[Federal Register Volume 60, Number 149 (Thursday, August 3, 1995)]
[Rules and Regulations]
[Pages 39640-39643]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19109]



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FEDERAL TRADE COMMISSION

16 CFR Part 3


Administrative Litigation Following the Denial of a Preliminary 
Injunction

AGENCY: Federal Trade Commission.

ACTION: Final rule, with request for public comment.

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SUMMARY: Elsewhere in this issue, the Federal Trade Commission has 
published statements explaining how, after a court has denied 
preliminary injunctive relief to the Commission, the Commission decides 
whether administrative litigation should be commenced or, if it has 
already been commenced, should be continued. The Commission has also 
adopted a rule to facilitate such consideration in those cases where 
administrative litigation has already commenced. While the rule is 
effective upon publication in the Federal Register, the Commission will 
receive comment for thirty days, and will thereafter take such further 
action as may be appropriate.

DATES: The rule is effective August 3, 1995. Comments will be receive 
until September 5, 1995.

ADDRESSES: Comments should be sent to the Secretary, Federal Trade 
Commission, Sixth Street and Pennsylvania Avenue, NW, Washington, DC 
20580. Comments will be entered on the public record of the Commission 
and will be available for public inspection in Room 130 during the 
hours of 9 a.m. until 5 p.m.

FOR FURTHER INFORMATION CONTACT:
Ernest Nagata, Deputy Assistant Director for Policy and Evaluation, 
Bureau of Competition, (202) 326-2714, or Marc Winerman, Office of the 
General Counsel, (202) 326-2451.

SUPPLEMENTARY INFORMATION:

I. Background

    Elsewhere in this issue, the Commission has published a policy 
statement that explains the process it follows in deciding whether to 
pursue administrative merger litigation following denial of a 
preliminary injunction in a separate proceeding brought, under section 
13(b) of the Federal Trade Commission Act, 15 U.S.C. 53(b), in aid of 
the adjudication. The Commission has also determined to adopt a new 
rule, 16 CFR 3.26, to facilitate the consideration of these issues in 
matters where the Commission has issued an administrative complaint, 
and thus begun an adjudicative proceeding, before the court denied the 
preliminary injunction. Rule 3.26 provides two options for respondents 
to request such review \1\: (a) Respondents may move to have the 
administrative case withdrawn from adjudication so that the review may 
be conducted without the constraints of adjudicative rules, or (b) 
respondents may argue their case for dismissal within the adjudicative 
framework by filing a motion for dismissal of the complaint and 
briefing the matter on the public record.\2\

    \1\ The Commission also reserves the right to consider sua 
sponte the public interests in continuing administrative litigation.
    \2\ It should be noted that, under its general rule governing 
adjudicative motions, 16 CFR Sec. 3.22, the Commission has 
previously entertained motions to dismiss a complaint as no longer 
warranted by the public interest. See, e.g., Boise Cascade Co., 101 
F.T.C. 17 (1983), American Home Products Corp. 90 F.T.C. 148 (1977).
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II. Motion to Withdraw From Adjudication

    The first alternative open to respondents is a motion to withdrawn 
the matter from adjudication. A motion to withdraw a matter from 
adjudication pursuant to Rule 3.26(c) should be filed directly with the 
Commission (rather than filed with the Administrative Law Judge and 
then certified to the Commission), and will result, two days after 
filing, in automatic withdrawal from adjudication.\3\

    \3\ The two-day delay will enable complaint counsel to object 
(and the Commission to defer or halt the withdrawal from 
adjudication) if there is a question respecting whether the motion 
meets the requirements of Rule 3.26(b). For example, the motion may 
be untimely, or there may be a question as to whether a particular 
court order constitutes a denial of preliminary injunctive relief. A 
brief delay in withdrawing a matter from adjudication is preferable 
to the risk that the matter might be prematurely removed from 
adjudication and placed back in adjudication shortly afterward.
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    In requiring that all respondents make a motion for withdrawal from 
adjudication, the rule implicitly obtains their unanimous consent to 
such withdrawal, and to ex parte communications that will be permitted 
during such time as the litigation is withdrawn.\4\ Once a matter is 
withdrawn from adjudication, complaint counsel and respondents (and 
even third parties) can communicate informally with Commissioners to 
discuss the matter. In addition, since such communications will not be 
on the record of the administrative proceeding, counsel will be able to 
discuss the case without concern that their statements might compromise 
their litigation position if the case is returned to adjudication.

