Fifth Circuit Court of Appeals Reverses Judge Kendall's Decision in SBC v. FCC

(September 5, 1998) A divided U.S. Court of Appeals yesterday reversed the decision of U.S. District Court Judge Joe Kendall that the sections of the 1996 Telecommunications Act that prevent regional Bells from providing in region long distance service are an unconstitutional Bill of Attainder.

The decision is a major victory for Federal Communications Commission regulators who have consistently refused RBOCs permission to provide in region long distance telephone service, and for long distance companies, who do not want the competition.

SBC Communications, Inc., et. al. v. Federal Communications Commission, et. al., U.S. District Court, Northern District of Texas, Case Number 7:97-CV-163-X.

SBC Communications, Inc., et. al. v. FCC, et. al., U.S. Court of Appeals, 5th Circuit, Number 98-10140.

The "Special Provisions" of the Telecommunications Act of 1996 (at 271-275) bar regional Bell Operating Companies (RBOCs) from providing in region long distance service until the FCC determines that they have opened their local markets to competition.  The FCC has rejected all RBOC applications to provide long distance services.  In July of 1997, SBC Communications filed suit against the FCC.  Long distance companies, including AT&T, MCI, and GTE, soon joined the suit.

The basic legal issue in the case is whether it was unconstitutional for Congress in enacting the Special Provisions ( 271-275) of the Telecommunications Act of 1996 to ban RBOCs from providing in region long distance service, and other services.  That is, can the regional Bells, like SBC, compete with long distance providers, like AT&T?  More specifically, the main legal issue is whether 271-275 are unconstitutional for being a Bill of Attainder.   Bills of Attainder, which are prohibited by the U.S. Constitution, are legislative acts that single out an individual or group for punishment without a trial.

Related Pages

Summary of SBC v. FCC.
271-275 of 1996 Telecom Act.
Judge Kendall's Opinion, (PDF file in District Court's website), 12/31/97.
Appeal Brief of AT&T and MCI, (105 KB HTML file), 3/23/98.
Court of Appeals Opinion, (121 KB HTML file), 9/4/98.

The U.S. District Court for the Northern District of Texas, Judge Joe Kendall presiding, ruled last News Years Eve that 271-275 are unconstitutional.  However, he quickly stayed his decision to allow the government and long distance companies to appeal.  Which they promptly did.

The majority opinion of the Appeals Court held that 271-275 are not a Bill of Attainder, because they are not punitive.  Rather, they are "prophylactically regulatory."

The appeal was decided by a three judge panel of the U.S. Court of Appeals for the 5th Circuit, located in New Orleans.  Judge Grady Jolly wrote the majority opinion. Judge Barksdale concurred. Judge Smith dissented.

The majority wrote that "the Special Provisions are not punitive because they do not impose a perpetual bar on the BOCs' entry into any of life's avocations."   It continued that, "the Special Provisions are not punishment because they serve a nonpunitive purpose: attempting to ensure fair competition in the markets for local service, long distance, telecommunications equipment, and information services."

The majority added:

"Finally, and perhaps most fundamentally, we conclude that the Special Provisions are not punitive because they were part of a larger quid pro quo. Combined with 601(a)(1), the Special Provisions represent a hard-fought compromise on a massive issue of public policy which, in the end, contained both good and bad elements for the BOCs.   For example, although the information services restriction lifted under the MFJ was partially reimposed under 274, the BOCs were immediately freed, by operation of  601(a)(1) and the other Special Provisions, from existing MFJ restrictions on their ability to offer incidental and out-of-region long distance service. More importantly, the Special Provisions gave the BOCs a clear delineation of what they needed to do to achieve a lifting of all the old MFJ restrictions in the future--certainly a step up, from the BOCs' perspective, from being under Judge Greene's perpetual supervision. It is perhaps for this reason that the BOCs have apparently consistently represented, outside of litigation, that they were pleased with the Act."

Chronology

• 1974, Department of Justice brings Sherman antitrust action against AT&T.
• 1984, Consent Decree, or Modified Final Judgment (MFJ), creates seven Regional Bell Operating Companies (RBOCs).
• 1996, Telecom Act of 1996 enacted.
• 7/2/1997, SBC files suit against FCC.
• 12/31/1997, Judge Kendall holds 271-175 of Telecom Act unconsitutional.
• 9/4/98, Appeals Court reverses Judge Kendall.

Judge Jeremy Smith wrote a separate and stinging dissenting opinion.  He wroted that, "Faced with the unhappy reality of well over a century of Supreme Court cases holding that employment bars constitute punishment, the majority announces the discovery of a heretofore unrecognized exception to the Bill of Attainder Clause: the "prophylactic exception." Apparently this creature awakens only in cases such as this--when Congress punishes, but acts with a beneficent, regulatory intent."

He concluded that "The majority today opens a loophole in the Bill of Attainder Clause, allowing Congress to pass legislation that historically has been held unconstitutional. In doing so, the majority redefines our traditional understanding of the clause's mandate: Congress cannot single out an individual and deprive him of his life, liberty, or freedom to work. Because the Telecommunications Act's "Special Provisions" amount to a bill of attainder, I respectfully dissent."

Judge Smith also dealt with the subject of the RBOCs' vast political and lobbying power.

"And that is what makes the Bill of Attainder analysis so unusual in this context: The Baby Bells, represented by armies of lawyers and lobbyists, hardly fit anyone's notion of a helpless victim. Moreover, there is evidence in the record that the Baby Bells, by their own account, prevailed in the legislative process. While their apparent consent to the Special Provisions does not estop them from challenging the restrictions in this court, it certainly undercuts their claim to victimhood. As the majority notes, the Special Provisions were part of a larger quid pro quo.

But the Bill of Attainder Clause serves a dual purpose: Not only does it rescue individuals from trial-by-legislature, it also preserves the separation of powers. The clause is a check on Congress's power to legislate; it forbids Congress from passing punitive laws that target individuals."

Both the majority and dissenting opinions, as well as Judge Kendall's opinion, contained detailed analyses of the history and judicial interpretation of the ban on Bills of Attainder.  This article does not review these arguments.

This legal issue is not likely to be finally decided until after an inevitable appeal to the U.S. Supreme Court has runs its course.