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Court Decision - Sorenson Commc'ns Inc. v. FCC & USA (D.C. Cir.)

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Released: June 20, 2014
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USCA Case #13-1122 Document #1498625 Filed: 06/20/2014 Page 1 of 15

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 13, 2014

Decided June 20, 2014

No. 13-1122

SORENSON COMMUNICATIONS INC. AND CAPTIONCALL, LLC,

PETITIONERS

v.

FEDERAL COMMUNICATIONS COMMISSION AND UNITED

STATES OF AMERICA,

RESPONDENTS

Consolidated with 13-1246

On Petitions for Review of Orders of

the Federal Communications Commission

Christopher J. Wright argued the cause for petitioners.

With him on the brief were John T. Nakahata and Timothy J.

Simeone.

Mark D. Schneider was on the brief for amici curiae

Hearing Loss Association of America, et al. in support of

petitioners.

C. Grey Pash Jr., Counsel, Federal Communications

Commission, argued the cause for respondents. With him on

the brief were Jonathan B. Sallet, Acting General Counsel,

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and Jacob M. Lewis, Associate General Counsel. Robert B.

Nicholson, Attorney, U.S. Department of Justice, Finnuala K.

Tessier, Trial Attorney, and Richard K. Welch, Deputy

Associate General Counsel, Federal Communications

Commission, entered appearances.

Before: BROWN, GRIFFITH and MILLETT, Circuit Judges.

Opinion for the Court filed by Circuit Judge BROWN.

BROWN, Circuit Judge. The word “captioning” typically

conjures up an image of a television set with black bars

scrolling at the bottom, transcribing a speaker’s words with

varying degrees of accuracy. For hearing-impaired

individuals, however, it may also evoke the image of

something else: telephones that have words scrolling on a

screen during a call.

Sorenson Communications is a purveyor of these devices;

its technology uses the Internet to transmit and receive both

the call itself and the derived captions. Departing from

common industry practice, the company gives its phones out

for free, with the captioning feature turned on. The Federal

Communications Commission, concerned about a dramatic

spike in costs correlated with these tactics, hurriedly

promulgated rules clamping down on both practices. After

bypassing the notice and comment process for the interim

rules, the FCC considered input from various stakeholders

before finalizing an amended version of the rules. Sorenson

now challenges the two rules, claiming they violate the

Americans with Disabilities Act of 1990 and the

Administrative Procedure Act. The company also asserts the

Commission had no legal basis for skipping core rulemaking

steps in its hurry to set forth the rules. We agree with most of

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Sorenson’s arguments and therefore grant its petitions for

review.

I

Title IV of the Americans with Disabilities Act of 1990

requires the Federal Communications Commission (“FCC” or

“the Commission”) to arrange for telecommunications relay

services (TRS) that are “functionally equivalent to the ability

of a hearing individual who does not have a speech

disability.” 47 U.S.C. §§ 225(a)(3), 225(b)(1). To carry out

this directive, the FCC created a TRS Fund, collecting

contributions from common carriers and other

communications companies.

See

47 C.F.R.

§ 64.604(c)(5)(iii)(A). The Commission uses this Fund to

compensate TRS providers for their services; rates range from

$1.2855 per minute to $6.2390 per minute, depending on the

kind of service provided.

One type of TRS service is the Internet Protocol

Captioned Telephone Service (IP CTS), which uses the

Internet to transmit phone conversations and captioned

messages between hearing-impaired users, third-party callers,

and relay operators. See generally FED. COMMCNS COMMN,

Internet Protocol (IP) Captioned Telephone Service, available

at https://www.fcc.gov/guides/internet-protocol-ip-captioned-

telephone-service. IP CTS providers are compensated at a

rate of $1.7877 per minute, and prior to the rulemakings at

issue, they served a population of about 150,000 users.

Sorenson Communications is an IP CTS provider.

Unlike its competitors, who generally require their users to

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purchase a phone,1 Sorenson provided its phones to customers

at no charge. This led to the belief that Sorenson’s unusual

method of expanding its market presence resulted in a strain

on the TRS fund, with actual disbursements to providers far

exceeding projected amounts.

