SCOTUS Unanimously Holds That Respondents In FTC And SEC Administrative Law Proceedings May Challenge The Constitutionality Of Such Proceedings In Federal District Court Without First Submitting To A Final Agency Order

• Jurisdiction: United States,Federal
• Law Firm: Kramer Levin Naftalis & Frankel LLP
• Subject Matter: Corporate/Commercial Law, Government, Public Sector, Litigation, Mediation & Arbitration, Corporate and Company Law, Constitutional & Administrative Law, Trials & Appeals & Compensation, Securities
• Author: Mr Roy T. Englert, Alan Friedman, Dani James, Michael Martinez, Gary P Naftalis, Jennifer S. Windom and Daniela Manzi
• Published date: 03 May 2023

On April 14, 2023, the Supreme Court issued a unanimous decision in two related cases, Axon Enterprise, Inc. v. FTC (No. 21-86) and SEC v. Cochran (No. 21-1239), holding that respondents may challenge the constitutionality of the agency's authority in federal court before receiving a final agency order.

The plaintiffs in the two cases, Axon Enterprise, Inc., and Michelle Cochran, initiated suits in federal district court challenging the constitutional authority of the Federal Trade Commission (FTC) and Securities and Exchange Commission (SEC), respectively, to bring enforcement actions against them. In response, the agencies argued that the parties could not sue in federal court before first receiving a final agency order because their authorizing statutes "implicitly divest[] district courts of jurisdiction."¹

The Supreme Court rejected the agencies' arguments, holding that the rights of Axon and Cochran not to undergo unauthorized legal proceedings would be "effectively lost" if review of their constitutional challenges were deferred until after they received final agency orders. Both Axon Enterprise and Cochran were remanded for further proceedings.

Case Histories

The two cases were decided after a split in the Fifth and Ninth Circuits.

In SEC v. Cochran, Michelle Cochran, a certified public accountant, sued the SEC after it brought an administrative enforcement action against her under the Securities Exchange Act for allegedly failing to meet PCAOB auditing standards. Cochran claimed that the SEC lacked authority to adjudicate the enforcement action because the administrative law judges (ALJs) were protected from removal by the U.S. president. The district court dismissed Cochran's case for lack of jurisdiction, but on appeal the en banc Fifth Circuit held that the district court could hear Cochran's claims.²

The Axon Enterprise case arose after the FTC brought an enforcement action against Axon alleging that its purchase of its competitor was an unfair method of competition. In turn, Axon sued the FTC in federal district court, arguing that the FTC lacked authority to bring suit. Like Cochran, Axon claimed that the ALJs were unconstitutionally protected from presidential removal. Axon also alleged that the FTC lacked authority to bring any enforcement action because it unconstitutionally takes the role of both prosecutor and adjudicator. As in Cochran, the district court dismissed the case on jurisdictional grounds. On appeal, the Ninth Circuit...