Montgomery County, Maryland v. FCC, et al

Filing

OPINION and JUDGMENT filed : The petition is GRANTED IN PART, DENIED IN PART, and REMANDED to the agency for further proceedings consistent with the opinion of this court. Decision for publication. David W. McKeague, Richard Allen Griffin, and Raymond M. Kethledge (AUTHORING), Circuit Judges. [08-3023, 15-3578] *A correction has been made in the counsel information.

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RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 17a0147p.06

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

MONTGOMERY COUNTY, MARYLAND, et al.
Petitioners,
v.

┐
│
│
│

>

FEDERAL COMMUNICATIONS COMMISSION, et al.,
Respondents,
UNITED STATES TELECOM ASSOCIATION, et al.,
Intervenors.

│
│
│
│
│
│
│
│
┘

Nos. 08-3023/15-3578

On Petitions for Review of Orders of the
Federal Communications Commission.
Nos. 07-190; 15-3.
Argued: December 8, 2016
Decided and Filed: July 12, 2017
Before: McKEAGUE, GRIFFIN, and KETHLEDGE, Circuit Judges.
_________________
COUNSEL
ARGUED: Joseph Van Eaton, BEST BEST & KRIEGER LLP, Washington, D.C., for
Petitioners.
Maureen K. Flood, FEDERAL COMMUNICATIONS COMMISSION,
Washington, D.C., for Respondents. ON BRIEF: Joseph Van Eaton, BEST BEST
& KRIEGER LLP, Washington, D.C., for Petitioners. Maureen K. Flood, FEDERAL
COMMUNICATIONS COMMISSION, Washington, D.C., Robert B. Nicholson, Robert J.
Wiggers, UNITED STATES DEPARTMENT OF JUSTICE, for Respondents. Robert G.
Kidwell, Tara M. Corvo, MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.,
Washington, D.C., Bennett L. Ross, Brett A. Shumate, Dwayne D. Sam, WILEY REIN LLP,
Washington, D.C., William H. Johnson, VERIZON, Washington, D.C., for Intervenors. James
N. Horwood, Tillman L. Lay, SPIEGEL & MCDIARMID LLP, Washington, D.C., for Amici
Curiae.

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_________________
OPINION
_________________
KETHLEDGE, Circuit Judge. In this case we have one set of regulators litigating against
another. Over the last ten years, the Federal Communications Commission has published three
written orders that together establish a series of rules governing how local governments may
regulate cable companies and cable services. Several local governments have petitioned our
court to review the FCC’s two most recent orders, arguing among other things that the FCC
misinterpreted the Communications Act, 47 U.S.C. § 151 et seq., and failed to explain the bases
for some of its decisions. We agree with some of those criticisms, and thus grant the petition in
part and deny it in part.
I.
A.
Our opinion in Alliance for Community Media v. FCC, 529 F.3d 763 (6th Cir. 2008), sets
forth the relevant history of the Communications Act and cable regulation generally. In short,
the Act regulates the way cable services, which include video programming, reach viewers
nationwide. Under the Communications Act, cable companies may provide cable services only
if their local or state governmental authorities (which we call “franchising authorities”) grant
them a “cable franchise.” 47 U.S.C. § 541(b)(1). But those authorities do not have unlimited
discretion in negotiating, granting, and denying franchises. See id. § 541(a)(1). For example,
those authorities may not “grant an exclusive franchise” to any operator, or “unreasonably refuse
to award an additional competitive franchise.” Id. And they may not require a cable company to
pay a “franchise fee” that exceeds five percent of the company’s gross revenues for any 12month period. Id. § 542(b).
As a condition of granting a franchise, local government authorities may demand, among
other things, that a cable operator provide certain services or equipment for public, educational,
or governmental purposes. See id. §§ 541(a)(3)-(4), 544(b)(1), 546(c)(1)(D). In return, some
cable operators demand concessions like “most-favored-nation clauses,” which allow incumbent

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franchisees to adjust the terms of their franchise agreements whenever a competing cable
provider secures more favorable contract terms. Once a company has a franchise, it may provide
cable services to subscribers via an infrastructure that the Act calls a “cable system[.]” Id.
§ 522(7).

Franchises generally expire every ten to fifteen years, at which time the cable

companies and franchising authorities can renegotiate.

