SCOTUS: No Fair Monetary Relief for FTC Under Section 13 (b) | BakerHostetler
Well, the responsibility ends here (for now). Last week at AMG Capital Management, LLC v Federal Trade Commission, the Supreme Court unanimously ruled that Section 13 (b) of the Federal Trade Commission (FTC) Act does not authorize the FTC to obtain fair monetary relief such as restitution or restitution. The long-awaited landmark decision reverses decades of precedent and strips the FTC of one of its primary enforcement tools to seek redress from consumers. The ruling will likely represent a radical change in FTC enforcement practices.
How did we get here? In 2012, the FTC sued race car driver Scott Tucker and a payday loan company he ran, AMG Capital Management (collectively, Tucker). The FTC alleged that Tucker engaged in unfair or deceptive acts or practices in violation of Section 5 of the FTC Act by failing to clearly and conspicuously disclose that the loans granted would be automatically renewed, even after the customer had repaid the loan, unless the customer declares it in the affirmative. chose to opt out. The FTC brought an action in Federal District Court under section 13 (b) and asked the court for restitution and restitution of Tucker’s ill-gotten gains in addition to an injunction. The court allowed the FTC’s motion for summary judgment and its application for a permanent injunction and ordered the equitable monetary relief sought. Tucker appealed, arguing that Section 13 (b) does not authorize the FTC to obtain the monetary relief granted because Section 13 (b) only authorizes the FTC to obtain an injunction against those who violate or are about to to break the law. The Ninth Circuit upheld the district court’s ruling, highlighting a long-standing precedent giving district courts broad power “to grant any collateral relief necessary to deliver full justice, including restitution.”
Specifically, notwithstanding the statute’s explicit reference to a “permanent injunction”, for decades lower courts have interpreted Section 13 (b) broadly as implicitly authorizing the FTC to obtain fair pecuniary relief, and the FTC in has come to rely increasingly on Article 13 (b). as a means of obtaining substantial monetary relief by bringing a direct action in federal court. In fact, according to Acting FTC President Rebecca Slaughter, Section 13 (b) cases have resulted in repayments of $ 11.2 billion in the past five years alone. However, more recently, the Third and Seventh Circuits overturned the precedent existing in their jurisdictions and ruled that the FTC could not obtain monetary relief under Section 13 (b). This division between the circuits paved the way for the Supreme Court’s review of the Ninth Circuit decision.
So why the reversal after all these years? As Justice Breyer, author of the unanimous opinion, explained, the structure of the FTC Act and the statutory wording of section 13 (b) indicate that Congress did not intend that section 13 (b ) authorizes equitable monetary redress. First, looking at the clear wording of the law, Breyer held that “an ‘injunction’ is not the same as[…]pecuniary redress ”, because an injunction provides redress for current and future damage, while restitution provides retrospective redress to repair past damage. Second, Breyer determined that the FTC’s reading of Section 13 (b) was inconsistent with the entire structure of the FTC Act and would allow the FTC to bypass completely the administrative process put in place by the FTC Act. FTC. Specifically, Breyer noted that Section 5 of the FTC Act establishes an administrative procedure by which the FTC can file a complaint and obtain a restraining order and that Sections 5 (l) and 19 expressly give district courts the power, respectively, to impose limited pecuniary penalties and grant fair pecuniary relief after the FTC engages in administrative proceedings and the commission issues a cease and desist order. Breyer took particular note of the fact that Article 19, which gives the district court the power to impose measures such as “repayment of money or restitution of property”, was enacted two years after the addition of Article 13 (b). Clearly, according to Breyer, Congress would not have granted the courts the power to impose pecuniary relief under section 19 if the courts already had that power under section 13 (b). The judge further noted that reading Article 13 (b) as allowing the FTC “to dispense with administrative procedures to obtain monetary compensation.[…]would allow a small statutory tail to wag a very large dog ”. In other words, it was unlikely that “Congress … would have granted the Commission the power to so easily bypass its [Section] 5 administrative procedures. Thus, the Court concluded that section 13 (b) was designed only to give the FTC the option of seeking an injunction to prevent “apparently unfair practices from taking place while the Commission determines their legality.”
To take away
For now, the Supreme Court ruling will result in a seismic change in the way the FTC pursues consumer protection enforcement. The FTC will no longer be able to get the huge monetary judgments that have become the norm until it goes through administrative proceedings and obtains a cease and desist order. Further, even if the FTC obtains a cease and desist order, there are limits to a court’s ability to grant monetary relief that the FTC has not encountered in its cases under the Article 13 (b). For example, under section 19, the FTC’s ability to obtain remedies from consumers will be subject to a three-year limitation period. In its Section 13 (b) cases, the FTC has often gone back up to seven years to calculate monetary relief. In addition, to obtain relief under section 19, the FTC must show that a reasonable person would have known that the conduct was fraudulent or dishonest.
Going forward, what does this mean for the FTC? First, a bill is already in the works that would amend section 13 (b) to expressly authorize the FTC to provide fair monetary relief for past conduct. Of course, in an equally divided Senate, it remains to be seen whether such a bill will pass. Second, in anticipation of the AMG Capital decision, last month, the FTC created a new rule-making group within its office of the General Counsel, indicating that a period of aggressive rule-making could befall the pike. In the meantime, we will certainly see an increase in administrative procedures and perhaps more collaboration with state attorneys general who have the power to obtain monetary relief to get restitution back into the hands of consumers more quickly. We are also likely to see an increase in FTC cases based on violations of trade regulatory rules or other laws such as CAN-SPAM and the Restore Online Shoppers’ Confidence Act, which authorize civil penalties. Once the dust settles, be sure to come back for updates on how the FTC is moving on from this decision.