Broadcast Law Blog : Broadcast Lawyer & Attorney : Davis Wright Tremaine Law Firm : Broadcast Law Blog : Seattle, Los Angeles, Washington D.C., New York, San Francisco, Shanghai

The FCC released a Notice of Apparent Liability for Forfeiture today, proposing a $10,000 fine against a public TV station in Los Angeles for requiring an appointment to view the station's public inspection file. This case shows how seriously the FCC takes the requirement of open and unfettered access to a broadcast station's public file.  An FCC agent visited the station's main studio twice without identifying himself as an FCC employee.  Both times, the station's security guard refused to let him see the station's public inspection file or speak with the station manager without an appointment.

On the third visit, the FCC agent identified himself as such and was allowed to view the station's public inspection file "after a thorough examination of the agent's badge and several phone calls to [station] personnel." 

The public inspection file was found to be complete. However, the station was fined $10,000 for "willfully and repeatedly" failing to make the public inspection file available.  The FCC stressed that "stations cannot require members of the public to make appointments to access a station's public inspection file."

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The FCC last week issued a decision that should make Buyers think twice in determining how sales of broadcast stations are concluded - especially in the days of $325,000 potential fines for indecency violations.  In the case decided last week, the Commission concluded that the licensee of a broadcast station was liable for fines for violations of the public inspection file rules - even though the violations occurred prior to a "long-form" FCC Form 315 application for transfer of control of the station.  In other words, the shareholder who owned the company and been responsible for the violations had, after the violations, sold the stock to new innocent parties who, under the decision, have to bear the costs of the violations.  The Commission did concede that, had the station been sold to a new company via an FCC Form 314 assignment of license, then the fine would not have been borne by the station buyers.

Thus, to fully protect themselves from any prior FCC violations, a sale would have to be conducted through assigning the FCC licenses to a new corporation, rather than by buying the stock of the current licensee.  However, there are often many business reasons that a sale is more advantageous as a transfer of the stock of the company, rather than through a sale of the assets to a new company.  For instance, Sellers of stock in C Corporations often have tax incentives for the sale of stock (e.g. to avoid depreciation recapture).  Thus Sellers often push for the sale of stock rather than the assignment of the license to a new company.  Buyers also have reasons for wanting a stock sale.  For instance, the old company may have certain contractual rights - to tower site leases on advantageous terms, to program contracts or to lines of credit - that are not assignable to a new company, and which buyers may find economically beneficial.  These and other business planning reasons may dictate that the sale be a stock sale, not an asset sale.  But buyers should beware and carefully do careful due diligence to insure that no hidden FCC liability may await when they purchase the stock of a company holding a broadcast station license. 

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