www.adlawaccess.comThere are some really smart lawyers at the FTC.  For over 40 years, they were able to convince the federal judiciary (and, let’s face it, most of us) that the FTC had an authority that a unanimous Supreme Court in AMG Capital Management concluded it did not have.  Following the decision, there has been a good deal of crowing by parties that are currently or regularly adverse to the FTC.  But as we wait and see whether Congress might act to provide new statutory language (you can’t restore what the Supreme Court concluded never existed), one thing is abundantly clear:  the FTC is not going to sit by idly.

If you thought otherwise, you have not been paying attention.  We have been told to expect more Section 19 cases, stepped-up rulemaking, collaboration with State Attorneys General, the dusting-off of the FTC’s Penalty Offense Authority, and reliance on other statutes enforced by the FTC that provide for civil penalties up to $43,280 per violation.

This week, with the announcement of the MoviePass settlement, the FTC made good on its word.  In its complaint, the FTC alleged that MoviePass “violated the Restore Online Shoppers’ Confidence Act (ROSCA) [which] requires that firms be truthful with consumers when marketing negative option services—such as subscriptions—over the Internet.”

Republican Commissioner Christine Wilson agreed with her Democratic counterparts.  In her concurring opinion, she conceded that post-AMG, “the temptation to test the limits of our remaining sources of authority is likely to be strong.”  Nevertheless, she supported the Commission’s action, while acknowledging that the settlement is the first time the Commission alleged a violation of ROSCA when the “undisclosed material terms do not relate specifically to the negative option feature but, instead, to the underlying good or service marketed through the feature.”  In her view, MoviePass’s conduct is consistent with congressional intent. She further noted:

Given the inaugural use of ROSCA for this purpose, it is appropriate that the Commission is foregoing civil penalties.  Businesses need predictability about the manner in which laws will be enforced and should be afforded the ability to contest new uses of authority. This case will serve as notice to the market, and future violations of this type may warrant civil penalties.

Her Republican counterpart was not convinced.  Commissioner Noah Phillips, in his dissenting opinion, stated his concerns.  First, he noted that one of the benefits of establishing liability for a rule violation is to obtain a penalty, and here, with MoviePass and its principals in bankruptcy making this a no-money order, “our announcement of sweeping new liability and introduction of a lack of clarity to the market about required disclosures . . . is ill advised.”  Second, “the statutory interpretation pushed by the Commission in this case is far from obvious.”  And third, the Commission failed to define standards for “material terms” and, without any guidance, companies may continually be at risk for a post hoc civil penalty.

In his conclusion, Commissioner Phillips recognized that the Commission’s decision to apply ROSCA broadly and expand its reach “comes just weeks after the Supreme Court’s decision in AMG” but he does not believe that the FTC’s “loss of authority under one statute somehow creates authority elsewhere.”

Back in January, during oral argument in AMG, Justice Kavanaugh touched on the temptation to interpret statutes broadly to achieve an end:

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.  So – and why isn’t the answer here for the agency to seek this new authority from Congress for us to maintain the principle [of] separation of powers . . . ?

Well, Mr. Justice, the Commission can do both.  With MoviePass, the envelope is being pushed.  And later today, the House Energy & Commerce Committee will mark up H.R. 2668, the Consumer Protection and Recovery Act, which would authorize the FTC to seek permanent injunctions and other equitable relief, including restitution and disgorgement, to redress perceived consumer injury. The legislation is likely to move through the House and to the Senate, where its fate will be decided.

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On May 27, the House Energy and Commerce Committee’s Subcommittee on Consumer Protection and Commerce advanced by voice vote H.R. 2668, legislation to clarify the Federal Trade Commission’s authority under Section 13(b) of the Federal Trade Act, just five weeks after the Supreme Court gutted that authority in AMG Capital Management, LLC v. FTC. The subcommittee vote followed hours of political sparring, with Republicans accusing Democrats of pursuing a rushed, partisan process and Democrats accusing Republicans of ignoring the pleas of the FTC and refusing to engage on the issue.

