Blanca Telephone Company v. FCCBlanca Telephone Company v. FCC
PETITION FOR REVIEW FROM THE FEDERAL COMMUNICATIONS COMMISSION (NOS. FCC 17-162 and FCC 20-28)
Timothy E. Welch, Hill and Welch, Silver Springs, Maryland, for Petitioner.
Scott Noveck, Counsel (Thomas M. Johnson, Jr., General Counsel, Ashley S. Boizelle, Deputy General Counsel, Richard K. Welch, Deputy Associate General Counsel, Federal Communications Commission, and Makan Delrahim, Assistant Attorney General, Michael F. Murray, Deputy Assistant Attorney General, and Robert B. Nicholson and Adam D. Chandler, Attorneys, United States Department of Justice, with him on the brief), Federal Communications Commission, Washington, D.C., for Respondents.
Before TYMKOVICH, Chief Judge, BRISCOE, and BACHARACH, Circuit Judges.
Blanca Telephone Company is a rural telecommunications carrier based in Alamosa,
The Federal Communications Commission1 administers and enforces the rules governing distribution of USF support. Through an investigation begun in 2008 by the FCC‘s Office of Inspector General into Blanca‘s аccounting practices, the FCC identified overpayments Blanca had received from the USF between 2005 and 2010. According to the FCC, Blanca improperly claimed roughly $6.75 million in USF support during this period for expenses related to providing mobile cellular services both within and outside Blanca‘s designated service area. As we describe in more detail below, Blanca was entitled only to support for “plain old telephone service,” namely land lines, and not for mobile telephone services. Following the investigation, the FCC issued a demand letter
to Blanca seeking repayment. The agency eventually used administrative offsets of payments owed to Blanca for new subsidies to begin collection of the debt.
Blanca objected to the FCC‘s demand letter and sought agency review of the debt collection determination. During agency proceedings, the FCC considered and rejected Blanca‘s objections. Now, in its petition for review before this court, Blanca challenges the FCC‘s demand letter and subsequent orders on a number of grounds. Blanca claims the FCC‘s decision should be set aside for three reasons: (1) it was barred by the relevant statute of limitations, (2) it violated due process, and (3) it was arbitrary and capricious.
On review of the agency‘s record, we AFFIRM the FCC‘s decision. We conclude the FCC‘s debt collection was not barred by any statute of limitations, Blanca was apprised of the relevant law and afforded adequate opportunity to respond to the FCC‘s decision, and the FCC was not arbitrary and capricious in its justifications for the debt collection.
I. Background
A. Factual Background
1. The Regime Governing Blanca
In this appeal we must decide whether Blanca, a local exchange carrier (LEC) under federal law, could receive USF support for costs associated with providing mobile telephone services.2 In order to proceed, we first describe the laws governing Blanca as of 2005.
Blanca and other telecommunications carriers are governed by a vast regulatory scheme. As telecommunications technology has become more advanced and complex, the laws and regulations governing such technology have tried to keep pace. And as the country‘s population has shifted geographically, with many trading rural for urban living, the laws and regulations have tried to account for these demographic changes as well.
Throughout the latter-half of the twentieth century, it became less economically feasible for traditional phone companies to provide services to rural customers. Faced with rugged terrain across open expanses,
The Telecommunications Act of 1996 was passed to address this shortage of quality telecommunications services in rural parts of the country.
telecommunications and information services . . . reasonably comparable to those services provided in urban areas and that are available at rates that are reasonably comparable to rates charged for similar services in urban areas.“). The Act sought to ensure that “universal service” was available to customers, regardless of where they lived.
The USF is overseen by the FCC and administered by two private organizations. It is funded by mandatory contributions from carriers.
reports from carriers. See generally Farmers Tel. Co., Inc. v. FCC, 184 F.3d 1241, 1246-45 (10th Cir. 1998) (describing the structure and function of NECA). USAC can obtain any reports submitted to NECA.
As of 2005, USF funds could be distributed to eligible telecommunications carriers (ETCs) for certain types of expenses. See
Within each service area, a state could designate one eligible carrier as the incumbent LEC.
Congress did not intend for the USF to act as an unrestricted fund for eligible
The FCC implemented one set of accounting rules for incumbent LECs. Under these rules, incumbent carriers had to differentiate between expenses related to regulated and unregulated activities in their accounting. See
And nonregulated accounts were for “[p]reemptively deregulated activities and activities . . . never subject to regulation.”
By contrast, competitive ETCs were governed by different accounting rules.
