Sorenson Communications Inc. v. Federal Communications Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 13, 2014 Decided June 20, 2014
No. 13-1122
SORENSON COMMUNICATIONS INC. AND CAPTIONCALL, LLC,
PETITIONERS
v.
FEDERAL COMMUNICATIONS COMMISSION AND UNITED
STATES OF AMERICA,
RESPONDENTS
Consolidated with 13-1246
On Petitions for Review of Orders of
the Federal Communications Commission
Christopher J. Wright argued the cause for petitioners.
With him on the brief were John T. Nakahata and Timothy J.
Simeone.
Mark D. Schneider was on the brief for amici curiae
Hearing Loss Association of America, et al. in support of
petitioners.
C. Grey Pash Jr., Counsel, Federal Communications
Commission, argued the cause for respondents. With him on
the brief were Jonathan B. Sallet, Acting General Counsel,
2
and Jacob M. Lewis, Associate General Counsel. Robert B.
Nicholson, Attorney, U.S. Department of Justice, Finnuala K.
Tessier, Trial Attorney, and Richard K. Welch, Deputy
Associate General Counsel, Federal Communications
Commission, entered appearances.
Before: BROWN, GRIFFITH and MILLETT, Circuit Judges.
Opinion for the Court filed by Circuit Judge BROWN.
BROWN, Circuit Judge. The word “captioning” typically
conjures up an image of a television set with black bars
scrolling at the bottom, transcribing a speaker’s words with
varying degrees of accuracy. For hearing-impaired
individuals, however, it may also evoke the image of
something else: telephones that have words scrolling on a
screen during a call.
Sorenson Communications is a purveyor of these devices;
its technology uses the Internet to transmit and receive both
the call itself and the derived captions. Departing from
common industry practice, the company gives its phones out
for free, with the captioning feature turned on. The Federal
Communications Commission, concerned about a dramatic
spike in costs correlated with these tactics, hurriedly
promulgated rules clamping down on both practices. After
bypassing the notice and comment process for the interim
rules, the FCC considered input from various stakeholders
before finalizing an amended version of the rules. Sorenson
now challenges the two rules, claiming they violate the
Americans with Disabilities Act of 1990 and the
Administrative Procedure Act. The company also asserts the
Commission had no legal basis for skipping core rulemaking
steps in its hurry to set forth the rules. We agree with most of
3
Sorenson’s arguments and therefore grant its petitions for
review.
I
Title IV of the Americans with Disabilities Act of 1990
requires the Federal Communications Commission (“FCC” or
“the Commission”) to arrange for telecommunications relay
services (TRS) that are “functionally equivalent to the ability
of a hearing individual who does not have a speech
disability.” 47 U.S.C. §§ 225(a)(3), 225(b)(1). To carry out
this directive, the FCC created a TRS Fund, collecting
contributions from common carriers and other
communications companies. See 47 C.F.R.
§ 64.604(c)(5)(iii)(A). The Commission uses this Fund to
compensate TRS providers for their services; rates range from
$1.2855 per minute to $6.2390 per minute, depending on the
kind of service provided.
One type of TRS service is the Internet Protocol
Captioned Telephone Service (IP CTS), which uses the
Internet to transmit phone conversations and captioned
messages between hearing-impaired users, third-party callers,
and relay operators. See generally FED. COMMC’NS COMM’N,
Internet Protocol (IP) Captioned Telephone Service, available
at https://www.fcc.gov/guides/internet-protocol-ip-captioned-
telephone-service. IP CTS providers are compensated at a
rate of $1.7877 per minute, and prior to the rulemakings at
issue, they served a population of about 150,000 users.
Sorenson Communications is an IP CTS provider.
Unlike its competitors, who generally require their users to
4
purchase a phone,1 Sorenson provided its phones to customers
at no charge. This led to the belief that Sorenson’s unusual
method of expanding its market presence resulted in a strain
on the TRS fund, with actual disbursements to providers far
exceeding projected amounts.
