IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
RYAN, LLC,
Plaintiff,
v.
FEDERAL
TRADE COMMISSION,
Defendant.
Civil Action No. 3:24-cv-986
COMPLAINT
Plaintiff Ryan, LLC, alleges as follows:
I. INTRODUCTION
1. The Federal Trade Commission has adopted a new rule outlawing the use of nearly
all non-compete agreements by every employer, in every industry, across the entire United States
(“Non-Compete Rule”). According to the Commission, it has the authority to take this momentous
step, which retroactively invalidates 30 million employment contracts and preempts the regulatory
regimes of at least 46 States, because a provision of the Federal Trade Commission Act (“FTC
Act”) that authorizes procedural rules supposedly also authorizes a sweeping substantive
prohibition on “unfair methods of competition”—and because, the FTC maintains, non-competes
are nearly always “unfair.” If ever a federal agency attempted to pull an elephant out of a
mousehole, this is it. What’s more, the Non-Compete Rule rests on an open-ended statutory
phrase—“unfair methods of competition”—that provides no intelligible principle to guide the
agency or constrain its policy preferences, in violation of the Constitution’s restriction on the
delegation of legislative powers. Perhaps unsurprisingly, this brazen power grab has been
perpetrated by a politically unaccountable “independent” agency that is unconstitutionally
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insulated from the President’s removal powers. This action contravenes the FTC Act, violates the
Constitution, and is arbitrary, capricious, and otherwise unlawful.
2. For hundreds of years, employers and employees have had the freedom to negotiate
mutually beneficial non-compete agreements, under which employees agree not to compete with
the employer’s core business during the employment relationship and for a time-limited period
after it ends. Among other benefits, non-compete agreements incentivize investment in research
and development, solve a free-rider problem that would otherwise suppress worker training, and
facilitate the sorts of collaborative work environments needed for firms to innovate in the modern
economy.
3. The vast majority of States permit non-compete agreements. Under the prevailing
state-law approach, courts use a case-by-case analysis to balance the benefits of a non-compete
agreement against the potential burden it imposes on the worker—a fact-specific inquiry designed
to determine whether a particular non-compete agreement is reasonable and thus enforceable.
Aspects such as the temporal and geographic scope of the agreements are common considerations.
That approach has enabled employers and employees to reap the benefits of non-compete
agreements while protecting employees from abusive restrictions.
4. Federal antitrust law has taken the same case-by-case approach, applying the “rule
of reason” to non-competes.
5. Upending that long history of case-by-case analysis of non-compete agreements,
the Commission has finalized a one-size-fits-all rule outlawing nearly all non-compete agreements,
declaring them to be per se unfair methods of competition in violation of Section 5 of the FTC
Act.
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6. The Non-Compete Rule far exceeds the Commission’s authority under the FTC
Act. The Commission’s claimed statutory authority—a provision allowing it “[f]rom time to time”
to “classify corporations and . . . make rules and regulations,” 15 U.S.C. § 46(g)—authorizes only
procedural rules, as the Commission itself recognized for decades. This is confirmed by, among
other statutory features, Congress’s decision to adopt special procedures for the substantive
rulemaking authority it did grant the Commission, for rules on “unfair or deceptive acts or
practices.” Id. § 57a. Moreover, even if Congress did grant the Commission authority to
promulgate some substantive unfair-competition rules, it did not invest the Commission with
authority to decide the major question of whether non-compete agreements are categorically unfair
and anticompetitive, a matter affecting tens of millions of workers, millions of employers, and
billions of dollars in economic productivity.
7. Indeed, Congress could not constitutionally have conferred this authority on the
Commission with the open-ended language to which the Commission points. The Constitution
vests all legislative powers in Congress, which may delegate rulemaking responsibility to an
agency only when it provides an intelligible principle to guide the agency’s discretion, such that
the agency’s role is to fill in details and find facts. Under the statutory language at issue here,
there is no intelligible principle to direct the Commission’s determination of what constitutes an
unfair method of competition, and when and what sort of regulation is appropriate in response.
8. Compounding the constitutional problems, the Commission itself is
unconstitutionally structured because it is insulated from presidential oversight. The Constitution
vests the Executive Power in the President, not the Commission or its Commissioners. Yet the
FTC Act insulates the Commissioners from presidential control by restricting the President’s
ability to remove them, shielding their actions from appropriate political accountability.
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9. In short, the Non-Compete Rule is an unauthorized, unconstitutional attempt to
eliminate a long-established private economic arrangement.
