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Parties Involved:
Federal Communications Commission
Appellee
Marc D. Sobel
Appellant

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 6, 2004 Decided February 1, 2005

No. 02-1175

JAMES A. KAY,JR.,

APPELLANT

v.

FEDERAL COMMUNICATIONS COMMISSION,

APPELLEE

Consolidated with

No. 04-1045

Appeals of Orders of the

Federal Communications Commission

Barry Richard argued the cause for appellants. With him

on the briefs were Elliot H. Scherker. Robert J. Keller, and

Aaron P. Shainis.

Roberta L. Cook, Counsel, Federal Communications

Commission, argued the cause for appellee. With her on the

brief were John A. Rogovin, General Counsel, Austin C. Schlick,

Deputy General Counsel, and Daniel M. Armstrong, Associate

General Counsel. Jane E. Mago, Assistant General Counsel,

entered an appearance.

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Before: EDWARDS, SENTELLE, and RANDOLPH, Circuit

Judges.

Opinion for the Court filed by Circuit Judge RANDOLPH.

RANDOLPH, Circuit Judge: These are consolidated appeals

from orders of the Federal Communications Commission

sanctioning James A. Kay, Jr., and Marc D. Sobel for

intentionally trying to mislead the Commission, and for

engaging in an unauthorized transfer of control of Sobel’s land

mobile service facilities. Kay and Sobel argue that the

administrative record does not contain substantial evidence to

support the orders.

I.

Since the early 1980’s Kay has provided two-way radio

mobile service in the Los Angeles area through a sole

proprietorship -- Lucky’s Two-Way Radio. He held many land

mobile licenses pursuant to Part 90 of the Commission’s rules,

47 C.F.R. § 90.1 et seq., including 34 licenses in the 800 MHz

band. Sobel also was involved in the land mobile business in

and around Los Angeles. He too held licenses for commercial

land mobile radio stations, including 15 licenses on the 800

MHz band. 

In the early 1990’s the Commission received information

that Kay might have been evading certain regulatory restrictions

by conducting business under other names. One of the names

was “Marc Sobel dba Airwave Communications.” Other

information suggested additional violations. The Commission

may require licensees to submit written statements of fact

bearing on the question whether their licenses should be

revoked. 47 U.S.C. § 308(b). To that end, the Commission’s

Wireless Telecommunications Bureau sent Kay a letter in

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January 1994 requesting several categories of information,

including the identity of the stations for which Kay held

licenses and the stations Kay managed. Kay’s lawyer responded

with a series of demands and complaints, but supplied none of

the information the Bureau sought.

In December 1994 the Commission issued an order

designating issues for a hearing, including: (1) whether Kay had

violated § 308(b) by failing to provide the information

requested; (2) whether he had willfully violated Commission

rules governing station construction and operation; (3) whether

he had abused the Commission’s processes by filing applications

in multiple names to avoid complying with the channel sharing

and recovery rules; and (4) whether, in view of the evidence

adduced on those issues, Kay was fit to be a licensee. The order

identified 164 call signs subject to the hearing, eleven of which

were held in Sobel’s name.

About one month later, in January 1995, Kay filed a

sixteen-page motion with the administrative law judge assigned

to the case. Among other things, the motion requested deletion

of Sobel’s call signs from the hearing designation order. Kay’s

motion stated:

James A. Kay, Jr. is an individual. Marc Sobel is a

different individual. Kay does not do business in the name

of Marc Sobel or use Sobel’s name in any way. As shown

by the affidavit of Marc Sobel attached as Exhibit II hereto,

Kay has no interest in any of the licenses or stations held by

Marc Sobel. Marc Sobel has no interest in any of the

licenses or stations authorized to Kay or any business entity

in which Kay holds an interest. Because Kay has no

interest in any license or station in common with Marc

Sobel and because Sobel was not named as a party to the

instant proceeding, the presiding officer should either

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change the [Order] to delete the reference to the stations

identified as stations 154 through 164 . . . or should dismiss

the [Order] with respect to those stations.

In a signed affidavit accompanying his motion, Kay declared

under penalty of perjury that the statements in the motion were

“true and correct.”

Sobel’s affidavit, attached to the motion, stated:

I, Marc Sobel, am an individual, entirely separate and

apart in existence and identity from James A. Kay, Jr. Mr.

Kay does not do business in my name and I do not do

business in his name. Mr. Kay has no interest in any radio

station or license of which I am the licensee. I have no

interest in any radio station or license of which Mr. Kay is

the licensee. I am not an employer or employee of Mr.

Kay, am not a partner with Mr. Kay in any enterprise, and

am not a shareholder in any corporation in which Mr. Kay

also holds an interest. I am not related to Mr. Kay in any

way by birth or marriage.

