Audobon Life Ins. Co. v. FTC

• Decision Date: 30 July 1982
• Docket Number: Civ. A. No. 81-952-B.
• Parties: AUDUBON LIFE INSURANCE COMPANY Commercial Securities Company, Inc. v. FEDERAL TRADE COMMISSION, James C. Miller, III, Chairman, Michael Pertschuk, Commissioner, David A. Clanton, Commissioner, Patricia P. Bailey, Commissioner.
• Court: U.S. District Court — Middle District of Louisiana

543 F. Supp. 1362

AUDUBON LIFE INSURANCE COMPANY Commercial Securities Company, Inc. v. FEDERAL TRADE COMMISSION, James C. Miller, III, Chairman, Michael Pertschuk, Commissioner, David A. Clanton, Commissioner, Patricia P. Bailey, Commissioner.

Civ. A. No. 81-952-B.

United States District Court, M. D. Louisiana.

July 30, 1982.

Robert A. Hawthorne, Jr., Sanders, Downing, Kean & Cazedessus, Baton Rouge, La., Christopher Smith, Arent, Fox, Kintner, Plotkin & Kahn, Washington, D. C., for plaintiffs.

J. Paul McGrath, Asst. Atty. Gen., Washington, D. C., Stanford O. Bardwell, Jr., U. S. Atty., M. D. La., Baton Rouge, La., Sandra M. Schraibman and Surell Brady, Attorneys, Dept. of Justice, Washington, D. C., for defendants; John H. Carley, Gen. Counsel, Howard E. Shapiro, Deputy Gen. Counsel, Ernest J. Isenstadt, Acting Asst. Gen. Counsel, Leslie Rice Melman, Attorney, F. T. C., Washington, D. C., of counsel.

POLOZOLA, District Judge:

The circumstances giving rise to this action began in September, 1980, when the Federal Trade Commission (F.T.C.) adopted a resolution authorizing the use of compulsory process in a nonpublic investigation of the practices of certain finance companies and automobile dealerships. The resolution provided that the F. T. C. was to conduct an investigation to determine whether certain unnamed companies and dealerships were acting in violation of Section 5 of the F. T. C. Act (Act), 15 U.S.C. § 45, against unfair or deceptive practices. In particular, the investigation was directed at businesses which allegedly misrepresented that the purchase of credit insurance was a prerequisite to the extension of credit. After the F. T. C. formally initiated the investigation, a notice was sent to approximately 50 finance companies, including Commercial Securities Company, Inc. (Commercial Securities), one of the plaintiffs herein. This notice advised the companies that under Section 5(m)(1)(B) of the F. T. C. Act, 15 U.S.C. § 45(m)(1)(B), violators¹ of the Act are subjected to civil penalties of $10,000 per violation when the F. T. C. declares a practice to be deceptive or unfair, and issues a final cease and desist order. Accompanying the notices sent to the companies were copies of the statute and prior decisions issued by the F. T. C. which held that misrepresentations made by a business to prospective consumer borrowers that the purchase of credit life insurance is a prerequisite to the extension of credit violates Section 5 of the F. T. C. Act.

In May, 1981, the F. T. C. issued civil investigative demands (CID's)² to 43 finance companies and automobile dealerships, including Commercial Securities, seeking documentary materials reflecting policies and procedures used by the businesses for the disclosure of the optional status of credit insurance in connection with the businesses' consumer finance activities. In June, 1981, Commercial Securities filed a petition with the F. T. C. to quash the CID. The F. T. C. denied both this petition and a motion by Commercial Securities for the F. T. C. to reconsider the denial of the petition. Subsequently, Commercial Securities refused to comply with the CID and has filed a suit in this court seeking injunctive and declaratory relief.

The plaintiffs in this case are Commercial Securities Company, Inc., a finance company, and Audubon Life Insurance Company (Audubon), a wholly owned subsidiary of Commercial Securities. Named as defendants are the F. T. C. and the individual Commissioners of the F. T. C.

The plaintiffs in this case seek a declaratory judgment declaring that the investigation being conducted by the F. T. C. is illegal. Plaintiffs also seek to have the investigation enjoined. The plaintiffs contend that the investigation being conducted by the F. T. C. is an investigation of the "business of insurance" under the McCarran-Ferguson Act, 15 U.S.C. §§ 1011 et seq., and the Federal Trade Commission Act, 15 U.S.C. §§ 41 et seq. Thus, plaintiffs contend the F. T. C. is prohibited from conducting the investigation.

After this suit was filed, the plaintiffs filed a motion for summary judgment or, in the alternative, for a preliminary injunction. The defendants have filed a motion for summary judgment or, in the alternative, to dismiss.

