**DA 07-1698**

**Released: April 13, 2007**

Margaret L. Tobey, Esq.

Morrison and Foerster LLP

2000 Pennsylvania Avenue, N.W.

Suite 5500

Washington, DC 20006

J. Steven Rich, Esq.

Paul, Hastings, Janofsky & Walker LLP

875 15^th^ Street, N.W.

Washington, DC 20005

# Re: Application for Renewal of License

> KAZA-TV, Avalon, California
>
> File No. BRCT-20060811ARB
>
> Facility ID No. 29234

Counsel:

On November 30, 2006, NBC Telemundo License Co. ("NBC Telemundo") filed
an Informal Objection, which it supplemented on December 8, 2006,
opposing the license renewal application of Pappas Southern California
Licensee, LLC ("Pappas"), licensee of Station KAZA-TV, Avalon,
California. Both Pappas and Station KAZA-TV's primary program supplier,
Mexican corporation TV Azteca, S.A. de C.V. ("TV Azteca"), filed
oppositions on or about January 11, 2007, and NBC filed a Consolidated
Reply to Oppositions on March 7, 2007. For the reasons set forth below,
we deny the Informal Objection.

*Background*. NBC Telemundo argues that TV Azteca lacks the character
qualifications to hold a cognizable interest in a broadcast licensee as
a result of various securities violations and anticompetitive conduct
occurring in Mexico. The allegation of securities law violations stem
from a related-party transaction between TV Azteca's cell phone
subsidiary, Unefon, and a private entity created by TV Azteca's Chairman
of the Board of Directors and controlling shareholder, Ricardo Salinas
Pliego.[^1] NBC Telemundo contends that TV Azteca filed false reports
with the U.S. Securities and Exchange Commission ("SEC"), as well as
made statements to analysts and the public, that allegedly concealed Mr.
Pliego's involvement in the transaction.

NBC Telemundo states that, as a result of these actions, shareholders
commenced a class-action lawsuit in late 2004, and the SEC subsequently
filed suit for violations of securities laws, including civil fraud and
insider trading. According to NBC Telemundo, the Mexican Banking and
Securities Commission also commenced a regulatory action in January
2005, and imposed \$2.3 million in fines. NBC Telemundo further states
that, "according to published reports, Mexican Finance Secretary
Francisco Gil Diaz asked prosecutors to bring criminal charges against
Salinas for his sale of TV Azteca shares based on inside
information."[^2] NBC Telemundo alleges that, in response to the SEC
charges and the shareholder suit, Mr. Pliego caused "the board of
directors of TV Azteca to vote to delist the company from trading on the
New York Stock Exchange as of July 18, 2005,"[^3] and that Mr. Pliego
and other TV Azteca principals avoided U.S. travel to prevent service of
process. On September 14, 2006, the SEC filed a consent decree settling
the securities-related charges in exchange for payment of \$8.5 million.
The consent decree further enjoined TV Azteca and Mr. Pliego from future
violations of certain provisions of the Securities Act of 1934, and
barred Mr. Pliego from serving as an officer or director of a U.S.
public company for a period of five years, except under certain limited
circumstances. The shareholder action remains pending.

With respect to the allegation of anticompetitive conduct, NBC Telemundo
explains that it has sought to expand its operations in Mexico by giving
"Mexican entities the opportunity to purchase time on Telemundo's
networks in the United States," and by pursuing joint ventures in
Mexico, including plans to build a studio in Mexico and to establish a
Mexican television network.[^4] On August 17, 2006, TV Azteca filed suit
in the United States District Court for the Southern District of Florida
alleging that it had an exclusive "image" license with respect to the
actor Alan Tacher, whom NBC Telemundo had hired as the host of its new
television show *Quinceanera*. According to NBC Telemundo, TV Azteca
subsequently filed a complaint in the Fifth Civil Court of Mexico City
seeking to enjoin production of *Quinceanera*. NBC Telemundo alleges
that none of the defendants in the U.S. action were served with the
complaint, and that TV Azteca did not inform NBC Telemundo or the U.S.
District Court of the pending action in Mexico. NBC Telemundo further
states that "\[a\]t a September 5, 2006, status conference, TV Azteca,
through its counsel, falsely informed the court that TV Azteca and
Tacher were engaged in settlement discussions and requested a
continuance of the preliminary injunction hearing."[^5]

