American Motors Corp. v. F. T. C.

• Decision Date: 02 July 1979
• Docket Number: No. 79-1048,79-1048
• Citation: 601 F.2d 1329
• Parties: 1979-2 Trade Cases 62,741 AMERICAN MOTORS CORPORATION, et al., Plaintiffs-Appellees, v. FEDERAL TRADE COMMISSION, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1329

601 F.2d 1329

1979-2 Trade Cases 62,741

AMERICAN MOTORS CORPORATION, et al., Plaintiffs-Appellees, v. FEDERAL TRADE COMMISSION, et al., Defendants-Appellants.

No. 79-1048.

United States Court of Appeals Sixth Circuit.

Argued Feb. 14, 1979.

Decided July 2, 1979.

Michael N. Sohn, Gen. Counsel, F.T.C., Washington, D.C., Leonard Schaitman, Edward F. Glynn, Jr., Eloise E. Davies, David Fitzgerald, Civil Division, Dept. of Justice, Washington, D.C., Joanne L. Levine, James K. Robinson, U.S. Atty., Detroit, Mich., for defendants-appellants.

Thomas A. Gottschalk, Donald E. Scott, Kirkland & Ellis, Chicago, Ill., Henry P. Sailer (Am. Motors), Covington & Burling, Leo Loevinger (Chrysler), Hogan & Harston, Washington, D.C., for plaintiffs-appellees.

Before EDWARDS, Chief Judge, LIVELY and MERRITT, Circuit Judges.

EDWARDS, Chief Judge.

This case represents a constitutional attack based on the Fourth and Fifth Amendments upon a Federal Trade Commission resolution and subsequent FTC subpoenas directed to the most important American automobile companies. Plaintiffs' complaint sought equitable relief from the United States District Court. The FTC resolution of August 6, 1976, authorized an industry-wide automobile investigation and directed the FTC staff:

To investigate the acts, practices and methods of competition of General Motors Corporation, Ford Motor Company, Chrysler Corporation and other firms engaged in the production, sale, and distribution of automobiles to determine the effects thereof on the structure, conduct and performance of the automobile industry and whether such acts, practices and methods of competition may have violated or are violating the Federal Trade Commission Act or other statutes administered by the Commission.

The subpoenas (one such addressed to American Motors was issued on July 10, 1978) seem to require the company concerned to furnish copies of just about all of its records bearing on production and sale of automobiles for the years running back to 1946 and, as far as forecasts are concerned, extending forward through at least the year 1980.

It is plaintiff automobile companies' contention that the subpoenas authorized by this resolution, and now sought to be enforced, are "general warrants" of the nature of King George III's "writs of assistance" which triggered the American Revolution. Further, they claim that this is a "fishing expedition" of the sort condemned in FTC v. American Tobacco Co., 264 U.S. 298, 306, 44 S.Ct. 336, 68 L.Ed. 696 (1924), wherein Mr. Justice Holmes, speaking for a unanimous Court, condemned "fishing expeditions into private papers on the possibility that they may disclose evidence of crime." They rely strongly on Justice Holmes' comment: "It is contrary to the first principles of justice to allow a search through all the respondents' records, relevant or irrelevant, in the hope that something will turn up." Id.

Much water has, however, flowed under many bridges since 1924. As we shall see, Congress and the FTC have created both administrative and statutory remedies which plaintiffs have eschewed. These remedies and the Commission's broad power of investigation have been upheld by the United States Supreme Court in such cases as United States v. Morton Salt Co., 338 U.S. 632, 70 S.Ct. 357, 94 L.Ed. 401 (1950), and FTC v. Claire Furnace Co., 274 U.S. 160, 47 S.Ct. 553, 71 L.Ed. 978 (1927). Interesting and challenging as are the claims which were presented to the District Court the parties to this litigation and this court are required to follow the legal procedures as they have been laid down by Congress and the Supreme Court.

THE LEGAL ISSUES

The legal questions before us include at least the following:

1) Did the District Judge's "pretrial management order" have the effect of a preliminary injunction so as to make it appealable under 28 U.S.C. § 1292(a)(1) (1976)?

2) If so, should the District Court have dismissed this complaint because appellees have administrative and legal remedies which they are required to pursue and exhaust?

After careful review of this record and the applicable statutes and case law, we conclude that both questions must be answered in the affirmative. We also conclude that these answers are dispositive of this case and require reversal of the District Court's order and dismissal of these complaints.

