Amicus Curiae Brief — Monahan v. Federal Trade Commission

ivy. sei illic tosees, |)

In The

Supreme Court of the

CHARLES F. MONAHAN, ET AL.,

Petitioners,

-VS-

FEDERAL TRADE COMMISSION,

Respondent.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the First Circuit.

AMICUS CURIAE BRIEF OF

THE STATE OF NEW JERSEY

W. CARY EDWARDS

ATTORNEY GENERAL OF

NEW JERSEY

Hughes Justice Complex, CN 112

Trenton, New Jersey 08625

(201) 648-4726

Attorney for Amicus Curiae,

State of New Jersey

ANDREA M, SILKOWITZ,

ASSISTANT ATTORNEY GENERAL

Of Counsel and Counsel of Record

REGINA H. NUGENT

ALICE J. GUTTLER

DEPUTY ATTORNEYS GENERAL

On the Brief

THE SUPERIOR APPELLATE PRINTING COMPANY

Dor Diane 2A7 hase Mate 4A

TABLE OF CONTENTS

Pages

TABLE OF Dame CO a 6.4 cc ececosseeos iv

STATEMENT OF AMICUS INTEREST....... 1

SUMMARY OF ARGUMENT... cccccccccces 7

ARGUMENT

STATE AGENCIES SUCH AS THE

MASSACHUSETTS BOARD OF

REGISTRATION IN PHARMACY

ARE NOT "PERSONS" WITHIN

THE MEANING OF 15 U.S.C.

§ 45 SUBJECT TO PROSECU-

TION IN AN ADMINISTRATIVE

PROCEEDING BEFORE THE

FEDERAL TRADE COMMISSION

AND TO ADMINISTRATIVE

CEASE AND DESIST ORDERS

PROHIBITING PROMULGATION

AND ENFORCEMENT OF REGU-

LATIONS PURSUANT TO STATE

LAW. THE SUBPOENAS ISSUED

IN THIS MATTER WERE BASED

ON THE COMMISSION'S PLAIN-

LY SPURIOUS ASSERTION OF

SUCH ENFORCEMENT AUTHORITY

AND THEREFORE SHOULD NOT

BE ENFORCED... ..cccccccccccces 9

The Plain Language of

the Provisions of the

Federa) Trade Commis-

sion \ct and the

Obviou. Inferences to

be Drawn Therefrom

Clearly Limit tie

"Persons" Included

in the Commission's

Enforcement Authority

to Private Entities

Engaged in Business..

The Legislative His-

tories of Section 45

and Related Sections

of the Act Show No

Intent to Permit Com-

mission Enforcement

Actions Against State

Agencies. Moreover,

where Congress’ Has

Spoken to the Issue

of Antitrust Remedies

Available Against

Government Entities,

It has Evinced a

Clear Intent to Limit

Such Remedies to

Court Actions Enjoin-

ing the Enforcement

of Preempted Enact-

MONTH. cccsccrniaswase

Pages

13

18

iia

—

oF yey Enforcement

Actions Against State

Agencies Constitute

an Unconstitutional

Infringement of State

Sovereignty.....csccecees

D. The Commission's

Asserted Authority to

Investigate the

Activities of Peti-

tioners for the Pur-

pose of Determining

Whether to Initiate

An Unlawful Enforce-

ment Proceeding Was

Plainly Spurious and

the Subpoenas Issued

to Petitioners Should

Have Been Quashed........

es Ue Fs ble esa ee ee ee ee

- iii -

Pages

25

42

45

Pages

TABLE OF AUTHORITIES

CASES CITED

Bowen v. American Hospital Assn., 476

U.S. 610 Ch td «ks sate cdetas od 60 0% 40

Community Communic. Co. v. City of

Boulder, 455 U.S. 40 (1982)...... 22

EEOC v. Wyoming, 460 U.S. 226

II Ae ia ae el ew kw oe 6 28

Exxon Corp. v. F.T.C., 665 F.2d 1274,

‘tye ge. 2 Ry. Se, — |) See 11

FTC v. Brown Shoe Co., 384 U.S.

316, ak ole 0s abe hee. 6.6% 0 0-00 30

FTC v. National Lead Co.,

352 U.S. 429 (1957)... cc eeeeeeeee 30

FTC v. Sperry & Hutchinson Co.,

405 ise 233 Se 6°06 «oe e*eeee#es? 30

FTC v. Swanson,

560 F.2d Bae Same CAS, 2977) cc cece 5,42

Fisher v. City of Berkeley,

Cre ee ee cs Kee dccccecs 33

Garcia v. San Antonio Metro,

Waller ee SED Seed cccccccces 27,38

Pages

Jefferson Cty. Pharm. Assn. v. Abbott

Labs, 460 U.S ¥ ~150 PRE once 460 6

King v. Smith, 392 U.S. 309 (1968).

Middlesex Ethics Comm. v. Garden

State Bar Assn., 457 U.S. 423...

(1982)

nN. ©. St, BG. GE Regis. for Pro.

Eng v.FTC, 615 F. Supp.

1155 (D. w.Gs 0 Soe

Ohio Civil Rights Comm'n v. Dayton

Schools, 477 U.S. 619 (1986).......