According to NBC Telemundo, TV Azteca acquired its desired relief in the
Mexican court in the form of an *ex parte* order while the U.S. case was
pending. TV Azteca then allegedly acquired two additional *ex parte*
orders from the Mexican court, one authorizing service of process
outside normal business hours, and a second "authorizing the use of
public force (i.e., official police) to protect the court clerk when he
attempted to serve the order."[^6] NBC Telemundo alleges that TV Azteca
acquired these orders without notice to it, the production company
responsible for *Quinceanera*, or the U.S. District Court. NBC Telemundo
maintains that TV Azteca, nevertheless, went beyond the specific
authorization provided in the *ex parte* order. NBC Telemundo states
that Auxiliary Mexico City Police and TV Azteca's private security
employees arrived at the studio where *Quinceanera* was being produced
to serve the order and halt production. In addition to the law suits
involving the production of *Quinceanera*, NBC Telemundo cites other
examples of alleged intimidation to exclude competition in Mexico,
including the filing of a criminal complaint to prevent GE Mexico from
extending a lawful loan to a Mexican television station.

In its Supplement to Informal Objection, NBC Telemundo states that
"nothing in its filing raises any question about the qualifications of
Pappas Telecasting or any of its principals to hold an FCC license."[^7]
However, it maintains that TV Azteca's interest in Pappas is cognizable
for purposes of determining compliance with the broadcast multiple
ownership rule since Azteca International, a subsidiary of TV Azteca,
acquired an option to purchase Station KAZA-TV for a total purchase
price of \$250 million; loaned Pappas \$129 million; and entered into a
Local Marketing Agreement with Pappas and Station KAZA-TV. NBC Telemundo
states that since TV Azteca's interest is cognizable, its character is
relevant to this proceeding. NBC Telemundo argues, however, that the
Commission could grant the license renewal application conditioned upon
"elimination of TV Azteca's cognizable interest in the Station by a date
certain through the termination of the LMA, the elimination \[TV
Azteca's\] EDP interest and elimination of the Azteca affiliation."[^8]

Pappas responds that, even were TV Azteca's interest in Station KAZA-TV
cognizable, the "Commission has never before applied the broadcast
character policies to an entity that has only a creditor/program
supplier relationship with a licensee."[^9] Pappas further states that
the securities violations alleged by NBC Telemundo are not the "type\[\]
of violation that the Commission has said it will normally consider
under its character policies," and that the alleged violations at issue
were settled by consent decree and, thus, cannot be considered in
evaluating TV Azteca's character.[^10] With respect to the alleged
anticompetitive conduct occurring in Mexico, Pappas states that the
media reports upon which NBC Telemundo relies, even if true, do not
indicate that the activities were a crime or other form of misconduct
under Mexican law, and that such a determination is not within the FCC's
jurisdiction and expertise. Pappas states that, in any case, neither the
alleged securities violations nor the alleged misconduct in Mexico are
"so egregious as to shock the conscience" and, thus, neither allegation
justifies Commission intervention absent adjudication in the proper
forum.[^11]

TV Azteca argues that NBC Telemundo, by filing the Informal Objection,
is seeking to bar it from "offering a competitive Spanish-language
television network in the U.S." because of problems NBC Telemundo has
experienced in establishing a new television network in Mexico.[^12] TV
Azteca contends that its relationship with Pappas as a program supplier
and debt holder does not provide a strong jurisdictional basis to
redress the alleged competitive imbalance between the U.S. and Mexican
television markets. TV Azteca states that the allegations raised by NBC
Telemundo are not cognizable under the Commission's character policy
because "each involves unadjudicated conduct," is not the kind of
conduct the Commission has stated would be considered under the
character policy, and "is supported only by hearsay."[^13] TV Azteca
states, in particular, that the \$2.3 million fine imposed by the
Mexican Banking and Securities Commission is currently under *de novo*
review by the Mexican Federal Tax and Administrative Justice Court. TV
Azteca concludes that there is "no rational basis for NBC's insistence
that the Commission interject itself into the various ongoing private
disputes between the parties that are centered in Mexico."[^14]

