Amicus Curiae Brief — AMG Capital Management, LLC, et al., Petitioners v. Federal Trade Commission
Supreme Court briefOct 1, 2020
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Nos. 19-508 & 19-825
IN THE
Supreme Court of the United States
————
AMG CAPITAL MANAGEMENT, LLC, ET AL.,
Petitioners,
v.
FEDERAL TRADE COMMISSION,
Respondent.
____________________________________________________________________________________________________
CREDIT BUREAU CENTER, LLC, ET AL.
Petitioners,
v.
FEDERAL TRADE COMMISSION,
Respondent.
____________________________________________________________________________________________________
On Writ of Certiorari
to the United States Courts of Appeals
for the Seventh and Ninth Circuits
____________________________________________________________________________________________________
BRIEF FOR AMICUS CURIAE
AMERICANS FOR PROSPERITY FOUNDATION
IN SUPPORT OF PETITIONERS
AMG CAPITAL MANAGEMENT, LLC, ET AL. AND
CREDIT BUREAU CENTER, LLC, ET AL.
——————————————————
CYNTHIA FLEMING CRAWFORD
Counsel of Record
MICHAEL PEPSON
AMERICANS FOR PROSPERITY FOUNDATION
1310 N. Courthouse Road, Ste. 700
Arlington, VA 22201
(571) 329-2227
ccrawford@afphq.org
Counsel for Amicus Curiae
October 1, 2020
i
TABLE OF CONTENTS
Table of Authorities................................................... iii
Interest of Amicus Curiae ........................................... 1
Summary of Argument................................................ 1
Argument ..................................................................... 4
I.
The FTC’s “Expansion” of Section 13(b) Violates
the Separation of Powers. .................................... 4
A.
Congress Created a Multi-Step Process for the
Recovery of Money Damages............................4
B.
The FTC Rejects Congress’s Statutory
Scheme. .............................................................6
C.
The FTC Uses Test Cases to Expand Its
Section 13(b) Powers. .......................................8
D.
Inapposite Precedent Cannot Override a
Statute’s Plain Language. .............................. 10
E.
FTC Pursuit of Monetary Awards Cannot Be
Squared with Recent Precedent. .................... 13
F.
FTC’s Section 13(b) Power-Grab Deserves No
Deference. ....................................................... 15
II. The FTC’s Pursuit of Monetary Awards Violates
Constitutional Rights and Evades Venerable
Procedural Protections . ..................................... 15
A.
Collateral Damage: A Case Study. ................ 16
B.
The FTC’s Abuse of Section 13(b) Threatens
Constitutional Rights. .................................... 22
1.
The FTC Uses Section 13(b) to Circumvent
the Fourth Amendment. .............................. 22
ii
2.
Pursuing Damages Under the Guise of
Equity Deprives Defendants of their Seventh
Amendment Jury Trial Right. ..................... 24
3.
The FTC’s Pursuit of Money Damages
Undermines the Sixth Amendment. ........... 26
4.
The FTC’s Misuse of Section 13(b) Is
Contrary to Values Protected by the Fifth
and Eighth Amendments. ............................ 27
C.
Abrogation of the Burden of Proof Opens the
Door to The FTC’s Abuse of Section 13(b). .... 27
1.
FTC “Deception” Cases Require no Actual
Deception or Injury. ..................................... 28
2.
The First Element to Secure a Preliminary
Injunction is Automatically Satisfied. ........ 30
III. Stare Decisis Does Not Shield FTC’s
Overreach ............................................................ 33
Conclusion ................................................................. 35
iii
TABLE OF AUTHORITIES
Page(s)
Cases
Central Bank of Denver v.
First Interstate Bank of Denver,
511 U.S. 164 (1994) .............................................. 34
City of Arlington v.
Federal Communications Comm’n,
569 U.S. 290 (2013) .............................................. 10
Clarke v. White,
37 U.S. 178 (1838) ................................................ 28
Encino Motorcars, LLC v. Navarro,
138 S. Ct. 1134 (2018) .......................................... 15
Federal Communications Comm’n v.
Fox TV Stations, Inc.,
567 U.S. 239 (2012) .............................................. 15
Federal Trade Comm’n v. AMG Capital
Mgmt., LLC,
910 F.3d 417 (9th Cir. 2018))........................... 2, 29
Federal Trade Comm’n v. Consumer Def.,
Ltd. Liab. Co.,
926 F.3d 1208 (9th Cir. 2019) .............................. 31
iv
Federal Trade Comm’n v.
Credit Bureau Center, LLC,
937 F.3d 764 (7th Cir. 2019) ........................ passim
Federal Trade Comm’n v. Dalbey,
No. 11-1396, 2012 WL 1694602
(D. Colo. May 15, 2012) .......................................... 8
Federal Trade Comm’n v. Figgie Int’l, Inc.,
994 F.2d 595 (9th Cir. 1993) ................................ 30
Federal Trade Comm’n v. Hornbeam Special
Situations, LLC,
No. 1:17-cv-3094-TCB, 2018 U.S. Dist.
LEXIS 204340 (N.D. Ga. Oct. 15, 2018) ................ 2
Federal Trade Comm’n v. John Beck
Amazing Profits, LLC,
865 F. Supp. 2d 1052 (C.D. Cal. 2012) .......... 29, 30
Federal Trade Comm’n v. Pantron I Corp.,
33 F.3d 1088 (9th Cir. 1994) ................................ 30
Federal Trade Comm’n v.
Shire Viropharma, Inc.,
917 F.3d 147 (3rd Cir. 2019) .......... 2, 12, 13, 15, 32
Federal Trade Comm’n v.
Southwest Sunsites, Inc.,
665 F.2d 711 (5th Cir. 1982) .............................. 4, 6
Federal Trade Comm’n v. Stefanchik,
559 F.3d 924 (9th Cir. 2009) ................................ 29
v
Federal Trade Comm’n v.
Vylah Tec LLC,
378 F. Supp. 3d 1134 (M.D. Fla. 2019) ............... 22
Federal Trade Comm’n v.
Vylah Tec LLC,
No. 17-228, 2018 WL 4328218
(M.D. Fla. Sept. 11, 2018) .................................... 16
Federal Trade Comm’n v. Warner Commc’ns
Inc.,
742 F.2d 1156 (9th Cir. 1984) .............................. 32
Federal Trade Comm’n v. World Travel
Vacation Brokers, Inc.,
861 F.2d 1020 (7th Cir. 1988) .............................. 31
Feltner v.
Columbia Pictures Television, Inc.,
523 U.S. 340 (1998) .............................................. 25
Fifth Third Mortg. Co. v. Kaufman,
934 F.3d 585 (7th Cir. 2019) ................................ 28
Finnegan v. Leu,
456 U.S. 431 (1982) .............................................. 11
Food & Drug Administration v.
Brown & Williamson Tobacco Corp.,
529 U.S. 120 (2000) .............................................. 11
Great-West Life & Annuity Insurance Co. v.
Knudson,
534 U.S. 204 (2002) ........................................ 25, 26
vi
Groh v. Ramirez,
540 U.S. 551 (2004) .............................................. 23
Heater v. Federal Trade Comm’n,
503 F.2d 321 (9th Cir. 1974) .................................. 5
Henson v. Santander Consumer USA Inc.,
137 S. Ct. 1718 (2017) .......................................... 33
Humphrey’s Executor v. United States,
295 U.S. 602 (1935) .......................................... 3, 14
John Hancock Mut. Life Ins. Co. v. Harris
Tr. & Sav. Bank,
510 U.S. 86 (1993) ................................................ 34
Knoll Associates, Inc. v.
Federal Trade Comm’n,
397 F.2d 530 (7th Cir. 1968) ................................ 22
Ledbetter v. Goodyear Tire & Rubber Co.,
550 U.S. 618 (2007) .............................................. 11
Louisiana Public Service Commission v.
