In the past couple years, the Federal Trade Commission has gone 0 for 2 before the Supreme Court. In AMG, the Court found that Section 13(b) of the FTC Act does not provide the Commission with the authority to obtain equitable monetary relief. Last month, in Axon, the Court held that parties need not wait until the conclusion of administrative proceedings before challenging the constitutionality of the FTC’s structure, but may bring their complaints to district courts. Given this recent track record, the Commission probably wasn’t thrilled to find itself before the Fifth Circuit, defending against constitutional challenges raised by Traffic Jam Events, and its owner, David Jeansonne.
The Fifth Circuit is probably not the venue administrative agencies would choose to hear these issues, having recently handed down decisions in Jarkesy (vacating a SEC administrative order on the ground that it was unconstitutional because: the petitioners were deprived of the right to a jury trial where the agency sought penalties; the congressional delegation of power permitting the SEC to determine whether it brought cases administratively or in district court was unintelligible; and the ALJ’s removal restrictions were unconstitutional) and Community Financial Services Association of America (finding the funding structure of the CFPB unconstitutional). But, nonetheless, on May 3, 2023, a three-judge panel of the Fifth Circuit heard oral argument in Traffic Jam Events LLC v. FTC.
The road to the Fifth Circuit was circuitous, and began in June 2020, when the FTC filed a complaint in the U.S. District Court for the Eastern District of Louisiana against the marketing services company and its owner. Traffic Jam specialized in providing marketing materials for auto dealerships. The complaint alleged that the company misled consumers by sending deceptive mailings suggesting that the company was affiliated with a government COVID-19 stimulus program, and indicated that consumers had won specific, valuable prizes that they could collect once they visited car dealership. The District Court denied the FTC’s Motion for a Temporary Restraining Order.
Subsequently, in August 2020, the FTC filed an administrative complaint mirroring the prior federal court complaint. Traffic Jam challenged the filing on the grounds that the injunctive order was not based on substantial evidence, that the alleged acts or practices did not involve interstate commerce, that it was not a creditor subject to the Truth in Lending Act, and finally, that the Commission lacked substantial evidence to hold Jeansonne individually liable. Traffic Jam lost before the Commission on summary decision, and the Commission entered an order that, among other things, banned Traffic Jam and Jeansonne from virtually all commercial activity pertaining to the auto industry.
Traffic Jam then appealed to the Fifth Circuit, challenging the constitutionality of the FTC’s entire administrative process, as well as the validity of the broad-sweeping injunctive order. Traffic Jam argued that the FTC’s administrative process denied petitioners their due process rights. In addition, Traffic Jam alleged that the ALJ and Commissioners enjoy unconstitutional removal protections (i.e., they can only be removed for cause). Finally, in the wake of Jarkesy, Traffic Jam argued that the order’s ban on allowing the company or Jeansonne to operate in the auto industry was akin to the issuance of a civil penalty and, therefore, the administrative process deprived them of their Seventh Amendment right to a jury trial.
The oral argument focused on whether Traffic Jam had waived these constitutional challenges, as well as its challenge to the order, by failing to raise them below in the administrative proceeding. The panel was relatively quiet, and its limited questions to Traffic Jam primarily focused on whether they even had jurisdiction over such claims.
Although there’s always some danger in making predictions based on oral arguments, the judges did not seem particularly keen to use this case to further weaken the FTC. While the FTC may prevail in this matter, the case itself is just the latest in a long (and growing) chain of cases challenging the authority of administrative agencies writ large. We’ve written about the recent judicial chipping away at what some call the administrative state here, here, and here. We’ll continue to watch this case closely and post updates here.