The Battle Over the Scope of FTC Judicial Enforcement Authority: Seventh Circuit Hears Oral Argument Regarding the Reach of Section 13(b)

Last month, we wrote about the decision of the U.S. Court of Appeals for the Third Circuit in FTC v. Shire Viropharma Inc., holding that the FTC may only bring a case under Section 13(b) of the FTC Act when the FTC can articulate specific facts that a defendant is violating” or is about to violate” the law. We noted that the same issue in the context of a consumer protection action is likely headed to the U.S. Court of Appeals for the Eleventh Circuit in FTC v. Hornbeam Special Situations LLC.

This issue is also before the Ninth Circuit, where, in a concurring opinion Judge Diarmuid O’Scannlain in FTC v. AMG Capital Management, urged the Circuit to sit en banc to review what he see as wrongly-decided prior decisions that had allowed the FTC to pursue monetary damages in federal court under Section 13(b) of the FTC Act. The text and structure of the statute unambiguously foreclose such monetary relief,” O’Scannlain wrote.

And now the issue is now teed up Seventh Circuit, which heard argument yesterday on the same issue in FTC v. Credit Bureau Center, LLC, et al., case numbers 18-2847 and 18-3310.

Some background: dating back to the 1980s, the FTC routinely used Section 13(b) as the basis to file lawsuits in federal court to stop allegedly deceptive, unfair, or anti-competitive conduct, and to seek permanent injunctive and monetary relief. Under Section 13(b), the FTC may seek an injunction in federal court “[w]henever the Commission has reason to believe ... that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the [FTC].”

While in cases of pending acquisitions or ongoing fraud it may be clear that the FTC has reason to believe someone is violating” or is about to violate” the law, the FTC has also brought cases under Section 13(b) for claims arising from abandoned conduct. Shire, Hornbeam, and now Credit Bureau Center address the FTC’s authority to bring an action in federal court under Section 13(b) in these circumstances. Having lost in the Third Circuit in Shire, the FTC is looking for a different result in the Eleventh and Seventh Circuits, in order to bolster what the FTC views as a critically important aspect.

In Credit Bureau Center, the appellant argued that an Illinois federal court should not have entered a judgment for $5.2 million against a credit-monitoring company because Section 13(b) only permits the FTC to seek injunctive relief over the alleged wrongdoing. In response, the FTC argued that, while Section 13(b) expressly is limited to injunctions, the Seventh Circuit has recognized that once you have the power to restrain and enjoin, you then have the power to impose other equitable remedies.” U.S. Circuit Judge Diane Sykes appeared skeptical, responding that this whole authority that the FTC has claimed is purely by interpretation through the word injunction” and “[t]hat may be how the agency operates, but that’s not mentioned anywhere in the statute.”

As we await word from the Eleventh, Ninth, and Seventh Circuits, we also are waiting to see whether the FTC will appeal the decision in Shire. Wins in the Eleventh and Seventh Circuits, and a refusal by the Ninth Circuit to take up the issue en banc, would obviously change that calculation, making it more likely that the FTC would seek cert and press its defense in support of the status quo.