United States: Following The Mone(tary Relief): District Court Limits The FTC's Authority Post-Liu

In the wake of the Supreme Court's opinion in Liu v. SEC, lower courts are starting to address the breadth of its applicability. On August 31, 2020, the District of Arizona welcomed the Supreme Court's directives in Liu when denying Electronic Payment Solutions of America Inc.'s (EPS) bid for summary judgment against the FTC. To the extent other courts read Liu as similarly applicable, this could have broad implications for the FTC's authority to obtain monetary relief.

In FTC v. Electronic Payment Solutions, No. 17-cv-2535-PHX-SMM (D. Ariz. Aug. 31, 2020), the FTC filed suit against EPS for playing a role in facilitating Money Now Funding's alleged telemarketing scheme, and sought to recover approximately $4.67 million from EPS—the total amount EPS collected from credit card transactions for Money Now Funding minus refunds and chargebacks. EPS moved for summary judgment on the grounds that, in light of Liu, the FTC's monetary claim should be limited to net profits. EPS argued that the FTC, despite alleging entitlement to several forms of monetary relief, was actually seeking disgorgement under several different names. Accordingly, EPS argued that Liu requires courts to limit disgorgement only to the amount of net profits that will be returned to consumers.

Although the Court denied EPS's motion because it determined there were several facts still in dispute, the Court articulated important points regarding the applicability of Liu. First, and significantly, the court found that Liu applies to the FTC's requests for both disgorgement and restitution. Specifically, the court held that the restitution and disgorgement awards sought by the FTC are not distinguishable when the court is awarding that relief pursuant to its equitable authority. The court found that disgorgement is awarded to prevent a defendant's unjust enrichment, and it is "within the court's discretion to determine how and to whom the money will be distributed[.]" The court found that the FTC's use of restitution is essentially a form of disgorgement. Thus, the court confirmed that any final monetary judgment awarded to the FTC must comply with the strictures of Liu.

The court also found that Liu restricts which parties may be held jointly and severally liable. Specifically, the court indicated that the FTC will have to prove that EPS and Money Now Funding acted as a partnership in conducting illegal activity, in order to hold EPS jointly and severally liable. Ultimately, however, the court determined that this issue is a question of fact that is not appropriate for resolution at summary judgment.

The court's treatment highlights exactly how Liu can shift the amount of money the FTC can obtain when bringing enforcement actions under Section13(b) of the FTC Act. The Supreme Court will have the final say on these issues this fall.

The authors and others at Venable have considerable experience representing payment processors and merchants in Federal Trade Commission investigations and law enforcement actions, including matters litigating the FTC's enforcement authority under Section 13(b) of the FTC Act and issues related to regulatory compliance, risk management, and other consumer protection concerns.

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