    \4\ Various constraints on communications with Commissioners 
during the pendency of an administrative proceeding arise by virtue 
of the ex parte rule, 16 CFR 4.7 (which applies to communications 
with both complaint counsel and outside parties), of the separation 
of functions provision of the APA, 5 U.S.C. 554(d) (which applies to 
communications with complaint counsel), of the ex parte provision of 
the APA, 5 U.S.C. 557(d) (which applies to communications with 
outside parties), and of due process strictures.
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III. Motion for Consideration on the Public Record

    If one or more respondents do not want the matter withdrawn from 
adjudication, Rule 3.26(d) permits any respondent or respondents to 
make a motion for dismissal that will be briefed on the public record. 
Such motions are similarly filed directly with the Commission rather 
than the Administrative Law Judge.
    Rule 3.26 imposes a fourteen-day time limit for respondents to file 
a motion under the rule, and fourteen days for complaint counsel to 
file an answer, and it imposes a limit of thirty printed pages, or 
forty-five typewritten pages, on respondent's motion (and any 
accompanying brief) and complaint counsel's answer. The rule also 
provides that a stay will be automatic, although the Commission could 
subsequently lift it.\5\ Further, the rule provides that 

[[Page 39641]]
materials whose confidentiality is protected under a court order or an 
administrative order shall be treated as if they had been granted in 
camera treatment by the Commission. Thus, assuming that the protective 
order does not preclude use in the administrative proceeding, the 
parties will be able to rely on such materials in nonpublic filings.

    \5\ As noted previously, in the context of a motion to withdraw 
a case from adjudication under proposed Rule 3.26(c), the rule 
provides that the automatic withdrawal would be deferred to enable 
some opportunity to consider whether respondent's motion was 
consistent with the rule. Rule 3.26(d) does not provide for similar 
deferral of a stay. Withdrawal from litigation has serious 
consequences, insofar as it permits ex parte communications, and it 
is appropriate to defer withdrawal briefly rather than risk that a 
matter would be withdrawn from adjudication and then returned to 
adjudication shortly thereafter. No similar concerns arise when a 
matter is stayed and the stay is subsequently lifted.
IV. Timing

    Pursuant to Rule 3.26(b), the procedures under the rule become 
available if the Commission is denied preliminary injunctive relief in 
a judicial proceeding brought in aid of an administrative proceeding. 
Two details are discussed below.
    First, these procedures become available following denial of 
preliminary injunctive relief. A temporary restraining order (``TRO'') 
is not ``preliminary injunctive relief,'' so the procedures will not 
become available on denial of a TRO.\6\

    \6\ This will rarely be an issue because the Commission rarely 
commences administrative litigation before a court rules on a TRO 
motion. Under section 13(b), the Commission must issue its 
administrative complaint within twenty days after entry of a 
preliminary injunction or a TRO. Thus, if a court issues a TRO 
bureau delays ruling on a preliminary injunction, the Commission may 
have no choice but to issue its administrative complain the before 
the preliminary injunction ruling. In contrast, section 13(b) does 
not compel the Commission to issue an administrative complaint 
before a TRO ruling. Even if the situation did arise, however, the 
denial of a TRO in and of itself will not trigger Commission review 
of the public interest in continued litigation, which will rather 
await dismissal of the proceeding or other action rejecting 
preliminary injunctive relief.
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    Second, the procedures become available when a district court 
denies the Commission preliminary injunctive relief and (a) all 
opportunity has passed for the Commission to seek reconsideration of 
the district court's denial or to appeal it to a court of appeals, and 
the Commission has neither sought reconsideration of the denial nor 
appealed it, or b) a court of appeals has denied preliminary injunctive 
relief.\7\ Thus, these mechanisms will not be available while the 
Commission might seek reconsideration by the district court or appeal 
the denial to a court of appeals.\8\ Rule 3.26(b) does not delay 
motions for reconsideration of the public interest in an administrative 
proceeding until after time has passed for seeking rehearing by the 
court of appeals of certiorari by the Supreme Court.\9\