11314 (2001) (clarifying that competitive eligible telecommunications carriers providing mobile services could use a subscriber‘s billing address for purposes of determining USF support); In the Matter of High-Cost Universal Serv. Support, 23 FCC Rcd. 8834, 8843-44 (2008) (explaining that the FCC never intended identical support to be used to subsidize wireless services, although that was how most competitive carriers used it). To receive USF support, competitive carriers needed to report to USAC the number of customers they served in an incumbent LEC‘s service area.
As of 2005, cellular services were considered nonregulated for accounting purposes. See
incumbent LECs had to treat expenses associated with cellular services as nonregulated for accounting purposes.5
Incumbent LECs could receive USF support for one category of cellular services: basic exchange telecommunications radio services (BETRS). BETRS was a type of mobile radio service intended as a gap-filler for areas with particularly rough terrains. See 12 FCC Rcd. at 15710-11 (“We also believe that rural LECs may find it economical to use [commercial mobile radio services] licenses to provide fixed wireless services in remote areas as an alternative means of extending the local exchange network to unserved or hard to serve areas.“). Rather than having a wired connection, the company would use BETRS to provide
a customer with basic telephone service. The FCC‘s order made clear that BETRS was considered a fixed service and distinct from other cellular services. See In the Matter of Amendment of the Comm‘n Rules to Permit Flexible Serv. Offerings in the Commercial Mobile Radio Servs., 11 FCC Rcd. 8965, 8987 (1996) (“[W]e have determined that BETRS is a fixed service, rather than mobile service, and therefore BETRS providers are not subject to [commercial mobile radio services] regulations under
2. Blanca‘s Conduct
Blanca is a telecommunications provider based in Alamosa, Colorado. It was originally incorporated in 1926. In 1997, Colorado designated Blanca as an incumbent LEC for parts of Alamosa and Costilla counties. Neither the FCC nor the state ever designated Blanca as a competitive ETC. And Blanca never submitted any of the reports required of a competitive ETC to claim identical support from the USF.
Starting in 2005, Blanca claimed USF support for all of its services, both fixed and cellular. And Blanca claimed USF support
Blanca submitted its costs studies from 2005 onward to NECA. In 2012, NECA conducted a review of Blanca‘s 2011 cost study. And in 2013, NECA concluded that Blanca had impermissibly received USF support for costs incurred while providing nonregulated services, i.e., cellular service. NECA advised Blanca to revise the 2011 cost study and any subsequent studies in which Blanca had failed to allocate its costs. Blanca then hired a cost consultant to review and revise Blanca‘s submissions from 2011 and 2012. Blanca eventually reached a settlement with NECA in 2013 based on overpayments identified in the revised cost studies.7
3. The FCC‘s Investigation into Blanca
The FCC first began investigating Blanca‘s accounting practices in 2008. The following year, thе FCC‘s Office of Inspector General issued subpoenas to Blanca for reports, filings, and correspondence that Blanca filed with NECA and USAC regarding USF support. After Blanca‘s settlement with NECA, the FCC eventually concluded Blanca had improperly reported and received overpayments from the USF from 2005 to 2010.8 In particular, Blanca claimed and received USF support for nonregulated services both within and outside of Blanca‘s study area. The FCC relied on the same methodology employed by Blanca‘s cost consultant in the NECA settlement to identify the amount of the overpayments.
In 2016,9 the FCC‘s Office of Managing Director issued a demand letter to Blanca, identifying the overpayments and requesting repayment. In particular, it faulted Blanca for “charateriz[ing] its cellular stations as Basic Exchange Telephone Relay
including cellular service costs in its reports, “fail[ing] to comply with Parts 64, 36 and 69 of the FCC‘s rules.” R., Vol. I at 2. These accounting practices “resulted in inflated disbursements to Blanca from [the USF].” Id. Reviewing books and records obtained through the earlier subpoenas, the FCC determined Blanca owed $6,748,280 from USF overpayments. The letter also indicated that Blanca could challenge the finding by submitting evidence to the FCC within 14 days of receiving the letter.
B. Procedural Background
Blanca petitioned the FCC for review оf the Managing Director‘s demand letter. It challenged the letter‘s findings on multiple grounds. Most significantly, Blanca argued the FCC‘s demand letter did not afford it the due process required under law. In 2017, the FCC issued an order in response to Blanca‘s petition, rejecting Blanca‘s claims and affirming the demand letter. Following this order, the FCC initiated collection of the debt from Blanca through administrative offsets, withholding USF support to which Blanca was otherwise entitled.
At the end of 2017, Blanca petitioned the FCC again, this time for a reconsideration of the agency‘s order.10 In January of 2020, Blanca brought a
petition for review of the FCC‘s order to this court.11 In March of 2020, the FCC affirmed the demand letter and order. Blanca then filed a new petition for review and a motion to supplement the record based on the FCC‘s final order.12
II. Standard of Review
In evaluating the FCC‘s actions, we must bear in mind two different standards of review.
