A.O. SMITH et al. v. FEDERAL TRADE COMMISSION et

Civ. A. Nos. 75-15, 75-45 to 75-50, 75-56, 75-142, 75-415,

75-415, 76-17 to 76-26, 76-36, 76-39, 76-56 and 76-60.

al.*

F.T.C. File No. 99-199.

(United States District Court, District of Delaware, April 30,

1976)

1. FOR ISSUANCE OF PRELIMINARY INJUNCTION, MOVANT MUST SHOW A PROBABILITY OF SUCCESS ON THE MERITS; LACK OF SUBSTANTIAL HARM TO THIRD PARTIES OR THE PUBLIC INTEREST; AND THAT IRREPARABLE INJURY WOULD FOLLOW ANY DISTURBANCE OF THE STATUS QUO PENDENTE LITE.

Showings that must be made for issuance of a preliminary injunction are: (1) that the moving party has a reasonable possibility of success on the merits, (2) that it will suffer irreparable injury pendente lite if the status quo is not maintained, (3) that the grant of a preliminary injunction will not substantially harm third parties interested in the outcome of the proceedings, and (4) that the public interest will not be adversely affected.

2. DILEMMA OF COMPLIANCE ISSUE, PROPERLY EXAMINED BY COURT,

FAILED TO DEMONSTRATE THE NECESSARY LEVEL OF IRREPARABILITY TO WARRANT PRELIMINARY INJUNCTION, SINCE BURDEN OF COMPLIANCE, AS A NORMAL BUSINESS EXPENSE RESULTING IN ONLY A LOSS OF PROFIT, DOES NOT CONSTITUTE AN IRREPARABLE INJURY.

General burden of complying with Federal Trade Commission's line of business program and its corporate pattern reports program did not rise to level of irreparable injury warranting preliminary injunction; while dilemma of compliance was properly considered with respect to District Court's exercise of preenforcement review it proved nothing regarding irreparability; burden of compliance, being an ordinary unrecoverable business expense resulting in a loss of profits, cannot, without a demonstration of some peculiar resulting harm, be considered an irreparable injury.

3. BECAUSE OF THE LB PROGRAM'S CONTINUING NATURE, THE BUSINESS EXPENSE ASPECT OF COMPLIANCE COSTS WAS NOT ALTERED; AND CONSIDERING THE MAGNITUDE OF PLAINTIFF CORPORATIONS, THEIR CONTENTION THE ADEQUATE PLANNING WITH REGARD TO UTILIZATION OF CORPORATE RESOURCES WAS SO HAMPERED BY BURDEN OF COMPLIANCE AS TO CONSTITUTE IRREPARABLE INJURY DID NOT WARRANT ISSUANCE OF PRELIMINARY INJUNCTION.

Contention that additional burden of annual compliance with Federal Trade Commission's line of business program, when compounded by periodic changes, irreparably injured plaintiffs by preventing adequate planning with regard to utilization of their corporate resources did not warrant preliminary injunction

Reported in 417 F.Supp. 1068 (1976).

restraining operation of the program, absent any credible evidence that corporations of plaintiffs' magnitude were being so hampered in their future planning as to sustain any significant injury; in any event, continuing nature of the program did not change the business expense character of the costs of compliance. 4. ALLEGED "DANGER" FROM PUBLICATION OF PURPORTEDLY MISLEADING 1972 CORPORATE DATA WAS SUFFICIENTLY REMOTE AS TO REMOVE THE NECESSITY FOR PENDENTE LITE RESTRAINT, WHERE F.T.C. HAD BOUND ITSELF NOT TO PUBLISH THE DATA BEFORE JANUARY 1, 1978.

Since Federal Trade Commission bound itself not to publish before January 1, 1978 any data obtained pursuant to corporate pattern reports concerning 1972 value of shipments from domestic manufacturing establishments, etc., remoteness of the alleged "danger" i.e., publication of allegedly misleading data, totally removed the need for pendente lite restraint since there was neither any immediacy or imminence of the alleged harm.

