Montgomery County v. Federal Communications Commission
863 F.3d 485
| 6th Cir. | 2017Background
- FCC issued three related orders (First Order 2007, Second Order 2007, Reconsideration Order 2015) creating rules on how local franchising authorities (LFAs) may regulate cable operators and what counts as a "franchise fee."
- The Communications Act caps franchise fees at 5% of a cable operator’s gross revenues and defines "franchise fee" in 47 U.S.C. § 542(g); § 542(g)(2)(D) excludes certain "requirements or charges incidental" to awarding/enforcing a franchise.
- First Order applied to new entrants and suggested some noncash "in-kind" items could count toward the 5% cap, but language was ambiguous about whether cable-related in-kind exactions were included.
- Second Order extended the First Order’s franchise-fee interpretation and a "mixed-use" rule (limiting local regulation to cable services over a cable system) to incumbent providers; Reconsideration Order largely adhered to the Second Order and added a supplemental RFA analysis.
- A coalition of local governments (Local Regulators) petitioned for review, arguing the FCC misinterpreted the statute and failed to adequately explain/justify key rules; intervenors supported the FCC.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether "franchise fee" (§ 542(g)(1)) excludes noncash (in-kind) exactions | Noncash exactions are not "tax, fee, or assessment" and thus not franchise fees | Statutory text "any tax, fee, or assessment of any kind" covers noncash in-kind exactions | Court: "Franchise fee" can include noncash in-kind exactions (statutorily permissible) |
| Whether "franchise fee" includes cable-related in-kind exactions | Cable-related in-kind obligations (e.g., PEG channels, I-Nets, build-outs) should not count toward 5% because Congress intended LFAs to impose such requirements | FCC treated in-kind cable-related exactions as franchise fees and counted them toward the cap | Court: FCC failed to explain/justify treating cable-related in-kind exactions as franchise fees; vacated that portion as arbitrary and capricious and remanded for explanation |
| Validity of the "mixed-use" rule as applied to incumbent non-Title II cable operators | LFAs may regulate services related to I-Nets and other non-video uses; FCC lacks statutory basis to bar such regulation for incumbents | FCC relied on § 522(7)(C) and First Order reasoning, claiming the rule applies regardless of incumbent/new status | Court: Applying mixed-use rule to incumbent non-Title II providers lacked statutory basis; vacated that application and remanded for proper justification |
| Challenges re: MFN clauses, state-level applicability, and RFA compliance | MFN clauses should be preempted to prevent a downward spiral; concern Second Order binds state franchising; RFA analysis inadequate | FCC declined to invalidate MFN clauses, limited orders to local franchises, and provided supplemental RFA analysis | Court: Rejected MFN and state-applicability challenges; RFA supplemental analysis was procedurally adequate; these claims denied |
Key Cases Cited
- Alliance for Community Media v. FCC, 529 F.3d 763 (6th Cir. 2008) (prior review of FCC First Order on cable franchise rules)
- Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117 (2016) (agencies must provide adequate reasons for rulemaking decisions)
- Teva Pharm. USA, Inc. v. Food & Drug Admin., 441 F.3d 1 (D.C. Cir. 2006) (agency action arbitrary and capricious when not supported by reasoned explanation)
- Denver Area Educ. Telecomm. Consortium, Inc. v. FCC, 518 U.S. 727 (1996) (context on franchise renewal/term and statutory interpretation in cable regulation)
- Mais v. Gulf Coast Collection Bureau, Inc., 768 F.3d 1110 (11th Cir. 2014) (district courts apply agency statutory interpretations in litigation)
- Hadden v. United States, 661 F.3d 298 (6th Cir. 2011) (Chevron deference framework for statutory ambiguity)