TEXTILE AND APPAREL GROUP, AMERICAN IMP. ASS'N v. FTC

• Decision Date: 26 March 1969
• Docket Number: No. 22505.,22505.
• Citation: 410 F.2d 1052
• Parties: TEXTILE AND APPAREL GROUP, AMERICAN IMPORTERS ASSOCIATION, et al., Appellants, v. FEDERAL TRADE COMMISSION et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

410 F.2d 1052 (1969)

TEXTILE AND APPAREL GROUP, AMERICAN IMPORTERS ASSOCIATION, et al., Appellants, v. FEDERAL TRADE COMMISSION et al., Appellees.

No. 22505.

United States Court of Appeals District of Columbia Circuit.

Argued January 6, 1969.

Decided March 26, 1969.

Mr. Milton M. Gottesman, Washington, D. C., with whom Mr. Michael P. Daniels, Washington, D. C., was on the brief, for appellants.

Mr. Robert V. Zener, Attorney, Department of Justice, with whom Asst. Atty. Gen. Edwin L. Weisl, Jr. (at the time the brief was filed) and Messrs. David G. Bress, U. S. Atty., and Alan S. Rosenthal, Attorney, Department of Justice, were on the brief, for appellee Federal Trade Commission. Messrs. Harold D. Rhynedance, Jr., Attorney, Federal Trade Commission, and Leonard Schaitman, Attorney, Department of Justice, also entered appearances for appellee Federal Trade Commission.

Mr. Eugene Gressman, Washington, D. C., with whom Mr. Jack A. Crowder, Washington, D. C., was on the brief, for appellees National Knitted Outerware Association, National Association of Wool Manufacturers and Northern Textile Association.

Before BURGER, WRIGHT and McGOWAN, Circuit Judges.

J. SKELLY WRIGHT, Circuit Judge:

In the Wool Act of 1939¹ Congress provided that all wool goods introduced into commerce must bear a label identifying the wool content of the material. General supervision of the Act was vested in the Federal Trade Commission. On December 22, 1967, the Commission promulgated Rule 36² which set out a detailed procedure whereby imported wool would be intercepted at Customs and tested by the Commission before it could be released into the country.

Appellants, an association representing a large number of wool importers and a number of other importers not in the association, initially sought to dissuade the Commission from issuing Rule 36. Failing in that endeavor, they brought this suit in the District Court here, prior to the effective date of the rule, for a declaratory judgment and an injunction, claiming that Rule 36 was not authorized by the Wool Act, and that, if it was, it violated the Administrative Procedure Act³ and the due process clause. Associations representing domestic wool growers and manufacturers intervened in favor of Rule 36. One District Court judge granted a preliminary injunction against enforcement of the rule; later, however, another District Judge set aside the injunction and granted both the Commission's motion for summary judgment and the intervenors' motion to dismiss for lack of jurisdiction because no justiciable case or controversy presently existed. Appellants appeal from these judgments.⁴

We hold that the case is ripe for determination now, and that Rule 36 is not authorized by the Wool Act. Accordingly, the judgment of the District Court is reversed and the case is remanded to that court with orders to grant summary judgment for appellants and a permanent injunction against enforcement of Rule 36.⁵

I

The criteria for determining whether judicial review of Rule 36 is appropriate before the rule is specifically applied to any particular wool importer are set out in Abbott Laboratories v. Gardner, 387 U.S. 136, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967). Since an examination of that case reveals a situation generally similar to that presented by Rule 36, here, as there, judicial review at a pre-enforcement stage is appropriate.

Abbott involved a rule promulgated by the Commissioner of Food and Drugs. Prior to its enforcement, an association representing most drug manufacturers brought a suit for declaratory judgment and injunction, claiming that the rule was in excess of the authority given by the governing statute. The Supreme Court first looked to the statute to see if anything therein particularly prohibited a pre-enforcement injunction, pointing out the strong general presumption that orders of an agency adversely affecting persons are reviewable. The Court found no such prohibition in the statute.

The Court then went on to list the factors from which it concluded that the case was "ripe" for review at that time:

"* * * The issue tendered is a purely legal one * * *. * * *

* * * * * *

"* * * The regulation challenged here, promulgated in a formal manner after announcement in the Federal Register and consideration of comments by interested parties is quite clearly definitive. There is no hint that this regulation is informal * * or tentative. It was made effective upon publication, and the Assistant General Counsel for Food and Drugs stated * * * that compliance was expected.

