Appendix — Fidelity Television, Inc. v. Federal Communications Commission

Supreme Court, U.S.

81-1929 dich

APR 19 1982

* STEVAS

CLERK 4

IN THE

Supreme Court of the United States

OcTOBER TERM, 1981

Mutti-STATE COMMUNICATIONS, INC.,

Petitioner,

V.

FEDERAL COMMUNICATIONS COMMISSION, RKO GENERAL,

INC, COMMUNITY BROADCASTING OF Boston, INC., NEW

ENGLAND TELEVISION CORPORATION, THE DUDLEY STA-

TION CORPORATION, AND FIDELITY TELEVISION, INC.,

Respondents.

APPEND TES TO PETITION FOR A WRIT OF

CERTIORA#: TO THE UNITED STATES COURT OF

APPEALS FOR THE DISTRICT OF COLUMBIA

CIRCUIT

loseEPH VI. Morrissey*

Kevin T. MARONEY

Of Counsel: Hens MORGAN

CHARLES O. BLAISDELL 300 Farragut Building

Bleakley Schmidt, P.C. 900 Seventeenth Street, N.W.

123 Main Street Washington, D.C. 20006

White Plains, New York 10601 (202) 296-5151

(914) 949-2700 Counsel for Petitioner

Multi-State Communicaiions, Inc.

*Counsel of Record

APPENDICES

A. Opinion of the court of appeals, dated December 4,

1981 la

B. Opinion and decisions of the Federal Communica-

tions Commission, 78 F.C.C.2d 1, 355, and 357 46a

C. Judgment of the court of appeals, dated December

— err 283a

D. Orders of the court of appeals denying petitions

for rehearing and suggestions for rehearing en

banc, dated January 18, 1982222 285a

la

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 80-1696

RKO GENERAL, INC.,

V.

FEDERAL COMMUNICATIONS COMMISSION,

Appellee

MULTI-STATE COMMUNICATIONS, INC.,

Intervenor

Appellant

No. 80-1697

RKO GENERAL, INC.,

* Appellant

FEDERAL COMMUNICATIONS COMMISSION,

Appellee

FWELITY TELEVISION, INC.,

MULTI-STATE COMMUNICATIONS, INC.,

Intervenors

No. 80-1698

RKO GENERAL, INC.,

e Appellant

FEDERAL COMMUNICATIONS COMMISSION,

Appellee

FIDELITY TELEVISION, INC.,

NEW ENGLAND TELEVISION CORPORATION,

DUDLEY STATION CORPORATION,

MULTI-STATE COMMUNICATIONS, INC.,

COMMUNITY BROADCASTING OF BOSTON, INC.,

Intervenors

2a

Appeals from Orders of the

Federal Communications Commission

Argued September 16, 1981

Decided December 4, 1981

J. Roger Wollenberg with whom Joel Rosenbloom,

A. Douglas Melamed, Barbara S. Wellbery, Bruce D.

Ryan, W. Theodore Pierson, Harold David Cohen, Wil-

liam H. Fitz, Jack N. Goodman and William E. Willis

were on the brief for appellant.

L. Andrew Tollin, Counsel, Federal Communications

Commission, with whom Marjorie S. Reed, Acting Gen-

eral Counsel, David J. Saylor, Deputy General Counsel,

Daniel M. Armstrong, Associate General Counsel, Lee J.

Peltzman, Sue Ann Preskill and Linda L. Oliver, Coun-

sel, Federal Communications Commission, were on the

brief for appellee.

Eugene F. Mullin with whom B. Shelby Baetz, Na-

thaniel F. Emmons and Howard A. Topel were on the

brief for intervenor, Fidelity Television, Inc., in Nos.

80-1697 and 80-1698.

Joseph M. Morrissey was on the brief for intervenor,

Multi-State Communications, Inc., in Nos. 80-1696, 80-

1697 and 80-1698.

Philip Elam, Terry F. Lenzner, James H. Davis,

Joseph F. Hennessey, Edward Hayes, Jr., and Jay E.

Ricks were on the joint brief for intervenors, New

England Television Corporation, et al., in No. 80-1698.

Before: TAMM, MIKVA and EDWARDS, Circuit Judges.

Opinion for the Court filed by Circuit Judge MIKva.

Mixva, Circuit Judge: The Federal Communications

Commission (FCC) denied renewal of television licenses

3a

to RKO General, Inc. (RKO) in Boston, Los Angeles,

and New York City. Renewal of the Boston license was

denied because of a finding that RKO lacked the requisite

character to be a licensee of that station. The denial of

license renewals in Los Angeles and New York City

followed from the Commission’s earlier determination

that the Boston finding would be res judicata in those

proceedings.

RKO is a wholly owned subsidiary of General Tire &

Rubber Company (General Tire). General Tire, by its

own admission, has engaged in a staggering variety of

corporate misconduct. During the Boston proceeding,

RKO withheld evidence of General Tire’s conduct from

the FCC, either because RKO sought to protect its par-

ent or because the parent withheld information from the

subsidiary in order to protect itself. The Commission,

in turn, has disqualified RKO after years of delay in an

opinion that is multifarious at best. We reject most of

the grounds that the FCC used to justify its denial of

RKO’s license renewals. We affirm the Commission’s

decision that RKO lacked candor, but on a quite narrow

ground that cannot automatically be applied to any other

proceeding. Accordingly, although we uphold denial of

the Boston license renewal, the proceedings in Los An-

geles and New York City must be remanded.

The need for a remand and further action by the Com-

mission is discomfiting in a fifteen-year-old case, but this

1 General Tire, which owns 100 percent of RKO’s stock, was

founded in 1915 by William O’Neil. Three of his sons and one

daughter owned or controlled over nine percent of General Tire’s

stock as of July 1979, and each of the sons is a director of the

company. T. F. O’Neil is Chairman of the Board of both General

Tire and RKO, and is the Chief Executive Officer of RKO. M.G.

O’Neil is President and Chief Executive Officer of General Tire.

The Commission concluded that the two companies “are owned,

controlled, and operated as a single integrated company.” RKO

General, Inc. (WNAC), 78 F.C.C.2d 1, 60 (1980), at 7 119 [herein-

after cited as Decision, by J.

4a

extended proceeding has hardly been a model for the

administrative process. We admonish all parties to get

on with the task.

I. PROCEDURAL HISTORY

Extraordinary as it may seem, this case had its begin-

ning in 1965, when RKO petitioned to renew its license

for KHJ-TV in Los Angeles. The petition was opposed

by a competing applicant on a variety of grounds, in

cluding the allegation that RKO had engaged in recipro-

cal trade practices.? A comparative hearing on the two

applications led to a Commission finding in 1973 in favor

of RKO,’ subject to further findings on the reciprocity

issue in the Boston proceeding discussed below. A fuller

2 See RKO General, Inc. (KHJ-TV) (Initial Decision), 44 F.C.C.2d

149 (1969). Reciprocal trade practices are agreements whereby

one company conditions its purchase of goods from another company

on the second company’s willingness to purchase other products

from the first. The FCC found that General Tire frequently con-

ditioned its purchases of goods and services on the expectation that

the seller would purchase advertising time on RKO stations. De-

cision 2 (a). The Decision concluded that such reciprocal trading

“was anticompetitive, probably violative of the antitrust laws, and

(in the case of RKO) corruptive of the normal free market process

by which the demand for advertising time helps ensure that radio

and television programming is responsive to public desires.” Id.

See generally Handler, Emerging Antitrust Issues, 49 Va. L. Rxv.

433 (1963); Hausman, Conglomerate Mergers, 77 Harv. L. Rev.

873 (1964); Turner, Conglomerate Mergers, 78 Harv. L. Rev. 1313

(1965).

8’ RKO General, Inc. (KHJ-TV), 44 F.C.C.2d 123 (1973).

In 1967, the Department of Justice had brought a civil suit

against General Tire, RKO, and two other Genera! Tire sub-

sidiaries, charging that their reciprocal trade practices d

the Sherman Antitrust Act. United States v. General Tire &

Rubber Co., No. C-67-155 (N.D. Ohio, filed March 2, 1967). This

action was still pending when the FCC designated a comparative

hearing on renewal of WNAC in 1969. A consent decree was entered

on October 21, 1970. 1970 Trade Cas. f 73,303 (1970).

5a

history of these events may be found in Fidelity ora

vision, Inc. v. FCC, 515 F.2d 684 (D.C. Cir.),

denied, 423 U.S. 926 (1975), which affirmed the —

mission’s decision.

In the meantime, other competing applicants had chal-

lenged RKO’s license renewal application for WNAC-TV

in Boston, RKO General, Inc. (WNAC), 20 F.C.C.2d 846

(1969). The FCC also designated a reciprocity issue in

the Boston proceeding, and authorized that official notice

be taken of the KHJ-TV record. Similarly, when RKO

sought renewal of WOR-TV in New York City in 1974,

the FCC determined that RKO’s application would be

bound by the record in the Boston proceeding then under-

way.“

With renewals in New York and Los Angeles condi-

tioned upon its outcome, the Boston proceeding took on

special importance. An Administrative Law Judge issued

an initial decision in that proceeding on June 21, 1974,

granting renewal to RKO despite affirmative findings as

to RKO’s reciprocal trade practices.* Exceptions and

reply pleadings were then filed before the Commission in

response to that initial decision. Before the FCC could

act on these administrative appeals, however, RKO’s

parent corporation found itself enmeshed in an investiga-

tion by the Securities and Exchange Commission (SEC)

that would greatly impact RKO’s petitions to the FCC.

5 RKO General, Inc. (WOR-TV), 46 F.C.C.2d 246 (1974). The

intervenor in this proceeding was initially found financiaily un-

qualified but that decision was overturned in Multi-State Com-

munications, Inc. v. FCC, 590 F.2d 1117 (D.C. Cir. 1978), cert.

denied sub nom. RKO General, Inc. v. Multi-State Communications,

Inc., 440 U.S. 959 (1979).

6 RKO General, Inc. (WNAC-TV) (initial decision), 78 F.C.C.2d

147, 254-335 (1974). The ALJ concluded that General Tire’s “trade

relations” practices “do not adversely reflect upon RKO’s qualifica-

tions to continue a licensee of the Commission or to warrant com-

parative demerit.” Jd. at 347.

6a

In a series of civil actions brought in 1974 and 1975,

the SEC had charged that questionable domestic and for-

eign payments by American corporations and falsifica-

tion of corporate financial records to conceal such pay-

ments violated the federal securities laws.“ One of the

SEC’s targets was General Tire, and RKO’s competing

applicants in the Boston proceeding sought to take ad-

vantage of that fact. On December 10, 1975, Community

Broadcasting of Boston, Inc. (Community) filed a peti-

tion to reopen the record for a hearing on “illegal and

improper conduct” by General Tire in the United States

and foreign countries, including bribery of officials, crea-

tion of secret accounts, misappropriation of foreign cor-

porate funds, and deliberate concealment of these matters

by General Tire and RKO.°

RKO opposed this move in a series of pleadings. On

January 21, 1976, it urged that there was “no factual or

legal foundation” for these charges.“ In June 1977, well

after the SEC had filed a complaint and obtained a con-

sent decree against General Tire, RKO continued to op-

pose the petition to reopen the record in oral argument

before the Commission.“ The consent decree required

7 See, e.g., SEC, REPORT ON QUESTIONABLE AND ILLEGAL CORPORATE

PAYMENTS AND PRACTICES, submitted to the Senate Comm. on

Banking, Housing and Urban Affairs, May 12, 1976, reprinted in

642 Fep. Sec. L. Rep. (CCH), Part II (May 19, 1976).

® Community Petition to Reopen the Record, Enlarge the Issues

and Remand for Further Hearing (Community Petition), Decem-

ber 10, 1975, J.A. 535. The petition was triggered by newspaper

reports of an investigation of General Tire by the government of

Chile. Id. at 4, J. A. 538.

®RKO Opposition to the Petition to Reopen the Record, En-

large the Issues, and Remand for Further Hearing (RKO Opposi-

tion), January 21, 1976, at 5, J.A. 588.

10 Final Judgment of Permanent Injunction against the Gen-

eral Tire & Rubber Company and M.G. O’Neil, No. 76-0799 (D. D. C.

May 10, 1976).

11 Transcript, WNAC-TV Proceeding, at 15406-08, J.A. 2641-43.

7

General Tire to conduct a review of its operations and

prepare a Special Report, however. This report, which

was released on July 1, 1977, admitted a plethora of

corporate misconduct, and documented inadequacies in

RKO records for certain reports previously filed with

the FCC. Nevertheless, RKO continued to oppose the

need for further proceedings, claiming that all “essential

facts” concerning its operation of WNAC were before the

Commission, and that because resolution of Community’s

claims “turns on inferences and legal conclusions to be

drawn from those facts, the Commission would be well

within its authority in deciding this case without holding

a further evidentiary hearing.” *

For reasons that may be partially attributable to

strategic maneuvering among two of the many RKO

competitors,“ the FCC did not act on Community’s peti-

12The consent decree required creation of a Special Review

Committee, composed of five non-management directors assisted by

Special Counsel, who were to conduct

an extensive investigation into the use of corporate funds for

unlawful political contributions, gifts, entertainment or other

disbursements for similar improper purposes; and use of cor-

porate funds for improper payments to governmental employees

and officials, foreign or domestic; the establishment and main-

tenance of, and transactions in, any secret or unrecorded funds;

the use of agents and consultants for unlawful or improper

purposes or in connection with unlawful or improper conduct:

and such other similar matters as may be revealed during the

course of the investigation.

Special Report at 27, J.A. 1267.

183RKO Response to Community Motion to Deny (RKO Re-

sponse), October 28, 1977, at 34-36, J.A. 805-07.

1 In 1978, the New England Television Corporation (NETV)

was formed as the result of a merger between two of RKO’s com-

peting applicants for the Boston station, Community Broadcasting

of Boston, Inc. (Community) and The Dudley Station Corporation

(Dudley). After lengthy negotiations, Community and Dudley

entered into a settlement agreement with RKO whereby RKO would

sell its Boston license to NETV upon a finding by the FCC that

8a

tion to reopen the Boston proceeding unti] June 21, 1979.

A week later, the Commission directed the parties to

file summaries of their positions and present oral argu-

ment on the following questions:

(1) Is the record in this proceeding sufficient for

the Commission to make a judgment:

(a) that RKO is qualified to remain the

licensee of Station WNAC-TV, Boston,

Massachusetts; or

(b) that RKO is not qualified to remain

the licensee of Station WNAC-TV,

Boston, Massachusetts?

(2) In the event that the record is sufficient to

make either of the above judgments, what

should that judgment be?

Oral argument was held before the Commission en banc

shortly thereafter. The FCC concluded that it could an-

swer the first question: RKO could not be found quali-

fied to remain a licensee on the existing record. It de-

cided to seek further information before answering the

other questions, however.“ Two days later, the FCC re-

RKO possessed the requisite qualifications to be a broadcast licensee.

Brief for Intervenors NETV, Dudley, and Community at 5. When

the Commission could not find RKO minimally qualified, however,

General Tire rejected NETV’s offer to buy RKO’s unlicensed assets.

Id.

15 FCC Order 79-403, June 28, 1979, J. A. 350. RKO reiterated

its earlier claim that [the record in this proceeding is fully

sufficient for the Commission to adjudge that RKO is qualified to

be a broadcast licensee and thus qualified to remain the licensee of

WNAC-TV.” Summary of RKO’s Position, July 9, 1979, J.A. 834.

It now urged, however, that the record was not sufficient for the

FCC to adjudge RKO “unqualified.” J.A. 839.

16 Decision f 43; see J. A. 352 (informal FCC announcement that

“tentative” 4-2 vote had found record insufficient to permit finding

RKO qualified).

opened the record to accept the Special Report into evi-

dence, and urged that RKO “make a particularized prof-

fer of specific evidence that it would introduce, if given

the opportunity, to mitigate the findings” of that report.“

RKO proffered evidence and affidavits in September 1979.

RKO also now contended that it deserved additional

hearings before the Commission could find it not

qualified.“

On June 6, 1980, the FCC issued three companion

orders resolving the WNAC proceeding and the two other

license renewals that had been conditioned upon it.“ The

WNAC decision (Decision) focused on four specific areas

of misconduct by RKO and General Tire: reciprocal

trade practices by RKO and General Tire during the

1960s, id. at . 58-92; General Tire’s misconduct in a

variety of nonbroadcast fields, id. at V 93-162; inaccu-

rate financial reports filed by RKO with the FCC, id. at

N 163-195; and RKO’s general lack of candor during the

course of the Boston proceeding, id. at V 196-221. The

Decision concluded that nothing in RKO’s broadcast his-

tory mitigated these findings, id. at W 222-32, and that

absolute disqualification of RKO as a broadcast licensee

was the only appropriate remedy, id. at W 233-49. The

companion orders accordingly disqualified RKO as a

licensee of WOR-TV (New York) and KHJ-TV (Los

Angeles).

Of the four grounds for disqualification, only recipro-

cal practices had been the subject of formal notice and

hearing before an Administrative Law Judge. The FCC’s

17 FCC Order 79-453, July 20, 1979, J. A. 353.

18 J.A. 857, 869, 875, 880, 889, 1083 (proposed findings and con-

clusions filed by RKO, Broadcast Bureau, and four competing

applicants).

19 RKO General, Inc. (WNAC-TV), 78 F.C.C.2d 1 (1980) (the

Decision); RKO General, Inc. (KHJ-TV), 78 F.C.C.2d 355 (1980);

RKO General, Inc. (WOR-TV), 78 F.C.C.2d 357 (1980).

10a

findings as to General Tire’s nonbroadcast misconduct

and RKO’s financial misrepresentations relied heavily

on the Special Report. The findings concerning RKO’s

lack of candor rested on RKO’s failure to make timely

submission of the information contained in the Special

port, as reflected by RKO’s earlier pleadings before

the Commission. On each of these three points, the Deci-

sion rejected RKO’s argument that it could not be dis-

qualified without formal notice and hearing. Id. at

M 144-61 (General Tire’s nonbroadcast misconduct) ; id.

at 193-95 (financial inaccuracies) ; id. at M 219-221

(lack of candor).

