Tag Archives: SEC v. Jarkesy

Supreme Court Examines FCC’s Ability to Fine

The Supreme Court has accepted a case that will determine the FCC’s ability to levy fines against the companies it regulates. The lower court cases that brought the issue to the Supreme Court come from fines that the FCC levied against AT&T, T-Mobile, and Verizon after the companies sold customer location data. The FCC said that the carriers did not properly vet the companies that bought customer data, and that many of those companies widely resold the data.

The Fifth Circuit Court sided with AT&T and said that the FCC’s process was unconstitutional. The Second Circuit Court sided with the FCC when reviewing the Verizon fine. The DC Circuit also sided with the FCC when reviewing the fine against T-Mobile.  As often happens when lower courts issue conflicting rulings, the Supreme Court has agreed to review the findings of the lower courts.

The Circuit Court cases invoked a Supreme Court ruling in 2024 in the case of SEC v Jaresky. In that case, the defendant was accused of committing fraud and misrepresenting himself to investors. The Securities and Exchange Commission fined Mr. Jaresky $300,000 and ordered him to disgorge the unlawful profits he made of $685,000. Mr. Jaresky appealed to the Supreme Court and argued that the SEC didn’t have the regulatory authority to directly fine him, and that the SEC had violated his right to a jury trial.

The Supreme Court surprisingly sided with Jaresky and ordered that he should have been given the option for a jury trial rather than a trial by an SEC administrative judge. It was obvious after the Jaresky ruling that companies that were fined by other regulatory agencies would make the same claim if they were denied the right of a jury trial. In this case, the three cellular companies made the argument that the FCC fines were unconstitutional and got contradictory rulings from different lower courts. It’s fairly obvious that the carriers went to different courts hoping for conflicting rulings.

This is a major case for the FCC, since a ruling against it eliminates its ability to fine regulated companies for violating FCC rules. The ability to levy fines has always been one of the agency’s most effective enforcement tools and is one of the few remedies that is less drastic than yanking an FCC license to operate. The FCC has been using fines a lot recently in its attempt to cut down on robocalls and texts. The FCC will become a fairly toothless regulatory agency without the ability to levy fines. Carriers, both large and small, will be less afraid to violate FCC rules if they don’t fear that their violation would warrant a referral to the Justice Department.

This is a really interesting tactic by the cellular carriers. If these particular cases had been referred to a jury instead of an administrative judge, it’s not hard to imagine the fines being a lot larger. It’s not hard to imagine a jury that doesn’t like the idea of a giant corporation selling data that shows everywhere they travel with their cellphone.

This also opens up the possibility of State regulators tackling these kinds of issues and issuing fines if the FCC finds itself unable to do so. I have to think that selling customer data violates the law in multiple states.

If the Jaresky case is the precedent, then it’s hard to think the Court won’t side with the carriers and rule against the FCC. This Supreme Court seems to be very much against what they view as regulatory overstepping of authority, and the Jaresky case is only one of their rulings that are weakening federal regulatory agencies.

FCC Loses the Ability to Levy Fines

On April 17, the U.S. Court of Appeals for the Fifth Circuit ruled that the FCC doesn’t have the authority to levy fines. The case under appeal came from an AT&T fine issued by the FCC in 2024 against the company for violating customer privacy by selling customer location data. AT&T appealed the FCC ruling and said that the FCC had violated the Seventh Amendment of the Constitution by not allowing AT&T to have a jury trial.

The Fifth Circuit sided with the AT&T appeal and said that the FCC had acted as prosecutor, judge, and jury in deciding that AT&T had broken the rules and in setting the fine.

The Court ruling was not particularly kind to AT&T and is worth a read. The Court recounted the facts of the case and said that AT&T was, at a minimum, guilty of negligence since it assumed that those who purchased its location data would protect consumer’s privacy rights.

The Court’s opinion relies in the 2023 Supreme Court Decision in SEC v Jarkesy that ruled that the SEC had no authority to levy civil fines. Since then, many lawyers have assumed that the ruling would apply broadly to all federal agencies, and this ruling affirms that opinion. The two cases together seem to affirm the inability of federal agencies to fine the companies they regulate.

This ruling will stand unless the FCC appeals it. FCC Commissioner Brendan Carr and Commissioner Nathan Simington both objected to the original fines against AT&T. However, the FCC has issued fines since 2023 against others, including a $4.5 million fine levied this year against Telnyx LLC related to making imposter robocalls leading up to last year’s elections. The FCC already wrote a letter to other courts that are reviewing cases involving FCC fines and asked those courts not automatically follow this decision.

The case also brought into question the process by which the FCC decides that its rules have been broken. The Court found that the FCC had essentially judged AT&T as guilty without giving the company the chance to defend itself. This might mean that the FCC and other regulatory agencies will be limited to gathering facts and forwarding cases to the DOJ without making any findings of wrongdoing. I don’t want this to sound like an overexaggeration but that philosophy seems like it would largely take the FCC out of the regulatory business. It would mean that the agency can set rules but can’t decide that a regulated company has broken its rules, since doing so would be a finding of wrongdoing without a trial.

I’m not a lawyer, and there are nuances to this ruling that I am probably missing. But this doesn’t seem to bode well for the FCC and many other regulatory agencies. The ruling would seem to curtail the ability of Chairman Carr to pursue a lot of the topics on his 2025 wish list.