On Monday, November 7, the Supreme Court heard argument in Axon Enterprise, Inc. v. FTC and SEC v. Cochran to decide whether a party subject to an FTC or SEC administrative proceeding can simultaneously challenge the constitutionality of an administrative proceeding, or even of the agency itself, in federal district court rather than waiting for final agency action.  At least five Justices expressed some measure of support for the private parties’ arguments, which indicates that the Court may permit certain kinds of collateral constitutional attacks (e.g., due process and appointments clause claims) at the outset of administrative proceedings.

Although predicting the outcome of any case from the oral argument is extremely difficult, three Justices – Neil Gorsuch, Samuel Alito, and Clarence Thomas – expressed strong support for finding in Axon’s and Cochran’s favor. Through their questions, they implied that 28 U.S.C. Section 1331, which grants federal district courts “original jurisdiction of all civil actions arising under the Constitution of the United States,” provides a clear grant of jurisdiction over constitutional claims and neither the FTC Act nor the Securities Exchange Act of 1934 (“the Exchange Act”) could strip district courts of that jurisdiction. They also suggested that Free Enterprise Fund v. PCAOB requires a finding for the companies. In PCAOB, the Court held that a district court had jurisdiction to hear an appointments clause challenge to PCAOB’s structure despite the fact that the SEC had not yet issued a final order against Free Enterprise Fund.

Other justices appeared to favor the private parties, but not as overtly. Chief Justice John Roberts’s questions suggested that PCAOB may prove to be an insurmountable barrier to the government’s claims and that the availability of jurisdiction in other forums (i.e., the court of appeals) under the FTC Act and the Exchange Act clearly does not act as an implied removal of jurisdiction from Section 1331. Justice Brett Kavanaugh’s questions indicated that he believes that the issue may be decided solely by reference to the “wholly collateral” factor of the Thunder Basin test, which courts have used to guide determinations about when a party may bring an Article III challenge to agency proceedings before those proceedings have concluded. Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (1994) (holding that the statutory review scheme of the Federal Mine Safety and Health Amendments Act of 1977 precludes a district court from exercising subject-matter jurisdiction over a pre-enforcement challenge to the Act). He stated that clarity, certainty, and speed counseled in favor of permitting district courts to hear constitutional claims.

Both Justice Sonia Sotomayor and Justice Ketanji Brown Jackson expressed some measure of support for the government’s position. Justice Sotomayor noted that the whole purpose for the FTC’s and SEC’s administrative processes was to consolidate rather than bifurcate review of agency action and produce consistent judgments. She also stated that courts generally require parties to wait until the end of initial proceedings to raise a due process claim. Justice Jackson expressed concern that a ruling for Axon and Cochran would be used by future challengers to undermine the finality of agency action.

It was unclear from oral argument where Justice Elena Kagan and Justice Amy Coney Barrett stood on the issues presented. Justice Kagan suggested that stare decisis counseled in favor of using the Thunder Basin factors to decide the outcome of the case, but noted that the those factors did not clearly favor either side here. Justice Barrett did not ask any questions that make her views of the case readily apparent.

Key takeaways:

  • A majority of the Court indicated that they are open to overturning settled practice at the FTC and SEC by allowing private parties to challenge independent agencies’ constitutionality in federal district court at the outset of administrative proceedings.
  • In the short term, a decision for the private parties likely would result in an increase in collateral constitutional challenges to FTC and SEC enforcement actions, thereby imposing additional burdens and creating distractions for the agencies, with the potential for delaying enforcement actions.
  • If Axon and Cochran prevail, the constitutionality of FTC and SEC, as well as their administrative processes, would likely make their way to the Court’s docket in the relatively near future.
  • These cases involve statutory interpretation of the FTC Act and the Exchange Act, so the outcome will not necessarily apply to other statutes (e.g., the Federal Deposit Insurance Act) that could be read as expressly postponing judicial review until after the agency process is complete.
Photo of John Graubert John Graubert

John Graubert has more than 40 years of experience in a wide range of complex antitrust and consumer law matters. John came to the firm after serving for ten years as Principal Deputy General Counsel of the Federal Trade Commission. John is the former co-chair…

John Graubert has more than 40 years of experience in a wide range of complex antitrust and consumer law matters. John came to the firm after serving for ten years as Principal Deputy General Counsel of the Federal Trade Commission. John is the former co-chair of the firm’s Advertising and Consumer Protection practice group, an Adjunct Professor at the Georgetown University Law Center, and a vice-chair of the Global Private Litigation Committee of the ABA Antitrust Section.

