November 30, 2022

Volume XII, Number 334

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November 29, 2022

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November 28, 2022

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The Administrative State Under Attack: Potentially Far Reaching Implications of Supreme Court’s Decision to Hear Challenge to FTC Administrative Review Process

In 1984, the Supreme Court ruled unanimously that courts must defer to an administrative agency’s reasonable interpretation of an ambiguous statute. But last year, the Supreme Court stripped the FTC of its ability to seek equitable monetary remedies such as disgorgement or restitution. And a couple weeks ago, the Supreme Court dismantled the Occupational Safety and Health Administration’s (“OSHA”) vaccine mandate, with Justice Gorsuch writing that the decision prevents OSHA from becoming a “roving commission to inquire into evils and upon discovery correct them.” The Supreme Court may be positioning itself to say something similar about the FTC.

On January 24, 2022, the U.S. Supreme Court agreed to hear a case challenging the constitutionality of the FTC’s administrative review scheme. The case is brought by Axon Enterprise Inc., a taser manufacturer, which sells stun guns, body-worn cameras and other equipment used by police. Although the Supreme Court only took up the jurisdictional issue — whether district courts can review constitutional challenges to the FTC’s structure without waiting for agency proceedings to play out — this case could have far reaching implications for the administrative adjudicatory process across government agencies if the Court sides with Axon.

Background

The case arises out of Axon’s efforts to acquire a competitor, which the FTC believed would severely limit competition in violation of the FTC Act and antitrust laws. Facing an administrative enforcement proceeding to challenge the acquisition, Axon sued in federal court to halt the FTC proceeding and seeking a declaratory judgment that the merger was legal. Axon argued, among other things, that the administrative proceedings violated its Fifth Amendment due process rights because the FTC was effectively acting as the “prosecutor, judge, and jury” and that it was entitled to a district court trial. Axon also argued that the restrictions on the removal of FTC administrative law judges ran afoul of the Constitution’s separation-of-power principles.

The District Court for the District of Arizona dismissed Axon’s complaint for lack of subject matter jurisdiction, holding that under the FTC Act, Axon must first raise its constitutional challenges in an administrative proceeding. Axon Enter. Inc. v. FTC. The U.S. Court of Appeals for the Ninth Circuit, in a split panel decision, upheld the lower court’s dismissal. Axon Enter. Inc. v. FTC.

The Ninth Circuit panel found itself bound to Supreme Court precedent, the application of which necessitated an interpretation of the FTC Act that “impliedly precluded district court jurisdiction over claims of the type brought by Axon.” Id.at 1178.

Furthermore, the Ninth Circuit found that because the FTC statutory scheme allowed Axon to present its constitutional challenges to a federal court of appeals after the conclusion of the administrative proceeding, Axon did not suffer any cognizable harm. However, the panel noted that Axon raised legitimate questions about whether the FTC “has stacked the deck in its favor in its administrative proceedings,” noting that the FTC has not lost a single case in the past quarter-century. Id. at 1187. The full Ninth Circuit refused to reconsider the lawsuit, once again affirming the lower court’s finding that Axon must submit to the administrative proceeding.

Axon Petitions the Supreme Court to Revive Its Case Against the FTC

Not giving up, Axon petitioned the Supreme Court to revive its case and answer (1) whether the district court has the power to review constitutional challenges to the FTC’s structure before the agency issues a final administrative order, and (2) whether the FTC’s structure, including the for-cause removal protections afforded administrative law judges, violates the Constitution. The justices agreed to take up Axon’s first question, but declined to consider the second.

What may have ultimately persuaded the Supreme Court to grant cert on Axon’s first question was the recent decision by the Fifth Circuit in Cochran v. SECIn Cochran, the Fifth Circuit held that an accountant could proceed with her lawsuit in federal district court challenging the constitutionality of the SEC administrative law judge system without waiting for a final determination in the SEC proceeding against her. Axon filed a supplemental brief arguing that this decision was in direct conflict with the Ninth Circuit’s decision in its case (as well as decisions from other circuits) “on the critically important question of whether district courts may hear constitutional challenges to an agency’s structure or existence,” and thus created a circuit split which the Supreme Court must resolve.

Potential Impact: An Opportunity to Undermine the FTC’s Authority 

By taking up this case, the Supreme Court granted itself the opportunity to weaken the FTC’s authority to adjudicate potential antitrust violations and enforce agency action. If the Supreme Court rules in favor of Axon, it would enable the federal district courts to reevaluate the legitimacy of the FTC’s administrative review system, as well as those of other administrative agencies. Under the current system, the federal appeals courts already have jurisdiction to hear such challenges. However, granting district courts the jurisdiction to hear these challenges as well, especially if they need not give deference to an FTC decision, increases the likelihood that these challenges succeed.

The FTC’s administrative review process is crucial to its ability to reshape the antitrust landscape, and in particular, its efforts to move away from a consumer welfare standard, which is entrenched in federal antitrust jurisprudence. Should its ability to use this process be eroded, the FTC may find it harder to implement some of the sweeping changes it has promised. Also, from a logistical standpoint, if the FTC is forced to defend itself against an increasing number of constitutional challenges, it will have fewer resources to devote to scrutinizing the current swell of mergers and acquisitions.

We now wait and see how the Supreme Court decides this case, and whether it will continue its recent apparent receptiveness to arguments that limit the scope of agencies’ implied authority.

© 2022 Proskauer Rose LLP. National Law Review, Volume XII, Number 38
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About this Author

Associate

Amy Gordon is an associate in the Litigation Department.

212-969-3129
David A Munkittrick Litigation Attorney Proskauer Rose New York, NY
Senior Counsel

David Munkittrick is a litigator and trial attorney. His practice focuses on complex and large-scale antitrust, copyright and entertainment matters in all forms of dispute resolution and litigation, from complaint through appeal.

David has been involved in some of the most significant antitrust matters over the past few years, obtaining favorable results for Fortune 500 companies and other clients in bench and jury trials involving price discrimination and group boycott claims. His practice includes the full range of antitrust matters and disputes: from class actions to competitor...

212-969-3226
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