5. SINCE ACCURACY OF LB DATA COULD BE CHALLENGED IN ANTITRUST SUITS, ALLEGED INJURY BY POSSIBLE INDUSTRY-WIDE ENFORCEMENT ACTIONS AND UNDUE COMPETITION DID NOT REACH THE REQUIRED LEVEL OF IRREPARABLE HARM WARRANTING PRELIMINARY RELIEF.

Alleged harm from publication of data collected under Federal Trade Commission's line of business program, i.e., industry-wide enforcement actions or unwarranted competition, did not rise to level of irreparable injury warranting preliminary injunction since plaintiffs would be able to challenge accuracy of such data in any antitrust suit based thereon; moreover, mere fact of competition could not be considered irreparable [1069] injury since it was possible that the mythical new competitors might themselves be the entities in the mortar and pestle of supply and demand; furthermore, data would be published only on an industry or product line basis.

6. WHERE A CIVIL PENALTIES STAY COULD BE SOUGHT DURING PENDENCY OF A GOOD FAITH CHALLENGE AS TO THE VALIDITY OF F.T.C. PROGRAMS, POSSIBLE ISSUANCE OF DEFAULT NOTICES, WHICH BY THEMSELVES CARRY NO ADVERSE CONSEQUENCES, DID NOT WARRANT PRELIMINARY INJUNCTION.

By themselves, Federal Trade Commission's default notices carry no adverse consequences; hence, possibility of issuance of such notices did not warrant preliminary injunction restraining operation of either Commission's line of business program or its corporate pattern reports program; in any event, should default notices ever issue plaintiffs would be able to seek a stay of civil penalties during pendency of a good faith challenge to validity of the order.

7. ISSUANCE OF NOTICES OF DEFAULT, AS A

PRECONDITION TO

COMMENCEMENT OF MANDAMUS ENFORCEMENT PROCEEDINGS, IS NOT REQUIRED.

Federal Trade Commission is not required to issue notices of default as a precondition to commencement of mandamus enforcement proceedings.

8. ABSENT UNUSUAL CIRCUMSTANCES, THE $100 PER DAY CIVIL PENALTY FOR NONCOMPLIANCE DID NOT CONSTITUTE IRREPARABLE INJURY, SINCE IT WAS DE MINIMIS WHEN APPLIED TO CORPORATIONS OF THE MAGNITUDE SERVED WITH CPR ORDERS.

The $100 per day civil penalty for failure to file reports required under Federal Trade Commission's corporate pattern reports program was de minimis as applied

to corporations of the magnitude served with the CPR orders, i.e., the 1,000 largest domestic manufacturing corporations, and, thus, absent unusual circumstances would not be considered as irreparable injury warranting preliminary injunctive relief.

9. PRELIMINARY INJUNCTION WAS UNNECESSARY SINCE VALIDITY CHALLENGE COULD BE RAISED IN AN ENFORCEMENT PROCEEDING.

Challenge to validity of Federal Trade Commission's line of business program and its corporate pattern reports program could be raised in an enforcement proceeding; hence, preliminary injunction restraining operation of the programs was not required on ground that sole issue in an enforcement proceeding is the enforceability of the Commission's orders.

10. PRELIMINARY INJUNCTION WAS UNWARRANTED, SINCE VARIATIONS BETWEEN SCOPE OF DISCOVERY IN ENFORCEMENT PROCEEDINGS AND PREENFORCEMENT CHALLENGE FAILED TO RISE TO REQUIRED LEVEL OF IRREPARABLE INJURY.

Variations between scope of discovery in enforcement proceedings and in a preenforcement challenge did not rise to level of irreparable injury warranting preliminary injunction restraining operation of either Federal Trade Commission's line of business program or its corporate pattern reports program; in any event fact that potential differences were simply inchoate possibilities precluded issuance of injunctive relief since positing a finding of irreparable injury thereon would seriously undermine the irreparability requirement as a restraint on exercise of a court's injunctive powers.