The ALJ certified the matter to the Commission and the

Commission deleted Sobel’s licenses from the Kay proceeding.

Kay Modified HDO, 11 F.C.C.R. 5324 (1996). Thereafter, on

June 11, 1996, the Bureau sent a § 308(b) letter of inquiry to

Sobel, asking him for information about his business

relationship with Kay. Sobel Order, 17 F.C.C.R. 1872, 1873 ¶ 4

(2002). In his response, dated July 3, 1996, Sobel attached a

“Radio System Management and Marketing Agreement.” The

Management Agreement, originally executed by Sobel and Kay

in October 1994 and re-executed on December 30, 1994, set out

the terms under which Kay had been managing, during the

previous three years, fifteen of Sobel’s stations, licensed on the

800 MHz band. (Kay had given the Bureau a copy of the same

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agreement on March 24, 1995, in response to the Bureau’s

discovery request seeking all management agreements to which

Kay was a party.)

By early 1997, Sobel had 13 license applications pending

with the Commission. Rather than grant any of them, the

Commission designated them, and the licenses Sobel already

held, for a hearing to determine whether Sobel had transferred

control of the stations named in the Agreement to Kay, in

violation of § 310(d) of the Communications Act, 47 U.S.C.

§ 310(d). Marc Sobel, 12 F.C.C.R. 3298, 3300 (1997). Section

310(d) provides that no “station license, or any rights

thereunder, shall be transferred . . . to any person except upon

application to the Commission and upon finding by the

Commission that the public interest, convenience and necessity

will be served thereby.” The Commission later added another

issue: whether Sobel had misrepresented facts or lacked candor

in the affidavit he submitted in support of Kay’s January 1995

motion to remove Sobel’s licenses from the Kay hearing. Marc

Sobel, FCC 97M-82 (released May 8, 1997).

Sobel’s hearing, in which Kay intervened, was the first to

be completed. See Marc Sobel, 12 F.C.C.R. 22879 (ALJ 1997).

ALJ Frysiak determined that Sobel had illegally transferred

control of the stations identified in the Management Agreement.

The evidence showed that Kay was managing the stations; that

Kay had prepared Sobel’s license applications; that Kay

provided all the money and equipment to build the stations; that

Kay’s employees were involved in nearly all aspects of the dayto-day operation of the stations; that Kay paid all the expenses

of the stations; that the revenues from operations went into

Kay’s bank accounts; that Sobel received none of the operating

revenues; and that Kay had an option to purchase each of the

stations at any time for $500 each. 12 F.C.C.R. at 22901. ALJ

Frysiak also found that, in light of this evidence, Sobel’s

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statement in his affidavit that Kay had “no interest” in any of his

radio stations or licenses was “intended to mislead and deceive

the Commission with respect to Kay’s actual role in the affairs

of Sobel’s 800 MHz stations.” The evidence also showed that

Sobel, in response to problems identified in his applications,

provided the Commission with customer invoices for the

stations listed in the Agreement. On the invoices, Kay had

masked out the name and address of “Lucky’s Two Way

Radio”-- a name under which Kay conducts business. ALJ

Frysiak found that both Sobel and Kay thought it crucial to

withhold this information, which would have revealed to the

Commission that Kay and Sobel were “not as independent of

one another as Sobel has claimed.” Id. at 22902, 22898-99. The

ALJ concluded that all of Sobel’s licenses designated for the

hearing should be revoked and that his applications should be

denied. 

Nearly two years after the ALJ’s decision in Sobel’s case,

ALJ Chachkin issued his decision in Kay’s case. James A. Kay,

Jr., FCC 99D-04, 1999 WL 700534, ¶ 223 (ALJ, released Sept.

10, 1999). ALJ Chachkin accepted the ruling in the Sobel case

that Kay had participated in an unauthorized transfer of control

of Sobel’s stations. But he found “entirely credible” Kay’s and

Sobel’s testimony that they had not intended to deceive the

Commission about their business arrangement. ALJ Chachkin

also accepted as “entirely reasonable and credible” Kay’s

testimony that when his motion stated he had no “interest” in

Sobel’s “licenses or stations,” he meant that he had no

“ownership interest” in any “station license” held by Sobel. He

discounted the findings in the Sobel hearing, believing them

“tainted” because the Bureau had “deliberately concealed” from

ALJ Frysiak the fact that Kay had produced the Agreement in

March 1995, in response to a discovery request. Id. at ¶¶ 168-

69, 210.

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The Commission considered the Sobel and Kay cases

concurrently and issued decisions in both cases on the same day.

