Do district courts have jurisdiction to hear constitutional challenges to federal agencies, or must plaintiffs first raise such challenges in administrative proceedings before the agency? On November 7, the U.S. Supreme Court heard arguments on this issue in two similar cases: Axon Enterprise v. Federal Trade Commission (FTC) and Securities and Exchange Commission (SEC) v. Cochran. The outcome could have significant implications. If the Supreme Court rules against the agencies, targets of enforcement actions could immediately sue in district court rather than having to first spend time and money exhausting their administrative remedies. And this appears likely given the Court’s 2010 opinion in Free Enterprise Fund v. Public Company Accounting Oversight Board (PCAOB), which permitted the targets of an investigation to challenge the constitutionality of the PCAOB board members.
Both Axon Enterprise and SEC v. Cochran raise the question of whether challenges to an agency’s constitutionally can go directly to federal district court, or whether the targeted party needs to complete the agency investigation before bringing suit. A divided Ninth Circuit affirmed the district court’s ruling that it lacked jurisdiction to hear Axon’s lawsuit because the FTC Act requires targets to wait until the conclusion of administrative proceeding to bring such challenges. The Fifth Circuit, on the other hand, ruled that the Cochran suit could proceed under Free Enterprise Fund.
During oral arguments before the Supreme Court, the agencies received very limited sympathy from the justices. For example, Justice Samuel Alito asked: “What sense does it make for a claim that goes to the very structure of the agency having to go through the administrative process?” Chief Justice Roberts noted the government had recently lost multiple constitutional challenges. “Doesn’t that underscore the need for a direct proceeding to raise the constitutional claim rather than waiting however many years before the agency?” Justice Thomas even went so far as to ask, “Is this case distinguishable from Free Enterprise? It seems as though we’ve been down this road.” However, other members of the Court worried that the ruling could bring too many disputes to court. “Suppose you claimed something about the way agencies treated witnesses, or what kinds of witnesses were allowed, or what kinds of cross examination, or when subpoenas were issued, or — you could just keep on going,” asked Justice Elena Kagan. “I mean would all of that go to a court first?”
We predict that the Free Enterprise Fund rule will be re-affirmed, which will allow, for example, targets of investigations by the Consumer Financial Protection Bureau (CFPB) to come directly to federal court to raise issues of the CFPB’s constitutionality. Troutman Pepper will continue to monitor this case and will offer commentary about the long-term fallout of the ruling in future blog posts.