The Supremes Give the FTC “Nothing but Heartaches”: Court Unanimously Rules No Restitution in Injunction Cases, and How Will This Ruling Impact FDA?April 23, 2021
The Supreme Court has handed down a decision in AMG Capital Management, LLC, et al. v. Federal Trade Commission, No. 19-508 (Apr. 22, 2021) [hereinafter Slip Op.], gutting the FTC’s use of §13(b) of the FTC Act, 15 U.S.C. § 53(b), to obtain equitable monetary relief and, in the words of Miss Ross and the Supremes (1965), bringing the FTC “Nothing But Heartaches.” Background on the case can be found in earlier posts here, here, here, and here.
Justice Breyer, writing for a unanimous court, summed it up:
Section 13(b) of the Federal Trade Commission Act authorizes the Commission to obtain, “in proper cases,” a “permanent injunction” in federal court against “any person, partnership, or corporation” that it believes “is violating, or is about to violate, any provision of law” that the Commission enforces. 87 Stat. 592, 15 U. S. C. §53(b). 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.
Slip Op. at 1.
The Court pointed out that its task was not to determine whether the ability of the FTC to substitute §13(b) for the administrative procedure in §5 and consumer redress under §19 was desirable, but rather to answer a “more purely legal question,” Slip Op. at 6. It did that by focusing on the text of the statute. Indeed, the first (and very succinct) point in the Court’s analysis of the statute is that “the language [of §13(b)] refers only to injunctions.” Id. The “coherent enforcement scheme” that the statute intended allowed the FTC to “obtain monetary relief by first invoking its administrative procedures and then §19’s redress provisions (which include limitations). And the Commission may use §13(b) to obtain injunctive relieve while administrative proceedings are foreseen or in progress, or when it seeks only injunctive relief.” Id. at 10.
In addition to the textual analysis, the Court also noted that §13(b) is prospective, not retrospective – using terms such as “is violating” rather than “has violated.” Id. at 8. The Court also looked at the structure of the FTC Act beyond §13(b) to §5(l) and §19 which provide for the imposition of limited monetary penalties and awards of monetary relief where the FTC has already engaged in administrative proceedings. Id. at 9.
FTC Acting Chairwoman Rebecca Kelly Slaughter was quick to issue a strongly worded statement calling on Congress to act swiftly to undo the Court’s decision. There is already a full-court press – acknowledged in the Court’s decision – for Congress to act quickly on two different pieces of legislation that would affirmatively confirm the asserted authority of the FTC to seek equitable relief, S. 4626 and H.R. 2668. Indeed, earlier this week, the full Commission testified before the U.S. Senate Committee on Commerce, Science, and Transportation and submitted testimony on the need for such legislation.
So, the obvious question to many readers is how does this Supreme Court decision implicate FDA? In other words, can FDA, through the Department of Justice (DOJ), request that a court impose monetary sanctions against a person who violates the Federal Food, Drug, and Cosmetic Act (FDC Act) in light of the AMG decision?
This is hardly a new question for us. Almost twenty years ago, two of the writers of this blog addressed that question in a law review article published by the Food and Drug Law Institute: Jeffrey N. Gibbs & John R. Fleder, Can FDA Seek Restitution or Disgorgement?, 58 Food and Drug L.J. 129 (2003). FDA’s response to our 2003 article, authored by Eric M. Blumberg, who was then the FDA’s Deputy Chief Counsel for Litigation, can be found at 58 Food and Drug L.J. 169 (2003).
The article followed some high-profile cases where FDA had collected hundreds of millions of dollars from companies which had allegedly violated the FDC Act. We noted that FDA itself had informed the U.S. Supreme Court in 1999 that the agency lacked the authority to obtain compensatory relief or punitive damages. Id. at 132. The article also discussed the operative language of the FDC Act and its legislative history to demonstrate that the FDA does not have the authority to get monetary relief in injunction cases filed in court. Id. at 142-45. Our central conclusion was: “Section 302 [of the FDC Act] does not explicitly or even implicitly authorize FDA to ask a court to order restitution or disgorgement.” Id. at 147. As shown below, the Court’s decision in AMG should eliminate any legitimate question about the accuracy of that conclusion.
