The opinion
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
____________ FILED
July 24, 2024
No. 22-60008 Lyle W. Cayce
____________ Clerk
Consumers’ Research; Cause Based Commerce,
Incorporated; Kersten Conway; Suzanne Bettac;
Robert Kull; Kwang Ja Kerby; Tom Kirby; Joseph Bayly;
Jeremy Roth; Deanna Roth; Lynn Gibbs; Paul Gibbs;
Rhonda Thomas,
Petitioners,
versus
Federal Communications Commission; United States of
America,
Respondents.
______________________________
Petition for Review from the
Federal Communications Commission
Agency No. 96-45
______________________________
ON PETITION FOR REHEARING EN BANC
No. 22-60008
Before Richman, Chief Judge, and Jones, Smith, Stewart,
Elrod, Southwick, Haynes, Graves, Higginson, Willett,
Ho, Duncan, Engelhardt, Oldham, Wilson, and Douglas,
Circuit Judges.*
Andrew S. Oldham, Circuit Judge, joined by Jones, Smith, Elrod,
Willett, Ho, Duncan, Engelhardt, and Wilson, Circuit Judges:
In the Telecommunications Act of 1996, Congress delegated its taxing
power to the Federal Communications Commission. FCC then subdelegated
the taxing power to a private corporation. That private corporation, in turn,
relied on for-profit telecommunications companies to determine how much
American citizens would be forced to pay for the “universal service” tax that
appears on cell phone bills across the Nation. We hold this misbegotten tax
violates Article I, § 1 of the Constitution.
I.
A.
Congress has long “pursued a policy of providing ‘universal’
[telecommunications] service to all residents and businesses in the United
States.” Ronald J. Krotoszynski, Jr., Reconsidering the Nondelegation Doctrine:
Universal Service, the Power to Tax, and the Ratification Doctrine, 80 Ind. L.J.
239, 279 (2005). For half a century Congress pursued this policy through a
complicated cross-subsidy regime. Back when the old AT&T was a regulated
monopoly, Congress allowed it to charge supra-competitive rates to urban
customers in exchange for requiring it to provide services it might not
otherwise provide to high-cost rural customers. But “[f]or obvious reasons,
this system of implicit subsidies can work well only under regulated
_____________________
*
Judge Ramirez joined the court after this case was submitted and did not
participate in the decision.
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No. 22-60008
conditions. In a competitive environment, a carrier that tries to subsidize
below-cost rates to rural customers with above-cost rates to urban customers
is vulnerable to a competitor that offers at-cost rates to urban customers.”
Tex. Off. of Pub. Util. Couns. v. FCC (“TOPUC I”), 183 F.3d 393, 406 (5th
Cir. 1999). So when Congress deregulated AT&T and other
telecommunications companies, it had to abandon the old way of pursuing
universal service.
Congress’s new way is 47 U.S.C. § 254. Section 254 authorizes FCC
to establish “specific, predictable, and sufficient . . . mechanisms to preserve
and advance universal service.” Id. § 254(b)(5). Pursuant to this grant of
authority, FCC levies “contributions” to a Universal Service Fund
(“USF”) from telecommunications carriers, id. § 254(b)(4), and it
distributes the monies raised to people, entities, and projects to expand and
advance telecommunications services. FCC regulations expressly permit
carriers to pass these “contributions” through to their customers, see 47
C.F.R. § 54.712(a), and the overwhelming majority of carriers do so, see FCC,
FCC 22-67, Report on the Future of the Universal Service Fund 10084–85 ,
(Aug. 15, 2022) (“Report to Congress”).
Notably, Congress declined to define “universal service” itself.
Instead, it delegated to FCC the responsibility to periodically “establish” the
concept of “universal service” by “taking into account advances in
telecommunications and information technologies and services.” 47 U.S.C.
§ 254(c)(1). In making this determination, Congress directed FCC to:
consider the extent to which such telecommunications
services—
(A) are essential to education, public health, or public
safety;
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No. 22-60008
(B) have, through the operation of market choices by
customers, been subscribed to by a substantial majority
of residential customers;
(C) are being deployed in public telecommunications
networks by telecommunications carriers; and
(D) are consistent with the public interest, convenience,
and necessity.
Id. § 254(c)(1).
Section 254(b) also suggests principles for FCC to “base policies for
the preservation and advancement of universal service.”
Telecommunications services “should” be “available at just, reasonable,
and affordable rates”; accessible “in all regions of the Nation”; and available
to “low-income consumers and those in rural, insular, and high cost areas”
at rates “reasonably comparable to rates charged for similar services in urban
areas.” Id. § 254(b)(1)–(3). FCC also may develop “such other [universal
service principles it] determine[s] are necessary and appropriate for the
protection of the public interest, convenience, and necessity and are
consistent with this chapter.” Id. § 254(b)(7).
Section 254 further provides that “[e]lementary and secondary
schools and classrooms, health care providers, and libraries should have
access to advanced telecommunications services.” Id. § 254(b)(6).
Accordingly, “telecommunications carrier[s] shall, upon receiving a bona
fide request, provide telecommunications services which are necessary for
the provision of health care services in a State . . . to any public or nonprofit
health care provider that serves persons who reside in rural areas in that State
at rates that are reasonably comparable to rates charged for similar services
in urban areas in that State.” Id. § 254(h)(1)(A). And “telecommunications
carriers . . . shall, upon a bona fide request for any of its services that are
within the [FCC’s] definition of universal service . . . , provide such services
to elementary schools, secondary schools, and libraries for educational
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purposes at rates less than the amounts charged for similar services to other
parties.” Id. § 254(h)(1)(B). FCC then reimburses telecommunications
providers for the costs of providing this subsidized service. Id.
§ 254(h)(1)(A), (B)(i)–(ii).
B.
Presently, USF supports telecommunications projects through four
major programs: the High-Cost Program (see 47 C.F.R. §§ 54.302–54.322),
the Lifeline Program (see id. §§ 54.400–54.423), the E-rate Program (see id.
§§ 54.500–54.523), and the Rural Health Care Program (see id. §§ 54.600–
54.633).
Each program has a laudable objective. The High-Cost Program
subsidizes the provision of voice and internet services in rural communities.
The Lifeline Program subsidizes the provision of phone service to low-
income consumers. The E-Rate Program subsidizes the provision of
broadband connectivity and Wi-Fi to schools and libraries. And the Rural
Health Care Program subsidizes the provision of telecommunications
services to rural healthcare providers.
FCC regulations establish the services supported by each of these
programs and the eligibility criteria applicants must satisfy to obtain
assistance. But FCC does not administer all these universal service programs
itself. Instead, it relies on a private company called the Universal Service
Administrative Company (“USAC”). USAC is managed by representatives
from “interest groups affected by and interested in universal service
programs” who are “nominated by their respective interest groups.” See
Leadership, Universal Serv. Admin. Co.,
https://perma.cc/9W92G4Z9 (last accessed Sept. 11, 2023); see also 47
C.F.R. § 54.703(b) (providing for the composition of USAC’s board of
directors). FCC has charged USAC with myriad tasks: “billing contributors,
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No. 22-60008
collecting contributions to the universal service support mechanisms, and
disbursing universal service support funds.” 47 C.F.R. § 54.702(b).
Most prominently, though, USAC is responsible for deciding the
quarterly USF contribution amount—a projection of the dollar value of
demand for universal support programs and the costs of administering them.
See id. § 54.709(a)(3). The contribution amount dictates the size of the
universal service contributions levied on telecommunications carriers and, in
turn, American telecommunications consumers. To set the contribution
amount, USAC relies on “information from universal service program
participants” to “estimate[] how much money will be needed each quarter
to provide universal service support.” See Universal Service, Universal
Serv. Admin. Co., https://perma.cc/B5NN-AVF8 (last accessed Oct.
10, 2023). In other words, the contribution amount ultimately derives from
the universal service demand projections of private, for-profit
telecommunications carriers, all of whom have “have financial incentives”
to increase the size of universal service programs. U.S. Gov’t
Accountability Off., GAO-17-538, Additional Action
Needed to Address Significant Risks in FCC’s Lifeline
Program 1 (2017), https://perma.cc/K5J9-L89K (“FCC’s Lifeline
Program”).
FCC then uses USAC’s contribution amount to impose a tax on
America’s telecommunications carriers. (FCC calls this tax the USF
“contribution factor”; but we call it what it is—the “USF Tax.”) The USF
Tax is the percentage of end-user telecommunications revenues each carrier
must contribute to USF in a particular quarter. As a practical matter, USAC
sets the USF Tax—subject only to FCC’s rubber stamp. True, FCC
“reserves the right to set projections of demand and administrative expenses
at amounts that [it] determines will serve the public interest.” See 47 C.F.R.
§ 54.709(a)(3). But FCC never made a substantive revision to USAC’s
6
No. 22-60008
proposed contribution amount prior to this litigation,1 and it does not even
have a documented process for checking USAC’s work. Instead, FCC has
provided that if it “take[s] no action within fourteen (14) days of the date of
release of the public notice announcing [USAC’s] projections of demand and
administrative expenses, the projections of demand and administrative
expenses . . . shall be deemed approved by the Commission.” See ibid.
(emphasis added). So FCC has delegated to USAC responsibility—de facto if
not de jure—for imposing the USF Tax.
C.
In 1995, the USF Tax was $1.37 billion. JA62. But by the end of 2021,
USAC ballooned the USF to over $9 billion. See Universal Serv.
Admin. Co., 2021 Annual Report 20 (2023)
https://perma.cc/9CPT-H5LM. The proposed USF Tax at issue in this case
is 25.2%, up from just over 5% in 2000. See FCC, DA 00-517, Proposed
Second Quarter 2000 Universal Service Contribution
Factor (Mar. 7, 2000), https://perma.cc/4BSK-6QZR. Recent USF
Taxes have been set as high as 34.5%. See FCC, DA 23-843, Proposed
Fourth Quarter 2023 Universal Service Contribution
Factor (Sep. 13, 2023), https://perma.cc/Y2QW-6HBD.
Many of the billions injected into the USF have undoubtedly been
deployed to support the important goal of universal service. But waste and
fraud have also contributed to the USF’s astronomical growth. For example,
in 2004, FCC’s Inspector General affirmed that schools view the E-Rate
Program as “a big candy jar” of “free money.” Sam Dillon, School Internet
_____________________
1
FCC claims it has made three alterations to USF projections. But one of those
was a ministerial change of the rate from .09044 to .091 because some carriers’ computers
could not handle five decimal places. And the other two were not even initiated by FCC.
See Petrs’ EB Br. 63.
7
No. 22-60008
Program Lacks Oversight, Investigator Says, N.Y. Times (June 18, 2004),
https://perma.cc/9PZY-ED3K. The Inspector General’s primary concern
was FCC’s heavy and longstanding reliance on self-certified eligibility
determinations in the E-rate Program. See U.S. Gov’t
Accountability Off., GAO-20-606, FCC Should Take Action
to Better Manage Persistent Fraud Risks in the Schools
and Libraries Program18 (Sep. 2020), https://perma.cc/5EK4-
Q8V8 (“FCC’s E-rate Program”). A 2008 GAO report demonstrated that,
in a single year, USAC made almost a billion dollars of High-Cost Program
payments that “should not have been made, or were not made, in the correct
amount, when viewed from the perspective of applicable Federal
Communications Commission rules, orders and interpretative opinions.”
Off. of the Inspector Gen., FCC, The High Cost Program
2 (Nov. 26, 2008), https://perma.cc/WJG3-6PJ6 (“The High-Cost
Program”). In 2013, one Congressman noted:
The [Lifeline] fund [] increased 266 percent [between 2008
and 2013], . . . all while the cost of phone service [went] down.
Despite the limit of one subsidized subscriber per household,
published reports suggest some subscribers have eight or more
phones with subsidized service, with one woman saying that to
get one “she just goes across the street and gets it.” One man
has claimed to have a bag full of 20 phones on the program that
he sells “for about 10, 15, 20 bucks” each.
The Lifeline Fund: Money Well Spent?: Hearing Before the H. Subcomm. on
Commc’n & Tech., H. Comm. On Energy & Comm., 113th Cong. 2 (2013)
(opening statement of Chairman Greg Walden),
https://perma.cc/4DAWUERW. And in 2018, FCC’s managing director
reported a GAO audit that uncovered gross improper payments of $336.39
million in the Lifeline Program alone. See Letter from Mark Stephens,
Managing Director, FCC, to Ron Johnson, Chairman, S. Comm. On
8
No. 22-60008
Homeland Sec. & Gov’t Affs. (Aug. 27, 2019), https://perma.cc/VNQ6-
N3WB. While earth’s only two certainties are death and taxes, the USF Tax
manages to cheat the grave: It is well-documented that FCC disburses USF
money to dead people. See FCC’s Lifeline Program, supra, at 43.
USAC’s role in perpetuating USF waste is equally well known. In
2010, GAO concluded that USAC “lacks key features of effective internal
controls.” U.S. Gov’t Accountability Off., GAO-11-11,
Improved Management Can Enhance FCC Decision
Making for the Universal Service Fund Low-Income
Program i (Oct. 2010), https://perma.cc/9YHE-8YE9 (“FCC’s Low-
Income Program”); see also FCC’s E-rate Program, supra, at 20–21.
The Low-Income Program report noted that while USAC primarily uses
audit findings to monitor compliance with USF rules, “the number and scope
of USAC’s audits have been limited and there is no systematic process in
place to review the findings of those audits that are conducted.” FCC’s
Low-Income Program, supra, at cover page. Moreover, the GAO noted
USAC had not even considered “the possibility that multiple carriers may
claim support for the same telephone line and that households may receive
more than one discount, contrary to program rules.” Ibid. In 2017, GAO
explained that USAC “relies on over 2,000 Eligible Telecommunication
Carriers that are Lifeline providers to implement key program functions,
such as verifying subscriber eligibility,” which is problematic because
“companies may have financial incentives to enroll as many customers as
possible.” FCC’s Lifeline Program, supra, at cover page. And in
2019, FCC acknowledged that USAC was out of compliance with improper
payment reporting requirements. See Letter from Mark Stephens, supra, at 1.
* * *
9
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Section 254 reflects a policy goal of making telecommunications
services available to all Americans. It is emphatically the province of
Congress to make such policy choices. But it is our judicial duty to ensure
that Congress pursued its goal through lawful means. And in that regard, our
brief survey of the USF’s history makes three things clear. First, Congress’s
instructions are so ambiguous that it is unclear whether Americans should
contribute $1.37 billion, $9 billion, or any other sum to pay for universal
service. Second, private entities bear important responsibility for universal
service policy choices. And third, it is impossible for an aggrieved citizen to
know who bears responsibility for the USF’s serious waste and fraud
problems. All three of those things implicate bedrock constitutional
principles.
II.
A.
On November 2, 2021, USAC proposed its Q1 2022 USF
contribution amount. A subset of the Petitioners in this action filed a
comment with FCC challenging the constitutionality of the universal service
contribution mechanism on November 19. On December 13, 2021, FCC
issued a public notice of its Proposed Q1 2022 USF Tax, which was derived
directly from USAC’s proposed contribution amount. Petitioners re-filed
their comment on December 22. FCC took no action with respect to USAC’s
proposed contribution amount, so on December 27 the contribution factor
was deemed approved. See 47 C.F.R. § 54.709(a)(3). Petitioners then filed a
timely petition for review in our court.
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B.
We have statutory jurisdiction under 47 U.S.C. § 402 and 28 U.S.C.
§ 2342.2 FCC does not contest our constitutional jurisdiction, but we have an
obligation to consider jurisdictional questions sua sponte even when they are
not raised by the parties. See E.T. v. Paxton, 41 F.4th 709, 718 n.2 (5th Cir.
2022).
Consistent with that obligation, we note that at least one petitioner—
Cause Based Commerce—had Article III standing when the petition was
filed. See Biden v. Nebraska, 143 S. Ct. 2355, 2365 (2023) (“If at least one
plaintiff has standing, the suit may proceed.”); Advanced Mgmt. Tech., Inc. v.
