U.S. Supreme Court Upholds Federal District Courts’ Federal-Question Jurisdiction Over Federal Agencies’ Actions

On April 13, 2023, the U.S. Supreme Court  in Axon Enterprise, Inc. v. Federal Trade Commission et al. unanimously held that federal district courts can hear constitutional challenges to an agency’s administrative enforcement powers without waiting for the outcome of administrative appeals to that action.

As discussed in our previous blog post, in Axon Enterprise, Inc., the Court heard two separate matters concerning administrative enforcement proceedings from the Securities and Exchange Commission (SEC) and the Federal Trade Commission (FTC). The respondents were subject to SEC and FTC enforcement actions, and each challenged as unconstitutional the agencies’ structure and authority to pursue administrative proceedings. The two circuit courts split: The U.S. Court of Appeals for the Ninth Circuit affirmed the district court’s dismissal in the FTC matter, and the Fifth Circuit reversed the district court’s dismissal in the SEC matter.

The Court concluded that when a respondent to an agency proceeding challenges the general power of the agency, not a specific application of that power, the respondent need not exhaust an administrative proceeding before challenging the constitutionality of the agency’s administrative powers in federal court. Otherwise, if a respondent had to first go through a proceeding that itself has been constitutionally challenged, the respondent would effectively be stripped of a right not to be compelled to undergo an unconstitutional proceeding. Put another way, the harm a respondent would face was that they were being subjected to unconstitutional agency authority under the leadership of an unaccountable administrative law judge (ALJ), something impossible to remedy after agency proceedings are over. The Court also noted that the respondents’ claims are outside the agencies’ expertise.

Stakeholders that could be subject to an agency ALJ proceeding should follow the proceedings that result from this case. While the Court did not decide that any agency’s proceeding is unconstitutional, it does open a path for future respondents to agency enforcement to go directly to federal court to raise constitutional challenges to the authority and structure of federal administrative proceedings. As such, future decisions could implicate the authority of extensive use of ALJs to enforce federal law.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.