Commissioner’s rare public opposition to FTC staff settlement in DirecTV case exposes internal rifts

13 April 2017 9:41am
FTC Sign

5 April 2017. By Mike Swift.

In a highly unusual situation where a US Federal Trade Commission member has publicly aired plans to block the FTC staff's proposed settlement of litigation, Commissioner Terrell McSweeny told a federal judge in a letter this week that the agency's proposal to settle with DirecTV is "insufficient" to protect consumers.

McSweeny's letter filed with US District Judge Haywood Gilliam in Oakland, California, coupled with subsequent statements in court Tuesday by the FTC staff telling Gilliam that the agency backs the proposed settlement with DirecTV, offer a rare public view into internal divides at the commission — regulator whose leadership has yet to be set by the Trump administration.

"In my opinion, the defendants' current offer of monetary relief does not adequately compensate consumers for the harm caused by the deceptive advertising practices challenged in this case," McSweeny wrote. "Moreover, I have serious reservations about the terms of injunctive relief that have been offered and whether they would adequately protect consumers from deceptive conduct in the future."

For an enforcement agency that has long held itself out as a paragon of bipartisanship in Washington, the documents made public Tuesday hinted at the depths of partisan conflict below the surface.

Rifts apparently exist both between the commission's only two sitting members as well as between McSweeny and the Bureau of Consumer Protection staff backing the DirecTV settlement. Those twin rifts point to the possibility that the FTC may be evolving toward a more partisan culture — more like the US Federal Communications Commission's, where votes on important issues such as net neutrality and broadband privacy rules in recent years have been strictly along party lines and members of the minority party have often complained they were shut out of the deliberative process.

The fact that McSweeny took the rare step of filing a public letter with the judge who has ultimate control over the case, rather than dealing with a disagreement internally, suggests that she either had little input into the proposed DirecTV settlement or her input was ignored by the FTC staff and acting Chairman Maureen Ohlhausen. McSweeny declined to comment on the letter.

The impasse between McSweeny and Ohlhausen also illustrates how the slow pace of appointments by the Trump administration is complicating the workings of the FTC and other federal agencies. There have been three vacancies on the five-member FTC since the resignation of Democrat Edith Ramirez in early February. That means each of the two sitting members — one Democrat and one Republican — effectively hold unilateral veto power over any action that requires commission approval.

Lawyers for DirecTV were so unhappy with McSweeny's direct communication with Gilliam that they told the judge during a telephone conference late Tuesday that they would ask the judge to seal it. Jeffrey Tillotson, a lawyer representing DirecTV, told Gilliam that McSweeny's letter was "not appropriate" and "problematic."

"Typically, these would be settlement discussions that would be out of public purview," Tillotson said.

"Your point is made," Gilliam replied evenly. "I think any relief you need to pursue, you should pursue."

Gilliam holds great power over the case, because he have to bless any settlement approved by the commissioners. The judge appeared uncertain Tuesday how to weigh the context of McSweeny's intervention.

"What am I to make of this?" Gilliam asked FTC acting general counsel David C. Shonka, holding up a printout of McSweeny's letter in his Oakland courtroom, adding that "it struck me as unusual that a represented party would communicate [with the court], other than through counsel."

"I think her letter says what it says," Shonka answered. "She does not accept the settlement in the current form."

However, Shonka added, he believed that McSweeny's view could still change. "I take that to mean that she is open-minded and wants to hear more from the parties and convey her views to them," referring to plans for McSweeny and Ohlhausen to meet with DirecTV's lawyers on Friday to discuss the settlement.

Terms of the proposed settlement were not included in the court filings and have not been made public; an FTC spokesman declined to provide them. But McSweeny said in the letter to the court that the settlement is deficient in terms of both its financial and injunctive relief for consumers. DirecTV had 20.3 million US subscribers at the end of 2013, court documents say.

"I believe that the total amount of monetary relief is insufficient, and that the non-cash component in particular is not meaningful in light of the large class of consumers potentially eligible for redress," McSweeny wrote in the hand-delivered letter to Gilliam.

The FTC said in a written statement to MLex that while the staff supports the current settlement proposal, DirecTV will address "any concerns" in the meetings with McSweeny and Ohlhausen.

"Staff has recommended a settlement that is currently before the Commission. DirecTV will be meeting with each of the Commissioners later this week to discuss the recommended settlement and any concerns," the agency said.

Shonka told Gilliam he was aware of only one other time when an FTC commissioner had communicated directly with a judge over court litigation. "It's not a common practice in the agency, but it's not unprecedented," he said.

However he also was unable to suggest to Gilliam when the 1-1 stalemate in the case might end. "The fact is the White House has not made any nominations regarding the three vacancies, and the Senate would have to confirm" anyone nominated to the FTC, he told the judge.

Given that open-ended uncertainty about the nature of the impasse, Gilliam said he was "strongly inclined" to set an Aug. 14 trial date for the case, over the objections of DirecTV's lawyers, who asked that he not set a trial date. He has not yet ruled.

The FTC had been poised to start a trial in Oakland against DirecTV on March 6, only for the two sides to abruptly cancel the trial and announce, as lawyers crowded into Gilliam's courtroom for the start of the trial that Monday morning, they had reached a settlement in principle the previous evening.

The FTC sued DirecTV in March 2015, alleging violations by the satellite TV and Internet provider of Section 5 of the FTC Act and the Restore Online Shoppers' Confidence Act, or Rosca. DirecTV did not adequately inform consumers that after a free trial period, usually three months, it would start automatically charging their credit cards for access to premium channels such as HBO, the FTC alleged.

Under Rosca, "a company has to get specific express and informed consent before charging consumers' credit or debit card for the item that's offered for the negative option," Ray McKown, an FTC staff attorney involved in the DirecTV case, told MLex the day the complaint was filed in the Northern District of California.

In what was then a characteristic example of FTC bipartisan consensus, the vote to bring the complaint was 5-0, with Republican Commissioners Ohlhausen and Joshua Wright agreeing with Democrats McSweeny, Ramirez and Julie Brill to sue DirecTV.