Legal Docket: Reigning in federal agencies

MARY REICHARD, HOST: It’s Monday morning, November 21st and this is The WORLD and Everything in It. Thanks for listening and good morning! I’m Mary Reichard.

NICK EICHER, HOST: And I’m Nick Eicher. Today, we cover two oral arguments the US Supreme Court heard earlier this month.

Each one involves the opportunity to rein in the considerable power of federal agencies.

Specifically, the FTC, the Federal Trade Commission, and the SEC, the Securities and Exchange Commission. But the implications go far beyond these cases.

REICHARD: Here, an accountant in one case and in the other, a company that makes equipment for police. Each says it's been treated unfairly by the agencies. That they made unreasonable demands and meted out punishment that can’t be contested without first going through a long and expensive process within the administrative system. A system in which the agencies make the rules, make allegations, and then serve as investigator, prosecutor, and judge.

EICHER: The accountant and the company say the administrative law judges who heard their cases are so unaccountable that it violates the Constitution. Further, they say, they ought to be able to take their complaints about the agencies straight to federal court.

But the government says no. They need to wait until all administrative proceedings are final. But that of course takes years.

REICHARD: I’ll review the facts in just one of these cases, as the legal questions are essentially the same. And for our purposes today, I’ll use courtroom audio from both arguments.

Axon Enterprises—A-X-O-N—we’re not talking about the energy company, Exxon. Axon Enterprises makes tasers and body cameras for police. Four years ago the company acquired a competitor that was failing.

Soon after that, the FTC told Axon the acquisition could violate antitrust law, because the deal reduced competition too much.

The FTC started its investigation and made so many demands that Axon quickly spent more than a million dollars in legal fees and with no end in sight.

EICHER: That wasn’t worth it, so Axon offered to drop the acquisition.

The company’s legal brief describes what happened next: “the FTC demanded that Axon turn [the other company] into a ‘clone’ of Axon using Axon’s intellectual property” and threatened Axon with having to face “an administrative proceeding” if it refused to comply.

All this could have bankrupted Axon, so it sued the government to stop what it considers an abuse of power and a violation of the constitution to boot.

But lower courts ruled in favor of the FTC. They held that Axon had to go through all internal proceedings to their conclusion before they could challenge the agency in court.

Again, a process that could take many years.

Axon says it should be able to go straight to court. So it hired Paul Clement to make that case to the U.S. Supreme Court.

CLEMENT: Congress has expressly granted district courts original jurisdiction over all civil actions arising under the Constitution, and it is common ground that Congress has never expressly withdrawn or restricted that jurisdiction with respect to the constitutional claims at issue here.

REICHARD: Justice Samuel Alito asked an obvious question of Deputy U.S. Solicitor General Malcolm Stewart, who defended the agencies in both disputes.

ALITO: What sense does it make for a claim that goes to the very structure of the agency having to go through the administrative process?

Stewart said something about agency expertise, and that sometimes an agency will lose a case it adjudicates. So why clog up the federal courts with challenges?

But Chief Justice John Roberts didn’t see the sense in that:

ROBERTS: …well, doesn't that underscore the need for direct -- a direct proceeding to raise the constitutional claim rather than waiting however many years before the agency? This is a series of cases that are a constellation around some fairly basic propositions. And to have it go over and over and over again, it does make the case about the need for direct resolution of a related claim pretty strong.

EICHER: Things weren’t going well for the government. Justice Elena Kagan said as much:

KAGAN: I told Mr. Clement that I thought his worst factor was meaningful review. I -- I think that the other two factors are pretty darn bad for you.

REICHARD: She means the agency can do a meaningful review of certain issues. But other factors to analyze do not bolster the agencies’ arguments. For example, collateral; meaning, unrelated to the subject matter of the dispute.

Here, a claim that the agency’s very structure is unconstitutional is completely unrelated to the subject matter of the administrative proceeding.

KAGAN: So why aren't those two pretty easy wins for Mr. Clement?

REICHARD: Yikes! Not something you want to hear from a Supreme Court justice about your opponent.

Lawyer Gregory Garre for the accountant in the other case pounded on the effect of a runaway administrative state on individuals:

GARRE: This case illustrates the crucial importance of this district court jurisdiction for everyday Americans who find themselves trapped before an unconstitutional agency decisionmaker.

Administrative agency proceedings have no right to a jury, only limited discovery, and no counterclaims. These are the due process protections in regular law courts.

Some conservative justices wondered why these cases were even before it now. Back in 2010, the court handed down a decision in a case called Lucia v the SEC. There, a man pointed out the administrative law judge who ruled against him wasn’t properly appointed.

He won. Justice Elena Kagan announced the opinion:

KAGAN: So we conclude that Administrative Judges of the SEC are officers of the United States and must be appointed in the way the Constitution prescribes. Because the ALJ who conducted Lucia's hearing was not appointed in that way, it gets wiped off the books. He is entitled to a new hearing before a properly appointed new official.

EICHER: So then the SEC had to remand all pending cases for new proceedings before an administrative law judge properly appointed.

But Stewart for the government said Congress made the rules, and those rules say people have to finish the in-house process before going to court.

He says: Keep to the problem the agency is trying to resolve first. Don’t bring in broader conflicts too soon:

STEWART: That is, usually, we would say we'll try particularly hard to avoid constitutional challenges if it's possible to do so. And so it would be peculiar to say at a stage of the proceedings where you couldn't raise any other sort of challenge, you can raise a broad-ranging constitutional challenge to the very composition and structure of the agency.

REICHARD: Justice Sonia Sotomayor seemed sympathetic:

SOTOMAYOR: I don’t know why we should be permitting district court interference in the process that Congress has given to the agency to conclude that matter.

Opportunities to trim back the power of these agencies have come and gone before. The FTC and the EPA got their powers clipped back just in the last term.

I think the writing is on the wall this go round…and a majority will permit court challenges to administrative state power. If they do, they could restore the founders’ vision of separation of powers … and prevent concentration of power and preserve the system of checks and balances.

And that’s this week’s Legal Docket.

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