857 F.3d 886
D.C. Cir.2017Background
- The FCC runs a process to designate a Local Number Portability Administrator (LNPA) under 47 U.S.C. § 251(e); Neustar was the incumbent LNPA after a 1999 transfer.
- In a competitive selection process (bids and BAFOs), Telcordia (owned by Ericsson) and Neustar submitted proposals; NANC recommended Telcordia.
- The FCC issued a March 2015 Order adopting NANC’s recommendation, finding both bidders qualified but selecting Telcordia based on cost and other evaluations, while imposing neutrality safeguards (voting trust, independent board majority, biannual audits, Code of Conduct).
- Neustar challenged (1) that the FCC should have used notice-and-comment rulemaking under § 251, (2) the FCC misapplied neutrality rules—arguing Telcordia’s Ericsson ownership created unavoidable undue influence under Delaware corporate law—and (3) the FCC’s bid-cost/BAFO treatment was arbitrary.
- The D.C. Circuit consolidated review with the FCC’s later July 2016 order approving the negotiated contract and denied Neustar’s petitions, upholding the FCC’s procedural approach, neutrality determination, and cost/BAFO decisions.
Issues
| Issue | Plaintiff's Argument (Neustar) | Defendant's Argument (FCC) | Held |
|---|---|---|---|
| Whether § 251 requires notice-and-comment rulemaking to select an LNPA | § 251’s regulatory mandate requires rulemaking for LNPA selection and the FCC’s prior selections were rule-based | Selection of a specific administrator is fact-specific, adjudicative, and need not follow notice-and-comment; FCC did not incorporate a particular LNPA into rule | FCC selection was an informal adjudication; rulemaking not required |
| Whether the March 2015 Order is a "rule" under APA (thus triggering § 553) | The Order has prospective effect and affects policy generally, so it is a rule requiring notice-and-comment | The Order resolved party-specific rights in a case-by-case selection (licensing-like); it applied existing rules to specific bidders | Order is an adjudication, not an APA rule; APA notice-and-comment not required |
| Whether Telcordia satisfied neutrality requirements given Ericsson ownership | Delaware corporate-law unity between parent and wholly-owned subsidiary makes Telcordia inherently subject to Ericsson’s influence; safeguards cannot cure that problem | FCC can evaluate undue influence under its rules and impose tailored safeguards (voting trust, independent directors, audits); corporate-law concerns do not mandate disqualification | FCC’s interpretation and application of neutrality rules and use of safeguards was reasonable and not arbitrary or capricious |
| Whether FCC acted arbitrarily in BAFO handling and cost/transition analysis | FCC improperly rejected Neustar’s unsolicited second BAFO and underestimated transition costs, skewing cost comparison | RFP made additional BAFOs permissive; administrative efficiency justified not considering a second unsolicited BAFO; FCC considered transition costs (including Neustar’s estimates) and concluded Telcordia’s advantages outweighed transition costs | FCC reasonably declined to consider the unsolicited second BAFO and adequately considered transition costs; cost analysis not arbitrary |
Key Cases Cited
- SEC v. Chenery Corp., 332 U.S. 194 (agency may choose adjudication or rulemaking; courts defer to reasonable agency process)
- AT&T Corp. v. Iowa Utilities Bd., 525 U.S. 366 (statute requiring promulgation of regulations discussed in context of agency rulemaking authority)
- Perez v. Mortgage Bankers Ass’n, 135 S. Ct. 1199 (definition of a "rule" under the APA)
- Conference Grp., LLC v. FCC, 720 F.3d 957 (D.C. Cir.) (agency discretion to proceed by adjudication or rulemaking)
- Catholic Health Initiatives Iowa Corp. v. Sebelius, 718 F.3d 914 (D.C. Cir.) (distinction between adjudication and rulemaking; retroactive effect discussion)
- Anadarko Petroleum Corp. v. Panhandle Eastern Corp., 545 A.2d 1171 (Del.) (parent–subsidiary fiduciary duty principles relied on by Neustar)
- NLRB v. Bell Aerospace Co., 416 U.S. 267 (case-by-case adjudication vs. rulemaking distinctions)