MEANINGFUL BUT NOT PERFECT REVIEW: IMPLIED PRECLUSION OF FEDERAL JURISDICTION AND AXON ENTERPRISE, INC. V. FTC

By: Jason Gutierrez, Vol. 106 Staff Member

I. BACKGROUND, DOCTRINE, AND AXON’S ARGUMENT

May a party arguing that the structure of the Federal Trade Commission (FTC) violates the constitution bypass the FTC’s administrative review process and bring suit in federal court? Last summer, Axon Enterprise, Inc. presented this question to the United States Supreme Court in its petition for writ of certiorari.[1] After a Fifth Circuit decision created a circuit split,[2] the Court granted Axon’s petition,[3] raising the possibility that the Court may allow some parties to bypass administrative agency enforcement proceedings entirely.

A. Axon Enterprise, Inc. Factual and Procedural History

In 2018, the FTC began investigating Axon for antitrust violations after Axon acquired a competitor.[4] After initially cooperating with the investigation, Axon refused the FTC’s settlement demand, and the FTC initiated an administrative proceeding.[5] In response, Axon brought suit in the United States District Court for the District of Arizona, arguing that the FTC’s structure violates Article II by insulating its administrative law judges (ALJs) from removal by the president.[6] The district court dismissed Axon’s complaint for lack of subject matter jurisdiction.[7] The  United States Court of Appeals for the Ninth Circuit affirmed.[8]

B. Thunder Basin and Implied Preclusion of Jurisdiction

So why did the district court dismiss Axon’s complaint? In short, under Supreme Court precedent, statutes establishing detailed enforcement schemes, like the Federal Trade Commission Act, implicitly strip federal district courts of jurisdiction.[9] The FTC Act empowers the FTC to bring enforcement actions before an administrative law judge.[10] It also provides that parties subject to a cease-and-desist order by the FTC (because of an adverse ALJ determination) may appeal the ruling in a federal courts of appeals.[11] Interpreting similar provisions, the Court reasoned that by establishing a comprehensive enforcement scheme and enabling appellate review, Congress implicitly required that parties conclude their administrative adjudication before seeking review in federal court.[12] Under this interpretation, a party like Axon may not obtain review of its claims against the FTC until its administrative adjudication is complete.

These holdings are based largely on the Supreme Court’s decision in Thunder Basin Coal Co. v. Reich, which established the framework the Court uses to analyze implied preclusion of district court jurisdiction.[13] The Thunder Basin Court laid out a two-part test to determine whether Congress impliedly precluded federal district court jurisdiction. First, a court looks to “whether Congress’s intent to preclude district-court jurisdiction is ‘fairly discernible in the statutory scheme.’”[14] Second, a court asks “whether plaintiffs’ ‘claims are of the type Congress intended to be reviewed within this statutory structure.’”[15] Under this second step, courts consider the following factors: “(1) whether the plaintiff can obtain meaningful judicial review in the statutory scheme, (2) whether the claim is ‘wholly collateral’ to the statutory scheme, and (3) whether the claim is outside the agency’s expertise.”[16]

C. Axon’s Argument: Unconstitutional Administrative Review Is Not Meaningful Judicial Review

Axon argues that straightforward application of the Court’s holdings in Lucia v. SEC[17] and Free Enterprise Fund[18] establish that the dual for-cause limitations on removal of ALJs are unconstitutional.[19] Thus, by preventing Axon from bringing its challenge of the FTC’s structure in federal court, the Ninth Circuit forces Axon to subject itself to the unconstitutional process of FTC administrative review.[20] Moreover, Axon argues that analysis of the Thunder Basin factors points in favor of retaining federal district court jurisdiction.[21] First, Axon contends it lacks meaningful judicial review because it must subject itself to unconstitutional process before its claim against the FTC will be heard.[22] Second, Axon argues that its constitutional claims are wholly collateral to the FTC review because they have no bearing on the merits of the FTC adjudication and the FTC lacks authority to address them.[23] Finally, Axon points out that constitutional challenges to agency structure are outside the FTC’s expertise.[24]

II. MEANINGFUL REVIEW DOESN’T MEAN PERFECT REVIEW

Though Axon raises relevant points about being subjected to constitutional injury, its ultimate dispute is with the Ninth Circuit’s conclusion that the FTC’s administrative review scheme provides meaningful judicial review.[25] For Axon, later review by a court of appeals isn’t good enough. Instead, it argues that it should be able to sue the FTC in district court immediately. Under both Supreme Court precedent and common sense, this argument doesn’t cut it.

First, in Thunder Basin, the Court found that preclusion of federal district court jurisdiction is warranted even for alleged constitutional violations.[26] Thus, simply alleging a constitutional violation isn’t enough to exempt a party from administrative review. Where Congress has provided a scheme of review that is the process parties must take to bring their claims—including their constitutional claims. Axon’s constitutional claim doesn’t entitle it to special treatment or exempt it from the process Congress and the FTC have prescribed.

Moreover, the factual scenario of Free Enterprise Fund, the case Axon relies on, is differentiable from Axon’s situation.[27] In that case, the Court held that the relevant statute did not implicitly strip federal court jurisdiction because the party challenging the agency would have no other opportunity for judicial review.[28] By contrast, following an adverse ALJ determination, Axon will have an opportunity for meaningful judicial review by way of a federal court of appeals. At that point, it can raise its constitutional claims before an Article III court, just like every other litigant undergoing FTC adjudication. Once again, Axon’s circumstances do not present a situation that warrants exempting it from the standard process imposed on all other litigants.

