Case Information
*1 WO
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Axon Enterprise Incorporated, No. CV-20-00014-PHX-DWL
Plaintiff, ORDER
v.
Federal Trade Commission, et al.,
Defendants.
INTRODUCTION
Pending before the Court is Plaintiff Axon Enterprise, Inc.’s (“Axon”) motion for preliminary injunction. (Doc. 15.)
Axon sells various technological tools, including body-worn cameras, to police departments. In May 2018, Axon acquired one of its competitors. This acquisition prompted the Federal Trade Commission (“FTC”) to conduct an antitrust investigation. In January 2020, just as the FTC was about to initiate a formal administrative proceeding to challenge the acquisition, Axon filed this lawsuit, which seeks to enjoin the administrative proceeding based on three constitutional claims: first , that the FTC’s structure violates Article II of the Constitution because its commissioners are not subject to at-will removal by the President and its administrative law judges (“ALJs”), who are appointed by its commissioners, are also insulated from at-will removal; second , that the FTC’s combined role of “prosecutor, judge, and jury” during administrative proceedings violates the Due Process Clause of the Fifth Amendment; and third , that the FTC and the Antitrust Division *2 of the U.S. Department of Justice, which are both responsible for reviewing the antitrust implications of acquisitions but employ different procedures and substantive standards when conducting such review, utilize an arbitrary and irrational “clearance” process when deciding which agency will review a particular acquisition, in violation of the Equal Protection Clause of the Fifth Amendment. (Doc. 15 at 6-15.) [1]
The constitutional claims Axon seeks to raise in this case are significant and topical. Indeed, the Supreme Court recently held oral argument in a case that raises similar issues. Seila Law LLC v. Consumer Fin. Prot. Bureau , No. 19-7. This Court, however, is not the appropriate forum to address Axon’s claims. It is “fairly discernable” from the FTC Act that Congress intended to preclude district courts from reviewing the type of constitutional claims Axon seeks to raise here—instead, Axon must raise those claims during the administrative process and then renew them, if necessary, when seeking review in the Court of Appeals. Thus, this Court lacks subject matter jurisdiction over this action, Axon’s request for a preliminary injunction must be denied, and this action must be dismissed.
BACKGROUND
I. Factual Background
Axon, which was formerly known as TASER International, Inc., is a Delaware corporation that sells various technological tools, including body-worn cameras and cloud- computing software, to police departments. (Doc. 1 ¶¶ 13, 19-21; Doc. 15-2 ¶ 2.) In May 2018, Axon acquired one of its competitors, Vievu. (Doc. 1 ¶ 24.) The next month, the FTC notified Axon that it was investigating the acquisition. ( ¶ 25.) Axon cooperated with the investigation over the next 18 months. ( ¶ 26.) Axon contends that it “spent in excess of $1.6 million responding to the FTC’s investigational demands, including attorney and expert fees, ESI production and related hosting and third-party vendor fees and expenses.” (Doc. 15-2 at 3 ¶ 5.)
*3 Axon contends that, at the conclusion of the investigation, the FTC gave it a choice.
First, it could agree to a “blank check” settlement that would rescind its acquisition of Vievu and transfer some of its intellectual property to the newly restored Vievu. (Doc. 1 ¶ 27.) According to Axon, the FTC’s “vision” was to turn Vievu into a “clone” of Axon— “something Vievu never was nor could be without impermissible government regulation.” ( ) Second, if Axon declined those terms, the FTC would pursue an administrative complaint against Axon. ( )
II. Procedural History
On January 3, 2020, Axon filed this lawsuit. (Doc. 1). In its complaint, Axon outlines the factual history discussed above and alleges a violation of its Fifth Amendment rights to due process and equal protection ( id. ¶¶ 57-60), alleges that the FTC’s structure violates Article II of the Constitution ( id. ¶¶ 61-62), and seeks a declaration that its acquisition of Vievu didn’t violate any antitrust laws ( id. ¶¶ 63-69).
Also on January 3, 2020 (but later that day), the FTC filed an administrative complaint challenging Axon’s acquisition of Vievu. (Doc. 15 at 2 n.1.) An evidentiary hearing in the administrative proceeding was originally scheduled for May 19, 2020. (Doc. 22 at 2.) That hearing has now been continued until late June 2020.
On January 9, 2020, Axon filed a motion for a preliminary injunction, seeking to enjoin further FTC proceedings against it. (Doc. 15.)
On January 23, 2020, the FTC filed an opposition to Axon’s motion. (Doc. 19.) The FTC relegated the merits of Axon’s constitutional claims to a footnote and instead focused on whether the Court possesses subject matter jurisdiction. (Doc. 19 at 1, 14 n.12).
On January 30, 2020, Axon filed a reply. (Doc. 21.) That same day, Axon filed a motion for expedited consideration. (Doc. 22.) Over the FTC’s opposition (Doc. 23), the Court granted the motion and scheduled oral argument for April 1, 2020. (Doc. 24.)
On March 10, 2020 the Court issued a tentative order. (Doc. 29.) On March 27, 2020, the New Civil Liberties Alliance (“NCLA”) filed a motion for leave to submit an amicus brief in support of Axon. (Doc. 32.) That motion was granted. *4 (Doc. 33.)
