Neustar, Inc. v. Federal Communications Commission

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 13, 2016 Decided May 26, 2017

No. 15-1080

NEUSTAR, INC.,

PETITIONER

v.

FEDERAL COMMUNICATIONS COMMISSION AND UNITED

STATES OF AMERICA,

RESPONDENTS

CTIA - THE WIRELESS ASSOCIATION, ET AL.,

INTERVENORS

Consolidated with 16-1293

On Petitions for Review of Orders of

the Federal Communications Commission

Kannon K. Shanmugam argued the cause for petitioner.

With him on the briefs were Marcie R. Ziegler, James E.

Gillenwater, Amy E. Murphy, Tyrone Brown, Andrew G.

McBride, Thomas J. Navin, and Brett A. Shumate.

2

David M. Gossett, Deputy General Counsel, Federal

Communications Commission, argued the cause for

respondents. With him on the brief were William J. Baer,

Assistant Attorney General, Robert B. Nicholson and Scott A.

Westrich, Attorneys, Jonathan B. Sallet, General Counsel,

Federal Communications Commission, Jacob M. Lewis,

Associate General Counsel, and Lisa S. Gelb and C. Grey Pash

Jr., Counsel. Richard K. Welch, Deputy Associate General

Counsel, Federal Communications Commission, entered an

appearance.

Peter Karanjia argued the cause for Association

Intervenors. With him on the brief were Christopher J. Wright,

John T. Nakahata, Mark D. Davis, William B. Sullivan, John

R. Grimm, and James M. Smith. Timothy J. Simeone entered

an appearance.

Before: TATEL, Circuit Judge, and EDWARDS and

SENTELLE, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge

SENTELLE.

SENTELLE, Senior Circuit Judge: Neustar, Inc. petitions

for review of orders of the Federal Communications

Commission (“FCC” or the “Commission”) naming another

company to replace Neustar as the Local Number Portability

Administrator (“LNPA” or “LNP Administrator”). Petitioner

argues that the Commission erred in not properly determining

issues relating to the new Administrator’s corporate

affiliations. Finding no error in the Commission’s decision, for

the reasons set forth below, we deny the petitions.

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I. BACKGROUND

The Telecommunications Act of 1996 (“Act”) requires

telecommunications providers to provide “portability” of

telephone numbers, permitting customers to retain their current

numbers when switching carriers. 47 U.S.C. § 251(b)(2); see

also 47 U.S.C. § 153(37). To effectuate this requirement, the

FCC must “create or designate one or more impartial entities

to administer telecommunications numbering and to make such

numbers available on an equitable basis.” 47 U.S.C.

§ 251(e)(1).

In its 1996 First Report and Order and Further Notice of

Proposed Rulemaking, FCC 96-286, 11 FCC Rcd. 8352

(1996), the FCC “conclude[d] that it is in the public interest for

the number portability databases to be administered by one or

more neutral third parties,” id. ¶ 92, 11 FCC Rcd. at 8400-01

¶ 92. Consequently, the Commission “direct[ed] the [North

American Numbering Council (“NANC” or “Council”)] to

select as a local number portability administrator(s) . . . one or

more independent, non-governmental entities that are not

aligned with any particular telecommunications industry

segment . . . .” Id. ¶ 93, 11 FCC Rcd. 8401 ¶ 93. This led to

the creation of the LNP Administrator. The NANC LNPA

Selection Working Group issued its report (“Working Group

Report”) on April 25, 1997. See generally North American

Numbering Council, Local Number Portability Administration

Selection Working Group (Apr. 25, 1997). In this report, the

NANC recommended Lockheed Martin IMS (“Lockheed”),

predecessor of Neustar, and Perot Systems, Inc. to serve as

LNPAs. Id. § 6.2.4; see Second Report and Order, FCC 97-

289 ¶ 25, 12 FCC Rcd. 12281, 12298 ¶ 25 (Aug. 18, 1997).

The FCC generally adopted the recommendations of the

Working Group in its 1997 Second Report and Order. Second

Report and Order, FCC 97-289 ¶ 33, 12 FCC Rcd. 12281,

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12303 (1997). In 1998, Perot Systems experienced significant

performance difficulties and Lockheed became administrator

for the entire country.

In 1999, upon finding that Lockheed did not meet the

neutrality criteria, the FCC issued an order allowing the LNPA

contract to be transferred to a new independent affiliate:

Neustar, Inc. Order, FCC 99-346 ¶ 1 (Nov. 17, 1999). It found

“that Neu[s]tar, as currently structured and with the additional

safeguards imposed herein, is in compliance with our neutrality

criteria.” Id. As a result of the transfer of the LNPA contract,

Neustar is the incumbent LNPA. See March 2015 Order, FCC

15-35 ¶ 7.

In 2009, Telcordia, a wholly owned subsidiary of Ericsson,

petitioned the FCC “to institute a competitive bid process for

the LNPA contract” and the FCC subsequently began a

collaborative public process to develop the procedures to select

the next LNPA. Id. ¶¶ 8-10. After this interactive process and

the release of the bid documents, two companies submitted

bids: Neustar and Telcordia. Id. ¶¶ 8-11. Following the review

of these initial bids, the Commission issued a solicitation for

Best and Final Offers (“BAFO”). Each company submitted a

BAFO. Id. Just over a month later, Neustar submitted a

second, unsolicited BAFO, which the NANC refused to

consider. Id. After reviewing the bids, the NANC ultimately

“recommended the selection of Telcordia as the sole LNPA

. . . .” Id. ¶ 12. Neustar objected to this recommendation on

procedural grounds concerning the selection process, see id.

¶ 14, and on substantive grounds regarding costs and the

bidders’ qualifications, see id. ¶¶ 65, 134, and “challeng[ed]

Telcordia’s neutrality showing,” id. ¶ 167.

