We Don't Need No Stinkin' FTC!

JK, actually we do. But oh well.

Earlier this week, the US Court of Appeals for the Seventh Circuit gutted the Federal Trade Commission's ability to get monetary damages from companies that screw over consumers. Overturning its own decades-old precedent and breaking with eight other federal courts of appeal, the Seventh Circuit ruled in  FTC v. Credit Bureau Center  that the FTC can't get restitution damages for people who have been defrauded.

The FTC has returned billions of dollars to consumers who have been swindled. That $575 million Equifax settlement? That was the FTC, working with the Consumer Financial Protection Bureau (CFPB) and state attorneys general. (PSA: If you haven't done it yet, file your Equifax claim !) In 2018 alone, the FTC helped return over $1.6 billion to consumers. With this Seventh Circuit decision, the FTC's ability to continue to get restitution damages will be severely limited, empowering bad corporate actors and generally screwing over the people.

The FTC stops a lot of fraudulent, anticompetitive, and generally scammy activities. And when it can, it gets money back into the pockets of the people who were harmed. As the agency puts it :

The goal of FTC law enforcement actions is to halt illegal practices, and when possible, get refunds to people who lost money. Once an FTC lawsuit or settlement is final and the defendants have paid the money the court orders, the Office of Claims and Refunds develops a plan for returning that money to the right people. If there is money left over at the conclusion of the refund program, or if there is not enough money to provide meaningful refund amounts, then the FTC sends the money to the U.S. Treasury, where it is deposited into the General Fund.

With this ruling, the FTC's ability to get money back to consumers has been seriously damaged.

 
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The facts underlying FTC v. Credit Bureau Center are wild. A guy named Michael Brown owned and operated a credit monitoring services called Credit Bureau Center. Credit Bureau Center offered a "free credit report and score," but really tricked people into signing up for a $29.94 monthly "membership." People only found out about that after they were already enrolled and usually wouldn't get their money back.

But does it end there? Oh no! Brown also worked with a guy who posted fake apartment listings on Craigslist. When that dude got inquiries about his fake apartments, he would tell people to sign up for a "free" credit score from Brown's sites. After they signed up with Brown, he would stop responding to them. Adorable, right?

The FTC won its case against Brown and Credit Bureau Center and the trial court entered a permanent injunction and ordered them to pay over $5 million in restitution, to be returned to the people who were hurt by his scam.

Thennnnnn the Seventh Circuit stepped in.

So let's talk about the FTC

Here's a little background on the FTC and the part of the FTC Act at issue in this case:

The Federal Trade Commission Act, signed into law by President Woodrow Wilson in 1914, created the FTC. Section 5 of the FTC Act empowers the FTC to police "unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce" [...] Because the original FTC Act did not permit the agency to prevent anti-competitive conduct during the pendency of administrative proceedings -- which are notoriously slow-moving -- Congress amended the FTC Act in 1973 by adding Section 13(b). That section authorizes the FTC to seek preliminary injunctive relief in federal court to prevent anti-competitive conduct while the full merits of the case are tried in administrative proceedings. The FTC may seek such preliminary or permanent injunctive relief when it has "reason to believe" that the defendant "is violating or is about to violate any provision of law enforced by the FTC."

In Credit Bureau Center , the Seventh Circuit agreed that Brown and Credit Bureau Center had done illegal shit but said the FTC can't get the $5 million to give back to the people who had been defrauded. It decided that Section 13(b) saying the FTC can get injunctive relief necessarily means it can't get monetary relief -- even though courts generally have the power to order equitable relief like restitution when someone has been wronged.

Although the Seventh Circuit is alone in saying nodamages are available under section 13(b) of the FTCA, a recent Third Circuit case was similarly problematic for the government agency. In  FTC v. Shire Viropharma  , the Philadelphia-based court ruled that Section 13(b) of the FTCA -- the same section at issue in Credit Bureau Center -- can only be used for money damages when the illegal conduct is still going on. So in the Third Circuit -- covering Pennsylvania, New Jersey, and Delaware -- if a company gets an investigatory subpoena from the FTC, it can stop doing the illegal shit and avoid paying those monetary damages.

Gutting the FTC is bad, bad, BAD

None of this is good. The FTC is an important consumer watchdog that regularly returns money to people. And while some private attorneys may bring cases now in lieu of the FTC, plaintiffs' lawyers won't be able to take every single case that the FTC would be able to get damages in. Plus, as a government agency, the FTC has more power to investigate wrongdoing before bringing suit.

When a three-judge panel of the Seventh Circuit decided Credit Bureau Center , the circuit judges also voted not to have the whole court hear the case. And Chief Judge Diane Wood is PISSED about that decision.

In her dissent, joined by two other Seventh Circuit judges, the amazing Judge Wood invokes Caesar and rakes her colleagues over the coals.

