Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-95-01548/USCOURTS-caDC-95-01548-0/pdf.json

Parties Involved:
Coast TV
Intervenor
Federal Communications Commission
Appellee
Mission Broadcasting Corporation
Appellant

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 18, 1996 Decided May 23, 1997

No. 95-1548

MISSION BROADCASTING CORPORATION,

APPELLANT

v.

FEDERAL COMMUNICATIONS COMMISSION,

APPELLEE

COAST TV,

INTERVENOR

-

Consolidated with

No. 96-1146

-

Appeals of Orders of the 

Federal Communications Commission

-

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Lewis J. Paper argued the cause for appellant Mission 

Broadcasting Corporation, with whom Robert A. Aldrich was 

on the briefs.

Michael J. Couzens argued the cause and filed the briefs 

for appellant Solar Television, Inc. Gene A. Bechtel entered 

an appearance.

David Silberman, Counsel, Federal Communications Commission, argued the cause for appellee. William E. Kennard,

General Counsel, Daniel M. Armstrong, Associate General 

Counsel, and Roberta L. Cook, Counsel, were on the brief.

Donald E. Ward was on the brief for intervenor Coast TV.

Before: WALD, GINSBURG, and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge: Mission Broadcasting Corporation and Solar Television, Inc. each challenge orders of the 

Federal Communications Commission denying to it and 

granting to Coast TV a permit to construct and operate a new 

television station in Santa Barbara, California. In each case 

the agency held that the appellant had failed to demonstrate 

that it had the reasonable assurance of financing needed to be 

awarded a permit. Neither appellant has shown that the 

Commission's decision concerning its financial showing was 

arbitrary and capricious or unsupported by substantial evidence. Because the appellants' challenges to the application 

filed by Coast TV also lack merit, we affirm the orders of the 

FCC.

I. Background

This proceeding began in 1984 when six companies applied 

for an FCC permit to operate a television station in Santa 

Barbara. Twelve years later only Mission, Solar, and Coast 

remained. After concluding that Solar and Mission were not 

financially qualified, the FCC gave the permit to Coast.

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A. Regulatory Background

Section 308(b) of the Communications Act provides that 

"[a]ll applications for station licenses ... shall set forth such 

facts as the Commission by regulation may prescribe as to 

the ... financial ... qualifications of the applicant to operate 

the station." 47 U.S.C. § 308(b). Until 1981 the FCC required an applicant to submit detailed documentation of its 

financial qualifications. That year, in a rare display of trust 

that it would later come to regret, the Commission switched 

to requiring the applicant simply to check "yes" or "no" next 

to the following statements on FCC Form 301:

1. The applicant certifies that sufficient net liquid assets 

are on hand or that sufficient funds are available from 

committed sources to construct and operate the requested facilities for three months without revenue.

2. The applicant certifies that: (a) it has a reasonable 

assurance of a present firm intention for each agreement 

to furnish capital or purchase capital stock by parties to 

the application, each loan by banks, financial institutions 

or others, and each purchase of equipment on credit; (b) 

it can and will meet all contractual requirements as to 

collateral, guarantees, and capital investment; (c) it has 

determined that a reasonable assurance exists that all 

such sources (excluding banks, financial institutions, 

and equipment manufacturers) have sufficient net liquid 

assets to meet these commitments." (Emphasis in original.)

Coast, Mission, and Solar all checked "yes" as to both statements. The regulations applicable to Form 301 advised 

applicants that "documentation supporting the attestation of 

financial qualifications ... must be available to the Commission upon request." Revision of Form 301, 50 Rad. Reg. 2d 

(P&F) 381, 388.

B. Factual Background

Before Mission filed its application with the FCC in 1984, 

its president Floyd D. Little met briefly with two officers of 

the Crocker National Bank in order to secure a tentative loan 

agreement. The bank was familiar with Little because it had 

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done business with his automobile dealership. Although no 

participant in the meeting, when questioned some eight years 

later, could remember any details, the record shows that 

shortly thereafter the bank sent a letter to Mission stating 

that it would be willing to lend Mission money for the 

television venture. Mission's general counsel found the 

bank's first letter too vague, whereupon the bank sent the 

following substitute letter:

The Crocker Bank could provide $2,000,000 in loans to 

Mission Broadcasting Corporation for the purpose of 

constructing a television station in Santa Barbara, California.

