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STATEMENT OF KENNETH PERRY, VICE PRESIDENT, JOHNSON &

JOHNSON, NEW BRUNSWICK, N. J.

Mr. PERRY. The purpose of this bill is to give the businessman his day in court. That court is to be the traditional common-law court, the district court of the United States in the district where the businessman has his business.

Under a creeping process of administrative encroachment, sustained by judicial legislation, the businessman has become restricted to a day out of court before his adversary. This adversary has previously investigated the businessman's conduct and found it suspect. Accordingly, he prosecutes the businessman for the accused conduct. As an advocate this adversary then adduces evidence which at the same time he hears as a jury. Next he finds the facts with respect to this conduct. Finally, on the basis of these proceedings, as a judge, he orders the businessman with respect to present and future conduct.

The businessman does not like it. He has the uncomfortable feeling that he is not sure of getting a square shake from an adversary who is investigator, prosecutor, jury, and judge all in one. It strikes him as an unholy quadrumvirate.

Kenneth Culp Davis of the University of Texas School of Law has just published some significant comment on this situation in the February and March issues of the Harvard Law Review in an article entitled "Separation of Functions in Administrative Agencies." He states:

Perhaps the strongest reason for complete separation is the widespread belief, whether or not misguided, that combined functions in the same agency is unfair despite internal separation

After all, when special students of the subject-the President's Committee on Administrative Management, and the minority of the Attorney General's committee--have assumed or found internal separation an insufficient protection, interests adversely affected by the Board's activities may very naturally develop a deep conviction that the system of organization is pernicious. So long as detached and informed opinions differ as to what is justice, one objective in a democratic society is to appear to do justice. That ideal remains unrealized so long as significant groups, whether or not misled, firmly believe that justice is denied.

The “significant groups” who firmly believe that justice is denied include not only the businessmen, the President's Committee on Administrative Management, and the minority of the Attorney General's committee, but law professors, former agency heads, circuit court judges, distinguished Congressmen, and similar thoughtful, siisinterested citizens.

We are asked why these groups are not satisfied with the remedies provided by the Administrative Procedure Act. The answer is that the act fails to provide the day in court; it simply places certain restrictions on the adversary, who continues to be investigator, prosecutor, jury, and judge. It does not provide for a complete separation of the investigatory and prosecuting functions on the one hand and the finding and decisional functions on the other. It is a step in the right direction, but it does not go near far enough so far as the Federal Trade Commission is concerned.

We are not dealing with a licensing agency such as the Interstate Commerce Commission or the Federal Power Commission, or with a claims agency such as the Social Security Board, the Veterans' Administration, or the Railroad Retirement Board. We are dealing rather with the private rights and properties of private individuals in adversary proceedings that have been for time immemorial the subject of protection and limitation for use by the courts.

A procedure that may be appropriate for the FCC, CAB, ICC, FPC, SSB, VA, or RRB, may be totally inappropriate for the Federal Trade Commission. Addressing himself to this point, Mr. Davis says:

The first step in any sound analysis is to recognize that broadside condemnation or approval of combination of functions is likely to be the product of ignorance. The next step is to appreciate the need for highly particularized solutions. Generalizations which are sound for one type of activity may be nonsense for another. Each kind of combination must be examined not in the abstract or in general, but in the context of a particular administrative activity.

Some generalizations may be permissible, such as that one who is truly an advocate should never be allowed to participate in judging. But more often a greater particularity is requisite. Combination of investigation with judging may be bad in such prosecuting agencies as the NLRB, and FTC, but it may be harmless and even affirmatively desirable in claims agencies which are as much interested in making payments to the deserving as in withholding payments from the undeserving—the Veterans Administration, the Social Security Board, the Railroad Retirement Board.

He quotes from the President's Committee on Administrative Management:

The temptation for the Federal Trade Commission to decide that it has proved its own case must be very strong, and the businessman not unnaturally resents having his rights settled by an “interested" tribunal.

The Administrative Procedure Act provides for a degree of internal separation of functions. Since it was adopted for all agencies, the overwhelming majority of which are of the character of the FCC, CAB, ICC, FPC, SSB, VA, and RRB, it rejected complete separation.

Congress has already given separate consideration, however, to an important adversary agency for which it considers thé Administrative Procedure Act not appropriate and inadequate because it does not provide a sufficient degree of separation of functions. I refer to the Labor Management Relations Act (Taft-Hartley law). In this instance on a basis of selectivity and studying the operation of the National Labor Relations Board, Congress found that a greater degree of separation was required. Congress separated the investigating and prosecuting functions on the one side from the finding and deciding functions on the other.

