Petition — Sea Island Broadcasting Corp. v. Federal Communications Commission
Supreme Court brief1980
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Gupreme Court, U. &
FILED
JUN 2 1980
IN THE HAEL RODAK, JR., CLERR
Supreme Court of the Anited States
OCTOBER TERM, 1979
¥9-1905
SEA ISLAND BROADCASTING CORPORATION OF S.C.,
| Petitioner,
| :
FEDERAL COMMUNICATIONS COMMISSION,
Respondent.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE
DISTRICT OF COLUMBIA CIRCUIT
JOHN H. MIDLEN, JR.
HARRY C. MARTIN
MATTHEW H. McCCorMICK
f 2033 M Street, N.W.
Washington, D.C. 20036
Attorneys for Petitioner
Of Counsel:
MIDLEN & REDDY
2033 M Street, N.W.
Washington, D.C. 20036
A ENS AREER NNER TNO TILT NRE | ADIN SIN
PRESS OF BYRON S. ADAMS PRINTING, INC., WASHINGTON, D.C.
,
TABLE OF CONTENTS
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CPUMSTOIN PINT ED oo ook Koko os in sc cc kineenesenbens
STATUTES AND RULES INVOLVED ...........0cccegeecees
OE GY FONU AOD is 8.8 pce ee vaca vos euwedaeees
REASONS FOR GRANTING THE WRIT ..........000e ee eee
I. The Court Below Decided an Important Federal
Question, Regarding the Scope of Review of
Administrative Adjudications, in a Manner Con-
trary to the Administrative Procedure Act and
Established Principles of Administrative Law ...
Il. This Case and Steadman, for which Certiorari
Has Been Granted, Involve Two Aspects of a
Larger Administrative Law Issue: Tandem
Review Would Be Appropriate................
CA be nae aOR oda wha e ee ae kavoenks
Appendix A—Judgment and Opinion of the Court of
Appeals for the District of Columbia Circuit in Sea
Island Broadcasting Corporation of S.C. v. Federal
Communications Commission, No. 76-1735 (Jan.
DG, TOE s WeRa as svc viddbes CaeeEe Vac ul OenReeee
Appendix B—Report of the Federal Communications
Commission or limited remand, 69 F.C.C. 2d 1796
Cee cas vitewewe bss Pee men Per arrg ye) nae eer
Appendix C—Decision of the Federal Communications
Commission, 60 F.C.C. 2d 146 (1976).............
Aprendix D—Memorandum Opinion and Order of the
Federal Communications Commission denying
reconsideration, 64 F.C.C. 2d 721 (1977) ..........
Appendix E—lInitial Decision of Administrative ‘Law
Judge Chester F. Naumowicz, Jr., 61 F.C.C. 2d 937
5 SS ee rN ERE y ret ope Ree oe et a eg
Appendix F—Orders of the Court of Appeals for the
District of Columbia Circuit denying rehearing and
sehearing en banc (Mar. 5, 1980) ...............4.
18
13a
19a
3la
37a
ii
Table of Contents Continued
PAGE
Appendix G—Order of the Court of Appeals for the
District of Columbia Circuit remanding the case to
Commemennes CFme 23, 197) occ ccc ccccccccccocce 49a
Appendix H—Memorandum Opinion and Order of the
Federal Communications Commission denying Sea
Island’s ‘‘Request for Oral Argument, or for Other
Relief,’’ and dismissing Sea Island’s ‘‘Notice of
Election of Distress Sale and Request for Waiver,’’
i a os che wa sce ce bascgesece’s Sla
Appendix I—Pertinent Provisions of the Administrative
Procedure Act, as amended; the Communications
Act of 1934, as amended; and the Rules of the
Federal Communications Commission............. S5la
TABLE OF AUTHORITIES
CASES: PAGE
Aetna Insurance Co. v. Paddock, 301 F.2d 807 (Sth Cir.
es oe ee ew sbcnteeese 16
American Iron & Steel Institute v. Environmental Pro-
tection Agency, 568 F.2d 284 (3d Cir. 1977) ....... 11
American Petroleum Institute v. Occupational Safety
and Health Administration, 581 F.2d 493 (Sth Cir.
1978), cert. granted, 440 U.S. 906 (1979)........... 11
Burlington Truck Lines, Inc. v. United States, 371 U.S.
EE STIS TS IRE pe ee OS a 11
Camp v. Pim, 411 0,5. 136 (1973) .........006.00.. 10, 12
Central Florida Enterprises, Inc. v. Federal Communica-
tions Commission, 194 U.S. App. D.C. 118, 598
te SEAL a Pl skye ca Mali o's cele 9, 15
Charlton v. Federal Trade Commission, 177 U.S. App.
D.C. 418, $43 F.2d 903 (1976) ............... 9, 14, 15
Citizens to Preserve Overton Park v. Volpe, 401 U.S.
Ns irs. So 'o's biawin sib o spa ck Re be cuess 11, 12
iii
Table of Authorities Continued
CASES: PAGE
Collins Securities Corp. v. Securities and Exchange
Commission, 183 U.S. App. D.C. 301, 562 F.2d 820
CROTON, bis cco bn Kano wie sp ROM caw: oaks passim
Consolo v. Federal Maritime Commission, 383 U.S. 607
SEES Had Kine vb u pe kina 244s hae ache het )
Dry Color Manufacturers’ Association, Inc. v. Depart-
ment of Labor, 486 F.2d 98 (3d Cir. 1973)......... 11
E.I. DuPont de Nemours & Co. v. Train, 541 F.2d 1018
(4th Cir. 1976), modified on other grounds, 430
LPs, BUR OTE canis ah des ein eh pialbe ee awe Caen 11
Federal Communications Commission v. Pottsville
Broadcasting Co., 309 U.S. 134 (1940) ............ 8
Federal Power Commission v. Idaho Power Co., 344
Sees FT MEE GV EAS Si oil eee Reh ew te ale ww ee 8
Federal Power Commission v. Texaco, Inc., 417 U.S.
NTE bry Cea CA GH OK bus Kh da eR Ls 11
Interstate Commerce Commission v. Clyde Steamship
Co Se Mey MOREE Ne cba bk ce daenaccvensba 13
KIRO, Inc. v. Federal Communications Commission,
178 U.S. App.D.C. 126, 545 F.2d 204 (1976)...... 9, 15
National Labor Relations Board v. Enterprise Associa-
SG; ae a Ps 6 ence abo Rh me nia 9, 13
National Labor Relations Board v. Metropolitan Life In-
surance Co., 380 U.S. 438 (19GS). oc ccociic ccicivine 9
Ralston Purina Co. v. Louisville & Nashville Railroad
Cg SN Ges TED REVUE fi ob. 5.d bbs ba Nikd Seb ana be 9
Scripts-Howard Radio, Inc. v. Federal Communications
COMeeenads, "Stas Uk. © CED ove ce ve cae cubes 8
Securities and Exchange Commission v. Chenery Corp.,
BE ee ETE carte ence ve Eee heed She cos 9, 13
Securities and Exchange Commission v. Chenery Corp,
RR OR] +) See ae AP toa Phy ot 9, 14
iV
Table of Authorities Continued
CASES: PAGE
Steadman vy. Securities and Exchange Commission, 603
F.2d 1126 (5th Cir. 1979), cert. granted, 48
U.S.L.W. 3698 (1980) (No. 79-1266) ............. 7, 18
Sunray Mid-Continent Oil Co. v. Federal Power Com-
a BA ST, eee 8, 17
United States Lines, Inc. v. Federal Maritime Commis-
sion, 189 U.S. App. D.C. 361, 584 F.2d 519
iain eter st ed ak koa 660 ka 6 cn i View’ as ae
Vance v. Terrazas, 62 L.Ed 2d 461 (1980) ............. 16
Whitney v. Securities and Exchange Commission, 196
U.S. App. D.C. 12, 604 F.2d 676 (1979)........... 7
Woodby v. Immigration and Naturalization Service, 385
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STATUTES:
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ADMINISTRATIVE DECISION:
Pass Word, tnc., ._._... F.C.C. 20 , 47 R.R. 2d
I ea. PoP ul Pe eas) be we sew e ay een 10
ADMINISTRATIVE REGULATION:
0 ey ae PE I oe a cea who's ch aod banunsed 2
OTHER MATERIALS:
VIII A. WiGMore, EVIDENCE (1940) ...............0005 16
IN THE
Supreme Court of the Anited States
OCTOBER TERM, 1979
No.
SEA ISLAND BROADCASTING CORPORATION OF S.C.,
Petitioner,
Vv.
FEDERAL COMMUNICATIONS COMMISSION,
Respondent.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE
DISTRICT OF COLUMBIA CIRCUIT
Sea Island Broadcasting Corporation of S.C.
respectfully petitions for a writ of certiorari to review
the judgment and opinion of the United States Court of
Appeals for the District of Columbia Circuit entered in
this case on January 14, 1980.
OPINIONS BELOW
The judgment and opinion of the court of appeals,
not yet officially reported, appear as Appendix A of
this petition. The Report of the Federal Communica-
tions Commission on limited remand from the court of
appeals, reported at 69 F.C.C. 2d 1796 (1978), appears
as Appendix B. The Decision of the Federal Com-
#*>
2
munications Commission, reported at 60 F.C.C. 2d 146
(1976), and its Memorandum Opinion and Order deny-
ing reconsideration, reported at 64 F.C.C. 2d 721
(1977), appear as Appendices C and D respectively. The
Initial Decision of Administrative Law Judge Chester F.
Naumowicz, Jr., reported at 61 F.C.C. 2d 937 (1975),
appears as Appendix E.
JURISDICTION
The judgment of the court of appeals was entered
on January 14, 1980. A timely petition for rehearing
and suggestion for rehearing en banc was denied on
March 5, 1980. This petition for certiorari is filed within
90 days of that date. The jurisdiction of this Court is in-
voked under 28 U.S.C. § 1254(1)(1976).
QUESTION PRESENTED
Upon holding, for the first time, that the Federal
Communications Commission was required to apply a
clear and convincing standard of proof in broadcast
license revocation proceedings, whether the court of ap-
peals exceeded its powers of review in affirming a Com-
mission revocation order reached under a_ mere
preponderance of the evidence standard of proof.
STATUTES AND RULES INVOLVED
This case involves Sections 7 and 10(e) of the Ad-
ministrative Procedure Act, as amended, 5 U.S.C.
§§ 556 and 706 (1976); Section 312 of the Communica-
tions Act of 1934, as amended, 47 U.S.C. § 312 (1976);
and 47 C.F.R. § 73.1205 (1975) (amended 1976). These
provisions are set forth in Appendix I.
3
STATEMENT OF THE CASE
This case concerns the Decision of the Federal
Communications Commission (Commission or FCC) to
revoke the license of Sea Island Broadcasting Corpora-
tion of S.C. (Sea Island) to operate AM radio station
WSIB, Beaufort, South Carolina. Pursuant to Section
402(b) of the Communications Act of 1934, as amended,
47 U.S.C. § 402(b), Sea Island appealed the Commis-
sion’s Decision to the Court of Appeals for the District
of Columbia Circuit. On appeal, Sea Island argued and
the court held that the Commission must find clear and
convincing evidence of wrongdoing in order to revoke a
broadcast station license. A mere preponderence of the
evidence would not be enough. However, even though
the Commission admittedly did not apply the higher
standard in reaching its Decision (App. 14a), and in fact
resisted its imposition (App. 14a-18a), the court affirm-
ed the Commission’s order revoking the WSIB license.
The only basis for such affirmance was the
Commission’s post hoc representation on limited re-
mand that the same finding of wrongdoing would have
been made had the Commission used the clear and con-
vincing standard. (App. 14a n.3).
In its Petition for Rehearing and Suggestion for
Rehearing En Banc, Sea Island urged the court to re-
mand the case for a second time, and to require the
FCC to reconsider it fairly under the higher standard of
proof the court had imposed. Rehearing and rehearing
en banc were denied without comment. (App. 47a-48a).
Before the Commission, Sea Island urged that a
higher standard of proof than a mere preponderance of
the evidence must be applied in an administrative ad-
judication where the potential consequences are as
serious as the revocation of a broadcast station license.
Sea Island relied upon this Court’s decision in Woodby
4
v. Immigration and Naturalization Service, 385 U.S. 276
(1966), a deportation case. The Commission rejected the
argument, stating in its Decision that Sea Island’s
reliance on Woodby was misplaced:
In Woodby the Supreme Court adopted the stricter
standard of ‘‘clear, unequivocal and convincing’’
proof because the statute was silent as to the degree
of proof required at the administrative level... .
Unlike a deportation case, the Administrative Pro-
cedure Act is applicable here and specifies the
degree of proof required at the administrative level
for imposition of a sanction. The pertinent provi-
sions of Section 556(d) of the APA clearly require
only that a Commission decision be ‘‘supported by
and in accordance with the reliable, probative, and
substantial evidence’’ of record. (App. 28a)(foot-
note omitted).
This statement was the source of two of the issues
on appeal: First, whether the Commission had determin-
ed that the standard of proof required was merely
‘freliable, probative and substantial evidence,’’ thereby
confusing the standard for judicial review with the stan-
dard of proof governing the agency’s determinations.
Second, whether the degree of proof necessary at the
agency level to make adverse findings in a _ license
revocation case should be ‘‘clear and convincing’’
proof.'
' The Commission’s decision was adopted about one year before
Collins Securities Corp. v. Securities and Exchange Commission, 183
U.S. App. D.C. 301, 562 F.2d 820 (1977), in which the court of ap-
peals drew a distinction between ‘‘clear, unequivocal and convincing’’
and ‘‘clear and convincing’’ proof. As indicated to the court below,
either standard is acceptable to Sea Island. Under the clear and con-
vincing standard, the SEC was required ‘‘to reach a degree of persua-
sion much higher than ‘mere preponderance of the evidence,’ but still
somewhat less than ‘clear, unequivocal and convincing’ or ‘beyond a
reasonable doubt.’ ”’ /d. at 305, 562 F.2d at 824.
5
Following oral argument, on its own motion, the
court remanded the case to the Commission in order
that two questions might be answered: ‘‘(1) What stan-
dard of proof was applied in the disposition of this mat-
ter by the Commission? (2) What would be the effect on
the public interest if the Commission were to apply a
‘clear and convincing’ standard of proof to issues of
fact in license revocation proceedings?’’ (App. 50a). The
court did not ask the Commission what would have
been the effect on the Commission’s disposition of this
case if the ‘‘clear and convincing’’ standard of proof
had been applied.
The Commission replied to the court in a Report
released December 11, 1978. Therein the Commission
stated (a) it had used the preponderence of the evidence
test in its review of the Initial Decision and (b) it oppos-
ed imposition of the higher standard urged by Sea
Island. (App. 14a-18a). In addition the Commission
alleged in a footnote:
Thus, although the evidence supporting the conclu-
sions in our Decision, supra, which were adverse to
Sea Island was sufficient to satisfy the ‘‘clear and
convincing[’’] test referred to by the Court of Ap-
peals in Collins Security [sic] Corp. v. SEC, supra,
we did not believe it necessary to state that the
evidence was of the kind that could meet a higher
standard than the customary preponderance of the
evidence test. (App. 14a n.3).
There is no indication, however, that this statement was
anything more than bootstrapping. The Commission did
not recanvass the record in light of the higher standard
of proof being urged upon the court by Sea Island. The
issue with respect to which Sea Island seeks Supreme
Court review was created when the court of appeals re-
jected the Commission’s use of the preponderance of the
6
evidence test in favor of the clear and convincing stan-
dard, but failed to require the Commission to reconsider
the case in light of the higher standard.
The Commission’s reconsideration of the ad-
ministrative record in this case would not be a mean-
ingless exercise, particularly in light of the nature of the
charges involved. The Commission’s revocation decision
relied heavily on the administrative law judge’s conclu-
sion that Sea Island’s president and sole stockholder,
Charles E. Bell, made deliberate misrepresentations to
the Commission regarding improper billing practices at
station WSIB. The record shows Bell admitted that,
without his knowledge or consent, illegal rebates had
been given to two advertisers between June and
December, 1972.’ He testified that he did not learn what
had occured until after October 3, 1973, about five
months after the Commission investigation of these mat-
ters began, and that a short time later he informed the
Commission via letter of what he had learned. He con-
sistently has denied ever lying to the Commission. The
administrative law judge simply disbelieved Bell and Sea
Island’s other witnesses. (App. 45a). With minor
modifications, the Commission adopted the judge’s fin-
dings, which were based on a preponderance of the
evidence. In essence, the Commission rested its revoca-
tion order on findings—including those on the essential
question of truthfulnmess—reached under a lower stan-
dard of proof than subsequently required by the court
of appeals. Yet, despite the fact the findings were based
? Bell’s son, Charles E. Bell Jr., as sales and station manager, had
participated in the rebate arrangement. During the period when the
rebates were made, Bell Sr. was absent from Beaufort for substantial
periods of time. Rebate checks were issued by Bell Sr.’s wife on the in-
struction of Bell Jr. At the time, Mrs. Bell and Bell Jr. were officers
and directors of Sea Island, but owned no stock.
7
on the wrong evidentiary standard, the court below af-
firmed the Commission’s order.
REASONS FOR GRANTING THE WRIT
I. The Court Below Decided an Important
Federal Question, Regarding the Scope of
Review of Administrative Adjudications, in a
Manner Contrary to the Administrative Pro-
cedure Act and Established Principles of Ad-
ministrative Law.
The court of appeals decision below marks the first
time the obligation of using a clear and convincing stan-
dard of proof in weighing the evidence in a broadcast
license revocation proceeding has been imposed on the
FCC. The court, in so doing, relied heavily on its earlier
decision in Collins Securities Corp. v. Securities and Ex-
change Commission,’ the reasoning of which was re-
jected by the Fifth Circuit in Steadman v. Securities and
Exchange Commission.‘ This Court recently granted a
petition for certiorari in Steadman.’
