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No. 01-1772
In the Supreme Court of the United States
KEN ROBERTS COMPANY, ET AL., PETITIONERS
v.
FEDERAL TRADE COMMISSION
ON PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED
STATES COURT OF APPEALS FOR
THE DISTRICT OF COLUMBIA
CIRCUIT
BRIEF FOR THE RESPONDENT IN OPPOSITION
THEODORE B. OLSON
Solicitor General
Counsel of
Record
Department of Justice
Washington, D.C.
20530-0001
(202) 514-2217
WILLIAM E.
KOVACIC
General Counsel
JOHN F. DALY
Deputy
General Counsel
LAWRENCE DEMILLE-WAGMAN
Attorney
Federal Trade Commission
Washington, D.C.
20580
QUESTION PRESENTED
Whether the Federal Trade Commission
was authorized to issue administrative subpoenas to
investigate petitioners' marketing of instructional
materials that purport to advise consumers how to make
money through commodities and securities trading.
In the Supreme Court of the United
States
No. 01-1772
KEN ROBERTS COMPANY, ET AL.,
PETITIONERS
v.
FEDERAL TRADE COMMISSION
ON PETITION FOR A WRIT OF CERTIORARI
TO
THE UNITED STATES COURT OF APPEALS FOR
THE
DISTRICT OF COLUMBIA CIRCUIT
BRIEF FOR THE RESPONDENT IN
OPPOSITION
OPINIONS BELOW
The opinion of the court of appeals
(Pet. App. 1a-24a) is reported at 276 F.3d 583. The
decision of the district court (Pet. App. 25a-26a) is
unreported.
JURISDICTION
The judgment of the court of appeals
was entered on December 28, 2001. A petition for
rehearing was denied on March 1, 2002 (Pet. App.
27a-28a). The petition for a writ of certiorari was
filed on May 30, 2002. The jurisdiction of this Court is
invoked under 28 U.S.C. 1254(1).
STATEMENT
1. Petitioners Ken Roberts Co. and
United States Chart Co. advertise and sell books,
videos, and cassettes that purport to advise consumers
how to get rich buying and selling commodity futures.
Petitioners Ken Roberts Institute, Inc., and the Ted
Warren Corp. sell similar materials that advise
consumers about securities trading. The internet
websites through which petitioners market their
materials include such claims as:
The only thing you need to become
wealthy in the Stock Market is a price chart . . . It's
the same tool you can use to make your own personal
fortune. To see $1,000 turn into $2,000. Then $2,000
into $5,000. And $5,000 into $10,000.
Ken Roberts consistently makes profits
of 200% . . . 400% . . . even 1000% and up. . . .
Since my technique was rated #1 in
America two years in a row-the least amount of real
money into the most-by an independent consumer rating
service, obviously it's something very different from
what most others do.
C.A. App. A10.
On September 7, 1999, the Federal Trade
Commission (FTC) approved a Resolution Directing Use of
Compulsory Process in Non-Public Investigation of
Internet Advertisers, Sellers, and Promoters. C.A. App.
A13. The resolution authorized the use of compulsory
process to determine whether internet advertisers,
sellers, and promoters may be violating Sections 5 or 12
of the FTC Act, 15 U.S.C. 45, 52, by deceptively
marketing goods or services on the internet. The
investigation is also intended to determine whether FTC
action to obtain consumer redress would be in the public
interest. C.A. App. A13.
On September 30, 1999, the FTC issued
two Civil Investigative Demands (CIDs) as part of its
investigation into petitioners' marketing practices.
