Wе are required in this case to determine the proper route for obtaining judicial review of a regulation of the Federal Communications Commission whose validity is questioned in a suit on a contract. May the court in which that suit is brought determine its validity, or must the court refer the question to the FCC under the doctrine of рrimary jurisdiction?
In 1966 the City of Peoria granted a 20-year cable television franchise to General Electric Cablevision Corporation (GECCO), which in exchange agreed to pay the city an annual franchise fee equal to 10 percent of GECCO’s gross revenues from the franchise. In 1972, however, the FCC promulgatеd a rule limiting cable franchise fees to 3 percent of gross revenues, 47 C.F.R. § 76.31, though with respect to existing franchises the rule (as amended in 1977) was not to take effect until 15 years after the date of the franchise, which meant, in the case of GECCO’s franchise in Peoria, not until 1981.
The City of Peoria did not participatе in the 1972 rulemaking proceeding or seek judicial review of the rule. But on the very day in 1981 that the rule became applicable to GECCO’s franchise, the city brought this suit in federal district court against GEC-CO, seeking a declaration that the rule was invalid on various statutory and constitutional grounds and an order directing GEC-CO to cоntinue paying the 10 percent fee specified in the franchise. The complaint was later amended to add a count based on diversity of citizenship. This count also sought, but under state contract law rather than federal law, an order directing GECCO to continue paying the 10 percent fee. GECCO impleaded the FCC as a third-party defendant, claiming that since it was per *119 fectly willing to continue paying 10 percent, the controversy was really between Peoria and the FCC. GECCO also brought a separate proceeding before the FCC to waive the application of Rule 76.31 to the Peoria franchise. The city did not join in GEC-CO’s petition or otherwise become a party to the FCC proceeding, though it did submit a short letter to the Commission in support of the petition.
Both GECCO and the FCC raised jurisdictional objections to the maintenance of this suit in the district court but the court overruled these objections, proceеded to the merits, held the FCC’s rule invalid, and entered a judgment declaring the rule void and directing GECCO to comply with the franchise agreement as written. Shortly afterward the Commission’s Cable Television Bureau denied GECCO’s petition for a waiver, on the ground that neither GECCO nor Peoria had submitted any evidence that the fee was an appropriate element of Peoria’s program for regulating cable television.
The district court decided three analytically distinct actions — Peoria’s action against GECCO to declare the FCC’s rule invalid, an action based on the federal-question jurisdiction of the district court; Peoria’s аction against GECCO for a declaration of Peoria’s rights under the franchise, an action based on the court’s diversity jurisdiction; and GECCO’s third-party action against the FCC. We must first consider whether the district court had jurisdiction over the subject matter of any of these actions.
Peoria’s action against GECCO to declare the FCC’s rule invalid was brought in the wrong court at the wrong time against the wrong party. Proceedings for judicial review of final orders of the FCC— and a substantive rule such as 47 C.F.R. § 76.31 is a final order for these purposes, see, e.g.,
Columbia Broadcasting System, Inc. v. United States,
As for the district court’s assumption of jurisdiction over GECCO’s third-party complaint agаinst the FCC, we have never heard of a case where a defendant who interposed a defense based on a law or regulation was allowed to implead the enacting body. Suppose a manufacturer sued a distributor for money owing on a contract, and the distributor, though reluctant to impair his rеlations with the manufacturer by refusing to pay up, interposed a defense based on the Sherman Act because he was afraid that otherwise the Department of Justice would accuse him of being a party to an illegal contract. Could he implead Congress, which enacted the Sherman Act, or thе Department of Justice, which is the principal public enforcer of the Act, on the ground that the illegality of the contract was really their problem, not his? GECCO’s third-party complaint against the FCC seems less silly only because GECCO had the forbearance not to implead Congress (the author of the FCC’s rulemaking powers) and, more important, because it is not seeking any relief against the FCC beyond a declaration of its rights under Rule 76.31. GECCO is concerned about having *120 inconsistent obligations to the FCC and the City of Peoria. It knows that if Rule 76.31 is valid the City of Peoria’s desire for the agreed-upon franchise fee must yield, so it wants the district court to tell it whether Rule 76.31 is valid.
But even that is beyond the power of the district court. GECCO cannot simply put to the district court the abstract question whether Rule 76.31 is valid, for it cannot receive an advisory opinion from a federal court. It must ask the court either to declare the rule valid or to declare it invalid. If thе former, its suit against the FCC would be nonadversary; the FCC will not argue that its rule is invalid, so there will be no case or controversy within the meaning of Article III of the Constitution. If GECCO wants the rule declared invalid, then its plea for declaratory relief is in effect an action to set aside the rule, brought in a court that has no jurisdictiоn over such actions. Finally, since GECCO cannot seriously be contending that if it loses to Peoria in the original suit the FCC “may be liable to [GECCO] for all or part of [Peoria’s] claim against [GECCO],” Fed.R. Civ.P. 14(a), GECCO’s third-party complaint is in any event outside the impleader jurisdiction that has been conferred on the federal courts.
Thаt leaves only the diversity count in Peoria’s complaint to be considered. As GECCO and the City of Peoria are citizens of different states and the amount in controversy between them exceeds $10,000, there is federal jurisdiction under 28 U.S.C. § 1332 of the subject matter of this count, which alleges a breach of the franchise contract under state law. GECCO’s defense is that if it complied with the contract it would be violating federal law — Rule 76.31 —which, if valid, of course preempts any inconsistent state law. Cf.