* * * * * *

"* * * The impact of the regulations upon the petitioners is sufficiently direct and immediate as to render the issue appropriate for judicial review at this stage. These regulations purport to give an authoritative interpretation of a statutory provision that has a direct effect on the day-to-day business of all prescription drug companies * * *. * * *"

387 U.S. at 149-152, 87 S.Ct. at 1515-1517. (Footnote omitted.)

Turning to Rule 36, we find that this rule will have an immediate and substantial impact on the day-to-day business of the wool importers. The rule provides that all wool imports will be temporarily detained at Customs while the Commission decides whether to issue a notice of release. The Commission has three days to make up its mind; if within the three days the Commission decides that it has reason to believe some goods may be mislabeled, it can order the goods further detained while it conducts tests. The tests may take a week or two or more. After the tests, the Commission can issue a notice of release or refuse to do so until the importer changes the label. If the importer wishes to have the goods released prior to the Commission's determination, he can do so only upon posting a bond in the amount of the goods and risking forfeiture up to the value of any goods sold if the Commission ultimately decides that the goods are mislabeled. There is no provision for a hearing at any time, before either the Commission or the Bureau of Customs, and no provision for judicial review.

The record contains uncontradicted affidavits from wool importers that delivery of style woolen goods, such as sweaters, is a highly volatile business; styles change rapidly, and demand for goods must be met immediately. The importers make out a convincing case that the potential delays of several weeks even for goods found after testing to be correctly labeled, and the unlimited delay for goods found by the Commission to be mislabeled, could wreak havoc with their delivery schedules. The result might be that large stores, wary of the possibility that the imported goods may not be delivered on time, would shift to domestic orders. Further, for any shipment of goods actually detained, the stores would very probably end up cancelling the contract (the contracts usually contain a definite delivery time), forcing the importers to dump the goods into thrift stores, at a considerable loss to the importers. In sum, a sufficient showing is made of substantial interference by Rule 36 with the normal business of the importers.

Further, as in Abbott, the issue tendered is a purely legal one — whether the rule is in excess of statutory or constitutional authority. And here there is a serious question whether, and to what extent, the Commission's determination under Rule 36 would ever be reviewable since the rule contains no provision for review. In any case, review at a later time would only present the same issue, with no real clarification of any relevant fact.

As in Abbott, the rule here was "promulgated in a formal manner"; there is "no hint that this regulation is informal * * * or tentative." Another similarity with Abbott is that appellants here represent virtually the entire body of persons to be affected by the rule. Since their challenge goes to the basis of the rule itself and would, if successful, require permanently enjoining the rule, it is to the advantage of both the importers and the Commission to know now whether the importers will have to live with the rule (and thus alter their contracts accordingly) or whether the Commission should cancel plans to appropriate sums and personnel to implement the rule before a large apparatus is actually set up.

Finally, here, as in Abbott, there is nothing in the controlling statute (the Wool Act) which indicates that such a rule cannot be reviewed until it is applied. For these reasons, then, the time is ripe for review and thus we turn to the merits.

II

The central issue is whether the Wool Act of 1939 allows the Commission to promulgate Rule 36. The Act of 1939 contains a general enforcement section, Section 6,⁶ which states that the Commission shall enforce the Act through the traditional enforcement methods given it in the Federal Trade Commission Act.⁷ Such enforcement is through the familiar cease and desist process: when wool goods are sold in commerce, the Commission can check to see if any are mislabeled; if it believes some are, it issues a notice to the manufacturer, holds a hearing, and then reaches a decision. Only after this hearing can a cease and desist order be issued, limited to goods still held out for sale in commerce. The Wool Act also contains a provision allowing the Commission to obtain a preliminary injunction when it feels the Act is about to be violated.⁸

Rule 36 provides for an entirely different enforcement process, one alien to the normal Commission cease and desist practice. The goods are held at Customs while the Commission, ex parte, decides whether to conduct tests. If tests are conducted, the Commission is the sole judge as to the results. The importer is given no hearing at any stage. In essence, this Rule 36 procedure resembles an ex parte licensing scheme. Nowhere does the Act explicitly authorize such a procedure. In view of this significant departure from ordinary agency practice, we look for some fairly strong indication,...