PHILADELPHIA (Legal Newsline) - A federal judge won't block new rules from the administration that appointed her to the bench, essentially affirming a ban on noncompete clauses in employment contracts and rejecting claims the Federal Trade Commission was acting outside its authority.
Philadelphia judge Kelly Hodge on July 23 refused to enter a preliminary injunction requested by a Pennsylvania tree services company represented by the Pacific Legal Foundation. Their complaint is one of many challenging new federal agency rules that argue the Biden Administration is changing the landscape for businesses without congressional approval.
Hodge, a former interim Philadelphia District Attorney appointed by President Biden to the bench in 2022, found ATS Tree Services failed to show a likelihood of success on claims the FTC lacks rulemaking authority, exceeded any authority it does have and was unconstitutionally delegated legislative power by Congress.
"Section 6(g) (of the FTC Act) empowers the FTC to 'make rules and regulations,'" Hodge wrote.
"When taken in the context of the goal of the Act and the FTC's purpose, the Court finds it clear that the FTC is empowered to make both procedural and substantive rules as is necessary to prevent unfair methods of competition.
"Thus, the Court rejects ATS's argument that it should read the word 'procedural' but not the word 'substantive' into the statutory text defining the FTC's rulemaking authority. This argument is inherently inconsistent and therefore untenable."
It's Hodge's second recent decision likely to draw criticism from the business community. She sided with state officials this year when a lending company challenged whether they could use federal law to pursue allegations of illegal add-on products to personal loans.
Hodge said the states could use the federal Consumer Financial Protection Act to sue Mariner Finance, even though no federal agency has alleged any wrongdoing. Hodge's ruling could allow a single attorney general to use federal law to make a business change its practices nationwide.
Hodge was not swayed in the noncompete case that Section 5 of the FTC Act restricts the FTC's power to prevent unfair methods of competition. ATS said the FTC can only do this through adjudications, not rulemaking.
"Plaintiff's interpretation runs contrary to logic, as the ordinary meaning of the statutory text provides the FTC with the authority to promulgate rules prohibiting unfair methods of competition," she wrote.
"The plain text of the statute provides no express limitations on the FTC's rulemaking authority and the Court will not read in such limitations."
The lawsuit has drawn many amicus briefs from groups supporting the rule, while industry groups like the National Federation of Independent Business criticized the FTC's reasoning.
"(The rule) is based on cherrypicked data that predictably supports the result desired by the Commission's majority, while ignoring or summarily dismissing data that contradicts its preferred policy outcome," their brief says.
The groups call the FTC's rationale "incoherent," among other insults.
"In other words, despite spending more than a year crafting the Final Rule after posting the Notice of Proposed Rulemaking, the best the Commission could manufacture to support its predetermined outcome is a collection of poorly reasoned, self-serving and aggrandizing conclusions," the brief says.
A 3-2 vote by FTC commissioners approved the noncompete rule and was lauded by FTC chair Lina Khan, who has been a target of criticism over her activist approach to the role.
She sued Amazon under under antitrust laws for keeping prices low for its customers. Amazon requires merchants on its platform to charge prices equal to or lower what they charge elsewhere. She then admitted she buys diapers on Amazon.
In her career-making 2017 academic article attacking Amazon’s practices, she acknowledged it would be necessary to “revise antitrust law” to go after Amazon. She's also sued Amazon for allegedly tricking shoppers into enrolling in its Prime program, with the company claiming she is distorting federal law without warning.
She's filed an antitrust lawsuit against Facebook owner Meta, which argues Khan can't actually show what market it has allegedly monopolized. And MGM Resorts says she is abusing her authority with a probe into a cyberattack, given that she will not recuse herself from it even though she is a potential civil plaintiff and witness.
The practice of rulemaking by Biden's agency chiefs has increasingly irritated groups nationwide. It - if the rules are allowed to stand - allows his administration to implement new policies that Democrats in Congress couldn't gain support for.
The U.S. Chamber has sued the Consumer Financial Protection Bureau over a rule limiting late fees on credit card payments to $8, and a House committee has voted to repeal it, though support from the Democrat-led Senate is unlikely.
House Financial Services Committee chair Andy Barr claims the CFPB has gone "rogue," and a trade group for lenders warns that new rules targeting "risky" loans does not include a description of what those would be.
And Biden's Labor Department, which is headed by a woman whose appointment to secretary was never confirmed by the Senate, has changed the rules for overtime pay and whether independent contractors are actually company employees entitled to benefits.
As for the noncompete rule from the FTC, ATS Tree Services claims it will hurt it and other small businesses who need to train their workers without fear it will come back to bite them.