Having reached its holding regarding the standard
of proof—a holding strongly urged by Petitioner—the
court below nonetheless did not remand the case for
Commission reconsideration under the more stringent
standard. Instead, relying on a post hoc representation
> 183 U.S. App. D.C. 301, 562 F.2d. 820 (1977). In Collins, the
court held that the clear and convincing standard of proof must be
used in SEC proceedings looking toward possible revocation of a
broker’s license. Accord, Whitney v. Securities and Exchange Com-
mission, 196 U.S. App. D.C. 12, 604 F.2d 676 (1979).
* 603 F.2d 1126 (1979).
* Certiorari was granted on April 28, 1980. 48 U.S.L.W. 3698
(1980)(No. 79-1266).
by the FCC as to what would have happened had the
higher standard of proof been applied, the court affirm-
ed the agency’s order revoking Sea Island’s license. In
an attempt to bolster its misplaced reliance on the Com-
mission’s representation, the court below stated,
**Because the Commission did not expressly set forth
[the clear and convincing] standard in the first instance,
and indeed resisted it on remand, we have been par-
ticularly careful.’ (App. lla-12a.) But it is unclear, at
best, what the court was ‘‘particuarly careful’’ in doing.
Had the proper standard of proof been applied at the
agency level, the judicial function would have been
limited to determination of whether substantial evidence
supported the Commission’s order. But here the Com-
mission never adjudicated the case under the proper
evidentiary standard; that failure completely undermines
the Commission’s factual determination, leaving no
lawful basis for the revocation order. A _ gratuitous
representation during the process of judicial review is
not a substitute for an agency adjudication. By being
**particularly careful’’ in its review, the court of appeals
cannot create a lawful Commission determination. In
fact, what the court did was to take upon itself the task
of measuring the evidence in the administrative
record—or rather a part of the record—against the
newly-imposed standard of proof.
The court’s action is contrary to the Administrative
Procedure Act and a significant deviation from
established principles of administrative law. Having laid
bare the Commission’s error of law, the court below ex-
hausted its judicial power.* All that remained for the
* E.g., Sunray Mid-Continent Oil Co. v. FPC, 353 U.S. 944 (1957)
(per curiam); FPC v. Idaho Power Co., 344 U.S. 17, 20 (1952);
Scripts-Howard Radio, Inc. v. FCC, 316 U.S. 4, 10 (1942); FCC v.
Pottsville Broadcasting Co., 309 U.S. 134, 145 (1940).
9
court to do was to remand the matter to the Commis-
sion for further proceedings in conformity with the ap-
plicable law. The Administrative Procedure Act
specifically directs the reviewing court to ‘‘hold unlawful
and set aside agency action, findings and conclusions
found to be .. . not in accordance with law.’’ 5 U.S.C.
§ 706(2)(A)(1976)(emphasis added). The proper path for
the Court—remand to the Commission—was clearly lit
by the precedents of this Court,’ and the Court of Ap-
peals for the District of Columbia Circuit itself.*
In affirming the Commission’s order, the court
below stated:
In this case, the Commission has reported to
the court that it would have made the same finding
in using the ‘‘clear and convincing’’ standard. We
have confidence in the accuracy of this representa-
tion. (App. Ila).
But that Commission representation was not the product
of de novo review of the evidence in the administrative
record. It is nothing more than speculation on the part
’ E.g., NLRB v. Enterprise Assoc., 429 U.S. 507, 522 n.9 (1977);
NLRB vy. Metropolitan Life Insurance Co., 380 U.S. 438, 444 (1965);
SEC v. Chenery Corp., 332 U.S. 194, 196 (1947) (Chenery Il); S&C v.
Chenery Corp., 318 U.S. 80, 88 (1943) (Chenery I); accord, Consolo
v. Federal Maritime Commission, 383 U.S. 607, 620-21 (1966); see
Ralston Purina Co. v. Louisville & Nashville R. Co., 426 U.S. 476,
477-78 (1976) (per curiam).
* E.g., Central Florida Enterprises, Inc. vy. FCC, 194 U.S. App.
D.C. 118, 141, 598 F.2d 37, 60 (1978); United States Lines, Inc. v.
Federal Maritime Commission, 189 U.S. App. D.C. 361, 374, 584
F.2d 519, 532 (1978); Collins Securities Corp. v. SEC, 183 U.S. App.
D.C. 301, 307, 562 F.2d 820, 826 (1977); Charlton v. FTC, 177 U.S.
App. D.C. 418, 423, 543 F.2d 903, 908 (1976); see KIRO, Inc. v. FCC,
178 U.S. App. D.C. 126, 130, 545 F.2d 204, 208 (1976).
**
10
of the Commission as to what might have been decided.’
An administrative order must stand or fall on the
grounds invoked by the agency itself at the time of its
Decision. ‘‘If that finding is not sustainable on the ad-
ministrative record made, then the [agency’s] decision
must be vacated and the matter remanded .. . for fur-
ther consideration.’’ Camp v. Pitts, 411 U.S. 138, 143
(1973). At the time of its Decision, the Commission did
not apply the clear and convincing standard. The court
of appeals should not have pretended that the Commis-
sion did.
The post hoc nature of the statement in the Report
characterizing the evidence is illuminated further by the
fact that only one of the Commissioners who issued the
Report also participated in the Commission’s 1976 Deci-
sion.'® Thus, in effect, one panel of officials was trying
* Had the Commission recanvassed the record, it clearly could have
said so. Compare the Commission’s Order in Pass Word, Inc.
F.C.C, 2d , 47 R.R. 2d 67 (1980):
STANDARD OF PROOF
. This matter first came before the Commission on
December 19, 1979. On that date, we voted to revoke all licenses
and deny all applications of Pass Word and Rodney Bacon
d/b/aCoeur d’Alene Answering Service .... At that time, the
standard of proof used by the Commision in a revocation pro-
ceeding was the ‘‘preponderance of the evidence’”’ test. Sea Island
Broadcasting Corp., 69 F.C.C. 2d 1796 (1978). On January 14,
1980, before this decision was released, the U.S. Court of Ap-
peals for the District of Columbia Circuit held, on appeal of Sea
Island, that ‘‘revocation of an FCC license is governed, at the
agency level, by the ‘clear and convincing’ standard of proof set
forth in the Collins decision for an SEC revocation of a broker’s
license.’’ Sea Island Broadcasting Corp. v. FCC, F.2d
., No. 76-1735 (D.C. Cir., Jan. 14, 1980). Accordingly, we
have recanvassed the record to determine whether the evidence
satisfies the standard announced by the Court of Appeals. 47
Rad. Reg. 2d at 103. (footnotes omitted) (emphasis added).
'° Only Commissioners Lee, Quello, and Washburn were serving on
the Commission at both times. But Commissioner Quello did not par-
ticipate and Commissioner L, ¢as absent when the 1976 Decision
was adopted.
1]
to convince the court below what an almost completely
different panel of officials would have done if it had
used the proper legal standard. The courts may review
only what the agency did, not what it might have done.
It is well established that courts nay not accept
‘*appellate counsel’s post hoc rationalizations for agency
action.’’ Burlington Truck Lines, Inc. v. United States,
371 U.S. 156, 168 (1962); accord, Federal Power Com-
mission v. Texaco, Inc., 417 U.S. 380, 397 (1974).
Similarly the courts should not accept post hoc ra-
tionalizations by the agency itself. The Third Circuit has
recognized this principle on at least two occasions where
agencies sought, on appeal, to buttress an inadequate
administrative record with further reasoning. American
Iron and Steel Institute vy. Environmental Protection
Agency, 568 F.2d 284, 296-97 (3d Cir. 1977); Dry Color
Manufacturers’ Association, Inc. v. Department of
Labor, 486 F.2d 98, 104 n.8 (3d Cir. 1973). In addition,
both the Fourth and Fifth Circuits have enunciated the
principle and followed the practice of disregarding after-
the-fact rationalizations by the agency. E./. DuPont de
Nemours & Co. v. Train, 541 F.2d 1018, 1026 (4th Cir.
1976), modified on other grounds, 430 U.S. 112 (1977);
American Petroleum Institute v. Occupational Safety
and Health Administration, 581 F.2d 493, 506 (Sth Cir.
1978), cert. granted, 440 U.S. 906 (1979).
The Commission’s Report is analogous to the litiga-
tion affidavits that this Court has held to be an inade-
quate basis for judicial review of administrative action.
Citizens to Preserve Overton Park v. Volpe, 401 U.S.
402, 419 (1977). In Citizens, the decision of the
Secretary of Transportation approving the construction
of a highway through a park was challenged in federal
district court as contrary to Section 4(f) of the Depart-
7%
12
ment of Transportation Act of 1966 and Section 138 of
the Federal-Aid Highway Act of 1968. In district court,
the defendants introduced affidavits, prepared specifical-
ly for the litigation, which indicated that the Secretary’s
decision was supportable. This Court, characterizing the
affidavits as post hoc rationalizations, held that judicial
review based solely on the affidavits was inadequate.
401 U.S. at 419.
Similarly here, the Commission relies upon its
Report, prepared specifically for appellate review, to
sustain its Decision. The Report is not the product of
detached adjudicatory decision-making, but is rather the
product of a litigant seeking to justify its previous ac-
tio’ In this context, it was error for the court below to
accept the Commission’s representation contained in
footnote 3 of the Report. In applying the standard for
judicial review enunciated in 5 U.S.C. § 706(2)(A), the
focal point ‘‘should be the administrative record already
in existence, not some new record made initially in the
reviewing court.’’ Camp v. Pitts, 411 U.S. at 142.
On remand, the question of the disposition of the
case under the higher standard was not even before the
Commission. The Commission itself recognized the
limited scope of the remand when it dismissed Sea
Island’s request for treatment under the newly-adopted
‘*distress sale’’ policy. Grant of that request would have
allowed the sale of WSIB to a Black-controlled partner-
ship at a price below market value. In a Memorandum
Opinion and Order, adopted the same day as its Report,
the Commission stated:
Although the Court of Appeals has remanded this
case proceeding to us, it is clear that it has done so
only for the purpose of obtaining answers to
specific questions posed by the Court .... Under
these circumstances, the remand order of the Court
13
must be construed as a very narrow and limited
one, which does not relinquish the Court’s statutory
jurisdiction over this case .... (App. 52a n. 1).
Stripping away the facade of the Commission’$ post
hoc representation, it becomes obvious that the court
below usurped the Commission’s task of weighing
evidence of wrongdoing against the clear and convincing
standard. Clearly it should not have done so. One of the
most deeply rooted tenets of administrative law is that
the reviewing court’s power is limited to correcting the
agency’s errors of law.
When an administrative agency has made an error
of law, the duty of the Court is to ‘‘correct the er-
ror of law committed by that body, and after doing
so to remand the case to the [agency] so as to af-
ford it the opportunity of examining the evidence
and finding the facts as required by law.’’ National
Labor Relations Board v. Enterprise Association,
429 U.S. 507, 522 n.9 (1977) (quoting J/nterstate
Commerce Commission v. Clyde Steamship Co.,
181 U.S. 29, 32-33 (1901)).
Here, the court of appeals properly held that the Com-
mission committed an error of law by not applying a
clear and convincing standard of proof to this license
revocation proceeding. The Commission must now ex-
amine the evidence and find the facts under the proper
standard of proof. The court of appeals may not assume
the task Congress has assigned to the Commission.
The seminal case of Securities and Exchange Com-
mision v. Chenery Corp., 318 U.S. 80 (1943) (Chenery
I), further supports Petitioner’s contention that the
court of appeals has exceeded its proper role as a
reviewing court.
If an order is valid only as a determination of
policy or judgment which the agency alone is
authorized to make and which it has not made, a
*%
14
judicial judgment cannot be made to do service for
an administrative judgment. For purposes of affir-
ming no less than reversing its orders, an appellate
court cannot intrude upon the domain which Con-
gress has exclusively entrusted to an administrative
agency. /d. at 88 (emphasis added).
The court of appeals lacks the authority to declare
the evidence in the administrative record to be clear and
convincing. It can only affirm or vacate a Commission
determination in that regard. Since the Commission has
not reached such a determination in a proper ad-
judicatory setting, the court of appeals is powerless to
affirm the Commission’s order in this case. As this
Court held in Chenery II:
[A] reviewing court, in dealing with a determination
or judgment which an administrative agency alone
is authorized to make, must judge the propriety of
such action solely by the grounds invoked by the
agency. If those grounds are inadequate or im-
proper, the court is powerless to affirm the ad-
ministrative action by substituting what it considers
to be a more adequate or proper basis. To do so
would propel the court into the domain which Con-
gress has set aside exclusively for the administrative
agency. Securities and Exchange Commission v.
Chenery Corp., 332 U.S. 194, 196 (1947).
Furthermore, the disposition of this case by the
court below is in direct conflict with two decisions in the
same circuit which clearly indicate that remand is re-
quired when an agency has used an incorrect standard
of proof in reaching an adjudicatory decision. Collins
Securities Corp. v. Securities and Exchange Commis-
sion, 183 U.S. App. D.C. 301, 302-03, 562 F.2d 820,
821-22 (1977); Charlton v. Federal Trade Commission,
177 U.S. App. D.C. 418, 423, 543 F.2d 903, 908 (1976).
In Charlton, the court of appeals held that the agency
had applied the wrong standard of proof; there,
15
however, the court of appeals correctly remanded the
case.
We perceive one error which, all else aside,
necessitates administrative reconsideration of the
evidence. The crux of the difficulty is the Commis-
sion’s use of a totally incorrect standard of proof in
passing on Charlton’s blameworthiness. It follows
that, however Charlton might fare on his other con-
tentions, the Commission’s present disciplinary
order could not be left standing. 177 U.S. App.
D.C. at 421, 543 F.2d at 906.
Similarly in Collins, after holding that a clear and con-
vincing standard of proof rather than a _ mere
preponderance of the evidence was to be used by the
agency, the court of appeals stated:
Any review of the evidence in this opinion would
necessarily be selective in some degree, and we do
not wish to convey the impression that the Commis-
sion may likewise be selective in its reconsideration.
On remand, the entire evidentiary record must be
reconsidered by the Commission. 183 U.S. App.
D.C. at 307, 562 F.2d at 826.
The circuit previously has followed consistently the
established principle that the reviewing court’s function
is limited to correcting the agency’s error of law; it may
not uphold an agency order on grounds other than those
enunciated by the agency at the time of its decision.''
The Administrative Procedure Act provides ‘‘[a]
sanction may not be imposed or rule or order issued ex-
cept on consideration of the whole record or those parts
'' E.g., Central Florida Enterprises, Inc. v. FCC, 194 U.S. App.
D.C. 118, 141, 598 F.2d 37, 60 (1978); United States Lines, Inc. v.
Federal Maritime Commission, 189 U.S. App. D.C. 361, 374, 584
F.2d 519, 532 (1978); KIRO, Inc. v. FCC, 178 U.S. App. D.C. 126,
130, 545 F.2d 204, 208 (1976).
16
cited by a party... .’’ 5 U.S.C. § 556(d)(1976). When
an agency is ‘‘consider[ing]’’ the record it is axiomatic
that at the time it does so it must concurrently be using
the proper standard. The standards of clear and convin-
cing proof and preponderance of the evidence are so dif-
ferent that the court and the Commission must not be
allowed merely to pay lip service to the higher
standard.'?
The necessity that the administrative agency itself
weigh the evidence is emphasized by the situation
presented to this Court in Woodby v. Immigration and
Naturalization Service, 385 U.S. 276 (1966).'’ There the
Court held that in the absence of an expression of Con-
gressional intent to the contrary,'* the judiciary may
determine the degree of proof required in deportation
proceedings. The Court further held that in such pro-
ceedings, the Government must establish its allegations
by clear, unequivocal and convincing evidence. /d. at
'? The importance of the Commission’s obligation as trier of fact is
emphasized by the formulations that have been given to the clear and
convincing standard of proof. For instance:
**[T]he witnesses to a fact must be found to be credible and that
the facts to which they have testified are distinctly remembered
and the details thereof narrated exactly and in due order and that
the testimony be clear, direct and weighty and convincing so as to
enable [the trier of fact] to come to a clear conviction without
hesitancy of the truth of the precise facts in issue.’’ Aetna In-
surance Co. v. Paddock, 301 F.2d 807, 811 (Sth Cir. 1962)
(quoting the trial court with approval). See generally VIII A.
Wicmore, Evipence § 2398 (1940),
'' In Woodby, this Court construed Sections 106(a)(4), and
242(b)(4) of the Immigration and Naturalization Act, 8 U.S.C.
§§ 1105a(a)(4), 1252(b)(4). The pertinent provisions of those sections
are substantially similar to Sections 7 and 10(e) of the Administrative
Procedure Act at issue here, 5 U.S.C, §§ 556, 706.
'* See Vance v. Terrazas, 62 L.Ed. 2d 461, 473-74 (1980).
17
286. In one of the two cases before the Court in Wood-
by,'* the agency’s special inquiry officer concluded that
the Government had established its contentions to sup-
port a deportation order ‘‘ ‘with a solidarity far greater
than required,’ but did not further elucidate what was
‘required.’ ’’'® The Board of Immigration Appeals
stated that it was ‘‘ ‘established beyond any reasonable
doubt’ ’’ that the petitioner had obtained a passport
under a false name and that it was a ‘‘ ‘most unlikely
hypothesis’ ’’ that someone other than the petitioner
had obtained and used the passport.'’ Despite these fin-
dings at the agency level, this Court, upon holding that
a clear, unequivocal and convincing standard of proof
must be applied, set aside the judgment of the court of
appeals, and remanded the case with directions to re-
mand to the agency for further proceedings.