As we’ve described previously, H.R. 2668, the Consumer Protection and Recovery Act, authored by Representative Tony Cárdenas (D-CA), would explicitly authorize the FTC to seek permanent injunctions and other equitable relief, including restitution and disgorgement, to redress perceived consumer injury. The subcommittee reported H.R. 2668 largely unchanged, save for a substitute amendment from Representative Cárdenas making minor changes to the bill. At the outset, subcommittee Democrats defeated two Republican motions to postpone consideration of the bill. Democrats subsequently voted down two Republican amendments: one delaying enactment of the bill until the FTC certifies that a 2003 policy statement on disgorgement in competition cases is more broadly applicable; and one prohibiting the Commission from seeking disgorgement unless it has conducted an economic analysis. Republicans also “offered and withdrew” an amendment to reduce the legislation’s proposed statute of limitations from 10 to five years.

Beyond 13(b)-specific guardrails, Republicans – including Subcommittee Ranking Member Gus Bilirakis (R-FL) – voiced their intent to address the agency’s 13(b) authority as part of a more holistic FTC policy revamp, including the establishment of a national privacy framework. To that end, another handful of Republican amendments – many dealing with FTC authorities beyond 13(b) – were offered and withdrawn. Continue Reading Energy and Commerce Committee Democrats Advance 13(b) Reform Legislation through Subcommittee

13(b)Recently, the U.S. Chamber of Commerce published a letter to the Committee on Commerce, Science, and Transportation, the Congressional Committee currently working on draft language for a new Section 13(b) of the FTC Act. The Chamber’s letter cautions Congress to ensure that any new statutory language not give the FTC too much authority. In advocating caution, the Chamber makes an important, if subtle, point. The FTC is now arguing that the Supreme Court “took away” 13(b) powers it had before. In reality, though, the Supreme Court in AMG explained that FTC never had the power it arrogated in the first place.

The Chamber’s letter noted that the legislative history of the FTC Act requires the Commission to use Section 19’s administrative processes to obtain monetary relief for past violations. There is no reason that Congress should provide the FTC with additional powers, according to the Chamber, when the FTC already has an avenue to seek monetary relief.

The Chamber’s argument here largely mimics the position of Justice Breyer, who authored the AMG decision from a unanimous Court, concluding that the current version of 13(b) does not allow monetary relief. In AMG, Justice Breyer explained that “[t]he Commission may obtain monetary relief by first invoking its administrative procedures and then § 19’s redress provisions (which include limitations) . . . By contrast, the Commission’s broad reading would allow it to use §13(b) as a substitute for §5 and §19.”

The Chamber’s letter urged Congress not to upset the fine balance the FTC Act originally envisioned. While the Chamber agreed that the FTC should be able to go immediately to Court “to seek appropriate equitable monetary relief for clearly fraudulent cases that are found to be in violation of the law,” it explained that “[m]onetary relief should not be available for every consumer protection violation but should be reserved for the most egregious types of cases.” Continue Reading Acting Chair Rebecca Slaughter and Chamber of Commerce Spar Over a New 13(b)

Congressional Democrats Sound the Alarm, Rally In an Effort to Restore Pre-AMG 13(b) Enforcement AuthorityYesterday, less than a week after the Supreme Court’s unanimous decision in AMG Capital Management v. FTC, two Congressional committees zeroed in on the FTC’s hollowed-out Section 13(b) authority, the fate of which now lies squarely with Congress. Leading Democrats in both chambers have expressed the urgent need for legislation to clarify and strengthen the statute in AMG’s wake. As stated by House Energy and Commerce Committee Chairman Frank Pallone (D-NJ) on Tuesday, “What my colleagues and I have been saying for over a year was a problem is now an emergency.” Republicans, on the other hand – while sympathetic to the FTC’s plight – are increasingly advocating for “guardrails” to prevent unbounded use of the agency’s Section 13(b) authority, should it be restored.

On the House side, the Energy and Commerce Committee’s Subcommittee on Consumer Protection and Commerce held a legislative hearing on H.R. 2668, the Consumer Protection and Recovery Act, introduced last week by Representative Tony Cárdenas (D-CA). As we wrote previously, H.R. 2668 would amend 13(b) to explicitly authorize the FTC to seek permanent injunctions and other equitable relief. Acting FTC Chair Rebecca Slaughter, who was the hearing’s sole witness for more than two hours Tuesday, hailed the Cárdenas proposal as “clear and straightforward legislation that would affirm Congress’s intent that the FTC be able to go to federal court to stop bad conduct, disgorge ill-gotten gains, and provide restitution.” Acting Chair Slaughter and several key Democrats brushed aside arguments that the agency has other enforcement tools (e.g., Section 19), suggesting there is no substitute for 13(b) in terms of both scope and consumer relief.

