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Legal Docket: Reigning in federal agencies

MARY REICHARD, HOST: It’s Monday morning, November 21st and it’s 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 that the US Supreme Court heard earlier this month.

Each 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 was treated unfairly by the agencies. That they made unreasonable demands and handed out punishment that could not 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 judges who heard their cases are so unaccountable that it violates the Constitution. Furthermore, they say, they should be able to take their complaints about the agencies straight to federal court.

But the government says no. They must wait until all administrative proceedings are final. But of course it takes years.

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

Axon Enterprises—AXON—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 failed.

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

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

EICHER: It 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 around [the other company] in a ‘clone’ of Axon using Axon’s intellectual property” and threatened Axon with “an administrative proceeding” if it refused to comply.

All of this could have bankrupted Axon, so he sued the government to stop what he sees as an abuse of power and a violation of the constitution.

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 can 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 US Supreme Court.

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

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

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

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

But Chief Justice John Roberts didn’t see the point:

ROBERTS: … well, doesn’t that highlight the need for direct — a direct procedure to raise the constitutional claim rather than waiting however many years before the agency? It’s a series of cases that are a constellation around some pretty basic propositions. And to have it go over and over and over again makes the case for the need for direct resolution of a related claim pretty strong.

EICHER: Things didn’t go well with the government. Justice Elena Kagan said as much:

KAGAN: I told mr. Clement said that I thought his worst factor was meaningful review. I – I think the other two factors are very bad for you.

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

Here, an allegation that the agency’s structure is unconstitutional is completely unrelated to the subject matter of the administrative proceeding.

KAGAN: So why are those two fairly easy wins for Mr. Clement not?

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

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

GARRE: This case illustrates the crucial importance of this district court’s jurisdiction to everyday Americans caught before an unconstitutional agency decision maker.

Administrative agency proceedings have no right to a jury, only limited discovery, and no counterclaims. This is the due process protection in common law courts.

Some conservative judges wondered why these cases were even before that. In 2010, the court delivered a decision in a case that was called Lucia vs. the SEC. There, a man pointed out that the administrative judge who ruled against him was not 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 manner prescribed by the Constitution. Because the ALJ who presided over Lucia’s trial was not so appointed, it is stricken from the books. He is entitled to a new trial before a duly appointed new official.

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

But Stewart told the government that Congress made the rules, and those rules say that people have to complete the internal process before going to court.

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

STEWART: That is, ordinarily we would say we would try especially hard to avoid constitutional challenges if it is possible to do so. And so it would be peculiar to say that at a stage of the proceedings where you could not raise any other kind of challenge, you could raise a broad constitutional challenge to the composition and structure of the agency.

REICHARD: Justice Sonia Sotomayor seemed sympathetic:

SOTOMAYOR: I don’t know why we should allow the district court to interfere with the process that Congress gave the agency to settle that case.

Opportunities to trim back the power of these agencies have come and gone before. The FTC and the EPA cut back their powers just last quarter.

I think the writing is on the wall so it goes around…and a majority will allow court challenges to administrative state power. If they do, they can 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 Document.


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