Judge Grills N.Y. on Process, Preemption at 2nd Circuit Oral Argument

Procedural concerns could complicate a case at the 2nd U.S. Circuit Court of Appeals on a New York law requiring affordable broadband. At oral argument Thursday in Manhattan, Judge Richard Sullivan grilled parties on a procedural maneuver they used to move the case to the 2nd Circuit from the trial court. Sullivan asked New York’s attorney tough questions on the state’s argument that its law isn’t preempted.

New York seeks to reverse a district court barring the state from enforcing the 2021 Affordable Broadband Act (ABA), which required $15 monthly plans providing 25 Mbps download and 3 Mbps upload speeds to qualifying low-income households (see 2212290003). The state appealed to the 2nd Circuit (case 21-1975) after the lower court granted preliminary injunction in June 2021, ruling the New York State Telecommunications Association (NYSTA) and national ISP trade group plaintiffs were likely to succeed on conflict and field preemption arguments (see 2106300071 and 2106110064). Bipartisan ex-FCC members told the appeals court in March the New York law improperly regulated interstate rates (see 2203030042).

To clear an appeals path, the New York attorney general and ISP plaintiffs made an agreement in July 2021 in which the state reserved appeal rights while agreeing not to enforce its law (see 2107230044). They agreed the court’s holdings on preemption in a June 11 preliminary injunction order resolved legal issues and should be used as a final judgment.

Sullivan compared the pact to a settlement, except the state sought to reserve its appeal rights. Parties “don’t generally get to do that,” and judges don’t usually get to issue a final judgment on a preliminary injunction question, he said. New York Deputy Solicitor General Judith Vale said it wasn’t a settlement and she had seen such moves in other cases. Parties agreed no factual issues were in dispute -- only legal ones -- so moving the case to appeal was appropriate, she said.

Parties probably can’t decide between themselves that they would rather have a case in an appeals court or the Supreme Court, said Sullivan. The judge may seek additional briefing on the matter, saying “I may be missing something, but it did give me pause.”

“So it’s a rate regulation,” Sullivan later interrupted Vale as she described the New York law. The state attorney disagreed. The ABA regulates prices for some customers, unlike a “full common carrier regulation” that regulates price for all customers, she said. That might be preempted. But New York's law “is a targeted consumer protection regulation” for a specific consumer class, which falls squarely within the state’s police powers. It applies to New York customers only, with no “nationwide spillover,” she said.

The communications in question are interstate, said Sullivan. The state isn’t arguing broadband is an intrastate service the state may regulate, stressed Vale: The FCC doesn’t have exclusive jurisdiction over interstate services. The commission lacks authority to regulate broadband, but Congress didn’t sweep away states’ ability, she said. Judge Alison Nathan also sought to clarify that New York isn’t arguing broadband is solely intrastate. The state’s argument doesn’t hinge on it being intrastate, answered Vale. It wouldn’t be the first time a state regulated broadband, added the attorney, citing California’s net neutrality law that was upheld by the 9th Circuit.

New York sees no conflict between the ABA and the FCC’s 2018 net neutrality order, said Vale. When the commission gave up authority to regulate broadband by classifying the service as Title I, the federal agency also relinquished its ability to preempt states from regulating, she said. Sullivan wondered aloud if Congress really intended for a situation where the FCC could make a policy decision to promote broadband investment by not regulating, but have that mean that every state could then pass separate regulations. Congress didn’t set a policy saying states don’t get to regulate Title I services, nor do states need Congress’ permission, Vale said: “When it comes to information services, there is no preemption.”

The FCC decided in 2018 not to regulate broadband to spur investment, argued the ISP groups’ attorney, Scott Angstreich of Kellogg Hansen. The New York law is a “square conflict” and four former FCC commissioners from both parties agree, said the attorney, citing the amicus brief by Democrats Jonathan Adelstein and Mignon Clyburn and Republicans Ajit Pai and Mike O’Rielly. They also agreed there's field preemption, added Angstreich.

Nathan asked about Section 332, a wireless section of the Telecommunications Act, which she said expressly prevents states from regulating but sets up a system for states to seek permission to regulate. The judge asked Angstreich why any of that language would be required if there were field preemption. Wireless is different from broadband, including because it’s partly intrastate, Angstreich said. Responding to another Nathan query, the ISP lawyer said a state law dictating rates is different from a possibly allowable requirement that companies can’t lie about their services. But that's still regulating an interstate service, Nathan replied. Requiring truth about a price isn’t the same as setting the rate, Angstreich said.

Judge Sarah Merriam asked if industry’s position is that the Communications Act precludes state regulation no matter what the FCC decides. Nathan asked if Congress could allow states to regulate. Angstreich answered yes to both.

Sullivan asked if industry preferred a ruling on conflict or field preemption. Affirming a conflict would be the narrower approach, said Angstreich: The court then wouldn’t need to address field preemption.

Sullivan sounded sympathetic to the ISPs, said Andy Schwartzman, Benton Institute for Broadband & Society senior counselor, who listened to the argument by livestream. The other judges were tougher to read but seemed more open to the state’s arguments, he said.

But possible procedural defects with the case “might preclude issuing any decision on the merits of the New York statute,” emailed Schwartzman. “While I suspect they will not follow that route, it is at least possible that they might do so.” If so, the district court decision would stand, which would be a loss for the state, he said. “But an unappealed district court decision would not likely have much precedential impacts for other preemption case in other states.”

The ISP trade groups “look forward” to the 2nd Circuit affirming the district court decision, said ISP appellees NTCA, CTIA, ACA Connects, USTelecom, NYSTA and the Satellite Broadcasting & Communications Association in a joint statement. “America’s broadband providers are deeply committed to serving the needs of low-income consumers," participating in the Affordable Connectivity Program and other efforts. The New York AG office didn't comment. Angstreich and Vale declined to comment after the argument.

The case could implicate net neutrality. In Vermont, which is also part of 2nd Circuit territory, the U.S. District Court of Vermont last year stayed litigation on the state’s open-internet law until the 2nd Circuit addresses the ABA (see 2205050041 and 2204190072). Meanwhile, New York legislators could double down, with Assemblymember Brian Cunningham (D) planning to reintroduce a 2022 bill to require $5 monthly internet for low-income consumers (see 2211020039).