FCC Enforcement in Flux: Circuit Courts Split on Forfeiture Authority

Recent court decisions signal ongoing uncertainty over the constitutionality of the Federal Communications Commission’s (FCC) enforcement regime, making the issue ripe for U. S. Supreme Court consideration. With disparate findings by three federal appellate courts, the ability of the FCC to fine a company in an enforcement action under the Communications Act currently depends on the location of a party’s principal office or, for a carrier, the locations of its lines or systems. This peculiar result could be resolved by Supreme Court review.

Similar uncertainty also exists for enforcement actions brought by other agencies with statutory enforcement regimes similar to the FCC’s, such as certain actions by the Department of Energy.

The Seventh Amendment. In 2024, the Supreme Court held in Jarkesy v. SEC that a Securities and Exchange Commission (SEC) in-house enforcement action for securities fraud violated the defendant’s Seventh Amendment right to a jury trial in matters that are legal in nature. The Seventh Amendment to the Constitution states: “In Suits at common law . . . the right of trial by jury shall be preserved . . . “

FCC Enforcement Structure. The FCC’s enforcement structure differs from the SEC’s in one important way that may make Jarkesy and the Seventh Amendment’s right to a jury trial inapplicable to the FCC. Under the Communications Act, once the FCC issues a forfeiture order, there are two ways a target can fight the fine. The target can pay the fine and appeal it to the appropriate Court of Appeals. Alternatively, it can refuse to pay the fine, forcing the FCC to refer the matter to the U.S. Department of Justice, which then brings a civil suit for a trial de novo in federal district court.

Federal Courts of Appeals – Circuit Split. Three Courts of Appeals have examined the question of whether procedures that afford an enforcement target the right to a district court trial de novo after the agency issues a fine satisfies the Seventh Amendment. As we anticipated previously, the courts have reached different conclusions on this issue. The Fifth Circuit Court of Appeals ruled in AT&T v. FCC that the Communications Act’s process of the Department of Justice bringing suit to recover a forfeiture fails to satisfy the Seventh Amendment. The Fifth Circuit viewed this as an insufficient “back-end” trial and found that the target will suffer real-world harm, including the reputational harm incurred from the FCC issuing findings in a forfeiture order before a trial occurs. The District of Columbia and Second Circuit Courts of Appeals reached the opposite conclusion – that the Communications Act processes satisfy the Seventh Amendment. The D.C. Circuit found in Sprint v. FCC that a party does not suffer monetary harm if the government fails to bring the required trial de novo and that “the risk of reputational harm . . . is a thin reed on which to rest a claim that the statutory scheme . . . violates the Seventh Amendment.” Similarly, in Verizon v. FCC , the Second Circuit found no Seventh Amendment problem, as any reputational harm does not constitute a civil penalty, and absent a court trial, “[t]he FCC’s forfeiture order . . . does not, by itself, compel payment.”

There is now a classic circuit split on whether the FCC’s enforcement procedures enable a party to obtain a jury trial as required by the Seventh Amendment. Circuit splits can be resolved by Supreme Court review.

FCC Enforcement Status Today. With this circuit split, there are effectively three FCC enforcement regimes. First, companies based in or, for carriers, operating in, states and territories governed by the D.C. and Second Circuit Courts of Appeals are subject to traditional FCC enforcement. The D.C. Circuit covers Washington, D.C. and the Second Circuit covers Connecticut, New York, and Vermont. Second, for companies operating in states within the Fifth Circuit Court of Appeals (Louisiana, Mississippi, and Texas), the matter is more complicated. As a general matter, the FCC would not be able to bring an enforcement action against parties in those states because the statute does not permit a party to obtain a jury trial. But, as the Supreme Court acknowledged in Jarkesy, there is a narrow category of cases subject to a “public rights” exception that do not need to be resolved with a jury trial. While the Fifth Circuit found that the AT&T case did not fit within this exception, the decision was limited to that case and did not reach other potential FCC enforcement actions. Third, for companies operating in circuits other than these three, it remains to be seen how those circuits will view this issue, and there is uncertainty both for the FCC and for targets of FCC enforcement actions.

Where Do We Go from Here? To resolve this circuit split, the Supreme Court would need to resolve the disagreement between the circuit courts. Telecommunications, media, and technology companies should follow whether the FCC, T-Mobile (having acquired Sprint in 2020), or Verizon petition the Supreme Court to review the cases out of the Fifth, D.C., or Second Circuit Courts of Appeals and whether the Supreme Court agrees to hear the cases. Companies in industries with similar enforcement processes to the FCC’s, such as the Department of Energy’s, should also monitor developments.

For guidance on how these developments may affect your business, contact Jeremy D. Marcus at Lerman Senter.