Orhralik v. Ohio State Bar Assoc.,

436 U.S. 447 a. sac hb who 6 eo 0

Parker v. Brown,

317 mF 341 ls, Fee ee ee

Semler v. Oregon State Board of

Dental Examiners, 294 U.S. 608

ESSE 6 be VEE hb Ewes th eeebesevecece

United States v. Cooper Corp.,

Shs Uses OGG, BOG CEPOL oc dse cece

Virginia State Board of Pharmacy Vv.

Virginia Citizens Consumers Council,

Te. See Malka . FOG CAS TO) « «6 o4 0 0,0

Younger v. Harris, 401 U.S. 37

bh kt PERE Serr Pers Pere T eT eS eT ee

- VYeo=

21

39

40

28

38

33

34

18

33

37

Pages

FTC PROCEEDING

The Matter of the Montana Board

of Optometrists, FTC Docket

No. C-3161, 50 Fed. Reg.

26200 Geen BOE cdknccccccce 36

UNITED STATES CONSTITUTION CITED

Tenth pe ee ee ee 28

STATUTES CITED

SE Dis. 6 Fei. ctindecntdbededia sees 15

SG I FO Dei isc ceviscciescddeces 15

TES eae kbaddectecicscsiress 15

OR i 1 BC cine osc ccc cccees 22,26

BS Oe, OO 6S OF NR eis occ ccce. 11

ES ag Le Re rare 9,13,

17,29

15) BBG. SG AG40) (Ane ccevsrccncees 10

80 Re OOM is ida keccccedccces 12

16 DR. BARU ibe ccccecscce: 14

5S CBG. SSSR oes ccc cssdsoce 26

Cg ee oe S| RP ee 14

-vi-

Pages

15 U.S.C. § STD. cn eeeeceescececceces 14

15 U.S.C--§ S7D-Lewwseseeeccceeccees 16

15 U.S.C. § 1013-1015.......22-eee 19

Mass. Gen. L. ch. 112, § 40, § 42A,

S OF. ccccccccccccsccesesesscssees 31

P.L. 93-637, Title II, § 203....... 15

P.L. 94-637, § 20a) cc eeeeceeeenees 20

LEGISLATIVE HISTORY

H.-R. No. 93-1107, 93rd Cong.,

2nd | | Pry rye rer yererrrrreres 23

H.R. No.98-965, 98th Cong., 2nd

Sess. Soeceeheeneeceacecesoesooee 19

Ss. Rep. No. 96-500, 96th Cong.,

2nd Sess. y PPPPPCTTTTrrrrrirs+errye 20

1974 U.S. Code Cong. and Admin.

News = ea 19

1980 U.S. Code Cong. and Admin.

News Dt. nh wns tne bb Cee eee eee e 18

1984 U.S. Code Cong. and Admin.

News Dt Lets Aa. se Red emo ae 6 66 6 6 24,25

- vii -

OTHER AUTHORITIES

Antitrust Law Reform, 82 Col.L.

iss Eee. BES CEPEED cca ccceces

- viii -

35

No. 87-1015

IN THE

SUPREME COURT OF THE UNITED STATES

CHARLES F. MONAHAN, ET AL.

Petitioners,

Vv.

FEDERAL TRADE COMMISSION,

Respondent.

On Petition for a Writ of Certiorari

to the United States Court of

Appeals for the First Circuit

AMICUS CURIAE BRIEF OF

THE STATE OF NEW JERSEY

STATEMENT OF AMICUS INTEREST

Since early in 1984 the Federal

Trade Commission (hereinafter the "FTC"

|

d

or the "Commission") has initiated inves-

tigations and in some cases filed com-

plaints and entered final orders in

enforcement actions against state profes-

sional licensing boards in at least

twenty states, asserting the authority

to do so under Section 5 of the Federal

Trade Commission Act. In New Jersey

alone, five of the professional boards

within the State Department of Law and

Public Safety have been notified that the

FTC is conducting a "preliminary non-

public investigation" of their activities

in promulgating advertising regulations

which the FTC "“believes" may violate

15 U.S.C. § 45 in that they may re-

strict competition and injure consumers.

Without conceding that the FTC investi-

gations were within the Commission's

Congressionally authorized jurisdiction

and recognizing that the issue of whether

such jurisdiction exists has not been

settled by the courts, the New Jersey

Boards cooperated to a limited extent

with the investigations. However, docu-

ment requests deemed to be overly burden-

some were refused, and, with a few excep-

tions,* the Boards refused to concede

that their challenged regulations were

unnecessarily anticompetitive, in the

face of strong pressure exerted by FTC

representatives to repeal or to amend

them in ways suggested by the Commis-

* Pursuant to New Jersey law, Board

regulations must be periodically reviewed

and many of the Boards, in concert with

the Division of Law and the Division of

Criminal Justice, Antitrust Section, were

already engaged in reviews of advertising

regulations because of concerns over

commercial speech and anti-competition

issues.

v=

sion.* With one exception the notices

of the pending investigations included a

request to "interview" the Board members

and the Board's executive director.

These requests were not pressed until

November 2, 1987 when a letter was sent

to the Board of Veterinary Medical Exam-

iners asking that its members submit to

depositions "voluntarily," stating that

if the Board members refused, a subpoena

would be issued.

