FTC v. Rockefeller

• Decision Date: 23 November 1977
• Docket Number: 76 Civ. 1827.,No. 76 Civ. 1826,76 Civ. 1826
• Citation: 441 F. Supp. 234
• Parties: FEDERAL TRADE COMMISSION, Petitioner, v. David ROCKEFELLER, Chairman, and the Chase Manhattan Corporation, Donald C. Platten, Chairman, and Chemical New York Corporation, Walter B. Wriston, Chairman, and Citicorp, Roger E. Anderson, Chairman, and Continental Illinois Corporation, James H. Higgins, Chairman, and Mellon National Corporation, E. C. Patterson, Chairman, and J. P. Morgan & Co., Inc., Respondents. FEDERAL TRADE COMMISSION, Petitioner, v. A. W. CLAUSEN, President, and Bank America Corporation, Respondents.
• Court: U.S. District Court — Southern District of New York

441 F. Supp. 234

FEDERAL TRADE COMMISSION, Petitioner, v. David ROCKEFELLER, Chairman, and the Chase Manhattan Corporation, Donald C. Platten, Chairman, and Chemical New York Corporation, Walter B. Wriston, Chairman, and Citicorp, Roger E. Anderson, Chairman, and Continental Illinois Corporation,

James H. Higgins, Chairman, and Mellon National Corporation,

E. C. Patterson, Chairman, and J. P. Morgan & Co., Inc., Respondents.

FEDERAL TRADE COMMISSION, Petitioner, v. A. W. CLAUSEN, President, and Bank America Corporation, Respondents.

Nos. 76 Civ. 1826, 76 Civ. 1827.

United States District Court, S. D. New York.

November 23, 1977.

Robert J. Lewis, Gen. Counsel, Gerald P. Norton, Deputy Gen. Counsel, Gerald Harwood, Asst. Gen. Counsel, Warren S. Grimes, F.F.C., Washington, D. C., for the F. T. C.

Wilmer, Cutler & Pickering, Washington, D. C., and Bela Szathmary, Ralph J. Aiello, Bank of America N.T. & S.A., New York City, for respondents A. W. Clausen, President, and BankAmerica Corp.; Arnold M. Lerman, Gary D. Wilson, Robert G. Wilson, Washington, D. C., of counsel.

Cravath, Swaine & Moore, New York City, for respondents Donald C. Platten, Chairman, and Chemical New York Corp.; Ralph L. McAfee, Richard S. Simmons, Steven C. Schroer, New York City, of counsel.

Shearman & Sterling, New York City, for respondents Walter B. Wriston, Chairman, and Citicorp; John E. Hoffman, Jr., Herman E. Compter, Francisca A. Sabadie, New York City, of counsel.

Mayer, Brown & Platt, Chicago, Ill., White & Case, New York City, for respondents Roger E. Anderson, Chairman, and Continental Illinois Corp.; Miles G. Seeley, John Bleveans, Thaddeus J. Marciniak, Chicago, Ill., Rayner M. Hamilton, New York City, of counsel.

Davis, Polk & Wardwell, New York City, for respondents E. C. Patterson, Chairman, and J. P. Morgan & Co., Inc.; Taggart Whipple, Steven F. Goldstone, Henry H. Korn, New York City, of counsel.

Kirkpatrick, Lockhart, Johnson & Hutchison, Pittsburgh, Pa., for respondents James H. Higgins, Chairman, and Mellon Nat. Corp.; Joseph A. Katarincic, David L. Feigenbaum, Pittsburgh, Pa., of counsel.

Milbank, Tweed, Hadley & McCloy, New York City, for respondents David Rockefeller, Chairman, and the Chase Manhattan Corp.; Edward J. Reilly, Kenneth A. Perko, Jr., New York City, of counsel.

LASKER, District Judge.

The Federal Trade Commission ("FTC") moves for enforcement¹ of seven subpoenas duces tecum, which were issued to the respondent bank holding corporations ("banks") in June, 1975. The banks resist enforced compliance, contending — sometimes by way of affirmative defense, other times, by counterclaim — that: (1) the FTC lacks the authority to issue the subpoenas, (2) whether or not authority exists, the subpoenas call for the production of irrelevant material, and (3) the subpoenas are unduly burdensome.² The motion is granted subject to the conditions set forth below.

