Antitrust, Vol. 24, No. 1, Fall 2009. © 2009 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be
copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
Practical and Strategic Considerations in
Litigating Under the FTC’s New Part 3 Rules
BY MICHAEL L. SIBARIUM AND JAY L. LEVINE
A
FTER ENDURING YEARS OF
criticism that its administrative adjudications
moved at a glacial pace, the Federal Trade Commission adopted revised final rules governing
the conduct of such proceedings—conducted
pursuant to Part 3 of the FTC’s Rules of Practice—effective
May 1, 2009.1
The new rules apply to all types of administrative cases litigated under Part 3, including antitrust conduct cases, consumer protection cases, post-consummation merger cases,
and challenges to proposed mergers that have not been consummated. The new rules (1) establish shortened time frames
for each stage of the litigation process, from the issuance of
a complaint through Commission decision; (2) increase the
probability that Part 3 cases will proceed simultaneously with
any related federal court challenge under Section 13(b) of the
FTC Act; (3) inject the Commission into the trial phase of
the adjudicatory process by reserving decisions in the first
instance on all dispositive motions; and (4) clarify or create
“default” rules for certain discovery practices and evidentiary
standards at trial.
This article examines how the changes may affect the
strategic and tactical decisions of parties litigating before the
Commission. In particular, our focus is on understanding
the interplay between the Commission’s increased role in
deciding critical pretrial motions, the expedited timeline
for administrative trials, and the impact of simultaneous
administrative litigation and federal court proceedings under
Section 13(b). While it may take years of experience with a
variety of cases before the full impact of the amendments is
evident, the authors draw on their recent experience litigating the post-consummation Evanston Northwestern Healthcare
(Evanston) case to predict how the new rules may influence
certain strategic choices counsel must make in representing
parties in Part 3 litigation.
Michael L. Sibarium and Jay L. Levine are partners in the Washington office
of Winston & Strawn LLP. Michael Sibarium was co-lead counsel for Evanston
Northwestern Healthcare Corporation in the FTC’s post-consummation challenge to its merger with Highland Park Hospital. Jay Levine was a member
of the litigation team. Luciano Racco, an associate at Winston & Strawn,
assisted in preparation of this article.
Background and Overview
The adoption of the new rules was the culmination of a rulemaking process publicly announced in Fall 2008, but previously foreshadowed by the Commission’s aggressive pretrial
stances in the recent Inova and Whole Foods cases. In each of
those cases, the Commission issued pretrial orders aimed at
expediting the administrative trial and exercising more control over the trial phase of the adjudicatory process.2 Indeed,
in Inova the Commission took the extraordinary step of
appointing a sitting Commissioner as the hearing officer for
the trial before the parties abandoned the transaction.3
We now know that Inova and Whole Foods telegraphed a
“broad and systematic internal review” of the FTC’s rules
aimed at formalizing and clarifying its ability to exercise
greater control of an expedited adjudicatory process. In
October 2008, the FTC issued proposed amendments to
Parts 3 and 4 of the Rules for public comment.4 The amendments also reflected an effort to more clearly delineate the
respective roles of the ALJs and the Commission in pretrial
matters. The Commission acknowledged a need to balance
the public interest in improving the quality of its decisionmaking processes, the interests of justice in the expeditious
resolution of litigated matters, and the interests of the parties
in litigating matters without compromising their due process
rights or imposing unnecessary expense.5 Time will tell
whether the new rules achieve the desired effect,6 and the
Commission has announced that it will reevaluate its rules on
an ongoing basis.7
The shortened time line from complaint through final
order was driven in large part by a concern that the Commission’s inability to promptly resolve, on the merits, antitrust
challenges to prospective mergers has had adverse consequences for all parties. Respondents frequently abandon
prospective mergers in the face of protracted Part 3 proceedings following the entry of a preliminary injunction (PI)
blocking a prospective merger in federal court.8 Similarly, the
Commission has recognized that delays in its adjudicative
proceedings have “contributed to the reluctance of some
federal courts to grant preliminary relief ” in merger cases.9
This concern is reflected in the shorter timelines established
for taking administrative cases from complaint to trial where
the FTC also seeks relief in a related federal action under
Section 13(b)—typically challenges to prospective mergers—
F A L L
2 0 0 9
·
3 3
C O V E R
and in the Commission’s new commitment to issue its opinion in such cases faster (one hundred days after initial decision) than in other cases (six months). The amendments otherwise largely provide a one-size-fits-all framework for Part 3
litigation.10
S T O R I E S
By accelerating all deadlines, the new r ules should
spur par ties toward more robust preparation for
litigation before the Commission issues an
The New Rules Require Earlier Preparation
for Litigation
By accelerating all deadlines, the new rules should spur parties toward more robust preparation for litigation before the
Commission issues an administrative complaint, particularly in matters where no parallel preliminary injunction proceeding is anticipated under Section 13(b).11 The new rules
follow previous amendments that were expected to “transform Part III litigation into a procedure faster by far than virtually any federal antitrust case,” but did not impose any
deadline on Commission decisions.12
Evidentiary hearings in cases where the Commission is also
seeking relief under Section 13(b) will now take place within five months after issuance of the administrative complaint,
while hearings in all other cases must begin within eight
months of the issuance of the complaint, although the
Commission retains authority to extend major deadlines for
“good cause shown.” 13 In order to accommodate this schedule, the new rules compress a number of typical pretrial deadlines:
䡲 Motions to dismiss filed before the evidentiary hearing
no longer toll the time to answer the complaint (Rule
3.22(b)), and the new rules do not provide for motions for
more definite statements at the outset of the case.
䡲 Respondent must answer the complaint within fourteen
days (previously, under the old rules, twenty days). Rule
3.12(a).