Similarly here upon holding that a higher standard
of proof than previously used is required in FCC license
revocation proceedings, the court of appeals should have
remanded the case to the Commission. In failing to do
so, the court exceeded the scope of review established in
the Administrative Procedure Act. If allowed to stand,
the decision below will mark a significant expansion of
the role of reviewing courts in weighing the evidence in
administrative actions.'*
'’ Sherman v. Immigration and Naturalization Service, 350 F.2d
894 (2d Cir. 1965), remanded, 385 U.S. 276 (1966).
‘© 385 U.S, at 279.
'" Id,
'" The Court, in its discretion, may deem this matter suitable for
summary disposition, such as was employed in a similar case, Sunray
Mid-Continent Oil Co. v. FPC, 353 U.S. 944 (1957) (per curiam). In
Sunray, the Federal Power Commission had determined that it lacked
the power under § 7(c) and (e) of the Natural Gas Act, 15 U.S.C.
§ 717f(c)(e) to issue certificates of public convenience and necessity of
limited duration. The Court of Appeals for the Tenth Circuit held that
the Commission did have authority to issue such certificates, but went
Il. This Case and Steadman, for which Certiorari
Has Been Granted, Involve Two Aspects of a
Larger Administrative Law Issue: Tandem
Review Would Be Appropriate
This Court recently granted a petition for a writ of
certiorari to review Steadman v. Securities and Exchange
Commission, 603 F.2d 1126 (Sth Cir. 1979), cert.
granted, 48 U.S.L.W. 3698 (1980)(No. 79-1266). The
issue presented in that case is whether, in SEC
disciplinary proceedings, violations of the anti-fraud
provisions of federal securities laws must be proved by
clear and convincing evidence. The Fifth Circuit affirm-
ed the SEC as to the standard of proof, holding that
only a preponderance of the evidence is required. Peti-
tioner Steadman asserts that the Fifth Circuit’s opinion
is irreconcilably in conflict with Collins Securities Corp.
v. Securities and Exchange Commission, supra. In Sea
Island, as noted previously, the court below heavily
relied upon Collins in imposing the clear and convincing
standard of proof in FCC license revocation pro-
ceedings. See note 3 supra.
By considering this case and Steadman in tandem,
the Court will have the opportunity to give clear
guidance to the courts below regarding (1) the standard
of proof to be applied in agency proceedings looking
toward the imposition of serious sanctions, and (b) the
proper disposition by the reviewing courts of cases in
which the agency used a lower standard than required.
on to affirm the order on the ground that it would have been ap-
propriate for the Commission to deny issuance of the certificate. This
Court granted certioriari, and summarily reversed and remanded the
case to the court of appeals for remand to the Commission. The Court
held that the reviewing court’s power was exhausted when it held that
the Commission had the authority to issue the certificate. /d. at 945.
19
While the two cases obviously do not present the same
question, they do present two aspects Of a larger ad-
ministrative law issue regarding the importance of the
standard of proof used in agency adjudications. Both
aspects of the issue should be addressed by the court.
CONCLUSION
For these reasons, this petition for a writ of cer-
tiorari should be granted.
Respectfully submitted,
JOHN H. MIDLEN, JR.
HARRY C. MARTIN
MATTHEW H. MCCorRMICK
2033 M Street, N.W.
Washington, D.C. 20036
Attorneys for Petitioner
Of Counsel:
MIDLEN & REDDY
2033 M Street, N.W.
Washington, D.C. 20036
June 3, 1980
APPENDIX
la
APPENDIX A
UNITED STATES COURT OF APPEALS FOR
THE DISTRICT OF COLUMBIA CIRCUIT
September Term, 1979
No. 76-1735
SEA ISLAND BROADCASTING CORPORATION OF S.C.,
Appellant
Ve
FEDERAL COMMUNICATION COMMISSION, Appellee
APPEAL FROM AN ORDER OF THE FEDERAL
COMMUNICATIONS COMMISSION
BEFORE: LEVENTHAL* and ROBINSON, Circuit Judges, and
RicHey**, United States District Judge for the
District of Columbia
Judgment
Filed Jan 23, 1980
This cause came on to be heard on the record on appeal
from the Federal Communications Commission, and was
argued by counsel. On consideration thereof, it is ORDERED
AND ADJUDGED, by this Court, that the order of the Federal
Communications Commission under review herein is hereby
affirmed, in accordance with the Opinion of this Court filed
herein this date.
Per Curiam
For the Court
/s/GEORGE A. FISHER
GeorGE A. FISHER
Clerk
Dated: January 14, 1980
Opinion for the Court filed by Circuit Judge Leventhal.
* This opinion was written by Circuit Judge Leventhal and con-
currences were received from the other Judges prior to his death.
** Sitting by designation pursuant to 28 U.S.C. § 292(a).
2a
Notice: This opinion is subject to formal revision before publication
in the Federal Reporter or U.S.App.D.C. Reports. Users are
to notify the Clerk of any formal errors in order that cory ctions may be
made before the bound volumes go to press.
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 76-1735
SEA ISLAND BROADCASTING CORPORATION OF S.C.,
APPELLANT
Vv.
FEDERAL COMMUNICATIONS COMMISSION, APPELLEE
Appeal From An Order Of The
Federal Communications Commission
Argued June 2, 1978
Decided January 14, 1980
John H. Midlen, Jr. with whom John H. Midlen was
on the brief, for appellant.
Thomas R. King, Jr., counsel, Federal Communications
Commission, with whom Robert R. Bruce, General Coun-
sel and Daniel M. Armstrong, Associate General Coun-
sel were on the brief, for appellee.
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.
3a
Before: LEVENTHAL * and ROBINSON, Circuit Judges,
and RICHEY **, United States District Judge
for the District of Columbia
Opinion for the Court filed by Circuit Judge LEVENTHAL.
LEVENTHAL, Circuit Judge: This case is before the
court on appeal by Sea Isiand Broadcasting Corporation
(Sea Island) from a decision of the Federal Communica-
tions Commission which revoked its license to operate
WSIB, an AM radio station in Beaufort, South Carolina.’
The Commission’s revocation was based primarily on
grounds that the owner and officers of Sea Island made
deliberate misrepresentations and other misleading and
deceptive statements to the Commission in order to con-
ceal improper billing practices. The Commission con-
cluded that Sea Island has shown “a classic pattern” of
such misrepresentations and misleading statements “when
it believed it could effectively conceal suspected wrong-
doing.” * It further ruled that the kinds of fraudulent
billing used by Sea Island “were serious and reinforced
our conclusion to revoke Sea Island’s license.” The Com-
mission concluded:
In short, the effective regulation of the communica-
tions industries under our jurisdiction is premised
on our ability to depend on the accuracy and truth-
fulness of our licensee’s representation to us. Once
we find that we cannot rely on a licensee's represen-
* This opinion was written by Circuit Judge Leventhal and
concurrences were received from the other Judges prior to
his death.
** Sitting by designation pursuant to 28 U.S.C. § 292(a).
'The Commission’s Decision is reported at 60 FCC 2d 146
(1976) (J.A. 19). The Memorandum Opinion and Order
denying reconsideration is reported at 64 FCC 2d 721 (1977)
(J.A. 86).
260 FCC 2d at 30.
4a
tations to us, the only suitable penalty is revocation
of the license.
In denying reconsideration, the Commission pointed out
that it had given Sea Island a fair opportunity to present
its arguments and that it had had oral argument before
the Commission upon the exceptions to the initial decision
of the presiding administrative law judge. The Com-
mission stated:
Hearing oral argument in a proceeding such as this
provides the Commissioners with the opportunity to
ask the parties probing questions on any matters of
record, including the evidence and the findings and
conclusions of the presiding judge as well as the sig-
nificant arguments raised in the written pleadings
of the various parties.
The case arises out of an investigation by the FCC’s
Broadcasting Bureau in 1973 into the station’s advertis-
ing sales and billing practices. The Commission’s rules
provide that no licensee shall knowingly issue any docu-
ments which misrepresent the amounts charged for ad-
vertising, the nature, content or quality of the advertis-
ing, or the date or time of broadcast.’
The record discloses that Sea Island admitted the facts
forming the basis for the Commission’s finding that it
violated the rule. It suffices here to mention the viola-
tion that occurred when Charles Bell, Jr., sales and
station manager, and a vice president, treasurer and
director, entered into an agreement with one Smith,
manager of a TV store (Palmetto). Smith agreed to
$47 C.F.R. § 73.1205 (1976) (Addendum) is known as the
“fraudulent billing rule.” This rule was amended in 1976, but
the amendment was minor and not pertinent to this case. 41
Fed. Reg. 23675-78 (1976). The term “fraudulent billing’
has become an abbreviated manner of referring to various
billing practices prohibited by Section 73.1205. Decision, 60
FCC 2d at 147 n.2 (J.A. 20 n.2).
Sa
purchase cooperative advertising on WSIB, and in return
Bell agreed to rebate to Palmetto its share of the cost
of the cooperative advertising. The mother of Charles
Bell, who was secretary of the corporation, and business
manager, issued rebate checks of approximately $2500,
which caused a national cooperative advertiser, Philco-
Ford, to pay twice what it should have paid for the
advertising run on WSIB. Eventually Charles Bell, Sr.
wrote to the Bureau on November 16, 1973 admitting
to the rebates by WSIB of one-half of the amount of
monthly billings to Palmetto. However, when the field
investigators interviewed both Charles Bell, Sr. and
Charles Bell, Jr. in April 1973, they denied knowledge
of fraudulent billing. At the hearing Charles Bell, Jr.
admitted that his statement was false. His position was
that he did not believe the rebates violated the rule
though he thought the arrangement was shady. As to
Charles Bell, Sr. he had previously written a letter to
the Commission on October 3, 1977, in response to letters
from the Complaints Division of the Broadcast Bureau
on August 29, requesting information, and on September
18, indicating that comparison of ledger sheets gave in-
dication that WSIB may have been involved in fraudulent
billing.
In the October 3 letter Charles Bell, Sr. stated that
the billing procedures had been “carefully reviewed,”
stated that he had been unable to find an explanation
from the employee who made the bookkeeping entries
(“not a trained bookkeeper”) of the matter and advised
that it was not the handwritten ledger sheets but the
typewritten ledger sheets that were used for billing. Bell’s
subsequent testimony revealed that before sending the
October 3 letter he had not questioned his wife (the
bookkeeper), his son, or Palmetto’s proprietor about the
matter and had not inspected the typewritten ledger
sheets which had been used. He later wrote the Bureau
6a
that it was not until after his October 3 letter and his
examining the typewritten ledger sheets as instructed,
that he discussed the matter with his wife and son and
learned that his son had agreed to the rebate.
The Administrative Law Judge reached the following
conclusion as te the credibility of Bell, Sr.:
It has been found that time after time Bell, Sr.
denied knowledge of the fraudulent billing under cir-
cumstances which render those denials impossible of
belief. He apparently believed that if he could paint
himself as the credulous victim of a wife and son
who permitted him to destroy himself through their
silence he could escape accountability. The record
warrants no such conclusion.
The Commission agreed with the ALJ’s findings and
conclusions:
We cannot believe that Bell, Sr. did not question
his wife or son about possible fraudulent billing for
over five months following the April 1973 visit to
WSIB by Commission investigators.
* * * a
Upon receipt of the Commission’s September 18, 1973
letter he must have known that WSIB billing prac-
tices concerning the Palmetto account, were being
questioned by the Commission. Further, Bell knew
that his wife kept the station’s records and thus
would have to know about any fraudulent billing
practices and that his son was the salesman for the
Palmetto account. Bell’s explanation that he did not
question his wife and son because he trusted them
does not make sense. If he trusted them he would
have no natural reason for not questioning them.
The Commission stated: “The crux of our decision to
revoke Sea Island’s license is our conclusion that the
owner and officers of Sea Island made deliberate misrep-
resentations to the Commission... .” It is abundantly
7a
clear from the foregoing that there was substantial evi-
dence to support the Commission’s order of revocation.
Appellant further argued that the Commission as-
sumed that its only task was to determine whether there
was “substantial evidence” to support a finding of mis-
representation and fraudulent billing. Had it governed
itself by such a standard, it would clearly have been in
error,‘ would have confused the standard for judicial
review (“substantial evidence”) with the standard of
proof governing the agency. While the Commission re-
port does use the term “substantial” it is in a context
which showed that it was requiring that the evidence be
“reliable, probative and substantial.” We reject appel-
lant’s contention.
Appellant separately argued that the standard of proof
necessary to the Commission in order to justify such an
order must be “clear and convincing.” The appellant con-
sidered the case governed by Collins Security Corp. v.
SEC, 183 U.S.App.D.C. 301, 562 F.2d 823 (1977). And
it argued that the Commission had applied a ‘“‘preponder-
ance of evidence” standard, and did not require “clear
and convincing evidence.”’
After oral argument, the court remanded the record
to the Commission in order that it might have the views
of the Commission concerning the following matters:
(1) What standard of proof was applied in the dis-
position of this matter by the Commission?
(2) What would be the effect on the public interest
if the Commission were to apply a “clear and convincing”’
standard of proof to issues of fact in license revocation
proceedings?
*Charlton v. FTC, 177 U.S.App.D.C. 418, 548 F.2d 908
(1976).
8a
In its report to the court, adopted November 30, 1978 °
the Commission stated:
that when it reviewed the Initial Decision and the
record in this proceeding, de novo, it applied the
customary standard of proof in an administrative
proceeding, i.e., the preponderance of the evidence
test. 69 FCC 2d at 1797.
The use of the “preponderance of evidence” standard
is the traditional standard in civil and administrative
proceedings. It is the one contemplated by the APA, 5
U.S.C. § 556(d).*
In its report the Commission stated that the evidence
supporting its action of revocation “was sufficient to
meet the “clear and convincing test,” but further sub-
mitted that the Collins test is not applicable to this case
and actions by the FCC.
In support of its view that Collins is not applicable,
the Commission submitted: Broadcasters have a special
“public trust” status, as public trustees of a scarce re-
source. In view of the scarcity of broadcast frequencies
“the grant of a license to one person precludes another
from obtaining such a privilege.” Since the licensees
“receive very significant benefits by virtue of their status
as Commission licensees, they owe the public a very high
standard of stewardship in return for their privileged
positions.” It is not appropriate to require a higher
standard of proof than traditional preponderance, where
the licensee has abused its “special fiduciary duty to the
public.” The loss of a broadcast license does not amount
5In re Sea Island Broadcasting Corp. of S.C. (WSIB), 69
FCC 2d 1796 (1978).
*H.R. Rep. No. 1980, 79th Cong., 2d Sess. 37 (1946) re-
printed in S. Doc. No. 248, 79th Cong., 2d Sess., Administra-
tive Procedure Act—Legislative History 271 (1946).
9a
to potential deprivation of a livelihood as in Collins since
the former licensee may still obtain a job in the broad-
casting industry and the revocation of one license “would
not necessarily result in the loss of any other broadcast-
ing station’s license held by such a licensee.” The analysis
in FCC revocation proceedings does not usually rely on
the sophisticated type of inferential proof that is in-
volved in SEC proceedings. “Our revocation proceedings
usually involve relatively simple factual questions such
as whether a particular licensee violated our rules by
performing or failing to perform certain acts.”
While the Commission has some persuasive points, it
has not satisfied us that the difference in consequence
is notable in terms of distinguishing an SEC revocation
from an FCC rvvocation. The broadcaster who loses his
license may get other jobs in the industry, but he cer-
tainly has lost a business. The holder of multiple licensees
may continue to hold one although another is revoked,
but the fact of revocation of one license would not be
ignored in case of a challenge to other licenses.
That the revocation grounds may be simply proved
is no reason for requiring less evidence of the violation.
True, there is less danger of misapprehension of issues,
but correspondingly there should be little burden involved
in making clear proof of the fraud.
The Commission is concerned lest a higher standard
of proof either weaken its regulation authority or en-
courage or sanction shady tactics by licensees. There is
a difference between the duty imposed on a licensee (the
higher standard pertinent to a trustee) and the degree
of proof required to convince the decision maker that
there has been a violation of that duty. The fiduciary
duty is good reason for holding that when there has been
a misrepresentation even on a relatively minor matter,
the very fact of misrepresentation is more important tl an
the item involved, since the Commission must proceed on
10a
the basis of absolute trust and confidence in the rep-
resentations made to it by its licensees. FCC v. WOKO,
Inc., 829 U.S. 228 (1946); Lorain Journal Co. v. FCC,
122 U.S.App.D.C. 127, 351 F.2d 824.
What is perhaps a more important distinction between
FCC and other licenses is this: A broker has expecta-
tion of business for a lifetime. An FCC broadcast license
is for a three-year period. It may even be removed from
a person who is law-abiding if another is distinctly su-
perior, as shown in a subsequent comparative proceed-
ing. In such a proceeding it would suffice that distinctly
superior capability, under the various criteria used by
the FCC in comparative proceedings, be shown by a pre-
ponderance of evidence.
However, there is a “security” of interest during a
license term even assuming there is none at the end of
a term. CAB v, Delta Air Lines, 367 U.S. 316 (1961).
And in the case of FCC licenses there is some expectancy
of renewal, for a wide range of situations, at least in
terms of a preference over others who are only equally
qualified. Fidelity Television v. FCC, 169 U.S.App.D.C.
225, 248, 515 F.2d 684, 702 (1975).
There is also the consideration that when the FCC
proceeds against a licensee for civil liability, because of
violation of FCC rules, the appropriate standard would
be preponderance of the evidence. True that would be
the standard applied by the court in a de novo proceed-
ing, but the liability would be assessed initially by FCC
under a preponderance standard; see 5 U.S.C. § 554, as
governing agency forfeiture proceedings.
