Mr. WHITE. I agree with you entirely. If that constitutes a fraud. and I am willing to assume for sake of the argument that it does, let the consumer recover.

Senator PACKWOOD. He wouldn't have to prove his damages. he would just have to prove that the engine cost $100 less than what he assumed he would have gotten?

Mr. WHITE. He would have to prove in that instance what the value of what he paid for was, and what the value of what he got was and you subtract the latter from the former and that is his damages.

Senator PACKWOOD. You could prove it by representative claims. Mr. WHITE. That would not bother me.

Senator PACKWOOD. OK.

Mr. WHITE. What bothers me, Senator, is that this bill does not contemplate that situation only. It contemplates many, many other situations where there is no reason to think that consumers were misled. Yet the bill, in effect, presumes that they were. The bait and switch example is one. The line of type example is another one. The "significant benefits" example that is in my statement is another one. The FTC addresses a lot more than the fraudulent representation type situation that you are worried about, and properly so. This bill could be improved greatly.

First of all by its deletion, but something short of that would be to make it clear that only in those situations where fraud or misrepresentation were present could a class action be maintained, a federally-created class action.

Senator PACKWOOD. Isn't it true that in class action suits the uniform commissioners have now come out for notice by publication and allowing for recovery?

Mr. WHITE. I don't know.

Senator PACKWOOD. I think they have promulgated a uniform code for allowing it.

Mr. WHITE. I simply don't know, sir. I will put that on my list of things to look at. I do know that in the Eisen case the Supreme Court went to a great lengths to stress the constitutional underpinings of the requirement in rule 23 that all members of the class who can be identified be notified. It seems to me that the Supreme Court, as the ultimate arbiter of what is and what is not constitutional, is probably the best source.

Senator PACKWOOD. I don't think I have any other questions. Thank you.

Mr. WHITE. Thank you, sir.

[The statement follows:]

STATEMENT OF JAMES F. RILL, FOR THE CHAMBER OF COMMERCE OF THE

UNITED STATES

I am James F. Rill, a member of the law firm of Collier, Shannon, Rill, Edwards and Scott in Washington, D.C. I am also a member of the Consumer Affairs Committee of the Chamber of Commerce of the United States. This committee is responsible for assisting in the development of the Chamber's position on issues affecting the interrelationship between business and the consumer. Accompanying me today are Peter A. White of the law firm of Fulbright and Jaworski, Washington, D.C. and Barry A. Friedman, Attorney, ConsumerGovernment Affairs Section, of the National Chamber.

My statement will cover those parts of the pending legislation which would substantially increase the discovery powers of the Federal Trade Commission and, in the opinion of the Chamber, severely impinge on the constitutionallyguaranteed right of business firms and individuals adequately to contest even the most far-reaching and ill-founded Commission inquisitional process. I will also cover proposed amendments regarding appeals from FTC cease and desist orders, expanded jurisdiction and certain other aspects of the proposal. Mr. White's statement will focus on the consumer class action provisions of S. 1288.

1. FTC DISCOVERY

The proposed legislation would drastically revise existing law regarding FTC discovery by:

(1) Substantially increasing the daily penalties for noncompliance with Commission report orders (interrogatories) and making these increased penalties applicable to the agency's subpoena and access demands;

(2) Preventing pre-enforcement court challenge to Commission discovery and establishing a brief 30-day time period during which a firm or individual might initiate, argue for, and obtain judicial relief before daily penalties begin to accrue;

(3) Sharply limiting the grounds on which a court would be authorized to order a stay of penalties; and

(4) Substantially narrowing the grounds on which a court might deny enforcement of the Commission's discovery process.

At the threshold, it is necessary to recognize that what is under consideration here is not-or should not be-a game in which the Commission demands five times the information it needs and the respondent firm or person tries to surrender only one-twentieth of what FTC requests. This legislation involves basic constitutional principles of due process and freedom from unreasonable and (unjustifiably burdensome inquisitorial process) of the government. The rights of business firms (and, as often as not, the Commission serves its subpoenas and report orders on small companies) as well as individuals are safeguarded by these constitutional standards.

