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Parties Involved:
Federal Communications Commission
Appellee
Swan Creek Communications
Appellant
Welch Communications, Inc.
Intervenor

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 30, 1994 Decided November 22, 1994

No. 93-1230

SWAN CREEK COMMUNICATIONS, INC.,

PETITIONER

v.

FEDERAL COMMUNICATIONS COMMISSION,

RESPONDENT

WELCH COMMUNICATIONS, INC.,

INTERVENOR

Appeal from Order of the

Federal Communications Commission

Christopher D. Imlay argued the cause and filed the briefs for appellant.

David Silberman, counsel, Federal Communications Commission, argued the cause for appellee.

With him on the briefs were William E. Kennard, General Counsel, and Daniel M. Armstrong,

Associate General Counsel, Federal Communications Commission.

J. Richard Carr entered an appearance for intervenor.

Before: EDWARDS, Chief Judge, SENTELLE and ROGERS, Circuit Judges.

Opinion of the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge: Petitioner Swan Creek Communications, Inc. ("Swan Creek"),

challenges the opinion and order of the Federal Communications Commission finding that Swan

Creek wasfinanciallyunqualified for the construction permit for an FM station in Swanton, Ohio, and

that its partners lacked candor before the Commission. Petitioner also challenges the Commission's

finding that intervenor Welch Communications, Inc. ("Welch"), was financially qualified. Because

there is substantial evidence to support the Commission's finding of lack of candor, we do not reach

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1Although Welch's motion to intervene was granted, Welch did not submit a brief to the court. 

2The FCC application form completed by both Welch and Swan Creek provides:

An applicant for a new station must certify that i[t] has sufficient net liquid assets

on hand or committed sources of funds to construct the proposed facility and

operate for three months, without revenue.

Memorandum Opinion and Order, Welch Communications, Inc., 5 F.C.C.R. 4850, 4850 (Rev.

Bd. 1990). 

the issue of Swan Creek's financial qualifications. Further, as a result of its lack of candor, Swan

Creek isineligible to compete for the Swanton station and therefore we need not addressits challenge

ofthe grant ofthe permit to Welch. Accordingly, we deny the petition in part and dismiss the petition

in part.

I.

Swan Creek is an Ohio limited partnership owned 517 by Jerry Toth and 497 by Thomas

Gardull. Initial Decision, Welch Communications, Inc., 5 F.C.C.R. 2927, 2929 (1990) ("Initial

Decision"). On August 27, 1987, Swan Creek and three other candidates submitted applications to

the Federal Communications Commission to construct and operate an FM radio station in Swanton,

Ohio. Two of the applicants eventually withdrew from the competition, leaving Swan Creek and

Welch.1

In its application, SwanCreek proposed to operate the Swanton station as a full-service radio

station. The partners estimated construction costs of $108,000 and start-up operating expenses of

approximately $11,000 per month. Swan Creek therefore calculated that it would need $141,000 to

construct the radio station and operate it for three months.2Supplemental Initial Decision, Welch

Communications, Inc., 7 F.C.C.R. 568, 571 (1992) ("Supplemental Decision"). Toth and Gardull

planned to fund the operations with a $125,000 loan from Toth'sfather and with $102,000 fromtheir

personalresources. Id. Comparative hearings on Swan Creek's and Welch's proposals were held on

March 27, 1989, and September 20, 1989, before an FCC administrative law judge ("ALJ"), who

awarded the station permit to SwanCreek on comparative terms. Initial Decision, 5 F.C.C.R. 2927.

Upon appeal by Welch, the FCC Review Board reversed the ALJ and remanded for a

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3The Review Board rejected Swan Creek's argument that its inability to finance both facilities

resulted from significant costs incurred in prosecuting the Swanton application. "Rather, the

record thus far suggests that Swan [Creek]'s General Partners were aware from the outset that

they did not possess the requisite funds to construct and operate both facilities as proposed." Id.

determination of whether Swan Creek was financially qualified and whether it showed a lack of

candor in its submissions to the FCC. Memorandum Opinion and Order, Welch Communications,

Inc., 5 F.C.C.R. 4850 (Rev. Bd. 1990) ("Review Board I"). The Review Board noted that on April

4, 1988, Swan Creek had filed another application for a new FM radio station in Lima, Ohio. Id. As

in its Swanton application, Swan Creek certified that it had "reasonable assurance" of sufficient net

liquid assets to construct the Lima station and operate it for three months without revenues. Id.

