Client Alert: Jarkesy and Loper Bright: What Do They Mean for the FTC?
Overview
In a blockbuster term that is sure to reverberate through the legal system for decades, the Supreme Court reshaped the way administrative agencies will interpret and enforce statutes, and how courts will interact with and review agency decisions.
In SEC v. Jarkesy, the Supreme Court curbed the SEC’s ability to use administrative litigation to seek civil penalties against a defendant for securities fraud, holding that the SEC cannot pursue such a penalty outside an Article III court without violating a defendant’s Seventh Amendment right to a jury trial. No. 22-859, slip op. at 27 (June 27, 2024). The decision places strict limits on agencies using their own administrative litigation processes to impose civil penalties or to pursue a claim that has a common law “nature”—including, for example, claims rooted in fraud. Id. (“When a matter ‘from its nature, is the subject of a suit at the common law,’ Congress may not ‘withdraw [it] from judicial cognizance.’”) (internal citation omitted).
In Loper Bright Enterprises v. Raimondo, the Court held that the federal courts owe no deference to an administrative agency’s interpretation of its own statutory mandate, overruling the Court’s 1984 decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). The Court held in Loper Bright that the federal “[c]ourts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.” Nos. 22-451 & 22-1219, slip op. at 35 (June 28, 2024). Per the ruling, courts will no longer need to defer to an agency’s interpretation of an otherwise ambiguous statute. Instead, Loper Bright transfers the power of statutory interpretation firmly back to the judiciary.
Jarkesy, Loper Bright, and the FTC
Jarkesy and Loper Bright continue a trend of the Roberts Court, which has been willing to narrow the authority and discretion of administrative agencies based upon the Court’s interpretations of the Constitution and the Administrative Procedure Act (“APA”).
In Jarkesy, the Court held that the Constitution places strict limits on the ability of an administrative agency to use its administrative litigation processes, and that the Constitution requires an agency to seek relief in federal court under certain circumstances, or prevents Congress from authorizing an administrative agency to use its administrative litigation processes under those same circumstances.
Loper Bright does not interpret the Constitution but focuses on the text of the APA. The Court held that the admonition in the APA that the federal courts must decide “all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action” prevents the federal courts from deferring to agencies on questions of statutory construction. Loper Bright, slip op. at 14 (citing 5 U.S.C. § 706). The ruling in Loper Bright, albeit a straightforward interpretation of the text of one statute, is controversial because it involved overruling Chevron, a much-applied and much-discussed 40-year-old precedent that applies to virtually all federal administrative agencies.
Together, these decisions limit an agency’s ability to litigate in-house rather than in the federal courts and restrict an agency’s own discretion in interpreting its statutory mandates. Although these changes are profound with respect to administrative agencies generally, the effect on the Federal Trade Commission is likely to be minimal.
Jarkesy Limits use of Administrative Litigation only in Certain Circumstances
Although the plaintiff in Jarkesy made a facial constitutional challenge to the SEC’s administrative litigation procedures, the Court held that the Constitution is a bar to the use of those procedures only in certain circumstances—circumstances that are unlikely to apply to any enforcement action by the FTC.
The Court held that the 7th Amendment requires an administrative agency like the SEC to go to federal court—where the litigant can be in front of a jury—when seeking civil penalties for claims at issue in common law. In doing so, the Court recognized that the SEC is still authorized to bring claims for fraud, but that the “SEC’s antifraud provisions replicate common law fraud, and it is well established that common law claims must be heard by a jury.” Jarkesy, slip op. at 6.
Unlike the SEC, the FTC was already prohibited by statute from using its administrative litigation process to order civil penalties or other monetary remedies. Put another way, Congress never gave the FTC the authority to order a respondent to pay money through its administrative process. Before the Supreme Court’s ruling in AMG Capital Mgmt., LLC v. FTC, 593 U.S. 67 (2021), the FTC routinely used § 13(b) of the FTC Act to obtain restitution and disgorgement from a defendant in federal court. Following AMG, the FTC’s authority to get money is limited by § 19, which permits the FTC to get money only when an entity subject to its jurisdiction violates an existing cease and desist order, and the FTC may then—and only then—ask a federal court to award monetary relief related to the order violation. Accordingly, Jarkesy’s limitation on the use of an administrative tribunal to seek civil penalties would not, at first impression, appear to affect the FTC.
It is conceivable, however, that a future litigant could draw a parallel between the Court’s discussion of common law bribery and fraud in Jarkesy and future FTC claims enforcing “unfair methods of competition” (“UMC”) or “unfair or deceptive acts or practices” (“UDAP”). Future litigants may make the case that certain UMC and UDAP claims have a common law “nature,” and that Jarkesy requires such claims to be litigated in federal court in order to comply with the 7th Amendment. The success of such an argument will depend on how closely any future UMC or UDAP claim by the FTC resembles a common law claim, including whether the FTC attempts to impose a remedy that could be arguably considered a taking.
The End of Chevron Deference Will Affect the FTC, But Only Minimally
The FTC’s remit in enforcing Section 5 of the FTC Act is to prosecute “unfair methods of competition” or “unfair or deceptive acts or practices.” 15 U.S.C. § 45(a)(1)–(2). Given the inherent ambiguity of what is “fair” or “unfair” in a given context, Chevron theoretically would have required the federal courts to defer to the FTC’s reasonable interpretation of what is “unfair”—except that pre-Chevron Supreme Court precedent had already committed the interpretation of fairness under the FTC Act to the courts, even if the courts would decide differently.