In acting, the FCC must comply with the Administrative Procedure Act (APA). And the APA authorizes courts to review agency action.
In particular, the APA directs courts to “set aside agency actions, findings and conclusions found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.”
B. De Novo Standard
Blanca also contends the FCC violated its due process rights.
The APA requires us to “set aside agency actions, findings, and conclusions found to be . . . contrary to constitutional right.”
III. Analysis
Blanca suggests that we can reverse the FCC on any one of three grounds: (1) the agency did not act within the relevant statutes of limitations, (2) it violated Blanca‘s procedural rights established by statute and the Constitution, and (3) its orders were arbitrary and capricious. We address each issue in turn.
A. Did the FCC act within the applicable statute of limitations?
Blanca insists the FCC‘s action is time-barred. It points to two statutes that would preclude the FCC‘s action:
We do not agree. Rather, because the FCC‘s action is most properly characterized as debt collection, not punishment, the FCC had to comply with all requirements of the Debt Collection Improvement Act (DCIA), codified at
1. Legal Standard
Our default rule is that the government claim will not be time-barred. United States v. Telluride Co., 146 F.3d 1241, 1244 (10th Cir. 1998). Congress must expressly set a statute of limitations to overcome this default rule. Id. When a party argues a government claim is barred by a statute of limitations, we must construe the statute in favor of the government. Id. at 1245.
The FCC and Blanca disagree about what statute should govern the agency‘s action. The FCC suggests its interpretation of the relevant statutes, and the applicability of those statutes to its decision, should control based on the deference owed to agencies under Chevron, U.S.A. v. Natural Resource Defense Council, 467 U.S. 837 (1984).
To determine whether an agency‘s interpretation of a statute is entitled to deference, we first determine whether the statute is ambiguous. Chevron, 467 U.S. at 842. If the statute is clear, we do not defer to the agency‘s interpretation. Id. at 842-43; see also New Mexico v. U.S. Dep‘t of Interior, 854 F.3d 1207, 1231 (10th Cir. 2017) (finding a statute clear, so declining to move to step two of the Chevron analysis). But if it is ambiguous or silent about the relevant issue, we defer to the agency‘s interpretation unless it is arbitrary, capricious, or manifestly opposed to the plain meaning of the statute. In re FCC 11-161, 753 F.3d at 1041 (citing Chevron, 467 U.S. at 844).
We also do not give any Chevron deference to an agency‘s interpretation of statutes that are outside of the agency‘s expertise. Hydro Res., Inc. v. EPA, 608 F.3d 1131, 1145 (10th Cir. 2010) (“Courts do not . . . afford the same deference to an agency‘s interpretation of a statute lying outside the compass of its particular expertise and special charge to administer.“). We review such statutes de novo. Id.
2. Application
Here, Blanca and the FCC each point to different statutes that they argue should apply here. Blanca insists the FCC must have acted under either
In its orders, the FCC interpreted each statute as it relates to recovering overpayments from Blanca. The FCC argued it was not acting under
Rather, according to the orders, “[t]he commission or USAC has consistently sought recovery of USF funds outside of section 503 proceedings.” R., Vol. II at 310. This is because “[n]either the plain language of section 503 of the Act nor its legislative history indicates that Congress intended that section to govern debt determinations.” Id. The FCC аlso insists the collection is not pursuant to
We do not afford the FCC any deference in interpreting the DCIA or
Both
The DCIA, by contrast, is aimed at pure debt collection. It authorizes agencies to collect “a claim of the United States government for money or property arising out of the activities of, or referred to, the agency.” See
These statutes are not ambiguous. Sections 503 and 2462 apply to punitive agency action; the DCIA applies to debt collection of funds owed to the United States. In that light, we must answer two questions to determine which statute governs the FCC‘s collection efforts and which statute of limitations applies. First, do the FCC‘s actions constitute a penalty? Second, if the action is not a penalty, are the overpayments from the USF “owed to the United States“?
a. Penalty or Debt Collection
The Supreme Court recently provided a framework for determining whether an agency action constitutes a penalty in Kokesh. See 137 S. Ct. 1635. The SEC had sought a disgorgement judgment against Kokesh for violations of federal law that occurred over an almost fifteen-year period. The district court ordered disgorgement of money illegally obtained during this time. On appeal, Kokesh argued the disgorgement operated as a penalty, so it should have been barred in part by the five-year stаtute of limitations in
To determine whether the SEC‘s disgorgement was punitive, the Court considered two guiding principles: (1) whether the agency‘s action is redressing a wrong to the public or to a private party and (2) whether the agency‘s action is taken for punitive purposes, e.g., to deter others from committing a similar violation. Id. at 1642. The Court concluded the disgorgement was a penalty. The disgorgement was enforced against Kokesh for a violation of public laws, intended to deter future violators, and not strictly compensatory. Id. at 1643-44.
