Today, the Supreme Court issued its decision in FCC v. Consumers’ Research (No. 24-354), upholding the constitutionality of the Universal Service Fund (“USF”).  The Court in a 6-3 majority opinion penned by Justice Kagan explained that the USF does not violate the “public nondelegation doctrine” or the “private nondelegation doctrine” because Congress provided adequate guideposts and guardrails for the Federal Communication Commission (“FCC”) to implement the USF, and because the FCC had not impermissibly subdelegated its implementation authority to a private entity.  Because the Court upheld the USF, it is unlikely that there will be any immediate implications for the telecommunications industry more broadly.  That said, in analyzing the legal issues, the Court clarified several limits on the FCC’s USF authority, which could constrain the scope of the USF program in the future, and likewise could serve as the basis for future legal challenges should the FCC transgress those limits.

Consumers’ Research Decision

This case involved the FCC’s authority to subsidize programs designed to further “universal service.”  Those subsidies are paid for by telecommunication carriers, who are each required to contribute an amount equal to a percentage of their projected annual revenues.  A not-for-profit corporation established by the FCC (the “Universal Service Administrative Company” or “USAC”) calculates and recommends this quarterly contribution percentage (or “contribution factor”), which the FCC then reviews and approves.  Consumers’ Research challenged this structure as violating both the nondelegation doctrine—a legal doctrine that generally prevents Congress from delegating legislative authority to federal agencies—and the private-delegation doctrine—which prohibits federal agencies from delegating their sovereign authorities to private individuals or entities.  In earlier proceedings, the Fifth Circuit held that the USF was unconstitutional and relied on a novel theory that the combination of Congress’s delegation to the FCC and the FCC’s sub-delegation to USAC was unconstitutional.  The Supreme Court reversed that ruling in today’s decision.

First, the Supreme Court held that Congress provided “determinate standards” to guide the FCC’s implementation of the USF, and thus the USF does not violate the nondelegation doctrine.  To reach this conclusion, the Court rejected the dissent’s view that a special nondelegation doctrine applies, which would require Congress to impose a numeric cap or tax rate on USF contributions.  According to the majority, precedent and Congress’s longstanding practices foreclose that argument.  The Court then analyzed whether Congress has provided meaningful guideposts for, and limitations on, the FCC’s authority to implement the USF.  Congress satisfied these requirements.  It imposed “qualitative limits on how much money the FCC can raise from carriers” by requiring contributions to be “sufficient,” i.e., an amount that, while not an “exact science,” is neither “less than” nor “more than” what is “adequate or necessary to finance the universal-service programs.”  Congress also provided “clear and limiting” policies through “detailed criteria” that the FCC “must” adhere to in spending funds to further universal service.  The Court recognized that the FCC still “exercises significant discretion,” but it clarified that there is no constitutional violation here because that discretion is “tethered to legislative judgments about the scope and content of the universal-service program.” 

Second, the Court held that the FCC had not sub-delegated its authority to USAC, and thus did not violate the private-delegation doctrine.  It is “unquestionably valid” for federal agencies to “rely on advice and assistance from private actors” so long as the private actors are “subordinat[e]” to the agency’s “authority and surveillance.”  That is the case here:  USAC merely carries out its tasks consistent with the FCC’s directives, “just doing arithmetic” with “no policy-making”; and the FCC has authority to “review and revise” any action or recommendation by USAC.  In short, there is no private-delegation issue here because the FCC “is, throughout, the final authority.”

Third, the Court rejected the Fifth Circuit’s novel theory that combining Congress’s lawful delegation to the FCC with the FCC’s lawful reliance on USAC amounts to a constitutional violation.  This combination theory depends on extending Supreme Court precedent dealing with the President’s ability to remove executive officers.  But the Court rejected that precedent as inapplicable, explaining instead that “a meritless public nondelegation challenge plus a meritless private nondelegation challenge cannot equal a meritorious ‘combination’ claim.” 

Concluding, the Court lauded Congress and the FCC for “establishing universal-service programs [that have] led to a more fully connected country” over the last several decades “while leaving fully intact the separation of powers integral to our Constitution.”  As such, the Court reversed the Fifth Circuit and affirmed the constitutionality of the USF.

Implications

Because the Court upheld the USF, we anticipate that the immediate implications of the Court’s decision on the telecommunications industry will be minimal.  However, in analyzing the delegation issues, the Court clarified the limits on the FCC’s authority to further universal service, as well as the boundaries of a permissible relationship with USAC.  These clearly articulated lines in the sand could limit the FCC’s (and USAC’s) authority in the future, for example by deterring the FCC from expanding the USF program to new services or markets, or from delegating additional decisionmaking authority to USAC.  Similarly, the limitations highlighted in today’s decision may serve as the basis for future legal challenges should the FCC’s or USAC’s USF actions in the future transgress those lines drawn in Consumers’ Research.