MGM Resorts International (MGM) is suing the Federal Trade Commission (FTC) and its chair, Lina Khan, over allegations that the commission violated MGM’s Fifth Amendment rights during its investigation into last fall’s cyberattack. Khan had been staying at one of MGM’s properties when its systems went down as a result of the attack.
Filed Monday in US District Court, the lawsuit claims Khan’s personal experiences make her involvement in the subsequent FTC investigation inappropriate. MGM says that in refusing to recuse her from the investigation, the commission broke its own ethics policy and violated the company’s right to due process. Further, MGM argues that the investigation itself is outside the FTC’s jurisdiction, saying that as a casino-resort operator, it is not subject to the FTC’s Red Flag and Safeguard rules, which are more typically applied to financial institutions.
As a result of the investigation, MGM says it suffered a “fundamental” loss of rights in addition to its financial losses.
The Due Process Clause of the Fifth Amendment affords parties subject to government enforcement actions a fair hearing before an impartial tribunal and guarantees them equal treatment under the law. MGM brings this case to challenge actions by the FTC and its Chair and FTC regulations that have deprived, and continue to deprive, MGM of these fundamental rights.
With the lawsuit, MGM is asking the court to rescind or modify the FTC’s civil investigative demand (CID) and declare the contested rules not applicable. A CID is an administrative subpoena that allows federal agencies to ask private companies for detailed information without a court order.
At the very least, MGM requests a “reasonable deadline” for CID compliance and recovery of costs and other damages. It’s also asking for an injunction barring Khan from participating in “any investigation or matter” linked to the 2023 breach.
MGM Alleges Constitutional Violations
MGM argues that as guests impacted by the cyberattack, Khan and a senior aide have a conflict of interest. Further, citing a Bloomberg article, MGM connects the publicity around Khan’s experience to lawsuits it now faces and the FTC inquiry.
From the filing:
As might be expected following the widespread publicity about the attack—undoubtedly enhanced by the reporting about Chair Khan and her “senior aide”—MGM is now the target of private litigation. Specifically, it is now a defendant in fifteen consumer class actions.
As the most high-profile person involved in the events at issue—and the only such person widely identified by name in press reports—Chair Khan is both a potential civil plaintiff and a potential witness.
As a potential plaintiff or witness in those cases, MGM believes the FTC should have disqualified Khan from participation in the investigation.
In February, MGM petitioned under the FTC’s Rules of Practice to modify or quash the CID over “substantive issues.” Then, in March, MGM petitioned to disqualify Khan, given her “personal involvement in the subject matter.”
However, as MGM notes in the filing, on April 1, the FTC denied both petitions in a single order. That denial, the company claims, “unlawfully deprives MGM of its rights” in several areas.
One such example:
The Order relies on the Commission’s position that its Rules of Practice do not allow for recusal of Commissioners except from administrative litigation… This categorial refusal to hear petitions to recuse or disqualify—even in extreme cases like this one—violates the Due Process Clause of the Fifth Amendment.
‘Pattern of Unconstitutional Conduct’ Demands Relief
After denying its petitions, MGM says the FTC imposed a “patently impractical” 11-day deadline on its CID response. MGM claims the “plainly unreasonable deadline” only punishes MGM and chills “the exercise of the FTC’s administrative procedures.”
Further, MGM argues the FTC’s “pattern of unconstitutional conduct” affects the underlying investigation and asks for relief “to put an end to these injustices.”
The FTC’s investitive authority is not limitless. It may only conduct investigations pursuant to specific statutory grants of authority. As alleged below, however, the CID to MGM was premised in large part on facially inapplicable rules without any attempt to delineate which portions of the CID relate to which purported sources of authority.
It is fundamentally contrary to the Fifth Amendment’s guarantees of due process and equal protection for the FTC to subject MGM to an investigation premised on regulatory provisions that are inapplicable.
FTC Asserts Investigative Power
However, in its order denying MGM’s petitions, the FTC argues MGM’s jurisdictional claim is not valid for quashing the CID because it “possesses the authority to investigate whether its jurisdiction extends to [the CID recipient].”
From the order:
Administrative agencies have “wide latitude in asserting their power to investigate by subpoena,” and “an individual may not normally resist an administrative subpoena on the ground that an agency lacks regulatory jurisdiction if the subpoena is issued at the investigative stage.
Further, the FTC argued that MGM requires customers to apply for credit, provide financial information, and authorize credit checks before extending a credit marker.
While MGM claims the practice is akin to running a bar tab, the FTC believes those credit checks render the contested Red Flags Rules applicable. It also believes that providing foreign currency exchange is enough for the Safeguards rule, which applies to firms “significantly” engaged in “exchanging money,” to apply.
In its denial, the FTC explained its view of how the two rules overlap:
The Rules thus share two elements: (1) lending money, extending credit, or advancing funds—which we refer to here as the “Loan Element”; and (2) doing so “significantly” and “regularly and in the ordinary course of business”—which we refer to here as the “Thresholds Element.” MGM appears to satisfy both elements, and thus appears to be subject to both rules.
Bonus contacted the FTC and MGM for comments. The FTC declined, while MGM did not immediately respond. However, the latter’s lawsuit clearly indicates disagreement with the FTC.
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