On Monday, the Supreme Court continues its November sitting with hearings on the constitutional legitimacy of the way two federal agencies – part of the “Fourth Branch” of government – use their power to regulate business activity. This is not new for the Court: it has been wrestling with this question since the 1890s.
The Court will broadcast “live” the audio (no video) of the hearings on its homepage, supremecourt.gov To listen, click on “Live Audio” and follow the prompt when the courtroom scene appears lower on the page. The audio also will be available, under the title of each case, on C-Span TV at this link: cspan.org/supremecourt
Background on both cases: Pupils in America’s schools learn that the national government has three branches: one to make the laws, one to enforce the laws, and one to judge how the other two do their jobs. It is often said, though, that – at least since 1887 – it has had four.
When people talk about this “Fourth Branch,” quite often they are critical of it and will refer to it as “unelected,” or “unaccountable,” or – even – “unconstitutional.” Today, its critics often refer to it disrespectfully as part of the so-called “Deep State,” a group of bureaucrats who often go rogue.
They are talking about the so-called “independent regulatory agencies” – supposedly part of the Executive Branch, but with very wide authority to manage the day-to-day life of American commerce and industry.
What they are assigned to do is heroically symbolized by two large limestone sculptures, each depicting in Art Deco style a muscular, shirtless man, seen from two angles, restraining a powerful horse. Standing outside the Federal Trade Commission building at the point of the “Federal Triangle” in the heart of downtown Washington, D.C., they were meant to reflect Big Government versus Big Business, the dominant theme of President Franklin Roosevelt’s “New Deal.” They were designed by 20-year-old New York sculptor Michael Lantz in 1939, after he won a competition for the task.
The FTC is one of the agencies involved in tomorrow’s hearings. It was created in 1914 to keep competition in business alive and fair, for competitors and consumers. The other agency under challenge tomorrow is the Securities and Exchange Commission, set up in 1934 – in the midst of the Great Depression — to regulate the stock market and the securities industry.
The first agency of this kind was created by Congress in 1887, the Interstate Commerce Commission. It was set up originally to make sure that the railroads did not charge unfair fees for carrying freight and passengers (and was later assigned to oversee trucks’ hauling service, too). It no longer exists, Congress having decided to “deregulate” transportation services or to assign the oversight tasks to other agencies.
The general idea behind the establishment of such agencies was that industry had become far more complex as a result of the Industrial Revolution, so technically expert agencies should be created to do the regulating under broad grants of authority from Congress.
The primary complaints about these agencies are that they over-use or abuse their powers, yet are poorly supervised by the President and poorly monitored by Congress, and sometimes become captives of the industries they supposedly restrain. As those complaints are translated into constitutional grievances, it is said that they are violating the doctrine of separation of powers, enacting the equivalent of laws in place of Congress, using executive power that belongs to the President, and judging cases as if they were courts.
Those are some of the constitutional arguments that the Supreme Court, with some frequency during the 1930s, relied upon to strike down major parts of the New Deal, before the Court – under pressure from Roosevelt – switched its approach.
Although today’s critics are not asking to abolish these agencies, they do want them made more accountable to the Presidency, particularly by giving the President more direct power to appoint or remove commissioners and key staff members.
Both the FTC and the SEC, typically for such agencies, have the power to write rules for their operations, pursue complaints against the regulated entities, and try those complaints before agency judges who have some protection against being summarily fired, with final rulings by the commissioners, who also have some protection against being dismissed.
Usually, these agencies do not decide constitutional issues that arise in their cases, but those can be raised in later appeals to the courts. With the FTC and the SEC, as with most such entities, appeals go directly to a court of appeals instead of to a trial court.
Tomorrow’s two cases involve attempts by regulated companies or individuals to go first to a trial court to pursue their constitutional complaints about the agency’s function, before that agency process moves forward. If that early challenge option is unavailable, they have to go through the entire process until there is a final ruling, and then raise those objections in a court appeal.
Lower federal courts in the two cases reached conflicting decisions about whether the laws creating each agency barred such early court challenges.