In its March 2015 Order approving recommendation of

Telcordia as the LNPA, the FCC specifically addressed these

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concerns. See id. ¶¶ 14-198. First, contrary to Neustar’s

procedural objections, the FCC determined that selection of the

LNPA does not require notice-and-comment rulemaking and

“this proceeding is properly viewed as an informal

adjudication.” Id. ¶ 18; see id. ¶¶ 15, 18. Neustar had argued

that because the prior selection of the LNPAs was incorporated

into FCC rules, the selection of a new LNPA must be

accomplished by a rulemaking to amend the existing rules. The

FCC also sustained the rejection of Neustar’s second BAFO.

Id. ¶ 37.

The FCC further determined that both bidders were

qualified to serve as the LNPA, id. ¶ 81, and that the cost

analysis warranted recommending Telcordia as the next LNPA,

id. ¶ 153.

As to neutrality, Neustar argued that Telcordia could not

be neutral because its parent company, Ericsson, is an

equipment manufacturer and service provider. Id. ¶ 169.

Neustar maintained further that Ericsson, as Telcordia’s sole

owner, must be evaluated for alignment, undue influence, and

whether it is a manufacturer of telecommunications network

equipment. Id. The FCC rejected this argument.

The FCC did, however, order the imposition of further

safeguards and found “that, when considered together in light

of the safeguards and conditions . . . adopt[ed] in this Order,

Telcordia will not be subject to undue influence by Ericsson,

nor will Ericsson adversely affect Telcordia’s ability to serve

as a neutral LNPA.” Id. ¶ 168.

The FCC supported its neutrality determination with

several points. First, it emphasized that the challenged

telecommunications sector connections were with Ericsson,

not Telcordia. Id. ¶ 172. The FCC determined that “even to

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the extent Ericsson is ‘aligned with’ the wireless industry as

that term is understood in our neutrality rules, it does not follow

that Telcordia is so aligned.” Id. n.593. It grounded this

conclusion on a finding that “Telcordia is a separate company

with a separate independent board of directors, each of whom

owes fiduciary duties to Telcordia.” Id. ¶ 172. The

Commission further analyzed Telcordia’s independence,

reasoning that this independence is sustainable, “particularly

when considered in conjunction with the conditions that we

impose in this Order.” Id. ¶ 172. The FCC emphasized that it

“has, and will exercise ample authority to ensure that the

contract includes targeted conditions to ensure that the LNPA

is neutral and remains neutral throughout the term of the

contract.” Id. ¶ 173. It further stressed that neutrality is a key

consideration and that regulations governing the LNPA and

conditions it adopted in the Order were crafted “to ensure that

such neutrality is preserved.” Id. ¶ 179. The Commission

further noted that Telcordia had implemented a number of

safeguards described in its neutrality showing that, taken

together with the conditions imposed in the Order, led the

Commission to conclude “that Telcordia meets our neutrality

requirements.” Id.

After detailing some of the conditions, including corporate

structure, a majority independent board of directors, a biannual

neutrality audit and a Code of Conduct, the FCC addressed the

specific concern that “Ericsson might be tempted to prioritize

those [other] contracts and sales over the LNPA contract.” Id.

¶¶ 179-81. It recognized that Ericsson’s role as Telcordia’s

sole owner “could present opportunities for Ericsson to exert

undue influence over Telcordia.” Id. ¶ 181. The Commission

described the concerns about Ericsson as being “somewhat

speculative” but did “acknowledge that they reflect[ed]

potential incentive and ability” for Telcordia to benefit its

parent corporation. Id.

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However, the Commission further concluded that its rules

provided the flexibility to deal with the potential for undue

influence that might impair neutrality. It noted that the FCC

had “historically addressed such concerns by imposing

conditions on the numbering administrators” and that it was

doing so in the Order. Id. In keeping with this finding, the

Commission “require[d] a condition that will restrict

Ericsson’s ability to exert undue influence on Telcordia by

limiting Ericsson’s direct influence on Telcordia’s board of

directors”: a voting trust. Id. ¶ 182. It ordered that Telcordia

adopt the proposed Code of Conduct with additional FCC-

imposed conditions specifically targeted at this dynamic. Id.

¶ 186. After considering the comments and concerns in the

record, it concluded that Telcordia was not “per se precluded

from serving as the LNPA” by Commission rules, precedent,

or any other reason. Id. ¶ 188. It further concluded that, given

the safeguards and conditions set forth in the order, “Telcordia

has demonstrated its commitment to maintain neutrality in its

LNPA operations . . . .” Id. The Commission therefore

determined that Telcordia met the neutrality requirements for

appointment as the LNPA. The Commission required that the

Code of Conduct “be finalized,” the voting trust be formed, and

the appointment of trustees and independent directors be “in

effect prior to Telcordia commencing to provide LNPA

services . . . .” Id.

Finally, the FCC ordered “that the North American

Portability Management LLC, with Commission oversight, is

directed to negotiate the proposed terms of the LNPA contract

in accordance with this Order, and submit the proposed

contract to the Commission for approval.” Id. ¶ 199. On July

25, 2016, following successful contract negotiations and

satisfaction of its conditions, the FCC issued a final decision.

In the Matters of Telcordia Technologies, Inc. Petition to

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Reform Amendment 57 and to Order a Competitive Bidding

Process for Number Portability Administration, FCC 16-92

¶ 1, 2016 WL 4006478, at *1 ¶ 1 (July 25, 2016) (July 2016

Order).

Neustar petitions this Court for review.

II. DISCUSSION

On petition to this Court, Neustar reiterates the arguments

it made to the FCC regarding the LNPA selection process and

Telcordia’s fitness to serve as the LNPA. Neustar argues that

(1) the FCC violated the Administrative Procedure Act

(“APA”) by failing to engage in notice-and-comment

rulemaking, (2) the FCC’s selection of Telcordia was contrary

to law or arbitrary and capricious based on an improper

understanding and application of the neutrality regulations and

its approach to Ericsson as Telcordia’s sole corporate parent,

and (3) the FCC’s evaluation of the parties’ bid costs was

arbitrary and capricious. The FCC moved to dismiss the

petition, arguing that this Court does not have jurisdiction. For

the reasons discussed below, we conclude that this Court has

jurisdiction, that the Order does not qualify as a rule, and that

there is no requirement of notice-and-comment rulemaking

when selecting the LNPA. We further hold that neither the

FCC’s neutrality determination nor its cost analysis was

arbitrary and capricious and that the FCC’s BAFO

determination was not arbitrary and capricious.