In its reply, NBC Telemundo argues that "Pappas never reported \[TV
Azteca's\] attributable interest to the Commission, as required by the
rules, and TV Azteca has never filed the required ownership reports
apprising the Commission of the nature and extent of its attributable
ownership interest in \[Station KAZA-TV\]."[^15] NBC Telemundo states
that TV Azteca has also failed to report required ownership information
to the SEC, which it claims is "strikingly similar to TV Azteca's
failure to report its attributable interest in \[Station
KAZA-TV\]."[^16] NBC Telemundo reiterates that TV Azteca's character
qualifications may be reviewed by the Commission because it holds a
cognizable interest in Station KAZA-TV under the equity/debt plus
attribution standard.

NBC Telemundo contends that the securities charges involve fraudulent
statements to governmental authorities and, thus, can be considered even
if the charges are civil and not criminal. NBC Telemundo further argues
that the policies established in the 1986 *Character Policy Statement*
are meant as a guide and that, even though the Commission does not
generally consider misconduct that has been settled by consent decree,
it has the discretion to consider such conduct if the circumstances
warrant. NBC Telemundo argues that the Commission should exercise its
discretion in this instance because of statements made by TV Azteca
during and after the SEC investigation, and because "TV Azteca has
exhibited a pattern and practice of making misrepresentations to and
failing to file required disclosures with governmental agencies,
including the SEC and the FCC."[^17] NBC Telemundo argues that this case
presents an instance where the misconduct is so egregious as to shock
the conscience and, thus, warrants intervention prior to a final
adjudication on the merits. NBC Telemundo requests, in the alternative,
that the Commission condition grant of the license renewal application
on the outcome of the various proceedings involving TV Azteca's non-FCC
misconduct, specifically the litigation involving the production of
"Quinceanera" and the *de novo* review of the fine levied by the Mexican
Banking and Securities Commission.

*Discussion*. Section 309(k)(1) of the Communications Act of 1934 (the
"Act") states that the Commission shall grant a license renewal
application if it finds, with respect to that station, that (a) the
station has served the public interest, convenience, and necessity; (b)
there have been no serious violations by the licensee of the Act or
Commission rules and regulations; and (c) there have been no other
violations by the licensee of the Act or the rules or regulations of the
Commission which, taken together, would constitute a pattern of
abuse.[^18]

The Commission has stated that a finding regarding an applicant's
character qualifications "is not an end in itself," but, rather, "a step
in the process of evaluation by which the Commission determines whether
the public interest would be served by grant of the application before
it."[^19] To designate an application for hearing on the basis that
grant would not be in the public interest, a petition to deny must
contain specific allegations of fact sufficient to show that granting
the application would be *prima facie* inconsistent with the public
interest.[^20] This first step of the public interest analysis "is much
like that performed by a trial judge considering a motion for directed
verdict: if all the supporting facts alleged in the \[petition\] were
true, could a reasonable factfinder conclude that the ultimate fact in
dispute had been established."[^21] If the petition meets the first
step, the Commission will designate the application for hearing if the
allegations, together with any opposing evidence before the Commission,
raise a substantial and material question of fact as to whether grant
would serve the public interest, or if the Commission is otherwise
unable to conclude that granting the application would serve the public
interest.[^22]

