Opinion ID: 2976711
Heading Depth: 4
Heading Rank: 2

Heading: Chevron Step 2: Reasonableness of the Order

Text: At this juncture, we must decide whether the FCC’s Order constitutes a permissible construction of the pivotal statutory phrase, “unreasonably refuse to award,” within section 621(a)(1). In answering this question, we “need not conclude that the agency construction was the only one it permissibly could have adopted to uphold the construction, or even the reading [we] would have reached if the question initially had arisen in a judicial proceeding.” Battle Creek Health System v. Leavitt, 498 F.3d 401, 408-09 (6th Cir. 2007) (internal quotations omitted). A review of the legislative history as well the language of the provision at issue is the chief method by which we approach the second step of Chevron. Difford v. Secretary of Health and Human Services, 910 F.2d 1316, 1318 (6th Cir. 1990). Because the Order encompasses four different rules specifying the meaning of “unreasonably refuse” within section 621(a)(1), we proceed by assessing the reasonableness of each rule in its own right. a. Rule 1: Timing Requirements for Awarding New Franchises The first rule contained in the Order concerns the time period within which LFAs must address franchise applications to satisfy section 621(a)(1)’s requirement of reasonableness. The FCC selected 90 days and six months as the time frames within which LFAs must respectively rule on the proposals of applicants with existing access to rights-of-way and wholly new applicants. The FCC further prescribed temporary interim franchises as a remedy for an LFA’s failure to comply with the applicable time frame. Nos. 07-3391/3569/3570/3571/3572/3573/ Alliance for Community Media Page 13 3574/3673/3674/3675/3676/3677/3824 v. FCC Urging this Court to reject the timing requirement as an impermissible construction of the statute, petitioners characterize this portion of the Order as “creating an arbitrary shot-clock for new franchise applications” and “spawning unilaterally-imposed interim franchises permitting unauthorized access to public and private property and denying community needs and interests.” (Petitioner ACM’s Br. 28-29.) The FCC, on the other hand, insists that the time frames are a lawful and reasonable regulatory response to “unreasonable delays in the franchising process.” (Respondent’s Br. 39-40.) To determine whether we should defer to the time limits as a permissible construction of the Act, it is instructive to examine how durational requirements surface in other portions of Title VI. In several other sections of the Act addressing cable franchises, Congress expressly incorporated timing requirements into the statutory language. Section 617, for example, relates to the sale of cable systems and states that, if the issuance of a franchise requires that an LFA approve the sale or transfer of a cable system, the LFA must act within 120 days. 47 U.S.C. § 537. Likewise, section 625 mandates that modifications of franchise terms occur within 120 days of the request. 47 U.S.C. § 545. While express durational requirements govern these aspects of the franchising process, the statutory scheme is silent with respect to time limits governing the issuance of new franchises under section 621(a)(1). In light of this silence, petitioners urge us to adopt the canon of construction expressio unius est exclusio alterius—explicit direction for something in one provision, and its absence in a parallel provision, implies an intent to negate it in the second. That is, according to petitioners, if Congress had intended that LFAs act within a certain time period in awarding new franchises, it seems logical to assume that it would have followed the course of these other sections by integrating express durational requirements into the statutory language of section 621(a)(1). Thus, under petitioners’ view, even if the language of section 621(a)(1) is ambiguous, the agency has formulated an impermissible construction of the statute by reading into the text durational requirements that contravene Congress’s intentional decision to forego such requirements. See Whitman v. American Trucking Ass’n., 531 U.S. 457, 467 (2001) (refusing to “find implicit in ambiguous sections of the [Clean Air Act] an authorization to consider costs that has elsewhere, and so often, been expressly granted.”); General Motors Corp. v. United States, 496 U.S. 530, 538 (1990) (explaining that “[s]ince the statutory language does not expressly impose a 4-month deadline and Congress expressly included other deadlines in the statute, it seems likely that Congress acted intentionally in omitting the 4-month deadline in § 110(a)(3)(A).”); Russello v. United States, 464 U.S. 16, 23 (1983) (“[W]here Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.”). While