Supreme Court finds FTC lacks authority to seek monetary relief under Section 13(b)

The Court’s reasoning

In a 9-0 decision resolving an appeal from the Ninth Circuit and authored by Justice Stephen Breyer, the Supreme Court held that Section 13(b) of the FTC Act does not authorize the Commission to seek, or a court to award, equitable monetary relief (i.e., restitution or disgorgement) because the statutory language at issue authorizes only injunctions. The case arose against the backdrop of a split among several Circuits as to the merits of the FTC’s long-standing position that the Commission could pursue monetary consumer redress under Section 13(b) of the FTC Act.

The FTC typically challenges past violations of Section 5 in its administrative court when it seeks only a cease and desist order. The FTC cannot obtain monetary remedies under Section 5 unless a defendant violates a cease and desist order. In the case at issue, the Commission did not pursue administrative proceedings under Section 5 and instead brought suit directly in district court and sought equitable monetary relief under Section 13(b)’s authorization to seek a “permanent injunction.” 

The Court rejected the FTC’s argument that the authority to seek “a permanent injunction” under Section 13(b) historically has been understood to include “restorative monetary relief,” reasoning that “by its terms, this provision concerns prospective injunctive relief, not retrospective monetary relief.” Additionally, the Court pointed to the fact that Congress enacted a separate provision, Section 19 – which authorizes the FTC to pursue conditioned and limited monetary relief in a suit for consumer redress following an administrative proceeding in cases involving dishonest or fraudulent acts – two years after Section13(b) was added to the FTC Act. The Court reasoned that the explicit authorization permitted under Section 19 would not have been necessary if 13(b) “already implicitly allowed the Commission to obtain that same monetary relief without satisfying § 19’s conditions and limitations.”

FTC’s practice of using Section 13(b) to seek monetary relief was not the intended purpose of the provision, and effectively bypasses the process set forth in Section 5, the Court concluded. According to the decision, Section 13(b) does not explicitly authorize the Commission to obtain equitable monetary relief, and such relief is foreclosed by the structure and history of the FTC Act. However, Justice Breyer notes that the FTC still has authority to obtain financial restitution on behalf of consumers under other sections of the FTC Act, namely, Sections 5 and 19.

FTC looks to Congress to restore 13(b) authority

In response to the Court’s decision, Acting Chairwoman Slaughter released a statement warning that the Court’s ruling would “deprive[] the FTC of the strongest tool we had to help consumers when they need it most,”¹ and urged Congress to “act swiftly to restore and strengthen the powers of the agency so we can make wronged consumers whole."² 

Whether there is bipartisan support for a quick legislative restoration of the FTC’s 13(b) authority remains to be seen, however. The Consumer Protection and Recovery Act (H.R. 2668)—introduced in the House on 20 April 2021—is sponsored exclusively by Democratic legislators (including every Democrat on the House Energy and Commerce consumer protection subcommittee). H.R. 2668 amends Section 13(b) of the FTC Act “to make explicit the FTC’s longstanding authority to obtain injunctive and equitable relief, including monetary redress for consumers in court for all violations of the laws it enforces.”³ The bill also adds a section to the FTC Act that identifies the types of equitable relief that the FTC is allowed to pursue, including restitution for losses, contract reformation and rescission, money refunds, and the return of property.⁴ In addition, the bill “makes clear that the FTC may seek temporary restraining orders and preliminary injunctions without bond and that any relief sought under section 13(b) may be for past violations in addition to ongoing and imminent violations.”⁵

H.R. 2668 was the focus of a House Energy and Commerce Committee hearing on 27 April 2021, at which Acting Chairwoman Slaughter testified.⁶ Echoing previous appeals the agency has made to Congress to pass legislation that would clarify the agency’s 13(b) authority, Acting Chairwoman Slaughter expressed support for the passage of H.R. 2668, calling it “clear and straightforward legislation,” the passage of which is necessary to avoid consequences for the public and the market stemming from the court’s decision in AMG Capital.⁷ Slaughter cited Section 13(b) as the FTC’s “primary and most effective way of returning money to consumers that was unlawfully taken from them,” and called on Congress to “fix our statute to clarify the FTC’s tools.”⁸ Democratic lawmakers expressed support in the hearing for the passage of H.R. 2668, while Republicans articulated concerns about the statute’s retroactive application.⁹