Even those Supreme Court decisions which have accorded the broadest scope to agency subpoenas have recognized respondents' constitutional rights to be advised of the nature and scope of the investigation, to be protected against unreasonably burdensome demands and to be assured that,

... the inquiry is within the authority of the agency, the demand is not too indefinite and the information sought is reasonably relevant." (Oklahoma Press Pub. Co. v. Walling, 327 U.S. 186 at 208 (1946); See, also, United States v. Morton Salt Co., 338 U.S. 632, 652 (1950)).

Existing law thus requires a balance between the inquisitorial desires of the agency and the essential protection of the rights-often attaining constitutional dimensions of those upon whom demands are made. This legislation would drastically tilt the balance in favor of unfettered Commission investigatory power. Contrary to assertions that this measure would "codify" existing law relative to FTC subpoena and report order enforcement,' the measure would stand existing law on its head.

First, it would be virtually impossible to contest the legality of FTC inquiries without extreme risk, regardless of any good faith question regarding the agency's right to the material demanded. Substantial penalties of up to $5,000 per day would begin to accrue 30 days after the Commission issues notice of default in connection with any order to file a report, subpoena or other order requiring access to documentary information. Thus, a recipient of a subpoena would need to secure a judicial determination ordering a stay within 30 days from default notice to insure against penalties. Such a time frame is, of course, unrealistic in the extreme. Even assuming an expedited time schedule, it would be virtually impossible to obtain trial court consideration within that period, and appellate review would take considerably longer. If the entire judicial process were to consume only six months, an individual or

1See, S. Rept. No. 564, 94th Cong., 1st Sess. 23 (1975); See also, 121 Cong. Rec. $4868 (remarks of Senator Philip Hart as to a similar provision in S.1284, daily ed. March 22, 1975).

business firm would be subject to a maximum penalty of $900,000 unless a stay is obtained, regardless of the eventual outcome of the litigation. Threat of these penalties would constitute a serious impediment to a person's or corporation's assertion of its basic legal rights.

Second, the proposed preclusion of judicial scrutiny until after notice of default has been served greatly enlarges the peril in questioning Commission demands and is at odds with sound current law. It has recently been held by the U.S. Court of Appeals for the Third Circuit that report orders may be judicially challenged prior to issuance of default notice. As the court explained, in terms having a direct bearing on this legislation, "(a)ppellees were placed in an immediate and real quandry: if they chose to comply. . . they would have to commit substantial resources-in terms of money and manpower-to develop accounting techniques necessary for compliance and, as a result suffer loss of profits; alternatively they could refuse to comply, await FTC enforcement, and risk civil fines for noncompliance." (A. O. Smith Corp. v. FTC, 530 F.2d 515 (3rd Cir. 1976)).

Implicit in the Court's opinion is the concept that it is simply unfair to force a person to play a 30-day game of Russian roulette to determine whether or not to attempt a vindication of his rights. This past January, Judge Flannery of the U.S. District Court for the District of Columbia sustained the ability of recipients of report orders to perfect pre-enforcement challenges, adopting the Third Circuit's rationale in the A. O. Smith case. In re FTC Corporate Papperns Report Litigation, Master File Misc. No. 76-0126; In re Line of Business Report Litigation, Master File Misc. No. 76-0127 (D.D.C. Jan. 31, 1977).

These current cases are rooted in the Supreme Court's Abbott Labs decision which held that pre-enforcement review of agency orders is appropriate where the matter is suitable for judicial decision and there would be hardship in withholding review. Abbott Laboratories v. Gardner, 387 U.S. 136 (1967). The Abbott Labs case was itself foreshadowed by a suggestion in the Supreme Court's St. Regis Paper decision to the effect that an action under the Administrative Procedure Act or the Declaratory Judgment Act might well lie against "suspect orders" which if disobeyed might result in severe penalties. St. Regis Paper Co. v. United States, 368 U.S. 208, 227 (1961).

Thus, the issue of pre-enforcement review is not one of forum shopping by respondents in agency discovery proceedings. The availability of opportunity for such review would in many cases be essential to provide adequate and timely judicial oversight of agency process without the imposition of time constraints making judicial review meaningless as a practical matter. It should be noted, moreover, that pre-enforcement review may offer in multiparty situations a better opportunity for consolidated, expeditious enforcement proceedings than scattered agency-initiated actions.

