**DA 07-3333**

**Released: July 20, 2007**

George R. Borsari, Jr., Esq.

Borsari and Paxson

2021 L Street, N.W.

Suite 402

Washington, DC 20036

Re: Northwest Television, Inc.

Application for Construction Permit

For New Digital Television Station

Channel 53, Galesburg, Illinois

File No. BPCDT-19951215KK

Facility ID No. 81946

Dear Counsel:

This concerns the above-referenced application of Northwest Television,
Inc. (Northwest) for a new digital television station on Channel 53 at
Galesburg, Illinois (File No. BPCDT-19951215KK), as amended. Quad Cities
Television Acquisition Corp. (Quad Cities), licensee of KLJB-TV,
Davenport, Iowa, filed a petition to deny Northwest's application.[^1]
For the reasons set forth below, we grant Quad Cities' petition to deny
to the extent set forth herein and otherwise deny it, and grant
Northwest's application.

*Background.* Northwest was one of four mutually exclusive applicants
for a new television station on analog Channel 67 at Galesburg,
Illinois. The other applicants were Donald Bae and Melissa Bae d/b/a DM
Partners (DM), Highland Broadcasting, Inc. (Highland) and Galesburg 67,
LLC (Galesburg 67). In 2000, the parties entered into a universal
settlement that called for the applications of DM, Highland and
Galesburg 67 to be dismissed for individual monetary consideration and
for the application of Northwest to be granted. Subsequently, Northwest
was able to change the channel assignment for Galesburg and amended its
application to propose operation of a DTV-only station on Channel 53.

*Loan and Option Agreement.* Quad Cities makes two arguments against the
grant of Northwest's application.[^2] First, Quad Cities alleges that a
Loan and Option Agreement between Northwest and a third party, Second
Generation of Iowa, Ltd. (Second Generation) contravenes Commission
policy.[^3] Northwest entered into a Loan and Option Agreement with
Second Generation in conjunction with the universal settlement of the
Galesburg proceeding. The Loan and Option Agreement provides that Second
Generation may loan Northwest \$1,475,000 for Northwest to fund the
settlement payments to the other applicants. The agreement also provides
Second Generation with an option to acquire the Galesburg station for
\$800,000, which option may be exercised any time after the settlement
agreement payments are disbursed (which would occur after approval of
the settlement agreement and grant of the Galesburg construction
permit). Quad Cities alleges that this agreement is prohibited by the
Commission's policy that bars "white knight" settlements as expressed in
its decision in *Rebecca Radio of Marco*. [^4] In that case, the
Commission prohibited a non-applicant from stepping into the shoes of
the surviving applicant and being awarded a construction permit. Under
that policy, Quad Cities argues that Second Generation is barred from
assuming Northwest's applicant status and receiving the Channel 53
construction permit.

Northwest responds that its Loan and Option Agreement with Second
Generation is not barred by the Commission's prohibition against "white
knight" settlements. Northwest states that it has an agreement to borrow
money from Second Generation. While the loan is contemplated by the
agreements, Northwest maintains it is "not required by the agreement."
Northwest states that its shareholders have sufficient funds of their
own to fund the settlements with the other applicants and that the Loan
and Option Agreement with Second Generation was a "business decision,
not a necessity."

Furthermore, Northwest argues that the option portion of its agreement
with Second Generation violates no rule or policy. Northwest states that
Quad Cities has overlooked other settlement decisions that the
Commission has subsequently issued that "demonstrate that the
circumstances presented in this case violate no rule or policy of the
Commission." Northwest maintains that in these later cases the
Commission permitted settlements that included options for third parties
if the agreement required that the third party obtain FCC consent to
acquire the licensee. Northwest cites to *Poder Broadcasting, Inc.*,[^5]
in which the Review Board of the Commission permitted a settlement
agreement in which a third party purchased an immediate 49% interest in
the prevailing applicant with an option to apply for consent and acquire
the remaining 51% one year after commencement of station operations.

Northwest also cites to *Woods Communications Group, Inc.*,[^6] where
the Commission approved a settlement in which a third party acquired an
immediate 45% interest in the prevailing applicant with an option to
acquire the remaining 55% interest excercisable 90 days after
commencement of operations. In that case, Northwest argues, the key
difference cited by the Commission from the facts in the *Rebecca Radio*
case was the fact that the third party would have to apply for and
obtain Commission consent before acquiring the 55% controlling interest.

