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U.S. Supreme Court endorses challenge to administrative law process

By Zan Blue, Roundtable General Counsel

In a ruling last week, the U.S. Supreme Court endorsed an “existential” challenge to executive branch administrative agencies – a proverbial Very Big Deal.

Here’s what it’s about, how we got here, what happened, why it matters and how it could affect your business:

Axon Enterprises v. FTC: The Case

Last week, the U.S. Supreme Court – by unanimous decision – ruled that challenges to the SEC and FTC which claim that their procedures are unconstitutional may proceed.

What it is: In its opinion in Axon Enterprises v. FTC, handed down April 14 and written by Justice Elena Kagan, the Court says such “challenges are fundamental, even existential.” The plaintiffs claim the agencies’ internal adjudication processes are contrary to constitutional separation of powers principles.

How we got here: The SEC and FTC, like many administrative agencies, operate what amount to internal court systems.

  • The agencies can investigate cases, bring prosecutions before administrative law judges (ALJs) working for the agencies, hear appeals from the ALJ decisions…

  • …and only then can the target of their enforcement actions get into a federal court.

Not surprisingly, the agencies usually win.

In this case, two targets claim the way the ALJs are employed – they can be removed “only for good cause” as determined by the Merit Systems Protection Board, a civil service process, and the MSPB members can be removed only by presidential decision finding “neglect of duty” or “malfeasance” – is unconstitutional.

  • In addition, and perhaps more importantly, one of the targets claims the fact that the agency prosecutes and adjudicates cases is unconstitutional.

Some management side labor lawyers have for years wanted to challenge the fact that the NLRB can investigate, prosecute, adjudicate, and hear appeals all within the agency.

  • The agencies maintained that the only way to bring such challenges was to go through the entire administrative adjudication process, which of course takes years and is quite expensive.

Axon Enterprises v. FTC: The Ruling

The bottom line: The Court – by a 9-0 vote – said “nope, you can go straight into federal district court” and use the usual federal court process to bring these challenges.

This decision doesn’t resolve the cases. But it permits the cases to proceed. This is a Very Big Deal.

Why it matters: The federal courts have been reining in the executive branch administrative agencies in many recent decisions using the “major questions” doctrine and suggesting plaintiffs use the “non-delegation” doctrine.

  • Several Supreme Court justices have made it clear they are prepared to reverse long standing case law instructing the lower courts to defer to administrative agency decisions.

In short, the federal courts are asserting their authority as the proper adjudicators of cases.

What’s next: The legal principles behind these decisions aren’t going to generate headlines. Most people, including most lawyers, tend not to pay attention to such things. And the wheels of the judicial system grind ever so slowly.

But what is happening is a fundamental realignment of power among the three branches of the federal government.

  • The courts are telling Congress to do its job – good luck with that – and telling administrative agencies they can’t make things up as they go along.

  • As importantly, lawyers representing businesses and individuals are learning how to challenge conventional wisdom and long-standing legal precedents giving great power to the administrative agencies.

We are going to see much more of this.

Now You Know.

Note: The content above does not constitute legal advice; the views expressed are those of the author, Zan Blue.

Zan Blue

William A. "Zan" Blue, Jr. serves as principal executive to the Roundtable for member firm Constangy, Brooks, Smith & Prophete, LLP, where he is a Partner in the firm’s Nashville office. Zan was elected by our Roundtable membership to serve as our general counsel – a board director and member of the executive committee – for the 2023 board term.


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