Assignments and Transfers

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In an FCC decision fining a TV station $10,000 for failing to include 15 Quarterly Issues Programs lists in its public inspection file, the FCC refused to reduce the proposed liability based on an intervening “long-form” transfer of control followed by a short-form assignment of license of the station. Thus, even though the station was no longer controlled by the same individuals who controlled the station at the time of the violation, and even though the licensee company was different, the fine still applied.

The Media Bureau decision looked at precedent that has held that a transfer of control of a station, even a “long-form” application on FCC Form 315 that is subject to public notice and a 30 day waiting period during which the public can comment on the change in control of the licensee, does not excuse the licensee for violations of the FCC’s rules that occurred prior to the transfer. We wrote about a similar holding in another case last year. The FCC’s view is that, when you are buying the stock of a company, you acquire not only the assets of the company but also its obligations, including any potential FCC violations. This is different from an assignment of license filed on a Form 314 (also a “long-form” application subject to a 30-day public comment period) – where a buyer just buys the assets through a new company and does not assume the liabilities – a difference that the FCC has recognized in these cases. In the decision reached today, the licensee attempted to exploit that different treatment – but the FCC rejected the distinction.
Continue Reading Fine for Missing Quarterly Issues Programs List Not Excused by Intervening Transfer of Control of TV Station – Buy Assets Not Stock to Avoid Assuming Prior Owner’s FCC Liabilities

The potential perils of foreclosing on a radio station were evident in a Consent Decree released by the FCC’s Media Bureau yesterday, agreeing to an $11,000 penalty to be paid to the FCC U.S. Treasury before a station could be sold by a receiver to help pay off the debts of an AM radio station owner. The fine was imposed both for an unauthorized transfer of control of the licensee of the station, and because of the failure of the receiver appointed by the Court to keep the FCC fully appraised of the status of the control of the licensee company while FCC approval for the receiver’s control of the station was still pending before the FCC. What this case really shows is that in any foreclosure on a broadcast station where there are competing creditors, an uncooperative debtor or anyone else who could possibly contest the process, anyone attempting to collect obligations owed by a broadcaster needs to proceed very carefully, keep the FCC fully informed of the entire process surrounding the exercise of the creditor’s rights, and be advised by an attorney or advisor very familiar with FCC process in addition to counsel in the local court proceedings. Plus, local counsel and FCC counsel need to work together at each stage of the process to make sure that the proper approvals are obtained from the FCC before the local court actions are implemented.

This case demonstrates, like a case we wrote about last week, the complicated interplay between the actions of local courts enforcing private actions and the FCC enforcing the Communications Act. In this case, the orders of the local courts and other authorities dealing with the receivership of station assets and the stock of the licensee company changed over time. The failure to keep the FCC appraised of those changes really led to the $11,000 fine. The receiver initially asked that he be approved to become the “assignee” of the station, as the court order appeared to indicate that he would receive the assets of the debtor’s estate. In the FCC’s eyes, an “assignment of license” is when the assets and license of a station change hands, so that a new licensee is now the operator of the station. Here, later action of the local court changed the nature of the action to one where the receiver, instead of getting the assets of the debtor, would instead be receiving its stock. Where the licensee remains the same, but a new owner takes control, as was the case here where the receiver took control of the stock of the licensee, the FCC deems that to be a “transfer of control.” That was significant to the FCC in this case.
Continue Reading Broadcast Creditors Beware – $11,000 Fine Imposed for FCC Reporting Shortcomings in an AM Foreclosure Action

How far can a court go in ordering broadcasters to comply with the terms of a contract?  By trying to get a court to enforce a contract signed with a broadcaster, is the suing party infringing on a licensee’s control over its broadcast station license? These questions are addressed in a letter that the FCC released this week, sent to a federal district court in connection with a dispute between two big TV companies over the termination of a Joint Sales Agreement between TV stations in Georgia.  In the case, Media General is seeking to enforce a JSA against a TV station in Augusta that had been owned by Schurz Communications, which was recently acquired by Gray Television.  As a condition of the sale of Schurz to Gray, to obtain FCC approval, the parties agreed to terminate the Augusta JSA.  Media General sued, and on February 26 it obtained an injunction from a Georgia state court barring Gray from operating the station or selling the station’s spectrum in the upcoming incentive auction.  The FCC’s letter states that it believes that the courts cannot order the relief that Media General seeks without infringing on the licensee’s rights to control the station.

