N.Y. State Telecomms. Ass'n, Inc. v. James

101 F.4th 135

NEW YORK STATE TELECOMMUNICATIONS ASSOCIATION, INC.,CTIA - The Wireless Association, ACA Connects - America's Communications Association,USTelecom - The Broadband Association, NTCA - The Rural Broadband Association,Satellite Broadcasting and Communications Association,on behalf of their respective members, Plaintiffs-Appellees, v. Letitia A. JAMES, in her official capacityas Attorney General of New York, Defendant-Appellant.

No. 21-1975

August Term 2022

United States Court of Appeals, Second Circuit

Argued: January 12, 2023

Decided: April 26, 2024

Appeal from the United States District Court for the Eastern District of New York, No. 21-cv-2389, Denis R. Hurley, Judge.

Judith N. Vale (Barbara D. Underwood, Steven C. Wu, Eric Del Pozo, on the brief) for Letitia James, Attorney General, State of New York, New York, NY, for Appellant.

Scott H. Angstreich, Kellogg, Hansen, Todd, Figel & Frederick, P.L.L.C. (Andrew E. Goldsmith, Joseph S. Hall, Alex A. Parkinson, Kellogg, Hansen, Todd, Figel & Frederick, P.L.L.C., Jeffrey A. Lamken, MoloLamken LLP, Jared P. Marx, Harris, Wiltshire & Grannis, LLP, on the brief), Washington DC, for Appellees.

Before: Sullivan, Nathan, and Merriam, Circuit Judges.

Nathan, Circuit Judge:

In April 2021, New York enacted the Affordable Broadband Act (ABA), which aims to expand internet access by requiring internet service providers to offer broadband internet to low-income New Yorkers at reduced prices. The Plaintiffs, a group of trade organizations representing internet service providers, maintain that the ABA is impliedly preempted by federal law. We conclude that it is not.

As a threshold matter, we conclude that we have jurisdiction to hear this appeal. Although the parties stipulated to the judgment from which New York appeals, they did so under specific conditions that our case law recognizes as preserving appellate jurisdiction. The district court effectively resolved the Plaintiffs' preemption claim as a matter of law, by rejecting the legal basis of New York's preemption defenses; all claims have been disposed of with finality and with prejudice; the parties stipulated to judgment solely to obtain immediate appellate review, without circumventing any restrictions on our appellate jurisdiction; and New York expressly preserved its right to appeal from the stipulated judgment. The parties have not circumvented the final judgment rule but have merely accelerated the process of obtaining the final judgment that became inevitable once the district court reached its legal conclusion.

Turning to the merits, we conclude as follows. First, the Communications Act of 1934 (as amended by the Telecommunications Act of 1996) does not wholly preempt states from regulating the rates charged for interstate communications services, because the Act does not establish a framework of rate regulation that is sufficiently comprehensive to imply that Congress intended to exclude the states from entering this field. Second, the ABA is not conflict-preempted by the Federal Communications Commission's 2018 order classifying broadband as an information service. That order stripped the agency of its statutory authority to regulate the rates charged for broadband internet, and a federal agency cannot exclude states from regulating in an area where the agency itself lacks regulatory authority. Accordingly, we REVERSE the judgment of the district court and VACATE the order permanently enjoining enforcement of the ABA.

BACKGROUND

I. Legal Background

The Communications Act of 1934, 47 U.S.C. § 151 et seq., created the Federal Communications Commission (FCC) and authorized it to regulate all "interstate and foreign communication by wire or radio" and "all persons engaged within the United States in such communication." Id. § 152(a). Under the Communications Act, communications services are subject to different regulatory regimes depending on how they are classified. For example, radio and mobile phone services are regulated under Title III of the Act, and cable television services are regulated under Title VI. The FCC has the authority to determine the appropriate statutory category for a particular communications service, and its determinations are entitled to deference under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). See Nat'l Cable & Telecomms. Ass'n v. Brand X Internet Servs., 545 U.S. 967, 980-81, 125 S.Ct. 2688, 162 L.Ed.2d 820 (2005).

