Petition — Western Communications, Inc. v. Federal Communications Commission
Supreme Court brief1979
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78-1222 —
No.
gi , JR., CLERK
IN THE
Supreme Court of the United States
OcrosBer TERM, 1978
?
3
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a
om
WESTERN CoMMUNICcaATIONS, INc., Petitioner,
Vv.
FEDERAL COMMUNICATIONS COMMISSION and
Las Veacas VALLEY Broapcastina Co., Respondents.
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE
DISTRICT OF COLUMBIA CIRCUIT
Epe@ar F’. Czarra, Jr.
Micuae. S. Horne
Josepu Voupe, III
Dove as EB. Winter
888 Sixteenth Street, N.W.
Washington, D.C. 20006
(202) 452-6066
Attorneys for Petitioner
Of Counsel:
Covinaton & Bur.ine
888 Sixteenth Street, N.W.
Washington, D.C. 20006
February 5, 1979
a
TABLE OF CONTENTS
Page
I ccc Gacveevicaccsseeresteaciiccsecs 1
cence DUAd ide sdese cess Cisesecsedes tees 2
Questions PRESENTED ...........ccccceccccececscecs a
SraTuTes aND RuLES INVOLVED ............20eeeeeees 3
STATEMENT OF THE CaSB ....... 2... cccccccccccccces 3
Reasons FoR GRANTING THE WRIT ............+0+0055 11
1. This Court Should (A) Settle The Important
Federal Question Of The Standard Of Proof
Applicable To FCC Proceedings That Termi-
nate Broadcast Licenses For Alleged Miscon-
duct, And (B) Eliminate Evident Conflict At
The Court Of — Level Between The
Standard Of Proof Governing Such FCC Cases
And Comparable Proceedings Before The SEC
And Other Federal Agencies ................ 11
2. This Court Should Settle The Important Fed-
eral Question Of The Duty Of Courts Of Ap-
eis To Require Administrative Agencies To
rovide Rational Explanations For Disparate
Results Reached And Sanctions Imposed In
Comparable Cases, And To Eliminate Conflict
On This , eee ary Between The Second Circuit
And The District Of Columbia Circuit ........ 17
3. This Court Should Settle The Important Fed-
eral Question, Which It Has Not Heretofore
Decided, Whether There Is Violation Of An
Applicant’s Right To A Fair Adjudicatory
Agency Hearing When There Is Premature
Disclosure Of Tentative Agency Decisions And
Related Ex Parte Conduct In Violation Of
Specific Agency Rules; The Proceedings Below
So Far Departed From The Accepted And
Usual Course As To Call For Exercise Of This
Court’s Power Of Oversight ................ 28
ii Table of Contents Continued
Page
4. In Valley’s Case The Court Of Appeals De-
cided An Important Question Of The Financial
Qualifications Requirements Of The Communi-
cations Act Of 1934, As Amended, In A Way In
Conflict With Applicable Decisions Of This
SE Gb dues So Neca uecehlCVaee kab eames tek whe 33
MRI ye Sa ek Eat en eaee bea 37
Appenpix A—Opinion of the Court of Appeals in Las
Vegas Valley Broadcasting Co. v. FCC, No. 76-
2104 (D.C. Cir. reer ret Te la
Apprenpix B—Decision of the Federal Communications
Commission in Western Communications, Inc., 59
F.C.C.2d 1437 (1976), and Memorandum Opinion
and Order denying reconsideration, 61 F.C.C.2d
Gee GEE. Cac dak dacaksa hota ri Neer bab Leas 56 17a
Appenp1x C—Initial Decision of the FCC’s Administra-
tive Law Judge in Western Communications, Inc.,
pet & By. BARRE Ke ee are rere 62a
Appenpix D—Other relevant orders of the FCC ..... 143a
Aprenpix E—Orders of Court of Appeals for the Dis-
trict of Columbia Circuit rehearing and
rehearing en banc of Las Vegas Valley Broadcast-
CS DU. Ge er OU ea ween ctdakciac canapeeess 157a
Apprenvix F—Pertinent provisions of the Administra-
tive Procedure Act, the Communications Act of
1934, as amended, and the Rules and Regulations
of the Federal Communications Commission .... 159a
TABLE OF AUTHORITIES -
CasEs:
Arthur Lipper Corp. v. SEC, 547 F.2d 171 (2d Cir.
1976), rehearing denied, 551 F.2d 915 (1977), cert.
denied, 434 U.S. 1009 (1978) cae ahdk Ghee SERAE OS 15, 27
Atchison, T. & S.F.R. Co. v. Wichita Board of Trade,
ee ee I OD ods os cece bavaadaeeee
Atlantic Refining Co. v. FTC, 381 U.S. 357 (1965) . 34
a i Truck Lines v. United States, 371 U.S. 156 .
Bute - lover Livestock Commission, 411 U.S. 182
EE Ue bA Kea Ween VADER SERS OARO TS ORES KAS bbaSS
Table of Authorities Continued iii
Page
Central Florida Enterprises, Inc. v. FCC, No. 76-1742
CER CH ES Bs ROUTE ee vc ce eboswnthasceéces 24
Cinderella Career and Finishing Schools, Inc. v. FTC,
138 U.S. App. D.C. 152, 425 F.2d 583 (1970) ...... 31
Collins Securities Corp. v. SEC, 183 U.S. App. D.C.
Ne gg kL Say RAR eee ye ree passim
Columbia Broadcasting, Inc. v. FCC, 147 U.S. in.
Eee BUG GE ce ROOD CEOULD oc iceicscncncccces
Continental Broadcasting, Inc. v. FCC, 142 U.S. App.
D.C. 70, 439 F.2d 580, cert. denied, 403 U.S. 905
CRORE aks CRCk cUean teks Mess shed bn nc cbse 22
Eastern Air Lines v. CAB, 271 F.2d 752 (2d Cir. 1959),
cert. denied, 362 U.S. 970 (1960) ................
FCC v. National Citizens Committee For Broadcast-
ae Be Bee ere ere 15, 35, 36
FCC v. Sanders Bros. Radio Station, 309 U.S. 470
COD hain 5 CURtN sce Weide e Cae E Abe he Gu ee 34, 35
FCC v. WOKO, Inc., 329 U.S. 223 (1946) ......... passim
Garrett v. FCC, 168 U.S. App. D.C. 266, 513 F.2d 1056
SNE con Av AOE WED KUN S RES ES te ds Dio es beans 24
Gonzales v. Landon, 350 U.S. 920 (1955) ............. 13
Greater Boston Television Corp. v. FCC, 143 U.S. App.
D.C. 383, 444 F.2d 841 (1970), cert. denied, 403
ek ee SEED 1a. s eve thehidedsabeshbhknedes 15, 26
Hall v. FCC, 99 U.S. App. D.C. 86, 237 F.2d 567 (1956) 26
Hannah v. Larche, 363 U.S. 420 (1960) .............. 31
Hampton v. Mow Sun Wong, 426 U.S. 88 (1976) ...... 16
Haywood Lumber & Mining Co. v. Commissioner, 178
Pe ee Ge Gy GE ckieakcacshedhvsescvess 21
ER Bee Cs Be a BOE 4 chan ov nos piecdeecres 16
In Re Murchison, $49 U.S. 133 (1955) ........ 0. eee. ‘30
In Re Ruffalo, 390 U.S. 544 (1968) ...............005 16
In Re Winship, 397 U.S. 358 (1970) ................ 13, 16
Mathews v. ldridge, 424 U.S. 319 (1976) ........... 16
Melody Music, Inc. v. FCC, 120 U.S. App. D.C. 241, 345
F. a 730 (1965) Pep ROE Peer ree 17, 23, 24
Mobil Oil Corp. v. FPC, 417 U.S. 283 (1974) .......... 35
Nassar and Co. v. SEC, 185 U.S. App. D.C. 125, 566
ie 4 fo _. s er errors 11, 13, 17, 24
National Broadcasting Co. v. United States, 319 U.S.
EE Fats 4 ov Sau kds 4 dan beewas koe eboas ers 26
Offutt v. United States, 348 U.S. 11 (1954) ..........
Public Media Center v. FCC, No. 76-1648 (D.C. Cir.
Sy SEE We 05 COCK ee sh nsceuneen heen bake 17
iv Table of Authorities Continued
Page
Rosenblatt v. Baer, 383 U.S. 75 (1966) .............. 16
Sangamon Valley Television Corp. v. FCC, 106 US.
App. D.C. 30, 269 F.2d 221 (1959) .............. 33
Schnetderman v. United States, 320 U.S. 118 (1943) .. 13
Sea Island Broadcasting Corp. v. FCC, No. 76-1735
(D.C. Cir., filed Aug. 12, 1976) ............. 11, 12, 13
SEC v. New England Electric System, 390 U.S. 207
EES inate cea CRE ESS kde CORE a oa bake Oe 34
Tumey v. Ohio, 273 U.S. 510 (1927) ............. 000. 30
United States v. Haldeman, 181 U.S. App. D.C. 254,
559 F.2d 31 (1976), cert. denied, 431 U.S. 933,
rehearing denied, 433 U.S. 966 (1977) ........... 31
United States v. Phillips, 217 F.2d 435 (7th Cir. 1954) . 21
United States v. Southwestern Cable Co., 392 U.S. 157
Ee eR aes PR Pe 23, 24
Universal Camera Corp. v. NLRB, 340 U.S. 474 (1951) 37
Vermont Yankee Nuclear Power Corp. v. Natural Re-
sources — Council, Inc., 435 U.S. 519 (1978) . 35
Williamson v. United States, 207 U.S. 425 (1908) .... 21
Woodby v. Immigration and Naturalization Service,
ee es RD 6 Sra Nebs ede Sedcesnsen 12, 13, 14
STaTuTEs :
Administrative Procedure Act:
Oe, END 65 bck Cad viewewecde ceet 25
Dy IEEE da bcos woeens 040a0eabaenes 34
Communications Act of 1934:
RM ge EU ea eerrerr rrr rere 12
Section 301, 47 U.S.C. $301 ... 2... ccc cc ccc cee 15
Section 307(d), 47 U.S.C. § 307(d) ........... ‘lee ae
Section 308(b), 47 U.S.C. § 309(23 FE IF aR ne 34
Section 309(a), 47 U.S.C. §309(a) ...........5.. 34
Section 402(b), 47 U.S.C. §402(b) ......... 10, 13, 27
Pe: SRI s'si-cccxccceidbeunas cue woud soulle 2
REGULATIONS:
47 C.F.R. § 19.735-206 . sate e cence cece eeeeeseeeeeens 8
FCC Decisions:
Action Radio, Inc., 51 F.C.C.2d 803 (1975) .......... 22
Bay Broadcasters, Inc., 34 F.C.C.2d 138 (1972) ...... 21
Table of Authorities Continued Vv
Page
Belk Broadcasting Co. of Florida, 42 F.C.C.2d 844
EE fis Avtar e dmsih 6 ps aRaane dbed Ken he eeane 6 22
Blackstone Broadcasting Corp., 52 F.C.C.2d 1106
PRE oR kas dsc oWeseAeeeNS ee ikeas 18, 21, 22
Bluegrass Broadcasting Co., 43 F.C.C.2d 990 (1973) . 18, 22
Booth American Co., 58 F.C.C.2d 553 (1976) ........ 22
CBS, Inc., 69 F.C.C.2d 1082 (1978) ............. 20, 22, 24
Channel 13 of Las Vegas, Inc., 37 F.C.C.2d 518 (1972) . 18
Coaxial Communications, Inc., 61 F.C.C.2d 81 (*976) .. 22
Crosby N. Boyd, 57 F.C.C.2d 475 (1976) ............ 35
D. H. Overmyer Communications Co., 4 F.C.C.2d 496
ge Re, Ae erry ere 35
Donald W. Reynolds, 65 F.C.C.2d 451 (1977) ........ 26
Empire Broadcasting Corp., 63 F.C.C.2d 634 (1977) .. 19, 22
Grenco, Inc., 39 F.C.C.2d 732 (1973) ......... ccc eees 11
Hubbard Broadcastwmg, Inc., 41 P&F Radio Reg.2d
OW OT ipa dabendsvthts eeaKsaerses> 6, 19, 20, 22
Lamar Life Broadcasting Co., 26 F.C.C.2d 932 (Rev.
BE PE heen EAT k 5 eNO T AER EASES ORAS RES 35
L. B. Wilson, Inc., 37 F.C.C. 511 (1964) ............. 21
Lycoming County Broadcasting Co., 13 F.C.C. 127
EE eee orkeoe. ch) eelueeeeib ewe es 21
Melody Music, Inc., 2 F.C.C.2d 958 (1966) .......... 26
Microband Corp. of America, 44 P&F Radio Reg.2d
UE Ss Wi bccab dhs We) aw ha eed Sew aent 20, 21, 24
Network Clipping, 40 F.C.C.2d 136 (1973) ........... 5
Sea Island Broadcasting Corp., 44 P&F Radio Reg.2d
RO Cr ne ene enn Pea 12, 15
Star Stations of Indiana, Inc., 19 F.C.C.2d 991 (1969) . 22
Summa Corp., 38 F.C.C.2d 1160 (1973) .............. 18
vi Table of Authorities Continued
Page
TelePrompTer Cable Systems, Inc., 52 F.C.C.2d 1263
(1975), rev’d on other grounds, 178 U.S. App. D.C.
Oey Ge SN IED 6 sin vcd kc dccdestencucss 28
Tupelo Broadcasting Co., 67 F.C.C.2d 1356 (1978) .... 19
Ultravision Broadcasting Co., 11 F.C.C.2d 394 (Rev.
Bd. 1968), aff’d, WEBR v. FCC, 136 U.S. App.
ioe ee be OF) eee 21
WEAU, Inc., 50 F.C.C.2d 659 (1975) .............. 18, 22
Western Connecticut Broadcasting Co., 43 F.C.C.2d
I aia vied Sada anne di vaacewaunls Vines 12
MISCELLANEOUS:
ABA Code Of Judicial Conduct, Canon 3(A)(6) (1972) 28
Brennan, Working At Justice, in An Autobiography of
the Supreme Court (A. Westin ed. 1963) ........ 30
Cole and Oettinger, Reluctant Regulators: The FCC
and the Broadcast Audience (1978) ............. 31
K. Davis, Administrative Law of the Seventies (1976) 25
K. Davis, Discretionary Justice (1969) .............. 24
Davis, Revising the Administrative Procedure Act, 29
re Gh | Be ee 25
FCC Annual Reports, 1972-1976 .................00. 13
FCC Monitoring of Employees’ Telephone: Hearings
Before the Special Subcomm. on Investigations of
the House Comm. on Interstate and Foreign Com-
merce, 92nd Cong., 2d Sess. (1972) .............. 28
Frankfurter, Mr. Justice Roberts, 104 U. Pa. L. Rev.
Se RE andsy ts ENA 040 Cone deeb chide Woes kecaes 30
Rehnquist, Sunshine in the Third Branch, 16 Wash-
ee Bi Eye CANT oe hos oak SVS VRARVeaa ce ews 30
The Supreme Court Conference, address of Mr. Justice
Clark before the A.B.A. Section of Judicial Ad-
IN THE
Suprewe Court of the United States
OctToBER TERM, 1978
No.
WEstERN ComMuNnIcATIONS, Inc., Petitioner,
v.
&
FEpERAL CoMMUNICATIONS COMMISSION and
Las Vecas VALLEY Broapcastine@ Co., Respondents.
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE
DISTRICT OF COLUMBIA CIRCUIT
rd
Petitioner Western Communications, Inc. (“West-
ern’’), licensee of KORK-TV, Las Vegas, Nevada, re-
spectfully prays that the Court issue a writ of certio-
rari to review the judgment and opinion of the United
States Court of Appeals for the District of Columbia
Circuit entered in this ease on October 26, 1978.
OPINIONS BELOW
The opinion of the Court of Appeals, not yet re-
ported, is reprinted in the Appendix, pp. la-16a, infra. ©
It affirmed in part and reversed in part orders and
2
opinions of the Federal Communications Commission
(“FCC’’) reported at 59 F.C.C.2d 1441 (1976), recon.
denied, 61 F.C.C.2d 974 (1976), reprinted in the Ap-
pendix, pp. 17a-61la, infra. The Initial Decision of the
Administrative Law Judge (‘‘ALJ’’), reported at 59
F.C.C.2d 1463 (1974), is reprinted in the Appendix,
pp. 62a-142a, infra. Other relevant orders under review
are reprinted in the Appendix, pp. 143a-156a, infra.
JURISDICTION
The opinion and judgment of the Court of Appeals
was entered on October 26, 1978. Western’s timely
petition for rehearing and suggestion for rehearing en
banc was denied on December 29, 1978, Appendix, pp.
157a-158a, infra. The Court of Appeals stayed issuance
of its mandate until February 6, 1979, to permit filing of
this petition. The jurisdiction of this Court is invoked
under 28 U.S.C. § 1254(1).
QUESTIONS PRESENTED
1. Is mere ‘‘preponderance of the evidence,’’ rather
than ‘‘clear and convincing evidence,’’ the correct
standard of proof for adjudicating issues of fraud and
‘Iisrepresentation leading to imposition of the FCC’s
most severe sanction (termination of license) ?
2. Did the Court of Appeals conduct adequate judi-
cial review of claimed arbitrary and capricious agency
action when it upheld imposition of the FCC’s most
severe sanction on Western without requiring the FCC
to explain why it (a) imposed lesser sanctions on
others for comparable or worse conduct in prior and
subsequent eases, and (b) refused to consider or credit
Western’s defenses and other factors which had ex-
3
cused comparable or worse conduct, or had mitigated
sanctions, in other comparable cases ?
3. Were Western’s rights to a fair adjudicatory
hearing abridged by repeated FCC violations of its
rules barring premature disclosures or ‘‘leaks’’ of ten-
tative decisions and related ca parte conduct?
4. Was it appropriate for the Court of Appeals to
undertake de novo review concerning the application
of Las Vegas Valley Broadcasting Co. (“Valley’’),
substitute its judgment for the FCC’s, and overturn
long standing, consistently applied FCC policy regard-
ing minimum financial qualifications for new broad-
cast station applicants?
STATUTES AND RULES INVOLVED
Pertinent provisions of the Administrative Proce-
dure Act, the Communications Act of 1934, as amended,
and the Rules and Regulations of the Federal Com-
munications Commission appear in the Appendix, pp.
159a-165a, infra.