RKO appealed from all three orders denying license

renewal, and the appeals were consolidated by this court.

II. INVALID BASES OF THE FCC DECISION

At the outset, we hold that the FCC has stated at

least three independent grounds for its ultimate finding

that RKO should be disqualified as a broadcast licensee

in Boston.“ The Decision states that RKO’s reciprocal

dealings “alone” require disqualification, id. at { 92,

that RKO’s “willful and repeated [financial] misrepre-

sentation warrants disqualification by itself,” id. at . 164,

and that “perhaps of greatest importance, RKO has dem-

onstrated a persistent lack of candor with the Commis-

sion in these proceedings,” id. at 55 (a). Our conclusion

also follows from the structure and organization of the

FCC Decision, which distinctly sets out findings of fact

for each of these grounds and treats each of them as en-

tirely separate. We must note that the FCC continues

to struggle with the difficult art of drafting its opinions.

20 Were these grounds not independent, a remand would probably

be required so that the Commission could articulate the “relative

weight” of “the factors that affect its decision,” and determine

whether the disqualification of RKO is still appropirate. Leflore

Broadcasting Co. v. FCC, 636 F.2d 454, 463 (D.C. Cir. 1980); sze

United States v. Third National Bank, 390 U.S. 171, 183 (1968).

lla

In Leflore Broadcasting Co. v. FCC, 636 F.2d 454 (D.C.

Cir. 1980), for example, we emphasized that the Com-

mission has some burden to express the basis for its ac-

tions carefully:

Where several violations are found, the Commission

should set forth the role each plays in the assess-

ment of penalty. Rarely should the agency be per-

mitted to take a “gestalt” approach, one based upon

a reaction to the “overal?’”’ situation rather than to

each violation one at a time.

Id. at 463. Nevertheless, although we may not supply a

reasoned basis for agency action that the agency itself

has not given, courts “will uphold a decision of less than

ideal clarity if the agency’s path may reasonably be dis-

cerned.” Bowman Transportation, Inc. v. Arkansas-Best

Freight System, Inc., 419 U.S. 281, 285-86 (1974);

WAIT Radio v. FCC, 418 F.2d 1158, 1156 (D.C. Cir.

1969), cert. denied, 409 U.S. 1027 (1972). A fair read-

ing of the Decision compels the conclusion that these

three grounds are independent, and that in the FCC’s

view each one by itself required the disqualification of

RKO as a licensee.“

This preliminary observation is important because we

have grave doubts about the sufficiency of two of these

21 Our conclusion is consistent with the FCC’s subsequent argu-

ment, see FCC Brief at 97 n.215 (candor, misrepresentation, and

reciprocal trade practices are “independent pillars” of Decision),

and subsequent Commission opinions describing this RKO Decision.

See, e.g., RKO General, Inc., 82 F.C.C.2d 291, 292-94 (1980), appeal

pending sub nom. New South Media Corp. v. FCC, No. 80-2556

(D.C. Cir. filed December 22, 1980) (reciprocity, lack of candor, and

false financial reports are “separate grounds” for disqualification) ;

Cowles Broadcasting, Inc., 49 RaD. Rec.2d (P&F) 1138, 1148 n.47

(1981) (candor, reciprocity, and General Tire’s nonbroadcast mis-

conduct were “independent grounds” for disqualification) ; Cablecom-

General, Inc., 87 F.C.C.2d 784, 786 (1981) (reciprocal trade prac-

tices, false financial reports, and lack of candor were “separate

grounds” for disqualification).

12a

grounds to support the FCC’s action. The Commission’s

findines on reciprocal trading display a disconcerting

willingness to judge the behavior of broadcast appli-

cants by standards that had not been clearly enunciated

when that behavior occurred. The finding that RKO

knowingly submitted inaccurate financial reports and

thereby intended to mislead the Commission raises ex-

tremely troublesome questions because of the FCC’s fail-

ure to give RKO notice and a hearing on that issue.

Moreover, we agree with the Commission that General

Tire’s nonbroadcast practices, the fourth focus of the

FCC Decision, are “not disqualifying by themselves.”

Decision 7140. The remand on the other two license

renewals is occasioned at least in part by the rejection

of these decisional grounds, to whose inadequacies we

now turn.

A. Reciprocal Trade Practices

There are several reasons to doubt that reciprocal

trade practices during the early 1960s can justify out-

right disqualification of RKO as a broadcast licensee in

1980. First and foremost, the conduct of RKO at issue

has been found to be clearly improper only in retrospect.

Although it has been understood since the 1930s that

“coercive” reciprocity was anticompetitive,” it was not

until the late 1960s that a series of judicial decisions

began to cast increasing doubt on the legality and pro-

priety of unleveraged “mutual patronage” agreements.”

22 F. g., California Packing Corp., 25 F.T.C. 379 (1937); Mechan-

ical Mfg. Co., 16 F.T.C. 67 (1932); Waugh Equipment Co., 15 F. T. C.

232 (1931). All three cases involved companies with substantial

market power over their suppliers that used threats to withdraw

future patronage unless reciprocal purchases were made. As a re-

sult, these cases “shed little or no light on the question of the

legality of reciprocity arrangements in which neither participant

possesses leverage.” United States v. General Dynamics Corp., 258

F. Supp. 36, 57 n.150 (S.D.N.Y. 1966).

23 F. g., FTC v. Consolidated Foods Corp., 380 U.S. 592 (1965);

United States v. Ingersoll-Rand Co., 320 F.2d 509 (3d Cir. 1963);

13a

Even then, however, questions remained.* As late as

1979, the FCC itself recognized that a per se rule was

probably inappropriate because “it is still somewhat

United States v. General Dynamics Corp., 258 F. Supp. 36 (S.D.N.Y.

1966). These cases condemned mergers because of a danger that

the companies would engage in reciprocal trading, focusing on the

legality under Section 7 of the Clayton Act, 15 U.S.C. § 18 (1976),

of conglomerate mergers in which the acquiring company had

substantial market power over its suppliers.

* In Consolidated Foods, the Supreme Court observed that rec-

iprocity “is one of the congeries of anticompetitive practices at

which the antitrust laws are aimed,” 380 U.S. at 594, and that

anticompetitive effects may ensue not from bludgeoning or coereic

but from more subtle arrangements,” id. The case stopped short of

such a broad holding, however, because the Court recognized that

the defendant corporation “commands a substantial share of a

market” and that “the probability of a lessening of competition is

shown.” Id. at 595, 600. Other early cases also involved corporations

with substantial market power. E. g., General Dynamics, 258

F. Supp. at 61-62; Ingersoll-Rand, 320 F.2d at 524.

Commentators also interpreted Consolidated Foods as requiring

that companies be demor “trated to have the “necessary purchasing

power.” Kintner, The Anatomy of Reciprocity, 56 A.B.A.J., 232,

234 (1970). An Assistant Attorney General in the Antitrust Divi-

sion later wrote that there was “respectable support for the propo-

sition that mutual patronage reciprocity was legal” at least until

1967. Tire Company Cases—U.S. Information Memorandum, TRADE

Rec. Rep. (CCH) { 50,259, at 55,504 (1967). The Supreme Court

had shown a related concern for market leverage in the tying cases,

e.g., Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5-6

(1958) ; International Salt Co. v. United States, 332 U.S. 392, 396

(1947). Judge Bazelon’s dissent to denial of rehearing in Fidelity

Television, Inc. v. FCC, 515 F.2d at 698, contended that reciprocal

trading was manifestly illegal. He agreed, however, that there

was a question about “the degree of market power necessary to

make reciprocity illegal. There is some confusion in the cases,

particularly when one refers to the tie-in cases, on whether some

kind of market leverage must be shown to make reciprocity illegal.”

Id. at 720 n.59. it has been suggested recently that in some cases

reciprocity may be innocuous and that in others it may have

“economic virtues.” Industria Siciliana Asfalti, Bitumi v. Fron,

1977-1 Trade Cas. f 61,256, at 70,779 n.4 (S. D. N. V. 1977).

14a

uncertain whether a non-coercive unleveraged reciprocal

agreement.. . necessarily and in every case is anticom-

petitive and a Sherman §1 violation.” Domestic Public

Message Services, 73 F.C.C.2d 151, 161 (1979). As a

result, although we are not in absolute agreement with

RKO that the challenged conduct was “undertaken in

good faith,” ** the FCC’s conclusion rests not on a fair

reading of the contemporaneous law but upon a “greater

appreciation now for the adverse impact of reciprocal

trade practices on the broadcast industry and thus on

the public interest.” Decision { 86 n.156. The FCC un-

questionably has the authority and even the duty to

change its mind as to the degree of anticompetitive prac-

tices that are not in the public interest. Greater Boston

Television Corp. v. FCC, 444 F.2d 841, 852 (D.C. Cir.),

cert. denied, 403 U.S. 923 (1971). Such a finding may

not be applied retroactively, however, to conduct that

ceased almost fifteen years ago. Securities Exchange

Commission v. Chenery Corp., 332 U.S. 194, 203

(1947).

We are particularly concerned that in retroactively

applying its greater appreciation” for the adverse effects

25 See, e.g., Hausman, supra note 2, at 882 (despite widespread

reciprocal trading, most businessmen detested the practice) ; Turner,

supra note 2, at 1390 & n.100 (1965) (predicting rough treatment

for nonleveraged reciprocal trading when appropirate cases reach

the courts”). By 1970, when test suits against a number of corpora-

tions including General Tire had established the illegality of non-

coercive reciprocity, most businessmen had already abandoned their

“trade relations” voluntarily. Kintner, supra note 24, at 233.

26 See Pressley v. FCC, 437 F.2d 716, 721 n.5 (D.C. Cir. 1970)

(before FCC can find bad character on basis of applicant miscon-

duct, there must be “adequate prior notice of a standard by which

conduct can be measured”); Straus Communications, Inc. v. FCC,

530 F.2d 1001, 1011 (D.C. Cir. 1976) (“The licensee’s violation,

then, consisted fundamentally in failing to predict the new inter-

pretation”); AFL-CIO v. FEC, 628 F.2d 97, 101 (D.C. Cir.), cert.

denied, 449 U.S. 982 (1980) (“uncertainty as to the meaning of the

law can be considered in assessing the element of willfulness in a

violation of the law’’).

15a

of reciprocal trading, the FCC has abruptly reversed its

decision to the cor ary in RKO General, Inc. (KHJ-TV),

44 F.C.C.2d 149 (1969), aff'd sub nom. Fidelity Tele-

vision, Inc. v. FCC, 515 F.2d 684. That case held that

essentially the same conduct was neither disqualifying

nor ground even for a comparative demerit.” Failure to

explain the reversal of directly controlling precedent is

unlawful. See, e.g., Columbia Broadcasting System, Inc.

v. FCC, 454 F.2d 1018, 1026 (D.C. Cir. 1971) ; Melody

Music, Inc. v. FCC, 345 F.2d 730, 732 (D.C. Cir. 1965).

“Although an administrative agency is not bound to rigid

adherence to its precedents, it is equally essential that

when it decides to reverse its course, it must give notice

that the standard is being changed . . . and apply the

changed standard only to those actions taken by parties

after the new standard has been proclaimed as in effect.”

Boston Edison Co. v. FPC, 557 F.2d 845, 849 (D.C.

Cir.), cert. denied sub nom. Towns of Norwood, Concord

and Wellesley, Mass. v. Boston Edison Co., 484 U.S. 956

(1977). Although the FCC conditioned its first decision

on RKO’s reciprocal dealings on the possibility that sig-

nificant new evidence might be introduced in the subse-

quent WNAC proceeding, such evidence never appeared.

Additional evidence of reciprocal trading was heard in

that second proceeding, but the bulk related to non-

broadcast activities by General Tire rather than RKO,

27 In the original KHJ-TV proceeding in Los Angeles, the Com-

mission had found that “the relevant legal and economic concepts

were in a state of flux at the time covered by this record, that

neither responsible officials nor the courts had given any clear expla-

nation of the applicability of the broadly drawn [antitrust] statutes,

and that there was accordingly no certainty that trade relations

practices were improper.” RKO General, Inc. (KHJ-TV), 44 F.C.C.2d

at 129-30. In the initial decision in the WNAC proceeding in

Boston, the ALJ concluded: “The extensive additional evidence

adduced herein merely reinforces the conclusions reached in the

KHJ-TV proceeding.” Initial Decision, 78 F.C.C.2d at 333, f 378.

16a

and the remainder was merely cumulative of evidence in

the first proceeding.”*

Finally, we doubt the Commission’s claim that it can

predict RKO’s future character and performance from

evidence concerning conduct that took place between 1961

and 1964.“ Only the unusual nature of these proceedings

allows the FCC to argue that such evidence is at all rele-

vant. FCC precedents consider a licensee’s behavior dur-

28 In Fidelity Television, Inc. v. FCC, this court noticed that there

was “a fairly substantial record. . . on the reciprocity practices

of RKO, not merely in its operation of KHJ, but throughout the en-

tire broadcast side of its business.” 515 F.2d at 696-97. See 78

F.C.C.2d at 137 (Commissioner Lee dissenting) (“additional evi-

dence” in WNAC proceeding was “essentially the same evidence”

considered in KHJ proceeding). It has always been clear that

RKO’s use of reciprocity has been less than that of other General

Tire subsidiaries, and nothing in the Decision alters this conclusion.

RKO also notes that the Decision refers to only two documents not

in the KHJ-TV record: an advertising agency letter of August 1962,

and a letter from Lyon Van Lines to a General Tire official in 1964.

We are troubled by the FCC’s conclusion that RKO engaged in

coercive reciprocity with Equitable Life Assurance Society, Decision

7 83(1), because there is no finding that General Tire had the

market power necessary to “overbear the will of the other party.”

Id. at f 68. The FCC shows only that General Tire paid an annual

premium to Equitable of $14 million in 1968, and makes much of

aggressive remarks by one employee. Id. at 83 (1); see FCC Brief

at 58 n.112. But the requisite market power cannot be found in

mere size or posturing alone. The Commission’s finding that

Equitable “eventually acceded” to the supposedly coercive threats

of General Tire rests on an advertising agency letter of August

1962, some six months prior to the time that General Tire’s co-

ercion” supposedly occurred. Decision {| 83(1).

2° RKO contends that the bulk of its trade relations practices

ended before 1965, and the rest by 1966. See Initial Decision,

78 F.C.C.2d at 252-323, f 254-363. The 1967 suit against General

Tire by the Department of Justice, see note 4 supra, resulted in a

consent decree in 1970, and there is no allegation that any violation

of that decree has occurred. All five examples of reciprocity cited

by the FCC in its Decision concerned conduct that took place be-

tween 1961 and 1965. Decision { 83.

17a

ing the preceding license term relevant to renewal re-

quests for the following term. Central Florida Enter-

prises, Inc. v. FCC, 598 F.2d 37, 43 (D.C. Cir. 1978),

cert. dismissed, 441 U.S. 957 (1979) ; Citizens Communi-

cations Center v. FCC, 447 F.2d 1201, 1208 (D.C. Cir.

1971). RKO sought renewal of WNAC for the 1969-

1972 term, and the FCC has failed to allege acts of reci-

procity during the earlier term from 1966 to 1969. But

RKO’s renewal application for KHJ concerned the 1965-

1968 term, thereby giving the FCC an excuse for claim-

ing that conduct from 1962 to 1965 “is precisely the con-

duct at issue.” Brief for Appellee FCC (FCC Brief)

at 36 n.59. Even so, the FCC acknowledges that the re-

cency of misconduct is an important factor for purposes

of character evaluation. Decision 9 55 (e); see Miami

Valley Broadcasting Corp., 78 F.C.C.2d 684, 738-39

(1980). The Commission has not paid sufficient heed to

that principle here.

Nothing in our opinion diminishes the force of the

FCC’s now clear statement that reciprocity by broadcast

licensees is a prohibited practice. The Commission has

laid down the rule that those who induce others to adver-

tise on their stations for reasons unrelated to the sta-

tion’s programming or audience will do so at their peril.

We agree that the purposes of the Communications Act

are best served by leaving stations to obtain advertising

and customers on the basis of their rates and audience,

and that even unleveraged reciprocal trading distorts the

normal free market process in the broadcast industry

by which the demand for advertising time helps ensure

that radio and television programming is responsive to

public desires. See Decision . 66-74. Competition in the

broadcast industry means that a broadcaster should

“survive or succumb according to his ability to make his

programs attractive to the public,” FCC v. Sanders Bros.,

309 U.S. 470, 475 (1940), and reciprocity injects an

extrinsic factor that breaks the link between program

quality and revenues. This rule has now been articu-

18a

lated forcefully, and future violations should be treated

with the firmness expressed by the FCC in this case.

Nevertheless, this ground cannot justify disqualification

of RKO for nonleveraged, mutual patronage agreements

during the early 1960s.

B. Financial Misrepresentations

The Commission’s finding that RKO submitted inten-

tionally false financial reports is equally insufficient to

support RKO’s disqualification. The Decision states that

“RKO knowingly certified to the Commission that cer-

tain financial reports were complete and accurate when

RKO knew otherwise.” Id. at . 164. The FCC’s conclu-

sion presumes that RKO’s inaccuracies were either de-

liberate and intentionally deceptive, Big Valley Cable-

vision, Inc., 75 F.C.C.2d 702, 714 (1980); Kaye-Smith

Enterprises, 71 F.C.C.2d 1402, 1415 (1979), or that

RKO’s reports were made with such “wanton, gross, and

callous” disregard for their truth as to reflect the equi-

valent of such an “affirmative and deliberate intent.”

Golden Broadcasting Systems, Inc., 68 F.C.C.cd 1099,

1106 (1978); see Leflore Broadcasting Co. v. FCC, 636

F.2d at 462. Despite the fact that RKO had consistently

denied acting with such intent or disregard, the FCC

brushed aside proffered RKO affidavits to that effect and

drew adverse inferences without allowing RKO to de-

fend itself in a bearing. Such a procedure was not law-

ful.