On April 1, 2020, the Court heard oral argument. (Doc. 39.) [2] On April 2, 2020, Axon supplemented the record by filing certain documents generated during the administrative proceeding. (Doc. 40.)
ANALYSIS
“Subject-matter limitations on federal jurisdiction serve institutional interests. They
keep the federal courts within the bounds the Constitution and Congress have prescribed.”
Ruhrgas AG v. Marathon Oil Co.
, 526 U.S. 574, 583 (1999). “[C]ourts have an
‘independent obligation’ to police their own subject matter jurisdiction.”
Animal Legal
Def. Fund v. U.S. Dep’t of Agric.
,
In general, district courts “have original jurisdiction of all civil actions arising under
the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. This includes
the authority to “declare the rights and other legal relations of any interested party seeking
such a declaration.”
Id.
§ 2201. “This grant of jurisdiction, however, is not absolute.”
Kerr v. Jewell
,
The issue here is whether Congress, by enacting the FTC Act, intended to require constitutional challenges to the FTC’s structure and processes to be brought via the FTC Act’s adjudicatory framework. If so, this Court lacks subject matter jurisdiction to *5 entertain Axon’s claims.
I. Background Law
On three occasions between 1994 and 2012, the Supreme Court addressed whether Congress’s enactment of a scheme of administrative adjudication should be interpreted as an implicit decision by Congress to preclude district court jurisdiction. Although none of those decisions involved the FTC Act, they control the analysis here. Cf. Bennett , 844 F.3d at 178-81 (identifying these cases as “the trilogy”).
The first decision,
Thunder Basin Coal Co. v. Reich
,
The Court held that when a statutory scheme, such as the Mine Act, “allocate[s] initial review to an administrative body” and authorizes only “delayed judicial review,” courts must analyze three factors—(1) “the statute’s language, structure, and purpose,” (2) “its legislative history,” and (3) “whether the claims can be afforded meaningful review”— when assessing whether Congress’s intent to “preclude initial judicial review” can be “fairly,” if impliedly, “discerned” from the statutory scheme. at 207. The Court then analyzed these factors and concluded that all three supported a finding of preclusion.
First, the Court noted that the Mine Act creates a “detailed structure” for regulated parties to seek review of enforcement activity under the Act—a mine operator is entitled *6 to challenge an adverse agency order before an ALJ, then seek review of the ALJ’s order before the Federal Mine Safety and Health Review Commission, and then, if necessary, seek review of any adverse decision by the Commission in a federal Court of Appeals. Id. at 207-08. This structure, the Court concluded, “demonstrates that Congress intended to preclude challenges such as the present one.” Id. at 208. The Court also noted that the Mine Act contains provisions that enable the Secretary of Labor (who is responsible for enforcing the Mine Act) to file an action in district court when seeking certain types of relief. Id. at 209. Because “[m]ine operators enjoy no corresponding right,” the Court concluded these provisions served as further proof of Congress’s intent to preclude. Id.
Second, the Court stated that “[t]he legislative history of the Mine Act confirms this interpretation.” Id. at 209-11.
Third, the Court addressed whether a finding of preclusion would result, “as a practical matter,” in the elimination of Thunder Basin’s ability “to obtain meaningful judicial review” of its claims. Id. at 213 (quotation omitted). The Court concluded that no such risk was present because Thunder Basin’s “statutory and constitutional claims . . . can be meaningfully addressed in the Court of Appeals.” Id. at 215. In reaching this conclusion, the Court observed that “[t]he Commission has addressed constitutional questions in previous enforcement proceedings” but clarified that, “[e]ven if this were not the case,” the availability of eventual review by an appellate court was sufficient.
The second component of the trilogy, Free Enterprise Fund v. Public Co. Accounting Oversight Bd , 561 U.S. 477 (2010), addressed the preclusive effect of the Sarbanes-Oxley Act of 2002 (“the Sarbanes–Oxley Act”) and its interaction with the Securities Exchange Act. Among other things, the Sarbanes–Oxley Act created an entity called the Public Company Accounting Oversight Board (“PCAOB”), which was tasked with providing “tighter regulation of the accounting industry.” at 484. The PCAOB was composed of five members who were appointed by the Securities and Exchange Commission (“the Commission”). Id. The PCAOB’s broad regulatory authority included enforcing not only the Commission’s rules, but also “its own rules,” and it possessed the *7 authority to “issue severe sanctions in its disciplinary proceedings, up to and including the permanent revocation of a firm’s registration, a permanent ban on a person’s associating with any registered firm, and money penalties of $15 million.” Id. at 485.
The plaintiff in Free Enterprise Fund was a Nevada accounting firm that been investigated by the PCAOB and then criticized in a report issued by the PCAOB. Id. at 487. In a lawsuit filed in federal district court, the accounting firm argued that the PCAOB’s structure was unconstitutional because its board members, as well as the Commission members who appointed them, were shielded from Presidential control. Id . The district court concluded it had subject matter jurisdiction over the lawsuit but rejected the accounting firm’s constitutional claim on the merits. Id. at 488. The Supreme Court reversed, agreeing with the district court’s jurisdictional analysis but concluding that, on the merits, the PCAOB’s structure was unconstitutional.