petitioners are correct in identifying the expressio tool as one canon of statutory interpretation, their analysis fails to recognize that the utility of the expressio canon in the context of the Chevron inquiry has been questioned. In Cheney R.R. Co. v. I.C.C., 902 F.2d 66, 69 (D.C. Cir. 1990), for example, the D.C. Circuit explained that, under Chevron, Congressional silence is to be construed as creating a presumption of a gap-filling delegation to agencies. Against this presumption, the expressio canon emerges as “an especially feeble helper in an administrative setting, where Congress is presumed to have left to reasonable agency discretion questions that it has not directly resolved.” Cheney R.R. Co., 902 F.2d at 69. Likewise, in General Motors Corp. v. NHTSA, 898 F.2d 165, 170 (D.C. Cir. 1990), the D.C. Circuit held that, where a statute includes an “express deadline” for one category of decisions but not another, the absence of a statutory deadline for the latter category “could mean either that no deadline was contemplated by Congress, or that Congress left the choice to [the agency] whether or not to impose a deadline.” We find the reasoning in General Motors Corp. to be persuasive. That is, the absence of a statutory deadline in Nos. 07-3391/3569/3570/3571/3572/3573/ Alliance for Community Media Page 14 3574/3673/3674/3675/3676/3677/3824 v. FCC section 621(a)(1) leads us to conclude that Congress authorized, but did not require, the FCC to impose time limits on the issuance of new franchises. Moreover, the nature of the franchising process counsels in favor the reasonableness of the time limits the FCC selected. We have previously noted that administrative lines “need not be drawn with mathematical precision.” Kirk v. Secretary of Health & Human Serv., 667 F.2d 524, 532 (6th Cir. 1981). Courts are “generally unwilling to review line-drawing performed by the Commission unless a petitioner can demonstrate that lines drawn . . . are patently unreasonable, having no relationship to the underlying regulatory problem.” Covad Comm. Co. v. FCC, 450 F.3d 528, 541 (D.C. Cir. 2006) (internal quotations omitted). We conclude that petitioners have failed to demonstrate the patent unreasonableness of the durational requirements. First, the reasons mobilizing the FCC to promulgate these time limits appear more than reasonable. Due to protracted franchise negotiations, the agency found that prospective entrants were abandoning attempts to join the cable market and acceding to otherwise unacceptable franchise terms simply to expedite the process. The Commission thus prescribed the time frames as a way to remedy the “excessive delays result[ing] in unreasonable refusals to award competitive franchises,” and reverse the factors “depriv[ing] consumers of competitive video services” and “hamper[ing] broadband deployment.” (Id.) In furtherance of these ends, the FCC reasonably found that six months would provide LFAs with “a reasonable amount of time to negotiate with an entity that is not already authorized to occupy” rights-of-way. (JA 527.) This determination was predicated on “substantial [record] evidence that six months provides LFAs sufficient time to review an applicant’s proposal, negotiate acceptable terms, and award or deny a competitive franchise.” (Id.) Similarly, for companies with existing access to rights-of-way, the FCC reasonably found that their cable franchise applications should take less time to review and process because “an LFA need not devote substantial attention to issues of rights-of-way management.” (JA 525.) Specifically, the agency explained that since incumbent cable operators already demonstrated their “legal, technical, and financial fitness” to use rights-of-way to provide service, “an LFA need not spend a significant amount of time considering the fitness of such applicants to access public rightsof-way.” (JA 526.) That 90 days represents a reasonable time frame for incumbent providers is underscored by the fact that numerous state statutes require decisions on cable franchise applications in fewer than 90 days. (JA 499.) Accordingly, we conclude that the first rule included in the Order represents a permissible construction of the statute. b. Rule 2: Limitations on Build-Out Requirements The second rule contained in the Order places limits on the use of build-out requirements as a franchise term. Specifically, the Commission explained that “an LFA’s refusal to grant a competitive franchise because of an applicant’s unwillingness to agree to unreasonable build-out mandates constitutes an unreasonable refusal to award a competitive franchise.” (JA 493.) The Order further stipulates types of mandates that would qualify as unreasonable, such as requiring an operator to serve everyone