In the latest of a recent string of judicial rebukes, the Supreme Court’s unanimous decision in Axon Enterprise, Inc. v. FTC  offers the targets of Federal Trade Commission (“FTC”) and other agencies’ administrative proceedings a path to quicker judicial relief.  Historically, courts have been reluctant to permit immediate challenges to investigations and adjudications without forcing the targets to wait for the resolution of all agency proceedings.  While aptly referred to as the doctrine of “exhaustion,” the result, as Justice Gorsuch observed, is that “agencies sometimes use this as leverage to extract settlement terms they could not lawfully obtain any other way.”  The Court’s decision in Axon not only deprives the FTC of a potential source of leverage, but it also increases the likelihood that companies faced with investigations may turn to the courts for relief at an earlier stage.  The decision comes at a time when the FTC’s powers and attempts to exercise those powers have been called into question by the bar, members of Congress, and by courts.

Axon: a successful challenge to the “Tilted Game” of agency investigations

At issue in Axon was whether the Federal Trade Commission Act (“FTC Act”) and Securities and Exchange Act (“SEA”) can force the targets of investigations to “exhaust” often lengthy agency administrative and adjudicative (and appeals) processes before raising legal challenges in court.  In particular, Axon Enterprise and Michelle Cochran, separate respondents in enforcement actions by the FTC and Securities and Exchange Commission (“SEC”), sought to enjoin the proceedings against them in U.S. District Court. Both argued that the agencies’ enforcement efforts were unconstitutional because agency administrative law judges are insufficiently accountable to the president. Additionally, Axon argued that the structure of the FTC impermissibly combines prosecutorial and adjudicatory powers in a single agency.

In siding with the respondents, the Supreme Court unanimously held that, although Congress may create statutory schemes that divest courts of their ordinary jurisdiction, such schemes do not necessarily extend to all claims against agency action.  Relying on the Court’s 1997 Thunder Basin decision, the Court held that subjecting the respondents to the enforcement action before they could challenge its constitutionality would foreclose meaningful judicial review.  Because the respondents claimed a “here-and-now injury” – being subjected to an illegitimate proceeding led by an illegitimate decision maker – the respondents would lose their right not to undergo unconstitutional proceedings if they had to wait for such proceedings to run their course. Moreover, because constitutional challenges to agency authority are collateral to agency rules and orders and outside agencies’ expertise, the Court found that the statutory scheme prescribed by Congress likely did not contemplate foreclosing such claims.

Further clashes likely as agencies challenge traditional norms

Recently, the FTC and SEC have aggressively sought to push the limits of their Congressionally-authorized authority, citing the pace of technological change and innovation as a justification.  Notable examples include FTC Chair Khan’s stated intention to ban all non-compete agreements and aggressive rulemaking with respect to data privacy issues.  Over at the SEC, the agency has drawn considerable scrutiny for its aggressive actions to become the “top US crypto cop,” seen by many as engaged in a scorched earth plan to rein in the industry.  It has also faced harsh criticism in the legal community for its high-profile legal challenge to law firms’ ability to protect the confidentiality of their clients’ identities.  Tellingly, minority commissioners at each agency have forcefully dissented from some agency actions, with FTC Commissioner Christine Wilson going as far – in a headline-making “loud” exit – to resign in light of the agency’s “abuse of power.”  Moreover, since the start of Chair Khan’s leadership of the FTC, numerous challenges have been brought to her aggressive agenda, such as calling for her recusal from certain proceedings, litigation challenging the “black-box environment” ushered in by her chairmanship, walking out of an investigative hearing in response to agency harassment, and otherwise pledging to combat the Commission’s overreach and hold it accountable to the rule of law.  

While courts are historically deferential toward agencies’ interpretation of their own authority, these and other recent high-profile agency actions have led some critics to question whether agencies’ leaders’ policy objectives are being given precedence over the traditional norms of agency practice and the legal and constitutional constraints imposed by the U.S. Constitution and Congress. 

The federal judiciary has taken notice, and the concurrences of Justices Thomas and Gorsuch in Axon may be interpreted as shots across the FTC’s and other agencies’ bow.  In his concurring opinion, Justice Thomas voiced “grave doubts about the constitutional propriety of Congress vesting administrative agencies with primary authority to adjudicate core private rights with only deferential judicial review on the back end.”  Justice Gorsuch, in questioning the “tilted game” played by agencies that “combine the functions of investigator, prosecutor, and judge under one roof,” observed that “some say the FTC has not lost an in-house proceeding in 25 years.” Increased judicial skepticism toward federal agencies, generally, and unanimous Supreme Court decisions like Axon¸ in particular, are likely to inspire more frequent, earlier challenges to federal agency proceedings (possibly with greater likelihood of success).  In light of the FTC’s recent policy pronouncements, it would also be unsurprising to see the Supreme Court weigh in on the constitutional limits of the agency’s power in a more decisive way if called upon to do so in the near future.