Avi Sholkoff | The 1996 Telecommunications Act and the Nondelegation Doctrine

Background

In 1996, Congress passed the Telecommunications Act, overhauling communications law for the first time in decades. In this statute, Congress directed the FCC to establish a Universal Service Fund—a subsidy program aimed at achieving robust, nationwide telecommunication service. 47 U.S.C. § 254. The act describes principles for achieving universal service (such as telecommunications and internet service), including access to advanced services for schools, rural health care facilities, and libraries. Id. at § 254(b).

The legislation also states how this fund will be supported. Section 254 (b)(4) of the Act requires “equitable and nondiscriminatory contributions” from all interstate providers of telecommunications services. Id. These companies pay a percentage of their end-user interstate and international revenues—the “contribution factor”—toward the USF. The contribution amount required from each company is determined by the Universal Service Administrative Company, a quasi-private organization established by the Federal Communications Commission. The exact percentage shifts each quarter, due to fluctuating demand for service. The USAC also collects company contributions and distributes money from the fund to schools, health care facilities, and libraries in rural, lower income communities. Notably, the USAC is not a government entity and “does not set or advocate policy.” 47 C.F.R. § 54.702(c).

Petitioners, Consumers’ Research, on behalf of telecommunication users across the country, challenged Section 254 asserting that it violated both the traditional and private nondelegation doctrines. In March 2023, the Fifth Circuit Court of Appeals ruled in favor of the respondents, the FCC. The court applied the intelligible principle test and highlighted the limitations given in the statute to the FCC and to USAC by the FCC. Petitioners then filed subsequent lawsuits in the Sixth and Eleventh Circuits, challenging USF and the contribution factor on nearly identical grounds. Both courts followed the Fifth Circuit’s lead and upheld the legislation.

This year, the Fifth Circuit agreed to rehear petitioners’ case en banc. A divided panel held that the existing method for funding the USF, the contribution factor, violated the nondelegation doctrine and the separation of powers.

Issue

Does Section 254 of the 1996 Telecommunications Act violate the traditional and private nondelegation doctrines?

The Split

A panel of the Fifth Circuit initially answered in the affirmative to the above question, as did panels of the Sixth and Eleventh Circuits. These courts applied the intelligible principle test and held that Section 254 did not violate the traditional or private nondelegation doctrines. Petitioners sought a rehearing en banc.

In the rehearing, a divided Fifth Circuit ruled in favor of the petitioners. The court held that the existing Universal Service Contribution violates the Legislative Vesting Clause of the Constitution. This opinion differed from both the Sixth and Eleventh Circuits as well as a panel from the Fifth Circuit itself.

The Fifth Circuit further reasoned that even if the delegation to implement the Universal Service Fund were constitutional, the combination of the broad congressional delegation and the unauthorized further delegation to a private corporation is prohibited by the nondelegation doctrine. Consumers' Rsch., Inc. v. FCC, 109 F.4th 743, 756 (5th Cir. 2024) (en banc).  

Fifth, Sixth and Eleventh Circuits

Fifth Circuit

A panel of Fifth Circuit judges first examined the constitutionality of the contribution and whether it violates the nondelegation doctrine. The panel sought to answer whether Congress provided an intelligible principle and whether Section 254 properly limited the FCC and how it operates the USF. Consumers' Rsch. v. FCC, 63 F.4th 441, 448 (5th Cir. 2023), reh’g en banc granted, opinion vacated, 72 F.4th 107 (5th Cir. 2023), and on reh'g en banc, 109 F.4th 743 (5th Cir. 2024).

The court answered in the affirmative to both questions. It noted that Congress chose to grant “substantial discretion" over administration of the USF to the FCC. Id. at 448. Moreover, it stated that Congress provided limitations on the ability of the FCC to raise revenue, “markedly different” from a case in which the Supreme Court held that a statute violated the nondelegation doctrine.[1] Id. at 449. The Fifth Circuit panel further reasoned that the FCC did not violate the private nondelegation doctrine because it “wholly subordinates” USAC, per statutory law. Id. at 451.

Sixth Circuit

The petitioners raised similar claims in the Sixth Circuit Court of Appeals, which held that the delegation by Congress to the FCC did not violate the nondelegation doctrine. Consumers' Rsch. v. FCC, 67 F.4th 773 (2023). Responding to the petitioners’ arguments that USF lacked a specific formula, the court wrote that this was not necessary. Id. at 790. Relying on precedent, the court stated that such guidance is not required “in a field where flexibility and the adaptation of the congressional policy to infinitely variable conditions constitute the essence of the program.” Id. (internal quotations omitted). Further, the court reasoned that the principles at issue are not “limitless” as the petitioners characterized. Id. Rather, these principles “are essentially the goals of universal service” and thus help limit how the FCC funds USF. Id.

