The Supreme Court is hearing jurisdiction over constitutional challenges by the FTC’s enforcement agency – Consumer Finance Monitor | Episode Movies

The Supreme Court heard arguments in yesterday Axon Enterprise v Federal Trade Commission (Nos. 21-86) whether federal courts may hear a party’s challenge to the FTC’s constitutionality in an administrative proceeding before the agency issues a final order. The court also heard arguments in a similar case, Securities and Exchange Commission v. Cochran (#21-1239). The outcome of these cases can significantly change the framework for how federal courts handle complaints about federal agencies and allow parties subject to enforcement actions to initiate proceedings outside the jurisdiction of the agencies.

Specifically in the axon case, the court was asked to consider (1) whether Congress implicitly relieved the federal district courts of jurisdiction over constitutional challenges to the structure, procedures, and existence of the FTC by giving the Circuit Court of Appeals jurisdiction “to affirm enforce, amend, or set aside” the Commission’s injunctions, and (2) whether the structure of the FTC, including the two-tier protections from removal for good cause afforded to its Administrative Judges (“ALJs”), is consistent with the merits of the Constitution.

Federal district courts have broad jurisdiction over constitutional challenges under 28 USC 1331. However, the FTC is in axon and the SEC in cochran argue that Congress can implicitly eliminate the jurisdiction of the district courts over disputes by creating a review system that bypasses the district courts and delegates judicial review of agency claims directly to the appellate courts.

Axon Enterprises, an Arizona company that makes police body cameras and other law enforcement technology, was under investigation by the FTC after it bought a competitor in 2018. Axon sued the FTC in the US District Court for the District of Arizona, arguing that the proceeding against it is unconstitutional on due process grounds and because the appointment of ALJs violates the appointment clause of the Constitution. On appeal, the Ninth Circuit Court ruled in favor of the FTC, noting that the FTC statute implicitly excludes jurisdiction in district courts and that challenges to agency proceedings may only be brought after the agency’s complaint has been resolved.

the companion case, cochran, involves a 2016 lawsuit filed by the SEC in which an ALJ fined an auditor and barred her from acting before the SEC. That decision was overturned after the Supreme Court ruled Lucia vs. SEC that the SEC’s process of appointing ALJs was unconstitutional. When the SEC instituted a new case against them, the CPA filed a lawsuit in the US District for the Northern District of Texas, arguing that the ALJ’s appointment was unconstitutional and deprived them of due process. Unlike the Ninth Circuit, the Fifth Circuit ruled that a party in an administrative proceeding could sue on these grounds before a final decision in the agency proceeding.

In its brief, Axon argues that it makes no sense to have to lodge a structural separation of powers complaint about an administrative authority with that precise authority and refers to the Court’s decision in Free Enterprise Fund v Public Co. Accounting Oversight Board, 561 US 477 (2010) (Noting that a party challenging a structural separation of powers against a government agency need not endure the process presided over by an allegedly unconstitutionally isolated official before it can be subject to judicial review). Axon also argues that its challenge to the ALJ’s constitutionality is entirely related to the merits of the matter before the FTC. The FTC argues that Congress has established a comprehensive system for the initiation and review of FTC proceedings and that this comprehensive enforcement structure establishes an apparent intent to preclude review by district courts. See e.g. Thunder Basin Coal Co. vs. Reich, 510 US 200, 216 (1994) (statement of Congress’ intention to exclude such review in mine safety legislation). The FTC also cautions that Axon’s claims of the FTC’s constitutionality do not fully accompany the administrative process, since it is the means by which it seeks to prevail in that process. letter for FTC, p. 10

At the hearing, questions from several justices, including Chief Justice John Roberts, Justice Neil Gorsuch and Justice Samuel Alito, challenged the FTC’s position, with Justice Alito asking, “What sense does it make for a claim that goes to the core.” Structure of the agency that must go through the administrative process?” Judge Ketanji Brown Jackson, on the other hand, expressed concern that allowing a district court to have jurisdiction would constitute an end to the agency’s enforcement process if the FTC statute clarifies that the agency has exclusive jurisdiction Has.

In an amicus curiae letter, the Chamber of Commerce asked the court to rule in favor of Axon, arguing that “[t]The FTC is a poster child for the dangers of cutting off scrutiny before enforcement” and [f]Forcing parties to go to the FTC first rewards the agency for its prolific constitutional errors.” Briefing for the Chamber of Commerce as Amicus Curiae, p. 13. Amicus Curiae briefs were also received from the Washington Legal Foundation and the Allied Educational Foundation, the Atlantic Legal Foundation, the Americans for Prosperity Foundation, the Pacific Legal Foundation, the National Treasury Employees Union and the Separation of Powers Clinic at Antonin Scalia in support submitted by Axon Law School, American Hospital Association, Committee for Justice and The Justice Society.

While the real issue before the court is a procedural one involving jurisdiction, challenging the constitutionality of the FTC structure that underlies the dispute is just the latest challenge for the agency’s regulator. On October 21, 2022, the Fifth Circuit denied the hearing en banc Jarkesy vs. SECthe (like cochran) challenged the SEC’s use of ALJs, finding them unconstitutional. The Fifth Circuit took place on October 19, 2022 Community Financial Services Association of America vs. Consumer Financial Protection Bureau that the CFPB’s funding mechanism violates the Funds Allocation Clause of the Constitution. (An in-depth discussion of the implications of this decision can be heard on the Consumer Finance Monitor Podcast here.) This decision has already resulted in defendants in several CFPB lawsuits seeking to have their cases dismissed on constitutional grounds, and paves the way for potential ones Challenges faced by other federal agencies funded outside of the Congressional grants process, including the Federal Reserve, the OCC, the FDIC, the NCUA, and the FHFA. Furthermore Jarkesy and Community Financial Services Associationthere is another new challenge for the FTC in FTC vs. Walmartwhere Walmart argues that the FTC lacks constitutional authority to bring charges against them because the recall provision of the FTC statute (which establishes and limits the president’s authority to recall commissioners) is unconstitutional.

Should the court rule in favor of Axon and Cochran, it will further erode the enforcement powers of the agencies and further open the door to further challenges.

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