Although acknowledging that SwanCreek ultimatelydismissed the Lima application onMay8, 1989,

theReview Board questioned the accuracy of SwanCreek'sfinancial certifications during the thirteen

months when both applications were pending. Id. at 4851. The Review Board noted that Swan

Creek partner Jerry Toth had testified that "Lima was applied for as a second possibility, should

Swanton not be successful," and that Swan Creek was relying on the same source of funding to

finance both the Swanton and Lima stations. Id. at 4850-51. When asked what would happen if

Swan Creek was granted construction permitsfor both stations, Toth answered that the partners had

talked about this possibility but had yet to decide how they would respond. Id. at 4850.

Significantly, Toth had testified that "there is no way" the partners could finance both the Swanton

and Lima stations. Id. In light ofthis testimony, the Review Board found that there were "substantial

questions offact asto Swan [Creek]'sfinancial certifications, and whether Swan[Creek] has deceived

the Commission in its certification of two applications when it appears to know it could only afford

to finance (at best) only one." Id. at 4851.3

Upon remand, Swan Creek took the position that it had always intended Lima to be a "bare

bones" station and that it could therefore afford to construct and operate both the Lima and Swanton

stations for the requisite three-month start-up period. Supplemental Decision, 7 F.C.C.R. at 571;

Review Board II, 7 F.C.C.R. at 4546. According to the ALJ, Gardull asserted that Swan Creek was

financiallyqualified to implement both proposalsifit employed "very cheap ways" of putting the Lima

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4The ALJ also questioned the liquidity of the partners' assets, ultimately crediting only $48,926

of the $102,000 in assets claimed by Toth and Gardull. Id. at 574. Even if Swan Creek could

construct and operate the Lima station for $22,000, the ALJ concluded, it did not have sufficient

assets to support both operations. 

station on the air "for next to no money." Supplemental Decision, 7 F.C.C.R. at 571. In their direct

written testimony on remand, the Swan Creek partners asserted:

Our review of the [Lima] market indicated that there was a need for an easy listening

format which could be automated. This was in accordance with our assumption that

Lima would have to be a limited budget facility, given our commitment to Swanton.

To meet our ability to construct and operate, Lima was not to be a "showcase" facility

at startup.

The partners claimed that they "made calculations" for the Lima facility "based on a fully-automated

station, with no announcers or office staff." They attested that they would complete all office work

and pre-recording at the Swanton station. The Lima station would have no employees; to generate

advertising revenues, sales persons would work for commission "out of their cars, or from desks at

the transmitter building, where a phone line would be located." Based on these assumptions, the

partners testified, "Our conclusion was that we could construct and operate a limited facility in

addition to Swanton."

The ALJ rejected Swan Creek's attempts to reconcile the Lima and Swanton proposals and

concluded that Swan Creek could not afford to construct and operate both stations. Id. at 574-75.

The ALJ found Swan Creek's claim that it could construct and operate the Lima facility for $22,000

"of doubtful validity," observing that Swan Creek's proposal to operate a station with no full-time

employees and totaldependence on anotherstation'stechnicalfacilities and staff was "so out oftouch

with reality as to be classified as "inherently incredible.' "4Id. at 574 (quoting Pepper Schultz, 4

F.C.C.R. 6393 (Rev. Bd. 1989)). Noting that "the Review Board has refused to fully credit the Lima

dismissal," the ALJ concluded that "Swan Creek is not now financially qualified to be a Commission

licensee." Id. at 575.

The ALJ resolved the financial misrepresentation issue, however, in Swan Creek's favor.

While concluding that it was a mistake for Swan Creek to file both applications at the same time, the

ALJ observed that the error "doesn't automatically brand them as liars." Id. In his view:

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5Toth's partner, Thomas Gardull, had agreed in his initial testimony that the partners did not

have sufficient resources to complete both projects, although he added that "there are certainly

very cheap ways of putting a radio station on the air...." Id. at 4546. 

Jerry Toth frankly admitted that he and Gardull had applied for Lima as a second

possibility should Swanton not be successful; that they were simply trying to cover

themselves; and that they preferred Swanton over Lima. That testimony will be

credited.... [T]he trial judge observed Jerry Toth's and Thomas Gardull's demeanor.

He found both men creditable.

Id. The ALJ, based solely on the partners' testimony at the initial hearing before remand, determined

that the partners had not deliberatelymisrepresented theirfinancialqualificationsin their certifications

to the Commission. Id.

TheALJfound against Welchonbothfinancialandmisrepresentationgrounds and concluded,

therefore, that neither applicant was qualified for the Swanton station. Id.

