FTC commissioner Julie Brill (Photo: Diego M. Radzinschi / NLJ)
It’s not just Las Vegas where the house always wins.
For nearly two decades, the Federal Trade Commission has come out on top in every administrative lawsuit involving allegations of unfair methods of competition — a winning streak now being challenged by lawyers and members of Congress, who question whether the forum is fair.
The latest skirmish came on Christmas Eve, when Commissioner Julie Brill agreed to recuse herself in a pending case involving medical testing company LabMD Inc.’s patient information data-security practices.
The “FTC’s administrative process appears to be rigged against respondent,” argued the company’s counsel from Dinsmore & Shohl and Cause of Action, a nonprofit government accountability group. Brill’s “public statements show she has prejudged the facts of LabMD’s case,” they said, citing pretrial speeches that included references to the company.
Brill, a Democrat with a reputation as a tough public interest advocate, said the motion to disqualify her was “without merit,” but agreed to step aside to avoid “an undue distraction.”
In another pending case involving anticompetitive conduct in the iron pipe fittings market, the FTC’s four politically appointed commissioners are now weighing whether to reverse a 464-page decision by the agency’s chief administrative law judge. The judge, D. Michael Chappell, in a split decision found in favor of pipefitter McWane Inc. on a crucial point. If the commissioners allow the decision to stand, it will be the FTC’s first loss in such a case since 1995.
Concerns about the FTC’s administrative process have percolated up to members of Congress as well. “With this kind of record and an unbeaten streak that Perry Mason would envy, a company might wonder whether it is worth putting up a defense at all,” said House antitrust subcommittee chairman Spencer Bachus (R-Ala.) during a November 2013 hearing.
FTC Commissioner Joshua Wright, who has bluntly criticized aspects of the process, agreed. Most companies facing an in-house FTC trial opt to settle “rather than going through lengthy and costly administrative litigation in which they are both shooting at a moving target and have the chips stacked against them,” he wrote in a recent antitrust journal article.
Still, the FTC does not have the final word — agency decisions can be appealed to the relevant federal circuit courts of appeals. But according to Wright, a Republican who was previously a professor at George Mason University School of Law, ” The FTC’s own decisions are reversed by federal courts of appeal at a much greater rate than those of generalist district court judges with little or no antitrust expertise.”
A Federal Trade Commission spokesman declined to comment on the agency’s administrative litigation because it is at issue in the pending LabMD suit.
The ability to bring complex administrative cases was “a founding purpose” of the FTC, said D. Bruce Hoffman, a former FTC senior official who now heads the global competition practice at Hunton & Williams. “It’s not something the commission has taken onto itself. It’s supposed to be a very important part of its role.” But he added that the “track record of unbroken losses for respondents is not encouraging.”
Part of the problem lies in the statute itself, which calls for the FTC to act as both prosecutor and judge. The commissioners vote to sue a company for suspected misconduct, and the case is heard by an administrative law judge — proceedings similar to a bench trial in federal court. Either side can appeal the judge’s decision to the commissioners, who conduct an all-new review of the facts and law and issue a final decision.
Over the past 19 years, when a judge has found for the FTC, the commissioners have upheld the decision. But when the judge found for the respondent, the commissioners have overruled the decision in the FTC’s favor, according to David Balto, a public interest antitrust lawyer and former FTC official.
One of the most notable missteps came in a case against Rambus Inc. involving standard-setting patents. After a massive trial, administrative law judge Stephen McGuire in 2006 dismissed all the charges. The commissioners reversed his decision, finding that Rambus unlawfully monopolized markets for computer memory technologies — only to be reversed in turn by the U.S. Court of Appeals for the D.C. Circuit in 2008.
In the LabMD case, lawyers argue that the commission has prejudged the case. “The outcome of this administrative proceeding is a foregone conclusion,” said Reed Rubinstein, a partner at Dinsmore & Shohl, in an interview. Rubinstein and co-counsel Michael Pepson of Cause of Action on Dec. 23 asked the U.S. Court of Appeals for the Eleventh Circuit to stay the FTC’s case “to allow for judicial review of the FTC’s conduct.” They also filed a motion with the FTC seeking to disqualify Brill.
Brill in speeches “called out LabMD by name as the leading example of companies FTC challenged for ‘fail[ing] to properly secure consumer information,’ ” they wrote, adding that “ Commissioner Brill said these things about a hotly contested high-profile case pending before her without using words like ‘allegedly.’ ” (Emphasis in the original.)
Brill in a statement said the “only specific reference to LabMD in the two speeches is in the footnotes, which were provided to point readers to supporting documents and resources … [T]he speeches contain no evidence that I had made up my mind about specific factual or legal issues in this case.” She agreed to recuse herself to avoid creating “an undue distraction from the important issues raised in the Commission’s administrative complaint against LabMD.”
The FTC’s winning streak will be put to the test later this month, when the commissioners are set to rule on the McWane case. During arguments before the commissioners in August, Baker Botts partner Joseph Ostoyich argued that the judge correctly found that his client did not collude to fix prices.
But the transcript of the argument makes it clear that Ostoyich, who declined comment, had a much harder time of it than FTC lawyer Edward Hassi. He got out just 10 sentences of his opening before he was interrupted — more than 90 times in the next 45 minutes — with questions from the commissioners. Hassi spoke more than 65 sentences without interruption, and he fielded less than half as many questions, about 40.
Ostoyich pleaded with the commissioners to accept the judge’s findings. “At the end of the day, 6,000 pages of transcript, 25 days of courtroom time, thousands of exhibits, the judge wrote the opinion he did,” he said. “The question is, is there a principal basis for disregarding the person you sent it to, at summary judgment, to make the determinations he made?”
He added, “Do we have a process that makes sense?”
Contact Jenna Greene at email@example.com.