Sorenson Commc'ns, LLC v. Fed. Commc'ns Comm'n

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 7, 2018 Decided July 24, 2018
No. 17-1198
SORENSON COMMUNICATIONS, LLC,
PETITIONER
v.
FEDERAL COMMUNICATIONS COMMISSION AND UNITED
STATES OF AMERICA,
RESPONDENTS
Consolidated with 17-1202
On Petitions for Review of an Order of
the Federal Communications Commission
Donald B. Verrilli Jr. argued the cause for petitioner
Sorenson Communications, LLC. With him on the briefs were
Michael B. DeSanctis, Ginger D. Anders, Sarah G. Boyce, and
Rachel G. Miller-Ziegler.
Anthony C. Kaye argued the cause for petitioner Video
Relay Services Consumer Association. With him on the briefs
was Daniel J. Tobin.
2
C. Grey Pash Jr., Counsel, Federal Communications
Commission, argued the cause for respondents. With him on
the brief were Robert B. Nicholson and Robert J. Wiggers,
Attorneys, U.S. Department of Justice, Thomas M. Johnson,
Jr., General Counsel, Federal Communications Commission,
David M. Gossett, Deputy General Counsel, and Jacob M.
Lewis, Associate General Counsel. Richard K. Welch, Deputy
Associate General Counsel, Federal Communications
Commission, entered an appearance.
Jeffrey T. Rosen, pro hac vice, argued the cause for amici
curiae Convo Communications, LLC, et al. With him on the
brief was George L. Lyon Jr.
Before: GRIFFITH, MILLETT, and PILLARD, Circuit Judges.
Opinion for the Court filed by Circuit Judge GRIFFITH.
GRIFFITH, Circuit Judge: Video Relay Service (VRS)
enables people with hearing or speech impairments to
communicate with people who use standard telephones. The
VRS user communicates in sign language with an interpreter
through a video connection, and the interpreter speaks with the
hearing person using a standard phone. VRS is provided by
several private companies who are reimbursed through rates set
by the Federal Communications Commission (FCC). Two
parties bring different challenges to the rates set by the FCC in
2017: Sorenson Communications, LLC (“Sorenson”), the
largest VRS provider, and the Video Relay Services Consumer
Association (VRSCA), an unincorporated information forum
for VRS users. We dismiss VRSCA’s petition for lack of
standing and deny Sorenson’s petition on the merits.
3
I
A
The Americans with Disabilities Act directs the FCC to
ensure that telecommunications services are available and
accessible to people with hearing or speech impairments. See
Pub. L. No. 101-336, tit. IV, § 401, 104 Stat. 327, 366 (1990)
(codified as amended at 47 U.S.C. § 225). These services are
broadly known as telecommunications relay services (TRS),
which enable a person who is “deaf, hard of hearing, deaf-
blind, or who has a speech disability to engage in
communication by wire or radio . . . in a manner that is
functionally equivalent to the ability of a hearing individual
who does not have a speech disability to communicate using
voice communication services by wire or radio.” 47 U.S.C.
§ 225(a)(3) (emphasis added). The FCC must also ensure that
TRS is “available, to the extent possible and in the most
efficient manner,” to people with hearing and speech
disabilities. Id. § 225(b)(1) (emphasis added). The dispute in
this case ultimately turns on whether the FCC’s compensation
rates for TRS comply with § 225’s mandate to provide
functionally equivalent communication services in the most
efficient manner.
There are several types of TRS, but only one is relevant
here. VRS “allows people with hearing or speech disabilities
who use sign language to communicate with voice telephone
users through video equipment.” 47 C.F.R. § 64.601(a)(43).
VRS video equipment functions somewhat like Skype or
Apple’s FaceTime by providing a visual connection between
the caller and an American Sign Language (ASL) interpreter
who is employed by the VRS provider. The interpreter then
makes a standard voice call to the hearing recipient and
translates between the two, signing with the caller and speaking
4
with the recipient. See generally Sorenson Commc’ns, Inc. v.
FCC (“Sorenson I”), 659 F.3d 1035, 1039 (10th Cir. 2011);
Sorenson Commc’ns, Inc. v. FCC (“Sorenson II”), 765 F.3d 37,
40 (D.C. Cir. 2014). Ultimately, there are three interacting
components: VRS access technologies, such as a videophone;
the video communication “platform” that routes calls; and the
relay service provided by ASL-fluent communications
assistants. Order, Structure & Practices of the Video Relay
Serv. Program, 28 FCC Rcd. 8618, 8621 (2013) (“2013
Order”).
Today, the majority of VRS is provided by several private
companies, all of which are involved in this case as either
petitioner or amicus curiae. Sorenson is the dominant VRS
provider, holding approximately 80% of the market since at
least 2013. The four other VRS providers, two of which
recently merged, share the remaining 20% of the market and
are amici in this case. 1
The VRS market is not a traditional competitive market.
Under § 225, VRS users do not pay any additional costs for
VRS beyond what they would pay for standard telephone
services. See 47 U.S.C. § 225(d)(1)(D). Instead of charging
users for the additional cost of VRS, providers are compensated
through the FCC’s Interstate TRS Fund (“TRS Fund”), which
is supported by fees levied on telecommunications services.
1
ZVRS Holding Company owns two VRS subsidiaries:
CSDVRS, LLC d/b/a ZVRS (“ZVRS”) and Purple Communications,
Inc. (“Purple”), the latter of which it acquired in February 2017,
though the integration is not yet complete. Collectively, ZVRS and
Purple account for 17% of the VRS market. The two other VRS
providers, ASL Services Holdings, LLC d/b/a GlobalVRS and
Convo Communications, LLC, collectively make up about 3% of the
market.
5
See id. § 225(d)(3)(B); 47 C.F.R. § 64.604(c)(5)(iii)(A). The
FCC sets a per-minute rate to reimburse VRS providers for
their “reasonable costs” and then makes direct payments to the
providers from the TRS Fund based on their total number of
minutes. 47 C.F.R. § 64.604(c)(5)(iii)(E). Under the current
rate structure, Sorenson is also the lowest-cost provider of
VRS, meaning that the average VRS call with Sorenson is
cheaper for the TRS Fund than the average call with other
providers.