The Review Board affirmed the ALJ's disqualification of Welch on financial and

misrepresentation grounds and agreed that Swan Creek was not financially qualified. Decision,

Welch Communications, Inc., 7 F.C.C.R. 4542, 4545, 4547 (Rev. Bd. 1992) ("Review Board II").

On the question of lack of candor, however, the Board reversed the ALJ's ruling in favor of Swan

Creek. Id. at 4547. Noting "the spontaneous, candid testimony of Toth and Gardull at the initial

hearing that Swan [Creek] simply could not afford to prosecute, construct, and operate both

proposed facilities,"5the Board pointed out that on remandafter learning that the Lima application

would be considered in assessing their financial qualificationsthe partners changed their story. Id.

The Board rejected as improbable the partners' insistence that they had always envisioned Lima as

a "bare bones" operation and that they had, prior to filing, carefully calculated the costs of both Lima

and Swanton and determined that they could afford both stations. "[T]hese claims," the Board found,

"are clearly at odds with the representations made to the Commission in Swan [Creek]'s Lima

application." Id. The Board noted that Swan Creek's application described Lima as a full-service

station with several full-time employees:

(1) Swan [Creek] represented it would employ five or more full-time employees at

Lima ...; and (2) Swan [Creek] promised the Commission it would broadcast

"extensive ... locally produced Public Service Announcements;" "News will include

school news ... closings ... traffic and road conditions ... market reports, sports,

agriculture, and local issues;" and, "comprehensive Weather Reports will be given

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6Thus, although the Board had remanded for a determination of whether Swan Creek made

deliberate misrepresentations in its certifications, the Board resolved the lack of candor issue

against Swan Creek based on the partners' attempt on remand to reconcile the two applications by

retracting both the information in their Lima application and their earlier sworn testimony before

the ALJ. Id. The Board, therefore, based its lack of candor finding on grounds neither decided

nor considered by the ALJ. 

every hour...."

Id. at 4547. In light of the marked contrast between Swan Creek's application and initial testimony,

on the one hand, and its later recharacterization of the Lima station, on the other, the Board

concluded that the Swan Creek partners lacked candor in their testimony after remand: "[G]iven the

testimony of Toth and Gardull at the initial hearing and their completely different testimony at the

remand hearing, the Board concludes that, at a minimum, these individuals have lacked candor with

the ALJ and the Commission."6Id.

Upon appeal by Swan Creek, the Commission affirmed the Board's findings against Swan

Creek while reversing the ALJ and theReview Board rulings against Welch. WelchCommunications,

Inc., 8 F.C.C.R. 1285 (1993). Swan Creek now petitions for review of the Commission's opinion and

order.

II.

In assessing the Commission's decision, the court applies a deferential standard of review,

affirming the agency's conclusions if they "are supported by the record and ... are not arbitrary or

capricious." WHW Enterprises, Inc. v. F.C.C., 753 F.2d 1132, 1139 (D.C. Cir. 1985); Weyburn

Broadcasting Ltd. Partnership v. F.C.C., 984 F.2d 1220, 1228 (D.C. Cir. 1993). Although the

Review Board and the Commission reversed the ALJ on the lack of candor issue, the Commission

is not bound by the ALJ's findings so long as its own findings are supported by substantial evidence.

See WHW Enterprises, 753 F.2d at 1141.

Because the Commission affirmed the Review Board's lack of candor ruling against Swan

Creek without comment, the court must look to the Review Board decision in assessing the

Commission's determination. The Review Board concluded, based on "the testimony of Toth and

Gardull at the initial hearing and their completely different testimony at the remand hearing," that, "at

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7The Board noted, however, that "the truthfulness and accuracy of the certifications of ...

financial qualifications are of paramount importance." Id. Although the Board did not expressly

find that the Swan Creek principals showed a lack of candor in the financial certifications that they

submitted to the Commission, it observed that "Swan [Creek] did not have sufficient funds to

construct and operate both proposed facilities, and ... [that] the two principals of Swan [Creek]

knew that they did not possess the requisite financial qualifications to construct both the Swanton

and Lima stations (which applications were simultaneously pending before the Commission for

more than one year)." Id. (emphasis in original). 

a minimum, these individuals have lacked candor with the Commission." Review Board II, 7

F.C.C.R. at 4547. The lack of candor decision did not rest simply on Swan Creek's partners' financial

certifications to the Commission.7

TheFCCgenerallyviews "misrepresentation and lack of candorin an applicant's dealings with

the Commission as serious breaches of trust." Policy Regarding Character Qualifications in

Broadcast Licensing, 102 F.C.C.2d 1179, 1211 (1986). The Commission defines misrepresentation

as "an intentional misrepresentation of fact intended to deceive." Silver Star CommunicationsAlbany, Inc., 3 F.C.C.R. 6342, 6349 (Rev. Bd. 1988). Lack of candor, on the other hand, exists

when an applicant breaches its duty "to be fully forthcoming as to all facts and information relevant

to a matter before the FCC, whether or not such information is particularly elicited." Id; see also

Fox River Broadcasting, Inc., 93 F.C.C.2d 127, 129 (1983).