    \7\ In some cases, most likely involving consumer fraud, a court 
could grant a preliminary injunction as to some defendants but deny 
such relief as to others. When that occurs, Rule 3.26 would be 
available to the defendants as to whom relief was denied but not the 
defendants as to whom relief was granted. (In such a situation, 
though, the affected respondents would be limited to on-the-record 
consideration under Rule 3.26(d); the procedure for withdrawal from 
adjudication under subsection (c), which requires a motion by all 
the respondents in the adjudication, would not be an option.)
    \8\ This would not, however, preclude earlier communications by 
staff, respondents, or even third parties, that are occasioned by 
and concern whether the Commission will appeal the district court's 
decision. Such communications are permissible, even if the opposing 
parties are not given prior notice, because they are ``occasioned by 
and concerning'' a non-adjudicative function. See Rule 4.7(f).
    \9\ After a court of appeals has rejected preliminary injunctive 
relief, the Commission has ninety days to see certiorari, 28 U.S.C. 
2101(c), and forty-five days to seek rehearing, F.R. Appl. Proc. 
40(a). (Although the rule permits respondents to seek 
reconsideration of the public interest in continuing an adjudication 
immediately after a court of appeals denies a preliminary injunction 
in aid of that adjudication, it does not preclude the Commission 
from seeking rehearing or certiorari, whether or not such a motion 
is filed.)
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List of Subjects in 16 CFR Part 3

    Administrative practice and procedure, Investigations.
    Accordingly, the Federal Trade Commission amends title 16, chapter 
I, subchapter A, part 3 of the CFR as follows:

PART 3--RULES OF PRACTICE FOR ADJUDICATIVE PROCEEDINGS

    1. The authority for part 3 continues to read as follows:

    Authority: Sec. 6, 38 Stat. 721 (15 U.S.C. 46), unless otherwise 
noted.

    2. Section 3.22(a) is amended by revising the first full sentence 
to read as follows:


Sec. 3.22  Motions.

    (a) Presentation and disposition. During the time that a proceeding 
is before an Administrative Law Judge, all motions therein, except 
those filed under Sec. 3.26, Sec. 3.42(g), or Sec. 4.17, shall be 
addressed to the Administrative Law Judge, and, if within his 
authority, shall be ruled upon by him. * * *
    3. Section 3.26 is added to subpart C to read as follows:


