The Supreme Court will hear oral arguments on Wednesday in a major challenge to the federal “E-rate program,” which subsidizes telephone and high-speed internet services in schools, libraries, rural areas, and low-income communities in urban areas. The stakes are high, not only because of the program’s size but also because the theory at the center of the challengers’ case, known as the nondelegation doctrine, is one that conservative lawyers and business groups have been urging the justices in recent years to revive. If the justices accept that invitation, it could be another step in the court’s recent efforts to curtail the power of federal agencies.
The subsidy program is the latest chapter in Congress’s efforts to provide access to the same kinds of telephone (and later internet) services at roughly the same rates to all U.S. residents and businesses. Until the late 20th century, this universal service was funded through implicit subsidies – for example, telephone companies would charge below-cost rates in rural areas, where it was more expensive to provide service, while at the same time charging above-cost rates in urban areas.
When the telephone industry was deregulated, however, Congress created a new system to fund universal service using more explicit subsidies. In the Telecommunications Act of 1996, Congress created the Universal Service Fund to facilitate universal service, which now also included telecommunications and information services like high-speed internet access for schools, libraries, rural health care providers.
In 1997, the FCC established a private nonprofit, known as the Universal Service Administrative Company, to help it administer the fund. Telecommunications carriers make contributions to the fund, which are then used to subsidize universal service. Under FCC regulations, carriers can and do pass the costs of the contributions, which are calculated every quarter, on to their customers.
Consumers’ Research describes itself as the country’s oldest consumer protection agency and has in recent years shifted its focus to fighting “woke” corporations, DEI initiatives, and the consideration of climate change on Wall Street. The group is funded in part by Leonard Leo, the Federalist Society co-chair who has raised hundreds of millions of dollars for conservative legal campaigns and helped pick or confirm each of the court’s six conservative justices.
Last year, the justices took a major step to weaken the power of administrative agencies when they overturned the Chevron doctrine, which significantly curtailed the power of agencies to interpret the laws they implement. The executive director of Consumers’ Research, Will Hild, was a co-founder of the firm that successfully brought one of those two cases.
Consumers’ Research filed challenges to the Universal Service Fund contributions calculated for several different quarters in the U.S. Courts of Appeals for the 5th, 6th, 11th, and District of Columbia Circuits.
Three-judge panels in the 6th and 11th Circuits rejected the group’s challenges in those circuits, and the 6th Circuit denied the group’s petition for rehearing. The D.C. Circuit dismissed the group’s challenge there.
Consumers’ Research was also initially unsuccessful in the conservative 5th Circuit, where a three-judge panel unanimously rejected its challenge. But the full court of appeals agreed to rehear the case and reversed, by a vote of 9-7.
In a decision by Judge Andrew Oldham, who is often mentioned as a potential nominee for the Supreme Court if a vacancy occurs during the Trump administration, the majority deemed the contributions to the fund a “misbegotten tax” that violates the provision of the Constitution giving Congress sole power to legislate.
Oldham reasoned that Congress may have violated the nondelegation doctrine by giving the FCC the power to set the amount that telecommunication carriers must pay into the fund without giving it an “intelligible principle” – as the nondelegation doctrine currently requires – to guide it. The FCC may have also violated the nondelegation doctrine, Oldham next explained, by outsourcing the power to set the fees to USAC, a private group. But at the very least, Oldham concluded, “the combination of Congress’s sweeping delegation to FCC and FCC’s unauthorized subdelegation to” the USAC violates the Constitution.
The FCC (along with a group of trade associations representing entities that receive funding through the E-rate program and a trade association for the telecommunications industry) went to the Supreme Court, which agreed in November to review the 5th Circuit’s decision.
In its brief in the Supreme Court, the FCC insists that Congress did not improperly delegate legislative power to it. Under the current nondelegation doctrine, it stresses, Congress can give a federal agency discretion to implement a statute as long as the law meets a standard that is “not demanding” – “it supplies an intelligible principle to guide the agency — that is, if it defines the general policy that the agency must pursue and the boundaries of the agency’s power.”
For more than a century, the FCC contends, the Supreme Court has rejected challenges to laws that give federal agencies broad discretion, including laws directing agencies to regulate “in the public interest,” set “just and reasonable” rates for natural gas, recover “excessive profits” from military contractors, and set “fair and equitable” prices for commodities.