When addressing the jurisdictional issue, the Court cited Thunder Basin as supplying the relevant standards but concluded that, under those standards, jurisdiction was not precluded. Id. at 489-91. Central to the Court’s analysis was the fact that the relevant adjudicatory framework didn’t provide for judicial review over all of the PCAOB’s activities. Specifically, the Commission was only empowered “to review any [PCAOB] rule or sanction.” Id. at 489. Commission action, in turn, could receive judicial review under 15 U.S.C. § 78y. Id. This structure was underinclusive, the Court stated, because it “provides only for judicial review of Commission action, and not every Board action is encapsulated in a final Commission order or rule.” Id. Put another way, the Court did “not see how [the accounting firm] could meaningfully pursue [its] constitutional claims” because the conduct it wished to challenge ( e.g., the PCAOB’s release of the critical report) “is not subject to judicial review.” at 489-90. Thus, the Court concluded that Congress did not intend to “strip the District Court of jurisdiction over these claims.” at 491.
The final component of the trilogy,
Elgin v. Dep’t of Treasury
,
In , a male employee was terminated because he hadn’t registered with the Selective Service. Id. at 6-7. The employee appealed to the MPSB, arguing that the statute requiring men (but not women) to register with the Selective Service is unconstitutional, but the employee didn’t seek further review in the Federal Circuit after the MSPB rejected his claim—instead, he (and others) filed a lawsuit in federal district court raising the same constitutional challenge and requesting various forms of equitable relief, including reinstatement. Id. The district court concluded it had jurisdiction to resolve the constitutional claim but the Supreme Court reversed, holding that “the CSRA precludes district court jurisdiction over petitioners’ claims even though they are constitutional claims for equitable relief.” Id. at 8.
The Court began by reaffirming that, under Thunder Basin , “the appropriate inquiry” when evaluating whether Congress intended to preclude district court jurisdiction “is whether it is ‘fairly discernible’ from the [statute] that Congress intended [litigants] to proceed exclusively through the statutory review scheme, even in cases in which the [litigants] raise constitutional challenges to federal statutes.” Id. at 8-10. Next, the Court “examined the CSRA’s text, structure, and purpose.” Id. at 10-11. After discussing the various forms of review available under the statute, the Court concluded that “[g]iven the painstaking detail with which the CSRA sets out the method for covered employees to obtain review of adverse employment actions, it is fairly discernible that Congress intended to deny such employees an additional avenue of review in district court.” at 11-12. The Court also noted that the CSRA expressly allows employees to assert one particular type of claim in federal district court. at 13 (citing 5 U.S.C. § 7702(b)(2)). The existence of *9 this provision, the Court stated, “demonstrates that Congress knew how to provide alternative forums for judicial review based on the nature of an employee’s claim. That Congress declined to include an exemption . . . for challenges to a statute’s constitutionality indicates that Congress intended no such exception.” Id.
The Court also addressed whether a preclusion finding would effectively “foreclose all meaningful judicial review” of the plaintiffs’ constitutional claim. Id. at 15-21 (citing Free Enterprise Fund , 561 U.S. at 489). The Court concluded that such a risk was not present, even though “the MSPB has repeatedly refused to pass upon the constitutionality of legislation,” because the Federal Circuit, “an Article III court fully competent to adjudicate [constitutional] claims,” could address those constitutional claims during the final stage of the statutory review process. at 16-18. The Court also rejected the notion that the Federal Circuit would be hamstrung by an inadequately developed record when conducting this review, explaining that “[e]ven without factfinding capabilities, the Federal Circuit may take judicial notice of facts relevant to the constitutional question” and noting that “we see nothing extraordinary in a statutory scheme that vests reviewable factfinding authority in a non-Article III entity that has jurisdiction over an action but cannot finally decide the legal question to which the facts pertain.” at 19-21.
II. Whether It Is “Fairly Discernable” From The FTC Act That Congress Intended To
Preclude District Court Jurisdiction Over Axon’s Constitutional Challenges
With this backdrop in mind, the Court will turn to the FTC Act. Nothing in the FTC
Act expressly divests district courts of jurisdiction to entertain constitutional claims of the
sort raised by Axon in this action, but
Thunder Basin
,
Free Enterprise Fund
, and all
recognize that Congress may implicitly preclude such jurisdiction through the enactment
of an administrative review scheme. The question here is whether such intent is “fairly
discernable” from the FTC Act.
Thunder Basin
,
A.
Text, Structure, And Purpose Of The FTC Act
Under and its progeny, the first factor to consider when assessing
“[w]hether a statute is intended to preclude initial judicial review” is “the statute’s
*10
language, structure, and purpose.” ,
The text and structure of the FTC Act closely resemble those of the Mine Act, which
was the statutory scheme at issue in
Thunder Basin
. The FTC Act sets out a detailed
scheme for preventing the use of unfair methods of competition. 15 U.S.C. § 45(a)-(b).
Additionally, the FTC Act’s enforcement provisions create timelines and mechanisms for
adjudicating alleged violations that are similar to those outlined in the Mine Act.
Compare
15 U.S.C. § 45(b)
with
30 U.S.C. § 815. Finally, and most important, the FTC Act’s
judicial review process is similar to the Mine Act’s, up to and including conferring
“exclusive jurisdiction” upon the relevant Court of Appeals to affirm, modify, or set aside
final agency orders.
Compare
15 U.S.C. § 45(c)-(d)
with
30 U.S.C. § 816(a). In
Thunder
Basin
, the Supreme Court held that this type of “detailed structure” suggested “that
Congress intended to preclude challenges such as the present one.” 510 U.S. at 208.