After all the analysis, we stand with the view that
revocation of an FCC license is governed, at the agency
level, by the “clear and convincing” standard of proof
set, forth in the Collins decision for an SEC revocation
of a broker’s license. We do not believe that this stand-
lla
ard will, as the Commission fears, “significantly burden”
its efforts to regulate licensees in furtherance of the
public interest.
We do not suggest that the FCC should be required
to apply a “clear and convincing” standard as to all
matters which come before it. We certainly agree that
there are many license revocation proceedings where
nothing resembling a loss of livelihood is involved, as in
the case of Amateur Band (“HAM?’’) and Citizen Band
(“CB”) licensees. The same consideration would likely
apply to licenses in such services as the Industrial Radio
Service (business, manufacturing, forest products, pe-
troleum, power—see 47 C.F.R. Part 91) and Land Trans-
portation Radio Service (railroads, buses, trucks, taxi-
cabs, automobile emergency—see 47 C.F.R. Part 98),
where radio frequencies are used merely as a means
- of increasing the efficiency of certain occupations or
activities.
In this case the Commission has reported to the court
that it would have made the same finding in using the
“clear and convincing” standard. We have confidence
in the accuracy of this representation. We set forth
some pertinent facts in the preceding portion of this
opinion. There is much more to the same effect. The
Commission heard oral argument, and gave appellant an
effective opportunity to do what it could to undercut the
case mounted against it. Where the Commission ex-
pressly applies the “clear and convincing” standard, the
judicial function is only to see whether there is “sub-
stantial evidence” to support the Commission’s deter-
mination.’ Because the Commission did not expressly
7In an even more extreme case, where the jury is in-
structed to find a person guilty of a crime only if satisfied
of guilt “beyond a reasonable doubt,” its verdict is supported
by the court so long as it is supported by substantial evidence.
12a
set forth that standard in the first instance, and in-
deed resisted it on remand, we have been particularly
careful. We are ourselves convinced that the Commis-
sion at all times considered the proof of appellant’s
derelictions to be clear and convincing.
Affirmed.
13a
APPENDIX B
FCC 78-840
BEFORE THE
FEDERAL COMMUNICATIONS COMMISSION
Wasninoton, D.C. 20554
In the Matter of
Revocation of the License of
Sea ISLAND BROADCASTING CORPORATION OF | Docket No. 19886
S.C. (WSIB)
Beaufort, South Carolina
REPORT
(Adopted: November 30, 1978; Released: December 11, 1978)
By THE ComMISSION:
1. Ina Decision, 60 FCC 2d 146 (1976), reconsideration denied, 64
FCC 2d 721 (1977), the Commission revoked the license of Sea Island
Broadcasting Corporation of S.C. (Sea Island) for Station WSIB,
Beaufort, South Carolina. Our decision was based primarily on the fact
that Sea Island had shown a classic pattern of making deliberate
misrepresentations and other misleading and deceptive statements to
us in order to conceal billing practices which violated Section 73.1205 of
our Rules. We also determined that the kinds of improper billing
practices engaged in by Sea Island were serious and reinforced our
conclusion to revoke Sea Island’s license. Sea Island appealed the
Commission's decision to the United States Court of Appeals for the
District of Columbia Circuit, which has remanded the case to us in
order to ascertain what standard of proof was applied in this
proceeding and to obtain our views concerning the relevant public
interest considerations inherent in applying a “clear and convincing”
69 F.C.C. 2d
l4a
Sea Island B/cing Corp. of S.C. 1797
standard of proof to license revocation proceedings held before this
agency.
2. The Commission reviewed the Initial Decision and the record in
this processing, de novo, pursuant to authority granted by 5 U.S.C.
§557(b).! In conducting our review, we assumed that the customary
standard of proof in an administrative proceeding, namely the
preponderance of the evidence test,? applied in this case. Since, after
completing our analysis, we concluded that the evidence against Sea
Island was overwhelming and clearly met this normal administrative
standard, we did not feel it necessary to discuss the matter in our
opinion. 3 In answering the argument made by Sea Island that the
“clear, unequivocal and convincing” standard articulated in Woodby v.
Immigration and Naturalization Service, 385 U.S. 276 (1966), should
apply in this proceeding, we did indicate that “the pertinent provisions
of Section 556(d) of the APA clearly require only that a Commission
decision be ‘supported by and in accordance with the reliable,
probative, and substantial evidence’ of record,” since we believed that
Congress’s use of the term “substantial” in 5 U.S.C. 556(d) necessarily
assumed a finding that the evidence met the normal preponderance of
the evidence test, but did not impose a higher standard.‘ Similarly, by
use of the term “substantial” in footnote 8 of our Decision, 60 FCC 2d
at 150, we meant that the Broadcast Bureau had not presented a
sufficient amount of evidence to satisfy the customary preponderance
of the evidence standard.
8. We do not believe that the rationale of the Court of Appeals’
decision in Collins Securities Corporation v. SEC (Collins), 562 F.2d 820
(1977), is applicable to this case or to revocation proceedings at this
agency in general. In Collins, the Court stated that, because of the
1 The third sentence of 5 U.S.C. §557(b) states: “On appeal from or review of the initial
decision, the agency has all the powers which it would have in making the initial
decision except as it may limit the issues on notice or by rule.”
29 Wigmore, Evidence §2498 (3d ed., 1940); McCormick Handbook of the Law of
Evidence, §'s 339 and 355 (2d ed. Cleary, 1972); and Collins Security Corp. v. SEC, 562
F.2d 820, 823 (1977).
3 Thus, although the evidence supporting the conclusions in our Decision, supra, which
were adverse to Sea Island was sufficient to satisfy the “clear and convincing test
referred to by the Court of Appeals in Collins Security Corp. v. SEC, supra, we did
not believe it necessary to state that the evidence was of the kind that could meet a
higher standard than the customary preponderance of the evidence test.
‘In this regard, the legislative history of 5 U.S.C. §556(d) indicates that Congress
assumed the standard of proof in administrative proceedings was the preponderance
of the evidence test. H.R. Rep. No. 1980, 79th Cong., 2d Sess. 37 (1946), reprinted in S.
Doc. No. 248, 79th Cong., 2d Sess. Administrative Procedure Act—Legislative History
(1946) contains the following language at page 271:
“{ W ] here a party having the burden of proceeding has come forward with a
prima facie and substantial case, he will prevail unless his evidence is discredited
or rebutted. In any case the agency must decide ‘in accordance with the evidence.’
Where there is evidence pro and con, the agency must weigh it and decide in
accordance with the preponderance.” (Emphasis added.)
69 F.C.C. 2d
15a
1798 Federal Communications Commission Reports
type of case involved (fraud), and the heavy sanction imposed by the
Securities and Exchange Commission (deprivation of livelihood), as
well as the type of circumstantial proof on which the SEC must often
rely, the proper standard of proof was “clear and convincing” evidence,
as opposed to a preponderance of the evidence. 562 F.2d at 824.
However, a comparison of the regulatory framework in Collins,
supra,’ with the regulation of broadcasters, like Sea Island in this
proceeding, discloses significant differences which do not justify
imposing a “clear and convincing” standard on this Commission in
revocation proceedings.
4. Thus, it has long been recognized that broadcasters have a
special status as public trustees of a scarce resource, namely, the
broadeast frequencies. The Supreme Court has noted that, because
broadcast frequencies are limited, “they have been necessarily
considered a public trust,” Red Lion Broadcasting Cu. v. FCC, 395 U.S.
367, 383 (1969), and that broadcast licenses are a privilege, in these
words:
“Licenses to broadcast do not confer ownership of designated frequencies, but only
the temporary privilege of using them. 47 U.S.C. §301.” Red Lion, supra, at 394.
If the Government had not decided to create a special regulatory
system to insure that broadcasters would not receive interference in
their licensed service areas, broadcasters would not have the special
type of privileges they now enjoy. Thus, the scarcity of broadcast
frequencies necessitated the creation of a regulated industry, by which
the grant of a license to one person precludes another from obtaining
such a privilege, and in which the licensed members were given a
specially protected economic status not available in the market place in
return for responsibility to perform as trustees of special public
resources. Since broadcast and common carrier® licensees receive very
significant benefits by virtue of their status as Commission licensees,
they owe the public a very high standard of stewardship in return for
their privileged positions. Given the special standing of licensees as
recipients of valued privileges, it is not appropriate to require the
Commission to meet a higher standard of proof in revocation
proceedings than the traditional preponderance of the evidence test
where the licensee has abused its special fiduciary duty to the public.?
5. In addition, although revocation of a broadcast license can result
5 Securities dealers and brokers who register with the SEC, rather than receiving a
numerically limited, special privilege from the government are merely allowed to
participate in whichever facets of the securities industry they may choose.
®The Commission bestows similar advantages upon various radio common carrier
licensees which receive authority to use certain radio frequencies to provide services
for hire, such as licensees in the Domestic Public Land Mobile Radio Services (See 47
CFR Part 21).
TIn this regard, Section 307(d) of the Communications Act provides that broadcast
licensees shall be for no more than three years whereas other licenses can be granted
for periods of up to five years. This shorter license period for broadcast stations is,
69 F.C.C. 2d
16a
Sea Island B/cing Corp. of S.C. 1799
in the loss of a business enterprise by a licensee, this Commission's
station revocation proceedings do not usually involve the potential
deprivation of a licensee’s livelihood as was the case in Collins, supra.
For example, a broadcaster who loses a license for a broadcast station
is not barred by the Commission from the broadcast industry and is not
in the same position as a doctor or lawyer who loses his life-long license
to practice his profession. The loss of a broadcast license would not
preclude the former licensee from obtaining a job in the broadcast
industry, would not deprive him of any of the various operators’
licenses described in Part 13 »>f our Rules (47 CFR Part 13) which are
required to be held by those who operate stations licensed by the
Commission, and would not necessarily result in the loss of any other
broadcast station licenses held by such a licensee. Thus, even when
license revocation proceedings result in the loss of a broadcast license,
the sanction which the Commission imposes in such cases is limited to
the specific license which is the subject matter of the proceeding.*
6. Moreover, although our revocation proceedings may rely, in
part, on circumstantial evidence, and although circumstantial evidence
can, in some instances, be very significant in the resolution of disputed
issues of fact, we do not believe that the inferences we make in
ordinary cases involve the same kind of reliance upon elaborate and
indirect showings which the Court of Appeals in Collins, supra,
attributes to the SEC.° In Collins, supra, 562 F.2d at 822-823, the
Court of Appeals articulated its concern about the inferential mode of
reasoning exercised by the SEC to support allegations of security law
violations in market fraud cases, as follows:
“The legitimate need to rely on inferential evidence does, however, illuminate the
ambiguity and lack of precision in the definition of many security law violations.”
In contrast, even when our revocation proceedings involve the analysis
of facts and circumstances concerning possible misrepresentations to
the Commission, which is always a painstaking task, such an analysis
ordinarily involves traditional considerations of direct as well as
circumstantial evidence and does not usually rely on the sophisticated
type of inferential proof which the Court of Appeals noted in
discussing SEC proceedings. Thus, as stated above, our revocation
proceedings usually involve relatively simple factual questions, such as
further evidence of the temporary quality of broadcast licenses as well as the
legislative desire to have the licensee's public interest performance examined on a
rather frequent basis.
SIn Donald W. Reynolds, FCC 77-497, 41 R.R.2d 16 (1977), the Commission granted
license renewal applications for several broadcast stations even though it had refused
to renew the license of commonly owned station KORK-TV, Las Vegas, Nevada, due
to serious misconduct at that station.
® As we explained in our Decision, the Broadcast Bureau did not have to prove common
law fraud in order to prove that Sea Island violated Section 78.1205 of our Rules. 60
FCC 2d 146, 149.
6 F.C.C. 2d
‘7a
1800 Federal Communications Commission Reports
whether a particular licensee violated our rules by performing or
failing to perform certain acts.
7. Furthermore, the FCC has many licensees other than broadcast-
ers who are subject to revocation proceedings. Many of our licensees
receive authority to use radio as a hobby or convenience for five-year
periods in the Amateur Radio and Citizens Band Radio Services. The
Commission has more than 350,000 Arnateur Band (“ham”) licensees
and more than 13.8 million Citizens Band (CB) licensees. Clearly,
revocation of a CB or an Amateur Band station license would not
deprive the licensee of his livelihood. Further, many licensees in such
services as the Industrial Radio Service (business, manufacturing,
forest products, petroleum, power—See 47 CFR Part 91) and Land
Transportation Radio Service (railroads, buses, trucks, taxicabs,
automobile. emergency—See 47 CFR Part 93) use radio frequencies
merely as a means of increasing the efficiency of certain occupations or
activities. Thus, revocation of such licensees would not deprive
licensees of their livelihood.
8. We also believe that a “clear and convincing” standard of proof
for issues/ of fact in our license revocation proceedings would
significantly burden the Commission in its efforts to regulate the
licensees under its jurisdiction. The necessity of compiling sufficient
evidence in order to insure compliance with a “clear and convincing”
standard would likely require increased agency funds and staffing for
more investigators, attorneys, and support personnel, to maintain the
Commission’s performance of its supervisory responsibilities over all of
its licensees, including the 13.8 million Citizens Band operators.
9. Thus, we do not believe that the Court of Appeals’ determina-
tion in Collins, supra, that a “clear and convincing” evidence standard
is appropriate in certain SEC proceedings concerning allegations of
market fraud should be extended to any of this Commission’s
revocation cases. As we have explained in this Report, broadcasters
and radio common carriers subject to revocation proceedings receive a
certain protected economic status not available in the market place and
should thus remain subject to very high public interest standards of
compliance insofar as the performance of their fiduciary duties as
trustees of special public resources are concerned. Furthermore, many
of our other licensees, such as Citizens Band and Amateur licensees,
use their stations primarily for pleasure or as a matter of convenience
and thus have very slight private interests at stake in revocation
proceedings, compared to the public interest in having responsible
licensees. For the reasons we have outlined, we are convinced that the
public interest would be best served by use of the usual standard of
proof for administrative agencies, namely the preponderance of the
evidence test, and that no other factor in this particular case or other
69 F.C.C. 2d
18a
Sea Island B/cing Corp. of S.C. 1801
Commission proceedings would warrant the imposition of any higher
standard of proof.
FEDERAL COMMUNICATIONS COMMISSION,
WiLuiaM J. Tricarico, Secretary.
69 F.CC. 2d
19a
APPENDIX C
F.C.C. 76-582
BEFORE THE
FEDERAL COMMUNICATIONS COMMISSION
WASHINGTON, D.C. 20554
In the Matter of
Revocation of the License of Docket No. 19886
SEA ISLAND BROADCASTING CORPORATION
oF S.C. (WSIB), BEAUFORT, SOUTH
CAROLINA
APPEARANCES
John H. Midlen, John H. Midlen, Jr., Stanley B. Cohen, and Howard
M. Liberman on behalf of Sea Island Broadcasting Corporation of S.C.;
and Joseph Chachkin, W. Kennedy Keane and P. W. Valicenti on be-
half of the Chief, Broadcast Bureau.
DECISION
(Adopted: June 24, 1976; Released: July 14, 1976)
By THE CHAIRMAN FOR THE COMMISSION: COMMISSIONER LEE AB-
SENT; COMMISSIONER HOOKS CONCURRING IN THE RESULT. COM-
MISSIONER QUELLO NOT PARTICIPATING.
1. The Commission has before it the captioned revocation proceed-
ing against Sea Island Broadcasting Corporation of S.C. (WSIB) (Sea
Island), licensee of standard broadcast station WSIB, Beaufort, South
Carolina. We designated this proceeding for hearing by an Order to
Show Cause and Notice of Apparent Liability (FCC 73-1258), released
November 30, 1973, to resolve the following issues: '
(a) Whether, and if so, the extent to which the licensee knowingly
engaged in fraudulent billing practices in the operation of Sta-
'We further provided that if the record did not warrant revocation of WSIB’s license, it should
also be determined whether an Order of Forfeiture in the amount of $10,000 or some lesser amount
shouid ~ — — to Section 503(b) of the Communications Act for violations of Section
73.1205 of the Rules.
60 F.C.C. 2d
20a
Sea Island Broadcasting Corporation of S.C. 147
ioe WSIB in violation of Section 73.1205 of the Commission’s
ules;
(b) Whether, in light of all the facts and circumstances pertaining
thereto, the licensee has made misrepresentations to the Com-
mission or was lacking in candor as to its billing and bookkeep-
ing practices, including its practice of giving rebates; and
ether, in light of the information giving rise to the preced-
ing questions, if found to be true, the licensee possesses the
requisite qualifications to remain a licensee of the Commis-
sion.
2. Conferences and hearings were convened on various dates be-
tween January 11, 1974 and January 10, 1975, and the record was
closed on the latter date. In his Initial Decision (FCC 75D-19) released
May 1, 1975, the Presiding Judge concluded that Sea Island’s license
should be revoked because the owner and officers of Sea Island had
made deliberate misrepresentations to the Commission in attempts to
conceal serious violations of the fraudulent billing rules. * He also found
that the violations of the fraudulent billing rules over a prolonged
period of time reinforced his conclusion that the license should be
revoked. The Broadcast Bureau filed a statement in support of the
Initial Decision on June 16, 1975, and Sea Island filed exceptions to the
Initial Decision and a separate brief in — of its exceptions on
June 24, 1975. Each party replied to the other’s pleadings. Oral argu-
ments in this seooneding were heard on March 30, 1976, and Sea Island
~¢ nt — to correct the transcript of the oral argument on April
16, 1976.
3. Except as modified herein and in the rulings on exceptions set
forth in the attached —— we adopt the findings and conclusions
in the Initial Decision. The crux of our decision to revoke Sea Island’s
license is our conclusion that the owner and officers of Sea Island
made deliberate misrepresentations to the Commission. Section 312 of
the Communications Act authorizes the Commission to revoke a sta-
tion license for deliberate misrepresentations attributable to that sta-
tion’s licensee. This explicit prerogative given to the Commission by
the Communications Act has been affirmed many times by the courts.
