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Federal Trade Commissioner J. Thomas Rosch vowed to stay on as trial judge in the FTC's administrative case against the Inova Health System-Prince William Health System (PWHS) merger, despite new allegations from the hospitals' lawyers--which includes a former FTC chairman--that Rosch "participated in the underlying two-year investigation that preceded the filing of the complaint."

On May 23, Arnold & Porter, the law firm representing Inova and PWHS, filed a motion asking Rosch to recuse himself from serving as administrative law judge (ALJ). The motion was signed by Robert Pitofsky, a counsel at Arnold & Porter and chairman of the FTC during the Clinton administration. 

Normally the FTC would appoint one of its two sitting ALJs, Stephen J. McGuire or D. Michael Chappell, to preside over an administrative hearing and issue an initial decision that is then subject to appellate review by the FTC commissioners. In this case, the FTC invoked a seldom-used rule that allows it to name a commissioner to sit as ALJ. According to Arnold & Porter's recusal motion, "We are aware of only one previous case where the Commission has appointed one of its own to sit as ALJ -- and that case was dismissed on threshold legal grounds by a federal district court and the administrative case was never adjudicated."

In its order appointing Rosch, the FTC justified its decision by citing Rosch's four decades of experience as an antitrust lawyer handling "complex competition law cases." But Arnold & Porter countered, "the ALJs he supplanted are highly experienced in hearing complex antitrust cases." The FTC has offered no further explanation as to why neither McGuire nor Chappell--neither of whom are presently hearing a case--were appointed.

As previously reported on VoluntaryTrade.org, there is recent history of the independent ALJs ruling against FTC complaints in key antitrust cases--notably Rambus--which likely factored into the decision to appoint Rosch. Arnold & Porter adds that, "It is well known that the FTC has lost the last several cases in which it has challenged hospital mergers," due to adverse rulings from the Article III courts. 

In assuming the role of ALJ, Rosch recused himself from participating in the FTC vote to issue the complaint. But according to Arnold & Porter, Rosch did not recuse himself from the pre-complaint investigation: "[W]e have been advised by FTC staff that Commissioner Rosch had at least one meeting with the Commission's investigatory staff during the investigation in this case and received staff's written recommendation to bring the complaint." An ALJ would not normally be privy to this information.

And "approximately ten days before the Complaint was filed," Arnold & Porter, along with economists they retained as experts, met with Rosch to lobby against a potential FTC complaint:

"The meeting covered a broad range of issues, including arguments that Respondents [Inova and PWHS] believed would be relevant to [FTC] staff's arguments. No FTC investigative staff was present at the meeting. At no time during the meeting did Commissioner Rosch advise Respondents that he anticipated being designated as the Administrative Law Judge in this matter. Indeed, the entire purpose of this meeting -- or so Respondents believed -- was for Respondents to present their case to him in his capacity as an FTC Commissioner in an effort to convince him that the FTC should not challenge the proposed transaction."

Federal law prohibits an agency employee involved in the investigation of a case from also adjudicating the case. This rule does not apply to members comprising the agency itself -- such as FTC commissioners -- since the agency exercises executive, legislative and judicial functions (in violation of the federal Constitution.) But Arnold & Porter argued that does not apply in a case where an agency member, like Rosch, is functioning as the ALJ: "The mere fact that the Commissioner is authorized to appoint a Commissioner to serve as ALJ . . . does not suggest that it may appoint a Commissioner who has been intimately involved in the underlying investigation and has had ex parte contacts with the parties."

Rosch disagreed. In a statement dated May 29, Rosch explained that Congress designed the FTC to "combine the functions of investigation, prosecution and judge" (again, a clear violation of the federal Constitution), and that FTC commissioners were uniquely qualified to serve as triers of fact. Rosch maintained there is no situation where an FTC commissioner could not serve as ALJ because he was involved with the preceding investigation.

As Arnold & Porter noted, however, if there was nothing improper with Rosch serving as ALJ, why then did he recuse himself from the vote to issue the complaint? (He also recused himself from any appeal of an initial decision he issues.) If commissioners are really extra-constitutional judges and prosecutors, then there should be nothing inappropriate about Rosch serving in both roles. Of course, as noted by VoluntaryTrade.org and Arnold & Porter, Rosch's recusal conveniently reduces the majority necessary to issue a final decision from three to two, since only three commissioners will hear any appeal. (There is currently one vacancy on the five-member FTC.)

Rosch also rejected Arnold & Porter's allegation that his participation as ALJ "creates an impermissible and entirely avoidable appearance of impropriety." Rosch insisted that no evidence was presented demonstrating his "bias or prejudgment" about the complaint. Arnold & Porter said that Rosch should disqualify himself because a "reasonable person" would doubt his impartiality given the facts. Rosch replied, "Assuming for the sake of argument that this is the correct standard, the question is whether a 'reasonable person', who understands the role and purpose of the Commission described above, would doubt this Commissioner's impartiality." Rosch said such a person would not, given Rosch's finding that the law allowed for his appointment.

It's a nice bit of doublespeak. The only "reasonable person," by Rosch's way of thinking, is Rosch himself. He sees nothing wrong with he did, so why should anyone else?

Rosch never addresses when, why or how he was appointed in the first place. Did he know he would be named ALJ when he met with Arnold & Porter ten days before he was appointed? If he was even under consideration, he had a duty to disclose that fact to Arnold & Porter. (Even if Rosch can justify his behavior under federal law, as an attorney he's still bound by principles of legal ethics.) 

As for this idea that Rosch's trial experience in antitrust justified bypassing two experienced ALJs -- one of whom presided over Rambus, the most complex antitrust case in recent FTC history -- the logical inference is that Rosch should be named ALJ in every FTC case from hereon out. Why have ALJs at all when FTC commissioners generally come from the career antitrust bar? This only strengthens the notion that Rosch's appointment was designed to prevent another adverse ruling from an ALJ that's a career civil servant and not a member of the antitrust community. Beyond this case, Rosch's appointment might signal the end of any independent ALJ review of FTC complaints -- a move that effectively abolishes the last bit of due process in FTC practice.

The FTC's total lack of transparency only adds to the questions. Who suggested appointing Rosch? Did it come from one of the commissioners or -- more ominously -- from the FTC staff that is prosecuting the case? And how much did Rosch participate in the investigation before deciding to recuse himself? If he was in the room with his fellow commissioners while they discussed the case and as a group decided to appoint Rosch ALJ, then we have a clear-cut case of collusion. 

If nothing else, Rosch was certainly wrong when he said there was no "appearance of impropriety" here. Without further disclosure -- or even a more plausible lie -- from all four commissioners, the only thing that is apparent is that what happened was improper. And it's going to take more than Rosch issuing a unilateral statement that he did nothing wrong to clear things up.

Thankfully, Rosch's statement is not the final word. Rosch did sign an order referring the recusal motion to the three remaining FTC commissioners. While it's not in the FTC's character to admit a mistake, the prospect of a federal appeals court looking at this case down the line might caution the commissioners to pull back (just a little) from their reckless attempt to rig a trial in their favor.

You can download Arnold & Porter's motion to recuse Commissioner Rosch at this link. You can download Rosch's statement at this link.

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