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When a problem arises with a station that could give rise to a fine, how long does the FCC have to act on that complaint and issue a fine?  How long must a licensee worry about that problem and whether it will result in a fine?  Does a sale cut off liability for a problem when the seller was the licensee?  Two cases released yesterday, one resulting in a fine and the other where one was canceled, help explain the Commission's policy.  The Communications Act says that the FCC cannot issue a fine (a "forfeiture" in FCC language) if the conduct occurred more than one year ago or before the beginning of the current license term, whichever is earlier.  In these two cases, the FCC was faced with broadcasters who had problems in their last license renewal term - one filed its renewal late, and the other was missing Quarterly Issues Programs lists in its public file.  In the first  case, the FCC on the same day granted a license renewal and issued a Notice of Apparent Liability proposing to fine a station for the late-filed renewal.  In the second case, the Notice of Apparent Liability for the missing QPIs was issued 3 days after the renewal grant.  In both cases, the actions giving rise to the fine occurred far more than one year before the date of the FCC's Notice of Apparent Liability.  In the case where the renewal grant and the Notice of Apparent Liability were issued on the same day, the FCC held that it could reach back to get the old misconduct, as the new license term had not yet begun when the NOA was issued.  But in the case where the Notice of Apparent Liability was issued three days later, the fine was thrown out, as that 3 day old license precluded the FCC from going after any conduct that was more than one year old.  So, if you get a renewal, you appear to be off the hook for conduct that occurred more than a year ago.  Three days made a $10,000 difference to this licensee. 

But selling a station does not take you off the hook - if you are within the time limits discussed above.  In the case where the fine was upheld, the licensee was no longer the station's owner, having sold it several years before.  The company argued that, as it was no longer a licensee, it was not subject to FCC jurisdiction, and could not be made to pay a fine.  The FCC rejected that assertion, finding that, because the actions took place when the company was an FCC licensee, and because the FCC acted within the time frames set out above, the fine was proper.  So if you sell a station while an FCC investigation into one of your actions is still pending and that action could lead to a fine, you can't totally relax and enjoy the sales proceeds, as the FCC can still come after you!

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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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