The FCC justifies its finding on the basis of the Spe-

cial Report, which included numerous corporate admis-

sions that RKO’s recordkeeping had been sloppy and in-

accurate. Specifically, General Tire conceded in the Spe-

cial Report that RKO’s accounting for trades and bar-

ters * had been incomplete for the previous five years.

30 Trade and barter transactions are exchanges of a station’s

broadcast time for goods, products, and other services. RKO’s con-

troller criticized internal accounting procedures for these barters

19a

The FCC seized on the repeated attempts by RKO’s con-

troller to improve the recording of such information to

infer that he “had to know that RKO’s barter informa-

tion was inaccurate” as early as 1972. Decision { 179.

This inference was unwarranted. RKO’s objections to

such summary factfinding are well taken, because the

admitted inaccuracy of the reports still left issues as

to RKO’s motive and intent that could only have been

determined in what the FCC itself had called “the cruci-

ble of an evidentiary hearing.” Walton Broadcasting,

Inc., 78 F.C.C.2d 857, 877 (1980). It is absurd to claim

that “RKO’s underlying motives were not decisionally

significant, and thus any supposed factual issues as to

motivation was immaterial,” FCC Brief at 111, when

the issue is not whether the reports were inaccurate but

whether they were knowingly so. Given RKO’s sworn

statements that it made no willful misrepresentations,

it was error to deny RKO the timely opportunity to pre-

sent live witness testimony with the bald statement that

RKO’s affidavits were “not credible.” Decision { 182.

The FCC’s finding turned on RKO’s intent, “and thus

demands that the decision-maker weigh witness credi-

bility.” Nasem v. Brown, 595 F.2d 801, 807 (D.C. Cir.

1979). Moreover, had the FCC formally designated this

charge and given RKO a hearing in which to rebut it,

the Commission would have had the opportunity to ex-

plore what possible reason RKO might have had for in-

in December 1972. Special Report at 223, J.A. 1463. On May 13,

1974, an internal audit discovered “failures to fully comply with

. . . prior directives,” Affidavit of RKO Controller John B. Fitz-

gerald, August 23, 1979, J.A. 970, and found “serious deficiencies”

in financial records. The controller issued another directive on

July 10, 1974, but a second internal audit in 1976 revealed that

“many of the problems found in 1974 still exist.” Special Report at

225, J.A. 1465. An investigation by an outside accountant con-

firmed these findings. The Special Report concluded: “RKO’s files

were found by Arthur Young to be incomplete and unreliable, which

created inaccuracies on the FCC Form 324 reports as well as on

internal trade status reports.” Jd. at 226, J.A. 1466.

20a

tentionally misreporting information that is apparently

considered of minor significance by the FCC itself.“

The Special Report does demonstrate a pervasive fail-

ure to maintain adequate records at RKO stations, a

failure that does nothing to recommend RKO as a

broadcast licensee. But it is a far leap from this to the

finding that RKO intentionally or knowingly misrepre-

sented financial information to the Commission. Section

309 of the Communications Act, 47 U.S.C. § 309(e)

(1976), requires the Commission to hold a hearing in

cases where “a substantial and material question of fact

is presented,” and to specify “with particularity the

matters and things in issue but not including issues or

requirements phrased generally.” Whether RKO sub-

mitted inaccurate reports knowingly and with intent to

1 The FCC did not require reports of trade and barter in-

formation until 1971, in Rand Broadcasting Co., 22 Rap. Rec. 2d

(P&F) 155 (1971) (interpreting 47 C.F.R. § 73.3611). On Febru-

ary 17, 1972,, the FCC issued a Public Notice reminding licensees of

the requirement that this information be included in the annual

financial reports (Form 324). Reporting “Trade Outs,” 34 F.C.C.2d

439 (1972). RKO emphasizes that the figures a broadcaster was

requ.red to certify were necessarily to be based on estimates, and

that RKO’s controller was required only to certify the forms as

correct to “the best of my knowledge, information and belief.” RKO

Brief at 27 & n.79. See 78 F.C.C.2d at 137 (Commissioner Lee dis-

senting) (FCC “has recognized in its instructions to Schedule 1 of

FCC Form 324 that values for trade and barter income are, at best,

estimates”). Indeed, the Commission acknowledged in 1980 that

“the current financial data are neither reliable. . nor are they

consistent across different stations,” and that “these problems are

principally due to the inadequacies of the design of the form itself

and are not the fault of stations that file the reports.” Notice of

Proposed Rulemaking, BC Docket No. 80-190, 45 Fed. Reg. 35370,

35372 (May 27, 1980). It is therefore not clear whether RKO’s

filings differed appreciably from those of other licensees. Moreover,

barter transactions are said to account for less than five percent

of total station revenues, and to have no effect on net profit figures

because the revenues exactly offset the expenses. See 39 FCC ANN.

REP. 225, 228-76 (1973).

21a

mislead the Commission remains an unresolved and mate-

rial question of fact, and it was therefore error for the

Commission to disqualify RKO without following the

procedures outlined by the statute.”

C. General Tire’s Nonbroadcast Misconduct

The FCC found it unnecessary to reach the question of

whether RKO would have been disqualified had the only

adverse character evidence been that relating to General

Tire’s nonbroadeast misconduct. Decision 7 140. In-

stead, the Commission found that General Tire’s miscon-

duct had “an adverse effect on RKO’s qualifications”

and lent “substantial weight” to the Commission’s deci-

32 The FCC relies on a lengthy line of cases upholding its dis-

cretion to decide whether hearings on petitions to deny are neces-

sary. E.g., United States v. FCC, 652 F.2d 72, 90 n.87 (D.C. Cir.

1980) ; National Ass’n. for Better Broadcasting v. FCC, 591 F.2d

812, 815 (D.C. Cir. 1978); Columbus Broadcasting Coalition v.

FCC, 505 F.2d 320, 324 (D.C. Cir. 1974); Stone v. FCC, 466 F.2d

316, 322-23 (D.C. Cir. 1972); Marsh v. FCC, 436 F.2d 132, 135-36

(D.C. Cir. 1970). But see Los Angeles Women’s Coalition v. FCC,

584 F.2d 1089 (D.C. Cir. 1978); Folkways Broadcasting Co. v.

FCC, 375 F.2d 299, 305 (D.C. Cir. 1967). These cases are inapposite

because they do not concern denials of applications without a

hearing. The fact that an application can be granted without a

hearing has no bearing on whether an application may be denied

without a hearing on whether an application may be denied with-

out a hearing when there are unresolved, material questions of fact.

Similarly, the FCC’s procedures for summary judgment require

Commission notice that summary disposition is intended on “issue

set for hearing.” 47 C.F.R. § 1.251(a)(1) (1979). Before an agency

may use such procedures, it must be able to show that evidentiary

hearings could serve no purpose. USV Pharmaceutical Corp. v.

Secretary of HEW, 466 F.2d 455, 461 (D.C. Cir. 1972). The FCC

cannot make such a showing here, and certainly has not given the

requisite notice. Indeed, in 1977 the Commission rejected a Free-

dom of Information Act request by Community for RKO’s Form

324 reports because [wle cannot see how the Special Review Com-

mittee has placed RKO’s financial reports in issue before this Com-

mission.” See Decision f 194 n.393.

22a

sion to disqualify RKO on each of the other grounds.

Id. at 993, 140. We find nothing unlawful in this

approach, although it raises other questions.

As General Tire’s own admissions in the Special Re-

port illustrate, its conduct in nonbroadcast fields hardly

enhances RKO’s character assessment. General Tire’s

misconduct, ranging from bribery and fraud abroad to

the maintenance of secret cash funds for political con-

tributions at home, inevitably casts a shadow on the

character of its wholly owned subsidiary. We have no

reason to doubt that “General Tire is institutionally in-

clined to sacrifice obedience to law and proper business

ethics in pursuit of corporate revenue and political in-

fluence.” Decision 2 (f). Were RKO’s owner a single

individual as opposed to a corporation, it appears that

a far lesser showing of character flaws would support

disqualification. See, e.g., Wadeco, Inc. v. FCC, 628 F.2d

122, 128 (D.C. Cir. 1980); Star Stations of Indiana,

Inc., 51 F.C.C.2d 95 (1975). For reasons that are far

from clear, however, the FCC seems to distinguish be-

tween misconduct by individual owners and misconduct

by corporate entities. See, e.g., Katy Communications,

Inc., 87 F.C.C.2d 764, 766-67 (1981); Southern Bell

Telephone and Telegraph Co., 82 F.C.C.2d 322, 327

(1980) ; Cowles Florida Broadcasting, Inc., 60 F.C.C.2d

372, 406 (1976), rev’d on other grounds sub nom. Cen-

tral Florida Enterprises, Inc. v. FCC, 598 F.2d 37 (D.C.

Cir. 1978), cert. dismissed, 441 U.S. 957 (1979); Kaiser

Broadcasting Corp., 46 F.C.C.2d 589, 598 (1974).

It is difficult to discern any legitimacy for such differ-

ential treatment of individual as opposed to corporate

owners.“ It is to be hoped that pending FCC efforts to

33 But see FCC v. WOKO, Inc., 329 U.S. 233, 228 (1946) (FCC

is not bound “to deal with all cases at all times as it has dealt

with some that seem comparable”). The FCC notes that corporate

misconduct often can be cured by replacing management and

directors, whereas individual malfeasants may not so easily change

their spots. See Decision H 233-35.

23a

clarify the character standards to be applied in compara-

tive hearings will cast more light on this point. See

Policy Regarding Character Qualifications in Broadcast

Licensing: Notice of Inquiry, 87 F.C.C.2d 836 (1981).

In any event, the FCC has not tried in this appeal to in-

crease the significance attached to corporate misconduct

in nonbroadcast areas, see FCC Brief at 92 n.207, 132,

nor could it have done so without first serving notice that

its policy had changed. See Doubleday Broadcasting Co.

v. FCC, 655 F.2d 417, 423 (D.C. Cir. 1981) (“The Com-

mission may not decide a case one way today and a sub-

stantially similar one another way tomorrow, without a

more reasonable explanation that is offered here.”). The

nonbroadcast misconduct of General Tire, egregious as it

has been, has small practical significance in the FCC’s

decision to disqualify RKO. The importance of this cor-

porate misconduct has not been inflated, and although

the Commission appropriately weighed it against RKO,

that misconduct has not been offered as a foundation for

the denial of RKO’s license renewals.

In short, three of the four areas on which the FCC

focused in its Decision will not serve as a basis for

RKO’s outright disqualification, at least on this record.

It is not necessary to underscore our criticism too

pointedly, however. We uphold the Commission’s dis-

qualification of RKO in the Boston proceeding because

* RKO correctly observes that the record provides no basis

for finding that any RKO officer or director participated in the

General Tire misconduct or knew of that misconduct until the dis-

closures arising from the SEC investigation and the related internal

inquiries of the General Tire board. RKO Brief at 71. See RKO

Proposed Findings, Conclusions and Proffered Evidence, August 27,

1979, Aff. 1 (T.F. O’Neil) at 1-2, J.A. 940-41. The ALJ found

that General Tire leaves the operation of RKO stations to the RKO

stations to the RKO Board of Directors and management. Initial

Decision, 78 F.C.C.2d at 254, | 260. Although General Tire's chief

executive officer, M.G. O’Neil, was one subject of the SEC consent

decree, see note 10 supra, no such decree was filed against his

brother T.F. O’Neil, the chief executive officer of RKO.

24a

we conclude that the Decision’s ultimate basis, RKO’s

lack of candor before the FCC, fully and independently

supports that judgment.

III. RKO’s LACK oH CANDOR

The Commission found that three instances demon-

strated RKO’s lack of candor before the agency during

a period from 1975 to 1977. First, RKO failed to in-

form the FCC that there was a factual basis to the

allegations first made against General Tire by Commu-

nity in late 1975. Decision M 197-205. Second, RKO

failed to report the initiation of a formal SEC investiga-

tion of General Tire in February 1976. Id. at M 206-12.

Finally, RKO failed to concede that it had inaccurately

reported trade and barter revenues when pressed to do so

by Community in April 1977, despite the indication in

General Tires’ 1976 Annual Report that there might

be some problems with these accounts. Id. at H 213-18.

A. The Merits of the FCC’s Finding

The record fully supports the Commission’s finding

that RKO did not display full candor before the Com-

mission during the period from late 1975 to July 1976.

Uncontroverted documentary evidence shows that Gen-

eral Tire responded to the initial phase of the SEC’s

inquiry regarding overseas operations in May 1975.

Special Report at 30, J.A. 1270. As the SEC investiga-

tion progressed, RKO’s competitors began pressing the

FCC to reopen the Boston proceeding, alleging facts that

were similar or identical to the admissions later made

by General Tire in the consent decree and its Special

Report. RKO’s first response was to seek an extension

2 Based on three volumes of exhibits totaling 640 pages, Com-

munity alleged that General Tire had engaged in illegal, unethical

and improper conduct in the United States . and in foreign

ecuntries,” including the bribery of foreign public officials, estab-

lishment of secret accounts to evade banking and tax codes of foreign

25a

of time in which to respond, citing the need to consult

with “persons who may have knowledge of the pertinent

facts.” RKO Motion for Extension of Time, Decem-

ber 12, 1975, J.A. 582-83. More than a month later,

in January 1976, RKO clearly decided to stonewall the

opposition and the FCC. This seems the only explanation

for RKO’s decision to file a document opposing the sug-

gestion that the Boston proceeding be reopened on the

ground that “there is no factual or legal foundation for

this pyramid of charges,” that “the charges, as we show

below, are groundless,” and that other charges were

“essentially unsupported.’ *

RKO contends that these statements were technically

correct." Brief for Appellant RKO (RKO Brief) at 33.

It adds that because the burden lay on Community to

nations, and defrauding stockholders of its partially owned sub-

sidiaries. Community further alleged that these activities violated

securities and tax laws of the United States, and that RKO had

attempted “to conceal, mislead and deceive” the FCC as well as the

public by failing to disclose material information relevant to these

allegations. Community Petition, supra note 8, J.A. 535. General

Tire ultimately admitted all of these practices in its Special Report,

after acknowledging the preliminary findings of several investiga-

tions in its 1975 Annual Report and 10-K. J.A. 686.

% RKO Opposition, supra note 9, at 5, 17, J.A. 588, 600. RKO

also noted gratuitously that Community had failed to “assert any

improper political contributions by General Tire in the United

States.” Jd. at 5 n., J.A. 588 n.

37 See RKO Brief at 33 & n.92 (Opposition was “a straight-

forward pleading”). This appears to have been the interpreta-

tion of the FCC’s Broadcast Bureau. See Broadcast Bureau’s

Comments on Supplement to Reply, March 22, 1976, at 4, J.A.

693. In a later statement, the Broadcast Bureau suggested that

RKO’s Opposition “presented arguments relating to the inade-

quacy of Community’s showing and not factual assertions.” Broad-

cast Bureau Reply of September 24, 1979, at 16, J.A. 1207. The

Commission also concedes that RKO’s statements “may have been

technically correct.” FCC Brief at 63.

26a

establish grounds for reopening the proceeding,** RKO’s

pleadings “in context” merely claimed that this burden

had not been met. Both arguments are irrelevant, be-

cause the question before the FCC was not so much what

RKO said as what it had failed to say.

Section 1.65 of the Commission’s Rules requires ap-

plicants to inform the Commission within thirty days

whenever “there has been a substantal change” regard-

ing any matter that may be “of decisional significance

in a Commission proceeding involving the pending appli-

cation.” 47 C.F.R. § 1.65 (1979). This requires that an

applicant inform the Commission “of all facts, whether

requested in ,renewal] Form 303 or not, that may be of

decisional significance so that the Commission can make

a realistic decision based on all relevant factors.”

Southern Broadcasting Co., 38 F.C.C.2d 461, 464 (Rev.

Bd. 1972) (emphasis in original). Unlike a private

party haled into court, or a corporation such as General

Tire facing an investigation by the SEC, RKO had an

affirmative obligation to inform the Commission of the

facts the FCC needed in order to license broadcasters in

the public interest. As a licensing authority, the Com-

mission is not expected to “play procedural games with

those who come before it in order to ascertain the truth,”

FCC Brief at 60, and license applicants may not indulge

in common-law pleading strategies of their own devise.

The Decision and the record on which it is based

demonstrate irrefutably that RKO did not meet these

standards, and that RKO’s conduct thus threatened “the

integrity of the Commission’s processes.” RKO General,

38 Congress amended the Communications Act in 1960 to require

that petitioners seeking to deny a license renewal must provide

a more substantial evidentiary showing than had previously been

required in order to force the Commission to designate a hearing.

See S. Rep. No. 690, 86th Cong., Ist Sess. 3 (1959). The FCC’s

rules require that factual showings necessary to meet this burden

be made by affidavit. 47 C.F.R. § 1.229 (1979).

27a

Inc., 82 F.C.C.2d 291, 306 (1980). In spite of an SEC

investigation that was rapidly gathering steam, and in

spite of the fact that its qualifications as a licensee were

at issue before the FCC, RKO failed to come forward

with a candid statement of relevant facts. RKO did not

inform the FCC that the SEC had issued a formal order

of investigation in February 1976, even though this sug-

gested the seriousness of the charges against General

Tire.” RKO did not advise the FCC of the SEC’s pre-

liminary findings until May 14, 1976, despite the fact

that General Tire had advised its stockholders of these

preliminary findings in February when it released its

1975 Annual Report.“ RKO did not advise the FCC

until May 1976 that General Tire’s own internal investi-

gation demonstrated that many of the SEC concerns

were valid, even though Community had submitted

General Tire’s 10-K Report the previous March.“ RKO

30 The FCC contends that had the SEC investigation continued

only a few months longer, “the Commission might never have

known about the investigation or been in a position to condition

any renewal on the outcome of the investigation and any resulting

litigation.” FCC Brief at 78-79. RKO responds that it would have

been “absurd” for RKO to “cover up” the SEC investigation in

light of contemporary newspaper reports of that investigation. RKO

Reply Brief at 17; see Wall Street Journal, Feb. 12, 1976, at 4, col.

