Recall that, a couple months ago, the Supreme Court granted the Petition for Certiorari in PDR Network, LLC v. Carlton & Harris Chiropractic, Inc. , a TCPA junk fax class action proceeding, setting the stage for what we believe could be the remaking of judicial deference given to agency interpretations of federal regulations . On Monday, March 25, 2019, the Court heard arguments during an hour-long session. While many issues were discussed during the arguments (you can review the entire oral argument transcript ), we focus our discussion on two practical issues that stand out as central areas of concern during the questioning by the Justices.
Before we delve into the substance of the oral argument, let's recap how PDR got here. The case arises from a TCPA junk fax class action in which Plaintiff/Respondent Carlton & Harris Chiropractic, Inc. ("Carlton") sued PDR for sending a single fax offering a free eBook version of Physician's Desk Reference. Carlton claimed the fax violated the TCPA because it was an "unsolicited advertisement" sent without its consent.
The District Court for the Southern District of West Virginia dismissed the case after concluding that the fax was not an "unsolicited advertisement" because the fax did not have a "commercial aim." Specifically, because PDR does not sell the eBook or any of the prescription drugs contained in the eBook, the fax was missing an essential commercial element of an advertisement.
Carlton urged the court to apply its view of a 2006 FCC ruling in which the Commission concluded that "facsimile messages that promote goods or services even at no cost, such as free magazine subscriptions, catalogs, or free consultations or seminars, are unsolicited advertisements under the TCPA's definition." The district court found that it was not bound by these few words to simply ignore the fact that PDR's fax had no commercial purpose. The court engaged in a three-part analysis:
- First, the court concluded that it was not required to defer to the FCC's 2006 ruling under the Hobbs Act because the Act only requires direct challenges to agency action to be brought in federal appellate courts. Here, in a case between private litigants, there was no direct challenge to the validity of the FCC's interpretation, and the court "presumes the FCC's order is valid."
- Second, even if Carlton was interpreting the FCC's 2006 ruling correctly, Chevron deference would not require the court to defer to the agency because the statutory definition of "unsolicited advertisement" was not ambiguous; rather it was "clear and easy to apply." Therefore, the court was not required to defer to a contrary agency interpretation.
- Finally, the court concluded that the FCC's 2006 ruling, when viewed as a whole, was better understood as retaining the requirement that the sender of the fax have the intention to engage in a commercial transaction with the recipient that was being furthered by first providing a free good or service. The court distinguished that from PDR's situation, because PDR was giving away a free copy of the book without any intention of luring the recipient into a subsequent commercial transaction.
These issues propelled the case up to the Fourth Circuit, which reversed the district court. In a divided opinion, the Fourth Circuit held that the district court was required to follow the FCC's 2006 ruling under the Hobbs Act because the Act "stripped" the court of jurisdiction to consider the validity of the ruling. The Fourth Circuit found that the district court refused to follow the FCC's ruling and that this refusal was the equivalent of considering the validity of the ruling, which it did not have the jurisdiction to do under the Hobbs Act. The Hobbs Act, by the way, provides, in relevant part , that the federal courts of appeal have "exclusive jurisdiction to enjoin, set aside, suspend (in whole or in part), or to determinate the validity of ... all final orders of the Federal Communications Commission."
PDR then petitioned the Supreme Court, which granted review of the question of whether the Hobbs Act required the district court in this case to accept the FCC's legal interpretation of the TCPA.
ORAL ARGUMENT & PRACTICAL IMPLICATIONS
Issue 1 – Ensuring Adequate Notice & Opportunity to Challenge: How Does the Hobbs Act Impact Companies That Do Not Participate in an FCC Rulemaking?
During oral argument, many of the questions from the Court centered on a critical issue: does the Hobbs Act bar companies that did not – or could not – participate in the FCC's rulemaking processes from challenging application of the FCC's orders to them during private litigation?
Justice Stephen Breyer was the first to ask what he thought to be an "elementary" question:
[L]ook, there are – there are lots of – rule-makings normally, you review in the court of appeals. There are all kinds of things that do that . So what happens to a person who wasn't born yet or what happens to a business that wasn't formed yet? There must be law on that. This can't be the first – you know, here they were, by the way, but, I mean, how do we work it in the normal case?
Despite the "elementary" nature of Justice Breyer's question, there was no clear answer. Indeed, none of the parties could cite a case where the court determined the Hobbs Act, or another similar statute, was intended to prevent a private litigant from raising arguments against the application of an agency order when the litigant had not participated in the agency's rulemaking process. The issue raises important due process considerations if the Hobbs Act is interpreted as preventing a company, perhaps one that did not even exist when the FCC order at issue was adopted, from arguing during the course of defending itself that an FCC order interpreting the TCPA is unlawful or unconstitutional.
