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 (USF).[1]

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.[2]

Background – Petition For Review

Consumer’s Research,[3] Cause Based Commerce,[4] and a handful of individuals filed the Petition in September 2021, challenging the fourth quarter 2021 USF contribution factor by claiming the USF “exceeds the FCC’s statutory authority and violates the Constitution and other federal laws.” Specifically, the group argued that Section 254 of the Communications Act, which created the USF and empowers the FCC to administer it, violates the nondelegation doctrine. Under the nondelegation doctrine, when Congress delegates power to executive agencies to implement laws, it must provide an intelligible principle which adequately guides, limits, and restrains the agency. The Consumer’s Research group also argued that the Universal Service Administrative Company’s (USAC) role in the USF system violates the private-nondelegation doctrine. The private nondelegation doctrine prohibits agencies from delegating unrestrained power to private entities.

Sixth Circuit Opinion

In its opinion, the Court first provides background information on the USF and Section 254 of the Communications Act. It then addresses the substantive issues in the Petition For Review: (1) whether the Petition is untimely under the Hobbs Act, which would prevent the Court from considering it; (2) whether Section 254 violates the nondelegation doctrine; and (3) whether USAC’s role in helping to administer the USF violates the private nondelegation doctrine.

Article III Standing & The Hobbs Act

The Court first considered Article III standing – whether a particular person is a proper party to present a particular issue to the Court for determination. To establish standing, a party must show injury, causation, and redressability. These requirements were met, the Court concluded, because Caused Based Commerce, one of the Petitioners and a telecommunications carrier, is required to contribute to the USF. This, the Court explained, “demonstrates an actual, concrete, and particularized injury of fact that is fairly traceable to the FCC’s conduct and is redressable by a favorable judicial ruling.”[5]

Next, the Court analyzed whether the Petition was timely filed. Under the Hobbs Act, a party aggrieved by a final order of the FCC has 60 days to file a petition to review the order in an appropriate U.S. court of appeals. Before proceeding, the Court noted that “the Hobbs Act is complicated, and the answer to the jurisdiction inquiry varies depending on the agency, the type of agency decision at issue, and the facts of the case.”[6]

In its response briefs, the FCC argued “it did not issue a reviewable final order within sixty days of Petitioners’ challenge.”[7] It claimed Consumers’ Research is actually challenging “regulations and orders from the 1990s and 2011 regarding the contribution method and USAC.” Here, the FCC claimed, the real final order would be “USAC’s invoice applying the quarterly contribution factor to a carrier’s covered revenue, rather than the FCC’s approval of the quarterly contribution factor.”

The Sixth Circuit Court disagreed, concluding that “the Q4 2021 Contribution Factor is a final order consistent with the Hobbs Act.” The Court said the FCC’s rules indicate the 4Q 2021 USF contribution factor Public Notice “is a final order consistent with the Hobbs Act.” Further, it said that even if the Public Notice is not a final order, it “reapplies prior final FCC actions that restart the sixty-day clock.”[8]

The USF Does Not Violate The Nondelegation Doctrine

To analyze whether the USF violates the nondelegation doctrine, the Court applied the intelligible-principle test – has Congress set forth an intelligible principle to which the Federal agency authorized to exercise the delegated authority is directed to conform?[9] It began by noting there have only been two times where SCOTUS struck down a law for violating the doctrine:

The Supreme Court has struck down a statute for lacking an intelligible principle on only two occasions: Panama Refining Co. v. Ryan, 293 U.S. 388 (1935), struck down a statute that “provided literally no guidance for the exercise of discretion,” Whitman, 531 U.S. at 474, and A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935), struck down a statute that “conferred authority to regulate the entire economy on the basis of no more precise a standard than stimulating the economy by assuring ‘fair competition,’” Whitman, 531 U.S. at 474.[10]

First, the Court rejected the Petitioners’ argument that Section 254 “violates the nondelegation doctrine because Congress neither capped the amount that the FCC may raise in contributions for the Fund nor imposed a formula for how to calculate the contributions to the Fund.” The Court said a delegation does not have to include a fixed formula or cap in order for it to comply with the intelligible principle requirement.

