[00:00:00] Speaker 02: Case number 17-5093, Sound Board Association Appellate versus Federal Trade Commission. [00:00:07] Speaker 02: Ms. [00:00:07] Speaker 02: Donnelly for the appellate, Mr. Hoffman for the appellate. [00:00:11] Speaker 02: Good morning. [00:00:14] Speaker 02: Good morning, Your Honors. [00:00:16] Speaker 02: May it please the Court. [00:00:18] Speaker 02: After nine years of building an industry around an established technology, the FTC has ripped the rug right out of under it. [00:00:25] Speaker 02: This case is about the FTC's new rule that substantively expands the 2008 robocall prohibition to apply to soundboard technology for the first time without honoring existing regulatory process. [00:00:37] Speaker 03: Well, you say the commission ripped the rug out from under you. [00:00:41] Speaker 03: Did you ever ask the commission for its opinion? [00:00:45] Speaker 02: No, and wouldn't be required here because this rule has the force and effect of law and there's no reason as a district court stated to even doubt that this rule does not reflect the position of the agency itself. [00:00:58] Speaker 02: It is here defending it today. [00:01:00] Speaker 00: Can I just ask a procedural question? [00:01:03] Speaker 00: Yes. [00:01:04] Speaker 00: The way I read your complaint in the district court and your brief in this court, if we disagree with you that this is final agency action, [00:01:15] Speaker 00: All of your claims have to be dismissed on those grounds. [00:01:19] Speaker 00: That is correct. [00:01:20] Speaker 02: That's correct. [00:01:22] Speaker 00: So how do we distinguish this case from Southwest Airlines? [00:01:26] Speaker 02: I think this case is distinguishable, because we're not dealing with an interpretive rule. [00:01:29] Speaker 02: We're dealing with a legislative rule here. [00:01:31] Speaker 02: But before that, we have to look at finality. [00:01:34] Speaker 02: And this case passes the test, both in Seabagagie and in these spheres. [00:01:38] Speaker 02: It marks the consummation of the agency's decision-making process. [00:01:42] Speaker 00: How is that when the agency's regulations say that staff is not delegated the authority to commence an enforcement proceeding? [00:01:53] Speaker 00: They have to get commission authority. [00:01:56] Speaker 02: Because we're not in an enforcement context, Your Honor. [00:01:58] Speaker 02: We're in a rulemaking context here. [00:02:01] Speaker 02: And agencies cannot escape judicial review of their actions merely by using subordinates to announce new substantive rules. [00:02:07] Speaker 02: This is added labs, hawks, and frozen foods. [00:02:09] Speaker 03: So you cite Appalachian power for the notion that the statement in the letter that this opinion is staff's opinion, not the commission. [00:02:25] Speaker 03: as boilerplate, but would you not agree that the regulatory scheme is different here? [00:02:33] Speaker 02: I don't think that's dispositive, and I think that the EPA line of cases make it clear, but so do Abbott Labs, Hawks, and Frozen Foods, and those are non-EPA cases. [00:02:41] Speaker 03: Well, just Appalachian power. [00:02:45] Speaker 03: Sure. [00:02:45] Speaker 03: EPA had delegated authority here. [00:02:49] Speaker 03: What I thought Judge Wilkins was focusing on was the commission has not delegated authority to staff. [00:02:56] Speaker 03: So your client was faced with a letter that you disagreed with the opinion expressed in the letter. [00:03:05] Speaker 03: And the commission had never expressed its position, so far as we know, other than in the rule, which you say does not apply to your operation, your client's operation. [00:03:17] Speaker 02: Right. [00:03:17] Speaker 02: The 2008 robocall prohibition is silent as to soundboard. [00:03:20] Speaker 02: And the FTC confirmed in writing in 2009 that it does not apply to soundboard. [00:03:25] Speaker 03: Well, staff confirmed. [00:03:27] Speaker 03: Right. [00:03:28] Speaker 03: And why do you think the fact that the commission has set up a different regulatory scheme makes no difference? [00:03:36] Speaker 02: Because this rule amends a 2008 legislative rule, it is a rule from which legal rights and duties and legal consequences flow. [00:03:44] Speaker 03: No, I understand that. [00:03:45] Speaker 03: But the commission promulgates a rule. [00:03:48] Speaker 03: For years, staff in the enforcement division has taken the position it doesn't apply to your client's operation. [00:03:57] Speaker 03: Then staff changes its mind. [00:04:01] Speaker 03: Do we know what the commission thinks? [00:04:04] Speaker 02: I think we do, because I think the commission's here defending it today. [00:04:07] Speaker 03: How do we know what the commission thinks when the commission's regulations say that it hasn't delegated this authority, and it authorizes you to seek an advisory opinion from the commission? [00:04:23] Speaker 02: I think the government tried in frozen [00:04:27] Speaker 02: foods, I'm sorry, in Abbott Labs to distinguish frozen foods for much the same reason that you're discussing now in that... A different regulatory scheme? [00:04:36] Speaker 02: More so that in that case they were saying in an enforcement context, in order to actually file an enforcement action, they would need the Attorney General to [00:04:45] Speaker 02: give its final blessing in order to file. [00:04:47] Speaker 02: But that's a different context, and we're dealing with a rulemaking context here. [00:04:50] Speaker 02: And we're dealing with an FTC staff letter that was issued by staff with enforcement authority here that binds an industry. [00:04:58] Speaker 02: This bans a technology and wipes out an industry. [00:05:01] Speaker 02: It's not a letter that's merely suggestive or voluntary or tentative in nature. [00:05:06] Speaker 02: And that's how we distinguish other cases relied upon by the FTC here, like reliable auto sprinkler and holistic handlers. [00:05:11] Speaker 03: So is your position that [00:05:12] Speaker 03: But even though the Commission regulations do not delegate, as in the EPA context, to a division to speak for the Commission, and even though its regulations say you could ask the Commission for an advisory opinion, nevertheless, until the time the Commission issues that opinion, [00:05:38] Speaker 03: Your client faces these penalties unless it conforms within six months? [00:05:44] Speaker 02: Yes, it does face these. [00:05:45] Speaker 03: So your client has to spend money and change its process during the period of time you might seek an advisory opinion? [00:05:57] Speaker 02: Absolutely, but there's no reason to suspect that our advisory opinion would be any different than the final rule with binding legal effect. [00:06:04] Speaker 00: But your client hasn't