Key Points

  • The Fifth Circuit held that the FCC violated the Government Corporation Control Act, 31 U.S.C. § 9102, by establishing USAC to act as an agency without a law specifically authorizing it.
  • The court held that the Hobbs Act's 60-day limit did not bar the challenge because each quarterly contribution factor reapplies the FCC's action establishing USAC and restarts the clock.
  • The court rejected 47 U.S.C. § 154(i), § 254(j)'s Lifeline provision, and the pandemic-era Affordable Connectivity Program and Emergency Connectivity Fund statutes as sources of authorization or ratification.
  • The court vacated the Fourth Quarter 2025 contribution factor and remanded to the FCC, applying its default vacatur rule under the rule of orderliness despite open questions about universal vacatur under APA § 706(2).
  • The court did not reach the petitioners' nondelegation, APA, or Appointments Clause arguments.

The Federal Communications Commission broke a 1945 federal law when it created the private company that runs the Universal Service Fund, a federal appeals court ruled Thursday, striking down the rate telecommunications companies paid into the fund for the last three months of 2025.

A three-judge panel of the U.S. Court of Appeals for the Fifth Circuit held that the FCC set up the Universal Service Administrative Company, known as USAC, to act as an agency "even though Congress never authorized it to do so." Judge Edith Brown Clement wrote the opinion, joined by Chief Judge Elrod and Judge Oldham. The court granted a petition by Consumers' Research and other challengers and vacated the fourth-quarter 2025 contribution factor.

The ruling reaches the machinery behind what the panel called the "multi-billion-dollar Universal Service Fund." Each quarter the commission sets a contribution factor, the percentage of projected revenue that carriers must pay into the fund, and it builds that figure from USAC's projections. Because the panel held that every new factor reapplies the FCC's 1997 decision to create USAC, each quarterly factor opens a fresh window to challenge that decision.

Congress requires every carrier that provides interstate telecommunications services to contribute to the fund. The money supports four programs, including Lifeline, which discounts phone bills for low-income consumers, and E-Rate, which subsidizes service for schools and libraries. Since 1998, USAC has served as the fund's permanent administrator, billing carriers and distributing the money.

In August 2025, USAC told the FCC that projected expenses and program demand for the fourth quarter would total $2.25 billion. The commission proposed a factor of 38.1%, largely adopting USAC's projections but directing it to apply $100 million in unused E-Rate funds to offset demand. The challengers filed comments arguing that parts of the fund are unlawful. The FCC took no action, and the factor was deemed approved 14 days later.

The same challengers lost a broader case in 2025, when the Supreme Court held that the universal-service statute as a whole does not violate the nondelegation doctrine. This time they pressed narrower constitutional and administrative-procedure claims alongside the corporation argument. "Because Petitioners' GCCA challenge is dispositive," Judge Clement wrote, the court did not address the others.

Congress passed the Government Corporation Control Act, the panel recounted, after government corporations, many of them formed during the Great Depression, "had gotten out of hand," in the words of a 1995 Supreme Court decision. Congress "moved to reestablish order" with a law that bars an agency from creating a corporation to act as an agency without a law "specifically authorizing the action."

The parties did not dispute that the FCC established USAC. In 1997 the commission directed the National Exchange Carrier Association, which the FCC itself had established in 1983, to form USAC as a not-for-profit Delaware subsidiary. The panel held that the 1945 law reaches corporations formed to serve as an "instrumentality" of the government. It cited a 2024 memorandum between the FCC and USAC describing USAC as "an agent and instrumentality of the FCC."

The FCC had argued that USAC plays a strictly "advisory role" in setting the contribution factor. The panel acknowledged that an agency that keeps decision-making power may rely on advice from private actors without violating the Constitution. But when the private actor is a corporation the agency created, Judge Clement wrote, "such reliance can still run afoul of the GCCA" unless Congress has specifically authorized it.

The court rejected three claimed sources of authority. The National Telecommunications Cooperative Association, which intervened in the case, pointed to the FCC's general power to issue orders necessary to carry out its functions. That provision "is not infinitely elastic," the panel wrote, quoting a Seventh Circuit decision, and its "broad, generalized grant of authority" falls short of what the 1945 law demands.

The FCC and the association also argued that Congress implicitly approved the arrangement in the Telecommunications Act of 1996, which preserved the carrier association's role in running Lifeline. The panel held that permission for one private entity to run a single program does not authorize another to administer the whole fund. That Lifeline provision "demonstrates that Congress knew how to speak clearly" when it wanted a private entity in charge, the court wrote.

Finally, the defenders said Congress ratified USAC's creation by authorizing its use in two pandemic-era programs, the Affordable Connectivity Program and the Emergency Connectivity Fund. "Congress has not ratified the FCC's establishment of USAC," the panel wrote. Both programs were "temporary, emergency measures" that ended in June 2024, and the FCC acknowledged that neither was part of the fund. The court declined to find that Congress had thereby "implicitly blessed USAC's appointment as permanent" administrator.

The association also argued that the challenge came too late, because the Hobbs Act, which governs review of FCC orders, allows 60 days to petition, and USAC dates to 1997. The panel held that when the FCC uses USAC's projections, it "effectively reapplies its prior action establishing the" corporation, so each new factor "restarts the sixty-day clock," quoting a 2023 Sixth Circuit ruling. The challengers filed two days after the factor was deemed approved.

The panel found that Cause Based Commerce, a reseller of telecommunications services, had standing because paying directly into the fund caused it a "pocketbook injury."

On remedy, the panel applied the circuit's default rule that unlawful agency action is vacated. Because the FCC adopted USAC's projections wholesale apart from one adjustment, the court held, its reliance on the company was a "serious procedural" deficiency the agency could not cure on remand. The panel noted that courts' power to set aside agency action under the Administrative Procedure Act "has come under scrutiny," but held that circuit precedent controls absent an "unequivocal" change in the law.

The panel remanded the case to the FCC "for further proceedings," without specifying what they must include or how the commission is to set factors for later quarters.