Hours earlier, Senate Commerce Committee Consumer Protection, Product Safety, and Data Security Subcommittee Chair Richard Blumenthal (D-CT) kicked off a hearing on COVID-19-related fraud by highlighting the need to “restore 13(b) authority that was taken away by the Supreme Court when it caved to a shadowy campaign to disarm the FTC.” While Senate Commerce Committee Democrats have yet to put forward legislative text, their reaction to AMG not-so-subtlety suggests they favor granting the agency broad authority to seek injunctive and monetary relief under Section 13(b). In the Senate hearing, Acting Director of the FTC’s Bureau of Consumer Protection Daniel Kaufman lamented the Supreme Court’s decision, noting that it will “dramatically curtail the ability of the FTC to effectively protect consumers.”

In Tuesday’s parallel hearings, Acting Chair Slaughter and Acting Director Kaufman advocated for a return to the FTC’s decades-long interpretation of its 13(b) authority, now invalidated by the Supreme Court. In pressing for expeditious action, they both highlighted the dozens of pending 13(b) cases involving fraudsters and scammers representing upwards of $2.4 billion in consumer redress potential.   Unfortunately, however, very little air time was dedicated to the question that should have been at the center of yesterday’s day on the Hill.

It is not surprising that Tuesday’s testimony, which sounded the alarm regarding the consumer harm posed by “fraudsters” and “scammers,” captured the attention of lawmakers.  After all, there is no lobby for companies engaged in fraudulent activity and there should be no sympathy from either side of the aisle for obvious bad actors.

As the Supreme Court made clear in its unanimous decision, however, Section 13(b) was not intended to be used as the FTC has used it for the past 40 years.  While a legislative fix could provide the FTC with what it needs to combat dishonest or fraudulent conduct, the real question is whether Congress should go any further.  In deciding issues of claim substantiation, for example, why isn’t the FTC’s existing Section 19 authority adequate when there is a legitimate difference of opinion on whether there is a reasonable basis for a claim?   This authority has almost entirely been ignored, contrary to what was intended when the law was originally drafted by Congress.

It is disappointing that the congressional committees did not spend more time considering this issue, although there was some critical attention focused on other aspects of the bill.  During Acting Chair Slaughter’s testimony, Representative Kelly Armstrong (R-ND) expressed due process concerns stemming from the application of any newly-granted authorities to pending federal court cases.  Notably, in contrast to the Cárdenas bill, a 13(b) fix put forward by Republican Senator Roger Wicker (R-MS) during the last Congress would only apply to agency proceedings commenced post-enactment.

More broadly, several House Energy and Commerce Committee Republicans cautioned that the authority in the Cárdenas proposal should be more narrowly targeted. In addition to concerns with the bill’s 10-year statute of limitations, they questioned its broad application, potentially ensnarling legitimate businesses and products rather than targeting outright fraudulent acts. During the hearing’s second panel, Republicans were receptive to an approach offered by former Bureau of Consumer Protection Director Howard Beales, who argued that “Congress should explicitly authorize the Commission to pursue equitable relief under Section 13(b), subject to the substantive standards set forth in Section 19” and, further, that Congress should dictate the standards for when monetary relief is appropriate.

Energy and Commerce Committee Chairman Pallone concluded his opening remarks Tuesday by encouraging his Republican colleagues to work toward a bipartisan solution; whether Democrats will accept any tweaks to a bill so enthusiastically endorsed by the FTC’s Acting Chair remains an open question. Those hoping for additional guardrails may have more luck in the Senate, where action is notoriously slower and the threat of the legislative filibuster can drive bipartisan negotiations and, occasionally, consensus.

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Now that the Supreme Court has decided AMG Capital Management, LLC v. Federal Trade Commission (regardless of your rooting interests, quite a day, eh?) all eyes turn toward Congress, as it considers whether to amend Section 13(b) of the FTC Act.  As we explained yesterday, in AMG, the Supreme Court definitively (9-0) held that the current text of the statute only allows for injunctive relief.

