The opinion of the court was delivered by: FLANNERY
The court presently has before it consolidated preenforcement and enforcement actions concerning the Federal Trade Commission's orders directing numerous companies to file certain special reports. At issue are the FTC's information-gathering activities with respect to the 1974 Line of Business (LB) report and the Corporate Patterns Report (CPR) survey. The court already has considered various motions to dismiss. Order of Jan. 31, 1977. The FTC and the Comptroller General have moved for summary judgment at this time, while the corporate parties seek partial summary judgment. Oral hearings on these motions were held February 11 and 25, 1977, and the motions are ripe for consideration and decision at this time.
The corporate parties challenge the enforcement of the FTC's orders to file the LB and CPR forms on a number of grounds. The court will consider each of these claims in turn. An appropriate order accompanies this memorandum opinion.
The linchpin of the corporate parties' argument is that the LB and CPR programs are not focused investigations. If not investigations, they contend, then the section 6(b) special report orders do not relate to the Commission's section 6(a) power of investigation and do not relate to the Commission's quasi-judicial powers under section 5 of the Act. Since the FTC admits that the LB and CPR programs are broad-based and not aimed simply at suspected violators, the corporate parties reason that they cannot qualify as legitimate investigations. Instead, these statistical reporting programs are more in the nature of a fishing expedition; the corporate parties charge that without a direct link to the Commission's substantive responsibilities these section 6(b) orders could intrude indiscriminately into the private domain.
The corporate parties suggest that the legislative history of the FTC Act supports the view that section 6 was intended only as an aid to section 5 powers. Without exhaustively repeating the arguments of both the corporate parties and the FTC on this question, the court can reject the corporate parties' claim to the extent that it suggests the FTC was intended to be only a quasi-judicial agency with information-gathering powers narrowly limited to its quasi-judicial functions.
The corporate parties bottom their argument on a statement by Senator Newlands, made after the enactment of the Act, that the FTC's exercise of its investigatory powers would be limited to those suspected of violating the law.
Apart from the problem of personal, post-hoc explanations as legislative history, a fair reading of the legislative history does not support that view.
First, the FTC was intended to assume, inter alia, the powers formerly held by the Bureau of Corporations, a research and investigatory agency with no law enforcement powers. H.R. Rep. No. 1142, 63d Cong., 2d Sess. 18 (1914) (conference report). Second, while the conferees did indeed rely largely on the Senate bill, they exhibited no intent to cut down the broader powers present in the House bill.
Finally, statements made by Senator Newlands himself suggest that the FTC would have vast discretion in determining its special reports needs.
In short, the legislative history does not support the corporate parties' claims.
The corporate parties next rely on their interpretation of several cases. The corporate parties attempt to distinguish the most important of these cases, United States v. Morton Salt Co., 338 U.S. 632, 94 L. Ed. 401, 70 S. Ct. 357 (1950), on the ground that Morton Salt decided only the question of whether a section 6 special report order could be used in aid of the Commission's section 5 quasi-judicial powers; it did not decide whether a section 6 order can fly "solo." Indeed, the corporate parties correctly state the holding of that case.
Yet the proper inference to be drawn from Morton Salt, in this court's opinion, is that section 6 orders can be used both in aid of section 5 responsibilities and in support of general economic reports. The Court rejected an argument made there that section 6 reports "can be required only 'in support of general economic surveys and not 'in aid of enforcement proceedings under Section 5.'"
The Court characterized the special report provision as enabling the Commission to elicit "any information" beyond the normal data of an annual report.
The corporate parties also cite FTC v. American Tobacco Co., 264 U.S. 298, 68 L. Ed. 696, 44 S. Ct. 336 (1924). There the Supreme Court rejected the FTC's claim that sections 5 and 6 permitted the Commission an unlimited right of access to the tobacco companies' papers and files.