sought an advisory opinion, right? [00:06:08] Speaker 02: But there's no reason to here because we have a rule with final force and effect of law. [00:06:12] Speaker 00: Well, the reason to might be that you're going to get kicked out of court. [00:06:17] Speaker 00: But why wouldn't it be prudent to seek an advisory opinion when you get an opinion from staff that says, we're only speaking for us, the staff? [00:06:32] Speaker 02: And I understand your point, but I think we have to look at what this letter really is. [00:06:35] Speaker 02: This is a letter issued by staff with enforcement authority. [00:06:39] Speaker 00: without affording the regulatory... But they don't have enforcement authority unless the commission agrees, right? [00:06:44] Speaker 02: Right, but that's an enforcement context. [00:06:46] Speaker 02: They've issued a new rule that says industry, you have six months to come into compliance, and you have to make the decision between undertaking the cost of compliance, which, as Judge Rogers indicated, yes, absolutely involves scrapping a technology in which it is vested millions of dollars. [00:07:01] Speaker 00: And within that six months, you could have sought an opinion from the commission, which would be binding, right? [00:07:08] Speaker 02: just as binding as this letter is. [00:07:10] Speaker 03: So my point is that it is- In other words, were this court to grant you the relief you want, would we in effect be saying the commission could not permissibly set up the regulatory scheme it has, saying that only it can decide whether to proceed with enforcement and staff opinions are not binding on the commission? [00:07:37] Speaker 02: No, I don't think that's what we're stating here. [00:07:40] Speaker 02: I think what we're stating is we have to look at what this this letter really is. [00:07:43] Speaker 03: And because I understand that, that's why I brought up the cost and the delay of getting an opinion. [00:07:48] Speaker 03: I'm trying to understand the finality aspect of this. [00:07:52] Speaker 03: When the commission has set up a scheme that says we speak for ourselves, staff does not speak for us. [00:07:59] Speaker 03: Now it has a rule that your client was happy with until [00:08:05] Speaker 03: This staff letter came out. [00:08:09] Speaker 02: Absolutely. [00:08:10] Speaker 03: So how do you seek relief? [00:08:12] Speaker 02: We seek relief here in a court of law because this is a final legislative rule. [00:08:17] Speaker 03: You could not go to the commission and ask for an advisory opinion and seek a stay of the enforcement of this letter? [00:08:26] Speaker 02: I don't think that would render a different result than what we have here. [00:08:30] Speaker 02: I mean, the commission's defending the rule here today, and it bears all the hallmarks of finality. [00:08:36] Speaker 03: The commission is saying we don't have jurisdiction. [00:08:40] Speaker 02: I don't think the staff has rule-making authority to issue the final legislative rule it did, and that's what we're arguing here today, and that it [00:08:48] Speaker 02: issue the letter that compels an industry to make that decision, undertake that cost of compliance or shut its doors, and writing to the commissioners and saying, do you agree with this or do you not agree, is a costly endeavor and takes so much time in addition to industry has relied on the plain language of the 2008 rule and the FTC's written confirmation and all the contemporaneous pronouncements of the agency for nine years. [00:09:17] Speaker 00: I mean, agencies have lots of these sorts of mechanisms. [00:09:23] Speaker 00: The SEC has provisions whereby regulated entities can seek a no action letter from SEC staff. [00:09:34] Speaker 00: And, you know, people have been doing that for generations. [00:09:38] Speaker 00: But we've held and all the courts have held and the rules are clear. [00:09:44] Speaker 00: that that no action letter isn't binding. [00:09:47] Speaker 00: I mean, in order for these agencies to operate and for regulated entities to kind of work within reason, you have these kind of informal guidance, but, you know, it's understood that they're not speaking for the commission in these contexts, unless the rulemaking structure dictates otherwise. [00:10:13] Speaker 00: And so I guess the question here is why does this rulemaking structure dictate otherwise here? [00:10:21] Speaker 02: I think this case follows Abbott Labs and Hawke's and Frozen Foods, which found letters in those cases to be final and binding, just as this 2016 letter is no less final or binding than any further letters from the Commission. [00:10:36] Speaker 02: The FTC Council conceded to the District Court that the agency's review of this matter is at its end. [00:10:46] Speaker 02: And the district court noted, there's no reason to doubt here today. [00:10:50] Speaker 02: That's not the reflection of the position of the agency itself. [00:10:54] Speaker 00: What exactly did the FTC lawyers say, though? [00:10:59] Speaker 00: Do you think you're paraphrasing? [00:11:03] Speaker 02: He said the review of the commission is at its end. [00:11:06] Speaker 03: Well, he said in response to the district court's question, he was unaware [00:11:12] Speaker 03: Is that what he said? [00:11:13] Speaker 03: Unaware of any intent by the commission? [00:11:16] Speaker 02: Yes, I believe that I quoted the district court, which I think was quoting the transcript, but I can pull that exact language. [00:11:23] Speaker 00: But I mean, if the commission hadn't been asked to review the issue, then its review was at an end because there was never a beginning. [00:11:35] Speaker 02: But I think if we look at the Sivagagi factors and the Bennett v. Spears factors, this clearly satisfies all hallmarks of a final agency action under the cases cited, EPA and non-EPA cases. [00:11:49] Speaker 03: As I said, it's... So your best case, you think, is Abbott Labs? [00:11:54] Speaker 02: Abbott Labs, Frozen Foods, and Hawks. [00:11:56] Speaker 02: I think Hawks, decided by the United States Supreme Court just last year, confirmed that Frozen Foods is just as vibrant today as it was then. [00:12:03] Speaker 03: Provided you have final agency action. [00:12:07] Speaker 02: And those cases, I think, established that we do. [00:12:10] Speaker 03: So even though you received a letter from staff saying, this is only our opinion, [00:12:19] Speaker 03: And while it's boilerplate, we've said in the EPA context, why is it boilerplate here? [00:12:25] Speaker 02: I think it is of the kind to be disregarded as an Appalachian power as in here. [00:12:31] Speaker 02: And I don't think that depends on the structure of the organization. [00:12:34] Speaker 03: So that's what I'm trying to get at. [00:12:36] Speaker 03: You