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McMurray – Spring 2023 – MJEAL

Opening the Floodgates: Axon Enterprises, Inc. v. FTC and the Weakening of Public Power

Keenen McMurray

In November of 2022, the Supreme Court heard oral arguments on a pair of consolidated cases including Axon Enterprise, Inc. v. Federal Trade Commission[1] and Securities and Exchange Commissionv. Cochran.[2] These cases concern whether challenges to the adjudication processes of administrative agencies can properly be heard in a federal district court, without first going through the agencies’ respective processes.[3] This administrative agency adjudication process is established by the Administrative Procedure Act (“APA”), which is a federal act that governs the procedures of administrative law.[4]

The APA establishes trial-like, adversarial hearing procedures.[5] This process starts with an agency such as the Securities Exchange Commission (“SEC”) filing and investigating a complaint against a potential violation of one of their rules.[6] Parties subject to these administrative hearings must be informed in a timely manner of the time, place, and nature of the hearing, as well as the matters of fact and law being asserted. Additionally, parties are allowed to submit their facts, arguments, and offers of settlement and have them considered by an administrative law judge.[7] This judge, who works for the agency, presidents over the bench trial-like hearing and makes a final determination.[8]

It is not until after these administrative cases are fully adjudicated that an appellant would be able to challenge the ruling in a federal court of appeals.[9] The reason why parties subject to these administrative hearings cannot bring a suit in the federal district court is because of the implied-preclusion doctrine articulated in Thunder Basin Coal Co. v. Reich.[10] in Thunder Basin, the court held that in cases involving delayed judicial review of final agency actions, the court will find that Congress has allocated an initial review to an administrative body, and precluded a district court from hearing the case, when that intent is “fairly discernible in the statutory scheme.” [11] The determination of whether such intent is “fairly discernable” in the statutory scheme consists of a two-step analysis.[12]

First, the court asks whether the statute’s language, structure, purpose and legislative history show the intent to preclude district court review.[13] Second, the court asks whether the plaintiff’s claims are of the type that Congress intended to be reviewed within the statutory scheme.[14] The court accomplishes this task by looking at a set of secondary factors such as whether the plaintiff can obtain meaningful judicial review, whether the claim is wholly collateral to the statutory scheme, and whether the claim is outside of the agency’s expertise.[15] If both prongs of the test are answered in the affirmative, then the district courts will be precluded from reviewing the plaintiff’s claims.[16]

in Axon Enterprise[17] the Ninth Circuit Court of Appeals found that the Federal Trade Commission Act demonstrated a fairly discernible intent to preclude district court jurisdiction over the challenge to their administrative enforcement process.[18] Then, nearly a year later in Cochran,[19] the Fifth Circuit Court of Appeals decided the opposite, namely that the SEC’s statutory review provision, which mirrors the FTC’s statutory review provision,[20] did not Explicitly or implicitly preclude district court jurisdiction over Cochran’s claim.[21]

The Supreme Court granted certiorari and now has the final say in this agreement between the two federal circuits and the potential scope of their ruling in this case could radically shape how administrative agencies function moving forward.[22] During the oral argument, Justice Gorsuch agreed with the Fifth Circuit’s broad reasoning that the general grant of district court jurisdiction for all cases arising under federal laws, regulations or the Constitution found in 28 USC §1331[23] is the decisive factor weighing against the doctrine of implied exclusion.[24] Justices Kavanaugh, Roberts, and Alito did not expressly go quite as far as Justice Gorsuch, but each seemed to accept the Fifth Circuit’s finding that the SEC failed the two-step Thunder Basin analysis.[25]

A broad ruling using Gorsuch’s reasoning would allow those facing agency claims to go straight to federal court with constitutional challenges, bypassing the respective agencies’ in-house adjudication process.[26] The ultimate consequence of such a ruling would be in line with a notable trend of Roberts’ Court jurisprudence: the expansion of corporate rights and the narrowing of corporate liability and access to justice against corporate defendants.[27]

In their 2022 analysis of the Court’s pro-business bias, University of Southern California’s Lee Epstein and University of Virginia’s Mitu Gulati found that the win rate for businesses in the Roberts Court, 63.4 percent, is 15 percentage points higher than the Rehnquist Court, which has the next highest business win rate over the past century.[28] Furthermore, the six conservatives who currently sit on the court are the six most pro-business justices in their dataset of 57 justices.[29] Most staggeringly, the highest percentage of business wins in the first six terms of the Roberts Court (63 percent) is lower than the lowest percentage in any of the next ten terms with the business win rate being 83 percent in 2020.[30]

By granting certiorari in this case, the Supreme Court gives itself the chance to weaken the FTC’s authority to adjudicate potential antitrust violations and enforce agency actions.[31] If the Court allows for district court jurisdiction and forces the FTC and other agencies like the SEC to defend themselves from a flood of litigation challenging their enforcement actions and constitutionality, we may all be negatively affected. The FTC and SEC will have less resources to carry out their respective missions of ensuring market fairness and protecting investors from harmful financial products, making the general public more vulnerable to the harm of corporate predation.[32]

Though some commentators paint the plaintiffs of these potential actions against administrative agencies as the proverbial David to the administrative state’s Goliath,[33] the reality is that it will allow corporate behemoths such as Amazon, Meta and Norfolk Southern to evade any responsibility owed to the public. The Court has an opportunity to tilt the scales even further in favor of capital, even if they do not adopt the course of action pushed by Justice Gorsuch.

