In a unanimous decision, the U. S. Supreme Court ruled today that Section 13(b) of the Federal Trade Commission Act (Act) does not authorize the FTC to seek, and a court to award, monetary relief such as restitution or disgorgement.

In AMG Capital Management, LLC v. FTC, the FTC filed a lawsuit in federal district court against several payday lenders and their owner for engaging in alleged unfair or deceptive acts or practices in violation of Section 5 of the Act.  Relying on Section 13(b), the FTC’s complaint sought a permanent injunction to prevent the defendants from committing future violations of the Act and monetary relief in the form of restitution and disgorgement.  In addition to granting the FTC’s summary judgment motion, the district court granted the FTC’s request for a permanent injunction and directed the defendants to pay $1.27 billion in restitution and disgorgement.  On appeal to the Ninth Circuit, the defendants argued unsuccessfully that Section 13(b) did not authorize the monetary relief ordered by the district court.  The defendants then sought certiorari which the Supreme Court granted to resolve a circuit split, with the Seventh Circuit having reached an opposite conclusion from the Ninth Circuit on the scope of the FTC’s Section 13(b) authority.

The Supreme Court, in its opinion written by Justice Breyer, first looked at the language of three provisions of the Act:

• Section 13(b) which was added to the Act in 1973 and allows the FTC to proceed directly to court (before issuing a cease and desist order) to obtain a “temporary restraining order or preliminary injunction” and to also “in proper cases” obtain a “permanent injunction.”
• Section 5(l) which was amended in 1973 to authorize district courts to award civil penalties against respondents who violate final FTC cease and desist orders, and to “grant mandatory injunctions and such other and further equitable relief as they deem appropriate in the enforcement of such final orders of the Commission.”
• Section 19 which was added to the Act in 1975 and authorizes district courts to grant “such relief as the court finds necessary to redress injury to consumers,” including through the “refund of money or property.”  Section 19 limits the availability of consumer redress to cases in which a person has “engage[d] in any unfair or deceptive act or practice…with respect to which the Commission has issued a final cease and desist order which is applicable to such person.”

The Court then discussed the following considerations which “taken together, convince us that Section 13(b)’s ‘permanent injunction’ language does not authorize the Commission directly to obtain court-ordered monetary relief”:

• Section 13(b) refers only to injunctions and focuses on relief that is prospective, not retrospective.  While observing  that the words “permanent injunction” might be read to allow the FTC to dispense with administrative proceedings before seeking an injunction, the Court was unwilling to “read those words as allowing what they do not say, namely, as allowing the Commission to dispense with administrative proceedings to obtain monetary relief as well.”  In the Court’s view, such reading “is to read the words as going well beyond the provision’s subject matter” and “[i]n light of the historical importance of administrative proceedings, that reading would allow a small statutory tail to wag a very large dog.”
• Sections 5(l) and 19, which were enacted at the same time as or a few years after Section 13(b), give district courts authority to impose monetary penalties and award monetary relief in cases where the FTC has issued a cease and desist order in an administrative proceeding.  Since Congress explicitly provided in these provisions for “other and further equitable relief” and “the refund of money or return of property,” the Court found Congress “likely did not intend Section 13(b)’s more cabined ‘permanent injunction’ language to have similarly broad scope.”  Section 19 also has limitations not found in Section 13(b), including that it only applies where the FTC begins its Section 5 process within three years of the violation and seeks monetary relief within one year of any resulting cease and desist order.  The Court found it “highly unlikely Congress would have enacted provisions authorizing conditioned and limited monetary relief if the Act, via Section 13(b), allowed the Commission to obtain that same monetary relief and more without satisfying those conditions and limitations.” (emphasis included).
• Reading Section 13(b) to authorize injunctive but not monetary relief produces a coherent enforcement scheme—the FTC can obtain monetary relief by first invoking its administrative procedures and then Section 19’s redress provisions and the FTC can use Section 13(b) to obtain injunctive relief while administrative proceedings are pending or in progress, or when it seeks only injunctive relief.  In contrast, according to the Court, the FTC’s reading would allow it to use Section 13(b) as a substitute for Sections 5 and 19.

The Supreme Court rejected all of the arguments made by the FTC in support of its reading, including its arguments that traditional equitable authority to grant an injunction includes the power to grant monetary relief and that it was important as a policy matter to allow the FTC to use Section 13(b) to obtain monetary relief rather than only allowing it to enjoin those who violate the Act while leaving them with the profits of their wrongdoing.  In response to the FTC’s policy argument, the Court commented that if the FTC believes its authority under Sections 5 and 19 to obtain restitution is too cumbersome or otherwise inadequate, it is “free to ask Congress to grant it further remedial authority.”

The FTC has already asked Congress to grant it express authority to seek monetary relief under Section 13(b).  At a hearing before the Senate Commerce Committee last week, the four currently-serving FTC Commissioners called on Congress to pass such legislation and, in a statement issued today criticizing the Supreme Court’s decision, Acting FTC Chairwoman Rebecca Slaughter urged Congress to act to strengthen the FTC’s powers.

The Supreme Court’s decision is a serious blow to the FTC’s authority to enforce Section 5 of the Act.  In contrast to the FTC, the CFPB has authority under the Consumer Financial Protection Act to obtain all forms of monetary relief and civil money penalties.  In the absence of Congressional action, we expect the Supreme Court’s decision to result in more collaboration by the FTC with the CFPB in bringing enforcement actions for unfair or deceptive acts or practices against non-banks as to whom both agencies have enforcement jurisdiction.  We also expect to see the FTC increase its use of administrative proceedings.  (If the FTC files a lawsuit based on one of the enumerated consumer financial services laws that it has authority to enforce, it can obtain any monetary relief that is expressly authorized under such laws.)