Court rules FCC enforcement action unconstitutional

On April 24, 2025, the U.S. Court of Appeals for the Fifth Circuit made a significant ruling regarding the Federal Communications Commission (FCC) and its enforcement actions against AT&T. The court decided to vacate a $57 million fine that the FCC had imposed on AT&T for allegedly failing to protect customers’ location data. This ruling has broader implications, not just for the FCC but potentially for other federal agencies as well.

The Fifth Circuit’s decision was based on the precedent set by the U.S. Supreme Court in Securities and Exchange Commission v. Jarkesy. The court found that the process of in-house enforcement proceedings by the FCC violated AT&T’s rights to a trial by jury under the Seventh Amendment. This decision will impact both current and future in-house enforcement proceedings conducted by the FCC and potentially other federal agencies involving financial penalties.

The Supreme Court’s ruling in Jarkesy addressed the necessity of civil penalty enforcement actions by federal agencies to be adjudicated through a jury trial in Article III courts under the Seventh Amendment. The court determined that the imposition of monetary penalties by the FCC and other agencies falls under the definition of a “suit at common law,” warranting a trial by jury. This ruling confirms that the same principles apply to all federal agencies’ in-house enforcement procedures.

The FCC typically enforces its rules by initiating a Notice of Apparent Liability (NAL), setting forth the alleged violations and proposing monetary penalties. The target of the NAL can contest the penalty, but the FCC has the authority to issue a final order imposing the forfeiture. This process, which does not guarantee a trial by jury, was found to be unconstitutional by the Fifth Circuit in light of the Seventh Amendment.

In the case of AT&T v. FCC, the FCC issued a hefty $57 million forfeiture order against AT&T for failing to secure customers’ location data. AT&T opted to pay the penalty and challenge the ruling in an appellate review. The Fifth Circuit determined that the nature of the FCC’s fine was punitive in nature, aligning it with a legal imposition rather than a remedial one. This led to the conclusion that AT&T’s alleged misconduct resembled a common law negligence claim, requiring adjudication in an Article III court.

The FCC’s defense of its enforcement action under the “public rights” exception, which permits certain claims to be decided outside of Article III courts, was dismissed by the court. The narrow scope of this exception and the historical adjudication of negligence claims against common carriers like AT&T in state and federal courts rendered the FCC’s actions impermissible under the public rights exception.

As a result of this ruling, FCC enforcement actions and potentially those of other federal agencies that impose financial penalties through in-house adjudications will need to be reevaluated. The Fifth Circuit’s decision underscores the necessity for legislative reforms to align with the requirements of the Seventh Amendment and ensure fair and constitutional enforcement procedures.