See id. § 546; Denver Area Educ.

Telecomm. Consortium, Inc. v. FCC, 518 U.S. 727, 792-93 (1996) (Kennedy, J., concurring in
part).
The FCC is authorized to make “such rules and regulations as may be necessary” to carry
out the purposes of the Communications Act. 47 U.S.C. § 201(b); see Alliance, 529 F.3d at 77374. Under the Administrative Procedure Act (or APA), the FCC must provide the public with
notice of any proposed rule and an opportunity to comment on it. See 5 U.S.C. § 553. When the
FCC promulgates a final rule, it must also publish a “final regulatory flexibility analysis”
responding to the comments and explaining, among other things, the rationale for the rule and its
effects on “small entities.” Id. § 604.
B.
In early 2007, the FCC issued an order establishing several new rules designed to
encourage competition in the cable markets by allowing applicants for a cable franchise to get
franchises more easily. See Implementation of Section 621(a)(1) of the Cable Communications
Policy Act, 22 FCC Rcd. 5101 (March 5, 2007) (hereinafter First Order). These rules barred
franchising authorities from, among other things, imposing unreasonable demands on franchise
applicants or requiring new cable operators to provide non-cable services. Alliance, 529 F.3d at
771 & n.6. In that same order, the FCC also read narrowly the phrase “requirements or charges
incidental to the awarding . . . of [a] franchise” as used in 47 U.S.C. § 542(g)(2)(D), which had
the effect of limiting the monetary fees that local franchising authorities can collect from cable
operators. Certain local franchising authorities challenged the order on various grounds, but we
denied their petition. See Alliance, 529 F.3d at 775-87.
Meanwhile, the FCC sought comment on whether it should expand the application of
some of the First Order’s rules—which applied only to new applicants for a cable franchise—to

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incumbent cable providers as well. See Implementation of Section 621(a)(1) of the Cable
Communications Policy Act, 72 Fed. Reg. 13230-01 (proposed March 21, 2007) (to be codified
at 47 C.F.R. pt. 76). In its Second Order, the FCC then expanded the First Order’s application as
proposed. See Implementation of Section 621(a)(1) of the Cable Communications Policy Act, 22
FCC Rcd. 19633 (Nov. 6, 2007) (hereinafter Second Order).

Various local franchising

authorities again objected, and by early 2008 the FCC had received three petitions for
reconsideration. The FCC neglected to respond to those petitions for nearly seven years, but
finally rejected them for the most part in 2015, in its Order on Reconsideration (which we call
the “Reconsideration Order”).

See Implementation of Section 621(a)(1) of the Cable

Communications Policy Act, 30 FCC Rcd. 810 (January 21, 2015). In that order the FCC
adhered to the Second Order, with two exceptions. First, the FCC clarified that the Second
Order applied to only local (rather than state) franchising processes. Id. ¶¶ 6-7. Second, the
FCC adopted and published a “Supplemental Final Regulatory Flexibility Act Analysis” as part
of the Reconsideration Order to replace the Second Order’s analysis, which the FCC conceded
was inadequate in some respects. Id. at App’x ¶¶ 1-17.
Several local governments and franchising authorities (whom we call the “Local
Regulators”) then petitioned this court for review of the Second Order and the Reconsideration
Order.

The United States Telecom Association, National Cable & Telecommunications

Association, and Verizon (collectively, the “Intervenors”) filed a brief in support of the FCC.
II.
The Local Regulators challenge five aspects of the Second Order and the Reconsideration
Order. In some of those challenges, the Local Regulators argue that the FCC interpreted the
relevant statutory provisions incorrectly; in others, the Local Regulators argue that the orders
were entered in violation of the Administrative Procedure Act.