To receive compensation, VRS providers must comply
with certain operational and customer-service requirements,
called “mandatory minimum standards.” Id. § 64.604. These
requirements are wide-ranging, for instance specifying the
technical types of calls that providers must handle; establishing
the process for addressing customer complaints; and requiring
ASL interpreters to have “familiarity with hearing and speech
disability cultures, languages, and etiquette.” Id. The FCC
promotes compliance with these standards through various
techniques, including competition among VRS providers.
B
1
Before 2007, the FCC set a single per-minute
compensation rate based on all VRS providers’ projections of
their costs for the upcoming year. See Telecomms. Relay Servs.
& Speech-to-Speech Servs. for Individuals with Hearing &
Speech Disabilities, 22 FCC Rcd. 20,140, 20,144-45 (2007)
(“2007 Order”). That approach proved problematic, however,
so the FCC established a three-tiered rate structure in 2007. Id.
at 20,163, 20,168. This structure compensated VRS providers
based on the total number of monthly minutes they projected
they would provide. As a provider’s volume increased, the per-
6
minute rate decreased to account for the provider’s lower
marginal costs as it benefited from economies of scale. Id. at
20,163, 20,168. 2 Thus smaller providers largely received Tier
I compensation, which compensates at the highest rate; more
established providers mostly received compensation under
Tiers I and II; and dominant providers (today, only Sorenson)
received compensation under all three tiers, earning relatively
less for the minutes provided in Tier III.
In 2010, the FCC established an interim three-tiered rate
structure for one year. See Order, Telecomms. Relay Servs. and
Speech-to-Speech Servs. for Individuals with Hearing and
Speech Disabilities, 25 FCC Rcd. 8689 (2010) (“2010 Interim
Rate Order”). The rates were designed as a placeholder until
the FCC completed a review of the VRS program, which was
experiencing several challenges. Id. at 8693. In particular, the
FCC determined that VRS providers were being “significantly
overcompensated,” id. at 8698, because their “projections
consistently overstate[d] their costs,” id. at 8694-95. To
address this problem, the FCC based the interim rates on a
blend of providers’ actual historical costs and the TRS Fund
administrator’s analysis of providers’ projected costs. Id.
Sorenson sought judicial review of the 2010 Interim Rate
Order in the Tenth Circuit, and that court affirmed the FCC’s
order in its entirety. Sorenson I, 659 F.3d 1035. The court
rejected Sorenson’s various challenges to the VRS rates, the
FCC’s ratemaking methodology, and the three-tiered rate
structure. Id. at 1050. As relevant here, the court also upheld
2
The compensation rates were set at: $6.77 per minute for a
provider’s first 50,000 minutes of monthly VRS service (Tier I);
$6.50 for minutes 50,001-500,000 (Tier II); and $6.30 for all minutes
over 500,000 (Tier III). See 2007 Order, 22 FCC Rcd. at 20,164.
7
the FCC’s decision to exclude the cost of providing VRS video
equipment from providers’ compensable expenses. Id. at 1045.
On the same day that the FCC adopted the 2010 Interim
Rate Order, the agency also issued a notice that it would “take
a fresh look” at VRS rates because of its concern that the VRS
program was “fraught with inefficiencies (at best) and
opportunities for fraud and abuse (at worst).” Notice of Inquiry,
25 FCC Rcd. 8597, 8598, 8606 (2010). In 2011, the FCC issued
an additional notice that discussed possible options for
improving the VRS program and solicited comments and
proposals from the public and VRS industry. See Further
Notice of Proposed Rulemaking, 26 FCC Rcd. 17,367 (2011)
(“2011 FNPRM”). In particular, the FCC sought comments on
whether the agency should replace the tiered-rate structure with
a single rate. See id. at 17,418.
2
In 2013, the FCC issued an order that adopted a number of
structural reforms for the VRS market. See 2013 Order, 28 FCC
Rcd. 8618. These reforms were designed to remove barriers to
effective competition among VRS market participants. One
structural reform sought to improve VRS “interoperability.”
Interoperability ensures that VRS users can make calls with
other VRS users regardless of their respective VRS providers.
See id. at 8639. Another structural reform sought to improve
“equipment portability,” which refers to a VRS user’s ability
to switch between default VRS providers without changing
their videophones. See id. The agency further adopted a rule to
establish a neutral video communications platform (“Neutral
VRS Platform”), which would provide technical video
capabilities for companies who might want to provide only
ASL translation services instead of an entire VRS operation.
See id. at 8656-63.
 8
The 2013 Order also updated the tiered-rate structure with
new rates. The FCC designed the new tiers in light of its finding
that Sorenson’s average cost per minute still fell below the
average per-minute cost of its smaller competitors. See id. at
8700. The calls were cheaper on average because, for one
thing, Sorenson was able to spread its overhead costs over
many more minutes of service. Due to this cost difference, the
agency stated that it hoped to transition the VRS market away
from the tiered-rate structure and toward a single, low rate in
the future. Id. at 8698-706. The FCC expected that its new
structural reforms would make such a transition possible
without “unnecessarily constricting the service choices
available to VRS consumers” by driving smaller providers out
of the market. Id. at 8699; see also id. at 9698 (“We also believe
that our structural reforms, once implemented, will eliminate
any residual need for tiered rates.”).
To advance the transition to a single rate, the agency
planned to narrow the gap between rate tiers over the course of
four years. Id. at 8699. By using this “glide path,” the agency
hoped to eliminate the inefficiencies of the tiers while still
protecting the long-term competitiveness and efficiency of the
market. See id. at 8704. Even though immediately adopting a
single, low rate might have brought some immediate savings to
the TRS Fund, the FCC found that it was “worth tolerating
some degree of additional inefficiency in the short term, in
order to maximize the opportunity for successful participation
of multiple efficient providers in the future, in the more
competition-friendly environment that [it] expect[ed] to result
from [its] structural reforms.” Id. at 8699. And finally, the 2013
Order rejected once again Sorenson’s request to include video
equipment as an allowable cost in determining VRS rates. Id.
at 8696-97.