C.A. App. A14-A32. Those administrative subpoenas
sought, among other things, copies of petitioners'
advertising, any substantiation for the claims made in
the advertising, and information regarding any
individual who had given a testimonial used in the
advertising. See ibid. Petitioners failed to provide a
complete response to the CIDs. See id. at A11. Instead,
they filed with the FTC an administrative petition to
quash both CIDs. Id. at A33-A71. They argued that the
FTC had no jurisdiction for its investigation because
the Ken Roberts Co. and the United States Chart Co. are
commodity trading advisers, subject to the exclusive
jurisdiction of the Commodity Futures Trading Commission
(CFTC), and the Ken Roberts Institute and the Ted Warren
Co. are unregistered investment advisers, subject to the
exclusive jurisdiction of the Securities and Exchange
Commission (SEC). See id. at A35.
The FTC denied the petition to quash.
C.A. App. A72-A81. The FTC concluded that, under the
Commodity Exchange Act (CEA), the CFTC's area of
exclusive jurisdiction extends only to the regulation of
the futures market itself. Accordingly, the CEA does not
preclude enforcement of laws of general application,
such as the FTC Act, with respect to petitioners'
marketing of instructional materials. Id. at A75-A77.
The FTC also rejected petitioners' argument that the CEA
impliedly repeals or preempts the FTC's authority to
investigate petitioners' marketing of instructional
materials. Id. at A77-A80. Finally, the FTC held that,
even if petitioners Ken Roberts Institute and Ted Warren
Co. are "investment advisers," subject to the
jurisdiction of the SEC, that jurisdiction is not
exclusive. Id. at A80-A81. The FTC ordered petitioners
to comply in full with the CIDs. Id. at A81. Petitioners
refused. Id. at A12.
2. The FTC then petitioned the United
States District Court for the District of Columbia to
enforce the two CIDs. C.A. App. A4-A8. In opposition,
petitioners again argued that the CEA expressly or
impliedly repeals the FTC's authority to investigate
those aspects of petitioners' business that involve the
marketing of materials related to profiting through
transactions in commodity futures, and that the
Investment Advisers Act of 1940 (IAA), 15 U.S.C. 80b-1
et seq., precludes the FTC from investigating the
marketing of materials that relate to stock trading.
C.A. App. A144-A184.
After a hearing, the district court
concluded that it was "satisfied that the [FTC's]
inquiry is within the authority and jurisdiction of the
agency, that the requests made by the CIDs issued to
[petitioners] are reasonably relevant to the FTC inquiry
* * *, and that responding to the interrogatories and
producing the documents is not unduly burdensome." C.A.
App. A279. The court therefore ordered petitioners to
comply in full with the CIDs. Pet. App. 25a-26a.
3. The court of appeals affirmed. Pet.
App. 1a-24a. Citing Endicott Johnson Corp. v. Perkins,
317 U.S. 501 (1943), and the decisions of courts of
appeals, the court observed that courts must give
administrative agencies wide latitude in asserting their
power to investigate by subpoena. Pet. App. 6a-9a.
Therefore, the court noted, "enforcement of an agency's
investigatory subpoena will be denied only when there is
'a patent lack of jurisdiction' in an agency to regulate
or to investigate." Id. at 9a (quoting CAB v. Deutsche
Lufthansa Aktiengesellschaft, 591 F.2d 951, 952 (D.C.
Cir. 1979)). Based on a detailed analysis of the
relevant statutory provisions, the court held that there
is no "patent lack of jurisdiction" in this case.
Ibid.
The court first reviewed the FTC Act
and concluded that there is ample authority in the Act
for the FTC's investigation. Pet. App. 9a-10a (citing 15
U.S.C. 45(a), 52-54, 57b-1(c)). Therefore, the court
concluded, "the FTC is entitled to have its subpoenas
enforced unless some other source of law patently
undermines these broad powers." Id. at 10a.
The court next addressed petitioners'
contention that the CEA preempts the FTC's authority
over the Ken Roberts Co. and the United States Chart Co.
because the CEA gives the CFTC exclusive jurisdiction
over the activities of those companies. Pet. App.
10a-20a. The court recognized that the CEA, 7 U.S.C.
