In an 8-1 ruling, the U.S. Supreme Court upheld the FCC’s authority to issue forfeiture penalties against telecommunications companies found in violation of the agency’s Customer Proprietary Network Information (“CPNI”) rules. The impact of this ruling is that the FCC may continue to enforce its rules through forfeiture orders, but that such orders do not create a definitive obligation to pay. Though the Commission may issue civil penalties, the penalties are not legally due until they have been imposed after a jury trial and any ensuing appeals.
In the decision, the Court determined that the companies are not entitled to a jury trial to contest the fines levied against them. The Court reasoned that, because the forfeiture orders do not create an obligation to pay, there is no Seventh Amendment violation.
The suit arose after Verizon and AT&T challenged a combined $100 million in penalties that the FCC imposed after determining that the companies violated its CPNI rules by failing to adequately protect customer location data. Verizon and AT&T argued that these penalties were unconstitutional because they were imposed without the opportunity for a jury trial. Both companies challenged the fines in federal court, leading to a circuit split in the Fifth and Second Circuits over the constitutionality of the FCC’s procedure for imposing forfeiture penalties. The Second Circuit sided with the FCC and upheld the fines, while the Fifth Circuit determined that the forfeiture penalties were unconstitutional.
The Supreme Court reversed the Fifth Circuit and affirmed the Second Circuit, thereby allowing the FCC to continue enforcing its CPNI rules with forfeiture penalties. According to the Court, because the FCC’s forfeiture orders do not “definitively resolve the parties’ legal obligations” and the FCC’s factual findings are not conclusive, the forfeiture orders do not violate the Seventh Amendment right to a jury trial.
Unlike the SEC’s administrative process for imposing civil penalties, which the Supreme Court deemed unconstitutional in its 2024 Jarkesy decision, the FCC’s forfeiture penalties are not immediately enforceable and therefore do not violate the companies’ Seventh Amendment rights. The court concluded that the Communications Act of 1934, which governs the FCC’s forfeiture authority, “prohibits the Commission from using unresolved forfeiture proceedings to a regulated party’s prejudice in subsequent Commission proceedings.”
Justice Clarence Thomas dissented, claiming that the companies had no way to ensure that a court would ultimately respect their right to a jury when they opted to pay. He wrote that “the Court punishe[d] AT&T and Verizon for complying with a government order that they in good faith believed was obligatory.”