Federal Communications Comm’n,
476 U.S. 355 (1986) .......................................... 4, 10
Luis v. United States,
136 S. Ct. 1083 (2016) .......................................... 26
Massachusetts v. Sheppard,
468 U.S. 981 (1984) .............................................. 23
vii
Mazurek v. Armstrong,
520 U.S. 968 (1997) .............................................. 31
Montana-Dakota Utilities Co. v. Nw. Pub.
Serv. Co.,
341 U.S. 246 (1951) ........................................ 28, 29
Parsons v. Bedford,
28 U.S. (3 Pet.) 433 (1830) ............................. 24, 25
Payne v. Tennessee,
501 U.S. 808 (1991) .............................................. 34
Porter v. Warner Holding Co.,
328 U.S. 395 (1946) .................................. 11, 12, 13
Railway Labor Executives Ass’n v.
National Mediation Board,
29 F.3d 655 (D.C. Cir. 1994) ................................ 10
Resort Car Rental Sys., Inc. v. Federal
Trade Comm’n,
518 F.2d 962 (9th Cir. 1975) ................................ 30
Securities and Exchange Comm’n v. Liu,
591 U.S. ____ (2020) ............................................. 14
Seila Law, LLC v. Consumer Financial
Protection Bureau
580 U.S. ____ (2020) ............................................. 14
Sessions v. Dimaya,
138 S. Ct. 1204 (2018) .......................................... 26
viii
Sullivan v. Finkelstein,
496 U.S. 617 (1990) .............................................. 15
Timbs v. Indiana,
139 S. Ct. 682 (2019) ............................................ 27
United States v. Melvin,
730 F.3d 29 (1st Cir. 2013) .................................. 15
United States v. Philip Morris USA, Inc.,
396 F.3d 1190 (D.C. Cir. 2005) ............................ 11
Whitman v.
American Trucking Associations,
531 U.S. 457 (2001) .............................................. 11
Winter v. NRDC, Inc.,
555 U.S. 7 (2008) ............................................ 31, 33
Constitutions
U.S. Const. amendment IV ....................................... 22
U.S. Const. amendment VII. ..................................... 24
Statutes
15 U.S.C. § 45 .............................................................. 6
15 U.S.C. § 45(c) .......................................................... 6
15 U.S.C. § 45(g) .......................................................... 6
15 U.S.C. § 52 .............................................................. 4
ix
15 U.S.C. § 53(b) .......................................................... 4
15 U.S.C. § 57b(a)(1) ................................................... 6
15 U.S.C. § 57b(a)(2) ........................................... 5, 6, 8
15 U.S.C. § 57b(b) ........................................................ 6
15 U.S.C. § 57b(d) ........................................................ 8
15 U.S.C. § 57b(e) ........................................................ 5
Federal Trade Commission Act ............................ 1, 32
FTC Act Section 5(a) ........................................... 29, 32
FTC Act Section 13(b) ....................................... passim
Magnuson-Moss Warranty-Federal Trade
Commission Improvement Act,
Pub. L. No. 93-637, 88 Stat. 2183 (1975) .............. 5
Trans-Alaska Pipeline Authorization Act,
Pub. L. No. 93-153, 87 Stat. 576 (1973) ................ 4
Wheeler-Lea Act, Pub. L. No. 447,
52 Stat. 111 (1938) ................................................. 4
Rules
Supreme Court Rule 37.3............................................ 1
x
Other Authorities
A Brief Overview of the Federal Trade
Commission’s Investigative and Law
Enforcement Authority, Fed. Trade
Comm’n, http://bit.ly/2lrPuGq ............................... 8
37 Am. Jur. 2d Fraud and Deceit § 464.................... 28
David M. FitzGerald, FTC 90th
Anniversary Symposium: Session on
“Injunctions, Divestiture and
Disgorgement” (Sept. 23, 2004) ............................. 7
David M. FitzGerald, The Genesis of
Consumer Protection Remedies Under
Section 13(b) of the FTC Act at 21–22
(Paper, FTC 90th Anniversary
Symposium) (Sept. 23, 2004) ............................. 8, 9
Federal Trade Commission,
Operating Manual § 11.1.1.5 ................................. 6
Federal Trade Commission,
Operating Manual § 11.1.1.6 ................................. 7
Federal Trade Commission,
Operating Manual § 11.5.7 .................................... 6
Federal Trade Commission Opposition to
Petition for Rehearing En Banc, Federal
Trade Commission v. Publishers
Bussiness Services, No. 17-15600
(9th Cir. filed Dec. 20, 2018) ................................ 11
xi
FTC FY 2020 Congressional Budget
Justification, p.7,
https://www.ftc.gov/system/files/docume
nts/reports/fy-2020-congressionalbudget-justification/fy_2020_cbj.pdf ................... 34
FTC Raids Private Business Without Notice
or Chance to Defend – Body Cam Footage
One, YouTube,
https://youtu.be/Y8GQfodWJyE .......................... 17
FTC Raids Private Business Without Notice
or Chance to Defend – Body Cam Footage
Two, YouTube,
https://youtu.be/7_MOp7rl74I ............................. 17
J. Howard Beales & Timothy Muris,
Striking the Proper Balance: Redress
Under Section 13(b) of the FTC Act,
79 Antitrust L.J. 1, 2 (2013) ............................ 9, 10
John E. Villafranco & Daniel S. Blynn,
Consumer Redress Under Section 13(b)
of the FTC Act: Correcting the Record,
Regulatory Focus (Kelley Drye),
http://bit.ly/2JZrBiO
Nov. 2010 .............................................................. 25
Mem. of Points and Authorities in Support
of Mot. to Intervene on Behalf of 3,802
Students of Online Trading Academy,
ECF 235-1, No. 8:20-cv-00287 (S.D. Cal.
May 21, 2020). ...................................................... 21
xii
Peter Ward, Restitution for Consumers
Under the Federal Trade Commission
Act: Good Intentions or Congressional
Intentions, 41 Am. U. L. Rev. 1139
(1992) ...................................................................... 5
Stats & Data 2017 – Annual Highlights
2017, Fed. Trade Comm’n,
http://bit.ly/2mwz7sj ............................................ 10
1
BRIEF OF AMICUS CURIAE
AMERICANS FOR PROSPERITY FOUNDATION
IN SUPPORT OF PETITIONERS
Pursuant to Supreme Court Rule 37.3, Americans
for Prosperity Foundation (“AFPF”) respectfully
submits this amicus curiae brief in support of
Petitioners on its own behalf.1
INTEREST OF AMICUS CURIAE
Americans for Prosperity Foundation (“AFPF”) is
a 501(c)(3) organization committed to educating and
training Americans to be courageous advocates for the
ideas, principles, and policies of a free and open
society. AFPF works toward these goals, in part, by
defending the individual rights and economic
freedoms that are essential to ensuring that all
members of society have an equal opportunity to
thrive. As part of this mission, it appears as an amicus
curiae before federal and state courts.
AFPF has a particular interest in this case because
its team members have represented defendants in
Federal Trade Commission (“FTC”) enforcement
actions, including the case study discussed below, and
observed the unjust real-world impacts on targets.
SUMMARY OF ARGUMENT
The FTC is an agency of limited statutory
authority. But accumulated, small imprecisions in
interpreting the Federal Trade Commission Act
1 All parties have consented to the filing of this brief. Amicus
states that no counsel for a party authored this brief in whole or
in part and that no person other than amicus or its counsel made
any monetary contributions to fund the preparation or
submission of this brief.
2
(“FTCA”) have resulted a body of law that is decoupled
from statutory text and Congressional intent. As one
federal district noted, “meta-textual pontifications
seem good in the short run, but a long journey on even
a narrowly wrong heading can be ruinous.”2 Course
correction began in the Third Circuit in Shire
Viropharma, the need for it was pointedly identified
in Judge O’Scannlain’s special concurrence in AMG,
and finally tackled head-on by the Seventh Circuit in
Credit Bureau Center. This “wrong heading” can be
traced largely to an increasingly broad reading of
Porter v. Warner Holding Company, in which
statutory authority to seek an “order enforcing
compliance” has blossomed into extra-statutory
awards under statutory schemes that include no such
grant.
