Well, the buck stops here (for now). Last week, in AMG Capital Management, LLC v. Federal Trade Commission, the Supreme Court unanimously ruled that Section 13(b) of the Federal Trade Commission (FTC) Act does not authorize the FTC to obtain equitable monetary relief such as restitution or disgorgement. This highly anticipated landmark decision reverses decades of precedent and strips the FTC of one of its key enforcement tools for obtaining consumer redress. The decision will likely represent a sea change in FTC enforcement practices.

How did we get here? In 2012, the FTC sued race car driver Scott Tucker and a payday lending company he ran, AMG Capital Management (collectively, Tucker). The FTC alleged that Tucker engaged in unfair or deceptive acts or practices in violation of Section 5 of the FTC Act by failing to clearly and conspicuously disclose that the loans issued would automatically renew, even after the customer paid off the loan, unless the customer affirmatively opted out. The FTC sued in federal district court under Section 13(b) and asked the court for restitution and disgorgement of Tucker’s ill-gotten gains in addition to injunctive relief. The court granted the FTC’s motion for summary judgment and its request for a permanent injunction and ordered the equitable monetary relief sought. Tucker appealed, arguing that Section 13(b) does not authorize the FTC to obtain the monetary relief granted because Section 13(b) only expressly authorizes the FTC to obtain injunctive relief against those who are violating or are about to violate the law. The Ninth Circuit upheld the district court’s decision, pointing to long-standing precedent giving district courts broad power “to grant any ancillary relief necessary to accomplish complete justice, including restitution.”

Specifically, notwithstanding the statute’s explicit reference to a “permanent injunction,” for decades the lower courts broadly construed Section 13(b) as implicitly authorizing the FTC to obtain equitable monetary relief, and the FTC came to increasingly rely on Section 13(b) as a means of obtaining substantial monetary relief by suing directly in federal court. In fact, according to Acting FTC Chairwoman Rebecca Slaughter, Section 13(b) cases have resulted in $11.2 billion in refunds in just the past five years. However, more recently, both the Third and Seventh Circuits reversed existing precedent in their jurisdictions and ruled that the FTC could not obtain monetary relief under Section 13(b). This split among circuits set the stage for the Supreme Court’s review of the Ninth Circuit’s decision.

So why the reversal after all these years? As Justice Breyer, who authored the unanimous opinion, explained, the structure of the FTC Act and the statutory language of Section 13(b) indicate that Congress did not intend Section 13(b) to authorize equitable monetary relief. First, looking at the plain wording of the statute, Breyer reasoned that “an ‘injunction’ is not the same as … monetary relief,” as an injunction offers relief from ongoing and future harm, while restitution offers retrospective relief to redress past harm. Second, Breyer determined that the FTC’s reading of Section 13(b) was inconsistent with the entire structure of the FTC Act and would allow the FTC to completely bypass the administrative process that the FTC Act put into place. Specifically, Breyer noted that Section 5 of the FTC Act establishes administrative proceedings whereby the FTC can file a complaint and obtain a cease-and-desist order, and that Sections 5(l) and 19 expressly give district courts the authority, respectively, to impose limited monetary penalties and to award monetary equitable relief after the FTC has engaged in administrative proceedings and the commission has issued a cease-and-desist order. Breyer took particular note of the fact that Section 19, which gives the district court the authority to impose relief such as the “refund of money or return of property,” was enacted two years after Section 13(b) was added. Clearly, Breyer reasoned, Congress would not have granted the courts the authority to impose monetary relief under Section 19 if the courts already had that authority under Section 13(b). The justice further noted that to read Section 13(b) as allowing the FTC “to dispense with administrative proceedings to obtain monetary relief … would allow a small statutory tail to wag a very large dog.” Put another way, it was unlikely “that Congress … would have granted the Commission authority so readily to circumvent its traditional [Section] 5 administrative proceedings.” Thus, the Court concluded that Section 13(b) was designed only to give the FTC the ability to seek injunctive relief to stop “seemingly unfair practices from taking place while the Commission determines their lawfulness.”

Takeaways

For now, the Supreme Court’s decision will cause a seismic shift in how the FTC pursues consumer protection enforcement. The FTC will no longer be able to obtain the huge monetary judgments that have become the norm until it has first gone through an administrative proceeding and obtained a cease-and-desist order. Further, even if the FTC does obtain a cease-and-desist order, there are limitations on a court’s ability to award monetary relief that the FTC did not face in its Section 13(b) cases. For example, under Section 19, the FTC’s ability to obtain consumer redress will be subject to a three-year statute of limitations. In its Section 13(b) cases, the FTC has often gone back as far as seven years when calculating monetary relief. Further, to obtain relief under Section 19, the FTC must show that a reasonable person would have known that the conduct was fraudulent or dishonest.

Looking forward, what does this mean for the FTC? First, a bill is already in the works that would amend Section 13(b) to expressly authorize the FTC to provide equitable monetary relief for past conduct. Of course, in an evenly split Senate, it remains to be seen whether such a bill will pass. Second, in anticipation of the AMG Capital decision, last month the FTC established a new rulemaking group within its Office of the General Counsel, indicating an aggressive rulemaking period may be coming down the pike. In the meantime, we’ll certainly see a rise in administrative proceedings and perhaps more collaboration with state attorneys general who have the authority to obtain monetary relief to get restitution back in consumers’ hands more quickly. We are also likely to see a rise in FTC cases premised on violations of trade regulation rules or other laws such as CAN-SPAM and the Restore Online Shoppers’ Confidence Act, which allow for civil penalties. After the dust settles, be sure to check back for updates on how the FTC moves on from this decision.