American Medical Ass'n v. F.T.C.

• Decision Date: 07 October 1980
• Docket Number: 1050,Nos. 995,D,s. 995
• Parties: 1980-2 Trade Cases 63,569 AMERICAN MEDICAL ASSOCIATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent. CONNECTICUT STATE MEDICAL SOCIETY and New Haven County Medical Association, Inc., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent. ockets 79-4214, 79-4226.
• Court: U.S. Court of Appeals — Second Circuit

Page 443

638 F.2d 443

1980-2 Trade Cases 63,569

AMERICAN MEDICAL ASSOCIATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

CONNECTICUT STATE MEDICAL SOCIETY and New Haven County

Medical Association, Inc., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.

Nos. 995, 1050, Dockets 79-4214, 79-4226.

United States Court of Appeals Second Circuit.

Argued May 2, 1980.

Decided Oct. 7, 1980.

Newton N. Minow, Chicago, Ill. (Sidley & Austin, Chicago, Ill., Jack R. Bierig, Chicago, Ill., on brief; Bernard D. Hirsh, B. J. Anderson, Chicago, Ill., of counsel), for petitioner, American Medical Ass'n.

Linda L. Randell, New Haven, Conn. (Wiggin & Dana, New Haven, Conn. William J. Doyle, New Haven, Conn., on brief), for petitioners Connecticut State Medical Soc. and New Haven County Medical Ass'n., Inc.

Howard E. Shapiro, Deputy Gen. Counsel, F. T. C., Washington, D. C. (Michael N. Sohn, Gen. Counsel; March Coleman, L. Barry Costilo, David M. Fitzgerald, Linda A. Heary, Brenda M. Hull, Leslie R. Melman, Washington, D. C., on brief), for respondent, Federal Trade Commission.

Before MANSFIELD and TIMBERS, Circuit Judges, and BONSAL, District Judge. ^*

BONSAL, District Judge:

The American Medical Association ("AMA"), the Connecticut State Medical Society ("CSMS"), and the New Haven County Medical Association, Inc. ("NHCMA") petition for review of a Cease and Desist Order issued by the Federal Trade Commission ("FTC") against AMA on October 12, 1979 (FTC Dkt. No. 9064). The Order requires AMA to cease and desist from promulgating, implementing, and enforcing restraints on advertising, solicitation, and contract practices by physicians and on the contractual arrangements between physicians and non-physicians. The FTC found that ethical standards issued by AMA were in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45(a)(1). The FTC cross-petitions for enforcement of its Order.

THE FACTS

AMA is an Illinois not-for-profit corporation first incorporated in 1897. Its membership is comprised of physicians, osteopaths and medical students, but most of its members are practicing physicians. As of December 31, 1974, 52.6% of the licensed physicians in the United States were members of AMA. AMA's legislative body is its House of Delegates. Enactments of the House of Delegates become the official policy of AMA. In 1957 the House of Delegates approved the "Principles of Medical Ethics" consisting of a preamble and ten paragraphs. ¹ Interpretation of the "Principles of Medical Ethics" is made by AMA's Judicial Council, a committee of the House of Delegates, and the decisions of the Judicial Council are set forth in the AMA publication, Opinions and Reports. The Judicial Council also is responsible for reviewing adjudications of state societies.

CSMS is the state medical society in Connecticut. A number of state medical societies originally formed AMA and membership in a state medical society is a condition to membership in AMA. 82% of Connecticut physicians are members of CSMS.

NHCMA is a local medical association. 71% of New Haven physicians are members of NHCMA. A New Haven physician must be a member of NHCMA in order to become a member of CSMS.

On December 19, 1975, the FTC filed a complaint against AMA, CSMS, and NHCMA charging them with restricting the ability of their members to advertise for and solicit patients and with interfering with the ability of their members to engage in contractual relationships with non-physicians. CSMS and NHCMA were included in the complaint on the ground that the state societies and local associations follow the lead of AMA and because the FTC believed that there was a conspiracy between AMA and the state societies and local associations to restrict competition among physicians through ethical limitations on advertising, solicitation and contractual relationships. Such restriction, in the view of the FTC, violated Section 5 of the Federal Trade Commission Act.

The FTC held hearings between September 7, 1977 and May 5, 1978. On November 13, 1978, the administrative law judge, Ernest G. Barnes, issued his Initial Decision finding that the ethical practices complained of violated Section 5 of the Federal Trade Commission Act. On appeal of the administrative law judge's decision to the FTC, the Commission affirmed and issued its Opinion and Final Order on October 12, 1979 (FTC Dkt. No. 9064) ("FTC Opinion"). The Final Order requires AMA to cease and desist from promulgating, implementing and enforcing restraints on advertising, solicitation and contract practices by physicians and on the contractual arrangements between physicians and non-physicians. Exception is made with respect to "false or deceptive" practices, and the Order provides that nothing contained therein prohibits AMA from

"formulating, adopting, disseminating to its constituent and component medical organizations and to its members, and enforcing reasonable ethical guidelines governing the conduct of its members with respect to representations, including unsubstantiated representations, that would be false or deceptive within the meaning of Section 5 of the Federal Trade Commission Act, or with respect to uninvited, in-person solicitation of actual or potential patients, who, because of their particular circumstances, are vulnerable to undue influence."

