FTC Asserts Its Rulemaking Authority in Opening Brief Defending Its Ban on Noncompetes

On Nov. 5, the Federal Trade Commission (FTC) filed its opening brief in its pending appeal in Properties of the Villages, Inc. v. FTC,No. 24–13102 (M.D. Florida).

As previously reported, on Aug. 14, Judge Timothy Corrigan in the Federal District Court for the Middle District of Florida issued a preliminary injunction blocking the FTC’s enforcement of its rule barring most noncompetition agreements (Rule) as to the named plaintiff, Properties of the Villages, Inc., a real estate firm (Property Villages). The Rule was scheduled to take effect on Sept. 4. On Sept. 24, the FTC filed an appeal to the Eleventh Circuit Court of Appeals.

Also, on Nov. 5, the FTC filed its response to the request that had been made by Property Villages to the Eleventh Circuit to hold the appeals process in abeyance pending the outcome of the proceedings in Ryan, LLC v. FTC, 2024 WL 3879954, No. 3:24-cv-986 (N.D. Tex. Aug. 20, 2024).

In the Ryan case, as previously reported, a federal district court in the Northern District of Texas entered a final judgment vacating the Rule nationwide. In granting such relief, the Ryan court concluded that the FTC lacks statutory authority to promulgate the Rule and also concluded that the Rule is arbitrary and capricious.

In issuing the preliminary injunction in the Properties of the Villages case, the court acknowledged that the FTC does have substantive rulemaking authority in some instances, but whether that authority extends to the promulgation of the Rule constitutes a “major question” that must be answered via application of the test articulated by the Supreme Court in West Virginia v. EPA, 597 U.S. 697 (2022) Applying that test, the court concluded that there was no statutory authority.

In its opening brief, the FTC asserts that the district court’s analysis fundamentally misunderstood the major questions principles that it referenced, and that the court improperly employed those principles to reach a result that cannot be squared with any plausible reading of the statutory text. In so doing, the court impermissibly divested the FTC of the core statutory authority that Congress has given it to prevent the use of unfair methods of competition.

For reasons more detailed in its brief, the FTC argues that major questions principles are not applicable to the Rule. It cites Supreme Court decisions which it asserts have generally applied those principles in extraordinary cases where it believed that an agency was relying on a narrow statutory provision as the basis for asserting exceptionally broad authority.

In the case of the Rule, the authority to issue it “is rooted in the Commission’s core statutory mandate to prevent the use of unfair methods of competition.” The Rule “as the district court repeatedly recognized, … falls within the heartland of the Commission’s regulatory power.” There is nothing extraordinary about the Commission’s exercise of its power to issue the Rule such as would result in the Rule presenting a major question.

The FTC further argues that setting aside the merits, Property Villages is not entitled to a preliminary injunction based on the equitable factors governing such relief.

With respect to its response to Property Villages’ request to hold the appeal in abeyance, the FTC asserts that the court should deny the request for two reasons.

First, when more than one case raises the same or similar legal issues, allowing the percolation of those issues has important benefits. The court should not allow the Ryan district court’s “improper entry of universal relief to undermine those benefits by pretermitting this [c]ourt from considering the important questions presented in this appeal.”

Second, the requested relief would be particularly inequitable in this case, where plaintiff attempts to retain the benefits of the district court’s preliminary injunction while foreclosing the FTC from seeking review of that injunction. Allowing that result would render meaningless the defendant’s right to appeal.

We certainly will be following developments in both the Properties of the Villages and Ryan cases. Also, we will be publishing in the days ahead a comprehensive white paper discussing in detail the critical issues that will determine the ultimate fate of the Rule, the reasoning that undergirds the court decisions that have to date been issued with respect to the Rule, how each differs from the others and what the ultimate outcome may be.