Third, the standards upon which a stay might be granted under the proposed legislation are unjustifiably narrow and in conflict with existing law.' These standards are even more onerous than those which would apply to the obtaining of a preliminary injunction in most jurisdictions. The criteria governing the grant or denial of injunctive relief are, moreover, inappropriate to a determination regarding the stay of penalties in a discovery case.

The Supreme Court has established that the test for a stay of penalties is whether a challenge to discovery process is made in good faith. St. Regis Paper Co. v. United States, 368 U.S. 208 (1961). In the St. Regis Paper case, the Supreme Court explained that the courts would not be powerless to stay penalties for violation of FTC investigative orders pending a good faith test of their validity. The lower courts have consistently followed the Supreme Court's direction. See, Genuine Parts Co. v. FTC, 445 F. 2d 1382, 1394 (5th Cir. 1971); Continental Baking Co. v. Dixon, 283 F. Supp. 285 (D. Del. 1968).

2 The Commission's explanation last year to the Senate Commerce Committee of a somewhat similar proposed standard is, at best curious. The Commission's letter to the Committee asserted that the proposal, would limit the circumstances under which court orders are issued staying the accumulation of penalties or enjoining the enforcement of Commission compulsory process thus codifying existing law". S. Rep. No. 564, supra, at 23. Of course, legislation cannot both limit and codify existing law regarding the very same issue.

The "good faith challenge" standard was recently reinforced in a penetrating analysis by Judge Leventhal for a three-judge court in Ford Motor Co. v. Coleman, 402 F. Supp. 495 (D.D.C. 1975). In that case, the Court held that penalties must be stayed, as a basic constitutional requirement, if the grounds for challenging an agency's order are substantial and the opportunity for challenge is adequate. Interestingly, the court used "substantial" as synonymous with "nonfrivolous", strongly suggesting its endorsement of the Genuine Parts standard.

Fourth, the court's power to withhold enforcement of FTC discovery orders would be limited to those instances in which the demand is unduly burdensome or is not reasonably related to the Commission's inquiry. This limitation falls short of meeting even Constitutional guarantees that persons subject to investigatory process must be notified as to the nature and scope of the investigation and that the underlying investigation must be one which the agency may lawfully conduct. See, Oklahoma Press Pub. Co. v. Walling, supra. Further, the proposed legislation would not permit challenge on the basis that FTC failed to follow its own procedures or statutory clearance requirements, such as those specified in the Federal Reports Act, 44 U.S.C. § 3501, et seq., in issuing investigatory demands. Language in the proposed § 10(e) which would permit FTC investigations and adjudications under the Act except where they are expressly prohibited is at best confusing. The Commission's power and jurisdiction under the Act are extremely broad and have been well-defined by both the statute and litigation. There is no legitimate purpose to be served by what appears to be a backdoor attempt to enlarge the agency's jurisdiction. The fact is there is no basis for Congressional approval of any of these far-reaching proposals relative to FTC discovery. There are numerous avenues presently available to assure expeditious compliance with lawful and properly drawn Commission investigative demands. Existing procedures are entirely adequate and, in some instances, severe. The courts have been generous in sustaining Commission discovery orders. United States v. Morton Salt Co., supra, 338 U.S. 632 (1950); Genuine Parts Co. v. FTC, supra, 445 F. 2d 1382. The fact is, where delay or frustation in the enforcement of Commission discovery process has occurred the fault can be traced almost invariably to the doorstep of the Commission.

In some instances, massive subpoenas are served demanding production of mountains of company records. A recent example involves the service by Commission counsel in the Petroleum Cases of a subpoena and justification comprising in excess of 1300 pages, immediately followed by cut and paste errata sheets of nearly 150 pages. In unusual but certainly not unwarranted actions, the Administrative Law Judge on his own motion and in language highly critical of the lack of adequate care in preparation of the subpoenas ordered them redone so that they would, at least, be comprehensible. Exxon Corp., et al., FTC Dkt. No. 8934 (Order Requiring Complaint Counsel to File Substitute Pages to Motion For Issuance of Subpoenas Duces Tecum to Respondents, March 19, 1976). In the same vein, Judge Pratt of the U.S. District Court for the District of Columbia ordered a Commission subpoena substantially revised after commenting in open court that the subpoena was so confused that it appeared to have been, ". . . turned over to a junior law clerk to think up every possible item of information. . . ." FTC v. Giant Food, Inc., Misc. No. 75-170, (D.D.C., transcript of argument, 61, Oct. 30, 1975).

