SCOTUS Appears Sympathetic to SEC Challenges
The justices may allow those facing agency claims to go to federal court with constitutional challenges, including attacks on the use of in-house judges to handle cases.
During more than two hours of oral arguments before the U.S. Supreme Court earlier this week, the majority of justices appeared open to making it easier to challenge the regulatory power of federal agencies, specifically in regards to disputes that involve the Securities and Exchange Commission and the Federal Trade Commission.
The court is considering the case of Axon Enterprise Inc., following the dismissal by a lower court of the Taser manufacturer’s lawsuit that contested the constitutionality of the FTC’s structure in an effort to counter an antitrust action related to the company’s acquisition of a rival manufacturer.
The court also considered arguments in regards to the SEC’s appeal of a lower court’s decision to revive a suit by Michelle Cochran, a Texas accountant challenging the legality of the agency’s in-house tribunals after it faulted her audits of publicly traded companies.
The underlying issue in both cases is whether the targets of a regulatory agency enforcement action can challenge its structure or procedures in federal court directly, or if they must first submit to the agency’s administrative proceedings. Such proceedings can be both lengthy and expensive. Critics say the current administrative processes give the regulatory agencies an unfair advantage.
“What sense does it make for a claim that goes to the very structure of the agency having to go through the administrative process,” questioned Justice Samuel Alito to Malcolm Stewart, a lawyer for the Department of Justice representing both commissions.
Regarding prior cases where the government lost challenges to agency actions, Chief Justice John Roberts said, “Doesn’t that underscore the need for a direct proceeding to raise the constitutional claim rather than waiting however many years before the agency?”
According to Cochran and Axon, the job protections given to agency administrative law judges separate them too much from presidential control and violate the U.S. Constitution.
The court’s ruling will be handed down later in its current term, which ends on the first Monday of October. The court typically releases the majority of its decision in mid-June.
The hearing before the Supreme Court follows the U.S. Court of Appeals for the Fifth Circuit declining a request by the U.S. Securities and Exchange Commission to reconsider a panel’s decision in October 2022, a case that determined the agency’s use of in-house courts to bring a securities fraud case against a hedge fund manager was unconstitutional.
