WASHINGTON (Legal Newsline) - Days after the Federal Trade Commission accused Walmart of helping scam artists defraud customers by using its money-transfer service, the retailer fired back with a frontal assault on the agency’s constitutional authority to sue or seek financial penalties.
The FTC sued Walmart on Friday for failing to protect customers against sending money to scam artists. Walmart, in a swift response, cited a nearly century-old Supreme Court decision that granted limited authority to the agency.
More recently, the Supreme Court in its Seila Law v. Consumer Financial Protection Bureau decision, held that the FTC was an administrative body with no executive powers. The power to sue and seek financial penalties, Walmart argued, is “quintessentially executive,” and therefore prohibited under the current FTC structure where commissioners can’t be removed by the President.
“As the FTC lacks constitutionally valid authority to bring this suit, the case must be dismissed,” Walmart said in an Aug. 29 motion to dismiss.
The Walmart suit represents FTC Chair Lina Khan’s aggressive new approach toward enforcement, which has drawn criticism from businesses as well as the two Republican commissioners on the five-member FTC board. Khan, with the support of the Democrat commissioners, shifted the agency away from a longstanding focus on consumer welfare and toward broader goals including reducing the size of large corporations like Facebook and Google, and helping “historically underserved communities.”
Some think she may have pushed the agency’s powers too far. The U.S. Supreme Court blessed the FTC as an “independent” agency with its landmark decision Humphrey’s Executor v. U.S. in 1935, carving out an exception from the general rule that executive-branch officials must be accountable to an elected President.
Congress created the FTC instead with a five-member board serving staggered terms, with members only removable for “inefficiency, neglect of duty, or malfeasance in office.” Congress granted the FTC the power to sue in 1973.
The Supreme Court’s conservative majority has taken an increasingly dim view of such arrangements as a violation the separation of powers doctrine. The court struck down the politically unaccountable single-chair leadership structure of the CFPB with Seila Law in June 2020 and the Federal Housing Finance Agency a few months later with Collins v. Yellen.
Now the FTC might wind up in the court’s sights, according to Aaron Nielson, a Brigham Young Law School Professor who wrote a July 2021 article in the Yale Journal on Regulation titled “Is the FTC on a Collision Course With the Unitary Executive?” In it, Nielson wrote that to fit within the limits of Humphrey’s Executor, agencies “must be `impartial,’ make decisions based on `experience,’ and not `wield substantial executive power.’”
Yet the Supreme Court in Seila ruled that “the power to seek daunting monetary penalties” is “a quintessentially executive power.” Khan, a Yale Law graduate, may be endangering her agency’s independence with her aggressive enforcement agenda, Nielson wrote.
“Simply put, the unintended consequence of aggressive use of executive power by the FTC may be to prompt the Supreme Court to re-examine whether the FTC’s independence is constitutional in light of its recent holdings in Collins and Seila Law that the president must be accountable for what agencies do,” Nielson wrote.
Walmart makes the same argument in its motion to dismiss. Congress violated the Constitution when it granted the FTC legal enforcement powers, the company says, since the agency the Supreme Court authorized in 1935 only had the power to investigate, make reports to Congress, and serve as an advisor to courts.
Nielson, in his 2021 article, concluded by writing: “The more aggressive the FTC decides to be in its use of regulatory power, the greater the likelihood that the Supreme Court will overrule Humphrey’s Executor and require the president to be accountable for the FTC’s decisions.”
“Perhaps I’m wrong, but the FTC may be a collision course with the unitary executive,” he wrote.