Piercing the Administrative Veil
This term, the Supreme Court of the United States has entertained several challenges to administrative authority, appearing eager to apply constitutional restrictions to agency power. The Court recently heard oral argument in two such cases, Axon Enterprise, Inc. v. Federal Trade Commission and Securities and Exchange Commission v. Cochran, both of which place the removal protections for administrative law judges (ALJs) under constitutional scrutiny and threaten to upend the structure of administrative proceedings.
ALJs are a little-known but crucial part of the administrative state, appointed by the heads of executive agencies to adjudicate administrative disputes. The Social Security Administration, for example, employs 1,350 ALJs, each of whom hears complaints about benefits in between 500 to 700 cases annually. As members of the executive branch, they do not enjoy full judicial authority but carry out judge-like duties such as issuing rulings and subpoenas, determining questions of fact and law, and administering oaths. Axon Enterprise, Inc. and Michelle Cochran both filed federal lawsuits challenging aspects of this arrangement.
Axon Enterprise, Inc. is a publicly-traded company that manufactures body cameras, evidence management software, and other products for law enforcement. The Federal Trade Commission (FTC) opened an antitrust investigation into Axon and threatened further administrative action after it acquired Vievu, LLC. In response, Axon filed suit in federal district court in Arizona, arguing that FTC ALJs are unconstitutionally insulated from presidential removal. Currently, FTC ALJs may only be removed for cause by the United States Merit Systems Protection Board, whose members may also only be removed for specific breaches of duty. Axon also requested that the court enjoin the ongoing administrative proceedings pending the resolution of this question. However, the district court dismissed the case for lack of subject-matter jurisdiction, instead forcing Axon to raise the constitutional question regarding the FTC before an FTC ALJ instead of before a federal court. A divided Ninth Circuit affirmed.
Michelle Cochran, a certified public accountant licensed in Texas, raised similar constitutional arguments regarding the Securities and Exchange Commission (SEC). Cochran was fined and sanctioned by an SEC ALJ for “failing to comply with certain auditing documentation requirements.” This decision was vacated by the commission in light of constitutional deficiencies, but Cochran now faces a new SEC proceeding. Filing a federal lawsuit in Texas, Cochran employed an argument nearly identical to Axon’s, claiming “that SEC ALJs cannot preside over the proceedings because they are unconstitutionally insulated from removal by a multilayer for-cause structure.”
As it did in Axon, the district court dismissed this argument on jurisdictional grounds, holding that federal courts have no authority to review ongoing SEC enforcement proceedings. While the Fifth Circuit initially affirmed, upon rehearing the case en banc it reversed in part. Holding that district courts may review (and hear constitutional claims against) ongoing SEC proceedings, the Fifth Circuit split with the Ninth, necessitating Supreme Court intervention. A majority of the justices appeared receptive to the claims of Axon and Cochran during oral argument.
If the Supreme Court finds that federal courts may hear constitutional challenges to agency proceedings, it will severely curb the near-total authority agencies presently have over administrative proceedings. Under the current administrative review structure, if an ALJ returns an unfavorable decision (which is common), the proceedings may only be appealed to federal court after an internal appellate review. This process would force Axon and Cochran to raise their constitutional challenges regarding the FTC and SEC before the respective agencies’ ALJs. The ensuing administrative adjudication proceedings would not resolve the constitutional questions, as agencies are both unwilling and unable to declare their own practices unconstitutional. The current administrative structure requires parties on the receiving end of agency action to navigate lengthy, onerous, and costly proceedings in pursuit of a preordained result. By finding for Axon and Cochran, the Court could streamline this process, allowing parties to directly challenge proceedings in federal court.
Axon and Cochran also pose a threat to administrative law judges as government actors. ALJs have faced constitutional scrutiny in the past. In 2018, Lucia v. SEC vacated the ruling of an SEC ALJ, ruling that ALJs were “officers of the United States” and therefore must be appointed by the president, a court, or the agency head, not by SEC staff. Axon continues the attack Lucia started against the legality of ALJ appointments, with petitioners arguing that the dual-layer removal protections that FTC ALJs enjoy suffer from the same constitutional defects the Court declared illegal in Lucia.
Axon v. FTC and SEC v. Cochran break new ground by challenging the independent authority of administrative law judges on multiple fronts. Both cases seek to subject ALJs, who currently enjoy broad authority over all aspects of administrative proceedings, to increased oversight by federal courts. Additionally, both cases question the constitutionality of the removal process for ALJS. A Supreme Court that has sought in recent years to restrict the power of the administrative state may very well find these arguments persuasive.
Jude Farley is a freshman at Brown University, concentrating in International & Public Affairs. He is a staff writer for the Brown Undergraduate Law Review and can be contacted at jude_farley@brown.edu.