Amicus Curiae Brief — National Petroleum Refiners Ass'n v. Federal Trade Commission

IN THE

Supreme Court of the United States

OCTOBER TERM, 1973

No. 73-806

Nationa, PerfOLEUM Rerrvers Association, et al.,

Petitioners,

v.

FepersL Trave Commission, et al.,

Respondents.

ON PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

BRIEF AMICUS CURIAE FOR THE

NATIONAL RETAIL MERCHANTS ASSOCIATION

Ina M. Mriistern

Irvine ScHER

Wet, GotsHat & Mances

767 Fifth Avenue

New York, New York 10022

Attorneys for Amicus Curiae

December 3, 1973

TABLE OF CONTENTS

Interest of Amicus Curiae

Reason for Granting the Writ

Table of Citations

Cases:

A.L.A. Schecter Poultry Corp. v. United States, 295

U.S. 495 (1935)

Burlington Truck Lines, Inc. v. United States, 371 US.

156 (1962)

Cream of Wheat Co. v. FTC, 14 F.2d 40 (Sth Cir. 1926)

7

7

FTC v. Beech-Nut Packing Co., 257 U.S. 441 (1922)... 7

FTC v. Gratz, 253 U.S. 421 (1920) -..2.2.2........-.---eeeseseoees 6

7

8

FTC v. R. F. Keppel & Bro., Inc., 291 U.S. 304 (1934)

FTC v. Sperry & Hutchinson Co., 405 U.S. 233

(1972) 5, 6, 7,

Mourning v. Family Publications Serv., Inc., 41

U.S.L.W. 4517 (U.S. Apr. 24, 1973)

NLRB v. Universal Camera Corp., 340 U.S. 474 (1951)

Oppenheim, Oberndorf & Co., Inc. v. FTC, 5 F.2d 574

(4th Cir. 1925) 7

Toledo Pipe-Threading Mach. Co. v. FTC, 11 F.2d 337

(6th Cir. 1926)

Universal Camera Corp. v. NLRB, 340 U.S. 474 (1951)

White Motor Co. v. United States, 327 U.S. 253 (1963)

Statutes: PAGE

Administrative Procedure Act

ke ee 4

Section 7, 5 U.S.C. § 556 . 4

| Eee 4

5 U.S.C. $§ 701-706 7

Federal Trade Commission Act

Section 5, 15 U.S.C. $45 2

Rules and Regulations:

Federal Trade Commission Trade Regulation Rules

Care Labeling of Textile Wearing Apparel, 16

C.F.R. § 423 (1972) 3

Cooling-off Period for Door-to-Door Sales, 16

a I ctccsssctncecieeicmne-necsanenicmiseciininasonsen 3

Discriminatory Practices in Men’s and Boys’

Tailored Clothing, 16 C.F.R. § 412 (1968) —...... 3

Incandescent Lamp Industry, 16 C.F.R. § 409

(1971) 3

Retail Food Store Advertising and Marketing

Practices, 16 C.F.R. § 424 (1971) 3

Posting of Minimum Octane Numbers on Gasoline

Dispensing Pumps, 16 C.F.R. § 422 (1972) 200.. = 3

Miscellaneous:

Federal Trade Commission Proposed Trade Regu-

lation Rule on the Preservation of Consumers’

Claims and Defenses

36 Fed. Reg. 1211 (1971) saline co

IN THE

Supreme Court of the United States

OCTOBER TERM, 1973

No. 73-806

rp

NaTIONAL PETROLEUM REFINERS AssociATION, et al.,

Petitioners,

v.

FeEperaL TRADE Commission, et al.,

Respondents.

ON PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

rr

BRIEF AMICUS CURIAE FOR THE

NATIONAL RETAIL MERCHANTS ASSOCIATION

Interest of Amicus Curiae

The National Retail Merchants Association (“NRMA”)

is a national trade association representing more than 2,000

department store and specialty store members, which

operate some 26,000 retail outlets throughout the United

States. Its members range from the largest nationwide

department store chains to small neighborhood apparel

stores.*

* NRMA has received consent from the parties to file this brief

in support of the petition for a writ of certiorari. Consent was

received from the Solicitor General by letter dated November 27,

1973, and consent was received from petitioners by letter dated

November 29, 1973. Both letters have been filed with the Clerk

of this Court.

