Supreme Court Decision Impacts How FTC May Pursue Privacy Cases

Sheppard Mullin Richter & Hampton LLP

Sheppard Mullin Richter & Hampton LLP

The Supreme Court recently dealt a potential blow to the FTC’s enforcement tool chest. In particular, the decision impacts its ability to seek monetary relief under a theory it has used in a wide variety of cases, included privacy and security ones, that monetary relief constitutes a “permanent injunction” on consumers’ behalf. In AMG Capital Management, LLC v. Federal Trade Commission, the Supreme Court held that while the FTC should be able to obtain injunctive relief to stop unfair practices, that power does not extend to seeking monetary relief for injured consumers.
The dispute in front of the Supreme Court involved the interpretation of Section 13(b) of the FTC Act, which allows the Commission to seek “permanent injunctions.” Historically, the FTC interpreted that provision to also allow it to seek monetary remedies to return money to injured consumers. The Supreme Court disagreed. At issue in the AMG case were allegations of deceptive payday lending (unfair practices under the FTC Act). The FTC had sought not just injunctive relief, but payment of $1.27 billion in restitution. While the Ninth Circuit allowed the payment, the Court rejected it.

Shortly after this opinion was issued, the FTC signaled its intent to continue pursuing monetary penalties by other avenues, and encouraged Congress to “restore and strengthen the powers of the agency.” In the meantime, the agency has indicated that it plans to grow partnerships with state attorneys general, who can seek monetary penalties under state laws. The decision also does not impact the agency’s ability to seek civil penalties in the event of a violation of an FTC order (Section 5(l) violations), nor its ability to obtain consumer redress through the (arguably cumbersome) process of Section 19. These two avenues are not as immediate, however, as the permanent injunctive relief the FTC had used prior to the Court’s decision.

Putting It Into Practice: This decision suggests that the FTC may be more active in bringing joint enforcements in a wide variety of cases -including privacy and security cases- with state AGs. Companies should keep this in mind when planning privacy and data security programs, and would be well served by looking to expectations of fairness not just as signaled by the FTC, but state AGs as well.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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