Fifth Circuit Completely Rejects Consumers’ Research Non-Delegation Challenge To Universal Service Fund
UPDATE: Fifth Circuit Grants Petition For Rehearing En Banc In Consumers’ Research v. FCC Universal Service Fund Challenge
June 29, 2023 – The U.S. Court of Appeals for the Fifth Circuit has granted a Petition For Rehearing En Banc in Consumers’ Research v. FCC. In March 2023, a three-judge panel of the Court issued a unanimous opinion in favor of the FCC. Consumers’ Research thereafter requested the case be reheard en banc. By granting the Petition, the Fifth Circuit has vacated the March 2023 decision. At a later date, the Court will announce the schedule for oral argument and the filing of supplemental briefs.
UPDATE: Another Loss For Consumers’ Research – Sixth Circuit Says The Universal Service Fund Is Constitutional
May 4, 2023 – The U.S. Court of Appeals for the Sixth Circuit has denied Consumer’s Research’s Petition For Review challenging the constitutionality of the Universal Service Fund. Consumers’ Research is now 0 for 2 on its USF legal challenges. This Sixth Circuit loss comes 41 days after a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit completely rejected a nearly identical Petition For Review. There are currently two other Petitions awaiting decisions at the Eleventh Circuit and D.C. Circuit Courts of Appeal.
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March 24, 2023 – A three-judge panel of the U.S. Court of Appeals for the Fifth Circuit has issued an unanimous opinion in Consumers’ Research v. FCC, denying a non-delegation doctrine challenge to the universal service fund (USF) and the way it is funded and administered.[1]
Background – Consumers’ Research Petition For Review
The petition for review was brought by Consumers’ Research, a nonprofit organization,[2] communications provider Cause Based Commerce, Inc.,[3] and 11 individuals in January 2022, challenging the USF contribution factor for the first quarter of 2022. The group filed comments and objections with the FCC before and after the 1Q 2022 contribution factor was formally adopted by the FCC. They have also filed similar petitions for review with the Sixth Circuit challenging the FCC’s approval of the proposed fourth quarter 2021 USF contribution factor,[4] and the Eleventh Circuit challenging the USF contribution factor for the fourth quarter of 2022.
The Consumers’ Research group generally makes the same argument in each petition: the USF revenue-raising structure violates the nondelegation doctrine; Section 254 constitutes an unconstitutional delegation of Congress’ taxing power; and the FCC’s sub delegation of authority to the Universal Service Administrative Company (USAC), the FCC-designated administrator of the USF, is illegal.[5]
The Fifth Circuit Decision – Petition Not Time-Barred By Hobbs Act
In its petition for review, Consumers’ Research challenged: (1) the constitutionality of Congress’s delegation of administration of the USF to the Federal Communications Commission (FCC); and (2) the FCC’s subsequent reliance on USAC, a private entity, for ministerial support.
Initially, the Fifth Circuit found Consumers’ Research was able to overcome the FCC’s argument that the petition for review is time-barred by the Hobbs Act. The FCC claimed that the correct time to for Consumers’ Research to challenge the USF system was after Section 254 was enacted, and the 1Q 2022 USF contribution factor Public Notice “is not a direct and final agency action which creates legal consequences or new obligations for Petitioners.”
The Fifth Circuit applied the Dunn-McCampbell[6] exception and ruled the Consumers’ Research petition should be heard. The Court concluded that the 1Q 2022 USF contribution factor Public Notice (1) is a direct and final order which consummates the FCC’s decision-making process; and (2) punishes telecommunications carriers for non-compliance.[7]
Non-Delegation Doctrine – Congress’ Delegation Of The USF To The FCC
Before moving to the Court’s analysis of Consumers’ Research’s substantive challenges, a quick review of the non-delegation doctrine is necessary to set the stage. Under the Constitution, all legislative powers are vested in the United States Congress. It makes the laws. However, Congress can and often does delegate “substantial discretion on executive agencies to implement and enforce the laws.”[8] When doing so, Congress must “provide an intelligible principle which adequately guides the Executive agency.” The “intelligible principle” must sufficiently “guide the delegee’s use of discretion.” If a court finds Congress makes a delegation to an agency with “no guidance whatsoever,” the court will strike it down.