For reasons we will discuss in a moment, the Commission found

that Sobel had engaged in an unauthorized transfer of control of

the stations listed in the Agreement, in violation of § 310(d), that

Sobel and Kay lacked candor when they denied that Kay had an

interest in Sobel’s stations, and that Kay violated § 308(b) when

he failed to provide information the Bureau requested. One

Commissioner dissented from the findings regarding lack of

candor and § 308(b). As sanctions for Sobel’s two violations,

the Commission revoked his licenses listed in the Management

Agreement, and denied all of his pending 800 MHz applications.

With respect to Kay, the Commission revoked his 25 licenses in

the 800 MHz band and assessed a $10,000 forfeiture for failing

to comply with § 308(b). (Kay does not challenge the

forfeiture.)

II.

We will discuss first the Commission’s determination that

there had been an unauthorized transfer of control of Sobel’s

stations to Kay, in violation of § 310(d), a determination that

bears heavily on the lack of candor question. Kay and Sobel

argue that there is no substantial evidence that they engaged in

a transfer of control because Sobel retained a proprietary interest

in the stations, had unfettered access to the facilities, regularly

visited the transmitter sites and gave Kay only an option to

purchase the stations. 

The evidence Kay and Sobel mention may point against the

Commission’s conclusion, but that is not the test. “Substantial

evidence,” in the sense used in the Administrative Procedure

Act, 5 U.S.C. § 706(2)(E); see 47 U.S.C. § 402(e), is the amount

of evidence constituting “‘enough to justify, if the trial were to

a jury, a refusal to direct a verdict when the conclusion sought

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to be drawn . . . is one of fact for the jury.’” Illinois Cent. R.R.

v. Norfolk & W. Ry., 385 U.S. 57, 66 (1966), quoting NLRB v.

Columbian Enameling & Stamping Co., 306 U.S. 292, 300

(1939); see Ass’n of Data Processing Orgs., Inc. v. Bd. of

Governors of the Fed. Reserve Sys., 745 F.2d 677, 684 (D.C.

Cir. 1984). Adhering to its decision in Intermountain

Microwave, 24 Rad. Reg. (P&F) 983, 984 (1963), the

Commission considered evidence bearing on six factors to

determine whether Sobel had transferred control of the

Management Agreement stations to Kay. On the first factor, it

agreed with Sobel that he had unfettered access to the stations.

On the second factor -- who controls the daily operations of the

stations -- the evidence was overwhelming that Kay did. The

Management Agreement provided as much: Kay’s duties

included “all administrative and office functions” and “all

management functions.” In addition, under the Agreement Kay

was the “sole and exclusive supplier of all equipment and

labor.” The third Intermountain factor asks who determines and

carries out policy decisions and prepares and files applications

with the Commission. The evidence showed that Kay prepared

Sobel’s applications, set billing rates, and arranged for the

acquisition of stations. The fourth factor asks who is in charge

of personnel. Sobel had no employees; all of the employees at

the Management Agreement stations were Kay’s. The fifth

factor asks who is in charge of financing. Here again the

evidence showed that Kay was in charge. For instance, the

Management Agreement relieved Sobel of liability for the

operation and construction of the stations; Kay paid all the

operating expenses; and Kay purchased all the equipment. The

sixth Intermountain factor asks who receives profits from the

operation of the stations. The Commission pointed to evidence

that all revenues from operation of the stations had been

deposited into Kay’s account and that Sobel had received

nothing in his capacity as an owner of the stations. Under the

Management Agreement, revenues could be shared equally

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between Kay and Sobel if the stations generated enough profit,

but that had not occurred. The Commission viewed this

arrangement as “in the manner of partners.” Sobel Order, 17

F.C.C.R. 1872, 1884 ¶ 45 (2002).

In the face of this evidence, there is no doubt that a

reasonable jury, instructed on the law set forth in Intermountain,

could have reached the same conclusion as the Commission --

that Sobel had transferred control of his stations to Kay without

Commission authorization. See Allentown Mack Sales & Serv.,

Inc. v. NLRB, 522 U.S. 359, 366-67 (1998).

This brings us to the Commission’s finding that Kay and

Sobel lacked candor with respect to their business relationship.

Because effective regulation depends on the information

licensees provide to the Commission, see Leflore Broadcasting

Co., v. FCC, 636 F.2d 454, 461 (D.C. Cir. 1980), the

Commission defines lack of candor to include not only

providing false information but also “concealment, evasion or

other failure to be fully informative accompanied by an intent to

deceive.” TrinityBroad. of Fla., Inc., 10 F.C.C.R. 12020, 12063

(1995). While Kay and Sobel have several arguments against

the Commission’s lack of candor findings, their principal

contention is that they did not intend to deceive and that the

Commission erred in not accepting ALJ Chachkin’s finding that

their testimony to this effect was credible.