in a given area as a precondition for providing service, requiring incumbent operators to “build out beyond the footprint of their existing facilities before they have even begun providing service,” and placing more stringent service requirements on new entrants than those facing incumbent operators. (JA 533.) In contrast, the agency described as reasonable an LFA’s consideration of “benchmarks requiring the new entrant to increase its build-out after a reasonable period of time had passed after initiating service and taking into account its market success.” (Id.) In arguing for the unreasonableness of this second rule, petitioners assert that the agency has effectively “amend[ed] the will of Congress by adding exceptions to a statute that do not otherwise Nos. 07-3391/3569/3570/3571/3572/3573/ Alliance for Community Media Page 15 3574/3673/3674/3675/3676/3677/3824 v. FCC exist.” (Petitioner ACM’s Br. 33; see also Petitioner Tampa’s Br. 43; Petitioner New York City’s Br. 7). That is, petitioners claim that “[s]everal of the scenarios identified by the FCC as examples of ‘unreasonable build-out mandates’ involve issues that have nothing to do with the one and only condition placed on an LFA by Congress – namely, that an LFA must allow a reasonable period of time for build-out.” (Petitioner ACM’s Br. 34.) The agency, in turn, retorts that this second rule is both lawful and reasonable because it sensibly responds to the state of the record evidence. Based on the its extensive fact-finding, the FCC discovered that commanding prospective cable entrants to expand rapidly their networks “greatly hinder[s] the deployment of new video and broadband services.” (Respondent’s Br. 33; JA 506.) Beyond the entry-deterring effects of build-out requirements, the agency maintains that its limitations on build-out mandates are “in effect timing restrictions” that accordingly fall well within Congress’s requirement that LFAs provide a reasonable period of time for build-out. (Respondent’s Br. 55.) Despite their differing interpretations of the provision, petitioners and respondent correctly identify section 621(a)(4)(A) of the Act as the appropriate starting point for establishing the reasonableness of the Order’s second rule. Under this section, the only express constraint on an LFA’s ability to impose build-out requirements is that it “shall allow the applicant’s cable system a reasonable period of time to become capable of providing cable service to all households in the franchise area.” 47 U.S.C. § 541(a)(4)(A). The question before us then is whether the FCC’s restrictions on build-out requirements represent a reasonable construction of section 621(a)(4)(A). At the most fundamental level, petitioners and respondent are enmeshed in a quarrel over whether section 621(a)(4)(A) confers on LFAs the right to impose build-out requirements (as petitioners would have it) or amounts to a limitation on the authority of LFAs to secure build-out requirements through franchise negotiations (as respondent would have it). In ascertaining the reasonableness of this second rule under Chevron, the legislative history of section 621(a)(4)(A) can help to illuminate whether the statutory text is better characterized as a rights-conferring or an authority-limiting provision. When integrating section 621(a)(4)(A) into the Act through the 1984 Amendments, Congress enacted the current version of the statute from which the following language was excised: an LFA’s “refusal to award a franchise shall not be unreasonable if, for example, such refusal is on the ground . . . of inadequate assurance that the cable operator will, within a reasonable period of time, provide universal service throughout the entire franchise area.” H.R. Rep. No. 102-628 at 9 (1992). That is, Congress explicitly considered and rejected the preceding language, which would have situated all build-out requirements as presumptively reasonable. Under this discarded version, the key phrase “shall not be unreasonable” indicates that LFAs would have exercised the affirmative right to impose build-out requirements on prospective entrants. In contrast, under the existing version of section 621(a)(4)(A), the statutory language fixes a durational requirement on LFAs when attaching build-out mandates to the terms of a franchise. The language, however, does not establish a presumption of reasonableness underlying all build-out requirements. That is, it is quite possible for an LFA to furnish a cable entrant with “a reasonable period of time to become cable of providing cable service to all households in the franchise area” yet still act unreasonably overall in imposing the build-out requirement on the entrant in the first place. Thus, in light of Congress’s patent consideration and rejection of statutory language