Digesting an opinion by The Honorable Timothy C. Batten, Sr., U.S. District Court for the Northern District of Georgia (Judge Batten had no role in WLF’s selecting or editing this opinion for our Circulating Opinion feature.). Judge Batten was confirmed to the Northern District of Georgia on March 6, 2006.
Case No. 1:17-cv-3094, U.S. District Court for the Northern District of Georgia, Atlanta Division
Introduction to the Opinion
The Federal Trade Commission alleged that defendants deceptively marketed loan-discount-club programs in a manner that violated § 5 of the Federal Trade Commission Act. The FTC sought injunctive relief and other equitable remedies in federal court under § 53(b) of the Act. Defendants moved to dismiss, arguing that § 53(b) of the Act remedies only future violations, not past wrongdoing. On April 16, 2018, Judge Batten rejected defendants’ motions to dismiss. Later, on its own initiative, the court sought briefing on whether it should reconsider its previous holding. On October 15, 2018, in a scholarly and pointedly written opinion, Judge Batten reversed his earlier ruling, digested below.
Many of the FTC’s claims against Defendants are based largely on long-ceased misconduct. The FTC seeks to invoke § 53(b) to obtain injunctive and sundry other equitable remedies for Defendants’ alleged deceptive marketing practices. Defendants argue that § 53(b) is designed to remedy only future, rather than past, misconduct, and to the extent the FTC is basing its claims for relief on past misconduct, it must make a Rule-8-compliant showing that Defendants are violating, or about to violate, the law.
A. The FTC Must Aver Facts Under Rule 8 to State a Claim for Relief Under § 53(b)
“The starting point for all statutory interpretation is the language of the statute itself.” United States v. DBB, Inc., 180 F.3d 1277, 1281 (11th Cir. 1999). Section 53(b) provides:
Whenever the Commission has reason to believe (1) that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the Federal Trade Commission . . . the Commission by any of its attorneys . . . may bring suit in a district court of the United States to enjoin any such act or practice.
This language plainly creates a precondition to the FTC’s statutory authorization to bring suit under § 53(b). That is, the FTC may sue only when it has a “reason to believe” that a violation of law is occurring or about to occur, and filing the lawsuit is in the “interest of the public . . . .” 15 U.S.C. § 53(b). Thus, its “entitlement to relief” under Rule 8 necessarily depends upon the satisfaction of this element.
It is axiomatic that to survive a Rule 12(b)(6) motion, the pleader must “set forth ‘well-pleaded facts . . . permit[ting] the court to infer more than the mere possibility of misconduct.’” LabMD, Inc. v. FTC, 894 F.3d 1221, 1233 (11th Cir. 2018) (some alterations in original) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). The factual allegations must be “enough to raise a right to relief above the speculative level,” Bell Atl. Corp. v. Twombly, 544 U.S. 555, 555–56 (2007), and the averments should “allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. *** A straightforward application of these principles means that, in order to obtain the relief provided under § 53(b), the FTC must demonstrate by more than conclusory allegations that it has a reason to believe that the laws entrusted to its enforcement are being or about to be violated.
The FTC, however, takes issue with this conclusion. It maintains, and the Court previously held, that the “reason to believe” element is unreviewable on a Rule 12(b)(6) motion because it is within the agency’s discretion to file suit. In other words, the Court should defer to the agency’s conclusory averment that it has the requisite reason to believe. In support of this, the FTC (and the Court) relied on National Urological [Federal Trade Commission v. National Urological Group, Inc., No. 1:04-cv-3294-CAP, 2006 WL 8431977 (N.D. Ga. Jan. 9, 2006)].
National Urological involved an FTC suit under § 53(b) against defendants for false advertising. When the agency sued, the defendants filed a counterclaim against the FTC under the APA [Administrative Procedure Act], alleging that the FTC’s suit was, inter alia, arbitrary and capricious. The Court held that under the APA, the FTC’s decision to initiate suit was committed to agency discretion. As a result, the action was unreviewable.
Upon further reflection and after reviewing the briefs, National Urological is distinguishable. Its posture involved judicial review of agency action under the APA. Here, the Court is faced with whether the FTC has stated a claim under the Federal Rules of Civil Procedure.
These postures are governed by two different statutory frameworks, the former by the APA, which explicitly precludes judicial review for actions “committed to agency discretion by law,” 5 U.S.C. § 701(a)(2), and the latter by Rule 8, which contains no such exemption. Quite the opposite. It is precisely the Court’s duty under Rule 8 to scrutinize a party’s right to proceed in federal court. Here, the Court is not reviewing the FTC’s decision to sue. It is analyzing whether it has satisfied the federal pleading standards.
