The Fifth Circuit has separated when and where a forfeiture defendant can raise defenses based on fact or on law.

Suppose you receive a Forfeiture Order from the FCC demanding a large check for allegedly violating FCC rules, as happened to Jerry and Deborah Stevens back in 2010. And suppose you want to raise a challenge. When and where do you do that?

The U.S. Court of Appeals for the Fifth Circuit has chimed in with a ruling that stirs up these already turbulent waters.

After the usual preliminaries, here and here, the Enforcement Bureau issued a Forfeiture Order that dinged the Stevenses $10,000 for operating a pirate FM station out of their home without a license. Although at very low power, the transmitter nonetheless exceeded the permitted power levels for an unlicensed device. The Stevenses did not pay. Eleven months later, the FCC sued them in a Texas federal district court to collect the money. The Stevenses objected that their FM station reached only one state, and claimed the FCC had jurisdiction only over “interstate” radio communications. Accordingly, they argued, the Forfeiture Order was invalid, and the FCC’s lawsuit should be dismissed. The district court declined to dismiss; the Stevenses appealed to the Fifth Circuit.

The Fifth Circuit’s problem was to reconcile two statutes.

One – referring generally to appeals of rulings by any agency, including but not limited to the FCC – says the only way to challenge the validity of a final agency order is to seek judicial review in a U.S. Court of Appeals within 60 days. The other is Section 504 of the Communications Act, which applies specifically to FCC forfeiture orders. When the subject of such an order opts not to pay, Section 504 tells the FCC it can collect the forfeiture by suing in federal district court, as it did here. Such a case, says the statute, is to be a trial de novo – “from the beginning.” Ordinarily a trial de novo allows the defendant to raise any defense he wishes.

But the Stevenses’ effort to raise their “interstate” argument in the district court troubled the Fifth Circuit: it looked like an end run around the general requirement to raise legal challenges only in the Court of Appeals. What the Stevenses should have done, in the Fifth Circuit’s view, was to raise their interstate argument by seeking review of the Forfeiture Order in the Court of Appeals. What about Section 504, which clearly provides forfeiture targets the opportunity to sit back and wait for the FCC to sue? According to the Fifth Circuit, that section authorizes the district court to hear only factual arguments, not purely legal arguments (like whether the FCC has jurisdiction to regulate conduct that occurs entirely within the borders of only one state). Since the Stevenses had apparently conceded unlicensed operation of the radio station at excessive power levels, they did have anything in the way of a fact-based defense. Accordingly, the Stevenses lost.

The Fifth Circuit’s try for a clean split between questions of fact and questions of law may look like a convenient way of dividing the baby, but reality is not always that tidy. Often the recipient of a Forfeiture Order will want to raise defenses that intermix factual and legal arguments. Can he do this in district court, after waiting for the FCC to bring suit? The Fifth Circuit does not say.

It gets worse. The Fifth Circuit described Forfeiture Orders as final agency orders reviewable by the Court of Appeals. That is certainly true: the subject of such an order could seek review by a Court of Appeals should he want to (although he would first have to pay the forfeiture and collect a refund if he wins). But Section 504 plainly provides another option. The subject of a forfeiture order can simply sit tight and force the FCC to make its case in district court, de novo. If the Fifth Circuit is correct, though, then Section 504 isn’t really much of an option, as it would dramatically limit the scope of the issues a defendant can raise. Nothing in the actual language of Section 504 even begins to suggest any such limitation.

A 2003 case out of the D.C. Circuit took a different and (we think) more sensible view: a forfeiture defendant can either pay the money and bring a challenge in the Court of Appeals, or not pay the money, wait to be sued in district court, and raise any and all defenses there. True, this gives the defendant a choice of forums, which the courts ordinarily disfavor, but the D.C. Circuit thought (as do we) that the combination of statutes requires this result.

The D.C. Circuit rejected that radical view. The D.C. Circuit’s decision remains good law as to cases brought in D.C., a favorite venue for challenging agency actions generally. But the Fifth Circuit’s decision is now good law in the Fifth Circuit (i.e., Texas, Louisiana, and Mississippi). That means that anybody in any of those states who gets hit with an FCC forfeiture order has a difficult choice: he can either (a) pay the fine and then pursue his claims in the Court of Appeals, or (b) wait for the FCC to sue him, but in so doing effectively waive any non-factual arguments.

The Stevenses seem to have run out of options, but we hope some future litigant will prompt the courts to straighten out the procedures and clarify how the recipient of a Forfeiture Order is supposed to defend himself.