F. T. C. v. Shaffner, 79-2556

Citation626 F.2d 32
Decision Date14 July 1980
Docket NumberNo. 79-2556,79-2556
PartiesFEDERAL TRADE COMMISSION, Plaintiff-Appellant, v. Milton SHAFFNER, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

Charles David Nelson, F.T.C., Washington, D. C., for plaintiff-appellant.

Robert C. Goldberg, Freeman, Atkins & Coleman, Ltd., Chicago, Ill., for defendant-appellee.

Before SWYGERT, Circuit Judge, KILKENNY, Senior Circuit Judge, * and WOOD, Circuit Judge.

KILKENNY, Circuit Judge.

STATEMENT OF THE CASE

The Federal Trade Commission (the FTC), pursuant to the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. and the Federal Trade Commission Act, 15 U.S.C. §§ 46, 49, and 50 is investigating debt collection practices. As part of its investigation, the FTC issued a subpoena duces tecum to appellee, an Illinois attorney who admittedly devotes most of his practice to collecting debts. Appellee refused to comply with the subpoena, and the FTC petitioned the district court for enforcement. The district court enforced the subpoena in part and denied enforcement in part. The FTC appeals. We affirm in part and reverse in part.

PROCEEDINGS BELOW

On August 29, 1978, the FTC promulgated a resolution directing the use of compulsory process to investigate debt collection practices. The resolution recited the authority to conduct the investigation and the statutes giving the FTC the authority to issue compulsory process in aid of its investigations. On February 1, 1980, the FTC issued a subpoena duces tecum containing eleven specifications directed to appellee.

Appellee moved the FTC to quash the subpoena. The motion was denied. Subsequently, he agreed to comply with nine of the eleven subpoena specifications, but refused to produce any material under two of the specifications. 1 His primary objection was that the FTC was requiring him to disclose privileged communications between his clients and himself. He also objected to the FTC's jurisdiction and to the scope of the subpoena. In any event, no documents were produced.

Thereafter, the FTC petitioned the district court for enforcement of its subpoena in its entirety. The district court granted the petition, but excluded specifications seven

and ten from the enforcement order. Although the district court's order does not state the specific grounds for refusing to enforce the subpoena in its entirety, it is apparent that the court was not prepared to issue an order it considered would open an attorney's files. 2 Appellee has since responded to all the specifications, save numbers seven and ten
ISSUES

I. Whether the FTC's investigation of appellee's business is beyond the scope of its statutory authority.

II. Whether enforcement of specifications seven and ten would violate privileged communications or other protected interests.

III. Whether enforcement of specifications seven and ten is unduly burdensome.

I.

Finding "abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors," contributing to bankruptcies, marital instability, loss of jobs, and invasions of privacy, Congress passed the Fair Debt Collection Practices Act to remedy the abusive practices. 3 15 U.S.C. § 1692. Although Congress intended the Act to be enforced primarily by consumers, Senate Report No. 95-382, 95th Cong., 1st Sess. 5, reprinted in (1977) U.S.Code Cong. & Admin.News, pp. 1695, 1699, it also authorized the FTC to consider violations of the Act unfair and deceptive practices under the Federal Trade Commission Act, 15 U.S.C. § 41, et seq., and to use all its functions and powers to enforce compliance with the Fair Debt Collection Practices Act. 15 U.S.C. § 1692l.

Appellee contends that the FTC has no power to investigate him because the Act specifically excludes "any attorney-at-law collecting a debt as an attorney on behalf of and in the name of a client" from those defined as "debt collectors." 15 U.S.C. § 1692a(6)(F). He argues that since he is merely representing his numerous clients in efforts to secure payments of debts, not only is it impossible for him to be liable under the Act, he also cannot even be a subject of an investigation. In sum, he contends that the FTC, by virtue of the statutory exclusion, is without jurisdiction to investigate him.

