Securities Law: Year in Review
Supreme Court Decisions and Developments Supreme Court: Constitutional Challenges to Agency Proceedings Can Be Brought Directly in Federal District Court On April 14, 2023, the Supreme Court issued a unanimous opinion settling a circuit split concerning whether a party to an administrative enforcement action can sue directly in federal district court to challenge the agency’s […]
Stephen Blake, Craig Waldman, and Jonathan Youngwood are Litigation Partners at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher & Bartlett LLP memorandum by Mr. Blake, Mr. Waldman, Mr. Youngwood, Meredith Karp, Pete Kazanoff and Chet Kronenberg.
Supreme Court Decisions and Developments
Supreme Court: Constitutional Challenges to Agency Proceedings Can Be Brought Directly in Federal District Court
On April 14, 2023, the Supreme Court issued a unanimous opinion settling a circuit split concerning whether a party to an administrative enforcement action can sue directly in federal district court to challenge the agency’s constitutional authority to proceed, or whether the party must first complete the administrative process before seeking review in a federal court of appeals. Axon Enter. v. FTC, 598 U.S. 175 (2023) (Kagan, J.). Affirming Cochran v. SEC, 20 F.4th 194 (5th Cir. 2021) and reversing Axon Enterprise v. FTC, 986 F.3d 1173 (9th Cir. 2021), the Court held that federal district courts have jurisdiction to hear lawsuits challenging the constitutionality of agency proceedings and to resolve such constitutional challenges. In both cases, the parties challenged the agency’s administrative enforcement action on the theory that the administrative law judges’ dual-layer tenure protection unconstitutionally insulates them from presidential removal. Justice Kagan, writing for the Court, concluded that “each of the three Thunder Basin factors signals that a district court has jurisdiction to adjudicate [these] sweeping constitutional claims.” In Thunder Basin Coal v. Reich, 510 U.S. 200 (1994), the Court set forth three factors designed to determine whether a claim was “of the type” that Congress intended to be reviewed within a statutory review scheme. A court should consider whether: (i) precluding district court jurisdiction “could foreclose all meaningful judicial review” of the claim; (ii) the claim is “wholly collateral to the statute’s review provisions”; and (iii) the claim is “outside the agency’s expertise.” If the answer to all three questions is yes, it is presumed that Congress did not intend to limit jurisdiction.