From 1998-2008, John served as Principal Deputy General Counsel (including several stints as Acting General Counsel) at the Federal Trade Commission. In that position John managed all litigation, legal counsel, policy studies, and administrative functions within the Office of General Counsel. He also advised the Commission and agency staff on antitrust and consumer protection matters and administrative law. He was involved in dozens of litigated matters for the Commission, including FTC v. Swedish Match, et al. (D.D.C. 2000) and FTC v. Schering-Plough, et al. (11th Cir. 2005), and received the A. Leon Higginbotham Award and the Award for Distinguished Service.

Photo of Gerald Hodgkins Gerald Hodgkins

Gerald Hodgkins has a broad securities enforcement practice focused on representing financial institutions, public companies and individuals in investigations and enforcement actions brought by the key financial regulators. A former Associate Director in the U.S. Securities and Exchange Commission’s Division of Enforcement, Jerry…

Gerald Hodgkins has a broad securities enforcement practice focused on representing financial institutions, public companies and individuals in investigations and enforcement actions brought by the key financial regulators. A former Associate Director in the U.S. Securities and Exchange Commission’s Division of Enforcement, Jerry has extensive experience in matters before the SEC, with particular focus on public company accounting and disclosure, broker-dealer and investment adviser regulation, and U.S. anti-corruption law. He also represents clients in matters before the Public Company Accounting Oversight Board (PCAOB), the Financial Industry Regulatory Authority (FINRA) and the U.S. Department of Justice.

Since joining Covington in 2018, Jerry has represented or advised more than fifty Fortune 500 companies in matters involving the U.S. securities laws, including five Fortune 10 and ten Fortune 50 companies.  He also has represented or advised ten of the one hundred largest financial services firms in the U.S. as ranked by Fortune magazine. 

During his 20-year tenure at the SEC, Jerry oversaw more than 100 enforcement matters, covering the entire breadth of the SEC’s law enforcement authority. In addition to matters involving financial services regulation and public company oversight, Jerry oversaw multiple investigations involving insider trading, the Foreign Corrupt Practices Act (FCPA), and municipal securities regulation. The enforcement actions he oversaw included the largest penalty in SEC history for issuer reporting and disclosure fraud (SEC v. WorldCom), the first, and still largest, settlement involving the clawback of executive compensation under Section 304 of the Sarbanes-Oxley Act of 2002 (SEC v. William W. McGuire, M.D.), and the final dispositions in the SEC’s actions against former Enron officers, including summary judgment obtained by the SEC against Jeffrey K. Skilling, former Enron president, COO and CEO.

In 2023, Jerry was elected to a second term on the steering committee of the Corporation, Finance and Securities Law Community of the DC Bar. He frequently speaks at conferences and continuing education programs and has authored several articles focused on SEC enforcement.

In his free time, Jerry is principal trumpet for the Maryland-based Symphony of the Potomac.

Photo of Laura Kim Laura Kim

Laura Kim draws upon her experience in senior positions at the Federal Trade Commission to advise clients across industries on complex advertising, privacy, and data security matters. She provides practical compliance advice and represents clients in FTC and State AG investigations. Laura advises on…

Laura Kim draws upon her experience in senior positions at the Federal Trade Commission to advise clients across industries on complex advertising, privacy, and data security matters. She provides practical compliance advice and represents clients in FTC and State AG investigations. Laura advises on a wide range of consumer protection issues, including green claims, influencers, native advertising, claim substantiation, Made in USA claims, children’s privacy, subscription auto-renewal marketing, and other digital advertising matters. In addition, Laura actively practices before the NAD, including recent successful resolution of matters for both challengers and advertisers. She is the Chair of Covington’s Advertising and Consumer Protection Investigations Group and participates in the firm’s Internet of Things Initiative.

