The Tail Must Stop Wagging the Dog: Unanimous Supreme Court Reins in FTC Section 13b Authority

As we previously wrote, one of the biggest FTC decisions in decades was recently argued before the United States Supreme Court. And on Thursday, April 22, 2021, the Supreme Court unanimously ruled against the Federal Trade Commission in the landmark case AMG Capital Management v. Federal Trade Commission.

At issue in AMG was the legitimacy of the FTC’s longstanding use of Section 13b of the FTC Act—which facially allows the FTC to seek only injunctive relief to stop practices it views as unfair and deceptive—to recover money damages.

Specifically, the FTC expanded its campaign to stretch the statutory boundaries of Section 13b over decades, strategically using cases with egregious facts to circumvent the limitations of the statute and persuade courts that “equity” required that bad actors be compelled to disgorge ill-gotten gains.  This approach represented a shortcut for the Commission around Section 19 of the FTC Act, which expressly allowed the recovery of monetary damages, but only in cases where the defendants had violated a clear rule or a prior order.  By bringing suit and seeking damages under Section 13b, the Commission had successfully recovered billions in damages against defendants without giving prior notice of the conduct it deemed to be unfair or deceptive.

The Supreme Court’s decision in AMG halts that enforcement tactic.  In a decision authored by Justice Breyer, the Court wrote that, “[Section] 13b’s ‘permanent injunction’ language does not authorize the Commission directly to obtain court-ordered monetary relief.  For one thing, the language refers only to injunctions….An ‘injunction’ is not the same as an award of equitable monetary relief.” The Court went on to opine that, construing the FTC Act as a whole, the purpose of Section 13b was to obtain prospective relief, not retrospective relief for past wrongs. “To read those words as allowing what they do not say, namely, as allowing the Commission to dispense with administrative proceedings to obtain monetary relief as well, is to read the words as going well beyond the provision’s subject matter. In light of the historical importance of administrative proceedings, that reading would allow a small statutory tail to wag a very large dog.”

In so ruling, the Court rejected the FTC’s arguments that Section 13b and Section 19 were merely alternate enforcement paths to the same end, and that public policy favored the FTC’s expansive view of Section 13b.

The AMG decision is significant from a due process perspective. One of the most pervasive challenges facing businesses was lack of clarity as to what practices, precisely, the FTC viewed as unfair and deceptive.  In the wake of AMG, it seems likely that the FTC will use its rule-making authority to enact further rules delineating what acts and practices it views as unfair or deceptive.  Violations of those rules, in turn, would open the door to the FTC’s recovery of monetary damages from violators.  While we do not expect AMG to halt the FTC’s enforcement activity, industry can be hopeful that it will pave the way for more clarity on how to comply with the law and eliminate the risk of punitive, retroactive pronouncements by the FTC that business practices were unfair and deceptive.