2, J.A. 569; Washington Post, Feb. 13, 1976, at A6, col. 1. But

other, more prominent parties have attempted such cover-ups in the

past despite even greater attention from the media, and in any

event the Commission cannot be expected to reply only on hearsay

sources for the information required under section 1.65.

49 General Tire’s 10-K reported investigations in Morocco,

Romania, Chile, and “yet another foreign country” that raised

issues concerning the possibility of “improper or illegal payments

to foreign government employees.” It added that a pending internal

investigation “includes the matter of political contributions in the

United States by executive level employees” of General Tire. J.A.

686-89.

41 Community Supplement to Reply (Supplement to the Reply),

March 16, 1976, & Att. A., J.A. 678, 686. RKO argues that even if

§ 1.65 applied, Community performed RKO’s task for it by filing

28a

never once attempted to amend or supplement its earlier

pleadings with the FCC, despite a growing awareness

of the facts that General Tire would later admit in its

Special Report. These instances involve a lack of candor

through omission. Whether or not RKO would have had

an obligation to come forward with these facts under

other circumstances,” it could not have doubted their

relevance once the filings and petitions of the inter-

venors put these questions before the Commission. We

need not decide whether RKO’s pleadings were affirma-

tively misleading—it is enough to find that they did not

state the facts.

copies of General Tire’s 10-K with the Commission before the rule’s

30-day limit had expired, and thus “RKO’s candor cannot be faulted

because it failed to duplicate that filing.” RKO Brief at 39. The

argument is specious to a fault. When candor is the question, the

actions of the intervenor can hardly be used to bear witness. Com-

munity’s filing in no way diminished RKO’s responsibility to be

candid and forthcoming with the Commission, yet this omission by

RKO even in the fact of continual promptings by its competitors

is symptomatic of RKO’s attitude through early 1976.

42 RKO argues, for example, that it was not required by contem-

poraneous FCC precedents to report the SEC investigation until it

culminated in “formal charges” against General Tire. See Lake

Erie Broadcasting Co., 33 F.C.C.2d 1009 (Rev. Bd. 1972), which

held that an investigation sparked by the accusations of outside

complainants as opposed to official charges by a governmental agency

did not require immediate notification of the FCC. Although the

Commission has shifted away from this rule, e.g., Payne of Virginia,

Inc., 66 F.C.C.2d 633 (1977), that case was decided subsequent to

RKO’s disclosure of the SEC investigation in May 1976. We need

not decide, however, whether the SEC decision in February 1976

to upgrade its enforcement activities from a preliminary to a

formal investigation should have been reported under Lake Erie.

In the context of the facts described above, it defies reason to imply

that SEC enforcement activities were immaterial to the pleadings

and claims then pending before the FCC. RKO can be faulted not

for failing to report marginally relevant accusations, but for fail-

ing to realize from the change in the SEC’s enforcement activities

that its earlier statements to the Commission had been grossly

inadequate.

29a

The record suggests that RKO had ample motive for

its failure to act with total candor during this period.

There are numerous indications that General Tire initi-

ally decided to oppose the SEC investigation“ and did

not begin to cooperate with that agency until sometime in

the spring of 1976. Clearly, it would have been point-

less for General Tire to resist the SEC inquiry at one

level while RKO came forward with damaging evidence

against General Tire before the Commission. See Deci-

sion J 202. But such conjecture is not relevant, because

the documents speak for themselves. It is also unneces-

sary to show that RKO officials had actual knowledge in

early 1976 of the improprieties and illegalities to which

General Tire later admitted, or that RKO officials will-

fully intended to misrepresent these facts to the FCC.

Whether RKO sought to protect its parent, or whether

the parent withheld information from the subsidiary

in order to protect itself, the result is the same. We can-

not improve on the language of FCC counsel: “It is

obvious that where a complete disclosure of facts will

militate against the interests of this organization, the

Commission will be deprived of that information. It is

irrelevant where in the RKO-General Tire organizational

structure this breakdown in candor first occurs. In the

end, RKO, as the public trustee, is responsible for the

43 See Decision {202 (“in refusing to be more forthcoming,

RKO adopted a posture consistent with General Tire’s SEC defense

strategy. General Tire was resisting SEC document and other en-

forcement demands at least into February 1976.“). General Tire’s

Special Report admitted that the SEC’s Division of Enforcement

had sought particular information from the corporation on Decem-

ber 5, 1975, but that “[n]o substantively complete answer was ever

given to the SEC letter” of that date. Special Report at 31, J.A.

1271. A second letter was sent by Enforcement on January 22,

1976, and SEC staff members met with General Tire representa-

tives on February 3. At this meeting, General Tire’s vice president

and former general counsel made “[s]harp, sarcastic comments“

and at one point “advised an Enforcement staff member against

holding his breath while waiting for submission of additional mate-

rial because you'll turn blue.“ Id. at 32, J. A. 1272.

30a

reliability of the information and representations fur-

nished by it to the Commission.” FCC Brief at 70; see

Decision {| 122 n. 248.

B. RRO's Defenses

RKO objects to the FCC’s finding on a variety of

grounds. First, it contends that “there is not a shred

of evidence that . . the Commission was in fact ‘mis-

led’” by RKO. RKO Brief at 33. Such an argument

has no pertinence to this appeal, as the Supreme Court

observed forty years ago:

The fact of conceaiment may be more significant

than the facts concealed. The willingness to deceive

a regulatory body may be disclosed by immaterial

and useless deceptions as well as by material and

persuasive ones. We do not think it is an answer

to say that the deception was unnecessary and served

no purpose.

FCC v. WOKO, Inc., 329 U.S. 223, 227 (1946). As

the Commission correctly emphasizes, it must rely on the

applicants who come before it for the truth of their rep-

resentations; it cannot countennace willingness to mis-

lead simply because there is no evidence that the Com-

mission was in fact misled.

Equally unpersuasive is RKO’s objection that its deci-

sion not to inform the Commission of the SEC investiga-

tion was made on advice of counsel. RKO Brief at 38

& n.102. It is true that reliance on counsel may render

a severe sanction such as disqualification too harsh in

some circumstances. See Asheboro Broadcasting Co., 20

F.C.C.2d 1, 3 (1969); ef. WEBR, Inc. v. FCC, 420 F.2d

158, 167-68 (D.C. Cir. 1969). But “advice of counsel

cannot se a clear breach of duty by a licensee.”

Asheboro, 20 F.C.C.2d at 3. The client becomes fully

responsible at some point, and that point is reached

more quickly in practice before the FCC than in courts

3la

of law. E.g., Wadeco, Inc. v. FCC, 628 F.2d at 128;

Lorain Community Broadcasting Co., 18 F.C.C.2d 686,

688 (1969), affd sub nom. Allied Broadcasting, Inc. v.

FCC, 435 F.2d 68 (D.C. Cir. 1970). Similarly, although

we agree that “legal argument is not testimony by a

party or a representation by its counsel as to facts,”

RKO Brief at 34, we cannot excuse the calculated omis-

sions in RKO’s legal pleadings on this basis. In modern

America, parties communicate with administrative agen-

cies almost exclusively through lawyers, but this is all

the more reason why we cannot assume that RKO did

not know what its lawyers were saying—particularly

when the number of pleadings and other opportuniti2s

for dissembling were as great as recounted above. It is

not credible that lawyers were running the strategy f

RKO and General Tire to the exclusion of all the corpo-

rate chiefs.

RKO’s most persuasive objection to the FCC finding

that it lacked candor is that the finding was made with-

out giving RKO formal notice and a hearing on the

charge. The FCC acknowledges a “technical failure to

issue such a formal designation order,” FCC Brief at

113 n.234 and admits that “[i]n the normal case a hear-

ing probably would have been warranted.” Id. at 97. Or-

dinarily, such an admission would constitute grounds for

reversal, for courts “have stated time and again that

reasonable notice of a charge and an opportunity to be

heard in defense before punishment is imposed are ‘basic

in our system of jurisprudence.’” Groppi v. Leslie, 404

U.S. 496, 502 (1972) (quoting In re Oliver, 333 U.S.

257, 273 (1948)). We conclude, however, that RKO’s

conduct has been so egregious and so conspicuous that we

cannot say the FCC’s decision was an abuse of its au-

thority. No purpose would have been served in this case

by extending administrative proceedings that had already

moved well into their second decade. The evidence of

RKO’s lack of candor was obvious from the documents

that RKO itself had submitted to the FCC in this pro-

ceeding, as the applicants competing with RKO had been

arguing for years. The Commission needed only to draw

legal conclusions from “facts already known.” Lake-

wood Broadcasting Service, Inc. v. FCC, 478 F.2d 919,

924 (D.C. Cir. 1973). In this context, the FCC was not

required to designate the candor issue and reopen the

proceeding for an evidentiary hearing that would have

served no purpose. See, e. g., Independent Bankers Ass'n.

of Georgia v. Board of Governors of the Federal Reserve,

516 ¥.2d 1206, 1220-22 (D.C. Cir. 1975); Municipal

Light Boards v. FPC, 450 F.2d 1341, 1345 (D.C. Cir.

1971), cert. denied, 405 U.S. 989 (1972). This is espe-

cially true where RKO itself had urged that there was

no need to reopen the proceeding because resclution of

Community’s claims “turns on inferences and legal con-

clusions” to be drawn from facts already before the Com-

mission. See Colorado Radio Corp. v. FCC, 118 F.2d 24,

26 (D.C. Cir. 1941) (“Appellant took its chance that

the Commission, on the existing record, would [find in

its favor]. Now that the decision has gone against it,

the appellant wants a chance to persuade the Commis-

sion with a supplemental record. We cannot allow the

appellant to sit back and hope that a decision will be in

its favor and then, when it isn’t, to parry with an offer

of more evidence.”’) .

In reaching this determination, we start with the em-

phatic differences between a broadcast applicant before

the FCC and one who faces the possibility of punish-

ment. RKO has suffered a hardship as a result of the

FCC’s action, but it has not been punished; denial of

a renewal application “is not a penal measure.” FCC v.

WOKO, Inc., 329 U.S. at 228. As the Decision explains,

the FCC’s purpose is not to punish licensees for past

wrongs, but to ensure that these “fiduciaries of a great

public resource” will “satisfy the highest standards of

character commensurate with the public trust that is re-

posed in them.” Id. at . 3; see id. at 249 & n.477. A

broadcast license is less a property right than a privi-

33a

lege, Mansfield Journal Co. v. FCC, 180 F.2d 28, 35 (D.C.

Cir. 1950), and retention is not automatic but must be

earned.

In practical terms, this means that “proceedings before

the Commission are not private law suits,” and that the

Commission does not function “as an umpire blandly call-

ing balls and strikes for adversaries appearing before

it.” See Scenic Hudson Preservation Conference v. FPC,

354 F.2d 608, 620 (2d Cir. 1965), cert. denied, 384 U.S.

941 (1966). The FCC has an affirmative obligation to

license more than 10,000 radio and television stations in

the public interest, each required to apply for renewal

every three years. FCC Brief at 60 n.114. As a result,

the Commission must rely heavily on the completeness

and accuracy of the submissions made to it, and its appli-

cants in turn have an affirmative duty to inform the

Commission of the facts it needs in order to fulfill its

statutory mandate. This duty of candor is basic, and

well known. See, e.g., Sea Island Broadcasting Corp. v.

FCC, 627 F.2d 240, 243 (D.C. Cir.), cert. denied, 449

U.S. 834 (1980) ; Golden Broadcasting Systems, Inc., 68

F.C.C.2d at 1101-04. The Commission has said before

that “no specific misrepresentation or lack of candor

issues are needed to consider these matters, since the

Commission always has authority to deny a license or

application where the record reveals such misconduct.”

Radio Carrollton, 69 F.C.C.2d 1139, 1146 n.20 (1978),

affd mem. sub nom. Faulkner Radio, Inc. v. FCC, No.

79-1749 (D.C. Cir. October 15, 1980), cert. denied, 101

S.Ct. 1758 (1981). See Grenco, Inc., 39 F.C.C.2d 732,

737 (1973) (“no one is allowed ‘one bite’ at the apple

of deceit“).

Ultimately, of course, the procedures of the Commis-

sion must be measured against the demands of due proc-

ess as well as the statutory requirements of the Com-

munications Act. But it is a truism that due process

standards in this context are fluid rather than fixed. In

34a

WJR, The Goodwill Station, Inc. v. FCC, 337 U.S. 265

(1949), a unanimous Court held that the FCC was not

required to provide oral argument before ruling that a

radio station’s petition in a pending proceeding did not

state facts sufficient to raise legal issues concerning the

possible modification of that station’s license rights.

“(T]he right of oral argument as a matter of procedural

due process varies from case to case in accordance with

differing circumstances, as do other procedural regula-

tions.” Id. at 276. Subsequent cases have never departed

from this proposition. See, e.g., Goldberg v. Kelly, 397

U.S. 254, 268 n.15 (1970); Joint Anti-Fascist Refugee

Comm. v. McGrath, 341 U.S. 123, 163 (1951) (Frank-

furter, J., concurring) (“The Court has responded to

the infinite variety and perplexity of the tasks of govern-

ment by recognizing that what is unfair in one situation

may be fair in another.“).

Section 4(j) of the Communications Act, as amended,

47 U.S.C. § 154(j) (1976), empowers the FCC to “con-

duct its proceedings in such a manner as will best con-

duce to the proper dispatch of business and to the ends

of justice.” In FCC v. Pottsville Broadcasting Co., 309

U.S. 134, 138 (1940), the Court held that Congress

in that section had “explicitly and by implication” dele-

gated to the FCC the power to resolve “subordinate ques-

tions of procedure.” The Court upheld that delegation in

light of the established principle that agencies “should

be free to fashion their own rules of procedure and to

pursue methods of inquiry capable of permitting them

to discharge their multitudinous duties.” Id. at 143. In

FCC v. Schreiber, 381 U.S. 279, 292 (1965), the Court

reiterated these observations in deciding whether a dis-

trict court could substitute its own rules for the FCC’s

procedures governing public disclosure of its investiga-

tions. “The delegated power, of course, may not be exer-

cised arbitrarily, but its exercise may not be impeached

merely because reasonable minds might differ on the

wisdom thereof.” The Court also rejected the standard

35a

of review applied by the court of appeals: “The question

for decision was whether the exercise of discretion by

the Commission was within permissible limits, not

whether the District Judge’s substituted judgment was

reasonable.” Id. at 291 (emphasis by the Court). Cf.

Vermont Yankee Nuclear Power Corp. v. NRDC, 435

U.S. 519, 524 (1978).

It is true that these recognitions of the FCC’s discre-

tion over certain questions of procedure have been cited

most frequently to support agency control over dockets

and hearing formats. When a statute dictates that par-

ties receive notice and a hearing, of course, the provision

of those basic procedural rights is not left to be decided

by administrative “flexibility” or “discretion.” For that

reason, RKO contends that Section 309 of the Act, 47

U.S.C. § 309 (1976), requires a hearing prior to the

denial of a renewal application even when there are no

substantial or material questions of fact. RKO Brief at

15-23. See Gottfried v. FCC, 655 F.2d 297, 310 (D.C.

Cir. 1981) ; United States v. FCC, 652 F.2d 72, 88-92

(D.C. Cir. 1980). But such a literal approach to the

words of the Act cannot govern this case, in which RKO

had already been the subject of FCC proceedings that

had lasted for years. The question is not whether RKO

was entitled to a hearing under Section 309, but whether

during the course of agency proceedings in which this

candor issue arose in the most obvious and unavoidable

manner, the Commission was required to call a halt to

its proceedings, designate the issue formally, and begin

again.

We conclude that such an approach in this case would

not have promoted “the proper dispatch of business” and

“the ends of justice.” At some point in any administra-

tive process, someone must determine whether the re-

maining issues are factual or legal, and whether hearings

that have already been held must be supplemented by

further proceedings. The initial answer must come from

86a

the agency, subject always to judicial review, but courts

may defer to agency expertise and discretion here no

less than on questions of docket management and the

need for oral argument. Our decisions show the inherent

difficulty of defining this administrative discretion.

Compare Radio Athens, Inc. (WATH) v. FCC, 401 F.2d

398, 401 (D.C. Cir. 1968) (“elemental fairness” used to

judge whether FCC application requirements were suffi-

ciently clear to obviate need for hearing on incomplete

submission) with Ranger v. FCC, 294 F.2d 240 (D.C.

Cir. 1961) (where application fails in material respects

to comply with FCC rules concerning application con-

tents, agency can reject application without hearing).

Nevertheless, in appropriate situations, agency resolu-

tion of “subordinate questions of procedure” will be re-

spected. In Ranger, we held that Section 309 requires

a hearing only if, “with the required information before

it,” the FCC still cannot make a determination as to

whether granting the application would be in the public

interest. Id. at 242. We thereby recognized the FCC’s

authority to determine without an evidentiary hearing

whether applicants had submitted “the required informa-

tion.” Cf. Guinan v. FCC, 297 F.2d 782, 785 (D.C. Cir.

1961) (FCC need not designate comparative hearing

“once it has been established that one of the competing

applicants is basically unqualified” because of frequency

interference). The Commission’s discretion should also

be respected in this case, in which RKO has obviously

failed to supply the information required for considera-

tion of its merit in the public interest.

We find a compelling if imperfect analogy between this

ease and “historical exceptions to the genera! principle

that punishment can only follow a determination of guilt

after trial or plea—exceptions such as the power sum-

marily to punish for contempt of court.” Bell v. Wolfish,

441 U.S. 520, 536 n.17 (1979).

Where the contempt is committed directly under

the eye or within the view of the court, it may pro-

87a

ceed “upon its own knowledge of the facts, and pun-

ish the offender, without further proof, and without

issue or trial in any form.”

In re Savin, 131 U.S. 267, 277 (1889) (quoting Ex

parte Terry, 128 U.S. 289, 309 (1888)). In these ex-

traordinary situations, It] here is no need of evidence or

assistance of counsel before punishment, because the court

has seen the offense. Such summary vindication of the

court’s dignity and authority is necessary.” Cooke v.

