Yet Another Appeals Court Rejects the FTC’s Monetary Authority

With the Supreme Court set to decide once and for all the issue of the Federal Trade Commission’s monetary authority this term, and with federal district courts already whittling away at it under the Court’s decision last term in Liu v. SEC, as I recently reported (“Post-Liu, The Whittling Away Of The FTC’s Monetary Authority Begins,” Sept. 2020),  a second federal appeals court has now found that the FTC lacks any authority to obtain monetary judgments in enforcement actions it initiates in federal  court.  As I previously wrote, the first, the Seventh Circuit Court of Appeals, held in FTC v. Credit Bureau Center that the statute that empowers the FTC to file a case in federal court, Section 13(b) of the FTC Act, authorizes only an injunction and not equitable monetary relief. (“In Historic Ruling, Seventh Circuit Bars FTC Money Claims,” August 2019)  The second, the Third Circuit in FTC v. AbbVie, has now agreed, and for the same reason, ruling in late September that Section 13(b) authorizes an injunction and nothing more, thus requiring reversal of a $448 million disgorgement award in an antitrust case.

Both opinions reached their conclusions utilizing the same “textualist” approach to statutory interpretation that new Supreme Court Justice Amy Coney Barrett favors, as she proudly declared at her confirmation hearing, and that other of her conservative colleagues on the Court also embrace.  Under this jurisprudential methodology, a judge looks only at the structure and text of a statute, and not its legislative history, to divine its intent and “ordinary meaning.” Applying this mode of analysis, neither court had difficulty finding that the wording of Section 13(b), understood in light of the overall structure of the FTC Act, precludes monetary relief.  In so holding, they have gone against the grain of decades of FTC jurisprudence reading into the provision’s injunction remedy an implied power to award “ancillary” equitable monetary relief.

In addition to noting that Section 13(b) omits reference to any remedy other than an injunction, the court in AbbVie (as well as Credit Bureau Center), looked at the rest of the FTC Act and found other provisions which did authorize the FTC to seek monetary remedies in federal court, after the FTC had first filed an administrative enforcement action and obtained a cease and desist order.  Enactment of these provisions preceded Section 13(b), which was meant to give the FTC the power to obtain injunctive relief against ongoing or imminent misconduct while its “slow moving administrative regime” pressed on.  Given that: (a) the FTC already had the statutory power to seek money in federal court after proving its administrative case; (b) the purpose of Section 13(b) was only to permit the FTC to stop ongoing violations while that case proceeded; and (c) Congress could have but did not add a monetary remedy to Section 13(b) when it enacted it, the appeals courts in both AbbVie and Credit Bureau Center found that Section 13(b) simply did not permit any relief beyond an injunction, including monetary relief, such as disgorgement.   

The court in AbbVie also relied on one of its own precedents to buttress its textualist reading of Section 13(b).  In its opinion in FTC v. Shire (see “Third Circuit to FTC: You Cannot Sue Over Past Violations,” February 2019), it interpreted the text of Section 13(b), allowing an injunction only against someone who is “violating, or is about to violate” an FTC law, to mean exactly that; namely, that the provision could not be used to enjoin conduct that had definitively ceased.  As the first court to read this temporal requirement literally (rather than allowing injunctions against discontinued or non-imminent conduct), it felt it only strengthened its conclusion on disgorgement.  It reasoned that the requirement “makes little sense as applied to a disgorgement remedy” because “[d]isgorgement deprives a wrongdoer of past gains, meaning that even if a wrongdoer’s conduct is not imminent or ongoing, he may have gains to disgorge.  If Congress contemplated the FTC could sue for disgorgement under Section 13(b), it probably would not have required the FTC to show an imminent or ongoing violation. That requirement suggests Section 13(b) does not empower district courts to order disgorgement.” (emphasis in original)   

The fact that two appeals courts have now departed from long-standing precedent and held the FTC does not have monetary authority under Section 13(b) does not mean, of course, that the Supreme Court will rule the same way.  That it has decided to hear Credit Bureau Center (and one other case presenting the issue) does mean, however, that it recognizes that once solid precedent is now under assault and the conflict between the circuits needs to be resolved.  Credit Bureau Center and AbbVie also arrive at their conclusions employing a rigid textualist approach that, as noted, is employed by the conservative bloc on the Supreme Court and, with the addition of Barrett, would now seem to have majority support on the Court.  Although any prediction is hazardous, with the textualist road map laid out by the Seventh and Third Circuits, her appointment would seem to enhance the odds that the Court will affirm their holdings that Section 13(b) does not authorize monetary relief.                  

This possibility poses an existential threat to the FTC’s enforcement regime.  For decades, it has relied on Section 13(b) not only to extract money from defendants without having to go the slower administrative route, but to obtain provisional monetary relief at the outset of a case, including asset freezes and receiverships, remedies that give it a huge practical advantage over defendants deprived of the means to defend themselves.  If the Court takes away the FTC’s monetary powers under this provision, this immense advantage goes away, too.  In that event, the shift in the balance of power between the FTC and a defendant will be seismic.  To restore its advantage, the FTC will be dependent on Congress to amend Section 13(b) to expressly authorize monetary relief.  But first, the Supreme Court must make it necessary for the FTC to run to Congress for help.  By the end of the Court’s terms in June, we will know just how necessary – or not – that is.

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