## Facts

- Grolier Incorporated and subsidiaries sold encyclopedias and reference works through door-to-door and mail-order channels.
- In 1972, the FTC issued an administrative complaint alleging unfair methods of competition and unfair or deceptive acts or practices in Grolier’s sales, pricing representations, promotions, recruiting, debt collection, and mail-order operations under 15 U.S.C. § 45.
- The administrative hearings were disrupted by ALJ turnover: the first ALJ retired without a decision; the second recused; a third ALJ, Theodore P. von Brand, took over in 1975 and recalled many witnesses.
- In January 1976, von Brand disclosed that he had served as an attorney-advisor to an FTC Commissioner from 1963 to January 1971, during which time Grolier had been intermittently investigated and charged by the FTC; the Commissioner attended at least one meeting involving Grolier and FTC representatives.
- Grolier sought von Brand’s disqualification and requested discovery of FTC records to determine the nature and extent of his prior involvement with Grolier matters; von Brand declined to recuse, stating he did not recall working on Grolier matters.
- The FTC denied both disqualification and discovery, taking the position that attorney-advisors were not “investigative” or “prosecuting” personnel for separation-of-functions purposes.
- In 1978, the FTC entered a final cease-and-desist order against Grolier; Grolier petitioned the Ninth Circuit for review under 15 U.S.C. § 45(c).

## Issues

1. Whether APA separation-of-functions rules (5 U.S.C. § 554(d)) required disqualification of the presiding ALJ based on his prior service as an attorney-advisor during earlier FTC investigations involving Grolier.
2. Whether the FTC’s refusal to permit discovery into the ALJ’s prior participation improperly prevented an adequate record to decide the disqualification question and denied a fair hearing.
3. Whether the FTC’s cease-and-desist order could stand given the unresolved procedural challenge to the impartiality of the adjudication.

## Decision

- The Ninth Circuit set aside the FTC’s cease-and-desist order and remanded for further proceedings.
- The court rejected the FTC’s categorical view that an attorney-advisor role could never involve “investigative or prosecuting functions” for purposes of 5 U.S.C. § 554(d).
- The court held that the FTC improperly issued a flat denial of discovery needed to determine the existence and extent of the ALJ’s prior involvement in Grolier-related matters.
- The court did not decide that the ALJ was disqualified; it required the agency to reconsider discovery and then reconsider disqualification on an adequate factual record.

## Legal Principles

- Under 5 U.S.C. § 554(d), separation-of-functions limits apply based on the functions actually performed in a case (or a factually related matter), not merely on an employee’s title or organizational label.
- When a party makes a non-frivolous showing that the presiding adjudicator may have previously performed investigative or prosecuting functions concerning the party or a related matter, the agency must employ procedures sufficient to create a record for deciding disqualification.
- An agency may use staged procedures (e.g., sworn affidavits from relevant officials, with additional discovery if contradictions or deficiencies appear) to balance confidentiality interests against the statutory requirement of adjudicative impartiality.
- If the impartiality challenge cannot be resolved on an adequate record, the resulting agency order cannot stand on judicial review.

## Conclusion

The Ninth Circuit vacated the FTC’s order because the Commission foreclosed meaningful inquiry into whether the presiding ALJ’s earlier FTC advisory work involved prohibited investigative or prosecutorial functions under APA § 554(d), and it required reconsideration of discovery and disqualification on a proper factual record before the merits could be sustained.


Grolier Inc. v. FTC, 615 F.2d 1215 (9th Cir. 1980)