Total Wine Tests the Boundaries of FTC CIDs
Thursday, December 7, 2023

Total Wine & More (Total Wine) and the Federal Trade Commission (FTC) are currently clashing in federal court over a civil investigative demand (CID) that the FTC issued to Total Wine, a third party in the FTC’s investigation of Southern Glazer’s Wine & Spirits, LLC (Southern Glazer).

Total Wine has fervently resisted producing certain corporate documents and data in response to the FTC’s subpoena. It is rare that companies challenge the FTC’s authority to compel production and take such a strong stance against complying with agency CIDs for information. This dispute could have wide-ranging implications for third-party CID compliance, regardless of the industry. For companies operating in the alcohol industry and following the FTC’s investigation into Southern Glazer, the court’s decision could have a serious impact on the investigation as it will impact the breadth of documents and data to which the FTC will have access to for its case.

Under Section 20 of the FTC Act, 15 U.S.C. § 57b-1, the FTC is empowered to issue CIDs, a type of administrative subpoena, to require any person—including third parties—to produce documents or other information, file written reports or answers and give oral testimony relating to any FTC enforcement investigation. When third-party companies are issued CIDs, they usually negotiate the scope and comply, albeit reluctantly, with the requests, as refusing to comply typically is not advised. As part of the FTC’s investigation into Southern Glazer’s business practices and, specifically, whether the company has engaged in discriminatory practices in its sales to retailers in violation of the Robinson-Patman Act or engaged in other unfair competition practices in violation of Section 5 of the FTC Act, the agency issued a number of CIDs to third parties, as is customary. However, in a rare turn of events, a third party, Total Wine, and the FTC have ended up in a court battle over the subpoena.

After making limited productions, Total Wine filed an administrative petition with the FTC to limit the CID’s scope. This action is rarely taken by third parties, who often focus on negotiating the scope of the requests and limiting the burden of compliance to the extent possible, as opposed to challenging the CID itself. The FTC outright denied Total Wine’s petition, and in October, after four months of Total Wine’s resistance to comply fully, the FTC filed a petition seeking a federal court order to force Total Wine to comply with the CID.

In its petition to the court, the FTC alleged Total Wine “unilaterally narrowed the scope of the CID in a manner inconsistent with the CID’s specifications and refused to search any employee’s custodial files for responsive documents.” Although Total Wine has produced purchase-related transaction data to the FTC, it has persistently refused to produce information relating to email communications, business strategies and competitor assessments, and it has described the scope of the FTC’s demand as “truly alarming.” Despite FTC staff and Total Wine trying to work cooperatively together, the FTC has deemed Total Wine’s CID response severely deficient in multiple respects, stating Total Wine’s failure to fully comply with the subpoena has “impeded and delayed the FTC’s investigation.”

Total Wine, consequently, filed an opposition to the FTC’s petition, asking the court to deny the FTC’s demand for corporate records. In its brief, Total Wine said “[n]o business expects to be excused from the responsibility to produce reasonably relevant documents,” but “what they do expect––and deserve––is to be treated fairly and not like the enemy simply because they happen to be a successful business or the customer of a target.” Even though shortly after issuing the CID the FTC assured Total Wine they “were not targets of the investigation and could be victims of price discrimination by Southern Glazer,” third parties like Total Wine often can be made to feel like targets when in receipt of such overly broad CIDs. Total Wine’s opposition further states: “without any ability for the Court to meaningfully question the agency,” the FTC believes “it is entitled to whatever document it wants from a third-party witness irrespective of investigative need, burden, or duplication of information,” and “[r]espectfully, this cannot possibly be a proper use of the third-party CID, and it is inconsistent with the law.” These sentiments might be felt by third-party companies forced to comply with burdensome subpoenas, but they are rarely—if ever—publicly expressed. Thus, the court matter between Total Wine and the FTC should be of particular interest to companies across all industries.

The matter has now been fully briefed, and a hearing on the FTC’s petition to enforce the CID, and Total Wine’s related opposition brief, is scheduled for December 11, 2023, before US District Judge Anthony Trenga in the US District Court for the Eastern District of Virginia. In addition to impacting the information the FTC has access to in its current investigation, the federal court’s decision could alter the burden on third parties in future investigations either by alleviating the burden if the court sides with Total Wine or empowering the FTC if the decision favors the agency. Regardless of the outcome, this court battle is an important one to watch.

 

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