II. PARTIES
10. Plaintiff Ryan, LLC (“Ryan”) is a Delaware limited liability company with its
principal place of business in the Northern District of Texas.
11. Ryan is a global tax services firm that provides an integrated suite of federal, state,
local, and international consulting services to corporate clients to liberate them from the burdens
of over-taxation.
12. Ryan is owned and operated by 200-plus principals, who are sought-after tax
experts. Each principal is a Ryan shareholder. The shareholder agreements contain post-
employment non-competes to protect Ryan’s confidential information and business strategies and
to prevent departing principals from poaching Ryan’s clients and employees. Although Ryan does
not have non-compete agreements with the vast majority of its more than 4,000 non-principal
employees, other shareholders also sign a shareholder agreement, and Ryan occasionally enters
into non-compete agreements with employees who have access to particularly sensitive business
information. All Ryan principals and employees are subject to clauses prohibiting the disclosure
of confidential information and solicitation of Ryan clients and employees. Ryan’s non-compete
clauses and non-solicitation clauses are temporally limited.
13. Defendant Federal Trade Commission is an agency of the United States government
created by the Federal Trade Commission Act, 15 U.S.C. § 41, and is headquartered at
600 Pennsylvania Avenue, NW, Washington, DC 20580.
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III. JURISDICTION AND VENUE
14. This action arises under the Administrative Procedure Act, 5 U.S.C. §§ 500 et seq.,
and the Declaratory Judgment Act, 28 U.S.C. §§ 2201, 2202. This Court therefore has subject-
matter jurisdiction under 28 U.S.C. § 1331.
15. Ryan has standing to challenge the Commission’s action at issue here because the
Non-Compete Rule prevents Ryan from enforcing its non-compete agreements with its
shareholders and others and prohibits it from forming similar agreements in the future. By
nullifying these agreements, the Non-Compete Rule puts Ryan’s confidential business information
at risk, permits departing shareholders to poach clients, and enables competitors to poach
shareholders for whom Ryan expended training resources. The Rule also will force Ryan to shrink
the size of the teams it uses to serve clients, to contain the harms to the firm that may be caused
by departing shareholders. This reduction in internal information-sharing will increase the costs
of providing client services.
16. Those are just some of the serious and irreparable injuries that the Non-Compete
Rule will inflict on Ryan.
17. Venue is proper under 28 U.S.C. § 1391(e)(1) because this is an action against an
agency of the United States, Ryan resides in this judicial district, and no real property is involved
in this action.
IV. BACKGROUND
A. Congress did not grant the Commission authority to issue unfair-competition
rules.
18. In 1914, Congress enacted the Federal Trade Commission Act, establishing the
Commission as a multimember “independent” agency. See Federal Trade Commission Act, ch.
311 § 5, 38 Stat. 717 (1914) (codified at 15 U.S.C. §§ 41 et seq.). The Commission is “composed
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of five Commissioners . . . [n]ot more than three of” whom “shall be members of the same political
party.” 15 U.S.C. § 41. The President appoints the Commissioners, with the advice and consent
of the Senate. But the President can only remove a Commissioner “for inefficiency, neglect of
duty, or malfeasance in office.” Id.; see Humphrey’s Executor v. United States, 295 U.S. 602, 626
(1935).
19. From the Commission’s inception, Section 5 of the FTC Act has “empowered and
directed” it “to prevent” the use of “unfair methods of competition.” 15 U.S.C. § 45(a)(2).
In 1938, Congress amended Section 5 to give the Commission the additional power and
responsibility to prevent “unfair or deceptive acts or practices.” Federal Trade Commission Act
Amendments of 1938, Pub. L. No. 75-447, § 3, 52 Stat. 111, 111–12.
20. No provision in the FTC Act authorizes the FTC to promulgate rules to outlaw
unfair methods of competition. Rather, Congress created a comprehensive adjudicatory
framework for the Commission to address unfair methods of competition. Specifically, Section 5
of the FTC Act empowers the Commission to hold a hearing to determine whether a person is
employing an unfair method of competition and then to issue a cease-and-desist order if the
conduct is determined to be unlawful. 15 U.S.C. § 45(b). Section 5 provides for judicial review
of the Commission’s cease-and-desist orders, id. § 45(c), and penalties for violating such orders,
id. § 45(l).
21. Section 6 of the FTC Act provides the Commission with ancillary powers to aid
that adjudicatory scheme. Most of those powers are investigatory. See 15 U.S.C. § 46(a), (b), (c),
(d), (h), (i), (j). Others are ministerial, such as the power to make recommendations, see id. § 46(e),
(k), and publish reports, see id. § 46(f). One provision, which has been in place since the
Commission’s inception in 1914, grants the Commission the power to “classify corporations and
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. . . to make rules and regulations for the purpose of carrying out the provisions of this subchapter.”