While the official line is that the FTC does not lobby Congress, the Agency is making its preferences known. In the words of Acting Chairwoman Rebecca Kelly Slaughter:

In AMG Capital, the Supreme Court ruled in favor of scam artists and dishonest corporations, leaving average Americans to pay for illegal behavior. . . . With this ruling, the Court has deprived the FTC of the strongest tool we had to help consumers when they need it most. We urge Congress to act swiftly to restore and strengthen the powers of the agency so we can make wronged consumers whole.

Putting aside issues with this characterization, there can be no doubt that the FTC is actively and aggressively seeking explicit allowance of monetary remedies. But the possibility of a legislatively revitalized Section 13(b) in the near future raises some big questions. Here’s one: if Congress amends Section 13(b) to explicitly allow for monetary remedies, would the FTC be able to use the new legislative language to pursue monetary remedies against companies whose alleged wrongful actions pre-dated the statutory change?  For defendants in the approximately 75 pending federal court cases alleging Section 13(b) violations, this is a very important question.

Without a clear statutory provision providing for retroactive liability, it is highly unlikely that the courts would allow the FTC to use the new statutory language to “look back” at actions committed prior to the newly enacted legislation’s codification date. The Supreme Court has repeatedly affirmed that, in the absence of a clear statutory intent, there is a generally applicable presumption against retroactivity, in which courts “presume that the [new] statute does not apply to [prior] conduct.” Martin v. Hadix, 527 U.S. 343, 352 (1999). The Supreme Court has raised serious Constitutional concerns regarding the retroactive imposition of burdens or obligations on parties based on newly enacted statutory provisions. Due to those concerns, in 1994, the Supreme Court in Landgraf v. USI Film Prods, 511 U.S. 244, established a two-part test to determine whether new statutory language may apply retroactively.

Under the Landgraf test, courts first look to see if the statute facially applies retroactively. If the statute is silent as to its retroactive reach, the court must examine whether the statute’s retroactive application “takes away or impairs vested rights acquired under existing laws, or creates a new obligation, imposes a new duty, or attaches a new disability, in respect to transactions or considerations already past.” Id. at 269.

The Landgraf Court specifically referenced “a statute introducing damages liability” as the type of statute that courts should not apply retroactively. Id. at 285 n. 37. The point of any new Section 13(b) would, of course, be to do just that, introducing new “damages liability” for conduct that previously would only have occasioned injunctive relief.

Parties currently at odds with the FTC over past practices can take some comfort in the Supreme Court’s language in Landgraf. If Congress amends the statute and does not include an express retroactive provision, parties arguing that the new law should not apply to their past conduct will have the better argument.

The question becomes more thorny if the new legislative language explicitly calls for retroactive applicability, which the House bill introduced by Representative Tony Cardenas (D-CA) expressly does. But, if Representative Cardenas’s proposed expansive language is adopted, while the statute’s text would be clear as to retroactivity, its constitutionality would not be. Even where a retroactivity provision is expressly incorporated in a statute, the Supreme Court in Landgraf explained that the Constitution’s “Due Process Clause [] protects the interests in fair notice and repose that may be compromised by retroactive legislation.” Id. at 266.

While any retroactive statutory changes would implicate due process, imposing monetary penalties retroactively is arguably the clearer Due Process violation, because the legislative change directly implicates a taking of property without due process. The Supreme Court’s dictum that “a justification sufficient to validate a statute’s prospective application under the [Due Process] Clause may not suffice to warrant its retroactive application” should be applicable in this instance. See Landgraf, 511 U.S. at 266.  In the face of this due process challenge, the FTC will likely be required to show that a company was on “notice” that there may have been a monetary obligation for the conduct at issue when the conduct occurred.

Of course, the FTC will argue that, when the conduct occurred, there had been 40 years of case law in their favor, which put companies that are currently litigating under Section 13(b) on notice.   This argument is not as strong as it seems at first glance.  Can a company be on notice when the plain language of the statute does not allow for monetary remedies? Aren’t companies entitled to rely on the plain language of the statute as interpreted by the highest court in the land, notwithstanding that lower courts have gotten it wrong for decades? This is an issue that will be front and center for companies currently in litigation with the FTC under Section 13(b).