The FTC argues that averments supporting its “reason to believe” are not required because no court has imposed any such requirement in any other case involving § 53(b). That may be true, but it is persuasive only in that it is an argument from silence, a silence for which there are several plausible explanations. The silence may be as much a result of the parties’ failure to raise the issue as it is an indication that no such requirement exists. It could also be that the FTC’s “reason to believe” was not in dispute in the cited cases. Here, however, the parties have raised the issue and brought the FTC’s “reason to believe” into dispute.
Consider also this oddity if the Court simply defers to the FTC’s averments: Since filing, two Defendants have died. Even though their estates may remain responsible for the temporal consequences of their decedents’ past misdeeds, it strains credulity to blindly accept that the dead men are violating (or about to violate) any laws.
The FTC has the power to act only to the extent Congress has authorized it. Limitations on this power are enshrined in the words of statutory text. See NLRB v. Cmty. Health Servs., 812 F.3d 768, 780 (10th Cir. 2016) (Gorsuch, J., dissenting) (“[I]n our legal order federal agencies must take care to respect the boundaries of their congressional charters.”). To ensure that the powers granted to the FTC are exercised properly, especially when it seeks to do so by engaging the Court’s Article III powers, the Court must carefully scrutinize the scope of its exercise.
Congress has spoken plainly about when deference to agency discretion is appropriate, for example, in the APA. But this stage of the proceedings is governed by Rule 8, and Rule 8 provides for no such deference. Thus, the Court must conclude that it was improper to defer to a conclusory allegation by the FTC that it has a reason to believe that a violation of law is occurring or about to occur. Instead, the FTC is required to aver facts sufficient for this purpose.
B. The FTC’s “Reason to Believe” Is a Distinct Statutory Standard from the Injunction Inquiry
The Court has already determined the FTC must make factual averments regarding its “reason to believe.” Now it moves on to the content of those averments. The FTC’s case targets Defendants’ past conduct. Yet the FTC is proceeding under § 53(b) on the theory that, based on Defendants’ past conduct, they are “about to” violate the law. The Court must therefore determine what “about to” means and whether the FTC has satisfied the Court that, based on its averments, it is plausible that the Defendants are about to violate the law.
The FTC argues that it means that the misconduct is likely to recur, i.e., the same showing required to establish that injunctive relief would not be moot. Defendants contend that this is not what the text of the statute says, and argue for a more exacting definition.
Part of the confusion comes from the analogical relationship of the mootness inquiry for an injunction and the “about to violate” scenario.
When seeking an injunction based solely on past conduct, there is a risk that an injunction would be moot. To determine whether mootness is an issue, a court asks whether “the defendant’s past conduct indicates that there is a reasonable likelihood of further violations in the future.” RCA Credit Servs., LLC, 2010 WL 2990068, at *5 (quoting SEC v. Caterinicchia, 613 F.2d 102, 105 (5th Cir. 1980)). This is the standard the FTC seeks to have the Court apply to the “about to violate” provision of § 53(b). Further confusion obtains due to many courts that have accepted this interpretation of § 53(b). The Court believes, however, that such an interpretation is inconsistent with the plain language of § 53(b).
This issue was raised in FTC v. Shire ViroPharma, Inc., 2018 WL 1401329 (D. Del. Mar. 20, 2018), appeal docketed, No. 18-1807 (3d Cir. Apr. 12, 2018). There, the FTC sued drug manufacturers for improper use of patents and drug listings. The defendant-manufacturers challenged the FTC’s action under Rule 12(b)(6), arguing that the FTC had not demonstrated that the defendants were violating or about to violate the law because their alleged illegal acts had ceased. The FTC similarly argued that satisfying the “reason to believe” element was equivalent to demonstrating that injunctive relief would not be moot, i.e., that the alleged misconduct was “likely to recur.” Id. at *5. The court disagreed. It held that the questions of whether injunctive relief was appropriate and whether the FTC was entitled to bring suit in the first place were distinct inquiries.
This Court agrees. The statutory text of § 53(b) must be given its plain meaning, and unless Congress says otherwise, the requisite showing should not be conflated with standards that, though analytically related, do not comport with the statutory language.