䡲 Respondents and Complaint Counsel must meet within
five days after the last answering respondent’s answer is
filed (previously, “as early as practicable”) to discuss prehearing procedures, including schedules for deposing fact
witnesses, producing documents, including production
of electronically stored information (ESI), expert discovery, and a preliminary estimate of the time required for
trial. Rule 3.21(a).
䡲 The first scheduling conference addressing these and other
pretrial issues must be held ten days after the last answer
is filed (previously 14 days). Rule 3.21(b).
䡲 Hearings are limited to the equivalent of thirty full trial
days, as opposed to simply “proceed[ing] with reasonable
expedition.” Rule 3.41(b).
From the parties’ perspective—and particularly a respondent’s in a case that the Commission is not also challenging
under Section 13(b)—the cumulative effect of these shortened deadlines is to increase the extent to which parties
should begin preparing for litigation before the Commission
issues the complaint. Although parties anticipating a related
federal court proceeding under Section 13(b) are already
under significant pressure to prepare for a preliminary injunc3 4
·
A N T I T R U S T
administrative complaint . . .
tion hearing on an even more expedited basis than a Part 3
hearing, such a hearing is not on the merits. The new abbreviated time frames may impact counsel’s strategies relating to
discovery, use of experts, staffing plans, and motions’ practice
in Part 3. Moreover, the Commission’s apparent intent to
move forward with administrative proceedings at the same
time as it pursues preliminary relief under Section 13(b)
introduces new dimensions of cost and complexity in each of
these areas, as discussed below.
Selection of Litigation Counsel. Prior to a Commission
vote to issue an administrative complaint or seek preliminary
injunctive relief, respondents are generally engaged in a
process of seeking to persuade staff and the Commission to
close an investigation. While it has always been prudent to do
so with an eye toward litigation if necessary, clients may be
reluctant to invest resources in preparing to defend against a
complaint that may never be filed.
For a variety of reasons, practitioners representing companies before the Commission may or may not ultimately
represent the company in any subsequent litigation. For
new counsel, catching up on months or even years of a
Commission investigation has always been a daunting task
and the expedited deadlines under the new rules only exacerbate the challenge. Companies and their counsel should
seriously consider identifying key members of the likely litigation team, authorizing them to get up to speed on the
background of the matter, and engaging them to begin
actively planning to meet the flurry of litigation deadlines
triggered by issuance of the administrative complaint.14 As
explained below, the Commission’s increased assumption
of pretrial functions previously handled by the ALJs warrants close coordination between counsel representing a
party during the investigation and counsel that will represent that party in any subsequent litigation in preparation
for meetings with the Commissioners before issuance of
the complaint.
Preparation for Commission Meetings. FTC practitioners have long understood that Commissioners wear two hats
in pre-complaint meetings with counsel for prospective
respondents—that of both prosecutors and quasi-appellate
judges.15 Prior to adoption of the new rules, parties to
prospective mergers no doubt paid more attention to the
Commission’s prosecutorial, rather than adjudicatory, functions. If the Commission were granted a preliminary injunction in federal court, the parties almost inevitably abandoned
the proposed transaction rather than face years of Part 3 lit-
igation. When the Commission was denied a preliminary
injunction, it rarely proceeded with Part 3 litigation.16
In antitrust conduct cases, consummated merger cases,
and consumer protection cases, however, it has always been
likely that the Commission would hear any litigated case on
appeal from an ALJ’s initial decision.17 Nevertheless, given the
substantial period of time typically between issuance of the
complaint and the Commission’s opinion, it was not unusual that a number of the sitting Commissioners who supported the complaint would no longer be serving by the time the
Commission issued its opinion.18 And while there were
exceptions, a respondent’s counsel was not likely to appear
before the Commission on the same case until after the ALJ
issued the initial decision. Thus, if the Commission could not
be persuaded to close an investigation altogether or accept a
consent agreement, respondent’s counsel was not likely to be
concerned with how its members weighed the evidence.
The new rules elevate the value of probing the views of sitting Commissioners about particular legal arguments and
their receptiveness to certain types of evidence that may be
introduced at trial for three reasons. First, the accelerated time
frames increase the likelihood that Commissioners who voted
on the decision to issue the complaint will also participate in
the decision on the merits. Second, the Commission no
longer acts only as prosecutor and an administrative appellate
tribunal, but will more commonly act as the trial judge deciding dispositive motions in the first instance.19 Although the
Commissioners need only decide whether they have a “reason to believe” that respondent violated the law in order to
issue the complaint, they may soon be called upon to make
rulings relating to the sufficiency of its complaint, respondent’s defenses, or whether there exists a triable issue of material fact. These decisions—particularly those ruling on complaint counsel’s motions to strike defenses—may impact the
scope of discovery that the ALJ will permit in the case, the
information that would be available to the parties for use in
supporting or opposing motions for summary decision, and
the content of the record itself that the Commission may
review on appeal.
Finally, since the ALJ does not have authority under the
new rules to extend critical deadlines, such as the hearing date
set by the Commission, and may only shorten certain deadlines with the consent of all parties,20 respondents should
consider highlighting for the Commission any unique circumstances that may warrant setting the initial hearing date
earlier or later than provided for in the rules. This may
include, for example, a need to expedite even further the litigation in light of events outside of the parties’ control or
anticipated obstacles in conducting third-party discovery that
may warrant a later hearing date.
Factual Development for Answer. With only two weeks
to file an answer, counsel should plan to re-interview all relevant personnel as to the specific allegations immediately
upon issuance of the complaint. Presumably, interviews will
have been conducted during earlier phases of the investiga-
tion and any additional counsel retained for the litigation will
have also already participated in some interviews or read
counsel’s notes of prior interviews. Although it may be true
that “[b]y the time the Commission issues a complaint, the
parties should be well aware of the agency’s factual and legal
assertions,” 21 this is not always the case. Understandably,
staff may hold back on important details regarding its evidence and even the legal theories it intends to assert before
the Commission issues the complaint. In Evanston, for
instance, while staff had talked about bringing a “direct
effects” theory to challenge that consummated merger, it did
not provide respondent prior to the complaint with details
regarding the magnitude of the alleged price increases or the
methodology staff used to calculate them.
