessary, or contrary to the

public interest.

give interested persons an opportunity to participate in the rule

making through submission of written data, views, or argu-

ments with or without opportunity for oral presentation. After

consideration of the relevant matter presented, the agency shall

incorporate in the rules adopted a concise general statement of

their basis and purpose. When rules are required by statute to

be made on the record after opportunity for an agency hearing,

sections 556 and 557 of this title apply instead of this subsec-

tion.

(d) The required publication or service of a substantive rule

shall be made not less than 30 days before its effective date,

except—

(1) a substantive rule which grants or recognizes an

exemption or relieves a restriction;

(2) interpretative rules and statements of policy; or

(3) as otherwise provided by the agency for good cause

found and published with the rule.

(ec) Each agency shall give an interested person the right to

petition for the issuance, amendment, or repeal of a rule.

5 U.S.C. § 702 provides as follows:

Right of Review

A person suffering legal wrong because of agency action, or

adversely affected or aggrieved by agency action within the

meaning of a relevant statute, is entitled to judicial review

E-5

thereof. An action in a court of the United States seeking relief

other than money damages and stating a claim that an agency

or an officer or employee thereof acted or failed to act in an

official capacity or under color of legal authority shall not be

dismissed nor relief therein be denied on the ground that it is

against the United States or that the United States is an

indispensable party. The United States may be named as a

defendant in any such action, and a judgment or decree may be

entered against the United States: Provided, That any manda-

tory or injunctive decree shall specify the Federal officer or

officers (by name or by title), and their successors in office,

personally responsible for compliance. Nothing herein (1) af-

fects other limitations on judicial review or the power or duty

of the court to dismiss any action or deny relief on any other

appropriate legal or equitable ground; or (2) confers authority

to grant relief if any other statute that grants consent to suit

expressly or implicitly forbids the relief which is sought.

5 U.S.C. § 704 provides as follows:

Actions Reviewable

Agency action made reviewable by statute and final agency

action for which there is no other adequate remedy in a court

are subject to judicial review. A preliminary, procedural, or

intermediate agency action or ruling not directly reviewable is

subject to review on the review of the final agency action.

Except as otherwise expressly required by statute, agency

action otherwise final is final for the purposes of this section

whether or not there has been presented or determined an

application for a declaratory order, for any form of reconsid-

eration, or, unless the agency otherwise requires by rule and

provides that the action meanwhile is inoperative, for an

appeal to superior agency authority.

E-6

5 U.S.C. § 706 provides as follows:

Scope of Review

To the extent necessary to decision and when presented, the

reviewing court shall decide all relevant questions of law,

interpret constitutional and statutory provisions, and deter-

mine the meaning or. applicability of the terms of an agency

action. The reviewing court shall—

(1) compel agency action unlawfully withheld or unreason-

ably delayed; and

(2) hold unlawful and set aside agency action, findings, and

conclusions found to be—

(A) arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law;

(B) contrary to constitutional right, power, privilege,

or immunity;

limitations, or short of statutory right;

(D) without observance of procedure required by law;

(E) unsupported by substantial evidence in a case sub-

ject to sections 556 and 557 of this title or otherwise

reviewed on the record of an agency hearing provided by

Statute; or

(F) unwarranted by the facts to the extent that the facts

are subject to trial de novo by the reviewing court.

In making the foregoing determination, the court shall review

the whole record or those parts of it cited by a party, and due

account shall be taken of the rule of prejudicial error.

F-1

Appendix F

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

No. 82-5594

BROWN & WILLIAMSON TOBACCO CORPORATION,

Plaintiff-Appellant,

—against—

FEDERAL TRADE COMMISSION,

Defendant-Appellee.

aad

BRIEF OF APPELLANT

BRO VN & WILLIAMSON TOBACCO CORPORATION

PRELIMINARY STATEMENT

In an astounding departure from fifteen years of consistent

agency conduct, the Federal Trade Commission on June 25,

1982 expelled Brown & Williamson’s Barclay brand from the

government’s official cigarette testing and reporting program.

Specifically, the Commission

—retroactively deleted Barclay from the December 198]

FTC “Tar” and Nicotine Report,

—directed the FTC laboratory to exclude Barclay from

future Commission tests of all brands of domestically

marketed cigarettes, and

—denied Barclay the right to rely, in its advertising, on

the official FTC machine testing method. Only Barclay

F-2

was so treated, even though virtually all ultra-low “tar

cigarettes were found to “deliver” to consumers more

“tar” than they deliver to the official FTC testing

machine.

