As the parties prepare for oral argument before the Supreme Court on January 13 in AMG Capital Management LLC et al. v. FTC, case number 19-508, amicus briefs in support of the Commission’s position have been filed this week, with most warning of dire consequences for consumers and competition if the case does not break the Commission’s way:

  1. The National Consumer Law Center, UC Berkeley Center for Consumer Law and Economic Justice, Center for Consumer Law and Education, Housing Clinic of Jerome N. Frank Legal Services Organization at Yale Law School, and Professor Craig Cowie

“Absent a ‘clear and valid legislative command’ to the contrary, Congress does not impliedly impinge on the equitable powers of a court…Consumer redress through Section 13(b) actions, as envisioned by Congress and provided by the court, continues to protect American consumers and promote a fair marketplace. Stripping the courts of their equitable power to provide redress would create perverse market forces that would expose vulnerable populations to fraud while putting lawful market actors at a competitive disadvantage.” (3-4)

“Incomplete justice against deceptive practices only serves to mar the reputation of legitimate members of the free market and perpetuate harm against the American public.” (28)

  1. Public Citizen

“If, as petitioners contend, federal courts lack the authority to award complete relief in a § 13 action, and may only halt unlawful conduct prospectively, scam artists and other wrongdoers will have a green light to engage in prohibited conduct that harms consumers, secure in the knowledge that they are likely to retain the economic fruits of their unlawful ventures.  The end result will be to increase the financial harms experienced by American consumers, while curtailing the relief that consumers may obtain after unlawful actors are caught.” (2)

  1. 29 State AGs

“Stripping the FTC of its authority to seek restitution under Section 13(b) would weaken its efforts to combat unfair and deceptive practices, which, in turn, would frustrate federal-state collaboration and require States to divert resources away from other consumer-protection efforts to perform the duties previously fulfilled by the FTC.” (2)

“Without such authority [to return ill-gotten gains to victims], consumers and businesses in the amici States will be deprived of what is rightfully theirs, wrongdoers will be allowed to profit from their illegal conduct, and markets will become less fair and competitive.” (22)

  1. Open Markets Institute

“Besides overthrowing the established meaning of an injunction and rewriting the statutory text, the arguments of AMG and its amici would also encourage corporate lawbreaking at the expense of consumers, workers, rivals, and independent businesses.” (2)

  1. Truth in Advertising, Inc.

“The Section 13(b) regime petitioners urge the Court to tear down also harnesses another historic hallmark of equity jurisdiction – its focus on making relief effectual, a vital priority where defendants have the means and inclination to dissipate assets and frustrate judicial remedies.” (5)

“This Court should not credit petitioners’ and amici’s assurances – based on the continued availability of parallel state-law remedies – that imposing their ‘narrow construction’ of Section 13(b) would not adversely affect consumer protection.  That claim ignores the central lesson of experience under consumer protection law: Remedies that are expansive on paper often prove ineffectual in practice. It takes nothing away from state enforcers to recognize that their efforts are not substitutes for those of the Commission, which has vast expertise, national jurisdiction, and global reach and is unimpeded by structural and legal complexities that challenge state-level efforts to address nationwide and global misbehavior.” (7)

“Hundreds of pages of briefing cannot obscure the glaring reality that a rule giving the worst wrongdoers an absolute right to retain funds they took from unwitting victims will make consumers and the economy more vulnerable to harm.” (32)

6. The American Antitrust Institute

“the goals of U.S. antitrust law will be significantly impaired if the Federal Trade Commission is unable to prevent unfair methods of competition by seeking disgorgement in appropriate antitrust cases under Section 13(b) of the Federal Trade Commission Act.” (1)

“If the FTC cannot seek disgorgement in those cases, anticompetitive conduct will continue to pay. And the Commission will be hard-pressed to prevent it.” (3)

“If Section 13(b) prohibited traditional equitable remedies, the agency’s – and courts’ – only option for ensuring that a company will be able to divest its illegally-acquired assets would be to block a merger or acquisition outright. And so the agency would always be forced to forego a more targeted remedy – with less impact on the regulated business – in favor of the most drastic alternative, even when the Commission itself believes it is unnecessary to do so.” (24)

