US Supreme Court to Review FTC’s Right to Seek Equitable Monetary Relief

Morgan Lewis

For decades, the Federal Trade Commission has invoked Section 13(b) of the Federal Trade Commission Act to file suit in federal court in pursuit of both injunctive relief and equitable monetary relief. On July 9, the US Supreme Court granted certiorari and consolidated two cases—AMG Capital Management, LLC v. Federal Trade Commission and Federal Trade Commission v. Credit Bureau Center, LLC—that call into question the Commission’s authority to seek equitable monetary relief in Section 13(b) cases.

The Supreme Court’s resolution of these cases during the 2020–2021 term is likely to have profound implications for the Federal Trade Commission (FTC) and the companies and industries that it oversees.

THE FTC’S ENFORCEMENT POWERS

To appreciate the implications of the Supreme Court’s grants of certiorari in AMG Capital Management and Credit Bureau Center, it is helpful to begin with an overview of the three primary means by which the FTC carries out its enforcement agenda. First, the FTC is authorized to bring an internal enforcement action before an administrative law judge, who can issue a cease and desist order.[1] Such an enforcement action can be brought with respect to either competition or consumer protection matters. If the defendant violates the cease and desist order, the FTC may bring suit in federal court to enforce the order and pursue civil penalties.[2] In addition, in consumer protection cases, the FTC can seek monetary relief in federal court under FTC Act Section 19 for the original conduct, but only if “a reasonable man would have known under the circumstances [that the conduct] was dishonest or fraudulent,”[3] and only after it has issued a cease and desist order that has become final. Thus, both of those paths require the FTC to complete the administrative enforcement process before initiating a lawsuit in federal court seeking monetary relief.

Second, under the FTC’s general rulemaking authority, the FTC may promulgate trade regulation rules making specific “unfair or deceptive acts or practices” unlawful.[4] In most circumstances, to issue a trade regulation rule prohibiting an unfair or deceptive practice, the FTC must follow time-consuming formal rulemaking processes that are much more complex than the Administrative Procedures Act.[5] If a defendant violates one of these rules and the FTC can establish that the violation was committed with actual or imputed knowledge, the FTC may file suit in federal court seeking civil penalties.[6] The FTC can also seek consumer redress under Section 19 for rule violations, including consumer refunds or actual damages.[7]

These first two means of enforcement provide the FTC with a narrow right to recover monetary relief in federal court. In the case of administrative proceedings, the FTC may seek to enforce a cease and desist order in federal court, but only after the FTC has completed the administrative enforcement process and a cease and desist order has issued. In the rulemaking context, the conduct at issue must violate a specific FTC-prescribed rule, and the FTC must prove that the rule violation was committed knowingly.

Given these limitations, the FTC has historically relied heavily on the third element of its enforcement powers, FTC Act Section 13(b), which provides in relevant part:

Whenever the Commission has reason to believe . . . that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the Federal Trade Commission, and . . . that the enjoining thereof . . . would be in the interest of the public—the Commission . . . may bring suit in a district court of the United States to enjoin any such act or practice.[8]

Section 13(b) provides the FTC authority to file suit in federal court in both competition and consumer protection cases, but only where the defendant “is violating, or is about to violate,” the law and enforcement would be in the public interest.

REMEDIES UNDER SECTION 13(B)

Unlike the provisions of the FTC Act that permit the FTC to seek monetary relief for violations of a cease and desist order, dishonest or fraudulent acts or practices, or knowing violations of promulgated rules, the plain text of Section 13(b) permits only the issuance of injunctive relief. At least on its face, Section 13(b) does not permit the FTC to recover restitution, disgorgement, or other forms of equitable monetary relief.

Nevertheless, lower courts have long read into Section 13(b) an implied right of the FTC to recover equitable monetary relief in addition to injunctive relief. To the extent that these courts have offered a rationale, they have cited the FTC Act’s remedial intent to justify an award of monetary relief, even though the only form of relief expressly contemplated under the statute is an injunction.[9] For example, in a 1989 case, Federal Trade Commission v. Amy Travel Service, Inc., the US Court of Appeals for the Seventh Circuit held that the “statutory grant of authority to the district court to issue permanent injunctions includes the power to order any ancillary equitable relief.”[10] At least seven other circuits reached the same conclusion, and the FTC has generally sought equitable monetary relief in Section 13(b) cases as a matter of course.[11]

AMG CAPITAL MANAGEMENT AND CREDIT BUREAU CENTER

The Supreme Court’s grant of certiorari is significant because the concurrence in AMG Capital Management and the Seventh Circuit’s decision in Credit Bureau Center, taken together, jeopardize the FTC’s continued ability to seek equitable monetary relief in Section 13(b) cases.

