SCOTUS Admin Law Cases Seen Possibly Shaking Up Agency Challenges

A SCOTUS ruling against the agencies could allow companies with transaction or enforcement proceedings before federal agencies to challenge the agency process in district courts before a hearing designation or forfeiture order is issued, said former FCC general counsel Tom Johnson, now with Wiley. The cases are set for combined oral arguments on Monday.

A case from the 5th U.S. Circuit Court of Appeals, Cochran v. SEC, concerns Michelle Cochran, an accountant who was the subject of an SEC enforcement ruling handed down by an administrative law judge that was then invalidated by a SCOTUS ruling in another case concerning SEC ALJs, Lucia v. SEC. The SEC remanded the case to another ALJ, but Cochran took the matter to district court and challenged the constitutionality of SEC ALJ appointments. When the district court dismissed the matter because of a lack of jurisdiction, Cochran appealed to the 5th Circuit, which initially affirmed the lower court but then reversed the decision en banc.

The case in Axon is similar, and concerns an FTC ALJ proceeding against a body-worn camera company’s purchase of a competitor that was challenged in district court, dismissed and then appealed to the 9th U.S. Circuit court of Appeals. The matter before the Supreme Court in both cases narrowly concerns whether agency proceedings can be challenged in district courts as unconstitutional before a final ruling has been issued.

Allowing court appeals before the final order could create “a real problem” for the courts, because it could lead to multiple courts working on the same matter, said American University administrative law professor Jeffrey Lubbers. Parties could challenge an FCC enforcement action in district court, appeal that decision to a court of appeals, and also seek judicial review of the agency decision, he said. The U.S. solicitor general’s consolidated brief in both the Axon and FTC cases makes a similar argument. The petitioners’ arguments “would produce parallel litigation by bifurcating judicial review,” said the brief.

That’s no more impractical than the current system where parties must litigate their case to the federal agency and then do so again at each appeal stage, said Dhillon Law Group attorney Gary Lawkowski, who wrote an amicus brief in Cochran on behalf of advocacy group Citizens United. “People’s rights should not be at the mercy of whether there is enough money in the budget to hire additional judges,” Lawkowski said. Since the case concerns only structural, constitutional challenges to agency processes, it would change things for only a narrow range of cases, Lawkowski said. It wouldn’t be hard for skilled lawyers to work constitutional and structural challenges to agencies into most matters, Lubbers said.

If SCOTUS decided against the agencies, it's likely there would be an increase in requests for stays and preliminary injunctions, to prevent “dual-tracking,” said Johnson. A decision against the agencies means that going to the district court could be used by entities as a litigation tool or as a way to apply pressure to an agency, but it likely wouldn’t be a sure way to get a deal approved or an enforcement action invalidated, Johnson said. A district court ruling in an entity’s favor in an ongoing proceeding would likely mean “there’s a constitutional infirmity that the agency or Congress would need to fix,” he said.

A SCOTUS decision against the agencies could affect the way agency ALJs work, Lubbers said. Permitting challenges to ALJ decisions before a final ruling could “radically change” how agencies decide to put cases in front of ALJs, said a client alert from law firm Morrison Foerster. These cases could also tee up other cases that challenge the ALJ process, Lubbers said. In Jarkesy v. SEC (docket 20-61007), the 5th Circuit ruled that Congress violated the Constitution by giving the SEC the power to choose whether ALJ or the federal court system oversees enforcement proceedings and found that ALJs are unconstitutional because the president can’t directly remove them from office. The latter is the same argument Cochran sought to make to the district court and would likely proceed with if SCOTUS decides in her favor. A petition for rehearing en banc was denied in Jarkesy last month.

It’s not clear how SCOTUS will rule on the administrative law cases, attorneys told us. In the 2012 case Elgin v. Treasury -- which the U.S solicitor general cited in the Cochran and Axton brief -- Justice Clarence Thomas authored a 6-3 opinion ruling that a federal employee couldn’t bring a constitutional challenge against the Merit Systems Protection Board before its final ruling, and that Congress had intended such cases to be adjudicated at the agency level first.

Justice Samuel Alito dissented from that ruling. In 2018’s Oil States Energy v. Greene’s Energy Group, Chief Justice John Roberts joined a dissent written by Justice Neil Gorsuch and focusing on the right of parties to have an independent judge review the decisions of the Patent and Trademark Office. Ruling against the agencies “may be seen as making it easier to challenge agency actions by some justices, but it also may be seen as disrupting a system of judicial review that is seen as more efficient for the courts,” Lubbers said.