APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA (D.C. Civil No. 78-0220)
Before Rosenn, Garth and Sloviter, Circuit Judges.
This is an appeal from an order of the district court which granted summary judgment in favor of the Interstate Commerce Commission (ICC) on its petition to require James Gould to allow ICC agents access to his business records. We conclude that the ICC possesses statutory authority to examine Gould's records. Nevertheless, Gould has raised a substantial question regarding the protection afforded him by the fifth amendment, and we therefore remand this case to the district court for further proceedings.
Gould does business in the form of a sole proprietorship, Brokers for Agricultural Cooperative Associations (BACA). ICC agents visited the BACA office on October 5, 1977 and, pursuant to section 220(d) of the Interstate Commerce Act (ICA), 49 U.S.C.A. § 11144(b) (West Supp.1980),*fn1 demanded to inspect BACA's transportation-related records. Gould refused to comply with the agents' request. After further communications, the ICC on a number of occasions again requested access to BACA's records. These requests were made pursuant to section 11144(b), as well as ICA § 220(g), 49 U.S.C.A. § 11144(c) (West Supp.1980).*fn2 Gould consistently refused to permit access to his records.
The ICC then filed an action in the District Court for the District of Western Pennsylvania. This action sought an injunction which would compel Gould to grant the ICC access to BACA's records. The court's jurisdiction was invoked pursuant to ICA §§ 204(a)(6), 220(d), 222(b)(1), 49 U.S.C.A. §§ 10321(c)(3), 11144(b), 11702(a)(4) (West Supp.1980).*fn3 In his submissions, Gould admitted to doing business as BACA, App. at 15 (answer); that he believed that the ICC was investigating him, id. at 15-16; that the ICC had requested access to his records a number of times, id. at 16; and that he had refused to comply with those requests, id. at 17. He also admitted paragraphs 4 and 5 of the ICC complaint, which state:
4. Pursuant to this investigation, on or about October 5, 1977, Agents Martin P. Monaghan, Jr., and John Sopko, duly authorized agents of the Commission, appeared at the defendant's place of business and, after proper display of credentials, made a formal oral demand for access to those transportation-related records and documents maintained by the defendant in the course of his interstate transportation operations under the name of BACA. Said demand was refused by the defendant, James R. Gould.
5. Defendant was re-contacted by Agent Monaghan, on or about October 6, 1977, and at this time Agent Monaghan again requested access to the transportation-related records and documents maintained by the defendant. Said demand was once again refused by the defendant, James R. Gould.
In his answer, Gould also raised as separate defenses the ICC's lack of jurisdiction over BACA, that the ICC's request for records was made in bad faith,*fn4 and that the records were shielded from ICC view by the fourth and fifth amendments.*fn5 The ICC moved for summary judgment, which was granted.*fn6
The issues presented in this appeal fall into three broad categories: first, whether the ICC has jurisdiction to conduct its investigation and thus obtain inspection of Gould's papers; second, whether the ICC has followed the procedures required by statute and case law; and, third, whether the Constitution nevertheless shields Gould's records from disclosure. It is to the first category which we now turn.
The dispute over the ICC's statutory jurisdiction under section 11144(b) to "inspect and copy any record of a . . . broker" poses the question as to whether the ICC has jurisdiction to determine its own jurisdiction. Gould contends that he and BACA are exempt from ICC regulation and has denied that BACA's operations are in any way subject to ICC jurisdiction. Gould argues that section 11144(b) applies only where a business has consented to ICC regulation or has been adjudicated to be subject to ICC jurisdiction. Gould maintains that the ICC may investigate BACA's activities only by resorting to the more cumbersome procedures of ICA §§ 204, 205, 49 U.S.C.A. § 10321 (West Supp.1980). Section 10321 extends the ICC's investigative power to anyone who has information relevant to a transportation-related inquiry, see Comet Electronics, Inc. v. United States, 381 F. Supp. 1233, 1237-40 (W.D.Mo.1974), aff'd mem., 420 U.S. 999, 95 S. Ct. 1439, 43 L. Ed. 2d 758 (1975); note 3 supra.*fn7
The ICC, on the other hand, argues that the section 10321 general investigatory power and the section 11144(b) inspection power are equally available alternatives where the person or entity the ICC seeks to inspect arguably falls within ICC jurisdiction. The ICC points out that it must first inspect Gould's BACA records to determine whether or not Gould has subjected himself to ICC jurisdiction either by the nature of his business or by his business dealings:
The purpose of the Commission's inquiry is to determine whether or not the defendant is subject to the provisions of the Interstate Commerce Act, and if so, whether the defendant is in violation of any of the provisions thereof.
App. at 170 (answer to interrogatory).
