FTC’s Targets Take Cues From High Court in Tests of Agency Power

Companies targeted by the Federal Trade Commission are increasingly firing back at the agency’s constitutionality, a line of attack that questions the regulator’s independence and how it operates as a law enforcer.

The legal strategy is being deployed by Kroger Co., Meta Platforms Inc., and Cigna Group’s Express Scripts, three corporate giants that are in the crosshairs of a commission headed by progressive Lina Khan. The lawsuits come as the Supreme Court, through a series of recent opinions, has reined in regulators’ powers and opened the door for new challenges.

Express Scripts on Sept. 17 launched the latest broadside, mere days before the FTC alleged in its in-house court that the drug middleman uses illegal rebate programs to drive up the price of insulin.

In a lawsuit that otherwise focused on alleged defamation, the company zeroed in on Humphrey’s Executor v. United States—a 1935 Supreme Court decision that established removal protections for FTC commissioners and helped lay the foundation for the modern administrative state. Those protections from presidential removal violate the Constitution, Express Scripts argues, making all of the commission’s actions unlawful.

That argument has been teed up by a conservative-majority Supreme Court that has over the last decade chipped away at federal regulators’ independence, said Daniel A. Crane, a University of Michigan law professor and an expert in antitrust law.

“Everyone is reading the tea leaves that this court is in the mood to change basic assumptions that have been held for a long time,” Crane said. “Humphrey’s Executor is the lowest-hanging fruit left.”

The FTC has downplayed such arguments, even as it acknowledges the uncertain legal environment. Courts revisiting old precedents about the authority of federal agencies “is a fact of life,” Khan said Sept. 13 during a panel discussion at Fordham Law School in New York. The FTC declined to comment further.

On Sept. 30, the nine justices will meet to discuss a series of petitions, including one over the autonomy of the Consumer Product Safety Commission that centers on Humphrey’s Executor. The court will likely decide by Oct. 7 whether to take the case.

Opening From SCOTUS

Express Scripts, Meta, and Kroger got their opening with Axon Enterprise Inc. v. FTC, a 2023 decision from the Supreme Court allowing companies facing administrative complaints to go straight to federal court with constitutional challenges without waiting for the proceedings to end.

Meta and Kroger also claimed the court’s June decision in SEC v. Jarkesy, which curbed the use of in-house judges at the Securities and Exchange Commission, bolsters their cases questioning the constitutionality of the FTC’s in-house administrative law court, a forum used in such areas as merger challenges and conduct investigations.

The FTC, which has a mandate to regulate competition and consumer protection, has pushed an ambitious agenda under Khan. The agency is fighting Kroger’s proposed tie-up with rival grocer Albertsons Cos. and scrutinizing tech giants such as Meta on the privacy and antitrust front.

“This wave of challenges is new,” said John B. Kirkwood, a Seattle University law professor who led the FTC’s policy unit for 10 years. “It’s happening because the Supreme Court is moving to the right and emphasizing executive power and Chair Khan can at least be portrayed as radical.”

In one respect, the cases are a classic “delay tactic” with little chance of success, said Alden Abbott, a senior research fellow at George Mason University’s Mercatus Center who was FTC general counsel during the Trump administration.

The Fifth Circuit, a conservative-dominated court that has become a hot spot for regulatory challenges, in December rejected a series of constitutional challenges that biotech firm Illumina Inc. brought against the FTC as it tried to gain approval for a $7 billion acquisition of cancer detection startup Grail Inc.

Still, a bloc of conservative judges on that court in April signaled interest in reeling in Humphrey’s Executor, in a separate case dealing with the independence of the CPSC.

While the Supreme Court precedent forced the appellate court’s hand, Fifth Circuit Judge Don R. Willett wrote for the majority that an appeal “writes itself” considering the Supreme Court’s views.

Express Scripts, Meta, and Kroger appear to be seizing on that type of sentiment, said Christine Bartholomew, a University of Buffalo law professor focused on antitrust.

“I feel pretty confident we’re going to see the Supreme Court weigh in,” she said. “That’s why everyone’s teeing this up, to see if they’re willing to extend some of the animus you see in some of the earlier decisions against administrative agencies to the FTC.”

Humphrey’s Executor

Express Scripts, aided by law firms WilmerHale and Rule Garza Howley LLP, said the goal of its lawsuit is for the FTC to retract a July staff report that blamed pharmacy benefit managers for rising drug costs.

But the complaint said the company “reserves all rights to argue the Supreme Court should overrule Humphrey’s Executor.”

The 89-year-old case has its roots in an FTC commissioner’s refusal to resign despite repeated requests from President Franklin D. Roosevelt. Roosevelt ultimately fired Humphrey, triggering a case that the executor’s of Humphrey’s estate pursued up to the Supreme Court—Humphrey died in 1934—that ended with the court ruling his dismissal was unjustified.

The FTC’s powers are “neither political nor executive, but predominantly judicial and quasi-judicial,” the justices found, meaning presidents could only remove commissioners for cause such as inefficiency or neglect.

Judges—including Justice Brett M. Kavanaugh when he was still on the D.C. Circuit—have sharply criticized the ruling for weakening a president’s authority.

And the Supreme Court began to chip away with its ruling in Seila Law LLC v. CFPB, a 2020 case giving the president broad power to fire the director of the Consumer Financial Protection Bureau. In a separate opinion, Justice Clarence Thomas, joined by Justice Neil M. Gorsuch, called Humphrey’s Executor “a direct threat to our constitutional structure” and said it should be fully overturned.

“We agree with the Supreme Court’s recent statement in Seila Law about Humphrey’s Executor that '[t]he Court’s conclusion that the FTC did not exercise executive power has not withstood the test of time,” an Express Scripts spokesperson said.

Michigan’s Crane, who has studied Humphrey’s Executor, said it’s unclear how much would immediately change at an FTC with a president unconstrained from firing commissioners. But he said overturning Humphrey’s Executor, combined with a string of other decisions curbing regulators’ powers, will have long-lasting effects.

The “implications are much more subtle but longer-term,” he said. “There are these bigger, longer-term movements that are really consequential.”