U.S. Supreme Court rules federal courts have jurisdiction to hear challenges of FTC, SEC

Federal Trade Commission
Axon Enterprise v. Federal Trade Commission
Date: April 14, 2023

Issue: Whether constitutional challenges to the structure of the U.S. Federal Trade Commission (FTC) and U.S. Securities and Exchange Commission (SEC) can be brought in federal court without first going through administrative appeals.

Case Summary: In a unanimous decision written by Justice Elena Kagan, the U.S. Supreme Court ruled constitutional challenges to the structure of the FTC and SEC can be brought in federal court without first going through administrative appeals.

Axon sued FTC alleging its administrative trial procedures and structure violated Axon’s due process rights and Article II of the U.S. Constitution. Axon argued the procedures authorizing FTC to enforce action before an FTC Administrative Law Judge violate Axon’s Fifth Amendment due process rights, because the agency is permitted to function as prosecutor, judge, and jury. Additionally, Axon argued FTC’s structure violates the president’s “at will” removal power under Article II, because FTC commissioners and administrative law judges are not subject to such removal. The district court of Arizona dismissed Axon’s claims, concluding the court lacked subject matter jurisdiction over Axon’s declaratory judgment claims. According to the court, it was “fairly discernable” from the FTC Act, Congress intended to preclude district courts from reviewing the type of constitutional claims Axon sought to raise. Further, the court asserted Axon would need to raise those claims during the administrative process and then renew them, if necessary, when seeking review in the Court of Appeals.

On appeal, the Ninth Circuit affirmed, agreeing with every other circuit considering this issue. The Ninth Circuit concluded Congress implicitly stripped the district court of jurisdiction. According to the Ninth Circuit, Axon appeared to concede the FTC Act impliedly precluded jurisdiction and includes a detailed overview of how the FTC can issue complaints and conduct administrative proceedings. Further, the Ninth Circuit asserted thus provision was nearly identical to the statutory review provision in the SEC Act which the Eleventh and Second Circuits held shows a fairly discernible intent to strip district court jurisdiction. Therefore, the Ninth Circuit held the FTC Act reflected a fairly discernible intent to preclude district court jurisdiction. Axon appealed to the U.S. Supreme Court, which granted certiorari and consolidated Axon’s case with Securities and Exchange Commission v. Cochran, a similar case which examining the constitutionality of SEC’s structure.

The U.S. Supreme Court reversed the Ninth Circuit’s decision. The Court ruled agencies, including FTC and SEC, are not empowered to decide whether their own enforcement procedures are constitutional. The Court also ruled this authority is reserved for the courts, and collateral challenges to the constitutionality of administrative proceedings are appropriate. According to the Court, “the ordinary statutory review scheme does not preclude a district court from entertaining these extraordinary claims.”

In reaching its decision, the Court relied on the Thunder Basin three-part framework to permit petitioners in both cases to challenge the constitutionality of the administrative proceedings in federal district courts before the administrative proceedings is decided. According to Thunder Basin, courts considering whether to hear a collateral challenge of an agency proceeding must evaluate whether: precluding jurisdiction in district court would impede meaningful judicial review; the issues are wholly collateral; and the issues are outside the agency’s area of expertise.

Justice Kagan explained problems which stem from the interaction between the alleged injury and the timing of review. Kagan noted the injury to Axon and Cochran is “having to appear in proceedings” before an “unconstitutional agency authority.” Further, the injury cannot be remedied once the proceeding concludes and an appellate court ruling to vacate the agency’s order is not sufficient remedy for a claim “about subjection to an illegitimate proceeding, led by an illegitimate decisionmaker.”

In concurrence, Justice Clarence Thomas expressed “grave doubts” about whether it was ever proper for Congress to give administrative agencies primary authority to review cases which implicate private rights. Further, he emphasized the executive branch agencies do not have authority under the constitution to adjudicate such claims, which should be heard by federal courts.

Bottom Line: The ruling does not address the merits of the constitutional challenges, which claim the agencies’ structures violate the U.S. Constitution, Axon Enterprise brought against the FTC and Michelle Cochran brought against the SEC.

Documents: Opinion