Active: The Supreme Court has been asked to hear challenges to the FTC’s illegal power grab

In 1914, Congress passed the Federal Trade Commission Act and created the Federal Trade Commission (FTC) to “protect consumers and promote competition.” Congress has amended the law since then and, in 1973, added Section 13(b) to the FTC Act, authorizing the agency to seek permanent injunctions in federal courts to stop or prevent unfair and deceptive practices.

Under Section 13(b), the FTC routinely asked courts to issue injunctions against companies for alleged unfair or deceptive practices, halt companies’ business operations, and freeze the companies’ assets—all without notice to the subject companies. And, as a former FTC general counsel boasted, the courts did “not hesitate[] to grant” the FTC’s requests.

Because the FTC and the courts may act without providing notice to the subject companies, most of these companies, like PLF client Elite IT Partners, have no idea what’s happening until there’s a knock at the door and a court order to take over the business.

It gets worse. Section 13(b) allows only “injunctive” relief—that is, an order from a court compelling a company to do or refrain from doing something. But the FTC has used Section 13(b) to obtain huge monetary awards—called “disgorgement”—as punishment for money allegedly gained illegally.

These disgorgement awards may include accused businesses’ gross annual revenues over the life of the companies, not just for the time periods during which the allegedly unlawful conduct occurred. In these situations, customers obtain windfall awards—far more than necessary to compensate them for their (alleged) losses. And, if the FTC finds it too difficult to find (allegedly) swindled consumers, the agency either transfers the rest to the U.S. Treasury or distributes it elsewhere.

Faced with the FTC’s virtually unlimited resources and the freezing of their assets, many companies have no choice but to settle under the best terms they can get, which often still involves ruinous fines. Disgorgement became the agency’s most significant enforcement tool. Courts ordered $723 million in such awards in 2019, far above and beyond the limited fines permitted elsewhere in the law.

It turns out the FTC has wrongly wielded this power all along. In April 2021, the Supreme Court ruled—unanimously—that the FTC Act never authorized such extortion. Section 13(b) allowed the FTC to seek, and courts to award, only injunctive relief—not monetary awards.

The agency didn’t care. Stung at just the thought of restraint, the FTC publicly complained the Justices were wrong, vowed to get around the ruling, and invoked a different part of the FTC Act, Section 19, to exercise the very same power the Supreme Court said the agency could not seek.

As a result, companies that reluctantly settled with the FTC before the Supreme Court ruling in 2021 never got their rightful day in court but still face ruin by an agency wielding power it never had, to extort money unrelated to the allegedly unlawful conduct. The firms below are among the targets of the FTC’s continued illegal practices. With PLF’s help, they are fighting to restore the rule of law against the FTC’s lawless campaign.

Federal Trade Commission v. Elite IT Partners

Jim Martinos and his company, Elite IT Partners, provided contract IT services for residential customers, mid-sized companies, and municipalities—primarily city governments and local police departments. The FTC decided the firm was involved in illegal marketing and, unbeknownst to Jim, got an injunction from a federal judge, seized the company, halted its operations, and froze all of its assets. Jim had no idea the federal government targeted his business until the receiver showed up at his office with sheriff’s deputies.

Elite IT flatly denies the FTC’s allegations, but because the agency froze his and his company’s assets, Jim had no way to pay legal costs to defend his company in court. Faced with enormous fines and potential criminal charges, Jim was essentially forced into a settlement in which he denied wrongdoing but paid more than $13 million in restitution and disgorgement—by liquidating the business’ assets and  his personal retirement accounts. Jim has nothing left and his business is finished, yet he still has the FTC’s hammer hanging over him.

With PLF’s help, Jim is now seeking to unwind the FTC’s illegal settlement, so that he can finally defend himself from the agency’s unfounded accusations.

In January of 2023, a district court found in favor of the FTC. In January 2024, the Tenth Circuit affirmed the district court’s ruling and subsequently denied a request for en banc rehearing. Elite IT and Jim Martinos have asked the Supreme Court to take the case.

Federal Trade Commission v. Credit Bureau Center, LLC

Credit Bureau Center (CBC) and its sole employee, Michael Brown, offered online credit scores and credit monitoring services, some of which involved third-party affiliate marketers to drive traffic to CBC’s website. One such affiliate deceptively drove customers to CBC’s website. Although CBC denies any knowledge or involvement with the scheme, the courts ruled that CBC should have known and so held the firm liable.

The court originally imposed a massive disgorgement award against CBC under Section 13(b) of the FTC Act. After the Supreme Court confirmed that such awards are forbidden, the trial court skirted binding law and re-imposed an identical award, yet again payable to the U.S. Treasury, but this time cited Section 19 of the FTC Act. Nonetheless, in 2023, the Seventh Circuit affirmed the district court, with a minor correction to the opinion, and subsequently denied a request for en banc rehearing. Credit Bureau Center and Michael Brown have asked the Supreme Court to take up the case.

Section 19 allows the FTC to obtain only relief that is “necessary to redress injury to consumers,” and Section 19 expressly precludes “the imposition of any exemplary or punitive damages.” None of this has stopped the FTC. The agency continues to demand punitive awards far more than “necessary” to remedy consumer injuries. Section 19 of the FTC Act, claimed by the FTC as its new source of enforcement power, cannot be used this way—something the FTC itself acknowledged for nearly 30 years while it tried to save its disgorgement power before the Supreme Court.

Nonetheless, in 2023, the Seventh Circuit affirmed the district court, with a minor correction to the opinion, and subsequently denied a request for en banc rehearing. Credit Bureau Center and Michael Brown have asked the Supreme Court to take up the case.

The FTC continues to extract judgments and fines that the Supreme Court unanimously said are illegal. If the FTC is allowed to vastly expand its power based on a completely lawless disregard for the Supreme Court, there are no limits on what the agency can extort from companies facing enforcement.

Represented at no charge by PLF, these firms are fighting back against the FTC’s unchecked power grab to vindicate their right to meaningfully defend themselves in court, hold a powerful federal agency accountable to the rule of law, and restore the proper limits of FTC authority as established by Congress.

What’s At Stake?

  • A government agency cannot invent powers for itself that were never given by Congress, and that the Supreme Courts says it does not have.

Case Timeline

May 07, 2024
February 01, 2024
August 30, 2023
FTC v. Credit Bureau Center - Opinion
U.S. Court of Appeals for the Seventh Circuit
April 05, 2022
FTC v. Consumer Defense - Response to Motion for Monetary Judgement
U.S. District Court for the District of Nevada
March 17, 2022
FTC v. Elite IT Partners - Motion to Vacate Judgement
U.S. District Court for the District of Utah
February 02, 2022
FTC v. Credit Bureau Center - Opening Brief
U.S. Court of Appeals for the Seventh Circuit