want us to, in effect, say to the commission, you have, in reality, delegated authority [00:12:47] Speaker 03: to the enforcement division to speak for you. [00:12:52] Speaker 02: I think it implicitly has in allowing this letter to stand, because this letter affects a final binding legislative rule, albeit without rulemaking authority by staff. [00:13:02] Speaker 02: And the unfairness element of all of this is tremendous here and can't be overlooked, even the reliance by industry on the 2008 rule. [00:13:09] Speaker 03: So it's a final binding rule issued by staff that has no authority to issue final [00:13:15] Speaker 03: finding rules and there's been no APA notice and comment. [00:13:22] Speaker 03: Just trying to understand where your legal position takes us. [00:13:26] Speaker 02: Yes. [00:13:27] Speaker 02: This case should have been issued through notice and comment rulemaking because it affects a change in the legal rights and duties of the parties affected. [00:13:33] Speaker 00: So I suppose if [00:13:36] Speaker 00: one of these enforcement lawyers brought in action against one of your clients without seeking commission approval, then you would concede that that action is proper? [00:13:50] Speaker 02: I don't think that's even comparable because it's an enforcement context and we're dealing with a rulemaking context where they've issued a rule that is applicable to all of industry here. [00:13:57] Speaker 02: This isn't an enforcement action or an investigation targeting one particular entity and saying here are specific facts. [00:14:04] Speaker 02: We believe you've [00:14:05] Speaker 02: violated or were alleging a violation of the robocall prohibition. [00:14:09] Speaker 02: And in that case, if it had done that and targeted a specific entity and raised specific facts, then I think SPA might be in a position to raise the claims here, but from a defensive posture. [00:14:19] Speaker 02: But we're not there. [00:14:21] Speaker 02: We're not in an enforcement or investigative context at all here. [00:14:24] Speaker 02: We're in a rulemaking context. [00:14:26] Speaker 02: where you have staff charged with enforcement that says this is a new rule, this affects the entire agency, this effectively bans the technology and wipes out industry, and you have six months to comply, and looking at other FTC letters, they don't have this similar compliance deadline. [00:14:42] Speaker 02: This is unique. [00:14:43] Speaker 02: This is a final binding rule that imposes legal rights and duties that were not in existence prior to the 2016 rule. [00:14:52] Speaker 02: And I think legislative rule turns on the existence or non-existence of legal rights and duties prior to this rule. [00:14:58] Speaker 02: In American Binding Congress, the court... Can I get to that? [00:15:01] Speaker 01: I just want to understand how this whole advisory process works because [00:15:05] Speaker 01: I thought under the regulation, the commission decides which things it will issue advice on and which things it will have staff issue advice on. [00:15:14] Speaker 01: Is that correct? [00:15:16] Speaker 01: Yes, I believe that's correct. [00:15:17] Speaker 01: That's one point one. [00:15:17] Speaker 01: So they have delegated to staff. [00:15:20] Speaker 01: the authority to issue interpretations like this one here. [00:15:26] Speaker 02: Well, I disagree that this is an interpretive rule, and we argue this is... Well, that's your problem, right? [00:15:30] Speaker 01: Because if it's more than something that the regulation allows staff to do, [00:15:37] Speaker 01: then it wasn't, it's not the type of thing to which they've been delegated authority. [00:15:42] Speaker 01: If it is something for which they've been delegated authority, then it's going to have to follow within those categories. [00:15:47] Speaker 01: So I think the difficulty here is your position is kind of, seems like it's trying to have its cake and eat it too. [00:15:53] Speaker 01: You want it to be something that's within their delegated authority, but in fact then argue that what they did is far beyond their delegated authority. [00:16:01] Speaker 01: And that is something that only the commission could do under the regulations. [00:16:04] Speaker 01: So how do you reconcile that? [00:16:05] Speaker 02: I don't think we're really not challenging the statutory authority to make rules in this space, but we are challenging the staff charged with enforcement's rulemaking authority to issue the rule that it did. [00:16:15] Speaker 02: And without challenge, without the opportunity to be in our court today and to say this is an unlawful agency action that failed to observe the required procedure, then industry is forced with a decision to comply or force a deal. [00:16:27] Speaker 01: We've got the compliance pressure, but it seems to me pretty clear from the rule that staff itself [00:16:33] Speaker 01: cannot you say they should have done notice and comment rulemaking. [00:16:37] Speaker 01: The staff itself cannot do that. [00:16:38] Speaker 01: The commission has to do that. [00:16:39] Speaker 01: But the commission should. [00:16:40] Speaker 01: It's an agency issue here. [00:16:42] Speaker 01: So this is, you look at this and you go, this is by any way I look at it, a legislative rule, it's clearly invalid and outside the scope of staff authority because they can't do legislative rules. [00:16:56] Speaker 01: But if you're, right? [00:16:57] Speaker 01: So I don't know how you can say they could do it. [00:16:59] Speaker 01: have the authority to do it when they of course don't have the authority to make legislative rules. [00:17:04] Speaker 02: Well, they're effectively trying to hide behind the law they subvert. [00:17:08] Speaker 02: The agency cannot hide behind the actions of its subordinates. [00:17:11] Speaker 02: It's not dispositive who penned the letter. [00:17:13] Speaker 02: And that's exactly what it's trying to do here. [00:17:15] Speaker 02: It's trying to have its cake and eat it, too. [00:17:17] Speaker 02: It's trying to argue plausible deniability, but it's not even plausible. [00:17:20] Speaker 02: It's saying, we're going to wipe out an industry. [00:17:22] Speaker 02: We're not going to go about it the right way. [00:17:24] Speaker 02: We're not going to issue it through notice and comment rulemaking. [00:17:26] Speaker 01: We're not going to appeal to the legislature. [00:17:27] Speaker 01: Maybe it thought it was just an interpretation of the rule, which is exactly what staff is permitted to do. [00:17:31] Speaker 01: But it's not an interpretation. [00:17:33] Speaker 02: Pardon, I'm sorry. [00:17:34] Speaker 01: If it is an interpretation, you still have your constitutional arguments. [00:17:40] Speaker 01: And you could say this is exactly within