that would have created a presumption of reasonableness surrounding build-out requirements, we find the FCC to have the better argument. Accordingly, section 621(a)(4)(A) is more aptly designated as a limitation on the authority of LFAs, rather than an affirmative bestowal of rights. The FCC’s subsequent explication of this limitation on build-out requirements, in the context of section Nos. 07-3391/3569/3570/3571/3572/3573/ Alliance for Community Media Page 16 3574/3673/3674/3675/3676/3677/3824 v. FCC 621(a)(1)’s requirement of reasonableness, thus appears to us a permissible construction of the Act, which warrants judicial deference under Chevron. c. Rule 3: Franchise Fees As part of its third rule addressing franchise fees, the Order construes the scope of the statutory five percent cap on fees located under section 622(b) of the Act. 47 U.S.C. § 542(b). This cap prohibits an LFA from charging a franchise fee in excess of five percent of a cable operator’s revenues from the provision of cable services. Id. Excluded from the definition of “franchise fee” and thereby from the five percent cap, however, are “requirements or charges incidental to the awarding or enforcing of the franchise, including payments for bonds, security funds, letters of credit, insurance, indemnification, penalties, or liquidated damages.” 47 U.S.C. § 542(g)(2)(D). Interpreting sections 622(b) and 622(g)(2)(D) in light of section 621(a)(1)’s reasonableness requirement, the Order enumerates the non-incidental charges that must fall within the purview of the statutory cap, including attorneys’ and consultants’ fees, “application or processing fees that exceed the reasonable cost of processing the application, acceptance fees, free or discounted services provided to an LFA, any requirement to lease or purchase equipment from an LFA at prices higher than market value, and in-kind payments.” (JA 539.) Likewise, “any requests made by LFAs that are unrelated to the provision of cable services by a new competitive entrant are subject to the statutory 5 percent franchise fee cap.” (JA 539.) The Order further insists that “a cable operator is not required to pay franchise fees on revenues from non-cable services.” (JA 536.) Asserting the unreasonableness of the Commission’s fee regulations, petitioners contend that the FCC’s interpretation of “incidental to” in section 622(g)(2)(D) violates the plain meaning of “incidental”, which is defined as “happening or likely to happen in an unplanned or subordinate conjunction with something else” or “incurred casually and in addition to the regular or main amount.” (Petitioner Fairfax County’s Br. 53.) In other words, petitioners contest the FCC’s per se listing of fees that count as non-incidental because such an approach contravenes the “statutory test [which] is whether an item is related to the awarding or enforcing of the franchise.” (Id.) Rather than prioritizing relatedness to the awarding of a franchise, petitioners insist that the FCC’s list prioritizes the substantiality of the charges. They point to application fees and expenses incurred in review of an application as examples of charges that, regardless of their size or relation to market value, undoubtedly arise in connection with the award of a franchise. By confounding “incidental to” with “substantial,” petitioners urge this Court to reject the FCC’s rules on franchise fees as unreasonable. The FCC, in contrast, supports its position in the Order by marshaling case law from three district court opinions, Time Warner Entertainment v. Briggs, 1993 WL 23710 (D. Mass. Jan 14, 1993), Birmingham Cable Comm. v. City of Birmingham, 1989 WL 253850 (N.D. Ala. 1989), and Robin Cable Sys. v. City of Sierra Vista, 842 F. Supp. 380 (D. Ariz. 1993). In Time Warner Entertainment, the court found that reimbursements for attorney’s and consultant’s fees imposed during a franchise award constituted “franchise fees” within the meaning of 47 U.S.C. § 542 and were thus subject to the statutory cap. 1993 WL 23710 at . The court in Birmingham Cable, addressing the phrase “incidental to,” held that “it would be an aberrant construction . . . to conclude that the phrase embraces consultant fees incurred solely by the City.” 1989 WL 253850 at , n.2. And in Robin Cable Systems, the court explained that exceptions to the franchise fee cap are to be “narrowly tailored.” 