7. 43 Professors of Remedies, Restitution, Antitrust, and Intellectual Property Law

“An overly rigid conception of the statutory injunction power as including only a command to act or not act, but not the adjunct authority to order an accounting of profits or restitution of ill-gotten gains, belies the historic meanings and uses of injunctive authority.  Such a strict and formalistic view ignores the long history of injunctions and incident authority also to order restitution, even when the statute provides for injunctions without explicitly listing other remedies.” (3)

“Eliminating the ability of courts to award restitution in §13(b) cases would cause serious harm in many cases. It would unjustly enrich defendants, leave wrongdoing under-deterred, and fail to carry out the very purposes of the FTC Act – protecting against exactly this type of wrongful profiting from consumers.” (26)

8. And finally, a group of nine former FTC officials, all of whom helped advance the FTC’s consumer fraud program through aggressive use of Section 13(b) authority at various times between 1995 and 2020.  These nine officials include one former commissioner (Mozelle W. Thompson, 1997-2004); three former Directors of the Bureau of Consumer Protection (the legendary Jodie Bernstein, 1995-2001, David C. Vladeck, 2009-2012, and Jessica Rich 2013-2017); and five other former prominent FTC consumer protection attorneys (Eileen Harrington, Mary K. Engle, C. Lee Peeler, Teresa Schwartz, and Joel Winston).

“Make no mistake, Section 13(b) remains the FTC’s most important enforcement tool” (3)

“Unless Section 13(b) authorizes equitable remedies, including the appointment of receivers, accountings, and the imposition of asset freezes, the FTC would have little power to prevent asset dissipation and consumer redress would often be a fantasy.” (4)

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This morning, the Supreme Court released its calendar for its January 2021 oral arguments. AMG Capital Management, LLC v. FTC is on the docket. Oral argument in AMG has been scheduled for January 13, 2020.

As we’ve noted in prior posts, the High Court in AMG will review the question of whether or not Section 13(b) of the FTC Act authorizes the FTC to seek monetary relief from the individuals and entities it pursues under that statutory provision. Signs to date point to a strong likelihood that the Court will disallow such monetary remedies, finding that such remedies run contrary to the statutory text. Based on questioning at January’s oral argument, we may have a better sense of which way the Court is leaning.

 

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This morning, in a brief line order, the Supreme Court vacated its prior grant of the Federal Trade Commission’s petition for certiorari in Federal Trade Commission v. Credit Bureau Center, LLC (“Credit Bureau”). Justice Barrett did not take part in the decision to vacate the grant of certiorari. None of the remaining Justices dissented from the order.

As we explained in a prior post, in Credit Bureau, the Seventh Circuit reversed its prior precedent, concluding that Section 13(b) of the FTC Act does not authorize the FTC to obtain monetary restitution. In doing so, the Credit Bureau court admonished that Section 13(b) must be taken on its own terms. “By its terms, section 13(b) authorizes only restraining orders and injunctions,” not restitution. 937 F.3d 764, 767.

The Supreme Court’s action will not prevent this issue from being litigated at the High Court. Credit Bureau had been consolidated with another case, AMG Capital Management, LLC v. Federal Trade Commission (“AMG”). AMG is in many ways a parallel case to Credit Bureau, with similar facts leading to an opposite outcome. In AMG, a Ninth Circuit panel disapproved of the broad and atextual reading of Section 13(b) allowing for monetary restitution, but concluded that it “remain[ed] bound by” the ample Ninth Circuit precedent broadly construing Section 13(b). 910 F.3d 417, 427. AMG remains before the Supreme Court, and oral arguments will be heard sometime in the first half of 2021.

While the Supreme Court’s vacation of the grant of certiorari in Credit Bureau cannot be viewed as a definitive endorsement of the Seventh Circuit’s position, it certainly comes close. While not an outright affirmance on the merits, the vacation signals that the Supreme Court is comfortable with the Seventh Circuit’s Credit Bureau holding. When the Supreme Court vacates grants of certiorari, it will often do so with the brief explanation that the original grant of certiorari was “improvidently granted,” meaning that the Supreme Court no longer believes the case merits review. The Supreme Court did not do that here. Instead, the High Court simply vacated the grant. This, along with the continued presence of AMG on the Supreme Court’s docket, signals that the Supreme Court does think the issues in Credit Bureau merit review, but the Court no longer believes Credit Bureau is the best vehicle to review the issue of monetary restitution under Section 13(b).

