Walmart Seeks 7th Circuit Interlocutory Review of FTC’s Litigation Powers

The March 27 order from U.S. District Judge Manish Shah for Northern Illinois in Chicago denying in part Walmart’s motion to dismiss an FTC enforcement action (see 2304040010) “raises fundamental questions about the FTC’s legal authority and the proper interpretation of key provisions of the FTC Act,” said Walmart. Walmart filed its memorandum of law Wednesday (docket 1:22-cv-03372) in support of its motion to certify the order for interlocutory appeal.

Interlocutory appellate review “will clarify the law and promote the efficient resolution of this case,” said the memorandum. The case involves telemarketers who conned consumers into sending money using Walmart’s services. The FTC alleges Walmart knew it was processing fraudulent money transfers and failed to do enough to protect consumers.

The court’s ruling on whether the FTC’s litigation powers are “constitutionally valid” warrants interlocutory review, said the memorandum. Congress “overstepped constitutional boundaries” in the 1970s when it granted the FTC “extensive executive litigation powers,” it said. The court’s interpretation of the FTC’s litigation powers “is debatable at the very least,” it said.

The court’s interpretation of the FTC Act’s Section 13(b) and its “ongoing-or-imminent misconduct requirement” also warrants interlocutory review, said the memorandum. Section 13(b) is “the only statutory provision authorizing the FTC to seek injunctive relief” for its FTC Act Section 5 claims against unfair or deceptive practices, it said. It requires the FTC to show that Walmart is violating or is about to violate the law, it said. The court concluded that Section 13(b)’s text “mirrors the common-law standard for injunctions and thus permits the FTC to satisfy it based simply on an allegation of past conduct that may recur at some unidentified point in the future,” it said. But that interpretation “contradicts” 3rd and 7th circuit U.S. courts of appeal case law, it said.

The court’s interpretation of the unfairness requirement in Section 5(a) of the FTC Act also warrants interlocutory review, said the memorandum. The court said conduct may be deemed unfair even if the FTC “fails to show a violation of established public policy or immoral or wrongful conduct,” it said. But relieving the FTC from that burden “departs from” 7th Circuit and 11th Circuit interpretations of “the legal test for unfairness,” it said: “The question is thus certainly contestable.”

The court should grant Walmart’s motion and certify its order for interlocutory appeal so the 7th Circuit can address key questions about the FTC Act, said the memorandum. One question at issue is whether the congressional decision in the 1970s to grant the FTC authority to bring litigation against private parties in federal district courts “was unconstitutional and must be severed to preserve the FTC’s independence” from presidential oversight, it said.

An interlocutory appeal to the 7th Circuit can also determine whether Section 13(b) of the FTC Act requires the FTC to show ongoing or imminent unlawful conduct, “or instead permits the FTC to obtain relief based on a likelihood that past unlawful conduct may recur,” it said. It can also answer whether an unfair act or practice under Section 5(a) of the FTC Act “requires the FTC to demonstrate a violation of established public policy or morally blameworthy conduct,” it said.