[00:00:00] Speaker 02: Case number 24-1224, Ed Al. [00:00:04] Speaker 02: Sprint Corporation Petitioner versus Federal Communications Commission at United States of America. [00:00:10] Speaker 02: Ms. [00:00:10] Speaker 02: Walker for the petitioners, Mr. Green for the respondents. [00:00:15] Speaker 03: Ms. [00:00:15] Speaker 03: Walker, good morning. [00:00:16] Speaker 03: Good morning, Your Honors. [00:00:18] Speaker 03: Holly Walker for petitioners Sprint and T-Mobile. [00:00:22] Speaker 03: In this case, the FCC imposed $92 million in civil forfeiture penalties on my clients for privacy violations under Section 222 of the Communications Act. [00:00:33] Speaker 03: The FCC reached this result by applying an erroneous interpretation of the definition of customer proprietary network information. [00:00:42] Speaker 03: CPNI, that directly conflicted with everything it had said for the past 25 years. [00:00:48] Speaker 03: As then Commissioner, now Chairman Carr, put it in dissent, quote, the FCC has reached beyond its statutory authority in these cases. [00:00:57] Speaker 03: And just two months later, the Supreme Court handed down Darkeese. [00:01:01] Speaker 03: That decision controls. [00:01:03] Speaker 03: The FCC's civil penalty regime violates the Seventh Amendment, just like Justice Sotomayor flagged [00:01:09] Speaker 03: in her dissent. [00:01:10] Speaker 03: But at a bare minimum, Your Honors, the orders here violate the well-established fair notice doctrine because they are based on, as FCC counsel told the Fifth Circuit at oral argument just last month, quote, a new interpretation of the statute, quote, a new legal rule, and we did not have fair notice of that rule. [00:01:31] Speaker 03: Finally, the penalties violate the statutory cap. [00:01:36] Speaker 03: The FCC took what it determined in the liability section of its order to be one continuing course of failure, the systemic, paragraph 48 of the T-Mobile order, systemic failure [00:01:49] Speaker 03: to have reasonable safeguards. [00:01:51] Speaker 03: And then when they got to the forfeiture section of the order, decided to break that up into 73 different violations for T-Mobile and 11 for Sprint. [00:02:02] Speaker 03: Whatever the FCC might be able to do under Section 503, it can't engage in a complete mismatch between the basis for liability and then the basis for the penalties. [00:02:16] Speaker 03: I'd like to start with the Seventh Amendment question, unless the court has issues it would prefer to focus on. [00:02:23] Speaker 03: There, Justice Sotomayor said the FCC's civil penalty regime would be upended by Darkeesie, and we think she was right. [00:02:32] Speaker 02: First- Why isn't it true that even if there is a jury trial right in this context, it was provided and waived because [00:02:43] Speaker 02: It was up to your clients to decide whether they wanted to. [00:02:46] Speaker 03: Just get a trial de novo by not paying this forfeiture understood your honor the availability the theoretical availability of a 504 collection action does not solve. [00:03:00] Speaker 03: the Seventh Amendment problem in this case. [00:03:02] Speaker 03: And before I get to that, I just want to note that the FCC made zero argument in its brief that we didn't have a civil penalty here within the meaning of that first factor under JARKEZY, which the court said effectively. [00:03:15] Speaker 03: So I'm assuming that you do have a right to... Understood. [00:03:17] Speaker 03: I just want to point out... Why is it that you didn't wait? [00:03:19] Speaker 03: Yes, I just want to point out they didn't even try to make that argument. [00:03:22] Speaker 03: Three reasons, Your Honor. [00:03:25] Speaker 03: First, there is no guarantee that DOJ will ever bring a collection action under 504. [00:03:31] Speaker 03: The statute simply says the forfeiture is, quote, recoverable. [00:03:35] Speaker 03: DOJ doesn't have to do anything at all. [00:03:38] Speaker 03: But that's good for your client, isn't it? [00:03:39] Speaker 03: If they don't... Well, it's not good, Your Honor, because we're caught between a rock and an even harder place. [00:03:45] Speaker 03: We had to choose between seeking review in this court of the legal questions on direct review under 402 a by paying the penalty under protest to secure jurisdiction here, just like you told us to do in the AT&T case. [00:04:01] Speaker 03: or doing nothing, being branded a delinquent debtor to the United States, and thinking maybe the Department of Justice would bring a collection action, which would be limited in certain jurisdictions to review only of the facts. [00:04:18] Speaker 02: But we just are focusing on this jurisdiction. [00:04:20] Speaker 02: And in this jurisdiction, you would get a trial to know about all issues, factual and legal. [00:04:25] Speaker 03: In passing, in some decisions, like action for children's television, the DC Circuit has [00:04:30] Speaker 03: pointed to the de novo language in the statute, but the Fifth Circuit's holding was crystal clear. [00:04:35] Speaker 02: I mean, we're the D.C. [00:04:37] Speaker 02: Circuit, so if something could have happened in another circuit, why does that affect my analysis here? [00:04:43] Speaker 03: The Department of Justice has nationwide venue under Section 4. [00:04:48] Speaker 03: DOJ can bring these suits in any district where the carrier's line or system runs. [00:04:54] Speaker 03: The government, I would be willing to bet, is not going to sue us in a district where we have more rights than we do in the Fifth Circuit. [00:05:03] Speaker 03: or the ninth circuit, but we can't be put to that. [00:05:06] Speaker 02: Are you suggesting the government's going to bring all of its compliance actions in the fifth circuit? [00:05:11] Speaker 03: I'm suggesting they have an incentive, like all good litigators. [00:05:15] Speaker 02: Have they done that since that opinion came out? [00:05:17] Speaker 03: Well, there have been very few collection actions, which is another point that I wanted to raise in terms of why this is totally theoretical. [00:05:25] Speaker 03: We might get a collection action. [00:05:27] Speaker 03: The Chamber amicus brief does a good job of saying that as far as we can tell, there's never been a jury trial in a Section 504 collection action ever. [00:05:35] Speaker 03: But the critical point, Judge Pan, is we can't be forced to choose between two core constitutional rights. [00:05:42] Speaker 03: On the one hand, the right to have a federal court of neutral decision makers