See, e.g., FCC v. WOKO, Inc., 329 U.S. 223 (1946); Immaculate Concep-
tion Church v. FCC, 320 F.2d 795, cert. denied, 375 U.S. 904 (1963);
Lorain Journal Company v. FCC, 351 F.2d 824 (1965), cert. denied, 383
U.S. 967 (1966); and Continental Broadcasting, Inc. v. FCC, 439 F.2d
580, cert. denied, 403 U.S. 905 (1971). The Commission insists on com-
lete candor from its licensees and where, as here, that candor has
boon found lacking in response to official Commission inquiries, the
Commission has terminated the license. See, e.g., Milton Broadcasti
Co., 34 FCC 2d 1036 (1972); WPRY Radio Broadcaste~s, Inc., 40 FC
1183 (1973); and Nick J. Chaconas, 28 FCC 2d 231 (1971).
2The term “fraudulent billing” has become an abbreviated manner of referring to the various
billing practices prohibited by Rule 73.1206. In general, Rule 73.1206 forbids a broadcast licensee
from issuing any bill, invoice, or other document which contains false information concerning the
amount actually charged for any of its broadcast advertising or which misrepresents the nature and
content of ak advertising, the quantity of advertising broadcast (i.e, the number or length of
advertising messages), or the time of day or the date of such broadcast advertising.
(c)
3Sea Island's motion is unopposed and the corrections it suggests would clarify the transcript.
Therefore we shall grant Sea Island's motion.
60 F.C.C. 2d
2la
148 Federal Communications Commission Reports
4. The record in this proceeding is replete with examples of deliber-
ate misrepresentations by the owner and officers of Sea Island.
Charles Bell, Sr., the sole owner, President, and a Director of Sea
Island since February 1972 and the general manager of Station WSIB
since 1965, has demonstrated a marked A pragie08 for misrepresenta-
tions and deceptions. Bell, Sr., displayed a willingness to deceive the
Commission in his April 26, 1973 statement to our investigators and
during his testimony in this proceeding; and made deliberate misrepre-
sentations in his October 3, 1973 letter to the Commission. Bell, Jr.,
Vice President, Treasurer, and a Director of Sea Island from March 1,
1972 to April 18, 1974, and a salesman for WSIB during the period of
fraudulent billing, lied to our investigators in his April 26, 1973 state-
ment concerning his participation in and knowledge of fraudulent bill-
ing practices at Station WSIB.
Fraudulent Billings
5. Sea Island does not dispute the existence and the mechanics of
the arrangements found by the Presiding Judge to be violations of our
fraudulent billing rules (Section 73.1205 of our Rules). Thus, Sea Island
admits that it gave rebates to Palmetto TV and Stereo Center (Pal-
metto) from April through December 1972 which amounted to half the
sums which Palmetto had paid Sea Island for advertising Palmetto’s
products on Station WSIB.‘ Further, Sea Island concedes that it is-
sued invoices to co-op advertisers of Palmetto, the Sutcliffe Furniture
Company and the Country Store which misrepresented the types of
advertising broadcast, in that certain commercials were “converted”
into a different number of conventional spot announcements in an
effort to “simplify” the bills sent to national advertisers. * Sea Island
also admits that it billed to Sutcliffe as co-op advertising broadcasts
which advertised non-co-op products. All of the foregoing billing prac-
tices are clear violations of Section 73.1205 of our Rules and amount to
what that Section of our Rules describes as fraudulent billing prac-
tices.
6. Sea Island’s main contention regarding the fraudulent billing is-
sue is that the designation order raised the question of whether “the
licensee knowingly engaged in fraudulent billing practices” (emphasis
added). According to Sea Island, the Broadcast Bureau was required to
prove that Sea Island commited technical fraud as defined by South
Carolina law; that is, that the defendant made a material misrepresen-
false since they djd not reveal that the compensation WSIB received was only half the amount shown
on the invoices because of the 50 percent rebate paid by WSIB to Palmetto. Further, since Palmetto’s
co-op advertiser had a practice of reimbursing Palmetto 50 percent of the amount invoiced, Palmetto
could receive its advertising free.
5 Sea Island excepts to the Judge's findings that WSIB broadcast Sound-Ads for Palmetto and then
billed Palmetto falsely for conventional spot announcements. The record shows tl.at Palmetto spon-
sored Tides Reports (not Sound-Ads). The error is harmless. The Judge also found that the invoice
showed the correct charge to Palmetto (when a rebate was not made), but was inaccurate as to the
amount and type of advertising that had been broadcast. The licensee violated Section 73.1205 of the
Rules when it converted Palmetto’s partial sponsorship of Tides Reports advertisements into conven-
tional spot announcements on its invoice. In addition, the correctness of the amount billed is uncertain
because both Sound-Ads and Tides Reports could be pre-empted and the licensee relied on start
orders, which would show the number of ads requested, and not on the programming logs, which
would have shown the number of ads broadcast. Moreover, none of these findings affect the fact that
Palmetto violated Rule 73.1205 by giving rebates to Palmetto.
60 F.C.C. 2d
4The invoices i Station WSIB which were submitted to co-op advertisers of Palmetto were
22a
Sea Island Broadcasting Corporation of S.C. 149
tation, that he knew it was false when he made it, that he made it with
the intention that it should be acted upon, that it was acted upon to the
detriment of the party so acting, and that the party acting upon the
misrepresentation was cures thereby. * Sea Island relies on Harvit
Broadcasting Corp., 37 FCC 2d 60, 6% (Review Board, 1972) as drawing
a distinction between a “fraudulent” billing issue and an overbilling
issue. In Harvit, the petitioner who requested a fraudulent billing issue
had not, in the Board’s opinion, made sufficient allegations of affirma-
tive fraud. The Review Board therefore added an overbilling issue.
The issue as framed by the Board did not include the terms “fraud” or
“knowingly,” but merely questioned whether the licensee had engaged
9 we practices “violative of Section 73.1205 of the Commission’s
ules.”
7. We categorically reject Sea Island’s argument that the Broadcast
Bureau had to prove fraud.’ The Commission has so held previously in
Blackstone Broadcasting Corp., 52 FCC 2d 1106 (1975). In that case we
plainly stated: “Whether fraud in the technical or affirmative sense is
established is not determinative of whether there has been a violation
of the rule.” Thus, the Commission’s 1975 decision defeats the argu-
ment of Sea Island that the inclusion of the phrase “knowingly en-
gaged in fraudulent billing practices” in the designation order required
the Broadcast Bureau to prove technical fraud. If there is conflict
between the Commission’s 1975 decision and the Review Board’s 1972
decision in Harvit, the Commission’s decision prevails. The Commission
is not bound by Review Board decisions and the Review Board is
required to follow Commission precedents.
Misrepresentations and Other Deceptive Statements
by the Owner and Officers of the Licensee
8. Although eventually admitting its participation in the rebate
scheme, Sea Island did so only after maken serious and deliberate
misrepresentations and other misleading and deceptive statements to
the Commission in attempts to conceal its fraudulent billing practices.
Sea Island’s deliberate misrepresentations and misleading statements
to the Commission occurred as the result of an investigation of Sea
Island’s billing practices.
9. Between April 25 and 27, 1973, two Commission staff members
conducted a field investigation at WSIB. Numerous station records
Sea Island claims that under the issue designated here, the Bureau has failed to establish fraud
in the technical sense because it did not show that any party acted upon any WSIB invoice to its
detriment, or filed any claim of damage, or even disapproved of WSIB's billing practices.
7 Although the Bureau did not have to prove fraud, the record indicates that co-operative adver-
tisers incurred damages as a result of the false invoices issued by Station WSIB. Thus, it is reason-
able to assume that Philco-Ford reimbursed Palmetto twice what it would otherwise have paid to
Palmetto (or about $1,200 more than Palmetto was due) during the period that Sea Island gave
rebates to Palmetto because the reimbursement to Palmetto was based on WSIB invoices sent to
Philco-Ford for twice the amount Palmetto had in fact paid to WSIB. As to the Sutcliffe account, the
record supports a finding that Sutcliffe’s co-op advertisers received invoices including amounts for
non-co-op advertising on some occasions. The precise amount is not clear, but the record supports a
range of $1,200 to $1,400. The fact that not all of the invoices prepared by Sea Island for Sutcliffe’s
co-op advertisers were sent to the advertisers diminishes the amount of damages incurred. Neverthe-
less, some damage was suffered by Sutcliffe's co-op advertisers, who presumably would not have
reimburse? Suteliffe or given it merchandise discounts for advertising expenses which were not
incurred on their behalf. Moreover, whether the co-operative advertisers “disapproved” of Sea Is-
land's billing practices is irrelevant to the issue of whether Sea Island violated the Commission's
fraudulent billing rule. See Wharton Communications, Inc., 44 FCC 2d 489, 493 (1973).
60 F.C.C. 2d
23a
150 Federal Communications Commission Reports
were collected and examined and various station employees were in-
terviewed, as were Bell, Sr. and Bell, Jr. The investigation centered on
possible fraudulent billing, improper trade-outs, and combination rates
with a weekly magazine partially owned by Bell, Sr. In their —
statements given to the investigators on April 26, 1973, both Bell, Sr.
and Jr. denied any knowledge of fraudulent billing by the station. *®
10. In a letter dated August 29, 1973, the Commission’s staff re-
uested certain accounts receivable records, start orders, and invoices
or Palmetto alone, thus focussing their investigation on the Palmetto
account. On September 18, 1973, the Commission again wrote Bell
about the Palmetto account and explained that a comparison of Station
WSIB’s accounts receivable ledger sheets for Palmetto with the in-
voices furnished by Bell to Philco-Ford, Palmetto’s co-op advertiser,
indicated that WSIB may have engaged in fraudulent billing. The
Commission asked for Sea Isiand’s comments on this possibility. By
letter of October 3, 1973, Bell, Sr. replied to the Commission’s letter of
September 18, 1973. In effect, Bell claimed that Sea Island had not
engaged in fraudulent billing.
11. When Bell, Sr. composed the October 3, 1973 letter to the Com-
mission, he was in Washington, D.C. After having been warned about
the possibility of rebates by his counsel during his visit to Washington,
D.C., Bell, upon his return to Beaufort, allegedly for the first time
asked ‘his wife and son about possible Palmetto rebates. After he was
allegedly first informed about the Palmetto rebates following his re-
turn to Beaufort, he received another letter dated October 12, 1973,
from our investigatory staff, — further questions and —
additional documents concerning the Palmetto account. By letter o
November 16, 1973, Bell acknowledged the Palmetto rebates.
The April 1973 Statements
12. Contrary to Sea Island’s contentions, the record shows that Bell,
Jr.’s statement of April 1973 contains deliberate misrepresentations.
Bell, Jr. testified that, at the time he agreed to the arrangement with
Sutcliffe, he knew the Sutcliffe arrangement violated the Commis-
sion’s Rules. Although Bell, Jr. testified that he did not believe the
Palmetto rebates were illegal, he clearly misrepresented facts to the
Commission investigators when he stated in April 1973 that he had
“not participated in double or fraudulent billing at WSIB” and he did
not know anyone who had so participated. Bell, Jr. testified that he
thought his April 26, 1973 statement was true at the time he made it
because the investigators had asked him about the Palmetto account
and he did not think the Palmetto scheme violated the Commission’s
Rules. Bell, Jr. does not explain why he did not mention the Sutcliffe
scheme, which he admitted! knew at the time he entered it was a
violation of the fraudulent billing rules. In brief, the evidence supports
a finding that he purposefully did not reveal the Sutcliffe arrange-
ment.
SThe Bureau has not established by substantial evidence that Bell, Sr. knew of the fraudulent
billing at WSIB when he made his April 1973 statement to Commission investigators, and therefore
the Commission finds that Bell, Sr. did not misrepresent when he stated at that time he was unaware
of any fraudulent billing. The record does, however, support findings that Bell, Sr. made misleading
statements on other matters in his April 1973 statement. See para. 13, infra.
60 F.C.C. 2d
24a
Sea Island Broadcasting Corporation of S.C. 151
13. Bell, Sr.’s April 1973 statement to our investigators contains
several misleading and deceptive remarks concerning his management
of Station WSIB. Although Bell, Sr. claimed that he admonished sales
personnel to avoid fraudulent billing and called employees attention to
articles on the subject in the trade press, Bell, Jr.. who functioned
primarily as a salesman for the station, could recall only one brief
conversation on the subject prior to the April 1973 investigation. More-
over, although Bell, Sr., stated it was rare that he, Mrs. Bell, their son
and the vice-president for operations did not have lunch together,
where they had an opportunity to discuss “their business affairs,” Bell,
Jr. testified it was rare for all four of them to have lunch together and
both he and his mother testified that luncheon conversations did not
deal with business matters.
Bell Sr.’s October 3, 1973 Letter to the Commission
14. Bell, Sr.’s letter of October 3, 1973 to the Commission is replete
with deceptions. In that letter, Bell stated that the “billing procedure
for this account [the Palmetto account] has been carefully reviewed,”
that he was “simply unable to resolve certain discrepancies” between
the debit and credit figures in the 1972 ledger sheet for Palmetto with
the amount actually received from Palmetto,® and that the “station
employee” '° [i.e., his wife) who made the ledger entries was not a
trained bookkeeper and “is experiencing emotional problems and has
no explanation, and is in a transition period of replacement for these
duties.” Bell’s statements that the Palmetto billing procedure had been
carefully reviewed and that the person who kept WSIB’s books had no
explanation for the discrepancies between the ledger sheets and the
checks received from Palmetto were contradicted by his own testi-
mony that he did not question his wife or undertake any investigation
concerning the Palmetto account until after he had sent the October 3,
1973 letter. Even if he had assumed that his wife had no explanation
for the discrepancies, that would not excuse his making the unequivo-
cal statement in the October 3, 1973 letter that she “has no explana-
tion,” the clear import of which would mislead the Commission.
15. The Bell family claim that Mrs. Bell had complete control over
the billing of WSIB’s customers and that she and her son carried out
the fraudulent billing arrangements without telling Bell, Sr. about
them. Insofar as the Palmetto rebate scheme was concerned, Mrs. Bell
claimed that she issued the rebates pursuant to Bell, Jr.’s orders, even
though she did not approve of the practice, because she thought they
were necessary to retain the Palmetto account and because Bell, Jr.
told her to begin the rebate practice during one of Bell, Sr.’s absences
from the station when Bell, Jr. was in charge. The Bell family testified
that Bell, Sr. was never informed about the Palmetto scheme prior to
*The amounts shown in the Cash Journal as having been received from Palmetto matched the
amounts claimed on the invoices to Palmetto, whereas the ledger sheets showed only one-half those
amounts.
The “station employee,” otherwise unidentified by Bell, was his wife, Elaine E. Bell, the station's
office manager and records-keeper since 1965, when her husband acquired 49.33 percent of Sea Island
and became general manager. Mrs. Bell was elected Secretary and Director of Sea Island on March
1, 1972, and resigned those positions effective December 31, 1973, following commencement of the
current revocation proceeding. (The only other officer and director of Sea [sland during the period
of March 1972 through December 31, 1973, who was not a member of the Bell family was Wade H.
Harvey, who served as Vice-President (Operations) and Director of Sea Island.)
60 F.C.C. 2d
25a
152 Federal Communications Commission Reports
October 1973, when Bell, Sr. allegedly first asked about possible re-
bates to Palmetto. Bell, Sr. has asserted in effect that a three-day field
investigation of WSIB’s billing practices by members of the Commis-
sion’s staff plus two subsequent letters of August 29, 1973 and Sep-
tember 18, 1973, which requested additional documents and explana-
tions concerning the Palmetto account, did not arouse him to make any
kind of investigation or to question his wife or son. "'
16. We cannot believe that Bell, Sr. did not question his wife or son
about possible fraudulent billing for over five months following the
April 1973 visit to WSIB by Commission investigators. Bell, Sr. testi-
fied that he allowed his wife to rubber-stamp his signature on billing
invoices and she was in charge of billing during the relevant period of
irregular billing practices. Thus, even if Bell was unaware of any
fraudulent billing practices in April 1973, he must have known that
peng BY ome might have occurred without coming to his atten-
tion. Bell is an experienced broadcaster. Upon receipt of the Commis-
sion’s September 18, 1973 letter he must have known that WSIB’s
billing practices concerning the Palmetto account, one of Bell’s biggest
sources of revenue, were being questioned by the Commission. Fur-
ther, Bell knew that his wife kept the station’s records and thus would
have to know about any fraudulent billing practices and that his son
was the salesman for the Palmetto account. Bell’s explanation that he
did not question his wife and son because he trusted them does not
make sense. If he trusted them, he would have no natural reason for
not questioning them. Further, Bell’s claim that he did not question his
wife because of her ng ong and emotional problems is undermined by
his testimony that she was not much better when he questioned her in
October than she was in September when he allegedly did not question
her. Bell’s contention that he delayed questioning his wife about the
Palmetto matter because she was ill might have greater weight if she
had not continued to perform duties at the station for eight months
after the Commission’s field investigation of April 1973. If Bell did not
investigate after the three-day Commission investigation at WSIB and
after receiving two letters from the Commission, it can only be con-
cluded that he purposefully chose to remain ignorant in order to avoid
the truth. The Commission has stressed that a licensee has a duty to
ascertain the facts before submitting a formal response upon which the
"On February 24, 1975 Sea Island moved to reopen the record to admit certain statements made
by members of Station WSIB's sales staff to the Commission's investigators in April 1973, and a
February 1975 statement by Bell, Sr. on the question of Bell's knowledge of possible fraudulent
billing at Station WSIB at the time of his representations to the Commission and his state of mind
between his April 1973 statement to the investigators and his purported discovery of the Palmetto
rebates in October 1973. Bell claimed that after the Commission's investigators obtained statements
from WSIB's staff in April 1973, he read copies of those statements and relied on the assertions of
the staff that they had not bag og in fraudulent billing. Sea Island asserted that the statements
offered as evidence would fill a void in the record as to the efforts of Bell, Sr. to ascertain whether
any fraudulent billing had occurred. The Presiding Judge denied the motion to reopen the record in
a hesnorandom Opinion and Order, FCC 74M-420, released March 5, 1975. The Judge did not view
the statement as being “potentially decisive.” Sea Island's October 3, 1973, letter to the Commission,
signed by Bell, Sr., listed all the Station WSIB personnel interviewed by the Commission's investi-
gators and stated:
“In sum each employee interviewed categorically denied any knowledge of or participation in
fraudulent billing practices by Station WSIB.”
