City of Portland v. Fed. Commc'ns Comm'n

• Decision Date: 26 May 2021
• Docket Number: Nos. 19-4161/4162/4163/4164/4165/4166/4183,s. 19-4161/4162/4163/4164/4165/4166/4183
• Citation: 998 F.3d 701
• Parties: CITY OF EUGENE, OREGON (19-4161); City of Portland, Oregon, et al. (19-4162); State of Hawaii (19-4163); Alliance for Communications Democracy, et al. (19-4164); Anne Arundel County, Maryland, et al. (19-4165); City of Pittsburgh, Pennsylvania (19-4166); City of Chicago, Illinois, et al. (19-4183), Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION; United States of America, Respondents, NCTA - The Internet & Television Association (19-4161–4166/4183); City of New York, New York, et al. (19-4162); Bloomfield Township, Michigan, et al. (19-4165); City of Aurora, Colorado, et al. (19-4183), Intervenors.
• Court: U.S. Court of Appeals — Sixth Circuit

998 F.3d 701

CITY OF EUGENE, OREGON (19-4161); City of Portland, Oregon, et al. (19-4162); State of Hawaii (19-4163); Alliance for Communications Democracy, et al. (19-4164); Anne Arundel County, Maryland, et al. (19-4165); City of Pittsburgh, Pennsylvania (19-4166); City of Chicago, Illinois, et al. (19-4183), Petitioners,

v. FEDERAL COMMUNICATIONS COMMISSION; United States of America, Respondents,NCTA - The Internet & Television Association (19-4161–4166/4183); City of New York, New York, et al. (19-4162); Bloomfield Township, Michigan, et al. (19-4165); City of Aurora, Colorado, et al. (19-4183), Intervenors.

Nos. 19-4161/4162/4163/4164/4165/4166/4183

United States Court of Appeals, Sixth Circuit.

Argued: April 15, 2021

Decided and Filed: May 26, 2021

ARGUED: Tillman L. Lay, SPIEGEL & MCDIARMID LLP, Washington, D.C., Cheryl A. Leanza, BEST BEST & KRIEGER LLP, Washington, D.C., for Petitioners. Maureen K. Flood, FEDERAL COMMUNICATIONS COMMISSION, Washington, D.C., for Respondents. Jessica Ring Amunson, JENNER & BLOCK, LLP, Washington, D.C., for Intervenor NCTA. ON BRIEF: Tillman L. Lay, James N. Horwood, Jeffrey M. Bayne, SPIEGEL & MCDIARMID LLP, Washington, D.C., Cheryl A. Leanza, Joseph Van Eaton, Gerard Lavery Lederer, BEST BEST & KRIEGER LLP, Washington, D.C., Gail A. Karish, BEST BEST & KRIEGER LLP, Los Angeles, California, Michael R. Bradley, Vincent Rotty, Michael Clarke Athay, BRADLEY LAW, LLC, Woodbury, Minnesota, Michael J. Watza, KITCH DRUTCHAS WAGNER VALITUTTI & SHERBROOK, Detroit, Michigan, Daniel S. Cohen, Joel S. Winston, COHEN LAW GROUP, Pittsburgh, Pennsylvania, Kenneth S. Fellman, KISSINGER & FELLMAN, P.C., Denver, Colorado, Brian T. Grogan, MOSS & BARNETT, Minneapolis, Minnesota, for Petitioners and Intervenors. Maureen K. Flood, Jacob M. Lewis, FEDERAL COMMUNICATIONS COMMISSION, Washington, D.C., Robert B. Nicholson, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Respondents. Jessica Ring Amunson, Howard J. Symons, Ian Heath Gershengorn, Elizabeth B. Deutsch, JENNER & BLOCK, LLP, Washington, D.C., for Intervenor NCTA. Elina Druker, NEW YORK CITY OFFICE OF THE CORPORATION COUNSEL, New York, New York, for Intervenors City of New York, et al.

Before: McKEAGUE, GRIFFIN, and KETHLEDGE, Circuit Judges.

KETHLEDGE, Circuit Judge.

Over the past 15 years, the Federal Communications Commission has published a series of written orders that, together with Title VI of the Communications Act ("the Act"), 47 U.S.C. § 521 et seq. , set forth rules by which state and local governments may regulate cable providers. Numerous local governments have petitioned for review of the FCC's most recent order, arguing that the FCC misinterpreted the Act. We grant the petitions in part and deny them in part.

I.

Our opinion in Alliance for Community Media v. F.C.C. , 529 F.3d 763 (6th Cir. 2008), sets forth the relevant history of the Communications Act and cable regulation generally. In brief, a cable operator may provide cable services only if a franchising authority—usually a local body, but sometimes a unit of state government—grants the operator a franchise to do so. See 47 U.S.C. §§ 522(9), 541(b)(1). In exchange for a cable franchise, franchising authorities often require (among other things) that cable operators pay fees, provide free cable service for public buildings, and set aside channel capacity for "public, educational, and governmental [referred to in the industry as ‘PEG’] use[.]" See, e.g. , id. §§ 541(a)(4), 542(a). Some of those requirements count as "franchise fees," which the Act limits to five percent of a cable operator's gross revenues for cable services for any 12-month period. See id. § 542(b). The costs of franchise fees, of course, are passed on to cable subscribers. See id. § 542(c), (e).