FAA, 211 F.3d 633, 636 (D.C. Cir. 2000) (“Standing is assessed at the time
the action commences.” (citation and quotation omitted)). Cause Based
Commerce incurred a classic pocketbook injury as a result of its legal
obligation to pay the USF Tax. Its injury is fairly traceable to the challenged
conduct because the size of its Q1 2022 USF liability was controlled by the
contribution factor set by USAC. And, at the time the petition was filed, its
injury could have been redressed by a favorable judicial decision because
vacatur of FCC’s approval of the proposed contribution factor would have
prevented collection of the USF Tax. See 47 C.F.R. § 54.709(a)(3) (“[T]he
Administrator shall apply the quarterly contribution factor, once approved by
the Commission, to contributor’s interstate and international end-user
telecommunications revenues to calculate the amount of individual
contributions.” (emphasis added)).
_____________________
2
Before the panel, FCC argued that we lack statutory jurisdiction because the
petition was not timely filed. The panel rejected that argument, see Consumers’ Rsch. v.
FCC, 63 F.4th 441, 446 (5th Cir. 2023), reh’g en banc granted, opinion vacated, 72 F.4th 107
(5th Cir. 2023), and FCC has abandoned it.
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No. 22-60008
It is not clear that Cause Based Commerce’s pocketbook injury is still
redressable because sovereign immunity may bar recovery of the monies it
paid into USF pursuant to the Q1 2022 USF Tax. See 5 U.S.C. § 702 (waiving
sovereign immunity for actions against agencies seeking relief “other than
money damages”). If that is right, Cause Based Commerce’s challenge might
be moot because no court-ordered relief could redress the injuries it incurred
as a result of the Q1 2022 USF Tax. See Already, LLC v. Nike, Inc., 568 U.S.
85, 91 (2013) (“A case becomes moot—and therefore no longer a ‘Case’ or
‘Controversy’ for purposes of Article III—when the issues presented are no
longer live or the parties lack a legally cognizable interest in the outcome.”
(quotation and citation omitted)).
We need not reach that question, however, because even assuming
Cause Based Commerce’s injury is no longer redressable, it is nonetheless
justiciable because it is capable of repetition yet evading review. See, e.g., S.
Pac. Terminal Co. v. Interstate Com. Comm’n, 219 U.S. 498, 515 (1911)
(establishing the exception and noting that jurisdiction “ought not to be . . .
defeated, by short term orders, capable of repetition, yet evading review”
because otherwise the government and regulated parties would “have their
rights determined by the Commission without a chance of [judicial]
redress”). The Q1 2022 USF Tax evades review because it was in force for
just one quarter—“too short [a] duration to be fully litigated in the United
States Supreme Court before it expire[d].” Ralls Corp. v. Comm. on Foreign
Inv. in U.S., 758 F.3d 296, 321 (D.C. Cir. 2014); see ibid. (“As a rule of thumb,
agency actions of less than two years’ duration cannot be fully litigated prior
to cessation or expiration, so long as the short duration is typical of the
challenged action.” (quotation and citation omitted)). And it is capable of
repetition because there is “a reasonable expectation”—indeed, a near
certainty—“that [Cause Based Commerce] will be subjected to the same
action again.” Id. at 323; see id. at 324 (“The same action generally refers to
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No. 22-60008
. . . recurrent identical agency actions.” (quotation and citations omitted));
see also 47 C.F.R. § 54.709(a)(3) (providing that a new contribution factor is
calculated each quarter).
Accordingly, we have jurisdiction to decide the merits of petitioners’
constitutional claims.
C.
We must decide one more threshold issue. On June 17, 2024, FCC
filed a motion to dismiss on the that ground issue preclusion bars the petition
for review. In FCC’s view, that is because petitioners raised identical
challenges to different USF quarterly contribution factors in the Sixth and
Eleventh Circuits, and those courts rejected petitioners’ arguments. But
even if there were something to FCC’s issue preclusion argument, it fails
because FCC forfeited it.
“[I]ssue preclusion[] is an affirmative defense.” Taylor v. Sturgell, 553
U.S. 880, 907 (2008). That means the party asserting preclusion ordinarily
must timely raise it. Ibid.; see 18A Charles Alan Wright, Arthur
R. Miller, & Edward H. Cooper, Federal Practice &
Procedure § 4405 (3d ed. 2017). Where, as here, an allegedly preclusive
judgment is rendered after suit is filed, the party “wishing to raise
[preclusion] is obliged to assert it at the earliest moment practicable.” Home
Depot, Inc. v. Guste, 773 F.2d 616, 620 n. 4 (5th Cir. 1985); see Evans v.
Syracuse City Sch. Dist., 704 F.2d 44, 47 (2d Cir. 1983) (“[T]he party wishing
to raise [preclusion as a] defense is obliged to plead it at the earliest possible
moment.” (quotation omitted)); Aetna Cas. & Sur. Co. v. Gen. Dynamics
Corp., 968 F.2d 707, 711 (8th Cir. 1992) (issue preclusion must be raised “at
the first reasonable opportunity after the rendering of the decision having the
preclusive effect”); Davignon v. Clemmey, 322 F.3d 1, 15 (1st Cir. 2003)
(holding that district court abused its discretion by allowing defendant to
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No. 22-60008
assert preclusion defense “at the eleventh hour”); Georgia Pac. Consumer
Prod., LP v. Von Drehle Corp., 710 F.3d 527, 533 (4th Cir. 2013) (“Even when
a preclusion defense is not available at the outset of a case, a party may waive
such a defense arising during the course of litigation by waiting too long to
assert the defense after it becomes available.”); Arizona v. California, 530
U.S. 392, 413 (2000) (holding that party could not raise preclusion as a
defense when party could have raised the defense earlier in the proceedings
but did not, “despite ample opportunity and cause to do so”).
That makes sense. The policy underlying issue preclusion is based
primarily on a “defendant’s interest in avoiding the burdens of twice
defending a suit” and “the avoidance of unnecessary judicial waste.”
Arizona, 530 U.S. at 412 (quoting United States v. Sioux Nation, 448 U.S. 371,
432 (1980) (Rehnquist, J., dissenting)). Issue preclusion cannot serve either
of those purposes if it is raised in the eleventh hour of proceedings, after the
defendant and the court have already carried all the burdens necessary to
decide the case. So even assuming FCC could defeat petitioners’ claims on
the ground the Sixth and the Eleventh Circuits have rendered preclusive
judgments, FCC was obliged to raise that issue “at the earliest moment
practicable.” Guste, 773 F.2d at 620 n.4.
It did not. The first allegedly preclusive judgment FCC cites is the
Sixth Circuit’s judgment in Consumers’ Research v. FCC. See 67 F.4th 773
(6th Cir. 2023), cert. denied Consumers’ Rsch. v. FCC, No. 23-456, 2024 WL
2883753 (U.S. June 10, 2024). That judgment bound six of the named
petitioners in this case.3 And it was final on June 7, 2023. See Mandate Issued,
Consumers’ Rsch., 67 F.4th 773 (No. 21-3886) (Jun. 7, 2023). True, the
_____________________
3
Consumers’ Research, Cause Based Commerce, Deanna Roth, Jeremy Roth,
Joseph Bayly, Lynn Gibbs, and Paul Gibbs.
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No. 22-60008
petitioners sought certiorari in that case. But “the general rule in American
jurisprudence [is] that a final judgment of a court . . . can be given
[preclusive] effect even while an appeal is pending.” Prymer v. Ogden, 29 F.3d
1208, 1213 n.2 (7th Cir. 1994); see Wright & Miller, supra, § 4433 (“[I]t
is . . . held in federal courts that the preclusive effects of a lower court
judgment cannot be suspended simply by taking an appeal that remains
undecided.”); Restatement (Second) of Judgments § 13, cmt. f
(explaining a “judgment otherwise final” for purposes of the law of res
judicata should “remain[] so despite the taking of an appeal”).
That means FCC could have asserted preclusion against six
petitioners on June 7, 2023. At the very least, FCC could have raised
preclusion in its supplemental brief, which it filed on August 30, 2023. But
FCC did not do so. Instead, it waited more than a year and then filed a tardy
motion to dismiss at the eleventh hour. FCC therefore forfeited its preclusion
defense with respect to at least six petitioners.4 So there is no doubt we may
proceed to the merits of those petitioners’ claims.
FCC also cites the Eleventh Circuit’s judgment in Consumers’ Rsch. v.
FCC, 88 F.4th 917, 923 (11th Cir. 2023), cert. denied Consumers’ Rsch. v. FCC,
No. 23-743, 2024 WL 2883755 (U.S. June 10, 2024). That judgment bound
all the petitioners in this case, including the six who were parties to the Sixth
Circuit proceeding. But that another allegedly preclusive judgment was
rendered during the course of this proceeding does not change the fact that
FCC had a purported preclusion defense against six petitioners as of June 7,
2023. And even if the Eleventh Circuit’s judgment somehow gave FCC a new
window to raise a preclusion defense against those petitioners, the window
closed before FCC raised it. The Eleventh Circuit’s judgment was final (and
_____________________
4
Including Cause Based Commerce, who certainly has standing. See supra, at 11.
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No. 22-60008
therefore had preclusive effect) on February 5, 2024. See Mandate Issued,
Consumers’ Research v. FCC, 88 F.4th 917 (No. 22-13315) (Feb. 5, 2024).
FCC nonetheless waited to file a motion to dismiss on the basis of that
judgment until June 17, 2024—more than four months later.
There may sometimes be ambiguity about whether a defendant
carried its obligation to raise a preclusion defense “at the earliest moment
practicable.” Guste, 773 F.2d at 620 n.4. But this is not a close case. Litigants
ordinarily have 21 days to plead an affirmative defense. See Fed. R. Civ.
P. 12(a)(1)(A)(ii); see also Wright & Miller, supra, § 1394 (noting
affirmative defenses are forfeited if they are not raised in responsive
pleadings). There is no reason a party should have six times that many days
to raise an affirmative defense to a petition for review. So even if we thought
FCC could have asserted preclusion against all the petitioners within a
reasonable time after the Eleventh Circuit rendered judgment, we would hold
FCC failed to do so.
In sum, FCC forfeited any preclusion defense. True, we have
discretion to forgive a forfeiture in “extraordinary circumstances”—as
where “a miscarriage of justice would result from our failure to consider” the
forfeited argument. See, e.g., AG Acceptance Corp. v. Veigel, 564 F.3d 695, 700
(5th Cir. 2009). But FCC does not supply any reason to think a miscarriage
of justice would result from our reaching the merits of petitioners’ claims.
See ibid. (explaining the burden of establishing extraordinary circumstances
is on the party seeking review). And we cannot think of one. In fact, if we do
not decide the constitutional questions presented in this case, we will have to
decide them in a pending challenge that includes petitioners who were not
parties to the Sixth or Eleventh Circuit proceedings. See Petition for Review,
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No. 22-60008
Consumers’ Research v. FCC, No. 24-60330 (5th Cir. Jun. 27, 2024). It effects
no injustice to hold FCC to its forfeiture.5
* * *
We therefore proceed to the merits. Our review is de novo. See Huwaei
Tech. USA, Inc. v. FCC, 2 F.4th 421, 434 (5th Cir. 2021).
III.
Petitioners contend the universal service contribution mechanism
violates the Legislative Vesting Clause. See U.S. Const. art. I, § 1 (“All
legislative Powers herein granted shall be vested in a Congress of the United
States, which shall consist of a Senate and House of Representatives.”). We
agree. We (A) explain that the power to levy USF “contributions” is the
power to tax—a quintessentially legislative power. Then we (B) explain that
Congress through 47 U.S.C. § 254 may have delegated legislative power to
FCC because it purported to confer upon FCC the power to tax without
supplying an intelligible principle to guide FCC’s discretion. Next, we
(C) explain that FCC may have impermissibly delegated the taxing power to
private entities. Finally, we (D) explain that we need not definitively answer
either delegation question because even if § 254 contains an intelligible
principle, and even if FCC was permitted to enlist private entities to
_____________________
5
FCC convinced the Supreme Court to deny certiorari in the Sixth and Eleventh
Circuit cases in part by explaining the Court would have another chance to consider the
constitutionality of the USF after this court’s en banc ruling. See Br. in Opp’n 17–18,
Consumers’ Rsch. v. FCC, Nos. 23-456, 23-743 (U.S. May 3, 2024) (“[T]he en banc Fifth
Circuit has not yet issued its decision in that case. Once it does so, the parties can determine
whether to seek, and this Court can determine whether to grant, certiorari to review that
decision.”). Had FCC told the Supreme Court it thought petitioners’ claims in this court
were issue precluded, the Court might have granted certiorari in those other cases. It would
be unjust to allow FCC to raise an issue to evade en banc review so soon after it hid that
issue to evade Supreme Court review.
17
No. 22-60008
determine how much universal service tax revenue it should raise, the
combination of Congress’s broad delegation to FCC and FCC’s
subdelegation to private entities certainly amounts to a constitutional
violation.
A.
Section 254(d) provides that “[e]very telecommunications carrier
that provides interstate telecommunications services shall contribute, on an
equitable and nondiscriminatory basis, to the specific, predictable, and
sufficient mechanisms established by the Commission to preserve and
advance universal service.” 47 U.S.C. § 254(d). Pursuant to this authority,
FCC mandates that “telecommunications carriers . . . must contribute to the
universal service support mechanisms.” 47 C.F.R. § 54.706(a). USAC
determines carriers’ USF contribution obligations on a quarterly basis by
“apply[ing] the quarterly contribution factor . . . to [each carriers’] interstate
and international end-user telecommunications revenues.” Id.
§ 54.709(a)(3). The result is a USAC-fashioned USF Tax.
FCC’s principal defense of the USF scheme is that the USF Tax is
not really a tax at all. Rather, FCC contends, it is a fee. That is because, FCC
reasons, a fee is a charge that “bestows a benefit on the [payor], not shared
by other members of society.” Nat’l Cable Television Ass’n v. United States,
415 U.S. 336, 341 (1974). And FCC thinks universal service contributions
comport with that definition because telecommunications carriers pay them,
and because they are used to fund the universal service program, which
“confers special benefits on contributing carriers by (among other things)
expanding the network such carriers can serve.” FCC EB Br. 51.
But FCC misunderstands the nature of the inquiry. A fee has three
characteristics: First, fees are incurred “incident to a voluntary act.” Nat’l
Cable, 415 U.S. at 341; see also Krotoszynski, Jr., Reconsidering the
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No. 22-60008
Nondelegation Doctrine, supra, at 270 (“A ‘fee’ constitutes a charge that an
agency exacts in return for a benefit voluntarily sought by the payer.”). For
example, “[a] public agency might charge a user fee to visit a public park,
tour a museum, or enter a toll road.” Trafigura Trading LLC v. United States,
29 F.4th 286, 293 (5th Cir. 2022) (Opinion of Ho, J.); see also ibid. (noting
that fees “arise in the context of value-for-value transactions” between
individuals and government). The government may also charge fees designed
to defray the cost of providing benefits to a regulated party, but only if the
fees charged represent a “fair approximation of services, facilities, or benefits
furnished.” United States v. U.S. Shoe Corp., 523 U.S. 360, 363 (1998).
Second, a fee generally is “imposed by an administrative agency upon only
those persons, or entities, subject to its regulation for regulatory purposes.”
Valero Terrestrial Corp. v. Caffrey, 205 F.3d 130, 134 (4th Cir. 2000). And
third, the revenue the government raises through its collection of fees is used
to supply benefits inuring to the persons or entities paying them rather than
to the public generally. See Skinner v. Mid-Am. Pipeline Co., 490 U.S. 212, 223
(1989) (quoting Nat’l Cable, 415 U.S. at 343).
Universal service contributions do not have any of these
characteristics. First, they are not incident to a voluntary act but rather are a
condition of doing business in the telecommunications industry. See 47
U.S.C. § 254(d). Nor do they represent a fair approximation of the benefits
conferred by government regulation on telecommunications carriers. In fact,
they are not related to regulatory costs at all. They are designed to fund
telecommunications subsidies to schools, libraries, healthcare facilities, and
low-income individuals. Second, the cost of universal service contributions is
not borne by parties FCC regulates. While FCC formally imposes the charges
on telecommunications carriers, carriers overwhelmingly pass the cost of
contributions on to consumers, as is expressly permitted by FCC regulation.
See FCC, Report to Congress, supra, at 45–46; 47 C.F.R.