The FTC’s actions inflict grievous legal and economic inju-

ries upon Brown & Williamson. The Commission would pre-

vent Brown & Williamson from marketing its products the way

its competitors do. In a market where FTC ratings are crucial

to effective competition, Barclay would be the only brand

without “tar” or nicotine numbers. Further, Barclay’s banish-

ment by a powerful federal agency seriously affects Brown &

Williamson’s reputation for integrity in the marketplace. And

the FTC’s actions make Brown & Williamson vulnerable, for

the first time, to a variety of legal risks from which every other

tobacco company is protected.

The Commission’s ruling shatters a government-industry

agreement that both requires and permits cigarette advertise-

ments to rely on the FTC testing methodology and on the

official FTC reports.

Brown & Williamson immediately commenced this suit in

the Western District of Kentucky to nullify the Commission’s

action on the grounds that it is improper rulemaking, arbitrary,

capricious and discriminatory. To preserve the status quo

pending a final determination on the merits, Brown & William-

son sought temporary and preliminary injunctive relief. A

temporary restraining order effectively staying the Commis-

sion’s rulings was entered on June 25, 1982, by the Honorable

Boyce F. Martin, Jr., sitting by designation. After hearing oral

argument on the merits on July 23, the Honorable Thomas A.

Ballantine, Jr. continued the restraint pending his decision on

the motion for a preliminary injunction.

But the district court never reached Brown & Williamson’s

arguments on the merits. Instead, on September 27, 1982,

Judge Ballantine denied preliminary injunctive relief and dis-

missed the complaint on the sole ground that the FTC’s actions

were not reviewable because they were not “final agency

action” under the Administrative Procedure Act, § U.S.C.

§ 551 et seq.*

The district court’s “no final agency action” decision is the

single subject of this appeal. We argue in this brief that there is

no legal or factual basis to support a denial of judicial review

of the FTC’s actions at this time because:

—The Commission’s deliberations regarding Barclay are

at an end. Its determinations, stated in the most defi-

nite terms possible, will not be reconsidered in a pend-

ing or future agency proceeding.

—Brown & Williamson’s challenges to the legality of the

Commission’s conduct raise purely legal issues that

require no further factfinding at the agency level for

clarification. The evidence upon which the Commission

based its decisions is before the district court.

—The impact of the Commission’s actions on Brown &

Williamson’s business, as well as on its legal status,

rights and obligations, will be felt as soon as the FTC is

permitted to act. Even if the FTC never brings an

enforcement proceeding against Brown & Williamson,

the company will suffer devastating competitive and

reputational injury as a result of the Commission’s

“delisting” of Barclay.

—Effective judicial review of the FTC’s actions will not

be available at some future date. There is no means,

other than this action, to obtain review of the Commis-

sion’s decision to cease testing and reporting Barclay;

and review of the Commission’s other actions is possi-

ble only if Brown & Williamson defies the Commis-

sion’s orders and subjects itself to legal risk. The law

° The district court immediately thereafter granted Brown & William-

son's motion for an injunction pending appeal. Judge Ballantine restrained

the Commission from acting until this Court has an opportunity to review

the decision below. (Order entered September 27, 1982). On October 28,

1982, this Court denied the FTC's motion to vacate that injunction, finding

that the district court had not abused its discretion.

F-4

does not require a party to suffer this exposure as the

price for vindicating its rights.

—Even if the FTC does bring an enforcement proceeding

in the future, the issue of whether Barclay’s advertising

is unfair or misleading will be adjudicated in a legal and

factual context different from that existing today: the

decision below permits the Commission to change the

facts—for example, by rescinding Barclay’s pre-existing

FTC ratings—before bringing any proceeding against

Brown & Williamson.

Because the Commission’s actions annul Brown & William-

son’s present rights, compel it to change its business practices,

expose Brown & Williamson to liability both in enforcement

proceedings and in private suits, and irremediably harm its

reputation in the marketplace, they are final agency action,

fully subject to judicial review at this time.

QUESTION PRESENTED

Did the district court err in dismissing the complaint for lack

of jurisdiction and denying preliminary injunctive relief on the

ground that the actions taken by the FTC were not final agency

action subject to judicial review where:

(i) The FTC’s actions have a direct immediate effect on

Brown & Williamson’s legal status, rights and obligations;

(ii) The FTC’s actions have a substantial immediate

impact on Brown & Williamson’s day-to-day business;

(iii) judicial review will not interrurt, impede or disrupt

an ongoing agency enforcement proceeding;

(iv) the questions presented to the district court are

legal rather than factual, and no further agency process

remains for further refinement of the issues;

(v) judicial review will expedite, not delay, final resolu-

tion of the issues presented; and

(vi) withholding judicial review will cause great hard-

ship to Brown & Williamson?

