Plain Meaning: Conservative Judges Reining In the FTC?


Plain Meaning: Conservative Judges Reining In the FTC?

Plain Meaning In recent decisions analyzing the plain meaning of the FTC Act, two federal district courts have held that the FTC cannot file suit under § 53(b) of the Act where the alleged misconduct has ceased.  If upheld on appeal, the impact of these cases could be extraordinary.


Lawsuits under § 53(b) have been a weapon of choice for the FTC, even in cases involving misconduct that long ago ended, because there is no statute of limitations for such actions. Now, two conservative federal judges have rejected the use of § 53(b) to address past misconduct. If upheld, the FTC will be forced to seek a remedy for historical practices under 15 U.S.C. § 57b, which actions are governed by a short 3-year statute of limitations.  As you can imagine, the agency is none-too-pleased.

Not only do these two decisions sharply limit the availability of suits of § 53(b), they also raise the question of whether Congress, by the plain meaning of its words, permitted the FTC to pursue retrospective remedies (like disgorgement) in properly filed § 53(b) cases, another common FTC strategy.  One of the judges, in a hot-off-the-presses opinion, concluded, in dictum, that Congress likely did not.

Plain Meaning:  Hornbeam and Shire ViroPharma

On October 15, 2018, in FTC v. Hornbeam Special Situations, LLC, the United States District Court for the Northern District of Georgia addressed the claim by the defendants that the FTC’s case had to be dismissed unless the FTC alleged — in more than cursory fashion — that the defendants were presently “violating, or [are] about to violate the law.”  As the court explained, “Defendants argued that because their alleged conduct had ceased, the FTC could not satisfy this element, and, therefore, the FTC failed to state a claim under § 53(b).”  Initially, the district court rejected this argument, but it was entreated to reconsider and, on further briefing, reversed course.  The case presented the perfect factual milieu for the issue, as two of the defendants were dead.

In Hornbeam, there was no dispute that the FTC’s claims were “based largely on long-ceased misconduct,” and that the FTC invoked § 53(b) to “obtain injunctive and sundry other equitable remedies for Defendants’ alleged deceptive marketing practices.”  Engaging in a conservative textual analysis, the court found that, under the plain meaning of the unambiguous statutory provision, the FTC can only sue  under this section of the Act when it has a “reason to believe” that the alleged misconduct “is occurring or about to occur ….” (§ 53(b)).  Any entitlement to relief, it found, “necessarily depends on satisfaction of this element.”  The FTC, it reasoned, must so allege “by more than conclusory allegations that it has a reason to believe that the laws entrusted to its enforcement are being or about to violated.”

The FTC countered arguing that, notwithstanding the plain meaning of § 53(b), the “reason to believe” element could not be reviewed by the court as it was entrusted to the discretion of the agency under the federal Administrative Procedures Act.  It relied on FTC v. National Urological Group, Inc., a 2006 decision from the Northern District of Georgia.  The court rejected that argument, because the National Urological Group case involved judicial review of an agency action, not whether the FTC had pleaded adequately its claim under the Federal Rules of Civil Procedure.

Thus, while a decision by the FTC on whether to bring suit is committed to the sound (and non-reviewable) discretion of the agency, that does not absolve the agency of its pleading obligations in those cases it decides to bring.

The court explained that “[t]he FTC has the power to act only to the extent Congress has authorized it. Limitations on this power are enshrined in the words of statutory text. See NLRB v. Cmty. Health Servs., 812 F.3d 768, 780 (10th Cir. 2016) (Gorsuch, J., dissenting) (‘[I]n our legal order federal agencies must take care to respect the boundaries of their congressional charters.’). To ensure that the powers granted to the FTC are exercised properly, especially when it seeks to do so by engaging the Court’s Article III powers, the Court must carefully scrutinize the scope of its exercise.”

The court further rejected the FTC’s argument that the “about to violate the law” requirement could be satisfied by the standard used in granting or denying preliminary injunctions, i.e., a finding of whether a defendant’s “past conduct indicates that there is a reasonable likelihood of further violations in the future.”  It was, the court held, an argument that was inconsistent with the plain meaning of the statute, relying on FTC v. Shire ViroPharma, Inc., a March 20, 2018 decision of a federal district court in Delaware (which case is currently on appeal to the United States Court of Appeals for the Third Circuit).

In Shire, the federal court likewise found that “the questions of whether injunctive relief was appropriate and whether the FTC was entitled to bring suit in the first place were distinct inquiries.”  For the latter purpose, “about to” means, under ordinary dictionary definitions, “[a]t the very point when one is going to do something; intending or preparing immediately to do something,” in contrast with the “likely to recur” standard for injunctive relief.  The court acknowledged that this reading of the statute required the FTC to allege more than what was required to obtain an injunction, but that the statute was clear.

Plain Meaning Part 2:  The End to Disgorgement Under 53(b)?

The Hornbeam court went further than Shire by noting, in dictum, that § 53(b) also “mentions nothing of disgorgement or otherwise,” raising a question about its availability in a § 53(b) action.  The FTC has long relied on § 53(b) for disgorgement as well as injunctive relief.   As the court explained, “[t]he issue becomes even more apparent when one considers that retrospective relief (including remedies resembling disgorgement) is available to the FTC in an action under 15 U.S.C. § 57(b). But unlike § 53(b), § 57(b) contains a statute of limitations. That makes sense if § 53(b) is only prospective in effect. A statute aimed at only future conduct would not be concerned with expiration because by definition the conduct it targets would be either ongoing or imminent.”  Reflecting a view that broad agency authority must be kept in check by the plain language of statutes, the court observed that “when [Congress] has said, “Thus far and no farther,” it is the Court’s responsibility to blow the whistle and call the out of bounds.”

Take Aways

Shire is currently being reviewed on appeal, and Hornbeam is likely to be appealed as well.  Their ultimate fate, as a result, is unclear.  Yet, they raise an issue of applying the plain meaning of a statute in federal judicial circuits that lean towards conservative approaches to statutory interpretation.  They reflect a rigorous textual analysis that may well be upheld on appeal.  In addition, no matter what happens at the courts of appeal, one might expect the cases ultimately to be of interest the U.S. Supreme Court with its now solid conservative majority.  In that regard, it could scarcely be a worse time, it seems, for federal agencies asserting sweeping authority perhaps more by tradition than fidelity to their enabling statutes.

In the meantime, every person or company facing a § 53(b) action should consider ceasing the alleged misconduct and moving to dismiss in accordance with Hornbeam and Shire.  Moreover, to the extent that a pending § 53(b) case seeks disgorgement, that probably should be challenged as well based on dictum in Hornbeam.  At the end of the day, such retrospective remedies, without any statute of limitations, may not survive U.S. Supreme Court scrutiny.







Print Friendly, PDF & Email

No comments so far!


Leave a Comment