Net Loss: D.C. Circuit Upholds FCC “Net Neutrality” Rule

In a momentous decision, a panel of the D.C. Circuit (Judges Srinivasan, Tatel, and Williams; opinion by Srinivasan, partial dissent by Williams) has upheld the FCC’s “net neutrality” rule. Henceforth broadband providers will be regulated not as information providers but as a “telecommunications service” under Title II of the Communications Act. Among other things this entails “must carry” obligations and a command that the providers may not charge different rates to different content providers (in regulatory parlance, “paid prioritization”).

I’m not the world’s greatest telecom expert; until the Verizon people strung some mysterious cables to our house six weeks ago, I thought “broadband” was a female rock group. But every expert I trust thinks this is a monstrously stupid idea, and the economics, cogently explained in Judge Williams’ dissent, point in the same direction. But there’s enough non-tech, legal and institutional stuff here to occupy an entire AdLaw semester. Even selected highlights, stripped of some niceties I’d be happy to debate on- or off-blog, make for a pretty long and (as usual) depressing post.

Some time ago, Ashley Parrish and yours truly argued that the AdLaw on the books (1) doesn’t have much to do with real life and (2) does little or nothing to constrain administrators who don’t want to be constrained. This case provides further illustration. Start at the top:

Deference. Chevron is every conservative’s bugaboo. Courts will defer to reasonable agency interpretations unless the statute is “unambiguous”: yikes. Chevron doesn’t actually do all too much work here (we’ll see) but it does set the tone: deference is our rock-bottom premise, the majority proclaims at the front end. (It proffers a second principle: the court will only address arguments the parties relied on. The majority needs that to blow off Judge Williams’ dissent, which articulates a coherent theory that the numerous petitioners evidently hadn’t pieced together.) And away we go. Sure, the FCC reclassified broadband. But the statute is ambiguous under a pretty good Supreme Court precedent (Brand X). So Congress delegated the choice to the agency. Sure, it did so in 1996, when no one envisioned the current telecom universe; and Congress has since tried but repeatedly failed to enact net neutrality on its own. But what matters is the enacted language, not the “intent.” Congressional inaction or action short of the enactment of positive law is entitled to no weight and does not preclude analogous rulemaking. Insert rote cites to textualist Supreme Court precedents. Anything wrong?

Well, you could say that this is just too big—too big to say, “Congress wanted the agency to fill in the details.” This is sometimes called the “major question” or “no elephants in mouseholes” canon. Brand X was relatively trivial; this is about revamping the entire Internet. Congress cannot have meant that; and in that context, maybe the failed legislation should carry some weight. The glitch is that the so-called “major question canon”—an exception to, and in some tension with, the Chevron architecture—has come and gone in the case law; it applies when five justices think the agency has gone off the deep end. Here, the majority dismissed a pretty good “major question” argument with barely a shrug, and Judge Williams didn’t rely on it. The point to note is that the so-called canon has come and gone in virtually any arena of consequence: environmental and energy cases; the ACA; immigration, food and drug regulation; now telecom. The obvious suspicion is that there’s something wrong with the Chevron edifice.

Presidential Government. Recall how the FCC came to embark on its “net-neutrality-under-Title II” campaign: the President called Chairman Wheeler on the carpet and told him to do it. Curiously, the opinions here mention that highly publicized context with not one word. Instead, there’s a long discussion of whether the FCC’s rule was a “logical outgrowth” of its earlier proposed rule. (I could nerd that doctrine out for you but there’s really no point. Answer here is “yes.”)

Should it matter? You could take one of two positions. You could say: the known fact that this was politics from the top casts doubt on the agency’s good faith in interpreting the statute and in exercising in expert judgment; so we (the court) approach the rule less deferentially. Or: the trouble with agencies (especially independent agencies such as the FCC) is a lack of accountability. But no one is more accountable than the President. That’s why we should have a unitary executive—and why we should give more deference to presidentially imposed policies.

You can also argue that it shouldn’t matter: one way or the other the question is whether the agency got the law right and whether the record is up to snuff. (Judge Williams’ dissent, I think, presupposes something like this position.) But the tension between “accountability” and “reasoned decisionmaking” is real. The conservative AdLaw debate hasn’t really faced up to it.

Waiver. The FCC’s net neutrality rule has a schizophrenic quality. We’ll regulate broadband providers as common carriers under Title II, it says. But, it continues, we will affirmatively forbear from imposing all or even most of the obligations that usually come along with that designation, especially outright rate regulation. Thus, the FCC is tailoring the Title II framework to the demands of a sector for which it’s obviously unsuitable. Legit?