Id. § 46(g); see also 38 Stat. at 722 (granting this power in 1914). The FTC Act does not impose
a penalty for violating rules promulgated under Section 6(g).
22. For approximately the first half of its existence, the FTC “did not assert the power
to promulgate substantive rules” and affirmatively declared “that it lacked such power.” Nat’l
Petroleum Refiners Ass’n v. FTC, 482 F.2d 672, 693 (D.C. Cir. 1973); see also id. at 693 n.27.
For example, just eight years after its creation, the FTC explained that it was a “common mistake[]
. . . to suppose that the commission can issue orders, rulings, or regulations unconnected with any
proceeding before it.” Annual Report of the Federal Trade Commission 36 (1922); see also
Hearings on H.R. 2321 Before the H. Comm. on Interstate & Foreign Com., 82d Cong., 1st Sess.
160 (1951) (statement of Henry Miller, Assistant General Counsel, FTC).
23. In 1962, the Commission, for the first time, claimed that Section 6(g) granted it the
power to promulgate substantive rules defining unfair methods of competition. In 1973, the D.C.
Circuit agreed with that interpretation. See Nat’l Petroleum, 482 F.2d at 697–98.
24. That decision was controversial at the time and has not aged well. As one scholar
has put it, “the method of statutory interpretation that the D.C. Circuit used in National Petroleum
Refiners has never been embraced by the Supreme Court; it has not been used by any court in
decades; and, it is inconsistent with the principles of separation of powers that the Supreme Court
has emphasized for decades.” Richard J. Pierce Jr., Can the Federal Trade Commission Use
Rulemaking to Change Antitrust Law?, GW Law Faculty Publications & Other Works 1561, at 9
(2021). Section 6(g) of the FTC Act grants the Commission authority only to promulgate
procedural rules, consistent with the Act’s enumeration of ancillary powers to aid the
Commission’s adjudicatory authority.
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25. The absence of any penalty for violating rules promulgated under Section 6(g)
confirms that the provision confers no substantive rulemaking authority. In the early 20th century,
Congress followed “a convention for indicating whether an agency had the power to promulgate
legislative rules,” under which grants of substantive rulemaking authority were coupled with “a
separate provision in the statute attaching ‘sanctions’ to the violation of” those rules. Thomas W.
Merrill & Kathryn Tongue Watts, Agency Rules with the Force of Law: The Original Convention,
116 Harv. L. Rev. 467, 493 (2002). The FTC Act provides no “sanction for the violation of rules
adopted under section 6(g).” Id. at 504–05. National Petroleum ignored these important features
of the Act. See id. at 554–57.
26. Two years after National Petroleum was decided, it was sharply undercut by
Congress. In 1975 Congress enacted the Magnuson-Moss Warranty-Federal Trade Commission
Improvement Act, Pub. L. No. 93-637, 88 Stat. 2183 (1975), which authorizes the Commission to
promulgate “rules which define with specificity acts or practices which are unfair or deceptive acts
or practices in or affecting commerce,” 15 U.S.C. § 57a(a)(1)(B). That amendment would have
been pointless if the Commission, as it claimed, already had substantive rulemaking authority
under Section 6(g).
27. Moreover, the Magnuson-Moss Act conspicuously did not authorize the
Commission to promulgate substantive rules regarding unfair methods of competition.
28. Congress further amended the FTC Act in 1980 by enacting additional procedural
steps the Commission must follow to promulgate rules addressing unfair or deceptive acts or
practices. See 15 U.S.C. § 57a(b)–(d). Here again, the focus on Commission rulemaking regarding
unfair or deceptive acts or practices reinforced the absence of congressional authorization to
promulgate rules addressing unfair methods of competition.
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29. For decades after the Magnuson-Moss Act, just as for decades following enactment
of the Federal Trade Commission Act itself, the Commission did not attempt to promulgate an
unfair-competition rule. The Non-Compete Rule is the first such rule since the late 1960s. See 32
Fed. Reg. 15,584 (Nov. 9, 1967) (promulgating a rule addressing discriminatory practices in men’s
and boys’ tailored clothing industry); see also 59 Fed. Reg., No. 94-4040 (Feb. 23, 1994)
(uncategorized document) (repealing that rule).
