Featured Expert Contributor, Antitrust & Competition Policy — Federal Trade Commission
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Less than two years ago, David Vladeck, a Professor at Georgetown University Law Center who served as the Director of the FTC’s Bureau of Consumer Protection from 2009 to 2012, described the argument that the FTC Act does not permit the agency to obtain equitable monetary relief as “repeatedly and uniformly rejected by every court to address it.” Two Ninth Circuit judges, however, recently signaled that the landscape in this area may be changing in the wake of the Supreme Court’s 2017 Kokesh v. SEC decision.
In an extraordinary procedural move, on December 3, 2018, Ninth Circuit Judge Diarmuid F. O’Scannlain, joined by Judge Carlos T. Bea, wrote a special concurrence to his majority opinion in FTC v. AMG Capital Management, LLC et al., in which he described permitting the FTC to obtain monetary relief under Section 13(b) of the FTC Act as “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.” Slip Op. at 36. The concurrence called on the Ninth Circuit to hear the case en banc to reconsider its 2016 decision in in FTC v. Commerce Planet, Inc.,* which held that the FTC may obtain monetary relief pursuant to Section 13(b), and walked through how the Kokesh decision calls the reasoning of Commerce Planet into question.
The Statutory Landscape
Section 13(b) of the FTC Act states that “the Commission may seek, and after proper proof, the court may issue, a permanent injunction.” That’s it. There is no reference to any form of monetary relief.
However, The Ninth Circuit and multiple other circuit courts have held that the word “injunction” invokes a broad panoply of equitable remedies, including restitution, rescission, and disgorgement, all of which involve the defendant making monetary payments. The Supreme Court has not ruled on the issue.
In general, the circuit courts, including the Ninth Circuit in Commerce Planet, have relied on Porter v. Warner Holding Co. in concluding that § 13(b) provides courts with authority to award the FTC monetary relief in the form of equitable restitution, rescission, or disgorgement. In Porter, the Supreme Court held that the Emergency Price Control Act of 1952, which authorized the agency to seek “permanent or temporary injunction, restraining order, or other order,” gave district courts the authority to order a monetary equitable remedy because the language invoked the “inherent equitable powers” of the courts, and those powers include monetary remedies.
Judge O’Scannlain’s Concurrence
The concurrence calls into question this analysis, to put it mildly.
Judge O’Scannlain argues that the plain text and structure of the FTC Act foreclose the kind of monetary relief authorized by Commerce Planet and similar decisions. FTC v. AMG Capital Mgmt., LLC et al., 910 F.3d 417, 430 (9th Cir. 2018) (O’Scannlain, J., concurring). Judge O’Scannlain’s concurrence begins by explaining that § 13(b) authorizes courts to award the FTC, “after proper proof . . . a permanent injunction.” Id. at 30. The concurrence then states: “But an order to pay money ‘as reparation for injury resulting from breach of legal duty’ is essentially a damages remedy—not a form of ‘specific relief’ like an injunction.” Id. “[A]ny other interpretation,” Judge O’Scannlain emphasized, “would be absurd: if ‘injunction’ included court orders to pay monetary judgments, then ‘a statutory limitation to injunctive relief would be meaningless, since any claim for legal relief can, with lawyerly inventiveness, be phrased in terms of an injunction.’” Id. (quoting Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 211 n.1 (2002)).
The concurrence then looks to the structure of § 13(b) to reinforce this point. The statute requires that the Commission believe that a person “is violating” or “is about to violate” the Act in order to request injunctive relief, id. (citing 15 U.S.C. § 53(b)(1)), and thus “anticipates that a court may award relief to prevent an ongoing or imminent harm—but not to deprive a defendant of ‘unjust gains from past violations.’” Id. (quoting Commerce Planet, 815 F.3d at 599).