On January 25, 2013, the FCC released an Interim Order,

without notice and comment, promulgating several interim

rules. Misuse of Internet Protocol (IP) Captioned Telephone

Service (“Interim Order”), 28 F.C.C. Rcd. 703 (2013). It cited

the potential for Fund depletion caused by IP CTS misuse as

“good cause” for bypassing the notice-and-comment

requirements of the Administrative Procedure Act (APA). Id.

at 703 ¶ 1. Of the rules promulgated in the Interim Order, two

are pertinent to this appeal. First, the Commission required

all new users to register and self-certify their hearing loss, but

only if the provider sold the IP CTS equipment for $75 or

more. If the phone was distributed for free or for less than

$75, the FCC required users to submit third-party professional

certification of their hearing impairment. Id. at 718–19 ¶¶ 24,

25. Second, all IP CTS capable phones were to be distributed

with the captions turned off; users were to activate the

captioning feature for each call as needed. Id. at 722 ¶ 33.

Commissioner Pai dissented in part, questioning whether self-

certification would actually deter fraud and misuse. Sorenson

petitioned for review of the Interim Order on April 8, 2013.

The FCC issued a Final Order on August 26, 2013, which

made permanent—after notice and comment—most of the

rules promulgated in the Interim Order. Misuse of Internet

Protocol (IP) Captioned Telephone Service (“Final Order”),

1 Certain income-eligible users can receive low-cost or no-cost

equipment through state-run programs. These phones are not at

issue in this case.

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28 F.C.C. Rcd. 13,420 (2013). It tweaked the price-floor rule,

eliminating the option to be certified by a third-party

professional; instead, all phones were to cost $75 or more to

be eligible for TRS reimbursement, unless the phone was

distributed through a state-run program (“the $75 Rule”). As

for the default captions rule, the Commission added an

exception: all IP CTS-capable phones were to be distributed

with captions turned off by default, unless the user applied for

an exemption based on a certification by an independent

professional that the user was either too physically or

mentally disabled to turn captions on manually (“the Default-

Off Rule”). Sorenson petitioned this court for review of the

Final Order on September 6, 2013.

II

We begin by examining whether the Commission had

good cause for bypassing notice and comment in

promulgating the Interim Order.2 An agency can bypass the

notice-and-comment requirement of the APA when it “for

good cause finds . . . that notice and public procedure thereon

are impracticable, unnecessary, or contrary to the public

interest.” 5 U.S.C. § 553(b)(3)(B).

But first, the standard of review. We have never

expressly articulated the scope of our review in evaluating an

2 Although the Final Order has superseded the Interim Order,

Sorenson’s challenge to the latter is not moot. The company’s

failure to comply with the terms of the Interim Order resulted in it

being denied compensation for its provision of IP CTS services.

See Oral Arg. Tr. at 12:17–25. Sorenson’s provider compensation

is a “legally cognizable interest in the outcome,” see Larsen v. U.S.

Navy, 525 F.3d 1, 3–4 (D.C. Cir. 2008), and vacatur would provide

an “effective remedy,” see Conservation Force, Inc. v. Jewell, 733

F.3d 1200, 1204 (D.C. Cir. 2013).

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agency’s invocation of good cause. The Commission claims

it is entitled to some measure of deference. We are not

persuaded.

To accord deference would be to run afoul of

congressional intent. From the outset, we note an agency has

no interpretive authority over the APA, see Envirocare of

Utah, Inc. v. NRC, 194 F.3d 72, 79 n.7 (D.C. Cir. 1999); we

cannot find that an exception applies simply because the

agency says we should. Moreover, the good-cause inquiry is

“meticulous and demanding.” N.J. Dep’t of Envt’l Protection

v. EPA, 626 F.2d 1038, 1046 (D.C. Cir. 1980). Our caselaw

indicates we are to “narrowly construe[]” and “reluctantly

countenance[]” the exception. See Mack Trucks, Inc. v. EPA,

682 F.3d 87, 93 (D.C. Cir. 2012) (citations omitted).

Deference to an agency’s invocation of good cause—

particularly when its reasoning is potentially capacious, as is

the case here—would conflict with this court’s deliberate and

careful treatment of the exception in the past. Therefore, our

review of the agency’s legal conclusion of good cause is de

novo.3

The Commission suggests notice and comment were

impracticable. Impracticability is an “inevitably fact-or-

context dependent” inquiry. See Mid-Tex Elec. Coop. v.

FERC, 822 F.2d 1123, 1132 (D.C. Cir. 1987). In the past, we

have approved an agency’s decision to bypass notice and

comment where delay would imminently threaten life or

physical property. See, e.g., Jifry v. FAA, 370 F.3d 1174,

1179 (D.C. Cir. 2004) (upholding assertion of good cause

when rule was “necessary to prevent a possible imminent

3 Of course, we defer to an agency’s factual findings and expert

judgments therefrom, unless such findings and judgments are

arbitrary and capricious.