Compounding these doctrinal errors is the
accretion of caselaw in which the standard of proof
applied to FTC claims has been degraded to allow
elements of FTC’s claims to be simply presumed.
Taken together, these expansions and presumptions
have constructed a shadow jurisprudence in which the
FTC may achieve a multi-million dollar damages
award by merely demonstrating that a statement was
made, without showing reliance or actual injury—and
despite opposition by the very consumers that the
FTC alleges were harmed. The surreal result is the
FTC’s practice of depriving consumers of products and
services that they want, value, and paid for because
the FTC substitutes its judgment for the judgment of
the buyer, declaring certain products off-limits to
2 FTC v. Hornbeam Special Situations, LLC, No. 1:17-cv-3094-
TCB, 2018 U.S. Dist. LEXIS 204340, at *16 (N.D. Ga. Oct. 15,
2018).
3
certain buyers and seeking the dissolution of lawful
businesses. Section 13(b) authorizes none of that.
To achieve this strange new world, the FTC has
conscripted well-intentioned courts to transmogrify
the limited function of Section 13(b)—restraining
conduct pending administrative proceedings—into
expansive power to impose receiverships, shut down
businesses, and seize personal assets. The FTC has
convinced courts to bless its invented Section 13(b)
powers via a long-term litigation strategy to
methodically advance atextual legal arguments in
“test cases” involving egregious facts.
Once the FTC got its foot in the door by convincing
one district court to reinterpret Section 13(b), it
expanded its powers by suing in cases with easy facts
and then citing that precedent to incrementally
develop caselaw. Until the Seventh Circuit took a
stand in Credit Bureau Center, this calculated
litigation strategy worked; courts accepted the FTC’s
newly claimed power because other courts had done so
(relying largely on dicta), without analyzing
Congress’s grant of powers to the FTC. But these
successes cannot alter Section 13(b)’s text and should
not be permitted to stand. Neither the plain language
nor the legislative history of the FTCA support this
expansion of administrative power nor can this
Court’s jurisprudence in Humphrey’s Executor be
squared with the FTC’s aggressive positioning of itself
as a law enforcement agency that imposes personal
liability on individual defendants.
4
ARGUMENT
I.
THE FTC’S “EXPANSION” OF SECTION 13(B)
VIOLATES THE SEPARATION OF POWERS.
A. Congress Created a Multi-Step Process for
the Recovery of Money Damages.
The FTC is a creature of statute and it has only
those powers that Congress conferred upon it. See La.
Pub. Serv. Comm’n v. Fed. Commc’ns Comm’n, 476
U.S. 355, 374 (1986).
In 1938, Congress enacted Section 13, for the first
time delegating to the FTC authority to seek
preliminary (but not permanent) injunctive relief for
violations of Section 12 of the FTCA, 15 U.S.C. § 52,
which prohibits deceptive advertising related to food,
drugs, devices, services, or cosmetics. Wheeler-Lea
Act, Pub. L. No. 447, § 13(a), 52 Stat. 111, 115 (1938)
(codified at 15 U.S.C. § 53(a)). This stopgap allowed
the FTC to temporarily halt such practices pending
completion of the administrative process.
In 1973, Congress amended Section 13 to
authorize the FTC to immediately stop additional
deceptive practices by seeking a temporary
restraining order (“TRO”) or preliminary injunction in
federal
court
pending
completion
of
the
administrative process. Trans-Alaska Pipeline
Authorization Act, Pub. L. No. 93-153, § 408(b), (f), 87
Stat. 576, 591–92 (1973) (codified at 15 U.S.C. § 53(b));
see, e.g., Fed. Trade Comm’n v. Sw. Sunsites, Inc., 665
F.2d 711, 720 (5th Cir. 1982). Congress also added a
“proviso” authorizing issuance of a “permanent
injunction” in “proper cases.” 15 U.S.C. § 53(b).
In 1974, the Ninth Circuit held that the FTC could
not obtain restitution through an administrative
5
cease-and-desist order. See Heater v. Fed. Trade
Comm’n, 503 F.2d 321, 323–24 (9th Cir. 1974)
(rejecting the FTC’s attempt to impose monetary
liability “before giving notice that the prior conduct
was within the statutory purview” (emphasis added)).
Then, in 1975, against the backdrop of Heater—and
before the FTC first claimed that Section 13(b)
authorized “equitable monetary relief”—Congress
responded by enacting Section 19 of the FTCA.3
Section 19 for the first time provided the FTC with
statutory authorization to obtain “restitution” and
other backward-looking remedies under limited
circumstances, subject to a three-year statute of
limitations. See Magnuson-Moss Warranty-Federal
Trade Commission Improvement Act, Pub. L. No. 93637, § 206(a), 88 Stat. 2183, 2201 (1975) (codified at
15 U.S.C. § 57b); cf. Fed. Trade Comm’n v. Credit
Bureau Ctr., LLC, 937 F.3d 764, 773 (7th Cir. 2019)
(“The absence of similar language in section 13(b) is
conspicuous.”); Ward, supra. Congress thus balanced
the FTC’s desire to obtain monetary relief against
basic fair-notice due process principles: To recover
damages, the FTC would have to prove that “a
reasonable man would have known under the
circumstances” that the conduct subject to the cease-
3 Contrary to the FTC, Section 19 does not express any intention
of Congress expanding the agency’s injunction powers under
Section 13. See 15 U.S.C. § 57b(e); see also Credit Bureau Ctr.,
LLC, 937 F.3d at 774–75. Instead, its purpose was to preserve
the FTC’s litigating position in Heater. See Peter Ward,
Restitution for Consumers Under the Federal Trade Commission
Act: Good Intentions or Congressional Intentions, 41 Am. U. L.
Rev. 1139, 1193–94 (1992).
6
and-desist order “was dishonest or fraudulent.” 15
U.S.C. § 57b(a)(2).
Congress also imposed procedural hurdles. Unless
the FTC first used its Magnuson-Moss rulemaking
authority to ban an “unfair or deceptive” act or
practice, id. § 57b(a)(1), it could only obtain money
damages under Section 19 through a multi-step
process: first, obtaining a final cease-and-desist order
against an alleged violator through its in-house
administrative process, id. §§ 45, 57b(a)(2); and next,
subject to judicial review, id. § 45(c), and only after the
order became final, id. § 45(g), obtaining monetary
relief if it also could prove a reasonable person would
understand such conduct to be dishonest or
fraudulent. Id. § 57b(a)(2),(b); see Sw. Sunsites, Inc.,
665 F.2d at 719 (“[A] consumer redress action [i]s a
continuous two-phase process, the first phase being
administrative adjudication, and the second judicial
determination of appropriate redress[.]”); cf. Credit
Bureau Ctr., LLC, 937 F.3d at 784 (“Section 13(b) also
lacks a central feature of the FTCA provisions that
expressly permit monetary relief: a notice
requirement.”).
B. The FTC Rejects Congress’s Statutory
Scheme.
Initially, the FTC seemingly accepted that Section
19 authorized consumer redress, but Section 13(b) did
not. Compelling evidence of this can be found in a
version of the FTC’s Operating Manual predating
“judicial precedents regarding permanent injunctions
under [Section] 13 (b).” Fed. Trade Comm’n,
Operating
Manual
§
11.5.7,
available
at
http://bit.ly/2lfBqjz. The manual draws a sharp
distinction between “[c]onsumer redress following the
7
issuance of a final adjudicated cease and desist order
under FTCA § 19(a)(2),” id. § 11.1.1.5, and
“[t]emporary and permanent injunctions under FTCA
§ 13.” Id. § 11.1.1.6. Yet, it says nothing about
disgorgement, restitution, or any other “equitable
monetary relief” under Section 13(b). Nor does it
mention “asset freezes” or “receivers.”
