FCC

The Federal Communications Commission is urging two federal appeals courts to disregard a 5th Circuit ruling that guts the agency’s ability to issue financial penalties.

On April 17, the US Court of Appeals for the 5th Circuit granted an AT&T request to wipe out a $57 million fine for selling customer location data without consent. The conservative 5th Circuit court said the FCC “acted as prosecutor, jury, and judge,” violating AT&T’s Seventh Amendment right to a jury trial.

The ruling wasn’t a major surprise. The 5th Circuit said it was guided by the Supreme Court’s June 2024 ruling in Securities and Exchange Commission v. Jarkesy, which held that “when the SEC seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial.” After the Supreme Court’s Jarkesy ruling, FCC Republican Nathan Simington vowed to vote against any fine imposed by the commission until its legal powers are clear.

Before becoming the FCC chairman, Brendan Carr voted against the fine issued to AT&T and fines for similar privacy violations simultaneously levied against T-Mobile and Verizon. Carr repeatedly opposed Biden-era efforts to regulate telecom providers and is aiming to eliminate many of the FCC’s rules now that he is in charge. But Carr has also been aggressive in regulation of media, and he doesn’t want the FCC’s ability to issue penalties completely wiped out. The Carr FCC stated its position in new briefs submitted in separate lawsuits filed by T-Mobile and Verizon.

Verizon sued the FCC in the 2nd Circuit in an attempt to overturn its privacy fine, while T-Mobile and subsidiary Sprint sued in the District of Columbia Circuit. Verizon and T-Mobile reacted to the 5th Circuit ruling by urging the other courts to rule the same way, prompting responses from the FCC last week.

“The Fifth Circuit concluded that the FCC’s enforcement proceeding leading to a monetary forfeiture order violated AT&T’s Seventh Amendment rights. This Court shouldn’t follow that decision,” the FCC told the 2nd Circuit last week.

FCC loss has wide implications

Carr’s FCC argued that the agency’s “monetary forfeiture order proceedings pose no Seventh Amendment problem because Section 504(a) [of the Communications Act] affords carriers the opportunity to demand a de novo jury trial in federal district court before the government can recover any penalty. Verizon elected to forgo that opportunity and instead sought direct appellate review.” The FCC put forth the same argument in the T-Mobile case with a filing in the District of Columbia Circuit.

There would be a circuit split if either the 2nd Circuit or DC Circuit appeals court rules in the FCC’s favor, increasing the chances that the Supreme Court will take up the case and rule directly on the FCC’s enforcement authority.

Beyond punishing telecom carriers for privacy violations, an FCC loss could prevent the commission from fining robocallers. When Carr’s FCC proposed a $4.5 million fine for an allegedly illegal robocall scheme in February, Simington repeated his objection to the FCC issuing fines of any type.

“While the conduct described in this NAL [Notice of Apparent Liability for Forfeiture] is particularly egregious and certainly worth enforcement action, I continue to believe that the Supreme Court’s decision in Jarkesy prevents me from voting, at this time, to approve this or any item purporting to impose a fine,” Simington said at the time.

5th Circuit reasoning

The 5th Circuit ruling against the FCC was issued by a panel of three judges appointed by Republican presidents. “Our analysis is governed by SEC v. Jarkesy. In that case, the Supreme Court ruled that the Seventh Amendment prohibited the SEC from requiring respondents to defend themselves before an agency, rather than a jury, against civil penalties for alleged securities fraud,” the appeals court said.

The penalty issued by the FCC is not “remedial,” the court said. The fine was punitive and not simply “meant to compensate victims whose location data was compromised. So, like the penalties in Jarkesy, the civil penalties here are ‘a type of remedy at common law that could only be enforced in courts of law.'”

The FCC argued that its enforcement proceeding fell under the “public rights” exception, unlike the private rights that must be adjudicated in court. “The Commission argues its enforcement action falls within the public rights exception because it involves common carriers,” the 5th Circuit panel said. “Given that common carriers like AT&T are ‘affected with a public interest,’ the Commission contends Congress could assign adjudication of civil penalties against them to agencies instead of courts.”

The panel disagreed, saying that “the Commission’s proposal would blow a hole in what is meant to be a narrow exception to Article III” and “empower Congress to bypass Article III adjudication in countless matters.” The panel acknowledged that “federal agencies like the Commission have long had regulatory authority over common carriers, such as when setting rates or granting licenses,” but said this doesn’t mean that “any regulatory action concerning common carriers implicates the public rights exception.”

FCC hopes lie with other courts

The 5th Circuit panel also rejected the FCC’s contention that carriers are afforded the right to a trial after the FCC enforcement proceeding. The 5th Circuit said this applies only when a carrier fails to pay a penalty and is sued by the Department of Justice. “To begin with, by the time DOJ sues (if it does), the Commission would have already adjudged a carrier guilty of violating section 222 and levied fines… in this process, which was completely in-house, the Commission acted as prosecutor, jury, and judge,” the panel said.

An entity penalized by the FCC can also ask a court of appeals to overturn the fine, as AT&T did here. But in choosing this path, the company “forgoes a jury trial,” the 5th Circuit panel said.

While Verizon and T-Mobile hope the other appeals courts will rule the same way, the FCC maintains that the 5th Circuit got it wrong. In its filing to the 2nd Circuit, the FCC challenged the 5th Circuit’s view on whether a trial after the FCC issues a fine satisfies the right to a jury trial. Pointing to an 1899 Supreme Court ruling, the FCC said that “an initial tribunal can lawfully enter judgment without a full jury trial if the law permits a subsequent ‘trial [anew] by jury, at the request of either party, in the appellate court.'”

The FCC further said the 5th Circuit relied on a precedent that doesn’t exist in either the 2nd Circuit or District of Columbia Circuit.

“The Fifth Circuit also relied on circuit precedent holding that ‘[i]n a section 504 trial, a defendant cannot challenge a forfeiture order’s legal conclusions,'” the FCC also said. “This Court, however, has never adopted such a limitation, and the Fifth Circuit’s premise is in doubt. Regardless, the proper approach would be to challenge any such limitation in the trial court and seek to strike the limitation—not to vacate the forfeiture order.”