Stereo Broadcasters, Inc. v. F. C. C., 79-2412

• Decision Date: 22 April 1981
• Docket Number: No. 79-2412,79-2412
• Citation: 652 F.2d 1026,209 U.S.App.D.C. 229
• Parties: STEREO BROADCASTERS, INC., Domino Broadcasting, Inc., Appellants, v. FEDERAL COMMUNICATIONS COMMISSION, Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1026

652 F.2d 1026

209 U.S.App.D.C. 229

STEREO BROADCASTERS, INC., Domino Broadcasting, Inc., Appellants, v. FEDERAL COMMUNICATIONS COMMISSION, Appellee.

No. 79-2412.

United States Court of Appeals, District of Columbia Circuit.

Argued Dec. 16, 1980.

Decided April 22, 1981.

Roy R. Russo, Washington, D. C., with whom N. Frank Wiggins, Washington, D. C., was on the brief, for appellants.

David Silberman, Counsel, F. C. C., Washington, D. C., with whom Robert R. Bruce, Gen. Counsel, Daniel M. Armstrong, Associate Gen. Counsel, Keith H. Fagan and L. Andrew Tollin, Counsel, F. C. C., Washington, D. C., were on the brief, for appellee.

Before TAMM and MIKVA, Circuit Judges, and NICHOLS, ^* Judge, United States Court of Claims.

Opinion for the court filed by Circuit Judge TAMM.

Concurring opinion filed by Judge NICHOLS.

TAMM, Circuit Judge:

This is an appeal from the decision of the Federal Communications Commission to bar a proposed "distress sale" of a radio station license by Stereo Broadcasters, Inc., to a minority-controlled enterprise, Domino Broadcasting, Inc. Because we find that the Commission's decision was not arbitrary, capricious, or an abuse of discretion, we affirm.

I. BACKGROUND

Under a long-standing policy formulated by the Federal Communications Commission (FCC or Commission) and upheld by this court, Jefferson Radio Co. v. FCC, 340 F.2d 781, 783 (D.C.Cir.1974), radio station licensees whose licenses have been designated for revocation hearing, or whose renewal applications have been designated for hearing on basic qualification issues, are forbidden to transfer control of these licenses. Established on the premise that "a licensee ... has nothing to assign or transfer unless and until he has established his own qualifications," Northland Television, Inc., 42 Rad.Reg.2d (P & F) 1107, 1110 (1978), the policy stems from the Commission's concern for the continued effectiveness of the deterrent provided by, in the appellants' words, the "awesome potential for economic loss that attends deprivation of license." Brief for Appellants at 11. As the Commission has observed:

(W)here an evidentiary hearing has been designated on a renewal application or show cause order to determine disqualification questions, permitting the suspected wrongdoer to evade sanction by transferring his interest or assigning the license without hearing will diminish the deterrent effect which revocation or renewal proceedings should have on broadcast licensees.

Northland Television, Inc., 42 Rad.Reg.2d (P & F) 1107, 1110 (1978).

In May 1978, the Commission created an exception ¹ to this general policy with the issuance of its "Statement of Policy on Minority Ownership of Broadcasting Facilities," 68 F.C.C.2d 979 (1978) (Policy Statement). ² Under the Policy Statement, licensees whose licenses have been designated for hearing will be permitted to transfer their licenses, provided that the transfer is at a "distress sale" price to an entity with a significant minority ownership interest, and that the transaction meets other Commission requirements. Id. at 983. The purpose of the exception was set forth clearly as the promotion of minority ownership of broadcasting facilities. The Commission believed that the potential loss of deterrence resulting from the implementation of the exception would be outweighed by the administrative economies it would make possible. It noted that "(t)he avoidance of time consuming and expensive hearings will more than compensate for any diminution in the license revocation process as a deterrent to wrongdoing." Id.

The Commission's concern for deterrence was not wholly subordinated, however, to its desire for increased minority ownership. Realizing that, as the Commission later expressed it, "licensees generally cannot be permitted, far less encouraged, to knowingly play roulette with Commission licensing processes," Clarification of Distress Sale Policy, 44 Rad.Reg.2d (P & F) 479, 481 (1978), the Commission limited the distress sale exception to cases in which the hearings had not yet begun. The imposition of this limitation on the exception's availability will prevent a licensee from proceeding into the hearings, evaluating the evidence presented against him, and deciding on that basis whether to seek out a minority purchaser. In this manner the Commission believes that its goal of increased minority ownership can be promoted at a minimum cost to deterrence.