Se i oe

2

The principal business of NRMA members is to sell goods

to and provide services for consumers. Virtually every

phase of their advertising, marketing and service activities

is subject to the prohibitions of Section 5 of the Federal

Trade Commission Act, 15 U.S.C. § 45 (hereinafter “Sec-

tion 5”) against unfair methods of competition and unfair

or deceptive trade practices.

Section 5 embraces the antitrust laws. It embodies as

well additional principles designed to reach less defined

anti-competitive behavior. It also draws upon the common

law and upon basic community concepts of business pro-

priety. Through almost sixty years of enforcement, Sec-

tion 5 has been given content by decisions of the Commis-

sion based upon facts developed and tested in adjudications,

with full rights to contest and full judicial review on the

basis of a factual record. While five Commissioners thus

have broad discretion, that discretion is saved from admin-

istrative fiat by the constraint that decisions be based upon

probative and tested facts.

The decision below would now vest in the five Commis-

sioners the authority to issue substantive rules of business

conduct under the Federal Trade Commission Act. This

is authority to hand down the law based upon such facts

or nonfacts as the Commission may choose, and to entertain

comment with minimal obligation to take heed. It would

permit the Commission to practice legislative art subject

only to the possibility that a court, handicapped by the

absence of a genuine record of probative facts, may find

Commission pronouncements “arbitrary or capricious.”

Given the reach of the Federal Trade Commission Act and

the breadth of the standards under Section 5, the authority

is, in fact, power to regulate by code every detail of the

American economy.

The effect of the decision below can be seen in its impact

upon the microcosm of the retailer. The new authority

3

to regulate reaches into the myriad day-to-day advertising,

selling and marketing practices of each of NRMA’s retailer

members. That has been the actual fact during the past

few years in which the Commission has first ventured to

assert its newly claimed code power.* Indeed, the thou-

sands of categories of merchandise and services advertised

and sold by NRMA members, and their varying methods

of purchase, distribution, and marketing, make it difficult

to envision trade regulation rules which would not have an

impact upon retailers.

As the court below observed, the question of whether the

Commission is “empowered to promulgate substantive rules

of business conduct” is an “important” one (Petitioners’

Appendix, p. 31). The question goes far beyond the merits

of the Octane Posting Trade Regulation Rule involved in

this case, 16 C.F.R. § 422 (1972), or any other particular

trade regulation rule. Were the Commission simply assert-

ing its authority to state its views of the law to the public,

to indicate its enforcement intentions, or to furnish guid-

ance in the form of advice, this would be consistent with

the principles that have governed in the past. But that is

*NRMA has in recent years submitted statements to the

Federal Trade Commission in connection with such trade regula-

tion rules as those dealing with: the incandescent lamp industry,

16 C.F.R. § 409 (1971); retail food advertising and marketing prac-

tices, 16 C.F.R. § 424 (1971); discriminatory practices in the men’s

and boys’ tailored clothing industry, 16 C.F.R. §412 (1968); care

labeling of textile wearing apparel, 16 C.F.R. § 423 (1972); cooling-

off periods for door-to-door sales, 16 C.F.R. $429 (1972); and the

preservation of consumer claims and defenses, 36 Fed. Reg. 1211

(1971). Representatives of NRMA have appeared and testified at

hearings held by the Commission with respect to a number of these

proposals. In each of these submissions or appearances, NRMA

has either specifically addressed the issue involved in this case, or

it has referred to and reaffirmed its views on this issue expressed

in previous submissions. Thus, NRMA has upon a number of

occasions been directly involved in the significant issue of adminis-

trative law which is being sought to be resolved herein.

4

not the case. The authority here asserted to regulate the

market place by code is a revolutionary break with the past.

The issue cannot be left unresolved. With the decision

of the court below, the Commission will proceed to issue its

codes, and businesses must continue to operate in the mar-

ket place. Under these circumstances, the promulgation of

rules does its greatest disservice to the public, to those who

seek to comply with the law, and to those who in good faith

may disagree.

REASON FOR GRANTING THE WRIT

The decision of the Court below will radically alter

the regulation of the American economy.

The decision below radically alters the manner in which

the federal government has enforced the trade regulation

laws.

