Federal Trade Commission vs. AMG Capital Management, LLC – Trial Court Correctly Ordered Equitable Restitution of $1.27 Billion For Payday Lender’s Deceptive Practices.

The following is a case update prepared by Dan Schechter, Professor Emeritus, Loyola Law School, Los Angeles, analyzing a recent decision of interest:

SUMMARY:

The Ninth Circuit has held that a trial court correctly ordered equitable restitution of $1.27 billion due to a payday lender’s deceptive practices. [Federal Trade Commission vs. AMG Capital Management, LLC, 2018 Westlaw 6273036 (9th Cir.).]

Facts: An individual and his wife controlled a group of companies that made high interest consumer loans. The customers would access the lenders’ application on the Internet; the application process was designed to be confusing and intricate, so that the customers would inadvertently choose a higher payment schedule. The FTC brought suit against the individual, his wife, and his entities, claiming that the companies’ practices were deceptive and thus violated 15 U.S.C. §45(a)(1).

On cross-motions for summary judgment, the trial court held that the practices were deceptive and ordered $1.27 billion in equitable relief, to be paid to the FTC and then redirected to the consumers. On appeal, the lenders argued that the practices were not deceptive and that the restitutionary relief was not authorized by the statute.

Reasoning: The court first held that the lenders’ disclosures were indeed deceptive. One concurring justice expressed doubt that this factual issue could be resolved on summary judgment.

The court then held that 15 U.S.C. §53(b) authorizes both injunctive and restitutionary relief, citing FTC v. Commerce Planet, Inc., 815 F.3d 593 (9th Cir. 2016). The court reasoned that the award of restitution had to be measured by the wrongdoer’s net revenue, not net profits; therefore, the trial court’s award was correctly calculated.

A concurring opinion urged en banc review. The concurrence cast doubt on the continuing vitality of Commerce Planet in light of Kokesh v. SEC, ––– U.S. ––––, 137 S.Ct. 1635, 198 L.Ed.2d 86 (2017), which can be construed to hold that restitution is not a permissible equitable remedy. The concurrence argued that the award of more than $1 billion constituted a damage award and could not be characterized as merely injunctive relief.

Author’s Comment: Given the amount of money involved, it seems very likely that the defendants will seek en banc review. I predict that if that happens, Commerce Planet will not be repudiated and that the en banc panel will hold that Kokesh is distinguishable.

Going out even further on my authorial limb, I predict that the defendants will seek and obtain certiorari and that the Supreme Court will reverse, holding that if Congress had wanted to grant the FTC the power to obtain an award of damages as part of injunctive proceedings, the statute would have said so much more clearly than it does. I am not sure that the Supreme Court will even need to reach the issue of whether Kokesh, an SEC case, applies in the context of an FTC case.

These materials were written by Dan Schechter, Professor Emeritus, Loyola Law School, Los Angeles, for his Commercial Finance Newsletter, published weekly on Westlaw. Westlaw holds the copyright on these materials and has permitted the Insolvency Law Committee to reprint them.