Welcome to your monthly recap of administrative law from the Fifth Circuit! By my count, the Court issued ten published opinions in administrative law cases last month. I’ll focus on three of those cases here. For the rest, I’ll limit myself to the key takeaways.

Private Nondelegation in the Regulation of Horseracing

Up first we have National Horsemen’s Benevolent and Protective Association v. Black, where the Fifth Circuit considered constitutional challenges to the Horseracing Integrity and Safety Act of 2020 (“HISA”) for the second time. In HISA, Congress empowered a private corporation, the Horseracing Integrity and Safety Authority (the “Authority”), to promulgate and enforce regulations to govern the horseracing industry nationwide. Two years ago, the Fifth Circuit held HISA facially unconstitutional because it delegated government power to a private entity without sufficient agency supervision. Congress responded by amending HISA to empower the FTC to abrogate, add to, or modify the Authority’s rules.

According to the plaintiffs, however, HISA continues to violate the private nondelegation doctrine because its enforcement provisions empower the Authority to investigate, issue subpoenas, conduct searches, levy fines, and seek injunctions without sufficient FTC oversight. The Fifth Circuit agreed. “The power to launch an investigation, to search for evidence, to sanction, [and] to sue,” the Court explained, “are all quintessentially executive functions” and “have been considered so from our Nation’s founding.” And HISA permits the Authority–a private corporation–to wield these powers, leaving the FTC powerless to countermand them. This arrangement, the Fifth Circuit held, violates the private nondelegation doctrine.

In so holding, the Fifth Circuit acknowledged that it was parting ways with the Sixth Circuit, which rejected an identical challenge to HISA’s enforcement provisions last year in Oklahoma v. United States. The Fifth Circuit addressed the Sixth Circuit’s rationale at some length. First, the Sixth Circuit had held that a facial challenge to HISA’s enforcement provisions could not succeed because “the FTC could subordinate every aspect of the Authority’s enforcement” through its newly minted rulemaking power. According to the Fifth Circuit, however, this “rulemaking argument would let the agency rewrite the statute.” In HISA, “Congress set out a definite enforcement scheme” that empowered the Authority to exercise specific enforcement powers. “A mere agency cannot alter that statutory division of labor.”

Second, “the Sixth Circuit believed the FTC could supervise the Authority through a slightly different kind of rulemaking— that is, by issuing rules governing how the Authority enforces HISA.” Once again, however, the Fifth Circuit was unpersuaded. The issue, it explained, is not “how the Authority exercises its enforcement power” but “where the enforcement power is lodged: on its face, HISA empowers private entities to enforce it and permits agency oversight only after the enforcement process is over and done with (and then only with respect to fines, not injunctions).”

Third, the Sixth Circuit held that “the FTC has full authority to review the Horseracing Authority’s enforcement actions” because “the FTC may reverse the Authority’s decision” to impose a civil sanction. According to the Fifth Circuit, however, the FTC’s power to “review sanctions at the back end” does not render the Authority’s “enforcement power . . . subordinate to the FTC.” That is so, the Court explained, because HISA allows the Authority to take various enforcement actions long before finally issuing sanctions subject to FTC review. The Authority can, for example, “launch an investigation into [a horse] owner, subpoena his records, search his facilities, charge him with a violation, adjudicate it, and fine him.” Each of these actions constitutes “‘enforcement’ of HISA” that “can occur under HISA without any supervision by the FTC.” Thus, the Court concluded, “it is the private entity that acts as HISA’s enforcer in any meaningful sense.”

The Supreme Court denied a petition for certiorari in the Sixth Circuit case just days before the Fifth Circuit published its decision. The petitioners in the Sixth Circuit case have since asked the Supreme Court to reconsider its denial of certiorari, arguing that the opening of a clear, acknowledged circuit split on the constitutionality of a federal statute qualifies as a significant “intervening circumstance.” See Sup. Ct. R. 44.2. Stay tuned.

Double Delegation Dustup (and Another Circuit Split)

Next up, we have another nondelegation case. In Consumers’ Research v. FCC, a closely divided en banc Fifth Circuit held that the funding mechanism for several programs designed to provide “universal access” to affordable telecommunications to consumers nationwide violates Article I, § 1 of the Constitution. There is now a 2-1 circuit split on the issue as the Sixth and Eleventh Circuits rejected virtually identical challenges last year.

In section 254 of the Telecommunications Act of 1996, Congress authorized the FCC to establish “specific, predictable, and sufficient … mechanisms to preserve and advance universal service.” Acting on that authority, the FCC established several programs to accomplish “universal service.” To fund those programs, FCC requires telecommunications carriers to make “contributions” to a Universal Service Fund (“USF”). Carriers then pass the costs of their contributions on to consumers.