Direct misrepresentations or omissions to the Commission can result, by themselves, in

disqualification. As the Review Board stated in Old Time Religion Hour, Inc., 95 F.C.C.2d 713, 719

(Rev. Bd. 1983):

[A]n applicant may be disqualified on the basis of its principals' candorless testimony

when the lack of candor occurs "before the judge's own eyes." Moreover, the

Commission has long held that false statements in the course of the hearing process

are, in and of themselves, of substantial significance, that specific notice to an

applicant that he must testify truthfully is superfluous, and that such false testimony

may lead to disqualification.

Id. (citations omitted); see also KQED, Inc., 3 F.C.C.R. 2601, 2606 (Rev. Bd. 1988). The

Commission will not disqualify an applicant, however, for a negligent omission; "intent to deceive

[is] an essential element of a misrepresentation or lack of candor showing." Weyburn Broadcasting,

984 F.2d at 1232; see also Garden State Broadcasting Ltd. Partnership v. F.C.C., 996 F.2d 386,

393 (D.C. Cir. 1993); RKO General, Inc. v. F.C.C., 670 F.2d 215, 225 (D.C. Cir. 1981), cert.

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denied, 456 U.S. 927 (1982).

The Review Board concluded that Swan Creek lacked candor because of inconsistencies in

Toth's and Gardull's submissions and testimony before the Commission. In particular, the Review

Board found the partners' claim upon remand that they had always intended Lima to be a low-cost,

no-frillsstation "clearly at odds with the representations made to the Commission in Swan [Creek]'s

Lima application." Review Board II, 7 F.C.C.R. at 4547. The Review Board also concluded that

Swan Creek could not square its position upon remand with the "spontaneous, candid testimony of

Toth and Gardull at the initial hearing that Swan [Creek] simply could not afford to prosecute,

construct, and operate both proposed facilities...." Id.

The Board's lack of candor determination is supported by substantial evidence in the record.

SwanCreek's Lima application described a full-service radio stationwith severalfull-time employees.

Toth and Gardull admitted in the initial hearing that they could not afford to construct and operate

both Swanton and the proposed Lima facility. The record makes clear that Swan Creek's later

recharacterization of the Lima proposal as a bare-boned, pre-programmed station was a belated

attempt to harmonize the two inconsistent applications. The partners' assertion on remand that Swan

Creek had always planned and intended to construct and operate both the Swanton and Lima stations

is contradicted by the Lima application, the partners' initial testimony, and the ALJ's findings of fact.

Supplemental Decision, 7 F.C.C.R. at 575.

The ALJ's demeanor determinations are not to the contrary. Although Swan Creek correctly

notesthat the ALJfound its partners "creditable" and decided the candor issue in their favor, the ALJ

considered only their behavior prior to and during the initial hearing. He concluded that the partners

had made an honest mistake in filing the Lima application and that they "frankly admitted" that they

had filed Lima as a back-up to the Swanton proposal. His conclusions, therefore, were directed solely

at whether the partners had an intent to deceive when they filed their Lima application. He did not

decide the question upon which the Review Board based its disqualification decision: whether the

partners' later attempts to retract their "frank[ ] admi[ssions]" showed a lack of candor. Review

Board II, 7 F.C.C.R. at 4547.

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8On these facts, it seems clear beyond dispute that the actions of the Swan Creek partners do

not warrant any further sanction beyond disqualification from the Swanton proceeding. The Swan

Creek partners, Jerry Toth and Thomas Gardull, originally attempted to prosecute their license

applications without the aid of counsel. They had never previously applied for an FCC license,

and their ineptness was revealed. But the ALJ, who heard their statements, concluded that Swan

Creek made an honest mistake by filing for both the Swanton and Lima stations at the same time. 

Supplemental Initial Decision, Welch Communications, Inc., 7 F.C.C.R. 568, 575 (1992). 