11. ABSENT SHOWING THAT PLAINTIFF COULD NOT PETITION ENFORCING COURT TO JOIN COMPTROLLER GENERAL AS A PARTY, OR COULD NOT FILE SEPARATE ACTION AGAINST HIM AND SEEK TO CONSOLIDATE SUCH ACTION WITH ENFORCEMENT PROCEEDINGS, ALLEGATION THAT HE WOULD NOT BE AMENABLE TO SUIT FAILED TO FURNISH A BASIS FOR IRREPARABLE INJURY FINDING.

Contention that Comptroller General would not be amenable to suit in a proceeding seeking enforcement of orders issued under Federal Trade Commission's line of business program or its corporate pattern reports program furnished no basis for finding of irreparable injury warranting preliminary injunctive relief in preenforcement proceedings absent any showing that plaintiff could not petition the enforcing court to join the Comptroller General as a party or could not file a separate civil action against him in the enforcement forum and seek to thereafter consolidate such action with the enforcement proceedings.

12. F.T.C. ACT'S CRIMINAL PROVISIONS ARE NOT DIRECTED AT CORPORATION.

Criminal provisions of the Federal Trade Commission Act do not apply to corporations.

13. RATHER THAN EXERCISE ITS DISCRETION ΤΟ ENGAGE IN PREENFORCEMENT REVIEW OF EITHER OF F.T.C.'S PROGRAMS, DELAWARE COURT CHOSE TO TRANSFER TO THE DISTRICT OF COLUMBIA LB CASES SUBJECT ΤΟ FORMAL INSTITUTION OF IMMINENT ENFORCEMENT PROCEEDINGS, AND CPR CASES FOR CONSOLIDATION WITH CURRENTLY PENDING ENFORCEMENT ACTIONS.

District court for the District of Delaware declined to exercise its discretion to engage in preenforcement review of either Federal Trade Commission's line of

business programs or its corporate pattern reports program but, instead, with respect to the CPR cases transferred them to the District of Columbia for consolidation with now pending CPR enforcement actions recently instituted by the Commission and transfer[1070 ]red the LB cases subject to formal institution of imminently forthcoming enforcement proceedings in such district.

14. COURT IS NOT INQUIRING AS TO ITS JURISDICTIONAL POWER OVER A CERTAIN CLASS OF CASES, IN DECIDING WHETHER OR NOT TO ENGAGE IN PREENFORCEMENT REVIEW OF ADMINISTRATIVE ORDERS, BUT RATHER, WHETHER IT SHOULD EXERCISE ITS DISCRETION TO GRANT SUCH REVIEW, BASED ON THE EXISTENCE OF PARTICULAR EQUITABLE FACTORS. In determining whether to engage in preenforcement review of administrative programs or orders, a court is not inquiring as to its jurisdiction over, and thus its power to decide, a particular class of cases but, rather, the inquiry is whether the court should exercise its discretion to grant preenforcement review; such inquiry is necessarily directed toward the existence of particular equitable factors on which a court makes a determination to either grant or withhold judicial review at the preenforcement stage.

15. EXCEPT FOR THOSE FEW ADMINISTRATIVE

ACTIONS MADE

UNREVIEWABLE BY LAW, QUESTION IN DETERMINING PREENFORCEMENT REVIEW IS NOT IF, BUT WHEN JUDICIAL REVIEW WILL TAKE PLACE.

Timing is the overriding issue in determining whether to undertake preenforcement review of agency programs or orders; except for extremely rare category of administrative actions explicitly made nonreviewable by law the question is not if judicial review will take place, but rather when it will occur.

16. PRINCIPLE OF ADDRESSING APPLICATION FOR PREENFORCEMENT REVIEW OF ADMINISTRATIVE ACTIONS TO DISCRETION OF THE COURT STEMS FROM BOTH THE EQUITABLE NATURE OF THE INJUNCTIVE AND DECLARATORY RELIEF INVARIABLY SOUGHT, AND PROVISIONS OF THE

A.P.A.

Application for preenforcement review of administrative programs or orders is addressed to the district court's discretion; such principle stems from both the equitable nature of the injunctive and declaratory relief invariably sought in preenforcement challenges to administrative actions as well as provision of Administrative Procedure Act authorizing a court to withhold review of agency action unless the party seeking such review has no other adequate remedy in a court.