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§ 54.712(a). So the cost of universal service contributions is widely shared by
the population in a manner reminiscent of a “classic tax.” See Valero, 205
F.3d at 134 (“The ‘classic tax’ is imposed by the legislature upon a large
segment of society.”). And third, the benefits associated with universal
service contributions “inure to the benefit of the public”—or more
accurately to the benefit of those fortunate enough to receive subsidies from
USAC—rather than to the benefit of the persons who pay them. Skinner, 490
U.S. at 223 (quoting Nat’l Cable, 415 U.S. at 343). There is no overlap at all
between the class of USF beneficiaries (recipients of subsidized
telecommunications services) and the class of USF contributors (American
telecommunications consumers who see USF charges on their phone bills
each month).
Think about the consequences of FCC’s position:
Congress could fund Medicare and Medicaid without “taxing”
anyone. It could simply allow hospital executives to set the Medicare-
Medicaid budget, then have HHS rubber-stamp the hospitals’
healthcare taxes, which could then be passed through to consumers’
hospital bills.
Congress could fund the Supplemental Nutrition Assistance Program
(“SNAP”) without “taxing” anyone. It could simply allow grocery
store executives to set the SNAP budget, then have USDA rubber-
stamp the grocers’ SNAP taxes, which could then be passed through
to consumers at the checkout register.
Congress could fund affordable housing without “taxing” anyone. It
could simply allow real estate companies to set the affordable housing
budget, then have HUD rubber-stamp the companies affordable-
housing taxes, which could then be passed through to consumers as
new line items at closing or in monthly surcharges for rent.
We could go on. But you get the point: All of these are obviously taxes. So
while “[d]istinguishing a tax from a fee often is a difficult task,” Tex. Ent.
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No. 22-60008
Ass’n, Inc. v. Hegar, 10 F.4th 495, 505 (5th Cir. 2021) (citation omitted), the
analysis here is straightforward. Congress has bestowed upon FCC the power
to levy taxes, and we accordingly conclude that it has delegated its taxing
power.6
B.
In § 254 of the Telecommunications Act, Congress delegated its
taxing power to FCC. The power to tax is a quintessentially legislative one.
See U.S. Const. art. 1, § 8, cl. 1; see also Nat’l Cable, 415 U.S. at 340
(“Taxation is a legislative function, and Congress . . . is the sole organ for
levying taxes.”); Michael W. McConnell, The President Who
Would Not Be King 334 (2020) (noting that domestic taxation is
“especially central to the legislative branch”). So § 254 is constitutional only
if it passes nondelegation muster. We (1) explain the nondelegation doctrine
as articulated by the Supreme Court. Then we (2) explain the breadth of
Congress’s delegation to FCC. Lastly, we (3) explain that the Supreme Court
has never upheld a delegation of core legislative power as sweeping as the one
contained in § 254.
1.
The Constitution vests “[a]ll legislative Powers herein granted” “ in
a Congress of the United States.” U.S. Const. art. I, § 1. “Accompanying
that assignment of power to Congress is a bar on its further delegation.”
Gundy v. United States, 588 U.S. 128, 135 (2019) (plurality op.). Moreover,
“the principle of separation of powers that underlies our tripartite system of
_____________________
6
The fact that Congress euphemistically labeled these universal service charges
“contribution[s],” 47 U.S.C. § 254(d), is irrelevant. “Congress cannot change whether an
exaction is a tax . . . for constitutional purposes simply by” relabeling it. Nat’l Fed’n of Indep.
Bus. v. Sebelius, 567 U.S. 519, 544 (2012) (emphasis in original).
21
No. 22-60008
Government” independently compels the conclusion that Congress, not
agencies, must make legislative decisions. Mistretta v. United States, 488 U.S.
361, 371 (1989); see Gundy, 588 U.S. at 153 (Gorsuch, J., dissenting) (“[I]t
would frustrate the system of government ordained by the Constitution if
Congress could merely announce vague aspirations and then assign others
the responsibility of adopting legislation to realize its goals.” (quotation
omitted)). So there is no doubt that “the lawmaking function belongs to
Congress,” Loving v. United States, 517 U.S. 748, 758 (1996), and that
Congress “may not constitutionally delegate that power to another”
constitutional actor, Touby v. United States, 500 U.S. 160, 165 (1991).
But “[t]he Constitution has never been regarded as denying to the
Congress the necessary resources of flexibility and practicality, which will
enable it to perform its function.” Panama Refin. Co. v. Ryan, 293 U.S. 388,
421 (1935). So the Supreme Court has held that delegations are constitutional
so long as Congress “lay[s] down by legislative act an intelligible principle to
which the person or body authorized [to exercise the delegated authority] is
directed to conform.” J.W. Hampton, Jr., & Co. v. United States, 276 U.S.
394, 409 (1928).
Still, “there are limits of delegation which there is no constitutional
authority to transcend.” Panama Refin., 293 U.S. at 430. And for good
reason. Vague congressional delegations undermine representative
government because they give unelected bureaucrats—rather than elected
representatives—the final say over matters that affect the lives, liberty, and
property of Americans. See Tiger Lily, LLC v. U.S. Dep’t of Hous. & Urb.
Dev., 5 F.4th 666, 674 (6th Cir. 2021) (Thapar, J., concurring) (“By shifting
responsibility to a less accountable branch, Congress . . . deprives the people
of the say the framers intended them to have.”). Overly broad delegations
also obscure accountability: When elected representatives shirk hard choices,
constituents do not know whom to hold accountable for government action.
22
No. 22-60008
See Gundy, 588 U.S. at 156 (Gorsuch, J., dissenting). And they offend the
deliberation-forcing features of the constitutionally prescribed legislative
process. See U.S. Const. art. I, § 7; John Manning, Lawmaking Made Easy,
10 Green Bag 2d 191, 202 (2007) (“[B]icameralism and presentment
make lawmaking difficult by design.” (emphasis in original)); see also The
Federalist No. 73 (A. Hamilton) (noting that the Constitution prescribed
elaborate procedures for lawmaking because “[t]he oftener the measure is
brought under examination, the greater the diversity in the situations of those
who are to examine it, the less must be the danger of those errors which flow
from want of due deliberation, or of those missteps which proceed from the
contagion of some common passion or interest.”).
So while “the Supreme Court has not in the past several decades held
that Congress failed to provide a requisite intelligible principle,” Jarkesy v.
SEC, 34 F.4th 446, 462 (5th Cir. 2022), aff’d on other grounds, 144 S. Ct. 2117
(2024), “[t]hat does not mean . . . we must rubber-stamp all delegations of
legislative power,” Big Time Vapes, Inc. v. FDA., 963 F.3d 436, 443 (5th Cir.
2020). Rather, “[w]e ought not to shy away from our judicial duty to
invalidate unconstitutional delegations.” Ibid. (quotation omitted).
2.
Nondelegation inquiries “always begin[] . . . with statutory
interpretation” because the constitutional question is whether Congress has
supplied a sufficiently intelligible principle to guide an agency’s discretion.
Gundy, 588 U.S. at 135 (plurality op.). So we must construe “the challenged
statute to figure out what task it delegates and what instructions it provides.”
Id. at 136. Petitioners challenge the USF’s funding mechanism, so we must
consider whether 47 U.S.C. § 254 sufficiently instructs FCC regarding how
much it should tax Americans to pay for the universal service program.
23
No. 22-60008
Two of § 254’s subsections are relevant: § 254(d) provides that USF
funding should be “sufficient . . . to preserve and advance universal service,”
and § 254(b)(1) suggests that telecommunications services “should be
available at . . . affordable rates.”
These statutory phrases supply no principle at all. Start with
sufficiency. That funding should be “sufficient . . . to preserve and advance
universal service” is meaningful only if the concept of universal service is
sufficiently intelligible. It is not. Rather, universal service is “an evolving
level of telecommunications services that the Commission shall establish
periodically” by determining what telecommunications services are
“essential to education, public health, or public safety”; are “subscribed to
by a substantial majority of residential customers”; are “deployed . . . by
telecommunications carriers”; or are otherwise “consistent with the public
interest, convenience, and necessity.” 47 U.S.C. § 254(c). That is a lot of
words, but they amount to a concept of universal service so amorphous that
Congress’s instruction to raise “sufficient” funds amounts to a suggestion
that FCC exact as much tax revenue for universal service projects as FCC
thinks is good. Cf. Gary Lawson, Delegation and Original Meaning, 88 Va. L.
Rev. 327, 339–40 (2002) (describing consequences of congressional
enactment that requires “‘goodness and niceness’”).
That § 254(b) supplies minimal guidance on the contours of
Congress’s idea of an ideal universal service policy is no answer. That is for
three reasons. First, we have previously accepted FCC’s contention that
“nothing in [§ 254] defines ‘sufficient’ to mean that universal service
support must equal the actual costs incurred by” telecommunications
carriers contributing to the USF. TOPUC I, 183 F.3d at 412. So FCC’s
universal service taxation is not formally limited by the amount it disburses
on universal service projects. Nothing in the statute precludes FCC from, for
example, imposing the USF Tax to create an endowment that it could use to
24
No. 22-60008
fund whatever projects it might like. FCC has never done so, but the fact
“that the recipients of illicitly delegated authority opted not to make use of it
is no antidote. It is Congress’s decision to delegate that is unconstitutional.”
Dep’t of Transp. v. Ass’n of Am. Railroads (“Amtrak II”), 575 U.S. 43, 62
(2015) (Alito, J., concurring) (emphasis in original) (quotation omitted)
(quoting Ass’n of Am. Railroads v. U.S. Dep’t of Transp. (“Amtrak I”), 721
F.3d 666, 674 (D.C. Cir. 2013), vacated and remanded sub nom. Amtrak II, 575
U.S. 43); see Whitman v. Am. Trucking Ass’n, 531 U.S. 457, 472 (2001) (“We
have never suggested that an agency can cure an unlawful delegation of
legislative power by adopting in its discretion a limiting construction of the
statute.”).
Second, even if FCC’s power to levy taxes were limited by the amount
it disburses on universal service projects, subsection (b) still would not curb
FCC’s discretion because we have explained it sets out “aspirational”
principles rather than “inexorable statutory command[s].” TOPUC I, 183
F.3d at 421; see also Tex. Off. of Pub. Util. Couns. v. FCC, 265 F.3d 313, 321
(5th Cir. 2001). And even if the principles in subsection (b) were more than
aspirational, they still would not meaningfully limit FCC because § 254(b)(7)
vests FCC with discretion to formulate “other principles” so long as it
considers the additional principles to be “necessary and appropriate for the
protection of the public interest, convenience, and necessity
and . . . consistent with” the rest of Chapter 5 of Title 47 of the United States
Code. In other words, FCC “may roam at will,” A.L.A. Schechter Poultry
Corp. v. United States, 295 U.S. 495, 538 (1935), disregarding § 254(b)’s
enumerated principles altogether when it thinks the “public interest”
warrants the journey. 47 U.S.C. § 254(c)(1)(D); id. § 254(b)(7).
Third, even if the principles in § 254(b) in some way bind FCC, they
are contentless in important respects. For example, § 254(b)(6) suggests that
“[e]lementary and secondary schools and classrooms . . . and libraries should
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No. 22-60008
have access to advanced telecommunications services as described in
subsection (h).” But subsection (h) says only that “elementary schools,
secondary schools, and libraries” should have access to telecommunications
services “for educational purposes at rates less than the amounts charged for
similar services to other parties.” Id. § 254(h)(1)(B). Which services?
Presumably those FCC thinks are “essential to education” or otherwise
within the ambit of its self-defined universal service utopia. Id. § 254(c). But
how is FCC to make that determination? And which schools and libraries
should receive subsidized services? And how much less should they pay?
Congress never said. FCC has answered some of these questions, see
47 C.F.R. §§ 54.501, .502, .505, but it remains a mystery how we are
supposed to “ascertain whether the will of Congress has been obeyed.”
Mistretta, 488 U.S. at 379 (citation omitted). Each of the “aspirational”
universal service principles in § 254(b) & (c) is inapposite.7 So apparently
your guess is as good as ours is as good as FCC’s is as good as any random
American taxpayer’s. And funding for schools and libraries is not merely an
_____________________
7
Section 254(c)(1)(B) suggests low-income consumers should have access to
telecommunications services comparable to those subscribed to by unsubsidized residential
customers. And § 254(b)(3) tells FCC to make telecommunications services available in
rural areas at rates comparable to those charged in urban areas. Those provisions may
supply sufficient guidance for FCC to execute certain aspects of the universal service
program. But nothing in the statute remotely suggests FCC should provide universal
service funding only to low-income or rural schools. So §§ (b)(3) and (c)(1)(B) cannot
supply the limiting principle that § (h)(1)(B) lacks. And the fact that FCC has limited
universal service funding to low-income schools is, once again, irrelevant. See Am.
Trucking, 531 U.S. at 472. The question is whether the statute itself in any way limits FCC’s
discretion to supply universal service funding for educational programs, and it plainly does
not.
26
No. 22-60008
interstitial gap in the statutory scheme. It constituted more than a third of the
contribution amount that gave rise to these proceedings. See JA.101.8
So if § 254(b) binds at all, it is apparent that the only real constraint
on FCC’s discretion to levy excise taxes on telecommunications carriers (and
American consumers in turn) is that rates “should” remain “affordable.” 47
U.S.C. § 254(b)(1); see Consumers’ Rsch., 67 F.4th at 794 (“[E]xcess
subsidization in some cases may detract from universal service by causing
rates unnecessarily to rise, thereby pricing some consumers out of the
market.” (citation omitted)). But saying telecommunications services
“should” remain “affordable” amounts to “no guidance whatsoever.”
Jarkesy, 34 F.4th at 462 (emphasis in original). How is FCC to determine
whether the USF Tax it mandates has made telecommunications services
unaffordable? The demand for cell phones is uncommonly inelastic because
cell phones are essential to participation in the modern world. See Carpenter
v. United States, 138 S. Ct. 2206, 2220 (2018) (“[C]ell phones and the
services they provide are such a pervasive and insistent part of daily life that
carrying one is indispensable to participation in modern society.” (citation
and quotation omitted)). That means the FCC could impose eye-watering
USF Taxes while also arguing with a straight face that cell phones remain
“affordable” in the sense that most Americans would choose to keep using
them. And that means § 254 leaves FCC—and as importantly reviewing
courts9—utterly at sea. Is a 25% excise tax excessively burdensome under §
_____________________
8
Both dissenting opinions contend 47 U.S.C. § 254 is loaded with intelligible
principles. See post, at 77–82 (Stewart, J., dissenting); id. at 101–02 (Higginson, J.,
dissenting). But neither identifies any principle that might guide FCC in determining how
much less schools and libraries should pay for telecommunications services.
9
See Mistretta, 488 U.S. at 379 (noting courts are “justified” in invalidating
delegations where it would be “impossible in a proper proceeding to ascertain whether the
27
No. 22-60008
254(b)(1)? 250%? 2500%? There are no answers because Congress never gave
them.
Finally, the breadth of § 254’s delegation is especially troubling
because the statute insulates FCC from the principal tool Congress has to
control FCC’s universal service decisions—the appropriations power. See
U.S. Const. art. I, § 9, cl. 7 (“No Money shall be drawn from the
Treasury, but in Consequence of Appropriations made by Law.”).
Ordinarily, when Congress delegates broadly, it retains a residuum of control
over agency action because the agency is powerless to act without a
congressional appropriation of funds. See CFPB v. All Am. Check Cashing,
Inc., 33 F.4th 218, 232 (5th Cir. 2022) (Jones, J., concurring) (“Congress’s
supremacy in fiscal matters makes the executive branch dependent on the
legislative branch for subsistence, thereby forging a vital line of accountability
between the executive branch and the legislative branch and, therefore, the
people. Recent history confirms that Congress’s appropriations powers have
proven a forcible lever of accountability: Congress has tightened the purse
strings to express displeasure with an agency’s nefarious activities and even
to end armed combat.”). So even when statutes vest agencies with significant
discretion, the appropriations process generally ensures agencies remain
subservient to the will of the people as expressed through their elected
representatives. See Jonathan H. Adler & Christopher J. Walker, Delegation
and Time, 105 Iowa L. Rev. 1931, 1957 (2020) (cataloguing examples and
noting that “[l]imiting appropriations is an effective way to limit an agency’s
exercise of delegated power”).
_____________________
will of Congress has been obeyed”) (quoting Yakus v. United States, 321 U.S. 414, 425–26
(1944)).