2(a)(1)(A), gives the CFTC exclusive jurisdiction over
the regulation of commodities and commodities trading
markets. Pet. App. 12a-18a. The court concluded,
however, that the CEA contemplates "a regime in which
other agencies may share power with the CFTC over
activities that lie outside the scope of § 2(a)(1)(A)"
but within other jurisdictional authority of the CFTC.
Id. at 18a. The court determined that the marketing of
investor-education courses by commodities trading
advisors falls within that area of overlapping
jurisdiction. Id. at 18a-20a. Therefore, the court held
that "there is no 'patent lack of jurisdiction' in the
FTC to investigate" petitioners Ken Roberts Co. and
United States Chart Co. Id. at 20a.
The court then addressed the argument
of petitioners Ken Roberts Institute and Ted Warren
Corp. that the IAA repeals by implication the FTC's
jurisdiction "to regulate the fraudulent practices of
'investment advisors.'" Pet. App. 20a. The court first
reviewed this Court's precedent that establishes that
repeals by implication are "not favored," id. at 21a
(quoting Radzanower v. Touche Ross & Co., 426 U.S.
148, 154 (1976) (quoting in turn United States v. United
Cont'l Tuna Corp., 425 U.S. 164, 168 (1976))). The court
recognized that "the IAA and the FTC Act employ
different verbal formulae to describe their antifraud
standards," but the court concluded that the two
standards do not impose "conflicting or incompatible
obligations." Pet. App. 22a. Because the FTC Act and the
IAA are "capable of co-existence," the court held that
it is "the duty of this court 'to regard each as
effective'" absent clear congressional intent to the
contrary. Id. at 22a-23a (quoting Morton v. Mancari, 417
U.S. 535, 551 (1974)). The court noted that petitioners
"point to nothing in the background or history of the
IAA that demonstrates (or even hints at) a congressional
intent to preempt the antifraud jurisdiction of the FTC
over those covered by the" IAA. Id. at 23a. The court
therefore held that petitioners had not presented any
argument "sufficiently forceful to deprive the
Commission of its general prerogative to determine, at
least in the first instance, the scope of its own
investigatory authority." Ibid.
ARGUMENT
The decision of the court of appeals is
correct and does not conflict with any decision of this
Court or any other court of appeals. Accordingly, this
Court's review is not warranted.
1. Petitioners incorrectly contend
(Pet. 23) that the court of appeals evaded their
challenge to the FTC's jurisdiction. Rather, the court
determined that the FTC had sufficient authority to
obtain compliance with the two CIDs because petitioners
had not demonstrated a "patent lack of jurisdiction" in
the FTC to conduct its investigation. Pet. App. 9a
(citing CAB v. Deutsche Lufthansa Aktiengesellschaft,
591 F.2d 951, 952 (D.C. Cir. 1979)). The court thus
addressed the only jurisdictional issue that was
properly before it. See Endicott Johnson Corp. v.
Perkins, 317 U.S. 501, 509 (1943) (judicial review is
limited to determining whether agency subpoena is
"plainly incompetent or irrelevant to any lawful
purpose"). Should the FTC's investigation of petitioners
result in a complaint challenging any aspect of their
conduct, petitioners remain free to raise a
jurisdictional challenge to the complaint, or to any
order that might ensue.
Contrary to petitioners' contentions
(Pet. 24-25), neither United States v. Cabrini Medical
Center, 639 F.2d 908 (2d Cir. 1981), nor FTC v. Miller,
549 F.2d 452 (7th Cir. 1977), conflicts with the court's
holding here that the FTC had authority to issue the
CIDs because there was no "patent lack of jurisdiction."