F-S

STATEMENT OF THE CASE

Nature of the Case, Course of the Proceedings,

and the DispoSition Below

As is more fully described below, Brown & Williamson

appeals from the dismissal of its Complaint seeking preen-

forcement review of an order and determinations made by the

Federal Trade Commission on June 25, 1982. The district court

also denied plaintiff's request for a preliminary injunction.

Both decisions were based on a single legal conclusion, i.e., the

FTC’s determinations and order were not “final agency ac-

tion” now ripe for judicial review. The district court granted

Brown & Williamson’s motion for an injunction pending

appea!, and this Court has denied the FTC’s motion to vacate

that injunction.

STATEMENT OF FACTS

The Parties

Brown & Williamson is a Delaware corporation with its

principal place of business in Louisville, Kentucky. It is

engaged, among other activities, in the business of manufac-

turing and selling cigarettes. (Complaint, p. 2, q 5).

The Federal Trade Commission is an administrative agency

of the United States, created and existing under and by virtue

of the Federal Trade Commission Act, 33 Stat. 717 (1914) as

amended, 15 U.S.C. §§ 41 ef seg. (hereinafter, the “FTC

Act”).

The FTC Cigarette Testing and Reporting Program

Since 1967, the FTC has operated a laboratory that measures

the “tar” and nicotine yields of domestically marketed cig-

arettes by means of a testing methodology that has come to be

known as the “FTC method.”

The FTC method uses a smoking machine that takes puffs of

standard size, frequency and duration, and “smokes” all ci-

garettes to a uniform length. When the Commission adopted

its testing methodology fifteen years ago, it acknowledged that

F-6

the FTC method did not and could not replicate “average”

human smoking behavior or measure the amount of “tar” or

nicotine that cigarettes actually deliver to the human smoker.

Rather, the FTC method was designed to provide a uniform

yardstick for measuring how much “tar” and nicotine are

generated when a cigarette is “smoked” in a specified manner

on the FTC machine. (Affidavit of Martin London, sworn to

June 25, 1982 (the “6/25/82 London Aff’t.”), 4 11; Ex. C).

In the Statement of Considerations accompanying the adop-

tion of the FTC method, the Commission stated:

In determining the testing method, the Commission has

not attempted to gauge the test to the amount of smoke,

or tar and nicotine, which the “average” smoker will draw

from any particular cigarette.

No two human smokers smoke in the same way. No

individual smoker always smokes in the same fashion.

The speed at which one smokes varies both among smok-

ers, and usually also varies with the same individual under

different circumstances even within the same day. Some

take long puffs (or draws); some take short puffs. That

variation affects the tar and nicotine quantity in the

smoke generated.

The Cambridge Filter Method {the “FTC method”] does

not and cannot measure these many variations in human

smoking habits. \t does not measure tar or nicotine in the

smoke generated while the cigarette is not being puffed. It

does not measure all of the tar and nicotine in any

cigarette, but only that in the smoke drawn in the stand-

ardized machine smoking according to the prescribed

method. Thus, the purpose of testing is not to determine

the amount of tar and nicotine inhaled by any human

smoker, but rather to determine the amount of tar and

nicotine generated when a cigarette is smoked by machine

in accordance with the prescribed method. . . . There

are too many variables as to both smokers and smoking

conditions for any average to be meaningful.

F-7

Thus, to reiterate, the uniform method determined by the

Commission has as its purpose measurement of the tar

and nicotine generated by cigarettes when smoked accord-

ing to that procedure.

(6/25/82 London Aff’t., Ex. C; emphasis added).

Using the FTC method, the Commission has tested domestic

cigarettes since 1967, and has regularly published the results of

those tests in its official FTC “Tar” and Nicotine Reports.

(6/25/82 London Aff’t. 44 7, 10, 12).

Pursuant to a 1970 agreement between the Commission and

the tobacco industry, all cigarette advertisements since that

date have contained a statement of the “tar” and nicotine

yields of the advertised brand as determined by the FTC

method or published in the most recent FTC “Tar” and

Nicotine Report. (6/25/82 London Aff’t. 44 13-18; Ex. G).

