Axon Enterprise, Inc. v. FTC

Issues

Does the FTC Act remove subject-matter jurisdiction from district courts to hear constitutional challenges to the FTC’s structure, procedures, and existence by providing for FTC administrative adjudication of antitrust issues and review of these decisions by the courts of appeals?

Oral argument:

November 7, 2022

Court below:

United States Court of Appeals for the Ninth Circuit

This case asks the Supreme Court to decide whether claims brought by parties like Axon Enterprise, Inc. (“Axon”) that challenge the structure of the Federal Trade Commission can be reviewed by district courts prior to the completion of agency proceedings. Axon contends that federal district courts should be able to hear constitutional challenges to agency structure concurrently with agency enforcement proceedings because enjoining such proceedings is necessary to avoid “here-and-now” constitutional injury. The FTC counters that the Federal Trade Commission Act implicitly strips district courts of subject-matter jurisdiction over these challenges, making judicial review available only in the courts of appeals and only after a final order by the FTC. The case carries significant implications for administrative law because allowing businesses subject to FTC regulation to preemptively challenge agency proceedings could significantly scale back the agency’s enforcement powers.

Questions as Framed for the Court by the Parties

Whether Congress impliedly stripped federal district courts of jurisdiction over constitutional challenges to the Federal Trade Commission’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.

Facts

The Federal Trade Commission Act (the “FTC Act”) empowers the Federal Trade Commission (“FTC”) to address the use of “unfair methods of competition” by initiating administrative proceedings and issuing cease-and-desist orders. Axon Enter. v. Trade Comm’n at 1189. Under the FTC Act, the FTC “shall issue” a cease-and-desist order if it determines through an administrative proceeding conducted by an administrative law judge (“ALJ”) that there was a violation of the FTC Act or the Clayton Act. See Federal Trade Commission Act, 15 U.S.C. § 41.

Petitioner Axon Enterprise, Inc. (“Axon”) manufactures body cameras. Axon at 1177. Axon acquired a competitor in 2018. Id. Shortly thereafter, the FTC notified Axon of antitrust concerns. Id. After eighteen months of investigation, the FTC demanded that Axon make its competitor a “clone” of Axon. Id. The FTC also told Axon that it would commence an administrative proceeding to secure the same relief if Axon refused the demand. Id.

Axon then filed suit in federal district court. Id. Axon alleged that (1) an FTC proceeding would violate its due process rights because it deserves a district court trial rather than an agency proceeding where the agency is “prosecutor, judge, and jury;” (2) ALJs are unconstitutionally protected from presidential removal because they can only be removed for cause by FTC Commissioners, who can only be removed for cause by the President; and (3) it did not violate antitrust law by acquiring this competitor. Id. The FTC initiated an administrative proceeding later that same day. Id. at 1177, n.1. Axon requested that the district court grant a preliminary injunction against the administrative proceeding. Id. at 1177.

The district court denied Axon’s motion for a preliminary injunction and dismissed Axon’s complaint. Id. The district court found that Congress impliedly stripped district courts of jurisdiction over complaints like Axon’s by creating an alternative review scheme in the FTC Act that vested direct review of the agency’s action in the courts of appeals. Id. The district court concluded that the “detailed scheme” in the FTC Act for administrative adjudication and the provision for direct review of cease-and-desist orders by the courts of appeals were evidence of Congressional intent to strip jurisdiction from district courts. Axon Enter. v. Trade Comm’n at 891.

Axon appealed to the Ninth Circuit, which conducted a de novo review of the district court’s jurisdiction. Axon, at 1176–77. The Ninth Circuit affirmed the district court’s dismissal of Axon’s complaint, concluding that Axon needed to go through the administrative proceeding and then raise its challenges in a court of appeals. Id.

The Ninth Circuit found that the structure of the FTC Act reveals a “fairly discernable intent” to bar jurisdiction in the district courts. Id. at 1180. The Ninth Circuit applied a three-part test and concluded that Axon’s claim fell within the FTC Act’s review scheme because (1) Axon could obtain meaningful judicial review; (2) Axon’s claims were not “wholly collateral” to the FTC Act’s statutory scheme; and (3) even though Axon’s claim was not within the FTC’s expertise, this was outweighed by the other two factors. Id. at 1181, 1186–87.

