Key Takeaways
- The U.S. Court of Appeals for the Fifth Circuit vacated a $57 million fine levied by the Federal Communications Commission (FCC) against AT&T.
- The court ruled the FCC's in-house enforcement proceedings violate the Seventh Amendment.
- The AT&T decision applies to all FCC enforcement actions (and seemingly any other federal agency enforcement action) seeking to impose fines through in-house agency adjudications.
- This decision may require the FCC and other federal agencies to seek legislative changes to their existing enforcement procedures and authority.
The Fifth Circuit has rendered its long-awaited decision in AT&T v. Federal Communications Commission, vacating a $57 million forfeiture order levied by the FCC against AT&T for allegedly failing to safeguard customers’ location data. In reaching its decision, the Fifth Circuit primarily relied on the U.S. Supreme Court decision in Securities and Exchange Commission v. Jarkesy, finding that the FCC’s in-house enforcement proceedings involved the agency acting as “prosecutor, jury, and judge” and violated AT&T’s right to an Article III court and trial by jury under the Seventh Amendment. The Fifth Circuit’s decision will affect pending and future in-house enforcement proceedings by the FCC (and potentially other federal agencies) that involve the assessment of financial penalties.
Background
The Supreme Court in Jarkesy held that federal agency in-house enforcement actions that impose civil penalties must be adjudicated by a jury trial in Article III courts under the Seventh Amendment. The Court in Jarkesy analyzed the Seventh Amendment guarantee to a jury trial in “suits at common law, where the value in controversy shall exceed twenty dollars,” and found that the U.S. Securities and Exchange Commission’s (SEC) imposition of a monetary penalty for alleged violations of the Securities Exchange Act was a suit at common law that necessitated a jury trial. While Jarkesy arose from an SEC in-house enforcement proceeding, the Fifth Circuit’s decision confirms that its holding applies equally to the in-house enforcement proceedings of any federal agency.
Current FCC Enforcement Process
The FCC is authorized under the Communications Act of 1934, as amended (the Act), to enforce its rules by issuing a Notice of Apparent Liability (NAL) for alleged violations of the Act or the FCC’s rules. Through an NAL, the FCC provides notice of the alleged violations and sets a proposed monetary penalty (or “forfeiture” in FCC jargon). The regulated target of an NAL can provide a written response contesting the proposed forfeiture, but the FCC can, at its own discretion, affirm its decision and proceed to issue a final order (known as a forfeiture order) and an accompanying penalty. Alternatively, the FCC and the target can agree to a settlement in the form of a consent decree, which avoids the need for the FCC to issue a forfeiture order. If the FCC issues a forfeiture order, the target has two options: (1) it can pay the fine in full to preserve its right to seek appellate review, which can be a significant hardship if the amount of the penalty is substantial (as it was in the AT&T case), or (2) it can fail to pay the fine, which forfeits its right to appellate review, and assume the risk of waiting for the U.S. Department of Justice (DOJ) to sue for collection in a U.S. district court (which it may never do). If the DOJ does file suit for collection of the fine, the target has a right to a de novo review of the forfeiture order. The Fifth Circuit said these two options fail to comply with the Seventh Amendment.
AT&T v. FCC Explained
In AT&T v. FCC, the FCC issued AT&T a forfeiture order of $57 million for allegedly failing to safeguard customers’ location data. AT&T chose to pay the penalty and seek appellate review.
The Fifth Circuit held that, under the guarantees of the Seventh Amendment, the FCC’s in-house enforcement proceeding is an adjudication “at common law.” In coming to this determination, the court analyzed both the FCC’s remedy and whether there was a common law analogue for the alleged violation. First, in its analysis of the remedy, the Fifth Circuit identified numerous parallels to Jarkesy, explaining that the FCC’s fine was a punitive, civil penalty designed to punish or deter (which is legal in nature), rather than to compensate victims (which would be remedial or restorative). The legal nature of the remedy implicates the Seventh Amendment’s right to a jury trial before any imposition of penalties. Second, the Fifth Circuit concluded that AT&T’s alleged misuse of customer data was akin to a common law negligence claim, which must be adjudicated by Article III courts.
The FCC argued that its enforcement action was permissible under a “public rights” exception through which Congress had directed it to adjudicate certain claims outside of Article III courts. The court explained that the public rights exception did not apply in this case because (1) the exception is narrow and applies only to matters historically determined by the executive and legislative branches, and (2) the FCC failed to show that the exception applied to common carriers like AT&T, as negligence suits against common carriers have been frequently adjudicated in state and federal courts. Therefore, the court vacated the FCC’s forfeiture order.
What This Means for the FCC and Other Federal Agencies
The AT&T decision applies to all FCC enforcement actions seeking to impose monetary penalties through in-house agency adjudications (and by extension, any similar federal agency enforcement action). The FCC and other federal agencies will have to immediately evaluate whether they can continue agency enforcement actions that impose monetary penalties, and it is hard to foresee how they could conclude anything other than the full cessation of all such enforcement activity, including investigations, that could run afoul of Jarkesy. If the agencies determine they cannot proceed with such enforcement actions, they will likely have to seek legislative changes to their organic acts to amend how they can enforce their rules and policies in a manner that complies with the Seventh Amendment. As a result, this is a highly disruptive decision to the longstanding enforcement practices of the FCC and other federal agencies. But even if the Act is amended to align with the Seventh Amendment, there are other ripple effects. The FCC has no history of suing regulated parties in jury trials and, therefore, lacks the personnel and institutional expertise to do so. As a result, the FCC would likely have the DOJ carry out such jury trials on its behalf, as the DOJ does in appellate courts. But having the DOJ take on this new task raises issues of inter-agency coordination and budgetary considerations for both the DOJ and FCC. And because other federal agencies with a tradition of in-house enforcement proceedings may have to similarly rely on the DOJ, the new jury trial task for the DOJ will be exponentially larger. In short, it may take some time for Congress and the administration to sort out how this is going to work.
Impacts on Related Proceedings
Ever since Jarkesy, FCC Commissioner Nathan Simington has consistently dissented from all FCC enforcement actions seeking financial penalties, arguing that Jarkesy has rendered such FCC enforcement actions unconstitutional. The decision in AT&T has vindicated Commissioner Simington’s voting practices.
The decision in AT&T also bolstered the cases of other regulated parties against whom the FCC has issued NALs and forfeiture orders. The FCC will now have no choice but to rescind any pending NAL that seeks financial penalties.
For example, the FCC issued an NAL against Telnyx, Inc in early February 2025 and sought a penalty of $4.5 million. Similar to AT&T, the NAL against Telnyx (1) involved the imposition of a punitive financial penalty and (2) alleged violations that have multiple potential common law analogues. Employing the reasoning from AT&T, the FCC should be compelled to rescind its NAL because the proceeding was conducted under an unconstitutional process.
Takeaways
The Fifth Circuit’s decision marks the first direct blow to the FCC’s authority to conduct in-house enforcement proceedings and impose monetary penalties. Looking forward, agencies will likely pause new enforcement actions while the administration and Congress consider the best path forward for how federal agencies could engage in enforcement in the future in a manner that complies with the Seventh Amendment.
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