[00:00:00] Speaker 01: Our next case is Sandwich Isles Communications versus the United States, 2020-1446, Mr. Smith. [00:00:10] Speaker 04: Thank you, Your Honor. [00:00:11] Speaker 04: Good morning. [00:00:12] Speaker 04: My name is Lex Smith. [00:00:15] Speaker 04: I'm the lawyer for Sandwich Isles Communications, which we frequently refer to as SIC. [00:00:22] Speaker 04: The only issue on this appeal is subject matter jurisdiction over a public utilities claim that a regulatory rate affected a taking of the public utilities property without just compensation. [00:00:43] Speaker 04: The law is [00:00:45] Speaker 04: well established that a public utility has the right, a constitutional right, to make such a claim after the regulatory process is over, the rate has been set, the effects of the rate are known, and the rate denies the public utility a reasonable return on its investment. [00:01:12] Speaker 02: Well, let me start there. [00:01:15] Speaker 02: The law is well established that a damages claim under a taking theory can be asserted once the rate has been implemented. [00:01:26] Speaker 02: But I haven't seen anything that you've cited that says that is the case. [00:01:33] Speaker 04: The Duquesne case and the cases that follow it are all [00:01:40] Speaker 04: reflect that that is the law, that there is a right to make a regulatory taking case when that happens. [00:01:54] Speaker 02: I see discussion by the Supreme Court saying you can argue that a regulation constitutes a taking for purposes of supporting [00:02:07] Speaker 02: an argument that therefore it should be viewed as arbitrary and capricious, but I don't see anything that says that there's a freestanding claim that gives you a right to damages. [00:02:23] Speaker 04: Your Honor, I respectfully disagree with the court's interpretation of the Duquesne case and the cases that follow it. [00:02:33] Speaker 04: So those cases reflect that a regulatory taking is affected where the utility is denied its reasonable return on the investment that it's made. [00:02:50] Speaker 04: And that certainly is the premise of the claim that we have made, that we made in the Court of Federal Claims. [00:03:01] Speaker 04: I suppose what I would say is that the Court of Federal Claims denied us on the basis of jurisdiction the ability to make our claim. [00:03:14] Speaker 04: If the Court of Federal Claims is going to rule that there is no claim, there is no right to make such a claim, I would think that that would be a different argument than the jurisdictional decision that was made. [00:03:28] Speaker 00: This is Judge Renna. [00:03:29] Speaker 00: It seems to me that the Court of Federal Claims didn't just throw out your case entirely. [00:03:35] Speaker 00: It said that it lacked jurisdiction and it points to 47 USC 402 as one of the basis for its determination. [00:03:45] Speaker 00: I look at Section 402 and it seems to me that it's pretty evident that [00:03:55] Speaker 00: This section is intended to resolve or it relates to disputes with the Federal Commission. [00:04:07] Speaker 00: And can you explain to me why 402 does not apply? [00:04:12] Speaker 04: Certainly, Your Honor. [00:04:13] Speaker 04: 402 covers the regulatory process to establish the rates. [00:04:22] Speaker 04: With every public utility, including... I'm looking forward to this. [00:04:27] Speaker 00: It speaks to the right of appeal, and that seems to be outside of the regulatory process. [00:04:35] Speaker 04: Your Honor, I respectfully submit that I don't believe it is. [00:04:38] Speaker 04: The rate-making process includes a right to appeal the rate. [00:04:45] Speaker 04: And this is true in the public utility cases in general, that there is an entire process involved in setting rates, appealing the setting of rates. [00:05:00] Speaker 00: No, it also applies. [00:05:02] Speaker 00: I mean, subsection one says by any applicant for construction permits. [00:05:07] Speaker 00: So it pertains to construction permits, station licenses, to a whole bevy of different types of [00:05:15] Speaker 00: of causes of action. [00:05:19] Speaker 00: Of course. [00:05:20] Speaker 04: None of those applies here though. [00:05:23] Speaker 04: In a rate making context, what I'm saying is that 402A provides for the appeal of the rate making that's set. [00:05:36] Speaker 04: I understand that 402A covers numerous other FCC proceedings, but [00:05:43] Speaker 04: The whole concept here is that the taking claim is something that happens after the regulatory process has all been accomplished. [00:05:57] Speaker 