Even after the Supreme Court limited the power of the Federal Trade Commission to receive monetary relief under § 13(b) of the Federal Trade Commission Act, the FTC still has authority under § 19(b) of the FTC Act to freeze assets and impose a receivership, the Eleventh Circuit ruled in FTC v. Simple Health Plans LLC, 2023 U.S. App. LEXIS 2192 (11th Cir. Jan. 27, 2023).
The FTC brought an enforcement action under § 5(a) of the FTC Act, which broadly prohibits unfair or deceptive acts or practices in or affecting commerce, against Steven J. Dorfman and six of his companies. The FTC also alleged violations of the Telemarketing Sales Rule, which prohibits sellers and telemarketers from misrepresenting the characteristics of goods or services or the seller’s affiliation with any person or entity. The FTC accused Dorfman of selling underinclusive health insurance plans, called “limited indemnity plans and medical discount memberships,” to unwitting consumers by leading them to believe they were purchasing comprehensive insurance plans which would cover a large portion of their medical expenses. In reality, the FTC alleged, the plans only provided discounts on medical bills and became practically worthless if the consumer suffered a catastrophic medical issue.
The FTC sought a preliminary injunction from the district court to freeze assets and appoint a receiver through its authority under § 13(b) of the FTC Act. Section 13(b) authorizes the district court to issue a “permanent injunction,” and for years many courts interpreted this provision to invoke the full scope of the court’s equitable powers, including the power to grant monetary awards such as restitution and disgorgement. Ultimately, the district court granted the injunction. Shortly after, the FTC amended its complaint to add another basis for relief, § 19 of the FTC Act. Section 19 of the FTC Act authorizes the district court to grant “such relief as the court finds necessary to redress injury to consumers,” but, unlike § 13(b), § 19 authorizes the FTC to commence a civil action only if the defendant violates a “rule under this subchapter respecting unfair or deceptive acts or practices” or if the FTC obtains a final cease-and-desist order respecting an unfair or deceptive act or practice.
After the FTC amended its complaint, the Supreme Court issued its opinion in AMG Capital Management, LLC v. FTC, 141 S. Ct. 1341 (2021), in which the Court held that the text and structure of the FTC Act limited the meaning of the term “permanent injunction” under § 13(b) to forward-looking injunctive relief, rather than “retrospective monetary measures.” Dorfman thereafter moved to vacate the injunction in light of the Court’s opinion and took the position that AMG Capital was a signal by the Supreme Court to interpret the FTC Act with a view to “reigning in the FTC’s power.”
In an opinion written by Judge Grant and joined by Chief Judge William Pryor and Judge Jill Pryor, the Eleventh Circuit agreed that after AMG Capital, the FTC cannot rely solely on § 13(b) to support the preliminary injunction issued because the injunction included measures preserving assets for monetary relief. Therefore, the court held that the imposition of an asset freeze or receivership would be inappropriate under § 13(b). However, the court affirmed the district court’s grant of the injunction after holding that the district court had authority to grant the injunction under § 19, even after taking into consideration the more limited scope of § 19. The court analyzed whether the alleged violations of the Telemarketing Sales Rule fell within the scope of § 19. The Telemarketing Sales Rule was promulgated under the Telemarketing Act, which is not found in the same subchapter as § 19, but the court held that the rules prescribed under the Telemarketing Act, including the Telemarketing Sales Rule at issue, are enforceable under § 19 because the Telemarketing Act expressly states that a violation of one of its rules shall be treated as a violation of a rule under § 57(a) regarding unfair or deceptive acts or practices. Section 57(a) is in the same subchapter as § 19 of the FTC Act. Therefore, the court held that a violation of the Telemarketing Sales Rule falls within the scope of § 19.
The court then analyzed whether § 19 authorized the type of relief sought by the preliminary injunction, an asset freeze and receivership, and concluded that those types of relief are authorized by § 19(b) as long as the measures are necessary to preserve funds for a future monetary judgment.
Posted by Rebekah Whittington.