Pepsico, Inc. v. Federal Trade Commission, Pepsi-Cola Bottling Company of Corvallis, Inc., Plaintiff-Intervenor-Appellant v. Federal Trade Commission

MEDINA, Circuit Judge

(dissenting) :

I respectfully dissent. I do not think we should leave the question of the subject matter jurisdiction of the District Court up in the air. I believe the District Court had subject matter jurisdiction in this case and that in the exercise of that jurisdiction the District Court on a remand should review the action of the Federal Trade Commission and enjoin it from continuing the PepsiCo proceeding unless and until it provides notice of the issues to all the PepsiCo bottlers and affords them a meaningful right to a hearing. I think this is required as a matter of sound judicial administration, as a matter of constitutional law, and as a matter of plain common sense. In the discussion that follows I shall attempt to demonstrate:

(1) That the District Court had subject matter jurisdiction.

(2) Despite the fact that the threat of suits against PepsiCo, in the event of a final decision that the contracts with the bottlers are illegal, may prove to be illusory, the provisions made by the Federal Trade Commission for intervention by the bottlers and for the protection of their rights are inadequate. Elementary principles of due process require at the very least notice to all the bottlers of the precise charges of illegality of their contracts with PepsiCo, including the Metro Area Bottler Handicap proposal of complaint counsel. It does not seem to me to make sense to go through this whole weary procedure again if the Commission accedes to complaint counsel’s proposal.

(3) As a general rule courts should permit administrative agencies to exercise their expertise in deciding procedural questions affecting the administrative proceeding. Here, however, where constitutional issues of due process are present it is worth noting that the number of bottlers is no obstacle to an effective hearing. Further, the amount of paper work that has gone into this proceeding already, due to the determination of the Commission to deny full party status to the bottlers, far exceeds any necessary amount of procedural rulings and supervision the presence of any number of bottlers might be supposed to require. I find nothing “unmanageable” about the situation with the bottlers in; and this is especially true in a situation in which the Commission is endeavoring to restructure an entire industry.

I

The Facts and the Procedural Posture of the Case

On July 15, 1971 the Federal Trade Commission issued separate complaints charging PepsiCo and other soft drink manufacturers with engaging in unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C., Section 45. The complaint alleged that exclusive bottling agreements between PepsiCo and 513 bottlers violated the Act. The agreements grant the bottlers exclusive licenses to use PepsiCo’s trademark in a specific territory on soft drinks prepared by the bottlers from the concentrate and syrups purchased from PepsiCo.

On August 11, 1971 three of the 513 bottlers and the Pepsi-Cola Bottlers Association moved to intervene in the FTC proceeding. On August 23, 1971 PepsiCo filed its answer to the complaint and asserted as an affirmative defense the failure of the Commission to join the 513 bottlers as parties. On October 12, 1971, PepsiCo moved before the Hearing Examiner to dismiss the complaint for nonjoinder of indispensable parties. Then on November 18, 1971 the Hearing Examiner issued an order granting the Association and the three bottlers what I believe to be a limited right to intervene. On January 20, 1972 the Hearing Examiner denied PepsiCo’s motion to dismiss for nonjoinder of the bottlers and this decision was sustained by the Commission.

On April 28, 1972 PepsiCo instituted this action in the Southern District of New York and applied for a preliminary injunction. The FTC moved to dismiss. While these motions were pending, Pepsi-Cola Corvallis (a bottler) intervened in the District Court action in support of PepsiCo’s position. On June 2, 1972 District Judge Cannella denied PepsiCo’s application for a preliminary injunction and granted the Government’s motion to dismiss the complaint (343 F.Supp. 396). Judge Cannella was of the view that the FTC order denying joinder of individual bottlers was not a final order and that the District Court lacked subject matter jurisdiction over the dispute. PepsiCo and Pepsi-Cola Corvallis both appealed from this decision and this Court heard the appeal on October 12, 1972.

After the notice of appeal to this Court had been filed, the complaint counsel in the FTC proceeding moved for partial summary decision on July 31, 1972. Included in this motion was a proposed remedy referred to as a “Metro Area Bottler Handicap” provision. The Commission has not at this time had the opportunity to rule on this motion generally or on the “Metro” clause specifically.