Because the disgorgement carried the hallmark traits of a penalty, the SEC‘s disgorgement was partially barred by the five-year statute of limitations in
Blanca argues the FCC‘s action here is like the disgorgement in Kokesh. It asserts the collection effort is punitive because the violation was of a public accounting law and the FCC‘s ultimate purpose is deterrence. Blanca points to the demand letter and subsequent orders as proof of the
In response, the FCC contends that it is not punishing Blanca. Rather, the debt collection is intended to do nothing more than return Blanca to “the status quo.” Resp. Br. at 47. The FCC insists the mere “belief the sanction is costly or painful does not make it punitive.” Id. (quoting Telluride, 146 F.3d at 1247).
We agree with the FCC that Kokesh does not compel us to conclude the reimbursements are a penalty.
First, we have previously concluded that just because a party violated a public law and because an agency wants to protect the public through a subsequent action does not necessarily make that action a penalty. See Telluride, 146 F.3d at 1246 (“[W]e see no reason to include all wrongs to the public as penalties.“). The Supreme Court‘s decision in Kokesh did not change that. The identity of the wronged party is just one guiding principle when deciding whether government action is punitive. The fact that Blanca‘s accounting violations wronged the public as opposed to a discrete private party does not decide the issue for us.
Looking to the second principle—the purposes underlying the FCC‘s actions—convinces us the collection efforts are not a penalty. The FCC‘s purpose was compensation for the overpayment. Kokesh, 137 S. Ct. at 1642 (“[A] pecuniary sanction operates as a penalty only if it is sought for the purpose of punishment . . . as opposed to compensating a victim for his loss.“) (internal quotation marks omitted). In the orders, the FCC sought only repayment of the amount overpaid out of the USF to Blanca.14 The fact that it also identified how its action might protect the public or marketplace from harm does not transform the underlying nature of the action. See Bennett v. Ky. Dep‘t of Educ., 470 U.S. 656, 662-63 (1985) (“Although recovery of misused . . . funds clearly is intended to promote compliance with the requirements of the grant program, a demand for repayment is more in the nature of an effort to collect upon a debt than a penal sanction.“).
Blanca‘s arguments about the FCC‘s self-description of the collection efforts as “enforcement activity” and as aimed at rooting out “waste, fraud, and abuse” are unavailing. A single, passing reference to the collection as an “enforcement activity” does not transform it into a penalty. And while the FCC used the phrase “waste, fraud, or abuse” at times to describe its justification for undertaking audits and investigations, it also stressed that the present
b. Funds Owed to the United States
Even if the collection effort is not a penalty, we must ensure the FCC is collecting “funds . . . owed to the United States.”
The FCC has interpreted the DCIA to cover overpayments from the USF. See
Blanca contends USF overpayments are not funds owed to the United States. According to Blanca, the DCIA does not apply here because the USF is funded by contributions from carriers. So, any overpayments out of the fund would be owed directly to the USF, not to the United States.
Blanca points to an out-of-circuit case to bolster its argument. See United States ex rel. Shupe v. Cisco Sys., 759 F.3d 379 (5th Cir. 2014). In Shupe, the Fifth Circuit had to determine whether a party had violated a previous version of the False Claims Act,
In Shupe, the Fifth Circuit determined the United States government did not provide any portion of the money for the USF, so the defendant could not be prosecuted under the False Claims Act. In coming to this conclusion, the court emphasized the control USAC exercises over the USF and the fact that the statute did not extend to funds overseen by such private parties. 759 F.3d at 387-88. The FCC‘s regulatory supervision of the USF was insufficient to consider payments made from it as “provided by the United States.” Id. at 388.
Shupe does not dictate our decision here. We face a different statutory scheme with different language. While the False Claims Act limited a claim to money that the United States provides any portion of, the DCIA defines claim more expansively. It expressly includes overpayments “disallowed by audits performed by the Inspector General of the agency administering the program.”
