Monday, November 30, 2020

FTC Enforcement Update: SCOTUS to Decide Agency’s Monetary Restitution Authority

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Richard B. Newmanhttp://www.hinchnewman.com
Richard B. Newman is an Internet Lawyer at Hinch Newman LLP focusing on advertising law, Internet marketing compliance, regulatory defense and digital media matters. His practice involves conducting legal compliance reviews of advertising campaigns across all media channels, regularly representing clients in high-profile investigative proceedings and enforcement actions brought by the Federal Trade Commission and state attorneys general throughout the country, advertising and marketing litigation, advising on email and telemarketing best practice protocol implementation, counseling on eCommerce guidelines and promotional marketing programs, and negotiating and drafting legal agreements.

The Supreme Court has started its new term.  FTC defense practitioners are watching closely as the Court is considering issues that may dramatically impact FTC CID investigations and enforcement actions, particularly whether Section 13(b) of the FTC Act impliedly authorizes courts to award the FTC equitable monetary relief.

As blogged about here and here, the Supreme Court (Liu v. SEC) recently upheld the Securities and Exchange Commission’s disgorgement authority but imposed certain limits, including the deduction of legitimate business expenses in the monetary award calculation process and a requirement that disgorged funds be returned to directly investors.  The Liu court also questioned the imposition of “joint-and-several liability.”  Each alone is significant.  Together, potentially devastating to the FTC’s mission.

In the context of the Federal Trade Commission, the Ninth Circuit (AMG Capital Management v. FTC) has held that courts’ equitable powers include awarding equitable monetary relief, including disgorgement.  In stark contrast, the Third Circuit (FTC v. AbbVie Inc. et al.) and Seventh Circuit (FTC v. Credit Bureau Center) have held Section 13(b) only authorize injunctive relief.

Given the widening splits of authority on the issue, the Supreme Court granted certiorari (i.e., the Court decided to review a lower court’s decision) in the AMG Capital Management and Credit Bureau Center matters.  It is anticipated that the consolidated matters will now decide the issue of whether Section 13(b) permits courts to award and FTC attorneys to seek monetary relief in the form of disgorgement.

Those that have received a civil investigative demand (CID) from the Federal Trade Commission, are engaging in negotiations with the FTC, or are defending an FTC lawsuit should consult with experienced FTC defense attorneys to leverage the online legal challenges to the scope of the FTC’s remedial authority pending the Supreme Court ruling.

Some have already attempted to do so.

To date, for example, numerous motions to stay based upon the impending Supreme Court decision have been filed by defendants – some, being granted – in lower courts across the nation.

A statutory distinction may provide clues as to what the Supreme Court may have in store. 

Section 21(d)(5) of the Exchange Act specifically allows for “any equitable relief.”  By contrast, Section 13(b) of the FTC Act expressly limits itself to injunctive relief.  The latter being more narrow than the statute in Liu – where the Supreme Court significantly narrowed the SEC’s monetary disgorgement authority – suggests a possibility that the Court could dispose of the FTC’s ability to seek monetary relief under 13(b).

Perhaps legislative action with built-in threshold safeguards – similar to those required by Section 19 of the FTC Act – designed to ensure that Section 13(b) is used only in the context of severely egregious conduct is forthcoming.  Section 19 permits the FTC to pursue a federal court action to obtain equitable money relief for violations of administrative cease-and-desist orders provided that the matter is first initiated in the form of FTC administrative complaint proceedings, the matter is brought within a three (3) year limitations period, the FTC wins, and it is established that a reasonable person would have known that the conduct was “dishonest and fraudulent.” 

In September 2020 Senate Republicans introduced S. 4626, the Setting an American Framework to Ensure Data Access, Transparency, and Accountability (the “Act”).  While the Act is a comprehensive privacy bill, a section thereof would solidify the FTC’s ability to seek obtain monetary restitution. 

What’s more, President Trump’s nominee to join the Supreme Court is a Seventh Circuit Judge – Amy Coney Barrett.  While Barrett was not on the Credit Bureau panel that ruled the FTC does not have broad restitution powers under Section 13(b), she was involved in the vote to deny rehearing of the decision. 

Takeaway:  The Supreme Court ruling on whether the FTC can obtain equitable monetary relief in federal court pursuant to Section 13(b) of the FTC Act and how such relief should be measured will have a significant impact on the digital advertising law industry and service providers that work directly or indirectly alongside of them, such as payment processors.  If the Supreme Court agrees with the Third and Seventh Circuits, the FTC ability obtain monetary relief in federal court may be limited or precluded altogether.  However, the FTC may: (i) still be permitted to use Section 13(b) to enjoin a party in federal court (while imposing asset freezes and receiverships); and (ii) utilize Section 19, despite the onerous hurdles it presents,  to pursue a federal court action and obtain equitable money relief.

Richard B. Newman represents advertisers, marketers, lead generators and service providers in FTC administrative actions, enforcement actions and CID investigations. Follow FTC defense attorneys on National Law Review and on Twitter @ FTC defense attorney.

Informational purposes only. Not legal advice. May be considered attorney advertising.

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