Kroger challenge to FTC in-house hearings 'has legs,' lawyers say

The Kroger Co.'s constitutional challenge to the Federal Trade Commission's authority to decide whether it can merge with Albertsons Companies Inc., owner of many California grocery stores, follows a series of U.S. Supreme Court decisions that limit the powers of administrative agencies.

The complaint for injunctive and declaratory relief, filed in the Southern District of Ohio last week, seeks to capitalize on those rulings and a trend at the U.S. Supreme Court against the agencies' power. The Kroger Co. v. Federal Trade Commission et al., 24-CV-00438 (S.D. Oh., filed Aug. 19, 2024).

The filing cites a June decision that the Seventh Amendment entitled a hedge fund manager to a jury trial instead of facing civil charges by the Securities and Exchange Commission in-house judge. Securities and Exchange Commission v. Jarkesy et al., 2024 DJDAR 5853 (S. Ct., filed March 8, 2023).

Nathaniel Lampley, an attorney with Vorys, Sater, Seymour and Pease LLP who represents Kroger along with Weil, Gotshal & Manges LLP partner Mark A. Perry, also argued that the FTC in-house judge has two layers of protection from presidential removal, in violation of Article II of the U.S. Constitution

Lampley and Perry also maintained that the FTC cannot decide Kroger's private rights within the executive branch, via its own in-house administrative law judge, rather than going through federal courts.

They wrote, "The administrative proceeding violates Article III of the U.S. Constitution because the FTC intends to adjudicate Kroger's private rights within the partisan executive branch rather than the independent judiciary.

"Because the FTC's administrative proceeding seeks to adjudicate private rights in a non-Article III tribunal, the proceeding violates Article III of the U.S. Constitution," Lampley and Perry added, citing Jarkesy.

Jarkesy is one of several recent Supreme Court cases, including a ruling that reversed a 40-year-old precedent to decide that federal government agency interpretations of statutes are not entitled to deference by federal courts. Loper Bright Enterprises v. Raimondo, 2024 DJDAR 5966 (S. Ct., filed Nov. 10, 2022).

"This is the first wave of lawsuits to use cases like Jarkesy and Loper Bright to further the dismantling of the administrative state," Rebecca Haw Allensworth, a professor of antitrust law at Vanderbilt University Law School, said in a phone interview Friday.

The FTC challenged the proposed Kroger-Albertsons merger in February and, on the same day, filed for a preliminary injunction in the District of Oregon to block the acquisition before a commission administrative law judge could consider the matter.

The hearing will start Monday before U.S. District Judge Adrienne C. Nelson, an appointee of President Joe Biden, is scheduled to last until Sept. 13. Federal Trade Commission v. The Kroger Co., 24-CV-00347 (D. Ore., filed Feb. 26, 2024).

Kroger's constitutional challenge was not filed before Nelson. Instead, it was filed in Kroger's headquarters in Cincinnati, Ohio and assigned to U.S. District Judge Douglas R. Cole, an appointee of President Donald Trump.

"We stand prepared to defend this merger in the upcoming trial in federal court - the appropriate venue for this matter to be heard - and we are asking the court to halt what amounts to an unlawful proceeding before the FTC's own in-house tribunal," Rodney McMullen, Kroger's chairman and CEO wrote in a statement.

An FTC representative declined to comment Friday and the agency has not responded in writing to the Ohio complaint.

Christine Bartholomew, a professor and vice dean at the University at Buffalo School of Law, said in a phone interview Friday that there could be a battle over which venue handles the constitutional challenge.

But she said the Supreme Court majority, appointed by Republican presidents, has sent a "clear message [it] doesn't feel comfortable with the administrative state. Kroger is saying, 'We don't either.'"

Dave Owen, an associate dean at UC College of the Law, San Francisco, said Kroger would likely argue that its constitutional challenge is a separate case to push for its challenge to the FTC's antitrust case to be heard in federal court, ideally in Ohio.

"This is a case that's going to have legs," he said in a phone interview.