FTC v. STANDARD OIL CO. OF CAL.

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ORAL ARGUMENT OF SOLICITOR GENERAL WADE H. McCREE, JR., ON BEHALF OF THE PETITIONER

Chief Justice Burger: We will hear arguments next in Federal Trade Commission v. Standard Oil Company of California.

Mr. Solicitor General, I think you may proceed when you are ready.

Mr. McCree: Mr. Chief Justice, and may it please the Court:

The Federal Trade Commission Act of 1914 provides in part that unfair methods of competition in or affecting commerce are declared unlawful.

And it further provides that whenever the Commission shall have reason to believe that any corporation is using any unfair method of competition and if it shall appear to the Commission that a proceeding in respect thereof to be in the interest of the public, it shall issue and serve on the respondent a complaint, which requires an answer, administer the proceedings to establish the proof of the allegations set out therein, and then the issuance, in case the allegations are established, of a cease and desist order which, unless overturned by a court on review or unless the period for review, which is 60 days, has expired, then becomes enforceable.

This case presents important questions of administrative law and it requires the Court to answer a question that might be stated as follows: This case requires the Court to decide whether during the pendency of an administrative proceeding a district court that concededly cannot review the sufficiency of what is alleged in the agency complaint to constitute its reason to believe that certain firms have violated the law, can nevertheless determine whether the agency in fact made the reason to believe determination that caused it to file the complaint.

The case arises out of the following factual situation.

The Federal Trade Commission in 1971 authorized an investigation to determine whether the structure of the petroleum industry caused it, or contributed to its engaging in unfair trade practices.

The investigation was concerned with competition, principally at the refining end of the petroleum industry, and had very little to do with the crude oil or importation end of it.

The method in which the staff conducted the investigation consisted essentially of seeking information from independent operators and not directly from the principal vertically integrated corporations by calling in their officers or by subpoenaing their records.

It also consisted of seeking information from several governmental agencies that had the responsibility of collecting data about the petroleum industry.

This began in 1971.

In 1973 when the nation first experienced an acute fuel shortage, Senator Henry Jackson sent a letter to the Federal Trade Commission Chairman requesting that within 30 days the Commission write a report on the relationship between the structure of the petroleum industry and the shortage of petroleum products that was afflicting the country.

That was May, 1973.

On July 6, 1973, the Federal Trade Commission submitted to Senator Jackson a commission report entitled,

"Preliminary Federal Trade Commission Staff Report on its Investigation of the Petroleum Industry. "

And it indicated that this report had not yet been evaluated by the Commission, nor did the findings and conclusions necessarily reflect those of the Commission.

It also asked that the report not be given undue publicity because it might jeopardize subsequent prosecution.

On July 13, seven days later, Senator Jackson released the preliminary report for publication as a committee report.

On July 18, then, the Commission, having on the previous July 17 issued a report stating that it intended to file a complaint, caused its complaint to be filed naming the eight petroleum companies that were respondents before the Commission and are respondents here, charging that they were violating Section 5 of the Federal Trade Commission Act, that it had reason to believe that that fact existed, and that it was in the public interest to proceed to a hearing on the allegations that the complaint set forth, describing the acts and practices claimed to be in violation of the Act.

Standard Oil of California, one of the eight named petroleum companies, moved the Commission to dismiss its complaint on the grounds that the Commission did not have reason to believe that this respondent had violated the law at the time it issued the complaint, and that the proceeding was not in the public interest.

The Commission denied these motions by order of February 12, 1974.

Respondent then sought reconsideration of this order and on June 4, 1974, the Commission denied the motion for rehearing and reiterated its previous determination that the adequacy of the Commission's "reason to believe" that a violation of the law had occurred, and its belief that a proceeding would be in the public interest, was not litigable.

The Commission staff then proceeded with discovery to prepare to prove the allegations set forth in the administrative complaint and Standard Oil of California and the other seven respondent petroleum companies vigorously resisted its efforts for discovery.

Eleven months later, on May 1, 1975, Standard Oil of California filed a complaint in the United States District Court for the Northern District of California for declaratory relief, contending that the Federal Trade Commission did not have reason to believe that a violation of law had occurred at the time it filed its complaint.

Chief Justice Burger: Are you going at some point to mention the proceeding in Indiana?

At your own time.

Mr. McCree: The proceeding in Indiana, Mr. Chief Justice, was a similar proceeding brought by Standard Oil of Indiana, another one of the eight respondents, also asserting that the Commission did not have reason to believe that Section 5 of the Act had been violated at the time it filed its petition, its administrative complaint.

