Axon Suffers a Defeat in the 9th Circuit but Both Majority and Dissent See the Problem

We have discussed Axon v. FTC before and followed it closely since its inception. On January 28, 2021, the Ninth Circuit gave us more to consider. First, a recap is in order. Axon Enterprise, Inc. (Axon) is a corporation that makes law enforcement equipment such as tasers and body cameras. The FTC determined to investigate it under antitrust jurisdiction for acquisition of another corporation. After about a year-long investigation it became clear that the FTC wanted to order Axon to not only divest itself of this purchase but, incredibly, give the new entity Axon’s own patented tech which the acquired company did not have prior to the acquisition. Seeing the writing on the wall, Axon struck first by suing the FTC in Arizona Federal District Court and challenging the unconstitutionality of the “pre-clearance” procedure by which the FTC and the Justice Department decides which agency will prosecute antitrust cases—and also challenging the constitutionality of the FTC’s administrative law judges (ALJ’s).

Axon conceded, shortly after filing its suit, that the actual antitrust matters were properly before the FTC but maintained that the constitutional issues could and should be tried in Federal Court. The FTC had no special expertise in constitutional law, it never rules on constitutional issues when raised, and the constitutional injury was appearing before a wrongfully instituted tribunal could not be corrected upon appeal because the harm would have been inflicted by the proceeding. Axon noted that no federal court would be able to look at its claims for many years, if at all, and that appellate court would be deferential to all FTC findings even though no litigant before an FTC ALJ had won in more than a quarter of a century! The district court judge determined that three Supreme Court cases, often called “the trilogy” (Thunder Basin Coal Co., Reich, 510 U.S. 200 (1994); Free Enter. Fund v. Pub. Co. Acct. Oversight Bd., 561 U.S. 477 (2010); Elgin v. Dep’t of Treasury, 567 U.S. 1 (2012)) directed that the entire case must be heard before the FTC ALJ and that Congress implicitly stripped the federal district courts of jurisdiction in the FTC Act.

Undaunted, Axon appealed to the Ninth Circuit and that opinion has issued and can be found here. It affirms the district court and determined that as long as, someday in the sweet by and by, an appellate court gets to look at the Dante-like procedure that must be followed before then still allows “meaningful review.” This outcome, though regrettable, is not unexpected given the rulings in other Circuits. What is not regrettable is the dissent by recent appointee to the Ninth Circuit Patrick J. Bumatay. He would have allowed the constitutional issues to move forward in the district court while letting the antitrust questions proceed in the FTC. The legal analysis of the majority and the dissent both deal with the “trilogy” in some detail but come to different conclusions about what those cases require. But what is heartening, to anyone who wants the Supreme Court to take this case and reverse, is the stark recognition by every member of the Court of the injustice of the process Axon is being put through.

The majority was open to Axon’s arguments that the administrative review process could not address its constitutional complaints stating, “Axon’s argument makes sense from a policy perspective: it seems odd to force a party to raise constitutional challenges before an agency that cannot decide them.” But it believed that the Supreme Court had decided this issue in Elgin. The majority also noted, “As the dissent cogently points out, it makes little sense to force a party to undergo a burdensome administrative proceeding to raise a constitutional challenge against the agency’s structure before it can seek review from the court of appeals. And if we were writing on a clean slate, we would agree with the dissent.” Unfortunately, the majority disagreed with Axon and the dissent’s view of Free Enterprise. It then stated, “Perhaps the Supreme Court in the near future will clarify and extend the holding of Free Enterprise to include any constitutional challenge to any agency’s structure, procedure, or existence.” But in the majority’s view it had not done so yet. The Court then found that “while it is a close call” whether Axon’s claim was “wholly collateral” to the FTC action was precluded by Thunder Basin. It also called the third factor, agency expertise, the Supreme Court outlined in Thunder Basin as “cloaked in ambiguity.” The majority went on to note that its opinion should not “[M]inimize Axon’s serious concerns about how the FTC operates.” The court noted there were “substantial questions” on whether the two-layer of protections for FTC ALJ’s stood up to the Supreme Court’s view of separation of powers concerns. It went on to note, “This case implicates one of the inherent tensions in the modern administrative state: Congress wants to insulate ALJs from political interference, but ALJ’s wield tremendous power and still remain part of the executive branch…”—and so should have to answer to the President and the people.

The majority was also concerned about Axon’s “legitimate questions about whether the FTC has stacked the deck in its favor..” because “Axon claims—and the FTC does not appear to dispute—that FTC has not lost a single case in the past quarter century. Even the 1972 Miami Dolphins would envy that type of record.” It noted Axon essentially argues that the FTC administrative proceeding amounts to “a legal version of the Thunderdome in which the FTC has rigged the rules to emerge as the victor every time.” But Thunderdome did not move them past Thunder Basin and Axon would have to wait until appeal from the agency decision.

Judge Bumatay thought differently. In his view precedent allowed the constitutional questions to be determined in federal court as long as the anti-trust questions went to the administrative agencies. He believed that because the FTC procedure might, hypothetically, result in a win by Axon on the substance or a settlement, the constitutional questions might never get to court. He believed the issue of “preclearance” (whether the FTC or Justice received the antitrust jurisdiction) was entitled to immediate judicial review.

He stated, “By forcing Axon’s claims into the FTC administrative process, we effectively shut the courtroom doors to a party seeking relief from alleged constitutional infringements.”

This nicely sets this case up for further proceedings if Axon wishes to proceed with them. Given the strong position it has taken so far, and what can only be termed judicial encouragement by the Ninth Circuit, I hope we will see the challenge continue.

February 4, 2021