Nearly all of the other Justices, including Justices Alito, Gorsuch, Ginsburg, Kavanaugh, and Chief Justice Roberts, asked questions that touched on this due process issue, asking how the Hobbs Act's 60-day window for challenging FCC orders provided adequate notice and opportunity for judicial review to entities that were either not party to the agency's rulemaking proceeding – and thereby not allowed to appeal the agency's decision to the court of appeals – and, even more difficult, to entities that were not in existence at the time of the order's issuance or not engaged in the activity the agency regulated.
During the course of questioning, counsel for each party was, in one way or another, asked to share its views on how the Hobbs Act affected four different categories of potential litigants:
- An entity now challenging the FCC order that was party to the FCC's rulemaking proceeding;
- An entity now challenging the FCC order that was not party to the FCC's rulemaking proceeding, but nevertheless participated in the regulated conduct at the time of the order's issuance;
- An entity now challenging the FCC order that was in existence, but that was not party to the FCC's rulemaking proceeding and that did not even participate in the regulated conduct at the time of the order's issuance; and
- An entity now challenging the FCC order that did not even exist at the time the rulemaking proceeding occurred.
While the parties seemed to agree that an entity would be barred from challenging an agency order at the district court level under the Hobbs Act if it had participated in the agency's rulemaking process regarding that specific order, they could find no such agreement with respect to the other three scenarios. Indeed, no litigant was able to provide case precedent clearly establishing where this line should be drawn.
If, and at what point on this four-segment continuum, the Court decides to draw that line could be critically important to companies that fall under the jurisdiction of the FCC, including the hundreds of thousands of companies subject to the TCPA. From a practitioner's perspective, many courts believe, as the Fourth Circuit held, that the Hobbs Act prohibits all challenges to the FCC's rules and orders, except through direct appeal of the agency action during the 60-day window. However, if the Supreme Court determines that such an approach violates the due process rights of companies that do not, or cannot, directly challenge such an order, it could open new lines of attack for TCPA defendants, while also increasing the probability of courts across the country reaching inconsistent decisions on significant TCPA questions.
Issue 2 – The Procedure for Challenging Agency Orders: Is There More Than One Way to Obtain Review of an FCC Decision?
The Justices also questioned what procedure should apply to FCC order challenges after the 60-day period provided by the Hobbs Act has expired. Specifically, the Justices were concerned about how any court would be able to evaluate a legal issue which, while impacted by an FCC order, was not fully litigated at the time the FCC's order was released.
From a practical perspective the issue can be summarized as follows: if a defendant in TCPA litigation has a defense arguing that the FCC wrongly interpreted the TCPA, must that defendant file a petition for reconsideration at the FCC to raise this new legal argument, or, instead, may it raise the legal argument directly in federal court? This question, while seemingly a minor procedural issue, has profound consequences for TCPA defendants, who must consider the costs and time associated with having to raise an issue through a separate administrative process, while simultaneously defending the litigation.
During oral argument, the parties and the government, each offered different views on this issue:
- PDR identified this issue as a core tenet of its argument, explaining that the Hobbs Act cannot preclude lower federal courts from determining a defendant's argument that the FCC wrongly interpreted the TCPA through its order, because doing so would fundamentally violate that defendant's due process rights.
- Carlton asserted that such a defense can only be raised by: (1) filing a petition for reconsideration with the FCC, and (2) in the event the petition is denied, filing an appeal with the court of appeals, which, Carlton claimed, could then rule on the underlying merits of the appeal and whether the FCC wrongly interpreted the TCPA through its order.
- The U.S. Government (arguing in support of Carlton) agreed with Carlton that the defendant could only seek a petition for reconsideration with the FCC, but, contrary to Carlton's view, could then only appeal to the courts of appeals the question of whether the FCC's denial of the petition – not the petition's underlying merits – was permissible.
The varying opinions about what options are available to litigants challenging FCC orders in private litigation raise particularly important issues because of the broad discretion typically afforded to the FCC when it denies petitions for reconsideration. Those decisions are rarely overturned by appellate courts and, indeed, the FCC's rules make it exceptionally difficult to pursue a petition for reconsideration months or years after an order has been adopted. Therefore, the different views have profound implications for litigants in future TCPA cases. Under the DOJ's view, a party that does not fight an FCC opinion immediately after it is adopted should be required to file a petition for reconsideration with the FCC. There, the FCC has no time limit to resolve the petition and a great deal of discretion to never reach the merits of petition. However, the FCC's failure to reach the merits will be rarely disturbed on appeal. In short, the DOJ's view is that due process can be provided simply by building a bridge to nowhere. Many of the Justices on the Supreme Court appeared to be skeptical of this approach and, we believe, for good reason.
While many important issues were discussed, TCPA-regulated businesses should watch this case carefully, as the outcome could significantly impact the rights of companies accused of TCPA violations. Either the Supreme Court will uphold the Fourth Circuit's highly constrictive interpretation of the Hobbs Act, under which any entity, regardless of its practical ability to do so, must predict and challenge every possible interpretation of an FCC order at the time the order is released; or the Court will address the "elementary" question of how a company that had no practical reason or ability to challenge an FCC order can be assured due process when it is required to defend itself in private litigation.
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