Richard Newman Authors Article for National Law Review on Assault Upon FTC Enforcement Authority: Monetary Disgorgement Challenges and Executive Direction to Reform Agency Operations
FTC advertising practices attorney Richard B. Newman recently authored an article for National Law Review titled “Update on the Assault Upon FTC Enforcement Authority: Monetary Disgorgement Challenges and Executive Direction to Reform Agency Operations.”
The article examines the U.S. Supreme Court in Liu v. SEC, the limits placed upon the SEC’s ability to seek monetary disgorgement that exceeds a wrongdoer’s net profits, and the limits placed upon the ability of the SEC to impose “joint and several liability” for the net profits of multiple defendants. The article also examines the applicability of the SCOTUS ruling in Liu to FTC actions.
The article then delves into direction from the Office of Information and Regulatory Affairs to reform agency operations, including, without limitation the FTC and the CFPB. The August 31, 2020 Memorandum for the Deputy Secretaries of Executive Departments and Agencies directs government agencies to reform how they operate by elaborating upon “fairness” directives from an executive order issued in May 2020 relating to administrative enforcement and adjudication.
In part, the Memorandum directs:
- That penalties should be proportionate, transparent and imposed in adherence to consistent standards and only as authorized by law
- Agencies to establish policies of enforcement discretion that decline enforcement or the imposition of a penalty, as appropriate, in the course of enforcement when the agency determines that the regulated party attempted in good faith to comply with the law
- Agencies to make the public aware of the conditions in which investigations and enforcement actions will be brought and provide the public with information on the penalties sought for common infractions
- Agencies should adopt expiration dates and/or termination criteria for consent orders, consent decrees, and settlements that are proportionate to the violation of the law that is being remedied (“Decade-long settlement terms that are disproportionate to the violation(s) of law should be strongly disfavored absent a clear and convincing need for time to implement a remedy such as, e.g., infrastructure improvements or long-term remedial actions”
- Consent orders, consent decrees and settlements should not bar private parties from disseminating information about their cases
- Agencies, if they have not already done so, to establish procedures to encourage voluntary self-reporting of regulatory violations by regulated parties in exchange for reductions or waivers of civil penalties, including grace periods to cure minor violations without fear of penalty
- The heads of all agencies, including FTC lawyers, to revise their procedures and practices in light of them, consistent with applicable law and as they deem appropriate in the context of particular statutory and regulatory programs and policy considerations
- Compilation of and reference to a list of best practices for consideration, insofar as consistent with particular statutory authority, regulatory programs or other policy considerations
- That the Government should bear the burden of proving an alleged violation of law – the subject of enforcement should not bear the burden of proving compliance
- That agencies should review their procedures to ensure that members of the regulated public are not required to prove a negative to prevent liability and enforcement consequences in the absence of statutory standards requiring otherwise
- Agencies to consider applying the rule of lenity in administrative investigations, enforcement actions and adjudication by reading genuine statutory or regulatory ambiguities related to administrative violations and penalties in favor of the targeted party in enforcement]
- That administrative enforcement should be prompt and fair
- That agencies should seek approval of an Officer of the United States, or if necessitated by good cause, his or her designee, before entering into a tolling agreement that would have the effect of extending the statute of limitations for an infraction
- That agency regulations should apply limiting principles to the duration of investigations; regulations should require investigating staff to either recommend or bring an enforcement action, or instead cease the investigation within a defined time period after its commencement absent a showing of unusual circumstances that is endorsed by an Officer of the United States, or if necessitated by good cause, by his or her designee
- That if a party has been informed by an agency that it is under investigation, the agency should inform the party when the investigation is closed and, when the agency has made no finding of violation, so state
- That agencies should consider and appropriately adopt estoppel and res judicata principles to eliminate multiple enforcement actions for a single body of operative facts (“Simply put, an agency should have only one bite at the apple to investigate and seek enforcement against a regulated entity for a static factual predicate that is not a continuing or expanding violation”)
- That agency employees’ performance metrics and compensation structures should incentivize excellence, accuracy, integrity, efficiency, and fairness in the application and execution of the law (“[E]mployees should not be rewarded on any basis that incentivizes them to bring cases or seek penalties or settlements that are meritless or unwarranted”)
- That administrative adjudicators should operate independently of enforcement staff on matters within their areas of adjudication, and should not engage in ex parte communications with, and should operate independently from, investigators and enforcement staff
- That agencies should develop reporting and disclosure structures for violations of such requirements and should establish command structures for these offices that are independent of each other
- That agency adjudicators’ performance metrics and compensation structures should incentivize fact-based, unbiased adjudication decisions (“Adjudicators should not be rewarded based on the penalties they award or in any other way that misaligns incentives”)
- That the Government should provide favorable relevant evidence in possession of the agency to the subject of an administrative enforcement action, and that agency officials should timely disclose exculpatory evidence to the target party of enforcement using similar procedures as those laid out in the Justice Manual of the U.S. Department of Justice (previously known as the US. Attorney’s Manual)
- Agencies to automatically disclose evidence material to the mitigation of damages or penalties
- That rules of evidence and procedure should be public, clear and effective, and that agencies should adopt or amend regulations regarding evidence and adjudicatory procedure to eliminate any unfair prejudice, reduce undue delay, avoid the needless presentation of cumulative evidence and promote efficiency
- That agencies seek to reduce the use of hearsay evidence with limited exceptions
- That agencies should consider incorporating other standards under the Federal Rules of Evidence, and make their rules of evidence and procedure easily accessible on their websites
- That agencies explicitly authorize the representation of regulated parties by legal counsel and in appropriate cases, by qualified representatives (“Agencies should also take steps to avoid disadvantaging parties who are not represented by counsel, including by writing rules of evidence and procedure in plain language)
- That administrative enforcement should be free of improper Government coercion, retaliatory or punitive motives, or the desire to compel capitulation, and that an agency’s selection of targets for investigations or enforcement actions, or other investigation and enforcement decisions should not be so motivated
- That liability should be imposed only for violations of statutes or duly issued regulations, after notice and an opportunity to respond
- That agencies should review their procedures for adjudication to ensure that liability is imposed only after notice and an opportunity to respond
- That, in any document initiating an investigation or enforcement action, an agency should include a citation to the statute and regulation asserted to be violated, and an explanation as to how the asserted conduct is prohibited by the cited statute and regulation
- That information or materials obtained in an administrative investigation or enforcement action should only be referred to the U.S. Department of Justice or other relevant criminal investigation or enforcement authority for criminal investigation in a manner that is consistent with the law and with best practices as established by policies, procedures, and guidelines regarding parallel investigations
- That administrative enforcement should be free of unfair surprise
- That, agencies should ensure they have rules in place that provide parties with a reasonable period of time to respond to filings or charges brought by the agency (“For example, agencies should provide parties with at least as much time to respond to an agency notice of charges as parties would have to respond to filings in civil complaints brought in federal court under the Federal Rules of Civil Procedure, unless the need for urgent action to protect the public warrants otherwise)
- That agencies must be accountable for their administrative enforcement decisions
Contact the author to discuss the practical significance of the best practices set forth in Memorandum, including how the procedural safeguard and transparency recommendations might be leveraged by those subject to an FTC investigation (CID) or enforcement action pending formal incorporation via agency rulemaking.
Richard B. Newman is an advertising practices attorney at Hinch Newman LLP.
Informational purposes only. Not legal advice. May be considered attorney advertising.
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