Subject to the foregoing, our willingness to lend this 

amount would be contingent upon the following and not 

limited to:

1. The Corporation successfully obtains approval from 

the Federal Communications Commission to construct 

and operate such television station in the Santa Barbara 

area.

2. (a) All reasonable, ordinary credit criteria of the 

Bank are met by the Corporation; (b) the Corporation 

receives a construction permit; (c) the Corporation requests a lending commitment from the Bank; (d) the 

Corporation executes all customary documentation normally required by the Bank for credits of this type, 

including opinions of attorneys and accountants, and 

guarantors and collateral documents acceptable to the 

bank.

As for Solar, its efforts to assure itself of financing were 

limited to a meeting between the company's principals and its 

outside attorney at which they discussed the amount of 

money needed to construct and operate the station. The 

lawyer told the Solar principals that another client of his, one 

Arnold Applebaum, might be willing to finance the venture. 

None of Solar's principals actually met with Applebaum, nor 

did they either seek or obtain any information about Applebaum's ability to finance the station. Applebaum did not 

enter into any agreement with Solar, and the Solar principals 

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*This court later held that the integration criterion was unlawful, 

Bechtel v. FCC, 10 F.3d 875 (1993). 

did not know exactly how Applebaum might help finance their 

station.

C. Procedural Background

Under the procedures of the Commission then in place, the 

Commission held a comparative hearing before an Administrative Law Judge in order to determine which of the competing proposals for the television station would best serve the 

public interest. In pre-hearing motions the ALJ considered 

and rejected Coast's challenge to Mission's financial qualifications. The ALJ also dismissed Coast's own application for 

failure to publish a notice of the proposed hearing. The 

Review Board reversed the latter decision and ordered the 

ALJ to hold a new hearing, in advance of which Coast would 

publish a proper notice. At the new hearing, however, Coast 

could simply enter the record of the old hearing. 102 

F.C.C.2d 718 (1985). This would allow Coast to cure its error 

by providing public notice of its application without forcing 

the parties to duplicate the testimony or pleadings of the first 

hearing.

After the second hearing the ALJ concluded that, based 

solely upon its quantitative integration creditsin plain English, the degree of overlap between ownership and management of the proposed stationCoast's application would best 

serve the public interest. 1 F.C.C.R. 34 (1986).* On appeal, 

the Review Board held that Mission was the comparative 

winner, 2 F.C.C.R. 2982 (1987), but the Commission in turn 

disagreed with both the ALJ and the Review Board with 

respect to the integration of ownership and management. 

4 F.C.C.R. 1786 (1989). Upon remand, the Review Board 

conditionally declared Solar the comparative winner, subject 

to the ALJ's determinations whether Solar had falsely certified its financial qualifications and whether it was in fact 

financially qualified. 5 F.C.C.R. 6720 (1990). In order to 

"preclude the possibility that similarly situated applicants 

could be afforded disparate treatment," the Review Board 

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directed the ALJ to consider whether he should also review 

Mission's financial qualifications. Id. at 6722.

The ALJ decided that Solar was not financially qualified 

and denied Solar's petition to amend its financial certification 

by introducing a proffered commitment letter from a bank. 

7 F.C.C.R. 1375 (1992). At the same time, the ALJ declined 

to look into Mission's financial certifications. The Review 

Board reversed the latter decision, 7 F.C.C.R. 6244 (1992), 

and after a further hearing, the ALJ decided that Mission 

was not financially qualified either. 9 F.C.C.R. 581 (1994). 

The Review Board affirmed the ALJ's decisions denying the 

applications of Mission and Solar and then granted the license 

to Coast, the only party left standing. 10 F.C.C.R. 2852 

(1995). The Commission denied review of the Board's decision, 10 F.C.C.R. 10623 (1995), and denied Solar's petitions 

for reconsideration and to reopen the record in order to 

consider additional issues. 11 F.C.C.R. 4074 (1996). Mission 

and Solar appealed to this court.