the delegated scope of staff authority. [00:17:48] Speaker 02: I think what's important here, and distinguishes from several other cases, including Flight Now, is we're dealing with not an interpretation of an existing definition. [00:17:59] Speaker 02: Pre-recorded message isn't even defined in the rule. [00:18:01] Speaker 02: This rule is legislating a definition new to the rules, adding something. [00:18:05] Speaker 02: It is creating substantive rights and duties and legal consequences. [00:18:10] Speaker 02: And I think that's a deposit. [00:18:13] Speaker 01: Was the 2009 letter also a legislative rule? [00:18:17] Speaker 02: I don't know that it is, no, but I do think it's... How could they have different statuses? [00:18:21] Speaker 01: They both did the exact same thing in determining legal obligations from your viewpoint and consequences for a practicing entity. [00:18:31] Speaker 01: How could one be legislative and the other not? [00:18:33] Speaker 02: The 2009 letter, I do agree, interprets the 2008 legislative rulemaking, but it doesn't add substantive rights, legal obligations, or duties. [00:18:43] Speaker 02: It doesn't create anything new. [00:18:44] Speaker 02: It interprets the 2008 legislative rulemaking. [00:18:46] Speaker 02: The 2016 letter does more. [00:18:48] Speaker 02: What did it interpret in 2009? [00:18:50] Speaker 02: That the 2008 roll call prohibition does not apply to San Juan. [00:18:53] Speaker 01: What language did it interpret? [00:18:55] Speaker 01: What phrase did it interpret? [00:18:57] Speaker 02: I think it interpreted [00:19:00] Speaker 02: the entire rule, including the term pre-recorded message. [00:19:04] Speaker 01: Interpreted pre-recorded message. [00:19:06] Speaker 01: And in 2016, they've interpreted pre-recorded message again. [00:19:10] Speaker 02: Correct? [00:19:11] Speaker 02: But even if you were to say, OK, yes, that is an interpretation, it added something. [00:19:15] Speaker 02: And that's our point here. [00:19:16] Speaker 02: That's our argument. [00:19:16] Speaker 02: It added something beyond just an interpretation. [00:19:19] Speaker 02: If the 2016 letter had just rescinded the 2009, I think that would be a different circumstance. [00:19:24] Speaker 02: Sorry? [00:19:25] Speaker 01: What did it add? [00:19:26] Speaker 01: It said that soundboard technology qualifies as a pre-recorded message. [00:19:31] Speaker 02: I think it changed the scope and broadened the scope of the prohibition. [00:19:34] Speaker 01: Well, that's what it says when it says, here's what pre-recorded message means. [00:19:38] Speaker 01: In 2009, we said, here's what pre-recorded message means. [00:19:40] Speaker 01: That's an interpretation. [00:19:42] Speaker 01: In 2016, they said, here's what pre-recorded message means. [00:19:45] Speaker 01: That's an interpretation. [00:19:48] Speaker 01: When our ox is gored, it's legislative, but when someone else's ox is gored, it's not. [00:19:52] Speaker 02: And what it turns on is a prior existence or non-existence of legal rights. [00:19:55] Speaker 02: What added is legal rights and duties. [00:19:57] Speaker 01: And I think it's distinguishable from flight now, which I don't think... So you don't think the 2009 rule said anything at all about establishing legal rights and duties? [00:20:05] Speaker 02: No, because it was an interpretation of a 2008 legislative rule. [00:20:09] Speaker 02: And so I think what we're dealing with here is unlike flight now, which looked at the definition under a rule of common carrier and looking at whether flight sharing services met that definition. [00:20:19] Speaker 02: This is important to distinguish one, we're not dealing with analyzing an actual definition. [00:20:25] Speaker 02: We're looking, too, at an agency's ability to hide behind the ambiguous term, and we've cited to several cases that say that would just lead the opportunity for FTC and other agencies to similarly hide behind the ambiguous terms and amend rules as they see fit, which has significant impacts on industry, such as here, where it effectively wipes one out. [00:20:47] Speaker 03: Why don't we hear from the commission, and we'll give you some time on rebuttal. [00:20:50] Speaker 02: Thank you, Your Honors. [00:21:14] Speaker 04: Good morning. [00:21:16] Speaker 04: May it please the court, as I think counsel conceded here, that the threshold question in this case is whether an informal advisory opinion by FTC staff is spinal agency action under the APA. [00:21:27] Speaker 04: And there's two reasons why it isn't, I think, as several questions indicated. [00:21:32] Speaker 04: The first is that the commission here hasn't decided anything. [00:21:36] Speaker 04: We just have an informal opinion by the staff. [00:21:39] Speaker 04: certainly a request for an opinion could have been made from the Commission and that wasn't done. [00:21:47] Speaker 04: But second, the letter... Hang on, hang on. [00:21:49] Speaker 01: So this happened by staff on its own. [00:21:52] Speaker 01: Did anybody request an opinion? [00:21:54] Speaker 01: And so this was made internally. [00:21:58] Speaker 01: So it's not as though they requested something from the staff rather than from the commission. [00:22:03] Speaker 04: I believe they requested an opinion from the staff. [00:22:06] Speaker 04: They requested an opinion from the staff? [00:22:08] Speaker 04: More commonly, parties request the opinion from the staff. [00:22:11] Speaker 04: Parties will write it in and say, we request the opinion from the staff. [00:22:15] Speaker 01: I thought the record was that you had gotten a lot of complaints, and so the staff itself decided to undertake a new investigation and met with everybody, and they did this on their own. [00:22:24] Speaker 04: Is that incorrect? [00:22:25] Speaker 04: That's correct. [00:22:25] Speaker 04: In other words, the initial 2009 letter was in response to a request to the staff. [00:22:31] Speaker 04: I'm talking about 2016. [00:22:32] Speaker 04: I'm sorry. [00:22:32] Speaker 04: Sorry. [00:22:33] Speaker 04: The initial letter, it was in response to a request for an industry. [00:22:37] Speaker 04: Staff had concerns about that, and staff initiated this process, and so they were going to revoke that letter. [00:22:43] Speaker 01: Then on page 53 to 54 of your brief, you say, speaking on behalf of the Commission, that their argument that soundboard wasn't covered by the regulation is textually impossible. [00:23:02] Speaker 01: This statement would make no sense if the commission believed that calls using pre-recorded messages to simulate a two-way conversation were already exempt from the TSR. [00:23:13] Speaker 01: That sounds to me like a pretty flat statement about the commission's interpretation of the regulation itself as