“When Chevron meets Hobbs, consideration of the merits must yield to jurisdictional constraints.” Carlton & Harris Chiropractic, Inc. v. PDR Network, 883 F.3d 459 (4^th Cir. 2018)

The Supreme Court recently granted certiorari in PDR Network, LLC v. Carlton & Harris Chiropractic, Inc., Dkt No. 17-1705, (Order List Nov. 13, 2018).  The Court framed the issue presented thusly: “Whether the Hobbs Act[1] required the district court in this case to accept the FCC’s legal interpretation of the Telephone Consumer Protection Act.”[2]

The Hobbs Act, 28 U.S.C. § 2342, is a jurisdiction-channeling statute, placing exclusive jurisdiction over challenges to final orders issued by six federal agencies, including the Federal Communication Commission (“FCC”), in the regional courts of appeal.  The Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227, as amended, provides a private right of action for damages to recipients of unsolicited fax advertisements, placing jurisdiction for such actions in the federal district courts.  The FCC promulgated an order revising it regulations implementing the TCPA in 2006, offering interpretive guidance as a part of its decision explaining it regulatory choices.

What happens when a district court must adjudicate a damages claim brought under the TCPA?  Must it adhere to FCC interpretations of the statute, even when it believes them unreasonable, because FCC orders are reviewable only though challenges made in the regional courts of appeal (a kind of Hobbesian dilemma)?  Or is it critical that the district court at least retain the power to refuse to apply unreasonable interpretations of the statute, as the Chevron doctrine would suggest?  The parties and the courts below viewed the choices presented for resolving PDR Network, LLC v. Carlton & Harris in such stark terms.  But they all have failed to identify an important antecedent question — does the challenged FCC interpretation of the TCPA have “the force of law” necessary to make it subject to the Hobbs Act.  A I explain below, it probably does not.

This is the first of a series of three blog posts.[3]  In this post I will discuss whether the Hobbs Act applies at all.  In subsequent posts I will address the “conflict” between the Hobbs Act and Chevron (which the Court need address only if the Hobbs Act covers the challenged interpretation) and then the interpretive question presented itself.

The Hobbs Act and 47 U.S.C. §402

The Hobbs Act places in the regional courts of appeal “exclusive jurisdiction to enjoin, set aside, suspend (in whole or in part), or determine the validity of . . . all final orders of the Federal Communications Commission made reviewable by 47 U.S.C. 402(a).”  Section 402(a) of Title 47, in turn, makes reviewable “[a]ny proceeding to enjoin, set aside, annul, or suspend any order of the Commission,” except 10 types of challenges specified in section 402(b), for which jurisdiction lies exclusively in the D.C. Circuit.

Section 402(a) has its origins in the Communications Act of 1934, Pub. L. 73-416, §402(a), 48 Stat. 1064, 1093, and was based on a 1913 provision governing judicial review of rules promulgated by the Interstate Commerce Commission, Act of October 22, 1913, Pub. L. 63-32, 38 Stat. 208, 219 (abolishing Commerce Court and placing jurisdiction in the district courts).[4]  The provision underwent significant revision in the Federal Communications Act Amendments of 1952, Pub. L. 82-554, 66 Stat. 711, 718-19, taking its current form.  As the Fourth Circuit would ultimately note in Carlton & Harris Chiropractic, “[t]his sort of ‘jurisdiction-channeling’ provision, especially in the context of administrative law, is ‘nothing unique.’”  883 F.3d at 464.

The Hobbs Act jurisdiction-channeling “promotes judicial efficiency,” by “vest[ing] an appellate panel rather than a single district judge with the power of agency review.” CE Design, Ltd. v. Prism Business Media, 606 F.3d 443, 450 (7th Cir. 2010) (quoting United States v. Dunifer, 219 F.3d 1004, 1008 (9th Cir. 2000)); accord, Mais v. Gulf Coast Collection Bureau, Inc., 768 F.3d 1110, 1119 (11th Cir. 2014)(citing CE Design); Nack v. Walburg, 715 F.3d 680, 685 (8th Cir. 2013)(citing CE Design), cert. denied, — U.S. —, 134 S. Ct. 1539 (2014).  In doing so, it allows “‘uniform, nationwide interpretation of the federal statute by the centralized expert agency created by Congress’ to enforce the TCPA.” CE Design, 606 F.3d at 450.   It also avoids duplication of effort, because the district court’s factfinding capacity is “typically unnecessary to judicial review of agency decisionmaking” based on an administrative record.  Florida Power & Light Co. v. Lorion, 470 U.S. 729, 744-45 (1985).  Accordingly, “[a]bsent a firm indication that Congress intended to locate initial [Administrative Procedure Act (“APA)”] review of agency action in the district courts, [the Supreme Court] will not presume that Congress intended to depart from the sound policy of placing initial APA review in the courts of appeals.”  Id. at 745.