That matter was decided as far as its result is concerned favorably to the Commission, because the District Court, although looking into the matter, concluded that the Commission had reason to believe and therefore the Commission was successful at the district court level.

An appeal was noticed in that and dismissed, I believe, but there is no Court of Appeals decision pending with reference to that, and as far as I am aware that matter rests.

Chief Justice Burger: What would you say is the impact of that holding on this case, if any?

Mr. McCree: Well, I think... I think it has no precedential value for this purpose, it just shows that another district court thought that it could at that stage of the administrative proceeding look into the adequacy of the reason to believe standard, or look into whether the Commission did in fact make the reason to believe determination.

But it's not a precedent for us here.

As a matter of fact, even more recently, in a case called Boise-Cascade, that was decided last May, the... I believe... the District Court for the District of Delaware decided that a district court could not look into the sufficiency of a reason to believe determination.

And if the Indiana case is a precedent against the Commission, certainly the Boise-Cascade case is a precedent for the Commission.

But we think that neither is even instructive to this Court, except for the favorable language that we find in the Boise-Cascade case, which effectively follows the language of the dissenting opinion in the matter in the Northern District of California, where Standard Oil of California filed the complaint to which I just made reference.

Justice Brennan: Mr. Solicitor General, Standard Oil of California is the only one of the eight respondents before us in this case.

Mr. McCree: It is the only one before us in this case; yes, Mr. Justice Brennan.

Justice Rehnquist: General McCree, in an administrative proceeding such as this, does the main information-seeking process occur in the pleading stage or in the discovery stage?

That is, could the Commission simply issue a complaint in the language of the statute and serve it on the respondent and the respondent simply file a general denial and then go to discovery?

Mr. McCree: I think not.

I think the Commission must have reason to believe.

I don't think it could do it capriciously, and if the Justice's inquiry looks to that point, I would say, it cannot do it capriciously.

It must have reason to believe, but it's our contention that what constitutes reason to believe as the argument will develop is a matter that is not reviewable by the Court, that if it's agency action it is action committed to the discretion of the agency and therefore is not reviewable.

We would liken it to prosecutorial discretion to initiate a prosecution.

Responsibly, a prosecutor would not initiate a prosecution unless he had reason to believe that there was some basis for it.

But we submit that ordinarily a court will not inquire into the reason why a prosecutor decided to initiate a fraud proceeding.

Justice Rehnquist: Wouldn't one go further than that in the court system and say that if a prosecutor initiates a prosecution a defendant can't come in and have it dismissed on the grounds that the prosecutor had no reason to believe that the evidence would prove the case?

Mr. McCree: That's right.

He cannot do that.

We quite agree.

And we contend that he cannot do it here either.

The District Court for the Northern District of California upon entertaining this complaint that asked for a declaratory judgment and other relief proceeded essentially to determine, first, that the sufficiency of the reason to believe, the sufficiency of the facts that gave the Commission reason to believe as it recited was committed to agency discretion and was not reviewable for the district court.

And neither side disagrees with that determination.

He then dismissed the action brought before him.

The Court of Appeals, however, for the 9th Circuit, two members of a three-judge panel agreed first with the determination of the district court, agreeing that the... well, I'm ahead of myself.

I'll take it step by step if I may.

First, it determined that it was agency action to file the complaint, which is something with which we disagree and I'll talk about it in a few moments.

Second, it determined that whether there was reason to believe that the Act had been violated was agency action committed to the discretion of the agency, and therefore under the Administrative Procedures Act could not be reviewed by the Court.

However... and we think it's a little extraordinary... the Court of Appeals went on to decide that judicial review is available with respect to whether the Commission did in fact make a reason to believe determination, and that there was law to apply, as this court used this phrase, in Citizens to Preserve Overton Park v. Volpe, and it vacated the judgment of dismissal and remanded the matter to the district judge with instructions to find out, did the Commission in fact make a reason to believe determination, which determination is unreviewable, as it decided.

That's the status in which this matter confronts the Court this morning.

One judge dissented on the ground that the Commission's action initiating the administrative proceeding is in essence an exercise of prosecutorial discretion and as such is exempted from judicial review.

He also said that to permit an inquiry into whether the determination was in fact made would require an impermissible probing into the mental processes of the Commission and that it was something in which the Court should not engage.

Justice Rehnquist: Well, would it really require any probing at all if five commissioners all signed a piece of paper and verified it saying, we have reason to believe that the unfair practices took place?

Mr. McCree: Well, we contend that that's really what we have here.

This complaint is regular on its face.