As to the interpretative

challenges, if the relevant statutory text is unambiguous, “we give effect to Congress’s answer
without regard to any divergent answers offered by the agency or anyone else.” Hadden v.
United States, 661 F.3d 298, 301 (6th Cir. 2011). But if the statute is “silent or ambiguous” on
the question presented, then we determine “whether the agency’s answer is based on a
permissible construction of the statute.” Id. (citation omitted). As for the APA challenges, we

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determine whether the agency rules at issue are “arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A); Nat’l Truck Equip. Ass’n v. Nat’l
Highway Traffic Safety Admin., 711 F.3d 662, 667 (6th Cir. 2013) (citation omitted).
A.
The Local Regulators challenge the FCC’s interpretation of “franchise fee” as defined by
47 U.S.C. § 542(g)(1). That subsection provides: “the term ‘franchise fee’ includes any tax, fee,
or assessment of any kind imposed by a franchising authority or other governmental entity on a
cable operator or cable subscriber, or both, solely because of their status as such[.]” Section
542(g)(2)(D) separately provides: “the term ‘franchise fee’ does not include . . . requirements or
charges incidental to the awarding or enforcing of the franchise, including payments for bonds,
security funds, letters of credit, insurance, indemnification, penalties, or liquidated damages[.]”
Requirements or charges that fall within the scope of § 542(g)(2)(D) thus do not count towards
the five-percent cap (as measured against a “cable operator’s gross revenues” from its provision
of cable services) on the franchise fees that the Local Regulators may charge a cable operator.
See id. § 542(b).
Specifically, the Local Regulators challenge the FCC’s inclusion of (i) noncash exactions
and (ii) cable-related exactions (as opposed to exactions unrelated to the provision of cable
service) in the FCC’s interpretation of “franchise fee.” By way of background, the FCC stated in
its First Order—which again applied only to new applicants for a cable franchise, i.e., “new
entrants”—that the incidental “requirements or charges” covered by § 542(g)(2)(D) (and thus not
counted toward the five-percent cap for a franchise fee) are only the requirements or charges
expressly enumerated in that provision. That order also stated, in relevant part, that “[e]xamples
of other items” that do count toward the cap “include application and processing fees that exceed
the reasonable cost of processing the application, acceptance fees, free or discounted services
provided to an LFA [i.e., local franchising authority], any requirement to lease or purchase
equipment from an LFA at prices higher than market value, and in-kind payments as discussed
below.” First Order ¶ 104. The order did not define “in-kind payments”—though, as examples
of them, it cited “a request for video hookup for a Christmas celebration and money for
wildflower seeds in New York[.]” Id. ¶ 107. But the order did conclude that “any requests made

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by LFAs that are unrelated to the provision of cable services” are franchise fees that count
toward the five-percent cap. The FCC’s Second Order then applied its definition of franchise fee
to incumbent cable providers as well as to new applicants. See Second Order ¶¶ 10-11 & n.32.
Finally, in its Reconsideration Order, the FCC stated that its interpretation of “franchise fee”
includes all “in-kind payments” regardless of whether they are related to cable services.
See Recon. Order ¶¶ 11-13.
So now we turn to the challenges themselves. As an initial matter, the FCC and the
Intervenors argue that the Local Regulators’ challenges to the FCC’s inclusion of noncash and
cable-related exactions in its interpretation of “franchise fee” are barred by res judicata, because,
the FCC says, our court rejected those same challenges in Alliance. But there are two problems
with that argument. First, the relevant part of our opinion in Alliance analyzed (and approved)
only the FCC’s interpretation of the term “incidental” as used in § 542(g)(2)(D). See 529 F.3d at
783. The opinion nowhere analyzed or approved the idea that every cost or expense that a cable
operator bears in complying with the terms of its franchise is a “franchise fee” under § 542(g)(1).
Hence we have not in fact already decided the issues presented here.

See Georgia-Pac.

Consumer Prods. LP v. Four-U-Packaging, Inc., 701 F.3d 1093, 1098 (6th Cir. 2012). Second,
the First Order did not make clear that cable-related exactions are franchise fees under
§ 542(g)(1). Indeed, the FCC itself told us the contrary was true: in opposing a motion to stay
its First Order during the pendency of the Alliance appeal, the FCC told this court that the First
Order’s “analysis of in-kind payments was expressly limited to payments that do not involve the
provision of cable service.”

Opposition of Federal Communications Commission to Joint

Motion for Stay Pending Judicial Review, 2007 WL 2041325, at *14 n.16 (emphasis in original).
And for good reason: the First Order rather pointedly concluded that exactions “unrelated to the
provision of cable services” are franchise fees, First Order ¶ 105 (emphasis added), which yields
a plain negative inference that, so far as the First Order was concerned, exactions that are related
to the provision of cable services are not franchise fees.

