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WSGR | U.S. Supreme Court May End Key FTC Consumer Protection Enforcement Practice

Justices Considered Whether Certain Court-Imposed Monetary Remedies Are Legal

On Wednesday, January 13, 2021, the U.S. Supreme Court heard arguments in the much-anticipated case of AMG v. FTC, which challenges the Federal Trade Commission’s (FTC’s) authority to obtain monetary relief in court under Section 13(b) of the FTC Act. The Court’s decision is likely to have a significant impact on the relief the FTC is able to obtain in federal court proceedings.

Petitioners AMG seek to overturn the Ninth Circuit’s award of monetary relief under Section 13(b). Judge O’Scannlain argued that although the panel was compelled to follow longstanding circuit precedent and award money, the statute’s reference to “injunction” should not in fact be read to authorize monetary judgments.1 The challenge reached the high court just as the Seventh Circuit reversed itself, broke with other circuits, and held that the FTC had no such authority.2 Then, after briefing in AMG was underway, the Third Circuit commended the Seventh Circuit’s decision as “thorough and well-reasoned.”3 At oral argument on Wednesday, most justices appeared likely to agree.

It should be noted that the case does not challenge the FTC’s authority to obtain monetary relief through its own administrative processes. Under Section 5 of the FTC Act, the FTC may ultimately obtain monetary relief, but usually not on the first offense. Instead, Section 19 gives the FTC the ability to obtain monetary relief, but only after obtaining a final cease-and-desist order after the administrative litigation process is completed and only after demonstrating that “a reasonable man would have known under the circumstances [that the conduct] was dishonest or fraudulent.” Thus, the FTC has strongly favored Section 13(b) actions. At oral argument, the FTC conceded that going directly to court is “more attractive in certain instances,” and that the commission brings “far more [consumer protection] cases” in court than through its own administrative proceedings.

By its text, Section 13(b) allows the FTC to seek a “permanent injunction” but does not mention other equitable or monetary relief. Nevertheless, the commission has long brought successful actions for monetary relief under the theory that restitution is an ancillary equitable remedy. AMG thus presents a question of statutory interpretation that turns on text and history. Justice Roberts set the scene, noting that the Court has transitioned to a more “disciplined” textual approach over the past 50 years. For her part, Justice Sotomayor explained that “legislative history is not unimportant to me.” However, she found “nothing in the history of this bill suggesting that Congress understood that Section 13(b) authorizes monetary awards.” Justice Kavanaugh inquired whether longstanding judicial endorsement of the monetary remedies—and arguably the implicit ratification by Congress through its inaction—meant that the Supreme Court ought “leave well enough alone.” But he also told the FTC that “the problem you have is the text, and in that sense this case really is a separation of powers case” because the FTC is arguably exercising authority beyond what it has been granted by the legislature.

In response to the textualists, the FTC argued that although the statute mentions only a permanent injunction, monetary awards are always available in equity as restorative relief ancillary to an injunction. The lower courts historically agreed, and the FTC argued that older Supreme Court cases stand for the proposition that a statutory reference to “injunction” opens the door to all equitable relief, including backwards-looking restitution.4 The petitioners responded that a “longstanding error doesn’t make it any less error.” The petitioners’ textualist argument was not just that “injunction means just injunction,” but also that the text and structure of the FTC Act demonstrates that Congress knew how to authorize broader equitable relief when it intended to—pointing out that both Sections 5 and 19 expressly authorize other equitable remedies in addition to injunctions.

If the Court adopts the textualist approach that most justices seemed to favor, the FTC’s decades-long use of 13(b) to obtain monetary relief will no longer be available. The FTC will undoubtedly press Congress for legislative amendments to address this issue. We will watch closely for developments in this area. The legislative process is, at best, uncertain, and opening up the FTC Act for congressional amendment could lead to additional changes that impact the FTC’s enforcement authority.

Contacts:

  • Lydia Parnes, Partner
  • Chris Olsen, Partner
  • Stephen Schultze, Associate

Compliments of Wilson Sonsini Goodrich & Rosati – a member of the EACCNY.