But the FTC eventually balked at Section 19’s
procedural hurdles and sought a shortcut. As a former
FTC official would later highlight, “the problem” with
Section 19 was the procedural protections Congress
provided respondents:
You needed three separate lawsuits to
get final relief. You had to bring a
preliminary injunction in federal court
and you had to bring a complete Section
5 case, administrative case, all the way
through, and then you have to go for a
Section 19 case. That is time consuming,
and it is very inefficient.
So, actually by . . . [1982], the
Commission was already looking at
alternatives, because at the very tail end
of Section 13(b) . . . there are 14 key
words . . . .
[T]oday those 14 words are the basis for
the 13(b) program. This legislative
history doesn’t mention very much about
what that little proviso was intended to
do, except that it was thought that, well,
the Commission could go to court in
routine fraud cases and get a permanent
injunction[.]
8
David M. FitzGerald, FTC 90th Anniversary
Symposium: Session on “Injunctions, Divestiture and
Disgorgement” (Sept. 23, 2004) (transcript available
at http://bit.ly/2kW0VWS).
Until recently, the FTC’s website echoed this:
“Section 13(b) is preferable to the adjudicatory process
because, in such a suit, the court may award both
prohibitory and monetary equitable relief in one step.”
See A Brief Overview of the Federal Trade
Commission’s Investigative and Law Enforcement
Authority, Fed. Trade Comm’n, http://bit.ly/2lrPuGq
(archived March 1, 2019). This shortcut also relieved
it of Section 19’s scienter requirement and three-year
statute of limitations. See 15 U.S.C. § 57b(a)(2), (d).4
C. The FTC Uses Test Cases to Expand Its
Section 13(b) Powers.
How is it that the FTC convinced courts to adopt
its policy preferences over those mandated by
Congress? A former Assistant Director for Litigation
in the Bureau of Consumer Protection (“BCP”), who
was a key architect of the FTC’s expansion of its
Section 13(b) powers, has offered insights into the
FTC’s long-term strategic litigation campaign to
invade the legislative domain. He advised:
“Step cautiously when proceeding boldly. In
exploring its Section 13(b) authority, the
Commission moved warily, selecting cases with
compelling facts . . . before pursuing a more
ambitious agenda.” See David M. FitzGerald,
4 Courts have held that Section 13(b) actions are not subject to
any statute of limitations. See, e.g., Fed. Trade Comm’n v.
Dalbey, No. 11-1396, 2012 WL 1694602, at *2–3 (D. Colo. May
15, 2012).
9
The Genesis of Consumer Protection Remedies
Under Section 13(b) of the FTC Act at 21–22
(Paper, FTC 90th Anniversary Symposium)
(Sept.
23,
2004),
available
at
http://bit.ly/2kUIIcf.
“Neither the text of Section 13(b) nor its
legislative history disclosed a basis to argue for
broad equitable relief. Instead of stopping there,
however, research into the case law
interpreting statutes conferring similar
injunctive authority on other agencies led to the
Porter line of cases, providing critical support
for a broad interpretation of Section 13(b).” Id.
at 22 (emphasis added).
“Being out of the
advantage[.]” Id.
“Don’t let naysayers discourage pursuit of a
promising theory or approach. When the early
cases were proposed, many people within the
Commission
predicted
they
would
be
unsuccessful, because Section 13(b) authorized
only injunctive relief.” Id. (emphasis added).
spotlight
can
be
an
Echoing this, a former FTC Chairman and
Director of the BCP explained: “Admittedly, this use
of Section 13(b) was something of a ‘stretch.’ . . .
[T]here was some internal opposition, arguing, with
considerable force, that the 1975 amendments
provided the exclusive road to financial relief.” J.
Howard Beales & Timothy Muris, Striking the Proper
Balance: Redress Under Section 13(b) of the FTC Act,
79 Antitrust L.J. 1, 2 (2013).
10
The FTC proceeded anyway, like a fox toward the
henhouse, with staggering success. 5 According to the
FTC, in 2017 alone it obtained $5.29 billion in awards,
without including amounts suspended due to
defendants’ inability to pay. See Stats & Data 2017 –
Annual Highlights 2017, Fed. Trade Comm’n,
http://bit.ly/2mwz7sj (last visited Sept. 22, 2020). This
was obtained without the safeguards Congress
granted defendants under Section 19.
D. Inapposite Precedent Cannot Override a
Statute’s Plain Language.
The FTC’s mansion of favorable Section 13(b)
precedent is built upon statutory quicksand. There is
no textual foundation for its claimed Section 13(b)
powers. Agencies only possess powers Congress
affirmatively chooses to delegate to them. La. Pub.
Serv. Comm’n, 476 U.S. at 374. Congress did not do so
here. That should end the matter. Congress is not
required to expressly negate an agency’s claimed
administrative powers. See Ry. Labor Execs.’ Ass’n v.
Nat’l Mediation Bd., 29 F.3d 655, 671 (D.C. Cir. 1994)
(en banc).
Nor is there any indication in Section 13(b)’s
sparse legislative history that Congress intended to
provide the FTC broad authority to obtain “equitable
monetary relief” or even considered the possibility.
See Beales & Muris, supra, at 4 (“[T]here is no hint in
the legislative history that Congress intended to grant
the FTC broad authority to seek monetary relief when
5 But see City of Arlington v. Fed. Commc’ns Comm’n, 569 U.S.
290, 307 (2013) (“The fox-in-the-henhouse syndrome is to be
avoided . . . by taking seriously, and applying rigorously, in all
cases, statutory limits on agencies’ authority.”).
11
it enacted Section 13(b).”). The watchdog of
congressional intent didn’t bark here. See Finnegan v.
Leu, 456 U.S. 431, 441 n.12 (1982). Otherwise, there
would have been no reason to enact Section 19, a more
specific statute, only two years later. A contrary result
renders Section 19 a nullity and does violence to the
statutory scheme. See Food & Drug Admin. v. Brown
& Williamson Tobacco Corp., 529 U.S. 120, 132–33
(2000); see also United States v. Philip Morris USA,
Inc., 396 F.3d 1190, 1200 (D.C. Cir. 2005).
Undeterred, the FTC uncovered elephantine new
powers hidden in the mousehole of Section 13(b)’s
permanent-injunction proviso. But see Whitman v.
Am. Trucking Ass’ns, 531 U.S. 457, 468 (2001). The
vehicle the FTC used was judicial precedent
interpreting other statutes enforced by other agencies
(in particular, a seventy-year-old Supreme Court case,
Porter v. Warner Holding Co., 328 U.S. 395 (1946)).6
It effectively admits this. See, e.g., FTC Opp’n to Pet.
for Reh’g En Banc at 10–11, Fed. Trade Comm’n v.
Publishers Bus. Servs., No. 17-15600 (9th Cir. filed
Dec. 20, 2018) (“Porter and Mitchell form the
foundation of this Court’s long established holding
that equitable monetary relief is available under
Section 13(b)[.]”).
But judicial precedent interpreting different
statutes (enforced by different agencies) cannot
override plain language and structure. See, e.g.,
Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S.
6 Appellate courts have primarily relied on Porter as authority
for this expansion of FTC’s powers. See Credit Bureau Ctr., LLC,
937 F.3d at 775–82.
12
618, 640 (2007) (rejecting “analogies to other statutory
regimes”).
Moreover, Porter should be viewed in context and
its holding read as consistent with the statutory
scheme on which it was based. Congress gave the
Price Controls Board broad powers under the
Emergency Price Control Act to limit profiteering in
wartime. Unlike Section 13(b)’s provision for
injunctive relief only, Section 205(a) authorized the
Administrator to seek “an order enjoining such acts or
practices, or for an order enforcing compliance with
such provision” and, accordingly, authorized a court to
grant a “permanent or temporary injunction
restraining order, or other order[.]” Porter, 328 U.S. at
397 (emphasis added). Section 205(a) thus provided
for an order separate from and in addition to an
injunction. Moreover, to obtain such an order, the
Administrator was not limited to pursuing the
prospective relief that would be constituent with an
injunction, but also could show “that such person has
engaged . . . in any . . . acts or practices” prohibited by
the Act. Thus, the relief authorized by the Act was
both forward-looking and backward-looking, allowing
for an “other order” that could be based on past
violations.
