Supreme Court Debates Constitutionality of Internal FTC Cases

The Supreme Court on Monday debated the constitutionality of the FTC subjecting corporate defendants to internal agency review prior to district courts considering constitutional claims, in docket 21-86 (see 2211040042).

Counsel for the plaintiff Axon said during oral argument that the FTC’s administrative proceedings are a violation of due process, a point of contention relevant to the FTC’s antitrust cases against Meta. Justice Neil Gorsuch suggested it could be a straightforward argument in favor of Axon, saying the federal question jurisdiction statute, Section 1331, says district courts have original jurisdiction over all civil actions arising under the Constitution. While the FTC Act makes exceptions for cease and desist orders, there’s no cease and desist order in Axon, said Gorsuch. “I thought that would have been the end of the game. What am I missing?”

All petitioners are required to go through administrative processes, despite that the agency can’t resolve constitutional issues, said Justice Sonia Sotomayor, casting doubt the situation for Axon is any different. She noted an argument abandoned in an Axon companion case, Cochran v. SEC, that the SEC violated due process rights by failing to follow its own rules and procedures (see 2211070062). That’s a “classic” due process claim that in almost every other agency action gets waived until the end of the agency’s review for courts to examine, said Sotomayor: “Going through the process is what due process is all about. I don’t know why [Axon is] any different from any other agency administrator petitioner.”

Axon’s argument about the company’s right to meaningful review could prove the most difficult, said Justice Elena Kagan. With appeals, “you have to wait generally to the end, and often that’s a lot of inconvenience,” but courts are “very stingy” when allowing interlocutory appeals as long as the defendant gets a chance in the end, said Kagan: “What makes this different?”

Relief at the end doesn’t address the “heart of the constitutional injury,” said Axon attorney Paul Clement. The company is suffering a “here and now” constitutional injury from being subjected to unconstitutional agency process, said Clement. Injury occurs the moment a company is assigned to FTC enforcement because a luckier draw with DOJ would mean far earlier access to federal court, he said. The FTC doesn’t have the expertise or authority to decide Axon’s constitutional claims in administrative proceeding, said Clement: The idea that the FTC could declare an act of Congress found within U.S. code as unconstitutional is “completely beyond its ken.” District courts exercise jurisdiction over such claims on a day-to-day basis, he said.

A plaintiff can’t forgo agency proceedings and get into federal court “simply by saying” the statute is unconstitutional because the agency is improperly structured, said Deputy Solicitor General Malcolm Stewart, who argued on behalf of the FTC. To have Article III standing and block internal proceedings, the plaintiff would need to point to specific action from the agency that injures the party, he said.

Justice Ketanji Brown Jackson pointed to another relevant case, Thunder Basin Coal v. Reich, which helped establish why constitutional challenges should be heard in administrative proceedings. Stewart said Thunder Basin is favorable to the agency’s case because the court found that meaningful review isn’t denied through administrative review. Jackson said she’s concerned about defendants using district court jurisdiction to run around agency process. Clement said the constitutional issues need to be settled first to avoid injury to the company: If the claim is questioning whether the agency is constitutional or has the expertise to decide these matters, “you’re not in the regulatory channel. We don’t belong here at all.”

Justice Brett Kavanaugh noted that the Supreme Court’s 2011 decision in Elgin v. Treasury helps the FTC’s case in Axon. The Elgin decision stated a party can’t avoid agency review process just because it has constitutional claims. Kavanaugh also noted, however, that the court’s decision in Free Enterprise Fund v. Public Company Accounting Oversight Board recognized that some constitutional claims can allow a plaintiff to avoid the agency processes.

Clement argued the FTC harms companies through this unconstitutional process because it forces companies to settle, rather than litigate. The overwhelming majority of cases are settled because most companies can’t survive the cost of litigation, said Clement. Sotomayor noted that most district court cases are settled rather than appealed: Just because many parties settle doesn’t mean they don’t get a meaningful opportunity to argue their cases.