30. Although the Commission’s rulemaking authority is the same as it was in 1914—
except for the explicit addition of authority to promulgate rules on unfair or deceptive acts or
practices, and on certain other specific topics—the nature of the Commission has evolved in other
important ways. As originally chartered, the Supreme Court has said, the Commission’s “duties
[were] neither political nor executive, but predominantly quasi judicial and quasi legislative.”
Humphrey’s Executor, 295 U.S. at 624. If that were ever true, it no longer is: The Commission
has since been granted decidedly executive authority, including to “commence a civil action to
recover a civil penalty,” 15 U.S.C. § 45(m), and to bring a civil action for violating unfair or
deceptive acts or practices rules, id. § 57b.
B. Reasonable non-compete agreements benefit workers, firms, and the economy.
31. Far from being, as the Commission has asserted, exploitative and coercive, non-
compete agreements are often a mutually beneficial, negotiated term of employment. See Alan J.
Meese, Don’t Abolish Employee Noncompete Agreements, 57 Wake Forest L. Rev. 631, 677
(2022). Workers, firms, and the economy all benefit from reasonable non-compete agreements.
32. For one, non-compete agreements promote worker training. Without non-
competes, firms are incentivized to free-ride on each company’s employee training, hiring away a
competitor’s workers after they have been trained. That market failure depresses investment in
worker training, to the detriment of workers and firms alike. Both theoretical and empirical
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research confirms that non-compete agreements solve that free-rider problem. See John M.
McAdams, FTC, Non-Compete Agreements: A Review of the Literature 13 (2019); Evan P. Starr,
James J. Prescott & Norman D. Bishara, Noncompete Agreements in the U.S. Labor Force, 64 J.L.
& Econ. 53, 80 (2021); Meese, supra, at 679–84, 697–704. Deterring free-riding benefits both
workers—who receive training that they could not otherwise afford—and firms—which benefit
from the increased worker skill and productivity. The economy as a whole benefits from this
investment in human capital.
33. Relatedly, non-competes can increase workers’ earnings. Workers who receive
training—made possible by non-competes—often enjoy higher salaries, reflecting their improved
productivity. See Starr et al., supra, at 80. That is, non-competes typically are “signed in exchange
for higher compensation.” FTC, Forum Examining Proposed Rule to Ban Noncompete Clauses
18–19 (Feb. 16, 2023) (testimony of LeAnn Goheen).
34. Non-compete agreements also foster innovation, in at least two ways. First, they
incentivize investments in research and development by inhibiting poaching of employees. See
McAdams, supra, at 19 (collecting papers). Without non-competes, firms’ investments in new
and innovative ideas could easily be pilfered by other companies hiring away their workers. This
is especially so for innovative startups whose endgame is often to get acquired by a larger firm
that would have no incentive to invest in the acquisition if it could instead hire the startup’s
workers.
35. Second, non-compete agreements encourage collaboration within firms, which in
Ryan’s experience often catalyzes innovative ideas. And non-compete agreements encourage
workers to stay at the firm long enough to gain the expertise needed to innovate.
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36. Additionally, non-compete agreements help new firms survive, and to create more
jobs. When non-competes are enforceable, the new firms that enter the market are “larger, faster
growing, and have a higher likelihood of surviving the initial years.” McAdams, supra, at 17; see
also Gerald A. Carlino, Do Non-Compete Covenants Influence State Startup Activity? Evidence
from the Michigan Experiment 16 (Fed. Reserve Bank of Phila. Working Paper 21–26, 2021);
Evan Starr, Natarajan Balasubramanian & Mariko Sakakibara, Screening Spinouts? How
Noncompete Enforceability Affects the Creation, Growth, and Survival of New Firms, 64 Mgmt.
Sci. 552, 561 (2018). In other words, non-competes enable fledgling firms to survive, grow, and
ultimately hire more workers and generate greater economic output.
37. Finally, non-compete agreements can reduce prices. See Umit G. Gurun, Noah
Stoffman & Scott E. Yonker, Unlocking Clients: The Importance of Relationships in the Financial
Advisory Industry, 141 J. Fin. Econ. 1218 (2021). Particularly in industries, such as tax consulting,
where client relationships are critical, non-competes allow firms to provide better prices, because
they do not need to compensate for the risk of losing the client to a departing consultant.
C. The enforceability of non-compete agreements is determined on a case-by-case
basis.
38. Because reasonable non-compete agreements benefit workers, employers, and
overall economic output, they have been recognized as legally enforceable for centuries.