The Ninth Circuit denied Axon’s petition for rehearing en banc. Brief for the Federal Parties, Federal Trade Commission and Securities and Exchange Commission, et al. at 6. The Supreme Court then granted Axon certiorari on January 24, 2022. Id. at 2.

Analysis

DOES 28 U.S.C. §1331 OR THE FEDERAL TRADE COMMISSION ACT CONTROL THE REVIEWABILITY OF AXON’S CLAIMS?

Axon notes that United States district courts have federal question jurisdiction under 28 U.S.C. § 1331, allowing them to hear claims which arise under federal law. Brief for Petitioner, Axon Enterprise, Inc. at 4. Axon contends that § 1331’s federal question jurisdiction thus encompasses constitutional challenges to agency structures, and therefore it is unnecessary for statutes like the FTC Act to confer a specific grant of jurisdiction on district courts. Id. Axon further argues that the Supreme Court usually construes statutes to avoid taking § 1331 jurisdiction away from district courts because district courts play an important role in providing relief for unconstitutional conduct. Id. Axon asserts that the Supreme Court generally finds that Congress intended to strip the district courts of subject matter jurisdiction only when the statutory language is clear and explicit. Id. at 23–24.

Axon concedes that the Court has previously found that a “fairly discernable” intent to strip district court jurisdiction is sufficient to do so, but Axon contends that even then, the Court will only remove district court jurisdiction over claims of the kind that Congress intended to fall within the statute. Id. at 25. Axon distinguishes an ordinary challenge to an agency action, such as a challenge to an imposed fine, from a constitutional challenge to an agency’s structure, like Axon’s challenge to the FTC’s structure. Id. at 25–26. Axon argues that there is “little reason” to believe Congress intended to delay proceedings until after full agency adjudication for constitutional challenges because this would delay judicial review until after the constitutional injury had occurred and would put the agency in the unfair position of determining the constitutionality of its own existence. Id. at 26. Axon also contends that it would not make sense for the courts of appeals to review such claims because those courts are unable to offer the requested remedy: an injunction. Id. at 26–27. Axon thus concludes that “absent clear statutory language to the contrary,” its challenge to the FTC’s structure should be hearable by a district court. Id. at 28. Axon rebuts the FTC’s argument that the Administrative Procedure Act (“APA”) supports the FTC’s position by noting that the APA preserves injunction as a remedy where there is no other way to obtain meaningful relief, and thus concludes that district courts may issue an injunction while an FTC adjudication is ongoing. Reply Brief for Petitioner, Axon Enterprise, Inc. at 16, 19.

In contrast, the FTC argues that Axon’s claim must be dismissed if it is “fairly discernible” that Congress intended to preclude district court review of the claim. Brief for the Federal Parties, Federal Trade Commission and Securities and Exchange Commission, et al. at 18. The FTC contends that by creating a specific regime for statutory review in the FTC Act, Congress has demonstrated its intent that § 1331 not circumvent that review scheme. Id. The FTC therefore claims that statutes granting review directly to the courts of appeals implicitly take jurisdiction away from the district courts. Id. at 18, 33. The FTC concludes that Axon’s claim must be dismissed because of the “absence” of any authorization for district court review in the FTC Act. Id. at 17.

The FTC asserts that the FTC Act specifically authorizes review of FTC adjudications only by the courts of appeals. Id. at 12–13. The FTC contends that the Act requires the FTC to issue a final cease-and-desist order before a party can obtain review, meaning that agency proceedings must have been completed, but it notes that a court of appeals may then also examine those proceedings for constitutional errors. Id. at 14. The FTC claims that the APA lends additional support to these arguments. Id. at 22–25. The FTC also maintains that this kind of judicial review is in line with appellate review of district court rulings, where a party can also only appeal “as of right” when the judgment is final and similarly can obtain review of any stage of the proceedings. Id. at 15, 49. Further, the FTC explains that distinguishing between a challenge to an agency action and an agency’s structure would ignore the “core APA principle” that an order must be final to be reviewable. Id. at 34. Finally, the FTC argues no source of law creates a cause of action for Axon’s claim and contends that Axon cannot invoke an equitable “judge-made” remedy to get around the limits of the FTC Act. Id. at 27–29.