Not even the corporate parties claim this early case to be directly applicable to the present circumstances, however; the FTC here does not seek unlimited access. Two lower court rulings also bear on the issue, in the corporate parties' minds. FTC v. Claire Furnace Co., 52 U.S. App. D.C. 202, 285 F. 936 (D.C. Cir. 1923), rev'd, 274 U.S. 160, 71 L. Ed. 978, 47 S. Ct. 553 (1927); United States v. St. Regis Paper Co., 181 F. Supp. 862 (S.D.N.Y.), aff'd in part & rev'd in part, 285 F.2d 607 (2d Cir. 1960), aff'd, 368 U.S. 208, 82 S. Ct. 289, 7 L. Ed. 2d 240 (1961). Yet the D.C. Circuit in Claire Furnace considered the question of the FTC's power to investigate in the context of whether "interstate commerce" was shown, and did not consider the issue presented here. The district court in St. Regis did comment on the scope of section 6(b) orders with respect to material not kept in the regular course of business, but its conclusion was endorsed neither by the Second Circuit nor by the Supreme Court. Thus the case relied on by the corporate parties present far from a compelling argument for lack of statutory authority.
Having found the corporate parties' interpretation of the legislative history and caselaw unconvincing, the court additionally finds the plain wording of section 6(b) to sustain the statutory authority of the Commission to act with respect to LB and CPR. That section permits the Commission to "require, by general or special orders, . .. [companies] to file with the Commission in such form as the Commission may prescribe annual or special . . . reports . . .." 15 U.S.C. § 46(b). This express authorization certainly appears to include the special reports sought in the LB and CPR orders. On the basis of this clear wording, Judge Schwartz found no probable merit to the corporate parties' similar claim for the 1973 LB orders.
While some limit may exist to the FTC's power to require special reports under section 6(b), that issue does not really arise where, as here, even the corporate parties admit that the programs are at least indirectly connected to the Commission's law enforcement efforts.
Nothing in the statute, legislative history, or caselaw supports the corporate parties' alternative claim that section 6 authority may be exercised only in contemplation of specific law enforcement activity.
The court thus concludes that the FTC acted within its statutory authority in implementing the LB and CPR special reports program.
The corporate parties claim that the LB and CPR programs constitute rulemaking within the meaning of the Administrative Procedure Act (APA) and that the FTC violated the applicable APA provisions concerning rulemaking. This claim presents two separate issues: whether the programs constitute rulemaking, and, if so, whether the FTC complied with the APA rulemaking requirements.
The APA defines a "rule" as
the whole or part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency and includes the approval or prescription for the future of rates, wages, corporate or financial structures or reorganizations thereof, prices, facilities, appliances, services or allowances therefor or of any valuations, costs, or accounting, or practices bearing on any of the foregoing.
5 U.S.C. § 551(4). Rulemaking is defined as "agency process for formulating, amending, or repealing a rule." Id. § 551(5). The corporate parties contend that the LB and CPR programs
fall within this statutory definition and thus qualify as rulemaking. The APA identifies several components of a rule: it must be of "general or particular applicability"; it must be of "future effect"; and it must be designed to "implement, interpret, or prescribe law or policy". The court first will consider whether the LB and CPR programs implement or prescribe law or policy.