United States, 267 U.S. 517, 534 (1925). The rule is as

old as Blackstone, see 4 W. BLACKSTONE, COMMENTARIES

*282-*285, and continues to have vitality in this day.

E. g., Roadway Express, Inc. v. Piper, 447 U.S. 752, 765

(1980). Modern jurisprudence may reveal a greater sen-

sitivity for the notice and hearing requirements of due

process than did an earlier age, of course. See Taylor

v. Hayes, 418 U.S. 488, 498 (1974). Nevertheless, the

cases continue to suggest the existence of a dividing line

between events that take place “before the judge’s own

eyes,” id. at 499, or “in the face of the court,” Ex parte

Terry, 128 U.S. at 313, and situations in which “some

essential elements of the offense are not personally ob-

served by the judge, so that he must depend upon state-

ments made by others for his knowledge about these

essential elements. Johnson v. Mississippi, 403

U.S. 212, 215 (1971). There is no doubt here as to which

side of that line RKO’s conduct falls. The Commission

has drawn legal conclusions after comparing what RKO

said in its earlier pleadings—and what it did not say—

with RKO’s subsequent admissions, such as General

Tire’s Special Report. RKO does not for a moment con-

tend that it has in fact been candid with the Commission,

nor do we see how it possibly could. No evidence remains

to be introduced; no witnesses have been denied a chance

to speak. There are no further issues to try. The FCC

has not assumed the answers to any questions of fact, but

has simply examined uncontested and uncontestable docu-

ments that are in the record at RKO’s own election.

38a

Because the Commission had “so perfect a knowledge”

of the RKO misconduct that was evident from the docu-

ments directly before it, we cannot say that the Commis-

sion’s action was erroneous. Forty years ago, in FCC v.

Pottsville Broadcasting Co., Justice Frankfurter reflected

on the “movement for administrative regulation.” He

observed :

Perhaps the most striking characteristic of this

movement has been the investiture of administrative

agencies with power far exceeding and different

from the conventional judicial modes for adjusting

conflicting claims—modes whereby interested liti-

gants define the scope of the inquiry and determine

the data on which the judicial judgment is ultimately

based. Administrative agencies have power them-

selves to initiate inquiry, or, when their authority

is invoked, to control the range of investigation in

ascertaining what is to satisfy the requirements of

the public interest... These differences in origin

and function preclude wholesale transplantation of

the rules of procedure, trial, and review which have

evolved from the history and experience of courts.

309 U.S. at 142-43. The cases upholding summary pun-

ishment for in-court contempts without the need for

forma! notice or a separate hearing a fortiori support the

disqualification of RKO. As we explained above, this

ease does not involve punishment at all, but the renewal

of a public trust.“

44 We also agree that the Commission properly refused to consider

a General Tire stock spin-off proposal that would have passed

RKO’s stock through General Tire to that company’s 45,000 share-

holders. See note 45 infra. This proposal threatened to violate the

FCC policy that “a licensee cannot act improperly in the broadcast

field and, when challenged, simply sell his station at a profit or with-

out a loss if this were permitted, such a licensee would have little

reason to obey the Act ....” Tidewater Teleradio, Inc., 24 Rap.

Rec. (P&F) 653, 657 (1962); cf. Grayson-Enterprises, Inc., 79

F.C.C.2d 936, 938 (1980). Similarly, General Tire’s assurances of

Our decision to affirm the FCC’s action should not be

read to include situations not covered by this unique

record. The Commission concedes that “this case is un-

precedented,” FCC Brief at SA-1, and we expect that

successors if any will be rare. Before the FCC can take

action of this sort in the future, we believe that at least

three conditions must be met in order to protect the

parties. First, not only must the misconduct occur di-

rectly before the agency, but it should be of such a

blatant and unacceptable dimension that its existence

cannot be denied. The FCC has satisfied itself that this

is the case with regard to RKO, whose lack of candor is

abundantly clear.” Decision 196. Second, although for-

mal notice may not always be necessary, it should be

evident that the party has some form of actual notice

of the conduct said to be at issue, and must not be

prejudiced by surprise. Finally, the party must be given

an “opportunity to speak in [its] own behalf in the

nature of a right of allocution.” Groppi v. Leslie, 404

U.S. at 504. The procedure adopted by the FCC in this

case satisfies these requirements, at least insofar as the

Boston renewal is concerned. RKO does not contend that

it was prejudiced by the lack of notice, for it undoubtedly

had actual notice of the candor issue, as the pleadings

filed prior to the Commission’s decision demonstrate.“

remedial action did not deserve more weight than the Commission

gave them, because “promises of future compliance made after

apprehension have not been accorded much weight.” Decision { 234.

The ruling that RKO’s misconduct outweighs any favorable evi-

dence of WNAC’s broadcast performance or other mitigating fac-

tors is, of course, properly within the Commission’s discretion. See

Decision {|} 223-49.

45 Community had contended since 1975 that General Tire and

RKO attempted “to conceal, mislead and deceive” the FCC, cor-

porate shareholders, and the public by failing to disclose material

information pertaining to Community’s allegations. Community

Petition, supra note 8, at 5-6, J.A. 539-40. Community repeated that

charge in its Supplement to the Reply, supra note 41, at 6-7, J.A.

683-84 (“the Commission must now seriously question the lack cf

40a

See Harbenito Broadcasting Co. v. FCC, 218 F.2d 28, 31

(D.C. Cir. 1954). “If it is clear that the parties under-

stand exactly what the issues are when the proceedings

are had, they cannot thereafter claim surprise or lack of

due process because of alleged deficiencies in the lan-

guage of particular pleadings.” Kuhn v. CAB, 183 F.2d

839, 842 (D.C. Cir. 1950). RKO does not contend that

it was denied any opportunity to present for the Com-

mission’s determination any matter of fact or law, or

that the Commission has not given all matters submitted

by RKO due and full consideration. See WJR v. FCC,

337 U.S. at 284. RKO had a full opportunity to speak

in its own behalf, and exercised it in pleadings, proffers

good faith and candor of RKO. . . . RKO has failed to meet the

minimal standards of candor, required of Commission licensees.” ).

More than a year later, Community referred to RKO’s “dissembling

and lack of candor in this proceeding” and argued that lack of

candor was “the darkest blot on RKO’s record ... .” Community

Motion to Deny, September 13, 1977, at 2, 22, J.A. 737, 757. Com-

munity also reiterated this charge in its reply to RKO’s Response,

note 13 supra. Community Reply, December 16, 1977, J.A. 811.

The FCC also foreshadowed the candor issue in May 1977 when

it denied General Tire’s proposal to spin-off its RKO stock. The

FCC cautioned that it had “not yet ruled on the merits of Com-

munity’s petition to enlarge issues,“ RKO Ge eral, Inc. (WNAC-

TV), 64 F.C.C.2d 713, 718 (1977), but its refusal to act on the

proposal because of “the undesirable possibility of impeding the

conduct of an adjudicatory proceeding” by eliminating “adversarial

development of the facts,” id. at 718, 719, must be considered notice

to RKO of the seriousness of its situation.

Indeed, in October 1977, RKO spent several pages answering the

lack of candor charge. RKO Response, supra note 13, at 14-19,

J.A. 785-90. In September 1979, when RKO responded to FCC

Order 79-453, see note 17 supra, it made the same claims to the

Commission that it has on this appeal, arguing that “the procedural

context in which RKO’s responses were made disproves Fidelity’s

claims that RKO has not been candid.” RKO Response, September

24, 1979, at 56, J.A. 1183; see id. at 51-61, J.A. 1178-88. The FCC

contends that these pleadings and other materials show that “RKO

had far more actual notice than the typical designation order would

provide.” FCC Brief at 113 n.234,

4la

of proof, and oral argument before the Commission.“

We cannot say that the FCC abused its discretion by not

giving RKO a formal hearing on issues arising from

RKO’s conduct during the initial proceeding.” Section

309 was not intended by Congress to reward delay and

concealment that disserves the public interest. “Congress

did not intend by this section of the statute to require the

formality of Commission consideration of and [re]hear-

ing on an application in which the signatory obviously

fails in major material respects to abide the regulations.”

Ranger v. FCC, 294 F.2d at 243. Cf. Storer Broadcasting

Co. v. FCC, 351 U.S. 192, 205 (1956) (“We do not think

Congress intended the Commission to waste time on

applications that do not state a valid basis for a hear-

ing.”). The FCC’s denial of the Boston license renewal

must therefore be affirmed.

IV. THE Los ANGELES AND NEW YORK CITY PROCEEDINGS

The narrow basis of our decision concerning RKO’s

Boston license illustrates why the FCC may not deny

license renewals in Los Angeles and New York City

simply because it happened to condition those proceedings

on the Boston outcome. RKO’s lack of candor during the

Boston proceeding justifies its disqualification there be-

46 The full transcript of the oral argument held before the Com-

mission on July 18, 1979, is not in the record before us. Neverthe-

less, the pleadings submitted by RKO before that proceeding amply

demonstrate RKO’s opportunity to address any factual or legal

issues concerning its lack of candor. See note 45 supra.

47 Indeed, RKO’s interpretation of Section 309 would create the

possibility that an incorrigible applicant could prolong hearings

indefinitely, as each instance of egregious conduct in one proceeding

would require new designation and a subsequent proceeding. Re-

newal applicants have an obvious financial stake in delaying un-

favorable resolutions of their applications as long as possible.

RKO, for example, is still operating the stations involved in this

case, pending resolution of this appeal. See Brief of Intervenor

Multi-State Communications, Inc. at 35 (“the abundant ‘due process’

already accorded RKO has provided it with licenses (and income)

for many more years than it should have had.”).

42a

cause the misconduct took place directly before the trier

of fact and has bearing on its general character, but the

same cannot be said of the Los Angeles and New York

City proceedings. The latter was conditioned on the

Boston outcome in order to avoid making the parties

“relitigate those issues” that had already been specified

with regard to Boston. 46 F.C.C.2d at 249. By contrast,

the former had been conditioned on the reciprocity issue

only, in order to “enable the Commission to proceed with

the Los Angeles matter and bring it to a conclusion with

no risk to the public interest.” RKO General, Ince.

(KHJ-TV), 31 F.C.C.2d 70, 74 (1971). The FCC

could not have known, when it conditioned either of these

proceedings as it did, that the Boston outcome would turn

on a lack of candor issue that had not even been desig-

nated in the Boston proceeding. RKO’s misconduct did

not occur directly before the trier of fact in either the

Los Angeles or New York City proceedings. Accordingly,

these decisions must be remanded to the Commission for

further considerxtion as it deems appropriate.

This conclusion is buttressed by the Commission’s own

discussion of what effect, if any, RKO’s Boston disqualifi-

cation should have on its other broadcast licenses. In an

order released on November 26, 1980, the FCC designated

thirteen RKO stations for hearing, but held those pro-

ceedings in abeyance until resolution of this appeal. RKO

General, Inc., 82 F.C.C.2d 291, appeal pending sub nom.

New South Media Corp. v. FCC, No. 80-2556 (D.C. Cir.

filed December 22, 1980). One purpose of the separate

proceeding will be to allow RKO “to introduce evidence

on meritorious programming with respect to the 13

other stations and any other mitigating evidence with

respect to the remaining licenses.” Id. at 318.

Now that the issues in the Boston proceeding have been

sorted out, the same treatment is appropriate for RKO’s

New York City and Los Angeles licenses. The judgment

that RKO showed a lack of candor in the Boston proceed-

43a

ing is res judicata, of course, and is not subject to col-

lateral attack in these subsequent proceedings. See id.

at 312-18. The Commission may give that finding what-

ever weight it considers appropriate. Indeed, it may well

be that such a finding is inconsistent with a licensee hold-

ing a license anywhere, although that decision is for the

Commission in the first instance. At the same time, our

remand of these proceedings is more than just an empty

exercise. Each of RKO’s renewal applications arises in

different ontexts and presents different levels of com-

plexity.“ For example, the Los Angeles renewal was

tentatively granted in 1973 subject only to future

reciprocity findings. Because we have rejected reciprocity

as a legitimate basis for disqualification of RKO in Bos-

ton, the Los Angeles situation may seem quite different

when that proceeding is remanded. At the FCC noted,

“We do agree with RKO that collateral estoppel will only

apply to those grounds on which the court bases its deci-

sion.” Id. at 317. Similarly, individual stations have

different broadcast histories and policies. Although the

FCC found that WNAC in Boston had a “mediocre to

poor record with respect to news, public affairs, and

local programming,” Decision { 227, it made no new

findings at all with regard to KHJ in Los Angeles and

WOR in New York City. These stations are entitled to

an opportunity to appear directly before the Commission

*8KHJ-TV in Los Angeles and WOR-TV in New York City

stand in very different positions, although this may be a distinction

without a difference. KHJ’s license renewal was granted, subject

only to the FCC finding on reciprocity in the Boston proceeding

that we now reject. WOR's license renewal was held in abeyance

pending the resolution of the Boston renewal. Cf. KFPW Broad-

casting Co., 47 F.C.C.2d 1090 (1973), in which the Commission

reversed denial of an application despite its earlier decision that

renewal proceedings for the applicant’s second station would be res

judicata as to the application. The license renewal had been denied

on character grounds, but the denial of the application was reversed

because the licensee’s misconduct occurred before the new station

came on the air. Jd. at 1095-96.

44a

and to argue that they deserve different treatment than

RKO’s Boston station. After such a proceeding, of

course, the Commission’s broad latitude in “the choice of

remedies and sanctions’ must be respected. Leflore

Broadcasting Co. v. FCC, 636 F.2d at 463 (quoting

Lorain Journal Co. v. FCC, 351 F.2d 824, 831 (D.C. Cir.

1965), cert. denied sub nom. W. W. I. Z., Inc. v. FCC, 383

U.S. 967 (1966) ).

CONCLUSION

This opinion will not close a sorry chapter in the his-

tory of American communications law. We must remand

the Los Angeles and New York City proceedings because

the FCC has not yet provided a principled explanation

for RKO’s disqualification as a licensee of those stations.

The FCC’s findings that RKO intentionally misrepre-

sented financial information and engaged in unlawful

reciprocal trade practices cannot stand, for one was

reached without notice or hearing and the other consti-

tutes an ex post facto application of new standards to

conduct that is long past.

We affirm the FCC’s decision in the Boston proceeding,

however, because the Commission’s finding that RKO

displayed an egregious lack of candor in that proceeding

does not suffer from either of these infirmities. During

an administrative review that had already lasted for

years, the FCC suddenly was confronted by documentary

evidence establishing beyond doubt that RKO had been

less than candid with the Commission in the very pro-

ceeding under way. The FCC could observe all material

facts for itself, simply by comparing the documents that

had already been submitted with those that were now

before it.

The denial of a license renewal to a major licensee in

a major market is of manifest moment and financial

impact. The FCC’s decision has not been reviewed cal-

lously, and we have tried not to lose sight of the difficult

45

issues in this case by sweeping the reasoning of the

Commission under a rug of agency expertise or adminis-

trative convenience. The record presented to this court

shows irrefutably that the licensee was playing the dodger

to serious charges involving it and its parent company.

The Commission was entitled to ask whether such con-

duct, however convenient for corporate purposes, was

consistent with the candor required of an applicant for

a license to the public airwaves. We believe the Commis-

sion’s answer is not open to doubt. The disqualification

of RKO as a licensee of WNAC in Boston is affirmed.

It is so ordered.

46a

APPENDIX B

Anti-competitive Practice

Candor

Concealment

Misrepresentation

Renewal of License Denied

Hearing, Necessity for

Application for renewal of license denied for lack of

candor, concealment of decisionally significant infor-

mation, and participation in anti-competitive prac-

tices. Further evidentiary hearings unnecessary since

conclusions were reached on the bases of facts in

record not in dispute. DO. 18759

FCC 80-331

BEFORE THE

FEDERAL COMMUNICATIONS COMMISSION

WASHINGTON, D.C. 20554

Docket No. 18759

File No. BRCT-63

In Re Applications of

RKO GENERAL, INC. (WNAC-TV) Boston, Massachusetts

For Renewal of Broadcasting License

Docket No. 18760

File No. BPCT-4198

COMMUNITY BROADCASTING OF BOSTON, INC.

Boston, Massachusetts

Docket No. 18761

File No. BPCT-4277

THE DUDLEY STATION CORPORATION,

Boston, Massachusetts

For Construction Permit for

New Television Broadcast Station

47a

DECISION

(Adopted: June 4, 1980; Released: June 6, 1980)

Appearances

Harold David Cohen, W. Theodore Pierson, William H.

Fitz, Leon J. Schachter, and John F. Lillard, III (Pierson,

Ball & Dowd) ; of Counsel: Jack N. Goodman, Benjamin

J. Griffin, Maurice Baskin, and Frederic T. Spindel (Pier-

son, Ball & Dowd) and William J. Kirby, Marvin

Schwartz, Philip K. Howard, and William E. Willis

(Sullivan & Cromwell), on behalf of RKO General, Inc.;

Jay E. Ricks, Marvin J. Diamond and Richard S. Rodin

(Hogan & Hartson), Terry F. Lenzner (Wald, Hark-

rader & Ross), Charles Fabrikant, Thomas H. Truitt,

Robert B. Cornell, Thomas C. Matthews, Jr., and Lewis

M. Popper, (Truitt, Fabrikant, Bucklin & Lenzner), Wal-

ter H. Sweeney, (Welch & Morgan), on behalf of Com-

munity Broadcasting of Boston, Inc.; Edward Hayes, Jr.

(Hayes & White), Special Counsel, and Joseph F. Hen-

nessey (Lovett, Ford & Hennessey, P.C.), on behalf of

The Dudley Station Corporation; Joseph F. Hennessey,

Michael D. Jones, and Lawrence J. Bernard, Jr., (Lovett,

Ford & Hennessey, P.C.), on behalf of the New England

Television Corporation; Charles W. Kelley, William D.

Silva, Lawrence Bernstein, Aaron Shainis, Bruce A.