Similarly, in , the Supreme Court held when a statutory scheme sets out in
“painstaking detail” the process for aggrieved parties to obtain review of adverse decisions,
“it is fairly discernible that Congress intended to deny such employees an additional avenue
of review in district court.”
The FTC Act also contains a provision authorizing the FTC (but not regulated
parties) to file a lawsuit in federal district court.
See
15 U.S.C. § 53(a) (authorizing the
FTC to “bring suit in a district court of the United States” when certain conditions are
satisfied). In
Thunder Basin
, the Supreme Court stated that an inference of preclusive
*11
effect arose because the Mine Act allowed the Secretary of Labor to file certain claims in
district court but “[m]ine operators enjoy no corresponding right.”
Finally, the purpose of the FTC Act suggests that Congress intended to preclude
district court jurisdiction. Congress intended the FTC to act as a successor to the Interstate
Commerce Commission and enforce “its broad mandate to police unfair business conduct.”
FTC v. AT&T Mobility LLC
,
…
… *12 B. Legislative History Of The FTC Act
Thunder Basin
suggests the second relevant preclusion factor is the underlying
statute’s legislative history.
The Supreme Court’s subsequent decisions in this area, Free Enterprise Fund and , did not address (much less focus on) legislative history, and the Supreme Court has issued subsequent opinions in other contexts that reject the use of legislative history as a legitimate interpretative tool. See, e.g., Epic Sys. Corp. v. Lewis , 138 S.Ct. 1612, 1631 (2018) (“[L]egislative history is not the law. It is the business of Congress to sum up its own debates in its legislation, and once it enacts a statute [w]e do not inquire what the legislature meant; we ask only what the statute means.”) (citations and internal quotation marks omitted). Thus, it is unclear whether this portion of retains validity. Indeed, the FTC does not mention legislative history in its response brief (Doc. 19) and Axon barely mentions it its reply (Doc. 21 at 4 [criticizing the FTC for failing to “point to legislative history for the FTC Act that is similar to the CSRA’s”]).
In any event, to the extent legislative history remains a relevant consideration, and to the extent it is possible to draw any meaningful conclusions from the FTC Act’s legislative history (which the Court doubts), it tends to support the inference that Congress sought to preclude district court jurisdiction over the type of claims presented here. Judicial review of final, and only final, FTC actions was a component of the FTC Act from its earliest iterations. See Marc Winerman, The Origins of the FTC: Concentration, Cooperation, Control, and Competition , 71 Antitrust L. J. 1, 4 (2003). The debate focused on the breadth of judicial review and settled on the standard contained in § 45 to this day: deference to the FTC’s findings of fact, but otherwise silent. at 5, 76-77, 80 (discussing *13 the FTC Act’s proponents’ “essential faith in the workings of a commission”), 90-92. It does not appear Congress ever considered amending the FTC Act to route complaints through any process other than administrative proceedings.
C.
Availability Of Meaningful Review And Associated Considerations
In
Thunder Basin
, the Supreme Court identified the third preclusion factor as
“whether the claims can be afforded meaningful review” and then addressed—in the
portion of the opinion concerning this factor—whether the claims were “wholly collateral”
to the statute’s review provisions and whether the claims fell outside the agency’s
expertise.
Although the Ninth Circuit has not resolved this issue, other appellate courts have
recognized its “unsettled” nature and concluded that “the most critical thread in the case
law is . . . whether the plaintiff will be able to receive meaningful judicial review without
access to the district courts.”
Bebo,
1. Availability Of Meaningful Review
Axon’s overarching argument is that this case “is materially indistinguishable” from Free Enterprise Fund and that “the FTC Act affords no meaningful review of Axon’s claims outside this lawsuit.” (Doc. 21 at 2-5.) This argument is unavailing.
As noted,
Free Enterprise Fund
focused on the fact that the PCAOB could engage
in some forms of regulatory activity, including the issuance of reports, that were effectively
*14
immune from judicial review due to a mismatch in the administrative review scheme—the
SEC could only review a “rule or sanction” promulgated by the PCAOB, “and not every
Board action is encapsulated in a final Commission order or rule.”
This sort of mismatch is not present under the FTC Act, at least with respect to the
constitutional claims Axon seeks to raise here.
[5]
Fundamentally, Axon believes the FTC
shouldn’t be allowed to investigate or challenge its acquisition of Vievu. Yet these are
claims that Axon can present during the pending administrative proceeding—indeed, Axon
has now presented them
[6]
—and then renew, if necessary, when seeking review of the FTC’s
final cease-and-desist order in a federal appellate court. Critically, Axon acknowledges
that it “could, in theory, raise its constitutional claims on appeal from an adverse
Commission order” and merely argues that the availability of such review “is irrelevant”
because “the Commission rules do not allow Axon to depose the DOJ officials who
participated in the clearance process without first getting the permission of the FTC-
appointed ALJ” and “there will be no guarantee of an administrative record that will allow
a reviewing court to decide those claims.” (Doc. 21 at 7-8.) But these are essentially the
same arguments the Supreme Court rejected in
Thunder Basin
and
Elgin
, which hold that
the eventual availability of review in a federal appellate court—even if preceded by
litigation before administrative bodies that refused to consider or develop the constitutional
claims—is sufficient. ,
Similarly, here, if the FTC issues an adverse decision and Axon seeks further
review, the Ninth Circuit can take judicial notice of facts that bear upon Axon’s
constitutional claims.