Sec. 3.26  Motions following denial of preliminary injunctive relief.
    (a) This section sets forth two procedures by which respondents may 
obtain consideration of whether continuation of an adjudicative 
proceeding is in the public interest after a court has denied 
preliminary injunctive relief in a separate proceeding brought, under 
section 13(b) of the Federal Trade Commission Act, 15 U.S.C. 53(b), in 
aid of the adjudication.
    (b) A motion under this section shall be addressed to the 
Commission and filed with the Secretary of the Commission. Such a 
motion must be filed within fourteen (14) days after:
    (1) A district court has denied preliminary injunctive relief, all 
opportunity has passed for the Commission to seek reconsideration of 
the denial or to appeal it, and the Commission has neither sought 
reconsideration of the denial nor appealed it; or
    (2) A court of appeals has denied preliminary injunctive relief.
    (c) Withdrawal from adjudication. If a court has denied preliminary 
injunctive relief to the Commission in a section 13(b) proceeding 
brought in aid of an adjudicative proceeding, respondents may move that 
the adjudicative proceeding be withdrawn from adjudication in order to 
consider whether or not the public interest warrants further 
litigation. Such a motion shall be filed by all of the respondents in 
the adjudicative proceeding. The Secretary shall issue an order 
withdrawing the matter from adjudication two days after such a motion 
is filed, except that, if complaint counsel have objected that the 
conditions of paragraph (b) of this section have not been met, the 
Commission shall determine whether to withdraw the matter from 
adjudication.
    (d) Consideration on the record. (1) In lieu of a motion to 
withdraw a matter from adjudication under paragraph (c) of this 
section, any respondent or respondents may file a motion under this 
paragraph to dismiss the administrative complaint on the basis that the 
public interest does not warrant further litigation after a court has 
denied preliminary injunctive relief to the Commission. Motions filed 
under this paragraph shall incorporate or be accompanied by a 
supporting brief or memorandum.
    (2) Stay. A motion under this paragraph will stay all proceedings 
before the Administrative Law Judge until such time as the Commission 
directs otherwise.
    (3) Answer. Within fourteen (14) days after service of a motion 
filed under this paragraph, complaint counsel may file an answer.
    (4) Form. Motions (including any supporting briefs and memoranda) 
and answers under this paragraph shall not exceed 30 pages if printed, 
or 45 pages if typewritten, and shall comply with the requirements of 
Sec. 3.52(e).
    (5) In camera materials. If any filing includes materials that are 
subject to 

[[Page 39642]]
confidentiality protections pursuant to an order entered in either the 
proceeding under section 13(b) or in the proceeding under this part, 
such materials shall be treated as In camera materials for purposes of 
this paragraph and the party shall file two versions of the document in 
accordance with the procedures set forth in Sec. 3.45(e). The time 
within which complaint counsel may file an answer under this paragraph 
will begin to run upon service of the in camera version of the motion 
(including any supporting briefs and memoranda).

    By direction of the Commission, Commissioner Azcuenaga 
dissenting.
Donald S. Clark,
Secretary.
Dissenting Statement of Commissioner Mary L. Azcuenaga, Concerning 
FTC's Adoption of Rule 3.26, Respecting Administrative Litigation 
Following Denial of a Preliminary Injunction

    On June 26, 1995, the Commission issued a Statement of Policy 
Regarding Administrative Merger Litigation Following the Denial of a 
Preliminary Injunction and an accompanying explanation.\1\ These 
documents reaffirm the Commission's longstanding policy, consistent 
with section 5 of the FTC Act, 15 U.S.C. 45(b), of reconsidering 
whether to pursue administrative litigation following the denial of 
preliminary relief by the courts. Section 5 requires that the 
Commission premise issuance of an adjudicative complaint on finding 
reason to believe that the law has been violated and that enforcement 
would be in the public interest. This obligation continues implicitly 
throughout the proceeding, requiring the Commission to take all 
reasonable steps to assure itself that an enforcement action, once 
begun, remains in the public interest. I joined in that Statement.

    \1\ These materials appear again in this volume of the Federal 
Register.
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    The Commission now adopts new Rule 3.26 to govern how the agency 
will proceed if a court denies a requested preliminary injunction 
pending completion of an administrative adjudication.\2\ A central 
feature of the new rule is that following the court's action, the 
respondents may choose to have the administrative matter removed from 
adjudication to permit the parties to discuss with the Commission 
privately, off the record and ``without the constraints of adjudicative 
rules,'' \3\ the public interest in continuing the adjudication in 
light of the court's action.\4\ Strictly speaking, no revision of the 
rules is necessary because existing provisions of the rules of practice 
are sufficient to permit the Commission to address any effect the 
court's action may have on the public interest in continuing the 
adjudication.\5\ Nevertheless, I have no objection to adopting a new 
rule to provide specific procedures for reconsidering an administrative 
adjudication following denial of a preliminary injunction. My 
difference of opinion is this: I believe that a rule adopted to address 
this situation should provide that the matter be left in adjudication 
for any reconsideration by the Commission and that any communication 
between the parties and the Commission take place on the record.\6\

