It was an extraordinary week as the FTC continued to press the frontier of the post-AMG Capital Management landscape.
On Friday, the Commission, making good on promises to creatively explore all of its options for enforcement, announced by a 3-2 vote that it had reached a settlement pursuant to Section 19 of the FTC Act with Resident Home LLC and its owner Ran Reske. At issue were allegedly false claims that the company’s imported mattresses are made from materials fully manufactured in the United States. As part of the settlement, Resident Home and Reske agreed to pay $753,000.
This action follows the FTC’s announcement earlier in the week that it had notified 70 for-profit higher educational institutions that it intends to make use of its long dormant Penalty Offense Authority. As contemplated by the FTC, the Penalty Offense Authority would allow the Agency to obtain civil penalties when institutions make misrepresentations about their programs, and job and earnings prospects.
And of course, within the past few months, we have seen the FTC pursue a variety of theories in an attempt to position itself to recover monetary penalties in matters pending in federal court. For example, the FTC has attempted to:
- Amend complaints to allege ROSCA violations (unsuccessfully, in FTC v. Cardiff, No. 18-2104 (C.D. Cal.));
- File an administrative complaint while moving to stay or dismiss without prejudice a federal court complaint (motion pending in FTC v. FleetCor Technologies, Inc., No. 19-cv-05727 (N.D. Ga.));
- Bring a complaint in California federal court along with Attorneys General from six states (claims made by five states based on pendent jurisdiction dismissed in FTC v. v. Frontier Comm. Corp., No. 21-cv-04155 (C.D. Cal.));
- Urge federal judges to exercise “discretion” and not rule on motions to dismiss pending what is hoped will be passage of a bill by Congress that would authorize the FTC to obtain monetary relief to redress consumer injury (unsuccessfully, in a number of cases, including FTC v. Neora, No. 20-cv-01979 (N.D. Tex.)); and
Given all this, Friday’s announcement would have been unsurprising, if it weren’t for the separate statements filed by the four sitting commissioners, demonstrating significant disagreement regarding the reach of FTC authority, as well as a departure from the comity that has characterized public discourse between commissioners from rival parties.
Redress and Damages Under Section 19
At issue in the competing commissioner statements was the statutory basis for the settlement’s monetary payment. In simple terms, Chairwoman Khan, along with Commissioners Chopra and Slaughter, asserted that Section 19 expressly authorizes payment of redress and damages, including consequential damages to consumers and “honest businesses that lose out on sales.” The Commission did not deem proof of injury to be a necessary predicate for monetary penalties, stating,
In settlements, parties can save time and resources by making the best estimates – adjusted for risk – on the right resolution. It would have been costly to specifically identify each harmed consumer and business, but it is clear the proposed monetary relief is reasonable, given our legal authority.
Commissioners Wilson and Phillips disagreed with the majority’s position. In dissent, the two Commissioners contended that Section 19 does not permit the Commission to accept monetary remedies in an administrative settlement.
More specifically, according to Commissioners Wilson and Phillips, the settlement amount “exceeds any injury suffered by those consumers who saw the deceptive statement and purchased a DreamCloud mattress or any reasonable estimate of damages.” The dissenting commissioners highlighted the absence of evidence of injury to “other persons,” rendering the payment a penalty or disgorgement of ill-gotten gains, which the Commission has no authority to obtain under the applicable statute (“The Commission makes clear in its statement that the purpose of the monetary relief in question is to penalize, not to make consumers whole.”).
Here, one hears echoes of the admonition provided during oral argument in AMG by Justice Kavanaugh:
I worked in the Executive Branch for many years, so I understand how this happens. When you are in the Executive Branch or an independent agency, you want to do good things and prevent or punish bad things, and sometimes your statutory authority is borderline. And it could be war policy or immigration or environmental or what have you, but with good intentions the agency pushes the envelope and stretches the statutory language to do the good or prevent the bad. The problem is this results in a transfer of power from Congress to the Executive Branch to decide whether to exercise this new authority. That’s a particular concern, at least for me, with independent agencies.
