The ruling on behalf of a race car driver-turned-payday loan fraudster upends a tool that the Federal Trade Commission has wielded for the greater part of a decade to make victims whole.
WASHINGTON (CN) — Overturning a nearly $1.3 billion injunction against a race car driver convicted of payday-lending fraud, the Supreme Court on Thursday took away what the Federal Trade Commission has called “one of its most important and effective enforcement tools.”
The FTC has relied on said tool to recoup billions of dollars over the past decade, but Justice Stephen Breyer wrote for the unanimous court this morning that the commission leaned improperly on a provision of federal law that does not authorize it to seek, or a federal court to order, restitution or disgorgement of profits.
Breyer noted that the commission has already asked Congress to expand its remedial authority under the Federal Trade Commission Act.
The case stems from an FTC case against former American Le Mans Series champion Scott Tucker, who relatedly was sentenced to 16 years in prison on fraud and other charges in 2018.
Finding that Tucker had defrauded roughly 4.5 million consumers — charging undisclosed and inflated fees through loan-servicing companies he ran under the AMG Capital Management umbrella — U.S. District Judge Gloria Navarro awarded the FTC an almost $1.3 billion injunction in 2016.
Though the Ninth Circuit upheld the FTC’s win under section 13B of the Federal Trade Commission Act, the Supreme Court reversed Thursday.
“The question presented is whether this statutory language authorizes the Commission to seek, and a court to award, equitable monetary relief such as restitution or disgorgement. We conclude that it does not,” Breyer wrote.
About $500 million has been given back to victims so far, but Tucker’s attorney Michael Pattillo told the high court in January oral arguments that the order to restore money to Tucker’s victims was faultily premised. Pattillo celebrated the court’s ruling Thursday, but had little comment. “We think that the court’s unanimous decision speaks for itself,” the attorney told Courthouse News.
Breyer said the language of section 13B is clear that it is intended not to recover ill-gotten gains but to stop seemingly unfair practices from taking place while the FTC determines their lawfulness.
Ever since the FTC’s creation in 1914, it has been “authorized to enforce the Act through its own administrative proceedings,” the 18-page opinion emphasizes. If the FTC has reason to believe that a party is guilty of unfair or deceptive practices, Breyer wrote, “it can file a complaint against the claimed violator and adjudicate its claim before an Administrative Law Judge.”
Congress later authorized the commission to seek additional remedies in court in the 1970s, and it allowed the FTC to seek injunctive relief through the 13B provision passed in 1973,.
Breyer notes that the commission has used 13B to circumvent administrative proceedings, taking dozens of cases to court each year while “seeking a permanent injunction and the return of illegally obtained funds.”
Acting FTC Chairwoman Rebecca Kelly Slaughter was critical of the case’s outcome Thursday, saying the justices had “ruled in favor of scam artists and dishonest corporations, leaving average Americans to pay for illegal behavior.”
“With this ruling, the court has deprived the FTC of the strongest tool we had to help consumers when they need it most,” Slaughter said in a statement, urging Congress to swiftly fortify the agency’s powers.
Breyer, who was nominated by President Clinton, said the court had to take several considerations when deciding the fate of this case.
“For one thing, the language refers only to injunctions,” he wrote, adding, “An ‘injunction’ is not the same as an award of equitable monetary relief.”
Linda Goldstein, a partner at Baker Hostetler who has experience representing clients in proceedings brought by the FTC, noted Thursday that the ruling strips the commission’s ability to immediately freeze assets of defendants in court.
“In the interim it will be interesting to see how courts and the FTC resolve the many cases that are already pending which the Supreme Court has now said the FTC lacked the authority to bring,” Goldstein added.
Among several groups that filed amicus briefs, New Civil Liberties Alliance thanked the court Thursday for agreeing “that Congress has never given the FTC power to seize all of an individual’s assets simply by using the word ‘injunction.’”
“This is a great victory because erroneous lower court opinions going back 40 years did not prevent a correct interpretation of law,” John Vecchione, senior litigation counsel for the alliance, said in a statement.