The 1970 agreement was the product of negotiations between

the tobacco industry and the Commission aimed at devising a

cigarette advertising program that would avoid the cumber-

some proceedings for promulgating a formal Trade Regulation

Rule requiring cigarette advertisements to state FTC “tar” and

nicotine yields. (6/25/82 London Aff’t. 44 14-16; Ex. F). By

its terms, the agreement is predicated on the FTC’s continued

testing of all cigarettes by its “present methodology” and

publishing the test results regularly in official FTC reports.

(6/25/82 London Aff’t. ¢ 16; Ex. G).

As a result of the 1970 agreement, tobacco companies,

including Brown & Williamson, incurred certain obligations

and acquired certain rights. On the one hand, cigarette manu-

facturers are required to state in every cigarette advertisement

the brand’s “tar” and nicotine yields as published in the most

recent FTC “Tar” and Nicotine Report. In the case of a new

brand, not yet published in an FTC Report, the manufacturer

must nevertheless advertise the figures that are obtained by the

FTC method. On the other hand, tobacco companies may

advertise a cigarette’s “tar” yield, or claim that one brand is

lower in “tar” than another, based solely on the yields obtained

by the FTC method. Indeed, citation of the FTC method as

F-8

substantiation for advertising claims regarding a product’s

“tar” or nicotine is a virtual shield against the risk that a

tobacco company could be charged by the Commission with

misleading advertising. (Complaint, p. 5, 4 15; Answer, p. 2,

q 15).

In recent years, as smokers have become more concerned

with the “tar” yield of their cigarettes, these FTC numbers

have become vital components of cigarette marketing, espe-

cially in the highly competitive low and ultra-low “tar” seg-

ments of the market.* (Affidavit of Scott A. Wallace, sworn to

June 25, 1982 (the “Wallace Aff’t.”), 4 6). Because the FTC

method is objective, clear and uniform, cigarette manufac-

turers are able to develop new brands and marketing strategies

with accurate knowledge of the FTC numbers their products

will obtain. For example, a manufacturer can plan to introduce

a 1 mg “tar” cigarette and invest substantial resources in that

project, because the company can know in advance that its

proposed cigarette will measure | mg “tar” by the FTC

method. (Affidavit of Ernest Pepples, sworn to September 27,

1982, q 5).

Barclay and the FTC Inquiry

In 1980, Brown and Williamson had but a 13% share of the

domestic cigarette market, and its share was on the decline.

(Wallace Aff’t. 4 3). After years of research and an investment

of millions of dollars, Brown & Williamson developed Bar-

clay—a cigarette with an innovative filter design that measured

1 mg “tar,” 0.2 mg nicotine by the FTC method. Brown &

Williamson made this effort in order to gain a foothold in the

growing ultra-low “tar” segment of the cigarette market—the

only portion of the total market that is currently expanding.

(Wallace Aff't. 47). In January 1981, Barclay was launched

with a $150 million advertising and promotional campaign.

That campaign makes two claims that emphasize Barclay’s low

S Low “tar™ cigarettes have FTC ratings of 6 or 7 to 12 mg “tar,” and

ultra-low “tar” cigarettes have ratings of less than $ or 6 mg “tar.”

F-9

“tar” rating and good taste: 1) “The Pleasure is Back”; and

2) “99% ‘tar’ free.” In addition, all Barclay packs and cartons

carry either the “1 mg ‘tar’” or “ultra-low ‘tar’ ” label.*

Barclay’s instant popularity proved an unwelcome competi-

tive challenge to the duopoly of R.J. Reynolds Tobacco Com-

pany, Inc. and Philip Morris Incorporated, the two industry

leaders who together control 65% of the domestic cigarette

market. (Wallace Aff’t. 443, 7-8).** Faced with Barclay’s

success, R.J. Reynolds and Philip Morris asked the FTC, in

June and July 1981, to alter the FTC method so that Barclay’s

“tar” and nicotine ratings would be significantly increased,

while their own products would be unaffected. Though neither

company disputed that Barclay measures | mg “tar” on the

FTC smoking machine, they claimed it delivers more “tar” to

smokers, because of the way human lips interact with the

Barclay filter. R.J. Reynolds and Philip Morris each had a

different theory on how that occurred, and each proposed a

testing modification that would adversely affect Barclay, but

not their own brands. (6/25/82 London Aff’t. 44 24, 25.)

