SCOTUS upheld the FCC's classification of internet service as an "information service" under Chevron deference in Brand X. Post-Chevron, will Scalia's dissenting view of internet service as a "telecommunications service" prevail?
The Supreme Court's recent decisions, particularly in Loper Bright v. Raimondo and Corner Post v. Board of Governors, will have a major impact on regulatory compliance and litigation strategies across a wide range of industries, but the communications and technology sectors will be particularly affected. By eliminating the Chevon doctrine, Loper Bright will be especially relevant to those industries because the Federal Communications Commission (FCC) is currently defending several rulings in court that involve the exact type of statutory interpretation that no longer receives Chevron deference — including litigation over how to best classify internet service under the Communications Act. On that specific issue, the Supreme Court previously held in Brand X that an earlier FCC interpretation classifying internet service as an information service was "reasonable" under Chevron without directly answering the question of whether that interpretation was "best." Notably, in Brand X, Justice Scalia clearly thought classification as a telecommunications service was required by the terms of the statute. The 6th Circuit has already requested multiple rounds of supplemental briefing on the issues raised by Chevron's demise and the ability of petitioners to challenge certain agency actions. And in an 11th Circuit case challenging an FCC enforcement order, the court has also asked for briefing on the impact of Loper Bright.
In some cases, Loper Bright may be magnified by Corner Post, which held that the general statute of limitations for claims against the United States, including facial challenges to final agency actions under the Administrative Procedure Act (APA), runs from the date the plaintiff suffered an injury rather than the date of the final agency action. While in the abstract this could open up a range of new challenges to seemingly settled FCC rulings, the impact of Corner Post on older FCC decisions will likely be limited by the Hobbs Act, 28 U.S.C. §§ 2342, 2344, as discussed in Corner Post and explained below.
Loper Bright Standard of Review for Challenges to Agency Statutory Interpretation
As discussed in DWT's advisory, in Loper Bright, the Supreme Court overruled Chevron U.S.A., Inc. v. Nat. Res. Def. Council, 467 U.S. 837 (1984), ending four decades of judicial deference to agency interpretation of ambiguous statutes.
Going forward, an agency must convince a reviewing court that its interpretation of an ambiguous statute is not only a reasonable one but is, in fact, the "best" interpretation of an ambiguous statute. The agency's interpretation "constitutes a body of experience and informed judgment to which courts and litigants may properly resort for guidance," consistent with Skidmore v. Swift & Co., 323 U.S. 134 (1944), but Loper Bright now directs courts to decide how much weight to give that experience and judgment, using the factors noted in Skidmore:
- the thoroughness evident in the agency's consideration;
- the validity of its reasoning;
- its consistency with earlier and later pronouncements; and
- any other persuasive factors.
Although Loper Bright stated that prior decisions under Chevron remain good law for now, the combination of Loper Bright and Corner Post opens doors to challenges of many agency rulings long after the final agency action being challenged.
Corner Post: No Shorter Timeline for APA Challenges
In 2021, Corner Post, Inc., a North Dakota truck stop that opened for business in 2018, joined an industry lawsuit challenging a 2011 Federal Reserve Board (Board) regulation on credit card processing fees. Because the rule became final in 2011, the lower courts ruled that the truck stop's 2021 claims were barred by 28 U.S.C. § 2401(a), which provides that a six-year statute of limitations applies to claims against the United States, including challenges to agency actions under the APA, unless there is a more specific statute of limitations applicable to a particular type of claim. The statute reads (with emphasis added by Justice Barrett):
"[E]very civil action commenced against the United States shall be barred unless the complaint is filed within six years after the right of action first accrues."
In Corner Post, the district court and the 8th Circuit held that for facial challenges to the validity of agency rules, the six-year limitations period runs from the date of final agency action adopting the rule, rather than any date that is specific to a plaintiff.
In a 6-3 opinion by Justice Barrett, the court reversed, holding that even for facial challenges to agency rules, the limitations period starts to run only after the individual plaintiff "had a complete and present cause of action." The court stated that "[a]n APA plaintiff does not have a complete and present cause of action until she suffers an injury from final agency action, so the statute of limitations does not begin to run until she is injured." Thus, the court held that "[a]n APA claim does not accrue for purposes of Section 2401(a)'s 6-year statute of limitations until the plaintiff is injured by final agency action."