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Here, though, Congress cannot exercise control by limiting
appropriations because the whole point of USF is to fund universal service
outside the regular appropriations process.10 And since FCC commissioners
are removable by the President only for-cause, see 47 U.S.C. § 154(c)(1)(A),
the connection between FCC policy decisions made pursuant to § 254 and
any democratically accountable federal official is extremely attenuated.
3.
The Supreme Court has “over and over upheld even very broad
delegations.” Gundy, 588 U.S. at 146 (plurality op.). But it has also suggested
the scope of permissible delegation varies with context. See Am. Trucking, 531
U.S. at 475 (“[T]he degree of agency discretion that is acceptable varies
according to the scope of the power congressionally conferred.”); J.W.
Hampton, 276 U.S. at 406 (“In determining what [Congress] may do in
seeking assistance from another branch, the extent and character of that
assistence [sic] must be fixed according to common sense and the inherent
necessities of the governmental co-ordination.”); Loving, 517 U.S. at 768
(noting the general rule that “a constitutional power implies a power of
_____________________
10
FCC has concluded that 47 U.S.C. § 254 constitutes “a permanent indefinite
appropriation.” GAO-05-151, Greater Involvement Needed by FCC in the
Management and Oversight of the E-Rate Program 11 (2005),
https://perma.cc/QNU6-YEFS. If we had to decide whether § 254 comports with the
Appropriations Clause, U.S. Const. art. I, § 1, cl. 9, we would apply the Supreme
Court’s decision in CFPB v. Cmty. Fin. Servs. Ass’n of Am., Ltd., 601 U.S. 416 (2024). But
we need not decide that question because Petitioners did not formally raise an
Appropriations Clause challenge. Our point is only that, to the extent Congress’s ability to
control agencies through regular appropriations supplies some justification for broad
delegations, see, e.g., Christopher J. Walker, Restoring Congress’s Role in the Modern
Administrative State, 116 Mich. L. Rev. 1101, 1116 (2018) (explaining the tools Congress
has, including the appropriations power, “to rein in the administrative state and prevent
federal agencies from abusing their consolidated lawmaking and law-execution powers”),
that justification is absent here.
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delegation of authority under it sufficient to effect its purposes” (emphasis
added)) (quoting Lichter v. United States, 334 U.S. 742, 778 (1948)); Lichter,
334 U.S. at 778–79 (suggesting Congress may delegate its war powers more
broadly); Panama Refin., 293 U.S. at 422 (same). So the fact that the Court
has upheld certain broad delegations does not necessarily dictate that we
uphold § 254’s delegation of power to FCC to levy taxes on American
consumers. And § 254 appears unlike any delegation the Court has ever
blessed.
For starters, the Supreme Court’s nondelegation “jurisprudence has
been driven by a practical understanding that in our increasingly complex
society, replete with ever changing and more technical problems, Congress
simply cannot do its job absent an ability to delegate power under broad
general directives.” Mistretta, 488 U.S. at 372 (emphasis added). So the
Court has deemed it constitutionally sufficient for Congress to make a policy
judgment and then direct an agency to give that judgment effect through the
application of technical knowledge.
For example, in American Trucking, 531 U.S. 457, the Court
considered a congressional directive to EPA to set ambient air quality
standards for certain pollutants. Id. at 472. It held that the statute supplied an
intelligible principle because it required EPA to set air quality standards
“requisite to protect the public health” “for a discrete set of pollutants”
based on “the latest scientific knowledge.” Id. at 472–73. In other words, the
statute was constitutional because Congress made the crucial policy
judgment—that the public should be protected from harmful pollutants—
and then relied on EPA to give effect to that judgment through the
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application of its scientific expertise.11 See Gundy, 588 U.S. at 166 (Gorsuch,
J., dissenting) (explaining that the “most important[]” question in the
intelligible principle inquiry is whether “Congress, and not the Executive
Branch, ma[d]e the policy judgments”).
Here, in contrast, Congress did not delegate because FCC has some
superior technical knowledge about the optimal amount of universal service
funding. No such knowledge exists because determining the ideal size of a
welfare program involves policy judgments, not technical ones. And under
our Constitution, those judgments usually are Congress’s to make.
In fact, in every case where the Court has upheld a congressional
delegation of its prerogative to make significant policy judgments, there has
been some special justification. In Mistretta, for example, the Court
considered a congressional delegation of authority to Article III judges to
promulgate sentencing guidelines. Few things are more policy-laden than
criminal sentencing decisions, but the Court found the delegation permissible
because “the Judiciary always has played, and continues to play, [a role] in
sentencing.” Mistretta, 488 U.S. at 391; see also ibid. (“Just as the rules of
procedure bind judges and courts in the proper management of the cases
before them, so the Guidelines bind judges and courts in the exercise of their
uncontested responsibility to pass sentence in criminal cases. In other words,
the Commission’s functions, like this Court’s function in promulgating
procedural rules, are clearly attendant to a central element of the historically
acknowledged mission of the Judicial Branch.”).
_____________________
11
The Court upheld the delegation only after deciding that the statute in question
“unambiguously bar[red] cost considerations from the NAAQS-setting process.” Id. at
471; see also id. at 473–74 (noting the statute “did not permit economic costs to be
considered”).
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Similarly, in National Broadcasting Co. v. United States, 319 U.S. 190
(1943), the Court upheld a delegation to FCC to regulate broadcasting “as
public convenience, interest, or necessity requires . . . .” Id. at 214. But
licensing of broadcasting rests on the principle “that the public . . . own[s]
the airwaves,” and that private people may use that resource only on terms
the government sets. John Harrison, Executive Administration of the
Government’s Resources and the Delegation Problem, in The
Administrative State Before the Supreme Court 232, 250
(Peter J. Wallison & John Yoo eds., 2022); see also McConnell, The
President Who Would Not Be King, supra, at 334 (noting that the
Communications Act of 1934 “can be seen as merely a transfer back to the
executive branch of a power to manage public property”). “[S]ecur[ing] the
maximum benefits of” a public resource “to all the people of the United
States,” Nat’l Broad. Co., 319 U.S. at 217, is “within the core of the executive
power,” Harrison, Executive Administration, in The Administrative
State Before the Supreme Court, supra, at 238. And “when a
congressional statute confers wide discretion to the executive, no separation-
of-powers problem may arise if the discretion is to be exercised over matters
already within the scope of executive power.” Gundy, 588 U.S. at 159
(Gorsuch, J., dissenting) (citation and quotation omitted); see Wayman v.
Southard, 23 U.S. 1, 42–43 (1825) (“It will not be contended that Congress
can delegate . . . powers which are strictly and exclusively legislative. But
Congress may certainly delegate to others, powers which the legislature may
rightfully exercise itself.”); United States v. Curtiss-Wright Exp. Corp., 299
U.S. 304, 319–20 (1936) (explaining that Congress may delegate more
broadly in the foreign affairs context because “the President [is] the sole
organ of the federal government in the field of international relations.”); see
also McConnell, The President Who Would Not Be King,
supra, at 334 (“[S]ome of Congress’s enumerated powers are strictly and
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exclusively legislative but some are not, and Congress may either exercise the
latter powers itself or delegate them.”); Phillip Hamburger, Nondelegation
Blues, 91 Geo. Wash. L. Rev. 1083, 1148 (2023) (noting that “the shared
reach of the” legislative, executive, and judicial “powers occasionally allows
different branches to do the same thing even under their different and
separated powers.”).
Section 254, in contrast, did not delegate to the executive any power
even remotely executive in character. It delegated the power to tax, which
“is a legislative function.” Nat’l Cable, 415 U.S. at 340.
True, the Supreme Court has upheld seemingly broad congressional
delegations of core legislative functions. See, e.g., Yakus, 321 U.S. at 420
(upholding a delegation to the agency to fix the prices of commodities at a
level that “will be generally fair and equitable and will effectuate the purposes
of the Act.” (citation omitted)); Am. Power & Light Co. v. SEC, 329 U.S. 90,
97 (1946) (upholding a delegation to SEC to modify the structure of holding
company systems so as to ensure that they are not “unduly or unnecessarily
complicated” and do not “unfairly or inequitably distribute voting power
among security holders.” (citation omitted)). But careful consideration
reveals that the statutes considered in all these cases limited agency
discretion enough that, at the very least, reviewing courts could “ascertain
whether the will of Congress ha[d] been obeyed.” Mistretta, 488 U.S. at 379
(quoting Yakus, 321 U.S. at 425–26).
In Yakus, for example, Congress directed the administrator
responsible for ensuring “fair and equitable” prices to “ascertain and give
due consideration to the prices prevailing” in a particular two-week period,
and to make adjustments for relevant factors including “[s]peculative
fluctuations, general increases or decreases in costs of production,
distribution, and transportation, and general increases or decreases in profits
33
No. 22-60008
earned by sellers of the commodity or commodities, during and subsequent
to the year ended October 1, 1941.” 321 U.S. at 421 (citation omitted). It can
hardly be contended that the executive wanted for legislative direction under
this statute, or that reviewing courts lacked workable standards. See id. at 426
(noting that “the standards prescribed by the . . . Act” were “sufficiently
definite and precise to enable Congress, the courts and the public to ascertain
whether the Administrator, in fixing the designated prices, has conformed to
those standards”). Similarly in American Power & Light Co., the Court found
that “a veritable code of rules” set out in other sections of the statute
clarified the ambiguities inherent in the phrases “unduly or unnecessarily
complicate[d]” and “unfairly or inequitably distribute[d]” such that courts
would have no trouble testing SEC’s policies against the law. 329 U.S. at 104–
05.
The Court’s other nondelegation precedents are in accord. The
statute considered in J.W. Hampton, 276 U.S. 394, simply directed the
President to impose tariffs that would “equalize” the relative costs of
production for American companies and their foreign counterparts—a fact-
finding role. Id. at 401; see also Gundy, 588 U.S. at 163 (Gorsuch, J.,
dissenting) (noting that the statute may have required the President to make
“intricate calculations, but it could be argued that Congress had made all the
relevant policy decisions, and the Court’s reference to an ‘intelligible
principle’ was just another way to describe the traditional rule that Congress
may leave the executive the responsibility to find facts and fill up details.”).
And the term “public interest” in § 407 of the Transportation Act of 1920
was shorthand for a congressional instruction to the Interstate Commerce
Commission to ensure that proposed railroad consolidation would not result
in deteriorating service quality or unreasonable or discriminatory rates—an
instruction with discernible content in light of the common law of common
carriers. See N.Y. Cent. Sec. Corp. v. U.S., 287 U.S. 12, 25 (1932); see also id.
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at 24 (“It is a mistaken assumption that [the term ‘public interest’] is a mere
general reference to public welfare without any standard to guide
determinations. The purpose of the Act, the requirements it imposes, and the
context of the provision in question show the contrary.”); Herbert
Hovenkamp, Regulatory Conflict in the Gilded Age: Federalism and the Railroad
Problem, 97 Yale L.J. 1017, 1045 (1988) (“As early as the 17th century, the
common law had derived the duty to charge reasonable rates from the
common carrier’s obligation to serve everyone . . . .”). And the statute
considered in Touby “meaningfully constrain[ed] the Attorney General’s
discretion” because it directed the Attorney General to ban drugs only after
making a factual determination that there was a history of significant abuse
that threatened the public health. See 500 U.S. at 166; see also Gundy, 588
U.S. at 166 (Gorsuch, J., dissenting) (noting that in Touby the Court
“stressed all [the statutory] constraints on the Attorney General’s discretion
. . . to indicate that the statute supplied an ‘intelligible principle’ because it
assigned an essentially fact-finding responsibility to the executive.”
(emphasis in original)). And the statute considered in Lichter, 334 U.S. 742—
which authorized the executive to recoup “excessive profits” on wartime
government contracts—was likewise judicially workable. As the Court noted,
‘excessive’ simply means “[g]reater than the usual amount or degree.” Id. at
785 n.37 (quoting Webster’s New International Dictionary
(2d ed. 1938)). A reviewing court would thus have no trouble discerning
whether a contractor reaped in excess because it could easily compare his
profits to those of his peers.12 And so on and so forth.
_____________________
12
Moreover, as we have noted, context matters to the intelligible-principle inquiry.
So assuming arguendo Lichter blessed a delegation more sweeping than any other (we think
it did not), it is surely relevant that the Court emphasized that the statute in question came
about because of the necessities of war, “sprang from [Congress’s] war powers,” and
35
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* * *
So amidst all the statutes that have survived nondelegation challenges,
§ 254 stands alone. Unlike delegations implicating special agency expertise,
§ 254 delegates to FCC the power to make important policy judgments, and
to make them while wholly immunized from the oversight Congress exercises
through the regular appropriations process. Unlike delegations implicating
the power to impose criminal sentences, taxation has always been an
exclusively legislative function. Unlike the power to impose conditions on the
use of public property, taxation involves the conversion of private property.
And unlike other congressional delegations implicating core legislative
functions, § 254 is a hollow shell that Congress created for FCC to fill—so
amorphous that no reviewing court could ever possibly invalidate any FCC
action taken in its name.13
_____________________
operated only for “the duration of the war or . . . a short time thereafter.” Id. at 755; 787.
As the Court explained, because “[t]he power to wage war is the power to wage war
successfully,” “[r]easonable regulations to safeguard the resources upon which we depend
for military success must be regarded as being within the powers confided to Congress to
enable it to prosecute a successful war.” Id. at 780–81. The Panama Refining Court similarly
deemed the wartime posture of certain broad delegations meaningful to the delegation
inquiry because the President himself has war powers “cognate to the conduct by him of
the foreign relations of the government.” 293 U.S. at 422.
13
Section 254 also implicates the taxing power, which makes the nondelegation
concerns it raises especially salient. See Nat’l Cable, 415 U.S. at 341 (“It would be such a
sharp break with our traditions to conclude that Congress had bestowed on a federal agency
the taxing power that we read [the relevant statute] narrowly as authorizing not a ‘tax’ but
a ‘fee.’”). That is because limitations on the taxing power have long been the mechanism
through which the people curb the excesses of unelected power. See The Federalist
No. 58 (J. Madison) (“[The House], in a word, hold[s] the purse that powerful instrument
by which we behold, in the history of the British Constitution, an infant and humble
representation of the people gradually enlarging the sphere of its activity and importance,
and finally reducing, as far as it seems to have wished, all the overgrown prerogatives of the
other branches of the government.”).
36
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We therefore have grave concerns about § 254’s constitutionality
under the Supreme Court’s nondelegation precedents. See Gundy, 588 U.S.
at 136 (plurality op.) (noting that the Court “would face a nondelegation
question” if the statutory provision at issue had “grant[ed] the Attorney
General plenary power to determine [the statute’s] applicability to pre-Act
offenders—to require them to register, or not, as she sees fit, and to change
her policy for any reason and at any time” (emphasis added) (citation
omitted)). Nevertheless, we need not hold the agency action before us
unconstitutional on that ground alone because the unprecedented nature of
the delegation combined with other factors is enough to hold it unlawful. See
infra, Part III.D.
_____________________
For that reason, the framers through the Origination Clause took special care to
ensure that the taxing power remained intimately connected with the people. See U.S.
Const. art. I, § 7, cl.1 (“All Bills for raising Revenue shall originate in the House of
Representatives; but the Senate may propose or concur with Amendments as on other
Bills.”); 1 The Records of the Federal Convention of 1787 544 (Max
Farrand ed., 2d ed. 1937) (George Mason) (“[T]he consideration which weighed with the
Committee [when drafting the Origination Clause] was that the [House] would be the
immediate representatives of the people, the [Senate] would not.”). In fact, “vesting the
origination power with the House was an integral part of the deal that resolved the conflict
over congressional apportionment: seats in the Senate would not be apportioned based on
population, but only the House of Representatives would have the power to initiate
legislation that raises or spends money.” Krotoszynksi, Jr., Reconsidering the Nondelegation
Doctrine, supra, at 252. Benjamin Franklin, among others, noted that “the two clauses, the
originating of money bills, and the equality of votes in the Senate, [are] essentially
connected by the compromise which had been agreed to.” 2 The Records of the
Federal Convention, supra, at 233.
So the Constitution’s original meaning would seem to compel a more restrictive
test for delegations of the taxing power. Nevertheless, the Supreme Court has declined to
apply heightened scrutiny to tax-related delegations, see Skinner, 490 U.S. at 223, and we
are not authorized to depart from that holding.
