SL Communications, Inc. v. Federal Communications Commission

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 1, 1999 Decided March 19, 1999

No. 98-1076

SL Communications, Inc.,

Appellant

v.

Federal Communications Commission,

Appellee

Consolidated with

No. 98-1103

Dorothy O. Schulze and Deborah Brigham,

a General Partnership,

Appellant

v.

Federal Communications Commission,

Appellee

Appeals of an Order of the

Federal Communications Commission

Barry A. Friedman argued the cause for appellant SL

Communications, Inc. With him on the briefs was Michael L.

Martinez.

Donald E. Martin was on the briefs for appellant Dorothy

O. Schulze and Deborah Brigham, a General Partnership.

Gregory M. Christopher, Counsel, Federal Communications

Commission, argued the cause for appellee. With him on the

brief were Christopher J. Wright, General Counsel, and Dan-

iel M. Armstrong, Associate General Counsel. Pamela L.

Smith, Counsel, entered an appearance.

Before: Edwards, Chief Judge, Ginsburg and Tatel,

Circuit Judges.

Opinion for the court filed by Circuit Judge Tatel.

Tatel, Circuit Judge: The Federal Communications Com-

mission disqualified appellant Dorothy O. Schulze and Debo-

rah Brigham ("S&B") from a comparative television licensing

proceeding due to serious misconduct. Because no other

qualified applicant remained, S&B proposed to "settle" the

proceeding by substituting in its place appellant SL Commu-

nications ("SL"), an established, reputable broadcaster willing

to reimburse S&B for the expenses it incurred pursuing the

license. Relying on its policy of deterring misconduct, the

Commission rejected the settlement. Because we find the

disqualification and the rejection of the settlement wholly

justified, we affirm.

I

In 1985, appellant S&B, a partnership consisting of two

sisters, applied for a television broadcast license for UHF

channel 52 in Blanco, Texas, a small town forty miles west of

San Antonio. The Commission designated S&B and two

other applicants to participate in comparative hearings before

an administrative law judge.

Following months of hearings, the ALJ disqualified S&B on

several grounds. See Opal Chadwell, 1 F.C.C.R. 120 (1986)

("ALJ Order"). First, he found that S&B improperly failed

to disclose that one of its principals, Dorothy Schulze, had

previously applied for another television broadcast license in

San Antonio. Rejecting as "pure fabrication" Schulze's expla-

nation that she never had an interest in the San Antonio

application, the ALJ found that Schulze lied during the

Blanco hearings to cover up the omission in S&B's applica-

tion. Id. at 124 pp 45-46. The ALJ also found that Schulze

lied to a different ALJ--one conducting comparative hearings

regarding a television broadcast license in Castle Rock, Colo-

rado--about her involvement in yet another application for a

license in Conroe, Texas. See id. at 125 p 66.

Second, the ALJ found that S&B was actually controlled

not by Schulze and Brigham but rather by their brother,

Richard Ozan, and that Ozan had convinced his sisters to act

as nominal applicants for the Blanco license in order to take

advantage of then-applicable affirmative action programs af-

fording preferences to women-owned license applicants. Ac-

cording to the ALJ, Ozan was the real party-in-interest not

only in S&B's Blanco application, but also in nine other

applications then pending before the Commission, including

one in the Conroe proceeding. See id. at 126 p 70.

Third, the ALJ found that in addition to lying about her

interest in the San Antonio application, Schulze had lied in

her Castle Rock application about whether she had obtained a

transmitter site in that area. Although S&B's communica-

tions consultant, Ron Baptist, had originally testified that he

had secured a Castle Rock transmitter site for Schulze,

Baptist later recanted, admitting that he actually had nothing

to do with securing a site. Baptist then testified that he and

S&B's lawyer, Donald Martin, concocted his false story over

breakfast the morning he first testified. Schulze was at that

breakfast. The ALJ found not just that Schulze lied about

the transmitter site, but also that Schulze and Martin had

suborned Baptist's perjury. See id. at 127 p 93.

After disqualifying S&B on the basis of these findings, the

ALJ disqualified a second applicant, finding that it had made

misrepresentations in its pleadings. He awarded the Blanco

license to the lone remaining applicant. The Commission's

Review Board affirmed. See Opal Chadwell, 2 F.C.C.R. 5502

(1987) ("Review Board Order"). Agreeing with the ALJ that

Ozan exercised de facto control over S&B's application, the

Review Board stated that "it was clearly demonstrated that

[Ozan] was the prime mover, principal and agent responsible

for every aspect of the prosecution of the application[ ]." Id.

at 5509 p 31. It also affirmed the ALJ's finding that Schulze

lied about the Castle Rock transmitter site. See id. at 5510

p 34. Because the real party-in-interest and Castle Rock

veracity issues each independently supported S&B's disquali-

fication, the Review Board declined to review the ALJ's other

findings, including his finding that Schulze and Martin sub-

orned Baptist's perjury. See id.