STATEMENT OF THE CASE
Western and its ultimate owner, Donald W. Reyn-
olds, have operated KORK-TV since 1955. In June,
1972, Western’s triennial license renewal application
for KORK-TV was ordered to an adjudicatory hear-
ing to review performance during the 1968-1971 license
term. During that term (and continuing to date)
KORK-TV was the Las Vegas affiliate of the NBC
Television Network. Two narrow qualifications issues
were specified for hearing: (1) had the NBC network
been fraudulently billed for network commercials that
KORK-TV did not broadeast; and (2) did Western
deliberately lie or withhold material information when
4
responding to four FCC letters inquiring whether
KORK-TV had broadeast extra local commercials so
as to ‘‘affect the content of network programs.”’
In September, 1972, Vallev’s mutually exclusive new
station application was consolidated for hearing with
Western’s renewal application. Numerous qualifica-
tions issues were specified concerning Valley’s appli-
cation. Evidence was taken on the comparative merits
of Western and Valley, but the issue of choosing be-
tween the two applicants was never reached. Both ap-
plications were denied entirely on basic qualifications
issues.
Western conceded that prior to mid-1971 KORK-TV
had broadcast more local commercials than could be
fitted precisely within the time NBC had allotted for
this purpose during network transmissions to the sta-
tion. KORK-TV deleted—.e., ‘‘clipped”—fractions of
the network transmission to fit in extra local commer-
cials. This practice was not intended or believed to
displace network commercials that were part of the
network transmission, or to affect adversely network
program content. Rather, KORK-TV’s policy was to
clip the so-called ‘‘clutter” portions of NBC’s trans-
mission—items such as opening titles, theme music,
promotional announcements, the network logo, and
credits. This did not affect KORK-TV’s compensation
from NBC, which was based on KORK-TV’s broad-
east of network commercials.
The standard form of NBC affiliation contract obli-
gated stations such as KORK-TV to broadcast the
entire network transmission without deletion. How-
ever, clipping of network “clutter’’? was a common
practice among affiliates of NBC (and other networks)
ee ee ae
5
in that era (1968-71). KORK-TV’s general managers,
and its then outside legal counsel specializing in FCC
matters, knew of the widespread industry pwactice ; they
believed that the networks were not concerned about
the practice despite the contract boilerplate; and they
did not believe it to be wrong under FCC rules or poli-
cies. KORK-TV stopped clipping any part of NBC
transmissions by mid-i971, although the practice con-
tinued in the industry through at least 1972. The con-
cept that ‘‘clutter’’ clipping itself was fraudulent bill-
ing was first announced by the FCC in 1973, long after
KORK-TV stopped the practice. Network Clipping,
40 F.C.C.2d 136 (1973).
KORK-TV conceded that, if network commercials
had been deleted while NBC was billed for them, the
FCC’s rule against misrepresenting the quantity of
advertising actually broadcast would have been vio-
lated. However, KORK-TV’s managers had no actual
knowledge that any NBC commercial was both clipped
and billed to NBC. No witness testified this ever hap-
pened. Rather, the fraudulent billing case against
Western rests on (a) second-by-second comparisons of
some KORK-TV and NBC program logs suggesting
that all or part of 21 NBC commercials may have been
clipped without this having been reported to NBC,
plus (b) the FCC’s assumption that station officials
‘*should have known” that clipping of NBC ‘‘clutter’”’
would ‘‘inevitably result’’ in clipping of NBC commer-
cials.' Even assuming complete reliability of log com-
*Numerous record facts negated the reliability of second-by-
second log comparisons to prove that all or part of specifie NBC
commercials were clipped by KORK-TV. Station logs are not re-
quired to show the precise time of local broadcast of the various
parts of the network transmission. They do show what lecal com-
6
parisons, the only bills to NBC in the record show
KORK-TV’s maximum potential overbilling of NBC
was less than $325, a sum Western refunded to NBC
in 1973.’
Western’s responses to the four FCC inquiries were
drafted by its former outside counsel, from whom no
relevant facts were withheld by Western’s officers.
Former counsel and the two KORK-TYV station man-
agers testified (a) that they did not believe that the
FCC’s inquiries asked generally about ‘‘clipping’”’ any
part of the NBC transmission, (b) that they believed
the FCC had asked only about clipping that affected
“program content,’’ and (c) that they saw no reason
to mention explicitly the station’s clutter-clipping prac-
mercials were broadcast and the approximate time of their broad-
cast as logged by the station engineer on duty. Network logs con-
tain a more detailed breakdown of the components of the network
transmission. The validity of comparisons between the two sets of
logs is affected by such factors as the synchronization and accuracy
of clocks and the accuracy of log entries made by different persons
in different cities under different working conditions. The ALJ
labeled log comparisons ‘‘less than perfect evidence’’; noted that
“accurate findings as to just what [part of the network transmis-
sion] was covered [by the extra local commercials] are difficult’’;
and concluded that because of these ‘‘uncertainties’’ only ‘‘gener-
alized findings’’ could be made. (App. 70a n.4, 85a n.10). In a
later case the FCC specifically found that clipping of clutter did
not inevitably result in clipping commercials. Hubbard Broad-
casting, Inc., 41 P&F Radio Reg.2d 979 (1977).
* Both the FCC and the Court of Appeals refer to a Western
refund to NBC of over $7000 made in 1975. (App. 5a, 21a n.7).
That figure comes from an exhibit specifically excluded from the
record. (App. 2la n.7). Reliance on such excluded evidence was
improper and underscores Western’s contentions concerning the
arbitrary and capricious disparate treatment it received under an
incorrectly low standard of proof.
7
tice which was designed, and believed in operation, not
to interfere with network commercials or ‘‘ program
content’’ as they understood that term.’
The ALJ and the FCC both conceded that ‘‘ program
content”’ is not a term generally defined or understood
in the industry. (App. 3la, 77a).* There was even dis-
agreement among the FCC, the ALJ and FCC hearing
counsel as to the precise scope of the FCC’s inquiries.
(App. 3la-32a, 77a & n.9; Court of Appeals Joint App.
1714-15). The Court of Appeals appears to have rec-
ognized the ambiguity. (App. 6a). However, no credit
was given to Western’s contention that its responses to
the FCC’s inquiries should be evaluated in light of the
ambiguities in, and different interpretations of, the
FCC’s inquiries, as well as in light of Western’s good
faith reliance on counsel to interpret the questions and
to advise on responses.
Of the several qualifications issues designated against
Valley, three stood out: (a) availability of an NBC
affiliation for Valley, given that there are more operat-
ing television stations than available networks in the
Las Vegas market; (b) availability of Valley’s pro-
posed $1,000,000 bank loan, which expired by its own
terms during the FCC proceedings; and (c) whether
Valley could finance access to its proposed mountain-
top transmitter site. The ALJ disqualified Valley for
failure to carry its burden under each of these issues.
’ Two station managers testified because of a change in man-
agers in May, 1971. The second manager eliminated all clipping
shortly after taking over.
*The ALJ refused to permit a witness to answer a question
phrased exactly like those in the FCC’s letters because the way
the question was asked ‘‘it becomes wholly subjective as to what
actually happened.’’ (Court of Appeals Joint App. 372).
8
Upon exceptions to the ALJ’s Initial Decision by
both applicants, the FCC also disqualified both of them.
As to Western, the FCC concluded (a) that its general
managers should have known that clipping network
clutter ‘‘inevitably’’ would interfere with network com-
mercials and program content; (b) that despite their
imprecision, log comparisons were reliable enough to
prove KORK-TV had clipped a second or more of
some network commercials for which NBC was billed;
(ec) that Western’s interpretation of the FCC’s ambig-
uous “program content’’ terminology was ‘‘overly nar-
row’’ and its responses were designed to conceal
KORK-TV’s practice of clipping some part of the net-
work transmission; and (d) that Reynolds had not
supervised the operation of his station closely enough
to avoid the misconduct found to have been perpetrated
without his knowledge. As to Valley, the FCC con-
cluded that Valley did have reasonable assurance of
an NBC affiliation, but still found Valley financially
unqualified under the bank loan and site access issues.
Petitions for reconsideration filed by Western and Val-,,
ley were denied by the F©C without any material °
change in its findings or reasoning.
During the period between oral argument before the
FCC en banc on the morning of March 9, 1976, and
publication of the FCC’s written decision some four
months later, there were significant events. The FCC
met immediately after the oral argument, supposedly
in secret, and directed preparation of a decision deny-
ing Western’s renewal application. However, due to
unauthorized disclosures or ‘‘leaks’’ by Commissioners
and/or staff personnel in violation of FCC rules, 47
C.F.R. § 19.735-206, the outcome of that meeting was
accurately reported (as it turned out) in the very next
9
editions of two separate trade journals, both dated
March 15, 1976. Over succeeding weeks other trade
press reports indicated further leaks and other in-
judicious conduct, including prohibited ex parte con-
tacts, involving the outcome of this case and/or the
complaints made by Western about the leaks.
Western promptly brought each trade press report
and related development to the FCC’s attention, claim-
ing prejudice and requesting appropriate action or re-
lief. Except for directing its staff to inquire into the
first round of leaks, the FCC did nothing in response to
Western’s requests. The notion that Western could
have been prejudiced was summarily rejected before
the investigation. (App. 145a).°
The staff inquiry into the first round of leaks later
established that at least one Commissioner, and assist-
ants to three other Commissioners, had impermissibly
discussed the secret FCC March 9 instructions for the
tentative decision in this case with trade press report-
® Even the FCC decision to have a staff investigation ‘‘leaked.’’
The trade press reported that decision on April 5, three days
before the April 8 release date printed on the first order made
available to the parties. The FCC denied any leak, claiming the
order had been released late on April 2, the date it was adopted.
Apparently this was in time for trade press reporters, but West-
ern’s counsel was unable to get a copy when he sought one at the
FCC on April 5 after reading the trade press accounts. To support
the timeliness of release, the FCC relied on ‘‘assurances’’ offered
it by an employee later forced to resign as chief FCC information
officer for making unauthorized disclosures of other FCC matters.
It later was revealed that the FCC’s general counsel had disclosed
the contents of the impending order to a trade press reporter on
April 1, the day before it was adopted. The certified list of docket
entries filed by the FCC in the Court of Appeals shows release of
the order in question on April 8, not on April 2.
10
ers. The one Commissioner implicated by the staff in-
quiry recused himself when the FCC’s final decision
was formally adopted. The FCC declined any hearings
on the questions of fact generated by the leaks or the
claimed ex parte conduct related thereto. The FCC’s
written decisions noted the leaks, labeled them ‘‘un-
fortunate”’’ but not prejudicial to Western, and warned
Western not to complain anymore.
Western and Valley each appealed the FCC’s deci-
sion to the United States Court of Appeals for the Dis-
trict of Columbia Circuit, pursuant to 47 U.S.C. § 402
(b). The appeals were consolidated for briefing, argu-
ment and decision.
The Court of Appeals affirmed denial of Western’s
renewal application, holding that: (a) substantial evi-
dence supported the FCC’s misrepresentation and
fraudulent billing findings; (b) the FCC ‘‘death pen-
alty’’ for Western was not arbitrary and capricious
despite more lenient FCC sanctions in other cases in-
volving comparable conduct; and (c) leaks, while ‘‘un-
fortunate,” did not infringe Western’s due process
rights. With Chief Judge Wright dissenting, the Court
of Appeals reversed the FCC’s disqualification of
Valley under the bank loan issue, finding that there was
reasonable assurance of availability. Valley’s applica-
tion was remanded for further review of its ‘‘overall
financial qualifications.’’ The Court did not decide Val-
ley’s site access issue, but did affirm the FCC’s decision
in favor of Valley on the network affiliation issue.
Lone et an lala ee
11
REASONS FOR GRANTING THE WRI
1. This Court Should (A) Settle The Important Federal Question
Of The Standard Of Proof Applicable To FCC Proceedings
That Terminate Broadcast Licenses For Alleged Misconduct,
And (B) Eliminate Evideat Conflict At The Court Of Appeals
Level Between The Standard Of Proof Governing Such FCC
Cases And Comparable Proceedings Before The SEC And
Other Federal Agencies.
The Court of Appeals, like the FCC, never addressed
Western’s argument that administrative and judicial
precedent demand that termination of its license for
fraud and misrepresentation be based upon evidence
with a higher degree of certainty, e.g., Grenco, Inc., 39
F.C.C.2d 732 (1973), than required in cases that in-
volve less serious issues and less drastic sanctions than
the administrative equivalent of the death penalty.
The Court of Appeals was specifically asked to require
the FCC to utilize the ‘‘elear and convincing”’ stand-
ard, rather than the mere ‘‘preponderance”’ standard,
just as that Court had recently directed the SEC to
utilize in Collins Securities Corp. v. SEC, 183 U.S.
App. D.C. 301, 562 F.2d 820 (1977), and Nassar and
Co. v. SEC, 185 U.S. App. D.C. 125, 566 F.2d 790
(1977).
Between oral argument and decision in the Court
of Appeals, Western also invited to the attention of
its panel another pending FCC fraudulent billing 1i-
cense termination case in which a different panel of the
court had ordered a remand for the FCC’s views as
to the public interest implications of requiring ‘‘clear
and convincing” evidence in such cases. Sea Island
Broadcasting Corp. v. FCC, No. 76-1735 (D.C. Cir.,
filed Aug. 12, 1976). Western’s appeal was decided
without awaiting the FCO’s report pursuant to the
Sea Island remand.
12
The oversight of the Court of Appeals in not ad-
dressing this important issue of federal law in West-
ern’s case, and in not coordinating the panel decision
in Western’s appeal with the panel decision in Sea
Island, was invited to the court’s attention at the re-
hearing stage without avail. The FCC subsequently
advised the Court of Appeals in Sea Island that ‘‘clear
and convineing’’ should not be the standard required.
Sea Island Broadcasting Corp., 44 P&F Radio Reg.2d
1265 (1978).°
The Communications Act of 1934, as amended, 47
U.S.C. § 151 et seq., neither prescribes nor suggests the
standard of proof applicable to license renewal or revo-
cation proceedings. The standard of proof an agency
must follow “is the kind of question which has tradi-
tionally been left to the judiciary to resolve... .’’
Woodby v. Immigration and Naturalization Service,
385 U.S. 276, 284 (1966). Neither this Court nor the
Court of Appeals for the District of Columbia Circuit
has ever explicitly ruled on this question in an FCC
renewal or revocation case. As the instant case is not
* Sea Island remains pending in the Court of Appeals. If Sea
Island ultimately requires ‘‘clear and convincing’’ as the standard,
certiorari should be granted here and this case remanded for fur-
ther proceedings in light of Sea Island. The continuing pendency
of Sea Island before the Court of Appeals, and the possibility of
a different outcome on the fundamental legal issue of standard of
proof in a broadcast license termination case, provide strong rea-
son for this Court to defer action on this petition until Sea Island
is finally decided. To distinguish revocation of license in Sea Island
from denial of Western’s renewal here would exalt form over sub-
stance. In either case (a) the broadcaster suffers the ‘‘supreme
penalty,’’ and (b) once in litigation the license normally con-
tinues well beyond the nominal three-year term. Z.g., Western
Connecticut Broadcasting Co., 43 F.C.C.2d 730, 731 n.2 (1973).
See 47 U.S.C. § 307(d).
i a Te OD tie °c
s¢
ee eee
13
the first, and will not be the last, to fall in that cate-
gory, the legal question has broad impact.’
Together, Collins and Nassar, supra, stand for the
proposition that SEC termination of federal authority
to operate as a securities broker-dealer must be sup-
ported by clear and convincing evidence, particularly
where there is (a) reliance on circumstantial evidence
to prove fraud, and (b) imposition of a drastic sanc-
tion tantamount to deprivation of livelihood. That evi-
dently fair, sensible and practical proposition is no
less applicable to FCC termination of authority to op-
erate a broadcast station for unfitness.
There is nothing novel about exceptions to the gen-
eral rule that preponderance of the evidence is usually
the appropriate standard of proof in noncriminal pro-
ceedings, including proceedings before federal agencies.
This Court has often required a stricter standard of
proof in civil proceedings involving severe sanctions.
E.g., Woodby v. Immigration and Naturalization Ser-
vice, supra; Schneiderman v. United States, 320 U.S.
118 (1943); Gonzales v. Landon, 350 U.S. 920 (1955)
(per curiam) ; In re Winship, 397 U.S. 358 (1970).
Grant of certiorari to decide whether the FCC
should be required to use the clear and convincing
standard in cases such as this is justified on multiple
grounds.
7 Over the past five years the FCC has designated for hearing a
total of 95 renewal and revocation adjudicatory cases. FCC An-
nual Reports, 1972-1976. In addition to Sea Island, supra, there
are at least seven other such cases currently before the United
States Court of Appeals for the District of Columbia Circuit,
which has exclusive jurisdiction over such appeals, 47 U.S.C.
§ 402(b).
14
First, Western’s conduct has been labeled ‘‘fraudu-
lent.’’ This Court noted in Woodby that the ‘‘clear,
unequivocal and convincing’’ standard ‘‘has tradi-
tionally been imposed in cases involving allegations
of civil fraud.’’ 385 U.S. at 285 n.18. The District
of Columbia Circuit in Collins observed that ‘‘clear
and convincing” has been the standard in “literally
hundreds” of fraud cases decided by United States
courts of appeals. 183 U.S. App. D.C. at 305, 562 F.2d
at 824. The necessity for ‘‘clear and convineing”’ is
especially great in cases such as Collins and the instant
one, where allegations of fraud rest solely on circum-
stantial evidence."
Second, the sanction of termination of broadcast
license, while perhaps not perceived to be as extreme
as deportation, denaturalization or involuntary con-
finement, is nonetheless very severe. There is huge
financial impact on the displaced licensee (Western).
Even more important in the context of due process,
there is very severe impact (stigma plus impairment
of future employment) on the individuals who must
bear the brunt of the sanction (Reynolds and the two
station managers). There is also considerable adverse
impact on the public from the loss of a meritorious and
popular television service.’ To the licensee forfeiting a
8 In Western’s case there was no direct evidence of either fraudu-
lent billing or misrepresentation/lack of candor; there were only
inferences drawn from log comparisons (that are subject to im-
precision for various undisputed reasons), and from responses to
ambiguous FCC questions whose meaning had been interpreted for
Western by its counsel.