And while the outcome of any such constitutional challenge may be unclear, what is clear is that any legislation purporting to retroactively establish monetary liability, when the Supreme Court in AMG so clearly held that the prior statutory language could not establish such liability, will be challenged. Thus, while AMG clarified the current ambit of 13(b), the role of the courts in establishing the contours of a future 13(b) is likely far from over.

Of course, the constitutional issue posed by retroactivity will not ripen without a revised Section 13(b); as any congressional observer should know, new legislation is uncertain.  From Politico this morning:

An aide for Republicans on the House Energy and Commerce Committee signaled there’s already some partisan bickering over the upcoming hearing and how to address the [13(b)] issue through legislation. “A 9-0 vote by the Supreme Court sends a clear signal that the FTC did not use their authorities in the most effective means to seek restitution,” the aide said. “It is unfortunate when Committee Democrats will not let all commissioners appear before the Energy and Commerce Committee to discuss a consensus solution.”

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This morning, the Supreme Court released its long-awaited opinion in AMG Capital Management v. FTC. Judge Breyer issued the decision for a unanimous Court. As we had predicted following oral arguments, the Supreme Court found that Section 13(b) of the FTC Act does not allow for monetary remedies.

The Court’s conclusion, stated at the outset, is straightforward and unambiguous: “The question presented is whether th[e] statutory language” allowing the FTC to seek injunctive relief “authorizes the Commission to seek, and a court to award, equitable monetary relief such as restitution or disgorgement. We conclude that it does not.”

The first half of Justice Breyer’s AMG opinion details a history of the FTC’s enforcement capabilities. Justice Breyer points out that, historically, the FTC’s use of Section 13(b) to obtain monetary remedies is an aberration. To the contrary, “[e]ver since the Commission’s creation in 1914, it has been authorized to enforce the Act through its own administrative proceedings.” It was only in the late 1970’s that the FTC started using Section 13(b) “without prior use of the administrative proceedings in §5.” While the FTC argued that its use of 13(b) to obtain monetary relief was a necessary norm, Justice Breyer’s thorough review of the historical record shows that that is not the case.

Whether or not the FTC’s use of Section 13(b) to bypass administrative proceedings and go directly to Federal Court is good policy, the unanimous Court concluded that it is not good law. Most importantly, in reaching its decision, the Court noted that the statutory “language refers only to injunctions . . . An ‘injunction’ is not the same as an award of equitable monetary relief.” If that was not enough, the context of the statutory provision confirms that it does not extend to non-injunctive remedies. As Justice Breyer explained, “The language and structure of §13(b), taken as a whole, indicate that the words ‘permanent injunction’ have a limited purpose—a purpose that does not extend to the grant of monetary relief.”

Justice Breyer concluded that reading Section 13(b) the way the FTC seeks to would be illogical. By contrast, the logical textual reading is also the most coherent: “to read §13(b) to mean what it says, as authorizing injunctive but not monetary relief, produces a coherent enforcement scheme: The Commission may obtain monetary relief by first invoking its administrative procedures and then §19’s redress provisions (which include limitations). And the Commission may use §13(b) to obtain injunctive relief while administrative proceedings are foreseen or in progress, or when it seeks only injunctive relief. By contrast, the Commission’s broad reading would allow it to use §13(b) as a substitute for §5 and §19.”

Shortly after the Court released its opinion, Acting FTC Chairwoman Rebecca Kelly Slaughter issued a highly critical statement. Ignoring the historical record Justice Breyer relied on, Slaughter attempted to reframe the High Court’s decision as a victory for scammers. Slaughter’s press release is surely directed at Congress, where the FTC is already lobbying to reinvigorate Section 13(b), with circulated language that would, if adopted, increase the FTC’s 13(b) enforcement authority.

As the Supreme Court has now gutted Section 13(b), it will be up to Congress to revitalize the statutory provision with stronger enforcement mechanisms. Of course, Congress can also choose to do nothing. In that case, the FTC will have to take to heart the Supreme Court’s recommendation that it make more use of the traditional—and statutorily founded—administrative enforcement procedures found in Sections 5 and 19 of the Act.