Legal Defenses Asserted in the Answer. Prior to issuance
of the administrative complaint, key legal issues relevant to
defenses that may be asserted in the answer should be identified and researched. As the Commission seeks to assert
greater control over the development of antitrust and consumer protection law, more novel legal issues will likely be
presented in Part 3.22 The abbreviated answer period—coupled with the Commission’s implied invitation to Complaint
Counsel to utilize motions to strike legal defenses early in the
litigation—highlights the need for respondents to be prepared to immediately defend the legal basis of any defense
asserted in the answer.
Out of an abundance of caution, a respondent may assert
as a “defense” an argument on which it does not necessarily
believe it has an affirmative burden of proof. Given that the
Commission would have an early opportunity to decide the
issue upon a motion to strike by complaint counsel—before
discovery—care should be taken not to “over plead” defenses in the answer unless counsel’s strategic objective is to invite
such a motion. Such a gambit may pay dividends by eliciting the Commission’s views on the proper treatment of a legal
issue, while there is still time for respondent to adjust its litigation strategy accordingly. On the other hand, a respondent
risks having evidence relating to the defense excluded if the
Commission strikes the defense.
Preparing for the Initial Meet and Confer and Scheduling Conference. Under the new rules, the meet and confer among the parties must be held within five days after filing the answer and the initial scheduling conference within
ten days of the answer. This requires counsel to have an early
grip not only on its legal theories, but also on its offensive and
responsive discovery strategies, including electronic discovery.
While certain respondents may be well equipped to discuss
these matters at this time—for example, merging parties that
just went through a second request or large companies that
have an e-discovery litigation plan in place—others may not.
For such respondents, counsel would be well advised to learn
the client’s document retention policies, the nature and volume of likely discoverable documents and the client’s ESI
mapping and storage systems before a complaint may issue.
In developing any proposed discovery schedule, counsel
F A L L
2 0 0 9
·
3 5
C O V E R
should also consider the interplay between the Part 3 proceeding and any related federal case under Section 13(b).
Tactical Issues in Simultaneously Litigating an
FTC Administrative Case and Related Federal
Action Under Section 13(b)
Cases in which the Commission is also seeking relief in a
related federal Section 13(b) action pose additional scheduling considerations. Given the Commission’s goals of expediting resolution of Part 3 matters and addressing the concerns of some federal courts that have used slow resolution of
such cases as a factor in refusing to enter preliminary injunctions,23 the Commission will likely be more inclined to issue
Part 3 complaints contemporaneously with the commencement of Section 13(b) actions. For the same reasons, the
Commission will be less inclined to stay administrative proceedings awaiting the outcome of the federal case. The Commission moved in this direction in 2008 when it refused to
stay Part 3 cases pending resolution of the preliminary injunction actions in Inova and CCC Holdings.24
Similarly, new Rule 3.26 provides that cases are no longer
automatically withdrawn from Part 3, pending resolution of
either a motion for withdrawal from adjudication or to dismiss after denial of the Commission’s request for a preliminary injunction in federal court.25 Although the Commission
asserts that it has not withdrawn its previous policy statement
that decisions on whether to proceed with Part 3 cases in
those circumstances will be made on a case-by-case basis,26 it
remains to be seen whether the new rules signal a presumption in favor of the Commission moving forward in Part 3.
Increased Staffing. Respondents likely will be forced to
litigate pre-consummation cases in both federal district court
and in Part 3 proceedings at the same time. Although the
facts relevant to each proceeding should be virtually identical, litigating in two different fora simultaneously likely will
force the parties to expand the size of their litigation teams
and to incur increased litigation costs in an abbreviated period of time. At the same time that one team of lawyers is conducting the PI hearing and preparing post-trial submissions
in the federal case, another team in the Part 3 proceeding may
be continuing with third-party fact discovery, working with
experts, and engaging in pretrial motions practice.
Managing Fact Discovery/Consistency in Positions. The
two cases will be operating on different schedules, and the
parties should consider the impact of any schedule that they
propose for one case on the other. In order to ensure that a
party does not take inconsistent positions in the two proceedings, lawyers intimately familiar with both proceedings
should review pleadings, briefs, proposed findings of fact, and
other work product before they are served or filed. The parties should try to avoid duplication of effort by agreeing up
front that discovery—or even possibly transcripts of live testimony—in one proceeding may be used in the other. Counsel should consider which tribunal offers the best opportunity
to obtain third-party discovery. For example, a federal court
3 6
·
A N T I T R U S T
S T O R I E S
may be more sympathetic to a third party’s burden argument in a preliminary injunction case than an ALJ, who
must decide the case on the merits. On the other hand, federal court orders compelling discovery—unlike those of the
Commission or an ALJ—are self-enforcing.27
One consequence of the new expedited time lines (with or
without a parallel 13(b) proceeding) will be to force the parties to take a harder line with third parties on discovery,
insisting on more rapid productions and moving to compel
sooner.28 The parties should endeavor to reach an understanding up front whether, or under what circumstances,
witnesses may be deposed a second time “on the merits” if
they were deposed for the PI.
Experts. Parallel federal and administrative proceedings—
combined with the expedited discovery deadlines for experts
under the new rules—may impact counsel’s strategy in selecting expert witnesses to testify. Parties may have to serve on
opposing counsel the reports of experts expected to testify in
the PI proceeding one to two months earlier than required in
the Part 3 litigation. During that time, fact discovery—particularly from third parties—may be ongoing in the administrative case. Additional data, documents, testimony, or other
information gathered during that period may be used in
preparing the expert’s report for Part 3, but may not be available for the expert’s report and testimony in the PI proceeding. In data intensive cases, the added time may also be necessary for the experts to better understand, “clean” and
analyze data already collected.