The complaint purports to be issued pursuant to the authorization of the Commission, the complaint recites that a reason to believe determination was made, the complaint is attested to by the Secretary of the Commission and is in every respect in proper form.

Yet, the Court of Appeals did what we regard as an extraordinary thing and suggests that the complaint that was filed before the district court is sufficient to raise that question.

And I think it's very much like questioning an indictment handed down by a grand jury.

It's in proper form, it's signed by the foreman of the grand jury, recites that a majority of the grand jurors agree to the allegations set forth in the indictment, and then the defendant is permitted, before any proof is introduced, to say, I don't think they really agreed to that.

And the court would investigate to see whether or not that happened.

Chief Justice Burger: Could there be a preliminary proceeding to inquire into the truth of whether a grand jury had ever indeed handed down, or whether, on the contrary, a fraud was being perpetrated on the court?

Mr. McCree: I think perhaps in an extraordinary circumstance, but when the indictment is fair on its face, there's no suggestion that it's a forgery, there's no suggestion that it was altered, it just relates to the mental processes of the grand juror, which is exactly what we have here.

What respondent, Standard Oil of California, asserts, essentially, is that the decision to file the administrative complaint was motivated politically because of the intervention of Senator Jackson who made this inquiry.

And that is really the essence of it.

Justice Stevens: May I ask you of your interpretation of the 9th Circuit opinion, assuming the following.

Assume that somehow or other the facts came to light and there was in fact political motivation at the time the complaint was filed.

But by the time the Commission responded to the motion to dismiss the complaint, which I understand they did some months later, they had reviewed the matter and then decided in an orderly way at a meeting of the full Commission that there was then reason to believe the case should go forward.

But they didn't have the reason to believe it at the time they filed the complaint.

What do you think the Court of Appeals for the 9th Circuit would say should be done about that?

Would they make you dismiss the complaint and start all over and file a new complaint?

Mr. McCree: Well, it certainly would be a waste of judicial time and a waste of administrative time to do that, because they could do exactly what you suggest.

They could dismiss it and have a resolution.

As a matter of fact--

Justice Stevens: They may in effect be contending that... this is some years ago, but in all these years the Commission still hasn't made its determination that there's reason to believe there's a violation.

They're still keeping the case alive.

Is that what they would--

Mr. McCree: --It's certainly passing strange that the Commission would keep it alive under all those circumstances if it had not at least ratified its act of filing it.

Justice Stevens: --Doesn't the very fact you're here defending what the Commission did implicitly indicate that somebody has reason to believe the case ought to go forward.

Mr. McCree: Mr. Justice Stevens, I certainly agree with that.

We wouldn't be here if the Commission had any doubt about it, and we think this is one of the reasons why the decision to file the complaint should be insulated from judicial review, because if the Commission recognized that it made a mistake, we would expect it to behave responsibly and to strike its complaint.

The fact that it proceeds with it... as a matter of fact it's proceeded here through some very arduous and not too productive discovery.

I'm advised that there have been almost 400 proceedings relating to the Commission's effort to get discovery in this matter, and that there have been 14 or 15 lawsuits filed, matters of various sorts, to quash subpoenas, the matter to which the Chief Justice referred in the Northern District of Indiana, and this matter, and others.

While the Commission tried to establish something, that curiously enough someone said, they didn't really intend to file.

Chief Justice Burger: Could you, Mr. Solicitor General, concede arguendo... and assume, arguendo... that the Commission may have acted with unseemly haste in responding to the congressional inquiry and yet take the position that that has nothing to do with the central issue?

Mr. McCree: Arguendo, Mr. Chief Justice, I can make that concession, and I think this happens sometimes in the criminal area where a prosecution takes place because the public is insistent upon the solving of some crime that vexes it, and sometimes perhaps in those instances a grand jury may return an indictment with unseemly haste.

The question, of course, becomes whether they actually did it, and the proof of the sufficiency of it comes in its capacity to sustain it later on.

And if the Commission in this case cannot sustain these allegations, of course there will be no cease and desist order, which is the sanction that the Commission would impose if its staff in presenting evidence could establish these facts.

And that's a higher standard than reason to believe, which is a very vague standard.

Also, I would like to comment too, further stimulated by the Chief Justice's question, that the fact that there was a political inquiry doesn't of itself vitiate the proceeding or suggest that there's not reason to believe.

The Congress has responsibility for the same matters that the Federal Trade Commission has, to see that there are not anticompetitive activities in the petroleum market.

And for it to make an inquiry of an agency that was created with the primary function to oversee these matters seems to me the most responsible kind of legislative action that could take place.