forbidding the very argument they're making. [00:23:25] Speaker 01: You say the commission would make no sense, the commission's regulation would make no sense. [00:23:31] Speaker 01: uh... if it didn't encompass what they did. [00:23:33] Speaker 04: To the extent they're arguing that uh... I mean their argument is that even if this falls into the literal definition of the rule uh... it is [00:23:45] Speaker 04: analogous to a two-way conversation and therefore shouldn't be covered. [00:23:50] Speaker 04: And I think staff pointed to this language in its letter and we pointed to our brief indicating that that appears to be inconsistent with what the Commission said. [00:23:57] Speaker 04: That appears to be. [00:23:58] Speaker 01: It sounds to me like that's a pretty flat statement that it cannot possibly mean under the plain text of the rule in the prior Federal Register notice what they want it to mean. [00:24:08] Speaker 01: And on page 51 you say [00:24:10] Speaker 01: The phrase, pre-recorded message from the regulation itself, cannot reasonably be interpreted not to apply to soundboard technology. [00:24:18] Speaker 01: So again, this sounds to me like the Federal Trade Commission, and throughout your brief, it sounds like the Federal Trade Commission has submitted a brief that talks about the plain text of the regulation itself for closing their position. [00:24:33] Speaker 04: I would say that we did talk about the plain text of the regulation in response to the interpretive rule argument. [00:24:42] Speaker 04: As we pointed out, the argument they really made is not an interpretive rule argument. [00:24:47] Speaker 04: It is an arbitrary and capricious argument, which was waived in the district court expressly. [00:24:51] Speaker 01: Again, I'm just trying to understand whether you're brief here, which to me read, and I'm not saying whether it's right or wrong, but reads very much like the plain text of the regulation incorporates, covers their technology. [00:25:07] Speaker 01: And any argument to the contrary is just ignoring what the commission itself has said. [00:25:13] Speaker 01: Do you think the plain text [00:25:15] Speaker 01: of the regulation, not the letters. [00:25:17] Speaker 01: Put them aside. [00:25:17] Speaker 01: The plain text of the regulation encompasses their technology. [00:25:22] Speaker 04: I certainly do. [00:25:23] Speaker 01: I think that... I'm not asking you personally. [00:25:24] Speaker 01: You're speaking here on behalf of the commission and filed a brief on behalf of the commission. [00:25:28] Speaker 01: So is the commission of the view that the plain text of the regulation forecloses their technology? [00:25:32] Speaker 04: The commission as a body has never ruled on that question. [00:25:37] Speaker 04: So, you know, the... [00:25:40] Speaker 04: Certainly the commission authorized us to file this brief. [00:25:42] Speaker 01: Okay, so they've authorized this brief that talks a lot about the plain text of their regulation. [00:25:47] Speaker 01: So I was trying to figure out, it sounded to me like the commission has been fully plugged in here and it's a little odd to say go back and ask the commission when we have a brief from the commission, an attorney from the commission telling us what the plain language of the regulation [00:26:05] Speaker 01: means? [00:26:06] Speaker 04: Yeah, well, the answer is that the commission obviously is free to reach a different decision if the Soundboard Association comes to it and says, no, no, no, no, what general counsel said in its brief and what staff said is wrong for all these reasons. [00:26:21] Speaker 04: They can certainly do that. [00:26:22] Speaker 04: And if they went to the commission, I expect they would. [00:26:24] Speaker 04: I expect they would do that. [00:26:25] Speaker 01: But wait, so when the commission looks at this brief, is the commission aware of their opening brief? [00:26:30] Speaker 04: I'm sorry? [00:26:31] Speaker 01: Is the commission aware of Soundboard's views when it says, go ahead and file this brief? [00:26:35] Speaker 04: The commission will not have had the benefit of a detailed presentation from sound board. [00:26:47] Speaker 04: I mean, the people who reviewed the brief... Had the benefit of the brief. [00:26:50] Speaker 04: People who reviewed the general counsel's brief may well have reviewed sound board brief, or they may not have. [00:26:56] Speaker 04: I don't know. [00:26:57] Speaker 01: Well, the fact that the Commission could change its mind doesn't have anything to do with finality because the Commission can change. [00:27:03] Speaker 01: If they were to go ask the Commission for its view, the regulation is explicit, the Commission could change its mind again later too. [00:27:08] Speaker 01: So I guess the fact that the Commission could change its mind doesn't really affect finality. [00:27:12] Speaker 01: That's just a given for any agency. [00:27:15] Speaker 01: They can change their mind later on a presentation of new information, correct? [00:27:18] Speaker 04: I think the fact that the commission could change its mind is not what's relevant so much as the fact that the commission has never considered the question. [00:27:25] Speaker 01: But then you just told me the commission considered the question because it said, I don't care about any of those old letters. [00:27:30] Speaker 01: Our regulation is plain as plain could be that this stuff is covered. [00:27:34] Speaker 04: The commission authorized us to file this brief. [00:27:36] Speaker 01: It says the plain text. [00:27:37] Speaker 04: The commission authorized us to file this brief. [00:27:39] Speaker 04: I do not agree that in doing that the commission bound itself or made a final decision on the merits of sound board's position. [00:27:50] Speaker 01: Well, I don't understand what that means then. [00:27:52] Speaker 01: Do they authorize the arguments in the brief? [00:27:55] Speaker 04: Sorry? [00:27:56] Speaker 04: The brief was reviewed by the chairman's office before it was filed. [00:28:02] Speaker 04: So does this brief represent the views of the commission or not? [00:28:06] Speaker 04: Did the commission vote on this brief? [00:28:08] Speaker 04: No. [00:28:09] Speaker 01: So this brief doesn't represent the views of the commission? [00:28:12] Speaker 04: It represents the arguments that we are making on behalf of the commission. [00:28:15] Speaker 04: I don't think it is a ruling of the commission. [00:28:18] Speaker 04: It doesn't have the same impact that a commission, a matter the commission voted on would have. [00:28:27] Speaker 01: So then I can't take it as given that it's a view of the Commission that the plain language covers their technology. [00:28:32] Speaker 04: The Commission has never addressed this