like this panel [00:05:49] Speaker 03: address what we think are the serious legal problems with the order. [00:05:53] Speaker 03: And on the other hand, the time honored right to a jury trial, we can't be forced to choose. [00:05:59] Speaker 03: That's basic under the unconstitutional conditions doctrine and just plain old common sense. [00:06:05] Speaker 00: You know, there's a six. [00:06:07] Speaker 00: Am I right that in the Fifth Circuit, you would still have a jury trial on factual questions, right? [00:06:13] Speaker 03: I think so. [00:06:14] Speaker 03: I mean, I think so. [00:06:15] Speaker 03: I'm not sure. [00:06:15] Speaker 03: I've not been litigated, but yes. [00:06:17] Speaker 00: Right. [00:06:17] Speaker 00: And even then, so it does seem like you still have a jury trial right there in all the ways that matter. [00:06:24] Speaker 00: Well, with all respect. [00:06:26] Speaker 00: Don't determine legal questions. [00:06:27] Speaker 03: I think all the ways that matter include the constitutional violations [00:06:32] Speaker 03: the statutory overreach, the penalty violations, and the arbitrary and capricious problems that this court has before it today. [00:06:40] Speaker 03: All the ways that it matter under our Constitution includes the law under Article 3 and the facts and a jury trial under the Seventh Amendment. [00:06:51] Speaker 00: I take the point about the reputational harms. [00:06:56] Speaker 00: But as you emphasized, the thing that triggers the jury trial, right, is the civil penalties. [00:07:01] Speaker 00: And I think the FCC would like us to think about the case as if those civil penalties are not even imposed unless and until a collection action comes. [00:07:11] Speaker 00: And so that reputational harms and even the collateral use of fact findings, those might be harms, but they don't trigger the Seventh Amendment. [00:07:20] Speaker 00: Why are they wrong? [00:07:21] Speaker 03: They are wrong because in paragraph one of the T-Mobile order, the FCC quote, impose a penalty [00:07:28] Speaker 03: on T-Mobile. [00:07:30] Speaker 03: And then in paragraphs 1 through 9 through 111, they ordered T-Mobile to pay. [00:07:34] Speaker 03: This wasn't a casual suggestion like, hey, you might be liable or, hey, you might want to pay this $92 million. [00:07:41] Speaker 03: They ordered us to pay the forfeiture within 30 calendar days and then gave explicit instructions. [00:07:46] Speaker 03: Because I was curious, Judge Garcia, I pulled the SEC's final order that was on review in a new JARKEZY. [00:07:53] Speaker 03: It maps directly on top of the FCC's order. [00:07:57] Speaker 03: The SEC did the same thing. [00:07:59] Speaker 03: They imposed, and I'm quoting, paragraph 115A of the PET app in the SGSERT petition in JARCASY. [00:08:06] Speaker 02: But that statutory scheme doesn't have this difference feature. [00:08:10] Speaker 02: No. [00:08:11] Speaker 02: Which is that you cannot pay it and wait for a complaint. [00:08:13] Speaker 03: Well, actually, the Securities and Exchange Act has a provision, Section 20, that enforces for non-payment [00:08:20] Speaker 03: of civil penalties. [00:08:22] Speaker 03: So it is exactly the same. [00:08:24] Speaker 02: Well, it's not exactly the same because I guess we have case law that says you can just do nothing at all and that's just fine. [00:08:30] Speaker 03: Well, with all respect, would you do nothing at all if it were your client, Judge Pan? [00:08:34] Speaker 03: We had to choose. [00:08:35] Speaker 03: We had 60 days to decide whether we were going to forego legal review in this court [00:08:42] Speaker 03: or wait for a collection action that might never happen, where we might not have a full trial. [00:08:47] Speaker 02: But Judge Garcia's point was that you would still get legal review of the facts. [00:08:52] Speaker 02: No. [00:08:52] Speaker 02: I mean, if they're only doing facts in the Fifth Circuit, you're not forfeiting any legal arguments by not raising them in the district court. [00:09:00] Speaker 02: Well, why wouldn't you get to do the legal review in the Fifth Circuit, as well as the factual review in the Fifth Circuit? [00:09:05] Speaker 03: Well, with respect, we would be, because under Stevens, the court's holding was unambiguous. [00:09:10] Speaker 03: It says you must. [00:09:12] Speaker 03: raise legal challenges to a forfeiture order on direct review under 402A, you may not raise them in a forfeiture order. [00:09:22] Speaker 03: We had a fork in the road and we can't be forced to choose between those rights. [00:09:27] Speaker 03: But I want to come back to your questions about [00:09:29] Speaker 03: 504 judge pan and I want to compare this to to jarkisi there was no doubt in jarkisi that the seventh amendment right attached when the SEC was quote seeking that's 122 of the US reporter pin site for jarkisi because the SEC was seeking civil penalties and then the SEC levied them the chief used the word levied [00:09:55] Speaker 03: Nobody in that case thought that the seventh amendment question was somehow premature. [00:10:00] Speaker 03: The agency had sought to impose the penalties and indeed impose the penalties over our objection, our careful preservation of this issue before the FCC. [00:10:12] Speaker 03: I find it an odd framing that the FCC has used here of waiver. [00:10:17] Speaker 03: There was absolutely no waiver of our jury trial rights. [00:10:19] Speaker 03: If you check the record, we submitted a long supplemental filing. [00:10:24] Speaker 02: Because you knew [00:10:25] Speaker 02: that you had two options. [00:10:27] Speaker 02: You could pay an appeal, or you could wait for the, I guess, a collections action, and then you would then get the trial de novo on all issues. [00:10:38] Speaker 02: No, we would not. [00:10:39] Speaker 02: So you made an affirmative choice. [00:10:41] Speaker 03: Well, with all respect, Judge Pan, we could not. [00:10:43] Speaker 03: How could we have banked on getting a trial de novo on all issues? [00:10:47] Speaker 02: I understand, but the thing is, if they don't bring it, though, it seems that, you know, all the only [00:10:55] Speaker 02: injury that you claim does not tie you to a jury. [00:10:59] Speaker 03: I don't think so, Your Honor, because that is just reputed. [00:11:01] Speaker 03: If we had if we had let those 60 days go by, it wouldn't have just been reputational. [00:11:06] Speaker 03: The FCC has said that it can and it will use what it believes is the adjudicated finding, which would go final of the