Richard S. Myers argued the cause for appellants. With him on the briefs was Timothy E.
Susan L. Fox, Counsel, Federal Communications Commission, argued the cause for appellees.
With her on the briefs were William E. Kennard, General Counsel, Daniel M. Armstrong, Associate
General Counsel, C. Grey Pash, Jr., Counsel, Joel I. Klein, Acting Assistant Attorney General, U.S.
Department of Justice, Robert B. Nicholson and Robert J. Wiggers, Attorneys.
Before: Williams, Sentelle and Tatel, Circuit Judges.
Opinion for the Court by Circuit Judge Tatel.
Tatel, Circuit Judge: Graceba Total Communications, Inc., petitions for review of a Federal
Communications Commission order rejecting, among other claims, the company's constitutional
challenge to a minority and gender preference rule employed in a license auction. Finding that the
Commission erred in determining that Graceba's challenge to the rule was untimely, we remand the
constitutional claim for further consideration.
In July 1994, the Federal Communications Commission conducted a live, open-outcry auction
of licenses to provide interactive video data service (IVDS) in local telecommunications markets.
Permitting two-way data transmission over the radio spectrum, IVDS technology supports such
commercial applications as home banking and shopping. Under rules promulgated in May 1994,
businesses owned by members of racial minorities or by women received a 25 percent "bidding credit"
at the auction. In re Implementation of Section 309(j) of the Communication Act--Competitive
Bidding, Fourth Report and Order, 9 F.C.C. Rcd. 2330, 2336-39 (1994); 47 C.F.R. 95.816(d)(1)
(1996). Although Graceba won the two licenses for which it competed, it did not qualify for a
bidding credit because it was neither minority- nor woman-owned.
After the Commission announced the auction results and the recipients of bidding credits in
August 1994, Graceba petitioned for reconsideration, arguing that various auction practices had
artificially inflated license prices. In February 1995, the Commission granted Graceba its two
licences. While Graceba's petition challenging the auction was still pending in June 1995, the
Supreme Court decided Adarand Constructors, Inc. v. Pena, 115 S. Ct. 2097 (1995), holding that
all government racial classifications--including those contained in federal programs designed to
remedy race discrimination--are unconstitutional unless "they are narrowly tailored measures that
further compelling governmental interests." Id. at 2113. Adarand expressly overruled Metro
Broadcasting, Inc. v. FCC, 497 U.S. 547 (1990), where, using a more permissive standard, the Court
had upheld the FCC's use of minority preferences in broadcast licensing. In an "Emergency Petition"
to the Commission following Adarand, Graceba challenged the constitutionality of the IVDS auction's
bidding credit rule, demanding a 25 percent reduction in the price of its licenses commensurate to that
given minority- and women-owned businesses. Graceba stated that "the instant pleading should be
considered in conjunction with [its earlier filed] Petition for Reconsideration." Emergency Petition
for Relief and Request for Expedited Consideration at 2 n.2.
In December 1995, the Commission denied both of Graceba's petitions, along with those filed
by other IVDS auction bidders. In re Interactive Video & Data Service (IVDS) Licenses--Various
Requests by Auction Winners, 11 F.C.C. Rcd. 1282 (1995). With respect to the constitutional claim
that Graceba raised in its Emergency Petition, the Commission explained:
To the extent Graceba now challenges the Commission's [bidding credit] rule ..., we find that Graceba's challenge is an untimely petition for reconsideration. Petitions for reconsideration must be filed no later than 30 days after public notice of a Commission action. Public notice of the Commission's adoption of the rule in question commenced on May 13, 1994. Thus, Graceba's challenge should have been filed by June 13, 1994. Graceba's challenge was not filed until July 11, 1995. In addition, Graceba's petition does not demonstrate why it requires financial assistance under our 25 percent bidding credit rule. For example, its petition contains no evidence that it has faced discriminatory financial barriers to entry into the telecommunications industry.
Id. at 1285 (footnote and citations omitted).
Renewing the arguments made in each of its petitions, Graceba now petitions this Court for
review of the Commission's order. Community Teleplay, Inc., and the Ad Hoc IVDS Coalition,
representing a group of IVDS auction participants, intervened in support of Graceba's constitutional
challenge to the bidding credit rule. Because Community Teleplay and members of the Coalition have
a petition still pending before the Commission raising an identical claim, however, they must await
the conclusion of those proceedings before bringing their claims here. See, e.g., Bellsouth Corp. v.
FCC, 17 F.3d 1487, 1489-90 (D.C. Cir. 1994) (party that remains before agency cannot also bring
challenge in court). Accordingly, although entertaining Graceba's petition, we dismiss those of
intervenors. We must affirm the Commission's order unless it is "arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law." 5 U.S.C. 706(2)(A) (1994).
The Commission's primary reason for denying Graceba's second petition--that Graceba did
not file it within 30 days of the May 1994 promulgation of the bidding credit rule--cannot support
the Commission's order. Because "administrative rules and regulations are capable of continuing
application," limiting review of a rule to the period immediately following rulemaking "would
effectively deny many parties ultimately affected by a rule an opportunity to question its validity."
