Axon Enter., Inc. v. Fed. Trade Comm'n

• Decision Date: 28 January 2021
• Docket Number: No. 20-15662,20-15662
• Citation: 986 F.3d 1173
• Parties: AXON ENTERPRISE, INC., a Delaware corporation, Plaintiff-Appellant, v. FEDERAL TRADE COMMISSION, a federal administrative agency; Joseph J. Simons; Noah Phillips; Rohit Chopra; Rebecca Slaughter; Christine Wilson, in their official capacities as Commissioners of the Federal Trade Commission, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

986 F.3d 1173

AXON ENTERPRISE, INC., a Delaware corporation, Plaintiff-Appellant,

v.FEDERAL TRADE COMMISSION, a federal administrative agency; Joseph J. Simons; Noah Phillips; Rohit Chopra; Rebecca Slaughter; Christine Wilson, in their official capacities as Commissioners of the Federal Trade Commission, Defendants-Appellees.

No. 20-15662

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 17, 2020 San Francisco, California

Filed January 28, 2021

OPINION

LEE, Circuit Judge:

Over the past century, Congress has established an array of quasi-independent executive agencies that enjoy partial insulation from presidential oversight and wield tremendous enforcement power. Instead of filing lawsuits in federal court, these agencies can commence administrative enforcement proceedings against companies and individuals, and make their cases before their own administrative law judges (ALJs). Not surprisingly, ALJs overwhelmingly rule for their own agencies.

Here, the Federal Trade Commission (FTC) investigated and filed an administrative complaint challenging Axon Enterprise, Inc.’s acquisition of a competitor. The FTC demanded that Axon spin-off its newly acquired company and provide it with Axon's own intellectual property. Axon responded by filing a lawsuit in federal district court, arguing that the FTC's administrative enforcement process violates Axon's due process rights and runs afoul of separation-of-powers principles.

The narrow question presented here is whether the district court has jurisdiction to hear Axon's constitutional challenge to the FTC's structure. The district court dismissed Axon's complaint, ruling that the FTC's statutory scheme requires Axon to raise its constitutional challenge first in the administrative proceeding.

We affirm the district court's dismissal because the Supreme Court's Thunder Basin trilogy of cases mandates that result. The structure of the FTC Act suggests that Congress impliedly barred jurisdiction in district court and required parties to move forward first in the agency proceeding. And because the FTC statutory scheme ultimately allows Axon to present its constitutional challenges to a federal court of appeals after the administrative proceeding, Axon has not suffered any cognizable harm. We join every other circuit that has addressed a similar issue in ruling that Congress impliedly stripped the district court of jurisdiction.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Axon makes, among other things, body cameras for use by law enforcement. In May 2018, it acquired a competitor body camera company called Vievu LLC. About a month later, the FTC sent Axon a letter stating that the Vievu acquisition raised antitrust concerns. For about eighteen months, Axon cooperated with the FTC's investigation. In December 2019, the FTC demanded that Axon turn Vievu into a "clone" of Axon using Axon's intellectual property. If Axon refused this settlement demand, the FTC threatened to initiate an administrative proceeding to obtain this relief.

In response, Axon filed this action in the district court on January 3, 2020.¹ Axon made three substantive claims: (1) the FTC's administrative proceeding violates Axon's Fifth Amendment due process rights, (2) the FTC's structure violates Article II by providing improper insulation from the president, and (3) Axon's acquisition of Vievu did not violate antitrust law.

Axon argued that the FTC's administrative enforcement scheme violates its due process rights because the agency effectively acts as the prosecutor, judge, and jury, and that it is entitled to a trial in district court. Axon notes that the FTC has not lost an administrative proceeding trial in the past quarter-century. It also maintains that the FTC's ALJs impermissibly enjoy dual-layer insulation from presidential control because only the FTC commissioners can remove them for cause and the commissioners, in turn, can be removed only for cause by the President.

Axon later filed a motion for preliminary injunction. The FTC opposed the preliminary injunction motion, relying mainly on jurisdictional grounds. The district court agreed with the FTC and dismissed Axon's complaint without prejudice due to a lack of subject matter jurisdiction. It determined that Congress impliedly precluded jurisdiction over Axon's claims when it enacted the FTC administrative review scheme.

Axon timely filed its notice of appeal to this court.

STANDARD OF REVIEW

We review de novo a district court's determination of subject matter jurisdiction. See Gingery v. City of Glendale , 831 F.3d 1222, 1226 (9th Cir. 2016).

DISCUSSION

The FTC Act does not expressly state that a party cannot sue in federal district court to challenge the agency's administrative enforcement process. But that does not rule out that Congress may still have impliedly precluded district court jurisdiction when it enacted a statutory scheme of administrative review. See, e.g. , Bennett v. U.S. Sec. and Exch. Comm'n , 844 F.3d 174, 181 (4th Cir. 2016) ; Jarkesy v. U.S. Sec. and Exch. Comm’ 803 F.3d 9, 15 (D.C. Cir. 2015).

