Exxon Corporation

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IN THE ATTER OF EXXON CORPORATION, ET AL.

Docket 9130. Interlocutory Order. Aug 6, 1981 ORDER The Administrative Law Judge, pursuant to Section 3.23(b) of the Rules of Practice, has certified to the Commission complaint counsel' s application for review of the ALJ's prehearing order of arch 2, 1981, directing them to "exclude resort" to special reports under Section 6(b) of the FTC Act. The ALJ, in authorizing the appeal, stated that his ruling "involves in part Section 6 issues which lie without the Part 3 Rules ofthe Commission. BACKGROUND The adjudication in this case began on August 10, 1979, when the Commission issued a complaint charging that the proposed acquisition by respondent Exxon Corporation ("Exxon " or "respondent") of Reliance Electric Company would violate Section 7 of the Clayton Act, as well as Section 5 of the FTC Act. The Commission entered an order on that date directing that the case be tried on an expedited basis. On October 26, 1979, the United States District Court for the District of Columbia entered a hold-separate order pending the administrative proceeding. The first prehearing conference was held before the ALJ on October 24, 1979, and several conferences were subsequently held to map out a proper route for discovery. During a prehearing conference on February 27, 1981 , the ALJ requested counsel to describe the progress of their respective discovery efforts. This review led to a discussion of complaint counsel' s plan to use Section 6(b) as a means of discovery. The ALJ then stated his intent to disallow the use of Section 6(b) and on arch 2, 1981, he issued a pretrial order directing complaint counsel to proceed forthwith by way of Part 3 discovery rules and exclude the Section 6 method.

In his arch 18, 1981, order authorizing complaint counsel to file an application for review pursuant to Rule 3.23(b), the ALJ justified his decision to preclude the use of Section 6(b) as a means of discovery on two grounds: (1) the injection of Section 6 issues into the proceeding might result in needless and undue delay, in contravention of the Commission s order dated August 10, 1979; and (2) complaint counsel' s use of Section 6(b), "a device not available to respondents, would be fundamentally unfair. Interlocutory Order 98 F. Complaint counsel, on appeal, assert, among other things, that pretrial discovery under Section 6(b) is lawful and that it is the only satisfactory and workable method of discovery for this particular case. In this connection, they claim that their proposed Section 6(b) questionnaire is designed to gather information related to (I) the identification of economically significant markets and submarkcts; (2) the determination of universe and individual firm market share data within those markets and submarkets; and (3) the identification and description of barriers to entry into those markets and sub markets or to "significant" competition by "minor" firms already in those markets or submarkets. They also assert that subpoenas duces tecum inter alia, thewould be an inadequate substitute for 6(b)'s because returns would include highly technical engineering documents, the interpretation of which would be "time-consuming, in some instances impossible, and, because it would require technical consultants, extremely expensive given projected budget constraints; their draft questionnaire "covers the breadth of a company s involvement in the relevant market (anda (cJomplaint counsel would be required to spend untold hours studying the company and the interrelationships between its sets of records in order to determine the answers to the survey questions; and responsive documents may not be available.

Complaint counsel also assert that the ALJ had no authority to deny the use of Section 6(b) reports because "only the Commission has the power to issue orders for special reports under Section 6(b) of the FTC Act; the Commission has not delegated that authority to the Administrative Law Judges. " Finally, they argue that the judge clearly abused" his discretion by providing, at the prehearing conference, inadequate reasons for his decision, and that he failed to afford them an adequate opportunity to be heard on the validity of their request.

Like the AL. , respondent contends that unfairness would result if complaint counsel were allowed to use a method of discovery unavailable to respondent. ~moreover, respondent maintains that the use of Section 6(b) reports would (1) impose an undue burden on third parties because they would be subjected to overlapping and multiple demands and (2) result in delays in the proceedings because of likely resistance by third parties. Finally, respondent argues that the use of Section 6(b) would be improper because it is not provided as a discovery device in Part 3 of the Commission s Rules of Practice. g., , EXXON CORP., ET AL. 109 107 Interlocutory Order II. COMPLAINT COUNSEL S APPLICATION FOR REVIEW Interlocutory appeals are generally disfavored because they may interfere with the orderly and expeditious conduct of the adjudicative process. In particular, applications for interlocutory review of discovery rulings wil rarely be granted because such review could undermine the responsibility that Ollr administrative law judges have to manage carefully the discovery process. Bristol-Myers Co., 90 FTC. 273 (1977). We reaffirmed this principle recently in adopting revisions to our discovery rules. 43 FR 56862 (1978). Today we again reaffirm the crucial responsibility of the law judges to keep a firm hand and careful eye on the discovery process toward fair and expeditious conduct of the adjudicatory process. Complaint counsel' s application, however, raises issues that go beyond the proper exercise of an ALJ's discretion in ruling upon discovery requests; it also presents the questions of whether Section 6(b) should be available as a discovery device in adjudicatory proceedings and, if so, how the exercise of Section 6(b) authority should be used. Because of the importance of this issue not only for this matter, but for discovery requests in future cases, we grant complaint counsel's application for review and confine our review to these two questions.

