Borden, Inc. v. FTC, 73-1502.

• Decision Date: 01 May 1974
• Docket Number: No. 73-1502.,73-1502.
• Citation: 495 F.2d 785
• Parties: BORDEN, INC., a corporation, Plaintiff-Appellant, v. FEDERAL TRADE COMMISSION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

495 F.2d 785 (1974)

BORDEN, INC., a corporation, Plaintiff-Appellant, v. FEDERAL TRADE COMMISSION, Defendant-Appellee.

No. 73-1502.

United States Court of Appeals, Seventh Circuit.

Argued February 25, 1974.

Decided May 1, 1974.

Stuart S. Ball, H. Blair White, Chicago, Ill., for plaintiff-appellant.

Harold D. Rhynedance, Jr., William A. Doying, Attys., Federal Trade Commission, Washington, D. C., James R. Thompson, U. S. Atty., Chicago, Ill., for defendant-appellee.

Before KILEY, Senior Circuit Judge, SPRECHER, Circuit Judge, and JAMESON, Senior District Judge.^*

JAMESON, Senior District Judge.

Borden appeals from an order dismissing Count I of its two-count complaint seeking declaratory and injunctive relief to restrain the Federal Trade Commission (Commission) "from any further proceedings" upon Count III of an administrative complaint issued against Borden on October 8, 1971.¹

In November, 1965 Borden began selling private label fluid milk products in the Chicago area to stores of The Great Atlantic & Pacific Tea Company (A & P). On March 13, 1967 Borden was notified by the Commission that it was investigating whether these sales involved illegal price discriminations in violation of Section 2(f) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13(f), or sales as unreasonably low prices or at prices below cost for the purpose of eliminating or lessening competition, in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45.² Pursuant to requests by the Commission, Borden furnished information and documentary evidence regarding its milk sales to A & P.

On June 1, 1971 Borden received a copy of a proposed Commission complaint, charging in Counts I and II that A & P had wrongfully induced discriminatory prices and in Count III that Borden and A & P had combined to effect price stabilization.³ A formal complaint containing the same charges was filed on October 8, 1971. Borden was not charged with illegal price discrimination.

On October 26, 1972 Borden filed with the administrative law judge a motion to dismiss Count III of the Commission complaint for alleged violation of Commission Rule 2.6, 16 C.F.R. § 2.6, which provides:

"Any person under investigation compelled or requested to furnish information or documentary evidence shall be advised with respect to the purpose and scope of the investigation."

The administrative law judge denied this motion on February 13, 1973, and on April 24, 1973 denied Borden's motion for reconsideration or in the alternative for certification of the denial to the Commission pursuant to Rule 3.23, 16 C.F.R. § 3.23.

Borden commenced this action on May 8, 1973, alleging in Count I of its complaint that the "failure to provide the required notice and opportunity to submit information during the investigation was a clear and substantial breach of the requirements of the Commission's own Rule 2.6, and its unpublished rules and directives". Borden applied for a preliminary injunction. The Commission filed a motion to dismiss Count I for failure to exhaust administrative remedies.

In a well-reasoned opinion entered June 7, 1973 the district court denied the application for a preliminary injunction and granted the motion to dismiss, holding that "it is deprived of jurisdiction of Count I by the doctrine of exhaustion of administrative remedies".⁴ On this appeal Borden challenges only the ruling on the motion to dismiss. We affirm.

It is well settled that ordinarily courts will not interfere with an agency until it has completed its action⁵ and that administrative remedies may be bypassed only if (1) the agency has clearly violated a right secured by statute or agency regulation, Leedom v. Kyne, 358 U.S. 184, 188-189, 79 S.Ct. 180, 3 L.Ed.2d 210 (1958); Elmo Division of Drive-X Company v. Dixon, 121 U.S.App.D.C. 113, 348 F.2d 342, 346-347 (1965); (2) the issue involved is a strictly legal one not involving the agency's expertise or any factual determinations, Jewel Companies, Inc. v. F.T.C., 432 F.2d 1155, 1159 (7 Cir. 1970); McKart v. United States, 395 U.S. 185, 197-199, 89 S.Ct. 1657, 23 L.Ed.2d 194 (1969); or (3) the issue cannot be raised upon judicial review of a later order of the agency, Jewel, supra at 1159. We agree with the district court that none of these exceptions are applicable here.

