5th Circuit USF Opinion - Outlier or Change of Direction

On July 24, 2024, the full U.S. Circuit Court for the 5th Circuit - in a 9 to 7 vote - reversed an opinion by a three-judge panel of that Court finding that the Universal Service Fund (“USF”) is unconstitutional. Specifically, the Court found that the USF violated Article 1, Section 1 of the U.S. Constitution, which essentially deals with the powers of Congress. Fundamentally, as most Americans know, legislative authority is granted to Congress by the constitution. Historically, Congress has been able to delegate some of its legislative authority to a governmental agency, provided it gives sufficient guidance to the agency as to how the legislative authority is carried out. In this case, however, the 5th Circuit determined that not only had Congress delegated its authority to the Federal Communications Commission (“FCC”) without appropriate guidelines, but the FCC had further delegated that authority to Telecommunications Service Providers (TSPs). If TSPs were polled today, it is doubtful that any TSP would be aware that it possessed what the 5th Circuit deemed to be the power to tax, which it determined the USF to be.

   The 5th Circuit opinion focused on the explicit provisions of the USF adopted in the Telecommunications Act of 1996 (TA96), which include the Connect America Fund for rural and high-cost areas, the E-Rate Program for Internet Connections to schools and libraries, the Rural Health Care Support program and the Lifeline program for low-income consumers. However, the concept of implicit USF support has been around for decades. In fact, implicit USF support systems have existed from almost the start of the telecommunications industry and enabled the United States to create a ubiquitous telephone network in which virtually all citizens had access to telephone services at reasonably affordable prices.

   Interestingly, both the 6th and 11th Circuit Courts of Appeals have previously upheld the constitutionality of the USF in similar cases. The non-prevailing parties in those cases sought discretional review from the U.S. Supreme Court, which was denied. The dilemma, of course, is that the 5th Circuit decision creates a division among the Circuit Courts, which produces some concerns and uncertainty as to the future of the USF. A division of opinion among the Circuit Courts could lead to a review by the U.S. Supreme Court, or perhaps, even Congress could surprise everyone and take some action. Because the Supreme Court denied review of the decision upholding the USF issued by the 6th and 11th Circuits, we can hope that it will not reverse direction. However, the current Supreme Court does not appear to have the same regard for legal precedents as earlier versions of that Court. It is predictable as to what Justices Alito and Thomas might do. Justice Gorsuch is also not inclined to give much deference to governmental agencies. Hopefully, reason will prevail among the Chief Justice and the other five justices.

   In fairness, seven members of the 5th Circuit Court dissented from the decision, so it was not adopted with an overwhelming majority. The dissenters noted that the majority broke with precedent and blurred the distinction between fees and taxes. The dissenters noted that TSPs are voluntary members of the industry and are permitted, although not required, to recover their costs from customers. The dissenters viewed the USF as a fee, which does not require the power to tax.

   The question is whether the 5th Circuit Decision is an outlier or pushing the Supreme Court in a different direction. Traditionally, Circuit Courts have served as reviewing courts for federal District trial courts to prevent bad results for sound jurisprudence and the American people. The current 5th Circuit has less than a stellar record in that regard. Justice Kavanaugh has stated that the 5th Circuit has taken the judiciary down an uncharted path, and Chief Justice Roberts described the 5th Circuit as slaying the straw man. We can only hope that, if faced with the decision, the Supreme Court will understand the long history of the USF and its role in creating a telecommunications infrastructure that historically has been the envy of the world. The importance of the USF is equally important as the United States strives to provide comparable Internet connectivity to all Americans, particularly to those in rural areas that are presently underserved or unserved.