*It cannot be assumed that a new licensee promptly would re-
place Western or would be likely to provide as effective a service
to the public as Western has in fact provided. During the license
PO. ne het ee Oe
15
multi-million dollar investment (without the owner’s
complicity in or knowledge of any alleged wrongdoing),
and to station managers who may well be barred from
further meaningful pursuit of their profession, the
sanction is nothing short of punitive. See Collins,
183 U.S. App. D.C. at 306, 562 F.2d at 825." Moreover,
while a broadcast license does not create any property
rights in the traditional sense, 47 U.S.C. § 301, it does
earry ‘‘legitimate renewal expectancies.’’ E.g., FCC
v. National Citizens Committee for Broadcasting, 436
U.S. 775, 805-06 (1978); Greater Boston Television
Corp. v. FCC, 143 U.S. App. D.C. 383, 396, 444 F.2d
841, 854 (1970), cert. denied, 403 U.S. 923 (1971).
Given the nature and magnitude of the licensee’s in-
terest in the station, these expectancies deserve careful
consideration, sufficient proof, and due process.”
period examined in the hearing, KORK-TV provided exemplary
service to the public and was the most popular station in Las
Vegas. (App. 104a-127a).
1° That ‘‘loss of a broadcast license would not preclude . . . ob-
taining @ job in the broadcast industry .. .’’ Sea Island Broad-
casting Corp., supra, 44 P&F Radio Reg.2d at 1268 (emphasis
added), does not answer the vital question as to what kind of job
or indicate whether it could be comparable to one’s former job.
In Collins, the individual was not barred from ‘‘the securities in-
dustry’’; nor does ‘‘the broadcast industry’’ necessarily mean the
same as ‘‘broadcast station.’’ That a person may be able to hold
a lesser position in the same industry, or go into some entirely
new line of work, or some different and new part of the same
industry, does not lessen the ‘‘deprivation of livelihood.’’ See, e.g.,
Arthur Lipper Corp. v. SEC, 547 F.2d 171, 184 n.12 (2d Cir.
1976), rehearing denied, 551 F.2d 915 (1977), cert. denied, 434
U.S. 1009 (1978).
™ Tt is no answer to say that denial of license renewal is not a
penalty. See FCC v. WOKO, Ince., 329 U.S. 223, 228 (1946). The
nature of the interests at stake, not the label-of-convenience ap-
16
Third, termination of license for misrepresentation
and fraudulent billing will inevitably stigmatize Reyn-
olds and the station managers. The ‘‘basic concept of
the essential dignity and worth of every human being”’
is reflected in the value we place on a person’s good
name and reputation. Rosenblatt v. Baer, 383 U.S. 75,
92 (1966) (Stewart, J., concurring). Labeling a person
with adverse ‘‘character” findings and limiting his
future employment opportunities clearly implicate
liberty interests protected by due process. E.g., Rosen-
blatt; Hampton v. Mow Sun Wong, 426 U.S. 88,
115-16 (1976). Likelihood of stigma was a key factor
leading this Court to impose the “beyond a reasonable
doubt standard” in juvenile delinquency proceedings.
In re Winship, 397 U.S. at 367. Stigma from the FCC’s
decision here, although not resulting from involun-
tary confinement, warrants at least a higher standard
of proof than the mere preponderance of the evidence
used in a breach of contract case.
plied to a proceeding, determine what process is due. In re Win-
ship, 397 U.S. at 365-66; In re Gault, 387 U.S. 1 (1967). Disbar-
ment, like denial of renewal, is ‘‘designed to protect the public,’’
but it is nevertheless ‘‘a punishment or penalty imposed on the
lawyer [broadcaster].’’ In re Ruffalo, 390 U.S. 544, 550 (1968).
This case clearly meets the three-pronged due process test of
Mathews v. Eldridge, 424 U.S. 319, 335 (1976): the private in-
terests of Reynolds and the station managers are substantial and
deserving of every reasonable procedural protection ; ‘‘the risk of
erroneous deprivation’’ of these interests and ‘‘the probable value
. . of additional or substitute procedural safeguards’’ are demon-
strated by the marginal circumstantial evidence relied on by the
FCC; and ‘‘the Government’s interest, including the function in-
vo.ved and fiscal and administrative burdens’’ should not be ad-
versely affected by applying the clear and convincing standard.
See In re Winship, 397 U.S. at 366-67.
<6 Dy et Le Cts cars 2
17
Fourth, grant of a writ of certiorari would permit
reconciliation of apparent conflict between the ap-
proach of the District of Columbia Circuit in SEC
eases like Collins and Nassar, on the one hand,
and in FCC eases like Western’s, on the other hand.
This would serve the beneficial public purpose of pro-
moting evenhanded administration of the government
licensing function, which has grown to involve many
agencies concerned with many different functions.
There is no sound reason to apply different standards
of proof when different agencies decide whether to
terminate different types of licenses under similar
circumstances with similar consequences. The Court
of Appeals’ failure to address this issue in a meaning-
ful way and the importance of its resolution, both in
FCC eases and in other agency proceedings, warrant
grant of the writ of certiorari.
2. This Court Should Settle The Important Federal Question Of
The Duty Of Courts Of Appeals To Require Administrative
Agencies To Provide Rational Explanations For Disparate Re-
sults Reached And Sanctions Imposed In Comparable Cases,
And To Eliminate Conflict On This Question Between The
Second Circuit And The District of Columbia Circuit.
The Court of Appeals failed to apply the fundamen-
tal principle of Melody Music, Inc. v. FCC, 120 U.S.
App. D.C. 241, 345 F.2d 730 (1965), that agency failure
adequately to explain disparate treatment of similarly
situated licensees is reversible error.” Despite West-
ern’s heavy reliance on the Melody Music doctrine,
the Court of Appeals failed to cite the case or to dis-
12 There are many progeny of Melody Music. E.g., Public Media
Center v. FCC, No. 76-1648 (D.C. Cir. Oct. 24, 1978), and numer-
ous cases cited therein.
18
cuss the doctrine, even when this oversight was invited
to its attention at the rehearing stage.
Western received unexplained, radically disparate
treatment in two main respects: (a) it received a much
more severe sanction than that meted out to others in
both prior and subsequent cases involving comparable
or more egregious conduct; and (b) it was denied the
benefit of defenses and mitigating factors that in other
eases were held sufficient either to excuse comparable
eonduet or to warrant lesser sanctions.
Sanctions. Denial of Western’s renewal application
was the most severe sanction the FCC could impose—
it is the administrative equivalent of the gas chamber.
Yet, while Western’s renewal application was being
processed and litigated before the FCC, the FCC im-
posed the much milder sanctions of small fines ($10,000
or less) and/or short term, probationary license re-
newals for: (a) contemporaneous clipping of network
advertising by another Las Vegas station (Channel 13
of Las Vegas, Inc., 37 F.C.C.2d 518 (1972) ); (b) con-
temporaneous willful issuance of false bills to non-
network advertisers by yet another Las Vegas station
(Summa Corp., 38 F.C.C.2d 1160 (1973)); (¢) subse-
quent and far more egregious clipping of network ad-
vertising by another NBC affiliate (WEAU, Inc., 50
F.C.C.2d 659 (1975)); and (d) fraudulent billing in
other cases set for hearing subsequent to KORK-TV
(Blackstone Broadcasting Corp., 52 F.C.C.2d 1106
(1975); Bluegrass Broadcasting Co., 43 F.C.C.2d 990
(1973) ).*°
13 A ‘‘short-term renewal’’ provides the FCC an opportunity to
review the licensee’s interim performance without waiting the
usual three-year term. Absent interim misconduct, a short term
renewal is invariably followed by a renewal for the balance of the
normal full license term.
ites =. kSuw
19
The ultimate sanction of nonrenewal for Western
cannot be rationally explained, as the Court of Appeals
suggested, by any notion of a ‘‘get tough”’ policy to
improve licensee compliance. (App. 7a-8a). Fox, after
the FCC decided Western’s case, it returned to its pat-
tern of imposing far milder sanctions for fraudulent
billing. See Empire Broadcasting Corp., 63 F.C.C.2d
634 (1977), and Tupelo Broadcasting Co., 67 F.C.C.2d
1358 (1978), where there were larger amounts of over-
billing, licensee failure to exercise adequate supervi-
sion or to take remedial action, and specific knowledge
(not assumed ‘‘constructive” knowledge) of over-bill-
ing by station management.
As all of these other cases involved broadcast sta-
tions, the Court of Appeals made a serious mistake
when it sought to dispose of Western’s argument about
analogous cases on the ground that it ‘‘reflects a mis-
apprehension of the nature of a broadcast license.”’
(App. 7a-8a). Moreover, when the FCC imposed a sanc-
tion on Western, there was no need to ‘‘get tough” to
improve KORK-TV’s compliance. All clipping at
KORK-TV had been stopped about a year before hear-
ing was ordered; throughout the four years of hear-
ings there was no suggestion of repeated or different
misconduct. Meaningful judicial review would insist on
agency explanation why a lesser sanction than the
regulatory death penalty would be ineffective to ensure
future compliance by Western. See Burlington Truck
Lines v. United States, 371 U.S. 156, 168-169 (1962)."
4 The Court of Appeals termed ‘‘groundless’’ Western’s claim
that ‘‘denial of renewal was unjust because the licensee had no
notice [prior to mid-1971] that clipping [of other than advertis-
ing matter} would constitute fraudulent billing, or that it could
result in nonrenewal.’’ (App. 7a). Yet in Hubbard Broadcasting,
Fa cy
r 20
-
Although the Court of Appeals correctly noted that
denial of renewal is not a novel sanction for proven
misrepresentation (App. 8a), it overlooked that such
a sanction has not been universally imposed. Thus,
there is lacking the reasoned decisionmaking required
to explain why Western was treated very harshly for
debatable misrepresentation while others were treated
much more leniently for unquestioned deliberate lying.
In CBS, Inc., 69 F.C.C.2d 1082 (1978), a big and
powerful network received the mere wrist slap of a
short-term renewal for one of its stations even though
top network officers had repeatedly lied to the FCC
about programs that had deceived the public across the
Nation and had violated both the Communications Act
and FCC rules.”* Microband Corp. of America, 44 P&F
Radio Reg.2d 1490 (1978), excused repeated false
statements to the FCC and took into account
“the fact that Lipper [a Microband principal]
acted on the advice of counsel and that the practice
which constituted fraud was endemic in the finan-
cial community and had not been judicially deter-
mined to be illegal when Lipper’s . . . actions oc-
curred.’’ 44 P&F Radio Reg.2d at 1494 n.5.
The FCC also considered in Microband, but refused to
consider here, the absence of any recurrent misconduct
supra, only the much more lenient sanction of a short term re-
newal was imposed on a licensee who had clipped network ‘‘clut-
ter’’ and ‘‘program content’’ as late as April, 1973, some two
years after KORK-TV had stopped any clipping, because ‘‘at the
time the irregularities occurred, there was no clear Commission
policy prohibiting the particular style of clipping.’’ 41 P&F Radio
Reg.2d at 986 (emphasis added).
* “CBS apparently lacks adequate controls to insure that high
level officers responsible for network operations do not misrepresent
facts to the Commission.’’ 69 F.C.C.2d at 1091.
21
and the licensee’s role as a ‘‘positive force in the devel-
opment”’ of telecommunications.
Defenses and mitigating factors. The Court of Ap-
peals failed to require the FCC to explain rationally
why it had ignored or rejected Western’s many de-
fenses and claims in mitigation when identical defenses
and claims had been held decisionally significant in
other cases. The Court of Appeals, without a word of
explanation, acquiesced in FCC refusal to consider or
to credit:
(a) Western’s reliance on expert former counsel to
negate any inference of the bad faith, or intent to mis-
lead or hold back information, necessary to sustain a
misrepresentation/lack of candor finding; *
(b) the absence of sctenter, which should have pre-
cluded any fraudulent billing finding because the FCC’s
rule requires ‘‘the knowing issuance of false informa-
tion concerning amounts actually charged for adver-
tising,’’ Blackstone Broadcasting, 52 F.C.C.2d at 1108
(emphasis in original) ; *’
‘® Compare FCC precedent: Ultravision Broadcasting Co., 11
F.C.C.2d 394, 406-07 (Rev. Bd. 1968), aff'd, WEBR v. FCC, 136
U.S. App. D.C. 316, 325-26, 420 F.2d 158, 167-68 (1969) ; Lycom-
ing County Broadcasting Co., 13 F.C.C. 127, 136-38 (1948) ; see
also Microband Corp. of America, supra; L. B. Wilson, Ine., 37
F.C.C. 511, 597 (1964); Bay Broadcasters, Inc., 34 F.C.C.2d
138 (1972). Compare judicial precedent: Williamson v. United
States, 207 U.S. 425, 453 (1908) (fraudulent concealment in bank-
ruptey); United States v. Phillips, 217 F.2d 435, 442 (7th Cir.
1954) (tax evasion) ; Haywood Lumber & Mining Co. v. Commis-
sioner, 178 F.2d 769, 771 (2d Cir. 1950) (failure to file tax
returns).
‘' There is no reason KORK-TV’s general managers should have
known that network reports were false as to advertising, even
though they knew that clutter was being clipped. The station’s
policies and practices were to avoid commercial clipping, but if it
20
(ec) restitution, which has been accepted as a mitigat-
ing factor demonstrating contrition, good faith and
willingness and ability to try to do better; “ and
(d) other corrective and preventive action taken by
Western—eliminating questionable practices, institut-
ing new billing safeguards, and employing a special
supervisor to ensure FCC rule compliance.”
While the FCC may not be bound ‘‘to deal with all
cases at all times as it has dealt with some that seem
comparable,’’ FCC v. WOKO, Inc., 329 U.S. 223, 228
(1946), requirements of reasoned decisionmaking at
least dictated that the Court of Appeals insist that the
>?
did occur, to prepare ‘‘discrepancy reports’’ as a check against
overbilling. Moreover, undisputed evidence showed that operators
could clip clutter without interfering with NBC commercials, and
the FCC itself has held that extensive clutter clipping need not
necessarily interfere with network advertising or program content.
Hubbard Broadcasting, supra.
“Compare Empire Broadcasting, supra; Booth American Co.,
58 F.C.C.2d 553, 554-55 (1976) ; Coaxial Communications, Inc., 61
F.C.C.2d 81, 94-95 (1976); Bluegrass Broadcasting, supra; Star
Stations of Indiana, Inec., 19 F.C.C.2d 991, 993 (1969). The FCC
said Western was dilatory in making its restitution showing (App.
21a n.7), but Western acted much earlier than the renewal appli-
eant in Star Stations. Also Western’s restitution of $325 (for all
overbilling that might be inferred from evidence in the record)
was made before the hearing sessions even began. (App. 73a).
‘* Compare CBS, supra; Empire Broadcasting, supra; Black-
stone Broadcasting, supra; WEAU, Inc., supra; Action Radio,
Inc., 51 F.C.C.2d 803 (1975) ; Booth American, supra; Belk Broad-
easting Co. of Florida, 42 F.C.C.2d 844, 849 (1973). See also Con-
tinental Broadcasting, Inc. y. FCC, 142 U.S. App. D.C. 70, 73-74,
439 F.2d 580, 583-84, cert. denied, 403 U.S. 905 (1971), noting the
FCC’s careful consideration of a renewal applicant's corrective
action—a consideration never given Western here.
RE Ble eS
23
FCC articulate rational reasons for its grossly dispar-
ate treatment of Western in terms of available de-
fenses, mitigating factors, and sanction. Melody Music
was decided after WOKO and distinguished it. If the
Court of Appeals intended to overrule or repudiate the
well established and frequently followed Melody Music
doctrine in Western’s appeal, at least it had the duty to
face the issue squarely and to articulate rational rea-
sons for doing so.
This Court should not acquiesce in any doctrine, such
as that implicitly sanctioned by the Court of Appeals
below, that would permit the FCC (and other agen-
cies) unbridled discretion in dealing with its licensees
and in fashioning remedies for their conduct. If the
decision of the Court of Appeals stands, the FCC (and
other agencies) will be effectively exempt from any
meaningful requirement of rational consistency in de-
fining (a) sanctionable offenses, (b) acceptable de-
fenses and mitigating factors, and (c) fair, just and
appropriate sanctions.
The apparent new ‘‘standard of no standard”’ fash-
ioned for Western’s case by the FCC, and approved by
the Court of Appeals, is mischievous. Under it, ap-
plicants in renewal or revocation hearings seeking to
establish their basic qualifications could be held to
different standards of conduct, allowed different de-
fenses, and subjected to different treatment or degrees
of punishment for reasons no more cogent than when
their case comes up, who they may be, where they may
be located, what they may own, or what they may be-
lieve and say. Particularly when broadcast licensees
are involved, who provide ‘‘a principal source of in-
formation and entertainment for a great part of the
Nation’s population,’ United States v. Southwestern
24
Cable Co., 392 U.S. 157, 177 (1968), the potential for
mischief is too enormous to go unreviewed by this
Court.
Two of the three grounds given by the Court of Ap-
peals for not requiring rational FCC explanations for
the disparity of sanction beg the issue.” First, the fact
that Western has no ‘‘property interest’’ in its license,
plus the fact that renewal depends on proof ‘‘that past
service has been in the public interest and that future
service will likely be superior to that offered by com-
peting applicants’’ (App. 8a), does not extinguish the
requirement of reasoned decisionmaking.” This refer-
ence by the Court of Appeals is baffling, for the FCC
refused to credit Reynolds’ 25-year unblemished record
as a licensee or KORK-TV’s exemplary public service,
even though such is said to be the ‘‘best evidence”’ of
a renewal applicant’s future performance. E.g., Cen-
tral Florida Enterprises, Inc. v. FCC, No. 76-1742,
slip op. at 31 (D.C. Cir. Sept. 25, 1978). Second, that
misrepresentation ‘‘is a valid basis for non-renewal’’
(App. 8a) is no substitute for judicial insistence
that the FCC explain why nonrenewal was necessary
and appropriate here, but not in CBS and Microband,
for example.
70 Western cannot explain to this Court why the Court of Ap-
peals would give such short shrift to this issue below after re-
peatedly requiring agency explanations for departure from prece-
dent and for disparate sanctions in other cases. See, e.g., Melody
Music, Inc. v. FCC, supra; Columbia Broadcasting, Inc. v. FCC,
147 U.S. App. D.C. 175, 454 F.2d 1018 (1971) ; Nassar and Co. v.
SEC, 185 U.S. App. D.C. 125, 566 F.2d 790 (1977) ; and Garrett
v. FCC, 168 U.S. App. D.C. 266, 513 F.2d 1056 (1975).
