FTC Successfully Fends Off AMG Attacks on Judgments

Within hours of the Supreme Court’s landmark decision in AMG Capital Management v. FTC last April overturning forty years of precedent to hold that the FTC cannot get money judgments in a direct federal court action (for discussion, see “Supreme Court Guts FTC’s Enforcement Powers and Clout,” April 2021), the phone began to ring from FTC defendants. Each wanted to know, can I get my judgment  thrown out?  My immediate answer, without the benefit of research, was probably not, given the judicial system’s strong interest in finality, but perhaps not impossible depending on the circumstances.  As it turns out, that was the correct “off the cuff” response, as two recent denials of motions to set aside monetary judgments pursuant to AMG brought in the Central District of California reveal. These decisions, discussed here, show that at least in that district under Ninth Circuit law, and probably in federal courts generally, an FTC defendant seeking to convince a judge to toss a monetary judgment will need an especially compelling set of circumstances to prevail.

If the time to appeal an FTC monetary judgment had not run out as of the date of AMG, such that the judgment was not yet absolutely final, a defendant in that circumstance would have been in luck; indeed, the Ninth Circuit, under well-established principles of judicial retroactivity aimed at ensuring similarly-situated parties are treated the same, has already vacated multiple such appealable judgments on the basis of the change in law in AMG.  If a judgment was no longer appealable, then the only recourse was a “collateral attack” under Rule 60(b) of the Federal Rules of Civil Procedure, which sets out five narrowly prescribed circumstances for granting relief from a final judgment, plus a “catch-all” provision for any “other reason to justify relief” that requires a showing of “extraordinary circumstances” and vests great equitable discretion in the judge to make that determination  Those circumstances are: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence that reasonably could not have been discovered in time to move for a new trial; (3) fraud, misrepresentation, or misconduct by an opposing party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, is based on an earlier judgment that has been reversed or vacated, or applying it prospectively is no longer equitable; and (6) any other reason that justifies relief.  A motion based on any of the first three factors must be brought within one year of entry of the final judgment or order and within a “reasonable time” under the fifth and sixth.  There is no time limit on challenging a judgment as void.

The two motions sought relief under factors 4-6 and involved very different facts. One asked the court to set aside a nearly ten-year old summary judgment of $480 million, affirmed on appeal, for deceptive advertising and telemarketing of a real estate investment product.  The other (which I argued) asked the court to vacate a stipulated judgment for $3.5 million against a payments processor who had processed sales of allegedly deceptive free trial offers of nutraceuticals and other products.  That judgment was only a little more than a year old and remained entirely unpaid as of the AMG decision.  In both cases, the court said that its task in deciding a Rule 60(b) motion was to weigh the competing interests of finality and fairness so as to ensure that justice is done.

Both motions argued that the judgments were void because the court lacked subject matter jurisdiction.  To support this argument, they contended that Section 13(b) of the FTC Act, under which the cases were brought, was jurisdictional. The FTC contended otherwise, and the court in each instance agreed, finding that Section 13(b) was merely remedial, authorizing injunctive but not monetary relief, and that subject matter jurisdiction existed under other federal statutes.  The fact that a judgment may have been erroneous, the court said, did not make it void.

Both motions also sought relief under the fifth factor of Rule 60(b), on the ground that prospective enforcement of the monetary judgments would be inequitable.  While monetary judgments are normally considered to be retroactive in nature, providing redress for a past wrong, the defendant under the unpaid judgment argued that enforcement would still be prospective precisely because the judgment was still unpaid and that the FTC would have to set up an administrative procedure to send refunds to consumers from any payment of the judgment.  The court disagreed, adhering to the general view that monetary judgments are retrospective in application.

The real battle ground was the “any other reason” catch-all clause of Rule 60(b)(6).  As noted, judges have wide discretion under this provision, with some characterizing it as a “grand reservoir of equitable power,” the exercise of which may be justified by an “intervening change of controlling law,” and others strictly construing the “extraordinary circumstances” needed to show that enforcement of a final judgment would result in a “manifest injustice.” In considering a Rule 60(b)(6) motion, courts, on a case-by-case basis, must “intensively balance numerous factors, including the competing policies of the finality of judgments and the incessant command of the court’s conscience that justice be done in light of all the facts.” In the Ninth Circuit, those factors, known as the “Phelps factors,” are: 1) the nature of the intervening change in the law; 2) the movant’s interest in pursuing relief; 3) the parties’ reliance interest in the finality of the case; 4) the delay between the judgment and the Rule 60(b) motion; and the 5) the relationship between the original judgment and the change in the law.    

In the motion seeking to set aside the much older summary judgment, the defendant did not really rely on the Phelps factors, but simply argued that it would be manifestly unfair to enforce a judgment now shown to have been legally unauthorized.  The court countered, however, that while a change in the controlling law can justify relief, it is not automatic and other interests must be considered, too.  In that case, the facts that: (1) the judgment was nearly a decade old; (2) the defendant had not challenged the FTC’s monetary authority at trial; and (3) the FTC had an alternative statutory path to monetary relief even if the Section 13(b) judgment were set aside, were enough to convince the judge that there were no “extraordinary circumstances” warranting a lifting of the judgment and no “manifest injustice” to prevent.

In the case of the much more recent, unpaid stipulated judgment, the defendant vigorously argued that the Phelps factors were in its favor, arguing that: (1) the change in law, reversing as it did decades old precedent, was historic, profound, and directly undercut the legal basis upon which the FTC had sought, and defendant had agreed to, a monetary remedy; (2) it had a strong and timely interest in pursuing relief; (3) the FTC had no real reliance interest in finality since it had not even pursued collection; (4) it moved for relief almost immediately after the change in the law; and there was a direct nexus between the original judgment, which was predicated on the prior, erroneous view of Section 13(b) monetary relief, and the change in the law. Indeed, the defendant testified that despite one lone, recent circuit court decision that went against the grain of that long-standing precedent, at the time of settlement he was not aware of any petition to the Supreme Court to consider the issue, much less a decision to hear it, and the law thus seemed so settled in the FTC’s favor that he never even considered litigating the issue.   

While the FTC argued that the Phelps factors were on its side, the principal thrust of its opposition zeroed in on the weak link in the motion, namely, that the judgment was agreed to by the defendant.  Even though there was no evidence that the defendant thought a change in law was possible at the time of settlement or that he ever considered going to trial to challenge the law, the FTC, citing what it considered to be controlling Supreme Court authority, argued that he had made a “conscious litigation choice” to give up the opportunity to litigate the issue in favor of settlement and thus had to live with the consequences of his decision. The court accepted this argument, quoting from the Supreme Court that when “a party makes a conscious and informed choice of litigation strategy, [that party] cannot seek extraordinary relief [under Rule 60(b)(6)] merely because his assessment of the consequences was incorrect.”  The court did not accept defendant’s counter-argument that this authority was distinguishable because he had not consciously weighed or even seen the possibility of the law changing and chose to settle for entirely other reasons.  The Court also felt the defendant’s awareness of the single appellate decision rejecting the FTC’s authority was enough to put him on notice that the issue was no longer settled, even though it was still the law in the Ninth Circuit, he did not know the Supreme Court had been asked to hear the case, and certiorari would not be granted until months after his settlement.

As these cases reveal, using the AMG decision to try to overturn a monetary judgment under Section 13(b) is indeed an uphill task, not impossible, but hard.  The circumstances must line up nearly perfectly: a fairly recent judgment; no alternative statutory path to monetary relief; in the case of a contested judgment, showing that a challenge had been made to the FTC’s Section 13(b) monetary authority in the original case; in the case of a stipulated judgment, a complete unawareness of any legal challenge to that monetary authority at the time of settlement; and in the case of either an adjudicated or stipulated judgment, the lack of, or only partial, execution of the judgment.  Certainly, if a judgment has been paid, it would be even harder to get a judge to “unscramble the egg” and thus unleash a potential floodgate of FTC defendants rushing into court to try to get their money back.  Finally, almost six months after AMG, any FTC defendant considering a Rule 60(b) motion must move fast to meet the “reasonable time” requirement. Since AMG, the FTC has been scrambling itself to get Congress to restore its Section 13(b) monetary authority.  A bill to do so has passed the House but is presently languishing in the Senate.

Talking about Direct Response, FTC

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