A. Jurisdiction

The FCC initially asserted that this Court lacked

jurisdiction to hear Neustar’s petition to review the challenged

March 2015 Order. The Commission moved to dismiss the

9

petition for review on the ground that the Order is not final for

purposes of judicial review under the Hobbs Act, 28 U.S.C.

§ 2342(1), and § 402(a) of the Communications Act, 47 U.S.C.

§ 402(a). The Commission correctly notes that this Court’s

jurisdiction extends “only to final orders” of the FCC. See N.

Am. Catholic Educ. Programming Found. v. FCC, 437 F.3d

1206, 1209 (D.C. Cir. 2006) (emphasis removed); see also Blue

Ridge Envtl. Def. League v. NRC, 668 F.3d 747, 753 (D.C. Cir.

2012).

On August 18, 2016, however, in Case No. 16-1293,

Neustar filed a petition for review of the FCC’s July 2016

Order approving the terms of a proposed contract for Telcordia

to serve as the next Administrator. On September 1, 2016,

Petitioner made an unopposed motion for consolidation of its

petitions for review in Neustar, Inc. v. Federal

Communications Commission, Nos. 15-1080 and 16-1293,

asserting that consolidation would “serve to moot any potential

jurisdictional objection . . . .” We granted that motion and

consolidated the cases. Given the second petition and

consolidation of the cases, the FCC’s jurisdictional argument

is moot.

B. Notice-and-Comment Rulemaking

1. Rulemaking Requirements and Promulgation

Under § 251

Neustar argues that, because § 251 requires that the FCC

issue regulations to implement the statute’s requirements, the

FCC must use rulemaking procedures whenever it acts under

§ 251. In support, it urges that the Supreme Court, in AT&T

Corp. v. Iowa Utilities Board, 525 U.S. 366, 383 n.9 (1999),

“recognized that ‘Section 251(e) . . . requires the Commission

to exercise its rulemaking authority.’” Neustar asserts again

that the FCC’s prior LNPA selection was “the product of

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notice-and-comment rulemaking” and thus, because the Order

in this case effectively repealed that prior rule by

recommending a new LNPA, the new LNPA recommendation

should have followed notice-and-comment rulemaking

procedures. The FCC maintains that it appropriately selected

the new LNPA through informal adjudication and that it does

not “read [its] rules to incorporate a particular LNPA or to

require amendment when selecting a new one.” See March

2015, FCC 15-35 ¶¶ 18, 23.

Section 251 of Title 47, United States Code, provides in

subsection (d) that generally “[w]ithin 6 months after February

8, 1996, the Commission shall complete all actions necessary

to establish regulations to implement the requirements of this

section.” 47 U.S.C. § 251(d)(1). Subsection (e) addresses

numbering administration and empowers the Commission to

“create or designate” an impartial entity or entities to

administer the telecommunications numbering system. See

§ 251(e).

Subsection (d) only requires that the FCC “establish

regulations to implement the requirements of this section.”

§ 251(d) (emphasis added). In keeping with this requirement,

regulations establishing the selection process and how it would

select administrators properly provide a means to implement

the statute, even though the regulations in of themselves would

not satisfy ultimate statutory requirements such as selecting the

administrator. Thus, the statute’s text does not compel that all

of the statutory requirements be implemented through

rulemaking. The text is broad enough to encompass the

processes to implement the statutory requirements through

rulemaking even if the ultimate outcomes are achieved via

another process, such as informal adjudication. See id. We

also agree with the FCC that it has not incorporated a specific

LNPA by rule and thus the selection of a new LNPA need not

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follow rulemaking procedures either. See March 2015, FCC

15-35 ¶ 23.

In addition to the fact that the statute itself does not require

that every administrator be selected through rulemaking,

review of the FCC’s use of its rulemaking and regulatory

authority under this statute illustrates the distinction between

what must be achieved through rulemaking under the statute

and what may be achieved through informal adjudication. We

review administrative decisions such as the one before us

against a background understanding that agencies perform their

administrative functions both through rulemaking and

adjudication. See generally SEC v. Chenery Corp., 332 U.S.

194 (1947). The FCC “has very broad discretion to decide

whether to proceed by adjudication or rulemaking.”

Conference Grp., LLC v. FCC, 720 F.3d 957, 965 (D.C. Cir.

2013) (citations omitted).

Rulemaking scenarios generally involve broad

applications of more general principles rather than case-

specific individual determinations. “This maxim of

administrative law permits an agency to develop a body of

regulatory law and policy either through case-by-case

decisionmaking (a quasi-adjudicative process) or through

rulemaking (a quasi-legislative process).” Am. Tel. & Tel. Co.

v. FCC, 978 F.2d 727, 731 (D.C. Cir. 1992). A rulemaking

under § 251(e) would more properly encompass an action such

as “adoption of a rule stating that ‘[t]oll free numbers shall be

made available on a first-come, first-served basis unless

otherwise directed by the Commission.’” See Kristin Brooks

Hope Ctr. v. FCC, 626 F.3d 586, 588 (D.C. Cir. 2010) (citation

omitted).

By contrast, agencies may use informal adjudications

when they are not statutorily required “to engage in the notice

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and comment process” or to “hold proceedings on the record

. . . .” See Safe Extensions, Inc. v. FAA, 509 F.3d 593, 604

(D.C. Cir. 2007). Informal adjudications may be used in highly

fact-specific contexts, see Nat’l Biodiesel Bd. v. EPA, 843 F.3d

1010, 1017-18 (D.C. Cir. 2016), and lack “the hallmarks of

legislative rulemaking,” Conference Grp., 720 F.3d at 965.

