One of the post-AMG predictions about Federal Trade Commission (FTC or Commission) law enforcement is that we will see more administrative litigation. And that appears to be coming true, but not at an exceptional pace. For the past few decades, FTC administrative litigation of consumer protection matters has been quite rare, but until recently, there were three consumer protection actions in administrative litigation. Based on my many years at the FTC, that is a high number, particularly given that the agency has one administrative law judge (ALJ), and we aren’t counting the competition matters that are also pending. (Although, news flash, a job posting went up in late December indicating that the FTC is hiring an ALJ; it’s unclear whether it is to replace the current ALJ or to increase the FTC’s capacity.)
And what are the three matters in administrative litigation? Fleetcor is a case that was originally filed in federal court in 2019 but was then brought administratively post-AMG. Health Research Labs was initially filed as a federal contempt action but is now pending administratively. Traffic Jams Events was also initially filed in federal court and was refiled administratively. A Commission opinion in that case was issued in October 2021. Other cases continue to be filed and settled administratively, such as the latest Fashion Nova matter that we discussed a few weeks ago and that inspired this blog entry.
So if administrative litigation is a vehicle that can allow the FTC to recover redress, why aren’t we seeing an explosion of administrative litigation? Well, it’s time-consuming – and the process of getting money makes it even more time-consuming. Plus, there is a quasi-knowledge standard at play. And to be Mr. Obvious, it is time-consuming for the Commission as well as the company being sued. Let’s walk through the FTC administrative litigation process and see what makes it particularly time-consuming.
We start with the Commission voting out an administrative complaint (after an investigation). At that point, a wall forms between FTC staff (who will be litigating the case) and the commissioners, who will likely eventually adjudicate some or all of the case. The case then proceeds in front of the ALJ, with a few exceptions. Certain dispositive motions such as motions to dismiss or summary judgment-type motions may bypass the ALJ and go straight to the Commission. The FTC Rules of Practice do set forth some pretty stringent deadlines that can only be extended by the Commission. But generally, most things are handled by the ALJ, who oversees discovery and will eventually issue an initial decision, with findings of fact, conclusions of law and an appropriate order. That decision can then be appealed to the full Commission, which reviews the matter de novo, may hold a hearing and will eventually issue its opinion. That decision can then be appealed to any of the circuit courts, and parties can eventually seek cert with the Supreme Court if they so choose. Even without a cert request, this is a lengthy process. But we are far from done.
Notice that up until now, I haven’t talked about seeking money in an administrative action. We now come to Stage Two, which is all about the money. Section 19 provides that once there is a final cease and desist order (from above), if the FTC can establish in federal district court that “the act or practice to which the cease and desist order relates is one which a reasonable [person] would have known under the circumstances was dishonest or fraudulent,” the court may grant relief, including “rescission or reformation of contracts, the refund of money or return of property, the payment of damages, and public notification respecting the rule violation or the unfair or deceptive act or practice, as the case may be; except that nothing in this subsection is intended to authorize the imposition of any exemplary or punitive damages.” Bottom line: After going through the complete administrative action and all appeals, the FTC will then commence a new action in federal district court seeking monetary relief. And of course, that district court decision can be appealed as well.
You are probably wondering how long this whole process can take. Well, the slightly annoying response is that it depends, but we are talking many, many years, and it has not been done frequently. The last consumer protection case that went this route was Telebrands, which alleged deceptive claims about an abdominal exercise belt. The administrative complaint was filed in October 2003. The ALJ decision came out in September 2004. The Commission decision was issued in September 2005. In August 2006, the Commission’s decision was affirmed by the Fourth Circuit Court of Appeals. In August 2007, the FTC filed a complaint in the District of New Jersey seeking monetary relief under Section 19. That matter settled in January 2009, and in November 2010, redress was sent to consumers. I am exhausted recounting that history, and let’s be clear – the district court did not even rule on the matter. In sum, complaint is filed October 2003 and money gets back to consumers seven years later.
Now, I should add one caveat. In 2009, the FTC made changes to the rules that govern administrative proceedings with the goal of streamlining the proceedings; so in 2022, the process might be somewhat shorter, but not drastically so.
And let’s return to the Section 19 standard for a minute: The FTC has to show that the challenged acts or practices were ones that a reasonable [person] would have known under the circumstances were dishonest or fraudulent. There is not yet a great deal of case law adding flesh to this provision, particularly the reference to practices being dishonest. But certainly, the requirement that the FTC must demonstrate that conduct is dishonest or fraudulent is implicitly requiring some showing beyond a violation of the general Section 5 prohibition on unfair or deceptive acts or practices. Those contours have not been clearly established in case law.
So where does that leave us? Certainly the FTC has a legitimate card to play here in some cases. Although the contours of “dishonest or fraudulent” are not clear, it’s probably safe to assume that a fair number of typical FTC cases would likely meet that standard. But some won’t. And indeed, at a recent public Commission meeting, Commissioner Noah Phillips expressed some concern that the agency has de-emphasized its traditional fraud work, which includes the cases that would most easily meet the standard.
But for the cases that do meet the standard, is the FTC prepared to devote seven or more years of resources to litigate that matter? And by the same token, is a company ready to do extended battle with a law enforcer? (Don’t forget the few articles that came out a year ago about resource challenges at the FTC.) Now, to be clear, federal litigation under the old Section 13(b) of the FTC Act was by no means short, but it was generally less cumbersome and less time-consuming. And if the goal is getting money back to consumers, how worthwhile is it to send checks out after seven years, and will the agency even be able to find many consumers after such an extended lapse?
These are all questions that the FTC and counsel will have to consider when negotiating. Will there be cases to which the FTC is prepared to devote seven years of resources to litigate? Absolutely. But how many cases will fit that bill? Certainly not all of them. And for some of those cases, will there even be any money left after seven years of litigation to return to consumers?
We told you the post-AMG landscape would be interesting, and we will continue to keep you up to date on developments and provide helpful background information.