An Insidious Consequence of the FTC’s Use of Section 13(b) Injunctions: Denial of Counsel


I’ve previously written on the Supreme Court’s taking two cases involving the extent of the Federal Trade Commission’s (FTC) ability to seize property of all kinds under Section 13(b) of the FTC Act. Those cases, FTC v. Credit Bureau Center, LLC, CA19-825, and AMG Capital Management, LLC et al. v. FTC, CA19-508, have been combined before the Court, and NCLA submitted an amicus brief supporting Credit Bureau Center, LLC and AMG Capital Management, LLC respectively in the two cases. You can read the brief here.

In our brief we highlight that one of the worst aspects of the administrative state’s overreach and liberation from written law is that it intentionally creates bad law for everybody, not just the litigants in any particular case. Here is how it works. The FTC goes to a Court before it has an opponent. In what is called an ex parte Temporary Restraining Order, it goes to Court and says, “The Defendant is doing all these bad things, and we need to freeze all of their assets so they can be disgorged at the end of the case when we win. Oh, by the way, your honor, the Defendant is so bad he will abscond with all the assets if we let him know we are doing this so let’s not tell him before you rule.” And, incredibly, this works and is allowed. Ex parte means “for the benefit of only one side or faction,” and in these cases truer words were never spoken. These orders are routinely granted. Shortly thereafter, the Court gives the Defendants the chance to come in explain why the injunction—which the Court has already granted and so is temperamentally invested in—should be lifted. How does a defendant in a civil matter, which FTC enforcement is, get a lawyer when all his assets have been seized? The answer is a lawyer is often hard to find, or if available will counsel to settle the matter immediately by giving up all assets to the FTC. A person who has run a business for 20 years and has millions in assets is helpless against this ploy. It is exceptionally difficult to outlast the FTC. This is why defendants have had to surrender even when the very right of the FTC to seize assets under Section 13(b) is under attack and even with thousands of customers complaining they are injured by the FTC action.

It is bad enough that the FTC, without any authorization from Congress, seizes assets so that a defendant is left defenseless. What is even more insidious is that it then uses the settlement orders and default judgments as “precedent” for its next depredations on the property of Americans. And this was the plan! As we said in our brief: “The FTC advanced its agenda against weak defendants, asked for broad equitable relief, beyond injunction, and got it when the defendants defaulted.” We tell the story of the FTC v. Vylah Tec LLC, 378 F.Supp.3d 1134 (M.D. Fla., 2019). In that case the Defendants had two lawyers, paid with small sums released by the court, before they obtained pro bono counsel. While they were found liable by the Court, the FTC when forced to trial could not prove any damages. Zero.

This is one case, but it happens again and again all over the country. If the FTC brings a Section 13(b) case and solvent defendants could use them to hire lawyers how often would the FTC win? First, as these Supreme Court cases reveal, they might have the very power to seize assets challenged. If there is no power of disgorgement, why seize funds? Second, the FTC routinely makes maximalist demands on damages that, without representation, it is very hard to counter. Third, in a “deception/unfairness” claim whether or not the challenged statements were deceptive often turns on expert testimony or legal arguments that a lay person is unlikely to make. The FTC prefers targets without lawyers. Its own liberation from statutory language has too often allowed it to obtain that result.

Photo Credit: Jeffrey Zeldman