In AMG Capital Management, the FTC sued a payday lender under Section 13(b) for unfair and deceptive trade practices involving allegedly insufficient consumer disclosures.[12] The district court entered summary judgment in the FTC’s favor, enjoined the defendant from engaging in similar misconduct in the future, and awarded the FTC more than a billion dollars in equitable monetary relief.[13] The defendant appealed to the US Court of Appeals for the Ninth Circuit, which affirmed the judgment. Although the defendant contended that Section 13(b) did not permit an award of equitable monetary relief, the Ninth Circuit concluded that the defendant’s argument was foreclosed by binding precedent, holding that Section 13(b) carries with it the right to grant “ancillary” relief, including restitution and other forms of equitable monetary relief.[14]

Notwithstanding the holding, Judge Diarmuid O’Scannlain (who also wrote the panel decision) authored a special concurrence, in which he argued that the Ninth Circuit precedent interpreting Section 13(b) to permit the award of “ancillary” equitable monetary relief was “no longer tenable.”[15] In his concurrence (which was joined by Judge Carlos Bea), Judge O’Scannlain carefully parsed Section 13(b)’s text and legislative history, as well as intervening Supreme Court precedent assessing the ability of the US Securities and Exchange Commission to seek equitable monetary relief. He lamented the Ninth Circuit’s “continued disregard of the statute’s text and the Supreme Court’s related precedent,” and urged the Court to take the case en banc to revisit the issue.[16] Although the defendant moved for en banc reconsideration, the full court declined to take the case and the defendant filed a petition for certiorari with the Supreme Court.[17]

In the Credit Bureau Center case, which we covered in a LawFlash last year, the FTC sued the defendant under Section 13(b) for advertising “free” credit reports without adequately disclosing that, by obtaining their “free” credit reports, consumers would be enrolled in an expensive ongoing credit monitoring service.[18] The FTC sought a permanent injunction, as well as an award of restitution. Construing Section 13(b) to permit both, the district court issued the permanent injunction and ordered the defendant to pay more than $5 million in restitution. The defendant appealed to the Seventh Circuit, arguing that because Section 13(b)’s text refers to injunctions as the FTC’s exclusive remedy, the FTC could not seek—and the district court could not order—restitution.

Echoing Judge O’Scannlain’s concurrence in AMG Capital Management, the Seventh Circuit’s decision parsed Section 13(b)’s text and legislative history, as well as the FTC’s broader enforcement authority. The Seventh Circuit overruled 30 years of its own precedent and concluded that “[S]ection 13(b)’s grant of authority to order injunctive relief does not implicitly authorize an award of restitution.”[19] The decision created a circuit split by putting the Seventh Circuit at odds with the seven other federal appeals courts that had previously decided the issue in the FTC’s favor. The Seventh Circuit simultaneously issued an order denying rehearing en banc, and the FTC petitioned the Supreme Court for certiorari.[20]

By order dated July 9, 2020, the Supreme Court consolidated AMG Capital Management and Credit Bureau Center and granted certiorari, setting up a high-stakes showdown next term with significant implications for the FTC and the companies and industries that the FTC regulates.

OUR THINKING

Given the practical limits on the FTC’s authority to seek monetary relief in federal court in the context of cease and desist orders and rulemaking enforcement, it is unsurprising that the FTC has relied on Section 13(b) as a cornerstone of its enforcement agenda, particularly in the consumer protection area. The FTC’s certiorari petition in Credit Bureau Center freely admits that the Seventh Circuit’s decision “threatens the FTC’s ability to carry out its mission by eliminating one of its most important and effective enforcement tools.”[21] The petition goes on to state:

The Commission depends heavily on Section 13(b) in carrying out its mandate to protect consumers and competition. It brings dozens of cases every year seeking a permanent injunction and the return of illegally obtained funds. As a result of Section 13(b) cases, the Commission has returned billions of dollars to consumers who have fallen victim to a wide variety of illegal scams.

Of course, if the FTC persuades the Supreme Court that Section 13(b)’s grant of authority to seek injunctive relief carries with it an implied right to equitable monetary relief, the FTC will retain this central feature of its enforcement agenda. If, however, the Supreme Court affirms the Seventh Circuit’s decision in Credit Bureau Center, it will leave the FTC with only the limited ability to seek financial redress through cease and desist order and rulemaking enforcement proceedings.

In that scenario, it is likely that the FTC would press Congress to amend Section 13(b). In fact, at least two FTC commissioners have already called for a congressional overhaul of Section 13(b) to provide an express right to recover equitable monetary remedies, as well as to legislate around the recent US Court of Appeals for the Third Circuit decision in FTC v. Shire ViroPharma, Inc.[22] The Shire ViroPharma decision held that, by virtue of the provision in Section 13(b) limiting the FTC’s authority to file suit in federal court to only those cases where the defendant “is violating” or “is about to violate” the law, the FTC could not invoke Section 13(b) to bring an action in federal court to challenge conduct that occurred solely in the past.[23]

If the FTC were to urge Congress to amend Section 13(b) to provide an express right to equitable monetary relief, one potential point of comparison is the Securities Exchange Act of 1934. A provision of the Exchange Act provides that “[i]n any action or proceeding brought or instituted by the [Securities and Exchange] Commission under any provision of the securities laws, the Commission may seek, and any Federal court may grant, any equitable relief that may be appropriate or necessary for the benefit of investors.”[24] In its recent decision in Liu v. Securities and Exchange Commission, the Supreme Court held that this provision allows the SEC to seek broad equitable monetary relief, including disgorgement.[25] Of course, the Exchange Act’s express reference to “any equitable relief” stands in stark contrast to Section 13(b)’s exclusive reference to injunctive relief.