02: We said in Alpine that under 402B, you have to make your takings claim to the FCC and then to the DC Circuit. [00:06:09] Speaker 02: Why wouldn't the same principles apply under 402A? [00:06:16] Speaker 04: The reason I would say Alpine is not applicable here is, first of all, that involved a cancellation of licenses or a termination of licenses. [00:06:27] Speaker 02: Right, that's 402B, but why wouldn't the concept that, you know, there's an exclusive mechanism for objecting essentially to [00:06:38] Speaker 02: orders of the Commission, why wouldn't that same concept apply under 402A? [00:06:44] Speaker 04: Because this is a regulatory taking based on the setting of rates rather than the cancellation of a license. [00:06:54] Speaker 02: And more importantly, I think... Why does that make a distinction? [00:06:59] Speaker 04: Because in Alpine, the taking was established at the time of the FCC action by terminating the license, where here this is something that happens later after the total effect of the regulatory action of the rate has been felt and been understood. [00:07:28] Speaker 04: More importantly, though, the appeal that's provided for here, the case law is unanimous that you can't make a taking claim on the appeal from these rate-making decisions because the claim would not be right yet. [00:07:47] Speaker 04: So Alpine doesn't have that problem. [00:07:51] Speaker 02: Right until the rate applies to you. [00:07:54] Speaker 02: And isn't that exactly what you're saying here, is that they applied [00:07:58] Speaker 02: this rate and that therefore that's why you weren't able to continue to benefit from the monies that you previously received? [00:08:07] Speaker 04: The takings cases involve certainly something that happens later. [00:08:15] Speaker 04: What the cases say, it's not until the total effect of the rate is known that a claim for a taking without just compensation can be made. [00:08:28] Speaker 01: And that goes to the ripeness question rather than jurisdiction. [00:08:32] Speaker 01: But what about the folding case where we said, even if a decision doesn't fall within 402B, even if it's 402A, it's still 402, 402, and there is no gap for the Tucker Act to fill, jurisdiction is not properly brought in the claim school. [00:08:56] Speaker 04: I would distinguish Folden on the basis simply on the fact that it did not involve a taking. [00:09:03] Speaker 04: And again, what we have with a taking claim is that appeals from the FCC actions on these rate cases have expressly said repeatedly that a taking claim is premature at that time. [00:09:23] Speaker 04: So we couldn't have made it there. [00:09:31] Speaker 04: So I'll go on. [00:09:32] Speaker 04: My client's assets are in foreclosure. [00:09:37] Speaker 04: A number of them have already been sold at a Marshall sale. [00:09:40] Speaker 04: The others are the subject of an order for a judicial sale that's apparently going to take place at some time in the future. [00:09:51] Speaker 04: SIC went through the whole rate-making process and was unsuccessful. [00:09:59] Speaker 04: is now at the point where its only available remedy is to pursue its claim for a taking. [00:10:08] Speaker 04: As I was discussing earlier, this is not different from any other public utility in the sense that you go through the rate making process, the rate is set, there can be a field [00:10:24] Speaker 04: involving the rates. [00:10:26] Speaker 04: I guess I've eaten into my rebuttal time a little bit. [00:10:29] Speaker 02: Before you sit down, let me just ask you, what is your response to the government's argument that no matter what happens there's no property interest in having a particular benefit from the rate? [00:10:47] Speaker 04: I understand the question, thank you. [00:10:49] Speaker 04: The rate that a [00:10:51] Speaker 04: public utility that serves rural customers receives is both the subsidy and the rate that it's allowed to charge its customers. [00:11:02] Speaker 04: The two come together. [00:11:03] Speaker 04: The reasonable investment-backed expectations under which the property is purchased, the assets are purchased, come because of the Federal Communication Commission [00:11:21] Speaker 04: authorization and direction to buy the equipment in order to service the customers. [00:11:28] Speaker 04: So that the fact that in this case, some of the rate is provided by a means other than payment by the customers does not make a difference in terms of the analysis of our claim. [00:11:45] Speaker 04: Moreover, I would point out that that is something