CHALLENGING AGENCY POWER:
AXON, PART II
By
Prof. Anthony Michael Sabino
In Axon Enterprise, Inc. v. F.T.C., 598 U.S. ___ (No. 21-86) (April 14, 2023), the United States Supreme Court very recently decreed that constitutional challenges to regulatory power need not be relegated to agency administrative law judges, but rather are cognizable in the district courts. In the first installment of this two-part series, we exposited the foundation for this newest edict. Now we turn to Axon itself.
Two Challengers, One Question
In truth, Axon is less about the titular petitioner, and more about the conjoined action, S.E.C. v. Cochran (No. 21-1239). Therein Michelle Cochran, a certified public accountant, having already received an adverse ruling from a Commission ALJ, was about to be subjected to a fresh enforcement action, as a direct result of the high Court’s decision in Lucia v. S.E.C. (SEC ALJs held office in violation of the Appointments Clause).
Writing for the majority, Justice Kagan (who authored the aforementioned Lucia opinion) said it best; that was “the last straw” for the beleaguered respondent. Alleging that the double layer of tenure protection enjoyed by the agency’s internal jurists “so greatly insulate[d] ALJs from presidential supervision as to violate the separation of powers,” Cochran eschewed the “well-trod path” of statutory review schemes, and instead asked a district court to enjoin the regulators from subjecting her to yet another allegedly unconstitutional proceeding.
Essentially replicating the CPA’s arguments in its own dispute with a Federal Trade Commission administrative law judge, Axon similarly “sidestepped” regulatory norms, with one addition. The lead petitioner claimed that the conglomeration of prosecutorial and adjudicative activities within the FTC constituted a further violation of the axioms of separation of powers.
Speaking for all intents and purposes as one, the Justices made it clear that “[o]ur task today is not to resolve those challenges; rather, it is to decide where they may be heard.” The question was “whether the district courts have jurisdiction to hear those suits—and so to resolve the parties’ constitutional challenges.”
The View from 30,000 Feet
The response was an unequivocal “yes,” with Justice Kagan opining that the answer “appears from 30,000 feet not very hard.” The paramount assertion in Free Enterprise “bears more than a passing resemblance” to the claims made by Cochran and Axon. None of the complainants contested any “specific substantive decision” or “commonplace procedures” of the various agencies, but all three challenged the very constitutionality of their respective regulators.
The allegations all being of “the same ilk,” Free Enterprise’s reasoning would dominate the instant case. Now to decide jurisdiction over the challengers’ “sweeping constitutional claims.”
Meaningful Judicial Review Lacking
To resolve that conundrum, the supreme bench invoked the three-pronged jurisdictional test it had promulgated in Thunder Basin. Accordingly, the first inquiry would be whether precluding lower court authority would foreclose meaningful judicial review, a question the majority candidly admitted was the most confounding.
On the one hand, both Cochran and Axon were already embroiled in their individual enforcement actions, indicative of meaningful judicial oversight being available via the extant statutory regimes. On the other, Free Enterprise had explicitly found that there is no assurance that an ALJ’s decision shall become final agency action, let alone be appealed to a circuit panel.
The august tribunal was also troubled by the significant disparity between post-trial judicial oversight and the immediacy of subjection to an allegedly illegitimate proceeding. While that complaint “may sound a bit abstract,” the high Court has recognized the latter as a tangible “here-and-now injury,” and, moreover, has done so in the context of strikingly similar challenges to regulatory authority. See Seila Law LLC v. Consumer Financial Protection Bureau, 591 U.S. ___ (2020) (quotation omitted).
Reminiscent of the venerable adage that a bell cannot be unrung was Justice Kagan’s proclamation that “[a] proceeding that has already happened cannot be undone.” Submission to allegedly unlawful agency action, as conducted by purportedly illegitimate regulatory decisionmakers, is an injury that “is impossible to remedy once the proceeding is over.”
To be certain, the majority was quick to disclaim any “newfound enthusiasm for interlocutory review.” Nor was the high bench abandoning the longstanding maxim that immediate review cannot be predicated upon the expenses and delays normally attendant to prolonged adjudications.
What makes “the difference here” in Axon “is the nature of the claims and the accompanying harms that the parties are asserting,” precisely, the “’here-and-now’ injury of subjection to an unconstitutionally structured decisionmaking process.” Irrespective of the outcome from proceeding before an agency ALJ, that wrong is irredeemable. If there is an appropriate remedy, it would be one congruent with immunity from legal process. See Mitchell v. Forsyth, 472 U.S. 511 (1985) (right not to stand trial effectively lost if review is deferred).