In both of those cases, the courts concluded that the
relevant statutes clearly and specifically precluded the
investigations at issue. See Cabrini Med. Ctr., 639 F.2d
at 910 (concluding that "there is and can be no
authority for" investigating the medical center based on
its receipt of Medicare and Medicaid because the statute
"make[s] it clear that the federal agencies are to
concern themselves with investigation and enforcement
only where the 'primary objective of the Federal
financial assistance is to provide employment'");
Miller, 549 F.2d at 456-457, 460 (stating that "the
words of the Act plainly exempt from the agency's
investigatory jurisdiction any corporation holding the
status of a common carrier regulated by the ICC" and
concluding that the subpoenaed common carrier "has a
clear right, conferred upon it by statute, to be free
from FTC investigation"). Neither the CEA nor the IAA,
nor the FTC Act itself, contains any provision limiting
the FTC's authority to conduct the investigation at
issue here.
2. Petitioners also err in contending
(Pet. 4-13) that this Court's review is warranted to
determine whether the FTC's jurisdiction to regulate
their marketing practices is displaced by the exclusive
jurisdiction provision of the CEA, 7 U.S.C. 2(a)(1)(A).
As an initial matter, that question is not squarely
presented by this case. As discussed above, because this
case is a subpoena enforcement proceeding, the court of
appeals did not definitively resolve that question but
held only that petitioners' preemption claim was "not
compelling enough" to establish a "'patent lack of
jurisdiction' in the FTC to investigate or regulate in
this case." Pet. App. 20a.
In any event, the court of appeals'
tentative conclusion that petitioners' marketing
activities do not fall within the CEA's exclusive
jurisdiction provision was correct. That provision
states that:
The [CFTC] shall have exclusive
jurisdiction * * * with respect to accounts, agreements
(including any transaction which is of the character of,
or is commonly known to the trade as, an "option",
"privilege", "indemnity", "bid", "offer", "put", "call",
"advance guaranty", or "decline guaranty"), and
transactions involving contracts of sale of a commodity
for future delivery, traded or executed on a contract
market designated * * * pursuant to [7 U.S.C. 7] or any
other board of trade, exchange, or market, and
transactions subject to regulation by the [CFTC]
pursuant to [7 U.S.C. 23].
7 U.S.C. 2(a)(1)(A). Petitioners argue
(Pet. 10-13) that their sales of instructional materials
constitute "transactions involving contracts of sale of
a commodity." But, as the court of appeals noted, "it
strains common parlance to construe 'transactions
involving contracts of sale of a commodity' to include
the marketing practices of a firm that does not buy and
sell futures, but rather merely instructs others how to
do so." Pet. App. 14a.
Nor are petitioners assisted by the
provision of the CEA relating to commodity trading
advisors, 7 U.S.C. 6l(3), which uses the word
"transactions" twice in the same sentence to mean two
different things. See Pet. 7-8. As the court of appeals
explained (Pet. App. 15a), the second reference to
"transactions" in Section 6l(3) clearly does not
encompass petitioners' marketing activities. Thus, the
court of appeals correctly interpreted the term
"transactions" as used in 7 U.S.C. 2(a)(1)(A) to include
"a set of arrangements directly related to the actual
sale of commodities futures" and to exclude the
marketing of materials purporting to provide investment
advice. Pet. App. 16a.1
The court of appeals' decision does not
conflict with any of the cases cited by petitioners
(Pet. 10-11), because none of those cases involves
either a challenge to the enforcement of an
administrative subpoena or the marketing and sale of
instructional materials. Instead, all those cases
concern regulation of the actual sale of options or
futures contracts or securities. See Chicago Mercantile
Exch. v. SEC, 883 F.2d 537 (7th Cir. 1989), cert.
denied, 496 U.S. 936 (1990) (trading of futures
contracts); Board of Trade v. SEC, 677 F.2d 1137 (7th
Cir.), vacated as moot, 459 U.S. 1026 (1982) (trading in
options on mortgage-backed certificates); SEC v.
American Commodity Exch., Inc., 546 F.2d 1361 (10th Cir.
1976) (regulation of fictitious commodity options
enterprise); International Trading, Ltd. v. Bell, 556
S.W.2d 420 (Ark. 1977), cert. denied, 436 U.S. 956
(1978) (deceptive sale of commodity options contracts);
Clayton Brokerage Co. v. Mouer, 531 S.W.2d 805 (Tex.
