Background
The Act authorizes the FTC to investigate and file suits to stop conduct constituting “[u]nfair methods of competition” and “unfair or deceptive acts or practices.” 15 U.S.C. § 45(a)(1)-(2). The FTC has always had the ability to enforce the Act through administrative proceedings, as outlined in § 5 of the Act. In the 1970s, Congress authorized the FTC to seek additional remedies in court, adding § 13(b). This permitted the FTC to proceed directly to court to seek injunctive relief, including both temporary and permanent injunctions. 15 U.S.C. § 53(b). However, for many years, the FTC has relied on its authority under § 13(b) to seek and obtain fines, in the form of disgorgement and restitution.3 Thus, in 2019, the FTC filed 49 complaints in federal court, obtained 81 permanent injunctions, and collected $723.2 million in restitution or disgorgement. During the same time, the FTC filed only 21 administrative orders.4
In AMG Cap. Mgmt., the FTC filed suit against Scott Tucker in 2012, alleging a payday lending scheme involving “unfair or deceptive acts or practices in or affecting commerce,” in violation of § 5 of the Act.5 Rather than using the administrative proceedings outlined in § 5 of the Act, the FTC sought a permanent injunction preventing Tucker and his companies from committing future violations pursuant to § 13(b) of the Act. In September 2016, the U.S. District Court for the District of Nevada granted the FTC’s request for an injunction, along with restitution and disgorgement under § 13(b), and ordered Tucker to pay $1.27 billion.6 Tucker appealed that decision to the Ninth Circuit, arguing that § 13(b) of the Act does not authorize the award of equitable monetary relief, an argument the Ninth Circuit rejected although some circuits had held otherwise.7 The U.S. Supreme Court held oral arguments on the matter on January 13, 2021.
9-0 Supreme Court holds § 13(b) doesn’t permit equitable monetary relief
On April 22, 2021, Justice Breyer delivered the opinion of the unanimous Supreme Court, holding that § 13(b) Act does not authorize the FTC to seek, or any court to award, equitable monetary relief.
First, the Court explained that the language of the statute itself only refers to injunctions, and the language and structure of § 13(b) taken as a whole indicates that the equitable relief authorized thereunder is prospective, rather than retrospective, in nature.8
Second, the Court noted that Congress, through § 5(l) and § 19, authorized district courts to impose limited monetary penalties and award monetary relief in cases where the FTC has issued cease and desist orders after administrative proceedings. The Court noted that it is highly unlikely that Congress would have so provided if it had intended to provide the FTC with even broader authority to seek monetary relief under § 13(b).
Third, the Court also found each of the FTC’s arguments to be unpersuasive. The Court rejected as inapposite two cases in which the courts permitted the agencies to seek monetary relief because unlike the Act, those statutes clearly reflected Congress’s intent to authorize the agencies to seek and recover monetary relief. The FTC also argued that Congress intended to create two avenues of enforcement – one judicial and one administrative – leaving the decision of which course to pursue to the FTC. The Court dismissed this argument, opining that it “cannot believe that Congress merely intended to enact a more onerous alternative to § 13(b) when it enacted § 19 two years later.”
The FTC next pointed to the savings clause in § 19, which preserved “any authority of the Commission under any other provision of law” and “any other remedy or right of action provided by State or Federal Law”9 to argue that the provision preserves the FTC’s authority to obtain monetary relief. The Court dismissed this argument as well, ruling that the question before the Court was not whether monetary relief could be saved, but whether § 13(b) provided for monetary remedies in the first instance.
Additionally, the FTC argued that the courts of appeals have consistently deferred to the FTC’s interpretation of the Act, and that Congress has twice ratified that interpretation. In support of its position, the FTC cited amendments made to the Act in 1994 and 2006. However, the Court noted that those amendments tell us nothing about the FTC’s authority under § 13(b).
Lastly, the FTC, along with several amici, took the position that there are strong policy reasons for allowing the Commission to use § 13(b) to obtain monetary relief, arguing that parties enjoined from wrongful conduct should not be permitted to keep “profits earned at the unjustified expense of consumers.” The Supreme Court noted that the FTC can use its authority under §§ 5 and 1910 to obtain such restitution, and is further free to ask Congress to grant it additional remedial authority. However, as currently enacted, Congress has not granted the FTC such authority under § 13(b).
What happens next?
As discussed above, in ruling that § 13(b) does not allow the FTC to recover equitable monetary relief in consumer protection and antitrust matters, the Supreme Court effectively stripped the FTC of one of its most powerful enforcement tools.
Almost immediately after the Court’s ruling was issued, FTC Acting Chairwoman Rebecca Kelly Slaughter released a statement “urg[ing] Congress to act swiftly to restore and strengthen the powers of the agency so [the FTC] can make wronged consumers whole.”11 This sentiment is shared by Lina Khan, who was recently nominated by President Biden to fill one of the empty FTC Commissioner seats. In her answers to the Senate Commerce Committee Nominee Questionnaire, Khan testified that “the Commission should have the ability to enjoin lawbreaking and secure redress for victims of illegal activity. The FTC has traditionally used its Section 13(b) authority to prevent unlawful conduct and obtain monetary relief… Further weakening of this authority would likely limit the FTC’s ability to secure monetary redress and to ensure that entities do not profit from lawbreaking.”12
Indeed, well aware of the controversy over the nature of its authority under § 13(b), all five acting FTC commissioners called for congressional action to expressly provide for equitable monetary remedies under § 13(b).13 More recently, just days ahead of the Supreme Court’s decision, on April 20, 2021, the Senate Commerce Committee convened a hearing titled, “Strengthening the Federal Trade Commission’s Authority to Protect Consumers.”14 Acting FTC Chairwoman Rebecca Kelly Slaughter and Commissioners Noah Joshua Phillips, Rohit Chopra, and Christine S. Wilson, testified on behalf of the FTC, and each “reiterated [the FTC’s] call for Congress to pass legislation reaffirming that the agency has authority to prohibit unlawful conduct and seek monetary relief for consumers who have lost money from illegal conduct.”15
That same day, Congressman Tony Cárdenas introduced the Consumer Protection and Relief Act, proposing amendments to § 13(b) of the FTC Act to explicitly allow the FTC to obtain injunctive and equitable relief, including restitution for losses, contract reformation, monetary refunds and the return of property.16 Notably, the bill would “apply with respect to any action or proceeding that is pending on, or commenced on or after, the date of” its enactment, making it somewhat retroactive in its application. The bill is cosponsored by every Democrat on the Energy & Commerce Subcommittee on Consumer Protection and Commerce.17 The Consumer Protection and Commerce Subcommittee is set to hold a hearing on the Cárdenas proposal on Tuesday, April 27, 2021.
While there has not yet been a similar bill introduced in the Senate, earlier this year, on February 4, 2021, Senator Amy Klobuchar introduced the Competition and Antitrust Law Enforcement Reform Act of 2021, which in relevant part would allow the FTC to recover from companies that have committed certain antitrust violations, civil penalties of 15 percent of total U.S. revenues for the previous calendar year or 30 percent of U.S. revenues earned from conduct that violates the antitrust laws.18
With support from FTC commissioners on both sides of the aisle for Congress to address the FTC’s enforcement authority, there can be little doubt that this issue will be taken up by Congress. We expect that there will be strong opposition from some quarters on Capitol Hill to the broad authority that the FTC is seeking (and has now lost). What comes out of this process remains to be seen, although we believe that the FTC is likely to receive from Congress at least some of what it is requesting. In the meantime, the Commission will do its best to function effectively having lost one of the most powerful enforcement weapons it thought it had in its arsenal.
For companies who find themselves the subject of an investigation by the FTC, until Congress resolves this issue, they will face an FTC that is significantly weakened by its loss of its ability to demand in settlement or seek from a court the types of large financial penalties that it has sought and recovered in the past. In the short run, this may mean that it will be easier for some parties to resolve investigations simply by committing to refrain from the suspect conduct at issue. For others, it may mean that they are willing to litigate the FTC’s claims without the threat of a potentially massive financial penalty hanging over their heads.