But to be reviewable, and thus subject to the jurisdiction-channeling provisions of section 402 and the Hobbs Act, the FCC’s determination must have the “force of law.”  See, Houston Post Co. v. U.S., 79 F. Supp. 199, 202-203 (1948); see generally, Rochester Telephone Corp. v. U.S., 307 U.S. 125, 143-44 (1939)(while “a mere abstract declaration regarding the status of [a broadcaster] under the Communications Act” is not appealable, a determination of the broadcaster’s status that “necessarily and immediately [requires] obedience to previously formulated mandatory orders addressed generally to” FCC-regulated carriers is appealable); Sprint Nextel Corp. v. FCC, 508 F.3d 1129 (D.C. Cir. 2007); AT&T Corp. v. FCC, 369 F.3d 554, 561-62 (D.C. Cir. 2004) (FCC public notice that certain statutory procedural safeguards had sunset not an appealable “order”).  Granted the section 402(a) caselaw on this point appears scant, but the contemporary “finality” doctrine provides collateral support.  See, Bennett v. Spear, 520 U.S. 154, 177-78 (1997); Flue-Cured Tobacco Cooperative Stabilization Corp. v. EPA, 313 F.3d 852, 859-862 (4th Cir. 2002).  Orders resolving adjudications, regulations, the grant and denial of licenses, inter alia, the actions the Administrative Procedure Act (“APA”) defines as “agency action,” 5 U.S.C. §551(13), have the “force of law.”  But it is not clear that all statements made in the course of a report accompanying such orders similarly possess the “force of law.”  Houston Post Co. v. U.S., 79 F. Supp. at 202.

Take Houston Post Co. v. U.S.  Plaintiff broadcaster challenged a statement the FCC made in the course of deciding another entity’s application for a broadcast license.  The Commission had allegedly declared that 47 U.S.C. §315’s prohibition on broadcaster censoring of political advertisements was absolute and extended to excising defamatory matter.  The Court held that interpretation unreviewable:

We think it plain that the crux of this case lies here. The determination whether the complained of interpretation of the Commission is, or is intended to be, a mere expression of opinion which “neither directs anyone to do anything, nor finally adjudicates a fact to exist upon which some right or duty immediately depends,” or whether it is, or is intended to be, an oblique regulation, that is an authoritative determination of “the existence of a fact that at once sets in execution some sanction, though the decision itself be not in form a command.”

Id. at 202 (quoting National Broadcasting Co. v. U.S., 44 F. Supp. 688, 671 (1942), rev’d, 316 U.S. 407 (1942).  Fortunately, because the Government was a party, the court sought and received clarification as to the agency’s intentions.  Id.

Carlton & Harris Chiropractic, Inc. v. PDR Network

The saga underlying PDR Network v. Carlton & Harris began simply enough.  PDR Network publishes the Physician’s Desk Reference, a widely used publication that compiles prescribing information (e.g., uses, warnings, contraindications) for prescription drugs.  On December 17, 2013, the publisher sent an unsolicited fax to Carlton & Harris Chiropractic, offering the practice a free e-book version its reference guide.  The fax touted the e-book’s virtues, noting that it contained the “[s]ame trusted, FDA-approved full prescribing information … [n]ow in a new, convenient digital format” and was “[d]eveloped to support your changing digital workflow.”  Carlton & Harris Chiropractic, Inc. v. PDR Network, 883 F.3d 459, 462 (4th Cir. 2018).