39. Under the pre-Founding common law of contracts, a non-compete agreement was
an enforceable contract unless it was found to have an unreasonable scope. See Harlan M. Blake,
Employee Agreements Not to Compete, 73 Harv. L. Rev. 625 (1960). The standard was first
articulated in Mitchel v. Reynolds, 24 Eng. Rep. 347 (Q.B. 1711). In that seminal case, the court
explained that “general restraints,” not restricted in geographic or temporal scope, were
unenforceable restraints on trade, but that “particular” restraints, limited to particular regions,
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times, or customers, were enforceable as any other contract would be. Blake, supra, at 629–30
(discussing Mitchel). From 1711 through “the end of the nineteenth century both English and
American courts regarded Mitchel v. Reynolds as the fundamental authority to be applied in
employee-restraint cases,” “formulat[ing] the ‘reasonableness’ test in more specific terms” to fit
each case. Id. at 638–39. Thus, at common law, reasonable non-competes were lawful,
enforceable contracts.
40. In the vast majority of States, that remains true. Forty-six States permit non-
compete agreements, either explicitly by statute or by common-law rule. Although some States
have prohibited employers from enforcing non-compete agreements against low-wage workers,
and a very small handful have effectively banned most non-compete agreements, the vast majority
of States recognize reasonably tailored non-compete agreements as beneficial, pro-competitive,
and lawful. A few States have even taken affirmative steps to make non-compete agreements more
enforceable by loosening the standards for reasonableness applied by the courts. See, e.g., Fla.
Stat. Ann. § 542.335; Ga. Code Ann. §§ 13-8-50–54 (Restrictive Covenant Act).
41. The federal antitrust laws provide for the same type of individualized analysis of
non-compete agreements as most States’ contract law.
42. Federal courts have long taken two alternative approaches to analyzing whether
agreements violate the antitrust laws: the rule of reason, which requires individualized analysis of
the specific agreement, and per se rules, which categorically condemn a class of restraint. See
Ohio v. Am. Express Co., 138 S. Ct. 2274, 2283–84 (2018). Per se prohibitions are reserved for
cases where “courts can predict with confidence that [the restraint] would be invalidated in all or
almost all instances under the rule of reason” because the restraint has “manifestly anticompetitive
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effects and lack[s] . . . any redeeming virtue.” Leegin Creative Leather Prods., Inc. v. PSKS, Inc.,
551 U.S. 877, 886–87 (2007) (citations and quotation marks omitted).
43. Because non-compete agreements have significant redeeming benefits, federal
courts have consistently examined them under the rule of reason and invalidated such agreements
only when unreasonable in scope. See, e.g., Eichorn v. AT&T Corp., 248 F.3d 131, 144 (3d Cir.
2001) (“[C]ourts have uniformly found that covenants not to compete should be examined under
the rule of reason.”); Consultants & Designers, Inc. v. Butler Serv. Grp., Inc., 720 F.2d 1553, 1561
(11th Cir. 1983); Aydin Corp. v. Loral Corp., 718 F.2d 897, 900 (9th Cir. 1983).
44. Thus, under both state contract law and federal antitrust law, non-compete
agreements are analyzed individually on a case-by-case basis and, in light of the range of benefits
they can generate, upheld as lawful, enforceable contracts where they are reasonable in scope.
D. From its creation until 2022, the Commission effectively never applied the
FTC Act to non-compete agreements.
45. Although the Commission was established more than one hundred years ago, and
non-compete agreements are widely used in a range of industries across the country, until 2022,
the Commission had only sued a company once over a non-compete agreement. And it lost. In
keeping with the longstanding individualized analysis of non-competes, the Seventh Circuit
explained that non-compete agreements are not an unfair method of competition “unless they are
unreasonable as to time or geographic scope,” and held that the non-compete agreement at issue
was reasonable and thus lawful. Snap-On Tools Corp. v. FTC, 321 F.2d 825, 837 (7th Cir. 1963).
46. Then, in late 2022 and days before publicly announcing its proposed ban on non-
compete agreements, the Commission “rushed out the announcement of three consent agreements
that resolve allegations that non-compete provisions constitute an unfair method of competition.”
Non-Compete Clause Rule, 88 Fed. Reg. 3482, 3542 (Jan. 19, 2023) (Commissioner Wilson’s
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dissent). The Commission has since announced an additional consent agreement resolving a
similar allegation. See In re Anchor Glass Container Corp., 2023 WL 3856535, at *1 (May 18,
2023).
E. The Commission’s Rule now outlaws nearly all non-compete agreements.
47. Despite hundreds of years of court decisions recognizing the pro-competitive
benefits of non-compete agreements and analyzing their lawfulness on an individualized, case-by-
case basis—and despite its own lack of rulemaking authority in the area—on April 23, 2024 the
Commission finalized the Non-Compete Rule, effectively outlawing non-competes across the
entire U.S. economy.
