SHLB Experts Say USF Case Hinges on Nondelegation Issues

The objective of Consumers' Research was getting a case about the Universal Service Fund contribution methodology before the U.S. Supreme Court. That case resulted in the 5th U.S. Circuit Court of Appeals' recent 9-7 en banc decision that found the contribution factor is a "misbegotten tax," legal experts said during a Schools, Health & Libraries Broadband Coalition webinar Wednesday. The 5th Circuit remanded the contribution factor for Q1 2022 to the FCC for further work.

Consumers' Research has already asked SCOTUS (docket 23-456) to hear the case as a result of the circuit split (see 2407260044).

Petitioners went “shopping” for a split in the circuits “or a circumstance” that would improve the likelihood of SCOTUS review, Benton Institute for Broadband & Society Senior Counselor Andrew Schwartzman said. The 6th and 11th circuits had already decided against Consumers’ Research, but SCOTUS denied cert, he noted. The group then sought rehearing at SCOTUS, so those cases remain in question, he said.

“There’s plenty of reason to be concerned here … but in the very near term, nothing is going to change,” Schwartzman said. “In the very short term, everything is fine.” He said everyone on the webinar panel had fielded "panicked" questions about the ruling's implications.

The challenge was based, in part, on a doctrine that some legal scholars have discussed for the past 15 or 20 years, the “nondelegation doctrine,” Schwartzman said. “This is something that had been put to bed pretty much in the 1930s, but it’s basically getting revived.” The doctrine says Congress must delegate authority very specifically to agencies with limitations that reserve core congressional powers, he said. “One of the key debates here is whether the Communications Act, Section 254, does cabin the FCC’s authority sufficiently.”

Finding that the USF contribution factor is a “tax” rather than a fee means more-stringent requirements under nondelegation authority, Schwartzman said. When Congress delegates a tax, it must set the amount and collection mechanisms, he said: “Labeling this a tax rather than a fee advances the arguments for those who are pressing the nondelegation argument. … That becomes a central part of the case.”

“This is fundamentally a case about nondelegation and what Congress has to do itself under the Constitution” versus what agencies can do, said HWG’s Sean Lev, a former FCC general counsel. Article 1, Section 1 of the Constitution gives all legislative power to Congress, he noted: “The issue here is how much of this is fundamentally legislative that Congress can’t give up?”

“This seems to be an agenda-driven case rather than a focus on USF per se,” Lev said. Plaintiffs aren’t people “paying a lot of money into the USF,” he said: “They are people who have a desire to bring a nondelegation case and perhaps move the law in a direction they would like.”

All other courts have found that the contribution factor is a fee, not a tax, Lev said. “Carriers benefit when networks are larger,” he said. “It is voluntary.” Nobody has to be in the business of offering communications services, he said.

While the USF has been in place for decades, one of the petitioners, Cause Based Commerce, had to pay into the fund for the first time in Q1 2022. The court said that gave it the right to challenge the constitutional and statutory basis for its having to pay, Lev explained.

SHLB Executive Director John Windhausen said his understanding is that “Congress can delegate to a regulatory agency as long as it provides some guidelines.” SHLB won on that point in the 6th and 11th circuits, “but somehow the 5th Circuit raised questions about whether Section 254 provides sufficient guidance.”