Blanca asserts the DCIA does not apply because the FCC‘s Inspector General did not produce a formal audit or adverse finding. It faults the FCC for issuing the demand letter through the Managing Director rather than the Inspector General. But in both the demand letter and orders, the FCC claimed to be acting on an audit by the Office of Inspector General. See R., Vol. I at 1-2 (“Our determination follows an investigation by the FCC‘s Office of Inspector General.“); see also R., Vol. II at 299 (“Based on its investigation and review of documentation provided by Blanca, [the Office of Inspector General] concluded that Blanca had misallocated costs between its CMRS and wireline services.“). Here, the FCC‘s Office of Inspector General conducted an investigation and concluded Blanca had misallocated costs. This is
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The FCC‘s action is not barred by a statute of limitations. While Blanca argues the FCC was statutorily barred from collecting the overpayments, the statutes on which it relies do not apply. Rather, the overpayments are covered by the DCIA, which has no statute of limitations for administrative offsets.
B. Did the FCC violate Blanca‘s due process rights?
Blanca also claims the FCC did not comply with statutory and constitutional procedural requirements in initiating the debt collection. Specifically, Blanca argues the FCC engaged in a summary adjudication that gave Blanca insufficient notice and no meaningful opportunity to respond. In addition, Blanca insists that the laws, regulations, and orders in place as of 2005 failed to give it fair notice that its conduct was prohibited.
Blanca fails to establish a due process violation. Although the underlying regime governing USF distributions is complex, Blanca had adequate notice that it could not receive USF funding for providing cellular services. Furthermore, in identifying the rules violated and starting the debt collection process, the FCC provided all the process required by statutes and the Constitution.
1. Legal Standard
a. Statutory Process
The APA “expressly provides for two categories of administrative hearing and decision: rulemaking and adjudication.” Phillips Petroleum Co. v. Federal Power Comm‘n, 475 F.2d 842, 851 (10th Cir. 1973). And it identifies procedures agencies must provide for each type of action.
Here, the FCC acted through an informal adjudication. It has very broad discretion to decide whether to proceed through adjudication or rulemaking when “interpreting and administering its statutory obligations under the [Telecommunications Act].” Conf. Grp., LLC v. FCC, 720 F.3d 957, 965 (D.C. Cir. 2013). It is appropriate for an agency to use informal adjudications in making individualized determinations. See Sinclair Wyo. Refining Co. v. EPA, 887 F.3d 986, 992 (10th Cir. 2017); see also Nat‘l Biodiesel Bd. v. EPA, 843 F.3d 1010, 1017-18 (D.C. Cir. 2017) (stating that adjudications characteristically are “highly fact-specific, case-by-case” proceedings).
Procedurally, the APA imposes “minimal requirements” on informal adjudications. Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S. 633, 655 (1990). The agency must only notify a party that it is denying a petition and provide the grounds for denial.
Beyond the APA, the DCIA also has its own procedural requirements.15 In order to
b. Constitutional Due Process
The Fifth Amendment also requires the federal government to provide a baseline level of due process when depriving a person of life, liberty, or property.
First, due process requires the government to “give a person of ordinary intelligence fair notice that his contemplated conduct is forbidden” before withdrawing a benefit. United States v. Richter, 796 F.3d 1173, 1188 (10th Cir. 2015) (internal quotation marks omitted). “A fundamental principle in our legal system is that laws which regulate persons or entities must give fair notice of conduct that is forbidden or required.” FCC v. Fox Television Stations, Inc., 567 U.S. 239, 253 (2012). Due process requires fair notice for two reasons. First, regulated parties need to know what is required of them so they may act accordingly. Id. Second, it prevents officers or agencies who enforce the law from acting in an arbitrary or discriminatory manner. Id.
Fair notice concerns will arise “when an agency advances a novel interpretation of its own regulation in the course of a civil enforcement action.” United States v. Magnesium Corp. of America, 616 F.3d 1129, 1144 (10th Cir. 2010). It would be inappropriate for an agency, having
That being said, fair notice does not require an agency to publish an easily digestible, abridged version of its rules. Technical and complex regulations are often necessary to govern the conduct of parties involved in complex affairs. Thus, the requirements of due process are understood through the lеns of parties with special knowledge because we refer to “the common understanding of that group” to measure whether the party had fair notice. Richter, 796 F.3d at 1189. When regulations are addressed to such groups, “the standard is lowered and a court may uphold a statute which uses words or phrases having a technical or other special meaning, well enough known to enable those within its reach to correctly apply them.” Id. No one doubts the complexity of telecommunications regulations and the famously detailed rules that apply to carriers operating in that environment.
Second, due process requires the government to provide “notice and opportunity for hearing appropriate to the nature of the case” prior to deprivation. Riggins v. Goodman, 572 F.3d 1101, 1108 (10th Cir. 2009) (internal quotation marks omitted). Notice and the opportunity to be heard “must be granted at a meaningful time and in a meaningful manner.” Fuentes v. Shevin, 407 U.S. 67, 80 (1972). “If the right to notice and a hearing is to serve its full purpose . . . it must be granted at a time when the deprivation can still be prevented.” Id. at 81. But this does not mean a hearing must be held before the agency‘s decision to deprive. See Riggins, 572 F.3d at 1111 (“[D]ue process is required not before the initial decision or recommendation to terminate is made, but instead before the termination actually occurs.“).
