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Alerts and Updates

SCOTUS Curbs FTC's Enthusiasm by Limiting Relief Available Under Section 13(b) of the FTC Act

April 27, 2021

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The Supreme Court reversed the lower courts and held that Section 13(b) “as currently written does not grant the Commission authority to obtain equitable monetary relief.”

On April 22, 2021, the Supreme Court of the United States unanimously held that Section 13(b) of the Federal Trade Commission Act does not authorize the U.S. Federal Trade Commission (FTC) to seek, or a court to award, equitable monetary relief. AMG Capital Management, LLC et al. v. Federal Trade Commission (AMG) upends a decades-long practice of the FTC seeking equitable monetary relief from defendants in federal district court rather than invoking its own administrative procedures and redress provisions. The decision is likely to have a significant impact on the FTC’s decision-making process in bringing future cases directly to federal district court, as opposed to going through the administrative process, and it will likely spur congressional debate and possibly lead to new legislation.

FTC Act’s Enforcement Scheme

The FTC Act prohibits “[u]nfair methods of competition” and “unfair or deceptive acts or practices.” 15 U.S.C. §§ 45(a)(1)-(2). Section 5 of the act permits the FTC to adjudicate claims alleging violation of the FTC Act before an administrative law judge. Id. at § 45(b). Several decades after the FTC Act was originally enacted, Congress authorized the FTC to go directly to a federal district court to obtain a temporary restraining order or preliminary injunction, or “in proper cases,” a “permanent injunction” against “any person, partnership, or corporation” that the FTC believes “is violating, or is about to violate, any provision of law” that the FTC enforces under Section 13(b). 15 U.S.C. § 53(b). The same legislation added Sections 5(l) and 19, which authorize the FTC to seek civil penalties and “such other and further equitable relief” as deemed proper from a federal district court, respectively, only after first going through the administrative process and obtaining a final cease and desist order. 15 U.S.C. §§ 45(l) and 57b(b).

The FTC’s Recent Trend of Seeking Equitable Monetary Relief Under Section 13(b)

For the last few decades, the FTC has sought equitable monetary relief in consumer protection and antitrust cases under its Section 13(b) authority without first going through the administrative process and obtaining a final cease-and-desist order pursuant to Sections 5(l) and 19. Lower federal courts have largely acceded to such requests from the FTC, leading to a recent trend of the FTC repeatedly seeking and obtaining equitable monetary relief in federal court under Section 13(b). The FTC obtained $723.2 million in equitable monetary relief under Section 13(b) in 2019, and there are numerous active cases today in federal courts in which the FTC seeks to do the same without first proceeding through the administrative process.

AMG Limits the Relief Available Under Section 13(b)

In AMG, the FTC alleged in federal district court that deceptive payday lending practices violated Section 5(a) of the FTC Act. The district court ordered, among other things, $1.27 billion in equitable monetary relief, and the Ninth Circuit affirmed the FTC’s authority to seek and obtain such relief on appeal.

The Supreme Court decided to review the case to determine whether the statutory language in Section 13(b) specifically, and the FTC Act more broadly, authorizes the FTC to seek, and a court to award, equitable monetary relief. The Supreme Court reversed the lower courts and held that Section 13(b) “as currently written does not grant the Commission authority to obtain equitable monetary relief.”

The Court provided three main reasons for its decision. First, the Court concluded that the plain language of Section 13(b) contemplates only an “injunction,” which is not the same as equitable monetary relief. Second, the Court looked to the “language and structure of §13(b), taken as a whole” to conclude that the text only contemplated prospective injunctive relief and that allowing otherwise “would allow a small statutory tail to wag a very large dog.” Finally, the Court found that, in light of the limitations imposed on the ability of the FTC to seek monetary relief under Sections 5(l) and 19, respectively, Congress “likely did not intend for §13(b)’s more cabined ‘permanent injunction’ language to have similarly broad scope.”

The Court also rejected the FTC’s policy-related argument that denying monetary relief under Section 13(b) would allow violators to enjoy profits earned at the expense of harmed consumers. The Court explained that the enforcement scheme contemplated by the FTC Act is as follows:

The Commission may obtain monetary relief by first invoking its administrative procedures and then §19’s redress provisions (which include limitations). And the Commission may use §13(b) to obtain injunctive relief while administrative proceedings are foreseen or in progress, or when it seeks only injunctive relief.

AMG Could Impact Agencies Besides the FTC

Other federal agencies, such as the U.S. Food and Drug Administration (FDA) and U.S. Securities and Exchange Commission, could also be impacted because they have also pursued equitable monetary relief under statutory schemes that authorize those agencies to file lawsuits seeking injunctions in federal court. Specifically, the FDA may reconsider whether to seek equitable relief when pursuing an injunction under 21 U.S.C. § 332, which allows the U.S. Department of Justice to bring actions to “restrain violations” of the Federal Food, Drug and Cosmetic Act, but does not specifically mention equitable monetary relief.

Conclusion

The Court’s decision curbs the FTC’s decades-long practice of seeking and obtaining monetary relief in federal court under Section 13(b). Perhaps anticipating the result in AMG, the FTC has been lobbying Congress while the case worked its way up to the Supreme Court to provide it with express authority to proceed directly to federal court for equitable monetary relief under Section 13(b). Indeed, in an April 22, 2021, statement immediately following the AMG decision, FTC acting Chairwoman Slaughter “urge[d] Congress to act swiftly to restore and strengthen the powers of the agency so we can make wronged consumers whole.” The FTC will likely continue to push Congress to expand the FTC’s power to seek directly monetary relief in federal court. In the meantime, it seems likely that the FTC will tend to pursue future antitrust and consumer protection cases first through its administrative process so that it can attempt to seek equitable monetary relief under Sections 5(l) and 19, respectively, subject to the limitations outlined therein.

For More Information

If you have any questions about this Alert, please contact Sean P. McConnell, Andrew John (AJ) Rudowitz, any of the attorneys in our Antitrust and Competition Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.