Last Thursday morning, Eastern Daylight Time, the world of the FTC shook like never before. At that time, the Supreme Court of the United States, in a unanimous but unsurprising decision with seismic consequences for the potency of the FTC’s enforcement mission, ruled that the FTC no longer has the authority to obtain asset disgorgement and consumer restitution from wrongdoers in an action filed in federal court.
Recognizing, and alarmed by, the enormous blow the Court’s ruling would deal to the FTC’s enforcement capabilities, its Acting Chair, Rebecca Slaughter, mincing no words, immediately blasted the decision reached in AMG Capital Mgmt. v. FTC, saying that “the Supreme Court ruled in favor of scam artists and dishonest corporations, leaving average Americans to pay for illegal behavior. With this ruling, the Court has deprived the FTC of the strongest tool we had to help consumers when they need it most. We urge Congress to act swiftly to restore and strengthen the powers of the agency so we can make wronged consumers whole.”
As I wrote in “Supreme Court To FTC: We Doubt Your Monetary Authority” (January 2021), following oral argument in the case, a defeat of this magnitude for the FTC was not unexpected from this conservative “textualist” court, based on the lack of any express monetary authority in the FTC statute, referred to as Section 13(b), which authorizes it to bring only injunction cases in federal court. The Court potentially could have narrowed but not eliminated the FTC’s monetary powers, as it had done in the Liu decision last year involving the authority of the Securities and Exchange Commission to seek monetary relief. But there it found some basis in the SEC’s statute to indicate that Congress intended it to have the power to obtain equitable monetary relief, such as disgorgement or restitution. In Section 13(b), the Court, in the 9-0 decision written by Justice Breyer (hardly a conservative textualist himself, which underscores the Court’s analytical unanimity in the case), simply could find none.
The questioning of the justices at the oral argument, and in particular that of Justice Breyer, foreshadowed their decision and its reasoning. The problem the FTC had to confront was two-fold. First, Section 13(b) by its express terms authorizes only a temporary injunction to stop ongoing or imminent violations of the FTC’s prohibition on unfair and deceptive business practices, and a permanent injunction in “proper cases.” The term “injunction,” in its plain and historical meaning, means just that, an injunction – a command to do or not do something – as opposed to all equitable relief, and does not look backward to redress past harm.
Second, another provision of the FTC Act, Section 19, which was enacted only two years after Section 13(b), authorizes the FTC to seek monetary relief in federal court, but only after initiating and prevailing in an administrative adjudication, and then only after a showing that the defendant’s misconduct was “dishonest or fraudulent.” Section 19 also has a statute of limitations which Section 13(b) does not have, a troubling omission if in fact Section 13(b) was meant to award retrospective monetary relief, since there would be no limit in how far back the FTC could go in seeking redress. It made little sense to Justice Breyer and some of his brethren at the argument that Congress would enact such a carefully drawn up scheme for the FTC to obtain consumer redress within certain guardrails, such as a statute of limitations and restriction of redress to cases of fraud, so soon after enacting Section 13(b), if it nonetheless still meant the FTC to have virtually uncircumscribed power to secure redress as an ancillary remedy under Section 13(b).
Justice Breyer’s opinion striking down the FTC’s Section 13(b) monetary authority rests squarely on these two main concerns. He notes that the language of the provision:
refers only to injunctions and that an ’injunction’ is not the same as an award of equitable monetary relief….Taken as a whole, the provision focuses upon relief that is prospective, not retrospective….Further, the structure of the Act beyond §13(b) confirms this conclusion. Congress in §5(l) and §19 gave district courts the authority to impose limited monetary penalties and to award monetary relief in cases where the Commission has issued cease and desist orders…in administrative proceedings. Since in these provisions Congress explicitly provided for ‘other and further equitable relief ’… and for the ‘refund of money or return of property’…it likely did not intend for §13(b)’s more cabined ‘permanent injunction’ language to have similarly broad scope. More than that… §19 comes with certain important limitations that are absent in §13(b)….In addition, Congress enacted these other, more limited, monetary relief provisions at the same time as, or a few years after, it enacted §13(b)….It is highly unlikely that Congress would have enacted provisions expressly authorizing conditioned and limited monetary relief if the Act, via §13(b), had already implicitly allowed the Commission to obtain that same monetary relief and more without satisfying those conditions and limitations.”
(Emphasis in original)
Breyer said that if the FTC believes its Section 19 authority to obtain consumer restitution is “too cumbersome or otherwise inadequate, it is, of course, free to ask Congress to grant it further remedial authority.”
That is exactly what the FTC is doing, and has been doing for months in anticipation of a loss at the Supreme Court. It is difficult to predict what the currently divided Congress will do on anything these days, but it is hard to imagine that it will not respond to FTC leadership’s plea for restoration of its authority to pursue justice for economically harmed consumers directly in federal court, without having to go through the laborious two-step process of Section 19. But even if Congress does pass a legislative fix, the Liu decision, which significantly curbed the SEC’s equitable monetary authority (see “Did the Supreme Court Just Save the FTC’s Disgorgement Authority?,” June 2020), could similarly restrict the FTC’s monetary powers as well, limiting recoveries, for example, to only net profits instead of gross revenues. It is also conceivable that Congress could graph the Section 19 safeguards, such as a statute of limitations and maybe even a fraud proof requirement, onto Section 13(b) as well.
The FTC’s ability to shut down enforcement targets with asset freezes and strip them of their alleged “ill-gotten gains” has been the hammer that has made it such a formidable and feared business regulator for decades, and undergirded its efforts to achieve greater deterrence of anti-consumer and anti-competitive conduct. Until and unless Congress restores its Section 13(b) monetary authority, the FTC, as a law enforcement entity, will be a shadow of its former self, if not a paper tiger. Advertisers and marketers, however, still have a duty to obey the law and an ethical as well as legal duty to be truthful and fair with consumers, and they would be foolish to think there is no longer a “cop on the beat.” Aggressive state and local regulators with monetary powers and opportunistic class action attorneys are still looking for targets every day, and it is more likely than not that the FTC will regain at least some measure of its enforcement clout from Congress, and sooner rather than later.
Meanwhile, as the FTC’s frenetic lobbying effort continues, FTC defendants who have had to pay past monetary judgments are already calling, wondering how they can “get their money back.” That is a complicated legal question, and surely one the FTC will litigate vigorously if necessary. For anyone in that position who is interested in exploring their rights, if any, to return of their disgorged assets, or who has or may have an FTC enforcement issue and wants to understand the meaning of the AMG decision for them, they should seek guidance from appropriate FTC counsel.