Supreme Court curbs FTC’s ability to levy fines

By Hank Schultz contact

- Last updated on GMT

©Getty Images - serggn
©Getty Images - serggn

Related tags: Regulation, regulations, Federal trade commission

The Supreme Court ruled today that the Federal Trade Commission can no longer levy fines in the way it has been in recent years.

In a rare unanimous decision, the court ruled that FTC cannot attach fines to cases that it brings to court​ against dietary supplement companies, internet marketers and telemarketing firms and other industry sectors it regulates.  If the agency believes a fine is warranted, it must go through an administrative law procedure, which includes a finding of fact and an opportunity for a defendant to respond to the levying of the fine.

Attorney: Ruling not a surprise for those who’ve followed issue closely

“Was this ruling surprising?  I didn’t think so,”​ said attorney Jennifer Adams of the firm Amin Talati Wasserman.  “All the early indications we had were that the court would rule this way, and reading the underling statute I think they read it right.”

“But it is a pretty significant blow to FTC,” ​she said.

Adams said the administrative law route is cumbersome enough that she couldn’t remember the last time FTC had instituted such a procedure. FTC’s habit has been to take the more streamlined path and go straight to court to file a case that would seek both an injunction against a defendant and a fine or disgorgement of ill gotten gains.

“But under that section of the statute ​[that created FTC] they can only ask for ‘equitable remedies,”​ Adams said.

Supreme Court:  ‘equitable relief’ doesn’t including fines

For years FTC has read this portion of the statute, which says FTC may seek “mandatory injunctions and such other and further equitable relief as they deem appropriate”​ to include the levying of fines, which according to one source amounted to more than $700 million in 2019 alone.  The Commission itself notes that $11.2 billion has been refunded to consumers via such cases.

The Supreme Court today emphatically disagreed, and said fines are not included in the definition of an ‘equitable relief.’  The underlying case involved the practices of AMC Capital Management, a payday lending company.

The Court ruled that the respective portion of the statute, paragraph 13(b), gives FTC a forward-looking power to stop an inequitable business practice from taking place in the future by issuing a permanent injunction.  It can’t at the same time mete out a backward-looking punishment by levying a fine for inequitable practices that may have already occurred.

"What that does is put the FTC in its place and ensures that the courts have greater say so as to the propriety of having damages awarded.  It makes the FTC have to prove its case. The courts have been far too deferential to FTC,"​ said attorney Jonathan Emord of the firm Emord and Associates.

Attorney Marc Ullman, of counsel with the firm Rivkin Radler LLC, said that for the moment FTC's wings have been significantly clipped.

"The Supreme Court’s decision significantly narrows the relief that the FTC is entitled to obtain from the Federal Courts in the first instance.  Rather than seeking immediate economic recovery for consumers based on loss, the Commission would be limited to only prospective, injunctive, relief barring ongoing wrongdoing.  The circumstances under which the Commission can obtain monetary relief now appear to be limited to instances where the Commission can demonstrate, in an Administrative proceeding, that the defendant knowingly engaged in wrongful conduct or, in federal court where a defendant has violated an Administrative Order barring specific deceptive conduct.  As a result, this ruling has the potential to significantly weaken the deterrent authority of the Commission,"​ Ullman said.

 FTC issues fiery statement

FTC Acting Chairwoman Rebecca Kelly Slaughter fired off a response to the ruling that caught observers’ attention by its combative nature​. 

“In AMG Capital, the Supreme Court ruled in favor of scam artists and dishonest corporations, leaving average Americans to pay for illegal behavior,”​ she said. “With this ruling, the Court has deprived the FTC of the strongest tool we had to help consumers when they need it most. We urge Congress to act swiftly to restore and strengthen the powers of the agency so we can make wronged consumers whole.”

Adams said that while today’s ruling means that FTC must lay down this enforcement tool, it might not have to throw it out altogether.  Today’s ruling hinged on the precise wording of the statute.  A fairly simple amendment of the statute could make the more streamlined way to levy and collect fines viable again for FTC, she said.

“If you look at the pattern of FTC enforcement it very often involves these egregious cases,” ​she said. “Even though this power has been taken away form them I think they pretty easily could get Congressional support to get this power back.”

Seeking legislative relief

Indeed, FTC appears to be moving fast on the issue.  On Tuesday it submitted testimony​ to the US Senate Committee on Commerce, Science, and Transportation in favor of legislation to specifically grant its authority to seek these kinds of fines.   And on Tuesday, April 27 Acting Chairwoman Kelly Slaughter will testify​ on the subject before the Subcommittee on Consumer Protection and Commerce of the House Committee on Energy and Commerce.

"That could lead to a very interesting legislative debate and vote.  No prediction of how that would go but imagine in the House it would go straight down the party line. It could be very close in the Senate,"​ said Loren Israelsen, president of the United Natural Products Alliance.

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