2. Application
a. Statutory Process
The FCC complied with the relevant procedural requirements of both the APA and the DCIA.
First, the FCC fulfilled the requirements for an informal adjudication by providing Blanca with notice of its intention to collect the repayments and grounds for that decision. The initial demand letter satisfied the APA by identifying the FCC‘s decision and the reasons for that decision. The demand letter pointed to the relevant accounting regulations and described Blanca‘s conduct that had violated those regulations. The FCC‘s subsequent orders did the same.
The FCC also fulfilled the procedural requirements of the DCIA. In the demand letter, the FCC informed Blanca of the type and amount of the debt and its intention to collect. It gave Blanca an opportunity for review and to make an agreement with the agency‘s head on repaying the claim. While the FCC did not give Blanca an opportunity to review the agency record in the FCC‘s possession, it informed Blanca it had relied only on documents Blanca itself had submitted. Blanca already had the entire record in its possession. Because these documents were in Blanca‘s possession, the FCC did not need to give Blanca an additional opportunity to review them.
Blanca also claims it did not have fair notice that its conduct was prohibited. And it insists the demand letter and subsequent orders did not provide the meaningful notice and opportunity to be heard that due process requires.
According to Blanca, the rules, orders, and regulations in place as of 2005 did not make clear that cellular services were ineligible for USF support. Rather, Blanca argues the demand letter and FCC orders were the first time the FCC interpreted the regulations in such a way to make Blanca‘s conduct illicit. As far as Blanca is concerned, the FCC‘s 2016 demand letter was a summary adjudication that in one fell swoop told Blanca its accounting practices were unlawful and that it was being punished for those practices. If Blanca‘s characterization was accurate, it would squarely implicate fair notice concerns.
But Blanca misconstrues the state of the law in 2005. The FCC‘s rules and orders were clear about limits on USF support for cellular services. As an incumbent LEC, Blanca had to allocate its costs between regulated and nonregulated accounts.
Furthermore, Blanca could only receive USF support for services provided in its designated service area.
The statutes, regulations, and orders at issue here do not trigger fair notice concerns. It is undoubtedly inappropriate for agencies to create liability by advancing novel interpretations during administrative proceedings. See Magnesium Corp. of America, 616 F.3d at 1144. But, despite Blanca‘s contentions, the FCC did not engage in summary rule adjudication here. The demand letter and orders did not interpret any regulations for the first time. Rather, through the demand letter and proceedings, the FCC indicated why debt collection was appropriate under the relevant rules. The FCC‘s synthesis of the law to explain its decision to collect from Blanca does not require a separate adjudication or rulemaking.
The FCC‘s rules are, admittedly, labyrinthine and technical. But we attribute to Blanca the specialized knowledge of a telecommunications carrier. Blanca should have known cellular services were considered nonregulated under the FCC‘s orders. It should have known that the accounting guidelines had been put into place to prevent carriers from using support for noncompetitive services to support competitive services. And it should have known that it never submitted the reports required of a competitive ETC to receive identical support. Between the statutes governing the USF, the FCC‘s regulations, and previous FCC orders, Blanca had adequate notice that it could not receive USF support for expenses related to cellular service either within or outside its study area.
Blanca also argues that the demand letter and subsequent FCC review
Blanca also argues the post-decision, pre-deprivation review the FCC provided Blanca was deficient. According to Blanca, the FCC should have held a hearing before the demand letter was issued. But our cases are clear: due process requires only a pre-deprivation hearing. See Riggins, 572 F.3d at 1110. And Blanca received such a hearing from the FCC.
Blanca also points to the FCC‘s subsequent initiation of administrative offsets as evidence that the post-decision review was constitutionally inadequate.18 But by seeking to forestall any deprivation until the end of litigation, Blanca asks more than the Constitution requires. The administrative offsets began after the FCC provided Blanca with a hearing and considered all its objections. Such agency action satisfies due process.
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The FCC did not deprive Blanca of either the statutory or constitutional process it was entitled to. The agency followed the procedures required for informal adjudications under the APA and for initiating administrative offsets under the DCIA. The law as of 2005 apprised Blanca that its conduct was prohibited. And the FCC‘s demand letter and subsequent procedure afforded Blanca notice and a meaningful opportunity to be heard.