Ill. THE USE OF SECTION 6(R) IN ADJUDICATIVE PROCEEDINGS Over the past 25 years, the Commission has issued Section 6(b) special reports in several! adjudicatory proceedings, g., Campbell Taggart Associated Bakeries, Inc. 71 F. C. 509, 521- 22 (1967); Scott Paper Co. , 63 F. C. 2240 , 2243 (1963); Crown Zellerbach Corp. , 51 T.C. 1105 (1955); see In re Subpoena Duces Tecum Addressed to Atlantic Richfield Co., File No. 741-0019, at 86 n.4:) ("ARCO Statement"), and has allowed the parties to use evidence compiled through the use of Section 6(b) orders issued prior to the initiation of adjudicatory proceedings Jim Walter Corp., 90 F. C. 671, 700 (1977), vacated and remanded on other grounds, 625 F.2d 676 (5th Cir. 1980); Dean Foods Co., 70 F. C. 1146, 1267 n.73 (1966). Although these opinions did not discuss the general question of the propriety of issuing Section 6(b) orders during the course of an adjudication decisions by the Commission to issue pretrial Section 6(b) orders necessarily reflected a judgment that Section 6(b) can be an appropriate tool of discovery. We are not persuaded that their use should be abandoned where a party can make a real showing of need. Respondent has not challenged the Commission s statutory authority to issue special report orders for the purpose of pretrial Interlocutory Order 98 F.T.C. discovery and we are satisfied that Sections 6(a), 6(b), and 6(g) of the FTC Act authorize their use. The Supreme Court, in rejecting a claim that Section 6(b) could not be used in aid of a Section 5 proceeding (in that case, a compliance proceeding), stated that it found "nothing that would deny its use for any purpose within the duties of the Commission, including a Section 5 proceeding. A construction of such an Act that would allow information to be obtained for only a part of a Commission s functions and would require the Commission to pursue the rest of its duties as if the information did not exist would be unusual, to say the least. United States v. Morton Salt Co. 338 U.S. 632, 649-50 (1950). Respondent does argue, however, that the Commission s own Rules of Practice preclude the issuance of Section 6(b) orders during the course of an adjudicative proceeding.

Section 6(b) orders to file special reports are not expressly included among the discovery devices described in the Commission s rules governing adjudicatory matters. Nevertheless, the Commission has stated that "(tJhe discovery rules do not provide the exclusive means by which parties may obtain information, and are not intended to limit such ability as a party otherwise may have to obtain information through voluntary means or that may otherwise be available" to it. 43 FR 56862 (1978). In an earlier statement concerning an investigatory subpoena, the Commission indicated that its existing discovery rules do not limit complaint counsel' s access to informa tion properly obtained by the Commission for other purposes and, citing adjudicative cases in which Section 6(b) orders had issued stated that "the Part 3 discovery rules do not provide the exclusive means by which the Commission s powers of compulsory process may be invoked in aid of a pending adjudicative proceeding." ARCO Statement at 36.

Likewise, two decisions, which preceded the promulgation of the new discovery rules, have held that the administrative law judges are empowered by Rule 3.42(c) to employ discovery procedures which are not specifically authorized by the Rules of Practice. In Exxon Corp. 90 F. T. e. 4:)0, 452 (1977), the Commission held that ALJ' s are authorized to impose "production procedures designed to assure orderly compliance with subpoenas " even though such procedures were not mentioned in the Rules of Practice. See also Century 21 Commodore Plaza, Inc., 89 F.T.C. 108 (1977) (authorizing issuance of access order). The Commission in Exxon however, stated that (dJiscovery should ordinarily be by the methods described in the Rules of Practice. Only where necessary to the conduct of "fair and impartial hearings (and) to avoid delay in the disposition of proceedings " Rule a.12(c), may the law judges resort , . .. EXXON CUttr., .lH h 107 Interlocutory Order to discovery methods notexpJicitly sanctioned by the Rules. Moreover, the Administrative Law Judges may not depart from the specific requirements of applicable rules and any orders they issue must, of course, be authorized by the F.T.G Act. (90 F. at 453.

We therefore see no reason why the rules should be construed to preclude the issuance of Section 6(b) orders in adjudications and to require that adjudications be conducted "as if the information did not exist' * * . Morton Salt, supra, 338 U.S. at 649-50.' Nonetheless, we believe the Commission, in adopting the current discovery rules, contemplated that the devices specifically authorized would be adequate to meet the needs of the typical case and we see no reason to depart from our holding in Exxon that "(dJiscovery should ordinarily be by the methods described in the Rules of Practice" and that other discovery procedures should be used "(oJnly where necessary to the conduct of 'fair and impartial hearings * * * and to avoid delay * * *.'''' Respondent also asserts that resort to the Commission s Section 6(b) authority during an adjudication would "strip" the ALJ's of their authority to control discovery, and thus run counter to the Commission s conclusion that the "complexity of many Commission proceedings and the potential for delay inherent in discovery require careful supervision by the Administrative Law Judge at every stage of the proceedings." 43 FR 56863 (1978).