Next, the Court rejected the Petitioners’ argument that Section 254 “lacks any real limits and affords the FCC too much discretion.” The Court found that the “[Consumers’ Research] argument that these principles are too abstract, ‘lofty,’ and ‘aspirational only’ is unpersuasive.” It said all you have to do is look at Section 254 to see that Congress provided the FCC with an intelligible principle; This delegation does not violate the separation of powers. The Court then provided a focused analysis of Section 254(b) of the USF statue, titled universal service principles, which is summed up in the following way:

Together, these principles provide comprehensive and substantial guidance and limitations on how to implement Congress’s universal-service policy, and in turn, how the FCC funds the USF. The principles direct the FCC on (1) what it must pursue: accessible, quality, and affordable service. (2) How the FCC must fund these efforts: by imposing carrier contributions. (3) The method by which the FCC must effectuate the goals of accessible, sound-quality, and affordable service: by creating specific mechanisms for the Fund. And (4) to whom to direct the programs: by identifying the USF’s mechanisms’ beneficiaries.[11]

The Court then moved beyond the 254(b) principles to explain that many other subsections of 254 prove that there is no violation of the nondelegation doctrine:

Subsection 254(c) “limits the FCC in deciding which kinds of telecommunications services are supported by the USF,” and thereby ‘limits distribution of USF funds’ for specific services.”[12]

Subsection 254(d) limits the FCC by (1) mandating who pays for the USF support mechanisms and (2) provides a general principle for how the FCC should calculate the amount each carrier must contribute.[13]

Subsection 254(e) places more limits on the FCC by “limit[ing] 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.”[14]

Subsection 254(e) sufficiency command “places a soft cap on the size and budget of the program, allowing growth no larger than what is ‘sufficient to achieve the purposes of’ universal service.”[15]

Section 254 “also limits the type of beneficiaries of the USF,” by requiring that “efforts must address high-cost areas and low-income communities.”[16]

USAC’s Role Does Not Violate The Private Nondelegation Doctrine

USAC helps administer the USF and its support mechanisms by, among other things, “billing contributors, collecting contributions to the universal service support mechanisms, and disbursing universal service support funds.”[17] At all times, USAC is subservient to the FCC. It “may not make policy, interpret unclear provisions of the statute or rules, or interpret the intent of Congress.”[18]

Considering USAC’s role and functions, the Court “agree[d] with the Fifth Circuit that there is no private-nondelegation doctrine violation because USAC is subordinate to the FCC and performs ministerial and fact-gathering functions.”[19] With respect to USAC’s role, the Court said “[a] private entity may assist an agency with this sort of ministerial support,” and “[b]ecause USAC is appropriately subordinated to the FCC and serves a fact-gathering and ministerial function without exercising decision-making power, there is no private-nondelegation doctrine violation.”[20]

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[1] Consumers’ Research, et al v. FCC, Case Number 21-3886 (6th Cir. 2021) (Opinion), https://www.opn.ca6.uscourts.gov/opinions.pdf/23a0093p-06.pdf.

[2] Consumers’ Research v. FCC., Case Number 22-13315, U.S. Court of Appeals for the Eleventh Circuit (filed October 3, 2022); Consumers’ Research v. FCC., Case Number 23-1091, U.S. Court of Appeals for the District of Columbia Circuit (filed Apr. 3, 2023).

[3] 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/.

[4] 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/.

[5] Opinion at p. 11.

[6] Opinion at p. 12.

[7] Opinion at p. 12.

[8] Opinion at p. 13.

[9] Opinion at p. 15.

[10] Opinion at p. 16.

[11] Opinion at pp. 21-22.

[12] Opinion at pp. 23-24.

[13] Opinion at p. 24.

[14] Opinion at p. 25.

[15] Opinion at p. 25.

[16] Opinion at p. 25.

[17] 47 C.F.R. § 54.702(b).

[18] 47 C.F.R. § 54.702(c).

[19] Opinion at p. 27.

[20] Opinion at p. 29.