TMT with Mike O'Rielly – Ep 22: Pending SCOTUS Decision on USF

Episode 22 of "TMT with Mike O'Rielly," a videocast featuring former FCC Commissioner and Adjunct Senior Fellow at the Free State Foundation Michael O'Rielly, was released on June. In this episode, titled "The Pending U.S. Supreme Court Decision on the Universal Service Fund," Mr. O'Rielly has a conversation with guest Tim Donovan, President and CEO of the Competitive Carrier Association (CCA). Their conversation addresses issues involving the much-anticipated ruling by the Supreme Court in FCC v. Consumers' Research. Streaming video of the episode is now available:

A Tell-Tale Sign Regarding the FCC's Status in the Consumers' Research Argument

During today's oral argument in the Supreme Court the Consumers' Research case regarding the constitutionality of the FCC's Universal Service regime, there was a brief tell-tale exchange that likely telegraphs the answer to the question whether a president can constitutionally remove an FCC commissioner without cause – in other words, at will.

 

Justice Brett Kavanaugh ask the government's counsel defending the Universal Service program whether it makes any difference to the government's defense against the constitutional nondelegation challenge whether the FCC is considered an independent agency or part of the executive branch subject to the president's control. The government's counsel conceded, in effect, that the FCC is not independent because there is no "for cause" restriction on the president's removal power in the Communications Act.

Yesterday, at the Free State Foundation's Seventeenth Annual Policy Conference, FCC Chairman Brendan Carr made the same point in our Fireside Chat ( at 2:45) when I asked him how he thought about the question whether the FCC is an independent agency insulated from presidential control. He pointed to the lack of a restriction on removal in the Communications Act.

 

In connection with then-developing discussion regarding a president's power to remove FCC commissioners, I pointed out several weeks ago, here and here, that the Communications Act lacks statutory restrictions on removal that are contained in the laws governing the FTC, NLRB, and other agencies. This distinction, until recently, has been overlooked by most everyone, and for decades, many have referred to the FCC as an "independent" agency.

 

To the extent that a president ever attempts to remove an FCC without cause, and such removal is challenged as unconstitutional – even assuming Humphrey's Executor were to remain good law – it's likely that the Communications Act's lack of a statutory removal restriction will prove determinative.  

2025 Will Be a Big Year for the FCC in the Courts

On December 16, the Federalist Society hosted a webinar panel event, "Is FTC Administrative Litigation Unconstitutional?" The webinar's panelists discussed the future of Federal Trade Commission's (FTC) litigation and enforcement in light of the Supreme Court's decisions in Axon Enterprise, Inc. v. FTC (2023) and SEC v. Jarkesy (2024) as well as in light of the Court's openness to revisit the contours of administrative power as reflected by decisions such as West Virginia v. EPA (2022) and Loper Bright Enterprises v. Raimondo (2024).

In Jarkesy, the Court held that the Seventh Amendment entitles a defendant to a jury trial when the Securities and Exchange Commission (SEC) seeks civil penalties for securities fraud. The Court determined that the SEC's antifraud provisions replicate common law fraud claims that must be heard by a jury. 

 

Although the Supreme Court's holding in Jarkesy was limited to the Seventh Amendment, the FedSoc webinar panel's discussion touched on two facets of the Fifth Circuit's holding in an earlier stage of the case. The Fifth Circuit held that Congress unconstitutionally delegated legislative power to the SEC by failing to provide an intelligible principle by which the SEC would exercise delegated power, thereby violating the U.S. Constitution's Article I Legislative Vesting Clause. Additionally, the Fifth Circuit held that statutory removal restrictions on SEC Administrative Law Judges (ALJs) violate the Take Care Clause of Article II. Shortly, the Supreme Court will likely tackle nondelegation claims, presidential removal power claims, and other claims brought in other cases against the FTC or other agencies – including the FCC.

 

Indeed, in 2025, the Supreme Court will review the Fifth Circuit's July 2024 en banc decision in Consumers' Research v. FCC. The Fifth Circuit concluded that the universal service contribution system violates the Article I Legislative Vesting Clause. The Court's grant of a writ of certiorari in Consumers' Research v. FCC is noted briefly in my blog post from November 26, 2024. The lower court's decision in the case, which was based on nondelegation principles and precedents, is the subject of my August 2024 Perspectives from FSF Perspectives, "Fifth Circuit Rules USF Contribution Scheme Violates Legislative Vesting Clause."

 

Furthermore, lower courts are likely to weigh in next year on Jarkesy implications for the FCC's enforcement authority. In April 2024, the FCC fined the three nationwide wireless providers for the sale of consumer location-related information. Legal challenges to the Commission's authority to levy those fines are now pending before the D.C. Circuit, the Second Circuit, and the Fifth Circuit. 

 

Added to all of these pending cases are anticipated judicial decisions about the legal fate of the FCC's Safeguarding and Securing the Open Internet Order regulating broadband Internet services as public utilities and the Commission'sDigital Discrimination Order subjecting broadband providers to liability for unintentional disparate impacts. Oral arguments in those respective cases have been held before the Sixth Circuit and the Eighth Circuit. 