On January 25, 2013, the FCC released an Interim Order,
without notice and comment, promulgating several interim
rules. Misuse of Internet Protocol (IP) Captioned Telephone
Service (“Interim Order”), 28 F.C.C. Rcd. 703 (2013). It cited
the potential for Fund depletion caused by IP CTS misuse as
“good cause” for bypassing the notice-and-comment
requirements of the Administrative Procedure Act (APA). Id.
at 703 ¶ 1. Of the rules promulgated in the Interim Order, two
are pertinent to this appeal. First, the Commission required
all new users to register and self-certify their hearing loss, but
only if the provider sold the IP CTS equipment for $75 or
more. If the phone was distributed for free or for less than
$75, the FCC required users to submit third-party professional
certification of their hearing impairment. Id. at 718–19 ¶¶ 24,
25. Second, all IP CTS capable phones were to be distributed
with the captions turned off; users were to activate the
captioning feature for each call as needed. Id. at 722 ¶ 33.
Commissioner Pai dissented in part, questioning whether self-
certification would actually deter fraud and misuse. Sorenson
petitioned for review of the Interim Order on April 8, 2013.
The FCC issued a Final Order on August 26, 2013, which
made permanent—after notice and comment—most of the
rules promulgated in the Interim Order. Misuse of Internet
Protocol (IP) Captioned Telephone Service (“Final Order”),
1
Certain income-eligible users can receive low-cost or no-cost
equipment through state-run programs. These phones are not at
issue in this case.
5
28 F.C.C. Rcd. 13,420 (2013). It tweaked the price-floor rule,
eliminating the option to be certified by a third-party
professional; instead, all phones were to cost $75 or more to
be eligible for TRS reimbursement, unless the phone was
distributed through a state-run program (“the $75 Rule”). As
for the default captions rule, the Commission added an
exception: all IP CTS-capable phones were to be distributed
with captions turned off by default, unless the user applied for
an exemption based on a certification by an independent
professional that the user was either too physically or
mentally disabled to turn captions on manually (“the Default-
Off Rule”). Sorenson petitioned this court for review of the
Final Order on September 6, 2013.
II
We begin by examining whether the Commission had
good cause for bypassing notice and comment in
promulgating the Interim Order.2 An agency can bypass the
notice-and-comment requirement of the APA when it “for
good cause finds . . . that notice and public procedure thereon
are impracticable, unnecessary, or contrary to the public
interest.” 5 U.S.C. § 553(b)(3)(B).
But first, the standard of review. We have never
expressly articulated the scope of our review in evaluating an
2
Although the Final Order has superseded the Interim Order,
Sorenson’s challenge to the latter is not moot. The company’s
failure to comply with the terms of the Interim Order resulted in it
being denied compensation for its provision of IP CTS services.
See Oral Arg. Tr. at 12:17–25. Sorenson’s provider compensation
is a “legally cognizable interest in the outcome,” see Larsen v. U.S.
Navy, 525 F.3d 1, 3–4 (D.C. Cir. 2008), and vacatur would provide
an “effective remedy,” see Conservation Force, Inc. v. Jewell, 733
F.3d 1200, 1204 (D.C. Cir. 2013).
6
agency’s invocation of good cause. The Commission claims
it is entitled to some measure of deference. We are not
persuaded.
To accord deference would be to run afoul of
congressional intent. From the outset, we note an agency has
no interpretive authority over the APA, see Envirocare of
Utah, Inc. v. NRC, 194 F.3d 72, 79 n.7 (D.C. Cir. 1999); we
cannot find that an exception applies simply because the
agency says we should. Moreover, the good-cause inquiry is
“meticulous and demanding.” N.J. Dep’t of Envt’l Protection
v. EPA, 626 F.2d 1038, 1046 (D.C. Cir. 1980). Our caselaw
indicates we are to “narrowly construe[]” and “reluctantly
countenance[]” the exception. See Mack Trucks, Inc. v. EPA,
682 F.3d 87, 93 (D.C. Cir. 2012) (citations omitted).
Deference to an agency’s invocation of good cause—
particularly when its reasoning is potentially capacious, as is
the case here—would conflict with this court’s deliberate and
careful treatment of the exception in the past. Therefore, our
review of the agency’s legal conclusion of good cause is de
novo.3
The Commission suggests notice and comment were
impracticable. Impracticability is an “inevitably fact-or-
context dependent” inquiry. See Mid-Tex Elec. Coop. v.
FERC, 822 F.2d 1123, 1132 (D.C. Cir. 1987). In the past, we
have approved an agency’s decision to bypass notice and
comment where delay would imminently threaten life or
physical property. See, e.g., Jifry v. FAA, 370 F.3d 1174,
1179 (D.C. Cir. 2004) (upholding assertion of good cause
when rule was “necessary to prevent a possible imminent
3
Of course, we defer to an agency’s factual findings and expert
judgments therefrom, unless such findings and judgments are
arbitrary and capricious.
