Argument analysis: Justices doubt FTC’s authority to compel monetary relief

If you’re arguing on behalf of a federal regulatory agency’s authority to protect consumers from businesses and Justice Stephen Breyer sets his face against you, then chances are your day is not going well. But that is what happened Wednesday morning when Joel Marcus appeared on behalf of the FTC in AMG Capital Management v. Federal Trade Commission.

The case involves Section 13 of the Federal Trade Commission Act, which allows the FTC to seek an “injunction” against a business that “is violating, or is about to violate, any provision of law enforced by [the FTC].” The FTC commonly uses that authority to seek what it characterizes as “restorative” monetary awards on the theory (supported by old Supreme Court cases and dominant for half a century in the courts of appeals) that the statutory authority to obtain an “injunction” implicitly includes all traditional forms of equitable relief. In this case, for example, the FTC obtained an “injunction” ordering the defendants to pay more than a billion dollars based on a finding of deception in various aspects of short-term small-dollar lending programs in which the defendants were involved.

The fulcrum of the oral argument was a protracted monologue from Breyer, who began his questioning of Marcus by directly contradicting the FTC’s position with a perspective on the historic “compromise” of the FTC Act. As Breyer put it:

History matters. I think Justice Brandeis, when he started [working on the FTC Act], was faced with a business community that was very suspicious of the FTC’s power and thought it would be abused and a progressive community that thought it’s absolutely necessary to bring bad business practices under control. So they compromised.

And Breyer found the terms of that compromise easy to explain: “The compromise was you’ve got to do what the FTC says, but before it tells you to do something, it will find that what you’re doing now is wrong. It will find that. It will be a cease-and-desist order.” As he went on to explain, Section 5 of the act contemplates a “cease-and-desist order or violation of a rule” as a predicate to an award of damages. In Section 19, Breyer discerned “the same thing.” But under Marcus’ view, Breyer said, Section 13 allows the FTC to recover damages with “no protection like that whatsoever” — based on a lawsuit with no prior warning, alleging that some previously unregulated and unexamined practice is deceptive in the first instance.

Nor was Breyer satisfied that the FTC is using the authority only in exceptional or unusual circumstances: “‘Do not worry,’ says the FTC, ‘we will use it only in exceptional cases.’ Ha! … I read that 100 cases under this provision are in the court, compared with 10 or 12 under the regular [procedures].” Summing up his views, Breyer explained that “if we interpret it your way, we say your fears, business community, were absolutely right. … Before you know the thing is wrong, they hit you with bad damages.” A billion dollars in this case, as I mentioned above.

Breyer was not alone. From one end of the bench to the other, the justices found the FTC’s reading of Section 13 jarring. Early in Marcus’ presentation, for example, Justice Clarence Thomas commented that the text of 13(b)(1) “seems to suggest that [it] is focused on forward-looking, preventing a future or a present action. It seems that what you’re doing here is using it for something that has already happened.” Justice Samuel Alito – not the biggest fan of legislative history – read a lengthy statement from David Fitzgerald, who served as a litigation attorney for the FTC during the 1970 and 1980s. As Alito explained, Fitzgerald understood that the FTC “decided that [the limitations in] Section 19 [made it] too time consuming so it … looked for a workaround and [found one].” Indeed, Fitzgerald explained in the passage read by Alito, the FTC’s counsel at the time “thought these arguments were not going to succeed but, to their surprise, they were successful.” Those admissions, Alito told Marcus, are “pretty damaging to your position.”

Justice Elena Kagan’s comments embraced that same tension between the “protections” Congress placed in Sections 5 and 19 and the broad authority the FTC seeks under Section 13. As she put it:

[I]t seems to me that the best argument against your position, and it’s a strong one, comes from Section 5 and Section 19, which have these protections in them that Section 13 does not, that there has to be a repeated violation, that there has to be a certain kind of mens rea and so forth. And it does seem as though your interpretation of Section 13 makes those pretty much entirely irrelevant.

Continuing the stark response, Justice Neil Gorsuch embraced Breyer’s understanding of the history, noting that “[t]he FTC was set up in part to enact rules about deceptive conduct” that would have given businesses advance notice of conduct subject to sanction, but that

[i]t chose not to go that route, preferred an enforcement route. … I think our core concern is you’re rendering those protections superfluous, that there’s very little incentive for the agency to ever comply with them, and it’s just another step away from what Congress anticipated would be a regulatory regime that’s never materialized.”

I could belabor the point, but I’ll offer just one more excerpt from the comments of Justice Brett Kavanaugh, who reminisced about his work at the Justice Department and the White House early in his career:

I worked in the Executive Branch for many years so I understand how this happens. When you’re in the Executive Branch or an independent agency, you want to do good things and prevent or punish bad things, and sometimes your statutory authority is borderline. And it could be war policy or immigration or environmental or what have you, but with good intentions the agency pushes the envelope and stretches the statutory language to do the good or prevent the bad.

For Kavanaugh, that dynamic

results in a transfer of power from Congress to the Executive Branch to decide whether to exercise this new authority. That’s a particular concern, at least for me, with independent agencies. [W]hy isn’t the answer here for the agency to seek this new authority from Congress for us to maintain the principle that … the agency should stick to the authority in the text and not go beyond that?

I suggested in my preview that AMG was one of the simplest cases the Supreme Court would hear this year. My reading of the argument is that the principal question remaining is whether AMG will be the first opinion from the January argument calendar or whether the justices will find some other case that seems even more obvious to them.