And nowhere does Standard Oil of California assert that Senator Jackson required them to file an action, or even suggested that they file an action.

His was an inquiry about their investigation, which commenced in 1971 and it proceeded for 17 months before the fuel crisis stimulated him in his capacity as Chairman of the Permanent Investigations Subcommittee of the Senate, to make this inquiry.

Our argument, essentially, is as follows.

First, we suggest that the issuance of an administrative complaint is not agency action within the meaning of the Administrative Procedure Act.

Justice Blackmun: Is that point, Mr. Solicitor General, preserved in the petition for certiorari, do you think?

Mr. McCree: We think it is.

I believe, Mr. Justice Blackmun, your question probably results from the fact that we did not use that very language when we filed our petition, but we did use this language, that the matter is not final agency action.

Now, if it's to be final agency action, it has to be agency action in the first place, and so the first--

Unidentified Justice: That really is directed at a different point, isn't it, not final agency action?

Mr. McCree: --It is ultimately, except it can't... if it's not agency action at all, it can't be final agency action, and we suggest that--

Unidentified Justice: Well, would you be as satisfied with winning on the argument you've made up to now as you would on this one?

Mr. McCree: --I would prefer to win on the argument I've made up to now.

Unidentified Justice: Namely, that it's committed to agency discretion?

Mr. McCree: That it's committed to agency discretion and that it is not reviewable.

Unidentified Justice: Even though it's agency action?

Mr. McCree: If the Court should decide this is agency action and wishes to agree with our contention that it's committed to agency discretion, we'd be very pleased to win on that basis.

Chief Justice Burger: Why do we need to deal with that at all, or do we?

Mr. McCree: I'm pleased to have the Court make that inquiry but I'm just suggesting that on proper analysis it isn't agency action, because the Administrative Procedures Act defines agency action as a number of things, none of which remotely resembles the filing of a complaint.

Chief Justice Burger: Well, if it isn't subject to judicial review, then no matter how we describe it it isn't final agency action.

Is that not so?

Mr. McCree: That's entirely correct.

Mr. Chief Justice, I see I have about five minutes remaining.

With the permission of the Court I would like to reserve that time for rebuttal.

Thank you, sir.

Chief Justice Burger: Very well.

There are only three minutes remaining, counsel, before lunch.

I think we'll not ask you to divide your argument, so we'll resume at this point, Mr. Sears, at 1 o'clock.

0 [Recess.]

Mr. Sears, you may proceed whenever you are ready.

ORAL ARGUMENT OF GEORGE A. SEARS ON BEHALF OF THE RESPONDENT

Mr. Sears: Mr. Chief Justice, may it please the Court:

Chief Justice Burger: Would you care to comment on the possible implications of the Indiana holding where we have the same parties?

There's certainly an interconnection there.

Mr. Sears: --I'd be glad to do that, Your Honor.

The cases present entirely disparate issues.

The only party to this case is the Standard Oil Company of California.

In the Indiana case seven of the eight respondents in Docket 8934 are the plaintiffs in that suit.

The issue in the Indiana case goes to a denial of due process to respondents because of a denial of discovery in Docket 8934 by the administrative law judge.

The orders of the judge which prompted the Indiana case were orders which denied respondents any discovery until after complaint counsel had completed their discovery and had perhaps further defined the issues in the case.

The suit before Judge McNagny contended that such a denial of discovery per se was a denial of due process in the circumstances of the litigation.

Judge McNagny agreed with that and he voided it, the two orders in question, of the administrative law judge, and directed that the administrative law judge should reconsider discovery applications by the respondents.

I think from that, Mr. Chief Justice, that you'll understand that the issue there is entirely disparate from the issue presented here today.

It was made explicitly clear in the pleadings in the Indiana case that no challenge was being made to the reason to believe of the Commission at the time it issued the complaint in the case.

That was explicitly clear in that case.

That issue, the absence of reason to believe that Standard of California had violated Section 5 before the complaint issued is the issue that is presented in this case exclusively.

The issue before the Court is whether the allegations in Standard's complaint state a claim for relief.

There is no evidentiary record.

The 9th Circuit held that the allegations of Standard's complaint and the reasonable inferences therefrom state a claim for relief on account of conduct of the Commission which is in violation of constitutional and statutory requirements.

Standard's claim is that the Commission charged Standard with a federal offense without reason to believe that Standard had violated the law, that is, without any basis to relate conduct to Standard in the relevant geographic area to a violation of Section 5 of the FTC Act.

The Commission's position in the case is that whether it had reason to believe that Standard had violated Section 5 is not subject to review in any Court at any time, and that the basis for its action, however invidious and unrelated to statutory requirement, may never be examined by a Court.