The court rejected the government's position that the limitations period runs from the date of the final agency action for a facial challenge to agency rules. The court emphasized the text and context of Section 2401(a), the meaning of "accrue," and the importance of the statutory text having a single well-settled meaning. Justice Barrett's majority opinion distinguishes Congress's choice of wording in Section 2401(a) from that in two other statutes ― the Emergency Price Control Act of 1942 and the Administrative Order Review Act (the Hobbs Act), both of which expressly impose a sixty-day filing window triggered by the agency's final action adopting a regulation. In the Court's view, the fact that "Congress knew how to depart from the traditional rule to create a limitations period that begins with the [agency's] action instead of the plaintiff's injury" but did not do so in Section 2401(a) reflected a choice by Congress to apply what the court calls the "traditional" and "standard rule for limitations periods," that statutes of limitations begin to run only when the plaintiff has a right to file suit. Therefore, Congress could have used language to make clear that the statute of limitations begins to run when the regulation is issued or the agency action takes place but made a choice not to do so.
This conclusion hinges on a distinction between statutes of limitations and statutes of repose. As explained by the court, statutes of limitations create a time limit for suing, require plaintiffs to pursue diligent prosecution of known claims, and therefore focus on time elapsed from since the plaintiff's injury. "A statute of repose, on the other hand, puts an outer limit on the right to bring a civil action" that is "measured not from the date on which the claim accrues but instead from the date of the last culpable act or omission of the defendant." In Corner Post, the court concluded that the Federal Reserve Board incorrectly asks it to interpret Section 2401 as a statute of repose when, in fact, it is a statute of limitations.
Of particular relevance to challenges to FCC decisions, the Court pointed to the Hobbs Act as both a prime example of a statute of repose and proof that Congress knew how to draft such statutes when it intended to do so. As now codified and discussed in the majority opinion, the Hobbs Act gives the court of appeals exclusive jurisdiction to enjoin, set aside, suspend (in whole or in part), or to determine the validity of certain agency orders, which includes most orders of the FCC, in response to a petition filed under the Hobbs Act — which requires a court challenge to be filed within 60 days from the "entry" of the agency order. The Hobbs Act, the majority states, is exactly the type of statute of repose where the period for bringing a challenge runs based on the date of final agency action (i.e., entry of the FCC or other covered agency order) rather than the date that a plaintiff suffers an injury.
Justice Jackson's Dissent
Justices Sotomayor and Kagan joined Justice Jackson's dissent, which lamented that Corner Post allows for new facial challenges — in different circuits — to any agency regulation, including those that had previously been upheld based on Chevron deference.
"Now, every legal claim conceived of in those last four decades — and before — can possibly be brought before courts newly unleashed from the constraints of any such deference. ... Any new objection to any old rule must be entertained and determined de novo by judges who can now apply their own unfettered judgment as to whether the rule should be voided."
Warning of a resulting "tsunami of lawsuits" that "simply cannot be what Congress intended" in setting up agencies and the statute of limitations, she called upon Congress to amend Section 2401. The majority agreed that "[t]he ball is in Congress' court," concluding that "Section 2401(a) is 75 years old. If it is a poor fit for modern APA litigation, the solution is for Congress to enact a distinct statute of limitations for the APA."
Nonetheless, the majority viewed the concern about a litigation "tsunami" as exaggerated given the long-established avenues to challenge older regulations. It noted that parties may challenge such regulations in enforcement proceedings against them or by petitioning an agency to change longstanding rules and then appeal from denial of the petition. The court concluded that "even on the Board's preferred interpretation, '[a] federal regulation that makes it six years without being contested does not enter a promised land free from legal challenge.'" Characterizing the dissent as "imagin[ing] an alternative reality of total finality that simply does not exist," the majority suggested that even if Corner Post opens the door to re-litigating the validity of older agency actions, the impact will be limited by precedent established during earlier challenges, whether mandatory or persuasive, and that such litigation will be beneficial in those cases where no existing precedent is on point. The court also emphasized that, as correctly interpreted, plaintiff-centric finality rules like Section 2401(a) vindicate the APA's basic presumption that everyone should have his own day in court.
