FTC’s Authority to Obtain Monetary Relief is in Doubt

The U.S. Court of Appeals for the Seventh Circuit has struck a major blow to Federal Trade Commission (FTC) enforcement authority, holding that the agency cannot seek its preferred remedy of monetary restitution in federal court.

In recent years, the FTC has used Section 13(b) of the Federal Trade Commission Act (FTC Act)1 as its preferred enforcement mechanism, and it has done so to great effect. In 2017, for example, the FTC obtained $5.29 billion in restitution under this section. Civil penalties, which are authorized under a different part of the statute, totaled just $176 million that same year.

The FTC has been able to achieve these results even though Section 13(b) does not expressly grant the agency authority to seek monetary restitution in federal court. Instead, it only authorizes district courts to impose injunctions. Nonetheless, for decades nine federal circuits have held that Section 13(b) implicitly “includes the power to order any ancillary equitable relief” like monetary restitution.2 The circuit courts reached this result not from the text of the statute, but rather based on the Supreme Court precedent that “[w]hen Congress entrusts to an equity court the enforcement of prohibitions contained in a regulatory enactment, it must be taken to have acted cognizant of the historic power of equity to provide complete relief in light of the statutory purposes.”3

Now the FTC’s ability to obtain monetary restitution in federal court is in doubt. Breaking with this longstanding precedent, including its own, the Seventh Circuit in FTC v. Credit Bureau Center, LLC4 held that Section 13(b)’s grant of the power to order an injunction does not include the implicit authority to order equitable monetary relief. The court accordingly reversed a $5 million restitution award by the district court.

The panel decision “start[ed] with the obvious: Restitution isn’t an injunction,” and “[t]he Commission doesn’t seriously argue otherwise.”5 Indeed because “nothing in the text or structure of the [FTC Act] supports an implied right to restitution in section 13(b), which by its terms authorizes only injunctions,” the FTC relied almost entirely on the argument that the court should adhere not only to its own three-decades-old precedent approving FTC restitution, but also to the consensus view among the other circuits.6 The panel found that argument unpersuasive in part because “most circuits adopted their position by uncritically accepting [this] holding” without reviewing the “[Act’s] text and structure.”7

This decision creates an 8-to-1 split among the federal courts of appeals. Other courts may now begin to question the wisdom of their prior holdings and critically analyze whether the FTC has the authority to seek equitable monetary relief under Section 13(b). This is particularly the case after the Supreme Court’s decision in Kokesh v. SEC, which expressly reserved on whether federal agencies can seek monetary relief under statutes that only grant the authority to seek injunctions.8

While the courts are working this out, the FTC may seek a legislative fix in Congress or Supreme Court review of the Seventh Circuit decision. The agency may also begin to rely on Section 19 of the FTC Act instead of 13(b). But Section 19 provides a number of important protections for defendants. To begin, the FTC can rely on Section 19 only to seek relief for violations of express agency rules or for violations of cease and desist orders. This means that the FTC will typically have to first bring an administrative proceeding in front of the agency and obtain a cease and desist order. Then the FTC can seek money damages in federal court, but only if it can demonstrate that the conduct was fraudulent — meaning “a reasonable man would have known under the circumstances [that the conduct] was dishonest or fraudulent.”9 Then the damages are limited by a three-year statute of limitations period. These are burdens that the FTC has not had to meet under Section 13(b).

Companies under FTC investigation or in litigation with the FTC should closely analyze this decision to see how it can be used most effectively in individual circumstances. We expect other courts will be open to similar arguments and will no longer uncritically accept FTC’s position that it has sought and obtained monetary restitution for decades.

1 15 U.S.C. s. 53(b).

2 See, e.g., F.T.C. v. Amy Travel Serv., Inc., 875 F.2d 564, 572 (7th Cir. 1989).

3 Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288, 291–92 (1960).

4 No. 18-2847 (7th Cir. Aug. 21, 2019).

5 Id. at 13.

6 Id. at 21.

7 Id. at 41.

8 Kokesh v. Sec. Exch. Comm’n, 2017 WL 2407471 (U.S. June 5, 2017).

9 15 U.S.C. s. 57b(a).