NCLA’s Hat Trick Against Transportation Department Provides Roadmap for Others
NCLA lawsuits have forced the Department of Transportation to abandon an abusive administrative enforcement action against a small family-owned business for the third time this year. These cases provide a roadmap for others to follow when DOT drags them into illegitimate administrative proceedings.
All three NCLA cases challenged in federal court the constitutionality of DOT’s in-house tribunals that adjudicate enforcement actions, alleging that: (1) they violate the accused’s right to a trial by jury; (2) they fail to provide due process of law where DOT simultaneously acts as both prosecutor and adjudicator; and (3) DOT’s adjudicators are executive officers who are improperly protected from Presidential control. Rather than defend itself in court, DOT simply bailed on its enforcement actions, either voluntarily vacating civil penalties or abandoning ongoing proceedings.
DOT’s Federal Motor Carrier Safety Administration (FMCSA) fined Colt & Joe Trucking, but in the face of a challenge in the Tenth Circuit, the agency vacated its own civil penalty order to avoid having to defend its in-house adjudication scheme. In another case, DOT’s Pipeline & Hazardous Materials Safety Administration (PHMSA) fined Polyweave, a family-owned manufacturer of bags used to transport hazardous material. The Justice Department decided it could not defend PHMSA’s order and convinced the Sixth Circuit to vacate that order by fessing up to the adjudicator’s unconstitutional appointment.
In the most recent case, which concluded this week, NCLA challenged an ongoing administrative proceeding that PHMSA brought against gh, a small laboratory that tests packaging used to transport hazardous material. NCLA was able to bring suit in federal court to enjoin the proceeding without waiting years for an agency final order because of its recent Supreme Court victory in Cochran, which recognized that being subject to an illegitimate agency proceeding is a here-and-now injury that can be addressed in an immediate federal-court lawsuit. Just days before DOT’s final brief opposing gh’s request to enjoin the challenged proceeding was due, the agency voluntarily abandoned that proceeding to avoid an adverse court ruling.
These repeated retreats evince a Fabian strategy to dodge judicial review of DOT’s administrative adjudication scheme. DOT abandons enforcement actions whenever an accused brings a constitutional challenge to that scheme but continues to subject others—typically small businesses that cannot afford attorneys—to such adjudications. That’s no way to run a railroad. Enforcement results should not depend on whether the accused has the resources to file federal lawsuits.
Nor is a strategy to avoid judicial review sustainable in the long run because the roadmap for NCLA’s success is easily replicated. As soon as DOT brings an enforcement proceeding for civil penalties or other punishments, the accused can file a federal lawsuit challenging the constitutionality of that proceeding. The jury-trial, due-process, and separation-of-powers claims do not depend on the details of the underlying enforcement action and thus can be adapted to challenge most DOT in-house proceedings. If DOT retreats each time, its ability to enforce regulations could be crippled. Soon or later, DOT must submit to judicial review.
In any event, the Supreme Court is already reviewing some of the same issues in SEC v. Jarkesy—albeit in the context of adjudications at the Securities and Exchange Commission. Justices seemed particularly skeptical that an agency can deny the targets of enforcement actions the constitutional right to trial by jury simply by dragging them into in-house tribunals.
ounced a proposed consent agreement with Drizly, the alcoholic beverage delivery company, and its CEO, James Cory Rellas, for alleged consumer data breaches. Under the current proposal, for the next ten years, Mr. Rellas is personally required to “ensure” that any business that he is a majority owner of or works for in a “senior” capacity maintains an information security program dictated by the Commission. Put another way, the Commission has decided that it will follow enforcement targets to future corporate endeavors and control those individuals and companies based on conduct that occurred at an entirely different company.
This proposed order marks a dramatic departure from Commission practice and presumes a right to control companies and their future conduct that have never been before it for any infraction. FTC has no such power—it only wishes it had. FTC, a repeat offender in conjuring up oversight powers and enforcement remedies from thin air, has outdone itself.
Just two weeks ago, the Commission was before the Supreme Court again in a case called Axon Enterprise, Inc. v. FTC, in which the FTC objected to Axon’s acquisition of a competing small maker of police bodycams. While the Axon case focuses on the technical issue of whether regulated parties may sue agencies in federal district court for constitutional challenges—a similar issue at the core of Michelle Cochran’s challenge to the Securities and Exchange Commission and argued on the same day—was propelled into court by an outrageous demand by the FTC that in order to avoid suit, it must not only divest the company, but that it had to turn over its intellectual property to what would now be a competitor. Otherwise, FTC would sue Axon in its infamous in-house courts where the Commission wins 100% of the time.
The Commission has become the hungry hungry hippo of the administrative state, inventing regulatory power it lacks, and jurisdiction over aspects and sectors of the economy it has no power to regulate. No act of Congress authorizes FTC’s self-conferred regulatory expansion.
Not only has Congress not enacted a comprehensive data protection and practices regime—the record shows that it has rejected such proposed legislation for years—nothing in its existing powers authorizes the Commission to substitute its judgment about internal business operations of private companies which, as far as the Commission knows, have never done anything wrong.
The Commission also runs headlong into the First Amendment. Because the proposed order requires Mr. Rellas to “ensure” compliance with FTC’s view of data security, he, and any future companies he may work for or own, will be compelled to propound the Commission’s content- and viewpoint-favoring speech and be forced to expend financial resources constructing such a regime. FTC’s edict necessarily dictates not only the content and viewpoint of his future speech but also that of any companies he works for in the future. Effectively, it requires him and companies he may work for or own to adopt the Commission’s view that it not only has the power to regulate information security practices but also how that goal should be achieved—a decision which belongs to Congress alone.
The Commission is accepting comments regarding the proposed settlement through December 1.
December 22, 2023