The parallel litigation tracks present both challenges and
opportunities for counsel. Although costs may be reduced by
using the same experts in both hearings, this may prove challenging—particularly for experts who are not backed by a
large consulting team. At the very time that the expert may
be testifying in federal court, he also may be expected to
guide the analysis of new discovery for preparation of a report
on the merits, or to reply to the report of an opposing expert.
Where little substantial new evidence is expected to be produced in the administrative case after preparation of the
expert report in the federal action, this may be feasible, albeit
demanding. If either or both parties intend to use the same
expert(s) in both proceedings, they may be able to move the
ALJ (or the Commission, if related to the hearing date) to
adjust certain Part 3 deadlines in order to make such dual
appearances feasible.
While use of the same experts in both proceedings may
save costs, it also presents other risks. An expert designated
to testify in both proceedings will likely be deposed twice, at
least as to any additional work reflected in his report for use
in the merits case that was not included in the report prepared for the PI proceeding.29 Even if the report is not revised
for the subsequent proceeding, a party who has obtained
additional information relevant to the expert’s testimony may
insist on the opportunity to depose him again. Where an
expert does not hold up well on cross-examination in the first
proceeding, his or her credibility may come under greater
attack in the second. Counsel may wish to minimize the
damage by utilizing a different expert in the next proceeding.
While the second expert may be asked about the work or testimony of the first expert, the second expert would be free to
note that he or she had an opportunity to review additional
materials that were not available earlier to the expert who testified at the PI hearing, and was afforded time to conduct
additional analyses. Since Rule 3.31A does not require disclosure of testifying experts until one day after the close of fact
discovery,30 parties may have an opportunity to evaluate an
expert’s performance in the PI hearing before making a determination as to whether to designate the same expert to testify on the merits.
Effective Post-Hearing Planning
The new rules tightly compress post-hearing deadlines.
Hearings are presumptively limited to the equivalent of thirty trial days,31 and the record closes within three business days
of the completion of the evidentiary hearing. Thereafter, the
parties will have just three weeks to submit simultaneous
post-trial proposed findings of fact, conclusions of law, proposed orders, and post-trial briefs and an additional ten days
to submit reply findings, conclusions, and briefs.32 This is a
relatively short period to comb through potentially thirty
days of trial testimony and hundreds—often thousands—
of exhibits to produce coherent and comprehensive findings.
In Evanston, by comparison, the parties gave each other six
weeks from the end of the hearing to submit proposed findings of fact and conclusions of law and approximately five
additional weeks to submit responses to the other side’s proposed findings and conclusions. That has now been cut significantly and will likely require each side to have a team
drafting, or at least outlining, proposed findings as the trial
is proceeding. This will affect complaint counsel as much as
it does respondents. For some perspective on the magnitude
of this task, in Evanston each party filed a nearly identical
number of proposed findings of fact with no prior coordination on the issue (complaint counsel filed 2580 proposed
findings; respondent filed 2542).
Practical Considerations Arising from the
Commission’s New Role During the Trial Phase
of Administrative Proceedings
Perhaps no aspect of the proposed amendments has spawned
more controversy than the provisions empowering the Commission to inject itself into the trial phase of a Part 3 proceeding. While the Commission’s dual role in adjudicatory
proceedings as both prosecutor and an appellate body is
familiar to FTC practitioners, the new rules create a triple
threat—the Commission as prosecutor, trial court, and first
line of appeal.
Commentators voiced concerns that several of the proposed rules would inappropriately permit the Commission to
invade the independent province of the ALJ—further contributing to a perception that the Commission’s procedures
are unfair.33 Most notably, the amendments as originally proposed would have expressly authorized “the Commission or
one or more of its members” to preside over “discovery and
other prehearing procedures” before transferring other prehearing matters to the ALJ and to preside over the hearing.34
In response to public comments, the Commission deleted
this provision from the interim final rules, but maintained
that the rule change was unnecessary because it already possessed the legal authority to conduct administrative hearings
in this manner pursuant to both the Administrative Procedure Act 35 and the unamended Rule 3.42(a). Indeed, the
Commission had claimed such power in appointing a sitting
Commissioner to hear the Inova case.
Nevertheless, the amended final rules carve out a more
active role for the Commission in Part 3 litigation. Rule
3.22(a) provides that motions to dismiss filed before the evidentiary hearing, motions to strike, and motions for summary decision will be decided by the Commission in the
first instance unless it exercises its discretion to refer them
back to the ALJ.36 These are critical motions through which
the Commission may routinely exercise greater control over
the trial phase of administrative proceedings than in the past.
We address below several strategic implications of these
changes that parties may wish to consider before filing such
a motion under the new rules.
Motions to Dismiss. Even before the adoption of the
amendments, relatively few motions to dismiss were granted
by an ALJ and affirmed by the Commission in Part 3.37 Rule
3.22(a) appears to further diminish the utility of such motions for respondents. In issuing a complaint, the Commission must determine that it has “reason to believe” that
the respondent has violated the law and that commencing an
administrative proceeding challenging the conduct would
be in the “public interest.” 38 While independent ALJs have no
doubt been aware of this standard, they have been willing to
dismiss complaints on occasion—particularly where the
motion was based on jurisdictional or immunity grounds. By
referring motions to dismiss to the Commission, the new
rules may alter their strategic value in several ways.
First, it would be extraordinary for the Commission—
with the exact same members—to dismiss a complaint that
it had just authorized.39 There have been situations where the
Commission has affirmed dismissal of a complaint following
limited discovery on jurisdictional or immunity grounds that
revealed facts previously unknown to it, but it is difficult to
imagine the Commission dismissing a complaint on the
grounds that it is facially deficient immediately after finding
that it has reason to believe respondent violated the law.