II

The District Court Had Subject Matter Jurisdiction

Questions of jurisdiction have always fascinated American judges and many of them, including the writer of this dissent, have failed at times to resist the temptation to seize upon any question of law affecting the jurisdiction of a court as presenting an opportunity for a learned treatise discussing at length every decision of every court having even a remote bearing on the particular point to be decided. In this way the volumes of Law Reports keep piling up with little benefit to anyone. I shall not now succumb to this temptation. On the contrary, I shall content myself with a statement of the reasons supporting my conclusion that the District Court had subject matter jurisdiction, and, without further discussion, cite a few cases which I think are in point.

Statutory authority sustaining the subject matter jurisdiction of the District Court is to be found in the provisions of Section 10(c) of the Administrative Procedure Act, 5 U.S.C., Section 704, that “final agency action for which there is no adequate remedy in a court are (is) subject to judicial review.” There are numerous instances in which such review has been sustained, despite the interlocutory character of the administrative agency ruling sought to be reviewed. McCulloch v. Sociedad Nacional de Marineros de Honduras, 372 U.S. 10, 83 S.Ct. 671, 9 L.Ed.2d 547 (1963); Leedom v. Kyne, 358 U.S. 184, 79 S.Ct. 180, 3 L.Ed.2d 210 (1958); Jewel Companies, Inc. v. FTC, 432 F.2d 1155 (7th Cir. 1970); American Communications Association v. United States, 298 F.2d 648 (2d Cir. 1962); Interstate Broadcasting Co. v. United States, 109 U.S.App.D.C. 255, 286 F.2d 539 (1960). The only satisfactory test is that involving a pragmatic and flexible approach to insure that the ends of justice will be served. See, Parisi v. Davidson, 405 U.S. 34, 92 S.Ct. 815, 31 L.Ed.2d 17 (1972); McKart v. United States, 395 U.S. 185, 89 S.Ct. 1657, 23 L.Ed.2d 194 (1969). Naturally, where the ruling complained of involves factual findings or the exercise of administrative expertise, review by a court is not allowed.

My reasons for an affirmative application of the pragmatic and flexible approach are:

(1) Every effort to persuade the FTC to join these indispensable parties and thus afford them proper and reasonable notice and an effective hearing has failed. In this sense the ruling of the Commission is final.

(2) The Commission admits that extensive and valuable property and contract rights of the bottlers are involved.

(3) The rulings of the Commission relative to intervention are in my opinion inadequate and illusory. That the rights of those permitted to intervene are limited is apparent on the face of the order which appears at page A-230 of the Appendix. It will not do for the Hearing Examiner to make a statement that he had granted to the intervenors “the right of full participation.” We can read, and the order does not provide for “full participation.” Those permitted to intervene do not have the right to make motions or argue orally, as guaranteed to parties under FTC Rule § 3.-41(c), 16 C.F.R. § 3.41 (1972). FTC rules only permit a party to appeal an initial decision of the Hearing Examiner, FTC Rule § 3.52(a), 16 C.F.R. § 3.-52(a) (1972) and, as noted by Judge Cannella, these intervenors have no right of judicial review. It is, I think, no answer to say that an Appellate Court will probably permit them, on motion, to intervene. In these days of congested calendars some Appellate Courts are not always so accommodating.

(4) PepsiCo’s position on the indispensable parties point is a strong one. If the Commission adopts the “Metro Area Bottler Handicap” proposal of complaint counsel, PepsiCo’s position on the indispensable parties point will become impregnable.¹ It is not reasonable to take the risk that the whole proceeding will ultimately turn out to be nugatory when this risk can be avoided by the simple expedient of making the bottlers parties. If this is done, all the cumbersome intervention procedures will be avoided.