842 F. Supp. at 381. Taken together, the FCC asserts that these three decisions further cast its interpretation as reasonable. Considering the foregoing, we grant Chevron deference to the FCC’s rules regarding fees because they qualify as reasonable constructions of sections 622(b) and 622(g)(2)(D). In Nos. 07-3391/3569/3570/3571/3572/3573/ Alliance for Community Media Page 17 3574/3673/3674/3675/3676/3677/3824 v. FCC circumscribing the boundaries of our role under the Chevron doctrine, we have emphasized that we “need not conclude that the agency construction was the only one it permissibly could have adopted . . . or even the reading [we] would have reached if the question initially had arisen in a judicial proceeding.” Battle Creek Health System, 498 F.3d at 408-09 (internal quotations omitted). Thus, the fact that “incidental to” lends itself to multiple readings–the one highlighted by petitioners and the one highlighted by the agency–is alone insufficient to render the Commission’s interpretation unreasonable. Moreover, while not binding precedent on us, the fact that three district courts independently arrived at the same interpretation of “incidental to” as the Commission lends further credence to the rules governing franchise fees in the Order. Since petitioners have provided no evidence to refute the reasonableness of a necessity requirement built into the “incidental to” criterion, we defer to the agency’s interpretation as reasonable. d. Rule 4: Limitations on PEG Capacity The fourth rule the FCC formulated concerns PEG requirements. In conducting the inquiry called for by Chevron, the pivotal statutory language appears in section 622(g)(2)(C), which exempts from the definition of “franchise fee” the “capital costs which are required by the franchise to be incurred by the cable operator for public, educational, or governmental [PEG] access facilities.” 47 U.S.C. § 542(g)(2)(C). Faced with section 622(g)(2)(C), the agency differentiated between “costs incurred in or associated with the construction of PEG access facilities,” which qualify as capital costs and therefore fall into the franchisee fee exclusion, and “payments in support of the use of PEG access facilities,” which do not qualify as capital costs and so are subject to the statutory cap on franchise fees. (JA 540-41.) Salaries and training in support of the use of PEG access facilities fall into the latter category, for example, and so are counted toward the five percent limit. The agency further concluded that while LFAs may seek assurances from prospective cable operators that they will provide PEG access channel capacity, they “may not make unreasonable demands of competitive applicants for PEG.” (JA 541.) For instance, it would be “unreasonable for an LFA to impose on a new entrant more burdensome PEG carriage obligations than it has imposed upon the incumbent cable operator.” (JA 543.) On the other hand, the agency classified as “per se reasonable” a “pro rata cost sharing approach” in which a “new entrant agrees to share pro rata costs with the incumbent operator.” (JA 544.) Confronting the agency’s interpretation of “capital costs,” petitioners maintain that it is unreasonable and contrary to Congress’s intent. First, petitioners attack the rule for its supposed distinction between PEG facilities versus PEG equipment. In laying out this argument, petitioners state that the FCC’s reading narrows “capital costs” to only the “costs related to the construction of PEG facilities.” (Petitioner Fairfax County’s Br. 56.) This interpretation overlooks the fact that “[m]any LFAs . . . including Fairfax County . . . receive payments from cable operators that are used not simply for the construction of PEG access studios, but also for the acquisition of equipment needed to produce PEG access programming such as cameras and editing equipment.” (Id.) Fairfax County thus asserts that, “to the extent that the FCC apparently meant to exclude equipment from the term ‘capital costs,’ the Order directly contradicts the language of the statute.” (Id.) In response, the FCC insists that its interpretation does not signify that the term “capital costs” necessarily excludes equipment. (Respondent’s Br. 71.) Instead, the Commission underscores that the central test for determining whether an expense is a capital cost is whether it is “incurred in or associated with the construction of PEG access facilities.” (Id.) This definition could potentially encompass the cost of purchasing equipment, as long as that equipment relates to the construction of actual facilities. Nos. 07-3391/3569/3570/3571/3572/3573/ Alliance for Community Media Page 18 3574/3673/3674/3675/3676/3677/3824 v. FCC To determine the permissibility of the Commission’s construction of section 622(g)(2)(C), we start by consulting the legislative history. During the enactment of this provision, Congress made clear that it intended section 622(g)(2)(C) to reach “capital costs associated with the construction of [PEG] access facilities.” H.R. Rep. No. 98-934, at 26 (emphasis added). Against this legislative pronouncement, the FCC’s limitation of “capital costs” to those “incurred in or associated with the construction fo PEG access