Volkswagen of America, Inc

Text (OCR of the scan at left; may contain errors)

IN THE MATTER OF VOLKSWAGEN OF AMERICA, INC., ET AL.

Docket 9154. Interlocutory Order, June, 1984 This order requires respondents to establish a depository arrangement, on terms to be negotiated, whereby Complaint Counsel may examine relevant documents and information without the Commission taking custody of the material. ORDER Administrative Law Judge John J. Mathias has certified to the Commission complaint counsel's motion requesting in camera treatment for all documents and information to be submitted by Volkswagenwerk AG ("VW AG") for purposes of discovery in Volkswagen of America, Inc., D. 9154. The relevant materials are located in Germany and in the possession of'he German government because the ALJ ordered the parties to transmit the documents through diplomatic channels as an alternative to ruling on VW AG's motion to quash the discovery subpoena. Although a protective order was issued to maintain the confidentiality of materials submitted during the pretrial stage of the proceedings and to allow VW AG to move for camera treatment of materials introduced into evidence, the German government has refused to transmit the documents until an in camera order is issued covering all of the documents regardless of their sensitivity. The German government has requested assurances that VW AG' s materials wil be afforded the same protections they would have in a German administrative proceeding: namely, that they wil be kept confidential throughout the proceeding and returned to VW AG when the proceedings are complete.

The Commission has considered the certified motion and order complaint counsel's arguments in favor of its motion and order, and the ALJ's recommendations for granting it, and it has determined that issuance of the certified order would be inconsistent with the Commission s rules in several important ways: First, it would not be based on the legal standard for issuance of in camera orders established in Commission decisions and reflected in its rules. Second, it seeks permanent and total protection, which is inconsistent with the public interest in making available as much as may be disclosed of'he factual bases for Commission action. Third, certain provisions in the certified order are inconsistent with the Commission s obligation to disclose information to Congress. Fourth, the certified order includes no provision for discretionary information-sharing with state and other federal law enforcement agencies authorized by statute. Fifth ,VLl\bWAGEN OF AMERICA, INC., ET AL.

536 Interlocutory Order the certified order is inconsistent with certain requirements of the FTC Act, the FTC's rules and the Federal Records Act regarding return of materials submitted in FTC investigations. And last, the certified order requires destruction of documents in a manner that is unnecessary. The Commission has determined at this time not to issue an order modified to conform to what the Commission believes are the applicable statutes and rules, or to direct the parties to show cause why the certified order should not be modified. Instead, the Commission has determined to order the parties to establish a depository arrangement, on terms to be negotiated, whereby complaint counsel may examine the documents and information in question without the Commission s taking custody of the material. This procedure would enable staff to proceed expeditiously with the discovery portion of this case without the immediate need for issuance of an advance in camera order. After complaint counsel have examined the documents and determined which, if any, they plan to use in connection with their case or to introduce as evidence, the parties should reassess the need for in camera treatment and seek an appropriate camera order from the ALJ, if warranted. The Commission s action here should not be considered a bar to renewal of the instant motion whether or not in modified form, after completion of efforts in compliance with this order.

The Commission has carefully considered some of the issues this motion raises. The following discussion is intended to provide an explanation of the Commission s view of these issues that wil guide the parties in the negotiations directed by this order. Any further motion for in camera protection, whether addressed to the ALJ or the Commission, should address the issues discussed below to the extent that they are relevant to the treatment sought. A. Advance In Camera Treatment At the outset, the Commission is troubled that the present motion seeks in camera treatment in advance of production of any documents, making virtually impossible adherence to the usual standard in Commission Rule 3.45. Rule 3.45 provides for in camera treatment of materials offered in evidence in ajudicative proceedings in "unusual and exceptional circumstances upon a showing of good cause." The rule provides in relevant part:

Administrative law judges shall have authority but only in those unusual and exceptional circumstances where good cause is found on the record lciting H.P. Hood Sons 58 F. C. 1154 (1953)) to order documents or oral testimony offered in evidence. whether admitted or rejected, to be placed in camera'! 1 The rule further pr()vidclI that theill camera order shall jDc!ude: "(1) II descriptjon of the documenw and (footnote cont'd) FEDERAL TRADE COMIVHD"l\.JJ-' Interlocutory Order 103 F. Rule 3.45 has been construed to protect confidential documents which, if released, would cause a submitter clearly defined serious ljury. HP. Hood Sons, Inc. 58 F. C. 1184, 1188 (1961). In decisions ollowing Hood the Commission has held that an applicant for 'amera treatment must make a clear showing that "the information ,concerned is suffciently secret and suffciently material to (its) busi- ,ess that disclosure would result in serious competitive injury. General Foods Corp. 95 F. C. 352, 355 (1980). It has also construed the in camera standard strictly, taking into account the countervailing public interest favoring the disclosure of all information relevant to Commission decisions to permit both improved evaluation of the fairness and wisdom of a given decision and to provide clearer guidance to affected parties. Tenneco, Inc. D. 9097 (September 10, 1981); RSR Corp. 88 F. C. 206 (1976).

The first issue presented here was whether an in camera order should be issued under Rule 3.45 for reasons other than a showing of clearly defined serious business injury: namely, to comply with the legal standards of a foreign government which that government has imposed as conditions for its transmitting through diplomatic channels documents responsive to discovery. In certain limited circumstances, good cause to issue an in camera order may be found under Rule 3.45 for reasons other than "clearly defined serious business injury (see e.g. Koscot Interplanetary, D. 8888). We believe, however that in camera treatment must be predicated on a finding that the submitter is likely to suffer harm from the absence of the protection. Moreover, ifhe projected harm does not meet the commercial injury standard reflected in the Commission s decisions in HP. Hoodand its progeny, it becomes doubly incumbent upon the parties to justify the need for the protection. Second, issuance of an in camera order before identifying the materials subject to the order would also be inconsistent with Rule 3.45(b)(1), which requires that an in camera order include a description of the documents and testimony to be excluded from the public record.

B. Permanent In Camera Status The motion also seeks an order) in effect, making the in camera protection permanent. Specifically, paragraph 9 of'he order attached to Complaint Counsel' s motion provides that the in camera order may be modified, but only if the Government of Germany approves less restrictive treatment. This provision does not recognize that, at some point, materials placed in camera may no longer be sensitive and should be made available to the public if they form part of the basis teflt.imooy; (2) . . . the asons for granting in camera treatment and (3) . . . the reasonsfor t.he date on which in camera treatment expire See Commission Ru.!, 3.45(b). .. .. .. 536 Interlocutory Order for agency action. Finally, issuance of a permanent in camera order thewould also be inconsistent with Rule 3.45(b)(3), which requires camera order to include a full statement of the reasons for the date on which the in camera treatment wil expire. C. The Certified Order is Inconsistent With the FTC Act and Other Provisions of the Commission s Rules As already suggested, in addition to the legal problems posed under Rule 3.45 by an advance in camera procedure, the Commission believes that the certified order presents several other dificulties. (1) Requirements of the FTC Act Regarding Disclosure of Information to Congress The motion seeks an order specifying that VW AG documents be kept in camera throughout the entire proceeding and any related proceeding including an action brought to obtain consumer redress under Section 19 of'he FTC Act. The Commission has no authority, however, to refuse to respond to offcial requests from Congress for access to information or documents. See, e.g. Ashland Oil, Inc. v. FTC, 409 F.supp. 297 (D. C. 1976), aff'd 548 F.2d 977 (D. C. Cir. 1976). Its duties with respect to such requests are not altered by the confidentiality provisions of Section 21 of the FTC Act. See (15 D. C. 57b- 2(b)(3)(C) and 57b-2(d)(1)(A)) or the Freedom of Information Act (5 C. 552(c)). Section 21(b)(3)(C), provides:

Nothing in jSection 21) is intended to prevent disclosure to either House ofthe Congress or to any committee or subcommittee of the Congress Further, Section 21(d)(1)(A) provides that the provisions of Section 21(c) (regarding protecting the confidentiality of submitted materials) shall not be construed to prohibit the disclosure of information to either House of the Congress or to any committee or subcommittee These statutory provisions are reflected in Section 4.11(b) of'he Commission s rules.