7
hazard to aircraft, persons, and property within the United
States”); Council of the S. Mountains, Inc. v. Donovan, 653
F.2d 573, 581 (D.C. Cir. 1981) (noting the case was one of
“life-saving importance” involving miners in a mine
explosion); see also Jifry, 370 F.3d at 1179 (observing the
good-cause exception should be invoked only in “emergency
situations . . . or where delay could result in serious harm”
(emphasis added)). This is no such case.
The Commission cited—and continues to cite—the threat
of impending fiscal peril as cause for waiving notice and
comment. Curiously, however, there were no factual findings
supporting the reality of the threat. Instead, the agency
speculatively stated “absent Commission action, there could
be insufficient funds available . . . to meet the needs of the
Fund.” Interim Order, 28 F.C.C. Rcd. at 707 (emphasis
added). Commissioner Pai, dissenting in part from the
Commission’s decision, helped fill in some of the blanks:
$128 million had been allocated and collected for the 2012-
2013 fiscal year, but the Fund had already paid out $70
million within the first six months. See id. at 750–51. This,
he explained, would have created an unsustainable payout
rate, leaving the Fund with obligations somewhere in between
$108 and $159 million for the remainder of the year. See id.
at 751.
Cause for concern? Perhaps. But hardly a crisis.
Though we do not exclude the possibility that a fiscal
calamity could conceivably justify bypassing the notice-and-
comment requirement, this case does not provide evidence of
such an exigency. The Commission’s record is simply too
scant to establish a fiscal emergency. It does not reveal when
the Fund was expected to run out of money, whether the Fund
would have run out of money before a notice-and-comment
period could elapse, or whether there were reasonable
8
alternatives available to the Commission, such as temporarily
raising Fund contribution amounts or borrowing in
anticipation of future collections. Though no particular
catechism is necessary to establish good cause, something
more than an unsupported assertion is required. Lacking
record support proving the emergency, we hold the
Commission erred in promulgating the Interim Order without
notice and comment.4
III
Sorenson asserts the $75 Rule and the Default-Off Rule
violate the ADA and the APA. We need not go beyond the
APA challenge. Under the arbitrary-and-capricious standard,
an agency “must examine the relevant data and articulate a
satisfactory explanation for its action including a rational
connection between the facts found and the choice made.”
Motor Vehicles Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co.,
463 U.S. 29, 43 (1983) (internal quotation marks omitted).
“Normally, an agency rule would be arbitrary or capricious if
the agency has relied on factors which Congress has not
intended it to consider, entirely failed to consider an important
aspect of the problem, offered an explanation for its decision
that runs counter to the evidence before the agency, or is so
implausible that it could not be ascribed to a difference in
view or the product of agency expertise.” Id.
4
The agency also claims a notice-and-comment period would have
been contrary to the public interest. See Respondents’ Br. at 24; see
also Mack Trucks, 682 F.3d at 94–95. To the extent that the
Commission argues a delay in action would have resulted in harm
to the public fisc, we remain unconvinced for the same reasons that
we find notice and comment practicable.
9
A
The Final Order requires new subscribers to pay at least
$75 for their IP CTS-capable phone, unless the phone is
provided by a state-run program. This rule is mystifying.
The Commission claims the $75 Rule will deter fraudulent
acquisition and use of IP CTS equipment. Yet the agency
offers no evidence suggesting there is fraud to deter. Nor is
there anything in the record demonstrating how a price point
of $75 would deter fraud even if it existed.
It is difficult to pinpoint the exact genesis of the $75
Rule. It appears the idea of a price floor was first suggested
by one of Sorenson’s competitors—Hamilton Relay—in an ex
parte communication to the Commission. See Letter from
David A. O’Connor, Counsel for Hamilton Relay, Inc., to
Marlene H. Dortch, Esq., Secretary of the Federal
Communications Commission, at 1 (Jan. 10, 2013) (“For
example, the Commission could adopt a bifurcated eligibility
standard, such that any consumer who accepts a free or de
minimis cost IP CTS telephone must provide a certification . .
. whereas any consumer who legitimately purchases an IP
CTS telephone for less [sic] than de minimis cost would self-
certify, because the user has already demonstrated through his
or her purchase that the IP CTS telephone is needed.”).5
Despite the fact that the ex parte letter offered no evidence
showing the necessity or efficacy of a price floor, the
Commission heavily relied on it in promulgating the interim
version of the $75 Rule. Indeed, of the seventeen citations
concerning the rule in the Interim Order, at least four refer
5
We assume Hamilton Relay meant to recommend self-
certification for consumers who purchase IP CTS phones for more
than de minimis cost.