In 1986, the Commission revised its character policy, stating that it
would henceforth shift its focus from a broad ranging inquiry into
character to one more "narrowly focused on specific traits which are
predictive of an applicant's propensity to deal honestly with the
Commission and comply with Communications Act and the Commission's rules
and policies."[^23] Specifically, the Commission stated that it would
generally limit its consideration to "non-FCC misconduct involving
criminally fraudulent misrepresentations, alleged criminal activity and
antitrust or anticompetitive misconduct." [^24] The Commission also
stated that it would also consider civil judgments in assessing the
character of an applicant, but that those "relating to fraudulent
misrepresentations to a governmental unit or mass media related
violations of antitrust or anticompetitive laws bear most directly on an
applicant's qualification to be a broadcast licensee."[^25] As to
allegations of non-FCC misconduct, the Commission stated that it
"lack\[ed\] the expertise and the resources to interpret other statutes
and to make value judgments about behavior unrelated to the broadcast
licensing function."[^26] Thus, the Commission will not generally
consider unadjudicated allegations in its character inquiry, unless the
"nonbroadcast misconduct \[is\] so egregious as to shock the conscious
and evoke almost universal disapprobation." [^27] We conclude that none
of the conduct at issue is disqualifying.

The SEC investigation of pending securities law violations has been
settled. Consent decrees are not considered adjudicated misconduct for
purposes of determining an applicant's character.[^28] The shareholder
suit also remains pending. In its reply, NBC Telemundo alleges that TV
Azteca failed to file a required Schedule 13D with the SEC disclosing
the percentage of TV Azteca shares held by Mr. Salinas. We find this
bare allegation insufficient to justify Commission action in the absence
of a final decision by an agency or court with specific expertise in the
area.

With respect to potential investigations by Mexican authorities, NBC
Telemundo cites a news report in alleging that the Mexican Finance
Secretary has asked prosecutors to bring criminal charges for insider
trading. Not only is it unclear whether any such charges were ever
officially filed, but the news reports upon which NBC Telemundo brings
these allegations are hearsay and, thus, not reliable evidence.[^29]
Even were such charges filed, there is no indication that they have been
adjudicated by a court in Mexico, and we cannot conclude that they are
"so egregious as to shock the conscience."[^30] NBC Telemundo does cite
a fine imposed by a Mexican regulatory agency, but, as TV Azteca points
out, the regulatory agency's ruling is under *de novo* review. The
Commission has stated that it is only appropriate to consider as
"adjudicated" decisions reached by an ultimate trier of fact, and that
"\[t\]ribunals whose factual determinations may be reviewed *de novo*
will not be considered unless the time for taking such review has
expired under the relevant procedural rules."[^31] We decline to
condition any decision on the license renewal application upon the
outcome of the pending regulatory action in Mexico as TV Azteca has
failed to demonstrate how the conduct at issue, even were it to be fully
adjudicated in Mexico, would fit within the specified kind of non-FCC
misconduct relevant for a character determination.

With respect to the allegations surrounding the pending litigation over
production of the program *Quinceanera*, the Commission generally "does
not assume 'jurisdiction in contractual controversies...recognizing that
such matters are generally private in nature and appropriately left to
local courts for resolution.'"[^32] TV Azteca is not a Commission
licensee, and the actions at issue did not take place within the
territorial jurisdiction of the FCC. Commission intervention in this
private dispute is not appropriate unless and until a court of competent
jurisdiction makes a final determination as to specific allegations of
anticompetitive misconduct. As NBC Telemundo has cited no specific
violation of antitrust or competition laws as a result of the dispute,
we see no reason to condition disposition of the instant application on
the outcome of the pending litigation.

NBC Telemundo acknowledges that Pappas's character qualifications as
licensee of Station KAZA-TV are beyond dispute. We need not determine
here whether TV Azteca's interest in Pappas renders it subject to the
character policy as we find no disqualifying conduct. We, therefore,
will not condition our action on the license renewal application upon TV
Azteca and Pappas severing their business relationship. NBC Telemundo
does, however, raise a number of issues regarding TV Azteca's alleged
failure to disclose its interest in Pappas. A review of the Commission's
relevant database indicates that Pappas listed the various contracts
with TV Azteca in its relevant FCC Form 323 Ownership Reports. NBC
Telemundo contends that Pappas did not specifically certify that TV
Azteca holds an attributable interest in Pappas, and that TV Azteca
failed to file a separate ownership report disclosing this interest.

