October 28, 2022
Stroock Client Alert
By: Allen H. Denson, Daniel C. Fishbein
The Federal Trade Commission (“FTC”) is under serious scrutiny following Walmart’s recent defensive thrust challenging the FTC’s constitutional and statutory authority in an ongoing enforcement action by the FTC against the company. In FTC v. Walmart Inc.,[1] Walmart argues that the FTC’s appointment and removal process for commissioners violates the Constitution and, therefore, the FTC does not have power to initiate litigation. Walmart’s swing continues a recent trend of companies challenging the constitutionality of consumer protection enforcement bodies, including the Consumer Financial Protection Bureau (“CFPB”).
Earlier this June, the FTC filed suit against Walmart in the Northern District of Illinois, alleging that the company “allow[ed] its money transfer services to be used by fraudsters, who fleeced consumers out of hundreds of millions of dollars.”[2] The FTC alleged that “for years, the company turned a blind eye while scammers took advantage of its failure to properly secure the money transfer services offered at Walmart stores. . . . [and that] [t]he company did not properly train its employees, failed to warn customers, and used procedures that allowed fraudsters to cash out at its stores.”[3] According to the complaint, the FTC is seeking the district court to order Walmart to return money to consumers and impose civil penalties for the alleged violations. And according to the FTC, “from 2013 to 2018 more than $197 million in payments that were the subject of fraud complaints were sent or received at Walmart, with more than $1.3 billion in related payments also possibly connected to . . . fraud.”[4]
Walmart has now moved to dismiss the FTC’s suit, alleging that the enforcement body relied on legal theories that “contravene clear constitutional and statutory limits on its authority, making this case yet another example of FTC overreach.”[5] According to Walmart’s motion, the powers granted to the FTC in 1973 (in which Congress granted the FTC power to seek permanent injunctive relief) and 1975 (in which Congress granted the FTC the power to seek monetary relief) are incompatible with the FTC’s classification as an independent agency because those powers are “indisputably executive powers.”[6] Thus, according to Walmart, Congress violated the Constitution when it amended the FTC Act to give these litigation capabilities to the FTC, because only those agencies, in which the president may appoint and remove their heads, may initiate litigation. Walmart argues that because the FTC does not have constitutionally valid authority to bring its lawsuit against the company, it should be dismissed. A decision on Walmart’s motion is forthcoming following completion of motion practice.
Walmart’s parry to the FTC’s enforcement authority continues a trend of challenging the propriety of consumer protection-related enforcement bodies on the grounds that their funding or operational structures run afoul of the Constitution. Just last week, a three-judge panel of the United States Court of Appeals for the Fifth Circuit held the CFPB’s funding structure to be unconstitutional, finding the agency’s rulemaking and enforcement power constitutionally infirm. (The panel also invalidated the Bureau’s 2017 payday lending rule – the core issue of that case.) These developments follow earlier successful efforts in Seila Law v. Consumer Financial Protection Bureau,[7] in which the Supreme Court determined that the CFPB’s director removal provision – which only permitted removal of the Bureau’s director for cause – violated separation of powers under the Constitution and AMG Capital Management LLC et al. v. FTC,[8] in which the Supreme Court unanimously held that Congress never intended to give the FTC authority to collect restitution or disgorgement of ill-gotten gains as an equitable relief power.
We will closely monitor this case for future developments. How the court resolves Walmart’s motion could set the stage for yet another bet-the-farm challenge to the existing enforcement framework.
[1] 1:22-cv-03372 (N.D. Ill.).
[2] Case Proceedings, https://www.ftc.gov/legal-library/browse/cases-proceedings/182-3012-walmart-ftc-v.
[3] Id.
[4] Press Release, FTC Sues Walmart for Facilitating Money Transfer Fraud That Fleeced Customers Out of Hundreds of Millions (June 28, 2022) https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-sues-walmart-facilitating-money-transfer-fraud-fleeced-customers-out-hundreds-millions.
[5] DE 24 at 2.
[6] Id. at 10.
[7] 140 S. Ct. 2183 (2020).
[8] 141 S. Ct. 1341 (2021).
