Section 13(b) of the FTC Act at the Supreme Court: The Middle Ground

The Antitrust Source, forthcoming December 2020

George Mason Law & Economics Research Paper No. 20-34

14 Pages Posted: 17 Dec 2020 Last revised: 5 Jan 2021

See all articles by Howard Beales

Howard Beales

George Washington University - School of Business

Benjamin Mundel

Sidley Austin LLP

Timothy J. Muris

George Mason University, Antonin Scalia Law School

Date Written: December 17, 2020

Abstract

In 1981, while in the FTC's Bureau of Consumer Protection, two of the authors were instrumental in initiating the FTC's fraud program, relying on Section 13(b)'s authority to obtain a permanent injunction to seek equitable relief, including asset freezes and consumer redress. The fraud program has become a mainstay of the Commission's consumer protection program, and the agency now coordinates local, state, national, and international agencies to fight the many faces of fraud. When the Obama Administration claimed that 13(b) could be used beyond fraud cases, an authority that all previous Commissions believed they lacked, we warned that this overreach could threaten the heretofore uncontroversial fraud program. A case currently before the Supreme Court challenges the FTC' s ability to obtain monetary relief under 13(b) in any circumstances, which we call the Never position. The Commission takes the opposite extreme, arguing that monetary relief is available in any case it chooses, which we term the Always position. We argue that both positions are wrong. Among other problems, the Never position would terminate the fraud program, ending 40 years of successful use of an important, practical solution to one of the major problems that consumers face, with no clear evidence that the Commission has exceeded its authority. The Always position ignores both the text of Section 13(b), which limits permanent injunctions to "proper cases," and the statutory structure, which itself limits the FTC's ability to obtain monetary relief. Congress originally considered Section 13(b) as part of a comprehensive set of changes to enhance the Commission's authority, which also included what became Section 19 two years later. That section limits the FTC's ability to obtain monetary relief to conduct that a reasonable person would know was dishonest or fraudulent.

We argue instead for a middle ground. Because Section 19 requires separate administrative proceedings before the Commission can seek monetary relief, the money would be gone without the ability to obtain extraordinary relief, especially an ex parte asset freeze. It therefore cannot be used to attack fraud successfully. The middle ground would allow 13(b) to be used against fraudsters. Another advantage of the middle ground is that it respects the original vision of the FTC that there are some law violations for which monetary relief is inappropriate, a view codified in both 1914 and again in Section 19 in 1975. For example, complex issues of advertising substantiation, as well as issues about the adequacy of disclosures to consumers, about which reasonable experts often disagree, should normally be resolved through the administrative process. To subject all violations of the FTC Act routinely to potential monetary relief risks chilling the provision of truthful and useful information, as well as other conduct beneficial to consumers.

Keywords: FTC, Bureau of Consumer Protection, FTC Act, Section 13(b), Section 19, fraud program, AMG Capital Mgmt., LLC v. FTC

JEL Classification: K2, K21, K22, K42

Suggested Citation

Beales, Howard and Mundel, Benjamin and Muris, Timothy J., Section 13(b) of the FTC Act at the Supreme Court: The Middle Ground (December 17, 2020). The Antitrust Source, forthcoming December 2020, George Mason Law & Economics Research Paper No. 20-34, Available at SSRN: https://ssrn.com/abstract=3750787 or http://dx.doi.org/10.2139/ssrn.3750787

Howard Beales

George Washington University - School of Business ( email )

Washington, DC 20052
United States

Benjamin Mundel

Sidley Austin LLP

One First National Plaza
Chicago, IL 60603
United States

Timothy J. Muris (Contact Author)

George Mason University, Antonin Scalia Law School ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States
703-993-9421 (Phone)
703-993-8088 (Fax)

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