FCC Enforcement Process Survives Seventh Amendment Challenge

In an 8-1 decision, the U.S. Supreme Court (the “Court”) found that the Federal Communications Commission’s (FCC) enforcement structure does not violate the Seventh Amendment’s right to a jury trial before a monetary penalty can be assessed. The decision, FCC v. AT&T Inc., resolves a split in the federal circuit courts and represents a qualified victory for the agency.

Background

The Communications Act of 1934 authorizes the FCC to investigate regulated parties for suspected violations of communications laws and seek monetary forfeitures for any violations. The process begins when the FCC issues a notice of apparent liability, which lays out the FCC’s preliminary findings and offers the recipient the opportunity to show that a forfeiture penalty should not be issued. If the FCC then concludes the party is liable, the FCC issues a forfeiture order laying the facts and law and stating the monetary penalty. All of this occurs without a jury. Once the FCC issues the forfeiture order, the party has two options. It may seek review in the court of appeals under the Hobbs Act. Alternatively, the recipient may opt to do nothing and wait for a civil suit to be brought by the Department of Justice (DOJ) within five years of the issuance of the forfeiture order. The latter civil suit is conducted as a trial de novo.

In the two consolidated cases before the Supreme Court, the FCC had assessed penalties against AT&T and Verizon for failing to protect their customers’ location information. The FCC issued a forfeiture orders fining AT&T $57 million and $47 million against Verizon. Both carriers paid the fines under protest and filed petitions to review the FCC’s orders in the 5th and 2nd Circuits, respectively, arguing that the process violated their Seventh Amendment right to a jury trial. The 5th Circuit agreed that the process violated the Seventh Amendment while the 2nd Circuit ruled that there was no violation because the forfeiture order does not compel payment of the fine.

The Supreme Court’s Decision

Resolving the split between the 5th and 2nd Circuits, the Court reasoned that because forfeiture orders under Section 503(b)(4) of the Communications Act do not themselves create an obligation to pay and do not conclusively resolve any facts, it does not violate the Seventh Amendment for the FCC to issue forfeiture orders without the involvement of a jury. In its decision, the Court distinguished the FCC’s scheme from the one struck down in SEC v. Jarkesy (2024) where the Court found that the Securities and Exchange Commission’s administrative process violated the right to a jury trial. The Court distinguished Jarkesy,noting that the SEC’s penalties were immediately enforceable and the agency had the final word on the facts. Here, by contrast, the FCC cannot execute on a forfeiture order, seize assets, impose liens, charge interest or penalize nonpayment, and the factual findings in the forfeiture order are not conclusive. Under Section 504(c) the FCC cannot hold the notice of apparent liability of forfeiture order against a party in later proceedings. The Court therefore treated a forfeiture order as a mere prerequisite to suit rather than a determination of legal rights. Should the DOJ decide to file a suit for payment, that suit proceeds as a trial de novo, and the agency’s findings carry no weight. According to the Court, “it is as if the Commission never found any facts at all.”

The Supreme Court also rejected the two carriers’ unconstitutional conditions argument. They claimed that the FCC’s enforcement scheme forces them to either waive their right to a jury by paying the forfeiture penalty and taking an appeal where the agency will be accorded some deference, or wait to see if the DOJ files suit. The latter case creates harms, they argued, because the FCC could use the forfeiture and failure to pay against them in later proceedings and they will suffer reputation harm. The Court disagreed, noting that the FCC cannot use the unresolved forfeiture proceedings to a party’s prejudice in subsequent proceedings. The Court acknowledged that the FCC might use the facts found in the forfeiture proceeding against a party in a later proceeding, but the party would have the opportunity to contest those facts in the later proceeding.

Justice Thomas dissented. Though he agreed that the majority’s reading should govern going forward, he would have granted relief to AT&T and Verizon. In his view, the forfeiture orders the carriers actually received in 2024 read as binding commands to pay within 30 days, the FCC had asserted authority to penalize without an Article III court, and no carrier had ever obtained a jury trial in a Section 504 action. The carriers, he argued, did what courts encourage by paying under protest and suing to recover, and should not be penalized for litigating so effectively that the government changed its position years later.

Questions the Court Left Open

Two issues flagged in the opinion’s footnotes remain unresolved and may shape future disputes:

• Whether prepayment is required to obtain appellate review. The parties litigated on the assumption that a carrier must first pay the forfeiture before seeking review in the court of appeals under the Hobbs Act. The Court expressly declined to decide whether that premise is correct, leaving open whether a carrier can obtain deferential appellate review without paying first.
• Whether the carriers are entitled to a refund. AT&T and Verizon argued that the specific orders here misled them into paying, and that a refund is therefore warranted. The Court expressed no view on the merits of that argument, what relief might be available, or in what proceeding it should be sought, leaving the question of the carriers’ already-paid penalties unsettled.
  
  

Practical Implications

The FCC’s concession that forfeiture orders are non-binding may change the calculus of parties embroiled in an enforcement action. That forfeitures are non-binding was not widely understood by the regulated industries, as evidenced by AT&T’s and Verizon’s payment under protest. Carriers subject to enforcement proceedings will have to weigh withholding payment against the uncertainty of a future DOJ collection action and the possible adverse consequences that arise from a forfeiture order making findings of unlawful conduct. Although the Court found those consequences insufficient to satisfy the unconstitutional conditions framework, the real-world effects of a pending forfeiture order may nevertheless persuade carriers to utilize the appellate route. Whether carriers will have to pay the forfeiture before filing an appeal is, as noted, an open question and may tested in the future.

Law clerk Michelle Rubin co-authored this alert.

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This document is intended to provide you with general information regarding the Supreme Court’s decision in FCC v. AT&T Inc. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.