While there have been procedural developments in the underlying dispute dealing with the court that will hear the case, it is the substance of the FCC’s letter that is important.  The FCC’s conclusion was based on two findings.  First, it found that Media General could not enforce the JSA because its termination was a requirement of the FCC in connection with the sale of Schurz – so a court cannot order the station to violate the FCC’s own order.  But more fundamentally, the FCC determined that Media General’s efforts infringed on the obligation under Section 310 of the Communications Act that the licensee (now Gray) maintain control over its station unless the FCC has approved a transfer of that control.  In the FCC’s eyes, control includes control over the programming of the station – which would be infringed by the JSA.  It also includes control over the ultimate disposition of the station, which would be infringed by any order forbidding its participation in the incentive auction.  According to the FCC, an element of control of a station is being able to decide whether or not to sell it.  While the FCC acknowledged that Gray and/or Shurz might be liable to Media General for monetary damages and penalties for any breach of the contract provisions, Media General could not get a court to make the station comply with these alleged obligations.  This is not the first time that the FCC has made such a pronouncement.
Continue Reading FCC Says No to Court’s Enforcement of Contractual Rights that Limit Broadcast Licensee’s Control Rights – What Does this Mean for Broadcast Contracts? 

In a decision released earlier this week, the FCC dismissed an application for a new noncommercial FM station based on a change in the majority of the applicant’s board of directors within a one-year period after the application was filed.  The change was deemed a major change in ownership, which the FCC rules says requires the assignment of a new file number – essentially meaning that the application is treated as a new application received after the filing window for the new FM stations was closed and was therefore dismissed.  The decision was one made by the full Commission which reversed a decision of its Media Bureau.  The Bureau had granted the application following a settlement with other mutually exclusive applications. The full Commission decision to instead dismiss the application was not made without some angst, as two of the Commissioners concurred in the decision but urged the FCC to change its rules before the next noncommercial filing window to avoid a similar result in the future.  But the decision does raise some questions about just what constitutes a change in control of a noncommercial broadcaster.

In this decision, the FCC found that two changes in the majority of the members of the board of directors of the applicant, where a majority of the board members changed in a period of less than one year, constituted a major change in ownership of the applicant requiring the assignment of a new file number to the application and its dismissal.  The decision contrasted this case with those of other noncommercial applicants in another new application filing window.  In that other window, the FCC granted blanket waivers of the major change rule to applicants that had a change in a majority of their boards over a much longer period of time while their applications slowly made their way through the Commission’s processes.  It was the difference between the relatively sudden changes in ownership in less than a year in the case decided this week as opposed to the more gradual changes in the other cases that seemed to make the difference in the outcome.  But the two Commissioners who separately commented on the case asked if this distinction really should make any difference, especially as the changes did not appear to be the result of any takeover of the organization, but instead were merely changes that occurred in the normal course of operation for this volunteer organization.
Continue Reading Changes in the Board of Nonprofit Corporation Doom FCC Application for New FM Station – Addressing Control Issues in Noncommercial Broadcasting

In a recent decision, the FCC made clear that when there is a transfer of control of a station through the sale of the stock of the licensee company, the new owners are not absolved of any FCC violations that may have taken place when the old owners controlled the company. In this case, the old owners had various main studio, public file and issues programs lists issues, along with some compliance problems with late-filed Children’s Television Reports. While the FCC cancelled a fine on the licensee for reasons unrelated to the transfer of the stock (issuing an admonition instead), it went out of its way to emphasize that a new owner of the stock of a licensee company remains liable for the conduct of a predecessor controlling owner. The sale of stock, and the FCC’s approval of that sale, does not remove the threat of fines for violations that occurred when the old owner still controlled the company.

We wrote here about a similar warning in connection with a case decided several years ago. Assignments of license, where the FCC approves the sale of a station to a new licensee, seemingly do provide the new owner with some degree of protection against problems with FCC compliance that occurred during the watch of the old owner – but that is because the licensee has changed. (Note however, as we wrote here, if a compliance issue was discovered by the FCC before the sale, it is possible that the FCC could go after the old licensee for a fine, even after a sale has been completed). But, where the licensee remains the same, the FCC looks to the licensee company for compliance, regardless of who owns that company.
Continue Reading Buyers of Broadcast Stations Through Stock Transfer Beware – Liability for Fines of Prior Owner Can Still be Imposed After the Transfer