Updated to reflect introduction of H.R. 2668, the Consumer Protection and Recovery Act by Rep. Cárdenas (D-CA)

As we inch closer to a Supreme Court decision in AMG Capital Management, LLC v. Federal Trade Commission, proponents of a 13(b) legislative fix are moving with a greater sense of urgency. In a Senate Commerce Committee hearing today entitled, “Strengthening the Federal Trade Commission’s Authority to Protect Consumers,” Chairwoman Maria Cantwell (D-WA) highlighted the agency’s endangered Section 13(b) authority – what she called the “bread and butter of the FTC’s consumer protection mission” – and asserted, “We have to do everything we can to protect this authority and, if necessary, pass new legislation to do so.”

Following statements from all four current FTC Commissioners in support of a legislative fix, Cantwell was adamant she did not want a post-AMG “free rein” atmosphere and noted her intent to move quickly in the event of an adverse ruling. Acting FTC Chairwoman Rebecca Slaughter pressed for an expeditious and comprehensive response, noting the effects of the ongoing legal uncertainty on the agency’s current cases and its ability to get redress to consumers.

Despite bipartisan concern about the future of the agency’s 13(b) authority, however, Congress has yet to settle upon a legislative framework to clarify that authority. Senate Commerce Committee Ranking Member Wicker (R-MS) – who last year put forward a 13(b) fix as part of a comprehensive data privacy bill – questioned how Congress could “ensure the proper assessment of monetary remedies.” Republican FTC Commissioner Noah Phillips, while affirming the importance of compensating harmed consumers, noted that appropriate remedies are not the same in every case and stressed the need to focus on restitution rather than disgorgement.

Phillips’ fellow Republican Commissioner Christine Wilson noted in her testimony that “the legitimate concerns of stakeholders can be addressed while also restoring our ability to use 13(b) to pursue wrongdoers.” Specifically, Wilson suggested: (1) the inclusion of a statute of limitations; (2) the establishment of boundaries on when the FTC could seek disgorgement; and (3) in cases involving legitimate companies making deceptive claims, Congressional direction to the courts to “account for the value consumers retain from the product despite the deception.”

Ahead of today’s hearing, the Chamber of Commerce weighed in with a letter to the Committee expressing concern with the FTC’s practice of seeking injunction and monetary relief under 13(b) despite the fact that its statutory authority to seek monetary relief falls under Section 19 of the FTC Act. In particular, the Chamber noted that providing explicit monetary authority under Section 13(b) “expands monetary relief to many more consumer protection cases beyond the scope of Section 19 … without corresponding safeguards against misuse.” During the hearing, Ranking Member Wicker asked the Commissioners to opine further in writing on the Chamber’s letter and its view that the use of 13(b) forecloses the agency’s ability to seek monetary damages.

Hours later, across the Capitol, Representative Tony Cárdenas (D-CA) – who in February signaled his interest in a 13(b) fix during a House Energy and Commerce Committee hearing  –  introduced H.R. 2668, the Consumer Protection and Recovery Act. The legislation explicitly authorizes the FTC to seek permanent injunctions and other equitable relief, including restitution and disgorgement, to redress perceived consumer injury. H.R. 2668 also authorizes the FTC to go after prior conduct – an authority that is far from settled under current law – with a 10-year statute of limitations. And, likely in response to advocates for 13(b) reform who regularly note the detrimental effects of the ongoing legal uncertainty on the FTC’s current enforcement activity, the enhanced authorities in the Cárdenas legislation will apply retroactively to pending cases as well as to future proceedings. While the bill is cosponsored by every Democrat on the Energy and Commerce Committee’s Subcommittee on Consumer Protection and Commerce, it remains to be seen if Representative Cárdenas can recruit any bipartisan support – the Chamber letter may portend areas of focus for Republicans interested in a more limited fix. The Consumer Protection and Commerce Subcommittee has scheduled an April 27 hearing on the Cárdenas proposal.

We are likely to hear more on Section 13(b) on Wednesday, when the Senate Commerce Committee holds a hearing on nomination of Lina Khan, President Biden’s pick to fill the FTC’s current vacancy. In answers provided to the committee as part of the confirmation process, Khan highlighted legal threats to the FTC’s penalty authority as one of the top three challenges currently facing the agency, signaling alignment with FTC Commissioners across the political spectrum.

