Flotill Products, Inc. v. FTC

• Decision Date: 15 August 1966
• Docket Number: No. 19521.,19521.
• Citation: 358 F.2d 224
• Parties: FLOTILL PRODUCTS, INC., a corporation, Mrs. Meyer L. Lewis, Albert S. Heiser, and Arthur H. Heiser, individually and as officers of said corporation, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Ninth Circuit

358 F.2d 224 (1966)

FLOTILL PRODUCTS, INC., a corporation, Mrs. Meyer L. Lewis, Albert S. Heiser, and Arthur H. Heiser, individually and as officers of said corporation, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.

No. 19521.

United States Court of Appeals Ninth Circuit.

March 16, 1966.

Rehearing Granted June 20, 1966.

As Amended August 15, 1966.

COPYRIGHT MATERIAL OMITTED

William Simon, J. Wallace Adair, John H. Quinn, Jr., of Howrey, Simon, Baker & Murchison Washington, D. C., Jefferson E. Peyser, San Francisco, Cal., for petitioners.

James McI. Henderson, Gen. Counsel, J. B. Truly, Asst. Gen. Counsel, E. K. Elkins, Gerald J. Thain, Attys., F. T. C., Washington, D. C., for respondent.

Before BARNES and HAMLEY, Circuit Judges, and MATHES, Senior District Judge.

As Amended by Court en banc August 15, 1966.

BARNES, Circuit Judge:

This is a petition to review and set aside an order of the Federal Trade Commission against petitioners. The Federal Trade Commission had jurisdiction to conduct the proceedings below pursuant to section 11(a) of the Clayton Act, 15 U.S.C. § 21(a). This court has jurisdiction to review the order of the Commission pursuant to section 11(c) of the Clayton Act, 15 U.S.C. § 21(c), and section 5(c) of the Federal Trade Commission Act, 15 U.S.C. § 45(c).

Petitioners in this proceeding are Flotill Products, Inc., which in June 1961 changed its name to Tillie Lewis Foods, Inc., and Mrs. Meyer L. Lewis, Albert S. Heiser, and Arthur H. Heiser, the owners and officers of the corporate petitioner. Flotill is a California corporation engaged in the processing, canning, and sale of certain fruit and vegetable items. Flotill also packs a line of dietetic foods which were not involved in the proceedings below. Mrs. Lewis owns 94.5% of Flotill's stock and is its president and executive officer. Albert S. Heiser owns 2.744% of Flotill's stock and is its vice president in charge of sales. Arthur H. Heiser owns 2.748% of the Flotill stock and is its vice president in charge of production. The Heisers are nephews of Mrs. Lewis.

On August 6, 1958, the FTC issued a complaint against the corporate and individual petitioners, alleging violations of sections 2(c) and (d) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. §§ 13(c), (d). The section 2(c) charges were founded on the conduct of Flotill in:

(1) Discontinuing the payment of a 2 ½% commission to the brokerage firm of Bushey & Wright, sometime prior to 1955, on sales made directly to the Nash-Finch Company, a large midwestern wholesale grocer, and the subsequent payment to Nash-Finch of a 2 ½% allowance for advertising and promotion which the FTC counsel contended were really payments "in lieu of brokerage" proscribed by section 2(c); and

(2) the payment by Flotill and Nash-Finch of ½% each to Bushey & Wright for work in arranging "pool car" shipments from Flotill to Nash-Finch of less than car-load lots which was instituted after Flotill had stopped paying Bushey & Wright the 2 ½% commission on its direct sales to Nash-Finch.

The section 2(d) charges were based on the discriminatory payment by Flotill of promotional allowances in 1956-1957 to Elm Farm Foods Company and Stop & Shop, Inc., retail grocers in the Boston, Massachusetts area, while not paying such promotional allowances to First National Stores, Great Atlantic & Pacific Tea Company, Star Market Company, and Supreme Markets, Inc., who were in competition with the "favored" customers in the Boston area.

Proceedings before a hearing examiner of the FTC began on July 7, 1959, but were delayed while the petitioners' refusal to comply with a subpoena duces tecum was being litigated. 6 F.T.C. Statutes and Court Decisions 665 (1959), Flotill Products, Inc. v. F. T. C., 278 F.2d 850 (9th Cir.), cert. denied, 364 U.S. 920, 81 S.Ct. 284, 5 L.Ed.2d 260 (1960). At the conclusion of resumed hearings, the hearing examiner issued his opinion on March 25, 1963, in which he sustained the section 2(d) charge and that portion of the 2(c) charge relating to discounts "in lieu of brokerage" to Nash-Finch, but found that petitioners' dealing with field brokers did not violate section 2(c) and that the persons named as respondents in the complaint should not be held in their individual capacities for the violations found to exist. Cross-appeals were taken from the hearing examiner's decision to the Commission, which issued its decision on June 26, 1964, upholding the hearing examiner's determination as to the 2(c) and 2(d) violations, but reversing his determination that the order to be entered should not apply to the individual petitioners as well as to the corporation.

