U.S. Supreme Court Blocks Easy Path for FTC to Obtain Monetary Remedies in Equity

By: T. Daniel Logan and Jacqueline J. Chan

Since 1973, the Federal Trade Commission (“the Commission”) has had the authority, under Section 13(b) of the Federal Trade Commission Act (“the FTC Act”), to seek a preliminary or permanent injunction from a district court where it has reason to believe that a person or entity is “violating, or is about to violate any provision of law enforced by [the Commission].” [1] That provision does not expressly permit the Commission to request, or a district court to grant, monetary relief in the form of restitution or disgorgement. Yet, relying on earlier U.S. Supreme Court holdings interpreting similar statutory provisions authorizing injunctive relief to unlock a suite of remedies in equity, including monetary remedies,[2] the Commission has employed Section 13(b) to request and obtain monetary relief from entities via the courts.[3]

Notably, while the above practice was a judicial avenue under which the Commission could obtain monetary relief, the FTC Act separately and explicitly provides for monetary relief following an administrative process under Sections 5(l) and 19(b).[4] Those FTC Act provisions, however, both require the Commission to seek and obtain final cease and desist orders against violators before monetary relief can be awarded. Because Section 13(b) permitted the Commission to bypass this process and go directly to a district court, it was a more expedient method for obtaining restitution or disgorgement of monies. According to a former Commission attorney, as of the mid-2000s, Section 13(b) was a “mainstay of the Commission’s consumer protection program.”[5] For instance, in Fiscal Year 2019, the Commission obtained 81 permanent injunctions and $723.2 million in monetary remedies, compared to only 21 new administrative complaints and 21 final administrative orders.[6]

However, on April 22, 2021, the U.S. Supreme Court issued a unanimous opinion in AMG Capital Management, LLC v. Federal Trade Commission,[7] effectively short-circuiting this shortcut. The case stems from a 2012 FTC enforcement action against individuals and entities that owned and operated online payday loan companies engaging in deceptive practices. The Commission filed suit in district court and, pursuant to Section 13(b) of the FTC Act, sought and was granted a preliminary injunction and $1.27 billion in restitution and disgorgement from defendants. The case was eventually appealed to the U.S. Supreme Court, which granted certiorari to resolve a circuit split regarding the scope of Section 13(b).[8]

The decision, authored by Justice Breyer, unequivocally concludes that Section 13(b) does not allow the Commission to obtain monetary remedies in equity.[9] It concludes that the text and structure of the provision, as well as the FTC Act as a whole, indicate that Congress intended that relief under Section 13(b) be limited to those remedies expressly provided for by the text, specifically, preliminary and permanent injunctions. Justice Breyer explains that by using Section 13(b) to obtain monetary remedies in equity, the Commission has circumvented the administrative processes (such as filing and obtaining a final cease and desist order) that Congress put in place as prerequisites to obtaining monetary remedies under Sections 5(l) and 19(b) of the FTC Act.[10] The decision distinguishes the U.S. Supreme Court precedent on which the Commission and district courts have relied, explaining that the prior decisions dealt with other statutes and did not purport to set forth a universal rule of interpretation.[11] Notably, in a sentence that may prove precedential in similar contexts, Justice Breyer explains that “the scope of equitable relief that a provision authorizes remains a question of interpretation in each case.”[12]

Ultimately, the effect of the decision is that the Commission can no longer use the “easy” route to obtain restitution and disgorgement from violators of the FTC Act; however, monetary remedies remain available to the Commission via the administrative process. Additionally, it is possible that Congress might amend the FTC Act itself. The decision explains that if the Commission believes obtaining relief under Sections 5 and 19 is “too cumbersome,” it can petition Congress to “grant it further remedial authority” [13] and observes that “the Commission has recently asked Congress for that very authority.”[14]  

Shortly after the U.S. Supreme Court issued its opinion, the Commission’s Acting Chairwoman Rebecca Kelly Slaughter voiced the Commission’s view:

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 [Commission] 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.[15]

That same week, legislators in the U.S. House of Representatives introduced “The Consumer Protection and Recovery Act,” which, if enacted as drafted, would amend the FTC Act to expressly permit the Commission to obtain restitution, recission or reformation of contracts, refund of money, or return of money, or disgorgement under an amended Section 13(b).[16] In advance of a subcommittee hearing to discuss the bill, its sponsors made clear that the legislation was intended to “restore[] the minimum authorities necessary for an effective enforcement regime.”[17]

We will continue to monitor for further developments on this issue.

[1] 15 U.S.C. § 53(b)(adopted as part of Pub. L. No. 93-153 (Nov. 16, 1973)).

[2] Porter v. Warner Holding Co., 328 U.S. 395 (1946); Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288 (1960).

[3] See D. FitzGerald, The Genesis of Consumer Protection Remedies Under Section 13(b) of the FTC Act 1-2, Paper at FTC 90th Annual Symposium (Sept. 23, 2004).

[4] 15 U.S.C. §§ 45(l), 57b(b).

[5] FitzGerald, supra note 3, at 2.

[6] FTC, Fiscal Year 2021 Congressional Budget Justification 5 (Feb. 10, 2020), available at: https://www.ftc.gov/system/files/documents/reports/fy-2021-congressional-budget-justification/fy_2021_cbj_final.pdf

[7] No. 19-508, 141 S.Ct. 1341, Slip Op. at 1 (2021).

[8] Slip Op. at 3.

[9] Slip Op. at 1.

[10] Slip Op. at 6-9.

[11] Slip Op. at 10-11.

[12] Slip Op. at 11 (quoting Mertens v. Hewitt Associates, 508 U.S. 248, 257 (1960)(internal quotations omitted)). For instance, we note that FDA has relied on a similar provision, 21 U.S.C. § 332(a), to obtain monetary relief, for instance, in United States v. Lane Labs-USA Inc., 427 F.3d 219 (3d Cir. 2005).

[13] Slip Op. at 14 (citing Hearing before the Senate Committee on Commerce, Science, and Transportation on Oversight of the Federal Trade Commission, 116th Cong., 2d Sess., 3–5 (2020)(prepared Statement of the FTC)).

[14] Id.  Two days before the U.S. Supreme Court issued its opinion, the full Commission testified before the U.S. Senate Committee on Commerce, Science, and Transportation, submitting testimony on the need for Section 13(b) legislation.  See U.S. Senate Committee on Commerce, Science, & Transportation Hearings Notice, “Strengthening the Federal Trade Commission’s Authority to Protect Consumers” (Apr. 20, 2021).

[15] FTC Press Release, “Statement by FTC Acting Chairwoman Rebecca Kelly Slaughter on the U.S. Supreme Court Ruling in AMG Capital Management LLC v. FTC” (Apr. 22, 2021).

[16] H.R. 2668, 117th Cong. (2021) at § 2.

[17] Hearing on “The Consumer Protection and Recovery Act: Returning Money to Defrauded Consumers,” 117th Cong. (2021)(statement of Frank Pallone, Jr., Chairman, H. Comm. on Energy and Commerce).