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Supreme Court To Determine the Extent of the FTC’s Authority to Obtain Monetary Relief

Related Lawyers: Irving Scher, Halli Spraggins
Related Practice Areas: Antitrust / Competition
Authors: By Irving Scher and Halli Spraggins*

Introduction: Section 13(b) and the Applicable Decision.

On July 9, 2020, the Supreme Court granted certiorari to review a case from the Ninth Circuit which had considered the scope of the remedies available to the Federal Trade Commission (the “Commission”) in the 1973 adoption of Section 13(b) of the FTC Act. The provision states in relevant part: “Whenever the Commission has reason to believe – (1) that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the Federal Trade Commission, and (2) that the enjoining thereof . . . would be in the interest of the public – the Commission . . . may bring suit in a district court of the United States to enjoin any such act or practice.”[1]

In the 47 years since Section 13(b) was adopted, nine courts of appeal have contemplated whether the provision allows a district court to award monetary relief under Section 13(b)  despite its specific references to only “enjoin” challenged conduct.[2] AMG Capital petitioned the Supreme Court to review the Ninth Circuit’s ruling in FTC v. AMG Capital Management [3] that Section 13(b) authorizes the Commission to obtain monetary relief.[4]

The Circuit Court Decision

The Ninth Circuit case, FTC v. AMG Capital Management, involves an action challenging as deceptive loan companies’ short-term, high-interest pay-day loans to individuals.[5] The district court had granted the Commission summary judgment and ordered the defendants  to pay $1.27 billion to the Commission in restitution for consumer losses. The Ninth Circuit Court affirmed, rejecting the defendants’ argument that the Commission lacked the statutory authority to obtain monetary relief under Section 13(b).

Of interest, following the grant of certiorari in AMG Capital Management, the Third Circuit issued an opinion in FTC v. AbbVie,[6] which overruled Third Circuit law by rejecting the Commission’s authority to seek monetary remedies under Section 13(b). Unlike AMG Capital Management, which involves the Commission’s authority to prevent unfair and deceptive trade practices, FTC v. AbbVie is an antitrust case under the Commission’s unfair methods of competition authority involving reverse payments in the pharmaceutical industry.

FTC’s Enforcement Authority

Section 5(a) of the FTC Act prohibits both “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce.”[7] Specifically, this gives the Commission the authority to issue cease-and-desist orders prohibiting  unfair methods of competition—antitrust violations— as well as unfair and deceptive trade practices. The Commission also has the statutory authority to issue binding trade regulation rules under both statutory categories.[8]

There are two statutory provisions specifically authorizing the Commission to obtain  monetary penalties. First, when companies or individuals violate a trade regulation rule or an existing Commission cease-and-desist order entered against them, substantial civil penalties can be awarded by a federal court for such violations.[9] 

The second provision providing for monetary relief is Section 19,[10] which was adopted in 2019, two years after Section 13(b). It allows the Commission to seek monetary relief, including refunds and other consumer redress, in a civil action involving unfair or deceptive conduct as to which the Commission has entered a cease and desist order, if the Commission can demonstrate that the conduct that was involved was such that “a reasonable man would have known under the circumstances was dishonest or fraudulent.”[11]  Section 19 allows a federal district court to determine whether equitable monetary relief is appropriate in the particular case. However, Section 19 does not apply to antitrust cases, only to unfair and deceptive trade practices.  Which brings us to Section 13(b).

Section 13(b) History

Before 1973, it had been virtually impossible for the Commission to prohibit unlawful conduct under its statutory authority until after it had conducted a lengthy administrative proceeding that culminated in the issuance of a cease-and-desist order.[12]  This in particular severely hindered the Commission’s ability to deal with anticompetitive mergers.  Once consummated, mergers are difficult if not impossible to “unscramble.”[13] Congress enacted Section 13(b) principally to enable the Commission to obtain a preliminary injunction that would prevent a merger from taking place until completion of the lengthy administrative proceeding resulting in a cease-and-desist order.  The legislative result was that the provision only allows the Commission to “enjoin” specified conduct. 

For the first nine years after its adoption the Commission only applied Section 13(b) to obtain preliminary injunctions. However, in 1982, it also sought and successfully obtained equitable monetary relief in the form of restitution for consumer harm in a deceptive advertising decision that was affirmed by the Ninth Circuit.[14]  The Commission’s efforts thereafter to obtain monetary relief under Section 13(b) was approved in other circuits in deceptive advertising cases involving particularly blatant fraudulent conduct.  Based on this consumer protection string of judicial authority, the Commission expanded its monetary remedial efforts to antitrust conduct cases in 1993 in price-fixing suits brought against three manufacturers of infant formula in which it sought restitution.[15] Few circuits have since rejected the Commission’s authority to obtain monetary relief under Section 13(b) until the 2018 Seventh Circuit decision against Credit Bureau Center.

Arguments Before the Supreme Court

In persuading the lower courts that Section 13(b) allows monetary relief, the Commission has relied on two Supreme Court decisions: Porter v. Warner Holding Co.in 1946,[16] and Mitchell v. Robert DeMario Jewelry, Inc.,[17] a 1960 decision that relied on Porter.