These informal adjudications still must comply with the

familiar APA standard banning arbitrary and capricious

actions. See 5 U.S.C. § 706(2)(A); Occidental Petrol. Corp. v.

SEC, 873 F.2d 325, 337 (D.C. Cir. 1989).

In short, while promulgating procedures for how to select

a new LNPA may appropriately be done by rulemaking, the

actual recommendation of the next LNPA is an individualized

selection process that is sufficiently adjudicatory in nature to

fall outside the scope of any requirement that the FCC

promulgate rules to carry out § 251.

The history surrounding the selection of prior LNPAs is

consistent with this textual analysis. See March 2015 Order,

FCC 15-35 ¶¶ 23-26. For example, early in the history of the

application of the Act and the associated regulations, the FCC

stated that, in its implementation of the statute, it had entered

the Local Competition Second Report and Order, in which it

concluded that the NANP Order satisfied the requirements of

§ 251(e)(1) for the creation or designation of an impartial

numbering administrator. It further noted the requirement for

the initiation of a new, impartial number administrator and

“established the model for how that administrator would be

chosen.” Third Report and Order and Third Report and Order,

FCC 97-372 ¶ 8 (Oct. 9, 1997). It had therefore at that time

taken “‘action necessary to establish regulations’” for the

designation of such an impartial administrator and therefore

met the requirements of § 251(e)(1). Id.

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Thus, the FCC itself has interpreted the statutory mandate

as encompassing measures to implement the ultimate

requirement to designate an administrator—such as

“establish[ing] the model for how that administrator would be

chosen.” Id. While not determinative, this past practice at least

illustrates how the scheme has previously functioned.

However, the FCC’s interpretation of the statutory

mandate is not entitled to deference in this case. The FCC’s

brief nominally references Chevron’s deferential standard in its

standard of review but did not invoke this standard with respect

to rulemaking. Consequently, it has forfeited any claims to

Chevron deference. See Lubow v. U.S. Dep’t of State, 783 F.3d

877, 884 (D.C. Cir. 2015) (noting Chevron deference is not

jurisdictional and can be forfeited). See generally Silver State

Land, LLC v. Schneider, 843 F.3d 982 (D.C. Cir. 2016)

(deciding statutory matter without citing Chevron). Similarly,

review of the relevant agency orders shows no invocation of

Chevron deference for this matter.

In any event, upon our review of the statute, we hold that

§ 251’s general regulatory mandate from Congress does not

require that each new administrator be selected by notice-and-

comment rulemaking procedures. Petitioner cites to a footnote

regarding § 251(e) in AT&T Corp. v. Iowa Utilities Board, 525

U.S. 366 (1999), in which the Supreme Court stated that

“[§] 251(e), which provides that ‘[t]he Commission shall create

or designate one or more impartial entities to administer

telecommunications numbering,’ requires the Commission to

exercise its rulemaking authority, as opposed to § 201(b),

which merely authorizes the Commission to promulgate rules

if it so chooses.” Id. at 383 n.9; see also id. at 384 (“[Section]

251 specifically requires the Commission to promulgate

regulations implementing that provision . . . .”). This dicta, see

id. at 383, is not directed to any situation parallel to the question

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raised in the present case. As we hold in this case, the FCC

may, in keeping with the statute, choose to use informal

adjudication to select an administrator, an activity that does not

have any of the distinctions of legislative rulemaking.

For these reasons, we hold that § 251 does not mandate

that selection or recommendation of an administrator must be

done through rulemaking procedures.

2. Rules Under the APA

Second, the FCC’s Order in this case does not qualify

under the statutory definition of a “rule,” so rulemaking

procedures are not required.

Under the APA and as noted in Perez v. Mortgage Bankers

Ass’n, 135 S. Ct. 1199 (2015), a rule “is defined broadly to

include ‘statements of general or particular applicability and

future effect’ that are designed to ‘implement, interpret, or

prescribe law or policy.’” Id. at 1203 (quoting 5 U.S.C.

§ 551(4)) (alteration omitted). By contrast, “‘adjudication’

means agency process for the formulation of an order . . . .” 5

U.S.C. § 551(7). “‘[O]rder’ means the whole or part of a final

disposition, whether affirmative, negative, injunctive, or

declaratory in form, of an agency in a matter other than rule

making but including licensing . . . .” Id. § 551(6).

Statutory interpretation can be “rendered in the form of an

adjudication, not only in a rulemaking.” Conference Grp., 720

F.3d at 958. “The fact that an order rendered in an adjudication

‘may affect agency policy and have general prospective

application,’ does not make it rulemaking subject to APA

section 553 notice and comment.” Id. at 966 (citing N.Y. State

Comm’n on Cable Television v. FCC, 749 F.2d 804, 814 (D.C.

Cir. 1984)). Further, as a general matter, “[i]n interpreting and

15

administering its statutory obligations under the Act, the

Commission has very broad discretion to decide whether to

proceed by adjudication or rulemaking.” Conference Grp., 720

F.3d at 965 (citing Qwest Servs. Corp. v. FCC, 509 F.3d 531,

536 (D.C. Cir. 2007); Time Warner Entm’t Co. v. FCC, 240

F.3d 1126, 1141 (D.C. Cir. 2001)).

In this case, the Order under review determined the rights

and obligations of two parties, Telcordia and Neustar, that were

then entitled to negotiate for the LNPA contract. It applied

existing rules and regulations to Telcordia and determined

Telcordia’s rights as the winning bidder in a fact-intensive

determination that occurred on a case-by-case basis. As we

have stated in a different context, “[g]iven the fact-intensive

nature of the Commission’s role in these proceedings, it is

surely within the agency’s authority to proceed on a case-by-

case basis rather than by rulemaking.” Busse Broad. Corp. v.

FCC, 87 F.3d 1456, 1463-64 (D.C. Cir. 1996) (citing NLRB v.

Bell Aerospace Co., 416 U.S. 267, 294 (1974)). This

individualized determination was not intended to impact law or

policy; rather, it resolved interests in a specific bidding

competition. Cf. Bowen v. Georgetown Univ. Hosp., 488 U.S.

