Supreme Court Justices Seem Skeptical of Nondelegation Doctrine Claim in FCC v. Consumers’ Research

On Wednesday, March 26, the United States Supreme Court heard oral argument in Federal Communications Commission v. Consumers’ Research. The case asks the Justices to decide whether the Universal Service Fund (USF), a $9 billion telecommunications subsidy program funded by a surcharge on consumer telephone bills, violates the nondelegation doctrine. Established in 1996, the Universal Service Fund provides assistance to rural telecommunications companies, low-income households, libraries and schools, and rural healthcare initiatives. Because the scope and cost of these programs have grown over time, and the interstate telecommunications revenue supporting them has declined, the USF surcharge has risen from 3 percent in 1998 to 36.6 percent today.

In 2021, a coalition including a telecommunications carrier subject to the surcharge challenged the program’s constitutionality. The group argued that Congress violated the Legislative Vesting Clause of Article I of the Constitution by granting the Federal Communications Commission (FCC) significant authority both to define the scope of the USF program and to set the quarterly surcharge through which the program is funded, without providing an intelligible principle to guide the agency’s discretion. They further argued that the agency impermissibly sub-delegated some of that power to the Universal Service Administrative Company (USAC); USAC is a private entity owned by entities that benefit from USF programs, and the FCC has charged it with making quarterly calculations and recommendations of the surcharge amount for the agency’s approval. The Fifth Circuit panel rejected petitioners’ claims, but the en banc court reversed. The court found that Congress “may have” impermissibly delegated legislative power to the agency, and that the agency “may have” impermissibly sub-delegated that power to USAC; but it held that whether or not either action on its own was unconstitutional, the combination of the two violated the nondelegation doctrine.

Many court watchers saw this as a potential sleeper case. Although the Supreme Court has only struck down two statutes under the nondelegation doctrine—both in 1935—individual Justices have shown interest in revisiting the doctrine as part of the Court’s recent moves to rein in the administrative state. In Gundy v. United States, Justice Neil Gorsuch wrote a dissent (joined by Chief Justice John Roberts and Justice Clarence Thomas) that would have created a more robust nondelegation doctrine. Justice Samuel Alito did not join the dissent but supported the effort, and Justice Brett Kavanaugh (who was recused in Gundy) later signaled his support as well. In the right case, it seems a majority of the Court could reanimate what many view as a toothless doctrine.

But at oral argument, it seemed unlikely that this was the right case. The Justices showed little support for the Fifth Circuit’s combination theory. And while the questions presented included the USAC sub-delegation issue (and a mootness question thrown in for good measure), oral argument focused almost exclusively on whether the congressional delegation to the agency was unconstitutional.

Trent McCotter, counsel for Respondents, argued that the USF surcharge was a tax, and taxation is a quintessential legislative function. Congress provided no objective rule to limit the amount the agency could raise. He argued that this delegation of the taxing power was unique in American history, and that coupled with the lack of substantive limits on the USF program itself, it violated the nondelegation doctrine. While Congress can set policy and rely on agencies to fill in the details, he argued, this structure impermissibly put the agency firmly in the driver’s seat.

Justice Gorsuch seemed to agree. Echoing his Gundy dissent, he pressed Petitioners regarding the limits of the “intelligible principle” test. He asked whether Congress could require all Americans to pay an equitable and non-discriminatory contribution to pay down the national debt, but delegate to the Internal Revenue Service the power to set tax rates and deductions. He also questioned Congress’s definition of universal service as “an evolving level of telecommunications service that the Commission shall establish periodically,” and he highlighted the agency’s aggressive interpretation of these provisions over time. Justice Thomas also seemed sympathetic, repeatedly asking Petitioners about the lack of a statutory constraint on revenue raising.

Representing the agency, Acting Solicitor General Sarah Harris stressed that the statute satisfied the intelligible principle test. While Congress did not quantify a revenue cap, the statute limits the surcharge to the amount “sufficient” to fund the program’s various initiatives. And the statute contains multiple provisions that the agency “shall” consider when defining the services supported by the program, including whether services are “subscribed to by a substantial majority of residential customers.” Together, she argued, these provide sufficient legislative guidance to shape the agency’s exercise of discretion.

Former Solicitor General Paul Clement, representing Petitioner Schools, Health & Libraries Broadband Coalition, added that the 1996 Act’s universal service provisions built upon a half-century of universal service subsidies. During the era of rate-regulated monopoly telephone service, the agency relied on implicit cross-subsidies to promote universal service. With the breakup of the AT&T monopoly, Congress preserved these programs in a competitive era by making the subsidies explicit, as an exercise not of the taxing power, but of the commerce power. And the delegation of power in 1996 should be understood against the backdrop of those historic practices during the rate-regulated era.

Justices Elena Kagan, Sonia Sotomayor, and Ketanji Brown-Jackson each seemed to agree with Ms. Harris that the statute contained several intelligible principles to guide the program’s operations, and that “sufficient” was a meaningful limit on the surcharge. Mr. McCotter noted that the agency has repeatedly treated the statutory factors as non-binding, but Justices Kagan and Jackson suggested this was, at most, an argument that the agency had acted in an arbitrary and capricious manner in those instances, not an argument that the statute itself violated the nondelegation doctrine.

The parties spent significant time debating the distinction between a tax and a fee. An earlier case, Skinner v. Mid-American Pipeline Company, upheld Congress’s delegation of power to the Transportation Department to establish annual fees on pipeline operators to pay the costs of administering two pipeline safety acts. Justice Gorsuch and Mr. McCotter both distinguished fees as reflecting merely the value to a recipient or the administrative costs for the government. Ms. Harris argued that this distinction was not so clear, and furthermore that Skinner had rejected a special nondelegation rule for taxes.

Justices Alito and Kavanaugh expressed concern about the effect of a decision in Respondents’ favor, both for the universal service fund and for other programs highlighted by the government. Mr. McCotter insisted the other programs were fee-based programs that should be evaluated under Skinner and that the Court could save the universal service program by staying its decision for six months, as it did in Northern Pipeline, or by limiting relief to the parties in the case, to give Congress time to amend. Neither solution seemed appealing to the Justices. Mr. McCotter stressed that Congress could easily remedy the problem simply by adopting a statutory cap on the USF surcharge. In response to questions, he conceded that even a $1 trillion cap would be constitutionally sufficient, as Congress, not the agency, would be making the decision about the program’s value. In rebuttal, Ms. Harris noted the oddity of arguing that allowing the agency to tax up to $1 trillion did not represent a delegation problem, but limiting it only to the amount “sufficient” to fund program operations was constitutionally suspect. Justices Kavanaugh and Amy Coney Barrett similarly questioned whether constitutionality should turn on the existence of an astronomical cap.

A decision is expected by June.