Second, prior to the amendments, where a good faith
basis existed for respondent to move to dismiss the entire
complaint, such as on jurisdictional grounds, respondent
would effectively defer investing substantial resources in both
time and money into a case which it hoped would never
reach discovery—at least on the merits. The former rules
deferred the filing of any answer, the pre-trial conference, and
F A L L
2 0 0 9
·
3 7
C O V E R
other pre-trial activities indefinitely unless and until the ALJ
denied the motion.40 Under the new rules, however, filing a
motion to dismiss does not stay any of the deadlines under
Part 3.41 Thus, even if respondent moves to dismiss the complaint in its entirety, its counsel must be prepared to move
forward simultaneously with all other aspects of the pretrial
proceedings.
Third, motions to dismiss were useful where the motion
highlighted to the ALJ that the Commission was advancing
a novel legal premise in the complaint. In Evanston, for
example, respondent moved to dismiss one count in the
complaint in which the Commission challenged the merger under Section 7 of the Clayton Act based on a theory of
allegedly direct anticompetitive effects. In that count, the
Commission did not plead a relevant market within which
to assess those effects. Although the ALJ denied the motion,
it did so on the basis that this count could be read as incorporating relevant market allegations included elsewhere in
the complaint to support the Commission’s traditional merger challenge that was pled in another count. The ALJ’s decision effectively rendered the direct effects count redundant
with the Commission’s traditional challenge. Former FTC
Chairman Timothy J. Muris—who voted in favor of the
complaint—later observed that the ALJ tried the case essentially like “a traditional merger case” rather than taking the
bait to decide the case based on the Commission’s alternative theory of liability.42
Under the new rules, however, the Commission would
have resolved the motion to dismiss in the first instance. The
Commission likely would have provided the ALJ with a road
map of the legal basis on which he could issue an Initial
Decision without concern that it would be reversed by the
Commission. Such a ruling could have guided the ALJ to
avoid findings helpful to the defense that respondent likely
would have emphasized before any reviewing court.43 Since
the ALJ did not actually grant the motion to dismiss in
Evanston—and the motion was directed to only one of the
counts in the complaint—its filing and the ALJ’s decision did
not delay pre-trial proceedings. Respondent and the public
had the benefit of a decision by an independent ALJ, without causing any delay in the trial.
Motions to Strike. The presumptive referral of motions to
strike to the Commission is the sleeper provision of the new
rules. As discussed earlier, motions to strike may also have an
impact on the record and the relevant evidence. Complaint
counsel typically uses a motion to strike to challenge a respondent’s affirmative defenses in an answer.44 The grant of such
a motion not only rejects a legal defense, but also results in the
exclusion of evidence relevant only to that defense. In deciding motions to strike, the Commission will be able to control
the record below in the first instance—the very record that it
will review “de novo” on appeal—and that will be sent up to
any reviewing court.
The new rules do not define motions to “strike.” The
proper characterization of a motion becomes significant as
3 8
·
A N T I T R U S T
S T O R I E S
motions to strike are presumptively referred to the Commission in the first instance, while other motions that may
have the effect of excluding evidence remain within the
purview of the ALJ.45 In recent years, ALJ Chappel has treated motions to “strike” the admission of exhibits at trial or
an expert report (and related testimony) as motions in limine.46 This is consistent with the views of most federal courts
and commentators that motions to strike under Fed. R. Civ.
P. 12(f ) may only be directed at pleadings—not at other
motions, briefs, memoranda, objections, or affidavits.47
Motions for Summary Decision. As a practical matter,
the new rules further reduce a respondent’s ability to obtain
a favorable summary decision in most Part 3 cases. Motions
for summary decision must be filed at least thirty days (formerly twenty days) before the evidentiary hearing, and
responses are due fourteen days thereafter.48 The Commission
has imposed upon itself a deadline of forty-five days within
which to decide such dispositive motions.49 Thus, a party
wishing to move for summary judgment early enough to
receive a decision before the hearing begins must do so two
months before the scheduled hearing date. Where the Commission pursues parallel actions under both Section 13(b) and
Part 3, the motion for summary decision would need to be
filed only halfway through the pretrial period. Even in other
Part 3 cases where the hearing does not take place until eight
months after issuance of the complaint, parties wishing to
move for summary decision may still need to press for an
accelerated schedule so that fact discovery (and preferably
expert discovery) closes before moving for summary decision.
On the other hand, the new rules may provide a tactical
advantage to complaint counsel moving for summary decision. Having conducted an investigation prior to the issuance
of the complaint, complaint counsel has a distinct advantage
in preparing for trial early, particularly in non-merger or
post-consummation merger cases. Prior to the commencement of litigation under Part 3, FTC staff is free to discuss
its theories—and the related evidence—on an ex parte basis
with the Commissioners. But under the new rules, such conversations may become vehicles for mapping out a litigation
strategy with the Commissioners who may decide the motion
in the first instance. For example, complaint counsel may
elicit whether individual Commissioners would consider certain evidence sufficient to create a genuine issue of material
fact warranting denial of a motion for summary decision.
Such information may enable complaint counsel to engage
more effectively in offensive motion practice, but would raise
additional serious questions about the fairness of the Part 3
proceedings that may undermine the institutional legitimacy of the Commission.50
Conclusion
The revised FTC Rules of Practice raise the already high premium on thoughtful, advance planning for Part 3 litigation.
As a practical matter, the new rules require counsel to pay
increased attention before the issuance of a complaint to
the likely course of any Part 3 litigation—including staffing,
scheduling, discovery, experts, motions practice, and costs.
Although the new rules likely decrease the utility of dispositive motions for respondents, the Commission’s involvement
in pretrial motions and the expedited scheduling may also
justify an expanded dialogue about litigation issues in precomplaint meetings between counsel and individual Commissioners.
In challenges to proposed mergers, the new rules likely will
result in parallel federal proceedings under Section 13(b)
and administrative proceedings under Part 3, requiring an
early focus on the likely interplay between the two cases.