Congress did the same thing here, the FCC says. The statute creating the Universal Service Fund outlines the general policy that Congress wanted the agency to follow – for example, ensuring that internet and telephone services are affordable, providing “reasonably comparable” services to rural areas, and making sure that schools and libraries have access to those services. The law also defines the scope of the FCC’s power: it provides “detailed guidance” about “who must pay universal service contributions, the terms on which they must do so, the purposes for which the funds must be used, the types of services that the Commission must subsidize, and the types of entities that may receive funding.”
The Schools, Health and Libraries Coalition, which is also defending the E-rate program, adds that even before the Supreme Court’s 2024 decision in Loper-Bright Enterprises v. Raimondo, holding that courts may not defer to a federal agency’s interpretation of a statute just because it is ambiguous, federal courts enforced the limits imposed by the law. Now that the FCC’s interpretations are not entitled to any deference, the coalition observes, federal courts reviewing the FCC’s actions will do so with an even more skeptical eye.
The coalition argues that the program would in any event pass muster under the more stringent nondelegation test that Justice Neil Gorsuch proposed in his dissent from the court’s 2019 decision in Gundy v. United States, in which a majority of the court declined to revive the nondelegation doctrine. Congress, the coalition asserts, has outlined the “controlling general policies” that are the basis for the law. And it provided standards that are “sufficiently definite and precise to enable Congress, the courts, and the public to ascertain whether Congress’s guidance has been followed.” Moreover, the coalition continues, early in U.S. history, Congress adopted delegations of power that were much broader than this one.
The FCC contends that it did not improperly delegate power to the USAC. “When exercising executive power,” the FCC maintains, a federal agency “may properly solicit and rely on private advice.” Here, it writes, the FCC decides how much money carriers must contribute to the Universal Service Fund; USAC merely provides the FCC with nonbinding advice about, for example, projections about expenses for the universal service programs and the revenues that the carriers expect. The FCC can always change the projections before it calculates the contribution that carriers must make, it notes.
The 5th Circuit’s ruling was also flawed, the FCC argues, because it did not explain how courts should determine whether a government agency has given too much weight to advice or recommendations from a private actor. “Taken to its logical conclusion,” the FCC suggests, “the court’s approach would permit litigants to allege that members of Congress have delegated legislative power by relying too much on staffers; that the President has delegated executive power by relying too much on advisers; or that judges have delegated judicial power by relying too much on law clerks.”
The Schools, Health, and Libraries Coalition adds that the Supreme Court has made clear that the key question in nondelegation challenges involving private actors whether a government actor can exercise “authority and surveillance” over the private actor. The laws governing the E-rate program charge the FCC, not the USAC, with carrying out Congress’s instructions, the coalition insists; USAC “plays only a ministerial role.”
Both the FCC and the coalition reject the 5th Circuit’s conclusion that the combination of the grant of discretion by Congress to the FCC and the FCC’s reliance on advice from USAC violates the nondelegation doctrine. That determination, the coalition argues, is inconsistent with the Supreme Court’s cases, which have considered public and private nondelegation claims separately.
A “friend of the court” brief filed by Alaska argues that upholding the 5th Circuit’s ruling will have a significant real-world impact for the state’s residents. With 80% of the state inaccessible by roads or highways, Alaska explains, wireless and internet services in rural areas are “critical for health care, 911 emergency operating systems, education, and everyday life. For these rural consumers, the Fund’s continued existence is not about subsidized telecommunications access, it is about whether rural Alaska will have reliable access at all.”
A brief filed by software industry trade groups posits that if the FCC and USAC cannot collect payments to the fund, carriers will probably stop paying into it. Congress, the groups say, “would have to restructure the FCC itself” to be able to use the funds that are left — a process that could take years. Moreover, the groups note, the E-rate program facilitates the enforcement of the Children’s Internet Protection Act, which Congress passed in 2000 to “address concerns about children’s access to obscene or harmful content over the Internet,” because the law makes discounts from the E-rate program contingent on compliance with the CIPA’s requirements.
Consumers’ Research counters that the fund’s “revenue-raising mechanism is a historic anomaly at odds with 600 years of Anglo-American practice.” If the E-rate program is upheld, the group suggests, and Congress were able to pass similar laws in other contexts, “there would be no need to pass budgets or make appropriations ever again. The entire federal government could be funded with a single, vague delegation to the IRS, which could then hand over that power to a private group.”
