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. Continue Reading Pushing the Boundaries of Existing Authority: Section 19 Post-AMG Capital Management

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.

As AMG recedes further into the past, lower courts are becoming more comfortable disposing of 13(b) actions where the proceedings are attempting to obtain monetary restitution as a matter of course. In many instances below, the FTC has conceded its inability to obtain monetary relief and has focused on the injunctive relief it seeks. However, there are still outstanding cases wherein, despite AMG, the FTC refuses to concede defeat on the issue of monetary relief under Section 13(b).

 

Latest update follows. Continue Reading Post-AMG Scorecard (Updated): FTC Claims for Monetary Relief in 13(b) Actions Dwindle

Section 13(b)logThe ripple effects continue from the Supreme Court’s holding in AMG Capital Management, LLC v. FTC, explaining that Section 13(b) of the FTC Act does not allow (and never did allow) monetary remedies.

In some cases, the FTC has stricken equitable monetary remedies entirely by removing those requests for relief in amended complaints. In others, the FTC is attempting to retain its request for monetary relief by newly tying it to another statutory provision. In still others, the Agency has requested that courts ignore AMG, because Congress may, at some unspecified future date, amend the statute.

Latest update follows.

Continue Reading Post-AMG Scorecard (Updated): Different Roads Forward for the FTC in Pending Cases

Last Month, in AMG Capital Management, LLC v. FTC, the Supreme Court ruled that Section 13(b) of the FTC Act does not allow for monetary remedies. While the importance of this ruling is plain, its implications are only now becoming more clear.   Just yesterday, for example, in FTC v. Cardiff, a California federal court found the FTC liable to pay all of the Receiver’s fees from the date of the AMG ruling going forward. The Court explained that it would be inequitable for the defendants to pay these fees, now that the Supreme Court has clarified that the 13(b) relief provided only allowed for an injunction.

This is the first instance we know of where the FTC has been required to pay a Receiver’s fees during the pendency of a 13(b) injunction.

As we’ve discussed in earlier posts, the FTC has asked Congress to rewrite the statute in a way that would allow it to unambiguously go straight to Federal Court to obtain money judgments. For now, however, the FTC can no longer rely on Section 13(b) to provide anything other than injunctive relief.  As Cardiff illustrates, this will mean different things in the dozens of enforcement actions that are presently pending.

The following table summarizes relevant post-AMG action in these cases.  Our team will provide periodic updates. Continue Reading Post-AMG Scorecard: The FTC is Required to Pay Receiver’s fees in Cardiff

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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Join us Thursday, April 29 for Tips from the Experts – Defending TCPA Lawsuits – Using Data Analysis Strategies and Support. If you communicate with clients and prospects through phone call, text message, or fax campaigns, you are certainly familiar with the Telephone Consumer Protection Act (TCPA) that applies to these and other areas of direct marketing and consumer contacts. With more than 3,000 TCPA individual and class action lawsuits being levied each year, the business risks and potential for significant monetary exposure have greatly increased.

Join Kelley Drye and CompliancePoint as we discuss how to use data to defend your company from TCPA suits when they do arise and how to work with your legal team.

Register here

Ninth Circuit Moves Quickly to Apply AMGThe 13(b) dominoes are beginning to fall. Last week, a unanimous AMG Court found that Section 13(b) does not allow for monetary remedies. A panel of the Ninth Circuit, in Federal Trade Commission v. Cardiff et al, quickly took that decision to heart.

In a brief, three-paragraph order, the per curiam panel vacated the district court’s preliminary injunction order, that had been entered into “to preserve assets pending a final judgment that could include equitable monetary relief in this action under § 13(b) of the FTC.” Because “the Supreme Court unanimously held that §13(b) as currently written does not grant the Commission authority to obtain equitable monetary relief,” the Ninth Circuit vacated the injunction, remanding the case to the district court “for further proceedings consistent with the Supreme Court’s decision in AMG Capital Management.”

While this is the first Circuit Court order we are aware of to apply AMG to a pending case, it will certainly not be the last. We expect to see many similar remands and vacations in the days and weeks to come.

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Join us Thursday, April 29 for Tips from the Experts – Defending TCPA Lawsuits – Using Data Analysis Strategies and Support. If you communicate with clients and prospects through phone call, text message, or fax campaigns, you are certainly familiar with the Telephone Consumer Protection Act (TCPA) that applies to these and other areas of direct marketing and consumer contacts. With more than 3,000 TCPA individual and class action lawsuits being levied each year, the business risks and potential for significant monetary exposure have greatly increased.