In the past, Section 5 has been enforced on a case-by-case

basis through careful development of record facts and com-

prehensive judicial review of the fact-finder’s application

of the law to those facts. If the decision below is upheld,

the Commission will in the future be able legislatively to

make new law simply by giving notice of the action it pro-

poses to take, receiving comments from the public, and

taking final action on the basis of those comments and any

other matters it deems relevant, whether or not they are

part of the record. The Commission need not have any

factual evidence to support its action; it need only give a

brief statement of the reasons for its rules, which a review-

ing court (including this Court) is then constrained to

accept unless they are clearly arbitrary and capricious.*

* Compare Sections 7 and 8 of the Administrative Procedure Act,

5 U.S.C. §§ 556-57, pursuant to which the Commission has in the

past proceeded, with Section 4 of that Act, 5 U.S.C. § 553, which the

decision below now permits the Commission to utilize. See 5 U.S.C.

§§ 701-706 for the different standards of proof and judicial review

applicable to these two sets of proceedings.

5

The decision below has the following results.

1. The decision converts the Commission into a substi-

tute-Congress. It confers an expansive power to proscribe

by virtually ex parte determinations every and any detail

of the manufacture, sale, pricing, distribution, retailing,

financing, advertising, promotion, and point-of-sale presen-

tation of every product and service, whenever the Commis-

sion concludes that they are “unfair”.* This constitutes

“delegation running riot.” A. L. A. Schecter Poultry Corp.

v. United States, 295 U.S. 495, 553 (1935) (Cardozo, J., con-

curring). It renders superfluous other specific Congres-

sional enactments throughout the field of economic

regulation. It provides the basis for endless expansion and

diffusion by Commission trade regulation rules of federal

and state legislation. For example, the “Four Installmert

Rule” under the Truth-in-Lending Act, recently considered

by this Court in Mourning v. Family Publications Serv.,

Inc., 41 U.S.L.W. 4517 (U.S. Apr. 24, 1973), could equally be

comprehended in a Commission trade regulation rule.

2. The decision substitutes Commission administrative

fiat for more than half a century’s judicial development of

the antitrust and related laws. It emasculates the tradi-

tional role of the courts. Antitrust law has been developed

and applied against the backdrop of full record facts which

* The unlimited reach of the rule-making authority upheld by the

court below is starkly revealed by its recognition that the Commis-

sion’s rulemaking authority cuts deeply into and “widely across

virtually all of American business” ( Petitioners’ Appendix, p. 52),

and that it is:

“tantamount to a power to scrutinize and to control, subject

of course to judicial review, the variety of contracting devices

and other means of business policy that may contradict the

letter or spirit of the antitrust laws” (/d.).

This Court’s decision in FTC v. Sperry & Hutchinson Co., 405 U.S.

233 (1972), of course, extends the reach of Section 5 far beyond just

the letter or spirit of the antitrust laws.

6

courts are peculiarly suited to ascertain and develop. This

Court has itself insisted upon the need to establish anti-

trust principles upon a full understanding of the factual

stuff of which business practices are made. See White

Motor Co, v. United States, 327 U. S. 253, 263 (1963). Yet

if the decision below is left unexamined, the courts, inelud-

ing this Court, will no longer have any meaningful role

whenever the Federal Trade Commission chooses to act by

rulemaking. Such rules can never be tested against an

evidentiary record or probative facts, and will be subject

to reversal by the courts only if they are clearly arbitrary

and capricious.

3. The decision destroys the development of the entire

statutory framework of enforcement of the Federal Trade

Commission Act.

Underlying the historical, unquestioned technique of per-

mitting the Federal Trade Commission to expand what can

be included within the meaning of “unfair methods of com-

petition” or “unfair or deceptive acts or practices” in all

nationwide commerce was the recognition that those who

desired to regulate, and administratively to write new law,

would have to do so on facts adduced by sworn testimony

subjected to the acid test of cross-examination. No sugges-

tion as to the need for efficiency or expedition in the admin-

istrative process can negate that fundamental of due

process in the expansion of Section 5.

But the concept of the court below that “unfair methods

of competition” and “unfair or deceptive acts or practices”

in commerce may be fleshed out administratively by bind-

ing rules is the antithesis of this Court’s interpretation of

Section 5. In the historical sweep from the dissent of

Mr. Justice Brandeis in FTC y. Gratz, 253 U. S. 421, 429

(1920), to this Court’s opinion in FTC v. Sperry & Hutchin-

7

son Co., 405 U. S. 233 (1972),* it has been recognized that

the Commission would first issue a complaint charging that

certain alleged activities constitute a violation of Section 5

and should be proscribed; an adjudicatory hearing would

then be held for proof as to the facts alleged; a record

would be made; findings of fact entered; and the Commis-

sion’s factual determinations and legal conclusions would

then be subject to judicial review.