Northwest also cites to *Gonzales Broadcasting, Inc.*,[^7] where the
Commission approved a settlement in which a third party was granted an
option to purchase the interests of all of the applicants that had
merged into a single entity. Finally, Northwest cites to *Heidi
Damsky*[^8] where the Commission approved a settlement that permitted a
third party to hold a two-year option to acquire the station for a fixed
amount of money. In that case, the Commission stated that the option did
not violate the "white knight" prohibition because, in the future, if
the third party were to exercise its option, it would have to obtain the
consent of the Commission and that the Commission would review the
qualifications of the third party and make a public interest finding
before any proposed transfer of control could be consummated.

Northwest maintains that it entered into the Loan and Option Agreement
with Second Generation since it was "attractive from a business
standpoint because, among other things, the latter has experience in
station construction and leverage for equipment purchases and delivery
times." Northwest states that it intends to lease its equipment from
Second Generation on a long term basis with an option to acquire the
facilities in the event that Second Generation chooses not to exercise
its option. Northwest also states that it intends to enter into a Local
Marketing Agreement with Second Generation that will enable Northwest to
enjoy the "network connections, programming sources and operational
capabilities of a group owner."

*Premature Construction*. Quad Cities also alleges that, prior to a
grant of its construction permit, Northwest engaged in premature
construction of its new television station. Quad Cities cites to certain
activities that it alleges demonstrate that construction was initiated
on a new television facility for channel 53 in Galesburg. This includes
locating a transmitter site for the station, mounting of an antenna on
an existing tower location, installation of various transmission
equipment at the tower location and mounting of a studio-transmitter
microwave link on the roof of the transmitter building. Quad Cities
concludes that this amounts to premature construction of the Galesburg
station.[^9]

Northwest responds that all of these actions were taken by Second
Generation. Pursuant to its various agreements, Second Generation will
construct a new television facility and then lease the facility to
Northwest. Northwest states that "none of the equipment was installed so
as to be ready for equipment testing or broadcasting." Northwest
maintains that the transmission line and antenna were installed on the
tower because the tower owner had a crew on site at the time doing other
work and the single operation meant that Second Generation could enjoy a
cost savings of approximately \$200,000.

Furthermore, Northwest argues that none of the activities undertaken by
Second Generation rise to the level of premature construction. Northwest
cites to various Commission decisions where certain preliminary
activities were deemed to not constitute premature construction.[^10]
These included installation of footings and anchors, delivery of
equipment to the tower site, and installation of partial ground wiring,
antenna, transmitter and transmission line.[^11] Northwest argues that
the key in each case was the fact that construction to the point of
activation of the station did not occur. Northwest maintains that,
although equipment was delivered and some wiring was undertaken, it was
not done to the point that the station was operable. Northwest argues
that this was consistent with Commission precedent.

*Discussion*. Under the Communications Act, parties submitting a
petition to deny under Section 309(d) must satisfy a two-step test.[^12]
First, the petition to deny must set forth "specific allegations of fact
sufficient to show that . . . a grant of the application would be *prima
facie* inconsistent with \[the public interest\]."[^13] Second, the
petition must present a "substantial and material question of
fact."[^14] If the Commission concludes that the protesting party has
met both prongs of the test, or if it cannot, for any reason, find that
grant of the application would be consistent with the public interest,
the Commission must formally designate the application for a hearing in
accordance with Section 309(e) of the Communications Act.[^15]

To satisfy the first prong of the test, a petitioning party must set
forth allegations, supported by affidavit, that constitute \"specific
evidentiary facts, not ultimate conclusionary facts or mere general
allegations ....\"[^16] The Commission determines whether a petitioner
has met this threshold inquiry in a manner similar to a trial judge\'s
consideration of a motion for directed verdict: \"if all the supporting
facts alleged in the affidavits were true, could a reasonable fact
finder conclude that the ultimate fact in dispute had been
established.\"[^17]

If the Commission determines that a petitioner has satisfied the
threshold standard of alleging a *prima facie* inconsistency with the
public interest, it must then proceed to the second phase of the inquiry
and determine whether, \"on the basis of the application, the pleadings
filed, or other matters which \[the Commission\] may officially
notice,\" the petitioner has presented a \"substantial and material
question of fact.\"[^18] If the Commission concludes that the \"totality
of the evidence arouses a sufficient doubt\" as to whether grant of the
application would serve the public interest, the Commission must
designate the application for hearing pursuant to section 309(e).[^19]

We find that the option portion of the Northwest and Second Generation
Loan and Option Agreement is prohibited by the Commission's prohibition
on "white knight" settlements. We also find that the pre-construction
actions undertaken by Second Generation went beyond what is permitted
without a prior grant of a construction permit. Nevertheless, we
conclude that approval of the Galesburg settlement and grant of the
Northwest application would serve the public interest and we otherwise
deny Quad Cities' petition to deny.