The FTC staff thereupon commenced a confidential inquiry

into these allegations, with participation limited to the six

major domestic cigarette manufacturers and three consultants

retained by the FTC to comment on the data submitted by the

companies. While the FTC inquiry focused on Barclay, it also

raised questions as to the validity of the FTC method for

measuring all low and ultra-low “tar” brands. Significantly, the

inquiry produced considerable evidence that smokers can inter-

fere with the filtration systems of a// ultra-low “tar” brands

° Barclay’s | mg “tar,” 0.2 mg nicotine ratings appeared in the

December 1981 official FTC “Tar” and Nicotine Report. In compliance with

the terms of the 1970 Commission-industry agreement, all Barclay advertise-

ments cite that report.

oe The most recent compilation of industry statistics, completed subse-

quent to the submissions below, shows R.J. Reynolds and Philip Morris have

increased their collective share to 66.4% of the domestic market. John C.

Maxwell, Jr. “The Maxwell Report: Year-End Sales Estimates For The

Cigarette Industry,” October 28, 1982, p. 2.

F-10

and otherwise adjust their smoking behavior so as to obtain

substantially more “tar” and nicotine than the FTC numbers

indicate—a process known as “compensation.”

On Friday, June 25, 1982, the FTC inquiry ended. With no

prior notice to Brown & Williamson, the Commission—in a

closed meeting—determined that the FTC testing method does

not accurately measure the amount of “tar” and nicotine that

Barclay delivers to real smokers.* Despite its acknowledgement

that compensation can occur with other low and ultra-low

“tar” ciagarettes as well, the Commission took action only as

to Barclay. The Commission voted to: 1) retroactively “delist”

Barclay by amending its December, 1981 “Tar” and Nicotine

Report; 2) exclude Barclay from its official testing and report-

ing program “unless and until” the FTC changes its present

cigarette testing methodology; and 3) immediately prohibit

Brown & Williamson from relying on the FTC method to

substantiate claims that Barclay is a 1 mg “tar,” 0.2 mg

nicotine cigarette.**

° The FTC's determinations about how people smoke Barclay were

based on data submitted by R.J. Reynolds and Philip Morris during the

inquiry. Neither the FTC nor its consultants conducted any tests of their own.

Brown & Williamson consistently contended that its competitors’ data on

which the Commission relied could not prove anything about real-life human

smoking behavior, because it was derived from studies conducted not in

natural smoking conditions, but in highly artificial laboratory settings, using

equipment that was specifically designed by those competitors to produce

results injurious to Barclay. In addition, we maintained that if the Commis-

sion wished to attempt to measure what cigarettes actually deliver to people

in the real world, it must consider a// the ways in which human and machine

smoking differs from the machine standard. For example, larger and more

frequent puffs, deeper inhalation, etc., all affect the amount of “tar” and

nicotine a real smoker ingests. Remarkably, these contentions went un-

heeded.

oe These actions were to be accomplished by means of an official

announcement in the Federal Register. A copy of that Federal Register notice

was filed with the district court as FTC Exhibit 146 (under seal). While the

notice states that “the Commission does not mean to imply that Brown &

Williamson. . has violated any provision of the [FTC] Act for its past use

and reliance on the FTC method” (emphasis added), the Commission

F-11

In effect, the Commission fashioned a new (but unspecified)

“human smoking” standard and applied it to Barclay alone;

the existing FTC test method may continue to be used by every

other brand, without regard to human smoking behavior.

At the close of the Commission's meeting, it held a press

conference, and distributed a press release announcing the

Commission's determinations and actions.*

THE PROCEEDINGS BELOW

Immediately upon learning of the FTC’s decision, Brown &

Williamson commenced this litigation in the United States

District Court for the Western District of Kentucky to enjoin

the FTC, temporarily and permanently, from taking the actions

it had announced. That afternoon, Judge Boyce Martin, sitting

by designation, issued a temporary restraining order to main-

tain the status quo. (Order to Show Cause and Temporary

Restraining Order, entered June 25, 1982). Judge Martin's

instructions made clear that the filing of the FTC’s proposed

Federal Register notice was restrained as well. (Letter of FTC

General Counsel John H. Carley to Martin London, dated

June 30, 1982).

The July 6 hearing date before Judge Ballantine was ad-

journed at the FTC’s request. With the Commission’s consent,

the court continued the TRO until Brown & Williamson's

motion for a preliminary injunction could be heard and deter-

mined. (Order, entered July 6, 1982).