Singh v. Ashcroft
,
Axon attempts to escape this conclusion by narrowly focusing on particular aspects of the FTC’s conduct and arguing that those aspects are effectively immune from judicial review. For example, Axon argues that “the clearance decision, which put the FTC, rather than the DOJ, in charge of the Axon/Vievu merger,” was an effectively unreviewable decision that “caused real harm before any administrative action was filed.” (Doc. 21 at 6.) Axon also contends in a footnote that the mere fact of “being regulated” by the FTC is a cognizable injury. ( at 6 n.4.)
The problem with these arguments is that they are divorced from the facts of this case. Even assuming arguendo that a company that was investigated by the FTC for *16 acquiring a competitor, spent money complying with the FTC’s investigative demands, and ultimately persuaded the FTC not to oppose the acquisition might lack an effective mechanism for challenging the constitutionality of the FTC’s investigatory effort (because there would be no administrative proceeding in which to raise those claims), Axon stands in different shoes here. It didn’t file this lawsuit in mid-2018, upon the FTC’s initiation of the investigation. Instead, it filed suit 18 months later, mere hours before the FTC initiated an administrative proceeding against it (which Axon was apparently racing to the courthouse to beat). Thus, unlike the accounting firm in Free Enterprise Fund , which had its reputation impugned by a critical report issued by the PCAOB but could not challenge that report in any subsequent administrative proceeding, here Axon can raise (and has raised) all of its constitutional challenges, including its challenge to the clearance process, during the FTC administrative proceeding [7] and may renew those challenges when seeking review by a federal appellate court. See 15 U.S.C. § 45(c)-(d) (an entity dissatisfied with an FTC cease-and-desist order may seek review in the court of appeals “within any circuit where the method of competition or the act or practice in question was used or where such person, partnership, or corporation resides or carries on business,” and the appellate court thereafter has exclusive jurisdiction to “affirm, enforce, modify, or set aside orders of the Commission”).
Axon also contends that the absence of effective judicial review is demonstrated by
the fact that it (like the accounting firm in
Free Enterprise Fund
) filed this lawsuit before
the initiation of administrative proceedings. (Doc. 21 at 3 & n.3.) This argument overlooks
that the plaintiff in also filed a pre-enforcement challenge, yet the Supreme
*17
Court still concluded that conferring jurisdiction upon the district court would “be inimical
to the structure and purpose” of the comprehensive statutory review scheme.
Thunder
Basin
,
Finally, the NCLA identifies three cases—(1)
Lucia v. SEC
,
In
Lucia
, the petitioner had been charged with securities law violations by the SEC.
It is curious that the NCLA views Lucia as supporting Axon’s jurisdictional claims. Unlike Axon, the petitioner in Lucia didn’t file a preemptive lawsuit in federal court when he learned the SEC would be pursuing an administrative proceeding against him. Instead, he raised his constitutional claims during the administrative proceeding and then renewed them when seeking review of the agency’s final decision in an appellate court. Indeed, the Supreme Court identified his conscientious compliance with the requirements of the administrative-review scheme as a reason why he was entitled to relief. Although Lucia and his counsel may, understandably, view the relief that was ultimately granted in Lucia as less-than-meaningful in practice, [9] the Lucia decision itself—to the extent it says anything about implicit preclusion—tends to reaffirm the Supreme Court’s holdings in Thunder Basin and Elgin that eventual review in an appellate court is meaningful review.
Next, in McNary , a group of undocumented aliens filed an action in district court asserting that the Immigration and Naturalization Service had committed a pattern and practice of constitutional violations when administering a particular immigration benefit program. 498 U.S. at 483-84. The question presented in McNary was whether section 210(e) of the Immigration and Nationality Act (“INA”), “which bars judicial review of individual determinations except in deportation proceedings, also forecloses this general challenge to the INS’[s] unconstitutional practices.” at 491. The Supreme Court concluded the district court possessed jurisdiction over the pattern-and-practice lawsuit *19 because: (1) the plain language of section 210(e) only barred jurisdiction over lawsuits challenging “the denial of an individual application” and thus did not, by implication, encompass “general collateral challenges to unconstitutional practices and policies used by the agency in processing applications” ( id. at 491-92): (2) the statute also contained a provision requiring appellate courts to limit their review to the administrative record, yet the type of administrative record created in an individual case [10] would be meaningless in a pattern-and-practice case ( id. at 492-94); and (3) Congress could have mirrored “more expansive” language from other statutes, so its choice to use narrower language in section 210(e) was suggestive of an intent to allow the plaintiffs’ claim to proceed ( id. at 494). Additionally, the Court noted:
[B]ecause there is no provision for direct judicial review of the denial [of the requested benefit] . . . unless the alien is later apprehended and deportation proceedings are initiated, most aliens denied [the requested benefit] can ensure themselves review in courts of appeals only if they voluntarily surrender themselves for deportation. Quite obviously, that price is tantamount to a complete denial of judicial review for most undocumented aliens. at 496-97.
There are at least four reasons why this case is different from, and not controlled by,
McNary
. First, because
McNary
addressed whether an affirmative jurisdiction-stripping
statute encompassed a certain type of claim, the Court performed a textual analysis that
turned on the wording of the statutory provision in question.
