The thunderbolt that struck the Federal Trade Commission last August still reverberates, with the full impact of its force still to be determined.
As I wrote then (“In Historic Ruling, 7th Circuit Bars FTC Money Claims”), the thunderbolt was a decision by the Seventh Circuit Court of Appeals, in FTC v. Credit Bureau Center et al., that rejected decades of FTC jurisprudence to hold that the FTC lacks the authority to obtain a monetary judgment against alleged violators in federal court. Reversing the district court, the Seventh Circuit held that Section 13(b) of the FTC Act, the relevant statutory provision, expressly authorizes only injunctions and does not implicitly authorize equitable monetary relief, such as disgorgement or restitution. The individual defendant in the case, who had been ordered to pay $5.2 million after being found liable for deceptively promoting a credit monitoring service, now owes nothing.
The decision was a thunderbolt for two reasons. One, for nearly 40 years, dating to the decision by the Ninth Circuit Court of Appeals in FTC v. H.N. Singer in 1982, the unanimous judicial consensus has been that the FTC has implied “ancillary” equitable authority to obtain disgorgement and restitution – and by extension provisional monetary relief such as asset freezes – under Section 13(b). That consensus has now been shattered by the Seventh Circuit in Credit Bureau Center. Two, in reliance on that seemingly bedrock authority, the FTC has made the pursuit of monetary relief in court — and unconditional monetary settlement demands – the centerpiece of its consumer protection enforcement and deterrence strategies. What inspires fear in FTC targets and brings them to the bargaining table is not a tough injunction or even a ban on involvement with a particular product category or marketing technique, though they certainly aren’t “pleasant” and can cramp a company’s competitiveness and bottom line. What brings them to their knees is MONEY – the power to force someone to disgorge all their “unjust gains” from an allegedly unfair or deceptive business practice. The FTC has been cold-bloodedly ruthless and enormously effective in the application of this power, having extracted hundreds of millions of dollars from defendants in just the last few years.
Since the legal justification for that power was repudiated by the Seventh Circuit five months ago, FTC watchers and industry participants have been anxiously waiting to see how the FTC would respond to this potentially existential blow to its enforcement clout. Would it treat the decision as a “one off” and hope that other circuits would regard it as an outlier and not be persuaded by it? Or would it seek review by the Supreme Court and, if so, would the Court grant it and reverse the Seventh Circuit?
After months of speculation, we now know the answer. Last month, the FTC filed a petition with the Supreme Court asking that it take the case. This could be a risky gamble by the agency given that the Court is dominated by conservative “textualists” who could be sympathetic to the Seventh Circuit’s faithful adherence to the text of Section 13(b), which provides only for an “injunction” and says nothing about “disgorgement.” (One is Justice Neil Gorsuch, who at oral argument in a case in which the question of the Security and Exchange Commission’s authority to obtain disgorgement came up, answered: “Well, here we don’t know, because there’s no statute governing it. We’re just making it up.”) The FTC had a tough strategic call to make and now, having made it, we have to wait and see if the Court accepts the case and, if so, if the call was a smart one.
Credit Bureau Center isn’t the only case pending before the Supreme Court that could have perilous ramifications for the FTC’s monetary authority. The Court is also set to hear oral argument in March in Liu v. SEC, which will resolve whether the SEC can obtain disgorgement under federal securities statutes (the same question Justice Gorsuch was pondering in an earlier SEC case that set up this one). Because the securities statutes at issue in Liu are arguably similar to Section 13(b), the Court’s decision and reasoning in that case could carry persuasive weight on the Section 13(b) issue. It also, conceivably, could affect its decision whether to grant review in Credit Bureau Center and, if it does, foreshadow its ruling in that case.
Supreme Court review of the FTC’s monetary authority under Section 13(b) also has been sought by the defendants in the Ninth Circuit case of FTC v. AMG Capital Management, based on a concurring opinion in the decision there which expressed doubt over the existence of that authority. The Solicitor General, however, acting on behalf of the FTC, has sought a stay of defendants’ review petition, arguing that the question it presents overlaps with the question presented in Liu. Should the Court decide to take one of the FTC cases, the odds would therefore seem to heavily favor Credit Bureau Center.
As powerful and even invincible as the FTC has felt over the longest time since the courts granted it the authority to seek money under Section 13(b) decades ago, if it is in touch with reality at all, it can’t help but be a little nervous as the fate of that authority, and the immense enforcement power it confers, potentially hangs in the balance in these pending cases before the Supreme Court. That fate could be known soon. 2020 promises to be an exceptionally important and consequential year for many reasons. This could be one of them, at least for advertisers and marketers presently and in the future having to tangle with the FTC.