Laura re-joined Covington after a twelve-year tenure at the FTC, where she served as Assistant Director in two divisions of the Bureau of Consumer Protection, as well as Chief of Staff in the Bureau of Consumer Protection and Attorney Advisor to former Chairman William E. Kovacic. She worked on key FTC Rules and Guides such as the Green Guides, Jewelry Guides, and the Telemarketing Sales Rule. She supervised these and other rule making proceedings and oversaw dozens of the Commission’s investigations and enforcement actions involving compliance with these rules. Laura also supervised compliance monitoring for companies under federal court or Commission order.

Laura also served as Deputy Chief Enforcement Officer at the U.S. Department of Education, where she helped establish a new Enforcement Office within Federal Student Aid. In this role, she managed investigations of higher education institutions and oversaw issuance of fines and adverse actions for institutions in violation of federal student aid regulations. Laura also supervised the borrower defense to repayment division and the Clery campus safety and security division.

Photo of Terrell McSweeny Terrell McSweeny

Terrell McSweeny, former Commissioner of the Federal Trade Commission (FTC), has held senior appointments in the White House, Department of Justice (DOJ), and the U.S. Senate. At the FTC and DOJ Antitrust Division, she played key roles on significant antitrust and consumer protection…

Terrell McSweeny, former Commissioner of the Federal Trade Commission (FTC), has held senior appointments in the White House, Department of Justice (DOJ), and the U.S. Senate. At the FTC and DOJ Antitrust Division, she played key roles on significant antitrust and consumer protection enforcement matters. She brings to bear deep experience with regulations governing mergers and non-criminal, anti-competitive conduct, as well as issues relating to cybersecurity and privacy facing high-tech, financial, health care, pharmaceutical, automotive, media, and other industries. Terrell is internationally recognized for her work at the intersection of law and policy with cutting edge technologies including Artificial intelligence (“AI”), Digital Health, Fintech, and the Internet of Things (“IoT”). Clients benefit considerably from her extensive relationships with other enforcement agencies around the world.

Prior to joining the Commission, Terrell served as Chief Counsel for Competition Policy and Intergovernmental Relations for the U.S. Department of Justice, Antitrust Division. She joined the Antitrust Division after serving as Deputy Assistant to the President and Domestic Policy Advisor to the Vice President from January 2009 until February 2012, advising President Obama and Vice President Biden on policy in a variety of areas.

Terrell’s government service also includes her work as Senator Joe Biden’s Deputy Chief of Staff and Policy Director in the U.S. Senate, where she managed domestic and economic policy development and legislative initiatives, and as Counsel on the Senate Judiciary Committee, where she worked on issues such as criminal justice, innovation, women’s rights, domestic violence, judicial nominations, immigration, and civil rights.

Photo of David Zionts David Zionts

David Zionts is an appellate litigator and international lawyer. He handles high-stakes appeals across a range of subject matters, and regularly works on transnational disputes and issues of international law that arise in both U.S. and international tribunals.

David has litigated matters of…

David Zionts is an appellate litigator and international lawyer. He handles high-stakes appeals across a range of subject matters, and regularly works on transnational disputes and issues of international law that arise in both U.S. and international tribunals.

David has litigated matters of constitutional law, administrative law, and statutes including the Anti-Terrorism Act, Alien Tort Statute, and Foreign Sovereign Immunities Act. He has successfully represented companies, individuals, and foreign sovereigns before:

  • The Supreme Court of the United States, where he has represented clients at both merits and certiorari stages;
  • Federal and state courts of appeals, where David has argued numerous appeals;
  • District courts, where he has delivered arguments and crafted winning dispositive motions; and
  • International tribunals including the International Court of Justice, where David has argued as an advocate on behalf of a sovereign.

David also maintains an active pro bono practice, and has led litigation efforts in high-profile cases concerning immigration, transgender rights, reproductive rights, voting rights, and others.

Before joining the firm, David was a law clerk to Justice Stephen G. Breyer of the U.S. Supreme Court, and to Judge Merrick B. Garland of the U.S. Court of Appeals for the D.C. Circuit. He also served at the U.S. Department of State as special advisor to the Legal Adviser Harold Hongju Koh.

David has been named a Rising Star by both the National Law Journal and Law360.