These are not technocratic distinctions. The
backward-looking provision in Porter stands in stark
contrast to the purely prospective injunctive relief
authorized by Section 13(b). “Under Section 13(b) of
the FTC Act, the FTC must plead that [defendant] ‘is’
violating or ‘is about to’ violate the law” otherwise,
“[t]he FTC . . . fails to state a claim upon which relief
can be granted.” Fed. Trade Comm’n v. Shire
ViroPharma, 917 F.3d 147, 161 (3rd Cir. 2019). The
13
Administrator in Porter did not have this limitation;
and thus when the Court in Porter said that it could
grant monetary relief as either: (1) “complete relief
even though the decree includes that which might be
conferred by a court of law;” or (2) “an order
appropriate and necessary to enforce compliance with
the Act,” 328 U.S. at 399–400, neither theory was
limited to prospective relief as imposed by Section
13(b). Nevertheless, Porter has been used to justify
essentially unrestricted ancillary relief—whether
equitable or legal in nature.
E. FTC Pursuit of Monetary Awards Cannot
Be Squared with Recent Precedent.
The expansive use of Porter to justify monetary
awards is inconsistent with more recent decisions that
have relied on the text of a statute and respect for the
separation of powers to provide necessary guardrails
to agency action.
For example, in Federal Trade Commission v.
Shire ViroPharma, Inc., the Third Circuit rejected the
FTC’s proposed interpretation, which depended on
long-ceased conduct, holding that the text of the
provision was unambiguous and applied to only
current or future conduct. 917 F.3d at 156. “FTC’s
understandable preference for litigating under
Section 13(b), rather than in an administrative
proceeding, does not justify its expansion of the
statutory language.” Id. at 159.
The holding in Shire, that injunctive relief under
§13(b) is limited to the prospective relief of stopping
current or imminent action cannot be squared with
retrospective monetary awards that depend wholly on
past actions that are not addressed by §13(b).
14
Similarly, in Sec. & Exch. Comm’n v. Liu, 591 U.S.
____ (2020), the question was whether authorization
to seek “other equitable relief” in §78u(d)(5) could be
read to allow for disgorgement. This Court held that
the allowance for equitable relief only authorizes a
disgorgement award that conforms to traditional
equitable principles, limiting any award to net profits.
Critically, unlike §78u(d)(5), Section 13(b)’s text solely
authorizes an “injunction”—and does not mention or
allow for “other equitable relief,” such as a
disgorgement aware of net profits.
Finally, in Seila Law LLC v. Consumer Financial
Protection Bureau,
the Court distinguished
Humphrey’s Executor v. United States, 295 U.S. 602
(1935), in part on the basis that, unlike the FTC of
1935, the CFPB’s “enforcement authority includes the
power to seek daunting monetary penalties against
private parties on behalf of the United States in
federal court—a quintessentially executive power not
considered in Humphrey’s Executor.” 580 U.S. ____
(2020). If Humphrey’s Executor retains any relevance
to today’s FTC, it must stand for the proposition that
the FTC does not have such extensive law
enforcement powers or be overruled.
Taken together these cases reinforce that the
FTC’s power is limited to that conferred by Congress,
consistent with the Constitution’s separation of
powers. Accordingly, FTC authority must be limited
to the discrete authority granted by §13(b): solely
prospective prohibitory injunctive relief against
current or imminent unlawful behavior.
15
F. FTC’s Section 13(b) Power-Grab Deserves
No Deference.
The FTC may seek to elide the lack of textual basis
for its claimed 13(b) powers by averring
“congressional ratification” based on “subsequent
legislative history.” This should be rejected out-ofhand. See Sullivan v. Finkelstein, 496 U.S. 617, 631–
32 (1990) (Scalia, J., concurring in part).
This Court should also reject any attempt by the
FTC to trot out the old adage that remedial statutes
should be broadly construed. See, e.g., Shire, 917 F.3d
at 158; see also Encino Motorcars, LLC v. Navarro,
138 S. Ct. 1134, 1142 (2018). If anything, Section 13(b)
should be narrowly construed to protect defendants’
due process rights. See Fed. Commc’ns Comm’n v. Fox
TV Stations, Inc., 567 U.S. 239, 253 (2012) (due
process requires fair notice).
The FTC’s slow accretion of power has gone too far
and gone on too long. It is time for this Court to prune
back the agency’s overreach and stop the real-world
harm this overreach has caused.
II. THE FTC’S PURSUIT OF MONETARY AWARDS
VIOLATES CONSTITUTIONAL RIGHTS AND
EVADES
VENERABLE
PROCEDURAL
PROTECTIONS.
“[T]he love of money is the root of all evil[.]” United
States v. Melvin, 730 F.3d 29, 35 (1st Cir. 2013) (citing
1 Tim. 6:10). So too here.
The FTC’s quests for extra-statutory monetary
awards has resulted in parallel body of jurisprudence
in which constitutional violations and procedural
protections are routinely overlooked. The following
16
case study reads like a law school exam in issue
spotting.
A. Collateral Damage: A Case Study.
Vylah Tec LLC and two sister entities (together,
“V-Tec”) were Florida start-ups. V-Tec had two
principal income streams: (1) servicing pre-paid
technical support contracts for buyers of electronic
devices from shopping channels; and (2) sales of thirdparty security software, utility software, and databackup services, or discrete remote support services.
Fed. Trade Comm’n v. Vylah Tec LLC, No. 17-228,
2018 WL 4328218, at *1 (M.D. Fla. Sept. 11, 2018).
On May 1, 2017, the FTC filed an ex parte
complaint under seal, alleging deceptive practices in
selling “unneeded” software and support services.
There was no allegation that the service contracts
were deceptive nor that the associated technical
support was inadequate.
Also under seal, the FTC filed an ex parte motion
for a TRO with an asset freeze and appointment of a
receiver. Because the FTC sought joint and several
liability, and a monetary award that exceeded the
funds in the company bank accounts, the defendants’
personal assets were frozen, “to preserve the status
quo.”
The following day, the court granted the TRO—
again under seal. The order included the following
provisions relating to the FTC’s monetary demand:
A freeze on all assets (company and personal),
including assets of non-defendant third parties
that might benefit any defendant;
17
A credit freeze on all defendants, including
credit cards;
Transfer of all company assets (“Receivership
Estate”) and records to the Receiver;
Receiver authority to liquidate assets,
discontinue the business, and break contracts;
Receiver and FTC authority to search the
business premises, including plenary access to
documents (physical or electronic); and,
Authority to employ law enforcement in
entering and searching the premises.
The TRO also provided for Receiver compensation
from the Receivership Estate.
On the morning of May 3, 2017, the Receiver, with
FTC representatives, and the Fort Myers Police
Department (“FMPD”) raided V-Tec’s offices.7 Police
officers with the FTC investigator entered first,
commanding employees to step away from their
computers and put their hands up.8
7 Asked whether it typically involves local law enforcement in
accessing a business, the FTC confirmed that “it’s not unusual to
retain law enforcement support for the purpose spelled out in the
temporary restraining order.” ECF No. 270-1 at 250:5–6, 11–17.
8 Photographs excerpted from FMPD body-cam footage, found at
trial exhibit DX-B; also available here: FTC Raids Private
Business Without Notice or Chance to Defend – Body Cam
Footage One, YouTube, https://youtu.be/Y8GQfodWJyE (last
visited Nov. 11, 2019); FTC Raids Private Business Without
Notice or Chance to Defend – Body Cam Footage Two, YouTube,
https://youtu.be/7_MOp7rl74I (last visited Sept. 22, 2020).