17. PREENFORCEMENT CHALLENGES TO F.T.C. PROGRAMS ARE WITHIN DISTRICT COURT'S SUBJECT MATTER JURISDICTION.

District court has subject matter jurisdiction of cases involving preenforcement challenges to Federal Trade Commission's line of business program and its corporate pattern reports program.

18. FITNESS OF ACTION AND HARDSHIP TO PARTIES FROM WITHHOLDING JUDICIAL REVIEW ARE THE TWO FACTORS FOR COURT'S CONSIDERATION IN DETERMINING WHETHER OR NOT TO ENTERTAIN A PREENFORCEMENT

CHALLENGE.

Two factors are to be assessed in determining whether to utilize a court's equitable jurisdiction and entertain a preenforcement challenge to administrative action: fitness of the action for judicial decision and the hardship to the parties of withholding court consideration.

19. FINALITY OF ADMINISTRATIVE ACTION AND NATURE OF QUESTIONS FOR CONSIDERATION CONSTITUTE THE STANDARDS FOR DETERMINING WHETHER CHALLENGE IS FIT FOR PREENFORCEMENT REVIEW.

In determining fitness of the issues for judicial determination in a preenforcement challenge to administrative actions, the standard is essentially an inquiry into the finality of the challenged action, as well as an examination of the nature of the questions presented for decision.

20. FOR THE PURPOSE OF ASSESSING RISKS ATTENDANT ON NONCOMPLIANCE, ABSENT UNUSUAL CIRCUMSTANCES ATTENTION SHOULD BE DIRECTED TOWARD RISKS EXISTING DURING PERIOD PRIOR TO INSTITUTION OF ENFORCEMENT PROCEEDINGS.

Dominant purpose of preenforcement review of agency action is to prevent a party from being bludgeoned into compliance with some substantial requirement it contends is contrary to law; potential for such coercion occurs solely because liability for civil and criminal penalties for noncompliance may accumulate to ruinous levels while an agency's failure to seek enforcement precludes access to a judicial forum where complainant may obtain review of its contentions; hence, absent unusual circumstances, attention should generally be directed toward risks existing during the period prior to institution of enforcement proceedings for purpose of assessing the risks attendant on noncompliance.

21. ABSENT A FORUM WHERE COMPLAINANT MAY AIR ITS GRIEVANCES,

NONCOMPLIANCE RISKS MUST BE MEASURED AS THEY STOOD AT INCEPTION OF LITIGATION.

Although in a preliminary injunction context, concession of Federal Trade Commission that no default notices would be issued prior to institution of enforcement proceedings served to immunize plaintiffs from any immediate irreparable harm stemming from imposition of any civil penalties, such concession was of no weight in determining whether to engage in preenforcement review of Commission's corporate pattern reports program, since for purpose of assessing the hardship of withholding re[1071]view, the risk attaching to noncompliance absent a forum where the complaint party may air its grievances must be measured as they stood at inception of the litigation.

22. DISMISSAL OR TRANSFER OF PREENFORCEMENT ACTION IS JUSTIFIED BY AGENCY'S INSTITUTION OF ENFORCEMENT PROCEEDINGS WITHIN A REASONABLE TIME.

Administrative agency's institution of enforcement proceedings within a reasonable time justifies dismissal or transfer of a previously filed preenforcement action.

23. DISMISSAL OR TRANSFER OF PREVIOUSLY FILED PREENFORCEMENT ACTION WAS WARRANTED SINCE F.T.C. INSTITUTION OF ENFORCEMENT PROCEEDINGS WITHIN 45 DAYS WAS SUFFICIENTLY PROMPT.

The 45-day delay in instituting proceeding seeking enforcement of Federal Trade Commission's line of business programs was sufficiently prompt so as to warrant dismissal or transfer of previously filed preenforcement action.

24. TRANSFER OF PREENFORCEMENT REVIEW ACTION TO ENFORCEMENT DISTRICT WAS NOT MILITATED AGAINST BY THE SUMMARY NATURE OF ENFORCEMENT PROCEEDINGS.

Fact that enforcement actions are summary in nature did not militate against transfer to enforcement district of action seeking preenforcement review of