# Petition — Western Communications, Inc. v. Federal Communications Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_2445%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1979 - **Citation:** 441 U.S. 931 ## Text 78-1222 — No. gi , JR., CLERK IN THE Supreme Court of the United States OcrosBer TERM, 1978 ? 3 g 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 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_2445%3A1. Public record. Not legal advice.