The FCC responds that this

interpretation of its First Order renders its reference to “free or discounted services” in ¶ 104 of
the Order superfluous in light of the FCC’s reference in the same paragraph to “in-kind payments
as discussed below.” But that assumes that these (undefined) terms have some objectively
discernable meaning as used in the Order—which they do not. The FCC’s current (as opposed to

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prior) interpretation of the First Order on this point is therefore plainly erroneous. See In re
AmTrust Fin. Corp., 694 F.3d 741, 754 (6th Cir. 2012).
Thus we turn to the merits of the two challenges. First, the Local Regulators and their
amici argue that noncash exactions are not “franchise fees” under § 542(g)(1)—because that
section defines franchise fees as a “tax, fee or assessment[,]” and those things are almost always
monetary in nature. But § 542(g)(1) more specifically defines “franchise fee” to include “any
tax, fee, or assessment of any kind[,]” (emphasis added), which requires us to give those terms
maximum breadth.

And the terms “tax” and “assessment,” in particular, can include

nonmonetary exactions. The definition of “tax,” for example, includes “a burdensome charge,
obligation, duty, or demand.” The Random House College Dictionary 1347 (rev. ed. 1982); see
also Black’s Law Dictionary 106-07 (5th ed. 1979) (“[a]n enforced contribution of money or
other property . . . [or] any contribution imposed by government upon individual, for the use and
service of the state” (emphasis added)).

And Justice Scalia, for one, has recognized that

assessments need not be monetary—by referring to “in-kind assessments[,]” which closely tracks
the FCC’s usage of the phrase “in-kind payments” here. See Austin v. United States, 509 U.S.
602, 623-24 (1993) (Scalia, J., concurring); Recon. Order ¶ 11.

Thus we conclude that

“franchise fee” as defined by § 542(g)(1) can include noncash exactions.
That the term “franchise fee” can include noncash exactions, of course, does not mean
that it necessarily does include every one of them. The Local Regulators argue that “franchise
fee” does not include “in-kind” cable-related exactions in particular. On that point the Local
Regulators offer two contentions, one substantive and one procedural. The substantive argument
is that the FCC’s interpretation of franchise fee would undermine various provisions of the Act
that allow or even require the Local Regulators to impose cable-related obligations as part of
their cable franchises. For example, the Local Regulators may require “that channel capacity be
designated for public, educational, or governmental [or “PEG”] use,” and that “channel capacity
on institutional networks [or “I-Nets”] be designated for educational and governmental use[.]”
47 U.S.C. §§ 531(b), 541(b)(3)(D). And the Local Regulators must “assure that access to cable
service is not denied to any group of potential residential cable subscribers because of the
income of the residents of the local area in which such group resides[,]” id. § 541(a)(3)—a

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mandate that often brings with it expensive “build-out” obligations for cable operators. See
Alliance, 529 F.3d at 771 n.6. The Local Regulators assert that, if the costs of these requirements
count toward the five-percent cap, the Regulators will not be able to impose these requirements
in the first place, thereby thwarting Congress’s intent in enacting these provisions.
The FCC’s Second Order and Reconsideration Order do not reflect any consideration of
this concern, which leads to the Local Regulators’ second contention: that those orders contain
scarcely any explanation at all for the FCC’s decision to expand its interpretation of “franchise
fee” to include so-called “in-kind” cable-related exactions. We agree with that contention. The
Second Order says nothing at all in support of this expansion. And the Order on Reconsideration
merely asserts that its First Order had already treated “in-kind” cable-related exactions as
franchise fees, and that our court had approved that treatment in Alliance. See Recon. Order
¶¶ 11-13. As explained above, however, both assertions are wrong. Thus, the FCC has offered
no explanation as to why the statutory text allows it to treat “in-kind” cable-related exactions as
franchise fees. The FCC likewise has offered no explanation as to why the Local Regulators’
structural arguments are, as an interpretive matter, incorrect. And apart from a fleeting reference
in the Reconsideration Order, the FCC has not even defined what “in-kind” means.
“One of the basic procedural requirements of administrative rulemaking is that an agency
must give adequate reasons for its decisions.” Encino Motorcars, LLC v. Navarro, 136 S. Ct.
2117, 2125 (2016). Thus, if an agency wants the federal courts to adopt (much less defer to) its
interpretation of a statute, the agency must do the work of actually interpreting it. The FCC’s
orders reflect none of that work as to the question whether “in-kind” cable-related exactions are
“franchise fees” under § 541(g)(1). We therefore vacate, as arbitrary and capricious, the orders
to the extent they treat “in-kind” cable-related exactions as “franchise fees” under § 541(g)(1).
On remand, the FCC should determine and explain anew whether, and to what extent, cablerelated exactions are “franchise fees” under the Communications Act. And the FCC should do
so expeditiously, rather than take another seven years to issue a proper order under the law.

