November 11, 2022
Stroock Client Alert
By: Allen H. Denson, Daniel C. Fishbein
On Monday, November 7, the Supreme Court heard arguments in two cases addressing when targets of enforcement actions can preempt agencies in federal court. If the justices’ questions are any indication, the Court appears prepared to recognize an expansive right to challenge the legality of a potential enforcement action. This has major implications for consumer financial service providers that are under oversight by the Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB). And, if the anticipated result occurs, these cases will continue the trend of successful challenges to the power and constitutionality of financial regulators.
In Axon Enterprise v. Federal Trade Commission[1] and Securities and Exchange Commission v. Cochran,[2] plaintiffs seek to upend the traditional framework for challenging an agency proceeding – i.e., waiting until the conclusion of the agency’s action. In both cases, plaintiffs instead filed suit in a federal court, contending that the Constitution customarily allows plaintiffs to seek redress in Article III courts in addition to the traditional agency appeals process. On the merits, plaintiffs argue that enforcement proceedings are costly and time-consuming and often offer a distinct home-court advantage to the agency. Due to these structural inequities, plaintiffs in both cases contend their due process rights under the Fifth Amendment are being violated.
During oral arguments, it was clear the justices were receptive to the plaintiffs’ arguments, invoking Free Enterprise Fund v. Public Company Accounting Oversight Board,[3] in which the Court held that separate layers of protection for the President to remove an inferior officer is contrary to Article II’s vesting of the executive power in the President, and Thunder Basin Coal Co. v. Reich,[4] in which the Court held a petitioner could skirt the traditional agency appeals process under a multifactor inquiry.[5]
A win by plaintiffs could have major implications for financial regulators, further reigning in the scope of their investigatory and enforcement power. It would also give financial service providers another tool in the box to parry costly investigations by these enforcement bodies. Axon Enterprise and Cochran also continue a trend of agencies’ authority to conduct enforcement proceedings under a myriad of grounds including their funding or operational structures and follow earlier successful efforts in Seila Law v. Consumer Financial Protection Bureau[6] and Constitution and AMG Capital Management LLC et al. v. FTC,[7] which we covered in our last alert.
We will closely monitor these cases for future developments.
[1] 21-86.
[2] 21-1239.
[3] 561 U.S. 477 (2010).
[4] 510 US 200 (1994).
[5] The Thunder Basin line of inquiry asks (1) whether Congress’s intent to preclude district court jurisdiction was “fairly discernible in the statutory scheme,” and (2) whether the dispute at issue is of the kind meant to be first reviewed within an agency’s statutory scheme. Cochran v. SEC, 20 F.4th 194, 205 (5th Cir. 2021) (citing Thunder Basin, 510 U.S. at 207).
[6] 140 S. Ct. 2183 (2020).
[7] 141 S. Ct. 1341 (2021).
November 11, 2022
Stroock Client Alert
By: Allen H. Denson, Daniel C. Fishbein
On Monday, November 7, the Supreme Court heard arguments in two cases addressing when targets of enforcement actions can preempt agencies in federal court. If the justices’ questions are any indication, the Court appears prepared to recognize an expansive right to challenge the legality of a potential enforcement action. This has major implications for consumer financial service providers that are under oversight by the Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB). And, if the anticipated result occurs, these cases will continue the trend of successful challenges to the power and constitutionality of financial regulators.
In Axon Enterprise v. Federal Trade Commission[1] and Securities and Exchange Commission v. Cochran,[2] plaintiffs seek to upend the traditional framework for challenging an agency proceeding – i.e., waiting until the conclusion of the agency’s action. In both cases, plaintiffs instead filed suit in a federal court, contending that the Constitution customarily allows plaintiffs to seek redress in Article III courts in addition to the traditional agency appeals process. On the merits, plaintiffs argue that enforcement proceedings are costly and time-consuming and often offer a distinct home-court advantage to the agency. Due to these structural inequities, plaintiffs in both cases contend their due process rights under the Fifth Amendment are being violated.
During oral arguments, it was clear the justices were receptive to the plaintiffs’ arguments, invoking Free Enterprise Fund v. Public Company Accounting Oversight Board,[3] in which the Court held that separate layers of protection for the President to remove an inferior officer is contrary to Article II’s vesting of the executive power in the President, and Thunder Basin Coal Co. v. Reich,[4] in which the Court held a petitioner could skirt the traditional agency appeals process under a multifactor inquiry.[5]
A win by plaintiffs could have major implications for financial regulators, further reigning in the scope of their investigatory and enforcement power. It would also give financial service providers another tool in the box to parry costly investigations by these enforcement bodies. Axon Enterprise and Cochran also continue a trend of agencies’ authority to conduct enforcement proceedings under a myriad of grounds including their funding or operational structures and follow earlier successful efforts in Seila Law v. Consumer Financial Protection Bureau[6] and Constitution and AMG Capital Management LLC et al. v. FTC,[7] which we covered in our last alert.
We will closely monitor these cases for future developments.
[1] 21-86.
[2] 21-1239.
[3] 561 U.S. 477 (2010).
[4] 510 US 200 (1994).
[5] The Thunder Basin line of inquiry asks (1) whether Congress’s intent to preclude district court jurisdiction was “fairly discernible in the statutory scheme,” and (2) whether the dispute at issue is of the kind meant to be first reviewed within an agency’s statutory scheme. Cochran v. SEC, 20 F.4th 194, 205 (5th Cir. 2021) (citing Thunder Basin, 510 U.S. at 207).
[6] 140 S. Ct. 2183 (2020).
[7] 141 S. Ct. 1341 (2021).
