AMG Capital Management, LLC v. Federal Trade Commission

Issues

What is the scope of the Federal Trade Commission’s authority to request a judicial finding that unfair business practices are unlawfully deceptive and demand monetary restitution damages under Section 13(b) of the Federal Trade Commission Act?

Oral argument:

January 13, 2021

This case asks the Supreme Court to clarify whether the Federal Trade Commission’s authority to seek injunctive relief includes requests for monetary recovery as restitution. The FTC sued Petitioner Scott Tucker, his wife, Kim Tucker, and his various businesses (“AMG Capital Management, LLC, et al.”) for deceptive business practices. Tucker argues that the plain language of Section 13(b) does not support the Ninth Circuit’s interpretation to allow monetary restitution as relief. Tucker also contends that such an interpretation may disrupt procedural safeguards in the FTC Act and that the old case law emanating from Porter and its progeny does not control the current case. Citing equity law cases that treat monetary restitution as a part of injunctive relief, the FTC maintains that Tucker’s argument is misleading because it fails to consider that the FTC Act takes into consideration the dual enforcement system of the FTC. Lastly, the FTC argues that Porter and its progeny are still good law and hence control the current case. The outcome of this case has heavy implications for consumer protection, business norms, and adhering to court precedent.

Questions as Framed for the Court by the Parties

Whether Section 13(b) of the Federal Trade Commission Act, by authorizing “injunction[s],” also authorizes the Federal Trade Commission to demand monetary relief such as restitution—and if so, the scope of the limits or requirements for such relief.

Facts

The Federal Trade Commission Act (“FTC Act”) grants Respondent Federal Trade Commission (“FTC”) authority to regulate deceptive “acts or practices.” Fed. Trade Comm’n v. AMG Capital Mgmt., LLC at 424. Specifically, Section 5 of the FTC Act prohibits “deceptive acts or practices in or affecting commerce” and grants the FTC broad authority to enforce this law. Id. The FTC investigated Petitioner Scott Tucker’s (“Tucker”) online loan businesses, which collectively made more than 5 million payday loans between 2008 and 2012. Id. at 421. Tucker’s businesses were governed by the Truth In Lending Act, which requires borrowers to disclose the essential terms of loans made. Id.

Tucker offered short-term payday loans to customers through various websites with names that alluded to fast cash and quick loans. Id. The various loan websites controlled by Tucker operated by the same business process: each website had an online application form for borrowers to submit the necessary personal, financial, and employment information to apply for a payday loan. Id. Tucker’s business, in turn, disclosed the terms and conditions of their loans to approved borrowers through hyperlinks to documents, including the “Loan Note,” that did not have to be read before the customer agreed to the loan. Id.

After customers agreed to loan agreements with Tucker’s businesses, the default automatic loan renewal scheme imposed additional “finance charges” to the amount owed. Id. at 423. If the loan was not paid after four automatic renewals, the loan company would use the customer’s provided banking information to begin withdrawing payments of the “finance charge plus $50.” Id. If the borrower wanted to only pay the “total of payments” amount shown on the Loan Note they agreed to, without extra finance charges, they had three business days after receiving their loan to request to change their repayment schedule on an online portal and decline automatic loan renewal. Id.

In April 2012, the FTC sued Tucker in the U.S. District Court for the District of Nevada and alleged that his businesses deceptively offered loans without disclosing the actual terms to which borrowers agreed. Id. at 421–22. In December 2012, the parties bifurcated the proceedings into a “liability phase” and a “relief phase.” Id. at 422. The FTC filed a motion for summary judgment, which the district court granted in the liability phase. Id. at 422. The District Court made two orders in the relief phase: one enjoining Tucker from assisting consumers from obtaining or applying for a loan and one ordering $1.27 billion of equitable relief paid to the FTC. Id. at 422. In December 2018, the Court of Appeals for the Ninth Circuit affirmed the district court’s decisions. Id. at 428.

On the liability issue, the Ninth Circuit rejected Tucker’s arguments against the district court’s legal finding that Tucker violated Section 5 of the FTC Act, which prohibits deceptive business practices. Id. at 422, 426. One circuit judge, however, wrote separately to address Tucker’s argument that the district court should not have found Tucker’s business practices deceptive “as a matter of law” on summary judgment. Id. at 437–38. On the remedies issue, the majority of the Ninth Circuit found that the district court did not abuse its discretion in ordering Tucker to pay $1.27 billion and permanently enjoining Tucker’s business operations. Id. at 428. Two circuit judges wrote a concurring opinion disagreeing with the reliance on Ninth Circuit precedent to decide this case when recent Supreme Court cases have limited administrative agency power to seek monetary relief as an equitable remedy. Id. at 436–37.

