Court Opinion

ID: 9555883
Source: CourtListenerOpinion
Date Created: 2023-08-15 16:02:19.637217+00
Date Added: 2024-06-11T15:36:03.746967
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 20, 2022           Decided August 15, 2023

                        No. 22-1054

    PACIFIC NETWORKS CORP. AND COMNET (USA) LLC,
                     PETITIONERS

                              v.

   FEDERAL COMMUNICATIONS COMMISSION AND UNITED
               STATES OF AMERICA,
                  RESPONDENTS

             On Petition for Review of an Order
        of the Federal Communications Commission

    Christopher J. Wright argued the cause for petitioners.
With him on the joint briefs were Jeffrey Carlisle and Stephen
Coran.

    Scott M. Noveck, Counsel, Federal Communications
Commission, argued the cause for respondents. With him on
the brief were Brian M. Boynton, Principal Deputy Assistant
Attorney General, U.S. Department of Justice, Sharon Swingle
and Casen Ross, Attorneys, and Jacob M. Lewis, Deputy
General Counsel, Federal Communications Commission.

   Before: HENDERSON and KATSAS, Circuit Judges, and
EDWARDS, Senior Circuit Judge.
                                2

    Opinion for the Court filed by Circuit Judge KATSAS.

     KATSAS, Circuit Judge: Pacific Networks Corp. and
ComNet (USA) LLC, which are companies owned by the
People’s Republic of China, held authorizations to operate
communication lines in the United States. The Federal
Communications Commission revoked these authorizations
based on concerns that the carriers posed national-security risks
and had proven themselves untrustworthy. The carriers argue
that the FCC’s reasoning was substantively arbitrary and was
rendered with inadequate process. We reject both contentions.

                                I

                                A

     Section 214(a) of the Communications Act of 1934 makes
it unlawful to operate any wire communications line without
authorization from the FCC. 47 U.S.C. § 214(a). In deciding
whether to grant such authorization, the Commission considers
the “public convenience and necessity,” id., including whether
authorization would imperil “the national defense,” id. § 151.
In assessing national-security risks posed by foreign-owned
companies, the FCC has long consulted other federal agencies
with expertise in that area. See Rules and Policies on Foreign
Participation in the U.S. Telecomms. Mkt., 12 FCC Rcd.
23,891, 23,919–22 (1997). This group of agencies is known
colloquially as Team Telecom.

     A recent executive order formalized this process by
establishing a committee “to assist the FCC in its public interest
review of national security and law enforcement concerns that
may be raised by foreign participation in the United States
telecommunication services sector.” Exec. Order No. 13913,
§ 3(a), 85 Fed. Reg. 19,643, 19,643 (Apr. 4, 2020). The
                              3
committee includes the Secretary of Homeland Security, the
Attorney General, and the Secretary of Defense. Id. § 3(b), 85
Fed. Reg. at 19,643–44.

                              B

    In recent years, the United States has grown increasingly
concerned about espionage and other threats from Chinese-
owned telecommunications companies.

     In 2018, Team Telecom recommended that the FCC deny
a section 214 authorization to one such company, China Mobile
International (USA) Inc. Team Telecom concluded that the
proposed authorization “would pose substantial and
unacceptable national security and law enforcement risks”
because the company’s ownership made it “subject to
exploitation, influence, and control by the Chinese
government.” Redacted Exec. Branch Recommendation to the
FCC to Deny China Mobile International (USA) Inc.’s
Application for an Int’l Section 214 Authorization, FCC No.
ITC-214-20110901-00289, at 7 (July 2, 2018) (China Mobile
Recommendation). The FCC agreed and denied the requested
authorization on that basis. China Mobile Int’l (USA) Inc., 34
FCC Rcd. 3361, 3365–66 (2019).

     Invoking the same concerns, the FCC later revoked section
214(a) authorizations held by another Chinese-owned carrier,
China Telecom (Americas) Corp. China Telecom (Americas)
Corp., 36 FCC Rcd. 15,966, 15,992 (2021). We denied a
petition for review in that case. China Telecom (Americas)
Corp. v. FCC, 57 F.4th 256 (D.C. Cir. 2022).

                              C

    Through a web of foreign affiliates, China also owns a
controlling interest in Pacific Networks and its wholly owned
                               4
subsidiary, ComNet. Until 2022, these companies held section
214(a) authorizations. Pacific Networks provided business
networking services extending internationally, while ComNet
sold international calling cards. To obtain their authorizations,
the carriers promised to “take all practicable measures to
prevent unauthorized access to, or disclosure of the content of
communications or U.S. records.” J.A. 21.

     In 2020, the FCC ordered Pacific Networks and ComNet
to show cause why their authorizations should not be revoked.
Pac. Networks Corp., 35 FCC Rcd. 3733 (2020). Citing its
China Mobile order, the Commission questioned whether
Pacific Networks and ComNet, as companies indirectly owned
by China, would be subject to its “exploitation, influence, and
control.” Id. at 3735–36. The carriers submitted a 37-page
response with hundreds of pages of exhibits.

