M. Sean Royall is a Partner with Gibson, Dunn & Crutcher LLP and the WLF Legal Pulse’s Featured Expert Contributor, Antitrust & Competition Policy — Federal Trade Commission. Richard H. Cunningham is a Partner with the firm. Ashley Rogers and Julie Hamilton are Associates with the firm.
In an extraordinary decision issued on August 21, 2019, the Seventh Circuit in FTC v. Credit Bureau Center broke with eight other circuits and overturned its earlier precedent in holding that Section 13(b) of the FTC Act does not authorize the FTC to seek an award of restitution, and vacating a $5.26 million judgment in favor of the FTC.
Section 13(b)
As we discussed in our January WLF Legal Pulse blog post, Section 13(b) of the FTC Act states only that “the Commission may seek, and after proper proof, the court may issue, a permanent injunction.” The plain language does not reference monetary relief. Nevertheless, multiple circuit courts—including the Seventh Circuit thirty years ago in FTC v. Amy Travel Service, Inc.—have held that the word “injunction” implicitly authorizes equitable remedies, including restitution, rescission, and disgorgement involving monetary payments. In reaching this conclusion, some courts have pointed to the U.S. Supreme Court decision in Porter v. Warner Holding Co., which held that a reference to “permanent or temporary injunction, restraining order, or other order” in Section 205(a) of the Emergency Price Control Act of 1942 permitted district courts to use “all inherent equitable powers,” including monetary remedies such as restitution and disgorgement.
The Seventh Circuit’s Credit Bureau Center Decision
The case at issue arose when the FTC sued Michael Brown and his credit-monitoring company, Credit Bureau Center, LLC (collectively “Brown”), for enrolling customers who applied online for a “free” credit report in a $29.94 monthly subscription for Brown’s credit-monitoring service without consent. FTC v. Credit Bureau Center, LLC, No. 18-2847, *1-2 (7th Cir. Aug. 21, 2019). The FTC brought suit under Section 13(b), alleging that Brown violated several consumer-protection statutes and seeking a permanent injunction and restitution. Id. at *2. The United States District Court for the Northern District of Illinois entered a permanent injunction and ordered Brown to pay $5.26 million in restitution to the FTC. Id. at *2, *6. On appeal, Brown challenged aspects of his liability, the permanent injunction, and the restitution award. Id. at *6.
On appeal, a three-judge panel of the Seventh Circuit, consisting of Judges Diane Sykes, Daniel Manion, and Michael Brennan, upheld the District Court’s finding of liability and issuance of the permanent injunction, but it vacated the restitution award. Id. at *1–3. In so doing, the panel explicitly overturned FTC v. Amy Travel Service, Inc., 875 F.2d 564 (7th Cir. 1989). See Credit Bureau, No. 18-2847, at *3.
The panel addressed two main arguments in support of restitution: statutory interpretation and stare decisis. Starting with “the obvious,” the panel first stated that “[r]estitution isn’t an injunction.” Id. at *13. The panel rejected the FTC’s contention, supported by Amy Travel, that Section 13(b) implicitly authorizes restitution, writing that “[a]n implied restitution remedy doesn’t sit comfortably within the text of [S]ection 13(b).” Id. at *15. The panel explained that unlike injunctions, which are forward-looking, restitution is a remedy for past actions. Id. at *13–15. It also pointed to two detailed remedial provisions in the FTC Act that expressly authorize restitution if the FTC follows certain procedures, and it found that reading Section 13(b)—which lacks similar language and procedural protections—to impliedly authorize restitution would allow the FTC to circumvent these provisions and render them “largely pointless.” Id. at 17–21.
Turning to Amy Travel, which “endorsed [a] starkly atextual interpretation” of Section 13(b), the panel stated that in the three decades since the decision, “the Supreme Court has clarified that courts must consider whether an implied equitable remedy is compatible with a statute’s express remedial scheme” and specifically instructed courts “not to assume that a statute with ‘elaborate enforcement provisions’ implicitly authorizes other remedies.” Id. at *3. The panel therefore overruled Amy Travel.
To justify this upheaval of longstanding precedent, the panel relied heavily on the Supreme Court’s 1996 ruling in the environmental lawsuit Meghrig v. KFC, 516 U.S. 479 (1996). There, the Court held that the Resource Conservation and Recovery Act, which authorizes district courts to “restrain” an individual handling potentially dangerous waste or order the individual “to take such other action as may be necessary,” does not authorize restitution. Id. at 484–88. Stating that its “limited analysis in Amy Travel doesn’t offer a way to distinguish Meghrig” and instead “requires [it] to ignore [S]ection 13(b)’s text and disregard the [FTC Act’s] ‘elaborate enforcement provisions,’” the Seventh Circuit panel concluded that, in light of Meghrig, its “holding in Amy Travel is no longer viable.” Credit Bureau, No. 18-2847, at *41. “Stare decisis alone cannot overcome Amy Travel’s clear incompatibilities with the FTCA’s text and structure, Meghrig, and the Supreme Court’s broader refinement of its implied remedies jurisprudence.” Id. at 42.