Although we are not prepared to construe Section 3.42(c) of the Rules of Practice, see p. 5 supra, to authorize the administrative law judges to issue Section 6(b) orders, we do not intend to permit ourselves to interfere with the ALJ' s abilty to maintain proper control of the pretrial proceedings. Thus, when a party fies a petition for issuance of a special report order, we would hope that the ALJ' s will accompany their certifications of these motions to the 1 Respondent arguf'S that Rule 2. 12(a) providus that the Commission s Section 6 rupurt powers may be used only for purposes of conducting investigations, not adjudications. That rule states in part. In invustigations other than those wvered by Section 2U' . . the Commission may issue an order ' . . to fie a report or answers in writingtospecificquestions We do not understand this language, in Part 2 of the Rules, to do anything more than describe the Commissioll powers to issue Section 6(h) orders in its nonadjudicative proceedings. An inference cannot permissibly be drawn that a Part 2 rule would purport to describe all the purposes for which a \;statutory procedure might be used to col!eCtinformation Necessary" should not be understood to suggeft some standard of ahsolute need. that without a special mport order, a party could not possibly prove its case or rehut evid(!ncc offered hy its opponent. A discovery procedure may f..irly be said to be "necessary to the conduct of fair and impartial hearings and to avoid delay in the dispositiolJ of proceedings" if, taking: account of such relevant eonEiderations as costs (both to the subject of the proposed discovery and to the discovering party), the speed with which discovery might be completed, and the likelihood that the proposed discovery would produce accurate, useable information, it clearly appears that the procedure is substantially superior to any of the discovery techniques specifically authorized by the rulus In the case of Section 6(b) orders. wc expect that such a showing could be m"de only in thc extraordinary case. Interlocutory. Qrder 98 F. Commission with a recommendation whether an adequate case has been made for this remedy. ' In view of the responsibility of the ALJ' s to maintain control of pretrial proceedings and the especially broad discretion they have in deciding matters of discovery, the Commission intends to attach great weight to these recommendations.

Finally, respondent has argued that " (nJeither party in * * * adjudicatory proceedings should be entitled to utilize compulsory discovery devices unavailable to the other, and yet that is exactly what complaint counsel propose to do." The ALJ, in recommending that we deny complaint counsel' appeal, contended that (cJomplaint counsel's proposed resort to a Section 6 survey, a device not available to respondents, for complaint counsel's discovery needs and for reasons of alleged inadequacies of Part.3 discovery devices for the purposes of this case, is fundamentally unfair. " However, although it would not be unfair in any particular case to allow only one party-the party that was able to make the required showing of need-to use a Section 6(b) order as a discovery device, we believe that special report orders may issue at the request of any party' who can make the diffcult showing that such an order is necessary to its preparation for trial. 6 IV. CONCLUSION The ALJ has already ruled that the discovery procedures expressly authorized by the Part 3 rules are adequate for purposes of this case. If complaint counsel choose to file a motion for the issuance of a Section 5(b) order, the Commission, in acting on the motion, wil , The AI-"T's ar" required by Sedjon322(a) of the Rules of Practice to certify t.o the Commission any motions upon which they lack anthotity to TuJe toe-either with any recommendations they b",licve it appropriate to make as totncuppropri"tcdiGPositionofsuchmotiot1s , In this calf',the ALJ properly stayed furt.her discovery pending the Commis.,;iun s disposition of comphli"t couns"l' s appeal However, proceedings need not normally be stayed pending the Commission s disposition flf a fl!Dlion or an interlocutory appeal, shoe Rules of Practice, Section 23(b), and we expect that there would be few cases in which a stay pending Cl)/nmissloI1 action on a motion for a Section fi(u) ordcr would be warn:mted Where the AW rl'cummended that a Section 6(b) not issue, in view "f the deference the Commission wil 3.accord this recommcndation, th,. judge mig"t rcasonably require the parties tu proceed with th",ir pretrial disc:overy every if thn discovery covered mlICh the same ground as the requested Section 6(b) order Nevertheless, where the ALJ has H,commended that. 11 Section B(b) order issue, a st;y of any discovery that was contingrmt on the Commission decision to override the judge s recommendation, and not permit discovery by means ofSectlon 6(b), might well be warranwd , 111 the unusual case where a partycan show that Section 6(b) orders are needed, it may be that al! parties C;1fl make an adequate showing of rwed. In such l:a:cs, we would hope that with t.he AI.J' s et1courageml,nl:, the parties could agree on a single special replJrt Jorm We will be ul1willing tlJ burden third !,art.ie with multiple report forms each de signed to m et the discovery needs of a different party. " R"spondentha.'iarguedthattheu \'ofSectionfj(b)would result ill delay because of !ikcly resist;nce uy third parties- Howcv(,r, we are unprepared 011 this basit; to forecl%e iL, use when' a party has made;) strong showing of need EXXON CORP. , ET AL. 113 107 Interlocutory Order accord great deference to the ALJ' assessment of the need for complaint counsel' s proposed order.

It is so ordered.

Interlocutory Order 98 F.T.