An opportunity to restore judicial review of constitutional claims against agencies

On Monday, the U.S. Supreme Court granted certiorari in Axon Enterprise, Inc. v. Federal Trade Commission to decide whether federal district court jurisdiction over Axon's constitutional claims against the Federal Trade Commission is lost merely because the FTC has brought an in-house administrative prosecution but has not issued a cease-and-desist order.

At stake is whether federal district courts have the power to decide constitutional challenges to the FTC's structure, procedures and existence brought by businesses lost in the labyrinth of the agency's in-house administrative enforcement process. This question affects businesses in a myriad of regulated industries, extending beyond the FTC to other, similarly structured "independent" agencies, such as the Securities and Exchange Commission.

This dispute began in 2018, when Axon, which makes police body cameras, acquired a struggling competitor, Vievu LLC, for about $13 million. Shortly thereafter, the FTC launched an investigation of Axon's acquisition of Vievu, citing antitrust concerns. Axon cooperated for 18 months and even offered to walk away from the deal.

But the FTC rejected Axon's offer, instead demanding that Axon enter into a consent order that the FTC itself described as a "blank check." The FTC threatened Axon with an in-house FTC administrative proceeding -- where the agency wears multiple hats, acting as both prosecutor and judge of its own cause -- if Axon refused.

When the FTC brings an administrative enforcement action, the process itself is the punishment. The time and expense of defending against these actions -- often lasting years and costing millions of dollars -- cannot be overstated. FTC enforcement actions may also inflict serious reputational harm; cause severe disruptions to business operations; and, in extreme cases, lead to the destruction of the business itself.

Unsurprisingly, respondents like Axon are at a severe disadvantage in these administrative proceedings, as the same administrative body that investigates the target also votes out the complaint, argues the case, decides its merits, and makes the rules. And under the FTC Act's review scheme, businesses must generally endure the entire process before a U.S. Court of Appeals reviews the legality of the inevitable cease-and-desist order -- and even then, under a deferential standard.

To put this in perspective, as the divided panel of the 9th U.S. Circuit Court of Appeals below observed:

"Axon claims -- and FTC does not appear to dispute -- that FTC has not lost a single case in the past quarter-century. Even the 1972 Miami Dolphins would envy that type of record. Indeed, a former FTC commissioner acknowledged that the FTC adjudication process might unfairly favor the FTC given the agency's stunning win rate. Axon essentially argues that the FTC administrative proceeding amounts to a legal version of the Thunderdome in which the FTC has rigged the rules to emerge as the victor every time." Axon Enterprise, Inc. v. FTC, 986 F.3d 1173, 1187 (9th Cir. 2021).

That sums up well what the FTC had in mind for Axon should Axon refuse its diktat -- a form of agency Calvinball in which Calvin inevitably wins.

Standing on principle, Axon rejected FTC's proposal, choosing instead to sue the FTC in federal district court, challenging the constitutionality of the FTC's structure and in-house enforcement process. Hours later, the FTC followed through on its threat, commencing administrative enforcement proceeding against Axon.

The district court dismissed Axon's lawsuit, ruling it did not have the power to decide Axon's "significant and topical" constitutional claims. Axon appealed, and a 9th Circuit motions panel stayed the case. A divided 9th Circuit merits panel affirmed the district court on jurisdictional grounds, even though the panel majority seemed sympathetic to Axon's constitutional arguments.

Nonetheless, the 2-1 panel majority held, "Supreme Court precedent compels the preclusion of district court jurisdiction over Axon's claims," while observing, "it makes little sense to force a party to undergo a burdensome administrative proceeding to raise a constitutional challenge against the agency's structure before it can seek review from the court of appeals," and noting, "it seems odd to force a party to raise constitutional challenges before an agency that cannot decide them."

It is troubling when all three judges on a merits panel appear to agree a party has raised substantial constitutional claims about the very validity of FTC administrative proceedings, yet that party is prevented from pursuing those claims without first subjecting itself to the very proceedings it is challenging.

It should not be the law that an administrative agency like the FTC can do whatever it wants for as long as it wants to a business -- no matter how ultra vires, abusive or unconstitutional -- simply by bringing an administrative enforcement action.

Making matters worse, numerous lower federal courts (at times over powerful dissents) have also read Supreme Court precedent to bar constitutional challenges to ongoing inhouse administrative proceedings by analogous "independent" administrative bodies, such as the SEC.

That is, at least until recently, when the 5th Circuit, sitting en banc in Cochran v. SEC, broke ranks with its sister circuits, ruling the SEC Act (which establishes a review scheme analogous to the FTC's) did not bar federal court review of structural constitutional claims. (As Judge Andrew Oldham noted in a concurring opinion: "The SEC's litigation position is a combination of 'trust us, we're the experts' and 'there will be time for judicial review when we're good and ready, thank you.'" The FTC's litigation position in this case and other challenges to the constitutionality of its in-house enforcement process is substantially similar.

The larger constitutional question of whether in-house agency enforcement processes (and indeed whether the very structure of so-called "independent" administrative bodies like the FTC) comply with the U.S. Constitution will have to wait for another day.

But hopefully, the Supreme Court will take this important opportunity to reaffirm that nothing in the FTC Act -- or, for that matter, materially indistinguishable statutory schemes of other agencies -- shutters the courthouse doors for businesses and individuals facing unconstitutional agency enforcement actions.

The district court had general federal question jurisdiction over Axon's Article II, due process and equal protection constitutional challenges to the FTC's structure and procedures.

As Americans for Prosperity Foundation argued in its amicus brief in support of Axon's petition, nothing in the FTC Act purports to bar district court review of these claims. And the FTC should not be allowed to duck judicial review of its actions and deny Axon its day in court simply by bringing an in-house enforcement action against Axon. 