To secure further the promotion of its goals, the Commission decided to evaluate each case on its own merits, to determine whether the goals of the Commission will be advanced by permitting the exception in a particular case. For this reason, the Commission stated, it had decided for the present not to proceed with the formulation of a "rigid rule." Id.

Subsequent to its issuance of the Policy Statement, the Commission decided to expand distress sale eligibility to include those "transition" cases cases which were already in hearings at the time of the Policy Statement in which no initial decision had yet been issued. Announcing this decision in the Clarification of Distress Sale Policy, 44 Rad.Reg.2d (P & F) 479 (1978) (Clarification), issued on October 11, 1978, the Commission explained that such expansion "will work to further encourage minority ownership without adversely affecting the Commission's interest in preserving its sanctions against misconduct." Id. at 481. It continued to refuse the benefits of distress sale eligibility, however, to those licensees whose revocation proceedings or applications for renewal had already progressed to an initial decision.

The Commission applied the policy set out in the Clarification in Bartell Broadcasting of Florida, Inc., 45 Rad.Reg.2d (P & F) 1329 (1979), where it denied, for the reasons given in the Policy Statement and the Clarification, the application for distress sale eligibility made by a licensee whose renewal application had proceeded to an initial decision. Subsequently, Stereo Broadcasters, Inc., (Stereo) applied for permission to make a distress sale, despite the fact that its application for license renewal had already progressed to an unfavorable decision by an Administrative Law Judge (ALJ) at the time of the Policy Statement. ³ Again reciting the reasoning of the Policy Statement and Clarification, the Commission denied distress sale eligibility. Stereo Broadcasters, Inc., 74 F.C.C.2d 543 (1979), Joint Appendix (J.A.) at 43. Stereo and Domino Broadcasting Company appeal from this order.

II. DISCUSSION

Appellants contend that it is "arbitrary, capricious, (or) an abuse of discretion" ⁴ for the Commission to distinguish between transition cases on the basis of whether an initial decision has been issued. Moreover, they believe that the factors involved in the formulation of the distress sale policy, as set forth in the Policy Statement and the Clarification, actually support Stereo's application for permission to engage in a distress sale. Thus, appellants do not challenge the distress sale policy itself, but only the Commission's application of the various factors to their case.

Of the three factors which figure in the various Commission pronouncements promotion of minority ownership, deterrence, and administrative economy only two are at issue here. There is no controversy surrounding the minority ownership question in this case. The proposed transferee, Domino Broadcasting Company, is under black ownership; the transfer would therefore result in an additional license controlled by minority owners.

As to administrative economy, appellants argue that even though the hearings leading to the initial decision have been completed, substantial economies may still be realized in this case through the avoidance of a possible appeal of the initial decision and the avoidance of the comparative hearing required to fill the vacancy should Stereo be disqualified. While not addressing this issue squarely, the Commission seems to take the position that such economies simply do not fall within the scope of the policy in question. The administrative resources conserved by the policy are those connected with the certain hearings on renewal and revocation issues, not those connected with "speculative" appeals. Because the former savings are not available in this case, "an important basis" for permitting distress sales is removed. Stereo Broadcasters, Inc., 74 F.C.C.2d at 546, J.A. at 46. The Commission rejected this identical contention in Bartell, 45 Rad.Reg.2d (P & F) at 1332. ⁵

We believe that the disposition of this case depends on our review of the related considerations that the Commission groups together as "deterrence." The Commission believes that once an initial decision has been issued and, as here, the Administrative Law Judge has decided against renewing the license, the "integrity" of the administrative process would be weakened by permitting a distress sale. Stereo Broadcasters, Inc., 74 F.C.C.2d at 545, J.A. at 45. It analogizes its decision not to allow such sales to the decision of the judicial system not to allow plea bargaining after conviction. Although the analogy is imperfect, it does communicate the Commission's view of the values at stake in this case. As we understand it, the idea is that the threat of a hearing and the hearing process itself would become less effective as deterrents if the "awesome loss" associated with revocation or non-renewal of a license were to be neutralized in this fashion.

A related but distinct consideration arises from the Commission's reluctance, in general, to grant such relief where "possible wrongdoers might be benefitted substantially thereby" because "such a benefit would be inconsistent with the public interest." Second Thursday Corp., 25 F.C.C.2d 112, 113 (1970) (citation omitted). The Commission believes that this point takes on special importance where an ALJ has found the "possible wrongdoer" unworthy of...