A. Michael's Piano, Inc. v. F.T.C.

Decision Date03 March 1994
Docket NumberD,No. 120,120
Citation18 F.3d 138
Parties, 1994-1 Trade Cases P 70,529 A. MICHAEL'S PIANO, INC., Tracy Patrick Smith, Nicholas Vitagliano and Maria Vitagliano, Plaintiffs-Appellants, v. FEDERAL TRADE COMMISSION, Defendant-Appellee. ocket 93-6051.
CourtU.S. Court of Appeals — Second Circuit

Jonathan W. Cuneo, Washington, DC, for Plaintiffs-Appellants.

John F. Daly, Appellate Staff, Civil Division, Department of Justice, Washington, D.C. (Leonard Schaitman, Attorney; Stuart E. Schiffer, Acting Assistant Attorney General; Albert S. Dabrowski, United States Attorney, Department of Justice, Washington, D.C., of counsel), for Defendant-Appellee.

Before: FEINBERG, CARDAMONE and ALTIMARI, Circuit Judges.

CARDAMONE, Circuit Judge:

The Federal Trade Commission (FTC) has in its possession corporate records voluntarily submitted to it by a manufacturer on the understanding they would be shielded from public disclosure. A former retail distributor of the submitting corporation's products seeks to obtain these records under the Freedom of Information Act (FOIA), 5 U.S.C. Sec. 552 (1988). Full agency disclosure under that "sunshine law" has as its premise the Founders' view that "the people are the only legitimate fountain of power, and it is from them that the constitutional charter, under which the several branches of government hold their power, is derived." The Federalist No. 49, at 313-14 (James Madison) (Clinton Rossiter ed., 1961). When the FOIA bill was before the Senate Committee on the Judiciary, the Committee focused on Madison's observation that our government, relying as it does on the consent of the governed, may not succeed unless its "people who mean to be their own governors ... arm Of course, if every document in the possession of a federal agency was freely available to the press or public, not many documents would be voluntarily submitted. In striking a balance between the incompatible notions of disclosure and privacy when it enacted FOIA in 1966, Congress established--in the absence of one of that law's clearly delineated exemptions--a general, firm philosophy of full agency disclosure, and provided de novo review by federal courts so that citizens and the press could obtain agency information wrongfully withheld. De novo review was deemed essential to prevent courts reviewing agency action from issuing a meaningless judicial imprimatur on agency discretion. See S.Rep. No. 813, at 8.

                themselves with the power knowledge gives."   S.Rep. No. 813, 89th Cong., 1st Sess. 2, 3 (1965).  To arm the public with knowledge, it must be able to obtain information concerning the activities of federal agencies
                

Resolving the conflicting concerns of full public disclosure and the safeguarding of privacy rights is always a difficult task. In resolving that conflict on this appeal, the best path to follow is the one taken by Congress in 1966--one that protects both interests as much as possible, but with special emphasis on granting the fullest responsible disclosure.

FACTS

Plaintiff, A. Michael's Piano, Inc. (Michael's Piano), appeals from a January 29, 1993 judgment of the United States District Court for the District of Connecticut (Covello, J.) granting defendant FTC's motion for summary judgment. 1 The FTC conducted an investigation of Steinway and Sons (Steinway) with respect to that manufacturer's warranty practices regarding allegedly defective pianos in the years 1990-92. Michael's Piano sought disclosure under FOIA of materials generated by that investigation.

Michael's Piano, whose business is located in Waterford, Connecticut, became an authorized Steinway dealer in September 1982 and soon became the largest single-location Steinway dealer in the nation. Its success was attributed, it tells us, in part to its steadfast refusal to follow Steinway's "suggested" retail prices. While well pleased with its retailer's sales record, Steinway representatives pressured the dealer to adhere to the manufacturer's suggested retail prices. This difference in marketing approach culminated in late 1987 when Steinway offered a new dealership contract to Michael's Piano, which would have replaced their already existing contract. The dealer refused it. Steinway thereafter refused to ship Michael's Piano new pianos for resale.