21 Even discretion involving privileges and gratuities should not
be uncontrolled. K. Davis, Discretionary Justice 172-80 (1969).
la ta acme ial ae
25
The Court of Appeals’ third ground—that ‘‘courts
ordinarily accord the Commission particular discretion
in fashioning remedies to maximize compliance with
Commission policy’? (App. 8a)—raises fundamental
questions about the proper role of judicial review, par-
ticularly in the face of greatly disparate agency sanc-
tions. The Administrative Procedure Act, 5 U.S.C.
§ 557(¢) (3) (A), requires agency ‘‘reasons’’ for action
in adjudicatory cases. This Court has held that an
agency has a ‘‘duty to explain its departure from prior
norms.’’ Atchison, T. & S.F.R. Co. v. Wichita Board of
Trade, 412 U.S. 800, 808 (1973) (plurality opinion). It
seems to be seriously in error for FCC v. WOKO, su-
pra, and Butz v. Glover Livestock Commission, 411
U.S. 182 (1973), which did uphold agency discretion in
choosing sanctions, to be interpreted to mean, as the
Court of Appeals has implicitly held here, that agency
discretion in the selection of sanction is free of any re-
quirement of ‘‘reasons’’ and explanations for dispar-
ate treatment, no matter how gross the disparity.
Professor Davis has put it well: a choice must be
made between “the arbitrariness of uncontrolled and
unguided discretion, and discretion that is structured
and guided by a system of precedents and checked by a
system of judicial review.’’** Unexplained and incom-
22K. Davis, Administrative Law of the Seventies, § 16.00-6 at
395 (1976). Professor Davis has been most outspoken on the need
for agency explanations for disparate sanctions and in his criti-
cism of Butz v. Glover Livestock Commission, even though that
ease did not fall under the ‘‘reasons’’ requirement of 5 U.S.C.
§ 557(¢)(3)(A) and even though the Court never reached the
question of the need for agency reasons to justify disparate treat-
ment. See, e.g., Administrative Law of the Seventies, §§ 16.00,
16.00-6 & 17.07-4; Davis, Revising the Administrative Procedure
Act, 29 Admin. L. Rev. 35, 50-52 (1977). Butz also involved only
a 20-day suspension.
26
pletely or superficially reviewed agency discretion in-
vites abuse. If the FCC (or any agency) is not re-
quired to give reasons for grossly disparate sanctionsy
the door will be open to sub silentio punishment of
broadcasters (or other federal license holders) ‘‘upon
the basis of their political, economic or social views, or
upon any other capricious basis’’ wholly beyond the
agency’s authority. National Broadcasting Co. V.
United States, 319 U.S. 190, 226 (1943).*
Nonrenewal for Western strongly suggests agency
eaprice. The typical justification for nonrenewal on
so-called ‘‘character’’ grounds is that the licensee no
longer merits a public trusteeship.* That justification
was preempted here when the FCC expressly refused
to impute alleged misrepresentation or fraud at
KORK-TV to Reynolds, the ultimate licensee, as he
did not participate in, or have knowledge of, any al-
leged misconduct at KORK-TV. Donald W. Reynolds,
65 F.C.C.2d 451 (1977). After having stripped Reyn-
olds of KORK-TV, the FCC turned right around and
demonstrated complete trust in his capacity as licensee
and public trustee by authorizing renewal of all his
23 **Reasoned decision promotes results in the public interest by
requiring the agency to focus on the values served by its decision,
and hence releasing the clutch of unconscious preference and ire
relevant prejudice.’’ Greater Boston Television Corp. v. FCC, 143
U.S. App. D.C. 383, 394, 444 F.2d 841, 852 (1970), cert. denied,
403 U.S. 923 (1971) (footnote omitted).
* E.g., FCC v. WOKO, supra, 329 U.S. at 228-29; Hall v. FCC,
99 U.S. App. D.C. 86, 96, 237 F.2d 567, 577 (1956); Melody
Music, Inc., 2 F.C.C.2d 958, 960 (1966).
ee
27
other licenses! There can be no rational implication
that Reynolds is unreliable or unfit.”
Apart from the overall public importance of the
issue of judicial review of grossly disparate agency
sanctions, there is an apparent conflict on this issue
between the District of Columbia Circuit and the Sec-
ond Cireuit. Arthur Lipper Corp. v. SEC, 547 F.2d 171
(2d Cir. 1976), rehearing dented, 551 F.2d 915 (1977),
cert. dented, 434 U.S. 1009 (1978), held that agency
sanctions are ‘‘reviewable as to severity.” * It there-
upon reduced an equivalent denial of authority to con-
tinue to do business in a regulated industry (revoca-
tion of a broker-dealer registration) on-~several
grounds, all of which are present here: widespread
prevalence of the challenged conduct in the industry ;
reliance on counsel; pendency of the proceeding for a
long time; the cloud over petitioners’ heads; and the
‘*tremendous disparity’’ in sanctions imposed in other
comparable cases. 547 F.2d at 183-85. Resolution of
this conflict on an important legal principle is necessary
to promote consistency of government regulation of
those holding federal authorizations to engage in vari-
ous endeavors.
2° The FCC’s theory that Reynolds should lose his KOKK-TV
license for failure to exercise adequate control and supervision
(App. 32a-34a) likewise cannot be squared with renewal of his
other licenses. He exercised precisely the same ‘‘control and super-
vision’’ at all his stations. Moreover, his unblemished 25-year record
as a broadcaster and his record of public service at KORK-TV were
more indicative of the adequacy of his ‘‘control and supervision’’
of KORK-TV than the isolated aberration that lead to this case.
*° A conflict between circuits in FCC licensing cases is not pos-
sible because 47 U.S.C. § 402(b) vests exclusive jurisdiction over
such cases in the District of Columbia Circuit.
28
3. This Court Should Settle The Important Federal Question.
Which It Has Not Heretofore Decided, Whether There Is
Violation Of An Applicant's Right To A Fair Adjudicatory
Agency Hearing When There Is Premature Disclosure Of
Tentative Agency Decisions And Related Ex Parte Conduct
In Violation Of Specific Agency Rules: The Proceedings
Below So Far Departed From The Accepted And Usual
Course As To Call For Exercise Of This Court's Power Of
Oversight.
The Court of Appeals, like the FCC, found the leak
episodes ‘‘unfortunate,’’ but did not perceive any
prejudice to Western or denial of its rights. (App. 6a).
This Court has a special role in assuring the integrity
of the overall administrative/judicial process and the
fair conduct of all adjudications (both in fact and
appearance) consistent with pertinent rules. There-
fore, the Court should resolve the leak question to
guide all involved in federal agency adjudications. The
prevalence of FCC leaks, and the prospects for leaks
at other agencies, makes this a matter of broad legal
importance in the administration of justice.
Leaks violate basie ethics of the decisionmaking
process. See, e.g., ABA Code of Judicial Conduct,
Canon 3(A)(6) (1972). The FCC long has had a leak
problem.” It has conceded that leaks in restricted ad-
judicatory proceedings are inconsistent with proper
judicial conduct and decorum. TelePrompTer Cable
Systems, Inc., 52 F.C.C.2d 1263, 1272-73 (1975), rev’d
on other grounds, 178 U.S. App. D.C. 66, 543 F.2d 1379
(1976). So far the FCC has done little about the prob-
27See FCC Monitoring of Employees’ Telephones: Hearings
Before the Special Subeomm. on Investigations of the House Comm.
on Interstate and Foreign Commerce, 92nd Cong., 2d Sess. 40
(1972).
te
ee Pane et eee
29
lem. Under the rulings below, parties to administrative
proceedings tainted by this kind of misconduct are left
without recourse unless they can do the impossible—
prove that there would have been a different result
but for the agency’s misconduct.
A party to an agency adjudicatory proceeding has
an identifiable interest in the integrity of the delibera-
tive process and its untainted conduct in accordance
with published rules. This interest is entitled to pro-
tection against actions that disrupt orderly processes,
risk inhibiting the exchange of views, invite improper
influences to be brought to bear on the decisionmaking
process (such as reporters harassing FCC Commis-
sioners and their assistants to find out how and why
they voted), and violate fundamental precepts of ju-
dicial conduct.
This Court is well aware of the need for secrecy
of deliberations. Mr. Justice Clark’s observations
about the Court’s Friday conferences are no less ap-
plicable to FCC post-oral argument meetings to dis-
cuss tentative decisions:
‘‘The Court must carry on these Friday confer-
ences in absolute secrecy, otherwise its judgments
might become prematurely known and the whole
process of decision destroyed. We therefore guard
its secrets closely. There must be no leak.’’*
As Mr. Justice Rehnquist has put it, a closed confer-
ence
‘“*. . . permits a remarkably candid exchange of
views among the members of the Conference. This
7° The Supreme Court Conference, address of Mr. Justice Clark
before the A.B.A. Section of Judicial Administration, August 27,
1956, reprinted in 19 F.R.D. 303, 305 (1956) (emphasis added).
30
candor undoubtedly advances the purposes of the
Conference in resolving the cases before it. No
one feels at all inhibited by the possibility that
any of his remarks will be quoted outside of the
Conference Room, or that any of his half formed
or ill conceived ideas, which all of us have at
times, will be later held up to public ridicule.
* * *
“We all occasionally change our tentative vote at
the Conference ... Should the public, or any in-
vested segment thereof, know the tentative vote,
lobbying pressures intended to change, or affect,
that outcome could result. Yet such external pres-
sures are, at least in part, a questionable influence
on the workings of a judicial branch.’”’ ”
Neither the Court of Appeals nor the FCC recog-
nized the inherent prejudice to Western of the leaks.”
The right to ‘‘{a] fair trial in a fair tribunal,” Jn re
Murchison, 349 U.S. 133, 136 (1955), is not achieved
by mere avoidance of obvious prejudice or bias. Fair-
ness requires procedures that avoid the risk that some
extraneous factor will tilt the decisionmaking balance,
ef. Tumey v. Ohio, 273 U.S. 510, 532 (1927), and that
avoid any appearance of unfairness. Offutt v. United
States, 348 U.S. 11, 14 (1954). It is ‘‘imperative’’ in
adjudicatory proceedings that ‘‘agencies use the pro-
2° Sunshine in the Third Branch, 16 Washburn L.J. 559, 565-66
(1977) (emphasis added). See also Mr. Justice Brennan, Working
at Justice, in An Autobiography of the Supreme Court 300 (A.
Westin ed. 1963); Mr. Justice Frankfurter, Mr. Justice Roberts,
104 U. Pa. L. Rev. 311, 313 (1955).
83° The FCC reached its ‘‘no prejudice’’ conclusion before any
investigation. The Court of Appeals’ conclusion that no ‘‘infringe-
ment of due process’’ had been established ‘‘on this record’’ proves
little in view of the paucity of the record Western was allowed to
make on the point.
a MD Ga Ot ts
_ Ce ee ee ee eT ree
31
cedures which have traditionally been associated with
the judicial process.’’ Hannah v. Larche, 363 U.S. 420,
442 (1960).
Like members of any adjudicatory tribunal, FCC
Commissioners should be free to change their minds
after tentative votes. Leaks of tentative decisions tend
to chill the deliberative process and the free exchange
of views between decisionmakers. They also tend to
“‘lock-in’’ the tentative decision. Cf. Cinderella Career
and Finishing Schools, Inc. v. FTC, 138 U.S. App.
D.C. 152, 159, 425 F.2d 583, 590 (1970). Potential
‘‘chilling’’ or ‘‘locking in’’ is inherently unfair, de-
priving parties of the full consideration their argu-
ments and interests deserve. Other possibilities for
prejudice from leaks stem from the motives for them,
such as have been enumerated by a former FCC in-
sider familiar with the problem: (a) to further the
leakor’s objectives; (b) to make the leakor’s ‘‘own
actions appear more acceptable to others on the Com-
mission . . .”; and (c) to “‘try to force a colleague’s
hand on a matter they consider important.’”?™ Such
hindrances to the deliberative process are not compat-
ible with our system of justice and concepts of due
process.”
* Cole and Oettinger, Reluctant Regulators: The FCC and the
Broadcast Audience 60 (1978).
** Harm to the ongoing, still tentative deliberative process readily
distinguishes this case from the alleged leaks of action on petitions
for writ of certiorari in United States v. Haldeman, 181 U.S, App.
D.C. 254, 559 F.2d 31 (1976), cert. denied, 431 U.S. 933, rehearing
denied, 433 U.S. 966 (1977). Votes in conference on certiorari are
usually not tentative and come at the end of the deliberative proc-
ess. Orders on certiorari are usually published on the Monday after
the Friday conference at which the vote is taken. Leaks in that con-
32
That the FCC could have followed a practice of
announcing decisions prior to formal release as in
Eastern Air Lines v. CAB, 271 F.2d 752 (2d Cir.
1959), cert. denied, 362 U.S. 970 (1960), does not di-
lute the importance of this issue. Most agencies do not
follow such a practice.” Moreover, the conduct upheld
in Eastern did not pose the same threat to the decision-
making process as the leaks in this case. In Eastern,
there was no contention ‘‘that the interval between the
completion of oral argument and the [CAB’s] tenta-
tive decision [two months] was so short that it pre-
cluded thoughtful consideration of the evidence pre-
sented.’’ 271 F.2d at 758. Here the interval between
oral argument and tentative decision was only minutes
so that, prima facie, the required “thoughtful consid-
eration of the evidence’’ (presented over nearly four
years of hearings) was precluded.
Western does not claim that any leak is reversible
error. But if the decision below stands, no such agency
misconduct would seem to entitle a party to an adjudi-
catory proceeding to any remedy unless it could prove
the impossible—that there would have been a different
text, as undesirable as they are, do not interfere with the delibera-
tive process, the exchange of views, the drafting of opinions, or the
change in tentative positions brought about by opinions that ‘‘will
not write.’’ Here, by contrast, the first leaks occurred almost imme-
diately after the FCC’s first conference which resolved only part
of the Western-Valley case, and were published within less than a
week of a tentative vote taken only minutes after oral argument.
This was at the beginning of the deliberative process, which should
have been kept free of interference until concluded by release of a
finished opinion. What should have been four months of calm,
secret deliberation, proved to be something quite different.
* The F'CC abandoned its former practice of this type.
wintebh
ee ee ee eee
33
result without the leak. That seems inconsistent with
basic notions of a due process right to untainted and
unhindered deliberations over important adjudicatory
matters. Particularly where, as here, the sanction re-
sulting from the adjudication is so severe, there should
be no taint or appearance of taint. Remedy for the
FCC’s error in handling the present case could be
fashioned by remand to the agency for reargument on
the merits. Only three of the seven Commissioners who
heard the original oral argument and were present
during the leak episode remain at the agency. Such a
remand should also provide an opportunity, prior to
further oral argument, for full and impartial investi-
gation of precisely what occurred during the original
deliberative process to determine whether recusals by
hold-over Commissioners may be required. See, e.g.,
Sangamon Valley Television Corp. v. FCC, 106 U.S.
App. D.C. 30, 269 F.2d 221 (1959).
4. In Valley’s Case The Court Of Appeals Decided An Im-
portant Question Of The Financial Qualifications Require-
ments Of The Communications Act Of 1934, As Amended,
In A Way In Conflict With Applicable Decisions Of This
Court.
In marked contrast to its silence or extreme brevity
on important issues presented in Western’s appeal,
the Court of Appeals undertook extensive de novo
review in Valley’s appeal and then substituted its
judgment for that of the FCC on Valley’s financial
qualifications. The Court of Appeals thus exceeded
the bounds of judicial review prescribed by the Admin-
istrative Procedure Act and proceeded in conflict with
decisions of this Court. In the process a fundamental
statutory prerequisite of broadcast licensing was jeop-
ardized. Western has an important stake in whether
34
Valley erroneously has been saved from disqualifica-
tion by the Court of Appeals. If Western is found
ultimately to be qualified, it would face comparative
hearing with Valley, if Valley is also found qualified.”
Sections 308(b) and 309(a) of the Communications
Act of 1934, as amended, 47 U.S.C. §§ 308(b), 309(a),
require the FCC to determine that Valley possesses the
necessary financial ualifications before its application
ean be granted. FCC v. Sanders Bros. Radio Station,
309 U.S. 470, 475 (1940). The Congress left it to the
FCC to devise standards for measuring financial quali-
fications under the broad statutory requirement. The
FCC devised such standards for bank loans, applied
them to Valley’s application, and found Valley defi-
cient. Therefore, the scope of judicial review in Valley’s
appeal should have been extremely narrow. Atlantic
Refining Co. v. FTC, 391 U.S. 357, 367-68 (1965) ; SEC
v. New England Electric System, 390 U.S. 207, 211
(1968). See also the Administrative Procedure Act, 5
U.S.C. § 706(2) (EB).
The Court of Appeals should have used particular
restraint not to substitute its perception of the public
interest in financial qualifications for that of the FCC,
particularly where, as here, the FCC’s standards and
practices for assessing the availability of critical bank
loans have been long established and consistently ap-
* There is no contradiction between (a) Western’s argument
that, as to Valley’s appeal, the Court of Appeals should not have
substituted its judgment for the FCC’s concerning compliance with
established standards to implement statutory requirements, and
(b) Western’s argument that, as to Western’s appeal, the Court of
Appeals should have insisted that the FCC at least explain and
justify the disparate treatment of Western under standards that
implemented other statutory requirements.
35
plied.” Instead, the Court of Appeals usurped the
FCC’s statu role in a manner closely analogous to
that severe] iticized in FCC v. National Citizens
Committee for Broadcasting, 436 U.S. 775, 809-15
(1978). See also Vermont Yankee Nuclear Power
Corp. v. Natural Resources Defense Council, Inc., 435
U.S. 519, 525 (1978), and Mobil Oil Corp. v. FPC, 417
U.S. 283, 292 (1974), where Supreme Court review was
warranted to determine if the Court of Appeals had
misinterpreted the proper scope of its review. The
Court of Appeals usurped the FCC’s function appar-
ently to achieve a result which the court deemed so-
cially desirable: t.e., to permit Valley to try yet again
to prove what it had failed to prove during four years
of hearings—the availability of a large bank loan es-
sential to its financial proposals. The Court of Appeals
not only ordered the FCC to find Valley’s original, but
now expired, bank loan proposal acceptable; it also
permitted Valley to relitigate its ‘‘complete financial
qualifications.” (App. 15a).