Under the equity/debt plus attribution standard, the Commission will
attribute financial interests amounting to over 33% of the total assets
of a mass media entity where the interest holder is either a major
program supplier to the entity or a same-market media entity.[^33] NBC
Telemundo argues that the total asset value of Station KAZA-TV is the
\$250 million exercise price contained in the option agreement and that
TV Azteca's loan of \$129 million to Pappas exceeds the threshold of 33%
of Station KAZA-TV's total assets. Pappas states that it is not clear
whether the interest is attributable under the equity/debt plus
attribution standard since the option agreement expired by its terms on
January 1, 2006. Since the option was never exercised, according to
Pappas, it cannot be assumed that any eventual sales price is the same
as the option price.

The Commission has stated that "in connection with a transfer or
assignment application or an ownership report filed after consummation
of a transfer or assignment, the applicant must use the sales price of
that transfer or assignment as the total asset value."[^34] There is no
assignment or transfer of control application at issue here. In this
case, "an applicant may base the valuation of a station on either the
book value as defined under standard financial accounting practices, or
some other value, including the fair market value, provided the
valuation is reasonable."[^35] Thus, the option price agreed to by
Pappas and Azteca does not necessarily represent the total asset value
of Station KAZA-TV for purposes of applying the EDP attribution
standard. Even assuming the option price as the total asset value of
Station KAZA-TV, we find no intent to deceive. To demonstrate intent,
NBC Telemundo would have to show both "the fact of misrepresentation"
and "proof that the party making it had knowledge of its falsity."[^36]
Pappas disclosed the various agreements with TV Azteca in its relevant
ownership reports.

Accordingly, NBC Telemundo's Informal Objection, as supplemented, **IS
DENIED**.

Sincerely,

Barbara A. Kreisman

> Chief, Video Division

Media Bureau

cc: Richard Cotton, Esq.

NBC Telemundo License Co.

30 Rockefeller Plaza

New York, NY 10112

TV Azteca, S.A. De C.V.

c/o Patrick S. Campbell, Esq.

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1615 L Street, N.W.

Suite 1300

Washington, DC 20036

Peter C. Pappas, Esq.

Executive Vice President

Legal and Government Affairs

Pappas Telecasting Companies

875 15^th^ Street, N.W.

Washington, D.C. 20005

[^1]: *NBC Telemundo Informal Objection*, at 9.

[^2]: *Id.* at 12.

[^3]: *Id.* at 11.

[^4]: *Id.* at 14.

[^5]: *Id.* at 15.

[^6]: *Id.* at 16.

[^7]: *Supplement to Informal Objection*, at 3

[^8]: *Supplement to Informal Objection*, at 3.

[^9]: *Pappas Opposition*, at 5.

[^10]: *Id.* at 16.

[^11]: *Id.* at 18.

[^12]: *TV Azteca Opposition*, at 2.

[^13]: *Id.* at 5.

[^14]: *Id.* at 6.

[^15]: *Id*.

[^16]: *Id.* at 18.

[^17]: *Id.*.

[^18]: 47 U.S.C. §309(k)(1).

[^19]: *Policy Regarding Character Qualifications in Broadcast
    Licensing,* 102 FCC 2d 1179 (1986) (subsequent history omitted)
    ("*Character Policy Statement*"). In implementing Section 309(k) of
    the Act, the Commission stated that it "would continue to apply
    existing policy statements and case law, refining these as
    appropriate on a case-by-case basis, in interpreting the statutory
    terms that govern the renewal process." *Implementation of Sections
    204(a) and 204(c) of the Telecommunications Act of 1996*, 11 FCC Rcd
    6363. 6364 (1996). We find, therefore, that the Commission's
    character policy is relevant in determining whether grant of a
    license renewal application would comply with Section 309(k) of the
    Act.

[^20]: 47 U.S.C. §309(d)(1); *Astroline Communications Co. Ltd.
    Partnership v. FCC,* 857 F.2d 1556 (D.C. Cir. 1988) ("*Astroline*").

[^21]: *Gencom, Inc. v. FCC*, 832 F.2d 171, 181 (D.C. Cir. 1987).

[^22]: *Astroline*, 857 F.2d at 1561; 47 U.S.C. §309(e).

[^23]: *Character Policy Statement*, 102 FCC 2d at 1186.

