The Tail Cannot Wag the Dog: the U.S. Supreme Court Rules that the FTC Cannot Seek Equitable Monetary Relief in Section 13(b) Cases

On April 22, 2021, in a unanimous decision authored by Justice Stephen Breyer, the U.S. Supreme Court ruled that the Federal Trade Commission (“FTC”) does not have the authority to seek monetary relief under Section 13(b) of the FTC Act. The decision in AMG Capital Management, LLC v. Federal Trade Commission has significant ramifications for the FTC’s enforcement authority in federal courts. Additionally, it is likely that this ruling will spur Congress to take a serious look at amending Section 13(b) to provide an express right to equitable monetary relief. Indeed, just today, in testimony before the House Energy and Commerce Subcommittee on Consumer Protection and Commerce, the FTC asked Congress to pass such an amendment.

In AMG Capital Management, the FTC filed suit against several payday lenders under Section 5 for unfair and deceptive trade practices involving allegedly insufficient consumer disclosures.¹ Pursuant to Section 13(b), the FTC sought not only a permanent injunction to prevent future violations of Section 5, but also monetary relief in the form of restitution and disgorgement. At the district court, the FTC was granted summary judgment—specifically, the court entered a permanent injunction and ordered the defendants to pay $1.27 billion in restitution and disgorgement.

The defendants appealed to the Ninth Circuit, arguing that Section 13(b) did not authorize monetary relief. Agreeing with several other circuits, the Ninth Circuit ruled in favor of the FTC and held that by authorizing injunctive relief, Section 13(b) also allows a district court to grant ancillary relief, including restitution and other forms of monetary relief. This ruling extended a circuit split created by the Seventh Circuit, which had ruled the opposite in FTC v. Credit Bureau Center, LLC in 2019. The Supreme Court granted certiorari to resolve the circuit split.

Justice Breyer began the Court’s opinion by explaining the history of Section 13(b) and its sister amendments. Added to the FTC Act in 1973, Section 13(b) authorizes the FTC to proceed directly to federal court (before issuing a cease and desist order) to obtain a “temporary restraining order or preliminary injunction” and, “in proper cases,” to obtain a “permanent injunction.” In the same legislation, Section 5(l) was also amended to authorize district courts to award civil penalties against defendants who violate final cease and desist orders, and to “grant mandatory injunctions and such other and further equitable relief as they deem appropriate in the enforcement of such final orders of the Commission.”

Two years later, Section 19 of the FTC Act was enacted; it authorizes district courts to grant “such relief as the court finds necessary to redress injury to consumers,” including through the “refund of money or return of property.” However, the relief available under Section 19 could be sought only against those who have “engage[d] in any unfair or deceptive act or practice . . . with respect to which the Commission has issued a final cease and desist order which is applicable to such person.”

Over the next several decades, the Commission successfully used Section 13(b) to win restitution and other forms of equitable monetary relief directly in court, including in antitrust cases, without prior use of the administrative proceedings in Section 5.²

With this history in mind, the Court ultimately found that the FTC’s authority to obtain injunctive relief under Section 13(b) does not authorize the Commission directly to obtain court-ordered monetary relief. The Court highlighted the following reasons for its decision:  

• First, the Section 13(b) statutory “language refers only to injunctions . . . An ‘injunction’ is not the same as an award of equitable monetary relief such as restitution or disgorgement.” While the Court was willing to admit that the statute may be read to allow the FTC to dispense with administrative proceedings before seeking an injunction, it was not willing to “read those words as allowing what they do not say, namely, as allowing the Commission to dispense with administrative proceedings to obtain monetary relief as well.” Moreover, “[i]n light of the historical importance of administrative proceedings, that reading would allow a small statutory tail to wag a very large dog.”
• Second, the FTC received explicit authority in Sections 5(l) and 19 to obtain monetary relief in federal court after issuing a cease and desist order. Because these provisions are explicit, the Court concluded that Congress “likely did not intend Section 13(b)’s more cabined ‘permanent injunction’ language to have similarly broad scope.”
• Third, allowing monetary relief under Section 13(b) would produce an incoherent enforcement scheme. The Commission could just routinely bypass Sections 5 and 19 in favor of monetary relief under Section 13(b).  The more appropriate reading is that the FTC may obtain monetary relief by first invoking its administrative procedures under Section 5 and then Section 19’s redress provisions. Section 13(b) may be used by the Commission to obtain injunctive relief while the administrative proceedings are ongoing, or when it seeks only injunctive relief. 

The Court also rejected the FTC’s position that the right to recover monetary relief under Section 13(b) is essential to its enforcement agenda. The FTC Act does, in fact, permit the FTC to recover equitable relief, and Justice Breyer noted that “[i]f the Commission believes [its] authority too cumbersome or otherwise inadequate, it is, of course, free to ask Congress to grant it further remedial authority.”

As a result of the Court’s holding in AMG Capital Management, moving forward, in order to obtain monetary relief, the FTC must use administrative proceedings under Section 5, and if necessary, a follow-up enforcement suit under Section 19. This new normal will profoundly change the FTC’s enforcement agenda. The FTC claimed that over the last several decades the Commission had relied on Section 13(b) to obtain billions of dollars in disgorgement of profits and monetary restitution. Now, the Commission will be forced to shift to more administrative proceedings and cease and desist orders, making it more difficult and time consuming for the Commission to seek monetary relief.

This change in the FTC’s enforcement agenda will almost certainly result in the Commission looking to Congress and requesting a revamped Section 13(b). In fact, the Commission has already been lobbying for this amendment: in a letter sent to Congress last year, all five of the then-current FTC Commissioners called for an amendment to Section 13(b) to provide an express right to equitable monetary relief; and at a hearing before the Senate Commerce Committee this month, the four currently-serving FTC Commissioners called on Congress to amend Section 13(b).

Moreover, in response to the Supreme Court’s opinion, Acting FTC Chairwoman Rebecca Slaughter issued a statement criticizing the decision, emphatically noting that, “[i]n AMG Capital, the Supreme Court ruled in favor of scam artists and dishonest corporations, leaving average Americans to pay for illegal behavior.” She urged Congress to act to strengthen the FTC’s powers.

It appears that Congress is now listening to the FTC’s requests and is ready to take serious congressional action on the issue in the near future. Last week, a House bill (H.R. 2668)—the Consumer Protection and Recovery Act—was introduced by Representative Tony Cardenas (D-CA). The bill amends Section 13(b) of the FTC Act to explicitly reaffirm the FTC’s authority to obtain injunctive and equitable relief, including monetary redress for consumers in court for all violations of the laws it enforces. H.R. 2668 also authorizes the FTC to go after prior conduct— an authority that is far from settled under current law—with a 10-year statute of limitations. While the bill is cosponsored by every Democrat on the Energy and Commerce Committee’s Subcommittee on Consumer Protection and Commerce, it is unclear whether it will gain bipartisan support.

Today, Acting Chairwoman Slaughter testified before the House Energy and Commerce Subcommittee on Consumer Protection and Commerce regarding amending Section 13(b). She reiterated her comments regarding Section 13(b), telling the Subcommittee that legislation such as H.R. 2668 is urgently needed following the Supreme Court’s ruling in AMG Capital Management.

We will continue to watch closely for developments on Section 13(b). Should you have any questions about this, or any other antitrust or competition law question, please feel free to contact the attorneys listed above.

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