U.S. Supreme Court’s Decision To Review A Pair Of FTCA Cases Could Spell A Sea Change In FTC’s Enforcement Authority

Morrison & Foerster LLP

Morrison & Foerster LLP

The 1914 Federal Trade Commission Act (FTCA) created the Federal Trade Commission (FTC or “the Commission”) and empowered it to prevent, and provide redress to consumers affected by, unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce. In 1973, Congress added Section 13(b) to the FTCA, providing the Commission with the power to seek “preliminary injunctions” as well permanent injunctions in “proper cases.” Although the provision’s language is narrow, the FTC has since read into Section 13(b) a more expansive authority to “halt deceptive practices” by seeking equitable remedies that look a lot like monetary relief, including asset freezes, the appointment of receivers, awards of restitution, and “other relief to redress injury from consumer frauds.” David M. Fitzgerald, The Genesis of Consumer Protection Remedies Under Section 13(b) of the FTC Act, Paper at the FTC 90th Anniversary Symposium (Sept. 23, 2004), available at, https://tinyurl.com/y84ue9fx.

The FTC has come to rely heavily on this understanding of Section 13(b) in its enforcement of the FTCA. Today, consumer redress is part of many FTC enforcement actions, with the Commission bringing “dozens of cases every year seeking a permanent injunction and the return of illegally obtained funds.” FTC v. Credit Bureau Ctr., LLC, 937 F.3d 764 (7th Cir. 2019). Court awards of restitution in actions brought under Section 13(b) have enabled the Commission to return “billions of dollars to consumers who have fallen victim to a wide variety of illegal scams.” Id.

Until recently, the Commission’s interpretation of Section 13(b) had enjoyed consistent judicial approval. Between Section 13(b)’s passage in 1973 and 2019, eight circuits affirmed that Section 13(b) permits the FTC to seek equitable monetary damages for violations of Section 5 of the FTCA. See, e.g., FTC v. United States Oil & Gas Corp., 748 F.2d 1431, 1432–35 (11th Cir. 1984); FTC v. Direct Mktg. Concepts, Inc., 624 F.3d 1, 15 (1st Cir. 2010); FTC v. Bronson Partners, LLC, 654 F.3d 359, 365 (2d Cir. 2011).

But last year, the Seventh Circuit shattered that longstanding approval, overturning its own precedent to hold that Section 13(b) of the FTCA does not, in fact, envision an implied right to restitution. See Credit Bureau Ctr., LLC, 937 F.3d at 764. The Court reasoned that the plain meaning of Section 13(b) did not contemplate restitution as a form of relief, and that awards of restitution would be inconsistent with the wholly prospective slant of the section itself. Id. at 772.

Recently, the Supreme Court signaled that it would resolve this fresh dispute. Last Thursday, the Court granted certiorari in, and consolidated, a pair of cases raising the question whether Section 13(b) of the FTCA authorizes the Commission to obtain restitution. See AMG Capital Management, LLC v. FTC, No. 19-508, 2020 WL 3865250 (U.S. July 9, 2020) (Mem.); FTC v. Credit Bureau Ctr., LLC, No. 19-825, 2020 WL 3865251 (U.S. July 9, 2020) (Mem.). Notably, the FTC is representing itself in the Supreme Court—rather than being represented by the Office of the Solicitor General as federal agencies usually are—because the federal government has declined to defend the position that Section 13(b) authorizes the FTC to seek restitution.

The Supreme Court’s decision in these consolidated cases could have significant implications for the FTC’s enforcement program. If the Supreme Court adopts the Seventh Circuit’s reasoning, the FTC would lose a substantial power with which it has long sought relief in FTCA enforcement actions. While the FTC would retain the power to seek equitable monetary damages through other provisions of the FTCA, these avenues require the FTC to follow a more complicated (and slow) procedural process. Moreover, companies facing an FTC enforcement action may now be more inclined to litigate against the FTC, as litigation could result in no monetary penalty, versus entering into a consent order imposing significant redress or disgorgement of ill-gotten gains. We understand that the FTC, in light of these possible outcomes, has proposed to Congress legislation that would provide the Commission with the explicit authority to seek monetary relief. Given the current political climate, however, the odds that such legislation will pass may be low.

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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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