While the Supreme Court’s line order does not specify why the Court vacated the grant of certiorari, we believe there is one likely reason. Justice Barrett (who did not participate in the vacation of the grant of cert) was a member of the Seventh Circuit when Credit Bureau was decided. While then Judge Barrett was not on the Credit Bureau panel, the panel’s decision was reviewed by the entire Seventh Circuit because it overturned prior Seventh Circuit precedent. While some members of the Seventh Circuit dissented from the panel’s Credit Bureau decision, Judge Barrett did not. Judge Barrett’s decision to allow Credit Bureau to stand while she was on the Seventh Circuit certainly qualifies as participation in a lower court’s case before it made its way to the Supreme Court. Many believe that it would have been an ethical conflict for Justice Barrett to participate again in a review of Credit Bureau—effectively reviewing her own decision.

The Supreme Court’s decision to vacate the grant of certiorari in Credit Bureau thereby allows Justice Barrett to participate in the AMG case on the merits while avoiding any ethical issues. The eight members of the Court who chose to vacate the grant of certiorari Credit Bureau are signaling that they want Justice Barrett to participate in the proceedings.

This, in turn, seems like a strong signal that the Supreme Court may reverse the Ninth Circuit’s decision in AMG, concluding that Section 13(b) does not allow for the FTC to obtain monetary restitution. If the High Court agrees with the Seventh Circuit’s Credit Bureau decision and reverses the Ninth Circuit’s contrary AMG decision, there is no real need to review the Seventh Circuit’s decision on the merits. The Supreme Court’s reversal of the Ninth Circuit’s AMG decision will, of course, be precedential nationwide. And, the Supreme Court will thereby effectively affirm Credit Bureau, allowing Justice Barrett to participate in its AMG decision while bypassing any ethical quagmires.

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.

The FTC flexed its new-found civil penalty muscle last week by filing the first case pursuant to the COVID-19 Consumer Protection Act, which gives the FTC authority to seek civil penalties for deceptive COVID-related acts and practices.  ICYMI, see our blog post about the civil penalty authority here.

Ordinarily, the FTC is only authorized to seek penalties for violating a prior Court or Commission order, cease and desist order or trade regulation.  This new power extends “[f]or the duration of a public health emergency,” and permits the FTC to seek penalties for deceptive acts or practices in or affecting commerce that is associated with (1) the treatment, cure, prevention, mitigation, or diagnosis of COVID-19, or (2) a government benefit related to COVID-19.

The FTC’s first action under the COVID-19 Consumer Protection Act, U.S. v. Quickwork LLC and Eric Anthony Nepute, is filed in the United States District Court for the Eastern District of Missouri.  The complaint alleges that, despite prior receipt of a letter warning or unsubstantiated COVID-19 efficacy claims, Nepute (a chiropractor) and his company Quickwork deceptively marketed vitamin D and zinc products under the “Wellness Warrior” brand for the treatment, prevention, and cure of COVID-19.  The Complaint contains excerpts from the defendants’ advertisements, marketing

emails, videos, and social media posts suggesting that use of Wellness Warrior products will, among other things, (1) treat or prevent COVID-19; (2) decrease the chance of contracting COVID-19; and (3) decrease the chance of death upon diagnosis with COVID-19. The Complaint also references advertisements stating that the Wellness Warrior products provide equal or better protection than currently available COVID-19 vaccines and that the defendants’ various representations relating to the efficacy of Wellness Warrior products are scientifically proven. Despite these representations, the Complaint alleges that there are no published studies, or other competent and reliable scientific evidence, supporting the efficacy of vitamin D3, zinc, or the Wellness Warrior products in treating or preventing COVID-19.