Although Toth and Gardull attempted to rectify this mistake by exaggerating their intentions

regarding the Lima station to the Commission, there is nothing in the record to suggest that these

men were deceitful applicants engaged in some fraudulent enterprise designed to misuse the

licensing process. They made mistakes, for which they have been penalizedthat should be the

end of it. In short, there appears to be no reason why Swan Creek's disqualification from the

Swanton license should prevent Toth and Gardull from applying for or acquiring an FCC license

in the future. See Policy Regarding Character Qualifications In Broadcast Licensing, 102

F.C.C.2d at 1210-11, 1224-25 (FCC has generally reserved "the ultimate sanction of removal of

all licensee rights ... for cases of egregious misconduct evincing a pervasive unwillingness or

inability to meet the basic responsibilities of a licensee"); KQED, Inc., 3 F.C.C.R. at 2609 (license

renewal for different station); see also Faulkner Radio, Inc., 88 F.C.C.2d 613, 616-618 (1981)

(limiting non-renewal to single station because of "isolated context" of misconduct); KPFW

Broadcasting Company, 47 F.C.C.2d 1090, 1095-96 (1974) (granting renewal and new

construction permit in light of "unlikelihood that the misconduct involving [a different station] will

be repeated"); Policy Regarding Character Qualifications, 102 F.C.C.2d at 1228 ("[s]uffering

the loss of one station, with the costs thereby imposed, will likely serve to deter all but the most

unrepentant from serious future misconduct"); e.g., WIOO, Inc., 95 F.C.C.2d 974, 984 (1983); 

cf. RKO General, 670 F.2d at 236-37. 

Consequently, although the usual lack of candor finding is made after a hearing on the issue

before the ALJ, RKO General, 670 F.2d at 231, where, as here, an irremediable conflict appears

between records submitted to the Commission and testimony in the instant proceeding, the Board

could properly make a lack of candor determination without an evidentiary hearing. See id.; Old

Time Religion Hour, 95 F.C.C.2d at 719. Therefore, the Commission was justified in affirming the

finding of a lack of candor based on " "facts already known,' " when an evidentiary hearing "would

have served no purpose." See RKO General, 670 F.2d at 231 (quoting Lakewood Broadcasting

Service, Inc. v. F.C.C., 478 F.2d 919, 924 (D.C. Cir. 1973)).8 Given the evidence, the Commission

acted reasonably in affirming the Review Board's finding that Swan Creek, after remand, acted less

than honestly in describing its intentions for the Lima facility. The Commission therefore did not err

in disqualifying SwanCreek on the ground that, "at a minimum, [its partners] have lacked candor with

the ALJ and Commission." Review Board II, 7 F.C.C.R. at 4547. See RKO General, 670 F.2d at

234; Wadeco, Inc. v. F.C.C., 628 F.2d 122, 129 (D.C. Cir. 1980).

Accordingly, because Swan Creek is barred from competing for the Swanton station as a

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9

In challenging the Commission's approval of Welch's application, Swan Creek argues

primarily that Welch's principal source of funding, Broadcast Capital Fund (BROADCAP), did

not provide sufficient "reasonable assurances" of financing to satisfy Scioto Broadcasters Limited

Partnership, 5 F.C.C.R. 5158, 5160 (Rev. Bd. 1990). In light of our conclusion that Swan

Creek's lack of candor is fatal to its cause, we reserve for another day the question of whether, as

the Commission found, BROADCAP provided "reasonable assurances" under Scioto. Welch

Communications, Inc., 8 F.C.C.R. 1285. Our failure to address Swan Creek's challenge in this

regard should not, however, be viewed as an implicit endorsement of the Commission's action in

this proceeding. The Commission's decision to find Welch financially qualified appears almost

impossible to square with FCC policy under Scioto, particularly in the absence of a coherent

explanation. Of course, if the Commission simply changed the rules in the instant case, ignoring

the requirements of Scioto, in order to favor Welch with the award, the Commission's decision

could not withstand scrutiny. 

10Only parties who are "aggrieved or whose interests are adversely affected by an order of the

Commission granting or denying" a licensing application may appeal that order to this court. 47

U.S.C. § 402(b)(6); see also Garden State, 996 F.2d at 395. 

result ofitslack of candor, Garden State, 996 F.2d at 395, the court has no occasion to address Swan

Creek's challenges to the Commission's finding that it was financially unqualified. Furthermore,

because Swan Creek would remain disqualified even if the court were to conclude that the

Commission erred in approving Welch's application, the court need not address Swan Creek's

challenge to the Commission's award of the construction permit to Welch.9Id.; 47 U.S.C. §

402(b)(6).10 Therefore, we deny the petition in part and dismiss the petition in part.

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