question. [00:28:36] Speaker 04: I mean, again, this is a side question because... Do we need their view if we think the plain text of the regulation covers it? [00:28:43] Speaker 04: I'm sorry? [00:28:44] Speaker 01: If we've got a brief like this and we read the plain text of the regulation, [00:28:47] Speaker 04: My answer is you shouldn't be bothering to read the plain text, the regulation, except in so far as the question here is, is it an interpretive rule? [00:28:56] Speaker 04: And the question there is, the first question is, is it a rule at all? [00:29:00] Speaker 04: And it's not because it's not binding. [00:29:03] Speaker 04: The second question is, if it were a rule, is it interpretive or legislative? [00:29:08] Speaker 04: And the answer is it's clearly interpretive, just like the rule in flight now, which, of course, affected an entire industry as well, because it's drawn from the language of the regulation. [00:29:18] Speaker 04: It's an interpretation of the language of the regulation. [00:29:20] Speaker 01: Right. [00:29:20] Speaker 01: And so isn't that the exact thing that the commission has delegated to staff to do, to provide industry guidance? [00:29:27] Speaker 01: When it's something that is not novel, [00:29:30] Speaker 01: are new and, as you would say, is simply saying here's what the regulation says and this is what it means. [00:29:37] Speaker 04: They've authorized staff to advise industry of staff's views. [00:29:41] Speaker 04: They haven't authorized staff to issue binding interpretations of law. [00:29:46] Speaker 03: So council points out that this letter is, council states, unusual to the extent it's set a six month deadline. [00:29:57] Speaker 03: So therefore, all of this process that we've been talking about that could go on internally before the commission doesn't really solve the problem from the client's point of view. [00:30:08] Speaker 04: Is that correct? [00:30:12] Speaker 04: Um, staff, um, certainly in issuing this decision, staff certainly anticipated that, um, it would have some impact on the industry and that industry would, would, um, accord itself, you know, in a lawful fashion. [00:30:26] Speaker 03: But it's not a voluntary request, is it? [00:30:30] Speaker 04: is not a voluntary request. [00:30:32] Speaker 04: I think it is consistent with what this court describes as a voluntary request in cases like voluntary compliance, in cases like reliable automatic sprinkler, and holistic candlers, where the court used the term. [00:30:44] Speaker 04: The actual warning letters were issued in holistic candlers, which went much further than this does. [00:30:50] Speaker 04: And the court viewed that as a request for voluntary compliance, not a final agency action. [00:30:58] Speaker 04: Now, of course, [00:30:59] Speaker 04: In this case, there's no decision by the commission at all, and no enforcement could take place without a decision by the commission. [00:31:12] Speaker 03: So let me just ask you from the point of view of the client. [00:31:16] Speaker 03: The client has this letter, six months to make changes. [00:31:21] Speaker 03: So let's, just in my hypothetical, assume that involves reconfiguring something [00:31:27] Speaker 03: that costs the client money. [00:31:29] Speaker 03: Let's suppose it's serious money. [00:31:35] Speaker 03: So what does the client do? [00:31:37] Speaker 03: Does it immediately go to court? [00:31:39] Speaker 03: Does it immediately go to the commission and ask for a stay? [00:31:44] Speaker 03: Because if it doesn't comply within six months, then, in my hypothetical, the enforcement division recommends to the commission that it file a complaint [00:31:58] Speaker 03: against the client. [00:32:00] Speaker 03: And at that point, the client can make all the legal arguments it's making today. [00:32:04] Speaker 03: But in the meantime, it's spent serious money or not. [00:32:11] Speaker 03: And if it hasn't, then it potentially faces penalties. [00:32:15] Speaker 04: Well, of course, in ordering, you raised the question of penalties, and I think it's helpful to describe the process in a little bit more detail. [00:32:24] Speaker 04: So certainly, based with this, I think the question has indicated the client could go to the commission and say, we think staff has gotten it wrong here. [00:32:36] Speaker 04: We'd like you to clarify, and this is important because it will cost us a lot of money. [00:32:40] Speaker 04: And I think that would meet the criteria for a commission advisory opinion. [00:32:45] Speaker 04: Obviously, you know, the commission was not certainly bound to issue an opinion, but they certainly could make the request. [00:32:52] Speaker 04: And that wasn't that wasn't done here. [00:32:55] Speaker 04: There may well be other procedures they could have could have should be. [00:33:00] Speaker 04: I think it's important to understand that. [00:33:02] Speaker 04: Um staff recommend an enforcement proceeding- penalty proceeding that is- they in every instance- the parties would have an opportunity to meet with the commissioners and argue with the commissioners. [00:33:15] Speaker 04: Either why the rules shouldn't apply to them or why they shouldn't be subject to penalties so as in holistic candlers and- [00:33:29] Speaker 04: before any enforcement took place. [00:33:31] Speaker 04: So for that reason, the sound board isn't permitted to circumvent that process and come straight to court. [00:33:41] Speaker 03: So had it filed a request for an advisory opinion from the commission, even if the commission had not rendered that opinion in time before the six months or before the client had to spend serious money, that would [00:33:59] Speaker 03: be a safe harbor, as it were, against any action against? [00:34:03] Speaker 04: I don't think it would be a safe harbor. [00:34:04] Speaker 04: I mean, again, the only thing that is a safe harbor in terms of the regulation is a commission opinion itself. [00:34:12] Speaker 04: What I will say is that [00:34:15] Speaker 04: You know, the standard for a penalty is knowledge, actual knowledge or knowledge fairly implied. [00:34:24] Speaker 04: And so a court will ultimately decide whether a penalty is appropriate. [00:34:27] Speaker 04: And the court would have to take into account various factors, including the degree of culpability and so on and so forth. [00:34:36] Speaker 01: Is a staff letter ever been evidence on which knowledge can fairly be implied? [00:34:41] Speaker 04: Has it ever been evidence? [00:34:42] Speaker 04: I don't know the answer to whether that. [00:34:43] Speaker 01: Could it be? [00:34:44] Speaker 04: Could it be? [00:34:45] Speaker 04: Mm-hmm. [00:34:46] Speaker 04: I think it's certainly something that a reasonable business would take into account. [00:34:49] Speaker 