C. Did the FCC act arbitrarily and capriciously?
Finally, Blanca argues the FCC‘s decision to collect debt was arbitrary and capricious. It insists the FCC‘s demand letter and orders were inadequate in several ways. First, Blanca argues the FCC‘s decision to initiate debt collection deprived it of the benefits of its 2013 settlement with NECA. Second, Blanca argues the FCC ignored statutory provisions that allowed it to receive USF support for cellular service. And third, Blanca argues the record as a whole lacked substantial evidence to support the FCC‘s decision.
We do not consider the FCC‘s decisions on any of these issues to be arbitrary and capricious. Rather, the FCC‘s analysis is “reasoned and reasonable.” In re FCC 11-161, 753 F.3d at 1071.
1. Legal Standard
Review under the arbitrary and capricious standard is narrow. Id. at 1041. In making its decision, the agency must “examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.” Renewable Fuels Ass‘n v. EPA, 948 F.3d 1206, 1254 (10th Cir. 2020) (internal quotation marks omitted), cert. granted, HollyFrontier Cheyenne v. Renewable Fuels Ass‘n, 141 S. Ct. 2174 (2021). The agency cannot rely on factors deemed irrelevant by Congress, fail to consider important aspects of a problem, or present an explanation that is either implausible or contrary to the evidence. Renewable Fuels, 948 F.3d at 1206. We will not set aside agency decisions that meet this baseline level of reasoning.
Beyond the agency‘s reasons for the decision, we are also authorized to evaluate the adequacy of the record supporting the decision. If the agency‘s decision is not suppоrted by substantial evidence in the record, we must set it aside as arbitrary and capricious. See Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1575 (10th Cir. 1994). For the evidence to be “substantial,” the agency‘s record must contain enough facts supporting the decision that a “reasonable mind” could accept it as “adequate to support [the] conclusion.” Id. at 1581. The evidence is inadequate if it is overwhelmed by other evidence or constitutes a mere conclusion. Id.
When determining whether the agency‘s decision was arbitrary and capricious, review is “generally based on the full administrative record that was before all decision makers.” Bar MK Ranches v. Yuetter, 994 F.2d 735, 739 (10th Cir. 1993). We assume the agency properly designated the record absent clear evidence to the contrary. Id. at 740. Even if the record is incomplete, “[t]he harmless error rule applies to judicial review of agency proceedings.” Id. So, “errors in such administrative proceedings will not require reversal unless [the petitioners] can show they were prejudiced.” Id.
2. Application
a. The 2013 NECA Settlement
Blanca asserts that the FCC‘s decision to pursue debt collection is arbitrary and capricious because it failed to consider one of Blanca‘s arguments: the FCC‘s actions deprived Blanca of the benefit of its 2013 settlement with NECA. Blanca argues that it explicitly entered the settlement with NECA to “avoid protracted litigation.” Opening Br. at 30. The FCC‘s orders, though, have resulted in just such costly and protracted litigation.
But the FCC did address the 2013 NECA settlement in its orders. There, the FCC explained that “NECA is a private association of wireline carriers, not a government entity, and accordingly has no authority to compromise or waive any claims on behalf of the government.” R., Vol. II at 404. And the FCC noted that under Blanca‘s settlement with NECA, Blanca still had an obligation to make any repayments from funds received outside of NECA‘s 24-month settlement window.
In its orders, the FCC pointed to one of our cases, Farmers Tel. Co. v. FCC, 184 F.3d 1241 (10th Cir. 1999), as support for this conclusion. In Farmers, we needed to determine whether NECA‘s interpretation of a regulation bound the FCC. We concluded that NECA “has no authority to perform any adjudicatory or governmental functions.” Id. at 1246. Rather, “NECA is an agent of its members and has no authority to issue binding interpretations of FCC regulations.” Id. at 1250. The FCC reasoned that if NECA‘s interpretations of regulations could not control
We cannot say the FCC‘s decision to pursue debt collection after Blanca‘s 2013 settlement with NECA was arbitrary and capricious. In its orders, the FCC described NECA as a private entity, discussed the terms of the 2013 settlement between Blanca and NECA, and identified relevant precedent supporting its decision to pursue collection despite the settlement. The FCC‘s reasons are clear and cogent.
b. Regulations Concerning Cellular Service
Blanca also argues the FCC ignored numerous regulations supporting Blanca‘s position. In particular, Blanca points to a score of regulations and orders dealing with treatment of cellular services. See, e.g., Opening Br. at 24-25 (citing
In its orders and briefing, the FCC does not dispute that numerous regulations and orders make USF support available for certain cellular services. For instance, competitive ETCs could receive identical support, regardless of the technology used. And BETRS, as a regulated cellular service, was also eligible for USF support.
