Active: Federal lawsuits challenge FTC’s illegal power grab

When Congress passed the Federal Trade Commission Act in 1914, it created the Federal Trade Commission (FTC) to “protect consumers and promote competition.” At the time, and for nearly 60 more years, the law limited agency enforcement to administrative proceedings only. Then, in 1973, Congress added Section 13 to the FTC Act. The change allowed the agency to seek permanent injunctions in federal courts to stop businesses’ unfair and deceptive practices.

If congressional authorization was an inch, however, the FTC took it a mile. Instead of just injunctions, the agency began actively using Section 13 as legal cover to get court approval for huge monetary settlement awards—called “disgorgement”—as punishment for money allegedly gained illegally.

The injunctions are egregious enough. The FTC secures them against target companies with no notice and no chance to challenge it. Many defendants have no idea what’s happening until there’s a knock at the door and a court order to take over the business.

Disgorgement is astonishingly more unfair. Fines are essentially unlimited. They include accused businesses’ gross annual revenues over the life of the company, not just the time frame in question, and far more than is reasonable for compensating customers. Whatever is left over after repaying customers goes to the U.S. Treasury.

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. Indeed, Congress actually limited the agency’s powers under the law.

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, accused companies that never got their rightful day in court to begin with still face ruin by an agency wielding power it never had, to extort money with no ties to direct remedy. The three firms below are among the targets of the FTC’s continued illegal practices. With PLF’s help, three firms 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 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, turned it over to receivership, shut it down entirely, 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 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—including his retirement account. 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.

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 held the firm liable.

The court originally imposed a massive disgorgement award against CBC. Once the Supreme Court confirmed that such awards are forbidden, the court skirted binding law and imposed an identical award, yet again payable to the U.S. Treasury, under Section 19 of the FTC Act. CBC now has asked the Seventh Circuit to vacate that end-run around the Supreme Court.

Federal Trade Commission v. Consumer Defense, LLC*

Jonathan and Sandra Hanley owned Consumer Defense, LLC, a debt relief company that helped distressed homeowners avoid foreclosure. With an injunction in hand, the FTC wrestled the company away from the Hanleys, and although they vigorously disputed the allegations, the receiver liquidated their business during the litigation. The district court concluded the Hanleys engaged in unfair business practices and ordered them to disgorge all of their gross receipts for the life of their company—nearly $19 million, an amount the FTC never said was related to either the rule violations or consumer harm. In the meantime, the Hanleys have no money to defend themselves, much less pay such a fine.

The disgorgement award was vacated following the Supreme Court’s decision. Yet the FTC asked the court to reissue the same judgment, unlawfully, under Section 19 of the FTC Act. The Hanleys have urged the court not to accept the FTC’s efforts to skirt the Supreme Court’s decision.

The FTC can go only after relief that is “necessary to redress injury to consumers,” and no more than that. Depositing money into the U.S. Treasury amounts to an unjust penalty that does nothing to remedy consumer injury. 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.

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, all three 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

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