We emphasize that this court has not reached the merits of appellees' claims. This decision is based purely upon the conclusion that appellees have mistaken their remedies, and all issues (including appellees' constitutional claims) sought to be presented for decision to the District Court can and must under the law be presented first to the FTC and, if rejected, may then be litigated under the applicable statutory provisions in subsequent enforcement proceedings in the Federal District Court prior to presentation to this court.

I. APPEALABILITY OF THE DISTRICT JUDGE'S ORDER

Plaintiffs in their complaint sought: "An injunction enjoining the Commission, its members, and staff . . . (ii) from enforcing any and all compulsory process which has been issued pursuant to the Resolution; . . . ."

The subpoenas at issue in this appeal were originally issued on May 26, 1978, and July 10, 1978. Plaintiffs obtained extensions for compliance until September 18, 1978, from the Commission, but filed their complaint in the instant case seeking both declaratory and injunctive relief on September 11, 1978. By agreement of the parties, the return dates of the subpoenas at issue were extended to November 15, 1978. Prior to that date the FTC filed a motion to dismiss, claiming plaintiffs had an adequate remedy at law and lack of venue. ¹ This motion was denied by the District Court and on December 13, 1978, the court issued a pretrial management order extending the returns on the Commission's subpoenas "until further Order of the Court."

The order on its face (and as we believe it was interpreted by the District Judge) intended to stop the Commission's enforcement of its subpoenas for more than 10 days and clearly had that effect. It was issued without findings of fact and without compliance with Rules 52(a) and 65 of the Federal Rules of Civil Procedure. We do not believe that the District Court's characterization of his order as a "pretrial management order" is controlling. ²

The general rule is: "(A)n interlocutory order that grants . . . an injunction may be broadly defined as an order that temporarily awards . . . a part or all of the permanent injunctive relief sought by a claimant, or that prevents . . . other litigation pendente lite." 9 Moore's Federal Practice P 110.19(1). The terms, intent, and effect of the order are such as to halt an investigation by an administrative agency for an indefinite period of time. It is also our view that the District Court's order of December 13, 1978, granted a major portion of the substantive relief sought by the complaint. For both of these reasons the District Judge's order must be characterized as a preliminary injunction which is appealable under 28 U.S.C. § 1292(a)(1) (1976). ³ Reed v. Rhodes, 549 F.2d 1050 (6th Cir. 1976); International Products Corp. v. Koons, 325 F.2d 403 (2d Cir. 1963); Dowling Bros. Distilling Co. v. United States, 153 F.2d 353 (6th Cir.), Cert. denied sub nom. Gould v. United States, 328 U.S. 848, 66 S.Ct. 1120, 90 L.Ed. 1622 (1946).

In the Dowling case this court said:

It is only when the power possessed by a court of equity is exercised to stay proceedings in another cause that such action amounts to the grant or refusal of an injunction, . . . .

Dowling Bros. Distilling Co. v. United States, supra at 356.

In the Koons case the Second Circuit said:

We think it better, in line with our prior decisions, to continue to read § 1292(a)(1) as relating to injunctions which give or aid in giving some or all of the substantive relief sought by a complaint . . . and not as including restraints or directions in orders concerning the conduct of the parties or their counsel, unrelated to the substantive issues in the action, while awaiting trial.

International Products Corp. v. Koons, supra at 406. (Footnote omitted.)

We hold that this appeal is properly before this court and turn to the substantive issue which it presents.

II. EXHAUSTION OF ADMINISTRATIVE AND LEGAL REMEDIES

As a general rule parties are required to employ the statutorily provided administrative and legal remedies before seeking the general equitable relief which has been sought and granted here. This conclusion is supported by the applicable statutes and case law.

1. The Statutory Scheme

The Federal Trade Commission Act was adopted by Congress in 1914. 15 U.S.C. §§ 41, Et seq. In two sections of the Act, Congress gave the Commission broad investigative authority and the power to compel the production of evidence by subpoena.

Section 6(a) describes the Commission's authority to investigate:

(a) Investigation of persons, partnerships, or corporations

To gather and compile information concerning, and to investigate from time to time the organization, business, conduct, practices, and management of any person, partnership, or corporation engaged in or whose business affects commerce, excepting banks and common carriers subject to the Act to regulate commerce, and its relation to other persons, partnerships, and corporations.

15 U.S.C. § 46(a) (1976).

Section 9 conveys the Commission's power of access to corporate books and the power of subpoena:

For the purposes of this subchapter the Commission, or its duly authorized agent or agents, shall at all reasonable times have access to, for the purpose of examination, and the right to copy any documentary evidence of any person, partnership, or corporation being investigated or proceeded against; and the Commission shall have power to require by subpoena the attendance and testimony of witnesses and the production of all such documentary...