However, the defendants in the current cases contend that the statutory provisions at issue in those two decisions did not involve the FTC Act, and that the statute at issue in Porter specifically authorized “‘injunction[s]’” as well as “‘other order[s],’” including restitution.[18]  Moreover, in both Porter and Mitchell, the Supreme Court pointed out that no other provision of the applicable  statutes, unlike the FTC Act,  expressly authorized additional equitable remedies  beyond injunctive relief. Going further, the current defendants contend that in  1996 in Meghrig v. KFC Western, Inc.,[19] the Supreme Court specifically rejected the view that it is required under Porter to construe that a statute that expressly only authorizes injunctive relief  impliedly also authorizes monetary relief.  Defendants stress that Meghrig is now the controlling authority, not Porter and Mitchell.

Additionally, amici in favor of reining in the Commission’s monetary relief authority stress that the Court need not go further than the plain text of Section 13(b), which they emphasize “leaves no doubt that it is limited to forward-looking, prospective relief.”[20]

Conversely, relying on Porter, the Commission argues that the term “injunction” in Section 13(b) should be interpreted to include equitable monetary relief such as restitution. The Commission contends that monetary relief serves the same functional purpose as injunctive relief.[21]

Likely Outcome

Unfortunately for the Commission, the recent trend of the Supreme Court towards textualism could affect the outcome of this case. Should a majority of the Justices adopt a purely textualist approach to Section 13(b), the Commission may lose one of the most powerful enforcement tools in its arsenal. We will find out in 2021.

Footnotes

[1] 15 U.S.C. § 53(b).

[2]  See, e.g., FTC v. Shire VirPharma, Inc. 917 F.3d 127 (3d Cir. 2019); FTC v. AMG Capital Mgmt., 910 F.2d 417 (9th Cir. 2018); FTC v. Ross, 743 F.3d 886, 890-892 (4th Cir. 2014); FTC v. Bronson Partners, LLC, 654 F.3d 359, 365 (2d Cir. 2011); FTC v. Direct Mktg. Concepts, Inc., 624 F.3d 1, 6, 15 (1st Cir. 2010); FTC v. Freecom Commc’ns, Inc., 401 F.3d 1192, 1202 n.6 (10th Cir. 2005); FTC v. Gem Merch. Corp., 87 F.3d 466, 468-470 (11th Cir. 1996); FTC v. Sec. Rare Coin & Bullion Corp., 931 F.2d 1312, 1316 (8th Cir. 1991); FTC v. Amy Travel Serv., Inc., 875 F.2d 564, 570-572 (7th Cir. 1989), overruled by FTC v. Credit Bureau Ctr., LLC, 937 F.3d 764 (7th Cir. 2019).

[3] 910 F.3d 417 (9th Cir. 2018).

[4] The Supreme Court had previously granted certiorari to consider the same issue in a second case, FTC v. Credit Bureau Center, in which the Seventh Circuit had ruled that the Commission did not have the authority to request monetary relief under Section 13(b). FTC v. Credit Bureau Center, involved a Commission suit claiming that the defendant’s websites offered “free” credit scores and reports without disclosing that by accessing their scores and reports, consumers were automatically enrolling in a monthly subscription.  The Court dismissed this Petition on November 9th.

[5] AMG Capital Mgmt., 910 F.3d at 426.

[6] FTC v. AbbVie Inc., 976 F.3d 327, 338 (3d Cir. 2020).

[7] 15 U.S.C. § 45(a)(1).

[8] 15 U.S.C. §§ 21(b), 45(b), 46(g), 57a.

[9] 15 U.S.C. §§ 21(l), 45(l), 45(m)(1).

[10] “If any person, partnership, or corporation engages in any unfair or deceptive act or practice (within the meaning of section 45(a)(1) of this title) with respect to which the Commission has issued a final cease and desist order which is applicable to such person, partnership, or corporation, then the Commission may commence a civil action against such person, partnership, or corporation in a United States district court or in any court of competent jurisdiction of a State.” 15 U.S.C. § 57b(a)(2).

[11] 15 U.S.C. § 57b(a)(2).

[12] See FTC v. Heater, 503 F.2d 321 (9th Cir. 1974).

[13] See, e.g., FTC v. Dean Foods Co., 384 U.S. 597, 607 n.5 (1966).

[14] FTC v. H.N. Singer, Inc., 668 F.2d 1107 (9th Cir. 1982).

[15] See FTC v. Abbott Labs., No. 1:92-cv-01364 (D.D.C. filed June 11, 1992); FTC v. American Home Prods., No. 1:92-cv-01365 (D.D.C. filed June 11, 1992); FTC v. Mead Johnson, No. 1:92-cv-01366 (D.D.C. filed June 11, 1992).

[16] 328 U.S. 395 (1946).

[17] 361 U.S. 288 (1960).

[18] Porter, 328 U.S. at 397.

[19] 516 U.S. 479 (1996).

[20] Brief for Surescripts as Amici Curiae Supporting AMG Capital Management, LLC and Credit Bureau Center, LLC at 22, AMG Capital Mgmt., LLC v. FTC (No. 19-508) (emphasizing that “Section 13(b) can be utilized only if a party ‘is violating, or is about to violate,’ the law.”) (internal citations omitted).

[21] Brief for Respondent at 9, AMG Capital Mgnt, LLC v. FTC (No. 19-508).

 

*Irving Scher is senior counsel in the New York office and Halli Spraggins is an associate in the Washington, DC office.

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