Apparently unappreciative of the offer, the practice sued in federal district court alleging that the fax violated FCC regulations promulgated under the Telephone Consumer Protection Act of 1991 (the “TCPA”), Pub. L. 102-243, 105 Stat. 2394, codified at 47 U.S.C. § 227, as amended by the Junk Fax Prevention Act of 2005, Pub. L. No. 109-21, 119 Stat. 359.  Carlton & Harris, 883 F.3d at 462.[5]

The TCPA Definition of “Unsolicited Advertisements” and the Implementing Regulations

The current implementing regulations were promulgated in spring 2006.  The revisions were adopted by a Report and Order issued on April 6, In Re Rules And Regulations Implementing The Telephone Consumer Protection Act of 1991, 21 FCC Rcd. 3787 (“TCPA April 6, 2006 Report and Order”), and final notice published in the Federal Register on May 3, Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991; Junk Fax Prevention Act of 2005, 71 FED. REG. 25967, 25973 (May 3, 2006)(“Notice of Final Rule”).  The lengthy proceedings leading to adoption of the revised implementing regulations, which was initiated by a notice of proposed rulemaking issued September 18, 2002 (available here),[6] is described in the FCC’s 2006 Report and Order. TCPA April 6, 2006 Report and Order, ¶¶4-7; see generally, S. Rep. No. 109-76, 2-6 (accompanying the Junk Fax Prevention Act of 2005).

The TCPA, as amended, generally prohibits sending “unsolicited advertisement[s]” by fax, with limited exceptions. 47 U.S.C. § 227(b)(1)(C).  It creates a private right of action for actual monetary loss or $500 in statutory damages per violation, as well as treble damages for willful and knowing violations.  Plaintiff sought to represent the class of those who had received PDR’s unsolicited faxes. 47 U.S.C. § 227(b)(3).

The TCPA defines “unsolicited advertisement” as “any” unsolicited material “advertising the commercial availability or quality of any property, goods, or services.” Id. § 227(a)(5).[7]  In its regulations the FCC “parroted” the statutory definition verbatim.  47 C.F.R. 64.1200(f)(13)(2007). In response to an August 25, 2003 request for clarification filed in the proceeding by Proximity Marketing, the FCC clarified it’s view of the application of the definition to offers of free goods and services.  It explained:

[F]acsimile messages that promote goods or services even at no cost, such as free magazine subscriptions, catalogs, or free consultations or seminars, are unsolicited advertisements under the TCPA’s definition. . . . ‘free’ publications are often part of an overall marketing campaign to sell property, goods, or services. For instance, while the publication itself may be offered at no cost to the fascimile [sic] recipient, the products promoted within the publication are often commercially available. Based on this, it is reasonable to presume that such messages describe the ‘quality of any property, goods, or services.’ Therefore, facsimile communications regarding such free goods and services, if not purely ‘transactional,’ [8] would require the sender to obtain the recipient’s permission beforehand.  By contrast, facsimile communications that contain only information, such as industry news articles, legislative updates, or employee benefit information, would not be prohibited by the TCPA rules.

TCPA April 6, 2006 Report and Order at ¶¶52-53 (emphasis added); Notice of Final Rule, 71 FED. REG. at 25973 (emphasis added).

The District Judge’s Decision

Returning to our narrative, the District Court concluded that the PDR Network had not violated the TCPA.  Carlton & Harris Chiropractic, Inc. v. PDR Network, LLC, 2016 WL 5799301 (S.D. W. Va. 2016).  While the fax was unsolicited, it did not constitute an “advertisement” because in sending the fax PDR Network lacked any “commercial aim” — it sold neither the e-book nor any prescription drugs.  Slip op. at 3.  The Court found the statutory definition “clear and easy to apply.” Id. at 4.  Accordingly, it refused to defer to the FCC’s explanation of the TCPA’s applicability to offers of free goods, explicitly declining to accord the FCC’s response to Proximity Marketing’s request for clarification Chevron deference.  Id.

Moreover, in its view, the FCC’s assertion that unsolicited communications regarding free goods constituted unsolicited advertisements did not square with the FCC’s own definition of “advertisement” in the first sentence quoted in bold above.  The first sentence required that the prohibited fax communication “promote” goods and services, connoting the need for some commercial aim on the part of the faxes sender.  Such an approach, it noted, “harmonizes the FCC interpretation with the plain meaning of the TCPA.”  Id.  The Court did not declare the guidance offered in response to Proximity Marketing’s request for clarification invalid, even merely “as applied” to the PDR Network.

