FTC Secures Large Restitution Award In Shadow Of Pending AMG Capital
Government/Regulatory Enforcement
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  • FTC Secures Large Restitution Award In Shadow Of Pending AMG Capital

    On January 21, 2021, the Federal Trade Commission (“FTC”) announced that a federal district court in Maryland entered final orders granting the FTC a $120.2 million restitution award against the operators of a large offshore real estate project alleged to have deceived American consumers, which follows an earlier memorandum opinion issued on August 28, 2020. 

    The case centered around a Belize real estate development project by Sanctuary Belize Enterprises (“SBE”).  In re Sanctuary Belize, 2020 U.S. Dist. LEXIS 156439 (Aug. 28, 2020).  In its memorandum opinion, the court found that defendants made several misrepresentations in soliciting investors to fund the real estate project including: (a) that the project carried no debt, which made it less risky; (b) that every dollar of revenue would be reinvested in the development; (c) that the development would contain certain luxury amenities; (d) that the development would have a two to five year timeline for completion; (e) that there was a robust resale market for lots; and (f) that certain individual defendants had only minimal involvement in the project.  Id. at 46-115.  As a result, the court entered an order on January 12, 2021 that granted both a permanent injunction and $120.2 million in restitution against defendants.

    The FTC brought the action under Section 5 of the FTC Act, which bars “unfair or deceptive acts or practices in or affecting commerce.”  15 U.S.C. §45(a).  Section 13 of the Act permits the FTC to seek permanent injunctions against violators.  15 U.S.C. § 53(b).  Complementary to the injunctive power, courts have long held that the Act also permits the FTC to seek restorative monetary sanctions for harmed consumers.  See, e.g., FTC v. Ross, 743 F.3d 886, 891 (4th Cir. 2014). 

    Notwithstanding the district court’s decision, the FTC’s authority to seek monetary sanctions has recently been questioned.  Since 1973, every federal circuit court to consider the issue had concluded that the FTC is permitted to seek monetary sanctions in enforcement actions.  See, e.g., FTC v. Commerce Planet, Inc., 815 F.3d 593, 598 (9th Cir. 2016); FTC v. Amy Travel Serv., Inc., 875 F.2d 564 (7th Cir. 1989).  However, in 2019, the Seventh Circuit overturned its own precedent and concluded that Section 13(b) does not authorize monetary sanctions.  See FTC v. Credit Bureau Ctr., LLC, 937 F.3d 764, 767 (7th Cir. 2019).  On September 30, 2020, the Third Circuit similarly curtailed the FTC’s ability to seek monetary sanctions through disgorgement.  See FTC v. AbbVie Inc., 976 F.3d 327, 338 (3d Cir. 2020).  The resulting circuit split has prompted the Supreme Court to consider the question in FTC v. AMG Capital Mgm’t, LLC, 910 F.3d 417, 426 (9th Cir. 2018), in which the Ninth Circuit confirmed the FTC’s power to seek monetary sanctions.  The Court granted certiorari on July 19, 2020, and a decision can be expected within the next couple of months.

    The FTC’s power to seek monetary sanctions has long been a key weapon in its enforcement arsenal.  A decisive rejection of the restitution power would sharply curtail the FTC’s power, and the $120 million judgment against SBE serves as a reminder of the magnitude of the effect AMG Capital may have on the regulatory and enforcement landscape.