Things Get Hot
If this discussion among Commissioners were occurring at the FTC dinner table, as opposed to in competing statements, it would be easy to imagine a loud argument and stiff finger-pointing, before someone kicked over a chair and stormed off.
Echoing Commissioner Wilson’s warning in her concurring opinion in MoviePass (“[following AMG], the temptation to test the limits of our remaining sources of authority is likely to be strong”), the Wilson/Phillips statement started sharply and continued in the same tone:
That didn’t take long. Soon after the Supreme Court unanimously rebuked the Federal Trade Commission for seeking monetary remedies not permitted by Section 13(b) of the FTC Act — remedies that, in fairness to the agency, were blessed by appellate courts for decades—the Commission now votes to accept monetary remedies not permitted by Section 19.
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The Supreme Court handed down its decision in AMG Capital Management, LLC v. FTC in April and made clear that the words of a statute matter. Those words trump the policy preferences of commissioners. That decision should have been a wake-up call, a reminder to the Commission that, no matter how egregious the conduct or righteous our cause, the Commission is not entitled to go beyond the bounds of what the law permits. If we continue to flout the limits of our authority, the Commission should fully expect additional rebukes from the courts.
The AMG decision has significantly impacted the ability of the FTC to pursue wrongdoers and remediate law violations through the imposition of monetary relief. So we reiterate our call to Congress to pass legislation to restore the ability of the FTC to seek monetary remedies under Section 13(b) of the FTC Act in appropriate circumstances. But the law says what it says, and we do not support using the cloak of a settlement to overstep the authority we have.
In his statement, Commission Chopra briefly addressed the statutory argument, and reframed the issue as one over consequences for past actions. Particularly, Commissioner Chopra asserted that Commissioners Phillips and Wilson “do not support serious consequences for Made in USA fraud and have expressed support for the longstanding permissive policy of the past,” including support for “no-money, no-fault settlements.”
Commissioner Chopra further stated, if they “are voting against the proposed settlement because of their preference for no-consequences settlements in Made in USA fraud matters, then they should be upfront with the public and state so plainly.” Finally, echoing prior comments about misplaced priorities and perceived “regulatory capture,” he wrote,
The FTC has a troubling history of strong-arming small and independent business owners – including church organists and skating teachers– into settlements, while allowing those who repeatedly break the law to escape unscathed, often with the help of high-priced FTC alumni.
Refusing to take the bait or comment on how some might find it hard to square how one can categorically be sympathetic to associations with up to 16,000 members that have been found to restrict competition or fix prices, but condemn former colleagues who have served in government and remain within the only legal discipline they’ve known, albeit on the opposite side of the “v.”, Commissioner Phillips and Wilson responded:
Commissioner Chopra also claims that we do not support consequences for Made in the U.S.A. fraud. By that logic, Commissioner Chopra’s votes against privacy enforcement in cases like Facebook and Google/YouTube show his enthusiasm for their business models and distaste for enforcement against large technology platforms. The issue here is the Commission trying to eat its Section 19 cake and have its civil penalties too. We cannot do both, however we feel about policy.
And finally, “The majority is correct that, as a practical matter, the government has the ability to extort that to which it is not entitled under law. . . . As we have said on other occasions, though, just because we can does not mean that we should.”
At this point, one can imagine all involved returning to the figurative table. After which, they all took a deep breath, and concluded their statements by emphasizing two principal points of agreement among commissioners. First, Congress should act swiftly to provide the FTC with authority to pursue monetary relief under Section 13(b). And second, until it does, the FTC should use all available tools in its arsenal to protect consumers and competition.
The question, of course, becomes, what tools are available to the Agency? The answer to that question, at least until the courts weigh in, seems to depend on where you sit on the Commission.