5th Circuit Holds That Jarkesy Invalidates FCC Forfeiture Order Against AT&T

The U.S. Court of Appeals for the 5th Circuit held that the Federal Communications Commission (FCC or Commission) violated AT&T's Seventh Amendment right to a jury trial and right to adjudication by an Article III court when it imposed a $57 million forfeiture penalty on AT&T through the Commission's in-house adjudication process. The 5th Circuit's April 17, 2025, decision in AT&T v. FCC, which vacated the FCC's forfeiture order, relied on the Supreme Court's recent decision in Securities & Exch. Comm'n v. Jarkesy, 603 U.S. 109 (2024).

But the fate of the FCC's forfeiture proceedings is yet to be determined. AT&T's suit arose from a set of April 2024 forfeiture orders issued by the FCC against AT&T and several other major wireless carriers. Other carrier challenges, which include Jarkesy-based arguments that the FCC's forfeiture orders violate the Seventh Amendment, are pending in the 2nd and D.C. Circuits. Commission Chair Brendan Carr denied there are constitutional limitations on the FCC's forfeiture authority in his criticism of the 5th Circuit's ruling during a press conference on April 28, and the FCC has urged the 2nd and D.C. Circuits in briefing in those matters to reject to 5th Circuit's application of Jarkesy. The 2nd Circuit held oral argument, which included a discussion of Jarkesy and the 5th Circuit's decision, on April 29.

At least one commissioner appears to agree, however, with the 5th Circuit's application of Jarkesy: Commissioner Nathan Simington has dissented from multiple FCC forfeiture orders since the Supreme Court's Jarkesy decision, stating that he is "obligated" to dissent from FCC decisions "purporting to impose a monetary forfeiture … [u]ntil the Commission formally determines the bounds of its enforcement authority under this new precedent." Following the 5th Circuit's decision, multiple telecommunications industry groups filed a petition for rulemaking with the FCC, urging the Commission to "reform its enforcement rules and procedures to more closely align with the fundamental due process principles of fair notice, consistency, and government accountability."

We examine the 5th Circuit's decision and the implications for telecommunications carriers below.

Summary of the Underlying FCC Enforcement Bureau (EB) Action

In 2020, following a multi-year investigation into AT&T's location-based services program, the FCC issued a Notice of Apparent Liability for Forfeiture and Admonishment (NAL) on account of AT&T's alleged willful and repeated violations of 47 U.S.C. § 222 and Section 64.2010 of the Commission's rules. Section 222 and Section 64.2010 require carriers to protect the confidentiality of and maintain certain safeguards for customer proprietary network information (CPNI). The FCC alleged that AT&T had improperly shared user location data with third parties. The agency proposed a $57,265,625 forfeiture penalty.

AT&T opposed the NAL, arguing among other things that: (1) the location information at issue is not CPNI and therefore not covered by Section 222 or Section 64.2010; (2) AT&T's actions did not violate Section 222, even if the location information were CPNI; (3) the forfeiture amount was arbitrary and capricious; and (4) the Commission's enforcement regime is unconstitutional under the nondelegation doctrine, as well as the Seventh Amendment and Article III.

The Commission rejected AT&T's arguments and issued a forfeiture order imposing the $57,265,625 penalty. The same day, the FCC issued forfeiture orders against several other major wireless carriers based on similar allegations related to improper sharing of customer location data.[1] AT&T elected to timely pay the $57 million penalty and seek review in the 5th Circuit. The other carriers likewise elected to pay the fine and then seek appellate review.[2]

SEC v. Jarkesy

The Supreme Court in Jarkesy considered whether the Securities and Exchange Commission (SEC) could commence proceedings before administrative law judges (ALJs) and seek civil penalties against individuals accused of violating antifraud provisions of federal securities laws. The Court held that such use of ALJs violated defendants' right to a jury trial as guaranteed by the Seventh Amendment based on a two-part test: (1) does the nature of the action implicate the Seventh Amendment; and (2) does the "public rights" exception to the Seventh Amendment apply? The Court answered the first question in the affirmative, deciding that an action alleging fraud under federal securities laws sufficiently resembled common law fraud actions. Because defendants in common law actions are entitled by the Seventh Amendment to a jury trial, the Court held that defendants facing fraud claims under federal securities laws likewise have a right to a jury trial. In Jarkesy, the fact that the SEC sought monetary penalties was "all but dispositive" in determining that the SEC's claims implicated the jury trial rights guaranteed by the Seventh Amendment. The Court then held that the public rights exception did not apply. The Court explained that the exception only applies to historic categories of public rights such as the power over foreign commerce and granting of public benefits—and not to private rights like traditional fraud claims.