Certainly it is not in the public interest effectively to prevent judicial challenge to such oppressive and unreasonable demands. Such action is particularly unwarranted where the Commission, while complaining of delay, nevertheless often itself inexplicably delays acting on motions to quash and in initiating court actions to secure enforcement. In at least one instance, in a currently pending investigation, eight months elapsed between denials of motions to quash and application for judicial enforcement; and motions to quash section 6(b) orders filed with the Commission 22 months ago have not yet been acted upon.

In short, there is no justification whatever for the drastic revisions relative to FTC discovery proposed in S. 1288.

The remaining aspects of the legislation covered by my statement can be treated in somewhat less detail.

II. THERE IS NO BASIS FOR LIMITING THE CIRCUITS IN WHICH APPEALS FROM FTC CEASE AND DESIST ORDERS MIGHT BE TAKEN AND/OR REVISING THE LAW CONCERNING THE STAY OF THESE ORDERS

The proposed bill would limit appeals from Commission cease and desist orders to the Court of Appeals where a respondent resides or maintains its principal place of business or in the District of Columbia. This limitation may make little difference to most respondents, for it could be expected that a company would desire to appeal to the court closest to home. However, it may make a great difference to the judiciary, because most appeals would be forced into those courts located closest to major business centers-the courts which are already the most crowded. Additionally, the definition of "principal place of business" is not clearcut with respect to corporations, and the proposed revision will most certainly engender unnecessary litigation. On the other hand, the flexibility of the existing standard is such that almost any appeal is correctly lodged. The Chamber is not presently aware of any valid complaint as to "misuse" of the present law through improper forum shopping. There does not, therefore, appear to be any need for this provision.

The legislation would also eliminate the statutory stay of Commission cease and desist orders pending appellate review. This proposal is an excellent illustration of the agency's requesting substantial new powers in a subject area where it has only recently been given broad new authority by Congress. The 1973 Alaska Pipeline amendments to the FTC Act, Public Law No. 153, 92d Cong., 1st Sess. (1973), authorize the Commission to seek broad injunctive relief against unfair or deceptive acts or practices pending adjudication, presumably including appellate review. If a practice is serious enough to warrant being stopped pending a final order, the injunction route would be appropriate. The Chamber is unaware of any allegation that this approach would be ineffective. FTC cases, however, often deal with novel theories, an expansionary view of law and novel, sometimes financially severe, remedies. Additionally, since the Magnuson-Moss Act, the legal theories on which FTC final orders are predicated can serve as the basis of penalty actions against defendants who were not involved in the underlying proceeding.

It may well be, because of the flexibility available to the Commission in fashioning its legal concepts both as to substance and relief, that an automatic stay was provided for in the statute. There is no reason to revise this provision, particularly in view of the availability of interlocutory injunctive relief.

III. EXPANSION OF CLAYTON AND ROBINSON-PATMAN ACT INTERSTATE COMMERCE JURISDICTION IS NOT GERMANE TO S. 1288

Section 13 of S. 1288 would amend the Robinson-Patman Act and Section 3 of the Clayton Act to extend jurisdiction of those statutes to acts "affecting" as well as acts that are "in" interstate commerce. These provisions comprise a jurisdictional expansion of the antitrust laws which are administered by the Department of Justice as well as FTC and, at least as to sections 2 and 3 of the Clayton Act, serve as the basis for private civil actions. This proposal is remote in its relationship to the "Federal Trade Commission Improvements Act of 1977". The jurisdictional issue has been subject to complex litigation. Gulf Oil Corp. v. Copp Paving Co., 95 S. Ct. 392 (1974). Moreover, there is at present serious concern being expressed in the Administration and else where as to the continued vitality of the Robinson-Patman Act. An important jurisdictional antitrust matter such as embraced in Section 13 of S. 1288 should not be considered as "tag-along" in essentially unrelated legislation.

CONCLUSION

Returning to the central provisions of the legislation, there is no question but that FTC should be empowered to conduct investigations efficiently and expeditiously. The proposed bill, however, would abolish the opportunity effectively to challenge even the most arbitrary, unconfined treasure hunt in which the Commission might engage. The proposal is unsound both as a matter of law and policy and should be rejected.