204, 221 (1988) (Scalia, J., concurring) (“Adjudication deals

with what the law was; rulemaking deals with what the law will

be.” (emphasis removed)).

Neither does some tangential impact on other entities

necessarily transform an informal adjudication into a

rulemaking since “the nature of adjudication is that similarly

situated non-parties may be affected by the policy or precedent

applied, or even merely announced in dicta, to those before the

tribunal.” Goodman v. FCC, 182 F.3d 987, 994 (D.C. Cir.

1999) (citing NLRB v. Wyman-Gordon Co., 394 U.S. 759, 765-

66 (1969)). Similarly, seeking public comment is not

determinative of whether an action qualifies as a rulemaking or

16

as an informal adjudication since “the agency may seek

comment in either a rulemaking or an adjudicatory

proceeding.” Id. The FCC’s interactive public process in this

case, therefore, is not determinative of its APA status.

Given all these considerations, the FCC’s Order in this

case does not meet the APA’s definition of a rule and does not

require a rulemaking.

Additionally, “[t]he general principle is that when as an

incident of its adjudicatory function an agency interprets a

statute, it may apply that new interpretation in the proceeding

before it.” Clark-Cowlitz Joint Operating Agency v. FERC,

826 F.2d 1074, 1081 (D.C. Cir. 1987) (en banc) (citations

omitted) (collecting cases). Review of the cited support for this

proposition reveals a focus on adjudicatory holdings as

inherently retroactive and on rulemaking rules and policies as

inherently prospective. See id. (detailing the specific

circumstances in which “a retrospective application can

properly be withheld”).

Petitioner, relying on Catholic Health and Goodman,

argues that adjudications must have retroactive effect, even if

they also have some prospective impact. See Catholic Health

Initiatives Iowa Corp. v. Sebelius, 718 F.3d 914, 921-22 (D.C.

Cir. 2013) (“[A]n adjudication must have retroactive effect, or

else it would be considered a rulemaking.”); Goodman, 182

F.3d at 994-95 (for the proposition that adjudications may have

prospective effects but must have retroactive effects). While

Petitioner is correct regarding the general distinction between

an informal adjudication and a rulemaking, it oversimplifies

this distinction and its application in the present case.

In Catholic Health, we held that although adjudication is

by its nature retroactive, it may be proper to enter an

17

adjudicatory order without retroactive effect. We went on to

observe that, “[b]y ‘retroactive effect,’” we are usually

referring to an order or penalty with economic consequences,

“not retroactive application of the rule itself.” 718 F.3d at 921-

22 (citing Williams Nat. Gas Co. v. FERC, 3 F.3d 1544, 1554

(D.C. Cir. 1993); Wyman-Gordon Co., 394 U.S. at 763-66).

And Goodman discussed retroactivity as an aspect of

adjudicatory decisions in contrast to rules, which include “an

‘agency statement of . . . future effect.’” 182 F.3d at 994

(quoting 5 U.S.C. § 551(4)). This prospective-retroactive

distinction consistently focuses on the application of principles

in the past or future. As this Court has previously explained,

because the APA “does not countenance agency use of

adjudicatory powers to announce rules of prospective effect

only, it seems clear that the circumstances in which a rule may

be announced but not applied in an adjudication are few.” Gen.

Am. Transp. Corp. v. ICC, 872 F.2d 1048, 1060-61 (D.C. Cir.

1989) (emphasis added). In sum, “a principle announced in

adjudication is necessarily retroactive . . . .” Heartland Reg’l

Med. Ctr. v. Sebelius, 566 F.3d 193, 196 (D.C. Cir. 2009)

(emphasis added) (citing Rivers v. Roadway Express, Inc., 511

U.S. 298, 311-12 (1994); Goodman, 182 F.3d at 994)).

Thus, while Petitioner properly articulates this general

principle, its invocation in this case is inapt, as the question at

hand is whether the actual selection of the administrator may

have prospective effect and still qualify as an informal

adjudication. Petitioner never makes clear what retroactive

effect is missing in this Order. The Order does not state a

general principle that fails to relate back. Petitioner’s argument

appears to be that any adjudication without a visible retroactive

effect must be a rulemaking. This argument proves far too

much. Various agencies regularly make licensure and

authorization decisions of various sorts that affect the future

rights and authorizations of the parties before them. None of

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our precedents require that these must all be done by

rulemaking rather than by informal adjudication. We reiterate

that adjudications by nature are likely to be specific to

individuals or entities, while rules tend to be matters of more

general application. See Heckler v. Ringer, 466 U.S. 602, 614

(1984).

Consequently, precedent supports the determination in this

case that the Order reflects an informal adjudication. In a

fashion more akin to a licensing, as argued by Respondents, the

key and immediate effect in this case is on the bidding parties,

Telcordia and Neustar, by determining which entity is

authorized to negotiate for the LNPA contract. The

Commission explained that this decision was based on the

application of a pre-existing process to the specific bidding

entities, not on the announcement of any new principles or

rules. Thus, precedent regarding the retroactivity of principles

issued in adjudications is inapposite to an informal adjudication

having immediate effects on the individuals concerned.

Because the FCC’s Order does not fall within the APA’s

definition of a rule and qualifies as an informal adjudication, it

is not subject to notice-and-comment procedures.

C. The FCC’s Neutrality Determination

Under the APA, a “reviewing court shall . . . hold unlawful

and set aside agency action, findings, and conclusions found to

be . . . arbitrary, capricious, an abuse of discretion, or otherwise

not in accordance with law.” 5 U.S.C. § 706(2)(A). Courts

will “accept the Commission’s findings of fact so long as they

are supported by substantial evidence on the record as a whole,

and will defer to the Commission’s reading of its own

regulations unless that reading is plainly erroneous or

inconsistent with the regulations[.]” Great Lakes Comnet, Inc.