THE FTC ACT’S IMPACT ON DISTRICT COURT JURISDICTION

Axon argues that the FTC Act only states that cease-and-desist orders are reviewable by the courts of appeals, but there is not the “slightest indication” that the FTC Act was intended to strip district courts of their ability to issue injunctive relief when a party alleges an agency’s structure is unconstitutional. Brief for Petitioner at 30. First, Axon contends that because the FTC has the option to invoke district court jurisdiction, FTC-related proceedings are not unsuited for district courts. Id. at 31. Second, Axon argues that the FTC Act is silent regarding constitutional challenges to the FTC’s structure, and therefore the default of § 1331 jurisdiction should apply to these claims. Id. at 30–31. Third, Axon points out that the FTC Act has a “narrow focus” on cease-and-desist orders because the FTC Act “presupposes a constitutionally structured agency.” Id. at 31–32. Fourth, Axon explains that only narrow relief is available in appellate courts, because those courts can only affirm, modify, or set aside cease-and-desist orders; appellate courts cannot grant injunctive relief. Id. at 33. Axon thus argues that it is “fairly discernable” from the text of the FTC Act that constitutional challenges to FTC structure are not channeled to the courts of appeals, even if cease-and-desist orders are. Id.

The FTC responds that excluding constitutional challenges from courts of appeals’ reviewable claims would be “difficult to administer.” Brief for the Federal Parties at 45. The FTC disputes Axon’s contention that constitutional challenges are outside a narrow review scheme focused on cease-and-desist orders, and it argues that Axon’s claim falls within the courts of appeals’ jurisdiction because the FTC Act gives the courts of appeals the authority to review final orders and the FTC’s actions during proceedings. Id. at 42, 47. The FTC contends that the exact kind of claim Axon raises has repeatedly been raised at the end of administrative adjudications and then addressed by courts of appeals. Id. at 42–44. The FTC also explains that district courts should only rule on constitutional questions if necessary, and when an agency proceeding first commences, it is unclear whether doing so will be necessary. Id. at 45. The FTC thus asserts that the district courts do not have the power to hear any claims arising under the FTC Act, not just claims relating to cease-and-desist orders. Id. at 18, 21.

THE THUNDER BASIN FACTORS

Axon argues that its constitutional claims are beyond the scope of the FTC Act’s review scheme by using the Court’s reasoning from Thunder Basin Coal Co. v. Reich. Brief for Petitioner at 33. First, Axon claims that the FTC Act would foreclose all meaningful judicial review because Axon is experiencing a “here-and-now injury” of being subjected to unconstitutional FTC procedures and authority. Id. at 35–38. Axon argues that only review in the district court can prevent injury because Axon needs injunctive relief. Id. Second, Axon asserts that its claim is “wholly collateral” to the FTC proceedings because its claim is not about antitrust issues and instead “transcend[s] any particular dispute or proceeding.” Id. at 34. Third, Axon contends that the FTC’s expertise in antitrust is not implicated because antitrust expertise will not help resolve constitutional questions. Id. at 34–35.

The FTC asserts that the holding in Thunder Basin supports the FTC’s position, and not Axon’s. Brief for the Federal Parties at 51. First, the FTC claims Axon has a meaningful opportunity for judicial review because Axon can raise its constitutional challenges at the court of appeals. Id. at 51–52. Second, the FTC disputes Axon’s argument that its claim “transcend[s] any particular dispute or proceeding,” pointing out that Axon specifically asked the district court to enjoin the FTC’s action against it. Id. at 52. Third, the FTC argues that even if it does not have expertise in dealing with constitutional questions, deciding an issue in a way that prevents the need for further resolution of constitutional questions is a way of “applying expertise.” Id. at 54.

