8th Circuit vacates FCC’s digital discrimination rule

Summary

• 8th Circuit vacated the FCC‘s digital discrimination rule in its entirety.
• Court ruled the FCC exceeded its authority by allowing disparate impact liability.
• Judges found the Infrastructure Investment and Jobs Act only permits disparate treatment claims.
• Court also rejected the FCC’s broad definition of covered entities beyond broadband providers.

The Federal Communications Commission’s final digital discrimination rule exceeded the agency’s authority by including disparate impact liability and overbroadly defining the covered entities, the 8th U.S. Circuit Court of Appeals ruled on May 6, vacating the rule.

In the Infrastructure Investment and Jobs Act (IIJA), Congress authorized $1.2 trillion in federal infrastructure funding. One Title of the IIJA, the Digital Equity Act of 2021, committed $65 billion towards broadband deployment to bridge the “persistent digital divide” in subscriber access to affordable, high-speed internet across the United States, particularly in rural and underserved areas.

The statute directed the FCC to adopt final rules to “facilitate equal access to broadband” by “preventing digital discrimination of access based on income level, race, ethnicity, color, religion, or national origin.”

In its final digital discrimination rule, the FCC adopted two theories of liability, disparate treatment and disparate impact. The agency broadly defined “covered entities” to include not only broadband service providers, but also “entities that provide services that facilitate and affect consumer access to broadband.”

The rule also established a burden-shifting framework through which the FCC would assess claims against covered entities, asserted broad enforcement authority for the agency and updated complaint procedures so the FCC could accept complaints from consumers or other members of the public.

Telecommunications and broadband industry groups challenged the rule in six U.S. Courts of Appeals, which were consolidated in the 8th Circuit.

A coalition of public interest groups intervened on behalf of the FCC, separately challenging portions of the rule to argue they didn’t go far enough to combat digital discrimination.

Writing for the panel, Judge James B. Loken vacated the final rule, joined by Judges Duane Benton and L. Steven Grasz.

Some federal anti-discrimination statutes expressly authorize the imposition of disparate impact liability, the court noted, and the U.S. Supreme Court has held that the provisions of three federal statutes authorize disparate impact liability by implication.

Pursuant to Loper Bright v. Raimondo, the court carefully compared the language of § 60506 of the IIJA with the textual analysis of Title VII, the Age Discrimination in Employment Act and the Fair Housing Act and found that the language the court emphasized in permitting disparate impact discrimination claims without express statutory authorization was “noticeably absent” from § 60506.

Dictionary definitions suggest an element of intent with the plain meaning of discrimination, the court said, and the plain text of § 60506 of the IIJA permits imposing only disparate treatment discrimination. The statute also lacked the “results-oriented” language that would signal Congress’s intent to cover disparate impact claims, the court added.

“IIJA § 60506(1) contains no ‘otherwise adversely affect’ language pointing to disparate impact liability,” the court wrote. “In addition, there are no amendments suggesting the existence of disparate impact liability which the Court [has] found ‘of crucial importance’ to finding the intent to impose disparate impact liability. Consequently, there is no apparent reason for Congress not to use the judicially recognized ‘otherwise adversely affect’ formulation other than to confirm its intent not to authorize the imposition of disparate impact liability.”

The FCC’s textual arguments were unpersuasive, the court found, disagreeing that the statute’s use of the word “opportunity” implied authority to impose disparate impact liability. The court also disagreed that reading § 60506(b) to cover only disparate treatment would render superfluous the statute’s directive to develop rules “taking into account the issues of technical and economic feasibility,” because the agency concluded there is scant evidence that broadband access disparities result from intentional discrimination rather than by neutral business decisions that have discriminatory effects.

“Based on the plain text of the statute and its context, we conclude that the governing instruction [from the Supreme Court] — that ‘disparate-impact liability must be limited so employers and other regulated entities are able to make the practical business choices and profit-related decisions that sustain a vibrant and dynamic free-enterprise system’ — applies to IIJA § 60506,” the court wrote. “Accordingly, the Commission exceeded its statutory authority in adopting a final rule authorizing the imposition of disparate impact liability.”

The court also agreed with the industry groups that the FCC exceeded its statutory authority when it extended the final rule to cover entities other than broadband providers.

“The text of § 60506 refers to only two parties involved in the provision of broadband service: broadband providers and service subscribers,” the court said. “[T]here is no textual basis for extending a statute focused on the subscriber-provider relationship to the acts and omissions of entities such as local governments and broadband infrastructure owners.”

Entities other than broadband service providers have no clear guidance from the final rule on what policies and practices might actually subject them to liability, which is likely to stifle expansion and innovation of broadband services, defeating the IIJA’s core purpose, the court said.

As the FCC exceeded its statutory authority in two respects “that are the core of the final rule,” the court vacated it in its entirety.

The court declined to weigh in on the Commission’s powers to order remedies under the IIJA or the burden-shifting framework adopted by the agency, finding that until a new final rule is in place after notice-and-comment rulemaking, the questions were outside its jurisdiction.

In a statement, FCC Chair Brendan Carr applauded the opinion, which he called “another common-sense win for nondiscrimination.”

“Back in 2023, I dissented from the Biden FCC’s decision to adopt sweeping and unlawful ‘digital equity’ rules,” he said. “Those regulations would have required broadband providers and many other businesses to discriminate against people based on their race, gender, or other protected characteristics. As I said at the time, the FCC’s decision to adopt those illegal rules only made it harder for providers to bridge the digital divide and took the FCC’s focus off of our core mission.”

Brent J. Christensen, president and CEO of the Minnesota Telecom Alliance, the named plaintiff in the case, called the decision “an important win for consumers and broadband development.”

“MTA supported this challenge because the FCC’s rule went far beyond Congress’s intent and created an unworkable regulatory framework that could have slowed investment in broadband infrastructure, especially in rural communities,” he said in a statement.

The case is Minnesota Telecom Alliance v. Federal Communications Commission, No. 24-1179.