The Hill: The FTC’s rebellion against the judiciary

January 03, 2022 | By CALEB KRUCKENBERG

The Federal Trade Commission (FTC) must be held accountable for its open defiance of the Supreme Court’s directives.

For decades, the FTC relied on a statute authorizing “permanent injunctions” to obtain monetary fines. That always seemed strange. After all, neighboring sections of the law allow the commission to seek limited monetary penalties, while injunctions normally only prevent future action and do not entail an award of any damages. Yet “disgorgement” awards — the return payment of supposedly illegal gains — became so pervasive that in 2019, for example, courts ordered that $723.2 million be paid to the government in such awards.

The Supreme Court seemingly put that practice to an end in April, in AMG Capital Management, LLC v. FTC, when it unanimously held that the statute never allowed the “Commission to seek, and a court to award, equitable monetary relief such as restitution or disgorgement.” Disgorgement was just an illegal power grab.

Since then, the agency has scrambled to find a replacement for its most significant enforcement tool. In a memo sent to FTC staff when she assumed her role, Chair Lina Khan stressed the need to use the agency’s “full set of tools and authorities … post-AMG.”

So, when the FTC bragged in a recent news release about obtaining $21 million “for consumers” in a case involving alleged unfair practices, we wondered just how the agency managed to get such a large award without disgorgement.

It turns out not to be so hard when you ignore the Supreme Court. Khan must have meant that the agency would simply ignore any Supreme Court decisions it dislikes. The $21 million was part of a settlement, approved by a federal judge, ordering restitution with any remainder “to be deposited to the U.S. Treasury as disgorgement.” And looking further, we realized that the FTC entered into the same kind of settlement just a few weeks earlier. The agency is acting like the AMG decision doesn’t exist.

This conduct would be stunning if it weren’t so predictable. In a recent interview, Khan was direct about her vision for the agency — worrying not about “overreaching” but about “neutering the tools” available to the agency. It is peak hypocrisy for the agency charged with protecting the public from unfair and deceptive practices to employ tactics it knows are illegal to strong-arm settlements in litigation. Make no mistake: Forcing illegal disgorgement payments is akin to extortion.

Consider a typical case. The FTC obtains an injunction against a defendant with no notice or opportunity for the defendants to challenge it, which forces the target company into receivership. Many defendants first learn about the enforcement action when a receiver arrives with a court order to take over the business. To defend themselves, defendants must petition the receiver for the release of funds to pay their legal fees.

With both hands tied behind their backs, companies unjustly accused of wrongdoing can barely muster a fight. But when disgorgement is possible and the agency can ask for, and a court can order, essentially unlimited fines, the stakes become truly dire. Few dare to fight the charges, even when they are unfounded.

Disgorgement is not a legal option, though. Congress instead limited the FTC’s authority, likely to protect against such asymmetry in power. A unanimous Supreme Court confirmed as much just months ago. And if the FTC can ignore the law to demand payment through disgorgement in exchange for a settlement, it’s no better than the mob demanding protection money.

Maybe the commission thought no one would notice. After all, few people regularly read the details of its settlement agreements. But we did.

The FTC should have to answer for its continued abuses. The Supreme Court’s directives were clear, but the agency has not followed its legal duty. Perhaps it’s time for another branch — Congress — to demand answers.

This isn’t just about the FTC or unfair practices. It’s about power. And power has been the driving force at the Khan-led FTC. If any ordinary American ignored the law, they’d be held responsible. And so should those tasked with enforcing the law.

That’s particularly true today when punishments have ballooned. Crushing civil fines can shut down a company overnight. They ought to at least have the chance to know the potential penalties they face. Yet, if FTC gets its way, companies’ futures will hinge on the whim or caprice of regulators unbounded by congressional statutes, the Supreme Court, or any legal constraint. That’s a kind of power that undermines not only the FTC’s institutional legitimacy but the rule of law itself.

This op-ed was originally published by The Hill on January 3, 2022.