(5) The lack of notice to the bottlers and the failure .to provide them with an effective hearing raise constitutional questions. It is not in the interest of justice that determination of these questions be postponed until the entire proceeding is concluded, especially as these questions are ripe for decision now. I see that my brothers of the majority readily dispose of this question, as they disposed of the question of subject matter jurisdiction, by making an “assumption.” In this instance they assume “that all the PepsiCo bottlers have received notice of this proceeding.” They naturally cannot order the District Court to direct the FTC to modify its order and provide such notice, as they have voted to affirm Judge Cannella’s order dismissing the case for lack of subject matter jurisdiction. But the point cannot be swept under the rug in this cavalier fashion. The plain fact is that no formal notice of any kind has been given by the FTC to PepsiCo’s 513 bottlers. It is hinted in the majority opinion that the complaint was not published in the Federal Register, see footnote 5, and nothing in this record suggests that such publication was made. It is strange doctrine to me that constitutional requirements of notice² and a fair hearing are complied with if the persons entitled to notice are members of a trade association that has moved to intervene in the proceeding. One might just as well suggest that the proceedings have been reported in the newspapers which were probably or possibly read by the 513 PepsiCo bottlers. The affidavit of Robert J. Sisk filed in support of the motion to intervene by Pepsi-Cola Bottlers Association states that 512 of the 513 PepsiCo bottlers are members of the Association and it makes the gratuitous assertion that the Association “effectively represents the interests of all the franchised Pepsi-Cola Bottlers in the United States.” This means nothing. It is for the PepsiCo bottlers themselves to say who represents their interests, and, in some cases, these interests are adverse to one another. And how about PepsiCo bottler No. 513?

(6) At first I was inclined to suspect that the effort to have the PepsiCo bottlers made parties and the bringing of this action were in the nature of dilatory maneuvers. But, in the light of the colloquy during the oral argument, and a study of the record as complete as the time would allow, I am now convinced that PepsiCo is doing everything it can to expedite the proper conduct of the FTC proceeding. This is no dilatory move, but a sincere attempt to make the FTC comply with the requirements of law in an orderly way, and to protect its own interests and those of the PepsiCo bottlers to whom it may well owe a moral duty of protection.

Ill

On the Merits the 513 PepsiCo Bottlers Should Be Brought in as Parties

I am still unable to understand why the FTC has taken such an adamant position against making the bottlers parties to this proceeding, unless it anticipates greater scope and control of the whole proceeding to restructure the soft drink industry if confusion reigns supreme. The equivocal manner in which the right of the bottlers to intervene has been granted; the complete failure to provide any form of notice to the separate bottlers or to afford them an effective hearing at which their substantial property and contractual rights may be determined in an orderly manner; and the insistence that, as the so-called right to intervene has been proffered, those who do not choose to come in will be bound by the final order in precisely the same manner and to the same extent as will be those who availed themselves of this so-called right to intervene — all these rulings obviously make for confusion. And, one may wonder, why? Unless there is something that does not meet the eye, it seems clear enough that giving reasonable notice and an effective opportunity to be heard to all interested parties would facilitate rather than hinder the prompt and efficient enforcement of the antitrust laws. Instead, we have all this weaving in and out of procedural niceties.

What puzzles me most is the insistence by my brothers of the majority and by the FTC that, in view of the rulings already made by the Commission on the subject of intervention all those Pep-siCo bottlers who do not choose to intervene will, nevertheless, be “bound” by the final decision of the FTC on the facts and on the law. Surely these absent PepsiCo bottlers will not be “bound” in the ordinary sense of the word, by the application of, traditional rules of res judicata or collateral estop-pel. This is probably another example of corner-cutting, as in the case of'‘the assumption arguendo that the District Court had subject matter jurisdiction, and the assumption that all the PepsiCo bottlers had notice of the proceeding.³ I say the record makes it plain that no formal notice whatever was given to the PepsiCo bottlers and that this important constitutional requirement of due process cannot be satisfied by mere divination or guesswork. Furthermore, I say the absent bottlers who may choose not to intervene will not be “bound.” Chase National Bank v. City of Norwalk, 291 U.S. 431, 54 S.Ct. 475, 78 L.Ed. 894 (1934); Western Union Tel. Co. v. Foster, 247 U.S. 105, 38 S.Ct. 438, 62 L.Ed. 1006 (1918); New Orleans v. Warner, 175 U.S. 120, 20 S.Ct. 44, 44 L.Ed. 96 (1899); Burke v. Morphy, 109 F.2d 572 (2d Cir. 1940), cert. denied, 310 U.S. 635, 60 S.Ct. 1078, 84 L.Ed. 1404 (1940); McGhee v. United States, 437 F.2d 995, 194 Ct.Cl. 86 (1971).

