A major decision on the FTC and equitable restitution

The Seventh Circuit reverses course

|The Volokh Conspiracy |

There was a very significant decision yesterday from the Seventh Circuit on whether the Federal Trade Commission can seek restitution under Section 13(b) of the Federal Trade Commission Act. The case is FTC v. Credit Bureau Center, and the question is about whether Section 13(b) of the Act, which authorizes injunctions, thereby impliedly authorizes restitutionary relief (so-called "disgorgement"). Another section of the Act authorizes restitution, but it has additional requirements. So the FTC naturally wants to use the injunction provision to get restitution, and it has been allowed to do that by the federal courts for decades. But not any more. The Seventh Circuit panel, in an opinion written by Judge Sykes, concludes: "nothing in the text or structure of the FTCA supports an implied right to restitution in section 13(b), which by its terms authorizes only injunctions" (p. 21). Not just that, but the panel (using the Seventh Circuit practice of circulating to active judges for consideration whether to rehear en banc) overruled a previous Seventh Circuit decision that allowed restitution through Section 13(b). It did so on the basis of Supreme Court decisions like Meghrig and Kokesh (especially the former).

(Kokesh, and specifically its third footnote, raises a similar issue for the SEC. For background, see Steve Bainbridge's Kokesh Footnote 3 Notwithstanding.)

The Seventh Circuit decision follows on the heels of Judge O'Scannlain's two opinions in FTC v. AMG Capital Management–an opinion for the panel applying circuit precedent, and a concurrence calling for revisiting that precedent in light of decisions like Kokesh. Given the new circuit split, and footnote 3 of Kokesh, and the careful analysis in the Seventh Circuit opinion, and the O'Scannlain concurrence,  I would say the odds of cert being granted on a question about agency authority to seek restitution, either under the FTC statute or the SEC statute, are getting very high.

A quick note on the three of the larger questions involved. One is the relationship of equity and statutes–when does a statute invoke part of, invoke all of, or modify "equitable jurisdiction"?

Another is the way to think about statutory restitutionary remedies and the classic restitutionary remedies offered by equity (e.g., accounting for profits, constructive trust) and law (e.g., recovery in quasi-contract). Note that there is no traditional remedy of "disgorgement"–calling a remedy that just pushes the question back one level, and we have to ask about the relationship of this "disgorgement" remedy to the classic restitutionary remedies.

Finally, there is the question of equity's relationship to punishment. Does equity punish? Do equitable remedies punish? They can deter, but is that the same thing? If equity does not punish, that has implications for how to think about equitable restitutionary remedies in the FTC and SEC contexts, as well as implications for how to think about punitive damages in equity (e.g., against trustees). I tackle this last set of questions in Punitive Damages Against Trustees? and in Fiduciary Remedies.

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  1. Three conservative judges — from Reagan, Trump, and Bush the Lesser — overruled precedent (and, I imagine, ignored the positions of peer courts) while striving to provide relief to a commercial scammer.

    The three judges who objected to this Republican judicial activism were from Clinton, Obama, and the first Bush.

    Let’s hope the Supreme Court is enlarged before this issue is decided on certiorari.

    1. “from…Obama”

      So, an Obama judge?

      1. Your focus on Obama inclines me to wonder how Obama is distinguished from Bush I, Reagan, Clinton, and Bush II . . .

        1. I’m just trying to keep up…is it mean and unfair, or legitimate and good, to talk about who appointed the judges responsible for particular opinions?

          1. I was referring to the plain trend of right-wing judges flattering business interests (including those of scammers) — even at the expense of defrauded consumers, even if judicial activism is required to vindicate the conservative preference — rather than to the work of any particular judge.

            1. President Trump referred to Obama judges just like you did.

              1. The level of comments from the Volokh Conspiracy’s carefully cultivated conservative audience vividly vindicates the decision of America’s stronger (liberal-libertarian) schools to decline the Conspiracy’s invitation to emulate lousy schools by hiring more movement conservatives.

                1. How have I been “carefully cultivated” and what “movement” do I belong to?

                  Or do you simply prefer to drop insinuations and fail to follow up on them once you realize you have no proof?

                  1. The colleges you specifically list as great often had things like official affirmation of traditional religion (“superstition”), telling students to keep it in their pants (“old timey conduct codes”), etc.

                    Which by your definition would make them conservative cow colleges from the time of their founding up until they became woke, relaxed student-conduct codes, shook off the shackles of religion, and allowed boys to join the women’s volleyball team by calling themselves girls.

                    For present purposes I don’t even have to argue that these were bad developments in themselves, I will simply suggest that it’s not these things which made the great colleges great.

                    1. “For present purposes I don’t even have to argue that these were bad developments in themselves, I will simply suggest that it’s not these things which made the great colleges great.”

                      But if there’s truth in your counterclaim, then there’d still be great schools that clung to the old ways, and remained great both in their academic prowess and research capabilities. You’d have no trouble identifying them.