    \2\ See 15 U.S.C. Sec. 53(b).
    \3\ Notice of Final Rule with Request for Public Comment, 60 FR 
__, Slip Notice at 2-3.
    \4\ I do not oppose the alternative procedure included in the 
new rule, which expressly authorizes a motion by any respondent to 
dismiss the complaint in the public interest. Although the 
alternative procedure is redundant in light of existing Rules 3.22 
and 3.23, 16 CFR 3.22 and 3.23 (1955), I do not find it 
objectionable because the arguments would be presented on the record 
unless the Commission directs otherwise.
    \5\ See, e.g., Rule 3.22 governing adjudicative motions and Rule 
3.23 governing interlocutory appeals. The Commission also, of 
course, may act sua sponte to seek briefing from the parties or to 
dismiss the complaint.
    \6\ Confidential communications between the Commission and its 
staff before a matter enters adjudication and when the Commission is 
still carrying out its prosecutorial responsibility make sense. In 
our system of law, investigational and prosecutorial decisions are 
protected from public scrutiny. See 5 U.S.C. 552(b)(5). Such 
confidential communications after the prosecutorial function has 
concluded with the issuance of a complaint, however, raise issues 
concerning the exercise by the Commission of its quasi-judicial 
function.
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    The Commission opines that complaint counsel will be more candid 
off the record because they ``will be able to discuss the case without 
concern that their statements might compromise their litigation 
position if the case is returned to adjudication.'' \7\ It also 
suggests that the ex parte procedure will confer similar benefits on 
``respondents (and even third parties).'' \8\ It is unclear to me why 
all this candor cannot and should not take place on the public record.

    \7\ 60 FR __, Slip Notice at 4.
    \8\ Id.
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    Traditionally, the Commission acts as a prosecutor up to and 
including its decision to issue an administrative complaint. As soon as 
the vote to issue an administrative complaint is complete, the 
Commission assumes a judicial role with respect to that case, which 
then is said to be ``in adjudication.'' \9\ It should go without saying 
that the Commission must not allow its prosecutorial role to intrude in 
any respect in carrying out its deliberative role in an administrative 
adjudication. Removing a matter from adjudication to chat off the 
record suggests that there is something that the Commission would 
prefer that the world not know. It also suggests an unease on the part 
of the Commission in carrying out its judicial function and an unseemly 
reluctance to relinquish its prosecutorial role. Although the automatic 
withdrawal provision may not disadvantage the respondent in any given 
proceeding, it may well undermine public confidence in the integrity of 
the Commission's adjudicative process.

    \9\ At this point, all further communications between the 
parties (complaint counsel and the respondent[s] are on the record 
with certain specified exceptions. Rule 4.7, 16 CFR Sec. 4.7.
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    Let us consider three scenarios following a court's denial of a 
preliminary injunction: First, complaint counsel have a strong case, 
notwithstanding the court's denial of a preliminary injunction. If this 
is so, complaint counsel can explain why on the record. After the case 
has been withdrawn from adjudication and reconsidered, presumably the 
Commission will return the case to adjudicative status. Even if the 
respondents initiated withdrawing the matter from adjudication, the 
procedure, in-and-out-and-in adjudication, may create a perception that 
complaint counsel, speaking off the record, had an unfair advantage. 
The respondents may believe that had they only known what the staff was 
saying to the Commission behind closed doors while the case was 
withdrawn from adjudication, they could have defended more effectively 
and won a dismissal. After all, the court gave the first round to the 
respondents on the record.
    A second scenario is that the case is weak, and complaint counsel's 
arguments in support of the complaint are correspondingly weak. The 
Commission suggests in its Federal Register notice that if discussion 
is held on the record, complaint counsel will be inhibited from 
pointing to weaknesses in the case for fear that if the Commission 
disagrees and requires the adjudication to go forward, complaint 
counsel will be disadvantaged by having conceded the weaknesses of the 
case on the record. An underlying assumption here is that any 
weaknesses in the case will remain undiscovered (by the courts, by the 
respondent and by the administrative law judge), as long as complaint 
counsel can confide in the Commission off the record. Perhaps more 
serious, the assumption suggests an abiding lack of confidence in the 
administrative system of adjudication and the Commission's place in it. 
Complaint counsel will not be able to 