01: So they could fairly be, right. [00:34:50] Speaker 01: So that could be a basis for penalty. [00:34:52] Speaker 04: I think that something that could be taken, that a court would likely take account of in determining. [00:34:56] Speaker 01: There could be lots of factors, but that could be. [00:34:57] Speaker 04: Certainly would be a factor. [00:34:59] Speaker 01: And this letter said that it was taking effect, I think, in May of this year. [00:35:08] Speaker 01: And so. [00:35:12] Speaker 01: If someone were to, if the commission were to decide to prosecute sound board next week, could it get $40,000 a day, a call, since May 2017 when [00:35:30] Speaker 01: They had at least this implied knowledge. [00:35:33] Speaker 04: The statutory maximum is $40,000 per violation as a practical matter. [00:35:40] Speaker 01: Is each call a violation? [00:35:41] Speaker 04: I believe each call would be a violation. [00:35:42] Speaker 01: Each call is a violation. [00:35:43] Speaker 01: Right. [00:35:44] Speaker 04: But again, it's up to that amount. [00:35:45] Speaker 04: The amount of the penalty is determined by the court based on, and this is second. [00:35:51] Speaker 01: They're at risk of $40,000 per call [00:35:54] Speaker 01: per day since this letter took effect. [00:35:59] Speaker 04: I don't think that's really correct because a court can't impose financially ruinous penalties. [00:36:03] Speaker 04: A court's got to impose penalties that are appropriate based on the degree of probability, history of prior conduct, ability to pay, effective ability to continue to do business, and such other matters as justice may require. [00:36:16] Speaker 01: And obviously, if... Well, I assume you're not speaking on behalf of the commission and telling me they couldn't seek that relief against Tom Poole. [00:36:23] Speaker 04: I'm simply reading from the statute there. [00:36:26] Speaker 01: Yeah, yeah, yeah. [00:36:27] Speaker 01: So the statute has lots of factors, but it doesn't mean it's a matter of law. [00:36:30] Speaker 01: They're facing a risk. [00:36:32] Speaker 01: I'm not saying a certainty. [00:36:33] Speaker 01: They're facing a risk. [00:36:35] Speaker 01: a $40,000 per call, which is probably, I don't know how many thousands of calls per day, since this thing became, in the letter terms, effective in May. [00:36:47] Speaker 04: I think as a practical matter, the statute would prohibit imposition of ruinous financial penalties. [00:36:54] Speaker 01: And if it weren't deemed ruinous, they could face that. [00:36:57] Speaker 01: Or anything short of ruinous, they would face. [00:36:59] Speaker 04: Well, if there were a... Substantial risk, I'm not saying certainty. [00:37:03] Speaker 04: I agree that there is a heightened risk of facing penalties if companies continue to engage in this behavior. [00:37:11] Speaker 01: Based on this letter? [00:37:13] Speaker 04: Based on this letter, yeah. [00:37:13] Speaker 01: How do you distinguish Sackett versus EPA then? [00:37:16] Speaker 04: I'm sorry? [00:37:16] Speaker 01: How do you distinguish Sackett versus EPA? [00:37:19] Speaker 01: Another non-final, no enforcement action taken, but they gave them a letter that said, unless you take care of your lands the way we want you to, [00:37:27] Speaker 01: penalties are occurring. [00:37:29] Speaker 04: I'm not familiar with that case specifically, but what I will say is that I think the difference here is that there is a further layer of administrative process before any action can be taken. [00:37:45] Speaker 04: EPA is an agency where the staff has enforcement authority and doesn't need to go to the top to do that. [00:37:53] Speaker 04: That's not the way the commission works. [00:37:55] Speaker 04: That's not the way [00:37:57] Speaker 04: And so in this circumstance, as I said, before any enforcement action could be taken, there would need to be a further round of process in front of the commission. [00:38:09] Speaker 04: And the parties would need to have a chance to argue in front of the commissioners why they shouldn't be subject to penalties, why the rules shouldn't apply to them. [00:38:17] Speaker 04: And all of that is stuff that would be taken into account, determining whether penalties were appropriate and the amount of any such [00:38:22] Speaker 01: You don't deny a ticket that this rule has First Amendment implications. [00:38:28] Speaker 01: You have your view that it's perfectly consistent with the Constitution, but that it does involve the regulation of speech. [00:38:35] Speaker 01: Yes, I would agree that it does involve... Do we require finality with the same rigor when there are threats to speech? [00:38:43] Speaker 01: Do we require people to wait until someone's actually brought an enforcement action, or is the fact that an agency position creates a substantial risk of near ruinous penalties for speaking enough to allow an action to challenge, to raise those First Amendment claims? [00:39:00] Speaker 04: Well, in Holistic Candler is where, again, the agency did [00:39:04] Speaker 04: I would like to send a warning letter, which explicitly mentioned the risk of regulatory actions, including civil penalties, which this letter doesn't say that. [00:39:13] Speaker 04: There was a First Amendment claim, and the support held that because the [00:39:19] Speaker 04: the action was not final under the APA, the court couldn't have been through that. [00:39:23] Speaker 04: So, and I think, as I said, I think counsel conceded here that the finality is a threshold question for all of the, of the claims. [00:39:30] Speaker 04: So I would say that finality. [00:39:31] Speaker 01: So the first amendment doesn't have anything to bear. [00:39:33] Speaker 01: There's no, the chilling speech is not enough. [00:39:36] Speaker 04: I mean, I don't agree that this improperly chills speech. [00:39:41] Speaker 01: Well, improperly is answering the constitutional question. [00:39:44] Speaker 01: I guess you've got your arguments on that. [00:39:46] Speaker 04: My answer, though, is that they brought an APA claim which requires banal agency action, and they haven't argued that to the extent, in fact, they've conceded that they need to show finality, so there's no basis for saying that some special rule should apply here because there is a constitutional claim. [00:40:04] Speaker 04: just one other other point which was mentioned in terms of the supposed conception that was made in [00:40:13] Speaker 04: in the district court. [00:40:14] Speaker 04: I don't believe counsel did concede anything. [00:40:16] Speaker 04: I think he merely indicated that the staff had lit its review and that he didn't know of the commission planning to further review it. [00:40:28] Speaker 04: He certainly didn't indicate that the commission had issued