19

v. FCC, 823 F.3d 998, 1002 (D.C. Cir. 2016) (citations and

internal quotation marks omitted). Neustar’s challenge to the

FCC’s approval of the recommendation of Telcordia fails. The

FCC’s determination that, given specified safeguards,

Telcordia satisfied the Act’s requirements and the FCC’s

regulations was not arbitrary and capricious.

As discussed above, the Act requires that the FCC “create

or designate one or more impartial entities to administer

telecommunications numbering . . . .” 47 U.S.C. § 251(e)(1).

The regulations then define the LNPA as “an independent, non-

governmental entity, not aligned with any particular

telecommunications industry segment, whose duties are

determined by the NANC.” 47 C.F.R. § 52.21(k). The

regulations separately state that an administrator

shall be [a] non-governmental entit[y] that [is]

impartial and not aligned with any particular

telecommunication industry segment.

Accordingly, while conducting [its] respective

operations under this section, the

[Administrator] shall ensure that [it] compl[ies]

with the following neutrality criteria:

(i) The [Administrator] may not be an affiliate

of any telecommunications service provider(s)

as defined in the Telecommunications Act of

1996 . . . . ;

(ii) The [Administrator] and any affiliate

thereof, may not issue a majority of its debt to,

nor may it derive a majority of its revenues

from, any telecommunications service

provider. . . . ;

20

(iii) Notwithstanding the neutrality criteria set

forth in paragraphs (a)(1)(i) and (ii) of this

section, the [Administrator] may be

determined to be or not to be subject to undue

influence by parties with a vested interest in

the outcome of numbering administration and

activities. NANC may conduct an evaluation

to determine whether the [Administrator]

meet[s] the undue influence criterion.

47 C.F.R. § 52.12(a)(1) (emphasis added).

Giving meaning to the term “accordingly,” the FCC

determines whether an entity is impartial and not aligned based

on an evaluation of the entity under these three neutrality

criteria. Once the FCC found that Telcordia had satisfied the

neutrality requirements in § 52.12(a)(1)(i)-(iii), the FCC could

properly find that it was independent and not aligned as set out

under the regulations in § 52.12(a)(1) and in the definitional

section in § 52.21(k).

This regulatory analysis reflects the FCC’s interpretation

of its own regulations. The FCC’s current interpretation is

consistent with its prior view of the interaction between these

requirements included in an August 26, 2004 Order modifying

the conditions on Neustar as the Administrator. See In the

Matter of North American Numbering Plan Administration

Neustar Inc., FCC 04-203, 19 FCC Rcd. 16982 (Aug. 26,

2004). There, the FCC explained:

Section 52.12 of the Commission’s rules

addresses the NANPA neutrality requirements.

Specifically, section 52.12(a)(1) states that the

NANPA must be a non-governmental entity,

not aligned with any particular industry

21

segment. Thus, a TSP may not be the NANPA.

Furthermore, the NANPA may not be an

affiliate of a TSP. The Commission’s rules state

that the majority of the NANPA’s debt must not

be issued to, nor may a majority of the

NANPA’s revenues be received from, a TSP. In

addition, the NANPA must not be subject to

undue influence of any party with a vested

interest in numbering administration.

Id. ¶ 10 (emphasis added). Illustratively, the FCC’s 2004

explanation also reflects its understanding that the three

specific requirements regarding TSP connections and undue

influence flow directly (connoted by the term “thus”) from the

requirement that administrators be non-governmental entities

and not aligned. See id.

A similar understanding is reflected in the Wireline

Competition Bureau’s final 2015 LNPA vendor qualification

survey, which was “the first step in the [Request for Proposal]

process” and solicited detailed responses from the parties.

Wireline Competition Bureau, 2015 Vendor Qualification 1

(Feb. 4, 2013). That survey states that, “[i]n accordance with

law and FCC regulations,” for an entity to be recommended for

selection as the LNPA, it must meet the requirements set forth

above and further meet the criteria that it (1) not be, own, be

owned by, or be an affiliate of a Telecommunications Service

Provider; (2) “not issue[] a majority of its debt to, nor derive a

majority of its revenues . . . from, any Telecommunications

Service Provider”; and (3) not be “subject to undue influence

by parties with a vested interest in the outcome of numbering

administration and activities . . . .” Id. at 10-11. The FCC

employed a similar understanding in the Order at issue in this

case, as it explained that the Commission has applied the

neutrality criteria set forth in § 52.12 of its rules since their

22

adoption and, in particular, that the Commission has required

the Administrator to be impartial, non-governmental, and not

aligned with any industry segment. March 2015 Order, FCC

15-35 ¶ 160 (citing 47 C.F.R. §§ 52.12, 52.21(d), (k)); see also

id. ¶ 164. In that Order, the Commission noted that “[t]his is

the first opportunity that the Commission has had to consider

the neutrality of a newly selected LNPA under the neutrality

requirements as codified in section 52.12 of our rules.” Id.

¶ 164. Thus, the FCC has consistently interpreted these

regulations as providing that neutrality requires an entity to be

impartial and not aligned and, to achieve that goal (connoted

by the terms “accordingly”; “thus”; or “require[s] that”), the

entity first must satisfy the three neutrality requirements.

Further, the regulation itself provides in Shakespearian

terms that the Administrator “may be determined to be or not

to be subject to undue influence” and does not prohibit the use

of safeguards when determining whether an entity is subject to

such influence. See 47 C.F.R. § 52.12(a)(1)(iii). This breadth

allows the FCC to determine whether safeguards could permit

an entity to satisfy these criteria and qualify to serve as the

Administrator. See March 2015 Order, FCC 15-35 ¶ 181. By

way of illustration, in the Order before us, the FCC analogized

to prior uses of other types of safeguards that were tailored to

the unique concerns raised by the entity at issue. Id. ¶ 160.

More specifically, the Commission stated: “For example, in

evaluating Neustar’s ability to serve as a neutral North

American Numbering Plan Administrator when it changed

from a privately held company to a publicly held company, the

Commission determined that no telecommunications service

provider (TSP) or TSP affiliate may own five percent or more

of Neustar’s stock.” Id. (citation omitted). It then explained

that it had “undertaken a careful and . . . extensive review of

Telcordia’s fitness to serve as a neutral LNPA.” Id. ¶ 164.

