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Supreme Court Rolls Back FTC’s Ability To Obtain Restitution And Disgorgement
04/28/2021On April 22, 2021, the Supreme Court held in AMG Capital Management, LLC v. FTC that the Federal Trade Commission (“FTC”) is not authorized to seek monetary relief, such as restitution or disgorgement, in enforcement actions brought directly in federal court without first initiating an administrative proceeding. The Court’s significant decision overturned the Ninth Circuit’s ruling below and resolved a circuit split in favor of the minority position adopted by the Third and Seventh Circuits. While the FTC retains the ability to seek such monetary penalties through other avenues, the Court’s decision deprives the FTC of an enforcement tool on which it has heavily relied.
Established in 1914 with the passage of the Federal Trade Commission Act (“FTCA”), the FTC is tasked with preventing “[u]nfair methods of competition” and “unfair or deceptive acts or practices” and shares jurisdiction over federal civil antitrust enforcement in the United States with the Department of Justice. As initially passed, the FTCA authorized the FTC to seek cease and desist orders for violations of the FTCA through administrative proceedings before Administrative Law Judges (“ALJs”). In 1973, Congress added § 13(b) to the FTCA, which permits the FTC to proceed directly to the district court (without a prior administrative proceeding) to obtain a “temporary restraining order or a preliminary injunction,” and also allows the FTC, “in proper cases,” to obtain a court-ordered “permanent injunction.” Since then, the FTC has relied on this provision to seek and obtain equitable monetary relief directly through the federal courts.
Prior to the Court’s ruling in AMG Capital Management, the FTC brought dozens of cases in federal courts each year, seeking permanent injunctions and the disgorgement of illegally obtained funds, with the majority of its consumer protection actions originating in federal courts rather than through administrative proceedings. The majority of Courts of Appeals that considered the question agreed with the FTC that it was authorized to do so under § 13(b), though as noted above, the Third and Seventh Circuits held otherwise and were notable outliers that have now been vindicated by the Supreme Court.
The Court’s ruling thus deprives the FTC of one of its preferred methods of obtaining monetary penalties. Notably, however, the FTCA provides the FTC with another avenue to seek restitution and disgorgement: § 19, which authorizes district courts to grant “such relief as the court finds necessary to redress injury to consumers,” including through the “refund of money or return of property,” in certain cases where the FTC previously issued a final cease and desist order through an administrative proceeding. It remains to be seen, therefore, whether the Court’s ruling will have a material impact on FTC enforcement actions as well as whether Congress will merely revise the FTCA to expressly authorize the FTC to seek and obtain restitution and disgorgement through actions originally brought in federal court, as it recently did when the Supreme Court limited the Securities and Exchange Commission’s power to obtain equitable remedies.
