Kellogg Company

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IN THE MATTER OF KELLOGG COMPANY, ET AL.

Docket 8883. Interlocutory Order, Oct. 9, 1980 ORDER DENYING IN PART MOTION To DISMISS AND DIRECTING THE FILING OF A REPORT AND OF SUBSEQUENT BRIEFS In its Order of July 31, 1980, the Commission deferred ruling on one portion of the motion of General Foods Corporation ("General Foods ) dated April 3, 1980, for dismissal of the complaint in this matter.' In this portion of its motion General Foods contends that the Commission has deprived it of due process of law "by impermissibly intermingling its prosecutorial, administrative and judicial functions to the point where the prosecution formulated the course which the Commission then followed." Motion at 2. In the alternative, General Foods seeks a full evidentiary hearing into the matters raised in its motion.

General Foods contends that dismissal of the complaint is required because of the "improper and prejudicial" participation of former chief administrative law judge Daniel Hanscom and of offcials of the Bureau of Competition "in determining Judge Hinkes' status. Memorandum of General Foods Corporation (1) In Support of its Motion to Dismiss the Complaint, and (2) In Response to the Federal Trade Commission Order of March 4, 1980 ("Memorandum ) at 38. In our order of July 31 , we noted that this contention had not previously been raised, and before addressing it we determined to augment the record by obtaining affdavits from those who appeared best able to provide evidence relevant to the negotiation process with Judge Hinkes and the role of Bureau of Competition offcials in that process. In compliance with our order, Messrs. Daniel C. Schwartz Peter Brickfield, Barry R. Rubin, John F. Dugan and Barry Kefauver have fied affdavits.' Having reviewed these affidavits, Mr. Kefauver s affidavit of December 13, 1979, Judge Hanscom s affidavit of December 5, 1979, and certain additional material, discussed in Part II of this order, we have determined (1) to deny the reserved portion of General Foods' motion of April 3 , 1979, insofar as it relates to the activities of Judge Hanscom; (2) to defer disposition of that portion of the motion insofar as it relates to the activities of offcials of the Bureau of Competition; (3) to direct the Bureau of Competition to fie the report specified in Part II of this order; and (4) to direct the parties to file their views on the need for additional factfinding. , The motiofl was in other resp"cL t!l'nied in our order of July 31 , By memorandum uf August 21. 1m;O. Mr- Rubin corrected typographical errurs in his affid!lvit .

Interlocutory Order 96 FTC. General Foods asserts that Judge Hanscom, in his former capacity as Assistant Director for Evaluation in the Bureau of Competition had signed and approved the memorandum . to the Commission recommending issuance of the complaint in this proceeding. Memorandum at 35. While the memorandum recommending the complaint is not part of the record in this adjudication, General Foods assertion is evidently correct.' Having acted in this prosecutorial capacity, Judge Hanscom was disqualified from participating in adjudicative decision-making in the proceeding. 5 U.8.G 554(d).' The question, therefore, is whether Judge Hanscom s participation in the process leading up to the contract with Judge Hinkes violated this separation of functions requirement, or whether it was a permissible involvement in an administrative decision divorced from the merits of the proceeding.

We held, in our order of July 31, that Judge Hanscom could properly appoint a successor to Judge Hinkes, though he is disqualified from the adjudication. Order at 13. As noted in our order, the Commission some years ago held that the Chairman, who was not participating in the adjudication in question, might nevertheless properly exercise his discretion as administrative head of the agency in the decision whether to seek to retain an ALJ in the very proceeding as a retired annuitant. Hearst Corp., 81 F. C. 1028, 1029 (1972).

This distinction between adjudicative and administrative decisionmaking wil inevitably be clearer in some instances than in others. Whenever a decisionmaker acts in his or her administrative capacity, and that decision directly relates to the adjudication, as would always be true of a decision on retention of an ALJ, the action wil perhaps inescapably be susceptible to the accusation of improper motive. But suspicion alone is not enough. Officials who routinely make administrative decisions of a particular kind wil not be held to have exceeded the proper scope of their authority without clear evidence of impropriety.

The evidence here falls short. There is not the slightest suggestion in the record that Judge Hanscom recommended the contract out of any belief that retention of Judge Hinkes in the Kellogg case would result in rulings favorahle either to complaint counselor to respondents.

