Court Throws Out FCC’s Captioned Telephone Rules as Arbitrary and Capricious

Sorenson subsidiary CaptionCall differentiated itself from competitors by giving customers free phones, which “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,” the court wrote, referring to the Telecommunications Relay Services fund. The FCC in January 2013 released an interim order with several temporary rules, and cited “the potential for Fund depletion caused by IP CTS misuse as ‘good cause’ for bypassing the notice-and-comment requirements” of the APA, the court said. If the captioned phone cost a user less than $75, the FCC required users to submit third-party professional certification of their hearing impairment. The agency also required all phones to be distributed with the caption feature turned off. The agency’s final rule (CD Aug 28 p6) “tweaked” the requirements, the court said, lightening them somewhat.

Giving the agency deference to avoid APA requirements “would be to run afoul of congressional intent,” as well as the court’s own standard that a good cause inquiry be “meticulous and demanding,” wrote Judge Janice Rogers Brown. That’s particularly so when an agency’s reasoning is “potentially capacious, as is the case here,” the court said. For an agency to claim that notice and comment are “impracticable” -- basing that claim on “impending fiscal peril” -- it would need to present factual findings supporting “the reality of that threat,” the court said. An “unsustainable payout rate,” as cited at the time by the commission, may be a “cause for concern” but it’s “hardly a crisis,” the court said.

"CaptionCall is very pleased with the court’s decision because it means that captioned telephone service can be made available to more people who need captions to use the telephone,” said a spokesman. “We look forward to working with the FCC to continue to ensure that people who need access to this important accommodation get it."

The ruling isn’t “significant new precedent,” said Andrew Schwartzman, senior counselor at Georgetown Law’s Institute for Public Representation. “Courts are understandably wary when an agency dispenses with notice and comment, and its justifications are subject to close scrutiny,” Schwartzman said. “Good cause” often involves a threat to public health and safety, which wasn’t the case here, “but at bottom, the problem was that the commission didn’t make a strong enough case that the problem it described was so severe as to justify dispensing with the APA,” he said.

The court did not reach the question of whether the $75 rule and the default-off rule violate the Americans with Disabilities Act. “We need not go beyond the APA challenge,” the court said. “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.”

The final rule, which required that new subscribers pay at least $75 for their caption-capable phone, unless it’s provided by a state-run program, is “mystifying,” the court said. “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.” The court quoted Commissioner Ajit Pai’s dissent to the interim order, in which he said it was difficult to see how the $75 rule would “curtail waste, fraud, and abuse.”

"Our review of the record leaves us with more questions than answers,” the court said. “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 court dismissed the commission’s response that it can use predictive judgment to ignore those questions: “The Commission may hoist the standard of common sense, of course, but the wisdom of agency is action is rarely so self-evident that no other explanation is required.”

"This is a pretty run-of-the-mill administrative law case,” said Free State Foundation President Randolph May, former chairman of the American Bar Association’s administrative law and regulatory practice section: The court found that there were “more than enough holes” in the agency’s reasoning to find it arbitrary and capricious under the APA’s judicial review standard, he said. An “interesting wrinkle” is that the court “refused to grant any deference to the agency,” May said. That “makes sense to me because the good cause exception to normal notice requirements has always been strictly construed,” he said. An FCC spokesman told us the agency was reviewing the decision. The other judges were Thomas Griffith and Patricia Millett.