Thus, although the record does not include the statements, onoees for those of Bell, Sr. and Jr., the
record alrendy includes a statement explaining Bell, Sr.’s knowledge of the content of the statements
by Station WSIB personnel. Clearly, Bell, Sr.’s reading of these statements does not constitute an
independent investigation to ascertain whether any fraudulent billing occurred; and the Judge's
refusal to reopen the record was not error.
60 F.C.C. 2d
a
26a
Sea Island Broadcasting Corporation of S.C. . 153
Commission will rely as substantiated and accurate. See Milton Broad-
casting Co., 34 FCC 2d 1036, 1047 (1972); WPRY Radio Broadcasters,
ie 40 FCC 2d 1183 (1973); and Nick J. Chaconas, 28 FCC 2d 231
(1971).
17. In his October 3 letter Bell listed the billings for Palmetto for
advertising during the period of June through December 1972 with the
dates Palmetto paid its bills, and the dates the checks were deposited
in a local bank. Although the Commission had sent Sea Island a copy
of a document our staff characterized as WSIB’s record of Palmetto’s
accounts receivable, which showed that the amounts WSIB received
from Palmetto were 50 percent of those invoiced to Palmetto’s co-op
advertiser (Philco-Ford), Sea Island referred to this handwritten docu-
ment as a mere work sheet which did not appear to be pertinent since
it was not used in billing Palmetto. Bell asserted that typewritten
ledger sheets were used for billing. He thus implied that the debit
entries on the typewritten sheets (or ledger cards) conformed to the
amounts billed. This statement that the handwritten accounts receiv-
able did not seem pertinent was a flagrant subterfuge. Mrs. Bell testi-
fied that the handwritten ledger sheets were used for billing Palmetto,
not the typewritten ones. In fact, the amounts entered on both records
were identical. '*
18. Whether Bell had the typewritten records with him on October
3, 1973, when he was in Washington, D.C. to obtain legal advice in
answering the Commission’s September 18, 1973 letter is irrelevant.
He was aware of their existence at that time. Moreover, Bell had
adequate time between his receipt of the Commission’s September 18,
1973 letter and his October 3, 1973 response to check the typewritten
records to see if they agreed with the handwritten accounts receivable.
Had he failed to do that prior to his Washington trip, Bell, Sr. could
have telephoned Station WSIB and ascertained whether the typewrit-
ten Palmetto records agreed with the handwritten ones. Thus, whether
Bell had the typewritten records for Palmetto when he composed his
October 3, 1973 letter to the Commission is not decisive. He could have
ascertained whether they matched the handwritten ones before he
sent the letter and he had the affirmative duty to determine the facts
and to supply accurate information to the Commission in these circum-
stances. See Milton Broadcasting Co.,.WPRY Radio Broadcasters, Inc.
and Nick J. Chaconas, supra. In summary, Bell’s claim that he was
convinced on October 3, 1973, that the contents of the typewritten
records differed from the contents of the handwritten records for a
eriod spanning eight months in 1972 and would demonstrate that
Station SIB did not bill Palmetto for twice the amount the station
expected to receive during that eight-month period must be considered
sheer fabrication.
Bell’s Testimony Concerning His Wife's
Continued Involvement With WSIB After 1973
19. Bell, Sr. exhibited a willingness to deceive the Commission when
he gave false testimony in September, 1974 regarding his wife’s contin-
ued involvement with Station WSIB. At the hearing session of Sep-
'2 The licensee claims that the typewritten ledger cards were used for several accounts, including
Palmetto, during 1972; that some accounts were never converted to the card system because it was
unsuitable; and that Palmetto’s records were kept on handwritten as well as typewritten ledger
systems. These claims are irrelevant in light of the fact that both records for Palmetto were identical.
60 F.C.C. 2d
y 27a
154 Federal Communications Commission Reports
tember 23, 1974, Bell was asked four questions concerning the termina-
tion of Mrs. Bell’s general involvement with Station WSIB. He was
first asked whether Mrs. Bell was “still with WSIB,” to which he
answered in the negative. The second question was when did she cease
being employed with WSIB, to which Bell responded: “End of 1973 as
I recall.” The third question was whether she had terminated all of her
involvement with WSIB since the end of 1973, to which Bell answered
in the affirmative. The fourth question was whether she had relin-
— her positions of the officer and director of WSIB, to which
ell answered in the affirmative. The reasonable import of his answers
to those questions is that Bell was asserting his wife was not involved
with Station WSIB in any way. Jn contradiction of this testimony, Mrs.
Maureen McCracken, a former employee of WSIB, testified on Novem-
ber 6, 1974, that during the year 1974 Mrs. Bell was at the station
Tuesday through Saturday, that she shared the same office with Bell,
prepared wage statements and paychecks for employees, and trained
some new employees to be traffic managers. On January 10, 1975,
Bell’s own counsel recalled him to the stand. Bell conceded that he
should have given a different response in his earlier testimony re -
ing Mrs. Bell’s continued involvement with WSIB in 1974. bell ex-
plained that in addition to the duties described by Mrs. McCracken,
Mrs. Bell wrote 257 out of the 554 checks issued by Station WSIB and
maintained the accounts payable (a cash disbursement) ledger. Thus
the record establishes that the services rendered by Mrs. Bell in 1974
were, in large measure, * the same ones she performed in 1973.
20. During his testimony on January 10, 1975, Bell, Sr. first testified
that the services performed in 1974 by Mrs. Bell were merely an
accommodation to him because of an ae situation” caused by
a turnover in personnel who would norm perform check-writing
and payroll record-keeping services. Bell Sabanenantly testified that
the personnel turnover affected only the position of traffic manager,
i.e, the person who did the billing and logging and maintained the
accounts receivable, and that none of the persons was hired to write
checks, maintain the cash disbursement ledger, or prepare wage state-
ments—all duties performed by Mrs. Bell both before and after her
resignation. Bell, Sr. thereafter stated that he had hoped the traffic
manager would eventually assume:the additional functions of check-
writing and maintaining the cash disbursement ledger, and that origi-
nally he had planned to assume those functions himself but he got
“jammed up” with his other duties.
21. The record plainly shows, therefore, that Mrs. Bell continued
most of her late 1973 duties in 1974 and that none of the persons
working as WSIB’s traffic manager prior to October 1974, was hired to
perform the WSIB functions performed by Mrs. Bell in 1974. Bell, Sr.’s
3She performed few billing or accounts receivable functions for WSIB in 1974, but the record
contains evidence that she had ceased performing almost all of these functions prior to her resigna-
tion on December 31, 1973.
‘4 Bell's attempt to explain Mrs. Bell's presence in the office by her work on Bell, Jr.'s weekly
magazine, and by his stopping there with her on Saturdays after the trip to Savannah, Georgia, for
her to visit her psychiatrist is ineffectual. The record contains no reliable evidence, only estimates by
Bell, Sr., as to the number of hours Mrs. Bell worked on the m , as op to the radio station,
and his explanation of her presence at the station on Saturday does not explain her presence on other
days of the week.
60 F.C.C. 2d
28a
Sea Island Broadcasting Corporation of S.C. 155
assertion that he originally planned to perform the services performed
by his wife in 1974 can be characterized as one more subterfuge de-
vised to cover up his former deceptions with respect to his wife’s
continued involvement with the station. Our conclusions with respect
to Bell's testimony on these points further demonstrate Bell’s propen-
sity to deceive the Commission and confirm our conclusions as to the
misrepresentations for which the license is being revoked.
Miscellaneous Matters
22. Sea Island excepts to the judge’s failure to consider the correc-
tive billing and aay ah ey | procedures adopted by Bell, Sr. to prevent
fraudulent billing in the future, the substantial service rendered by
Station WSIB to the community (especially the Black population), and
Bell, Sr.’s reputation for truth and veracity in the community as miti-
gating factors in assessing the appropriate penalty against Sea Island.
None of these exceptions has merit. Once the Commission has deter-
mined that revocation is warranted for deliberate misrepresentations,
the Commission need not consider evidence of remedial measures to
prevent fraudulent billing in the future. Further, the station’s past
meritorious programming becomes irrelevant upon a finding of misrep-
resentations. See e.g., immaculate Conception Church v. FCC, 320 F2d
795, cert. denied, 375 U.S. 904 (1963); KF PW Broadcasting Co., 40 FCC
2d 126 (1973). As to Bell, Sr.’s reputation for truth and veracity in the
community, the Judge made an explicit finding (paragraph 36 of the
Initial Decision) that Bell, Sr. “enjoys an excellent record for probity
with the leaders of the community in which he resides.” The Commis-
sion has made clear, however, that “No matter how unblemished the
reputation of the principal in the community, no one is allowed ‘one
bite’ at the apple of deceit.” Grenco, Inc., 39 FCC 2d 732, 737 (1973).
See also WMOZ, Inc., 35 FCC 202, 238 (1964).
23. Sea Island claims that the degree of proof required of the Bu-
reau in a revocation proceeding should be “clear, unequivocal and con-
vincing.” Sea Island relies for this proposition by analogy to language
in the Immigration and Naturalization Act as discussed in Woodby v.
Immigration and Naturalization Service, 325 US 276 (1966). The anal-
ogy to language in the Immigration and Naturalization case is inap
site and reliance on Woodby is wholly misplaced. In Woodby the Su-
preme Court adopted the stricter standard of “clear, unequivocal and
convincing” proof because the statute was silent as to the degree of
proof required at the administrative level; the question of proof in
deportation proceedings had traditionally been left to the Courts; and
the higher standard was appropriate because of the unusual hardship
of deportation. Unlike a deportation case, * the Administrative Proce-
dure Act is applicable here and specifies the degree of proof required
at the administrative level for imposition of a sanction. The pertinent
provisions of Section 556(d) of the APA clearly require only that a
Commission decision be “supported by and in accordance with the
reliable, probative, and substantial evidence” of record.
The APA does not apply to deportation proceedings. Couto v. Shaughnessy, 218 F2d 758 (2nd
Cir, 1955), cert. denied, 349 US 952.
60 F.C.C, 2d
29a
156 Federal Communications Commission Reports
24. Sea Island claims that the Commission cannot legally revoke the
license of Station WSIB, even upon a finding of deliberate misrepre-
sentation, because the Order to Show Cause and Notice of Apparent
Liability, FCC 73-1258, which initiated the hearing, created an uncon-
stitutional situation by providing for alternative sanctions of license
revocation and monetary forfeiture. Sea Island appears to be arguing
that the different modes of judicial recourse upon forfeiture or revoca-
tion tend to discriminate against the licensee by favoring revocation,
the sanction with the lesser degree of judicial scrutiny. '* The licensee’s
constitutional argument is baseless. Sea Island relies on the faulty
premise that the penalties of revocation and forfeiture are inter-
changeable. They are not. Whether an entity is fit to remain a licensee
must be determined a of whether misconduct warrants
forfeiture, and forfeiture is an available sanction only for those kinds
of misconduct set forth in Section 503(b) of the Act. Misrepresenta-
tions are not misconduct for which a mone forfeiture may be as-
sessed. Moreover forfeiture, if available, is easier to impose because it
requires no administrative hearing—hence the provision for a trial de
novo. "" Inclusion of a Notice of Apparent Liability for forfeiture in the
document which initiated this proceeding simply afforded the Commis-
sion oe flexibility to impose whatever sanction the record sup-
ported.
25. In its Proposed Findings of Facts and Conclusions of Law, the
licensee explained with a supporting statement and affidavit of his
family physician that Bell, Sr.’s health did not permit him to continue
to operate Station WSIB and that he would sell the station within six
months after termination of this case in a manner which would permit
him to sell it. Bell also submitted a sworn personal statement explain-
ing that he had been negotiating the possible sale of his 100 per cent
ownership interest in Station WSIB to his two former partners in that
station. Bell asserts that he still owes them about ,000 for the
purchase of their ownership interests in the station; and that since the
sales terms for the purchase of their interests did not include any
ersonal liability, for all practical purposes these two creditors would
ose nearly all of the amounts due them if Station WSIB’s license is
revoked. Bell also proposes to sell his 100 percent ownership interest
in Station WDOG, Allendale, South Carolina, if the Commission will
allow him to sell WSIB. Citing LaRose v. FCC, 494 F.2d 1145 (D.C.
Cir., 1974); Cathryn C. Murphy, 42 FCC 2d 346, (1973) and Second
Thursday Corp., 25 FCC 2d 112 (1970), Sea Island contends that Bell's
proposed sale of Station WSIB would serve the public interest and
protect two innocent creditors from losing substantial amounts of mon-
ey.
"26. To allow Bell, Sr., to sell his ownership interest in Station WSIB
after finding him guilty of making misrepresentations to the Commis-
sion would be to abandon our policy of refusing to permit salvs in non-
bankruptcy cases where a character qualification issue has been re-
solved against the assignor. The cases cited by Sea Island are inappo-
'8Section 504(a) of the Communication Act provides that recovery of monetary forfeiture requires
a trial de novo, while Section 402(bX5) provides that a licensee whose license has been revoked has
only a right of appeal.
Indeed, forfeiture may be imposed in addition to any other penalty under Chapter 6 of Title 47.
60 F.C.C. 2d
30a
Sea Island Broadcasting Corporation of S.C. 157
site. Specifically, LaRose v. FCC, supra, and Second Thursday Corp.,
supra, both involved licensees who were bankrupt. Although the Com-
mission allowed the licensee in Cathryn C. Murphy, supra, to sell the
station despite adverse character findings, we did so only when faced
with what we called “unusual circumstances.” In Cathryn C. Murphy,
the licensee who sold the station made no profit and the licensee’s
illness diminished her responsibility for her actions. Further, in Cath-
ryn C. Murphy, the licensee’s personal — offered the prognosis
that because of the physical and mental damage resulting from acute
alcoholism, Mrs. Murphy would never be able to accept the responsibil-
ities of conducting a business. 42 FCC 2d 346, 347 (1973). Thus, in
contrast to the Murphy case, Bell’s misrepresentations are not attrib-
uted to an illness and his contemplated sale of station WSIB would
return him a substantial profit.'* There are no unusual or extraor-
dinary circumstances in this case which would justify a retreat from
the Commission’s policy of refusing to “abdicate its responsibility to
protect the public interest because of sympathy.” Milton Broadcasting
Co., 34 FCC 2d 1036, 1043 (1972).
Conclusion
27. Our decision to revoke Sea Island’s license is based primarily on
the fact that Sea Island has shown a classic pattern of making deliber-
ate misrepresentations and other misleading and deceptive statements
to us when it believed it could effectively conceal suspected wrong-
doing. Further, the kinds of fraudulent billing engaged in by Sea Is-
land were serious and reinforce our conclusion to revoke Sea Island’s
license. In short, the effective regulation of the communications indus-
tries under our jurisdiction is premised on our ability to depend on the
accuracy and truthfulness of our licensee’s representations to us. Once
we find that we cannot rely on a licensee’s representations to us, the
only suitable penalty is revocation of the license.
28. Accordingly, IT IS ORDERED, That the transcript of the oral
argument in this proceeding held before the Commission on March 30,
1976 IS CORRECTED as set forth in Sea Island Broadcasting Co
ration of S.C.’s Motion to Correct Transcript of Oral Argument, filed
on April 16, 1976.
29. IT IS FURTHER ORDERED, That the license of Sea Island
Broadcasting Corporation of S.C. for Station WSIB, Beaufort, South
Carolina is REVOKED.
30. IT IS FURTHER ORDERED, That Sea Island Broadcasting
Corporation of S.C. IS AUTHORIZED to continue to operate Station
WSIB until 12:01 a.m., October 1, 1976, to enable the licensee to con-
clude the station’s affairs; PROVIDED, HOWEVER, That if the li-
censee seeks judicial review of our Decision, it is authorized to con-
tinue to operate Station WSIB until thirty (30) days after final
disposition of such appeal.
FEDERAL COMMUNICATIONS COMMISSION,
VINCENT J. MULLINS, Secretary.
‘* Bell states that he purchased his former partners’ 49.32 percent ownership interest in Sea Island
for $196,530 and that the fair market value of Station WSIB would be about $215,000.
60 F.C.C. 2d
3la
APPENDIX D
F.C.C. 77-330
BEFORE THE
FEDERAL COMMUNICATIONS COMMISSION
WASHINGTON, D.C. 20554
In the Matter of
Revocation of the License of Docket No. 19886
SEA ISLAND BROADCASTING
CORPORATION, OF S.C. (WSIB) BEAUFORT,
SOUTH CAROLINA
MEMORANDUM OPINION AND ORDER
(Adopted: May 11, 1977; Released: May 20, 1977)
By THE COMMISSION: COMMISSIONERS HOOKS AND QUELLO CONCUR-
RING IN THE RESULT; COMMISSIONER LEE NOT PARTICIPATING.)