Discussion

ENCOURAGING LITIGANTS TO BRING CONSTITUTIONAL CLAIMS AGAINST AGENCIES

Washington Legal Foundation and Allied Educational Foundation (collectively “WLF”), in support of Axon, argue that granting district courts the ability to hear constitutional challenges to federal agencies’ structures will encourage litigants to bring such challenges. See Brief of Amici Curiae Washington Legal Foundation and Allied Education Foundation, in Support of Petitioner at 17–18. WLF points out that the Supreme Court should encourage such challenges. Id. WLF maintains that litigants will be more likely to bring constitutional claims in district courts when they can “rest assured” they are not wasting resources on suits which will inevitably be dismissed. Id. at 18.

The American Antitrust Institute (“AAI”), in support of the FTC, argues that allowing entities like Axon to bring constitutional litigation in district courts will enable these entities to delay agency enforcement proceedings and perpetuate harm. See Brief of Amicus Curiae The American Antitrust Institute, in Support of Respondent at 2, 22. The AAI asserts that this negates one of the most important purposes of agencies: efficiency. Id. at 21. The AAI maintains that businesses will have every incentive to bring far-fetched theories of constitutional injury to convince district courts to stay or enjoin agency enforcement. Id. at 2. The AAI asserts that delays in enforcement will enable businesses to profit from illegal mergers for longer periods of time (increasing the harms the public suffers) and entrench their market power (making restoring competition more difficult). Id. at 2, 22. Thus, AAI insists that it is unwise to encourage these constitutional challenges in district courts. Id.

FINALITY VERSUS MEANINGFUL JUDICIAL REVIEW

The Separation of Powers Clinic at Antonin Scalia Law School (the “Clinic”), in support of Axon, argues that judicial review is illusory and hollow when litigants must endure administrative proceedings before becoming eligible for it. See Brief of Amicus Curiae Separation of Powers Clinic at Antonin Scalia Law School, in Support of Petitioner at 6–8. According to the Clinic, this approach enables and incentivizes agencies to compel settlement by bringing weighty claims against parties and dragging out administrative proceedings indefinitely. Id. The Clinic argues that this means judicial review is extremely unlikely in practice because the FTC Act does not provide for judicial review when agency proceedings end in settlement. Id. at 5. The Clinic concludes that only judicial review before the agency proceeding would enable district courts to meaningfully remedy and prevent “here-and-now” constitutional injuries. Id. at 16.

The FTC counters that, in enacting the FTC Act, Congress intended that administrative proceedings be final before a court of appeals can review them. See Brief for the Federal Parties, Federal Trade Commission and Securities and Exchange Commission, et al. at 42, 50. The FTC further argues that, in the same action, Congress demonstrated its belief that review by the courts of appeals is indeed meaningful. Id. at 28. The FTC adds that courts may not second-guess Congress’ judgment. Id. The FTC asserts that recognizing pre-enforcement review would create duplicative “parallel litigation,” waste judicial resources, be “difficult to administer” due to the lack of clarity regarding what claims would fall outside the review provision of the FTC Act, and impede the functioning of agencies. Id. at 44–45, 50.

BALANCING AGENCY OVERREACH AND EFFECTIVENESS

The Committee for Justice (the “Committee”), in support of Axon, argues that timely district court judicial review of agency actions is essential to preventing agency overreach. See Brief of Amicus Curiae The Committee for Justice, in Support of Petitioner at 22. The Committee notes that parties to FTC adjudication must first appeal any ALJ decision to the FTC Commissioners themselves—the same parties that initiated the action. Id. at 8. The Committee further notes that “the FTC has ruled for itself in 100 percent of its cases over the past three decades.” Id. at 11. The Committee asserts that this win streak shows the FTC has been emboldened by “unaccountable power.” Id. at 20. The Committee argues that, absent timely and effective judicial review, the FTC will continue to expand its authority and invalidate even legitimate mergers. Id. at 13.

The AAI argues that “practical realities” of the process the FTC uses to initiate litigation minimize agency overreach by incentivizing it to challenge only mergers that present a clear case for antitrust liability. See Brief of Amicus Curiae The American Antitrust Institute, in Support of Respondent at 18–19. The AAI asserts that the FTC’s high win rate reflects the reality that the FTC only proceeds with meritorious cases, and thus does not indicate unfairness. Id. at 20. According to the AAI, allowing for immediate district court review of constitutional claims would “punish success” and make the agency less effective at protecting consumers and preserving competition in the market. Id. at 21.