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ANALYSIS: Axon’s SCOTUS Attack May Pose a Threat to the FTC

July 29, 2021, 9:01 AM

A seemingly technical challenge to the Federal Trade Commission based on exhaustion of administrative remedies could upend the structure of the FTC’s enforcement efforts.

Former Solicitor General Paul D. Clement filed a petition for writ of certiorari before the U.S. Supreme Court July 20 on behalf of Axon Enterprise Inc., seeking to reverse lower court holdings that Axon must complete the FTC’s administrative enforcement process before challenging the constitutionality of that process in court.

Clement’s petition also asks the court to reach the merits of Axon’s challenge to the FTC’s administrative enforcement structure, which an Arizona federal court and the U.S. Court of Appeals for the Ninth Circuit held they lacked jurisdiction to consider.

Essentially, this is an attack on the entire structure of the FTC and its role in antitrust enforcement. For several reasons, the case stands a better-than-normal chance of being accepted by the Supreme Court and potentially dealing a serious blow to the FTC. The Court seems receptive to this kind of argument, and has proven receptive to the lawyer who makes it.

FTC Challenges Merger

Axon bought rival body camera manufacturer Vievu LLC in May 2018. The FTC opened an investigation into the merger shortly thereafter, and in December 2019, demanded that Axon spin off Vievu—with Axon’s technology—as a “cloned” competitor.

Facing an administrative enforcement action to force a breakup, Axon brought suit in Arizona federal court, alleging that the FTC’s administrative process is unconstitutional and seeking a declaratory judgment that the merger was legal.

Axon argued that the combination of “investigatory, prosecutorial, adjudicative, and appellate functions within a single agency” violates due process. Axon contended that if it has to litigate for years at the FTC before reaching a court that can consider its constitutional complaints and the merits of its defense to the merger challenge, then its due process rights are violated. Axon also contended that the FTC’s administrative law judge is improperly appointed, and thus can’t legally preside over Axon’s case, and that the whole process by which mergers are reviewed by the FTC or Justice Department is unconstitutional.

Judge Dominic Lanza of the federal district court held that district courts lack subject matter jurisdiction to weigh in on an FTC administrative enforcement matter because the FTC Act strips them of that ability. Under the Act, ALJ decisions at the FTC are reviewed by the Federal Trade Commission, whose decisions are in turn reviewed by an appellate court; that doesn’t leave room for the district court to interfere, Lanza said. Furthermore, because Axon will have a constitutional complaint only if the FTC administrative process concludes against Axon’s merger, he said, Axon may never even suffer a harm that needs adjudicating in court.

Axon appealed, countering that being forced through the very administrative process it challenges harms Axon regardless of outcome. The Ninth Circuit rejected its appeal in a split decision, reasoning that Congress’s adjudicative structure for FTC enforcement should be followed under existing Supreme Court precedent.

Clement petitioned SCOTUS to review the lower courts’ holdings on jurisdiction and reach the merits. The questions presented in his petition are:

  1. Whether Congress [in the FTC Act] impliedly stripped federal district courts of jurisdiction over constitutional challenges to the FTC’s structure, procedures, and existence by granting the courts of appeals jurisdiction to “affirm, enforce, modify, or set aside” the Commission’s cease-and-desist orders; and
  2. Whether, on the merits, the structure of the FTC, including the dual-layer for-cause removal protections afforded its administrative law judges, is consistent with the Constitution.

Receptive Court?

Under normal circumstances, one might not worry inordinately about a petition asking the Supreme Court to declare unconstitutional an agency structure that has been functioning admirably for 100 years.

For starters, any given petition for certiorari to the Supreme Court ordinarily has a lousy chance of being granted. According to U.S. Courts statistics, during the fiscal year ending Sept. 30, 2020, the Supreme Court had 5,518 petitions originating in the eleven appellate circuits (and D.C. circuit) pending consideration, and only 120 were granted—a success rate of 2.17%.

But Clement’s success rate for getting SCOTUS petitions heard is 10 times higher than that baseline success rate: A petition for certiorari with his name at the bottom has a one-in-five chance of being heard by the Court.

Second, the Court seems receptive to the types of arguments Axon is making, having taken a number of appointments clause cases in the past decade. In 2018, for example, in Lucia v. SEC, the Court held that the ALJs that preside over SEC administrative enforcement actions, which are similar to FTC actions, are “inferior officers.”

Axon is arguing that, under the Court’s 2010 decision in Free Enter. Fund v. Pub. Accounting Oversight Bd, “inferior officers” are inappropriately protected from removal by the president if they are removable only “for cause” by principal officers who likewise can only be removed “for cause.” Because the FTC ALJ can only be removed for cause, and those empowered to remove him can only be removed themselves for “inefficiency, neglect of duty, or malfeasance,” Axon argues the FTC’s “dual for-cause” structure protecting the ALJ violates the appointments clause under a “straightforward application” of Free Enter. Fund.

The court has also proved hostile to implied readings of the FTC Act. Just this April, the Court held that the FTC Act’s grant of power to seek a “permanent injunction” in court didn’t also imply the power to seek other equitable remedies like disgorgement, reversing decades of practice. Strictly on the jurisdictional issue of whether the courts can consider Axon’s constitutional claims before the FTC’s process concludes, the court may decline to read into the FTC Act a bar on Axon’s court case.

In short, the Court seems receptive to the kinds of arguments that Axon is advancing and Axon’s lawyer is exceptionally skilled at getting the Court to consider litigants’ arguments.

Broad Attack

Axon’s attack on the agency encompasses most aspects of its work. And Axon challenges as arbitrary the “uncodified ‘clearance’ process” through which the FTC and DOJ assign enforcement cases to one agency or the other, which effectively also consigns the merging parties to a district court action or an administrative action, depending on which agency takes the case.

Therefore, this case provides the Court with an opportunity (if it so chooses) to reconsider everything about how the FTC participates in antitrust cases. If the Court grants this petition, it poses real risks to the operation of the FTC.

A response to the petition is due from acting Solicitor General Elizabeth Prelogar by Aug. 23, and amici can be expected to weigh in on both sides.

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