 

In all, it looks like 2025 will be a big year for the FCC in the courts.   

Fifth Circuit Denies Nondelegation Challenges to USF Regime

Today, March 24, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit denied constitutional challenges to the administrative regime for the Universal Service Fund. In Consumers' Research v. FCC, the Fifth Circuit rejected the claim that Congress improperly delegated authority to the Commission to administer the USF under Section 254 of the Communications Act. According to the court, Section 254 supplied the Commission with intelligible principles when it tasked the agency with overseeing the USF, and that the statute sufficiently limited the agency's power to raise revenues. Additionally, the Fifth Circuit ruled that the FCC's redelegation of authority to the USAC to administer the USF does not run afoul of the private nondelegation doctrine. According to the court, the USAC is subordinate to the Commission and the agency is not bound by USAC decisions. Instead, the Commission but can review the USAC's decisions and grant relief from them as well as determine how USF contributions are calculated and review the calculations made by the USAC.

As noted in an April 2022 blog post, President Randolph May and the Free State Foundation joined an amicus brief that was filed with the Fifth Circuit in this case. 

 

Although in Fifth Circuit appears to have made short work of nondelegation challenges to the USF in Consumers' Research v. FCC, there are nondelegation-related challenges to the scheme for administering the USF still pending in the Sixth and Eleventh Circuit Courts of Appeal. 

Panelists Tackle Major Questions About the Future of Administrative Law

The Federalist Society held its 2022 National Lawyers Convention on November 10 through November 12. The Convention panel videos are now available online, including one titled "Major Questions Doctrine: West Virginia v. EPA?" The panel, moderated by Judge Edith Jones of the Fifth Circuit Court of Appeals, features Professors Jennifer Mascott and Thomas Merrill, as well as top-notch litigators Ian Gershengorn and Yaakov Roth. Like other events featuring commentary and analysis of the Supreme Court's 2020 decision in West Virginia v. EPA, the panelists discussed the case as a matter of textual interpretation and interpretative canons, in light of the non-delegation doctrine, in view of Chevron doctrine, and also in connection with the court's application of Chevron deference to agency determinations about the scope of their own jurisdiction in its 2013 decision in City of Arlington v. FCC.  

One interesting point made by Mr. Gershengorn about 51-52 minutes into the panel and again at about the 1 hour 21 minute mark was that net neutrality regulation constitutes "the easiest major doctrines case you're going to see" because then-Judge Brett Kavanaugh decided that net neutrality is a major question in the D.C. Circuit in U.S. Telecom v. FCC. 

 

FSF President Randolph May addressed the implications of West Virginia v. EPA for net neturality regulation in his July 2022 Perspectives from FSF Scholars, "A Major Ruling on Major Questions." And he pointed out that the court's opinion in West Virginina v. EPA actually quoted then-Judge Kavanaugh's 2017 opinion dissenting from denial of en banc review in U.S. Telecom v. FCC. 

Free State Foundation Files Brief Supporting Constitutional Challenges to USF Regime

On April 18, the Free State Foundation and FSF President Randolph May filed an amicus curiae brief in the Fifth Circuit Court of Appeals in a case challenging the constitutionality of the FCC's universal service regime. The amicus brief, which is led by the Competitive Enterprise Institute and includes other telecommunications and administrative law experts, argues that the imposition of the USF contribution fee by the FCC and the Universal Service Administrative Company violates the nondelegation doctrine and the major questions doctrine, both of which are central to maintaining the separation of powers required by the Constitution. The case is Consumers' Research v. FCC.  

Here are two key paragraphs from the amicus brief's introduction:

Only Congress has the power to lay and to collect taxes for the general welfare of all Americans. Regardless of the public policy that it seeks to advance, Congress cannot delegate this power to the FCC or any other executive branch agency. Yet that is exactly what Congress did when it enacted the Telecommunications Act of 1996 to create a universal service program for the Commission to raise revenue however it sees fit "for the protection of the public interest" in seeking to provide greater access to telecommunications services. 47 U.S.C. § 254(b)(7). 

 

The Constitution does not permit Congress to circumvent the legislative process by allowing an independent agency (guided by a private company owned by an industry trade group) to raise and to spend however much money it wants every quarter for "universal service" at the expense of every American who pays a monthly phone bill. Elected representatives of the people, not the Federal Communications Commission, must be responsible for making the difficult decisions to raise the revenue that funds this program. 

The amicus brief argues that the "contribution" mandated by Section 254 of the Communications Act is functionally a tax and that Congress's delegation of broad regulatory power to the Universal Service Administrative Company (USAC) – a private corporation – raises serious structural separation-of-power issues. As the brief states: 

The Company now rakes in nearly $10 billion each year in 'contributions' (ultimately borne by consumers), which it then disburses to libraries, schools, rural areas, and carriers providing services in high-cost areas... Yet Congress provided no direction as to how either the FCC or the Universal Service Administrative Company should calculate rates for service providers or how much money should be collected and distributed each year. 