10
either to Hamilton Relay’s recommendation or an internal
analysis thereof. And the Interim Order, in turn, provided the
Commission with much of its justification for enacting the
final $75 Rule; the Commission cited it repeatedly in issuing
the Final Order. The only additional observations produced
during the intervening notice-and-comment period came in
the form of conjecture, particularly by Sorenson’s
competitors. See, e.g., J.A. at 287–88 (commenting, on behalf
of Sprint, that Sorenson’s distribution of free IP CTS-capable
phones “placed the provision of IP CTS service on a slippery
slope that could lead to the same types of questionable and
outright fraudulent activities that have plagued the VRS
segment of the market for years”); see also Comments of
Purple Communications at 6 (Feb. 26, 2013) (speculating that
an ineligible user who does not need IP CTS equipment might
use it because “the equipment functions like a regular phone”
and could be placed “in settings where other non-eligible
users may access and use it”). Based on our review of the
record, it appears the Commission’s rule relies on one
unsubstantiated conclusion heaped on top of another.
As Commissioner Pai explained in his dissent to the
Interim Order, it is difficult to see how the $75 Rule will help
“curtail waste, fraud, and abuse.” See Interim Order, 28
F.C.C. Rcd. at 751. “[V]irtually anyone who wants IP CTS
can get it, even if they do not need it. . . . If a consumer pays
at least $75 for IP CTS equipment, he or she does not have to
obtain any certification . . . to be eligible for free IP CTS
service.” Id. at 751–52. Though we understand the
Commission’s reasons for abandoning the third-party
certification process that formed part of the interim version of
the $75 Rule, we are still left with no evidence about the
necessity of the price floor.
11
Put simply, our review of the record leaves us with more
questions than answers. First, where is the evidence that IP
CTS technology is being fraudulently used? Second, where is
the proof of the causal relationship between the establishment
of a price floor and the deterrence of fraudulent IP CTS use?
Third, how did the Commission arrive at the target price of
$75?
The Commission responds that it may rely on its
predictive judgment to ignore these questions. Though “an
agency’s predictive judgments about the likely economic
effects of a rule” are entitled to deference, see Nat’l Tel.
Coop. Ass’n v. FCC, 563 F.3d 536, 541 (D.C. Cir. 2009),
“deference to such . . . judgment[s] must be based on some
logic and evidence, not sheer speculation,” Verizon v. FCC,
740 F.3d 623, 663 (D.C. Cir. 2014) (Silberman, J., concurring
in part and dissenting in part). The Commission may hoist the
standard of common sense, of course, but the wisdom of
agency action is rarely so self-evident that no other
explanation is required. See Checkosky v. S.E.C., 23 F.3d
452, 463 (D.C. Cir. 1994) (noting that, in Tex Tin Corp. v.
EPA, 935 F.3d 1321 (D.C. Cir. 1991), we declined to affirm
“the agency’s decision to place a hazardous waste facility on
the National Priorities List” on common sense alone,
remanding the case to the EPA “for a better explanation
before finally deciding that the agency’s action was arbitrary
and capricious”). As the Commission failed to “articulate a
satisfactory explanation for its action,” we deem the
promulgation of the $75 Rule arbitrary and capricious. See
State Farm, 463 U.S. at 43.
B
We are similarly troubled by the Commission’s
requirement that IP CTS phones “have a default setting of
12
captions off, so that all IP CTS users must affirmatively turn
on captioning.” J.A. at 130. This rule is not only unsupported
by the evidence, but contradicted by it.
When the Commission enacted the interim version of the
Default-Off Rule, it acknowledged one study showed “those
states that require a captions-off default setting for intrastate
CTS actually have a slightly higher average number of
minutes of use compared with the states that permit the
default to be captions on.” J.A. at 19. During notice and
comment for the final rule, various stakeholders complained
about the rule based on their experience with the interim
version. Hamilton Relay, for instance, suggested revisiting
the necessity of the rule, as “[t]he consumers’ loss of . . .
efficiency and functionality may [have] outweigh[ed]
whatever benefits [were] derived from the restriction.” J.A. at
219–20. Ultratec, another IP CTS provider, even presented
historical data suggesting there was “no evidence of fraud or
misuse of IP CTS” as a result of a captions-on default. J.A. at
311. In fact, it remarked “there is at least some evidence that
a ‘default off’ requirement does not impact . . . captioned
telephone usage patterns when [equipment on the customer’s
premises] is initially distributed with the default on or with
the default off.” Id. Consumers, for their part, also expressed
their dismay over the rule, calling it “highly disruptive.” J.A.
at 95.