There are really several subparts to the question posed above. First, is the AMG decision binding on FDA. Second, will the decision impact the way that FDA enforces the FDC Act?
Regarding the first question, the starting point is to compare the wording of the FTC Act to the wording of the FDC Act. The key operative language of §13(b) of the FTC Act is: “the Commission may seek, and after proper proof, the court may issue a permanent injunction.” Section 302 of the FDC Act, 21 U.S.C. § 332, states: “The district courts of the United States and the United States courts of the Territories shall have jurisdiction, for cause shown to restrain violations of section 301” [the Prohibited Acts provision of the FDC Act]. So, the FTC is empowered to seek permanent injunctions for FTC Act violations, while the FDA (through the DOJ) can ask a court to restrain violations of the FDC Act.
As noted above, the Court’s decision cites several reasons why the FTC lacks the authority to obtain equitable relief under Section §13(b). The first reason cited is that “§13(b)’s ‘permanent injunction’ language does not authorize the Commission directly to obtain court-ordered monetary relief. For one thing, the language refers only to injunctions. . . . An ‘injunction’ is not the same as an award of equitable monetary relief.” Slip Op. at 6.
This conclusion should apply to FDA even though the language in the two statutes is somewhat different. Just like the operative FTC Act provision, Section 302 of the FDC Act is totally silent regarding monetary relief. Moreover, the word “restrain” is forward-thinking. The Merriam Webster dictionary defines the word “restrain” to mean “to prevent from doing.” Preventing a defendant from future violations of the FDC Act is to restrain that defendant. In contrast, asking a court to take money from a defendant based on past violations of the FDC Act is largely, if not entirely, backward-thinking and perhaps even punitive. Thus, just as the Court ruled in AMG that the operative FTC Act’s language means that an injunction is not the same as an award of equitable monetary relief, it should seem inescapable that to “restrain” a violation does not permit a court to award equitable monetary relief. FDA may rely on a number of court rulings interpreting the FDC Act and other statutes which contain the operative words “to restrain violations” to argue that that language authorizes district judges to grant equitable monetary relief as a component of an injunction case. We submit that the AMG requires a different result in future FDC Act cases. As the Supreme Court noted in AMG, Congress could not have intended that courts can grant equitable monetary relief in injunction cases for the reason that no such relief is set forth in the statute: “Congress . . . does not . . hide elephants in mouseholes.” Slip Op. at 10.
There is a second relevant commonality between the FTC Act and the FDC Act. The Court’s AMG decision cites several other provisions in the FTC Act where Congress explicitly authorized district courts to impose monetary penalties and equitable relief for violations of the FTC Act. The Court cited these provisions for the purpose of its conclusion that “[i]t is highly unlikely that Congress would have enacted provisions expressly authorizing conditioned and limited monetary relief if the Act, via §13(b), had already implicitly allowed the Commission to obtain that same monetary relief . . . .” Slip Op. at 9.
Similarly, the FDC Act explicitly authorizes FDA to obtain monetary relief in several provisions. For example, Section 303(a), (b)(1), and (e)(3) authorize a court to fine a defendant in a criminal case. In the civil context, Section 303(b)(2), (f), and (g) authorize FDA to obtain civil penalties regarding violations of the FDC Act concerning drug samples, devices, foods, tobacco products, and direct to consumer drug advertisements. Section 518(e) authorizes FDA to mandate refunds to persons who FDA believes have been damaged by a violation involving medical devices. Thus, the absence of monetary relief in Section 302 coupled with the presence of monetary relief in other provisions of the FDC Act should lead to the inescapable conclusion that Congress did not authorize the government to obtain monetary relief in a Section 302 lawsuit.