The District Judge explained that the Hobbs Act was inapplicable because neither party was challenging the regulations’ validity.  Id. at 3.  Indeed, “for the purposes of this case, the Court presume[d] the FCC’s order . . . valid.”  Id.  But the order’s validity did not “bind the Court to defer to the FCC’s interpretation of the TCPA.”   Id.  The District Judge appears not to have considered whether the explanation of the TCPA’s application to offers of free goods had any “rule of law” effect.

The Fourth Circuit Decision

On appeal, a divided Fourth Circuit panel pronounced Chevron irrelevant, explaining that a district court must have jurisdiction over a case before engaging in a Chevron analysis of an FCC regulation. Carlton & Harris Chiropractic, Inc. v. PDR Network, 883 F.3d at 464-66.  The majority noted that whether the Hobbs Act precludes a district court’s action is determined not by formalities, but by the “practical effect[s]” of the district court’s action. Id. at 465; accord, California Save Our Streams Council v. Yeutter, 887 F.2d 908, 912 (9th Cir. 1989) (stating that a plaintiff may not, “through careful pleading” avoid Congress’ “strict jurisdictional limits”); American Bird Conservancy v. FCC, 408 F. Supp. 2d 987, 992 (D. Hawaii 2006).

Though the district court had jurisdiction over claims against those who violated the TCPA and its implementing regulation, in exercising that jurisdiction it had to apply the FCC’s regulation to the case.  883 F.3d at 466.  However, the panel majority viewed the regulation not as the definition of “unsolicited advertisement” in the Code of Federal Regulations, but the paragraphs in the FCC’s report and order clarifying the TCPA applications to faxed offers of free goods.  Id.  The regulation, as the Fourth Circuit conceived of it, was plain on its face.  It clearly provided that the PDR Network’s fax constituted an advertisement, and thus provided a basis for damages.  Id. at 466-67.

The dissent emphasized that the District Judge had explicitly noted that it was not invalidating the statute.  Id. at 469-70 (Thacker, J., concurring).  (The majority found little difference between accepting a regulation as valid and then ignoring it, one the one hand, and simply invalidating the “regulation,” on the other. Id. at 465.)  The dissenter distinguished the case from those in which parties made facial challenges to regulations or argued that a rule should be set aside for procedural deficiencies.  Id. at 471 (Thacker, J., concurring).

Smog Ahead: When Does An Agency Statement Have a “Rule of Law” Effect?

But did the FCC take any action having “the force of law” with respect to the TCPA’s definition of “advertisement”?  That type of question lies at the heart of separating binding legislative rules from non-binding guidance (such as interpretive rules and policy statements). And it is relevant not only to determining the finality of agency action (and thus the availability of judicial review), but also to the applicability of the APA’s notice-and-comment requirements and the agency’s entitlement to Chevron or Skidmore deference.  Shalala v. Guernsey Memorial Hospital, 514 U.S. 87, 99 (1995)(requirement of notice and comment);  U.S. v. Mead Corp., 533 U.S. 218, 226-27 (2001)(relevance to degree of deference appropriate).

Unfortunately, the question of whether a rule has binding effect is easy to state, Shalala v. Guernsey Memorial Hospital, 514 U.S. at 99, but has proven difficult to resolve, Noel v. Chapman, 508 F.2d 1023, 1030 (2d Cir.1975) (noting that the issue is “enshrouded in considerable smog”).  The question has plagued courts and inspired numerous scholarly articles.  See, William Funk, The Dilemna of Nonlegislative Rules, JOTWELL (June 3, 2011) (listing scholarly articles). The Supreme Court recently avoided the question, while noting its difficulty, in Perez v. Mortgage Bankers Assn., — U.S. —, 135 S. Ct. 1199, 1204, 1210 (2015).  So, wittingly or not, by granting certiorari in PDR Network the Court may have backed into formulating an authoritative explication of the doctrine.