The Order also requires AMA to disassociate itself from any state or local society that violates the terms of the Order.

PRELIMINARY ISSUES

Two preliminary issues have been raised by the petitioners: ² (1) that the FTC lacks jurisdiction over the petitioners, and (2) that Chairman Michael Pertschuk should have been disqualified because he had demonstrated through his public statements that he had prejudged key issues in the proceeding. ³

Jurisdiction over Petitioners

Petitioners contend that as nonprofit corporations, they are not subject to the jurisdiction of the FTC as set forth in Section 4 of the Federal Trade Commission Act, 15 U.S.C. § 44, which defines "corporation" to include any entity "organized to carry on business for its own profit or that of its members." The record satisfies us that the petitioners serve both the business and non-business interests of their member physicians. As long ago as 1902, AMA amended its Articles of Incorporation to provide that one of its objectives was to "safeguard the material interests of the medical profession." The administrative law judge found that AMA actively lobbies for legislation that it believes may be for the profit of its members. He also found that AMA, in a variety of ways, including advice on insurance plans, renders business advice to its members.

The business aspects of the activities of the petitioners fall within the scope of the Federal Trade Commission Act even if they are considered secondary to the charitable and social aspects of their work. See Goldfarb v. Virginia State Bar, 421 U.S. 773, 788, 95 S.Ct. 2004, 2013-14, 44 L.Ed.2d 572 (1975); FTC v. National Commission on Egg Nutrition, 517 F.2d 485, 488 (7th Cir. 1975), cert. denied, 426 U.S. 919, 96 S.Ct. 2623, 49 L.Ed.2d 372 (1976).

Petitioners' reliance upon Community Blood Bank of Kansas City Area, Inc. v. FTC, 405 F.2d 1011 (8th Cir. 1969), is misplaced. That case involved a blood bank run as a charitable organization. However, the court recognized that "Congress did not intend to provide a blanket exclusion of all non-profit corporations ...." Id. at 1017.

The FTC fully considered the facts bearing on whether the petitioners' activities included their business aspects. See FTC v. Ernstthal, 607 F.2d 488, 490 (D.C.Cir.1979). In addition, the Cease and Desist Order involves only advertising, solicitation and contractual relationships. We therefore conclude that the evidence in the record sustains the jurisdiction of the FTC.

Disqualification of Chairman Pertschuk

During the FTC proceeding, the petitioners moved to disqualify Chairman Pertschuk on the ground that he had prejudged the merits of this proceeding before it came before the Commission. In support of this contention, petitioners cite a speech made by Chairman Pertschuk before the American Enterprise Institute's Occupational Licensure Conference on February 22, 1979 concerning the misuse of licensing procedures to restrain competition. However, no mention of this case was made, nor was there any reference to physicians as a group.

Chairman Pertschuk prepared a statement for presentation to the Subcommittee on Health and Scientific Research, of the United States Senate, on October 10, 1977, which was never presented because of the cancellation of the hearings. This statement discussed the medical profession in the context of a multitude of issues in the field of health care. The lone reference to this proceeding was that a complaint had been filed challenging portions of the Code of Ethics of AMA that "may" unduly restrain dissemination of information about physicians' services. He stated that "(s)ince these matters are currently in litigation, I hope you will understand why it would not be appropriate for me to comment further about them."

Petitioners also refer to a speech made by Chairman Pertschuk before the Consumer Assembly on January 19, 1978 with respect to food and health care costs. He mentioned the trial of this case as one of the many activities being undertaken by the FTC in the medical care field.

We do not find that Chairman Pertschuk's statements on these occasions, considered in their entirety, Kennecott Copper Corp. v. FTC, 467 F.2d 67, 80 (10th Cir. 1972), cert. denied, 416 U.S. 909, 94 S.Ct. 1617, 40 L.Ed.2d 114 (1974), approach the appearance of impropriety, the test applied in Cinderella Career and Finishing Schools, Inc. v. FTC, 425 F.2d 583, 590-91 (D.C.Cir.1970). ⁴ Nor do we find that Chairman Pertschuk prejudged the facts and the law in this case before hearing it. Gilligan, Will & Co. v. SEC, 267 F.2d 461, 468 (2d Cir.), ...