Can Courts Stop Hearing Processes Where the Agency Always Wins?

Font Size:

The Supreme Court will hear an important challenge to agency decision-making.

Font Size:

Does it seem fair for a football team to win every home game? Would it make a difference knowing that the home team chooses the referees and that they are on the team’s payroll?

Whether courts can prevent that sort of process in contests before administrative agencies is the question the U.S. Supreme Court must answer in a case challenging how the Federal Trade Commission (FTC) determines whether companies have violated the law.

The case—called Axon v. Federal Trade Commission—will be considered by the Court this year. It arises in response to a claim of systemic bias in agency decision-making. The Court must also decide whether a federal court can hear complaints about the constitutionality of an agency’s decision-making structure without waiting for a final agency decision.

In May 2018, Axon—a manufacturer of body-worn cameras for law enforcement—acquired competitor Vievu LLC. About a month after the acquisition, the FTC told Axon that the merger raised potential antitrust violation concerns. The FTC investigated the deal for a year and a half, then demanded major changes in how Axon and Vievu could operate.

Axon filed suit in federal court. Axon complained that the FTC process for deciding which deals are approved and which are not violates provisions of the U.S. Constitution, including the Due Process Clause—a basic guarantee of fairness. In response, the FTC started its own administrative proceeding against Axon.

In the court case, Axon asked the judge to halt the FTC proceedings until Axon’s constitutional claims were resolved. The FTC said that the law respecting the FTC prevents courts from getting involved in these issues until the FTC completes its own process. The judge agreed, and when the case was appealed, the U.S. Court of Appeals for the Ninth Circuit agreed as well.

The two lower court decisions invoked a legal rule that holds that agencies must be allowed to complete their own proceedings before plaintiffs can bring a court case. But Axon argues that waiting would be a waste of time and money—not only its own, but the government’s and the courts’ as well. The company states that, because the administrative law judges (ALJs) who decide these cases at the FTC are on the FTC’s payroll, the game is fixed in the agency’s favor.

Axon also claims that the FTC has won every adjudication before its ALJs for the last 25 years. The appeals court said the same thing in its opinion—and the FTC did not dispute this claim. The appeals court concluded, though, that agencies can hold their own administrative enforcement proceedings using their own ALJs who are on the agency’s payroll.  Judge Kenneth Lee of the Ninth Circuit, writing for the court majority, observed that “not surprisingly, ALJs overwhelmingly rule for their own agencies.” Judge Lee went on to say that the FTC’s adjudication procedures and its undefeated record before its own ALJs “raises legitimate questions about whether the FTC has stacked the deck in its favor in its administrative proceedings.”

For Axon, then, the question comes back to why the company should have to wait until it loses what it sees as a rigged game before getting an independent review from the courts.

But the argument against Axon’s position has two prongs. First, defenders of the current system defend it as fair, even when agencies always win. ALJs in fact have independence from officials who present the agency’s side of the case. Second, the specific law that authorizes FTC decision-making implies that the agency should be allowed to complete its processes before courts get involved.

The Axon case is important because, despite the FTC’s agency-specific statutory argument, agency adjudications are a very large and critical part of agency decision-making across most of the government. Federal administrative agencies decide millions of adjudications each year on a variety of issues, including whether someone receives disability payments from Social Security Administration, the Securities and Exchange Commission levies fines and bars people from investment advising, or the FTC prevents the completion of a merger.

Axon is also an important case because, with increasingly frequent constitutional challenges to ALJs, the matter of timing when a party can bring these challenges only grows more consequential. The Supreme Court has been increasingly willing to consider these challenges, showing its concern about the fairness and lawfulness of the way agency adjudications work.

ALJs are the “referees” hired by many agencies to control adjudications. How they are selected and how they do their jobs—and even the notion of agency adjudication more generally—have been issues in the Supreme Court’s spotlight in recent years. The Court has decided three major cases in the past four years about agency adjudication.

In 2018, the Court held in Lucia v. Securities and Exchange Commission that ALJs have the type of position and authority that makes them officers rather than mere employees in constitutional terms. Based on that conclusion, the Lucia decision changed who, within an agency, may appoint ALJs.

In United States v. Arthrex, the Court next held that the U.S. Patent and Trademark Office could not give unreviewable decision-making authority to its administrative patent judges.

Finally, last year, in Carr v. Saul, the Court held that a party could ask for judicial review on a constitutional issue not brought up in an agency adjudication.

With the Axon case now also headed to the Supreme Court, the question arises whether government agencies will lose before the Court for a fourth time in four years. It would perhaps amount to a sort of irony for agencies to notch a fourth straight loss in a case challenging a process in which the agency has always won.