A narrower ruling based on Thunder Basin’s analysis may have a similar practical effect.[34] The elevation of Chief Justice Roberts and Justices Alito, Gorsuch and Kavanaugh to the Supreme Court over the past 20 years has given the court a posture that Columbia Law School professor Gillian Metzger has termed “anti-administrativism.”[35]

The Roberts court’s hostility to the administrative state has manifested itself in both radical and incremental ways, but according to Metzger, both approaches are united in conveying the sense that the administrative state “must be cabined to guard against unaccountable, aggregated, and arbitrary administrative power .”[36] Chief Justice Roberts himself has often been more inclined toward adopting somewhat less radical positions.[37] But the more aggressive disposition of the court’s other five conservative Justices that was apparent in Dobbs v. Jackson Women’s Health Organization[38] last term could manifest once again in this case.

After a momentous 2021-2022 term, the highest court in the land is showing no signs of slowing down. Just like last year, the court will hand down decisions at the end of this term that will profoundly reshape the contours of American society. As the decisions begin to roll out later this spring, axons will mark the beginning of yet another notable shift in the balance of power towards private interests and away from the public. With the Court likely to provide private interests with a powerful new tool to avoid liability and prevent the public from holding them accountable for the harm they cause, the time is now to consider how we can protect our interests under a different and less favorable set of rules.

Keenen McMurray is a Junior Editor with MJEAL. Keenen can be reached at [email protected].

[1] Axon Enterprises, Inc v. Federal Trade Commission, No. 21-86 (US filed July. 20, 2021)

[2] Securities and Exchange Commissionv. Cochran, No. 21-1239 (US filed March. 11, 2022)

[3] Supreme Court Hints It May Back Court Challenges to SEC, FTC (1), Bloomberg: Bloomberg Law (Feb. 26, 2023), supreme-court-signals-it-may-allow-court-challenges-to-sec-ftc

[4] The Administrative Procedure Act, 5 USC §§ 551-559

[5] Congressional Research Service, R46930, Informal Administrative Adjudication: An Overview (2021).

[6] id.

[7] 5 USC § 554

[8] See Linda D. Jellum, The SEC’s Fight to Stop District Courts from Declaring Its Hearings Unconstitutional, 101 Tex. L. Rev. Issue 2 (2022).

[9] id.

[10] Thunder Basin Coal Co. v. Reich 510 US 200 (1994).

[11] id.

[12] id.

[13] id.

[14] id.

[15] Id.

[16] id.

[17] Axon Enterprise, Inc. v. FTC, 986 F.3d 1173 (9th Sir 2021).

[18] id.

[19] Cochran v. SEC, 20F.3d 194 (5th Sir 2021).

[20] See Axon Enterprise, 986 F. 3d at 1173 (9th Sir 2021).

[21] See Cochran, 20 F. 3d at 194 (5th Sir 2021).

[22] The Administrative State Under Attack: Potentially Far Reaching Implications of Supreme Court’s Decision to Hear Challenge to FTC Administrative Review Process, National Law Review, (Feb. 26, 2023), -under-attack-potentially-far-reaching-implications-supreme.

[23] 28 USC §1331.

[24] Justices seem receptive to opening up early challenges to agency proceedings, SCOTUSblog, (Feb. 26, 2023), challenges-to-agency-proceedings/#:~:text=Justices%20seem%20receptive%20to%20opening%20up%20early%20challenges%20to%20agency%20proceedings,-By%20Ronald%20Mann&text=The%20justices%20heard%20nearly %20three,Cochran.

[25] id. See Also, Cochran, 20 F. 3d at 194 (5th Sir 2021).

[26] Supreme Court Hints It May Back Court Challenges to SEC, FTC (1), Bloomberg: Bloomberg Law (Feb. 26, 2023), supreme-court-signals-it-may-allow-court-challenges-to-sec-ftc.

[27] See Elizabeth Pollman, The Supreme Court and the Pro-Business Paradox, 135 Harv. L. Rev. 220 (2021). (Particularly the first section discussing the expansion of corporate rights and the limiting of responsibilities in twenty-first-century Supreme Court Jurisprudence).

[28] See Lee Epstein and Mitu Gulati, A Century of Business in the Supreme Court, 1920-2020, 107 Minn. L. Rev. 49 (2022).

[29] id.

[30] id.

[31] The Administrative State Under Attack: Potentially Far Reaching Implications of Supreme Court’s Decision to Hear Challenge to FTC Administrative Review Process, National Law Review, (Feb. 26, 2023), -under-attack-potentially-far-reaching-implications-supreme.

[32] id.

[33] See Linda D. Jellum, The SEC’s Fight to Stop District Courts from Declaring Its Hearings Unconstitutional, 101 Tex. L. Rev. Issue 2 (2022). (particularly her description of the dynamic between plaintiffs and administrative agencies in the first two paragraphs of the article).

[34] See Gillian E. Metzger, The Roberts Court and Administrative Law, 2019 Sup. Ct. Rev. 1 at 62 (2019)

[35] id. At pg. 3.

[36] Id.

[37] Id.

[38] Dobbs v. Jackson Women’s Health Org., No. 19-1392 (US, Decided June 24, 2022).