1975) (sale of commodity options contracts); Minnesota
v. Coin Wholesalers, Inc., 250 N.W.2d 583 (Minn. 1976)
(sale of silver coins on margin). No court has ever held
that the CEA's exclusive jurisdiction provision deprives
the FTC of authority to investigate the marketing
practices of an entity that sells materials purporting
to teach consumers how to get rich trading commodity
futures.
3. Petitioners also incorrectly contend
(Pet. 14-23) that this Court's review is warranted to
determine whether the CEA or the IAA impliedly repeals
the FTC's jurisdiction over petitioners' marketing
activities. Like the question whether the CEA expressly
deprives the FTC of jurisdiction, those questions are
not squarely presented here. As petitioners themselves
point out (Pet. 18), the court of appeals did not
address whether the CEA impliedly repeals the FTC's
jurisdiction, and this Court does not ordinarily address
questions that were not passed on below. See National
Collegiate Athletic Ass'n v. Smith, 525 U.S. 459, 470
(1999). As for whether the IAA impliedly repeals the
FTC's jurisdiction, the court of appeals also did not
conclusively resolve that question. Because this case is
a subpoena enforcement proceeding, the court of appeals
held only that petitioners' arguments are not
"sufficiently forceful to deprive the Commission of its
general prerogative to determine, at least in the first
instance, the scope of its own investigatory authority."
Pet. App. 23a.
In any event, neither the CEA nor the
IAA impliedly repeals the FTC's authority under the FTC
Act to regulate petitioners' marketing practices. This
Court has repeatedly made clear that "when two statutes
are capable of co-existence, it is the duty of the
courts . . . to regard each as effective," Radzanower v.
Touche Ross & Co., 426 U.S. at 155 (quoting Morton
v. Mancari, 417 U.S. at 551). Thus, although repeal by
implication may occur when there is a "clear repugnancy"
between two statutes, Tennessee Valley Authority v.
Hill, 437 U.S. 153, 190 (1978), the test employed in
identifying such a conflict is extremely rigorous and
has rarely been deemed satisfied. See, e.g., Cantor v.
Detroit Edison Co., 428 U.S. 579, 597 (1976). Moreover,
this Court has stressed that repeals by implication are
not favored and will only be found where congressional
intent to effect such a repeal is "clear and manifest."
Radzanower, 426 U.S. at 154.
Petitioners fail to identify any
irreconcilable conflict between the CEA and the FTC Act.
See Pet. 14-19. The CEA prohibits any commodity trading
advisor from "employ[ing] any device, scheme, or
artifice to defraud any client or participant or
prospective client or participant," 7 U.S.C. 6o(1)(A),
or from "engag[ing] in any transaction, practice, or
course of business which operates as a fraud or deceit
upon any client or participant or prospective client or
participant," 7 U.S.C. 6o(1)(B). The FTC Act prohibits
"unfair or deceptive acts or practices in or affecting
commerce." 15 U.S.C. 45(a)(1). Petitioners claim (Pet.
15) that there is an irreconcilable conflict because
only the FTC Act prohibits "unfair" acts or practices.
But there is no clear repugnancy because the CEA does
not mandate that petitioners engage in any unfair act or
practice that the FTC Act prohibits. Thus, as the court
of appeals observed, petitioners "can-and of course
should" refrain from practices prohibited by either
statute. Pet. App. 22a.
Similarly, there is no clear repugnancy
between the IAA and the FTC Act. The IAA contains
prohibitions identical to those in the CEA and also
prohibits "engag[ing] in any act, practice, or course of
business which is fraudulent, deceptive, or
manipulative." 15 U.S.C. 80b-6(4). Just like the CEA,
nothing in the IAA commands petitioners to engage in
unfair practices prohibited by the FTC Act. Thus, the
IAA's antifraud provisions are not in conflict with the
FTC Act.2
Nor have petitioners shown any evidence
that Congress intended the antifraud provisions of the
CEA or the IAA to displace the FTC's authority to
investigate marketing practices of the kind in which
petitioners engage. As explained above, Congress
intended the CEA to have only a limited exclusive
effect. That effect is expressed in the CEA's exclusive
jurisdiction provision, 7 U.S.C. 2(a)(1)(A), and is
limited to regulations directly related to the actual
sale of commodity futures on organized contract markets.
