Skeptical court probes FTC’s approach to seeking ill-gotten gains
By: Larry Steinberg, Guest Contributor
If the FTC loses this case, the agency will no longer be able to rely on Section 13(b) to obtain an order requiring a wrongdoer to return all of the money it illegally obtained.
FTC Commissioner Rohit Chopra, who will leave the FTC after the Senate confirms him as the newly appointed director of the Consumer Financial Protection Bureau, is known as one of the more prolific commissioners. He has spoken and written extensively in his three years on the FTC including, notably, in a November 2020 paper wherein he called the AMG Capital Management v. Federal Trade Commission case an “existential threat to the agency’s ability to hold wrongdoers accountable.”
The previous month, in a letter to Congress, Commissioner Chopra, joined by the other four FTC commissioners, described Section 13(b) as the primary tool that the FTC uses to return money to consumer victims, and pleaded for Congress to amend the statute so that it would expressly provide for monetary relief.
The transparent purpose of Commissioner Chopra’s Jan. 11 presentation was to send a message to the direct selling community that the FTC was not intimidated by the potential loss of Section 13(b) as a tool in its war chest, and that there are other provisions of the FTC Act that will allow it to continue to seek monetary redress. Chopra stressed that, under these other provisions, the FTC can obtain penalties significantly in excess of the restitution judgments it currently seeks under Section 13(b) and, thus, they can be significantly more deterring than equitable relief alone.
Specifically, Chopra pointed to the ability of the Commission to seek monetary relief under three other provisions of the FTC Act: Section 5(l), which provides for monetary relief against repeat offenders who violate commission orders; Section 5(m), which provides that the FTC can seek monetary relief in federal court after it engages in a formal rulemaking process; and Section 19, which provides that the FTC can seek monetary relief in federal court if there is a violation of a final cease and desist order issued by an administrative law judge.
What Commissioner Chopra omitted from his presentation is that each of these other avenues contain significant procedural and due process protections for defendants. For example, the rulemaking process that must precede a Section 5(m) enforcement action provides for a public comment period and requires that the rule define with specificity the acts or practices that are unfair or deceptive.
Similarly, before the Commission can file an enforcement action under Section 19, there must be an adjudicative proceeding before an administrative law judge, issuance by the ALJ of a cease and desist order, affirmance of that decision by the full Federal Trade Commission, and affirmance by the Court of Appeals. Then, any monetary penalty assessed can only be based on a violation of the cease and desist order after that order has become final.
The due process and extensive procedures required by these alternative avenues outlined by Commissioner Chopra are in stark contrast to what companies are subjected to when the FTC sues under Section 13(b), which is why the FTC rarely uses them.
For decades, those of us who have had the opportunity to assist direct sales companies faced with defending against FTC enforcement actions have complained that, by the time a company gets its day in court, all too often, serious (and sometimes fatal) damage has been done.
Typically, when the FTC sues under Section 13(b), it goes into court with no advance notice and obtains a temporary restraining order, asset freeze, and, sometimes, appointment of a receiver who takes immediate control of a company’s offices, computers, bank accounts, and business.
The company is then forced to cobble together its defense to a preliminary injunction, often without funds to pay its lawyers and under highly exigent circumstances. This is why clarification of the FTC’s right to monetary relief under Section 13(b) is so critical to parties who find themselves on the wrong end of FTC legal action.
Handicapping the Supreme Court
Though one should be reluctant to predict the Supreme Court’s decision in any matter, let alone one as weighty as presented by AMG Capital, some helpful observations can be made from the Jan. 13, 2021, oral argument.
This Supreme Court (and especially the more conservative justices who are in current ascendency) has become known for paying heed to the exact language of the statutes it is called upon to interpret; as discussed above, Section 13(b) uses the word “injunction” and does not make any mention of monetary relief.
At oral argument, one justice, Stephen Breyer, was particularly candid regarding his view of the issue presented, stating his belief that the FTC Act contemplates a cease and desist order or violation of a rule as a predicate to an award of monetary damages. Comments from other justices (including Thomas, Alito, Gorsuch and Kavanaugh) seemed similarly skeptical of the FTC’s use of Section 13(b) to short circuit the due process protections contained in other sections of the FTC Act.
Section 13(b) of the Federal Trade Commission Act, the remedial provision primarily relied upon by the FTC for decades, is under siege. This was dramatically illustrated when FTC Commissioner Chopra gave a presentation on the panoply of remedial powers—aside from Section 13(b)—that are available to the FTC.
The speech was timed to show the FTC’s bravado two days before the Jan. 13, 2021, U.S. Supreme Court oral argument in AMG Capital Management v. Federal Trade Commission. If the FTC loses this case in the Supreme Court, the agency will no longer be able to rely on Section 13(b) to obtain an order requiring a wrongdoer to return all of the money it illegally obtained.
Supported by an unbroken line of appellate authority going back to the Ninth Circuit’s 1982 decision in FTC v. H.N. Singer, the FTC has successfully advocated that, even though Section 13(b)’s language only authorizes an “injunction” (and doesn’t mention money), the statute, by invoking the equitable jurisdiction of the court, empowers a court to grant any ancillary relief necessary to accomplish complete justice, including an order of restitution. Since Singer, seven other courts of appeal (representing more than 70 percent of the country’s population) have followed suit, upholding the FTC’s authority to obtain a monetary judgment under this statute.
The FTC’s 37-year winning streak came to an end in August 2019 when the Seventh Circuit held, in FTC v. Credit Bureau Center, that nothing in Section 13(b) supports an implied right to restitution, and that the “injunction” provision in the statute does not authorize monetary relief.
Although, initially, the Supreme Court accepted Credit Bureau Center for review along with AMG Capital, that review was recently dismissed, presumably so that newly appointed Justice Amy Coney Barrett (who hails from the Seventh Circuit) could participate in the court’s consideration. On Sept. 30, 2020, another court—the Third Circuit—joined in the melee, holding in FTC v. AbbVie that Section 13(b) does not authorize monetary relief.
It is worth repeating that Justice Barrett was a judge on the Seventh Circuit when it issued its Credit Bureau Center decision reversing the district court’s awarding of a $5.3 million restitution award under Section 13(b).
The Supreme Court’s decision is expected sometime this spring.
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