03 July 2019

U.S. Supreme Court Poses New Questions About the Scope of Hobbs Act Review

On June 20, in PDR Network, LLC v. Carlton & Harris Chiropractic, Inc., the U.S. Supreme Court vacated a decision of the U.S. Court of Appeals for the Fourth Circuit that had been adverse to the interests of our client, PDR Network. Both the majority and concurring opinions in PDR Network raise interesting issues for lower courts to ponder as they consider how much to defer to agency decision making.

Specifically, the Court’s opinion provides defendants with the potential to expand opportunities for judicial review of orders issued by the Federal Communications Commission (FCC), the Surface Transportation Board, the Federal Maritime Commission and other agencies. The full ramifications of the opinion are uncertain, however, because the Court raised several questions but resolved none. Specifically, the Court expressly declined to answer the question it had agreed to review: whether the Hobbs Act (28 U.S.C. § 2342) requires a district court to accept the FCC’s legal interpretation of the Telephone Consumer Protection Act (TCPA) in a private enforcement action.

Instead, the Court remanded the case to the Fourth Circuit to consider two “preliminary issues”: (1) whether the FCC interpretation at issue is an interpretive, rather than legislative, rule and, if so, whether it is therefore not binding in the district court; and (2) whether PDR had a “prior” and “adequate” opportunity to seek judicial review of the FCC’s interpretation under the Hobbs Act and, if not, whether it can therefore argue, in defending against an enforcement suit, that the court should not apply the FCC’s interpretation. These questions raise the possibility that parties will be able to challenge agency orders covered by the Hobbs Act outside the 60-day review window provided by the Act, at least when those orders form the basis of an enforcement action initiated by a private plaintiff, just as prevailing case law has long permitted when such orders form the basis of an enforcement action initiated by the agency itself.

Background

In 2014, PDR Network, a leading healthcare information provider, was sued for allegedly violating the TCPA by sending an “unsolicited advertisement” via fax. The fax at issue offered recipients a free, no-strings-attached e-book version of PDR’s flagship product, the Physician’s Desk Reference, the leading compendium of prescribing information for prescription drugs. In a motion to dismiss, PDR argued that the fax did not constitute an “unsolicited advertisement” within the meaning of the TCPA. It also argued that, to the extent an FCC order issued in 2006 adopted a broader definition of “unsolicited advertisement” that would reach the fax, that interpretation was inconsistent with the text of the statute.

The district court dismissed the suit, but the Fourth Circuit reversed. It held that the FCC’s interpretation of “unsolicited advertisement” clearly encompassed PDR’s offer of a free e-book and that the district court was bound to follow that interpretation because a separate statute, the Hobbs Act (28 U.S.C. § 2342), gave the courts of appeals “exclusive jurisdiction … to determine the validity” of the FCC’s order.

The Supreme Court granted certiorari on the question of whether the Hobbs Act required the district court to accept the FCC’s interpretation of the TCPA. Sidley’s Carter Phillips, Kwaku Akowuah and Daniel Feith represented PDR Network at the merits stage of the Supreme Court proceedings.

The Supreme Court’s Ruling

The Supreme Court unanimously vacated the Fourth Circuit’s decision. In an opinion written by Justice Breyer and joined by four other Justices, the Court wrote that “it found it difficult” to answer the question presented because “the answer may depend on the resolution of two preliminary questions.” The first question concerned whether the FCC’s 2006 order is a legislative or interpretive rule and, if it is the latter, whether “the district court therefore may not be required to adhere to it.” The second question concerned the interplay between the Hobbs Act and the Administrative Procedure Act (APA), which provides that, “[e]xcept to the extent that prior, adequate, and exclusive opportunity for judicial review is provided by law, agency action is subject to judicial review in civil or criminal proceedings for judicial enforcement.” Based on this provision, the Court found it “important to determine whether the Hobbs Act’s exclusive-review provision, which requires certain challenges to FCC final orders to be brought in a court of appeals ‘within 60 days after’ the entry of the order in question, 28 U.S.C. §2344, afforded PDR a ‘prior’ and ‘adequate’ opportunity for judicial review of the Order.” If not, the Court explained that PDR might be able to challenge the validity of the order in this enforcement proceeding. But the Court expressed no view of how to answer these questions, instead remanding them to the Fourth Circuit.

Justice Thomas and Justice Kavanaugh wrote opinions concurring in the judgment. Justice Kavanaugh, joined by Justices Thomas, Alito, and Gorsuch, wrote that the Hobbs Act does not preclude TCPA defendants from contesting the FCC’s interpretation of the Act. Justice Thomas, joined by Justice Gorsuch, wrote that reading the Hobbs Act to preclude the district court from applying the TCPA according to its text would raise constitutional separation of powers problems.

How Lower Courts Resolve the Supreme Court’s Questions Will Determine What New Opportunities for Judicial Review, If Any, This Ruling Creates.

Prior to the Supreme Court’s decision, many courts of appeals had held that the Hobbs Act broadly precluded both plaintiffs and defendants from obtaining judicial review of an agency interpretation in the context of an enforcement action initiated by a private plaintiff. This approach stymied class action defendants who had had no reason to challenge an agency interpretation until they were sued under the TCPA and exposed to significant damages. Without offering definitive guidance, the Supreme Court’s ruling suggests that there may be at least three ways for defendants in private enforcement actions to obtain judicial review of orders issued by Hobbs Act agencies.

First, defendants can argue that the challenged order constitutes an interpretive, rather than legislative, rule. Under basic administrative law principles, interpretive rules lack the force of law and are not binding on courts or parties. Prevailing on this ground would have the additional benefit of allowing a defendant to avoid Chevron deference, which is generally understood not to apply to interpretive rules.

Second, defendants can argue that they did not have an “adequate” opportunity for judicial review “prior” to the enforcement action and are therefore entitled to review of the agency order under the APA. The Supreme Court suggested that whether an order is reviewable under the Hobbs Act does not necessarily answer whether it is also reviewable in an enforcement proceeding. Instead, the answer may turn on the interplay between the Hobbs Act and the APA.

Finally, defendants can argue that the Hobbs Act itself does not preclude review in enforcement proceedings, relying on the reasoning in Justice Kavanaugh’s concurrence, in which he said such review must be allowed because the Hobbs Act does not expressly forbid it. In advancing this argument, defendants should bear in mind that Justice Kavanaugh’s approach does not necessarily mean they get two bites at the apple: one before enforcement and another afterward. Rather, Justice Kavanaugh noted that ordinary preclusion principles may bar a party that unsuccessfully sought pre-enforcement review from relitigating the order’s validity in a future enforcement action.

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