Flagstaff Broadcasting Foundation v. F.C.C.

• Decision Date: 04 December 1992
• Docket Number: No. 90-1587,90-1587
• Citation: 979 F.2d 1566
• Parties: FLAGSTAFF BROADCASTING FOUNDATION, Appellant, v. FEDERAL COMMUNICATIONS COMMISSION, Appellee, Flagstaff Broadcasting Partnership, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1566

979 F.2d 1566

298 U.S.App.D.C. 356

FLAGSTAFF BROADCASTING FOUNDATION, Appellant, v. FEDERAL COMMUNICATIONS COMMISSION, Appellee Flagstaff Broadcasting Partnership, Intervenor.

No. 90-1587.

United States Court of Appeals, District of Columbia Circuit.

Argued Sept. 16, 1992.

Decided Dec. 4, 1992.

As Amended Dec. 4, 1992.

Order Filed Dec. 4, 1992.

Steve Bachmann with whom William P. Quigley was on the brief, for the appellant.

Robert L. Pettit, Gen. Counsel, F.C.C., with whom Daniel M. Armstrong, Associate Gen. Counsel, F.C.C., and Gregory M. Christopher, Counsel, F.C.C., were on brief, for the appellee. Stephen R. Bell, with whom Lauren H. Kravetz, was on the brief, for the intervenor.

Before: MIKVA, Chief Judge, EDWARDS and RUTH BADER GINSBURG, Circuit Judges.

Opinion for the Court filed by Chief Judge MIKVA.

MIKVA, Chief Judge:

Appellant Flagstaff Broadcasting Foundation ("Foundation") appeals the Federal Communications Commission's ("FCC's") denial of its application to build a new FM radio station in Flagstaff, Arizona on the grounds that the FCC ran afoul of this Court's holding in Bechtel v. F.C.C., 957 F.2d 873 (D.C.Cir.1992), by failing to provide a reasoned basis for applying its "integration" policy in this case. Foundation contends that the Commission's adamant refusal to even consider its proposal or respond to its challenges is arbitrary and capricious, given the Commission's failure to ever review its "integration" policy in the 25 years since its adoption.

We agree. While Bechtel did not require the Commission to abrogate its current requirement of "integration" of ownership into management, the Commission was certainly required to do more than it chose to do here. Bechtel made clear that the Commission is obligated to confront challenges to its integration policy, and, in view of documented changes in factual and legal circumstances, to articulate reasons why, despite those changes, the policy should be applied to a particular case. Bechtel, 957 F.2d at 881-82. Here, not only did the FCC refuse to entertain Foundation's challenges, the Commission failed to provide even a single reason for its continued adherence to the "integration" criterion under the circumstances presented. Thus, consistent with our decision in Bechtel, we remand to the FCC so that Foundation's claims may receive proper attention and an adequate response.

I.

"Integration" is one of six criteria the Commission applies when considering competing applications for a commercial radio license. These criteria were developed over 25 years ago when the FCC issued its 1965 Policy Statement on Comparative Broadcast Hearings, 1 F.C.C.2d 393 (1965) ("Policy Statement "). The Policy Statement was intended to help guide the FCC in its congressionally mandated duty to determine which of competing applications for radio licenses would best serve "the public interest, convenience and necessity." 47 U.S.C. § 309(a). The FCC stated in the Policy Statement that the integration criterion was intended to merge "legal responsibility and day-to-day performance," as well as promote "greater sensitivity to an area's changing needs" and "programming to serve those needs." 1 F.C.C.2d at 395-96. These are the only stated objectives of the integration criterion, and the Commission has never elaborated on them further.

In January 1989, Foundation submitted an application to build and operate a new FM radio station in Flagstaff, Arizona. Foundation is a non-stock, not-for-profit corporation formed in the District of Columbia. It has five principals, all of whom are low to middle-income women of color who have devoted most of their adult lives to community activism and civic duty. They have all held management positions in community-related organizations and have tackled issues ranging from affordable housing, hunger, and homelessness, to Native American rights and substance abuse. Three of the women are long-time residents of Flagstaff.