New Jersey is, therefore, submitting

an amicus brief in this matter in support

* In the one case where ae Board

amended the only one of its regulations

Singled out by the FTC as unnecessarily

anticompetitive (a regulation promulgated

in 1970, but never enforced) the Board

refused to agree to the entry of a pro-

posed consent order which would have

subjected the Board to direct oversight

(Footnote Continued On Following Page)

of petitioner because it appears likely

that, should the decision at issue here

be allowed to stand, the members of four

of the affected New Jersey Boards and

their executive directors (approximately

40 people in all) may also be subjected

to compulsory process by the Commission,

and may eventually be served with formal

administrative complaints, as was’ the

case with the Massachusetts Board of

Registration in Optometry and others.

Amicus believes that the Federal

Trade Commission's assertion of the

jurisdiction to engage in such admin-

istrative enforcement actions against

(Footnote Continued From Previous Page)

by the FTC in its future regulatory and

disciplinary activities in the area of

advertising regulation.

state agencies is in fact "plainly spuri-

ous" (cf. FIC v. Swanson, 560 F.2d 1, 2

(lst Cir. 1977)) and that the question of

whether the FITC is mistakenly asserting

this jurisdiction should be resolved

promptly, not just because of the obvious

substantial impact on the resources of

the states involved and of the Commission

itself, but because the Commission's

assertion of such jurisdiction consti-

tutes an unprecedented and possibly

unconstitutional direct attack on state

sovereignty that was never intended by

Congress. The Commission's present

activity therefore implicates important

national policies of federalism vis a vis

antitrust enforcement which can ulti-

mately be resolved only by this Court.

Amicus further believes that the instant

case provides an appropriate factual

setting for the resolution of this

important question. Amicus therefore

urges that the petition be granted.

SUMMARY OF ARGUMENT

The Federal Trade Commission Act

(hereinafter the "FTCA") was never

intended by Congress to empower the

Commission to enforce the antitrust laws

against state boards and their members

and to issue administrative orders pur-

porting to hind the states’ future regu-

latory and adjudicative conduct. Under

settled principles of statutory interpre-

tation, the Commission's jurisdiction

over "persons, partnerships and corpora-

tions" should be deemed not to include

such public entities. Moreover, the

assertion of such jurisdiction by a fed-

eral administrative agency may be pro-

hibited by Tenth Amendment principles.

This basic question should have been

addressed by the Courts below where the

FTC's authority even to investigate the

Massachusetts Board was based on an

assumption of just such jurisdiction.

This issue is clearly not coextensive

with the Parker state action immunity

issue (See Parker v. Brown, 317 U.S. 341

(1943)) which the decision below ad-

dresses. In any event, on either issue

the court below had before it sufficient

information to make the required in-

quiries and to have decided as a matter

of law that the subpoenas should not have

been enforced.

wisi

ARGUMENT

STATE AGENCIES SUCH AS _ THE

MASSACHUSETTS BOARD OF REGIS-

TRATION IN PHARMACY ARE NOT

"PERSONS" WITHIN THE MEANING OF

15 U.S.C. § 45 SUBJECT TO PRO-

SECUTION IN AN ADMINISTRATIVE

PROCEEDING BEFORE THE FEDERAL

TRADE COMMISSION AND TO ADMINI-

STRATIVE CEASE AND DESIST

ORDERS PROHIBITING PROMULGATION

AND ENFORCEMENT OF REGULATIONS

PURSUANT TO STATE LAW. THE SUB-

POENAS ISSUED IN THIS MATTER

WERE BASED ON THE COMMISSION'S

PLAINLY SPURIOUS ASSERTION OF

SUCH _. ENFORCEMENT AUTHORITY

AND THEREFORE SHOULD NOT BE

ENFORCED.

In the decision challenged by peti-

tioners me hs the Court of Appeals accep-

ted as its first premise that resolution

of the question of whether the FTC had

any lawful purpose in issuing the con-

tested subpoenas depends on whether the

Board regulations were entitled to immu-

nity under the doctrine first enunciated

in Parker v. Brown, 317 U.S. 341 (1942).

The Court found that the immunity ques-

tion involved a factual dispute which

should not be settled in a subpoena

enforcement proceeding (Pall). The Court

of Appeals erred in this initial premise

and its final decision.* The resolution

of the question of eit the FIC had

any lawful purpose in deposing the Board

members depends in the first instance on

whether the Commission has any statutory

* With respect to the Circuit Court's

disposition of the Parker “immunity”

defense for enforcement of the subpoena,

Amicus fully agrees with petitioners that

the Parker issue should also have been

decided in their favor on the record

below, without the need for further

fact-finding. The regulations at issue

were identified and the nature and suffi-

ciency of the "state action” involved in

their promulgation and enforcement is

clear from the Massachusetts statutory

scheme and case law. Any information to

be gleaned from an examination of the

Board members would be irrelevant to a

resolution of the issue.

9: ie op

authority to prosecute a state agency in

an administrative proceeding for promul-

gating regulations allegedly violative of

the antitrust laws, the admitted focus of

the investigation below (Pa66 to Pa67).