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C.
The Q1 2022 USF Tax is not only difficult to square with the Supreme
Court’s public nondelegation precedents. It was also formulated by private
entities. That raises independent but equally serious questions about its
compatibility with Article I, § 1, which requires “[a]ll legislative Powers
herein granted shall be vested in a Congress.” We (1) explain that the scope
of FCC’s delegation to private entities may violate the Legislative Vesting
Clause by allowing private entities to exercise government power. Then we
(2) explain that even if FCC’s delegation could be constitutionally justified,
FCC may have violated the Legislative Vesting Clause by delegating
government power to private entities without express congressional
authorization.
1.
a.
The Supreme Court has held Congress has broad discretion to
empower executive agencies to “execute” the law. See City of Arlington v.
FCC, 569 U.S. 290, 304 n.4 (2013). “When it comes to private entities,
however, there is not even a fig leaf of constitutional justification. Private
entities are not vested with legislative Powers. Nor are they vested with the
executive Power, which belongs to the President.” Amtrak II, 575 U.S. at 62
(Alito, J., concurring) (quotation and citations omitted). So it is clear that
delegations to private entities raise constitutional concerns entirely distinct
from delegations to the executive.
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No. 22-60008
Only four times has the Supreme Court considered whether a
delegation to private entities violates Article I’s Vesting Clause.14
First, in Schechter Poultry, the Court considered a constitutional
challenge to the National Industrial Recovery Act (“NIRA”) of 1933, 48 Stat.
195. See 295 U.S. at 519–21. That statute delegated to trade or industrial
groups the authority to develop codes defining “unfair method[s] of
competition.” Id. at 521 n.4 (quotation omitted). If the codes were approved
by the President, they were to become law under “such exceptions to and
exemptions from the provisions of such code, as the President in his
discretion deem[ed] necessary to effectuate the policy” of the NIRA. Ibid.
The Court held that the statute was unconstitutional. In part, it reasoned the
idea that “Congress could delegate its legislative authority to trade or
industrial associations or groups so as to empower them to enact the laws
they deem to be wise and beneficent for the rehabilitation and expansion of
their trade or industries,” or that “trade or industrial associations or groups
be constituted legislative bodies for that purpose because such associations
or groups are familiar with the problems of their enterprises” was “utterly
inconsistent with the constitutional prerogatives and duties of Congress.” Id.
at 537.
The next year, in Carter v. Carter Coal Company, 298 U.S. 238, 278
(1936), the Court considered a delegation challenge to the Bituminous Coal
Conservation Act of 1935, 49 Stat. 991 (repealed 1937). That statute
authorized the district board in local coal districts (the “code authority”) to
_____________________
14
The parties in Amtrak II raised a private delegation challenge, but the Court did
not reach it because it determined that, for relevant purposes, Amtrak was a governmental
entity. See 575 U.S. at 55. The Court has also several times considered whether state
delegations of legislative power to private entities violated due process, see Paul J. Larkin,
The Private Delegation Doctrine, 73 Fla. L. Rev. 31, 45–47 (2021), but those cases present
a question different from the one before us.
39
No. 22-60008
adopt a code that included agreed-upon minimum prices for coal. Carter
Coal, 298 U.S. at 282–83. It also allowed an agreement between producers of
more than two-thirds of the annual tonnage of coal and a majority of mine
workers to set industry-wide minimum wage and maximum working-hour
agreements. Id. at 283–84. Both the minimum price codes and the labor codes
bound producers—i.e., obtained legal force—without approval by any federal
official. Id. at 282, 284. The Court explained the statute amounted to
“delegation in its most obnoxious form” because it purported to delegate
regulatory power not “to an official or an official body, presumptively
disinterested,” but rather “to private persons whose interests . . . often are
adverse” to those whom the statute authorized them to regulate. Id. at 311.
That, the Court held, was “an intolerable and unconstitutional interference
with personal liberty and private property.” Ibid.15
In Currin v. Wallace, 306 U.S. 1, 5–6 (1939), the Court considered a
delegation challenge to the Tobacco Inspection Act of 1935, 49 Stat. 731
which authorized the Secretary of Agriculture to designate markets in which
no tobacco could be sold unless it had “been inspected and certified by an
authorized representative of the Secretary according to the established
standards.” One of the bases for the challenge was that the Secretary could
not designate a market unless two-thirds of the growers voting at a prescribed
referendum favored the designation. See Currin, 306 U.S. at 6, 15. But the
producers had no power to designate the markets in which classification
would be required; only the Secretary could do that. Nor did the statute even
_____________________
15
The Court did not clearly specify which constitutional provision—the
Legislative Vesting Clause or the Fifth Amendment Due Process Clause—the statute
offended. See id. at 310–12; see also Nat’l Horsemen’s Benevolent & Protective Ass’n v. Black,
53 F.4th 869, 881 n.23 (5th Cir. 2022). But because the relevant portion of the Carter Coal
cited Schechter Poultry, a Vesting Clause case, alongside Due Process cases, the Court
presumably held the delegation was unlawful on both grounds.
40
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provide that the producers would help craft regulations. So unlike the private
bodies in Carter Coal, the tobacco producers had no power to “make the law
and force it upon a minority.” Id. at 15–16 (citation omitted). Congress
merely gave them the ability to prevent certain regulations from taking effect.
See ibid. The Court accordingly rejected the challenge on the ground that the
statute did not delegate any legislative power to private entities. Ibid.
Finally, in Sunshine Anthracite Coal Company v. Adkins, 310 U.S. 381,
387 (1940), the Court considered a private delegation challenge to The
Bituminous Coal Act of 1937, 50 Stat. 72 (repealed 1966), a revised version
of the statute the Court held unlawful in Carter Coal. Congress’s most
important revision was to relegate the code authorities from lawmakers to
“aid[s]” subject to the “pervasive surveillance and authority” of the
National Bituminous Coal Commission. Sunshine Anthracite, 310 U.S. at 388.
Under the revised statute, code authorities could “propose” minimum
prices, but their proposals were legal nullities until they were expressly
“approved, disapproved, or modified” by the Coal Commission. Ibid. Thus,
the Court concluded that the Commission, “not the code authorities,
determine[d] [coal] prices,” id. at 399, and it therefore held that the statute
did not unconstitutionally delegate government power to private entities.
Lower courts have discerned from these cases the “cardinal
constitutional principle [] that federal power can be wielded only by the
federal government.” Black, 53 F.4th at 872. Private delegations are thus
constitutional only on three conditions. First, government officials must have
final decision-making authority. See Larkin, The Private Delegation Doctrine,
supra, at 50–51 (noting that in every case in which the Supreme Court has
upheld a private delegation, “the law[] at issue . . . left final decision-making
authority in the hands of a government official”). Second, agencies must
actually exercise their authority rather than “reflexively rubber stamp [work
product] prepared by others.” Sierra Club v. Lynn, 502 F.2d 43, 59 (5th Cir.
41
No. 22-60008
1974); see State v. Rettig, 987 F.3d 518, 531 (5th Cir. 2021), cert. denied, Tex.
v. Comm’r of Internal Revenue, 142 S. Ct. 1308 (2022) (“A federal agency may
not abdicate its statutory duties by delegating them to a private entity.”
(quotation and citation omitted)).16 And third, the private actors must always
remain subject to the “pervasive surveillance and authority” of some person
or entity lawfully vested with government power. Sunshine Anthracite, 310
U.S. at 388.
In light of these strictures on private delegations, we held
unconstitutional a statute that vested a private entity with the power to make
rules regulating an industry where those rules were subject only to limited
agency review. See Black, 53 F.4th at 884–89. And the D.C. Circuit similarly
held unconstitutional a statute that empowered Amtrak to work jointly with
the Federal Railroad Administration to develop binding railroad performance
standards because the statute did not vest FRA with complete regulatory
control. See Amtrak I, 721 F.3d at 670–74, vacated and remanded sub nom.
Amtrak II, 575 U.S. 43; see also Black, 53 F.4th at 889–90 (relying on
Amtrak I).
In contrast, where courts have deemed delegations to private entities
constitutional, they have uniformly emphasized the agency’s actual decision-
making authority and control. For example, when the Third Circuit approved
the National Association of Securities Dealers’ role in securities regulation,
it explained industry self-regulation raises “serious constitutional
_____________________
16
Lynn arose under the National Environmental Policy Act (“NEPA”), not the
Constitution. But Rettig repeatedly cited Lynn to expound the level of control agencies must
retain over private actors wielding governmental power for constitutional purposes. Rettig,
987 F.3d at 532. The central question in Lynn was whether an agency bore ultimate
responsibility for work product prepared by a private entity, see 502 F.2d at 59, which is
required not only by NEPA but also by the Legislative Vesting Clause, see, e.g., Black, 53
F.4th at 881.
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No. 22-60008
challenges.” Todd & Co. v. SEC, 557 F.2d 1008, 1014 (3d Cir. 1977).
Accordingly, the Court held securities self-regulation was constitutional only
after emphasizing that SEC was obliged to “insure fair treatment of those
disciplined by” NASD. Ibid. It also stressed that SEC was statutorily
required to review NASD orders, make de novo findings, and come to an
“independent decision on” securities’ violations and penalties. See id. at
1012; see also id. at 1012–13 (“[NASD’s] rules and its disciplinary actions
were subject to full review by the S.E.C., a wholly public body, which must
base its decision on its own findings.” (emphasis added)). Similarly, when we
approved a private entity’s role in drafting an environmental impact
statement, we emphasized that “the applicable federal agency [bore] the
responsibility for the ultimate work product” and “independently
perform[ed] its reviewing, analytical and judgmental functions.” Lynn, 502
F.2d at 59 (quotation and citation omitted); see also Rettig, 987 F.3d at 531–32
(citing Lynn in an Art. I, § 1 challenge).
b.
FCC has delegated government power—the power to dictate the size
of the universal service contribution amount, which controls the size of a tax
levied on American consumers—to USAC and private telecommunications
carriers. That delegation is lawful only if FCC (1) has final decision-making
authority, (2) actually exercises that authority, and (3) exercises “pervasive
surveillance and authority” over the private entities exercising power in its
name. Black, 53 F.4th at 884 (quoting Sunshine Anthracite, 310 U.S. at 388).
FCC’s subdelegation of its taxing power violates this test in two ways.
The first problem is that FCC regulations provide that USAC’s projections
take legal effect without formal FCC approval. See 47 C.F.R. § 54.709(a)(3).
FCC has, in effect, given private entities the final say with respect to the size
of the USF Tax. That FCC retains discretion to revise the proposed
43
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contribution amount, see ibid., is insufficient. Congress could not say: “The
defense budget is whatever Lockheed Martin wants it to be, unless Congress
intervenes to revise it.” To make law, Congress must affirmatively adopt the
statutory text, pass it bicamerally, and present it to the President for
signature. INS v. Chadha, 462 U.S. 919, 959 (1983). Legislation requires
action not acquiescence. Similarly, while FCC may solicit advice from USAC
and private carriers, it must affirmatively act to give legal effect to that advice
because it alone has constitutional authority to execute 47 U.S.C. § 254.
The second problem is that FCC does not appear to “independently
perform[] its reviewing, analytical and judgmental functions” with respect to
the privately supplied universal service contribution amount. Rettig, 987 F.3d
at 532 (quoting Lynn, 502 F.2d at 59). FCC has not pointed us to anything
that suggests it even checks USAC’s work. Instead, it appears to “reflexive[ly]
rubber stamp” whatever contribution amount USAC proposes. Lynn, 502
F.2d at 59. The record before us shows that, before this litigation started,
FCC never made a single substantive change to the contribution amounts
proposed by USAC. See supra, at 6 & n.1.17
That is a de facto abdication. And when an agency de facto abdicates to
a private entity its responsibility to make governmental decisions, that entity
becomes more than a mere “aid” to the agency. See Black, 53 F.4th at 881
(quoting Sunshine Anthracite, 310 U.S. at 388). The private company
becomes a lawmaker in its own right. So de jure approval alone is not enough.
If FCC is going to rely on a non-governmental actor to supply a revenue
requirement that dictates the size of a tax levied on American consumers, it
_____________________
17
Even if FCC wanted to change USAC’s proposals, it is not at all clear it could.
Petitioners contend, and FCC does not dispute, that the “approval” process for USAC’s
proposals plays out just days before the new quarter begins. With such a short time window,
it appears FCC has no real choice but to accept USAC’s proposed figures.
44
No. 22-60008
must at the very least do something to demonstrate that it applied its
independent judgment.
c.
The Government’s principal counterargument is that FCC—not
USAC—is exercising governmental power. Its argument goes like this: FCC
sets out detailed regulations specifying who is eligible for what kinds of
universal service subsidies. Private companies merely project the costs they
will incur supplying the FCC-specified subsidized services and report that
information to USAC. And then USAC merely aggregates that information
into a contribution amount, which FCC turns into the contribution factor
that is levied on telecommunications revenues as a USF Tax. FCC
regulations even preclude USAC from making policy. So in determining the
contribution amount, which directly controls the size of the tax levied on
American telecommunications consumers, USAC and private carriers
perform a simple, ministerial task—a mere “fact gathering function for the
FCC.” FCC EB Br. 56 (quotation omitted).
But FCC obfuscates how the universal service sausage is really made.
FCC would have us believe its universal service policy necessarily dictates
the size of the contribution amount, and so FCC really controls the size of
the USF Tax. But that cannot be right because USF disbursements often do
not comply with FCC policy. See supra, Part I.C. Instead, large swaths of USF
funds—perhaps at one point close to one-quarter—are disbursed to ineligible
recipients. See, e.g., The High-Cost Program, supra, at 2. That FCC
sets universal service policy obviously does nothing to limit the revenue FCC
allows private entities to exact from consumers to fund payments made in
violation of FCC’s universal service policy.
Put differently, FCC policy would dictate the contribution amount
only if it in fact dictated how private companies raised and spent USF
45
No. 22-60008
monies. The problem is that FCC has abdicated responsibility for ensuring
compliance to the very entities whose universal service demand projections
dictate the size of the contribution amount. See, e.g., FCC’s Lifeline
Program, supra, at executive summary page (noting that FCC “relies on
over 2,000 Eligible Telecommunication Carriers that are Lifeline providers
to implement key program functions, such as verifying subscriber eligibility,”
which is problematic because “companies may have financial incentives to
enroll as many customers as possible”); FCC’s E-rate Program, supra,
at 21–22 (noting that telecommunications service providers have
opportunities to “make misrepresentations . . . during the funding phase”
that “may not be discovered due to the self-certifying nature of the
program”).
Moreover, the entity most responsible for snuffing out wasteful or
fraudulent disbursements—USAC—is run almost entirely by stakeholders
who stand to benefit financially when universal service subsidies grow. See
Leadership, Universal Serv. Admin. Co., supra; see also FCC’s E-
rate Program, supra, at 15 (noting that FCC relies on USAC to ensure
compliance carrier compliance with FCC rules). And that is no accident.
USAC is run by self-interested stakeholders because FCC regulations require
it. See 47 C.F.R. § 54.703(b). FCC mandates that nine of USAC’s nineteen
directors represent companies in the telecommunications industry who are
compensated by the very same USF funds they raise. See id. § 54.703(b)(1)–
(6). It mandates that another seven represent the schools, libraries, health
care providers, and low-income consumers who are direct recipients of USF
funds. See id. § 54.703(b)(7)–(10).
Because the telecommunications industry polices its own compliance
with FCC universal service policy, and responsibility for monitoring the
industry falls most heavily on a board composed of industry representatives
and consumer groups with a direct financial interest in the size of USF taxes,
46
No. 22-60008
private entities have a far more important and discretionary role in
determining the size of the contribution amount (which controls the level of
universal service taxation) than FCC would have you believe. For example, a
carrier could (intentionally or unintentionally) project and then supply USF-
subsidized service costing twenty-five percent more than its USF-subsidized
service would cost if it strictly complied with FCC rules. And FCC offers us
zero reason to think it would even discover the discrepancy—let alone that
FCC would do anything about it. FCC has in effect said to carriers: “Here is
our universal service policy and a blank check. We’re not going to pay any
attention to what you put in the dollar box. We know you have financial
incentives to juice the number, but we trust you’ll follow our policy to the
letter anyways. Just fill it out however you see fit, take it to the bank, and the
money will be drawn from the accounts of American telecommunications
consumers.” We do not doubt that most of the industry is staffed by
individuals of the utmost integrity, but we cannot agree that private entities
are no more than ministerial bean counters when it comes to setting the USF
Tax.