The panel expressly acknowledged that its holding “departs from the consensus view of [its] sister circuits”—relevant Ninth and Eleventh Circuit case law is pitted directly against the Seventh Circuit’s holding—but reiterated that Supreme Court precedent of Meghrig compelled the break. Id. at 41. The panel further noted that “[n]o circuit has examined whether reading a restitution remedy into [S]ection 13(b) comports with the [FTC Act’s] text and structure,”1 whether Section 45 “forecloses this remedy,” or the impact of Meghrig in a Section 13(b) case. Id. Instead, said the panel, “most circuits adopted their position by uncritically accepting [the] holding in Amy Travel.” Id.
A majority of Seventh Circuit judges declined to rehear this case en banc, id. at *3 n.1, but Chief Judge Diane Wood, joined by Judges Illana Rovner and David Hamilton, dissented from this decision on both procedural and substantive grounds. The dissent objected to using a circuit rule to avoid en banc review, see id. at 44, and characterized the majority opinion as incorrectly extrapolating from cases (like Meghrig) addressing whether a private party has an implied right of action to determine whether a government agency, “which enjoys an express right of action under a statute for injunctive relief, is entitled to a restitutionary remedy that is ancillary to, or part of, the injunction.” Id. According to the dissent, “[n]othing in Meghrig . . . comes close to holding that a government agency acting pursuant to express authority to seek injunctive relief cannot ask for a mandatory injunction requiring turn-over of money.” Id. at 60. In the view of the dissenters, a court’s equitable powers are broader in nature where the public interest is concerned, and the presence of a government (rather than private) plaintiff is “especially important” to the analysis when “the government seeks remedies that (1) lie uniquely within its toolbox and (2) are aimed squarely at undoing public harms and preventing future ones through deterrence.” Id. at 57–58.
Notably, the Seventh Circuit is not the only federal appellate court that has devoted attention to this issue in recent months. Ninth Circuit Judge Diarmuid F. O’Scannlain issued a special concurrence to the majority opinion in FTC v. AMG Capital Management, LLC et al. on December 3, 2018, specifically calling on the Ninth Circuit to hear the case en banc to reconsider its holding in FTC v. Commerce Planet, Inc.2 that Section 13(b) authorizes monetary relief. In June, the Ninth Circuit denied AMG’s petition for rehearing en banc after no judge requested a vote on whether to rehear the case.
Potential Implications
In response to the Seventh Circuit’s decision, an FTC spokesperson issued a statement describing its “ability to recover money for consumers” as “an essential and long-established tool in [the agency’s] arsenal,” and stating that the FTC was “disappointed by th[e] decision” and is “evaluating [its] options.”
If the FTC elects to seek certiorari and the Supreme Court accepts the case, there are signs that at least some Justices may agree with the Seventh Circuit’s analysis. For example, as we discussed in an article last year, Justice Gorsuch stated at oral argument in Kokesh v. SEC in April 2017 that the Court had never given its approval to fifty years of lower-court precedent allowing disgorgement based on inherent equitable authority ancillary to an injunction. See Transcript of Oral Argument at 52:18–21. Justice Gorsuch further noted that “there’s no statute governing” such a remedy; the Court is “just making it up.” Id. at 52:14–16. Chief Justice Roberts similarly expressed discomfort with the lack of a specific reference to monetary remedies in relevant provisions. Id. at 33:12–18. And Justice Kennedy and Justice Sotomayor both pressed the parties to identify statutory authority authorizing disgorgement (id. at 7:20–8:2; 9:5–11), with Justice Sotomayor also questioning the basis for a monetary remedy that would not be returned to the harmed individuals (id. at 9:5–11).
If the Supreme Court does grant certiorari in Credit Bureau and affirms the Seventh Circuit’s ruling, the consequences would be significant. Barring legislative change —which, notably, one FTC Commissioner recently called for in congressional testimony—the agency in many situations would need to first pursue administrative litigation in a proceeding conducted under the Commission’s Rules of Practice, then, after all judicial review of the agency’s order is complete, seek restitution from the respondent in federal district court through the process set forth in Section 19 of the FTC Act.
Notes
- This issue has arisen in district courts in recent years, including in FTC v. Hornbeam Special Situations, No. 17-cv-3094 (N.D. Ga. Oct. 15, 2018), and FTC v. Shire ViroPharma, No. 17-cv-00131 (D. Del. Feb. 7, 2017), although prior to the Seventh Circuit’s ruling it had not been definitely answered.
- Several of the authors of this post were counsel for the appellant in Commerce Planet.