facts, but not the fact of the NAL. [00:11:16] Speaker 02: There's actually a provision that says we don't use that for anything. [00:11:20] Speaker 02: Well, [00:11:22] Speaker 03: The FCC has said in its 1997 forfeiture policy statement that it can and will use adjudicated findings against licensees in future penalty proceedings. [00:11:34] Speaker 02: But these are not adjudicated. [00:11:35] Speaker 03: The FCC thinks it's adjudicated. [00:11:37] Speaker 03: At paragraph 108 of the T-Mobile order, the FCC said, we find that T-Mobile willfully and repeatedly violated section 222. [00:11:47] Speaker 02: So section 504C. [00:11:52] Speaker 02: Use of notice of apparent liability. [00:11:55] Speaker 02: In any case where the commission issues a notice of apparent liability looking toward the imposition of a forfeiture, that fact shall not be used in any other proceeding before the commission to the prejudice of the person to whom such notice was issued. [00:12:07] Speaker 02: Unless the forfeiture has been paid or a court of competent jurisdiction has ordered payment of such forfeiture and such order has been provided. [00:12:14] Speaker 02: Doesn't that prevent the FCC from using that NAL as you have stated they would? [00:12:21] Speaker 03: So the FCC hasn't made your argument, Judge Pan, but even if they had- Wait, I can't look at the statute? [00:12:27] Speaker 02: That's what the statute is. [00:12:29] Speaker 03: It's adversarial system and they haven't pressed that argument. [00:12:32] Speaker 03: And the reason why I think they haven't pressed that argument, with all respect, is that that is the notice of apparent liability. [00:12:39] Speaker 03: That's like a charging document. [00:12:41] Speaker 03: That's like a Wells notice in the SEC context. [00:12:44] Speaker 03: The FCC moved on to a final order, a final order that is before you today and found as a determination as a matter of liability that we had violated Section 222 and they can and they will and they have said that they can use that against our company. [00:13:03] Speaker 03: in future license proceedings. [00:13:05] Speaker 03: Wireless licenses are the lifeblood of any company like T-Mobile, so we could be denied a new license. [00:13:11] Speaker 02: So I just want to understand this, Ms. [00:13:12] Speaker 02: Walker. [00:13:13] Speaker 02: Yes. [00:13:13] Speaker 02: I'm not an expert as you are, but it seems to me that what they're saying is that they will not use the fact that they found liability against you unless you actually pay or there's an adjudication. [00:13:33] Speaker 02: And it seems to me that what you're saying is that the underlying facts can be brought up, but that could be brought up anyway, regardless of whether there's been any of this NAL or finding a forfeiture. [00:13:47] Speaker 03: Perhaps I'm not articulating it well, Judge Pan, but when the FCC makes the finding of liability like it did in the final order, not the notice of apparent liability, [00:14:00] Speaker 03: when it makes a finding of liability, and I think my friends on the other side would not dispute that they made a finding of liability, that was the basis of the forfeiture order, that that finding, when it goes final, can be used against the regulated entity. [00:14:17] Speaker 03: The fact of the order, not just the facts underlying the order. [00:14:19] Speaker 03: The violation, the fact that you violated. [00:14:21] Speaker 03: So then if T-Mobile were to go to apply for a new wireless license, [00:14:26] Speaker 03: The FCC would say, we don't think that's in the public interest, because you've violated section 222, and you've done all these bad things. [00:14:33] Speaker 02: But would it be based on the fact that they made the finding, or just based on the facts that underlie the finding? [00:14:38] Speaker 02: The facts are fair game anyway, right? [00:14:42] Speaker 03: Well, I think the FCC would say, if it's an adjudicated final finding, it can be used against us. [00:14:50] Speaker 03: It can also be a basis for a higher penalty. [00:14:53] Speaker 02: Does that count as an adjudicated final finding, though? [00:14:55] Speaker 02: Like if you do not pay an appeal and you do not wait for the thing. [00:15:01] Speaker 03: It goes final. [00:15:02] Speaker 03: That would be like the broadcaster in Illinois Citizens who paid and didn't seek direct review and just let it go final after the 60 days. [00:15:15] Speaker 03: At that point, you're stuck. [00:15:16] Speaker 03: At that point, we're stuck with an final adverse order [00:15:19] Speaker 03: against us. [00:15:20] Speaker 03: It says we broke the law. [00:15:22] Speaker 03: We'd have to be delinquent on our debt about this whole statutory structure. [00:15:26] Speaker 02: Okay. [00:15:26] Speaker 02: You don't have to pay it. [00:15:28] Speaker 02: So how can it be have all the significance where you can just wait for the compliance action or the collections? [00:15:34] Speaker 02: Well, I don't think the FCC told us we don't have to pay it a paragraph. [00:15:38] Speaker 02: But that's the way this whole structure works. [00:15:40] Speaker 02: You can either [00:15:41] Speaker 02: pay it in appeal, or you can just not pay it and wait for the collections action. [00:15:46] Speaker 02: Like our case law says you can do so. [00:15:47] Speaker 02: You can do nothing. [00:15:49] Speaker 02: That's perfectly fine. [00:15:50] Speaker 03: At risk of losing our Article III right to have a federal court review the substantial legal problems, but it's not a legitimate choice is what I'm trying to say. [00:16:03] Speaker 03: It's a false choice. [00:16:05] Speaker 02: We can't... That's not the... [00:16:07] Speaker 02: what I'm asking you about now. [00:16:09] Speaker 02: I'm just saying you're trying to say that there's so much significance that they found that this apparent liability. [00:16:15] Speaker 02: And I'm trying to say that it is not what you seem to suggest, that it is this finding against you that's out there against your client when you don't have to pay it. [00:16:24] Speaker 02: That's what I'm saying. [00:16:27] Speaker 03: Well, whether we pay or not, I understand your question. [00:16:30] Speaker 03: I think whether we pay the forfeiture that we were ordered to pay or not, the FCC's finding of liability still stands. [00:16:40] Speaker 03: It goes final. [00:16:41] Speaker 03: If you let the 60 days to petition for review lapse, then it goes final. [00:16:46] Speaker 02: I'm just trying to understand the significance of