The Complaint asserts ten causes of action for violations of the FTC Act and the COVID-19 Consumer Protection Act, and seeks preliminary and permanent injunctive relief, rescission or reformation of contracts, the refund of monies paid, restitution, the disgorgement of ill-gotten gains, civil penalties and costs.  With respect to civil penalties, the Complaint alleges that each dissemination of an allegedly-deceptive advertisement constitutes a separate violation for purposes of calculating monetary civil penalties,” and that the Court is authorized to award penalties up to $43,792 for each such violation.

In addition to the remedies sought under the COVID-19 Consumer Protection Act, the FTC is also seeking refunds, restitution and disgorgement under the FTC Act despite the current uncertainty regarding whether the FTC can pursue monetary remedies at all as part of a request for injunctive (equitable) relief.  The Supreme Court is poised to rule on that issue very shortly in AMG Capital Management, LLC v. Federal Trade Commission, No. 19-508 (U.S.).

Regardless, the FTC’s authority to seek civil penalties for allegedly deceptive COVID-19 advertising is clear and we should expect that this will not be the only instance in which the agency seeks to use its new authority.

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.

Advertising and Privacy Law Resource Center

https://www.adlawaccess.com/articles/federal-trade-commission/13-b/With one eye on the U.S. Supreme Court, which is being asked to confirm that the FTC has authority to seek monetary relief under Section 13(b) in AMG Capital Management, LLC v. Federal Trade Commission, and the other eye on Congress which may or may not pass legislation authorizing monetary relief under Section 13(b), there has been very little said about what we might expect if neither were to occur.  What if the Court finds that 13(b) does not provide this authorization and Congress does not act?  How might the FTC seek consumer redress against entities alleged to have engaged in unfair or deceptive advertising practices in district court?  One answer is Section 19 of the FTC Act.  So then, what can we expect if Section 19 becomes the FTC’s best path forward?

Under Section 19 of the FTC Act, the FTC can pursue consumer redress for alleged unfair or deceptive practices, but first must file administratively for an order directing the target of the investigation to cease and desist from the allegedly unfair or deceptive practices and, if the order is challenged, go through several rounds of review—first by the Commission and then by the United States Court of Appeals.  Only after the Commission’s order becomes final can the FTC commence the Section 19 action in district court for consumer redress.  That action, of course, is still subject to the typical federal appellate process—which can make a Section 19 action an extremely time-consuming process.

F.T.C. v. Figgie International, Inc. provides an example of how Section 19 would work, as well as its limitations.  In Figgie, the FTC obtained a cease and desist order under Section 5 ordering Figgie to cease and desist from engaging in the unfair or deceptive practices it used to market its Vanguard heat detector products.  According to the FTC, “[t]he crux of Figgie’s message was that heat detectors could be relied on as life-saving fire warning devices, and that the best protection for one’s home is a combination of four or five heat detectors to one smoke detector.”

Following the administrative proceeding, the Administrative Law Judge concluded that every one of Figgie’s promotional materials “‘clearly conveys’ the claim that Vanguard heat detectors provide the necessary warning to allow safe escape from a residential fire.”  The promotional materials also discussed the National Fire Prevention Association (“NFPA”) standards “‘in such a way as to leave the reader with a distinct impression that [the NFPA] regards both smoke detectors and heat detectors as equally effective.’”  However, while the NFPA previously recommended using both smoke and heat detectors as part of a household fire warning system, after fire prevention experts conducted a series of tests that illustrated the limitations of heat detectors, the NFPA revised its standards to require only that smoke detectors (not heat detectors) be installed on each level of the home and outside each bedroom.

After an administrative trial, the ALJ found that Figgie knew of the changes in the NFPA standards and the limitations of heat detectors prior to making the challenged representations.  The ALJ found that Figgie’s representations were “misleading and deceptive in the absence of an explanation of the limits of heat detectors and the comparative superiority of smoke detectors.”  On appeal, the Commission upheld most of the ALJ’s findings and conclusions, but changed the disclaimer required on Figgie’s heat detectors.  The rest of the Commission’s cease and desist order “closely tracked the ALJ’s order” and prohibited Figgie from representing that heat detectors provide the necessary warning to permit safe escape from most residential fires, that combining heat detectors and smoke detectors provide greater warning than smoke detectors alone, and that Figgie may not misrepresent the capabilities of heat detectors to provide warning that would permit people to escape from residential fires.