18
One officer told employees they were being detained.
Shortly thereafter, the Receiver, FTC attorneys,
and support staff entered the V-Tec offices. They shut
down security cameras and compelled employees to
open secure locations. The employees were detained
19
for hours in a small vestibule, interviewed
individually in a separate room, and asked to sign
statements. No attorneys were present on behalf of VTec or any employee.
The FTC investigator(s) retrieved information
from V-Tec’s computers and cloud storage.
During the raid, FTC litigation counsel read
computer screens and documents and explored offices
20
that had been secured. No court had issued a warrant
to enter or search V-Tec’s offices.
Following the raid, some V-Tec computers were
imaged and electronic copies made of documents in
cloud storage. Those files were placed on hard drives
and provided to the FTC litigation counsel, who
searched them without limitation, without a warrant,
and without privilege screening. The Receiver,
likewise, had plenary access to the records, which he
searched, identifying potential evidence. The Receiver
retained all computers for the duration of the
litigation.
The defendants’ personal assets were frozen,
including a jointly owned marital bank account and
home. The marital assets remained frozen during
seventeen months of litigation, until a successful
appeal to the Eleventh Circuit and denial of the FTC’s
post-appeal motion to reinstate the freeze mandated
their release. During that time, defendants’ personal
assets could not be used to pay the mortgage nor could
the house be sold or the mortgage refinanced because
of the asset and credit freezes.
The Receiver transferred over $670,000 from the
corporate defendants’ bank accounts into the
Receivership account. In light of the personal asset
freeze, the court intermittently released $80,000 for
living expenses and attorney fees.9 However, after the
asset freeze, but before defense funds were released,
FTC counsel shared with the Receiver that she had
spoken with an attorney who was considering
representing the defendants “if he can get paid.” She
9 Litigation continued for over two years, involving thousands of
hours of attorney services.
21
had responded to prospective counsel’s inquiry that,
“the defendants need to complete their financial
statements before [the FTC] could even consider his
request,” and that they “also encouraged Defendants’
Stipulation to the Preliminary Injunction.” ECF No.
312-2 at 2. Without access to payment, it is not
surprising that the attorney did not assume the
defense. The following week, $10,000 was released to
retain defense counsel.
Shortly after seizing the businesses, the Receiver
determined that these previously profitable
businesses could not be run profitably and
recommended to the court that the businesses remain
closed. Because the sole purpose of the receivership
was to preserve assets to satisfy the FTC’s monetary
demand, the court agreed. As a result, the prepaid
service contracts of over one million customers were
nullified and those customers were denied, without
notice, the services they had purchased. To
defendants’ knowledge, no customer was ever
compensated by the Receiver or the FTC for being
dispossessed of a prepaid service contract.10
There was no allegation against the prepaid
service contracts—indeed plaintiffs conceded early on
that the revenue from the shopping channel contracts
was “clean.” But the rationale for the FTC’s monetary
demand, which began at $1.8 million and grew to $3.4
million repeatedly changed. See Mem. Op. & Order,
10 Sadly, this example of consumers being deprived of prepaid
contracts by the FTC is not unique. See, e.g., Mem. of Points and
Authorities in Support of Mot. to Intervene on Behalf of 3,802
Students of Online Trading Academy, ECF 235-1, No. 8:20-cv00287 (S.D. Cal. May 21, 2020).
22
ECF No. 405 at 8–10. After trial, the court denied the
monetary claim and entered judgment of $0.00. Fed.
Trade Comm’n v. Vylah Tec LLC, 378 F. Supp. 3d
1134, 1143 (M.D. Fla. 2019).
By then, however, there was little left except
roughly $497,000 in the bank account held by the
Receiver, who submitted a request for fees in excess of
that amount.
The court granted the Receiver a reduced amount
of $318,000 in fees plus $138,000 for his attorney, for
a total of $456,000 payable from the Estate and
ordered him to wrap up the receivership and return
the remaining funds. Instead, the Receiver filed a
request for additional payment. In the end, only
$34,500 was returned to defendants. Had the FTC
prevailed at trial, the result would have been
unchanged—the Receiver still would have claimed the
bulk of the estate, leaving virtually nothing for
“restitution.”
B. The FTC’s Abuse of Section
Threatens Constitutional Rights.
13(b)
As illustrated above, the FTC’s use of Section 13(b)
in pursuit of headline-grabbing monetary judgments
undermines defendants’ constitutional rights.
1. The FTC Uses Section 13(b) to
Circumvent the Fourth Amendment.
The Fourth Amendment provides that “no
Warrants shall issue, but upon probable cause,
supported by Oath or affirmation, and particularly
describing the place to be searched, and the persons
or things to be seized,” U.S. Const. amend IV, and it
applies to the FTC. Knoll Assocs., Inc. v. Fed. Trade
Comm’n, 397 F.2d 530, 536 (7th Cir. 1968).
23
This Court has held that the warrant itself—not
merely supporting documents—must state with
particularity the things to be seized such that the
description is available for inspection by the person
whose premises is to be searched. Groh v. Ramirez,
540 U.S. 551, 557 (2004). Any “warrant that fails to
conform to the particularity requirement of the
Fourth
Amendment
is
unconstitutional.”
Massachusetts v. Sheppard, 468 U.S. 981, 988 n.5
(1984). This Court has never allowed the Fourth
Amendment to be nullified or circumvented simply by
appointing a receiver to seize the premises before a
general search is conducted.
The evils of general warrants go to the heart of the
Founding. Yet now, courts routinely issue general
warrants in FTC enforcement actions; they just call
them TROs with appointment of a receiver. Although
the Fourth Amendment prohibits general searches
and seizures, a shadow jurisprudence has developed
allowing the FTC to evade the warrant requirement.
For instance, the V-Tec TRO authorized the
Receiver to:
Take exclusive custody, control, and
possession of all Assets, Documents, and
electronically stored information . . .,
wherever situated.
. . . [and]
Cooperate with reasonable requests for
information or assistance from any state
or federal law enforcement agency.
ECF No. 9 at 13, 14, and 18.
24
The Receiver and the FTC, using armed lawenforcement officers, entered V-Tec’s offices and
seized defendants’ records before defendants knew the
TRO had issued and without a warrant. They
demanded access to secured locations and information
from V-Tec’s employees while denying them contact
with their employers or benefit of counsel. The
Receiver then excluded defendants from their
documents and data, seizing the onsite computers and
changing passwords to block access to remotely stored
electronic documents. This bore no resemblance to the
particularity required by the Fourth Amendment.
The FTC searched V-Tec’s records, fishing for
evidence of wrongdoing, without limitation on what or
where they could search, or who could see it. The TRO
thus acted as a general warrant issued to the FTC,
acting as investigator and prosecutor.
Because the Receiver was appointed to maintain
the status quo to preserve assets—having no
investigative or prosecutorial duties—these Fourth
Amendment violations flowed directly from the FTC’s
monetary demand.
2. Pursuing Damages Under the Guise of
Equity Deprives Defendants of their
Seventh Amendment Jury Trial Right.
By labeling their monetary demand as “equitable”
relief, the FTC deprives defendants of their Seventh
Amendment right to a jury trial. See Parsons v.
Bedford, 28 U.S. (3 Pet.) 433, 447 (1830).
The Seventh Amendment preserves the right to
trial by jury in “[s]uits at common law, where the
value in controversy shall exceed twenty dollars.” U.S.
Const. amend. VII. “Suits at common law,” as used in
25
the Seventh Amendment, comprise “suits in which
legal rights [are] to be ascertained and determined, in
contradistinction to those where equitable rights
alone [are] recognized, and equitable remedies [are]
administered.” Parsons, 28 U.S. at 447. “The Seventh
Amendment thus applies . . . to ‘actions brought to
enforce statutory rights that are analogous to
common-law causes of action ordinarily decided in
English law courts in the late 18th century, as
opposed to those customarily heard by courts of equity
or admiralty.’” Feltner v. Columbia Pictures
Television, Inc., 523 U.S. 340, 348 (1998) (cleaned up).