that. [00:16:48] Speaker 02: I'm having trouble seeing why it's significant if you don't have to pay it. [00:16:51] Speaker 02: And they can still use the facts one way or the other, whatever they found. [00:16:55] Speaker 03: It's significant because we've been told that we've broken the law. [00:16:58] Speaker 03: And the FCC can use the finding that we have broken the law against us in other proceedings. [00:17:06] Speaker 03: It also imposes reputational harm. [00:17:10] Speaker 03: Subjects us to disclosure obligations, but we shouldn't have to be mean the FCC said pay us in 30 days a 504 action is a collection action it's for delinquent debtors we are good corporate citizens we don't blow off our debts to the United States. [00:17:25] Speaker 03: We pay, the FCC said to pay with 30 days, so we did. [00:17:29] Speaker 00: If you do wait for the collection action, is there some monetary penalty for you putting the government to that burden? [00:17:38] Speaker 00: Is interest running? [00:17:39] Speaker 00: Are there other penalties for delay? [00:17:41] Speaker 03: I'm not sure, but I think interest does run. [00:17:47] Speaker 03: But we have no control, again, over whether there ever is a collection action. [00:17:52] Speaker 03: We have no control over where that's brought. [00:17:55] Speaker 03: Any good litigator would bring it in the Fifth Circuit or the Ninth Circuit or some other circuit where they thought they might, government might be able to prevail on that score. [00:18:07] Speaker 03: If the court's interested in hearing about statutory authority in the time that I have left, I'd be happy to quickly address that. [00:18:16] Speaker 03: Any questions? [00:18:17] Speaker 01: We'll give you a couple minutes in reply. [00:18:19] Speaker 03: Okay, thank you so much. [00:18:21] Speaker 03: Mr. Graham. [00:18:33] Speaker 01: Thank you, Your Honors. [00:18:34] Speaker 01: Good morning, and may it please the Court. [00:18:35] Speaker 01: I'm John Grim on behalf of the FCC and the United States. [00:18:40] Speaker 01: Sprint and T-Mobile's right to a jury trial was not violated in this case. [00:18:44] Speaker 01: Under the Communications Act, they were not required to pay any monetary penalty, which is the focus of JARCASY, unless they first had a de novo trial in district court. [00:18:57] Speaker 01: And while they chose to challenge the commission's decision directly in this court, that was their choice. [00:19:03] Speaker 01: It was not mandated by the statute that they claim is unconstitutional. [00:19:09] Speaker 01: I'd like to address several of the arguments that we just heard from Sprint and T-Mobile regarding why the existing procedure is insufficient. [00:19:19] Speaker 01: The first, well, I guess really the first two are that they have no guarantee over when this proceeding might be initiated and that this would somehow cause them to be branded a delinquent while they're waiting. [00:19:34] Speaker 01: This court has answered that question in both public broadcasting and action for children's television, where the court held that if [00:19:42] Speaker 01: a party is suffering a demonstrable injury as a result of some delay or failure to expedite a collections action, they could bring a declaratory judgment action themselves. [00:19:57] Speaker 01: And that would trigger the same level of review that they would get under Section 504. [00:20:02] Speaker 01: I'd also like to address the argument we heard that all of the [00:20:10] Speaker 01: points were making about the FCC's statutory collections action would have applied to the SEC as well, because I don't agree with Carrier's reading of the relevant law there. [00:20:22] Speaker 01: In their reply brief on page, I believe it's page six, they cite a Southern District of New York case [00:20:31] Speaker 01: I'm going to attempt to pronounce it. [00:20:32] Speaker 01: I think it's Gara Similich, but it's on page six of their reply brief. [00:20:37] Speaker 01: That case outlines to some extent what an SEC collections action looks like. [00:20:43] Speaker 01: And it cites a Ninth Circuit case called SEC v. McCarthy, which goes into even greater depth. [00:20:49] Speaker 01: Those cases make it abundantly clear that when the SEC imposed a monetary penalty, the collections action was a summary proceeding. [00:20:59] Speaker 01: There is nothing remotely to suggest that it was a de novo trial that would entitle them to a jury. [00:21:06] Speaker 01: So the analogy to the SEC collections is, I think, incorrect. [00:21:11] Speaker 01: And I would also note that they cite several statutes in their reply brief on page six, which they cite for the notion that there would still be a collections action in the SEC context. [00:21:24] Speaker 01: Those statutes relate to the enforcement of a court-imposed judgment under, as you recall from Jarkosi, the SEC could either do an in-house ALJ proceeding or it could go trigger a district court action directly. [00:21:40] Speaker 01: The statutes they cite in their reply brief refer to the collection of a court imposed judgment if they went directly to court. [00:21:49] Speaker 01: That ALJ in-house versus court distinction, I think, is also significant because it relates to Justice Sotomayor's dissent and jarkacy that we heard about. [00:21:59] Speaker 01: When she talked about how that opinion would call into question SEC enforcement action, I believe she was talking about the FCC's ALJ proceeding, which is different from the proceeding that was at issue here and does not contain the de novo trial. [00:22:18] Speaker 00: One of the arguments Sprint made is essentially that [00:22:21] Speaker 00: Assume the Fifth Circuit rule is the rule everywhere, that you're, yes, there is a right to a trial of the factual issues de novo, but to get to that, you have to waive your ability to seek review of all of the commission's legal determinations. [00:22:35] Speaker 00: Why isn't that a concern? [00:22:37] Speaker 00: It's not exactly a free choice to go to a jury. [00:22:41] Speaker 00: You've got to waive all your objections to the legal determinations. [00:22:45] Speaker 01: Sure. [00:22:45] Speaker 01: So several points in response to that question, Your Honor. [00:22:49] Speaker 01: The first is that I think that post-jarkesy, it's questionable whether that decision by the Fifth Circuit would still stand. [00:22:59] Speaker 01: Obviously, this court can't change that, so we'll assume that it says what it says. [00:23:10] Speaker 01: What the carriers are asking this court to do is