But the fact that some carriers could claim USF support for some cellular services did not mean all carriers could claim support for all cellular services. In its orders, the FCC explained that the regulations and orders about cellular services did not pertain to Blanca, an incumbent LEC. See R., Vol. II at 405 n.103 (“Blanca‘s many citations to rules and related orders refеrring to cellular service as an eligible service does not pertain to rate-of-return high-cost universal service support, the kind of support Blanca received between 2005 and 2010.“). So, according to the FCC, Blanca‘s reliance on these various regulations and orders is misplaced.
The FCC‘s treatment of these various regulations dealing with cellular service was not arbitrary and capricious.19 It did not ignore the regulations and orders Blanca cited. Rather, the FCC considered the regulations but found them inapplicable.
c. The Adequacy of the Record
Finally, Blanca argues the FCC‘s record is incomplete, making the agency‘s reliance upon it arbitrary and capricious.20
Blanca has presented clear and convincing evidence that the record before us is not the full administrative record the FCC had before it throughout the proceedings. The FCC references documents throughout the demand letter and subsequent orders that it did not include in the record presented to this court. To be sure, the FCC erred by depriving this court of the full administrative record.
Blanca raises only one argument regarding prejudice, though, contending “[t]here is nothing in the record to support the FCC‘s Orders.” Opening Br. at 23. We disagree.
First, the record provides an adequate factual basis for the FCC‘s decision. The record includes evidence that Blanca claimed USF support for cellular services both within and beyond its designated study area. It reflects that Blanca did not distinguish between regulated and nonregulated activities in its accounting. And the record establishes that Blanca was never designated as a competitive ETC and never submitted the reports necessary to receive identical support as a competitive ETC. Blanca does not deny these facts. The subpoenas, Blanca‘s responses, and Blanca‘s underlying accounting reports21 would tell us little more than the record already does.
Second, the record provides an adequate legal basis for the decision. Blanca insists “[t]he FCC Orders rely upon a single, non-binding, non-record NECA cost allocation manual to support its view that Blanca‘s BETRS service is not eligible for USF funding.” Id. at 29. But Blanca‘s characterization of the record is incorrect. Throughout the proceedings, the FCC provided much more than a single “NECA cost allocation manual” to support its view that Blanca had improperly received USF payments. See, e.g., R., Vol. II at 304-07 (describing the regulations and orders that require proper cost allocation in order to determine USF support). Given that the FCC provided an adequate legal basis for its decision, any further NECA documents that the FCC relied on for its reasoning are not necessary. Inclusion of such documents in the record would not change our understanding of the underlying regulatory scheme or our decision.
Given that the administrative record supports the FCC‘s decision, the FCC‘s
The foregoing analysis also leads us to conclude that the FCC‘s reliance on the record was supported by substantial evidence. The record contains undisputed facts about Blanca‘s conduct and accounting practices between 2005 and 2010. And these facts establish that Blanca requested USF support for cellular services during this time, that the cellular services were not fixed-BETRS, and that Blanca never submitted the reports necessary to claim USF support as a competitive ETC. A reasonable mind could accept this undisputed evidence in the record as adequate to support the FCC‘s decision.
* * *
The FCC did not act arbitrarily and capriciously. The FCC supported its decision to initiate debt collection with an explanation of the rules Blanca had violated and a calculation of the overpayments Blanca had received. And the record, though incomplete, is adequate to support the FCC‘s actions.
IV. Conclusion
We DENY Blanca‘s Motion to Supplement the Record. And we AFFIRM the FCC‘s decision to collect USF overpayments to Blanca through administrative offsets. We remand to the FCC for any further proceedings.
Notes
Blanca also insists that the FCC failed to comply with the procedural requirements of
This also resolves another of Blanca‘s arguments: that the FCC treated it differently than similarly-situated telecommunications carriers, who received notices of apparent liability prior to FCC proceedings. Blanca is comparing apples and oranges. The other carriers were treated differently because they were subject to forfeiture proceedings under
We construe Blanca‘s aside in its opening brief as a separate arbitrary and capricious argument. While discussing the inadequacy of the record, Blanca argues that the FCC‘s refusal to give it access to the Office of Inspector General subpoenas of NECA records that Blanca requested “is the epitome of arbitrariness.” Opening Br. at 23. The FCC acknowledged this request in its orders. In responding to Blanca, the FCC pointеd out that “Blanca did have access to the underlying cost data because [the Office of the Managing Director] explicitly based its financial accounting on the cost studies Blanca itself commissioned.” R., Vol. II at 313. And the FCC further noted that “Blanca does not state that such records request has any bearing on its ability to challenge the Commission‘s [demand] Letter.” Id. at 314 n.152. Given that Blanca already had access to any of the underlying records, we cannot say that the FCC‘s refusal was arbitrary and capricious.