Soundboard v. FTC

January 2, 2019 • Legal Briefs
By Ilya Shapiro and Evan Schrage

Businesses in regulated industries rely on the advice of the regulating agency when making decisions. But, with so many businesses asking the agency for advice, sometimes the agency will need its professional staff (rather than the commissioners or other principals) to help answering questions. If a staff member issues advice, should that be considered the agency’s advice? If not — and if it can neither be relied upon for legal purposes nor be subject to judicial review — isn’t it worse than not getting any advice at all?

Soundboard Association, an industry group representing call centers and others using new phone‐​dialing technology, wants to know the answer to those questions. In 2009, a Federal Trade Commission staff member sent a letter to a telemarketing company that used soundboard technology. The letter stated that soundboard technology was not subject to regulation under the Telemarketing Sales Rule, which prohibits, with some exceptions, making phone calls that deliver a pre‐​recorded message. Although soundboard technology does deliver pre‐​recorded messages, a live operator selects which audio file to play in response to the customer’s answers. The staff member said that, because this made calls using soundboard technology “virtually indistinguishable” from calls between two people, they were not subject to the rule.

In 2016, seven years after that letter, the same staff member sent another letter to the telemarketing company. This letter said that, because the FTC had received complaints about soundboard calls, the technology would now be subject to the Telemarketing Sales Rule. The letter demanded that companies cease using the technology until the technology improved. But if the FTC wants to change its mind on a rule, there’s a process for that — the scope of judicial deference to agency reinterpretations is a live legal debate — and regardless, regulatory determinations are supposed to be subject to judicial review, if they’re final.

The Supreme Court has always encouraged a pragmatic approach for courts to use in determining whether the agency has given its final word on a matter. Under the most recent formulation of its test, an agency’s action is final if it (1) marks the consummation of the agency’s decision‐​making process, and (2) if it establishes rights or obligations from which legal consequences will flow. This test asks a reviewing court to look at the action from both the agency’s perspective and that of the regulated business.

The lower court’s opinion here highlights the problem with this test. The D.C. Circuit held that, because the agency did not believe the 2016 letter “marked the consummation” of its decision‐​making process, the action could not be final. Agencies have an obvious interest in shielding themselves from judicial review, and, if the D.C. Circuit’s opinion is allowed to stand, no action would be final unless the agency says that it’s final. (Which reminds us of John Belushi’s famous line in Animal House, “Nothing is over until we decide it is!”) This would have a severe impact on regulated businesses, which would be forced to comply with the advice they’re given, even in areas of legal uncertainty and even if that means shutting down entirely.

Cato, joined by the Southeastern Legal Foundation, has filed a brief in support of Soundboard Association’s petition before the Supreme Court. We argue that a reviewing court must indeed look at the challenged action from the regulatory target’s perspective. This is not to say that the agency’s view is unimportant, but the suggestion that the actions of subordinate officials don’t produce legal consequences for regulated industries is a bureaucratic fiction that gets in the way of reality.

The D.C. Circuit was critical of this approach, hypothesizing that bad advice from a paralegal could throw the regulatory world into chaos. But the easiest way for an agency to prevent the public from receiving bad advice from a paralegal is to prohibit paralegals from issuing advice, not beginning every bit of guidance with a disclaimer that the agency’s words are not its bond.

About the Authors
Ilya Shapiro

Ilya Shapiro is the director of the Robert A. Levy Center for Constitutional Studies at the Cato Institute and publisher of the Cato Supreme Court Review.

Evan Schrage