48. The Non-Compete Rule declares that “it is an unfair method of competition for a
person: (i) To enter into or attempt to enter into a non-compete clause; (ii) To enforce or attempt
to enforce a non-compete clause; or (iii) To represent that the worker is subject to a non-compete
clause.” 16 C.F.R. § 910.2(a)(1). “Worker” is defined to include anyone “who works or who
previously worked, whether paid or unpaid,” for anyone else, regardless of employee or
independent contractor status. Id. § 910.1(f). The Non-Compete Rule renders existing non-
compete agreements unenforceable in 120 days. Id. § 910.2(b). It exempts non-compete clauses
“entered into by a person pursuant to a bona fide sale of a business entity, of the person’s ownership
interest in a business entity, or of all or substantially all of a business entity’s operating assets” and
causes of action that “accrued prior to the effective date.” Id. § 910.3(a), (b). It also creates an
exception allowing enforcement of existing non-compete agreements with “senior executives,” but
prohibits the formation of new non-compete agreements with such employees. Id.
§ 910.2(a)(2)(ii).
49. The Non-Compete Rule purports to supersede state laws that would “permit or
authorize” non-compete agreements. See 16 C.F.R. § 910.4.
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50. The Commission estimates that its Rule will invalidate the contracts of “one in five
American workers—or approximately 30 million workers”—thereby upending reliance interests
and entrenched business models. The Commission predicts the economic impact of the Rule will
exceed hundreds of billions of dollars.
COUNT ONE
ADMINISTRATIVE PROCEDURE ACT, 5 U.S.C. § 706(2)(C)
(NO STATUTORY AUTHORITY)
51. Ryan incorporates by reference the allegations of the preceding paragraphs.
52. The Non-Compete Rule declares virtually all non-compete agreements to be unfair
methods of competition under Section 5 of the FTC Act. The Commission has no statutory
authority to promulgate such a rule.
53. To start, the Commission does not have statutory authority to promulgate
substantive rules regarding unfair methods of competition at all.
54. The Commission’s purported authority—Section 6(g) of the FTC Act—only grants
the authority to promulgate procedural rules. The statutory language on which the Commission
relies is found in a section that lists ancillary powers to aid the Commission in adjudicating cases
and appears in the same sentence as the Commission’s authority to classify corporations. Nowhere
in the FTC Act did Congress prescribe a penalty for violating rules promulgated under
Section 6(g). This context makes clear that Congress did not intend Section 6(g) as a far-reaching
grant of substantive rulemaking authority empowering the Commission to extinguish tens of
millions of existing non-compete agreements. “Congress . . . does not alter the fundamental details
of a regulatory scheme in vague terms or ancillary provisions—it does not, one might say, hide
elephants in mouseholes.” Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 468 (2001).
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55. The Commission’s lack of statutory authority is confirmed by Congress’s decision
to grant the Commission authority to promulgate substantive rules regarding unfair or deceptive
acts or practices in the Magnuson-Moss Act, but to withhold similar authority with respect to
unfair methods of competition. That choice “support[s] a sensible inference that the [rulemaking
authority] left out must have been meant to be excluded.” Chevron U.S.A. Inc. v. Echazabal, 536
U.S. 73, 81 (2002). Likewise, the imposition of procedural requirements beyond those required
by the Administrative Procedure Act for rules regarding unfair or deceptive acts or practices
demonstrates that Congress gave the Commission no rulemaking authority over unfair methods of
competition. See 15 U.S.C. § 57a(b)–(d). Until now, the Commission has not even attempted to
promulgate an unfair-competition rule in the nearly five decades the Magnuson-Moss Act has been
on the books.
56. The “major questions doctrine” underscores that the Commission lacks the
authority to ban non-competes by declaring them an unfair method of competition. West Virginia
v. EPA, 142 S. Ct. 2587, 2605 (2022). The Non-Compete Rule will invalidate 30 million
employment contracts, directly affecting one-fifth of American workers and generating an
economic impact of hundreds of billions of dollars. It upsets long-settled expectations. And by
preempting the laws of at least 46 States in an area that has been regulated by the States since
before the Founding, the Rule “intrudes into an area that is the particular domain of state law.”
Ala. Ass’n of Realtors v. Dep’t of Health & Hum. Servs., 141 S. Ct. 2485, 2489 (2021) (per curiam).
