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  • Brian Walsh

SCOTUS Case Could Restructure Agency Enforcement Proceedings

On a monumental day of cert. petitions involving affirmative action and the Clean Water Act, the case that has flown under-the-radar the most has massive implications. The Supreme Court granted certiorari on a critical administrative law question that asks whether federal district courts have jurisdiction to hear constitutional challenges by FTC targets to the agency’s “structure, procedures, and existence.” This theme asks whether a targeted party must endure a complete agency enforcement proceeding before raising constitutional challenges to the agency on appeal in a federal circuit court or whether the target can go to a federal district court and bypass the agency proceeding to raise constitutional defenses.

Axon Enterprise v. FTC involves an FTC challenge to Axon Enterprise’s completed merger with VieVu LLC. Axon sells Tasers and other law enforcement equipment. The FTC alleges that Axon bought a rival company to “reduce competition in an already concentrated market.” The FTC then demanded Axon spin-off its newly acquired company and provide this independent company with Axon’s intellectual property. In response, Axon sued the FTC in Arizona federal district court, alleging multiple constitutional defects with the FTC’s administrative process. The first claim was that the FTC’s role in bringing and reviewing such a case violated its due process rights. The second claim was that the administrative law judge (ALJ) appointment process violated the separation of power principles in the Constitution because the President cannot fire an ALJ (or the commissioners who appoint an ALJ) at will.

The district court dismissed the case, saying Axon lacked subject matter jurisdiction because Axon must first raise the constitutional issues in the FTC’s administrative tribunal. The Ninth Circuit panel affirmed, holding that the FTC Act’s statutory structure requires the constitutional challenges to be heard in the administrative setting first. Judge Kenneth Lee wrote the majority opinion firmly based on Supreme Court precedent of Thunder Basin Coal Co. v. Reich (1994) to determine Congress impliedly precluded district court jurisdiction in enacting the FTC Act. Judge Patrick Bumatay dissented from this part of the panel opinion. He points out that the majority misapplies precedent and ignores the injuries Axon seeks to vindicate. Judge Bumatay notes that by forcing Axon to start at the FTC, Axon may win at that level and lose its opportunity for Article III adjudication of its constitutional claims. He explains that parties should not risk severe punishment or “bet the farm” to get their day in court.

At the time of the Ninth Circuit’s decision a year ago, there was no circuit spilt that would generate Supreme Court review. But, in December 2021, the Fifth Circuit effected a circuit split. In Cochran v. SEC (5th. Cir. 2021), the en banc decision held that SEC target Michelle Cochran did not have to wait until the end of the SEC’s administrative proceeding against her to bring constitutional claims against the agency in federal district court. Axon’s lawyers filed a supplemental brief urging the Supreme Court to grant certiorari to resolve the split.

The Supreme Court accepted Axon’s cert petition solely on whether the district court can review the constitutional challenge rather than having it raised in the administrative proceeding (but declined to accept a direct challenge to the FTC’s structure).

It will be interesting to watch how the Court approaches this case. Since the Court granted certiorari, a likely restructuring of agency enforcement proceedings is coming. Yet a ruling against agencies will only ensure defendants are guaranteed a forum for necessary Article III judicial review. A Supreme Court ruling against the government may shake up some agency proceedings, but this is a proper step in the right direction of bringing the administrative state in line with the Constitution.


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