Supreme Court to Hear Cases that Could Make Challenges to FTC and SEC Easier

The United States Supreme Court will hear two cases that would make it easier to challenge the regulatory authority of the Federal Trade Commission and the Securities and Exchange Commission.

Source: Reuters | Published on November 7, 2022

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The United States Supreme Court will hear arguments in two cases on Monday that could make it easier to challenge the regulatory authority of federal agencies in cases involving the Federal Trade Commission and the Securities and Exchange Commission.

The Supreme Court is considering an appeal filed by Scottsdale, Arizona-based Axon Enterprise Inc after a lower court dismissed the Taser manufacturer’s lawsuit challenging the constitutionality of the FTC’s structure in an attempt to counter an antitrust action related to its acquisition of a rival.

In a separate case, the Supreme Court will hear the SEC’s appeal of a lower court decision reviving a challenge to the legality of its in-house tribunal brought by a Texas accountant named Michelle Cochran after it criticized her audits of publicly traded companies.

In both cases, the question is whether targets of an agency’s enforcement action can challenge its structure or processes in federal district court or must first go through the agency’s administrative proceeding, which can be expensive and time-consuming.

The FTC’s role is to protect consumers from unfair and deceptive business practices. The SEC’s job is to keep markets fair and orderly and to enforce investor protection laws.

Many business and conservative groups that complain about the “administrative state” have advocated for limiting the regulatory authority of federal agencies, which can enforce laws and rules in critical areas such as energy, the environment, climate policy, and workplace safety.

The Supreme Court has a conservative majority of 6-3. Its conservative justices have expressed skepticism about broad regulatory authority and the duty of judges to defer to that authority under Supreme Court precedent. The eventual decisions in the two cases, which are due by the end of next June, could build on recent court rulings restricting agency authority.

A June ruling, with conservative justices in the majority and liberals dissenting, limited the EPA’s authority to issue broad regulations to reduce carbon emissions from power plants. In 2019, the Supreme Court reduced the scope of a legal doctrine that allowed agencies to interpret their own rules.

Once an adverse agency order becomes final, the Federal Trade Commission Act and the Securities Exchange Act direct judicial review to federal courts of appeal. In a legal filing, the Justice Department, which represents the agencies, stated that the statutes allow Axon and Cochran to assert their claims at the end of the agency adjudications, not before.

“The question here is whether Axon and Cochran can circumvent Congress’s review schemes by preemptively suing in district court to enjoin agency proceedings.” “They might not,” according to the Justice Department filing.

Following an investigation by the FTC into its 2018 acquisition of Vievu, a rival body-camera provider, Axon filed a lawsuit in federal court in Arizona in 2020.

According to the company, the agency acts as “prosecutor, judge, and jury” in violation of US law. The Fifth Amendment of the Constitution guarantees due process and equal protection under the law, and its administrative law judges are unlawfully insulated from the president’s power to control executive branch officers under Article II of the Constitution.

The 9th United States District Court in San Francisco In 2021, the Circuit Court of Appeals dismissed the case, ruling that under the FTC Act, Axon must first raise its claims in the administrative proceeding.

In Cochran’s case, an SEC judge determined that she violated auditing standards, fined her $22,500, and barred her from practicing as an accountant before the commission for five years.

After the Supreme Court ruled in 2018 that the SEC’s judges were appointed in an unconstitutional manner, the agency reversed its decision against Cochran and assigned her case to a new, properly appointed judge.

Cochran filed a lawsuit in 2019 to stop the enforcement action, similar to how Axon challenged the SEC’s in-house judges under Article II.

A federal judge in Texas dismissed Cochran’s challenge, but the 5th U.S. Circuit Court of Appeals in New Orleans upheld it. The case was revived by the Circuit Court of Appeals in 2021.