Moreover, “[a]n entirely different provision of the FTC Act”— § 19—“allows the Commission to collect monetary judgments for past misconduct,” which “may include . . . the refund of money[,] return of property [or] the payment of damages.” Id. at 431 (quoting 15 U.S.C. § 57b(b)). Yet, Judge O’Scannlain underscored, “[a]ccording to Commerce Planet . . . these very same remedies were already available under § 13(b) when Congress subsequently enacted § 19”—a reading that “violates the ‘cardinal rule that, if possible, effect shall be given to every clause and part of a statute.’” Id. at 432 (citations omitted).
The concurrence further argues that Commerce Planet’s collapsing of these two statutory provisions “circumvents § 19’s procedural protections.” Id. at 431. “Before the Commission can collect ill-gotten gains under § 19, it must surmount one of two procedural hurdles[:]” (1) prove to a court that the defendant “violate[d] any rule” already promulgated through the Commission’s rulemaking procedures (id. (citing 15 U.S.C. § 57b(a)(1)); or (2) where no rule has been promulgated, first pursue an administrative adjudication, issue a “final cease and desist order,” and prove to a court that the defendant’s conduct was such that a “reasonable man” would know it was “dishonest or fraudulent.” Id. at 432 (citing 15 U.S.C. § 57b(a)(2)).
Judge O’Scannlain underscored that Congress included these procedural hurdles in § 19 “with good reason”—to afford defendants fair notice of proscribed conducted and thereby “prevent the Commission from imposing significant monetary burdens simply by bringing a lawsuit in federal court.” Id. According to the concurrence, Commerce Planet’s interpretation of § 13(b) permits the Commission to pursue precisely the same relief with no procedural safeguards whatsoever, and thus “wrongly allows the Commission to avoid the administrative processes that Congress directed it to follow.” Id.
Finally, Judge O’Scannlain suggests that under the Supreme Court’s recent decision in Kokesh v. SEC, 137 S. Ct. 1635 (2017)—a case decided after Commerce Planet—the kind of “restitution” purportedly authorized by § 13(b) is more accurately characterized as “a penalty,” not equitable relief. Id. at 433. The Supreme Court in Kokesh held that SEC disgorgement, which it described as “a form of restitution measured by the defendant’s wrongful gain,” is a penalty. Kokesh, 137 S. Ct. at 1640 (quoting Restatement (Third) of Restitution and Unjust Enrichment § 51, cmt. a, at 204 (2011)). The Supreme Court identified three “hallmarks” of a penalty: (1) it is “imposed by the courts as a consequence for violating public laws”; (2) it is sought for a “punitive rather than remedial” purposes; and (3) it is “‘not compensatory’ because some ‘funds are [disbursed] to the United States Treasury.’” AMG Capital, 910 F.3d at 433 (citations omitted).
Applying these principles, Judge O’Scannlain argues that restitution under § 13(b) bears all the hallmarks of a “penalty.” Id. Not only is restitution pursued for violation of a regulatory statute (the FTC Act), with or without the support of individual victims, it is also punitive rather than “remedial” because—under Commerce Planet—the wrongdoer’s unjust gains must be measured by “net revenues” rather than “net profits,” which often “leaves the defendant worse off.” Id. at 433–34. And, like SEC disgorgement, restitution under Section 13(b) are not compensatory because funds not returned to victims are utilized at the Commission’s discretion or deposited in the U.S. Treasury as “disgorgement.” Id. at 434.
As we discussed in an article last year in Antitrust magazine, viewing equitable monetary remedies under § 13(b) as “penalties” is potentially very significant. First, “penalties” are subject to the five-year statute of limitations in 28 U.S.C. § 2462. Second, the Supreme Court has suggested, including in 1987 in Tull v. United States, that “civil penalties” cannot be awarded as equitable relief at all.
Appellants in AMG Capital will file their petition for rehearing en banc in early March 2019, and we will learn whether the Ninth Circuit will accept the concurrence’s invitation to revisit this issue by late spring 2019.
*Several of the authors of this post were counsel for the appellant in Commerce Planet.