While FCC created these universal service programs, it does not administer them itself. Instead, it relies on a private company called the Universal Service Administrative Company (“USAC”). One of USAC’s key responsibilities is deciding how much carriers—and ultimately consumers—must pay for universal service each quarter. To set the contribution amount, USAC relies on demand projections from private, for-profit carriers, all of whom have financial incentives to increase the size of universal service programs.

FCC reserves the right to set the projections itself or to revise them, but it “never made a substantive revision to USAC’s proposed contribution amount prior to this litigation.” Nor does it “have a documented process for checking USAC’s work.” Instead, FCC regulations provide that if the agency takes no action on the projections within fourteen days after they’re released, the projections “shall be deemed approved by the Commission.”

The Fifth Circuit’s merits analysis proceeded in four parts. First, it explained that the “power to levy USF ‘contributions’ is the power to tax—a quintessentially legislative power.” Second, it concluded that Congress likely violated the public nondelegation doctrine by permitting FCC to wield that power without supplying an intelligible principle to guide the agency’s discretion. Third, it explained that FCC likely violated the private nondelegation doctrine by empowering the USAC to set the quarterly USF contribution amount. Finally, it explained that it need not ultimately decide whether either delegation runs afoul of the Constitution because even if neither does on its own, the combination of the two questionable delegations “certainly amounts to a constitutional violation.”

In reaching that last conclusion, the Court relied on recent Supreme Court decisions (Seila Law and Free Enterprise Fund) for the proposition that in separation of powers cases, statutory arrangements that might pass constitutional muster when analyzed in isolation might not when considered in combination. Summing up this “holistic approach,” the Court emphasized that “with respect to the separation of powers at least, two constitutional parts do not necessarily add up to a constitutional whole.”

Given the significance of the Fifth Circuit’s ruling and the fact that it conflicts with decisions from two other circuits addressing identical issues, the cert petition in this one writes itself.

Lessons in Finality, Exhaustion, and APA Primacy

In MCR Oil Tools, L.L.C. v. Department of Transportation, the Court vacated and remanded PHMSA’s determination that MCR Oil Tools lacked the requisite approval under the Hazardous Materials Transportation Uniform Safety Act (“HMTA”) to transport, and therefore sell, one of its products. The entire opinion is worth a read, but I’ll focus on the Court’s rejection of PHMSA’s arguments that (1) the agency’s decision was not final and (2) MCR had failed to exhaust administrative remedies.

A bit of procedural background is required here. The petition for review focused on a May 2024 PHMSA decision, but in that decision PHMSA relied on a prior determination it had made in March 2022. After unsuccessfully seeking reconsideration of the March 2022 decision, MCR appealed to the Deputy Administrator. PHMSA denied the appeal. After months of corresponding with MCR regarding the implications of the March 2022 decision, PHMSA issued the May 2024 decision, and MCR filed its petition for review in the Fifth Circuit.

In a prior order granting MCR’s motion for stay pending review, the Fifth Circuit held that the May 2024 decision qualified as “final agency action” as that term is understood for purposes of section 704 of the APA.

PHMSA disagreed. It argued that the APA’s default finality principles were inapplicable because MCR’s petition arose under the HMTA, which has its own judicial review provision that permits judicial review only of “final action of the Secretary [of Transportation],” which the agency had defined by regulation to mean “[t]he [PHMSA] Administrator’s decision on appeal [from reconsideration].” Because MCR had not requested reconsideration of the May 2024 decision and had not appealed from a denial of reconsideration, PHMSA insisted that the May 2024 decision was not final action of the Secretary under the HMTA.

The Fifth Circuit rejected that argument, holding that “the plain text of [section] 5127 establishes a threshold for finality identical to that required by the APA.” That was so, the Court reasoned, because the term “final action” in a statute like the HMTA, which Congress passed long after the meaning of that term under the APA was settled, “carries the implication that Congress intended [it] to be construed in accordance with pre-existing … interpretations.” Unless Congress provides some specific reason to deviate from the APA-based understanding of “final agency action” in a particular statute, the Court concluded, the APA meaning controls.

As for PHMSA’s regulation, it had “no bearing whatsoever on the meaning of the statutory term” because “[t]he HMTA does not delegate to the Secretary or PHMSA the power to determine what constitutes ‘final action’ for purposes of [the HMTA].”

PHMSA also argued that the May 2024 decision was not “final action of the Secretary” as section 5127 of the HMTA requires. That was so, PHMSA insisted, because the agency’s regulations dictate that the “Administrator” decides appeals from reconsideration , “whereas initial decisions and requests for reconsideration are handled by the ‘Associate Administrator.'” Because the Secretary of Transportation delegated his power specifically to PHMSA’s Administrator, “PHMSA posit[ed] that an appeal from reconsideration is the only way to get an action ‘of the Secretary'” for purposes of section 5127.

