US Supreme Court to Review FTC’s Right to Seek Equitable Monetary Relief

For decades, the Federal Trade Commission has invoked Section 13(b) of the Federal Trade Commission Act to file suit in federal court in pursuit of both injunctive relief and equitable monetary relief. On July 9, the US Supreme Court granted certiorari and consolidated two cases—AMG Capital Management, LLC v. Federal Trade Commission and Federal Trade Commission v. Credit Bureau Center, LLC—that call into question the Commission’s authority to seek equitable monetary relief in Section 13(b) cases.

The Supreme Court’s resolution of these cases during the 2020–2021 term is likely to have profound implications for the Federal Trade Commission (FTC) and the companies and industries that it oversees.

To appreciate the implications of the Supreme Court’s grants of certiorari in AMG Capital Management and Credit Bureau Center, it is helpful to begin with an overview of the three primary means by which the FTC carries out its enforcement agenda. First, the FTC is authorized to bring an internal enforcement action before an administrative law judge, who can issue a cease and desist order.[1] Such an enforcement action can be brought with respect to either competition or consumer protection matters. If the defendant violates the cease and desist order, the FTC may bring suit in federal court to enforce the order and pursue civil penalties.[2] In addition, in consumer protection cases, the FTC can seek monetary relief in federal court under FTC Act Section 19 for the original conduct, but only if “a reasonable man would have known under the circumstances [that the conduct] was dishonest or fraudulent,”[3] and only after it has issued a cease and desist order that has become final. Thus, both of those paths require the FTC to complete the administrative enforcement process before initiating a lawsuit in federal court seeking monetary relief.

Second, under the FTC’s general rulemaking authority, the FTC may promulgate trade regulation rules making specific “unfair or deceptive acts or practices” unlawful.[4] In most circumstances, to issue a trade regulation rule prohibiting an unfair or deceptive practice, the FTC must follow time-consuming formal rulemaking processes that are much more complex than the Administrative Procedures Act.[5] If a defendant violates one of these rules and the FTC can establish that the violation was committed with actual or imputed knowledge, the FTC may file suit in federal court seeking civil penalties.[6] The FTC can also seek consumer redress under Section 19 for rule violations, including consumer refunds or actual damages.[7]

These first two means of enforcement provide the FTC with a narrow right to recover monetary relief in federal court. In the case of administrative proceedings, the FTC may seek to enforce a cease and desist order in federal court, but only after the FTC has completed the administrative enforcement process and a cease and desist order has issued. In the rulemaking context, the conduct at issue must violate a specific FTC-prescribed rule, and the FTC must prove that the rule violation was committed knowingly.

Given these limitations, the FTC has historically relied heavily on the third element of its enforcement powers, FTC Act Section 13(b), which provides in relevant part:

Whenever the Commission has reason to believe . . . that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the Federal Trade Commission, and . . . that the enjoining thereof . . . would be in the interest of the public—the Commission . . . may bring suit in a district court of the United States to enjoin any such act or practice.[8]

Section 13(b) provides the FTC authority to file suit in federal court in both competition and consumer protection cases, but only where the defendant “is violating, or is about to violate,” the law and enforcement would be in the public interest.

Unlike the provisions of the FTC Act that permit the FTC to seek monetary relief for violations of a cease and desist order, dishonest or fraudulent acts or practices, or knowing violations of promulgated rules, the plain text of Section 13(b) permits only the issuance of injunctive relief. At least on its face, Section 13(b) does not permit the FTC to recover restitution, disgorgement, or other forms of equitable monetary relief.

Nevertheless, lower courts have long read into Section 13(b) an implied right of the FTC to recover equitable monetary relief in addition to injunctive relief. To the extent that these courts have offered a rationale, they have cited the FTC Act’s remedial intent to justify an award of monetary relief, even though the only form of relief expressly contemplated under the statute is an injunction.[9] For example, in a 1989 case, Federal Trade Commission v. Amy Travel Service, Inc., the US Court of Appeals for the Seventh Circuit held that the “statutory grant of authority to the district court to issue permanent injunctions includes the power to order any ancillary equitable relief.”[10] At least seven other circuits reached the same conclusion, and the FTC has generally sought equitable monetary relief in Section 13(b) cases as a matter of course.[11]

The Supreme Court’s grant of certiorari is significant because the concurrence in AMG Capital Management and the Seventh Circuit’s decision in Credit Bureau Center, taken together, jeopardize the FTC’s continued ability to seek equitable monetary relief in Section 13(b) cases.

In AMG Capital Management, the FTC sued a payday lender under Section 13(b) for unfair and deceptive trade practices involving allegedly insufficient consumer disclosures.[12] The district court entered summary judgment in the FTC’s favor, enjoined the defendant from engaging in similar misconduct in the future, and awarded the FTC more than a billion dollars in equitable monetary relief.[13] The defendant appealed to the US Court of Appeals for the Ninth Circuit, which affirmed the judgment. Although the defendant contended that Section 13(b) did not permit an award of equitable monetary relief, the Ninth Circuit concluded that the defendant’s argument was foreclosed by binding precedent, holding that Section 13(b) carries with it the right to grant “ancillary” relief, including restitution and other forms of equitable monetary relief.[14]

Notwithstanding the holding, Judge Diarmuid O’Scannlain (who also wrote the panel decision) authored a special concurrence, in which he argued that the Ninth Circuit precedent interpreting Section 13(b) to permit the award of “ancillary” equitable monetary relief was “no longer tenable.”[15] In his concurrence (which was joined by Judge Carlos Bea), Judge O’Scannlain carefully parsed Section 13(b)’s text and legislative history, as well as intervening Supreme Court precedent assessing the ability of the US Securities and Exchange Commission to seek equitable monetary relief. He lamented the Ninth Circuit’s “continued disregard of the statute’s text and the Supreme Court’s related precedent,” and urged the Court to take the case en banc to revisit the issue.[16] Although the defendant moved for en banc reconsideration, the full court declined to take the case and the defendant filed a petition for certiorari with the Supreme Court.[17]

In the Credit Bureau Center case, which we covered in a LawFlash last year, the FTC sued the...