Today the Fifth Circuit, sitting en banc (meaning a case before all the active judges, not just a panel of three), held that the Universal Service Fund (USF)’s Fee, is an unconstitutional “double” delegation of powers. This decision is significant because it creates a Circuit split on the constitutionality of the fee, meaning that the Supreme Court is very likely to take the issue in the coming October 2024 term. This is a case worth watching.
The USF builds a fund that is used for building out telecommunication access in remote areas. Originally conceptualized in 1934 to make telephone service ubiquitous across the country, the Telecommunications Act of 1996 expanded the role of the fund to increase access to the Internet. The fee is typically passed onto consumers, paid by each phone line (originally via landlines and now cell phones). The issue is that the Telecommunications Act of 1996, codified at 47 U.S.C. § 254, gave the Federal Communications Commission (FCC) authority to set the rate of the USF. The FCC then delegated its authority to set the rates to a private company, the Universal Service Administrative Company (USAC).
In today’s decision in Consumers Research v. Federal Communications Commission, the Fifth Circuit held by a vote of 9-7 that this double delegation—from Congress to the FCC and then the FCC to the USAC—violates the Constitution’s Legislative Vesting Clause. That clause states that “All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.” The Fifth Circuit concluded that while Congress may delegate setting the USF rate to the FCC, it needed to give clear guidance to the agency. Even then, the FCC could not then pass that responsibility to a private entity like USAC.
The decision was not unanimous. A concurrence by Judge Elrod (joined by Judges Ho and Engelhardt), was skeptical that Congress could delegate the core authority to tax to the FCC, instead calling for “Congress [to] implement, or at least approve, the USF tax. That way, the power of the people to oversee those they have chosen to govern is rightly restored.” Another concurrence by Judge Ho primarily criticized the holding of Texas v. Retting, a case upholding a certification requirement of the Affordable Care Act under a delegation of authority to a federal agency.
This decision also generated two strong dissents. Judge Stewart wrote the principal dissent, joined by Judges Richman, Southwick, Haynes, Graves, and Higginson, defending the delegation of authority to the FCC. Judge Stewart argues that 47 U.S.C. § 254 gives an “intelligible principle”—i.e. clear instructions—for the FCC to follow in setting the USF rate. The Stewart dissent also defended the delegation to the private entity of the USAC, arguing that the FCC had meaningful oversight of the private company and that the agency gave clear instructions on how to set the USF rate so that the resulting Fund was full. Judge Stewart also argued that the Fee is not a “tax” for constitutional purposes—something we at NTUF have argued against regularly. Judge Higginson also wrote a separate dissent, joined by Judges Stewart, Southwick, Graves, and Douglas, which highlighted the circuit split created by today’s decision and argued that the Fifth Circuit’s majority opinion was in conflict with current Supreme Court precedent.
These dissenting opinions, combined with decisions upholding the Universal Service Fee by the en banc Sixth Circuit, and a three-judge panel of the Eleventh Circuit, means that the Supreme Court will likely be asked to resolve the disagreement. (The D.C. Circuit also has a case pending a decision on the fee.) Given the importance of the issue, the circuit split, and the strong dissents in the Fifth Circuit, the Supreme Court will likely grant review.
In resolving the circuit split, the Supreme Court will contend with its own recent decisions. What was not discussed was the impact of Loper Bright Enterprises v. Raimondo. Prior to Loper Bright, courts were required to defer to an agency’s interpretation of any ambiguous statute, called “Chevron deference,” named after the 1984 decision in Chevron v. Natural Resources Defense Council. Loper Bright was not addressed by any of the opinions in today’s Fifth Circuit decision, but may well come into play if and when the Supreme Court takes the case. The Supreme Court’s trend has been to rein in agency powers, and the issue of the FCC taking on taxing authority, only to delegate it to a private entity, means this is a case to watch for further development of administrative law.
We will continue to monitor these cases.