Eisen, and P. W. Valicenti, on behalf of the Chief, Broad-

cast Bureau, Federal Communications Commission; Leon-

ard C. Meeker on behalf of National Citizens Committee

for Broadcasting and Friars of the Atonement, amicus

curiae; Eugene F. Mullin, Nathaniel F. Emmons and

Howard A. Topel (Mullin, Conner and Rhyne, P.C.), on

behalf of Fidelity Television, Inc., Charles Owen Ver-

rill, Jr. (Patton, Boggs & Blow), Joseph M. Morrissey

(Welch & Morgan), and Charles O. Blaisdell, on behalf

of Multi-State Communications, Inc., Steven R. Rivkin,

on behalf of Hub Broadcasting, Inc.

48a

By CHAIRMAN CHARLES D. FERRIS FOR THE COMMISSION :

COMMISSIONERS LEE, QUELLO, AND WASHBURN DISSENT-

ING AND ISSUING STATEMENTS.

1. The Commission has before it for consideration the

application filed by RKO General, Inc. (RKO), for re-

newal of its license for station WNAC-TV, Channel 7,

Boston, Massachusetts, covering the 1969-1972 license

period.“ The Commission also has the separate compet-

ing applications for Channel 7 filed by Community Broad-

casting of Boston, Inc. (Community) and The Dudley

Station Corp. (Dudley). The Commission designated

those applications for hearing on December 11, 1969.

Finally, the Commission has the Initial Decision of the

Administrative Law Judge in this proceeding and numer-

ous pleadings, all of which are identified in appendix A

to this decision.

2. After careful and thorough examination of the en-

tire record developed in this proceeding and in related

proceedings in which RKO was a party, and taking into

full account RKO’s proffered evidence and accompanyin

affidavits, the Commission finds that the grant of RKO’s

license renewal application is not in the public interest

and, therefore, must be denied.“ A broadcast license

1 RKO is a wholly-owned subsidiary of General Tire & Rubber

Company (General Tire). General Tire is a diversified company

with approximately 50,000 holders of its common stock. General

Tire through RKO and the latter’s subsidiaries conducts various

media operations, including radio and television broadcasting and

cable television systems. The broadcasting operations of General

Tire are centered in RKO, which is the licensee of the following

stations: KHJ, KRTH(FM), KHJ-TV, Los Angeles, California;

WRKO, WNAC-TV, WROR(FM), Boston, Massachusetts; WOR,

WXLO(FM), WOR-TV, New York, New York; WHBQ-TV, WHBQ,

Memphis, Tennessee; KFRC, San Francisco, California; WGMS,

Bethesda, Maryland; WGMS-FM, Washington, D.C.; WAXY(FM),

Ft. Lauderdale, Florida; and WFYR(FM), Chicago, Illinois.

2 As explained below, however, we are not yet prepared to resolve

the question as to which, if any of the present applicants, should

be granted the license for Channel 7 in Boston. That will be the

subject of further Commission proceedings.

49a

provides an opportunity to use a limited and vital publie

resource. A broadcast license is not granted as a matter

of right. It is a privilege. To obtain that privilege, we

must be assured that an applicant will respect ap-

plicable laws, rules, and policies in serving the public

interest. In this case we are not persuaded that RKO

will operate WNAC-TV in a proper and law-abiding

fashion consistent with the public interest or that RKO

will be honest and forthcoming with this Commission and,

ultimately, with the public. It should be emphasized that

there are no substantial and material questions of fact

that need to be resolved by further hearings. Indeed, as

discussed more fully below, the record clearly and con-

vineingly demonstrates the following facts:

(a) In close cooperation with its parent, General Tire,

and its sister subsidiaries, RKO participated in a

reciprocal trade practices scheme which began as

early as 1961 and which was not officially ter-

minated until after commencement of the term for

which license renewal is sought. The purpose and

effect of this scheme was to obtain customers for

the General Tire family (including RKO) not on

the basis of quality, service, and price but on the

basis of the General Tire conglomerate’s large

scale buying power. This reciprocity scheme was

anticompetitive, probably violative of the antitrust

laws, and (in the case of RKO) corruptive of the

normal free market process by which the demand

for advertising time helps ensure that radio and

television programming is responsive to public de-

sires.

(b) RKO filed with the Commission and certified as

true and complete Annual Financial Reports for

1972-1976 for each of its broadcast stations. At

the time of the filing and certification, RKO and

the official who signed the certification knew that

the entries relating to trade and barter trans-

(e)

d)

(e

50a

actions were materially false. For several years

thereafter, and despite pleadings to elicit the truth

about the matter, RKO not only failed to disclose

the Reports’ inaccuracies but also made state-

ments patently designed to conceal from the Com-

mission the fact that RKO knew of the inaccura-

cies and false certifications.

Despite a 1972 Commission public notice and the

plain language of the Annual Financial Report

form and instructions requiring accurate trade

and barter data, RKO failed to exercise sufficient

control over trade and barter record-keeping at its

stations and made policy judgments which con-

tributed substantially to the continued inaccuracy

of those records. In this, as well as at least one

other area (sponsorship identification), RKO’s

derelictions reflected a lack of supervisory control

and a lack of concern for compliance with the

Commission’s rules and applicable laws.

RKO demonstrated a general lack of candor in

its dealings with the Commission in this proceed-

ing. At important junctures, in contravention of

Commission rules and general principles of can-

dor, RKO willfully withheld from the Commission

information that RKO knew to be relevant and

material to the license renewal proceeding. RKO

also made statements to the Commission that RKO

knew would have the tendency to mislead the Com-

mission on relevant and material matters.

The relationship between RKO and General Tire

is such that the conduct and character of Gen-

eral Tire bears substantially on RKO’s qualifica-

tions to be a licensee. The nature and relevance of

that close relationship is demonstrated, among

other things, by the following:

(f)

5la

(1) the fact that RKO is a wholly owned sub

sidiary, necessarily subject to the ultimate

control and policy direction of General Tire

and necessarily dependent upon that parent

for information needed to comply fully and

truthfully with various Commission informa-

tion reporting requirements;

(2) the fact that General Tire is controlled by a

single family and that one brother in that

family is chairman of the boards of directors

of both General Tire and RKO while another

brother is president and a director of General

Tire, a third brother is a director of Gen-

eral Tire, and their sister’s husband is a di-

rector of T;

(3) the fact that for years RKO worked closely

with General Tire and the other General Tire

subsidiaries in implementing the company-

wide anticompetitive reciprocity program;

(4) the fact that RKO, through lack of candor and

misleading statements, concealed from Com-

mission and public scrutiny information re-

garding General Tire misconduct until Gen-

eral Tire was no longer subject to investiga-

tion by the Securities and Exchange Commis-

sion.

Over a period of twenty years, including the li-

cense term in question, General Tire participated

in a wide variety of illegal and improper conduct,

both domestically and abroad. This array of mis-

conduct, much of which was initiated by or ac-

quiesced in by top General Tire officials, demon-

strates that General Tire is institutionally inclined

to sacrifice obedience to law and proper business

ethics in pursuit of corporate revenue and political

influence. Our view is buttressed by General Tire’s

52a

decision to retain in positions of power certain

key officials largely responsible for the miscon-

duct itself and the long-time lack of corporate con-

trols to prevent misconduct by subordinates. Among

other things:

(1) From sometime in the 1960’s until the investi-

gation by the SEC, General Tire carried out

a variety of secret schemes to make illegal do-

mestic political contributions.

(2) For many years prior to the commencement

of the investigations by the SEC and other

authorities, General Tire, through its wholly-

owned international subsidiary and with the

approval and/or acquiescence of key corporate

officials :

(i) systematically overbilled and denied the

benefit of the rebates to partly-owned

foreign affiliates, thus defrauding its

partners in those affiliates of millions of

dollars, in direct violation of General

Tire’s fiduciary duty to those partners;

(ii) bribed foreign officials not only to gain

business for itself but to prevent the

construction of competing operations in

foreign countries; and

(iii) financed its illegal activities through

secret accounts and covered these activi-

ties up through falsification of records

and other forms of intentional misrep-

resentation.

3. We wish to emphasize at the outset that this deci-

sion is not “punishment” for past wrongs. Our sole and

proper concern here is with the prospective operation of

WNAC-TV and the other broadcast stations affected by

this decision. Broadcasters are by Act of Congress tem-

53a

porary permittees—fiduciaries of a great public re-

source—who must satisfy the highest standards of cuar-

acter commensurate with the public trust that is reposed

in them. In this case we are presented with a broad rec-

ord of illegal, immoral, and unethical practices, stretch-

ing over many years and reaching to the highest levels of

the General Tire organization. We have concluded, on

the basis of reasonable inferences from past misconduct,

that there can be (and is) no assurance that in the fu-

ture RKO will be a dependable and trustworthy trustee

of the public airwaves. We recognize that disqualification

of RKO may have a substantial economic impact on Gen-

eral Tire’s shareholders, most of whom are undoubtedly

innocent of any personal misconduct. But, in this case,

the principle of law and the need to protect the public

interest must prevail over private concerns. Nor does

the potentially large dimension of that economic impact

warrant special consideration. The Communications Act

does not envision one standard of justice for small-town,

single station licensees and a less demanding standard

for big city, multiple station licensees. The decision to

disqualify RKO is fully consistent with a long line of

decisions in which we have felt compelled to disqualify

far smaller entities than RKO to fully protect the public

interest.

4. Renewal proceedings involving RKO television sta-

tions KHJ-TV, Los Angeles, California (Docket Nos.

16679-80) and WOR-TV, New York, New York (Docket

Nos. 19991-2) have been expressly conditioned on the

Commission’s findings as to RKO’s qualifications in this

proceeding. Hence, the Commission’s decision that RKO

is not qualified to hold the license for WNAC-TV, Boston

is res judicata with respect to those other proceedings

and requires similar findings that RKO is not qualified

to hold the licenses for the New York and Los Angeles

stations. The findings in the instant matter may also be

res judicata with respect to RKO’s qualifications to hold

other broadcast interests; however, as explained below,

54a

we will solicit comments from RKO and other interested

parties as to the impact, if any, that our decision today

should have on those other broadcast holdings.

5. Like many of our comparative hearing cases, this

matter is an extremely complex one that has been ex-

plored and argued in Commission proceedings for many

years. The issues have been aired, clarified and debated

at length. The record is voluminous. Accordingly, it may

be useful here to outline the manner in which this deci-

sion proceeds. The first section details the background

of the case, including the procedural history; the second

section discusses the issues we decide today and the Com-

mission’s bases for resolving them; and the last section

sets forth further proceedings that will have to be con-

ducted in light of today’s decision.

I. Background

6. On December 31, 1968, RKO filed an application

for renewal of license covering station WNAC-TV on

Channel 7 in Boston, Massachusetts. On February 28,

1969, Community filed an application for a construction

permit for a new television station to operate on Channel

7 in Boston. On July 8, 1969, Dudley similarly filed an

application for a construction permit for a new television

station to operate on Channel 7 in Boston. By Order re-

leased December 11, 1969, the Commission consolidated

and designated for hearing the mutually exclusive appli-

cations of RKO, Community and Dudley, 20 FCC 2d 846.

The following issues, among others, were designated

against RKO: *

8 Following the court’s decision in Citizens Communications

Center v. FCC, 447 F. 2d 1201 (D.C. Cir. 1971), which invalidated

the controlling standards in comparative renewal proceedings, the

Commission redesignated this matter for hearing, FCC 72-145, re-

leased February 24, 1972. See also 35 FCC 2d 100 (1972).

Issues were also designated against Community and Dudley.

Those latter issues need not be discussed at this time.

55a

(1) To determine with respect to the application of

RKO General, Inc., whether in view of the evi-

dence concerning alleged anticompetitive practices

by RKO General, Inc., or its parent corporation,

General Tire and Rubber Co., RKO General, Inc.

should be disqualified to remain a licensee of the

Commission or if not so disqualified, whether a

comparative demerit should be assessed against it

in this proceeding.

(2) To determine whether RKO General, Inc., violated

the sponsorship identification provisions of Section

317 of the Communications Act of 1934, as

amended, and Section 73.654 of the Commission’s

Rules with respect to the broadcast of the “Della

Reese Show”, and, if so, the effect thereof on the

requisite and/or comparative qualifications of RKO

General, Inc. to remain a Commission licensee.“

A. Initial Decision

7. In an Initial Decision, FCC 74D-36, released June

21, 1974, Administrative Law Judge Forest L. McClen-

ning found Dudley financially unqualified and RKO com-

paratively preferred over Community and Dudley. He

therefore recommended the grant of RKO’s renewal appli-

cation and denial of the challengers’ applications. In

part, the Judge’s recommendation was based on his find-

ing that RKO had not knowingly engaged in improper

anticompetitive practices and his finding that RKO war-

ranted only a comparative demerit for its mishandling of

the “Della Reese” programs. The bases for the Judge’s

findings are explained below.

1. The Anticompetitive Issue

8. The Judge found that General Tire manufactured

a wide variety of products. At the time of the Initial

5 Issue added August 12, 1970, 25 FCC 2d 633 (Rev. Bd.).

56a

Decision, General Tire owned or controlled major sub-

sidiaries which, besides RKO and its subsidiaries,’ in-

cluded Aerojet-General Corporation (engaged in the fields

of rocket propulsion, electronics, ordinance and specialty

manufacturing and technology diversification) and A.M.

Byers Company (engaged in the manufacture and sale

of wrought iron, mining equipment and machinery, and

steel castings). (I.D. para. 256.) During the period

1960 through 1970, the consolidated sales of General Tire

and its major subsidiaries, other than RKO, ranged be-

tween $949.7 million and $1.087 billion (I.D. para. 258.)

9. The Judge found that General Tire, Aerojet, and

Byers purchased substantial quantities of various sup-

plies and materials throughout the United States for use

in the production of manufactured goods.’ General Tire,

Aerojet, and Byers likewise shipped and arranged for the

shipment of substantial quantities of supplies, materials,

and manufactured goods via common carriers, including

truck lines and railroads which had truck line subsidi-

aries. (I.D. para. 257.)

10. General Tire formally organized a trade relations

division in 1961, with John G. Ragsdale as its director.

Prior to this time, the trade relations function at Gen-

eral Tire was not formally organized, although C. F.

Burke, an assistant to the president of General Tire, had

engaged in some activities of a trade relations nature.

(I.D. para. 271.)

11. John Ragsdale’s function as Director of Trade Re-

lations was to use General Tire’s purchasing power as

6 RKO owns, inter alia, Cablecom-General, Inc. which is primarily

engaged in cable television operations, and Frontier Airlines, which

is primarily engaged in providing airline service.

7 During the period 1960-1970, General Tire purchased greater

than $1 million worth of products in at least one year from 78 dif-

ferent companies. (1.D. para. 267.) During the years 1961-1966,

Aerojet purchased at least $100,000 during one year from each of

103 suppliers. (I. D. note 45.)

57a

leverage for increasing General Tire’s business. (I.D.

para. 274.) The desired end result was to facilitate and

implement “reciprocal trade practices.” |I.D. para. 379.)

In other words, these practices involved an effort by the

General Tire organization to use business given by the

General Tire organization as a basis for increasing the

purchase of business from the General Tire organization.“

Ragsdale worked in coordination with the traffic and pur-

chasing department of General Tire and the trade rela-

tions personnel of its subsidiaries, including RKO. In an

effort to secure business for General Tire, Ragsdale con-

tacted both General Tire’s existing suppliers as well as

those companies with whom General Tire did not at that

time have a business relationship. (I.D. para. 274.)

12. RKO did not have a formal trade relations office

or department, although Robert Wilke and Harry Tren-

ner did operate in areas of trade relations on behalf of

RKO. Wilke was hired by RKO in 1960 to serve as a

“goodwill ambassador or missionary salesman.” Because

of his athletic background and through previous employ-

ment, Wilke had a wide acquaintanceship at the

advertiser-client level and at advertising agencies. Essen-

tially, his function at RKO was to make the initial con-

tacts with advertising agencies and potential advertisers

in order to sell RKO and General Tire institutionally.

Regular RKO sales personnel thereafter conducted any

resulting sales negotiations. Wilke adopted the title of

Director of Corporate Relations. Upon creation of Gen-

eral Tire’s trade relations division in 1961, Wilke was

designated to act as RKO’s liaison with Ragsdale. The

two men were in frequent contact by mail and telephone.

(I.D. para. 275.)

8A “reciprocal trade practice” or “reciprocal dealing” was de-

fined by the Judge as an agree t whereby each party to the

arrangement was both a supplier and a purchaser of goods and

services. A transaction meeting these criteria would be considered

a “reciprocal dealing” without regard to the nature of the factors

which prompted the parties to enter into the agreement. (I. D.

para. 379.)

58a

13. In March, 1967, the Department of Justice filed a

civil action against General Tire and certain of its sub-

sidiaries, including RKO, alleging violations of Sections 1

and 2 of the Sherman Antitrust Act (15 U.S.C. §§ 1, 2),

arising out of the defendants’ alleged systematic use of

their purchases to increase sales.“ In this regard, Gen-

eral Tire and its subsidiaries were accused, inter alia, of

conspiring to “persuade and coerce” their suppliers to

purchase products and services from them, including ad-

vertising time on RKO stations. The suit was termi-

nated on October 21, 1970, by a court-approved consent

decree which is applicable for a period of ten years. The

consent decree, inter alia: (1) precludes General Tire

(including its subsidiaries) from conditioning its pur-

chase of goods or services from any person upon General

Tire’s sales to that person; (2) prohibits General Tire

from discussing with its customers the relationship be-

tween their mutual purchases and sales; and 3) requires

the abolition of the positions of Director of Trade Rela-

tions at General Tire and Director of Corporate Rela-

tions at RKO. Thousands of documents supplied to the

Justice Department by General Tire and third parties

during the extended pretrial discovery phase of the

antitrust suit were made available to the parties in the

instant proceeding.

