The Supreme Court Hampers the FTC's Consumer Protection Efforts
In April, the U.S. Supreme Court unanimously gutted the Federal Trade Commission of one of its most powerful tools in consumer protection with its opinion in AMG Capital Management v. FTC.
Section 13(b) of the Federal Trade Commission Act gives the FTC the authority to seek “injunctions” in federal court to remedy “any provision of law enforced by the Federal Trade Commission.” The FTC has long interpreted Section 13(b) to authorize the FTC to obtain equitable relief in district court without the prior initiation of its administrative process. Historically, the FTC has relied on its interpretation with great frequency to obtain monetary relief in the form of disgorgement to make victims whole, and courts have long obliged this interpretation.
Recently, however, the FTC’s interpretation came under scrutiny. Opponents argue that the statute authorizes only injunctions, not other forms of equitable relief. Two federal Circuit Courts—the Seventh and Third Circuits—agreed, rejecting the FTC’s interpretation, creating a circuit split, and teeing the issue up for the Supreme Court.
Although Section 13(b) only references injunctions, the FTC argued that historically the term had been interpreted to be much broader: “three centuries of equity jurisprudence establish” that the authority to grant an injunction includes the authority to “order the return of ill-gotten gains.” The FTC also cited to two Supreme Court cases upholding similar interpretations in analogous statutes, contending that Congress relied on these historical interpretations when drafting the text of Section 13(b).
The Supreme Court unanimously rejected these arguments, holding “that § 13(b) as currently written does not grant the Commission authority to obtain equitable monetary relief.” The Court’s ruling emphasized the statutes focus on prospective relief to stop unfair practices (not retrospective), and that other sections of the statute clearly grant the FTC the ability to obtain “equitable relief” and “refunds.”
The Court’s decision does not prohibit the FTC from obtaining monetary relief, but it does make it more difficult. As a result of the ruling, one of the FTC’s parallel enforcement paths has been cut off. Now, to obtain monetary relief, the FTC must win an action in its own administrative proceedings, and then win an action in federal court, demonstrating that a reasonable person would have known that the act or practice at issue was dishonest or fraudulent.
Rebecca Kelly Slaughter, the acting Chairwoman of the FTC, claimed that the Supreme Court’s ruling “deprived the FTC of the strongest tool [it] ha[s] to help consumers when they need it most.” Former Chairman, Joseph Simons, claimed that limiting Section 13(b) is “highly problematic” and “basically destroy[s]” the FTC’s anti-fraud programs.
Fortunately, the Supreme Court’s opinion is not the end of the story. As the Court explicitly pointed out: Congress can pass legislation to change the text of Section 13(b) and make the FTC’ ability to seek disgorgement more apparent. The FTC and consumer advocacy organizations have wasted no time lobbying Congress for changes.
Indeed, the Senate Committee on Commerce, Science & Transportation already held a hearing entitled, “Strengthening the Federal Trade Commission’s Authority to Protect Consumers.” Days before the Supreme Court issued its opinion, the FTC submitted written testimony as part of that hearing, seeking amendments to Section 13(b) to expand its authority to obtain monetary relief. Shortly after the Supreme Court’s opinion was issued, Bonnie Patten, the Executive Director of the nonpartisan, nonprofit, consumer-advocacy organization Truth in Advertising, testified at the hearing, to “sound the alarm that . . . the Federal Trade Commission is now powerless to claw back ill-gotten gains from wrongdoers under Section 13(b) of the FTC Act.”
In short, the Supreme Court’s opinion is a setback for consumer protection. But don’t be surprised if it’s only temporary, and the FTC comes back even stronger.
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 Last year, the Supreme Court ruled on a similar issue pertaining to the Securities and Exchange Commission’s ability to obtain disgorgement under 15 U.S.C. § 78u(d)(5). In Liu v. SEC, the Supreme Court held that the SEC can continue to seek disgorgement from wrongdoers, but narrowed the remedy to net profits that are returned to victims. There, however, the SEC's statute was broader than Section 13(b): Though it did not specifically authorize disgorgement, it authorized the SEC to obtain “equitable relief,” a term interpreted to include disgorgement.
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