Courts Finds It Lacks Jurisdiction To Entertain Challenge To FTC Civil Investigative Demand
On February 3, 2021, Judge R. David Proctor of the United States District Court for the Northern District of Alabama granted the Federal Trade Commission’s motion to dismiss a complaint filed by the Board of Dental Examiners of Alabama (“Board”) seeking to enjoin a Civil Investigative Demand (“CID”) that the FTC had issued to the Board. Bd. of Dental Exam’rs of Ala. v. Fed. Trade Comm’n, Case No. 2:20-cv-1310-RDP (N.D. Ala. 2021). The court held that it lacked subject-matter jurisdiction to entertain the complaint because the Board failed to meet the final agency action and exhaustion requirements.
The issue underlying this litigation is a rule that the Board promulgated in 2017 prohibiting the making of “digital images” or “digital impressions” of a patient’s mouth without the “direct supervision” of a dentist who is on-site and physically present. Ala. Admin Code r. 270-x-3-.06, 270-x-3-.10. The FTC’s CID to the Board requested information relating to the passage and enforcement of this rule. The Board first assured the FTC that it would cooperate with the FTC’s investigation, but several months later, it instead sued to enjoin the FTC’s CID and investigation. The Board argued that, as a state agency, it was immune from FTC scrutiny.
The FTC moved to dismiss the Board’s complaint for lack of subject-matter jurisdiction and for failure to state a claim. Judge Proctor granted the FTC’s motion, finding the court lacked subject-matter jurisdiction both because there was no final FTC agency action and because the Board had failed to exhaust its administrative remedies. The court therefore did not reach the merits.
The Court found no final agency action that would permit judicial review under Section 704 of the Administrative Procedure Act. The Supreme Court has held that, under Section 704, an agency action is “final” if it both is the “consummation of the agency’s decisionmaking process” and it is “one by which rights or obligations have been determined, or from which legal consequences will flow.” Bennett v. Spear, 520 U.S. 154, 177-78 (1997) (internal citations and quotation marks omitted). Here, the FTC had merely taken an early investigative step of issuing a CID, so it had not concluded its investigation. The FTC also had not yet determined whether the Board’s rule violated antitrust law, nor had it imposed any legal consequences for such a violation.
The Board responded that the final agency action requirement did not apply because it was immune from FTC scrutiny under the state action immunity doctrine.
The Board first relied on a narrow exception to the final agency action requirement – meant to apply “only in extraordinary circumstances” – for interim agency actions that violate a “clear and mandatory” prohibition and, absent judicial review, would deprive an entity of an unambiguous statutory or constitutional right. The court found no such extraordinary circumstances here. The FTC’s CID was not clearly prohibited because it was not clear that the Board was entitled to state action immunity; in fact, in a related case, the court had concluded that the Board was not entitled to such immunity. Moreover, judicial review was unnecessary to preserve any right that the Board had because it could petition the FTC for an order to modify or set aside the CID.
The Board next argued that it met a futility exception to the final agency action doctrine. The court addressed the Board’s argument even though it found it unlikely that any such exception existed. The Board’s argument was that, because it was immune from FTC scrutiny, any final agency action by the FTC against it would be futile. The court held that this argument “cannot be squared with basic principles of administrative law” because it would allow investigation targets to “thwart an agency’s investigation and force it into federal court to litigate, in advance, a potential defense.”
In addition to finding that there was no final agency action, the court found that the complaint failed because the Board had failed to exhaust its administrative remedies. The FTC Act provides that, within twenty days of the FTC’s issuance of a CID, the CID recipient may petition the FTC for an order modifying or setting aside the CID if the issuance violates any constitutional or other legal right. 15 U.S.C. § 57b-1(f). There was no dispute that the Board had never petitioned the FTC to modify or set aside its CID or that it could have raised state action immunity issues in such a petition. The Board’s only argument was that exhaustion was futile given its immunity from FTC scrutiny. The court held that this argument misunderstood the futility exception, which referred to whether “it [was] certain” that the FTC would refuse to set aside its CID, not to whether unrelated “later actions by the administrative agency would prove futile.”
The Court therefore dismissed the Board’s suit and allowed the FTC’s antitrust investigation of the Board’s rule to continue.