One of the country’s largest automotive retailers filed suit against the Federal Trade Commission (“FTC”) on October 4, arguing that the Supreme Court’s recent landmark decision in Securities and Exchange Commission v. Jarkesy requires that complaints such as the one filed against it be filed in court, and not considered in an administrative proceeding.
The lawsuit, filed in the U.S. District Court for the Northern District of Texas by Duluth, Georgia-based Asbury Automotive Group, follows an August FTC complaint filed against the company alleging that it systematically charged consumers for add-on products they did not agree to purchase or were unaware were optional. The FTC also alleged that Asbury discriminated against Black and Latino consumers by targeting them with unwanted and higher-priced add-ons. The complaint stated that there were no non-discriminatory reasons for those consumers being charged for those items.
In the Jarkesy decision, issued on June 27, the Supreme Court held that the SEC’s use of administrative hearings before Administrative Law Judges (“ALJs”) to pursue civil penalties for securities fraud was unconstitutional, since it deprived a person accused of violating agency rules of the right to a jury trial. Rather than using ALJs, the SEC must file such cases in federal court, where defendants may request a jury trial, the court said.
In doing so, the court ruled that the “public rights doctrine” did not apply to the case. Unlike cases involving “private rights” such as life, liberty and property, which must be decided by federal courts established by Congress under Article III of the Constitution, the “public rights doctrine” more narrowly provides that cases that historically involved the Government and persons subject to its jurisdiction need not be decided by Article III courts.
Many agencies beyond the SEC, such as the FTC, have relied on the “public rights doctrine” to adjudicate civil penalties without juries, and those procedures already are ripe for attack under the Seventh Amendment. Similar cases already have been filed in federal court challenging the use of ALJs.
In its suit, Asbury asserts that the FTC’s administrative proceeding violates Asbury’s constitutional rights by allowing the commission to act as prosecutor and judge in the same proceeding. The suit also argues that FTC commissioners and in-house ALJs are insulated from removal by the president, in violation of the Constitution’s requirements.
In August, the FTC filed an administrative complaint alleging that the automotive group systematically charged customers for expensive add-on items that they had not agreed to or were falsely told were required as part of their purchase.
Asbury’s challenge to the FTC’s enforcement proceeding follows a recent post-Jarkesy challenge against the FDIC. We anticipate similar challenges to administrative adjudication as targets of enforcement actions seek relief in federal court.
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