[^24]: *Id.* at 1205.

[^25]: *Policy Regarding Character Qualifications in Broadcast
    Licensing*, Order on Reconsideration, 6 FCC Rcd 3448 (1991)
    (subsequent history omitted).

[^26]: *Character Policy Statement*, 102 FCC 2d at 1187.

[^27]: *Id.* at 1205, n. 60.

[^28]: *Id.* at 1205.

[^29]: *Pikes Peak Broadcasting Company, Inc.*, 12 FCC Rcd 4626, 4630
    (1997). *See also* [*RKO General, Inc. v. FCC*, 670 F.2d 215 (D.C.
    Cir.
    1981)](http://web2.westlaw.com/find/default.wl?DB=350&SerialNum=1982105993&FindType=Y&AP=&mt=Communications&fn=_top&sv=Split&vr=2.0&rs=WLW6.03),
    *cert. denied*, [456 U.S. 927
    (1982)](http://web2.westlaw.com/find/default.wl?DB=780&SerialNum=1982216436&FindType=Y&AP=&mt=Communications&fn=_top&sv=Split&vr=2.0&rs=WLW6.03);
    [*Rothschild Broadcasting Company, Inc.*, 10 FCC Rcd 7226, 7227
    (1995)](http://web2.westlaw.com/find/default.wl?DB=4493&SerialNum=1995262623&FindType=Y&ReferencePositionType=S&ReferencePosition=7227&AP=&mt=Communications&fn=_top&sv=Split&vr=2.0&rs=WLW6.03);
    *Post-Newsweek Stations, Florida, Inc.*, 49 FCC 2d 92 (Rev. Bd.
    1974).

[^30]: *Compare Contemporary Media, Inc.*, 13 FCC Rcd 14437,14446 (1998)
    (concluding that a conviction involving repeated sexual abuse of
    children constitutes an independent basis for disqualification).

[^31]: *Character Policy Statement*, 102 FCC 2d at 1205, n. 61.

[^32]: *USA Broadcasting, Inc.*, 19 FCC Rcd at 4256, *citing*
    [*McCalister Television Enterprises, Inc.*, 60 R.R.2d 1379, 1383-84
    (1986)](http://web2.westlaw.com/find/default.wl?rp=%2Ffind%2Fdefault.wl&vc=0&DB=265&SerialNum=1986028970&FindType=Y&ReferencePositionType=S&ReferencePosition=1383&AP=&fn=_top&rs=WLW6.09&mt=Communications&vr=2.0&sv=Split).

[^33]: [*Review of the Commission's Regulations Governing Attribution of
    Broadcast and Cable/MDS Interests*, Report and Order, 14 FCC Rcd
    12559, 12579
    (1999)](http://web2.westlaw.com/find/default.wl?rp=%2Ffind%2Fdefault.wl&vc=0&DB=4493&SerialNum=1999288233&FindType=Y&AP=&fn=_top&rs=WLW7.02&mt=Communications&vr=2.0&sv=Split).

[^34]: *Review of the Commission's Regulations Governing Attribution of
    Broadcast and Cable/MDS Interests*, Memorandum Opinion and Order on
    Reconsideration, 16 FCC Rcd 1097, 1111 (2001).

[^35]: *Id.*

[^36]: [*David Ortiz Radio Corp. v. FCC*, 941 F.2d 1253, 1260 (D.C. Cir.
    1991)](http://web2.westlaw.com/find/default.wl?DB=350&SerialNum=1991143410&FindType=Y&ReferencePositionType=S&ReferencePosition=1260&AP=&fn=_top&rs=WLW6.07&mt=Communications&vr=2.0&sv=Split),
    *quoting* [*Leflore Broadcasting Co. v. FCC*, 636 F.2d 454, 462
    (D.C. Cir.
    1980)](http://web2.westlaw.com/find/default.wl?DB=350&SerialNum=1980125409&FindType=Y&ReferencePositionType=S&ReferencePosition=462&AP=&fn=_top&rs=WLW6.07&mt=Communications&vr=2.0&sv=Split).