FTC Restitution Authority Under Review this Supreme Court term

Congress has laid out three clear paths for Federal Trade Commission (FTC) enforcement actions. First, the FTC has authority to promulgate rules making particular “unfair or deceptive acts or practices” unlawful.[1] If the FTC can establish in federal court that a business knowingly violated such a rule, with actual or constructive knowledge, the FTC can seek restitution.[2] This method requires a long and complex set of procedures to issue the regulations unlike the method available through the Administrative Procedure Act. The FTC has accordingly refrained from utilizing its authority to regulate through rulemaking. Second, if the FTC issues a final administrative cease and desist order, and subsequent to the order the business violates the terms of the order, the FTC can sue in federal court to force compliance with the order and obtain restitution for the wronged parties. In order to obtain restitution, the FTC must not only prove that deceptive or anticompetitive conduct occurred, but that a reasonable individual in the defendant’s shoes would have known that the conduct is deceptive or anticompetitive.[3]  

The second method is difficult to put into practice. The method is time-intensive because of the procedural hoops the FTC must jump through to obtain restitution for deceptive and anti-competitive conduct. This is because an independent Administrative Law Judge (ALJ) within the FTC must first determine that wrongdoing took place, then the commissioners of the FTC must agree with the administrative judge, and finally, the FTC must argue before a federal court that their conclusion was correct. If it appears that this is a difficult set of procedural limitations to demand restitution, rest assured that it was intended to be this way.

A 1974 Ninth Circuit case, Heater v. FTC, found that the FTC’s explicit authority to issue administrative cease and desist orders in Section 5 of the FTCA did not entail that the FTC possessed ancillary restitutionary powers to ensure compliance with administrative cease and desist orders.[4]

Magnuson-Moss was a Congressional response to the 1974 Heater opinion. The act authorized the FTC to demand restitution for profits achieved through deceptive or anti-competitive conduct, but only if the business is permitted multiple instances of due process—the discussed procedural hoops— to ensure that they are actually liable for what the FTC accused the business of and that a federal court, not a government agency, has determined that restitution is an appropriate remedy. 

The current supreme court case, AMG Capital Management, LLC, et al., Petitioners v. Federal Trade Commission, will likely determine whether the FTC and Ninth Circuit are correct in claiming that the FTC has authority to seek restitution pursuant to its right to issue cease and desist orders under Section 13(b) of the FTCA.

There are two primary arguments before the Supreme Court would allow it to reject the FTC’s assertion of authority under Section 13(b) of the FTCA. The first argument is a matter of statutory interpretation, according to which the FTC cannot grant itself any and all powers which it is not explicitly precluded from possessing within the FTCA and its accompanying amendments. In Judge Diarmuid O’Scannlain of the Ninth Circuit’s opinion, the FTC and Commerce Planet court’s interpretation of Section 13(b) is “an impermissible exercise of judicial creativity” that “contravenes the basic separation-of-powers principle that leaves to Congress the power to authorize (or to withhold) rights and remedies”[5] and the court should overturn the decision in Commerce Planet.

The second argument is weaker. In 2017, in Kokesh v. Sec. & Exch. Comm’n the Supreme Court found that the Security Exchange Commission’s practice of disgorgement, an equitable remedy similar to restitution, while remedial in nature, constitutes a penalty according to the federal statute of limitations for civil fines and must therefore be raised within five years of the date on which the relevant conduct took place.[6] A  monetary penalty, by definition, is not an equitable remedy.[7] AMG Capital Management and other appellants will argue that given that restitution, as with disgorgement, is considered a penalty and not equitable remedy under the statute of limitation for civil fines, federal courts are barred from granting FTC’s request for restitution as an ancillary equitable remedy to support their statutory right to request an injunction. This is a weaker argument because the Kokesh opinion characterizes disgorgement as a penalty only within the context of interpreting the federal statute of limitations for civil fines. In fact, the opinion explicitly states that the ruling should not be construed to mean that the SEC does not have the authority to request disgorgements as an equitable remedy for securities fraud and that the ruling is limited to whether disgorgement constitutes a penalty for purposes of determining the proper statute of limitations for the conduct.[8]

[1] 15 U.S.C. § 57b(a)(1).

[2] 15 U.S.C. § 57b(a)(2).

[3] 15 U.S.C. § 57b(a)(1), (b).

[4] Heater v. FTC, 503 F.2d 321 (9th Cir. 1974).

[5] FTC v. AMG Capital Mgmt., LLC, 910 F.3d 417, 427 (9th Cir. 2018).

[6] 28 U.S.C. § 2462 (1948).

[7] “Equitable relief” Cornell Law School – Legal Information Institute.

[8] Kokesh v. Sec. & Exch. Comm’n, 137 S. Ct. 1635, 1642 at n. 3 (2017)(“Nothing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings or on whether courts have properly applied disgorgement principles in this context The sole question presented in this case is whether disgorgement, as applied in SEC enforcement actions, is subject to § 2462’s limitations period.”)