Wireless giants' regulatory woes fall on deaf ears at Supreme Court 

WASHINGTON (CN) — The attempt by wireless giants to undercut regulatory fines fell apart at the Supreme Court on Tuesday as the justices labeled their complaints a communications problem rather than a legal one.

AT&T and Verizon collectively face over $100 million in penalties for selling customers’ data to a third party offering a location-finding service to law enforcement officials. The carriers sought the high court’s help in nullifying those fines by challenging the Federal Communications Commission’s authority to issue such orders.

But the justices appeared unconvinced the real problem is the congressional scheme.

“I wonder if at the end of the day, you’re talking about a PR problem,” Chief Justice John Roberts, a George W. Bush appointee, told the carriers’ attorney.

Six decades ago, Congress amended the Communications Act to authorize the FCC to seek monetary forfeitures for certain violations. First, the commission issues a notice of liability, giving the recipient an opportunity to respond. Then, the agency issues a forfeiture order.

The carriers claim these orders are legally binding and create a “penalty-now-trial-later” system that requires companies to pay fines before challenging the charges against them. AT&T and Verizon said the scheme included the same Seventh Amendment violation as the Security and Exchange Commission’s penalty procedures, which the justices found unlawful two years ago.

But the FCC framed forfeiture orders as no more than a regulatory prerequisite. The justices seemed to agree, comparing the orders to traffic tickets or criminal indictments.

“Prosecutors give running complaints all the time where they say there’s probable cause to believe that this person has committed this act and that they’re liable to use for X amount,” Justice Sonia Sotomayor, a Barack Obama appointee, said. “This forfeiture order is no different than that.”

Sotomayor said the FCC’s findings didn’t create a legal obligation.

In practice, the carriers claim these orders have always been understood by wireless companies to be enforceable. Even if they weren’t, AT&T and Verizon said the FCC’s assessment still carried weight.

“We were branded as egregious lawbreakers,” Jeffrey Wall, an attorney with Sullivan & Cromwell representing the carriers, said.

Justice Brett Kavanaugh, a Donald Trump appointee, distilled the carriers’ argument into “a labeling thing.” He said AT&T and Verizon are correct in believing they have a right to a jury trial, the real issue is whether the carriers knew that.

“It seems like you won on the law going forward in one way or the other…but what you’re complaining about and concerned about is you think you were misled into paying the money without getting the jury trial,” Kavanaugh told the carriers.

Pulling out receipts, Vivek Suri, assistant to the solicitor general at the Department of Justice, read from the forfeiture order itself and lower court briefing to dispel the carriers’ claims.

“‘After the commission issues a forfeiture order, AT&T is entitled to a trial de novo in federal district court before it can be required to pay the forfeiture,’” Suri read from the document.

Suri said the forfeiture order also directly noted that AT&T had a right to a jury trial and that a federal court would adjudicate the carriers’ obligation to pay a forfeiture.

“I can also prove that they knew this was [the government’s] understanding of the statute,” Suri said. “Here’s what they said in their opening brief in the Fifth Circuit at page 33 before they’d seen any of our briefing and when all they had was the order. They said, ‘as the commission sees things, the Communications Act simply presented AT&T with a choice, one, pay the $57 million penalty and appeal to this court, or two, refuse to pay and await the filing of a collection proceeding.’ So I don’t think AT&T was misled.”

Justice Amy Coney Barrett, another Trump appointee, pointed to a D.C. Circuit opinion as the source of some confusion. The appeals court held that other procedural paths to a jury trial before payment were foreclosed here, but the justices noted appeals court orders are not law.

With the court seemingly in agreement, the government said carriers’ legal obligation only kicked in when the FCC referred said forfeiture order to the Justice Department to file a civil suit. And at that point, the carriers had access to a jury trial under the Seventh Amendment.

Unlike the SEC which can seek penalties through the tax returns or wage garnishment, the government said the FCC can’t independently collect fines without the Justice Department. Suri said the SEC scheme is also different because orders begin accruing interest and their facts aren’t independently reviewable by courts.

AT&T and Verizon said that left them with an axe hanging over their heads, waiting to see whether the government would seek to enforce the FCC’s order.

Justice Ketanji Brown Jackson, a Joe Biden appointee, failed to see any real harm in the wait-and-see approach. The question before the court, Jackson said, was to what extent the carriers could challenge fines the FCC charged them with.

“The government makes this charge, you don’t actually have to pay, and if the government comes after you for the money, you have the ability to contest it,” Jackson said. “I’m still struggling with why that’s a problem for you.”

If the forfeiture order was truly nonbinding, the carriers begrudgingly agreed their issues with the FCC scheme before the court would be resolved. And the FCC acknowledged it might need to update its documents to avoid future confusion.

“The most that we’d have to do is change the language of the order,” Suri said. “We would have avoided this litigation potentially if we had done so.”

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