On Aug. 10, 2016, a three judge panel of the United States Court of Appeals for the Sixth Circuit reversed a 2015 Federal Communications Commission (FCC) decision which purported to preempt two states from limiting the authority of local governments chartered by those states.  The communications law issue before the court involved the FCC’s efforts to promote broadband deployment as it is directed to do pursuant to Section 706 of the Communications Act of 1934, as amended. The broader issue before the court was whether and when an agency of the federal government may insert itself into the relationship between states and their local government subdivisions.   The case is State of North Carolina, et al v. FCC (Nos. 15-3291/3555).

North Carolina and Tennessee have statutes which allow local governments to construct and operate broadband telecommunications networks so as to provide high- speed internet access and video services.  However, both states’ laws contain limitations on their grants of broadband authority to local governments. The Tennessee law allows municipalities operating electric plants to offer cable, video, and internet services – but only within their service areas (the area served by the municipality’s electric plant).  The North Carolina law allows cities to provide broadband service, but only within their corporate limits (and contained additional restrictions).  Chattanooga, Tennessee and Wilson, North Carolina petitioned the FCC to preempt those states from enforcing those limitations so as to enable them to provide broadband beyond the service area (Chattanooga) and beyond the corporate limits (Wilson).

In 2015, the FCC granted Chattanooga and Wilson the requested relief and preempted both states’ laws, relying on Section 706.  Section 706 directs the FCC (and state regulators) to encourage the deployment of advanced telecommunications capability (i.e., broadband) by using certain regulatory methods.  Though not mentioned in Section 706, the FCC concluded that those methods include preempting state laws which it believes were inhibiting broadband deployment.  North Carolina appealed the FCC decision to the Fourth Circuit Court of Appeals.  Tennessee appealed the same FCC decision to the Sixth Circuit Court of Appeals.  The cases were consolidated in the Sixth Circuit.

The appeals court disagreed with the FCC.  Nothing in federal law prohibits local governments from providing broadband either within or outside their service areas.  What got the FCC into trouble with the court was its conclusion that local governments rather than state governments should determine the geographic areas to which they provide broadband.  As every eighth grade civics student learns, states are sovereign and enjoy the authority to establish political subdivisions within their borders and to determine which powers shall be granted to those local governments which they charter.  The court held that the federal government (in this case, the FCC) may insert itself into the state government-local government only when there is a clear directive from Congress to do so.  This requirement is sometimes known as the “Clear Statement Rule.”  As the court stated, “[a]ny attempt by the federal government to re-order the decision-making structure of a state and its municipalities trenches on the core sovereignty of that state.”    The court concluded that Section 706 provides no such clear directive, i.e., it contains no such “clear statement” authorizing the FCC to preempt Tennessee and North Carolina laws that govern the conduct of municipal governments within those states, even to advance the deployment of broadband.

Having lost in court, the FCC could ask the full Sixth Circuit to rehear the case.  It could also ask the Department of Justice to request Supreme Court review.  The likelihood of either rehearing or a Supreme Court review is very low.  Beyond the case’s significance regarding the federal government’s broadband policy, the Sixth Circuit decision is an important reminder that local governments exist by virtue of state law, that they enjoy such powers as are conferred by state law, and that the federal government may not interpose itself in state-local relationships unless there is a clear directive to do so codified in a federal statute.