Antitrust Law Daily Restitution not authorized under Sec. 13(b) of FTC Act
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Thursday, August 22, 2019

Restitution not authorized under Sec. 13(b) of FTC Act

By Anne B. Hemenway, J.D.

A credit monitoring service and its owner who conceded liability for FTC Act violations successfully argued that a restitution award, resting on Section 13(b)’s permanent-injunction provision, was not authorized, notwithstanding long-standing judicial precedent to the contrary.

Section 13(b) of the FTC Act authorizes only restraining orders and injunctions and not, as the FTC has long viewed it, restitution, held the U.S. Court of Appeals in Chicago. A credit monitoring service and its owner conceded liability under the FTC Act for a scheme under which consumer were automatically enrolled in a service with a monthly fee. They disputed the injunctive relief and restitution granted. The court held that the permanent injunction against the defendants was not in violation of the Eighth Amendment’s Excessive Fines clause because injunctive relief does not constitute a fine. However, the court sided with the defendants on the issue of restitution and held that (notwithstanding prior precedent allowing restitution) the FTC Act does not permit restitution awards and cannot be interpreted as implicitly allowing such awards. The court also held that to permit restitution would be procedurally incompatible with the stated statutory remedies (FTC v. Credit Bureau Center, LLC, August 21, 2019, Sykes, D.).

FTC Act violations. The credit monitoring service’s websites offered a free credit report and score while obscuring the fact that applying for the information would automatically enroll a consumer in a credit-monitoring service for a monthly fee. The consumers learned of the enrollment after the fact, when the service’s owner sent them a letter. Based on these practices, the FTC alleged violations of the FTC Act, the Fair Credit Reporting Act, and the Restore Online Shopper Confidence Act. The owner was permanently enjoined from operating a credit-monitoring service unless he complied with extensive requirements.

Injunctive relief permitted. The service and owner argued that the permanent injunction constituted an excessive fine in violation of the Eighth Amendment’s Excessive Fines clause. This argument was rejected by the FTC on the grounds that injunctive relief does not constitute a fine. The court agreed and affirmed the permanent injunction.

Restitution awarded rejected. The credit monitoring service and owner argued that the court's $5 million restitution fine is not authorized under the FTC Act, which only permits injunctive relief. The court agreed, rejecting the FTC’s argument that restitution awards implicitly fall under the FTC Act's permanent injunctive relief process and under the FTC Act's saving clause. The court held that the FTC Act does not permit restitution awards and cannot be interpreted as implicitly allowing such awards. The court also held that to permit restitution would be procedurally incompatible with the stated statutory remedies.

The FTC also argued that stare decisis and the court's previous decision in FTC v. Amy Travel Service, Inc., 875 F.2d 564 (7th Cir. 1989) authorized the award of restitution. The court held that its earlier decision permitting restitution awards for violations of the FTC was incompatible with the FTC Act’s statutory language, and with Meghrig v. KFC Western, Inc., 516 U.S. 479 (1996), which instructed that where a statute expressly provides a particular remedy or remedies, a court must be wary of reading others into it. In other words, courts do not have a license to categorically recognize all ancillary forms of equitable relief without a close analysis of statutory text and structure. The Meghrig decision displaced Amy Travel’s approach to judicially implied remedies and its interpretation of the FTC Act, and stare decisis alone cannot overcome Amy Travel’s clear incompatibilities with the FTC Act’s text and structure, Meghrig, and the Supreme Court’s broader refinement of its implied remedies jurisprudence.

Dissent. Justices Wood, Rovner, and Hamilton dissented from the court’s denial of rehearing en banc and would have held that section 13(b) of the FTC Act does authorize injunctive relief—as eight other circuit courts have done.

This case is Nos. 18-2847 and 18-3310.

Attorneys: Michael D. Bergman for the FTC. Stephen R. Cochell (The Cochell Law Firm, PC) for Credit Bureau Center, LLC.

Companies: Credit Bureau Center, LLC

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