Eleventh Circuit 

The Eleventh Circuit Court of Appeals upheld the constitutionality the Act’s funding scheme under both the traditional nondelegation doctrine and the private nondelegation doctrine. Consumers' Rsch. v. FCC, 88 F.4th 917 (11th Cir. 2023). In this case, the court rejected the argument that Section 254(b)(7) delegated “boundless” authority to the FCC. Id. Instead, the court noted that the Act’s provisions come with specified limits. The text of the statute, as the court noted, dictates that “the FCC may only add principles that ‘are necessary and appropriate for the protection of the public interest, convenience, and necessity and are consistent with this chapter.’” Id. at 924 (quoting 47 U.S.C. § 254(b)(7)). It held that these limits sufficed because Congress is afforded latitude in delegating authority to agencies. Id.

In upholding the FCC’s delegation to USAC, the Eleventh Circuit noted that a government agency can delegate authority to private entities as long these non-government groups “function subordinately to the agency,” and the agency retains “authority and surveillance over the activities” of the private entity. Id. at 925. Applying the Sixth Circuit’s analysis, the court here noted that USAC’s role is “ministerial” and that the FCC exercises “deep and meaningful” control over it. Id. at 926, 928.  

Fifth Circuit (en banc) 

A fragmented Fifth Circuit offered several justifications for declaring the Act’s contribution scheme unconstitutional under the vesting clause. First, it emphasized that the power to levy USF contributions is a “quintessential” legislative power. Consumers' Rsch., Inc. v. FCC, 109 F.4th 743, 756 (5th Cir. 2024) (en banc). Second, it held that Congress likely delegated legislative power to the FCC because it effectively conferred upon the agency the power to tax interstate telecommunications providers, without providing an intelligible principle to guide the agency’s discretion. Id. Third, it held the FCC impermissibly delegated its taxing power to the USAC. Id. Fourth, the court punted on whether it was constitutional delegation. It stated that “the combination of Congress's broad delegation to FCC and FCC's subdelegation to private entities certainly amounts to a constitutional violation.” Id.

First, it stated that the universal service contributions are not “incident to a voluntary act” which would make them a mere fee, rather than a tax. Id. at 757. The court highlighted that these contributions by telecommunications companies are a “condition” of doing business in the industry. Id.

Second, the Fifth Circuit explained that while the Supreme Court has upheld delegations in the past, it has never upheld one “as sweeping as the one contained in [Section] 254.” Id. at 758. The court stated that Section 254 establishes "aspirational" principles rather than “inexorable statutory command[s].” Id. at 760–61. In discussing the principles in Section 254 mentioned above, the court notes that they would not “meaningfully limit” the FCC because Section 254(b)(7) vests the agency with discretion to formulate "other principles" so long as it considers the additional principles to be “necessary and appropriate for the protection of the public interest.” Id. at 761.

Third, the en banc court highlighted the improper subdelegation to USAC. Id. at 776. In doing so, the court noted that by permitting USAC to exercise government power, the FCC likely violated the Legislative Vesting Clause. Id.

Finally, the court explained that two or more things that are not independently unconstitutional can combine to violate the Constitution's separation of powers. Id. at 778. In examining this history and structure, the en banc court held that “the universal service contribution mechanism is unconstitutional.” Id. at 779.

Looking forward 

In 2019, the Supreme Court considered whether Congress, in passing the Sex Offender Registration and Notification Act (SORNA)[2] improperly delegated the duty to set registration requirements to the Attorney General. In siding with the United States, Justice Kagan wrote that “a statutory delegation is constitutional as long as Congress “lay[s] down by legislative action an intelligible principle to which the person or body authorized to [exercise the delegated authority] is directed to conform.” Gundy v. United States 588 U.S. 128, 135. (2019) (plurality opinion) (internal quotations omitted) (brackets in original). The Court noted that these standards are not “demanding.” Id. at 146.

This case, which involves an agency improperly using the taxing power could be an opportunity for the Court to reassess the non-delegation doctrine. Especially given that the en banc Fifth Circuit noted that Section 254 “appears unlike any delegation the Court has ever blessed.” Consumers' Rsch., 109 F.4th at 763.

Moreover, it must be emphasized that the Gundy opinion was merely a plurality. In their concurrences and dissents, Justices Gorsuch, Alito and Thomas all expressed an openness to reexamining the Court’s view of the non-delegation doctrine. In his dissent, Justice Gorsuch even developed a different analysis for finding the “ineligible principle.” Gundy 588 U.S. at 166. (Gorsuch, J., dissenting).

With a different makeup than 2019, it is not implausible to imagine that the Supreme Court will implement Justice Gorsuch’s analysis. Such a reassessment could have significant implications for regulatory programs all throughout the federal government, not just the FCC. Justice Gorsuch’s three-part analysis asks whether: (1) the statute assigns to the executive the sole responsibility of making factual findings; (2) whether Congress sets the facts the executive agency must consider; (3) whether Congress, and not the administrative agency, makes policy judgments. Id.

With three circuits differing in their interpretations of the 1996 Telecommunications Act, this is a case worth monitoring. Such a reassessment could have far reaching implications for internet access and affordability.

[1] See Panama Ref. Co. v. Ryan, 293 U.S. 388 (1935) (holding that a statute which did not set sufficient parameters on the president’s legislative powers to prohibit transportation of petroleum violated the nondelegation doctrine).

[2] 42 U.S.C. §16913.  

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