That Commission assertion of unreviewable prerogative cannot be squared with due process safeguards or the rule of law.

Chief Justice Burger: I take it you would necessarily reject any analogy between the indictments by a grand jury and the action and the action taken here.

Mr. Sears: I'd like to comment on that, Mr. Chief Justice.

The cases which I cite in our brief show that upon a proper showing, an examination may be made into the question of whether an indictment has been handed down without any evidence, in the absence of any evidence, to show probable cause that the defendant committed the crime.

That kind of an examination may be made on a proper showing.

I am asserting the same line of reasoning here, adding only this comment, that this is a stronger case for examining the basis for Commission action.

The reason is that, conceptually, the grand jury stands between the prosecutor and the citizen charged with crime.

Justice Rehnquist: Mr. Sears, how do you distinguish the Costello case in that case?

Mr. Sears: --May I just finish my sentence, Your Honor?

Justice Rehnquist: Certainly.

Mr. Sears: --whereas in this case obviously the Commission itself is prosecutor here as well as judge under the FTC Act and the Commission acts directly upon the citizens, the person.

That's why I'm suggesting this is a stronger reason for this Court to look at the absence of basis for Commission action.

Now, sir, Costello.

As I have stated and quoted in my brief, Justice Burton's concurring opinion in that case makes explicit that there is a distinction between an examination into the adequacy or the sufficiency of evidence on the one hand and the absence of evidence, a no-evidence situation, no evidence to relate conduct of defendant to commission of offense, on the other hand.

Justice Rehnquist: Do you suggest then that in a federal court a defendant could come in and move to dismiss an indictment on the ground that the Government simply had no evidence to prove its case?

Mr. Sears: Again, sir, as the cases which I have cited in my brief demonstrate, that is done.

Unidentified Justice: Are there any cases from this Court support that?

Mr. Sears: I submit, sir, that Costello from this Court supports that, that it directly supports that.

Unidentified Justice: Well, this is an approach something like Thompson v. Louisville, isn't it?

Mr. Sears: It may be, Your Honor, though I couldn't testify to that.

I'm not familiar standing here with Thompson v. Louisville, Your Honor.

Unidentified Justice: That was a case of no relevant evidence whatsoever.

Mr. Sears: In that case, Your Honor, it supports this case, because my contention here is that the Commission issued the complaint in Docket 8934, having before it no evidence which could support any inference--

Unidentified Justice: And why do you say it issued the complaint, Mr. Sears?

Mr. Sears: --Because, again, of reasons which I have laid out in my brief, Your Honor, that the Commission felt intense pressure in the extraordinary circumstances of that time.

Unidentified Justice: You mean, they got together and said, we can't resist this pressure of Senator Jackson and let's just go ahead and do it even though we have no evidence whatever?

Mr. Sears: Well, Your Honor--

Unidentified Justice: Would they go that far?

Mr. Sears: --Let me put it a little differently, if I might.

Let me suggest that what the Commission more likely thought to itself if, here we've had a winter of people shivering in their homes with fuel oil shortages, and we've had a spring when people are cursing in lines in gas stations and we think that it might be a good idea to jump on the bandwagon, to get out front, and let people know that we are trying to do something to confront a situation of obvious public concern.

Unidentified Justice: So that Senator Jackson's interest was no part of this?

Mr. Sears: No, I don't say that either, sir.

Again, as I've laid out in my complaint in the case, I think that Senator Jackson's actions were highly significant.

They brought to bear in a specific time period a focus of pressure on the Commission which led it to act and which, I suggest, led it to act rashly and unlawfully, and that's why this case is here.

Unidentified Justice: I gather your argument does... but your argument does suggest that they knew that they had absolutely no evidence to support the issuance of the complaint, no reason to believe.

Mr. Sears: Well, let me... let me talk around the corners of that a little bit.

I am not here to charge Commissioners with bad faith, with... for example, responding to Your Honor's suggestion that they somehow acted fraudulently in the circumstances, knowing that they had no basis on which to act.

I'm not here suggesting or arguing that.

I don't need to do that, that's not the drive of the case.

The drive of the case is that, in fact, the Commissioners had no basis on which to relate conduct of the Standard Oil Company of California in the relevant geographic area of the East and Gulf Coast states of the United States, to a violation of Section 5 of the FTC Act.

That is my contention.

Justice Stevens: Mr. Sears, supposing that we affirm the 9th Circuit?