Brookhaven Cable TV, Inc. v. Kelly,
It was nоt. As noted earlier, the City of Peoria could not have gotten the FCC’s rule reviewed by a court of appeals without first asking the FCC to reconsider the rule; it would be strange if, still without going to the FCC, Peoria could get judicial review in both a district court and a court of appeals. True, Peoria was not a pаrty to the rulemaking proceeding. But 47 U.S.C. § 405 requires nonparties to petition the FCC for reconsideration before they ask a court of appeals to review an FCC order; and the policy behind this requirement — one of routing all challenges to rules and (other) orders of the FCC initially to the FCC — is equally applicable whether the nonparty wants to challenge the rule directly, in a judicial review proceeding under 28 U.S.C. § 2342(1), or indirectly, by suing someone who can be expected to set up the rule as a defense in the suit.
This is not to say that the City of Peoria had to go to the FCC
before
it brought its breach of contract action аgainst GECCO. The doctrine of exhaustion of administrative remedies, as conventionally understood, has application only when a suit is brought to challenge an administrative order. Count I of Peoria’s complaint was such a suit, and exhaustion would have been required if the district court had otherwise had jurisdiction over the subject matter of that count. But Count II, the diversity count, was not a challenge as such to an administrative or“der. Until GECCO pleaded the FCC’s rule as a defense the city could not be certain (though it could be, and Count I suggests was, pretty confident) that it had to get the rule waived or invalidated in order to collect the agreed-upon franchise fee in full. But once the defense was pleaded, the proper procedure was for the district judge to stay the proceeding before him while Peoria went to the FCC for a determination of the validity and application of the rule. See
United States v. Michigan National Corp.,
The two doctrines, exhaustion and primary jurisdiction, are of course closely related — so much so that it is perhaps pedantic to insist on a distinction. Both seek to carry out a congressional purpose,- inferred from the language or history of a regulatory statute, or from the nature of the regulatory agency’s responsibilities, of enabling the agency to make a record and a decision on a matter before the courts put their oar in. In this case, both the explicit statutory requirement that a nonparty ask the FCC for reconsideration of any rulе it wants set aside, 47 U.S.C. § 405, and the comprehensive regulatory responsibilities exercised by the FCC over the rapidly changing and economically and technologically complex cable television industry, see, e.g.,
Midwest Video Corp. v. FCC,
The reference was not made. The fact that GECCO went to the FCC would not have excused Peoria’s failure to do so even if the district court had waited to hear the Commission’s response to GECCO’s petition before making its own decision. Anyone who wants a rule changed must give the FCC a chance to hear his arguments. See 47 U.S.C. § 405. GECCO’s submission to the FCC was skimpy. The Cable Television Bureau may have shared our skepticism that GECCO really wanted the rule lifted. It might have made a diffеrence to the Bureau’s consideration if it had had before it not just a private company but a city, offering reasons which the Bureau might have found persuasive why the city should be allowed to collect the revenues it had bargained for in the franchise agreement. Moreover, Rule 76.31 requires, as an express condition of waiver — even to the extent of allowing a 5 percent fee, and a fortiori it would seem for a 10 percent fee — a showing “by the franchising authority that [the higher fee] is appropriate in light of the planned local regulatory program.” The Bureau held that GECCO had failed to make this showing; the absence from the proceeding of “the franchising authority” may have played a part in this decision. And GECCO did not challenge the validity of the rule, but just asked that it be waived. Peoria challenges validity as well as application, and the FCC is entitled to pass on that challenge in the first instance.
All this assumes that the FCC wоuld have entertained such a challenge. Though it would not have accepted a petition for reconsideration as such, because the time for filing such a petition expired long ago, see 47 C.F.R. § 1.429(d), Peoria could have gotten the same relief either by seeking a declaration of its rights under 47 C.F.R. § 1.2, or by filing a petition to repeal Rule 76.31, as it could have done, without limit of time, under 47 C.F.R. § 1.401(a). Moreover, counsel for the Commission advises us that the Commission will, if requested, consider in a waiver proceeding the validity of the rule — and on constitutional as well as statutory grounds. So all Peoria had to do was file a pеtition for waiver under 47 C.F.R. § 1.3 or 47 C.F.R. § 76.7(a), as GECCO had done, to get a ruling on the current validity of Rule 76.31.
Peoria did none of these things, and it cannot excuse its inaction by arguing that resort to the Commission would have been futile. Rule 76.31 was promulgated ten years ago. Much has changed since in the dynamic world of cable television. It cannot be assumed that the Commission would *122 be deaf to appeals to change or waive the rule. And it must be remembered that the Commission, unlike the federal district court in Peoria, is deeply involved on a continuing basis in the regulation of this industry. However the Commission might respond in an appropriate proсeeding to the City of Peoria’s request to be free from the restrictions of Rule 76.31, its response could be of great assistance to a court asked to determine the rule’s validity.
But it is not too late for Peoria. On remand the district court should stay the litigation to enable the city to go to the FCC for the relief it sеeks. To assist the parties and the district court on remand, we shall venture the suggestion that any order the FCC issues in the proceeding brought by Peoria will be reviewable in whatever court of appeals there is jurisdiction and venue to review such an order directly under 28 U.S.C. §§ 2342(1), 2343, and 47 U.S.C. §§ 402(a), (b), rather than in the court below. Cf.
Far East Conf. v. United States,
The procedure we have outlined will eliminate a second tier of judicial review of agency action (the district court). This will serve both the policy of the statutes that vest exclusive jurisdiction to review FCC orders in the courts of appeals and the considerations of simplicity and expedition that underlie that policy, see H.R.Rep.No. 2122, 81st Cong., 2d Sess. 4 (1950);
Rockford League of Women Voters v. United States Nuclear Regulatory Comm’n,
Nothing in
Regents of the University System of Georgia v. Carroll,
Reversed and Remanded.