II. Analysis

Each appellant claims that the Commission erred in disqualifying it for failing to show that it had a reasonable 

assurance of financial backing at the time it checked the "yes" 

box on FCC Form 301. Solar acknowledges that it did not 

make a showing of reasonable assurance adequate under the 

Commission's standard but argues that that standard was 

excessively rigid and that Solar should have been allowed to 

amend its certification. Mission argues that the facts it 

presented to the Commission were sufficient under the agency's established standard for showing reasonable assurance. 

Both companies also contend that Coast's application should 

have been dismissed in 1985 for failure to comply with the 

public notice provision of the Communications Act. We may 

set aside the FCC's decision whether to dismiss an application only if that decision was "arbitrary, capricious, an abuse 

of discretion, or otherwise not in accordance with law." 5 

U.S.C. § 706(2)(A).

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**In its Application [to the Commission] for Review of the 

Review Board Decision, Solar raised the following objections: The 

Board's conclusion that Solar's initial financial certification was 

inadequate ignored substantial evidence in the record; the Board 

erred in looking at the financial qualifications of the applicants at 

the time they filed their applications rather than at the time the 

Board made its decision; the Board erred in holding that it did not 

retroactively apply a more stringent amendment policy; and the 

Board had no rational basis for awarding the broadcast permit to 

Coast rather than to Solar or to Mission. 

A. Solar

Solar argues that the Commission's decision must be reversed because the agency retroactively applied (1) a more 

rigorous standard of financial qualification to Solar's certification and, when Solar then petitioned to amend its certification, (2) a more stringent amendment policy. See CHM 

Broadcasting v. FCC, 24 F.3d 1453, 1457 (D.C. Cir. 1994) 

(reversible error when agency penalizes applicant based upon 

standard of which agency failed to provide notice). Solar 

never raised the first issue before the Commission, as required by § 405(a) of the Communications Act.** By failing 

to object that Solar failed to preserve the issue, however, the 

Commission has waived the point. See Petroleum Communications, Inc. v. FCC, 22 F.3d 1164, 1170 (D.C. Cir. 1994) 

(§ 405(a) is exhaustion requirement rather than jurisdictional 

prerequisite). Accordingly, we address both of Solar's arguments on appeal.

1. Standard of financial qualification

Although the Commission stated that Solar's application "is 

governed by the Commission's 1981 financial certification 

standards," 10 F.C.C.R. at 2853, Solar argues that the Commission actually applied the more rigorous standard of financial qualification developed in FCC cases that post-date Solar's 1984 application. It is true that the Commission has at 

times murmured and mumbled rather than enunciate clearly 

what Form 301 requires an applicant for a broadcast permit 

to show in order to certify its financial qualifications. See 

Northampton Media Associates v. FCC, 941 F.2d 1214 (D.C. 

Cir. 1991) (noting inconsistency). It is also true that the 

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fication. Nevertheless, Solar has not shown that the Commission failed to give it proper notice of what Form 301 

requires. Simply put, Solar's efforts to secure financing were 

so woefully inadequate that they must be deemed insufficient 

under any interpretation of FCC Form 301.

First, Solar made no serious effort to determine how much 

money it would need. An applicant cannot certify that "sufficient net liquid assets are on hand or available from committed sources to construct and operate the requested facilities 

for three months without revenue," as FCC Form 301 requires, if it has not determined how much money such an 

operation would require. Even worse than having no idea 

how much money it needed, Solar had no specific idea how it 

would get the money; no Solar principal ever met with 

Applebaum, its only purported source of funding. According 

to their own testimony, Solar's stockholders had conflicting 

ideas regarding how Applebaum might finance their ventureas a lender, guarantor, or by using his company as a 

source of equipment financingand Solar never called Applebaum as a witness. For all the record shows, Applebaum 

may be Solar's name for Santa Claus ... or Godot.

