Supreme Court arguments make it clear that FCC fines are 'nonbinding'

At a glance:

• AT&T and Verizon are challenging $104 million in FCC fines, claiming the agency's penalty system violates their Seventh Amendment right to a jury trial.
• The Supreme Court heard arguments where the government conceded that FCC forfeiture orders are nonbinding and require a court decision for enforcement.
• The case centers on fines issued for selling users' real-time location data without consent, with carriers arguing they were misled into paying before exhausting jury rights.

The $104 million dispute and the Seventh Amendment

The Supreme Court today weighed a significant challenge to the Federal Communications Commission's enforcement powers, brought by AT&T and Verizon. The carriers are contesting a combined $104 million in fines levied against them for the unauthorized sale of users' real-time location data. At the heart of the legal battle is the carriers' assertion that the FCC's procedure for imposing these fines deprived them of their Seventh Amendment right to a jury trial. The companies argue that the current system, which often results in immediate payment to avoid reputational damage, bypasses the constitutional guarantee of a trial by jury.

During oral arguments, the justices expressed skepticism toward the carriers' specific claims that the FCC's process was inherently unconstitutional. However, the session revealed a complex dynamic where the regulated companies might still achieve a strategic victory even if they lose the specific case. The government, represented by Assistant to the Solicitor General Vivek Suri, argued that the FCC's forfeiture orders function similarly to an indictment, authorizing a lawsuit but not imposing a final penalty until a jury has spoken. This distinction is crucial, as it suggests the agency's power is procedural rather than immediately punitive.

Government concedes fines are nonbinding

A pivotal moment in the proceedings occurred when the government effectively acknowledged that FCC fines are not binding until upheld by a court. Justice Brett Kavanaugh noted to AT&T and Verizon's attorney, Jeffrey Wall, that "the government's in retreat," pointing out that the carriers "won on the law going forward." The Solicitor General's office admitted that the FCC may need to alter the language of its forfeiture orders to explicitly state that fines do not require payment until after a jury trial has concluded.

This concession creates a peculiar legal landscape. While the carriers want their money back based on the scheme they understood when they paid, the government is now defending a version of the enforcement mechanism that looks vastly different from the one that originally collected the $104 million. Wall argued that this sudden shift in position—claiming the orders were nonbinding only after the Supreme Court case began—effectively concedes that the original scheme was unconstitutional. He emphasized that for decades, neither the regulations nor the guidance suggested that these orders were merely optional suggestions.

The carriers' argument: Coercion and reputation

Jeffrey Wall, representing the carriers, painted a picture of a system that coerces compliance through reputational pressure rather than legal mandate. He argued that "legitimate" companies almost always pay the fines immediately because the FCC issues them knowing that regulated entities "pay 100 percent of the time." Allowing a fine to remain unpaid creates a "PR problem," as Chief Justice John Roberts noted, but Wall argued the consequences are more severe than public perception.

According to Wall, an unpaid fine hangs over a company's head and can be used against them in future proceedings. The FCC could characterize a company as a "law-breaker" or demonstrate "persistent disregard of the law" when considering matters like license renewals or spectrum allocations. Therefore, the choice to pay the fine was not voluntary; it was a forced surrender of their jury trial rights to protect their business interests. Wall told the court, "My clients need to get their money back because whatever the scheme is the government’s defending now, it doesn’t bear any resemblance to the scheme everybody understood in the lower courts."

Judicial perspectives and the 'Jarkesy' shadow

The justices explored various angles regarding how the FCC scheme interacts with recent precedents, specifically the June 2024 ruling in Securities and Exchange Commission v. Jarkesy. That decision held that the SEC must provide a jury trial when seeking civil penalties for securities fraud. Wall argued that if the FCC can simply label its orders as "nonbinding" while expecting 100% compliance, it would "carve a huge hole" in the Jarkesy decision, allowing agencies to bypass the Seventh Amendment by semantic maneuvering.

However, the government distinguished the FCC from the SEC, noting that the FCC lacks the power to garnish wages or deduct from tax refunds. Suri explained that for the FCC, the only path to actual collection is a lawsuit where a jury determines liability de novo—meaning the trial starts fresh and the agency's initial finding of guilt is not the final word. Justice Elena Kagan supported this view, noting that a court "could start all over again and say that [the agency] was wrong." Justice Ketanji Brown Jackson also questioned why the carriers were unhappy if the government is effectively abandoning immediate enforcement by not coming after them in court.

Historical context and procedural paths

The legal battle is further complicated by the history of FCC enforcement and the specific paths taken by the carriers. The government noted that since the 1970s, it has maintained that orders are nonbinding, though this was not common knowledge among regulated entities until recently. Furthermore, the procedural history varies by circuit: AT&T convinced the US Court of Appeals for the 5th Circuit to overturn its fine, while Verizon lost in the 2nd Circuit. T-Mobile also lost a similar ruling in the District of Columbia Circuit, though the current Supreme Court proceedings are restricted to the AT&T and Verizon cases.

Suri explained that there are essentially two paths for regulated entities: pay the fine and challenge it in a Circuit Court of Appeals (which is quicker if no factual disputes exist), or refuse to pay and wait for the Justice Department to file a collection suit in federal district court, triggering a jury trial. Wall countered that the 2003 version of AT&T successfully pioneered the appellate path, but the current iteration of the company, along with Verizon, feels the FCC's current wording "coerce people into giving up their jury rights." The government maintains that Congress permitted these choices, but the carriers maintain that the practical reality of regulation makes the jury option a dangerous business risk.

Implications for agency enforcement

The outcome of this case could reshape how federal agencies enforce regulations across the telecom and tech sectors. The government warned that adopting the carriers' argument could eliminate the FCC's main enforcement tool, potentially leaving rules concerning privacy and national security unenforced if no other agency can perform the collection role. This is particularly relevant for the FCC, which already struggles to collect fines from entities violating robocall laws, as it lacks independent enforcement power and must rely on the Justice Department.

For the telecom giants, the case is about more than the $104 million; it is about the principle of constitutional rights in administrative law. If the Court sides with the carriers, it could force a massive restructuring of how the FCC writes its orders and collects penalties. If the Court sides with the government, the carriers may not get their money back, but the government has conceded that going forward, everyone will know the fines are nonbinding—a shift that could encourage more companies to simply say "no" and wait for a jury trial, fundamentally changing the leverage the FCC holds over the industry.