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B.
The Local Regulators next challenge the FCC’s so called “mixed-use” rule, which in
essence states that local franchising authorities can regulate only the provision of cable services
over “cable systems” as defined by the Act. See Second Order ¶¶ 16-17; see also 47 U.S.C.
§ 522(7).
By way of background, the infrastructure that supports cable services—which the Act
refers to as “cable systems”—can also support at least two other kinds of services:
“telecommunications services[,]” such as telephone service offered directly to the public, and
“information services[,]” such as certain internet add-on applications and other ways to make
information available via telecommunications. See generally 47 U.S.C. § 153(24), (53); In the
Matter of Protecting & Promoting the Open Internet, 30 FCC Rcd. 5601, 5614-15 (2015). The
Act also makes clear that local franchising authorities can regulate so-called “Title II carriers”
(basically, providers of phone services) only to the extent that Title II carriers provide cable
services. See 47 U.S.C. § 522(7)(C).
The Local Regulators’ biggest concern about the mixed-use rule—and the biggest
indicator, in their view, that the rule is wrong—is that it apparently would prevent them from
regulating so-called “institutional networks,” or “I-Nets.” Institutional networks provide various
services to non-residential subscribers, rather than just video services to residential subscribers
(which is all that the mixed-use rule seems to allow local franchising authorities to regulate). See
id. § 531(f). Yet the Act makes clear that local franchising authorities can regulate I-Nets. See
id. §§ 531(b); 541(b)(3)(D).
The FCC now concedes that its mixed-use ruling was not meant to prevent local
franchising authorities from regulating institutional networks. And that concession, the Local
Regulators say, resolves “90 percent” of their concern about the mixed-use rule. But that still
leaves a dispute about whether local franchising authorities can regulate other services, like
“information services” as defined by 47 U.S.C. § 153(24). Thus we turn to the merits of the
Local Regulators’ challenge.

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The Communications Act bars franchising authorities from regulating the “services,
facilities, and equipment provided by a cable operator except to the extent consistent with” the
Act.

Id. § 544(a).

The Act in turn permits authorities to impose various franchise

requirements to the extent that those requirements are “related to the establishment or operation
of a cable system[.]” Id. § 544(b) (emphasis added). Section 522(7) defines a “cable system” as
“a facility . . . that is designed to provide cable service,” including video programming, “to
multiple subscribers within a community[.]” Id. § 522(7).
The Local Regulators admit that the FCC’s mixed-use decision is “defensible as applied
to Title II carriers,” since the Act expressly states that local franchising authorities may regulate
Title II carriers only to the extent they provide cable services. See id. § 522(7)(C). And as a
practical matter that was how the FCC applied the mixed-use rule in the First Order, since that
order concerned new entrants to the cable market, most of whom apparently were Title II
carriers. See First Order ¶¶ 22, 39, 118, 121 (indicating that new entrants generally are “local
exchange carriers” (LECs) or other telephone companies); see also MetroPCS California, LLC v.
FCC, 644 F.3d 410, 411, 412 (D.C. Cir. 2011) (describing LECs and noting that they are
common carriers). Understandably, then, the FCC invoked § 522(7)(C) as the statutory basis—
indeed as the only statutory basis—for its decision to apply the mixed-use rule to new entrants.
See First Order ¶¶ 121-23 & nn.401-04.
Where the trouble began, in the Local Regulators’ view, is in the FCC’s Second Order,
which applied the mixed-use rule to incumbent cable operators—most of whom are not Title II
carriers, and thus to whom § 522(7)(C) does not apply. The FCC’s statutory basis for the mixeduse rule in the First Order, therefore, does not by its terms support the FCC’s extension of the
mixed-use rule to incumbent cable operators in the Second Order. Yet the FCC chose not to cite
any other statutory basis for its application of the mixed-use rule to incumbent providers in the
Second Order. See Second Order ¶¶ 16-17.
Instead, the FCC merely relied on the First Order’s statutory interpretation of
§ 522(7)(C), noting that § 522 “does not distinguish between incumbent providers and new
entrants.” Id. But that reasoning is not an affirmative basis for the FCC’s decision in the Second
Order to apply the mixed-use rule to incumbent cable operators. Section 522(7)(C) by its terms