1. In a Decision, 60 FCC 2d 146, released July 14, 1976, the Commis-
sion revoked the license of Sea Island Broadcasting Corporation of
S.C. (Sea Island) for Station WSIB, Beaufort, South Carolina. Now the
Commission has before it: (a) a petition for partial reconsideration of
that decision filed August 13, 1976 and a supplement thereto filed
August 23, 1976 by Sea Island; (b) a “Petition For Permission To
Continue Broadcasting,” filed August 13, 1976 by a group identifying
itself as “The Black Citizens of Beaufort County;” ' (c) an opposition to
Sea Island’s petition for partial reconsideration filed August 26, 1976
by the Broadcast Bureau; and (d) a reply to the Broadcast Bureau’s
opposition filed September 14, 1976 by Sea Island.
2. Sea Island makes three major arguments for reconsideration: (1)
the Commission erred when it refused to permit Charles E. Bell, Sea
Island’s sole stockholder, to sell Station WSIB; (2) the Commission’s
Decision in this case was predetermined; and (3) news leaks of the
Commission’s Decision prejudiced Sea Island’s due process rights. * In-
sofar as Mr. Bell’s proposed sale of station WSIB is concerned, Sea
'The Black Citizens group is not a party to this proceeding and has not sought intervention.
Therefore, their petition will be dismissed. We will nevertheless consider the substance of their
petition as it relates to the appropriateness of revocation as a sanction in this case.
2Sea Island notes that its petition is narrowly drawn to avoid repetition of arguments already
made to the Commission and included in Sea Island’s Notice of Appeal (No. 76-1735) in this case,
)~ sae was filed August 12, 1976 in the United States Court of Appeals for the District of Columbia
ireuit.
64 F.C.C. 2d
32a
722 Federal Communications Commission Reports
Island has not raised any significant new arguments which were not
considered in our Decision.* It is well established that reconsideration
is not granted “merely for the purpose of again debating matters on
which (the Commission] has once deliberated and spoken.” WWIZ, Inc.,
37 FCC 685, 686, affirmed sub nom. Lorain Journal Company v. FCC,
351 F.2d 824, 5 RR 2d 2111 (D.C. Cir., 1965), cert. denied 383 U.S. 967
(1966).
3. We observe, however, that Sea Island has now changed its origi-
nal proposal to sell WSIB to the degree that it now promises to give
priority to Black community ownership in seeking out a buyer, and if
Black buyers cannot be found, to proposed owners who would maintain
the “present service to the less privileged.” Sea Island argues that the
public interest would be served by the continued operation of Station
WSIB without interruption as an outlet and voice for the less privi-
leged members of the community. A group identifying itself as “The
Black Citizens of Beaufort County” has filed a “Petition For Permis-
sion To Continue Broadcasting.” The group, six persons including one
Sea Island director, requests that WSIB be allowed to remain on the
air in light of its meritorious service to the community and its program
of providing equal employment and career opportunities for Black resi-
dents. Neither Sea Island nor the citizens group has presented any
compelling reasons for overturning our long standing policy of revok-
ing the license of an entity found to have made serious and deliberate
misrepresentations to us. See, e.g., FCC v. WOKO, Inc., 329 U.S. 223
(1946), Immaculate Conception Church v. FCC, 320 F.2d 795, cert.
denied, 375 U.S. 904 (1963) and Milton Broadcasting Co., 34 FCC 2d
1036 (1972). As our Decision made clear, the record overwhelmingly
supports the conclusion that Sea Island not only engaged in false bill-
ing in violation of Rule 73.1205, but made deliberate misrepresenta-
tions and other misleading and deceptive statements to the Commis-
sion in an attempt to conceal the false billing. If we were to renew Sea
Island’s license for the limited purpose of allowing the sale of Station
WSIB, even to a minority group, the benefit which would flow to Mr.
Bell, the sole owner and major wrongdoer, would undermine our regu-
latory authority by removing most of the deterrent effect which revo-
cation of a broadcast license should have on our licensees. ‘
4. Sea Island raises two new matters that it believes require the
3 We understand that his application for authority to sell Station WDOG is not contingent upon his
receiving our permission to sell Station WSIB. The proposal to sell WDOG is irrelevant to the
revocation of the license of WSIB. Further, however, Sea Island defines and calculates “profit” from
a sale of WSIB, there is no doubt that Bell would enjoy a substantial benefit if allowed to sell the
station compared to his situation if the license is revoked.
4A like policy is followed with respect to renewal proceedings. Where character isst.es are resolved
adversely to the renewal applicant, we will not grant renewal merely to allow an assignment of
license to a qualified assignee. Any such renewal grant would seriously undermine our regulatory
authority, thus significantly diminishing the accountability of licensees for serious violations of the
Communications Act and/or our Rules and Regulations. See discussion in text. Moreover, if a deter-
mination is made that the license should not be renewed, the applicant has nothing to assign. Jeffer-
son Radio Company, Inc. v. F.C.C, 119 U.S. App. D.C. 256, 340 F.2d 781. Only where exceptional
circumstances are presented which make evident that compelling equitable considerations clearly
outweigh such action do we grant renewal to such an applicant on condition that the license be
assigned to a qualified assignee. See Cathryn C. Murphy, 42 FCC 2d 346. It was by reason of these
exceptional circumstances and compelling equitable considerations that we granted a renewal appli-
cation in conjunction with the grant of an assignment application (BAL-8713) in Northwestern Indi-
ana Broadcasting Corporation, Docket No. 20604, FCC 77-329, adopted today.
64 F.C.C. 2d
33a
Sea Island Broadcasting Corp. 723
Commission to reconsider the decision reached in this case: the impar-
tiality of the Commission in reaching its decision and news leaks as to
the decision. Sea Island makes the general allegation that the Commis-
sioners deciding this case did not act as a properly neutral and impar-
tial tribunal, but rather had predetermined their decision based on
their commitment to act severely toward any licensee involved in
fraudulent billing. The licensee quotes language from a speech by the
Chairman of this Commission to the National Association of Broad-
casters in March 1974, in which he promised severe action in fraudu-
lent billing cases. In addition, Sea Island refers to a June, 1975 state-
ment by the Chairman which accompanied a Notice of Proposed
Rulemaking in regard to amending Rule 73.1205 (53 FCC 2d 900, 906)
and which was joined in by four other Commissioners, wherein the
Chairman expressed his commitment to eliminate fraudulent billing
practices by “taking every action I can to facilitate this objective.”
Further, Sea Island claims a cursory review of the transcript of the
oral argument before the Commission in this case: held on March 30,
1976 reflects the Commission’s “prosecutorial” attitude and predeter-
mination to revoke Sea Island's license.
5. Sea Island’s contention is totally wanting in merit. Our decision in
this case was not prejudged. The fact that individual Commissioners
had expressed their desire to eliminate fraudulent billing practices in
the broadcast industry did not prevent us from alee a dispassionate
judgment as to whether a specific licensee had engfiged in billing prac-
tices which violate our Rules. Moreover, our Decision in this case is
based primarily on the fact that Sea Island made deliberate misrepre-
sentations and other misleading and deceptive statements to us in
attempts to conceal suspected wrongdoing on its part.
6. Sea Island’s assertion that any reader of the transcript of its oral
argument before the Commission could conclude that we did not give
Sea Island a fair opportunity to present its arguments does not rise
above bald allegation. Oral argument before the Commission after a
full evidentiary hearing has been held by a Presiding Judge, an Initial
Decision has been issued, and exceptions to that Initial Decision have
been filed, as in this proceeding, is not a requirement of due process.
See 47 USC 409(b). Hearing oral argument in a proceeding such as this
provides the Commissioners with the opportunity to ask the parties
probing questions on any matters of record, including the evidence and
the findings and conclusions of the Presiding Judge as well as the
significant arguments raised in the written pleadings of the various
parties. Sea Island’s complaints that it was interrupted and asked
“prosecutorial” questions about evidence in the record and certain
findings and conclusions of the Presiding Judge clearly lack any sub-
stance.
7. Nor is there any substance to Sea Island’s allegation that the
Commission has shown its inclination to impose severe penalties in
fraudulent billing cases in a retroactive, ex post facto manner. Appar-
ently, the licensee is asserting that the Commission is imposing severe
penalties for fraudulent billing that occurred prior to the Chairman’s
statement of March, 1974. Sea Island cannot legitimately claim that the
Commission did not give sufficient warnings about fraudulent billing
prior to the offenses committed by Sea Island in 1972. See, Fraudulent
64 F.C.C. 2d
34a
724 Federal Communications Commission Reports
Billing Practices, 1 FCC 2d 1068 (1965); In re Applicability of
Peemiiebitt Billing Rule, 1 FCC 2d 1075 (1965); Fraudulent Billing
Practices, 23 FCC 2d 70 (1970); In re Applicability of Fraudulent
Billing Rule, 23 FCC 2d 303 (1970). Moreover, the Commission’s Deci-
sion, which considers separately the evidence on the issues of double
billing and misrepresentation and lack of candor, reflects a weighing of
the evidence that belies Sea Island’s questioning of the Commission’s
ability to treat fairly representations that concern billing because of a
bias on the subject of billing.
8. Sea Island’s contention that news leaks of the Commission’s deci-
sion potentially taint this case has no validity. Sea Island remarks that
the June 28, 1976 issue of Broadcasting * contained a news report that
we had revoked the license of WSIB. The licensee claims the details of
the Broadcasting item reflect access to or a conversation with Com-
mission personnel having access to our Decision in this case prior to its
release. Further, the licensee states that the Commission’s internal
investigation in the Western Communications, Inc.—Las Vegas Valley
Broadcasting Co. case (Docket Nos. 19519 and 19581) includes a Memo-
randum of Interviews Regarding Investigation of Alleged Employee
Misconduct (KORK) dated April 14, 1976, which states that a conver-
sation occurred between a Commission employee who, under our rules,
is in the category of “decision-making personnel” and a Broadcasting
reporter who sought information concerning the Sea Island case. Sea
Island also notes that our written Decision in this case was not adopted
until more than two months after the conversation referred to in this
Memorandum of Interviews. Because of the sequence of events, Sea
Island requests that we conduct an investigation adjudicatory in na-
ture with Sea Island as a party before an impartial presiding officer
and that his decision be binding upon us.* The licensee believes that
such an investigation is necessary because “news leaks tend to freeze
a Commission Decision and the positions of individual Commissioners
participating therein to the legal prejudice of Sea Island.”
9. The apparent news leaks referred to by Sea Island could not have
improperly influenced our decision in this proceeding. Accordingly, an
investigation would be inappropriate. The item about our decision to
revoke WSIB’s license in the June 28, 1976 issue of Broadcasting was
published after the Commission had adopted the Decision on June 24,
1976 and thus the item clearly did not influence the vote in this case.’
As to the conversation between an employee of the Commission con-
sidered to be one of our “decision-making personnel” as defined in our
rules and a Broadcasting reporter, it is unclear whether the employee
said anything about the Commission’s decision in this case when the
admitted conversation occurred; and even if he did, Broadcasiing did
not publish such information until its June 28, 1976 edition, after the
Commission had adopted its Decision. In short, even if a member of
5 Broadcasting is a weekly news magazine concerned with communications maiters.
6 Sea Island also asks that we stay any action in this proceeding, pending a decision in the adjudi-
catory investigation. This request is rendered moot by our determination that no investigation is
necessary.
7 Although the decision was not released until July 14, 1976, the release date is significant only for
counting-the days within which Sea Island can appeal our Decision or ask for reconsideration of the
Decision. The task of releasing copies of the Decision was a purely ministerial staff function.
64 F.C.C. 2d
35a
Sea Island Broadcasting Corp. 725
Broadcasting’s staff knew the Commission's decision as early as April
1976, no information was published in Broadcasting which would
“freeze” the Commission’s ultimate decision in this matter. Thus, al-
though we deplore all instances where information concerning Com-
mission action in adjudicatory matters is obtained from our staff be-
fore being officially released to the public, Sea Island’s rights have not
been prejudiced by the Broadcasting item or by any information which
might have been disclosed by one of our decision-making: personnel to
a Broadcasting reporter in April 1976.
10. Accordingly, IT IS ORDERED:
(a) That the “Petition For Permission To Continue Broadcasting”
filed August 13, 1976 by “The Black Citizens of Beaufort
County” IS DISMISSED; and
(b) That the petition for partial reconsideration filed by Sea Is-
land Broadcasting Corporation of S.C. on August 13, 1976 IS
DENIED.
FEDERAL COMMUNICATIONS COMMISSION,
VINCENT J. MULLINS, Secretary.
64 F.C.C. 2d
iS 4
cs py
er a) ane y
37a
APPENDIX E
F.C.C. T5D-19
BEFORE THE
FEDERAL COMMUNICATIONS COMMISSION
WASHINGTON, D.C. 20554
In the Matter of:
Revocation of the license of Docket No. 19886
SEA ISLAND BROADCASTING CORPORATION
oF S.C. (WSIB), BEAUFORT, SOUTH
CAROLINA
Appearances
John H. Milden, John H. Milden, Jr., Stanley B. Cohen, and Howard
M. Siberman on behalf of Sea Island Broadcasting Corporation of S.C.;
and Joseph Chachkin and W. Kennedy Keane on behalf of Chief,
Broadcast Bureau, Federal Communications Commission. To be associ-
ated with FCC 76-582, Vol. 60(2d), page 146.
INITIAL DECISION OF ADMINISTRATIVE LAW JUDGE CHESTER F.
NAUMOWICZ, JR.
(Issued: April 22, 1975; Released: May 1, 1975)
Preliminary Statement
1. On November 30, 1973, the Commission released an Order to
Show Cause and Notice of Apparent Liability in the matter of the
revocation of the license of Sea Island B casting Corporation of
S.C. for Station WSIB, Beaufort, South Carolina. The order of designa-
tion raised the following questions:
“1. Whether, and if so, the extent to which the licensee knowingly
engaged in fraudulent billing practices in the operation of Sta-
ee SIB in violation of Section 73.1205 of the Commission’s
ules.
“2. Whether, in light of all the facts and circumstances pertaining
thereto, the licensee has made misrepresentations to the Com-
mission or was lacking in candor as to its billing and bookkeep-
ing practices, including its practice of giving rebates.
ether, in light of the information giving rise to the preced-
ing questions, if found to be true, the licensee possesses the
61 F.C.C. 2d
=
38a
938 Federal Communications Commission Reports
requisite qualifications to remain a licensee of the Commis-
sion.”
The order of designation also contained a notice of apparent liability in
the maximum sum of $10,000.
2. On November 30, 1973, the Broadcast Bureau released a Bill of
Particulars detailing the allegations underlying the questions pre-
sented by the Order to Show Cause.
3. Conferences and ryory = were convened on various dates be-
tween January 11, 1974 and January 10, 1975, with the record bein
closed on the latter date. The filing of proposed and reply findings o
fact was concluded by April 14, 1975.
Findings of Fact
4. Since Febru of 1972, the licensee has been wholly owned by
Mr. Charles E. Bell, who serves as President and Director of the
corporation, and General Manager of the station. Bell has had owner-
ship interests in broadcast licensees since 1960. His wife, Elaine E.
Bell, has served as the station’s bookkeeper since 1965. On March 1,
1972, she was elected Secretary and Director of the licensee. However,
she resigned from those positions effective December 31, 1973. Mr.
Bell’s son, Charles E. Bell, Jr., was eI iy at WSIB, primarily as a
salesman, throughout the relevant period. On March 1, 1972, he was
elected Vice President, Treasurer and Director of Sea Island. He re-
signed those positions effective April 18, 1974.
Issue No. 1: Fraudulent Billing
5. In April of 1972, Mr. Herman Smith, proprietor of Palmetto TV
and Stereo Center, advised Mr. Bell, Jr., that his advertising costs
were too high, and that some adjustment would have to be made. The
record is unclear as to which man suggested the nature of the adjust-
ment, but from April through Besser of 1972 (with the possible
exception of May) WSIB issued false monthly bills to Palmetto.
6. The scheme involved WSIB issuing a bill to Palmetto, and Pal-
metto paying the full amount billed. Thereafter, WSIB would rebate to
Palmetto 50% of the amount paid.
7. Palmetto sent the bills it received from WSIB to its distributor,
Brown-Rogers-Dixson Company which in turn billed the manufacturer,
Philco-Ford Corporation. Since Palmetto was receiving 50% co-op ad-
vertising credit from its supplier, the 50% rebate it received from
Palmetto permitted it to receive its advertising for nothing.
8. The total amount involved was not inconsequential relative to
station revenues. The 1972 rebates to Palmetto totalled $2,439.50 out of
total revenues for the year of $113,218.
9. The fact that Bell, Jr. initiated the rebate scheme at a time he was
an officer of the licensee corporation is of obvious significance. How-
ever, the heart of WSIB’s defense is the claim that Bell, Sr., the actual
owner of the corporation, did not have knowledge of it until October,
1973. All three Bells testify that this was the case. However, that
testimony is found to be implausible.
10. Mrs. Bell asserts that her son did not actually explain the ar-
rangement to her. He gn vg told her that the payments were neces-
sary in order to retain the Palmetto account. She recognized that the
61 F.C.C. 2d
39a
Sea Island Broadcasting Corporation 939
arrangement was out of the ordinary. However, since Bell, Sr. had left
their son in charge while he was out of the area on business, she felt
Bell, Jr. was entitled to make the decision. Accordingly, she drew to
chagoe yet rag of a number of checks which Bell, Sr. had signed in blank
to pay bills.
11. The foregoing is not unbelievable. Bell, Jr.’s decision to retain a
threatened pr 5 rebating is understandable if not commendable.
His mother’s compliance with his instructions to draw the check is not
unnatural in her husband’s absence. What is incredible, and not con-
vincingly explained, is their claimed failure to tell Bell, Sr. about the
incident on his return, and their claimed failure during the following
months during which additional rebate checks were issued to acquaint
him with the situation.
