F.T.C. v. Invention Submission Corp., 91-5174

• Decision Date: 04 August 1992
• Docket Number: No. 91-5174,91-5174
• Citation: 965 F.2d 1086
• Parties: , 60 USLW 2780, 1992-1 Trade Cases P 69,835 FEDERAL TRADE COMMISSION v. INVENTION SUBMISSION CORPORATION, Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1086

965 F.2d 1086

296 U.S.App.D.C. 124, 60 USLW 2780,

1992-1 Trade Cases P 69,835

FEDERAL TRADE COMMISSION v. INVENTION SUBMISSION CORPORATION, Appellant.

No. 91-5174.

United States Court of Appeals District of Columbia Circuit.

Argued March 9, 1992.

Decided June 2, 1992.

Rehearing En Banc Denied Aug. 4, 1992.

Edward B. Friedman, with whom Arnold M. Friedman, Pittsburgh, Pa., Michael M. Eaton, Vienna, Va., and Lewis Rose, Washington, D.C., were on the brief, for appellant.

Joanne L. Levine, Attorney, F.T.C., with whom James M. Spears, Gen. Counsel, Jay C. Shaffer, Deputy Gen. Counsel, and Ernest J. Isenstadt, Asst. Gen. Counsel, Washington, D.C., were on the brief, for appellee.

Before: MIKVA, Chief Judge, SILBERMAN and STEPHEN F. WILLIAMS, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge:

Appellant Invention Submission Corporation (ISC) challenges a district court order enforcing two civil investigative demands (CIDs), or administrative subpoenas, issued by the Federal Trade Commission in the course of an investigation into possible unfair or deceptive trade practices. ISC contends that financial data sought by the Commission is irrelevant to the inquiry and that disclosure of other information would be "unduly burdensome" to its business operations. Appellant also contests the district court's denial of its discovery motion. We affirm.

I.

ISC is in the business of promoting other people's inventions. For a fee, it prepares "basic information packages" describing clients' inventions or ideas and submits those packages to companies in its "data bank" that might be interested in the new products. It also produces a catalog and runs an invention trade show.

After several state attorneys general and Better Business Bureaus received consumer complaints, the FTC began an investigation of ISC for possible violations of section 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. § 45(a)(1). When the corporation refused to comply with certain requests for information, the Commission issued a resolution authorizing the use of compulsory process. The resolution stated that the investigation's purpose was [t]o determine whether Invention Submission Corporation ... may be engaged in unfair or deceptive acts or practices ... including but not limited to false or misleading representations made in connection with the advertising, offering for sale and sale of its services relating to the promotion of inventions or ideas ... [and] to determine whether Commission action to obtain redress of injury to consumers or others would be in the public interest.

Pursuant to 15 U.S.C. § 57b-1(c)(1), which authorizes the FTC to issue CIDs for information "relevant" to possible section 5 violations, the Commission then sought from ISC, inter alia, financial data--including balance sheets, income statements, records reflecting annual gross sales, and information concerning the financial status of each ISC regional office--and the names and addresses of clients, advertisers, and the companies listed in the corporation's data bank.

The corporation petitioned the Commission to limit or quash the CIDs as irrelevant and unreasonable. In accordance with Commission rules, see 16 C.F.R. § 2.7(d)(4), the petition was considered by a single Commissioner, Terry Calvani. Commissioner Calvani modified the CIDs in certain respects to make ISC's compliance easier, see In re Invention Submission Corp., File No. 882-3060, at 5-8 (Sept. 25, 1989), but he rejected the corporation's other objections. He determined that the requested financial information was relevant to the FTC's investigation because the information might reveal "evidence of a possible profit motive for the alleged misrepresentations." Id. at 11-12. He also rejected ISC's claim that identification of its clients, advertisers, and data bank participants would be "unduly burdensome"--ISC's theory was that those contacted would assume the corporation had committed wrongdoing and would cease doing business with it--and therefore declined to impose any restrictions on the Commission's communications with those entities. Id. at 3-5. Full Commission review of Commissioner Calvani's ruling was denied. See In re Invention Submission Corp., File No. 882-3060 (Oct. 10, 1989).