Borden argues that under Rule 2.6 it was entitled to notice that it was being investigated for illegal price stabilization and "to submit exculpatory or explanatory information" during the investigative stages of the Commission's proceedings. In support of this contention Borden relies upon an unpublished directive implementing Rule 2.6, which reads:

"As a matter of standard operating procedure, in any matter in which a recommendation for a complaint is contemplated the proposed respondent should be * * * afforded an opportunity to furnish information respecting the acts or practices involved prior to submitting the matter to the Commission with recommendation for complaint."

This directive is from a citation "of a recent staff directive" in E. Pollock, Pre-Complaint Investigations by the Federal Trade Commission, 45 Chicago Bar Record 379, 381-82 (1964). Prior to oral argument Borden filed a motion to enlarge the record pursuant to Rule 10(e) F.R.App.Pro. to include the provisions of Section 6-051.7B of the Commission's Administrative Manual, which was made available to Borden during the pendency of this appeal pursuant to a request for disclosure under the Freedom of Information Act, 5 U.S.C. § 552. Section 6-051.7B provides:

"Notifying the Respondent. When a recommendation for complaint issuance is contemplated, the respondent should be notified that an investigation is being made and given the opportunity to furnish information on the acts or practices involved some time before submitting the matter to the Commission with recommendation for complaint. Where this procedure is not followed, the reason must appear in the memorandum transmitting the proposed complaint and order."⁶

The request to the Secretary of the Commission for disclosure of the directive was made after the district court's decision from which this appeal was taken. Rule 10(e) does not give this court authority to admit on appeal any document which was not made a part of the record in the district court. See United States ex rel. Kellogg v. McBee, 452 F.2d 134, 137 (7 Cir. 1971). The motion to enlarge the record accordingly is denied. In any event the staff directive as quoted in the Chicago Bar Record is substantially the same as Section 6-051.7B and was considered by the district court in determining the motion to dismiss.

Borden was fully apprised of the investigation of possible illegal price discrimination with respect to its milk sales to A & P. The Commission contends that Rule 2.6 in no way suggests that if the Commission staff in analyzing the evidence uncovers proof of additional or alternate violations, further notice must be given prior to notice through the proposed complaint. The staff directive, the Commission argues, is "a purely internal admonition designed to serve the efficient operation of the Commission rather than a mandatory rule conferring rights upon potential respondents".

The district court correctly noted that in deciding whether exhaustion of administrative remedies should be required the initial consideration is whether the agency has violated a clear right. Whatever the merits of the parties' claims with respect to Rule 2.6 and the staff directive, we agree with the district court's conclusion that:

"Borden\'s asserted right to pursue informal settlement and explanation prior to the filing of a complaint does not appear plainly on the face of Rule 2.6. The unpublished rule cited as evidence of that interpretation simply states that a party should be given an opportunity to supply information respecting the matters under investigation. Granted that the latter rule begins with the phrase `as a matter of standard operating procedure,\' it is not clearly mandatory that such an opportunity be provided."⁷

Relying upon our decision in Jewel, supra, Borden contends that "it will be unable to raise the Commission's violation of Rule 2.6 on appeal of a final agency order." However, as the district court recognized, Jewel is distinguishable in a number of respects. We held in Jewel, supra at 1159, that exhaustion of administrative remedies was not required where the jurisdiction of the Federal Trade Commission was challenged on the ground that "one of the Commissioners did not properly exercise his statutory discretion in voting for the issuance of the complaint". We noted that review of a final order might not be adequate, since "if the question of the Commissioner's obligation is postponed until final appeal of a Commission order, the standard of review will be different", that is, "the court of appeals would only decide whether the final order is supported by the evidence and would not question the authority of the Commission in issuing the complaint." Id. In contrast, the issue here is one of the procedural propriety of the steps taken during the investigatory stage leading to an administrative complaint and may be raised on appeal from the Commission's final order.⁸

Judicial review of proceedings of the Federal Trade Commission is governed by 15 U.S.C. § 45(c), which provides for review of cease and desist orders by the courts of appeals. Section 10(c) of the Administrative Procedures Act, 5 U.S.C. § 704, provides:

"Agency action made reviewable by statute * * * is subject to judicial review. A preliminary, procedural, or intermediate agency action or ruling not directly reviewable is subject to review on the review of the final agency action."

If the administrative...