, IrJ a colloquyat a hearing in November, 197" complaint counsel identified Judge Hanscom as one of the signatories of the memorandum. Tr. 262Hl . nan employee or agent engaged in the performance of investigative or pfOs uting fife:tions for an agency a cas may not, in that ora factually re!atedcas., participate or advise in thedecisi Oil KELLOGG CO., ET AL. 607 605 Interlocutory Order Instead, the record reflects that Judge Hanscom s only concern was that if Judge Hinkes left the case, a retrial might be required, at enormous expenditure, which could do little more than replicate the record that had already been before Judge Hinkes. Such a concern is not, as General Foods claims, a "direct, partisan interest in preserving the consequences of (Judge Hanscom s) earlier involvement " because it is not in any way addressed to the merits of the adjudication. Rather, it is a purely administrative concern that public resources not be wasted on duplicative proceedings. It follows from these facts that as a matter of law, Judge Hanscom s action involving the contract with Judge Hinkes did not amount to participation in the decisionmaking process of the adjudication, within the meaning of the applicable restriction in 5 U.S.C. 554(d). Even if it be assumed that Judge Hanscom s participation in the negotiations and his recommendations to the Chairman violated the separation of functions requirement in the Administrative Procedure Act, we hold that the remedy of dismissal sought by General Foods is altogether inappropriate and unnecessary. If the contract with Judge Hinkes was fundamentally flawed because of Judge Hanscom s involvement in the process leading up to it, as General Foods alleges, then the remedy would be removal of Judge Hinkes which indeed is what General Foods urged when it first contended that the contract was improper. Motion of General Foods Corporation to Disqualify the Administrative Law Judge, dated October 13 1978. The Chairman s decision of December 8, 1978, not to submit the contract to the Civil Service Commission for approval, together with the Commission s order of the same date holding that, in the circumstances, Judge Hinkes had become unavailable within the meaning of 5 U.S.c. 554(d) as of the date of his retirement, had precisely the effect of removing Judge Hinkes from the proceeding. Thus we conclude that, even if we were to accept (which we do not) that Judge Hanscom erred in recommending the contract, General Foods has not been prejudiced, for any arguable harm has been ameliorated by the removal of Judge Hinkes. II.

With respect to the contentions of General Foods about the role of offcials of the Bureau of Competition in the process leading to the offer of the contract to Judge Hinkes, we have concluded that more evidence is needed before we can rule.

, Insofar as General Foos intends to suggest that Judge Hanscom s actions Were unlawful under any of the them;e:; outlined On pages 43 to 46 orits Memoraodum, we fiod that suggestion to be wholly without merit. Interlocutory Order 96 F. As we indicated in our order of July 31, the purpose of the ancilary inquiry now is to establish facts suffcient to permit our disposition of allegations that officials of the Bureau of Competition violated the Commission ex parte rule, Rules of Practice Section 4. or otherwse improperly breached the separation of functions requirement of the Administrative Procedure Act, 5 UB.C. 554(d). The affdavits submitted in response to that order, together with materials previously entered in the record, provide an account of the Bureau s involvement from August 14, 1978, in the negotiation process that culminated in the contract with Judge Hinkes. With one exception ' the Commission concludes that no further factual development is necessary at this time with respect to the actions of 1978, on.the various participants in the process from August 14, However, the affdavits do not establish how offcials of the Bureau first learned that Judge Hinkes was contemplating retirement. Mr. Schwartz states that he "first learned of Judge Hinkes contemplated retirement from members of the staff of the Bureau of Competition on or about the date of the meeting which was held on August 14 , 1978, . . . . " Schwartz Aff. 1; see also id. 4. He does not state who the "members of the staff' were. There is a second ground for our continuing the inquiry. It arises from material brought to the Commission s attention by the General Counsel. In the course of preparing the Commission s defense to an action brought by Kellogg Co. on July 24, 1980, under the Freedom of Information Act for, inter alia, documents referring or relating to the employment of law judges who have stated an intention to leave their regular law judge position, and for documents referring or relating to any policy or practice of the Commission regarding actions to be taken by Commission employees upon an ALJ's leaving or stating an intention to leave, the staff of the General Counsel' offce undertook a thorough canvass to be certain that all responsive documents had been located. In the course of that search, the General Counsel obtained, from the fies of complaint counsel documents which appeared relevant to this ancilary inquiry. The General Counsel brought these documents to our attention, and we now direct that they be placed on the record. The first document is a memorandum to the fie from Anthony Low Joseph, dated December 10, 1978, reporting a telephone conversation with counsel for one respondent: Mr. Savarese called to ask when I learned about the Judge s contract. I told him that I learned of it via FTC: Watch. He asked about discussions between the Judge and . Se footnote 7 infra 605 Interlocutory Order me. I said that the Judge had mentioned he was considering retirement before the announcement On the record, but that we had not discussed a contract. He asked if the Judge and I had ever discussed the contract. I said no. The others are a series of FTC staff proposed draft fiings, some of which are hand-dated December 1977, that embody a projected request that Judge Hinkes make notes on the demeanor of witnesses. Should Administrative Law Judge Hinkes, for any reason, be unable to continue presiding over the Kellogg hearings " the drafts state, "such preliminary notes would facilitate the transition to a successor administrative law judge The circumstances under which complaint counsel learned of Judge Hinkes' plans to retire, and any actions taken in consequence by complaint counselor other Bureau staff, are potentially material to our disposition of the reserved portion of General Foods' motion. The documents brought to our attention by the General Counsel may or may not be relevant, but they do require explanation. We turn, then, to the means by which this further inquiry is to be carried out. In endeavoring to establish the facts relevant to the disposition of motions before us in the ancilary proceeding, we have twice requested affdavits from those who appeared best able to provide such facts. Order of November 13, 1979; Order of July 31 1980. The taking of affdavits is a proper means of initial inquiry. GraZier, Inc. v. FTC, 615 F.2d 1215 (9th Cir. 1980), and cases cited in our order of July 31, 1980, at 19, note 15. Indeed, this device yielded a satisfactory evidentiary basis for our conclusion that, measuring the material facts against applicable legal standards, the relief sought by respondents as a consequence of the contract with Judge Hinkes and the negotiations preceding it was unwarranted. Order of July 31 1980, at 14-23.