that [00:11:48] Speaker 04: the Court of Federal Claims would be taking up after this court decides that it has jurisdiction. [00:12:00] Speaker 01: Thank you, counsel. [00:12:01] Speaker 01: We'll save four minutes of rebuttal time for you. [00:12:04] Speaker 01: Thank you very much. [00:12:06] Speaker 01: Ms. [00:12:06] Speaker 01: Rose? [00:12:08] Speaker 03: Thank you, Your Honor. [00:12:09] Speaker 03: May I please the court? [00:12:11] Speaker 03: This is the first time that a case under 47402A has been before the court, but the reasoning that the court has applied in other cases applying 402B, including Fulton and Biltmore and Alpine, apply equally here. [00:12:31] Speaker 03: The Hobbs Act, which governs appeals under 402A, [00:12:36] Speaker 03: provides that the courts of appeals other than this court has exclusive jurisdiction to enjoin, set aside, suspend, and hold or impart or determine the validity of all final orders of the FCC. [00:12:48] Speaker 03: And so here the trial court properly examined fixed claims to determine whether or not they were challenging orders of the FCC or matters that would become final orders of the FCC. [00:12:59] Speaker 02: You didn't cite Alpine to the Court of Federal Claims, did you? [00:13:06] Speaker 03: We did not, although I believe we did cite HORN and the, I apologize, I can't, I remember it because of the, but I don't know if it's Verbrita, to the Court of Federal Claims. [00:13:23] Speaker 03: And we do acknowledge that Alpine is best understood as applying in Alpine. [00:13:35] Speaker 03: But we think that the logic there applies here as well. [00:13:42] Speaker 03: The Congress has determined that matters should be raised first with the FCC and then appealed to the Court of Appeals. [00:13:53] Speaker 03: And here we're not saying that there is no path for SIC to bring a Cakings claim if it chooses to do so. [00:14:01] Speaker 03: but that the court of federal claims is not the right court. [00:14:07] Speaker 02: So how would, so do you agree that there is a freestanding right to assert a request for damages under the takings clause? [00:14:24] Speaker 03: I think that what we assert is that the claim [00:14:32] Speaker 03: Even if it's a taking-based defense, the phrasing of horn, to the FCC's rate determinations would need to first be raised at the FCC and they need to have an opportunity to pass on the issue and potentially... Well, can the FCC award damages? [00:14:55] Speaker 03: They cannot award damages, but they could, since what is being sought is additional subsidy funding from the SEC administered funds, provide relief that would forestall a determination that a takings claim has occurred. [00:15:11] Speaker 03: However, if after the SEC has determined its position on the argument and whether or not additional funds should be permitted, [00:15:23] Speaker 03: the carrier would, at that point, have an opportunity to appeal the FCC's decision to the court, either the DC Circuit or the Court of Appeals that would otherwise be applicable. [00:15:39] Speaker 02: So explain to me, then, how this happens. [00:15:41] Speaker 02: How do you assert the... How does one assert the takings claim? [00:15:46] Speaker 02: What does the FCC have the right to do with respect to that claim? [00:15:51] Speaker 02: And then what would the Court of Appeals [00:15:53] Speaker 02: the appropriate Court of Appeals have the right to do? [00:15:58] Speaker 03: The first step, as has been discussed in some of the cases that it relies on, such as the in the FTC pump circuit case addressing the 2011 transformation order, is to raise a challenge to the right. [00:16:16] Speaker 03: and to assert that it does not permit the carrier to sufficiently cover its deaths. [00:16:27] Speaker 03: At that point, if the FCC has the opportunity, has the authority to grant a waiver of the rates that it has set under the 2011 Transformation Order, if it, [00:16:44] Speaker 03: deny the waiver that the carrier was requesting, the carrier then at that point can first appeal to the full commission and then if the lease is continued to not be granted the way that the carrier would like, then appeal to the court of appeals. [00:17:03] Speaker 02: So again, so what you're saying is that the way a takings claim is analyzed is whether or not the rate [00:17:12] Speaker 02: is so confiscatory or would be so confiscatory that it shouldn't be allowed to be employed, right? [00:17:23] Speaker 02: But that still doesn't say anything about if it is confiscatory and it has been employed, whether there's a right to