The Supreme Court continued its recent trend toward limiting the independence of federal administrative agencies with its decision in McLaughlin Chiropractic Associates, Inc. v. McKesson Corp. In McLaughlin, the Court held that for agencies such as the Federal Communications Commission that are governed by the Hobbs Act, federal district courts are not bound to an agency’s interpretation of a statute in an enforcement matter, even if a federal appellate court previously upheld the agency’s interpretation when initially made in a rulemaking proceeding. Rather, district courts must independently review a law’s meaning under ordinary principles of statutory interpretation, giving appropriate deference to an agency’s interpretation.
The case involved the FCC’s rules implementing the Telephone Consumer Protection Act (TCPA), as amended by the Junk Fax Prevention Act of 2005. A federal district court had applied an FCC Declaratory Ruling interpreting the statutory definition of “telephone facsimile machine” to exclude online fax services, and de-certified as overbroad a class of appellants that sought to sue a company that sent unsolicited advertisements via both online fax services and stand-alone fax machines. Following Ninth Circuit precedent that, under the Hobbs Act, final orders of the FCC are reviewable only in federal courts of appeal, the court deemed the FCC’s Declaratory Ruling to be binding on the question of whether the term “telephone facsimile machine” includes online fax services. The Ninth Circuit affirmed the decision of the district court. The plaintiffs then petitioned the Supreme Court, which reversed the lower courts and continued its remaking of the administrative landscape.
This decision follows several decisions from last term, including Loper Bright, which held that courts independently review agency interpretations of statutes without deference to the agency, and Corner Post, which held that the statute of limitations for challenging an agency action runs from when the party is harmed, independent from how much time has passed since the adoption of the agency rule.
As a practical matter, McLaughlin means that FCC rules, including those under the TCPA, can be challenged in multiple ways and in multiple courts. Orders that adopt rules (so-called “pre-enforcement” orders) can be appealed to the federal courts of appeals in the normal course under the Hobbs Act (that is, by an interested party within 60 days of the rules becoming effective). Enforcement actions taken later against a party for violating those rules can be challenged in federal district court. Importantly, a federal district court presented with an enforcement action is not bound by the prior appellate decision addressing the FCC’s interpretation of the statute, unless the district court is in the same circuit as the appellate court. (This assumes that the enforcement action can survive 7th Amendment constitutional scrutiny. See our discussion of the Court’s SEC v. Jarkesy decision.)
This differs from the historical practice in which the decision of any appellate court to uphold a final FCC rule or order was generally not viewed as challengeable in a later district court enforcement case. Accordingly, after McLaughlin, different courts may reach different interpretations of the validity of the same FCC rule, requiring multiple appellate decisions and perhaps a Supreme Court decision resolving any circuit split, before there is certainty on the validity of an FCC order.
The Supreme Court acknowledged this outcome, finding it consistent with the general approach of how courts interpret statutes. Multiple courts may reach different conclusions which are then challenged before appellate courts, and circuit splits are resolved by the Supreme Court. The Court viewed this as a fairer approach for smaller parties who cannot afford to participate in agency decision making or challenge it in court, and for parties who may not have existed when a rule was adopted. But it provides less certainty for regulated entities – at least until a matter is fully litigated, perhaps to the Supreme Court.
The Court’s decision applies to review of certain actions of the FCC and the Departments of Agriculture, Transportation, and Housing and Urban Development, the Federal Maritime Commission, the Nuclear Regulatory Commission, and the Surface Transportation Board. These agencies are governed by the Hobbs Act.