There is no doubt that the Rule is of “vast economic and political significance.” West Virginia,
142 S. Ct. at 2605. Nor are those consequences the limit of the Commission’s claimed authority,
since non-competes are but one of countless competition-related practices the Commission
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evidently claims authority to regulate from coast-to-coast—overturning state laws and established
expectations—based on little more than its determination that a practice is “unfair.”
57. To promulgate such sweeping rules, an agency must have clear and unmistakable
authority. The modest powers afforded the Commission in Section 6(g) do not come close to that
standard.
58. Finally, as discussed infra, if Section 6(g) were a grant of substantive rulemaking
authority, it would constitute an unconstitutional delegation of legislative power. The
constitutional avoidance canon requires that any “ambiguous statutory language be construed to
avoid serious constitutional doubts.” FCC v. Fox Television Stations, Inc., 556 U.S. 502, 516
(2009).
COUNT TWO
ADMINISTRATIVE PROCEDURE ACT, 5 U.S.C. § 706(2)(B), (C)
(NONDELEGATION DOCTRINE)
59. Ryan incorporates by reference the allegations of the preceding paragraphs.
60. If Congress did grant the FTC the authority to promulgate substantive rules
regarding unfair methods of competition, that grant is an unconstitutional delegation of legislative
power in violation of Article I of the Constitution.
61. The Constitution vests “[a]ll [the] legislative Powers” it grants in “Congress.”
U.S. Const. art. I, § 1. Congress “is not permitted to abdicate or to transfer to others the essential
legislative functions with which it is thus vested.” A.L.A. Schechter Poultry Corp. v. United States,
295 U.S. 495, 529 (1935). It can delegate legislative power only if it provides an “intelligible
principle” by which the agency can exercise it. Mistretta v. United States, 488 U.S. 361, 372
(1989). More precisely, Congress may authorize agencies only to “fill[] up details and find[]
facts.” Gundy v. United States, 139 S. Ct. 2116, 2148 (2019) (Gorsuch, J., dissenting).
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62. The FTC Act does not set forth an intelligible principle to guide an unfair-
competition rulemaking, let alone assign the Commission the limited role of finding facts or filling
up details. As construed by the Commission, the determination of which trade practices are
“unfair” is a subjective, open-ended inquiry for which Congress provided no guideposts. Yet the
Constitution does not allow the Commission “to exercise an unfettered discretion to make
whatever laws [it] thinks may be needed or advisable.” Schechter, 295 U.S. at 537–38.
63. Indeed, the Commission’s asserted authority to promulgate rules establishing unfair
methods of competition is virtually identical to the authority to issue “codes of fair competition”
that the Supreme Court held to be an unconstitutional delegation in Schechter. 295 U.S. at 532–
34. Schechter contrasted those constitutionally impermissible “codes” with the Commission’s
case-by-case adjudication of “unfair methods of competition” under Section 5 of the FTC Act,
indicating that the incremental, case-specific nature of the Commission’s authority was
instrumental to its constitutionality. See id. at 532–33. But here, the Commission has jettisoned
that circumscribed case-by-case approach in favor of a sweeping rulemaking power wholly
unconstrained by congressional guardrails.
COUNT THREE
ADMINISTRATIVE PROCEDURE ACT, 5 U.S.C. § 706(2)(B)
(U.S. CONSTITUTION ARTICLE II)
64. Ryan incorporates by reference the allegations of the preceding paragraphs.
65. Because Article II of the Constitution vests the entire executive power in the
President, “lesser officers” within the Executive Branch “must remain accountable to the
President.” Seila Law LLC v. CFPB, 140 S. Ct. 2183, 2197 (2020). That accountability is
accomplished by the President’s “unrestricted removal power.” Id. at 2198–2200.
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66. The FTC Act restricts the President’s ability to remove Commissioners by granting
them fixed terms and providing that they can be removed only for “inefficiency, neglect of duty,
or malfeasance in office.” 15 U.S.C. § 41. It is therefore unconstitutional.
67. Although the Supreme Court upheld the FTC Act’s removal restriction in
Humphrey’s Executor, 295 U.S. at 626, that decision depended on the Court “view[ing] the FTC
(as it existed in 1935) as exercising ‘no part of the executive power,’” Seila Law, 140 S. Ct. at
2198 (quoting Humphrey’s Ex’r, 295 U.S. at 628). The FTC exercised at most an “‘executive
function,’” the Court said, and even then “only in the discharge of its ‘quasi-legislative or quasi-
judicial powers.’” Id. (quoting Humphrey’s Ex’r, 295 U.S. at 628).
