The Supreme Court has just made it significantly more difficult for the Federal Trade Commission (FTC) to obtain monetary relief in enforcement actions, terminating a practice the FTC has engaged in for decades to exact monetary recoveries. Unless and until Congress legislates a change, the FTC may no longer proceed directly to federal court under Section 13(b) of the FTC Act to do so, and, therefore, myriad contested judgments might need to be reopened.
What Happened
The applicable law has long been straightforward. Under the FTC Act, Congress granted the FTC authority to enforce the act’s prohibitions on “unfair or deceptive acts or practices” (UDAPs) by commencing administrative proceedings pursuant to Section 5. FTC administrative proceedings are a two-step process in which the FTC initially obtains a cease-and-desist order from an administrative law judge which is subject to direct appeal to a federal court of appeals. Then, once a cease-and-desist order becomes final, the FTC may seek injunctive relief, civil penalties and other relief including consumer redress if the cease-and-desist order is violated. Importantly, such relief requires proof that “the act or practice to which the cease and desist order relates is one which a reasonable man would have known under the circumstances was dishonest or fraudulent.”
In addition to administrative proceedings, the FTC may proceed directly to court in two circumstances. First, and applicable here, under Section 13(b) of the FTC Act, the FTC is entitled to seek a “permanent injunction” when a defendant “is violating, or is about to violate, any provision of law enforced by the” FTC. Second, where an FTC rule has been violated, or after entry of a cease-and-desist order, the FTC may proceed directly to court and seek penalties and monetary relief including damages and consumer redress, pursuant to Section 19. However, these two direct suit remedies also have knowledge requirements; for example, in the absence of a prior FTC order, the agency must likewise establish that the defendant had “actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited by such rule.”
Given these constraints, the FTC has for many decades taken the broad position that it is entitled to proceed directly to federal court to seek monetary penalties solely as part of the requested permanent injunctive relief, relying on Section 13(b) and the “equitable relief” provision in Section 5(l). While the statute itself dates back to 1914, Congress granted the FTC additional powers in 1973 to seek, directly, those court remedies and, in 1975, added Section 19 rights.
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