Given the sweep of the statute over every area of indus-

trial and business activity, it was never intended by Con-

gress or suggested by this Court that the Federal Trade

Commission could by @ priori determination itself write

new binding substantive rules. It was never suggested that

without an adjudicatory hearing, a record, and findings of

fact based on sworn testimony tested on the anvil of cross-

examination, the Commission could substitute merely an

opportunity for unsworn comment in the form of oral or

written statements; that the Commission could in part base

its new law-making on its own data never revealed for

examination or even comment; or that the Commission’s

ultimate determinations could be shielded from judicial

reversal unless found to be clearly arbitrary and capricious,

rather than lacking in substantial support on the basis of

an official record as a whole. Cf. Universal Camera Corp.

v. NLRB, 340 U.S. 474 (1951).

To the contrary, as this Court has stated in Burlington

Truck Lines, Inc. v. United States, 371 U.S. 156, 167 (1962)

(relied upon more recently in Sperry & Hutchinson Co.,

supra),

* See also FTC v. R. F. Keppel & Bro., Inc., 291 U. S. 304

(1934); FTC v. Beech-Nut Packing Co., 257 U. S. 441 (1922);

Cream of Wheat Co. v. FTC, 14 F.2d 40 (8th Cir. 1926); Toledo

Pipe-Threading Mach. Co. v. FTC, 11 F.2d 337 (6th Cir. 1926);

| gaa Oberndorf & Co., Inc. v. FTC, 5 F.2d 574 (4th Cir.

1925).

8

“Expert diseretion is the lifeblood of the administra-

tive process, but unless we make the requirements

for administrative action strict and demanding, ez-

pertise, the strength of modern government, can

become a monster which rules with no practical limits

on its diseretion.”

For this reason, the “agency must make findings that sup-

port its decision, and those findings must be supported by

substantial evidence.” 371 U.S. at 168. It is impossible to

believe that when this Court confirmed the Commission’s

expansive substantive authority in Sperry € Hutchinson,

supra, it was intended that Commission action pursuant to

such authority could be based on surmise, accumulated

“expertise” and other information not sworn, tested by

cross-examination, or even placed in an official record. But

that would be the effect of the decision below if it is not

reversed.

It is the Court of Appeals’ amalgamation of public util-

ity, transportation, communication, collective bargaining,

and other types of comprehensive regulatory authority with

the unlimited substantive power it finds was granted to the

Federal Trade Commission (Petitioners’ Appendix p. 52)

that must be examined by this Court. No license, no cer-

tification, no compliance with rate making is required to

engage in every aspect of American business. Substantive

rulemaking in the field of public utilities, communications,

transportation, security dealings, collective bargaining, and

the like, rests not only on comprehensive controls, but also

on developed agency expertise in the specific area of con-

trol. It can hardly be asserted that a single agency, the

Federal Trade Commission, possesses ubiquitous expertise

in every other facet of the American economy.

9

It is respectfully submitted that the decision below was

erroneous on a question of importance to the future legality

of virtually every act or practice in the entire economy.

Review by this Court is essential.

Respectfully submitted,

Ira M. Micustern

IRVING SCHER

Wet., GorsHaL & Mances

767 Fifth Avenue

New York, New York 10022

Attorneys for Amicus Curiae

December 3, 19738

CERTIFICATE OF SERVICE

1, Ina M. Miuusreiy, hereby certify that on this 3rd day

of December, 1975, copies of the Brief Amicus Curiae for

the National Retail Merchants Association On Petition for

Writ of Certiorari to the United States Court of Appeals

for the District of Columbia were personally delivered to

the office of the Solicitor General, Department of Justice,

Washington, D. C. 20530 and to the office of William Simon,

Esy., ¢/o Llowrey, Simon, Baker & Murchison, 1730 Penn-

sylvania Avenue, N.W., Washington, D. C. 20006, counsel

for petitioners; and that a copy of the above-referenced

brief was mailed, postage prepaid, to the Secretary of the

Federal Trade Commission, Washington, D. C. 20580. 1

further certify that all parties required to be served have

been served.

/s/

Tra M. Mitistem

767 Fifth Avenue

New York, New York 10022

Attorney for Amicus Curiae

LF I LEO PRL POE TEE LEGO LALOR ICE IE, CAEL ELIS

- .