When ISC failed to respond satisfactorily to the modified CIDs, the Commission petitioned the district court for enforcement. See 15 U.S.C. § 57b-1(e). The corporation sought discovery, or, alternatively, an evidentiary hearing, to prove that certain specifications were overbroad. It alleged that FTC staff had indicated, in statements to the Commission and the court, that the scope of the investigation was confined to possible "oral misrepresentations" by ISC salespeople and that some of the information requested was irrelevant to that specific purpose. The court enforced the CIDs without expressly ruling on the discovery request. It disposed of the basis for that motion, however, by holding that "[w]hen a conflict exists in the parties' understanding of the purpose of an agency's investigations, the language of the agency's resolution," rather than subsequent representations of Commission staff, controls. FTC v. Invention Submission Corp., 1991-1 Trade Cas. (CCH) p 69,338, at 65,351 (D.D.C. Feb. 13, 1991). Because the FTC's compulsory process resolution defined the investigation's purposes broadly, the court concluded that all of the material still being withheld--including, implicitly, the financial information--was relevant to the Commission's inquiry. See id. at 65,351-52. The court also declined to restrict communications with potential witnesses. The Commission had asserted that it did not intend to contact most of the corporation's clients or data bank participants, that it had no present intention of contacting advertisers (though this might become necessary as the investigation developed), and that it would state in interviews that it was only "investigating the idea promotions industry generally." Id. at 65,352-53; see also id. at 65,352 n. 24. The court thought such representations should allay ISC's fears. See id. at 65,353.

ISC moved to modify the court's order to require expressly that the Commission adhere to those assurances, and a Commission attorney reiterated them in writing. The corporation then dismissed its motion and complied with the CIDs, while reserving its right to challenge the district court's decision. ¹

II.

A.

It is well established that a district court must enforce a federal agency's investigative subpoena if the information sought is " 'reasonably relevant,' " FTC v. Texaco, Inc., 555 F.2d 862, 872, 873 n. 23 (D.C.Cir.) (en banc) (quoting United States v. Morton Salt Co., 338 U.S. 632, 652, 70 S.Ct. 357, 368, 94 L.Ed. 401 (1950)), cert. denied, 431 U.S. 974, 97 S.Ct. 2940, 53 L.Ed.2d 1072 (1977)--or, put differently, " 'not plainly incompetent or irrelevant to any lawful purpose' of the [agency]," id. at 872 (quoting Endicott Johnson Corp. v. Perkins, 317 U.S. 501, 509, 63 S.Ct. 339, 343, 87 L.Ed. 424 (1943)); accord United States v. Aero Mayflower Transit Co., 831 F.2d 1142, 1145 (D.C.Cir.1987)--and not "unduly burdensome" to produce, Texaco, 555 F.2d at 881. We have said that the agency's own appraisal of relevancy must be accepted so long as it is not " 'obviously wrong.' " FTC v. Carter, 636 F.2d 781, 787-88 (D.C.Cir.1980) (quoting Texaco, 555 F.2d at 877 n. 32).

That is not to suggest that the agency's internal determination of relevance is independently reviewable. The agency, in issuing a subpoena, has undertaken no final administrative action; a subpoena becomes an appealable final order only after the subpoenaed party refuses to comply and the agency requests and receives judicial enforcement. See Office of Thrift Supervision, Dep't of Treasury v. Dobbs, 931 F.2d 956, 957 (D.C.Cir.1991). Thus, "[i]n a subpoena enforcement ..., the District Court can inquire into all relevant matters, unlimited by the scope of the agency's own inquiry, if any." United States v. Exxon Corp., 628 F.2d 70, 77 (D.C.Cir.) (per curiam), cert. denied, 446 U.S. 964, 100 S.Ct. 2940, 64 L.Ed.2d 823 (1980). If the district court finds that the information sought by the agency is relevant, we will affirm unless that determination is " 'clearly erroneous.' " FTC v. Anderson, 631 F.2d 741, 746 (D.C.Cir.1979) (quoting FTC v. Lonning, 539 F.2d 202, 210 n. 14 (D.C.Cir.1976)).

ISC challenges the specifications requesting financial material as irrelevant to the Commission's investigation into possible section 5 violations. Appellant relies virtually exclusively on the Fifth Circuit's comment in FTC v. Turner, 609 F.2d 743 (5th Cir.1980), that "[t]he amount of [the subject's] assets is not relevant to an inquiry into whether a violation of the law exists." Id. at 745. This statement, however, is mere dictum for which the Turner court provided no explanation. The case presented the question whether the Commission, once it has issued a cease-and-desist order, can use an investigative subpoena to determine whether the respondent has sufficient resources to justify a civil damage action for consumer redress. Two judges on the panel agreed (over a strong dissent by Judge Brown) that, in those circumstances, the Commission, like a private plaintiff, "may not discover an opponent's assets until after a judgment against the opponent has been rendered." Id.

Here, the Commission has not yet even issued a complaint against ISC; we are thus not confronted with the narrow question decided by the Fifth Circuit--whether financial data can be obtained for the purpose of determining the feasibility of redress. And we agree with the district court, and other courts that have addressed the issue, see FTC v. American Buyers' Network Inc., 1991-2 Trade Cas. p 69,551 (D.Colo., Aug. 19, 1991); FTC v. International Diamond Corp., No. C-81-29 MISC, Mem.Op. at 6 (N.D....