 9
Sorenson petitioned our court to review the 2013 Order.
We largely upheld the order, remanding only one issue that is
not relevant today. See Sorenson II, 765 F.3d at 52. We first
found that several of Sorenson’s challenges essentially
repeated arguments it had already made before the Tenth
Circuit in Sorenson I and were thus barred by issue preclusion.
These included its claim that the FCC was required to adopt
rates that reimbursed VRS providers for equipment costs. See
id. at 45. We otherwise concluded that the tiered-rate structure,
the applicable rules, and the rates themselves were consistent
with § 225 and were not arbitrary and capricious. See id. at 45-
52. Despite Sorenson’s protests that the FCC had already
determined the tiered-rate structure to be inefficient, we
concluded that “the decision to retain the tiers while
transitioning to a competitive bidding scheme [was] not
inconsistent with the [FCC’s] stated position” in the 2013
Order. Id. at 51. And we said we would “defer to the agency’s
judgment about how best to achieve a smooth transition to
competitive bidding.” Id. at 52.
C
In 2017, after issuing a further notice and accepting
proposals from Sorenson and the other providers, see Further
Notice of Proposed Rulemaking, 32 FCC Rcd. 2436 (2017)
(“2017 FNPRM”), the FCC decided to retain a tiered-rate
structure for four more years, Order, Structure & Practices of
the Video Relay Serv. Program, 32 FCC Rcd. 5891 (2017)
(“2017 Order”). That order gave rise to the dispute before us
today.
In the 2017 Order, the FCC observed that the VRS market
had not changed much since its 2013 Order. Sorenson still
controlled 80% of the market, and the smaller providers had
not grown enough to achieve “the necessary scale to compete
10
effectively.” 2017 Order, 32 FCC Rcd. at 5893. And although
two of the smaller providers merged—potentially creating a
stronger competitor against Sorenson—it was too soon to
assess the success of the merger. The FCC had anticipated in
its 2013 Order that its structural reforms would enable multiple
VRS providers to remain in the market without a tiered-rate
system; however, that prediction was undercut by the delayed
implementation of some reforms and the failure of others. See
id. at 5905-06; see also 2017 FNPRM, 32 FCC Rcd. at 2474.
The interoperability standards were not incorporated into the
FCC’s rules until 2017, 2017 Order, 32 FCC Rcd. at 5905, the
equipment portability mandate was similarly delayed, id. at
5905-06, and the agency had received no acceptable bids to
develop the Neutral VRS Platform, id. at 5930-31. In light of
the market’s then-current state, the FCC concluded that the
“best available alternative at present” for establishing rates for
the next four years was to maintain a tiered-rate structure. Id.
at 5905-08; see also 2017 FNPRM, 32 FCC Rcd. at 2469-79.
The FCC ultimately provided two main statutory
rationales for retaining the tiers. First, keeping that structure
would help ensure that multiple VRS providers remained in the
market, which in turn would advance the “functional
equivalence” of VRS. 2017 Order, 32 FCC Rcd. at 5907-09.
Maintaining multiple providers enhances functional
equivalence by giving VRS users the choice to select among
multiple providers, just as voice telephone users are able to do.
It also provides a competitive incentive for the dominant
provider to “maintain higher standards of service quality than
if it faced no competition.” Id. at 5907; see also id. at 5909
(“Further attrition [of providers] . . . would further limit the
ability of consumers to select providers based on service
quality and features . . . eroding the [FCC’s] ability to ensure
the availability of functionally equivalent service.”). In other
words, competition is a technique that can help ensure
11
compliance with some of the service-quality requirements
outlined in the mandatory minimum standards. In addition, the
agency noted that retaining multiple providers through the
tiered-rate structure “provides a competitive incentive to
improve VRS offerings.” Id. at 5907. For instance, some of the
smaller providers have developed services to meet the “needs
of niche populations, including people who are deaf-blind or
speak Spanish.” Id. at 5909-10, 5916-17 & n.153. Given all
these benefits, the FCC concluded that retaining the tiered-rate
structure may be justifiable on functional equivalency
considerations alone, even if it resulted in somewhat reduced
efficiency. Id. at 5909.
As a second rationale, the FCC concluded that retaining
the tiers actually advanced the statute’s efficiency mandate as
well. The agency reasoned that its efficiency mandate required
it to look beyond “short-term savings in an accounting sense”
and also consider the “long[-]run” efficiency of the VRS
program. Id. at 5909-10. To promote the long-term health of
the program, the FCC determined it should work to “prevent
the VRS marketplace from devolving into a monopoly,” which
would limit the agency’s ability to “improve efficiency.” Id. at
5910; see also id. at 5907 & n.91, 5909.
For these reasons, the FCC rejected Sorenson’s proposal
of setting a single, uniform rate for all providers. Given the
state of the market, the single-rate approach would require the
agency to choose between two inefficient options: (1) setting a
low uniform rate, which would force all of the smaller
providers out of the market, or (2) adopting Sorenson’s
proposal and setting a higher uniform rate, which might allow
a competitor to stay in the market but would provide windfalls
to Sorenson because of Sorenson’s low average cost for VRS
calls. The first option would yield a Sorenson monopoly; the
second option would result in “greatly increased TRS fund
12
expenditures” because Sorenson’s average compensation per
minute would increase. Id. at 5907. 3 Retaining the tiered-rate
structure, on the other hand, would help “ensure greater
efficiency without sacrificing competition, by tailoring
compensation rates more closely to the costs of those
competitors falling within each tier.” Id. at 5908. In sum,
retaining the tiered-rate structure not only promoted long-term
efficiency by preventing a monopoly, but it was also the most
efficient short-term proposal that was actually presented to the
agency.
After rejecting several alternative proposals, the FCC
established the new tiered-rate structure. First, the agency
added an “emergent rate” for fledgling VRS providers who
deliver fewer than 500,001 minutes per month. Id. at 5916.
