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'Very Bad' SCOTUS Outcome

Ex-FTC Officials Expect Active Rulemaking Group

Expect the FTC's new rulemaking group to actively work to fill gaps left in its authority by a recent Supreme Court decision (see 2104270086), former officials said in interviews. Some anticipate more administrative litigation over consumer protection cases.

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Acting Chair Rebecca Kelly Slaughter “almost certainly” formed the general counsel’s rulemaking group in anticipation of losing AMG Capital Management v. FTC, said ex-General Counsel Stephen Calkins, now a Wayne State University law professor. The FTC “has to do the best that it can with a bad situation,” and it will certainly pursue new rulemakings, he said.

Expect an immediate impact once there are three Democratic commissioners, said former FTC attorney adviser Alicia Batts, now at Faegre Drinker. Lina Khan is awaiting Senate confirmation (see 2104210039), as is FTC Commissioner Rohit Chopra for his new role as Consumer Financial Protection Bureau director (see 2101190019).

Unless Congress acts, there are limited options for the agency to get money for consumers, said ex-FTC Consumer Protection Bureau Director Jessica Rich, now at the Georgetown Law Center. One option is to get a favorable order in administrative litigation and then seek monetary relief in federal court, she said. Before the SCOTUS decision, the agency could go directly to federal court and seek an injunction against FTC Act violations and obtain restitution for consumers simultaneously.

The agency can bring an action based on a rule that exists, which allows redress in the first instance of an offense, Rich noted: Another option is to enact new rules and bring actions based on them. The agency can bring actions based on an order violation, as it did in the Facebook privacy case, she said. Privacy regulation doesn’t offer a clear path for getting consumer redress on first offenses because the harm can be difficult to prove and quantify, which is part of why the FTC has been “continuously calling” for privacy legislation, she said. Now, the agency is facing the same difficulty in fraud cases, she added: “It’s a very bad outcome.”

From the FTC’s perspective, it’s much better to go straight to federal district court, which offers a much quicker path for providing consumer redress, said former Consumer Protection Bureau Chief of Staff Kathleen Benway, now at Alston & Bird. Proceeding under Section 5 or Section 19 gives violators “one free bite at the apple,” she said. Taking that two-step route, the commission first has to go through the administrative process and get a violator under an FTC order. Only if that order is violated can the FTC seek remedies for harmed consumers, she said: “It allows the violator to keep the fruits of their unfair or deceptive conduct.”

What you’ll see is the FTC continue to aggressively enforce in these areas, and they’ll look to the other tools they have available to them to deter unfair and deceptive behavior,” said Benway. Expect the agency to look to other statutes it enforces in filing for civil penalties, other rules and more administrative litigation on the consumer protection side, she said. Calkins agreed it’s fair to assume there will be more administrative litigation soon on the consumer protection side. The agency has the right to get civil penalties from people who violate FTC-issued trade regulation rules, but there are “hoops to jump through” to get money for a rule violation, said Calkins.

State attorneys general can help fill gaps in authority because state laws let AGs pursue disgorgement, said Batts. She agreed there will likely be an increase in administrative litigation, but a Democratic Congress will have “good odds” of modifying the statute. The high court decision increases the need for Congress to examine antitrust laws, she added.

An FTC aide noted that Section 5 and Section 19 don’t provide for restitution in competition cases where there isn’t a preexisting cease and desist order. The commission didn't comment.