Court Nixes FCC Inmate Calling Service Rate Limits; Pai, Clyburn Vow to Work on Issue

Federal judges shot down key parts of an FCC order that limited inmate calling service charges without regulating ICS provider "site commission" payments to correctional authorities. A divided panel of the U.S. Court of Appeals for the D.C. Circuit vacated caps on intrastate ICS rates, use of industry-averaged cost data in setting rate caps, and exclusion of site commissions from industry costs. It remanded rate caps, ancillary fees and site-commission costs for further agency consideration. Judges Harry Edwards and Laurence Silberman approved the ruling and Cornelia Pillard largely dissented in Global Tel*Link v. FCC, No. 15-1461 (see 1706130012).

"The D.C. Circuit agreed with my position that the FCC exceeded its authority," said Chairman Ajit Pai, who as a commissioner (along with fellow Republican Mike O'Rielly) dissented from the 2015 order and declined to defend the intrastate rate caps and use of industry-averaged cost data when he took the helm. He said he would work with others "to address the problem of high inmate calling rates in a lawful manner.”

Commissioner Mignon Clyburn called the ruling "deeply disappointing," and "a sad day for the more than 2.7 million children" with at least one incarcerated parent, but vowed to fight on. "I remain committed to doing everything I can ... to bring relief to millions who continue to suffer from the greatest form of regulatory injustice I have seen in my 18 years as a regulator in the communications space,” she said.

The ruling "prevents further upheaval" in the ICS market, said Global Tel*Link, which was joined by other ICS providers and state and local groups in petitioning to overturn the order. “We are committed to market-based reforms that result in lower rates for inmates and their friends and family members, but those reforms must account for the true costs of providing ICS and give deference to state and local governments on issues of intrastate rates and security,” said CEO Brian Oliver.

"We lost badly," emailed Andrew Schwartzman, who argued on behalf of inmate rights advocates at oral argument in defense of the order (see 1702060028). "This will hurt a lot of family and loved ones, not to mention the prisoners themselves. The Court upheld the Commission's authority to regulate interstate rates, although there will have to be some adjustments. ... [T]here is clearly a lot of work ahead at the FCC to deal with site commissions and ancillary fees and set new permanent interstate rates. It will be necessary to put a lot of attention on state-level reforms." He cited a recent New Jersey statute.

The court majority noted petitioner arguments that Section 276 of the Communications Act, which requires the FCC to ensure ICS providers are "fairly compensated," didn't override Section 152's general bar against FCC regulation of intrastate charges, nor give the commission intrastate ratemaking authority akin to that in Section 201. "We agree with Petitioners that, on the record in this case, § 276 did not authorize the Commission to impose intrastate rate caps as prescribed in the Order," wrote Edwards.

The majority blasted FCC refusal to factor site commissions into provider costs. "We simply cannot comprehend the agency’s reasoning," wrote Edwards. The FCC in 2016 raised rate caps to account somewhat for site commissions, but the majority noted that order was stayed and held in abeyance. "We will leave this for the Commission's consideration on remand," said the opinion. "We also leave it to the Commission to assess on remand which portions of site commissions might be directly related to the provision of ICS and therefore legitimate, and which are not."

FCC rate caps based on industry cost averages were "patently unreasonable," including for interstate service, because above-cost calls would be unprofitable, said the majority, vacating and remanding that decision. It remanded ancillary fee caps for the agency to determine whether it can segregate caps on interstate calls, "which are permissible," from caps on intrastate calls, "which are impermissible." While vacating video-visitation reporting duties for providers, the majority upheld site-commission reporting duties and it declared Pay Tel pre-emption and due process arguments moot.

Silberman concurred with Edwards' opinion in all respects. "I especially agree that Chevron deference would be inappropriate in these unusual circumstances," wrote Silberman. "As to the FCC’s claimed jurisdiction to set intrastate rate caps," he said, "I think our result would be the same if the Chevron framework was in play, i.e., if the FCC had elected to defend this part of its regulation." Courts should carefully scrutinize regulatory decisions even when the statute is ambiguous, he said.

Pillard dissented from reversals of the FCC and said the record is "full of compelling evidence of dysfunction" in the ICS market. "The majority’s decision scuttles a long-term effort to rein in calling costs that are not meaningfully subject to competition and that profit off of inmates’ desperation for connection," she wrote, saying she can't agree a provider is "fairly compensated" when "it charges inmates exorbitant prices to use payphones inside prisons and jails." She also disputed the FCC order wasn't due greater Chevron deference.

The Wright Petitioners are "profoundly disappointed" by the court's reasoning on FCC intrastate jurisdiction, said counsel Lee Petro, whose group pushed for ICS regulation. Pillard "correctly focused on the necessity of the FCC to reject efforts by ICS providers to pass through to the families of inmates the significant kickback payments paid to state and local governments," Petro emailed. "These payments are voluntarily provided so that ICS providers obtain monopoly control of communications services at the correctional facility, and both the providers and correctional authorities have rejected all efforts to introduce competition at the facility-level."