Although the Commission denied review of S&B's disquali-

fication in 1989, it remanded the case to the ALJ for further

factfinding regarding the successful applicant's financial qual-

ifications. See Opal Chadwell, 4 F.C.C.R. 1215 (1989). The

ALJ then dismissed that applicant for failing to participate in

discovery. See Opal Chadwell, FCC 89M-1568, Docket No.

85-269 (Jun. 2, 1989). At that point, no applicants remained

in the Blanco proceeding.

Petitioning the Commission for reconsideration, S&B ar-

gued that the ALJ's findings, especially that Ozan exercised

de facto control over a sham application in Conroe, were

inconsistent with those of the Conroe ALJ, who had subse-

quently found otherwise. Because the Review Board had

remanded the Conroe proceeding for further consideration in

light of the Blanco findings, the Commission stayed its order

denying review of S&B's disqualification, holding S&B's peti-

tion for reconsideration in abeyance pending the Conroe

remand. See Opal Chadwell, 5 F.C.C.R. 3227 (1990). The

Conroe ALJ then reversed himself, agreeing with the Blanco

ALJ that Ozan controlled a sham application in Conroe. See

Montgomery Cty. Media Network, 6 F.C.C.R. 2963 (1991).

In 1995, while its petition for reconsideration was still in

abeyance, S&B petitioned the Commission to amend its Blan-

co application to substitute in its place SL, the other appellant

in this case. Under the proposed "settlement," the Commis-

sion would award the Blanco license to SL, and SL would pay

S&B $227,000--a sum S&B claimed was less than the ex-

penses it incurred pursuing the Blanco license. At oral

argument, SL's counsel conceded that most of the $227,000

represented Martin's fees. The Commission denied the peti-

tion to amend, stating that because S&B had not demonstrat-

ed that it was qualified to receive the license, it had nothing

to assign to SL. See Dorothy O. Schulze and Deborah

Brigham, 12 F.C.C.R. 2602 (1997) ("Commission Order I").

Moreover, the Commission explained, given S&B's unconscio-

nable behavior, allowing S&B to recover its expenses would

run counter to its policy of deterring misconduct during

agency proceedings. Id. at 2604-05 p 9 & n.1. The Commis-

sion also denied S&B's petition for reconsideration of its

disqualification; that petition had been in abeyance for seven

years.

Six months later, Congress enacted the Balanced Budget

Act of 1997. See Pub. L. No. 105-33, 111 Stat. 251 (1997).

Section 3002(a)(3) of that Act added section 309(l) to the

Communications Act of 1934. See 111 Stat. at 260 (codified at

47 U.S.C.A. s 309(l) (Supp. 1998)). Section 309(l) authorized

the Commission to resolve then-pending comparative pro-

ceedings through competitive auctions. It also required the

Commission, during the 180-day period following its enact-

ment, to "waive any provisions of its regulations necessary" to

allow competing applicants to settle conflicts between or

among their applications. Relying on this new provision,

S&B, this time joined by SL, once again petitioned the

Commission for reconsideration, arguing that section 309(l)

required the Commission to waive its normal rule against

third-party settlements of comparative proceedings. Denying

the petition, the Commission held that section 309(l) applies

only to settlements between competing applicants, not be-

tween a lone applicant and a third party. See Opal Chadwell,

13 F.C.C.R. 3259 (1998) ("Commission Order II").

S&B appeals the disqualification of its application. Joined

by S&B, SL appeals the rejection of the proposed settlement.

We review the Commission's decisions under the familiar

arbitrary and capricious standard. See 5 U.S.C. s 706(2)(A)

(1994); Serafyn v. FCC, 149 F.3d 1213, 1219 (D.C. Cir. 1998).

II

Represented in this appeal by Martin, S&B spends nearly

half its brief challenging the ALJ's finding that Martin and

Schulze suborned Baptist's perjury. We have no authority to

consider that issue, however, for the Review Board expressly

declined to reach it. See Review Board Order, 2 F.C.C.R. at

5510 p 34 (concluding that "we need not reach the more

serious question whether the applicant's conduct constitutes

'subornation of perjury' " because Schulze "proffer[ed] a false

version of the events surrounding the securing of the [trans-

mitter] site") (citation omitted).* We turn to S&B's chal-

lenges to the real party-in-interest and lack-of-candor find-

ings.

In determining that Ozan was the real party-in-interest

behind S&B's application, the ALJ credited the testimony of

Thomas Root, Schulze's former attorney, and Ronald Baptist,

S&B's communications specialist. Both had described Ozan's

behind-the-scenes role with respect to S&B's application.