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applies only to Title II carriers. And many incumbent cable operators are not Title II carriers.
Nor does the Reconsideration Order offer any statutory explanation for the FCC’s decision;
instead that order merely “adhere[s]” to the Second Order on this point. Recon. Order ¶ 15.
In sum, the FCC’s orders offer no valid basis—statutory or otherwise—for its application
of the mixed-use rule to bar local franchising authorities from regulating the provision of nontelecommunications services by incumbent cable providers. Thus, on the record now before us,
the FCC’s extension of the mixed-use rule to incumbent cable providers that are not common
carriers is arbitrary and capricious. See Teva Pharm. USA, Inc. v. Food & Drug Admin.,
441 F.3d 1, 5 (D.C. Cir. 2006). We therefore vacate the mixed-use rule as applied to those
incumbent cable operators, and remand for the FCC to set forth a valid statutory basis, if there is
one, for the rule as so applied.
C.
We make shorter work of the Local Regulators’ remaining three arguments.
1.
The Local Regulators argue that the FCC should have preempted, in its Second Order, socalled “most-favored-nation” (“MFN”) clauses in franchise agreements. By way of background,
in the First Order the FCC invalidated so-called “level-playing-field” rules, which were state or
local rules that barred franchising authorities from granting new cable franchises on terms that
were better than those in existing franchise agreements. See First Order ¶ 138. The FCC also
forbade franchising authorities from unreasonably denying a new franchise based on an
applicant’s inability to meet certain excessive requirements. For example, franchising authorities
could not require “a franchisee [to] deploy cable services to all households in a given franchise
area” within an unreasonably short timeframe. Alliance, 529 F.3d at 771 & n.6. In the Second
Order, the FCC recognized that these parts of the First Order might permit some “competitive
providers to enter markets with franchise provisions more favorable” than incumbent cable
providers, and thus might trigger the application of some MFN clauses. Second Order ¶ 20. But
the FCC saw no reason to invalidate those clauses themselves. Id.; see also Recon. Order ¶¶ 810.

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According to the Local Regulators, the FCC’s decision to strike down the level-playingfield rules while leaving the MFN clauses in place will create a downward spiral that the
Regulators rather vaguely say is “inconsistent” with the Act. The downward spiral, as the Local
Regulators see it, has two steps. In the first step, the First Order will cause new entrants to
obtain better terms than incumbent operators have. In the second step, the incumbents’ MFN
clauses will entitle them to those better terms. The Local Regulators assert that this cycle would
repeat with each new franchise granted, causing a downward spiral and eventually preventing
authorities from making reasonable demands of franchisees.
The theory presumes that the First Order effectively requires franchising authorities to
give every new wave of cable providers a better deal than the last. But the First Order does not
do that. Instead it merely allows franchising authorities to give better terms to new entrants if
they so choose, so long as the authorities impose only reasonable requirements. Meanwhile,
nothing prevents franchising authorities from refusing to agree to MFN clauses when incumbent
franchises come up for renewal. See Second Order ¶ 20; Recon. Order ¶¶ 8-10. Nor have the
Local Regulators provided any evidence, as opposed to speculation, that the FCC’s decisions in
this area will somehow thwart Congress’s intent as expressed by the Act’s plain terms.
Moreover, analysis of these kinds of market dynamics is primarily the FCC’s province, not ours.
See Wis. Pub. Power, Inc. v. FERC, 493 F.3d 239, 260-61 (D.C. Cir. 2007). Nor, suffice it to
say, was the FCC’s decision on this point arbitrary and capricious in any way. Hence we reject
this challenge to the FCC’s orders.
2.
The Local Regulators next argue that the FCC should make clear that the Second Order
does not bind state franchising authorities (as opposed to local ones). But the FCC has already
made that clear, by expressly stating that the Second Order was “intended to apply only to the
local franchising process, and not to franchising laws or decisions at the state level.” Recon.
Order ¶ 7.

