By Howard S. Goldfarb, a Partner with Homer Bonner Jacobs, P.A. in Miami, FL.
On June 19, 2018, the Federal Trade Commission (FTC) filed its opening brief requesting the U.S. Court of Appeals for the Third Circuit to reverse FTC v. Shire ViroPharma Inc.1 The district court in Shire held that § 13(b) of the FTC Act, 15 U.S.C. § 53(b), limits the FTC’s authority to seek permanent injunctive relief to cases in which the FTC alleges a defendant is violating, or is about to violate, a law the FTC enforces. Merely alleging past violations is not enough.
If the Third Circuit affirms the district court and other courts broadly adopt the ruling, Shire could dramatically restrict the FTC’s authority to bring federal court enforcement actions. Recognizing this, the FTC complains on appeal that if the ruling in Shire had been applied in past cases it “would likely have doomed hundreds of other Section 13(b) actions that the FTC has filed over the years—cases that collectively have recovered many billions of dollars for victimized American consumers.” FTC Br., at 37. The FTC is right to be concerned. Shire declined the FTC’s invitation to use a generous, policy-oriented interpretation of the agency’s authority under § 13(b). Instead, the court narrowly applied the statute consistent with its plain text meaning.
Section 13(b) allows the FTC to seek injunctive relief in federal courts “upon proper showing;” however, it does not expressly provide for other relief. Ignoring the carefully calibrated statutory framework in §§ 13(b) and 19 of the FTC Act, and at the urging of the FTC, courts have implied “ancillary” equitable remedies under § 13(b), including asset freezes, receivers, disgorgement,2 and restitution. As a consequence, the FTC wields § 13(b) “ancillary” relief untethered to the statutory language as a powerful, often draconian weapon. Indeed, the FTC routinely brings competition and consumer protection enforcement actions under § 13(b) instead of other provisions of the FTC Act that allow for remedial monetary relief, such as § 19, 15 U.S.C. § 57b,3 because the FTC finds those other provisions inconvenient and more difficult to satisfy.
However, as the FTC conceded in Shire,4 the Commission cannot sue under § 13(b) seeking only equitable disgorgement or restitution. To obtain this “ancillary” relief, the FTC must first seek injunctive relief under § 13(b) in order to invoke the district court’s inherent authority to award equitable relief. In this way, the FTC uses its ability to seek injunctive relief under § 13(b) as a foot-in-the-door to federal court to obtain what it characterizes as equitable monetary relief.
Shire could close this door and, if other courts apply Shire’s reasoning, the FTC may find its use of § 13(b) as an enforcement tool impaired if not crippled.
Section 13(b)’s Omission of Past Violations
The FTC has long maintained it has broad authority under § 13(b) to seek permanent injunctive relief, even for past violations of the FTC Act and regulations. This position has always been at odds with § 13(b)’s plain language, which allows the FTC to seek injunctive relief when it has reason to believe that any “person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the [FTC]” (emphasis added). The statute is silent concerning past violations.
Section 13(b)’s omission of past violations is significant. The FTC’s power to act is limited to the statutory authority Congress delegates.5 The FTC’s authority therefore should not be implied or extrapolated. Rather, the statute must be applied as written.6
Congress knows how to empower federal agencies to seek injunctions for past misconduct. For example, the Commodity Exchange Act (CEA) expressly authorizes the Commodity Futures Trading Commission to seek injunctive relief to address past, present, or future violations where the defendant “has engaged, is engaging, or is about to engage” in a violation of the CEA. See 7 U.S.C. § 13a-1(a) (emphasis added). Similarly, the Investment Advisors Act of 1940 (‘40 Act) permits the SEC to seek injunctions for past, present, or future violations where the defendant “has engaged, is engaged, or is about to engage” in violations of the ‘40 Act. See 15 U.S.C. § 80b-9(d) (emphasis added). Congress could have used a similar “past, present, future” structure in § 13(b), but did not.