In addition, Solar took no steps to assure itself that Applebaum could have financed the venture. Yet FCC Form 

301 clearly states that when an applicant proposes to rely 

upon an individual in order to certify its financial qualifications the applicant must assure the FCC that "it has determined that a reasonable assurance exists" that the individual 

has "sufficient net liquid assets to meet these commitments." 

See CHM Broadcasting, 24 F.3d at 1457 (applicants must 

have "firsthand knowledge of the sufficiency of the assets 

upon which their personal certification is based"). Moreover, 

assuming that he has a deep enough pocket, Applebaum made 

no "commitments." In short, Solar's stress upon inconsistencies in the Commission's interpretation of Form 301 is but a 

red herring; Solar is unable to point to any Commission 

decision, before or after 1984, that is inconsistent with the 

facial requirements of Form 301 discussed above.

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2. Amendment policy

Solar's second argument is that the Commission erred in 

not allowing it to amend its certification in 1990 by introducing a newly-obtained bank letter as evidence of its financial 

qualification. Under the Commission's rules, once an application has been designated for hearing it may be amended "only 

upon a showing of good cause for late filing." 47 C.F.R. 

§ 73.3522(b). Since adopting its financial certification procedure in 1981 the FCC has generally required that an applicant "demonstrate that it had a reasonable assurance of 

financing at the time that it made its initial certification" 

before it will be permitted to amend its application. Pontchartrain Broadcasting Co. v. FCC, 15 F.3d 183, 184 (D.C. 

Cir. 1994).

Solar argues that this policy is inconsistent with the Commission's historical policy of liberally allowing amendments 

for "good cause." The Commission quite understandably 

modified its liberal amendment policy, however, in 1981 when 

it eliminated the requirement that each applicant submit 

detailed financial documents; the agency was concerned that 

an applicant would certify to its financial qualifications first 

and secure its financing only later. See id. at 185 (Commission's amendment policy directed at preventing applicant 

from certifying financial qualifications without any basis or 

justification). Solar itself acknowledged in its Petition for 

Leave to Amend that "where an applicant's certification has 

no objective basis ab initio, the applicant may not rely on a 

later financial commitment to support its earlier certification." 

For that very reason, the Commission reasonably denied 

Solar's request to amend its certification.

B. Mission

Mission first argues that the Commission was barred from 

considering its financial qualifications in 1992 because no 

party had excepted to the ALJ's determination in 1985 that 

Mission was financially qualified. Mission relies upon an 

agency rule that "[a]ny objection not saved by exception filed 

pursuant to this section is waived." 47 C.F.R. § 1.277(a). As 

the Commission points out, however, that rule is a limitation 

upon parties, not upon the agency itself, which is authorized 

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but not required (in § 1.279) "to limit its review of those 

issues raised in exceptions." See Marlin Broadcasting of 

Central Florida, Inc. v. FCC, 952 F.2d 507, 514 (D.C. Cir. 

1992) (although party waives objection not raised in exceptions, Commission may raise any objection sua sponte). Nor 

is it the case, as Mission alleges, that by raising the issue of 

Mission's financial qualifications the Commission was reconsidering a question that it had previously decided; only the 

ALJ had ruled in Mission's favor, and the Commission's 1989 

remand specifically instructed the Review Board to consider 

"any other decisionally significant matters." 4 F.C.C.R. at 

1789.

As a fallback, Mission contends that it was arbitrary and 

capricious for the Commission to raise the issue of its financial qualifications so many years after the ALJ had first 

determined that it was qualified. Mission asserts that it was 

prejudiced in that Mr. Little and the bank officers were by 

then unable to remember the details of their meeting. Mission would not have been prejudiced by the passage of time if 

it had relied more upon written documentation in order to 

certify its reasonable assurance of financial backing. Mission 

could at any time have asked the participants in the meeting 

to memorialize their accounts of the meeting, and presumably 

would have done so if the parties had reached any agreement 

beyond what is reflected in the bank's second letter to 

Mission. In short, although an applicant may rely upon oral 

testimony to demonstrate its financial qualifications, it does so 

at its peril.

