Opinion ID: 399258
Heading Depth: 1
Heading Rank: 2

Heading: invalid bases of the fcc decision

Text: 16 At the outset, we hold that the FCC has stated at least three independent grounds for its ultimate finding that RKO should be disqualified as a broadcast licensee in Boston. 20 The Decision states that RKO's reciprocal dealings alone require disqualification, id. at P 92, that RKO's willful and repeated (financial) misrepresentation warrants disqualification by itself, id. at P 164, and that perhaps of greatest importance, RKO has demonstrated a persistent lack of candor with the Commission in these proceedings, id. at P 55(a). Our conclusion also follows from the structure and organization of the FCC Decision, which distinctly sets out findings of fact for each of these grounds and treats each of them as entirely separate. We must note that the FCC continues to struggle with the difficult art of drafting its opinions. In Leflore Broadcasting Co. v. FCC, 636 F.2d 454 (D.C.Cir.1980), for example, we emphasized that the Commission has some burden to express the basis for its actions carefully: 17 Where several violations are found, the Commission should set forth the role each plays in the assessment of penalty. Rarely should the agency be permitted to take a gestalt approach, one based upon a reaction to the overall situation rather than to each violation one at a time. 18 Id. at 463. Nevertheless, although we may not supply a reasoned basis for agency action that the agency itself has not given, courts will uphold a decision of less than ideal clarity if the agency's path may reasonably be discerned. Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 285-86, 95 S.Ct. 438, 442-43, 42 L.Ed.2d 447 (1974); WAIT Radio v. FCC, 418 F.2d 1153, 1156 (D.C.Cir.1969), cert. denied, 409 U.S. 1027, 93 S.Ct. 461, 34 L.Ed.2d 321 (1972). A fair reading of the Decision compels the conclusion that these three grounds are independent, and that in the FCC's view each one by itself required the disqualification of RKO as a licensee. 21 19 This preliminary observation is important because we have grave doubts about the sufficiency of two of these grounds to support the FCC's action. The Commission's findings on reciprocal trading display a disconcerting willingness to judge the behavior of broadcast applicants by standards that had not been clearly enunciated when that behavior occurred. The finding that RKO knowingly submitted inaccurate financial reports and thereby intended to mislead the Commission raises extremely troublesome questions because of the FCC's failure to give RKO notice and a hearing on that issue. Moreover, we agree with the Commission that General Tire's nonbroadcast practices, the fourth focus of the FCC Decision, are not disqualifying by themselves. Decision P 140. The remand on the other two license renewals is occasioned at least in part by the rejection of these decisional grounds, to whose inadequacies we now turn.
20 There are several reasons to doubt that reciprocal trade practices during the early 1960s can justify outright disqualification of RKO as a broadcast licensee in 1980. First and foremost, the conduct of RKO at issue has been found to be clearly improper only in retrospect. Although it has been understood since the 1930s that coercive reciprocity was anticompetitive, 22 it was not until the late 1960s that a series of judicial decisions began to cast increasing doubt on the legality and propriety of unleveraged mutual patronage agreements. 23 Even then, however, questions remained. 24 As late as 1979, the FCC itself recognized that a per se rule was probably inappropriate because it is still somewhat uncertain whether a non-coercive unleveraged reciprocal agreement ... necessarily and in every case is anticompetitive and a Sherman § 1 violation. Domestic Public Message Services, 73 F.C.C.2d 151, 161 (1979). As a result, although we are not in absolute agreement with RKO that the challenged conduct was undertaken in good faith, 25 the FCC's conclusion rests not on a fair reading of the contemporaneous law but upon a greater appreciation now for the adverse impact of reciprocal trade practices on the broadcast industry and thus on the public interest. Decision P 86 n.156. The FCC unquestionably has the authority and even the duty to change its mind as to the degree of anticompetitive practices that are not in the public interest. Greater Boston Television Corp. v. FCC, 444 F.2d 841, 852 (D.C.Cir.), cert. denied, 403 U.S. 923, 91 S.Ct. 2229, 29 L.Ed.2d 701 (1971). Such a finding may not be applied retroactively, however, to conduct that ceased almost fifteen years ago. Securities Exchange Commission v. Chenery Corp., 332 U.S. 194, 203, 67 S.Ct. 1575, 1580, 91 L.Ed. 1995 (1947). 26 21 We are particularly concerned that in retroactively applying its greater appreciation for the adverse effects of reciprocal trading, the FCC has abruptly reversed its decision to the contrary in RKO General, Inc. (KHJ-TV ), 44 F.C.C.2d 149 (1969), aff'd sub nom. Fidelity Television, Inc. v. FCC, 515 F.2d 684. That case held that essentially the same conduct was neither disqualifying nor ground even for a comparative demerit. 