23

A major concern involves Telcordia’s status as a wholly

owned subsidiary of Ericsson, a Swedish company

manufacturing communications equipment and software and

providing managed network services. “Neustar asserts that . . .

each of these areas provide Ericsson with an opportunity to

affect Telcordia’s neutrality . . . .” Id. ¶ 162. Upon analysis of

this relationship, the FCC looked at the corporate structure and

related business arrangements to find Telcordia satisfied the

neutrality criteria “particularly when considered in conjunction

with the conditions [also referred to as safeguards] that we

impose in this Order.” Id. ¶ 172. It explained that, consistent

with its past practice, “the Commission has, and will[,] exercise

ample authority to ensure that the contract includes targeted

conditions to ensure that the LNPA is neutral and remains

neutral throughout the term of the contract.” Id. ¶ 173.

Most specifically, the FCC emphasized the importance of

the LNPA but expressly stated that “our regulations concerning

the qualifications of the LNPA and the conditions that we adopt

in this Order are designed to ensure” that neutrality would be

preserved. Id. ¶ 179. It further observed that Telcordia already

implemented some of the safeguards in its neutrality showing

and that such safeguards, “coupled with the conditions we

impose herein,” supported a conclusion that Telcordia met the

neutrality requirements. Id. The Commission also noted that

its “rules give us flexibility to consider potential sources of

undue influence that might impair neutrality. We have

historically addressed such concerns by imposing conditions

on the numbering administrators, and we do so here.” Id.

¶ 181. Using this interpretation, and based on its understanding

of the efficacy of safeguards in this context, the FCC concluded

“that Telcordia has demonstrated its commitment to maintain

neutrality in its LNPA operations, and thus meets our neutrality

requirements.” Id. ¶ 188.

24

Neustar argues that the FCC’s proposed safeguards are

insufficient given underlying corporate law principles.

Because Telcordia is a Delaware corporation and Delaware law

requires that a wholly owned subsidiary’s directors are bound

to act in the best interests of the sole shareholder, the corporate

parent, Neustar asserts that Telcordia, even with safeguards,

would be required to act for Ericsson’s benefit. In support,

Neustar urges that under Delaware corporate law, parent

corporations and their wholly owned subsidiaries share

complete unity of interest, rendering any biases of a parent to

be the shared biases of the subsidiary, which must manage its

business in a way that furthers the best interests of the parent.

Neustar premises this argument on Delaware corporate

law cases including Anadarko Petroleum Corp. v. Panhandle

Eastern Corp., 545 A.2d 1171 (Del. 1988), which holds that

“in a parent and wholly-owned subsidiary context, the directors

of the subsidiary are obligated only to manage the affairs of the

subsidiary in the best interests of the parent and its

shareholders.” Id. at 1174 (citations omitted). Consequently,

Neustar asserts Ericsson’s biases and alignment should have

been evaluated since Telcordia, as a fully owned subsidiary,

necessarily shares any of its problematic biases and alignment.

Neustar posits that the FCC misunderstood the applicable

corporate law and thus misstated the efficacy of potential

remedial measures and safeguards against these underlying

corporate principles.

In its March 2015 Order, the FCC concluded that members

of Telcordia’s board of directors each owe fiduciary duties to

Telcordia, maintaining a separation that keeps Telcordia from

being tainted by any neutrality concerns posed by Ericsson

itself. See March 2015 Order, FCC 15-35 ¶ 172; see also id.

¶¶ 178-79. It is this conclusion that Neustar challenges as an

incorrect understanding of and application of Delaware

25

corporate law principles. Before the Court, the FCC defends

the Order on several grounds, including that there is no

indication Congress considered corporate law in adopting these

requirements and that Neustar’s proposed interpretation of

Delaware corporate law is impermissibly broad. More

specifically, the FCC urges that there is no indication in

Delaware case law that safeguards would be ineffective in

addressing concerns arising from a subsidiary’s fiduciary

duties to its parent.

Certainly, Neustar raises legitimate concerns—concerns

that might have justified a Commission decision against

Telcordia. But we must keep in mind the standard of review

for our consideration of Commission decisions. The Court is

not to substitute our judgment for that of the FCC. Rather, the

question is more narrow, as we determine whether the FCC

acted arbitrarily and capriciously. See U.S. Telecom Ass’n v.

FCC, 825 F.3d 674, 696-97 (D.C. Cir. 2016). Neustar itself

acknowledges that the interpretation of Delaware law that the

FCC adopted—an interpretation premised upon the efficacy of

safeguards even in a wholly-owned-subsidiary context—

formed the foundation of the FCC’s determination in the Order.

See March 2015 Order, FCC 15-35 ¶ 172. The FCC’s

understanding of Delaware corporate law principles represents

an interpretation of how corporate law informs the FCC’s

duties and regulations and rejects Neustar’s proposed

interpretation. This Court cannot find that the FCC’s

application of corporate law to its regulations, which allowed

it to conclude that safeguards are sufficient and that Telcordia’s

status as a wholly owned subsidiary does not disqualify it from

serving as Administrator, is sufficiently incorrect, misguided,

or without basis to render it arbitrary and capricious. And, in

further support of the FCC’s reasonable interpretation, some

courts have also rejected Neustar’s broad proposed

interpretation of Anadarko. See In re Scott Acquisition Corp.,

26

344 B.R. 283, 287 (Bankr. D. Del. 2006); see also First Am.

Corp. v. Al-Nahyan, 17 F. Supp. 2d 10, 26 (D.D.C. 1998); cf.

Case Fin., Inc. v. Alden, Civ. Action No. 1184-VCP, 2009 WL

2581873, at *7 n.41 (Del. Ch. Aug. 21, 2009). But see

Hamilton Partners, L.P. v. Englard, 11 A.3d 1180, 1208-09

(Del. Ch. 2010).