In 2007, the FCC issued an order (the "First Order") in which it read narrowly one of five exceptions to the Act's definition of franchise fee. The First Order also announced the FCC's "mixed-use rule," under which franchisors could not regulate the non-cable services of cable operators who were "common carriers" under Title II of the Act. Various franchising authorities challenged that order, but we denied their petition. See Alliance , 529 F.3d at 775-87.

The FCC later issued another order (the "Second Order"), in which the FCC interpreted the term "franchise fee" to include all noncash (or "in kind") exactions required by a franchise agreement, with the exception of exactions falling within a statutory exception to the Act's definition of franchise fee. Historically some of those exactions were unrelated to cable services, such as a demand by St. Louis that a cable operator contribute 20 percent of its stock to the city. Other exactions were cable-related, such as requirements for free cable service to public buildings. Under the Second Order, the value of those exactions counted toward the franchise-fee cap. See Implementation of Section 621(a)(1) of the Cable Communications Policy Act, 22 FCC Rcd. 19633 (Nov. 6, 2007). The Second Order also extended the "mixed-use rule" to "incumbent" cable operators, who for the most part were not common carriers under Title II.

Again various franchising authorities petitioned for review of the FCC's conclusions. We agreed with the FCC that the term " ‘franchise fee’ as defined by § 542(g)(1) can include noncash exactions." Montgomery County. v. F.C.C. , 863 F.3d 485, 491 (6th Cir. 2017). But we held that the FCC had not explained why, under the Act, every cable-related noncash exaction counted as a franchise fee. We likewise held that the FCC had not offered a statutory basis for its application of the mixed-use rule to incumbent cable operators. We therefore vacated those determinations and directed the FCC to set forth a statutory basis for them. Id. at 492-93.

The FCC did that in its Third Order, which it entered in 2019. See 84 Fed. Reg. 44,725 -01 (Aug. 27, 2019). In that Order, the FCC analyzed various sections of the Act, and concluded that most—though not all—cable-related noncash exactions are franchise fees. See id. ¶ 8. The FCC likewise explained its reasoning as to why the Act does not allow franchising authorities to regulate the non-cable services of cable operators who are not common carriers. See id. ¶¶ 64-70, 73-77. Finally, the FCC extended its rulings to state (rather than just local) franchising authorities, reasoning that the Act makes no distinction between them. See id. ¶ 114.

Various franchising authorities petitioned for review of the Third Order in various circuit courts, which in turn transferred those petitions to this circuit. The petitioners moved for a stay of the Third Order during the pendency of this appeal, which we denied. We now adjudicate the petitions themselves.

II.

The petitioners challenge the Third Order on multiple grounds. In most of those challenges, the petitioners argue that the FCC interpreted the relevant statutory provisions incorrectly; in others, the petitioners argue that the orders were entered in violation of the Administrative Procedure Act. As to the interpretive challenges, absent some insuperable ambiguity, "we give effect to Congress's answer without regard to any divergent answers offered by the agency or anyone else." Montgomery County , 863 F.3d at 489 (cleaned up). There is no such ambiguity here. As for the APA challenges, we determine whether the agency rules at issue are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law[.]" 5 U.S.C. § 706(2)(A).

A.

1.

Several of the petitioners’ challenges concern the FCC's interpretation of the term "franchise fee" as defined by 47 U.S.C. § 542(g). The first is directed at the FCC's conclusion that most (though not all) noncash cable-related exactions count as franchise fees subject to the five-percent cap. Those exactions are often substantial. Prior to the FCC's ruling, for example, a franchise agreement in Montgomery County, Maryland required the cable operator there to provide "courtesy Basic and Expanded service" to an ever-growing number of public buildings—totaling, in 2018, "898 complimentary accounts with an estimated value of $949,000 annually[.]" A franchise agreement in another locality required the cable operator to provide free cable service to "three golf courses, an ice arena, a municipal pool, an airport, a park activity center, a historical society and museum, a community college, and a water treatment plant." (The petitioners respond that, in both cases, the provision of these free services was negotiated.)

Section 542(g)(1) provides in full: "the term ‘franchise fee’ includes any tax, fee, or assessment of any kind imposed by a franchising authority or other governmental entity on a cable operator or cable subscriber, or both, solely because of their status as such[.]" That this definition comprises " ‘any tax, fee, or assessment of any kind[,]’ " we held in Montgomery County , "requires us to give those terms maximum breadth." 863 F.3d at 490. Moreover, this language makes no distinction between noncash exactions that are not cable-related (which in Montgomery County we held can be franchise fees) and noncash exactions that are. Hence the question here is why noncash cable-related exactions should be categorically excluded, as Petitioners argue, from the definition of franchise fee.

In Montgomery County , we observed, the petitioners had made a serious argument as to why noncash cable-related exactions should be excluded from that definition—namely, that doing so "would undermine various provisions of the Act that allow or even require [franchising authorities] to impose cable-related obligations as part of their cable franchises." Id. at 491. In the Third Order, however, the FCC offered a nuanced response to that argument. The Act itself imposes (or requires that franchising authorities impose) certain cable-related obligations upon cable operators. For example, § 541(a)(3) provides that "a franchising...