68. The “conclusion that the FTC did not exercise executive power has not withstood
the test of time.” Seila Law, 140 S. Ct. at 2198 n.2. The FTC now exercises “executive power in
the constitutional sense.” Humphrey’s Ex’r, 295 U.S. at 628; see also Seila Law, 140 S. Ct. at
2198. The FTC Act’s removal protection for Commissioners is therefore a violation of the Vesting
Clause of Article II. See U.S. Const. art. II, § 1, cl. 1.
1
COUNT FOUR
DECLARATORY JUDGMENT ACT, 28 U.S.C. § 2201
69. Ryan incorporates by reference the allegations of the preceding paragraphs.
1
Ryan recognizes that the Fifth Circuit recently held that “although the FTC’s powers may have changed
since Humphrey’s Executor was decided, the question of whether the FTC’s authority has changed so
fundamentally as to render Humphrey’s Executor no longer binding is for the Supreme Court . . . to answer.”
Illumina, Inc. v. Fed. Trade Comm’n, 88 F.4th 1036, 1047 (5th Cir. 2023); see also Consumers’ Research
v. Consumer Product Safety Comm’n, 91 F.4th 342, 353–54, 356 (5th Cir. 2024) (holding that the Consumer
Product Safety Commission’s “exercise[] [of] substantial executive power” does not “remove[]” it “from
the Humphrey’s exception,” and instead, that “[p]rincipal officers may retain for-cause protection when
they act as part of an expert board”). Ryan respectfully preserves this argument for further review, in light
of Judge Jones’s contrary opinion in Consumers’ Research that “for-cause removal protection violates the
constitutional separation-of-powers” whenever the agency “exercise[s] executive power,” 91 F.4th at 358
(Jones, J., dissenting), and in light of the Consumers’ Research majority’s observation that “[t]he logic of
Humphrey’s may have been overtaken,” id. at 346 (maj. op.).
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70. Pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201(a), “any court of the
United States, upon the filing of an appropriate pleading, may declare the rights and other legal
relations of any interested party seeking such declaration, whether or not further relief is or could
be sought.”
71. For the reasons articulated in Counts One through Three, there is a real and actual
controversy as to whether the Commission has violated the Administrative Procedure Act and the
United States Constitution by issuing the Non-Compete Rule, thereby causing substantial injury
to Ryan.
72. Ryan seeks a judicial declaration that the Non-Compete Rule violates the
Administrative Procedure Act because the Commission exceeded its statutory authority and acted
arbitrarily and capriciously.
73. Ryan seeks further declarations that Section 5 of the FTC Act violates the
Constitution’s nondelegation doctrine and that the FTC is unconstitutionally structured in violation
of Article II.
74. The Court should grant declaratory relief and any further necessary and proper
relief as set forth below, pursuant to 28 U.S.C. §§ 2201, 2202.
PRAYER FOR RELIEF
75. For these reasons, Ryan respectfully requests entry of an order and judgment:
a. Vacating and setting aside the Non-Compete Rule;
b. Declaring that the FTC does not have the authority to issue rules defining
acts to be unfair methods of competition;
c. Declaring that Section 5 of the FTC Act violates the Constitution’s
nondelegation doctrine;
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d. Declaring that the FTC is unconstitutionally structured in violation of
Article II because its Commissioners are improperly insulated from presidential removal;
e. Awarding Plaintiff its reasonable costs, including attorneys’ fees, incurred
in bringing this action under 28 U.S.C. § 2412 or other applicable law; and
f. Granting such other and further relief as this Court deems just and proper.
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Respectfully submitted,
Dated: April 23, 2024 /s/ Elizabeth A. Kiernan
Elizabeth A. Kiernan
Texas Bar No. 24105666
GIBSON, DUNN & CRUTCHER LLP
2001 Ross Avenue, Suite 2100
Dallas, TX 75201
Telephone: 214.698.3100
Facsimile: 214.571.2900
Eugene Scalia*
Amir C. Tayrani*
Andrew Kilberg*
Aaron Hauptman*
Joshua R. Zuckerman*
GIBSON, DUNN & CRUTCHER LLP
1050 Connecticut Avenue, N.W.
Washington, DC 20036
Telephone: 202.955.8500
Facsimile: 202.467.0539
*Application for admission pro hac vice
forthcoming
/s/ Charles W. Fillmore
Charles W. Fillmore
Texas Bar No. 00785861
H. Dustin Fillmore III
Texas Bar No. 06996010
The Fillmore Law Firm LLP
201 Main Street, Suite 700
Fort Worth, TX 76102
Telephone: 817.332.2351
chad@fillmorefirm.com
dusty@fillmorefirm.com
Attorneys for Ryan, LLC
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