Historically, federal courts have been reluctant to interfere in agency investigations. As the Supreme Court said in Okl. Press Pub. Co. v. Walling, 327 U.S. 186, 214, 66 S.Ct. 494, 508, 90 L.Ed. 614 (1946): "(C)ongress has authorized the (agency), rather than the district courts in the first instance, to determine the question of coverage in the preliminary investigation of possibly existing violations; in doing so to exercise (its) subpoena power for securing evidence upon that question, by seeking the production of petitioners' relevant books, records and papers; and, in case of refusal to obey (its) subpoena, issued according to the statute's authorization, to have the aid of the district court in enforcing it." When faced with a question very similar to the

one presented to us here, 4 this court said the Oklahoma Press rule means "appellants may not litigate the jurisdictional issue as a defense in a subpoena enforcement proceeding." FTC v. Feldman, 532 F.2d 1092, 1096 (CA7 1976), quoting FTC v. Gibson, 460 F.2d 605, 608 (CA5 1972). Nevertheless, there are three circumstances under which a party can challenge the authority of an agency to issue a particular subpoena, where: "(1) the agency has clearly violated a right secured by statute or agency regulation; (2) the issue involved is a strictly legal one not involving the agency's expertise or any factual determinations ; or (3) the issue cannot be raised upon judicial review of a later order of the agency." (Citations omitted) (Emphasis supplied) FTC v. Feldman, supra, at 1096

Appellee contends all three of the exceptions are present here. First, he argues that the FTC is clearly violating his right to be free from investigation secured by the Fair Debt Collection Practices Act. While the statute clearly excludes "any attorney-at-law collecting a debt as an attorney on behalf of and in the name of a client" from the definition of a "debt collector," it does not state that an attorney, by reason of mere possession of a license to practice law, is not subject to the compulsory process of the FTC. The statutory exclusion does not merely say "any attorney-at-law," it says "any attorney-at-law collecting a debt as an attorney on behalf of and in the name of a client." While the exclusion is not a narrow one, it is readily apparent that Congress did not intend to vest in every attorney a right to be free from investigation. Needless to say, many who hold licenses to practice law, do not practice law, but engage in other businesses. We do not believe Congress intended to shield one debt collection business from investigation simply because it is owned by an attorney, while subjecting other debt collectors to scrutiny by the FTC. The compulsory process of the FTC may be used to determine whether an attorney is in fact acting as an attorney practicing law, or in some other capacity.

Appellee also contends that the issue involved is strictly a legal one not involving agency expertise or factual determinations. While we agree that the construction of the meaning of the statutory exclusion relating to attorneys is a question of law not requiring any agency expertise for proper resolution, the question of whether appellee can be held liable under the Act turns on the resolution of questions of fact on whether he falls within the statutory exclusion. For instance, appellee may advertise his business as a debt collection agency rather than a law practice, and might employ several employees for the purpose of soliciting debt collection business or contacting debtors to secure payment of accounts; activities which may not fall within the statutory exclusion. We do not address the question of whether appellee has a defense under the statutory exclusion relating to attorneys, for the record on that question is incomplete. We do say that there may be issues of fact bearing on the legal question of whether appellee's activities fall within the statutory exclusion. The FTC's subpoena is properly designed to illuminate these questions. SEC v. Savage, 513 F.2d 188, 189 (CA7 1975).

Next, appellee argues that the issue of jurisdictional coverage cannot be raised on judicial review of a later order of the agency, because a decision to enforce the subpoena necessarily decides the jurisdictional question and results in the opening of his files, an act which cannot be undone. This argument fails to recognize the difference between the question of the power of the FTC to investigate and the question of whether appellee has a defense under the facts to a complaint brought under the Act. The power of the FTC to proceed with an

investigation does not hinge on whether the subject of the investigation can prove a statutory defense. The investigation may convince the FTC investigators that appellee's business falls within the statutory exclusion and that no charge under the Act should be filed. Even if a complaint is filed, appellee will have the opportunity to assert his defense at an adjudicative administrative hearing. Ultimately, review of any final FTC decision is available under the Administrative Procedure Act, 5 U.S.C. § 701, et seq. Consequently, there is no merit to appellee's contention that the issue cannot be raised upon judicial review of a later agency order

Appellee also argues that the FTC has no jurisdiction to investigate his business for the reason that it is conducted wholly within the confines of Cook County, Illinois and is not in interstate commerce. Here again, the subpoena is likely to shed light on this question and he can raise the objection at any later administrative hearing. Moreover, we note that he...

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