Sperry and Hutchinson Company v. FTC

• Decision Date: 14 June 1966
• Docket Number: No. 66 Civ. 1506.,66 Civ. 1506.
• Citation: 256 F. Supp. 136
• Parties: The SPERRY AND HUTCHINSON COMPANY, Plaintiff, v. The FEDERAL TRADE COMMISSION, Paul Rand Dixon, Philip Elman, Mary Gardiner Jones, A. Everette MacIntyre, John R. Reilly, and Walter K. Bennett, Defendants.
• Court: U.S. District Court — Southern District of New York

256 F. Supp. 136

The SPERRY AND HUTCHINSON COMPANY, Plaintiff, v. The FEDERAL TRADE COMMISSION, Paul Rand Dixon, Philip Elman, Mary Gardiner Jones, A. Everette MacIntyre, John R. Reilly, and Walter K. Bennett, Defendants.

No. 66 Civ. 1506.

United States District Court S. D. New York.

June 14, 1966.

Casey, Lane & Mittendorf, New York City, for plaintiff; Samuel M. Lane, Alan R. Wentzel, New York City, of counsel.

Robert M. Morgenthau, U. S. Atty. for Southern District of New York, for defendants; Lawrence W. Schilling, Asst. U. S. Atty., Harold D. Rhynedance, Jr., Atty., Federal Trade Commission, of counsel.

OPINION

FREDERICK van PELT BRYAN, District Judge:

This is an action pursuant to 28 U.S.C. §§ 1361 and 2201 for a declaratory judgment and relief in the nature of mandamus against the Federal Trade Commission. It concerns an adjudicative proceeding pending before the Commission in which plaintiff The Sperry and Hutchinson Company (Sperry) is the respondent.¹

Sperry has now moved for a temporary injunction restraining the Commission from going forward with the initial hearing in the adjudicative proceeding scheduled to commence on June 15, 1966, unless and until various documents which have been requested and are allegedly crucial to the defense are produced. The complaint seeks permanent relief of the same nature and a direction that the Commission furnish the documentary material requested.

Sperry is a New Jersey corporation with its principal place of business in New York. In addition to the Commission, the present Commission members and the Hearing Examiner assigned to the adjudicative proceeding against Sperry are named as defendants.

Federal question jurisdiction is asserted under 28 U.S.C. § 1331, and 28 U.S.C. §§ 1337 and 1361.

FACTS

The basic facts are not in dispute. Sperry is, and for the past 66 years has been, engaged in the trading stamp business. It is said to be the largest and oldest company so engaged. In carrying on its business Sperry uses a form written agreement whereby it licenses retail merchants to issue trading stamps to their customers at the rate of one stamp for every ten cents paid by the customer to the retail licensee. The customer pastes the stamps in books provided by Sperry and, when one or more books have been filled, may surrender the stamps to Sperry for redemption in merchandise or cash. Sperry redeems stamps only upon presentation of a full book of 1,200. Transfer of stamps by recipients to others without Sperry's consent is forbidden. This is said to be done primarily to induce customers to continue to patronize Sperry's retail licensees.

Over the years Sperry has also had considerable success in preventing unauthorized trafficking in its stamps by brokers and trading stamp exchanges through judicial proceedings in the state courts.

Sperry's business is national in scope. The retail establishments issuing its stamps are non-competitive within the particular communities they serve. They now number more than 70,000 and are located in all of the 49 continental states with the exception of Kansas and Alaska.

Since September 1962 the Commission has been conducting a formal investigation of Sperry's operations. In the course of the investigation Sperry has cooperated with the Commission in various ways. It has furnished a large volume of documentary material, including confidential economic studies and reports. During the investigation the Commission through compulsory process has also obtained a great number of documents and statements from third parties. In addition, the Commission's Bureau of Economics has prepared an economic study and analysis of the trading stamp industry. This study has apparently been made available to the staff of the National Commission on Food Marketing, but has not yet been disclosed to the public or to Sperry.

On November 15, 1965, the Commission on the basis of its investigation commenced the proceeding against Sperry with which we are concerned here. The complaint alleges in substance that by limiting the issuance of its stamps to one for every ten cents paid to the licensees (Counts I and II), and by suppressing trading stamp brokers and exchanges (Count III), Sperry, alone and in combination with others, violated § 5 (a) (1) of the Federal Trade Commission Act, 15 U.S.C. § 45(a) (1).