The present bill proposes complete separation with respect to a single agency. The proponents of the Administrative Procedure Act did not reject this notion. They were not considering the best individual solution for a particular agency,

They sought a pattern to be applied generally but not exclusively. Some agencies they exempted from the coverage of that act, as totally inappropriate. In passing the Administrative Procedure Act, Congress must have had in mind the need later to deal more selectively with particular agencies, just as it has done in the instance of the National Labor Relations Board. The Attorney General's Committee on Administrative Procedure reported in part:

There are, however, some agencies such as the Federal Trade Commission and the National Labor Relations Board whose principal duty is the enforcement by decision of cases, of certain statutory prohibitions.

It is undoubtedly true that agencies whose only substantial task is that of enforcing the prohibitions of a statute through adjudication, especially in such controversial fields as that of unfair methods of business competition and labor

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relations, are peculiarly in danger of being charged with bias by those against whom the prohibitions are sought to be enforced.

Is it any wonder that an agency is "peculiarly in danger of being charged with bias by those against whom the prohibitions are sought to be enforced” when the minority report of the Attorney General's committee stated quite properly:

Hearing and deciding officers cannot be wholly independent so long as their appointments, assignments, personnel records, and reputations are subject to control by an authority which is also engaged in investigating and prosecuting.

How much stronger would be this protest if the "deciding officers,” as in the case of the Federal Trade Commission, are found coupled not with the “finding” officers but rather with the “investigating and prosecuting. The Commissioners of the Federal Trade Commission make the decision in the last instance, either in accordance with or in spite of the recommendations of the examiners.

While it is true that under the Administrative Procedure Act the decision of the Federal Trade Commission must be based on evidence that is “reliable, probative, and substantial,” the Trade Commission is not bound by rules of evidence, it may admit hearsay and even evidence that is incompetent, irrelevant, and immaterial.

Some of the Commission may feel that the Administrative Procedure Act has made no substantial change in the quality of evidence that may be received. I refer to the dissenting opinion of Commissioner Ayres in the matter of Grocery Distributors Association of Northern California et al. and his citation there of cases supporting the old rules.

Under the Supreme Court edict that the findings of the Federal Trade Commission are final and binding if supported by substantial evidence, the Commission need not balance the evidence. It can pick the evidence it prefers and it can choose to rely upon that particular evidence. It is not forced to find the preponderance of evidence as is the district court.

From long experience and practice before ascending the bench, the district court judge has been schooled to establish his case by the preponderance of evidence.

As a judge, he is well aware of the need to sift, screen, and weigh the evidence and find for the preponderance; for he suffers the embarrassment of a reversal on appeal if he fails to do so. The Trade Commission is not compelled to any such refinements.

Similarly, in reaching its conclusions the Trade Commission will draw such inferences as it thinks appropriate. One thing that has always irked me is the alleged special aptitude and skill of the Commission in determining the effect of a commercial representation upon "the careless, ignorant, illiterate, or foreign-born." For the life of me, I can't find basis for any such aptitude or competence for this in a Commissioner. It's never explained to us in an opinion that might be illuminating. There's no corner on common sense.

Possibly it is the result of the demand upon the judge to sift, screen, and weigh the evidence and base his decision on the preponderance that has resulted in the fact that traditionally the judge renders an opinion, advising the litigants and the rest of the world how he arrived at his decision. This is an important element in doing justice, as it explains to the loser how he lost, and it forms some guidance for the future conduct of all. This opinion must meet the test of satisfying the litigants, the court above, and the public that the judge has thought through his decision.

Unfortunately, we have no such standard of traditional procedure in the Commission. It has only been with the advent of Commissioner Mason that we are now beginning to receive regularly a few opinions, but then only as a rule in instances where the Commissioners have not been able to agree among themselves.

On the question of special competence of the agency over a court, at this very time this very Congress is giving similar consideration to a similar situation existing in the tax laws. I refer to another instance of judicial legislation, the Dobson rule of the Supreme Court. This rule provides in substance that the findings of fact of the Tax Court, formerly the Board of Tax Appeals, are binding upon the circuit courts on appeal if supported by evidence. This rule has been as irritating to the circuit courts as has been the comparable Supreme Court edict that findings of the Federal Trade Commission are final and binding upon the circuit courts if supported by evidence.