The United States Supreme Court granted Tucker certiorari on July 9, 2020. Br ief for Petitioner, AMG Capital Management, LLC at 14.

Analysis

PLAIN LANGUAGE AND THE TERM “INJUNCTION”

Petitioner Tucker claims that the plain language of Section 13(b) of the FTC Act does not authorize restitution and other monetary relief. Br ief for Petitioner, AMG Capital Management, LLC at 19. Citing The United States Court of Appeals for the Seventh Circuit in Credit Bureau, Tucker maintains that restitution is not an injunction. Id. at 20. Tucker also contends that traditional equity jurisprudence has excluded monetary relief from the definition of injunctions. Id. at 24. Additionally, Tucker argues that injunctive relief only addresses a current or future violation of the law, not past violations. Id. at 22–23. Since the Ninth Circuit’s order demands monetary restitution from Tucker based on his past wrongdoing, Tucker argues that this order is the kind of remedy that the term injunction does not cover. Id. at 22–23.

Respondent FTC counters by arguing that the equitable authority in Section 13(b) justifies the monetary restitution. Brief for Respondent, Federal Trade Commission at 16–17. Citing cases in equity courts, the FTC argues that past case law on patent and copyright rebuts Tucker’s argument that “restitution isn’t an injunction.” Id. at 19, 29. The FTC further maintains that the history of equity court case law provides precedents that permitted monetary restitution as a part of an injunction. Id. at 18–20, 30. The FTC concludes that the Supreme Court in Liu affirmed the authority to enter equitable remedies including monetary restitution, and that those same principles apply here. Id. at 22. The FTC also rejects Tucker’s assertion that an injunction does not cover past violations by citing Justice Story who illustrated that injunctions although “generally preventive,” may also be restorative. Id. at 30.

THE BROADER FTC ACT SCHEME AND PROCEDURAL SAFEGUARDS

Tucker claims that allowing monetary restitution would disrupt the structure of the FTC Act. Brief for Petitioner at 25. Tucker argues that Section 13(b) provides relief for “ongoing and imminent future” wrongdoings but it does not provide relief for past wrongdoings. Id. at 26. Tucker further points out that the statute expressly provides relief for past wrongdoings in Section 19. Id. According to Tucker, affording the power of monetary restitution in Section 13(b) will make Section 19 “redundant,” disrupting the organization of the FTC Act. Id. at 26–27. Therefore, argues Tucker, the Court should reject the Ninth Circuit’s interpretation to prevent Section 19 from being superfluous. Id. at 27.

Furthermore, Tucker argues that the Ninth Circuit’s interpretation will allow the FTC to avoid the procedural safeguards in Section 5 and Section 19 by allowing the FTC to directly rely on Section 13(b). Id. at 25–28. According to Tucker, Section 5(l) provides relief only when an individual violates a cease-and-desist order after the Commission has already ordered them to stop, making “actual notice” an inherent part of the process. Id. at 27. Further, Tucker claims that Section 19 requires the FTC to give “fair notice” to defendants when seeking monetary relief. Id. at 27. In contrast, argues Tucker, Section 13(b) does not have the safeguards otherwise present in Section 19. Id. at 25–26. Therefore, Tucker contends that authorizing monetary restitution will make the above safeguards meaningless by letting the FTC bypass the procedural requirements of Section 5(l) and Section 19. Id. at 27–29.

The FTC counters by arguing that Tucker’s arguments fail to consider the distinction between the two pathways of adjudicating violations of the FTC Act—the administrative one and the other pathway involving judicial enforcement. Brief for Respondent at 39. The FTC argues that Section 5(l) and 19 are related to the administrative pathway and hence not relevant to the judicial pathway that encompasses Section 13(b). Id. at 39–40. According to the FTC, when Congress fashioned the administrative pathway as a new enforcement device in 1914, the administrative proceeding itself was a new legal concept, demanding Congress to be specific in stipulating judicial support and other safeguards that would appear in Section 5(l) and 19. Id. at 40. In contrast, the FTC argues, when Congress enacted Section 13(b), Congress was not obliged to apply the same level of specificity to the provisions in Section 13(b) because Congress could rely on the pre-existing safeguards in federal courts’ judicial procedures. Id. at 41.