a recovery of any losses by way of a damages calculation. [00:17:45] Speaker 03: that even if it could not, well, courts of appeals have reviewed taking cases that were first brought at the FCC and then raised to them and to the extent that [00:18:15] Speaker 03: a court with the proper jurisdiction found that the FCC's orders were an error, it could remand for further proceedings so that it may not... It would have the authority to review the claim [00:18:43] Speaker 03: And if, for example, there was a situation where a carrier thought a waiver and was granted a waiver but it was not in the amount that the carrier thought was sufficient, there could be an analysis whether or not the amount that was received foresaw that he had taken his claim. [00:19:11] Speaker 00: How would you characterize damages in that interest, contractual damages, or are we looking at a property interest of some kind? [00:19:20] Speaker 03: Well, I first would say that we do maintain that there's no property interest in a subsidy. [00:19:25] Speaker 03: But I will also acknowledge that that may be slightly different than whether or not there's a property interest in the carrier's own property that could be affected by a constitutionally confiscatory rate. [00:19:40] Speaker 03: What do you mean old property? [00:19:42] Speaker 00: Are you talking about the corporate assets? [00:19:51] Speaker 03: Potentially, though it wouldn't necessarily extend to those parts. [00:20:00] Speaker 03: For example, if a company like SIC did engage in [00:20:06] Speaker 03: massive debt that is unrelated to its ability to serve the customers that it's required to do under the FCC directive, then that would not be part of the calculation. [00:20:25] Speaker 03: It would be whether or not they were making enough of a return to [00:20:37] Speaker 03: cover the cost of providing those services, required services. [00:20:43] Speaker 02: Why hasn't the petition challenging the suspension of the high-cost subsidies been ruled on? [00:20:49] Speaker 02: It was filed in 2015. [00:20:50] Speaker 03: I do not have information on that. [00:20:57] Speaker 03: That it was pending before the FCC and the SIC have filed a petition for writ of mandamus that was [00:21:06] Speaker 03: denied by the DC Circuit in 2018. [00:21:09] Speaker 03: And if it thinks that it has grounds to do so, it could ask, it could raise a new challenge to the DC Circuit. [00:21:19] Speaker 03: But the particulars as to why it has yet to be ruled on is not information that I have. [00:21:33] Speaker 02: argument that there's no property interest in a particular rate or property interest in high-cost subsidies. [00:21:42] Speaker 02: That's really a merits argument, isn't it? [00:21:44] Speaker 02: I mean, how does that come into play when we're assessing a jurisdictional dismissal? [00:21:52] Speaker 03: That was raised as an argument in the alternative if it was determined that there is jurisdiction under the Tucker Act. [00:21:59] Speaker 03: Again, we do not believe that the Tucker Act provides jurisdiction here as it is a gap-spilling statute and here Congress has provided that claims or that appeals relating to FCC orders and it is broadly relating if the Supreme Court found in the ICT world an unhappy litigant cannot seek to evade [00:22:27] Speaker 03: the FCC's order by, for that I think it was seeking to have the order enjoined with ultra-variety. [00:22:35] Speaker 03: The point is, if it's within the scope of the order and would affect the validity of the order, that the matter is committed to the explicit discretion of the court. [00:22:43] Speaker 02: So am I understanding what you're saying is that the liability aspect of the taking charge [00:22:57] Speaker 02: whether it's confiscatory, whether it would be a taking. [00:23:00] Speaker 02: That has to be assessed through the FTC and then ultimately through the Court of Appeals. [00:23:09] Speaker 02: But then maybe the Court of Federal Claims would have the authority to award damages at the end of the day? [00:23:17] Speaker 02: Is that what you're saying? [00:23:19] Speaker 03: No, and again, I would note that it's not damages, it's compensation that is [00:23:26] Speaker 03: available under the Fifth Amendment. [00:23:29] Speaker 02: Well, same thing, exactly. [00:23:32] Speaker 03: Yes, except that if the SEC's action sufficiently provides compensation, then the Court of Appeals can evaluate that. [00:23:48] Speaker 03: And at that point, the takings claim would have been litigated [00:23:55] Speaker 03: And there would be no further