In this new phase of the inquiry, focusing on allegations of misconduct by the Bureau of Competition, the affdavits fied in compliance with our order of July 31 have likewise provided useful evidence. In particular, the affdavits set forth the discussions at the meetings of August 14 and 16, 1978, in suffcient detail so that no additional inquiry of the known participants in those events appears necessary. However, as noted earlier, the affdavits fail to establish how the Bureau of Competition learned of Judge Hinkes' intention to retire, and of course they do not account for the documents from complaint counsel' s files quoted above.

While additional affidavits might resolve these matters, it is not clear to whom instructions to fie such affdavits ought to be directed. Therefore, we are imposing on the Bureau of Competition itself the obligation to fie, within 45 days, a report stating with Interlocutory Order 96 F. specificity, and accompanied by appropriate affdavits and documents, the date, circumstances, and content of any extrarecord conversation between Judge Hinkes and any member of the Bureau staff, presently or formerly employed, concerning Judge Hinkes possible retirement, or of any conversation between any other law judge or any employee of the Office of Administrative Law Judges and any member of the Bureau staff, presently or formerly employed, concerning Judge Hinkes' possible retirement; and the date, circumstances, and content of any subsequent conversation among members of the Bureau staff, presently or formerly employed, concerning actions to be taken with respect to the employment or other status of Judge Hinkes, or the content of any document concerning such actions.

It is impossible at this point to predict whether further factfnding will be needed after the Bureau fies its report, and if so, by what precise method such factfinding ought to be accomplished. The report of the Bureau is a means by which those who know the facts may explain on the record the significance, if any, of the documents and events in question to the issues before us. If this report, together with the other evidence of record, proves to be insuffcient to permit our determination of the allegations that offcials of the Bureau of Competition breached the separation of functions and ex parte barriers in the Administrative Procedurl! Act and the Commission rules, it may be necessary to seek the services of an administrative law judge from another agency to superintend such additional inquiry as will be required.

We want the facts to be produced, promptly and fully, that wil enable us to sustain or reject these allegations. An ambiguity in one affdavit, and newly discovered documents that require explanation leave us unable to find those facts after the initial round of affdavits. Aided by the views of the parties, we shall review the report and other evidence to determine whether further inquiry, under the superintendence of an outside law judge, is needed. It is therefore ordered, That:

A. General Foods' motion to dismiss the complaint is denied insofar as the motion is based upon allegations concerning the activities of Judge Hanscom;

B. The Bureau of Competition shall fie with the Commission Nithin 45 days of the date of this Order, the report specified in Part '1 of this Order.

, In addition, jf it is a fact that Anthony Low Joseph attended the meeting with Messrs- Schwartz, Brickfield ugan, Kefauver, and Rubin on August 14, 1978 (see Rubin Aff. '15). then the Bureall s report shah be accompanied I an affidavit from Mr- Joseph, responding to the qlJestiOf15 posed in Paragraph fo' ofour Order of ,July 31 KELLOGG CO., E'1 AL.

605 Interlocutory Order C. Within 20 days of the fiing of the report, the parties shall fie their views on whether additional factfinding is necessary prior to our determination of the reserved portion of General Foods' motion and if so, what material facts they believe need to be adduced in such additional factfinding.

D. The Secretary shall place on the docket of this proceeding, and serve upon the parties, the following documents: (1) A memorandum to the file from Anthony Low Joseph, dated December 10, 1978; and (2) Five drafts of proposed requests pertaining to preparation of notes on demeanor, prepared by unidentified staff members of the Bureau of Competition.

Chairman Pertschuk and Commissioner Pitofsky did not participate.

Complaint 96 F.