Second, the FCC adjusted the rates and number of minutes that
defined the three tiers. Id. at 5918-24. 4 In reaching these rates,
the FCC considered covering providers’ costs, preserving
competition, and minimizing any incentive for providers to
slow their growth as they approached the boundary between
3
The FCC also rejected Sorenson’s proposed rate because it was
based on unreliable projected costs.
4
Under the new plan, the rate for emergent providers is $5.29
per minute. Tier I compensates providers at $4.82 per minute for up
to 1 million minutes per month; Tier II pays $3.97 for minutes 1 to
2.5 million per month; and Tier III pays $3.21 for minutes over 2.5
million per month. The Tier III rates will gradually decline from
$3.21 in 2017 down to $2.63 in 2020. As of now, only Sorenson
provides enough minutes to receive any compensation under Tier III.
But Sorenson still fares well under this scheme. The FCC found that
the lowest Tier III rate ($2.63 per minute in 2020) “is higher than the
average allowable expenses per minute for [Sorenson].” Id. at 5923.
The agency also found that, under its new tiered-rate structure,
Sorenson “is likely to continue earning higher per-minute operating
margins than any of its competitors.” Id. at 5919 n.167.
13
tiers. The new compensation rates are effective from 2017
through 2021. See id. at 5916-24.
The FCC emphasized that it would “revisit the VRS
compensation rate structure” in four years. Report and Order
and Order FCC-17-86A1, J.A. 23. Moreover, the agency
predicted that full implementation of its structural reforms, the
collection and publication of service-quality metrics, and the
agency’s new attention to idiosyncratic anticompetitive
features in the VRS market could enable more effective
competition among VRS providers in the future.
* * *
Two parties petition for review of the 2017 Order,
Sorenson and the VRSCA. Sorenson, as already noted, is the
dominant provider in the VRS market. VRSCA is not a
provider and describes itself as an unincorporated association
that creates “an information forum” for VRS users with a
primary purpose of integrating VRS into daily life. VRSCA Br.
iii. VRSCA notes, “All VRS users may participate in the
organization at no cost and are encouraged to sign up for email
updates,” and over 10,000 individuals have signed up. Id.
VRSCA also informed us that it “receives funding” from
Sorenson. Id. at iv. We asked VRSCA to provide supplemental
briefing to clarify its relationship with Sorenson, and VRSCA
confirmed that Sorenson “provides 100% of VRSCA’s
financial support.” VRSCA Suppl. Br. 2.
II
Sorenson and VRSCA separately seek review of the FCC’s
final rate order. Both parties filed timely petitions for review,
and we have jurisdiction under 47 U.S.C. § 402(a) and 28
14
U.S.C. §§ 2342(1), 2344. As discussed below, Sorenson has
standing to seek review but VRSCA does not.
Under the Administrative Procedure Act (APA), we will set
aside FCC actions that are “arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.” 5 U.S.C.
§ 706(2)(A); see also Motor Vehicles Mfrs. Ass’n of the U.S. v.
State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).
Because “agency ratemaking is far from an exact science and
involves policy determinations in which the agency is
acknowledged to have expertise, courts are particularly
deferential when reviewing ratemaking orders.” Sw. Bell Tel.
Co. v. FCC, 168 F.3d 1344, 1352 (D.C. Cir. 1999) (citations
and internal quotation marks omitted).
For questions of statutory interpretation, we use the
familiar Chevron framework. We first ask whether Congress
has “‘directly spoken to the precise question at issue,’ Chevron
USA Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842
(1984), and if so, whether it has unambiguously foreclosed the
agency’s statutory interpretation.” Catawba County v. EPA,
571 F.3d 20, 35 (D.C. Cir. 2009). If the agency’s interpretation
is not unambiguously foreclosed by the statute, we defer to its
interpretation “so long as it is reasonable.” Id.
III
VRSCA has failed to establish constitutional standing. The
“irreducible constitutional minimum of standing contains three
elements”: (1) the plaintiff must have suffered an injury-in-
fact, (2) there must be a causal connection between the injury
and the conduct challenged, and (3) it must be likely that the
injury will be redressed by a favorable decision. Lujan v. Defs.
of Wildlife, 504 U.S. 555, 560 (1992).
15
VRSCA claims it has “associational standing” to challenge
the FCC’s 2017 Order. An association has standing on behalf
of its members when: “(1) ‘its members would otherwise have
standing to sue in their own right;’ (2) ‘the interests it seeks to
protect are germane to the organization’s purpose;’ and (3)
‘neither the claim asserted nor the relief requested requires the
participation of individual members in the lawsuit.’” Ctr. for
Sustainable Econ. v. Jewell, 779 F.3d 588, 596 (D.C. Cir. 2015)
(quoting Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S.
333, 343 (1977)). Thus, to meet the first requirement for
associational standing, VRSCA must show that at least one of
its members was injured in fact, the injury was caused by the
2017 Order, and the court can redress the injury. Moreover,
“[w]hen a petitioner claims associational standing, it is not
enough to aver that unidentified members have been injured.
Rather, the petitioner must specifically identify members who
have suffered the requisite harm.” Chamber of Commerce of
the U.S. v. EPA, 642 F.3d 192, 199-200 (D.C. Cir. 2011)
(citations and internal quotation marks omitted).
In its opening brief, VRSCA failed to identify a specific
member who had been injured by the 2017 Order. Instead,
VRSCA broadly asserted that “any individual member of
VRSCA . . . would have standing to sue in his or her own right
as a VRS user.” VRSCA Br. 8. After the FCC challenged
VRSCA’s standing, VRSCA stated in its reply brief that its
director, Sharon Hayes, is a member who is deaf and uses VRS.
See VRSCA Reply Br. 2-6.