any sort of final decision, because it didn't. [00:40:35] Speaker 04: Unless the court has further questions, I'm happy to pass the judgment of the opponent. [00:40:39] Speaker 04: Thank you. [00:40:50] Speaker 03: Council for repelling? [00:40:54] Speaker 02: Thank you, Your Honors. [00:40:55] Speaker 02: I would just like to make a preliminary note. [00:40:58] Speaker 02: Council for the FTC noted he would like to hear a presentation from SBA. [00:41:02] Speaker 02: And I think what we would all like to see is proper rulemaking here and an opportunity for everyone, all the public, all consumers, all stakeholders, to put their objections and evidence on the record. [00:41:13] Speaker 02: This case touches on both procedural and constitutional rights, and we've raised claims under the APA and the First Amendment. [00:41:20] Speaker 02: And I think as Judge Millett made clear here that... [00:41:27] Speaker 02: We have significant concerns with chilling freedom of speech. [00:41:31] Speaker 02: This case deals with three primary layers of content-based restriction in its subject matter, substantive content of the message, and in its function, such that it cannot be justified without reference to the content of the speech. [00:41:47] Speaker 02: A government regulation is content-based if it applies to particular speech based on its content, subject matter, topic, or in its function. [00:41:55] Speaker 02: This is read in its progeny. [00:41:56] Speaker 03: Do you have any response to counsel's point about this additional layer of administrative procedure? [00:42:05] Speaker 02: An additional layer with respect to administrative procedure. [00:42:08] Speaker 03: You heard counsel represent that you have the opportunity to have [00:42:17] Speaker 03: make your arguments to the commission as to why staff misinterpreted the rule or lack authority to issue the legislative rule you claim it issued and that one done. [00:42:30] Speaker 03: In other words, like an exhaustion argument. [00:42:34] Speaker 02: Right. [00:42:35] Speaker 02: I think the FTC, again, hides behind the very law subverts here. [00:42:38] Speaker 02: And what we're looking for is an opportunity on an administrative record, a public record, to talk about these issues and to present evidence and object to the FTC's evidence. [00:42:47] Speaker 02: We haven't even seen it. [00:42:48] Speaker 03: Do you agree, do you not, or maybe you don't, that under the Commission's rules, you did have the opportunity [00:42:57] Speaker 03: to ask for an advisory opinion and make your arguments to the commission itself. [00:43:03] Speaker 03: Do you agree with that, under the commission's regulations? [00:43:06] Speaker 02: I don't think it's necessary here because we have a final binding rule. [00:43:09] Speaker 03: No, no, that was my question, wasn't. [00:43:12] Speaker 02: No, Your Honor, it was not. [00:43:14] Speaker 02: I think that it could have, but it wasn't necessary here. [00:43:20] Speaker 03: Even though you knew you'd be faced with this finality issue? [00:43:25] Speaker 02: I think the finale issue was really a list of excuses presented by the government to avoid not only... Well, it's a jurisdictional from our point of view. [00:43:34] Speaker 02: I understand that. [00:43:35] Speaker 02: And I think the district court got that one right. [00:43:37] Speaker 02: I think that this is clearly a final agency action, and it satisfies all of the tests used by this circuit and the Supreme Court. [00:43:46] Speaker 01: Where does the division of marketing practices fall within the agency? [00:43:51] Speaker 02: It's the division head that's charged with enforcement of the TSR specifically. [00:43:57] Speaker 01: And the letter is only assigned by the associate director, not by the director. [00:44:04] Speaker 01: Doesn't that make it even more? [00:44:06] Speaker 02: I don't think it does. [00:44:07] Speaker 02: I don't think, I think the district court's correct in noting that it doesn't, whoever penned, whomever penned the letter is not dispositive. [00:44:14] Speaker 02: It doesn't matter that it was an assistant. [00:44:16] Speaker 01: Well, at some level, it's gotta be right within the staff. [00:44:17] Speaker 01: If some line attorney just sends a letter out, that can't be enough. [00:44:21] Speaker 01: It's gotta be somebody, when they say it's delegated to staff, is there any precedent for going below directorship? [00:44:29] Speaker 02: I don't think so. [00:44:30] Speaker 02: I think what we're dealing with here is a letter that, as we've discussed, it binds agency and it binds the industry. [00:44:40] Speaker 02: Clearly, we can't look at just who penned it and the specific authority of that particular position when you've got to look at the letter, the reasonable intent, and the intended intent of this letter. [00:44:51] Speaker 02: And that is to wipe out industry. [00:44:53] Speaker 02: And I really don't think we can look back and say, just because the person with supreme authority or the five people with supreme authority, the commission, didn't sign it, it doesn't do what it was intended to do. [00:45:05] Speaker 03: You keep referencing intent to get rid of the industry. [00:45:10] Speaker 03: I didn't find that anywhere. [00:45:12] Speaker 03: I mean, profits might go down, arguably, but profits might go up. [00:45:17] Speaker 03: Who knows? [00:45:19] Speaker 03: I didn't see that as the staff's intent. [00:45:24] Speaker 02: I think reasonable effect is reasonable intent here. [00:45:27] Speaker 02: And I can't. [00:45:29] Speaker 03: Where is the evidence of reasonable? [00:45:33] Speaker 02: The effect is to wipe out an industry, and it had to know that was the effect. [00:45:37] Speaker 03: Well, let me say, sitting here, I don't know that, and I don't see that in the record. [00:45:42] Speaker 03: And I understand Judge Millett's hypothetical on $40,000 a day, but it could also be a dollar a day. [00:45:49] Speaker 03: And I was wondering, what would have happened if this letter said your client has 24 hours to come into compliance? [00:45:57] Speaker 03: What would you have done? [00:46:00] Speaker 02: rushed into court with a preliminary injunction motion. [00:46:03] Speaker 02: I think the result is the same. [00:46:04] Speaker 02: The rule is the same. [00:46:05] Speaker 02: The effect is the same. [00:46:06] Speaker 02: All right. [00:46:08] Speaker 03: Anything further? [00:46:10] Speaker 02: Just that the First Amendment has long preferred to punishing unlawful speech than prohibiting protected speech before it is to occur. [00:46:18] Speaker 02: And this case does chill First Amendment rights. [00:46:20] Speaker 02: Thank you, Your Honors. [00:46:20] Speaker 03: Thank you. [00:46:21] Speaker 03: We'll take the case under advisement.