Plaintiffs contend that the F. T. C. is prohibited from investigating the "business of insurance." Thus, plaintiffs argue that their summary judgment should be granted on the merits of this case. In the alternative, plaintiffs contend that the Court should grant a preliminary injunction enjoining the F. T. C. from conducting its investigation of plaintiffs' business practices. Plaintiffs also demand that the F. T. C. be ordered to file in a compulsory counterclaim such enforcement proceedings necessary to enforce the compulsory process issued by the F. T. C. to the plaintiffs in connection with the investigation.

The F. T. C. in its motion has requested that plaintiffs' suit be dismissed because the enforcement proceedings provided under the Federal Trade Commission Act give an adequate remedy at law to the plaintiffs. The F. T. C. further claims that the suit, as it now stands, is not ripe for adjudication. The F. T. C. also questions the standing of Audubon Life Insurance Company to bring this suit. Finally, the F. T. C. seeks summary judgment on the merits of the case.

The parties have filed excellent briefs with the Court in support of their respective contentions which the Court has carefully studied and compared with the Court's own independent research. After reviewing the entire record, the Court finds that plaintiffs' suit in this Court is premature because plaintiffs have an adequate remedy under the Federal Trade Commission Act. Since this case is not ripe for adjudication, defendants' motion to dismiss is hereby granted.³

Section 2(b) of the McCarran-Ferguson Act, 15 U.S.C. § 1012(b), provides in pertinent part:⁴

No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically related to the business of insurance: Provided, that after June 30, 1948, * * * the Federal Trade Commission Act, as amended, shall be applicable to the business of insurance to the extent that such business is not regulated by State law.

In addition to this general restriction on the F. T. C., plaintiffs rely on Section 6 of the Federal Trade Commission Act, 15 U.S.C. § 46, which provides the source for the investigative power of the F. T. C. The extent of the investigative power set forth in Section 6 is broader than the regulatory power given to the agency in Section 5 of the Act. In 1980 this section was amended to specifically exclude from the scope of the F. T. C. authority the investigation of the "business of insurance," except in instances when it is requested by Congressional committees to make studies or reports in this area.⁵ Under these two provisions the plaintiffs contend that the F. T. C. lacks jurisdiction to investigate their business practices.

The right of judicial review of an action by an administrative agency is granted to persons adversely affected by the action in 5 U.S.C. §§ 701-706, enacted under the Administrative Procedure Act. Section 703 provides that the form of proceeding for judicial review is the special statutory review proceeding relevant to the subject matter unless none is provided for, or if that which is provided for would be inadequate. In such a case any applicable legal action, including actions for declaratory judgments or injunctive relief, may be brought in a court of competent jurisdiction.⁶

In addition to the limitations on judicial review set forth in 5 U.S.C. § 703, Section 704 further defines this limitation by stating:

Agency action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review ...

It thus appears that under the Administrative Procedure Act, in order for plaintiffs to maintain this action, not only must the initiation of the F. T. C. investigation and the issuance of the CID constitute "final agency action," but the judicial review provided for in the CID enforcement proceeding of 15 U.S.C. § 57b-1(e) and § 57b-1(h) must be an inadequate remedy for the plaintiffs. The plaintiffs have failed to make this requisite showing. Thus, their suit must be dismissed. In making this determination, the Court is bound by the decision rendered by the Fifth Circuit Court of Appeals in Atlantic Richfield Co. v. FTC, 546 F.2d 646 (5th Cir. 1977). In the Atlantic Richfield case, ARCO sued for both injunctive and declaratory relief in response to a subpoena duces tecum issued to it by the F. T. C. ARCO argued that any disclosure of the subpoenaed material to the F. T. C. staff involved in another adjudicatory proceeding pending against ARCO and other oil companies would violate ARCO's procedural rights to a fair hearing in violation of the Due Process Clause of the Constitution, as well as the Administrative Procedure Act. The Fifth Circuit held that the relief requested by ARCO was unavailable to ARCO because (1) ARCO had an adequate remedy at law under Reisman v. Caplin, 375 U.S. 440, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964); and (2) the case was not ripe for adjudication under a trilogy of Supreme Court decisions, Abbott Laboratories v. Gardner, 387 U.S. 136, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967); Toilet Goods Association v. Gardner, 387 U.S. 158, 87 S.Ct. 1520, 18 L.Ed.2d 697 (1967); and Gardner v. Toilet Goods Association, 387 U.S. 167, 87 S.Ct. 1526, 18 L.Ed.2d 704 (1967).

The Court in Atlantic Richfield found that Reisman controlled its decision because in that case taxpayers were denied injunctive and declaratory relief where the I. R. S. issued an administrative summons directing the production of documentary materials...