Each case is described here, following by a combined analysis of their significance.
First hearing Monday: Axon Enterprises v. Federal Trade Commission The hearing is scheduled for one hour, to begin at 10 a.m.
Facts of this case: The company, Axon Enterprises, is a manufacturer of equipment used by police departments; this case involves body cameras worn by officers. In May 2018, Axon bought a competing company, Vievu LLC.
A month later, Axon got a letter from the FTC, questioning whether the merger would be an antitrust violation. The company negotiated with the agency for about 18 months, but objected when the FTC demanded that Axon hand over to Vievu its patented technology. If it failed to do so, the agency said, it would begin a formal case against Axon.
Axon sued in a federal trial court, claiming that the agency’s “administrative law judges” are protected from dismissal and that the agency’s processes actually made it the prosecutor, judge and jury of the charge that Axon would face. The process, it argued, was a violation of “due process” (fair procedures) and of the separation of powers concept.
The company sought an order to stop the FTC from going ahead, but the judge ruled that there was no jurisdiction because Congress in creating the agency had implicitly indicated that constitutional challenges to the FTC would have to await the completion of a case before the commission.
A federal appeals court agreed, and Axon appealed to the Supreme Court. It urged the Court to clear the way for it to challenge the FTC’s process, but if that was denied, to decide itself in this case whether that process was unconstitutional. The Court chose to decide only the early challenge question.
The question before the Court: Did Congress intend to strip the federal trial courts of power to decide constitutional issues about the way the FTC operates?
Second hearing Monday: Securities and Exchange Commission v. Cochran Scheduled for one hour, this hearing will begin when the Axon hearing has ended.
Facts of this case: Michele Cochran is an accountant in Coppell, Texas – a suburb of Dallas. In 2016, the SEC opened a case against her, accusing her of failing over a four-year period to comply with required standards for how her firm’s books were audited. An administrative law judged ruled that she had acted illegally, and moved to impose a $22,500 civil penalty and to ban her for five years from practicing before the SEC.
In the meantime, the Supreme Court in a different case had ruled that the SEC’s judges’ selection process was unconstitutional, so the SEC ordered Cochran to appear before an SEC judge who had been properly appointed.
Instead, Cochran sued in a federal trial court, seeking to halt the case at the agency, to take advantage of the ruling that the SEC judge-selection system was unconstitutional. The trial judge rejected her challenge, finding no authority to decide it under the law creating the Commission. A federal appeals court, however, ruled that the trial court did have the authority to hear Cochran’s constitutional challenge. That led the SEC to file an appeal at the Supreme Court.
The SEC noted that the Justices had already agreed to rule on the FTC case involving Axon Enterprises, and suggested that the SEC case be held without action until the decision on the FTC emerged on what was essentially a parallel issue. The Court, apparently believing it was better to look at each case on its own since the issue had been decided differently in the lower courts, agreed to rule on the SEC case, too.
The question before the Court: Did Congress intend to strip the federal trial courts of power to decide constitutional issues about the way the SEC operates?
Significance of these two cases: The Court’s current majority of six conservative Justices is quite skeptical of robust use of powers by any federal agency, unless Congress has very explicitly given the exact authority that the agency seeks to exercise. It has also been defensive of the power of the President to remove officials within the federal Executive Branch.
Those two inclinations may be at work in the review of these two cases. The lower courts in interpreting the two laws creating these agencies decided that Congress had not spelled out in precise terms when a constitutional challenge could be kept on hold until a final action by the agency had emerged, followed by an appeals court review. Each lower court decided the issue on what it thought Congress had said implicitly, not explicitly.
The current majority has been exploring several ways to curb the sweep of federal power in implementing federal laws. Opening the federal trial courts to early challenges to the constitutional authority of an agency to act could be another step in that direction.
The outcome of the case obviously has major potential for clarifying important parts of federal regulatory law.
On Tuesday, the Supreme Court will continue to study constitutional questions, with two hearings on when individuals may sue to protect rights given to them by federal laws.