Amicus contends that the Commission lacks

such authority. 7

The Federal Trade Commission is a

creature of statute and cannot act in

excess of the powers that have been

delegated to it. Exxon Corp. v. F.7.C.,

665 ¥.40 12474, 12477. 40.0. . Cit. £964).

These powers are derived from the Federal

Trade Commission Act, 15 U.S.C. § 41 et

seg. The Act declares that "unfair meth-

ods of competition in or affecting com-

merce, and unfair and deceptive acts and

practices in or affecting commerce are

unlawful." 15 U.S.C. § 45(a)(1).

The Commission is empowered to "prevent

= >

persons, partnerships, or corporations"

from engaging in such proscribed conduct.

Where the Commission has reason to be-

lieve that a "person, partnership, or

corporation" is engaging in such conduct

it can proceed to issue an administrative

complaint against such "person, partner-

ship, or corporation." 15 U.S.C. § 45

(b).

It was clear from the record’'in the

subpoena enforcement proceeding below

that the Commission's investigation was

nothing more than a preliminary step

leading to just such an enforcement

proceeding against petitioner (Pa40

to Pa4l, Pa52, Paoél, Pa63, Pa66 tc Pa67).

It is equally clear that Congress never

intended agencies in the executive

departments of state governments to be

included as "persons" within the meaning

« 12 «

2

of Section 45, and thus the _ subjects

of such federal administrative agency

enforcement actions. The plain language

and legislative histories of Section 45

and related sections of the act together

with relevant case law show no intent to

permit such extraordinary and possibly

unconstitutional wholesale intrusion into

the sensitive area of federal-state rela-

tions.

A. The Plain Language of the

Provisions of the Federal

Trade Commission Act and

the Obvious Inferences to

be Drawn Therefrom Clearly

Limit the "Persons" In-

cluded in the Commission's

Enforcement Authority to

Private Entities Engaged

in Business.

Within the Federal Trade Commission

Act, the whole context of the sections in

which "persons, partnerships, or corpora-

tions" appear as possible targets of FTC

e 23 «

enforcement proceedings relate to busi-

ness milieus. With one significant

exception, nowhere in the Act is the term

"person" defined or used in a context to

suggest a Congressional intent to include

a state agency or officials within the

ambit of the term. For example, the

limiting exceptions in Section 45(a)(2)

are all business entities. Also, the

factors to be included in a penalty

determination under Section 45(m)(1)(c)

include "the effect on the ability to

continue to do business." The additional

powers of the Commission include investi-

gations of the organization, business,

conduct, practices and management of

"persons, partnerships, or corporations."

15 U.S.C. § 46(a). The Commission is

also required to reduce the impact of

this section on "small businesses." In

="

Section 52, "persons, partnership or

corporations" are prohibited from dis-

seminating false advertisements inducing

purchases of food, drugs, devices or cos-

metics." This whole section obviously

has no application to government agen-

cies and yet the same phrase is used

without qualification.* Finally, in

civil actions by the Commission under

* Significantly, the FTC's investiga-

tive authority under 15 U.S.C. § 49 was

originally confined to corporations, but

was amended to include "persons, partner-

ships or corporations” in 1975 only to

parallel other sections of the Act. See

P.L. 93-637, Title II, § 203. Comparison

of this pointed repetition of "persons,

partnerships, or corporations" in the

FTCA with the use of the generic term

"person" in the antitrust acts (see, e.g.

>... WemeGee SS 7, ta and 15) provides

another strong argument for the more

limited scope of the FTCA term as simply

describing the various possible kinds of

business entities subject to the Commis-

sion's enforcement powers.

= we

Section 57(b), the court may redress

injury to "consumers or other persons,

partnerships, or corporations" (obviously

meaning consumers or other business enti-

ties, as competitors).

The conclusion that the "persons,

partnerships or corporations" who may

violate Section 45 are business entities

is reinforced by the fact that, where

"persons" is meant to include state

entities, it is specifically so defined.

In Section 57b-1 the term "persons," as

used to designate those who may be called

on as witnesses to give oral testimony or

to produce documents in connection with

an investigation, is defined for purposes

of that section only to include any

natural person, partnership, corpora-

tion, association, or other legal entity,

including any person acting under color

or authority of state law." This 1980

extension of the investigatory powers of

the Commission simply made it clear that

civil investigative demands could be

served on "persons" other than the busi-

ness entity that is the focus of the

investigation and that all "persons" as

defined in Section 57b-1 could be called

upon as witnesses. That Congress deemed

it necessary to expressly include agents

of state governments in the definition of

"persons" for this section strongly

indicates that government entities were

not intended to be included as targets of

FTC enforcement authority elsewhere in

the Act. Had Congress intended state

agencies and officials to be included

in the definition of "persons" under

Section 45, Congress would have so spe-_

cified as it did in Section 57b-1. Cf.

United States v. Cooper, 312 U.S. 600,

607 (1941).

B. The Legislative History of

the FCTA Shows No Intent

to Permit Administra-

tive Enforcement Actions

Against State Agencies.

Moreover, Where Congress

Has Spoken to the Issue of

Antitrust Remedies Avail-

able Against Government

Entities, It Has Evinced a

Clear Intent to Limit Such

Remedies to Court Actions

Enjoining Enforcement of

Preempted Enactments.

The legislative histories of the

FTCA and its many amendments contain no

hint of the possibility that the Commis-

sion's enforcement powers extended to

state agencies or in fact to any public

entity.* Nevertheless, the Commission

* The legislative history of the

Federal Trade Commission Improvements Act

of 1980 does, however, call attention to

(Footnote Continued On Following Page)

» 22 @

asserted in its brief to the Court of

Appeals that the 1975 Amendment (in

(Footnote Continued From Previous Page)

the FTC's propensity to go _ beyond

congressional intent in exercising its

statutory powers. Thus, citing numerous

instances of the FTC's incorrect assump-

tion of jurisdiction, Congress enacted

the FTC Improvements Act expressly limit-

ing FTC rulemaking authority in the areas

of used car warranties, children's adver-

tising and voluntary standards and certi-

fications of manufactured goods. The

Improvements Act also amended § 6 of the

FTCA to explicitly make the Commission's

investigative and reporting powers inap-

plicable to the business of insurance

because the FTC was misconstruing the

jurisdictional limitations clearly set

forth in the McCarran-Ferguson Act, 15

U.S.C. §§ 1011l=- 1015, which declared that

it was Congress' policy "that the -

continued regulation and taxation by the

several States of the business of insur-

ance is in the public interest." The

Senate Report on this bill noted that the

FTC had for eighteen months devoted a

"considerable portion of its resources”

to insurance industry investigations that

were unauthorized by its statute. 5S. Rep.

(Footnote Continued On Following Page)

a 20 «

P.L. 94-637, § 201(a)) substituting "in

or affecting commerce" for "in commerce"

wherever the phrase appeared within the

FTCA extended Commission jurisdiction to

include state regulatory bodies (Brief

for Appellees, p. 22, 2. 20). Jet, this

argument is rebutted in the legislative

history of the amendment, which speaks

solely to remedying the geographic imped-

iment to FTC jurisdiction where there was

no proof of actual interstate movement of

goods. See H.R. No. 93-1107, 93rd Cong.

2nd Sess., reprinted in 1974 U.S. Code

Cong. & Admin. News 4702, 7711-7712.

See, also, Jefferson Cty. Pharm. Assoc.

(Footnote Continued From Previous Page)

No. 96-500, 96th Cong., 2d. Sess. 2, 13-

15, reprinted in 1980 U.S. Code Cong. &

Admin. News 1102, 1103, 1114-1116.

a 20 «

¥; Abbott Labbe, 460 U.8. 150, i156 n. 12

— (1983) (Robinson-Patman Act's coverage

extending only to acts “in commerce" as

compared to the Sherman and Clayton Acts

extension to activity "in or affecting

commerce" signifies a difference only in

the "transactions" covered rather than

that ‘debe chose not to cover the

same range of persons whose conduct is

otherwise subject to the Act.")

Signfficantly, at the same time

that the Commission began its numerous

actions against state professional

boards, an activity finding no support

either in the provisions of the FTCA or

in Congressional statements as to the

Act's purpose and meaning, Congress was

enacting the Local Government Antitrust

Act of 1984, providing an explicit state-

« Bi «

)

ment of its intent to limit antitrust

action against government entities to

actions in the courts seeking injunctive

relief against enactments allegedly

preempted by the antitrust laws. This

1984 Act, codified as 15 U.S.C. §§ 34-36,

was Congress’ response to this Court's

holding in Community Communic. Co. v.

City of Boulder, 455 U.S. 40 (1982). The

Boulder case appeared to support. the

finding of liability for damages as well

as injunctive relief under the Clayton

Act against a municipality exercising the

purely governmental function of passing

and enforcing an ordinance which was

inconsistent with the antitrust laws and

not saved from preemption by Parker

"immunity." Congressional concern over

the prospect of large damage awards

against local governments prompted the

=. oe

passage of the Act, which exempts local

governments and their officials and

employees from damages under the Clayton

Act. The Act does not mention state

governments or officials. The obvious

inference to be drawn from the failure to

include state agencies and officials

within the protection of the Local Gov-

ernment Antitrust Act is that Congress

assumed that state agencies were already

"immune," at least from penalties and

damages, and needed no such protection.

This conclusion is confirmed by the Act's

legislative history.* Congress accepted

* Thus, House Report No. 98-965 noted

that the legislative history of the

Sherman Act "reveals no evidence of an

express Congressional intent to apply

antitrust laws to either state or local

governments." H.R. No. 98-965, 98th

(Footnote Continued On Following Page)

« SF «

the decision of this Court as to the

interpretation of "persons" in the

(Footnote Continued From Previous Page)

Cong., 2d Sess. 4, reprinted in 1984

U.S. Code Cong. & Adm. News 4602, 4605.

Further, the House Committee noted that

the Sherman Act was clearly directed at

"combinations ‘in restraint of trade’ as

that phrase was technically understooc

under English common law...." Id.