To my knowledge, no court has ever tied the hands of a government agency in the way that the majority has done here, and the majority cites none […] I am reminded of the words spoken by Gaius Julius Caesar in 49 B.C.E., as he approached the Rubicon river at the head of his army. He knew that the Roman Senate forbade any armed force to enter Rome. But he decided to flout that command, and as he marched with his troops across the river, he is said to have proclaimed " alea iacta est " – the die is cast. And indeed it was. Caesar's act led to civil war and eventually the end of the Roman Republic; he became dictator for life and inaugurated the Roman Empire. [...] I devoutly hope that the majority here has not cast the die in a way that will transform Rule 40(e) from an efficiency promoting rule for relatively routine updates to our circuit law into something that erodes our commitment to plenary consideration, along with oral argument, of every fully counseled case. Time will tell. But the Rule is surely being misused in this case. Perhaps that would not matter if no reasonable person could question the correctness of the majority's reasoning. Regrettably, that is not the case. From the materials now before us, I believe that the court is making a mistake, and it is doing so in a procedurally inappropriate way.

Judge Wood argues that the court is making a huge mistake here and entirely ignoring the FTC's status as a government agency, the inherent equitable powers of the court, and the section of the FTCA that directs courts to "grant such relief as the court finds necessary to redress injury to consumers or other persons, partnerships, and corporations."

Perhaps if a recent Supreme Court decision demanded that sea change, the majority's opinion would be defensible. But there is no such decision. Instead, the majority extrapolates from the line of cases addressing whether a private party has an implied right of action to the issue presented here: whether a government agency, the Federal Trade Commission, which enjoys an express right of action under a statute for injunctive relief, is entitled to a restitutionary remedy that is ancillary to, or part of, the injunction.

According to Judge Wood:

The FTC Act spells out a finely crafted system of enforcement powers and remedies. The 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 like the defendant in this case.

So what now?

There is an easy solution here. Congress wrote the FTC Act and Congress could easily amend it to say the FTC is allowed to get restitution, disgorgement, and/or other civil penalties from companies that break the law. And hell, they could even add some modern privacy protections to the FTCA, while they're at it.

The 7th Circuit just ruled that #FTC can't get money back for consumers because Congress never specifically authori… https: //t.co/OuuNIFe5Eg

— TechFreedom (@TechFreedom) 1566496217.0 

The FTC -- and Trump's FTC, at that -- has already asked Congress to clarify its ability to collect damages from wrongdoers. In May of this year, FTC Commissioner Christine Wilson testified before the House Subcommittee on Consumer Protection and Commerce and noted that, "[f]or decades, the FTC has used Section 13(b) to halt unfair and deceptive practices that have caused billions of dollars in consumer injury."

Wilson specifically addressed the Third Circuit's ruling in FTC v. Shire Viropharma .

A case in the Third Circuit held, in February 2019, that the FTC cannot seek injunctive relief when the challenged conduct is not "ongoing or imminent." But fraudsters frequently cease their unlawful conduct when they learn of an impending law enforcement action. Similarly, companies often suspend dubious advertising claims or anticompetitive conduct during the pendency of an FTC investigation. The Third Circuit standard could prevent us from seeking injunctive or equitable monetary relief in these circumstances even if we can show that the conduct is likely to recur based on past practices. This outcome is contrary to both Congressional intent and the vast majority of Section 13(b) case law.

Unfortunately for everyone, motherfucking Mitch McConnell still controls the Senate, and it's hard for us to picture him doing anything that might help regular people and not his corporate overlords.

Yikes!

With these decisions, the FTC's authority to get monetary damages is murky. Other sections of the FTCA allow the FTC to collect civil penalties, but they have additional requirements that make it much harder. And with the Third Circuit ruling, companies that stop their illegal bullshit after finding out they're under investigation can't be fined by the FTC.

If Congress doesn't clarify the meaning of the FTCA, we're likely to see these issues end up in front of the Supreme Court. Because the Seventh Circuit broke with eight other federal appellate courts, it's likely that the Supreme Court will grant cert in Credit Bureau Center -- if the FTC decides to seek it.

The FTC decided not to petition for cert in Shire Viropharma and it's possible they'll make the same decision here. The Seventh Circuit covers Illinois, Wisconsin, and Indiana, and its decisions are only binding on federal courts in those states. Because every other federal appeals court to take up the issue has ruled that the FTC can get money damages under Section 13(b) of the FTCA, the agency might decide to take its chances and just try to avoid that part of the country when seeking restitution.

 In a statement , the FTC said:

We are disappointed by this decision, and we are evaluating our options. The FTC's ability to recover money for consumers is an essential and long-established tool in our enforcement arsenal.

If the FTC files a cert petition with the Supreme Court and SCOTUS grants it, what happens next is anybody's guess. But with the current Court, I can't say I'm overly optimistic about the justices ending up on the side of consumers and government regulation.

Basically it looks like, once again, everything is trash. So here's a picture of my cat, Tiffany.

[ 7th Cir. / Wilson Statement / FTC Report / 3d. Cir. / Duane Morris / ABA Journal ]

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