Without an amendment to Section 13(b), a loss in the Supreme Court would force the FTC to substantially rethink its enforcement agenda. In consumer protection cases, the FTC would likely look to existing trade regulation rules, such as the Telemarketing Sales Rule,[26] or statutory designations of “deemed” trade regulation rules like that in the Fair Debt Collection Practices Act,[27] for an alternative basis for monetary relief in what would previously have been standalone Section 13(b) cases. In addition, it might try to make greater use of Section 19 in cease and desist order cases, despite the daunting “dishonest or fraudulent” standard. In competition cases, the FTC would largely be confined to seeking injunctive relief in federal court, and only in those cases where the FTC can satisfy the “is violating or about to violate” standard.

 


[1] 15 U.S.C. § 45(b).

[2] 15 U.S.C. § 45(l).

[3] 15 U.S.C. § 57b(a)(2).

[4] 15 U.S.C. § 57a(a)(1).

[5] See generally 15 U.S.C. § 57a(b)–(e).

[6] 15 U.S.C. § 45(m)(1)(A).

[7] 15 U.S.C. §§ 57b(a)(1), (b).

[8] 15 U.S.C. § 53(b).

[9] Many of these cases premised their broad construction of Section 13(b) remedies on two earlier Supreme Court cases, Porter v. Warner Holding Co., 328 U.S. 395 (1946), and Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288 (1960). Those cases interpreted the Emergency Price Control Act of 1942 and the Fair Labor Standards Act, respectively. Citing the remedial intent of those statutes, in both cases, the Supreme Court found a right to recover restitution, even though the statutes’ remedy provisions made no mention of that remedy.

[10] FTC v. Amy Travel Serv., Inc., 875 F.2d 564, 572 (7th Cir. 1989).

[11] See, e.g., FTC v. Ross, 743 F.3d 886, 890-92 (4th Cir. 2014); FTC v. Bronson Partners, LLC, 654 F.3d 359, 365 (2d Cir. 2011); FTC v. Direct Mktg. Concepts, Inc., 624 F.3d 1, 15 (1st Cir. 2010); FTC v. Freecom Commc’ns, Inc., 401 F.3d 1192, 1202 n.6 (10th Cir. 2005); FTC v. Gem Merch. Corp., 87 F.3d 466, 470 (11th Cir. 1996); FTC v. Pantron I Corp., 33 F.3d 1088, 1102 (9th Cir. 1994); FTC v. Sec. Rare Coin & Bullion Corp., 931 F.2d 1312, 1314-15 (8th Cir. 1991).

[12] FTC v. AMG Capital Mgmt., LLC, 910 F.3d 417, 421-22 (9th Cir. 2018).

[14] Id. at 426 (citing Pantron I Corp., 33 F.3d at 1102).

[15] Id. at 429 (O’Scannlain, J., concurring).

[16] Id. at 436 (O’Scannlain, J., concurring).

[17] AMG Capital Mgmt., LLC v. FTC, petition for cert. filed (U.S. Oct. 18, 2019) (No. 19-508).

[18] FTC v. Credit Bureau Ctr., LLC, 937 F.3d 764, 766 (7th Cir. 2019).

[20] Interestingly, the FTC filed its own certiorari petition and is representing itself in the Credit Bureau Center case. This is rare, as most federal agencies, unlike the FTC, lack the statutory authority to represent themselves in the Supreme Court and must instead be represented by the US Department of Justice. Even the FTC must first afford the US solicitor general the opportunity to represent it, and, as a result, the FTC has represented itself before the Supreme Court only a handful of times in the past. Some have speculated that the US solicitor general may have disagreed with the FTC’s reading of Section 13(b) and accordingly declined to intervene on the FTC’s behalf. See, e.g., Amy Howe, FTC files own petition, suggesting divide in federal government, SCOTUSblog (Jan. 3, 2020).

[21] FTC v. Credit Bureau Ctr., LLC, petition for cert. filed (U.S. Dec. 19, 2019) (No. 19-825).

[22] Legislation clarifying FTC’s jurisdiction in federal court sought by Commissioner Wilson, mLex Global Antitrust (Oct. 11, 2019).

[23] FTC v. Shire ViroPharma, Inc., 917 F.3d 147, 161 (3d Cir. 2019).

[24] 15 U.S.C. § 78u(d)(5) (emphasis added).

[25] Liu v. SEC, 140 S. Ct. 1936, 1940 (2020).

[26] 16 C.F.R. pt. 310.

[27] See 15 U.S.C. § 1692l(a) (“All of the functions and powers of the Federal Trade Commission under the Federal Trade Commission Act are available to the Federal Trade Commission to enforce compliance by any person with this subchapter, irrespective of whether that person is engaged in commerce or meets any other jurisdictional tests under the Federal Trade Commission Act, including the power to enforce the provisions of this subchapter, in the same manner as if the violation had been a violation of a Federal Trade Commission trade regulation rule.”).

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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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