The big difference is that the businessman even now may have his day in court on taxes, whereas he may not now have his day in court on business practices.

In the case of taxes he has an election of procedure: He may refuse to pay his tax and appeal the Commissioner's deficiency assessment to the Tax Court, with its Dobson rule; or he may pay his tax and sue for refund in the district court, without any Dobson rule.

There is no method, however, by which he may get into the district court to try an issue forced upon him by the Federal Trade Commission. Even so, the Ways and Means Committee has just adopted the proposal of the Joint Committee Staff on Internal Revenue and of the Treasury Department that the Dobson rule be abandoned, whereafter there will be no greater degree of finality to decisions of the Tax Court than to decisions of the district court.

It has always been difficult for me to understand why the decisions of the Tax Court should have any greater degree of finality than the decisions of the district courts. Though there are 16 judges of the Tax Court, only 1 of them as a rule hears the testimony. The other 15, or a majority of them, may decide against the 1 who heard the case.

Apparently the Joint Committee Staff on Internal Revenue and the Treasury Department and the House Ways and Means Committee are all of the opinion that the decision of the Tax Court should not have any greater finality than the decisions of the district courts.

What possibly can be said then for granting greater finality to the decisions of the Federal Trade Commission, based as they may be on a lesser measure of proof, qualitatively and quantitatively, than the comparable decisions of the district court! We must bear in mind, moreover, that the Tax Court is not an adversay; the adversary is the Commissioner of Internal Revenue, and the Tax Court is a court of record that is independent of control of the Commissioner; whereas the FTC is the adversary itself.

This bill has ample precedent. I have mentioned the special treatment accorded the division of functions under the National Labor Relations Act as amended by the Labor Management Relations Act. I have mentioned the present disposition of the Ways and Means Committee and the Treasury Department and the joint staff of the House and Senate on the Dobson rule.

Finally, I believe that the agency most nearly paralleling the Federal Trade Commission in function and character is one where there is a complete separation of functions. I refer to the Food and Drug Administration.

It has been suggested that the distinction between the Federal Trade Commission and the Food and Drug Administration is that the latter is concerned with enforcement of the criminal law. It is no more concerned with enforcement of criminal law than is the Federal Trade Commission. Both have jurisdiction over conduct that is criminal in character. Both, however, concern themselves primarily with civil restraint of this conduct.

While I have made no actual check of the Food and Drug cases, from an experience of following their releases over a period of 15 years I venture the estimate that not more than 1 case out of 25 and possibly not more than 1 out of 50 brought by this agency is a criminal proceeding.

Its customary procedure is, for example, by libel in a United States district court in an action in rem against a product. Not only are these proceedings not criminal, but they are not even adversary in the sense of being against an individual or a company. The seized product is simply condemned and destroyed unless someone comes forward to claim and defend it.

If someone comes forward to claim, the Food and Drug Administration prosecutes the charge of adulteration or misbranding, but the district court where the product was seized finds the facts and decides the issue. The burden of proof is on the Food and Drug Administration, and the party claiming the product is entitled to his day in court as in any other district court proceeding.

It is frequently stated that the Commissioners of the Federal Trade Commission have acquired a special competence in unfair competition and unfair and deceptive practices in business.

I suggest that the members of the staff of the Food and Drug Administration must acquire a more difficult and uncommon competence in the field of drugs and medicine. Still the Food and Drug Administration, with great credit to itself and almost universal satisfaction to the drug industry has been able to secure to the citizens the benefits intended by Congress in the Food, Drug, and Cosmetic Act of 1938.

I suggest further that it may be because of, rather than in spite of, the need to try its issues in the district court that the Food and Drug Administration is so firmly established in public opinion. No doubt the need to be right by a preponderance of the evidence in the eyes of the court is a firm restraining influence upon that Administration, but it leaves little room for the loser to feel aggrieved.

I see no reason why this bill would interfere with continuance of the informal settlement practices of the Commission. This will continue to account for a great majority of Commission cases. Looking back at some 12 or 15 issues that I have had before the Federal Trade Commission, I can think of only 2, and possibly 1 only, that I was unwilling and would still be unwilling to dispose of by simple stipulation or affidavit. In one of those issues, however, I would most fervidly hope that I might have the benefit of finding and decision by a district court of the United States.

From what I have said, it might be inferred, erroneously, that I am antagonistic toward the principle of the Federal Trade Commis

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