Bringing the Federal Trade Commission to Heel

We declared in 1776 that governments derive their just powers from the consent of the governed. In 1787 we built a government around that principle. Our founding charter says that the people elect their legislators, and that the legislators make the law. Judges, on the other hand, simply apply that law to resolve the cases or controversies that come before them.

“The duty of the court,” Chief Justice Marshall understood, is “to effect the intention of the legislature.” And that intention, he knew, is “to be searched for in the words which the legislature has employed to convey it.” The judiciary obeys the law it gets, in a text, from elsewhere.

It was not always so. “By what rule,” the Chief Justice of the Common Pleas asked in 1615, should he guide himself in the “diverse exposition” of “word and sentence”? “By that liberty and authority,” he answered, “that judges have over laws, especially over statute laws, according to reason and best convenience, to mould them to the truest and best use.” An ancient school of English legal thought held that a judge’s reason could, when adeptly employed, displace the terms of a statute. We decided that, on the contrary, the people’s ends must, when expressed in a constitutional statute, displace the wishes of the judge.

It is in the nature of traditions to outlive their foundations. Many a federal judge has mistaken reason for law, and will for reason. In 1964 a shareholder asked the Supreme Court to permit a lawsuit against a company that had allegedly circulated a deceptive proxy statement. The relevant provision of the securities laws said nothing about letting a private person sue. The court allowed the suit to proceed anyway, because it thought “private enforcement of the proxy rules” a “necessary supplement to action” by the Securities and Exchange Commission. At the time, the court believed itself entitled to add a private right of action to a law whenever doing so struck it as a good idea.

Lately, though, the court has subjected itself to a little more discipline. “When Congress chooses not to provide a private civil remedy,” Justice Powell wrote in a 1979 dissent, “federal courts should not assume the legislative role” by “creating such a remedy” themselves. In the following decades this view gained its footing, and by the turn of the century it had triumphed. Private statutory rights and remedies, the court said in 2001, “must be created by Congress.”

No victory in the law is final, of course, and this one is not even complete. Consider §13(b) of the Federal Trade Commission Act. Although it says only that in proper cases a court may issue an “injunction,” it has commonly been construed to empower a court to award any form of equitable relief. The U.S. Court of Appeals for the Ninth Circuit recently affirmed the FTC’s use of §13(b) to obtain a $1.27 billion restitution award.

“Injunction” does not mean “any equitable remedy.” Congress knows this, as can be seen from the many statutes that mention “equitable remedies,” “equity powers,” or “an injunction, a stay, or other equitable relief.”

The FTC Act’s structure confirms that in using the term “injunction,” Congress said what it meant and meant what it said. Section 13(b) applies only when someone “is violating, or is about to violate,” the Act. It enables the FTC to stop immediate harm by having a court enjoin it.

To get money, however, the FTC must clear additional hurdles. Section 19 gives it two ways to seek “the refund of money” or “the payment of damages.” First, it may prove in court that the defendant violated a pre‑existing FTC rule. Second, it may obtain a cease-and-desist order in an administrative proceeding, then prove in court that “a reasonable man” would know that the pertinent conduct was “dishonest or fraudulent.”

The FTC is tasked with stopping “unfair or deceptive” trade practices. “Unfair” and “deceptive” are sweeping words. One might expect the FTC to put some meat on the bones before making someone forfeit a large sum of money. That’s exactly what §19 makes it do. The FTC must either notify a party of the specific conduct to be avoided, or (after affording extra process) show that his conduct was obviously wicked.

Congress told the FTC to provide defendants certain protections. Providing those protections was a pain, so the FTC sought, quite deliberately, to discard them. It picked up Porter v. Warner Holding Co., a 1946 Supreme Court decision that reads the phrase “permanent or temporary injunction, restraining order, or other order” to encompass any remedy whatsoever. In the 1980s and 1990s, right as the Supreme Court started to resist the urge to invent statutory actions and remedies, the FTC used Porter to convince the lower courts to add remedies to §13(b). Nine circuits came to accept that §13(b) means not what it says, but what the FTC would like it to say.

Last month the Seventh Circuit became the first court to retrench. It had long applied the FTC’s “starkly atextual interpretation” of §13(b); but in the meantime the Supreme Court reminded it to “carry out the intent of Congress.” Heeding this call, the court reattached its reading of §13(b) to §13(b) itself. Concluding that “injunction” means “injunction,” it vacated a $5 million restitution award.

The Supreme Court has been asked to review the conflicting decisions of the Seventh Circuit ($5 million award vacated) and the Ninth Circuit ($1.27 billion award affirmed). If review is granted, which circuit’s decision will stand? As recently as 2017 the court confirmed, in an opinion by Justice Kennedy, that its “approach to recognizing implied damages remedies” has “changed,” and that it now looks “solely” at what Congress wanted. Justice Kennedy has since made way for Justice Kavanaugh, who has asserted that a “judge’s job” is to “read the words of the statute as written.” It would seem that the Seventh Circuit has the inside track.

As it should. “The text of a law,” as the newest justice says, “is the law.”