essentially invalidate as unconstitutional a statute based on their concern about what a hypothetical future case in a different jurisdiction might look like. [00:23:26] Speaker 01: If they are sued for a recovery action, [00:23:31] Speaker 01: in a jurisdiction where they believe the law does not adequately protect their jury right, I think that the process would be for them to raise it in the first instance in that district court. [00:23:41] Speaker 01: But here, that never happened. [00:23:44] Speaker 01: They paid the penalty directly so that they could get to this court. [00:23:48] Speaker 01: And again, I believe under pleasant broadcasting and action for children's television, I think if they did have a concern, [00:23:57] Speaker 01: that the way that the government was going to bring a collections action might create a problem for it. [00:24:04] Speaker 01: I think they would still retain the right to bring a declaratory action and get the full judicial review that they think they're entitled to. [00:24:12] Speaker 01: So I think the concern about how a different jurisdiction might apply the law in an unknown case, I just don't think is a sufficient basis for this court to decide the FCC's enforcement statute is unconstitutional. [00:24:28] Speaker 01: Um, so, um, I also would like to briefly address this question of waiver, um, because I know that the carriers dispute whether or not they've waived their right to a jury trial. [00:24:42] Speaker 01: And I just want to highlight that, um, this court in Illinois citizens commission for broadcasting, which we cite in our brief, um, described it in terms of waiver saying that a jury trial was available, but waived. [00:24:57] Speaker 01: I don't know that it's necessary to get into whether this was a waiver in the sense that if they elect a jury at trial, the court says, no, you waived it. [00:25:08] Speaker 01: I think what's important here, what the court is talking about is they had the option to get a de novo trial, and they chose to forego that option, whether you want to call it a waiver or just a decision to opt for a different procedural route. [00:25:24] Speaker 01: That's what they did here. [00:25:27] Speaker 01: So, Your Honors, I'm happy to continue discussing the Jarkisi issue to the extent the court has questions. [00:25:33] Speaker 01: If not, I would like to turn to the statutory construction if that would be something that the court is interested in hearing about. [00:25:39] Speaker 00: One thing I'm just wondering, right, is if we told in federal court, you have a Seventh Amendment right to a jury. [00:25:49] Speaker 00: We have a new rule. [00:25:50] Speaker 00: In order to get a jury right, you have to waive your right to appeal any legal determination I make. [00:25:58] Speaker 00: kind of seems like you're putting a pretty substantial burden on invoking your right. [00:26:06] Speaker 00: And if the Fifth Circuit rule were the rule everywhere, this case would seem similar to that. [00:26:13] Speaker 01: Wait, it might, Your Honor, but the Fifth Circuit rule is not the rule everywhere, and it's certainly not the rule here. [00:26:19] Speaker 01: In this circuit, they do have the right to challenge the underlying decision. [00:26:23] Speaker 01: They acknowledge that in their brief. [00:26:26] Speaker 02: Is that necessarily how the Fifth Circuit rule works? [00:26:28] Speaker 02: Because it just wasn't clear to me that the import of that meant that no legal findings or legal rulings could be appealed. [00:26:38] Speaker 02: It's just like the facts would go to trial, but does that mean you can't [00:26:42] Speaker 02: still make legal arguments on appeal? [00:26:45] Speaker 01: I don't think it does mean that, Your Honor. [00:26:47] Speaker 01: So I think that [00:26:50] Speaker 01: What the Fifth Circuit held is that the district court doesn't have jurisdiction to challenge the or to hear a challenge to the legal validity of the FCC's order. [00:27:01] Speaker 01: But I don't see why once that district court order is a final judgment, it wouldn't be appealable just like any other final judgment of the district court. [00:27:10] Speaker 01: And presumably that would allow them to raise any challenges that they thought were wrong with the [00:27:17] Speaker 01: We're wrong with the way that the trial was conducted, including the legal issues that were raised. [00:27:23] Speaker 02: But also legal issues not raised at trial. [00:27:25] Speaker 02: It just seems that that's not a subject of the trial. [00:27:27] Speaker 02: But I don't think you can deem legal issues waived or forfeited if they weren't allowed to raise them in the trial. [00:27:35] Speaker 02: It just seems that just like this court can now look at the legal issues without a trial, the Fifth Circuit should be able to do so in whatever they're doing in the Fifth Circuit. [00:27:46] Speaker 01: I would agree with you, Your Honor, that if the court doesn't have jurisdiction to hear a legal issue, that doesn't mean that the party has forfeited it. [00:27:54] Speaker 00: So I would want to make sure you understand the Fifth Circuit rule is that if the party is in a trial proceeding, it cannot raise challenges to the legal validity of the FCC's order, right? [00:28:10] Speaker 01: That's how I understand the Fifth Circuit law, correct, Your Honor. [00:28:15] Speaker 01: So as I said, if the court would like, I would like to address the statutory arguments as well, because I think that under carrier's reading of the CP&I rule, they would essentially read it entirely out of existence. [00:28:32] Speaker 01: Wireless carriers like Sprint and T-Mobile have a unique relationship with their customers, and that exposes them to tremendously sensitive information. [00:28:42] Speaker 01: Congress instructed those carriers to keep that information safe. [00:28:47] Speaker 01: Under the carriers argument, that exact same information would no longer be protected simply because in addition to offering wireless voice services, the carriers also offered data service. [00:29:01] Speaker 01: And I think that it is not, I just don't think that there's any way to read that statute. [00:29:08] Speaker 01: as though Congress intended it to be so self-defeating. [00:29:12] Speaker 01: The key language in the definition of CP&I, the carriers have focused on this solely by virtue language. [00:29:23] Speaker 01: But I think that the key language that solely by virtue modifies is relationship. [00:29:29] Speaker 01: It's solely by virtue of the relationship that