Supreme Court to FTC: We Doubt Your Monetary Authority

The moment of truth for the survival of the Federal Trade Commission’s most powerful and effective enforcement weapon – the ability to separate alleged FTC violators from their money – is now here.   On January 13, 2021, following two years of legal challenges with mixed results in the lower courts to long-standing judicial precedent holding that the FTC has such authority, the Supreme Court heard oral argument on the question.  Based on the questioning of the justices, the FTC cannot be confident it will still have that authority after the Court renders its decision by the end of June.

As explained in several prior posts in this space, the issue before the Court is a fairly straightforward one: does the authority granted to the FTC under Section 13(b) of the FTC Act to seek an “injunction” against ongoing or imminent violations of the Act encompass the further right to obtain equitable monetary relief, and even if it does not, is it still appropriate for the Court to toss aside an entire body of jurisprudence, developed over decades in the lower appellate courts, that has construed Section 13(b) to authorize monetary relief.  More simply put, what about Section 13(b) controls:  its text, and place within the overall structure of the FTC Act, or its history.

Opening the argument, counsel for AMG Capital Management, which is appealing a Ninth Circuit ruling that upheld the FTC’s monetary authority, naturally argued that the text and statutory structure govern.  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.  This meaning is underscored by Section 13(b)’s limitation to seeking an injunction only against an ongoing or impending violation.  Within the context of this temporal restriction, the argument goes, a retrospective monetary remedy would make no sense.  Further, another provision of the FTC Act, Section 19, authorizes the FTC to seek monetary relief, such as restitution or disgorgement, 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, an omission that would be “truly striking” 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.  If Congress wanted the FTC to be able to obtain money in addition to injunctive relief when it passed Section 13(b), it could have said so and properly included a statute of limitations, but it did not.  Finally, anticipating and attempting to preempt the FTC’s “historical” argument, counsel for AMG observed that decades of legal error in the lower courts is still error.

The essence of AMG’s argument, thus, is that the text and structure of the FTC Act draws a clear line between the agency’s injunctive power and restitutionary power.  It has express and important statutory authority to stop unfair and deceptive trade practices in their tracks, in order to prevent future consumer harm, but if it wants to make defendants pay for past harm by taking away their property, it must first prove their violations in an administrative proceeding and show they had fraudulent intent.      

Counsel for the FTC understandably argued the history.  Given the decades of jurisprudence on the topic, with every federal appellate court in the country recognizing the FTC’s monetary authority under Section 13(b) until the recent revisionist “textualist” assault against it, the FTC’s reliance on that body of law, and the importance of monetary relief to its enforcement mission, including deterrence, it is simply too late to upset the apple cart.  Or, in the words of Justice Stephen Breyer, playing devil’s advocate with AMG’s counsel, in light of that history, shouldn’t we just let “bygones be bygones.”  Further, the FTC argued, injunctions traditionally have been understood to encompass other forms of equitable relief, including restitution, and it is within the broad equitable powers of a federal court to grant such relief.  While Section 13(b) does not expressly provide for equitable relief beyond an injunction, in authorizing the FTC to ask a court to grant injunctive relief, the FTC argued, it is simply asking it to deploy its full arsenal of equitable remedies, including restitution and disgorgement, as it deems appropriate.

While the justices’ questioning tested both sides, not surprisingly, coming from a conservative “textualist” court, it seemed to lean harder against the FTC’s position.  The toughest question AMG’s counsel got, which he seemed to stumble over, was from Justice Sotomayor, who wanted to know why Congress would authorize the FTC to seek not only a temporary but also a “permanent” injunction, but not permit any other remedies to accompany it.  If the purpose of the statute is simply to stop an ongoing or imminent violation, wouldn’t a temporary injunction be enough, while the FTC pursued administrative processes to lay the foundation for obtaining monetary relief.  The inclusion of permanent injunctive relief in Section 13(b), without other equitable remedies, seemed superfluous and made “no sense” to her. 

Several justices expressed skepticism about the FTC position.  Chief Justice Roberts didn’t buy the argument of broad judicial equitable authority, noting that it is usually exercised in non-governmental litigation and that a federal agency’s powers derive exclusively from, and are circumscribed by, Congress.  Justice Thomas observed that Section 13(b) is “forward-looking,” not concerned with what has “already happened.” 

Justice Breyer expressed concern, after the FTC attorney had admitted that Section 13(b) was preferable to Section19 because it was “easier” to use, that the FTC’s heavy use of Section 13(b) would unfairly penalize businesses for engaging in conduct that they did not know was wrong because the FTC had not used its expertise in agency proceedings to tell them what was wrong.  

Justice Alito cited evidence that FTC officials in the early days of Section 13(b) didn’t think arguments that it authorized monetary relief would be successful in court as “pretty damaging to the [FTC’s] position.”  Justice Sotomayor was bothered that there is nothing in the legislative history of Section 13(b) to indicate that Congress intended it to authorize monetary relief, a fact which the FTC conceded. 

Justice Kagan conveyed a concern that the FTC’s “choice” to use Section 13(b) far more often that Section 19, also a fact the FTC conceded, made the legal protections in Section 19, including the requirement to show dishonesty or fraud to get money, “pretty much entirely irrelevant.”  Echoing Justice Breyer, Justice Gorsuch voiced the concern that the FTC’s reliance on Section 13(b), because Section 19 is “inherently difficult and Section 13 is so comparatively easy,” undermined the original intent of Congress that the FTC be primarily a regulatory body that elucidated and educated the business community on the meaning of deceptive conduct through administrative cases and rules. 

Justice Kavanaugh said the problem the FTC has is the “text” and that the FTC’s reading of it raised separation of powers concerns over an agency’s exercise of undelegated powers.                                                  

Reading tea leaves in judges’ questions and comments at an oral argument is a favorite pastime of litigants and court observers, but hardly a surefire predictor of how they will rule.  Nevertheless, if an informed observer had to guess, AMG felt more pleased walking out of the (virtual) courtroom than did the FTC.  If, as seems foreseeable, it also will be more pleased than the FTC with the Court’s decision, and if the FTC wishes to assure the preservation of its most potent enforcement weapon, it would do well to heed Justice Kavanaugh’s advice to ask Congress for clear monetary authority under Section 13(b).  Indeed, in anticipation of a possible adverse ruling, the FTC had already gone to Congress even before the hearing.  Following it, the agency should be – and no doubt will be – intensifying its lobbying effort.  With President Biden soon to be naming a new chairperson of the FTC, this issue is sure to be front and center at the nominee’s confirmation hearing and a singular focus of his or her attention and legislative agenda after taking office.

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