The corporate parties contend that the LB and CPR programs implement or prescribe law or policy in two ways. First, as Judge Schwartz found with respect to the 1973 LB orders in granting a preliminary injunction to the corporate parties, the "far-reaching directives . . . effectively prescribe the manner in which business records are to be kept for reporting purposes. . . ." A. O. Smith Corp. v. FTC, 396 F. Supp. 1108, 1123 (D. Del. 1975), rev'd on other grounds, 530 F.2d 515 (3d Cir. 1976). Indeed, if the FTC has prescribed accounting methods, it has engaged in rulemaking since the definition of a rule "includes the approval or prescription for the future of . . . valuations, costs, or accounting, or practices bearing on any of the foregoing." 5 U.S.C. § 551(4). The corporate parties suggest that the data sought by the Commission is not available from the books and records of most firms; the internal organization of most businesses does not correspond to the uniform category system envisioned by the LB reports. The court cannot agree that the 1974 LB orders, the CPR orders, or the programs have effectively prescribed accounting methods or practices with respect to business records maintained for reporting purposes. Certainly the FTC has not actually prescribed new accounting methods. Rather, the corporate parties' argument reduces to the contention that the required certification of accuracy forces them to revise their systems of accounts to prevent false certification. It is clear, however, that the programs do not require any company to alter present recordkeeping practices; the Commission in no way prescribes accounting methods, although certain companies may wish voluntarily to alter their procedures. In addition, the FTC has made it clear that certain estimates are permitted on the forms, and this certainly mitigates the stringency of the accuracy certification. Moreover, the corporate parties can hardly claim that the present orders have prescribed accounting methods, since the present orders seek data from years past; the corporate parties in effect argue that they may change accounting practices if these programs are continued in subsequent years. For these reasons the court concludes that the LB and CPR programs do not implement or prescribe law or policy by effectively requiring certain accounting practices.
The corporate parties alternatively claim that the programs implement law or policy in their effect on FTC antitrust enforcement goals and, if the data is published, on private investment decisions.
The corporate parties have failed to specify concretely how the possible, or even planned, future use of the data generated by LB and CPR give those programs sufficient regulatory impact for the court to include that the programs themselves implement law or policy. The corporate parties seek to ascribe to the special reports programs a "regulatory purpose" merely on the basis of the possible future use to which the data might be put. This argument goes too far. If data collected for possible future use by the Commission in implementing its law or policy can itself be considered to implement law or policy, then all types of agency activity, including agency subpoenas, similarly could qualify as rulemaking. The data collection effort does not itself implement law or policy, although the later regulatory steps the Commission might choose to take in partial reliance on the data submitted could do so. The programs cannot fairly be construed as "regulating" the FTC's resource allocation decisions, nor can they be viewed simplistically as vehicles to implement the Commission's section 6(f) publication power. In sum, the corporate parties' contentions of regulatory purpose are far too attenuated to convince the court to decide that the special reports programs are designed to implement or prescribe law or policy.
Because of its decision on this issue, the court need not decide whether the LB and CPR programs meet the other two definitional requirements of a rule: generalized or particular applicability and future effect. The court has serious doubts whether the corporate parties correctly apply those standards to the present cases, but such a determination is unnecessary to the conclusion that the programs do not constitute rules under the APA.
The court need not rely solely on its own interpretation of what implements or prescribes law or policy to conclude that a special reports program does not constitute rulemaking under section 551. Only one case, other than Judge Schwartz' preliminary decision, has been cited by the parties on the question of whether agency information-gathering through the requirement of special reports constitutes rulemaking. United States v. W. H. Hodges & Co., 533 F.2d 276 (5th Cir. 1976). In Hodges, the Fifth Circuit considered an order by the Secretary of Agriculture directing 38 stockyard marketing agencies to file a special report in the course of an investigation of rates charged by the markets. The Secretary required these reports pursuant to his authority under the Packers and Stockyards Act,
a statute that expressly incorporates section 6 of the FTC Act to give the Secretary the authority to order that special reports be filed. In response to the objection that the special reports orders constituted rulemaking under the APA, the Fifth Circuit held:
The order at issue here was clearly investigatory in nature, as opposed to an adjudicatory or rule-making process, and hence not subject to the procedures governing rulemaking outlined in the APA. Cf. Genuine Parts Co. v. F.T.C., 445 F.2d 1382, 1388 (5th Cir. 1971); K. Davis, Administrative Law Treatise, § 3.01 at 159, n. 1 (1958).
533 F.2d at 278. The corporate parties attempt to distinguish this case on the ground that the special report orders concerned a focused investigation of rate practices and sought information kept in the normal course of business.