We find the ICC's argument persuasive. Section 10321 explicitly states, "Enumeration of a power of the Commission in this subtitle does not exclude another power the Commission may have in carrying out this subtitle." This disclaimer belies Gould's claim that section 10321 is in any way exclusive. Moreover, the cases that have examined analogous issues of jurisdiction of other agencies have consistently accorded broad latitude to the agencies' powers, including "jurisdiction to determine jurisdiction" by summary procedures.
First, it is clear that regulatory agencies may inspect records on summary proceedings without any showing of probable cause. See, e. g. United States v. Powell, 379 U.S. 48, 53-54, 85 S. Ct. 248, 253, 13 L. Ed. 2d 112 (1964) (Internal Revenue Service). All that is necessary is that the "information sought (be) reasonably relevant," United States v. Morton Salt Co., 338 U.S. 632, 652, 70 S. Ct. 357, 368, 94 L. Ed. 401 (1950) (Federal Trade Commission).
Second, the Supreme Court held in Oklahoma Press Pub. Co. v. Walling, 327 U.S. 186, 66 S. Ct. 494, 90 L. Ed. 614 (1946), that under the Fair Labor Standards Act provision giving the Secretary of Labor the authority to subpoena records summarily, 29 U.S.C. § 209, it was for the Secretary, in the first instance, to determine, by inspecting the records if necessary, whether the particular business was covered by the Act. See 327 U.S. at 209-14, 66 S. Ct. at 505-08. The Court distinguished those situations requiring probable cause, as in the case of a warrant, from situations, like the one presented there, where the investigation was "for a lawfully authorized purpose, within the power of Congress to command," id. at 209, 66 S. Ct. at 505, and where "the documents sought are relevant to the (agency's) inquiry," id. It was in this context that the Court defined the Administrator's subpoena power and the right of summary enforcement. The Court said:
We think, therefore, that the courts of appeals were correct in the view that Congress has authorized the Administrator, rather than the district courts in the first instance, to determine the question of coverage in the preliminary investigation of possibly existing violations; in doing so to exercise his subpoena power for securing evidence on that question, by seeking the production of petitioner's relevant books, records and papers; and, in case of refusal to obey his subpoena, issued according to the statute's authorization, to have the aid of the district courts in enforcing it.
Id. at 214, 66 S. Ct. at 508, see Endicott Johnson Corp. v. Perkins, 317 U.S. 501, 507-09, 63 S. Ct. 339, 342-43, 87 L. Ed. 424 (1943) (Walsh-Healey Public Contracts Act, 41 U.S.C. §§ 35-45). The courts of appeals have followed the same analysis in construing the subpoena power*fn8 of other agencies. In SEC v. Brigadoon Scotch Distributing Co., 480 F.2d 1047 (2d Cir. 1973), cert. denied, 415 U.S. 915, 94 S. Ct. 1410, 39 L. Ed. 2d 469 (1974), the Second Circuit wrote:
Appellants argue, therefore, that before the Commission can subpoena information from them, the Commission must demonstrate that there is "reasonable, factual cause for a belief that the sales made by these three (appellants) may constitute the sale of "securities' or "investment contracts' within the meaning of Section 2(1) of the Securities Act." In particular, they urge that the district court must make some initial determination as to statutory coverage and that the fourth amendment's "probable cause" requirement demands that the Commission show enough facts to demonstrate that "reasonable grounds" exist for issuing subpoenas to appellants and compelling the production of documents.
Appellants raise serious questions about whether their activities are subject to regulation by the SEC. Should the Commission seek to exercise regulatory control over appellants' business affairs at some future date, whether by means of a section 5 injunctive suit or otherwise, appellants will be entitled to a full hearing on their contentions. However, it has long been settled that such issues are not to be decided in subpoena enforcement actions. The Commission must be free without undue interference or delay to conduct an investigation which will adequately develop a factual basis for a determination as to whether particular activities come within the Commission's regulatory authority.
In 1946 in Oklahoma Press Pub. Co. v. Walling, 327 U.S. 186, 66 S. Ct. 494, 90 L. Ed. 614 (1946), a case involving the administration of the Fair Labor Standards Act, 52 Stat. 1060, the Supreme Court stated what has since become the rule for interpreting regulatory statutes; namely, that it is for the agency rather than the district courts to determine in the first instance the question of coverage in the course of the preliminary investigation into possible violations. 327 U.S. at 214, 66 S. Ct. at 508. See Endicott Johnson Corp. v. Perkins, 317 U.S. 501, 63 S. Ct. 339, 87 L. Ed. 424 (1943).
