Seventh Circuit Guts FTC’s Powers — Setting up Supreme Court Showdown

CHICAGO (CN) — Breaking with eight other circuits, the Seventh Circuit ruled Wednesday that the Federal Trade Commission lacks authority to seek restitution from companies that defraud consumers, and vacated a $5 million judgment against a credit-monitoring company.

The Federal Trade Commission sued Michael Brown and his company, Credit Bureau Center, for offering consumer’s “free” credit reports via online websites, then automatically enrolling customers in a $29.94 monthly membership to a credit-monitoring service without notice.

A federal judge entered a permanent injunction against Brown, and ordered him to pay $5 million in restitution to the FTC.

On appeal, Brown did not challenge his liability, but challenged the FTC’s restitution award, and the Seventh Circuit took the case as an opportunity to overturn its 1989 precedent in FTC v. Amy Travel Service.

“Since Amy Travel, the Supreme Court has clarified that courts must consider whether an implied equitable remedy is compatible with a statute’s express remedial scheme,” Seventh Circuit Judge Diane Sykes wrote for the three-judge panel. “And it has specifically instructed us not to assume that a statute with ‘elaborate enforcement provisions’ implicitly authorizes other remedies.”

Section 13(b) of the Federal Trade Commission Act authorizes the FTC to seek restraining orders and injunctions, but not specifically restitution.

Rejecting the FTC’s position, which was supported by Amy Travel, Sykes wrote: “An implied restitution remedy doesn’t sit comfortably with the text of section 13(b).”

The opinion was joined by Seventh Circuit Judges Joel Flaum and Michael Brennan. All three are Republican appointees.

Sykes relied heavily on the Supreme Court’s 1996 ruling in the environmental lawsuit Meghrig v. KFC to defend overturning longstanding precedent. In that case, the Supreme Court found that the Resource Conservation and Recovery Act does not authorize restitution.

“Our limited analysis in Amy Travel doesn’t offer a way to distinguish Meghrig,” the 43-page opinion states. “It instead requires us to ignore section 13(b)’s text and disregard the FTCA’s ‘elaborate enforcement provisions.’ In light of the Court’s commands in Meghrig, our holding in Amy Travel is no longer viable.”

The panel recognized that its ruling conflicts with the consensus of other circuits, but said Supreme Court precedent compelled it to take the rare step of overturning precedent.

“Most circuits adopted their position by uncritically accepting our holding in Amy Travel,” Sykes wrote.

She continued: “Stare decisis alone cannot overcome Amy Travel’s clear incompatibilities with the FTCA’s text and structure, Meghrig, and the Supreme Court’s broader refinement of its implied remedies jurisprudence.”

A majority of Seventh Circuit judges declined to rehear this case en banc. Chief Judge Diane Wood and Judges David Hamilton and Illana Rovner dissented from that decision.

“To my knowledge, no court has ever tied the hands of a government agency in the way that the majority has done here, and the majority cites none,” Wood, a Clinton appointee, wrote in dissent.

Quoting Julius Caesar when he crossed the Rubicon – “the die is cast” – Wood said she believed the appeals court was making a grave mistake by overturning precedent without full en banc review.

She said that Meghrig, a case involving private plaintiffs, is different from this one, where a government plaintiff seeks restitution on behalf of the public.

“Nothing in Meghrig, and nothing in the cases following Meghrig, comes close to holding that a government agency acting pursuant to express authority to seek injunctive relief cannot ask for a mandatory injunction requiring turn-over of money,” Wood wrote in a stinging, 23-page dissent.

She called out the majority for “trivializ[ing] the fact that eight of our sister circuits agree with Amy Travel’s holding. They brush off this consensus with the accusation that these courts have done so unthinkingly. I find that charge quite unwarranted.”

The ruling creates a circuit split, making it likely that the Supreme Court will grant certiorari.

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