6th and 11th Circuits React to Loper Bright in Pending Litigation
These decisions are already making waves in federal circuit courts of appeal across the country, where pending litigation involves both challenges to agency statutory interpretations and enforcement actions.
6th Circuit — Net Neutrality Challenge
On July 12, 2024, a 6th Circuit panel issued a stay temporarily pausing net neutrality regulations adopted by the FCC from going into effect on July 22, delaying the effective date of the FCC's order until August 5, 2024.1 The court ordered a second round of supplemental briefing on the impact of stare decisis and the U.S. Supreme Court's decision in Nat'l Cable & Telecom. Ass'n v. Brand X Internet Servs., 545 U.S. 967 (2005) (holding that internet service is an information — not telecommunications — service). The court had earlier denied the FCC's motion to transfer the consolidated challenges to the D.C. Circuit and requested supplemental briefing on the impact of Loper Bright.
In this litigation, a group of Internet Service Providers (ISPs) is challenging recently adopted net neutrality regulations and the FCC's re-interpretation of the Communications Act to (once again) classify broadband internet access service as a telecommunications service. As we discuss in additional detail in our earlier DWT advisory on the matter, the 2024 net neutrality rules largely reinstate the Wheeler-era regulations first promulgated in 2015 (before being scrapped by the FCC under Chairman Pai in 2017), imposing a range of compliance obligations on ISPs and expanding oversight of broadband providers.
6th Circuit — Data Breach Challenge
Consolidated challenges to the FCC's data breach order are also pending in the 6th Circuit with similar issues involving the FCC's interpretation of 47 U.S.C. § 222.2 Under the Communications Act, telecommunications carriers bear certain duties to protect the confidentiality of a defined class of customer data called "customer proprietary network information" (CPNI). CPNI includes the records of customers' phone calls as well as related information about customers' usage of specific telecommunications services and features. 47 U.S.C. § 222(c) and (h). But the FCC also imposed identical duties on telecommunications carriers with respect to consumer data that is not CPNI, relying on a different provision, Section 222(a), which calls on carriers to "protect the confidentiality of proprietary information of, and relating to ... customers," as well as on Section 201(b), which requires carriers generally to act in a "just and reasonable" manner "in connection with" their services. While under Chevron the agency might prevail by merely showing that its interpretation of these vague and general provisions was "reasonable," now it has to convince the court that its interpretation is the "best."
11th Circuit — Enforcement Action Challenge
Concurrently, the 11th Circuit is deciding a challenge to an FCC forfeiture order penalizing Gray Television for a violation of the FCC's broadcast rules.3 The rule at issue, often called Note 11, bars stations from using affiliation deals to evade ownership limits. However, Gray Television asserts that prior to this enforcement action, the rule had not been used outside the context of station affiliation swaps, instead of the outright purchase of a station's affiliation, which is what Gray did in this case. The FCC, however, views Gray Television as a "sophisticated" entity that should have known the deal was against the rules and imposed a $518,000 forfeiture. Gray is challenging both the application of the rule and the amount of the forfeiture.
Oral argument was held May 15, 2024, and the matter was considered submitted. However, on July 10, 2024, the 11th Circuit sua sponte asked the parties to prepare supplemental briefing on the implications of Loper Bright's overruling of Chevron, specifically as to how it "impacts the analysis on the appropriate deference to afford the FCC's interpretation of Note 11 in this case."
Impact on FCC
Although decisions relying on Chevron remain good law at least for now, Chevron's demise will affect ongoing and future challenges to agency rules. Like its sister federal agencies, the FCC is now left with only the "power to persuade" the courts when litigating the validity of its statutory interpretations ― which arguably covers both its final orders implementing its statutory interpretations and enforcement actions where the agency has relied on such interpretation.