For all these reasons, this Court cannot conclude that the

FCC’s neutrality determination was arbitrary and capricious.

D. The BAFO Decision and Cost Analysis

Finally, Neustar argues that the FCC erred in that it

(1) unjustifiably refused to consider Neustar’s second BAFO

and (2) premised its cost evaluation on an improper assumption

regarding the length of the transition period between Neustar

and Telcordia as LNPAs, leading it to conclude improperly that

Telcordia’s proposal provided a cost advantage.

Neustar contends that the FCC improperly failed to

evaluate its second BAFO and that the subcommittee

improperly failed to even consider it. Because it posits that its

second BAFO was superior to Telcordia’s BAFO, Neustar

urges that this Court should vacate the FCC’s Order.

The FCC deemed the NANC’s decision not to consider

Neustar’s second BAFO “reasonable,” March 2015 Order,

FCC 15-35 ¶ 37, explaining that the governing process had

“provided prospective bidders with no right to even a first

BAFO, much less multiple BAFOs,” id. ¶ 42. The request for

proposals description framed the possibility of a BAFO

solicitation as permissive, using the language “may decide to

seek,” and thus “belies Neustar’s claim that it had a reasonable

expectation that it would be invited to submit a second BAFO.”

Id. ¶ 42. We agree with the Commission. We are tempted to

27

ask, what part of “best” and, particularly, of “final” does

Neustar not understand? The bidding process had to come to

an end at some point. Even without the arbitrary and capricious

standard of review, it would be difficult to hold that a

commission errs by treating a best and final offer as final.

In further support, the FCC highlighted the efficiency

reasons for declining another round of offers that would

involve “substantial time and effort” to review, given the

existing “ample record on which to proceed without another

bidding round.” Id. ¶ 44. “In these circumstances, the decision

to allow another round of bidding and evaluation of those bids

had to be weighed against the desire to keep the process moving

forward, and we find that, in light of this balancing, the

[delegated decisionmaker’s] decision . . . not to seek further

bids was reasonable.” Id. Any guidance it provided on this

question, the FCC explained in the Order, was also proper as it

only provided oversight to the selection process and remained

impartial. Id. ¶ 46. Especially in light of the FCC’s reasoned

explanation, this Court could not possibly hold that the decision

not to hold an additional round of bidding, and thus to reject

Neustar’s second and unsolicited BAFO, was arbitrary and

capricious.

Neustar argues that the FCC did not find that either bid

was qualitatively superior in technical or managerial factors

and therefore the determinative inquiry was the cost analysis.

To calculate comparative cost, Neustar asserts that the

Commission would have to consider not only the relevant price

difference between the bids but also the transition costs

associated with switching to a new LNPA. It concludes that

the FCC improperly found that transition costs did not obviate

the price difference between the bids because the FCC assumed

that the transition would require a shorter period of time than

28

was supported by the record and misapplied the relevant

transition costs.

The FCC specifically addressed analysis of transition risks

and costs and the parties’ technical and management

qualifications in its Order. It did “agree with the NANC

recommendation that both bidders are qualified to serve as

[the] LNPA.” March 2015 Order, FCC 15-35 ¶¶ 65, 73, 76, 81.

But when looking beyond basic competency to the nuanced

qualifications, committee “members [had given] Telcordia

higher rankings based on its technical and management

qualifications.” Id. ¶ 71. The FCC reiterated, before entering

its cost analysis, that despite both bidders’ competency to serve

as the LNPA, Telcordia was ranked higher for technical and

management qualifications and was originally recommended

to serve as the next LNPA. Id. ¶ 135. The FCC emphasized

the importance of technical and management qualifications but

further recognized that cost is an important consideration and,

when good quality can be achieved at a lower cost, “it is

reasonable to take that into account in the analysis of the bids.”

Id. ¶ 138. The Commission accepted its staff’s

recommendation and review and expressed its confidence “in

Telcordia’s ability to perform well.” Id. Thus, while the FCC

certainly engaged in a cost analysis, it also clarified in its Order

that the determination was not based solely on cost and other

qualitative factors had informed its analysis. See id. This

conclusion further underscores this Court’s determination that

the FCC’s comparison of the bids was not arbitrary and

capricious.

As to transition costs in general, the FCC explained that it

considered that transition costs would be avoided by

maintaining Neustar as the Administrator but reasoned that

“competitive selections bring opportunities for lower costs and

innovation, and we do not agree that we should maintain the

29

same LNPA indefinitely merely to avoid transition.” Id. ¶ 153.

It further stated: “There is an inherent trade-off between

keeping the same LNPA, which offers predictability and

proven experience, and opening up the contract to competition

and potentially a new vendor, which can lead to lower costs

and innovations.” Id. ¶ 150. Analyzing the overall context and

benefits of the bids led the FCC to conclude that the benefits

“outweigh the costs and potential adjustments associated with

the transition to a new LNPA.” Id. ¶ 153. It found this “even

assuming that Neustar’s estimate of the costs to the industry of

transition are correct . . . .” Id. In a footnote explaining its cost

calculations and analysis, the FCC compared “the two bidders’

prices over time, and add[ed] [in] Neustar’s estimated costs of

transition to the price of Telcordia’s bid” to its calculation

before making its comparison and ultimate price determination.

Id. n.535. Review of the FCC’s calculations shows that it

intended to calculate a high estimated transition cost when

explaining the merits of the ultimate recommendation. Id.

¶ 153 & n.535. Even using Neustar’s high estimates for the

sake of argument, the FCC reiterated that Telcordia’s bid had

merit that “outweigh[ed] the costs and potential adjustments

associated with the transition to a new LNPA.” Id. ¶ 153. For

these reasons, this Court cannot conclude that the cost analysis

was arbitrary and capricious.

III. CONCLUSION

For the reasons set forth above, we conclude that the

FCC’s process and recommendation were proper exercises of

the FCC’s authority. We therefore hold that Neustar’s petitions

for review are

Denied.