And yet, despite the chorus of businesses and consumers
opposing continued implementation of the rule, the
Commission kept it intact. The disruptiveness, it claimed,
would simply go away. See J.A. at 97–98 (explaining the
Commission “anticipate[d] that most concerns will subside
over time as default off becomes familiar”). As for the
quantitative data presented by Ultratec and others, the
Commission acknowledged a dearth of evidence to prove
13
fraudulent use. See J.A. at 97 (“[W]e are unable to quantify
the amount of IP CTS usage attributable to casual or
inadvertent use of captions . . . .”). It instead pointed to
evidence suggesting a decline in IP CTS usage after it
implemented the interim version of the Default-Off Rule, see
id., which, of course, reveals nothing about the decline in
fraudulent use.
The Commission also cited a research study which
showed “50 percent [of surveyed users who share their
telephones with persons without hearing loss stated] that those
with whom the phone is shared never turn off captions, while
another 25 percent said that the sharers only sometimes turn
off captions.” J.A. at 97 n.311. These numbers, however,
must be put into context. What the Commission neglected to
mention is that the cited sub-sample was only eight percent
(164 individuals) of the surveyed CTS-using population
(2,014 users). J.A. at 335, 351. In other words, the vast
majority of surveyed users did not share their phones at all,
and not all users who shared their phones posed a danger of IP
CTS misuse. Moreover, the Commission failed to address the
study’s ultimate conclusion that “this survey of . . . special
captioned telephone users does not support either fraud or
misuse as the source of growth in IP CTS.” J.A. at 356.
So, like the $75 Rule, the Default-Off Rule was intended
to defeat a bogeyman whose existence was never verified, i.e.,
the fraudulent use of IP CTS technology. But unlike its
counterpart, the Default-Off Rule did not want for evidence;
instead, there was contrary evidence questioning its efficacy
and necessity. The Commission left these serious concerns
unaddressed. Accordingly, its decision to implement the
Default-Off Rule was arbitrary and capricious. See El Rio
Santa Cruz Neighborhood Health Ctr., Inc. v. U.S. Dep’t of
14
Health and Human Servs., 396 F.3d 1265, 1278 (D.C. Cir.
2005).
IV
As we resolve both challenges on APA grounds, we need
not reach the question of whether the two rules run afoul of
Title IV of the Americans with Disabilities Act. See PDK
Labs. Inc. v. U.S. Drug Enforcement Admin., 362 F.3d 786,
799 (D.C. Cir. 2004) (Roberts, J., concurring in part and
concurring in the judgment) (“[I]f it is not necessary to decide
more, it is necessary not to decide more . . . .”). To the extent
that Sorenson challenges other rules on various grounds, e.g.,
the First Amendment, we decline to entertain these
arguments.6 See Davis v. Pension Benefit Guar. Corp., 734
F.3d 1161, 1166–67 (D.C. Cir. 2013) (“[I]t is not enough
merely to mention a possible argument in the most skeletal
way, leaving the court to do counsel’s work, create the
ossature for the argument, and put flesh on its bones.”).
Sorenson asks us to vacate the entire Final Order, but we
see no need to do so. Nothing suggests the unchallenged
rules, e.g., the labeling requirement and the marketing
restrictions, could not “function sensibly without the stricken
provision.” See MD/DC/DE Broad. Ass’n v. FCC, 236 F.3d
13, 22 (D.C. Cir. 2001). The Final Order therefore need not
be invalidated in its entirety.
6
Cutting to the chase, Sorenson would like to be rid of the
marketing restrictions of the Final Order. Because the issues
surrounding the rules were not properly presented to us, we have no
opinion concerning whether the restrictions were properly
promulgated in accordance with the ADA, the APA, and the First
Amendment.
15
The petitions for review are granted. We vacate the
entire Interim Order, as there was no good cause for
bypassing notice and comment. We also vacate the $75 Rule
and the Default-Off Rule contained in the Final Order, but we
leave the remainder intact. We remand to the Commission for
further proceedings.
So ordered.