A unanimous Supreme Court has continued its assault on the modern administrative state in its landmark decision in Axon Enterprise, Inc. v. Federal Trade Commission, which also decided Securities and Exchange Commission v. Cochran. The cases arose out of enforcement actions the FTC and SEC, respectively, brought against two private parties. In Axon, the FTC not only blocked a proposed acquisition but also insisted that Axon supply its target with intellectual property for free. In Cochran, the SEC sought to punish Michelle Cochran, a certified public accountant, for minuscule technical violations of the securities law, but only after she quit her accounting job to protest her boss’s shady business practices.
Federal law lets both federal disputes be decided in federal district court. Nonetheless, both FTC and SEC law allows them to be tried before administrative law judges (ALJs) appointed by the agencies’ respective commissions to resolve the matters. Once an initial hearing is concluded with an ALJ, the individual party can appeal the charging decision to the same commission that brought the original charges. Only after the entire agency proceeding is over may the defendant, now burdened with years of expensive litigation, seek relief from a federal district court on the ground that the agency had no jurisdiction to hear the matter that had just been heard. To avoid that grim fate, both defendants went straight to district court, only to be told that the statutes’ provision of “administrative review followed by judicial review in a federal court of appeals” “implicitly divested” the federal courts’ jurisdiction to intervene at the beginning of the process.
A moment’s reflection should indicate that both the FTC and SEC schemes are seriously misguided. It is no state secret that both agencies have a long track record of turning screws on ordinary individuals through partisan ALJs long before they have a chance to appear before an independent forum. One of the most notorious illustrations of this is Lucia v. SEC, which held that the SEC could pick its own favorite judge before any appeal could be brought in federal court. Hence the immediate march into federal court by Axon and Ms. Cochran.
In one sense, their claims were far too modest. The principles of due process—“nor shall any person be deprived of life, liberty, or property without due process of law”—should, in my view, apply to all civil and criminal cases, whether brought by private parties or a government agency. That basic principle, which long predates the United States Constitution, requires that all litigation be brought before an independent judge, free of bias or connection, under rules made public in advance. On this view, using ALJs to decide major matters is intolerable. While it is often difficult to disentangle legislative from executive functions within the fluid boundaries of the administrative state, it is a comparatively simple matter to require that independent courts hear these disputes. Indeed, the most minimal reading of due process demands it.
That position would invalidate both administrative schemes, though it might, with sufficient safeguards, allow ALJs to hear the high volume of small enforcement cases under the immigration and social security statutes. But that war lies in the future. The battle in this case was limited to jurisdictional challenges, where the critical choice was this: if the jurisdictional matter is resolved in favor of the accused party, the case comes to an end. If not, it goes back to the agency where it could take many years, more resources, and much emotional distress to resolve the matter. Alternatively, the ordeal could come first, with exoneration only after the damage has been done. But as Justice Elena Kagan noted, it is no consolation to suffer a trial before an illegal administrative authority. The harm is not undone by an after-the-fact determination that the case should never have been heard at all. The correct procedure is to do the jurisdictional hearing first in court, and then turn to the agency only if a trial is needed.
There is little doubt that this logic drove the decision in both Axon and Cochran, but unfortunately, Kagan’s principal opinion in the Supreme Court refuses to adopt, in line with many lower court cases like Jarkesy v. SEC, this simple due process approach. Instead, the cases wander off into various separation-of-powers arguments that obscure the central point. Thus in Axon, the court invoked a three-part test from its earlier decision in Thunder Basin Coal Co. v. Reich (1994), which held that the government could enforce its mine safety inspection rules before any judicial review. That case isolated these factors to determine whether an immediate jurisdictional challenge was proper in federal court.
The first factor asks whether, without an immediate jurisdictional challenge, the right of “meaningful judicial review will be lost.” Under Thunder Basin, a better way to put the question is whether delays in enforcement disrupt the enforcement scheme; this can easily happen with mine safety inspections, but not with the imposition of penalties for business decisions before the FTC or SEC. On that point, the cases are easily distinguishable, and the inquiry should come at its end.
Nonetheless, the Supreme Court dutifully considered two other issues, neither of which matters. The first is whether the challenge is “collateral” to the main inquiry or integral to it, which boils down to a restatement of the traditional distinction between disputes on jurisdiction and the merits. There is no reason to go to court if the preliminary determination on jurisdiction could avert the trial. But it is just wrong to say, as Kagan does, that agencies do not litigate these jurisdictional issues; to the contrary, they constantly crop up. And the third issue supposedly goes to the question of whether the agency has “expertise” on jurisdictional issues comparable to its mastery of substantive matters. On this point, Kagan’s response was that “[t]he commission knows a good deal about competition policy, but nothing special about the separation of powers,” so that “agency adjudications are generally ill suited to address structural constitutional challenges.” But the point is nonsensical, because the agency has to enter the jurisdictional swamp whether it litigates that issue in court or before its own ALJs. With a legal cast of thousands, both agencies can develop the requisite internal expertise.
The ultimate question, therefore, should be how to balance the convenience of the two alternative routes, analysis for which the Thunder Basin factors, as Justice Neil Gorsuch notes, offer no help whatsoever. But Gorsuch does not face the due process problem. Instead, he insists that the jurisdiction of the federal courts can never be abolished by implication, as was done here. Unfortunately, his approach creates opportunity for abuse if the Congress that has already authorized these administrative horrors takes the trouble to explicitly oust the jurisdiction of the federal courts.
The preoccupation with separation of powers also led the court down another intellectual dead-end when it announced that the statutory scheme in the SEC was illegal because the actual investigation was undertaken by the Public Company Accounting Oversight Board, under the SEC. The court’s earlier decision in Free Enterprise Fund v. Public Company Accounting Oversight Board (2010) had insisted that separation-of-powers principles are violated if two layers of government agencies are both insulated from presidential removal. That principle, a corrective on independent agencies, now loses some of its luster in view of President Biden’s habit of issuing massive executive orders that go far beyond his executive powers, as with his recent effort to ban federal purchases of gas-powered cars by 2035. But in any event, it would make no difference in these cases if either Biden or the SEC commissioners could remove members of the PCAOB, whose actions both would heartily endorse. Arcane interbranch disputes have no bearing on these individual cases.
In the end, only Justice Clarence Thomas took on the due process issue when he expressed his “grave doubts” about giving administrative agencies “primary authority to adjudicate core private rights with only deferential judicial review on the back end.” But even his views contained an artificial limit by applying this principle only to private and not public rights, where his own tortured view of public rights in Oil States Energy Services v. Greene’s Energy Group (2018) reads the term “public rights” so broadly that the protection could be stripped from parties who have received patents from the United States—which, long before his decision, were long regarded as a species of fully protected private-property rights.
In sum, there is much to commend in the Axon outcome, but far less to praise in the strained reasoning used to support it. The Supreme Court should clean up this growing doctrinal mess by announcing that the principles of due process require, in all cases, full and fair procedure, including the right to challenge the jurisdiction of agencies like the FTC and the SEC, before they run ordinary citizens and firms through an agonizing administrative wringer.
