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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1982
- **Citation:** 457 U.S. 1119

## Text

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 T

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385008_1599%3A2. Public record. Not legal advice.