Most immediately, as discussed above, Loper Bright should significantly impact the current litigation in the 6th Circuit challenging the FCC's re-classification of broadband service as a "telecommunication service" under 47 U.S.C. § 153(53). In his Loper Bright concurrence, Justice Gorsuch highlighted how Chevron allowed the FCC to flip-flop with successive administrations in its interpretation of "telecommunications service" in classifying internet service:
"How bad is the problem? Take just one example. Brand X concerned a law regulating broadband internet services. There, the Court upheld an agency rule adopted by the administration of President George W. Bush because it was premised on a 'reasonable' interpretation of the statute. Later, President Barack Obama's administration rescinded the rule and replaced it with another. Later still, during President Donald J. Trump's administration, officials replaced that rule with a different one, all before President Joseph R. Biden, Jr.'s administration declared its intention to reverse course for yet a fourth time.... Each time, the government claimed its new rule was just as 'reasonable' as the last. Rather than promoting reliance by fixing the meaning of the law, Chevron deference engenders constant uncertainty and convulsive change even when the statute at issue itself remains unchanged."
Given that Justice Gorsuch used this very issue to illustrate what was wrong with Chevron, FCC practitioners will have to closely follow the proceedings at the 6th Circuit. While the recent stay issued by the 6th Circuit is merely administrative in nature to "provide sufficient opportunity to consider the merits of the motion to stay the FCC's order," the 6th Circuit has signaled that the loss of Chevron deference and the operation of stare decisis with respect to Brand X may well impact the merits of the motion for stay of the FCC's net neutrality order (as well as demonstrating some distaste for the "vacillating positions on the proper classification of broadband" taken by the FCC).
While the demise of Chevron clearly interests the 6th Circuit, its precise impact on the challenge to the new net neutrality rules is unclear. Brand X was a final court decision upholding the treatment of internet service as an information service, which means that ruling is entitled to some respect as a matter of stare decisis. At the same time, Justice Scalia dissented in Brand X on the ground that "[a]fter all is said and done, after all the regulatory cant has been translated, and the smoke of agency expertise blown away, it remains perfectly clear that someone who sells cable-modem service is 'offering' telecommunications." If the 6th Circuit finds Justice Scalia's reading of the statute to be "better" than the Brand X majority deferring to the FCC, the court could conclude that treating broadband as a telecommunications service is in fact the "best" reading of the statute – which would not only result in affirming the FCC's current rules but could also tie the hands of a future FCC that might want to reach a contrary conclusion.
For the challenges above as well as other FCC rules subject to other pending challenges timely filed under the Hobbs Act, the loss of Chevron deference could well prove to be decisive. With respect to other potential challenges to older FCC rules and orders, the Hobbs Act may provide some protection against the tsunami of litigation predicted by Justice Jackson because it provides a "timing provision" that "displaces" the "default statute of limitations for suits against the United States." Corner Post should not have any immediate effect on FCC rules where a challenge is filed after the 60-day period set by the Hobbs Act. In addition, while the FCC has certainly relied on Chevron deference in a number of court cases, some FCC actions may be less vulnerable to challenge, such as those final actions upheld after litigation where Chevron deference was not relied upon, or where the reviewing court interpreted the relevant statute and upheld the FCC's rules despite disagreeing with the FCC's statutory interpretation (e.g., City of Eugene v. FCC). Rules and orders such as these may be on safer ground than orders where past flip-flops were upheld based on Chevron (e.g., the FCC's shifting orders on broadband), even if the agency now must demonstrate that its statutory interpretation is the best interpretation of the statute.
Rapidly Evolving Regulatory Landscape
Much more clarity ― especially in the net neutrality context ― can be expected fairly soon as the 6th Circuit is expected to determine before August 5, 2024, whether to stay the effect of the FCC's order and perhaps make some detailed findings on whether the petitioners have (or do not have) a likelihood of success on the merits. Taken collectively with other recent developments, it remains clear, especially in the telecommunications and technology sectors, that counsel and the businesses they support must rely on a high degree of technological expertise and familiarity with the relevant statutes, regulations, and precedent that control the FCC to best navigate the rapidly changing compliance landscape.
Footnotes
1. In re: MCP No. 185; Fed. Commc'ns Comm'n, in the Matter of Safeguarding and Securing the Open Internet (FCC 24-52), No. 24-7000 (6th Cir.).
2. Ohio Telecom Ass'n v. FCC, No. 24-3133 (6th Cir.).
3.Gray Television, Inc. v. Fed. Commc'ns Comm'n, Petition for Review of a Decision of the Federal Communications Commission Agency No. FCC 22-83, No. 22-14274 (11th Cir.).
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