360 Apria36y 1977: Letter from Metcalfe to Congressman Moss.T WAL TAHUNA 31. April 11, 1977: Letter from Johnson attorneys commenting on Norton's April 1 letter. ⱭNIMASMOOCA Senator PACKWOOD. Mr. Hobbs. STATEMENTS OF CASWELL HOBBS, CHAIRMAN, CONSUMER PRO- I am going to have to leave momentarily, even if Senator Ford does not return, because I am 15 minutes late for an appointment now. Mr. HOBBS. All right, sir. It would be our wish to submit our full statement for the record and simply to summarize our remarks. Senator PACKWOOD. It will be in the record. Mr. HOBBS. My name is Caswell Hobbs, and I am appearing today as a representative of the American Bar Association, in which I serve as chairman of the consumer protection subcommittee of the ABA antitrust section's Federal Trade Commission Committee. I am accompanied by Irving Scher, chairman of the antitrust section's Federal Trade Commission Committee. While we are appearing today as representatives of the American Bar Association, it might also be noted that both of us are engaged in the private practice of law and represent clients before the FTC. The position presented today was considered and approved by the board of governors of the American Bar Association at its meeting on October 16 and 17, 1975, and was subsequently ratified by the House of Delegates in February 1976. Because the American Bar Association's action was limited to sections 9 and 13 of the bill presently being considered by this committee, the presentation on behalf of the American Bar Association is similarly limited. For ease of reference, a copy of the American Bar Associations' 1975 resolution and report insofar as they pertain to this subject have been attached to this statement. Although the ABA to date has considered only that which constitutes sections 9 and 13 of S. 1288, the ABA antitrust section is presently in the process of preparing a report for ABA consideration and approval which would address S. 1288 comprehensively. These comments will be furnished to the committee as soon as they have been cleared through the ABA's review and approval procedures. Section 9 of S. 1288 proposes amendments to section 10 of the FTC Act relating to the enforceability of FTC subpeñas and orders to file annual or special reports, and the circumstances under which such compulsory processes may be challenged by an individual or a corporation subject thereto. Similar amendments to section 10 were considered by Congress last year in hearings on S. 642. At that time, the ABA made several suggestions for modifications in the proposed legislation. We are pleased that the proposed FTC Amendments Act of 1977 incorporates several of the ABA's suggestions. Specifically, in con trast to S. 642, section 9 of S. 1288 would not impose a mandatory minimum $1,000 a day civil penalty for failure to file an annual or special report or subpena required by the Commission. Section 9 also preserves the existing 30-day period between an FTC notice of default and the time at which the civil penalties start accruing. It remains the ABA's view, however, that one further modification in section 9 should be adopted. The ABA believes it is inappropriate to curtail a respondent's ability to seek in good faith judicial review of the lawfulness of FTC subpenas and special report orders. In our view, no justification has been shown for departing from the clear and long-standing judicial standards for determining when a Federal court may appropriately grant a stay of the accumulation of civil penalties during a good faith judicial review of the lawfulness of FTC compulsory process. A respondent in an FTC investigation may seek to have a Federal court stay the running of civil penalties for failure to comply with FTC compulsory process if the respondent can demonstrate to the satisfaction of the court that it is seeking a good faith test of reasonable objections to a Commission order which appears suspect. This balance would be upset, however, by the standard presently proposed in S. 1288 for determining when a court can grant a stay of the accumulation of civil penalties during the pendency of judicial review of the lawfulness of the FTC processes. I would like to supplement my prepared testimony at this point by noting that section 9 of S. 1288 would go even further than its companion legislation, H.R. 3816. Under section 9(a), which would add a new subsection (d) to section 10 of the FTC Act, the party seeking a stay would have to demonstrate a substantial probability of prevailing on the merits, also that irreparable injury will occur, and finally, that the equities clearly favor the issuance of a stay. This test continues to raise significant policy issues with respect to the administration of the FTC Act and may not be sufficient to resolve the constitutional issues. The standard presently contained in S. 1288 goes beyond a codification of existing case law concerning the respondent's ability to challenge in good faith the lawfulness of FTC subpenas and orders and would impose new constraints on the availability of judicial review of agency process. Despite the revisions reflected in section 9 of S. 1288, it can be expected that an individual or small company, particularly one that is not the target of an investigation, will be unwilling to risk the daily accumulation of $5,000 penalties as the price of exercising its right to judicial review of questionable agency process. The risks are accentuated by increasingly heavy court calendars and the probability that potentially thousands of dollars of penalties will have accrued prior to judicial determination of the issues. The alternative of unwilling compliance, despite unresolved objections concerning, for example, the undue burden or doubtful legitimacy of the FTC's demands, may well be chosen by such persons faced with the requirements of revised section 10. More particularly, section 9 would compel respondents to present more evidence at an earlier stage than is presently the situation. 