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hazard to aircraft, persons, and property within the United

States”); Council of the S. Mountains, Inc. v. Donovan, 653

F.2d 573, 581 (D.C. Cir. 1981) (noting the case was one of

“life-saving importance” involving miners in a mine

explosion); see also Jifry, 370 F.3d at 1179 (observing the

good-cause exception should be invoked only in “emergency

situations . . . or where delay could result in serious harm”

(emphasis added)). This is no such case.

The Commission cited—and continues to cite—the threat

of impending fiscal peril as cause for waiving notice and

comment. Curiously, however, there were no factual findings

supporting the reality of the threat. Instead, the agency

speculatively stated “absent Commission action, there could

be insufficient funds available . . . to meet the needs of the

Fund.” Interim Order, 28 F.C.C. Rcd. at 707 (emphasis

added). Commissioner Pai, dissenting in part from the

Commission’s decision, helped fill in some of the blanks:

$128 million had been allocated and collected for the 2012-

2013 fiscal year, but the Fund had already paid out $70

million within the first six months. See id. at 750–51. This,

he explained, would have created an unsustainable payout

rate, leaving the Fund with obligations somewhere in between

$108 and $159 million for the remainder of the year. See id.

at 751.

Cause for concern? Perhaps. But hardly a crisis.

Though we do not exclude the possibility that a fiscal

calamity could conceivably justify bypassing the notice-and-

comment requirement, this case does not provide evidence of

such an exigency. The Commission’s record is simply too

scant to establish a fiscal emergency. It does not reveal when

the Fund was expected to run out of money, whether the Fund

would have run out of money before a notice-and-comment

period could elapse, or whether there were reasonable

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alternatives available to the Commission, such as temporarily

raising Fund contribution

amounts or borrowing in

anticipation of future collections. Though no particular

catechism is necessary to establish good cause, something

more than an unsupported assertion is required. Lacking

record support proving the emergency, we hold the

Commission erred in promulgating the Interim Order without

notice and comment.4

III

Sorenson asserts the $75 Rule and the Default-Off Rule

violate the ADA and the APA. We need not go beyond the

APA challenge. Under the arbitrary-and-capricious standard,

an agency “must examine the relevant data and articulate a

satisfactory explanation for its action including a rational

connection between the facts found and the choice made.”

Motor Vehicles Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co.,

463 U.S. 29, 43 (1983) (internal quotation marks omitted).

“Normally, an agency rule would be arbitrary or capricious if

the agency has relied on factors which Congress has not

intended it to consider, entirely failed to consider an important

aspect of the problem, offered an explanation for its decision

that runs counter to the evidence before the agency, or is so

implausible that it could not be ascribed to a difference in

view or the product of agency expertise.” Id.

4 The agency also claims a notice-and-comment period would have

been contrary to the public interest. See Respondents’ Br. at 24; see

also Mack Trucks, 682 F.3d at 94–95. To the extent that the

Commission argues a delay in action would have resulted in harm

to the public fisc, we remain unconvinced for the same reasons that

we find notice and comment practicable.

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A

The Final Order requires new subscribers to pay at least

$75 for their IP CTS-capable phone, unless the phone is

provided by a state-run program. This rule is mystifying.

The Commission claims the $75 Rule will deter fraudulent

acquisition and use of IP CTS equipment. Yet the agency

offers no evidence suggesting there is fraud to deter. Nor is

there anything in the record demonstrating how a price point

of $75 would deter fraud even if it existed.

It is difficult to pinpoint the exact genesis of the $75

Rule. It appears the idea of a price floor was first suggested

by one of Sorenson’s competitors—Hamilton Relay—in an ex

parte communication to the Commission. See Letter from

David A. O’Connor, Counsel for Hamilton Relay, Inc., to

Marlene H. Dortch, Esq., Secretary of the Federal

Communications Commission, at 1 (Jan. 10, 2013) (“For

example, the Commission could adopt a bifurcated eligibility

standard, such that any consumer who accepts a free or de

minimis cost IP CTS telephone must provide a certification . .

