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FTC Faces Narrow Supreme Court Path to Preserve Penalty Powers

Jan. 13, 2021, 10:01 AM

The Federal Trade Commission’s ability to compel fraudsters to pay back scam victims undergoes Supreme Court review as justices mull whether a strict reading of its 106-year-old founding statute outweighs decades of precedent.

Parties in AMG Capital Management LLC v. FTC will argue Wednesday on the agency’s ability to secure potential restitution for consumers when it seeks a preliminary injunction to stop fraud. At issue is whether the FTC Act gives the consumer and antitrust watchdog the ability to put a freeze on a defendant’s assets when seeking an emergency injunction against alleged fraud.

That power is not specifically included in the key portion of the 1914 law, Section 13(b), but until recently appellate courts around the country have allowed the FTC to freeze assets, lest fraudsters escape any real consequences for their actions.

But the high court’s 6-3 conservative majority, including several justices who consider themselves to be strict textualists, could put an end to that expansive reading of Section 13(b) if the FTC can’t successfully make its consumer protection case.

“They’re going to have to make some value judgments on the role of administrative agencies and the FTC,” said Anthony DiResta, a partner at Holland & Knight LLP.

New Interpretation

AMG Capital appealed a December 2018 U.S. Court of Appeals for the Ninth Circuit decision that upheld the FTC’s $1.27 billion restitution order against Scott Tucker, a race-car driver turned payday loan impresario currently serving a 16-year prison term on racketeering charges for illegally violating state interest rate caps.

AMG Capital said that Section 13(b) of the FTC Act only allows the agency to pursue injunctive relief, foreclosing any possibility for the agency to seek restitution through litigation.

The U.S. Court of Appeals for the Seventh Circuit reached the same conclusion in a 2019 decision in favor of a credit monitoring service that fought a $5.3 million FTC order alleging the company tricked consumers into a $30 monthly subscription. The decision in FTC v. Credit Bureau Center, LLC overturned Seventh Circuit precedent and broke with eight other circuits that have held that the FTC may seek restitution awards.

The FTC petitioned the Supreme Court for review of FTC v. Credit Bureau Center and the case was originally paired with AMG Capital’s appeal.

However, the high court dropped the Credit Bureau Center litigation so that Justice Amy Coney Barrett, the panel’s newest member and a former Seventh Circuit judge, could weigh in on the AMG Capital case.

Barrett didn’t hear the Credit Bureau Center case, but her background indicates that she is likely to side with the more restrictive reading of Section 13(b), said William Rivera, a senior vice president for litigation at the AARP Foundation.

“It is possible that she would be one to look more narrowly at that definition,” he said.

Such a view would likely put Barrett in line with Justices Neil Gorsuch, Samuel Alito and Clarence Thomas, and would follow logically from Supreme Court decisions in 2017 and 2020 that limited the U.S. Securities and Exchange Commission’s power to obtain disgorgement of ill-gotten gains.

No Consequences

The court’s three liberals—Justices Elena Kagan, Sonya Sotomayor and Stephen Breyer—may prove more sympathetic to the FTC’s argument that fraudsters won’t face any real repercussions if the agency can’t pursue restitution alongside injunctive relief.

Without restitution authority, “the FTC can get them to stop, but they can’t get them to give up the money,” said Nandan Joshi, an attorney with the Public Citizen Litigation Group.

“It makes it harder to enforce the law that would make it unprofitable for these scams to exist,” Joshi added.

The most important thing to watch for will be whether Chief Justice John Roberts and Justice Brett Kavanaugh are swayed by the FTC’s arguments, DiResta said.

If the FTC loses its power to seek restitution, Congress may have to step in to amend the agency’s governing statute, said Scott Stempel, a partner at Morgan Lewis & Bockius LLP.

“It’s an excellent reason that the FTC will give to Congress to amend the statute. Speaking personally, I think that’s a pretty persuasive policy argument,” he said.

The case is AMG Capital Management LLC v. Federal Trade Commission, U.S., No. 19-508, oral arguments 1/13/21.

To contact the reporter on this story: Evan Weinberger in New York at eweinberger@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Roger Yu at ryu@bloomberglaw.com

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