Procedural questions arise as a result of the hearing before the Commission, in that the full Commission consists of five members but only three participated in the decision because there was one vacancy and one commissioner did not hear the oral arguments and did not join in the decision. The opinion for the Commission was written by Chairman Dixon; Commissioner MacIntyre wrote a separate opinion concurring with Dixon with the exception of the dismissal of the charge concerning dealings with "field brokers"; and Commissioner Elman filed a separate opinion in which he concurred in the result as to the 2(d) charge and the inclusion in the order of the corporate officers in their individual capacities, agreed with the result but differed on the reasoning as to the dismissal of the 2(c) charge insofar as it pertained to "field brokers" transactions, and dissented from the holding that the allowances which Flotill gave to Nash-Finch were "in lieu of brokerage and therefore violated section 2(c)."

Following the issuance of the Commission decision, petitioners here filed a petition for reconsideration before the Commission. Reconsideration was denied in an order issued September 3, 1964, in which the grounds for reconsideration were answered by the Commission. This petition to review and set aside the final order of the Commission followed.

I — Alleged Procedural Defects.

Petitioners contend that the Commission's order must be set aside as to both the section 2(c) and 2(d) orders because at least three members of a five member commission must affirmatively vote for an order, and must vote for it on the same grounds, in order for it to become a valid order of the commission. Petitioners argue that this requirement was not met as to the section 2(c) order because only Commissioners Dixon and MacIntyre agreed to it and Commissioner Elman dissented, and was not met as to the section 2(d) order because Commissioner Elman's concurrence does not indicate that it was on the same grounds or relied on the same evidence as that relied upon by Dixon and MacIntyre.

First, as to the section 2(c) decision in which only two Commissioners agreed. We have examined the authority and arguments put forth by both parties and find ourselves in agreement with petitioners that, absent statutory authority or instruction to the contrary, three members of a five member commission must concur in order to enter a binding order on behalf of the commission. (Tr. 119). This was not done in the case of the 2(c) order here in dispute.

Respondent places primary reliance on the case of Atlantic Refining Company v. F. T. C., 344 F.2d 599 (6th Cir. 1965). We agree that the language used by the court in that case is authority for respondent's position, but find ourselves unconvinced by the "succinct" disposal of the issue in that case. The court's entire treatment of the point here in dispute is contained in this statement:

"As to other issues presented by petitioner, we can be more succinct. The rules of the Federal Trade Commission since its inception have provided for decision by the majority of panels of three members. We believe this rule is within the Commission\'s power to make and is wholly valid. Drath v. Federal Trade Commission, 99 U.S.App.D.C. 289, 239 F.2d 452 (1956), cert. denied 353 U.S. 917, 77 S.Ct. 666, 1 L.Ed.2d 664 (1957)." (344 F.2d at 607.)

Petitioners correctly point out that the court in Atlantic Refining both misconstrued the FTC rule¹ and relied upon a case, Drath, supra, which is not shown to be in point. In the Drath case the court expressed its approval of the Commission rule that "A majority of the members of the commission shall constitute a quorum for the transaction of business." It does not appear that the order which resulted from a three man panel hearing the cause was concurred in by less than three, which would be a majority of the Commission. This did not raise the issue here in dispute. Since the statement from Atlantic Refining states a bare conclusion, and makes no attempt to support its position in reason, we are unenlightened as to why the court thought the "majority of the quorum" rule applicable or desirable.

We readily agree respondent's position is also supported by Frischer & Co. v. Bakelite Corporation, 39 F.2d 247 (C.C. P.A.), cert. denied 282 U.S. 852, 51 S.Ct. 29, 75 L.Ed. 755 (1930), wherein the Court of Customs and Patent Appeals stated that "the trend of modern authority is that in collective bodies other than courts, even though they may exercise judicial authority, a majority of a quorum is sufficient to perform the function of the body." (39 F.2d at 255.) But the court then proceeds to support its statement with a series of state decisions dealing with town meetings and city councils, which frankly strike us as inapposite when we seek to determine the rule which is to govern decisions of a statutorily created administrative tribunal like the Federal Trade Commission.

Respondent has previously used this case, and the Drath case, supra, to support the authority of a two-man majority of a three-man quorum. Borden Co., F.T.C. Docket No. 7474, April 10, 1964 (15 Pike and Fischer Administrative Law (2d) 344-5.)

Respondent seeks also to support its position by reference to section 1 of...