New Decision Raises Questions About FTC’s Restitution Power

Advertising Law

A recent decision from the U.S. Court of Appeals for the Seventh Circuit could have a significant impact on the efforts of the Federal Trade Commission (FTC) to obtain restitution.

The case involved Michael Brown, the sole owner and operator of Credit Bureau Center, a credit-monitoring service. The agency sued Brown and his company, alleging that the defendants offered a free credit report and score but hid the fact that consumers would be enrolled in a $29.94 monthly membership subscription.

The FTC filed suit under Section 13(b) of the FTC Act, alleging violations of the Restore Online Shoppers’ Confidence Act (ROSCA) and other consumer protection statutes, seeking a permanent injunction and restitution. An Illinois federal court judge sided with the FTC, entered a permanent injunction against the defendants and ordered them to pay more than $5 million in restitution.

Brown appealed. While he conceded liability, he challenged the restitution award. He argued that by its terms, Section 13(b) authorizes the FTC to seek only restraining orders and injunctions, and that it is without authority to obtain restitution under the provision.

In response, the agency argued that its authority was implied in the statute and pointed to decades of case law permitting the agency to recover restitution.

In vacating the restitution award and reversing 30 years of precedent, the Seventh Circuit broke from its sister circuits and held that stare decisis could not justify an approach that has been foreclosed in subsequent decisions from the U.S. Supreme Court. In 1989, the Seventh Circuit adopted the FTC’s position that it was authorized to seek awards of restitution based on a “capacious view” of judicially implied statutory remedies. In the intervening years, other circuits adopted similar reasoning without conducting their own examination of the statutory language, the panel wrote. At the same time, the Supreme Court clarified that courts must consider whether an implied equitable remedy is compatible with a statute’s express remedial scheme, and the Court instructed that a statute with “elaborate enforcement provisions” does not implicitly authorize other remedies.

Taking this advice into account, the federal appellate panel concluded that Section 13(b)’s grant of authority to order injunctive relief did not implicitly authorize an award of restitution. “Most notably, the FTC Act has two detailed remedial provisions that expressly authorize restitution if the Commission follows certain procedures,” the court wrote. “We therefore hold that [S]ection 13(b)’s permanent-injunction provision does not authorize monetary relief.”

To read the opinion in FTC v. Credit Bureau Center, LLC, click here

Why it matters: The Seventh Circuit decision reversed three decades of precedent allowing the FTC to seek restitution under Section 13(b), and will likely trigger similar challenges in other circuits. With a split among the circuits now in effect, a visit to the Supreme Court for the final word on 13(b) and restitution may be in the future.