                    2. What’s my counterclaim?

                    3. Well, since I have no idea what “counterclaim” you’re referring to, maybe we can conduct a wokeness survey across various academic departments, and the woker the department – the more modern, hip and progressive it is, the more smarter-er the professors and students must be.

                      So just guessing what the results of such a survey would be, I suppose the engineering departments would be the stupidest and the Gender Studies departments would be the smartest.

                    4. Wow, 13 whole minutes of patience before you started talking to yourself.

                      Well, if you don’t even know what your counterclaim was, I guess there won’t be any harm in considering it conceded.

                    5. PS… I’ll also accept your concession that you have no idea what’s going on in America’s engineering schools.

                    6. I see you waited exactly one minute before talking to yourself.

                      And, not content with talking to yourself, you’ve also undertaken to speak on my behalf as well, which I suppose leaves nothing for me to contribute to the conversation.

                    7. “leaves nothing for me to contribute to the conversation.”

                      You weren’t contributing before, either.

                    8. “You weren’t contributing before, either.”

                      That’s on you, since you were the one undertaking to speak for me.

                      As long as you were inventing things for me to say, you could at least have given me some good lines, like Shakespeare does with his villains.

                    9. “That’s on you, since you were the one undertaking to speak for me.”

                      How does that logic work, exactly? How did I become responsible for your blather by coming along later and commenting about it?

                      ” you could at least have given me some good lines, like Shakespeare does with his villains.”

                      Shakespeare villains are interesting. You…, well, I think you know the rest, even if you don’t know what your own arguments are.

                    10. As Shakespeare villains go, you’re less Iago and more Malvolio.

                    11. As villains go, you’re less Shakespeare, and more “wet bandits” from Home Alone.

  2. OT question. I assume judges are appointed to specific judgeships, not just “Appeals Court judge — find your own vacancy”. Has any appeals court or even circuit court judge ever moved out of area and gotten a re-appointment to the same kind of judgeship in the new area? Has it happened enough to create any kind of custom and pro forma Senate approval?

  3. What’s the logic in NOT allowing the federal agencies to seek restitution for victims?

    The argument PRO is that the government has resources while the victims may or may not, and the government can bring a consolidated action on behalf of all the victims rather than requiring the claims to be litigated piecemeal, possibly in several different districts or even circuits. I can’t think of any arguments ANTI off the top of my head… the closest I can come is that if the legal work is done by government employees, then there’s no way for attorneys in private practice to get themselves a piece of the action.

    1. “What’s the logic in NOT allowing the federal agencies to seek restitution for victims?”

      Out of morbid curiosity, why are you asking this?

      1. To find out the answer.

        1. Who is suggesting that federal agencies should not be allowed to seek restitution?

          1. “Who is suggesting that federal agencies should not be allowed to seek restitution?”

            Didn’t get as far into the article as the first sentence?

            “There was a very significant decision yesterday from the Seventh Circuit on whether the Federal Trade Commission can seek restitution[…]”

            If the Seventh Circuit is ruling on the matter, then there’s a current case or controversy over the subject. If there’s a current case or controversy on the subject, then somebody has taken either side of the question. If somebody has taken either side of the question, then somebody has taken the anti side. Presumably, somebody who’s been ordered to pay restitution but doesn’t want to, but it takes more than just not wanting to pay to win your case.

            1. It’s not that I didn’t read the first sentence, it’s just that I didn’t stop reading at the first part of the first sentence. Had you continued reading, like I did, you would have learned that “[a]nother section of the Act authorizes restitution, but it has additional requirements. So the FTC naturally wants to use the injunction provision to get restitution, and it has been allowed to do that by the federal courts for decades.”

              So the case or controversy isn’t about whether the government can seek restitution, it’s about whether or not the government can take a shortcut instead of following the rules set down by Congress for seeking restitution.

              1. If the section that authorizes restitution, but only if additional requirements are met, then somebody thought there should be some cases where the agency could not seek restitution.

                You really seem to have your heart set on arguing about this, for what seems like no actual purpose.

                So the case or controversy isn’t about whether the government can seek restitution, it’s about whether or not the government can take a shortcut instead of following the rules set down by Congress for seeking restitution”

                If you support the notion that the agency should have the authority to seek restitution for victims (because, well, that’s what the agency is there for) that’s one side. If you think there are (or should be) limits on the agency’s ability to seek restitution for victims, that’s the other side. I understand one side, and I don’t understand the other side, so I asked somebody to explain why you would want the agency to ever be precluded from seeking restitution. Still no answer, just your quibbling with the way I phrased it.

                1. Do you believe your own bullshit, or do you just hope that nobody else pays much attention?

                  But thank you for satisfying my morbid curiosity. Your reasoning was indeed as dumb as I thought it would be.

                  1. “Do you believe your own bullshit”

                    I don’t believe yours, which seems to be the problem.

                    1. ” Your reasoning was indeed as dumb as I thought it would be.”

                      If it was dumb, and you needed it explained (twice) so you could keep up, you must be R-E-A-L-L-Y dumb.

                    2. Bless your heart. Aren’t you a special lil fella.

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