. whereas any consumer who legitimately purchases an IP

CTS telephone for less [sic] than de minimis cost would self-

certify, because the user has already demonstrated through his

or her purchase that the IP CTS telephone is needed.”).5

Despite the fact that the ex parte letter offered no evidence

showing the necessity or efficacy of a price floor, the

Commission heavily relied on it in promulgating the interim

version of the $75 Rule. Indeed, of the seventeen citations

concerning the rule in the Interim Order, at least four refer

5 We assume Hamilton Relay meant to recommend self-

certification for consumers who purchase IP CTS phones for more

than de minimis cost.

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either to Hamilton Relay’s recommendation or an internal

analysis thereof. And the Interim Order, in turn, provided the

Commission with much of its justification for enacting the

final $75 Rule; the Commission cited it repeatedly in issuing

the Final Order. The only additional observations produced

during the intervening notice-and-comment period came in

the form of conjecture, particularly by Sorenson’s

competitors. See, e.g., J.A. at 287–88 (commenting, on behalf

of Sprint, that Sorenson’s distribution of free IP CTS-capable

phones “placed the provision of IP CTS service on a slippery

slope that could lead to the same types of questionable and

outright fraudulent activities that have plagued the VRS

segment of the market for years”); see also Comments of

Purple Communications at 6 (Feb. 26, 2013) (speculating that

an ineligible user who does not need IP CTS equipment might

use it because “the equipment functions like a regular phone”

and could be placed “in settings where other non-eligible

users may access and use it”). Based on our review of the

record, it appears the Commission’s rule relies on one

unsubstantiated conclusion heaped on top of another.

As Commissioner Pai explained in his dissent to the

Interim Order, it is difficult to see how the $75 Rule will help

“curtail waste, fraud, and abuse.” See Interim Order, 28

F.C.C. Rcd. at 751. “[V]irtually anyone who wants IP CTS

can get it, even if they do not need it. . . . If a consumer pays

at least $75 for IP CTS equipment, he or she does not have to

obtain any certification . . . to be eligible for free IP CTS

service.” Id. at 751–52. Though we understand the

Commission’s reasons for abandoning the third-party

certification process that formed part of the interim version of

the $75 Rule, we are still left with no evidence about the

necessity of the price floor.

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Put simply, our review of the record leaves us with more

questions than answers. First, where is the evidence that IP

CTS technology is being fraudulently used? Second, where is

the proof of the causal relationship between the establishment

of a price floor and the deterrence of fraudulent IP CTS use?

Third, how did the Commission arrive at the target price of

$75?

The Commission responds that it may rely on its

predictive judgment to ignore these questions. Though “an

agency’s predictive judgments about the likely economic

effects of a rule” are entitled to deference, see Nat’l Tel.

Coop. Ass’n v. FCC, 563 F.3d 536, 541 (D.C. Cir. 2009),

“deference to such . . . judgment[s] must be based on some

logic and evidence, not sheer speculation,” Verizon v. FCC,

740 F.3d 623, 663 (D.C. Cir. 2014) (Silberman, J., concurring

in part and dissenting in part). The Commission may hoist the

standard of common sense, of course, but the wisdom of

agency action is rarely so

self-evident that no other

explanation is required. See Checkosky v. S.E.C., 23 F.3d

452, 463 (D.C. Cir. 1994) (noting that, in Tex Tin Corp. v.

EPA, 935 F.3d 1321 (D.C. Cir. 1991), we declined to affirm

“the agency’s decision to place a hazardous waste facility on

the National Priorities List” on common sense alone,

remanding the case to the EPA “for a better explanation

before finally deciding that the agency’s action was arbitrary

and capricious”). As the Commission failed to “articulate a

satisfactory explanation for

its action,” we deem the

promulgation of the $75 Rule arbitrary and capricious. See

State Farm, 463 U.S. at 43.

B

We are similarly troubled by the Commission’s

requirement that IP CTS phones “have a default setting of

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captions off, so that all IP CTS users must affirmatively turn

on captioning.” J.A. at 130. This rule is not only unsupported

by the evidence, but contradicted by it.

When the Commission enacted the interim version of the

Default-Off Rule, it acknowledged one study showed “those

states that require a captions-off default setting for intrastate

CTS actually have a slightly higher average number of

minutes of use compared with the states that permit the

default to be captions on.” J.A. at 19. During notice and

comment for the final rule, various stakeholders complained

about the rule based on their experience with the interim

version. Hamilton Relay, for instance, suggested revisiting

the necessity of the rule, as “[t]he consumers’ loss of . . .

efficiency and functionality may [have] outweigh[ed]

whatever benefits [were] derived from the restriction.” J.A. at

219–20. Ultratec, another IP CTS provider, even presented

historical data suggesting there was “no evidence of fraud or

misuse of IP CTS” as a result of a captions-on default. J.A. at

311. In fact, it remarked “there is at least some evidence that

a ‘default off’ requirement does not impact . . . captioned

telephone usage patterns when [equipment on the customer’s

premises] is initially distributed with the default on or with

the default off.” Id. Consumers, for their part, also expressed

their dismay over the rule, calling it “highly disruptive.” J.A.

at 95.