Whether an FTC action is equitable or legal requires
an examination of “both the nature of the statutory
action and the remedy sought.” Id. (emphasis added).
Because deception cases sound in fraud—a classic
legal action—the second inquiry is paramount.
The FTC camouflages its demand for legal
damages by labeling it “restitution, the refund of
monies paid, and disgorgement of ill-gotten gains.”
But using “restitution” interchangeably with
“disgorgement” misconstrues the law. Whether
restitution is legal or equitable depends on the nature
of the remedy sought. Great-W. Life & Annuity Ins.
Co. v. Knudson, 534 U.S. 204, 213 (2002); see generally
John E. Villafranco & Daniel S. Blynn, Consumer
Redress Under Section 13(b) of the FTC Act:
Correcting the Record, Regulatory Focus (Nov. 2010)
(explaining the difference between equitable and legal
restitutions, and FTC’s history of seeking ultra vires
legal
damages
in
Section
13(b)
actions),
http://bit.ly/2JZrBiO. Restitution may be equitable
“where money or property identified as belonging in
good conscience to the plaintiff could clearly be traced
to particular funds or property in the defendant’s
26
possession.” Great-W. Life & Annuity Ins. Co., 534
U.S. at 213. With a fungible asset like money, such
traceability would be rare.
By contrast, legal restitution applies when the
plaintiff seeks “to obtain a judgment imposing a
merely personal liability upon the defendant to pay a
sum of money.” Id. at 213 (citation omitted). In the VTec case, the FTC sought joint and several liability
from individuals. In other words, the agency didn’t
care where the money came from or whether it could
be traced. This is the very definition of restitution at
law.
The Seventh Amendment’s protection of the jury
trial right is crucial in cases like these. Without
recourse to a jury, the slippery slope of everexpanding agency power will never reach bottom.
3. The FTC’s Pursuit of Money Damages
Undermines the Sixth Amendment.
As illustrated above, the FTC uses Section 13(b) to
freeze untainted assets to effectively deny defendants’
ability to meaningfully defend themselves, placing
enormous pressure on them to settle. This Court has
held that in criminal cases “the pretrial restraint of
legitimate, untainted assets needed to retain counsel
of choice violates the Sixth Amendment.” Luis v.
United States, 136 S. Ct. 1083, 1088 (2016). As a
matter of fairness, the same should hold true here. Cf.
Sessions v. Dimaya, 138 S. Ct. 1204, 1229 (2018)
(Gorsuch, J., concurring).
27
4. The FTC’s Misuse of Section 13(b) Is
Contrary to Values Protected by the
Fifth and Eighth Amendments.
The FTC’s use of Section 13(b) to transfer
companies’ assets to receivers is in tension with the
values protected by the Fifth and Eighth
Amendments. Cf. Timbs v. Indiana, 139 S. Ct. 682,
687 (2019). For example, in the V-Tec matter, no
monetary judgment was imposed. Yet of the $670,000
seized by the Receiver, only 5% was returned. In
addition to dissipating 95% of the corporate assets,
the Receiver rendered nugatory over one million
service contracts and razed a going concern, including
services the FTC conceded were lawful. Whether this
wholesale destruction of value and transfer of assets
is better described as a deprivation of property under
the Fifth Amendment or an excessive fine under the
Eighth Amendment is beside the point. It was wrong.
C. Abrogation of the Burden of Proof Opens
the Door to The FTC’s Abuse of Section
13(b).
When the FTC pursues a TRO or a preliminary
injunction with an asset freeze, that pursuit is based
on the notion that consumers have been deceived and
injured as a result. The implication is that the
elements of fraud, including damages, are likely to be
proven thus meriting the extraordinary remedy of a
preliminary injunction. But a comparison of the
elements necessary to prove fraud and secure a TRO
in a private action and the corresponding process in
an FTC enforcement action show this analogy to be a
fiction. Because the five elements of fraud are reduced
to three in an enforcement action and then those three
elements routinely presumed to be the satisfied, the
28
“likelihood of success on the merits” necessary to
obtaining an TRO is essentially presumed as well.
Thus, five elements of fraud and four elements
essential to a PI, are telescoped into one, leaving an
effectively automatic process (often invoked ex parte)
that rests on the simple identification of “a statement”
and presumes the rest.
1. FTC “Deception” Cases Require no
Actual Deception or Injury.
It is black letter law that “[w]hen fraud is alleged,
the burden of proof as to each element of fraud is on
the party asserting the fraud. The failure of the party
alleging fraud to prove any one of the essential
elements of fraud prevents the party from prevailing
and precludes recovery.” 37 Am. Jur. 2d Fraud and
Deceit § 464. Where multiple frauds are alleged, proof
is independently required for each alleged instance of
fraud unless the acts are “connected with, or form a
part of” the others. Clarke v. White, 37 U.S. 178, 178
(1838).
In cases of common law fraud the elements are
largely equivalent and include: “(1) a false statement
of material fact; (2) known or believed to be false by
the person making it; (3) an intent to induce the other
party to act; (4) action by the other party in reliance
on the truth of the statement; and (5) damage to the
other party resulting from such reliance.” Fifth Third
Mortg. Co. v. Kaufman, 934 F.3d 585, 588 (7th Cir.
2019) (Illinois law). In any case, “[i]njury is an
essential element of remediable fraud. ‘Deceit and
injury must concur.’” Montana-Dakota Utilities Co. v.
Nw. Pub. Serv. Co., 341 U.S. 246, 254 (1951) (citation
omitted).
29
Not so in a “deception” claim brought by the FTC
where the five elements of fraud are reduced to three.
Under Section 5(a) of the FTCA, “[a]n act or practice
is deceptive if ‘first, there is a representation,
omission, or practice that, second, is likely to mislead
consumers
acting
reasonably
under
the
circumstances, and third, the representation,
omission, or practice is material.” Fed. Trade Comm’n
v. Stefanchik, 559 F.3d 924, 928 (9th Cir. 2009)
(citation omitted). The “deceit and injury,” required by
Montana-Dakota Utilities Co. disappear, eliminating
three elements: knowledge, intent, and injury.
It would appear at first glance that the two
remaining elements of “a false statement of material
fact” and “action by the other party in reliance on the
truth of the statement” are retained. Not so. Instead,
the first element is expanded into two: a
representation and materiality. And the element of
reliance—which requires an actual act to have taken
place—is replaced by “likely to mislead”—which
requires nothing more than a little imagination and
the willingness to speculate on the thought processes
of presumed victims. See also Fed. Trade Comm’n v.
AMG Capital Mgmt., LLC, 910 F.3d 417, 437–38 (9th
Cir. 2018) (Bea, J., specially concurring) (opining that
“likely to deceive” determination should not be made
at summary judgment stage).
But even these “elements” are a chimera. First,
lest there be any doubt whether a “representation” is
the equivalent of a “misrepresentation,” the case law
is clear that the statement in question need not be
false. See, e.g., Fed. Trade Comm’n v. John Beck
Amazing Profits, LLC, 865 F. Supp. 2d 1052, 1066
(C.D. Cal. 2012). Nor does it need to expressly claim
30
anything; it may be merely suggestive, including
“language which relatively few consumers would
interpret as making a particular representation.” Id.
at 1066 (citation omitted). And, if in doubt,
“[a]dvertising capable of being interpreted in a
misleading way should be construed against the
advertiser.” Resort Car Rental Sys., Inc. v. Fed. Trade
Comm’n, 518 F.2d 962, 964 (9th Cir. 1975).
Second, allegations that a statement is “likely to
mislead” need never confront the reality of proven
reliance or the lack thereof because “[n]either actual
damage to the public nor actual deception need be
shown.” Resort Car Rental Sys., Inc., 518 F.2d at 964.
