The Supreme Court Hears Oral Argument in Axon v. FTC

In a prior post, we discussed  Axon v. Federal Trade Commission  and its core question presented to the U.S. Supreme Court (Court): whether parties seeking to undertake a transaction subject to FTC review and seeking to challenge the constitutionality of the FTC’s fundamental structure/processes are required to go through the regular FTC administrative review process prior to seeking review before an Article III court.

The case was argued on Nov. 7 along with a companion case, Corcoran v. SEC.

While it is often hazardous to predict the ultimate outcome of a case based on the oral argument and the questions raised by the Justices, notwithstanding that there were challenging comments/questions from some of the Justices as to why going through the FTC administrative process before going to the court of appeals was not the proper approach, there were numerous indications that the Court will ultimately side with the petitioners.

Challenging the position being taken by Axon, Justices Sotomayer and Jackson asked Axon’s counsel on several occasions to explain why it is necessary/appropriate for a party such as Axon to bring its claim directly to the district court.

Justice Sotomayer questioned Axon’s counsel:

So it seems to be that you’re saying this is unfair because I have to go through the process. But going through the process is what due process is all about. … I don’t understand why you are any different than any other administrative agency petitioner who has to go through the process, a flawed process, and wait until the end to have that corrected.

And Justice Jackson also questioned counsel for Axon:

And so, once you’re now in the agency process, I’m concerned about people using the district court jurisdiction to sort of do — to — to stay the agency process or do an end run around it. And I’m wondering, why isn’t that a legitimate concern, given a statute in which it’s pretty clear that once you are in the channel, they’ve given exclusive review or exclusive jurisdiction to the court of appeals to review a final order of the agency.

On the other hand, the questions and comments made by many of the other Justices suggested that they were prepared to grant Axon the relief it was requesting.

Most notably, Justice Alito questioned counsel for the FTC:

Let me ask a question that — that is simplistic perhaps. What sense does it make for a claim that goes to the very structure of the agency having to go through the administrative process.

And Justice Roberts also questioned FTC counsel:

Doesn’t [the] Free Enterprise [case] stand as a pretty insurmountable barrier to your argument. … Given that laundry list of cases where the government didn’t prevail, and I gather the one in the Fifth Circuit as well, doesn’t that underscore the need for direct — a direct proceeding to raise the constitutional claim rather than waiting however many years before the agency.

Justice Gorsuch repeatedly questioned counsel for the government as to whether there was any textual language in the statutes cited by the government that made it clear that a petitioner such as Axon cannot go directly to federal district court particularly given 28 U.S. Code 1331, which provides that the district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws or treaties of the United States:

Tell me what I’m missing. [Section] 1331 says that district courts have jurisdiction over these claims absent any other consideration. And, normally, we consider district courts bound to exercise their jurisdiction when they have a claim.

And Justice Kavanaugh, questioning petitioner’s counsel in the companion Cochran case (dealing with a challenge to the constitutionality of the for-cause removal provisions with respect to SEC ALJs), appeared to be leaning toward ruling against the government, although perhaps adopting a narrower approach than the one being advocated by petitioner’s counsel. Justice Kavanaugh’s approach would apply the three-factor analysis applied by the Ninth Circuit in the Axon case based on the Supreme Court’s prior decision in Thunder Basin Coal v. Reich:

Your broader argument, as Justice Kagan points out, would suggest, I think, starting over on how the Court analyzes this whole area. And maybe it’s just out of sympathy for the district court judges and court of appeals judges who have to deal with the fallout from that. But isn’t a simpler way to deal with this just to — and maybe this is your narrow argument — you know, under the wholly collateral factor, a challenge to the structure of the agency is wholly collateral, end of story.

Justice Thomas, presumably seeking to get into the record how the administrative process is not only burdensome, but in fact almost never results in the appeals court review that Axon would in all likelihood require to have its core claim adjudicated, asked Axon’s counsel:

Just briefly. Mr. Clement, there’s a lot of discussion about reaching a final order and then assuming, I guess, an appeal. What percentage of these cases actually go to a cease-and-desist order and what percentage actually are appealed?

To which Axon’s counsel responded:

So I think — I mean, I don’t have the exact denominator, I’m afraid, so I can’t tell you. The overwhelming majority of these cases do settle out in the process, and so there’s no appeal. It’s a relatively small number of these cases where the party has kind of the wherewithal to endure the whole process. And one of the things that does sort of skew the numbers is that the FTC’s position has been that they essentially won’t accept a settlement unless you forego your appellate rights. And so it is really — you have to be very hardy to make yourself all the way through that process and preserve your objections.[1]

Finally, Justice Kagan, who challenged both counsel for Axon and counsel for the government, stated to government counsel:

Going back to Thunder Basin, I told Mr. Clement that I thought his worst factor was meaningful review. I — I think that the other two factors [whether the agency has expertise with respect to the constitutional challenge and whether that challenge is collateral to the agency proceeding] are pretty darn bad for you.

The oral argument in the two cases lasted for more than two hours. When all is said and done, will there be at least five Justices who side with Axon? It appears so, but we will have to wait and see.

[1] In the Cochran case, Justice Thomas asked the same question of Cochran’s counsel who answered:

Very infrequently in the relative sense, Your Honor. The vast majority of these cases settle, more than 90 percent, because the individuals just frankly can’t endure the years of proceedings that it takes to get to an Article III court.