The case is sent back to District Court and the Commissioners file an affidavit in that court which says in substance, well, they're right, we jumped the gun, we had suspicion but we didn't have any facts, but we've been studying the matter during the last couple of years and we are now satisfied there is reason to believe Standard has violated the law.

What should the District Court do?

Mr. Sears: Let me state it in my view, sir, what it is that the Commission should do.

The Commission should with draw the complaint, for the law is perfectly clear on this point.

The statute is explicit that a complaint may be issued by the Commissioner only upon the basis of a reason to believe determination that the respondent has violated Section 5.

The answer to your question is, they must withdraw the complaint.

Justice Stevens: Say they add to their affidavit that we could remedy this situation either by withdrawing the complaint or by amending the complaint and saying that as of the present we have reason to believe there is a violation.

We don't want to lose the benefit of the discovery we've had, so it's sort of a futile gesture to start all over.

Are they still required by law to move to withdraw the complaint?

Mr. Sears: They must, for the reason I've already stated, an explicit legal requirement, they must withdraw the present complaint.

Now, what, sir, the Commission might elect to do in that circumstance is obviously something I would not predict.

One of the extraordinary circumstances, one of the very important considerations that exists here, is that this case, if it were to proceed on this unlawfully issued complaint, would conduct an examination into a period of time prior to July, 1973, when the complaint issued.

That's the period on which it must make a determination of liabilities, as Your Honor well knows.

As your Honor equally well knows, the petroleum world today is an entirely new world from what it was prior to July 1973.

We have a Department of Energy, 20,000 employees plus; we have pervasive regulation of the industry; the entire international and national oil world is a new world.

In that circumstance, sir, I don't know what the Commission might choose to do.

It is not going to lose anything which it has done to date, however.

Let me make that very clear to Your Honor.

All the Commission has done to date in this case is to secure production of massive volumes of documents from the eight respondents.

Those documents are not going to disappear if the complaint were properly to be withdrawn.

They would remain available to the Commission, to be applied in what would then be a proper investigation of what the world of today is like.

If they chose after that examination to reissue a complaint on a proper basis, they then could do that.

Sir?

Justice Stevens: They could do it for the period prior to 1973, couldn't they?

Mr. Sears: Or... and as well; yes, sir.

Justice Stevens: I really don't understand what you accomplish by this lawsuit.

They are now electing to go forward on their existing complaint, which you strongly suggest they think they hope to prove their allegations.

Mr. Sears: I have not made myself fully clear, Your Honor.

Justice Stevens: Not to me.

Mr. Sears: Well, I am saying to you, sir, that the Commission, the Commission may or may not today have reason to believe that Standard of California has violated the law.

It may assert that, but I'm suggesting to Your Honor that you are assuming something that very plainly is not in evidence.

Justice Stevens: Well, it is in evidence if the Commission resisted your motion to dismiss and they're still defending their right to prosecute this action, and we presume that public agencies are acting in good faith for the most part; they are public officers and I think there is some presumption of validity to their action.

Mr. Sears: There is a presumption of regularity, which is, as Your Honor knows, a rebuttable presumption, and the point of this complaint is that Standard of California has shown a proper basis for a judicial inquiry into whether the Commission, when it issued the complaint, did have any basis for a reason to believe determination.

That's exactly the--

Chief Justice Burger: I take it you concede that it's regular on its face?

The complaint is regular on its face?

Mr. Sears: --The complaint includes as all Commission complaints include, a recital, a formal recital at the outset, that there has been a finding of reason to believe, and that the action is in the public interest.

The contention here, sir, again is that there has been a basis shown, a prima facie basis for a judicial inquiry shown in the allegations of Standard's complaint, indicating that in this extraordinary instance... and to repeat, there were extraordinary circumstances that preceded the issuance of the complaint of July, 1973.

In this instance those are truly bare recitals.

There is not a fact behind them which would serve to relate the conduct of the Standard Oil Company of California in the relevant area on the one hand, to a violation of Section 5 on the other.

Justice Marshall: Mr. Sears, let me try it another way.

If the letter from Senator Jackson was not here, would you be here?

Mr. Sears: That's an interesting question, Your Honor.

I think that the answer is, yes, I would still be here.

Justice Marshall: And what would you be alleging or indicating or urging?

Mr. Sears: I'll tell you why I hesitated: because it is the existence of the Jackson letter coupled with subsequent developments of public record that provided very apparent reason for inquiry into what if anything it was the Commission had done.

Justice Marshall: Where do you get the right to inquire into the motive of a Government agency?

Mr. Sears: There may be an inquiry into motive of an agency in appropriate cases, sir.

There may be.

I think I need not go that far in this case.