In their application to the FCC, these women proposed to serve not only as owners of the radio station, but also as the Board of Directors, bearing exclusive responsibility for the establishment of all station policies, including those relating to operation, programming, personnel, sales, and all other station business. As the Board, they would employ staff, and experienced management-level personnel, to implement the policies established by the Board. The management-level personnel would be directly supervised by the Board, and their implementation of Foundation policy would be subject to regular review. And although none of the principals planned to withdraw from their current employment, all of them testified that they would dedicate as much time as necessary to fulfill their responsibilities, and would even cede their civic activities, if needed, to fulfill their obligations as Board members.

The FCC denied Foundation's application for a radio license and granted the application of the intervenor in this case, Flagstaff Broadcasting Partnership ("Partnership"). The principal reason Partnership won the license was because it received a 100% "integration" credit while Foundation received no integration credit at all. According to Commission integration rules, a station owner is "integrated" into management when her involvement amounts to "full-time active participation in day-to-day operations." Berryville Broadcasting Co., 70 F.C.C.2d 1, 6-7 (Rev.Bd.1978). The Administrative Law Judge determined that Foundation's principals would not be "integrated"" since they would serve as directors rather than full-time managers.

After the Review Board declined to set aside the decision rendered by the ALJ, Foundation applied for review by the Commission. Foundation objected to the fact that the attributes of its principals were being "totally and rigidly excluded from consideration" even though its application was wholly consistent with the stated goals of the integration policy. Despite Foundation's protests, the Commission refused to consider the merits of Foundation's proposal, and, in routine fashion, affirmed the grant of the radio license to Partnership. Foundation seeks review of the Commission's decision in accordance with section 704 of the Administrative Procedure Act.

Foundation argues that although the goals of integration (accountability and sensitivity) may be laudable, the rigid application of the criterion to this case was arbitrary, capricious, and inconsistent with this Court's decision in Bechtel v. F.C.C., 957 F.2d 873 (D.C.Cir.1992). In response, the FCC denies that its decision was improper, and argues that it was merely applying established policy--an action that does not require an elaborate explanation or justification. Moreover, the FCC contends in its brief that this case should be distinguished from Bechtel, because Foundation never claimed that the integration policy was "irrational" and only urged the Commission "as a matter of sound policy to do something it had not done before." In the Commission's view, Bechtel simply stands for the proposition that the FCC cannot ignore a well-grounded argument that the Commission is proceeding irrationally. Since Foundation failed to advance a specific charge of irrationality to the Commission, the FCC believes that Bechtel has no relevance here. To settle this question, a closer review of the claims presented in Bechtel is warranted.

II.

Susan Bechtel, the appellant in Bechtel v. F.C.C., challenged the FCC's denial of her application for a new radio station, and "asked the Commission to explain its continued adherence to the integration criterion" in light of regulatory changes that have occurred since 1965, and consider whether her proposal "to build a station that would serve 25% more people and to hire a professional station manager to run it would serve the public interest better than her competitors' integrated proposals." Bechtel, 957 F.2d at 880.

The first regulatory change described by Ms. Bechtel occurred in 1981, when the Commission decided to exempt passive owners from the integration calculation if they agreed to exert no influence over the licensee. See Anax Broadcasting Inc., 87 F.C.C.2d 483, 488 (1981). After that change in policy, applicants began to receive 100% integration credit even when only a fraction of total ownership was actually represented in management. Then, in 1982, the Commission made another significant change to integration policy by abrogating its long-standing rule that licensees were required to operate their stations for at least three years, and began to permit licensees to sell their stations without a hearing after operating them for only one year. See 47 C.F.R. § 73.3597(a).

Ms. Bechtel argued that these developments, taken together, seriously undermined the original intent of the integration policy, which was to ensure that integration proposals would be "adhered to on a permanent basis." See Policy Statement, 1 F.C.C.2d at 395 n. 6. She pointed out these new regulations produced "shotgun marriages of the most tenuous kind" between people with capital and people promising to run a station full time. See Bechtel, 957 F.2d at 880. She further explained that these arrangements never last for long. "Lured by the prospect of the quick profits to be made from selling the station after a year, when its market value often far exceeds the costs sunk into it," the original licensees sell their stations as soon as possible to professional broadcasters who are not bound by the integration requirement. Id. Consequently, Ms. Bechtel argued, virtually all radio stations are now operated by hired managers and absentee owners, in clear contravention of the stated purposes of the Commission's integration policy.

After explaining her view of these regulatory changes, Ms. Bechtel asked the Commission to explain its reasons for continuing to apply the integration criterion, and requested the Commission...