After answer Sperry moved before the Hearing Examiner pursuant to Rule 3.11 of the Commission's Rules of Practice for Adjudicative Proceedings, 16 C.F.R. § 3.11,² for far-reaching discovery and inspection of a mass of statements and documents accumulated by the Commission in the period from the commencement of its investigation in September 1962 to the present. The motion for discovery was in broad and general terms, covered a wide range of the subject matter embraced in the complaint, and in essence sought to have a substantial portion of the Commission's files on this subject matter opened to the respondent.

The material sought falls into five general categories:

(1) "All written statements, communications or other documents" received by the Commission from third parties relating to the subject matter of the complaint;

(2) "All written inquiries or communications made" by the Commission to which the documents previously referred to were responsive;

(3) "All written statements, communications or other documents" containing information relevant to the subject matter received by the Commission from "any person, firm or corporation who will testify at hearing on behalf of complainant or concerning whom complainant will offer documentary evidence at hearing";

(4) All portions of depositions taken relating to the subject matter of the complaint; and

(5) "All preliminary, interim and final studies and reports" made by the Commission's Bureau of Economics and its economists relating to the effect on prices, price structure and competition, of the use of bonus, double or multiple trading stamps. In addition the motion called for the continuous production of additional material as received.

The motion was opposed by counsel supporting the complaint. On February 3, 1966 Hearing Examiner Bennett certified Sperry's motion to the Commission with a recommendation that Sperry should be given access to a limited number of the documents sought, but that the motion should otherwise be denied. He pointed out that according to the pretrial schedule already set up a number of documents would be supplied to Sperry, including all those on which the complainant would rely to establish its case; that in the main Sperry had not shown the necessity for the very broad access to the Commission's files which it sought; but that additional items such as complaints and explanations by customers of third parties, records kept in the regular course of business, and documents "evidencing the existence or effect of the alleged conspiracy," as well as inquiries necessary to limit or identify such documents, should be produced.

On April 15 the Commission denied plaintiff's motion in its entirety on the grounds that the Commission's records to which Sperry sought such general access were largely confidential and that in any event all documents which were necessary for the presentation of the defense could be supplied during the course of the normally scheduled pre-trial proceedings, or, if necessary, during the course of the trial itself. Commissioner Elman dissented as to the denial of Sperry's request for the production of the report of the Commission's Bureau of Economics as distinguished from preliminary and interim economic studies.

Thereafter in the course of the regularly scheduled pre-trial proceedings the Commission made available to Sperry some 400 documents on which it will rely to establish its case. Presumably these were among the items covered by Sperry's original motion for discovery.

On May 24, 1966 the plaintiff commenced the present action seeking a direction from this court that the Commission produce all of the material requested in its original motion for discovery and inspection, and an injunction restraining the Commission from taking any further steps in the adjudicative proceeding until the documents were produced, and an opportunity was afforded to Sperry to copy and inspect them and otherwise prepare its defense.

The hearing in the adjudicative proceeding originally set for May 31 was successively adjourned to June 7 and then to June 15 when it is now scheduled to begin. This motion for a preliminary injunction was made on June 3.

Since one of the requirements for the issuance of a temporary injunction is that plaintiff demonstrate "at least a probability of success at the plenary hearing," Rothstein v. Manuti, 235 F.Supp. 48, 50 (S.D.N.Y.1964), it is appropriate here to examine the merits of the claims.

Sperry contends in substance that it has suffered and will suffer irreparable damage because the Commission's denial of its application for discovery and inspection (1) violated due process by suppressing evidence essential to its defense, U.S.Const., Amend. V; and (2) contravened §§ 7(c) and 12 of the Administrative Procedure Act by depriving Sperry of a right to equal access to material evidence, 5 U.S.C. §§ 1006(c), 1011.

The issue thus presented is whether in the circumstances here the court should intervene to review, at an interlocutory stage, the Commission's denial of a motion for the production of evidence for use in a hearing yet to be commenced.

I.

Interference with the conduct of proceedings before an administrative agency, through the equity powers of the court, as distinguished from supervision and control by direct review, has long been the exception rather than the rule. The exercise of the court's general equity jurisdiction to correct agency conduct "in excess of its delegated powers and contrary to a specific prohibition of the Act"—a practice sanctioned by Leedom v. Kyne, 358 U.S. 184, 188, 79 S.Ct. 180, 184, 3...