Consumers’ Research argued “[Section] 254 violates the nondelegation doctrine because: (1) Congress failed to provide the FCC with an intelligible principle; and (2) to the extent Congress provided intelligible principles, they are merely aspirational and place no objective limits on the FCC in its administration of the USF.”[9] Among other things, Consumers’ Research claimed there is “no objective ceiling on the amount that the FCC can raise each quarter,” and “[Section] 254(b)(1)-(7) contains mere public policy statements which impose no meaningful limitations on or guidance to the FCC’s revenue-raising obligation in its administration of the USF.”
The Court totally disagreed, finding that Section 254(b) requires the FCC to base USF policies on various enumerated principles, which means the FCC does not operate the USF without guidance from Congress. The Court said this is not no guidance whatsoever; Section 254 provides the FCC with “ample direction.” It’s almost as if Consumers’ Research didn’t really read Section 254.
After finding that Congress supplied the FCC with intelligible principles, the Court “consider[ed] whether those principles adequately limit the FCC’s revenue raising function.”
Consumers’ Research described the principles in Section 254(b) as “nothing more than ‘vague aspirations’ that fail to set objective limits on the FCC as they operate the USF.”
Again, the Court completely disagreed. The Fifth Circuit’s three-judge panel concluded Section 254’s principles sufficiently limit the FCC’s revenue-raising activity. They are not merely aspirational. The Court provided the following explanation:
For example, § 254(c)(1)(A)-(D) limits distribution of USF funds to telecommunications services that: (1) “are essential to education, public health, or public safety;” (2) “are being deployed in public telecommunications networks by telecommunications carriers;” and (3) “are consistent with the public interest, convenience, and necessity.” Likewise, § 254(b)(5) requires that the FCC ensure there are “specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal service.” Furthermore, § 254(e) limits distribution of USF funds to eligible communication carriers under § 214(e)—and even those carriers may only receive support “sufficient to achieve the purposes of” § 254. Taken together, these provisions demonstrate that the FCC is not in the dark as to the amount of funding it should seek each quarter. Instead, § 254 sets out the FCC’s obligations with respect to administration of the USF and the FCC, in turn, calculates what funds are necessary to satisfy its obligations.[10]
Consumers’ Research Reliance On Non-Binding Law
Before moving to the private non-delegation argument, footnote 4 of the Court’s Opinion is worthy of a quick look. During the oral argument, the three-judge panel’s first question to the Petitioners was “you cite dissents, what majority opinion cases are on point for you?” Consumers’ Research struggled with this at oral argument, and the Court hammered them in footnote 4 to the opinion. Here is what the Court said:
We note that much of Petitioners’ nondelegation argument relies primarily on the dissents of the Supreme Court’s holding in Gundy and this court’s in Rettig, which, of course, are not binding on our court. See, e.g., Gundy, 139 S. Ct. at 2133, 2134, 2135–37 (Gorsuch, J., joined by Roberts, C.J., and Thomas, J. dissenting); see also Rettig, 993 F.3d at 408, 409–10 (5th Cir. 2021) (Ho, J. joined by Jones, Smith, Elrod, and Duncan, JJ., dissenting from denial of rehearing en banc). That some Justices of the Supreme Court and some judges of this circuit have opined on whether Congress is permitted to delegate “difficult policy choices” is not determinative that Congress impermissibly did so here when it delegated administration of the USF to the FCC. Moreover, the mere fact that Petitioners dispute the policy choices that the FCC has made in overseeing the USF does not translate to a constitutional or statutory violation. See Gundy, 139 S. Ct. at 2139 (“Congress may confer substantial discretion on executive agencies to implement and enforce the laws.”). At best, Petitioners argue for different policy choices. But they provide no binding law to support such a request.[11]
Private Non-Delegation Doctrine – The FCC’s Delegation Of Administrative USF Tasks To USAC
Last, the Court addressed Consumers’ Research’s argument “that the FCC violated the private nondelegation doctrine when it redelegated its authority over the USF to USAC, a private entity.” The private nondelegation doctrine prohibits “governments from delegating too much power to private persons and entities.”[12]
Consumers’ Research claimed “the FCC does not oversee USAC in its performance of its duties.” As anyone who has ever been involved in USF knows, this is a flimsy argument. The Court agreed, and completely rejected it, finding the FCC “wholly subordinates USAC.” The Court provided the following explanation:
First, federal statutory law expressly subordinates USAC to the FCC. See 47 C.F.R. § 54.702(b) (providing that USAC “may not make policy, interpret unclear provisions of the statute or rules, or interpret the intent of Congress”).