And yet, despite the chorus of businesses and consumers

opposing continued implementation of the rule, the

Commission kept it intact. The disruptiveness, it claimed,

would simply go away. See J.A. at 97–98 (explaining the

Commission “anticipate[d] that most concerns will subside

over time as default off becomes familiar”). As for the

quantitative data presented by Ultratec and others, the

Commission acknowledged a dearth of evidence to prove

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fraudulent use. See J.A. at 97 (“[W]e are unable to quantify

the amount of IP CTS usage attributable to casual or

inadvertent use of captions . . . .”). It instead pointed to

evidence suggesting a decline in IP CTS usage after it

implemented the interim version of the Default-Off Rule, see

id., which, of course, reveals nothing about the decline in

fraudulent use.

The Commission also cited a research study which

showed “50 percent [of surveyed users who share their

telephones with persons without hearing loss stated] that those

with whom the phone is shared never turn off captions, while

another 25 percent said that the sharers only sometimes turn

off captions.” J.A. at 97 n.311. These numbers, however,

must be put into context. What the Commission neglected to

mention is that the cited sub-sample was only eight percent

(164 individuals) of the surveyed CTS-using population

(2,014 users). J.A. at 335, 351. In other words, the vast

majority of surveyed users did not share their phones at all,

and not all users who shared their phones posed a danger of IP

CTS misuse. Moreover, the Commission failed to address the

study’s ultimate conclusion that “this survey of . . . special

captioned telephone users does not support either fraud or

misuse as the source of growth in IP CTS.” J.A. at 356.

So, like the $75 Rule, the Default-Off Rule was intended

to defeat a bogeyman whose existence was never verified, i.e.,

the fraudulent use of IP CTS technology. But unlike its

counterpart, the Default-Off Rule did not want for evidence;

instead, there was contrary evidence questioning its efficacy

and necessity. The Commission left these serious concerns

unaddressed. Accordingly, its decision to implement the

Default-Off Rule was arbitrary and capricious. See El Rio

Santa Cruz Neighborhood Health Ctr., Inc. v. U.S. Dep’t of

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Health and Human Servs., 396 F.3d 1265, 1278 (D.C. Cir.

2005).

IV

As we resolve both challenges on APA grounds, we need

not reach the question of whether the two rules run afoul of

Title IV of the Americans with Disabilities Act. See PDK

Labs. Inc. v. U.S. Drug Enforcement Admin., 362 F.3d 786,

799 (D.C. Cir. 2004) (Roberts, J., concurring in part and

concurring in the judgment) (“[I]f it is not necessary to decide

more, it is necessary not to decide more . . . .”). To the extent

that Sorenson challenges other rules on various grounds, e.g.,

the First Amendment, we decline to entertain these

arguments.6 See Davis v. Pension Benefit Guar. Corp., 734

F.3d 1161, 1166–67 (D.C. Cir. 2013) (“[I]t is not enough

merely to mention a possible argument in the most skeletal

way, leaving the court to do counsel’s work, create the

ossature for the argument, and put flesh on its bones.”).

Sorenson asks us to vacate the entire Final Order, but we

see no need to do so. Nothing suggests the unchallenged

rules, e.g., the labeling requirement and the marketing

restrictions, could not “function sensibly without the stricken

provision.” See MD/DC/DE Broad. Ass’n v. FCC, 236 F.3d

13, 22 (D.C. Cir. 2001). The Final Order therefore need not

be invalidated in its entirety.

6 Cutting to the chase, Sorenson would like to be rid of the

marketing restrictions of the Final Order. Because the issues

surrounding the rules were not properly presented to us, we have no

opinion concerning whether the restrictions were properly

promulgated in accordance with the ADA, the APA, and the First

Amendment.

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The petitions for review are granted. We vacate the

entire Interim Order, as there was no good cause for

bypassing notice and comment. We also vacate the $75 Rule

and the Default-Off Rule contained in the Final Order, but we

leave the remainder intact. We remand to the Commission for

further proceedings.

So ordered.

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