The ALJ rejected as "sheer fabrication"--a "web of lies," as

he also put it--the contrary testimony of three S&B wit-

nesses, including Schulze. ALJ Order, 1 F.C.C.R. at 124-25

p 55, 125-26 p 69. We disturb credibility findings affirmed by

__________

* Perhaps Martin's belief that he needed to defend his own

conduct led him to place so much emphasis on an issue irrelevant to

his client's appeal. Cf. Model Rules of Professional Conduct Rule

1.7 cmt. 6 (1983) ("The lawyer's own interests should not be

permitted to have an adverse effect on representation of a

client.... If the probity of a lawyer's own conduct in a transaction

is in serious question, it may be difficult or impossible for the

lawyer to give a client detached advice.").

the Commission only if "patently unsupportable." Williams

Enterprises v. NLRB, 956 F.2d 1226, 1232 (D.C. Cir. 1992).

S&B argues that Root's testimony should not have been

credited because shortly after the Commission first denied

review of S&B's disqualification Root was convicted on nu-

merous state and federal charges of fraud, racketeering, and

conspiracy. See Petroleum V. Nasby Corp., 10 F.C.C.R.

6029, 6030 p 6 (1995). Rejecting this argument, the Commis-

sion observed that the Review Board had determined (after

the Conroe remand) that Root had testified credibly regard-

ing Ozan's role in the Blanco and Conroe proceedings--a

determination that the Review Board made with full knowl-

edge of Root's subsequent convictions. See Commission

Order I, 12 F.C.C.R. at 2607 pp 13-14. The Commission

ruled that the Review Board had given adequate reasons for

crediting Root's testimony, pointing out not only that his

testimony was corroborated by two other witnesses and by

documentary evidence, but also that he had no apparent

motive to lie. S&B offers no reason why Root's convictions,

which were weighed by the Commission, render the ALJ's

credibility determination "patently unsupportable."

S&B next argues that Baptist's testimony should not have

been credited because he lied about the Castle Rock trans-

mitter site. Despite Baptist's admitted perjury, the ALJ

credited his account of Ozan's involvement in S&B's Blanco

application. Affirming the ALJ's credibility determination,

the Review Board stated: "The fact that Baptist voluntarily

exposed himself to penal sanctions [by recanting] lends cre-

dence to his claim of truthfulness the second time he testi-

fied." Review Board Order, 2 F.C.C.R. at 5510 p 34. Again,

S&B offers no reason for questioning the ALJ's credibility

determination.

Having considered S&B's remaining arguments and finding

none persuasive, we affirm the Commission's determination

that Ozan was the real party-in-interest behind S&B's Blanco

application. Because the Commission found the real party-in-

interest determination independently sufficient to justify

S&B's disqualification, we need not consider S&B's challenge

to the Commission's alternative determination that Schulze

lied about the Castle Rock transmitter site.

III

This brings us to SL's challenge to the agency's refusal to

approve the proposed third-party settlement agreement.

Joined by S&B, SL argues that the Commission's refusal to

approve the settlement violates the 1997 Budget Act, conflicts

with its own precedent, and is contrary to the public interest.

Section 3002(a)(3) of the Budget Act, which added section

309(l) to the Communications Act, authorized the Commission

to resolve competing applications in then-pending compara-

tive licensing proceedings through competitive auctions. See

Pub. L. No. 105-33, s 3002(a)(3), 111 Stat. at 260. Entitled

"Applicability of competitive bidding to pending comparative

licensing cases," section 309(l) provides:

With respect to competing applications for initial li-

censes or construction permits for commercial radio or

television stations that were filed with the Commission

before July 1, 1997, the Commission shall--

(1) have the authority to conduct a competitive bidding

proceeding ... to assign such license or permit;

(2) treat the persons filing such applications as the

only persons eligible to be qualified bidders for pur-

poses of such proceeding; and

(3) waive any provisions of its regulations necessary to

permit such persons to enter an agreement to procure

the removal of a conflict between their applications

during the 180-day period beginning on the date of

enactment of the Balanced Budget Act of 1997.

47 U.S.C.A. s 309(l). Subsection (l)(3) required the Commis-

sion to waive any rules that would otherwise have prevented

competing applicants in then-pending comparative proceed-

ings from avoiding an auction by reaching a settlement.