Second, unlike in National Horsemen, USAC does not enjoy the same type of sweeping rulemaking power – instead it makes a series of proposals to the FCC based off expert analysis, which are not binding on carriers until the FCC approves them. See 47 C.F.R. § 54.709(a).
Third, the FCC permits telecommunications carriers to challenge USAC proposals directly to the agency and often grants relief to those challenges.
Fourth, the FCC dictates how USAC calculates the USF contribution factor and subsequently reviews the calculation method after USAC makes a proposal. See 47 C.F.R. §§ 54.709(a)(2)-(3); 54.711(a).
To recap, first, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit unanimously found Consumer’s Research’s non-delegation challenge fails because with Section 254, “Congress provided the FCC with numerous intelligible principles for its administration of the USF and those principles sufficiently limit the FCC’s revenue-raising activity contains intelligible principles. Second, the Court found that “[b]ecause the FCC properly subordinates USAC, it has not violated the private nondelegation doctrine.”
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[1] Consumers’ Research, et al v. FCC, Case Number 22-60008 (5th Cir., filed Mar. 24, 2023) (Opinion), https://www.ca5.uscourts.gov/opinions/pub/22/22-60008-CV0.pdf.
[2] The organization describes its mission as follows: “Consumers’ Research is an independent educational 501(c)(3) nonprofit organization whose mission is to increase the knowledge and understanding of issues, policies, products, and services of concern to consumers and to promote the freedom to act on that knowledge and understanding.” Consumers’ Research, About, Mission, https://consumersresearch.org/mission/.
[3] Cause Based Commerce helps “provide communications services to values-based consumers who want alternatives to the many companies and providers that support causes and positions contrary to their beliefs.” https://www.causebasedcommerce.com/.
[4] Consumers’ Research, et al v. FCC, et al, Case No. 21-3886 (6th Cir., filed Sep. 30, 2021); Proposed Fourth Quarter 2021 Universal Service Contribution Factor, CC Docket No. 96-45, Public Notice, DA 21-1134 (Sep. 10, 2021), https://docs.fcc.gov/public/attachments/DA-21-1134A1.pdf.
[5] See Consumers’ Research, et al v. FCC, Case Number 22-60008, U.S. Court Of Appeals For The Fifth Circuit, Opening Brief For Petitioners, p. 35 (Apr. 11, 2022).
[6] Dunn-McCampbell Royalty Int., Inc. v. Nat’l Park Serv., 112 F.3d 1283, (5th Cir. 1997).
[7] Opinion at p. 4.
[8] Opinion at p. 5 (quoting Gundy v. United States, 139 S. Ct. 2116, 2123 (2019).
[9] Opinion at p. 7.
[10] Opinion at p. 11.
[11] Opinion at p. 9, footnote 4.
[12] Opinion at p. 12. “Functionally, the doctrine prevents agencies from giving private parties the ‘unrestrained ability to decide whether another citizen’s property rights can be restricted’ because ‘any resulting deprivation happens without ‘process of law.’” Opinion at p. 12 (citing Boerschig, 872 F.3d at 708).