Moreover, even if we put the compliance issue to one side, we would
still disagree that private companies have merely “ministerial” control over
the contribution amount. As we have noted, FCC’s counterargument turns
on the Commission’s nominal control over universal service policy. But
setting a policy is not the same as allocating funds to execute that policy. That
much is evident from the constitutional requirement that Congress
appropriate money to execute the government programs it establishes. See
U.S. Const. art. I, § 9, cl. 7. Thus, FCC’s argument fails because it
impermissibly collapses universal service funding decisions into universal
service policy decisions. The decision of how much money should be set
aside to execute FCC’s universal service policies—the very decision FCC
has delegated to USAC and private carriers—is an independent decision that
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requires independent judgment. And surely discretion inheres in decisions
about how much money to allocate to a massive federal welfare program. See
Gaines v. Thompson, 74 U.S. (7 Wall.) 347, 353 (1868) (“A ministerial
duty . . . is one in respect to which nothing is left to discretion.” (quotation
omitted)). So even if we thought FCC correctly described the role of private
entities, we would still conclude that dictating the contribution amount is an
exercise of government power.
* * *
FCC has not delegated to private entities a trivial, fact-gathering role.
It has delegated the power to dictate the amount of money that will be exacted
from telecommunications carriers (and American consumers in turn) to
promote “universal service.” In other words, it has delegated the taxing
power. And the delegation is not even “to an official or an official body,
presumptively disinterested,” but rather to private persons vested with no
government power and with interests that “often are adverse” to those
whom they are taxing. Carter Coal, 298 U.S. at 311; see also Ass’n of Am.
Railroads v. U.S. Dep’t of Transp. (“Amtrak III”), 821 F.3d 19, 29 (D.C. Cir.
2016) (“Delegating legislative authority to official bodies is inoffensive
because we presume those bodies are disinterested, that their loyalties lie
with the public good, not their private gain. But here, the majority producers
may be and often are adverse to the interests of others in the same business.”
(citation and quotation omitted)). We accordingly have serious trouble
squaring FCC’s subdelegation with Article I, § 1 of the Constitution.18
_____________________
18
Judge Newsom recently expressed skepticism that the private entities
involved in USF may constitutionally exercise the power FCC delegated to them. See
Consumers’ Rsch., 88 F.4th at 932 (Newsom, J., concurring). But Judge Newsom voted
to deny a petition for review that is almost identical to the one before us because in his view,
these private entities exercise executive rather than legislative power, and petitioners did
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2.
Even if the Constitution does not categorically forbid FCC’s
delegation to USAC and private telecommunications carriers, 47 U.S.C.
§ 254 does not authorize it. And there is no precedent establishing that
federal agencies may subdelegate powers in the absence of statutory
authorization. To the contrary, the only Supreme Court cases blessing private
delegations involved explicit statutory authorizations.
a.
At the Founding, the maxim that delegata potestas non potest delegari—
no delegated powers can be further delegated—was widely accepted. The
maxim has its roots in the civil law. See Patrick W. Duff & Horace E.
Whiteside, Delegata Potestas Non Potest Delegari: A Maxim of American
Constitutional Law, 14 Cornell L.Q. 168, 171 (1929). Lord Coke
enshrined the maxim as a common law doctrine. See id. at 170–71 (citations
omitted). And the doctrine endured through the founding generation, as
evidenced by treatises of the great 19th-century scholars. Samuel Livermore,
for example, noted that “[a]n authority given to one person cannot in general
be delegated by him to another; for being a personal trust and confidence it is
not in its nature transmissible, and if there be such a power to one person, to
exercise his judgment and discretion, he cannot say, that the trust and
confidence reposed in him shall be exercised at the discretion of another
person.” A Treatise on the Law of Principal and Agent and
of Sales by Auction 54 (1818). Likewise, James Kent wrote that “[a]n
agent, ordinarily and without express authority, has not power to employ a
_____________________
not raise an Article II challenge. Ibid. With utmost respect to our distinguished colleague,
private entities do play a legislative role in the USF because their projections directly
control the size of USF tax rates, and setting tax rates is unquestionably a legislative
function. See supra, Part III.B.
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sub-agent to do the business, without the knowledge or consent of his
principle. The maxim is, that delegatus non potest delegare, and the agency is
generally a personal trust and confidence which cannot be delegated.” 2
Commentaries on American Law 496 (1827). And Joseph Story
agreed, explaining that “[o]ne, who has a bare power or authority from
another to do an act, must execute it himself, and cannot delegate his
authority to another; for this being a trust or confidence reposed in him
personally, it cannot be assigned to a stranger, whose ability and integrity
might not be known to the principal or who, if known, might not be selected
by him for such a purpose.” Commentaries on the Law of
Agency, as a Branch of Commercial and Maritime
Jurisprudence 66–67 (1844).
As with most rules, this one had exceptions. Common lawyers
assumed that ministerial tasks could be subdelegated. See Gary Lawson
& Guy Seidman, “A Great Power of Attorney”:
Understanding the Fiduciary Constitution 115 (2017). And
a fiduciary document could specifically authorize subdelegations of delegated
authority. Ibid.
But as a general matter, “[t]he founding-era rule against subdelegation
of delegated agency authority is as clearly established as any proposition of
law can be established.” Id. at 114. And it was not merely a proposition of
agency law. In fact, the Supreme Court once noted that the maxim “has had
wider application in the construction of our federal and state Constitutions
than it has in private law.” J.W. Hampton, 276 U.S. at 405–06; see also Duff
& Whiteside, Delegata Potestas Non Potest Delegari, supra, at 175 (“[I]n
cases which involve a supposed delegation to an independent board or
commission, as well as those where the delegation is to the executive or
judiciary, the maxim delegata potestas non potest delegari, or its English
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equivalent, has been the chief reliance of the courts, and has attained in their
eyes the dignity of a principle of constitutional law.”).
So the Founders’ law prohibited unauthorized subdelegations of non-
ministerial delegated authority, and the Supreme Court has recognized that
as a constitutional principle. See J.W. Hampton, 276 U.S. at 405–06; cf.
Gundy, 588 U.S. at 135 (plurality op.) (“Article I of the Constitution provides
that ‘[a]ll legislative Powers herein granted shall be vested in a Congress of
the United States.’ § 1. Accompanying that assignment of power to Congress
is a bar on its further delegation.”). We think the clear implication is that the
Constitution imposes upon federal agencies—acting as agents of the people’s
representatives in Congress—a duty to wield delegated power unless
Congress authorizes subdelegation or the subdelegation involves no more
than ministerial tasks. In other words, “Congress may formalize [a limited]
role [for] private parties” in executing its laws, Amtrak I, 721 F.3d at 671
(emphasis added) (citing Sunshine Anthracite, 310 U.S. at 388), but agencies
may not.
b.
This rule does not just accord with law at the Founding; it also accords
with Supreme Court precedent.
The Court has emphasized the “vital constitutional principle” that
“[l]iberty requires accountability.” Amtrak II, 575 U.S. at 57 (Alito, J.,
concurring). Every executive branch official is in some way accountable to
the people because every executive branch official may be removed—for
good cause at least—by the President, who is himself “the most democratic
and politically accountable official in Government.” Seila L. LLC v. CFPB,
591 U.S. 197, 224 (2020). Private persons, in contrast, may not be removed
by the President because private persons do not wield any portion of “the
executive Power” our Constitution vests “in a President of the United States
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of America.” U.S. Const. art. II, § 1, cl. 1. There is no reason to lightly
infer that Congress intends to insulate law execution from democratic
accountability in this way.19
In accordance with these principles, both Supreme Court cases
authorizing private entities to wield anything like government power
involved express authorizations from Congress. The Tobacco Inspection Act
considered in Currin expressly provided that regulations would take effect
only with the support of two-thirds of the tobacco growers in the relevant
market. See 306 U.S. at 6, 15. And the Bituminous Coal Act considered in
Sunshine Anthracite created the very private boards that proposed minimum
prices and labor codes to the Coal Commission. See 310 U.S. at 387–88
(noting that the statute provided for “[s]ome twenty district boards of code
members . . . which are to operate as an aid to the Commission” and
“specifie[d] in detail the methods of their organization and operation, the
scope of their functions, and the jurisdiction of the Commission over
them.”).20
c.
Section 254, by contrast, makes no mention of the fact that private
entities might be responsible for determining the size of the tax FCC levies
_____________________
19
Deciding who should exercise governmental power can be as important as
deciding whether governmental power should be delegated in the first place. If it were not,
we would not care so deeply about Presidential elections. So democratic accountability is
frustrated when decisions about who should exercise governmental power are made by
bureaucrats—whose connection to the people is real but highly attenuated—rather than
Congress, whose members are directly “accountable to [their] constituents through regular
popular elections.” Jarkesy, 34 F.4th at 459 (citation omitted).
20
Likewise the Maloney Act, which the Third Circuit considered in Todd & Co.,
specifically authorized registered organizations to self-regulate over-the-counter securities
markets. See 557 F.2d at 1012.
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on American consumers. It does not even mention USAC, a Delaware
corporation FCC established without congressional authorization.
When asked at oral argument to identify the portion of § 254 that
authorizes FCC to subdelegate administration of the universal service
contribution mechanism to private entities, the Government’s counsel could
point only to subsection § 254(b)(5). See Oral Arg. at 46:40–48:55. That
subsection directs FCC to establish “mechanisms to preserve and advance
universal service.” § 254(b)(5). But a directive to establish “mechanisms”
plainly does not imply that those “mechanisms” may be controlled by a
private, non-governmental entity incorporated by FCC without any
involvement from Congress.
In fact, § 254(b)(5) seems to suggest precisely the opposite. Rather
than directing FCC to establish private mechanisms, it specifically instructs
FCC to establish “Federal and State mechanisms,” ibid., which indicates
Congress intended to make government entities responsible for
administering universal service programs. So subsection (b)(5) is unavailing.
The closest § 254 comes to contemplating that a non-governmental
entity might play any role in executing the statute is to incorporate by
reference some of the preexisting regulations governing the Lifeline Program.
See § 254(j) (“Nothing in this section shall affect the collection, distribution,
or administration of the Lifeline Assistance Program provided for by the
Commission under regulations set forth in section 69.117 of title 47, Code of
Federal Regulations, and other related sections of such title.”). Those
regulations made the National Exchange Carrier Association (“NECA”)
responsible for calculating the Lifeline Assistance charges levied on local
exchange carriers. See 47 C.F.R. § 69.117 (10-1-95 ed.). And they gave local
exchange carriers a small role in determining the size of Lifeline Assistance
charges because carriers could obtain subsidies for their self-reported costs
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No. 22-60008
incurred in waiving one kind of regulatory fee. See id. § 69.104(j) (10-1-95
ed.).
But the fact that § 254 incorporated certain pre-1996 Lifeline
Assistance program regulations does not suggest Congress authorized FCC’s
abdication of responsibility for the USF Tax to private entities. That is for
three reasons.
First, NECA’s role under 47 C.F.R. § 69.117 in 1995 was not remotely
analogous to USAC’s current role of administering the entire USF. Section
69.117 charged NECA only with two simple, ministerial tasks: (1) Calculating
Lifeline Assistance charges by “dividing the sum of one-twelfth of the
projected annual Lifeline Assistance revenue requirement and one-twelfth of
the projected annual revenue requirement calculated by all telephone
companies pursuant to § 69.104(l) by the number of common lines
presubscribed to interexchange carriers . . . .” Id. § 69.117(b) (10-1-95 ed.).
And (2) “bill[ing] and collect[ing] the charge, and disburs[ing] associated
revenue.” Ibid. USAC’s role as USF administrator, by contrast, involves far
more than ministerial tasks. See supra, Part III.C.1.c.
Second, the carriers’ role under 47 C.F.R. § 69.117 (and associated
regulations) in 1995 was not analogous to their role in 2023. Before the 1996
Act, FCC regulations authorized certain carriers to bill the Lifeline Program
for costs associated with waiving certain minor, regulatorily imposed end
user common line charges for certain means-tested subscribers pursuant to a
carrier-developed plan certified by FCC. Id. § 69.104(j) (10-1-95 ed.). But
carriers could waive end user charges only if they reduced their own service
rate charges by an equivalent amount. Ibid. That is nothing like the modern
universal service regime, which allows a greatly expanded class of carriers to
bill USF for a broad range of subsidized services provided at no cost to
themselves.
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Third, even if the role NECA and telecommunications carriers played
in administering Lifeline Assistance charges before § 254 was analogous to
the role they play in administering the modern Lifeline Program, there is no
evidence Congress contemplated private entities would play the same role in
administering the three other major universal service programs FCC has
established pursuant to its § 254 authority. That Congress provided a narrow
role for certain private entities in administering a small government program
subsidizing one kind of telecommunications service says nothing about
whether Congress authorized a broadly expanded class of private entities to
play a central role in administering a nine-billion-dollar welfare fund offering
subsidies for technologies no one could have imagined when § 254 was
enacted. If anything, the text of § 254 suggests Congress actually meant to
preclude private entities from administering USF programs other than
Lifeline. That is because NECA did administer the pre-1996 USF. See 47
C.F.R. § 69.116 (10-1-95 ed.). But NECA’s USF responsibilities were distinct
from its Lifeline Assistance responsibilities; the former were spelled out in
§ 69.116, and the latter in § 69.117. Congress referenced § 69.117 in § 254,
but it conspicuously did not reference § 69.116. Congress’s explicit
recognition of one relatively minor aspect of private companies’ participation
in the pre-1996 Lifeline Assistance regime thus evinces that Congress knew
how to empower private companies and chose not to empower them to
administer other aspects of the USF.
So if Congress authorized FCC to delegate sweeping universal service
responsibilities to private entities, it did not say so very clearly. Indeed, it
speaks volumes that the only plausible statutory justification for FCC’s
subdelegation—§ 254(j)—is so ambiguous that FCC, which should be more
familiar with § 254 than anyone, did not even think to point to it as
justification for its reliance on private companies to set the USF Tax.
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* * *
FCC subdelegated the power to determine the universal service
contribution amount to USAC, who further subdelegated it to private, for-
profit telecommunications carriers. That subdelegation was not authorized.
See supra, Part III.C.2.c. And the tasks FCC subdelegated are not ministerial.
See supra, Part III.C.1.b–c. So even if Article I, § 1 does not categorically
forbid USAC and private telecommunications carriers from exercising the
kind of power FCC has vested in them, it may forbid them from doing so
absent express congressional authorization.21
D.
We are highly skeptical that the contribution factor before us
comports with the bar on congressional delegations of legislative power. And
we are similarly skeptical that it comports with the general rule that private
entities may not wield governmental power, especially not without express
and unambiguous congressional authorization. But we need not resolve
either question in this case. That is because the combination of Congress’s
sweeping delegation to FCC and FCC’s unauthorized subdelegation to
USAC violates the Legislative Vesting Clause in Article I, § 1.
_____________________
21
Petitioners certainly could have framed their private nondelegation challenge in
statutory terms. See Consumers’ Rsch, 88 F.4th at 933 (Newsom, J., concurring) (“[I]t may
be that USAC is operating in contravention of the governing statute, 47 U.S.C. § 254,
which conspicuously never even mentions USAC, let alone authorizes its involvement in
the universal-service program.” (emphasis in original)). But assuming private entities are
permitted to exercise government power at all, the decision to delegate government power
to a private entity is itself a legislative one. And since agencies may not wield legislative
power, we are persuaded FCC’s unauthorized decision to delegate government power to a
private actor likely violates not only § 254 but also Article I, § 1 of the Constitution. But see
id. at 933 n.5 (Newsom, J., concurring) (expressing skepticism that the lack of statutory
authorization for a delegation to a private entity “has any real bearing on the constitutional
[private nondelegation] question” (emphasis in original)).
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We (1) explain the Supreme Court’s cases instructing that separation-
of-powers jurisprudence is done holistically, with an eye to constitutional
history and structure, not by dissecting government programs into their
component parts. Then we (2) explain why an agency action involving a
broad congressional delegation and an unauthorized agency subdelegation to
private entities violates the Constitution even if neither of those features does
so independently.
1.