Under English common law, "re-

straints of trade" applied

solely to the actions of indi-

viduals; a "monopoly" could

only arise from an act of

sovereign power.... Thus

restraint of trade prohibitions

-- such as those appearing in

statutes forbidding "engross-

ing" and "forestalling" -- were

directed against "whatsoever

person or persons...." No

status or reported case has

been found in which a "body

politic", as opposed to a pri-

vate person or "body cor-

porate", was subjected to

sanction under restraint of

trade statutes. [id. n. 2

(citations omitted) ]

» 28

4 Clayton Act, but the clear sense of the

, Congressional action is that the appro-

priate relief against any government

entity violating the antitrust laws

| _ should be limited to injunctive relief

L in the courts prohibiting the enforcement

of objectionable legislation.*

The FTC's actions against’ state

licensing boards envision, inter alia,

potential monetary recovery see, e.g.,

15 U.S.C. §§ 45(1)(m), expressly rejected

by Congress as a salutary remedy avail-

able against local governments. See 15

* The legislative history indicates

that the Department of Justice or the FTC

retained the right to seek injunctive

relief from the courts in enforcement

actions against local governments under

other statutory provisions. B.m. BO.

98-965, 98th Cong. 2d Sess. 2, reprinted

in 1984 U.S. Code Cong. & Admin. News

4602, 4603.

= 68 «

ne WEES Se PO EP Aree

U.S.C. §§ 34-36. As previously noted,

the legislative history of the Local

Government Antitrust Act indicated that

Congress assumed that such remedies were

unavailable as against states. Thus, the

FTC's exercise of jurisdiction in this

matter is completely inconsistent witt!

recent expressions of Congressiona)

intent concerning antitrust remedie:

available against government entities

Cc. FTC Enforcement Actions

Against State Agencies

Constitute an Unconstitu-

tional Infringement on

State Sovereignty.

As argued, ante, Congress clearl

did not intend to grant the unprecedente<

authority the Federal Trade Commissio1

has so boldly asserted here. Amicus als

believes that the separate question 0:

whether Congress could have intended t«

authorize such jurisdiction is one 0:

= 26 =

heatpe

constitutional dimension, in that the

Commission's mistaken assertion of juris-

diction over state agencies not only

constitutes an offense to general princi-

ples of federalism but in fact exceeds

the constitutional limits on federal

action affecting the states under the

Commerce Clause.

In Garcia v. San Antonio Metro, 469

U.S. 528 (1985) this Court, while raising

the threshold beyond which legislation

may be found to exceed the bounds of the

Commerce Clause, nevertheless acknowl-

edged that the States do retain "a sig-

nificant measure of sovereign authority."

Id. at 549 (quoting from Justice Powell's

dissent in EEOC v. Wyoming, 460 U.S. 226,

269 (1983)). The Court declined, how-

ever, to “identify or define what affir-

;

mative limits the constitutional struc-

a. 27 «

ture might impose on federal action

affecting the States under the Commerce

Clause." Id. at 556.*

Examination of the enforcement pro-

visions of the FTCA and the ways in which

they have already been utilized by the

Commission against State professional

boards clearly demonstrates that in this

case the “affirmative limits" of federal

power have been exceeded. The Commis-

* The Commission's apparent erroneous

belief that there are no such constitu-

tional limits on its jurisdiction has

already been noted in N.C. St. Bd. of

Regis. for Pro. Eng. v. FITC, 615 F. Supp.

1155 (D.C. N.C. 1985) (dismissing on

ripeness grounds a challenge to the

Commission's issuance of subpoenas to a

North Carolina professional board, where

the Commission had not yet moved tc

enforce the subpe@nas pursuant to 15

U.S.C. § 49). There, the Court pointed

out that, despite the Commission's asser-

tions, Garcia had not written the Tenth

Amendment out of the Constitution. 615

F. Supp. at 1162, n. 7.

» 23 «

sion's statutory enforcement powers

include prosecution in an administrative

adjudication, the issuance of final cease

and desist orders and the enforcement of

those orders in actions seeking injunc-

tions and substantial civil penalties.

15 U.S.C. § 45. Case law interpreting

these provisions has accorded the FTC

enormous power to fashion orders not only

to halt past unlawful practices but to

"fence in future conduct.* There can

* The breadth of the Commission's

power to enforce Section 5 of its Act was

described as including its power to

declare unlawful under its Act practices

that "conflict" with the basic policies

of the Sherman and Clayton Acts even

though such practices may not actually

violate these laws. FTC v. Brown Shoe

Co., 384 U.S. 316, 320-321 (1966). In

FTC v. Sperry & Hutchinson Co., 405 U.S.

233 (1972), the FTC was likened to a

"court of equity" which is empowered to

(Footnote Continued On Following Page)

» 56 «

be no dispute that the focus of the

Commission's investigation here is the

exercise of the full panoply of these

powers against the activity of a State

agency exercising strictly governmental

functions. The regulations challenged by

the Commission have been enacted in

scocmbanes with Massachusetts law which

gives them the same effect as state laws

(See Pb15, Pa72 to Pa74). The Board is

also empowered to enforce these regula-

tions and may, after an administrative

hearing, penalize its licensees for their

(Footnote Continued From Previous Page)

consider "public values beyond simply

those enshrined in the letter or encom-

passed in the spirit of the antitrust

laws." Id. at 244. See also, F.T.C.

v. National Lead Co., 352 U.S. 419,431

(1957).

o 26.

—_ -

violation or the violation of the sta-

tutes governing the practice of pharmacy.

(Mass. Gen. L., ch. 112, § 40, § 42A).

