The United States Court of Appeals for the Second Circuit, in Time Warner Cable Inc. v. Federal Communications Commission (FCC), recently vacated and remanded one portion of the FCC’s 2011 rules that govern (loosely said) “television” that sought to prevent program blackouts by extending network programming contracts beyond their expiration. While petitioners launched a broad First Amendment / compelled speech attack on the FCC’s regulatory order, the critical (successful) argument here was that the FCC had failed to provide Administrative Procedure Act (APA) advance notice and an opportunity for the public to comment on the “standstill” provision that might prevent programming blackouts pending resolution of complaints. The FCC claimed that the standstill provision was a procedural rule not subject to APA notice and comment, and that they had provided notice and an opportunity for comment anyway. While the FCC may have won the constitutional battle on the entire rule, it lost the APA battle and must return to square one on the standstill provision. Significant learning for all practitioners, not just the FCC, lies within this decision.
The Standstill Rule: The “standstill rule” was part of the FCC’s In the Matter of Revision of the Commission’s Program Carriage Rules; Leased Commercial Access; Development of Competition and Diversity in Video Programming Distribution and Carriage – much more easily found in the Federal Register as the Leased Commercial Access; Development of Competition and Diversity in Video Programming Distribution and Carriage; Revision of the Commission’s Program Carriage Rules; Final Rule and Proposed Rule. The specific provision allowed the FCC to consider requests for a “temporary standstill of the price, terms, and other conditions of an existing programming contract by a program carriage complainant seeking renewal of such a contract” – i.e. a temporary continuance of contract terms beyond the contract’s termination date. In short, the rule requires a distributor (e.g. cable) to continue carrying an unaffiliated network under the terms of its preexisting contract until the program network’s complaint against the distributor under the program carriage regime is resolved. The standstill rule might stave off some program blackouts – which have been threatened and implemented at the end of a number of contract expirations.
Procedural Exception: The APA generally requires that all rules be published in proposed form – an advance notice and an opportunity for the public to comment – before being adopted as rules. The APA also carves out a “rule of agency procedure” exception. History has shown that there is no bright line between “procedure” and “substance.” In its simplest form, the “procedural” exception to notice and comment applies to the manner in which a party may present its case or the agency decides, not the substantive values of the party’s position or the agency’s decision. Substantive or “legislative” rules “have the force and effect of law,” whereas procedural rules do not themselves alter the rights or interests of parties. Rules have substantive effect when they make major legal additions or changes to existing regulations, or if an agency adopts a new position inconsistent with an existing regulation. On the other hand, a critical feature of a procedural rule under the APA exception is that it covers agency actions that do not alter the rights or interests of parties, but alter the manner in which the parties present themselves or their viewpoints to the agency.
FCC Position: The FCC expressly rejected arguments by its dissenting commissioner (which appear only in the byzantine FCC Record, not the Federal Register) that the agency was required to provide notice and an opportunity for public comment on the standstill rule under the APA. The FCC stated in the preamble to its final rule that it believed it had provided sufficient notice that it was considering the subject and that the final rule was a “logical outgrowth” of the previous proposals. The FCC argued before the court that the standstill rule did “not alter the existence or scope of any substantive rights, but simply codif[ies] a pre-existing procedure for obtaining equitable relief to vindicate those rights.”
Court Decision: The Court of Appeals found that the standstill rule did not fall within the procedural rule exception to the APA’s notice-and-comment requirements:
The standstill rule confers authority on the FCC temporarily to extend the term of a contractual agreement between an MVPD and an unaffiliated network while the network’s program carriage complaint is pending. It thus significantly affects substantive rights. Indeed, the FCC does not dispute this fact. Instead, it contends that the standstill rule does not impose a new substantive burden. According to the FCC, because it “has granted interim injunctive relief in a variety of contexts,” …, the standstill rule “merely codifies an existing procedure,” and thus “it does not affect substantive rights any more than the pre-existing standstill procedure did,”….
Given the substantive burden imposed by the standstill rule, the absence of an established FCC practice of issuing standstill orders in the program carriage context, and the uncertainty about the FCC’s authority to do so, “regardless whether this is a new substantive burden,” the standstill rule “substantively affects the public to a degree sufficient to implicate the policy interests animating notice-and-comment rulemaking.” …. The rule thus is substantive and subject to the APA’s notice-and-comment requirements.
In short, prior practice in other contexts does not establish precedent that can be converted into a rule without notice and comment; the extension of contract terms imposes specific and substantive obligations on parties not previously subject to such a rule or order. The “other contexts” distinction is separately important because an agency may attempt to issue a specific precedent decision establishing a procedure and subsequently adopt a rule without notice and comment on the basis that it is “pre-existing,” but that will not save a substantive rule.
Prior Notice: The court also rejected the FCC’s notion that it had provided notice and an opportunity for comment in an older proposal in 2007. The court reiterated fundamental principles under the APA that general notice that a new standard will be adopted is insufficient to afford the parties an opportunity for comment. The agency’s APA obligation is more demanding – the agency must describe the range of alternatives being considered with reasonable specificity. This reasonable specificity is required to that interested parties may know what to comment on and whether their substantive interests are at stake.
The FCC’s “prior” notice failed this test, and the 2011 proposed rule did not remedy the lack of notice that the FCC was considering contract extensions pending review. Moreover, the court pointed out that no commenters suggested that this subject was broached in the 2007 proposed rule, asserting a negative condition, and that negative condition is distinguishable from the notion that a commenter’s assertion of a subject into the public debate does not render that subject to be a subject of the agency’s required notice.
Lessons to be Learned: The FCC is not a novice on these issues, and the Second Circuit cited prominent precedent against the FCC. It would appear that the FCC, like some other specialized agencies, has looked too narrowly at its own statutes and procedures and lost sight of the fundamental overriding requirements that permit them to operate.
Some agencies have taken a wise and prophylactic approach to the fine line between substantive and procedural rules by publishing procedural rules for public comment even if the agency fully (and rightly) believes that the rule is excepted from the APA notice and comment requirements. No agency possesses all of the information needed to make the best decision on its on process – bounded as the agency is by its own existing processes for generating information.
Some agencies are bound by additional, specialized requirements of the authorizing and programmatic statues. These requirements should be read as additions to the general APA requirements unless the specific authorizing or programmatic statute explicitly excepts the agency rules from the APA process – a rule of construction that is clearly set out in the APA.
The better part of wisdom is for agencies to publish proposed procedural rules for public comment to gain additional information and experience. Unless some exigency requires otherwise (and is so stated in the rule preamble), the better part of wisdom suggests that advance notice and an opportunity for public comment should be the norm.
The distinction between substantive and procedural is difficult and complex, and requires a careful examination in contexts that go far beyond an individual agency’s experience in a specific rulemaking. Affected parties must take great care in evaluating an agency’s assertion that advanced notice and an opportunity for public comment is not necessary because a rule is one of “agency procedure.”