Fifth Circuit Questions FTC’s Authority in Intuit’s Challenge to Internal Adjudication

The Federal Trade Commission (FTC) faced scrutiny from a Fifth Circuit judicial panel on Monday as Intuit Inc., the software company behind TurboTax, challenged the FTC’s use of in-house administrative proceedings. The appeal, heard in New Orleans, raised questions regarding the agency’s authority to adjudicate cases internally rather than through the federal court system.

This challenge by Intuit follows the Supreme Court’s June decision in SEC v. Jarkesy, which found that the Securities and Exchange Commission (SEC) could not pursue certain cases in its own administrative courts. The Supreme Court’s ruling, as reported by Bloomberg, emphasized that antifraud securities laws have deep common-law roots, thereby requiring cases seeking civil penalties to be heard by a jury in federal court. Intuit’s legal team argued that this precedent should also apply to FTC proceedings, a claim that brought about rigorous examination from the court.

Brad Grossman, representing the FTC, contended that the Jarkesy ruling was specific to the SEC and related securities fraud cases, asserting that the FTC’s statutory framework establishes “public rights” distinct from common law. According to Grossman, the FTC Act authorizes the agency to create rules and regulate business practices outside the bounds of traditional federal court proceedings. However, Judge Edith H. Jones of the Fifth Circuit questioned this interpretation, stating, “We’re in a Jarkesy world.” She suggested that even with the FTC’s focus on public rights, cases with significant private rights components should arguably fall under federal jurisdiction.

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Bloomberg reports that Judge Jones further raised the point that the FTC’s jurisdiction historically intersects with common-law principles, referencing a former circuit judge who observed that elements of FTC law have common-law foundations dating back to the 1930s. This commentary signals the court’s consideration of whether the FTC’s administrative procedures align with or exceed its lawful authority, a question complicated by the Supreme Court’s recent emphasis on jury trials in cases involving traditional rights.

Intuit’s challenge stems from an FTC administrative order that found it had misled customers by advertising its TurboTax software as free when the majority of users ultimately had to pay for services. The FTC’s decision included a cease-and-desist order, which Intuit is now seeking to vacate on the grounds that the process infringes upon its rights to a fair trial in federal court.

The Fifth Circuit, with a conservative-leaning composition, has become a focal point for legal disputes concerning federal agency power. The court previously ruled on the Jarkesy case before it reached the Supreme Court, illustrating the circuit’s significant role in shaping agency-related jurisprudence.

Intuit’s representation in the case is being handled by Wilmer Cutler Pickering Hale & Dorr LLP. Alongside Judge Jones, Judges Rhesa H. Barksdale and James C. Ho comprised the panel presiding over Monday’s proceedings, which will likely serve as a key indicator for how federal courts may navigate agency authority in the wake of the Jarkesy ruling.

Source: Bloomberg