Regarding the IAA, petitioners' only argument is that,
because Congress included antifraud provisions in the
IAA, Congress must have intended the IAA to displace the
FTC's authority. See Pet. 19. But the inclusion of
antifraud provisions in the IAA suggests no such thing.
As this Court has recognized, more than one agency may
simultaneously address the same issues and proceed
against the same parties. See, e.g., United States v.
Radio Corp. of America, 358 U.S. 334, 343-344 (1959);
United States v. W.T. Grant Co., 345 U.S. 629, 631-632
(1953); FTC v. Cement Institute, 333 U.S. 683, 694
(1948).
Finally, there is no merit to
petitioners' contention (Pet. 20-23) that the CEA and
IAA displace the FTC Act because they are either more
comprehensive or more specific. A later and more
comprehensive statute will displace an earlier one only
if it can "be said * * * that 'the later act covers the
whole subject of the earlier one and is clearly intended
as a substitute.'" Radzanower, 426 U.S. at 157 (quoting
Posadas v. National City Bank, 296 U.S. 497, 503
(1936)). Neither the CEA nor the IAA covers the whole
subject of the FTC Act because, as petitioners recognize
(Pet. 15), neither prohibits the sorts of "unfair"
practices specifically proscribed by the FTC Act.3
As to petitioners' specificity
argument, a more specific provision will displace a more
general one only when there is a conflict between the
two. See Edmond v. United States, 520 U.S. 651, 657
(1997). Even if the CEA and the IAA could be viewed as
more specific than the FTC Act, there is no conflict
between either the CEA or the IAA and the FTC Act
because petitioners can simultaneously comply with each
of these laws.
CONCLUSION
The petition for a writ of certiorari should be
denied.
Respectfully submitted.
THEODORE B. OLSON
Solicitor General
WILLIAM E.
KOVACIC
General Counsel
JOHN F. DALY
Deputy
General Counsel
LAWRENCE DEMILLE-WAGMAN
Attorney
Federal Trade Commission
AUGUST 2002
1 Petitioners incorrectly contend (Pet.
6-9) that the court of appeals disregarded Congress's
finding that advice on investing in commodities and
futures contracts "affect[s] substantially transactions
on contract markets." 7 U.S.C. 6l(3). Contrary to that
contention, there is no inconsistency between Congress's
finding that sales of investment materials "affect
substantially transactions on contract markets"
(emphasis added) and the court of appeals' conclusion
that sales of investment materials do not constitute
"transactions involving" commodity futures
contracts.
2 In that respect, this case differs
from Gordon v. New York Stock Exchange, Inc., 422 U.S.
659 (1975), on which petitioners rely (Pet. 16). In
Gordon, this Court found that there was an
irreconcilable conflict because the two statutory
schemes at issue were likely to subject the stock
exchange to conflicting standards, so that complying
with one statute would put the stock exchange in
violation of the other. See 422 U.S. at 689 (noting that
"the exchanges might find themselves unable to proceed
without violation of the mandate of the courts or of the
SEC").
3 Thus, contrary to petitioners'
contention (Pet. 16), United States v. Tynen, 78 U.S.
(11 Wall.) 88 (1870), does not provide them any
assistance. In that case, this Court held that a later
criminal statute that embraced all of the provisions of
a former statute but imposed different and additional
penalties operated as a repeal of the former statute.
Id. at 92-93. As explained in the text above, neither
the CEA nor the IAA embraces all conduct prohibited by
the FTC Act.
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