VRSCA’s argument for standing fails to comply with our
procedural requirements set out in Sierra Club v. EPA, 292
F.3d 895, 899-900 (D.C. Cir. 2002). Sierra Club distilled
certain procedural ground rules for petitioners to establish
standing to challenge an agency decision. Petitioners must
substantiate their claim of standing “with the manner and
16
degree of evidence required at the successive stages of the
litigation.” Id. at 899 (quoting Lujan, 504 U.S. at 561). When
a petitioner seeks direct judicial review of an agency decision,
the court examines the petitioner’s standing as it would at
summary judgment—in other words, “the petitioner must
either identify in th[e] record evidence sufficient to support its
standing to seek review or, if there is none because standing
was not an issue before the agency, submit additional evidence
to the court of appeals.” Id. Frequently, this requirement poses
no problem because in “many if not most cases the petitioner’s
standing to seek review of administrative action is self-
evident.” Id. However, when a petitioner’s standing is not
“clear” or “self-evident” on the face of its petition, the
petitioner is required to address its standing in its opening brief.
Id. at 900; see also Nat’l Ass’n of Regulatory Util. Comm’rs v.
FCC, 851 F.3d 1324, 1327 (D.C. Cir. 2017) (per curiam).
VRSCA’s standing was far from self-evident in its initial
filings; to the contrary, VRSCA’s standing presented multiple,
interrelated difficulties that it entirely failed to address. For
example, it is unclear if VRSCA is the sort of organization that
would qualify as a “membership association” for purposes of
our standing analysis. Am. Legal Found. v. FCC, 808 F.2d 84,
89-90 (D.C. Cir. 1987). Even in light of its supplemental
briefing after oral argument, VRSCA appears to lack many of
the “indicia of a traditional membership” association, such as a
membership that finances the association’s activities or plays a
role in selecting its leadership. See id. Its reply brief and post-
argument submission instead invoke as “members” the passive
subscribers to its e-mail list and individuals who “follow” the
group’s Facebook page. But see Gettman v. Drug Enf’t Admin.,
290 F.3d 430, 435-36 (D.C. Cir. 2002) (holding that a
magazine’s readers and subscribers were not its members for
purposes of associational standing). And we now are told that
Sorenson “provides 100% of VRSCA’s financial support,”
17
VRSCA Suppl. Br. 2, which casts further doubt on VRSCA’s
status as a constitutionally viable representative of the interests
of its “members.” 5
VRSCA’s standing is further complicated by numerous
unanswered questions about the nature of the injury to its
director Sharon Hayes, the only individual “member” it now
identifies as having standing in her own right. Various
documents in the administrative record allowed us to discern
that Hayes is personally deaf, a user of VRS, and the director
of VRSCA. But the association made no argument that the rates
set in the 2017 Order adversely affected her service, costs, or
access to needed equipment, or that the rates injured her in any
other individualized way.
In sum, VRSCA’s opening brief fell too short of the mark.
It failed to identify any of its members or the harm they
suffered, failed to disclose that it is fully funded by Sorenson,
and offered only conclusory and general assertions about the
nature of the association, untethered from evidence. Given the
multiple potential hurdles VRSCA faced, it was unreasonable
to assume that its standing was “self-evident.” By failing to
bring forward the facts necessary to address all of this, VRSCA
did not satisfy the requirements set out in Sierra Club. We
therefore conclude that VRSCA did not carry its burden to
establish standing.
5
VRSCA’s complete financial dependence on Sorenson raises
several concerns, not least of which is that VRSCA today advances
the precise argument that Sorenson is collaterally estopped from
making. See Sorenson II, 765 F.3d at 43-46 (holding that Sorenson
is barred under issue preclusion from challenging the FCC’s
determination on compensation for VRS equipment).
18
IV
A
Turning to Sorenson’s petition, we must resolve two
threshold questions pertaining to standing and claim
preclusion.
First, amici claim Sorenson lacks standing to challenge the
2017 Order because it was not injured by that order. That is so,
amici argue, because it is undisputed that the 2017 Order’s rate
adequately compensates Sorenson for its statutorily allowable
costs; i.e., Sorenson doesn’t claim it is getting shortchanged by
the new rate. Nor does Sorenson specify how it was otherwise
injured by the order. We consider these objections, mindful of
“our independent obligation to be sure we have jurisdiction.”
High Plains Wireless, L.P. v. FCC, 276 F.3d 599, 605 (D.C.
Cir. 2002).
We conclude Sorenson has standing under the competitor
standing doctrine. That doctrine recognizes that economic
actors “‘suffer [an] injury in fact when agencies lift regulatory
restrictions on their competitors or otherwise allow increased
competition’ against them.” Sherley v. Sebelius, 610 F.3d 69,
72 (D.C. Cir. 2010) (quoting La. Energy & Power Auth. v.
FERC, 141 F.3d 364, 367 (D.C. Cir. 1998)). Because increased
competition almost surely injures economic actors, they “need
not wait” until they are competitively hurt “before challenging
the regulatory . . . governmental decision that increases
competition.” Id. In short, “the basic requirement” is that “the
complainant show an actual or imminent increase in
competition [that] will almost certainly cause an injury in fact.”
Id. at 73.
 19
Sorenson has competitor standing to challenge the FCC’s
2017 Order based on anticipated harm to its dominant position
in the VRS market. The entire purpose of the tiered-rate
structure is to promote competition and enable smaller VRS
providers to expand their shares of that market. At least some
of that expansion would inevitably come at the expense of
Sorenson, which controls 80% of the VRS market. This
intended effect of the 2017 Order provides sufficient evidence
of an “actual or imminent” increase in competition. Sorenson’s
competitor-based standing is “clear” and “self-evident” on the
face of its petition, and for that reason Sorenson did not need
to provide a lengthy explanation of its standing. See Sierra
Club, 292 F.3d at 899-900.
Second, the FCC briefly argues that Sorenson’s challenge
to the tiered-rate structure is barred by claim preclusion. Claim
preclusion, also called res judicata, “bars a party from re-
litigating a claim that was or should have been asserted in a
prior action.” Hurd v. District of Columbia, 864 F.3d 671, 679
(D.C. Cir. 2017). Under this doctrine, “a judgment on the
merits in a prior suit bars a second suit involving identical
parties . . . based on the same cause of action.” Apotex, Inc. v.