In moving for preliminary injunctive relief, Brown & Wil-

liamson contended that the actions announced by the FTC on

June 25 were unlawful for two reasons:

determined on June 25 that the above sanctions were to be effective from

that day forward. The notice also solicits public comment on whether the

FTC should “explore” further changes in the FTC method in light of the

compensation phenomenon. As to Barclay, however, the questions are limited

to addressing how, not whether, to change the smoking machine.

: A copy of this press release was filed with the district court as FTC

Exhibit 145 (under seal).

F-12

(1) The Commission failed to provide notice of its

proposed rule, solicit public comment thereon, or publish

the new rule in the Federal Register at least thirty days

prior to its effective promulgation, all in violation of the

rulemaking requirements of the Administrative Procedure

Act (the “APA”), 5 U.S.C. § 553. Until June 25, all

cigarette advertising could rely exclusively on the results

produced by the FTC smoking machine without regard to

human smoking behavior, On June 25, the Commission

applied—to Barclay alone—a new requirement, i.e., prov-

ing that people actually smoke just like the machine. In

changing the rules in this way, the Commission failed to

provide any of the required procedural safeguards. The

Commission's actions, therefore, are unlawful and should

be set aside pursuant to Section 10(e) of the APA, 5

U.S.C. § 706(2)(D).

(2) The Commission's actions were arbitrary, capri-

cious and an abuse of agency discretion under § U.S.C.

§ 706(2)(A) because, inter alia, they unfairly discrimi-

nated against Barclay, were not supported by the evidence

before the Commission, were impermissibly retroactive

and arbitrarily timed. Further, the new “human smoking”

standard used by the Commission to expel Barclay was

unreasonable. The Commission itself does not know what

Barclay—or any other brand—delivers to real smokers.

Thus the new standard is too vague to provide guidance

or permit reasonable compliance.

The district court never reached Brown & Williamson's

substantive arguments for enjoining the Commission's actions

pending trial. Instead, on September 27, 1982, the Court

denied preliminary relief on the ground that the FTC's actions

were not “final agency action” subject to judicial review under

Sections 10(a) and 10(c) of the APA, 5 U.S.C. §§ 702, 704, and

dismissed the complaint for lack of jurisdiction.

F-13

THE DISTRICT COURT'S DECISION

In its memorandum opinion, the district court noted the

“fiercely competitive” nature of the cigarette industry and the

important role played by FTC “tar” and nicotine ratings in

that competitive battle. (Memorandum, p. 2). The court also

found that “[t}]he FTC reached a determination that it would

prohibit plaintiff from relying on the FTC method when

advertising Barclays” (id., p. 3), and that the Commission's

proposed June 25th Federal Register filing would “effectually

delet[e] Barclay’s ratings.” (/d., p. 4) The opinion, however,

omits any mention of the third action taken by the FTC on

June 25th: ceasing the testing and reporting of Barclay’s “tar”

and nicotine yields “unless and until” the Commission decides

to modify the FTC test method.

The opinion went on to identify the “threshold” issue as

“whether the restrained publication is ‘agency action’ as that

term is used in Title § U.S.C. Section 702.” (Memorandum, p.

5, emphasis added). The memorandum opinion, however,

plainly indicates that the lower court's concern was not

whether it was presented with “agency action” at all, but

whether there was “fina/ agency action” subject to judicial

review under 5 U.S.C. § 704. Before addressing that question,

the district court cited two recent cases of this Circuit—Dairy-

men, Inc. v. Federal Trade Commission, 684 F.2d 376 (1982)

and First National Monetary Corp. v. Commodity Futures

Trading Commission, 677 F.2d 522 (1982)—for the proposition

that unless the challenged “publication” is final agency action,

“judicial consideration of [Brown & Williamson's} claim is

forbidden.” (Memorandum, p. 5).*

° Brown & Williamson sought to restrain the actions the Commission

determined to take against Barclay. The restraint of the Federal Register

notice resulted from the Commission's decision to trigger its actions by

means of that notice. The lower court's repeated references to the proposed

publication suggests that it focused more on the Federal Register filing than

the actions accomplished thereby, and thus misconstrued the essence of

Brown & Williamson's claims.

F-14

In the remaining portion of its decision, the district court

ruled that the proposed publication was not final agency

action.* Paraphrasing the Supreme Court’s language in the

inapposite case of Federal Trade Commission vy. Standard Oil

Co. of California, 449 U.S. 232 (1980), Judge Ballantine

concluded:

. . FTC's proposed publication in the Federal Register

is not a definitive ruling or regulation. It has no legal

force or practical effect on plaintiff's daily business other

than the disruptions that accompany any major litigation.