In 1973, Congress directed the FTC to conduct a comprehensive study of the structure and function of the energy industry.³ Pub. L. No. 93-135, 87 Stat. 468 (1973); Agriculture, Environmental, and Consumer Protection Appropriation — 1974, Conference Report No. 93-520 on H.R. 8919, at 24. On April 16, 1974 and again on September 12, 1974, the FTC, responding to the Congressional directive, promulgated a series of resolutions, which authorized the use of compulsory process to aid in the acquisition of information about the energy industry.⁴ In particular, the FTC was concerned about the existence and effect of interlocking relationships between the petroleum industry and the financial sector (see, Resolution of September 12). On June 10, 1975, following the release of the resolutions, the FTC issued subpoenas duces tecum to nine banks.⁵ In July, the respondent banks filed motions to quash (BankAmerica did not file its motion until November). The gist of the banks' resistance was then, as it is now, that the subpoenas had been issued in excess of the FTC's authority, that they were concerned with the divulgence of irrelevant material, and that they imposed undue burdens on the banks. The Commission considered the objections and ruled, on August 21, 1975, that the FTC had authority to issue the subpoenas and that the documents requested were relevant to the energy study⁶ (the ruling with respect to BankAmerica's motion was made on March 2, 1976). In response to the objections that the subpoenas were unduly burdensome, the Commission narrowed certain of the specifications (see, the Composite Subpoena, infra, n.11, incorporating the August 21, as well as other, modifications). Finally, the Commission instituted protective provisions for the purpose of guarding information that the respondents claimed was confidential (see, infra, n.12). September 12, 1975 was set down as the return date for the modified subpoenas directed at Chase, Chemical, Citicorp, Continental, Mellon, and Morgan. When these respondents failed to appear, the FTC filed a petition for enforcement, 15 U.S.C. § 49, in the District Court for the District of Columbia. And, in March, 1976, when BankAmerica indicated that it would not comply with its modified subpoena, a similar petition was filed. The two proceedings were consolidated and transferred to this district.

I.

In both the April and September resolutions (by which the FTC authorized the use of compulsory process), the Commission indicated that its authority to "conduct the investigation" could be found in §§ 6, 9, and 10 of the Federal Trade Commission Act, 15 U.S.C. §§ 46, 49, 50.⁷

In their earlier motions to quash, the respondents charged that the subpoenas were part of an attempted investigation of the banking industry. It was said that such an investigation must fail because the FTC is specifically prohibited from exercising its regulatory and investigative jurisdiction over banks, 15 U.S.C. §§ 45(a)(6), 46, and that the subpoenas were therefore invalid. The Commission's August 21 opinion letter, which disposed of the motions to quash, resolved the question of authority by referring exclusively to § 6 of the Act, 15 U.S.C. § 46. As is apparent from the following language of the Commission's ruling, the FTC, at least provisionally, accepted the respondents' self-serving characterization of the inquiry, and rose to the challenge (which might be considered a diversion) that the FTC lacked the authority to investigate banks:

"2. The Trans-Alaska Pipeline Authorization Act, Pub.L. 93-153, 87 Stat. 576 (1973) amended Section 6 of the Federal Trade Commission Act (15 U.S.C. § 46) to provide that the Commission may investigate banks `to the extent that such action is necessary to the investigation of any . . . industry which is not engaged . . . in banking.' The amendment grants the Commission investigatory jurisdiction over banks with regard to all subjects `necessary' to the resolution of issues in an investigation of an industry not engaged in banking. The effect of the amendment is to define the permissible scope of an investigation touching on banks and to require that the subject matter of such an inquiry arise out of a matter properly under investigation . . in this instance, competitive conditions in the energy industry." (Letter of August 21, at 3-4)

Section 9 of the Act, 15 U.S.C. § 49, which covers the narrow question of when subpoenas may issue, and against whom they may properly run, was not mentioned by the Commission. Instead, battle was pitched on the broad question of the FTC's right to conduct an investigation of the banking industry. Thereafter, in the welter of legal memoranda that followed, as well as in the course of hearings and conferences, the attention of all was particularly directed to the meaning of 15 U.S.C. § 46 (as it had been recently amended), and the FTC pressed its case on two fronts. First, they argued that the specific exemption of § 46 did not apply to bank holding companies (as opposed to banks), and that therefore, the plenary investigative power of the FTC could be levelled at the respondents (it was in the spirit of this belief that the FTC had earlier changed the original subpoenas so that the respondents would be denominated as "bank holding companies" rather than — as they had originally been named — "banks"). What followed was a lengthy exploration of the legislative history of the FTC Act, none of which was illuminating on a question that had acquired burning importance for both sides: whether, in 1914 — when the Act was passed — Congress meant to distinguish bank holding companies from banks, and subject the former to the FTC's jurisdiction, while shielding the latter. Second, the FTC contended that even if bank holding companies were to be regarded as banks, or if the subpoenas were construed as being directed in fact at their bank subsidiaries, both bank holding companies and banks were answerable to the Commission's subpoena power if either had information that was "necessary" to the prosecution of any authorized investigation. The authority to conduct such an ancillary investigation of the banks was found in the proviso to § 46 (as amended). This second contention raised a storm of controversy over the meaning of "necessary."

The consequence of this contorted and lugubrious history has been that the case was presented by both parties to the court as if the predominant issue were the meaning of the term "necessary" in the Trans-Alaska Pipeline Authorization Act (amending 15 U.S.C. § 46). That is, in the course of the battle over § 46, the question of the effect of the provisions of 5 U.S.C. § 49 all but disappeared from the scene. On reflective examination of the papers, however, it appears that the provisions of § 49 are dispositive.

Rather than further rehearse the details of the presentation that was made to the court, or account for the startling lack of emphasis that was placed on the most pertinent statutory provision, we take this opportunity to clear the air.

The...