Questions Raised by FCC Data Fines Could Be Headed for SCOTUS After Circuit Split
The U.S. Court of Appeals for the D.C. Circuit upheld the FCC’s $80 million data breach forfeiture in a unanimous opinion handed down Friday (see 2508150014). T-Mobile was also fined $12.2 million for violations by Sprint, which it later acquired. Judges appeared skeptical of T-Mobile's arguments when the case was heard in March (see 2503240048). T-Mobile is reviewing the decision, a spokesperson said Friday.
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With the D.C. Circuit ruling, there’s now a split in the judicial circuits after the 5th U.S. Circuit Court of Appeals rejected a $57 million fine imposed on AT&T (see 2504180001). The government has asked the 5th Circuit to rehear the case meeting en banc (see 2507180032). The 2nd Circuit heard Verizon’s challenge of its $46.9 million fine in April but has yet to rule (see 2504290060). The government has defended the fines, though they were opposed by now Chairman Brendan Carr.
Recon Analytics’ Roger Entner predicted that, with the split in the circuits, the cases are headed to the U.S. Supreme Court. “SCOTUS here we come,” he said.
As the FCC correctly determined, customer location information (CLI) is customer proprietary network information under the Communications Act, said the opinion by Judge Florence Pan, appointed to the court by President Joe Biden.
Carriers “had a duty to protect such information from misuse by third parties,” Pan wrote. “The Commission reasonably concluded that the Carriers violated that duty by failing to take reasonable measures to prevent bad actors from abusing access to CLI.” The carriers also failed to address the problem “even after they became aware of serious abuses.”
Pan touched only briefly on T-Mobile’s argument that it was denied a fair trial under the Seventh Amendment, in violation of SEC v. Jarkesy. In that case, SCOTUS found that when the SEC levies civil penalties on defendants for securities fraud, the Seventh Amendment requires it to bring the action in court, where the defendant is entitled to a trial by jury (see 2406270063). The decision mentions Jarkesy in a single footnote.
“The statutory procedure at issue allowed the Carriers to obtain a jury trial before suffering any legal consequences,” Pan wrote. “Regardless of whether it was constitutionally guaranteed, the Carriers had the right to a jury trial. They chose not to wait for such a trial and therefore waived that right.”
Free State Foundation President Randy May said SCOTUS will probably have to resolve whether the process set forth in the Communications Act complies with the Seventh Amendment’s jury trial requirement. “The argument that it does not is not frivolous, but it’s not a slam dunk either way,” May said in an email. There are also legitimate issues about whether the agency afforded the providers “fair notice” of what was required of them, he said. “This is a constitutional issue as well, and a recurring due process problem with the way the FCC imposes and enforces forfeitures.”
The 5th Circuit “had the better grasp of how to read Jarkesy in light of the Seventh Amendment and agency enforcement processes,” said Kristian Stout, innovation policy director for the International Center for Law & Economics. “This looks like an issue headed for a definitive answer from the Supreme Court,” he said.
The fines were “lawful and reasonably accounted for the Carriers’ ability to pay and the egregiousness of their conduct,” Pan wrote elsewhere in the decision. The FCC found that the carriers “committed separate violations for each third party that accessed their CPNI in the absence of adequate safeguards,” she said. “That determination was aligned with the Carriers’ own certification procedures, which imposed contractual obligations on third parties to safeguard CPNI on a relationship-by-relationship basis.”
The other judges on the panel were Brad Garcia, also appointed by Biden, and Karen Henderson, appointed by President George H.W. Bush.
AT&T, meanwhile, urged the 5th Circuit not to move forward on an en banc review of its decision. “Respondents do not challenge the panel’s determinations that the multi-million-dollar fine is a civil penalty intended to punish AT&T or that the agency enforcement action assessed the reasonableness of AT&T’s actions akin to common law negligence,” AT&T said.
“Without dissent," a panel of the court "agreed that the Commission’s enforcement procedures violate AT&T’s Seventh Amendment right to a jury trial and its right to adjudication by an Article III court,” the filing said. The panel understood that “a straightforward application of the Supreme Court’s decision in SEC v. Jarkesy … dictates that result.”