Editor’s Note: This post originally appeared on Washington Legal Foundation’s Forbes.com contributor page on September 7.
On September 12, the Federal Trade Commission will consider the Commission staff’s appeal of an Administrative Law Judge’s (ALJ) decision that Altria Group’ minority investment in JUUL Labs did not violate the Sherman Act and the Clayton Act. As a September 7 Washington Legal Foundation Legal Backgrounder notes, the case has flown largely under the radar, with coverage of FTC’s action focused mostly on its implications for the tobacco and e-cigarettes markets. If the Commission reverses the ALJ, however, In Re Altria Group, Inc. and JUUL Labs, Inc. will intensify the constitutional controversies swirling around FTC and could accelerate their judicial resolution.
U.S. Supreme Court decisions over the past 12 years, combined with FTC’s increasingly aggressive approach on antitrust and consumer protection, have inspired broad constitutional challenges to the Commission’s enforcement methods and its very structure. One of those challenges has reached the Supreme Court, with oral argument set for November 7. But, as explained below, the justices won’t be considering FTC’s constitutionality.
After FTC threatened to file an administrative action to block Axon Enterprise, Inc.’s purchase of a virtually insolvent competitor, Axon filed a constitutional challenge against FTC in federal district court. Axon raised the following claims:
- The dual-layer protections of removal for FTC ALJs violates the Appointments Clause.
- The combination “within a single agency” of “investigatory, prosecutorial, adjudicative, and appellate functions” offends the Due Process Clause and the separation of powers.
- The “black-box” clearance process to determine whether FTC or the Department of Justice reviews a merger (which in turn determines whether the merging parties may face an administrative proceeding) violates the Due Process and Equal Protection Clauses.
- Because the President cannot remove its commissioners at will, FTC lacks the authority under Article II to utilize the executive law-enforcement power Congress granted it.
Axon’s petition for certiorari to the Supreme Court provides a full explanation of what transpired after Axon’s lawsuit. In short, FTC filed a formal administrative complaint and Axon then asked the federal court to stay the FTC proceeding. FTC convinced the federal district court, and then the Ninth Circuit, that federal courts lack jurisdiction over complaints such as the one Axon filed, meaning that FTC itself was the only venue for Axon’s constitutional challenges.
In its petition (with support from numerous amici including WLF), Axon asked the Court to decide both the jurisdictional and the substantive constitutional questions. The Court granted review on January 24, but limited arguments to only the jurisdictional question.
That brings us back to the Altria-JUUL matter pending at FTC. In its response to the staff’s appeal of the ALJ loss, Altria and JUUL argue that for largely the same reasons Axon advanced in its federal-court complaint, FTC’s administrative proceedings are unconstitutional.
If the Commission votes to overturn the ALJ’s decision, Altria and JUUL may appeal that decision to a federal circuit court. In WLF’s just-released paper, author Steven Cernak explains the significance of this vis-à-vis Axon:
FTC’s structure and processes might be heard first by a federal court in the[JUUL]/Altria matter, not the Axon matter. The Commission will hear oral argument in the JLI/Altria case in September and would be scheduled to issue an opinion by around year-end. If they overturn the initial decision, the parties can immediately appeal to any appellate circuit court and start the briefing process shortly thereafter. The Court, on the other hand, will hear oral argument in the Axon case two months later in early November. Because any opinion from the Court likely will not be issued until early to mid-2023, any ruling and remand for Axon likely will put it well behind any appeal of the JLI/Altria case.
One other FTC enforcement target, Walmart, recently joined Axon, Altria, and JUUL in opposing FTC’s actions as constitutionally infirm. The Commission charged Walmart with violations of the Telemarketing Sales Rule and Section 5 of the FTC Act for allegedly failing to prevent fraudulent use of the company’s money-transfer services. The Commission’s claims rely on a novel aiding-and-abetting theory and an extremely broad reading of FTC’s “unfairness” authority under Section 5. Walmart’s Motion to Dismiss notes that the Justice Department decided against prosecuting the case on FTC’s behalf and the Commission divided 3-2 on authorizing the lawsuit.
Despite the strength of Walmart’s statutory arguments for dismissal, the company’s motion led with a challenge to FTC’s constitutional authority. The motion reasons that the 1973 and 1975 FTC Act amendments that granted the Commission executive-branch authority to pursue injunctive and monetary relief in federal court are “incompatible with the FTC’s status as a valid independent agency.” Anticipating FTC’s reliance on the 1935 Supreme Court Humphries Executor decision, Walmart argues that the Court’s more recent Seila Law ruling limited Humphries Executor to the authority that FTC held at the time—quasi-legislative and quasi-judicial. Congress’s subsequent addition of law-enforcement authority, as the Court wrote in Seila Law, is “a quintessentially executive power not considered in Humphries Executor.”
The defendants raising these constitutional questions are determined and well represented. Axon’s commitment to its constitutional claims is especially remarkable given that it’s spent more on attorneys’ fees and costs than the $13 million it spent on the transaction FTC is challenging. If Axon prevails in the Supreme Court, it will resume its constitutional arguments in federal court. The outcome in Axon has no bearing on Altria/JUUL’s appeal to a federal circuit court nor does an Axon Supreme Court loss prevent Walmart from fighting FTC’s lawsuit all the way to the high court.
If, or perhaps more accurately, when, the constitutional questions reach the Supreme Court, FTC will confront a Court that unanimously rejected its expansive reading of FTC Act § 13(b) just last year, and has regarded overreaching independent agencies with significant skepticism. The Commission’s next steps in the Altria/JUUL challenge will thus have an impact far beyond just the defendants or the tobacco industry. As Mr. Cernak concludes his WLF Legal Backgrounder, “Whether you are interested in antitrust or administrative law, now is the time to anticipate the headlines and again pay attention to e-cigarettes and this case.”