The financial qualifications requirements of the Com-
munications Act are of substantial publie importance
and bear on thousands of broadcast stations. The es-
sence of broadcasting is service to the public. Financial
fitness is a prerequisite to providing meritorious serv-
ice. FCC v. Sanders Bros., 309 U.S. at 475. Licensing
a frequency to a financially unqualified applicant risks
waste of that scarce resource—e.g., construction may
35 ‘* Reasonable assurance’’ (or its semantic equivalent) has been
the test for availability of proposed bank loans for years. See, e.g.,
Crosby N. Boyd, 57 F.C.C.2d 475, 488-89 (1976); Lamar Life
Broadcasting Co., 26 F.C.C.2d 932, 934 (Rev. Bd. 1970); D. H.
Overmyer Communications Co., 4 F.C.C.2d 496, 498-50 (Rev. Bd.
1966).
36
commence, they may be hamstrung ag™jof minimal
value to the public. Displacement of a strOhg incumbent
licensee (like Western) by a financially unqualified
challenger (like Valley) compounds risks to the publie
interest by threatening loss or reduction of existing
service.
be delayed or never completed, or, if gem do
The Court of Appeals appears to have introduced a
bias of its own when it retailored the long-established
financial qualifications requirement to avoid what it
termed ‘‘ pro-incumbent bias in comparative hearings.”’
(App. 10a). The Court of Appeals both overlooked the
basic, noncomparative nature of the financial qualifica-
tions issue and misconceived the fundamental public
interests at stake in comparative renewal proceedings.
Cf. FCC v. National Citizens Committee for Broad-
casting, 436 U.S. at 780-83, 809-14. This has broad im-
plications for the scheme of broadcast licensing gen-
erally. The public is ill-served by judicial bending of
long-standing FCC qualifications standards to facili-
tate entry of financially strapped applicants into the
highly competitive world of modern television.
The Court of Appeals held that Valley had estab-
lished “reasonable assurance’’ that its proposed bank
loan would be available. (App. 14a). The court over-
turned FCC reliance on substantial record evidence (a)
that collateral was crucial to the bank, and (b) that
‘*the assets of the station’’ would not, as the bank had
originally assumed, be available as collateral. The court
also overturned FCC findings that Valley had failed to
prove that the bank would not require more collateral
than Valley could substitute, ‘“‘or, if collateral is re-
quired, what it will be and that Valley can provide it.”
(App. 140a). The Court of Appeals merely relied on
‘*evidence’’ which it thought should have caused the
NN tte itn es ss
37
FCC to reach a different result. Even if the Court of
Appeals had not misapprehended the record evidence,”
its overturning of FCC conclusions that were based on
substantial record evidence violated the rule of Um-
versal Camera Corp. v. NLRB, 340 U.S. 474, 487-88
(1951). See Wright, C.J., dissenting in part. (App.
16a).
CONCLUSION
For these various reasons, this petition for a writ of
certiorari should be granted.
Respectfully submitted,
Epaar F, Czarra, JR.
MicuHakEt S. Horne
JosePpH Vo pr, IIT
Dovetas EB. WINTER
888 Sixteenth Street, N.W.
Washington, D.C. 20006
(202) 452-6066
Counsel for Petitioner
Of Counsel:
Covincton & BurLING
888 Sixteenth Street, N.W.
Washington, D.C. 20006
February 5, 1979
%° The Court of Appeals mistakenly assumed that the FCC had
‘‘adopted’’ the ALJ’s interpretation that two of three crucial inter-
rogatories to the bank contained no more than ‘‘routine reserva-
tions.’’ On that basis the Court concluded it was illogical for the
FCC to rely solely on the one remaining interrogatory to find
Valley unqualified. (App. 13a). However, the FCC rejected the
ALJ’s interpretation and found instead that ‘‘ [t]he answers to the
interrogatories were not routine reservations as argued by Valley,
but constitute rather a statement that the bank may revise its col-
lateral requirements at the time the loan is requested if it believes
the security offered is inadequate.’’ (App. 38a, emphasis added).
The FCC’s disagreement with the ALJ on this point was re-
emphasized in its reconsideration decision. (App. 59a n.3).
APPENDIX
la
APPENDIX A
Notice: This opinion is subject to formal revision before publication
in the Federal Reporter or U.S.App.UV.C. Reports. Users are requested
to notify the Clerk of any formal errors in order that corrections may be
made before the bound volumes go to press.
Muited States Cot of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 76-2104
LAS VEGAS VALLEY BROADCASTING Co., APPELLANT
Vv.
FEDERAL COMMUNICATIONS COMMISSION, APPELLEE
WESTERN COMMUNICATIONS, INC., INTERVENOR
No. 76-2124
WESTERN COMMUNICATIONS, INC., APPELLANT
v.
FEDERAL COMMUNICATIONS COMMISSION, APPELLEE
LAS VEGAS VALLEY BROADCASTING CO., INTERVENOR
Appeals from Orders of the
Federal Communications Commission
~
> Woes.
Argued February 22, 1978 Judcnent 7
this aa et
Decided October 26, 1978/ “G@—.." “ate
_ noel
Bills of costs must be filed within 14 days after entry of judgment. The
court looks with disfavor upon motions to file bills of costs out of time.
2a
Edgar F. Czarra, Jr. with whom Michael S. Horne,
Joseph Volpe, III and Douglas E. Winter were on the
brief for appellant in No. 76-2124 and intervenor in No.
76-2104.
Robert T. Murphy, for appellant in No. 76-2104. Ed-
ward P. Morgan and Joseph M. Morrissey were on the
brief, for appellant in No. 76-2104 and intervenor in No.
76-2124.
C. Grey Pash, Jr., Counsel, Federal Communications
Commission with whom Lawrence W. Secrest, Acting
General Counsel, Daniel M. Armstrong, Associate Gen-
eral Counsel, and i'homas R. King, Jr., Counsel, Federal
Communications Commission were on the brief, for
appellee. :
Also Werner K. Hartenberger and Raymond L. Strass-
burger, Attorneys, Federal Communications Commission
entered appearances for appellee.
Before: WRIGHT, Chief Judge, and BAZELON and
WILKEY, Circuit Judges
Opinion for the Court filed by Circuit Judge BAZELON.
Opinion filed by Chief Judge WRIGHT, concurring in
part and dissenting in part.
BAZELON, Circuit Judge: The Federal Communications
Commission (FCC) denied applications of appellants in
these cases for a television broadcast license for Channel
3 in Las Vegas, Nevada.’ In No. 76-2124, Western Com-
munications, Inc. (Western), the incumbent licensee at
KORK-TV, appeals the Commission’s finding that frau-
ulent billing practices and misrepresentation required
'The mutually exclusive applications were first set for
hearing in 1972. Western Communications, Inc., 35 F.C.C.2d
517 (1972); Western Communications, Inc., 37 F.C.C.2d 266
(1972).
3a
denial of its renewal application; in No. 76-2104, Las
Vegas Valley Broadcasting Co. (Valley) disputes the Com-
mission’s conclusion that it was not financially qualified
for the license. We affirm the FCC’s order as to Western,
but remand for further proceedings as to Valley’s
application.
I. WESTERN
In the renewal proceeding, the Commission reviewed
Western’s apparent practice of “clipping” parts of net-
work broadcasts to insert local advertising, thereby vio-
lating both FCC rules and the station’s affiliation con-
tract with the National Broadcasting Co. (NBC).* Al-
though Western insists that it only clipped “clutter,”
described as nework promotional announcements, the ad-
ministrative law judge (ALJ) found that network com-
mercials were frequently clipped, and that the licensee
submitted inaccurate reports to the network on its prac-
tices.» As a result, NBC paid KORK for advertisements
that either did not appear at all, or appeared only in
2 The NBC contract established that KORK would not “with-
out NBC’s prior written authorization make any deletions
from or additions to any program furnished to you here-
under. . . .” Western Communications, Inc., 59 F.C.C.2d 1463,
1465 (1976) [hereinafter cited as Initial Decision]. Section
73.1205 of the Commission’s rules, 47 C.F.R. § 73.1205 (1977),
provides:
No Licensee .. . shall knowingly issue .. . any bill, in-
voice, affidavit or other document which contains false
information ... or which misrepresents the quantity of
advertising actually broadcast (number or length of ad-
vertising messages) or... the time of day at which it
was broadcast... .
’The number of commercials actually clipped has not been
established, but there is ample evidence in the record that the
practice was widespread at KORK. See text accompanying
notes 10-14 infra.
4a
part. The Commission affirmed the ALJ’s initial decision,*
finding a “gross disregard of the Commission’s fraudulent
billing rules, which reflects adversely on Western’s quali-
fications to be a Commission licensee.” °
The misrepresentation issue involves KORK’s answers
to four Commission inquiries in 1970-71, about the sta-
tion’s policy on inserting local commercials or other an-
nouncements in network programs.* KORK replied that
any deletions of network material were due to error by
individual personnel, not station policy. The ALJ thought
the responses “form[ed] a pattern of attempting to mis-
lead the Commission as to the station’s commercial prac-
tices,’”* and that KORK “as a matter of policy and
practice was scheduling more local commercials than could
be accommodated in the authorized break time.”* The
FCC again agreed, calling the licensee’s responses to Com-
mission inquiries “false, misleading and evasive,” and
“clearly designed to conceal its operating practices.” °
Western claims that the Commission’s denial of its
renewal application (A) was not based on substantial
evidence, (B) neglected valid defenses presented on West-
ern’s behalf, and (C) constituted an unjustifiably harsh
sanction for conduct not clearly prohibited under prior
Commission policy.
* Western Communications, Inc., 59 F.C.C.2d 1441 (1976)
{hereinafter cited as Final Decision].
5 Id. at 1444 (citation omitted).
*The FCC inquiries were prompted by viewer complaints
about commercials disrupting telecasts of the World Series and
various entertainment shows. J.A. 857-881 (No. 76-2124).
* Initial Decision, supra note 2, at 1474.
8 Td.
® Final Decision, supra note 4, at 1449.
ee ee
eee ee
a
at
‘
A. Substantial Evidence
On the clipping issue, the factual record supports the
Commission’s conclusion that KORK substituted local ma-
terial for network broadcasts.” The FCC Broadcast Bu-
reau compared the operating logs of KORK and the Los
Angeles NBC station for fifteen programs between Oc-
tober 4, 1970 and May 7, 1971, and concluded that KORK
clipped at least part of 21 network commercials." A
similar study by Valley of a 28-week period indicated
that approximately 250 commercials were clipped.’ Al-
though such log comparisons are subject to human error
in record-keeping, a clear pattern emerges here. More-
over, KORK’s own review of the period between 1968
and 1971 showed approximately 800 clipped network com-
mercials,’* and the station paid NBC $7,763.02 for adver-
tisements that it may not have carried."
There is also substantial evidence in the record that
Western’s responses to Commission inquiries involved mis-
representations and lacked candor. The FCC opinion care-
fully traces Western’s inaccurate characterizations of
particular incidents and general practices.*° Western
would defend its responses on the ground that the FCC
inquiries were imprecise, asking “as to all the circum-
stances” surrounding the insertion of “advertising in
network programs . . . in such a manner as to affect
1% Our standard of review under 47 U.S.C. § 402 (1970) re-
quires that the Commission’s findings be supported by sub-
stantial evidence.
1! Initial Decision, supra note 2, at 1467.
12 Td.
8 J.A. 1310-39 (No. 76-2124).
1* Final Decision, supra note 4, at 1443 n.7.
8 Td, at 1446-49.
bu
the program content.” * Whatever ambiguity may have
been present in the Commission’s language, the central
thrust of the questions was clear, and we see no basis here
for disputing the Commission’s conclusion that Western’s
responses contained both falsehoods and evasions.
B. Defenses
Western asserts that non-renewal of its license was
not justified because there was no_proof that the licensee,
Donald Reynolds, knew of KORK’s clipping practices.
The record shows that two station managers appointed
by Reynolds, both of whom were officers and directors
of Western, knew of the clipping. It would be irrational
to permit Reyonlds, who holds several other broadcast
licenses, to avoid responsibility for the acts of his officers.
Such a course would both encourage lax station oversight
by licensees and set “a different standard of conduct for
a multiple or absentee owner than for a local owner.” ”’
Drawing an analogy to fairness problemis resulting
from ex parte contacts with decision makers, Western
also suggests that “leaks” to the press after the FCC
hearing prejudiced its case and denied it due process.
Western contends that the leaks tended to “lock-in” the
FCC’s tentative decision and disrupt the deliberative
process."* Although premature revelation of a decision
is unfortunate, we do not see how such an event relates
to the ex parte question, nor can we identify, on this
record, any infringement of due process resulting from
such disclosure.
6 Td. at 1447.
" Id, at 1450.
* Brief for Petitioner Western Communications, Inc., at 67.
et ne ale bah Be a A
Se a EE Se ee
C. The Penalty
Western claims the denial of renewal was unjust be-
cause the licensee had no notice that clipping would
constitute fraudulent billing, or that it could result in
nonrenewal. This argument is groundless. Concern over
the regularity of a licensee’s financial practices derives
from the Communications Act’s requirement that the FCC
consider an applicant’s “character,” ** and from the “pub-
lic interest” standard for broadcast regulation.” Since
1962, the Commission has issued several statements an-
nouncing a strong policy against fraudulent billing.*'
Indeed, a 1970 statement specifically noted as fraudulent
any bill misrepresenting the length of the commercial as
broadcast,” and an FCC rule adopted in 1965 prohibits
billing ‘which misrepresents the quantity of advertising
actually broadcast.” ** Even without specific Commission
prohibition of clipping, the practice would appear mani-
festly fraudulent. But in this situation, KORK’s contract
with the network, the Commission’s 1970 statement, and
the Commission’s rule all clearly barred clipping.
Finally, Western argues that even if the Commission’s
findings of fraudulent billing practices were accurate,
nonrenewal of the broadcast license was a disproportion-
ately severe sanction, especially in light of less drastic
penalties imposed by the Commission in arguably analo-
gous cases. Western’s argument reflects a misapprehen-
* 47 U.S.C. §§ 308(b), 319(a) (1970).
9 47 U.S.C. § 309(a) (1970).
21 F.g., Applicability of Fraudulant Billing Ruie, 1 F.C.C.2d
1075 (1965); Fraudulent Billing Practices, 23 F.C.C.2d 70,
72 (1970); Renewal or Revocation Hearing Proceedings in
Future Fraudulent Billing Cases, 38 F.C.C.2d 1051 (1972);
Fraudulent Billing Practices, 53 F.C.C.2d 900 (1975).
2 23 F.C.C.2d 70, 72 (197v).
*8 47 C.F.R. § 73.1205 (1977).
Sa
sion of the nature of a broadcast license. “[A] broadcast
frequency is not a homestead which after five years
belongs to the settler. .. . Rather it belongs to the public
..’™ Retention of a license hinges on a demonstration
that past service has been in the public interest and that
future service will likely be superior to that offered by
competing applicants.*° The Commission has held, and
the courts affirmed, that misrepresentation of even im-
material facts is a valid basis for nonrenewal.” In addi-
tion, courts ordinarily accord the Commission particular
discretion in fashioning remédies to maximize compliance
with Commission policy.”
II. VALLEY
The Commission found that Valley “established its
qualifications to be a Commission licensee in all respects
except its financial qualifications.” ** FCC practice, based
* Crowder v. FCC, 399 F.2d 569, 571 (D.C.Cir.), cert.
denied, 3938 U.S. 962 (1968).
*° Central Florida Enterprises, Inc. v. FCC, No. 76-1742
(D.C.Cir., Sept. 25, 1978), at 3-7; Citizens Communications
Center v. FCC, 447 F.2d 1201, 1206-10 (D.C.Cir. 1971), clari-
fication granted, 463 F.2d 822 (D.C.Cir. 1972); Fidelity
Television, Inc. v. FCC, 515 F.2d 684, 705-17 (D.C.Cir.)
(Bazelon, C.J.) (voting to grant rehearing en banc), cert. de-
nied, 423 U.S. 926 (1975).
*° FCC v. WOKO, Inc., 8329 U.S. 223, 226-27 (1946); Inde-
pendent Broadcasting Co. v. FCC, 193 F.2d 900, 902 (D.C.Cir.
1951), cert. denied, 344 U.S. 887 (1952); Crowder v. FCC,
supra, at 571.
** FCC v. WOKO, supra, at 228; Greater Boston Television
Corp. v. FCC, 444 F.2d 841, 857 (D.C.Cir. 1970), cert. denied
sub nom. WHDH, Inc., v. FCC, 403 U.S. 923 (1971); Con-
tinental Broadcasting, Inc. v. FCC, 489 F.2d 580, 583 (D.C.
Cir.), cert. denied, 408 U.S. 905 (1971); Lorain Journal Co.
v. FCC, 381 F.2d 824, 831 (D.C.Cir. 1965).
** Final Decision, supra note 4, at 1456.
Ya
on general statutory terms,”’ requires that license appli-
cants have sufficient funds—in the form of paid-in capi-
tal, anticipated revenues, and loans—to cover costs
through the first period of operation.*’ This requirement
can be justified as insuring that scarce breadcast fre-
quencies will be assigned to applicants who can maintain
service on them,’ and as excluding shoestring operations
that might be more likely to resort to unethical or fraud-
ulent practices to stay afloat.
Determining an applicant’s financial qualifications, how-
ever, is an imprecise enterprise. For example, the Com-
mission must gauge anticipated revenues of a prospective
licensee despite changing economic conditions. Similarly,
there can be no certainty that a bank will actually pro-
vide a proposed loan for a license applicant, or that the
specified terms will be followed. A license application
may not succeed for years, or at all; market factors
may shift dramatically in the interim. Accordingly, the
Commission requires only that a loan commitment letter
establish a “reasonable assurance,” not a binding legal
certainty, that a loan will be available.** This approach
is particularly appropriate because a commitment letter
is the product of bargaining. The applicant, naturally,
wants as strong a commitment letter as possible without
* 47 U.S.C. §308(b) (Supp. V 1975) (“All applications
for station licenses . . . shall set forth such facts as the Com-
mission by regulation may prescribe as to the. . . financial
. . . qualifications of the applicant”); 47 U.S.C. § 319(a)
(Supp. V 1975) (same standard for construction permits).
* In this case, Valley had to demonstrate that sufficient
funds were available to support it for three months without
revenues. J.A. 161 (No. 76-2104).
81 See FCC v. Sanders Bros. Radio Station, 309 U.S. 470,
475 (1940); Graybar Electric Co. v. Doley, 273 F.2d 284, 291
(4th Cir. 1959).
* F.g., Crosby N. Boyd, 57 F.C.C.2d 475, 488-89 (1976):
Jay Sadow, 39 F.C.C.2d 808, 810 (Rev. Bd. 1973).