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Still, the Local Regulators worry about the following footnote in the Reconsideration
Order:
Nothing in this Order on Reconsideration, of course, changes the fact that in
litigation involving a cable operator and a franchising authority, a court anywhere
in the nation would be required to apply the FCC’s interpretation of any provision
of [the Communications Act] that would be pertinent (e.g., [47 U.S.C. § 542]),
including those interpretations set forth in the First Report and Order and Second
Report and Order.
Id. ¶ 7 n.33 (citing, for example, Mais v. Gulf Coast Collection Bureau, Inc., 768 F.3d 1110,
1119 (11th Cir. 2014)). According to the Local Regulators, this footnote would require a district
court to apply the First and Second Orders in any case where, for example, a prospective new
entrant claims that the relevant franchising authority has imposed unreasonable conditions on the
new entrant in violation of § 541(a)(1). And some of those cases might involve state franchising
authorities, in which case, the Regulators seem to fear, a district court (per the footnote) might
think itself bound to apply the FCC’s First and Second Orders to the state authority. The Local
Regulators thus assert that the Reconsideration Order is internally inconsistent and therefore
arbitrary and capricious. See Cincinnati Bell Tel. Co. v. FCC, 69 F.3d 752, 768 (6th Cir. 1995).
The Local Regulators misread the footnote, which merely makes the jurisdictional point
that district courts cannot review the substantive validity of the FCC’s orders. See 28 U.S.C.
§ 2342(1); 47 U.S.C. § 402(a); see also Mais, 768 F.3d at 1119. And part of the substance of the
First and Second Orders themselves, per the express terms of the First and Reconsideration
Orders, is that they do not apply to state franchising authorities. See First Order ¶ 126; Recon.
Order ¶ 7. Hence a district court could not disregard that limitation either.
Moreover, the FCC’s decision not to regulate, and thus to leave a gap in its regulatory
regime, is not arbitrary and capricious. Agencies may “proceed one step at a time[.]” Cincinnati
Bell Tel. Co., 69 F.3d at 767. And the FCC has offered to undertake a future rulemaking, if
requested, to consider whether its orders should apply to state-level franchises. See Recon.
Order ¶ 7. Hence this challenge, to the extent it is one, is meritless.

Case: 08-3023
Nos. 08-3023/15-3578

Document: 117-2

Filed: 07/12/2017

Montgomery Cnty., Md., et al. v. FCC, et al.

Page: 14
Page 14

3.
Finally, the Local Regulators argue that the FCC’s Supplemental Final Regulatory
Flexibility Analysis (which it attached to the Reconsideration Order) was defective because it
putatively failed to meet the “purely procedural” requirements of the Regulatory Flexibility Act.
See Nat’l Tel. Co-op. Ass’n v. FCC, 563 F.3d 536, 540 (D.C. Cir. 2009) (alteration and citation
omitted). Under the Act, an agency must publish, for each rule that it promulgates, a “final
regulatory flexibility analysis” that assesses the rule’s effects on “small entities” and describes
any steps the agency has taken to “minimize the significant economic impact” on them. See
5 U.S.C. § 604. We review these analyses to ensure only that the agency made a “reasonable,
good-faith effort” to comply with the requirements of § 604. See Zero Zone, Inc. v. United
States Dep’t of Energy, 832 F.3d 654, 683 (7th Cir. 2016) (gathering cases).
Here, the FCC identified specific comments that raised the same objections that the Local
Regulators now raise in the petition. And the FCC explained that, in its view, its rules in the
relevant orders would “not impose a significant impact on any small entity” because the FCC
“did not disturb many portions of the existing franchise requirements, such as MFN clauses,
build-out requirements, time limits for franchise negotiations or customer service laws.” Recon.
Order at App’x ¶ 16. The agency’s analysis of the relevant orders’ effects upon small entities
was procedurally adequate. See Nat’l Tel. Co-op. Ass’n, 563 F.3d at 540. And to the extent that
the Petitioners argue that the FCC’s regulatory analysis made its other rules arbitrary and
capricious, we have dealt with those arguments above.
*

*

*

We grant the petition in part, deny it in part, and remand to the agency for further
proceedings consistent with this opinion.