[11]
Here, the question isn’t
whether Axon’s claims fall within some provision of the FTC Act that attempts to strip
district courts of jurisdiction over certain categories of claims. Instead, the question is
whether the existence of the regulatory scheme itself evinces an implicit judgment by
*20
Congress that district court jurisdiction should be precluded. Second, and in a related vein,
McNary
was decided before ,
Free Enterprise Fund
, and
Elgin
, which are
the key cases addressing the topic of implicit preclusion. To the extent there is any conflict
between
McNary
and the trilogy, the later-decided cases control. Third, the appellate-
review provisions of section 210(e) of the INA and the FTC Act are materially different—
the former requires appellate courts to limit their review to the administrative record while
the latter specifically allows appellate courts to remand for additional fact-finding.
[12]
Cf.
,
Last, in
Shinseki
, the plaintiffs brought a class action against the Department of
Veterans Affairs (“VA”), arguing that “the VA’s handing of mental health care and service-
related disability claims deprives [the plaintiffs] of property in violation of the Due Process
Clause of the Constitution and violates the VA’s statutory duty to provide timely medical
care and disability benefits.”
[T]he VJRA supplies two independent means by which we are disqualified from hearing veterans’ suits concerning their benefits. First, Congress has expressly disqualified us from hearing cases related to VA benefits in [38 U.S.C.] § 511(a) . . . and second, Congress has conferred exclusive jurisdiction over such claims to the Veterans Court and the Federal Circuit. at 1022-23. With this backdrop in mind, the court concluded the district court lacked
jurisdiction over the plaintiffs’ first two claims, which related to mental health care ( id. at 1026-28) and disability benefit claims ( id. at 1028-32). However, with respect to the plaintiffs’ final claim—a constitutional challenge to the procedures employed by VA regional offices—the court concluded it fell outside the VJRA’s jurisdiction-stripping provision because (1) as a textual matter, section 511(a) only precludes judicial review of “‘decisions’ affecting the provision of benefits to any individual claimants,” yet the plaintiffs “do[] not challenge decisions at all. A consideration of the constitutionality of the procedures in place, which frame the system by which a veteran presents his claims to the VA, is different than a consideration of the decisions that emanate through the course of the presentation of those claims”; and (2) “the VJRA does not provide a mechanism by which the organizational plaintiffs here might challenge the absence of system-wide procedures, which they contend are necessary to afford due process. . . . Because [the plaintiffs] would be unable to assert [their] claim in the review scheme established by the VJRA, that scheme does not operate to divest us of jurisdiction.” at 1033-35 (internal citation omitted).
Shinseki is distinguishable for many of the same reasons as McNary . It addressed whether an affirmative jurisdiction-stripping statute should, as a textual matter, be construed to encompass a particular type of claim and emphasized that an adverse ruling would effectively preclude the plaintiffs from ever raising their claim. Here, the question is whether the FTC Act evinces an implied intent to preclude district court jurisdiction and an adverse ruling wouldn’t preclude Axon from raising its claims—it has already done so in the pending administrative proceeding and can renew them, if necessary, when seeking *22 review in an appellate court.
2. Wholly Collateral
The next consideration is whether the claim is “wholly collateral” to the statute’s
review provisions. Unfortunately, “the reference point for determining whether a claim is
‘wholly collateral’ is not free from ambiguity.”
Bennett
,
Since
Elgin
, courts seeking to assess whether a claim is “wholly collateral” have
taken two approaches.
Bebo,
Second, other courts have looked to
Elgin
when evaluating the meaning of “wholly
collateral.”
Bebo
,
These approaches can be viewed as two sides of the same inquiry.
Free Enterprise
Fund
’s “wholly collateral” finding turned on the fact that the accounting firm’s claims were
“collateral to any . . . orders or rules from which review might be sought.”
The best way to harmonize
Free Enterprise Fund
and is to conclude that the
“wholly collateral” consideration turns on whether a vehicle exists (or could exist) for the
plaintiff ultimately to receive judicial review of its constitutional claim. If no vehicle
exists, the claim is “wholly collateral” to the review scheme, and this consideration would
weigh in favor of a district court exercising jurisdiction. This does “reduce[] the factor’s
independent significance,” but it is “more faithful to the more recent Supreme Court
*24
precedent” and harmonizes seemingly discordant case law.
Bennett
,
Given this backdrop, there is no merit to Axon’s argument that its constitutional claims are “wholly collateral” to the issues to be adjudicated during the administrative proceeding because its “claims (just like those in Free Enterprise Fund ) go to the agency’s constitutional authority” and “do not ‘arise[] out of’ an enforcement proceeding.” (Doc. 21 at 9-10.) Because Axon can assert (and already has asserted) its constitutional claims during the administrative proceeding, and because Axon retains the ability to seek further review of those claims in a federal appellate court, those claims are not “wholly collateral” to the FTC Act’s review provisions. This logic also disposes of Axon’s contention, raised during oral argument, that its constitutional challenge to the clearance process is “wholly collateral” because the clearance process isn’t even enshrined in the FTC Act—Axon’s ability to raise this challenge as part of the enforcement proceeding shows it isn’t “wholly collateral” under Elgin .