FDA, 393 F.3d 210, 217 (D.C. Cir. 2004). As we have noted,
our claim-preclusion case law uses interchangeably the terms
“claim” and “cause of action.” See Stanton v. D.C. Court of
Appeals, 127 F.3d 72, 78 n.3 (D.C. Cir. 1997). For purposes of
claim preclusion, “it is the facts surrounding the transaction or
occurrence which operate to constitute the cause of action, not
the legal theory upon which a litigant relies.” Page v. United
States, 729 F.2d 818, 820 (D.C. Cir. 1984) (citation and
internal quotation marks omitted).
The FCC argues Sorenson’s claim is precluded because
the company has challenged the FCC’s VRS rates twice before
while similar tier structures were in place, but Sorenson failed
20
to contest those tiers either time. In neither Sorenson I
(challenging the 2010 Interim Rate Order) nor Sorenson II
(challenging the 2013 Order) did the company argue that § 225
prohibits tiered rates. And since claim preclusion bars a party
from re-litigating arguments it could have raised in a prior
proceeding, the FCC argues that Sorenson may not challenge
the tiered-rate structure for the first time now.
Sorenson is not barred from challenging the tiered-rate
structure because of its prior lawsuits in Sorenson I and
Sorenson II. We have previously explained that “rate orders are
generally not res judicata because ‘[e]very rate order made
may be superseded by another.’” Norfolk & W. Ry. Co. v.
United States, 768 F.2d 373, 378 (D.C. Cir. 1985) (emphasis
omitted) (quoting Tagg Bros. & Moorhead v. United States,
280 U.S. 420, 445 (1930)). Claim preclusion has a limited
application in the ratemaking context because new rates and
new rate orders are almost always based on new facts and
circumstances that were not present at the time of the earlier
judgment, and so cannot be precluded by that earlier claim. See
Stanton, 127 F.3d at 78 (“[I]f the plaintiff alleges a combination
in restraint of trade, a new cause of action accrues each time it
operates against him, and previous judgments do not bar
repeated challenges. . . . Similarly, each successive
enforcement of a statute . . . creates a new cause of action.”
(citations and internal quotation marks omitted)); see also
Tesoro Alaska Petroleum Co. v. FERC, 234 F.3d 1286, 1290
(D.C. Cir. 2000); W. Coal Traffic League v. ICC, 735 F.2d
1408, 1411 (D.C. Cir. 1984). Nor does claim preclusion bar a
subsequent suit based on events and circumstances that post-
date and materially differ from those previously at issue. See
Stanton, 127 F.3d at 79. Today Sorenson challenges the FCC’s
2017 Order, which modified the agency’s ratemaking
methodology and its actual rates based on new information
gleaned from the agency’s experience in the years since issuing
21
the 2013 Order. This new order, based on a materially changed
record, gave rise to a new claim, and therefore Sorenson’s
petition is not barred by claim preclusion.
B
1
On the merits, we first address Sorenson’s main argument
that the 2017 Order’s retention of tiered rates is incompatible
with § 225’s efficiency mandate. The parties agree that the
tiered-rate structure is designed to promote competition by
preserving multiple VRS providers in the market. They
disagree over whether that is a permissible consideration under
the statute. Sorenson argues that § 225 requires the VRS rate to
be set in the “most efficient manner,” and that the FCC itself
acknowledged in its orders from 2013 and 2017 that a tiered-
rate structure is inefficient. The FCC claims the tiered-rate
structure is consistent with § 225’s efficiency mandate because
the agency must consider the long-term efficiency of the VRS
market—including achieving the best quality of service for the
cost—not just short-term savings. And if the FCC failed to
preserve more than one VRS provider in the market, the market
would devolve into a monopoly and its efficiency would be
undermined.
We begin with Chevron’s first step and ask whether the
FCC’s interpretation of the “precise question at issue” is
“unambiguously foreclosed” by the statute. Catawba County,
571 F.3d at 35 (internal quotation marks omitted). Here, that
means we ask if § 225 unambiguously forecloses the FCC’s
interpretation of the efficiency mandate, which seeks to
promote the VRS market’s long-term efficiency by preventing
a monopoly.
22
In § 225, Congress chiefly tasked the FCC with ensuring
the provision of communications services for people who are
deaf or speech-impaired in a manner that is “functionally
equivalent” to services available for hearing people. 47 U.S.C.
§ 225(a)(3). In carrying out this primary objective, Congress
instructed the FCC to balance several different factors: the FCC
must regulate the recovery of “costs caused by” the services,
id. § 225(d)(3)(B); it must implement the program in a way that
encourages “the use of existing technology” and does not
“discourage or impair the development of improved
technology,” id. § 225(d)(2); and the FCC must ensure those
services are “available, to the extent possible and in the most
efficient manner,” id. § 225(b)(1). Section 225 does not instruct
the FCC how to prioritize these various factors, nor does it
define them.
Because § 225 does not define “efficient,” we give the
term its ordinary meaning. Taniguchi v. Kan Pac. Saipan, Ltd.,
566 U.S. 560, 566 (2012). Sorenson agrees, settling on the
definition: “to produce the desired result without waste.”
Sorenson Br. 24 (citing The American Heritage Dictionary of
English Language (5th ed. 2016)). This definition, however,
does not “unambiguously foreclose” the FCC’s interpretation.
The ordinary meaning of “efficiency” does not indicate
whether the FCC’s mandate to avoid waste must focus
exclusively on achieving the lowest cost for a given set of
services in the short term or whether, instead, the agency may
also consider projected longer-term costs and the effects of its
compensation choices on the quality of services users receive.
Maximizing cost savings today could diminish the market’s
efficiency—cost relative to service quality—tomorrow, and
nothing in the ordinary meaning of the word prohibits the FCC
from considering those downstream implications. Nor does the
word dictate how the agency may promote the long-term health
of the VRS market, whether it be through preserving multiple
23
market participants or using a tiered-rate structure to do so.
Because the efficiency mandate does not unambiguously
foreclose the FCC from considering the VRS market’s long-
term efficiency, nor dictate how the agency may pursue that
end, the FCC’s interpretation passes the first step of Chevron.
At Chevron’s second step, we ask whether the FCC’s
interpretation is reasonable. Catawba County, 571 F.3d at 35.