27 Failure to explain the reversal of directly controlling precedent is unlawful. See, e.g., Columbia Broadcasting System, Inc. v. FCC, 454 F.2d 1018, 1026 (D.C.Cir.1971); Melody Music, Inc. v. FCC, 345 F.2d 730, 732 (D.C.Cir.1965). Although an administrative agency is not bound to rigid adherence to its precedents, it is equally essential that when it decides to reverse its course, it must give notice that the standard is being changed ... and apply the changed standard only to those actions taken by parties after the new standard has been proclaimed as in effect. Boston Edison Co. v. FPC, 557 F.2d 845, 849 (D.C.Cir.), cert. denied sub nom. Towns of Norwood, Concord and Wellesley, Mass. v. Boston Edison Co., 434 U.S. 956, 98 S.Ct. 482, 54 L.Ed.2d 314 (1977). Although the FCC conditioned its first decision on RKO's reciprocal dealings on the possibility that significant new evidence might be introduced in the subsequent WNAC proceeding, such evidence never appeared. Additional evidence of reciprocal trading was heard in that second proceeding, but the bulk related to nonbroadcast activities by General Tire rather than RKO, and the remainder was merely cumulative of evidence in the first proceeding. 28 22 Finally, we doubt the Commission's claim that it can predict RKO's future character and performance from evidence concerning conduct that took place between 1961 and 1964. 29 Only the unusual nature of these proceedings allows the FCC to argue that such evidence is at all relevant. FCC precedents consider a licensee's behavior during the preceding license term relevant to renewal requests for the following term. Central Florida Enterprises, Inc. v. FCC, 598 F.2d 37, 43 (D.C.Cir.1978), cert. dismissed, 441 U.S. 957, 99 S.Ct. 2189, 60 L.Ed.2d 1062 (1979); Citizens Communications Center v. FCC, 447 F.2d 1201, 1208 (D.C.Cir.1971). RKO sought renewal of WNAC for the 1969-1972 term, and the FCC has failed to allege acts of reciprocity during the earlier term from 1966 to 1969. But RKO's renewal application for KHJ concerned the 1965-1968 term, thereby giving the FCC an excuse for claiming that conduct from 1962 to 1965 is precisely the conduct at issue. Brief for Appellee FCC (FCC Brief) at 36 n.59. Even so, the FCC acknowledges that the recency of misconduct is an important factor for purposes of character evaluation. Decision P 55(c); see Miami Valley Broadcasting Corp., 78 F.C.C.2d 684, 738-39 (1980). The Commission has not paid sufficient heed to that principle here. 23 Nothing in our opinion diminishes the force of the FCC's now clear statement that reciprocity by broadcast licensees is a prohibited practice. The Commission has laid down the rule that those who induce others to advertise on their stations for reasons unrelated to the station's programming or audience will do so at their peril. We agree that the purposes of the Communications Act are best served by leaving stations to obtain advertising and customers on the basis of their rates and audience, and that even unleveraged reciprocal trading distorts the normal free market process in the broadcast industry by which the demand for advertising time helps ensure that radio and television programming is responsive to public desires. See Decision PP 66-74. Competition in the broadcast industry means that a broadcaster should survive or succumb according to his ability to make his programs attractive to the public, FCC v. Sanders Bros., 309 U.S. 470, 475, 60 S.Ct. 693, 697, 84 L.Ed. 869 (1940), and reciprocity injects an extrinsic factor that breaks the link between program quality and revenues. This rule has now been articulated forcefully, and future violations should be treated with the firmness expressed by the FCC in this case. Nevertheless, this ground cannot justify disqualification of RKO for nonleveraged, mutual patronage agreements during the early 1960s.
24 The Commission's finding that RKO submitted intentionally false financial reports is equally insufficient to support RKO's disqualification. The Decision states that RKO knowingly certified to the Commission that certain financial reports were complete and accurate when RKO knew otherwise. Id. at P 164. The FCC's conclusion presumes that RKO's inaccuracies were either deliberate and intentionally deceptive, Big Valley Cablevision, Inc., 75 F.C.C.2d 702, 714 (1980); Kaye-Smith Enterprises, 71 F.C.C.2d 1402, 1415 (1979), or that RKO's reports were made with such wanton, gross, and callous disregard for their truth as to reflect the equivalent of such an affirmative and deliberate intent. Golden Broadcasting Systems, Inc., 68 F.C.C.2d 1099, 1106 (1978); see Leflore Broadcasting Co. v. FCC, 636 F.2d at 462. Despite the fact that RKO had consistently denied acting with such intent or disregard, the FCC brushed aside proffered RKO affidavits to that effect and drew adverse inferences without allowing RKO to defend itself in a hearing. Such a procedure was not lawful. 25 The FCC justifies its finding on the basis of the Special Report, which included numerous corporate admissions that RKO's recordkeeping had been sloppy and inaccurate. Specifically, General Tire conceded in the Special Report that RKO's accounting for trades and barters 30 had been incomplete for the previous five years. The FCC seized on the repeated attempts by RKO's controller to improve the recording of such information to infer that he had to know that RKO's barter information was inaccurate as early as 1972. Decision P 179. This inference was unwarranted. RKO's objections to such summary factfinding are well taken, because the admitted inaccuracy of the reports still left issues as to RKO's motive and intent that could only have been determined in what the FCC itself has called the crucible of an evidentiary hearing. Walton Broadcasting, Inc., 78 F.C.C.2d 857, 877 (1980). It