Finally, one additional clarification is necessary with respect to the concept of
“wholly collateral” claims. Axon’s briefing can be interpreted as suggesting its claims are
wholly collateral because they are constitutional in nature. (Doc. 21 at 8-9.) But in
Elgin
,
the Supreme Court expressly rejected “a jurisdictional rule based on the nature of an
employee’s constitutional claim.”
Thunder Basin
and
Elgin
, in short, foreclose the possibility that the Court has
jurisdiction over Axon’s due process and equal protection claims simply because they are
constitutional in nature—
Thunder Basin
precluded jurisdiction over a due process claim,
The potential wrinkle is that Axon is also asserting an Article II claim, which was
not raised in or
Elgin
but was the claim at issue in
Free Enterprise Fund.
Despite that wrinkle, the logic of
Elgin
extends to preclude jurisdiction over that claim
here.
Elgin
was concerned with a lack of clarity when it came to deciding whether
jurisdiction was precluded and rejected “hazy” line drawing.
[P]etitioners contend that facial and as-applied constitutional challenges to statutes may be brought in district court, while other constitutional challenges must be heard by the [agency]. But, as we explain below, that line is hazy at best and incoherent at worst. The dissent’s approach fares no better. The dissent carves out for district court adjudication only facial constitutional challenges to statutes, but we have previously stated that “the distinction between facial and as-applied challenges is not so well defined that it has some automatic effect or that it must always control the pleadings and disposition in every case involving a constitutional challenge.
Id.
(citation omitted). Axon’s Article II claim, at bottom, attacks the for-cause removal
protection for FTC commissioners (15 U.S.C. § 41) and ALJs (5 U.S.C. § 7521). (Doc. 15
at 12-14.) In other words, Axon brings a facial constitutional challenge to a statute. makes clear that the facial nature of the claim is not, alone, enough to establish district
court jurisdiction. The weight of authority from outside the Ninth Circuit supports this
*26
conclusion.
Hill
,
3. Agency Expertise
“The final consideration within the
Thunder Basin
framework” is whether Axon’s
claims “fall[] outside the [FTC’s] expertise.”
Tilton
,
Free Enterprise Fund concluded that agency expertise played no role because the accounting firm’s constitutional claims were not “fact-bound inquiries” and its statutory claims did “not require ‘technical considerations of [agency] policy.” 561 U.S. at 419 (citing Johnson v. Robison , 415 U.S. 361, 373 (1974)). In contrast, Elgin rejected the argument that the plaintiffs’ constitutional arguments were outside the statutory scope of review because that argument “overlook[ed] the many threshold questions that may accompany a constitutional claim and to which the [agency] can apply its expertise.” 567 U.S. at 22. Resolution of substantive arguments that did fall under the agency’s expertise in favor of a plaintiff could “avoid the need to reach his constitutional claims.” In other words, the ability to “fully dispose of the case” before reaching the constitutional claims was an example of an agency’s expertise being brought to bear.
Again,
Free Enterprise Fund
and
Elgin
can be difficult to harmonize. The Courts
of Appeals that have recognized this tension have generally opted to apply ’s
approach to the agency expertise consideration.
Bennett
, 844 F.3d at 187-88;
Hill
, 825
*27
F.3d at 1250-51;
Tilton
,
That said, Free Enterprise Fund and Elgin must be read as complementary, and thus the question isn’t which standard controls, but where Axon’s claims fall in the spectrum they create. The apparent conflict arises because Elgin , although its rule is clear, was not dealing with the sort of structural challenge that was raised in Free Enterprise Fund . If Elgin ’s rule were applied as some courts have described it, agency expertise could be brought to bear in any case, which is an outcome that would conflict with Free Enterprise Fund and Thunder Basin . On the other hand, carving out a “ Free Enterprise Fund exception” based on the content of a specific claim would run counter to Elgin ’s reasoning, which is the Supreme Court’s most recent formulation of the agency expertise consideration.
The key to harmonizing
Free Enterprise Fund
and
Elgin
is that the agency expertise
analysis in
Free Enterprise Fund
was driven by the fact that, for the accounting firm to
obtain judicial review through the statutory scheme, it would have had to force the issue
by willfully and intentionally violating a rule and then raising the only defense possible—
that the agency was unconstitutional. Only then would the accounting firm’s claims be
before the SEC and subject to judicial review.
The same is true here. Axon maintains it has done nothing wrong. The FTC, in applying its own expertise, may agree. Thus, as in , there may be no need for a federal appellate court to reach Axon’s constitutional claims. Were Axon forced to forego any defense other than its constitutional claims, then, and only then, would Axon be in the same *28 position as the plaintiff in Free Enterprise Fund . Here, though, Axon has substantive defenses that may obviate the need to reach the constitutional question. It has not willfully broken a rule in order to vindicate its constitutional claims, nor does it need to do so. Thus, matters remain that would benefit from the FTC’s expertise.
Axon argues the FTC cannot bring its expertise to bear because there is no way
Axon can win—the FTC is so hopelessly biased that any litigant is doomed to lose. (Doc.
21 at 10.) Yet even if the FTC incorrectly rules against Axon during the administrative
proceeding, “there are precious few cases involving interpretation of statutes authorizing
agency action in which [a court’s] review is not aided by the agency’s statutory
construction.”