facilities” represents an eminently reasonable construction of section 622(g)(2)(C). The next question that arises is whether the FCC intended to limit its definition of capital costs only to facilities and not to equipment and, if so, whether this is a permissible construction of section 622(g)(2)(C). In clarifying the precise scope of the term “PEG access facilities,” Congress explained that it refers to “channel capacity (including any channel or portion of any channel) designated for public, educational, or governmental use, as well as facilities and equipment for the use of such channel capacity.” H. R. Rep. No. 98-934, at 45 (emphasis added). In further detail, Congress specified that “[t]his may include vans, studios, cameras, or other equipment relating to the use of public, educational, or governmental channel capacity.” Id. Thus, the unambiguous expression of Congress confirms that “PEG access capacity” extends not only to facilities but to related equipment as well. Considering both this clear Congressional statement, coupled with the fact that the agency concedes that its definition of “capital costs” covers the expense of equipment as long as it is “incurred in or associated with the construction of PEG access facilities,” we reject Fairfax County’s attempt to create an arbitrary distinction between facilities and equipment as baseless. To sustain the fourth rule’s reasonableness in its entirety, the last question we must address is whether the Order’s stipulation regarding unreasonable PEG carriage obligations and pro rata sharing schemes is a permissible construction of sections 611 and 621. Section 611(a) establishes the authority of LFAs to call for franchise terms relating to the “use of channel capacity for public, educational, or governmental use” but “only to the extent provided in this section.” 47 U.S.C. § 531(a). Section 621(a)(4)(B), in turn, states that, “in awarding a franchise,” an LFA “may require adequate assurance that the cable operator will provide adequate public, educational, or governmental access channel capacity, facilities, or financial support.” 47 U.S.C. § 541(a)(4)(B). The FCC claims that its rules regarding PEG carriage obligations and pro rata sharing give concrete meaning to the statutory term “adequate” in section 621(a)(4)(B). That is, the term “adequate” takes shape in relation to section 621(a)(1)’s reasonableness requirement: “LFAs that impose PEG . . . commitments on new entrants in excess of what is “adequate” . . . violate section 621(a)’s prohibition on ‘unreasonable refusals’ to award competitive franchises.” (Respondent’s Br. 72.) Rejecting the guidelines the agency adopted to clarify the meaning of “adequate,” petitioners argue that “adequate” does not lend itself to the formulation of per se rules. Furthermore, petitioner ACM insists that the agency’s prescription of rigid rules regarding PEG carriage obligations impedes the ability of LFAs to respond to changing community needs. Both sets of arguments, however, are without merit. First, Congress’s use of the word “adequate” in section 621(a)(4)(B) is an example of a statute that is “ambiguous . . . for purposes of Chevron analysis, without being inartful or deficient.” Haggar Apparel, 526 U.S. at 392. Congress’s reliance on the term “adequate” “exemplifies the familiar proposition that [it] need not, and likely cannot, anticipate all circumstances in which a general policy must be given specific effect.” Id. The Commission thus acted well within its discretion when it ruled that “LFAs are free to establish their own requirements for PEG,” subject to the limited constraints imposed to prevent violations of section 621(a)(1). (JA 542.) Such rulemaking by the agency represents a lawful exercise of its gap-filling authority and thus deserves our deference under Chevron. Nos. 07-3391/3569/3570/3571/3572/3573/ Alliance for Community Media Page 19 3574/3673/3674/3675/3676/3677/3824 v. FCC Likewise, petitioners’ charge that the FCC’s rules regarding PEG carriage obligations prevent attention to community needs is also tenuous at best. While the FCC’s guidelines prohibit LFAs from requiring new entrants to assume “more burdensome” PEG obligations than existing providers, nothing in this standard prevents LFAs from harmonizing the PEG obligations new suppliers do assume with local interests. Moreover, nothing in the Order bars LFAs from updating the PEG obligations incumbents face during franchise renewal proceedings, thereby permitting the PEG obligations new entrants shoulder to likewise reflect the most current needs of the community. Overall then, the FCC’s construal of PEG access facilities and “capital costs” comport with the legislative history and the overall statutory structure and thereby qualify for deference under Chevron.