Key Aspects of the 5th Circuit's Ruling

Reviewing the FCC's forfeiture order de novo, the 5th Circuit held in favor of AT&T based on the carrier's Seventh Amendment and Article III challenges to the Commission's forfeiture regime. The 5th Circuit therefore did not reach AT&T's other arguments that the forfeiture order is improper.

The FCC's In-House Adjudication Under Section 222 of the Telecommunications Act Implicates the Seventh Amendment

Guided by the Supreme Court's analysis in Jarkesy, the 5th Circuit rejected the FCC's arguments that the Commission's forfeiture penalties do not implicate the Seventh Amendment because they are "remedial" and intended to compensate a victim whose data was compromised. The court found instead that those forfeiture penalties "are money damages designed to 'punish or deter' violators of section 222."[3] Therefore, the court held that the Commission's penalties are a type that "could only be enforced in courts of law," like the SEC's penalties at issue in Jarkesy.

The 5th Circuit further held that AT&T's alleged misuse of customer data under Section 222 is analogous to common law negligence, which penalizes carriers for failing to take reasonable measures to protect customer data. The court noted that the Commission assessed AT&T's protection of customer location data entirely in terms of the reasonableness of the company's actions, which "mirrors" the common law tort of negligence.

The "Public Rights" Exception to the Seventh Amendment Is Not Implicated Where the Nature of Suit Is Common Law

The court also considered whether the Commission's enforcement proceedings fell under the Seventh Amendment's exception for "public rights." That exception allows Congress to assign adjudication of certain matters to an agency rather than a court based on the premise that common law actions presumptively concern "private rights," which must be resolved by Article III courts. The court rejected the Commission's argument that because the Communications Act regulates common carriers and common carriers "are affected with a public interest," the enforcement action falls within the public rights exception. The court reasoned that excepting this enforcement action based on the common carrier argument would "blow a hole in what is meant to be a narrow exception to Article III" and could "empower Congress to bypass Article III adjudication in countless matters." The court acknowledged the Commission's regulatory authority over common carriers, such as when setting rates or granting licenses, but held that such authority does not mean the Commission's authority allows it to "siphon" authority from Article III courts. According to the 5th Circuit, what matters most for Article III purposes is the "substance of the suit," and in this matter, the substance stemmed from claims closely analogous to common law negligence and imposition of civil penalties, remedies enforceable only in "courts of law."

Section 504 Trials Are Insufficient

The 5th Circuit also rejected the Commission's argument that the enforcement proceedings satisfied the Seventh Amendment because AT&T could have received a jury trial in an Article III court by failing to pay the forfeiture penalty and waiting for the DOJ to pursue a collection action in federal district court. Those collections actions often are referred to as Section 504 suits.[4] The 5th Circuit held that the path to a jury trial was inadequate because in such a trial the carrier would be limited to challenging the facts at issue and would not be entitled to review of the agency's legal conclusions based on those facts. According to the 5th Circuit, a carrier only can seek review of the FCC's legal conclusions under the Commission's forfeiture regime by paying a forfeiture penalty and seeking appellate review—thereby foregoing a jury trial. The 5th Circuit held that this "Hobson's choice" violated the Constitution's guarantees of an Article III decision-maker and a trial by jury. Commission Chair Carr expressly disagreed with the 5th Circuit on this point in his recent press conference, stating that Section 504 trials provide carriers with the right to challenge both the factual and the legal basis of a forfeiture order and, thus, afford the targets of FCC investigations their full Seventh Amendment rights. Oral arguments before the 2nd and D.C. Circuits also focused in part on whether Section 504 suits render the FCC's enforcement regime constitutional.

Key Takeaways

The 5th Circuit's decision highlights a trend of increased judicial scrutiny and challenges to administrative agency powers, signaling a significant shift in how enforcement and adjudication processes will be reviewed. The 5th Circuit's decision, following the precedent set by Loper Bright[5] and Jarkesy, underscores the judiciary's efforts to curtail agency authority. Further, Chairman Carr's commitment to "trim [the EB']s sails" aligns with this judicial trend, suggesting that the EB's actions will be significantly curtailed moving forward, even as Chairman Carr still defended the agency's right to assess fines and penalties in administrative proceedings.[6]

However, with additional cases yet to be decided by the D.C. and 2nd Circuits, the future of agency enforcement actions that impose monetary penalties is unclear. Should either circuit deviate from the 5th Circuit on the application of Jarkesy, the result would be a circuit split and potentially Supreme Court review.

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DWT's communications and privacy and security teams will continue to monitor these developments.