The FTC has long claimed expansive authority under the FTC Act to obtain injunctions and monetary judgments. Its claim to that expansive authority is somewhat creative, however, and has always rested on a shaky foundation.
Litigants have begun taking aim at that claimed authority. In recent blog posts, we have written about challenges to the prevailing standard that governs when the FTC can obtain an injunction. Such challenges are enjoying some measure of success; important decisions in FTC v. Hornbeam Special Situations and FTC v. Shire ViroPharma curtail the ability of the FTC to obtain injunctions.
The signs of success on the injunctive front mirror similar signs on the monetary front. In recent days, for instance, a federal judge called into question the ability of the FTC to seek expansive monetary relief under Section 13(b), the statutory provision at issue in all of these challenges.
Section 13(b) authorizes the Commission to seek a “preliminary injunction” pending the civil or administrative adjudication of “any provision of law enforced by the Commission.” It also provides that “in proper cases the Commission may seek, and after proper proof, the court may issue, a permanent injunction.” Id. § (b)(2). Section 13(b) says nothing of monetary relief, let alone of penalties.
Yet, the FTC has long claimed Section 13(b) allows it the authority to seek monetary judgments, and federal courts have largely agreed. That may change.
The concurrence of Judge O’Scannlain in FTC v. AMG Capital Management, LLC is a harbinger of that change. Issued just days ago, the concurrence, which was joined by Judge Bea, called on the Ninth Circuit to sit en banc to re-examine its prior decisions allowing for monetary judgments under Section 13(b). Scholarly in its approach, the lengthy concurrence analyzed the language of Section 13(b), its place within the structure of the FTC Act, and the historical meaning of the terms “injunction” and “equitable relief.” The concurrence concludes that the way that the FTC has been using Section 13(b) and the way that the courts have interpreted it is simply wrong. In so doing, Judge O’Scannlain pulls no punches, saying, in places, that “we have implausibly construed the word ‘injunction’ in § 13(b) to authorize the extensive power to order defendants to repay ill-gotten gains;” that “our interpretation of § 13(b) is thus an impermissible exercise of judicial creativity;” and that “[t]hese past errors, even if common, do not justify our continued disregard of the statute’s text and the Supreme Court’s related precedent.”
The concurrence in AMG expresses a general concern about regulatory overreach. It is a concern about the legality of the authority frequently asserted by regulatory agencies – like the FTC – to impose penalties in civil enforcement actions that are not based on an explicit delegation by Congress but on the FTC urging a court to interpret broadly its supposedly “inherent” equitable power. Several justices of the Supreme Court have voiced similar concerns, most recently in Kokesh v. SEC, a case that invited the Court to consider the authority of the SEC to seek disgorgement. See, e.g., Tr. of Oral Argument, Kokesh v. SEC, at 9:5–11 (Sotomayor, J.: “Can we go back to the authority? … [I]f they’re not doing restitution, how could that be the basis of disgorgement?”); 31:16–23 (Roberts, C.J.: “One reason we have this problem is that the SEC devised this remedy or relied on this remedy without any support from Congress.”); 52:14–16 (Gorsuch, J.: “Well, here we don’t know, because there’s no statute governing [disgorgement]. We’re just making it up.”).
Considering all of this as a whole, it appears that the FTC’s authority to obtain monetary judgments may be in peril. It will be interesting, indeed, to follow the development in the case law to see whether the FTC can hold on to the authority it has created for itself.