*Loan and Option Agreement.* Upon examination of the record, we find
that the option portion of the Loan and Option Agreement between
Northwest and Second Generation is not permitted under the Commission's
prohibition of "white knight" settlements as set forth in *Rebecca
Radio* and its progeny. Although the loan portion of the agreement
appears to be a *bona fide* financial arrangement and does not raise any
additional issues concerning ownership or control of the new Galesburg
station, the option between Northwest and Second Generation is similar
to those that the Commission has found violated its prohibition on
"white-knight" settlements. In a prohibited "white knight" settlement, a
third party "steps into the shoes" of the surviving applicant and, upon
grant of the construction permit, is immediately the permittee of the
new station. This may happen while the application is still pending or
immediately after it is granted. In this case, Second Generation must
only await the grant of the construction permit to Northwest before it
can exercise its option and acquire the permit. In the other cases where
options have been permitted in the context of settlement of a proceeding
for a new broadcast station, the option holder was required to wait
until the new station was constructed and operating before it could
exercise its option and acquire the station. That was the important
distinction in the *Poder Broadcasting, Inc.*, *Woods Communications
Group, Inc.*, and *Heidi Damsky*, cases.[^20] That is not the case here.
As soon as the construction permit is granted, Second Generation may
immediately exercise its option. For all intents and purposes, Second
Generation will be able to immediately "step into the shoes" of
Northwest, an action that is prohibited by Commission policy.

Although it was part of the proposed settlement, we do not find that the
option was essential to the overall settlement of this proceeding.
Northwest represents that it is able to fund the settlement independent
of a loan from Second Generation. The other aspects of the Galesburg
settlement, that are not contested, comply with Commission policy.
Therefore, we approve the settlement agreements between Northwest and
the remaining applicants, and Northwest is permitted to make the
settlement payments set forth therein. However, Northwest and Second
Generation are not permitted to take any actions pursuant to the Loan
and Option Agreement.

*Premature Construction*. Construction of a new broadcast station
without first obtaining a construction permit is prohibited by Section
319(a) of the Communications Act.[^21] We find that Quad Cities has
demonstrated that actions taken in this case constituted premature
construction. Some preliminary steps are permitted prior to the grant of
construction permit, however, Commission policy has always been that
such steps must have no intrinsic radio communications use related to a
proposed facility.[^22] Therefore, while actions such as site clearance,
pouring of concrete footings for a tower, installation of a tower base
and anchors, installation of a new power line, equipment purchases, and
on-site storage of equipment[^23] are permitted, other actions such as
installation of an antenna, transmitter, transmission line, and related
inside wiring linking these facilities together are considered to be
premature construction.[^24]

In this case, the actions of installing the transmitter and mounting the
antenna for the new Galesburg station stepped over the line of permitted
activities and constituted premature construction. The fact that the
construction was undertaken by a third party (Second Generation) does
not absolve Northwest. The Commission has long held that licensees and
permittees are responsible for the acts and omissions of their employees
and independent contractors.[^25] Northwest is responsible for the
actions that were undertaken by Second Generation on its behalf to
construct the new Galesburg station. Therefore, we admonish Northwest
for premature construction that went beyond the pre-grant actions
permitted under Commission precedent. Although we admonish Northwest,
such action does not prevent our grant of its application for the new
Galesburg station.

*Conclusion*. The above facts considered, and having found Northwest to
be fully qualified to be a Commission licensee, we conclude that grant
of the universal Galesburg settlement, minus the Loan and Option
Agreement, and grant of the Northwest application, as amended, would
serve the public interest.

WHEREFORE, IT IS ORDERED, That the petition to deny of Quad Cities
Television Acquisition Corp. IS GRANTED to the extent set forth herein
and otherwise IS DENIED.

IT IS FURTHER ORDERED, That other than the Loan and Option Agreement
between Northwest Television, Inc., and Second Generation of Iowa, Ltd.,
the Joint Request for Approval of Settlement Agreements IS APPROVED.

IT IS FURTHER ORDERED, That the applications of Donald Bae and Melissa
Bae d/b/a DM Partners (File No. BPCT-19961001XU), Highland Broadcasting,
Inc. (File No. BPCDT-19960919KT), and Galesburg 67, LLC (File No.
BPCT-19960930KS) ARE DISMISSED.

IT IS FURTHER ORDERED, That the application of Northwest Television,
Inc. (File No. BPCDT-19991215KK) as amended IS GRANTED.

Sincerely,

Barbara A. Kreisman

Chief, Video Division

Media Bureau

cc: Howard J. Braun, Esq. -- Counsel for Quad Cities Television
Acquisition Corp.

John Borsari, Esq. -- Counsel for DM Partners

James Oyster, Esq. -- Counsel for Galesburg 67, LLC

Howard Weiss, Esq. -- Counsel for Highland Broadcasting, Inc.

