The Seventh Circuit issued a decision this week that guts a key part of the FTC’s enforcement arsenal – the ability to obtain equitable monetary relief from defendants when the FTC challenges conduct in federal court under Section 13(b) of the FTC Act. We’ve written previously—here, here, here, and here—regarding the limits courts have placed on the FTC’s ability to invoke Section 13(b) and this case brings those issues to a head.
The case in question, FTC v. Credit Bureau Center, involves a credit-monitoring service that allegedly violated several consumer protection statutes by automatically enrolling consumers in a $29.94 monthly subscription without proper notice. The FTC sued the company and its owner, Michael Brown, under Section 13(b) of the FTC Act and sought a permanent injunction and restitution. The district court judge granted both requests, and Brown was ordered to pay more than $5 million in restitution. On appeal, the Seventh Circuit affirmed the district court’s judgment – except for the restitution award, which, in a surprising about-face, the court vacated.
The court’s decision turned on its interpretation of Section 13(b) of the FTC Act. Based on its express terms, Section 13(b) only authorizes restraining orders and injunctions; however, the FTC has long viewed the statute as also implicitly authorizing a court to issue equitable monetary relief including restitution pursuant to the implied equitable power of the court when it issues an injunction. In fact, the Seventh Circuit itself endorsed this interpretation three decades ago in a case called FTC v. Amy Travel Service, and eight other circuits followed suit, and Amy Travel is a case the FTC relies on heavily in almost all of its briefing in support of a broad interpretation of its authority.
Then Brown came along. Relying on the ruling in the 1996 case Meghrig v. KFC W., Inc., in which the Supreme Court refused to find an implied restitutionary remedy within the Resource Conservation and Recovery Act, the court reversed course and overturned its decision in Amy Travel. The court set forth several reasons for doing so. For one, the court noted that not only does the plain text of Section 13(b) fail to reference restitution, but the FTC Act has two other remedial provisions that do expressly authorize restitution – which gives rise to the inference that the omission of restitution from Section 13(b) was intentional. The court also explained that restitution would be incompatible with the objective of Section 13(b), which is to mitigate present or future harm, not compensate for past violations. Furthermore, the court pointed out that the statute lacks a notice requirement, which is required under the FTC Act provisions that expressly permit monetary relief. In short, the court emphasized that “we must pay close attention to [Meghrig‘s] bottom line: ‘[W]here Congress has provided elaborate enforcement provisions for remedying the violation of a federal statute,…it cannot be assumed that Congress intended to authorize by implication additional judicial remedies…'” In light of this analysis, and despite the longstanding consensus among the circuits, the court concluded that Section 13(b) does not authorize restitution.
The implications of the Seventh Circuit’s decision are huge, as it breaks with precedent and gives rise to a circuit split. Recognizing these implications, the case was circulated within the Seventh Circuit for a potential rehearing en banc before publication. A majority of judges of the court did not vote for that rehearing, but Chief Judge Wood issued a stinging dissent from the refusal to hear the case en banc. Judge Wood lamented that “[t]he majority’s interpretation upends what the agency and Congress have understood to be the status quo for thirty years, and in so doing grants a needless measure of impunity to brazen scammers.” The dissenting opinion argues that the majority’s reliance on Meghrig is misplaced because that case involved private plaintiffs as opposed to a government plaintiff (e.g., the FTC). As the dissent states, “[h]ere, the FTC is seeking to vindicate the public interest through a public-facing remedy aimed at an ongoing harm. That was not the case in Meghrig… which rejected a backward-looking remedy that in economic substance sought damages.” The dissent goes on to note that “nothing in Meghrig, and nothing in the cases following 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.”
Given the circuit split that this case creates, this issue would seem ripe for review at the Supreme Court. Interestingly, however, the FTC chose not to seek Supreme Court review of its loss in Shire apparently choosing instead to try and limit Shire to its facts in future litigation on the issues raised there. Here, the implications of the decision are broader and the FTC may not be able to escape having the Supreme Court review the broad interpretation of its powers under Section 13(b). Stay tuned.