Senate Democrats have also criticized the Supreme Court’s decision in AMG Capital. Senate Commerce Chair Maria Cantwell (Washington) confirmed that she is trying “to move legislation immediately to make sure this authority is properly protected,”¹⁰ and Senate Judiciary antitrust subcommittee chairwoman Amy Klobuchar (Minnesota) noted that the “[Court]’s ruling shows that Congress must act immediately to restore the FTC’s full authority to seek restitution for consumers who are harmed by violations of our consumer protection and antitrust laws.”¹¹

AMG could also affect FTC conduct cases in Federal Court

As discussed above, the Supreme Court’s analysis focused on the prospective nature of relief available under Section 13(b): “Taken as a whole, the provision [allowing the Commission to seek injunctive relief when a defendant ‘is violating, or is about to violate’ the law] focuses upon relief that is prospective, not retrospective. Consider the words ‘is violating’ and ‘is about to violate’ (not ‘has violated’) setting forth when the Commission may request injunctive relief.” That focus on prospective relief could have a further implication for FTC enforcement efforts. The FTC has had difficulties in the past bringing injunctive claims in federal court under Section 13(b) when the alleged conduct has ceased.¹² The Court’s emphasis on the “is violating” and “is about to violate” language is likely to give additional ammunition to defendants seeking to dismiss FTC conduct cases when the challenged conduct has stopped and there is no clear threat of recurrence. 

FTC to explore use of its rulemaking authority to bolster enforcement efforts

Although not directly addressing her concerns with monetary relief, Acting Commission Slaughter also has indicated that the FTC will seek to bolster its consumer protection and antitrust enforcement powers through invigorated rulemaking within the agency. Under Section 19 of the FTC Act, the FTC has the authority to obtain redress, damages, or penalties for rule violations. In pursuit of that effort, on 25 March 2021, Slaughter announced the creation of a new rulemaking group within the FTC’s Office of the General Counsel that is intended to “allow the FTC to take a strategic and harmonized approach to rulemaking across its different authorities and mission areas.”¹³ Slaughter stressed that rulemaking is a “critical part of the FTC’s toolbox” to protect consumers and promote competition.¹⁴ The new rulemaking group is intended to centralize the agency’s rulemaking function—which is currently spread across individual bureaus and divisions—with a focus on new rulemakings in addition to the review of current rules.¹⁵

The announcement focuses on Section 18 of the FTC Act, with Slaughter citing “longstanding FTC rules, such as the Funeral Rule and the Eyeglass Rule” enacted under that authority that “have provided significant benefits to consumers.”¹⁶ Whether the rulemaking group will actively explore the agency’s rulemaking authority under  Section 5 of the FTC Act (which some contend authorizes the agency to make rules pursuant to processes established by the Administrative Procedures Act (APA)) remains to be seen.

Questioned about the agency’s civil penalty authority in the 27 April hearing, Acting Chairwoman Slaughter distinguished between civil penalties that can be levied against entities that violate an agency rule or order, and 13(b) restitution or disgorgement, explaining that civil penalties are “good from an incentive perspective,” but, unlike restitution, do not make the consumers whole.¹⁷ Slaughter also noted that, if the agency wants to send a clear message to businesses with respect to what type of behavior is out of bounds, the Section 5 APA authority is a “more efficient way to get there than Section 18.”¹⁸

Next steps

FTC has made it clear that it is committed to making a strong case for having consumer redress as an accessible tool for the enforcement of the FTC Act. Looking ahead, all eyes will be on Congress as House Democrats seek to pass HR 2668 to “restore the [FTC]’s authority and provide relief for victims of fraud and scams.”¹⁹ Meanwhile, FTC may re-examine and retool its enforcement options now that the consumer redress options have been limited, including revisiting the little-used alternative avenues for consumer redress authorized under Section 19.

Authored by Chuck Loughlin, Steven Steinborn, Mark Brennan, and Anneke Baran Altieri

References

1 Federal Trade Commission press release, Statement by FTC Acting Chairwoman Rebecca Kelly Slaughter on the U.S. Supreme Court Ruling in AMG Capital Management LLC v. FTC (22 April 2021).