If the claim is express, materiality is presumed. Fed.
Trade Comm’n v. Pantron I Corp., 33 F.3d 1088, 1095–
96 (9th Cir. 1994) (“Express product claims are
presumed to be material”). And, if a consumer
purchased the defendant’s product, reliance is
presumed. Fed. Trade Comm’n v. Figgie Int’l, Inc., 994
F.2d 595, 605–06 (9th Cir. 1993).
What then is left of the ostensibly three-point
burden that the FTC must satisfy? A single element:
a statement that could be construed as misleading.
Materiality is presumed, reliance is presumed, and
deception is presumed. Damages need not be shown,
and the knowledge and intent elements of fraud are
not required.
2. The First Element to Secure a
Preliminary
Injunction
is
Automatically Satisfied.
As troubling as presumed liability may seem at the
merits stage, the real impact comes when the FTC
goes to court seeking a TRO with a PI shortly to follow.
“It frequently is observed that a preliminary
31
injunction is an extraordinary and drastic remedy[.]”
Mazurek v. Armstrong, 520 U.S. 968, 972 (1997)
(citation omitted). But the imposition of a PI is not
extraordinary when the FTC is the plaintiff—and it is
easy to see why. Much like the vanishing elements of
fraud, the requirements to obtain a preliminary
injunction evaporate.
Under the traditional rubric, “[a] plaintiff seeking
a preliminary injunction must establish that he is
likely to succeed on the merits, that he is likely to
suffer irreparable harm in the absence of preliminary
relief, that the balance of equities tips in his favor,
and that an injunction is in the public interest.”
Winter v. NRDC, Inc., 555 U.S. 7, 20 (2008). By
contrast, when the FTC is plaintiff, this four-part test
is reduced to two parts: “[i]n determining whether to
grant a preliminary injunction under section 13(b), a
court must 1) determine the likelihood that the
Commission will ultimately succeed on the merits and
2) balance the equities.”” Fed. Trade Comm’n v. World
Travel Vacation Brokers, Inc., 861 F.2d 1020, 1029
(7th Cir. 1988) (citation omitted). Even after this
Court’s decision in Winter, courts continue to hold
that, unlike everyone else, FTC need not show likely
irreparable harm. E.g., Fed. Trade Comm’n v.
Consumer Def., Ltd. Liab. Co., 926 F.3d 1208, 1212–
14 (9th Cir. 2019).
In practice, these two elements are equivalent to
no elements. As shown above, by merely identifying a
statement that could be construed as misleading, the
FTC is presumed to have satisfied all the elements to
succeed in a deception claim, rendering “likelihood to
succeed on the merits” satisfied by the mere
identification of a statement.
32
The second element fares no better. Although
nominally requiring a balancing of the equities,
because “Section 13(b) places a lighter burden on the
Commission than that imposed on private litigants by
the traditional equity standard; the Commission need
not show irreparable harm to obtain a preliminary
injunction.” Fed. Trade Comm’n v. Warner Commc’ns
Inc., 742 F.2d 1156, 1159 (9th Cir. 1984). And, because
in many cases the FTC files the motion for TRO ex
parte and under seal, with no adverse party to
challenge the allegations or even provide context, how
could the FTC lose?
Even so, the damage caused by the routine
granting of a TRO would be constrained if the FTC
were confined to the prospective relief available under
§5(a).11 A TRO pausing ongoing or imminent
violations of the FTCA during the time period in
which an administrative process is pending would not
impose the severe and often irremediable damage
caused by the appointment of a receiver and broad
asset freeze.
But there is a morbid logic to inserting a damages
claim into the process of “balancing the equities.” If a
potentially multi-million (or even billion) dollar
damages award is at stake, then the scale tilts
automatically in favor of the injunction, asset freeze,
and appointment of a receiver to “preserve” those
assets. The larger the monetary demand, the greater
the “equities” weigh in favor of the TRO. An amplified
monetary demand also provides the expedient of
swamping any offsetting interests that customers,
11 See Shire, 917 F.3d at 155.
33
employees, vendors, and the general public have in
the target business. If the number is big enough, the
“particular regard” the courts of equity should pay “for
the public consequences in employing the
extraordinary remedy of injunction” is nullified.
Winter, 555 U.S. at 24.
Finally, a ruinous cycle ensues in which the
demand for monetary relief becomes a litigation
tactic. By making a massive estimate of damages, the
FTC can secure the asset freeze that makes it
impossible for the defendant to mount a defense,
continue serving customers, and satisfy the myriad of
demands necessary to preserve the business. Faced
with certain ruin given the run of presumptions in
favor of the FTC and the risk of judgment on personal
assets against the defendant, the FTC wins by
default. As the proverb says, “the kingdom was lost,
and all for the want of a horseshoe nail.”12 Here, of
course, the horseshoe nail is the lack of adherence to
the text of the statute.
III. STARE DECISIS DOES NOT SHIELD FTC’S
OVERREACH.
The FTC is not a legislative body, but instead must
implement Congress’s intent. It has not done so here.
Its litigation preferences must yield to Section 13(b)’s
actual text. See Henson v. Santander Consumer USA
Inc., 137 S. Ct. 1718, 1725 (2017). If the FTC wants to
expand its enforcement options, it must convince
Congress, not the judiciary. See id. at 1726.
The FTC will likely seek to justify its overreach by
pointing to a line of federal appellate court decisions
mistakenly (and uncritically) accepting its wayward
12 https://nationalproverbryday.co.uk/poem/for-want-of-a-nail/
34
Porter-based arguments, as it has done before. See
also Credit Bureau Ctr., LLC, 937 F.3d at 775
(“Unsurprisingly, the [FTC] wagers nearly all of its
case on stare decisis[.]”). But longstanding statutory
misapplication of Section 13(b) does not set such error
in stone. See, e.g., Cent. Bank of Denver v. First
Interstate Bank of Denver, 511 U.S. 164, 177, 191
(1994), superseded on other grounds by 15 U.S.C. §
78t(e) (1995) (overruling sixty years of allowance of a
statutory cause of action because Congress had not
expressly provided for it).
Because much Section 13(b) precedent rests on
mistaken reliance on FTC’s wayward Porter-based
arguments unsupported by any textual foundation,
any presumption in favor of stare decisis should be
deemed rebutted. See Payne v. Tennessee, 501 U.S.
808, 827–28 (1991). FTC’s ultra vires preference for
seeking monetary damages under Section 13(b) also
burdens federal courts with litigation that belongs in
FTC’s administrative process, notwithstanding FTC’s
use of Section 13(b) for budget justification purposes.
See, e.g., FTC FY 2020 Congressional Budget
Justification,
p.7,
https://www.ftc.gov/system/files/documents/reports/fy
-2020-congressional-budgetjustification/fy_2020_cbj.pdf
(highlighting
to
Congress monetary judgments obtained). Nor can
FTC’s litigation positions interpreting Section 13(b)
save it. No deference is due where, as here, the
agency’s interpretation is contrary to the statute’s
plain language and structure. See also John Hancock
Mut. Life Ins. Co. v. Harris Tr. & Sav. Bank, 510 U.S.
86, 109 (1993).
35
Despite the FTC convincing other courts to bless
its accumulation of extra-statutory authority, this
Court has never accepted the FTC’s purported Section
13(b) powers. Nor should it.
CONCLUSION
The Court should rule in favor of the Petitioners,
reverse the Ninth Circuit, and affirm the Seventh
Circuit.
Respectfully submitted,
CYNTHIA FLEMING CRAWFORD
Counsel of Record
MICHAEL PEPSON
AMERICANS FOR PROSPERITY
FOUNDATION
1310 N. Courthouse Road, Ste. 700
Arlington, VA 22201
(571) 329-2227
ccrawford@afphq.org
Counsel for Amicus Curiae
October 1, 2020
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.