House Democrats Primed to Introduce 13(b) Legislative FixOn Thursday afternoon, the future of the Federal Trade Commission’s enforcement authority took center stage during a House Energy and Commerce Committee hearing entitled, “Safeguarding American Consumers: Fighting Fraud and Scams During the Pandemic.” While the Consumer Protection and Commerce Subcommittee hearing was ostensibly focused on pandemic-related fraud, calls to clarify the agency’s ability to use Section 13(b) of the FTC Act to provide restitution dominated the discussion. For their part, House Democrats appear ready to move forward with a legislative fix – perhaps even before the Supreme Court issues its ruling on the scope of 13(b) in AMG Capital Management, LLC v. Federal Trade Commission later this year.

During Thursday’s hearing, Representative Tony Cárdenas (D-CA) announced plans to introduce legislation to clarify the FTC’s ability to use Section 13(b) to provide refunds to consumers victimized by fraud and deception. In highlighting the need for the legislation, Representative Cárdenas cited an October 2020 letter from all five FTC Commissioners urging Congress to “act quickly so that the FTC can continue to effectively protect American consumers.” Consumer Protection and Commerce Subcommittee Chair Jan Schakowsky (D-IL) expressed strong support for the legislation, as did full committee Chair Frank Pallone (D-NJ), who noted that “the FTC’s ability to make consumers whole is under threat in the Supreme Court.”

Witnesses at the hearing – including former FTC Chairman William Kovacic and former director of the agency’s Bureau of Consumer Protection Jessica Rich – expressed concern that an adverse ruling by the Supreme Court in AMG would severely weaken the agency’s enforcement power. A top legislative priority, in Kovacic’s words, should be “repairing what is likely to be a hole in 13(b) authority.”

Notably, the witnesses were divided on the issue of whether Congress should act before the Supreme Court rules. In response to a question from Subcommittee Chair Schakowsky, Kovacic expressed concern that acting before the Court’s decision would “lead to the conclusion that the authority was never intended” by Congress. Rich and TINA.org Executive Director Bonnie Patten, however, noted that the agency’s ability to pursue restitution under 13(b) has already been severely curtailed by the courts and that Congress should move quickly.

While Representative Cárdenas urged committee Republicans to work with him on the legislation, none lined up in support of the yet-to-be introduced bill on Thursday. Energy and Commerce Committee Ranking Member Cathy McMorris Rodgers (R-WA) spoke about the importance of 13(b), but expressed concern that the agency might abuse the authority and use it “primarily to leverage defendants into settlements.” On the other side of the Capitol, the Senate Commerce Committee’s top Republican Roger Wicker (R-MS) included a 13(b) fix in a comprehensive privacy bill introduced last year – a point not lost on Representative Cárdenas.

Although the timing for legislative action remains uncertain, Thursday’s hearing strongly suggests that the new Democratic Congress is intent on revising the statute to provide the FTC with the express authority to obtain monetary penalties.

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This morning, the Supreme Court heard its long-anticipated arguments in AMG Capital Management, LLC v. Federal Trade Commission. As we have previously explained, in AMG, the FTC’s use of Section 13(b) of the FTC Act to obtain monetary remedies is under the High Court’s microscope. While the outcome won’t be known for months, the Justices questioning at oral argument seem to suggest that the case might not break the FTC’s way.

The facts of AMG are straightforward. Scott Tucker was the owner of a single-proprietor business, AMG Capital Management. The business’s sole function was to provide payday loans. The FTC sued Scott Tucker, the owner of AMG, under Section 13(b) of the Act, asserting that the terms disclosed in the loan notes AMG provided to consumers did not reflect the harsher terms that Tucker actually enforced. The district court found Tucker liable, and pursuant to Section 13(b), levied a staggering $1.27 billion in equitable monetary relief to be paid by Tucker to the Commission. Tucker appealed this ruling to the Ninth Circuit. Tucker’s primary argument on appeal was that Section 13(b) forecloses monetary relief. The Ninth Circuit affirmed, and AMG’s petition to the Supreme Court on this issue was granted.