Broadband internet has, at different times, alternately been categorized by the FCC as a "telecommunications service" under Title II of the Communications Act, and as an "information service" under Title I. These designations are mutually exclusive, and they come with important regulatory consequences. If broadband is a Title II telecommunications service, then internet service providers (ISPs) are common carriers subject to a variety of statutory obligations and restrictions. For example, common carriers are barred from levying unreasonable charges, 47 U.S.C. § 201(b), or unjustly discriminating in the provision of services, id. § 202(a). Title II also contains a provision that permits the FCC to "forbear from applying any regulation or any provision of" the Act if it determines that the regulation is unnecessary. Id. § 160(a). Once the FCC chooses to exercise this forbearance authority, state and local regulators are preempted and "may not continue to apply or enforce" the relevant regulation. Id. § 160(e). On the other hand, if the FCC designates broadband as a Title I information service, then it is "exempted from common carriage status" under the Act. Mozilla Corp. v. FCC, 940 F.3d 1, 17 (D.C. Cir. 2019). Courts have accordingly held that the FCC lacks the power to impose common carrier obligations on ISPs under Title I. See Comcast Corp. v. FCC, 600 F.3d 642, 655 (D.C. Cir. 2010) (rejecting notion that the FCC's Title I authority allows it to impose rate regulations on ISPs); Verizon v. FCC, 740 F.3d 623, 655-59 (D.C. Cir. 2014) (concluding that the FCC lacked the statutory authority under Title I to impose net neutrality regulations).

The FCC has reclassified broadband internet on several occasions and did so most recently in 2018. See In re Restoring Internet Freedom, 33 FCC Rcd. 311 (2018). This 2018 Order reclassified broadband internet as a Title I information service and eliminated the FCC's net neutrality regulations¹ as part of a broader agenda to "end utility-style regulation of the Internet in favor of . . . market-based policies" and adopt a "light-touch" regulatory framework. Id. ¶¶ 2, 207. The 2018 Order also contained a Preemption Directive, which purported to expressly preempt all state or local regulations of ISPs that would "interfere with the federal deregulatory policy restored in this order." Id. ¶¶ 194-204. The stated goal was to prevent states and municipalities from implementing the "utility-type" common-carrier regulations that the federal government was eliminating. Id. ¶ 195.

As will be discussed extensively below, the D.C. Circuit considered the legality of the FCC's reclassification of broadband as a Title I service and the FCC's authority to issue the Preemption Directive. See Mozilla, 940 F.3d at 18 (D.C. Cir. 2019). In Mozilla, the D.C. Circuit upheld the FCC's reclassification of broadband as a Title I service. However, the court vacated the Preemption Directive because it was not grounded "in a lawful source of statutory authority." Id. at 74. Because the FCC chose to reclassify broadband as a Title I service, the court concluded that the FCC could not rely on its Title II forbearance authority to preempt state regulation over broadband internet.

II. Factual Background

In 2021, the New York State Legislature enacted the Affordable Broadband Act, which aims to provide internet access to the families least able to afford it. In legislative memoranda, the ABA's sponsors explained that the circumstances of the COVID-19 pandemic had "made it abundantly clear" that broadband internet was "an essential service in its own right." Joint App'x 100. Legislators noted that internet access had become a de facto requirement for accessing health care, education, and work opportunities. Id. at 101. But despite its indispensable role in contemporary society, reliable internet access remained out of reach for many. The New York State Comptroller cited data from the most recent Census estimate, which found that "more than 1 million, or 13.8 percent of, New York households do not have subscriptions to broadband internet," and "[o]ne in three low-income households lacks access." Office of the N.Y.S. Comptroller, Availability, Access, and Affordability: Understanding Broadband Challenges in New York State 1 (2021). The Comptroller report concluded that "these access disparities disproportionately impacted low-income households during the pandemic and may generally present a disadvantage for these New Yorkers and their communities." Id.

In an effort to address this digital divide, the ABA requires anyone "providing or seeking to provide . . . broadband service in New York state" to "offer high speed broadband service to low-income consumers" at statutorily fixed prices. See 2021 N.Y. Sess. Laws 202-04 (McKinney) (codified at N.Y. Gen. Bus. Law § 399-zzzzz). ISPs must offer one of two broadband plans to all low-income consumers who qualify for certain means-tested governmental benefits. N.Y. Gen. Bus. Law § 399-zzzzz(2). Qualifying consumers must be offered broadband at no more than $15 per month for service of 25 Mbps, or $20 per month for high-speed service of 200 Mbps. Id. §§ 399-zzzzz(2)-(4). This requirement, however, is not absolute. Certain price increases may be allowed every few years, and ISPs that serve 20,000 households or fewer may be exempted if the New York Public Service Commission "determines that compliance with such requirements would result in unreasonable...