Walmart takes on Lina Khan

Photo: Charles Krupa/Associated Press Fede...



Photo:

Charles Krupa/Associated Press

Federal Trade Commission Chair Lina Khan hit out at businesses, but last week

walmart

backfired on a abusive lawsuit challenging the agency’s enforcement power. This one could be fun and legally significant.

Ms Khan said last year she wanted to use her power to shape “the distribution of power” in the economy, and she appears to mean by any means necessary. The FTC lawsuit against Walmart in June is a good example.

***

The FTC says Walmart aided and abetted scammers who defrauded its customers. It’s a heavy charge, but the agency’s evidence is paper thin. The FTC shows no wrongdoing on Walmart’s part. Rather, he argues that the company turned a blind eye by dealing with money transfers at the request of customers who had been scammed.

Blind eyes? Walmart has many anti-fraud programs in place, including requiring customers to show government-issued photo ID and posting warnings about scams. Yet the FTC says Walmart should have done more to stop the 0.08% in payments customers unknowingly sent to scammers through its money transfer services.

The lawsuit is particularly rich after the United States was swindled out of hundreds of billions of pandemic relief dollars. The FTC complaint is a corollary to the Justice Department’s questionable lawsuit against Walmart for filling fraudulent opioid prescriptions, which is pending in federal court. In both cases, Walmart knowingly did not commit any wrongdoing.

Yet the FTC says Walmart violated Section 5 of the FTC Act prohibiting unfair trade practices as well as the agency’s telemarketing sales rule against inducing money transfer payments. The agency says Walmart’s mere awareness that some customers might be defrauded makes it liable for the damages.

Walmart’s motion to dismiss the lawsuit dismantles the FTC’s complaint point-by-point and constitutes a strong constitutional challenge to the agency’s authority to sue in federal court. This is where Ms. Khan may have led with her chin.

The unanimous decision of the Supreme Court in AMG Capital last year limits the FTC’s ability to seek damages in federal court for alleged unfair trade practices. The FTC can only seek an injunction, but its allegations in the Walmart case relate to past misconduct by third parties. A federal judge has nothing to prohibit.

Walmart argues that Congress “exceeded the limit of powers that can be constitutionally granted” to the FTC when it granted the agency the power to sue companies in federal court. The reason stems from the Court’s decision Humphrey’s Executor (1935) previous.

In that case, the Court upheld restrictions placed on the President’s power to remove FTC commissioners on the basis that the agency was an “administrative body” that exercised only “quasi-statutory or quasi-judicial powers.” such as conducting administrative decisions and carrying out investigations and reports. in Congress.

But Congress in the 1970s basically gave the agency executive powers by allowing it to seek injunctions and financial damages in federal court. Walmart argues that this grant of enforcement authority is invalid under Humphrey’s Executor. If the president cannot fire commissioners at will, they cannot exercise executive power.

The power of federal officers “to seek daunting monetary penalties against private parties on behalf of the United States in federal court” is “an essentially executive power that is not considered in Humphrey’s executor”, Chief Justice John Roberts wrote in the Seila Law decision (2020) rescinding the removal restrictions of the Director of the Consumer Financial Protection Bureau (CFPB).

Seila Law also pointed out that Humphrey’s Executor was based on the idea that “the FTC (as it existed in 1935) exercised “no part of the executive branch” of anti-competitive behavior.

Ms. Khan increasingly regulates through enforcement, as do CFPB Director Rohit Chopra and Securities and Exchange Commission Chairman Gary Gensler. But Mr. Chopra thanks to Seila Law may be removed by the President at will. Ms. Khan and Mr. Gensler cannot. This means that they are not responsible to the president although they wield enormous executive power.

Walmart does not ask to reverse Humphrey’s Executor, to reaffirm its limits. But his legal motion reveals how supposedly independent agencies have become constitutional monstrosities that wield inexplicable power. Ms Khan may find her power grab has constitutional limits.

Journal Editorial Report: The Best and Worst of the Week from Kyle Peterson, Allysia Finley, Mene Ukueberuwa and Dan Henninger. Images: AP/US Navy/AFP/Getty Images Composed: Mark Kelly

Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the September 7, 2022 print edition.

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