While some of the Justices at oral argument—particularly Justice Barrett and Alito—seemed concerned that reversing the Ninth Circuit’s judgment would provide an undeserved windfall to Tucker, a clear majority of the Court was more focused on the FTC’s broad interpretation of the statutory text. Justice Kavanaugh expressed the problem clearly and succinctly, when he stated to FTC counsel that, although he felt sympathy for the FTC’s concern with stemming bad actors, a regulatory agency is bound by its statutory mission. In Justice Kavanaugh’s words, “It seems the problem you have is the text.”

Although FTC counsel argued that prior case law from the nineteenth century allowed monetary equitable relief along with injunctive relief, Justice Roberts pointed out that those cases largely involved courts using their inherent equitable powers. An executive agency, by contrast, only retains equitable powers to the extent it is given them by statute. And while FTC counsel argued that the legislative intent when Section 13(b) was codified was to imbue it with broad equitable powers, AMG’s counsel effectively rebutted that argument, explaining that the best “way we determine Congress’s intent is by looking at the words on the page.”

While nothing is certain until a final decision is rendered, following oral arguments it seems even more likely that Section 13(b) of the FTC Act will be limited to its plain terms, allowing the FTC to use the statutory provision to obtain injunctive relief in court, and only that. As multiple Justices noted, Section 19 and Section 5(l) of the Act provide alternative avenues for relief. While Section 13(b) may be a more efficient method for the FTC to obtain monetary remedies, the majority of the Justices at oral argument signaled that efficiency alone is not a sufficient basis for imbuing an agency with such a powerful remedy.

All is not lost for the FTC. Again, here, Justice Kavanaugh led the way with a proposed solution for the Agency, when he asked, “Why isn’t the answer here for the Agency to seek this new authority from Congress for us to maintain a principle of separation of powers?”  With a new Congress about to be seated and proposed language that would amend Section 13(b) floating around the Hill, congressional clarification very well might be the FTC’s best path forward.

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Earlier this week, the Federal Trade Commission re-stated its position to the Supreme Court, arguing that there is no “clear legislative command” to restrict the traditional powers of equity.  In other words, courts of equity could do just about anything, and since an injunction is equitable relief, an injunction can equal monetary restitution as well.  No real surprises here.

But the obvious problem remains: that’s not what the statutory text says. And we are not in a court of equity, but a court of law, dealing with a statutory provision that allows for injunctions and does not allow for monetary remedies. With argument set before an increasingly textualist Supreme Court in mid-January, the judicial field seems tilted in the wrong direction for the FTC.

Which very well means that the real fight will come later, in Congress.  And while we wait for the Supreme Court’s decision to clarify the FTC’s enforcement authority, it is unclear how long that clarification will stick.  In considering this issue, it is useful to consider Congress’s pending action to clarify the penalty authority of another independent agency, SEC, an effort that is gathering some steam.

As part of its annual defense policy bill, Congress is poised to enhance the SEC’s ability to pursue violations of the securities laws. Specifically, Section 6501 of H.R. 6395, the FY21 National Defense Authorization Act (NDAA) –  as agreed to by House and Senate negotiators – would provide statutory authority for the SEC to seek disgorgement as a remedy for unjust enrichment gained through a securities law violation. The bill establishes up to a 10-year statute of limitations for disgorgement and a 10-year statute of limitations for equitable remedies.

Section 6501 of the defense bill largely mirrors Title V of Senator Mark Warner’s (D-VA) anti-money laundering bill, the ILLICIT CASH Act (S. 2563) (itself incorporated into the defense bill) – although does not include restitution as Warner’s bill does. The language is also similar to H.R. 4344, the Investor Protection and Capital Markets Fairness Act, authored by Representatives Ben McAdams (D-UT) and Bill Huizenga (R-MI). H.R. 4344 passed the House in November 2019 by a vote of 314-95 and was endorsed by SEC Chairman Jay Clayton. We wrote about the prospects for, and broader implications of, these bills in January.

The NDAA – and with it, these new tools for the SEC – is expected to be passed by both chambers of Congress next week, notwithstanding a Presidential veto threat.  When it comes to 13(b), however, despite some recent (and mild) momentum, Congressional action to clarify the FTC’s Section 13(b) authority seems far less certain with just a handful of days left this session.  But it is certainly something to watch closely once the 117th Congressional session convenes in 2021.