Mitchell v. Christopher
,
…
…
…
…
…
…
…
… *29 Accordingly, IT IS ORDERED that:
(1) Axon’s complaint (Doc. 1) is dismissed without prejudice due to a lack of subject matter jurisdiction.
(2) Axon’s motion for preliminary injunction (Doc. 15) is denied as moot . (3) The Clerk of the Court shall enter judgment accordingly and terminate this action.
Dated this 8th day of April, 2020.
Notes
[1] In its reply, Axon clarifies that it “is not challenging the mere fact of concurrent jurisdiction, but rather the arbitrary way in which the agencies determine which of two vastly different (and often outcome-determinative) procedures will be applied to a particular company.” (Doc. 21 at 2 n.1.)
[2] Due to the COVID-19 pandemic, the Court allowed counsel for the FTC and NCLA to attend the hearing telephonically. (Docs. 31, 34.) Additionally, the Court allowed media organizations and members of the public to listen to the hearing telephonically. (Doc. 37.)
[3] In its reply, Axon points out several ways in which the text, structure, and purpose of the FTC Act arguably differ from the text, structure, and purpose of the CSRA. (Doc. 21 at 4-5.) However, Axon does not attempt to make such a showing with respect to the Mine Act.
[4] This conclusion is bolstered by the slate of recent cases concluding that the SEC’s
authorizing legislation precludes district court jurisdiction over constitutional challenges
to the SEC’s structure.
See, e.g., Bennett
,
[5] During oral argument, Axon emphasized that the Court must conduct an 25 independent preclusion analysis as to each of its three constitutional claims. The Court has done so and concludes, for the reasons discussed below, that Axon may obtain meaningful review of each claim through the FTC’s administrative framework, that none of the three 26 claims is wholly collateral to the FTC Act’s review provisions, and that the FTC’s agency 27 expertise could be brought to bear on each claim.
[6] S ee FTC Doc. No. D9389, Answer and Defenses of Respondent Axon Enter. Inc., 28 Affirmative Defenses 14-18. This document is available here.
[7] Following oral argument, Axon filed documents showing that the attorneys representing the FTC in the administrative proceeding have refused to comply with Axon’s requests for discovery pertaining to the FTC/DOJ clearance process. (Doc. 40.) These documents do not alter the “meaningful review” analysis for two reasons. First, the documents only reflect the existence of a discovery dispute between counsel that has not yet been brought to the ALJ’s attention. The ALJ could, at least theoretically, side with Axon and order the FTC’s counsel to produce the requested discovery materials. Second, even if Axon is barred from seeking clearance-related discovery during the administrative proceeding, Thunder Basin and hold that the appellate courts’ eventual ability to consider constitutional claims during the final stage of the review process and, if necessary, remand for additional fact-finding means that “meaningful review” remains available.
[8] Axon did not cite Lucia or Shinseki in its motion or reply but did include one citation to McNary . (Doc. 15 at 11.)
[9] The NCLA, which “now represents Ray Lucia,” argues that his “odyssey belies blithe statements that eventual, possible appellate review is ‘meaningful review’ for [a claim alleging] a defect in the tribunal itself.” (Doc. 32-2 at 14.) Likewise, Axon’s counsel stressed during oral argument that a years-long administrative and appellate process that might result in a redo of the entire process couldn’t possibly amount to meaningful review. Although the Court doesn’t discount these sentiments, they find no support in Lucia , , and , which the Court must follow.
[10] Specifically, that record would “consist[] solely of a completed application form, a 25 report of medical examination, any documents or affidavits that evidence an applicant’s agricultural employment and residence, and notes, if any, from [a Legalization Office] interview.” at 493. 26
[11] The provision at issue in McNary , codified at 8 U.S.C. § 1160(e)(1), provides: 27 “There shall be no administrative or judicial review of a determination respecting an application for adjustment of status under this section except in accordance with this 28 subsection.”
[12] Compare 8 U.S.C. § 1160(e)(3)(B) (“Such judicial review shall be based solely 24 upon the administrative record established at the time of the review by the appellate authority and the findings of fact and determinations contained in such record shall be conclusive unless the applicant can establish abuse of discretion or that the findings are directly contrary to clear and convincing facts contained in the record considered as a whole.”) with 15 U.S.C. § 45(c) (“If either party shall apply to the court for leave to adduce additional evidence, and shall show to the satisfaction of the court that such additional 25 26 27 evidence is material and that there were reasonable grounds for the failure to adduce such evidence in the proceeding before the Commission, the court may order such additional evidence to be taken before the Commission and to be adduced upon the hearing in such 28 manner and upon such terms and conditions as to the court may seem proper.”).
[13] In addition to lacking any support in the case law, this approach would also raise practical problems. For example, although Axon asserts that the FTC has a 100% win rate, some law review articles suggest that “FTC opinions that were appealed by losing respondents were reversed 20 percent of the time compared to a 5-percent reversal rate for such opinions appealed from district courts [in cases brought by the DOJ’s Antitrust Division].” Terry Calvani & Angela M. Diveley, The FTC at 100: A Modest Proposal for Change , 21 G EO . M ASON L. R EV . 1169, 1181 (2014). During oral argument, Axon argued this law review article is misleading because “it includes cases that go all the way back to 1976” and there haven’t been any appellate reversals of the FTC in recent years. It is unclear how courts would go about choosing which temporal cutoffs to employ if “win rate” statistics were truly part of the analysis.