14. Evidence was adduced at hearing concerning spe-

cific instances in which reciprocal trade practices al-

legedly played a role in the conduct of business of Gen-

eral Tire and its subsidiaries with 171 companies. With

respect to 46 of these firms, the Judge made a summary

finding that the record failed to establish that they had

reciprocal relationships with General Tire. (I.D. para.

363.) Of the remaining 125 companies, trucking was the

industry most heavily represented with 51 firms involved.

® United States v. The General Tire & Rubber Company, Aerojet-

General Corporation, A. M. Byers Company and RKO General

Incorporated, C.A. No. C-67-155 (N.D. Ohio, E. Div., Filed March 2,

1967).

59a

In this regard, the Judge found that during the 1960-

1967 time period General Tire, as a practice, favored

with its freight business those trucking companies which

utilized its products. (I.D. para. 269.) The Judge fur-

ther found that General Tire took measures to withhold,

reduce, or eliminate entirely its freight business with

nine trucking companies which did not make sufficient

purchases of General Tire’s products. With respect to

one of these instances, the Judge’s findings indicate that

the trucking company was also actively soliciting freight

business on the basis of its tire purchases from General

Tire; in all of the other eight cases, the Judge’s findings

show General Tire to be acting unilaterally against the

trucking companies. (I.D. paras. 280-285.)

15. The Judge made additional detailed findings re-

garding General Tire’s trade relations with 27 companies

from a variety of fields outside the trucking industry.

These findings reveal that in a number of instances Gen-

eral Tire’s activity involved the reduction or curtailment

of business with the other company, as well as explicit

or implicit threats to do so. (I.D. paras. 289, 290, 294,

305, 324, 325, 328.) In some cases General Tire increased

its sales of tires after applying pressure based on the

amount of business General Tire was giving to certain

companies. (I.D. paras. 321, 346, 360.) And in other

cases, General Tire and RKO officials, working in con-

cert, directly pressured companies to place advertising on

RKO stations in order to reciprocate for business pro-

vided by General Tire. (I.D. paras. 321, 330.)

16. The Judge concluded that General Tire and its

subsidiaries had engaged in reciprocal dealings. How-

ever, he felt that such practices should not reflect ad-

versely upon RKO’s qualifications.“ (I. D. paras, 378-

10 The Judge noted that the Boston proceeding explored all phases

of General Tire’s program of reciprocal dealings, whereas the Los

Angeles proceeding (involving RKO’s application for renewal for

Station KHJ-TV) was limited to an inquiry into matters which

60a

380.) Although there was evidence to demonstrate other-

wise, the Judge viewed General Tire’s reciprocal trade

activities as proper—‘service, price and quality being

equal—they preferred doing business with their

friends.“ 1 (I. D. para. 380.) For example:

(1) Although there was no evidence of other recipro-

cal dealings in the broadcast industry, the ALJ be-

lieved reciprocal dealings to be acceptable since

they were a common business practice in other

industries. (I.D. para. 379.)

(2) Although there was evidence indicating otherwise,

the ALJ stated that RKO had not engaged in co-

ercive reciprocal practices. (I.D. paras. 379, 380.)

(3) The Judge viewed the relevant legal and economic

antitrust concepts as being in a state of flux at the

time General Tire’s reciprocal dealings occurred.

Accordingly, he felt that there was no certainty at

the time of their occurrence that General Tire’s

trade relations practices were improper. (I.D.

para. 379.)

(4) The Judge found that General Tire had taken posi-

tive steps in addition to those specified by the

court to assure continuing compliance with the

consent decree. (I.D. para. 380.)

(5) Although the record indicated otherwise, the ALJ

stated that RKO had an “unblemished” record as

directly involved RKO’s operation of Station KHJ-TV. (I. D. para.

365.) In the Los Angeles proceeding, the Commission concluded

that General Tire’s and RKO’s reciprocal dealings with respect to

KHJ-TV should not reflect adversely upon RKO’s operation of

KHJ-TV. 44 FCC 2d 123, 129-130 (1973). In the Boston proceed-

ing, the Judge concluded that none of RKO’s witnesses in the KHJ-

TV proceeding misrepresented or concealed facts or were lacking in

candor concerning the reciprocal trade issue. (1.D. para. 383).

11 On this and other matters, our bases for rejecting certain

findings of the ALJ are discussed below.

6la

a broadcaster; the ALJ also found RKO to be a

pioneer in the broadcast industry. (I.D. para.

380.)

2. The “Della Reese” Isswe

17. This issue was specified to determine whether RKO

violated the sponsorship identification provisions of Sec-

tion 317 of the Communications Act“ and Section 73.654

of the Commission’s Rules“ with respect to the broad-

cast of the “Della Reese” program, a series of 193 one-

hour variety entertainment shows produced in Hollywood

by RKO for syndication.“ The Judge found that, in con-

nection with the production of 29 of these programs, a

portion of the cost of the appearance of various musical

acts was borne by record companies pursuant to a cus-

tomary record industry practice of promoting their per-

formers by paying for television exposure. In an esti-

mated 28 other instances such partial reimbursement of

production costs ‘vas promised but never paid. The Judge

concluded that announcements of reimbursement should

12 47 U.S.C. § 317.

18 47 C. F. R. § 73.654.

14 Section 508 of the Communications Act, 47 U.S.C. § 508, re-

quires producers of programs who receive money or other valuable

consideration for the inclusion of matter in a program to report

such consideration to the licensee or licensees over whose facilities

the program is to be broadcast. The licensee is then required by

Section 317 of the Act to announce that the matter contained in the

program is paid for and to disclose the identity of the person fur-

nishing the money or other valuable consideration. Where the per-

forming artist, either personally or through his agent, makes a

payment to producer to reimburse the producer for the fee paid

to the artist, the fact that such payment was made must be dis-

closed by the producer to the television licensee and must be dis-

closed to the public in accordance with Section 73.654 of the Com-

mission’s Rules. There is no distinction between payments made

and payments promised. (I. D. para. 381.)

62a

have been but were not made on 40 of the approximately

57 programs.“ (I.D. paras. 239, 240, 382.)

18. The ALJ found that RKO had an established

policy for complying with its sponsorship identification

obligations. That policy delegated to a program’s execu-

tive producer the responsibility for broadcasting the re-

quired sponsorship identification announcements. Al-

though the record showed that RKO had provided the

executive producer of the Della Reese programs with

some guidance in fulfilling his duties, the Judge found

that RKO senior officials had not monitored the programs

or otherwise checked to determine whether their direc-

tions were being carried out. The Judge concluded that

this total reliance on the producer was unjustified. Al-

though there was no showing that there had been an

intentional violation of the Communications Act and

the Commission’s Rules or that RKO had benefited from

the violations, the Judge accorded RKO a moderate com-

parative demerit for its breakdown in supervision. (I.D.

para. 382.)

B. Petition To Reopen The Record And Enlarge Issues

19. Im order to understand the next significant proce-

dural stage of this proceeding, it is necessary to refer

briefly to developments outside the Commission.

1. SEC Inquiry Into General Tire Misconduct

20. As the record later disclosed, General Tire officials

knew that the company and its affiliates for many years

had engaged in improper conduct. For example, M. G.

O’Neill, General Tire’s president and a member of its

board of directors, initiated and participated in schemes

to make political contributions which he knew or should

10 The Judge concluded that the failure to include an announce-

ment also involved a violation of Section 508 of the Communications

Act by RKO as a producer. (I. D. para. 382.)

63a

have known were improper.'® M. G. O’Neil was also

responsible for maintaining certain illegal secret ac-

counts, including one in Liechtenstein known as Fructal

Finanz Anstalt (Fructal).”

21. By 1975 some of this and other misconduct at-

tracted the attention of the Securities and Exchange

Commission. In May 1975, Tress E. Pittenger, Vice-

President and former General Counsel of General Tire,

responded to an informal inquiry from the Division of

Enforcement (Enforcement Division) of the SEC con-

cerning General Tire’s use of the secret Fructal bank

account with respect to operations of General Tire’s

affiliate in Chile (INSA).'* Pittenger gave the SEC a

copy of a report which General Tire had prepared on

the matter. At least two subsequent conferences between

Pittenger and the staff of the Enforcement Division were

held during the summer of 1975. At these meetings

Pittenger supplied further information requested.“ On

December 5, 1975, the Enforcement Division wrote Pitten-

16 Report of the Special Review Committee of the Board of Direc-

tors of the General Tire & Rubber Company (Special Report),

July 1, 1977, at 2. The Special Report was submitted to the Com-

mission in July 1977 and formally admitted into the record by Order

dated July 20, 1979. FCC 79-453.

17 Special Report at 7, 18, 197.

18From March, 1974 and well into 1975, the management of

General Tire became progressively active in connection with seriou:

problems involving Industria Nacional de Neumaticos, S.A. (INSA),

its Chilean tire manufacturing affiliate. The problems co cerned

General Tire’s alleged overbilling of INSA and General Tire’s use

of the secret Fructal bank account to disguise receipt of the over-

billing Extensive meetings were held in Akron in 1974, and Tress

E. Pit enger made several trips to Chile. In March, 1975, General

Tire filed a detailed and documented position paper with the Chilean

central bank (Banco Central) in Santiago supplementing a prelimi-

nary oral report made in December, 1974. The matter received wide

publicity in the news media in Chile. Special Report at 29-30.

19 Special Report at 30.

64a

ger asking for the following information at the earliest

possible date for the period commencing January 1, 1970:

(1)

(2)

22.

The names and addresses of all persons, groups, or

entities employed by, affiliated with or represent-

ing, directly or indirectly, any foreign government

to whom General Tire, its subsidiaries, representa-

tives, or other persons acting on its behalf, have

paid money or other emoluments, or entered into

any contracts or agreements to pay such which

are, in the aggregate, in the excess of $1,000 in

any fiscal year. Please specify the date, amount,

and purpose of each such payments and indicate

the accounting treatment accorded to any such item

in the financial statements of General Tire or its

subsidiaries; and,

The names and addresses of all government offi-

cials, political parties, campaign committees or

other individuals and groups to whom General Tire

or any of its subsidiaries have made political con-

tributions, directly or indirectly, from corporate

funds. Please specify the date and amount of each

such payment and indicate the accounting treat-

ment accorded to any such item in the financial

statements of Gener:. Tire or its subsidiaries.”

Pittenger responded by letter dated December 11,

1975, that he would make “the necessary detailed

investigation.” **

2. Community’s Petition

Meanwhile, on December 10, 1975 (subsequent to

the Initial Decision but prior to oral argument before

the Commission en banc) Community filed a petition to

reopen the record, enlarge the issues, and remand for

further hearing. Attached to Community’s petition were

20 Jd.

21 Jd. at 31.

65a

three volumes of exhibits totalling 640 pages. Com-

munity stated that it had discovered evidence demon-

strating that General Tire had engaged in illegal, un-

ethical and improper conduct in the United States of

America and in foreign countries.” ~ Community alleged

that General Tire had engaged in illegal bribery of for-

eign public officials, had established secret accounts to

evade banking and tax codes of foreign countries, and

had defrauded the stockholders of its own subsidiaries

by misappropriating corporate funds. Community fur-

ther alleged that these activities violated securities and

tax laws. Community submitted that these activities re-

flected a corporate policy initiated, encouraged and ap-

proved by top General Tire management, “the very indi-

viduals who legally control RKO policy and, ultimately

WNAC-TV.”* Community also accused General Tire

and RKO of attempting “to conceal, mislead and deceive”

the public, General Tire stockholders and various public

agencies (including the Federal Communications Com-

mission) by failing to disclose material information in

their possession and/or by publicly claiming ignorance

of known facts.“ Additionally, Community alleged that

RKO (1) had violated Section 1.514 of the Commission’s

rules by failing to disclose General Tire’s secret interest

in Fructal,™ (2) had violated Section 1.65 of the rules

by failing to disclose that General Tire’s corporate activi-

22 Community Petition to Reopen the Record, Enlarge the Issues

and Remand for Further Hearing (Petition to Reopen), December

10, 1975, at 5.

23 Jd. at 5-6.

24 Jd. at 4, 21-22.

25 Section 1.514(a) of the Commission’s rules (now Section

73.3514(a) (47 C.F.R. § 73.3514(a))), states, in pertinent part:

“Each application shall include all information called for by the

particular form on which the application is required to be filed.”

In this case, Community alleged that RKO had failed to include in

its renewal application information concerning General Tire’s inter-

est in Fructal.

66a

ties were being investigated at the direction of the Chilean

government and by failing to disclose the legal violations

themselves,“ and (3) had exhibited a lack of candor by

failing to disclose information in its possession relating

to the documented fraud and corruption.

23. RKO sought and obtained from the Commission an

extension of time to respond to Community’s petition in

order “to verify translated documents” contained in Com-

munity’s pleading and to consult with “persons who may

have knowledge of the pertinent facts.” * on January 21,

1976, RKO submitted its “Opposition” to Community’s

petition. RKO stated that there was “no factual or legal

foundation for [Community’s] pyramid of charges” ** and

that “the charges [of violating SEC and tax laws!

are groundless.” ** RKO also claimed that Community’s

charges were “essentially unsupported and that sensation-

alism and blatant exaggeration [were] rampant.” *® RKO

asserted that Community’s petition failed to comply with

Section 1.229 of the Commission’s rules which requires

that reliable support be provided for allegations of fact; *“

RKO noted that Community’s allegations of illegal and

improper conduct were not supported with affidavits of

26 Section 1.65 of the Commission’s rules, 47 C.F.R. § 1.65, pro-

vides, in pertinent part:

“Whenever there has been a substantial change as to any .. .

matter which may be of decisional significance in a Commission

proceeding involving the pending application, the applicant shall

as promptly as possible and in any event within 30 days, unless

good cause is shown, submit a statement furnishing such addi-

tional or corrected information as may be appropriate.”

27 RKO Motion for Extension of Time, December 12, 1975, at 2-3.

28 RKO Opposition to the Petition to Reopen the Record, Enlarge

Issues, and Remand for Further Hearing (RKO Oposition), Janu-

ary 21, 1976, at 5.

20 Jd. at 17.

3° Jd. at 5.

31 Id. at 7; 47 C. F. R. § 1.229.

67a

persons with personal knowledge of the facts. Thus, RKO

concluded, Community had “wholly failed to support, much

less show a substantial likelihood of proving any of its

broad-scale allegations that General Tire had engaged in

fraud, bribery, illegal political payments or in any viola-

tion of disclosure requirements.” * RKO categorized Com-

munity’s request for discovery as a “fishing expedition”,

adding that there was no need for a Commission inquiry.“

RKO also noted gratuitously that Community had failed

to “assert any improper political contributions by General

Tire in the United States.” * On these bases RKO argued

that there was no merit to Community’s charges that

RKO had failed to disclose information in violation of

Sections 1.514 and 1.65 of the Commission’s rules. With

respect to the alleged Section 1.514 violation, RKO ex-

plained that Fructal was not a business but instead was

an incorporated bank account under the laws of Liechten-

stein. Even assuming Fructal could be considered a busi-

ness, RKO contended, it was a part of INSA’s business of

manufacturing tires and tubes. Thus, in disclosing Gen-

eral Tire’s interest in INSA, RKO had satisfied its respon-

sibilities under Rule 1.514.% RKO concluded that, even

if wrongdoing were established, it would not constitute

serious misconduct of the kind which would reflect ad-

versely upon RKO’s qualifications or its probable future

conduct as a broadcast licensee.“ At no point in its plead-

ing did RKO advise the Commission of the SEC inquiry.

8. Further SEC Inquiries

24. When RKO filed its Opposition to Community’s pe-

tition, General Tire had not yet responded to the SEC

* RKO Opposition at 23.

38 Jd. at 9-10.

Id. at 5.

85 Jd. at 33-34.

86 Id. at 24.

68a

letter of December 5, 1975. On January 23, 1976—two

days after RKO filed its opposition to Community’s peti-

tion—the General Tire board of directors, headed by T. F.

O’Neil (who was then, as now, Chairman of RKO’s

board), met and was formally advised of the SEC’s letter

of December 5, 1975, concerning misconduct by General

Tire. The board appointed a special committee to investi-

gate the matter. The special committee consisted of two

non-management directors and was to rely on General

Tire’s in-house counsel.”

25. Meanwhile, on January 22, 1976, the Enforcement

Division wrote to General Tire again. This time it set

out eleven areas of inquiry upon which it desired informa-

tion, including documents. In addition to extensive inquiry

on particular points concerning operations in Chile, this

letter raised questions about General Tire’s activities in

Morocco and Rumania and inquired into Genera] Tire’s

so-called “611” accounts.“ On February 10, February 19,

February 24, and March 1, 1976, substantial submissions

were made by General Tire to the SEC in response to its

letter of January 22.”

26. On February 3, 1976, General Tire officials met

with SEC staff members from both the Corporation Fi-

nance and the Enforcement Divisions. Present for General

Tire were Pittenger, John H. Dalton, general counsel, and

attorneys from a New York City law firm who were act-

ing as outside counsel. From General Tire’s point of view,

the purpose of the meeting was to determine what it

would be required to put in the statement to be used to

solicit proxies for the 1976 annual meeting of sharehold-

87 Special Report at 31.

88 These “611” accounts turned out to be secret bank accounts by

which General Tire transferred monies to be used for and/or in

response to improper transactions. See para. 132, infra.

8® Special Report at 31.

69a

ers.“ Sharp, sarcastic statements were made by Pitten-

ger, who at one point advised an Enforcement Division

staff member against holding his breath while waiting for

submission of additional material because you'll turn

blue.“ Furthermore, a misunderstanding appears to

have arisen as to whether Pittenger was candid in answer-

ing a staff question inquiring if General Tire had a

problem involving domestic political contributions.”

27. On February 13, 1976, General Tire delivered a

lengthy letter to the SEC. The letter detailed several

problems which had come to light, including removal of

General Tire from the Arab boycott list.”