Second, Axon’s complaint that it must follow the administrative review process provided by Congress sounds like a criticism of the federal court system at large. Its objection seems to be that adhering to the same procedures and processes as other litigants somehow deprives it of meaningful review. For Axon, the burden and expense of this process makes review by the court of appeals meaningless—though five federal courts of appeals have reached the opposite conclusion.[29] Axon is right that litigation is time-consuming and expensive. Due process requires resources and the resources allotted to the federal courts are spread alarmingly thin. These are serious problems worth addressing, but they are not made better by allowing Axon and others similarly situated to force themselves into federal court. Doing so would only exacerbate the problem of an already overburdened federal court system.

For the time being, Axon and other litigants are stuck with this system, and all must bear the time and expense of their litigation. These normal burdens don’t entitle Axon to expedited review, nor do they render ultimate review by the federal court of appeals meaningless. In claiming otherwise, Axon argues that it is special and should be treated as such. This position is inconsistent with basic principles of administrative law, fairness to litigants, and equality before the law, and should not be used to guide the practice of the federal judiciary.

 

 

[1] Petition for Writ of Certiorari at i, Axon Enter., Inc., v. FTC, 142 S. Ct. 895 (2021) (No. 21-86).

[2] Cochran v. SEC, 20 F.4th 194, 213 (5th Cir. 2021) (holding that the Securities Exchange Act of 1934 does not implicitly strip district courts of jurisdiction over the claim that administrative law judges are unconstitutionally insulated from executive removal power); see also Jarkesy v. SEC, 803 F.3d 9 (D.C. Cir. 2015) (holding the opposite).

[3] Axon Enter., Inc. v. FTC, 142 S. Ct. 895 (2022) (granting writ of certiorari).

[4] Axon Enter., Inc. v. FTC, 986 F.3d 1171, 1177 (9th Cir. 2021) (reviewing procedural history of the case).

[5] Id.

[6] Id.

[7] Axon Enter., Inc., v. FTC, 452 F. Supp. 3d 882, 904 (D. Ariz. 2020) (dismissing case for lack of subject matter jurisdiction).

[8] Axon, 986 F.3d at 1189 (affirming lower court dismissal for lack of subject matter jurisdiction).

[9] Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (1994) (holding that the Federal Mine Safety and Health Amendments Act precluded district court jurisdiction over a challenge to an order of the Mine Safety and Health Administration).

[10] Federal Trade Commission Act 15 U.S.C. § 45(b) (granting the party subject to an FTC complaint the right to show why a cease-and-desist order should not be entered by the Commission).

[11] Id. § 45(c) (“Any person, partnership, or corporation required by an order of the Commission to cease and desist from using any method of competition or act or practice may obtain a review of such order in the court of appeals of the United States . . . .”).

[12] Thunder Basin, 510 U.S. at 207 (precluding district court jurisdiction).

[13] Id.

[14] Bennett v. SEC, 844 F.3d 174, 181 (4th Cir. 2016) (quoting Thunder Basin, 510 U.S. at 207).

[15] Id. (quoting Thunder Basin, 510 U.S. at 212).

[16] Axon Enter., Inc. v. FTC, 986 F.3d 1171, 1181 (9th Cir. 2021) (citing Thunder Basin, 510 U.S. at 215).

[17] 138 S. Ct. 2044, 2054 (2018) (holding that ALJs are “Officers of the United States” within the meaning of the Appointments Clause.).

[18] 561 U.S. 477, 492 (2010) (holding that dual for-cause limitations on removal of executive officers violate the separation of powers).

[19] Petition for Writ of Certiorari at 11, Axon Enter., Inc., v. FTC, 142 S. Ct. 895 (2021) (No. 21-86).

[20] Id. at 17.

[21] Id.

[22] Id. at 23.

[23] Id. at 14.

[24] Id. at 21–22.

[25] Axon Enter., Inc. v. FTC, 986 F.3d 1171, 1187 (9th Cir. 2021) (“We agree with the other circuits, however, that under Supreme Court precedent the presence of meaningful judicial review is enough to find that Congress precluded district court jurisdiction over the type of claims that Axon brings.”).

[26] Thunder Basin Coal Co. v. Reich, 510 U.S. 200, 215 (1994) (finding that party’s constitutional claims can be meaningfully addressed on review by the court of appeals).

[27] 561 U.S. 477, 491 (2010) (holding that the Securities Exchange Act did not implicitly strip district courts of jurisdiction).

[28] Id. at 489 (finding that a party lacked meaningful judicial review because it could not appeal an action by the Public Company Accounting Oversight Board).

[29] E.g., Jarkesy v. SEC, 803 F.3d 9, 9 (D.C. Cir. 2015) (holding that the Securities Exchange Act of 1934 implicitly strips district courts of jurisdiction over constitutional challenges to the structure of the SEC); accord Hill v. SEC, 825 F.3d 1236 (11th Cir. 2016) (holding the same); Bebo v. SEC, 799 F.3d 765 (7th Cir. 2015) (holding the same); Tilton v. SEC, 824 F.3d 276 (2d Cir. 2016) (holding the same); Bennett v. SEC, 844 F.3d 174 (4th Cir. 2016) (holding the same).