Upcoming Decision From U.S. Supreme Court Could Further Restrain Authority of Administrative Law Judges

Two cases recently argued before the U.S. Supreme Court address the question of whether federal agencies have authority to mandate proceedings before administrative law judges (ALJs). The plaintiffs in these cases have challenged the constitutionality of ALJ proceedings and, depending on how broadly the resulting opinion is written, the Court’s decision could limit the authority of ALJs across the federal government including within the Environmental Protection Agency (EPA).

Earlier this month, the Supreme Court heard oral arguments in Axon Enterprise v. Federal Trade Commission and Securities and Exchange Commission v. Cochran. Both of these cases concern plaintiffs that brought their challenges in federal district court before agency proceedings had concluded, and the legal premise and argument in the cases are also similar. The cases involve appeals of decisions from the Ninth Circuit and Fifth Circuit, respectively.

Axon Enterprise involves a cease-and-desist order in an antitrust enforcement action by the FTC.  Plaintiff-appellant Axon, a manufacturer of body-worn cameras and digital evidence management systems, acquired an “essentially insolvent competitor.” Soon afterward, the Federal Trade Commission (FTC) raised antitrust concerns, leading to an extensive investigatory proceeding that culminated in the FTC’s alleged demand for Axon to divest to another company and provide that company with its intellectual property, in essence turning it into a clone. It was at this point that Axon took the matter to the federal district court, challenging the constitutionality of the FTC’s power to act and its structure and procedures. Axon argues that the jurisdictional provisions of the FTC Act do not strip district courts of their jurisdiction to hear such constitutional challenges.

SEC v. Cochran involves a certified public accountant’s challenge to a U.S. Securities and Exchange Commission (SEC) order for allegedly failing to comply with auditing documentation requirements. The SEC elected to proceed by using administrative proceedings rather than the federal court system. Michelle Cochran appeared pro se and was fined and barred from practice. When she petitioned for review, the SEC vacated the ALJ’s judgment but also assigned her to a new round of administrative hearings before another ALJ. At this point, Cochran filed a challenge in the federal district court. Similar to Axon Enterprise, the issue raised on appeal before the Court is whether the statute (the Securities Exchange Act of 1934) strips federal district courts of jurisdiction to adjudicate structural constitutional claims that challenge SEC administrative proceedings.

The parties challenging the agency proceedings in both of these cases argue that the agency proceedings offend due process because of bias by having agency ALJs adjudicate plaintiffs’ challenges to the agencies’ own constitutional authority. They also argue that the rules for removing the ALJs are unconstitutional under the appointments clause. If the Supreme Court agrees with these arguments, it could restrict the abilities of agency ALJs to hear these types of structural challenges related to agency enforcement actions and could allow these challenges to move more quickly to federal court.

While the Axon Enterprise and Cochran cases involve specifically the FTC and SEC, respectively, the Supreme Court’s opinion in the cases could potentially implicate the authority of ALJs in other federal agencies. In the environmental context, any Supreme Court decision restricting ALJ authority over disputed administrative proceedings could limit the authority of ALJs within the EPA to decide certain types of challenges. This could implicate challenges that may arise related to a disputed penalty assessment, in particular related to the agency’s structure and authority to act. Such a decision would add to the existing limitation that ALJs lack authority to impose injunctive relief in the manner of a federal district court.

The Axon Enterprise and Cochran cases are before the court for its current term; therefore a decision is expected no later than early July 2023.

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