A recent decision from the U.S. Court of Appeals for the Seventh Circuit could potentially have a significant impact on the ability of the Federal Trade Commission to obtain monetary restitution against marketers for unfair or deceptive conduct.
The underlying case involved allegations by the FTC directed toward the operator of a credit-monitoring subscription service. The FTC filed suit seeking a permanent injunction and monetary restitution under its primary statutory weapon, Section 13(b) of the FTC Act (the “Statute”), alleging various legal regulatory violations (e.g., the Restore Online Shoppers’ Confidence Act).
An Illinois federal court judge ruled in favor of the FTC and ordered defendants to pay millions of dollars in restitution. An FTC defense attorney appeal followed with an argument that the Statute authorizes only equitable relief (i.e., injunctions), not monetary relief (i.e., restitution). As it has done for years, the FTC argued that the Statute authorizes “ancillary equitable relief” in the form on disgorgement.
The Seventh Circuit ignored decades of legal precedent in disagreeing the FTC. In doing so, it has created a split among other circuits. This ruling may very well result in similar challenges by in other circuits and an appeal to the U.S. Supreme Court. It is also conceivable that the FTC could seek Congressional intervention and a legislative fix.
The court concluded that the Statute does not implicitly authorize monetary restitution. “Most notably, the FTC Act has two detailed remedial provisions that expressly authorize restitution if the Commission follows certain procedures,” the court wrote. “We therefore hold that [S]ection 13(b)’s permanent-injunction provision does not authorize monetary relief.”
In a strongly worded dissent, Chief Judge Wood criticized the majority for overturning long-standing precedent. Judge Wood disagreed with the majority’s analysis and conclusion, warning that the majority’s ruling “tied the hands of a government agency.”
The FTC stated that it is disappointed by the decision and is evaluating its options. Monetary restitution has been a long-established tool in the agency’s enforcement arsenal.
Read the decision, here.
While other circuits are not bound to follow it, The significance of this ruling cannot be overstated. If affirmed by the Supreme Court (or followed by other circuits), the FTC would only be able to obtain monetary restitution from defendants in federal court after violations of cease and desist orders or rules issued by the FTC, or as a result of stipulated settlements. Query whether there will now be an increase in coordinated enforcement efforts with state attorneys general that invoke state consumer protection restitution statutes.
The FTC has taken numerous hits to its federal court enforcement authority of late. The Third Circuit recent held in FTC v. Shire ViroPharma, that the FTC cannot initiate litigation in federal court based on past conduct. Rather, it must demonstrate that a defendant “is violating or is about to violate” the laws enforced by the FTC. Another win for marketer defendants and another tool for an aggressive FTC defense attorney because the ruling concludes that the FTC overstepped its statutory enforcement authority and effectively limits the FTC’s ability to litigate in federal court.
The Shire court explained that the Statute is “unambiguous; it prohibits existing or impending conduct . . . [and] does not permit the FTC to bring a claim based on long-past conduct without some evidence that the defendant ‘is’ committing or ‘is about to’ commit another violation.”
Consult with an experienced FTC defense attorney if you are the subject of an FTC CID investigation or enforcement lawsuit in order to various defense strategies that may be applicable to a given set of facts. These decisions are potentially significant blows to the FTC’s judicial enforcement powers to initiate cases based on abandoned conduct and, perhaps, to seek monetary restitution in federal court altogether.
Richard B. Newman is an FTC defense attorney at Hinch Newman LLP. Follow him on Twitter @FTCLawDefense.
Information conveyed herein is for informational purposes only and does not constitute, nor should it be relied upon, as legal advice. No person should act or rely on any information contained herein without seeking the advice of an attorney. Attorney advertising.
