In brief

On 14 April 2023, the United States Supreme Court issued its opinion in Axon Enterprise, Inc. v. Federal Trade Commission et al., and unanimously held that a litigant challenging the constitutionality of an agency administrative enforcement action need not await the outcome of that action before bringing their constitutionality challenge in federal district court.

In depth

The Court in Axon Enterprise, Inc. considered two separate matters based on administrative enforcement proceedings: one from the Securities and Exchange Commission (SEC) and one from the Federal Trade Commission (FTC).

The Securities Exchange Act and the Federal Trade Commission Act each authorize the SEC and FTC, respectively, to bring enforcement actions through civil suits in federal district courts or through administrative proceedings. Administrative matters are typically adjudicated in the first instance by an Administrative Law Judge (ALJ). A party may appeal the ALJ’s ruling to the SEC and FTC’s respective Commissions. The Commissions’ final decisions and orders are subject to further review in the federal courts of appeals.

The respondents in Axon Enterprise, Inc. were the subjects of SEC and FTC enforcement actions. Each sought to enjoin the agency actions in the United States district courts before an ALJ decision had been rendered, a departure from the applicable statutory review schemes. The respondents challenged as unconstitutional the agencies’ structure and authority to pursue the underlying administrative proceedings only to have their federal court cases dismissed for lack of jurisdiction. On appeal, the two relevant circuit courts split, with the United States Court of Appeals for the Ninth Circuit affirming the district court’s dismissal in the FTC matter, and the Fifth Circuit Court of Appeals reversing the district court’s dismissal in the SEC matter. The Court granted certiorari to resolve the circuit split.

On review, the Court concluded that requiring a litigant to complete an administrative proceeding that has been challenged as constitutionally infirm, before federal court consideration of the constitutional integrity of that proceeding, effectively results in the loss of the claimant’s right not to be subjected to an unconstitutional proceeding.

In evaluating the applicable legal precedent in this area, the Court was clear that this anticipated review of the constitutional and administrative law issues appropriately considered the adequacy of the existing statutory judicial review schemes and the agencies’ authority and expertise. Because the respondents asserted potential injury from being subject to the administrative proceedings altogether, the Court explained the statutory scheme could not provide meaningful review if they were forced to wait until after the Commission’s final order. Nonetheless, the Court noted that “[n]othing we say today portends a newfound enthusiasm for interlocutory review.” Rather, the Court specifically found that the constitutional challenges asserted, which sought to prevent the actions from going forward at all, were wholly collateral to the issues presented in the underlying enforcement proceedings. Finally, the Court noted that the district courts, and not the agencies, were best suited to evaluate issues of constitutional and administrative law, which are outside of the scope of the agencies’ expertise.

Accordingly, the Court held that district courts could review the structural and constitutional challenges to SEC and FTC’s enforcement actions under federal-question jurisdiction, reversed the Ninth Circuit’s judgment to the contrary, and remanded both underlying cases. The ultimate issue of the constitutional questions raised by each respondent remain unanswered for now.

Justices Thomas and Gorsuch each issued concurring opinions. Justice Thomas wrote separately to underscore his concern with administrative agencies’ authority to adjudicate matters implicating individual private rights with limited and deferential review from federal appellate courts. Justice Gorsuch found the district courts’ federal-question jurisdiction to be reserved expressly in the applicable statutes’ text without regard to the multi-factor court-created test that Justice Kagan, writing for the Court, employed.

Key takeaways

  • The decision allows respondents subject to SEC, FTC, and likely other administrative agency adjudications to seek injunctive relief in district courts challenging the constitutional structure and authority of the agency’s administrative forum before being forced through administrative enforcement proceedings.
  • While the Court emphasized that the nature of the respondents’ claims and the alleged harm were the relevant considerations in upholding the district court’s jurisdiction, it also noted that the expense and burdens of protracted administrative proceedings alone were not justifications for immediate review.
  • While collateral constitutional challenges to SEC, FTC, or other agency administrative adjudications may provide an alternative vehicle for challenging agency actions, in most cases, the underlying enforcement claims likely will still be adjudicated through agency proceedings.

Author

Amy serves as the Co-chair of Baker McKenzie's North American Financial Regulation and Enforcement Practice, which provides our clients with a full range of regulatory advice and enforcement counseling. Amy also serves on the steering committees of the Firm's Global Financial Services Regulatory and Global Financial Institutions Groups. Previously, Amy has served as chief litigation counsel at the US Securities and Exchange Commission's (SEC) Philadelphia regional office and managed a team of lawyers overseeing a wide variety of enforcement matters. Amy advises all manner of financial industry clients and SEC reporting companies, in connection with regulatory enforcement investigations and examinations, as well as internal investigations. Her clients include broker-dealers, investment advisers, hedge funds, mutual funds, securities issuers and reporting companies, commodities traders, and those providing services to those businesses. Drawing on her experience leading and SEC regional office trial program, Amy provides practical and forward-looking guidance to clients, who seek her advice on matters as diverse as conflict of interest disclosures, sales practices concerns, insider trading/market abuse, financial and accounting issues, securities offerings, investigations into complex products and trading, and whistleblower concerns.

Author

Mark H. Hamer is Global Chair of the Firm's Antitrust & Competition Practice Group, comprised of over 300 competition lawyers in over 60 offices across 43 countries. Mark has over 25 years of wide-ranging litigation experience, including first-chair roles in jury trials, bench trials and arbitrations. His primary focus is antitrust litigation. Before joining Baker McKenzie, Mark was a successful trial attorney in the Antitrust Division of the US Department of Justice. He was involved in some of the DOJ's highest-profile antitrust trials. Before joining the DOJ, Mark was a partner at another global law firm where he handled complex multidistrict antitrust class actions in courts across the nation. Mark's practice focuses on antitrust litigation, both private and public. He assists clients in the defense of merger challenges, class actions, and civil and criminal investigations. He helps clients navigate federal and state regulatory inquiries, enforcement actions, complex merger clearance matters and multidistrict antitrust class actions. As an experienced antitrust counsel, Mark also regularly provides antitrust advice on a broad range of non-litigation matters, including antitrust deal support, merger clearance strategy, sales and distribution advice, and antitrust compliance.

Author

Creighton Macy is the Chair of Baker McKenzie's North America Antitrust & Competition Practice Group. Creighton is recognized as a leading global antitrust practitioner. Creighton has extensive experience representing clients in a wide variety of antitrust matters, including mergers and acquisitions, investigations by the United States Department of Justice and the Federal Trade Commission, private litigation, and counselling on issues such as antitrust compliance. Before joining the Firm, Creighton served as Chief of Staff and Senior Counsel in the DOJ Antitrust Division, working as a senior advisor to the Assistant Attorney General on civil and criminal antitrust enforcement and policy matters, as well as budget and personnel issues. During Creighton's time at the DOJ, the Antitrust Division undertook an unprecedented volume of high-profile civil and criminal matters. Creighton advises clients on all aspects of the antitrust regulatory and litigation process. He has experience in a diverse range of sectors such as software, media, semiconductor, financial services, agriculture, pharmaceutical, sports, consumer goods, aviation, music, and motion pictures.