FTC Under Fire Again at the Supreme Court

While the Federal Trade Commission has pursued consumer protection enforcement primarily in federal court for the last several decades, it has still relied heavily on the administrative law process in antitrust enforcement as well as in rulemaking.  And with the Supreme Court nuking the FTC’s monetary relief authority in federal court last year in AMG, we are beginning to see the FTC bring more consumer protection cases administratively where the possibility of obtaining monetary relief still exists if and after the FTC wins the case and can prove to a federal judge that the misconduct was “dishonest or fraudulent”.

A long-time criticism of FTC administrative adjudication has been that it sits as prosecutor, judge and jury, in that it both files the complaint, which is heard by a not entirely independent administrative law judge (“ALJ”), and then sits as a court of appeal after the administrative trial, with independent judicial review available only after its final decision has been issued. To past FTC defendants who think the administrative deck may have been stacked against them, they would not be wrong: The FTC has not lost a case on its home turf in a quarter century.     

This perceived lack of due process and unfairness has now reached the U.S. Supreme Court, which will have its second opportunity in a year to issue a momentous decision affecting the agency’s enforcement powers, one that could be even more existential for the agency than the loss of its monetary authority in federal court.

The issue has arrived at the Supreme Court’s door step following a constitutional challenge to the FTC’s structure and procedures in an antitrust fight between FTC and Axon Enterprise, a maker of body cameras and other police equipment.  In January 2020, when a proposed acquisition by Axon was under investigation by the FTC, Axon struck first in a declaratory relief suit in federal district court challenging the constitutionality of both the FTC’s administrative process and insulation of the FTC’s members from Executive oversight and removal.  The FTC then sued Axon administratively to block the merger.  The request for declaratory relief was denied, on the ground that the district court lacked jurisdiction because Axon first had to bring its constitutional challenge through the FTC’s administrative process.  After the Ninth Circuit affirmed, the Supreme Court granted certiorari last month and will hear the case next term. 

The main issue before the Court skirts the underlying constitutional question concerning the FTC’s administrative structure and procedures.  Rather, the Court will decide only the limited procedural question of whether a district court has jurisdiction to hear a challenge to the FTC’s constitutionality before it has been adjudicated through the very administrative process that is the subject of the challenge. But it is unlikely that the Court accepted the case just so that it could decide that narrow issue and then call it a day. The hostility of the Court’s conservative supermajority to the “administrative state,” and specifically to independent agencies like the FTC, whose members (and “quasi-independent” ALJs) are beyond the president’s removal powers, and thus unaccountable to the Executive, is no secret.

In addition to deciding the jurisdictional question, Axon also has asked the Court to find that insulation of the FTC’s ALJs from presidential removal unconstitutionally violates the separation of powers.  A decision against the FTC on that issue is distinctly possible given that not long ago, in a similar case, the Court found the structure of the Consumer Financial Protection Bureau to be unconstitutional because its director had also been shielded from presidential removal.

A decision in Axon’s favor on either issue could be a precursor to a future decision declaring the entire administrative structure of the FTC – including its triple-duty function as “prosecutor- judge-jury” and insulation of its members from presidential control – unconstitutional.  In its certiorari petition, Axon stated that it “challenges the very existence of the Federal Trade Commission—an independent agency created by Congress—as unconstitutional.”  That is not an overstatement. As the FTC struggles to overcome the blow to its enforcement clout from AMG, it now has an even more worrisome and bigger fight on its hands in the High Court: a threat to its very existence as we have known it.

Talking about FTC, Online Marketing

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