Opinion ID: 172231
Heading Depth: 2
Heading Rank: 1

Heading: Restriction on Use of TRS Revenues for Lobbying or Advocacy Purposes

Text: The various challenges to the FCC's rulings are premised on both statutory and constitutional grounds. It is a fundamental rule of judicial restraint for courts, [p]rior to reaching any constitutional questions, ... [to] consider nonconstitutional grounds for decision. Jean v. Nelson, 472 U.S. 846, 854, 105 S.Ct. 2992, 86 L.Ed.2d 664 (1985) (quotations omitted). This court, therefore, considers petitioners' statutory arguments first. Sorenson argues the restriction on using TRS Funds to lobby customers is arbitrary, capricious, or contrary to law in violation of the APA, 5 U.S.C. § 706(2)(A). The FCC asserts the restriction is a logical action taken to counteract a specific problem. An agency action is arbitrary and capricious under the APA if, inter alia, the agency fails to examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made. Motor Vehicle Mfrs. Ass'n of U.S. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983) (quotation omitted). The same standard of review applies to both initial policy decisions and subsequent changes in policy. F.C.C. v. Fox Television Stations, Inc., ___ U.S. ___, 129 S.Ct. 1800, 1810-11, 173 L.Ed.2d 738 (2009). Review under the arbitrary and capricious standard is narrow in scope, but is still a probing, in-depth review. Qwest Commc'ns Int'l, Inc. v. F.C.C., 398 F.3d 1222, 1229 (10th Cir.2005) (quotation omitted). An agency's action is entitled to a presumption of validity, and the burden is upon the petitioner to establish the action is arbitrary or capricious. Citizens' Comm. to Save Our Canyons v. Krueger, 513 F.3d 1169, 1176 (10th Cir.2008). The court must rely upon the reasoning set forth in the administrative record and disregard post hoc rationalizations of counsel. Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1580 (10th Cir.1994). In the 2008 Declaratory Ruling, the FCC explained providers were not permitted to use revenues from the TRS Fund for lobbying or advocacy activities directed at customers because it found [e]vidence in the record [ ] that at least one service provider has bombarded deaf persons with material seeking to persuade them to support the provider's position on matters pending before the FCC. [3] 2008 Declaratory Ruling, 23 F.C.C.R. at 8998 (footnote omitted). According to the FCC, using revenue from the TRS Fund ... to engage in that kind of advocacy is inconsistent with the purpose of the TRS Fund. Id. The FCC went on to state that [t]he TRS Fund is designed to ensure that persons with hearing and speech disabilities have access to the telephone system. It was not intended to finance lobbying by providers directed at end users. The Commission is under no obligation to fund such activities out of the public fisc. Id. (quotation omitted). The rationale for the restriction, therefore, was that lobbying end users was not an activity the TRS Fund was intended to compensate, and therefore monies from the TRS Fund were not permitted to be used for that purpose. The FCC does not reimburse VRS providers for actual costs. Instead it compensates them based upon a tiered price cap formula. 2007 Declaratory Ruling, 22 F.C.C.R. at 20160-63. From provider data of expected costs and levels of usage, the FCC sets a per-minute compensation rate for providers. Id. One rationale for this approach is to give providers an incentive to innovate and reduce costs. See id. at 20162. If a provider can deliver VRS at an actual cost lower than the FCC's estimated cost, it retains the difference. The FCC has noted that in prior years estimated costs generally exceeded actual costs. Id. at 20161. Under this compensation scheme that allows VRS providers to retain payments in excess of actual costs, the FCC singled out lobbying as the one expenditure for which TRS Fund proceeds could not be used. The interdiction of the use of payments from the TRS fund for lobbying was premised on the Fund's limited design to ensure that persons with hearing and speech disabilities have access to the telephone system. 2008 Declaratory Order, 23 F.C.C.R. at 8998. The FCC's justification is inconsistent with the logic of a price cap-based compensation system. The FCC has chosen to reward efficient providers by allowing them to retain the savings generated by providing TRS at a low cost. It does this by compensating providers regardless of their actual costs in providing TRS. This reward mechanism is only effective if providers are permitted to decide how to spend those savings. Regardless of the validity of the FCC's concern regarding the purpose of the TRS Fund, it made no attempt to explain how restricting the use of revenues from the TRS Fund is consistent with its choice of a price cap scheme which itself seeks to reward efficiency and increase market access by allowing providers to retain cost savings. [4] Under the FCC's broad rationale, any expenditure apart from the actual cost of providing TRS is inconsistent with the purpose of the Fund. Lobbying expenditures, however, are the only expenditures prohibited. It is true the FCC is not required to address all problems in one fell swoop, and may focus on problems depending upon their acuteness. Nat'l Ass'n of Broadcasters v. F.C.C., 740 F.2d 1190, 1207 (D.C.Cir.1984). Nonetheless, the FCC must still articulate a satisfactory explanation for its action. Motor Vehicle Mfrs. Assn., 463 U.S. at 43, 103 S.Ct. 2856. The FCC made no attempt to explain why lobbying expenditures were deserving of prohibition while all other uses of Fund revenues were not. Because the FCC's chosen cost recovery system allows providers to spend revenues from the TRS Fund however they choose, the FCC inadequately explained its restriction on the grounds that lobbying expenditures are inconsistent with the purpose of the TRS Fund. 2008 Declaratory Ruling, 23 F.C.C.R. at 8998. The FCC further failed to provide any reason why lobbying expenses are deserving of prohibition when all other business expenditures are permissible. Absent these justifications, the prohibition on lobbying expenditures is arbitrary and capricious in violation of 5 U.S.C. § 706(2)(A). The 2008 Declaratory Ruling is hereby REMANDED to the FCC for further proceedings consistent with this opinion. Because the restriction is unlawful under the APA, this court does not consider the constitutional challenge.