Join Kelley Drye and CompliancePoint as we discuss how to use data to defend your company from TCPA suits when they do arise and how to work with your legal team.

Register here

Flexing the Agency’s Muscles: What FTC Notice of Penalty Offenses Really Means for AdvertisersOver the last ten days, 700 companies and 70 for-profit colleges received notice of the FTC’s intent to pursue civil penalties under Section 5(m)(1)(b), if these companies and colleges engage in certain conduct deemed by the FTC to be unfair or deceptive.  The notices sought to achieve two important Agency objectives: first, force addressees to consider their marketing messages and compliance programs; and second, reintroduce (or reinforce) the threat of significant monetary penalties for those who need discipline.  The warnings will undoubtedly alter the dynamic of new investigations as parties consider the costs and benefits of negotiating consent orders that include payment of consumer redress.

But what if parties resist and the Commission were forced to litigate?  There, a third objective – to convince a court that the FTC’s Penalty Offense Authority entitles it to civil penalties based on these notices – is much less likely to be realized.

Hopkins Dodge is on point, and it is not favorable to the Commission.  [Blog note:  Bill MacLeod was the FTC’s Director of the Bureau of Consumer Protection during the Hopkins litigation.]  In that case, the First Circuit affirmed the district court’s motion for summary judgment “on the ground that the F.T.C. had failed to make specific findings as required by 15 U.S.C. 45(m) (1) (B).”  https://law.justia.com/cases/federal/appellate-courts/F2/849/311/37136/

Why does it matter here?  Well, have a look at the language of 5(m)(1)(b):

(B) If the Commission determines in a proceeding under subsection (b) of this section that any act or practice is unfair or deceptive, and issues a final cease and desist order, other than a consent order, with respect to such act or practice, then the Commission may commence a civil action to obtain a civil penalty in a district court of the United States against any person, partnership, or corporation which engages in such act or practice–

Here’s the critical passage in 5(b):

If upon such hearing the Commission shall be of the opinion that the method of competition or the act or practice in question is prohibited by this subchapter, it shall make a report in writing in which it shall state its findings as to the facts and shall issue and cause to be served on such person, partnership, or corporation an order requiring such person, partnership, or corporation to cease and desist from using such method of competition or such act or practice.

In both civil-penalty notices the Commission sent out, it cited a case that should not support civil penalties for any conduct. The case was MacMillan, in which the FTC made no findings. Indeed, it never took up the case.

The Commission said this:

FINAL ORDER On June 12, 1980 the Commission stayed the effective date of the unappealed Initial Decision in this matter, pending a determination whether or not the matter should be docketed for review. After further consideration, the Commission has decided not to place the case on its docket, but instead to lift the stay and allow the Initial Decision to become the decision of the Commission. It is hereby ordered, That the Initial Decision become the decision of the Commission, and that the order to cease and desist be entered.

Enough to satisfy a court following AMG Capital Management?  Unlikely. The Commission explicitly stated it had not reviewed the matter, much less made findings or determinations.

Now consider 5(m)(2). It entitles anyone not a party to the prior administrative proceeding(s) to both a de novo trial of issues of fact, including whether the non-party’s conduct is sufficiently similar to the conduct in the underlying proceeding(s) and a review, by the court in which the penalty is sought, of the Agency’s prior determination that a particular act or practice is unfair or deceptive.

The cases the FTC cites in its notices are decades old and deal with practices and industries that are far different from today’s practices and industries. The 1984 Cliffdale decision, for example, the most recent case on the list, dealt with car mileage-boosting claims. How will that apply to claims for internet access, smart devices, tech services, and other products and services that didn’t exist when the cases were brought? Seems a stretch, to say the least.

Yet another hurdle: unlike 13(b) actions, which the FTC can bring on its own, it will have to persuade DOJ to bring civil penalty cases.

In short, we can be confident that the FTC will dangle the sword of the synopses and astronomical penalties ($43,280 for every time a false or deceptive claim is made) over everyone who got the notice and whose claims vaguely resemble the generic nuggets the Commission delivered. We can also expect that these efforts could generate more Hopkins and AMG-like decisions if the Commission attempts to press its position in the courts.

One also must wonder how this appears to Congress, which has been told repeatedly that, without 13(b) monetary authority, the Commission is nearly powerless to pursue its enforcement agenda.  It will be interesting to see whether this flexing of muscle might undermine that assertion, making it less likely that we will see a change in the law by the end of the congressional session, either as a stand-alone measure or as part of the budget reconciliation package.