The core of this case goes to the absence of any basis for Commission action.

That's what this case goes... as Your Honor very well knows, federal judges make determinations of whether there is probable cause to believe that the defendant committed a crime, every day of their lives.

And they make those determinations without any suggestion from a prosecutor that that kind of an evaluation of whether there is or is not basis for probable cause, either invades the prosecutor's mental processes, or incurs the proper exercise of his prosecutorial discretion.

As I say, Your Honor well knows that isn't the case.

Probable cause reviews are made every day.

Justice Marshall: Well, Mr. Sears, if you go to prosecutorial discretion, then I have a lot of trouble.

Suppose you show in a case that a man convicted of eight crimes, the conviction was set up by a man that wrote a letter and said, I think this man committed some crimes.

Would that vitiate that conviction?

Mr. Sears: No, I would think that would clearly not vitiate that conviction.

Justice Marshall: And if a Senator had written a letter, would it vitiate it?

Mr. Sears: No, that would not vitiate that conviction.

Justice Marshall: So where do you get your prosecutorial discretion in this case?

It's not here.

It's not the same thing, is it?

I thought you said that in the beginning, that it was not the same thing.

Mr. Sears: Well, that is why I was responding the way I was.

It seems to me that the issue here in this case is entirely different than the one you posed.

It's simply a different issue.

Justice Marshall: I thought that's what you said.

Justice Rehnquist: But if we rule in your favor, don't we have to say that every time a respondent is made a party by the Federal Trade Commission that party has a right to go into Federal District Court before there's been any trial before the administrative law judge and say, the agency doesn't have any facts to back up its allegations?

Mr. Sears: Your Honor, one of the great things about the United States is that the courts are open to litigants.

There may be other claims of this kind advanced, but I am not aware, to take a federal example, that there has been any abuse of the provisions of Rule 12 of the Federal Rules of Criminal Procedure, which permit an examination into absence of probable cause to support either information or indictment.

I'm not aware that there has been any abuse of Rule 11 of the Federal Rules of Civil Procedure which permits an immediate inquiry into whether there was any support for the filing of the complaint.

I'm not aware that that exists, Your Honor.

And, of course, two more factors that apply here.

What has been approved by the Court of Appeals in this case?

And I think what was approved by this Court in Dunlop v. Bachowski is a very narrow scope of review.

It is a most stringent standard which we must meet in this case, or which other prospective litigants must make in some other case.

I think that the threat of some kind of massive infusion of cases into this judicial system is simply not true in fact.

Chief Justice Burger: Suppose the record were opened and we knew or it was stipulated that three Commissioners thought there was reason to believe, and two thought there was not reason to believe.

What would that do?

What impact would that have?

It would show among other things that the matter was contested, and therefore perhaps more closely examined, at least under some theories, than a unanimous opinion.

Mr. Sears: The Federal Trade Commission Act permits complaints to issue on the vote of three Commissioners.

And assuming for a moment, sir, and I think this is the direction of your question, that the three Commissioners had factual foundation for their determination of reason to believe.

Let me assume that with you.

Then I think we have a situation which is quite close to the Boise-Cascade case which the Solicitor General referred to this morning.

I am answering your question by saying that then, in that case, I think the complaint issuance would be proper.

You had three proper votes for the issuance of a complaint.

And again, that was true in Boise-Cascade.

Justice White: Could I ask you, are you suggesting that the courts review, must review, or that you're entitled to have the courts review whether or not there was actually probable cause to issue the complaint?

Mr. Sears: That's precisely my analogy... the different... the concerns--

Justice White: What did the Court of Appeals hold?

Mr. Sears: --Yes.

The Court of Appeals held--

Justice White: The Court of Appeals held that the only thing that was reviewable was whether they had purported to make the determination.

Mr. Sears: --Well, let me address that.

I thought that perhaps--

Justice White: What did it reject?

What did you claim that it rejected?

Mr. Sears: --Let me state what my understanding of the narrow scope of review directed by the 9th Circuit is.

Justice White: All right.

Mr. Sears: We have to go to the court's language, of course.

Justice White: All right.

Mr. Sears: The court said this in its opinion:

"A restriction on the FTC's discretion is embodied in the very terms of 15 U.S.C. 45(b). "

"The FTC must first in fact make a reason to believe determination that the law has been violated. "

"See Hunt Foods and Industries, 286 F. 2d 803, 806. "

At that page the relevant sentence from the Hunt Foods case, also a 9th Circuit decision, says,

"The Commission cannot have reason to believe unless it is in possession of facts warranting such a belief. "

Now, coming back to where we started on this, Your Honor, yes, I am saying that the reason to believe review, that very narrow review, open to the District Court, is comparable to the very narrow review permitted to a district judge of whether there is probable cause.