Ultimately, whether the new rules expedite resolution of
Part 3 matters without compromising the quality of decision
making or imposing undue costs on respondents, will depend
largely on how the Commission implements them in particular cases. A thorough understanding of how the new rules
presumptively allocate responsibilities between the ALJs and
the Commission, however, may enable FTC practitioners to
put their clients in the best procedural posture for litigating
a Part 3 case.䡵
1
2
Rules of Practice for Federal Trade Commission, 74 Fed. Reg. 20,205 (May
1, 2009) (to be codified at 16 C.F.R. pts. 3–4). The process formally began
with the Commission’s Notice of Proposed Rulemaking published for public comment on October 7, 2008. Rules of Practice for Federal Trade
Commission, 73 Fed. Reg. 58,832 (proposed Oct. 7, 2008) (to be codified
at 16 C.F.R. pts. 3–4). The NPRM itself was characterized as “the culmination of a recent broad and systematic internal review to improve the
Commission’s Part 3 practices and procedures in light of recent adjudicatory experiences.” Rules of Practice for Federal Trade Commission 74 Fed.
Reg. 1,804, 1,805 (interim final rule Jan. 13, 2009). After reviewing the
eight public comments filed in response to the notice, the Commission
adopted the comprehensive amendments—with a few significant modifications—as “interim final rules” governing Part 3 matters initiated after
January 13, 2009. Rules of Practice, 74 Fed. Reg. at 1,805 (interim final
rule Jan. 13, 2009). With few exceptions, the final rules incorporated the
significant procedural changes reflected in the “interim final rules.”
See Scheduling Order, Inova Health Sys. Found., FTC Docket No. 9326 (May
30, 2008); Order Denying Respondents’ Motion to Stay, Inova Health Sys.,
FTC Docket No. 9326 (May 29, 2008); Scheduling Order, Whole Foods
Mkt., Inc., FTC Docket No. 9324 (Sept. 10, 2008); see also ABA Section of
Antitrust Law, Comments in Response to Federal Trade Commission’s
Request for Public Comment Regarding Parts 3 and 4 Rules of Practice Rulemaking 7–8, 16 n.43 (Nov. 6, 2008) [hereinafter ABA Comments], available
at http://www.ftc.gov/os/comments/part3and4rules/538311-00005.pdf.
3
For more background on the Inova and Whole Foods cases, see Jeffrey W.
Brennan & Sean P. Pugh, Inova and the FTC’s Revamped Merger Litigation
Model, A NTITRUST , Fall 2008, at 28.
4
Rules of Practice, 73 Fed. Reg. 58,832 (proposed Oct. 7, 2008).
5
Rules of Practice, 74 Fed. Reg. at 1,805 (interim final rule Jan. 13, 2009);
see also Rules of Practice, 74 Fed. Reg. 20,205 (May 1, 2009) (to be codified at 16 C.F.R. pts. 3–4).
6
Even with the expedited time lines and the Commission’s commitment to
issue timely opinions, it remains to be seen how many prospective mergers would survive an administrative process likely to last over a year. At the
same time, it also remains to be seen whether the accelerated pre-trial and
post-trial procedures for other antitrust and consumer protection cases
will undermine the quality of the record produced in these cases on which
Commission decisions will be made.
7
In its interim final rules, the FTC stated that any rules promulgated after the
comment period would “not necessarily [be] permanent” and instructed its
internal Standing Committee on Part 3 rules to make bi-annual recommendations on revising Part 3 rules. Rules of Practice, 74 Fed. Reg. at
1,807 (interim final rule Jan. 13, 2009).
8
Section 13(b) of the FTC Act authorizes the Commission to seek preliminary
relief in a federal district court in appropriate cases, and is commonly used
to secure an order enjoining the closing of a prospective transaction pending a challenge under Section 7 of the Clayton Act or Section 5 of the FTC
Act on the merits of the transaction under the Commission’s Part 3 rules.
FTC Act, 15 U.S.C. § 53(b) Prolonged uncertainty regarding the fate of
such a prospective merger that has been preliminarily enjoined, however,
may adversely impact the parties’ relationships with customers and suppliers, adversely impact their retention and recruitment of employees, create inefficiencies in capital expenditures and strategic planning, and expose
the parties to unwanted overtures by competing suitors. As a practical
matter, prospective transactions are almost always abandoned by the parties after entry of a preliminary injunction and before an administrative trial
on the merits. See ABA Comments, supra note 2, at 6.
9
Rules of Practice, 74 Fed. Reg. at 1,804 (interim final rule Jan. 13, 2009).
10
Under the new rules, the ALJ has seventy days to issue the Initial Decision
after the submission of the last proposed findings. Rules of Practice, 74
Fed. Reg. at 1,834 (interim final rule Jan. 13, 2009). Thus, assuming all
phases of the litigation are completed at these presumptive intervals, it
would take about thirteen months from complaint to final Commission decision where a parallel 13(b) proceeding was initiated, and nineteen months
in all other cases.
11
In typical pre-consummation merger challenges following an investigation
conducted pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, 15 U.S.C. § 18A, companies determined to defend the
proposed transaction in federal court should anticipate the need for substantial advance trial preparation, although the extent of preparation for a
trial on the merits may exceed that expected at the preliminary injunction
phase. The HSR Act and standard timing agreements between FTC staff and
the merging parties provide a framework within which companies should
have a clear idea of when the FTC staff will make their recommendations.
In other types of investigations, however, the timing within which staff will
complete its investigation is a moving target and in some instances may last
years.
12
D. Bruce Hoffman & M. Sean Royall, Administrative Litigation at the FTC: Past,
Present and Future, 71 A NTITRUST L.J. 319, 322 (2003).
13
Rules of Practice, 74 Fed. Reg. at 1,806 (interim final rule Jan. 13, 2009).