As mentioned above, the amicus brief also argues that "[t]he major questions doctrine forecloses any interpretation of Section 254 that would allow the FCC to collect and to spend billions of dollars every year as it sees fit."

 

The amicus brief in Consumers' Research v. FCC is available for reading here. And thank you to the Competitive Enterprise Institute and their legal counsel. 

 

For more on the constitutional problems with the universal service regime, see FSF President Randy May's November 2021 Perspectives from FSF Scholars, "A Nondelegation Doctrine Challenge to the FCC's Universal Service Regime," as well as our April 2021 Perspectives, "Congress Should Put Universal Service on a Firmer Constitutional Foundation." Additionally, the Free State Foundation filed comments in February 2022 and reply comments in March of this year in the FCC's proceeding for its upcoming Report on the Future of the Universal Service Fund.

Sixth Circuit Challenge to USF Highlights Nondelegation Issues Identified by FSF Scholars

In a recent petition for review at the Sixth Circuit Court of Appeals, Consumers’ Research and other groups challenge the administration of the Universal Service Fund (USF) by the private Universal Service Administrative Co. (USAC), in conjunction with the FCC's supervision, as an unconstitutional delegation of congressional power. In other words, these petitioners argue the USF violates the nondelegation doctrine.

This challenge follows comments from the same petitioners making the same arguments submitted to the FCC’s Proposed Fourth Quarter 2021 Universal Service Contribution Factor proceeding. Petitioners’ main argument is that Congress’s delegation of legislative and taxation powers to the FCC, which the FCC then delegates to USAC, a private corporation, is unconstitutional. Additionally, petitioners also argue that Congress’s delegation of appointment power over the USAC Board of Directors to the FCC Chairman is unconstitutional. In the alternative, petitioners argue that the FCC exceeds its statutory authority and violates the APA in its administration of the USF.

Free State Foundation President Randolph May and Senior Fellow Seth Cooper previously raised similar nondelegation concerns regarding the USF, urging Congress to appropriate USF funding instead of delegating taxing powers to the FCC. May, an administrative law scholar, has long called for an interpretation of the nondelegation doctrine with more vitality. In a 2001 article for the Federal Communications Law Journal, May argued that the Communications Act’s "public interest" standard is far too vague to be a lawful delegation of power. More recently, May commented on the last nondelegation case at the Supreme Court, Gundy v. United States, hoping Gundy signaled a move "some steps closer to the Framers' original constitutional understanding" of separation of powers.

As the chart above shows, consumers are now subject to nearly a 30% surcharge tacked on to all their traditional telephone calls. Free State Foundation scholars have long supported reform of the Universal Service subsidy regime. For example, Free State Foundation Academic Advisor Justin (Gus) Hurwitz recently discussed USF reform, calling for "a rethinking and substantial reworking of our approach to our Universal Service commitment in telecommunications." And Senior Fellow Andrew Long highlighted FCC Commissioner Brendan Carr’s innovative plan to fund universal service through Big Tech platform ad revenues. President Randolph May, writing in the Yale Journal on Regulation just this week, says Commissioner Carr's proposal is worthy of serious consideration and would be a good candidate for an FCC Notice of Inquiry.

FSF President Randolph May Highlights Vibrancy of the Nondelegation Doctrine at the State Level in Essay for 'The Regulatory Review'

On Thursday, The Regulatory Review published "The Nondelegation Doctrine Is Alive and Well in the States," an essay by Free State Foundation President Randolph May.

In this follow-up to his September 25 piece in the Yale Journal on Regulation, "Justice Ginsburg's Replacement Won't Decimate the Administrative State," Mr. May notes that, although the U.S. Supreme Court has not invoked the nondelegation doctrine since 1935, state supreme courts continue to invalidate laws that, through the impermissible delegation of legislative authority, violate separation of powers principles set forth in their own constitutions.

Midwest Institute of Health v. Governor is one such recent example. In that case, decided earlier this month, the Michigan Supreme Court found a law relied upon by Governor Gretchen Whitmer to declare a state of emergency and issue "lockdown" orders during the COVID-19 pandemic to be "an unlawful delegation of legislative powers to the executive branch in violation of the Michigan Constitution."

Citing the U.S. Supreme Court's decision in Gundy v. United States for the proposition that "the constitutional question is whether [the legislature] has supplied an intelligible principle to guide the delegee's use of discretion," the Michigan supreme court concluded that the terms "reasonable" and "necessary" found in the Emergency Powers of the Governor Act of 1945 were mere "illusory 'non-standard' standards," insufficient to "serve[] in any realistic way to transform an otherwise impermissible delegation of legislative power into a permissible delegation of executive power."

Highlighting the existence of similar supreme court decisions in other states, Mr. May expresses hope that they will inspire the U.S. Supreme Court to revitalize the nondelegation doctrine at the federal level, which he concludes "is central to preserving the U.S. Constitution's separation of powers."