Plaintiff continued to sell Steinway pianos from its inventory from 1987 to 1989 and to service those it had already sold. In the course of servicing those pianos, the retailer allegedly noticed a number of instruments with cracked soundboards and in some cases separations of the soundboards from the ribs that hold them in place. In 1990 approximately 60 of the retailer's customers called the State of Connecticut's attention to problems they were experiencing with Steinway pianos. The Connecticut Attorney General forwarded a number of these complaints to the FTC. The complaints averred that Steinway had failed to honor warranties, particularly those with respect to cracks or other asserted flaws in the soundboards of its pianos. The FTC thereafter commenced an investigation into these allegations to determine whether it should take legal action against Steinway for possible violations of either Sec. 5 of the FTC Act, 15 U.S.C. Sec. 45 (1988), or the FTC's rules implementing the Magnuson-Moss Warranty-Federal Trade The preliminary or "initial phase" investigation was commenced under the authority of the Director of the FTC's Boston Regional Office and conducted principally by Sara Greenberg, an FTC attorney. In January 1991 Ms. Greenberg filed a memorandum that made a recommendation regarding whether the investigation should be expanded into a "full-phase" investigation--a determination that had to be made by the Director of the FTC's Bureau of Consumer Protection. See Federal Trade Commission Operating Manual Sec. 3.5.1 (1991). Dennis Murphy, an FTC economist assigned to assist in the investigation, also prepared a memorandum as to whether the initial investigation should be carried further. Following submission of these recommendations, a "full-phase" investigation was authorized by appellee's Bureau of Consumer Protection.

Commission Improvement Act, 15 U.S.C. Secs. 2301-2312 (1988).

During both phases of the investigation, the FTC requested and received information from Steinway and from a number of other persons and piano manufacturers, including, for example, Baldwin Piano and Organ Company, Kawai America Corporation, Mason & Hamlin Corporation, Yamaha Corporation of America, Schimmel Piano Corporation and C. Bechstein Piano Corporation, all competitors of Steinway. During the preliminary part of the inquiry on September 24, 1990 the FTC made a written request of Steinway for information. This letter requested a broad range of documents and information concerning the manufacturer, its dealers, manufacturing processes, and warranty practices. The letter requested that Steinway submit this material "voluntarily ... [i]n furtherance of [the pending] investigation." It further stated the FTC's understanding that, pursuant to Sec. 21(f) of the FTC Act, 15 U.S.C. Sec. 57b-2(f), information "provided voluntarily in lieu of compulsory process in a law enforcement investigation, such as [that] provided in response to this letter, [is] exempt from public disclosure under [FOIA Exemption 3]."

Later, during the full-phase investigation, the FTC sought by letter of March 7, 1991 further voluntary submissions from Steinway. In response to these FTC requests Steinway voluntarily submitted a substantial amount of additional information. The FTC also sought, orally or in writing, and received information from a number of retail piano dealers, technicians, and owners. The appellee's staff informed the persons solicited that information voluntarily submitted in this manner would be protected by Sec. 21(f). Michael's Piano seeks disclosure of these materials.

During its investigation, the FTC engaged an expert consultant, David Betts, to inspect the soundboards of a number of Steinway pianos and to provide advice concerning the existence and extent of any defects. Michael's Piano also seeks copies of the correspondence between Mr. Betts and Ms. Greenberg regarding these inspections.

In December 1991 Ms. Greenberg prepared a memorandum analyzing the issues presented and making a recommendation regarding the final disposition of the inquiry. Again, final authority for a decision to close or to proceed further with the investigation rested with the Director of the Bureau of Consumer Protection. In January 1992 the Bureau of Consumer Protection closed the investigation. Michael's Piano seeks copies of Ms. Greenberg's memorandum and other inter-office memoranda leading up to this disposition of the case.

Plaintiff submitted a formal FOIA request to the FTC in January 1992, seeking copies of all letters and documents gathered by the FTC during its investigation of Steinway. The FTC granted the request, in part, and denied it, in part, citing FOIA exemptions 3 and 4 as protecting those records voluntarily submitted by Steinway and others, and FOIA exemption 5 as shielding internal FTC documents. Michael's Piano took an administrative appeal from this determination, which was denied by the FTC's General Counsel in a letter dated May 12, 1992.

On July 13, 1992 plaintiffs filed the instant suit in the District of Connecticut. The FTC moved for summary judgment on October 19, and after plaintiffs responded on November 20, 1992, the district court granted the motion on January 27, 1993. From this judgment, Michael's Piano appeals.

DISCUSSION

Two issues are presented for our analysis: one under exemption 3 and the other under exemption 5 of FOIA. We must decide first whether the documents submitted to the FTC during its investigation qualify as information "provided voluntarily in place of ... compulsory process," within the meaning of Sec. 21(f) of the ...

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