The linguistic distinction is evident when we look at the ordinary meaning of “about to.” *** This phrase evokes imminence, as if the offending action could be resumed with little delay. See About, OXFORD ENGLISH DICTIONARY ONLINE (2018) (“12. At the very point when one is going to do something; intending or preparing immediately to do something.”) ***
This is contrasted with the mootness standard of “likely to recur.” Likelihood of recurrence is less immediate than “about to.” It is similar to a preponderance, “more likely than not,” and therefore cannot be considered synonymous with “about to.” Conflating them would do violence to the plain language, jiggering it by judicial sleight.
The FTC complains that this interpretation requires it to show more to survive a Rule 12(b)(6) challenge than is required to obtain the injunctive relief it seeks under § 53(b). That may be true, but because this is the interpretation demanded by the plain language, the Court can accept such an outcome.
Even if the FTC is correct, the outcome is consistent with the statute’s plain meaning unencumbered by judicial gloss. Section 53(b) is not, on its face, a broad and sweeping avenue of relief, certainly not as broad as it has become through generous interpretation. It is simply an injunctive remedy, a stop-gap to discontinue ongoing or threatening conduct violative of the laws the FTC enforces. It is a discrete authorization for the FTC to invoke the federal courts to assist it in the enforcement of its statutory mandates. If applying the plain language means that the showing to get into the courthouse is greater than the one required once the FTC is inside, narrowing § 53(b)’s scope, that is fine because that is what the language demands.
It would be admittedly easier to apply an already existing framework (i.e., the injunction mootness standard) to the statute, but ignoring the clearly distinct statutory language risks making the Court a super-legislature; it would be substituting its own judgment for Congress’s. This is not the Court’s role. The Court’s role is to apply the text of a statute, and it ends there.
The difficulty of statutes like § 53(b) arises from the accretions of time, those well-meaning or oversighted judicial glosses that encrust themselves upon a law through loose interpretation. Among these encrustations is the ubiquitous holding of the courts of appeals that equitable relief under § 53(b) other than injunctions is available. This is not supported by the plain text of the statute, but has been read into it by well-meaning judicial efforts to effect the “purpose” of the statute. These meta-textual pontifications seem good in the short run, but a long journey on even a narrowly wrong heading can be ruinous. Section 53(b) clearly states that it is a provision for injunctive relief, temporary or permanent. It mentions nothing of disgorgement or otherwise. The Court is, of course, bound to accept the binding interpretations of higher courts on this matter. But if it can prevent further encrustation through linguistic fidelity, it will.
The issue becomes even more apparent when one considers that retrospective relief (including remedies resembling disgorgement) is available to the FTC in an action under 15 U.S.C. § 57b. But unlike § 53(b), § 57b contains a statute of limitations. That makes sense if § 53(b) is only prospective in effect. A statute aimed at only future conduct would not be concerned with expiration because by definition the conduct it targets would be either ongoing or imminent.
Interpreting § 53(b) with both prospective and retrospective application means § 57b gets neglected. Without the burden of a statute of limitations, the FTC will be inclined to proceed under § 53(b) because it can obtain the same relief through equitable disgorgement under § 53(b) as is provided under § 57b without limitation. Thus, § 57b is denatured. The Court hopes that its holding here prevents further deterioration of this statutory scheme.
The Court is also aware of the need to carefully scrutinize an agency’s suggested interpretations of its mandates and which have the effect of expanding its authority beyond the statutory bounds. If an agency was meant to have authority to do such and such a thing, Congress must say so. And when it has said, “Thus far and no farther,” it is the Court’s responsibility to blow the whistle and call the out of bounds. See City of Arlington v. FCC, 569 U.S. 290, 307 (2013).
Therefore, in keeping with the plain meaning of the statute, the Court holds that when the FTC attempts to bring suit under § 53(b), it must satisfy the Court under Rule 8 that it has a reason to believe that each of the Defendants is violating or is about to violate the law. When the FTC’s reason to believe is predicated upon past conduct, it must show that a defendant is “about to” violate the law—requiring more than mere likelihood of resuming the offending conduct—in order to state a claim. [The Court’s] previous opinion  must therefore be vacated as to Part III.D.2.
The next step is for the Court to go Defendant-by-Defendant and ascertain whether the FTC has properly alleged that each “is violating or is about to violate” the law. Prior to this step, however, the Court will hear from the parties in light of this Order. And at the FTC’s behest, it will be granted leave to file a second amended complaint within twenty- one days to correct any deficiencies.