12. It is claimed that Bell, Sr. was not told because he did not com-
municate well with his son, and it was feared that disclosure would
anger him. Such explanation is unlikely. On the one hand, if Mrs. Bell
truly believed that her son was acting within the scope of his delegated
authority, she had no reason to fear that disclosure would anger his
father. On the other hand, if she truly believed that disclosure would
anger Bell, Sr. she could not have believed that the Palmetto arran
ment was within the scope of the son’s authority. In either case she
was confronted with a highly unusual situation involving the regular
expenditure of a material portion of the station’s receipts. It is simply
unnatural that she would have said nothing to her husband, especially
since she must have known, as must Bell, Jr., that the situation would
be immediately apparent to Bell, Sr. at any time he conducted even a
superficial review ' of the station’s expenditures. The Bells’ testimony
that Bell, Sr. was unaware of the rebating while it was going on is not
accepted as true.
13. The rebates to Palmetto did not constitute the only irregularity
in WSIB’s billing practices. The station had a spot rate of $1.50 for 60-
second announcements and $1.20 for 30-second announcements. How-
ever, it also broadcast what it called Sound Ads. Sound Ads were 11 or
12-second announcements, usually broadcast in sets of four from time
to time throughout the day. The charge was $30 per month for each
segment of the Sound Ad.
14. In preparing invoices for Palmetto, WSIB converted the Sound
Ads actually broadcast into spot announcements. The conversion was
accomplished by dividing the charge for Sound Ads broadcast by the
spot rate, thereby yielding a specific number of spots. The invoice
indicated that the resulting number of spots had been broadcast rather
than the number of Sound Ads that had actually beea broadcast.
Hence, the invoice showed the actual charge to Palmetto, but was
inaccurate as to the amount and type of advertising that had been
broadcast. This practice was originated by Mrs. Bell and was followed
in the belief that co-op advertisers might not understand bills for
announcements other than conventional spots.
15. The conversion into conventional spots of other md of adver-
tising on behalf of Palmetto is shown to have occurred in January,
'The checks to Palmetto were properly stubbed. Both the stubs and the cancelled checks were
available to Bell, Sr.
61 F.C.C. 2d
40a
940 Federal Communications Commission Reports
1971; April through December of 1972; January through April of 1973;
and June through December of 1973.
16. A similar practice was followed with the bills of another adver-
tiser, Sutcliffe Furniture Company. However, in the case of Sutcliffe,
WSIB went one step further. It billed to Sutcliffe as co-op advertising
broadcasts which did not qualify for that designation. In addition to its
furniture store, Sutcliffe owns two other businesses which advertise
on WSIB, a laundromat and a grocery store. Neither sells products for
which Sutcliffe has a co-op advertising agreement. However, both
businesses were advertised via WSIB Sound Ads. With respect to such
advertising WSIB furnished Sutcliffe two invoices. One, for Sutcliffe’s
own files, showed what was actually broadcast. The other, for Sut-
cliffe’s co-op advertisers, converted the Sound Ads to conventional
spots and showed them all as having been broadcast on behalf of the
furniture store. The record indicates that between May, 1972 and Oc-
tober, 1973 Sutcliffe was furnished false invoices totalling over $1,400
showing co-op advertising that was not actually broadcast on behalf of
products of the co-op sponsors. ”
17. In September of 1972, the owner of the Country Store, a grocery
store with associated service station, undertook a promotiona! cam-
paign on behalf of his gasoline sales. His supplier, Southland Oil Com-
pany, agreed to pay 50% of the cost. The owner of the Country Store
in company with a representative of Southland Oil reached an agree-
ment with WSIB for a promotional mix of 30-second spots and Sound
Ads. However, when the invoice was sent it indicated that all of the
broadcasts had been spots. The total amount involved was approxi-
mately $130.00.
Issue No. 2: Misrepresentation
18. Between April 25 and 27, 1973, two Commission staff members
conducted a field investigation at WSIB. During the three-day period
the investigators interviewed both Bell, Sr. and Bell, Jr. as well as
various employees, and examined numerous station records. State-
ments were taken from all or most of those interviewed. The context
of these statements makes it apparent that the investigation centered
on suspected fraudulent billing, improper trade-outs, and combination
rates with the Beaufort Shopper owned by Mr. Bell, Jr.
19. In the signed statements which Bell, Sr. and Jr. gave the inves-
tigators each denied any knowledge of fraudulent billing by the sta-
tion. Bell, Jr.’s statement was obviously false since it was he who had
made the arrangements for the fraudulent bills. It is found that Bell,
Sr.’s statement was equally false.
20. As found at graphs 10-12, supra, the presiding Judge re-
gards it as sedi that Mr. Bell, Sr. was unaware of the Palmetto
rebates while they were being paid. It is even more incredible that he
reinained ignorant after the investigation commenced.
21. Field investigations by the Complaints and Compliance Division
of the Broadcast Bureau are not an everyday occurrence in the life of
an average licensee. The presence of two investigators for three days
2The record indicates that Sutcliffe did not always forward the false invoices to its co-op adver-
tisers for credit. However, this fact is irrelevant. The essential point is that Sea Island issued false
invoices, and what Sutcliffe may have done with those invoices is without significance.
61 F.C.C. 2d
4la
Sea Island Broadcasting Corporation 941
could not have failed to capture Mr. Bell’s full attention. Their ques-
tions and the documents they sought made their area of interest ap-
parent. Assuming arguendo that Bell was unaware of any wien
at the time they arrived, it would have been wholly unnatural for him
not to have launched his own immediate investigation.
22. Moreover, the first targets of that investigation would be obvi-
ous. Bell, as an experienced broadcaster, must have realized that the
sort of offenses being investigated were those which ordinarily origi-
nate with a station’s salesmen. He knew that his son was primarily a
salesman, but had functioned as the station’s manager during his own
absences in past months. He must have known that the sort of offenses
being investigated could only occur with the cooperation of the individ-
ual responsib e for the station’s billing. He knew that his wife was the
station's bookkeeper and functioned as office manager. It is simply
inconceivable that he would not have discussed the matter with them
while the investigators were there and before he signed his statement.
Yet, he asserts that neither at that time nor for five months thereafter
did he question either of them.* Such insouciance surpasses belief.
23. By letter of August 29, 1973, the Commission requested addi-
tional records from WSIB. The records requested related specifically
to Palmetto. Bell sent the records. However, although he knew that
Palmetto was his son’s account, he claims that he did not question
either Bell, Jr. or Herman Smith, proprietor of Palmetto.
24. By letter of September 18, 1973, the Commission advised WSIB
that it suspected fraudulent billing on the Palmetto account. It en-
closed copies of WSIB’s Palmetto accounts receivable for 1972 and
copies of the WSIB invoices which had been supplied to Philco-Ford,
Palmetto’s co-op advertiser, for June through December, 1972, and
asked Bell to comment.
. 25. ne! letter dated October 3, 1973, Bell replied.‘ In pertinent part
e stated:
“With reference to the 1972 ledger work sheet for Palmetto TV and Stereo Center
(characterized in the Commission's letter as ‘WSIB’ Palmetto accounts receivable
for 1973) the licensee is simply unable to resolve certain discrepancies in the debit
and credit figures with the amounts of the Palmetto checks for the period from June
through December 1972. The station employee who made those entries is not a
trained bookkeeper, is experiencing emotio roblems and has no explanation, and
is in a transition period of replacement for these duties. In any event, this work
sheet appears not to be pertinent as it was not utilized in the Palmetto TV billing.
A typewritten ledger sheet is used for such billing.”
26. Bell’s letter can only be described as brazen. The Commission
had sent him copies of records demonstrating that the amounts he had
received from Palmetto were 50% of those he had invoiced to Palmet-
to’s co-op advertiser. To any experienced broadcaster such documents
almost certainly spell double billing,® and since the Commission had
3 Beil claims he did not discuss the matter with his wife because she was unwell, and he did nut
wish to place her under greater pressure. This contention would be entitled to greater weight if Mrs.
Bell had not continued to perform the rest of her duties at the station for an additional eight months.
No explanation is offered as to why Bell, Jr. was not questioned.
4The letter was drafted by WSIB’s attorney. However, counsel relied entirely on information
— him by Bell, Sr.
ouble billing is a form of fraudulent billing whereby a co-op advertiser is invoiced for a sum
greater than the broadcaster expects to receive from the local account which actually placed the
advertising. The details by which such a result is achieved may vary from case to case.
61 F.C.C. 2d
42a
942 Federal Communications Commission Reports
sent them to him Bell must have known that the Commission was
aware of the situation. His continuing denial constitutes an attempt to
obfuscate the situation.
27. Moreover, Bell’s statement that “the station employee who made
these entries .. . has no explanation” conflicts with his testimony
during the hearing. The “station employee” was his wife. During the
hearing he testified that he had not discussed the matter with her
when he wrote the letter, and did not do so for approximately a week
thereafter. It is found that neither the statement in the letter nor the
eg ye testimony is worthy of belief. °
28. It has heretofore been found that Bell’s previous claims of igno-
rance are incredible. However, even if, for the sake of argument, those
statements are accepted as true, his claim that he answered the Com-
mission’s letter without checking with his wife is beyond the bounds of
common sense. He had documents in front of him that demonstrated
double billing. He knew that she had been responsible for the prepara-
tion of those documents. He simply could not have failed to ask her for
an explanation. His claim that he did not cannot be accepted.
29. Mr. Bell testified that during discussions with his communica-
tions counsel relative to the preparation of the October 3, 1973 letter
the possibility of rebates first arose. When he returned to South Caro-
‘ina he discussed the matter with his wife and son, and they acknowl-
edged what had transpired. However, he did not immediately under-
tuke to modify his representations to the Commission.
30. On October 12, 1973, after Mr. Bell claims to have at last learned
of the rebates, the Commission addressed another letter to WSIB. It
requested certain documents and explanations.
31. On November 9, 1973, WSIB replied through counsel. Although
Mr. Bell was made aware of the contents of the reply before it was
submitted, the letter did not refer to his then admitted knowledge of
the rebates. Finally, by letter to the Commission dated November 16,
1973, Mr. Bell acknowledged the Palmetto rebates. However, the letter
did not disclose the irregularities in connection with the Sutcliffe bill-
ings discussed at paragraph 16, supra. Bell, Jr. asserts that he did not
disclose this arrangement to his father until April of 1974.
32. One further matter requires discussion, although it is not within
the scope of the issue, because it has influenced the opinion of the
presiding Judge with respect to the candor of Mr. Bell. On bg (ke
1974, Sea Island filed an Ownership Report stating that, Mrs. Bell
resigned as an officer and director of the corporation effective Decem-
ber 31, 1973. On May 28, 1974, a Statement for the Record was filed
indicating that Bell, Jr. had resigned as an officer and director effec-
tive April 18, 1974, and severed all employment relationships with the
station on April 30, 1974. These actions were taken in order that WSIB
could claim that the persons responsible for the fraudulent billing had
been disassociated from the operation of the station.
33. In the course of his testimony Mr. Bell answered in the affirma-
tive to a question as to whether his wife had “terminated all of her
*This finding is reinforced by Bell's assertion that the WSIB work sheets which were sent him
were not pertinent. In fact, WSIB did keep two accounts receivable work sheets on the Palmetto
account, one handwritten and one typewritten. However, as he well knew, both contained the same
data, and either would be equally pertinent in ascertaining the facts.
61 F.C.C, 2d
43a
Sea Island Broadcasting Corporation 943
involvement” with the station. Further examination revealed that this
answer was untrue. Although Mrs. Bell was no longer a principal or
employee of the station, and although she no longer worked as many
hours as before or received a salary, she continued to perform duties
essentially the same as those she performed at the time of her resig-
nation.
34. The importance of the foregoing finding lies not in the fact that
Mrs. Bell continued to serve the station. The Commission has no re-
quirement that an erring employee be discharged, and certainly there
is no requirement that action be taken which would strain family ties.
The point is that Mr. Bell took an action designed to imply that he was
so shocked by his discovery of malmanagement that he was inspired to
adverse action even against his closest family.
35. Plainly, if such an action is to be credible Bell had an obligation
of absolute candor. The simple failure to disclose affirmatively that
Mrs. Bell continued to perform substantial duties, albeit as a wife
rather than as a business associate or employee, constituted evasive-
ness. However, Bell went further. While undergoing cross-examination
plainly designed to elicit whether Mrs. Bell retained any connection to
the station he falsely denied it. Such action is indicative of a continuing
willingness to deceive the Commission, and lessens still further the
confidence which may reasonably be placed in his version of events.
36. WSIB offered evidence as to Mr. Bell’s character and as to the
service which his station has rendered to the community. It is found
that Mr. Bell enjoys an excellent record for probity with the leaders of
the community in which he resides. It is further found that the station
has well served the needs of diverse groups within the community.
Conclusions
Issue No. 1: Fraudulent Billing
37. From January, 1971 to December, 1973, WSIB engaged in
fraudulent billing of one type or another. In January, 1971; April, 1972
through April, 1973; and June, 1973 through December, 1973, co-op
advertisers of Palmetto TV and Stereo Center were furnished invoices
which falsely indicated that specific numbers of 30- or 60-second spot
announcements had been broadcast when in fact what had been run
was a different number of approximately 10-second commercials
within the Sound Ad format. Between May, 1972 and October, 1973
similar false invoices were supplied to co-op advertisers of Sutcliffe
Furniture Company. These invoices were rendered even more e
gious because many of the Sound Ads which were broadcast and in-
voiced as 30- or 60-second spots to the co-op advertisers were on
behalf of Sutcliffe businesses which did not handle the products of the
co-op advertisers involved. From April through December of 1972 in-
voices were submitted to co-op advertisers of Palmetto which were
false in that they failed to reveal that the actual compensation WSIB
was to receive was only half that shown on the invoice due to the 50%
rebate being paid by WSIB to Palmetto.
7 Bell, Jr. alyo continued to serve the station on occasion. However, the record indicates that his
services were casual, insignificant and infrequent. It is found that the claim that his actions were
merely an occasional accommodation of a father by a son is essentially true.
61 F.C.C, 2d
44a
944 Federal Communications Commission Reports
38. Each of these invoices was violative of Rule 73.1205 in that it
contained information that was false either as to the amount actually
charged by the licensee for the broadcast advertising for which the
invoice was issued or misrepresented the quantity of advertising actu-
ally broadcast. *
39. The violations were initiated by Charles Bell, Jr. and/or Elaine
Bell. a the time each was an officer and director of the licensee
corporation.
40. Charles Bell, Sr., the owner, President, Director and General
Manager of the WSIB operation denies knowledge of the fraudulent
billing while it was going on. His ae om has not been accepted as
true. However, even if he had been believed, he would be held respon-
sible for the activities of his wife and son in their capacity of corporate
a and ——.
41. WSIB is a small station with a small staff. Bell, Sr. was General
a and present at the station during much of the time. The
records were open to him, and the most casual inspection thereof
would have revealed the yo ang billing. A glance at the check stubs
would have disclosed the rebates. A superficial comparison of the lo
and the invoices would have shown that on certain accounts Sound A
were being invoiced as spots. “It is obvious that a minimal degree of
responsible supervision . . . could have averted the . . . fraud,” Conti-
nental Broadcasting, Inc., 15 FCC 2d 120. Under such circumstances,
even if it had been found that the fraud had occurred without Bell’s
knowledge, he would be held fully responsible for the wrongdoing of
his subordinates.
42. So far as is known to the presiding Judge the Commission has
not heretofore denied a license solely because of violations of Rule
73.1205. However, in Wharton Communications, Inc., 44 FCC 2d 489,
fraudulent billing in conjunction with other improprieties was found
sufficient to deny renewal of a license. The violations of Rule 73.1205
in this case will be considered together with the conclusions on the
misrepresentation issue in determining the appropriate action.
Issue No. 2: Misrepresentation
43. It is undisputed that the denial of knowledge of fraudulent bill-
— in the April, 1973 statement of Mr. Bell, Jr. constituted
a knowing misrepresentation by an officer and director of the licensee
corporation. Moreover, even if he had been a mere employee, the li-
censee could not escape responsibility for his misrepresentation.
“While certain duties may be performed by station employees pursu-
ant to the delegated authority of the licensee, such delegation does not
relieve the licensee of responsibility for the results achieved, absent a
clear and —— showing of reasonably ry og supervision by
the licensee,” The Prattville B/Casting Co., 8 RR 2d 120. Bell, Sr.
claims he did not even discuss the matter with his son at the time the
statement was submitted or for several months thereafter. For a li-
*The invoice submitted to the Southland Oil Company in connection with the September, 1972
advertising campaign of the Country Store also constituted a technical violation of Rule 73.1205.
However, since all of the parties involved are shown to have been aware of what was being done, the
infraction does not rise to the quality of the other violations of the rule. The violation, standing alone,
would not warrant any action against the licensee more severe than an admonition to discontinue the
practice.
61 F.C.C. 2d
45a
Sea Island Broadcasting Corporation 945
censee to not even question the person most likely to be knowledge-
able of the subject of a Commission investigation is the very opposite
of reasonably adequate supervision.
44. However, the misrepresentation does not end there. It has been
found that time after time Bell, Sr. denied knowledge of the fraudulent
billing under circumstances which render those denials impossible of
belief. He —— believed that if he could paint himself as the
credulous victim of a wife and son who permitted him to destroy
himself through their silence he could escape accountability. The rec-
ord warrants no such conclusion.
45. This case Por a pattern of deliberate falsehoods to the Com-
mission, its staff and its investigators in an attempt to conceal serious
violations of. the fraudulent billing rules. The Commission has often
explained why such conduct cannot be tolerated and merits the sever-
est sanctions, The Neighborly B/Casting Co., Inc., 24 RR 959; Nick J.
Chaconas, 21 RR 2d 576. It is concluded that on the misrepresentat
This text is long and has been trimmed here. Open the source document for the complete record.
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