Paragraph two of complaint counsel's proposed order, which specifies the limited circumstances in which VW AG' in camera materials may be disclosed, fails to take account of the Commission s legal obligation to disclose information upon offcial request of Congress. Thus, even if the Commission were to issue an in camera order to protect VW AG's materials, that order could not legally prohibit the Commission from disclosing in camera materials to Congress upon Interlocutory Order 103 F. receipt of an offcial request. Under both the statute and the rules, the Commission must notify a submitter of its receipt of such a request. (2) Disclosure of Information to Federal and State Law Enforcement Agencies The certified order also does not take account of the Commission authority, at its discretion and under strict conditions of confidentiality, to share company-submitted materials with state and federal law enforcement agencies for offcial law enforcement purposes. Specifcally, under Sections 6(D and 21(b)(6) of the FTC Act, 57 U. C. 46(0 and 57b-2(b)(6), the Commission has discretion to respond to requests from state and federal agencies and to provide them access to confidential, company-submitted information upon the prior certification + * * that such information wil be maintained in confidence and wil be used only for offcial law enforcement purposes. The Commission s procedures for responding to offcial requests from state and federal agencies are contained in Section 4. 11(c) of the Commission s rules. The certified order does not address the issue whether in camera materials may be shared with federal and state agencies under the authority of Sections 6(1) and 21, and, therefore it must be construed to preclude such action. Although the statute does not require the Commission to provide information to state and federal agencies as it does with respect to Congress, the Commission has engaged in such information-sharing routinely, and Section 4.6 of the Rules declares the practice to be a matter of Commission policy. While the Commission may waive its discretion to share information with state and federal law enforcement agencies in particular instances, it is reluctant to issue a general waiver. A general waiver could place the Commission in the position of having to deny, without exception, all requests from such agencies as, for example, the Internal Revenue Service and the Department of Justice, or to deny state attorneys general access to information not readily obtainable in this country but not having any peculiarly sensitive financial or commercial significance. In addition, issuance of a general waiver based on factors such as the interest of a foreign government could create precedent from which departure could become increasingly diffcult. There m.ight also be pressure toextend the precudent as domestic firms scek a level ofpmtcctiOIJ comparable to that enjoyed by comprmies with foreigu connections Two decisions following the 1980 amendment. to the prc Act resulted from company effort to curb the Commission s information-sharing activities with sUote attorneys general: Jaymar-Ruaylnc. v. FT, 496 F.Supp. 838 (N.D. lod. 1980), affd 651 F.2d 506 (7th Cir. 1981); Flemming v. FTC:CCH 1980-1 Trade Cas- Ii 63642 (D. C. 1980),affd 670 F.2d 311 (D,C. Cir. 1982), (also its companion cage Milton Bradley, Inc.v. FTC). TheBe caSCB were preceded by lnterco, lne. v. FTC, 490 F.Supp. 39 (D. C, 1979), and Martin Marietta Corp. rrc 475 F.supp. 338 (D.nc. 1979), affd, No, 79-1781 (D,C. Cir. May 27, 1980) .. .. , , 536 Interlocutory Order (3) Requirements Of The FTC Act Regarding Return of Originals and Copies Of Submitted Material a. Originals The motion also seeks an order providing that in camera documents, presumably originals, be returned at the end of the proceedings.3 Two statutory provisions govern the Commission s authority to return documents obtained and used in connection with a law enforcement proceeding: First, Section 21(b)(5) of the FTC Act, 15 U. 57-2(b)(5), provides in relevant part:

Ifanydocumentary material'" .. .. (has) been produced in the course of any investigation .. .. .. and (A) any proceeding arising out of the investigation has been completed then the custodian shall, upon written request of the person who produced the materi- , return to the person any such material which has not been received into the record of" any such proceeding . (Emphasis added), See also Commission rule 4.12(a).' Second, the Federal Records Act requires federal agencies to "make and preserve records (which reflectJ the organization, functions, policies decisions procedures and essential transactions of the agency " 44 UB.C. 3301 (emphasis added). Accordingly, when a proceeding is complete, the FTC Act requires the Commission, upon receipt of a written request, to return all original documents produced in the course of the investigation except for materials placed in evidence and received into the record of the proceeding. Such materials provide the bases for Commission decisions and may not be returned to submitting parties pursuant to the Federal Records Act. See 44 UB. C. 3101. Material placed in camera wil be retained in camera pursuant to Rule 3.45(b). The certified order provides for return ofVW AG's documents stating that materials wil be returned "to the degree permitted by the laws of'he United States " As wil be discussed below, the order is too broad because it appears to cover copies of in camera documents generated by or on behalf of complaint counsel and it might also be read as extending to internal Commission documents generated by or on behalf of complaint counsel containing in camera information. :J The motion does not distinguish between the return of originals add copies, but because the legal standards are somewhat different, we make that distinction here . Commission Rule 4. 12(a) states in part:

Any person who has submitted documentary material to the Commis ion " " " may obtain, on request, the return of material submitted to the Commission which has not been received into evidence , Interlocutory Order 103 F. b. Return Of Copies Of In Camera Materials Several provisions of the FTC Act and the Rules of Practice authorize the Commission to copy and retain copies of materials submitted in the course of its investigations. Vnder Section 21(b)(3)(B) of the FTC Act, 15 C. 57b-2(b)(3)(B), the custodian of submitted materials may prepare such copies of the documentary material * * .. as may be required for offcial use." Similarly, under Section 21(b)(5), 15 C. 57b-2(b)(5), the Commission is required to return materials not received into the record of a proceeding " other than copies of such materials made by the custodian " (Emphasis added.) In addition to these provisions of the FTC Act, certain copies of documents must be maintained under the Federal Records Act if, as explained above, they are considered "appropriate for preservation. " 44 C. 330l. The requirements of'he Federal Records Act are reflected in Commission Rule 4.12(c), which states that after a Commission proceeding is complete, Commission staff will examine an submitted documents and Commission-made copies " .. .. and will determine pursuant to the Federal Records Act, 44 D. C. 3301 , which documents are appropriate for preservation as evidence of the organization, functions, policies, decisions, procedures, operations or other activities of the Commission because of the information value of data in them.

Thus, the Commission has no authority under the Federal Records Act to return all copies of documents which reflect certain decisions procedures or transactions of the FTC.

As already explained, original documents that are made part of'he administrative record may not be returned because of' the Federal Records Act. If copies of the documents are introduced into evidence perhaps to avoid permanent Commission custody of original documents such as contracts and the like, these copies must be retained. Finally, if copies of the materials or portions of information derived from them are incorporated into or attached to internal Commission documents such as memoranda recommending issuance of complaints in related matters or subsequent actions against VW AG for consumer redress, these copies too would have to be retained. Beyond these circumstances, however, the Federal Records Act and Rule 4. 12(c) do not restrict the Commission s authority to return documents. As already noted, the FTC Act provisions permit the Commission to make and retain copies. They do not, however, require that it do so. Nevertheless, the Commission has declared in Rule 4. 12(b) that it wil not return to the submitter copies of documents made by the Commission unless upon a showing of extraordinary circumstances, the Commission determines that return would be required in the public interest. (Emphasis added. 536 Interlocutory Order The certified order does not address the issue of return of copies of VW AG' in camera materials. Copies are mentioned in the certified order only in Paragraph 5 which requires staff to "destroy personal copies of in camera documents and information Presumably, this clause may be construed as prohibiting the Commission from retaining copies of VW AG's materials. The present case may yet present nextraordinary circumstances" within the meaning of Rule 12(b) under which the Commission may determine that it is in the public interest to return all copies of in camera documents except those which must be maintained under the Federal Records Act. The Commission, however, has long guarded its prerogative to retain copies of documents for use in future activities associated with its missions and not necessarily connected with the investigation or proceeding in which the documents were obtained. See United States u. Morton Salt, Co. 338 U.S. 632 (1950).