91-070 - 77-18 This fact, in and of itself, will predictably deter some parties from seeking judicial review of objections they believe to be meritorious. In addition, there will be other respondents who will simply not be in a position, at the outset of this kind of proceeding, to prepare a case which will meet the standards of section 9. Even when a respondent attempts to make the required showing. Moreover, the difficulties inherent in the effort may often produce a record upon which a judge will be unable to determine whether or not the standards have been met. The nature of the burden involved in requiring a court to ascer tain, at the outset of litigation, which side is "likely to prevail" can be illustrated by a comparison to the lesser standard applied by at least two Federal courts in granting preliminary injunctions cer tainly more significant relief than that which would be sought under section 10. 1 There is no apparent justification for creating a more stringent standard in section 10, which involves only a stay of continued accumulation of penalties for the alleged failure of complying with agency process that is suspect and subject to a good-faith challenge on the merits. yourid aidT In view of the other provisions of S. 1288 such as the removal of preenforcement review, the increased daily penalties, and the extension of civil penalties to subpenas each of which will clearly discourage unjustified objections to FTC process it is not at all clear that the additional step of raising the standards for obtaining a stay of penalties is necessary or appropriate. o putos the I depart again from my prepared testimony to suggest that section 10 of S. 1288 should be brought into conformity with H.R. 3816 as well as with existing Supreme Court decisions by authorizing enjoining of an FTC subpena or order if the courts find that the inquiry is not within the authority of the agency. Turning to section 13 of S. 1288, which would expand the jurisdictional reach of the Robinson-Patman Act and section 3 of the Clayton Act, and the antitrust section opposes this expansion. 2 At the present time, the Robinson-Patman Act, including its criminal section, applies only to acts of "any person engaged in commerce, in the course of such commerce ***" section 3 of the Clayton Act, relating to exclusive dealing and tie-ins, contains a similar limitation. Section 13 of S. 1288 would remove these limitations. As to the Robinson-Patman Act and section 3 of the Clayton Act, section 13 would expand the jurisdictional scope to acts "in or affecting commerce." This expansion is, in the view of the ABA, both unnecessary and inappropriate. The Robinson-Patman Act has been the subject of extensive criticism, and sweeping changes to limit the scope, or even repeal this statute, are being proposed. At this time, therefore, it would seem particularly inappropriate to expand the jurisdic tional reach of the Robinson-Patman Act until the Congress had given further consideration to its substantive provisions. More broadly, the section of Antitrust Law is unaware of any need for an extension of Robinson-Patman and Clayton Act jurisdiction to encompass an infinite variety of highly localized business transactions. The absence of any need for such expanded Federal jurisdiction is underscored by the antitrust programs being undertaken in a large number of States-with the active encouragement of the Federal enforcement agencies. The enactment of section 13 would give rise to serious federal/state jurisdictional questions with respect to antitrust policy and enforcement. Finally, the effect of these provisions would be to transfer to the Federal courts-already heavily overburdened-a large number of private suits dealing with local restraints that more appropriately belong in the State courts. That concludes our prepared testimony. As I mentioned the ABA antitrust section is presently preparing comments on other sections of S. 1288. With your approval, Mr. Scher and I are prepared to comment briefly in an unofficial capacity on the antitrust section's views as they appear to be developing to date on other provisions of S. 1288. Mr. MERLIS. Go ahead. Mr. HOBBS. I would like to hand it over to Mr. Scher, who will comment on sections 12, 10, and 7. Mr. SCHER. Although I will be relying upon a draft report currently under study by the FTC committee of the ABA antitrust section, the views I will be expressing are my own for the time being. It takes awhile for us to clear these reports through the ABA's hierarchy. At the present time we have not completed the process. But as soon as it is completed, we will, of course, submit the report of the antitrust section to the committee. I am going to limit my comments to three sections, starting with section 12, the provision to create a private right of action based on section 5 of the Federal Trade Commission Act which, of course, would be a novel mechanism for consumers and further novelty is added by the class action provision. Mr. MERLIS. That also would apply to the corporations on the consumers; is that correct? Mr. SCHER. Yes; in fact, I believe the provision in your bill is more properly designated a citizens' suit, rather than a consumer suit. Both in the respect that the provision would permit a private suit and would permit a class action, I believe section 12 deserves careful scrutiny before it is adopted in any form. Section 12's creation of a private remedy would, of course, be contrary to the courts' attitude toward section 5 of the FTC under the present language of the statute, as I am sure the committee is aware that, with one lower court exception, all other courts have ruled that the present language doesn't permit a private right of action. As stated in the Holloway decision in the District of Columbia Court of Appeals, Congress intentionally omitted private actions, because the statutory objectives of committing to an expert administrative agency the authority and discretion to define, implement, and enforce the broad policy standards of unfair or deceptive acts and practices would be undermined by permitting private enforcement actions. A threshold difficulty in this particular bill or any bill permitting such private suits involves the propriety of applying to private |