28. In the latter part of February, 1976, the SEC

issued a formal order of investigation against the General

Tire organization. At least eight depositions were taken

in that investigation, including that of General Tire Pres-

ident, M. G. O’Neil. In addition, the SEC served an

extensive subpoena duces tecum upon General Tire which

was received March 10, 1976. Meanwhile, at its meeting

of March 3, 1976, the General Tire board of directors

enlarged the special committee appointed in January to

include all five outside directors and retained General

Tire’s regular outside counsel and independent account-

ants to assist the expanded committee in discharging its

duties.“

29. Negotiations were held between General Tire offi-

cials and the SEC concerning the form and extent of

relief required by the SEC.“ On May 10, 1976, the SEC

filed a Complaint for Injunctive and Certain Ancillary

Relief against General Tire and M. G. O’Neil (SEC Com-

40 Id.

#1 Jd. at 32.

42 Id.

43 Id.

Id.

Id.

70a

plaint). The SEC charged General Tire and O’Neil with

numerous violations of the Securities Exchange Act of

1934 and SEC rules.* As part of this misconduct, the

SEC Complaint alleged the following:

[S]ubstantial improper and illegal payments totalling

in excess of several million dollars of corporate funds

were made; domestic political contributions and im-

proper payments to officials and employees of various

governments were effected; the corporate books and

records of General Tire were faisified and certain

funds were maintained and not reflected on the cor-

porate accounts of General Tire; violations of foreign

currency laws occurred; [and] materially false and

misleading annual and periodic reports and proxy

statements were filed with the [Securities and Ex-

change] Commission.“

The SEC Complaint recited substantially all of the allega-

tions made by Community in its December 10, 1975, peti-

tion and added others (e. g., illegal and improper domestic

political contributions).

30. On the same day the SEC Complaint was filed

(May 10, 1976), the court approved a negotiated final

judgment of permanent injunction incorporating the con-

sent and undertaking of General Tire and the consent of

M. G. O' Neil.“ The permanent injunction prohibits the

46 SEC v. The General Tire and Rubber Company and Michael

Gerald O’Neil, No. 76-0799 (D.D.C., consent injunction filed May 10,

1976). General Tire and M. G. O’Neil were charged with violations

of Sections 10(b), 138(a) and 14(a) of the Securities Exchange Act

of 1934 [15 U.S.C. §§ 78j(b), 78m(a) and 78n(a)] and Rules 10b-5,

13a-1, 13a-13 and 14a-9 [17 C. F. R. §§ 240.10b-5, 240.13a-1, 240.13a-

13, and 240.14a-9]. See Special Report, Appendix A at 1-2.

47 First Cause of Action of SEC Complaint. See Special Report,

Appendix A at 4.

48 Final Judgment of Perma”ent Injunction against the General

Tire & Rubber Company and Michael Gerald O’Neil (Final Judg-

ment). See Special Report, Appendix D.

71a

concealment of any of the misconduct alleged in the SEC

Complaint including, inter alia, unlawful political contri-

butions, unlawful payments to foreign government offi-

cials and the overbilling of affiliates and subsidiaries.“

The consent decree entered into by General Tire and M. G.

O’Neil did not admit or deny any of the allegations in the

SEC Complaint.” It did provide, however, for the crea-

tion of a Special Review Committee, composed of five non-

management members of General Tire’s board of direc-

tors, assisted by Special Counsel, whose purpose was to

conduct an

extensive investigation into the use of corporate funds

for unlawful political contributions; . . . the use of

corporate funds for improper payments to govern-

mental employees and officials, foreign or domestic;

the establishment and maintenance of, and transac-

tions in, any secret or unrecorded funds: and

such other similar matters as may be revealed during

the course of the investigation.“

The Review Committee was required to submit a written

report for consideration by General Tire’s board of direc-

tors and to file the report with the SEC as well as the

court, The court retained jurisdiction of the matter for

all purposes, including enforcing General Tire’s compli-

ance with the decree.

31. On May 14, 1976, RKO advised the Commission of

the SEC inquiry and the court-approved consent decree.**

49 Final Judgment. See Special Report, Appendix D at 2-4.

5° Consent and Undertaking of the General Tire & Rubber Com-

pany (General Tire Consent and Undertaking). See Special Report,

Appendix B at 1. Consent of Michael Gerald O’Neil. See Special

Report, Appendix C at 1.

51 General Tire Consent and Undertaking. See Special Report,

Appendix B at 2-3.

52 RKO Statement for the Information of the Commission, May

14, 1976. RKO promised that the report of the Special Review

Committee would be provided to the Commission upon its com-

pletion.

[2a

This was the first time that the Commission was notified

by RKO that the SEC was investigating possible miscon-

duct by the General Tire organization.

4. Further Commission Proceedings

82. On June 18, 1976, Community supplemented its

December 10, 1975, Petition to Reopen. The supplement

cited the above described SEC complaint, which was said

to be based on sworn testimony «nd documentation avail-

able at the SEC. In light of the allegations contained

in the SEC Complaint, which were wider in scope than

those allegations initially made by Community, the sup-

plement requested that five additional issues be designated

against RKO.

33. In the meantime, the parties had already sub-

mitted exceptions to the ALJ’s findings. On June 29,

1976, oral argument was held before the Commission, en

banc, concerning the Initial Decision and those exceptions.

Following oral argument the Commission determined that

it would be inappropriate to take any action until after

the submission of the report by General Tire’s Special

Review Committee.“

C. Proposed Transfer of RKO

34. On September 21, 1976, RKO filed an application

proposing to transfer de jure control of RKO from Gen-

eral Tire to the latter corporation’s individual stockhold-

ers. By Memorandum Opinion and Order this proposal

was placed in a deferred status pending consideration of

53 Also on June 29, 1976, a Motion for Leave To File as Amici

Curiae was filed with the Commission by the National Citizens

Committee for Broadcasting (NCCB) and the Friars of the Atone-

ment (Friars). The Amici concluded that the renewal application

of RKO should be denied on the basis of the SEC Complaint. Com-

ments and an Opposition were filed by the Broadcast Bureau and

RKO, respectively, on July 6, 1976.

73a

the allegations against RKO and General Tire in this

proceeding.™

D. Petition To Comply With Section 1.65

35. Another matter in issue in this proceeding con-

cerns RKO’s annual financial reports, which are contained

on Form 324. In 1972, the Commission issued a Public

Notice that reminded all broadcasters of the requirement

to include in their 324 Forms a report on the income and

expense involved in “barter and trade” transactions.”

As the record later disclosed, RKO’s 324 Forms for 1972-

1976, inclusive, did not fully and accurately report data

as to RKO barter and trade transactions.“ Moreover, the

record discloses that RKO officials knew at the time the

reports were filed that the 324 Forms did not fully and

accurately report such items.“

36. On April 7, 1977, Community filed a “Petition for

Order Requiring RKO General, Inc. to Comply with Sec-

tion 1.65 of the Commission’s Rules” (Petition to Com-

ply).®* Community requested that the Commission order

RKO to file notice as to whether it had violated the Com-

mission’s rules regarding the reporting of trade and

barter transactions, and, if so, promptly to furnish details

54 64 FCC 2d 713 (1977).

55 Jn re Reporting “Trade Outs” on FCC Broadcast Financial

Reports, 34 FCC 2d 439 (1972). A “barter and trade” transaction

involves the exchange of advertising time for consideration other

than normal advertising fees. This transaction is made usually

because the broadcaster determines that the advertising time will

remain unsold unless special measures are taken; usually the time

is exchanged for the advertiser’s goods or services, e.g., a car, a

hotel room, clothes. The Commission amended its 324 Forms in

November 1972 to include a line (now 20) for reporting barter and

trade revenue.

56 See paras. 165-181, infra.

57 Jd.

58 See note 26, swpra, for the appropriate language of Section 1.65.

74a

of any such violations. The petition was based on the

following excerpt from General Tires 1976 Annual Re-

port to shareholders (dated February 24, 1977): “such

[barter and trade] transactions. . were generally ac-

counted for on a memoranda basis, although the records

for such transactions are in a number of instances not

now complete. Noting the above language, plus the

fact that RKO’s accounting practices for barter and trade

transactions were then under review by the Special Re-

view Committee, Community suggested that RKO very

probably had not properly reported all of its barter and

trade transactions to the Commission on its Form 324

reports. If RKO had failed to report all of its barter and

trade transactions, Community argued that RKO was in

violation of the Commission’s rules. Community asked the

Commission to require RKO under Section 1.65 we correct

any inaccuracies in its Form 324 Reports.

37. RKO’s April 18, 1977. response opposed Commu-

nity’s petition. RKO claimed that Community had not

alleged any specific inaccuracies in RKO’s Form 324 Re-

ports. Thus, RKO argued, Community had indulged in

“sheer speculation” in assuming that RKO did not fully

and accurately report its barter and trade transactions.”

RKO further contended that it was immaterial whether

the records of RKO’s pre-1976 barter and trade transac-

tions were complete since Community had “made no show-

ing whatsoever impugning the completeness of the infor-

mation available to RKO at the time the Form 324’s were

filed, or as to the accuracy of the financial information

that RKO reported to the Commission.“ * In general,

RKO accused Community of seeking a “harassing and

5® Petition to Comply at 2.

% RKO Opposition to Petition for Order Requiring RKO General,

Inc. to Comply with Section 1.65 of the Commission’s Pules (RKO

Opposition II), April 18, 1977, at 2.

61 Jd. at 2-3.

75a

administratively disruptive fishing expedition.“ How-

ever, RKO did promise to provide the Commission with

the report of the Special Review Committee when it was

completed.“

E. The Special Report

38. The Special Report was issued on or about July 1,

1977. RKO filed a copy of the Special Report with the

Commission on July 19, 1977. In general, the Special Re-

port confirmed most of the allegations contained in Com-

munity’s two petitions. The Special Report covered “the

main categories of allegations made in the complaint filed

by the SEC, and also other matters developed by the

Special Review Committee in the course of its investiga-

tion.” ** Among the Special Report’s many conclusions

are the following: (a) General Tire and certain of its

subsidiaries engaged in various schemes and practices

that resulted in improper domestic political contributions;

(b) Aerojet, an RKO subsidiary, gave gratuities to mili-

tary and other government-connected personnel having

dealings with Aerojet; (c) General Tire and its affiliates

maintained and used improper secret and unrecorded

funds designed to avoid foreign currency exchange and

tax laws; (d) General Tire and its affiliates paid bribes

to foreign agents and officials not only to do business in

a country but also to keep competitors out; (e) through

the use of secret bank accounts, General Tire systemati-

cally overbilled its foreign affiliates; and (f) RKO did not

maintain adequate records concerning the amount or use

of consideration resulting from its barter and trade trans-

actions.”

62 Jd. at 5.

63 Jd. at 3 n.“.

* Special Report at 1.

* A summary of the Special Report’s findings is contained on

pages 2-17 of the Report.

76a

F. Joint Petition for Approval of Agreement

39. On April 19, 1978, before the Commission could

consider these pending pleadings, RKO, Community and

Dudley entered into a settlement agreement calling for

the assignment of the license for station WNAC-TV to

New England Television Corporation (NETV), an entity

created by a merger of Community and Dudley. On

August 30, 1978, the parties submitted a “Joint Petition

for Approval of Agreement” as well as an appropriate

assignment application contemplating the assignment of

the WNAC-TV license to NETV for a purchase price of

$54,000,000. The settlement agreement was made sub-

ject to certain conditions, including (1) a Commission

decision affirming the favorable conclusions of the ALJ

as to the basic qualifications issues designated against

RKO; (2) a Commission grant of RKO’s renewal appli-

cation for WNAC-TV; (3) a Commission holding that

RKO possesses the requisite qualifications to be a broad-

cast licensee; and (4) the issuance of a tax certificate

pursuant to Section 1071 of the Internal Revenue Code“

for the sale of WNAC-TV.

40. On October 6, 1978, petitions to deny the WNAC-

TV assignment were filed by Fidelity Television, Inc.

(Fidelity) and Multi-State Communications, Inc. (Multi-

State).“ Fidelity is a competing applicant for KHJ-TV,

Los Angeles, which is currently operated by RKO; Multi-

State is a competing applicant for WOR-TV, New York,

which is currently operated by RKO. Since both of those

latter proceedings had been conditioned on the outcome of

the Boston case,“ Fidelity and Multi-State claimed stand-

0 26 U.S.C. § 1071.

* Fidelity Petition to Deny Assignment Application and Com-

ments on “Joint Petition for Approval of Agreement” (Petition to

Deny), October 6, 1978; Multi-State Petition Pursuant to Section

1.580(i) (Petition), October 6, 1978.

88 See paras. 46, 47, 49 and 50, infra.

77a

ing to attack the assignment application for WNAC-TV.

Both parties in essence urged the Commission to avoid

taking any action which would prejudice their rights

against RKO in their respective proceedings. Fidelity

argued that the information in the Special Report cast

grave doubt on RKO’s basic and comparative qualifications

to be a Commission licensee. Consequently, Fidelity con-

tended, further hearings were required before RKO’s re-

newal and assignment applications could be granted.”

Multi-State added that the non-adversarial posture of the

Boston proceeding no longer assured a critical examina-

tion of RKO’s qualifications. Under these circumstances

Multi-State said it would not consider itself bound by the

findings to be made in the Boston proceeding.”

G. Further Commission Proceedings

41. On June 21, 1979, the Commission met in closed

session to consider Community’s Petition to Reopen and

the Joint Petition for Approval of Agreement.“ By Order

released June 28, 1979 (FCC 79-403), the Commission

directed the parties to file summaries of their positions

an¢ o present oral argument on the following questions:

(1) Is the record in this proceeding sufficient for the

Commission to make a judgment:

o Fidelity Petition to Deny at 5-6.

7 Multi-State Petition at 3-4. See also Multi-State Reply to Joint

Opposition to Petitions to Deny, November 7, 1978, at 2-4.

™ A “Joint Motion for Expeditious Disposition, Within Thirty

Days, If Possible, To Comport With Minority Ownership Policies”

was filed March 7, 1979, by NETV, Community and Dudley. This

motion is hereby denied. Although this proceeding has been un-

usually protracted, these matters have been handled as expeditiously

as possible consistent with the complexities of this particular case

and the Commission's responsibilities to deal with other cases.

7 Fidelity and Multi-State were invited to participate in this

phase of the Boston proceeding.

78a

(a) that RKO is qualified to remain the licensee of

Station WNAC-TV, Boston, Massachusetts; or

(b) that RKO is not qualified to remain the licen-

see of Station WNAC-TV, Boston, Massachu-

setts?

(2) In the event that the record is sufficient to make

either of the above judgments, what should that

judgment be?

42. Summaries of the parties’ positions were filed on

July 9, 1979, by RKO, Community, Dudley, NETV, Fidel-

ity, Multi-State and the Broadcast Bureau.

43. Oral argument was conducted on July 18, 1979,

before the Commission, en banc. Following oral argu-

ment the Commission concluded that, on the basis of the

record at that point, it could not find RKO qualified to

remain a broadcast licensee. At the same time the Com-

mission decided that it wanted further information from

the parties before it could decide what action should be

taken in the case. Accordingly, by Order released July 20,

1979 (FCC 79-453), the Commission directed that the

parties file responses to address the following matters:

(1) RKO General, Inc. (RKO) should make a particu-

larized proffer of specific evidence that it would

introduce, if given the opportunity, to mitigate the

findings and conclusions of the “Special Report“.

The proffer must be supported in all respects by

affidavits from persons with personal knowledge of

the facts alleged.

(2) All parties should submit proposed findings of fact

and conclusions of law regarding the matters set

forth in the “Special Report”. If a party believes

that the Commission should consider any other evi-

dence (exclusive of the mitigating evidence referred

to in paragraph (1) supra) that is not part of the

79a

record in this proceeding, that party should make

a particularized proffer of specific evidence that it

would introduce, if given the opportunity, and

should also indicate what conclusions the Commis-

sion should draw from such evidence. Any refer-

ences to facts outside the record must be supported

in all material respects by affidavits from persons

with personal knowledge of the facts alleged.

(3) All parties should submit proposed findings of fact

and conclusions of law regarding the nature of the

relationship between GTR [General Tire] and RKO

(including their officers, directors, and employees)

and the implications of such a relationship in eval-

uating the matters set forth in the Special Report.

These proposed findings of fact and conclusions of

law may be based on the entire record of this pro-

ceeding (including the Special Report) and on any

matter of which the Commission may take official

notice. If a party believes that the Commission

should consider any other evidence regarding the

GTR-RKO relationship that is not a part of the

record in this proceeding, that party should make

a particularized proffer of specific evidence that

it would introduce, if given the opportunity, and

should also indicate what conclusions the Commis-

sion should, draw from such evidence. Any refer-

enees to facts outside the record must be supported

in all material respects by affidavits from persons

with personal knowledge of the facts alleged.”

44. In the same July 20, 1979, Order, the Commission

reopened the record for the purpose of accepting into

evidence the Special Report, and Multi-State was formally

made a party for these further proceedings (Fideiity was

78 July 20, 1979 Order (FCC 79-453) at 2-3.

80a

already a party). In response to the Commission’s re-

quest, all of the parties, including Multi-State and Fidel-

ity, filed findings of fact and conclusions of law and reply

pleadings."* Based on these latest submissions, the Spe-

cial Report, the pleadings previously filed by the parties,

and all aspects of the evidentiary record,” this matter is

now ripe for decision.”

II. Discussion

45. Based on the record before us we are compelled to

find that RKO does not possess the requisite qualifications

to be a broadcast licensee for Channel 7, Boston. Before

discussing the merits of our decision, however, it is first

necessary to dispose of some procedural matters.

A. Preliminary Procedural Matters

46. At the outset we must resolve questions raised by

RKO concerning the status of Fidelity and Multi-State.

To resolve this matter, reference must be made to the

14 Id. at 2.

™ Proposed findings and conclusions were filed August 27, 1979,

respectively by RKO, Community, Dudley, NETV, Fidelity, Multi-

State and the Broadcast Bureau. Separate replies were filed Sep-

tember 24, 1979, by the same parties.

76 It should be noted here that we have already taken official notice

for this case of the record developed in the KHJ-TV proceeding.

RKO General, Inc., 20 FCC 2d 846, 848 (1969).

This text is long and has been trimmed here. Open the source document for the complete record.