cause of action for review in the Court of Federal Claims. [00:24:05] Speaker 02: So you're saying following the 402A and the Hobbs Act process could effectively moot any request for compensation? [00:24:15] Speaker 03: Yes. [00:24:16] Speaker 03: Yes. [00:24:17] Speaker 03: And in the Horn cases before the Supreme Court, the Supreme Court rejected an argument [00:24:25] Speaker 03: that after raising kitchens-based defenses at the USDA and to the Ninth Circuit, the litigants still had an opportunity to raise the claim at the Court of Federal Claims and found that because they have an avenue under the law at issue there to raise their kitchens-based argument at the agency with a path for judicial review, [00:24:53] Speaker 03: That was the end of the matter. [00:25:03] Speaker 01: Anything further, Counsel? [00:25:06] Speaker 03: No, thank you, Your Honor. [00:25:07] Speaker 03: If the Court has nothing further, we rest on the argument made today and then our brief. [00:25:12] Speaker 01: Thank you, Ms. [00:25:13] Speaker 01: Rose. [00:25:14] Speaker 01: Mr. Smith has four minutes of rebuttal time. [00:25:18] Speaker 04: Thank you, Your Honor. [00:25:20] Speaker 04: In every [00:25:23] Speaker 04: public utility case, there is a rate setting process. [00:25:27] Speaker 04: The function of the rate setting process is to try to find a reasonable rate. [00:25:34] Speaker 04: And that's no different in this case. [00:25:38] Speaker 04: The FCC provides that process through various means to try to find a reasonable rate. [00:25:45] Speaker 04: But in every public utility situation, if the rate process [00:25:52] Speaker 04: doesn't work for some reason and does not generate a sufficient return on investment, there is a right to make a takings claim, a right under the Constitution. [00:26:05] Speaker 04: I submit to you that nothing in the Hobbs Act or in the Communication Act [00:26:13] Speaker 04: shows an intent to deny a public utility the right that the case law recognizes public utilities are entitled to. [00:26:29] Speaker 00: When you say that Section 402 has an effect on that right to a takings claim that you speak about, I mean, we have, the legislature has passed this [00:26:43] Speaker 00: this section entitled Judicial Review of Commission's Orders and Decisions. [00:26:49] Speaker 00: And when I first started this case, I started looking at, well, aren't we dealing at bottom? [00:26:54] Speaker 00: Aren't we, aren't we reviewing, aren't we being asked to review the effect of an order and decision of the commission? [00:27:01] Speaker 00: And go ahead, sir. [00:27:03] Speaker 04: No, no, I just wanted to say, I believe again, I believe that would be true of every public utility case. [00:27:11] Speaker 04: In some sense, Ms. [00:27:14] Speaker 04: Rose's claim that we are objecting to the rate that was set and to an FCC order setting a rate has some appeal, but there is... Just put that word aside for a minute. [00:27:32] Speaker 00: Are we dealing here with a commission order or decision? [00:27:37] Speaker 04: Your Honor, as I say, [00:27:39] Speaker 04: It's possible to view it that way, but if that were the way that it was properly viewed, no public utility would have a right to make a takings claim when they'd been denied a return on their investment. [00:27:56] Speaker 04: And that's clearly not the law. [00:28:01] Speaker 04: SIC is no different than the other public utilities that have been held to have the right to make taking claims following the entire rate process and following the point where the total effect of the rate is known. [00:28:19] Speaker 00: Does it matter how we characterize or how a party would characterize the damages that we're talking about here? [00:28:30] Speaker 00: whether they're compensatory, contractual, or physical. [00:28:36] Speaker 04: Well, again, public utilities have to invest in equipment in order to service their customers. [00:28:45] Speaker 04: They're required to. [00:28:47] Speaker 04: Part of being approved as a public utility by the FCC mandates that the public utility purchase the assets in order to provide the service. [00:28:58] Speaker 04: SIC did that and its claim is that the rate that it was provided did not give it sufficient revenue to provide a return on those assets. [00:29:17] Speaker 01: Thank you, counsel. [00:29:19] Speaker 01: I think we appreciate the arguments of both counsel and we'll take the case on the submission. [00:29:27] Speaker 04: Thank you very much. [00:29:31] Speaker 04: The Honorable Court is adjourned until tomorrow morning at 10 a.m.