On March 20, the Fifth Circuit Court of Appeals held that the administrative adjudication of deceptive advertising claims by the Federal Trade Commission (FTC) violates the constitutional separation of powers, which grants exclusive judicial authority to Article III courts. Without deciding on the merits of the FTC’s deceptive advertising argument, the court concluded in Intuit v. FTC that the FTC must argue its claims in federal court, not in front of an in-house administrative law judge (ALJ).

FTC Administrative Adjudication Faces Constitutional Limits

This case extends the Supreme Court’s reasoning in Jarkesy, which held unconstitutional the Securities and Exchange Commission’s (SEC) use of ALJs to adjudicate securities fraud claims. Although the Intuit court’s ruling is limited to deceptive advertising cases, Jarkesy and Intuit raise significant doubt as to the FTC’s ability to issue administrative cease-and-desist orders under the FTC Act.

Under Section 5 of the FTC Act, the FTC may initiate administrative enforcement proceedings against private parties to address unfair competition, false advertising, and other “unfair or deceptive acts or practices.” The FTC initiated this action against Intuit in 2022, alleging that Intuit’s advertising for TurboTax Free Edition deceived consumers into believing they could file taxes for free, despite many common services requiring additional fees. The FTC originally filed suit in federal court, but after the court denied the FTC’s motion for an injunction, the FTC abandoned the suit and proceeded through its own administrative adjudicatory process.

Intuit v. FTC and Deceptive Advertising Claims

The FTC’s administrative law judge concluded that Intuit’s advertising was likely to mislead consumers, and FTC commissioners affirmed the decision on appeal. The FTC imposed a 20-year cease-and-desist order that prohibits Intuit from describing any product as free, including products unrelated to tax preparation, unless certain narrow requirements are met.

As permitted by the FTC Act, Intuit appealed the decision to the Fifth Circuit Court of Appeals, arguing that the U.S. Constitution prohibits the FTC from circumventing the judicial process and imposing harsh penalties through administrative hearings.

The Fifth Circuit agreed with Intuit and vacated the FTC’s order as unconstitutional. Article III of the Constitution exclusively vests judicial power in the courts. While Congress can delegate authority to administrative agencies to enforce “public rights,” only the courts may enforce “private rights”: legal claims that trace their roots to English common law, such as fraud and breach of contract. The Supreme Court held in Jarkesy that because securities fraud laws targeted the same basic conduct and applied legal principles similar to those of common law fraud, the SEC must bring securities fraud cases in federal court, not through in-house ALJs.

In Intuit, the Fifth Circuit concluded that the FTC’s deceptive advertising claims arose from the “traditional concepts” of fraud and deceit claims that courts have heard for centuries. Unlike complex federal regulations, such as building safety codes that create “public rights” unrelated to the common law, deceptive advertising under the FTC Act encompasses familiar elements of misrepresentation, consumer reliance, and injunctive relief. Thus, the FTC must bring deceptive advertising cases as a “private right” in federal court, and the FTC’s administrative cease-and-desist order is invalid.

Implications for FTC Act Enforcement and Litigation

The Intuit court did not decide whether other FTC Act claims, such as unfair competition, may proceed through administrative adjudication. However, the court noted that the FTC Act is widely understood to encompass common law actions for deceit, fraud, and unfair use. Future litigation may follow Intuit and further abrogate Section 5 of the FTC Act.

During Venable’s 12th Advertising Law Symposium, FTC Director Christopher Mufarrige commented that the FTC intends to prioritize federal litigation over administrative adjudication. Mufarrige, who oversees the FTC’s Bureau of Consumer Protection, indicated that the FTC will avoid bringing in-house consumer protection claims in light of legal challenges based on Jarkesy, such as those brought in this case.

Furthermore, FTC Chairman Andrew Ferguson has indicated that the agency will no longer challenge mergers in administrative adjudication. Ferguson also recently called on Congress to restore the FTC’s ability to obtain monetary relief in court for false advertising claims. Ferguson’s request is not surprising, given that with no power to bring an administrative action and a follow-on action under Section 19 of the FTC Act, the agency now has no ability to obtain monetary relief for violations of Section 5 of the FTC Act. 

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