In determining that Mission had failed to show that it was 

financially qualified, the Commission applied the test set out 

in Scioto Broadcasters, L.P., 5 F.C.C.R. 5158, 5160 (Rev. Bd. 

1990):

[I]n order for the Board to determine that an applicant 

has "reasonable assurance" of "committed sources of 

funds" from a lending institution, we will review the 

following factors: Whether (1) the bank has a long and 

established relationship with the borrower sufficient to 

infer that the lender is thoroughly familiar with the 

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borrower's assets, credit history, current business plan, 

and similar data, or (2) the prospective borrower has 

provided the bank with such data, and the bank is 

sufficiently satisfied with the financial information (e.g., 

collateral guarantees) that, ceteris paribus, a loan in the 

stated amount would be forthcoming and that the borrower is fully familiar with, and accepts the terms and 

conditions of the proposed loan (e.g., payment period, 

interest rate, collateral requirements, and other basic 

terms).

The Commission concluded that Mission could not show 

that it had a reasonable assurance of financial backing either 

through the letter it procured from the Crocker National 

Bank or through testimony concerning Little's meeting with 

officers of that bank. Crocker was familiar with Little, but 

the bank officers knew almost nothing about Mission, its 

other principals, or its plans. Mission argues that the Commission's decision conflicts with Multi-State Communications, Inc. v. FCC, 590 F.2d 1117 (D.C. Cir. 1978), in which we 

reversed the Commission's decision that an applicant for a 

broadcast permit had not demonstrated a reasonable assurance of its financial qualifications. In that case, however, the 

bank letter upon which the applicant relied had stressed that 

the bank was "personally and favorably acquainted with 

several of the [applicant's] stockholders" and that the bank 

expressly conditioned its intent to finance the applicant's 

venture upon the continuing participation of the stockholders 

named in the application. Id. at 1118. As the FCC points 

out, Crocker's letter to Mission evinces no such relationship 

between that bank and any of Mission's principals.

The Commission also notes that, unlike the letter at issue 

in Multi-State, neither the discussions between Little and the 

bank officers nor the letter from the bank addressed such 

basic provisions as the interest rate or term for the proposed 

loan. Mission argues that the FCC should not attach any 

significance to the specification of loan terms because the 

terms of any actual loan would ultimately be based upon 

market conditions when the loan was made. Surely, however, 

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the FCC did not err in thinking that even the terms reached 

tentatively between a bank and an applicant for a broadcast 

permit would reflect the bank's knowledge of and confidence 

in the shareholders and their business plan. For this reason, 

the Commission reasonably considers it important to see 

evidence that the applicant has come to terms with a bank (or 

other source of financing), albeit subject to a change in 

market conditions. The noncommittal and vague nature of 

Crocker's letter and the inability of Mission's witnesses to 

recall any more specific discussion with the bank provide 

substantial evidence in support of the Commission's determination that Mission failed to show that it was financially 

qualified to operate a television station.

Finally, Mission argues that even if its certification did not 

meet the standard announced in 1991 in Scioto Broadcasting,

the Commission's decision should still be vacated because that 

was a new standard that should not have been applied 

retroactively to Mission's 1984 application. Specifically, Mission argues that in cases decided prior to 1984 the Commission had accepted financial commitments that lacked any 

specific terms. The Commission correctly points out, however, that Mission did not make this argument before the 

agency and therefore cannot raise it now. See 47 U.S.C. 

§ 405(a). In a footnote to its Reply Brief, Mission would 

confess and avoid its waiver on the ground that its competitor 

Solar "explicitly raised the question of the Commission's 

changed standards."

The question then becomes whether Solar raised before the 

Commission the "identical issue" that Mission now wishes to 

present to the court. Natural Resources Defense Council v. 

EPA, 824 F.2d 1146, 1151 (D.C. Cir. 1987). As we have seen 

(at page 7 n.**) Solar argued before the Commission that the 

agency had retroactively applied to it a more stringent standard for determining whether an applicant may amend its 

financial certification. Solar's argument gave the Commission no occasion to pass upon Mission's quite different contention that the FCC required more detail for a bank letter to 

constitute a reasonable assurance of financing in 1992 than it 

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had required when Mission filed its application in 1984. 

