FTC Fallout Expected After Supreme Court’s Axon Decision

The U.S. Supreme Court’s Axon decision calls into question the constitutionality of the FTC’s quasi-judicial authority and will have ramifications for Chair Lina Khan’s “aggressive” rulemaking agenda, legal experts said Monday.

A unanimous Supreme Court ruled Friday that district courts have jurisdiction to hear lawsuits challenging the constitutionality of administrative law judge (ALJ) proceedings at the FTC and other federal agencies (see 2304140038). It was the second 9-0 Supreme Court decision against the FTC in two years, after the high court’s 2021 decision in AMG Capital Management v. FTC (see 2104220068).

The decision reopens the “very fundamental question” of the FTC’s constitutionality and “adds fuel to the fire to those who think” the agency shouldn’t continue to hold quasi-judicial and -executive authority, said antitrust consultant Asheesh Agarwal, a former FTC and DOJ official. The decision written by Justice Elena Kagan shows there’s “no need” for the FTC to internally adjudicate the scope of its own legal authority, particularly when the agency is arguably acting outside that authority, Agarwal told a Committee for Justice livestream. Concurring opinions from Justices Clarence Thomas and Neil Gorsuch show this was a straightforward application of the federal question jurisdiction, he said. Thomas’ opinion makes clear he has lingering questions about this “melding” of executive, legislative and quasi-judicial powers under one agency, Agarwal said.

“The idea that an agency can be both a prosecutor and a judge is utterly indefensible,” said New York University School of Law professor Richard Epstein. This isn’t an argument against regulation, he said: This is an argument against adjudication that takes place before the body that brought the complaint.

The decision will create a “coming storm of litigation” in federal court, said Committee for Justice Public Policy Director Ashley Baker. Any sort of enforcement action tied to Khan’s rulemakings is likely to end up in federal court far sooner than it would have pre-Axon, said Agarwal, noting the chair's efforts to create rules on data privacy and noncompete agreements. Agarwal noted the agency has had an uphill battle in federal court, citing its recent defeat in Meta/Within (see 2303270042). Expect a steady stream of challenges due to leadership’s “pretty aggressive theories” on antitrust and consumer protection authority, he said. “It’s going to be very interesting whether courts give really any deference at all to the agency,” he said, noting no Republicans are on the commission since Christine Wilson's resignation last month.

Epstein accused Khan of trying to concentrate all important decision-making authority at the agency within her office. Since all three commissioners are from the same party, “it’s like a one-woman agency trying to run the world," he said. It’s appropriate for the FTC chair to set the agenda and overrule staff on litigation decisions, said Agarwal. But current leadership is moving away from historical and statutory constraints, he said, calling the commission a “mini-legislature” that’s been trying to dictate terms across the economy without basis in material fact-finding. “Is the FTC constitutional on an ongoing basis?” he asked. Khan’s “very aggressive” is “going to put that in jeopardy.”

The case raises some “real questions” about the role of ALJs generally, said Agarwal. He conceded ALJs have a useful function at an agency like the Social Security Administration, but for law enforcement, these major challenges shouldn’t be heard internally, he said. Epstein agreed ALJs are needed for agencies like the SSA, where there are hundreds of thousands of complex cases.