Courts have fashioned a two-step inquiry to determine whether Congress impliedly precluded jurisdiction. First, a court asks "whether Congress's intent to preclude district-court jurisdiction is ‘fairly discernible in the statutory scheme.’ " Bennett , 844 F.3d at 181 (quoting Thunder Basin Coal Co. v. Reich , 510 U.S. 200, 207, 114 S.Ct. 771, 127 L.Ed.2d 29 (1994) ). Second, a court considers "whether plaintiffs’ ‘claims are of the type Congress intended to be reviewed within this statutory structure.’ " Id . (quoting Thunder Basin , 510 U.S. at 212, 114 S.Ct. 771 ).

We conclude that, following this two-step analysis, Congress impliedly precluded district court jurisdiction over claims of the type brought by Axon when it enacted the FTC Act. We are guided and constrained by the so-called Thunder Basin factors set out by the Supreme Court in assessing this question.

I. The Thunder Basin / Free Enterprise / Elgin trilogy for determining implied preclusion of jurisdiction.

The Supreme Court set out the modern standard for implied preclusion of district court jurisdiction in three cases: Thunder Basin Coal Co. v. Reich , 510 U.S. 200, 114 S.Ct. 771, 127 L.Ed.2d 29 (1994), Free Enter. Fund v. Pub. Co. Acct. Oversight Bd. , 561 U.S. 477, 130 S.Ct. 3138, 177 L.Ed.2d 706 (2010), and Elgin v. Dep't of Treasury , 567 U.S. 1, 132 S.Ct. 2126, 183 L.Ed.2d 1 (2012). Because we apply the so-called Thunder Basin factors here, a closer look at each case will assist our analysis.

A. Thunder Basin

In Thunder Basin , the Supreme Court considered whether the Federal Mine Safety and Health Amendments Act of 1977, 30 U.S.C. § 801 et seq. , prevented a district court from exercising jurisdiction over a pre-enforcement challenge to the statute. 510 U.S. at 202, 114 S.Ct. 771. Thunder Basin Coal Company objected to an order by the Mine Safety and Health Administration (MSHA) requiring the company to post two members of a miner's union, who were not employees of the company, as representatives during a healthy and safety inspection. See id . at 205, 114 S.Ct. 771. Thunder Basin made two arguments: (1) the designation of nonemployee representatives violated collective bargaining principles under the National Labor Relations Act, and (2) forcing the company to challenge MSHA's regulatory interpretations through the administrative review process would violate due process because it would force the company to choose between possible penalties for violating the act or irreparable harm from complying with the agency's order. See id . at 205–06, 114 S.Ct. 771.

The Supreme Court concluded that the Mine Act precluded district court jurisdiction. Under the first step of the analysis, the Court held that it could discern Congress’ intent to preclude district court jurisdiction based on the Mine Act's "detailed structure for reviewing violations," subject to review by the federal court of appeals. Id . at 207–08, 114 S.Ct. 771. Then under the second step, the Court determined that the claims were of the type Congress intended to be reviewed within this scheme. First, it concluded that the company's claims fell within the agency's expertise because they essentially required an interpretation of the parties’ rights and duties under the relevant statute and regulation. Id . at 214–15, 114 S.Ct. 771. Second, though the agency lacked the authority to decide constitutional issues, the court of appeals could address them after the parties concluded the administrative proceeding. Id . at 215, 114 S.Ct. 771. Third, the Court rejected the argument that due process required pre-enforcement action because it found that Thunder Basin would not face any serious prehearing deprivation that could not be remedied on appeal. Id . at 216–18, 114 S.Ct. 771.

The big takeaway from Thunder Basin is that an administrative review scheme can preclude district court jurisdiction, despite the possibility that the administrative process cannot address or remedy the alleged constitutional harm until a federal court of appeals reviews the case.

B. Free Enterprise

The second Supreme Court case, Free Enterprise , considered whether the structure of the Public Company Accounting Oversight Board violated Article II's vesting of executive power in the presidency. 561 U.S. at 483–84, 130 S.Ct. 3138. An accounting firm sued after the Board released a report critical of the firm's auditing procedures and began a formal investigation. Id . at 487, 130 S.Ct. 3138. The firm sought a declaratory judgment that the Board's structure violated the Appointment Clause and an injunction preventing the Board from exercising its powers. Id . Notably, the firm did not challenge the agency's final order or rule, but rather the Board's critical report.

The Supreme Court determined that the statutory scheme did not preclude jurisdiction. Id. at 489, 130 S.Ct. 3138. For the second step of the analysis—whether the...