(4) Requirement for Destruction of Copies of Documents The certified order requires complaint counsel to destroy all personal copies of in camera documents and information and mandates destruction of all notes, memoranda or other papers containing information derived from in camera materials. This provision is unnecessary. Assuming the Commission did issue an in camera order, any personal copies of in camera materials would be examined by staff after this proceeding is over and any related administrative or judicial actions and appeals are complete. Materials would be retained as required by the Federal Records Act pursuant to Commission Rule 12(c) or returned to VW AG under Commission Rule 4. 12(b). Any camera materials contained in notes or memoranda would be protected against disclosure under Exemption 3 of the FOIA, pursuant to Exemption 21(1) of'he FTC Act and Rule 4. 1O(d), as explained above. 5 Seedis \1!ision infra at 15 regarding destruction ofcapie!! of documents " The certified order does not mention the protections of the Freedom of Infonnation Act 5 D. C. 552. The parties should note that under applicable laws and the Commission s rules, any originals or copies inof camera documents received into the rt con! of a proceeding and any other copies required to be preserved in the Commission s custody under the Federal Records Act wil be kept confidential and protected from disclosure under the FOlk Specifically materials would be exempt from mandatory public di!'closure under the Exemptiun 3 of lhp. Freedom ofinformation Act, 5 U.S.C. 552(b)(3)(B), and Section 21(1) of the FTC Ad, which !'states that materials received in an FTC investigationin ponse to compulsory process, or voluntarily in lieu thereof; shall he exempt under the FOIA. Although under the FOIA and Section 21(1), the Commission has discretion to make public materials that are simply exmnpt from mandatory disclosure, under Rule 4- 1O(d) of its rnles, the Commi sion has waived this discretion for materials received in a law enforcement investigation that have been marked confidential by their submitter.

7 Exemption 5 ofFOIA also protect. from disclosure staffs analysis of company submitted materi.i!s contained in notes and memoranda, but only to the extent the analysis does not reveal company-submitted information. Although it is Commission policy to favor discretionary relea e of such portions of internal memoranda after a fie has been closed for three years, this policy i based on a rebuttable presumption that these materials are no longer sensitive, a presumption that might be inapplicablein the instant case. 544 FEDRRAL TRADE COMMISSION DECISIONS Interlocutory Order 103 F. D. Modified Order As discussed above, the Commission believes that complaint counsel's motion and proposed order as certified present a number problems. The Commission considered modifying the certified order so as to avoid inconsistencies with applicable laws and Commission rules, but it could not determine what objections might be raised to the modifications without affording the parties an opportunity to show cause why the order should not be modified. Following that procedure would further delay the proceedings in this case. Moreover any advance in camera order would require the Commission to waive the requirements of Rule 3.45. Accordingly, the Commission determined to order the parties to enter a depository arrangement, on terms to be negotiated between them, whereby complaint counsel may examine the documents and information without the Commission s taking custody of VW AG's materials. The principal advantage to this procedure is that it wil allow discovery to proceed, at least through an initial phase, without further delay. Accordingly, it is hereby ordered that: 1. Complaint counsel and counsel for VW AG enter a depository arrangement, on terms to be negotiated, whereby complaint counsel may view VW AG documents in possession of the German Foreign Offce which are responsive to discovery in D. 9154 without prejudice to either party s right to petition for an in camera order for specific documents to be copied and taken into Commission custody and/or introduced into evidence;

2. In viewing the relevant documents, complaint counsel be permitted to take whatever notes are necessary to participate fully in the viewing of such materials and that such notes be withheld from public disclosure under Exemptions 3 and 5 of'he FOIA , and not otherwise provided to persons outside the Commission except as required by the laws of the United States;

3. Except as provided herein or by order of the ALJ or the Commission, VW AG documents will not be photocopied or at any time taken into the custody and possession of the Commission; 4. Following the depository stage of discovery, complaint counsel and respondent shall designate whatever documents are to be copied, placed in the custody of the Commission and/or introduced into evidence; and 5. The documents designated pursuant to paragraph 4, or copies thereof; shall be delivered promptly to complaint counsel, but nothing in this order shall be read to preclude either party from seeking from the ALJ an appropriate in camera order for these documents that is consistent with United States law. Similarly, the ALJ is not precluded 536 Interlocutory Order from certifying further requests for extraordinary in camera protection to the Commission but is directed before doing so to require full briefing on issues discussed herein that are presented in such future requests.

Complaint 103 F.