Notwithstanding the statute’s plain language, the FTC has for nearly 40 years sought judicial workarounds to obtain injunctive relief under § 13(b) for past misconduct. The FTC has argued elsewhere, as it did in Shire, that § 13(b)’s “is violating, or is about to violate” language supposedly pertains only to the FTC’s attempts to seek preliminary—not permanent—injunctive relief. Shire found this position unsupported and the FTC appears to have abandoned it on appeal.7
The FTC has also argued elsewhere, as it did in Shire, that courts should not interpret the “is violating, or is about to violate” language as written but should instead consider it synonymous with the “likelihood of recurrence” inquiry set forth in U.S. v. W.T. Grant Co., 345 U.S. 629, 633 (1953). Under this inquiry, courts will impose injunctive relief for past conduct “if there exists some cognizable danger of recurrent violation.” In this context, and because federal courts generally construe the FTC Act broadly,8 the FTC has on prior occasions successfully relied on past conduct to obtain injunctive relief under § 13(b).9
Shire’s Plain Reading of § 13(b)
Shire rejected the FTC’s expansive view of § 13(b) in favor of the statute’s plain language. Shire first reconciled the two provisos at the end of § 13(b). The first proviso, which contains the “is violating, or is about to violate” language, authorizes the FTC to seek, and district courts to grant, preliminary relief in aid of administrative proceedings. The second proviso, which does not contain that language, authorizes the FTC to seek, and district courts to grant, permanent injunctions without the FTC first initiating the administrative proceedings prerequisite to a grant of relief under the first proviso.
Shire found the second proviso was not an independent grant of authority, and as a consequence the “is violating, or is about to violate” language found in the first proviso applied to the FTC’s request for permanent injunction. This is bolstered by the statute’s use of different language in discussing the FTC’s ability to bring suit in federal court as compared to seeking permanent injunctive relief. The statute provides that the FTC “may bring suit in a district court of the United States,” but then states that “in proper cases the Commission may seek … a permanent injunction.” 15 U.S.C. § 53(b) (emphasis added). Shire found the phrase “may bring suit” refers to the FTC’s general authority to file suit in federal court, whereas the phrase “may seek” refers to the FTC’s authority once it is properly in federal court to seek a particular remedy, including a permanent injunction.
Shire’s analysis is also supported by the overall textual structure of § 13(b). The statute first grants the FTC authority to file suit to seek a temporary restraining order or a preliminary injunction, and then states that “Provided further, That in proper cases” the FTC may seek a permanent injunction. This sequential structure suggests the permanent injunction proviso is subject to the language that precedes it and demonstrates the second proviso applies to cases already in federal court pursuant to the first proviso. Given § 13(b)’s plain language, Shire rejected the FTC’s argument to apply the “likelihood of recurrence” standard in lieu of the statute’s actual text.
Section 13(b)’s limited legislative history also reinforces Shire’s findings. The Senate Report explaining the intent of § 13(b) advised the statute’s purpose was to allow the FTC to halt ongoing misconduct that could continue during sluggish administrative proceedings, which sometimes last several years. See S. Rep. 93-151, at 30 (1973). Further, with respect to permanent injunctions, the Senate Report provided that § 13(b) allows such relief “when a court is reluctant to grant a temporary injunction because it cannot be assured of a[n] early hearing on the merits [in the administrative cease and desist proceeding].” Id. The Senate Report also provided that § 13(b) gave the FTC “the ability, in the routine fraud case, to merely seek a permanent injunction in those situations in which it does not desire to further expand upon the prohibitions of the [FTC] Act through the issuance of a cease and desist order. Commission resources will be better utilized, and cases can be disposed of more efficiently.” Id. at 31. This history demonstrates § 13(b) was intended to address violations requiring quick or immediate action, which supports Shire’s plain reading that the FTC, to seek permanent injunctive relief, must believe a defendant “is violating, or is about to violate” a law or regulation enforced by the FTC.
Shire’s Potential Significance
While it is not unusual for federal courts to deny § 13(b) permanent injunctive relief premised solely on past violations, the FTC typically still claims entitlement in these circumstances to “ancillary” relief, including supposed equitable monetary relief. See, e.g., FTC v. Amazon, Inc., 2016 WL 10654030, at *4–6 (W.D. Wash. July 22, 2016) (denying § 13(b) permanent injunctive relief where there was no demonstrated danger of ongoing violations, but granting equitable monetary relief for the FTC in an amount later determined). This shows § 13(b)’s power. Even where the FTC cannot demonstrate entitlement to an injunction—the only relief expressly provided by the statute—courts have allowed the FTC under § 13(b) an avenue to obtain often draconian equitable monetary relief. Shire could close this avenue for anyone the FTC cannot credibly allege is violating, or is about to violate, a law enforced by the FTC, which constitutes the bulk of § 13(b) actions.
The FTC recognizes this. Indeed, although the Shire district court allowed the FTC leave to file an amended complaint, the FTC bypassed an amended filing and promptly appealed the ruling in an effort to stem any fallout. Within weeks of Shire, litigants in at least five other § 13(b) enforcement actions cited Shire as grounds for dismissal. And although Shire is an antitrust case concerning unfair competition in alleged violation of § 5(a) of the FTC Act, 15 U.S.C. § 45(a), the litigants in these other actions seek to apply Shire to other FTC-enforced laws, including the FTC Telemarketing Act and Restore Online Shopper’s Confidence Act.