the carrier and the customer have. [00:29:34] Speaker 01: And I don't think that there's any dispute here [00:29:36] Speaker 01: that the relationship between Sprint and T-Mobile and their customers is the sole basis by which they had this information. [00:29:46] Speaker 02: So it seems to me that there's a carrier customer relationship. [00:29:51] Speaker 02: Carrier refers to, I guess, telecommunication services. [00:29:57] Speaker 02: And there's this other sort of data aspect of it. [00:30:00] Speaker 02: But just because [00:30:02] Speaker 02: The carrier or the telecommunications company is offering both telecommunications and data services doesn't mean this is no longer a carrier customer relationship. [00:30:12] Speaker 02: That's certainly the commission's still a carrier customer relationship. [00:30:16] Speaker 02: Certainly all of this is based solely on that relationship. [00:30:19] Speaker 01: Yes, that that that's absolutely the commission's argument. [00:30:23] Speaker 01: I think that's the best reading of the solely by virtue of the customer carrier question about the penalties. [00:30:28] Speaker 00: I'd just like to hear your explanation of why the statute talks about a single act or failure to act. [00:30:36] Speaker 00: How do you explain why? [00:30:37] Speaker 00: The relevant act here is, you know, third party by third party as opposed to the. [00:30:44] Speaker 00: overall failure to have safeguards? [00:30:46] Speaker 01: Sure, Your Honor. [00:30:47] Speaker 01: I think that each third party had access to customer data through a unique set of circumstances. [00:30:56] Speaker 01: Certainly T-Mobile at least had the ability to review and pre-approve any use case. [00:31:03] Speaker 01: The carriers had an individual ability to turn on or off [00:31:07] Speaker 01: at the third party level, access to data, which we saw happen when the Securis story broke. [00:31:15] Speaker 01: And so at any particular moment in time, any third party's access to customer data was its own unique circumstance. [00:31:23] Speaker 01: And the carrier's failures really were failures with respect to each individual third party. [00:31:32] Speaker 02: But it seems like a lot of those third parties [00:31:35] Speaker 02: abided by the honor system. [00:31:36] Speaker 02: They actually did get the customer consent. [00:31:40] Speaker 02: So it seems like now that you're breaking it down, sort of carrier by carrier, it seems like some of them actually did what they were supposed to do, right? [00:31:48] Speaker 02: Or at least they weren't caught not doing it. [00:31:50] Speaker 01: I think that's fair, Your Honor. [00:31:51] Speaker 01: And I think that it's important to, I'd like to emphasize sort of what specific violation the commission found. [00:31:59] Speaker 01: It wasn't that each of those carriers misused the data. [00:32:02] Speaker 01: It's that the carriers, [00:32:04] Speaker 01: that each of those third parties misused the data, it's that the carriers failed to take reasonable steps to make sure the data was being protected. [00:32:12] Speaker 01: So for each one of those third parties, the carriers claimed the right to conduct audits. [00:32:17] Speaker 01: They claimed the right to review use cases. [00:32:22] Speaker 01: But it turned out that they really weren't minding the shop. [00:32:26] Speaker 01: And what the commission found, as you used the phrase, the honor system, that wasn't enough because it allowed some predictable abuses to take place. [00:32:37] Speaker 02: And so I understand that. [00:32:38] Speaker 02: And I think that that's a reasonable thing for the commission to do. [00:32:42] Speaker 02: But on the other hand, I think the carrier's position is that in the vast majority of cases, the system they had in place seemed to work. [00:32:51] Speaker 02: It seemed that even though they weren't taking responsibility for it, a lot of these third party carriers were getting customer consent before releasing this information. [00:33:02] Speaker 02: And that just makes it more I just [00:33:06] Speaker 02: I think there are two different ways of looking at this. [00:33:08] Speaker 02: I don't think that what the commission did is necessarily not reasonable. [00:33:11] Speaker 02: But I think they raise a strong argument that their reliance on the honor system was not crazy, given that in the vast majority of cases, it worked. [00:33:23] Speaker 02: And so this seems like a pretty harsh penalty, given that in the vast majority of cases, what they did was fine, or apparently fine. [00:33:32] Speaker 01: Well, Your Honor, let me [00:33:35] Speaker 01: Let me get at it from this angle then. [00:33:43] Speaker 01: While it may or may not have been reasonable to rely on most of these companies following the rules, and it sounds like many of them did, what the commission found was unreasonable is that when it became public that there was this vulnerability that allowed certain third parties to misuse data that the [00:34:04] Speaker 01: approved use case system could be manipulated. [00:34:08] Speaker 01: When these failures became public, the commission found that the carriers didn't take adequate steps to investigate the extent of the problem to determine whether or not it affected other carriers. [00:34:21] Speaker 01: It didn't take steps to make sure that the customer consent procedures were valid. [00:34:30] Speaker 01: And again, this goes somewhat to their argument that they were penalized for not shutting down the entire program. [00:34:36] Speaker 01: That's not accurate. [00:34:37] Speaker 01: They were penalized for not taking adequate steps really of any kind. [00:34:41] Speaker 01: And so I think that once it was made known that the Securis incident occurred, [00:34:50] Speaker 01: I think that the reasonable, you know, what that put them on notice of was the potential for serious problems and their reaction was- But the question is just whether that lapse is one violation versus one across every carrier. [00:35:05] Speaker 02: And it just seems, I mean, did they treat MicroBuilt the same as all the other carriers? [00:35:10] Speaker 02: Because basically the [00:35:13] Speaker 02: The formula they did was $40,000 for the first day you didn't implement something more effective and then $2,500 for every day after that. [00:35:22] Speaker 02: And it does seem strange if they would treat microbilt where there actually was a misuse, the same as every other company. [00:35:30] Speaker 02: Did they treat them the same? [00:35:31] Speaker 01: Yes, Your Honor. [00:35:32] Speaker 01: It was every third party, as you said, $40,000 for the first day and $1,500 for each additional day. [00:35:40] Speaker 01: Interestingly, I don't believe that the carriers challenge either of those numbers. [00:35:47] Speaker 01: I don't understand them to be saying that [00:35:48] Speaker 01: the $40,000 for the first day was a problem or that? [00:35:51] Speaker 02: No, that's not my question either. [00:35:52] Speaker 02: I'm just saying the fact that you're doing it carrier by carrier versus it was elapsed not to implement something better. [00:35:59] Speaker 02: And once you're going carrier by carrier, it does look a little arbitrary to treat microbuilt the same as everybody else when they actually misuse the data and the others didn't. [00:36:08] Speaker 02: And then my other question is, what about this variance? [00:36:10] Speaker 02: What's the basis of 100% for one and 75% for the other? [00:36:14] Speaker 02: That seems plucked out of the air. [00:36:17] Speaker 01: Your honor, all I can say to that is that there's a number of factors that the commission looks at when it makes these adjustments. [00:36:24] Speaker 02: No, I understand. [00:36:25] Speaker 02: But how do you get to 75% for one and 100% for the other? [00:36:29] Speaker 01: That's a discretionary determination by the commission based on all the facts that it looks at, the level of culpability. [00:36:37] Speaker 01: And I just think that that's a judgment call that the commission has to make and that the regulations and the statutes are set up to allow them [00:36:47] Speaker 02: I see, but it just seems to take away from, you've come up with a formula and the formula seeks to make this something somewhat logical and analytical. [00:36:56] Speaker 02: And then you can tack on any variance you want to double it or make it 75% greater. [00:37:01] Speaker 02: I mean, that does seem a little like it gives the commission a lot of power just to make these penalties, whatever they think they should be. [00:37:10] Speaker 01: Well, Your Honor, I certainly think that the commission has great discretion here. [00:37:15] Speaker 01: And they found that the carrier's conduct in these cases was particularly egregious, which justified the upward departure. [00:37:22] Speaker 01: I'd certainly take your point, Your Honor. [00:37:25] Speaker 01: I think it's ultimately just a matter. [00:37:28] Speaker 02: Is there any explanation as to why one is 100% and one is 75%? [00:37:32] Speaker 01: The orders don't. [00:37:35] Speaker 01: discuss the penalties with respect to other carriers penalties. [00:37:40] Speaker 01: So they don't, no, there's no. [00:37:43] Speaker 02: But I mean, one, I guess T-Mobile was 100%, I think, and Sprint was 75. [00:37:48] Speaker 02: Correct. [00:37:49] Speaker 02: So why those two numbers for each of those? [00:37:52] Speaker 01: The order doesn't explain why it was 75% as opposed to 100 for Sprint and why it was 100 as opposed to 75% for T-Mobile. [00:38:04] Speaker 01: For each carrier, the multiplier is justified only with respect to that particular carrier and the level of egregiousness of their conduct. [00:38:16] Speaker 02: And you don't think that they should have to just say why they chose 100 versus [00:38:21] Speaker 02: 75 or 50 or 25? [00:38:23] Speaker 01: Well, I think that they explained holistically what their calculation was and the factors that they considered to get there. [00:38:33] Speaker 01: I don't know that they necessarily are required to explain why the number for one carrier would be [00:38:44] Speaker 02: Well, just why is it 100 for this carrier? [00:38:46] Speaker 02: It just seems, isn't it by definition arbitrary to pick 100 and not say why it's 100? [00:38:52] Speaker 01: Well, I don't think that they, I mean, they justified it by pointing to the egregiousness of the carriers. [00:38:58] Speaker 02: I understand, but why 100? [00:39:00] Speaker 02: It's egregious, we should do a variance, but why 100 versus 200 or 300 or 50? [00:39:07] Speaker 01: Your honor, I doubt that they didn't specifically address the why it was 100 versus 75. [00:39:15] Speaker 01: So you know, why is that okay? [00:39:18] Speaker 01: Why is that okay? [00:39:19] Speaker 01: Well, because I think I think the court has to look at the overall total forfeiture to determine whether it's reasonable. [00:39:26] Speaker 01: And I think that in this case, given the [00:39:32] Speaker 01: the egregiousness and the duration of the carrier's conduct, it warranted a significant upward adjustment. [00:39:43] Speaker 00: Thank you. [00:39:43] Speaker 01: Thank you, Your Honor. [00:39:50] Speaker 03: Thank you, Your Honors. [00:39:51] Speaker 03: I do have three points I'd quickly like to make, and I'll be as efficient with my time as I can be. [00:39:56] Speaker 03: First on statutory authority, Mr. Grimm just said that this information was covered because of the relationship, but that's not what the statute says. [00:40:05] Speaker 03: The statute says the carrier customer relationship, that is the common carrier [00:40:10] Speaker 03: voice services relationship, and when a wireless company is providing both voice and data service, you asked about this, Judge Pan, isn't it still part of the carrier customer relationship? [00:40:22] Speaker 03: Respectfully, no, under the definitions in the Communications Act. [00:40:27] Speaker 02: So it's no longer a carrier customer relationship if they also provide data? [00:40:30] Speaker 02: Yeah, or if there are data only plans, and the reason- I understand data only, but why, if there's a carrier that provides both? [00:40:38] Speaker 02: Yes. [00:40:38] Speaker 02: It's definitely a carrier customer relationship. [00:40:41] Speaker 02: But why does it cease to be a carrier customer relationship if they also provide data? [00:40:46] Speaker 03: For two reasons, Judge Pan. [00:40:48] Speaker 03: 15351 in Title 47 says in the definition of a telecommunications carrier, and this is a little technical, but really important to this whole area of the law in this case, that a telecom carrier shall be treated as a common carrier only [00:41:06] Speaker 03: only to the extent that it is engaged in providing telecom services. [00:41:12] Speaker 03: So where we are not providing telecom services, we are not a common carrier. [00:41:17] Speaker 03: We do not fall under Title II, and we definitely don't fall under Section 222. [00:41:24] Speaker 02: Does that answer why a carrier customer relationship changes and is no