The law creating the E-rate program unconstitutionally delegates power to the FCC, Consumers’ Research contends. Quoting Judge Kevin Newsom of the 11th Circuit, it argues that “the FCC is almost certainly exercising legislative power when it decides … how big the universal-service program should be.” Moreover, the group adds, the universal-service law is “at least as bad as the statutes” that the Supreme Court struck down under the nondelegation doctrine in 1935, the last time the doctrine was invoked.
The Constitution gives Congress the power to raise revenue, Consumers’ Research stresses. And that power is such an important power that Congress must authorize both efforts to raise money and the amount of the revenue to be raised. Instead, the group says, Congress outsourced to the FCC its power to tax without the kind of specific limits on the size of the tax that have “been a near-universal aspect of Anglo-American constitutional law for centuries.”
Congress’s grant of power to the FCC also runs afoul of the current version of the nondelegation doctrine, the group writes, “which still requires Congress to ‘clearly delineate’ delegated power.” The law at issue here fails to provide any such clear instructions, the group maintains. Instead, the FCC is guided only by “universal principles” that are not mandatory but merely “aspirational.” Moreover, Congress has even allowed the FCC to add new “principles” or “even redefin[e] ‘universal service’ altogether.”
But in any event, the delegation to the FCC still violates the nondelegation doctrine because the “FCC is guided by its own ‘aspirations,’ and for good measure Congress let the agency expand its own scope of authority at will by adding new universal service principles and even redefining ‘universal service’ altogether.”
The FCC has violated the private nondelegation doctrine, Consumers’ Research asserts, because it has “largely handed off” the power to raise money to the USAC. Once the USAC proposes the contributions that carriers should make to the fund, Consumers’ Research says, the FCC does not engage in any substantive or independent review of those projections. Instead, they are simply “‘deemed approved” fourteen days later.”
Consumers’ Research and its supporters push back against suggestions that allowing the 5th Circuit’s ruling to stand will have negative repercussions around the country. Consumers’ Research assures the justices that there is “bipartisan interest in fixing the” Universal Service Fund, “which is facing a death spiral that will soon implode the program.” It posits that the problems identified by the court of appeals could be relatively easy to fix: All Congress would have to do would be to appropriate money or add “half a sentence setting a specific tax rate or cap.” Indeed, it writes, “affirming the Fifth Circuit’s decision is likely the best thing that could happen for universal service” because it could prompt Congress to take action to fix the program.
A supporting brief filed by West Virginia (along with 14 other states and the Arizona legislature) similarly tells the justices that state courts applying “a strong conception of nondelegation grounds” have struck down statutes “without catastrophic effects.”
When it granted review, the Supreme Court asked the litigants in the case to address whether the case is moot – that is, no longer a live controversy – because the challengers did not ask the court of appeals for preliminary emergency relief.
The FCC and all of the groups involved in the case agree that the dispute is not moot. The action at the center of the challenge is the amount of the contribution by the carriers for the first quarter of 2022. Because that quarter is over, the FCC contends, the challengers can no longer obtain future relief, and they may not be able to get a refund because the government is immune from claims for monetary relief.
However, because there is a new contribution set each quarter, and three months is not enough time to litigate a challenge to that contribution, the FCC continues, the dispute falls into an exception for cases that might otherwise be moot but are “capable of repetition, yet evading review.”
This is true, the FCC says, even when Consumers’ Research did not ask the court of appeals to put the contribution for the specific quarter it is challenging on hold. If this case is dismissed as moot, the FCC reasons, it will give challengers an incentive to seek preliminary relief in future cases. And that could create “disruptive consequences” – here, requiring courts to move too quickly on “complex constitutional questions,” potentially putting the program on hold.
The Schools, Health, and Libraries Coalition agrees that the case is not moot. But if the Supreme Court ultimately concludes that it is, the coalition tells the justices, it should invalidate the 5th Circuit’s ruling, because the case would already have been moot before that court issued its decision.
Consumers’ Research also insists that the case is not moot, writing that carriers can still seek the return of the money that they paid to the fund during the quarter in which they challenged the scheme – which is not prohibited by sovereign immunity because they are seeking restitution, not money damages.
This post is also published on SCOTUSblog.
