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'Collateral Challenges'

Ex-FCC General Counsel Urges Enforcement Changes to Make Agency Less 'Vulnerable'

The FCC Enforcement Bureau should change tactics to avoid the risk of targets making an end run around its processes by taking advantage of recent U.S. Supreme Court decisions to drag the agency into litigation, said former FCC General Counsel Tom Johnson in a white paper sponsored by CTIA and published Monday by Wiley, where he's a partner.

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SCOTUS decisions in Axon v. FTC and SEC v. Cochran (see 2304170062) “raise the possibility of pre-enforcement collateral challenges to the FCC’s structure,” and an upcoming decision in SEC v. Jarkesy (see 2311290028) this term “could render the FCC particularly vulnerable,” Johnson said. The FCC didn’t comment.

Current FCC enforcement practices, “including wide-reaching investigative discovery demands, limited opportunity for judicial review, and unpredictable penalty calculations,” leave the agency vulnerable to legal challenges, and those recent administrative law SCOTUS decisions mean those challenges could be brought to court before the FCC’s own procedures have resolved, Johnson said. “Apart from the risk that the agency could lose on the merits of a collateral challenge, there is also a significant risk that agency proceedings could be stayed during the pendency of that litigation.”

There is no question” that federal agencies should expect to see increasing challenges to their enforcement authority based on the SCOTUS decisions in Axon v. FTC and SEC v. Cochran, said Linda Jellum, University of Idaho College of Law administrative law professor. Jarkesy v. SEC “creates a lot of peril” for agencies that handle their own enforcement, said Jeff Lubbers, American University administrative law professor.

Johnson’s paper calls out aspects of the FCC enforcement process that discourage judicial review and appear one-sided in the FCC’s favor, such as rules that require companies to pay forfeitures before challenging them in court, or the lack of transparency around the EB’s letters of inquiry. “Good faith actors want to assist with legitimate investigations,” but there’s no opportunity for companies to seek review of overbroad LOIs before the FCC. “This creates a disparity of power,” Johnson said.

Johnson’s paper rightly focuses on unfair Enforcement Bureau practices but doesn’t take notice of some bureau actions that help only larger companies, said Smithwick & Belendiuk broadcast attorney Arthur Belendiuk, who frequently represents entities targeted by the EB. Big companies are generally much more able to negotiate favorable consent decrees with the EB, often with little transparency, he said. The consent decrees usually contain only brief descriptions of the wrongdoing involved, are negotiated behind closed doors, and often contain clauses preventing the offense from being considered in future license renewals, Belendiuk said. “All your sins are washed clean,” he said.

The recent SCOTUS administrative law cases provide a number of ways that the EB’s procedures could be challenged, Johnson said.

SCOTUS “appears poised” to rule that civil penalties from agencies like the SEC are legal rulings that deprive targets of private rights, which would mean under the Constitution they require juries, he said. The FCC’s penalties are similar and “may be vulnerable under the Seventh Amendment for the same reasons,” the paper said. Companies facing civil penalties before the FCC don’t get the opportunity to go before a jury unless they don’t pay the forfeiture and are prosecuted by the DOJ, Johnson pointed out. Lubbers said he expects agencies challenged in this way to present arguments that their penalties aren’t similar to those targeted by SCOTUS, but he concedes that won’t prevent many enforcement targets from raising such arguments.

SCOTUS “acknowledged” in Axon v. FTC that parties could go directly to the courts to challenge an agency on due process grounds before the internal agency enforcement processes have resolved, the paper said. “By combining prosecutorial and adjudicatory functions within a single agency, the FCC’s enforcement regime may also be vulnerable under the Due Process Clause’s fairness requirement,” Johnson said. The agency’s forfeiture proceedings could also be seen as “in tension” with rules limiting what authority Congress can delegate, the paper said. That the FCC can decide whether an entity goes through a hearing before an administrative law judge or the notice of apparent liability process “confers enormous power on the agency” and such decisions don’t appear to be based on “an intelligible principle,” he said, raising similar arguments to those in Jarkesy.

Parties could also argue it's too difficult for the president to remove the FCC’s ALJs and commissioners from office, similar to the arguments presented in Jarkesy v. SEC. That argument was already raised in the hearing proceeding that led to the dissolution of the proposed Standard General/Tegna acquisition (see 2303170061).

To prevent litigation along those lines, the FCC should take internal action to make its processes more transparent and ask Congress for changes to the Communications Act to make the EB’s actions more easily subject to judicial review, the paper said.

LOIs should be “tethered to specific conduct,” and the agency should adopt rules that limit the discovery the EB can seek without FCC or ALJ approval. The agency should also adopt a more transparent process for notices of apparent liability, akin to the Wells Notice letters the SEC sends to targets laying out the substance of charges that the regulator intends to bring and letting the target respond, Johnson said.

By carefully pruning its existing processes, the FCC could maintain a balanced approach that allows the agency as a whole, and EB in particular, to stay true to its core mission,” the paper said.