is absurd to claim that RKO's underlying motives were not decisionally significant, and thus any supposed factual issue as to motivation was immaterial, FCC Brief at 111, when the issue is not whether the reports were inaccurate but whether they were knowingly so. Given RKO's sworn statements that it made no willful misrepresentations, it was error to deny RKO the timely opportunity to present live witness testimony with the bald statement that RKO's affidavits were not credible. Decision P 182. The FCC's finding turned on RKO's intent, and thus demands that the decision-maker weigh witness credibility. Nasem v. Brown, 595 F.2d 801, 807 (D.C.Cir.1979). Moreover, had the FCC formally designated this charge and given RKO a hearing in which to rebut it, the Commission would have had the opportunity to explore what possible reason RKO might have had for intentionally misreporting information that is apparently considered of minor significance by the FCC itself. 31 26 The Special Report does demonstrate a pervasive failure to maintain adequate records at RKO stations, a failure that does nothing to recommend RKO as a broadcast licensee. But it is a far leap from this to the finding that RKO intentionally or knowingly misrepresented financial information to the Commission. Section 309 of the Communications Act, 47 U.S.C. § 309(e) (1976), requires the Commission to hold a hearing in cases where a substantial and material question of fact is presented, and to specify with particularity the matters and things in issue but not including issues or requirements phrased generally. Whether RKO submitted inaccurate reports knowingly and with intent to mislead the Commission remains an unresolved and material question of fact, and it was therefore error for the Commission to disqualify RKO without following the procedures outlined by the statute. 32
27 The FCC found it unnecessary to reach the question of whether RKO would have been disqualified had the only adverse character evidence been that relating to General Tire's nonbroadcast misconduct. Decision P 140. Instead, the Commission found that General Tire's misconduct had an adverse effect on RKO's qualifications and lent substantial weight to the Commission's decision to disqualify RKO on each of the other grounds. Id. at PP 93, 140. We find nothing unlawful in this approach, although it raises other questions. 28 As General Tire's own admissions in the Special Report illustrate, its conduct in nonbroadcast fields hardly enhances RKO's character assessment. General Tire's misconduct, ranging from bribery and fraud abroad to the maintenance of secret cash funds for political contributions at home, inevitably casts a shadow on the character of its wholly owned subsidiary. We have no reason to doubt that General Tire is institutionally inclined to sacrifice obedience to law and proper business ethics in pursuit of corporate revenue and political influence. Decision P 2(f). Were RKO's owner a single individual as opposed to a corporation, it appears that a far lesser showing of character flaws would support disqualification. See, e.g., Wadeco, Inc. v. FCC, 628 F.2d 122, 128 (D.C.Cir.1980); Star Stations of Indiana, Inc., 51 F.C.C.2d 95 (1975). For reasons that are far from clear, however, the FCC seems to distinguish between misconduct by individual owners and misconduct by corporate entities. See, e.g., Katy Communications, Inc., 87 F.C.C.2d 764, 766-67 (1981); Southern Bell Telephone and Telegraph Co., 82 F.C.C.2d 322, 327 (1980); Cowles Florida Broadcasting, Inc., 60 F.C.C.2d 372, 406 (1976), rev'd on other grounds sub nom. Central Florida Enterprises, Inc. v. FCC, 598 F.2d 37 (D.C.Cir.1978), cert. dismissed, 441 U.S. 957, 99 S.Ct. 2189, 60 L.Ed.2d 1062 (1979); Kaiser Broadcasting Corp., 46 F.C.C.2d 589, 598 (1974). 29 It is difficult to discern any legitimacy for such differential treatment of individual as opposed to corporate owners. 33 It is to be hoped that pending FCC efforts to clarify the character standards to be applied in comparative hearings will cast more light on this point. See Policy Regarding Character Qualifications in Broadcast Licensing: Notice of Inquiry, 87 F.C.C.2d 836 (1981). In any event, the FCC has not tried in this appeal to increase the significance attached to corporate misconduct in nonbroadcast areas, see FCC Brief at 92 n.207, 132, nor could it have done so without first serving notice that its policy had changed. See Doubleday Broadcasting Co. v. FCC, 655 F.2d 417, 423 (D.C.Cir.1981) (The Commission may not decide a case one way today and a substantially similar one another way tomorrow, without a more reasonable explanation than is offered here.). The nonbroadcast misconduct of General Tire, egregious as it has been, has small practical significance in the FCC's decision to disqualify RKO. The importance of this corporate misconduct has not been inflated, and although the Commission appropriately weighed it against RKO, that misconduct has not been offered as a foundation for the denial of RKO's license renewals. 34 30 In short, three of the four areas on which the FCC focused in its Decision will not serve as a basis for RKO's outright disqualification, at least on this record. It is not necessary to underscore our criticism too pointedly, however. We uphold the Commission's disqualification of RKO in the Boston proceeding because we conclude that the Decision's ultimate basis, RKO's lack of candor before the FCC, fully and independently supports that judgment.