Board decisions in these matters are

appealable directly to the appellate

courts (Mass..Gen. L., ch. 112, § 64).

The exercise of these quasi-legislative

and quasi-judicial functions are indis-

putably the attributes of state sover-

eignty.

The Massachusetts legislative scheme

was enacted under its police powers and

dates back to 1885. This kind of regu-

latory scheme is traditionally the exclu-

Sive province of the states. States

license members of professions to ensure

that they are qualified according to a

standard set by the state and regulate

their practice thereafter according to

standards of conduct deemed necessary for

the protection of the health and safe-

ty of the public.* This Court has

* The consensus of the states is that

the regulation of professional services

presents special problems, such as the

establishing of qualifications for

licensure, the examination of applicants

and the setting of professional stan-

dards, which require that some of the

regulators be members of the regulated

community. The obvious direction of the

Commission “investigation” in this case,

where the Commission is proposing to

question the Massachusetts Board, six

members of which are pharmacists, about

"the role of pharmacists and related

professional and trade associations in

the enactment, amendment, enforcement,

and interpretation of the Regulations"

(Pa61), is to directly interfere with the

Board's reculatory and adjudicative

functions and also to remold the basic

structure of state regulation of the

licensed professions.

The inquiry sanctioned by the Cir-

cuit Court below was by the Court's own

description an inquiry grounded on the

status of the Board members as members of

the regulated profession who might,

despite the fact that they are clearly

public officials under the Massachusetts

(Footnote Continued On Following Page)

» 89 «

consistently recognized the states' spe-

cial responsibilities in this_ regard.

See, e.g., Ohralik v. Ohio State Bar

Assoc., 436 U.S. 447, 460 (1978). See

also, Virginia State Board of Pharmacy v.

Virginia Citizens Consumer Council, Inc.,

425 U.S. 748 (1976) recognizing the

states’ strong interest in maintaining a

high degree of professionalism on the

(Footnote Continued From Previous Page)

statutory scheme, be acting as "private

parties" in “any ‘anticompetitive’ Board

activities" (Pa8). The sanction of such

a fishing expedition without evidence or

sound legal theory and without even

requiring as a threshold inquiry an

examination of the regulations at issue

to determine whether they would on their

face violate the antitrust laws (cf.

Fisher v. City of Berkeley, 475 U.S. 260

(1986)) can only result in a chilling

effect on the States' choice of appro-

priately constituted professional boards

and on the willingness of competent pro-

fessionals to serve as Board members.

= $3 «

silane iaiia aii iaiaiiaa i ii

part of licensed pharmacists (Id. at 766)

and recognizing further that the regula-

tion of the health professions is not the

same as "dealing with traders in commodi-

ties, but with vital interests of public

health" where different standards of con-

duct are required for consumer protection

(concurring opinion of Chief Justice

Burger at PP. 773-775, quoting from

Semler v. Oregon State Board of Dental

Examiners, 294 U.S. 608, 612 (1935)).

In the face of this Court's histori-

cal recognition of the seminal role of

the states in regulating the professions,

the Commission now boldly asserts author-

ity under 15 U.S.C. § 45 to act as a

"Super-board" in all the states, treating

these state agencies no differently from

any other business entity-respondent,

filing administrative complaints and

a $4 «

issuing final orders forever binding the

Boards as Boards in their future regula-

tory and adjudicative activity.*

The complaints and final consent

orders already a matter of public record

in cases of FTC enforcement actions

against professional boards well illus-

trate the unconstitutional dimensions of

the exercise of such enforcement powers

against the states. While these cases

have been settled by consent, the terms

of the consent orders are entirely con-

sistent with the exercise of the Commis-

* Concerns for FTC attempts to act as

a "super-legislature" allowed to "roam at

large" have been expressed by Professor

Milton Handler in his article Anti-

trust Law Reform, 82 Col. L. Rev. 1287,

1326 (1982). In New Jersey's experience

the FIC representatives clearly felt

authorized to actually dictate the sub-

stantive content and language of the

advertising regulations of the Boards.

—.

a

sion's authority under 15 U.S.C. § 45,

were it to be construed to extend to pub-

lic entities. For example in The Matter

of the Montana Board of Optometrists, FTC

Docket No. C-3161, 50 Fed. Reg. 24203,

the final consent order enjoins the Board

from adopting, maintaining or enforcing

"rules," "policies" or “any course of

conduct" that would "prohibit" or "dis-

courage" the advertising of price-related

terms or claims of superiority in adver-

tising ophthalmic goods and services (Id.

at p. 24205). The order, in vague and

overbroad terms, in effect permanently

enjoins the Montana Board from promulgat-

ing and enforcing rules arguably within

its mandate from the Montana Legislature.

It actually ranges in scope all the way

from dictating the kind of postage to be

used for required notice to licensees to

~ S68 v<

requiring the repeal of current regula-

tions. Id. at pp. 24205-24206.

To fully comprehend the dimensions

of the intrusiveness of Commission orders

purporting to enjoin both regulatory and

adjudicative activities by the Board, one

need only contrast them with the policies

underlying Younger v. Harris, 401 U.S. 37

(1971). In Younger and later cases, it

was held that principles of comity and

federalism forbid enjoining pending state

proceedings except in the rare case where

such an action is necessary to avoid

great and immediate irreparable injury.

