Part III Adjudication

• Pages: 187-226

187

CHAPTER VI

PART III ADJUDICATION

A. Separation of Functions

A key difference between the Antitrust Division of the United States

Department of Justice (Antitrust Division) and the Federal Trade

Commission (FTC or Commission) is the availability of administrative

adjudication at the FTC. The FTC’s adjudicative functions are governed

by Section 5(b) of the FTC Act,1 the Administrative Procedure Act

(APA),2 and Parts 3 and 4 of the FTC Rules of Practice (FTC’s Rules or

Rules).3 The Federal Rules of Civil Procedure and the Commission’s

Operating Manual4 also provide guidance.

Adjudicative proceedings are often described as “Part III” matters.

Part III adjudication tracks federal court procedures in many respects.

The process begins once the Commission votes to issue an administrative

complaint.5 A significant difference from federal court, however, is that

the adjudicative function is carried out by the same agency that

investigates and prosecutes the alleged violation.6 In order to preserve

the impartiality and independence of decision makers, the APA prohibits

any employee engaged in the investigation or prosecution of a matter

from participating in the decision or agency review of the matter.7

Additionally, the FTC’s Rules strictly regulate communication within the

agency and with nonemployees regarding Part III matters.

1.

Ex Parte Communication

Once the Commission issues the complaint, the investigative and

prosecutorial functions separate from the decisional process. Ex parte

rules require that any “employee or agent of the Commission who

1. 15 U.S.C. § 45(b).

2. 5 U.S.C. § 554.

3. 16 C.F.R. §§ 3.1.-3.72, 4.1-4.7. These regulations specifically apply to

adjudicative proceedings.

4. FTC, FTC OPERATING MANUAL § 10 (1997) [hereinafter FTC OPERATING

MANUAL].

5. 16 C.F.R. § 3.11A.

6. 5 U.S.C. § 554.

7. 5 U.S.C. § 554(d).

188 FTC Practice and Procedure Manual

performs investigative or prosecuting functions in adjudicative

proceedings” is prohibited from any ex parte communication with

commissioners, the Office of General Counsel, the administrative law

judge (ALJ), or other employees involved in the decisional process.8

Rule 4.7 also prohibits the ALJ, commissioners, and any employee

involved in the decisional process from engaging in ex parte

communication with anyone outside the Commission or with

Commission employees involved in the investigative phase of the

pending litigation.

The ban on ex parte communications applies only to the merits of the

proceeding not on the public record. Agency employees may comment

on the pending litigation as long as the comments are limited to subjects

on the public record, such as the complaint. In practice, however,

commissioners and their attorney advisors usually avoid even casual

discussion of a matter with those members of the Commission who are

on the other side of the wall once the matter enters the adjudicative

process. Letters sent to individual commissioners from third parties

regarding a matter in administrative litigation are placed on the public

record by the Office of the Secretary.

In the event of an ex parte communication, the agency employee

must provide all written communication to the Secretary of the

Commission. If the ex parte communication is oral, the employee is

required to submit a memorandum stating the substance and

circumstances of the prohibited communication to the Secretary.9 The

Secretary will then put the relevant portions of the ex parte

communication on the public record, though the communication will not

become part of the record for purposes of the Commission decision

unless introduced into evidence.10 If a party to the proceeding knowingly

makes or causes an ex parte communication, the ALJ may require the

party to show cause as to why its claim should not be dismissed or

otherwise adversely affected as a result of the violation.11 The

8. 16 C.F.R. § 4.7(b)(1).

9. Id. § 4.7(c).

10. Id.

11. Courts have found that ex parte communications do not invalidate the

Commission’s decision. An agency’s decision is voidable only if the

decision-making process was so irrevocably tainted as to make the

ultimate judgment of the agency unfair to an innocent third party or the

public interest. Sw. Sunsites, Inc. v. FTC, 785 F.2d 1431, 1436 (9th Cir.

1986) (citing PATCO v. FLRA, 685 F.2d 547, 564 (D.C. Cir. 1982)).

Part III Adjudication 189

Commission may also bar or suspend from practicing before the

Commission an attorney who knowingly makes or causes a prohibited ex

parte communication.12

2.

Office of the Administrative Law Judges

According to organizational Rules of the FTC, the Office of

Personnel Management both appoints and approves each ALJ.13 The

Chairman of the FTC designates the chief ALJ.14 As the first order of an

adjudicative proceeding, the chief ALJ designates an ALJ to preside over

the proceeding.15

The role of the ALJ is to conduct fair and impartial hearings.16 The

Commission’s Rules require ALJs to base their findings of fact and

initial rulings on legal conclusions that conform to Commission

decisions, policy directives, and Rules.17 In certain circumstances where

the ALJ lacks authority to act, Rule 3.42 authorizes the ALJ to certify

questions to the Commission for its determination18

3.

Complaint Counsel

Attorneys that represent the Commission in an administrative

proceeding are referred to as complaint counsel. While the Bureau

Director’s Office in the Bureau of Competition (BC) or the Bureau of

Consumer Protection (BCP) is responsible for determining the allocation

of resources for each matter, staff attorneys and bureau management that

12. 16 C.F.R. § 4.7(d) (citing 16 C.F.R. § 4.1(e)(2)). A nonparty to the

proceeding is subject to the same sanctions if he subsequently becomes a

party.

13. Id. § 0.14 . The Office of Personnel Management also regulates the pay

for ALJs. 5 U.S.C. § 5372. Adverse action against an ALJ may only be

taken for good cause as determined by the Merit Systems Board.

5 U.S.C. § 7521.

14. FTC Chairman Muris appointed Stephen J. McGuire as chief ALJ in

February 2003. See Mcguire Appointed Chief FTC Administrative Law

Judge, http://www.ftc.gov/opa/2003/02/mcguirestephenj.htm.

15. 16 C.F.R. § 3.42(b).

16. An ALJ may disqualify himself on his own initiative or be disqualified by

motion of a party. 16 C.F.R. § 3.42(g)(2).

17. Id. § 0.14.

18. Id. § 3.42(c). For a discussion of these circumstances, see part M.5 of

this chapter.