longer a carrier customer relationship if the carrier provides both telecom and data? [00:41:33] Speaker 03: Because we're wearing two hats, essentially. [00:41:37] Speaker 03: We are wearing a common carrier hat to a limited extent. [00:41:41] Speaker 03: but where we are doing other things, we can only be treated as a common carrier to the extent we are doing. [00:41:47] Speaker 02: No, I understand what you're saying, but the specific wording of the statute is carrier customer relationship. [00:41:53] Speaker 02: Yeah. [00:41:53] Speaker 02: And I'm wondering why a carrier customer relationship changes if the carrier also [00:41:59] Speaker 03: provides data services because we definitely a carrier customer relationship because they are providing telecommunication services well for and if you add on to that why does that change the relationship right well as an initial matter there are some customers who have data only plans they're not in any carrier customer relationship at all but for customers that have both voice and data we are in the carrier customer relationship under 222 when we are providing [00:42:27] Speaker 03: traditional voice services, but we are we are we are in a information services customer relationship when we're doing data and that the information here. [00:42:38] Speaker 02: Part took of you think the statute should have said. [00:42:41] Speaker 02: Carrier. [00:42:45] Speaker 02: and data provider services dash customer relationship. [00:42:48] Speaker 03: Well, with respect, it didn't need to do that, your honor, because the definition of telecom carrier tells us that when you're doing both kinds of services, you only fall on the common carrier side of the line when you're doing the common carrier [00:43:04] Speaker 03: service. [00:43:05] Speaker 03: But there's another reason why, Judge Pan, the statute says solely. [00:43:09] Speaker 02: Congress really tried to lock this down. [00:43:11] Speaker 02: I'm focused on the relationship, because I think it is solely because of the relationship. [00:43:15] Speaker 02: And I don't understand why it's no longer a carrier customer relationship if data is also supplied. [00:43:20] Speaker 02: Because I understand the distinctions you're making, but we have to focus on the relationship. [00:43:24] Speaker 02: Is it a carrier customer relationship? [00:43:26] Speaker 03: Yes. [00:43:26] Speaker 03: We are not in a carrier customer relationship when there's data information. [00:43:31] Speaker 03: And 153.51 tells us that. [00:43:33] Speaker 03: This court's decision in Mozilla, one of the net neutrality cases, explains the difference between telecom carrier status and information service status. [00:43:42] Speaker 03: The Sixth Circuit just explained it in the other case. [00:43:46] Speaker 03: I would like to get to the fair notice point, because even if you are not persuaded by our absolutely exciting and correct statutory argument, we do think that at a bare minimum, a narrow holding here is that we didn't get fair notice of that. [00:44:00] Speaker 03: The FCC, my good friends, have told the Fifth Circuit that this was a new legal rule, the definition of CPNI that was announced for the first time in this proceeding. [00:44:09] Speaker 03: It went against everything the FCC has ever said about the scope of CPNI for literally the past 25 years. [00:44:18] Speaker 03: So whether or not it's [00:44:20] Speaker 03: a permissible reading of the statute. [00:44:22] Speaker 03: It's definitely not one that we knew about. [00:44:25] Speaker 03: The FCC, on top of contravening its past guidance, refused to give industry any clarity when we asked for it. [00:44:33] Speaker 03: They knew that industry was reading the statute this way. [00:44:37] Speaker 03: We filed many, many comments saying 2 22 only applies to voice services, and the FCC sat on its hands for eight months after it learned of the securus incident [00:44:46] Speaker 03: and did absolutely nothing. [00:44:48] Speaker 03: So I think if you stack up those five factors, we had at least a reasonable reading. [00:44:53] Speaker 03: The FCC's new reading goes against everything it ever said. [00:44:57] Speaker 03: New industry was reading it this way. [00:45:00] Speaker 03: They did nothing and they refused to give us any clarity at a bare minimum that does violate this circuit's well-established and seminal fair notice precedents. [00:45:11] Speaker 03: On penalties, my friend on the other side, [00:45:14] Speaker 03: said that the carriers failed to have reasonable means, and that's our point on the penalty analysis. [00:45:21] Speaker 03: Whatever an agency might be able to do with respect to civil penalties, our modest proposition is that it cannot on the one hand find liability based on a systemic failure to act, [00:45:34] Speaker 03: And then when you get to the penalty section, say, oh, it's not one failure. [00:45:38] Speaker 03: It's 84 different failures. [00:45:41] Speaker 03: There never was any aggregator or by provider analysis in the liability section. [00:45:48] Speaker 03: And then they completely switched gears when they got [00:45:51] Speaker 03: To the penalty section, there is no limiting principle to the FCC's view of what they can do under Section 503. [00:45:58] Speaker 03: They said in the order, well, you're lucky because we could have used customers as the denominator for the penalty. [00:46:05] Speaker 03: That would have resulted in forfeitures in the amount of several hundred trillion dollars. [00:46:10] Speaker 03: Our national debt is only $36 trillion. [00:46:13] Speaker 03: That can't possibly be right. [00:46:16] Speaker 03: Finally, Judge Pan, you were asking some questions about why the penalty isn't arbitrary and capricious. [00:46:22] Speaker 03: We think that it is, and I heard Mr. Grimm concede that the orders do not explain why this [00:46:31] Speaker 03: one of the highest penalties ever in the history of the FCC was proportionate and rational in light of the kinds of penalties they have historically imposed. [00:46:44] Speaker 03: Those penalties have been historically imposed fraud and actual harm. [00:46:49] Speaker 03: I will remind you, there's no allegation of fraud. [00:46:52] Speaker 03: There was zero findings of any actual harm here, and they never explained that. [00:46:57] Speaker 03: Your decision in Friedman is on point on both scores. [00:47:01] Speaker 03: Unless support has any other questions, I will take my seat. [00:47:05] Speaker 02: Thank you. [00:47:06] Speaker 03: Thank you so much.