The corporate parties then reiterate their contention that the LB and CPR programs do not constitute investigations. Yet the court is not convinced that these information-gathering programs conceptually or in legal effect constitute more than investigations despite the large number of corporations ordered to file the special report forms.
In addition, the APA itself appears to distinguish the concepts of rulemaking, adjudication, and ancillary matters such as investigations or reports requirements. Section 553 deals with rulemaking requirements, section 554 concerns adjudications, and section 555 is entitled "Ancillary matters." Section 555(c) provides that "requirement of a report . . . or other investigative act or demand may not be issued, made, or enforced except as authorized by law." 5 U.S.C. § 555(c). Although the APA does not explicitly state that rulemaking and reports requirements thus are mutually exclusive, the juxtaposition of these sections makes that a not unreasonable inference. Indeed, the chief House sponsor of the APA, Representative Walter, explained during the APA's consideration that the "bill carefully distinguishes between these three basic types of administrative regulatory powers." 92 Cong. Rec. 5648 (1946). The three basic types of regulatory administrative operations mentioned by Representative Walter included rulemaking, adjudication, and compulsory action. Walter delineated the third category as follows:
I refer to the compulsory action of administrative agencies when they issue subpoenas, require records or reports, or undertake mandatory inspections. These functions are investigative in nature. The investigation may be made in connection with their legislative or judicial functions, or it may be made for the purpose of submitting a report to Congress or to refer prosecutions to a grand jury. Whatever the purpose, the administrative arm is given power to require information to be submitted to it.
Id. The court is aware that Judge Schwartz reached an opposite decision from that of this court on the conclusions to be drawn from the subdivisions of the APA and the legislative history.
The differences of opinion may not be irreconcilable, however, to the extent that Judge Schwartz held only that section 555 does not absolutely preclude a finding that a special reports program could be subject to rulemaking requirements.
This court does not conclude that section 555 prohibits such a finding in all cases, only that an inference can be drawn from the subdivisions of the APA and its legislative history that would make a determination that a special reports order constitutes rulemaking doubtful.
Finally, the court believes that the FTC's "characterization of its own proceeding is entitled to weight, and that characterization may in turn have relevance in determining the applicability" of the APA rulemaking requirements. ITT v. Local 134, Electrical Workers, 419 U.S. 428, 441, 42 L. Ed. 2d 558, 95 S. Ct. 600 (1975) (applicability of APA adjudication provisions). The corporate parties do not dispute that the FTC has maintained that the APA rulemaking provisions do not apply to its special reports program. The Quarterly Financial Reports Program, the early CPR Program, and the Premerger Notification Program all provide evidence that the Commission has never considered the rulemaking requirements of the APA to apply to a special reports program. Therefore, although an agency's characterization of the applicability of the APA is entitled to no more than "weight" and cannot be used to disguise the true nature of agency action, in this instance the FTC's longstanding interpretation of the APA adds support to the court's conclusion that the LB and CPR programs do not constitute rulemaking.
Thus the court concludes that the programs do not implement or prescribe law or policy and do not fit the definition of rulemaking. The Hodges decision supports this conclusion, as do the subheadings of the APA itself, its legislative history, and the FTC's longstanding interpretation of the applicability of the APA rulemaking provisions. Having so concluded, the court need not and does not consider whether the FTC complied with the APA requirements for rulemaking, 5 U.S.C. § 553.
The corporate parties claim that the CPR program
violates section 9 of the Census Act, 13 U.S.C. § 9.
This contention is based on the assertion that the CPR survey seeks the same information the corporate parties provide to the Bureau of Census for its quinquennial Census of Manufacturers in the form of value of shipments data by establishment and 5-digit Census product code for the year 1972. The FTC concedes that one purpose of the CPR program is to produce individual company data that it can compare to published Census aggregates. A determination of whether the CPR program ...