Judges Open Door to Nullifying Unjust Enrichment Rules
PHILADELPHIA -- Three judges of the 3rd U.S. Appeals Court, Philadelphia seemed to open the door to nullifying revised FCC rules on unjust enrichment. They heard arguments in a case pitting designated entities (DEs) led by Council Tree against the FCC. But the judges also seemed reluctant to overturn 2006’s advanced wireless services auction.
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“What if we were to nullify the unjust enrichment rule?” asked Judge Michael Chagares: “What would be the harm?” If that occurred, wouldn’t the FCC just have to apply “the old rule” in the coming 700 MHz auction and other auctions, unless it handed down a revised rule, he asked. Similarly, Judge Wallace Tashima asked: “Is it possible to vacate the unjust enrichment rule without reaching the auction itself?”
All 3 judges voiced strong concern about the effect of overturning the auction, as the DEs want. Council Tree sat out the auction as it challenged the auction rules in federal court. Bethel Native Corp. and Minority Media & Telecom Council joined Council Tree in suing the Commission.
Joseph Palmore, FCC deputy gen. counsel, responded that vacating the auction would be “an incredibly disruptive result” and “even vacating the auction would be disruptive.” Palmore added: “I think it’s quite possible the Commission would end up adopting the exact same rule.”
Palmore called the FCC’s DE decision a “complex line- drawing exercise,” urging the court to give the Commission wide discretion in making the policy call. He noted that Council Tree itself asked the FCC to revise its DE rules but didn’t like the results. “The Commission was clearly concerned about the relationship between DEs and non-DEs,” he said: “The Council Tree proposal was the starting point of the proposal, not the ending point.”
Dennis Corbett, arguing for Council Tree, told the court that the FCC decision to restrict sale of licenses bought using bidding credits -- through tough rules on “unjust enrichment” -- forced DEs like Council Tree to skip the auction. His client found the order extremely “disruptive,” he said. “We believe strongly that the FCC did not do its job,” Corbett said: “It makes this court’s job in reviewing the case… very difficult.”
In seeking review of the DE rules, Council Tree was intent on keeping big carriers from buying spectrum licenses through DEs, Corbett said. Instead, the Commission order focused on unjust enrichment, strictly limiting sale of licenses within 10 years of purchase and sharply restricting “material relationships” between DEs and all carriers, not just major national carriers. The rule’s effect was like dropping a piano on Council Tree, Corbett said.
The court should nullify the unjust enrichment rule and throw out the auction results, Corbett said: “They're joined at the hip.” Unless the court acts, “we're going to go into the 700 MHz auction with the same rules,” he added.
Chagares took Corbett to task. “It’s your client who asked [the FCC] to change the rule… close to when the auction occurred,” he said.
Judge Thomas Hardiman said Council Tree’s case really attacks the rule, not the procedure that the FCC used. He asked Corbett, who was complaining about the auction’s negative effect, how many DEs had won licenses. To Corbett’s response -- 57 -- Hardiman replied: “From what you'd just said I'd expect to see 0, or 8.” Corbett replied that 40 of the DEs were rural carriers with business models differing from those of DEs like Council Tree, “not as dependent on capital.” He added: “There’s plenty of evidence that investors… did flee for the exit.”
Representing CTIA and carriers, William Lake argued that nullifying the auction would hurt industry. “It is very important that this auction not be overturned,” he said: “Many of the auction winners are ongoing businesses” with customers “who need this spectrum.”
In summer 2006, the 3rd Circuit refused to stay the auction (CD June 30 p1). But the court gave DEs a glimmer of hope, saying: “We share petitioners’ concern that the further notice may not have sufficiently apprised interested parties that the Commission was contemplating changes in the DE eligibility and unjust enrichment rules of the sort that it ultimately adopted in the second order.”
Wed.’s oral arguments was far shorter than the 90 min. the court spent last time around. But the panel was a new one. Gone was Judge Marjorie Rendell, the most vigorous interrogator of the FCC last time. Judges Chagares and Hardiman are new to the case and young members of the court -
Bush appointees known as strict constructionists. The 3rd judge, Tashima, on loan from the 9th Circuit, became a federal judge in 1980, appointed by President Jimmy Carter. He joined the appeals court in 1996.