Therefore Mission may not pursue that argument on appeal.

C. Coast

Both Mission and Solar challenge the FCC's 1985 decision 

allowing Coast to publish notice of a new hearing and to enter 

the record of the previous hearing at that new hearing. In 

addition Solar appeals the FCC's rejection of its motion to 

enlarge issues in order to inquire into the feasibility of 

Coast's proposed transmitter site.

1. Failure to give local notice

When an application for a broadcast station is formally 

designated for a hearing, the applicant must give at least ten 

days advance notice of that hearing in the principal area to be 

served by the station. 47 U.S.C. § 311(a)(2). Coast inadvertently failed to give such public notice and the day before the 

scheduled hearing Mission moved to dismiss Coast's application for that reason. The hearing began as scheduled. Seven 

days into the hearing Coast responded to Mission's motion by 

asking the ALJ to set a new date for the hearing, notice of 

which it would duly publish and at which hearing Coast would 

enter into evidence the record that had been compiled at the 

first hearing; Coast would also comply with whatever conditions the ALJ deemed necessary in order to avoid prejudice 

to any interested party.

The Commission had faced a similar situation in Martin R. 

Karig, 45 F.C.C. 625 (1963), and there approved the same 

remedy for an applicant's failure to publish notice of the 

hearing. Despite their attempts to distinguish Karig from 

the present case, neither Mission nor Solar has cast any 

doubt upon the reasonableness of the Commission's response 

to Coast's inadvertent and minor procedural oversight. The 

Commission's remedy violated neither the letter nor the spirit 

of the statutory requirement of notice. Other parties had 

given public notice of the first hearing, and by requiring 

Coast to provide an additional notice before the second hearing the Commission ensured that any party that may have 

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had an objection to Coast's proposal in particular was given a 

chance to make its view known.

Mission and Solar also argue that the Review Board was 

required, under 47 C.F.R. § 73.3594(h), to make a finding of 

special circumstances before allowing Coast to remedy its 

error by publishing notice of a second hearing. That regulation applies, however, only to an applicant that seeks a 

variance from the notice requirement. Coast did not seek 

such a variance; rather, it sought a second hearing before 

which it could comply with the notice requirement of the Act. 

Although Mission asserts that the Commission relied upon 

§ 73.3594(h) in its decision nonetheless and that the Commission's present explanation is a post hoc rationalization, the 

record does not support that charge. The Commission noted 

that it had generally been lenient in granting waivers of 

§ 73.3594, 102 F.C.C.2d at 720, but it so noted only as 

persuasive support for its decision to hold a new hearing in 

order to enable Coast to comply with the notice requirement. 

Thus the Commission's present argument is not a post hoc 

explanation of its decision; it is an argument raised in order 

to deflect Solar's appellate attack upon its decision.

2. Denial of Solar's motion to reopen the record

Finally, Solar contends that the Commission erred in denying its petition to reopen the record in order to consider 

whether Coast's proposal for its antenna tower and transmitter was adequate. The Commission will not reopen the 

record upon an applicant's belated request unless there is a 

substantial likelihood that if given the chance the petitioner 

could demonstrate a fatal flaw in a competitor's proposal. 

See Evergreen Broadcasting Co., 7 F.C.C.R. 6601, 6602 

(1992). The Commission concluded that Solar had proffered 

nothing more damning than the need for Coast to make some 

technical modifications to its antenna and transmitter proposal. 11 F.C.C.R. at 4075. On appeal Solar does not attack the 

FCC's reasoning or the standard that it applied. Rather it 

complains that if the Commission is to be lenient in dealing 

with possible engineering deficiencies in Coast's proposal, 

then it should be equally lenient in dealing with the financial 

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deficiencies in Solar's proposal. Because Solar's premise is 

flawedit has not shown that the Commission was "lenient" 

with Coastwe reject its argument at the outset.

III. Conclusion

For the foregoing reasons the FCC orders denying a 

broadcast permit to Mission and to Solar and granting the 

permit to Coast TV are

Affirmed.

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