A major decision on the FTC and equitable restitution

The Seventh Circuit reverses course

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.