Justice White: Well, I had misunderstood then, apparently.

I thought the Court of Appeals said that whether or not there was actually probable cause to issue the complaint, or reasonable cause to issue the complaint, it wasn't reviewable.

But whether or not the Commission had made such a determination was an open issue.

Mr. Sears: I think not, Your Honor, for the reason--

Justice White: Well, let's suppose for the moment that I am correct in reading the Court of Appeals opinion the way I do.

Just suppose that.

Would you be entitled to urge what you're now urging, as a respondent?

Mr. Sears: --If I may, sir, I know no way--

Justice White: Is there... do you suppose there's an answer to my question, or do you have an answer for it?

Mr. Sears: --The answer to your question, sir, is, yes, I would be entitled to proceed to explore, as the 9th Circuit said, as you interpret the opinion, whether a determination of reason to believe was made by the Commissioner.

Justice White: Yes, whether a determination had been made, not whether it was a correct determination?

Mr. Sears: That's correct, Your Honor; yes, sir.

Justice White: But you are now urging that it is also open to a court in this case to say whether the determination was correct?

Mr. Sears: Not whether it was correct in the opinion of the District Court.

And again, the 9th Circuit made this explicit in its opinion.

And that's... the 9th Circuit said that the District Court, on review, may not substitute its view of what constitutes a violation of Section 5 for that of the Federal Trade Commission.

It said that, and that's why I'm saying there is such a very narrow scope of review that is directed by the 9th Circuit.

It is the kind of very narrow review that was directed by this Court in Dunlop v. Bachowski.

Justice White: Is this what the Court of Appeals said?

"Under this standard a determination by the FTC that there is reason to believe a violation of law has occurred is within the agency's discretion and not reviewable in the District Court under the APA. "

Mr. Sears: That's what the court said; yes, sir.

Justice White: And that's what it held.

Mr. Sears: That happens to be what it held; right.

Justice White: And you're suggesting, however, that whether there is reason to believe, is open to review.

Mr. Sears: I am, sir, and again--

Justice White: And I again suggest to you that you may not be able to urge that as a respondent without having cross-petitioner, because it expands the relief.

Mr. Sears: --I don't understand that, Your Honor.

I am not seeking relief, I am not seeking relief in Docket 8934, Your Honor.

I have filed an independent suit in United States District Court, which is my proper remedy.

Justice White: If you sustain, if we agreed with everything you've argued today, you would get more relief cut of this Court than the Court of Appeals gave you.

Mr. Sears: Oh, I don't agree with that, with great deference, Your Honor.

I don't agree with that.

I have read to you--

Justice White: I don't blame you.

Mr. Sears: --I have read to you the precise sentences from the 9th Circuit, which to my mind indicate the definition of a very narrow scope of review directed by the court.

I'm going to have to stand on that statement and not repeat myself.

Justice White: All right.

Well, that's fair enough.

Mr. Sears: The nature of Standard's claim points the way to the necessary relief in District Court and dissolves arguments about exhaustion of administrative remedy and finality of administrative... agency action.

Standard brought its suit in District Court because it has no other remedy for the Commission wrongdoing in question.

It is essential in this connection to bear in mind that the Commission has a prosecutorial function as well as an adjudicative role.

The adjudicative proceedings in Docket 8934 are directed to Commission allegations against respondents, not to determination of wrongful conduct by the Commission itself.

There will be no record in Docket 8934 of the conduct of the Commission in issue for any ultimate review in the Court of Appeals upon a cease and desist order against the respondents.

The unlawful Commission conduct here in issue is not a procedural ruling or other action by the Commission in its adjudicative role in the course of Docket 8934.

It is unlawful conduct by the Commission in its prosecutorial function, antecedent to commencement of Docket 8934.

There's a crucial distinction.

Now, Standard accordingly has no administrative remedy to exhaust, nor any judicial remedy in a Court of Appeals.

there is no question about the finality of the Commission's denial of Standard's right to due process in regard to the charges the Commission issued against Standard.

Standard's suit in District Court is the only remedy it has, it is the remedy that the law provides for the Commission's unconstitutional and unlawful conduct here in issue.

Thank you, Your Honor.

Chief Justice Burger: Do you have anything further, Mr. Solicitor General?

Mr. McCree: Mr. Chief Justice, with the Court's permission, we will rest our argument on our brief.

Chief Justice Burger: Very well.

Thank you, gentlemen.

The case is submitted.