En Banc Fifth Circuit Strikes Down FCC’s Universal-Service Tax as Unconstitutional Delegation

In a ruling today in Consumers’ Research v. FCC, the en banc Fifth Circuit ruled by a vote of 9 to 7 that the multi-billion dollar Universal Service Fund tax levied by the Federal Communications Commission rests on an unconstitutional combination of delegations and subdelegations of Congress’s legislative power. Judge Andrew Oldham wrote the majority opinion for nine judges. Judge Jennifer Elrod and Judge James Ho each wrote short concurring opinions. Judge Carl Stewart wrote the principal dissent for all seven dissenters. Judge Stephen Higginson also wrote a dissent.

I have not had time to read the opinions with any care but provide some key excerpts (slightly modified) from the lead opinions for interested readers.

Judge Oldham:

In the Telecommunications Act of 1996, Congress delegated its taxing power to the Federal Communications Commission. FCC then subdelegated the taxing power to a private corporation. That private corporation, in turn, relied on for-profit telecommunications companies to determine how much American citizens would be forced to pay for the “universal service” tax that appears on cell phone bills across the Nation. We hold this misbegotten tax violates Article I, § 1 of the Constitution.

FCC does not administer all these universal service programs itself. Instead, it relies on a private company called the Universal Service Administrative Company (“USAC”). USAC is managed by representatives from “interest groups affected by and interested in universal service programs” who are “nominated by their respective interest groups.”

USAC is responsible for deciding the quarterly USF contribution amount—a projection of the dollar value of demand for universal support programs and the costs of administering them. The contribution amount ultimately derives from the universal service demand projections of private, for-profit telecommunications carriers, all of whom have “have financial incentives” to increase the size of universal service programs.

Section 254 of the Telecommunications Act of 1996 reflects a policy goal of making telecommunications services available to all Americans. It is emphatically the province of Congress to make such policy choices. But it is our judicial duty to ensure that Congress pursued its goal through lawful means. And in that regard, our brief survey of the USF’s history makes three things clear. First, Congress’s instructions are so ambiguous that it is unclear whether Americans should contribute $1.37 billion, $9 billion, or any other sum to pay for universal service. Second, private entities bear important responsibility for universal service policy choices. And third, it is impossible for an aggrieved citizen to know who bears responsibility for the USF’s serious waste and fraud problems. All three of those things implicate bedrock constitutional principles.

Petitioners contend the universal service contribution mechanism violates the Legislative Vesting Clause. See U.S. Const. art. I, § 1 (“All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.”). We agree. We (A) explain that the power to levy USF “contributions” is the power to tax—a quintessentially legislative power. Then we (B) explain that Congress through 47 U.S.C. § 254 may have delegated legislative power to FCC because it purported to confer upon FCC the power to tax without supplying an intelligible principle to guide FCC’s discretion. Next, we (C) explain that FCC may have impermissibly delegated the taxing power to private entities. Finally, we (D) explain that we need not definitively answer either delegation question because even if § 254 contains an intelligible principle, and even if FCC was permitted to enlist private entities to determine how much universal service tax revenue it should raise, the combination of Congress’s broad delegation to FCC and FCC’s subdelegation to private entities certainly amounts to a constitutional violation.

American telecommunications consumers are subject to a multibillion-dollar tax nobody voted for. The size of that tax is de facto determined by a trade group staffed by industry insiders with no semblance of accountability to the public. And the trade group in turn relies on projections made by its private, for-profit constituent companies, all of which stand to profit from every single tax increase. This combination of delegations, subdelegations, and obfuscations of the USF Tax mechanism offends Article I, § 1 of the Constitution.

Judge Stewart (dissenting):

I dissent because the Universal Service Fund is not unconstitutional. Section 254 of the Telecommunications Act of 1996 provides an intelligible principle and the FCC maintains control over the USAC, the private entity entrusted to aid its administration of the USF. The majority’s exhaustive exegesis about policy, history, and assorted doctrines does not eclipse the consistent holding of three sister circuits that have addressed constitutional challenges to Section 254. All have held it constitutional under the intelligible principle test. The majority has created a split in a sweeping opinion that (1) crafts an amorphous new standard to analyze delegations, (2) overturns—without much fanfare— circuit precedent holding that this program collects administrative fees and not taxes, (3) blurs the distinction between taxes and fees, and (4) rejects established administrative law principles and all evidence to the contrary to create a private nondelegation doctrine violation.