U.S. Supreme Court Paves the Way for Challenging Agencies' Structure in Federal District Court

The U.S. Supreme Court holds that district courts have jurisdiction to hear constitutional challenges to the structure of Federal Trade Commission ("FTC") and Securities and Exchange Commission ("SEC") administrative proceedings before the proceedings conclude.

Parties in proceedings before the SEC and FTC need not await a final agency decision before challenging the agencies' constitutional structure in federal court. That clarification comes from a recent 9–0 Supreme Court decision in Axon Enterprise, Inc. v. FTC and SEC v. Cochran (collectively, "Axon"). 

In some circumstances, courts have understood Congress to have limited the authority of federal courts to consider claims against an agency. Congress in the Exchange Act and the FTC Act, like many other federal statutes, provided for judicial review in the court of appeals after administrative proceedings conclude. The Supreme Court nonetheless held in Axon that parties can challenge each agency's structure (or potentially, very existence) in federal district court before administrative proceedings conclude. 

The Supreme Court's reasoning turned on three factors. First, the Court found that a party who could not immediately assert its constitutional objection could lose "all meaningful judicial review." Litigants in administrative proceedings have a "here-and-now harm" of being subjected to allegedly unlawful agency authority. Judicial review after the alleged illegitimate agency proceeding would come too late. Second, an objection to an agency's structure is collateral to the actions taken in the agency proceedings. Finally, a constitutional challenge to an agency's authority falls outside of the agency's expertise, and thus would not meaningfully benefit from the agency's adjudicatory input. 

Leaving the merits question for another day, the Supreme Court did not rule on whether the agencies were unconstitutionally structured. At least one Justice, however, wrote separately to voice "grave doubts" about the constitutionality of agencies deciding "core private rights with only deferential judicial review on the back end," and at least one federal appeals court has held that the SEC's administrative adjudication process is unconstitutional. 

Though the full effect of Axon remains to be seen, the case may further restrict these agencies' willingness to use the administrative process to litigate contested matters, which the SEC already had sharply curtailed following earlier judicial setbacks. The SEC may also be less inclined to file administrative actions seeking to regulate the conduct of accountants, lawyers, and other professionals practicing and appearing before it, since these parties can now immediately challenge the agency's structure in district court. 

Other agencies and proceedings may likewise be affected by Axon. In theory, any agency's structure or existence may be vulnerable to collateral challenge in district court, unless the agency's authorizing statute expressly limits judicial review. And much of the Supreme Court's logic arguably applies to pre-enforcement challenges to an agency's structure—the Court focused on "the nature of the claim, not the status (pending or not) of an agency proceeding." As a result, parties or industry trade associations may consider bringing offensive litigation against an agency in federal district court.

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