[[Page 39643]]
avoid the weakness of the case by confiding that fact in secret to the 
Commission. At most, they might conceal the weakness for a time, a 
result that ultimately would be wasteful of both government and private 
resources. Regardless of when during an adjudicative proceeding 
complaint counsel or the Commission itself discovers a possible 
weakness in the case, the Commission should base its decision whether 
to continue the proceeding on publicly available information.
    The new rule may lend itself to a public perception that the staff 
of the Commission has an advantage over targets of enforcement actions 
because the staff has the secret ear of the Commission. If the staff is 
permitted secret access to the Commission, a decision to continue an 
adjudication, particularly one that, based on publicly available 
information, appears weak, likely would suggest that complaint counsel 
were able to persuade the commission to proceed only by ``hiding the 
ball'' form the respondents. Such a message hardly is consistent with 
fairness to the respondent or with the role of the Commission as an 
unbiased decisionmaker.\10\

    \10\ Off-the-record discussions with the respondents, followed 
by dismissal of the complaint, also may create misperceptions of 
unfairness and favoritism, with the implication that nonpublic 
communications that could not bear the light of day influenced the 
Commission's decision.
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    A third scenario is that the case is weak, respondents move to 
withdraw the matter from adjudication, and complaint counsel file 
nothing in support of the complaint.\11\ In such an instance, the 
Commission may agree with the respondents and dismiss the adjudication, 
or it may disagree and order that the proceeding continue. There seems 
no good reason not to have this occur on the public record. Again, 
private discussions between the Commission and its staff can create a 
public perception of unfairness to the respondents arising from 
apparent complicity the prosecuting attorneys and the purportedly 
impartial adjudicators--the very danger the separation of functions 
requirements of the Administrative Procedure Act and the Commission's 
ex parte rule are designed to avoid.\12\

    \11\ This assumes that complaint counsel find themselves unable 
to make a principled argument in support of the complaint. See Jose 
Calimlim, M.D., Dkt. No. 9199 (June 24, 1986) (``complaint counsel 
represent the Commission's prosecutorial decision as embodied in the 
allegations of the complaint and in the notice of contemplated 
relief''); accord R.J. Reynolds Tobacco Co., Dkt. No. 9206 
(interlocutory order, Dec. 1, 1986); see also R.J. Reynolds Tobacco 
Co. (interlocutory order, Dec. 10, 1986) (purpose of adjudication is 
``to subject the Commission's complaint to an adversarial test'').
    \12\ See 5 U.S.C. 552(d); 16 CFR 4.7.
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    In addition to undermining the separation of functions at the 
Commission, the new rule limits the Commission's discretion to decide 
when individual cases should be in adjudication and remain on the 
public record. The exercise of discretion in an adjudicative matter is 
a responsibility of the Commission, not an occasion for apology. This 
responsibility, which must be carried out consistent with the law and 
with fundamental fairness, should not be ceded without a reason for 
doing so. Here, I see none. Both the policy to maintain the separation 
of deliberative and prosecutorial functions and the appearance of 
having done so are enhanced when the Commission retains its discretion 
to determine the appropriate disposition of a motion to withdraw from 
adjudication. The shifting of a portion of that discretion in favor of 
the respondents may appear open-minded, but, in the long term, it will 
disserve the Commission and the public interest.
    On balance, the Commission and the public would be better served if 
the Commission retained its discretion to decide which, if any, cases 
should be withdrawn from adjudication following denial of a preliminary 
injunction. The new rule is likely to undermine the integrity of the 
Commission and its adjudicative process by breaking down the wall 
between the Commission's prosecutorial and adjudicatory roles in a 
manner inconsistent with the separation of functions requirement of the 
Administrative Procedure Act and its own ex parte rule.
    I dissent.

[FR Doc. 95-19109 Filed 8-2-95; 8:45 am]
BILLING CODE 6750-01-M