5th Circuit's AT&T Decision Shows FCC Adjudications Need Fundamental Revamp: Critics

Both Jarkesy and the 5th Circuit's AT&T decision indicate that the FCC "may need to fundamentally rethink its enforcement framework," Marashlian & Donahue telecom attorney Jonathan Marashlian wrote Friday. That could mean a revamp of rules, policies and procedures; the hiring of dedicated administrative law judges; or the introduction of a voluntary or mandatory arbitration-style process to steer clear of constitutional pitfalls, he said. But federal agency budget cuts and reduction of personnel could make those kinds of structural reforms a huge challenge, he added.

In an email statement, FCC Commissioner Nathan Simington -- who voted against the April 2024 fines (see 2404290044) -- said the 5th Circuit decision "is yet another signal that the agency’s enforcement framework is due for a serious update." He added, "When the constitutional foundations of our processes are in question, we must respond -- not with delay, but with reform." In line with President Donald Trump's executive order on rescinding regulations and the related April 9 presidential memorandum, "the FCC should carefully examine its rules" on Jarkesy, as well as SCOTUS' Loper Bright decision. "The agency should move swiftly to ensure our procedures align with the right to a jury trial and other due process guarantees," said Simington, who has voted down enforcement action fines by the FCC since Jarkesy (see 2409060054).

"From an indefensible [administrative law judge] 'process' to clear Jarkesy conflicts to penalty sensationalism, the FCC’s enforcement regime has lost the public’s trust and needs a major reshaping," former FCC Commissioner Mike O'Rielly said via email. "Alleged violators deserve greater justice to counter this longstanding problem."

5th Circuit

In its docket 24-60223 decision Thursday, the 5th Circuit pointed to Jarkesy as it said the FCC was incorrect that its enforcement proceeding against AT&T falls under the "public rights" exception, which lets Congress assign some matters to an agency instead of an Article III court. Common-law suits presumptively concern "private rights" and must be adjudicated by Article III courts, they said.

The appeals court said an in-house FCC proceeding "amputates the carrier’s ability to challenge the legality of the forfeiture order." It rejected FCC arguments that the Seventh Amendment -- regarding the right to a jury trial in civil cases -- doesn't apply in actions to enforce Section 222 of the Communications Act, governing privacy of customers' information.

Hearing the case were Judges Catharina Haynes, Stuart Duncan and Cory Wilson, with Duncan writing the decision.

The 5th Circuit ruling echoes arguments against the FCC’s enforcement policies laid out in a 2024 white paper from DLA Piper partner Peter Karanjia, a former FCC deputy general counsel. In that paper, Karanjia predicted that courts could interpret the Jarkesy decision as barring “virtually any FCC enforcement action that seeks civil penalties.” A panel of former Enforcement Bureau and Office of General Counsel attorneys said last year that the agency doesn’t currently have any statutory authority to conduct a jury trial, so if other courts rule that the FCC process doesn’t satisfy the Seventh Amendment right to trial, its ability to conduct enforcement policy would be severely hampered (see 2407250030). The agency would need congressional action to address the issue, they said.

Former FCC Commissioner Robert McDowell said Friday in a post on X that the 5th Circuit case could have a “broad effect” on FCC enforcement. "The Jarkesy issue is also before other circuits. Will be interesting to see if we get a circuit split & then a #SCOTUS decision -- some day.”

Appeal?

Attorneys told us there's some question about whether the FCC will appeal the 5th Circuit ruling. Carr vocally denounced the forfeiture order against AT&T, both in his dissent and in a subsequent speech on enforcement reform (see 2405030066), where he highlighted the order as an example of FCC overreach. “These actions are inconsistent with the law and basic fairness,” Carr said in his dissent last year.

However, the agency defended the order in court after Carr took over as chairman, and his FCC has been extremely active in enforcement. He has sent letters to iHeartRadio, Comcast, Verizon, Disney, Audacy, PBS and NPR about enforcement investigations, with apparent encouragement from the White House (see 2502240034). If the FCC’s enforcement authority is defanged by adverse court decisions, its threats will be less effective, which suggests Carr is likely to appeal the 5th Circuit decision, attorneys told us. The FCC didn't comment on the ruling.

Telnyx, which is also fighting an FCC notice of apparent liability (see 2503050026), said the 5th Circuit decision "is a significant validation" of its position. “The court’s opinion confirms what we’ve long argued -- that the FCC’s in-house process for imposing fines, like the one proposed against Telnyx, is patently unconstitutional," CEO David Casem said.

Wireless interests were buoyed. "The court rightfully ruled that the FCC’s current enforcement processes do not ensure the Constitutional guarantees of due process and a jury trial," CTIA said. "The decision highlights that the FCC and Congress should swiftly re-examine and modernize its enforcement processes.”

In an emailed statement, AT&T said it agrees with the court that the FCC "cannot assess hefty punitive fines without also providing the fundamental right to a jury trial." It said in the case of the reversed fine, the company "took aggressive steps to protect its customer’s data for a program that supported numerous pro-consumer services, like emergency medical assistance and roadside support," but a third-party company violated contractual requirements to obtain consent. The program ended in 2019, it added.