The Supreme Court has instructed us to review separation-of-powers
challenges holistically. And it has held that two or more things that are not
independently unconstitutional can combine to violate the Constitution’s
separation of powers.
Take for example Seila Law, 591 U.S. 197. The question presented in
that case was whether a for-cause removal restriction unconstitutionally
infringed the President’s power to remove the Director of the Consumer
Financial Protection Bureau. See id. at 204. Two lines of precedent seemed
to converge to suggest the removal restriction at issue posed no constitutional
problem. First, Humphrey’s Executor v. United States, 295 U.S. 602 (1935),
established that Congress may constitutionally grant for-cause removal
protections to a group of agency directors that wield executive power. See also
Seila L., 591 U.S. at 216 n.2 (noting that FTC has always exercised executive
power). Second, Morrison v. Olson, 487 U.S. 654 (1988), established that
Congress may constitutionally give for-cause removal protection to a single
official vested with executive authority. See also Seila L., 591 U.S. at 217
(noting that the independent counsel wielded executive power). The Court
of Appeals accordingly reasoned that Humphrey’s Executor and Morrison
controlled and that the statutory provision limiting the President’s power to
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remove the CFPB director was constitutional. CFPB v. Seila L. LLC, 923
F.3d 680, 684 (9th Cir. 2019).
The Supreme Court reversed. It granted that some for-cause removal
restrictions are not problematic. See Seila L., 591 U.S. at 215. And it granted
that for-cause removal restrictions applied to single-member directorships
are sometimes constitutionally permissible. See id. at 217. But it held the
combination of (1) for-cause removal, (2) a one-member CFPB Director, and
(3) the capacious powers of the CFPB created a constitutional problem. Id. at
224–25; see also id. at 258 (Thomas, J., concurring in part) (“The
constitutional violation results from, at a minimum, the combination of the
removal provision and the provision allowing the CFPB to seek enforcement
of a civil investigative demand.” (emphasis added) (citations omitted)). In
other words, three features of the CFPB—each independently
constitutional—combined to create a “new situation” that could not be
decided by reference to precedents that concerned only one aspect of the
problem. Id. at 220 (citation omitted).
The same kind of reasoning guided the Court in Free Enterprise Fund
v. Public Company Accounting Oversight Board, 561 U.S. 477 (2010). In that
case, the question presented was whether “the President [may be] restricted
in his ability to remove a principal officer, who is in turn restricted in his
ability to remove an inferior officer, even though that inferior officer
determines the policy and enforces the laws of the United States[.]” Id. at
483–84. The Court noted its previous holding that Congress may provide for
restrictions on the President’s ability to remove the directors of independent
agencies like SEC. See id. at 483; see also Humphrey’s Executor, 295 U.S. 602.
It also noted its previous holding that Congress may provide for restrictions
on the power of principal executive officers to remove their own inferiors. See
ibid.; see also United States v. Perkins, 116 U.S. 483 (1886). But the Court held
that the combination of two separate layers of removal protections created “a
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new situation not yet encountered by the Court.” Free Enter. Fund, 561 U.S.
at 483. And that combination, the Court held, violated the Constitution. Id.
at 484.
Seila Law and Free Enterprise Fund thus evince a general principle that,
with respect to the separation of powers at least, two constitutional parts do
not necessarily add up to a constitutional whole. Cf. Aristotle, Metaphysics, in
1 Works of Aristotle 569 (Mortimer J. Adler ed., W. D. Ross trans.,
1990) (observing “the whole is” often “something besides the parts”).
Rather, reviewing courts must consider a government program holistically,
with an eye toward its compatibility with our constitutional history and
structure. See Seila L., 591 U.S. at 222.
2.
Here, history and structure both point in the same direction: the
universal service contribution mechanism is unconstitutional.
a.
“Perhaps the most telling indication of a severe constitutional
problem” with the structure of a government program “is a lack of historical
precedent to support it.” Id. at 220 (quotation omitted) (quoting Free Enter.
Fund, 561 U.S. at 505). And USF’s double-layered delegation is
unprecedented.
First, there is no record of any government program like USF in all
the U.S. Reports. The only case that even remotely resembles USF’s
combination of a broad congressional delegation with significant industry
involvement is Sunshine Anthracite, 310 U.S. 381. See supra, Part III.C.1.a.
While Sunshine Anthracite is the closest analogue, it is not really that
close. Unlike USAC and private telecommunications carriers, which de facto
decide the USF contribution amount, the code authorities under the
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Bituminous Coal Act of 1937 only had the power to recommend minimum coal
prices. See 310 U.S. at 399 (“[The Coal Commission], not the code
authorities, determines the prices.”). And the only recommendations the
code authorities could make were cabined by a clear rule: Congress provided
that minimum coal prices were to be fixed at a level which “reflect[ed] as
nearly as possible the relative market values at points of delivery taking into
account specifically enumerated factors,” id. at 397—namely labor, supplies,
power, taxes, insurance, workmen’s compensation, royalties, depreciation
and depletion and all other direct expenses of production, coal operators’
association dues, district board assessments for Board operating expenses
only levied under the code, and reasonable costs of selling and the cost of
administration. See The Bituminous Coal Act of 1937, 50 Stat. at 78. Those
enumerated factors, “consistently with the process of coordination, yield a
return to each area approximating its weighted average cost per ton.”
Sunshine Anthracite, 310 U.S. at 397.22
That case is nothing like ours. To make Sunshine Anthracite apposite,
the Coal Commission’s discretion to set minimum prices would have had to
have been unfettered (it was not); the Coal Commission’s passive
acquiescence would have had to make the code authorities’ price
recommendations legally binding (it did not); and there would have to have
been evidence that the Coal Commission always agreed with the code
authorities’ price recommendations (there was not).
Second, FCC has not pointed to any historical analogue outside the
U.S. Reports. That is hardly surprising. USF combines a sweeping delegation
of the taxing power, see supra, Part III.B, with a subdelegation of that power
_____________________
22
The statute also authorized the Commission to fix maximum coal prices under
certain circumstances, but the code authorities had no role in formulating those maximums.
See ibid.
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to private entities with a personal financial interest in the size of the tax, see
supra, Part III.C. It is difficult to imagine early Congresses would have
authorized a similarly dual-layered delegation of the taxing power.
True, Congress has always relied on the executive to execute tax laws.
For example, in 1798 Congress vested tax assessors with authority to value
real estate for the purpose of administering a nationwide direct tax. See Act
of July 14, 1798, ch. 75, 1 Stat. 597 (1798); see also Nicholas R. Parrillo, A
Critical Assessment of the Originalist Case Against Administrative Regulatory
Power: New Evidence from the Federal Tax on Private Real Estate in the 1790s,
130 Yale L.J. 1288 (2021). But the 1798 direct tax is no precedent for the
USF Tax because the 1798 direct tax is nothing like the USF Tax. That is for
three reasons.
First, the 1798 Congress itself decided the amount of revenue the
Government would levy from American citizens. See Parrillo, New Evidence,
supra, at 1303 (“Congress decided to raise $2 million nationwide and, per the
Constitution’s requirement for direct taxes, apportioned that sum among the
states according to each state’s free population plus three-fifths of its slave
population.”). In contrast, Congress through § 254 delegated to FCC the
power to decide how much revenue the Government will raise via USF taxes.
And FCC’s revenue-raising discretion is limited only by the most amorphous
of standards. See supra, Part III.B.2. So while the 1798 Executive Branch only
had authority to raise $2 million, the present-day FCC can levy taxes
practically ad infinitum based on little more than its own conception of the
public interest. See ibid. It thus strains credulity to analogize the 1798 direct
tax to the USF Tax.
Second (and relatedly), unlike the Congress that enacted § 254, the
1798 Congress made all the relevant tax policy decisions. It decided to raise
$2 million, it decided to levy the $2 million through direct taxes on property
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(mostly real estate), and it decided how the tax burden would be allocated:
mainly in proportion to the value of citizens’ property in money. Parrillo,
New Evidence, supra, at 1303; see supra, Part III.B.2 (explaining the policy
decisions § 254 leaves for FCC). That makes sense because tax decisions—
including decisions about rates—traditionally implicated the legislative
power and so could not be made by officials in the executive branch. See
Phillip Hamburger, Is Administrative Law Unlawful 57–
64 (2014).
Obviously a direct tax on land could not be administered without a fair
accounting of the value of citizens’ property, so Congress provided for
assessors and gave them authority to assess the value of citizens’ property.
Congress did not provide detailed instructions about how assessors were to
go about their business, but that is of no significance. At common law,
“[d]eterminations of facts, including assessments, were understood . . . to be
judicial in nature, not legislative. Although not actually exercises of judicial
power, they were expected to mimic judicial decisions at least in being
exercises of judgment” as opposed to legislative will.
Hamburger, Nondelegation Blues, supra, at 1211 (emphasis added). In other
words, the making of assessments has never involved legislative power
because it has always been assumed that assessors must accurately
characterize the facts on the ground and fairly apply the law to the facts.
For example, in 1598 the English Court of Common Pleas heard a case
concerning the power of the sewers commissioners, who were tasked with
repairing riverbanks and assessing the costs to nearby landowners. See
Rooke’s Case, 77 Eng. Rep. 209 (C.P. 1598) (Coke, J.). The commissioners
repaired a riverbank and then assessed the entire cost to one nearby
landowner. The landowner sued, and Lord Coke held the commissioners
acted unlawfully because they were supposed to assess repair costs to “all
who had land in danger.” Id. at 210. Coke explained that while “[t]he words
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of the commission [gave] authority to the commissioners to do according to
their discretions,” the commissioners could “not [act] according to their
wills and private affections” but rather were “limited and bound with the
rule of reason and law.” Id. at 210. Thus, the discretion possessed by the
commissioners was merely the discretion “to discern between falsity and
truth.” Ibid. In other words, the commissioners had the power to determine
whose land was truly endangered by damaged riverbanks, but they could not
use that discretion to make policy judgments about which landowners should
bear the cost of repairing those banks. See Hamburger, Is
Administrative Law Unlawful, supra, at 97–100 (describing the
nature of assessments at common law).
Like the common law assessors, the tax assessors at the founding had
discretion merely “to discern between falsity and truth” in property values.
Rooke’s Case, 77 Eng. Rep. at 210. Federal officials assumed all property had
a “correct valuation.” Parrillo, New Evidence, supra, at 1366 (quoting
Oliver Wolcott, Jr., Direct Taxes 441 (1796)). The task of
officials executing the direct tax was merely to make the factual
determinations necessary to unearth that correct valuation. Congress told the
assessors to do this “just[ly] and equitab[ly]”—“a familiar measure of the
conduct of government officials making judicial or judicial-like
determinations, including assessments.” Hamburger, Nondelegation Blues,
supra, at 1212. The assessors accordingly had no power to make tax policy, at
least not legitimately. And the kinds of factual findings Congress charged the
assessors with making have never been thought to involve legislative power.
See, e.g., Panama Refin., 293 U.S. at 426 (“[A]uthorizations given by
Congress to selected instrumentalities for the purpose of ascertaining the
existence of facts to which legislation is directed have constantly been
sustained.”).
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It is possible that assessors sometimes mischaracterized the value of
property so as to shift the tax burden from one group of citizens to another.
See Hamburger, Nondelegation Blues, supra, at 1212 (noting “assessments and
other determinations of fact have often been misused to exercise a disguised
legislative power”). If that is right, some assessors may have exercised will
rather than judgment and so acted in a legislative rather than an executive
capacity. But in doing so, the assessors abused the power the 1798 Congress
gave them, and abuses of a power do not change the nature of the power itself.
For example, it is commonly said that the Supreme Court in Lochner abused
the judicial power. See, e.g., Kermit Roosevelt III, What if Slaughter-House
had been Decided Differently?, 45 Ind. L. Rev. 61, 84 (2011) (noting in
Lochner the court committed “the sin . . . of substituting judicial for legislative
policymaking”). But no one contends that in light of Lochner’s abuses the
Court in fact exercises legislative power when it rules in constitutional cases.
So too with the assessors.
Thus, we can find no historical precedent for broad delegations of
Congress’s power to tax. But even if there were—even if the 1798 direct tax
suggests Congress may delegate the Taxing Power to the Executive Branch—
there is still no historical precedent for the USF Tax. That is because it is
utterly inconceivable that the first Treasury, upon receiving from Congress
broad powers to levy taxes on American citizens, would have abdicated
responsibility for determining tax rates to privately employed bounty hunters
who had a personal financial interest in the amount of tax revenue collected.
And that is exactly what FCC has done here. See supra, Part III.C.
Accordingly, USF’s double-layered delegation “is an innovation with
no foothold in history or tradition.” Seila L., 591 U.S. at 222.
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b.
In addition to being a historical anomaly, USF’s double-layered
delegation “is incompatible with our constitutional structure.” Ibid.
Both the public and the private nondelegation doctrines exist to
ensure that Congress exercises its legislative powers—the greatest of the
powers vested by the Constitution in the federal government—“in a way that
comports with the People’s will.”23 Jarkesy, 34 F.4th at 459; see The
Federalist No. 51 (J. Madison) (“A dependence on the people is, no
doubt, the primary control on the government[.]”). As we previously noted:
Every member of Congress is accountable to his or her
constituents through regular popular elections. And a duly
elected Congress may exercise the legislative power only
through the assent of two separately constituted chambers
(bicameralism) and the approval of the President
(presentment). This process, cumbersome though it may often
seem to eager onlookers, ensures that the People can be heard
and that their representatives have deliberated before the
strong hand of the federal government raises to change the
rights and responsibilities attendant to our public life.
_____________________
23
The private nondelegation doctrine also likely applies to delegations of the
executive power to private entities, see Amtrak II, 575 U.S. at 62 (Alito, J., concurring)
(“[I]t raises ‘difficult and fundamental questions’ about the ‘delegation of Executive
power’ when Congress authorizes citizen suits.”) (quoting Friends of the Earth, Inc. v.
Laidlaw Environmental Services (TOC), Inc., 528 U.S. 167, 197 (2000) (Kennedy, J.,
concurring), but petitioners did not raise an Article II challenge. If they had, we might also
conclude that FCC has unconstitutionally delegated the executive power to private entities.
See Consumers’ Rsch, 88 F.4th at 934 (Newsom, J., concurring) (“[I]t seems obvious to me
that in collecting de facto taxes and distributing benefits USAC is exercising ‘executive’
power.”).
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Jarkesy, 34 F.4th at 459–60 (citations and footnote omitted). “But that
accountability evaporates if a person or entity other than Congress,” whether
public or private, “exercises legislative power.” Id. at 460 (citation omitted).
Broad congressional delegations to the executive undermine
democratic accountability for at least three reasons. First, they allow
Congress to circumvent the “many accountability checkpoints” inherent in
the Constitutional lawmaking process. Amtrak II, 575 U.S. at 61 (Alito, J.,
concurring). Second, they obscure lines of accountability the Framers
intended to be clear. See Gundy, 588 U.S. at 155 (Gorsuch, J., dissenting)
(“[B]y directing that legislating be done only by elected representatives in a
public process, the Constitution sought to ensure that the lines of
accountability would be clear: The sovereign people would know, without
ambiguity, whom to hold accountable for the laws they would have to
follow.”); id. at 156 (Gorsuch, J., dissenting) (“Legislators might seek to take
credit for addressing a pressing social problem by sending it to the executive
for resolution, while at the same time blaming the executive for the problems
that attend whatever measures he chooses to pursue. In turn, the executive
might point to Congress as the source of the problem. These opportunities
for finger-pointing might prove temptingly advantageous for the politicians
involved, but they would also threaten to disguise responsibility for the
decisions.” (citations and quotation omitted)). And third, they render the
promise of recourse to the judiciary illusory because they give reviewing
courts no standard against which to measure the compatibility of executive
action with the prescriptions of the people’s elected representatives. See id.
at 167–68 (Gorsuch, J., dissenting) (noting the similarity of the questions
raised in vagueness challenges and delegation challenges).
Delegations to private entities undermine accountability for different
reasons. Most obviously, private entities are “neither legally nor politically
accountable to . . . government officials or to the electorate.” Larkin, The
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Private Delegation Doctrine, supra, at 20; see Black, 53 F.4th at 880 (“[I]f
people outside government could wield the government’s power[ ]then the
government’s promised accountability to the people would be an illusion.”).
