Can Businesses Challenge Arizona Corporation Commission Overreach?

by Timothy Sandefur and Jon Riches
June 19, 2018

It is a fundamental principle of due process that a person should have an opportunity to contest an exercise of government jurisdiction over him or his property. Yet in an overreach of authority, the Arizona Corporation Commission is claiming that it can demand voluminous information from a business that is not suspected of wrongdoing, without providing any recourse whatsoever for that business to challenge the ACC’s demands.

Under Article 15 of the Arizona Constitution, the ACC was established for one primary purpose: to regulate public service corporations, such as electric, gas, and common carrier utilities in the state. It also has some limited jurisdiction over companies that issue stock to the public.

What the ACC does not have authority to do is demand the records of any business in the state when that business is not a public service corporation or when that business does not issue stock.

But that is precisely what happened to Kadima Ventures, LLC. Kadima, a technology company, is not a public service corporation. It also does not and has not issued securities. It is privately held.

Yet the Corporation Commission sent Kadima a voluminous and invasive subpoena, demanding all sorts of private records, many of which are confidential and proprietary. Worse yet, there is no mechanism under the ACC’s rules that allow individuals or businesses subject to such a subpoena to challenge either the subpoena itself or the jurisdiction of the ACC to issue it in the first instance.

In any other context, those subject to subpoenas and other demands for information have a mechanism by which to challenge the subpoena, including by bringing a motion to quash in court. But the ACC claims it has authority to demand this information simply to assure itself that the law is not being violated. In other words, it can force companies to turn over confidential records even where it has no reason to think anyone’s broken the law.

The absence of any meaningful way in which to challenge the ACC’s jurisdiction to issue a subpoena in the Kadima matter raises significant due process concerns.

The Goldwater Institute has submitted an amicus brief identifying those concerns in a petition for special action in Maricopa County Superior Court.

It is no surprise to those concerned with government overreach that government agencies and actors work to expand their power. We should all be alarmed, however, when agencies do so without any meaningful opportunity to contest their jurisdiction to issue the demand in the first place.

Timothy Sandefur is the vice president for litigation, and Jon Riches is the director of national litigation and general counsel, at the Goldwater Institute.