With much of its opening brief devoted to discussing Shire’s potential impact on § 13(b) enforcement, the FTC asks to expansively construe statutory language that the Third Circuit could find plain and unambiguous and to be enforced as written, even if that leads to harsh results.10 The FTC characterizes Shire as demanding an “ongoing or imminent” violation, although the term imminent appears nowhere in the opinion. The FTC also argues the phrase “about to violate” should be construed to mean “where violations have already occurred and are likely to recur absent an injunction.”
It remains to be seen whether the Third Circuit will affirm Shire and, if so, with what reasoning, but a favorable outcome for the FTC is far from assured.
- No. 17-CV-131-RGA, 2018 WL 1401329 (D. Del. Mar. 20, 2018).
- In Kokesh v. SEC, 137 S. Ct. 1635, 1642 n.3 (2017), the U.S. Supreme Court cast into doubt the validity of an implied equitable disgorgement remedy, leaving for another case “whether courts possess authority to order disgorgement in Securities and Exchange Commission (SEC) enforcement proceedings or on whether courts have properly applied disgorgement principles in this context.” Although Kokesh concerns the SEC injunction statute its reasoning is equally applicable to § 13(b) of the FTC Act.
- Further, if, as Kokesh holds, implied monetary disgorgement relief is a penalty, then § 19(b) should limit that ability, as the statute explicitly bars “the imposition of any exemplary or punitive damages.” 15 U.S.C. § 57b(b). Any argument that Congress preserved implied remedies in § 13(b) that it expressly forbade in § 19 is untenable. See F.T.C. v. Figgie Intern., Inc., 994 F.2d 595, 607-08 (9th Cir. 1993 (finding Congressional intent in § 19 “was not to punish deceptive trade practices”).
- Feb. 2, 2018 Hearing Tr., 35:1-3 (FTC counsel admitting “there’s no authority we could come to court strictly on an equitable monetary relief claim.”).
- See Nat’l Petroleum Refiners Ass’n v. FTC, 482 F.2d 672, 674 (D.C. Cir. 1973) (“The Federal Trade Commission is a creation of Congress, not a creation of judges’ contemporary notions of what is wise policy … The question to be answered is not what the Commission thinks it should do but what Congress has said it can do.”) (quotations and internal citations omitted).
- See Dunn v. CFTC, 519 U.S. 465, 470 (1997) (“Absent any indication that doing so would frustrate Congress’s clear intention or yield patent absurdity, our obligation is to apply the statute as Congress wrote it.”) (internal quotations omitted).
- See FTC Br., at 23 n.8 (“The district court held that the statutory phrase ‘is violating, or is about to violate’ applies equally to actions for preliminary injunctions in aid of administrative proceedings and actions under the permanent injunction proviso of Section 13(b). The FTC does not challenge that aspect of the district court’s determination here.”).
- See FTC v. AT&T Mobility LLC, 883 F.3d 848, 854 (9th Cir. 2018) (“Because the FTC Act is a remedial statute … [it] should be construed broadly to effectuate its purposes.”) (internal quotations omitted).
- See, e.g., FTC v. USA Fin., LLC, 415 F. App’x 970, 975 (11th Cir. 2011) (“permanent injunctive relief is appropriate if the defendant’s past conduct indicates that there is a reasonable likelihood of further violations in the future”) (internal quotations omitted); FTC v. Affordable Media, LLC, 179 F.3d 1228, 1238 (9th Cir. 1999) (“[m]ere voluntary cessation of allegedly illegal conduct does not moot a case” to impose injunctive relief under the FTC Act for past conduct that had ceased); FTC v. Five-Star Auto Club, Inc., 97 F. Supp. 2d 502, 536 (S.D.N.Y. 2000) (“Courts have broad authority to enjoin unlawful acts that may be anticipated from defendants’ past conduct, and to model injunctive orders to fit the exigencies of a particular case.”); FTC v. Direct Mktg. Concepts, Inc., 648 F. Supp. 2d 202, 212 (D. Mass. 2009) (“The commission of past illegal conduct is highly suggestive of the likelihood of future violations.”).
- Castro v. United States Dep’t of Homeland Sec., 835 F.3d 422, 429-30 (3d Cir. 2016) (“If the statute is unambiguous, we must go no further. The statute must be enforced according to its plain meaning, even if doing so may lead to harsh results.”) (internal citations omitted) (citing Lamie v. U.S. Tr., 540 U.S. 526, 534, 538 (2004) (“[W]hen the statute’s language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms … Our unwillingness to soften the import of Congress’ chosen words even if we believe the words lead to a harsh outcome is longstanding.”) (internal quotation marks and citations omitted).