We conclude that it is. Indeed, it would be hard to argue
otherwise. How could it be unreasonable for the FCC to
interpret its efficiency mandate to include consideration of the
VRS market’s long-term efficiency? Not even Sorenson argues
that. Instead, Sorenson claims that the FCC’s chosen technique
for promoting long-term efficiency—preserving multiple
market participants—is an unreasonable method of pursuing
efficiency. Embedded within this argument, Sorenson also
challenges as unreasonable the FCC’s method for preserving
multiple market participants: a tiered-rate structure. We find
these challenges unpersuasive, and we defer to the FCC’s
“reasoned explanation for why it chose [its] interpretation.”
Village of Barrington v. Surface Transp. Bd., 636 F.3d 650, 660
(D.C. Cir. 2011).
First, Sorenson argues that any effort at preserving
multiple VRS providers in the market is an impermissible
“extra-statutory consideration.” Sorenson Br. 28. According to
Sorenson, competition cannot advance § 225’s efficiency
mandate because “the VRS market is not a true competitive
market in which competition among providers can drive prices
down and encourage providers to seek greater efficiencies.” Id.
In other words, because VRS providers don’t set the VRS rates,
competition is irrelevant. Although Sorenson never quite says
so, it effectively argues that a monopoly—with itself as the
monopolist—will be the “most efficient manner” of regulating
the VRS market.
24
Even given the unique features of the VRS market,
preventing a monopoly is a reasonable way to promote the
efficiency of VRS. As the FCC noted, efficient service is not
just about cost but also quality. See 2017 Order, 32 FCC Rcd.
at 5909 (measuring efficiency requires “comparing the overall
expenditures from the TRS Fund . . . with the overall results
achieved by such expenditures” (emphasis omitted)). So even
though competition in the VRS market may not necessarily
“drive prices down,” Sorenson Br. 28, it may still promote
efficiency by “encourag[ing] the lowest-cost provider to
maintain higher standards of service quality,” 2017 Order, 32
FCC Rcd. at 5907. In other words, competition promotes
efficiency by preventing subpar service from a monopolist who
has no fear of losing customers; i.e., it promotes compliance
with the service quality required by the mandatory minimum
standards.
Preventing a monopoly promotes efficiency in other ways
as well. As the FCC explained, the VRS market has gone
through many changes over the past several decades, and the
agency needs to retain “flexibility to consider other approaches
that may improve efficiency.” Id. at 5910. For instance, “one
option the Commission may want to consider in the future is a
reverse auction, in which multiple providers bid for offering
service at the most efficient levels.” Id. But as the FCC noted,
that option won’t be possible “if all providers except one have
been driven out of the market.” Id. Because the FCC plans to
experiment with more efficient rate structures, and because
those experiments will require multiple providers, the agency
reasonably concluded that preserving market participants
promotes long-term efficiency.
Second, Sorenson argues that the FCC cannot retain a
tiered-rate structure because the 2013 Order conclusively
25
established that such a rate structure is inefficient. But
Sorenson overlooks that two propositions can be true at once:
(1) a tiered-rate structure may not be maximally efficient in
terms of minimizing spending in the short term and (2) the
tiered-rate structure may be necessary for the long-term
efficiency of the market because it preserves multiple market
participants. And that is precisely what the FCC’s orders say.
In the 2013 Order, the FCC explained that the tiered-rate
structure was not optimally efficient, and the agency hoped to
move to a single rate. 28 FCC Rcd. 8618. The agency predicted
that after implementation of its structural reforms, this
transition would be feasible without “unnecessarily
constricting the service choices available to VRS consumers”
by driving smaller providers out of the market. Id. at 8699. The
FCC concluded it was “worth tolerating some degree of
additional inefficiency in the short term, in order to maximize
the opportunity for successful participation of multiple
efficient providers in the future, in the more competition
friendly environment that we expect to result from our
structural reforms.” Id. When these structural reforms failed or
were delayed, however, the agency concluded in its 2017 Order
that long-term efficiency considerations justified retention of
the admittedly inefficient tiered-rate structure. 32 FCC Rcd. at
5910. Whatever inefficiencies it may introduce in the short
term, the tiered-rate structure is essential to prevent the greater
long-term inefficiency that would result from a monopoly.
None of this amounts to an unreasonable interpretation of
§ 225’s efficiency mandate.
Third, it is undisputed that no party proposed a more
efficient rate structure than the one adopted by the FCC.
Sorenson proposed a single rate set at “no lower than $3.73 per
minute,” id. at 5923, but that would have been more costly to
the TRS Fund than the tiered-rate structure adopted by the
26
FCC, id. at 5909. Sorenson now argues that the FCC could have
adopted a lower single rate, but no party made such a proposal
to the agency, nor does it seem likely that any of Sorenson’s
competitors could have survived under a lower rate. Therefore,
even if such a rate had been proposed, the FCC could still have
reasonably rejected it for threatening the preservation of
multiple competitors.
In sum, the FCC interprets its efficiency mandate to permit
consideration of both short- and long-term efficiency,
including efficiency-promoting objectives other than the
lowest possible price, such as service competition. To promote
the efficiency of the VRS market, the agency retained its tiered-
rate system to prevent the market from devolving into a
monopoly. We conclude that this interpretation was
reasonable.
2
Sorenson also attacks the 2017 Order with several
arguments that it styles as arbitrary-and-capricious challenges
under the APA. Sorenson claims the agency’s retention of the
tiered-rate structure was arbitrary and capricious because (1)
the FCC reversed without explanation its prior position that the
tiered-rate system was inefficient; (2) there is no record
evidence that smaller providers will become efficient in the
future; (3) the design of the tiers will entrench the inefficiencies
of smaller providers and harm Sorenson; and (4) the agency
permitted two VRS providers that merged to be compensated
as separate entities under the tiers.
If our review in this section seems similar to the Chevron
analysis in Part IV.B.1, that’s because it is. Our “inquiry at the
second step of Chevron, i.e., whether an ambiguous statute has
been interpreted reasonably, overlaps with the [APA’s]
27
arbitrary and capricious standard.” Chamber of Commerce of
the U.S. v. FEC, 76 F.3d 1234, 1235 (D.C. Cir. 1996) (citing
Nat’l Ass’n of Regulatory Util. Comm’rs v. ICC, 41 F.3d 721,
726-27 (D.C. Cir. 1994)); see also Gen. Instrument Corp. v.
