Source: https://ftcdefenselawyer.com/court-sets-limits-on-federal-trade-commission-enforcement-jurisdiction/
Timestamp: 2019-04-20 10:42:56+00:00

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Earlier this year, a federal judge in Delaware dealt a blow to Federal Trade Commission jurisdiction when it partially dismissed a lawsuit it filed alleging violation of antitrust laws. The dismissal drew attention, in large part, because the court ruled that the FTC’s ability to seek a permanent injunction is dependent upon establishing the existence of a reason to believe that a defendant is violating, or is about to violate, a law enforced by the FTC.
A federal judge in Georgia has now similarly ruled on the ability of the FTC to challenge past conduct (FTC v. Hornbeam Special Services).
Defendants filed a motion to dismiss for lack of subject-matter jurisdiction, arguing that the FTC had not pleaded adequate facts to invoke § 53(b), such that the court lacked jurisdiction under § 53(b). In doing so, defendants argued that § 53(b) is designed to remedy only future, rather than past, misconduct, and to the extent the FTC is basing its claims for relief on past misconduct, it must show that defendants are violating, or about to violate, the law.
The court ordered supplemental briefing on whether it should reconsider its previous holding that § 53(b)’s “reason to believe” element was unreviewable on a 12(b)(6) motion to dismiss.
Upon reconsideration, the court opined that many of the FTC’s claims against defendants were based largely on long-ceased misconduct. It considered that the FTC sought to invoke § 53(b) to obtain injunctive and other equitable remedies for defendants’ alleged deceptive marketing practices.
Having determined that the FTC must make factual averments regarding its “reason to believe,” the court then considered that the FTC’s “reason to believe” is a distinct statutory standard from the injunction inquiry.
The FTC’s case targeted defendants’ past conduct. Yet “the FTC is proceeding under § 53(b) on the theory that, based on defendants’ past conduct, they are ‘about to’ violate the law.” The court opined that it must therefore determine what “about to” means and whether the FTC has satisfied the court that, based on its averments, it is plausible that the defendants are about to violate the law.
The court gave the FTC an opportunity to amend its complaint. Query whether it will do so, or seek an appeal.
Takeaway: When the FTC attempts to bring suit under § 53(b), it must adequately plead that it has a reason to believe that each of the defendants is violating or is about to violate the law. When the FTC’s reason to believe is predicated upon past conduct, it must show that a defendant is “about to” violate the law—requiring more than mere likelihood of resuming the offending conduct—in order to state a claim.
Contact the author at [email protected] to discuss the impact of recent judicial trends, or if you are the subject of an FTC investigation or enforcement proceeding.
Richard B. Newman is an FTC advertising compliance and defense lawyer at Hinch Newman LLP. Follow him on Facebook and LinkedIn at FTC Defense Lawyer.

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