Supreme Court allows federal agencies to be taken to court

WASHINGTON (CN) — The Supreme Court was unanimous on Friday in ruling that constitutional claims against federal agencies can be brought in U.S. district court. 

"The challenges are fundamental, even existential,” Justice Elena Kagan wrote for the court. “They maintain in essence that the agencies, as currently structured, are unconstitutional in much of their work.” 

Kagan said it is not the court’s job to decide such challenges, only if they can be heard. She said both parties skipped the normal review process in favor of bringing claims in federal district court. 

“The question presented is whether the district courts have jurisdiction to hear those suits — and so to resolve the parties’ constitutional challenges to the Commissions’ structure,” the Obama appointee wrote. “The answer is yes. The ordinary statutory review scheme does not preclude a district court from entertaining these extraordinary claims.” 

One of the suits came from Axon, which sells body-worn cameras and digital evidence management systems to law enforcement. After its acquisition of a competitor caught the government’s ire in 2018, Axon says it spent $1.6 million dealing with 18-month investigation by the Federal Trade Commission. Rejecting an offer to cancel the acquisition, the FTC said Axon would have to turn the competitor into a clone of its own business or face administrative proceedings. 

Axon sued the FTC, arguing that the commission’s administrative law judges and the agency itself were unconstitutional. The Ninth Circuit ultimately affirmed the jurisdictional dismissal of the case but did not rule out that Congress divested federal district courts of the ability to decide constitutional challenges against agencies.

When the high court heard the case in November, Axon argued that Congress bestowed jurisdiction in this area to district courts and has yet to deviate. 

“Congress has expressly granted district courts original jurisdiction over all civil actions arising under the Constitution, and it is common ground that Congress has never expressly withdrawn or restricted that jurisdiction with respect to the constitutional claims at issue here,” Paul Clement, an attorney for the company with Clement & Murphy, said during oral arguments. 

On the other side, the government argued courts shouldn’t be able to intervene until the agency completes its work. 

“It is a longstanding principle of administrative law that courts will not intervene in an ongoing agency proceeding until that proceeding culminates in a rule or order that imposes sanctions or determines legal rights or obligations,” Deputy U.S. Solicitor General Malcolm Stewart said during oral arguments. 

The second case came from Michelle Cochran, an accountant from Texas, who joined a small accounting firm that performed auditing work for companies in 2017. Cochran worked 10 to 15 hours per week at the Hall Group, during which she observed a toxic work environment that required employees to agree to unmeetable deadlines at the risk of termination. According to Cochran, David Hall, the firm’s principal, was responsible for these conditions, often berating employees. 

Hall asked Cochran to become a nonequity partner in 2012 in order to continue working at the firm. Cochran would get no increase in pay for taking on this position, but she would be required to take on more responsibility and work longer hours. Cochran declined the offer and left the firm in 2013. 

Three years after leaving the firm, the Securities and Exchange Commission filed an order instituting proceedings against Hall, Cochran and another employee for violations of the Exchange Act, including failing to comply with auditing documentation requirements. 

The case was sent to an administrative law judge who ruled against Cochran, assigning her a $22,500 penalty and ban from practicing before the SEC for five years. The commission reviewed the ruling and vacated the judge’s decision, however, Cochran was assigned a new administrative law judge to undergo a new round of administrative proceedings. 

Cochran sued the SEC in 2019 for constitutional deficiencies in the SEC’s administrative proceedings. The district court dismissed the case for lack of jurisdiction. At divided panel of the Fifth Circuit affirmed but that decision was vacated in favor of an en banc rehearing where the appeals court reversed, finding that district courts had jurisdiction to hear appeals like Cochran’s.

She asked the Supreme Court to uphold the Fifth Circuit’s ruling. 

“The administrative state can be ruthless in its ability to destroy the lives of those caught up in its machinery — before any wrongdoing is established,” Gregory Garre, an attorney with Latham & Watkins representing Cochran, wrote in her brief. “When individuals like Michelle Cochran are accused by the Securities and Exchange Commission (SEC or Commission) of violating an SEC-created and SEC-enforced securities regulation, they frequently find themselves in SEC administrative proceedings in which the SEC enjoys a home-court record that would make most college teams blush.” 

The government claimed that even if the district court had jurisdiction, Cochran would lack a cause of action to bring her suit.

Kagan’s opinion was joined by all the justices except Neil Gorsuch, who wrote an opinion concurring in judgment. The Trump appointee said he agreed with the court’s ruling but just not how it arrived there. Where Kagan found the court’s precedents allowed the suits to be brought, Gorsuch said the answer is much simpler. 

Gorsuch said a statute created by Congress gives courts jurisdiction to here all civil actions arising under federal law. 

“The statute is as clear as statutes get, and everyone agrees it encompasses the claims Ms. Cochran and Axon seek to pursue,” Gorsuch wrote. “End of case, right?” 

The additional balancing test the court relied on in its precedents creates an unnecessary obstacle, according to Gorsuch. 

“So, yes, the law on the books may promise you the right to be heard in a court of law,” Gorsuch wrote. “But sometimes that doesn’t count for much. Sometimes judges can shunt you to an agency instead — so long as a test we have fabricated suggests to us that is what Congress really wanted.” 

Gregory Garre, an attorney with Latham & Watkins representing Cochran, praised the ruling. 

“We are thrilled that the Supreme Court has unanimously vindicated Michelle Cochran’s right to have her day in court to challenge the constitutionality of the administrative apparatus she has fought for nearly a decade against the SEC,” Garre said in an email. 

The New Civil Liberties Alliance, a nonprofit civil rights group that supported Cochran’s case in its journey to the high court, said the ruling will allow citizens to access federal courts when agencies violate their constitutional rights. The NCLA will continue to represent Cochran as her case proceeds in the lower courts.

The Department of Justice and attorneys for Axon did not respond to requests for comment. 

Follow @KelseyReichmann

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit