Blanca Telephone Company v. FCC ( 2021 )

FILED
United States Court of Appeals
Tenth Circuit
PUBLISH March 15, 2021
Christopher M. Wolpert
UNITED STATES COURT OF APPEALS Clerk of Court
TENTH CIRCUIT
BLANCA TELEPHONE COMPANY,
Petitioner,
v. Nos. 20-9510 and 20-9524
FEDERAL COMMUNICATIONS
COMMISSION; UNITED STATES
OF AMERICA,
Respondents.
PETITION FOR REVIEW FROM
THE FEDERAL COMMUNICATIONS COMMISSION
(NOS. FCC 17-162 and FCC 20-28)
Timothy E. Welch, Hill and Welch, Silver Springs, Maryland, for Petitioner.
Scott Noveck, Counsel (Thomas M. Johnson, Jr., General Counsel, Ashley S.
Boizelle, Deputy General Counsel, Richard K. Welch, Deputy Associate General
Counsel, Federal Communications Commission, and Makan Delrahim, Assistant
Attorney General, Michael F. Murray, Deputy Assistant Attorney General, and
Robert B. Nicholson and Adam D. Chandler, Attorneys, United States Department
of Justice, with him on the brief), Federal Communications Commission,
Washington, D.C., for Respondents.
Before TYMKOVICH, Chief Judge, BRISCOE, and BACHARACH, Circuit
Judges.
TYMKOVICH, Chief Judge.
Blanca Telephone Company is a rural telecommunications carrier based in
Alamosa, Colorado. Its business ensures its customers have access to a basic
level of telephone services in rural Colorado. To make this business profitable,
Blanca must rely in part upon subsidies from the Universal Service Fund (USF), a
source of financial support governed by federal law and funded through fees on
telephone customers. And in order to receive subsidies from the USF, Blanca
must abide by a complex set of rules governing telecommunications carriers.
The Federal Communications Commission 1 administers and enforces the
rules governing distribution of USF support. Through an investigation begun in
2008 by the FCC’s Office of Inspector General into Blanca’s accounting
practices, the FCC identified overpayments Blanca had received from the USF
between 2005 and 2010. According to the FCC, Blanca improperly claimed
roughly $6.75 million in USF support during this period for expenses related to
providing mobile cellular services both within and outside Blanca’s designated
service area. As we describe in more detail below, Blanca was entitled only to
support for “plain old telephone service,” namely land lines, and not for mobile
telephone services. Following the investigation, the FCC issued a demand letter
1
We also refer to the FCC as the “agency” throughout the opinion.
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to Blanca seeking repayment. The agency eventually used administrative offsets
of payments owed to Blanca for new subsidies to begin collection of the debt.
Blanca objected to the FCC’s demand letter and sought agency review of
the debt collection determination. During agency proceedings, the FCC
considered and rejected Blanca’s objections. Now, in its petition for review
before this court, Blanca challenges the FCC’s demand letter and subsequent
orders on a number of grounds. Blanca claims the FCC’s decision should be set
aside for three reasons: (1) it was barred by the relevant statute of limitations,
(2) it violated due process, and (3) it was arbitrary and capricious.
On review of the agency’s record, we AFFIRM the FCC’s decision. We
conclude the FCC’s debt collection was not barred by any statute of limitations,
Blanca was apprised of the relevant law and afforded adequate opportunity to
respond to the FCC’s decision, and the FCC was not arbitrary and capricious in its
justifications for the debt collection.
I. Background
A. Factual Background
1. The Regime Governing Blanca
In this appeal we must decide whether Blanca, a local exchange carrier
(LEC) under federal law, could receive USF support for costs associated with
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providing mobile telephone services. 2 In order to proceed, we first describe the
laws governing Blanca as of 2005.
Blanca and other telecommunications carriers are governed by a vast
regulatory scheme. As telecommunications technology has become more
advanced and complex, the laws and regulations governing such technology have
tried to keep pace. And as the country’s population has shifted geographically,
with many trading rural for urban living, the laws and regulations have tried to
account for these demographic changes as well.
Throughout the latter-half of the twentieth century, it became less
economically feasible for traditional phone companies to provide services to rural
customers. Faced with rugged terrain across open expanses, telecommunications
carriers were wary to invest in and maintain expensive infrastructure. And given
the sparse populations of many of these areas, the limited economies of scale also
weighed against such investments.
The Telecommunications Act of 1996 was passed to address this shortage
of quality telecommunications services in rural parts of the country. 47 U.S.C.
§ 254(b)(3) (“Consumers in all regions of the Nation, including low-income
consumers and those in rural, insular, and high cost areas, should have access to
2
Throughout the opinion, we interchangeably use the terms “mobile,”
“cellular,” and “wireless” to describe this type of service.
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telecommunications and information services . . . reasonably comparable to those
services provided in urban areas and that are available at rates that are reasonably
comparable to rates charged for similar services in urban areas.”). The Act
sought to ensure that “universal service” was available to customers, regardless of
where they lived. Id. Under the Act, Congress intended to incentivize carriers to
serve rural customers by providing subsidies from the USF for services provided
and infrastructure built in such high-cost areas. See generally WWC Holding Co.,
Inc. v. Sopkin, 488 F.3d 1262, 1267 (10th Cir. 2007) (discussing why the USF
was created).
The USF is overseen by the FCC and administered by two private
organizations. It is funded by mandatory contributions from carriers. 47 U.S.C.
§ 254(d); 47 C.F.R. § 54.706(a). The FCC sets the rules for distributing the
funds. 47 U.S.C. § 254(k). The Universal Service Administrative Company
(USAC) is an independent, non-profit corporation that is responsible for
establishing the procedures for monitoring and distributing funds. See generally
United States ex rel. Shupe v. Cisco Sys., Inc., 759 F.3d 379, 381 (5th Cir. 2014)
(describing the structure and function of USAC). USAC is also responsible for
auditing carriers and providing reports to the FCC. 47 C.F.R. §§ 54.707(a), (c).
The National Exchange Carriers Association (NECA) is a membership
organization of telecommunications carriers that collects and audits accounting
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reports from carriers. See generally Farmers Tel. Co., Inc. v. FCC, 184 F.3d
1241, 1246–45 (10th Cir. 1998) (describing the structure and function of NECA).
USAC can obtain any reports submitted to NECA. 47 C.F.R. § 54.707(b).
As of 2005, USF funds could be distributed to eligible telecommunications
carriers (ETCs) for certain types of expenses. See 47 U.S.C. § 254(e) (2002).
States were given the authority to designate which carriers qualified as ETCs. 47
U.S.C. § 214(e)(2) (1997). And states also designated a service area for each
carrier. Id. at § 214(e)(5). 3 The service area was used to determine a carrier’s
universal service obligations and support. Id.
Within each service area, a state could designate one eligible carrier as the
incumbent LEC. 47 C.F.R. § 51.5 (2005); see also 47 U.S.C. § 153(26) (1997)
(defining LECs as companies “engaged in the provision of telephone exchange
service or exchange access,” but not “engaged in the provision of commercial
mobile service . . . except to the extent that the Commission finds that such
service should be included in the definition of such term”). Other carriers
designated as ETCs by the state, but allowed to operate in an incumbent’s service
area, were considered competitive ETCs. Id. at § 54.5 (2005).
3
The area in which a rural carrier operates is also referred to as a “study
area.” 47 U.S.C. § 214(e)(5). We use the two terms, service area and study area,
interchangeably when discussing Blanca.
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Congress did not intend for the USF to act as an unrestricted fund for
eligible carriers to be distributed for any conceivable expense incurred while
providing telecommunications services. Rather, “[a] carrier that receives such
support shall use that support only for the provision, maintenance, and upgrading
of facilities and services for which the support is intended.” 47 U.S.C. § 254(e)
(2002). For instance, “[a] telecommunications carrier may not use services that
are not competitive to subsidize services that are subject to competition.” Id. at
§ 254(k); see also 47 C.F.R. § 64.901(c) (2002) (reiterating the same prohibition
on cross-subsidization specifically for incumbent LECs). To ensure USF support
was only used for its intended purposes, the FCC implemented accounting rules
for the various types of eligible carriers. 47 U.S.C. § 254(k) (2002) (“The
Commission . . . and the States . . . shall establish any necessary cost allocation
rules, accounting safeguards, and guidelines to ensure that services included in
the definition of universal service bear no more than a reasonable share of the
joint and common costs of facilities used to provide those services.”).
The FCC implemented one set of accounting rules for incumbent LECs.
Under these rules, incumbent carriers had to differentiate between expenses
related to regulated and unregulated activities in their accounting. See 47 C.F.R.
§ 32.14 (2002). Regulated accounts would include expenses incurred for
providing services to which a tariff filing requirement applied. Id. at § 32.14(a).
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And nonregulated accounts were for “[p]reemptively deregulated activities and
activities . . . never subject to regulation.” Id. at § 32.23(a) (1999). When an
expense involved both regulated and nonregulated activities, the carrier still had
to allocate the costs attributable to each for accounting purposes. Id. at
§ 32.23(c); see also id. at § 64.901(a) (describing method for separating regulated
from nonregulated costs). The incumbent carrier’s expenses were then reported to
NECA, detailing what services it provided. Id. at § 36.611 (2001); id. at
§ 69.601(c) (1995) (requiring all incumbent carriers to certify the accuracy of
their reports to NECA); see also In re Jurisdictional Separations and Referral to
the Federal-State Joint Bd., 16 FCC Rcd. 11382, 11384–85 (2001) (describing the
accounting process for incumbent carriers). From the outset, the FCC made clear
that these “cost allocation rules are designed to prevent cross-subsidization of
non-regulated activities.” In the Matter of Implementation of the Telecomms. Act
of 1996: Accounting Safeguards Under the Telecomms. Act of 1996, 11 FCC Rcd.
17539, 17565 (1996).
By contrast, competitive ETCs were governed by different accounting rules.
47 C.F.R. § 54.307(b) (2005). These carriers could receive identical support to
the local incumbent for services provided in an incumbent carrier’s service area.
And this included funding for both fixed and cellular services. Id. at § 54.307(a);
see also In re Federal-State Joint Bd. on Universal Serv., 16 FCC Rcd. 11244,
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11314 (2001) (clarifying that competitive eligible telecommunications carriers
providing mobile services could use a subscriber’s billing address for purposes of
determining USF support); In the Matter of High-Cost Universal Serv. Support,
23 FCC Rcd. 8834, 8843–44 (2008) (explaining that the FCC never intended
identical support to be used to subsidize wireless services, although that was how
most competitive carriers used it). To receive USF support, competitive carriers
needed to report to USAC the number of customers they served in an incumbent
LEC’s service area. 47 C.F.R. § 54.307(b) (2005). They did not need to allocate
costs between regulated and nonregulated activities.
As of 2005, cellular services were considered nonregulated for accounting
purposes. See In the Matter of Amendment of the Comm’n Rule to Establish
Competitive Serv. Safeguards for Local Exchange Carrier Provision of Com.
Mobile Radio Servs., 12 FCC Rcd. 15668, 15691 (1997) (“The cost allocation
rules, included in parts 32 and 64 of the Commission’s rules, provide a basic
framework for separating costs between LEC’s regulated activities (such as
provision of local exchange service) and nonregulated activities (such as
provision of wireless service).”); see id. at 15691 n.102 (“The Commission has
chosen to forbear from rate regulation of wireless services.”). 4 As a result,
4
Blanca insists cellular services were regulated because they were subject
to mandatory tariff requirements under Colorado law. The Colorado law Blanca
(continued...)
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incumbent LECs had to treat expenses associated with cellular services as
nonregulated for accounting purposes. 5
Incumbent LECs could receive USF support for one category of cellular
services: basic exchange telecommunications radio services (BETRS). BETRS
was a type of mobile radio service intended as a gap-filler for areas with
particularly rough terrains. See 12 FCC Rcd. at 15710–11 (“We also believe that
rural LECs may find it economical to use [commercial mobile radio services]
licenses to provide fixed wireless services in remote areas as an alternative means
of extending the local exchange network to unserved or hard to serve areas.”).
Rather than having a wired connection, the company would use BETRS to provide
4
(...continued)
cites to, 4 CCR 723-2-2122, does not transform cellular services into a regulated
service for federal accounting purposes. To be sure, the federal regulations say
state tariff requirements can cause an account to be treated as regulated. 47 C.F.R.
§ 32.14(b) (2002). But such accounts will not be treated as regulated “where such
treatment is proscribed or otherwise excluded from the requirements pertaining to
regulated telecommunications products and services by this Commission.” Id.Federal law explicitly preempts state rate-regulation of cellular services. See 47
U.S.C. § 332(c) (1996). And, as the cited orders make clear, the FCC intended
cellular services to be treated as nonregulated. 12 FCC Rcd. at 15691.
5
The prohibition on USF support for cellular services for incumbent LECs
was more explicit for a subset of these carriers. Some incumbent LECs had to
establish subsidiaries to handle their commercial mobile radio services. 12 FCC
Rcd. at 15672. This subsidiary requirements was intended to further protect
against cross-subsidization. Id. at 15689 (“Improper cost allocation occurs when
a LEC subsidiary shifts costs from its [commercial mobile radio services] to its
regulated local exchange service.”). Blanca, as a rural carrier, was exempt from
the subsidiary requirement. Id. at n.11. But Blanca was not exempt from the
reporting requirements intended to prevent against such cross-subsidization.
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a customer with basic telephone service. The FCC’s order made clear that
BETRS was considered a fixed service and distinct from other cellular services.
See In the Matter of Amendment of the Comm’n Rules to Permit Flexible Serv.
Offerings in the Commercial Mobile Radio Servs., 11 FCC Rcd. 8965, 8987
(1996) (“[W]e have determined that BETRS is a fixed service, rather than mobile
service, and therefore BETRS providers are not subject to [commercial mobile
radio services] regulations under Section 332.”). As a result, costs associated
with BETRS were considered regulated for accounting purposes.
2. Blanca’s Conduct
Blanca is a telecommunications provider based in Alamosa, Colorado. It
was originally incorporated in 1926. In 1997, Colorado designated Blanca as an
incumbent LEC for parts of Alamosa and Costilla counties. Neither the FCC nor
the state ever designated Blanca as a competitive ETC. And Blanca never
submitted any of the reports required of a competitive ETC to claim identical
support from the USF.
Starting in 2005, Blanca claimed USF support for all of its services, both
fixed and cellular. And Blanca claimed USF support for expenses incurred both
within and outside its study area. 6
6
There is some inconsistency regarding whether Blanca’s services were
BETRS. In its petition for reconsideration to the FCC, Blanca insisted that the
(continued...)
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Blanca submitted its costs studies from 2005 onward to NECA. In 2012,
NECA conducted a review of Blanca’s 2011 cost study. And in 2013, NECA
concluded that Blanca had impermissibly received USF support for costs incurred
while providing nonregulated services, i.e., cellular service. NECA advised
Blanca to revise the 2011 cost study and any subsequent studies in which Blanca
had failed to allocate its costs. Blanca then hired a cost consultant to review and
revise Blanca’s submissions from 2011 and 2012. Blanca eventually reached a
settlement with NECA in 2013 based on overpayments identified in the revised
cost studies. 7
6
(...continued)
FCC previously “authorized Blanca’s BETRS service using cellular technology by
rule.” R., Vol. II at 334–35 (citing In the Matter of Revision of Part 22 of the
Commission’s Rules Governing the Mobile Servs., Report and Order, 9 FCC Rcd.
6513, 6571 (1994)). But in its initial petition for agency review, Blanca claimed
that it updated its previous BETRS system to new cellular technology and only
continued using the term BETRS out of convenience. See R., Vol. I at 26
(explaining that, for its accounting, “Blanca continued use of the BETRS name
merely for continuity purposes.”). It also argued that “the BETRS discussion is a
red herring” because “USF funding is available for mobile cellular services.” Id.Blanca misunderstands the FCC’s position on BETRS. The FCC maintains
it never authorized Blanca to treat all its cellular services as BETRS. It explains
that Blanca improperly relied on an order that “only adopted a proposal to
eliminate a prohibition on the offering of non-BETRS fixed service in cellular
bands.” R., Vol. II at 405. Leading up to 2005, the FCC’s position was that
BETRS was strictly a fixed service. See 11 FCC Rcd. at 8987.
7
This settlement only covered a 24-month period from 2011 to 2012. By
contract with its members, NECA is only authorized to conduct “true-up”
processes for up to a 24-month window.
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3. The FCC’s Investigation into Blanca
The FCC first began investigating Blanca’s accounting practices in 2008.
The following year, the FCC’s Office of Inspector General issued subpoenas to
Blanca for reports, filings, and correspondence that Blanca filed with NECA and
USAC regarding USF support. After Blanca’s settlement with NECA, the FCC
eventually concluded Blanca had improperly reported and received overpayments
from the USF from 2005 to 2010. 8 In particular, Blanca claimed and received
USF support for nonregulated services both within and outside of Blanca’s study
area. The FCC relied on the same methodology employed by Blanca’s cost
consultant in the NECA settlement to identify the amount of the overpayments.
In 2016, 9 the FCC’s Office of Managing Director issued a demand letter to
Blanca, identifying the overpayments and requesting repayment. In particular, it
faulted Blanca for “charateriz[ing] its cellular stations as Basic Exchange
Telephone Relay Service (BETRS) facilities in its [cost studies]” and, by
8
At one point, the FCC turned the case over to the Department of Justice to
consider a possible claim under the False Claims Act. The Department never
acted on this referral.
9
While we affirm the FCC’s decision, the agency has been far from
exemplary throughout its investigation of and proceedings involving Blanca. For
instance, the agency’s commissioners acknowledged this action came far later
than it should have. Commissioner O’Reilly said of the action against Blanca, “I
am concerned . . . that the troubling conduct at issue here occurred between 2005
and 2010, was not discovered until 2012, and is only now being remedied. We
must do better.” R., Vol. II at 317.
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including cellular service costs in its reports, “fail[ing] to comply with Parts 64,
36 and 69 of the FCC’s rules.” R., Vol. I at 2. These accounting practices
“resulted in inflated disbursements to Blanca from [the USF].” Id. Reviewing
books and records obtained through the earlier subpoenas, the FCC determined
Blanca owed $6,748,280 from USF overpayments. The letter also indicated that
Blanca could challenge the finding by submitting evidence to the FCC within 14
days of receiving the letter.
B. Procedural Background
Blanca petitioned the FCC for review of the Managing Director’s demand
letter. It challenged the letter’s findings on multiple grounds. Most significantly,
Blanca argued the FCC’s demand letter did not afford it the due process required
under law. In 2017, the FCC issued an order in response to Blanca’s petition,
rejecting Blanca’s claims and affirming the demand letter. Following this order,
the FCC initiated collection of the debt from Blanca through administrative
offsets, withholding USF support to which Blanca was otherwise entitled.
At the end of 2017, Blanca petitioned the FCC again, this time for a
reconsideration of the agency’s order. 10 In January of 2020, Blanca brought a
10
The current petition is not the first time Blanca has sought review from a
federal court on this issue. In 2016, Blanca went to the D.C. Circuit, seeking a
Writ of Prohibition. The D.C. Circuit denied Blanca’s petition and did not retain
jurisdiction. Blanca then sought a mandamus order and injunction from this court
(continued...)
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petition for review of the FCC’s order to this court. 11 In March of 2020, the FCC
affirmed the demand letter and order. Blanca then filed a new petition for review
and a motion to supplement the record based on the FCC’s final order. 12
10
(...continued)
in 2017 to stop the FCC’s debt collection through administrative offset. Both the
mandamus order and injunction were denied. In 2018, Blanca then petitioned this
court for review of the FCC’s first order. A panel of this court dismissed the
petition on jurisdictional grounds, concluding that because the FCC was still
considering Blanca’s petition on reconsideration, there was no final agency action
to review. Later in 2018, the FCC petitioned this court for review again and the
petition was again dismissed on jurisdictional grounds.
11
We had asked Blanca and the FCC to brief the jurisdictional issues for
Blanca’s January 2020 petition, 20-9510. The parties completed briefing prior to
the FCC’s final order. Most of the issues raised in 20-9510 were mooted by the
FCC’s final order on reconsideration. See N.M. Health Connections v. U.S.
Health and Human Servs., 946 F.3d 1138, 1158 (10th Cir. 2019) (explaining that
when an agency eliminates the issues on which petition for review is based, those
issues are rendered moot). In particular, Blanca had sought to compel the FCC to
act (issue the final order) and sought review of whether the FCC acted within its
statutory authority in its collection efforts. With the FCC’s final order and
Blanca’s new petition, 20-9524, we now have a final agency action and a full
record to evaluate.
12
We deny Blanca’s motion to supplement the record. We presume the
agency’s record is complete absent clear evidence to the contrary. See Citizens
for Alts. to Radioactive Dumping v. U.S. Dep’t of Energy, 485 F.3d 1091, 1097
(10th Cir. 2007). We will allow extra-record evidence that the agency did not
consider during proceedings in very limited circumstances, including where a
party’s standing is at issue. U.S. Magnesium, LLC v. EPA, 690 F.3d 1157, 1165
(10th Cir. 2012). The FCC has conceded Blanca’s standing, so it is unnecessary
to consider Blanca’s extra-record evidence.
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II. Standard of Review
In evaluating the FCC’s actions, we must bear in mind two different
standards of review.
A. Arbitrary and Capricious Standard
In acting, the FCC must comply with the Administrative Procedure Act
(APA). And the APA authorizes courts to review agency action. 5 U.S.C. § 704.
In particular, the APA directs courts to “set aside agency actions, findings
and conclusions found to be arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with the law.” Id. at § 706(2)(A). Arbitrary and
capricious review by this court is narrow. In re FCC 11-161, 753 F.3d 1015,
1041 (10th Cir. 2014) (citing Motor Vehicle Mfrs. Ass’n of the U.S., Inc. v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). We will not set aside the
agency’s action if it “is rational, based on consideration of the relevant factors
and within the scope of the authority delegated to the agency by the statute.” In
re FCC 11-161, 753 F.3d at 1041(internal quotation marks omitted). We must
uphold the agency’s decision as long as the agency’s path may “reasonably be
discerned.” Id. (internal quotation marks omitted).
B. De Novo Standard
Blanca also contends the FCC violated its due process rights.
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The APA requires us to “set aside agency actions, findings, and conclusions
found to be . . . contrary to constitutional right.” 5 U.S.C. § 706(2)(B). We
review de novo any constitutional issues. In re FCC 11-161, 753 F.3d at 1041.
III. Analysis
Blanca suggests that we can reverse the FCC on any one of three grounds:
(1) the agency did not act within the relevant statutes of limitations, (2) it violated
Blanca’s procedural rights established by statute and the Constitution, and (3) its
orders were arbitrary and capricious. We address each issue in turn.
A. Did the FCC act within the applicable statute of limitations?
Blanca insists the FCC’s action is time-barred. It points to two statutes that
would preclude the FCC’s action: 47 U.S.C. § 503 and 28 U.S.C. § 2462.
According to Blanca, one of these statutes governs the FCC’s action here and
either statute would prevent the FCC from taking punitive actions against Blanca
over a decade after the alleged violations occurred.
We do not agree. Rather, because the FCC’s action is most properly
characterized as debt collection, not punishment, the FCC had to comply with all
requirements of the Debt Collection Improvement Act (DCIA), codified at 31
U.S.C. §§ 3711–17. The DCIA authorizes agencies to collect debts owed to the
United States and contains no limitations period preventing the FCC’s debt
collection.
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1. Legal Standard
Our default rule is that the government claim will not be time-barred.
United States v. Telluride Co., 146 F.3d 1241, 1244 (10th Cir. 1998). Congress
must expressly set a statute of limitations to overcome this default rule. Id.When a party argues a government claim is barred by a statute of limitations, we
must construe the statute in favor of the government. Id. at 1245.
The FCC and Blanca disagree about what statute should govern the
agency’s action. The FCC suggests its interpretation of the relevant statutes, and
the applicability of those statutes to its decision, should control based on the
deference owed to agencies under Chevron, U.S.A. v. Natural Resource Defense
Council, 467 U.S. 837 (1984).
To determine whether an agency’s interpretation of a statute is entitled to
deference, we first determine whether the statute is ambiguous. Chevron, 467
U.S. at 842. If the statute is clear, we do not defer to the agency’s interpretation.
Id. at 842–43; see also New Mexico v. U.S. Dep’t of Interior, 854 F.3d 1207, 1231
(10th Cir. 2017) (finding a statute clear, so declining to move to step two of the
Chevron analysis). But if it is ambiguous or silent about the relevant issue, we
defer to the agency’s interpretation unless it is arbitrary, capricious, or manifestly
opposed to the plain meaning of the statute. In re FCC 11-161, 753 F.3d at 1041
(citing Chevron, 467 U.S. at 844).
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We also do not give any Chevron deference to an agency’s interpretation of
statutes that are outside of the agency’s expertise. Hydro Res., Inc. v. EPA, 608
F.3d 1131, 1145 (10th Cir. 2010) (“Courts do not . . . afford the same deference
to an agency’s interpretation of a statute lying outside the compass of its
particular expertise and special charge to administer.”). We review such statutes
de novo. Id.
2. Application
Here, Blanca and the FCC each point to different statutes that they argue
should apply here. Blanca insists the FCC must have acted under either 47 U.S.C.
§ 503 or 28 U.S.C. § 2462 in issuing the demand letter and initiating debt
collection. The statutes require certain types of government actions to be brought
either within one year, see 47 U.S.C. § 503(b)(6), or five years, see 28 U.S.C.
§ 2462, respectively—both of which would bar the FCC’s actions toward Blanca.
The FCC, though, says that its actions are authorized by the DCIA. And the
DCIA contains no statute of limitations for administrative offsets. 31 U.S.C.
§ 3716(e)(1) (“Notwithstanding any other provision of law, regulation, or
administrative limitation, no limitation on the period within which an offset may
be initiated or taken pursuant to this section shall be effective.”).
In its orders, the FCC interpreted each statute as it relates to recovering
overpayments from Blanca. The FCC argued it was not acting under 47 U.S.C.
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§ 503. Rather, according to the orders, “[t]he commission or USAC has
consistently sought recovery of USF funds outside of section 503 proceedings.”
R., Vol. II at 310. This is because “[n]either the plain language of section 503 of
the Act nor its legislative history indicates that Congress intended that section to
govern debt determinations.” Id. The FCC also insists the collection is not
pursuant to 28 U.S.C. § 2462, which governs penalties, not debt collection.
We do not afford the FCC any deference in interpreting the DCIA or 28
U.S.C. § 2462, because neither statute was specifically entrusted to the FCC to
administer. Hydro Res., Inc., 608 F.3d at 1146. Also, because 47 U.S.C. § 503 is
not ambiguous about the type of agency action it covers, we do not afford the
FCC’s interpretation of it any deference. New Mexico v. U.S. Dep’t of Interior,
854 F.3d at 1231. We review the statutes de novo.
Both 47 U.S.C. § 503 and 28 U.S.C. § 2462 authorize agencies to impose
penalties against regulated entities that violate the law. Section 503 states that a
person who willfully and repeatedly fails to comply with the FCC’s rules or
regulations “shall be liable to the United States for a forfeiture penalty.” 47
U.S.C. § 503(b). Section 503 further clarifies that “[a] forfeiture penalty under
this subsection shall be in addition to any other penalty provided for by this
chapter.” Id. (emphasis added). Section 503 is used to penalize above and
beyond other remedies.
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Section 2462 is not specific to any agency. It authorizes suits or
proceedings by the United States to enforce civil fines, penalties, or forfeitures.
28 U.S.C. § 2462. The Supreme Court has made clear that § 2462 governs only
actions that penalize. Fines, penalties, and forfeitures each “refer to something
imposed in a punitive way for an infraction of public law.” Kokesh v. SEC, 137
S. Ct. 1635, 1643 (2017) (internal quotation marks omitted).
The DCIA, by contrast, is aimed at pure debt collection. It authorizes
agencies to collect “a claim of the United States government for money or
property arising out of the activities of, or referred to, the agency.” See 31 U.S.C.
§ 3711(a)(1). A claim is “any amount of funds or property that has been
determined by an appropriate official of the Federal Government to be owed to
the United States.” Id. at § 3701(b)(1). This includes overpayments, specifically
“payments disallowed by audits performed by the Inspector General of the agency
administering the program.” Id. at § 3701(b)(1)(C). If the head of an agency
attempts to collect a claim through the methods described in § 3711 to no avail,
the agency may collect the debt through administrative offset. Id. at § 3716(a).
These statutes are not ambiguous. Sections 503 and 2462 apply to punitive
agency action; the DCIA applies to debt collection of funds owed to the United
States. In that light, we must answer two questions to determine which statute
governs the FCC’s collection efforts and which statute of limitations applies.
-21-
First, do the FCC’s actions constitute a penalty? Second, if the action is not a
penalty, are the overpayments from the USF “owed to the United States”?
a. Penalty or Debt Collection
The Supreme Court recently provided a framework for determining whether
an agency action constitutes a penalty in Kokesh. See 137 S. Ct. 1635. The SEC
had sought a disgorgement judgment against Kokesh for violations of federal law
that occurred over an almost fifteen-year period. The district court ordered
disgorgement of money illegally obtained during this time. On appeal, Kokesh
argued the disgorgement operated as a penalty, so it should have been barred in
part by the five-year statute of limitations in 28 U.S.C. § 2462. To decide
whether the statute of limitations applied, the Court had to determine whether an
SEC disgorgement was a penalty within the purview of § 2462.
To determine whether the SEC’s disgorgement was punitive, the Court
considered two guiding principles: (1) whether the agency’s action is redressing a
wrong to the public or to a private party and (2) whether the agency’s action is
taken for punitive purposes, e.g., to deter others from committing a similar
violation. Id. at 1642. The Court concluded the disgorgement was a penalty. The
disgorgement was enforced against Kokesh for a violation of public laws,
intended to deter future violators, and not strictly compensatory. Id. at 1643–44.
-22-
Because the disgorgement carried the hallmark traits of a penalty, the SEC’s
disgorgement was partially barred by the five-year statute of limitations in § 2462.
Blanca argues the FCC’s action here is like the disgorgement in Kokesh. It
asserts the collection effort is punitive because the violation was of a public
accounting law and the FCC’s ultimate purpose is deterrence. Blanca points to
the demand letter and subsequent orders as proof of the action’s true nature. The
FCC identifies a goal of rooting out “fraud, waste, and abuse” throughout its
orders. Opening Br. at 48. And the FCC identified the harms Blanca’s actions
caused the public and the marketplace. 13 The FCC also described the collection
effort as “enforcement activity” in a later order. Reply Br. at 15 (citing
Memorandum and Opinion Order, 34 FCC Rcd. 2590, 2600 (2019)).
In response, the FCC contends that it is not punishing Blanca. Rather, the
debt collection is intended to do nothing more than return Blanca to “the status
quo.” Resp. Br. at 47. The FCC insists the mere “belief the sanction is costly or
painful does not make it punitive.” Id. (quoting Telluride, 146 F.3d at 1247).
We agree with the FCC that Kokesh does not compel us to conclude the
reimbursements are a penalty.
13
Blanca also argues that the FCC’s referral of the matter to the
Department of Justice in 2014 makes the action punitive. We do not agree.
Simply because the FCC referred the matter to the Department to explore the
possibility of an enforcement action does not make the debt collection punitive.
-23-
First, we have previously concluded that just because a party violated a
public law and because an agency wants to protect the public through a
subsequent action does not necessarily make that action a penalty. See Telluride,
146 F.3d at 1246 (“[W]e see no reason to include all wrongs to the public as
penalties.”). The Supreme Court’s decision in Kokesh did not change that. The
identity of the wronged party is just one guiding principle when deciding whether
government action is punitive. The fact that Blanca’s accounting violations
wronged the public as opposed to a discrete private party does not decide the
issue for us.
Looking to the second principle—the purposes underlying the FCC’s
actions—convinces us the collection efforts are not a penalty. The FCC’s purpose
was compensation for the overpayment. Kokesh, 137 S. Ct. at 1642 (“[A]
pecuniary sanction operates as a penalty only if it is sought for the purpose of
punishment . . . as opposed to compensating a victim for his loss.”) (internal
quotation marks omitted). In the orders, the FCC sought only repayment of the
amount overpaid out of the USF to Blanca. 14 The fact that it also identified how
14
Blanca has drawn our attention to the fact that the FCC has increased the
amount owed since litigation began, adding $3.5 million to the original $6.75
million debt. Blanca says this amount is made up of “explicit penalties.”
Opening Br. at 49. We do not think late fees or the inclusion of interest
transforms the FCC’s action into a penalty. The fact that the government assesses
a late fee does not alter the underlying purpose of the FCC’s action. It is simply a
(continued...)
-24-
its action might protect the public or marketplace from harm does not transform
the underlying nature of the action. See Bennett v. Ky. Dep’t of Educ., 470 U.S.
656, 662–63 (1985) (“Although recovery of misused . . . funds clearly is intended
to promote compliance with the requirements of the grant program, a demand for
repayment is more in the nature of an effort to collect upon a debt than a penal
sanction.”).
Blanca’s arguments about the FCC’s self-description of the collection
efforts as “enforcement activity” and as aimed at rooting out “waste, fraud, and
abuse” are unavailing. A single, passing reference to the collection as an
“enforcement activity” does not transform it into a penalty. And while the FCC
used the phrase “waste, fraud, or abuse” at times to describe its justification for
undertaking audits and investigations, it also stressed that the present action was
solely to recover USF support improperly disbursed, not to punish for waste,
fraud, or abuse. See, e.g., R., Vol. II at 311 (“Here the Commission is merely
seeking to recover sums improperly paid.”).
b. Funds Owed to the United States
Even if the collection effort is not a penalty, we must ensure the FCC is
collecting “funds . . . owed to the United States.” 31 U.S.C. § 3701(b)(1).
14
(...continued)
recognition of the time-value of money.
-25-
The FCC has interpreted the DCIA to cover overpayments from the USF.
See 47 C.F.R. § 1.1901(b). But the FCC has no particular experience in
interpreting the DCIA, so we do not defer to the FCC’s interpretation. Rather, we
review de novo whether overpayments from the USF fall within the DCIA.
Blanca contends USF overpayments are not funds owed to the United
States. According to Blanca, the DCIA does not apply here because the USF is
funded by contributions from carriers. So, any overpayments out of the fund
would be owed directly to the USF, not to the United States.
Blanca points to an out-of-circuit case to bolster its argument. See United
States ex rel. Shupe v. Cisco Sys., 759 F.3d 379 (5th Cir. 2014). In Shupe, the
Fifth Circuit had to determine whether a party had violated a previous version of
the False Claims Act, 31 U.S.C. § 3729 (2008), by lying on applications for USF
support. A person violated the False Claims Act if he “knowingly ma[de], use[d],
or cause[d] to be made or use[d], a false record or statement to get a false or
fraudulent claim paid or approved by the government.” 31 U.S.C. § 3729(a)(2)
(2008). And it defined “claim” as “any request . . . for money . . . if the United
States Government provides any portion of the money.” Id. at § 3729(b) (2008).
In Shupe, the Fifth Circuit determined the United States government did not
provide any portion of the money for the USF, so the defendant could not be
prosecuted under the False Claims Act. In coming to this conclusion, the court
-26-
emphasized the control USAC exercises over the USF and the fact that the statute
did not extend to funds overseen by such private parties. 759 F.3d at 387–88.
The FCC’s regulatory supervision of the USF was insufficient to consider
payments made from it as “provided by the United States.” Id. at 388.
Shupe does not dictate our decision here. We face a different statutory
scheme with different language. While the False Claims Act limited a claim to
money that the United States provides any portion of, the DCIA defines claim
more expansively. It expressly includes overpayments “disallowed by audits
performed by the Inspector General of the agency administering the program.” 31
U.S.C. § 3701(b)(1)(c). The overpayments at issue fall within that description.
Blanca asserts the DCIA does not apply because the FCC’s Inspector
General did not produce a formal audit or adverse finding. It faults the FCC for
issuing the demand letter through the Managing Director rather than the Inspector
General. But in both the demand letter and orders, the FCC claimed to be acting
on an audit by the Office of Inspector General. See R., Vol. I at 1–2 (“Our
determination follows an investigation by the FCC’s Office of Inspector
General.”); see also R., Vol. II at 299 (“Based on its investigation and review of
documentation provided by Blanca, [the Office of Inspector General] concluded
that Blanca had misallocated costs between its CMRS and wireline services.”).
Here, the FCC’s Office of Inspector General conducted an investigation and
-27-
concluded Blanca had misallocated costs. This is enough to bring the
overpayments within the scope of the DCIA.
* * *
The FCC’s action is not barred by a statute of limitations. While Blanca
argues the FCC was statutorily barred from collecting the overpayments, the
statutes on which it relies do not apply. Rather, the overpayments are covered by
the DCIA, which has no statute of limitations for administrative offsets.
B. Did the FCC violate Blanca’s due process rights?
Blanca also claims the FCC did not comply with statutory and
constitutional procedural requirements in initiating the debt collection.
Specifically, Blanca argues the FCC engaged in a summary adjudication that gave
Blanca insufficient notice and no meaningful opportunity to respond. In addition,
Blanca insists that the laws, regulations, and orders in place as of 2005 failed to
give it fair notice that its conduct was prohibited.
Blanca fails to establish a due process violation. Although the underlying
regime governing USF distributions is complex, Blanca had adequate notice that
it could not receive USF funding for providing cellular services. Furthermore, in
identifying the rules violated and starting the debt collection process, the FCC
provided all the process required by statutes and the Constitution.
-28-
1. Legal Standard
a. Statutory Process
The APA “expressly provides for two categories of administrative hearing
and decision: rulemaking and adjudication.” Phillips Petroleum Co. v. Federal
Power Comm’n, 475 F.2d 842, 851 (10th Cir. 1973). And it identifies procedures
agencies must provide for each type of action.
Here, the FCC acted through an informal adjudication. It has very broad
discretion to decide whether to proceed through adjudication or rulemaking when
“interpreting and administering its statutory obligations under the
[Telecommunications Act].” Conf. Grp., LLC v. FCC, 720 F.3d 957, 965 (D.C.
Cir. 2013). It is appropriate for an agency to use informal adjudications in
making individualized determinations. See Sinclair Wyo. Refining Co. v. EPA,
887 F.3d 986, 992 (10th Cir. 2017); see also Nat’l Biodiesel Bd. v. EPA, 843 F.3d
1010, 1017–18 (D.C. Cir. 2017) (stating that adjudications characteristically are
“highly fact-specific, case-by-case” proceedings).
Procedurally, the APA imposes “minimal requirements” on informal
adjudications. Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S. 633, 655
(1990). The agency must only notify a party that it is denying a petition and
provide the grounds for denial. 5 U.S.C. § 555(e); see also Kobach v. U.S.
Election Assistance Comm’n, 772 F.3d. 1183, 1197 (10th Cir. 2014) (“When an
-29-
agency undertakes an informal adjudication, we require only that the grounds
upon which the agency acted be clearly disclosed in, and sustained by, the
record.”) (internal quotation marks omitted and alterations incorporated).
Beyond the APA, the DCIA also has its own procedural requirements. 15 In
order to use administrative offsets to recover debt, the agency must give the
debtor: (1) written notice of the type and amount of the claim, the intention to
collect the claim by administrative offset, and an explanation of the debtor’s
rights; (2) an opportunity to inspect and copy the agency’s records regarding the
claim; (3) an opportunity for review by the agency of the claim decision; and (4)
an opportunity to make a written agreement with the agency head to repay the
claim. 31 U.S.C. § 3716(a). If an agency “previously has given a debtor any of
15
Blanca also insists that the FCC failed to comply with the procedural
requirements of 47 U.S.C. § 503(b)(4). Section 503 requires the FCC to provide
notice of apparent liability prior to imposing a forfeiture penalty. This
requirement is inapplicable here. As previously discussed, see supra, III.A, we
believe Blanca’s actions are governed by the DCIA, not § 503.
This also resolves another of Blanca’s arguments: that the FCC treated it
differently than similarly-situated telecommunications carriers, who received
notices of apparent liability prior to FCC proceedings. Blanca is comparing
apples and oranges. The other carriers were treated differently because they were
subject to forfeiture proceedings under 47 U.S.C. § 503. The FCC has made clear
that in the proceedings Blanca references, the FCC “invoked the forfeiture
process only to seek penalties in addition to, and separate from, seeking
repayment (and indeed after the companies at issue had already returned the
improper payments).” Resp. Br. at 39. The differential treatment was appropriate.
-30-
the required notice and review opportunities with respect to a particular debt, the
agency need not duplicate such notice and review opportunities before
administrative offset may be initiated.” 31 C.F.R. § 901.3(b)(4)(iv). 16
b. Constitutional Due Process
The Fifth Amendment also requires the federal government to provide a
baseline level of due process when depriving a person of life, liberty, or property.
U.S. Const. amend V. Procedural due process requires fair notice that conduct is
prohibited and, prior to a deprivation, meaningful notice and opportunity to be
heard. We discuss the contours of each aspect of due process below.
First, due process requires the government to “give a person of ordinary
intelligence fair notice that his contemplated conduct is forbidden” before
withdrawing a benefit. United States v. Richter, 796 F.3d 1173, 1188 (10th Cir.
2015) (internal quotation marks omitted). “A fundamental principle in our legal
16
We note that Blanca made brief reference to another alleged procedural
deficiency through a one-line footnote in its opening brief. Specifically, Blanca
insists the FCC violated its own rules by beginning debt collection prior to the
end of litigation. See Opening Br. at 34 (citing 47 C.F.R. § 1.1910(b)(3)(i)). But
Blanca does not explain why, on its theory, § 1.1910(b)(3)(I) should even apply in
this case. This regulation applies only to debt collection made under the DCIA.
And Blanca has specifically maintained throughout litigation that the FCC did not
act pursuant to the DCIA. Blanca has not argued before us, even in the
alternative, that the DCIA applies here. Therefore, we conclude that Blanca has
waived this argument. See Fuerschbach v. Sw. Airlines Co., 439 F.3d 1197,
1109–10 (10th Cir. 2006) (inadequately briefed and underdeveloped theories are
waived).
-31-
system is that laws which regulate persons or entities must give fair notice of
conduct that is forbidden or required.” FCC v. Fox Television Stations, Inc., 567
U.S. 239, 253 (2012). Due process requires fair notice for two reasons. First,
regulated parties need to know what is required of them so they may act
accordingly. Id. Second, it prevents officers or agencies who enforce the law
from acting in an arbitrary or discriminatory manner. Id.Fair notice concerns will arise “when an agency advances a novel
interpretation of its own regulation in the course of a civil enforcement action.”
United States v. Magnesium Corp. of America, 616 F.3d 1129, 1144 (10th Cir.
2010). It would be inappropriate for an agency, having long acquiesced in
practice to one interpretation, to manufacture liability by retroactively applying a
new interpretation. See Christopher v. SmithKline Beecham Corp., 567 U.S. 142,
156 (10th Cir. 2012) (“To defer to the agency’s interpretation in this circumstance
would seriously undermine the principle that agencies should provide regulated
parties fair warning of the conduct a regulation prohibits or requires.”) (internal
quotation marks and brackets omitted).
That being said, fair notice does not require an agency to publish an easily
digestible, abridged version of its rules. Technical and complex regulations are
often necessary to govern the conduct of parties involved in complex affairs.
Thus, the requirements of due process are understood through the lens of parties
-32-
with special knowledge because we refer to “the common understanding of that
group” to measure whether the party had fair notice. Richter, 796 F.3d at 1189.
When regulations are addressed to such groups, “the standard is lowered and a
court may uphold a statute which uses words or phrases having a technical or
other special meaning, well enough known to enable those within its reach to
correctly apply them.” Id. No one doubts the complexity of telecommunications
regulations and the famously detailed rules that apply to carriers operating in that
environment.
Second, due process requires the government to provide “notice and
opportunity for hearing appropriate to the nature of the case” prior to deprivation.
Riggins v. Goodman, 572 F.3d 1101, 1108 (10th Cir. 2009) (internal quotation
marks omitted). Notice and the opportunity to be heard “must be granted at a
meaningful time and in a meaningful manner.” Fuentes v. Shevin, 407 U.S. 67,
80 (1972). “If the right to notice and a hearing is to serve its full purpose . . . it
must be granted at a time when the deprivation can still be prevented.” Id. at 81.
But this does not mean a hearing must be held before the agency’s decision to
deprive. See Riggins, 572 F.3d at 1111 (“[D]ue process is required not before the
initial decision or recommendation to terminate is made, but instead before the
termination actually occurs.”).
-33-
2. Application
a. Statutory Process
The FCC complied with the relevant procedural requirements of both the
APA and the DCIA.
First, the FCC fulfilled the requirements for an informal adjudication by
providing Blanca with notice of its intention to collect the repayments and
grounds for that decision. The initial demand letter satisfied the APA by
identifying the FCC’s decision and the reasons for that decision. The demand
letter pointed to the relevant accounting regulations and described Blanca’s
conduct that had violated those regulations. The FCC’s subsequent orders did the
same.
The FCC also fulfilled the procedural requirements of the DCIA. In the
demand letter, the FCC informed Blanca of the type and amount of the debt and
its intention to collect. It gave Blanca an opportunity for review and to make an
agreement with the agency’s head on repaying the claim. While the FCC did not
give Blanca an opportunity to review the agency record in the FCC’s possession,
it informed Blanca it had relied only on documents Blanca itself had submitted.
Blanca already had the entire record in its possession. Because these documents
were in Blanca’s possession, the FCC did not need to give Blanca an additional
opportunity to review them.
-34-
b. Constitutional Due Process
Blanca also claims it did not have fair notice that its conduct was
prohibited. And it insists the demand letter and subsequent orders did not provide
the meaningful notice and opportunity to be heard that due process requires.
According to Blanca, the rules, orders, and regulations in place as of 2005
did not make clear that cellular services were ineligible for USF support. Rather,
Blanca argues the demand letter and FCC orders were the first time the FCC
interpreted the regulations in such a way to make Blanca’s conduct illicit. As far
as Blanca is concerned, the FCC’s 2016 demand letter was a summary
adjudication that in one fell swoop told Blanca its accounting practices were
unlawful and that it was being punished for those practices. If Blanca’s
characterization was accurate, it would squarely implicate fair notice concerns.
But Blanca misconstrues the state of the law in 2005. The FCC’s rules and
orders were clear about limits on USF support for cellular services. As an
incumbent LEC, Blanca had to allocate its costs between regulated and
nonregulated accounts. 47 C.F.R. § 32.14 (2002). Cellular services were
considered nonregulated, see 12 FCC Rcd. at 15691, so Blanca had to separate
these costs from its other expenses. The FCC had previously explained that these
accounting rules were intended to prevent carriers from using USF support to
-35-
subsidize their nonregulated services. 11 FCC Rcd. at 17565. Yet Blanca failed
to properly allocate its regulated and nonregulated expenses.
Furthermore, Blanca could only receive USF support for services provided
in its designated service area. 47 U.S.C. § 214(e)(5) (2002). Competitive ETCs
could receive identical support from the USF for providing services beyond a
single study area. 47 C.F.R. § 54.307(a) (2005). But Blanca never separately
made the reports required of a competitive ETC and neither the FCC nor Colorado
ever certified Blanca as a competitive ETC. See R., Vol. II at 306.
The statutes, regulations, and orders at issue here do not trigger fair notice
concerns. It is undoubtedly inappropriate for agencies to create liability by
advancing novel interpretations during administrative proceedings. See
Magnesium Corp. of America, 616 F.3d at 1144. But, despite Blanca’s
contentions, the FCC did not engage in summary rule adjudication here. The
demand letter and orders did not interpret any regulations for the first time.
Rather, through the demand letter and proceedings, the FCC indicated why debt
collection was appropriate under the relevant rules. The FCC’s synthesis of the
law to explain its decision to collect from Blanca does not require a separate
adjudication or rulemaking.
The FCC’s rules are, admittedly, labyrinthine and technical. But we
attribute to Blanca the specialized knowledge of a telecommunications carrier.
-36-
Blanca should have known cellular services were considered nonregulated under
the FCC’s orders. It should have known that the accounting guidelines had been
put into place to prevent carriers from using support for noncompetitive services
to support competitive services. And it should have known that it never
submitted the reports required of a competitive ETC to receive identical support.
Between the statutes governing the USF, the FCC’s regulations, and previous
FCC orders, Blanca had adequate notice that it could not receive USF support for
expenses related to cellular service either within or outside its study area.
Blanca also argues that the demand letter and subsequent FCC review did
not provide meaningful notice and opportunity to be heard. First, Blanca insists
the demand letter provided inadequate notice. It suggests the demand letter
identified a regulatory “framework” Blanca had violated without identifying an
actual rule violation. But the FCC did identify both the legal and factual
underpinnings of its action. It identified three sections of accounting regulations
Blanca had violated and thoroughly described what conduct it considered
-37-
improper¯claiming USF support for cellular services as an incumbent carrier. 17
This notice was sufficient.
Blanca also argues the post-decision, pre-deprivation review the FCC
provided Blanca was deficient. According to Blanca, the FCC should have held a
hearing before the demand letter was issued. But our cases are clear: due process
requires only a pre-deprivation hearing. See Riggins, 572 F.3d at 1110. And
Blanca received such a hearing from the FCC.
Blanca also points to the FCC’s subsequent initiation of administrative
offsets as evidence that the post-decision review was constitutionally
inadequate. 18 But by seeking to forestall any deprivation until the end of
litigation, Blanca asks more than the Constitution requires. The administrative
17
Admittedly, the three sections of accounting regulations are extensive
and the FCC could have identified particular provisions of the accounting rules
Blanca violated. But due process imposes a floor, not a ceiling. The notice
provided in the demand letter was adequate, if not exemplary. This is aside from
the fact that Blanca had recently reached a settlement with NECA over similar
issues. The demand letter identified the precise issues dealt with in the
settlement. The FCC provided Blanca adequate notice of the violations.
18
The FCC did begin collections prior to the end of litigation. Blanca
claims this was contrary to the FCC’s own regulations. But even if the FCC’s
initiation of debt collection action was contrary to the FCC’s own regulations, an
issue we take no position on, this does not make the FCC’s collection practices
constitutionally suspect. See United States v. Caceres, 440 U.S. 741, 749–750
(1979) (an agency’s failure to follow its own rules does not necessarily raise
constitutional issues).
-38-
offsets began after the FCC provided Blanca with a hearing and considered all its
objections. Such agency action satisfies due process.
* * *
The FCC did not deprive Blanca of either the statutory or constitutional
process it was entitled to. The agency followed the procedures required for
informal adjudications under the APA and for initiating administrative offsets
under the DCIA. The law as of 2005 apprised Blanca that its conduct was
prohibited. And the FCC’s demand letter and subsequent procedure afforded
Blanca notice and a meaningful opportunity to be heard.
C. Did the FCC act arbitrarily and capriciously?
Finally, Blanca argues the FCC’s decision to collect debt was arbitrary and
capricious. It insists the FCC’s demand letter and orders were inadequate in
several ways. First, Blanca argues the FCC’s decision to initiate debt collection
deprived it of the benefits of its 2013 settlement with NECA. Second, Blanca
argues the FCC ignored statutory provisions that allowed it to receive USF
support for cellular service. And third, Blanca argues the record as a whole
lacked substantial evidence to support the FCC’s decision.
We do not consider the FCC’s decisions on any of these issues to be
arbitrary and capricious. Rather, the FCC’s analysis is “reasoned and
reasonable.” In re FCC 11-161, 753 F.3d at 1071.
-39-
1. Legal Standard
Review under the arbitrary and capricious standard is narrow. Id. at 1041.
In making its decision, the 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.” Renewable Fuels Ass’n v. EPA, 948 F.3d
1206, 1254 (10th Cir. 2020) (internal quotation marks omitted), cert. granted,
HollyFrontier Cheyenne v. Renewable Fuels Ass’n, __ S. Ct. __, 2021 WL 77244(2021). The agency cannot rely on factors deemed irrelevant by Congress, fail to
consider important aspects of a problem, or present an explanation that is either
implausible or contrary to the evidence. Renewable Fuels, 948 F.3d at 1206. We
will not set aside agency decisions that meet this baseline level of reasoning.
Beyond the agency’s reasons for the decision, we are also authorized to
evaluate the adequacy of the record supporting the decision. If the agency’s
decision is not supported by substantial evidence in the record, we must set it
aside as arbitrary and capricious. See Olenhouse v. Commodity Credit Corp., 42
F.3d 1560, 1575 (10th Cir. 1994). For the evidence to be “substantial,” the
agency’s record must contain enough facts supporting the decision that a
“reasonable mind” could accept it as “adequate to support [the] conclusion.” Id.
at 1581. The evidence is inadequate if it is overwhelmed by other evidence or
constitutes a mere conclusion. Id.-40-
When determining whether the agency’s decision was arbitrary and
capricious, review is “generally based on the full administrative record that was
before all decision makers.” Bar MK Ranches v. Yuetter, 994 F.2d 735, 739 (10th
Cir. 1993). We assume the agency properly designated the record absent clear
evidence to the contrary. Id. at 740. Even if the record is incomplete, “[t]he
harmless error rule applies to judicial review of agency proceedings.” Id. So,
“errors in such administrative proceedings will not require reversal unless [the
petitioners] can show they were prejudiced.” Id.
2. Application
a. The 2013 NECA Settlement
Blanca asserts that the FCC’s decision to pursue debt collection is arbitrary
and capricious because it failed to consider one of Blanca’s arguments: the FCC’s
actions deprived Blanca of the benefit of its 2013 settlement with NECA. Blanca
argues that it explicitly entered the settlement with NECA to “avoid protracted
litigation.” Opening Br. at 30. The FCC’s orders, though, have resulted in just
such costly and protracted litigation.
But the FCC did address the 2013 NECA settlement in its orders. There,
the FCC explained that “NECA is a private association of wireline carriers, not a
government entity, and accordingly has no authority to compromise or waive any
claims on behalf of the government.” R., Vol. II at 404. And the FCC noted that
-41-
under Blanca’s settlement with NECA, Blanca still had an obligation to make any
repayments from funds received outside of NECA’s 24-month settlement window.
In its orders, the FCC pointed to one of our cases, Farmers Tel. Co. v.
FCC, 184 F.3d 1241, 1250 (10th Cir. 1999), as support for this conclusion. In
Farmers, we needed to determine whether NECA’s interpretation of a regulation
bound the FCC. We concluded that NECA “has no authority to perform any
adjudicatory or governmental functions.” Id. at 1246. Rather, “NECA is an agent
of its members and has no authority to issue binding interpretations of FCC
regulations.” Id. at 1250. The FCC reasoned that if NECA’s interpretations of
regulations could not control the FCC, NECA’s settlements were not binding on
the FCC either.
We cannot say the FCC’s decision to pursue debt collection after Blanca’s
2013 settlement with NECA was arbitrary and capricious. In its orders, the FCC
described NECA as a private entity, discussed the terms of the 2013 settlement
between Blanca and NECA, and identified relevant precedent supporting its
decision to pursue collection despite the settlement. The FCC’s reasons are clear
and cogent.
b. Regulations Concerning Cellular Service
Blanca also argues the FCC ignored numerous regulations supporting
Blanca’s position. In particular, Blanca points to a score of regulations and
-42-
orders dealing with treatment of cellular services. See, e.g., Opening Br. at 24–25
(citing 47 C.F.R. § 54.5 (2005) (defining “telecommunications carrier” to include
those who provide wireless services); id. at § 54.101 (1998) (designating support
for voice grade access to “public switched networks” with no reference to
delivery method); id. at § 54.307(b) (2005) (fixing the service location of a
wireless subscriber as the subscriber’s billing address)). According to Blanca,
these references to cellular services indicate that USF support was available for
such services. If the FCC had ignored these various regulations in its orders, this
would be grounds to set aside its decision as arbitrary and capricious.
In its orders and briefing, the FCC does not dispute that numerous
regulations and orders make USF support available for certain cellular services.
For instance, competitive ETCs could receive identical support, regardless of the
technology used. And BETRS, as a regulated cellular service, was also eligible
for USF support.
But the fact that some carriers could claim USF support for some cellular
services did not mean all carriers could claim support for all cellular services. In
its orders, the FCC explained that the regulations and orders about cellular
services did not pertain to Blanca, an incumbent LEC. See R., Vol. II at 405
n.103 (“Blanca’s many citations to rules and related orders referring to cellular
service as an eligible service does not pertain to rate-of-return high-cost universal
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service support, the kind of support Blanca received between 2005 and 2010.”).
So, according to the FCC, Blanca’s reliance on these various regulations and
orders is misplaced.
The FCC’s treatment of these various regulations dealing with cellular
service was not arbitrary and capricious. 19 It did not ignore the regulations and
orders Blanca cited. Rather, the FCC considered the regulations but found them
inapplicable.
c. The Adequacy of the Record
Finally, Blanca argues the FCC’s record is incomplete, making the agency’s
reliance upon it arbitrary and capricious. 20 It identifies various documents not
19
Blanca also argues “[t]he FCC’s ‘regulated v. unregulated’ distinction in
the context of ‘mobile services’ is unreasoned.” Opening Br. at 27. In its orders,
the FCC did distinguish regulated and unregulated activities. But in doing so it
cited a number of regulations and previous orders that explain the significance of
the distinction. See, e.g., R., Vol. II at 305 (citing 11 FCC Rcd. at 17572). This
distinction was not unreasoned.
20
We construe Blanca’s aside in its opening brief as a separate arbitrary
and capricious argument. While discussing the inadequacy of the record, Blanca
argues that the FCC’s refusal to give it access to the Office of Inspector General
subpoenas of NECA records that Blanca requested “is the epitome of
arbitrariness.” Opening Br. at 23. The FCC acknowledged this request in its
orders. In responding to Blanca, the FCC pointed out that “Blanca did have
access to the underlying cost data because [the Office of the Managing Director]
explicitly based its financial accounting on the cost studies Blanca itself
commissioned.” R., Vol. II at 313. And the FCC further noted that “Blanca does
not state that such records request has any bearing on its ability to challenge the
Commission’s [demand] Letter.” Id. at 314 n.152. Given that Blanca already had
access to any of the underlying records, we cannot say that the FCC’s refusal was
(continued...)
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included in the record, including the subpoenas from the FCC’s Inspector
General, Blanca’s responses to those subpoenas, reports and papers from NECA,
and Blanca’s accounting records.
Blanca has presented clear and convincing evidence that the record before
us is not the full administrative record the FCC had before it throughout the
proceedings. The FCC references documents throughout the demand letter and
subsequent orders that it did not include in the record presented to this court. To
be sure, the FCC erred by depriving this court of the full administrative record.
Blanca raises only one argument regarding prejudice, though, contending
“[t]here is nothing in the record to support the FCC’s Orders.” Opening Br. at 23.
We disagree.
First, the record provides an adequate factual basis for the FCC’s decision.
The record includes evidence that Blanca claimed USF support for cellular
services both within and beyond its designated study area. It reflects that Blanca
did not distinguish between regulated and nonregulated activities in its
accounting. And the record establishes that Blanca was never designated as a
competitive ETC and never submitted the reports necessary to receive identical
support as a competitive ETC. Blanca does not deny these facts. The subpoenas,
20
(...continued)
arbitrary and capricious.
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Blanca’s responses, and Blanca’s underlying accounting reports 21 would tell us
little more than the record already does.
Second, the record provides an adequate legal basis for the decision.
Blanca insists “[t]he FCC Orders rely upon a single, non-binding, non-record
NECA cost allocation manual to support its view that Blanca’s BETRS service is
not eligible for USF funding.” Id. at 29. But Blanca’s characterization of the
record is incorrect. Throughout the proceedings, the FCC provided much more
than a single “NECA cost allocation manual” to support its view that Blanca had
improperly received USF payments. See, e.g., R., Vol. II at 304–07 (describing
the regulations and orders that require proper cost allocation in order to determine
USF support). Given that the FCC provided an adequate legal basis for its
decision, any further NECA documents that the FCC relied on for its reasoning
are not necessary. Inclusion of such documents in the record would not change
our understanding of the underlying regulatory scheme or our decision.
21
Blanca also insists the FCC’s record is deficient because it does not
include all the underlying accounting reports it relied on in reaching its decision.
But Blanca has never argued the FCC miscalculated the overpayments. See R.,
Vol. II at 304 (“In reaching these conclusions, we emphasize that Blanca has
conceded that it offered CMRS services and it has not challenged the accuracy of
OMD’s accounting of the aggregate high-cost support attributable to Blanca’s
inclusion of CMRS-related costs in regulated accounts between 2005 and 2010.”).
In fact, during oral arguments, Blanca’s counsel conceded that it was not
challenging the FCC’s calculated debt amount. Blanca contests only the fact that
any debt exists. Because Blanca does not dispute the FCC’s calculations, Blanca
has not convinced us that the failure to include the cost data is prejudicial.
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Given that the administrative record supports the FCC’s decision, the
FCC’s failure to include documents referred to in the record is harmless.
The foregoing analysis also leads us to conclude that the FCC’s reliance on
the record was supported by substantial evidence. The record contains undisputed
facts about Blanca’s conduct and accounting practices between 2005 and 2010.
And these facts establish that Blanca requested USF support for cellular services
during this time, that the cellular services were not fixed-BETRS, and that Blanca
never submitted the reports necessary to claim USF support as a competitive ETC.
A reasonable mind could accept this undisputed evidence in the record as
adequate to support the FCC’s decision.
* * *
The FCC did not act arbitrarily and capriciously. The FCC supported its
decision to initiate debt collection with an explanation of the rules Blanca had
violated and a calculation of the overpayments Blanca had received. And the
record, though incomplete, is adequate to support the FCC’s actions.
IV. Conclusion
We DENY Blanca’s Motion to Supplement the Record. And we AFFIRM
the FCC’s decision to collect USF overpayments to Blanca through administrative
offsets. We remand to the FCC for any further proceedings.
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