Overview
On April 22, 2021, the US Supreme Court issued a unanimous decision in AMG Capital Management LLC v. FTC, No. 19-508, holding that Congress did not intend to grant the Federal Trade Commission (FTC) authority to obtain equitable money relief in federal district courts under Section 13(b). This unanimous decision that the FTC may not directly seek restitution in federal court is making waves throughout the legal community because it removes a powerful tool from the FTC’s enforcement repertoire and ends an existing split among federal circuit courts.
As the dust settles on this decision, retailers may be left wondering what this means for future FTC actions. The FTC frequently investigates and initiates enforcement actions against retailers for violations of the consumer protection and antitrust laws, including the FTC Act and the Restore Online Shoppers Confidence Act (ROSCA), including for misleading and deceptive marketing practices and negative option offers that don’t have proper disclosures. For example, in 2020, FTC actions led to more than $483 million in refunds to consumers across the country in 2020. In 2019 alone, the FTC secured 81 permanent injunctions and orders that resulted in over $723 million in restitution and disgorgement through 49 complaints filed in federal court – that’s an average of $15 million per complaint. In 2017, the FTC collected $5.29 billion in disgorgement and restitution pursuant to Section 13(b), which is a small fraction of the $1.3 billion the FTC was ordered to pay in restitution in the case at issue – which is the largest judgment it has ever obtained. Such a blow to the FTC’s equitable relief powers may lead retailers to wrongly assume that the FTC is “out of commission” for the foreseeable future.
Potential Congressional Action May Remedy Supreme Court’s Decision
Though the FTC’s enforcement authority just had the wind knocked out of it, there have already been efforts to remedy the loss through Congressional action. The acting FTC Chairwoman released a statement the day the Court issued its decision urging Congress to explicitly grant the FTC the power to directly seek restitution and disgorgement in federal court. Acting Chairwoman Rebecca Kelly Slaughter relayed some strong statements when the decision came, saying that “the Supreme Court ruled in favor of scam artists and dishonest corporations, leaving average Americans to pay for illegal behavior, . . . [and] [w]ith this ruling, the Court has deprived the FTC of the strongest tool we had to help consumers when they need it most.” Representative Tony Cárdenas and 13 Democratic co-sponsors have already introduced a bill to officially give the FTC authority to “seek permanent injunctions and other equitable relief.” The bill, H.R. 2668 would amend Section 13(b) of the FTC Act and resolve the vague and imprecise drafting that led to the Court’s decision in the first place. A virtual legislative hearing is scheduled for April 27, 2021.
Other Methods the FTC Can Use to Obtain Monetary Relief
It is likely that the FTC may not suffer the loss of its power to obtain equitable monetary relief under Section 13(b) for long with the introduction of H.R. 2668. However, as Congress deliberates, retailers should not forget the other options the FTC may pursue to seek monetary relief, so they are not out of the woods.
FTC Act Section 19
Section 19 of the FTC Act provides two alternative avenues.
If the FTC obtains a cease and desist order through administrative litigation and defends it on appeal, it can pursue monetary relief under Section 19 if it can establish that “a reasonable man would have known under the circumstances [the conduct] was dishonest or fraudulent.” These legally binding cease and desist orders require companies to stop running the deceptive ad or engaging in the deceptive practice, to have substantiation for claims in future ads, to report periodically to FTC staff about the substantiation they have for claims in new ads, and to pay a fine of $43,792 per day per ad if the company violates the law in the future.
Section 19 also permits the FTC to pursue equitable monetary relief for violations of FTC-enforced rules or statutes like the Mail or Telephone Order Merchandise Rule or ROSCA.
Case Referrals to the DOJ and CFPB
The FTC also has the option to refer cases to other agencies including the Department of Justice (DOJ) and the Consumer Financial Protection Bureau (CFPB). Cases pursued by the DOJ may be subject to civil penalties for rule violations and certain statutory violations. Similarly, referring cases to the CFPB may allow the FTC to indirectly secure awards for consumers through the CFPB’s Civil Penalty Fund.
Settlement
Finally, retailers should remember that many FTC cases resolve through settlements. For example, in September 2020, the Age of Learning, an online membership-based learning platform for children, settled ARL related charges alleging misrepresentations of cancelation policies and required disclosures for nearly $10 million. Online lingerie retailer AdoreMe agreed to pay $1.38 million to settle FTC charges that the company violated the FTC Act and ROSCA for failing to clearly communicate the terms of its VIP program. See our alert on this here. In March 2021, online fashion retailer Fashion Nova agreed to pay $9.3 million to settle charges that it did not properly notify consumers and give them a chance to cancel their orders when they were not shipped in a timely manner and it illegally used gift cards to compensate consumers for unshipped merchandise instead of refunds. Some of this money was used to repay more than 500,000 consumers who were affected by this practice. While some retailers may be reluctant to settle in light of the recent decision, the FTC’s enforcement potential through other avenues discussed above should not be discounted.
Despite the fight that is going on in DC, retailers should continue to remain diligent about their advertising efforts, including working with counsel to ensure they are complying with federal and state consumer protection and unfair competition laws. A cardinal rule of advertising law is that disclosures, or qualifications, must be seen and understood in order to have any legal effect.
Some best practices include:
- Information that is required to prevent an ad from being deceptive should be presented clearly and conspicuously so that consumers can actually notice and understand it.
- For online advertisements, the Dot Com Disclosures offers special guidance regarding Internet-specific issues such as banner ads, pop-up windows, scrolling, hyperlinks, etc.
- Clearly disclose the terms and conditions of subscription plans before billing consumers or charging their credit cards, and ensure compliance with specific state laws’ rules regarding autorenewal subscriptions.
- Have sufficient evidence to support the claims in the ad.
For a more detailed analysis of the decision in AMG Capital Management, LLC, et al. v. Federal Trade Commission see this recent Steptoe alert.