10a
conceding undue advantages in the form of higher in-
terest rates or excessive collateral. The bank seeks to
cement relations with a potential customer without speci-
fying terms that may prove costly.
The reasonable assurance standard is also supported
by the importance of avoiding a pro-incumbent bias in
comparative hearings.** Since incumbent licensees need
not establish financial qualifications, an unrealistically
stringent standard for loan commitments to competing
applicants would further entrench current license holders.
In Multi-State Communications, Inc. v. FCC, No. 77-
1440 (D.C. Cir. Oct. 4, 1978), this court ruled that the
Commission held a loan commitment letter to an overly
strict standard.
[I|f the need for additional information and further
action could be said to render the bank letter worth-
less, then the Commission has in essence required a
legally binding commitment at the same time that it
professes to require something less.
Id. at 6.
At issue in this case are Valley’s loan commitment let-
ter and its ability to finance access to its proposed trans-
mitter site.** We find insufficient support for the Com-
mission’s finding that its bank letter did not meet the
*’ See cases cited in note 25 supra.
* The ALJ also found that Valley was not assured network
affiliation. Since the bank letier was contingent on such affili-
ation, Valley’s financial prospects were even darker for the
ALJ, Initial Decision, supra note 2, at 1503. The Commission
reversed the ALJ on this question, finding that Valley would
be a strong candidate for such affiliation since its audience
coverage would be “superior to that of any existing Las Vegas
’ station,” and it would provide NBC with continuing channel
identification as the successor to KORK. Final Decision,
supra note 4, at 1451-52. We see no basis for disturbing the
FCC’s ruling on this point.
lla
reasonable assurance standard, and remand for review
of its overall financial qualifications.
A. The Bank Loan Commitment Letter
Valley’s application relied on a $1 million loan from the
| Nevada State Bank to pay for acquistion of land and
broadcast equipment, with those assets to serve as col-
” lateral.*® Valley then decided to lease its land and build-
ings and buy ‘equipment on credit, with the equipment
supplier holding the first lien on the machinery, so the
bank modified its commitment in a subsequent letter.**
The question of collateral under the revised terms was
not resolved to the ALJ’s satisfaction, :3 eleven interroga-
tories were served on the bank on this point. The bank’s
replies convinced the ALJ that the bank might require
additional collatera> for the loan, and thus that Valley
“failed to carry its burden of proving that it is financially
qualified to construct and operate its proposed station.” *’
The Commission affirmed this ruling.**
The answers to the first two interrogatories established
that the bank knew that Valley planned to buy equipment
on credit and give the ni.anufacturer an exclusive lien on
the equipment. In view of this, the third question asked,
did the bank “remain willing to make its proposed loan”
as outlined in the commitment letters? The bank’s an-
swer was, “Yes.” ** Subsequent queries showed that the
bank also knew that Valley planned to lease, not pur-
chase, its facilities. The last three questions and answers
were crucial:
8 J.A. 356 (No. 76-2104).
6 Td. at 357.
37 Initial Decision, supra note 2, at 1506.
88 Final Decision, supra note 4, at 1453.
8° Td. at 1479.
12a
9. Is Nevada State Bank willing to make the pro-
posed $1 million loan to Valley on the terms
and conditions specified in the Colvin Smith
letter of August 23, 1971, and the Samuel Lionel
letter of February 22, 1973, if the collateral for
the loan offered to the Bank by Valley does not
include any land or buildings or any of the
$1,470,000 of broadcast technical equipment
Valley proposes to purchase from RCA Corp.,
but includes only (a) all personal property of
Valley which was not encumbered by credit
agreements with RCA, (b) assignment of Val-
ley’s accounts receivable after it begins opera-
tions, (c) pledge of all outstanding capital stock
of Valley without the stockholders giving up any
voting rights; and (d) personal guarantees of
all Valley stockholders?
Answer: If the conditions stated will in
fact exist at the time the loan is required,
Nevada State Bank will make the loan in
accordance with the terms stated in the
August 23, 1971 letter of Mr. Colvin Smith,
Jr. and the February 22, 1973 letter of
Samuel §S. Lionel, if Nevada State Bank
and its correspondent bank feel that those
conditions, together with other conditions
then existing make the loan a proper one.
10. Is the Nevada State Bank willing to loan Las
Vegas Valley up to $1,000,000 under the terms
and conditions specified in the August 23, 1971,
and February 22, 1978 letters if neither broad-
casting equipment nor real property are avail-
able for collateral?
Answer: If the conditions stated will in
fact exist at the time the loan is required,
Nevada State Bank will make the loan in
accordance with the terms stated in the Au-
gust 23, 1971 letter of Mr. Colvin S. Smith,
Jr. and the February 22, 1978 letter of
3a
Samuel S. Lionel, if Nevada State Bank
and its correspondent bank feel that those
conditions, together with other conditions
then existing make the loan a proper one.
11. In addition to the personal guarantees by Val-
ley’s stockholders, what is the minimum value
of collateral that the bank will require in order
to loan Valley up to $1,000,000 as proposed?
Answer: It will depend upon the condi-
tions existing at the time the loan is re-
quired.”
The ALJ characterized the answers to questions 9 and
10 as containing “routine reservations,” but thought the
bank’s final answer introduced a fatal uncertainty into
the bank’s commitment.** As we read the record before
us, this interpretation, as adopted by the Commission,”
is without substantial support.“
The bank’s identical responses to interrogatories 9 and
10 stated its willingness to go forward with the loan
even if no land, buildings or broadcast equipment were
available for collateral. The bank did reserve the right
to reevaluate the commitment in light of future con-
ditions, but this reservation did not bother the ALJ. In
this context, it was illogical for Valley to be found un-
qualified on the basis of the answer to interrogatory 11,
that the collateral required “will depend on the conditions
© Td. at 1479-80.
41 Initial Decision, supra note 2, at 1504.
#2 Final Decision, supra note 4, at 1452-53.
48 We note that all of the evidence on this issue involves
written material, so there is no question of the credibility of a
witness, a matter on which considerable deference would
ordinarily be granted the finder of fact.
l4a
existing at the time the loan is required.” “ The initial
bank letter, which on its face satisfied the Commission,
provided that the station’s assets would constitute the
bank’s security for the loan. The bank knew that Valley’s
change in financial plan reduced those assets, but the
bank maintained its commitment to the loan. To require
more of a license applicant would exceed the boundaries
of the reasonable assurance standard.
B. Site Access
Valley proposed to locate its transmitter on Black
Mountain, near Las Vegas. Although the site is owned by
the federal government, access is limited to two private
roads: one controlled by the Bell Telephone Co. of Nevada
and one owned by Alta Development Co., a company held
in equal shares by Western, the incumbent licensee, and
the Summa Corporation.** Valley purchased a right-of-
way from the telephone company, but negotiations with
Alta broke down. Even though Valley earmarked $100,000
to acquire a right-of-way, Western said the selling price
was $190,000. In view of the uncertainty surrounding
this issue, the ALJ ruled that Valley failed to’ meet its
** Initial Decision, supra note 2, at 1480.
A plausible explanation for the difference between the
answer to interrogatory 11, and two previous answers, would
focus on the form of the questions. The first two queries asked
if the bank would make the loan in light of certain circum-
stances. The bank replied affirmatively, and stated its “rou-
tine reservations.” Interrogatory 11, however, asked directly
about the collateral term. No greater uncertainty was intro-
duced by the bank’s answer than already inhered in its two
earlier answers. Only the affirmation of willingness to go
forward, which was not the subject of the question, was absent.
** Valley would also have to acquire a permit from the Fed-
ereal Bureau of Land Management, but the ALJ concluded
that it would have no difficulty doing so. Initial Decision,
supra note 2, at 1505.
da
burden of proof,’ and the Commission agreed.*’ Although
both the ALJ and the Commission recognized the diffi-
culties of bargaining with a competing license applicant
on a key matter, these difficulties were consequences of
Valley’s own choice of transmitter sites.**
We are not advised whether the Commission believes
that the site access problem, by itself, would warrant a
finding of financial disqualification. We note that the
financial dimensions of the site access issue are much
more modest than the difficulties raised by the possible
failure of the bank loan. Moreover, since the Nevada
State Bank letter has expired by its own terms, Valley
must present a new bank loan commitment to the Com-
mission to establish its qualifications.*® The impact of a
future bank letter on Valley’s overall financial condition,
including the site access situation, is uncertain. We do
not foreclose Commission consideration of Valley’s com-
plete financial qualifications.
Accordingly, the Commission’s order in No. 76-2124 is
affirmed, and its order in No. 76-2104 is reversed and
remanded.
So ordered.
“6 Td.
‘7 Final Decision, supra note 4, at 1453-54.
** Id. at 1454; Initial Decision, supra note 2, at 1505.
** Western, as an Intervenor in No. 76-2104, contends that
since Valley’s initial bank letter and a subsequent letter have
both expired, this case is now moot. We note, however, that
the Commission does not view the matter as moot, and that
Valley remains a diligent litigant. Considering the business
difficulties of maintaining a viable bank letter through a
lengthy appeal, and the continuing impact of the Commission’s
action on Valley’s attempt to win a broadcast license, we do
not find a mootness problem. Cf. Arizona Public Service Co. v.
FPC, 483 F.2d 1275, 1277-78 n.3 (D.C.Cir. 1973). Due to
our decision on the Nevada State Bank letter, we do not reach
Valley’s claim that the Commission erred in denying its peti-
tion to submit a subsequently obtained bank letter.
16a
WricuHT, Chief Judge, concurring in part and dissent-
ing in part: I concur in the court’s opinion affirming
the Commission’s order in No. 76-2124. Unlike the court
here, I would also affirm the Commission’s order in No.
76-2104. In that case the Commission found that Valley
did not meet its statutory burden of proving it was
financially qualified to construct and operate a television
station.* Rather than remand to allow Valley to remedy
the defects the Commission found in its application post
hoc, in my judgment the Commission should be directed
to invite new applications for the license to be filed. Com-
pare Office of Communication of United Church of Christ
v. FCC, 425 F.2d 543 (D.C. Cir. 1969).
* The Commission found, on substantial evidence, that Valiey
did not prove an essential $1 million dollar bank loan would
be available to finance the proposed station and did not show
it could finance access to its proposed transmitter site.
17a
APPENDIX B
F.C.C. 76-625
BEFORE THE
FEDERAL COMMUNICATIONS COMMISSION
Wasuineton, D.C. 20554
In Re Applications of:
Docket No. 19519
File No. BRCT-327
Western Communications, Inc.
(KORK-TV), Las Vecas, Nevapa
For Renewal of License
Docket No. 19581
File No. BPCT-4465
Las Vecas VALLEY Broapcastine Co.
Las Veacas, NEvapDA
For Construction Permit for New Television
Broadcast Station
Appearances
Edgar F. Czarra, Michael S. Horne and Joseph Volpe
III (Covington and Burling) on behalf of Western Com-
munications, Inc.; Edward P. Morgan, Gerald S. Rourke
and Samuel M. Bradley (Welch and Morgan) on behalf of
Las Vegas Valley Broadcasting Co. and W. K. Keane, P.
W. Valicenti and Charles W. Kelley on behalf of the Chief,
Broadcast Bureau, Federal Communications Commission.
18a
Decision
(Adopted: June 30, 1976; Released: July 2, 1976)
By THE CoMMISSION : COMMISSIONER QUELLO ABSTAINING FROM
VOTING AND ISSUING A STATEMENT.
1. This proceeding involves mutually exclusive applica-
tions filed by Western Communications Inc.’ (Western)
for renewal of its license for television station KORK-TV,
Las Vegas, Nevada, and by Las Vegas Valley Broadcast-
ing Co. (Valley), for a new television station at Las Vegas.
In an Initial Decision, FCC 74D-37, released June 25, 1974,
Administrative Law Judge Chester Naumowicz recom-
mended the denial of both applications. He found that
Western engaged in fraudulent billing in violation of Sec-
tion 73.1205 of the Rules? and made material misrepresen-
tations concerning its broadcast policies in its responses
to Commission inquiries; and that Valley was not finan-
cially qualified to be a licensee because it failed to establish
that it would be able to satisfy the bank’s requirements
for its loan commitment. He also found that Valley failed
to show it could achieve access to its proposed transmitter
site. Subsequent to the issuance of the Initial Decision,
Valley’s bank commitment letter expired. It then tendered
* Western Communications is a subsidiary of Donrey, Inc. Mr.
Donald W. Reynolds, Sr., the sole owner of Donrey, also controlled
Stations KOLO-TV, Reno, Nevada and KFSA-TV, Fort Smith,
Arkansas.
* Section 73.1205 of the Rules provides in pertinent part that:
No licensee . . . shall knowingly issue . . . any bill, invoice,
affidavit or other document which contains false information
. which misrepresents the quantity of advertising actually
broadcast (number or length of advertising messages) or the
time of day or date at which it was broadcast. Licensees shall
exercise reasonable diligence to see that their agents and em-
ployees do not issue any documents which would violate this
section if issued by the licensee.
\
19a
a new commitment letter for a larger amount from a dif-
ferent bank.
2. Now before the Commission for consideration are ex-
ceptions and supporting briefs filed October 29, 1974, by
Western, by Valley, and by the Chief, Broadcast Bureau
(Bureau), reply pleadings, filed December 2, 1974, by
Western, by Valley,* and by the Bureau; a motion for leave
to file supplement to brief and a supplement, both filed
February 27, 1975, by Western, an opposition filed March
17, 1975, by Valley, an opposition filed March 17, 1975, by
the Bureau, and a reply filed March 27, 1975, by Western;
requests for official notice and leave to file a supplemental
brief and a supplemental brief, all filed February 13, 1976,
by Western, an opposition thereto filed February 25, 1976,
by the Bureau, and comments filed March 2, 1976, by Val-
ley; and various ancillary motions affecting the basic
qualifications of both applicants. Oral argument before
the Commission, en banc, was held on March 9, 1976.
Based on our review of the record, we find that the Judge’s
findings of fact accurately reflect the evidence of record
and those findings and his conclusions of law are affirmed
except as they may be modified by this Decision and by our
rulings on exceptions as contained in Appendix A.
Western’s Qualifications
Fraudulent Billing
3. The fraudulent billing issue concerns Western’s
charging NBC for network commercial announcements
*On December 2, 1974, Valley also filed a motion for authority
to file a reply in excess of the page limitation which was opposed
by Western in a pleading filed December 10, 1974. In view of the
coinplexity of this proceeding Valley’s motion will be granted.
* These pleadings are set forth in Appendix B.
20a
which were not carried over station KORK-TV.° Western
admits it engaged in clipping, #.e., it inserted local com-
mercials into network transmission by extending network
breaks leaving the network early or rejoining it late—but
asserts that it only clipped clutter,® that the clipping was
done in a manner which would not interfere with network
commercials or substantive program content, and that
there is no proof that any network commercials were
clipped or that NBC was billed for commercials which were
not carried.
4. Western sold commercials on the basis of extending
network breaks and instructed its operators to telecast all
commercials shown on the schedule. In order to confine the
clipping to clutter, Western relied on the ability of its
operators to predict what the network would telecast. How-
ever, the amount of clutter varied from program to pro-
gram and there was no advance notice concerning when
clutter would be telecast. Western’s operators were thus
faced with a heavy burden in attempting to confine the
clipping to clutter and it was inevitable that both commer-
cials and substantive program content would be clipped.
Western anticipated that the clipping could affect viewer
enjoyment and it instructed its operators to make their
* Issues were also designated concerning fraudulent billing prac-
tices at stations KOLO-TV, Reno, Nevada, and KIPSA-TV, Fort
Smith, Arkansas, both of which were controlled by Western’s prin-
cipal, Mr. Donald W. Reynolds, Sr., and the impact of the fraudu-
lent billing at those stations on Western’s comparative qualifica-
tions. The Judge found that incidents of fraudulent billing resulting
from clipping network transmissions occurred at both stations.
However, since he found that Western was not qualified to be a
licensee and he did not reach the comparative issue, the Judge drew
no conclusions with respect to the significance of the fraudulent
billing at stations KOLO-TV and KFSA-TY.,
. Western asserts clutter consists of the opening and closing
credits, the NBC peacock (no longer used), theme music, and net-
work and program identifications and promotions.
2la
returns to the network feed as unobtrusive as possible. As
a result of its clipping practices, Western’s operators
would often wait until the end of a sentence or a commer-
cial before rejoining the network. One Western operator
described the task of attempting to accommodate clipping
while minimizing interference by testifying that ‘‘you...
flew by the seat of your pants.’’
5. Western’s clipping of commercials was confirmed by
a comparison of KORK-TV’s logs with those of KNBC,
Burbank, California, licensed to NBC. Western argues that
the log comparisons are unreliable and as a result there
is no evidence that any network commercials were clipped.
The Judge recognized that the log comparisons constituted
less than perfect evidence because of possible differences
in station clocks or erroneous log entries. Nevertheless, he
found, and we agree, that the logs establish with reason-
able certainty that KORK-TV was off network for signifi-
cantly longer periods than authorized and that as a gen-
eral practice it clipped all or parts of network commercials
in order to telecast local advertising. NBC and KNBC have
a combined operation and they simultaneously submit pro-
grams to KORK-TV by computer. When KORK-TV and
KNBC are hooked into the network they should be tele-
casting the same material. In several instances where the
logs indicate that KORK-TV and KNBC initially joined
network programs at the same time, the logs also show
that KORK-TV left the network program before KNBC.
Moreover, Western regularly expanded network breaks
from 10 to 60 seconds beyond the time authorized and the
logs indicate that on several occasions KORK-TV clipped
entire commercials. Thus, the record affirms the Judge’s
finding that Western billed NBC for commercials which
were not carried.’