[^1]: Also before us are the following pleadings: Opposition to Petition
    to Deny filed by Northwest; Opposition to Petition to Deny filed by
    Donald Bae and Melissa Bae d/b/a DM Partners (DM); Reply To
    Oppositions To Petition to Deny filed by Quad Cities; Motion for
    Leave to Supplement Reply filed by Quad Cities; Motion to Strike
    Reply to Oppositions to Petition to Deny And/Or Other Appropriate
    Relief filed by Northwest; Opposition to Motion to Strike by Quad
    Cities; Reply to Opposition to Motion to Strike filed by Northwest;
    Motion for Leave to Further Supplement Reply filed by Quad Cities;
    Opposition to Motion for Leave to Further Supplement Reply filed by
    Northwest; and Reply to Opposition to Motion for Leave to Further
    Supplement Reply filed by Quad Cities.

[^2]: Quad Cities states that it has standing to oppose the Galesburg
    settlement because it is the licensee of a television station in
    Davenport, Iowa, and will compete with the new Galesburg station for
    audience and revenue. *See* *FCC v. Sanders Brothers Radio Station*,
    309 U.S. 470 (1940).

[^3]: Quad Cities also alleges that an option agreement between
    Galesburg 67 and Second Generation contravenes Commission policy,
    but that agreement was subsequently terminated and is no longer
    relevant.

[^4]: *See* *Rebecca Radio of Marco*, 5 FCC Rcd 937 (1990)(*Rebecca
    Radio*); and *Kimler Broadcasting, Inc.*, 15 FCC Rcd 7083 (1999).

[^5]: 11 FCC Rcd 3491 (1996).

[^6]: 11 FCC Rcd 5776 (1996).

[^7]: 12 FCC Rcd 12253 (1997).

[^8]: 13 FCC Rcd 11688 (1998).

[^9]: *See California State University, Sacramento*, 13 FCC Rcd 17960
    (1998) (premature construction found where work included
    installation of antenna, transmitter, transmission line and related
    inside wiring linking such facilities).

[^10]: *See* *Wendell & Associates*, 14 FCC Rcd 1671 (1998); *Christian
    Broadcasting of Midlands, Inc.*, 2 FCC Rcd 6404 (1987); *IT&E
    Overseas, Inc.*, 4 FCC Rcd 3774 (1989); and *Patton Communications
    Corporation*, 81 FCC 2d 336 (1980).

[^11]: *Id.*

[^12]: 47 U.S.C. § 309(d).

[^13]: 47 U.S.C. § 309(d)(1); *Gencom Inc. v. FCC*, 832 F.2d 171, 181
    (D.C. Cir. 1987)(*Gencom*); and *Astroline Communications Co. v.
    FCC*, 857 F.2d 1556, 1562 (D.C. Cir. 1988)(*Astroline*).

[^14]: 47 U.S.C. § 309(d)(2); *Gencom*, 832 F.2d at 181; and
    *Astroline*, 857 F.2d at 1562.

[^15]: 47 U.S.C. § 309(e).

[^16]: *United States v. FCC*, 652 F.2d 72, 89 (D.C. Cir.1980) (*en
    banc*) (*quoting Columbus Broadcasting Coalition v. FCC*, 505 F.2d
    320, 323-24 (D.C. Circuit 1974)).

[^17]: *Gencom*, 832 F.2d at 181.

[^18]: 47 U.S.C. § 309(d)(2); *see also Gencom*, 832 F.2d at 181.

[^19]: *Serafyn v. FCC*, 149 F.3d 1213, 1216 (D.C. Cir. 1998) (*quoting
    Citizens for Jazz on WRVR Inc. v. FCC*, 775 F.2d 392, 395 (D.C. Cir.
    1985)).

[^20]: *See supra* at notes 5-8.

[^21]: 47 U.S.C. § 319(a).

[^22]: See *IT&E Overseas, Inc.*, 4 FCC Rcd 3774, n. 8 (1989).

[^23]: *See* *Wendell & Associates*, 14 FCC Rcd 1671 (1998); *Christian
    Broadcasting of Midlands, Inc.*, 2 FCC Rcd 6404 (1987); *IT&E
    Overseas, Inc.*, 4 FCC Rcd 3774 (1989); and *Patton Communications
    Corporation*, 81 FCC 2d 336 (1980).

[^24]: *See California State University, Sacramento*, *supra*.

[^25]: *See* *Netcom Technologies, Inc.*, 16 FCC Rcd 9524, 9526 (Enf.
    Bur. 2001); *MTD, Inc*., 6 FCC Rcd 34, 35 (1991); *Wagenvoord
    Broadcasting Co.*, 35 FCC 2d 361 (1972).