Perhaps all that is meant by “bound” is the same argument advanced concerning the decision in National Licorice Co. v. NLRB, 309 U.S. 350, 60 S.Ct. 569, 84 L.Ed. 799 (1940), although this can scarcely be so because both in the majority opinion and in the FTC argument it is said that the absent parties will be bound because, whether they knew it or not, they had been proffered the right to intervene. No intervention whatever was involved in National Licorice.

So, I address myself now to the claim that does depend upon National Licorice, which claim, as I understand it, is: that in the event the FTC decides that some part of PepsiCo’s contract with its franchisees, the bottlers, is unlawful as a violation of the antitrust laws, no such bottler could thereafter sue PepsiCo for violation of the terms of the contract, because the FTC was acting to enforce public as distinct from private rights. The difficulty with this argument is that it goes too far. There are numerous rights created by these contracts for the benefit of both PepsiCo and the bottlers. The fact that, after a federal Court of Appeals has enforced an FTC cease and desist order, other courts will not rule to the contrary, does not dispose of the issue under discussion. After final disposition of the case by the FTC, I think it will be open to individual bottlers, who are not made parties, to sue PepsiCo for the vindication of other rights inherent in the franchises and that, depending on the terms of the final order, the bottlers who had been joined as parties could not sue without being met by a defense of res judicata or collateral estoppel and a motion for summary judgment. It will, of course, be recalled that the Court in National Licorice specifically made the language of the opinion on which my brothers and the FTC rely inapplicable to rights of the individual employees not necessarily involved in the violation of the National Labor Relations Act.

There remains the contention that 513 bottlers are too many, especially as hundreds of others are involved in the proceedings against Crush International Limited, Dr. Pepper Co., Coca Cola Co., Seven Up Co., and National Industries Co. It is said that joining so many bottlers will make the proceeding “unmanageable.” Back in the days of the Medes and the Persians this argument might have seemed plausible. But in a modern setting it has no merit whatever, as appears to be recognized by my brothers of the majority. The advances made by judicial administration in recent years make it perfectly plain that the modest numbers here involved can readily be handled with justice to all. It seems unlikely that more than a few of the PepsiCo bottlers will take the trouble to hire lawyers and come in to defend their rights. Those who do come in, even in considerable numbers, can be formed into consolidated groups or otherwise directed in such fashion as to avoid repetition or confusion. In fact, as I have already said, making the Pep-siCo bottlers parties to this proceeding will facilitate in every way the prompt and just disposition of the issues.

Accordingly, I would remand the case to the District Court with instructions to enjoin the FTC from further proceeding in its effort to restructure the soft drink industry until it had made the PepsiCo bottlers parties.

1 . The “Metro” provision goes much further than an order compelling PepsiCo to “cease and desist” from enforcement of certain features of the contracts with the bottlers. The “Metro” clause not only voids some of the contractual rights of the absent parties but imposes new obligations upon the parties to these contracts. Under the provision the larger bottlers now doing business in the 200 largest metro areas would be limited for ten years to selling in the metro area and forbidden to sell in non-metro areas presently not serviced by large bottlers. The small bottlers in the non-metro areas could sell in the metro areas. Thus it is proposed that by agency action new contracts be created and imposed upon an entire industry, although the interested parties are not represented in the adjudicatory process.

2 . See, as to basic notice doctrine required to meet the standards of due process, Mullane v. Central Hanover Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950).

3 . Even if it be assumed that the PepsiCo bottlers or most of them knew that a proceeding against PepsiCo was pending in the FTC, this would not suffice. For example, the Supreme Court has declared as violative of due process a New Jersey non-resident motorist statute lacking a “provision for communication to the proposed defendant, such as to create reasonable probability that lie would be made aware of the bringing of the suit.” (Wuehter v. Pizzutti, 276 U.S. 13, 25, 48 S.Ct. 259, 262, 72 L.Ed. 446 (1928)). There the defendant actually received notice of the suit but the lack of a formal mechanism to insure the reasonable probability that he would receive notice of the pending suit, rendered the statutory scheme constitutionally defective. Thus, if this Court decides that the Commission must provide a method of notice best calculated to reach the bottlers in order to conform to due process, then the mere fact that most of the bottlers received, some form of informal notice would not transform an unconstitutional procedure into a constitutionally permissible one.