* Western compensated NBC $324.20 for commercials which had
been billed but were enumerated as clipped in the Bureau’s bill of
particulars. On February 27, 1975, ten months after the close of the
22a
6. Western’s contract with NBC requires it to carry all
network commercials and to submit weekly reports sup-
ported by affidavits attesting that the affiant has read and
is familiar with the weekly reports, that except as noted
on the reports each program was telecast in its entirety
including commercial messages and credits, and that any
failure to telecast material included in the network feed
was indicated in the reports. None of the station reports
indicated any deletions from the network feed. During the
1968-71 license term, the network reports were verified by
affidavits executed by KORK-TV’s managers, Mr. Tabor
and Mr. Ordonez. Also, during that period, Western’s
policy, as initiated by Mr. Tabor, was to sell advertising
which would be telecast during unauthorized portions of
the network feed. When Mr. Ordonez succeeded Mr. Tabor
as KORK-TV’s manager, he was told about the policy of
clipping network transmissions. Mr. Ordonez was also in-
structed by Mr. Donald Reynolds, Jr., the son of Western’s
principal and supervisor of the Donrey, Inc. (Western’s
parent corporation) broadcast properties, to look into
problems that KORK-TV was having because of its com-
mercial practices. Moreover, as a result of viewer com-
plaints, Mr. Tabor and Mr. Ordonez, who were officers and
directors of Western, were given specific notice that the
clipping of the network feed was interfering with the sub-
record, Western filed a motion to reopen the record to present evi-
dence of its own log comparison and the fact that it compensated
NBC $7,438.82 for commercials billed but which may not have been
carried. Western asserts that its study establishes that any billing
problem was one of carelessness and it ergues that the payments
were made to demonstrate its good faith and that it had no obliga-
tion to reimburse NBC. The motion is opposed by Valley and the
Bureau. The motion will be denied since it is dilatory and the
matters alleged therein will not materially affect the outcome of
this proceeding. The record establishes the fraudulent billing and
we have consistently held that corrective action will not excuse prior
violations. See, Caribbean Broadcasting Cerp., 22 FCC 2d 405
(1970) ; and United States Transdynamics Corporation, 21 FCC
2d 540 (1970).
23a
stantive program content. Still, neither Mr. Tabor nor Mr.
Ordonez took any steps to verify the information contained
in the network reports and accompanying affidavits so that
Western continued to bill NBC for commercials which were
not carried.
7. Western argues that even if there was overbilling
there was no intent by either Mr. Tabor or Mr. Ordonez
to bill NBC for commercials not carried. It asserts that the
overbilling constituted a small percentage of its total com-
mercial load, and that the small amount of overbilling com-
bined with the fact that there were some instances of un-
derbilling, establishes that the overbilling resulted from
carelessness. An intent to defraud, however, is not an es-
sential element of a violation of Section 73.1205 of the
Rules. A violation occurs when a licensee knowingly issues
bills predicated on false information, Blackstone Broad-
casting Corp., 52 FCC 2d 1106 (1975), or is so derelict in
the management of its station’s affairs as to permit fraud-
ulent billing. United Broadcasting Co. of Florida, Inc., 55
FCC 2d 832 (1975). Here the record establishes that Mr.
Tabor and Mr. Ordonez either knew or should have known
that the network reports submitted to NBC were patently
false. They knew that KORK-TV oversold commercials,
they instructed their operators to be unobtrusive when re-
joining network programs late, they were aware of com-
plaints about commercial interference with network pro-
grams, and they executed erroneous affidavits indicating
that all network programming was carried when they had
ample notice that it was not.’ It is clear that the alleged
failure by Mr. Tabor and Mr. Ordonez to be aware of the
fraudulent nature of the network reports establishes a lack
of competence and diligence in their supervision over
KORK-TV’s affairs which contributed to the fraudulent
* The reports even omitted two extended periods in which KORK-
TV was off the air for 17 minutes and 45 seconds and for 50
minutes. ;
24a
billing and a gross disregard of the Commission’s fraud-
ulent billing rules, which reflects adversely on Western’s
qualifications to be a Commission licensee. United Broad-
casting Co. of Florida, Inc., supra.
8. We also reject Western’s contention that it lacked
notice because ‘‘the fraudulent billing rule was not known
to reach .. . network clipping,’’ citing Fraudulent Billing
Practices, 1 FCC 2d 1068 (1965), recon. denied, 2 FCC 2d
864 (1966). Although, when we adopted the fraudulent
billing rule we did not refer to clipping per se, we did
state that fraudulent billing could take many different
forms, that the ‘‘rule is concerned with the principle in-
volved rather than the form’’ of the fraudulent billing, and
that the main ingredient in fraudulent billing is ‘‘the fur-
nishing of false information concerning broadcast adver-
tising” to induce any party to pay more for advertising
then is actually due. Fraudulent Billing Practices at 1068.
While it is true that the examples of fraudulent billing
practices cited in Fraudulent Billing Practices did not in-
clude activities identical to KORK-TV’s, the examples
given cannot be construed as substitutes for Rule 73.1205.
Channel 13 of Las Vegas, Inc., 37 FCC 2d 518, 519 (1972).
Fraudulent Billing Practices gave Western sufficient no-
tice that it would be in violation of Rule 73.1205 if it fur-
nished NBC with false affidavits and charged the network
for commercials which were not carried.
9. We also find no merit in Western’s arguments that
denial of its application is not an appropriate sanction for
violations of the fraudulent billing rules and is inconsistent
with Commission precedent. Although we initially imposed
monetary forfeitures for violations of the fraudulent bill-
ing rule, we subsequently found that ‘‘past sanctions [i.e.,
monetary forfeitures] have by no means accomplished
their purpose’’ and that it would be appropriate to con-
sider fraudulent billing in conjunction with an applicant’s
basic qualifications in renewal and revocation proceedings.
25a
Public Notice, 38 FCC 2d 1051 (1972). Thereafter, fraudu-
lent billing and violations of Section 73.1205 of the Rules
were factors of decisional significance in the denial of sev-
eral renewal applications, Wharton Communications, Inc.,
44 FCC 2d 489 (1973); United Broadcasting Co. of Flor-
ida, Inc., supra; and Eastminster Broadcasting, Inc., FCC
76-156, released February 25, 1976. The cases Western
cites in support of its position are not applicable here.
Bluegrass Broadcasting Co., Inc., 43 FCC 2d 990 (1973),
involved fraudulent billing by the station’s general man-
ager who misled his employers as to the true facts in order
to absolve himself of responsibility for any misdeeds.
There was also an absence of complaints or other facts
which would have alerted Bluegrass’s principals to any
wrongdoing. In contrast, Mr. Tabor and Mr. Ordonez, who
were officers and directors of Western, participated in the
fraudulent billing, and the viewer complaints and Com-
mission correspondence should have alerted both Mr. Rey-
nolds, Jr. and Mr. Reynolds, Sr., to the possibility of
wrongdoing. In Blackstone Broadcasting Corp., 52 FCC
2d 1106 (1975), we held that double billing, per se, was dis-
qualifying conduct, but found mitigating circumstances in
the limited scope of the fraudulent billing, the nominal
amount of money involved, the fact that the licensee did
not issue false affidavits, and the fact that there was no
direct benefit from the double billing to the applicant.
Moreover, our action in Blackstone was confined to the
record of that proceeding and we clearly emphasized that
a licensee who engages in fraudulent billing practices does
so only at great risk, even without the presence of other
improprieties. Given the protracted and flagrant fraudulent
billing in this proceeding and Western’s disregard for our
fraudulent billing rule, Blackstone must be considered
inapposite here. United Broadcasting of Florida, Inc.,
supra, at 840. In Channel 13 of Las Vegas, Inc., 37 FCC 2d
518 (1972), we imposed a monetary fortfeiture for clipping
network programs. In that proceeding, however, there was
26a
no evidence that any commercials were clipped or that the
fraudulent billing was as extensive or as egregious as
established by the record in this proceeding. Moreover, to
hold that the fraudulent billing documented in the record
of this proceeding is not disqualifying, would be an un-
warranted departure from our decisions in more recent
cases where we found the denial of renewal to be an appro-
priate sanction for protracted fraudulent billing, over an
extended period of, time, with the participation, knowledge
or constructive knowledge of the licensee’s top manage-
ment.’ See Wharton, supra; United Broadcasting of Flor-
ida, Inc., supra; and Eastminster, supra.
Misrepresentations
10. The misrepresentation issue evolved out of corre-
spondence between the Commission and Western concern-
ing viewer complaints about Western’s clipping. In a letter
dated October 29, 1970, the Commission wrote Western
with respect to interference by local commercials with
telecasts of the 1970 World Series. In a response, dated
November 6, 1970, and signed by Western’s former coun-
sel,*° Western asserted, inter alia, that the interference
occurred because the network breaks required ‘‘the use of
* Western also cited the Initial Decision in WEAU, Inc., 50 FCC
2d 659, which became final on January 8, 1975, without the filing
of exceptions. In that proceeding the Judge found that the fraudu-
lent billing was mitigated because the licensee’s principal took
immediate steps to eliminate clipping and fraudulent billing on
discovery of the wrongdoing. In contrast, Western permitted the
clipping and fraudulent billing to continue even after it received
complaints and Commission correspondence about the wrongdoing.
Moreover, the Initial Decision in WEAU, Inc., is not a binding
precedent because it became final without Commission review.
Finalization of Initial Decisions, FCC 61-25, 20 RR 1141 (1961).
%° Although counsel drafted each of the letters in question, all
information contained in those letters was furnished by either Mr.
Tabor or Mr. Ordonez.
27a
20-second announcements,’’ that the program director was
‘‘severely reprimanded,’’ that it was KORK-TV’s policy
to ‘‘limit the length of commercial announcements to the
available break time,’’ and that the interference with the
World Series programming was an isolated incident.”
11. The November 6, 1970, letter contains misrepresen-
tations and is lacking in the candor which we expect from
our licensees. Western’s explanation that the interference
occurred because it used the two 30-second commercials
when the use of 20-second commercials was required strains
credibility when it is considered that the network in fact
allowed for the use of only one 30-second commercial.
Western argues that this was not a misrepresentation,
citing Mr. Tabor’s testimony that he believed the author-
ized duration of the network breaks was 42 seconds (which
would allow time for two 20-second commercials and two
seconds for leaving and rejoining the network). It is noted
however that during five of the ten network breaks during
the 1970 World Series, KORK-TV broadcast three 30-
second commercials and during one other break four 30-
second local commercials (although only three commercials
were scheduled). The remaining four station breaks were
expanded to include 60 seconds’ worth of commercials.
Western was thus scheduling commercials which would
have exceeded the 42 seconds Mr. Tabor allegedly believed
was available even if 20-second commercials were available,
and we find there is ample justification for the Judge’s
finding that Western’s explanation concerning the length
of the commercials used during the World Series consti-
tuted a misrepresentation. :
™ The Judge asserted that in calling the interference an ‘‘isolated
incident’’ Western was ‘‘hypocritical and false’’ because network
breaks during all of the World Series games were overloaded. The
November 6 letter in fact referred to all five 1970 Wa-ld Series
games.
28a
12. Western’s characterization of the World Series clip-
ping as an ‘‘isolated incident’’ was also a significant mis-
representation. We accept Western’s allegation that its
November 6 letter referred to the clipping of all five 1970
World Series telecasts. The record, however, contains evi-
dence that Western expanded network breaks on a regular
basis by covering network transmissions with local com-
mercials, that it also clipped the network feed to telecast
commercials during the 1968 and 1971 World Series, and
that its clipping interfered with other programs. Based on
Western’s policy of clipping and the problems emanating
out of it, none of which were disclosed in the November 6
letter, the characterization of the interference with the
World Series telecasts as an isolated incident was a factual
misrepresentation designed to mislead the Commission
with respect to Western’s broadcast policies. Moreover, in
view of Western’s policy of clipping, it is clear that its
statement that ‘‘It is the firm policy of KORK-TV to limit
the length of commercial announcements to the available
break time’’ is a blatant misrepresentation. We also note
that although Western advised the Commission that the
operator responsible for the clipping was severely repri-
manded, Mr. Tabor testified: ‘‘I wouldn’t necessarily say
I severely reprimanded him.’’ While the misstatement in
the letter concerning the reprimand may, in and of itself,
not be very serious, it indicates, when considered with
Western’s other statements and its broadcast policy, a
casual attitude with respect to Commission inquiries which
is unacceptable from a licensee. The foregoing representa-
tions, standing alone, would be sufficient grounds for the
denial of Western’s renewal application, Nick J. Chaconas,
28 FCC 2d 231 (1970). However, as will be shown, Western
continued to misrepresent its commercial policies in its
subsequent correspondence with the Commission.
13. On March 8, 1971, another viewer wrote the Com-
mission concerning the telecast of local commercials which
interfered with the ‘‘Laugh-In’’ program. In a letter dated
29a
April 8, 1971, the Commission asked to be advised “as to
all the circumstances’’ surrounding the interference, if
Western inserted ‘‘advertising in network programs at
other than the scheduled times in such a manner as to af-
fect the program content,’’ and whether Western’s policy
was to ‘‘insert commercial or other material in programs,
join them late or leave them early with such effect.’’ In a
letter dated April 21, 1971, Western asserted that its policy
was ‘‘not to insert advertising in such a manner as to affect
the program content,’’ that occasional errors do occur, but
that it was taking steps to insure the errors were not
repeated. The Judge was cognizant that there is no gen-
erally accepted definition of the term ‘‘affect program con-
tent.’’ He concluded, however, that the letter was a mis-
representation because Western’s assertion that its policy
of ‘‘not inserting advertising ...in such a manner as to
affect program content’’ did not reflect Western’s operat-
ing practice of expan’ing network station breaks by insert-
ing local commerciais.
14. Western contends that there was no misrepresenta-
tion because it understood the Commission inquiry to be
concerned about whether the clipping affected ‘‘viewer en-
joyment’’ of programs and that in fact its policy was to
clip in a manner which did not affect viewer enjoyment. It
asserts that even where substantive programming was de-
leted, it attempted to have ‘‘clean cut-ins’’ which would
not be intrusive to its viewers. In view of this policy and
its understanding of the inquiry, Western contends that
merely leaving the network early or rejoining it late a
number of times does not establish that its letter was a
misrepresentation.
15. In our view, the April 21 response also demonstrates
a lack of that degree of candor which we expect from our
licensees. Although we asked to be advised of all the cir-
cumstances surrounding the interference, there is no men-
tion of the clipping which was the basic cause of the inter-
30a
ference. Western also asserted that when ‘‘errors’’ do
occur ‘‘steps are taken in order to insure that they will not
be repeated.’’ Here the only step taken was to speak with
the operator who was on duty, an ineffective precaution
because even if there were no operator errors there would
still be significant intrusions into the network feed because
of the number and length of the local commercials sched-
uled by KORK-TV. Moreover, while the term ‘‘affect pro-
gram content’’ is ambiguous and Western’s stated policy
may have been to avoid clipping which would affect pro-
gram content within its understanding of the term, it is
readily apparent that Western’s stated policy was not in
accord.with its actual practice, because viewer enjoyment,
as defined by Western, was disrupted, as evidenced by the
- viewer complaints.
16. On May 14, 1971, the Commission wrote a letter to
Western, noting the previous correspondence and a new
(third) complaint from a viewer, and requested a detailed
statement of the ‘‘procedure . . . adopted, or [you] intend
to adopt, to prevent recurrence of the practices complained
of.’’ Western’s reply, dated June 1, 1971, was also lacking
in candor and contained misrepresentations. Western ad-
vised the Commission that it was carrying a relatively
heavy commercial load, leading to tight scheduling require-
ments necessitating alertness and exact switching by the
operator on duty. The tenor of this statement was to con-
vey to the Commission that KORK-TV had a tight but
workable schedule and that interference could be avoided
barring operator errors. The problem, however, did not lie
with its operators but with its schedule. While operator
error may have compounded KORK-TV’s problems, the
root cause of these problems was the clipping, and even if
its operator strictly adhered to KORK-TV’s schedule,
there would still have been significant unwarranted intru-
sions into the network feed.
17. Western also represented that its problems were
compounded by the fact that advertising agencies were
3la
‘‘not always careful about meeting precise commercial
announcement length requirements.’’ This statement is
patently misleading. The problem rested with Western’s
scheduling practices, and even if the commercial announce-
ments were several seconds too long the resultant clipping
would have been de minimis when compared with West-
ern’s regular practice of expanding network breaks.
18. The June 1 letter also advised the Commission that
Western reduced its commercial load level and stated that
it believed it had ‘‘taken every possible and reasonable
step to insure that commercial matter will not interfere
with program content.’’ These representations were incom-
plete and in part untrue. It is obvious that Western had
not ‘‘taken every possible and reasonable step’’ because it
continued to overload network breaks during its daytime
programming, and interference continued until Western
eliminated the commercial overloading during daytime
program breaks.
19. The Commission received still another complaint con-
cerning the interference with network programming on
KORK-TV. On July 15, 1971, the Commission, citing the
earlier correspondence again solicited Western’s comments.
Given another opportunity to explain its operating policies,
Western, in a reply dated August 2, 1971, continued to at-
tribute the interference to operator error and allowed its
prior false, misleading and evasive representations to re-
main uncorrected.
20. Western’s responses were clearly designed to conceal
its operating practices from the Commission. It placed an
overly narrow interpretation on the Commission’s inquir-
ies and we reject Western’s contention that Mr. Tabor and
Mr. Ordenez believed their responses were true and com-
plete. While we agree that the term ‘‘affect program con-
tent” is not defined, we note that Western was asked to
explain all the circumstances surrounding the various
complaints and that there was interference with program
32a
content within their definition of the term. There is nothing
in the responses to indicate that local commercials were
being transmitted outside of authorized times, and the
interference is erroneously attributed to operator error
and overlength commercials while Western ignored the
clipping required by its broadcast schedule. There is also
no merit to Western’s arguments concerning the lack of
motive for Mr. Tabor and Mr. Ordonez to lie, because the
letters served to conceal KORK-TV’s improper practices,
protect their jobs and reputations and KORK-TV’s license,
and insure the receipt of extra revenue from the overcom-
mercialization.
Licensee Responsibility
21. Western is the wholly owned subsidiary of Donrey,
Inc. The sole shareholder of Donrey, Inc. is Mr. Donald W.
Reynolds, Sr., who was also the ultimate owner of station
KFSA-TV, Fort Smith, Arkansas, and KOLO-TV, Reno,
Nevada. His son, Mr. Donald W. Reynolds, Jr. was the
supervisor over all his broadcast properties. As the sole
principal of Donrey, Mr. Reynolds, Sr. delegated a great
deal. of authority to his station managers and his son.
Western asserts that the delegation of authority was
proper for a multiple owner, that Mr. Reynolds, Sr. could
not have reasonably anticipated the wrongdoing chron-
icled in this proceeding, that he took due care to prevent
rule violations and that neither he nor his son were aware
of any violations. In this connection Western states that
Mr. Reynolds, Sr. required regular written reports of his
broadcast operations from his son and the station man-
agers and that all problems concerning station operations
be brought to the attention of his communications counsel.
_ It also asserts that Mr. Tabor and Mr. Ordonez were long-
time, trusted employees and, citing Bluegrass Broadcast-
ing Co., supra, concludes that Mr. Reynolds, Sr. could
reasonably rely on them, and, in view of that reliance,
denial of renewal would not be an appropriate sanction.