Indeed, this Court has recently extended

-the Younger abstention holding to forbid

interference by federal courts in state

administrative proceedings. See Ohio

Civil Rights Comm'n _v. Dayton Schools,

477 U.S. 619 (1986). Thus, the Commis-

« 37 «

sion is boldly asserting the authority to

do what normally is forbidden even to the

federal courts.

As this Court found in Middlesex

Ethics Comm. v. Garden State Bar Assn.,

457 U.S. 423 (1982) (reversing a decision

not to abstain from consideration of a

challenge to attorney disciplinary pro-

ceedings) the State has an important

interest in assuring the professional

conduct of licensed attorneys and there

was no reason to assume that a competent

State tribunal could not decide the First

Amendment issue raised by the challenge.

Id. at 434-435. Similarly, the enforce-

ment activity undertaken by the Commis-

sion in contravention of important State

interests with respect to other licensed

professionals is not even necessary to

protect the federal interest in antitrust

« 266

law enforcement, where adequate remedies

to avoid unnecessarily anticompetitive

regulation exist in state procedures for

review of regulations and in the possi-

bility of private parties' obtaining

injunctive relief from the courts.

Most importantly, the Commission's

asserted authority here to interfere with

states' historical regulation of the

professions by affirmatively intruding

upon a state agency's legislative and

adjudicative processes is clearly quali-

tatively different from the Congressional

assertion of power to simply preempt (and

thus render void) State legislation, or

to require a State as employer to comply

ere the Fair Labor Standards Act as in

the Garcia case. Nor can it be compared

with a requirement that a State seek

approval or certification of standards in

i

order to exercise an option to receive

benefits from a federal funding program.

See, e.g., King v. Smith, 392 U.S. 309,

333 (1968).

Indeed, even in the context of

a federal funding program this Court has

recognized limitations upon supersedure

of state law. Thus, in Bowen v. American

Hospital Assn., 476 U.S. 610 (1986) this

Court, while holding that certain regula-

tions of the Secretary of Health and

Human Services (HHS), including regula-

tions imposing cbligations on state child

protective agencies, were not authorized

by federal law, found that such agencies

might be required to document their com-

pliance with federal law to receive

federal funding but that they could not

be required to act as "field offices of

the HHS bureaucracy." Id. at p.

« 40 «

a

4

oe

4

cs

r:

eee

ss

F

agencies" would be to "countenance a

Significantly, this Court further noted

that to uphold the attempt by HHS to

"give detailed marching orders to state

novel and serious intrusion on state

autonomy." Id. at p. oa

Similarly, what is at issue

here is the unprecedented assertion of

federal authority to try a State agency

in an administrative tribunal for the

"offense" of having promulgated regula-

tions that may or may not be preempted by

the federal antitrust laws, and to issue

an administrative agency order subjecting

the State agency to direct oversight by

the Commission, thus usurping the State's

authority in its future regulatory and

adjudicative activities.

It is, therefore, evident that

legislative sanction of this degree of

direct intervention by a federal agency

into the legislative and adjudicative

activities of a state agency would im-

properly cross over the line between the

power granted to Congress under the Com-

merce Clause and the "reserved" powers of

the States.

D. The Commission's Asserted

Authority to Investigate

the Activities of Peti-

tioners for the Purpose

of Determining Whether to

Initiate An Enforcement

Proceeding Was Plainly

Spurious and the Sub-

poenas Issued to Peti- ~

tioners Should Have Been

Quashed.

The question of whether the Commis-

sion has the authority to subpoena wit-

nesses in an investigation admittedly

being conducted for the purpose of deter-

mining whether to file an administrative

complaint against a state agency such as

the Massachusetts Board is purely a ques-

— -

’ tion of law, the resolution of which

} requires interpretation of the FICA. In

support of its decision in this matter,

the Circuit Court quoted the following

passage from Federal Trade Commission v.

Swanson, 560 F.2d 1 (lst Cir. 1977):

An agency's investigations

should not be bogged down by

premature challenges to its

regulatory jurisdiction. These

subpoenas do not fit within the

narrow exception proscribing

agency investigations that

wander unconscionably far

afield; the Commission's regu-

latory jurisdiction over appel-

lants may be clouded but it is

not plainly spurious. [Id. at

2.)

Amicus respectfully submits that

this case fits squarely within the "nar-

row exception proscribing agency investi-

gations that wander unconscionably far

afield." For the reasons stated in the

foregoing argument it is clear that the

FTCA does not and, indeed, could not

grant such unprecedented authority to

the Commission. The assertion of this

authority is, therefore, "plainly spuri-

ous" and the subpoenas should not have

been enforced.

« £4 «

CONCLUSION

Amicus respectfully submits for the

foregoing reasons that the petition for

certiorari should be granted.

Respectfully submitted,

W. CARY EDWARDS

ATTORNEY GENERAL OF NEW JERSEY

By a. “mm. Sn

Andrea M. Silkowitz

Assistant Attorney General

ANDREA M. SILKOWITZ

Assistant Attorney General

Of Counsel

REGINA H. NUGENT

Deputy Attorney General

On the Brief

ALICE J. GUTTLER

Deputy Attorney General

On the Brief

oe @5 «