14
In one recent consumer protection matter, the ALJ found “good cause”
under Rule 4.3 to grant respondent an additional fifteen days to answer in
order to permit it time to secure “local counsel” and account for the Labor
Day holiday, but in his order reminded the parties that the hearing date was
“fixed.” ALJ’s Order on Respondent’s Motion to Extend Time to Respond to
Complaint, M Group, Inc., FTC Docket No. 9340 (Aug. 26, 2009). Three
weeks later, the matter was removed from adjudication so the Commission
could consider a proposed consent agreement. ALJ’s Order Withdrawing
Matter from Adjudication, M Group, Inc., FTC Docket No. 9340 (Sept. 17,
2009).
15
The Commission has de novo review of the ALJ’s findings of fact as well as
conclusions of law, and therefore does not function as a typical court of
appeals. 16 C.F.R. § 3.54 (1999). Nevertheless, the Rules of Practice provide for the filing of “appeal briefs” and the Commission holds appellatestyle oral arguments. 16 C.F.R. § 3.52 (1999).
16
The last case in which the Commission proceeded with a Part 3 challenge
after losing a motion for a preliminary injunction was R.R. Donnelly. R.R.
Donnelly & Sons Co., FTC Docket No. 9243 (1995). In Whole Foods, the
Commission actually stayed the administrative proceedings pending a decision on its appeal of the district court’s denial of the motion for a preliminary injunction.
17
Both respondents and complaint counsel have the right to appeal to the
Commission following an adverse decision from the ALJ. 16 C.F.R. § 3.52
(1999).
18
See Assessing Part III Administrative Litigation: Interview with Timothy J. Muris,
A NTITRUST , Spring 2006, at 8 [hereinafter Muris Interview]. In Evanston, for
example, the Commission that issued the complaint had only one member
F A L L
2 0 0 9
·
3 9
C O V E R
in common with the Commission that ultimately decided the case.
19
Rules of Practice, 74 Fed. Reg. at 1,821 (interim final rule January 13,
2009) (to be codified at 16 C.F.R. pt. 3.22(a)).
20
Rules of Practice, 74 Fed. Reg. 20,205, 20,208 (May 1, 2009) (to be codified at 16 C.F.R. pt. 3.1).
21
Rules of Practice, 74 Fed. Reg. at 1,804, 1,808 (interim final rule Jan. 13,
2009).
22
Recent examples of the Commission’s penchant for using Part 3 to expand
the bounds of antitrust law include: Administrative Complaint, Evanston Nw.
Healthcare Corp., FTC Docket No. 9315 (Feb. 10, 2004) (Commission
alleged in the alternative that a hospital merger resulting in increased
prices violated Section 7 of the Clayton Act without alleging any relevant market); Administrative Complaint, Schering-Plough Corp., FTC Docket No. 9297
(Apr. 2, 2001) (Commission alleged patent settlement excluding generic
pharmaceutical competitor from market violated Section 5 of the FTC Act);
Administrative Complaint, Rambus Inc., FTC Docket No. 9302 (June 18,
2002) (withholding information from standard setting body resulting in
adoption of standard enabling them to exclude competition violated Section
5 of the FTC Act).
23
Rules of Practice, 74 Fed. Reg. at 1,804 (interim final rule Jan. 13, 2009).
24
Plaintiffs’ Memorandum of Points and Authorities in Opposition to
Defendants’ Motion for a Scheduling Order and an Expedited Status
Conference, FTC v. Inova Health Sys. Found., No. 1:08-cv-460, at 1–2 (E.D.
Va. May 20, 2008) [Plaintiffs’ Mem.].
25
Rules of Practice, 74 Fed. Reg. at 1823 (interim final rule Jan. 13, 2009).
26
Rules of Practice, 74 Fed. Reg. at 1811–12 (interim final rule Jan. 13,
2009). See ABA Comments, supra note 2, at 6; F EDERAL T RADE C OMMISSION ,
A D M I N I S T R AT I V E L I T I G AT I O N F O L L O W I N G T H E D E N I A L O F A P R E L I M I N A R Y
I NJUNCTION : P OLICY S TATEMENT, 60 Fed. Reg. 39,741–01 (Aug. 3, 1995).
27
15 U.S.C. § 49.
28
In Evanston, for example, the parties began third-party discovery promptly
at the outset of the case, but efforts to work out discovery disputes with
third parties took more than five months. Their productions were critical to
work that the experts were performing relating to staff’s direct effects theories.
29
New Rule 3.31A does not contain any provisions modifying the discovery
available from experts who also testified in a related § 13(b) proceeding.
Rules of Practice, 74 Fed. Reg. at 1,804, 1,826–27 (interim final rule Jan.
13, 2009) (to be codified at 16 C.F.R. pt. 3.31A).
30
Rules of Practice, 74 Fed. Reg. at 1,804, 1,826–27 (interim final rule Jan.
13, 2009) (to be codified at 16 C.F.R. pt. 3.31A).
31
Rules of Practice, 74 Fed. Reg. at 1,815, 1,831 (interim final rule Jan. 13,
2009) (to be codified at 16 C.F.R. pt. 3.41(b)).
32
Rules of Practice, 74 Fed. Reg. at 1,833 (interim final rule Jan. 13, 2009)
(to be codified at 16 C.F.R. pt. 3.46(a)).
33
ABA Comments, supra note 2, at 2–5; Robert Pitofsky & Michael N. Sohn,
Comments on Parts 3 and 4 Rules of Practice Rulemaking 7–9 (Nov. 6,
2008), available at http://www.ftc.gov/os/comments/part3and4rules/
538311-00004.pdf.
34
Rules of Practice, 73 Fed. Reg. at 58,834, 58,853 (proposed Oct. 7, 2008).
35
Administrative Procedure Act, 5. U.S.C. § 556(b).