33a
22. Western’s contentions lack merit and they must be
rejected. In this case, the Judge found, and his findings
which are supported by substantial evidence of record are
affirmed, that Mr. Reynolds, Sr. not only delegated all of
his authority for day-to-day station operations to his son,
Mr. Reynolds, Jr., but that he failed to exercise the neces-
sary diligence to insure that his agents and employees were
complying with Rule 73.1205. With respect to Mr. Rey-
nolds, Jr., the Judge found, and again we affirm his find-
ings as supported by substantial evidence, that he had re-
sponsibility for and tacit knowledge of the station’s prac-
tice of clipping; and that if, with the knowledge he had
concerning the extent of local commercial broadcasts dur-
ing network breaks, ‘‘he then remained unaware of the
specifics of the clipping it was only because he chose to
remain unaware.’’ (Initial Decision para. 168.) As for the
station managers who were directly involved in the wrong-
doing established by the record herein and who are also
officers and directors of Western, they were delegated au-
thority to respond to Commission inquiries concerning
alleged improper activities at the station, but the Reynolds
failed to take adequate precautions to insure the responses
were accurate and complete. On the contrary it appears
that no adequate investigation was conducted by the li-
censee to determine the true situation at the stations.
23. No comparable factual situation was presented in
Bluegrass and the case clearly is inapposite. In the cir-
cumstance of this case, Western’s contentions amount to
a claim for special consideration solely because of its ab-
sentee ownership and it is entitled to no such special con-
sideration or special benefits on that ground. As we have
repeatedly held, a multiple station owner or an absentee
owner is subject to the same degree of responsibility for
adequate supervision and control over station operations
as a local station owner and the licensee cannot absolve
itself from liability for wrongdoing merely by isolating
itself from day-to-day station operations since no justifica-
34a
tion exists for setting a different standard of conduct for
a multiple of absentee owner than for a local owner. United
Broadcasting Co. of Florida, Inc., 55 FCC 2d 832 at 839
(1975) ; Continental Broadcasting, Inc., 15 FCC 2d 120 at
131 (1968). Particularly in this case where, as found by the
Judge, Mr. Reynolds, Sr., owner of the licensee corpora-
tion, ‘‘exercised no diligence whatsoever to see that his
agents and employees were complying with the rule’’ (Ini-
tial Decision para. 169), Western merits no special con-
sideration by reason of its absentee ownership.
Valley’s Qualifications
24. The issues designated against Valley included, inter
alia, issues:
To determine whether Las Vegas Valley Broadcasting
Company can reasonably expect to secure a network
affiliation and, if not, the effect on Valley’s financial
qualifications and its ability to effectuate its program
_ proposal.
To determine the terms and conditions of the proposed
bank loan from Nevada State Bank relied upon by
Valley, whether Valley can meet the terms and condi-
tions, and whether, in light thereof, the proposed loan
will in fact be available to it.
To determine the cost, terms and conditions which
must be met by Valley to obtain access to its proposed
transmitter site and their effect on its financial quali-
fications.
To determine in view of the facts adduced pursuant to
the foregoing issues, whether Valley is financially
qualified to construct and operate its proposed station.
25. Valley’s financial qualifications were dependent on a
$1,000,000 loan commitment from the Nevada State Bank.
35a
The conditions for the loan, set forth in letters dated
August 23, 1971 and February 22, 1973, provided, inter
alia, that all of Valley’s assets would be collateral for the
loan and that the loan would be used for the purchase of
land and equipment, and certain construction and operat-
ing costs. The Nevada State Bank letter also stated that a
consideration in its decision to make the loan was its ‘‘un-
derstanding of the value of an operating NBC network
affiliated VHF television station in the Las Vegas market.’’
The Judge resolved the financial qualifications issue
against Valley, concluding that it had not established that
it could reasonably expect to secure a network affiliation;
that it could meet the bank’s requirements for making the
loan; and the terms for achieving access to its transmitter
site and its ability to meet those terms.
Valley’s Network Affiliation
26. NBC will not commit itself to the grant of an affili-
ation agreement more than six months before a station is
ready to go on the air. The Judge found that NBC would
regard any one of the four Las Vegas stations (including
Valley) as a possible substitute for KORK-TV, that Valley
as a new Station would be at a disadvantage because NBC
considers new stations to be more trouble-prone and it
prefers to affiliate with existing stations, but that Valley
would have a distinct advantage over the other Las Vegas
stations because it proposes a coverage area superior to
the existing stations, and will offer NBC continued channel
identification. The Judge found that ‘‘ Valley has a reason-
able hope of securing the network affiliation’’ (Initial De-
cision para. 183)** but that it ‘‘would be somewhat specula-
tive even to describe its prospects as a strong probability.’
Asserting that in the absence of a network affiliation the
*? But see Initial Decision para, 198, where the Judge stated that
Valley’s prospect of obtaining a fetwork affiliation ‘‘is less than a
reasonable probability.’’
36a
bank loan will not be available, the Judge concluded that
Valley had not established its financial qualifications.
27. We agree with Valley and the Broadcast Bureau that
the Judge imposed too heavy a burden on Valley to show
the availability of its network affiliation. Valley was only
required to show that ‘‘it could reasonably expect to se-
cure a network affiliation,’’ and indeed the Judge initially
found Valley had a ‘‘reasonable hope’’ of securing an affil-
iation. Since NBC will not commit itself to affiliate with a
new licensee more than six months before it is ready to go
on the air, resolution of the designated issue must be de-
pendent on a weighing of all favorable factors which NBC
would consider. NBC’s primary concern in granting an
affiliation agreement is unduplicated coverage.** Since Val-
ley would have a coverage area with unduplicated audience
superior to that of any existing Las Vegas station,” Valley
would also have a distinct advantage as KORK-TV’s suc-
cessor enabling NBC to maintain its channel identifica-
tion.'* Although NBC would prefer a more experienced li-
censee, this was only one of many factors (equipment, pro-
gramming, staffing and finances)** and there is no evidence
that NBC would prefer any of the other Las Vegas stations
under these criteria. Considering all the criteria, Valley
established that it wou'd have an advantage as a potential
** An NBC witness testified that superior coverage was the pri-
mary factor in decisions to change affiliations in Portland, Oregon
and Seattle, Washington.
Tt appears that one factor in the previous denial of an NBC
affiliation agreement with WVVU, the existing independent Las
Vegas station, was its inferior coverage area.
** The NBC witness testified that he could not recall one instance
where an affiliation agreement was denied to a successor licensee
after a voluntary transfer.
**If we are able to find Valley financially qualified there is no
reason to believe NBC would not be satisfied with its financial
proposal.
37a
NBC affiliate over the other Las Vegas stations, and this is
sufficient to establish a reasonable expectation that an
affiliation agreement will be available.
28. The Judge’s finding that Valley had not established
the availability of a network affiliation was only one of the
bases upon which he predicated Valley’s disqualification.
Consequently, resolution of the network affiliation issue
favorably to Valley establishes that Valley will reasonably
be eble to satisfy one of the conditions of the Nevada State
Bank letter, but it does not establish that the applicant is
financially qualified. For the reasons hereinafter set forth,
we affirm the Judge’s finding that Valley has not estab-
lished that the bank loan will be available or that it will
be able to finance access to its antenna site, and the Judge’s
ultimate conclusion that Valley has not sustained its bur-
den of showing that it is financially qualified.
Valley’s Bank Commitment
29. The Judge found that Valley intends to lease its land
and buildings and will not have any real property to pledge
as collateral for the loan. Moreover, Valley is planning to
purchase its equipment from RCA pursuant to credit terms
which grant RCA an exclusive lien on the equipment. In
order to ascertain the impact of Valley’s inability to pledge
either real estate or its equipment as collateral for the loan,
as contemplated in the commitment letters, interrogatories
were served on Mr. Harley Harmon, the President of the
Nevada State Bank. Mr. Harmon stated that whether the
bank would make the loan would depend on the conditions
existing at the time of the loan and that the amount of
collateral the bank would require will ‘‘depend upon the
conditions existing at the time the loan is required.’’ The
Judge concluded that the Nevada Bank may require addi-
tional collateral, the amount of that collateral and Valley’s
ability to furnish it remain unknown, and for this reason
Valley failed to establish that it could meet the terms and
conditions precedent to the loan.
38a
30. Valley argues that we have never required an appli-
cant to show more than a reasonable assurance a bank loan
will be available, and that the reservations expressed by
Mr. Harmon are ‘‘no more than routine reservations which
the Commission has never found to render a commitment
unreliable.’’ It asserts that the Nevada State Bank was
committed to the loan and there is no Commission require-
ment that a lender state the amount of collateral which will
be available.
31. Valley’s commitment letter conditions the bank loan
on Valley providing liens on real property and equipment
which would be purchased with the loan. Valley will not be
able to give the Nevada State Bank the anticipated liens
on its real property and equipment and the bank has not
indicated what substitute collateral will be required. The
answers to the interrogatories were not routine reserva-
tions as argued by Valley, but constitute rather a state-
ment that the bank may revise its collateral requirements
at the time the loan is requested if it believes the security
offered is inadequate. There is nothing in this record to
indicate the value of the collateral which will be required
or that Valley can meet those requirements.
32. Although the Commission has never required an
applicant to have a contractually binding loan commitment,
Valley has cited no authority in support of its position that
it need not show its ability to satisfy the bank’s collateral
requirements. In fact, we have consistently held that where
a bank commitment is dependent on a contingency, the
applicant must show its ability to satisfy that contingency.
Eastern Long Island Broadcasting, Inc., 1 FCC 2d 1525,
6 RR 2d 477 (Rev. Bd. 1965). In Orange Nine, Inc., 7 FCC
2d 788, 9 RR 2d 1157 (1967), the Commission required an
applicant with a commitment letter which stated ‘‘suitable
collateral terms and conditions [were] to be arranged at
the time of the closing,’’ to establish the terms, conditions,
and collateral the bank would require and the applicant’s
39a
ability to meet them. This Valley has not done here. Nor
has Valley’s showing complied with Post-Newsweek Sta-
tions of Florida, Inc., 46 FCC 2d 647 (1974), where we held
that a loan “subject to approval of our loan committee
[based on] .. . current financial statements” of the corpora-
tion and certain stockholders at the time of the submission
of the loan application did not offer adequate assurance that
the loan will be available.
33. Valley was facing the bank commitment issue when
Mr. Harmon responded to the interrogatories. Faced with a
serious reservation which jeopardized the availability of
the bank commitment, Valley had a duty to clarify Mr.
Harmon’s reservations so that we could determine the
bank’s requirements and Valley’s ability to meet them.
Valley failed to do so and there is adequate record support
for the Judge’s conclusion that Valley failed to establish
that ‘‘its bank loan will not require collateral, or, if col-
lateral is required, what it will be and that Valley can
provide it.’’
Valley’s Site Access
34. The site access issue was added solely to determine
if Valley was financially able to meet the terms and condi-
tions imposed on it for the use of the access road to its
transmitter site. Although Valley intends to construct its
transmitter on federally-owned land managed by the In-
terior Department’s Bureau of Land Management (BLM),
access to the site is dependent on a road owned by the Alta
Development Corp. (Alta), 50% of which is owned by
Western. If Valley is granted a construction permit, BLM
will grant it a right of way. BLM, however, will not medi-
ate any dispute between Valley and Alta (Western) con-
cerning what Valley will have to pay for access and Alta
is requiring Valley to purchase Western’s share of the
access road. Initially Western indicated it would want
$100,000 for its share of the access road. After Valley
40a
budgeted an additional $100,000 to purchase Western’s
share, Western revised its requirements asserting that it
failed to allow for inflation and a return on its investment
and that by September 30, 1976, its share of Alta would be
worth $189,937.50. Valley objected to paying this higher
figure and the Judge concluded that Valley had not estab-
lished that it can secure access to its transmitter site at a
price it can afford to pay.
35. Valley argues that the dispute will be settled by liti-
gation before Valley is ready to build its station. There is,
however, no indication when the matter will be litigated or
even that the dispute will be resolved in Valley’s favor.
Nor has Valley submitted evidence to support the validity
of what it is offering for the road. We are aware that
Valley is being forced to deal with a recalcitrant opponent,
but it is Valley who chose the antenna site, and it is there-
fore incumbent upon Valley to show that it can finance
access to that site. The record adequately supports the
Judge’s determination that Valley has not shown it can
finance access to its site.
Valley’s Petition to Amend Its Financial Showing
36. Valley’s commitment from the Nevada State Bank
expired on January 1, 1975, subsequent to the Initial De-
cision. On May 15, 1975, Valley filed a petition to amend its
financial showing specifying a commitment in the sum of
$1,500,000 from City National Bank of Los Angeles, Cali-
fornia.” Valley contends that Commission precedent re-
7 Also pending is a motion filed March 13, 1975, by Western
requesting the designation of misrepresentation and Section 1.65
issues against Valley. Western alleges that Valley failed to aotify
the Commission of the expiration of its bank loan and that it made
material misrepresentations in its petition to amend its financial
qualifications in an attempt to explain its failure to secure a timely
extension of the loan. In light of Valley’s disqualifica*ion the mo-
tion to add issues will be dismissed as moot.
4la
quires us to address the merits of its new commitment
without regard to its earlier showing. Valley, however, has
misread our earlier cases, it has not cited, nor are we
aware of, any comparative proceeding where we allowed
a post-decisional amendment to correct a defective showing
by a disqualified applicant; and its petition will be denied.
The amendment is no more than a grossly untimely and
blatant effort by Valley to shore up its defective financial
showing after the close of the record and an adverse de-
cision. We have consistently held that an applicant will not
be given a further opportunity to make an improved show-
ing that its application should be granted when that show-
ing could have been made during the course of the hearing.
Cf., Guan v. FCC, 297 F.2d 787 (1961); Voice of Dizie,
Inc., 47 FCC 2d 526 (1974); Nick J. Chaconas, 35 FCC 2d
698 (1972); The Tidewater Broadcasting Co., Inc., 14 FCC
2d 646 (1968) ; The News-Sun Broadcasting Co., 24 FCC 2d
770 (Rev. Bd. 1970), review denied, FCC 71-33, released
January 15, 1971. Moreover, we recently held in Folkways
Broadcasting Company, Inc., 57 FCC 2d 609 (1976), that
acceptance of such post-decisional amendment could se-
verely prejudice the Ashbacker™ rights of a competing
applicant.” Finally, we note that Wilkesboro Broadcasting
Co., 4 FCC 2d 164 (1966), which was cited by Valley, in-
volved a pre-decisional amendment and that in 5 KW, Inc.,
33 FCC 2d 895 (1972), the Review Board permitted an
amendment in response to new matters raised in a petition
to enlarge issues filed after the close of the. hearing. Al-
** Ashbacker Radio Corp. v. FCC, 326 U.S. 327 (1945).
* Valley argues that if Western’s disqualification is affirmed,
Western would no longer be an interested party with respect to
Valley’s basic qualifications, We do not agree. In Folkways, the
competing applicant was disqualified, but had appealed the Com-
mission decision. We found that the applicant still had potential
Ashbacker rights which could be asserted if his appeal was granted.
Here, because Western continues to prosecute its application, we
are obligated to protect its potential Ashbacker rights.
42a
though the Commission permitted post-decisional amend-
ments in Brown Broadcasting Co., Inc., 12 FCC 2d 189
(1968), and United Broadcasting Co., Inc., 55 FCC 2d 416
(1975) those proceedings are distinguishable because the
applicants involved had been found qualified, and the
amendments were in response to questions which arose
after issuance of the Initial Decisions. Valley’s request for
leave to amend and for acceptance of a new commitment
letter must, therefore, be denied.
Other Matters
37. Western requested permission to file a supplemental
brief to call ‘‘attention to the fact that the initial decision
in another case, WEAU, Inc., (FCC 74D-59), became
final.’’ The request will be denied. A supplementary plead.
ing is not authorized under the rules. Moreover, Western
failed to show good cause for its filing because WE AU was
fully discussed in Western’s prior pleadings, and because
the Decision, which became final without the filing of ex-
ceptions or review, is not a binding Commission precedent.
Finalization of Initial Decisions, FCC 61-25, 20 RR 114
(1961).
38. On February 13, 1976, Western filed a second sup-
plementary brief to ‘‘reflect subsequent legal authorities.’’
This pleading is the fourth brief and second unauthorized
pleading filed by Western. We note, however, that over a
year has elapsed since the filing of Western’s initial brief,
that a large number of Commission decisions addressing
issues similar to those in this proceeding have been issued
during that period, and that those cases were too numerous
for Western to discuss during oral argument. In light of
the seriousness which we attach to the sanctions being
applied here, we are granting Western’s second request
for leave to file a supplementary pleading and we have
4
43a
given due consideration to the precedents cited in the sup-
plementary pleading.”
.
39. On February 13, 1976, Western requested us to take
official notice of various pleadings and documents filed in
the KRMD, Inc., 53 FCC 2d 1179 (1975) and West Michi-
gan Telecasters, Inc., 57 FCC 2d 388 (1975) proceedings.
Official notice is governed by the Federal Rules of Evi-
dence, Rule 201, 28 U.S.C.A. which limits notice to adjudi-
cative facts. An adjudicative fact is defined as one not
‘¢ . . subject to reasonable dispute in that it is either
(1) generally known within the territorial jurisdiction
of the trial court or (2) capable of accurate and ready
determination by resort to sources whose accuracy can-
not reasonably be questioned.” Rule 201(b), 28 U.S.C.A.
Western is seeking official notice of legal arguments and
assertions in other proceedings involving different parties
and different factual situations. Manifestly, these types of
matters are not within the contemplation of Rule 201(b).
Western’s request for official notice will, therefore, be
denied.
40. Western filed a ‘‘Motion to Reopen the Record, En-
large the Issues, and for Other Relief’’ on June 25, 1976.
Therein, Western argues that confidential information con-
cerning instructions given to restricted personnel was dis-
closed to trade press representatives, that prohibited ex
parte communications have occurred, and that Western
has been prejudiced by the foregoing conduct. It therefore
requests that the record be reopened, that issues be added
2° We do not deem it necessary to discuss each of the numerous
cases cited by Western. We have, however, fully considered the
cases cited, and to the extent necessary they have been discussed in
this Decision. In any event, we are satisfied that the instant Deci-
sion is consistent with prior Commission precedents and Western’s
pleading has not presented a basis for changing the outcom
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