- AMG Cap. Mgmt., LLC v. FTC, No. 19-508, 593 U.S. ____ (2021).
- See analysis of circuit split at reedsmith.com.
- AMG Cap. Mgmt., 593 U.S. ____.
- Id.
- 15 U.S.C. § 45(a)(1).
- FTC v. AMG Servs., Inc., 2016 U.S Dist. LEXS 135765, 2016 WL 5791416 (D. Nev. Sept. 30, 2016).
- FTC v. AMG Cap. Mgmt., LLC, 910 F. 3d 417 (9th Cir. 2018), FTC v. AbbVie Inc., Nos. 18-2621, 18-2748, and 18-2758, 2020 WL 5807873 (3d Cir. Sept. 30, 2020), FTC v. Credit Bureau Center, LLC, 37 F.3d 764, 786 (7th Cir. 2019), cert. granted, No. 19-825, 2020 WL 3865251 (U.S. July 9, 2020), cert. denied, No. 19-914, 2020 WL 3865255 (U.S. July 9, 2020).
- Referring to 15 U.S.C. § 53(b).
- 15 U.S.C. § 7b(e).
- Section 5(a) of the Act prohibits unfair methods of competition and deceptive acts or practices. Under § 5(b) of the FTC Act, the Commission may challenge “unfair or deceptive act[s] or practice[s],” “unfair methods of competition,” or violations of other laws enforced through the FTC Act by instituting an administrative adjudication. See A Brief Overview of the Federal Trade Commission's Investigative, Law Enforcement, and Rulemaking Authority, FTC (rev. Oct. 2019), ftc.gov. When the FTC has reason to believe a violation has occurred, it may issue a complaint setting forth charges. A respondent can sign a consent agreement, consent to entry of a final order, and waive its right to judicial review and the FTC places the order on the record, typically for 30 days, before determining whether to make it final. Conversely, if the respondent challenges the charges, “the complaint is adjudicated before an administrative law judge… in a trial-type proceeding conducted under the Commission’s Rules of Practice.” Id. The FTC holds oral argument and issues a final decision after an appeal of an initial decision. The respondent can again appeal this decision to the appropriate court of appeals. After an administrative order is entered, under § 19 of the Act, the FTC may “seek consumer redress in federal district court for consumer injury caused by the conduct that was at issue.” Id. Under § 19, the FTC must demonstrate that “a reasonable man would have known under the circumstances [that the conduct] was dishonest or fraudulent.” 15 U.S.C. § 57b.
- Statement by FTC Acting Chairwoman Rebecca Kelly Slaughter on the U.S. Supreme Court Ruling in AMG Capital Management LLC v. FTC, FTC (Apr. 22, 2021), ftc.gov.
- See Linda Khan, Senate Commerce Committee Nominee Questionnaire, 117th Congress (Mar. 28, 2021), at 14, available at commerce.senate.gov.
- See “FTC Commissioners Urge Congress to Pass Legislation to Restore Section 13(b) of the FTC Act,” Nat’l L. Rev. (Nov. 3, 2020).
- See Strengthening the Federal Trade Commission’s Authority to Protect Consumers, U.S. Senate Committee on Commerce, Science & Transportation (Apr. 20, 2021), commerce.senate.gov.
- See FTC Testifies Before Congress on its Work to Protect Consumers from COVID-19 Scams, and Threats to its Ability to Return Money to Victims of Illegal Conduct, FTC (Apr. 20, 2021).
- Consumer Protection and Relief Act, H.R. 2668 117th Cong. (2021).
- Cárdenas Response to Supreme Court Decision on FTC Act Section 13(b).
- Competition and Antitrust Law Enforcement Reform Act of 2021, S. 225, 117th Cong. (2021). Exclusionary conduct means conduct that (1) materially disadvantages at least one potential competitor or (2) tends to foreclose or limit the ability or incentive of at least one potential competitor. See id. at § 26A(1)(A).
In-depth 2021-119
