In previous posts we discussed Axon Enterprise, Inc. v. Federal Trade Commission, a case then being considered by the U.S. Supreme Court involving the question of whether parties seeking to undertake a transaction subject to Federal Trade Commission (FTC) review (in the case of Axon Enterprise, a merger with a competitor that was being challenged by the FTC) and who seek to challenge the constitutionality of the FTC’s fundamental structure/processes:

• are required to go through the regular FTC review process (which is routinely time-consuming, burdensome and expensive, and which often results in a negative outcome) only then to have the right to seek review in a federal court of appeals or
• may instead bypass FTC review and submit the constitutional questions to immediate review in federal district court.

The case was an appeal from a decision of the Ninth Circuit, which ruled in favor of the FTC, concluding that Congress in the FTC Act impliedly stripped federal district courts of jurisdiction over constitutional challenges to the FTC’s structure/processes when it granted the courts of appeal jurisdiction to “affirm, enforce, modify or set aside” FTC orders.

The Supreme Court granted certiorari as to the procedural question only (reserving for future consideration the underlying constitutionality claims). The case was argued in November 2022.

Last Friday, the Court ruled unanimously in favor of Axon. Justice Kagan wrote an 18-page majority opinion. Justice Thomas filed a concurring opinion and Justice Gorsuch filed an opinion concurring in the judgment. The Court’s opinion, as explained below, is of significant importance to health care organizations with matters before the FTC.

For additional context: A companion case, Cochran v. SEC, involving a similar question with regard to proceedings before the Securities and Exchange Commission (SEC) had been consolidated with Axon. The Court’s opinion applies to Cochran and the SEC as well as to Axon. Cochran was before the Court on appeal from a decision of the Fifth Circuit in favor of Cochran and against the SEC.

Summarizing from the Syllabus, the reasoning of the majority was as follows:

Although district courts may ordinarily hear challenges to federal agency actions by way of a jurisdictional grant for claims “arising under” federal law, Congress may substitute an alternative review scheme.

In both the Securities Exchange Act and the FTC Act, Congress did so. It provided for review of claims about agency action in a court of appeals following the agency’s own review process.

The creation of such a review scheme ordinarily divests district courts of their usual jurisdiction over covered cases. But the statutory scheme does not necessarily extend to every claim concerning agency action.

In Thunder Basin Coal Co. v. Reich, 510 U. S. 200, 207–213, the Court identified three factors to determine whether particular claims concerning agency action are of the type that Congress intended to be reviewed within the statutory structure.

First, could precluding district court jurisdiction “foreclose all meaningful judicial review” of the claim?

Second, is the claim “wholly collateral” to the statute’s review provisions?

Third, is the claim outside the agency’s expertise?

Cochran and Axon assert sweeping constitutional claims. They charge that the SEC and FTC are wielding authority unconstitutionally.

Applying the Thunder Basin factors, the Court comes to the conclusion that district court jurisdiction in these cases has not been foreclosed.

First, preclusion of district court jurisdiction could foreclose all meaningful judicial review. While adequate judicial review does not usually demand a district court’s involvement, and while the SEC Act and FTC Act do provide for judicial review of adverse SEC and FTC actions in a court of appeals, Cochran and Axon assert a “here-and-now injury” from being subjected to an “illegitimate proceeding, led by an illegitimate decisionmaker.” That injury is impossible to remedy once the proceeding is over, which is when appellate review kicks in.

Axon and Cochran will lose their rights not to undergo the complained-of agency proceedings if they cannot assert those rights until the proceedings are over.

Second, the collateralism factor also favors Axon and Cochran. The challenges to the Commissions’ authority have nothing to do with either the enforcement-related matters the Commissions regularly adjudicate or those they would adjudicate in assessing the charges against Axon and Cochran.

Third and finally, Cochran’s and Axon’s claims are outside the Commissions’ expertise. The Commission knows a good deal about competition policy, but nothing special about the separation of powers and due process constitutional questions presented in these cases. For that reason, agency adjudications are generally ill-suited to address structural constitutional challenges. The claims here are not the type that are reached by statutory review schemes.

Accordingly, the Ninth Circuit’s decision in Axon is reversed and remanded and the Fifth Circuit’s decision in Cochran is affirmed and remanded.

Takeaways

• Axon is now free to immediately pursue its constitutional challenges to the FTC processes/structure, the implications of which are obviously significant to the health care industry. (Cochran will be able to do the same as to the SEC.) Bear in mind that the American Hospital Association (AHA) filed an amicus brief on behalf of its member-hospitals and in support of Axon.
• In that brief, the AHA pointed out, among other things, that its member hospitals often face significant cost and sometimes insurmountable obstacles to efficient consolidation from unwarranted and constitutionally infirm FTC enforcement proceedings. It also pointed out that the health care sector is the target of nearly half of the FTC’s enforcement actions, and that the agency has declared hospitals to be a priority target for the coming decade.
• It is quite possible (perhaps likely) that the constitutional questions presented will ultimately be back before the Supreme Court for final resolution.
• If and when they are, based on recent decisions in which the Court has sought to rein in agency authority, it would seem that there is a reasonable likelihood that a majority of the Court will side with Axon.
• Of significance at this time, Justice Thomas in his concurring opinion writes:

“I write separately, however, because I have 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.”

“By permitting administrative agencies to adjudicate what may be core private rights, the administrative review schemes here raise serious constitutional issues.

“Because the Court today correctly holds that Axon’s and Cochran’s claims are not precluded by the review-channeling provisions at issue here, I join its opinion in full. In an appropriate case, we should consider whether such schemes and the appellate review model they embody are constitutional methods for the adjudication of private rights.”

• Other regulatory agencies with similar structures/processes will likely be directly impacted.