Supreme Court Hears Oral Argument over FTC’s Section 13(b) Authority

On January 13, 2021, the United States Supreme Court heard an oral argument in a pivotal challenge to the Federal Trade Commission’s (FTC) historic practice of obtaining monetary damages under a statutory provision that, on its face, allows for only injunctive relief.

AMG Capital Management, LLC v. Federal Trade Commission centers on the interpretation of Section 13(b) of the FTC Act, which allows the FTC to obtain an injunction when it has reason to believe the law is being violated or is about to be violated. Unlike other provisions of the FTC Act, such as Section 19, it does not expressly contemplate monetary awards.

Despite the textual limitations of Section 13(b), over the last three decades, the FTC has leveraged cases with egregious facts to persuade courts to impose monetary awards against defendants in Section 13(b) cases. This solution represented a neat workaround for the FTC, which built precedent allowing it to obtain money damages far in excess of what any defendant actually received, without satisfying the notice requirements imposed by those provisions of the FTC Act that expressly allow for monetary recovery.  Every federal circuit allowed this practice, until recently.  In the last eighteen months, both the Seventh and Third Circuits reversed course, holding that Section 13(b) does not permit the FTC to obtain any monetary recovery.

The AMG case comes to the Supreme Court from the Ninth Circuit, where the bench was internally conflicted.  While affirming a whopping $1.2 billion monetary award to the FTC, the author of the majority opinion specially dissented from his own decision, writing that he believed the precedent allowing monetary recovery under Section 13(b) was wrong.  Judge O’Scannlain did not mince words, calling the judicial construction of Section 13(b) to sustain monetary awards “an impermissible exercise of judicial creativity.” Not only that, but he found it difficult to square with other provisions of the FTC Act, like Sections 5(l) and 19, which do expressly award monetary remedies.

Divining the direction of the Court from an oral argument is frequently a challenge. And such was the case with AMG. (Justice Breyer, for one, said he thought both the red brief and the blue brief got it right—which, being diametrically opposed, would be impossible.)

Justice Roberts began the argument by pointing out that, when Section 13(b) was enacted in 1973, the courts had a less disciplined and more “freewheeling” interpretation of injunctive relief. Although the Supreme Court has since revised its approach to statutory construction to be more consistent with its role under the Constitution, he questioned whether the FTC Act should not be interpreted under those more freewheeling standards, which supplied the backdrop against which Congress passed the law. Justices Alito and Kagan seemed to grapple with the same concern, while Justice Kavanaugh struggled with how to align a more restrictive interpretation of Section 13(b) with other precedents upholding courts’ ability to award ancillary relief attendant to an injunction.

Justice Breyer likewise seemed poised to respect the lower courts’ long history of expansively construing Section 13(b). Revisiting those longstanding precedents, he suggested, might force the Court to reconsider precedents dating back to Marbury vs. Madison.

Other questions from the bench were more practical. Justice Gorsuch, for one, prodded defendants’ counsel with precisely where to draw the line around what an “injunction” might be. Justice Barrett seemed frustrated with the seemingly inequitable result of allowing a bad actor (which she observed had been featured on the Netflix series, Dirty Money) to keep the ill-gotten gains from a fraudulent scheme, while Justice Alito was focused on how to deal with the fact that certain funds had already been distributed to aggrieved consumers.

At the same time, the Justices pushed the FTC on why Congress would permit the Commission to obtain monetary relief based on a Section of the Act focused on stopping ongoing or threatened bad business conduct, especially without the procedural guardrails of, e.g., a statute of limitations. Justice Alito also questioned why Congress would have allowed for monetary awards under Section 13(b) if unfair or deceptive practices were ongoing, but not if they had ceased.

The Justices also challenged the FTC to explain why courts should infuse Section 13(b) with implied grants of remedial authority when other portions of the Act, such as Section 5(l) and Section 19, make that right explicit. Justice Kagan, in particular, wondered why Section 19 of the Act would have been passed after Section 13(b), because Section 13(b)’s pathways to relief was so much more relaxed. She suggested that a broad construction of Section 13(b) would essentially make Section 19 “irrelevant.” And Justice Breyer and Justice Gorsuch powerfully highlighted the seeming unfairness of allowing the FTC to make up standards of unfair and deceptive conduct and then extracting damages for their violation without providing clear advance notice.

Justice Alito and Justice Kavanaugh also pointed to a former FTC official’s explanation of how the Commission had seemingly plotted to expand the scope of Section 13(b) beyond its text and been surprised when the gambit worked. See David M. FitzGerald, The Genesis of Consumer Protection Remedies under Section 13(b) of the FTC Act. Justice Kavanaugh also seemed troubled by the inroads to the separation of powers that would be carved by an expansive interpretation of Section 13(b)—allowing the executive branch to both set standards and enforce them in a single action.

Meanwhile, Justice Sotomayor focused on the absence of any legislative history supporting the view that Section 13(b) authorized monetary awards, while Section 19 was passed to fill a seeming gap in the FTC’s enforcement authority.

A decision is expected from the Court in the coming months.

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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