Supreme Court to Review the Structure of FTC's Proceedings and Procedures
Court's Ruling May Have Implications for Managing Governmental Investigations
- The U.S. Supreme Court recently granted certiorari on a case – Axon Enterprise, Inc. v. Federal Trade Commission – challenging the administrative scheme of the FTC.
- If the Supreme Court rules in favor of the petitioner, the structure and scheme of many government agencies will be exposed to constitutional challenges. Moreover, the internal administrative procedures will be subject to further scrutiny within the federal courts.
- A ruling is expected sometime in 2023.
Earlier this year, the U.S. Supreme Court granted certiorari on a case that has ramifications for the Federal Trade Commission's (FTC) investigations into private industry. In Axon Enterprise, Inc. v. Federal Trade Commission, petitioner Axon Enterprise, a maker of Tasers and other police equipment, claimed that the FTC acts as "prosecutor, judge and jury" in violation of the Fifth Amendment guarantees of due process and equal protection under the law. Axon has also contended that the federal district courts should be able to hear its challenge concurrently rather than after the FTC has issued a final agency determination.
This case arose when the FTC attempted to stymie Axon's acquisition of another company through the filing of an administrative complaint. In January 2020, Axon filed suit alleging that the agency's structure is unconstitutional and that its internal administrative proceedings violate Axon's Fifth Amendment rights.
After the U.S. District Court for the District of Arizona and the U.S. Court of Appeals for the Ninth Circuit disagreed with Axon, Axon asked the Supreme Court whether the federal courts can hear a challenge of the FTC's constitutionality before the agency has issued a final order of some kind.
The justices granted certiorari and limited their consideration to the first question Axon presented in its July 2021 petition:
Whether Congress impliedly stripped federal district courts of jurisdiction over constitutional challenges to the Federal Trade Commission's structure, procedures, and existence by granting the courts of appeals jurisdiction to "affirm, enforce, modify, or set aside" the Commission's cease-and-desist orders.
Ramifications of a Supreme Court Decision
If the Supreme Court rules in favor of the petitioner, companies would have a remedy to contest the integrity of administrative proceedings prior to a final agency determination. While a ruling may only apply to administrative proceedings within the FTC, a successful challenge to the structure of the FTC would demonstrate a critical philosophical shift in the Supreme Court's tolerance and approach to administrative agencies' powers, decision-making and internal procedures. Practically speaking, such a shift could empower companies under investigation to preemptively sue the FTC before the FTC files an administrative complaint. This would also open the door for challenges to the structure of administrative processes of other government agencies.
Stay tuned as a decision may have a significant impact in several industry sectors, including financial services, public companies, product liability and others, as well as cybersecurity, privacy and other data investigations by the FTC. In light of the Supreme Court's recent humbling of the FTC in the AMG Capital Management, LLC, v. Federal Trade Commission decision and the grant of certiorari in Axon, aggressive strategies in managing governmental investigations may become commonplace; and litigation may become a useful tool.
How We Can Help
Holland & Knight's Consumer Protection Defense and Compliance Team includes a robust governmental investigations and consumer protection compliance practice, with experienced attorneys that are recognized thought leaders in the field. The team has represented dozens of companies and individuals in federal and state regulatory investigations, including investigations concerning advertising and marketing practices. The team regularly provides clients practical, forward-thinking compliance counseling; conducts regulatory preparedness audits; and diligence in connection with transactional and contractual matters. The firm's practice also includes significant experience dealing with novel issues on the topics on the forefront, including social media marketing and consumer data privacy.
For more information or questions about the Axon case or FTC enforcement and investigations, contact the authors.
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