The Commission interprets section 309(l) as not applying to

the settlement in this case because SL and S&B are not

"competing applica[nts]." See Commission Order II, 13

F.C.C.R. at 3264-65 pp 13-15; see also Implementation of

Section 309(j) of Communications Act, 13 F.C.C.R. 15,920,

15,949 p 78 (1998) ("SL Communications urges that the waiv-

er [of the prohibition against non-party settlements] should

apply to all comparative proceedings ... even proceedings in

which there is only one remaining applicant.... However,

... the special settlement provisions of Section 309(l)(3) apply

only to competing [i.e. mutually exclusive] applications.") (in-

ternal quotation omitted). SL was not even a party to the

Blanco proceeding, the Commission observes, and as the lone

remaining applicant S&B was "competing" with no one. Ac-

cording to the Commission, the unambiguously clear language

of section 309(l) compelled this conclusion. See Chevron

U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467

U.S. 837, 842-43 (1984) ("If the intent of Congress is clear,

that is the end of the matter; for the court, as well as the

agency, must give effect to the unambiguously expressed

intent of Congress."). We agree.

To begin with, the Commission correctly determined that

S&B was not "competing" with anybody when it proposed the

settlement. Webster's defines "competing" as "seek[ing] or

striv[ing] for something ... for which others are also con-

tending." Webster's Third New International Dictionary

463 (3d ed. 1993) (emphasis added). None of the other

Blanco applicants was contending for the license; the Com-

mission had disqualified them. SL could not have been

contending for the license either, for it never became a party

to the proceeding.

In support of its interpretation of the Act, the Commission

also points out that subsection (l)(3) contemplates settlement

agreements to "remov[e] ... a conflict between ... applica-

tions." Here there could have been no "conflict" between

applications because S&B was the only remaining applicant.

Finally, subsection (l)(2) prohibits the Commission from

allowing parties other than competing applicants to partici-

pate in auctions to resolve pending comparative proceedings.

If section 309(l) covered S&B's lone application, as SL argues,

and if the Commission chose to auction off the Blanco license,

then (l)(2) would entitle S&B to "bid" for that license without

any competition whatsoever. We have no doubt that Con-

gress never intended such a perverse result.

Next, SL argues that even if section 309(l) does not apply,

the Commission's rejection of the proposed settlement was

arbitrary and capricious because it conflicted with agency

precedent. To be sure, the Commission has recognized that

voluntary settlements of comparative proceedings are gener-

ally in the public interest because they conserve agency

resources and expedite broadcasting service. See Rebecca

Radio of Marco, 4 F.C.C.R. 830 (1989), modified by Rebecca

Radio of Marco, 5 F.C.C.R. 937 (1990). But the Commission

rejected the proposed settlement in this case on the ground

that allowing S&B to recoup its expenses after acting so

mendaciously before the agency would run counter to its

policy of "deterring misconduct." Commission Order I, 12

F.C.C.R. at 2604-05 p 9 & n.1. According to SL, the Com-

mission has approved third-party settlements even where the

agency questioned the propriety of the settling applicant's

conduct. It cites two cases for support: Allegan County

Broadcasters, 83 F.C.C.2d 371 (1980), and Gonzales Broad-

casting, 12 F.C.C.R. 12,253 (1997). We are satisfied that the

Commission has adequately distinguished both cases.

In Allegan, the Commission approved a settlement despite

unresolved character allegations against one of the withdraw-

ing applicants. See 83 F.C.C.2d at 373 p 6. Here, the

Commission refused to follow Allegan because while in that

case there had been no hearings regarding the character

allegations, in this case the ALJ actually found S&B guilty of

serious misconduct. See Commission Order II, 13 F.C.C.R.

at 3264 p 12. It is true, as SL points out, that at the time the

Commission rejected the settlement in this case the ALJ's

findings were still subject to judicial review. But surely

there is nothing irrational about the Commission's determina-

tion that its policy of deterring misconduct controls where

there are actual agency findings of misconduct--as opposed

to mere allegations (the situation in Allegan)--whether or not

those findings remain subject to judicial review.

In Gonzales Broadcasting, a post-Budget Act case, the

Commission approved a settlement among six competing

applicants through which the license was awarded to a newly-

created corporation jointly owned in part by all six applicants,

even though the ALJ had found two of the applicants guilty

of misrepresentation and abuse of process. See 12 F.C.C.R.

at 12,256-57 pp 11-13. As the Commission explained, newly-

enacted section 309(l) controlled the Gonzales settlement

because, unlike here, it involved six "competing" applicants.

See Commission Order II, 13 F.C.C.R. at 3265 p 14.

Finally, SL argues that the proposed settlement is in the

public interest because it would result in prompt initiation of

broadcast service to an unserved community. But we find

nothing irrational in the Commission's expert determination

that deterring the kind of serious misconduct engaged in by

S&B better serves the public interest than expediting UHF

service to Blanco.

III

The disqualification of S&B and the rejection of the pro-

posed settlement between S&B and SL are affirmed.

So ordered.