     Team Telecom then weighed in. It concluded that China’s
ownership raised “significant concerns” that the carriers would
be “forced to comply with Chinese government requests,
including requests for communications intercepts.” J.A. 114.
Likewise, the carriers could be “exploit[ed] by the Chinese
government … to conduct or to increase economic espionage
and collect intelligence against the United States.” Id. at 116.

    In 2021, the FCC instituted a full proceeding to consider
revoking the authorizations. Pac. Networks Corp., 36 FCC
Rcd. 6368 (2021). It identified various open issues. This time
around, the carriers submitted an 84-page response with
hundreds of pages of exhibits.

    The FCC revoked the authorizations. It concluded that
“ownership and control by the Chinese government raise
significant national security and law enforcement risks by
providing opportunities for the [carriers], their parent entities
and affiliates, and the Chinese government to access, monitor,
                               5
store, and in some cases disrupt [or] misroute U.S.
communications, which in turn allow them to engage in
espionage and other harmful activities against the United
States.” Pac. Networks Corp., FCC 22-22, 2022 WL 905270,
at *1 (FCC Mar. 23, 2022) (Revocation Order). The
Commission further concluded that the carriers had shown a
lack of candor and trustworthiness. And for both reasons, it
concluded that nothing short of revocation would ameliorate
the national-security risks.

     The carriers petitioned this Court for review. We have
jurisdiction under 28 U.S.C. § 2342(1) and 47 U.S.C. § 402(a).

                               II

    Under the Administrative Procedure Act, we must
consider whether the Revocation Order was arbitrary or
capricious. 5 U.S.C. § 706(2)(A). This “deferential” standard
requires only “that agency action be reasonable and reasonably
explained.” FCC v. Prometheus Radio Project, 141 S. Ct.
1150, 1158 (2021). Pacific Networks and ComNet assert that
the FCC arbitrarily assessed national security, candor, and
mitigation. We address each consideration in turn.

                               A

     The carriers contend that the FCC unreasonably found a
threat to national security. But the Commission meticulously
explained—over the span of 62 pages—how the carriers’
domestic operations threaten national security. First, the
agency described how China holds a majority interest in Pacific
Networks and ComNet through various affiliated Chinese
companies, which exercise significant control over the carriers’
day-to-day operations. Revocation Order at *18–20, *24–25.
Next, it detailed how China can access the carriers’ records
through those affiliates, id. at *24, including by invoking a
                               6
Chinese law requiring all Chinese corporations to “support,
assist, and cooperate with national intelligence efforts,” id. at
*30 (quotation omitted). Finally, it explained the breadth and
sensitivity of the carrier records: ComNet has amassed detailed
call records of its United States customers, including numbers
called as well as the frequency, duration, and timing of the
calls. Id. at *38. Furthermore, it can monitor the calls
themselves. Id. Pacific Networks likewise can “access,
monitor, store, [or] disrupt” communications sent over its
networks, and it has access to customers’ personally
identifiable information. Id. at *40.

     We cannot second-guess the FCC’s judgment that
allowing China to access this information poses a threat to
national security. In making it a crime to obtain call records
without authorization, Congress found that “call logs may
include a wealth of personal data” about a person’s business,
medical records, private relationships, and more. Telephone
Records and Privacy Protection Act of 2006, Pub. L. No. 109-
476, § 2, 120 Stat. 3568, 3568; see 18 U.S.C. § 1039(a). Courts
likewise have observed that call records often contain a
“startling amount of detailed information,” such as whether an
individual is “a victim of domestic violence or rape; a veteran;
suffering from an addiction of one type or another;
contemplating suicide; or reporting a crime.” ACLU v.
Clapper, 785 F.3d 787, 794 (2d Cir. 2015). China has
exploited such information—like the fact that a former United
States intelligence officer was having financial difficulties—to
recruit spies. See United States v. Mallory, 40 F.4th 166, 169–
71 (4th Cir. 2022). More generally, Team Telecom has warned
that China uses information obtained from telecommunications
carriers—including but not limited to call records—“to
conduct or to increase economic espionage and collect
intelligence against the United States.” J.A. 116.
                               7
     The carriers do not seriously contest any of this. Instead,
they fault the FCC for even considering whether their
operations could facilitate Chinese espionage. According to
the carriers, the Commission should have focused solely on
whether they posed a threat to domestic telecommunications
infrastructure. As the carriers note, Team Telecom often has
focused on that specific threat. But it also considers more
generally whether carriers engage in “activities with potential
national     security    implications.”         China    Mobile
Recommendation, FCC No. ITC-214-20110901-00289, at 6–7.
In any event, the licensing decision is vested in the FCC, which
must consider both “the national defense,” 47 U.S.C. § 151,
and the “public convenience and necessity,” id. § 214(a).
These factors plainly encompass the question whether
authorizations would facilitate espionage.