The FTC counters Tucker’s claim that the Ninth Circuit’s interpretation would make Section 19 “redundant” because Section 13(b) and Section 19 belong to different pathways which lead to different remedies. Id. at 43. The FTC also rejects Tucker’s claim that the Ninth Circuit’s interpretation will neutralize the safeguards in Section 5(l) and Section 19. Id. at 43–44. The FTC asserts that Congress at that time had a reason to be concerned about the FTC being the sole authority to adjudicate legality in the administrative proceeding, which was a new enforcement device at the time, and put the language of due process to balance out the FTC’s power. Id. at 44. Therefore, the FTC argues that the difference between the presence of procedural requirements in Section 5(l) and 19 and the absence of them in Section 13(b) does not justify Tucker’s claim that Section 13(b) will become an avenue to help the FTC avoid the procedural burdens. Id. at 44–45.

PORTER, MEGHRIG AND THE THEORY OF IMPLIED REMEDIES

Tucker contends that Porter and its progeny do not support the Ninth Circuit’s interpretation. Brief for Petitioner at 33. Tucker maintains that the Court in Porter relied on the phrase “the other order” to justify the award of monetary restitution that falls under the definition of “remedy other than that of an injunction.” Id. at 33–35. Further, citing the Court in Mitchell, Tucker asserts that the Court could justify the broad reading of the Fair Labor Standards Act (“FLSA”) because the language of the statute authorized courts to “restrain violations” and there were no other provisions in the FLSA to otherwise prevent awarding monetary restitution. Id. at 34–35.

Tucker argues that the reasoning in Porter should lead to the result contrary to the Ninth Circuit’s interpretation. Id. at 35. While the law at issue in Porter includes the phrase “other order,” Tucker contends, Section 13(b) mentions only “injunction[s]” and does not include the phrase “other order.” Id. While the Court did not find any other provision in the statute to preclude awarding monetary restitution in Porter and Mitchell, Tucker argues, Section 5(l) and 19 of the FTC Act expressly authorize other forms of equitable remedies, which may prevent the Court from awarding monetary restitution. Id. at 35–36. Furthermore, Tucker contends that Porter and its progeny do not bind the current case because the Court in Porter followed an obsolete approach of “‘recognizing implied causes of action’ and remedies.” Id. at 36.

Tucker argues that Meghrig should instead control the current case. Id. at 37–38. Citing Meghrig, where the Court refused to find an implied remedy of restitution under the Resource Conservation and Recovery Act of 1976 (“RCRA”), Tucker argues that the Court held that the RCRA was not intended to provide restitution because the other law addressing the same toxic-waste issues expressly provided equitable remedies. Id. at 38–39. Therefore, Tucker contends that Meghrig controls the current case because Section 13(b)’s plain language does not authorize monetary restitution whereas Sections 5(l) and 19 explicitly authorize such equitable remedies. Id. at 39.

The FTC counters Tucker’s contention by arguing that Porter, Mitchell and other equity case law still control the current case. Brief for Respondent at 33. The FTC contends that Tucker’s “other order” argument fails because the Court in Porter did not determine the equitable power of the Court not because the Court relied on the phrase “other order” but because the Court wanted “to accord full justice” by granting equitable remedies. Id. The FTC further argues that the Mitchell Court authorized district courts to “‘restrain’ violations,” expressly rejected the “other order” argument, and held that Porter still applies. Id.

The FTC rejects Tucker’s argument that the Court abandoned the theory of “implied remedies.” Id. at 34. The FTC asserts that cases cited by Tucker speak little to the theory of implied remedies because those cases relate not to the issue of implied remedies, but to the issue of an implied cause of action. Id. The FTC argues that Section 13(b) explicitly stipulates the Commission’s right of action, rendering Tucker’s cases about implied causes of action irrelevant. Id. at 34–35.

The FTC also rejects Tucker’s assertion that Meghrig controls the current case. Id. at 35–37. According to the FTC, the RCRA allows a remedy for “present and imminent future harm” and the other law—although it addresses the same toxic waste issue as the RCRA—allows for “the recovery of cleanup costs.” Id. at 36. Therefore, the FTC argues that whereas Meghrig was a case involving different avenues for different remedial purposes, the current FTC Act involves a statutory scheme that contains different avenues serving the same remedial purpose. Id. at 35–37.