I will not wade deeply into the question of distinguishing binding legislative rules from non-binding guidance.  But PDR Network raises the issue in an unusual context, and one in which the need for clarity may be particularly acute.  Many of the cases in which the issue arises appear to be ones in which a party seeks judicial review of the validity of the “rule.”  The FCC’s enforcement of the TCPA’s “junk fax” provision has been inconstant, with considerable periods of lax enforcement, including the last five years.[9]  PDR Network, and similar litigation, involve litigation by a private party invoking a private right of action and arguing that the district court is bound by the agency’s directives as a result of the Hobbs Act’s jurisdictional-channeling provisions.  The agency is not even a party to the litigation and thus not forced to weigh in on whether its action was intended to have a “rule of law” effect.  Even at the certiorari stage in PDR Network, the FCC was neither asked to offer its views nor volunteered them.

A regulation typically has a rule of law effect — thus a definition published in the Code of Federal Regulations ordinarily possess such effect.  But with respect to the TCPA’s limitations on “unsolicited advertisements” by fax, the FCC did not purport to further define the statutory term — the actual regulation adopted merely parroted the TCPA’s definition of “unsolicited advertisement.”  Gonzales v. Oregon, 546 U.S. 243, 257 (2006)(“the existence of a parroting regulation does not change the fact that the question . . . is not the meaning of the regulation but the meaning of the statute”).  And indeed, the FCC’s discussion of faxed offers for free goods was not formulated into the language of a regulation and was not published in the Code of Federal Regulations, see American Mining Congress v. Mine Safety & Health Administration, 995 F.2d 1106, 1109 (D.C. Cir. 1993).  Moreover, the FCC’s interpretation is fairly encompassed within the statute, not particular distinct from or additive to it, and tightly linguistically drawn from the text.  Paralyzed Veterans v. D.C. Arena, L.P., 117 F.3d 579, 587-88 (D.C. Cir. 1997), cert. denied sub nom., 523 U.S. 1003 (1998); accord, Catholic Health Initiatives v. Sebelius, 617 F.3d 490, 494-96 (D.C. Cir. 2010); see generally, Hoctor v. USDA, 82 F.3d 165, 170-71 (7th Cir. 1996).

On the other hand, the statement was made as a part of a notice-and-comment proceeding, which some suggest should be dispositive by itself, see, David L. Franklin, Legislative Rules, Nonlegislative Rules, and the Perils of the Short Cut, 120 YALE L. J. 277, 279 (2010)(describing the argument).  In addition the comment is framed in mandatory terms, suggesting that it is a prophylactic rule.  See, General Electric v. EPA, 290 F.3d 377, 382-85 (D.C. Cir. 2002); Appalachian Power Co. v. EPA, 208 F.3d 1015, 1023 (D.C. Cir. 2000); McLouth Steel Products Corp. v. Thomas, 838 F.2d 1317, 1320-21 (D.C. Cir. 1988).  Neither the courts below nor the petitioner discusses whether the FCC treats the rule as binding in practice, a consideration the caselaw also makes relevant, General Electric v. EPA, 290 F.3d at 383; McLouth Steel, 838 F.2d at 1320-21.[10]  Nevertheless, the factors in favor of finding the rule non-binding should be sufficient for a conclusion that the FCC did not intend to give its comments in the course of its report a “force of law” effect.

If that is correct, then the district courts can construe the term “unsolicited advertisement” free from any Hobbs Act constraint.  But while the FCC guidance would lack “rule of law” effect, it would presumably be entitled to some sort of deference, whether Chevron or Skidmore.  The absence of a “rule of law” effects suggests that Skidmore, not Chevron, is the applicable deference regime, U.S. v. Mead Corp., 533 U.S. at 226-27 (agency interpretation “qualifies for Chevron deference” when “Congress delegated authority to the agency generally to make rules carrying the force of law,” and the interpretation “was promulgated in the exercise of that authority”); see, Kirsten E. Hickman, Unpacking the Force of Law, 66 VAND. L. REV. 465, 486-87 (2013).

[1] Readers familiar with federal criminal statutes will find a reference to the Hobbs Act quite bizarre.  There are apparently two statutes commonly referred to as the Hobbs Act.  The far more frequently cited Hobbs Act, 18 U.S.C. §1951, prohibits actual or attempted robbery or extortion affecting interstate or foreign commerce “in any way or degree.”

