Federal Trade Commission Goes to the Supreme Court Again, This Time in a Constitutional Challenge

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If you had asked us last week, we would have predicted that the Supreme Court’s momentous AMG Capital Management, LLC v. FTC decision last year, in which the Court struck down the Federal Trade Commission’s nearly 50-year practice of seeking equitable monetary relief under Section 13b of the FTC Act, would be the most significant decision about FTC jurisprudence we would see from the Supreme Court for a while.

However, in a surprising move, the Supreme Court recently granted certiorari in Axon Enterprises Inc. v. FTC to address whether Congress intended to strip federal district courts of jurisdiction to hear challenges to the constitutionality of the FTC’s structure, procedures, and very existence. Importantly, however, the Court declined to directly address the petitioner’s challenge to the constitutionality of the FTC. Still, the Court’s decision could significantly impact how future targets of FTC enforcement investigations and actions will challenge the FTC’s constitutional limits.

To recap our prior coverage of Axon Enterprises Inc., after the police body camera manufacturer learned that it was being subjected to an FTC antitrust investigation, Axon sued the FTC in federal court for declaratory relief, and then the FTC brought an administrative proceeding against Axon. Axon argued that the FTC’s administrative action against Axon was void because (1) the FTC’s administrative procedure violates due process and (2) the FTC’s structure (including that its commissioners are insulated from executive removal) is unconstitutional. The district court dismissed Axon’s case, and the Ninth Circuit affirmed, finding that Axon must first raise and exhaust its constitutional arguments in the administrative action (i.e., where the FTC serves as prosecutor and decider) before those challenges can be heard in federal court. The lower court reasoned that “Axon can ultimately obtain meaningful judicial review of its claims before this court once the FTC administrative proceeding concludes.”

Axon now argues that allowing the FTC to decide the constitutional claims in its own administrative enforcement proceeding enables it to be the “judge and jury,” and thus that Axon “is being subjected to an unconstitutional process.”

In granting review, the Supreme Court added Axon’s case to its October term 2022 calendar, which means it will hear the case sometime between October 2022 and May 2023. In all likelihood, an opinion will be issued by the end of June 2023, if not earlier.

The Supreme Court’s decision could have a tremendous impact on how a party subject to an FTC administrative action can challenge the FTC’s authority to pursue that party. But, perhaps more significantly, if the Supreme Court ultimately grants federal district courts the right to hear constitutional challenges to the FTC’s structure, such a decision is in line with the Court’s recent skepticism of whether independent agencies properly exercise quasi-legislative and quasi-judicial authority, or instead exercise executive authority, thus requiring the president’s power of removal. This development could be a harbinger of the Court’s willingness to consider a future challenge to the structure of the FTC and a potential threat to the very existence of the FTC as we know it.

Stay tuned for updates on this case as we continue to monitor the impact this will have on regulatory enforcement processes at the FTC.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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