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Seventh Circuit Drops Bomb on FTC

As previously blogged about here, the FTC’s enforcement authority has been under attack. The agency authority to obtain disgorgement under a theory of “ancillary equitable relief” got clipped by the U.S. Court of Appeals for the Seventh Circuit.

What’s more, the court ignored long-standing precedent in doing so.

The issue is this. Does the FTC have the statutory right to seek money damages (e.g., restitution, disgorgement, asset freezes, etc.) under the statute upon which it routinely relies – Section 13(b) of the FTC Act?

Make no mistake.   The FTC’s remedial authority is now in doubt.

The decision in Federal Trade Commission v. Credit Bureau Center stands for the idea that the FTC attorneys may not obtain monetary relief in the form of “equitable restitution” under Section 13(b) when it initiates deceptive advertising actions in federal court.

More than one court has already held that the FTC cannot initiate federal court litigation seeking an injunction under Section 13(b) unless it plausibly alleges that a defendant “is violating” or “is about to violate” the law.

The significance of the Seventh Circuit ruling is deeper because it goes directly to the heart of the type of relief that the FTC is entitled to.

The opinion analyzes the wording of Section 13(b) and concludes that long-standing precedents were incorrect. It held that neither the text nor structure of the provision allows for monetary remedies.

The court explained that “when deciding whether we should overturn precedent, ‘[w]e are not merely to count noses. The parties are entitled to our independent judgment….’ We are well aware that we need a compelling reason to overturn circuit precedent. ‘However, important as stare decisis is, it is equally important for us to respect the statutes that Congress has passed and to correct any problems we see in our prior interpretations of those statutes.’”

The dissenting opinion states that “[t]he majority’s interpretation upends what the agency and Congress have understood to be the status quo for thirty years, and in so doing grants a needless measure of impunity to brazen scammers.”

The potential impact of this decision is significant and has potentially presented interesting opportunities for defendants facing FTC enforcement lawsuits.

Query whether FTC lawyers will seek Congressional intervention of seek review by the Supreme Court. Given the circuit split, the latter appears likely.

Richard B. Newman is an Internet marketing attorney focusing on federal agency litigation at Hinch Newman LLP. Follow him on Twitter @ FTC Defense Attorneys.

Informational purposes only. Not legal advice. Attorney advertising.

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Richard B. Newman

Richard B. Newman is an Internet Lawyer at Hinch Newman LLP focusing on advertising law, Internet marketing compliance, regulatory defense and digital media matters. His practice involves conducting legal compliance reviews of advertising campaigns across all media channels, regularly representing clients in high-profile investigative proceedings and enforcement actions brought by the Federal Trade Commission and state attorneys general throughout the country, advertising and marketing litigation, advising on email and telemarketing best practice protocol implementation, counseling on eCommerce guidelines and promotional marketing programs, and negotiating and drafting legal agreements.

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