The Supreme Court on June 4 left intact the power of the Federal Communications Commission (FCC) to levy large fines through its in-house adjudication system.
The dispute was the latest legal case to test whether the in-house enforcement system used by a federal agency violates the Seventh Amendment.
The case came after the Supreme Court limited the Securities and Exchange Commission’s use of in-house administrative tribunals two years ago in Securities and Exchange Commission v. Jarkesy, finding that defendants facing civil penalties are entitled to a jury trial under the Seventh Amendment.
Justice Clarence Thomas dissented.
The case arose after the FCC ordered AT&T and Verizon to pay $57 million and almost $47 million, respectively, for allegedly sharing customer location data with third parties without consent, a violation of the federal Telecommunications Act.
The telecommunications companies argued that provisions in the federal Communications Act of 1934 are unconstitutional. The statute that allows the FCC to use in-house adjudications to impose penalties without going to court violates the Seventh Amendment right to a jury trial in federal civil cases, the companies say.
The Department of Justice said the so-called forfeiture orders requiring payment before a trial did not violate the Seventh Amendment because there is no legal obligation for companies to pay the fines until they have been adjudicated by a duly appointed federal judge.
The U.S. Court of Appeals for the Second Circuit affirmed Verizon’s penalty, finding that the Constitution allows the FCC to carry out an initial penalty assessment, provided that an accused party is permitted to dispute the government’s collection efforts in court.
The U.S. Court of Appeals for the Fifth Circuit, on the other hand, found that the initial assessment and fine the FCC imposed on AT&T violated the company’s right to have a jury trial.
Roberts said in the majority opinion that the FCC’s in-house proceedings “fit comfortably within” the court’s previous precedents.
The FCC’s factual findings are “not conclusive,” so it “does not offend the Constitution for the Commission to issue forfeiture orders without the involvement of a jury,” he said.
“The orders at issue did not settle the carriers’ legal obligations because, stated simply, they did not create an obligation to pay," Roberts said. "And the orders did not reflect the ultimate determination of any fact because, before the carriers could have been made to pay, the Government was required to prove its case to a jury."
The Supreme Court affirmed the judgment of the Second Circuit in the Verizon case and reversed the judgment of the Fifth Circuit in the AT&T case, instructing that court to conduct “further proceedings consistent with this opinion.”
In his dissent, Thomas said that when the federal government “seeks to deprive a person of property, it must go through an Article III court.”
An Article III court is a federal court Congress created under that article of the U.S. Constitution.
Thomas said the forfeiture orders informed the companies that they must pay the assessed penalties.
Under protest, the companies paid the amounts ordered, “which was understood to be a precondition to their ability to file petitions for review in federal court,” he said.
“At every stage of their cases, they preserved their position that they should have received an Article III adjudication before being forced to pay,” he said.
Thomas said the court majority “accepts the Government’s newfound account that under the Act, the Commission’s self-styled ‘orders’ were mere nonbinding notices that the regulated parties were free to ignore.”
The justice said he did “not share the Court’s confidence that AT&T and Verizon should have known that these orders were nonbinding.”
“Today, the Court punishes AT&T and Verizon for complying with a government order that they in good faith believed was obligatory, diligently preserving their objection to that order, and then litigating that objection so effectively as to cause the Government to change its position years later,” Thomas added.