[2] Petitioner had framed two questions presented:

“1. Does the Hobbs Act strip courts of jurisdiction to engage in a traditional Chevron analysis and require automatic deference to an agency’s order even if there has been no challenge to the “validity” of such order?”

“2. Must faxes that “promote goods and services even at no cost” have a commercial nexus to a firm’s business to qualify as an “advertisement” under the TCPA, or does a plain reading of the FCC’s 2006 order create a per se rule that such faxes are automatically ‘advertisements’?”

Petition for Writ of Certiorari, iii (June 21, 2018).

[3] This series started as a single post to be entitled “Not EVERYTHING is about Chevron,” until I discovered this case is about Chevron (or at least Skidmore).

[4] Political scientist Charles Shipan has extensively discussed the battle over the 1934 Act’s jurisdictional provisions regarding challenges to FCC actions.  CHARLES R. SHIPAN, DESIGNING JUDICIAL REVIEW: INTEREST GROUPS, CONGRESS, AND COMMUNICATIONS POLICY (U. Mich. Press 1997).

[5] The TCPA, as initially enacted, prohibited use of “any telephone facsimile machine, computer, or other device to send an unsolicited advertisement to a telephone facsimile machine.”  TCPA, supra, §227(b)(1)(C).  The Junk Fax Prevention Act added three exceptions to the broad ban, including one for faxes to those with whom the sender had an existing business relations. Junk Fax Prevention Act, supra, §2 (amending §227(b)(1)(C)).

[6] The focus of the rulemaking were issues related to the TCPA’s application to unsolicited telephone calls.  With respect to unsolicited advertisements by fax, the Commission sought comments on “the continued effectiveness of [the initial regulations it promulgated in 1992] and on any developing technologies, such as computerized fax servers, that might warrant revisiting the rules on unsolicited faxes.”  Id. at ¶37.  More particularly, it sought comment on inferring “prior express invitation or permission” to send faxed advertisements based on an established business relationship (EBR) with the fax recipient, and the proper treatment of  “fax broadcasters” (i.e., who transmit other’s advertisements to a large number of fax machines for a fee).  Id. at ¶¶ 37-41.

[7] The Junk Fax Prevention Act left this part of the definition unchanged.  Congress did modify the part of the provision defining “unsolicited,” to provide that permission to send a fax could be “in writing or otherwise.”  Junk Fax Prevention Act, supra, §2(g).

[8] “Transactional” messages are those “whose purpose is to facilitate, complete, or confirm a commercial transaction that the recipient has previously agreed to enter into with the sender,” such as receipts, invoices, statements of accounts, notifications regarding changes to an account, inter alia. TCPA April 6, 2006 Report and Order at ¶¶ 49-51.

[9] In the Junk Fax Prevention Act, Congress directed the Government Accountability Office to conduct a study of the FCC’s enforcement efforts.   Junk Fax Prevention Act, supra, §4.  In two studies, released in 2006 to 2008, GAO faulted the FCC for its lack of enforcement efforts.  GOVERNMENT ACCOUNTING OFFICE, WEAKNESSES IN PROCEDURES AND PERFORMANCE MANAGEMENT HINDER JUNK FAX ENFORCEMENT, GAO-06-425 (April 5, 2006); GOVERNMENT ACCOUNTING OFFICE, FCC HAS MADE SOME PROGRESS IN THE MANAGEMENT OF ITS ENFORCEMENT PROGRAM BUT FACES LIMITATIONS, AND ADDITIONAL ACTIONS ARE NEEDED, GAO-08-125, at 21, Table 2, 30 (Feb 15, 2008).  Subsequently, the agency’s enforcement efforts became more vigorous.  Of the 157 references to enforcement actions listed by the FCC at https://transition.fcc.gov/eb/tcd/eabydate.html (accessed November 19, 2018), 155 occurred after June 1, 2007.  But since January 2012, there have only been 21: 2012-9, 2013-4, 2014-3, 2015-1, 2016-3, 2017-0, 2018-1.

[10] Of course, given that a petition for review must be filed within 60 days after entry of the order, 28 U.S.C. § 2344, there would be little time for the establishment of any agency practice with regard to enforcement of the order.