Collateral Claims
Turning now to collateralism, Thunder Basin’s second prong, Justice Kagan reminds that Free Enterprise had already unequivocally classified a challenge to a regulatory body’s very existence, as distinguished from an objection to its regulations or rulings, as collateral in nature. In the case at bar, Cochran and Axon opposed the authority of the respective commissions “to proceed at all, rather than actions taken in agency proceedings,” arguing a violation of the separation of powers, and “not to anything particular about how that power was wielded.”
Therefore, the claims of these litigants were most assuredly collateral, given that that their challenges were to all or a broad swath of agency authority, and not to specific actions. And in a pithy observation, the high Court found that the government’s argument against a finding of collateralism here was not only contrary to Free Enterprise; if adopted, it “would strip the collateralism factor of its appropriate function.”
The majority clarified that Thunder Basin’s second prong focuses upon the fundamental nature of the challenge; does it question the agency’s existence or only its promulgations? If sufficiently discrete, an allegation of the first sort “may get immediate review.” See Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541 (1949) (the seminal exposition of the collateral order doctrine).
No Special Agency Expertise
Thunder Basin’s final inquiry asks if the regulators have special expertise in resolving the claims at hand. The Axon Court declared that Free Enterprise had already answered that question, when it pronounced that agencies hold no special expertise in resolving constitutional claims, whereas the district courts are inarguably experts in such controversies.
In the matter at hand, the parallel Appointments Clause challenges to the SEC and FTC ALJs, augmented by Axon’s separate combination-of-functions objection, were “of a piece” with the constitutional claims found in Free Enterprise. All were irrefutably “distant’ from regulatory competence. And to drive the point home, Justice Kagan archly observed that while regulators may know a good deal about their own policy domains, they know “nothing special about the separation of powers.” See Carr v. Saul, 593 U.S. ___ (2021) (agencies are “generally ill suited to address structural constitutional challenges”).
Furthermore, the majority took cognizance that the agencies had mostly abandoned any pretext that the litigants’ constitutional claims were intertwined with or embedded in matters where the bureaucrats enjoyed superior expertise. The regulators had thereby largely conceded Thunder Basin’s third prong or, as characterized by Justice Kagan, “the [g]overnment mostly gives up the ghost” on that last point.
The learned Justice took the opportunity to once more forcefully proclaim that the challengers at the bar did not allege injury from regulatory directives, but harm from subjection to agency authority. As such, their “claims of here-and-now injury would remain no matter how much expertise could be brought to bear on the other issues these cases involve.” (internal quotations omitted).
Almost as an aside, the high bench circumspectly noted that its reasoning in the instant case admittedly differs in some particulars from the rationales espoused in prior landmarks. Nevertheless, Axon “comes out in the same place as Free Enterprise,” predominantly because of the same “30,000-foot view” alluded to previously, and its superiority to a more “granular” analysis.
Concluding that these challenges to “the structure, or even existence,” of the relevant agencies were incapable of receiving meaningful judicial review through the applicable statutory regimes, were collateral to any decrees that might be issued by the regulators in their respective enforcement proceedings, and, possibly most significant, fall outside the agencies’ mandated fields of expertise, the Supreme Court proclaimed that the district courts did indeed have jurisdiction over these “far-reaching constitutional claims.”
A Trio of Assurances
In closing, we commend Axon for creating its own triad. First, this new landmark assures that parties raising constitutional challenges to regulatory power shall have their claims first adjudicated by an Article III district judge, and not by an ALJ in the service of the very agency prosecuting them.
Second, Axon’s notable articulation of a clear and workable standard for segregating true claims of unconstitutionality from routine objections to regulatory action assures that only the former are cognizable before the trial bench, while the latter are still funneled to agency proceedings. The third and last assurance is by far the most important: by cabining regulatory authority, the Supreme Court safeguards the separation of powers, and preserves accountability, the very lifeblood of our ordered system of liberty.
For our denouement, we assert that the Supreme Court’s latest pronouncement upon the separation of powers may be viewed, on the one hand, as no more than a straightforward guarantee that constitutional challenges to regulatory authority shall be subjected to the full judicial power. But, on the other hand, Axon may well represent yet another turning point in confining the power of administrative agencies. And therein may lie its greatest achievement.
Prof. Anthony Michael Sabino, partner, Sabino & Sabino, P.C., is also a Professor of Law, Tobin College of Business, St. John’s University. Anthony.Sabino@sabinolaw.com.
FINAL Axon Part II AMS v.1