36
Rules of Practice, 74 Fed. Reg. at 1821 (interim final rule Jan. 13, 2009)
(to be codified at 16 C.F.R. pt. 3.22(a)). Although Rule 3.22(a) only requires
that motions to dismiss filed “before the evidentiary hearing” be directly
referred to and presumptively decided by the Commission in the first
instance, it also now prohibits the ALJ from ruling on a motion to dismiss
filed at the close of complaint counsel’s case based upon an alleged failure to establish a prima facie case “until immediately after all evidence has
been received and the hearing record is closed.” Rules of Practice, 74 Fed.
Reg. at 1821 (interim final rule Jan. 13, 2009) (to be codified at 16 C.F.R.
pt. 3.22(a)). While seldom exercised, ALJs formerly had the option to decide
the motion before or after respondent put on its case. 16 C.F.R. § 3.22(e)
(2009). See Opinion of the Commission, Schering-Plough Corp., FTC Docket
No. 9297, at 3 (Dec. 18, 2003) (ALJ deferred ruling on respondent’s motion
to dismiss for failure to establish a prima facie until all the evidence was
received).
4 0
·
A N T I T R U S T
S T O R I E S
37
See, e.g., ALJ’s Order Memorializing Bench Rulings on Jurisdiction, Respondents’ Motion to Dismiss, Motions for Summary Decision, and Respondents’ Motion for Stay Pending Interlocutory Appeal, Daniel Chapter One,
FTC Docket No. 9329 (Apr. 27, 2009) (Respondents’ motion to dismiss
denied); ALJ’s Order Denying Respondent’s Motion to Dismiss Counts II and
III of the Complaint for Failure to State a Claim, Polypore Int’l, Inc., FTC
Docket No. 9327 (Dec. 4, 2008) (Respondent’s motion to dismiss denied).
In Unocal, the ALJ granted a motion to dismiss on Noerr-Pennington grounds.
ALJ’s Initial Decision, Union Oil Co. of Cal., FTC Docket No. 9305 (Nov. 25,
2003).
38
Federal Trade Commission Act, 15 U.S.C. § 45.
39
In discussing the interim final rules, the FTC points to its early involvement
in South Carolina Board of Dentistry as evidence that the new rules will not
render motions to dismiss practically unavailable. Rules of Practice, 74 Fed.
Reg. at 1801 n.32. In that case, however, the Commission heard—and
denied—state action arguments on a motion to dismiss, holding in abeyance a ruling on mootness arguments. Order Denying Motion to Dismiss on
State Action Grounds, Holding in Abeyance Motion to Dismiss on Mootness
Grounds, Retaining Jurisdiction, and Referring Mootness Issues to an ALJ,
S.C. State Bd. of Dentistry, FTC Docket No. 9311 (July 28, 2004).
40
Former Rule 3.12 provided that if the motion to dismiss was denied, respondent’s answer would not be due until 10 days following such a denial. 16
C.F.R. § 3.12(a) (1999).
41
Rules of Practice, 74 Fed. Reg. at 1820 (interim final rule Jan. 13, 2009)
(to be codified at 16 C.F.R. pt. 3.12(a)).
42
Muris Interview, supra note 18, at 6. A successful motion to dismiss directed at less than the entirety of a complaint is also effective to limit or narrow the scope of discovery and the issues or parties at trial.
43
Tethered to traditional merger analysis, the ALJ in Evanston made a number
of findings of fact that the Commission was compelled to reverse in order
to affirm the finding of liability—namely that certain competing hospitals
constrained the merged firm’s ability to raise prices. ALJ’s Initial Decision,
Evanston Nw. Healthcare Corp., FTC Docket No. 9315, at 144 (Feb. 10,
2004); Opinion of the Commission, Evanston Nw. Healthcare Corp., FTC
Docket No. 9315, at 58 (Aug. 6, 2007). Had Evanston sought review in the
Seventh Circuit, these findings would no doubt have figured prominently in
its briefs.
44
See, e.g., Complaint Counsel’s Motion to Strike the First Through Fifth
Affirmative Defenses Asserted in Respondents’ Answer, Dynamic Health of
Fla., LLC, FTC Docket No. 9317 (Oct. 20, 2004) (complaint counsel moved
to strike five affirmative defenses asserted in respondent’s answer in consumer protection case, including defenses that respondent’s claims were
protected commercial speech or were permissible under the Dietary
Supplement Health and Education Act).
45
Rules of Practice, 74 Fed. Reg. at 1,821 (interim final rule Jan. 13, 2009)
(to be codified at 16 C.F.R. pt. 3.22(a)).
46
Order Denying Respondents’ Motion to Strike, Gemtronics, Inc., FTC Docket
No. 9330 (May 26, 2009); accord Basic Research, FTC Docket No. 9318,
2005 FTC LEXIS 159, at *2 (Dec. 6, 2005) (“Motions to Strike Expert
Report” treated as motions in limine).
47
2 J AMES W M . M OORE ET AL ., M OORE ’ S F EDERAL P RACTICE ¶ 12.37[2] (3d ed.
1997); 5C C HARLES A LAN W RIGHT & A RTHUR R. M ILLER , F EDERAL P RACTICE
AND P ROCEDURE § 1380 (3d ed. 2004). But see Schmitz v. Mars, Inc., 261
F. Supp. 2d 1226 (D. Or. 2003). Rule 12(f) motions to strike may be used
to attack “redundant, immaterial, impertinent or scandalous” material, and
the new rules do not appear to alter such uses in Commission proceedings.
48
Rules of Practice, 74 Fed. Reg. at 1,820 (interim final rule Jan. 13, 2009)
(to be codified at 16 C.F.R. pt. 3.24(a)).
49
Rules of Practice, 74 Fed. Reg. at 1,820 (interim final rule Jan. 13, 2009)
(to be codified at 16 C.F.R. pt. 3.22(a)). The Commission may also refer dispositive motions back to the ALJ for decision and set a time within which a
decision should be issued.
50
Although counsel for the expected respondent could theoretically engage in
similar ex parte communications during the investigation, outside counsel
often have fewer opportunities than staff for interaction with the Commissioners regarding a given investigation.