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Federal Trade Commission v. MacArthur

decided: April 1, 1976.

FEDERAL TRADE COMMISSION, PETITIONER-APPELLANT,
v.
JOHN D. MACARTHUR AND BANKERS LIFE AND CASUALTY CO., RESPONDENTS-APPELLEES



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division No. 75 C 1786 HUBERT L. WILL, Judge.

Swygert and Cummings, Circuit Judges, and East, Senior District Judge.*fn*

Author: Cummings

CUMMINGS, Circuit Judge.

In June 1975, the Federal Trade Commission filed a petition for an order requiring John D. MacArthur and Bankers Life and Casualty Company*fn1 to honor a subpoena duces tecum issued by petitioner on October 1, 1974. The proceeding was filed pursuant to Section 9 of the Federal Trade Commission Act.*fn2

In 1973, the Commission decided to conduct a nonpublic investigation to determine whether Bankers and others (apparently Bankers' affiliates and subsidiaries) were engaging in unfair or deceptive acts or practices in violation of Section 5 of the Federal Trade Commission Act (15 U.S.C. § 45) in connection with the sale of subdivided land in Colorado.

In October 1974, a subpoena duces tecum was served upon respondents requiring them to testify and produce specified documents at an investigational hearing before a representative of the Commission in Chicago on November 4, 1974. Through negotiations of counsel, the return was reset for February 1975 in Lake Park, Florida, for the convenience of respondents and substituted Bankers' vice president, W. L. Cargill, for MacArthur on the ground that Cargill was more knowledgeable about the documents to be produced.

At the Florida investigational hearing, Bankers refused to submit documents responsive to Specifications 4(d), 4(e) or 5 of the subpoena on the ground that they were beyond the scope of the investigation. Only an unsworn copy of "certain" resolutions of the investment committee of Bankers' Board of Directors was submitted in response to Specification 4(c). Although other documents were produced, Mr. Cargill was unable to furnish much information about them.

The Commission then filed suit to enforce the subpoena, requesting the district court to direct respondents to appear before a duly designated representative of the Commission "at a date, time and place to be determined by petitioner; and then and there to testify and produce all of the books, papers, documents and other materials called for by Specifications 4(c), 4(d), 4(e), and 5 of the said subpoena duces tecum."

On June 25, 1975, the district court ordered the respondents to appear before it on July 8 to show cause why the Commission's petition should not be granted. On that date, Bankers appeared before Judge Will and denied that the court had subject-matter jurisdiction over the controversy. Alternatively, Bankers filed a motion to transfer the case to the United States District Court for the Southern District of Florida. The supporting affidavit of a New York lawyer for Bankers showed that Bankers' executive office for MacArthur, then 78 years old, was in Palm Beach County, Florida, where he maintained his residence. The affiant also stated that respondents intended to produce six Florida residents in opposition to the petition, that the Commission was expected to produce witnesses from its Kansas City, Missouri, regional office, and that no Chicago witnesses would be expected to appear. The affidavit also stated that substantially all the documentary evidence which respondents intended to introduce at the hearing on the petition was located in Bankers' Florida offices.

At the conclusion of oral arguments made by counsel for the parties on July 8, Judge Will ordered that Bankers comply fully with the Commission subpoena and appear before a representative of the Commission at a date, time and place to be determined by the Commission and produce all the documents called for by Specifications 4(c), 4(d), 4(e) and 5 located within the Northern District of Illinois and to give such testimony as might be required by the Commission in connection therewith. The district judge also ordered Bankers not to remove such records from the Northern District of Illinois. It transferred the portion of the case dealing with the records of MacArthur and the records of Bankers located out of the Northern District of Illinois to the United States District Court for the Southern District of Florida and further ordered that "no information obtained pursuant hereto be disclosed to the public except in connection with a public proceeding." Finally, Bankers' application for an evidentiary hearing was denied.

Thereafter the Commission appealed the district court's order to the extent it refused the production of documents beyond the confines of the Northern District of Illinois and to the extent that it contained a protective clause. Bankers cross-appealed, challenging the jurisdiction of the court and arguing that the court erred in denying its application for an evidentiary hearing and its motion to transfer the whole cause to the Southern District of Florida. The district court's order was subsequently stayed in its entirety pending this appeal.

Jurisdiction of District Court

Bankers first urges that the district court lacked subject-matter jurisdiction because paragraph 3 of Section 9 of the Federal Trade Commission Act (note 2 supra) only confers enforcement jurisdiction on a district court "within the jurisdiction of which such inquiry is carried on," whereas, Bankers claimed, no inquiry was being carried on within the Northern District of Illinois. We reject that argument.

Section 3 of the Federal Trade Commission Act empowers the Commission to "prosecute any inquiry necessary to its duties in any part of the United States" (15 U.S.C. § 43), and Section 6(a) of the Act empowers it to "gather and compile information concerning, and to investigate from time to time the organization, business, conduct, practices, and management of any * * * corporation engaged in or whose business affects commerce * * * and its relation to other persons, partnerships and corporations" (15 U.S.C. § 46(a)). The Commission's resolution of November 6, 1973, defined the nature and scope of its investigation as being "To determine whether or not various sellers of subdivided land and others may have been or may now be engaged in unfair methods of competition" in violation of Section 5 of the Trade Commission Act. The investigation was not limited to any particular judicial district, and the Commission's subpoena ordered MacArthur, as president of Bankers, to appear before a named attorney of the ...


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