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Court Of Appeals Rejects Bell "Bill of Attainder" Claim, FindsAct Constitutional

Posted: 07/1998

Regulatory News

Court Of Appeals Rejects Bell "Bill of Attainder" Claim, Finds
Act Constitutional

By Danny E. Adams, Partner Kelly Drye & Warren LLP

On May 15, the U.S. Court of Appeals for the District of Columbia Circuit denied a
petition for review filed by BellSouth Corp. challenging the constitutionality of Section
274 of the Telecommunications Act of 1996. That section generally limits the ability of
Bell operating companies (BOCs) to engage in "electronic publishing."
Specifically, BellSouth claimed that Section 274: (1) is an unconstitutional bill of
attainder because the subject of its restrictions, the BOCs, are singled out by name; and
(2) impermissibly abridges the BOCs’ First Amendment rights of free expression.

The court’s decision to reject BellSouth’s claims is an important victory in the
ongoing battle to thwart the BOCs’ efforts to eviscerate the pro-competitive mandates of
the Telecom Act. It also effectively moots much of BellSouth’s case to the same court
regarding the Federal Communications Commission’s (FCC’s) denial of BellSouth’s requests
for interLATA authority. The ruling also is likely to be influential to the U.S. Court of
Appeals for the 5th Circuit, which is considering the same arguments in reviewing the Dec.
31, 1997 decision of Judge Kendall.

Sections 271 through 275 of the Telecom Act, which are applicable only to the BOCs and
their affiliates, generally maintained and, in most cases, reduced various restrictions
imposed on the BOCs by the Modified Final Judgment (MFJ) issued in 1982. Section 274,
however, effectively reinstates a restriction originally imposed on the BOCs by the MFJ
but which later was lifted by the district court. Section 274 limits the ability of the
BOCs and their affiliates to provide "electronic publishing," a category that
includes disseminating news articles, offering literary material, and providing services
similar to the LEXIS/NEXIS and WestLaw databases. Under that section, BOCs may engage in
electronic publishing only through the vehicles of a "separated affiliate" or
"electronic publishing joint venture" operated in accordance with various
structural separation requirements imposed by the section.

The court found BellSouth’s first claim–that Section 274 is an unlawful bill of
attainder–entirely without merit. An unconstitutional bill of attainder is a legislative
act that applies to named individuals or to easily ascertainable members of a group so as
to inflict punishment on them without a judicial trial. In short, a bill of attainder
must: (1) apply with specificity to a group or individual; and (2) impose punishment. The
court found that Section 274 "obviously" met the specificity requirement, in
that the section applies uniquely to the 20 BOCs identified by name in the Telecom Act.

The court went on to note, however, that Section 274 clearly is not a bill of attainder
because the burden it imposes on the BOCs simply does not rise to the level of a
punishment. The Supreme Court has established a three-part test to determine whether a
legislative burden qualifies as a punishment: (1) whether the challenged statute falls
within the historical meaning of legislative punishment; (2) whether the statute, viewed
in terms of the type and severity of burdens imposed, reasonably can be said to further
nonpunitive legislative purposes; and (3) whether the legislative record evinces a
congressional intent to punish.

First, the court found that Section 274’s restrictions "are nothing like" the
classic attainders known to the framers of the Constitution. Historically, bills of
attainder entailed execution, imprisonment, banishment, or the punitive confiscation of
property. Burdens also found by the Supreme Court to rise to the level of punishment have
included legislative bars on specific groups or individuals from participation in specific
employment or professions. The court noted that unlike those classic cases, Section 274
merely imposes structural separations on corporations seeking to engage in specific types
of commercial activity. At most, the section is simply a line-of-business restriction
similar to, for example, legislative restrictions on the entry of commercial banks into
investment banking, cross-ownership restrictions on broadcasters and conflict-of-interest
requirements that employees of securities underwriting firms not work for Federal Reserve
banks. The court appeared to find most significant in this context the fact that Section
274 does not completely bar the BOCs from electronic publishing. Although there are some
constraints on the BOCs’ ability to enter the electronic publishing market, they certainly
are free to do so through an affiliate or joint venture if they comply with Section 274’s
structural separation requirements.