In Friday’s Federal Register, the FCC published a summary of the Commission’s Notice of Proposed Rulemaking looking to revise its policies regarding the ownership of broadcast stations by non-US citizens setting the date for comments on its proposal of December 21, with Reply Comments being due by January 20.  The FCC two years ago issued a Declaratory Ruling confirming that it would allow broadcasters to have foreign ownership (in a licensee’s parent company) of greater than 25%, overturning what was widely viewed as the Commission’s prior reluctance to approve that degree of foreign ownership of broadcast stations (see our article here for a summary of the FCC’s 2013 action).  But that decision left many unanswered questions, as the Commission decided to proceed on a case-by-case basis in reviewing any requests for approval under the new rules.  When it took almost two years for Pandora to get approval for its acquisition of a broadcast station, almost a year in processing a request under the 2013 ruling (see our article here on the filing of the Pandora petition), when Pandora did not even think that it exceeded the 25% foreign-ownership threshold but it could not prove its compliance based on the FCC’s 40 year old rules setting out the procedures used to assess the foreign ownership of broadcast stations, it was clear that some changes had to be made.  So, in approving the Pandora deal in May, the FCC said that it would conduct a further review of its rules regarding foreign ownership, a commitment that it moves to fulfill by the issuance of this Notice of Proposed Rulemaking.

The NPRM suggests that the FCC will use for broadcasting, with some modifications, the procedures that it uses in assessing foreign ownership of non-broadcast FCC licensees.  While there are many details and nuances in its proposals, the FCC will still need a Petition for Declaratory Ruling to approve foreign ownership above 25% of a parent company of a broadcast licensee (foreign ownership of the licensee itself is flatly prohibited if it exceeds 20%). But it now proposes to adopt the non-broadcast presumptions that, when the FCC approves a foreign owner of more than 5% of a corporation, that approved owner can go up to 49% ownership without further FCC approval.  Similarly, if a foreign owner is approved in a control position, that owner would be able go to 100% without further approval.  But, on a practical level, perhaps more important was the FCC proposals about the mechanics of tracking foreign ownership.
Continue Reading FCC Sets Comment Dates on Proposal to Relax Restrictions on Foreign Ownership in Companies Holding US Broadcast Station Licenses – What Is the FCC Proposing?

A decision that noncommercial broadcasters should note was released by the Commission last week. The decision was one that upheld a 2012 consent decree where, to resolve objections against the sale of a noncommercial radio station owned by the University of San Francisco, the Media Bureau imposed a fine of $50,000 for a pre-sale LMA which paid the licensee more than the costs of the operation of the station (we wrote about that case and a similar case resolved earlier this year, here). While last week’s decision did not tread any new ground, the fact that the full Commission upheld a determination that a $50,000 fine was an appropriate sanction for a noncommercial station that entered into an LMA that paid it more than its out-of-pocket expenses reinforces the importance of assessing the consideration paid to any noncommercial broadcaster for the sale of programming time on their stations. A noncommercial station can accept funds sufficient to reimburse it for the costs of its operations during the time that the program aired, but it cannot receive more than that reimbursement in the way of compensation for programming time.

As we wrote in January following the release by the FCC of a similar decision, with a similar fine, in another case where a noncommercial licensee was paid more than its expenses by an LMA programmer, the FCC does not want noncommercial stations to be looked at as revenue generating operations for their licensees. If the station is paid for programming, any payments should simply cover station expenses. Last week’s decision looked at other issues too.
Continue Reading FCC Upholds $50,000 Penalty for Noncommercial LMA Where Licensee Paid More than its Operational Expenses

Last night’s Super Bowl didn’t offer much in the way of excitement on the field, as the game was seemingly over by the end of the first half.  But, for the last decade, the half-time show itself may offer some anxiety to the stations carrying the game.  10 years ago, Janet Jackson had her infamous Super Bowl wardrobe malfunction incident which started a firestorm at the FCC for the next several years, as it ignited  many calls to more aggressively regulate indecency on the airwaves.  As a result of the incident, a number of fines were meted out for this program and to many others that aired soon thereafter.  But, in reality, what the incident did was to highlight just how difficult it is for the FCC to enforce any sort of indecency rules, as the issue raised at that time continue to be debated at the FCC right up to the present day.

As we have written before, the FCC policy that was applied to the Janet Jackson incident is one that is still in a state of limbo, as the FCC has issued a request for public comment on whether it should limit its enforcement to cases where there are egregious violations of the indecency policy rather than those that last a fraction of a second, as was the case in the Janet Jackson Super Bowl incident.  This need for reexamination arose after the Supreme Court decided that the FCC’s crackdown on any indecency, even “fleeting expletives”, was not adequately explained as it departed from prior FCC policy that understood that, on occasion, mistakes happen.  As long as the error causing something arguable indecent to be broadcast wasn’t repeated or planned, there would be no substantial penalty.  But even the common sense reform which essentially stepped back to the prior policy of recognizing that mistakes happen gave rise to many protests that the FCC should not back down on its tough indecency enforcement. 
Continue Reading Ten Years After Janet Jackson’s Super Bowl Clothing Malfunction, FCC Indecency Rules Remain in Limbo