The FTC Act was first passed in 1914, long before the Supreme Court articulated the approach to the statutory construction of agency enforcement statutes in Chevron in 1984. In its earliest decisions interpreting the FTC Act, the Supreme Court consistently observed that the meaning of the word “unfair” was a question of law for the courts to interpret. See, e.g., FTC. v. R.F. Keppel & Bro, 291 U.S. 304, 313 (1934) (“it is for the courts to determine what practices or methods of competition are to be deemed unfair”). Indeed, whether the FTC has ever received Chevron deference remains an area of scholarly debate.[1]
The FTC has argued for, and received, Chevron deference for certain of its statutory interpretations in the past. See Estiverne v. Sak’s Fifth Avenue, 9 F.3d 1171, 1173 (5th Cir. 1993) (providing Chevron deference to the FTC’s interpretation of the Fair Credit Reporting Act). And the FTC has won petitions for review of its enforcement actions even when the courts do not cite or apply Chevron. See POM Wonderful, LLC v. FTC, 777 F.3d 478 (D.C. Cir. 2015); see also FTC v. Indiana Fed’n of Dentists, 476 U.S. 447, 454 (1986) (noting that “courts are to give some deference to the Commission’s informed judgment that a particular commercial practice is to be condemned as ‘unfair’” even though legal issues are “for the courts to resolve”).
With regard to the FTC’s own interpretation of the meaning of “unfair methods of competition,” however, the federal courts never had the opportunity to consider whether Chevron deference applied because the FTC did not litigate a single case that would potentially raise the issue during the entire forty-year period Chevron was good law. The most recent circuit decision interpreting a “standalone” UMC claim brought by the FTC was handed down in 1984 approximately four months before the Supreme Court decided Chevron. EI Du Pont de Nemours & Co. v. FTC, 729 F.2d 128 (2d Cir. 1984).
Current leadership at the FTC, however, has made clear that it intends to use its UMC authority much more frequently and expansively than prior leadership. In its 2022 Policy Statement, the FTC announced that Section 5 of the FTC Act reaches beyond the Sherman and Clayton Acts, and that it considers conduct “unfair” when it “may be coercive, collusive, abusive, deceptive, predatory, or involve[s] the use of economic power of a similar nature.”[2] Since then, the FTC has also adopted a final rule declaring that non-compete agreements in employment contracts are an unfair method of competition.[3] Last fall, this FTC alleged that Amazon’s anti-discounting practices, fulfillment practices, and pricing algorithms constitute unfair methods of competition in violation of Section 5.[4] And there may be more UMC activity from the FTC in the coming weeks and months.
Loper Bright makes clear that the courts will not defer to the FTC’s interpretation of the meaning of the word “unfair” and will define the term on their own, based upon established tenets of statutory construction and common law. To the extent the FTC’s UMC Policy Statement is considered in these judicial decisions, Loper Bright counsels that this may be considered for its persuasive effect, but not as an agency statement requiring deference.
As to the FTC’s substantive rulemaking authority, the threshold question of whether Congress has actually delegated the authority to an administrative agency remains, as it was pre-Loper Bright, a question for the courts to decide. Although much remains to be litigated, the earliest signs are mixed as to the breadth of the FTC’s statutory authority. Loper Bright was decided on June 28. Less than a week later, Judge Ada Brown of the district court for the Northern District of Texas cited Loper Bright in holding that the plaintiffs challenging the legality of the FTC’s UMC rulemaking authority had established a likelihood of success on the merits relating to their arguments that the FTC’s proposed noncompete rule was outside the bounds of the agency’s authority.[5] Although this was a preliminary ruling, Judge Brown promised to issue a decision on the merits by the end of August. On July 23rd, Judge Hodge in the Eastern District of Pennsylvania took a different view and denied a different plaintiff’s request for a preliminary injunction against the FTC enforcing its rule, opining that the FTC Act provides it with rulemaking authority.[6]
Footnotes:
[1] G. Hurwitz, Chevron & Administrative Antitrust, Redux, George Mason L. Rev., forthcoming (Sept. 26, 2023), https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1255&context=faculty_articles.
[2] Federal Trade Commission, 2022 Policy Statement, https://www.ftc.gov/system/files/ftc_gov/pdf/p221202sec5enforcementpolicystatement_002.pdf.
[3] Federal Trade Commission, 16 C.F.R. Part 910, Non-Compete Clause Rule, https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete-rule.pdf.
[4] Complaint, FTC v. Amazon.com, Inc., Case No. 2:23-cv-01495 (W.D. Wash. Nov. 2, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/1910134amazonecommercecomplaintrevisedredactions.pdf.
[5] Ryan LLC v. FTC, No. 3:24-cv-00986 (N.D. Tex. July 3, 2024), https://www.hklaw.com/-/media/files/insights/publications/2024/07/070524alert_ryanllcvftcopinion.pdf?rev=d3a55e42bcad41548db1aa0cdeb7e270&hash=758FA8237717EEE83B11AF560B09E637.
[6] ATS Tree Services, LLC v. FTC, No. 23-1743 (E.D. Pa. July 23, 2024), https://www.law360.com/dockets/download/66a0067a73217a08dd67486f?doc_url=https%3A%2F%2Fecf.paed.uscourts.gov%2Fdoc1%2F153122175166&label=Case+Filing