FCC, 213 F.3d 724, 732 (D.C. Cir. 2000). Arbitrary-and-
capricious review is generally deferential, but it is “particularly
deferential” in cases such as this, which “implicate competing
policy choices, technical expertise, and predictive market
judgments.” Ad Hoc Telecomm. Users Comm. v. FCC, 572
F.3d 903, 908 (D.C. Cir. 2009) (citations omitted). When
reviewing an agency’s predictive judgment under these
circumstances, we “require only that the agency acknowledge
factual uncertainties and identify the considerations it found
persuasive.” Rural Cellular Ass’n v. FCC, 588 F.3d 1095, 1105
(D.C. Cir. 2009). With this especially deferential standard in
mind, we address Sorenson’s three arguments in turn.
First, Sorenson argues that it was arbitrary and capricious
for the FCC to retain the tiered-rate structure because its 2013
Order took the position that tiered rates were inefficient and
planned to eliminate them; however, its 2017 Order changed
course without explanation. This mischaracterizes both orders.
As explained above, the 2013 Order used tentative language
when discussing its plan to eliminate the tiered-rate structure.
The FCC said that it hoped its structural reforms, once
implemented, would eliminate the need for a tiered-rate
system. See, e.g., 2013 Order, 28 FCC Rcd. at 8698-99 (“[W]e
anticipate that the complete elimination of rate tiers . . . will be
able to coincide with the implementation of VRS structural
reforms.”). The agency’s decision to eliminate tiers was
contingent upon realizing certain hoped-for outcomes, namely
growth by the smaller VRS providers. Because those
predictions went unrealized, the 2017 Order explained that the
tiers remained necessary.
28
Under the APA, an agency is free to change its position if
it sets forth reasonable grounds for doing so. FCC v. Fox
Television Stations, Inc., 556 U.S. 502, 515 (2009). Here, the
FCC did not change its position because its plan to eliminate
the tiers was conditioned on the successful implementation of
its structural reforms. But even if the FCC did “change its
position” by choosing to retain the tiers, it provided reasonable
grounds for doing so. See, e.g., 2017 Order, 32 FCC Rcd. at
5905-07 (detailing why the tiers remained necessary to
preserve competition due to the unsuccessful or delayed
implementation of the structural reforms); 2017 FNPRM, 32
FCC Rcd. at 2469-74 (same).
Second, Sorenson argues that there is no evidence in the
record that smaller providers will be able to grow over the
course of the next four years. To the contrary, the FCC has
explained that the continued implementation of VRS
interoperability, portability, and service quality reforms “may
offer greater opportunities for providers to compete more
effectively with one another.” 2017 Order, 32 FCC Rcd. at
5913. The agency predicted that the full implementation of the
structural reforms (particularly, interoperability and equipment
portability), the collection and publication of service-quality
metrics, and the agency’s new attention to idiosyncratic
anticompetitive features in the VRS market may enable more
effective competition between multiple VRS providers. We
afford “substantial deference” to that type of predictive
judgment by an agency acting in its area of expertise. Nat’l
Ass’n of Broadcasters v. FCC, 789 F.3d 165, 182 (2015). 6
6
Sorenson argues that interoperability barriers to competition
have already been resolved; however, even Sorenson’s own expert
acknowledges that certain interoperability issues persist. See 2017
Order, 32 FCC Rcd. at 5905 n.83.
29
Third, Sorenson argues that the design of the tiered-rate
structure will “entrench smaller providers’ existing
inefficiencies” by diminishing their incentive to grow, and it
also irrationally penalizes Sorenson by retaining a glide path
only for the Tier III rates—a rate tier that applies only to
Sorenson. See supra note 4. Neither claim prevails under our
deferential review. As the 2017 Order explained, because there
is a set rate within each tier, VRS providers have an incentive
to decrease costs so they can maximize profits. See 32 FCC
Rcd. at 5911. Moreover, contrary to Sorenson’s claim, the
agency found no evidence that smaller providers intentionally
slowed their growth as they approached a tier boundary at
which they would start receiving a lower per-minute rate. Id. at
5910. And despite Sorenson’s complaint, there’s little to
suggest the 2017 Order irrationally penalizes Sorenson by
retaining the glide path for Tier III. The FCC found that
“Sorenson is likely to continue earning higher per-minute
operating margins than any of its competitors,” id. at 5919
n.167, and Sorenson’s actual costs fall below the Tier III rate,
even after the glide path reaches its lowest level, see supra note
4. Sorenson does not contest these facts, and there is no basis
to conclude that the FCC acted out-of-bounds in giving
Sorenson extra time to adjust to a rate that reflects its actual
cost-of-service.
Fourth, Sorenson argues that the FCC acted arbitrarily by
allowing two recently merged VRS providers to count their
VRS service minutes separately until the companies fully
merge their operations. But far from arbitrary, the agency’s
decision to give these two companies three years before
counting their minutes jointly was based on a consent decree
that affords the two companies three years to merge their
operations. Waiting until the companies actually integrate
before combining their service minutes is reasonable.
30
The tiered-rate structure in the 2017 Order “represents the
agency’s expert assessment, and we examine ‘not whether the
FCC’s economic conclusions are correct or are the ones that we
would reach on our own, but only whether they are
reasonable.’” EarthLink, Inc. v. FCC, 462 F.3d 1, 12 (D.C. Cir.
2006) (quoting In re Core Commc’ns, Inc., 455 F.3d 267, 279
(D.C. Cir. 2006)). We conclude that they are. Though the FCC
acted reasonably in this case, we note that the agency has an
ongoing, independent obligation to satisfy its statutory
mandate. Given the agency’s longstanding concern with the
subsidization of high-cost providers, a failure to consider all
possible solutions to this problem could well become arbitrary
at some point.
V
For the foregoing reasons, we dismiss VRSCA’s petition
for lack of standing and deny Sorenson’s petition for review.
So ordered.