While we focus on the commonalities between the FTC Act and FDC Act, one point of differentiation that may be important is that FDA has a fairly large stick that FTC does not often have. As we know, the FDC Act is a strict liability criminal statute, so every cGMP violation that supports an injunction also supports a criminal charge. There is no question that FDA and DOJ can obtain fines, forfeiture, and restitution under its criminal authority, and while unlikely, this Supreme Court decision could have the perverse effect of encouraging broader use of criminal sanctions if FDA wants monetary relief. But, keep in mind that the FTC has some – but more limited – authority under its statute to seek a criminal prosecution, limited to food and drug advertising under 15 U.S.C. § 54, whereas the FDA has broader criminal jurisdiction.
There is the second and equally important question we will next address: how will FDA react to the AMG decision? FDA through the DOJ could decide to file one or more injunction cases where the government seeks monetary relief from a defendant. But will it exercise that right? The answer will have to be provided by FDA and DOJ. Of course, the government could decide, after reading the AMG decision, that the ruling will similarly bar the government from seeking monetary relief pursuant to Section 302. But what if it decides to bring a test case. The defendant can certainly contest FDA’s statutory authority. If that happens, the district judge assigned the case will have to decide the issue, subject to later appellate court review. As noted above, we believe that any such case would fail.
A more likely scenario would involve pre-filing negotiations between FDA and a potential defendant. When FDA wants to get an injunction through a district court filing, the agency typically drafts and submits a proposed Consent Decree to counsel for the likely defendant[s]. We would not be surprised if FDA continues this practice by, in appropriate cases, asking the defendant[s] to agree to pay monetary relief as a component of the Consent Decree. Of course, the proposed defendant can either agree or disagree to that demand for money. If the defendant agrees to a monetary payment, the proposed Consent Decree would be submitted to the district court judge for approval. But the judge has the legal authority to question the legality and indeed propriety of a proposed Consent Decree. The judge could (but might well not) ask for briefing on whether the judge has the authority to award monetary relief under Section 302. Some judges might well conclude that because the FDC Act does not authorize monetary relief, that part of the Consent Decree must be stricken.
But what happens if a proposed defendant responds to an FDA demand for monetary relief by refusing to pay, citing the AMG decision? And should a proposed defendant do so?
FDA, not the proposed defendant, initially drafts proposed Consent Decree. The agency puts forth a proposal on the remedial provisions the agency wants in the Decree such as a possible shutdown of certain operations, remedial steps the agency wants the defendant to take, and the sanctions that will be imposed if the defendant violates the Consent Decree. If a proposed defendant balks at paying monetary relief for past violations, what will and should happen next? FDA and DOJ can say (and probably would say before the AMG case was decided) that absent monetary relief there will be no Consent Decree. Of course, a proposed defendant will have to make its own decision regarding whether to give in to FDA’s demand for monetary relief.
We believe however, that in most cases, proposed defendants are on very strong legal and practical grounds in refusing an FDA demand for monetary relief. FDA should realize that absent a change in the law, FDA will likely lose in court if it demands monetary relief. If a proposed defendant accepts the remedial provisions of a proposed Consent Decree but rejects the monetary provisions, will FDA reject the settlement? The answer to that question is unclear as it will need to be resolved by FDA and the DOJ. Will FDA insist on even tougher remedial terms if a proposed defendant rejects a monetary payment? The answer should be no. Once FDA articulates the remedial terms it needs in a proposed Consent Decree, the agency will have a hard time justifying the need for additional remedial terms just because the company rejects a monetary payment.
This leaves a final ancillary question. Will FDA seek a legislative change to Section 302 to explicitly authorize the government to get monetary relief in an injunction suit? We do not know the answer to that question, but we will eagerly await the answer. Of course, FDA and the FTC may not be the only federal agencies negatively impacted by the AMG decision. Thus, Congress could decide to implement a “legislative fix” to AMG that would apply to a multitude of federal agencies. Alternatively, as has been the case all too often, Congress may be unable to reach an agreement on how to fix AMG, and the relevant law will remain unchanged.