Functional Music, Inc. v. FCC, 274 F.2d 543, 546 (D.C. Cir. 1959). For this reason, we permit both
constitutional and statutory challenges to an agency's application or reconsider-ation of a previously
promulgated rule, even if the period for review of the initial rulemaking has expired. See, e.g., Public
Citizen v. NRC, 901 F.2d 147, 152 (D.C. Cir. 1990); NLRB Union v. FLRA, 834 F.2d 191, 195-97
(D.C. Cir. 1987); Geller v. FCC, 610 F.2d 973, 978 (D.C. Cir. 1979); Functional Music, Inc.,
supra. The Commission applied the bidding preference rule in its July 1994 IVDS auction,
announcing which auction winners would receive bidding credits in an August 1994 order. Because
Graceba was entitled to raise its constitutional claim in a petition challenging that order, the
Commission erred in concluding that the claim was untimely simply because Graceba failed to raise
it within 30 days of the agency's May 1994 rulemaking.
The Commission now maintains that 47 U.S.C. 405, which imposes a time limit on petitions
for reconsideration, precluded its consideration of Graceba's constitutional challenge because,
although filed immediately after the Supreme Court decided Adarand, the petition was not brought
within 30 days of any agency action, including public notice of the July 1994 auction results.
However, not only does this reasoning appear nowhere in the Commission's order, see Burlington
Truck Lines, Inc. v. United States, 371 U.S. 156, 168-69 (1962) (court must consider reasons given
by agency in its order, not by agency counsel), but "section 405 has never been construed to be an
absolute bar on [agency] reconsideration of issues raised after thirty days." Meredith Corp. v. FCC,
809 F.2d 863, 869 (D.C. Cir. 1987). Moreover, Graceba asked the Commission to consider its
second petition "in conjunction" with its first, which was timely filed within 30 days of the August
1994 order. Because parties may supplement their pleadings in pending proceedings with agency
approval, see 47 C.F.R. 1.45(c), 1.106(f), the Commission clearly had the discretion to entertain
Graceba's belated petition. See Meredith, 809 F.2d at 869.
We think the Commission exercised that discretion by going on to consider, though briefly,
Graceba's claim that it was entitled to a 25 percent reduction in its license price. On that score, the
Commission found that Graceba had failed to "demonstrate why it require[d] financial assistance
under the 25 percent bidding credit rule." In re Interactive Video Data Service (IVDS) Licenses, 11
F.C.C. Rcd. at 1285. But because nothing in the bidding credit rule requires recipients of bidding
credits to make individualized showings of financial need or discrimination, see Fourth Report and
Order, 9 F.C.C. Rcd. at 2337-39; 47 C.F.R. 1.2110(b) (defining businesses eligible for bidding
credit), the absence of evidence of such hardships in Graceba's case, standing alone, cannot support
the agency's decision.
Claiming that the IVDS auction and the IVDS licence grants were final long before the
Supreme Court decided Adarand and Graceba filed its constitutional claim, the Commission now
argues that its rejection of Graceba's second petition was "consistent with established principles of
finality and retroactivity." Respondent's Br. at 25. Whatever the force of this reasoning, compare
Harper v. Virginia Dep't of Taxation, 509 U.S. 86, 96 (1993)) (Supreme Court's interpretations of
federal law "must be given full retroactive effect in all cases still open on direct review") with
Reynoldsville Casket Co. v. Hyde, 115 S. Ct. 1745, 1751 (1995) (for various "well-established legal
reasons," such as finality principles, retroactive application of new rule of law may not determine
outcome of case), like so many of the Commission's arguments in its brief, it appears nowhere in the
Commission's order. As the Supreme Court has made clear, we "may not accept appellate counsel's
post hoc rationalizations for agency action," Burlington Truck Lines 371 U.S. at 168, and are
"powerless to affirm" agency action on "grounds [that] are inadequate or improper." SEC v. Chenery
Corp., 332 U.S. 194, 196 (1947).
Because the Commission had a fair opportunity to consider Graceba's constitutional challenge,
and because it did consider whether Graceba was entitled to the relief sought, we have jurisdiction
to decide the issue ourselves regardless of whether the underlying petition suffered from procedural
defects unaddressed by the agency. See Meredith, 809 F.2d at 869; see also Washington Ass'n for
Television & Children v. FCC, 712 F.2d 677, 681 (D.C. Cir. 1983). Rather than doing so, however,
we will remand Graceba's claim to the Commission for further consideration, without expressing an
opinion on its merits. The Commission has an obligation to address properly presented constitutional
claims which, like this one, do not challenge agency actions mandated by Congress. See Meredith,
809 F.2d at 872-74. Moreover, because this case raises questions about the finality of FCC licenses,
fairness to auction participants not represented here, and other fact-specific, policy-laden concerns,
we think its resolution would benefit from the agency's expertise.
We have considered Graceba's non-constitutional arguments concerning the FCC's auction procedures, raised in its initial petition to the Commission, and find them without merit. Accordingly, the petition for review is granted in part and denied in part.