Once again, however, the Fifth Circuit was unpersuaded. In its view, PHMSA’s argument rested on the mistaken premise that “Associate Administrators have a source of authority separate from that of the Administrator (and, in turn, that of the Secretary).” In reality, however, “the Secretary is the exclusive source of PHMSA’s authority,” meaning “any final action by PHMSA is necessarily a final action of the Administrator and, consequently, a ‘final action of the Secretary’ for purposes of [section] 5127.”

Next, the Court addressed PHMSA’s argument that MCR had failed to exhaust administrative remedies because it had not appealed from a denial of reconsideration of the May 2024 Decision. In the Fifth Circuit, “[l]ack of exhaustion does not preclude judicial review unless ‘(a) administrative appeal is expressly required by statute or (b) the agency requires it by rule and provides that the action meanwhile is inoperative.'”

Beginning with statutorily mandated exhaustion, the Court once again turned to section 704 of the APA for the default rule. That provision “carefully ‘limits the availability of the doctrine of exhaustion in APA cases to that which the statute or rule clearly mandates.’” Again, however, PHMSA argued that section 5127 of the HMTA overrode “the APA default.”

The Fifth Circuit was not persuaded. Because section 5127 “never once mentions exhaustion,” the Court held that “it does not mandate the same.”

Turning to prudential exhaustion, the Court noted that PHMSA regulations merely permit parties to request reconsideration and thus do not contain an exhaustion requirement at all. Moreover, in the Fifth Circuit, “prudential exhaustion requirements are untenable” unless “the challenged action … remain[s] inoperative while the regulated entity exhausts any requisite administrative remedies.” PHMSA conceded that MCR would not have been able to ship its RCTs during the reconsideration and appeals process. Thus, prudential exhaustion did not “pretermit[] review of the merits of MCR’s petition” either.

The Best of the Rest

We’ve covered a lot of territory in this post already. If you’re still reading, here’s a quick summary of the key takeaways from the Fifth Circuit’s remaining seven administrative-law opinions from July:

• Utah v. Su involved an appeal from a district court judgment upholding a Department of Labor regulation on the basis of Chevron deference. While the case was pending on appeal, the Supreme Court decided Loper Bright. Noting the “upended legal landscape,” the Fifth Circuit declined to address the merits. Instead, it remanded the case so the district court could “interpret[] the laws” without “influence from the political branches” in the first instance.
• In Lion Elastomers, L.L.C. v. NLRB, the Court vacated an NLRB decision for a second time. In a prior case, the NLRB had sought a remand to apply a new standard announced in General Motors–an agency adjudication issued after the dispute underlying this case was initially adjudicated but before briefing on appeal. Instead, however, the NLRB used the remand proceeding as a vehicle to overrule General Motors. The Fifth Circuit held that the NLRB had “exceeded the scope of the remand” and “violated Lion Elastomer’s due-process rights during the remand proceeding.”
• In Kovac v. Wray, the Fifth Circuit affirmed a district court opinion judgment concluding that several defendant agencies have statutory authority to create, maintain, and administer the so-called “terrorist watchlist.”
• In Airlines for America v. Department of Transportation, the Court granted a stay of a Department of Transportation Rule that regulates how airlines disclose fees to consumers during the booking process.
• In Cheejati v. Blinken, the Court held that it lacked subject-matter jurisdiction over a challenge to the Secretary of State’s and the Director of USCIS’s approach to distributing immigrant visas.
• In Jones v. O’Malley, the Court affirmed a district court decision upholding the Commissioner of Social Security’s denial of plaintiff’s claims for disability insurance benefits and supplemental security income. Along the way, the Court considered and rejected a challenge to the ALJ’s “application of Listing 1.15” on retroactivity grounds, joining the D.C., Sixth, and Seventh Circuits on that question. The Ninth Circuit reached the opposite conclusion in an unpublished opinion.
• In L.N. v. Garland, the Fifth Circuit denied a petition for review of a BIA final order of removal that had denied L.N.’s applications for asylum, withholding of removal, and protection under the Convention Against Torture. Judge Douglas dissented.

If you know of any cases I’ve overlooked or come across an interesting Fifth Circuit decision you think I should cover here, please send them my way!

Shane Pennington is a partner in the Washington, D.C. office of Porter, Wright, Morris, & Arthur LLP and co-chair of the firm’s Administrative and Regulatory Law Practice Group. You can reach him at spennington@porterwright.com