At the recent ABA Annual, FTC Commissioner Rosch addressed the FTC’s role as both prosecutor and judge. He focused on three issues: the standard the FTC applies when voting out a complaint, the standard the FTC applies when it reviews decisions of administrative law judges, and whether it is unseemly to have the FTC occupy both these roles. His comments outlined below may help parties arguing matters before him and potentially other like-minded Commissioners.
First, Commissioner Rosch said the FTC applies the “reason to believe” standard when voting out complaints. If there is a “reason to believe” unlawful behavior is occurring, the FTC sues. While his remarks focused on filing antitrust complaints, the same “reason to believe” standard is applicable when the Commission determines whether to challenge an unfair or deceptive business practices under Section 5(b) of the FTC Act. Personally Commissioner Rosch said he first asks whether the Bureau has enough evidence such that he can form a “reason to believe” that further investigation may as a factual and legal matter demonstrate liability. Next, he asks if there is a sound legal basis for the FTC’s theory. Lastly, he asks if pursuing litigation is in the “public interest.” Commissioner Rosch advises parties to put more emphasis on the public interest question because the FTC will not pursue actions where the harm to consumers is minimal, where it would be a poor use of the FTC’s finite resources, or where the FTC will not be establishing an important proposition of law.
As to its appellate review role, Commissioner Rosch explained that the Administrative Procedures Act requires the FTC to conduct a de novo review of an administrative law judge’s (ALJ) findings of law and fact. Commissioner Rosch is less enamored of de novo review when the FTC reviews an ALJ’s finding of fact, particularly when the issue involves . witness credibility since the ALJ sees the witness live and the FTC does not. In addition, Commissioner Rosch believes that reversing an ALJ’s finding of fact only gives more ammunition for appellate courts. Rightly or wrongly, he believes that the appellate courts’ deference to the FTC’s finding of fact is “bound up” with their assessment of whether the FTC correctly analyzed the question of law. When the courts agree with the FTC’s legal analysis, they faithfully apply the substantial evidence standard. When they do not agree, the FTC’s finding of fact get very little deference. Thus, as a strategic matter, Commissioner Rosch does not think it is wise to reject an ALJ’s factual findings.
In discussing whether there may be something untoward about the FTC having both prosecutorial and judicial roles, Commissioner Rosch commented on the history of judicial challenges to the FTC’s authority. From the creation of the FTC in 1914 until the passage of the Administrative Procedures Act in 1946, no one questioned housing both roles within the FTC. The Act created independent administrative law judges and required agency employees conducting investigations to have no part in the ALJ’s decision-making process. Two recent due process challenges in which Commissioner Rosch was asked to serve as the ALJ, both involving FTC challenges to mergers (Whole Foods/Wild Oats and Inova/Prince William) were dropped before a decision on the claims was reached.
After the Act passed, however, parties have also challenged the structure on due process grounds. The Supreme Court has, up until recently, consistently upheld the constitutionality of Congress’s creating of independent agencies under separation-of-powers challenges, so long as the President nominates and the Senate confirms the principal officers, with the caveat that Congress may constitutionally limit the President to a good cause removal power. However, the tide may be turning with the Supreme Court’s recent decision in Free Enterprise Fund v. Public Company Accounting Oversight Board. In that case, the SEC Commissioners, under authority granted to it by the Sarbanes-Oxley Act, appointed members to the Public Company Accounting Oversight Board (PCAOB) who were only removable by the SEC Commissioners, not the President, for good cause. The Supreme Court held that the removal provisions were unconstitutional because it “added a layer of tenure protection” between the President and the PCAOB and the PCAOB was effectively insulated from the President’s authority. Whether the Supreme Court will revisit the independent agency structure is uncertain, but for now, Commissioner Rosch believes that the FTC’s roles as prosecutor and judge not only finds constitutional support, but is the optimal structure in prosecuting antitrust and consumer protection cases and that the FTC receives more than sufficient supervision from all three branches of the government.
- Randy Shaheen and Chester Choi