Immediate judicial review would serve neither efficiency

nor enforcement of the [Federal Trade Commission] Act.

These pragmatic considerations counsel against the con-

clusion that the proposed publication is final agency

action.

In view of our conclusion we must determine that

plaintiff cannot satisfy the first test of Mason County

Medical Association, supra, and the Court’s ultimate

determination is that it is without jurisdiction to review

the proposed action. [Memorandum, pp. 5-6].

While Brown & Williamson agrees that the availability of

judicia! review of the FTC’s actions rests on the pivotal issue

of finality, we respectfully suggest the district court’s analysis

of that issue missed the mark.

° Because of its ruling on the likelihood of success factor, the district

court did not address Brown & Williamson's contention that it satisfied the

three additional requirements for a preliminary injunction established in

Mason County Medical Association v. Knebel, 563 F.2d 256 (6th Cir. 1977).

In issuing an injunction pending appeal, however, the district court expressly

found that interim relief was necessary “to prevent the occurrence of

immediate and irreparable injury to plaintiff . . . [and] that no substantial

harm to other parties will result from such relief, and that such relief will not

harm the public interest. . .~ (Order, entered September 27, 1982).

F-15

ARGUMENT

THE FTC’S DETERMINATIONS ARE REVIEWABLE BY

THE DISTRICT COURT

The Commission’s June 25 order expels Barclay from the

FTC cigarette testing and reporting program, and radically

alters Brown & Williamson’s legal status. That order is directly

reviewable by the district court because the FTC action is final

and otherwise ripe for determination.

The Abbott Laboratories Siandard

The starting point for any discussion of the issue of ripeness

is Abbott Laboratories v. Gardner, 387 U.S. 136 (1967). In a

case directly analogous to the one at bar, the Supreme Court

reversed the Third Circuit’s dismissal of a complaint seeking

pre-enforcement review of regulations promulgated by the

Secretary of Health, Education, and Welfare. The Secretary’s

regulations required that drug companies use generic names on

all labels, advertisements and other printed matter relating to

prescription drugs.

The circuit cour: had dismissed the complaint because it

found (i) provisions of the Federal Food, Drug and Cosmetic

Act specifically negated pre-enforcement review of the reguia-

tions in question, and (ii) there was no warrant for such review

under the APA, 5 U.S.C. §§ 701-704. The Supreme Court

began its analysis with a restatement of the law relating to

judicial review of administrative action:

[A] survey of our cases shows that judicial review of a

final agency action by an aggrieved person will not be cut

off unless there is a persuasive reason to believe that such

was the purpose of Congress [citations omitted]. Early

cases in which this type of judicial review was entertained,

[citations omitted] have been reinforced by the enactment

of the Administrative Procedure Act, which embodies the

basic presumption of judicial review to one “suffering

F-16

legal wrong because of agency action, or adversely af-

fected or aggrieved by agency action within the meaning

of a relevant statute,” . . . The Administrative Procedure

Act provides specifically not only for review of “[a]gency

action made reviewable by statute” but also for review of

“final agency action for which there is no other adequate

remedy in a court,” 5 U.S.C. § 704. The legislative mate~

rial elucidating that seminal act manifests a congressional

intention that it cover a broad spectrum of administrative

actions, and this Court has echoed that theme by noting

that the Administrative Procedure Act’s “generous review

provisions” must be given a “hospitable” interpretation.

{citations omitted] . . . [O]nly upon a showing of “clear

and convincing evidence” of a contrary legislative intent

should the courts restrict access to judicial review. [387

U.S. at 140-41 (footnote omitted)].

After concluding that the language of the Food, Drug and

Cosmetic Act did not preclude preenforcement review, the

court went on to discuss the “ripeness” of the controversy:

[T]he ripeness doctrine[’s] . . . basic rationale is to

prevent the courts, through avoidance of premature adju-

dication, from entangling themselves in abstract disagree-

ments over administrative policies, and also to protect the

agencies from judicial interference until an administrative

decision has been formalized and its effects felt in a

concrete way by the challenging parties. [387 U.S. at

148-49].

The Court then pronounced the two-prong test that remains

today the standard measure of reviewability:

The problem is best seen in a twofold aspect, requiring us

to evaluate both the fitness of the issues for judicial

decision and the hardship to the parties of withholding

court consideration. [387 U.S. at 149].*

° Subsequent decisions have refined the analysis even further. In

Midwestern Gas Transmission Co. v. Federal Energy Regulatory Commis-

sion, $89 F.2d 603, 618 (D.C. Cir. 1978) (footnote omitted), the court stated:

F-17

The Court discussed a number of factors that indicated the

dispute was “fit” for adjudication.