480 F.2d at 1052-53 (footnotes omitted) (emphasis supplied); *fn9 accord, SEC v. Howatt, 525 F.2d 226, 229-30 (1st Cir. 1975); SEC v. Savage, 513 F.2d 188, 189 (7th Cir. 1975) (per curiam). The same result obtains with respect to the Federal Trade Commission's subpoenas. In FTC v. Texaco, Inc., 180 U.S. App. D.C. 390, 555 F.2d 862 (D.C.Cir.) (en banc), cert. denied, 431 U.S. 974, 97 S. Ct. 2940, 53 L. Ed. 2d 1072 (1977), the District of Columbia Circuit wrote:
As a general rule, substantive issues which may be raised in defense against an administrative complaint are premature in an enforcement proceeding. The controlling case again is Endicott Johnson, where the Court stated that the petitioner has "advanced many matters that are entitled to hearing and consideration in its defense against the administrative complaint, but they are not of a kind that can be accepted as a defense against the subpoena." 317 U.S. at 509, 63 S. Ct. at 343 (footnote omitted). Moreover, in holding that an administrative subpoena must be enforced if the information is relevant to a lawful purpose of the agency, and not unduly indefinite or unreasonably burdensome, the Supreme Court has clearly rejected other defenses. The reasons for this rule are obvious. If parties under investigation could contest substantive issues in an enforcement proceeding, when the agency lacks the information to establish its case, administrative investigations would be foreclosed or at least substantially delayed. As the Court stated in Oklahoma Press,
Petitioners' view, if accepted, would stop much if not all of investigation in the public interest at the threshold of inquiry and, in the case of the Administrator, is designed avowedly to do so. This would render substantially impossible his effective discharge of the duties of investigation and enforcement which Congress has placed upon him. 327 U.S. at 213, 66 S. Ct. at 508.
No substantive rights are negated by the restriction, for if a formal complaint is issued, subpoenaed parties may assert their defenses in the subsequent administrative proceeding. Further, the agency's final decision in that adjudicatory proceeding is reviewable by a court of appeals.
These principles have consistently been applied when jurisdictional defenses have been raised in enforcement proceedings. Two recent cases are illustrative. In FMC v. Port of Seattle, the Ninth Circuit held that the district court erred in limiting enforcement of Maritime Commission discovery orders to only those facts necessary to determine the Commission's jurisdiction to investigate the Port's consolidation services and in refusing to permit the Commission to inquire into the "details" of the consolidation services. 521 F.2d 431, 433-436 (1975). Similarly, the Seventh Circuit held in SEC v. Savage that the Commission was not required to establish its jurisdiction by demonstrating that a company's commodities future contracts were "securities" within the meaning of the Securities Act before the subpoena would be enforced. 513 F.2d 188, 189 (1975). The court emphasized that the company "would require SEC to answer at the outset of its investigation the possibly doubtful questions of fact and law that the investigation is designed and authorized to illuminate." Id.
555 F.2d at 879 (footnotes omitted); accord, FTC v. Swanson, 560 F.2d 1, 1-2 (1st Cir. 1977) (per curiam) (inappropriate, in subpoena enforcement proceeding, to litigate question of whether there could possibly be a legitimate purpose to subpoena if, as target claimed, it was beyond FTC jurisdiction); FTC v. Gibson, 460 F.2d 605, 608 (5th Cir. 1972).
Although the agencies' governing statutes construed in these cases necessarily differ in some respects from the Interstate Commerce Act, we do not find that any such differences dictate a dissimilar result in the present case. The ICC's summary inspection authority, first granted in 1935 when jurisdiction of the ICC was established over the trucking industry,*fn10 is the analogue of the authority granted to other agencies to issue subpoenas enforceable by court order. Midwest Growers Co-op. Corp. v. Kirkemo, 533 F.2d 455, 461 (9th Cir. 1976).*fn11 In every situation, the issue of the agency's jurisdiction and the answer are the same. As long as the agency arguably has jurisdiction to inspect, questions of jurisdiction such as whether the business was in fact engaged in interstate commerce, or whether the documents traded were "securities," or whether the business has engaged in regulated transportation activities are to be determined in the first instance by summary inspection procedures and need not be first litigated in court.*fn12
An examination of the record of this case reveals that at no time did Gould ever deny that he had transportation-related records. Far from denying possession of records or denying that his business was not involved in transportation of agricultural commodities, Gould in his brief at 2 described his business as "a sole proprietorship engaged in the business of brokering transportation services for carriers exempt from the jurisdiction of the Interstate Commerce Commission," but claimed that he was exempt from ICC regulation.*fn13 Rather, his consistent position has been that he has refused to provide any such transportation-related records and documents to the ICC even though negotiations looking toward access to the records by the ICC have been conducted. In this posture of the record, and giving credit to the argument made by Gould not that he had no such records, but rather that the ICC should obtain them elsewhere or by use of different procedures, it is apparent that the ICC has ample justification to believe that Gould and BACA have engaged in a transportation-related business, whose activities might arguably fall within the ICC's jurisdiction. We therefore hold that the ICC had statutory jurisdiction to inspect Gould's BACA records through the summary provisions of section 11144(b) and to seek an injunction to compel Gould to permit the inspection.
The next issue which we must examine is whether the ICC has conformed to the procedures established by statute and case law. As we understand Gould's contention, it is that even if a right of summary inspection is authorized by law, the agents who visited Gould did not comply ...