October 28, 2022
Stroock Client Alert
By: Allen H. Denson, Daniel C. Fishbein
The Federal Trade Commission (“FTC”) is under serious scrutiny following Walmart’s recent defensive thrust challenging the FTC’s constitutional and statutory authority in an ongoing enforcement action by the FTC against the company. In FTC v. Walmart Inc.,[1] Walmart argues that the FTC’s appointment and removal process for commissioners violates the Constitution and, therefore, the FTC does not have power to initiate litigation. Walmart’s swing continues a recent trend of companies challenging the constitutionality of consumer protection enforcement bodies, including the Consumer Financial Protection Bureau (“CFPB”).
Earlier this June, the FTC filed suit against Walmart in the Northern District of Illinois, alleging that the company “allow[ed] its money transfer services to be used by fraudsters, who fleeced consumers out of hundreds of millions of dollars.”[2] The FTC alleged that “for years, the company turned a blind eye while scammers took advantage of its failure to properly secure the money transfer services offered at Walmart stores. . . . [and that] [t]he company did not properly train its employees, failed to warn customers, and used procedures that allowed fraudsters to cash out at its stores.”[3] According to the complaint, the FTC is seeking the district court to order Walmart to return money to consumers and impose civil penalties for the alleged violations. And according to the FTC, “from 2013 to 2018 more than $197 million in payments that were the subject of fraud complaints were sent or received at Walmart, with more than $1.3 billion in related payments also possibly connected to . . . fraud.”[4]
Walmart has now moved to dismiss the FTC’s suit, alleging that the enforcement body relied on legal theories that “contravene clear constitutional and statutory limits on its authority, making this case yet another example of FTC overreach.”[5] According to Walmart’s motion, the powers granted to the FTC in 1973 (in which Congress granted the FTC power to seek permanent injunctive relief) and 1975 (in which Congress granted the FTC the power to seek monetary relief) are incompatible with the FTC’s classification as an independent agency because those powers are “indisputably executive powers.”[6] Thus, according to Walmart, Congress violated the Constitution when it amended the FTC Act to give these litigation capabilities to the FTC, because only those agencies, in which the president may appoint and remove their heads, may initiate litigation. Walmart argues that because the FTC does not have constitutionally valid authority to bring its lawsuit against the company, it should be dismissed. A decision on Walmart’s motion is forthcoming following completion of motion practice.
Walmart’s parry to the FTC’s enforcement authority continues a trend of challenging the propriety of consumer protection-related enforcement bodies on the grounds that their funding or operational structures run afoul of the Constitution. Just last week, a three-judge panel of the United States Court of Appeals for the Fifth Circuit held the CFPB’s funding structure to be unconstitutional, finding the agency’s rulemaking and enforcement power constitutionally infirm. (The panel also invalidated the Bureau’s 2017 payday lending rule – the core issue of that case.) These developments follow earlier successful efforts in Seila Law v. Consumer Financial Protection Bureau,[7] in which the Supreme Court determined that the CFPB’s director removal provision – which only permitted removal of the Bureau’s director for cause – violated separation of powers under the Constitution and AMG Capital Management LLC et al. v. FTC,[8] in which the Supreme Court unanimously held that Congress never intended to give the FTC authority to collect restitution or disgorgement of ill-gotten gains as an equitable relief power.
We will closely monitor this case for future developments. How the court resolves Walmart’s motion could set the stage for yet another bet-the-farm challenge to the existing enforcement framework.
[1] 1:22-cv-03372 (N.D. Ill.).
[2] Case Proceedings, https://www.ftc.gov/legal-library/browse/cases-proceedings/182-3012-walmart-ftc-v.
[3] Id.
[4] Press Release, FTC Sues Walmart for Facilitating Money Transfer Fraud That Fleeced Customers Out of Hundreds of Millions (June 28, 2022) https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-sues-walmart-facilitating-money-transfer-fraud-fleeced-customers-out-hundreds-millions.
[5] DE 24 at 2.
[6] Id. at 10.
[7] 140 S. Ct. 2183 (2020).
[8] 141 S. Ct. 1341 (2021).