First, the dispute was “purely legal.” 387 U.S. at 149.

Second, the Court concluded the regulations were “agency

action” within the meaning of Section 10 of the APA, 5 U.S.C.

§ 704. “An ‘agency action’ includes any ‘rule,’ defined by the

Act as ‘an agency statement of general or particular applicabil-

ity and future effect designed to implement, interpret, or

prescribe law or policy,’. . .” 387 U.S. at 149.

Third, the Court concluded the regulations were final after

applying the “pragmatic” test utilized in Columbia Broadcast-

ing System, Inc. v. United States, 316 U.S. 407 (1942), Frozen

«Food Express v. United States, 351 U.S. 40 (1956), and United

States v. Storer Broadcasting Co., 351 U.S. 192 (1956). 387

U.S. at 149-51. In Columbia Broadcasting, the Court held

reviewable a regulation of the FCC relating to future contracts

among broadcasters. Because no license had yet been denied or

revoked, the challenged regulation could properly be construed

[W]hat we must determine under [the Abbort] test is whether the

agency action is sufficiently final or definitive so that we would have

no interest in postponing review until the issues are more concrete. If

the court's interest tends towards postponement, we must then weigh

this consideration against the immediate impact of the actions on the

challengers, and whether the impact is so harmful that present consid-

eration is warranted. ,

See also Young v. Klutznick, 652 F.2d 617, 625 (6th Cir. 1981) cert. denied

sub nom. Young v. Baldridge, 102 S. Ct. 1430 (1982). A district | courtin this

Circuit has identified the following factors:

(1) whether the process of administrative decision-making has

reached the stage where judicial review will not disrupt the orderly

process of adjudication;

(2) whether the particular questions involved are more legal or

factual in nature;

(3) whether rights or obligations have been determined or legal

consequences will flow from the agency action; and

(4) the relative hardship to the parties of withholding court consid-

eration at this time.

Cumberiand Capital Corp. v. Harris, 490 F. Supp. $$1, $56 (M.D. Tenn.

1977), rev'd in part on other grounds, 621 F.2d 246 (6th Cir. 1980).

F-18

as a statement of intention only. Nevertheless, the Court held

those regulations “have the force of law before their sanctions

are invoked as well as after. When, as here, they are promul-

gated by order of the Commission and the expected conformity

to them causes injury cognizable by a court of equity, they are

appropriately the subject of attack . . .” 316 U.S. at 418-419.

In Frozen Food, an ICC order specifying categories of com-

modities within a given statutory class was Under attack. The

dissent in Frozen Food argued that the order had merely given

notice as to how the Commission interpreted the statute and

that it would have effect only if and when a particular action

was brought against a particular carrier. 351 U.S. at 45-47.

Nonetheless, the Supreme Court held the order reviewable.

And in Storer Broadcasting, the FCC announced that it would

not, in the future, license any applicant who already owned

five television stations. The Court found that even though no

specific application was then before the Commission, an owner

of five stations was aggrieved and could challenge the “final

agency action” by the Commission. 351 U.S. at 198.

Fourth, the Abbott Laboratories Court noted that the im-

pact of the regulations was “sufficiently direct and immediate

as to render the issue appropriate for judicial review. . . .”

387 U.S. at 152. The regulations purported to give an “authori-

tative interpretation . . . that has a direct effect on the day-

to-day business of all prescription drug companies; its

promuigation puts petitioners in a dilemma that it was the very

purpose of the Declaratory Judgment Act to amelio-

rate. . . . If petitioners wish to comply they must change all

their labels, advertisements and promotional materials; they

must destroy stocks of printed matter; and they must invest

heavily in new printing type and new supplies.” 387 U.S. at 152

(footnote omitted).

The Court also acknowledged the government's claim that

this was a matter of great importance to the public, but

concluded that this was but another reason for judicial review:

“To require [drug manufacturers] to challenge these regu-

lations only as a defense to an action brought by the

F-19

Government might harm them severely and unnecessarily.

Where the legal issue presented is fit for judicial resolu-

tion, and where a regulation requires an immediate and

significant change in the plaintiffs’ conduct o

This text is long and has been trimmed here. Open the source document for the complete record.

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