SCOTUS greenlights constitutional challenges to FTC in Federal Court

On Friday, April 14, a unanimous Supreme Court decision in Axon Enterprise, Inc. v. Federal Trade Commission, held that Federal District Courts maintain primary jurisdiction over existential constitutional challenges to agency structure and authority.

In Axon, Axon Enterprise, Inc. (Axon) sued to challenge and enjoin enforcement proceedings brought by the Federal Trade Commission (FTC) on the grounds that combining the adjudicative and prosecutorial functions of the FTC violates core due process principles, and that the insulated removal process for Administrative Law Judges (ALJs) violates constitutional principles. The FTC argued that these challenges had to first be adjudicated within the agency's own adjudication process, with subsequent review by a Federal Court of Appeals if necessary by statute.¹

The FTC is granted adjudicative authority by federal statute, with the backstop of appellate review, in part because it is presumed to have institutional expertise to adjudicate claims such as competition and consumer protection laws. However, because the challenges raised by Axon were constitutional and "extraordinary" in nature—striking at the core of agency authority and operation—adjudication of those claims falls outside of the agency's area of expertise. Without the requisite expertise to adjudicate core constitutional challenges to their own structure and existence, the Court determined that are not the type of claims Congress intended to remove from the jurisdiction of the District Courts.

Although the decision could have a large potential impact going forward, the Supreme Court’s decision is limited to resolving the jurisdictional questions that were raised. The Court only allowed these suits to proceed for adjudication in District Court; it did not reach the merits of Axon's claims. At least for now, the FTC's enforcement and adjudicative processes remain intact, but new constitutional challenges to their procedures and structure will not need to be adjudicated first by their own judges.

Although this matter is limited to questioning the constitutionality of the FTC's proceedings, the Court's opinion opens the door for future challenges to administrative enforcement and procedure of the FTC, and perhaps also to agencies more broadly. We will continue to monitor developments that are likely to follow this decision, as we expect further challenges and potentially even reform as litigants bring new challenges. As Justice Thomas expressed in his concurring opinion, he is sympathetic to the merits of these claims, noting that "permitting administrative agencies to adjudicate what may be core private rights" raises "serious constitutional issues." The Court could decide to take up a related challenge to the lack of a jury in SEC proceedings as early as next term.