In April, the Supreme Court unanimously rebuked the Federal Trade Commission’s decades-long abuse of its “disgorgement” authority to extract massive fines from companies accused of unfair trade practices because the agency never had that power in the first place. Now the FTC seems desperate to replace its unlawful disgorgement practice with any other way it can think of to impose fines.
Recently, the commission entered a settlement agreement with the target of enforcement action and set a $750,000 fine using a statutory provision that it perhaps just discovered gave it the power to do what it wanted. But as two members of the commission have noted, its new practice also “flouts the limits of [its] authority” and guarantees “additional rebukes from the courts.”
Under its new leadership, the FTC apparently has embraced an activist mission designed to micromanage business practices and punish those it disagrees with. To accomplish this goal, it needs the power to levy huge fines against companies, even if Congress long ago refused to give the agency that authority. Last month, FTC Chair Lina KhanLina KhanHillicon Valley — Chinese disinformation accounts removed GOP resistance to Biden FCC nominee could endanger board's Democratic majority Hillicon Valley — Inside the Twitter shakeup MORE even said that her biggest concern for the agency is the “existential threat of underreaching.”
To understand why that statement is so alarming, take a peek at recent history. Because it otherwise has broad power to regulate “unfair” business practices, Congress gave the FTC very limited powers to impose financial penalties. That didn’t stop the agency, though, and it developed a practice of seeking “disgorgement” of ill-gotten gains, which was a euphemism for industry-killing fines. For example, in AMG Capital v. FTC, the case that ultimately changed the practice, the FTC obtained a $1.27 billion fine against a business, which — even though AMG Capital was supposed to pay restitution to the victims of unfair conduct — had been ordered to be paid to the Treasury.
Even though lower federal courts had blessed the practice for decades, the Supreme Court concluded that the FTC lacked the power to impose such fines. Addressing the commission’s complaints about the limits of other avenues to pursue relief, the court said, pointedly, “If the Commission believes that authority too cumbersome or otherwise inadequate, it is, of course, free to ask Congress to grant it further remedial authority.”
With the ink hardly dry on the court’s decision, the FTC is now trying a new tactic — one that evidently is designed to avoid the pesky problem of judicial oversight. In a proposed settlement the FTC just made public, the commission has proposed to settle charges against a company for a $753,300 fine “with any remainder not used for redress to be disgorged to the Treasury.” Whatever the merits of the charges against the company, that proposed fine sure seems familiar.
In a statement, Khan defended the settlement under a provision allowing the agency to order “redress … to customers.” And, true to her public statements, Khan added that even if the settlement wasn’t allowed by law, she believes the FTC could “approve settlements that include relief beyond what could have been awarded at trial.”
In a rare development, the proposal drew two “no” votes from among the five commissioners. They pointed out that federal courts concluded nearly 30 years ago that the “redress” statute forbids the FTC from ordering fines payable to the Treasury. The new leadership seems not to like those decisions.
It would be disturbing enough for any agency to ignore federal court decisions but coming as a part of a settlement raises the stakes. While interested parties can comment on settlements (as Pacific Legal Foundation just did), only the parties can challenge them in court.
And it can make sense to a litigant to settle a charge, even if it includes illegal fines, and even if you didn’t do anything wrong. Legal fees alone can run into the millions of dollars for a robust defense, and a company faces the possibility of having to fight a massive fine for years on appeal before courts are willing to step in. After all, AMG Capital had to labor under a $1.27 billion judgment for nine years before the Supreme Court reversed it. Why risk it when you can enter a dubious settlement?
This point was not lost on the dissenting commissioners, who said, “But the law says what it says, and we do not support using the cloak of a settlement to overstep the authority we have.”
Even if the FTC gets away with it this time, it will certainly try again, and it only takes one courageous person to stand up for the rule of law. Pacific Legal Foundation and other public interest legal organizations can help change the calculus — by defending companies pro bono, we can provide the resources and expertise to help those challenges succeed without the pressure of crippling legal expenses. We look forward to “additional rebukes from the courts” for the commission’s bad behavior.
Caleb Kruckenberg is an attorney at Pacific Legal Foundation, a nonprofit legal organization that defends Americans’ liberties when threatened by government overreach and abuse. Follow him on Twitter @Kruckenberg_Esq.