After the cease and desist order became final (following an appeal to the Fourth Circuit Court of Appeals), the FTC filed an action pursuant to Section 19 in U.S. District Court for the Central District of California seeking consumer redress.  The FTC was awarded summary judgment by the district court, which found Figgie engaged in dishonest or fraudulent practices and awarded millions of dollars in consumer redress.

Of note, prior to summary judgment the district court granted the FTC’s “motion to deem ‘conclusive’” the list of 42 findings from the administrative proceeding.  That is because in a Section 19 proceeding, the Commission’s findings of material fact in support of a cease and desist order “shall be conclusive.”  On appeal, the Ninth Circuit noted that [t]he Commission’s findings, and those of the administrative law judge which the Commission adopted, are accordingly treated as established facts for purposes of this decision.”  Thus, to the extent that a district court’s findings deviate from the findings of the Commission, “the Commission’s findings control.”

The Ninth Circuit decision noted that “liability for past conduct would be imposed on Figgie if a reasonable person would have known in the circumstances that it was dishonest or fraudulent for Figgie to use the practices it did to sell heat detectors.”  In rejecting Figgie’s argument that actual knowledge was required, the Court noted that “Congress unambiguously referred the district court to the statement of mind of a hypothetical reasonable person, not the knowledge of the defendant.  The standard is objective, not subjective.”

Moreover, while the Ninth Circuit stated that “Section 19 liability must not be a rubber stamp of Section 5 liability,” it held that “[w]hen the findings of the Commission in respect to defendant’s practices are such that a reasonable person would know that the defendant’s practices were dishonest or fraudulent, the district [court] need not engage in further fact finding other than to make the ultimate determination that a reasonable person would know.”  The Figgie action, it held, was such a case, because it found there is “ample evidence in the Commission’s findings to satisfy a court that a reasonable person with Figgie’s access to the scientific data establishing the relative inferiority of heat detectors would have known that Figgie’s vigorous misrepresentations on their behalf were dishonest and fraudulent.”

And while the ALJ acknowledged “a debate among fire professionals” concerning the tenability limits of heat detectors, the Ninth Circuit relied on findings that “[a] consensus among experts, well supported by careful testing, established that smoke detectors almost always provide earlier warning than heat detectors, and Figgie had no basis for doubting the truth of the consensus, yet Figgie marketed its heat detectors in a manner designed to mislead consumers about this critical information.”  Hence, the conduct was deemed dishonest or fraudulent.

As Figgie demonstrates, the ALJ’s findings of fact almost certainly will be conclusive and, if appealed to the Commission, they are likely to be adopted.  The Commission, after all, is the entity that authorized the issuance of the administrative complaint that precipitated the Section 19 action in the first place.  All of this underscores how important it is to contest any underlying facts that may ultimately be considered to bear on whether the challenged conduct was dishonest or fraudulent.

Figgie seems to suggest a plausible alternative, if things don’t break the Commission’s way in AMG Capital Management.  If that is the case, then why haven’t we seen more Section 19(b) cases over the years?  One answer is undoubtedly the success of the Section 13(b) program.  Why engage in administrative litigation, without the possibility of consumer redress absent a showing of dishonest and fraudulent conduct?  This has undoubtedly led to the ALJ becoming a version of the Maytag repairman, with relatively few cases to manage.

But it is not just the money, it is the requirement that the Commission establish that the conduct was dishonest and fraudulent – no small task – and timing too.  Section 19 cases, as they have historically been conducted, take a very long time.  Consider that the FTC issued its administrative complaint against Figgie in May 1983, the ALJ issued his findings of facts in October 1984, and the decision was appealed to the full Commission and substantially adopted in April 1986.  Figgie then appealed the Commission’s Order to the U.S. Court of Appeals for the Fourth Circuit, where it was ultimately upheld in 1987.  By the time that the Ninth Circuit issued its decision on appeal from the Section 19 district court action and the petition for certiorari to the Supreme Court was denied in early 1994, more than a decade had passed since the issuance of the FTC’s administrative complaint.