The law is settled that an agency is not required to adopt the

credibility determinations of an administrative law judge. This

much follows from § 557(b) of the APA: “On appeal from or

review of the initial decision, the agency has all the powers

which it would have in making the initial decision . . . .” On

questions of facts, an agency reviewing an ALJ decision is not

in a position analogous to a court of appeals reviewing a case

tried to a district court. See Rule 52(a), FED. R. CIV. P. The

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Supreme Court, in Universal Camera Corp. v. NLRB, 340 U.S.

474 (1951), rejected the idea that an agency must accept an

ALJ’s findings unless those findings are clearly erroneous. This

is so even if the ALJ’s findings rested on his evaluation of the

credibility of the witnesses. FCC v. Allentown Broad. Corp.,

349 U.S. 363-64 (1955). Although the agency may give much

weight to an ALJ’s credibility determinations, the question for

the reviewing court remains the same whether the agency agrees

or disagrees with the ALJ -- is the agency’s decision supported

by substantial evidence. The rejected factual determinations of

the ALJ are simply a factor for the reviewing court to consider

in its substantial evidence inquiry. See Universal Camera, 340

U.S. at 496-97; Swan Creek Communications, Inc. v. FCC, 39

F.3d 1217, 1222 (D.C. Cir. 1994); WHW Enters., Inc. v. FCC,

735 F.2d 1132, 1141 (D.C. Cir. 1985).

Here, of course, the Commission faced conflicting findings

by two ALJs who heard essentially the same testimony. Kay

and Sobel stress that only ALJ Chachkin made express

credibility determinations. This is true, but it does not render his

findings more deserving of credit. As the Commission

recognized, ALJ Frysiak’s findings clearly rested on his

disbelief of Kay’s and Sobel’s testimony. FCC Decision (James

A. Kay), 17 F.C.C.R. 1834, 1860 ¶ 86 (2002). Nor did the

Commission err in rejecting the ALJ Chachkin’s findings on the

ground that the proceedings before ALJ Frysiak were somehow

tainted in view of the Bureau’s failure to reveal that Kay, in

response to a production of documents request, had given a copy

of the Management Agreement to the Bureau at the end of

March 1995. ALJ Chachkin made much of this supposed

“scheme” and accused the Bureau of misleading ALJ Frysiak.

The Commission gave two responses, both of which were

sufficient. First, Kay’s production of the Agreement in March

was not material. It is conceded that neither he nor Sobel

supplied a copy of the Agreement with the January 1995

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pleading and affidavit that stands at the center of their lack of

candor. Second, the record shows that Sobel brought Kay’s

production to ALJ Frysiak’s attention. He requested the Bureau

to admit receiving the document (ALJ Frysiak denied the

request as irrelevant) and he requested the ALJ to take official

notice of Kay’s production.

As to the rest of the evidence bearing on lack of candor, the

record as a whole demonstrates ample support for the

Commission’s conclusions. The affidavit and the pleading were

false and misleading. Kay, in the pleading, and Sobel, in his

affidavit, denied that Kay had any “interest” in Sobel’s licenses

and stations. As the evidence relating to transfer of control

shows, Kay had a very substantial interest in Sobel’s stations.

Kay and Sobel testified that when they used the word “interest”

they meant an ownership interest and that their statements were

therefore accurate because Sobel retained ownership of his

licenses. But what of the stations? According to their

testimony, they meant to refer only to ownership of Sobel’s

radio station licenses, not the stations themselves. Excerpts

from July 29, 1997 Hearing Transcripts in WT Docket No. 97-

56, reprinted in JA 532 (testimony of Marc Sobel); Excerpts

from Jan. 19, 1999 Trial Transcript in WT Docket No. 94-147,

reprinted in JA 1043 (testimony of James Kay). The

Commission was entitled to reject that testimony. At the least,

the Commission could find that the statements they filed were

misleading and intentionally so. The sheer implausibility of

their explanations; their motive to divert the Bureau’s

investigation, which threatened to uncover the unauthorized

transfer of control; the fact that they discussed the meaning of

the word “interest” before they filed the pleading and affidavit;

the fact that Kay told Sobel the word meant “a direct financial

stake,” which describes Kay’s relationship to Sobel’s stations --

all this, and more, convince us that substantial evidence

supported the Commission’s findings of lack of candor. In other

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respects the Commission found the statements filed in January

1995 misleading, but it is unnecessary to discuss why we find

substantial evidence to support those findings. It is enough to

point out that “the Commission must rely heavily on the

completeness and accuracy of the submissions made to it, and its

applicants in turn have an affirmative duty to inform the

Commission of the facts it needs in order to fulfill its statutory

mandate.” RKOGen., Inc. v. FCC, 670 F.2d 215, 232 (D.C. Cir.

1981). The Commission reasonably concluded that Kay and

Sobel intentionally failed to perform their affirmative duty in

their attempt to remove Sobel’s licenses and stations from the

original hearing on Kay’s fitness to be a licensee.

Affirmed.

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