Discussion

CONSUMER PROTECTION AND EFFECT ON BUSINESSES

The Chamber of Commerce of the United States of America, in support of Tucker, states that the FTC’s pursuit of monetary awards, including restitution and disgorgement, has created uncertainty for what the Commission considers “unfair” or “deceptive” practices even if that practice is “common” and “ordinary” in the industry. Brief of Amici Curiae The Chamber of Commerce of the United States of America et al., in Support of Petitioner at 6–7, 10. The Pharmaceutical Research and Manufacturers of America, in support of Tucker, contends that the FTC’s application of monetary recovery is inequitable in application when it requests to recover money from businesses not just for anti-competitive behavior, but also in consumer protection cases. Brief of Amici Curiae Pharmaceutical Research and Manufacturers of America, in Support of Petitioner at 4. The Pharmaceutical Research Manufacturers of America further argue that when the Commission’s enforcement actions compel companies to make “reverse payments” to their customers, the unpredictable and substantial financial burden of paying monetary damages may deter “pro-consumer behavior.” Id. at 4–6. The Chamber of Commerce also states that FTC requests to recover large monetary awards causes business uncertainty that deters innovation and investment activity, which harms businesses and consumers. Brief of Chamber of Commerce et al. at 12.

Twenty-nine States (“The States”), in support of the FTC, assert that the agency’s Section 13(b) nationwide enforcement power to seek the return of money obtained from deceptive business practices is a necessary complement to the authority that individual state attorneys general have to confiscate funds obtained through illegal means. Brief of Amici Curiae States of Illinois et al., in Support of Respondent at 6–7. The States further explain that this nationwide enforcement power ensures that consumers are protected nationwide, because it permits the FTC to obtain monetary awards in cross-border cases where several states would have to file suit in order to compensate victims and deter unlawful behavior. Id. at 7. Truth in Advertising, Inc., in support of the FTC, discusses several public interest reasons, including costs to produce goods, “consumer welfare,” and monetary loss, as to why the American economy benefits from the return of ill-gotten profits to vulnerable consumers in light of the “market failure” posed by unmitigated consumer fraud. Brief of Amicus Curiae Truth in Advertising, Inc., in Support of Respondent at 7–10. Open Markets Institute, also in support of the FTC, contends that the FTC’s authority to request monetary awards not only rectifies the harms of FTC Act violations, but also deters other businesses from engaging in unlawful activity by demonstrating the consequences these businesses may face. Brief of Amicus Curiae Open Markets Institute, in Support of Respondent at 16–17.

STATUTORY INTERPRETATION AND STARE DECISIS

Americans for Prosperity Foundation (“AFPF”), in support of Tucker, argue that constitutional separation of powers is violated when administrative agencies bypass Congress’ legislative power to amend an agency’s statutory rulemaking and adjudicatory procedures by using judicial precedent to seek payment for enforcement actions. Brief of Amicus Curiae Americans for Prosperity Foundation, in Support of Petitioner at 10–11. The AFPF further contends that it is unconstitutional to rely on case law to justify expanding the Commission’s authority to directly seek equitable monetary relief from a federal court because preliminary judgments in such FTC cases violate companies’ rights to defend themselves at a jury trial and their procedural protection from warrantless search and unlawful punishment or takings. Id. at 24–27. The Washington Legal Foundation and Allied Educational Foundation, in support of Tucker, assert that the Commission’s statutory authority “merely” permits the Commission to issue injunctions and “temporary restraining order[s].” Brief of Amici Curiae Washington Legal Foundation and Allied Educational Foundation, in Support of Petitioner at 9–10.

Legal scholars from the National Consumer Law Center and other similar legal organizations, in support of the FTC, argue that federal district courts have broad equitable powers to grant the monetary relief requested in FTC cases against infracting businesses and that exercising this judicial authority to redress consumer fraud is appropriate when public interest in promoting fair business practices is at stake. Brief of Amici Curiae National Consumer Law Center et al., in Support of Respondent at 6–7. Public Citizen, a consumer-advocacy group in support of the FTC, asserts that Congress’ 1973 amendments to the FTC Act expanded the FTC’s judicial enforcement authority to issue penalties. Brief of Amicus Curiae Public Citizen, in Support of Respondent at 6–7. Former FTC officials, in support of the FTC, further contend that the Supreme Court should follow judicial precedent, under the doctrine of stare decisis, that Section 13(b) of the FTC Act permits district courts’ under their “equitable power” to authorize monetary compensation. Brief of Amici Curiae Former Federal Trade Commission Officials, in Support of Respondent at 20–21.