In February, we highlighted constitutional challenges that Axon Enterprise, Inc. (“Axon”) brought against the FTC related to a merger challenge against Axon. To briefly recap: Axon brought a declaratory judgment action alleging that the administrative trial procedures and the structure of the FTC violated Axon’s due process rights and Article II of the Constitution. Last week, the District of Arizona dismissed Axon’s claims, finding the Court lacked subject matter jurisdiction over Axon’s declaratory judgment claims where the administrative proceedings before the FTC were still pending. The Court’s lengthy opinion, which was consistent with prior unsuccessful challenges to the FTC’s administrative trial process, demonstrates the importance of raising a constitutional challenge early in a proceeding, even if that is the very proceeding, before the very agency, being challenged.
As previously discussed, Axon makes two constitutional arguments. First, the procedures authorizing the FTC to bring an enforcement action before an FTC Administrative Law Judge violate Axon’s Fifth Amendment due process rights. Second, the structure of the FTC violates the president’s “at will” removal power under Article II because FTC commissioners and administrative law judges are not subject to such removal. Though the Court acknowledged in dismissing the case that Axon’s constitutional claims “are significant and topical[,]” the Court determined that it “is not the appropriate forum to address Axon’s claims.”
The Court’s analysis for whether it had jurisdiction over Axon’s claims primarily turned on two fundamental questions: (1) whether it is “fairly discernable” from the text, structure, and purpose of the FTC Act that it precludes district court review of constitutional claims, and (2) whether there is availability of meaningful review during the administrative proceedings. As to the former, because the FTC Act provides a detailed process for respondents to obtain judicial review of administrative decisions, the Court determined that “Congress intended to preclude district court jurisdiction” of constitutional challenges to the administrative trial under the FTC Act. As to the latter, the Court found that Axon could assert—and has already asserted—these constitutional arguments during the administrative proceedings. Accordingly, should Axon appeal the administrative decision, the constitutional claims would be afforded meaningful review before one of the Courts of Appeal.
It’s important to take away from the Axon decision that, due to the nature of the FTC Act’s structure, those subject to investigation or administrative enforcement actions should develop their case strategy early. Even if it may appear fruitless to raise constitutional challenges to the FTC’s structure before the FTC, the statute provides for judicial review upon final agency action. As the Court in Axon noted, in Lucia v. SEC, 138 S. Ct. 2044 (2018), the petitioner subject to SEC enforcement preserved his constitutional arguments before the SEC ALJ, and ultimately convinced the Supreme Court to order a new hearing before a different, properly appointed ALJ. Though Axon has filed a notice of appeal to the Ninth Circuit, Axon has raised these arguments in its administrative proceedings, and we will continue to monitor this case as it develops.