FTC Opponents Stake Due Process Claims Before Supreme Court

The Supreme Court can restore due process and eliminate “kangaroo court” proceedings the FTC relies on in its antitrust and consumer protection cases, opponents of the agency argued last week ahead of Monday’s oral argument in Axon v. FTC (docket 20-15662).

At least 10 organizations filed in favor of Axon, which is arguing the FTC’s administrative law judge proceedings are an unconstitutional violation of due process. The high court will hear a similar case in Cochran v. SEC, which has implications for the FCC (see 2211030063). One organization, the American Antitrust Institute, argued in favor of the FTC in Axon.

Consumers aren’t sympathetic to Axon’s case because the company represents corporate America, while the agencies are “here to save the world,” said Michael Daugherty, founder of the Justice Society, which filed in favor of Axon. Daugherty is former CEO of LabMD, a company he said was driven out of business by the FTC when litigating the agency’s 2013 data security complaint that the 11th U.S. Circuit Court of Appeals ultimately dismissed in 2018. When “no one’s looking,” which is “99% of the time,” FTC enforcers are “bullies,” said Daugherty. “They just run you into the ground, and that becomes a gun to the head to settle.” Consumers ignore the power imbalance, while attorneys “make a fortune,” he said: “Big law just cashes in on agency regulation. They love it.” The ideal outcome in Axon is that the Supreme Court finds district courts can intervene in “agency shenanigans” before a final order, he said: The FTC needs to “know that someone is watching them.”

Axon has “every incentive” to initiate constitutional litigation in district court “no matter how far fetched the theory of injury,” the American Antitrust Institute argued in the FTC’s favor. “By simply arguing to a court that even a dubious claim is within the boundaries of the indistinct category, the merged firms can delay enforcement proceedings and perpetuate what is an ongoing injury to the public but an ongoing profit center for the firms.” The litigation maintains the “flow of supracompetitive profits” but also helps “solidify and entrench the merged firms’ market power by making meaningful remedies increasingly less viable and less likely to effectively restore lost market competition,” AAI said. “Even if their request to litigate in district court and stay administrative proceedings is denied, the merged firms can win for losing.”

Nothing in the FTC Act precludes district courts from exercising jurisdiction over constitutional issues like those raised by Axon and more recently Meta (see 2211030068), said Pacific Legal Foundation attorney John Kerkhoff, whose organization sided with Axon. Axon is arguing that if it can’t get relief in a federal court to address the FTC’s procedural harms, it’s possible the company will never get judicial review, said Kerkhoff: The ALJ is unconstitutionally insulated from removal, which violates Article II of the Constitution. “Axon’s whole point here is that they shouldn’t have to make that argument to the very people who are suing them,” he said.

Defendants don’t face the same litigative hurdles when DOJ investigate them, noted Curt Levey, president of the Committee for Justice, which filed in favor of Axon. The FTC serves as the investigators, prosecutors, trial judges and appeals court, making it a “kangaroo court,” said Levey. The FTC’s administrative process adds years of litigation, which many small companies can’t survive, forcing them to settle, he said. Concerns are heightened under the leadership of FTC Chair Lina Khan, given her propensity to “skirt” internal constraints in favor of progressive causes, he said. “It’s sort of OK to not have a lot of due process when the agency isn’t very threatening. People can live with it. But when the agency is both aggressive and skirting due process and separation of powers, people start to worry.”

Daugherty, Kerkhoff and Levey all pointed to Axon's arguments that the agency “always” wins in its administrative proceedings. AAI disputed this claim in its filing, pointing to findings from Maureen Ohlhausen, the FTC’s acting chairman under President Donald Trump. Ohlahusen’s study tracked every administrative case that resulted in a commission decision from 1977 to 2016. That study shows Axon’s statement about the FTC always winning is “flatly false,” AAI said. Ohlhausen found the FTC dismissed 40% of its 90 antitrust cases on appeal from ALJ decisions during that time period.