     The carriers further note that Team Telecom declined to
recommend revocation in this case. But that was because the
FCC asked it to answer discrete questions within a “limited
time” of one month. J.A. 109. Moreover, Team Telecom did
not recommend against revocation, and it did note that the
operations of Pacific Networks and ComNet posed similar
national-security risks to the ones detailed more fully in its
China Mobile Recommendation. J.A. 116. Finally, when the
FCC received Team Telecom’s input in this case, it did not
reflexively revoke, but instead set the matter for full written
submissions. None of this was arbitrary.

     In sum, the FCC reasonably concluded that the domestic
operations of ComNet and Pacific Networks threatened
national security by making vast amounts of sensitive
information easily available to China.
                               8
                               B

     The carriers also challenge the FCC’s determination that
they lacked candor and trustworthiness. But the agency amply
justified its concern. Revocation Order, 2022 WL 905270, at
*49–60. To begin with, the FCC explained how the carriers
gave misleading and incomplete responses to the show-cause
order. Despite being asked to identify the senior management
of every entity that held a 10% or greater direct or indirect
interest in Pacific Networks, the carriers provided information
only for the direct parent company of Pacific Networks.
Response to Order to Show Cause, FCC No. ITC-214-
20090105-00006, at 11–12 & Ex. A-1 (filed June 1, 2020).
And they submitted an ownership chart not disclosing the
Chinese government at all. Revocation Order, 2022 WL
905270, at *52.

     The FCC also explained how the carriers downplayed
China’s control over their operations. For example, while the
carriers represented that they operated “independently” of their
foreign affiliates, the Commission’s investigation showed that
one affiliate played “an integrated role” in their operations,
including by managing access to their United States customer
records. Revocation Order, 2022 WL 905270, at *53, *55.
And during a Senate investigation into how Chinese-owned
carriers threaten national security, ComNet stated that “its data
center and all backed-up information are located in the United
States and that it controls access to all U.S. records and data
systems.” Staff of Permanent Subcomm. on Investigations of
the S. Comm. on Homeland Sec. & Governmental Affs., 116th
Cong., Threats to U.S. Networks: Oversight of Chinese
Government-Owned Carriers 96 (2020). But evidence before
the FCC showed that China can access both ComNet’s records
and data that passes through its facilities. Revocation Order,
2022 WL 905270, at *43.
                               9
     Again, the carriers do not seriously contest the FCC’s
factual determinations.        Instead, they object that the
Commission had never revoked a section 214 authorization
based solely on misrepresentations. The carriers cite past cases
where concerns about candor or trustworthiness produced only
a fine. See, e.g., Omniat Int’l Telecom, LLC, 24 FCC Rcd. 4254
(2009); Skyport Glob. Commc’ns, Inc., 24 FCC Rcd. 3714
(2009). But those cases did not involve national-security risks,
which plainly heighten any trustworthiness concerns.

                               C

     Finally, Pacific Networks and ComNet claim that the FCC
arbitrarily rejected the possibility of mitigating measures short
of revocation. But the Commission explained its view that the
carriers’ untrustworthiness would make any mitigation
agreement too risky: Such agreements are not self-enforcing,
and the agency cannot comprehensively monitor compliance.
Revocation Order, 2022 WL 905270, at *66. Furthermore,
oversight cannot reliably detect surreptitious, state-sponsored
efforts at evasion. Id. In short, the FCC reasonably explained
why no realistic agreement could have worked given the
carriers’ proven lack of trustworthiness.

                               III

     Pacific Networks and ComNet also challenge the process
underlying the FCC’s decision. The carriers primarily contend
that the Due Process Clause and the APA require the agency,
before it may revoke a section 214(a) authorization, to hold a
live evidentiary hearing before a neutral adjudicator with an
opportunity for discovery and cross-examination. We rejected
that argument in China Telecom. See 57 F.4th at 268–71.

    The carriers conclude with a hodgepodge of further
procedural objections. They say that the FCC imposed the
                              10
burden of proof on them, failed to acknowledge disputed
material facts, proceeded without a formal recommendation
from Team Telecom, and proceeded by adjudication rather
than by rulemaking. None of these further claims has merit.
As detailed above, the FCC amply proved facts establishing
both a national-security risk and a lack of trustworthiness.
Nothing in the Due Process Clause, the APA, or the
Communications Act requires the Commission to consult with
other agencies, which it did in any event. And nothing in these
laws required it to proceed by rulemaking in assessing the
specific risks posed by these individual carriers. See NLRB v.
Bell Aerospace Co., 416 U.S. 267, 294 (1974).

                              IV

     The FCC adequately explained its decision to revoke
Pacific Networks’ and ComNet’s authorizations, and it
afforded adequate process to the carriers. We therefore deny
the petition for review.

                                                   So ordered.