Second, the court found that Section 274 reasonably can be said to further nonpunitive
legislative purposes. It is particularly interesting that in its discussion of this
second, most important of the three factors in the punishment analysis, the court cited a
passage from the constitutional law treatise of BellSouth’s counsel, Laurence Tribe:
"'[E]ven measures historically associated with punishment–such as permanent
exclusion from an occupation–have been otherwise regarded when the nonpunitive aims of an
apparently prophylactic measure have seemed sufficiently clear and convincing.’"
Consistent with this principle, the court stated that Section 274 "has the earmarks
of a rather conventional response to commonly perceived risks of anticompetitive
behavior." The court went on to note that structural separation has long been a
permissible regulatory tool for preventing cross-subsidization and unfair competitive
practices, behavior in which the BOCs are peculiarly able to engage as a result of their
status as former regulated monopolists.

BellSouth offered two arguments to demonstrate that Congress intended Section 274 to be
a punitive measure. First, BellSouth alleged that the district court’s previous removal of
the similar "information services" restriction imposed by the MFJ shows that
Congress had no plausible economic basis for re-imposing electronic publishing
restrictions on the BOCs. The court dealt somewhat summarily with this argument, noting
that simply because Congress disagreed with the district court’s assessment of the BOCs’
ability to manipulate the information services market does not mean that Congress could
not be said to have pursued nonpunitive purposes in enacting Section 274. The court noted
that Section 274 is rather less severe than the analogous MFJ provision had been, and
pointed out that Section 274’s inclusion in an act that generally relieves the BOCs of the
restrictions imposed by the MFJ tends to undermine BellSouth’s claims of punitive
congressional intent. BellSouth’s second argument focused on the fact that Section 274
does not apply to several non-BOC local exchange carriers (LECs), such as GTE Corp. The
court found, however, that the Telecom Act’s differential treatment of the BOCs and
non-BOC LECs was not suggestive of punitive purposes, noting that the BOCs have the
ability to exercise greater bottleneck control over the local markets than the non-BOC
LECs.

Finally, the court found that BellSouth had presented no evidence of legislative intent
to use Section 274 to punish the BOCs. In the court’s words, "BellSouth has provided
no legislative history even touching on the purpose behind Section 274, much less
presenting ‘smoking gun’ evidence of congressional vindictiveness." Thus, although
Section 274 does target the BOCs, it does not also punish them, and hence is not an
unlawful bill of attainder.

First Amendment Claim

BellSouth also claimed that Section 274 abridges its constitutional right of free
speech by restricting its ability to provide electronic publishing. The court determined
that an intermediate level of scrutiny of Section 274 was appropriate, rejecting
BellSouth’s argument that strict scrutiny was required because Section 274 targets the
BOCs for speech restrictions and is content-based. The court noted that in previous
decisions when it applied strict scrutiny to laws that targeted specific entities, there
was some suggestion that the differential treatment of certain speakers was motivated by
the content of their speech. Section 274, however, was limited to the BOCs not because of
the content of their speech, but because of their status as price-regulated bottleneck
monopolies. For similar reasons, the court found that the goal of remedying bottleneck
problems is independent of content and viewpoint, and that nothing about Section 274
suggests an underlying purpose to favor or disfavor a particular opinion.

A regulation on speech is upheld under intermediate scrutiny if it advances important
governmental interests unrelated to the suppression of free speech and does not burden
substantially more speech than necessary to further those interests. The asserted purpose
of Section 274 is to promote competition by discouraging discrimination and
cross-subsidization by the BOCs. The court found that this interest not only is important
and unrelated to the suppression of free speech, but in fact enhances free speech by
promoting competition in the electronic publishing marketplace. Any speech burdens on the
BOCs by Section 274 are minimal, particularly given the fact that they can publish
electronically either directly or through a subsidiary if they comply with Section 274.

This case represents yet another attempt by the BOCs to whittle away at the competitive
requirements imposed upon them by the Telecom Act, specifically by Sections 271 through
275. While this decision is clearly an important one, its impact on pending cases
regarding Sections 271 through 275 remains unclear. The 5th Circuit is currently reviewing
the order issued Dec. 31, 1997 by District Judge Joe Kendall, in which he found Sections
271 through 275 of the Telecom Act to be unconstitutional bills of attainder. The 5th
Circuit may or may not be influenced by the D.C. Circuit’s decision in this case. A
contrary outcome in the 5th Circuit, however, would virtually guarantee that the case
would go to the Supreme Court.

The D.C. Circuit is reviewing BellSouth’s appeal of the FCC’s decision to deny its
application pursuant to Section 271 to provide in-region interLATA services in South
Carolina and Louisiana. BellSouth has claimed the FCC’s decision must be set aside because
Section 271, on which the decision is based, is a bill of attainder. Presumably, unless
BellSouth comes up with a smoking cannon regarding congressional intent to punish the BOCs
through Section 271, BellSouth will lose that appeal as well, for reasons similar to those
supporting the court’s decision regarding Section 274.

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