Unlike officers of the United States, who “must take an oath or affirmation
to support the Constitution,” Amtrak II, 575 U.S. at 57 (Alito, J., concurring)
(citing U.S. Const. art. VI, cl. 3), directors of private entities owe no fealty
to the Constitution and instead owe legal obligations to their shareholders.
See 2 Bus. & Com. Litig. Fed. Cts. § 13:77 (5th ed.) (“Under
Delaware law, directors, officers, and controlling shareholders owe a duty of
loyalty to the company and to its shareholders or owners.”). Moreover,
“passing off a Government operation as an independent private concern”
allows “Government officials [to] wield power without owning up to the
consequences” because the people might not associate bad results with the
Government at all. Amtrak II, 575 U.S. at 57 (Alito, J., concurring).
USF combines these features, meaning accountability is undermined
twice over. First, the public cannot tell whether it is being taxed by the FCC
or USAC. See Universal Service, Universal Serv. Admin. Co., supra
(“Using information from universal service program participants, USAC
estimates how much money will be needed each quarter to provide universal
service support.” (emphasis added)). And if some sleuthing member of the
public suspected the federal government was behind the mysterious USF
charge on his phone bill, how could he determine which governmental official
to blame? Not only could Congress and FCC point fingers at each other, see
Gundy, 588 U.S. at 156 (Gorsuch, J., dissenting), but both could offload
responsibility onto the private entities (USAC and its private, for-profit,
constituents) to which FCC delegated the USF Tax without congressional
authorization. See Free Enter. Fund, 561 U.S. at 497–98 (“The diffusion of
power carries with it a diffusion of accountability . . . Without a clear and
effective chain of command, the public cannot determine on whom the blame
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or the punishment of a pernicious measure, or series of pernicious measures
ought really to fall.” (citation omitted)). And even as government officials
are immunized from public oversight by this “Matryoshka doll” of
delegations and subdelegations, id. at 497, important governmental
responsibilities are carried out by private entities with a legal obligation not
to serve the public but rather to reap profits from it. And last but not least,
reviewing courts are handicapped from redressing the injuries of aggrieved
citizens by the complete absence of a judicially workable standard in 47
U.S.C. § 254.
Thus, just as the added layer of tenure protection at issue in Free
Enterprise Fund “ma[de] a difference” to the President’s ability control the
executive branch, id. at 495, so too do the myriad obfuscations of the USF
Tax make a difference to the Legislative Vesting Clause. Accordingly, we
hold that the universal service contribution mechanism’s double-layered
delegation “is incompatible with our constitutional structure.” Seila L., 591
U.S. at 222.
IV.
Finally, a brief word about the dissenting opinions. The principal
dissent spills much ink on the distinction between fees and taxes only to
conclude the distinction does not matter because all “revenue-raising
delegation[s]” are the same. Post, at 96 (Stewart, J., dissenting). And how
does the Constitution permit double insulation of a revenue-raising delegation
like the USF? The principal dissent does not say.
The second dissenting opinion calls the majority opinion an
“unannounced” and “unprecedented” “sleight of hand.” Post, at 98, 105
(Higginson, J., dissenting). Worse, it is a usurpation that leaves “the political
branches powerless to govern.” Post, at 101, 105. With deepest respect for
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our esteemed colleagues who see this case differently, the dissenting
opinion’s legal authorities do not support its conclusions.
For example, it repeatedly accuses us of contravening Supreme Court
precedent. Post, at 98, 99, 100, 101, 103, 105 (Higginson, J., dissenting). But
which precedent, precisely, are we flouting? The dissenting opinion does not
say. The closest it comes is to contend that the Supreme Court has
considered cases involving both a “delegation of legislative power and a[ ]
delegation of government power to a private entity, yet the Court has never
instructed . . . that a different standard applies.” Id. at 98–99 (Higginson, J.,
dissenting). But in which case did the Supreme Court consider a double
delegation problem like the one presented here? The statutory provision at
issue in Carter Coal did not feature a combined public/private delegation; it
delegated power directly to private enterprise. See 298 U.S. at 283–84. And
the Court found that violated the Constitution. Id. at 311. Having found that
statute unconstitutional, it would have been quite peculiar for the Court to
proceed to render an advisory opinion on whether a nonexistent double
delegation would also violate the Constitution.
Meanwhile, in Currin and Sunshine Anthracite, the Court found the
Government had not delegated any legislative power to any private entity.
See Currin, 306 U.S. at 15 (“So far as growers of tobacco are concerned, the
required referendum does not involve any delegation of legislative
authority.”); Sunshine Anthracite, 310 U.S. at 399 (“Since law-making is not
entrusted to the industry, this statutory scheme is unquestionably valid.”).
There cannot be a combined public/private delegation without a private
delegation. We obviously agree with our esteemed colleagues in dissent that
Supreme Court precedent binds us and binds us absolutely. But we do not
understand how the dissenting opinions can say this case is controlled by
Supreme Court precedent without disputing that the double delegation at
issue here is unprecedented.
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The second dissenting opinion also contends we have
mischaracterized the Supreme Court’s separation-of-powers precedents. On
its telling, Seila Law does not evince a general principle that two
constitutional parts can converge to create an unconstitutional whole.
Rather, it says the Seila Law Court simply declined to recognize an exception
to the President’s removal power for single principal officers who wield
significant executive authority. Post, at 100 (Higginson, J., dissenting). Even
if that were right, it would not explain Free Enterprise Fund. In that case the
Court unquestionably held that two independently constitutional removal
restrictions—one that fit squarely within the Humphrey’s Executor exception,
and one that fit squarely within the Morrison exception—combined to create
a constitutional violation. The dissenting opinion offers no explanation for
that holding.
Finally, the second dissenting opinion contends our decision leaves
the political branches “powerless to govern.” Post, at 105 (Higginson, J.,
dissenting). That is quite an assertion, but with greatest respect, it is untrue.
Today’s decision applies to a narrow question, implicating just one federal
program that is doubly insulated from political accountability. The parties
before us have not pointed to other federal programs that have the same or
similar constitutional defects. And as to the USF particularly, Congress
could obviate the constitutional problem by simply ratifying USAC’s
decisions about how much American citizens should contribute to the goal of
universal service. Cf. Saikrishna Bangalore Prakash, The Sky Will Not Fall:
Managing the Transition to a Revitalized Nondelegation Doctrine, in The
Administrative State Before the Supreme Court, supra, at
290 (“Legislative ratification of agency law would wholly preclude a
nondelegation challenge[.]”).
The second dissenting opinion contends otherwise because, in its
view, the Federal Government will grind to a halt if Congress, or even FCC,
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were required to do more than wield a Russian veto over the USF tax. As
evidence, it points to private contractors who perform ministerial functions
on behalf of the Centers for Medicare and Medicaid Services. Post, at 103
(Higginson, J., dissenting). But if anything, Medicare and Medicaid prove the
opposite. Congress—not a federal agency, and certainly not executives of
private companies—decides how much Americans should be taxed to fund
federal healthcare programs. See, e.g., Louise Sheiner, Lorae Stojanovic, &
David Wessel, How does Medicare work? And how is it financed?, Brookings
(Mar. 20, 2024), https://perma.cc/D7LN-DHYW (explaining the
Government’s contributions to Medicare come from a combination of
general revenues and payroll taxes); 26 U.S.C. § 3101 (setting the Medicare
payroll tax rate). The unconstitutionality of the USF says nothing about other
tax programs, like Medicare and Medicaid, that Congress administers.
* * *
American telecommunications consumers are subject to a multi-
billion-dollar tax nobody voted for. The size of that tax is de facto determined
by a trade group staffed by industry insiders with no semblance of
accountability to the public. And the trade group in turn relies on projections
made by its private, for-profit constituent companies, all of which stand to
profit from every single tax increase. This combination of delegations,
subdelegations, and obfuscations of the USF Tax mechanism offends Article
I, § 1 of the Constitution.
For the foregoing reasons, we hold unconstitutional the Q1 2022 USF
Tax. Accordingly, we GRANT the petition and REMAND to FCC for
further proceedings.
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Jennifer Walker Elrod, Circuit Judge, joined by Ho and
Engelhardt, Circuit Judges, concurring:
I concur in the majority opinion in full. The majority correctly and
thoroughly identifies the concerns that make this double delegation
unconstitutional. I write separately to say that I would go one step further
and address the lawfulness of each individual delegation. For the reasons
explained in the majority’s thorough opinion, Congress’s delegation of
legislative power to the FCC and the FCC’s delegation of the taxing power
to a private entity each individually contravene the separation of powers
principle that undergirds our Constitutional Republic.
As James Madison put it, “[t]he accumulation of all powers
legislative, executive, and judiciary in the same hands, . . . may justly be
pronounced the very definition of tyranny.” Dep’t of Transp. v. Ass’n of Am.
R.R., 575 U.S. 43, 74 (2015) (Thomas, J., concurring) (quoting The
Federalist No. 47, p. 301 (C. Rossiter ed. 1961)); see also Baron de
Montesquieu, The Spirit of the Laws, bk. XI, ch. VI (1748) (“When the
legislative and executive powers are united in the same person, or in the same
body of magistrates, there can be no liberty; . . . .”).
To ensure that the legislative power remains separate from the
executive power, the Constitution “provides strict rules to ensure that
Congress exercises the legislative power in a way that comports with the
People’s will.” Jarkesy v. Sec. and Exch. Comm’n, 34 F.4th 446, 459 (5th Cir.
2022) aff’d, No. 22-859, 2024 WL 3187811 (U.S. June 27, 2024). Each
member of Congress is accountable to his or her constituents through regular
popular elections. U.S. Const. art I, §§ 2, 3; id. amend. XVII, cl. 1. And
Congress may exercise legislative power (including the power to tax) only by
going through the arduous process of bicameralism and presentment. U.S.
Const. art. I, § 7. This “ensures that the People can be heard and that their
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representatives have deliberated before the strong hand of the federal
government raises to change the rights and responsibilities attendant to our
public life.” Jarkesy, 34 F.4th at 459–60. Each of the delegations here,
viewed independently, violates this principle.
Justifying the Congressional delegation on the grounds that Congress
has enlisted the “expertise” of the FCC in the undefined area of Universal
Service rings hollow given that the FCC relies on the determinations of
private industry leaders to determine the USF tax.
The second dissent states that the federal government is rendered
“powerless to govern” by the majority’s holding. Post, at 101 (Higginson, J.,
dissenting). That is a non sequitur. Congress can always act by passing duly
enacted legislation through bicameralism and presentment. The assertion
that delegations of legislative power are necessary for effective and efficient
governance in the modern world does not authorize Congress to violate
Article I, Section I’s vesting clause. Congress’s inability to implement and
oversee the program itself might even suggest that the program should not
exist. Regardless, Congress must implement, or at least approve, the USF
tax. That way, the power of the people to oversee those they have chosen to
govern is rightfully restored.1
With this in mind, I join the thorough and well-reasoned opinion of
the court in full.
_____________________
1
They are, after all, the ones ultimately footing the bill for Universal Service.
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James C. Ho, Circuit Judge, concurring:
Our Constitution establishes three branches of government, not four.1
It vests “[a]ll legislative Powers herein granted”—including the “Power To
lay and collect Taxes”—not in some unnamed fourth branch of government,
but in “a Congress of the United States,” whose members are chosen by and
directly accountable to the people of the United States. U.S. Const. art.
I, §§ 1, 8. So if we’re serious about protecting our constitutional democracy,
we must enforce the principle that all legislative powers like the power to tax
are indeed exercised by the people we elect.
That’s what our court does today. We hold that the delegation of
Congress’s taxing power, first to a federal agency, and then to a private
entity, violates the Vesting Clause of Article I. I certainly concur.
In reaching this decision, the court distinguishes Texas v. Rettig, 987
F.3d 518 (5th Cir. 2021). I would also disavow Rettig altogether, for the
reasons noted in Texas v. Rettig, 993 F.3d 408, 408 (5th Cir. 2021) (Ho, J.,
dissenting from denial of rehearing en banc).
The delegations of taxing authority at issue in Rettig present the same
challenges to our constitutional democracy—and to the founding principle of
taxation without representation—that are presented here. It’s just as true in
Rettig as it is here that “[t]he right to vote means nothing if we abandon our
constitutional commitments and allow the real work of lawmaking to be
_____________________
1
See, e.g., Ameron, Inc. v. U.S. Army Corps of Engineers, 787 F.2d 875, 892 (3rd Cir.
1986) (Becker, J., concurring) (“The Constitution establishes three branches of
government, not four.”); Ass’n of American Railroads v. U.S. Dep’t of Transp., 821 F.3d 19,
30–31 (D.C. Cir. 2016) (various provisions of “our Constitution . . . were designed for a
government of three branches, not four”).
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exercised by private interests colluding with agency bureaucrats, rather than
by elected officials accountable to the American voter.” Id. at 410-11.
And both in Rettig and here, the threats to democracy presented by the
administrative state are not inadvertent, but intentional—a deliberate design
to turn consent of the governed into an illusion. “[T]he expansion of the
electorate has been accompanied by the growth of administrative law. . . .
[W]hether in 1870, 1920, or 1965 . . . each time, after representative
government became more open to the people, legislative power increasingly
has been sequestered to a part of government that is largely closed to them.”
Philip Hamburger, Is Administrative Law Unlawful? 369
(2014). “[A]lthough [members of the knowledge class] mostly supported
expanded suffrage, they also supported the removal of legislative power to
administrative agencies staffed by persons who shared their outlook.” Id. at
374. “The development of administrative power thus . . . must be recognized
as . . . a profoundly disturbing shift of power. As soon as the people secured
the power to vote, a new class cordoned off for themselves a sort of legislative
power that they could exercise without representation.” Id. Another scholar
put it this way: “However much [administrative] agencies may emphasize
their formal openness, in practice well-organized, directly interested parties
dominate comment processes. Normal people do not perceive these
proceedings as ‘democratic.’” Philip A. Wallach, Why
Congress? 231 (2023). With Congress, “the electorate still has the
chance, crude as it may be, to pass judgment on the elected official and
convince other members of their community of the importance of doing so.
Against . . . the bureaucracy, citizens have no such recourse.” Id.
We devote significant energy and resources to securing the right to
vote for every citizen. But that right matters only if our elected officials
matter. There’s no point in voting if the real power rests in the hands of
unelected bureaucrats—or their private delegates. If you believe in
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democracy, then you should oppose an administrative state that shields
government action from accountability to the people. I concur.
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No. 22-60008
Carl E. Stewart, Circuit Judge, joined by Richman, Chief Judge, and
Southwick, Haynes, Graves, Higginson, and Douglas,
Circuit Judges, dissenting:
I dissent because the Universal Service Fund (“USF”) is not
unconstitutional. Section 254 of the Telecommunications Act of 1996
provides an intelligible principle and the Federal Communications
Commission (“FCC”) maintains control over the Universal Service
Administrative Company (“USAC”), the private entity entrusted to aid its
administration of the USF. The majority’s exhaustive exegesis about policy,
history, and assorted doctrines does not eclipse the consistent holding of
three sister circuits that have addressed constitutional challenges to Section
254. All have held it constitutional under the intelligible principle test. The
majority has created a split in a sweeping opinion that (1) crafts an amorphous
new standard to analyze delegations, (2) overturns—without much fanfare—
circuit precedent holding that this program collects administrative fees and
not taxes, (3) blurs the distinction between taxes and fees, and (4) rejects
established administrative law principles and all evidence to the contrary to
create a private nondelegation doctrine violation.
I. The Nondelegation Doctrine
Petitioners and the majority contend that § 254 violates the
nondelegation doctrine. Notably, the Supreme Court has denied petitions for
review of the Sixth Circuit’s and the Eleventh Circuit’s decisions rejecting
these contentions. Consumers’ Rsch. v. FCC, No. 23-456, 2024 WL 2883753
(U.S. June 10, 2024) (Mem.); Consumers’ Rsch. v. FCC, No. 23-743, 2024
WL 2883755 (U.S. June 10, 2024) (Mem.). In line with our colleagues in the
Sixth, Eleventh, and D.C. Circuits, I would reject this challenge and hold that
§ 254 satisfies the intelligible principle test as articulated by the Supreme
Court.
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a. Section 254 Sufficiently Delimits the FCC’s Discretion
The nondelegation doctrine is based on the central principle that the
separatio
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