In a very similar maneuver, the EPA “tailored” the Clean Air Act to regulating greenhouse gases, for which it obviously wasn’t intended. The Supreme Court characterized that move as a statutory re-write and nixed it (UARG v. EPA, 2014). Same here? Nope, says the majority:

This case is nothing like [UARG]. Far from rewriting clear statutory language, the [FCC] followed an express statutory mandate requiring it to “forbear from applying any regulation or any provision” of the Communications Act if certain criteria are met. 47 U.S.C. § 160(a). Nothing in the Clean Air Act gave EPA any comparable authority.

That’s technically true—and materially false. The forbearance provision was put into the Communications Act to reduce regulation and to “promote competitive market conditions” (that’s one of the “certain criteria”). Here, it’s used to expand regulation; and the only “competition” that’s being promoted is interest group competition for the Commission’s favors. Judge Williams’s dissent calls these the “central paradoxes” of the majority’s position and the “hopeless contradiction” of FCC’s rule. One wonders, he writes,

how an Act intended to “reduce regulation” is used instead to increase regulation and how an Act intended to “promote competition” is used at all in a context in which the Commission specifically forswears any findings of a lack of competition.

Excellent question. The paradoxes here come from reading statutory provisions one by one and out of context. More broadly, though, they come from sticking “big waiver” provisions into expansive, often highly prescriptive statutes. The power to waive and forbear is the power to expand regulatory territory one piece at a time and in cahoots with powerful rent-seekers (here, Netflix), where wholesale occupation would fail.

A Not-So-Hard Look. When a statute is “ambiguous” courts are still supposed to ask whether the agency’s interpretation was reasonable. That inquiry overlaps with (and maybe the same as) the question of whether the action was “arbitrary and capricious,” and courts are supposed to take a “hard look” at the agency’s averments. In this case, the majority pays nary a passing glance. It’s “whatever” posture runs through the entire opinion, on every issue. E.g., the majority is “unmoved” by Judge Williams’s “paradoxes.” If the forbearance provision grants rulemaking authority (as it does),

it is unsurprising that the grant of rulemaking authority might occasion the promulgation of additional regulation. And if […] the new regulation is geared to promoting the effective deployment of new telecommunications technologies such as broadband, the regulation is entirely consistent with the Act’s objectives.

This burble is no answer to the dissent’s not-all-that-hard-look question: just what is the anti-competitive threat here, and how does “net neutrality” counter it? And why would “the Commission saddle[] the broadband industry with common-carrier obligation, which is normally seen as a substitute for competition … for markets where all hope is lost?” Don’t look to the FCC for an answer. It proffered no competent evidence that the providers have market power, or that “net neutrality” might promote competition or broadband investment. The majority calls the Commission’s hand-waving and bare assertions an exercise of the agency’s “predictive judgment,” to which the court owes special deference. That’s not a hard look. That’s a blank stare, and a blank cheque.

The Judges and the Regulatory State. Multiple petitioners have vowed an appeal. It’s a low-cost proposition: they can put a postage stamp on Judge Williams’s opinion and mail it to the Supremes. Then again, why bother?

Nothing in the majority opinion is off the wall. It’s basic AdLaw, and Judge Srinivasan does a respectable job at making it look altogether routine. Moreover, he and Judge Tatel aren’t far-out lefties. They’re Democratic appointees, yes; but they’re moderate, smart, capable lawyers who know there way around AdLaw and federal agencies. And so are Justices Breyer, Kagan, and Ginsburg. So for that matter is Merrick Garland, who would supply a sure fifth vote, in addition to Justice Sotomayor’s, for what has become an unbreakable bloc of votes in AdLaw cases. Barring a surprise Trump appointment there’s no way the panel’s decision will be reversed.

It’s not that the just-mentioned judges and justices are shilling for the Obama administration. It’s that their vision of administrative law dates back to (at least) the Chevron days, when there was still a bipartisan, moderate consensus on reasoned decisionmaking; cost-benefit and risk-risk analysis; OIRA review; and judicial deference, applied by a discerning, collegial D.C. Circuit. And there was a scholarly and policy community to support that vision (e.g., the AEI-Brookings Joint (!) Center on Regulation). Justice Breyer embodied it, and he was corporate America’s great white hope.

That world is dead and gone; but its administrative law apparatus has endured. In our world, it’s a license for unchecked executive government. See this case.